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2024 (1) TMI 1036
Revision u/s 263 - Computation of capital gain/loss - Claim of the set off of long term capital loss - reduction of the paid up equity share capital consequent to scheme of arrangement and restructuring - PCIT observed that there has been failure on the part of the ld. AO to work out the correct amount of capital gains and therefore, assessment order is erroneous and prejudicial to the interest of the Revenue
Whether the ld. AO was correct in allowing long term capital loss on account of reduction of capital? - whether ld. AO was correct in allowing set off of the said amount of long term losses in computation of total income of the assessee company? - whether ld. PCIT was correct in law and facts in holding that assessment order passed by the ld. AO is erroneous and prejudicial to the interest of the Revenue? - whether the view taken by the ld. AO for possible view while allowing the claim of the set off of long term capital loss.
HELD THAT:- First of all the reduction of a capital has been provided u/s. 100(1) of the companies Act). It provides the manner in which reduction of capital can be effected. The sub-clause (c) of section also envisaged to pay for any paid up capital which is in excess with the wants of the company. Thus, there is a consideration envisaged in the reduction of capital. There could be a case where consideration is paid on the reduction of capital or consideration is not paid at all.
Whether in such circumstances, can two views be taken in the reduction of capital, one where certain consideration is paid and in another where no consideration is paid. For example, if the share capital of the assessee was reduced from 288.13 Crore shares to 144.06 Crore share and if assessee would have received some amount, say Rs. 1 Crore, then as per the ld. PCIT, assessee would be entitled to compute long term capital loss of Rs. 2045,97,54,090/-, because there is some consideration received. If assessee has not received the consideration then, whole computation mechanism fails. We are unable to accept such reasoning or view taken by the Ld. PCIT.
There cannot any divergent view that a “capital asset” is subject to tax if there is a “transfer” within the scope and meaning of Section 2(47) of the Act. Now, whether the reduction of face value of shares amounts to transfer or not, has been settled in the case of Kartikeya Sarabhai[1997 (9) TMI 2 - SUPREME COURT] wherein the issue was whether reduction of face value of the shares will be subject to levy of capital gains, whether reduction of the face value result in extinguishment of assessee’s right and is there any transfer within the meaning of Section 2(47). The case of the assessee in that case was, since reduction of face value did not result in extinguishment of assessee’s right and therefore, there is no transfer and hence, is not exigible to capital gains tax.
When as a result of the reducing of the face value of the share, the share capital is reduced, the right of the preference shareholder to the dividend or his share capital and the right to share in the distribution of the net assets upon liquidation is extinguished proportionately to the extent of reduction in the capital. Such reduction of the right of the capital asset would clearly amount to a transfer within the meaning of that expression in section 2(47) of the Income Tax Act, 1961. Thus, reduction of capital has been treated as a transfer within the meaning and expression of Section 2(47).
If the right of the assessee in the capital asset stands extinguished either upon amalgamation or by reduction of shares it amounts to transfer of share within the meaning of 2(47) and therefore, computation of capital gains has to be made. Ergo, there could be no quarrel that reduction of equity shares under the scheme of arrangement and restructuring in terms of Section 100, amounts to extinguishment of rights in the shares and hence, it is a transfer within the ambit and scope of Section 2(47) of the Act. This fact has also not been disputed by the ld. CIT DR also that reduction of capital amounts to transfer in the present case.
In this case there is no dispute about the cost, because assessee had incurred the cost for acquiring of the shares and therefore, there is no dispute regarding cost of acquisition. Here, the assessee did not receive any consideration due to reduction of capital which has resulted into a loss to the assessee.
The issue is whether the price can be conceived or not? The price paid by the assessee for acquiring the asset has been reduced to half of the cost of an asset was waived off / extinguished. This precise issue had been answered by case of CIT vs. Jaykrishna Harivallabhdas [1997 (2) TMI 65 - GUJARAT HIGH COURT]. In that case assessee has claimed loss on shares of particular companies under the head “capital gains” and the case of the assessee was that the company with respect to whose shares of loss had been claim had gone into voluntary liquidation and nothing was distributed by those companies to its members, therefore, the assessee received “Nil” consideration for his holdings in the companies. The claim of the assessee was that capital loss should have been computed under section 46(2) read with section 48.
Thus, once a conclusion is reached that extinguishment of rights in shares is deemed to be transferred for operation of section 46(2) read with section 48, it is reasonable to carry that legal fiction to its logical conclusion to make it applicable in all cases of extinguishment of such rights, whether as a result of some receipt or nil receipt. The said ratio of the Hon’ble Gujarat High Court is clearly applicable on the facts of the present case also because there could be no distinction where assessee receives some negligible or insignificant consideration and where assessee had received “Nil” consideration. This judgment and the ratio clearly clinch the issue in favour of the assessee.
Thus, in view of the ratio and principle laid down in the aforesaid judgments, we hold that:
• firstly, in this case the reduction of capital is extinguishment of right on the shares and it amounts to transfer within the meaning and scope of section 2(47);
• secondly, the loss on reduction of shares is a capital loss and not notional loss; and
• lastly, even when assessee has not received any consideration on reduction of capital but its investment has reduced to loss resulting into capital loss and while computing the capital gain, capital loss has to be allowed or set-off against any other capital gain.
Effect of majority judgment - Entire case of the Revenue is hinges upon the judgment of ITAT Special Bench in the case of Bennett Coleman & Co. Ltd [2011 (9) TMI 1 - ITAT MUMBAI] - In the facts of that case assessee was holding investments in equity shares of another company wherein the paid-up capital was reduced to Rs. 5/- from Rs. 10/- per share and subsequently, two equity shares of Rs 5/- each were consolidated into one equity share of Rs. 10/- each. The holders of the original shares received new shares. Thus, it was a case of substitution of shares which is not the facts in the present case.
