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2023 (9) TMI 1628
Exemption from GST - hostel accommodation being provided by the Applicant to students and working women - qualify to be a residential dwelling for use as residence or not - requirement of registration under the GST Act if aggregate turnover exceeds twenty lakh rupees in a financial year - applicable tariff heading and rate of tax for the supply of hostel accommodation services by the Applicant - supply of in-house food to hostel inmates, composite supply or not - scope of Section 97(2) of the GST Act.
Whether the hostel accommodation being provided by the Applicant to students and working women qualify to be a residential dwelling for use as residence as described in the above entry and thus eligible for exemption or not? - HELD THAT:- The term 'residential dwelling' has not been defined either under CGST Act or under Notification No. 12/2017. However, under the erstwhile service tax law, in paragraph 4.13.1 of the Taxation of Services: An Education Guide dated 20.06.2012', issued by the CBIC, the expression 'residential dwelling has been interpreted in terms of the normal trade parlance as per which it is any residential accommodation, but does not include hotel, motel, inn, guest house, camp site, lodge, house boat, or like places meant for temporary stay - a house/ residential dwelling for occupation contains one or more rooms with one/part of the room being used as kitchen and the other/part as living room etc. But, in the instant case, a single house with two or more rooms where normally a single family resides, is subdivided, and let out to different persons and rent being collected on per bed basis with bundle of other services against a consideration clearly constitutes a business of supplying accommodation services along with ancillary services. Thus, on this count as well, the impugned accommodation thus provided does not qualify as a residential dwelling and thus the question of using the same as residence does not arise.
It is clear that the purpose and objective of the notification is nothing but to avoid taxing residential properties taken on rent by family or individuals and the benefit of exemption is not extended to the premises which do not qualify as residential dwelling for use as residence. Further, unless the twin conditions of 'renting of residential dwelling' for 'use as residence,' being inter-twined and inseparable, are not met, the exemption is not available. As per settled position in taxation laws, especially when exemptions or concessions or benefits are to be availed, the interpretation is to be literally and strictly construed and not in liberal terms. In effect, the place rented out is neither a residential dwelling nor being rented out for use as residence.
The hostel accommodation is not equivalent to residential accommodation and hence we hold that the services supplied by the Applicant would not be eligible for exemption under Entry 12 of Exemption Notification No.12/2017-CT(Rate) dated 28.06.2017 and under the identical Notification under the TNGST Act, 2017, and also under Entry 13 of Exemption Notification No.09/2017-IT(Rate) dated 28.06.2017, as amended.
Whether the Applicant is required to register under the GST Act if their aggregate turnover exceeds twenty lakh rupees in a financial year? - HELD THAT:- The Applicant's service of providing hostel accommodation is not eligible for exemption under Entry 12 of Exemption Notification No. 12/2017-CT(Rate) dated 28.06.2017 as amended, the Applicant is very much be required to take registration under the GST Enactments, as the arrangement between the Applicant and the hostel occupants is liable to be classified as transaction in the course of furtherance of business and hence, as per Section 7(1)(a) of CGST Act, 2017 read with Entry No. 2(b) of the Second Schedule to the CGST Act, the said transaction constitutes "supply" - the Applicant is required to get themselves registered in the state of Tamil Nadu, if their aggregate turnover in a financial year exceeds twenty lakh rupees.
What is the applicable tariff heading and rate of tax for the supply of hostel accommodation services by the Applicant? - HELD THAT:- Hotels are meant for a temporary stay (2-5 days) and have lot of facilities and staff, but hostels are used for a longer period and have basic facilities with minimal staff required by the inmates to stay at a reasonable rate. Therefore, hostel services cannot be equated to a hotel accommodation and hotel GST rates cannot be applied to a hostel. Therefore, supply of hostel accommodation services (Tariff heading 9963) is taxable @ 9% CGST + 9% SGST under Sl. No.7(vi) of the above Notification (Sl.No.7 (ix) as per original notification).
Whether the supply of in-house food to hostel inmates is exempt as part of a composite supply? - HELD THAT:- The natural bundle has the characteristic of where one service is the main service and the other services are ancillary services which help in better enjoyment of the main service. Further, there is a single price for the combined services. The principal activity of the Applicant is supply of accommodation Services. While providing such services, the charges are being realised in a consolidated manner for the value of food and other like services rendered. The Applicant has stated that they do not charge separately for the other services provided by them. Thus, the services provided by the Applicant are composite in nature.
As per Section 8 of the CGST Act, 2017, for a Composite supply, the tax rate on the principal supply will be treated as the tax rate on the given composite supply - the Applicant provides a number of services in a composite manner, the hostel accommodation services provided by the Applicant, being the principal supply, which is taxable @18%, will be tax rate for the composite supply provided by them.
Scope of Section 97(2) of the GST Act - HELD THAT:- Thus, no ruling could be issued as the question put forth by the Applicant does not fall under the scope of Section 97(2) of the GST Act.
Conclusion - i) The services by way of providing hostel accommodation supplied by the Applicant are not eligible for exemption under Entry 12 of Exemption Notification No. 12/2017-CT(Rate) dated 28.06.2017.
ii) The Applicant is required to get themselves registered in the state of Tamil Nadu, if their aggregate turnover in a financial year exceeds twenty lakh rupees.
iii) The supply of services by way of providing hostel accommodation falls under Tariff heading 9963 and is taxable @ 9% CGST + 9% SGST under Sl.No. 7(vi) of the Notification No. 11/2017, Central Tax (Rate), dated 28.06.2017.
iv) The hostel accommodation services provided by the Applicant, being the principal supply, which is taxable @18%, is the tax rate for the composite supply provided by them.
