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2024 (9) TMI 1282
Validity of reassessments - violation of the provisions contained in Section 151 - sanction obtained from the JCIT - Scope of unamended Section 151 - as argued in the absence of sanction being accorded by the competent authority, the entire action for reassessment is liable to be set at nought on this ground alone - effect of Taxation and Other Laws (Relaxation & Amendment of Certain Provisions) Act, 2020 (TOLA)
HELD THAT:- Tested on the principles which were enunciated in Suman Jeet Agarwal [2022 (9) TMI 1384 - DELHI HIGH COURT] the petitioners would appear to be correct in their submission of the date liable to be ascribed to the impugned notices and those being viewed as having been issued and dispatched after 01 April 2021. However, and in our considered opinion, the same would be of little relevance or significance when one bears in mind the indubitable fact that all the notices were approved by the JCIT and which was an authority recognised under the unamended Section 151. The answer to the argument based on the provisions of TOLA would also largely remain unimpacted by our finding on this score as would become evident from the discussion which ensues.
We thus proceed on the demurrer that it was the unamended Section 151 which would be applicable to the impugned proceedings. However, and before proceeding ahead, it would be appropriate to briefly notice the provisions of TOLA and on which the defence of the respondents is founded.
TOLA, being Act No. 38 of 2020, came to be promulgated on 29 September 2020.
On a fundamental plane, it was a remedial measure aimed at overcoming a position of irretrievable and irreversible consequences which were likely to befall during the nationwide lockdown. It was principally aimed at enabling authorities to take and commence action within the extended timelines that TOLA introduced. However, it neither altered nor modified or amended the distribution of functions, the command structure or the distribution of powers under a specified Act. It was in that light that we had spoken of the carving or conferral of a new or altered jurisdiction.
It would therefore be wholly incorrect to read TOLA as intending to amend the distribution of power or the categorisation envisaged and prescribed by Section 151. The additional time that the said statute provided to an authority cannot possibly be construed as altering or modifying the hierarchy or the structure set up by Section 151 of the Act.
The issue of approval would still be liable to be answered based on whether the reassessment was commenced after or within a period of four years from the end of the relevant AY or as per the amended regime dependent upon whether action was being proposed within three years of the end of the relevant AY or thereafter. The bifurcation of those powers would continue unaltered and unaffected by TOLA.
Section 151 distributed the powers of approval amongst a set of specified authorities based upon the lapse of time between the end of the relevant AY and the date when reassessment was proposed. Thus even if the reassessment was proposed to be initiated with the aid of TOLA after the expiry of four years from the end of the relevant AY, the authority statutorily empowered to confer approval would be the Principal Chief Commissioner/Chief Commissioner/Principal Commissioner/Commissioner. It would only be in a case where the reassessment was proposed to be initiated before the expiry of four years from the end of the relevant AY that approval could have been accorded by the JCIT. Similar would be the position which would emerge if the actions were tested on the basis of the amended Section 151 and which divides the power of sanction amongst two sets of authorities based on whether reassessment is commenced within three years or thereafter.
What we seek to emphasise is that the TOLA authorisation merely enables the competent authority to take action within the extended time period and irrespective of the closure which would have ordinarily come about by virtue of the provisions contained in the Act. It does not alter or amend the structure for approval and sanction which stands erected by virtue of Section 151. TOLA merely extended the period within which action could have been initiated and which would have otherwise and ordinarily been governed and regulated by Sections 148 and 149 of the Act. If the contention of the respondents were to be accepted it would amount to us virtually ignoring the date when reassessment is proposed to be initiated and the same being indelibly tied to the end of the relevant AY. Once it is conceded that the notice came to be issued four or three years after the end of the relevant assessment year, the approval granted by the JCIT would not be compliant with the scheme of Section 151. We thus find ourselves unable to sustain the grant of approval by the JCIT.
The respondents had feebly sought to urge that the use of the expression “sanction” in Section 3 of TOLA also merits due consideration and is liable to be read as supportive of the contentions that were addressed on their behalf. The argument is however clearly meritless when one bears in consideration the indisputable fact that the set of provisions with which we are concerned nowhere prescribe a timeframe within which sanction is liable to be accorded.
‘Sanction’ when used in Section 3 of TOLA caters to those contingencies where a specified Act may have prescribed a particular time limit within which an action may be approved. That is clearly not the position which obtains here. We thus find ourselves unable to sustain the impugned action of reassessment. The impugned notices which rest on a sanction obtained from the JCIT would thus be liable to be quashed. The impugned notices issued under Section 148 of the Act dated 31 March 2024 are hereby quashed.
