TDS u/s 195 - Fees for Technical Services as per India Singapore DTAA - Whether services provided as make available in nature? - Levy of demand u/s 201/201A - income of the non resident as accrued in India or not? - remittance made to various non resident entities towards Architectural Design consultancy services, Wind Engineering Consultancy services and Landscape Architectural Consultancy Services - CIT-A treated it as consultancy services - HELD THAT:- The nature of payment was pertained to consultancy services for master planning of the specific project namely Wadala TT, Mumbai. As per clause 14 of the agreement, the design prepared by the design consultant was solely for the purpose of the above referred project. Woha design consultant is a tax resident of Singapore and Article 12 of the India Singapore DTAA deals with the taxability of income from Royalties & FTS. It provides that services will be considered as FTS only if such vendor is making available the technical knowledge, experience, skill, knowhow or process which enable the person acquiring the services to apply the technological contained therein.
Services of managerial, technical or consultancy will be regarded as fees for technical services only if such services consists of the development and transfer of a technical plan or technical design but categorically exclude any service that does not make available and does not enable the person acquiring the service to apply the technologically contained thereon on its own.
Similarly, the payment made to Rowan Williams Davies relating to wind micro climate engineering consultancy services, payment made to landscape architectural consultancy service to Sitetectonix Pte. Ltd. & payment for marking consultancy services to Lodha Developer U.K. Ltd were also not taxable as fees for technical services, since, the services do not meet ‘make available’ criteria.
A.O has not brought any material on record to demonstrate that how the service provider has made available to the assessee any technical knowledge, skill etc. which can be applied by the assessee independently in future. Therefore, we do not find any reason to interfere in the findings of the Ld. CIT(A).
Remittance made to various non-resident towards brokerage for sale of projects in India - HELD THAT:- The assessee has made payment of brokerage to non-resident brokers for assistance on sale of flats to non-resident in the project developed by the assessee in India. The entire work by the broker was carried out outside India and the brokerage payment were made by the assessee in the bank account of foreign parties outside India. The brokers has not carried out any operation in India. Therefore, the AO has not proved that how the provisions of Sec. 5(2) and provisions of Sec.9(1)(i) of the Act are attracted in the case of the assessee.
Regarding applicability of provision of Sec.9(1)(vii) by way of treating the payment as fees for technical services the A.O has not proved that how such payment made in the context of ‘make available’ clause. From the perusal of material on record it is observed that there is no element of technical knowledge, experience, skill knowhow or process in the rendering of brokerage services. No such technical knowledge etc. is made available to the assessee by such brokeRs.
Therefore no infirmity in the decision of ld. CIT(A) that the payment of brokerage by the assessee to the brokers is not taxable in India either pursuant to Sec. 9(1)(vii) or under the provisions of DTAA due to restrictive definition of FTS/FIS, therefore, the ground of appeal of revenue stand dismissed.
Reimbursement of Expenses - assessee had made remittance to foreign parties towards reimbursement of expenses - reason for non-deduction of TDS the assessee submitted that bankers Mohandas LLC had incurred travel and miscellaneous expenses of its employees visiting India for rendering services to the assessee - HELD THAT:- As in the case of Director of Income Tax (International Taxation) Vs. Krupp Ltd. GMBH (2010 (3) TMI 287 - BOMBAY HIGH COURT] held that reimbursement of expenses for air tickets could not be treated as part of taxable income of the assessee.
A.O had neither brought any relevant material on record to substantiate that reimbursement of expenses were in the nature FTS nor disproved the claim of the assessee based on back to back invoices that no profit element were embedded in the reimbursement of such expenses. In the light of the above facts and findings we don’t find any merit in the ground of appeal, therefore, ground of appeal of the revenue stand dismissed.
Remittance for purchases in UAE - As per DTAA with UAE (Article 7), payment to an entity in UAE can be brought to tax in India only when such entity has a permanent establishment in India - HELD THAT:- AO has not brought any material on record to prove contrary, therefore we don’t find any merit in this ground of appeal of the revenue. Accordingly, this ground of appeal stand dismissed.
Maintainability of petition - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Operational Creditors - existence of debt and default or not - time limitation - Respondent neither appeared nor filed its reply and, therefore, it was proceeded ex-parte - HELD THAT:- It is seen from the record that the date of default relied in the present application is 01.04.2017 and the present application has been filed on 15.12.2020, which is well within the limitation period after considering the directions by the Hon’ble Supreme Court regarding the extension of limitation issued in the Suo Motu Writ Petition (C) No. 3 of 2020 [2021 (11) TMI 387 - SC ORDER].
Since there has been no representation on behalf of the Respondent and it has been proceeded ex-parte, it is presumed that it has nothing to say in the matter.
In the given facts and circumstances, the Operational Creditor has established the default on the part of Corporate Debtor in payments of the operational debt, the amount of which is higher than the minimum threshold prescribed under the IBC 2016. The present petition filed under Section 9 is complete and fulfills all the requirements of law. Therefore, the petition is admitted in terms of Section 9(5) of the IBC. Accordingly, the CIRP is initiated and moratorium is declared in terms of Section 14 of the Code.
