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AI TextQuick Glance (AI)Headnote
Core vs Non-Core Auto Components Key for Transfer Pricing Comparability Under Section 92C(2)
Core vs Non-Core Auto Components Key for Transfer Pricing Comparability Under Section 92C(2)
ITAT DELHI held that the distinction between core and non-core auto components is essential for transfer pricing comparability. The Tribunal rejected the CIT(A)'s exclusion of comparables without proper FAR analysis and found that companies manufacturing core components cannot be compared with those producing non-core components like the taxpayer. Comparables suggested by the taxpayer were also found unsuitable based on product comparability. The Tribunal declined conditional remand due to inadequate TP analysis by the TPO and CIT(A), directing a fresh open-ended TP study considering product comparability and core/non-core distinction. The issue of applying the arm's length range benefit under section 92C(2) was remitted to the TPO for fresh adjudication. The Revenue's appeal was allowed for statistical purposes.
TP Adjustment - comparable selection - CIT (A) justification in directing the TPO to exclude the comparables without any proper FAR analysis - taxpayer contended that since taxpayer is manufacturing non-core auto component viz. air-conditioner compressors and components used for cooling interiors of the car, it cannot be compared with manufacturing company which is into the manufacturing of core components without which car cannot run.
HELD THAT:- We are of the considered view that distinction of the core and non-core auto components is the key to benchmark the international transactions undertaken by the taxpayer in this case and this view is supported with the decision of Minda Acoustic Ltd. [2019 (5) TMI 2034 - ITAT DELHI] had made the distinction between core and non-core auto components as per Clause (b) & (h) of Rule 10TA of the Income-tax Rules, 1962 applicable to the identical facts.
Tribunal making distinction in core and non-core auto components, we are of the considered view that benchmarking in this case is required to be carried out with FAR analysis of the comparables keeping in view the distinction between core and noncore auto components because a company manufacturing core components cannot be compared with company manufacturing non-core auto components.
When we further examine the contention raised by the ld. AR for the taxpayer that apart from M/s. Subros Ltd., Jagan Lamps Ltd. and Swaraj Automotives Ltd. are the suitable comparables to benchmark the international transactions, it has come on record that Jagan Lamps Ltd. is manufacturer of auto bulbs, halogen bulbs, head lights, automotive electrical spares and other related products and Swaraj Automotives Ltd. is manufacturer of seats of a kind used for automobiles. We are constrained to record that when we go by the product comparability as held in Rampgreen Solutions Pvt. Ltd. [2015 (8) TMI 931 - DELHI HIGH COURT] relied upon by the ld. AR for the taxpayer, again there is no comparability between the taxpayer and Swaraj Automotives Ltd.& Jagan Lamps Ltd..
We are of the considered view that in view of the slipshot TP analysis made by the ld. TPO as well as ld. CIT (A) conditional remand cannot be made. At the same time, we are of the considered view that to determine the arm’s length price of the international transaction undertaken by the taxpayer, fresh open ended TP analysis is required to be made by the TPO keeping in view the factum of product comparability as well as keeping in view the distinction between the core and non-core auto component manufactured for the purpose of comparability of the companies vis-à-vis the taxpayer.
The taxpayer has also challenged non-grant of benefit of arm’s length range of +/- 5% under the second proviso of section 92C (2) of the Act. Since the case is remitted back to the TPO to decide afresh after providing an opportunity of being heard to the taxpayer, the TPO is directed to decide this issue in accordance with the provisions contained under Rule 10TA. Appeal filed by the Revenue is allowed for statistical purposes.
AI TextQuick Glance (AI)Headnote
Tribunal Upholds Depreciation on Goodwill Decision
Issues Involved:
1. Disallowance of depreciation on goodwill.
Issue-wise Detailed Analysis:
Disallowance of Depreciation on Goodwill:
Background and AO's Case:
The Revenue's primary contention in this appeal was against the Commissioner of Income Tax (Appeals) [CIT(A)]'s decision to delete the disallowance of depreciation on goodwill amounting to Rs. 1,87,50,000 made by the Assessing Officer (AO). The AO disallowed the depreciation on the grounds that the goodwill was not reflected as an asset in the financial statements and tax audit report for the financial year 2006-07.
Assessee's Argument:
The assessee argued that the goodwill arose from the merger of Shristi Infrastructure Development Corporation Limited and Peerless Abasan Finance Limited, approved by the Delhi and Calcutta High Courts. The goodwill, amounting to Rs. 10 crores, was recorded in the books during the financial year 2006-07. The assessee cited Section 32(1) of the Income Tax Act, 1961, which allows depreciation on intangible assets, including goodwill. The assessee referenced the Supreme Court’s decision in Commissioner of Income Tax vs. Smifs Securities Ltd [2012] 24 taxmann.com 222 (SC), which held that depreciation is allowable on goodwill arising from mergers. The assessee also pointed out that the depreciation on goodwill was allowed in the previous assessment year 2011-12 by the CIT(A).
CIT(A)'s Decision:
The CIT(A) observed that the AO did not give due cognizance to the relevant financial statements and submissions of the assessee. The CIT(A) noted that the AO's disallowance was based solely on the absence of goodwill in the post-merger financial statements and tax audit report, without considering the audited financial statements for FY 2006-07, which clearly reflected the goodwill amount. The CIT(A) emphasized that depreciation on goodwill is allowable under Section 32(1)(ii) of the Act, supported by the Supreme Court's decision in Smifs Securities Ltd. Consequently, the CIT(A) allowed the depreciation claim on goodwill.
Tribunal's Analysis:
The Tribunal upheld the CIT(A)'s decision, emphasizing judicial consistency. It noted that the CIT(A) had followed his order on the same issue in the preceding assessment year 2011-12. The Tribunal referenced its coordinate bench's order in ACIT vs. M/s Shristi Infrastructure Development Corporation Ltd., which upheld the CIT(A)'s action in the earlier assessment year. The Tribunal reiterated that depreciation on goodwill is allowable under Section 32(1) of the Act, supported by the Supreme Court’s decision and other judicial pronouncements. The Tribunal found no distinction in facts or law that would warrant a different conclusion.
Conclusion:
The Tribunal concluded that the CIT(A) correctly deleted the disallowance of depreciation on goodwill. The Revenue's appeal was dismissed, and the CIT(A)'s findings were upheld. The order was pronounced in the open court on 31.12.2019.
Tribunal Upholds Depreciation on Goodwill Decision
The Tribunal upheld the CIT(A)'s decision to allow depreciation on goodwill, citing judicial consistency and legal provisions. The Tribunal emphasized that depreciation on goodwill is permissible under Section 32(1) of the Income Tax Act, supported by relevant case law. The Revenue's appeal was dismissed, and the CIT(A)'s decision to delete the disallowance of depreciation on goodwill was upheld.
Depreciation on goodwill - goodwill in subject was acquired during merger of two companies - AO disallowed the depreciation on goodwill merely on the ground that the goodwill is not reflected in the post-merger audited financial statement and the tax audit report of the assessee - HELD THAT:- As decided in M/s Shristi Infrastructure Development Corporation Ltd. [2019 (9) TMI 1700 - ITAT KOLKATA] assessee has submitted that post approval of merger by the Hon’ble High Court of Delhi and Hon’ble Calcutta High court, the audited financial statement clearly reflected the amount of goodwill that arose pursuant to the merger.
The same was also filed with the A.O - Though in the tax audit report the tax auditor has not considered the depreciation on goodwill, but the same cannot be the basis of disallowance. We find that such disallowance made by the Assessing Officer is erroneous. On appeal by assessee, CIT(A) has appreciated the facts of the assessee company and deleted the addition. That being so, we decline to interfere in the order passed by the ld. CIT(A), his order - Decided against revenue.
AI TextQuick Glance (AI)Headnote
Tribunal affirms CIT(A) decision, provides relief to assessee, criticizes AO's inadequate investigations.
Issues Involved:
1. Treatment of loans as unexplained cash credits under Section 68 of the Income Tax Act, 1961.
Detailed Analysis:
Issue 1: Treatment of Loans as Unexplained Cash Credits under Section 68
Background:
The Revenue appealed against the Commissioner of Income Tax (Appeals) [CIT(A)]'s order, which partially reversed the Assessing Officer (AO)'s decision to treat the assessee's loans amounting to Rs. 11,85,00,000/- as unexplained cash credits under Section 68 of the Income Tax Act, 1961. The CIT(A) provided relief to the extent of Rs. 5,26,50,251/-, while the remaining Rs. 6,58,49,749/- was contested by the assessee in a separate appeal.
Revenue's Argument:
The Revenue contended that the AO had correctly added the assessee's total loan amount as unexplained cash credits, arguing that the loans were routed back as unaccounted income through related parties.
Assessee's Argument:
The assessee argued that the loans were genuine and provided detailed explanations and evidence to prove the identity, creditworthiness, and genuineness of the transactions with the four lending entities: M/s Diamond Carbon Pvt. Ltd., M/s Mukherjee Capital Pvt. Ltd., M/s Wimper Trading and Distributors Pvt. Ltd., and M/s Mukherjee Farms Pvt. Ltd.
CIT(A)'s Findings:
The CIT(A) partially accepted the assessee's explanations and provided relief for certain amounts based on the creditworthiness and genuineness of the transactions. The CIT(A) found that parts of the loans were sourced from business reserves and were thus explained, while other parts were deemed unexplained due to dubious share capital and share premium.
Tribunal's Analysis:
The Tribunal reviewed the evidence presented, including audited accounts, bank statements, confirmation letters, and certificates from banks regarding the maturity of deposit accounts. The Tribunal noted that the AO had accepted the interest outgoing to the four lender companies, which indicated the acceptance of the loan transactions' genuineness.
Legal Precedents Considered:
- CIT v. Smt. P. K. Noorjahan: The Supreme Court held that unsatisfactory explanations do not automatically result in deeming the amount as income.
- Nemi Chand Kothari v. CIT: The Guahati High Court emphasized that the assessee's burden under Section 68 is limited to proving the source from which he received the credit.
- CIT v. S. Kamaljeet Singh: The Allahabad High Court held that the assessee's burden is discharged by providing confirmation letters, affidavits, and other relevant documents.
- Crystal Networks (P.) Ltd. v. CIT: The Calcutta High Court ruled that the failure of creditors to appear cannot be the sole basis for making additions if material evidence supports the transactions.
- CIT v. Dataware Private Limited: The Calcutta High Court held that the AO of the assessee cannot dispute the creditworthiness of the creditor if the creditor is an income tax assessee.
Conclusion:
The Tribunal concluded that the assessee had discharged its onus to prove the identity, creditworthiness, and genuineness of the lender companies. The Tribunal found that the AO did not conduct sufficient investigations to disprove the assessee's claims and relied on inferences without substantial evidence. Consequently, the Tribunal upheld the CIT(A)'s decision to provide partial relief and directed the deletion of the remaining addition of Rs. 6,58,49,749/-.
