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2022 (10) TMI 1041
Validity of Assessment u/s 153A - no notice under section 143(2) was served on the assessee - HELD THAT:- We observe that despite several opportunities, DR has not been able to place on record any documents/assessment records/evidence which shows that notice under section 143(2) of the Act was issued/served upon the assessee at any time prior to completion of assessment. The assessee has filed a specific Affidavit to the effect that no notice under 143(2) of the Act was issued/served upon the assessee during the course of assessment proceedings i.e. prior to completion of assessment.
DR has not placed on record any documents to contradict the Affidavit filed by the assessee regarding non-service/non-issuance of notice u/s 143(2).
Hon'ble High Court Gujarat High Court in the case of Panorama Builders (P.) Ltd [2012 (8) TMI 955 - GUJARAT HIGH COURT] held that Section 292BB is only confined to service of notice and does not apply to issuance of notice. In the case of Narendra Singh [2010 (11) TMI 209 - ITAT AGRA] the ITAT held that in pursuance of return filed by assessee u/s 153A, service of notice as per provisions of section 143(2) within prescribed time is mandatory.
Therefore, in absence of service of such a notice, Assessing Officer cannot make addition and he is bound to accept income as returned by assessee.
Thus, since the Ld. AO did not issue/serve notice under section 143(2) of the Act before completion of assessment under section 143(3) of the Act, the assessment order framed is void. DR has not brought anything on record to substantiate that notice u/s 143(2) of the Act was either issued/served on the assessee prior to completion of assessment. In view of the above, we are of the view that the assessment order is invalid in the eyes of law in absence of a valid issuance and service of notice under section 143(2) of the Act. In the result, appeal of the assessee is allowed on jurisdiction. Accordingly, we are not discussing the merits of the case.
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2022 (10) TMI 1040
Long Term capital gain - valuation arrived by the Valuation Officer - HELD THAT:- Section 142A of the I.T. Act titled as 'Estimate by Valuation Officer in certain cases'. This section prescribes that for the purpose for making an assessment, where an estimate of the value of any investment referred to in sections 69, 69A, 69B are required to be made, the A.O. may require the Valuation Officer to make an estimate of such value and report the same to A.O. Thus the scope of section 142A is limited in its span only to determine the value of investment in respect of certain assets, such as, bullion, jewellery, valuable articles etc. In this section as well there is no power vest with A.O. to seek the help of Valuation Officer in respect of determination of capital gain prescribed u/s 48 of the Act.
Similarly Section 50C is titled as 'Special provision for full value of consideration in certain cases'. Meaning thereby this section is not applicable to each and every case of sale but this is to be applied in respect of those sales instances where consideration received is less than the value adopted by the stamp valuation authority for the purpose of payment of stamp duty in respect of such transfer.
In that situation, for the purpose of section 48 computation of capital gain, value so adopted by the stamp valuation authority be deemed to be the full value of the consideration received as a result of such transfer. Meaning thereby the substitution of full value of consideration is possible, if the disclosed consideration is less than the value determined for payment of stamp duty. It had also been prescribed that where the assessee claims that the value adopted by the stamp valuation authority exceeds their fair market value or the value so adopted by the stamp valuation authority is not decided by any other Court or High Court, then the Assessing Officer may refer the valuation of the capital asset to a Valuation Officer under section 55A. Therefore the conclusion is that the Act has prescribed that a reference u/s 55A can be made for a limited purpose as prescribed under section 50C.
As seen from records and the Paper Books filed in the present case, the Assessing Officer referred the transaction to the Valuation Officer, Sholapur u/s 142A on 09.11.2017 to ascertain the Fair Market Value as on the date of sale. The Valuation Officer determined the value of the property vide his report dated 14.08.2018. Based on the above report, the AO passed the assessment order on 28.09.2018 which is claimed by the assessee as barred by limitation u/s. 153(1) - The assessee’s contention that the AO ought to have passed the assessment order under 153(1) on or before 31.12.2017 and then invoking subsection (15) of Section 155 and amend the assessment order within four years thereafter, is found to be justifiable.
AO necessarily to pass the assessment order within the time limit as prescribed under section 153(1) of the Act which is in this case namely 31.12.2017.
AO has wrongly referred the valuation of the immovable property u/s 142A of the Act which is not provided under the provisions of the Income Tax Act. However after receipt of the Valuation Report from the DVO, the A.O. passed the assessment order on 28.09.2008 which is clearly barred by limitation which is not sustainable in law. Therefore the assessment order is hereby invalid in law. Thus the ground no. 1 raised by the assessee is hereby allowed.