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2023 (9) TMI 1627
Refusal of Input Tax Credit on tax paid for purchase of Duty Entitlement Pass Book / Duty Free Licences / Duty Credit Scrip - levy of interest even though full amount of tax due from the dealer under the Act according to returns has been deposited and as such, interest on differential tax determined on reopened assessment could be validly and legally charged.
Whether the purchase of DEPB / Duty Free Licenses / Duty Credit Scrip within the State after paying VAT on it, can a dealer claim ITC on VAT so paid, if the goods in question are used for set off against or payment of custom duty payable on import of raw materials?
HELD THAT:- This Court is of the view that the case of the petitioner-assessee is covered by Section 18 (1)(e) of the RVAT Act, and therefore this Court is not in agreement with the view taken by the Tax Board.
Because the petitioner-assessee has purchased the goods in question from a registered dealer, after payment of VAT, and used the same against the import of raw material, which was admittedly used in the manufacturing of final product in the State of Rajasthan. The goods in question i.e. DEPB / Duty Free License / Duty Credit Scrip, by extension, would also necessarily be deemed to be part of the raw material as the cost of the goods in question would be embedded in cost of the raw materials, thereby affecting the ‘purchase price’ and ‘sale price’ - Because there is no specific exclusion of the goods in question by way of notification of the State Government, as prescribed in Section 18 (1)(e) of the RVAT Act and as observed earlier, the definition of ‘raw material’ is broad and exhaustive and not narrow and inclusive.
Although the judgment of Jagriti Plastics Ltd. [2015 (10) TMI 291 - DELHI HIGH COURT] is based on provisions which are not pari materia to Section 18 of the RVAT Act, the fact remains that the underlying principle / jurisprudence of ITC has been outlined in great detail and this Court is in complete agreement with the view adopted by the Division Bench of Delhi High Court. Applying the principles which emerge therein to the provisions of RVAT Act, the inevitable consequence would be that the petitioner-assessee would be held entitled to the benefit of ITC under Section 18 (1) (e) of the RVAT Act, especially when there is no specific exclusion qua the same.
Conclusion - The petitioner-assessee is entitled to ITC on DEPB under Section 18(1)(e) of the RVAT Act. DEPB, when used to offset customs duty for importing raw materials, qualifies for ITC under the RVAT Act as it indirectly contributes to the manufacturing process.
The questions of law framed herein-above have to be answered in favour of the petitioner-assessee and against the respondent-revenue - all these STRs are allowed.
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2023 (9) TMI 1626
Violation of principles of natural justice - primary challenge to the SCN is on the ground of the same being an un-reason and non-speaking SCN - HELD THAT:- A bare perusal of the reply that the petitioners have submitted would go to show that they had submitted their detailed reply to the show cause notices raising various contentions and objections in respect of the proceedings initiated and the issuance of the show cause notice, but the impugned order is totally silent on these aspects nor is there any reference of those contentions and objections which have been raised by the petitioner in their reply to the show cause notice.
So far as the issue of an order to be a reasoned order, so also an order to be a speaking order is by now a well settled position of law, where reasons are considered to be the essence of order. The authorities concerned are not expected to act in a mechanical manner.
In the case of KRANTI ASSOCIATES PVT. LTD. VERSUS MASOOD AHMED KHAN [2010 (9) TMI 886 - SUPREME COURT] the Hon’ble Supreme Court held 'It cannot be doubted that transparency is the sine qua non of restraint on abuse of judicial powers. Transparency in decision making not only makes the judges and decision makers less prone to errors but also makes them subject to broader scrutiny. '
There are no hesitation in reaching the conclusion that the impugned order is an un-reason and non-speaking order. The same being without there being any discussion of any of the contentions and objections raised in replies to the show cause notice issued. The impugned order, therefore, to the aforesaid extent only on the technical ground of the same being and un-reason and non-speaking order deserves to be and is accordingly set aside/quashed. The matter stands remanded back to the 1st respondent for passing of fresh speaking order on due consideration of the contentions and objections that the petitioner had raised in the reply to the show cause notice.
Conclusion - The necessity for orders to be reasoned and speaking, ensuring that authorities demonstrate due application of mind and avoid arbitrariness.
Petition allowed by way of remand.
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2023 (9) TMI 1625
Exemption towards materials used in the construction service - benefit of N/N. 12/2003-ST dated 20.06.2003 - deemed sale - inclusion of the value of the goods and material in the total value for the purpose of charging of service tax on the service rendered by the appellant.
Exemption towards materials used in the construction service - benefit of N/N. 12/2003-ST dated 20.06.2003 - deemed sale - HELD THAT:- Board”s Circular No. 233/2/03- CX-4 dated 07.04.2004, has been withdrawn vide its Circular No. 233/2/03-CX-4 dated 03.03.2006 clarifying that: “The intention of Notification No. 12/2003-S.T. is to provide exemption only to the value of goods and material sold subject to documentary evidence of such sale being available. Therefore, in case the goods are consumed during the provision of service and are not available for sale, the provisions of the said notification would not be applicable.”
