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2024 (5) TMI 455 - DELHI HIGH COURT
Jurisdiction transfer through Centralization order - as argued case of the petitioner would clearly fall within the jurisdiction of the prescribed Deputy Commissioner of Income Tax as per the extracts of the notification dated 22 October 2014 and the subsequent notification promulgated under the pen of the Additional Commissioner of Income Tax dated 15 November 2014 - whether the notification dated 15 November 2014 would have the effect of reversing centralization? - HELD THAT:- We are faced with a case where the petitioner’s assessment is stated to have been centralized and pursuant to which assessments right from Assessment Years 2008-09 to 2015-16 were being made by the AO posted in the Central Circle-16.
Question whether the notification dated 15 November 2014 would have the effect of reversing centralization have to be examined, bearing in mind the Explanation appended to Section 127 of the Income Tax Act, 1961 [‘Act’] as well as the Note set out in the notification of 22 October 2014 which says that 'Income-tax authorities referred to in column (2) of the schedule annexed to this notification shall not exercise powers and perform functions, which have specifically been assigned through separate notification(s), to an Income-tax authority having designation other than those mentioned in column (2) below.'
Let the matters be called again on 03.04.2024.
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2024 (5) TMI 454 - ITAT KOLKATA
Exemption u/s 11 - Claim denied on account of delay in filing of the audit report in Form 10B - HELD THAT:- Considering CBDT firstly came up with a Notification dt. 03/01/2020 authorising the Commissioners to admit applications of condonation of delay in filing Form No. 10B for AY 2018-19 and subsequent AY, where there is a delay of up to 365 days. Subsequently on 19/07/2022 i.e., after the end of the Covid Pandemic restrictions again a Circular 16/2022 was issued where the delays in filing of Form 10B beyond 365 days but upto three years were also directed to be considered for admitting the application for condonation of delay.
This Circular in itself shows that the Income-tax Department was aware about the technical glitches and the problems faced by the tax-payers in furnishing various types of Forms including Form No. 10B is with regard to the furnishing of audit report in case of Trusts and Societies. In the instant case since, delay is merely 28 days, we find that the said delay deserves to be ignored in larger interest of justice.
The assessee is thus entitled to claim exemption u/s 11 of the Act made in the Income-tax return e-filed by it. We further fund support from the decisions of Bangarh Educational Welfare Trust [2022 (1) TMI 1321 - ITAT KOLKATA] wherein also similar issue was raised for AY 2018-19 and the return was filed within time limit prescribed u/s 139(1) of the Act but there was a delay in furnishing of the audit report on Form 10B and this Tribunal after considering the facts of the case as well as judicial precedents allowed the benefit of Section 11 & 12 of the Act to the assessee.
We allow the benefit of Section 11 to the assessee as claimed in the income tax return. Accordingly, the effective grounds raised by the assessee are allowed.
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2024 (5) TMI 453 - GUJARAT HIGH COURT
Maintainability of petition - availability of alternative remedy - Violation of principles of natural justice - respondent authority has not provided the relied upon documents - no opportunity of hearing was provided to the petitioner as contemplated under Section 75(4) of the Goods and Service Tax Act, 2017 - HELD THAT:- On perusal of the impugned order in original passed in Form GST DRC-07, it emerges that the petitioner has been given adequate opportunity of hearing, and, therefore, the contention of the petitioner that the opportunity of hearing not given is not tenable and the petitioner is, therefore, required to be relegated to avail the alternative efficacious remedy under Section 107 of the GST Act, to challenge the impugned order before the appellate authority.
The petition is dismissed.
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2024 (5) TMI 452 - DELHI HIGH COURT
Violation of principles of natural justice - impugned order does not take into consideration the reply submitted by the Petitioner and is a cryptic order - demand including penalty - HELD THAT:- The observation in the impugned order dated 05.12.2023 is not sustainable for the reasons that the reply dated 11.10.2023 filed by the Petitioner is a detailed reply with supporting documents. Proper Officer had to at least consider the reply on merits and then form an opinion. He merely held that that the reply is not satisfactory and no proper reply justifying the facts of the case along with supporting documents have been submitted nor has the taxpayer appeared for a hearing - Despite the fact that petitioner has filed a reply, the Proper Officer has held that neither he has filed a proper reply nor appeared for a hearing which ex-facie shows that the Proper Officer has not applied his mind to the reply submitted by the petitioner.
Further, if the Proper Officer was of the view that any further details were required, the same could have been specifically sought from the Petitioner. However, the record does not reflect that any such opportunity was given to the Petitioner to clarify its reply or furnish further documents/details - the impugned order dated 05.12.2023 cannot be sustained and is set aside. The Show Cause Notice is remitted to the Proper Officer for re-adjudication.
Petition disposed off.
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2024 (5) TMI 451 - DELHI HIGH COURT
Retrospective cancellation of GST registration of the petitioner - SCN does not put the Petitioner to notice that the registration is liable to be cancelled retrospectively - Petitioner had no opportunity to even object to the retrospective cancellation of the registration - Violation of principles of natural justice - HELD THAT:- SCN and the impugned order are bereft of any details. Neither the Show Cause Notice, nor the order spell out the reasons for retrospective cancellation. Accordingly, the same cannot be sustained.
In terms of Section 29(2) of the Act, the proper officer may cancel the GST registration of a person from such date including any retrospective date, as he may deem fit if the circumstances set out in the said sub-section are satisfied. Registration cannot be cancelled with retrospective effect mechanically. It can be cancelled only if the proper officer deems it fit to do so. Such satisfaction cannot be subjective but must be based on some objective criteria.
