TMI Tax Updates - e-Newsletter
October 10, 2019

Case Laws in this Newsletter:

GST Income Tax Corporate Laws Insolvency & Bankruptcy Indian Laws

Articles

1. New Section 115BAA – a quick clarification by way of circular seems result of desire for publicity hype for clarifications seekers and clarification by CBDT where in fact clarification is not required.

   By: DEVKUMAR KOTHARI

2. ACCOUNTS AND RECORDS TO BE MAINTAINED UNDER GST LAWS

   By: DR.MARIAPPAN GOVINDARAJAN

3. TAXABILITY AND RATE ON SUPPLY OF FOOD ITEMS - ADVANCE RULING

   By: Dr. Sanjiv Agarwal

4. Does Computer Generated Paper require a signature?

   By: shivaprasad chhatre

News

1. Two Persons arrested for involving in fake invoices racket & fraudulently availing Input Tax Credit

2. Cabinet approves 5% additional DA/DR due July, 2019

3. Cabinet approves relaxation of Aadhaar seeding of data of the beneficiaries under Pradhan Mantri KisanSamman Nidhi (PM-Kisan)

4. Cabinet apprised of the Progress under NHM and Decisions of the EPC and MSG of NHM

5. Cabinet approves MoUs signed between India and Foreign Broadcasters in the field of Radio and Television

Highlights / Catch Notes

GST

• GST on Road Over Bridge Construction Services Set at 12% Under Serial No. 3(iv) of Notification No. 11/2017.

  Case-Laws - AAR : Classification of services - Sub-Contract - construction of road over bridge (ROB) - the services provided by the Applicant as sub-contractor to principal contractors continues to be covered under the Serial No. 3(iv) of the principal rate Notification No. 11/2017 - Rate of GST is 12%.
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• HDPE Woven Geomembrane for Waterproofing Classified Under HSN Code 5911 per IS:15351:2015 Standards.

  Case-Laws - AAR : Classification of goods - Laminated High Density Poly Ethylene HDPE Woven Geomembrane for water proof Lining Type-Il, IS:15351:2015 - classifiable under HSN Code 5911.
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Income Tax

• Anonymous Donations Exempt from Sections 68, 115BBC for Religious Trusts, Not Educational or Medical Institutions.

  Case-Laws - AT : Addition u/s 68 or 115BBC - The anonymous donations will not be covered if donations received by any trust or institution created or established wholly for religious purposes or donations received by any trust or institution created or established for both religious as well as charitable purposes other than any anonymous donation made with a specific direction that such donation is for any university or other educational institution or any hospital or other medical institution run by such trust or institution.
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• Tax Exemption Clarified: Chairmanship Not 'Substantial Interest' Under Explanation 3, Section 13, Income Tax Act.

  Case-Laws - AT : Exemption u/s 11 - violation of the provisions of section 13(1)(d) and 13(2)(h) - Being a chairman in a company does not amount to holding a 'substantial interest' therein in terms of the clear mandate of Explanation 3 to section 13 of the Act.
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• Income Accrual in India: No Extra Profits for Assessee if Remuneration Meets Arm's Length Standard, Despite Permanent Establishment.

  Case-Laws - AT : Accrual of income in India - TP Adjustment - when the amount remunerated by the assessee is found to be satisfying the ‘arms length’ principle, therefore, no further profits could be attributed to the assessee in India even if it was to be held that the latter had a PE in India
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• No Penalty for Loan Received from Spouse u/s 271D for Business; Genuineness Unquestioned by Officer.

  Case-Laws - AT : Penalty proceedings u/s 271D - violation of provisions of section 269SS - receipt of loan in cash - the assessee has taken a loan from his wife due to business expediency and the AO has not doubted the genuineness and the sources of the loan - no penalty.
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• Penalty Confirmed for Non-Disclosure of Income in Revised Tax Return u/s 271(1)(c); Notices Trigger Action.

  Case-Laws - AT : Penalty levied u/s 271(1)(c) - difference in original return of income and revised return - Had it been the intention of the assessee to make a full and true disclosure of its income, it would have filed a revised return of income before the issuance of the notice 143(2)/ 142(1) by the AO. - Penalty confirmed.
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• Penalty u/s 271G Waived Due to Impracticality of Maintaining Segmental Profitability Records in Diamond Transactions.

  Case-Laws - AT : Penalty u/s 271G - assessee was unable to submit internal TNMM by working out the profitability of AE and non-AE segment - due to peculiar nature of the product and constant mixing and re-mixing of diamonds obtained from AEs and non-AEs, it would not be feasible to maintain records to determine segmental profitability to work out internal TNMM. - No penalty.
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• Section 54F: Deduction for LTCG allowed if new property construction starts before asset transfer, completed in specified time.

  Case-Laws - AT : LTCG - Deduction u/s 54F - assessee is eligible for deduction u/s 54F even if the construction is commenced before transfer of the capital asset and completed the construction within the period provided in 54F of the Act.
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• Court Quashes Reopening of Assessment u/s 147 Due to Lack of Specific ITR Column for Investment Disclosure.

  Case-Laws - HC : Reopening of assessment u/s 147 - non disclosure of investment in the ITR - borrowed satisfaction - Assessee submitted the, the Form ITR2, at the relevant point of time, did not include any column for the disclosure of investment - notice quashed.
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Corporate Law

• Tribunal Finds Respondents Removed from Board Without Proper Notice But Lacks Strong Legal Basis for the Decision.

