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Showing 321 to 340 of 1466 Records
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2024 (6) TMI 1146
TP Adjustment - International Transaction in respect of Management & Support services - whether Tribunal was justified in law in not appreciating the fact that the benefit test for intra group services ought to be evaluated every year and that reliance on subsequent years APA agreement to hold that the alleged services meet the benefit test criteria ? - whether the Tribunal was justified in law in not appreciating the fact that the assessee is making payment to its foreign AE for those alleged services which are stewardship in nature and therefore the arm’s length price for such services should be Nil ? - functional comparability of the company as identified by the TPO and affirmed by DRP holding inter alia that the principle laid down in the APA for the subsequent year should be followed ?
HELD THAT:- In the light of the certain subsequent developments, the substantial questions of law raised in this appeal are not required to be considered and answered. The order passed by the learned Tribunal in [2020 (12) TMI 551 - ITAT KOLKATA] have been given effect to and an order has been passed on the said effect. In the light of the same nothing further survives to adjudicate in this appeal. Accordingly, the appeal stands disposed of and substantial questions of law are left open.
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2024 (6) TMI 1145
Ex parte order - HELD THAT:- We find that the learned lower authorities have given enough opportunities to the assessee to present its case but on all the occasions the assessee has not presented the case before them and therefore there is nothing wrong in the orders passed by the lower authorities. They have also provided enough opportunities to the assessee and therefore the passing of the ex parte order by the learned lower authorities cannot be found fault with. Accordingly ground number 1 and 2 of the appeal is also dismissed.
High-pitched assessment - As stated that the order passed by the learned lower authorities is illegal being high-pitched, the assessee has not given any evidence that why it is a high-pitched assessment the income of the assessee is assessed merely at Rs 256,184/– and therefore same is not high-pitched. Accordingly ground of the appeal is dismissed.
Tax credit denial - All the persons who have paid manpower services to the assessee, has deducted tax at source. The ld. AO should verify from each of such person to confirm whether the TDS made by them is correct and such services are rendered by the assessee by issuing summons u/s 131 or by issue of notices u/s 133 (6) of the act. AO may also examine them.
As huge TDS is outstanding which needs to be refunded to the assessee, AO may also issue summons to the parties u/s 131 based on the TDS details available in form no 26AS also. If those parties confirm that they have paid the amounts to the assessee and necessary services have been provided by the assessee, the assessee should be granted credit for such taxes paid. This direction is necessary in order to verify whether the claim of TDS refund of the assessee is genuine or not in view of allegation of the AO which were not disproved by the assessee.
In case ld. AO finds that there are no services provided by the assessee then in those circumstances, AO may take any action against the beneficiaries of such bogus bills and also against the assessee company. As assessee failed to substantiate its return before ld AO and CIT (A), We direct the assessee to produce before ld AO the directors of the company along with books of accounts to show that TDS belongs to the company for rendering necessary services with all the TDS certificates , copies of the bills and nature of services and how those services are rendered, within 90 days of receipt of this order. If the ld. AO is satisfied with such a huge claim of TDS of the assessee, same should be granted to assessee along with interest. Accordingly ground number 4 of the appeal is allowed with above directions.
Proof of transactions and services rendered - This is a conduit company operated by one accommodation entry provider. This is the finding of the fact arising on the basis of search. No contrary evidence is provided before us. However, in the interest of justice we set aside this ground of appeal back to the file of the AO with direction to the assessee to prove before the AO by producing directors of the company, necessary proof of services rendered, necessary proof of all kind of transactions entered by the assessee, along with the list of creditors, debtors stating their address PAN and where those are assessed.
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2024 (6) TMI 1144
Addition u/s 68 - unexplained share capital /share premium - AO during the assessment proceedings called for various documents and evidences qua the issue of share capital/ share premium which were accordingly filed comprising the copies of ITRs, audited accounts, share application forms, share allotment letters, bank statements, memorandum of articles of associations etc. in respect of each of the share holders - HELD THAT:- The assessee has justified the issuance of share capital at a premium as the money collected were to be invested in M/s Delsey India Pvt. Ltd. which was a joint venture between M/s Sapphire Trade Associates pvt. Ltd. and M/s Delsey India Pvt. Ltd. with 49% & 51% share respectively.
We find that the AO has made the addition on basis of observations that the assessee is a new company formed in AY 2014-15 as recorded in the assessment order wheresas is wrong as the assessee is an old company. Besides these the general observations given by the AO without pointing out any specific defect or deficiency on the evidences and explanation furnished by the assessee is wrong.
We note that the AO has made detailed investigation/enquiry even by issuing notice u/s 133(6) and 131 of the Act which were duly responded and complied with by all the subscribers. As the assessee has proved the identity, creditworthiness and genuineness of the transactions besides the fact that the revenue itself has accepted the issuance of equity shares to these parties to be genuine in AY 2016-17.
We are unable to agree with the conclusion drawn by the CIT(A) upholding the order of AO by completely ignoring the facts on record and consequently we set aside the order of CIT(A) and direct the AO to delete the addition. Appeal of the assessee is allowed.
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2024 (6) TMI 1143
Validity of reopening of assessment u/s 147/148 - proceedings initiated after the end of four years - assessee has claimed long term capital gain from sale of a scrip and claimed exemption u/s 10(38) - whether the AO had a reasons to believe and not merely reason to suspect that any income chargeable to tax has escaped from levy of tax for the reasons of failure on the part of the assessee?
HELD THAT:- The records reveal that the assessee had already declared the transactions of purchase and sale of equity shares of VMS Industries Ltd., in its original return, it had earned short term capital gain of Rs. 57,46,787/- and duly offered tax u/s 112 of the Act. Further this return has already been scrutinised by the ld. Assessing Officer and all the details were available before him during the course of scrutiny proceedings.
Now, examining these facts we find that firstly AO failed to record proper reasons to reopen the case as ld. Assessing Officer has not made any application of mind before issuing the notice and he ought to have examined the original return filed by the assessee before issuing the notice for reopening. No such exercise has been done at the end of the AO. The reasons to believe are not proper and it merely is a case of reason to support or merely change of opinion. Above all, the main allegation against the assessee as per the information received from the investigation wing that the assessee had claimed exemption u/s 10(38) of the Act is also incorrect.