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2024 (9) TMI 1281
Validity of reassessment proceedings - period of limitation - Time limit for notice u/s 149 - relevant period u/s 153C is liable to be reckoned - computation of the “relevant assessment year” from the date of the impugned Section 148 notice - HELD THAT:- As is evident from a reading of that provision any action for reassessment pertaining to an AY prior to 01 April 2021 can be sustained only if it be compliant with the timeframes specified under Section 149 (1) (b), Section 153A or Section 153C as the case may be and on the anvil of those provisions as they existed prior to the commencement of Finance Act 2021.
Viewed in that light, it is manifest that the assessment for AYs 2012-13 and 2013-14 could not have been reopened.
The record would reflect that pursuant to a search and seizure operation conducted in respect of a third party on 09 February 2022, the petitioner was served with the notices under Section 148 on 30 March 2023. Undisputedly and for the purposes of reopening, bearing in mind the Proviso to Section 149 (1), action could have been initiated only up to AY 2014-15.
As ex facie evident that AYs 2012-13 and 2013-14 falls beyond the ten-year block period as set out under Section 153C read with Section 153A of the Act. Consequently, the impugned notices are rendered unsustainable.
Thus, we allow the instant writ petitions and quash the notice referable to Section 148 - Assessee appeal allowed.
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2024 (9) TMI 1280
Reopening of assessment u/s 147 - reasons to believe - review v/s reassess - as argued petitioner was selected for scrutiny assessment and the issue on hand was examined by the then AO in threadbare - whether the impugned notice under Section 148 of the Act can be said to be legal and justified? - Revenue Authority has sought to reopen broadly on the ground that petitioner was not entitled for claiming deduction under Section 54F and the details with regard to sale of immovable property and purchase of new property are concerned, the same was without any supporting evidence.
HELD THAT:- The assessee-petitioner at the time of filing the original return and thereafter in the scrutiny, has already furnished the requisite details about the transaction of sale and purchase of immovable property and the working of capital gain along with all the necessary evidence. Thus, in our view, AO forming his opinion on the material already available on record and/or the material which were already considered by the then AO, is nothing but a change of opinion. It is not the case of the AO that new information and/or any tangible material has come into possession. Thus, in our view, forming any opinion based on same facts and circumstances which were then available with the AO at the time of scrutiny is said to be change of opinion and thereby the same is not permissible.
See M/S. KELVINATOR OF INDIA LIMITED [2010 (1) TMI 11 - SUPREME COURT] wherein held schematic interpretation to the words “reason to believe” failing which, we are afraid, Section 147 would give arbitrary powers to the Assessing Officer to re-open assessments on the basis of “mere change of opinion”, which cannot be per se reason to re-open. We must also keep in mind the conceptual difference between power to review and power to re-assess. The Assessing Officer has no power to review; he has the power to re-assess. But re-assessment has to be based on fulfillment of certain pre-condition and if the concept of “change of opinion” is removed, as contended on behalf of the Department, then, in the garb of re- opening the assessment, review would take place - Decided in favour of assessee.
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2024 (9) TMI 1279
Faceless assessment of income escaping assessment - validity of notice issued by the JAO as not in accordance w/sec 151A - not permissible for the Jurisdictional Assessing Officer to issue a notice under Section 148, as the same would amount to breach of the provisions of section 151A - HELD THAT:- As decided in recenet case recent decision of this Court in Nainraj Enterprises Pvt. Ltd. [2024 (7) TMI 511 - BOMBAY HIGH COURT] relying on Hexaware Technology Ltd. [2024 (5) TMI 302 - BOMBAY HIGH COURT] provisions of Section 151A of the IT Act had clearly brought a regime of faceless assessment. The Court held that it was not permissible for the Jurisdictional Assessing Officer to issue a notice under Section 148, as the same would amount to breach of the provisions of section 151A of the IT Act.
In the present case, it is apparent that the Respondent-Revenue has not complied with the Scheme notified by the Central Government pursuant to Section 151A (2) of the Act. The Scheme has also been tabled before the Parliament and is in the character of subordinate legislation, which governs the conduct of proceedings under Section 148A as well as Section 148 of the Act. In view of the explicit declaration of the law in Hexaware, the grievance of the Petitioner-Assessee insofar as it relates to an invalid issuance of a notice is sustainable and consequently, the very manner in which the proceedings have been initiated, vitiates the proceedings.
Learned Counsel for both the parties agree that the proceedings initiated under Section 148 of the Act would not be sustainable in view of the judgment rendered in Hexaware [supra] - Thus, the sanction granted by the authority would be rendered invalid since it is not issued by the authorities specified in Section 151 (ii) in the event reassessment proceedings - Decided in favour of assessee.
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2024 (9) TMI 1278
Deduction u/s 80P(2)(a) - profits and gains of business attributable to its activity of providing credit facilities to its members - HELD THAT:- The assessee had only deposited the profit earned by it in the manner mandated under Section 63 of the Multi-State Co-operative Societies Act, or permitted by Section 64 of the said Act. In other words, it dealt with the surplus profit in a manner envisaged under the regulatory Statute that regulated, and thereby legitimized, its business of providing credit facilities to its members - if the assessee managed to earn some additional income by way of interest on the deposits made, it could only be seen as an enhancement of the profits and gains that it made from its principal activity of providing credit facilities to its members.
