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2022 (6) TMI 1289
Maintainability of petition - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial Creditors - composite commercial transactions - existence of debt and dispute or not - contractual default or not - time limitation - HELD THAT:- As per the enunciation of law by the Hon'ble Apex Court in M/s. Innoventive Industries Ltd. vs. ICICI Bank & Anr. [2017 (9) TMI 58 - SUPREME COURT], in an Application under Section 7 of the IBC, 2016, what is required to be seen by this Adjudicating Authority, is whether the application filed within the period of limitation and whether the Petitioner/Financial Creditor proved the debt and default thereon.
It is the settled principle of law that the amount given under an Inter Corporate Deposit is a financial debt. The Learned Counsel appearing for the Respondent/Corporate Debtor while not disputing the said principle, however, mainly contended that the subject Inter Corporate Deposit was given by the Petitioner/Financial Creditor to the Respondent/Corporate Debtor as a part of the investment made and hence it cannot be treated as a financial debt and the C.P. should be dismissed - There are force in the submissions made by the Learned Senior Counsel appearing for the Petitioner/Financial Creditor. The Memorandum of Understanding dated 07.01.2012, on which the Respondent placed reliance was admittedly executed between the Petitioner and a separate legal entity known as M/s. Lepakshi Knowledge Hub Private Limited. Further, the amount received by the Respondent/Corporate Debtor under the subject Inter Corporate Deposit dated 19.03.2012 was not for purchasing of any shares by the Petitioner in the Respondent Company. On the other hand, it was for meeting certain expenses by the Respondent/Corporate Debtor. Hence, the contention of the Petitioner in this regard is rejected.
The Petitioner/Financial Creditor is able to prove the debt and default by placing reliance on various documents enclosed to the instant company petition.
Time Limitation - HELD THAT:- The instant C.P. was filed on 13.10.2021. The Corporate Debtor/Respondent has acknowledged the receipt of Rs. 5,00,00,000/- from the Financial Creditors/Petitioners in its Balance Sheets from the Financial Years 2011-2012 to 2018-2019. Hence the C.P. is well within the period of limitation.
The application filed in the prescribed Form No. 1 is found to be complete - Application admitted - moratorium declared.
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2022 (6) TMI 1288
Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial Creditors - existence of debt and dispute or not - time limitation - HELD THAT:- The Memorandum of Understanding dated 07.01.2012, on which the Respondent placed reliance was admittedly executed between the Petitioner and a separate legal entity known as M/s. Lepakshi Knowledge Hub Private Limited. Further, the amount received by the Respondent/Corporate Debtor under the subject Inter Corporate Deposit dated 19.03.2012 was not for purchasing of any shares by the Petitioner in the Respondent Company - The Petitioner/Financial Creditor is able to prove the debt and default by placing reliance on various documents enclosed to the instant company petition.
Whether the present application is filed within limitation? - HELD THAT:- As the Corporate Debtor admittedly not repaid the amount received under Inter Corporate Deposit within the specified period, the Financial Creditor/Petitioner recalled the Inter Corporate Deposit amount along with 18% interest from the Corporate Debtor/Respondent vide recall letter dated 19.09.2020. The instant C.P. was filed on 13.10.2021. The Corporate Debtor/Respondent has acknowledged the receipt of Rs. 5,00,00,000/- (Rupees Five Crores only) from the Financial Creditors/Petitioners in its Balance Sheets from the Financial Years 2011-2012 to 2018-2019. Hence the C.P. is well within the period of limitation.
Since the debt and default against the Principal Borrower was already held to be proved and since the execution of the Corporate Guarantee by the Corporate Debtor and the invocation thereof was also proved, the instant C.P. is also liable to be admitted.
Petition admitted - moratorium declared.
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2022 (6) TMI 1287
Joint application for demerger of demerged undertaking of the Demerged Company - section 230-232 of Companies Act, 2013 read with Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 - HELD THAT:- Various directions with regard to holding, convening and dispensing with various meetings issued - directions for issuance of various notices also issued.
The scheme is approved - application allowed.
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2022 (6) TMI 1286
Validity of search proceedings - Presence of petitioner during search proceedings - HELD THAT:- The petitioner will remain present at the business premises located at 2105, Ground Floor, Bawana Road, Narela, North Delhi, Delhi-110040, on 06.06.2022, at 11:00 AM.
Insofar as the godown is concerned, which is located at Ground Floor, Plot No. 72/20, 21, Bawana Road, Gali No. 2, Prem Colony, Narela, Delhi-110040, the petitioner will remain present at the said premises on 07.06.2022, at 11:00 AM - Ms Shweta Singh, Advocate is also permitted to remain present at the premises referred to hereinabove, on the aforementioned dates, when search is carried out by the respondents. It is, however, made clear that Ms Singh will not intercede/interfere in the search proceedings.
List the matter on 27.09.2022.
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2022 (6) TMI 1285
Levy of GST - valuation - reimbursed amount of Stipend received from Industry Partner to be distributed to the trainees at actuals - pure agent service - HELD THAT:- Section 2 (5) of the CGST Act, 2017, defines the term “Agent” as “a person including a factor, broker, commission agent, arhatia, del credere agent, an auctioneer or any other mercantile agent, by whatever name called, who carries on the business of supply or receipt of goods or services or both on behalf of another” - It is found that the Applicant is registered as a facilitator under the National Employability Enhancement Mission (‘NEEM Scheme’). The details of the NEEM Scheme are mentioned in the subject application and are therefore not reproduced again. The Applicant has submitted that, as a NEEM Facilitator, they are responsible to enroll NEEM trainees (`trainees’) and provide them with on job practical training through various Institutes, Factories, etc. (‘Industry Partners’) to enhance the prospects of their employability. The applicant would enter into Agreements to enroll NEEM trainees (‘trainees’) and provide them with on job practical training through the said Industry Partners.