Final Decision:
The Tribunal dismissed the Revenue's appeal and affirmed the CIT(A)'s findings, thereby providing full relief to the assessee.
Pronouncement:
The order was pronounced in the open court on 31.12.2019.
Tribunal affirms CIT(A) decision, provides relief to assessee, criticizes AO's inadequate investigations.
The Tribunal dismissed the Revenue's appeal and affirmed the CIT(A)'s decision, providing full relief to the assessee. The Tribunal found that the assessee adequately proved the identity, creditworthiness, and genuineness of the lender companies, while criticizing the AO for insufficient investigations and reliance on unsubstantiated inferences. Consequently, the remaining addition of Rs. 6,58,49,749/- was deleted.
Unexplained cash credits u/s 68 - undisclosed loan taken - creditworthiness of share applicants not proved - HELD THAT:- As come on record that the learned coordinate bench has already applied its mind in assessee’s appeal [2019 (9) TMI 146 - ITAT KOLKATA] whilst deleting the impugned addition in case of the very parties by holding that it had proved identity, creditworthiness and genuineness of all four related parties (supra). We therefore adopt the above detailed reasoning mutatis mutandis and affirm the CIT(A)’s findings under challenge deleting the balance addition in issue. Revenue’s appeal is dismissed.
AI TextQuick Glance (AI)Headnote
Financial Creditor Initiates Insolvency Proceedings Against Corporate Debtor
Issues:
- Initiation of Corporate Insolvency Resolution Process (CIRP) under section 7 of the Insolvency & Bankruptcy Code, 2016.
- Dispute regarding the nature of the debt and default by the Corporate Debtor.
- Verification of debt and interest amount.
- Appointment of Interim Resolution Professional (IRP) and initiation of moratorium under section 14 of the IBC.
- Compliance and communication directives post-admission of the petition.
Analysis:
Initiation of CIRP:
The Financial Creditor filed a Company Petition under section 7 of the IBC seeking to initiate CIRP against the Corporate Debtor. The Financial Creditor provided detailed information in Form 1, establishing the debt due and the default by the Corporate Debtor. The jurisdiction of the Tribunal was established based on the incorporation details of the Corporate Debtor.
Debt and Default Dispute:
The Financial Creditor advanced a loan to the Corporate Debtor, which the latter disputed as an advance for acquiring floor space index. The Financial Creditor reiterated the loan nature of the amount and demanded repayment with interest. Evidence, including a Recall and Demand Notice and bank statements, was presented to support the claim.
Verification of Debt and Interest:
The Tribunal verified the debt due from the Corporate Debtor, noting the principal amount and the contested interest charges. The definition of "Financial Debt" under the Code was referenced to establish the debt's commercial effect, irrespective of interest. The Resolution Professional was tasked with verifying the interest quantum based on both parties' accounts.
Appointment of IRP and Moratorium:
The Financial Creditor proposed an Interim Resolution Professional, whose appointment was approved by the Tribunal. A moratorium was initiated under section 14 of the IBC, halting legal actions against the Corporate Debtor and preserving its assets. Essential services supply was ensured during the moratorium.
Compliance and Communication Directives:
Various compliance measures were ordered post-admission of the petition, including the deposit of funds for public notice expenses, communication to relevant parties, and updating of corporate data with the Registrar of Companies. The management of the Corporate Debtor vested in the IRP during the CIRP period, with strict obligations on the officers and managers to cooperate.
This detailed analysis covers the key issues addressed in the judgment, outlining the legal proceedings and decisions made by the Tribunal in the matter.
Financial Creditor Initiates Insolvency Proceedings Against Corporate Debtor
The Financial Creditor filed a Company Petition under section 7 of the Insolvency & Bankruptcy Code to initiate Corporate Insolvency Resolution Process against the Corporate Debtor. The Tribunal verified the debt and interest amount, appointed an Interim Resolution Professional, and imposed a moratorium under section 14 of the IBC. Compliance and communication directives were issued post-admission of the petition, ensuring proper management of the Corporate Debtor during the CIRP period.
Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial Creditors - existence of debt and dispute or not - HELD THAT:- The Financial Creditor has established beyond doubt that the loan was duly sanctioned and duly disbursed to the Corporate Debtor and that there has been default in payment of the Debt by the Corporate Debtor.
The application made by the Financial Creditor is complete in all respects as required by law. It clearly shows that the Corporate Debtor is in default of a debt due and payable, and the default is in excess of minimum amount of one lakh rupees stipulated under section 4(1) of the IBC. Therefore, the default stands established and there is no reason to deny the admission of the Petition. In view of this, this Adjudicating Authority admits this Petition and orders initiation of CIRP against the Corporate Debtor.
Application admitted - moratorium declared.
AI TextQuick Glance (AI)Headnote
NCLT Chennai dismisses application MA/25/IB/2018 as withdrawn.
The legal judgment by the National Company Law Tribunal, Chennai in 2019 (12) TMI 1541 dismissed application MA/25/IB/2018 as withdrawn since the Applicant counsel confirmed withdrawal.
NCLT Chennai dismisses application MA/25/IB/2018 as withdrawn.
The National Company Law Tribunal, Chennai dismissed application MA/25/IB/2018 as withdrawn after the Applicant's counsel confirmed the withdrawal.
Permission for withdrawal of application - HELD THAT:- Since the Applicant counsel submitted that the said application has already been withdrawn, this application is hereby dismissed as withdrawn.
AI TextQuick Glance (AI)Headnote
Tribunal allows depreciation on intangible assets, modifies Section 115JB for book profit, affirms expense reimbursement.
Issues Involved:
1. Depreciation on purchase of goodwill or other business/commercial rights under Section 32(1)(ii) of the Income-tax Act, 1961.
2. Deletion of addition while computing book profit under Section 115JB of the Act.
3. Allowance of reimbursement of expenses to Blue Star Limited.
Detailed Analysis:
Issue 1: Depreciation on Purchase of Goodwill or Other Business/Commercial Rights
Facts:
The assessee, a wholly-owned subsidiary of Blue Star Limited, acquired intangible assets including customer contracts, non-compete fees, business and technical knowhow, trademarks, and goodwill for Rs. 60 crores. The assessee claimed depreciation under Section 32 of the Income-tax Act, 1961, on these intangible assets.
Assessment Officer's (AO) View:
The AO disallowed the depreciation claim on customer contracts, arguing that the terms, conditions, and values of the contracts did not change with the change of management. The AO also noted that there was no erosion of value over time and cited a pending departmental appeal in a similar case.
CIT(A)'s Decision:
The CIT(A) allowed the depreciation claim, relying on the Tribunal’s decision in the case of Indian Capital Market Pvt. Ltd. and the Supreme Court's decision in CIT vs. Smifs Securities Ltd. The CIT(A) held that customer contracts fall under "any other business or commercial rights of similar nature" as per Explanation 3 to Section 32(1)(ii).
Tribunal's Decision:
The Tribunal upheld the CIT(A)'s decision, noting that the issue was covered by the assessee's own case in the previous year and supported by the Supreme Court and Delhi High Court decisions. The Tribunal confirmed that customer contracts acquired as part of a slump sale agreement qualify as intangible assets eligible for depreciation under Section 32(1)(ii).
Issue 2: Deletion of Addition While Computing Book Profit Under Section 115JB
Facts:
The AO noticed that the assessee claimed exclusion of amortization of intangible assets, including goodwill, while computing book profit under Section 115JB, amounting to Rs. 42,38,11,308/-. The AO disallowed the claim, stating it was not made through a revised return.
CIT(A)'s Decision:
The CIT(A) admitted the claim and ruled in favor of the assessee, stating that the financial statements were not showing a true and fair view due to specific accounting treatment following a High Court order. The CIT(A) held that the appellant is entitled to make necessary adjustments to arrive at the correct book profit under Section 115JB.
Tribunal's Decision:
The Tribunal upheld the CIT(A)'s decision, agreeing that the financial statements should reflect true profit as per Part II and III of Schedule VI to the Companies Act. The Tribunal confirmed that the assessee is entitled to make adjustments to the profit and loss account to compute the correct book profit under Section 115JB.
Issue 3: Allowance of Reimbursement of Expenses to Blue Star Limited
Facts:
The AO disallowed the reimbursement of expenses amounting to Rs. 1,15,98,917/- to Blue Star Limited, stating that the assessee failed to produce documentary proof such as agreements or bills.
CIT(A)'s Decision:
The CIT(A) allowed the claim, citing jurisdictional ITAT and High Court decisions that mere non-production of documentary evidence is insufficient to disallow reimbursement expenses. The CIT(A) directed the AO to delete the disallowance.
Tribunal's Decision:
The Tribunal upheld the CIT(A)'s decision, noting that the issue was covered by the Bombay High Court's decision in Vazirani Lani Developers Pvt. Ltd. The Tribunal found no infirmity in the CIT(A)'s order and confirmed the allowance of reimbursement expenses.
Conclusion:
The Tribunal dismissed the Revenue's appeals on all issues, thereby allowing the depreciation on intangible assets, deleting the addition while computing book profit under Section 115JB, and confirming the allowance of reimbursement of expenses. The judgment was pronounced in the open court on 31.12.2019.
Tribunal allows depreciation on intangible assets, modifies Section 115JB for book profit, affirms expense reimbursement.
The Tribunal dismissed the Revenue's appeals, allowing depreciation on intangible assets, deleting the addition for computing book profit under Section 115JB, and confirming the allowance of reimbursement of expenses. The decision was pronounced on 31.12.2019.
Deprecation on purchase of goodwill or any other business or commercial rights in view of the amendment of Section 32(1)(ii) - Whether rights acquired for acquisition of Customer Contracts falls within the expression “any other business or commercial rights of similar nature” as defined in Explanation 3 to Section 32(1)(ii)? - HELD THAT:- In view of the above factual aspects and legal position and the co-ordinate Bench decision in assessee’s own case in . [2018 (8) TMI 2049 - ITAT MUMBAI] for AY 2012-13, we are of the view that the contracts which are part of Slump sale agreement i.e. business purchase agreement form part of intangible assets in term of explanation 32(1)(ii) of the Act. Hence, we find no infirmity in the order of CIT(A) allowing the claim of depreciation of the assessee, we confirm the order of CIT(A).
Addition made while computing book profit u/s 115JB - HELD THAT:- Assessee has made claim of exclusion of amortization of intangible assets, including goodwill, fee paid to consultants and expenses incurred for acquisition of business of DC Gupta construction Pvt. Ltd while computing book profit under section 115JB of the Act. We noted that the AO made addition in the book profit of the assessee but the facts are that the provisions of Sec. 115JB of the Act requires that net profit should be prepared in accordance with Part II and III of Schedule VI to Companies Act.