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2022 (10) TMI 1039
Royalty payment - payments made by the Appellate under the “Distribution Agreement”- characterisation of the payments to Google Ireland - scope of Section 9(1)(vi) of the Income-tax Act, 1961 and Article 12 of the Double Taxation Avoidance Agreement between India and Ireland - assessee (Google India Private Limited) (GIPL) is a company engaged in the business of providing Information Technology (IT) and Information Technology Enabled Services (ITES) to its group companies.
The definition of the term "royalty" in Article 12(3) of the India - Ireland DT AA override the definition of "royalty" as provided in Explanation 2 to section 9(l)(vi) of the Act by virtue of section 90(2). Therefore, the definition of the term "royalty" under the India - Ireland DTAA being more beneficial to the assessee must only be considered in these appeals.
The findings of the AO and CIT(A) as regards the characterisation of the payments to Google Ireland as 'Royalty' under section 9(l)(vi) of the Act is therefore not relevant and consequently correctness of these findings need not be adjudicated in these appeals. Similarly, we do not think it is necessary to decide whether the services agreement and distribution agreement are interlinked or complementary to each other. ITES services are enabling the overall business and not directly related to generating revenue from Adword Program in India. Revenue is generated by end customers clicking on link and not because of ITES services.
Even if it is interlinked, the internal tools / intangibles / software of Google Ireland are admittedly not transferred to assessee. The assessee has only right to use these for rendering ITES services. Applying ratio of the Hon’ble Supreme Court in the case of Engineering Analysis Centre of Excellence Private Limited [2021 (3) TMI 138 - SUPREME COURT] this cannot result in royalty. We proceed to examine whether the definition of 'Royalty' as per Article 12 of India- Ireland DTAA is satisfied in the present case considering the distribution agreement, services agreement and the facts on record.
It is not in dispute that the Adwords Program is used by the assessee in the present case be it for the purpose of discharging its functions under the distribution agreement or under the services agreement. However, the question for our consideration is whether the copyright in "Google AdWords Program" is used by the assessee or not? In order to attract definition of 'Royalty', there has to be use or right to use, inter alia, any copyright. The issue as to whether usage of computer software tantamounts to royalty, is now resolved by the Supreme Court decision in the case of Engineering Analysis Centre of Excellence Private Limited (supra)
We find that none of the rights as per section 14(a)/(b) and section 30 of the Copyright Act, 1957 have been transferred by Google Ireland to the assessee in the present case. As held by the Hon’ble Apex Court in the case of Engineering Analysis Centre of Excellence Private Limited (supra) mere use of or right to use a computer program without any transfer of underlying copyright in it as per section 14(a)/(b) or section 30 of the Copyright Act, 1957 will not be satisfying the definition of Royalty under the Act / DTAA. Similarly, use of confidential information, software technology, training documents and others are all 'literary work' with copyrights in it owned by the foreign entity and there was no transfer or license of copyrights in favour of the assessee company. Hence, the impugned payments cannot be characterised as 'Royalty' under the DTAA.
Delhi High Court in DIT v Sheraton International Inc [2009 (1) TMI 27 - DELHI HIGH COURT] held that when the use of trade mark, trade name etc are incidental to the main service of advertisement, publicity and sales promotion and further when there is no consideration payable for such use of trade mark, trade name etc, the consideration cannot be characterised as royalty.
Applying the said principle, in the present case, use of Google Brand Features etc are de hors any consideration payable to Google Ireland and further they are incidental and ancillary for achieving the main purpose of marketing and distributing the Google Adwords Program. Hence, the lower authorities were not right in treating the payments as Royalty.
Applicability of 'use of or right to use industrial, commercial or scientific equipment" the CIT(A) held that the assessee cannot be said to have gained right to use any scientific equipment, since, Google Ireland has not parted with the copyright it holds in the Adwords program and hence it cannot be said that any kind of technical knowhow has been transferred to the assessee company.
The revenue has not challenged the said finding of CIT(A). Hence, the impugned payments cannot be regarded as made for 'use of or right to use industrial, commercial or scientific equipment'. The remaining portion of definition of 'Royalty' under the India - Ireland DT AA is consideration for information concerning industrial, commercial or scientific experience.
AO has not characterised the impugned payments as a consideration for the above. In any case, CIT(A) has given a finding that it cannot be said that any kind of technical knowhow has been transferred to the assessee company. This has not been challenged by the revenue.