Income taxable in India - PE in India - whether Liaison Office of the assessee did not constitute a Permanent Establishment, liable to tax in India when the said office was clearly a fixed place and the activities carried out could not be said to be preparatory or auxiliary in nature? - income as liable to be attributed in India - Dependent Agency Permanent Establishment (DAPE) of the assessee in India? - HELD THAT:- Questions covered, by the judgment of the coordinate bench passed in case of Mitsui & Company Ltd. [2022 (11) TMI 1346 - DELHI HIGH COURT] as held held that the Liaison office of the assessee did not constitute a Permanent Establishment (for short ‘PE’). - No substantial questions of law arise for consideration.
TDS u/s 194C - remittances made by the assessee to the driver partners under the Uber App - non deduction of tds - ‘person responsible for paying’ - addition made u/s 201(1) and 201(1A) - HELD THAT:- ITAT Chandigarh in the case of ANI Technologies Pvt. Ltd. [2023 (3) TMI 515 - ITAT CHANDIGARH] wherein on similar fact and identical issue (OLA App) it is held that Sec. 194C is not applicable on disbursement of fare by the assessee to the drivers. It was also held that there was no contract/sub-contract between the assessee and the driver under which the drivers provides any transportation services either to assessee or to a rider on behalf of assessee for which the driver is paid by assessee. The contract for transportation services is between the driver and the rider and the assessee only facilitates the entire process in the capacity of an aggregator.
Also in the case of the assessee itself on similar issue and identical fact [2021 (3) TMI 326 - ITAT MUMBAI] wherein the issue was decided in favour of the assessee as held insertion of clause (v) in section 204 of the Act is effective only from 1.4.2020 i.e. applicable from Asst Year 2020-21 onwards and not earlier. We find that this amendment makes it very clear that any person who is authorized to make payment on behalf of a non-resident will be covered within the purview of section 204 of the Act and will be required to deduct tax at source. It is not the case of the revenue that the assessee company need to be taxed as an agent of non-resident in terms of section 163 of the Act. It is the case of the revenue that UISPL is making payment to Driver-Partners on behalf of Uber B.V. ( non-resident entity).
If the version of the revenue is to be accepted by holding that UISPL would be ‘person responsible for paying’ as it was making payment to Driver-Partners on behalf of Uber B.V. (Non-resident) and that the said provision was always there in the statute, then there would be absolutely no necessity for the parliament to even introduce this amendment by way of insertion of clause (v) in section 204 of the Act in the Finance Act 2020 with effect from 1.4.2020. In other words, if the contention of the revenue is to be accepted for the years under consideration before us, then the entire amendment inserted by Finance Act 2020 in section 204 of the Act would become redundant and would be otiose. Even the subsequent amendment brought in section 204 of the Act with effect from 1.4.2020 by way of insertion of clause (v) thereon, would strengthen the stand and various contentions taken by the assessee for the years under consideration.
UISPL cannot be treated as a ‘person responsible for paying’ for the purpose of section 194C read with section 204 of the Act, for more than one reason and also the provisions of section 194C of the Act cannot be made applicable thereon. Hence the assessee company i.e. UISPL cannot be treated as an ‘assessee in default’ and no order could be passed u/s 201 / 201(1A) of the Act in its hands for the years under consideration. Decided in favour of assessee.
TP adjustment to the manufacturing segment - determination of ALP in respect of import of parts and components from its AE in Manufacturing Segment - TPO rejected the transaction-wise benchmarking approach adopted by the assessee and proposed to adopt an aggregation approach with the TNMM method as the MAM for benchmarking on segment basis - HELD THAT:- We notice that the coordinate bench in assessee’s own case for 2014-15 [2022 (12) TMI 626 - ITAT BANGALORE] has considered the same issue.
Notice that the assessee had adopted CUP as MAM to benchmark its international transaction of Import of parts and components for manufacture of PCs pertaining to its manufacturing segment and that the functions performed for undertaking its manufacturing activity for all the years i.e., AY 2006-07 to AY 2016-17 have remained the same. Accordingly respectfully following the decision of the coordinate bench we hold that CUP is to be considered as the MAM for the year under consideration also and we direct the TPO to replace TNMM with CUP. Grounds raised in this regard are allowed for statistical purposes.
TP adjustment on account of excess AMP expenditure - DRP has upheld the analysis of the TPO stating that the cost of AMP incurred by the Appellant has benefitted AEs and accordingly AMP is an international transaction - HELD THAT:- For the year under consideration the net profit margin of the assessee in Trading Segment is 1.19% and the net profit margin of the comparable companies in 35th percentile to 65th percentile range is 0.13% to 1.48%. Since the margin of the assessee is within this range, the assessee had concluded that the price charged with respect to the Trading Segment is within arm’s length. We notice that no adverse inference drawn by the TPO in respect of the Trading segment results in the order passed under section 92CA and has directly proceeded to treat AMP expenses as international transaction. This in our view mean that the TPO has accepted the entity level margins earned by the assessee with respect to Trading Segment but proceeded to make TP adjustment on AMP expenses.