It is important to note that, according to the respondent, one of the consequences for cancelling a taxpayer’s registration with retrospective effect is that the taxpayer’s customers are denied the input tax credit availed in respect of the supplies made by the tax payer during such period - Although, it is not considered apposite to examine this aspect but assuming that the respondent’s contention is required to consider this aspect while passing any order for cancellation of GST registration with retrospective effect. Thus, a taxpayer's registration can be cancelled with retrospective effect only where such consequences are intended and are warranted.
It is clear that both the petitioner and the respondent want the GST registration to be cancelled, though for different reasons.
In view of the above that the Petitioner does not seek to carry on business or continue the registration, the impugned order dated 17.07.2022 is modified to the limited extent that registration shall now be treated as cancelled with effect from 22.06.2022 i.e., the date when Show Cause Notice was issued - petition disposed off.
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2024 (5) TMI 450 - SUPREME COURT
Salary income - Taxability of "fringe benefits" or "amenities" provided to employees - benefit enjoyed by bank employees from interest-free loans or loans at a concessional rate - what is included and taxed as ‘perquisite’ value of interest - vires of Section 17(2)(viii) of the Income Tax Act, 1961 challanged - Whether free or concessional loans is to be treated as ‘other fringe benefit or amenity’ for the purpose of Section 17(2)(viii) and, therefore, taxable as a ‘perquisite’? - method of valuation of the interest-free/concessional loan for the purposes of taxation
Does Section 17(2)(viii) and/or Rule 3(7)(i) lead to a delegation of the ‘essential legislative function’ to the CBDT? - HELD THAT:- The subordinate authority’s power under Section 17(2)(viii), to prescribe ‘any other fringe benefit or amenity’ as perquisite is not boundless. It is demarcated by the language of Section 17 of the Act. Anything made taxable by the rule-making authority under Section 17(2)(viii) should be a ‘perquisite’ in the form of ‘fringe benefits or amenity’. In our opinion, the provision clearly reflects the legislative policy and gives express guidance to the rule-making authority.
The enactment of subordinate legislation for levying tax on interest free/concessional loans as a fringe benefit is within the rulemaking power under Section 17(2)(viii) of the Act. Section 17(2)(viii) itself, and the enactment of Rule 3(7)(i) is not a case of excessive delegation and falls within the parameters of permissible delegation. Section 17(2) clearly delineates the legislative policy and lays down standards for the rule-making authority. Accordingly, Rule 3(7)(i) is intra vires Section 17(2)(viii) of the Act. Section 17(2)(viii) does not lead to an excessive delegation of the ‘essential legislative function’.
Is Rule 3(7)(i) arbitrary and violative of Article 14 of the Constitution insofar as it treats the PLR of SBI as the benchmark? - Rule 3(7)(i) posits SBI’s rate of interest, that is the PLR, as the benchmark to determine the value of benefit to the assessee in comparison to the rate of interest charged by other individual banks. The fixation of SBI’s rate of interest as the benchmark is neither an arbitrary nor unequal exercise of power. The rule-making authority has not treated unequal as equals. The benefit enjoyed by bank employees from interest-free loans or loans at a concessional rate is a unique benefit/advantage enjoyed by them. It is in the nature of a ‘perquisite’, and hence is liable to taxation.
By fixing a single clear benchmark for computation of the perquisite or fringe benefit, the rule prevents ascertainment of the interest rates being charged by different banks from the customers and, thus, checks unnecessary litigation. Rule 3(7)(i) ensures consistency in application, provides clarity for both the assessee and the revenue department, and provides certainty as to the amount to be taxed. When there is certainty and clarity, there is tax efficiency which is beneficial to both the tax payer and the tax authorities. These are all hallmarks of good tax legislation. Rule 3(7)(i) is based on an uniform approach and yet premised on a fair determining principle which aligns with constitutional values.
A complex problem has been solved through a straitjacket formula, meriting judicial acceptance. To hold otherwise, would lead to multiple problems/issues and override the legislative wisdom. The universal test in the present case is pragmatic, fair and just. Therefore, Rule 3(7) is held to be intra vires Article 14 of the Constitution of India. We, accordingly, dismiss the appeals and uphold the impugned judgments of the High Courts of Madras and Madhya Pradesh.
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2024 (5) TMI 449 - DELHI HIGH COURT
Seeking directions to de-freeze the bank accounts - Number of days for which order of freezing the bank accounts stays - whether the action of the respondents in freezing the accounts of the petitioners beyond a period of sixty days is sustainable under the provisions of the Act? - HELD THAT:- Undisputedly, a plain reading of sub-section (8-A) to Section 132 would unambiguously signify that in the instant case, the order of freezing the bank accounts could not remain in force for a period exceeding sixty days from the date of the order. Admittedly, the said period of sixty days had already expired before the filing of the present petitions and no subsequent order appears to have been passed for extending the freezing of accounts. Since the order in question was issued on 30.04.2023, the rigour period stood concluded by 30.06.2023, therefore, the perpetuation of freezing of the bank accounts is completely unsustainable and dehors the provisions of the Act.
The aforesaid legal position was noticed by us on the very first date of hearing. We, however, directed the Revenue to obtain instructions with respect to the issue under consideration. On the following date of hearing i.e., on 28.02.2024, a further three weeks’ time was granted to the Revenue to file a reply.
As seen that despite being extended reasonable indulgence to explain the tenability of the impugned action, the Revenue has failed to tender any justification, much less a cogent explanation which could sustain such action.
Since the letter dated 30.04.2023 has already lived out its life and ceases to have any significance by virtue of operation of law, the same is hereby declared to be unenforceable beyond a period of sixty days from its issuance. Consequently, the writ petitions are allowed with a direction to immediately defreeze the concerned bank accounts of the petitioners.