We hold that the impugned payments cannot be regarded as royalty under the India - Ireland DTAA. It is true that the Google Adword program was commercially and profitably exploited in a commercial sense and profitable manner in India to generate revenues from Indian customers or advertisers. This is the business or commercial aspect of the transaction. However, the stand of the lower authorities that the impugned payments are in the nature of Royalty cannot be upheld especially under Article 12 of the India - Ireland DTAA merely because the marketing, distribution and ITES activities are carried out in India and revenues are generated from India or from Indian Advertisers
TAG was set up by OECD and its recommendation on changes to the OECD commentary were accepted by OECD. As per the recent decision of the Hon’ble Supreme Court in Engineering Analysis, (supra), OECD commentary is a necessary aid for the interpretation of provisions contained in DTAA. In fact, the High-Powered Committee (“HPC”) on electronic commerce and taxation, set up by the Central Board of Direct Taxes (“CBDT”) had also accepted the view taken by TAG and recommended taxing consideration flowing for online advertisement under Article 7, and not Article 12 of the relevant DTAA.
In terms of the international guidance as stated herein, the position regarding taxability of receipts from sale of online advertisement space is clear. Unless the non-resident, who is engaged in sale of online advertisement space, has a PE in India, no portion of receipts earned by it from sale of online advertisement space in India can be brought to tax in India as Act read with the relevant DTAA.
PE definition presently is based upon the physical presence criteria. The new business models also created challenges in characterizing the nature of payment – whether the payment is for services or for any IPR and hence royalty or whether it represents pure business profits. Various ITAT decisions, as discussed above, have held that income from sale of advertisement space on a website is not taxable in India if there is no PE of the foreign enterprise in India. As held that such income is not to be regarded as royalty or FTS. Such tax challenges is addressed by the introduction of EL.
Section 165 of the Finance Act, 2016 provides for charge of EL at 6% on consideration for specified services. Section 164(i) of Finance Act, 2016 provides that “specified service” means online advertisement, any provision for digital advertising space or any other facility or service for the purpose of online advertisement and includes any other service as may be notified by the Central Government in this behalf. Thus, online advertisement is now covered under EL. If online advertisement was already covered under definition of royalty, then bringing it as part of EL scheme would not arise.
We hold that the impugned payment cannot be characterized as royalty under the India- Ireland DTAA. It is ordered accordingly.
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2022 (10) TMI 1038
Rejection of books of accounts - GP estimation - HELD THAT:- We find substance in the observations of the A.O that had prompted him to reject the trading results of the assessee, but are accept the manner in which he had determined the gross profit addition on the basis of an unsubstantiated; or in fact an ad-hoc application of gross profit rate of 1.98% of cigarette and tobacco products and 3.96% of other FMCG products.
As stated by AR and, rightly so, there was no justification on the part of the A.O to have adopted the aforesaid basis which as the same was not supported by any concrete basis. On the contrary, in our considered view the estimation of the assessee’s income for the year under consideration could have been safely done by taking cognizance of its disclosed gross profit rates for the immediately three preceding years [out of which two years had been subjected to scrutiny assessment u/s. 143(3) of the Act], as well as that of the immediately succeeding year which too have been subjected to a scrutiny assessment u/s.143(3).
Gross profit rate of the assessee could have safely been taken by the A.O at 1.54% i.e. average gross profit rate of the last three years i.e. A.Y. 2010-11 to 2012-13. Accordingly, in terms of our aforesaid observations the A.O is herein directed to restrict the addition by adopting the overall gross profit rate of the assessee @1.54% of its total sales - Thus, the ground of appeal No.1 is partly allowed in terms of our aforesaid observations.
Allowability of a claim of expenditure u/s. 37(1) - deduction of commission expenses - HELD THAT:- A.O for considering the allowability of the expenditure incurred by the present assessee before us, could not have been guided by the test of necessity, but by the fact that as to whether or not the expenditure had been laid out or expended wholly and exclusively for the purpose of the business of the assessee; and that the same is not in the nature of an expense which are specifically excluded as per the mandate of Sec. 37 of the Act. It is not the case of the A.O that the assessee had not incurred the aforesaid expenses wholly and exclusively for the purpose of his business, but for the reason that as per him there was no need for the assessee to have paid commission to the aforesaid parties. We are afraid that the aforesaid reasoning for dislodging the assessee’s claim for deduction of the commission expenses by the A.O cannot be accepted on our part.
A.O had failed to give any justifiable reason as regards declining of the assessee’s claim for deduction of commission expenses that were paid to the aforementioned parties. Apart from that, we are of the considered view that considering the fact that payment of commission by the assessee to the aforesaid parties within the same parameters had not only been allowed by the department in his for the last three preceding years (for two years scrutiny assessment was framed), but also while framing assessment in his case for the immediately succeeding year i.e. AY 2014-15 vide order passed u/s.143(3), dated 15.11.2016, therefore, there was no justification on the part of the A.O in declining the assessee’s claim for deduction of the commission expenses during the year under consideration - Decided in favour of assessee.