  Case-Laws - AT : Oppression and mismanagement - the observations made by the Tribunal that the Respondents had been removed from the Board and their shareholding had been cancelled without due notice not in consonance with law are not based on application of mind - observations of Tribunal though short of finding in regard to existence of a Prima facie case, much less a strong prima facie case, are unwarranted.
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• Court Weighs Transferring Proceedings to NCLT Under Companies Act Section 434; Liquidator's Progress May Influence Decision.

  Case-Laws - HC : Whether in exercise of powers under the proviso to Section 434 of the Companies Act, 2013, this court should transfer the present proceedings to NCLT? - normally, this court would transfer the matter to NCLT. This would also give an opportunity to try and revive the company by the Insolvency Resolution Process. There may be exceptional circumstances where the Liquidator has made much progress and the chances of Insolvency Resolution Process are very bleak then, in that eventuality this court may exercise its discretion and not transfer such a matter.
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Indian Laws

• Cheque Dishonor Complaint Valid u/s 138 Despite Unsigned Demand Notice, If Verified by Complainant and Magistrate.

  Case-Laws - HC : Dishonour of cheque - Service of statutory demand notice - he complaint under Section 138 of the N.I.Act, without signature can be maintained when such a complaint is verified by the complainant and the Process is issued by the Magistrate after due verification.
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IBC

• Corporate Insolvency Resolution Process: Section 7 Application Allowed Despite Ongoing SARFAESI Act Proceedings, No Winding-Up Claims Filed.

  Case-Laws - Tri : Initiation of CIRP - Time limitation - There is no averment that the winding up proceedings were initiated. No provision in the Code has been brought to our notice by which application under Section 7 of the Code cannot be filed where proceedings under SARFAESI 2002 are pending.
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• Court Rejects Application Against Corporate Debtor Due to Failure in Serving Mandatory Notice; Postal Delivery Issues Cited.

  Case-Laws - Tri : Maintainability of application - Corporate Debtor - mandatory notice - notice has been sent by e-mail as well as by post but the notice sent by post has not been served for the reason as the addressee left without instructions. - In the absence of physical delivery of notice, application rejected.
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• Liquidation Order Misinterpreted as Discharge Notice for Corporate Debtor's Staff, Lacks Legal and Factual Support.

  Case-Laws - AT : Liquidation of Corporate Debtor - The Adjudicating Authority landed in error in directing that the liquidation order shall be deemed as a notice of discharge to the officers, employees and workmen of the Corporate Debtor. This cannot be supported either in law or on the facts of this particular case.
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• CIRP application valid; CIRP distinct from winding-up. IBC overrides Tea Act u/s 238 for conflict resolution.

  Case-Laws - SC : Maintainability of application - initiation of CIRP - the entire “corporate insolvency resolution process” as such cannot be equated with “winding up proceedings” - considering Section 238 of the IBC, which is a subsequent Act to the Tea Act, 1953, shall be applicable and the provisions of the IBC shall have an overriding effect over the Tea Act, 1953. Any other view would frustrate the object and purpose of the IBC.
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Case Laws:

• GST

• 2019 (10) TMI 315
  Classification of services - Works Contract services - construction of road over bridge (ROB) - construction, erection, commissioning and completion of Bridges provided by the applicant as a sub-contractor to the Contractors who have been awarded the construction contract pertaining to construction/widening of roads by the Government Entities such as National Highway Authority of India. HELD THAT:- In the present case, the Applicant has sought advance ruling only in respect of a situation where the main contractor is providing works contract services in respect of construction/widening of roads for NHAI, which are not covered by entry at Serial No. 3 (iii), (vi) and (vii) but are covered only under entry at Serial No. 3(iv). Moreover, before amendment vide notification dated 25-12018 introducing specific entry on rate of services provided by the sub-contractor to main contractor, the activity of the Applicant was covered under the scope of Serial No. 3(iv) of the Notification No. 11/2017 (as amended), which provided the rate of GST on the services supplied by way of construction of road/bridges. Thus, the services provided by the Applicant as sub-contractor to principal contractors continues to be covered under the Serial No. 3(iv) of the principal rate Notification No. 11/2017 which was inserted vide Notification No. 20/2017-Central Tax (Rate), dated 22-8-2017. - Rate of GST is 12%.

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• 2019 (10) TMI 314
  Classification of goods - Laminated High Density Poly Ethylene HDPE Woven Geomembrane for water proof Lining Type-Il, IS:15351:2015 - whether classifiable under HSN Code 5911 10 OO or under HSN Code 3926 90 99? - HELD THAT:- The, Laminated High Density Poly Ethylene HDPE Woven Geomembrane for water proof lining IS:15351:2015 , are made from HDPE Tapes/ Strips of less than 5 mm which are specifically covered under Heading 5404 as Synthetic Textile Material and the specially woven fabrics from the said HDPE Tapes/Strips are covered under Heading 5407 20. It is the said HDPE Woven Fabrics which is referred as Woven Fabrics made from Synthetic Textile Material which is subjected to LDPE Coating and Lamination referred as Sandwich Lamination. After the said process two or more pieces of said Sandwiched Laminated Geomembrane fabrics are joined/ seamed together by a suitable heat air blower scaling process keeping into the requirement of the customer based on which the said fabrics are cut and joint and cut sealed as per standard sealing process to be used as pond liner. The said Laminated Coated Fabrics is used for technical purpose and is specifically covered under scope of Heading 5911 10 00. The heading which provides the most specific description shall be preferred to headings providing a more general description. However, when two or more headings each refer part only of the materials or substances contained in mixed or composite goods or to part only of the items in a set, those headings are to be regarded as equally specific in relation to those goods, even if one of them gives a more complete or precise description of the goods. According to Rule 3(a), a heading which provides the most specific description shall be preferred to heading providing a more general description. The Laminated High Density Poly Ethylene HDPE Woven Geomembrane for water proof lining - IS:15351:2015 , made from HDPE Tapes/Strips of less than 5 mm and specially woven fabrics from the said HDPE Tapes/ Strips and subjected to LDPE Coating and Lamination referred as Sandwich Lamination and further fit for using as pond liner laminated textiles products and correctly classifiable under HSN Code 5911.