The Hon’ble Delhi High Court in Sony Ericsson Mobile Communications India (P.) Ltd. 2015 (3) TMI 580 - DELHI HIGH COURT] held that once the revenue accepts the entity level margins as per the most appropriate method, it would be inappropriate to treat a particular expenditure as a separate international transaction. It was held that such an exercise would lead to unusual and absurd results.
We also see merit in the submission of the ld AR that the ratio laid down by the decisions of the coordinate bench of the Tribunal in assessee’s own case for AY 2012-13 to 2015-16 is that that if the net profit margin meets the Arm’s length price, then no separate addition needs to be made. No adverse inference is drawn by the TPO in respect of the Trading segment which means that the TPO has accepted the overall margins of the said segment we direct the TPO to delete the adjustment made towards the trading segment.
TP adjustment in relation to Administrative and Business Support Services and Sales facilitation services - Comparable selection - HELD THAT:- We notice that the DRP while considering the inclusions / exclusions did not examine the submissions of the assessee based on facts and has rejected the contention by making a cryptic observation.
Therefore we are of the considered view that this issue should be remitted back to the DRP with a direction to do consider the submissions of the assessee and examine the facts based on evidences before deciding the inclusion/exclusion in accordance with law. Needless to say that the assessee should be given a reasonable opportunity of being heard. It is ordered accordingly.
TPO is directed to re-compute the arm’s length price in accordance with the directions given in this order.
Error in considering the assessed income in final assessment order, AO not granting brought forward loss, error in considering the Book Profits in final assessment order and the AO not granting appropriate TDS credit - We direct the AO to consider the issues afresh based on facts and evidences and decide in accordance with law after giving the opportunity of being heard to the assessee.
Penalty imposed u/s 271(1)(c) - defective notice u/s 274 -Non specification of clear charge - HELD THAT:- Assessing Officer has used a printed proforma for such notice without specifying the specific charge. Out of the above two options, i.e. he should have specifically invited the explanation that he has furnished inaccurate particulars of income. In case, this limb of section 271(1)(c) is not applicable, then he should have confined his show-cause notice to the extent that assessee has concealed particulars of such income.
As decided by Calcutta High Court [2022 (10) TMI 987 - CALCUTTA HIGH COURT] if ld. AO has not scored of one of the limb from the show-cause notice for visiting the assessee with penalty, then such notice will be fatal to the proceedings and penalty could not be levied upon the assessee. Decided in favour of assessee.
Bogus LTCG - unexplained credit - transactions made in the scrips through the broker - Claim u/s 10(38) denied - HELD THAT:- As decided in Nilesh Agarwal, HUF [2021 (2) TMI 540 - ITAT JAIPUR] AO in the entire assessment order has not made reference to single documentary evidence which can be said to be an incriminating material against the assessee to show that the assessee has availed accommodation entry of bogus Long Term Capital Gain. Therefore, the mere suspicion cannot be a ground for treating the transaction as bogus in the absence of any evidence or material on record.
Accordingly, when the assessee has produced all the relevant documentary evidences to establish the genuineness of the transaction and there is no contrary evidence to doubt the correctness of the evidences produced by the assessee then treating the transaction of purchase and sale as sham by the AO is not justified. Therefore, all these facts established the genuineness of the transaction. No error in assessee’s claim of exemption of long term capital gains and the addition made by the AO u/s 68 by treating the Long Term Capital Gain on sale of shares as unexplained cash credit is hereby directed to be deleted. Appeal filed by the assessee is allowed.
Rejection of bail - bail application has been filed after expiry of the interim protection being granted by the Hon'ble Apex Court - application rejected mainly on the ground that applicant has not appeared before the Court rather she was absent - HELD THAT:- Considering the fact that the liberty of the present applicant has been protected by the Apex Court till 13.1.2023, therefore, her non-appearance before the learned trial court on or before 13.1.2023 would not be considered as an illegality on her part. Further, when she filed her application for bail before the learned trial court on 13.1.2023 she should have appeared before the learned trial court inasmuch as if the applicant does not appear before the learned trial court in the present case, her bail application could have not been decided by the learned trial court. Her presence at the time of hearing and disposal of the bail application was required under the law, therefore, there are no infirmity, illegality or perversity in the impugned order dated 16.1.2023.
Considering the ailments of the present applicant which has been indicated in the application and such critical physical condition has been considered by this Court in earlier occasion and by the Apex Court, therefore, liberty is given to the present applicant to appear before the learned trial court within one week from today. To be more precise on or before 1.2.2023 and file her bail application. The said bail application shall be heard and disposed of expeditiously preferably on the same date, if possible.
Levy of penalty under Section 129(1)(b) of UPGST Act - respondents submitted that the petitioner having not come forward in response to notice issued for assessment of the amount, the penalty was to be levied in terms of Section 129(1)(b) of the Act - HELD THAT:- The order, imposing penalty on the petitioner, passed under Section 129(1)(b) of the Act, deserves to be set aside. It is undisputed case of the parties that the goods were accompanied by invoice and e-Way Bill, wherein the name of the petitioner is mentioned as consignor. The fact, that the petitioner is a registered dealer, is also not in dispute as even survey of petitioner's business firm was carried out immediately after detention of the goods and the firm was found to be carrying on its business.