In the instant case, because of specific accounting treatment followed by the assessee pursuant to High Court order, the financial statements are not showing true and fair view and are contrary to Accounting Standards, provisions of Companies Act and Schedule VI thereto. In the instant case, what has been done pursuant to High Court scheme is not affect the accounting to be made as per companies Act while arriving at the true profit as per Part II of Schedule VI and hence, the assessee is entitled to make necessary adjustment in order to incorporate the impact of the said observation to the Profit as shown in the profit & Loss account to arrive at correct Book Profit under section 115JB of the Act. Hence, the CIT(A) has rightly deleted the addition made by the AO. This ground of Revenue’s appeal is dismissed.
Reimbursement of expenses - AO disallowed the claim of reimbursement expenses by stating that the assessee has not filed the details including bills and vouchers by observing - HELD THAT:- We noted that the assessee has filed details of reimbursement of expenses and this issue is covered by the decision in the case of Vazirani Lani Developers Pvt. Ltd. [2009 (2) TMI 904 - BOMBAY HIGH COURT]. Hence, we find no infirmity in the order of CIT(A) and the same is confirmed. This issue of Revenue’s appeal is dismissed.
AI TextQuick Glance (AI)Headnote
High Court directs tax authority to accept form 'C', petitioner to comply within 1 month. Writ Petition disposed.
Issues:
Challenge to non-acceptance of form 'C' under Rule 12(7) of Central Sales Tax Rules, 1957.
Analysis:
The petitioner approached the High Court of Andhra Pradesh seeking direction due to the non-acceptance of form 'C' by the tax authority. The petitioner relied on a previous order from a Division Bench of the erstwhile High Court of Judicature at Hyderabad. The contention was that the form could not be obtained from the department earlier, leading to its absence during assessment proceedings. However, upon receiving the form now, the authority refused to accept it. The petitioner requested the court to direct the authority to receive and consider the form as per the law.
Upon hearing the arguments of the petitioner's counsel and examining the previous order dated 23.01.2017, the Court observed that the subject form should be accepted and considered by the authority in compliance with the law. The Court directed the petitioner to produce the form within one month from the date of the order along with a copy of the judgment.
Consequently, the High Court disposed of the Writ Petition with the above observation, emphasizing that there would be no costs imposed. The judgment also stated that all pending miscellaneous applications would be closed as a result of this decision.
High Court directs tax authority to accept form 'C', petitioner to comply within 1 month. Writ Petition disposed.
The High Court directed the tax authority to accept and consider form 'C' in compliance with the law, based on a previous order and the petitioner's argument. The petitioner was instructed to provide the form within one month, and the Court disposed of the Writ Petition without imposing costs, closing all pending miscellaneous applications.
Non-acceptance of C-Forms - Rule 12(7) of the Central Sales Tax (Registration and Turnover) Rules, 1957 - contention of the petitioner is that since the subject form could not be received from the department, it could not have been produced before the authority at the time of assessment proceedings - HELD THAT:- Now, as the petitioner received the subject form, it intend to file the same, but the authority is not accepting the same.
The subject form may be received and considered by the authority, in accordance with law, on producing the same within one month from today along with a copy of this order.
Petition disposed off.
AI TextQuick Glance (AI)Headnote
Tribunal Upholds Transfer Pricing Decision, Section 14A Disallowance, and Section 80IC Deduction
Issues Involved:
1. Deletion of Transfer Pricing (TP) adjustment regarding corporate guarantee extended by the assessee company to its Associate Enterprise (AE).
2. Disallowance under Section 14A of the Income Tax Act.
3. Computation of deduction under Section 80IC of the Income Tax Act concerning sales tax subsidy and write-back of expenses.
Detailed Analysis:
1. Transfer Pricing (TP) Adjustment:
The primary issue revolves around whether the corporate guarantee extended by the assessee company to its AE qualifies as an international transaction under Section 92B of the Income Tax Act for the Assessment Year 2012-13. The Tribunal referenced the case of M/s. Tega Industries Ltd. vs. ACIT, where it was held that the Explanation to Section 92B introduced by the Finance Act, 2012, is clarificatory in nature and does not alter the fundamental definition of an international transaction. It was concluded that corporate guarantees provided by a parent company to its subsidiary, which do not involve any cost or bearing on the profits, incomes, losses, or assets of the parent company, fall outside the ambit of international transactions under Section 92B(1). The Tribunal upheld the CIT(A)'s decision, dismissing the revenue's ground and confirming that the corporate guarantee in question does not amount to an international transaction.
2. Disallowance under Section 14A:
The second issue pertains to the disallowance under Section 14A of the Act. The CIT(A) ruled that investments made in foreign subsidiaries, which are capable of yielding taxable income, should not be considered for Section 14A disallowance. Furthermore, investments made for strategic business purposes in subsidiaries and group companies were also excluded from disallowance. However, this decision was found to be contrary to the Supreme Court's ruling in Maxopp Investment Ltd. v. CIT. Despite this, the Tribunal upheld the CIT(A)'s alternative argument that no disallowance under Rule 8D(2)(ii) of the Income Tax Rules can be made when the assessee's own surplus funds, which are not interest-bearing, are sufficient to cover the investments. This is in line with the legal precedents set by HDFC Bank Ltd. v. Deputy Commissioner of Income-tax and CIT vs. Rasoi Ltd. Consequently, the Tribunal dismissed the revenue's ground on this issue.
3. Computation of Deduction under Section 80IC:
The third issue concerns the computation of deduction under Section 80IC of the Act. The CIT(A) followed the Supreme Court's judgment in CIT vs. Meghalaya Steels Ltd., which mandates that sales tax subsidies should be included in the profits for the purpose of computing deductions under Section 80IC. The Tribunal upheld the CIT(A)'s decision, affirming that the judgment applies to the case at hand.
Write-back of Expenses:
Additionally, the Tribunal agreed with the CIT(A) that expenses previously allowed as deductions from profit, when written back, should be included in the profits eligible for deduction under Section 80IC. This ground of the revenue was also dismissed.
Conclusion:
The Tribunal dismissed the appeal of the revenue on all grounds, upholding the CIT(A)'s decisions on the deletion of the TP adjustment, disallowance under Section 14A, and computation of deduction under Section 80IC. The judgment emphasized adherence to legal precedents and the clarificatory nature of amendments to the Income Tax Act.
Tribunal Upholds Transfer Pricing Decision, Section 14A Disallowance, and Section 80IC Deduction
The Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s decisions on the deletion of the Transfer Pricing adjustment, disallowance under Section 14A, and computation of deduction under Section 80IC. The Tribunal held that the corporate guarantee provided by the assessee company to its Associate Enterprise did not qualify as an international transaction. It also ruled that no disallowance under Rule 8D(2)(ii) could be made when the assessee's surplus funds were sufficient to cover investments. The Tribunal affirmed the inclusion of sales tax subsidies in profits for deduction purposes under Section 80IC and the inclusion of previously allowed expenses in such profits.
Transfer Pricing (TP) adjustment - corporate guarantee extended by the assessee company to its Associate Enterprise (AE) - Whether it is not an international transaction, prior to the amendment to Section 92B of the Act, by the ld. CIT(A)? - HELD THAT:- As relying on M/S. TEGA INDUSTRIES LTD. [2019 (8) TMI 1450 - ITAT KOLKATA] assessee's corporate guarantee (s) in issue do not amount to international transactions u/s. 92B - corresponding transfer pricing adjustment in question stand deleted. Decided in assessee's favour.
Disallowance u/s 14A - Sufficiency of own funds - HELD THAT:- As the assessee has own surplus funds which are not interest bearing and which were sufficient to meet the cost of investments, no disallowance can be made under Rule 8D(2)(ii) of the Rules r.w.s. 14A of the Act. The ld. D/R could not controvert this factual findings. Hence we uphold the same and dismiss Ground of the revenue.
Computation of deduction u/s 80IC - HELD THAT:- CIT(A) has followed the judgment of the Hon’ble Supreme Court in the case of CIT vs. Meghalaya Steels Ltd.[2016 (3) TMI 375 - SUPREME COURT] and directed the Assessing Officer to include the subsidiary received on sales tax as profits for the purpose of computation of deduction u/s 80IC of the Act. Though, the ld. CIT D/R controverted the findings of the ld. CIT(A), we are of the considered opinion that the judgment of the Hon’ble Supreme Court referred above applies on all fours to the facts of the case and hence we uphold the findings of the ld. CIT() on this issue.
Write back of expenses, we agree with the finding of the ld. CIT(A) that the expenses in question were allowed as a deduction from profit in earlier years and when the same are written back, they should be included in the profits eligible for deduction u/s 80IC of the Act. Thus, this ground of the revenue is dismissed.
AI TextQuick Glance (AI)Headnote
ITAT rules in favor of assessee, disallowance under Rule 8D(2)(ii) not applicable. Legal precedents cited.
Issues Involved:
- Disallowance under Rule 8D(2)(ii) read with Section 14A of the Income Tax Act, 1961.
Detailed Analysis:
1. Issue of Disallowance under Rule 8D(2)(ii):
- The appeal filed by the assessee pertained to the assessment year 2013-14 and challenged the order passed by the Commissioner of Income Tax (Appeal)-2, Kolkata. The Assessing Officer had made disallowances under Section 14A read with Rule 8D of the Act. The grounds of appeal raised by the assessee primarily focused on the disallowance under Rule 8D(2)(ii) and the quantification of disallowance under the same rule.
2. Facts and Decision of CIT(A):
- The assessee company engaged in various business activities and filed its return of income declaring a loss. The CIT(A) allowed the appeal for statistical purposes based on the submissions made by the assessee. The CIT(A) considered that the interest expenses were directly attributable to business activities and not to investments, and hence, disallowance under Rule 8D(2)(ii) was not justified.
3. Arguments Before ITAT and Decision:
- The assessee appealed against the CIT(A)'s order, arguing that the disallowance under Rule 8D(2)(ii) was not applicable as the company's net owned funds were substantially higher than the investments in shares. The ITAT examined the balance sheet of the company and noted that the own funds exceeded the investments in shares. Relying on legal precedents, the ITAT held that since borrowed funds were not used for acquiring shares, no part of the interest paid was disallowable under Rule 8D(2)(ii).
4. Legal Precedents and Conclusion:
- The ITAT referred to judgments of the Calcutta High Court and held that the disallowance under Rule 8D(2)(ii) was not attracted in the assessee's case. Therefore, the ITAT directed the Assessing Officer to delete the disallowance under Rule 8D(2)(ii) of the IT Rules. Consequently, the appeal of the assessee was allowed, and the order was pronounced on 31.12.2019.
This detailed analysis outlines the assessment, arguments, and legal precedents considered by the ITAT in deciding the issue of disallowance under Rule 8D(2)(ii) read with Section 14A of the Income Tax Act, 1961 in the mentioned judgment.