Inclusion of the value of the goods and material in the total value for the purpose of charging of service tax on the service rendered by the appellant - HELD THAT:- In the case of Safety Retreading Private Limited Vs. Commissioner of C.Ex. Salem [2017 (1) TMI 1110 - SUPREME COURT], the Hon’ble apex court has held that the benefit of Notification No.12/2003-ST is available under “Maintenance and Repair service” In this case, the Hon’ble Apex Court has held that the value of the materials used in the retreading of the tyres has to be excluded from the value of the service provided and only service tax can be levied on the service portion of the total activity of re-treading.
The period involved in this case is 2006-07 to 2010-11. However, the invoices were raised between 16.12.2008 to 25.01.2011. Service tax on works contract was introduced w.e.f. 01.06.2007. The demand has been raised under the category of “Commercial or Industrial Construction Service” after the introduction of “Works Contract” as a service under clause (zzzza) of section 65(105) of Finance Act, 1994. The appellant has also taken the plea that classification of the service under “Commercial or Industrial Construction Service” is not correct in their grounds of appeal. However, they have classified their activity as “Commercial or Industrial Construction Service”. In the appeal they have only claimed relief with regard to grant of benefit of Notification No. 12/2003-ST dated 20.06.2003 and to set aside the demand thereof and consequential penalties levied and to grant the refund of excess interest paid.
It is found appropriate to remand the matter to the adjudicating authority to verify as to whether the appellant has availed cenvat credit on the inputs, which are utilised for the provision of the construction services involved in this case. Further, as regards the payment of VAT on the goods and materials involved in the construction activity undertaken by them, the adjudicating authority has to verify the relevant returns submitted by the appellant.
Conclusion - The term 'sale' appearing in exemption Notification No. 12/2003-S.T., dated 20-6-2003 would also include 'deemed sale' as defined by Article 366(29A)(b) of the Constitution - case remanded to the adjudicating authority for verification of Cenvat credit claims, VAT returns, and interest payments, while setting aside findings related to deemed sale.
Appeal allowed by way of remand.
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2023 (9) TMI 1624
Validity of reopening of assessment - notice beyond a period of four years - case of borrowed satisfaction - assessee had received a contract from one SEPCL - HELD THAT:- The reopening of the assessment in the present case is for the assessment year 2012-13. The reasons to believe reproduced as Sr. No. 3 & 6 in [2023 (1) TMI 181 - GUJARAT HIGH COURT] when compared to the reasons to believe namely reasons no. 1 & 2 of the present case, except for the figures, the company being SECL in the present case and the intimation letter only being one of a different date i.e. 13.03.2018, the reasons to believe in the present petition are completely identical to the reasons no. 3 & 6 in the aforesaid petition. The court therefore had extensively considered these very reasons held that reopening was not justified due to the lack of independent reasons and the impermissible reliance on borrowed satisfaction. The court made the rule absolute, thereby granting the petition in favor of the petitioner.
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2023 (9) TMI 1623
Order u/s 201&201(1A) - "assessee in default" for non-deduction of TDS - As argued assessee was not liable to deduct TDS under its TAN as they centralized system of deducting TDS - second issue raised by the assessee was pertaining to deduction of TDS @1% u/s 194C of the Act whereas the same should be @20% when the PAN number of the contractor are not available - also issue of AR was pertaining to treating the ‘assessee in default’ in respect certain amount without appreciating that the said deductee/payee had discharged the income tax liability due therein and filed the return of income without considering the provisions of Section 4, 191, 202 and 205 of the Income Tax Act, 1961 - additional evidences submitted by the assessee were accepted by the Tribunal and such evidences were not available before the authorities below.
HELD THAT:- On perusal of additional evidences, it is observed that all additional evidence with reference to the contentions raised in the grounds of appeal are subject to verification of facts emanating from such additional evidence.
Under such circumstances, without going into the merits of the issues, with the concession of Departmental representative, after fair agreement by both the parties to restore the issues back to the files of AO for verification as well as examination of evidences furnished before us, which were not available before the lower authorities for their perusal, thus, in the interest of substantial justice, we find it appropriate to restore the issues back to the files of AO for re-adjudication of the same afresh. Assessee shall be provided with reasonable opportunity of being heard, liberty is granted to the assessee to furnish all such information/evidences which are necessary / significant in deciding the issues and to assist the proceedings before the Learned AO, failing which Learned AO would be at liberty to decide the issue in accordance with law.
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2023 (9) TMI 1622
Validity of reassessment proceedings - Tribunal quashing proceedings as there is no failure on the part of the assessee to make true and full disclosure - HELD THAT:- In light of the questions already decided in case of CIT vs. Kelvinator of India Ltd [2010 (1) TMI 11 - SUPREME COURT] Tribunal found that since the reopening was on the basis of the material already available on record and there was no new tangible material available before the AO to reopen the assessment after expiry of period of four years and it was not a case where there was any failure on the part of the assessee to disclose all the material facts necessary for assessment.
No fresh tangible material before the AO or the assessee failed to disclose all the material facts necessary for assessment. Hence, we hereby quash the reopening/re-assessment order being not sustainable under the law - No substantial question of law arises.
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2023 (9) TMI 1621
Order passed u/s 179 for recovering the tax dues - it is the case of the petitioner that the order was passed without due service of notice to the petitioner and hence essentially it is an ex-parte order - HELD THAT:- When a notice was issued to the petitioner, he was not residing at the address during such notice. Apparently therefore, the order impugned herein was passed in violation of principles of natural justice.
Only on this ground, the order is hereby quashed and set aside. However, liberty is reserved in favour of the respondents to issue fresh notice to the petitioner for proceeding u/s 179.