Once the documents clearly establish the name of the consignor, who is a registered dealer in the State, the proceedings should have been initiated against the owner of the firm instead of the driver, so as to enable him to respond to the notice. In any case, once from the facts on record, which have gone undisputed, the petitioner, who is consignor in the invoice and e-Way Bill, claims himself to be the owner of the goods, the provisions of Section 129(1)(b) of the Act could not be invoked for imposing penalty.
The impugned order dated December 15, 2022 passed by the respondent no. 2, is set aside giving him the liberty to pass fresh order in accordance with law, after affording opportunity of hearing to the petitioner - Petition allowed.
Seizure of goods alongwith vehicle - levy of penalty - it is alleged that the goods were not matching with the invoices as certain goods were found either to be more or less than the quantity mentioned in the invoices - HELD THAT:- The present writ petition deserves to be allowed and the order impugned dated October 7, 2022 deserves to be set aside for the reason that the consignors and consignees are present and accepting ownership of the seized goods. The consignors are registered dealers in the State of U.P.
In view of the clarification given by the Board vide its Circular dated 31, 2018, levy of penalty under Section 129(1)(b) of the Act was not called for and could not be justified as Section 129(1)(a) of the Act provides that where owner of the goods comes forward for payment of penalty, the amount has to be two hundred per cent of the tax payable, whereas, in the case in hand, the penalty has been levied to the tune of hundred per cent of the value of the goods.
The impugned order dated October 7, 2022 passed by respondent no. 2 is set aside. The writ petition is allowed - The matter is remitted back to the competent authority for passing fresh order within a period of two weeks from the date of receipt of copy of the order.
The Supreme Court of India granted an adjournment for two weeks as requested by the petitioner, represented by M/S. Mukesh Kumar Singh And Co. No representation was made on behalf of the respondent.
Seeking grant of bail - case made out for bail is applicant's wife regularly takes treatment of a doctor and in coming time she would be hospitalized for the delivery of a child and since there is nobody to look-after the applicant's wife, therefore, three months' temporary bail be granted to the applicant - HELD THAT:- Keeping the facts in totality, the applicant is a low paid employee being a driver. The other main accused are already in jail and his wife has delivered the child.
Considering the facts and circumstances of the case, the application is allowed and applicant-Dhiraj Rai is directed to be released temporarily on bail for the period of one month from the date of his release upon his furnishing personal bond in the sum of Rs.20,000/- with one solvent surety in the like amount to the satisfaction of the learned trial Court.
Income deemed to accrue or arise in India - Permanent Establishment (PE) in India under Article 5 of India – USA DTAA - attribution of profit to the PE whether the receipts from IPLC/link charges are taxable as royalty in India or not? - HELD THAT:- As all the issues relating to existence of PE and attribution of profit have been decided/resolved in assessee’s own case in earlier assessment years. Therefore, the decision of the Tribunal, as referred will squarely apply to the present appeals as well. Though, learned counsel for the assessee attempted to make out a case that there was no fixed place PE in the year under consideration, however, we are not convinced as the arrangement between the assessee and PE remains identical with earlier years. As regards attribution of profit to PE, we direct the Assessing Officer to follow the directions of the Tribunal in assessment years 2006-07 to 2013-14.
Taxability of link charges - As this issue has also been decided by the Tribunal in assessee’s own case in assessment years 2013-14 [2020 (11) TMI 1101 - ITAT DELHI] relying on New Skies Satellite BV [2016 (2) TMI 415 - DELHI HIGH COURT] held that the amendment in section 9 will not affect the DTAA, thus find that the payment of link charges received by the Appellant from Conuergys India Services Rut. Ltd. would not qualify as “process” royalty in terms of Article 12 of lndia-US 39 DTAA. Hence, the ground of appeal allowed.
Validity of Reopening of assessment u/s 147 - eligible reason to believe - change of opinion - Non furnishing of reasons within reasonable time - whether new facts coming to the knowledge of the Assessing Officer subsequent to the original assessment proceedings? - HC held assessment proceedings, having been done with the same set of facts which were available during the regular assessment, is to be held to be a clear case of change of opinion and reasons were not furnished to the assessee within a reasonable time - HELD THAT:- In view of the findings recorded by the High Court in re questions raised and answers given, before, the assessment order under Section 143(3) of the Income Tax Act, 1961 was passed, we are not inclined to issue notice in the present special leave petition. The assessee has no role to play and is not the author of the assessment order and hence the manner and contents of the assessment order as framed is not determinative whether or not it is a case of change of opinion.
Recording the aforesaid, the special leave petition is dismissed.
Disallowance of transport expenses - HELD THAT:- We may clarify that while the law provides for disallowance u/s. 37(1) even if an expenditure, though incurred, is not wholly and exclusively for the purpose of the assessee’s business, the disallowance in the instant case is for the reason of it having not been incurred, i.e., to that extent. We may here also add that a disallowance would be sustainable on the assessee being unable to prove an expenditure, and it is not necessary for the Revenue to actually disprove the same. That we have found the same as, besides being unsubstantiated, grossly inflated and, further, in examining its genuineness, considered it from various angles, including its quantum, inasmuch the two were found inter-related, would not make it any less a disallowance s.37(1). And, further, not convert it into a case of estimation of income, i.e., merely because the same works to a tidy sum in relation to sales. The disallowance u/s. 37(1), as indeed an addition u/s. 41(1) or u/s. 68, is a specific adjustment/s (to the returned income), and would not for that reason make it a case of estimation of income.