ITAT rules in favor of assessee, disallowance under Rule 8D(2)(ii) not applicable. Legal precedents cited.
The ITAT ruled in favor of the assessee, holding that the disallowance under Rule 8D(2)(ii) was not applicable as the company's own funds exceeded investments in shares, and borrowed funds were not used for acquiring shares. Citing legal precedents, the ITAT directed the deletion of the disallowance under Rule 8D(2)(ii) of the IT Rules, allowing the assessee's appeal.
Disallowance u/s 14A - HELD THAT:- As perused the fact of the case including the findings of the ld CIT(A) and other materials available on record. We note that the assessee is in appeal before us against the disallowance under Rule 8D(2)(ii) read with Section 14A - assessee submitted before us the Balance sheet of the assessee company as on 31.03.2013.
On perusal of Balance sheet, we noticed that own funds of the assessee company is ₹ 1,15,771/- lakhs, which is more than the investments in shares and securities to the tune of ₹ 18,089/- lakhs. Since Company’s net owned funds in the form of equity capital and free reserves were substantially more than the cost of share investment, yielding dividend income, no part of the interest paid is disallowable because borrowed funds were not used for acquiring shares. For that we rely on the judgment in the case of CIT vs HDFC Bank Ltd.[2016 (3) TMI 755 - BOMBAY HIGH COURT]
Therefore, the disallowance under Rule 8D(2)(ii) read with Section 14A is not attracted in assessee’s case hence we direct the Assessing Officer to delete the disallowance under Rule 8D(2)(ii) of the IT Rules. Appeal of the assessee is allowed.
AI TextQuick Glance (AI)Headnote
Court dismisses Rs. 25 Lakhs claim by Home Buyer in CIR Process against Corporate Debtor
Issues:
1. Rejection of a claim of Rs. 25 Lakhs by the Applicant in Form CA under Regulation 8A of the Insolvency and Bankruptcy (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.
2. Claim made by the Applicant as a Home Buyer in the CIR Process against a Corporate Debtor.
3. Dispute regarding the payment details and documentation provided by the Applicant.
4. Allegations of malafide actions, bias, and lack of evidence against the Resolution Professional.
5. Examination of the genuineness of the Applicant's claim as a Home Buyer.
6. Consideration of the claim's validity based on the nature of the property and the timing of the claim.
7. Determination of whether the Applicant qualifies as a Home Buyer under the I&B Code.
8. Analysis of the delay and laches on the part of the Applicant in enforcing the claim.
Analysis:
1. The Applicant filed an Application aggrieved by the rejection of a Rs. 25 Lakhs claim under Regulation 8A. The claim was made in the capacity of a Home Buyer, supported by detailed payment information and documentation.
2. The CIR Process initiated by an Operational Creditor led to the lodging of the claim against the Corporate Debtor. The claim pertained to a property in T. Nagar, with additional documents requested by the Resolution Professional.
3. Disputes arose regarding the consistency of payment records provided by the Applicant, leading to contentions of non-supporting evidence by the Resolution Professional.
4. Allegations of malafide actions and bias against the Resolution Professional were denied, with the Applicant's motives questioned without substantial evidence.
5. The genuineness of the Applicant's claim as a Home Buyer was examined, with suspicions raised regarding the timing and nature of the claim.
6. The nature of the property and the timing of the claim were crucial factors in determining the validity of the Applicant's claim.
7. The Applicant's qualification as a Home Buyer under the I&B Code was debated, with the Resolution Professional arguing against the categorization.
8. The delay and laches on the part of the Applicant in enforcing the claim were highlighted, leading to the dismissal of the Application due to the stale claim and failure to act within the required timeframe.
Court dismisses Rs. 25 Lakhs claim by Home Buyer in CIR Process against Corporate Debtor
The court dismissed the Applicant's claim of Rs. 25 Lakhs under Regulation 8A as a Home Buyer in the CIR Process against a Corporate Debtor. Disputes over payment details and documentation, allegations of malafide actions, bias, and lack of evidence against the Resolution Professional were raised. The court examined the genuineness of the claim, considering the property's nature and timing of the claim, and debated the Applicant's qualification as a Home Buyer under the I&B Code. The court highlighted the delay and laches in enforcing the claim, leading to the Application's dismissal.
CIRP Process - claim was lodged in Form CA as already brought forth on 08.10.2018 and the Resolution Professional acknowledged the said lodging of the claim by an email dated 13.11.2018 - HELD THAT:- It is seen that the document bearing 572/2011 is registered with Sub-registrar, T. Nagar, which is sought to be relied upon for the purpose of conveyance of undivided share of land as prescribed in the Schedule of property in the said registered documents. In addition, the Memorandum of Agreement as entered into between the parties dated 15.03.2011 is also sought to be relied on by the Applicant to establish that the monies which are figuring in the respective Sale Agreement or Memorandum of Agreement have been duly paid to the Corporate Debtor, and in the said circumstance, the Claim cannot be rejected and that the payment which is also extracted hereinabove by way of tabulation in Para supra are in relation to the purchase of properties, and hence, it is appropriate that the Applicant should be categorised as 'Home Buyer' and that the Resolution Professional was wrong in not entertaining the Claim as filed under Form CA meant for the Home Buyers.
In any case, it is also pointed out by the Learned Counsel for the Resolution Professional that in relation to the T Nagar property it is not the asset of the Corporate Debtor presently as the same has been allotted and sold a long time back much prior to the initiation of CIRP. Hence, the claim also seems to suffer from delay and laches on the part of the Applicant in enforcing the claim. In the circumstance, on this count also, the delay on the part of the Applicant to exercise its remedy as against the Corporate Debtor also disentitles the Applicant to lodge the claim. From all the documents filed, it is seen that it is of the year 2011 and if at all any action based on the said documents for consideration is taken, should have been taken within a period of three years from the date of the said agreement which the Applicant has miserably failed.
Application dismissed.
AI TextQuick Glance (AI)Headnote
Company Scheme of Amalgamation Approved: Fair, Reasonable, and Beneficial for Shareholders and Creditors
Issues Involved:
1. Sanctioning of the proposed Company Scheme of Amalgamation under Sections 230-232 of the Companies Act, 2013.
2. Dispensation and convening of meetings for Equity Shareholders and Unsecured Creditors.
3. Compliance with statutory provisions and addressing observations from the Regional Director (RD) and Official Liquidator (OL).
4. Ensuring the scheme is fair, reasonable, and not prejudicial to shareholders, creditors, or public interest.
Issue-wise Detailed Analysis:
1. Sanctioning of the Proposed Company Scheme of Amalgamation:
The petitioner companies sought the tribunal's sanction for the amalgamation of Essen Polymers Private Limited with Essen Multipack Limited. The tribunal considered the petition under Sections 230-232 of the Companies Act, 2013. The scheme aimed to enhance management focus, administrative convenience, and resource utilization, ultimately leading to higher returns on investment and capital.
2. Dispensation and Convening of Meetings for Equity Shareholders and Unsecured Creditors:
The tribunal had earlier dispensed with the meetings of Equity Shareholders for both companies and directed the convening of meetings for Unsecured Creditors. These meetings were held on 30.08.2019, where the Unsecured Creditors unanimously voted in favor of the scheme. The tribunal ensured compliance with its previous order dated 24th June 2019.
3. Compliance with Statutory Provisions and Addressing Observations from RD and OL:
The tribunal directed the petitioner to notify relevant authorities, including the Regional Director, Registrar of Companies, Official Liquidator, and Income-Tax Authorities, and to publish notices in newspapers. The RD and OL submitted their comments and representations. The RD noted no complaints against the petitioner companies and sought directions for compliance with Section 232(3)(i) of the Companies Act, 2013, regarding the authorized share capital adjustment. The OL confirmed statutory compliance and the protection of employees' interests, recommending directions for preserving records and ensuring statutory liabilities are met.
4. Ensuring the Scheme is Fair, Reasonable, and Not Prejudicial:
The tribunal evaluated the scheme's reasonableness against the Supreme Court's guidelines in Miheer H. Mafatlal vs. Mafatlal Industries Ltd., ensuring compliance with statutory procedures, fairness to shareholders and creditors, and non-violation of public policy. The tribunal found the scheme to be bona fide and not detrimental to shareholders, creditors, or public interest. The petitioner companies provided necessary undertakings and assurances for statutory compliance.
Conclusion:
The tribunal sanctioned the proposed scheme of amalgamation, subject to specific conditions and directions, including payment of legal fees to the RD and OL, filing of the order with relevant authorities, and compliance with stamp duty adjudication. The petition was disposed of accordingly, with the tribunal emphasizing the scheme's fairness, reasonableness, and compliance with statutory requirements.
Company Scheme of Amalgamation Approved: Fair, Reasonable, and Beneficial for Shareholders and Creditors
The tribunal sanctioned the proposed Company Scheme of Amalgamation under Sections 230-232 of the Companies Act, 2013, finding it fair, reasonable, and not prejudicial to shareholders, creditors, or public interest. The scheme aimed to enhance management focus and resource utilization for higher returns on investment. Meetings for Equity Shareholders were dispensed with, and Unsecured Creditors unanimously approved the scheme. Compliance with statutory provisions, including addressing observations from the Regional Director and Official Liquidator, was ensured. The tribunal emphasized the scheme's compliance with statutory requirements and fairness, disposing of the petition with specific conditions and directions.
Sanction of proposed Company Scheme of Amalgamation - Sections 230-232 of the Companies Act, 2013 - HELD THAT:- We considered the contents and salient features of the proposed company scheme and have gone through the report and observations of the Regional Director and Official Liquidator, respectively. We also perused the reply affidavit submitted by the petitioner companies and the undertaking/assurance given therein can be accepted and acted upon. Hence, we find the proposed company scheme appears to be reasonable and bona fide for sanctioning of the Scheme of amalgamation, which is not going to prejudice to the paramount interest of its shareholders, creditors not it appears to be detrimental to the public interest at large. Therefore, the proposed scheme of amalgamation of Essen Polymers Private Limited with Essen Multipack Limited deserves to be sanctioned.
Petition allowed.
AI TextQuick Glance (AI)Headnote
Tax Tribunal overturns PCIT's revision of assessment order, restores original ruling on deduction claims under
Issues:
1. Revision of assessment under section 263 of the Income Tax Act, 1961 based on deduction claims under sections 54 and 54F.
2. Validity of the revision jurisdiction exercised by the Principal Commissioner of Income Tax (PCIT).
3. Assessment proceedings under section 153A/143(3) concerning long term capital gains and deduction claims.
Analysis:
Issue 1: Revision of assessment under section 263
The appellant's appeal for the assessment year 2010-11 was against the PCIT's order dated 16.03.2018 regarding proceedings under sections 153A/143(3) of the Income Tax Act, 1961. The PCIT set aside the assessment order passed by the Assessing Officer (AO) on the grounds that the deduction claims under sections 54 and 54F were wrongly allowed. The PCIT directed the AO to re-examine the nature of the right purchased by the assessee in a flat under construction and determine the eligibility for the deductions. The PCIT found that the deduction was allowed without sufficient examination, leading to the revision of the assessment order.