The nature and character of the principal income [profits earned by the assessee from its lending activity] does not change merely because the assessee acted in a prudent manner by depositing that income in a bank, instead of keeping it in hand. The provisions of the I.T. Act cannot be seen as intended to discourage prudent financial conduct on the part of an assessee.
We also find force in the submission of the learned Senior counsel, distinguishing the decision of the Supreme Court in M/s. The Totgars' Cooperative Sale Society Limited [2010 (2) TMI 3 - SUPREME COURT] on the ground that the Court in that case had found that the Society concerned had appropriated amounts forming part of surplus receipts which were due to its members, and invested the same to earn interest during the period when the surplus receipts were in its hands.
The facts in the instant cases are entirely different and the investment concerned was of amounts that had already attained the character of surplus profits in the hands of the assessee. On this issue, therefore, we find ourselves in agreement with the view taken in The Vavveru Co-operative Rural Bank Ltd. [2017 (4) TMI 663 - ANDHRA PRADESH HIGH COURT] and Tumkur Merchants Souharda Credit Co-operative Limited [2015 (2) TMI 995 - KARNATAKA HIGH COURT].
As for the argument of Revenue, with reference to the provisions of Section 80P(2)(d) of the I.T. Act, we might only observe that, while it may be a fact that interest income of the nature specified therein is specifically allowed as a deduction in the case of Co-operative Societies in general, in the light of our discussion above as regards the nature of the interest income earned by the assessee Society in the instant cases, it would follow that the interest income dealt with by us in the instant cases is not akin to the one contemplated u/s 80P(2)(d). We are of the view that the latter provision deals with interest income other than what can be attributable to the main business of the Society. Decided in favour of the assessee.
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2024 (9) TMI 1277
Capital gain - Valuation of the land - determining the Fair Market Value as on 01.04.1981 - estimating the value of the lease hold rights of the appellant - as argued Tribunal after taking into consideration the valuation report has suitably valued the lease hold rights of the appellant-assessee at Rs. 800/- as on 01.04.1981 instead of Rs. 1,200/- considered by the valuer in the valuation report - Tribunal after considering the provision of Section 55 (2) (a) of the Act held that as the land is not forming part of the assets mentioned therein, provision of Section 55 (2) (a) (ii) of the Act would not apply for the cost of acquisition of the land for the purpose of computation of long term capital gains of the assessee has to be determined as on 01.04.1981 under Section 48
HELD THAT:- On perusal of the reasoning given by the Tribunal to determine the cost, the Tribunal has not ignored the valuation report placed on record.
Observation of the Tribunal are thus contrary to what is stated in the valuation report which is placed on record, wherein the registered valuer has taken into consideration the value of lease hold rights and reduced the same from the total value of the land.
Therefore the contentions raised on behalf of the Revenue that the valuation of the land is required to be arrived at from the perspective of the lessee and not from the lessor is without any basis as the valuation of the land is to be considered after taking into consideration the lease hold rights existing on such land as on 01.04.1981. The registered valuer has after considering such value of the lease hold right and reducing the same from the Fair Market Value as on 01.04.1981 has rightly arrived at the valuation of Rs. 57,75,000/-. Therefore there was no need for the Tribunal to estimate the value of the land as on 01.04.1981 after making suitable deduction on account of the assessee not being the full owner of the land. On perusal of the valuation report, the registered valuer has already made a suitable deduction on the capitalized value of the lease rent from the total Fair Market Value of the land as on 01.04.1981 and thereafter arrived at the valuation of Rs. 57,75,000/-.
Thus, we are of the opinion that the Tribunal has committed an error in determining the Fair Market Value of Rs. 800/- per square yard as on 01.04.1981 by ignoring the valuation report of the registered approved valuer determined as on 01.04.1981. - Decided against revenue.
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2024 (9) TMI 1276
Validity of reassessment proceedings - reason to believe - scope of change of opinion - whether the impugned notice u/s 148 based on reasons recorded can be said to be the change of opinion? - petitioner has not fulfilled the conditions prescribed for claiming deduction u/s 54B and 54F - HELD THAT:- It cannot be said that the respondent authorities have come into possession of any information and/or any tangible material which suggests escapement of income. On the contrary, the reopening sought by the revenue authorities broadly based on the material already available on record and thereby, it cannot be said that the petitioner failed to disclose fully and truly all the material in respect to his assessment. Thus, the reopening based on the material already on record, is nothing but, in our considered, a mere change of opinion. The same is, therefore, not permissible in eye of law.