As explained by the Hon'ble Apex Court in Kale Khan Mohd. Hanif vs. CIT [1963 (2) TMI 33 - SUPREME COURT]; CIT v. (M.) Ganpathi Mudaliar [1964 (4) TMI 22 - SUPREME COURT] ; and CIT vs. Devi Prasad Vishwanath Prasad [1968 (8) TMI 5 - SUPREME COURT], there is nothing in law that prevents the assessing authority in taxing both, the cash credit, the nature and source of which is not satisfactorily explained, and the business income estimated by him after rejecting the books of account as unreliable. It would be a different matter though where the cash credit is explained in terms of secreted profit of the business for the current or a preceding year, so that relief is allowed on that basis, i.e., of the same income being subject to tax twice (also see: Anantharam Veerasinghaiah & Co. [1980 (4) TMI 2 - SUPREME COURT]
One thing to say that the operating result as derived for one year, for which books stand properly scrutinised and income assessed making specific adjustment/s to the returned income, is, on the premise of the same representing a normative profit, applied to another, subsequent, year, for which the book-results, though similarly disclosed; the books of account having not been produced in assessment, income has to be estimated, and quite another to do just the opposite, i.e., applying the results for the second (subsequent) year, liable to be estimated, to the first year. That would be putting the cart before the horse. There has been clearly no adjudication by the ld. CIT(A) qua the disallowance of transport expenditure, made by the AO u/s. 37(1).
Disallowance being u/s. 37(1), inasmuch as the same bears no element of artificial disallowance (as u/ss. 40A(3), 40(a)(ia)), and is on account of genuineness of expenditure - Yes, we do find to state that the profit element upon disallowance of transportation works to 81.56%, i.e., too huge to be accepted. Without doubt, the disallowance being u/s. 37(1), inasmuch as the same bears no element of artificial disallowance (as u/ss. 40A(3), 40(a)(ia)), and is on account of genuineness of expenditure, the extent thereof, which is to be reasonable, is a relevant consideration. No basis for the said calculation (81.56%) has though been given, nor was argued/furnished before us. The same is clearly incorrect. The total transportation and loading charges is at Rs. 888.34 lacs, and the expenditure allowed, Rs. 400 lacs (see paras 2.5, 3.2), so that ‘profit’ works to Rs. 488.34 lacs, or at 55% (of the receipt). There is however no separate income corresponding to the transportation expenditure incurred other than for transporting bauxite from the mine head to the railway siding.
Labour expenditure on breaking, sorting, and screening of the ore - HELD THAT:- As mentioned that the return for AY 2011-12 was not subject to scrutiny, while that for the two preceding years were without any appraisal of evidence/s and, consequently, any finding/s, subject only to token disallowances. The same is itself not valid in law, as explained in Asst. CIT v. Arthur Anderson & Co. [2004 (12) TMI 637 - ITAT MUMBAI], relied upon by the assessee before the ld. CIT(A). The disallowance, as being confirmed by us, i.e., on the touch-stone of whether the assessee has been able to, in the conspectus of the case, prove the amount claimed (Rs. 361.19 lacs) as incurred wholly and exclusively for business purposes, the two indicating quantum and the purpose of the expenditure respectively, i.e., prove the expenditure in the sum claimed, and to which the answer is clearly in the negative, further finding the disallowance as made, i.e., Rs. 8.89 PMT (160.53 – 151.64), reasonable. No basis for reduction has been stated by the ld. CIT(A). Here it may be clarified that reference to the cost for the preceding year, as indeed to that of the comparable case, is only toward the reasonability of the disallowance made.
Disallowance u/s. 40A(3) qua transport expenses - Quantum of disallowance u/s. 40A(3) and s.40(a)(ia), which could again overlap, shall be with reference to the total amount allowed, i.e., excluding, from the sum claimed the amount held as not allowable and confirmed for disallowance u/s. 37(1).
NP estimation - CIT-A reducing the net profit by estimating the net profit of the assessee @2.57% of sale of bauxite - determine whether various activities constitute the same or separate business no single test can be devised as universal and conclusive - HELD THAT:- A case for retention of profit rate at 33% on the mining receipt, and revision thereof to 8% for the transport (and loading) receipt. We are conscious that decline in the transport receipt by Rs. 75 PMT (Rs. 354 – Rs. 279) is compensated to some extent by the increase of Rs. 36 PMT in ore sale realisation, so that there has been a net decline by only Rs. 39 PMT. We, however, are inclined to regard the two receipts, though arising from and forming part of the same business, separately for the purpose of estimation of profit incident thereon. This is as, as already noted, the cost dynamics of the two are different and which perhaps has led to the two being billed separately to the buyer. Two, and equally important, we had found the profit rate on the transport receipt for AY 2012-13 as largely on account of exorbitant rate of Rs. 320 PMT. It is, this, that led to our finding of the profit rate thereon as matching the profit rate on the ore sale and, thus, corroborating the average profit rate of 33%. This, however, does not obtain for the current year, bringing down the profit margin thereon, and which has been found as conservatively & reasonably estimated at 8%.