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• 2019 (10) TMI 313
  Detention of goods alongwith vehicle - alleged wrong classification of the goods - Section 129(1) of CGST Act - HELD THAT:- At the time of arguments, learned counsel for the parties are agreed that the goods have already been released and the issue of correct classification can only be adjudicated in view of the pleas raised before the Appellate Authority under Section 107 of the Act. The present writ petition is disposed of as infructuous with liberty to the petitioner to file a statutory appeal against the aforesaid impugned order dated 3.5.2019 before the Appellate Authority.

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• 2019 (10) TMI 312
  Revocation of Cancellation of registration certificate - Section 30 of the CGST/HGST Act, 2017 - petitioner submits that the present petition has become infructuous, as the competent authority has passed an order dated 01.10.2019, rejecting the application for revocation of the cancellation of registration of the petitioner-Company. HELD THAT:- It is admitted that the remedy against the aforesaid order dated 01.10.2019 is under Section 107 of the CST Act, 2017 by way of an appeal - the present petition stands dismissed as infructuous.

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• 2019 (10) TMI 311
  Permission for withdrawal of petition - Cancellation of registration - PGST Act - issuance of bills without supply of goods and/or services - HELD THAT:- The writ petition is dismissed as withdrawn with liberty to petitioner to seek appropriate remedy in accordance with law.

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• Income Tax

• 2019 (10) TMI 310
  Income accrued in India - Maintainability of the present writ petition on the ground of alternative efficacious remedy being available under the scheme of the Act - directions issued by the first Respondent - DRP under Section 144C(5) - receipts on account of domain name registration charges as royalty under Section 9(1)(vi) - India-UAE DTAA - HELD THAT:- Pertinently, the alternate efficacious remedy that has been cited by the revenue is by way of an appeal before ITAT, which is not available as yet, because no assessment order has yet been passed by the Assessing officer. The only submission of the Petitioner is that the DRP has not even taken into consideration Petitioner s plea that it is a tax resident of UAE, and under the India UAE DTAA, the Assessing Officer could not have proposed to treat the income from domain name Registration as Royalty. If this plea of the Petitioner is not even looked at/ examined by the DRP, it would tantamount to a jurisdictional error. To relegate the Petitioner to the appellate remedies, where he would have to join the queue, in order to obtain an order of remand to DRP, would be unjustified. Significantly, no prejudice would be caused to the Revenue, as the Petitioner is only seeking correction of a jurisdictional error. Thus, if the Petitioner was to succeed in the present petition, it would only result in an order remitting the matter to DRP to decide afresh; in which eventuality, DRP would be entitled to deal with the objections in accordance with law. Whether the writ petition raises an issue that would invite the exercise of jurisdiction by the Court at this stage? - HELD THAT:- The DRP has, instead, blindly followed the decision of GoDaddy.com LLC [ 2018 (4) TMI 390 - ITAT DELHI] and [ 2018 (7) TMI 1809 - ITAT DELHI] and held that the Web Hosting Services are interlinked with domain registration and are ancillary and subsidiary to the application or enjoyment of the right for which payment is received as royalty. Since the payment so received is considered as royalty, the payments received for Web Hosting Services are also considered as Royalty under Section 9(1)(vi) of the Income Tax Act, 1961. It is starkly noticeable that the main contention, or to say the basic argument, raised by the Petitioner with respect to the non-taxability of its income under India-UAE DTAA has not been noticed or discuss, much less adjudicated upon. he case of the Petitioner is essentially that the definition of Royalty under the Act is wider than that provided in the Treaty. Petitioner s contention is that under the Act transfer of rights in property similar to trademark is also covered, whereas under the Treaty, only the transfer of right to use trademark is covered and not similar rights or rights in property similar to trademark . This Court, at this stage, is not expressing any view on the merits of the aforesaid objection as it is for Respondent No. 1 to consider, evaluate and analyse the same, while exercising the power under Section 144C of the Act. Writ petition is allowed and the impugned order is set aside. Consequently, the matter is remitted back to the first respondent for considering the objections raised by the petitioner in detail, and for passing a fresh order on merits and in accordance with law by giving reasons and findings. It is made clear, once again that this Court is not expressing any view on the merits of the claim/objections made by the Petitioner, or the findings rendered by the Transfer Pricing Officer, as it is for the first respondent to consider and decide these aspects.