Applicant selects trainees for imparting practical training to them & to coordinate between the trainees and the said Industry Partners for the proper implementation of scheme of training envisaged under the Apprentice Act 1961 and for such purpose, enters into a written agreement with the Industry Partners, for identifying and providing relevant eligible trainees to the Industry Partners, for which a fixed administrative fee per trainee per month will be charged from such Industry Partners and on which the applicant accepts that GST is payable.
Regarding the issue in respect of stipend paid to the trainees by the applicant, it has been submitted by the applicant that the concerned Industry Partners will provide training to the trainees and are required to pay stipend to the trainees as per the NEEM Regulations. Even though, it is seen that the services will be provided by the trainees to the Industry Partners, for which stipend is mandated to be paid to the trainees by the Industry Partners, this stipend is not directly paid to the trainees by the said Industry Partners but will be routed through the applicant as per the NEEM Regulations. The entire amounts received as stipend from the Industry Partners will be paid to the trainees without any amount being retained. Thus, the applicant is only acting as an intermediary in collecting the stipend from the Industry Partners and then disbursing the same to the trainees in full without making any deductions from the stipend before disbursement to the trainees.
The amount of stipend received by the applicant from the Industry Partners and paid in full to the trainees is not taxable at the hands of the applicant. Hence, in view of the submissions made by the applicant and also in agreement with the observations made by the jurisdictional officer, it is held that the stipend paid by the Industry Partners to the applicant to be further paid to the trainees in full does not attract GST and is not required to be added to the taxable value.
In a similar case of IN RE: M/S. YASHASWI ACADEMY FOR SKILLS [2021 (8) TMI 1018 - AUTHORITY FOR ADVANCE RULING, MAHARASHTRA] this Authority has held that the reimbursement by Industry Partner to the applicant, of the stipend paid to the trainees, does not attract tax under the GST Act - In the case of Yashaswi Academy for Skills, the Applicant Companies were registered as agents under National Employability Enhancement Mission (NEEM) of the Government of India and acted as a facilitator for extending support for mobilizing the trainees under NEEM Scheme of Government of India as per regulations, under notification issued by All India Council for Technical Education (AICTE), for providing on-the-job practical training in industries to trainees to enhance their future employability, and for which they entered into agreements with various companies/ organizations (called as industry partners) to impart actual practical training to the students. In the said case also, the applicants, in addition to taxable amounts received from its Industry Partners for services rendered, also received Stipends amounts (payable by the Industry Partners to the Trainees) which was paid in full to the trainees.
Since the matters in the Yashaswi Academy case as case decided by this authority is very similar to the facts of the subject case, there are no reason to deviate from our ruling given in the said case, which are also applicable in the subject case.
GST is not leviable in the instant case.
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2022 (6) TMI 1284
Profiteering - four towers/blocks of the project Celebrity Gardens - requirement to maintain separate bank accounts for each of the projects registered separately under the RERA Act, 2016 - benefit of reduction in the rate of ITC not passed on by way of commensurate reduction in the price - contravention of section 171 of CGST Act - penalty - HELD THAT:- It is on record that Applicant No. 1 had filed a complaint alleging that the Respondent has not passed on the benefit of ITC to him by way of a commensurate reduction in the price of the flat purchased by him (Applicant No. 1) from the Respondent. It is found that the DGAP, after investigation, has found that the Respondent has not passed on ITC benefit amounting to Rs.1,54,269/-(inclusive of GST) to his recipients/homebuyers as required under the provisions of Section 171 of the CGST Act, 2017.
The Authority finds and determines that the Respondent has profiteered by an amount of Rs. 1,54,269/- for the project 'Celebrity Garden Block K' during the period of investigation i.e. 01.07.2017 to 30.09.2019. The above amount that has been profiteered by the Respondent from his Home buyers in the above mentioned project. The claim of their refund along with the interest @18% thereon, from the date when the above amount was profiteered by him till the date of such payment, in line with the provisions of Rule 133 (3) (b) of the CGST Rules 2017, need to be verified by the concerned CGST/SGST Commissionerate - This Authority under Rule 133 (3) (a) of the CGST Rules, 2017 orders that the Respondent shall reduce the prices to be realized from the buyers of the flats commensurate with the benefit of ITC received by him.
Penalty - HELD THAT:- It is evident from the narration of facts that Respondent has denied the benefit of Input Tax Credit (ITC) to the customers/Home buyers in contravention of the provisions of Section 171 (1) of the CGST Act, 2017 and he has thus committed an offence under Section 171 (3A) of the above Act and therefore, he is liable for imposition of penalty under the provisions of the above Section. However, since the provisions of Section 171 (3A) have come into force w.e.f. 01.01.2020 whereas the period during which violation has occurred is w.e.f. 01.07.2017 to 30.09.2019, hence the penalty prescribed under the above Section cannot be imposed on Respondent retrospectively.
This Order having been passed today falls within the limitation prescribed under Rule 133 (1) of the CGST Rules, 2017.
Application disposed off.