As in view of the differences that obtain between the two years, approve of the applied rate of 8% in respect of transport activity for the current year. As regards the mining activity, the same clearly shows an upswing in terms of unit realization. The assessee has infact claimed even higher per unit charges than even the immediately preceding year. Under the circumstances, therefore, we find the applied rate of 32%, which is marginally lower than the average profit of 33% for the said year, as reasonable. Though, strictly speaking, the figures for AY 2013-14 (PB pgs. 71-92); the books of account having not been produced, ought not to be considered, the gross receipt and the quantity shipped and sold are not in dispute for any year, so that the same could be taken note of and factored into, the purport of an estimation exercise, which places a heavy onus on the authority estimating it, is to be as reasonable as the circumstances admit, looking at the matter from all angles.
Addition in respect of profit of the mining business - CIT(A) being estimated @ 2.57% on the mining turnover (i.e., sale of bauxite and other minerals) - HELD THAT:- Inasmuch as the profit rate of the preceding year was also in reckoning, being subject to disallowance/s are equally relevant. Our adjudication thereof would thus cover the assessee’s said ground as well. Likewise, for Gd. 2, which contests the application of profit rate of 8% on the transport and loading charges receipt, found by us as very reasonably estimated. The two issues being interrelated, the foregoing adjudication would thus cover the said Ground as well.
Our adjudication of the Revenue’s appeal would govern the assessee’s CO as well. We cannot help here recording our appreciation for the discretion and circumspection exercised by the AO in determining and applying the estimates. Rather, as apparent from the foregoing, but for the sharp, though unexplained decline in the transport receipt, i.e., by 25% thereof; the two issues being interrelated, we might as well have restored the matter back to the AO for consideration on the lines suggested inasmuch as the Tribunal is to decide on the basis of findings of fact, based on material on record. The assessee’s CO is accordingly held as without merit. We decide accordingly.
Addition of bogus creditors - HELD THAT:- We confirm the disallowance for Rs. 121.68 lacs, i.e., corresponding to the 8 creditors in whose cases no payment stands made. For the balance 2, to whom payments for Rs. 25 lacs in aggregate stand made during the year, the matter is restored back to the file of the AO to allow the assessee an opportunity to show as to why, in the face of the finding of the expenditure being bogus and not genuine, should the disallowance in its respect be restricted to the sum outstanding in its respect as at the year-end, or Rs. 60.19 lacs, i.e., as against Rs. 67.94 lacs for which sum transport bills stand booked and expense claimed.
The same would decrease the allowance marginally to Rs. 647 PMT. This restoration is apart from and independent of that may be required qua the whole or part of the disallowance toward application of s. 40(a)(ia), for which reference may be made to Shree Choudhary Transport Co. [2020 (8) TMI 23 - SUPREME COURT]
Addition of bogus creditors u/s.41(1)(b) - HELD THAT:- As what was sought to be brought home by us in the preceding para that neither ‘payment’ nor ‘outstanding’ would have any bearing on the quantum of a disallowance of any expenditure found bogus or non-genuine. CIT(A) has allowed relief on the basis of an addition u/s. 41(1)(b) being impermissible under the circumstance of an opening balance not written back in the assessee's accounts. His order, though in result in agreement with our order, cannot have our approval inasmuch as he has on facts not confirmed the relevant disallowance (Rs.654.87 lacs), but approved of the assessee having incurred a cost of 92% of the transport receipt (Rs.802.91 lacs) for that year, i.e., at Rs.738.68 lacs. He also does not define the ‘transport business’. This becomes relevant as the assessee, apart from the transport of ore from mine head to siding, also incurs transport cost on removal of overburden and transfer of mined ore from deep mine to the surface, and the cost incurred and claimed by him is for all the three different works. Unless, therefore, his order is accompanied by a finding, either express or by necessary implication, as to disallowance of the impugned sum as not genuine, the stated reason will not apply to his orders. The addition is confirmed for deletion, and the Revenue fails on its Gd. 1(vi).
Disallowance at 5% toward inflation of expenditure - HELD THAT:- As in every case a question of fact whether the expenditure was incurred wholly and exclusively for the purpose of trade or business of the assessee, which is to be decided based on evidence. We do not, in the facts of the case, find this positive and definite test as satisfied, i.e., of assessee having proved the expenditure in terms of s. 37(1). It is permissible for the tax authorities to consider disallowing the sum estimated as incurred in excess (Swadeshi Cotton Mills Co. Ltd. v. CIT [1966 (9) TMI 30 - SUPREME COURT]; Lakshmiratan Cotton Mills Co. Ltd.[1968 (9) TMI 13 - SUPREME COURT]; Lachminarayan Madan Lal [1972 (9) TMI 4 - SUPREME COURT]) - The AO has, accordingly, made an estimate of the expenditure liable for disallowance, which we find as reasonable. We, accordingly, uphold the disallowance as made.