This distinction on the facts as a Special Bench have been dealt in the case of Carestream Health INC [2020 (2) TMI 325 - ITAT MUMBAI] as majority judgement held that though the loss arising to the shareholder on account of reduction in share capital cannot be subject to the provision of Section 45 r.w.s. 48 and accordingly, the said loss is not allowable as a capital loss at best such loss can be described as notional loss, after relying to the decision of the Hon’ble Supreme Court in the case of B.C. Srinivasa Shetty (supra). However, they noted that in that case assessee had not suffered any loss of reduction of share capital because share had not been canceled but only number of shares had been reduced which was replaced by another set of shares and assessee’s percentage of shareholding of 74.9% immediately before reduction of share capital and after such reduction remain same. Such capital has been reduced not only in the case of the assessee but also for all the shareholders of TGM. As per the minority judgment, the Hon’ble Accountant Member held that reduction of capital of a company by any more has the effect of reducing the liability of the company but its shareholder to the extent of the capital reduced and shareholders whose capital has been reduced is deprived of its right to receive that part of the share capital which has been so reduced and therefore, the consequence which follow of such reduction is loss.
One very important proposition which was highlighted in the dissenting judgment that, line of distinction needs to be drawn between cases in which the cost of acquisition or for that matter any other component of section 48 is incapable of ascertainment and cases in which it is ascertained as zero. If the cost of a capital asset cannot be identified or conceived due to the nature of such capital asset, its transfer does not lead to any profits or gain arising under section 45(1) except where such capital asset is covered under section 55(2). Where the cost of acquisition is nil the transfer of the capital asset would attract the applicability of section 45.
However, we are not relying upon the minority judgment but we have to bear in mind that this is a case under revisionary jurisdiction u/s. 263 wherein the ld. PCIT has cancelled the order of the ld. AO who has accepted the long term capital loss. The dissenting judgment goes to show that it is possible view and therefore, if a view has been taken by the AO in favour of the assessee, then it could not be held that order of AO is erroneous and therefore, can be set aside or cancelled.
In any case we have already noted the judgment and the ratio in the case of CIT vs. Jaykrishna Harivallabhdas [1997 (2) TMI 65 - GUJARAT HIGH COURT] wherein, similar proposition has been upheld that even if the sale consideration is “Nil” then also computation of capital gain can be made and accordingly, we are following the judgment of Hon’ble Gujarat High Court upon the majority judgment given by ITAT Special Bench in the case of Bennett Coleman & Co. Ltd. Accordingly, we hold that AO has rightly allowed the computation of long term capital loss to be set off against the capital gain shown by the assessee, consequently order of Ld. PCIT u/s 263 is set aside. Decided in favour of assessee.
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2024 (1) TMI 1035
Addition u/s. 68 - onus to prove the capacity, credit worthiness of the loan givers and genuineness of the said loans - CIT - A deleted addition as categorically held that assessee has discharged his onus cast upon him u/s 68 by proving the identity and creditworthiness of the lender along with genuineness of the transaction by producing the confirmation, Ledger, bank statement of the lender and the income tax returns - HELD THAT:- In the present case before us the assessee officer has not made any enquiry unlimited submitted by the assessee but has simply relied upon the statement recorded by the investigation wing which were subsequently retracted. And even those statements along with the opportunity of cross-examination of the persons making statement was not allowed to assessee. In view of this, we are not in a position order of the AO.
The assessee has also produced the evidence of repayment of loan. Thus, initial onus is discharged by the assessee. AO has not thrown back the onus of the above three ingredients back on the assessee by making adequate enquiry or throwing back the evidences available and also granting assessee and a point unity of cross-examination. Therefore the CIT - A has held that assessee has discharged initial onus cast upon section 68 of the act which has not been discredited by the assessing officer by making adequate enquiry and further the assessing officer has violated the provisions of the principles of natural justice by not granting the evidences available with the AO for making evidence and not granting an opportunity of cross examination of the statement of the persons used by the AO. Nothing was shown to us that the order of CIT-A is not sustainable. Accordingly we confirm the order of the learned CIT – A in deleting the addition u/s 68 of the income tax act by the assessing officer. Decided in favour of assessee.
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2024 (1) TMI 1034
Reopening of assessment u/s 147 - Allowability of deduction u/s 80P(2)(a) or 80P(2)(d) - interest income earned by the assessee from the co-operative banks - HELD THAT:- The reasons state that the benefit of deduction under Section 80P(2)(d) of the Act is not available on interest received from investment made with co-operative banks and therefore, such deduction is required to be disallowed. The impugned assessment order is 2013-14, the notice u/s 148 of the Act was issued on 31st March, 2019. There was no tangible material available with AO to reopen the concluded assessment year beyond four years. Thus, the reopening has been made merely on reappraisal of facts available in the original assessment proceedings culminating into an assessment order under Section 143(3) of the Act. Therefore, the assessee succeeds on ground no.1 itself.
Deduction 80P(2)(a) - The provisions of Section 80P (4) of the Act specifically denies deduction only to co-operative banks. The assessee is admittedly not a co-operative bank. AO instead of treating the assessee as credit co-operative society considered the assessee as primary co-operative bank without any basis. In view of the above facts, we hold that interest income earned by the assessee on fixed deposits with the co-operative banks are eligible for deduction under Section 80P(2)(d) of the Act.
We also find that in case of Kerala State Co-Operative Agricultural & Rural Development Bank Ltd [2023 (9) TMI 761 - SUPREME COURT] where in decision of Mavilayi Service Co-operative Bank Ltd [2021 (1) TMI 488 - SUPREME COURT] has also allowed the claim of assesses u/s 80P (2) (d) of the Act. Thus, now the issue is squarely covered in favour of the assessee.
In view of this on both the grounds of reopening as well as on the merits the orders of the lower authorities are reversed and the learned Assessing Officer is directed to grant assessee’s deduction under Section 80P(2)(d) of the Act. Accordingly, the appeal of the assessee is allowed.
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2024 (1) TMI 1033
Penalty u/s 271(1)(c) - validity of notice u/s 274 as it not indicated as to under which limb of the said section the notice has been issued - HELD THAT:- If we consider the penalty notice the same shows that without striking off as to which of the part the said notice, the assessee was called on to reply, the notice was issued. The notice does not make it clear if the assessee was called upon to explain for concealment of particulars of income or for furnishing inaccurate particulars of income.