The revenue authorities at the time of framing assessment order under Section 143 (3) of the Act has already considered the aspect of allowability of claim of deduction under Sections 54B and 54F of the Act. Thus, the respondent authorities cannot reopen the reassessment on the ground that the then Assessing Officer has not inquired properly and/or adopted casual approach. In our view, issuance of notice under Section 148 of the Act should be based on the reasons to believe which should have direct nexus with any new information and/ or tangible material which has come to the knowledge of the respondent authorities based on assessment proceedings. The revenue authorities, cannot under the guise of reasons to believe permit to reopen the case on the ground that the then AO has not properly inquired in the proceedings. Decided in favour of assessee.
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2024 (9) TMI 1275
Bogus LTCG - unexplained credit u/s 68 - onus to prove - transaction as penny stock transaction/mere accommodation entry taken by the assessee to infuse its own unaccounted income - Assessee argued that it was a genuine transaction of sale of shares resulting in long term capital gains returned as exempt from tax in terms of provisions of section 10(38) - HELD THAT:- We find merit in the contention of the ld.counsel of the assessee that the assessee had discharged its onus of proving genuineness of the transaction and the Department has failed to make out a case of the transaction being bogus.
We are not in agreement with the contentions of the DR, because the assessee having demonstrated to have carried out the transaction as admitted by the DR, the Revenue in its part has failed to point out why the transaction was not genuine. As is evident from the order of the authorities below, the entire case of the Revenue rests on merely the report of the investigation carried out by the Department on Naresh Jain and his associates. Neither the details of the report are part of the orders, nor appear to have been shared with the assessee. There is no mention of the manner in which Naresh Jain and his associates carried out/provided accommodation entries to the beneficiaries in the impugned orders, nor there is any finding as to how the assessee’s case, therefore, fitted the bill of the modus operandi of Shri Naresh Jain.
The assessee had demonstrated the transactions to have been taken place, which even the ld.DR agreed to. The assessee also demonstrated a gap of five to six years in the purchase and sale of shares with the shares being sold at varying rates. We agree with the ld.dcounsel for the assessee that there could not be any premediated transaction presumed to have taken place in such a long time gap of five to six years, that too at varying prices.
It was the duty and onus of the Revenue to prove how the impugned transaction was pre-mediated. Merely stating and reiterating that it was a premediated transaction is not sufficient. The said fact has to be demonstrated with evidences, which the Revenue has miserably failed in the present case, relying only on the investigation report, the contents of which have also not been brought on record. Not to be missed is also the fact, demonstrated by the assessee, that the scrips so dealt with was de-mated and dealt through a prominent broker, Sharekhan Ltd. and was not the only scrip the assessee has traded in, but there were numerous other scrips in which the assessee traded during the year. Decided in favour of assessee.
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2024 (9) TMI 1274
Assessment u/s 153C - mandation of recording satisfaction - discovery of material which is likely to "have a bearing on the determination of the total income" HELD THAT:- Proceedings u/s 153C can be initiated only upon recording of satisfaction by the AO of the other person on receipt of the seized material from the AO of the searched person and then AO shall proceed against such other person and issue notice and assess or reassess the income of the other person in accordance with the provisions of section 153A, if, that AO is satisfied that the books of account or documents or assets seized or requisitioned have a bearing on the determination of the total income of such other person for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made.
We observe that the satisfaction note recorded by the AO of the assessee, he has not recorded how the documents seized have a bearing on the determination of the total income of the assessee for six assessment years immediately preceding the assessment year. It clearly shows that the satisfaction note recorded are not as per the provisions of section 153C.
As relying on Saksham Commodities Ltd [2024 (4) TMI 461 - DELHI HIGH COURT] we observe from the satisfaction recorded in this case, the AO failed to record the satisfaction as per the provisions of the Act and failed to record the assessment of the potential impact on the income not declared by the assessee earlier and the impact that may have on the total income for the six AYs immediately preceding the AY, in this case AY 2021-22. Therefore, non recording of proper satisfaction to initiate the proceedings u/s 153C of the Act, the proceeding initiated in the present case is without proper jurisdiction. Accordingly, the ground raised by the assessee is allowed.
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2024 (9) TMI 1273
Addition u/s. 69 - Unexplained investments - Specified Bank Notes (‘SBNs’) deposited during the demonetization period - assessee replied that the nature of the deposits/SBNs was trade receipts i.e. sale consideration of milk & milk products, and source of the same was from customers to whom milk/milk products were sold and expressed his willingness to furnish the names of his distributors/customers - HELD THAT:- From the Circular issued by the CBDT, it is very clear that, while making additions towards cash deposits in demonetized currency, the AO needs to analyze the business model of the assessee, its books of account and analysis of sales etc.