Since the AO failed to adhere to the conditions laid down u/s 147 for reopening of the proceedings, the assessment order in question is held to be void ab initio, illegal and, is hereby quashed. Accordingly, the re-opening proceedings carried out in the case of the assessee are quashed. Appeal of the assessee is allowed.
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2024 (6) TMI 1142
Addition u/s 68 - unexplained share capital/share premium - no compliance to the summons issued u/s 131 - AO upon examination of the details filed by the assessee observed that during the year the assessee has issued equity shares at a premium and there is no business activity or book value / EPS and therefore there is no justification for issue of shares at premium - HELD THAT:- AO has wrongly stated in the assessment order that there was no compliance to the summons issued u/s 131 of the Act. We also note that both the investors have good earnings and net worth and even the source of source was proved by the investing companies. Therefore the authorities below have not done any verification or conducted any enquiry into the evidences filed by the assessee and merely harped on the non compliance of summons issued u/s 131 of the Act. Even in case we accept the observation of the AO as to non compliance of the summons u/s 131 of the Act by the assessee and also non productions of the directors of the investing companies even then the AO cannot make addition on the sole basis of non compliance.
The case of the assessee is also squarely covered by the decisions of Crystal Networks Pvt. Ltd. [2010 (7) TMI 841 - KOLKATA HIGH COURT] wherein it has held that where all the evidences were filed by the assessee proving the identity and creditworthiness of the loan transactions , the fact that summon issued were returned unserved or no body complied with them is of little significance to prove the genuineness of the transactions and identity and creditworthiness of the creditors.
Similar ratio has been laid down in the case of CIT Vs Orchid Industries (P) Ltd [2017 (7) TMI 613 - BOMBAY HIGH COURT] by holding that provisions of section 68 cannot be invoked for the reasons that the person has not appeared before the AO where the assessee had produced on records documents to establish genuineness of the party such as PAN, financial and bank statements showing share application money. Decided in favour of assessee.
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2024 (6) TMI 1141
Penalty order passed u/s 271(1)(c) - bogus long term capital gain u/s 10(38) - Mandation to record specific charge against assessee before initiating penalty - HELD THAT:- We find that the assessee has disclosed all the facts of having earned long term capital gain from sale of shares.
The case of the assessee was reopened by issuing notice u/s 148 for the reasons that the assessment has escaped due to claim by the assessee u/s 10(38) qua long term capital gain. In the assessment proceedings, the assessee offered the said income to tax by filing revised computation. Thereafter the AO simply brought the said capital gain to tax and initiated the penalty proceedings u/s 271(1)(c ) without recording any satisfaction framing the charge whether the initiation of penalty proceedings was for concealment of income or for filing inaccurate particulars of income though in the notice issued u/s 271(1)(c) the AO stated that “It appears that you have concealed the particular income”.
Thus it clear from the above that the AO was himself not sure as to the charge of penalty. In our opinion, the said approach of the AO in making assessment without framing the charges and issuing notice without being sure as to levy of penalty on particular charge is not permissible under the Act.
AO has failed to demonstrate that the claim of the assessee was false during the assessment proceedings or during the penalty proceedings.
As in the case Chetan Kumar Tekriwal (HUF) [2023 (12) TMI 276 - ITAT KOLKATA] following the decision of Reliance Petroproducts Pvt. Ltd.. [2010 (3) TMI 80 - SUPREME COURT] wherein as held that the assessee has fully disclosed the particulars in the return of income, then the assessee is not liable for penalty proceedings on the ground that disclosures made by the assessee are not made as per the provisions of the Act or are not acceptable to the revenue. Therefore, we are inclined to set aside the order of Ld. CIT(A) and direct the AO to delete the penalty. Decided in favour of assessee.
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2024 (6) TMI 1140
Penalty leviable u/s 271(1)(C) - assessee has not filed the return of income under section 139 of the act despite having taxable income and having interest income from various investments - income offered consequent to reopening notice - as per revenue had the revenue not reopened the case, the total income would have remained untaxed, therefore he is satisfied that any person who has concealed the particulars of income or furnished inaccurate particulars of such income, the penalty is leviable
HELD THAT:- In this case there is no dispute that assessee has earned income from one party on which tax is deductible at source u/s 195 of the act. The payer of the interest has deducted tax at the source at the rate of 10% instead of 12.5%. The assessee as soon as the notice under section 148 was received immediately offered the same income and also paid the balance tax due. Special provisions relating to certain income of non-resident as provided under Chapter XII A of the act is applicable to the assessee.
According to provisions of section 115G non-resident assessee is not required to file her return of income u/s 139 (1) if total income in respect of which she is assessable under this act during the previous year consisted only of investment income or income by way of a long-term capital gain or both and tax deductible at source under the provisions of chapter XVII B has been deducted from such income. There is no dispute that assessee is a non-resident, she is deriving only investment income and tax is deductible at source on such income.
Only dispute is that tax deductible at source is at the rate of 12.5% whereas the deductor has deducted tax at the rate of 10%, therefore, the return of income was not filed - On detection, on receipt of notice under section 148 of the act, assessee offered that income and also paid the balance tax of 2.5% on that income which is arising due to shortage of tax deducted at source. Therefore the assessment is made at the returned income. But AO considered that there is a concealment of income. We find that there is an error made by the deductor and not the deductee i.e. assessee. For this, the assessee could not have been penalized for levy of penalty under section 271(1)(C) of the act.
Honourable Supreme Court in case of PRICE WATERHOUSE COOPERS (P.) LTD. [2012 (9) TMI 775 - SUPREME COURT] in reopened assessment proceedings on a genuine mistake or omission, reassessment order was passed on the assessee paid due tax thereon as along with the interest, it was held that absence of due care does not mean that assessee is guilty of either furnishing inaccurate particulars or attempting to conceal its income. In that case the contents of the income are already available in the tax audit report.