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• 2019 (10) TMI 309
  Addition on account of delayed payment of service tax under the provisions of section 43B - AO was of the view that the provisions of section 43B of the Act require to make the payment of the tax, duty and cess etc within the due date of filing of the income tax return for the year under consideration - AO was of the view that the provisions of section 43B of the Act require to make the payment of the tax, duty and cess etc within the due date of filing of the income tax return for the year under consideration - HELD THAT:- A plain reading of the above provision reveals that it is confined to the purchase and sale of goods and the determination of the inventories. As such the provision of section 145A of the Act requires the assessee to include the amount of any tax, duty, cess or fee in the value of the purchases, sales and inventories. The provision of section 145A of the Act does not require the assessee to include the amount of service tax either in the purchases or sales. There was no obligation on the part of the assessee to show the amount of service tax collected from the customers as part of the turnover. Accordingly, the assessee has not included the amount of service tax in its turnover which has been shown as current liability. Therefore there was no deduction claimed by the assessee in its profit and loss account at the time of actual payment. We are not inclined to uphold the finding of the authorities below for the reasons as discussed in the preceding paragraph. Hence the ground of appeal of the assessee is allowed. Addition on account of interest on delayed payment of service tax after the due date of filing the income tax return - HELD THAT:- We can presume that the submission of the assessee is correct in the given facts and circumstances. Thus the question arises whether such interest expenses can be added to the total income of the assessee under the provision of section 43B of the Act. In our considered view, the answer is in negative. It is because, the assessee has not claimed the deduction of the amount as discussed above. Thus, we are of the view that there cannot be any addition to the extent of the interest amount as claimed by the assessee on account of delayed payment of service tax to the total income of the assessee. Appeal of the assessee is partly allowed.

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• 2019 (10) TMI 308
  Depreciation on leased assets - whether income derived from leasing of the trucks would be business income? - HELD THAT:- In this case the assessee was a leasing company which leased out trucks that it purchased and in M/S ICDS. LTD. [ 2013 (1) TMI 344 - SUPREME COURT] held that the income derived from leasing of the trucks would be business income and, therefore, the requirement of section 32 i.e. the assets must be used in the course of business stood fulfilled. In the present case also it is undisputed that the assessee is earning income from leasing activities and the leased out assets are being used by the lessees for their business purposes. A perusal of the profit and loss account also shows that the assessee has been earning income from lease business. Circular No. 2/2001 issued by the CBDT on 9.2.2011 explicitly provides that under the Income Tax Act, in all leasing transactions, the owner of the assets is entitled to depreciation if the same is used in the business. As the assessee was being allowed the benefit of depreciation prior to the two assessment years under consideration. Copies of assessment orders for assessment years 2004-05 and 2005-06 also show that the assessee s claim with respect to depreciation was allowed. Thus, it is apparent that there has been no change in the facts and circumstances of the case and, therefore, there is no cogent reason for the department to deviate from its earlier stand. Although it is settled law that principle of res judicata does not apply to income tax proceedings, it is also settled law that without a change in circumstances and facts the accepted position by both the department as well as the assessee should not be disturbed. We find ourselves unable to persuade ourselves to agree to the conclusions reached by the lower authorities and, therefore, for both the years under consideration, we set aside the order of Ld. CIT (A) and direct the AO to allow the benefit of deprecation to the assessee corporation.- Decided in favour of assessee.

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• 2019 (10) TMI 307
  Bogus purchases - assessee has taken accommodation entries of bogus purchases from the benami concerns of Bhanwarlal Jain group, discovered during the course of search - CIT-A restricting the addition to 3% of the total bogus purchases - HELD THAT:- In the instant case, there was no search proceeding in the premises of the assessee nor any blank signed cheque book, voucher have been found there was no response to the summons issued by the AO u/s 131 of the Act to the seven parties. The purpose for issuing the summons to the said parties was to establish the genuineness of the purchases. However, we find that as recorded by the AO at para 4.6 of the assessment order, the assessee had filed copy of the ledger accounts, sample bills, bank statements reflecting the above transactions and corresponding sales were provided. We refer to the decisions of the Tribunal in the case of the assessee having similar type of business. In M/s Naitik Gems v. ITO [ 2017 (11) TMI 1708 - ITAT MUMBAI] the assessee was a partnership firm engaged in the business of trading and export of diamonds. The Tribunal has confirmed the profit @ 3% on bogus purchases. We uphold the order of the Ld. CIT(A) - Decided partly in favour of assessee.

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• 2019 (10) TMI 306
  Addition u/s 68 to the case of society - Corpus donations receipts - Assessee is a society registered under the UP Society registration Act is a society registered under the UP Society registration Act - AR argued that Section 68 cannot be invoked when the trust has maintained the details of the donors and addition can only be done u/s 115BBC of the Act and Section 68 is not applicable to the case of society - HELD THAT:- The assessee s contention that after the introduction of Section 115BBC, Section 68 is not applicable to the case of society is also equally faulty. Ld.CIT(A) held that Section 115BBC acts in domain of anonymous donation as referred earlier; while Section 68 is applicable in the domain of any cash credit, including any donation or voluntary contribution in case assessee is not able to explain the source properly. Even if names and addresses of the creditors/donors are furnished; still the proof regarding identity of the donors, and the genuineness of transaction showing such donation, and, above all, creditworthiness of such donors-are essential to be laid down before the AO. Thus, it was held that Section 115BBC and Section 68 are mutually exclusive and can both operate in their own domain as per facts and circumstances of the case. In the case of Shree Shiv Vankeshawar Educational Social Welfare Trust Vs ACIT [ 2019 (5) TMI 1057 - ITAT DELHI] it was held that corpus donation is never credited to the income and expenditure account of the trust whereas the normal donation is credited to the income and expenditure account as income. If a normal donation is doubted by the AO about its genuineness, and identity of the donors, the addition cannot be made u/s 68 of the income tax act in the case of the trust as it has already been offered as an income. The anonymous donations will not be covered if donations received by any trust or institution created or established wholly for religious purposes or donations received by any trust or institution created or established for both religious as well as charitable purposes other than any anonymous donation made with a specific direction that such donation is for any university or other educational institution or any hospital or other medical institution run by such trust or institution. Donations /voluntarily contributions received by a trust created wholly for a charitable or religious purpose (not being contributions made with a specific direction that they shall form part of the corpus of the trust or institution) shall for the purpose Section 11 of the Act deemed it to be the income derived from the property held under trust wholly for charitable or religious purposes in the provisions of Sections 11 13 of the Act shall apply accordingly. The assessee offers the donations to income and incurs expenditure for the purpose of the trust, no addition u/s 68 of the Act is warranted. However, the judgments do not accord any such privilege to the corpus donations received by the trust or institution. The judgment of Keshav Social and Charitable Foundation [ 2005 (2) TMI 84 - DELHI HIGH COURT] specifically excluded corpus donations and held that only the donations included in the income and expenditure statement are precluded from the purview of Section 68 of the Act. Hence, we hereby uphold the action of the ld. CIT (A). - Decided against assessee.