Addition of interest component disallowed by the AO regarding it as the penalty under the sales-tax law - HELD THAT:- The basis of the relief (to the extent of Rs.3800) by the ld. CIT(A) is on the basis of the detail furnished by the assessee before him, claiming the amount impugned to be interest and not penalty. Before us, it was the admitted position that the penalty component cannot be allowed as a deduction inasmuch as infraction of law cannot be regarded as an incident of business. And that the matter may be remitted to the file of the AO. Surprisingly, the assessee has, neither before ld. CIT(A) nor before us, furnished any evidence toward penalty being at Rs.3,800, and the pleading for restoring the matter to the AO is an admission of same. The tax audit report u/s. 44AB for the relevant year reports the penalty at Rs.5808. Under the circumstances, we consider it appropriate to rely thereon and, accordingly, confirm the disallowance at Rs.5,808, so that the balance Rs. 6800 is to be allowed.
Addition u/s. 56(2)(vii) - difference in valuation of property - HELD THAT:- The primary facts, as indeed the valuation, are not in dispute, and s.56(2)(vii)(b) is clearly attracted in principle in the instant case. The said provision, however, stands coopted on the statue-book w.e.f. 01.4.2014, i.e., AY 2014-15 onwards, so that it shall apply to a transaction during the relevant previous year, i.e., fy 2013-14. The transaction was in the instant case completed on 10.3.2013 and, therefore, the difference cannot be assessed u/s. 56(2)(vii) for AY 2014-15; the genuineness of the purchase transaction having not been doubted. Doubts were during hearing raised as to of there has been a typing mistake in the recording the purchase date as ‘10.3.2013’, i.e., instead of ‘10.3.2014’, which the parties were called upon to clarify, and which they did not. The balance-sheets for the relevant years stand also perused, to observe no addition in the landed property, except agricultural land
Subject therefore to the verification of an addition of an immovable property at Indira Gandhi Ward, Katni during fy 2012-13, and not fy 2013-14, we confirm the deletion on account of non-applicability of 56(2)(viii), which shall otherwise hold. We decide accordingly.
Disallowance toward transport expenditure - same having not been proved on the anvil of s.37(1), with, in fact, its genuineness being in serious doubt, rather, to our mind, disproved - payment in violation of s. 40A(3) - HELD THAT:- As disallowances of transportation expenses, effected for AYs. 2012-13 and 2014-15 respectively by the AO, and confirmed by us, is only u/s. 37(1). The same, as afore-stated, bears no element of any artificial disallowance, as u/s. 40A(3) (r.w.s. 40A(3A)) or s. 40(a)(ia), even as the same has been found to be applicable in principle. This is for the reason that the question of manner of payment or the non-deduction of tax at source, which triggers the said disallowances, become irrelevant where the expenditure itself is regarded as not genuine and, besides, would amount to a double disallowance. Where, however, the said disallowance/s, i.e., as confirmed, is reversed in further appeal, in whole or in part, i.e., on the expenditure being regarded as genuine to that extent, the same would become liable to be effected. The same would though require the assessee being heard on quantification, and may have a bearing in the assessment of a subsequent year/s as well
The exercise for identifying the payment in violation of s. 40A(3) or, as the case may be, s.40A(3A), as indeed u/s. 40(a)(ia), would thus extend to the entire sum. Finally, we here also clarify that the disallowance u/s. 40A(3A), would, where so, stand to be made only in respect of the sums allowed u/s. 37(1) for AYs 2012-13 and 2014-15, and cannot extend to sums already allowed for preceding year, but liable to be disallowed in assessment for any of the three years under reference inasmuch as the same do not qualify as the subject matter of appeal.
Cancellation of registration of petitioner - case of the petitioner is that he has not been able to get the show cause notice issued by the respondent and, therefore, he could not submit the reply within the stipulated time - HELD THAT:- The present petitioner is also entitled for the benefit of the order passed by this Court in TECHNOSUN INDIA PVT. LTD. LUCKNOW THRU. ITS DIRECTOR AMIT KUMAR GAUTAM VERSUS UOI THRU. PRIN. COMMISSIONER, CENTRAL G.S.T., LKO. U.P. AND 2 OTHERS [2022 (9) TMI 1412 - ALLAHABAD HIGH COURT] - In the said judgment, the Court has held that the impugned order does not assign any reason whatsoever for cancelling registration of the petitioner and is passed only on the ground that reply to the show cause notice is not given. The non-submission of reply to the show cause cannot be a ground for cancellation of the registration.
The present petitioner is also entitled for the same relief. The benefit of the order shall also be made available to the present petitioner.
The order is set aside and the petitioner is permitted to appear before the respondent along with the reply to show cause notice and the certified copy of this order within three weeks from today - Petition allowed.
Reopening of assessment u/s 147 - order issued u/s 148A(b) - high value shares transaction/activities - HELD THAT:- No information has been furnished to the petitioner as to how income chargeable to tax has escaped assessment, and since the order passed u/s 148A(d) of the Act only suggests that the assessee has not established his credit worthiness and failed to prove the source of investment, we are of the view that the best way forward would be to set aside the impugned order passed u/s 148A(d) with the following directions:
Assessing Officer will carry out a de novo exercise from the stage at which notice under Section 148A(b) is positioned. Before proceeding further, the AO will furnish the relevant information concerning the petitioner, after redacting information which concerns third parties.