In the present case also the details of the income and tax deducted thereon is already available with the assessing officer in form number 26AS based on which reopening of the assessment was made. Assessee also paid due tax immediately in response to notice under section 148 of the act. In the present case it is also not the error of the assessee but the error of the tax deductor from whom interest income is received. In the case the inadvertent error also gain be on account of the person who paid interest to the assessee of deducting tax at lower rate but not on part of the assessee.
Similarly High Court in case of CIT versus Hans Christian Gass [2012 (8) TMI 146 - BOMBAY HIGH COURT] - Reliance by the lower authorities on the decision of Mak data[2013 (11) TMI 14 - SUPREME COURT]is misplaced because in that case The surrender of income on this case is not voluntary in the sense that the offer of surrender was made in view of detection made by the Assessing Officer in the search conducted in the sister concern of the assessee. In that situation, it cannot be said that the surrender of income was voluntary. Thus the facts in that case are distinguishable
Thus we find that the learned lower authorities are incorrect in imposing penalty under section 271(1)(C) - Decided in favour of assessee.
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2024 (6) TMI 1139
Validity of the assessment - no notice issued u/s 143(2) by the prescribed authority - HELD THAT:- As decided in [2024 (6) TMI 673 - ITAT MUMBAI] notice issued u/s 143(2) of the Act in the case of the assessee by the prescribed authority i.e NaFAC is in accordance with the provision of the Act , therefore, we don’t find any merit in this ground of appeal of the assessee and the same stand dismissed.
Rate of tax applicable to domestic companies - scope of non-discrimination clause of India-France Tax Treaty - This issue has recurring history and it is coming from A.Y. 2001-2002 to A.Y. 2020-2021 and in all these years this issue has been decided against the assessee and in favour of the Revenue. In [2024 (6) TMI 673 - ITAT MUMBAI] as referred to the Explanation in the Section 90, inserted in the IT Act with retrospective effect from 01-04- 1962 as per which the higher tax rate in case of foreign company, should not be regarded as violation of non-discrimination clause. The Tribunal also referred to the judgment of the Hon'ble Supreme Court in the case of ACIT Vs. J.K. Synthetics [2001 (2) TMI 17 - SUPREME COURT] Tribunal accordingly, rejected the ground raised by the assessee correctly.
Taxability of data processing fees paid by the assessee to its overseas branch - This issue also of recurring issues coming from A.Y. 2005-2006 to A.Y.2020-2021 and the co-ordinate Bench in [2024 (6) TMI 673 - ITAT MUMBAI] wherein as held that the department was not justified in taxing the data processing charges to the Singapore Branch of the assessee by applying the provisions of Article 13 of the India-France Tax Treaty.
In effect thus, reversing the stand of the DRP, the coordinate bench has come to the conclusion that the payment on account of data processing charges paid to BNP Singapore cannot be taxed in the hands of the assessee. The conclusion arrived at by the coordinate bench, whatever may have been the path traversed by the coordinate bench to reach this point, are the same as arrived at by us. Decided in favour of assessee.
Taxability of interest paid by branch office to Head Office / overseas branches - This is also a recurring issue coming from A.Y. 2001- 2002 to A.Y. 2020-2021 and the co-ordinate Bench has considered this issue as held clear from the provision of DTAA that interest income of the non-resident (head office) shall be taxable under Article 12 of the DTAA only when such head office shall not having any PE in India wherein branch (PE) is established in India then the provision of Article 7 only shall apply and Article 7 deal with taxability of only profit attributable to the PE branches of such overseas head office. Further, the debt regarding claim mean the some money due from one person to another. Since, in the case of the assessee branch has borrowed from the overseas head office, therefore, debt claim of the head office is connected to the PE branch in India, therefore, in the present case interest received by head office from its branches in India is not taxable in the hands of the head office in view of the provision of DTAA - Decided in favour of assessee.
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2024 (6) TMI 1138
Addition of income - difference between the turnover/receipts as per the Income-tax return ['ITR'] Form/ Financial Statements and service tax/ GST return - Assessee submitted that it follows cash system of accounting and therefore only the fees which is received during the year can be considered as income whereas service tax as well as GST are based on invoices issued and not on the basis of fees collected which gives rise to a difference - HELD THAT:- We note that in the assessment order itself, ld. Assessing Officer has stated that submission of the assessee is found satisfactory. He has also stated that assessee has explained the difference. Assessee has furnished the details with explanations and documentary evidence to reconcile the difference alleged by the ld. AO. Assessee had also moved an application u/s. 154 to rectify the mistake on a premise that ld. Assessing Officer had made the addition under a mistaken notion which is pending for disposal.
From the details furnished and extracted above, we note that there are out of pocket expenses which has been subjected to service tax/GST, there are intra firm invoices which are disclosed in service tax returns and forms part of the aggregate turn over as per Service Tax law. However, in financials these intra-firm invoices are both income and expenses and are netted off in profit and loss account, since it is income and expense pertaining to same assessee firm.
Assessee follows cash method of accounting and only the fees which is received during the year is considered as income whereas for the purpose of service tax and GST, the gross receipts/turnover is based on invoices issued and not on the basis of fees collected. Considering all these facts on record supported by documentary evidences, we find the reconciliation furnished by the assessee is justified. Accordingly, the difference between the gross receipts/turnover as per the ITR and service tax added by the ld. Assessing Officer is deleted. Ground no.1 alongwith with its sub grounds are allowed.
Addition made for payments made to retired partners - HELD THAT:- The undisputed facts are that assessee firm made payment to retired partners in terms of its partnership deed where in the basis is that partner would have rendered their professional services during his tenure as a partner but could not enjoy the fruits thereof on account of work having remained incomplete and the concerned client could not be billed for the work already done.
Considering all we delete the addition made in this respect by the ld. Assessing Officer. Also, with this finding of ours, the alternate plea taken by the assessee of allowing the claim u/s. 37(1) of the Act is rendered infructuous. Accordingly, grounds raised by the assessee in this respect are allowed.
Short credit of TDS - CIT(A) has directed the ld. Assessing Officer to verify the records and allow the credits subject to verification - HELD THAT:- We concur with the directions given by the ld. CIT(A) and accordingly remit this matter to the file of ld. Assessing Officer in terms of the directions so given. Accordingly, ground allowed for statistical purposes.