Issue 2: Validity of revision jurisdiction by PCIT
Both parties presented their arguments regarding the PCIT's assumption of revision jurisdiction. Citing the Supreme Court's decision in Malabar Industries Co. vs. CIT 243 ITR 83, it was emphasized that for an assessment to be revised under section 263, it must be erroneous and cause prejudice to the Revenue. The AO had previously assessed the income at a specific amount, and the deduction claim was not part of the subsequent assessment. Therefore, the PCIT's decision to term the assessment as erroneous was deemed incorrect, and the original assessment was restored.
Issue 3: Assessment proceedings under section 153A/143(3)
The search conducted in M/s Kushal Group led to section 153A proceedings, with the assessee filing a return stating income. The AO completed the assessment accepting the returned income. The revision proceedings were initiated based on the deduction claims under sections 54 and 54F. The Tribunal noted that the deduction claim was not part of the subsequent assessment, and the PCIT's revision directions were reversed. The appeal was allowed, and the original assessment order was upheld.
In conclusion, the Tribunal found that the PCIT erred in setting aside the assessment order based on the deduction claims under sections 54 and 54F. The original assessment was restored, emphasizing that the deduction claim was not part of the subsequent assessment and therefore did not warrant revision.
Tax Tribunal overturns PCIT's revision of assessment order, restores original ruling on deduction claims under
The Tribunal held that the Principal Commissioner of Income Tax erred in revising the assessment order under section 263 of the Income Tax Act, 1961, based on deduction claims under sections 54 and 54F. The original assessment order was restored as the deduction claims were not part of the subsequent assessment and did not meet the criteria for revision jurisdiction. The appellant's appeal was allowed, emphasizing that the revision by the PCIT was deemed incorrect, and the assessment proceedings under sections 153A/143(3) concerning long term capital gains and deduction claims were upheld.
Revision u/s 263 - Assessment u/s 153A - revision proceedings in PCIT’s order under challenge on the ground that the AO has wrongly accepted the assessee’s section 54 & 54F deduction claim - HELD THAT:- PCIT’s assumption of revision jurisdiction. Hon’ble apex court’s landmark decision in Malabar Industries Co. vs. CIT [2000 (2) TMI 10 - SUPREME COURT] holds that before an assessment is sought to be revised in proceedings u/s 263 of the Act, the same has to be erroneous as well as caused prejudice to interest of the Revenue; simultaneously.
An assessment cannot be termed as erroneous causing prejudice to interest of the Revenue in case the AO adopts one of the possible view. Reverting back to impugned regular assessment, we notice that the Assessing Officer had claimed yet another regular assessment on 30.11.10 invoking section 153A/143(3) proceedings whilst assessing the total income of ₹ 18,62,400/- only. That being the case, it is sufficiently clear that the impugned second assessment dated 25.12.16 pertained to the search dated 05.08.14 only qua the alleged incriminating material found/seized.
It emerges from the case records that the assessee had claimed the impugned section 54 and 54F deduction relief at the first instance in former assessment. This issue nowhere formed subject matter of deduction in the latter assessment therefore. Since the AO could not have even taken up the assessee’s above deduction claim during latter assessment, the PCIT has erred in law and on facts in terming the same as erroneous causing prejudice to interest of the Revenue. We therefore restore the Assessing Officer’s regular assessment dated 25/30.12.16 and reverse the PCIT’s revision directions under challenge. - Decided in favour of assessee.
AI TextQuick Glance (AI)Headnote
Tribunal limits disallowance under IT Act, aligns with Special Bench ruling
Issues:
1. Disallowance under section 14A r.w.r. 8D of Income Tax Rules.
Analysis:
The appeal was filed by the Revenue against the order of the CIT(A) relating to the assessment year 2014-15. The Revenue raised grounds challenging the CIT(A)'s decision to restrict the addition to Rs. 5,512 instead of the initial disallowance of Rs. 1,79,74,266 under section 14A r.w.r. 8D of the IT Act. The Assessing Officer had disallowed the substantial amount, but the CIT(A) determined that only 0.5% of the investment amount yielding exempt income should be considered as expenses incurred for earning such income, resulting in the reduced disallowance.
The Tribunal, comprising MS SUSHMA CHOWLA, JUDICIAL MEMBER, and SHRI R.K. PANDA, ACCOUNTANT MEMBER, after considering the arguments, upheld the CIT(A)'s decision. The Tribunal referred to the Delhi Special Bench's decision in the case of Vireet Investment Pvt. Ltd. and Anr., where it was held that only the average value of investments generating exempt income during the year should be taken into account for disallowance under section 14A. Since the assessee had received dividend income of Rs. 6,48,431 from the current investment of Rs. 11,02,496, the Tribunal agreed with the CIT(A)'s calculation of 0.5% of the investment amount as expenses incurred for earning exempt income, aligning with the Special Bench's ruling.
Therefore, the Tribunal found no fault in the CIT(A)'s order and dismissed the Revenue's appeal, affirming the restricted disallowance of Rs. 5,512. The decision was pronounced in the open court on 31.12.2019.
Tribunal limits disallowance under IT Act, aligns with Special Bench ruling
The Tribunal upheld the CIT(A)'s decision to restrict the disallowance under section 14A r.w.r. 8D of the IT Act to Rs. 5,512 instead of the initial amount of Rs. 1,79,74,266. The Tribunal aligned with the Special Bench's ruling that only the average value of investments generating exempt income should be considered for disallowance. As the assessee received dividend income from a current investment, the Tribunal agreed with the CIT(A)'s calculation of 0.5% of the investment amount as expenses for earning exempt income. The Tribunal dismissed the Revenue's appeal, affirming the reduced disallowance amount.
Disallowance u/s 14A r.w.r. 8D - CIT-A restricted the addition held that 0.5% of the investment treated as expenses incurred for earning exempt income - HELD THAT:- No infirmity in the order of the CIT(A). In the case of Vireet Investment Pvt. Ltd. and Anr. [2017 (6) TMI 1124 - ITAT DELHI] held that average value of investment which yielded exempt income during the year only shall be considered for the purpose of disallowance u/s 14A.
Since the CIT(A) has given a categorical finding that the assessee has received dividend income of ₹ 6,48,431/- from the current investment of ₹ 11,02,496/-, therefore, 0.5% of the above investment has to be treated as expenses incurred for earning exempt income which comes to 5,512/- and which is in accordance with the decision of the Special Bench of the Tribunal cited (supra). Accordingly, we do not find any infirmity in the order of the CIT(A) and the same is upheld. Ground raised by the Revenue is accordingly dismissed.
AI TextQuick Glance (AI)Headnote
Tribunal Orders Re-examination of Depreciation & Disallowances, Upholds Key Decisions on Software & Club Expenses.
Issues Involved:
1. Disallowance of depreciation on residential properties.
2. Disallowance of amortization of premium paid on leasehold land.
3. Disallowance of depreciation on toll road.
4. Addition of notional interest income in respect of toll road from MPSIDC.
5. Disallowance under Section 14A read with Rule 8D in respect of interest.
6. Disallowance of interest on loan given to IL&FS Employee Welfare Trust.
7. Double addition of income.
8. Rejection of claim for deduction under Section 36(1)(vii).
9. Levy of interest under Section 234B.
10. Deletion of addition to "Income from House Property".
11. Deletion of disallowance made under Section 14A read with Rule 8D.
12. Treatment of capital expenditure on computer software development expenses as revenue expenditure.
13. Deletion of accrued income from Toll Road.
14. Deletion of club expenses.
15. Deletion of disallowance claimed under Section 36(1)(viii).
16. Verification of income accruing as per AIR-ITS details.
17. Allowance of depreciation on computer software and peripherals at 60%.
Detailed Analysis:
1. Disallowance of Depreciation on Residential Properties:
The Tribunal allowed the depreciation on residential properties, directing the Assessing Officer (AO) to verify whether the assessee claimed standard deduction under Section 24(a). If claimed, it should be disallowed to avoid double deduction.
2. Disallowance of Amortization of Premium Paid on Leasehold Land:
The Tribunal upheld the disallowance, ruling that the amortization of lease premium is capital in nature and not allowable as per the Tribunal's earlier decisions.
3. Disallowance of Depreciation on Toll Road:
The Tribunal allowed depreciation on toll roads as intangible assets under Section 32, directing the AO to re-compute it as per the Special Bench decision in Progressive Constructions Ltd. vs. ACIT.
4. Addition of Notional Interest Income in Respect of Toll Road from MPSIDC:
The issue was restored to the AO for re-examination, following the Tribunal's earlier decisions to estimate income based on the latest decision of the Appellate Tribunal or any higher authority.
5. Disallowance Under Section 14A Read with Rule 8D in Respect of Interest:
The Tribunal restored the issue to the AO to re-compute the disallowance, considering strategic investments and investments held as stock in trade, as per the Tribunal's earlier decisions and the Special Bench decision in ACIT v. Vireet Investments Private Limited.
6. Disallowance of Interest on Loan Given to IL&FS Employee Welfare Trust:
The Tribunal sustained the disallowance, as the assessee failed to prove that the loan was given for business purposes.
7. Double Addition of Income:
The Tribunal restored the issue to the AO for verification, directing to examine the books of accounts and balance sheet to ensure no double addition of income.
8. Rejection of Claim for Deduction Under Section 36(1)(vii):
The issue was restored to the CIT(A) to verify whether the assessee had withdrawn its claim. If not, the CIT(A) should decide the issue on merits.
9. Levy of Interest Under Section 234B:
This ground was deemed consequential and did not require adjudication.
10. Deletion of Addition to "Income from House Property":
The Tribunal’s decision on disallowance of depreciation on residential properties also applied to this issue.
11. Deletion of Disallowance Made Under Section 14A Read with Rule 8D:
The Tribunal restored the issue to the AO to re-compute the disallowance, similar to the decision in the assessee's appeal.
12. Treatment of Capital Expenditure on Computer Software Development Expenses as Revenue Expenditure:
The Tribunal upheld the CIT(A)'s decision, treating software development expenses as revenue expenditure based on earlier Tribunal decisions.
13. Deletion of Accrued Income from Toll Road:
The Tribunal restored the issue to the AO for re-examination, following the Tribunal's earlier decisions.
14. Deletion of Club Expenses:
The Tribunal directed the AO to delete the disallowance, following the Bombay High Court's decision in the assessee's own case, treating club membership fees as revenue expenditure.
15. Deletion of Disallowance Claimed Under Section 36(1)(viii):
The Tribunal upheld the CIT(A)'s decision, allowing the deduction under Section 36(1)(viii), as the assessee fulfilled the conditions of providing long-term finance for infrastructure projects.