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2024 (5) TMI 448 - ALLAHABAD HIGH COURT
Reopening of assessment u/s 147 or u/s 153C - as argued in case of search of premises/offices of Omaxe Group, some papers have been discovered by the authorities then Section 153 A and 153 C would apply and not Section 147 and 148 - It is the case of the respondent no.2 that information received on the basis of search initiated under Section 132 also includes a search on any other person and Section 148(A) requires a show-cause notice to be issued which has been issued under sub-clause (b) thereof to the petitioner and then the impugned order has been passed under sub-clause (d) of Section 148(A).
HELD THAT:- As per respondents that all information that is received by the AO shall be provided and has been provided to the Assessee to enable her to make her detailed reply/ objection to such notices and the Assessment has not been completed as yet and, therefore, the writ petition has been filed only on the misapprehension.
This Court having considered the arguments raised by the learned counsel for the petitioner and that of the respondent no.2 is of the opinion that the question of jurisdictional error that has been pointed out with regard to invoking Section 147, 148 and 148A and not Section 153C should also be considered by the Assessing Officer and a finding be recorded thereon while passing final orders, which till date have not been passed.
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2024 (5) TMI 447 - DELHI HIGH COURT
Reopening of assessment u/s 147 - appropriate authority for issuance of the notice - approval of the specified authority u/s 151 - Proceedings after a lapse of more than three years - HELD THAT:- As per Section 151 of the Act and considering the fact that the reopening of the case is occurring after a lapse of more than three years, the appropriate authority for issuance of the notice under Sections 148 and 148A (b) of the Act should have been either the Principal Chief Commissioner or Principal Director General, or in their absence, the Chief Commissioner or Director General, instead of the Principal Commissioner of Income Tax, Delhi-10, who does not fall within the specified authorities outlined in Section 151 of the Act. See TWYLIGHT INFRASTRUCTURE PVT LTD [2024 (1) TMI 759 - DELHI HIGH COURT]
Thus we allow the instant writ petition and quash the impugned notices.
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2024 (5) TMI 446 - ORISSA HIGH COURT
Credit of the tax deducted at source (TDS) as TDS deducted by the employer - mis-match of tax deducted u/s 192 - difference in between the tax deducted by opposite party no.6 and the amount reflected in Form 26AS - what step has been initiated against the employer for non-depositing of the tax collected and deducted at source from the salary of the petitioner? - HELD THAT:- Section 205 of the I.T. Act read with CBDT circular, being statutory one, the said provision has to be adhered to in letter and spirit and to give effect to such provision, CBDT circular was issued on 01.06.2015 and the office memorandum was issued on 11.03.2016. Therefore, for tax credit mismatch cannot be enforced coercively against the petitioner/assessee. Assessee shall not be called upon to pay the tax himself to the extent to which tax has been deducted from that income.
As in view of the provisions contained in Section 205 of the I.T. Act, which provides that where tax is deductible at the source the assessee shall not be called upon to pay the tax himself to the extent to which tax has been deducted from that income and its applicability is not depending upon the credit for tax being given under Section 199 of the I.T. Act. Thereby, the department shall not deny the benefit of tax deducted at source by the employer during the relevant financial years to the petitioner. The credit of the tax shall be given to the petitioner and if in the interregnum, any recovery or adjustment is made by the department, the petitioner shall be entitled to the refund, with the statutory interest, within eight weeks from the date of receipt of the copy of this judgment.
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2024 (5) TMI 445 - GUJARAT HIGH COURT
Addition u/s. 68 - unsecured loans / cash credit - net profit addition - ITAT deleted addition as no loans has been taken by the assessee during the year under consideration but it was the opening balance as on 01.04.2013 which was carried forward and thus, the genuineness of cash credits were established by the assessee and assessee has duly furnished all the details to establish the correctness of the books of accounts and while rejecting the books of accounts has not recorded any proper satisfaction/reasons and therefore, the rejection of books of accounts was not justifiable.
HELD THAT:- CIT(A) and ITAT concurrently based on available records arrived at a finding of fact that the assessee had duly furnished details to establish the correctness of books of accounts and also furnished ITR, Audit Report, balance sheet etc. Having essentially therefore arrived at such findings based on facts, no substantial question of law, much less any substantial question of law is argued. The appeal is dismissed
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2024 (5) TMI 444 - ORISSA HIGH COURT
Rectification u/s 254 - Tribunal had made error apparent in its order by saying transportation loss in respect of coal was not accepted - Its opinion was, the assessee must have claimed the same on the responsible transporter, which has not been shown in the case - HELD THAT:- On perusal of the two passages from appellate order made by the Tribunal, we do not find any dispute raised regarding details of loss on account of shortage of coal supplied as were filed before the AO and thereafter also before the Commissioner. Assessee’s contention is, the Tribunal opined on it having claimed from the transporter(s). Revenue’s contention is there was no loss. This contention was upheld by the Tribunal on a finding that the Commissioner had not observed as to whether the shortage was passed on by the assessee to the transporter(s) and without examining that, the Commissioner deleted the addition. The passage relied upon by assessee is an expression of opinion in support of held omission of the Commissioner to observe as to whether the shortage was passed on to the transporter(s). The Tribunal opined the assessee must have passed it on.
There is nothing in impugned order to show that the AO had made an inquiry or verification regarding the coal as not actually lost. A fact can be proved on a positive assertion. The assessee cannot prove existence of coal, when it says it has been lost. The AO in asserting it was not lost, could have demonstrated existence of the coal.