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2024 (6) TMI 1137
TDS u/s 195 - income of the foreign university on account of payments for examination fee made by the Appellant - Income deemed to accrue or arise in India - Permanent Establishment of the foreign university in India - Addition u/s 40(a)(ia) for non deduction of TDS - any express written contract between the Appellant and University of Cambridge ('foreign university') or not? - foreign university has granted an affiliation certificate to the Appellant - DTAA between India and United Kingdom of Great Britain and Northern Ireland(Tax Treaty) - assessee filed its reply stating that assessee company’s Ryan Global School are affiliated with University of Cambridge and the students who sits in the exam has to pay exam fee to the University of Cambridge and examination fee so collected from students by the assessee was transferred to University of Cambridge.
As argued University of Cambridge is not a resident of India and it does not have any control over the assessee company and it also does not have unhindered and unlimited access to assessee premises. The arrangement between Assessee Company and University of Cambridge is simple that of affiliation - HELD THAT:- As decided in immediately preceding A.Y. 2011-12 on careful consideration of the arrangements between the appellant and the University of Cambridge, it is seen that the appellant was engaged by University of Cambridge for the limited purposes i.e. to conduct examination at various Indian educational institutions run by the appellant. There is no evidence on record that the said Cambridge University had any supervision or control over the appellant company, nor does it indicate that it had unlimited and unhindered access to the appellant’s premises.
The arrangements between the appellant and the University of Cambridge are plain and simple as the appellant was getting the examination carried out for the University of Cambridge. The appellant company’s Ryan Global School, Mumbai is certified to be a Cambridge International Centre, which was eligible to conduct the examinations for University of Cambridge. However, in terms of share holding, managerial and professional control, University of Cambridge did not have any hold over the appellant company. Under the circumstances it cannot be held that there exists any PE of M/s. Cambridge University, in the form of various educational institutions owned by the appellant company.
In the case of the appellant, evidently, the payment is made for getting the examination conducted based on academic system of University of Cambridge. No transfer of technical knowledge, etc. can be inferred to have been ‘made available’ to the appellant. Moreover, in terms of Para 5 of Article 13, the payment by ‘educational institutions’ does not get covered under the Fees for Technical Services. As the appellant is running educational institutions, evidently, payment for conduct of examination cannot be held as FTS. In view of the above, the appellant was not required to deduct TDS under Section 195 on such payments made to University of Cambridge.
Principal of consistency - CIT(A) has failed to follow principal of consistency without pointing out any change in circumstances and this action of against the settled position in law that where an issue has been considered and decided consistently in a number of earlier assessment years in a particular manner, for the sake of consistency, the same view should continue to prevail in subsequent years unless there is some material change in the facts and this contention of assessee is supported by case of CIT Vs. Neo Poly Pack (P.) Ltd., [2000 (4) TMI 26 - DELHI HIGH COURT]
Examination fee made by the assessee to University of Cambridge does not fall under the definition of fee for technical service as defined under explanation 2 to section 9(1) of the Act and as per Article 13(5)(c) of the India-UK DTAA and therefore not taxable in the hand of recipient in India is supported by case of M/s Hyderabad Educational Institutions Pvt. Ltd.[2023 (1) TMI 355 - ITAT HYDERABAD] Thus disallowance made by AO and confirmed by CIT(A), should be deleted. Appeal of the assessee is allowed.
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2024 (6) TMI 1136
Change in Accounting Policy - understatement of profit - determination of recognized method of accounting - change from the percentage of completion method (POCM) to the project completion method (PCM) for revenue recognition - HELD THAT:- We observed that assessee is consistently following the method of Revenue recognition by following percentage completion method till previous Financial Year i.e., 2016-17 and during the current Financial Year 2017-18, the assessee preferred to change the Revenue recognition method to Project Completion Method. The assessee has indicated the change of method in its note forming part of financial statement at Note No.27
During the year, assessee has disclosed income from other sources i.e., rental income, interest income and other incomes during the year and declared a net loss of Rs. 1.43 Lacs and disclosed the justification and the financial impact in its notes to financial statement. AO proceeded to make the addition the financial impact declared by the assessee due to change of method of accounting as profit for the current financial year. In our considered view by making above financial impact as addition along with other disallowances/additions, the percentage of profit determined by the Assessing Officer is quite abnormal way above the industry average.
We are of the considered view that assessee should submit the financial impact in the financial years 2016-17, 2017-18 respectively and also impact in computation of taxable income declared under Income Tax Act before the AO. Accordingly, the AO is directed to verify the above impact in the financial statements and may verify the declared financial impact in both financial years as well as Income Tax computation, we direct him to verify the profit declared by the assessee in the earlier years as per old method of accounting and because of change of method of accounting, there may be under statement or over statement of declared profit, this under or over statement of profit in the earlier years has to be acknowledged as an impact on such change of profit and ultimately the correct profit alone has to be charged to tax.
Merely because a understatement of profit during the current year due to change of method of accounting does not mean that the assessee has understated the profit and AO cannot proceed to make any adjustment based on such financial impact. It is only a declaration on such impact for selection of different method of accounting. This approach is approved method as per the accepted standard of accounting by ICAI and IAS. Therefore, the selection of method of accounting is the right of the respective assessee.
AO cannot put any restriction on such selection of method and only thing is that it has to be verified whether the assessee has followed the new method of accounting and follows consistently, the impact declared by the assessee is as per the convention. If these details are proper, the AO cannot insist on to follow the old method of accounting. Therefore, with the above direction, we are remitting this issue back to the file of AO and also direct him to give proper opportunity of being heard to the assessee. Accordingly, the grounds raised by the assessee is allowed for statistical purpose.
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2024 (6) TMI 1135
TP Adjustment - comparable selection - exclusion on account of high turnover - Larsen & Toubro Infotech Ltd., (Segmental) Tata Elxsi Ltd. (Segmental), Persistent Systems Ltd.,Aspire Systems (India) Pvt. Ltd. And Infosys Ltd.- HELD THAT:- These companies are having huge turnover, whereas the turnover of the assessee is meagre as compared to these companies. The turnover of the assessee company was only Rs. 16.12 crores, whereas the turnover of these companies is more than Rs. 200 crores. Thus, these companies are not at all comparable with the assessee. Besides that the issue has already been dealt with by the Co-ordinate Bench of the Tribunal, wherein it was held that these companies are not comparable with the assessee company. Therefore, we direct the AO/TPO to delete these companies from the list of comparables.