16. Verification of Income Accruing as Per AIR-ITS Details:
The Tribunal directed the AO to issue notices under Section 133(6) to verify the transactions reported in AIR and treat the confirmed payments as income of the assessee, providing the assessee an opportunity to rebut the confirmations.
17. Allowance of Depreciation on Computer Software and Peripherals at 60%:
The Tribunal upheld the CIT(A)'s decision, allowing depreciation at 60% on computer software and peripherals, following the Special Bench decision in DCIT v. Datacraft India Ltd.
Conclusion:
The appeals were partly allowed, with several issues restored to the AO for re-examination and verification, following earlier Tribunal decisions and judicial precedents. The Tribunal upheld the CIT(A)'s decisions on several grounds, providing relief to the assessee and directing appropriate re-computation of disallowances and additions.
Tribunal Orders Re-examination of Depreciation & Disallowances, Upholds Key Decisions on Software & Club Expenses.
The Tribunal partially allowed the appeals, directing the AO to re-examine and verify several issues, including depreciation on toll roads and disallowances under Section 14A. The Tribunal upheld the CIT(A)'s decisions on treating software development expenses as revenue and allowing depreciation on computer software at 60%. Relief was granted on club expenses and deductions under Section 36(1)(viii). The Tribunal emphasized adherence to previous decisions and judicial precedents, ensuring accurate computation of disallowances and additions.
Depreciation in respect of residential properties - HELD THAT:- As perused the order of the Tribunal for the A.Y. 2004-05 [2019 (4) TMI 1809 - ITAT MUMBAI] wherein the Tribunal decided this issue in favour of the assessee - as observed that the Tribunal while disposing off appeal for the A.Y. 2005-06 [2019 (4) TMI 1809 - ITAT MUMBAI] to A.Y. 2007-08 directed the Assessing Officer to allow the depreciation as claimed by the assessee on residential premises, however, it was also directed to verify the fact as to whether deduction U/s.24(a) was claimed by the assessee or not and if it is claimed the same is to be disallowed. Similar view has been taken by the Tribunal in [2019 (11) TMI 1368 - ITAT MUMBAI] for the A.Y. 2008-09 and A.Y. 2009-10 by order [2019 (11) TMI 1368 - ITAT MUMBAI]. As the facts being identical respectfully following the said decision, we direct the Assessing Officer to carry out similar exercise as directed
Disallowance of amortization of premium paid on leasehold land has been decided in favour of the Revenue in own case in [2019 (11) TMI 1368 - ITAT MUMBAI] for the A.Y. 2008-09 and A.Y. 2009-10 .
Disallowance of depreciation on toll road - Addition made towards notional interest in respect of toll road from Madhya Pradesh State Industrial Development Corporation - HELD THAT:- We restore this matter to the file of the Assessing Officer with a direction to decide the issue following the directions of the Tribunal for the A.Y. 2005-06 to 2007-08. [2019 (4) TMI 1809 - ITAT MUMBAI] This ground is allowed for statistical purpose.
Disallowance of interest on loan given to IL & FS employee welfare trust - HELD THAT:- We observe that this issue has been decided by the Tribunal for the A.Y. 2009-10 [2019 (11) TMI 1368 - ITAT MUMBAI] held that the assessee has not proved that the loan is given for the purpose of business of the assessee. Even before us the assessee could not substantiate that the loan has been given for the purpose of business of the assessee. In the circumstances, we are not inclined the disturb the finding of the Ld. CIT(A) hence, the action of the Ld.CIT(A) is sustained. Ground raised by the assessee is rejected.
Double addition to income - HELD THAT:- We are inclined to restore this issue to the file of the Assessing Officer with a direction to examine the submissions of the assessee with reference to Books of Accounts, Profit and Loss Account and balance sheet and decide the issue in accordance with law. We make it clear that if it is proved that assessee has offered excess income as claimed by the assessee the same shall not be brought to tax as it would amount double addition, though it is an inadvertent mistake of the assessee.
Disallowance of deduction u/s.36(l)(viii) - HELD THAT:- The appellant had advanced loans for infrastructural facilities to group entities which are developing the infrastructural facilities in separate company. This separate company formed as group entity develops infrastructural facility and income from this accrues to this group entities. The appellant's extended loan for development of infrastructural facilities on long term basis which is the 2nd condition which appellant has to fulfill to claim sec.36(l)(viii). As appellant is fulfilling the condition of specified entity and extending the loan for infrastructural facilities though they are group companies which are themselves developing infrastructural facilities, the appellant is eligible for deduction u/s.36(l)(viii)
Mis-match in AIR - assessee has not explained the transactions and accordingly made addition u/s.69/69B/69C - HELD THAT:- No infirmity in the order passed by the Ld.CIT(A). The Assessing Officer is directed to issue notice u/s. 133(6) of the Act to the parties mentioned in AIR and if the parties confirm that they have made payments to the assessee the same shall be treated as income of the assessee. However, the Assessing Officer shall provide complete details to the assessee to rebut the confirmations which the Assessing Officer receives from the parties. Adequate opportunity shall be given to the assessee to make its submissions; in case the Assessing Officer wants to treat any amount as income of the assessee due to the mis-match in AIR.
Allowing depreciation on computer software @60%.
AI TextQuick Glance (AI)Headnote
Orders Under Evidence Act Section 45 are Interlocutory; Revisions Barred Under Cr.P.C. Section 397(2); Cases Dismissed.
Issues Involved:1. Maintainability of Criminal Revision Cases under Section 397(1) Cr.P.C. against orders passed under Section 45 of the Evidence Act.
2. Determination of whether orders under Section 45 of the Evidence Act are interlocutory, intermediate, or quasi-final orders.
Issue-Wise Detailed Analysis:1. Maintainability of Criminal Revision Cases under Section 397(1) Cr.P.C. against orders passed under Section 45 of the Evidence Act:All Criminal Revision Cases arise from orders on petitions filed under Section 45 of the Evidence Act to send disputed documents for expert examination. The core question is whether such orders are interlocutory, attracting the bar under Section 397(2) Cr.P.C., thus affecting the maintainability of revision under Section 397(1) Cr.P.C. The petitioners, accused in complaints under Section 138 of the Negotiable Instruments Act, filed petitions during trial to send documents to experts to establish their defense. Trial Courts dismissed these petitions on factual grounds. Aggrieved, the petitioners filed Criminal Revision Cases under Section 397(1) Cr.P.C.
The petitioners contended that revisions are maintainable against intermediate orders, citing the Supreme Court's judgments in Amar Nath v. State of Haryana and Madhu Limaye v. The State of Maharashtra, which held that orders affecting the rights of the accused or deciding certain rights of the parties are intermediate orders, not interlocutory orders, thus making revisions maintainable. They argued that the right to seek expert examination of disputed documents is a substantial right affecting their defense, making the order an intermediate one.
Contrarily, the respondents and the Public Prosecutor argued that revisions under Section 397(1) Cr.P.C. are maintainable only against final orders terminating the proceedings, while interlocutory orders are barred under Section 397(2) Cr.P.C. They relied on the Supreme Court's judgment in Girish Kumar Suneja v. C.B.I., which clarified that only orders culminating the main proceedings are intermediate orders. They contended that orders under Section 45 of the Evidence Act do not terminate proceedings and thus are interlocutory orders, barring revisions under Section 397(2) Cr.P.C.
2. Determination of whether orders under Section 45 of the Evidence Act are interlocutory, intermediate, or quasi-final orders:The Court analyzed the historical background and legislative intent behind Section 397(2) Cr.P.C., introduced in 1973 to curb delays caused by revisions against interlocutory orders. It emphasized that interpretation of statutes must align with legislative intent, avoiding dilution of the legislative objective. The Court noted that revisions are maintainable when no right of appeal is provided against a particular final order, and intermediate orders, which if reversed, terminate proceedings, also allow revisions.
The Court reiterated that orders under Section 45 of the Evidence Act, passed during trial, do not decide anything finally or terminate proceedings, making them pure interlocutory orders. The Court referred to precedents, including Amar Nath and Madhu Limaye, which introduced the concept of intermediate orders, and Girish Kumar Suneja, which clarified that orders terminating proceedings are intermediate orders. The Court emphasized that orders summoning witnesses or calling for documents, similar to orders under Section 45, are interlocutory orders, barring revisions under Section 397(2) Cr.P.C.
The Court concluded that orders under Section 45 of the Evidence Act are interlocutory orders, not intermediate or quasi-final orders, thus revisions against them are barred under Section 397(2) Cr.P.C. The Court dismissed all Criminal Revision Cases as not maintainable under law, closing any pending miscellaneous applications.
Orders Under Evidence Act Section 45 are Interlocutory; Revisions Barred Under Cr.P.C. Section 397(2); Cases Dismissed.
The HC concluded that orders under Section 45 of the Evidence Act are interlocutory, not intermediate or quasi-final. Consequently, revisions against such orders are barred under Section 397(2) Cr.P.C. The HC dismissed all Criminal Revision Cases as non-maintainable, thereby closing any pending miscellaneous applications.
Examination of the documents in the lis to the expert for his opinion - Section 45 of the Evidence Act - what are the orders that can be construed as intermediate or quasi final orders and whether the order passed under Section 45 of the Evidence Act is an interlocutory order or intermediate order and whether revision against the said order is maintainable or not?
HELD THAT:- Undoubtedly, the impugned orders under Section 45 of the Evidence Act were passed by the trial Courts during the pendency of the trial of the main cases. Irrespective of the fact whether the said petition filed under Section 45 of the Evidence Act is allowed or dismissed, the proceedings of the main criminal case still subsists and continues. So, it does not decide anything finally relating to the main case - the revision petitioners sought to contend that since the order passed under Section 45 of the Evidence Act pertains to the right of the accused in relation to the trial of the case to prove his deference in the case, it is to be construed as an intermediate order or a quasi final order.
From the survey of law made as to what orders can be construed as intermediate orders or quasi final orders on the principle that it is an order which is of matter of moment or that it touches the substantial rights and liabilities of the parties in relation to the trial, the legal position is now clear from the precedential guidance given in the three-Judge Bench judgment of the Apex Court in Girish Kumar Suneja [2017 (7) TMI 1088 - SUPREME COURT] that those orders which have the effect of terminating the proceedings of the main case once for all though passed at interlocutory stage are alone to be construed as an intermediate or quasi final order. That is the only feasible test to decide whether a particular order is an interlocutory order or an intermediate or quasi final order for the purpose of maintaining revision under Section 397(1) Cr.P.C. Therefore, in the considered opinion of this Court, the said concept of intermediate order cannot be stretched to that extent so as to take within its fold all other interlocutory orders which are passed during the trial of the case relating to summoning of witnesses and sending the document to experts for examination etc. on the ground that it touches the rights and liabilities of the party in relation to trial of the case.