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2022 (10) TMI 1037
Disallowance of deduction claimed u/s 80IA(4) - HELD THAT:- We find that the claim which has been decided in favour of the assessee [2022 (5) TMI 773 - ITAT AHMEDABAD] is on identical projects. After careful consideration of the order passed by the Co-ordinate Bench, we find that the assessee has been found to be a developer and not a work contractor and ultimately the benefit claimed under Section 80IA(4) of the Act has been granted.
In the absence of any different fact, we do not find any reason to deviate from finding made by the Co-ordinate bench and therefore respectfully relying upon the same, we allow this ground of appeal preferred by the assessee.
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2022 (10) TMI 1036
Deduction u/s. 80P(2)(d) - interest income earned from other cooperative banks/societies - HELD THAT:- As relying on Kshatriy Gadkari Maratha Cooperative Credit Society Ltd. [2019 (4) TMI 1932 - ITAT MUMBAI] and Kaliandas Udyog Bhavan Premises Co-op Hsg Society [2018 (4) TMI 1678 - ITAT MUMBAI] we hold that the assessee a cooperative society is eligible for deduction u/s.80P(2)(d) of the Act in respect of the interest income earned by the assessee either from any other cooperative society or from a cooperative bank. Grounds raised by the assessee are allowed.
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2022 (10) TMI 1035
Revision u/s 263 by CIT - there is a huge difference in invoice value and the duty paid as per the Annexure-15 and the ITS data available - CIT came to the conclusion that the purchase value/invoice values have wrongly mentioned to reduce the net profit of the Firm and the same has not been verified by the AO at the time of finalizing the assessment under Section 143(3) - HELD THAT:- Now, assessee has submitted a Chart before the Ld. Pr. CIT giving a reconciliation of the difference pointed out by Ld. Pr. CIT and submitted that all difference has been duly explained. However, the issue for consideration is whether this aspect should have been enquired during the course of assessment proceedings. In our view, this glaring difference should have been enquired during the course of assessment proceedings, which the Ld. Assessing Officer omitted to do.
In the case of L.A. Developers [2022 (6) TMI 1321 - ITAT CUTTACK] ITAT held that failure on part of Assessing Officer to examine or make addition in respect of difference between cash flow and balance sheet had clearly made assessment order erroneous and consequently prejudicial to interest of revenue. Therefore, Commissioner was right in invoking his powers u/s. 263 of the Act. In view of the above facts and the judicial precedents on the subject, in our considered view, reconciliation should have been sought by Ld. Assessing Officer during the course of assessment proceedings. Non-seeking of such reconciliation, which apparently should have been sought, in our view, indicates non-application of mind to the given set of facts by Ld. Assessing Officer during the course of assessment proceedings. Accordingly, we find no infirmity in the order of Ld. Pr. Ld. CIT(A), who, in our view, in the instant set of facts has correctly concluded that the order passed by Ld. Assessing Officer is erroneous and prejudicial to the interests of the Revenue. Appeal of assessee dismissed.
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2022 (10) TMI 1034
Unexplained expenditure u/s. 69C - addition on account of variation in the valuation made by the customs authorities in the assessable value of goods imported - HELD THAT:- As in the case of the assessee, there is no evidence on record to suggest that assessee, has paid any amount over and above the purchase consideration shown in the purchase bills. It may also be noted that the excise duty payable on each bill on the difference in valuation made by the customs authorities @ 16% works out to be in a few hundreds and there is a force in the contention of the assessee that, the cost of filing of further appeal is higher than additional custom duty paid and it was not economical to contest the variations.
Moreover, if an assessee opts to contest the variations, it delays the clearance of the goods and result into higher cost. Therefore, only on the fact that the assessee had paid custom duty on the enhancement made by the custom authorities cannot be regarded has a valid basis to suggest that there was unaccounted purchases made by the assessee.
CIT(A) held that the AO was not justified in assuming that the assessee had made unaccounted purchases solitary on the basis that the customs authorities had enhanced the value of goods imported for the purpose of payment of custom, duty. In the absence of any evidence/material on record that the assessee has paid anything extra over and above the transaction value shown in import invoices, no addition on account of unexplained expenditure on purchases can be made and deleted the addition of Rs. 31,07,529/- made by the AO.
As gone through the entire factum and without any hesitation, we hold that the Assessing Officer has made addition on a deeming fiction and the CIT(A) has succinctly analyzed every aspect of the business and transactions and gave a surefire decision. Hence, we decline to interfere with the order of the Ld. CIT(A) on this issue.