In this case, we have gone through the analysis furnished by the assessee in respect of total sales, cash sales realization from debtors and cash deposits during Financial Years 2015-16 & 2016-17, there is no significant change in cash deposits during demonetization period - when there is no significant change in cash deposits during demonetization period, then, merely for the reason that the assessee has accepted Specified Bank Notes in violation of Circular/Notification issued by Government of India and RBI, the source explained for cash deposits can’t be countenanced.
Assessee had filed the books of accounts and relevant documents to prove the nature and source of cash/SBNs deposited during demonetization; and asserted that it was trade receipt and had been part of the turnover, which has been offered to tax. However, the AO without finding any infirmity in the books regularly maintained by the assessee and which has been audited, has added.
Amount deposited in bank-account was part of the total turnover of the assessee and has been offered for taxation. Therefore, making a separate addition would tantamount to double addition - Decided in favour of assessee.
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2024 (9) TMI 1272
Denial of exemption u/s. 11 - return of income filed by the assessee is beyond the time limit prescribed u/s. 139(1) - effect of return filled belated u/s 139(4) - assessee argued that the return was filed within the time allowed under Section 139(4) - HELD THAT:- Trust registered u/s. 12AA of the Act, in order to avail the benefit of exemption u/s. 11 of the Act shall inter-alia files its return of income within the time allowed u/s. 139(1) of the Act. The CBDT has categorically directed the AO and this clarification was issued to the Pr.DGIT(Systems), New Delhi that the orders issued u/s. 143(1A) in the case where already disallowance were carried out, those may be rectified. Hence, the CBDT itself accepted the position that even returns filed u/s. 139 is to be accepted. It means that it has enlarged its scope of section 139 of the Act, which includes provisions of section 139(4) also.
Provision of section 139(4) w.e.f. 01.04.2017 lays down that any person who has not furnished return of income within the time allowed u/s. 139(1) of the Act, may furnish the return for any previous year at any time before the end of the relevant financial year or before the completion of assessment whichever is earlier.
As in term of section 139(4) of the Act, a return filed at a belated stage but upon complying with the requirement of such provision, has to be treated as return of income. In the present case, the CBDT has already clarified vide F.No.173/193/2019-ITA-I dated 23.04.2019, which that the assessee is entitled for exemption u/s. 11 of the Act, if such return of income is filed within the time allowed u/s. 139 of the Act. It means that it covers all the provisions of section 139 of the Act and it is not limited to section 139(1) - Appeal filed by the assessee is allowed.
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2024 (9) TMI 1271
Scrutiny assessment - Assessment u/s 143(3) concluded by making additions and determining refund due - Merger of intimation u/s 143(1) and scrutiny assessment under Section 143(3) - intimation u/s. 143(1)(a) when notice u/s. 143(2) was issued to the assessee subsequent to which, the assessment order was passed u/s. 143(3) - assessee trying to reconcile the refund/income, with the returns filed, and on perusing the Income tax portal it was noticed that the revised return of income was processed u/s 143(1) on the same day when the assessment order u/s 143(3) of the Act was passed. It is submitted that the intimation passed u/s 143(1) was not served at all and the assessee became aware of the intimation only on 26/02/2024 - HELD THAT:- AR though argued on Principle of merger being applicable to the present facts of the case, we do not agree with this preposition. The reason being that, the disallowance made in the intimation under section 143(1)(a) is different from the disallowance made in the assessment order passed under section 143(3).Accordingly, the same is dismissed.
Intimation passed u/s 143(1)(a) deserves to be considered on the first principles of law - Under the new sub-section (1D) the legislature provides that, notwithstanding anything contained in sub-section (1), the processing of return would not be necessary where a notice has been issued to an assessee under sub section (2). Meaning thereby, once notice under section 143(2) has been issued, the assessing officer shall not process the return under section 143(1). The original proviso to sub-section (1D) also stands substituted by the new proviso, under which, it is clarified that the new proviso under the new sub-section (1D) shall not apply to any return furnished for the assessment year commencing on or after 01.04.2017.
As relevant to note that, upto 01/06/2001, section 241 of the Act enabled the Ld.AO to withhold any refund under certain circumstances. Section 241, was subsequently withdrawn w.e.f. 01/06/2001.
Now on comparing the newly inserted provision under (1D) of section 143 with newly inserted section 241A, it would be further clear that, the legislature provided that, notwithstanding anything contained in sub-section(1), the processing of the return would not be necessary where a notice has been issued to assessee under sub-section(2). This would in effect mean that, once the notice u/s. 143(2) is issued, the assessing officer shall not process the return u/s. 143(1).
We therefore find no reason to uphold the intimation passed u/s. 143(1)(a) dated 29/06/2021 do not have any legs to stand in the eyes of law. In any event, the assessee is in appeal against the assessment order before the CIT(A) as has been informed by the Ld.AR. We thus hold the intimation u/s. 143(1)(a) dated 29/06/2021 to be bad in law.
Appeal of assessee allowed.