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2022 (6) TMI 1283
Reopening of assessment u/s 147 - Time limit for notice - maximum time limit for issuance of notice under section 148 - HELD THAT:- As the issuance of notice under section 149 is complete only when the same is issued in the manner as prescribed under section 282 r/w rule 127 of the Income Tax Rules prescribing the mode of service of notice under the Act. The signing of notice would not amount to issuance of notice as contemplated under section 149 - the requirement of issuance of notice under section 149 is not mere signing of the notice under section 148, but is sent to the proper person within the end of the relevant assessment year.
Concededly, the notice dated 31.03.2018 issued by the respondent was served on the appellant through mail, only on 18.04.2018. Though the learned senior panel counsel appearing for the respondent produced the relevant pages of notice server book maintained by the department to show that the notice of the respondent dated 31.03.2018 under section 148 is within the limitation period, but the same only disclosed that the notice dated 31.03.2018 was returned on 06.04.2018.
The decision in Aban Offshore Limited case (2016 (11) TMI 542 - MADRAS HIGH COURT] relied on the side of the respondent, is of no assistance, wherein, the postal cover showed that the franking was made on 01.04.2015, but the 'business post arrangement' between the Income Tax Department and the Department of Posts disclosed that the cover was despatched on 31.03.2015, i.e., within the period of limitation. Whereas, in this case, there is no document made available to prove that the notice under section 148 dated 31.03.2018 was sent for despatch to the appellant, within the end of the relevant assessment year i.e., 31.03.2018. Thus, it is crystal clear that the notice under section 148 for reopening the assessment was not sent to the appellant, within the time stipulated under section 149 of the Act and hence, the same vitiates the reassessment proceedings initiated under section 147
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2022 (6) TMI 1282
Reopening of assessment u/s 147 - Scope of amended Sections 148 and 148A - mandation of prior approval of specified authority - conducting of enquiries or issuance of show-cause notice or passing of order under section 148A - revenue submitted that by virtue of the order passed by the Apex Court [2022 (5) TMI 240 - SUPREME COURT], all such impugned notices under un-amended Section 148 of the Income Tax Act are deemed to have been issued u/s 148A as substituted by the Finance Act, 2021 and construed and treated to be show cause notices in terms of Section 148A (b) - HELD THAT:- The requirement of conducting any enquiry, if required with the prior approval of specified authority under Section 148A(a) has been dispensed with as a onetime measure vis-a-vis those notices which have been issued under Section 148 of the un-amended Act from 01.04.2021 till date. The assessing officers have been directed to pass orders in terms of Section 148A (d) in respect of each of the concerned assessees. Thereafter, after following the procedure as required under Section 148A, the assessing officer may issue notice under section 148 (as substituted). The Apex Court has also made it clear that all defences which may be available to the assesees including those available under Section 149 of the I.T. Act and all rights and contentions which may be available to the concerned assessees and Revenue under the Finance Act, 2021 and in law shall continue to be available.
As abundantly made clear at para 11 of the judgment, the order passed by the Apex Court under article 142 of the Constitution of India shall also govern the writ petitions pending before various High Courts in which similar notices under un-amended Section 148 issued after 01.04.2021 are under challenge. As such, nothing survives in the instant writ petitions to be adjudicated upon.
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2022 (6) TMI 1281
Reopening of assessment u/s 147 - scope of new section u/s 148A - principles governing exercise of writ jurisdiction by the High Court - Surprisingly the petitioner has challenged the assessment on the ground that no documents have been provided to him before passing the impugned order but there is no prayer in the present petition seeking those documents - HELD THAT:- Admittedly, in the present case the petitioner was provided with reasons for issuing notice to which the petitioner failed to respond. Request was made for providing information qua certified copies of the documents w.r.t. notice under Section 148-A(b) of the Act even though the information already stands furnished as Annexure to notice under Section 148-A(b) of the Act. Once, the petitioner has opted not to respond to the reasons accompanying notice under Section 148-A(b) of the Act, we find that plea raised by the petitioner w.r.t. wrongful assumption of jurisdiction at the hands of the respondent, is without merit. Surprisingly the petitioner has challenged the assessment on the ground that no documents have been provided to him before passing the impugned order but there is no prayer in the present petition seeking those documents. Faced with the situation, Senior Counsel submits that Communication dated 28th March, 2022 though titled as request letter are indeed objections and be treated so. Bare perusal thereof shall reveal that the objections sought to be raised in present petition have not been raised in the said communication. In the facts of this case we need to observe that the petitioner has been served with notice under Section 148 of the Act. In case the present proceedings culminate in the order of assessment under Section 147 of the Act, the same will be appealable. Statutory appeal is provided under the Act. All pleas raised herein can well be raised in the appeaL
As relying on Apex Court summarized the principles governing exercise of writ jurisdiction by the High Court in the presence of alternate remedy in case of 'Radha Krishan Industries vs. State of Himachal Pradesh [2021 (4) TMI 837 - SUPREME COURT] we do not find that this is a case wherein writ jurisdiction under Article 226 of the Constitution of India should be exercised even though statutory remedy shall be available to the appellant against the final order of assessment.
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2022 (6) TMI 1280
Disallowance of interest paid on debit balance of the assessee-partner’s capital account in the partnership firm - HELD THAT:- Proviso to section 36(1)(iii) stipulates that the amount of interest paid in respect of capital borrowed for acquisition of an asset “for any period beginning from the date on which the capital was borrowed for acquisition of the asset till the date on which the asset was first put to use, shall not be allowed as deduction”. This proviso makes a pitch for disallowance of interest only when the asset acquired with the borrowed funds is not put to use.