Since the order passed under Section 45 of the Evidence Act do not decide anything finally and results into culminating the main proceeding of the case, in any way, it cannot be construed as an order which is of matter of moment or as an intermediate or quasi final order so as to maintain revision against the said order. It is held that on par with the law laid down in Sethuraman [2000 (5) TMI 1086 - SUPREME COURT] that an order summoning a witness or calling for a document is an interlocutory order against which revision is barred, the order passed under Section 45 of the Evidence Act is also a pure and simple interlocutory order against which revision is barred under Section 397(2) Cr.P.C.
Criminal Revision Cases are dismissed as not maintainable under law.
AI TextQuick Glance (AI)Headnote
High Court directs consolidation of Revision Petitions, upholds confiscation under Customs Act
Issues Involved:
1. Clubbing of Revision Applications
2. Confiscation of Gold Biscuits and Currency
3. Reduction and Waiver of Penalties
4. Request for Cross-Examination
5. Eligibility under Notification No. 12/2012-Customs
6. Re-export of Confiscated Goods
7. Release of Demand Draft and Indian Currency
Issue-wise Detailed Analysis:
1. Clubbing of Revision Applications
The Rajasthan High Court directed the revisional authority to club Revision Petition Nos. 375/37/B/2017-RA and 380/15-A/B/2015-RA and decide both petitions together after due notice to the petitioner. This order was issued without commenting on the merits of the case and remitted the matter back to the revisional authority.
2. Confiscation of Gold Biscuits and Currency
The Additional Commissioner of Customs, Jodhpur, ordered the absolute confiscation of seventy gold biscuits weighing 8164.80 grams valued at Rs. 2,51,89,735/-, UAE Dirham AED 1,05,410, and INR Rs. 20,000/-. The Commissioner (Appeals) upheld the confiscation of the gold bars and concurred with the adjudicating authority’s decision to deny cross-examination of witnesses and customs officers. The PAX's contention that the customs declaration form was misplaced by the customs officer was deemed baseless. The Government upheld the absolute confiscation under Section 111 of the Customs Act, 1962.
3. Reduction and Waiver of Penalties
The Commissioner (Appeals) reduced the penalty from Rs. 30 lacs to Rs. 5 lacs under Section 112 of the Customs Act, 1962 and waived the penalty under Section 114AA. The customs authorities challenged this reduction, arguing it was not commensurate with the gravity of the offense. The Government found the reduction erroneous and reinstated a penalty of Rs. 40 lacs under Section 112(a) of the Customs Act, 1962. The waiver of the penalty under Section 114AA was upheld as legally sustainable.
4. Request for Cross-Examination
The PAX requested cross-examination of customs officers and witnesses, which was initially withdrawn but later reiterated. The Government disallowed this request, stating no new facts were brought forth and citing the Supreme Court judgment in Surjeet Singh Chhabra v. UOI, which held that confession statements made before customs officers are binding even if retracted.
5. Eligibility under Notification No. 12/2012-Customs
The PAX claimed eligibility to carry up to 10 kg of gold under Notification No. 12/2012-Customs, but the Government found this incorrect. The PAX brought 8 kg of gold, exceeding the 1 kg limit for passengers returning after six months. The plea of ignorance of law was dismissed, referencing the Calcutta High Court's ruling in Provash Kumar Dey v. Inspector of Central Excise.
6. Re-export of Confiscated Goods
The PAX requested the re-export of confiscated gold bars and currency. The Government denied this request, stating the conditions under Section 80 of the Customs Act, 1962, were not fulfilled since the PAX did not make a true declaration under Section 77.
7. Release of Demand Draft and Indian Currency
The Commissioner (Appeals) allowed the release of a demand draft amounting to Rs. 12 lacs meant for deposit in the NRE Account and confiscated Indian currency amounting to Rs. 12,500/-. The Government upheld this order.
Conclusion:
1. The absolute confiscation of seventy gold biscuits, forex, and concealment material is upheld under Section 111 of the Customs Act, 1962.
2. A penalty of Rs. 40 lacs is imposed under Section 112(a) of the Customs Act, 1962.
3. The penalty under Section 114AA is set aside.
4. The release of the demand draft amounting to Rs. 12 lacs and Indian currency amounting to Rs. 12,500/- is upheld.
5. Both Revision Applications are disposed of accordingly.
High Court directs consolidation of Revision Petitions, upholds confiscation under Customs Act
The Rajasthan High Court directed the revisional authority to club two Revision Petitions and remitted the matter back without commenting on the merits. The absolute confiscation of gold biscuits and currency was upheld under Section 111 of the Customs Act, 1962. A penalty of Rs. 40 lacs was imposed under Section 112(a), while the penalty under Section 114AA was set aside. The release of the demand draft and Indian currency was upheld. Both Revision Applications were disposed of accordingly.
Smuggling - Gold Bars - Forex and Indian currency - packaging materials and other miscellaneous goods - absolute confiscation - penalty - cross-examination of the customs officers manning x-ray machine and red channel counter as well as the witnesses present on the date of seizure in the case - HELD THAT:- From the evidence on record it is evident that Indian currency as well as huge amount of forex Dirham 1,05,410 was recovered from the PAX on 23-9-2012. The impugned currency was also not declared to the customs officers at the red channel under Section 77 of Customs Act, 1962 by the PAX - It is observed that the PAX did not make the statutory declaration on his arrival to the customs authorities since the Forex (UAE Dirham 1,05,410) carried by him was much higher than the prescribed limit under the FEMA, 1999 read with Foreign Exchange Management (Export and Import of Currency) Regulations, 2000.
The legal provisions of FEMA, 1999, the Foreign Exchange Management (Export and Import of Currency) Regulations, 2000, Section 2(33) of the Customs Act, 1962 read with Section 11 clearly stipulate that an attempt to smuggle foreign currency and Indian currency is ‘prohibited’ and merits confiscation under provisions of Customs Act, 1962.
In the case of Ram Kumar v. Commissioner of Customs [2015 (1) TMI 1126 - DELHI HIGH COURT] Hon’ble High Court of Delhi while dismissing the writ petition of the petitioner disallowed release of confiscated forex to be redeemed under Section 125 of Customs Act, 1962. The ratio of judgment squarely applies to the present case - Therefore the impugned Indian and foreign currency seized from the PAX in violation of the provisions of FEMA, 1999, Foreign Exchange Management (Export and Import of Currency) Regulations, 2000 read with Sections 2(33) and 11 of Customs Act, 1962 falling into the category of ‘prohibited goods’ has been correctly confiscated under Section 111(d), (m) & (o) of Customs Act, 1962 by the adjudicating authority which has been upheld by the impugned order-in-appeal.
Penalty under Section 112 and Section 114AA of Customs Act, 1962 - HELD THAT:- Keeping in view the gravity of the offence the order of Commissioner (Appeals) in reducing the penalty from ₹ 30 lacs to ₹ 5 lacs is erroneous and is set aside - It is observed that this is not a case for imposition of penalty under Section 114AA of the Customs Act, 1962. Therefore the order of Commissioner (Appeals) in waiving the penalty under Section 114AA of Customs Act, 1962 is legally sustainable and is upheld - In view of the seriousness of the offence wherein 70 (Seventy) gold biscuits weighing 8164.80 grams and valued at ₹ 2,51,89, 735/- and forex 1,05,410 UAE Dirham have been smuggled by the PAX, Government imposes a penalty of ₹ 40 lacs on the PAX under Section 112(a) of the Customs Act, 1962.
Appeal allowed in part.
AI TextQuick Glance (AI)Headnote
Court restrains coercive action due to jurisdictional conflict between Central and State tax laws.
Issues: Jurisdictional conflict between Central Goods and Services Tax Act and State Goods and Services Tax Act
In the judgment delivered by Honourable Ms. Justice Harsha Devani, the counsel for the petitioner highlighted the provisions of sections 5 and 6 of the Gujarat Goods and Services Tax Act, 2017, specifically focusing on clause (b) of sub-section (2) of section 6. It was noted that this clause prohibits the initiation of proceedings by the proper officer under the State Act if proceedings have already been initiated by the proper officer under the Central Goods and Services Tax Act on the same subject matter. Reference was made to a clarification issued by the Central Board of Indirect Taxes and Customs, emphasizing that if the Central tax authority initiates enforcement action against a taxpayer under State jurisdiction, the case remains with the Central authority. The petitioner's counsel argued that the State authorities were aware of the investigation initiated by the Central tax authorities, indicating a conflict between parallel investigations under the State and Central Acts.
The court, considering the submissions made, issued a notice returnable on 23rd January, 2020. Additionally, as an interim measure, the respondents were restrained from taking any coercive action against the petitioner in connection with the ongoing inquiry proceedings. Direct service of the order was permitted to ensure timely communication of the court's decision.
Court restrains coercive action due to jurisdictional conflict between Central and State tax laws.
The court issued a notice returnable on 23rd January, 2020, and restrained the respondents from taking coercive action against the petitioner in connection with ongoing inquiry proceedings due to a jurisdictional conflict between the Central Goods and Services Tax Act and State Goods and Services Tax Act. The court emphasized that if the Central tax authority initiates enforcement action against a taxpayer under State jurisdiction, the case remains with the Central authority, highlighting a conflict between parallel investigations under the State and Central Acts.
Initiation of proceedings by the Stage GST officers where Central GST officers have already initiated the proceedings - proper officer - sections 5 and 6 of the Gujarat Goods and Services Tax Act, 2017 - It was submitted that there cannot be two parallel investigations under the State Act as well as the Central Act - HELD THAT:- Issue Notice returnable on 23rd January, 2020.
By way of ad-interim relief, the respondents are restrained from taking any coercive action against the petitioner pursuant to the impugned inquiry proceedings.
AI TextQuick Glance (AI)Headnote
ITAT classifies sale income as capital gains, invalidating penalty under section 271(1)(c)
Issues:
1. Classification of income from sale of investments in immovable properties as business income.
2. Initiation of penalty proceedings under section 271(1)(c) for furnishing inaccurate particulars of income and concealing income.
Issue 1: Classification of income from sale of investments in immovable properties as business income
The assessee, engaged in dealing in shares, securities, and jewelry, sold three flats and a parking lot during the financial year 2012-13. The Assessing Officer (AO) treated the income from these sales as business income due to the systematic and repetitive nature of the transactions. The AO noted that the flats were sold within a short span after construction was completed, leading to the conclusion of repetitive business activity. The Commissioner of Income Tax (Appeals) upheld this view, emphasizing the bulk purchase of flats and the intention for profit evident from the purchase process. However, the assessee argued that the flats were held for over 36 months, qualifying as long-term capital gains, and that no reinvestment was made after the sales. The Income Tax Appellate Tribunal (ITAT) agreed with the assessee, considering the lack of reinvestment, the long holding period, and the appearance of the assets under 'investments' in the balance sheet. Referring to legal precedents, the ITAT concluded that the transactions should be treated as capital gains, overturning the CIT(A)'s decision.