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2024 (9) TMI 1270
TP Adjustment - selection of MAM - in first round CUP method was adopted by the TPO, but in the second round, TNM method has been adopted - Whether it is a case of benchmarking as per Aggregation or Segregation approach? - HELD THAT:- The assessee established actual rendering of services as per agreements arrived.
Having regard to the services availed of, it can safely be said that same were necessary for proper functioning of day to day business operations beneficial to the assessee.
In the given facts and circumstances, as regards TSS and BSS, Learned TPO was not justified in arriving at the conclusion that in this matter the assessee was not getting any real service and that it would not have paid anything if it were not controlled by the payee. Consequently, TPO erred in opining that holding the arm’s length price of TSS and BSS services to be NIL.
It is noteworthy that in the first round of litigation, the Appellate Tribunal also noticed that certain additional evidence was submitted on behalf of the assessee before Ld. DRP, but there was no finding recorded by Ld. DRP to suggest if said additional evidence was or was not considered.
Appellate Tribunal also observed that in the given facts and circumstances and in the interest of justice, it was necessary that the issue with respect to determination of ALP of the international transaction of Business Support Services and Technical Support Services fee be remitted back to the file of Ld. TPO for determination of their ALP.
At the same, the assessee was also directed to produce relevant details with respect to rendition of services with credible and contemporaneous evidence for impugned assessment year and also to demonstrate as to how said transactions were required to be aggregated.
DRP has not discussed that any of the objections raised by the assessee, what to say of any giving any reason for confirming the views expressed and observations made by Learned TPO.
From the order passed by Learned DRP, it transpires that one of the objections or contentions raised there on behalf of the assessee was that TPO had been unable to provide sufficient data of comparability in the case of TSS and BSS.DRP simply observed in the order that the same was well taken, but, surprisingly, at the same time opted to direct the TPO to consider said contention raised by the assessee.
Firstly, Ld. DRP itself was to deal with and decide said contention raised by the assessee. The Panel had no jurisdiction to issue direction to the TPO to consider said contention.
Secondly, by simply mentioning that the panel had taken the contention well, it cannot be said that said contention was discussed or dealt with.
When there were specific directions from the Appellate Tribunal to consider said contention in addition to the additional evidence, Learned DRP was required to consider and discuss the additional evidence.
But, as noticed above, learned DRP nowhere discussed any of the objections pertaining to TSS or BSS or even the contention that the TPO had not been able to provide sufficient data of comparability in the case of TSS and BSS.
Adoption of approach by the Revenue as regards the assessee, in the Previous years - It is settled law that the principles of res judicata have no application to income-tax assessment proceedings.
It is significant to note that when the matter came up before Co-ordinate Bench of ITAT in the first round, it was observed that with respect to the transaction by transaction approach v. aggregation of the transaction for subsequent year as well as in the earlier year, Learned TPO had accepted the aggregation approach adopted by the assessee. Learned Co-ordinate Bench also observed that it was not disputed that for AY 2011-12 and 2013-14, Learned TPO had accepted the aggregation approach; and further that following the principle of consistency, where there is no change in the facts and circumstances of the case for this year, Learned TPO should have followed the same approach; and even further that if for any reason, Learned TPO wanted to deviate from the same, he should also give a detailed reason as to why he was deviating, but in the order passed by Ld. TPO, the Co-ordinate Bench did not find any such discussion.
TPO was of the view that the three type of transactions are to be benchmarked at segregate level. The main ground for arriving at this view was that the assessee had failed to prove factum of rendering of services.
The factum of rendering of said services stands proved. Therefore, there is merit in the contention raised on behalf of the assessee that TPO has passed orders ignoring the earlier orders pertaining to AYs 2011-12 and 2012-13, passed by the TPOs in the case of the assessee itself as regards payments of TSS, BSS and Royalty, and that the principle of consistency stands violated in this matter.
ALP as regards Royalty transactions - Notably, one of the contentions on behalf of the assessee is that Ld. TPO incorrectly computed ALP as regards royalty, without taking into consideration landed cost of imported components in the case of comparables.
In the first round of litigation, same argument was put forth on behalf of the assessee before the Appellate Tribunal, and noticing this infirmity and others as pointed out by the assessee, the matter was remitted.
In those proceedings, in the first round, it was submitted that assessee had paid royalty in terms of the agreement where royalty was payable @ 5% of the net sales of licensed products in India, and @ 8% of net sales of licensed products outside India.
There, it was also submitted that in case of comparables, Ld. TPO had taken the rate of comparable @ 0.63 for both transaction. The assessee also stated that rate of 0.63% in case of comparables was incorrect calculation without considering the landed costs of imported components.
However, record does not reveal, nor any has been pointed out, to suggest that landed cost of imported components in the case of comparables was also taken into consideration in the 2nd round. Even Ld. DRP did not consider this aspect. Therefore, there is merit in the contention raised on behalf of the assessee even on this point.