No disallowance can be made if the borrowed funds are utilized for acquiring an asset which does not produce any income albeit it has been put to use. The relevant criterion for disallowing interest is to examine the date up to which the asset acquired with the borrowed funds was first put to use. If the asset has been actually put to use, deduction of interest cannot be denied even if no income resulted from such an asset. The ld. CIT(A) has gone with the `income criterion’ and not the `user criterion’ for disallowing the interest, which is not justified.
AR submitted that the assessee acquired his share in the running hotel in the year 2013, however, failed to place any concrete evidence either before the AO or the ld. CIT(A) to demonstrate the activities of the hotel as to whether it was really in operation during the year. Similar position obtains before the Tribunal as well. Since the assessment order was passed u/s.144 and the assessee could not lead evidence before the authorities below in this regard, I consider it expedient to remit the matter to the file of the AO for examining the question of deductibility of interest on the touchstone of the discussion made herein above. Needless to say, the assessee will be allowed a reasonable opportunity of hearing to put forth the relevant evidence in support of his case. Assessee appeal is allowed for statistical purposes.
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2022 (6) TMI 1279
Validity of assessment order passed in the name of non-existent entity - merger - amalgamated company - whether the assessment framed in the name of a non-existent company is valid or suffers from the vice of illegality or this is just a curable procedural mistake on the part of the AO as per sec 292B - HELD THAT:- The assessment order in the name of non-existent company suffers from the substantive illegality and is invalid in the eyes of law. The case of the assessee is squarely covered by the decision of Hon’ble Supreme Court in the case of PCIT vs Maruti Suzuki India Limited [2019 (7) TMI 1449 - SUPREME COURT] wherein it has been held that the assessment order in the name of non existent entity is to be set aside as this is a substantive illegality and not procedural irregularity of the nature as referred to in section 292B.
Mere fact that the assessee has participated in the proceedings before the AO will not cure this substantive illegality and the mere participation of the assessee in the assessment proceedings cannot debar the assessee from challenging the proceedings on this ground as there is no estoppel against law.
Also as in the case of BASF Ltd [2019 (11) TMI 1719 - ITAT MUMBAI] wherein it has been held that that assessment in the name of non existent entity is invalid and has to be quashed and the tribunal has followed the decisions of the Hon’ble Apex court in the case of PCIT vs Maruti Suzuki India Limited [2019 (7) TMI 1449 - SUPREME COURT] and CIT Vs Spice Infotainment Ltd. [2011 (8) TMI 544 - DELHI HIGH COURT] - Decided in favour of assessee.
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2022 (6) TMI 1278
Disallowance with regard to foreign exchange loss arising on restatement / revaluation of foreign currency loans due to adverse foreign exchange fluctuations claimed u/s 37(1) - HELD THAT:- We infer that the assessee has extended loans / advances facility to its subsidiaries only for the purpose of business, as the nature of assessee’s business relates to constructions and development of real estate properties. The contention of the Revenue that the impugned loss was only notional loss does not hold good. The reasoning that since there was no settlement of loan as on 31/03/2017 will not entitle the assessee to claim as per method of accounting followed and the provisions of section 43AA read with Income Computation Disclosure Standard (ICDS)-VI has been countered by the assessee stating that assessee has been following AS-11 which states that unrealised foreign exchange gain / loss should be booked at the year end.
Though the principle of res judicata does not apply to taxing statute, principle of consistency does apply wherein the income from gain in forex fluctuation of the impugned loan in earlier year was considered by the Revenue and as such the method of accounting as per section 145 followed by the assessee was also not disputed earlier, by placing reliance on the decision of Hon’ble Apex Court CIT vs M/s Woodward Governor India P. Ltd (2009 (4) TMI 4 - SUPREME COURT], we hold that the addition made on account of foreign exchange fluctuation loss claimed as deduction under section 37(1) is disallowable, is not tenable. Assessee appeal allowed.
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2022 (6) TMI 1277
Addition made u/s.43CA - difference between the stamp duty value and the reported sale consideration - AO applied the stamp duty value prevailing in February 2011 and since the said value was more than the registered value in 2014 by the assessee AO brought to tax the differential sum as an addition u/s.43CA - HELD THAT:- As there is a proviso introduced by the Finance Act 2018 w.e.f. A.Y.2019-20 onwards and which was later amended by the Finance Act 2020 applicable from A.Y.2021-22, which states that if the difference between the stamp duty value and the reported sale consideration is not more than 10% then, the reported sale consideration shall have to be accepted and no addition in terms of 43CA is required to be made.
We find that this amendment has been held to be retrospective in operation by the Co-ordinate Bench decision of this Tribunal in the case of Maria Fernandez Cheryl [2021 (1) TMI 620 - ITAT MUMBAI] wherein it was held that amendment made in scheme to Section 50C(1) of the Act by inserting the proviso thereto and by enhancing tolerance band for variations between sale consideration vis a vis stamp duty valuation from 5% to 10% are effective from date on which section 50C itself was introduced i.e. from 01/04/2003 and therefore, having retrospective applicability thereon.
The language of provisions of Section 50C are exactly pari materia with provisions of Section 43CA of the Act. Hence, though the aforesaid decision was rendered in the context of Section 50C of the Act, the same analogy would apply for provisions of Section 43CA of the Act also as similar proviso is available in Section 43CA of the Act also. Hence, respectively following the aforesaid decision of this Tribunal, we hold that the difference added by the ld. AO in the assessment falls below the tolerance band of 10% and hence, by applying the proviso to Section 43CA of the Act, no addition is required to be made in the instant case u/s.43CA - Accordingly, the ld. AO is hereby directed to delete the addition of Rs.4,42,460/- made by him in the assessment. Accordingly, the grounds raised by the assessee are allowed.