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2023 (9) TMI 1620
Disallowance u/s 40A(3) - assessee failed to prove exceptional or unavoidable circumstances necessitating payment in cash - CIT(A) deleted addition - HELD THAT:- Firstly, we find that it is a case of purchase of land duly supported by registered deeds. The consideration for purchase and the mode of payment, namely cheque and cash, are clearly mentioned in registered-deeds. The identity of the payee is also mentioned in registered-deeds. Therefore, the genuineness of transaction is not having any question. In fact, the AO has not disputed the genuineness and the DR for revenue is also not having dispute on genuineness point. This way, the genuineness part is proved.
In so far as circumstance/commercial expediency is concerned, we find that the assessee has claimed before AO that the sellers of lands were farmers and new to assessee. The sellers required the assessee to make cash-payments and to lock the deals, the assessee had to make part- payment in cash. Before CIT(A), the assessee has submitted a detailed chart in a tabular format giving explanation of circumstance/commercial expediency of all six transactions.
The assessee’s claim is such that apart from seller, there were 4 other persons interested in the land (joint owner and other relatives/family persons) and the assessee had to make cash payment so that the joint owner and relatives/family persons could give their consent, as each one had interest in land. They demanded cash payment to settle and clear their family consent.
There is a clear contradiction in the submission of assessee. While the assessee claims that the sellers insisted for cash payment in order to make payment for clearing consent from joint owner/family members; the joint owner/family members have mentioned a recital in the registered-deed that they have signed as consenting party without charging any money. This is certainly a contradiction as claimed by Ld. DR. Being so, we do not find credence in assessee’s explanation of commercial expediency with respect to this particular transaction involving cash-payment of Rs. 1,14,55,500/-. Therefore, the disallowance to that extent is sustainable.
We are inclined to uphold disallowance to the extent of Rs. 1,14,55,500/- out of total disallowance of Rs. 2,63,60,750/- made by AO. For remaining disallowance, we uphold the deletion made by CIT(A) in first-appeal. Consequently, the revenue succeeds partly in this appeal.
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2023 (9) TMI 1619
Nature/Character of the land sold - whether agricultural land or not? - qualification as a “capital asset” in terms of section 2(14)(iii) - whether capital gain earned thereon is taxable or not in terms of the provisions of law in this regard? - HELD THAT:- We hold that the Revenue authorities have wrongly held the land to be non-agricultural in nature and have totally mis-appreciated the relevant provisions of the Land Laws, i.e. Gujarat Tenancy and Agricultural Lands Laws (Amendment) Act, 1997, in this regard. Our reasoning for the same follows.
AO deems the land to be non agricultural noting the fact that the assessee had sold the land to M/s. Steel Strips Wheels Ltd. who had purchased it for bona fide industrial purposes u/s 63AA of Gujarat Tenancy and Agricultural Lands Laws (Amendment) Act, 1997. Since the emphasis is on 63AA of GT & ALL, we shall elaborate on the said provision so as to understand its implication.
What transpires from a conjoint reading of the relevant provisions of Gujarat Tenancy and Agricultural Lands Laws (Amendment) Act, 1997 and the Bombay Land Revenue Code, 1879, is that in case of agricultural lands designated by authorities for bona fide industrial purposes the requirement of seeking prior permission for land use change is done away as per the Bombay Land Revenue Code, 1879. Such agricultural lands can be transferred to non agriculturist as per section 63AA of the GT&ALL Act, which Act otherwise prohibits such transfers.
Thus Lands purchased u/s 63AA of Gujarat Tenancy and Agricultural Lands Laws (Amendment) Act, 1997, is nothing but agricultural land.
Applying this to the facts of the present case where in the land has been sold u/s. 63AA of the GT & ALL, undoubtedly the said land is agriculture land. This fact is further evidenced by various covenants of the conveyance deed stating the character of the land sold in clear terms to be agricultural.
As per the facts of the present case the purchaser of land, i.e the company, after purchase of the agricultural land from the assessee u/s 63AA of the GT & ALL Act, notified the purchase of agricultural land for bonafide industrial use and was issued a certificate in this regard by the collector after verifying its user for bonafide industrial purposes. Thus, it was subsequent to purchase of land, that its use was changed to non-agriculture purpose.
Therefore that the AO/DRP has erred in interpreting section 63AA of the Gujarat Tenancy and Agricultural Lands Laws (Amendment) Act, 1997 to mean that the land sold by the assessee had been converted into non-agriculture prior to the date of sale. At the cost of repetition, we may state that what it only implies is that the land was designated for use for non-agriculture purpose. It was only designated so, and its user for non-agriculture purpose was completed only when the non-agriculture usage was commenced and notified to the Collector, which in the present case was done by the company, which purchased the land subsequent to its purchase. The conveyance deed, all along mentions the land sold by the assessee as agricultural land. Its conversion from agricultural to non-agricultural land is certified by the Collector post-sale of the land.
Land sold by the assessee, having been held to be agricultural land, and since there is no dispute vis-à-vis its distance from the municipal limits, the impugned land, we hold, did not qualify as “capital asset” in terms of section 2(14)(iii) of the Act. The claim of the assessee to the entire capital gain earned on these piece of land amounting to Rs. 3,56,70,539/-, as not being liable to tax is, we hold, in accordance with law. The order passed by the AO, therefore, treating the land sold by the assessee, as non-agricultural and subjecting to capital gain thereonas liable to tax, is set aside. Ground of assessee is allowed.