Infobeans Technologies Ltd. and Thirdware Solution Ltd.- The profile of these companies as produced by the TPO and as discussed by the DRP clearly shows that these companies are into software development services and are comparable with the profile of the assessee. Since we do not find any glaring dis-similarity in the functioning of these companies, we do not find any reason to exclude these companies. Thus, we direct the AO/TPO to take these companies as suitable companies.
Cigniti Technologies Ltd. - As it has an export revenue of 53.16% of total revenue and hence it is to be rejected as comparable as it is not satisfying the export revenue filter adopted by the TPO - We have already upheld the export revenue filter adopted by the TPO vide detailed discussion made above. As a result, this objection is found to be acceptable. Thus we reiterate the direction issued by the DRP and accordingly direct the AO/TPO to exclude the said company from the list of comparables.
Inclusion of SagarSoft (India) Ltd, Evoke Technologies Pvt. Ltd.,Sankhya Infotech Ltd., Harbinger Systems Pvt. Ltd.,Maverick Systems Ltd. and Agilisys IT Services India Pvt. Ltd. - The assessee has raised a specific ground before the DRP, seeking inclusion of these companies. In view of the above, the finding recorded by the DRP that there is no specific ground raised by the assessee is factually incorrect. Further, we note that the DRP have also mentioned that the assessee had included various comparables which were selected after passing of the draft assessment order and hence, cannot be considered. As the assessee has raised the inclusion of these companies, therefore, we deem it appropriate to remand the inclusion of the companies to the file of the Assessing Officer/TPO for considering afresh, subject to the assessee satisfies that the inclusion of these companies were sought by the assessee by filing the specific documents.
Interest on Trade receivables - International transaction or not? - TPO adopted interest rate for 11 months i.e., 7.5% on outstanding receivables as on 31st March, 2016 - HELD THAT:- We have examined whether the interest on delayed outstanding payments is an international transaction or not. This issue has come up for our consideration in the decisions referred by the ld.DR in the case of M/s Zeta Interactive Systems (India) Pvt. Ltd [2022 (6) TMI 1383 - ITAT HYDERABAD] M/s. Satyam Ventures Engineering Services [2022 (6) TMI 1386 - ITAT HYDERABAD] and M/s. Apache Footware India Pvt. Ltd. [2023 (4) TMI 521 - ITAT HYDERABAD].
We have consistently held that the interest on delayed outstanding trade receivables is an international transaction and after holding so, we have benchmarked the international transactions at 6% SBI rate. However, while holding the outstanding trade receivables as international transactions, we have granted a credit period of 60 days in the case of Apache Footware India Pvt. Ltd. In the present case, the assessee could not file any evidence to prove that it has provided more than 60 days credit period to non-AEs.
Thus we are of the opinion that the assessee is entitled to get some relief as against the interest computed by the TPO at SBI rate of 7.5%, we direct the AO/TPO to compute the interest @6% of the SBI rate.
Appeal of the assessee is partly allowed for statistical purposes.
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2024 (6) TMI 1134
Disallowance for deduction of CSR expenses u/s. 80G - CIT(A) failed to consider the reply and judicial pronouncements submitted by the assessee company - AO based this disallowance on the grounds that the nature of CSR expenses, being a statutory obligation u/s135 of the Companies Act 2013, differs significantly from voluntary donations eligible for 80G deduction - HELD THAT:- The assessee company had uploaded its reply/submissions on the e-portal of the CIT(Appeals) pursuant to the notice of hearing that was issued by the latter on 18.01.2024. As the rar/zip pdfs that were uploaded by the assessee company were damaged, therefore, the CIT(Appeals) vide his letter directed the assessee company to upload simple PDF format files so that further necessary action could be taken. In compliance, the assessee company once again uploaded the PDF file of its earlier reply.
On a perusal of the reply filed by the assessee company, it transpires that it had relied upon certain judicial pronouncements wherein it was held that the CSR expenses are eligible for deduction u/s. 80G of the Act.
As the CIT(Appeals) had failed to consider both the aforesaid reply uploaded by the assessee company and also the judicial pronouncements that were pressed into service in support of its aforesaid claim, therefore, in our considered view, the matter in all fairness requires to be restored to the file of the CIT(Appeals) for fresh adjudication. CIT(Appeals) is directed to redecide the appeal after considering the reply of the assessee company along with the judicial pronouncements that it had pressed into service in support of its aforesaid claim, i.e. CSR expenses are eligible for deduction u/s. 80G of the Act.
Appeal of the assessee company is allowed for statistical purposes.
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2024 (6) TMI 1133
Disallowance of Depreciation on unverified purchases and other expenses - HELD THAT:- In assessee's case depreciation on unverified purchases were disallowed for AY 2006-07 to AY 2012-13 and the Co-ordinate Bench has given relief to the assessee towards depreciation unverified purchases capitalized and the issue of depreciation on unverified purchases was remitted back to the AO for fresh examination. We notice, that the disallowance made by the AO towards unverified purchases and expenses is the consequential depreciation on the written down value of the assets.
Thus we direct the AO to delete the disallowance of consequential depreciation on unverified expenses and the issue of consequential depreciation on unverified purchases is remitted back to the AO with similar directions. Needless to say that the assessee be given a reasonable opportunity of being heard. This ground of the assessee is partly allowed for statistical purposes.
Disallowance of depreciation on goodwill on amalgamation - HELD THAT:- As decided in own case for 2010-11 [2024 (1) TMI 1295 - ITAT MUMBAI] on a careful perusal of the sixth proviso to sec. 32(1) of the Act, we noticed that the same is applicable only in a situation where the amalgamation takes place in the middle of the year i.e. the said proviso states that the aggregate amount of depreciation claimed by the amalgamating companies and amalgamated company for that year should not exceed eligible amount of depreciation of that year. In the instant case the amalgamation has taken place on 1.4.2009 and not in the middle of the year. Hence the sixth proviso to section 32(1) will not apply to the facts of the present case. Accordingly we set aside the reasoning given by the learned CIT(A) for confirming the disallowance of depreciation of goodwill.