Jurisdiction to conduct search u/s 132 - Construction of Section 132 relating to search and seizure and Section 120 relating to jurisdiction of officers - powers to perform functions relating to search and seizure and corresponding penal and prosecution proceedings in respect of the territorial area of the whole of India and the preamble of the Notification - HELD THAT:- Section 132 contains specific situations where it applies, notwithstanding the requirement of territoriality under Section 120. These instances have been specifically noted and elaborated upon in the preceding paragraphs, per Section 132(1A) and the proviso to Section 132, both in the context of location only.
Thus, the Notification relied upon by the revenue deals with extension of jurisdiction qua territory alone, and not with regard to an assessee. The Notification is in furtherance of the statutory sanction under the proviso to Section 132 and Section 132(1A), to enable officers in the Department to enter and search places located in areas other than those coming under the jurisdiction of the assessing officer holding jurisdiction over the assessee searched.
Thus it is our considered view, based upon the scheme of the Act and the specific statutory provisions, that it is statutorily enjoined for a search to be conducted by the jurisdictional officers of that assessee only. The sole exceptions to this rule are in regard to locations that fall within the jurisdiction of a different officer, subject to satisfaction of, and compliance with, the requisite conditions, under the proviso to Section 132 and Section 132(1A).
As called for the records of the search and verified that the warrant of authorisation dated 29.08.2017 in regard to the search conducted on 30.08.2017 has been issued in Form 45, in the name of the Petitioner, by R4 Deputy Director of Income Tax (Inv), Bengaluru. In line with the discussion and conclusions in the foregoing paragraphs of this order, Declaration, as sought, is issued and this writ petition is allowed.
Revision u/s 263 - no notional rent is offered to tax in respect of unsold flats lying vacant held as closing stock - As submitted Assessing Officer has taken one of the possible view - HELD THAT:- We find that in the case of Osho Developers vs. ACIT [2020 (11) TMI 218 - ITAT MUMBAI] after considering judgment rendered in the case of CIT vs. Ansal Housing Finance & Leasing Company Ltd. [2012 (11) TMI 323 - DELHI HIGH COURT] and various other decisions, which inter-alia, includes decision in the case of CIT vs. Gundecha Builders [2019 (1) TMI 112 - BOMBAY HIGH COURT], CIT vs. Sane & Doshi Enterprises [2015 (4) TMI 882 - BOMBAY HIGH COURT], CIT vs. Neha Builders [2006 (8) TMI 105 - GUJARAT HIGH COURT] and K. Subramanian, ITO & Another vs. Siemens India Ltd. [1983 (4) TMI 3 - BOMBAY HIGH COURT] concluded that the annual letting value of flats held as stock-in-trade cannot be brought to tax under the head “house property”. While taking such view the Tribunal distinguished the decision rendered in the case of CIT vs. Ansal Housing Finance & Leasing Company Ltd. (supra). Thus, as per the decision rendered in the case of Osho Developers vs. ACIT (supra) no addition could have been made u/s. 23 of the Act in respect of vacant flats held as stock-in-trade and carried forward as closing stock.
It is a well settled law that where two views are possible and the Assessing Officer has taken one of the possible view, the PCIT cannot substitute his view in exercise of revisional jurisdiction u/s. 263 of the Act. In the instant case the PCIT has tried to super impose his view in exercise of powers u/s. 263 of the Act over one of the possible view taken by Assessing Officer. This is not in accordance with the settled law. Thus, the PCIT has exceeded his jurisdiction in exercise of revisionary powers. Appeal of the assessee is allowed.
Additions on account of special reserve - amount transferred to the capital reserve account - AR submits that the amount transferred to capital reserve fund represents the entrance fees collected from its shareholders, unclaimed deposit represents capital receipts, cannot be taxed as “income” - HELD THAT:- We are of the considered opinion that the entrance fees or subscription fees received by the members is on capital account does not form part of the revenue receipts. Similarly, as regards to the old balance of DD payable to sundry creditors, there is no cessation of liability and mere write off of the DD payable to sundry creditors etc and never the unilateral act on the part of the appellant by writing off of the amount and credit to Profit & Loss Account neither amount to cessation of liability or income. In the circumstances, we direct the Assessing Officer to allow this ground of appeal no.1.
Allowability of deduction u/s 36(1)(viii) - The appellant bank had derived income on lending money for the purpose of purchase & construction of houses. There is no dispute that the appellant is specified entity being the cooperative bank as per sub-clause (4) of section 36(1)(viii) of the Act. The term “long term finance” has been defined under clause (h) to mean any loan or advance provided for a period for not less than 5 years. We do not perceive any distinction between term “development of housing in India” and “purchase & construction of housing in India for residential purposes. Thus, we are of the considered opinion that the claim made by the appellant clearly falls within the exemption under the provisions of section 36(1)(viii) of the Act and the assessee bank is entitled for deduction. Accordingly, the ground of appeal no.2 stands allowed.
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