As there is substance in the contention of the ld. AR that in the absence of striking off specific limb in the notice, the notice was invalid and the consequential penalty order is not sustainable in law. Reliance in this regard can be placed on the judgement of Sahara India Life Insurance Company Ltd.[2019 (8) TMI 409 - DELHI HIGH COURT]
Even otherwise, we have, vide our separate order [2024 (1) TMI 696 - ITAT DELHI] already deleted the additions made by the ld. AO arising out of disallowance of depreciation and in regard to other issues of disallowance on deferred expenditure, the issue has been restored to the files of CIT(A). Therefore, on merits also the penalty is not sustainable. Assessee appeal allowed.
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2024 (1) TMI 1032
TP adjustment - payment of shared service charges paid by the assessee to the AEs - TPO determine the ALP at Nil and made the TP Adjustment of the entire payment made by the assessee towards availing the said service - HELD THAT:- In the present case, the lower authorities without searching for similar uncontrolled transaction between non associated enterprises just proceeded to treat the value of the international transaction to be at NIL.
We notice that in Jabil Circuit India Private Limited [2018 (12) TMI 276 - ITAT MUMBAI] after considering the OECD guidelines upheld the usage of allocation keys for allocation of intra-group services.
We are of the view that once availing of various services from the AEs is duly substantiated by the documentary evidence and the cost allocation among the group companies is also on the basis of a well-accepted allocation key method, there is no basis in upholding the transfer pricing adjustment made by the TPO/AO. Accordingly, the AO is directed to delete the transfer pricing adjustment on account of payment of shared service charges paid by the assessee to the AEs. Appeal of the assessee is allowed.
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2024 (1) TMI 1031
Estimation of income - bogus purchases - HELD THAT:- Since the issue is exactly similar and grounds as well as the facts are also identical, respectfully following the above decision in assessee’s own case for the A.Y. 2014-15 & 2015-16 [2023 (5) TMI 358 - ITAT MUMBAI] we direct the AO to restrict the addition to 2% of the alleged bogus purchases for the year under consideration.
Disallowance of deduction u/s 80G - CSR expense was disallowed u/s 37 and deduction was claimed under Chapter VI-A of the Act being 50% of eligible amount - HELD THAT:- We find that CIT(A) considered this aspect of the matter elaborately with reference to the submissions of the assessee and the averments in the Assessment Order and deleted the disallowance of deduction under section 80G - While deleting the disallowance CIT(A) has followed the decisions of Allegis Services (India) (P.) Ltd. [2020 (5) TMI 378 - ITAT BANGALORE] and the decision of Seafoods Pvt Ltd., v. CIT [2021 (11) TMI 1168 - ITAT MUMBAI]
Various courts have held that donation on account of CSR Expenditure made to institutions registered under section 80G are eligible for deduction u/s 80G - Accordingly, we do not find any infirmity in the order of the Ld. CIT(A) in deleting the disallowance of deduction u/s 80G. Accordingly, ground raised by the revenue is dismissed.
Disallowance of mark to market losses - Nature of loss - allowable business loss or not? - HELD THAT:- We observe from the record that identical issue is decided in assessee’s own case for the A.Y. 2011-12 has decided the issue in favour of assessee observing assessee has regular export business and in order to mitigate the forex exposure, it has booked the forward contract. At the end of the year, assessee has accounted for mark to market loss and profit in the pending forward contracts. In this year, assessee has incurred net loss. It is also observed that in the subsequent Assessment Years the assessee has accounted the net profit and the same was accepted by the revenue and charged to tax. The assessee is consistently following the method of accounting. Therefore, the net loss accounted by the assessee is supported by the export business carried on by the assessee. Therefore, in our view the loss claimed by the assessee is for the purpose of business and allowable business loss - Decided against revenue.
Disallowance u/s 14A r.w.r. 8D - AO held that the administration activities carried by the assessee are towards making investments and assessee was asked why the above Rule 8D should not be considered - Assessee submitted that assessee has not earned any income and has not incurred any expenses and also not made any disallowance of expenditure relating to exempt income - HELD THAT:- AO asked the assessee why the assessee has not made any disallowance u/s 14A of the Act. In response assessee has clearly responded that it is not warranted.
Considering all we do not see any reason to accept the submissions of the Ld.AR of the assessee that there is no satisfaction recorded in this case, as per the observations of the AO, the provisions of section 14A are applicable. Therefore, we reject the submissions made by the assessee. We observe that AO has disallowed adopting Rule 8D(2)(ii) of I.T. Rules and applied 1% of the average value of investments and we are not sure whether he has considered only those investments which has actually earned the exempt income. Accordingly, we direct the AO to consider only those investments which are actually earned exempt income. Accordingly, we direct the AO to disallow the expenses under section 14A as per our above said directions. Accordingly, this ground is allowed for statistical purpose.
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2024 (1) TMI 1030
TP Adjustment - comparable selection - functional comparisons - HELD THAT:- Domex is not functionally comparable to assessee as is engaged in diversified activities including software development, KPO and BPO services and hence, is directed to be excluded from the list of comparables.
MPS - As Acquisition/amalgamation/mergers are extraordinary events in the life circle of company which substantially impact the margins of the acquiring company in the relevant financial years. The Tribunal has been consistently holding that where there is an extraordinary event in a relevant year, the company should not be accepted as comparable. Thus, in the facts of the case, we find merit in argument of the assessee to exclude MPS Ltd. from the list of comparable. We direct accordingly.
Vitae company is engaged in providing diversified services cannot be considered as comparable to ITES service provider. Taking into consideration entire facts, we direct the TPO to exclude Vitae from the list of comparables.
Access Healthcare company is engaged in providing professional, technical and business services. The nature of services provided by the company falls into the category of KPO. Thus, the services rendered by the company requires higher level of skill and specialized knowledge. The companies rendering KPO services are not comparable to the company providing ITES – BPO services.