We noticed earlier that both the tax authorities have not examined the factual aspects relating to the goodwill amount of Rs.21.81 crores and also the depreciation claimed thereon. Hence the assessee also did not get opportunity to put forth its contentions before them - thus this claim of depreciation on good will requires examination at the end of the AO by duly considering all the relevant factual aspects. Accordingly, we set aside the order passed by the learned CIT(A) on this issue and restore the same to the file of the Assessing Officer for examining it afresh - This ground is allowed for statistical purposes.
TP Adjustment on letter of comfort (LOC) - assessee has issued a letter of comfort towards credit facilities sanctioned by ANZ Banking Group Ltd. to assessee's subsidiaries -TPO treated the said transaction as international transaction and proceeded to bench mark the same - HELD THAT:- As from letter of comfort it is clear that the assessee is giving a comfort to the ANZ bank that the AE would be operated and maintained in such a way to be in a financial position to repay its obligations and not to take any action that would hinder the operations of the AE. The assessee also gives the commitment that assessee's stake in AE will not go below 51%. Therefore we see no merit in the contention that the assessed has to repay all outstanding to the bank if it reduces its capital below 51% in its AE. Our view is further strengthened by the relevant clauses in the letter of offer given by ANZ to the AE i.e.borrower as extracted by the CIT(A) in his order.
Considering the terms agreed in the letter of comfort and the terms of the letter of offer we are inclined to hold that what the assessee has given to ANZ towards loan facility granted to its AE is only a letter of comfort and not a guarantee. We notice that Rule 10TA of Safe Harbour Rules for International Transactions defines "corporate guarantee" as explicit corporate guarantee extended by a company to its wholly owned subsidiary being a non-resident in respect of any short-term or long-term borrowing and does not include letter of comfort, implicit corporate guarantee, performance guarantee or any other guarantee of similar nature. In the facts and circumstances of the present case, we are of the considered view that the letter of comfort given by the assessee cannot be treated as letter of guarantee warranting any TP adjustment. Accordingly the adjustment made by the TPO is hereby deleted. This ground is allowed in favour of the assessee.
Admission of additional ground for disposal on merits - Allowability of deduction u/s 10AA of 100% of profits derived from Export Oriented Unit before considering the additions/deletions - HELD THAT:- For the year under consideration the assessee has not raised this issue before the lower authorities and therefore respectfully following the above decision of the Tribunal we remit the issue back to AO for examination with a direction to decide keeping in mind the decision of coordinate bench in the case of Reliance Industries Ltd [2020 (12) TMI 165 - ITAT MUMBAI] and decide in accordance with law. This ground is allowed for statistical purposes.
Allowability of mark to market (MTM) loss u/s 37(1) - AO rejected the assessee's alternate plea that since section 43(5) is not applicable the MTM losses should be allowed under section 28 or 37(1) of the Act - HELD THAT:- As in own case for AY 2012-13[2024 (1) TMI 1295 - ITAT MUMBAI] nature of these items is not clear and we notice that no tax authority has examined these items. If these transactions have been entered in the course of carrying on of regular business activities and the underlying assets are trading items, the loss arising on their revaluation at the year end is allowable as deduction. It is to be seen that the underlying assets having foreign currency exposure is also revalued as at the year end Accordingly, for the limited purpose of verifying these factual aspects, we restore this issue to the file of the AO for examining this issue in the light of principles laid down in the case of D Chetan & Co [2016 (10) TMI 629 - BOMBAY HIGH COURT] Thus we restore the issue to the AO with similar directions. The ground raised by the Revenue is disposed of accordingly.
Allowability of ESOP expenses - AO disallowed the same holding the said expenses to be notional - HELD THAT:- CIT(A) correctly allowed the deduction by placing reliance on the decision of the Special Bench in the case of Biocon Ltd [2013 (8) TMI 629 - ITAT BANGALORE].
Weighted deduction u/s 35(2AB) - HELD THAT:- As per assessee's own case for AY 2010-11 [2024 (1) TMI 1295 - ITAT MUMBAI] we uphold the decision of the CIT(A) in allowing weighted deduction towards clinical trial expenses outside the in- house facility. This ground of the revenue is dismissed.
Pre-commencement Expenses - assessee while filing the revised return of income claimed pre- production commencement revenue expenditure - HELD THAT:- CIT(A) correctly gave relief to the assessee by directing the AO to allow the expenditure as revenue expenditure as per in assessee's own case for AY 2010-11 [2024 (1) TMI 1295 - ITAT MUMBAI] wherein as held uncontroverted fact is that the business of the assessee in Pithampur SEZ has been set up and further it is an extension of existing business. We notice that the Ld CIT(A) has allowed the claim following the legal principles pronounced by the Courts. Hence, we do not find any infirmity in the decision rendered by Ld CIT(A) on this issue.
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2024 (6) TMI 1132
Unexplained cash deposits - bank accounts opened by CA misusing KYC documents - HELD THAT:- The brief facts of the case is that the assessee was working as salaried employee. CA Shri Bharat Bomb was filling the return of income of the assessee. Shri Bharat Bomb misused the ID proof of assessee, opened various bank account, various trading concern and obtained loan and brought properties in his name. In the month of Feb-March 2016 big fraud of Rs. 2000 cr was unearthed and several persons including the DGM, Branch Manager and officers of Syndicate Bank and one CA named Mr. Bharat Bomb were arrested by CBI and ED. Large number of bank accounts operated by these persons were attached. Shri Bharat Bomb was the key person and master mind of this fraud
Mr. Bharat Bomb operated these account and additions cannot be sustained in the hands of the assessee this decision has been given by ld. CIT(A)/NFAC vide order dated 08.09.2023(APB311). Wherein accepted the fact that addition cannot be made in the hands of the assessee when he has in a statement recorded that he has not done this transaction - AO is not justified in holding that bank account belonged to the appellant. The AO has not done dud diligence to cross verify the 15CA/CB forms, allegedly issued by the appellant. This forms involves three parties who are (i) The remitter, (ii) The Chartered Accountant (iii) The Bank officer. Once the appellant denied these forms all together, the AO must have summonded the Bank officer and CA who have signed these forms which AO failed.