We are satisfied that in the fact situation the Commissioner correctly came to the conclusion that proper internal control system for accounting and finances of assessee had resulted in the details filed before the AO and thereafter before the Commissioner. The details explained and accounted for the shortage of coal. This finding was overturned by the Tribunal in revenue’s appeal on saying that the Commissioner had not observed whether the shortage had been passed on to the transporter(s). Commissioner could have had no occasion to so observe as the authority was sitting in appeal over the assessment order. Neither in the appellate order of the Tribunal nor in its rectification order there is any reference to the AO having made a finding on passing on the loss to the transporter(s).
Tribunal being the last forum to find on facts, purported to find a fact on surmise. It is an error apparent. We therefore set aside and quash impugned order.
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2024 (5) TMI 443 - ITAT BANGALORE
Deduction u/s. 80P(2)(a)(i) and/or u/s. 80P(2)(d) - interest income earned on its investments amount made with District co-operative banks - HELD THAT:- Rule 23 of the Karnataka Co-operative Societies Rules states that reserve fund belongs to the society and is intended to meet the unforeseen losses. Further if the cooperative society wants to invest reserve fund or any portion thereof for any other purpose as prescribed under section 58 (a) to (d) of the Karnataka Co-operative Societies Act permission is to be taken from , the Registrar of Co-operative Societies.
Therefore the argument of the assessee that it is operational income is rejected. Even the maintainability of SLR requirement from out of internal fund/external funds invested in KDCC Bank and interest earned thereon will not change the character of the nature of income and it is not attributable to the business of the assessee. The issue regarding the word “attributable” has been discussed in the case of M/s Totgars Co-operative Sales Society [2010 (2) TMI 3 - SUPREME COURT] where it is held that the deduction u/s 80P is available only to the income which is attributable to the business operation. Since the interest income received by the appellant is not attributable to the main business of the appellant i.e. not operational income, accordingly the interest received by the assessee on investment made with KDCC Bank is not eligible for deduction u/s. 80P(2)(a)(i) of the Act.
Deduction u/s 80P(2)(d) - Section 80P(2)(d) describes that if the assessee has derived interest/dividend from its investments with any other co-operative society, then the assessee is eligible for claim of deduction on such interest/dividend derived. In the judgment of Kerala State Co-operative Agricultural and Rural Development Bank Ltd. [2023 (9) TMI 761 - SUPREME COURT] it has been discussed in detail the definition of co-operative banks and cooperative society. If the payer bank falls under the definition of cooperative bank in the light of the judgment of Hon’ble Apex Court then the assessee is not eligible to get deduction u/s. 80P(2)(d) on such interest income derived from KDCC Bank. We note that the assessee has received interest from KDCC Bank is a schedule bank which is governed by the Banking Regulation Act of 1949 as observed by the ld. CIT (A) at Para No. 6.11 of his order and this finding has not been denied by the ld. AR of the assessee, accordingly we hold that the assessee is not eligible for deduction u/s 80P(2)(d) on such interest income also.
Interest receipts from KDCC Bank on its investments - revenue authorities have considered the entire interest as income from other sources u/s. 56 and no expenses u/s. 57(iii) has been allowed to the assessee for earning of such income - While calculating the income, the net income should be considered as taxable income after reducing the expenditure incurred towards earning of such income. Therefore relying on the judgment of Totgars’ Cooperative Sales Society Ltd. [2015 (4) TMI 829 - KARNATAKA HIGH COURT] the assessee is eligible for claim of its cost of funds on the interest income received from bank. Reliance is also placed on The West Coast Paper Mill Employees Souharda Credit Co-op. Ltd. [2023 (8) TMI 1110 - ITAT BANGALORE] Accordingly, the assessee is directed to provide the details of cost of funds before the assessing officer. Therefore for allowing cost of funds, we are remitting this issue to the assessing officer for determining the cost of funds for earning interest income.
Both the appeals are partly allowed for statistical purpose.
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2024 (5) TMI 442 - ITAT DELHI
Taxability of income in India - receipts from services rendered to Indian entities - Taxability as Fee for Technical Services (FTS) in terms of Article 12 of India – Sweden Double Taxation Avoidance Agreement (DTAA) - assessee is a non-resident corporate entity incorporated in Sweden - HELD THAT:- Under Business Application Related Services, the assessee provides access to the business application softwares, which are used for various purposes, such as, inventory management, sales management, data warehousing applications, product design and modeling, human resource management etc. Under the End User Services and Shared Infrastructure, the assessee provides facilities and various services keeping in view the End User requirement, such as, emails, personal computer environment, voice/telephone. Under the voice support, mobile and fixed voice services are provided to connect people in local and global context.
Under the IT support services, the assessee operates service desk for all types of IT related issues from end users. Under the Volvo Corporate Network, assessee provides a secured access to Volvo Network, which is prerequisite for use of any business application other IT services provided by the assessee. The assessee also provides Business Consultancy Services in terms of which it renders consultancy services with respect to IT services provided by it.
Though, the assessee has claimed that these are standard and routine services, however, fact remains that the assessee has provided managerial, consultancy and technical services. Copies of invoices placed in the paper-book do not provide the description/details of services provided.
In the instant case, the AO has examined the nature of receipts in respect of certain services rendered by the assessee to the Indian entities and found them to be FTS. The aforesaid factual position is not disputed even by the assessee. Therefore, it is established on record that the receipts are in respect of certain services rendered by the assessee. If that is the case, it needs to be examined, whether the receipts in relation to services rendered fall within the definition of FTS. AO has done exactly the same. Therefore, the action of the Assessing Officer in characterizing the receipts as FTS cannot be called into question by advancing the theory of rule of consistency. Thus, in our view, the judicial precedents cited before us by learned Senior Counsel would be of no help to the assessee, as, what is essential to determine is, the nature and character of receipts in the instant assessment year and not, what the Assessing Officer has erroneously held in earlier assessment years. Thus, on overall consideration of facts and materials on record, we hold that the payments received by the assessee for providing certain services to the Indian group entities are in the nature of FTS as defined under Article 12(3)(b) of India – Sweden DTAA, hence, taxable.