Revision u/s 263 by CIT - incorrect application of provisions of Section 43CA - HELD THAT:- In the instant case, the ld. AO had duly applied the provisions of the Act more particularly the provisions of Section 43CA(3) and 43CA(4) of the Act. We find that the ld. PCIT in the instant case is proceeding on incorrect application of provisions of Section 43CA of the Act by directing the ld. AO to adopt the ready reckoner rates on the date of sale ignoring the fact that the ready reckoner rate is to be considered on the date of initial booking / allotment as per the provisions of section 43CA of the Act itself.
We hold that the ld. AO had made due enquiries in the instant case while framing the assessment and the ld. PCIT is only trying to substitute his incorrect view by incorrect application of law and we hold that the order passed by the ld. AO in the instant case is neither erroneous nor prejudicial to the interest of the Revenue and hence there is no question of invocation of revisionary jurisdiction by the ld. PCIT u/s.263 of the Act. Hence, the revision order passed u/s.263 by the ld. PCIT is hereby quashed. Accordingly, the grounds raised by the assessee are allowed.
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2022 (6) TMI 1276
Scope of limited scrutiny - Securities premium reserve which stood transferred by the erstwhile company to the assessee-LLP upon conversion as a taxable profit - Whether Assessing Officer travelled beyond the scope of limited scrutiny or not? - HELD THAT:- Once a case is selected for limited scrutiny, though the role of the ld. Assessing Officer is confined to examine the issues for which the case is selected for limited scrutiny but then the AO has to go into the depth of such issue and minutely examine the facts attached thereto. AO just cannot casually examine the issue and come to the conclusion because the reasons are just indicative in nature and to reach the depth of the issue raised in the limited scrutiny, AO has to make the examination deeper and deeper examining all the aspects linked to such reason. In case of the complete scrutiny, AO has to examine all the financial transactions carried out by the assessee during the year, whereas in limited scrutiny’s issues are limited but the same needs more intense, accurate and deep examination of the issue and facts attached to it.
Low income in comparison to high loans/advances/investment in shares - The reason is just an indication for Assessing Officer to examine various aspects. Once the low income is to be examined, it has to be seen in consonance of the higher loans standing in the balance-sheet and in the present case, the interest income is shown only at Rs.14.29 lakhs, whereas the loans and advances are standing to the tune of Rs.13.97 crores.
AO went on to examine this aspect of low income, he then asked the assessee about the investment made during the year because the ld. Assessing Officer wanted to see why the assessee has earned low income when there are huge loans and advances. When AO was examining the loans and advances, he came to know that this is the first year of incorporation and the LLP has been converted from the company. AO asked the assessee about the source of investment. Then based on this question, the assessee submitted that the source is the share capital and security premium of the erstwhile company before being converted to LLP and the ld. AO went on to examine the issue of security premium reserve.
Second reason for high interest expenditure against new capital added in work- in-progress or addition made to fixed assets and the catch words are high interest expenditure, new capital added which in this case is partner’s capital and Reserve & Surplus( Security Premium Reserve) - On overall examining the financial statements of the LLP, erstwhile Private Limited Company, the reasons for selecting the case for limited scrutiny which covers various aspects of the assessee including low income, high loans, advances, investment in shares, high interest expenditure, new assets added in work-in-progress and additions in fixed assets, we find that the ld. AO has carried out the assessment proceedings only within the parameters provided under “limited scrutiny” and has fairly done well by reaching to the depth of the issue and was well within the jurisdiction to examine the source of investment i.e. share capital, Security Premium and unsecured loan of erstwhile Private Limited Company made during the year which were the source of investments fetching very low income. The source of investment as evident from the balance-sheet of LLP, is the share capital and security premium which was carried over from the Private Limited Company.
AO has not exceeded the jurisdiction and has not travelled beyond the reasons for selecting the case of the limited scrutiny and ld. Assessing Officer has not done complete scrutiny of the case and has restricted his scrutiny proceedings only with regard to the two reasons mentioned hereinabove for carrying out limited scrutiny. We, therefore, find no merit in the legal issue raised by the assessee in the Cross Objection. The decisions referred and relied upon by the ld. counsel for the assessee and the Instruction of the CBDT referred in the paper book could have been of any help to the assessee only if AO has converted the scrutiny from limited to complete scrutiny, which is not the case before us. The legal issue raised in the Cross Objection filed by the assessee is dismissed.
Addition for securities premium reserve which is transferred by the erstwhile company to the assessee- LLP upon conversion as a Reserve & Surplus - As the assessee has claimed that all the assets and liabilities of the erstwhile Private Limited Company ‘GDPL’ has been converted into assets and liabilities of newly incorporated ‘GDLLP’ and the said conversion is not a transfer u/s. 2(47) of the Act as the proviso (a) to (e) of section 47(xiiib) of the Act are not attracted. In the instant case, clause (a) of the proviso to section 47(xiiib) needs to be examined. Since the Security Premium Reserve of the erstwhile Company was a liability and not eligible to be distributed as dividend to its shareholders, the same needs to carry the same characteristic in the converted LLP. But in the newly formed LLP, the Security Premium Reserve has been shown under the head “Reserve & Surplus”, which for the purpose of ‘GDLLP’ is a profit available for distribution to its designated partners after three years from the date of said conversion.
Now since the nature of liability of Security Premium Reserve is not the same to the nature of liability shown in Reserve & Surplus in the newly formed LLP, in our considered view, the assessee’s case falls under the proviso (a) and since all the assets and liabilities are not converted into assets and liabilities of the Limited Liability Partnership, the said conversion is a transfer u/s. 2(47) of the Act and provision of section 45 of the Act needs to come into operation.