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2023 (9) TMI 1618
Validity of order passed u/s 147 r.w.s.143(3) - Denial of principles of natural justice as denying opportunity of personal hearing through video conferencing - HELD THAT:- As pursuant to the notice calling for details u/s 142(1) by a notice dated 06.12.2021, the petitioner had immediately responded on 13.12.2021. The respondent did not proceed in the matter for more than three months. On 23.03.2022, with just seven days left before the assessment was getting time barred, a show cause notice was issued on 23.03.2022. A reply was filed on 26.03.2022.
An opportunity of personal hearing was asked for and to which the petitioner received an intimation on 27.03.2022 that a personal hearing through video conferencing would be conducted on 29.03.2022. When the petitioner’s authorized representative logged into the link, because of a technical glitch in the portal hearing could not take place.
It is the case of the petitioner that the officer from the National Faceless Assessment Center logged in and apologized to the representative through the chat-box. Obviously these circumstances show that the petitioner though had asked for a personal hearing through video conferencing was denied such opportunity.
On this ground alone the order of assessment is quashed and set aside. The matter is remanded to the competent authority from the stage of giving personal hearing to the petitioner through video conferencing in compliance of provisions of the Act.
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2023 (9) TMI 1617
Correct head of income - interest earned is from the funds received as grants from the Government, for construction of buildings of the Police Department - Treatment of interest income from grants as income from other sources or capital income - HELD THAT:- Interest earned is not of borrowed funds. The assessee is a construction corporation under the State, engaged in the construction of buildings for the Police Department. The construction is carried on by the Corporation with grants given by the Government. The grants given by the Government are parked in fixed deposits which earned interest. It has to be emphasized that the assessee is not carrying out the construction for the purpose of setting up of business or for expansion of a business; but is engaged in the activity of construction itself, with the funds made available by the Government.
The interest income earned from the grants made by the Government for the purpose of construction of buildings for the Police Department can only be treated as income from other sources. It is not an activity inextricably connected with the construction of buildings and it does not in any manner reduce the cost of construction; as in the case of interest earned on borrowed funds parked in short term deposits, with which borrowed funds the construction is carried out.
In the case of the assessee herein the funds parked in deposits, out of the grants received, are surplus funds; since the amounts earned by the assessee from the deposit of such funds are set-off from the grants for the subsequent year. The principle in Tuticorin Alkali Chemicals and Fertilizers Ltd. [1997 (7) TMI 4 - SUPREME COURT] applies squarely and not that of Bokaro Steel Ltd. [1998 (12) TMI 4 - SUPREME COURT]
The circular of the State Government providing for deduction of grants in the successive years to the extent of the interest earned from the grants of the earlier year, cannot regulate the taxability under the Income Tax Act. If at all, income tax is deducted from the interest earned, the Corporation would be entitled to request the Government to not deduct the amounts paid as income tax from the grants of the subsequent years. The circular issued by the State Government regulating the business/transaction between the Government and it’s Corporation cannot have any effect on the taxability of the interest income which is deemed to be income from other sources u/s 56 of the Income Tax Act.
There is no question of any deduction being permitted, as permissible u/s 36 (i)(iii) of the Act, which is with respect to interest paid on borrowed capital for the purpose of business or profession, there is no such factual ground raised herein.
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2023 (9) TMI 1616
Estimation of income - addition @ 8% in the absence of necessary evidence and records produced by the assessee - HELD THAT:- The books of accounts were produced in a soft copy. Random verification was carried out of the bills of exchange expenses etc. which revealed that there was no adverse finding given by the AO in the remand report and therefore in the considered opinion of the CIT(A), AO had ignored the details furnished by the assessee when the details were available and the estimated income at 8% was merely on the basis of surmises and conjectures.
ITAT correctly held AO has verified the records produced including books of account, bills, vouchers, bank accounts and also summoned various trade creditors and found the same to be in order. The Assessing Officer also verified the job work charges, payment of expenses etc. and found to be in order. Based on the above Remand Report, the Ld. CIT(A) has deleted the addition made by the Assessing Officer. Thus the appeal filed by the Revenue is an unnecessary exercise and frivolous appeal - Decided against revenue.
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2023 (9) TMI 1615
TP Adjustment - Treatment of notional costs related to share based compensation (SBC) - HELD THAT:- The cost incurred by Associate Enterprises and not charged the assessee in line with the inter company agreement and it is a mere book entry recognised pursuant to additional disclosure requirement as per the Accounting Standard and there is no liability or obligation on the assessee to pay or reimburse such cost to the AE. Hence, such cost should not be included in the operating cost of the assessee for computing margins of the assessee. Since no cost incurred towards ESOP/RSU granted to its employees same to be excluded from the operating cost. Accordingly, the ground nos.4 to 7 are allowed.
Comparable selection - A.R. submitted that the TPO proceeded to recharacterize the SWD services as being R&D in nature - HELD THAT:- TPO applied R&D expenses filter to select comparables incurring R&D expenses without specifying any specific threshold. Accordingly, TPO applied R&D expenses filter to select comparables incurring R&D expenses without specifying any specific threshold. The assessee carried the issue to the ld. DRP.
DRP accepted the contention of the assessee as recharacterization of SWD services as contract R&D services and directed the TPO to remote the R&D filter. This resulted in inclusion of 27 comparables from the TPO’s stay which were earlier rejected by the ld. TPO due to application of the R&D filter. Being so, there is violation of principles of natural justice while inclusion of additional comparables by ld. TPO without giving opportunity of commenting on this by assessee. Hence, in the interest of justice, we remit the entire issue in ground Nos. 12 & 13 to the file of ld. TPO/AO for fresh consideration to grant an opportunity of hearing on this issue for inclusion of additional comparables by ld. TPO.