Addition in gross profit - AO has rejected the books of account holding that the purchases as well as sales have not been fully accounted for - The books cannot be rejected on the solitary basis that sales were shown to be made in cash specially when there is no difference in the rate charged on sale of same product booked either in cash or on credit. Therefore, we are of the opinion that there was no material in possession of the AO to conclude that books of account for the A.Y. 2003-04 maintained by the assessee were either incorrect or incomplete. Since there is no basis of rejection of books of account, provisions of section 145 cannot be attracted and no addition in the gross profit can be made on estimated basis, when the assessee has cogently explained the reasons for fall in the gross profit rate being on account of change in the pattern of business and increase in the total turnover. Hence, addition made on account of gross profit has been fittingly deleted by the Ld. CIT(A). The appeal of the revenue on this ground is dismissed.
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2022 (10) TMI 1033
Foreign Tax Credit (FTC)) u/s 90 - delay in filling Form 67 - As per NFAC filing of form No.67 before the due date of filing return of income u/s.139(1) of the Act was mandatory and failure to do so will result in FTC not being allowed - HELD THAT:- The said issue under consideration is no longer res integra. We note that on identical issue, the Co-ordinate Bench of ITAT, Bangalore in the case of Brinda Rama Krishna [2022 (2) TMI 752 - ITAT BANGALORE] held that (i) Rule 128(9) of the Rules does not provide for disallowance of FTC in case of delay in filing Form No.67; (ii) filing of Form No.67 is not mandatory but a directory requirement and (iii) DTAA overrides the provisions of the Act and the Rules cannot be contrary to the Act. Therefore, non-furnishing of Form No.67 before the due date u/s 139(1) of the Act is not fatal to the claim for FTC
The assessee is entitled to FTC and the AO is directed to allow the claim. The decision rendered in MURALIKRISHNA VADDI, VISAKHAPATNAM case [2022 (6) TMI 693 - ITAT VISAKHAPATNAM] is distinguishable in as much as in the present case, Form No.67 was filed along with the return of income by the assessee and not after the commencement of the scrutiny proceedings by the AO after a delay of more than 2 years, as was the facts in the case decided.
We are therefore of the view that the said decision rendered by the Visakapatnam Bench is not applicable to the facts of the present case and the other decisions taking a view in favour of the assessee are applicable. The said decision also does not consider the effect of DTAA and Sec.90 of the Act, vis-à-vis the provisions of Rule 128(9) of the Rules and as to whether the Rules can override the Act. Therefore, we hold that the assessee is entitled to FTC and the AO is directed to allow the same. - Decided in favour of assessee.
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2022 (10) TMI 1032
Nature of receipt - Sales Tax Subsidy - revenue or capital receipt - MAT Computation u/s 115JB - HELD THAT:- Undisputedly, assessee company has received an amount on account of sales tax exemption benefit. The assessee company by relying upon the decision rendered in case of DCIT vs. Reliance Industries Ltd. [2003 (10) TMI 255 - ITAT BOMBAY-J] sought to treat the sales tax incentives received as capital receipt in nature, which plea has not been accepted by the AO who has proceeded to treat the sales tax subsidy as revenue receipt in the hands of the assessee.
We direct the AO not to add sales tax subsidy received by the assessee, which is in the nature of capital receipt while computing the book profit u/s 115JB.
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2022 (10) TMI 1031
Revision u/s 263 - Validity of order passed by the AO as per the direction of the Settlement Commission u/s.245D(4) - Claim of deduction in respect of loss by way of liquidated damages on account of delay in execution of contracts, Claim of deduction towards provision for warranty, Adjustment u/s.145A of the Act in respect of MODVAT - HELD THAT:- We find that pursuant to the directions of the Hon’ble Settlement Commission, the ld. AO had indeed examined the 35 issues listed in the said order while framing the assessment giving effect to Settlement Commission’s order. In fact in the said order, AO after due examination had accepted to the stand of the assessee for certain items and wherever he is not in agreement with the contentions of the assessee, the ld. AO had resorted to make suitable disallowances / additions. Hence, this goes to prove that the ld. AO had indeed made thorough examination and enquiries with regard to 35 items listed in the Settlement Commission’s order.
The order passed by the ld. AO u/s.143(3) r.w.s. 245D(4) of the Act dated 25/02/2008 could not be construed as an order passed by a subordinate authority in view of the fact that the Settlement Commission order has been passed by the Officers in the rank of the Chief Commissioner.
Hence, we have no hesitation to hold that revision jurisdiction invoked u/s.263 by the ld. CIT seeking to make adjustment in respect of (a) claim of deduction in respect of loss by way of liquidated damages on account of delay in execution of contracts (b) adjustment u/s.145A of the Act in respect of MODVAT as void ab initio as the same was already the subject matter of consideration by the ld. AO while passing an order giving effect to Settlement Commission proceedings. Hence, due enquiries had been carried out by the ld. AO on these two items. In respect of aforesaid two items, revision jurisdiction invoked by the ld. CIT u/s.263 of the Act is unsustainable in the eyes of law.