Applicability of MFN clause under the Protocol to India – Sweden treaty so as to import the restrictive definition of FTS under India – Portugal and India – Finland DTAAs, in our view, the issue is no more res-integra in view of the ratio laid down in case of Nestle SA [2023 (10) TMI 981 - SUPREME COURT] - Ground decided accordingly.
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2024 (5) TMI 441 - ITAT PUNE
Scope of adjustments u/s. 143(1) - Applicability of presumptive provisions of tax u/s. 44ADA - appellant had not disclosed the income on presumptive basis u/s. 44ADA but under the provisions of section 44AD - contention of the appellant that Form No.26AS was wrongly uploaded by the deductor showing the contract receipts as professional receipts - whether the CPC was justified in invoking the provisions of section 44ADA? - HELD THAT:- CPC had travelled beyond the scope of power of adjustment prescribed u/s. 143(1) of the Act. Therefore, the prima-facie adjustment made by the CPC vide intimation u/s. 143(1) is hereby set-aside. Appeal filed by the assessee stands allowed.
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2024 (5) TMI 440 - ITAT MUMBAI
TP adjustment - goods Exported to the Associated Enterprises (AE) located in South Africa and Mexico - TPO did not accept associated enterprises as tested party as financial year of the companies having foreign jurisdiction did not match with the financial year of the assessee herein and Due to use of database which have their own format and non- availability of Balance Sheet, financials containing proper figure of RPT and description of function, data base are not reliable - HELD THAT:- In the facts of the present case, we are of the view that clause (d) of the above said Rule 10B(2) is applicable. As per Rule 10B(2), the factors such as, the market conditions of the concerned regions, their geographical location, size of markets, level of competition etc cannot be ignored. It is stated that the operations of Glenmark, Mexico has been started only during the year under consideration and the operations of Glenmark South Africa are in its initial years.
Since both these AEs are in their initial years of operations, their respective profitability will be lower than the comparable companies in their respective region, since the AEs have to incur huge expenditure on marketing of products, while the comparable companies are established players. As noticed by us earlier, so far the assessee herein is concerned and qua the transfer pricing provisions, what is required to be seen is whether the price realized on export of products to their AEs is at arms length or not.
The fact the profitability of AEs is lower than the profitability of comparable companies, would also show that the assessee has not under invoiced the sales. In the instant case, the details extracted in the table above matches with the above said criteria. Since the comparable companies selected in the respective Geographical locations are established players, the profit ratio of comparable companies are to required to be considered only to show that the profit ratio of the assessee was lower than their profit ratio. In this view of the matter, the difference in accounting period may not be that much relevant.
As noticed that the above said methodology adopted by the assessee has been accepted by the TPO in the earlier years. The table above would show that the profitability of the assessee in exporting products to these two AEs is increasing year after year - there is no reason to ignore transfer pricing study conducted by the assessee should be accepted. Accordingly, we set aside the order passed by CIT(A) and direct the AO to delete the transfer pricing adjustment made in respect of exports made to M/s Glenmark, South Africa and M/s Glenmark, Mexico.
Deduction claimed u/s 35(2AB) - exclusion of expenses not approved by DSIR for the purpose of computing deduction u/s 35(2AB) - HELD THAT:- We notice that similar issue has been decided in favour of the assessee in the assessee’s own case in AY 2013-14. We also notice that the Rule 6(7A), which requires approval of expenses also by DSIR has been brought into the statute w.e.f. 1.7.2016 and hence the same will not apply to AY 2014-15. With regard to the second issue relating to deduction of contract revenue, we notice that the said issue has also been decided in favour of the assessee in the case of Microlabs Ltd [2016 (4) TMI 219 - KARNATAKA HIGH COURT] and Wokhardt Ltd. [2012 (5) TMI 823 - ITAT MUMBAI] Since the ld CIT(A) has decided both these issues following the above said decisions, we do not find any reason to interfere with his order on both these issues.
Verify the R & D expenses, it is the contention of the assessee that the AO did not question the nature of expenses at all in the assessment order, i.e., the AO has accepted the nature of expenses as R & D expenses. The AO has allowed expenses u/s 37(1) of the Act, but disallowed only weighted deduction due to non-availability of approval from DSIR. Accordingly, it is contended that there was no requirement to restore the issue to the file of AO for examining the expenses. On a perusal of the assessment order, we find the above said contentions of the assessee to be correct. It is not the case of the AO as to whether the R & D expenses claimed by the assessee would fall under the category of Research & Development expenses or not. Thus, we notice that the Ld CIT(A) has rendered his decision on a non-existing issue. Accordingly, we cancel the above said direction given by Ld CIT(A).
Allocation of interest expenses to the units eligible for deduction u/s 80IC/80IE - HELD THAT:- We notice that the assessee has furnished the Balance-sheet of Buddy I unit , Solan unit (Baddi-II) and Sikkim unit. On a Perusal of the balance-sheets of these three units, we notice that they have sufficient Reserves and surplus. Further, they have not taken any amount either from Head office. These units did not borrow money from other persons also. On the contrary, the Balance Sheets would show these units have given money to the Head office.