Appellant has satisfactorily proved that these bank accounts were not opened by him and only his name and KYC were used by Mr. Bharat Bomb for opening these bank accounts. Thus, financial, transactions appearing / credited in these bank accounts do not represent the appellant, the additions made on account on peak Balance.AO while re- opening the case of Shri Bharat Bomb wherein it has been accepted that the cash deposited in the case of the assessee [ Shri Pradeep Nimawat ] is done by Shri Bharat Bomb and not by the assessee. Decided in favour of assessee.
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2024 (6) TMI 1131
Validity of re-opening u/s. 147 - notice based on the information that assessee has borrowed cash loans - HELD THAT:- First of all, it is not a case of deemed income taxable u/s. 68 that it has some kind of unexplained loan credit in the books of the assessee. The information is based on the fact that the assessee has received cash loans which in turn is based on certain documents seized in search and survey action u/s. 132 carried out at M/s. Evergreen Enterprises. If it is a cash loan, ostensibly it cannot be treated as income of the assessee unless conditions specified in Section 68 are satisfied.
Also it is not the case of ld. AO that cash loans are added u/s. 68 and that is for the reason that he has not made any addition on amount of cash loan. Once the very basis on which reasons have been recorded, i.e., cash loan which has been stated to be chargeable to tax in the hands of assessee is not found to be taxable by the ld. AO, then the entire basis of re-opening gets vitiated.
Thus we hold that once the ld. AO has accepted cash loans, which is not been considered as income, there can be escapement of income. Accordingly, the reasons recorded by the ld. AO are quashed. Consequently, the entire addition made by the ld. AO is also quashed. Decided in favour of assessee.
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2024 (6) TMI 1130
Disallowance of provisions for effluent/waste disposal expenses and processing charges - Provision for likely expenses - AO noted that the assessee has not furnished any documentary evidences to prove that provision has been written back in the subsequent year and these provisions are not ascertained liabilities and therefore they are not allowable expenses - HELD THAT:- It is seen that assessee has created a provision for likely incurring of expenses for treatment of disposal of effluent waste generated out of manufacturing carried out during the year. The assessee might have incurred expenditure in the earlier years under this head but those were actual expenses and paid to the third parties. From this year, assessee has installed its own plant. However, neither any details of expenses incurred prior 31st March, 2010 were filed nor any expenses which have been actually booked and have been shown to be paid immediately thereafter. Even there is no proper scientific basis for estimate for such an expense. Here, the provision made was not based on any scientific basis but on likely future event that also was not demonstrated that it was accounted for on some reasonable estimate, therefore even according to accounting standard AS-29 same cannot be allowed. Thus, the ld. CIT (A) was correct while upholding the disallowance on account of the provision made by the A.O.
We find that the amount has been credited back in the subsequent assessment year for which copy of profit and loss account and other details have been filed which show that this amount has been credited back as income. Thus, even if the provision is to be disallowed in A.Y. 2010-11, then in the subsequent year once assessee has credited back and offered as income then same cannot be taxed again in A.Y.2011-12. Accordingly, the Assessing Officer is directed to verify the said account and if assessee has written back and credited to income then he should give consequential relief in the A.Y. 2011-12 and not to tax the same amount in next year. With these directions, ground no. 1 raised by the assessee is partly allowed for statistical purposes.
Non-allowance of provision made for sales return - The brief facts are that the assessee has created a provision for sales return on estimate basis of Rs. 5,40,000/- on some perceived loss of sales return and some hypothetical assumption of principles of prudence. In the earlier year similar disallowance has been upheld by the Tribunal in A.Y. 2008-09 [2020 (5) TMI 20 - ITAT MUMBAI] wherein as evident, the amount in dispute is a provision made for likely loss on sales return. Therefore, it is quite clear that the expenditure has not crystallized during the year and is an anticipated loss. That being the case, it cannot be allowed. However, if such loss has actually arisen in the subsequent assessment year due to sales return, the AO is directed to verify and grant consequential relief. Decided against assessee.
TDS u/s 195 - tds liability on expenses of advertisement, sales promotion and clinical trial incurred - HELD THAT:- We find in some case, the limit for TDS is less and in case of one party with regard to advertisement expenditure incurred in chemical magazine of foreign country paid to a foreign entity which it has been stated that it does not have any business connection in India, then ostensibly same cannot be subjected to TDS and therefore same should have removed from the disallowance. Regarding these details of expenses and also whether these parties have offered it for tax, the assessee has to comply with the conditions provided in proviso 201(1). Accordingly, entire matter of disallowance made u/s 40(a)(ia) is remanded back to the file of A.O. to examine applicability of proviso to section 201(1) and whether in few cases TDS was required to be deducted or not. Assessee shall substantiate its claim before the A.O. Accordingly, ground nos. 1 to 6 is set aside to the file of A.O.
Bogus purchases - purchases made from all the 10 parties which included the four parties based in Jammu and Kashmir- notices sent u/s. 133(6) through ITBA portal was not responded - HELD THAT:- We find before the A.O., the assessee has given the details of addresses, GST No. PAN No., amount of purchases (Net of VAT), etc. These bill/voucher/challan issued by the parties mentions the details of the assessee, excise duty paid, details of truck/challan no., order No. etc. from all these parties. Further, all the items purchased were subjected to excise duty and assessee had given entire details of the parties and their ledger account and that payment has been made through cheques. Further, it is seen from these invoices that the goods purchased have been delivered to various depots of the assessee across the country along with the delivery details. Once, assessee has submitted all these details, simply based on that notice u/s. 133(6) only on ITBA portal has not been responded cannot be the basis for disallowing the entire purchases when book results and trading account/ sales has not been disturbed. The assessee had submitted that that these notices were sent in December, 2019 and at that time there was no internet and communication was break down following revocation of Article 370 on 4th August, 2019. Thus, these parties were not aware of any such notices nor through ITBA portal. Till January, 2020 2G services were also not working, thus it was impossible for these parties to respond. Further, the assessee has purchase transaction from these parties in the past and subsequent years and all the assessment were completed u/s. 143(3) and no adverse inference has been drawn.