The various arguments made by the ld. AR on the merits and other legal submissions in respect of the aforesaid two issues, need not be gone into and they are left open as adjudication of the same would only be academic in nature.
Impact of Section 145A of the Act of MODVAT - AO in the instant case had passed an order giving effect to the directions of the Settlement Commission. The Settlement Commission had indeed directed the ld. AO to examine 35 items that are listed in pages 27 & 28 of the Settlement Commission order for various years. Hence, the ld. AO does not have jurisdiction to travel beyond those 35 items listed in the Settlement Commission Order. The examination of those 35 items alone would be in direct consonance and compliance with the directions of the Hon’ble Settlement Commission. This is what has been done by the ld. AO in the instant case. How the ld. CIT could expect the ld. AO in the aforesaid scenario to look beyond 35 items. Hence, the order of the ld. AO cannot be treated as erroneous in respect of the issues that were not forming part of 35 items listed in the order of the Settlement Commission. To this extent, the revision order passed by the ld. CIT u/s. 263 of the Act is quashed. Hence, the observations made by the ld. CIT in his order u/s.263 of the Act in respect of (a) impact of taxable income as a consequence of change in the method of recognition of the Revenue and (b) quantitative details in respect of raw materials and finished goods are dismissed and quashed.
Claim of deduction towards provision for warranty - Revision jurisdiction u/s.263 of the Act cannot be invoked by the ld. CIT for directing to make fishing and roving enquiries by the ld. AO. Moreover, the ld. CIT had not stated as to how the claim for provision of warranty made by the assessee is incorrect or erroneous, as admittedly reply was given before the ld. CIT by the assessee in response to show-cause notice. Hence, it is incumbent on the part of the ld. CIT to atleast make preliminary enquiry on the submissions made by the assessee before concluding that the order passed by the ld. AO is erroneous in respect of this issue. Hence, we hold that the revision jurisdiction u/s.263 of the Act invoked by the ld. CIT fails in respect of this issue also.
Thus revision order passed by the ld. CIT u/s.263 of the Act is hereby quashed. - Decided in favour of assessee.
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2022 (10) TMI 1030
Reopening of assessment u/s 147 - validity of notice - Reasons are handwritten and there is no signature of the AO thereon - HELD THAT:- As on verification of the assessment record including the order sheets from the date of recording of reasons clearly reveals that the order sheets by the AO from recording of reasons, issuing of notice u/s 148 and notices u/s 142(1) are handwritten and there is no signature of the AO thereon.
Thus, safely hold that the AO neither complied with the statutory requirements and issuing notice u/s 148 of the Act nor complied with the law laid down by the Hon’ble Supreme Court in the case of reassessment proceedings. Consequently, as compelled to hold that the AO did not have valid jurisdiction to initiate reassessment proceedings and to issue notice u/s 148 of the Act to the assessee.
Therefore, notice issued u/s 148 of the Act, reassessment proceedings and the impugned reassessment order are bad in law. Accordingly, the same are quashed and the consequent reassessment order made u/s 147 r.w. section 143(3) of the Act is annulled and the appeal of the assessee is allowed.
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2022 (10) TMI 1029
Addition u/s. 68 - unexplained cash credits of share capital and security premium received during the year - HELD THAT:- Assessee failed to produce the alleged 8 parties who had subscribed to the equity shares of the assessee company. The assessee was asked to explain the cash credits received by it during the year. The assessee failed to file necessary details to explain the source of alleged cash credit and also unable to prove identity, creditworthiness of the cash creditors as well as genuineness of the transaction. The assessee company has miserably failed to explain the source of alleged cash credit. If the assessee had sufficient details to explain the alleged sum, it could have certainly filed those details at any stage.
Consistently escaping from appearing/producing the alleged parties before the ld. AO and the appellate authority(ld.CIT-A) indicates that the assessee has no plausible explanation to explain the source of alleged sum of share capital and security premium and, therefore, the provisions of section 68 of the Act have rightly been invoked by ld. AO and alleged sum is the unaccounted income of assessee, which has been routed in the books through bogus/accommodation entry in the form of share capital and security premium.
No infirmity in the finding of the ld. CIT(A) confirming the addition made u/s. 68 of the Act. Thus, all the grounds of appeal raised by the assessee are dismissed.