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• 2019 (10) TMI 305
  Exemption u/s 11 - violation of the provisions of section 13(1)(d) and 13(2)(h) - HELD THAT:- Assessee s shareholding in the four companies even if held prior to 1st June, 1973 would have been violative of section 13(2)(h) if any of its trustees [or any other person referred to in sub-section (3)] held shares in the four companies carrying more than 20% voting power. In the course of the proceedings, the Annual Reports of all four companies for the F.Y. 2011-12 were submitted. Reference was made to the schedule containing disclosure of the shareholders holding more than 5% equity shares of the company and it was pointed out that neither Mr. Ratan N. Tata, nor any other persons referred to in sub-section (3) held more than 5% equity/voting power in any of the four companies. The question of holding shares carrying more than 20% voting power in the companies does not arise. Being a chairman in a company does not amount to holding a substantial interest therein in terms of the clear mandate of Explanation 3 to section 13 of the Act. Hence, the assessee has not violated the provision of section 13(2)(h) of the Act and hence, on both grounds assessee succeeds. Assessee trust has violated section 13(3)(b) - Tata Sons Ltd. has not made any contribution to the assessee, let alone contributing a sum in excess of Rs. 50,000/-. In the course of the assessment proceedings, no question was ever asked nor was any detail called for in this regard by the AO. Hence, I am of the view that this observation is factually incorrect and reversed. This additional ground is decided in favour of assessee. Exemption under section 11 of the Act is not to he denied to the entire income of the assessee. However, as held that the assessee in the present case has not violated any part of section 13 Allowance of carry forward deficit on account of excess expenditure while granting benefit under of section 11 - We allow the carry forward of the deficit and dismiss this issue of revenue s appeal.

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• 2019 (10) TMI 304
  Excess of jurisdiction by framing assessment u/s 153A/143(3) - whether no incriminating documents was found and / or seized during search and he did not adjudicate other grounds of appeal on merit - Addition u/s 68 - HELD THAT:- The penalty u/s 271(1)(c) of the Act were levied for the AYs 2005-06 2006-07 on the ground that the additional income was offered in the return filed u/s 153A after the search u/s 132 was conducted. Hon ble High Court in NEERAJ JINDAL, SHRI NEERAJ JINDAL, SHRI ANKUR AGGARWAL [ 2017 (2) TMI 1002 - DELHI HIGH COURT] held that for the purposes of application of Explanation 5 to Section 271(1)(c) as was in force at the time of search, gave immunity to the assessee from payment of penalty if in the returns furnished u/s 153A the additional was offered and conditions prescribed therein were satisfied. The observations of the Hon ble High Court relied upon by the CIT, DR were made in the light of and in the context of the provisions of Section 271(1)(c) read with Explanation 5 thereto and the Hon ble High Court in the said decision was not called upon to decide or adjudicate the scope and ambit of the assessment to be framed u/s 153A of the Act in the case of the person searched. In the case before the Hon ble High Court the assessee had admittedly offered additional income with reference to incriminating material found in the course of search and therefore the Hon ble High Court did not have occasion to go into the question as to whether the income was assessed with reference to incriminating material found in the course of search or not. We therefore find that certain observations in the said decision which are sought to be used by the ld. CIT, DR to buttress his argument is flawed. We find that the specific issue in the present appeal is squarely answered in the favour of the assessee in the M/s Loyalka Farms Pvt Ltd decision [ 2018 (11) TMI 1001 - ITAT KOLKATA] of this Tribunal. Applying the proposition of law laid down in the above decision to the facts of the case on hand, we find that the only addition made by the AO u/s 68 of the Act in the relevant unabated assessment year was not based on any incriminating material found during the course of search. Appeal of the Revenue is dismissed.