Tech Mahindra Business Services Ltd. is engaged in the BPO service provider delivering high end diversification support services and there was presence of significant intangibles and have high grant value.As gone through the financials of M/s. Tech Mahindra Business Services Ltd. Both the assessees are engaged in providing Voice based call centre services. The contention of the assessee’s counsel is that they are functionally different and Tech Mahindra Business Services Ltd. is having high grant value and significant intangibles. In our opinion, these facts required to be examined at the end of ld. TPO/AO by comparing the financials of both these companies. Accordingly, this issue is remitted to the file of ld. TPO/AO to examine these two issues specifically and decide afresh.
Datamatics Business Solutions Ltd. be excluded from the list of comparables as this company is a KPO company and not comparable to assessee company.
Infosys BPM Services Pvt. Ltd. company focuses of delivering solutions to its clients which goes beyond rendering routine ITeS. From the above, it is evident that Infosys BPO is engaged in rendering business solutions and consultancy to its customers which is different from the Appellant’s functional profile.
Vitae International Accounting Services Pvt. Ltd. - The activities carried on by the present assessee are namely Software Development Services including contract and R&D services, IT enabled services and marketing services. Accordingly, in our opinion, it is appropriate to remit the issue to the file of ld. TPO/AO to examine whether assessee has carried on any activities like that of VIASP Ltd. The impugned issue is remitted to the file of ld TPO/AO for fresh consideration after giving an opportunity of hearing to the assessee.
Manipal Digital Systems Pvt. Ltd. is directed to be excluded from the list of comparables.
CES Ltd. be excluded as providing both BPO and KPO services, cannot therefore be held as comparable.
SPI Technologies India Pvt. Ltd. - If an extraordinary event has taken place by way of amalgamation that company cannot be considered as a comparable one and following the same parity of reasoning, we direct the Assessing Officer/TPO to exclude SPI Technologies India Pvt. Ltd. from the final set of comparables while computing international transactions in respect of the assessee in ITes segment.
Inteq BPO Services Pvt. Ltd. - as submitted that the services offered by Inteq are high end services, akin to a KPO, requiring highly skilled professionals with higher qualifications in comparison to an ITeS provider - As in view of the above argument of ld. A.R., it is appropriate to remit the issue to the file of ld. TPO/AO to consider the above arguments of the assessee’s counsel and decide it afresh.
Eclerx Services Ltd be excluded from the list of comparables.
Suprawin Technolgies Ltd. issue to the file of ld. TPO/AO for fresh consideration in the ITeS segment.
Crystal Voxx Ltd and Surevin BPO Services Ltd - As in the case of Prism Networks Pvt. Ltd. [2022 (2) TMI 1296 - ITAT BANGALORE] this comparable has been excluded only on the reason that it does not feature in the search matrix. In our opinion, it is appropriate to remit this Crystal Voxx Ltd. issue to the file of ld TPO/AO for conducting fresh TP study and decide the issue accordingly.
Selection of MAM - If the assessee is following the same method in respect of MSS segment that cannot be disturbed by the ld TPO/AO in this assessment year under consideration. Accordingly, we direct the ld. AO/TPO to follow the same method of TNMM to benchmark the ALP. Ordered accordingly.
Grant actual working capital adjustment while determining the ALP of the international transactions. Ordered accordingly.
Disallowance of deduction u/s 80G - We remit the issue to the file of ld TPO/AO to grant deduction u/s 80G of the Act in accordance with law.
Nature of expenditure - revenue v/s capital - purchase of computer peripherals - HELD THAT:- In our opinion, the claim of the assessee is justified and accordingly, we direct the ld. TPO/AO to grant depreciation at 60% or at applicable rates.
Non-grant of depreciation on the disallowances made in the preceding previous years - In our opinion, the plea of the assessee is justified. Accordingly, we direct the ld. TPO/AO to grant depreciation at applicable rates on the expenditure which was disallowed in the earlier year as capital expenditure. Ordered accordingly.
Disallowance of expenses u/s 36(1)(va) - In the draft assessment order, the Assessing Officer upheld the said disallowance without providing any opportunity to the Appellant to submit its contentions against such disallowance. Upon obtaining a remand report and upon accepting the contentions of the Appellant, the DRP directed deletion of the disallowance. In the final assessment order, an amount of Rs. 54, 064/- only was considered as the disallowance u/s 36(1)(va) - the CPC while computing the assessed income has considered the entire disallowance of Rs. 51, 49, 036/- and the disallowance of Rs. 54, 064/- was also considered once again while computing the assessed income resulting in double disallowance to the extent of Rs. 54, 064/-. Thus we remit this issue to the file of ld TPO/AO for fresh consideration after giving an opportunity of hearing to the assessee.
Disallowance u/s 40(a)(ia) in intimation issued u/s 143(1) - though the same has already been disallowed under section 37 of the Act suo moto by the Appellant in its return of income - After haring both the parties, we remit this issue to the file of ld TPO/AO to verify whether there is a double disallowance on this count and decide accordingly.
Non-consideration of the consolidated revised return of income - We remit this issue also to the file of ld TPO/AO to consider revised return of income in accordance with law. Ordered accordingly.