Since these units have not taken money from Head office, the question of allocating interest expenses of the HO to these units will not arise. Hence, the reasoning given by the AO would fail in respect of these three units. Hence there is not necessity to allocate interest expenditure of Head office to the above said two units. Since all the facts are already available on record, there was no necessity for the Ld CIT(A) to restore the issue again for verification of factual aspects. Accordingly we modify the order passed the learned CIT(A) on this issue and direct the AO to delete the allocation of interest expenses made to these three units.
Disallowance of Sales Promotion Expenses in the form of freebies to doctors and medical professionals u/s 37(1) - HELD THAT:- We notice that the AO did not examine those break- up details and did not pin point the expenses which can be considered as expenses incurred in violation of MCI guidelines. Instead, the AO has proceeded to disallow 1.32% of the total turnover, as the similar disallowance made out of Sales promotion expenses in AY 2011-12 worked out to same percentage. We notice that, in AY 2011-12, the assessee itself has admitted that it has incurred expenses on freebies to the doctors and the disallowance was on the basis of said admission. In this year, there is no such admission - AO has computed the disallowance on the total turnover, whereas, the issue is related to Sales promotion expenses and disallowance to be made as per the Explanation to sec.37(1) of the Act.
We notice that the CIT(A) has adopted a completely different approach, which was not at all the case of the AO, i.e., the AO did not suspect that the sales promotion expenses have not been wholly and exclusively incurred for the purposes of business. In our view, the CIT(A) has taken up a non-existing issue and proceeded to confirm the disallowance. In our view, the approach adopted by both tax authorities is not correct and accordingly set aside the same.
There should not be any doubt that actual expenses incurred on freebies are required to be disallowed under section 37(1) of the Act. Accordingly we are of the view that this issue requires fresh examination at the end of the Assessing Officer. Accordingly we set aside the order of the learned CIT(A) passed on this issue and restore the same to the file of the AO.
Disallowance u/s 32AC - HELD THAT:- We hold that the actual cost of plant and machinery transferred during the year from Capital work in progress standing as on 01-04-2013 should also be considered for ascertaining the aggregate cost of assets acquired and installed during the year. In the instant case, the aggregate cost of assets transferred from Capital work in progress and the purchased during the year has exceeded the threshold limit of Rs. 100 crores. Hence, the deduction u/s 32AC of the Act claimed by the assessee is allowable. Accordingly, we set aside the order passed by CIT(A) on this issue and direct the AO to allow the deduction claimed by the assessee u/s 32AC of the Act.
TP adjustment made on Corporate Guarantee commission - assessee had provided guarantee in favour of its Swiss subsidiary named Glenmark Holding S.A – Switzerland - CIT(A) deleted adjustment made in respect of guarantee commission - HELD THAT:- We notice that the Ld CIT(A) has followed the decisions rendered by the Hon’ble jurisdictional Bombay High Court in the assessee’s own case [2017 (2) TMI 1305 - BOMBAY HIGH COURT] and the Tribunal passed in the assessee’s own case in an identical issue and accordingly deleted the transfer pricing adjustment made in respect of guarantee commission. Hence, we do not find any reason to interfere with the order passed by Ld CIT(A) on this issue.
Allocation of R & D expenses to the units eligible for deduction u/s 80IC/80IE - HELD THAT:- Tribunal in the assessee’s own case in AY 2010-11 [2019 (2) TMI 1067 - ITAT MUMBAI] and accordingly remitted this issue to the file of AO. In our view, no prejudice is caused to the revenue by the decision of CIT(A), since the matter required factual verification. Accordingly, we uphold the order passed by CIT(A) on this issue.
Disallowance made u/s 14A r.w.r. 8D - Expenses incurred earning exempt income - HELD THAT:- As decided in Envestor Ventures Ltd. [2021 (1) TMI 922 - MADRAS HIGH COURT] answering question of law in favour of the Assessee and against the Revenue and by holding that the disallowance under rule 8D of the IT Rules read with Section 14A of the Act can never exceed the exempted income earned by the assessee during the particular assessment year.
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2024 (5) TMI 439 - ITAT MUMBAI
Income accrued in India or not - Dependent Agent - PE in India or not? - assessee is a global re-insurance company, is a tax resident of Ireland - key function in re-insurance is the acceptance of the risk that an insurance company transfers (cedes) to a re-insurer - entitlement to benefit of India-Ireland Treaty - assessee has contended that its operation neither constitute business connection in India nor does it has fixed place PE in India nor does it have a dependent agent PE in India - why there is no business connection in terms of Secion 9(1)(1) ? - HELD THAT:- There is no business connection in terms of Secion 9(1)(1) of the Act as RGA Services performs its activities in an independent manner RGA Services render services not only to the assessee but also to other Companies within the RGA Group and hence, it is not economically dependent on the assessee.
Assessee remunerates RGA Services on an arm's length basis and RGA Services only acts as interface between Indian Cedents and assessee. Even otherwise this aspect is wholly irrelevant since in a case in which a double taxation avoidance agreement comes into play, such as the present case, the provisions of the Act cannot be pressed into service unless these provisions are more beneficial.
RGA Ireland does not conduct any insurance business in India. RGA Ireland does not have any premises or office space for undertaking reinsurance business activity in India. RGA Services does have an office in India, but the Appellant has no control over the said office. No employee of RGA Ireland visited India in the year under appeal.