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• 2019 (10) TMI 303
  Unexplained credits u/s 68 - identity, creditworthiness and genuineness of the loan transaction - HELD THAT:- The addition has been made only on the basis of suspicion without looking into the totality of the facts and surrounding circumstances and without the basis of any evidence. As rightly mentioned in his assessment order by the Ld. AO, three things viz. identity of the creditor, creditworthiness of the creditor and genuineness of the transaction have to be proved to treat a loan as genuine. Identity - It is an uncontroverted fact that Smt. Jenita Wallang was not a new creditor. The Assessee had taken loans from her in earlier years and outstanding balance of such loans, as on 01/04/2012, was Rs. 29,50,000/-. In the earlier years for which assessment u/s 143(3) had been made, no adverse finding had been given in respect of the said loan. The requisition letter under Section 133 (6), sent by the AO, by speed post, was duly delivered to the creditor and she had duly sent the reply to the said letter by post. The loan creditor also holds a PAN which was duly quoted by her in her loan confirmation letter. Thus, the identity of the loan creditor was fully established. Creditworthiness of the loan creditor - From the records, it is seen that in course of hearing no efforts were made to assess the financial position of these businesses on which Assessee had relied on to prove the creditworthiness of the loan creditor. Even in the requisition sent by the AO u/s 133 (6), no details were asked about these businesses. As the Assessee had submitted, as proof, copies of the licenses of the creditor s businesses, the AO should have ascertained the financial position of these businesses to accept or of not accept the proof submitted by the Assessee.On perusal of these documents, we hold that the loan creditor, Smt. Jenita Wallang, was a person of means and had creditworthiness to advance the loan in question to the Assessee . From the records, it is seen that in course of hearing no efforts were made to assess the financial position of these businesses on which Assessee had relied on to prove the creditworthiness of the loan creditor. Even in the requisition sent by the AO u/s 133 (6), no details were asked about these businesses. As the Assessee had submitted, as proof, copies of the licenses of the creditor s businesses, the AO should have ascertained the financial position of these businesses to accept or of not accept the proof submitted by the Assessee.On perusal of these documents, we hold that the loan creditor, Smt. Jenita Wallang, was a person of means and had creditworthiness to advance the loan in question to the Assessee. Genuineness of the transaction - AO has not directly verified the loan creditor or the other documentary evidences, such as the copies of the VAT returns of the proprietary concern of the loan creditor, details of deposits in the bank statement of the loan creditor, factum of the loan creditor being a bona fide tribal person, genuineness of the sale deed etc. despite being given an opportunity to do so.To prove the creditworthiness of Smt. Jenita Wallang the Assessee had furnished copies of the licenses of her Bottling plant and Bonded Warehouse business issued by the Govt. of Meghalaya. The fact of giving of the above loan was also confirmed by Smt. Wallang directly to the ITO in response to ITO s letter sent to her for this purpose.Smt. Wallang has PAN Number and loan has been given by account payee cheque. The assessee had duly proved the identity of Smt. Jenita wallang, her creditworthiness and the genuineness of the loan transaction.It is an uncontroverted fact that Smt. JenitaWallang was not a new creditor. The Assessee had taken loans from her in earlier years and outstanding balance of such loans, as on 01/04/2012, was Rs. 29,50,000/-. In the earlier years for which assessment under Section 143(3) had been made, no adverse finding had been given in respect of the said loan. We note that assessee has proved all the three ingredients viz: identity, creditworthiness and genuineness of the loan transaction of Rs. 80,00,000/- given by the loan creditor, Smt. Jenita Wallang to the assessee. Hence, assessee has discharged his primary onus u/s 68.That being so, we decline to interfere with the order of Id. C.I T.(A) in deleting the aforesaid addition. His order on this addition is therefore, upheld and the grounds of appeal of the Revenue are dismissed.

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• 2019 (10) TMI 302
  Accrual of income in India - TP Adjustment - profit attributed to the Indian subsidiary - characterization of income - attribution of income - PE in India - Royalty or Fee for Technical Services or even as Business profits - India-Israel Tax Treaty - HELD THAT:- We find that the issue that where the attribution of profits to the Indian subsidiary of the assessee i.e M/s Celltick Mobile Media (India) Pvt. ltd. was found to be adequate and justified on the basis of the transfer pricing analysis, then, no further income could be attributed to it is squarely covered by the order of the Tribunal in the assesses own case for A.Y 2012-13. Apart there from, we find that the Indian subsidiary of the assessee viz. M/s Celltick Mobile Media (India) Pvt. Ltd. had for A.Y. 2015-16 to A.Y 2019-20 entered into an APA with the CBDT. As is discernible from the APA , the functions of the subsidiary company inter alia included marketing and sale of various software solutions of the assessee company. As per the APA the operating profit margin of M/s Celltick Mobile Media (India) Pvt. Ltd. up to its revenue of Rs. 50 crore was to be taken at 7% of its Operating revenue . Admittedly, the FAR analysis and overall functions of the subsidiary company i.e M/s Celltick Mobile Media (India) Pvt. ltd. had remained the same during the period covered by the APA and that for the year under consideration i.e A.Y 2014-15. Though, the APA in the case of the assessee had been entered into for the period spread over A.Y. 2015- 16 to A.Y 2019-20, however, as held by the ITAT, Mumbai in the case of 3i India Pvt. Ltd. Vs. DCIT [ 2016 (9) TMI 1320 - ITAT MUMBAI] a subsequent APA would also have a bearing on the earlier years. Accordingly, we find that the ALP of the transactions covered by the APA up to INR 50 cr. was to be taken @ 7% of its operating revenue. As such, as the operating revenue of M/s Celltick Mobile Media (India) Pvt. Ltd. during the year under consideration viz. A.Y 2014-15 was Rs. 32,71,03,165/-, therefore, the ALP of the covered transactions @ 7% worked out at Rs. 2,30,20,874/-. As against the aforesaid ALP, the Indian subsidiary of the assessee viz. M/s Celltick Mobile Media (India) Pvt. Ltd. had shown a profit of Rs. 3,65,52,479/- as per its profit and loss account for the year under consideration. Accordingly, we are of the considered view that as the income disclosed by M/s Celltick Mobile Media (India) Pvt. Ltd. is higher than the ALP as per its APA for the succeeding years, therefore, no further income on the said count also could be attributed to it. Finding ourselves to be in agreement with the view taken by the Tribunal in the assesses own case for A.Y 2012-13, thus, conclude that now when the amount remunerated by the assessee to M/s Celltick Mobile Media (India) Pvt. Ltd. is found to be satisfying the arms length principle, therefore, no further profits could be attributed to the assessee in India even if it was to be held that the latter had a PE in India. Accordingly, we delete the addition made by the A.O by attributing the same to the Indian subsidiary of the assessee viz. M/s Celltick Mobile Media (India) Pvt. Ltd. - Decided in favaor of assessee.