R. Systems International Ltd. rejected as comparable on the ground of different financial year - It is not the case of Revenue that the company is in any manner functionally different from that of the assessee or the said company does not fall within any of the parameters of filters applied. The Hon’ble Delhi High Court in the case of CIT vs. Mc Kinsey Knowledge Centre India Pvt. Ltd [2015 (3) TMI 1226 - DELHI HIGH COURT] has held that, if from the available data on record the results for financial year can reasonably be extrapolated then the comparable cannot be excluded solely on the ground that the comparables have different financial year endings. Thus, in light of our above observations we hold R-Systems to be a valid and good comparable and direct the A.O to include R-Systems in the list of comparables.
Sundaram Business Services excluded on the ground of functional disparity - Once, the company has been accepted as functionally comparable in the preceding and the subsequent assessment years, there can be no plausible reason to reject the same on the ground of functional disparity in the sandwich assessment year. Hence, the said company is directed to be included in the list of comparables.
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2024 (1) TMI 1029
TDS u/s 194J or 194C - short deduction of TDS - assessee expended certain expenditure towards Managerial and Technical services - no TDS has been made and in respect of some cases, grant of TDS deducted has not been remitted before the specified due date stipulated and in respect of payments made against bill management services TDS has been made u/s 194C instead of deducting the rate applicable for such managerial and technical services u/s 194J - HELD THAT:- As per provisions of section 40(a)(ia) of the Act, disallowance cannot be made if the tax is short deducted at sources - if the assessee is liable to deduct tax, and failed to deduct tax then only the section 40(a)(ia) of the Act to be applied, not for short deduction. In the present case, the claim of the assessee is that the assessee is liable to deduct TDS u/s 194J of the Act only and same has been deducted.
Contention of the ld. D.R. is that the assessee is required to deduct TDS u/s 194C of the Act, however, the same has been deducted u/s 194J - In our opinion, if there is shortfall of deduction of TDS by applying wrong provisions i.e. section 194J of the Act instead of 194C of the Act, then the disallowance u/s 40(a)(ia) of the Act cannot be made. This view of ours is fortified by the judgement of Future First Info Services Pvt. Ltd. [2022 (7) TMI 748 - DELHI HIGH COURT] wherein held that “where there was short deduction of tax at source, disallowance could not be made u/s 40(a)(ia) of the Act and correct course of action would have been to invoke the provisions of section 201 of the Act”. Hence, to the expenditure wherein assessee deducted the TDS, however, there was a short deduction of TDS to that extent, the disallowance u/s 40(a)(ia) of the Act cannot be made.
Other amount wherein TDS has not been deducted or not remitted to the government account before the specified date. With regard to this, we are of the opinion that if the TDS is deducted but not remitted to the government account before the specified date, and the recipient of that income, furnished the return of income u/s 139 of the Act after taking into account that income for computing the income of the assessee for that assessment year and paid tax due thereon, the income declared by that recipient in its return of income, then second proviso to section 40(a)(ia) of the Act is applicable and which is required to be examined at the end of ld. AO. Hence, this issue is remitted to the file of ld. AO to examine the same afresh in the light of above observations. Ground Nos.2 & 3 are partly allowed for statistical purposes.
Disallowance u/s 43B - payments not made to government within due date - submission of the Appellant that the expenses can only be claimed in the year of payment and section 43B provisions disallow the sum not paid in the financial year or before the due date of filing tax returns, thus, the disallowance made has to be deleted - whether above payment is liable for disallowance u/s 43B of the Act or not, which is not paid before the due date of filing the return of income? - HELD THAT:- As per the provisions of section 43B of the Act, any sum payable by assessee by way of tax, duty, cess or fee by whatever name called, no in law for the time being in force not paid within due date of filing return of income to be disallowed computing the income of the assessee. Now the question is that when the assessee is not claimed it as an expenditure in the P&L account, could it be disallowed u/s 43B of the Act. This was considered by the Hon’ble Supreme Court in the case of Chowringhee Sales Bureau Pvt. Ltd [1972 (10) TMI 4 - SUPREME COURT] in which was held that sales tax collected by assessee is revenue receipt even if it is shown by the assessee not non-revenue head and such treatment by the assessee is not decisive.
No hesitation to hold that non- payment of above amount to government account before the due date of filing the return is to be disallowed, though it was not charged to the P&L account and it attracts the provisions of section 43B of the Act and the provisions of section 145A of the Act cannot be applied in view of the non-obstante clause in section 43B of the Act. Same view has been taken in the case of ACIT Vs. Kunnel Engineers & Contractors Pvt. Ltd [2020 (5) TMI 576 - ITAT COCHIN] and Mr. Asrah Nafisa Althaf [2023 (11) TMI 1214 - ITAT BANGALORE] - In view of this, we dismiss these grounds taken by the assessee.
Nature of expenses - expenditure incurred in decommissioning the dismantling is towards capital assets and such expenditure is capital in nature - HELD THAT:- This expenditure incurred towards labour charges for dismantling of old and faulty assets ad by incurring this expenditure, no new asset has been created and the expenditure incurred to remove the non-useful assets from the gross block. It is nothing but expenditure incurred for maintaining the existing asset. Being so, in our opinion, it is just like repairs & maintenance incurred for dismantling of old assets. Accordingly, we are of the opinion that it is to be allowed as revenue expenditure only and this ground of assessee is allowed.
Grants and Contributions received during the year - HELD THAT:- The assessee has received the total grant in the assessment year which is the gross amount and that to be deducted from the gross block of plant & machinery and not the only amount as the balance amount which has not gone into the computation of income and resulted in excess allowance of depreciation - The error crept in the computation of the gross block of assets has been correctly rectified by the ld. AO while framing assessment and we do not find any infirmity in the order of the lower authorities on this count and the same is confirmed in computing the actual cost of assets to be arrived by deducting the grant-in-aid received by the assessee as per section 43(1) of the Act. More so, this ground was not pressed before ld. AO, now it cannot press the same. This ground of appeal of the assessee is dismissed.