Thus no reason to treat entire purchases as non-genuine simply because notices sent u/s. 133(6) through ITBA portal was not responded ignoring the other evidences and details available on record. Accordingly, entire addition is deleted. Decided in favour of assessee.
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2024 (6) TMI 1129
Income taxable in India of not? - Denial of benefit under DTAA' between India-UAE ('treaty') with respect to income earned by the Appellant in India - interest income which has been claimed as exempt by virtue of benefit provided under Article 24 of the DTAA as per Article 24(1), and especially Article 24(2)(b)(ii) of India UAE-DTAA provides any income including material gain earned from India is not taxable in India - CIT(A) has denied the benefit of Article 24 disbelieving the assessee is not Abu Dhabi Investment Authority as mentioned in Article 24(2)(b)(ii) on a very flimsy ground as reason given by him is that mobile number was mentioned “9999999999” which he tried to find it from True Caller that it is a fraud number and therefore the Abu Dhabi Investment Authority is a fraud company rather it is not company belonging to Abu Dhabi Government.
HELD THAT:- Once, all the other details have been provided, and if that is doubted, then, he should have verified the PAN and the address provided in the return to see whether it is an Abu Dhabi Government owned company i.e. Abu Dhabi Investment Authority. If he was incapable of himself verifying then, he should have asked from the assessee itself. It is really surprising that first appellate authority will deny the status of the Government owned authority simply by looking the mobile number in the true caller. Such an approach is to be frowned upon and is liable to be rejected at the threshold. If the assessee i.e. Abu Dhabi Investment Authority had shown its valid registration as category of foreign portfolio investor obtained with SEBI and holds a valid residency certificate and given the particulars of income, then, we do not find any reason to doubt that it is not authority as mentioned in Article 24.
Accordingly, we hold Abu Dhabi Investment Authority is liable to benefit provided u/s 24 which provides that Government of one contracting state shall be exempt from tax in other contracting states in respect of any income derived by such income from that other contracting states. Since Abu Dhabi Investment Authority has been specifically mentioned in Article 24(2)(b)(ii), therefore, none of its income is taxable in India. In the result, charging of interest is held to be non- taxable in India. Appeal of the assessee is allowed.
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2024 (6) TMI 1128
Rejection of the application filed in Form No.10A u/s.12A(1)(ac)(ii) - application should have been filed under a different section of the Act - CIT(Exemption) rejected the assessee’s application treating it as infructuous and non-maintainable by stating the reason that the assessee ought to have applied u/s.12A(1)(ac)(iii) of the Act instead of 12A(1)(ac)(ii) - HELD THAT:-After hearing both the sides and going through the facts, it is noted that the assessee has simpliciter made a technical mistake in applying u/s.12A(1)(ac)(ii) instead of 12A(1)(ac)(iii) of the Act. It was informed to the Bench by the ld.counsel for the assessee that even now the assessee has filed fresh Form No.10AB seeking registration u/s.12A(1)(ac)(iii) of the Act, which can also be considered.
In our view, the same purpose will be served by adjudicating the same application. Hence, we set aside the order of CIT(Exemption) and remand the matter back to his file for fresh adjudication, either considering the subsequent application of assessee u/s.12A(1)(ac)(iii) of the Act or he can call a fresh application from the assessee. In term of the above, matter restored back to the file of the CIT(Exemption). Appeal filed by the assessee is allowed for statistical purposes.
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2024 (6) TMI 1127
Revision u/s 263 - error in revenue recognition Methods - as per CIT AO has not made inquiry regarding the method of revenue recognition and the method of valuation of closing stock employed by the assessee - AO has passed the assessment order u/s 143(3) without proper inquiry and application of mind which makes the assessment order as erroneous insofar prejudicial to the interest of the revenue - HELD THAT:- The provision of section 263 of the Act empowered the ld. Commissioner of income tax to call for the records of any proceeding under the Act and examine the same. If the ld. Commissioner considers that the order passed by the AO in any such proceeding is erroneous and prejudicial to the interest of the revenue, then he/she may pass such order as circumstances justify which may include enhancing or modifying the assessment, canceling the assessment, and directing the AO to make fresh assessment.
The Hon’ble Supreme Court in the landmark judgment in the case of Malabar Industrial Co. Ltd [2000 (2) TMI 10 - SUPREME COURT] has analyzed the provisions of section 263 and held that to invoke the provision of section 263 Commissioner has to satisfy two conditions, the first being order passed by the AO is erroneous and second being the order is prejudicious to the interest of the revenue. In the absence of any one of the conditions, the provision of section 263 of the Act cannot be invoked.
Determination of method of revenue recognition and method of valuation of closing stock - There is no dispute or allegation about genuineness of sale value of the bungalow or cost of the project, or any other expenditure incurred by the assessee. Accordingly, we are of the considered opinion that there is no prejudice to the revenue caused due to the method adopted by the assessee. As such, the assessee has offered income from the project over the period and paid due taxes. The only difference here may arise as per the method adopted by assessee, the income which should have offered in the year by employing percentage completion method (PCIT method) was deferred in subsequent year but in such a scenario the assessee should have offered less income in subsequent year. Thus, it is a tax natural exercise. See M/S BILAHARI INVESTMENT (P) LTD [2008 (2) TMI 23 - SUPREME COURT]
Likewise, the value of closing stock becomes the opening stock in the next year, hence the same is also a tax natural exercise. Hence there is no loss of tax, causing prejudice to the revenue due to the method adopted by the assessee which was accepted by the AO in the assessment order. Even if the AO has not properly inquired about the same and assuming that the Action of the AO is erroneous. But in view of the above discussion, there is no prejudice against the revenue. Therefore, the twin conditions to exercise the power under section 263 of the Act have not been satisfied. Hence, we hereby restore the assessment order and set aside the order of learned PCIT. Thus, the grounds of appeal of the assessee is hereby allowed.
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