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• 2019 (10) TMI 298
  Reopening of assessment u/s 147 - non disclosure of investment in the ITR - borrowed satisfaction - Assessee submitted the, the Form ITR2, at the relevant point of time, did not include any column for the disclosure of investment - the assessee had salary income from other sources and capital gains. In such circumstances, the assessee was required to file the ITR 2 - HELD THAT:- Following the decision of HC in the case of SARALA DEVI BIRLA [ 1989 (8) TMI 6 - CALCUTTA HIGH COURT] , the impugned notice for reopening of the assessment is not sustainable in law. We hold that the reasons recorded by the Assessing Officer to form the belief that the income chargeable to tax had escaped assessment lack validity. The impugned notice is therefore, set aside. The writ-application is accordingly allowed and is disposed of.

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• 2019 (10) TMI 296
  TP Adjustment - payment of royalty to the AE - MAM - Assessee adopted TNMM method at entity level aggregating all the international transactions with OP/OR as the PLI - HELD THAT:- There is no dispute that the assessee has derived the benefit from the technical information given by the AE. There was an agreement reduced in writing between the assessee and the AE for payment of royalty and for extending necessary technical support to the assessee for manufacturing product continuously and consistently. CIT(A) has given a finding that the technical information on the manufacturing the activity was received and benefitted by the assessee. AR submitted that the manufacturing activity of company and the continuous technical support for which the royalty is paid are independent and interrelated and as held in the case of M/s. Johanson Johnson [ 2017 (3) TMI 1520 - BOMBAY HIGH COURT] the TPO obliged to follow any one of the methods prescribed in section 92C of the Act. Instead, the ld.TPO adopted the benefit test which is not one of the prescribed methods. Thus, the order of the TPO is defective in not following the methods prescribed under the Act. Commercial expediency is the business decision of the tax payer and the AO cannot sit and judge the business expediency as decided by the Hon ble Delhi High Court. The coordinate bench of ITAT, Delhi also held that TNMM is the most appropriate method for benchmarking the royalty payment. On application of TNMM as MAM at the entity level the PLI of the assessee more than the comparable cases, thus the transactions of the assessee company are at Arm s length. Following the judicial precedents discussed in the preceding paragraphs, we hold that determination of royalty at Rs. NIL is unjustified and the most appropriate method for determining the royalty payment is TNMM method at the entity level aggregating all the transactions including the payment for royalty. Accordingly, we hold that the adjustment made by the TPO is not warranted and the addition made by the Assessing Officer is deleted and the order of the ld. CIT(A) is upheld. For A.Y. 2007-08, the facts are identical and having held that TNMM is the most appropriate method, no adjustment is called for on account of transfer pricing issues. In the instant case, the tax effect involved in this appeal is also less than Rs. 50.00 lakhs which is squarely covered by the CBDT Circular No. No.17/2019, dated 08/08/2019, therefore, this appeal is not maintainable.

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• 2019 (10) TMI 295
  Reopening of assessment u/s 147 - AO issued a notice u/sec. 142(1) calling for explanation and submission of relevant information on various issues including development/sinking fund - HELD THAT:- It cannot be said that the assessee has failed to disclose all the material facts fully and truly to complete the assessment. Notice u/sec. 148 is issued after 04 years of the relevant assessment and as per proviso to section 147, to reopen the assessment on the ground of escapement of income, the AO has to establish that the assessee has failed to disclose the fully and truly of the material facts to complete the assessment. In the present case, the assessee has disclosed all the facts in respect to the notice issued by the Assessing Officer u/sec. 142(1) dated 16/12/2010. By considering the above proviso to section 147 and also by considering the facts of the case we find that the assessee has disclosed all the material facts truly and fully before passing the assessment order u/sec. 143(3) and the Assessing Officer by considering the same, assessment was completed on 31/12/2010. Thus, the notice issued u/sec. 148 dated 19/03/2015 is invalid and subsequent order passed u/sec. 143(3) r.w.s. 148, dated 11/03/2016 is bad in law. Therefore, we quash the assessment order passed u/sec. 143(3) r.w.s. 148 dated 11/03/2016 and partly allow the appeal of the assessee.