Short grant of TDS - We remit this issue to the file of ld TPO/AO with direction to give correct advance and TDS credit. Ordered accordingly.
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2023 (9) TMI 1614
Eligibility for exemption notification - Benefit subject to the condition of manufacture - Notification no 30/2004-CE dated 9.7.2004 as amended by N/N. 34/2015-CE dated 17.7.2015 - it was held by CESTAT that 'the appellants were not entitled to the benefit of 30/2004-CE dated 9.7.2004 as amended by Notification No. 34/2015-CE dated 17.7.2015 for the CVD on the imported goods' - HELD THAT:- Issue notice to the respondent(s).
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2023 (9) TMI 1613
Undisclosed money - Assessee was found to be owner of currency notes -Demonetisation of Old High Denomination Currency & Cash Deposits in Bank Accounts - As argued amount of normal household savings which was even allowed by CBDT Press Release/Instruction dated 18.11.2016 and 21.02.2017 to all households at the time of demonetization - HELD THAT:- CBDT has clarified that the genuine persons depositing their own household savings in cash into the bank accounts would not be questioned. Further, it is also mentioned that the “Unless all citizens of the country help the Government in curbing black money, this mission of black money will not succeed. Also the people who are against the black money should give information of such illegal activities going on to the Income-tax Department so that immediate action can be taken and such illegal transfer of cash can be stopped and seized. Black money is a crime against humanity. We urge every conscientious citizen to help join in the Government in eradicating it.
Then, the Instruction dated 21.02.2017 issued by CBDT prescribed a Standard Operating Procedure for on-line verification of cash- transactions. Thus, the Press Release/Instruction do not save the assessee’s case of transferring hefty cash of Rs. 49.99 lakh in bags from one place to another.
The assessee himself admitted not only the ownership of cash but also to have earned from undisclosed sources of current financial year 2016-17 and it was not even the case of assessee that the impugned cash represented saving of household or past savings or savings of somebody else like his wife. Therefore, we are not convinced by AR’s submission that the assessee’s case deserves any relief. Being so, we uphold the addition made/upheld by lower-authorities. This ground is dismissed.
AO has rightly assessed the income u/s 69A along with higher rate of tax u/s 115BBE.
Levy of interest u/s 234A, 234B and 234C - In a recent decision in CIT Vs. Arun Bansal [2023 (6) TMI 39 - ITAT DELHI] held on a reading of section 132B of the Act, though it transpires that the assets seized can be adjusted against any existing liability under the Act and advance tax may not be an existing liability, however, in our view, self assessment tax is certainly an existing liability created on 1st April once the financial year ends. Therefore, the AO should have adjusted the tax liability relating to the undisclosed income declared by the assessee by way of self assessment tax on 1st April, 2019. In that eventuality, there could not have been levy of interest u/s. 234B, as interest u/s. 234B of the Act has to be computed from first day of April following the financial year, for which, advance tax was required to be paid.
We remit this ground back to AO with a direction that the AO shall give benefit of the decision to assessee in calculation of interest and re-compute interest accordingly. Thus, this ground is allowed partly for statistical purpose. Levy of interest u/s. 234B of the Act by observing that the cash seized should have been adjusted against self assessment tax payable with the return of income. We hold that interest charged u/s. 234B of the Act in the peculiar facts and circumstances of the present case, deserves to be deleted. We, accordingly, delete the addition.
We remit this ground back to AO with a direction that the AO shall give benefit of the decision to assessee in calculation of interest and re-compute interest accordingly. Thus, this ground is allowed partly for statistical purpose.
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2023 (9) TMI 1612
Non-resident liability to pay interest u/s 234B and 234C - tax is deductible under Sec.195 of the Act on the payments made and no advance tax is payable by the assessee -
HELD THAT:- The dispute relating to the interpretation of the words "would be deductible or collectible" in Section 209(1)(d) of the Act can be resolved by referring to the proviso to section 209(1)(d), which was inserted by the Finance Act, 2012. The proviso makes it clear that the assessee cannot reduce the amount of income-tax paid to it by the payer without deduction, while computing liability for advance tax.
To give the intended effect to the proviso, section 209(1)(d) of the Act has to be understood to entitle the assessee, for all assessments prior to the financial year 2012-13, to reduce the amount of income- tax which would be deductible or collectible, in computation of its advance tax liability, notwithstanding the fact that the assessee has received the full amount without deduction.
The issue is covered by a decision of Mitsubishi Corporation [2021 (9) TMI 875 - SUPREME COURT] find no force in the contention of the Revenue that section 234B should be read in isolation without reference to the other provisions of Chapter XVII. The liability for payment of interest as provided in section 234B is for default in payment of advance tax. While the definition of “assessed tax” under section 234B pertains to tax deducted or collected at source, the pre-conditions of Section 234B, viz. liability to pay advance tax and non- payment or short payment of such tax, have to be satisfied, after which interest can be levied taking into account the assessed tax.
Therefore, section 209 the Act which relates to the computation of advance tax payable by the assessee cannot be ignored while construing the contents of section 234B. As we have already held that prior to the financial year 2012-13, the amount of income-tax which is deductible or collectible at source can be reduced by the assessee while calculating advance tax, the respondent cannot be held to have defaulted in payment of its advance tax liability.