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2022 (10) TMI 1028
Delayed deposit of ESI & PF - Scope of amendment to section 43B - HELD THAT: - We are in agreement with the view taken by the coordinate Bench of Kolkata in the case of Lumino industries Ltd. [2021 (11) TMI 926 - ITAT KOLKATA] that the amendment brought to the statute by Finance Act 2021 is applicable from AY 2020-21 onwards and the present appeal pertains to AY 2018-19. In the present case, undisputedly, the assessee deposited amount of ESI & PF before due date of filing of return and impugned disallowance has been made by CPC while processing the return of income u/s 143(1) of the Act. In the similar situation the coordinate Bench of the Tribunal in the case of Kalpesh Synthetics (P) Ltd. [2022 (5) TMI 461 - ITAT MUMBAI] observed that the scope of prima facie disallowance u/s 143(1) of the Act is inherently very limited and only such disallowance can be made under this statutory provision as can be conclusively held to be inadmissible based on material on record. Appeal filed by the assessee is allowed.
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2022 (10) TMI 1027
Deduction u/s 80P(2)(d) - interest income from Co-operative Banks - conflicting decisions - whether interest income derived from deposits with cooperative banks is eligible for deduction under section 80P(2)(d) of the Act or not? - HELD THAT:- The Hon'ble Bombay High Court in the case of K. Subramanian vs. Siemens India Ltd. [1983 (4) TMI 3 - BOMBAY HIGH COURT] has held that when two conflicting decisions of non-jurisdictional High Courts are available, the view that favours the assessee is to be preferred. Accordingly, following the decision of Totagars Co-operative Sale Society [2017 (1) TMI 1100 - KARNATAKA HIGH COURT] and case of Vankar Sahakari Sangh [2016 (7) TMI 1217 - GUJARAT HIGH COURT] the deduction claimed by the assessee under section 80P(2)(d) of the Act in respect of interest derived from investments with the cooperative banks is allowed. Appeals by assessee are allowed.
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2022 (10) TMI 1026
Disallowance u/s 36(1)(iii) - amount advanced by the assessee on which no interest has been charged by the assessee - DR submitted that the amount has been advanced from the assessee’s cash credit bank account and it is thus evident that there is a direct nexus between interest bearing funds - HELD THAT:- Where the deposits are more than the withdrawals on a given day and such excess deposits are utilised by the assessee for the purpose of making any loans and advances, no interest would be charged by the bank as the assessee would in effect be using its own funds at the given point of time - nature of deposits in such cash credit account needs to be examined as to whether the deposits are from business operations or there are also deposits by way of fund transfer from other bank accounts and the nature of such funds from other bank accounts in the nature of borrowings or from business operations.
In case of borrowed funds have been transferred to this particular cash credit account and such funds are then utilized in giving loans and advances, again a nexus is established between the borrowed funds and the loans/advances. In our view, this particular aspect of the matter in terms of nature and movement of funds in the cash credit account through which the advances have been given to M/s Mirage Infrastructure Private Limited has not been examined by either of the lower authorities.
Merely because the advances were given from assessee’s cash credit account, a simplistic presumption cannot be drawn that advances were from borrowed funds given that the cash credit account is likely to have credits/deposits from assessee’s business operations and/or other bank accounts.
The credits and withdrawals in such cash credit account need to be examined and a clear nexus is required to be established between the borrowed funds and making of loans/advances to M/s Mirage Infrastructure Private Limited. On the same footing, the argument of the assessee regarding availability of its own funds need to be tested and examined after analyzing the nature and position of funds at the relevant point of time of making such advances. We, therefore, deem it appropriate to remand the matter to the file of the AO to examine this matter afresh in light of above discussions. AO shall provide reasonable opportunity to the assessee and the latter shall submit the desired information/documentation as so desired by the AO. Ground of appeal is allowed for statistical purposes.
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2022 (10) TMI 1025
Revision u/s 263 by CIT - short working of capital gain - assessee has received ancestral property from her father late - PCIT held that the Assessing Officer has not correctly verified the different valuation adopted by the assessee in different areas for the same land and, therefore, set aside the assessment order and directed the AO to pass fresh assessment order - HELD THAT:- It is pertinent to note that the Assessing Officer in notice under Section 142(1) of the Act has asked the query not in general but specifically asked the details about the land purchased and sold along with sale deed and purchase deed. The reply of the assessee clearly shows that the assessee has given all the details in response to DVO’s calculation related to land and the indexation thereto.
In fact, AO in reopening has categorically made finding and made addition to the extent of Rs.18,63,319/- on account of short working of LTCG. DVO’s report was authenticated and accepted by the Revenue. This is not a case of lack of enquiry or no enquiry at all. Besides this, the PCIT has given his own observation which amounts to review and change of opinion or review while exercising Section 263 is not permitted by the Income Tax Statute. Thus, the PCIT was not right in exercising Section 263 in assessee’s case. The appeal of the assessee is thus allowed.