As far as treatment of Security Premium Reserve in the books of newly incorporated LLP is concerned, we observe that Security Premium is not accumulated profit but it is a part of share capital to the extent it was received while issuing in shares by the erstwhile Private Limited Company. Since the Private Limited Company has been converted into a LLP, the only option left for the treatment of the Security Premium Reserve is to bring it to tax in the year in which the Company is converted into LLP. Such Security Premium standing in the balance-sheet at the close of the year before being converted first needs to be brought to tax under the provision of section 56(1) of the Act and then the amount needs to be transferred to Reserve & Surplus and which will thereafter be free for withdrawal by the designated partners of the LLP as per the provision of the Act.
CIT(Appeals) failed to examine this aspect of the Security Premium Reserve, which the ld. Assessing Officer has rightly observed in the assessment order. We also find merit in the finding of the ld. Assessing Officer for the reason that this issue of examining the treatment of Security Premium Reserve is possible only while examining the case of the assessee for the year in which such conversion takes place. Because if it is not examined in the year of conversion and the balance of Reserve & Surplus converted from the Security Premium Reserve is transferred to Reserve & Surplus Account and carried forward to subsequent years, then it will not be easy for the revenue authorities to track such adjustment.
in view of the options available for utilization of Security Premium Reserve as per the provision of section 52 of the Companies Act, 2013, absence of clear-cut provisions for treatment of such Security Premium Reserve which though is a liability not available for distribution to shareholders of the Private Limited Company, but once the conversion takes place, its treatment in the LLP is only possible by way of treating such Security Premium as income of the LLP under section 56(1) of the Act as “income from the other sources” and to be brought to tax by crediting it in the Profit & Loss Account and debiting the Security Premium Reserve Account, which will bring the Security Premium Reserve balance as NIL and the Reserve & Surplus will be the income shown under section 56(1) of the Act and it will be brought to tax in the year when the Private Limited Company is converted into LLP and in the instant case, i.e. A.Y. 2015-16 for which the ld. Assessing Officer has rightly made the addition for the Security Premium Reserve of the erstwhile Private Limited as income of the newly incorporated LLP. We, therefore, reverse the finding of the ld. CIT(Appeals) and confirm the addition made by the ld. Assessing Officer and allow Ground No. 1 raised by the Revenue.
Disallowance of expenses - Disallowance includes disallowance of rent and the remaining balance towards salary and other expenditure - So far as the rent expenditure is concerned, the assessee has filed the details of rent paid to Munush Chand HUF which are incurred in cash at Rs.1,72,000/- , which is below the limit provided u/s 194I of the Act. This disallowance of rent expenditure is deleted.
As regards the remaining sum same relates to salary expenditure but no details of the same have been filed before the lower authorities. We direct the assessee to furnish the necessary details before the ld. Assessing Officer and if ld. Assessing Officer is satisfied, he can allow the claim in accordance with law. Thus Ground No. 2 is partly allowed for statistical purposes.
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2022 (6) TMI 1275
Addition u/s 69A - unexplained cash deposits - as submitted deposits made in to the bank out of collections from various members of Co-operative Credit Society - HELD THAT:- We find that before both the AO as well as before the Ld. CIT(A), the explanation of the assessee in respect of cash deposits is not on record due to non-compliance on the part of the assessee. Before us, the Ld. counsel of the assessee has given an undertaking that assessee is willing to submit necessary evidence in support of source of cash deposits and co-operate in appellate proceedings before the Ld. CIT(A).
Thus in the interest of substantial justice, we restore this matter back to the file of the Ld. CIT(A) for deciding afresh in accordance with law after providing adequate opportunity of being heard to both the assessee as well as the Assessing Officer. The grounds raised by the assessee are accordingly, allowed for statistical purposes.
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2022 (6) TMI 1274
Reopening of assessment u/s 147 - reopening beyond four years - HELD THAT:- We note that during the course of assessment proceeding, the assessee furnished before the AO all the documents as desired including the audited annual accounts. and accordingly framed the assessment u/s 143(3) of the Act. Besides the assessee has made full disclosure of these transactions in the books of account which have been examined at length by the AO during the course of original assessment proceeding. Therefore, the reopening of assessment u/s 147 in the present case, without any reference to failure on the part of the assessee to disclose all facts regarding the items in the return of income or books of account during the assessment proceeding, is not justified and is in violation to proviso to section 147.
Thus reopening of assessment is invalid and is accordingly quashed. Decided in favour of assessee.
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2022 (6) TMI 1273
LTCG - FMV detrmination - AO computed assessee’s share being 1/4th of the long term capital gain - scope of section 9B of the Act which was brought on the Statute book by Finance Act, 2021 w.e.f 1.4.2021 - A.R. vehemently submitted before us that the AO should have referred the matter tothe DVO for ascert aining the fair market value as on the date of sale as well as on 1.04.1981 and as the calculation made by the AO is just a guess work which is based on presumptions and assumptions without any reasonable and rationale basis and therefore the same may to be sent back to the file of the AO for assessing the correct amount of capital gain after making necessary reference to the DVO for ascertaining the fair market value of the plot as on the date of sale as well as on 1.4.1981 - HELD THAT:- We find merits in the contentions of the assessee that the addition made by the AO is just on the basis of presumptions and assumptions without any valid basis. Accordingly we set aside the issue to the file of the AO with the direction to refer the matter to DVO for ascertaining the fair market value of the plot as on the date of sale as well as on 1.4.1981 and compute the long term capital on the basis of said report after affording reasonable opportunity of hearing to the assessee. Ground no. 2 is allowed for statistical purposes.