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2024 (9) TMI 1269
Unexplained cash deposits u/s 69A - assessee has deposited cash in the Bank of India, which the assessee converted it into two fixed deposits - HELD THAT:- From the above, it is clearly evident that the assessee has fulfilled the requirement of the Assessing Officer and there was no basis of making any addition by the AO u/s 69A of the Act, which was confirmed by the learned CIT(A). The assessee has offered explanation about the nature and source of acquisition of the cash which was deposited in his bank account.
There cannot be any addition u/s 69A of the Act in respect of cash deposits made by the assessee into his bank account as unexplained income in the hands of the assessee. Consequently, we set aside the impugned order passed by the learned CIT(A) and direct the AO to delete the addition made under section 69A. Thus, all the grounds raised by the assessee are allowed.
Penalty u/s 271(1)(c) on quantum addition - Since the quantum addition is deleted, penalty levied on such quantum addition has no legs to stand. Accordingly, the ground of appeal raised by the assessee is allowed.
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2024 (9) TMI 1268
Deduction u/s. 80P(2)(d) - interest income earned by cooperative society on deposits made out of surplus funds with cooperative bank - HELD THAT:-Admittedly the interest income was earned on deposits made with a Cooperative Bank. On perusal of provisions of section 80P(2)(d), it is clear that the income derived by a cooperative society from its investment held with other cooperative societies shall be exempt from the total income of a cooperative society.
Therefore, what is relevant for claiming of deduction u/s 80P(2)(d) is that interest income should have been derived from the investment made by the assessee cooperative society with any other cooperative society.
This issue was considered in the case of CIT vs. Totagars Cooperative Sale Society [2017 (1) TMI 1100 - KARNATAKA HIGH COURT] wherein after referring to the decision of Totgar’s Co-operative Sale Society Ltd [2010 (2) TMI 3 - SUPREME COURT] held that the ratio of decision of the Hon’ble Supreme Court is not to be applicable in respect of interest income on investment as same falls under the provisions of section 80P(2)(d) and not u/s 80P(2)(a)(i) of the Act.
Thus interest income earned by cooperative society on deposits made out of surplus funds with cooperative bank qualifies for deduction under the provisions of section 80P(2)(d) - Decided in favour of assessee.
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2024 (9) TMI 1267
Denial of Credit for Foreign Tax paid u/s. 90 r/w Article 25 of India-USA Tax Treaty (DTAA) - Form No.67 was not filed within prescribed time - HELD THAT:- Admittedly, in the present case, Form No.67 was not filed within the due date for filing of the return of income under the provisions of section 139(1), but Form No.67 was filed on 30.03.2021. The CPC, Bangalore had processed the return of income as on 24.12.2021, which means that Form No.67 was very much available with the CPC, Bangalore. Therefore, the CPC, Bangalore cannot deny the claim for credit for foreign tax paid merely because Form No.67 was not filed within the due date specified for filing the return of income under the provisions of section 139(1) of the Act, as it is merely a directory.
We direct the CPC, Bangalore to amend the Intimation u/s 143(1) of the Act by taking into consideration the Form No.67 filed by the appellant. Accordingly, the grounds of appeal filed by the assessee stands partly allowed.
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2024 (9) TMI 1266
Denial of Credit for Foreign Tax paid u/s. 90 r/w Article 25 of India-USA Tax Treaty (DTAA) - Form No.67 was not filed within prescribed time - HELD THAT:- Admittedly, in the present case, Form No.67 was not filed within the due date for filing of the return of income under the provisions of section 139(1), but was filed on 21.04.2022. The CPC, Bangalore had processed the return of income on 22.03.2022 which means that Form No.67 was not available with the CPC, Bangalore.
Therefore, the CPC, Bangalore was justified in denying the claim for credit for Foreign Tax paid as because Form No.67 was not filed within the due date specified for filing the return of income under the provisions of section 139(1) of the Act, nor was available at the time of processing the return of income by CPC - Decided against assessee.
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2024 (9) TMI 1265
Addition u/s. 69C - cash payment made by assessee to Shri Shailendra Rathi - addition based on third party statements and documents - Addition made as there was a WhatsApp message in the mobile of Shri Nilesh Toshniwal prior to 07/10/2019 by Shri Shailendra Rathi stating as “Received80@Dubai” and reason given by ld. AO is the statement of Shri Shailendra Rathi - HELD THAT:- First of all so called What’sAPP message stating “received 80@Dubai” is not found from the mobile of the assessee. Albeit, from an independent third person who is a professional and no connection with assessee. Another important point is that, the message has not been sent by the assessee from his mobile but was found mobile phone of Shri Shailendra Rathi sent by someone else.