Issue 2: Initiation of penalty proceedings under section 271(1)(c)
The AO initiated penalty proceedings under section 271(1)(c) for furnishing inaccurate particulars of income and concealing income. The assessee's explanations regarding the nature of the transactions were not accepted by the AO, leading to the addition of income and subsequent penalty proceedings. However, the ITAT's decision to classify the income as capital gains instead of business income renders the penalty proceedings under section 271(1)(c) invalid. As the underlying income classification has changed, the basis for the penalty proceedings no longer holds, and the issue of penalty becomes irrelevant following the ITAT's decision on the classification of income.
In conclusion, the ITAT's judgment overturned the CIT(A)'s decision, classifying the income from the sale of flats and parking lot as capital gains rather than business income. This reclassification renders the penalty proceedings initiated by the AO under section 271(1)(c) invalid. The ITAT's detailed analysis considered the holding period, lack of reinvestment, and legal precedents to support the classification of income as capital gains, emphasizing the factual circumstances and intent behind the transactions.
ITAT classifies sale income as capital gains, invalidating penalty under section 271(1)(c)
The Income Tax Appellate Tribunal (ITAT) overturned the Commissioner of Income Tax (Appeals)' decision and classified income from the sale of flats and a parking lot as capital gains rather than business income. This reclassification invalidated penalty proceedings initiated under section 271(1)(c) by the Assessing Officer, as the basis for the penalty no longer applied following the change in income classification. The ITAT's decision was based on factors such as the holding period, absence of reinvestment, and legal precedents, emphasizing the factual circumstances and intent behind the transactions.
Nature of activity - Capital Gains/loss or income from business - sale of flats - stock in trade or investment - AO observed that sale of property has been done in a systematic, repetitive manner - HELD THAT:- We find merit in the contentions of the assessee that if the intentions were to deal on a systematic and repetitive manner, then no businessmen will lock its funds for three years for his trading activities.
Assessee, after selling these flats has not acquired any additional flats by re-investing the sale proceeds of these sold flats.
Also the fact remains that the above assets are appearing under ‘investments’ in the balance sheet of the assessee.
The principle underlying the distinction between a capital sale and an adventure in the nature of trade were examined in Venkataswami Naidu & Co (G) v. CIT [1958 (11) TMI 5 - SUPREME COURT] where it was held that the character of a transaction cannot be determined solely on the application of any abstract rule, principle or test but must depend upon all the facts and circumstances of the case. Also in Janki Ram Bhadur Ram v. CIT [1965 (3) TMI 19 - SUPREME COURT] held that if the assessee, even at the time of acquisition had a clear intention to resell it, that would be material but not a decisive consideration.
We are inclined to agree with the treatment given by the assessee in his return of income as gains/loss from sale of such flats under the head ‘Capital Gains’. - Appeal filed by the assessee is allowed.
AI TextQuick Glance (AI)Headnote
Tribunal emphasizes benchmarking in transfer pricing, criticizes TPO's unilateral approach, deletes hefty addition.
Issues involved:
Transfer pricing adjustment on management fees paid to Associated Enterprises (AEs) without proper benchmarking under TNMM method.
Detailed Analysis:
1. Background: The appeal is against the order passed by the Deputy Commissioner of Income Tax regarding the assessment year 2012-13 under the Income Tax Act 1961. The assessee, a part of Brink's Global Services, paid management fees to its AEs for the first time during the relevant year.
2. TPO's Observations: The Transfer Pricing Officer (TPO) raised concerns as the assessee did not separately benchmark the management fees transaction, relying on a global report and agreement. The TPO emphasized the need for separate benchmarking for each international transaction and found the explanation provided by the assessee insufficient.
3. Adjustment by TPO: The TPO estimated the value of services rendered by the AEs based on man-hours and hourly rates, making an adjustment of INR 3,83,75,622 to the international transaction. The TPO's approach was criticized for lack of detailed evidence and justification for the estimates made.
4. DRP's Decision: The Dispute Resolution Panel upheld the TPO's adjustment, leading to the AO incorporating the adjustment in the final order.
5. Assessee's Arguments: The assessee contended that TNMM was consistently used for benchmarking transactions with AEs, providing detailed working and rationality for the management fees. The assessee argued against the unilateral pricing by the TPO under the CUP method without proper benchmarking.
6. Tribunal's Decision: The Tribunal noted the assessee's consistent use of TNMM and criticized the TPO's unilateral pricing approach. Citing precedents, the Tribunal emphasized the need for proper benchmarking and rejected the adjustment made by the AO, deleting the addition of INR 3,83,75,622.
Conclusion: The Tribunal allowed the appeal, highlighting the importance of proper benchmarking under TNMM for international transactions, and criticized the TPO's unilateral pricing approach without adequate justification. The decision emphasized adherence to statutory provisions and factual assessment in transfer pricing adjustments.
Tribunal emphasizes benchmarking in transfer pricing, criticizes TPO's unilateral approach, deletes hefty addition.
The Tribunal allowed the appeal, emphasizing the importance of proper benchmarking under TNMM for international transactions. It criticized the TPO's unilateral pricing approach without adequate justification and deleted the addition of INR 3,83,75,622, highlighting the need for adherence to statutory provisions and factual assessment in transfer pricing adjustments.
TP Adjustment - TPO rejected the TNMM in respect of management fees paid/payable by the assessee to its AE - HELD THAT:- TPO should not have summarily rejected the TNMM in respect of management fees paid/payable by the assessee to its AE and proposed an adjustment under the CUP method, without benchmarking with comparable uncontrolled transactions. TPO has resorted to an ad-hoc unilateral pricing of management fees, disregarding the facts and circumstances of the case.
In the instant case, the TPO has summarily rejected the TNMM followed by the assessee in respect of management fees paid/payable by it to its AE and proposing an adjustment under CUP without benchmarking with comparable uncontrolled transactions. Also the TPO has resorted to an ad-hoc unilateral pricing of management fees, disregarding the facts of the case.
In view of the above factual scenario and position of law, we delete the addition made by the AO as adjustment on account of transfer pricing. - Decided in favour of assessee.
AI TextQuick Glance (AI)Headnote
Tribunal allows deduction for reinvestment in multiple properties under sec 54F for 2008-09
Issues Involved:
- Deduction under section 54F of the Income Tax Act, 1961.
- Reinvestment in multiple residential properties.
- Applicability of amendments to section 54F.
Detailed Analysis:
Deduction under Section 54F of the Income Tax Act, 1961:
The primary issue in this appeal is whether the assessee is entitled to claim a deduction under section 54F of the Income Tax Act, 1961, for reinvestment in multiple residential properties. The Revenue contended that the deduction should be restricted to one residential property, while the assessee argued that there was no such restriction for the assessment year 2008-09.
Reinvestment in Multiple Residential Properties:
The assessee sold immovable property and reinvested the proceeds in two residential properties. The Assessing Officer (AO) restricted the deduction under section 54F to one property, disallowing the claim for the second property. The AO's decision was based on a combined reading of sub-sections (1) and (2) of section 54F, which he interpreted as allowing deduction for only one property.
Applicability of Amendments to Section 54F:
The amendment to section 54F, which restricts the deduction to one residential property, was introduced prospectively from the assessment year 2015-16. The assessee argued that for the assessment year 2008-09, there was no such restriction, and relied on judicial precedents that supported this view.
Tribunal's Findings:
The Tribunal reviewed the facts and the submissions from both parties. It noted that the assessee had deposited Rs. 1,51,00,000 in the Capital Gains Scheme and invested the remaining Rs. 18,49,40,160 in two residential properties. The Tribunal referred to the decisions in the cases of V.R. Karpagam and Gumanmal Jain, which supported the assessee's claim for deduction for multiple properties.
The Tribunal also considered the recent decision in the case of Tilokchand & Sons v. ITO, where the Hon’ble Jurisdictional High Court held that the benefit of exemption under section 54 of the Act is available for investment in more than one residential house within the stipulated time limit. The Tribunal reproduced relevant portions of this decision, emphasizing that the amendment restricting the deduction to one residential house was intended to apply prospectively from the assessment year 2015-16.
The Tribunal concluded that the Revenue's contention was devoid of merits and upheld the CIT(A)'s decision to allow the assessee's claim for deduction under section 54F for both residential properties. The appeal filed by the Revenue was dismissed.
Conclusion:
In summary, the Tribunal held that for the assessment year 2008-09, the assessee was entitled to claim a deduction under section 54F for reinvestment in multiple residential properties. The amendment restricting the deduction to one residential property was applicable prospectively from the assessment year 2015-16, and thus did not affect the assessee's claim for the relevant assessment year. The Tribunal dismissed the Revenue's appeal and upheld the CIT(A)'s decision in favor of the assessee.
Tribunal allows deduction for reinvestment in multiple properties under sec 54F for 2008-09
The Tribunal held that for the assessment year 2008-09, the assessee was entitled to claim a deduction under section 54F for reinvestment in multiple residential properties. The amendment restricting the deduction to one residential property was applicable prospectively from the assessment year 2015-16, and thus did not affect the assessee's claim for the relevant assessment year. The Tribunal dismissed the Revenue's appeal and upheld the CIT(A)'s decision in favor of the assessee.
Deduction u/s 54F - claim denied on reinvestment in multiple properties located in different addresses - scope of amendment - HELD THAT:- As decided in the recent decision in the case of Tilokchand & Sons v ITO [2019 (4) TMI 713 - MADRAS HIGH COURT] has held that profit on sale of property used for purchasing more than one residential houses within stipulated time limit, the assessee would be entitled to the benefit of exemption under section 54 of the Act
If the word 'a' as employed under Section 54 prior to its amendment and substitution by the words 'one' with effect from 01.04.2015 could not include plural units of residential houses, there was no need to amend the said provisions by Finance Act No.2 of 2014 with effect from 01.04.2015 which the Legislature specifically made it clear to operate only prospectively from A.Y.2015- 2016. Once we can hold that the word 'a' employed can include plural residential houses also in Section 54 prior to its amendment such interpretations will not change merely because the purchase of new assets in the form of residential houses is at different addresses which would depend upon the facts and circumstances of each case.
So long as the same Assessee (HUF) purchased one or more residential houses out of the sale consideration for which the capital gain tax liability is in question in its own name, the same Assessee should be held entitled to the benefit of deduction under Section 54 of the Act, subject to the purchase or construction being within the stipulated time limit in respect of the plural number of residential houses also. The said provision also envisages an investment in the prescribed securities which to some extent the present Assessee also made and even that was held entitled to deduction from Capital Gains tax liability by the authorities below. If that be so, the Assessee-HUF in the present case, in our opinion, complied with the conditions of Section 54 of the Act in its true letter and spirit - Decided in favour of assessee.