Long term capital gain on sale of plot - HELD THAT:- AO has computed the capital gain on the basis of presumptions and assumptions by taking the value of plot measuring 16405.125 sq. ft on estimated basis. Consequently we restore the issue to the file of the AO as the same direction to ascertain the fair market value as on the date of sale as well as on 1.4.1981 by referring the matter to the DVO and accordingly assess the long term capital gain falling to the share of the assessee. Ground no. 3 is allowed for statistical purpose.
Addition on account of short term capital gain received upon retirement from the registered partnership firm - HELD THAT:- We note that during the year the assessee has retired from the partnership firm w.e.f. 15.1.2011 in which the assessee was having 12.5% share in the profit. The Firm was having various assets as given above aggregating to Rs. 82,67,688/-. The AO calculated the short term capital gain by computing the deemed sale consideration at Rs. 6,45,83,358/- u/s 50C of the Act and assessee’s share was calculated at Rs. 80,72,920/-. Similarly the proportionate asset cost which fall to the assessee’s share was calculated at Rs. 10,38,460/- and thus calculated the short term capital gain at Rs. 70,30,31,460/- which was added to the income of the assessee.
As perused the provisions of Section 9B and also analysed the arguments made before us by both the Parties and find that there was no provision in the Act to compute the deemed gain in respect of assets of the firm upon reconstitution retirement of a partner. We also note that a specific provision was inserted by Finance Act, 2021 w.e.f. 1.4.2021 providing for making such deemed addition on account of capital gain upon retirement of a person from the partnership firm which are applicable for AY 2021-22 and not to the year under consideration. Accordingly we set aside the order of ld CIT(A) and direct the AO to delete the addition. Appeal of assessee allowed.
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2022 (6) TMI 1272
Revision u/s 263 - claim of depreciation at higher rate/higher rate for claim of additional depreciation - HELD THAT:- The assessee has not provided the details relevant to the assets, which it is claiming as part of plant & machinery. The assessee itself accepted that electrical installation are chargeable to depreciation @ 10%, but claimed the same at higher rate of depreciation. Onus is on the assessee to explain and prove the same with detail about such claim. Since no such specific reply was given by the assessee, the enquiry made by the ld. AO remained incomplete and it ought to have been addressed in the assessment order and Ld. AO should not have allowed the assessee’s claim without examining the issues. This factual aspect remains unverified.
Assessee merely kept referring to the decision that an enquiry was made by the ld. AO and section 263 should not have been invoked. We, however, find no merit in the contention of the ld. Counsel for the assesse with regard to the issue of claim of depreciation on electrical installation because though the inquiry was initiated, but the same was incomplete as the assessee did not reply to it in the way it ought to be. Therefore, in real terms, there was no enquiry on the said issue. We, therefore, confirm the findings of the ld. PCIT on the said issue of excess claim of depreciation on electrical installation and dismiss the grounds raised by the assessee challenging the validity of the order passed u/s. 263 of the Act on this issue. - Decided against assessee.
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2022 (6) TMI 1271
Income from house property - notional rent from house property in respect of flats held as ‘stock in trade’ by the assessee - deemed rental income on unsold flats / units held by the assessee as ‘stock in trade’ - assessee is in the business of real estate construction and development in India - AO noted that assessee had certain flats as ‘unsold finished stock’ in its balance sheet and these represented the house properties owned by the assessee - HELD THAT:- It is not in dispute that the unsold flats lying in the balance sheet with the assessee were held as stock in trade by the assessee. It is not in dispute that the sale of flats shall be assessable as business income in the hands of the assessee, being stock in trade. We find that the provisions of Section 23(5) of the Act had been introduced in the statute for taxability of notional rent in respect of properties held as ‘stock in trade’, has been introduced only from A.Y.2018-19 onwards. Hence, the said provision cannot be made applicable upto A.Y.2017-18. We find that the issue in dispute is no longer res-integra in view of the decision of this Tribunal in the case of Pegasus Properties (P) Ltd [2021 (12) TMI 1210 - ITAT MUMBAI] to hold that no addition on account of deemed rental income could be made in respect of unsold stock of flats held as “stock in trade” upto A.Y.2017-18. However, the amendment has been brought in the statute in Section 23(5) from A.Y.2018-19 providing a moratorium period of two years. Hence, no addition could be made even for A.Y.2018-19 also.
Accordingly, the addition made towards notional rent is hereby directed to be deleted both under normal provisions of the Act as well as in the computation of book profits u/s.115JB.
Addition u/s.43CA - Addition deleted as difference in value between the stamp duty authority and the consideration reported by the assessee is less than 10% - whether this proviso could be given retrospective effect so as to confer benefit to the assessee in the instant case? - HELD THAT:- We find that this issue is no longer res integra in view of the decision of this Tribunal in the case of Maria Fernandes Cheryl vs. Income Tax Officer [2021 (1) TMI 620 - ITAT MUMBAI] wherein the third proviso inserted in Section 50C of the Act has been held to be retrospective in operation from 01/04/2003 onwards. Though this decision has been rendered in the context of Section 50C of the Act for a capital asset, the same analogy could be drawn for Section 43CA also for asset held as ‘stock in trade’.
CIT(A) had rightly deleted the addition made u/s.43CA of the Act both under normal provisions of the Act as well as in the computation of book profits u/s.115JB of the Act. In any case, this sum does not fall within the ambit of Explanation to Section 115JB (2) of the Act and hence, the same can never be added back in the computation of book profits u/s.115JB of the Act. Accordingly, the grounds raised by the Revenue in this regard are dismissed.