The reinsurance treaties are signed by the Appellant outside India. RGA Services does not negotiate the fee and terms and conditions of the reinsurance treaties. The terms and conditions for the treaties are agreed and concluded between the Appellant and the Indian Cedents. RGA Services does not decide the price to be quoted to the Indian Cedents. Thus RGA services does not constitute a fixed place PE in India as per Clause 5 of the treaty
Lastly, RGA services do not constitute DAPE of RGA IRELAND as agreement between RGA services and RGA Ireland is on a principal-to-principal basis where the role performed by RGA Services is different from RGA Ireland RGA Services renders services to other associated enterprises within RGA Group and hence, it is not economically dependent on the Appellant. RGA Services does not conclude the terms of the reinsurance treaties or enter into any contracts with any insurance companies RGA Services does not secure contracts for and on behalf of the assessee. The assessee does not give any detailed instructions or exercise any control on RGA Services with respect to RGA Service's business, and all the contracts are signed by the assessee outside India and by its employees In no circumstances are the contracts signed in India, and RGA Services does not have any authority to conclude any contracts on behalf of the assessee nor does it secure any orders for the assessee.
As decided in own case [2023 (11) TMI 1045 - ITAT MUMBAI] DRP has referred to the existence of business connection under section 9(1) of the Indian Income Tax Act 1961, but then that aspect of the matter is wholly irrelevant because in a case in which a double taxation avoidance agreement comes into play, as admittedly, in this case, the provisions of the Income Tax Act 1961 cannot be pressed into service unless these provisions are more beneficial to the assessee The DRP has simply observed that since the core business activities are conducted by RGA India, RGA India constitutes the fixed place PE As we we have seen above, unless a particular place is at the disposal of the assessee, that place cannot be said to constitute the PE of the assessee. In any case, the core reinsurance activity is the assumption of risk, and that assumption of risk has been done outside India. There is thus no occasion to attribute reinsurance profit attribution to RGA India Whatever activities are carried out by RGA India have been duly paid for by the asseseee, and the transfer pricing assessment has accepted that position. Once that position is accepted, there cannot be any further profit attribution for services rendered by the RGA.
Thus assessee did not have a fixed place permanent establishment in India, that the question of assessee having a dependent agency PE is wholly academic in the sense that, as the law stands now, the existence of the DAPE is wholly tax neutral in India. Accordingly, the business profits eamed by the assessee on account of the reinsurance business have no tax implications in India. - Decided in favour of assessee.
Non-application of MLI [Member Lending Institutions (MLIs) - It has been upheld by the ld. AO, we find that said provisions are applicable from 1st April 2020 i.e. F.Y.2020-21 and not for the year under consideration which has been clearly stated in the MIL notification in the following manner:- Unless it is stated otherwise elsewhere in this document, the provisions of the MIL have effect with respect to the Convention.
In India - With respect to taxes withheld at source on amounts paid or credited to non-residents, where the event giving rise to such taxes occurs on or after 1 April 2020; and With respect to all other taxes levied by India, for taxes levied with respect to taxable periods beginning on or after 1 April 2020.
Short grant of TDS - We direct the ld. AO to allow TDS credit as claimed in the return of income in the norms stated above.
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2024 (5) TMI 438 - ITAT CHENNAI
Addition made towards undisclosed cash transaction from undisclosed sources - seized excel sheets from third party relied upon - entries pertaining to the assessee firm in the excel sheets found in the electronic devices seized during the course of search in the case of third party - HELD THAT:- As no documentary or other evidences to corroborate the entries of cash receipts and payments in the excel sheets were found to support the findings of the AO that said transactions are unaccounted transactions and are outside the books of accounts of the assessee. We further noted that, the AO neither during the assessment proceedings has made any reference to statements recorded u/s. 132(4) of the Act during the course of search in Christy group of cases or in the case of the assessee with reference to excel sheets found during the course of search to verify the contents recorded therein. Neither the person from whom said documents was found was examined nor the appellant or its partners was confronted with those evidences to verify the contents therein.
AO has made additions towards cash transactions u/s. 69A of the Act, without there being any corroborative evidence to strengthen the entries recorded in excel sheet found during the course of search on third party. Therefore, we are of the considered view that no additions can be made u/s. 69A of the Act, on the basis of evidences found in the possession of third party, without examining contents of said documents from the person from whom said documents was found and also from the assessee and its partners. The evidences relied upon by the AO in the form of excel sheets does not constitute adequate evidence to draw adverse inference against the assessee, in the absence of any other corroborative evidence.
As decided in case of CIT vs Sant Lal [2020 (3) TMI 692 - DELHI HIGH COURT] where it has been clearly held that the assessee cannot be put to any liability on the action of a third person where the material was not found from the premises of the assessee nor was in the handwriting of the assessee, since, the third person may write the name of any person at his sweet will and the revenue did not make any effort to gather or corroborate evidence in this relation.
As per AO Since, bank entries in seized excel sheets are matched with books of accounts, cash transactions recorded in excel sheets should be considered as belongs to the assessee - In our considered view, the contention of the department that merely because the notings of bank transactions in the excel sheet have matched with the bank statements it does not mean that the notings of cash transactions are also genuine. The reason is that though bank statements serves as corroborative evidence for proving transfer entries, but there are no corroborative evidence like sale bills, cash receipts and invoices etc in the cash entries in excel sheets. Notings by way of cash transactions are highly suspicious in nature because they are susceptible for embezzlement and also prone to create prejudice to the concerned parties. Therefore, in our considered view, the reasons given by the AO to make additions u/s. 69A of the Act on the basis of entries in excel sheets without any corroborative evidence is incorrect.
No efforts were made by the department to establish the nexus of the assessee with the undated and unsigned printout found during the search and to corroborate the contents of the said printout to arrive at a definite conclusion that the assessee derives such alleged income. The Hon’ble High Court of Bombay in the case of PCIT vs Umesh Israni [2019 (4) TMI 1947 - BOMBAY HIGH COURT] held that, the entries of the loose papers which were seized were not corroborated with any other evidence on record and no enquiry or verification was made and thus, no additions can be made u/s. 69A of the Act.