Depreciation on assets not in use - HELD THAT:- According to the depreciation u/s 32 of the Act, the assets to be owned by the assessee and should be used for the purpose of business of the assessee. In the present case, it is an admitted fact that these assets are not in use. As such, the depreciation was denied by the ld. AO. Same has been confirmed by the ld. CIT(A). We do not find any infirmity in the order of the lower authorities and the same is confirmed. This ground of assessee is dismissed.
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2024 (1) TMI 1028
Disallowance u/s 80P(2)(d) - interest income received by the assessee society from deposits in saving bank a/c maintained with commercial banks i.e., State Bank of India (SBI) and other banks - HELD THAT:- Admittedly, the issues raised in the aforesaid appeals are squarely covered by the decisions of Gramin Seva Sahkari Samiti Maryadit [2022 (3) TMI 75 - ITAT RAIPUR] Accordingly, interest received on the Pace 3 surplus fund parked by way of deposits in the Bank is eligible for deduction 80(P)(2)(a)(i).
Thus as following the various judgments of the Hon’ble High courts (supra), specifically as observed by Hon'ble High Court of Karnataka in the case of Tumkur Merchants Souharda Cooperative Ltd. [2015 (2) TMI 995 - KARNATAKA HIGH COURT] following the similar view taken in ANDHRA PRADESH STATE COOPERATIVE BANK LTD [2011 (6) TMI 215 - ANDHRA PRADESH HIGH COURT] respectfully following the same, we hold that the interest income received on amounts deposited by the assessee society in commercial / nationalised banks shall be eligible for deduction u/s 80P(2)(a)(i) of the Act. Consequently, ground pertaining to impugned controversy is decided in favour of the assessee.
Delayed payment of PF- ESI - assessee has submitted that all the payments of EPF were made in time considering the extended grace period of 5 days available to the assessee - HELD THAT:- After going through the facts and on a thoughtful consideration of submissions and explanations, it is observed that the aforesaid issues has been dealt with coordinate bench of the ITAT, Raipur in Dilip Construction Company [2023 (6) TMI 1358 - ITAT RAIPUR] wherein regarding delay and grace period it has been observed that the assessee was found to have deposited the amount within grace period and hence there is no substance in the grievance of the Revenue.
The contention raised by the assessee regarding grace period is found to be acceptable, but subject to verification of the fact that the payments were made in prescribed time including the time available with grace period. Under such facts and circumstances, we direct the Ld. AO to verify the payment details of EPF qua the disallowance made and vacate the same if the same are paid within stipulated time, on the contrary sustain the same if not paid in time, as described herein above.
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2024 (1) TMI 1027
Interest on delayed deposit of TDS - addition u/s. 37(1) - claim of the assessee that as interest paid on late payment of TDS was charged due to delay in deposit/payment of the same, thus, the same being compensatory in nature was allowable as an expenditure u/s. 37(1) - HELD THAT:- Though the assessee had brought the aforesaid factual position to the notice of both the lower authorities but they had failed to take cognizance of the same and had primarily focused more on the issue as to whether or not the interest on delayed deposit of TDS u/s. 201(1A) was allowable as an expenditure u/s. 36(1)(iii) or u/s. 37(1) of the Act. Both the lower authorities had failed to address the claim of the assessee that the aforementioned was never claimed as an expenditure but was in the nature of a back-to-back reimbursement from its member, viz. M/s. Barbarik Project Ltd.
As view that as stated by the AR, and rightly so, now when the assessee JV had not claimed the amount as an expenditure in its profit and loss account, the A.O, thus, was not justified in disallowing the same on the premise that it was not allowable as a deduction per the mandate of law. Thus, in terms of aforesaid observation, not being able to concur with the view taken by the lower authorities, set-aside the order of the CIT(A) and vacate the addition/disallowance made by the A.O. Thus, the Ground of appeal No. 2 is allowed in terms of my aforesaid observations.
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2024 (1) TMI 1026
Disallowance of provision for warranty - HELD THAT:- From the above, it is abundantly clear that provision created by the assessee for warranty expenses is not scientifically recognized considering past trend and future liability required to settle warranty claims. Therefore, we are of the considered view that provision created by the assessee for warranty expenses is not in line with the ratio laid down by the Supreme Court in the case of M/s. Rotork Control India Pvt Ltd [2009 (5) TMI 16 - SUPREME COURT] and thus, in our considered view, there is no error in the reasons given by the ld. CIT(A) to sustain additions made towards disallowance of provision for warranty expenses. Thus, we are inclined to uphold the findings of the ld. CIT(A) and reject grounds taken by the assessee.
Alternative arguments of assessee that, at least the AO may be directed to allow actual expenditure incurred towards warranty - We find that the appellant could not give any detail as to whether actual expenditure incurred during the year is out of provision created for the impugned year or out of opening balance brought forward from earlier financial year. In absence of specific details with regard to utilization of warranty expenses, the claim of the assessee cannot be accepted. Thus, we reject the alternative arguments of assessee.
Disallowance of provision made for contract contingencies - assessee company has claimed deduction towards provision for contract losses - AO disallowed sum being difference between reversal of provision minus opening balance on the ground that the liability is contingent in nature and appellant could not provide basis for estimation of contract losses - HELD THAT:- Assessee fairly agreed that this issue is covered against the assessee. But, his only argument is that the Assessing Officer has made addition being difference between amount released and opening balance instead of provision created minus amount released during the year. We find merit in arguments of assessee that addition can only be made towards net of provision minus amount released during the year because opening balance brought forward from earlier years cannot be added during the year. Therefore, we set aside the issue to the file of the Assessing Officer and direct the Assessing Officer to re-compute addition in accordance with our direction given herein above.