We uphold the view adopted in MITSUBISHI CORPORATION [2021 (9) TMI 875 - SUPREME COURT] as well in the Madras Fertilizers Ltd. case [1983 (9) TMI 74 - MADRAS HIGH COURT] that the Revenue is not remediless and there are provisions in the Act enabling the Revenue to proceed against the payer who has defaulted in deducting tax at source. There is no doubt that the position has changed since the financial year 2012-13, in view of the proviso to section 209(1)(d), pursuant to which if the assessee receives any amount, including the tax deductible at source on such amount, the assessee cannot reduce such tax while computing its advance tax liability. Decided against revenue.
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2023 (9) TMI 1611
Reopening of assessment u/s 147 - deemed dividend u/s 2(22)(e) - notice beyond a period of four years - HELD THAT:- It cannot be said that there was any failure on the part of the assessee to disclose truly and fully all material facts necessary for assessment with regard to deemed dividend u/s 2(22)(e) of the Act and hence initiation of the reassessment proceedings beyond a period of four years are not permissible and the same cannot be sustained on that ground alone.
Accordingly, the impugned notices issued u/s 148 of the Act for initiation of reassessment proceedings deserve to be quashed and set aside. For the aforesaid reasons, not on merits on the ground with respect to deemed dividend under Section 2(22)(e) of the Act but when it is found that the conditions precedent for assessment of jurisdiction under Section 147 of the Act are not satisfied, the impugned notices under section 148 of the Act and consequentially the reassessment proceedings and the assessment orders passed for the assessment year 2013-14 are hereby quashed and set aside. Assessee appeal allowed.
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2023 (9) TMI 1610
Penalty u/s 271E - contravention of provisions of section 269T - repayment of unsecured loan of an amount in cash to Shri Vipan Kumar which is beyond the limits specified - whether the repayment of loans and deposits can be made only through any of the mode of transfer through the banking channel in terms of cheque, draft, ECS, etc or through cash or there could be a third mode of repayment whereby the assessee repays the amount in kind by selling the goods manufactured by him and adjusting the same against the amount received initially?
HELD THAT:- The restrictions imposed u/s 269SS in terms of initial receipt of loans and deposits are in situations where the acceptance of loans and deposits is in cash beyond the prescribed threshold and restrictions imposed u/s 269T in terms of repayment of loans and deposits applies where the repayment is in cash beyond the prescribed threshold.
As decided in case of CIT vs Rugmini Ram Ragav Spinners (P) Ltd [2007 (7) TMI 237 - MADRAS HIGH COURT] has similarly held that the rationale behind provisions of section 269SS and 269T is to prevent tax evasion i.e, laundering of concealed income by the parties in the guise of cash loans or deposits in or outside the accounts. Therefore, we donot agree with the findings of the ACIT that even where the assessee’s submissions are considered, the repayment of loan by supplying goods would still fall in the ambit of contravention as so specified in section 269T.
The reporting of the transaction in the tax audit report by the tax auditor has to be examined taking into consideration the explanation so furnished by the assessee to determine whether there is any violation of section 269T or not in the instant case.
In the instant case, the assessee has produced relevant documentation in support of his sale transactions which are reported in the financial statement and duly offered to tax and has also reported the same as part of its regular VAT filings with the VAT authorities. What further documentation is required from the assessee has not been specified nor has the existence of these documents been denied. There is no adverse findings recorded by the AO in accepting the sale transactions as part of the return of income and therefore, where the Additional CIT is disputing the same transaction while deciding the penalty matter, the same carries an additional burden which has not been discharged in the instant case.
There was nothing which stops the Additional CIT in calling Shri Vipan Kumar and recording his statement in order to verify the authencity of the explanation so submitted by the assessee. There was nothing which stops the Additional CIT in calling for the books of accounts which includes the cash book, sale register and other ledgers and examining the claim of the assessee that there was no cash payment and sales were made to Shri Vipan Kumar. Nothing has been done in the instant case and merely basis the apprehension, the explanation of the assessee has been rejected.
Thus no violation of section 269T in the instant case and levy of penalty u/s 271E is accordingly set-aside. Assessee appeal allowed.
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2023 (9) TMI 1609
Disallowance u/s 43B - Disallowance on account of payment of employees contribution to National Pension Scheme - entire payment is made before due date of filing return of Income - HELD THAT:- We observe that the tax auditor in their Tax Audit Report has specifically pointed out that sum pertains to claim of bonus under Section 43B of the Act, and that the said liability pre-existed on the first day of the previous year and that the same was actually paid by the assessee during the previous year under consideration.
Accordingly, it is seen that the tax auditor himself has certified that amount u/s 43B of the Act as a pre-existing liability which was paid by the assessee during the previous year and the assessee has also claimed the above amount while filing the return of income. Accordingly, looking into the facts of the instant case, this ground of the assessee’s appeal is allowed.
Disallowance on account of payment of employee’s contribution to National Pension Scheme - HELD THAT:- We observe that Ld. CIT(Appeals) also made no observation on the contention of the counsel for the assessee that payments to National Pension Scheme are governed by PFRDA Act, 2013 wherein no due date has been prescribed for the deposit of the aforesaid amount as employee’s contribution to National Pension Scheme. Accordingly, in interest of justice, the matter is being restored to the file of Ld. CIT(Appeals) for de novo consideration, and to specifically look into the contention put forth by the counsel for the assessee that the tax auditor in the Tax Audit Report has specifically stated that all the aforesaid payments have been made within the due prescribed date. Further, the contention of the assessee that under the PFRDA Act 2013, no due date has been prescribed and hence there is no question of any disallowance for employee’s contribution to National Pension Scheme once the payment has been made before the due date of filing of return of income, may also be looked into while passing the order.
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