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2022 (10) TMI 1024
Unexplained cash deposited in the bank - Addition of Cash deposit in the Bank invoking section 69A - HELD THAT:- Considering the amount of cash withdrawn by the assessee during the period from 30.06.2015 to 09.10.2015 the source of which is not in dispute.
We find merit in the contention of assessee that the assessee was withdrawing the cash from Bank and keeping it at home and subsequently when the demonetization scheme was announced, the assessee deposited the amount left over with him in the Bank account. Thus hold that the cash withdrawn by the assessee during the period 30.06.2015 to 09.10.2015 is sufficient to explain the source of the alleged cash deposited in the Bank - Therefore, delete the addition made under section 69A of the Act by setting aside the finding of the ld. CIT(Appeals) and allow the appeal of the assessee.
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2022 (10) TMI 1023
Revision u/s 263 - As per CIT, AO has not examined all the unsecured loans taken during the year - HELD THAT:- AO has discussed only the issue regarding unsecured loan that too giving reference to the balance sheet of unsecured loan as on 31.03.2013 and as on 31.03.2012. Addition was made only on the basis of the admission of the assessee that he was unable to provide the details of other unsecured loan.
We note that during the year under appeal i.e. AY 2012-13, the AO was required to examine the unsecured loan taken during the year i.e. FY 2011-12. AO has only given reference to the balances of unsecured loan appearing on 31.03.2013 and comparing the same with the balances of unsecured loan as on 31.03.2012 and has completely overlooked the fact that various unsecured loans were taken during FY 2011-12 which is part of the details filed by the assessee itself.
AO has only confirmed the addition of unsecured loan of Rs. 17,00,000/- which the assessee himself admitted to be unable to explain. Therefore, so far as the issue of unsecured loans are concerned, ld. AO has not examined all the unsecured loans taken during the year and the same has been rightly directed by ld. PCIT to be examined in the set aside proceedings.
Addition to the capital account - A perusal of the bank account of the assessee placed that Rs. 21,50,000/- was received in lieu of agreement for construction and out of this sum Rs. 15,00,000/- was transferred in March 2012 and Rs. 1,00,000/- was transferred from other sources of the assessee on 04.11.2011. In our view, the assessee has duly explained the source of capital addition in the account of the proprietorship concern which ld. AO has examined properly and the source of addition to capital account stands duly explained and no further examination needs to be carried out by the ld. AO on this issue and, thus, the finding of the ld. PCIT on this issue is reversed.
Addition of fixed assets - There is no information provided by the assessee before the ld. AO and nor proper explanation was given before the ld. PCIT also and therefore, this issue has been rightly set aside by ld. PCIT to the ld. AO for doing the needful.
Sundry creditors - We find that the assessee provided complete details of the sundry creditors with the ledger accounts and on going through the same, we find that with all the sundry creditors the assessee is carrying out regular business activity, they are running accounts and there is no reason to doubt the genuineness of the sundry creditors appearing in the balance sheet as on 31.03.2012 which includes the sundry creditors Ori-Plast Limited of which detailed vouchers, bills and ledger accounts were filed. We, therefore, are of the considered view that since the ld. AO examined this issue, the same need not be set aside for fresh adjudication and to this extent, the finding of the ld. PCIT on this issue is reversed.
Calculation of gross profit - During the survey it was noticed that the assessee was maintaining two sets of books of account. A perusal of the assessment order reveals that AO has made no efforts to examine this issue as to whether the assessee was keeping two sets of books of account for the year under appeal and whether any such evidence was gathered by the survey team pertaining to FY 2011-12. Assessment order is completely silent on this issue and the reconciliation statement filed by the assessee before ld. AO do not contain any specific details and it refers to gross profit as per the impounded books at Rs. 14,04,012/- and the same has been compared to gross profit as per the audited books of account at Rs. 3,50,752/-. There is complete mismatch of figures. Thus, in our view this issue of reconciliation of gross profit has rightly been set aside to the ld. AO for afresh examination and to this extent the finding of the ld. PCIT is confirmed.
The action of PCIT invoking jurisdiction u/s 263 of the Act and holding the assessment order as erroneous insofar as prejudicial to the interests of the Revenue is partly sustained in view of the observations made herein above.
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2022 (10) TMI 1022
Smuggling - import of Cigarettes - opportunity for cross examination has been provided or not - principles of natural justice - HELD THAT:- The premise of order dated 12.07.2022 is that both the impugned orders dated 15.05.2019 have been passed without any opportunity for cross-examination having been afforded to the petitioners, which is in violation of principles of natural justice - It is admitted by the respondents that there has been no opportunity granted for cross-examination and order passed on 12.07.2022 was after a detailed hearing of both sides.
The impugned orders-in-original dated 15.05.2019 is set aside - petition allowed.
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