Disallowance of payment made towards use of trademark to the parent company - AO disallowed trademark paid to parent company on the ground that the assessee could not establish nexus between trademark and business advantage derived by the appellant company in India - AO observed that the assessee could not file any details with regard to the registration of trademark under any international or domestic law - HELD THAT:- As regards first objection of the Assessing Officer, assessee filed necessary documents evidencing registration of trademark under Indian Law. The appellant has also explained how trademark helped the appellant company to generate business in India. Since, the AO has disallowed trademark fee, on the ground that no documents has been filed to substantiate the payment, contrary to evidences on record, in our considered view, the issue needs to go back to the file of the AO for further verification. Thus, we set aside the orders of the lower authorities on this issue and restore the issue back to the file of the AO and direct the Assessing Officer to reexamine the issue in light of various evidences that may be filed by the assessee to justify payment of trademark fees to parent company.
TDS u/s 195 - disallowance of payment made to non- residents u/s. 40(a)(i) - payments are in the nature of fees for technical services covered under the provisions of section 9(1)(vii) of the Act and Explanation to section 9(2) of the Act - HELD THAT:- Payment made to Henrich George GMBH is fees for technical services as defined u/s. 9(1)(vii) of the Act. But, fact remains that the definition for fees for technical service has been amended by insertion of Explanation 2 to section 9(2) by Finance Act, 2010 with retrospective effect from 01.04.1976. Although, said payments are brought within the ambit of FTS as per section 9(1)(vii) of the Act by way of an amendment, but when said payment was made, there was no clarity in respect of certain payments made to non-residents. Therefore, it is impossible for the assessee to perform which is impossible to perform and deduct TDS on payment made to non-residents by considering subsequent amendment by way of Explanation 2 to 9(2) by Finance Act, 2010 with retrospective effect from 01.04.1976.
Since, the payments are made prior to the amendment, it is impossible for the assessee to perform impossible things and deduct TDS. Therefore, we are of the considered view that payment made to Henrich George GMBH cannot be disallowed u/s 40(a)(i) of the Act, for non-deduction of TDS u/s. 195 of the Act. Thus, we direct the Assessing Officer to delete addition made towards payment to Henrich George GMBH, Germany.
Payments made to Areva T&D, Switzerland towards warranty related repairs executed by them on behalf of the assessee are reimbursement of expenses, without any markup - HELD THAT:- It is an admitted fact that payment towards reimbursement of expenses to non-residents without any markup cannot be considered as fees for technical services. Further, even assuming for a moment, said payment are in the nature of business profits, those payments cannot be taxed in India in the hands of non-residents unless said non-residents have had permanent establishment in India. Since, payment made to above non-residents are neither fee for technical services which can be taxed u/s. 9(1)(vii) of the Act, nor business profits which can be taxed in India, in our considered view, the assessee need not to deduct TDS u/s. 195 of the Act on said payments. Since, the assessee need not to deduct TDS on payments made to non-residents, the Assessing Officer is erred in disallowing said payments u/s. 40(a)(i) of the Act. The ld. CIT(A) after considering relevant facts has rightly deleted additions made by the Assessing Officer and thus, we are inclined to uphold the findings of the ld. CIT(A) and dismiss the grounds taken by the revenue.
Disallowance of depreciation on goodwill - HELD THAT:- As in assessee’s own case for assessment year 2007-08 [2018 (3) TMI 2023 - ITAT CHENNAI] wherein under identical facts, decided the issue in favour of the assessee.
Disallowance of depreciation on non-compete fee - HELD THAT:- We find that the Jurisdictional High Court of Madras in [2021 (4) TMI 32 - MADRAS HIGH COURT] in assessee’s own case held that the assessee is entitled for depreciation for non-compete fee.
Eligible for deduction towards remaining 50% of additional depreciation, if the assessee establishes the fact that conditions prescribed for claiming additional depreciation was satisfied in the preceding assessment year.
Short deduction of TDS u/s. 201(1) of the Act & interest thereon u/s. 201(1A) of the Act in respect of payments made to non-residents - HELD THAT:- Tribunal supra has considered the issue of disallowances of payments made to non-residents u/s. 40(a)(i) of the Act for non-deduction of TDS u/s. 195 of the Act, and held that payments made to non-residents as considered by the Assessing Officer in the order passed u/s. 143(3) of the Act and 201(1) & 201(1A) of the Act are not liable for TDS u/s. 195 of the Act and consequently, disallowances cannot be made u/s. 40(a)(i) of the Act. Since, those payments have already been considered and held that said payments are not liable for TDS u/s. 195 of the Act, in our considered view, the demand raised by the AO u/s. 201(1) and 201(1A) of the Act, in respect of short deduction of TDS and interest thereon cannot survive under the law. Therefore, we direct the Assessing Officer to delete demand raised towards short deduction of TDS u/s. 201(1) of the Act & interest thereon u/s. 201(1A) of the Act in respect of payments made to non-residents.
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2024 (1) TMI 1025
Additions against Cash deposit as unexplained - deposits during the demonetization period - HELD THAT:- Appellant had deposited cash in bank account during the demonetization period. As also an admitted fact that the assessee company has been engaged in sale of bikes or two wheelers, which are normally being sold in cash.
CIT(A) give relief of Rs. 9,78,514/- out of the 19,78,514/- treated as unexplained cash by the Assessing Officer. There was no rational to accept Rs. 9.78 lakhs and treat Rs. 10 lakhs as unexplained. Revenue has already treated an amount of Rs. 29,01,486/- as explained which was from the business of the assessee. Since it is proved that the assessee even the business of sale to two whellers and dealing in cash keeping the entire facts and circumstances, the amounts deposited in the bank account, monthly sales, we hereby delete the addition. Appeal in assessee allowed.
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2024 (1) TMI 1024
Jurisdiction - proper officer to issue SCN - impugned SCN issued by the Directorate of Revenue Intelligence (DRI) - HELD THAT:- As the show cause notice itself is issued by the Directorate of Revenue, the issue would go to the root of the jurisdiction of such authority issuing the show cause notice and as considered in the decision of the Supreme Court in Canon India Pvt. Ltd. [2021 (3) TMI 384 - SUPREME COURT]. In these circumstances, the present petition also needs to be admitted and be heard along with the batch of petition.