Carry forward losses on sale of redeemable non-convertible zero coupon bonds, which was neither claimed by the assessee in the original return of income u/s.139(1) of the Act nor in the revised return filed u/s.139(5) of the Act but claimed during the course of assessment proceedings - HELD THAT:- The assessee succeeded on this issue before the ld. CIT(A) who by placing reliance on the decision of the Hon’ble Jurisdictional High Court in the case of CIT vs. Pruthvi Brokers and Shareholders Pvt. Ltd [2012 (7) TMI 158 - BOMBAY HIGH COURT] and also by placing reliance on the decision of the Hon’ble Supreme Court in the case of Goetze India Ltd., referred to supra stating that the claim of carry forward of loss of Rs.188 Crores could be allowed by the ld. CIT(A) even though it is not claimed in the return of income by the assessee. CIT(A) also observed that the restriction placed by the Hon’ble Supreme Court in the case of Goetze India Ltd. [2006 (3) TMI 75 - SUPREME COURT] relied upon by the ld. AO does not apply to appellate authorities and the same applies only to the ld. AO. Accordingly, he directed the ld. AO to allow the long term capital loss after examining the correctness of its computation.
The genuinity of the claim of this loss was not doubted by the lower authorities in the instant case. Even the ld. CIT(A) had merely directed the ld. AO to ascertain the correctness of the computation of loss claimed by the assessee. It is a fact that assessee had actually incurred a loss of Rs.188 Crores in the instant case on sale of non-convertible zero coupon bonds. In view of the decision of Hon’ble Jurisdictional High Court in the case of Pruthvi Share Brokers referred to supra, the loss even though not claimed by the assessee in the return of income would be eligible for carry forward to subsequent years. In any case, the law is very settled that there is no estoppel against this statute and Revenue cannot take undue advantage of the ignorance of the assessee and that Article 265 of the Constitution clearly mandates that no tax shall be collected except by an authority of law. Hence, it is obligatory on the part of the ld. AO to educate the assessee of its legitimate rights and duties. Accordingly, we do not find any infirmity in the action of the ld. CIT(A) granting relief to the assessee in this regard. Accordingly, the ground No.2 raised by the Revenue is dismissed.
MAT computation - whether the assessee is entitled for reduction towards an item which is mentioned as an audit qualification in the statutory audit report, while computing book profits u/s.115JB? - HELD THAT:- As the financial statements prepared in accordance with part II & part III of the Schedule-VI of the Companies Act, 1956, should be read together with notes on accounts and the audit qualifications for the purpose of computing the book profits u/s.115JB - this conjoint reading of financial statements together with notes on accounts and audit report alone would be in full compliance with the provisions of Section 211 of the Companies Act, 1956. Section 115JB mandates that the accounts of the assessee company should be prepared as per the mandate provided in Section 211 of the Companies Act. Hence, we hold that audit report together with the audit qualification and notes on accounts should be read together with the balance sheet and profit and loss account for the purpose of determination of book profits u/s.115JB - Hence, the adjustment made by the statutory auditor in the revised form No.29B while computing revised book profits u/s.115JB is in order. Accordingly, we direct the ld. AO to grant deduction while computing book profits u/s.115JB of the Act. Accordingly, the grounds raised by the assessee are allowed.
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2022 (6) TMI 1270
Correct head of income - arbitration award received by the assessee - Special income - as per AO arbitration award was not awarded only with reference to the retirement of the assessee from the partnership firm but was in lieu of relinquishment of all her rights, claim and demand of any nature whatsoever against the partnership firm M/s P.N.Writer & Co. and all other entities owned and controlled by the firm and partners and for withdrawing all the Suits against all the entities - As per AO assessee's rights and claims were converted into money terms through mutually agreed consent terms of Arbitration award and, hence, the amount was held as taxable u/s 28(iv) - CIT(A) deleted the addition made by A.O under the head 'Income From Other Sources' - HELD THAT:- We observed that exactly similar issue was considered and decided by the Coordinate Bench in assessee’s own case [2018 (4) TMI 1640 - ITAT MUMBAI] neither the Arbitration award nor the concerned terms made any mention or a declaration or a decision for a finding that the assessee retired from the firm in the year 1997. Neither does the Arbitration Award or Consent Terms anywhere specify that the sum of Rs.28 crores represents the payment to the assessee for her retirement from P.N.Writer & Co.
As a matter of fact, the basis of the Arbitration Award was never given. As rightly observed by the ld. Commissioner of Income Tax (Appeals) that the retirement of a partner from the firm has to be an evident fact and is not required to be indirectly inferred or to be guessed in substance. The assessee has received a consideration in lieu of a composite bundle of conditions which included giving up her rights and interests in assets which have no connection with her interest in the firm or its assets and also for withdrawal of all suits/legal proceedings filed by her against the other persons and against firms and entities owned or controlled by them.
We agree with the ld. Commissioner of Income Tax (Appeals) that it is judicially settled that the special income must be considered in its wider sense. The definition of income is an inclusive one having a wide amplitude. Section 56(1) provides that income of every kind which is not to be excluded from the total income in this Act shall be chargeable to tax income under the head ‘income from other sources’ if it is not chargeable to income tax under any of the head as specified in section 14. Accordingly, in the background of the aforesaid discussion and precedent, we uphold the order of the ld. Commissioner of Income Tax (Appeals). - Decided against revenue.
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