None of these two persons are either connected with the assessee for any kind of business nor there is any common interest nor has any corroborative evidence been found from the assessee to correlate the alleged transaction. On perusal of the statement of Shri Shailendra Rathi, nowhere he has suggested that these payments relate to any transactions relating to the assessee on or behalf of the assessee or received on or behalf of the assessee.
There is a complete mismatch of time period between What’sApp message and the date mentioned in the statement. When assessee was confronted with the statement of Shri Shailendra Rathi, he has categorically stated that he is neither aware of such transaction nor does he have any business relation with Shri Ashok Lunia. No enquiry whatsoever has been conducted by the ld. AO as to what was the connection between assessee and Shri Ahok Lunia and what the transaction was for and what is the business relationship with Shri Shailendra Rathi and how this transaction pertains to assessee. During the search at Assessee’s place no corroborative evidence or material has been found. Nowhere Shri Shailendra Rathi has implicated the assessee that he has paid or received cash of Rs. 80,00,000/- on behalf of the assessee.
Addition has been made and secondary evidence of electronic record being What’sApp conversation from a mobile and statement of a person and from the statement nowhere the name of the assessee figures. If the message and the information has not been retrieved or recovered from the assessee, there cannot be any presumption against the assessee. The onus was on the persons who have given the statement or from whose mobile What’sApp chat had been found. Nowhere it has been brought on record whether Shri Nilesh Toshniwal has stated anything about the assessee or any enquiry was done from him. If the ld. AO is trying to use the What’sApp chat relating to some third person against the assessee, then its mandatory requirement u/s 65 B of the Evidence Act to comply with the procedures given therein.
As stated above, there is no material from the possession of the assessee which can remotely suggest that assessee had entered into alleged transaction.
Even if it is accepted that What’sApp message can be treated as evidence then, here the transaction took place between Shri Shailendra Rathi and Shri Ahok Lunia and the message appeared in the mobile phone of Shri Nilesh Toshniwal and Shailendra Rathi and there is no whisper about the assessee’s name. Ld. AO has also denied the opportunity to cross examine Shri Shailendra Rathi whether this transaction at all pertains to the assessee, because nowhere he has even taken the name of the assessee that this transaction pertain to assessee. The entire edifice of addition made by the ld. AO is reliance on the statement of third party and material found during the course of search of the third party. - Decided against revenue.
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2024 (9) TMI 1264
Unexplained cash credit u/s 68 - onus not discharged - bogus share capital including premium receipts - HELD THAT:- Once proceedings u/s 263 of the Act were initiated then the assessee was put on notice regarding his duty to prove the transactions which involved very substantial amounts as share premium. It is not understood how a closely held company which has minimal commercial activity as is evidenced by the profit and loss account filed with the paper book could attract abnormally high share premiums.
Mere filing of confirmations and the income tax details etc. are not enough to justify payment of monies as share premium when the financial aspects of the recipient company would not merit such investments under any kind of prudent consideration. In the present case while 4 out of 11 share applicants were not traceable on given addresses and one more did not respond to the summons, it is evident that even those share applicants who did file certain documents, were not sufficient in the eyes of law to discharge the burden cast on the assessee regarding proving the genuineness of the transaction. The profit and loss account statement extracted would normally paint a grim picture to any prudent investor, however, in this case it seems to have encouraged 11 entities to transfer huge sums of money by way of share premium.
Considering the case laws cited the financial health of the assessee and the inadequate discharge of onus, we hold this case to be a fit case for application of Section 68 of the Act and thereby confirm the impugned addition. Appeal filed by the assessee is dismissed.
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2024 (9) TMI 1263
Restoration of appeal allowed after the respondent (appellant therein) has complied with the condition of pre-deposit - HELD THAT:- The company was declared as a sick company under the SICA, and therefore its account could not have been operated upon. The earlier order passed by this Court did not take into account the said aspects. It is also found that the delay in filing application for restoration of an appeal after 07 years by the company was maintainable before the Tribunal as the company was earlier sick and restored only later. It also did not take into account that the appeals of the Directors could not have been dismissed on the ground of non-compliance of section 35F of the Act as appeal of Harbhajan Singh was to be heard on merits as pre-deposit had been exempted, and the appeal of Vinod Garg could not have been dismissed as the pre-deposit amount had already been deposited. Be that as it may, even after the pre-deposit was made, the appeal of Vinod Garg was not taken up and would be treated to be pending.
Since the appeal of respondent-Royal Industries Ltd. has been dismissed on the ground of non-payment which they have made now and also the same as having been accepted by the appellant, the Revenue cannot be allowed to turn around and challenge the restoration.
The order passed by the CESTAT, Chandigarh dated 03.01.2022, whereby it restored the original appeal for hearing on merits after condition under section 35F of the Act was complied with, does not warrant any interference of this Court, and the same is upheld.
Appeal dismissed with direction to the appellate authority to decide the appeal on merits.
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