The impugned show cause notice dated 13 July, 2012 shall remain stayed pending hearing and final disposal of the present petition - Reply affidavit to the petition be placed on record within a period of two weeks from today.
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2024 (1) TMI 1023
Remission of Customs Duty - Demand of customs duty on goods that were imported but remained undelivered, by rejecting the request of the appellant for remission of the duty - Extended Period of limitation - suppression of facts - goods were not delivered due to reasons other than pilferage - HELD THAT:- There have been exchange of letters right from 20.02.2009 between the appellant and the Superintendent of Central Excise, Theni Range, and further, the Revenue vide letter dated 31.03.2009 through the Superintendent, sought for explanation from the appellant insofar as the shortage was concerned, to which the appellant had duly replied vide its letter dated 06.04.2009. We also find that the other communications exchanged between the appellant and the Superintendent, like the letter dated 27.08.2010 from the Superintendent of Customs, Custom House, Tuticorin to the Superintendent of Central Excise, Dindigul, letter dated 01.09.2010 from the appellant to the Superintendent of Central Excise, Theni Range, letter dated 11.10.2010 regarding issuance of Rewarehousing Certificate by the Superintendent of Central Excise-Service Tax, Theni Range addressed to the Deputy/Assistant Commissioner of Customs, Custom House, Tuticorin, and the Survey Reports dated 27.02.2009 and 01.09.2010 by the authorized surveyor, to name a few of the documents, are also forming part of the records of the Revenue.
Thus, nothing was hidden nor is there any attempt to play fraud or suppression of any facts on the part of the appellant insofar as the shortage in supply was concerned, which fact was very much within the knowledge of the Revenue. Thus, there was absolutely no scope for the Revenue to assume jurisdiction by invoking the extended period of limitation since any allegation as to fraud or suppression would only be a whim and arbitrary.
The Show Cause Notice No. 1/2012 dated 02.01.2012 and the Show Cause Notice No. 05/2012(CE) dated 02.02.2012 have been issued in a haste by invoking the larger period, for which no fresh material or facts were unearthed by the Revenue. Thus, the appellant should succeed on the limitation itself since we are satisfied that jurisdiction has been assumed without any basis, to deny the exemption and thereafter demand the Customs duty.
The impugned order which has upheld the demand raised for the period for which the extended period of limitation has been invoked in the Order - in - Original deserves to be set aside - Appeal allowed.
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2024 (1) TMI 1022
Termination of petitioner as a Depository Participant of CDSL[Central Depository Services] - Requirement of meeting the net worth and minimum turnover - petitioners being required to have a turnover of Rs. 3 crores as not adhered - According to CDSL, the termination is in lieu of SEBI-2018 Regulations and more particularly the amendment brought about to the said 2018 Regulations with effect from 23 February, 2022 to Regulation 35 by insertion of a proviso inter alia in regard to a stock broker requiring to have a net worth of Rs. 3 crores within one year from the date of notification of the 2022 amendment to the 2018 Regulations - HELD THAT:- We are of the opinion that respondent no. 1 itself was in some state of uncertainty as to whether the consequence of noncompliance of regulations of the SEBI would entail a consequence as foisted on the petitioners. CDSL in such regard, had infact approached the SEBI, however, the SEBI did not inform the CDSL on any position it should be taking on such compliances.
In such context, as informed to us by Respondent No. 2/Mr. Sancheti, learned senior counsel for SEBI that once the SEBI had prescribed the requirements under the said regulations, the compliance was an issue between the CDSL and its participants on which SEBI would not have any control.
Thus prima facie we find much substance in the contentions as urged on behalf of the petitioners that petitioners being put to a notice by the CDSL for compliance to be submitted in terms of what was recorded in the letter dated 24 February, 2023 as noted by us hereinabove, which the petitioners complied by submitting a “Net Worth Certificate” on 20 April, 2023. Such a certificate was not rejected by CDSL even on the ground that it is not based on audited accounts. On behalf of the petitioners, it is stated that in fact it was issued only after an audit.
Prima facie, we find much substance in the contentions as urged on behalf of the petitioners and wonder whether the petitioner could have been foisted with termination and more particularly considering the decision the respondent had taken in its letter dated 24 February, 2023, by which also a legitimate expectation was created in the petitioners to achieve the compliance by 24 April, 2023.
CDSL could not have turned around and then shown the rule book to the petitioners, after having granted such opportunity in its letter dated 28 February, 2023 providing time to the petitioners to achieve compliance by 24 April, 2023. In our opinion, such course of action as adopted by CDSL was in fact in consonance of its bye laws which we have noted hereinabove.
SEBI mandated such compliance but compliance of such a nature, namely of a turnover, in our prima facie opinion cannot amount to compliance of such fundamental nature that a participant needs to instantly lose its right to do business as permitted by a registration as granted by respondent no. 1, when it otherwise acts in accordance with all the legal requirements, this more particularly when about 700 participants of the petitioners would suddenly be in a limbo.
All the aforesaid issues would require examination at the final hearing of the petition. We, accordingly, feel it appropriate to admit the petition. Hence, Rule. Respondents waive service.
Pending the hearing and final disposal of the petition, the impugned order of termination dated 10 November, 2023 as confirmed by the appellate order dated 8 January, 2024 shall remain stayed.
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2024 (1) TMI 1021
Approval of Resolution Plan - conditions precedent pending before the NCLAT - adjustment of a Performance Bank Guarantee (PBG) - HELD THAT:- Conditional on compliance with the three conditions, SBI stated that it would be willing to withdraw both the company appeals which were pending before the NCLAT as well as the Civil Appeals which were pending before this Court, details of which were set out in the affidavit. The offer which was made by SBI on behalf of the lenders had to be complied with as it stood in the event that the SRA sought the benefit of the offer. According to the SRA, the PBG was liable to be released on adjustment in terms of the Resolution Plan. This is a matter which would have to await an adjudication by NCLAT in the pending appeal. The impugned order of the NCLAT, on the other hand, allowed the plea of the SRA for adjustment and consequential release of the PBG at the interlocutory stage.