Assessee is in the practice of replacing the invoices not checked by any Government authorities in the accounted Tally - In our considered view the ground taken by the revenue is devoid of merits, because the AO neither considered so called Tally1 and Tally 2, nor made any additions based on said evidences in the assessment order in respect of additions made u/s. 69A of the Act. Therefore, in our considered view the ground of appeal taken by the revenue fails.
Appending two zeros to value recorded in alleged excel sheets, the AO has added two zeros to values recorded to excel sheets for assessment year 2018-19 & 2019-20 only -it is not appropriate to arrive at a conclusion that the amounts noted in the excel sheets have to be understood by adding two zeros at the end without having further evidence apart from the statement of Shri. Harihara Krishnan. We further noted that, the AO himself has not added two zeros to the amounts found noted in two excel sheets namely “Appu revised formar.xls” sub sheet “cash received & paid” relevant to assessment year 2017-18 and Annex-3-Appu-CFL.xls” sub sheet “running account” relevant to assessment year 2018-19. Further, the ld. CIT(A) has recorded categorical findings that in the remand report the AO did not furnish any explanation regarding selective treatment only to the figures found in one excel sheet out of three excel sheets. In the rejoinder, the appellant explained that the relevant excel sheets contains an entries of payment made to appellant in cash as well as through bank. The appellant pointed out that when the payment through bank shows therein are compared with the corresponding entries found in the relevant bank account statement, it can be seen that the same are matching without the need of adding two zeros. When the bank entries is matching with the books of accounts of the assessee without appending two zeros, the question of appending two zeros to cash entries alone is totally incorrect.
If the payments through cash alone are considered by adding two zeros and the payment through bank are considered in the manner in which they appear in the excel sheets, the totals of the payments column and the receipts column will be grossly different from the total mentioned in the excel sheet. It is therefore clearly evident that, all the amounts mentioned in the excel sheets, regardless of whether they are cash transactions or bank transactions are the actual amounts without suppression of two zeros at the end. We are of the considered view that the AO is erred in appending two zeros to the cash transactions appearing in the seized excel sheets and same is untenable.
Undisclosed cash transactions - We find that when there are undisclosed cash receipts and cash payments in the seized material, it is not appropriate to aggregate said receipts as well as payments for the purpose of determining the undisclosed income. Since, the cash payments are made out of cash receipts to the extent of the available cash receipts, aggregating the cash receipts as well as cash payments for determining the undisclosed income results in exaggerated amount of such income.
As further noted that, when the AO is not able to identify the nature of cash receipts or payments then the best is to net off the cash receipts against the cash payments to arrive at undisclosed income. Therefore, in our considered view, findings of the facts recorded by the ld. CIT(A) with regard to the manner of computing undisclosed income appears to be reasonable and acceptable.
Thus we are of the considered view that additions made by the AO u/s. 69A of the Act towards alleged cash transactions recorded in excel sheets found during the course of search proceedings of Christy Group in the premises of employee of third party, without there being any corroborative evidence is unsustainable in law. The ld. CIT(A), after considering relevant facts has rightly deleted additions made by the AO. Thus, we are inclined to uphold the findings of the ld. CIT(A) and dismiss appeal filed by the revenue
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2024 (5) TMI 437 - ITAT RAJKOT
Penalty levied u/s 271B - not getting accounts Audited within the due date specified u/s 44AB - books of accounts were not written up (maintained) within the due date of filing the return of income, thus as argued there was no possibility of getting the accounts audited u/s 44AB - HELD THAT:- Once it is established that the books of accounts were not written up within the due date of filing the return of income, the question of getting them audited to comply the provision of section 44AB of the Act, does not arise. As such the first default of the assessee on stand-alone basis is non-maintenance of books of account u/s 44AA of the Act which is complete offence.
As decided in the case of Surajmal Pursuram todi 1996 (8) TMI 102 - GAUHATI HIGH COURT] Maintenance of accounts is envisaged under section 44AA and on failure to do so the assessee shall be guilty and liable to be penalised under section 271A. Even after maintenance of books of account the obligation of the assessee does not come to an end. He is required to do something more, i.e., by getting the books of account audited by an accountant. But when a person commits an offence by not maintaining the books of account as contemplated by section 44AA the offence is complete. After that there can be no possibility of any offence as contemplated by section 44AB and, therefore, in our opinion, the imposition of penalty under section 271B is erroneous.
DR has not brought any concrete evidence justifying that the books of accounts of the assessee were written up before the due date of filing written of income and therefore the assessee has contravened the provisions of section 44AB of the Act. - Decided in favour of assessee.
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2024 (5) TMI 436 - ITAT MUMBAI
Bogus LTCG - Addition u/s 68 - undisclosed share capital and share premium - assessee has failed to establish the genuineness and creditworthiness of the transactions - CIT(A) deleted the addition - HELD THAT:- It is not disputed that the assessee has not received any share application money in the financial year 2011-12 except allotment of shares - We find that the provisions of section 68 of the Act can be invoked or applicable, where the amount is found credited in the books of accounts of the assessee in the F.Y.2011-12 and the assessee fails to offer explanations or explanations are not satisfactory. The assessee has received the share application money along with the share premium in the financial year 2006-07 and not in F.Y.2011-12. We find the CIT(A) has dealt on the facts, provisions of law and judicial decisions. The Ld. DR could not controvert the findings of the CIT(A) with any new cogent material or information to take different view.
CIT(A) has passed a reasoned and conclusive order. - Decided against revenue.
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