Infusion of Rs 350 crores, as envisaged in the affidavit, could not have been substituted with a direction for adjustment of the PBG, at that stage. Infusion meant that the third tranche has to be paid in the same manner. Adjustment of the PBG was not permissible.
SBI has stated that the lenders have been saddled with huge recurring expenditure every month to maintain the remaining airline assets of the Corporate Debtor. The lenders have been embroiled in litigation before the NCLT and NCLAT with little progress on this ground towards implementing the resolution plan. Such a state of affairs cannot be permitted to continue interminably as it defeats the very object and purpose of the provisions of and timelines under the IBC. The timely resolution of insolvency cases is vital for sustaining the effectiveness and credibility of the insolvency framework. Therefore, concerted efforts and decisive actions are imperative to break the deadlock and ensure the expeditious implementation of the resolution plan.
The order dated 28 August 2023 of the NCLAT is modified in part and, hence, the permission which was granted to the SRA to adjust the last tranche of Rs 150 crores against the PBG - The NCLAT is requested to endeavour an expeditious disposal of the appeal by the end of March 2024.
The appeals are accordingly disposed of.
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2024 (1) TMI 1020
Classification of services - cargo handling service or manpower recruitment or supply agency service? - HELD THAT:- The scope of engagement of the appellant was for cargo handling meant for export. It is not only the statement of the appellant which was recorded on 19.04.2012, the same was much after the reply filed by the CCFS dated 03.04.2012. The service recipient had explained the understanding with the service provider-appellant, which was later on reiterated by the appellant-service provider. The Revenue having brought the reply to their enquiry on record, is not able to dislodge the actual understanding between the parties as to the nature of provision of service.
The doubts entertained by the Revenue as to the provision of service under the category of manpower recruitment or supply agency service are without any basis. In any case, the Revenue has not controverted the fact that the activity was in relation to the export of goods and would be exempt from payment of Service Tax. Hence, the demand of Service Tax under the above category, raised and confirmed in the Order-in-Original as well as the impugned Order-in-Appeal cannot sustain, for which reason the impugned order deserves to be set aside.
The impugned order set aside - appeal allowed.
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2024 (1) TMI 1019
Levy of service tax - Auctioneer’s Service - Business Support Service - jewel service charges collected by the appellant from its members for appraisal of jewels for the purpose of loan - HELD THAT:- This Bench of the Tribunal in the case of M/S. PERUNDURAI AGRICULTURAL PRODUCERS CO-OPERATIVE MARKETING SOCIETY LIMITED VERSUS COMMISSIONER OF CENTRAL EXCISE AND SERVICE TAX, SALEM [2023 (10) TMI 173 - CESTAT CHENNAI], relied upon by the Ld. Advocate, had an occasion to examine an identical issue wherein the demand was raised on the assessee therein, inter alia, under the categories of “Auctioneer’s Service” and “Business Support Service”.
After considering the rival contentions, this Bench has observed that The marketing and other services rendered by the appellant to their farmer members in selling their agricultural produce through tender process would not be coming under “Auctioneer’s Service under Section 65 (105)(zzzr) of the Finance Act, 1994.
The impugned order lacks merit, for which reason the same deserves to be set aside - Appeal allowed.
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2024 (1) TMI 1018
Levy of Service Tax - reverse charge mechanism - appellant has received any taxable service of lease of mine and assignment of right to use of natural resources from the State Government of Karnataka for mining of iron ore, on which the Royalty and Forest Development Tax/Fee or not - HELD THAT:- It is clear from Section 9 of the Mines and Minerals (Development and Regulation) Act, 1957 that the Royalty is to be paid by the holder of the mining lease. Therefore, the liability in respect of the payment of Royalty is fastened by law on the lease- holder and not on the buyers like the appellant. Sub- paragraph (F) below paragraph 5 of the Order of the Hon’ble Supreme Court dated 18.04.2013 in the case of Samaj Parivartana [2013 (4) TMI 954 - SUPREME COURT] merely lays down the manner in which the payment of these Royalties will be made. Sub-paragraph (F) stipulates that the buyer will make the payment of the Royalty, the liability of which lies primarily on the shoulders of the lease- holder. Merely because the payment is made by the buyer, it cannot automatically be said that the primary liability is on him, that any relatable services were received by him, or indeed that the leaseholder is absolved of liability - Accordingly, the payment of the Royalty being the primary obligation of the lease- holder, it cannot be said that the services, if any, relatable thereto, could have been rendered to the buyer (the Appellant) as the recipient of service.
The payment of Royalty, FDT and other applicable taxes/charges by the buyers of the iron ores to the Monitoring Committee, as per the price of iron ore purchased in auction, would not be held to be liable to Service Tax and hence, the buyer i.e., the appellant herein, could not be held to be the service recipient from the State Government for the purposes of liability to Service Tax. Hence, there is no question of any liability to pay Service Tax on the lease of mines and right to use of natural resources under reverse charge mechanism. The said findings in the impugned order are therefore unsustainable in the eye of law.
The demand of Service Tax as sustained in the impugned order is not sustainable, for which reason the same is set aside - appeal allowed.
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2024 (1) TMI 1017
Validity of an assessment order - notices issued under Section 27(2) of the Tamil Nadu Value Added Tax Act, 2006 (TNVAT Act) - reversal of ITC - HELD THAT:- Rule 10(2) of the TNVAT Rules mandates production of the original tax invoices. On this issue, however, learned counsel for the petitioner asserts that the petitioner has all the original tax invoices in its custody and would produce the same for inspection by the Assessing Officer. The third finding relates to alleged non-submission of the purchase ledger account. Regarding this submission, learned counsel for the petitioner pointed out that the relevant ledger accounts were provided.
The conclusion that follows is that the Assessing Officer did not duly consider documents such as invoices, declaration letters and bank statements, which were provided by the petitioner, and thereafter indicate as to why those documents do not adequately satisfy the requirement of establishing the genuineness of purchase in respect of the ITC claim - these writ petitions are disposed of by remanding these matters for re-consideration by the Assessing Officer.
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