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• 2019 (10) TMI 294
  Addition of total advances received from the customers - HELD THAT:- Out of the customer advances of Rs. 4,98,69,526/-, advances accepted by the assessee during the relevant assessment year under consideration was Rs. 5,37,236/-. The assessee failed to furnish the details called for by the AO. Though the assessee has furnished the account copies, the confirmations and other details called for by the AO were not furnished by the assessee and the Ld.AR also fairly conceded for the addition of Rs. 5,37,236/-, therefore, we set aside the order of the Ld.CIT(A) and confirm the addition of Rs. 5,37,236/- out of the total customer advances of Rs. 4,98,69,526/-. Accordingly, this ground of the appeal of the revenue is allowed. Addition of creditors for advances - HELD THAT:- All the credits were adjusted against the sales or related to trade transaction and no cash transaction involved. Though the assessee has furnished the complete details, the AO did not cause any enquiry to disprove the evidences produced by the assessee. As observed from the order of the CIT(A), the AO did not make any effort also during the remand stage. Once the assessee furnished the complete details of ledger accounts, customer details, vouchers and bills and completion certificates of the lifts, the burden of the assessee gets discharged and it is for the AO to make necessary enquiries and to prove the genuineness or otherwise. In the instant case, inspite of the fact that the books of accounts, bills, vouchers, details and the completion certificates are available, the AO did not find any defect in the details furnished by the assessee. Since the assessee has affected the sales and adjusted the sale advances in the subsequent years, there is no reason to suspect the genuineness of the trade creditors, hence, there is no case for making the addition. - Decided in favour of assessee Addition u/s 41(1) - HELD THAT:- AO did not make any addition u/s 41(1) of the Act. There is no dispute that the sum of Rs. 4,98,69,526/- was not related to the assessment year under consideration and the AO made the addition u/s 68 of the Act. AO is not permitted to make addition of opening balances u/s 68 of the Act. Though the revenue has raised the ground with regard to sustaining the addition u/s 41(1) the assessee has neither admitted the income u/s 41(1) nor the AO made out a case for taxing the creditor u/s 41(1). Therefore, the ground raised by the revenue is infructuous, hence dismissed.

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• 2019 (10) TMI 293
  Deduction u/s 54F - whether the sale of plots by the assessee is business income or capital gains ? - Entitled for deduction u/s 54F if construction of house is commenced prior to the transfer of the asset - HELD THAT:- In the instant case, the assessee carried on the agricultural activity till 31.03.2008 and subsequently sold the land in plots. Though the assessee has taken permission for conversion of land for plotting into various units, no evidence was brought on record by the AO that the assessee has carried on any developmental activity. The assessee has not incurred any other expenditure except for payment of conversion fees, transport charges, labour charges etc. From the assessment order, we observe that the AO did not make out a case that the assessee has carried on the business activity. Therefore, the assessee being the agriculturist, not carried on any business activity except conversion of land into plots and disposing them without being developed there is no business activity involved and the income required to be taxed as capital gains, but not business income. It is established that the department also has accepted the assessee s contention that the sale consideration on account of sale of plots to be brought to tax under the head long term capital gains. Accordingly, first question is answered in favour of the assessee and against the revenue. Eligibility for deduction u/s 54F if the asset is transferred prior to the transfer of the land - As relying on SRI BOLLINA SRIHARI RAO AND VICE-VERSA [ 2017 (4) TMI 117 - ITAT VISAKHAPATNAM] and CHAMARTHI MOUNICA [ 2019 (8) TMI 847 - ITAT VISAKHAPATNAM] assessee is eligible for deduction u/s 54F even if the construction is commenced before transfer of the capital asset and completed the construction within the period provided in 54F of the Act. Therefore, we set aside the orders of the lower authorities and allow the appeal of the assessee.

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• 2019 (10) TMI 292
  TP Adjustment - CIT-A directing the TPO to compute the Arm s Length Price (ALP) by adopting LIBOR rates to benchmark the receipt of interest by the assessee from its Associated Enterprise (AE) - non determining the spread on account of risk adjustment to be applied over and above the LIBOR rate - HELD THAT:- As decided in assessee s own case [ 2017 (8) TMI 413 - ITAT MUMBAI] in the subsequent AY.(AY 2012-13),the AO himself had made no adjustment on account of interest rate transaction even though the facts and circumstances were identical to the facts to the year under appeal. We also find that in the cases, relied upon by the assessee, the Tribunal has taken a consistent view that LIBOR+ 200bps or 300bps interest rate has to be considered arm s length rate of interest.In the case under consideration after adding 300 bps the rate would come to 5.49 %,whereas the assessee has charged 6%/7.5% interest from its AE thus, there was no justification for the FAA to uphold the order of the TPO/AO who had charged interest @14.39%.Therefore,reversing the order of the FAA,we decide third Ground of appeal in favour of the assessee . Disallowance u/s 14A - Computation of book profits u/s 115JB - HELD THAT:- t is not in dispute that there was no exempt income claimed by the assessee. The law is now very well settled that when there is no exempt income, there cannot be application of disallowance u/s 14A of the Act. Accordingly, we direct the ld AO to delete the disallowance made u/s 14A of the Act both under normal provisions of the Act as well as in the computation of book profits u/s 115JB of the Act. Addition u/s 41(1) - reduction in its liability of buyback during the year of its Foreign Currency Convertible Bonds (FCCB) - HELD THAT:- No dispute that the proceeds of the FCCBs were utilized by the assessee for acquisition of shares of its wholly owned subsidiary in USA. Hence it could be safely concluded that the FCCBs were utilized for capital purposes. We find that the assessee had undertaken the buyback of few FCCBs at a discounted value , which resulted in rebut, or remission of a part of the FCCBs. The assessee claimed the gains earned (reduction in the liability) on the buyback of FCCBs of Rs. 7,57,00,711/- as non taxable in the return of income since this was not a gain but an actual reduction in the liability which occurred due to buyback of FCCBs. We find that the decision in the case of CIT vs Xylon Holdings (P) Ltd . [ 2012 (9) TMI 449 - BOMBAY HIGH COURT] clearly supports the case of the assessee wherein it was held that cessation / remission of liability to repay a loan taken to purchase a capital asset does not result in revenue receipt chargeable to tax. As relying on MAHINDRA AND MAHINDRA LTD. THRG. M.D. [ 2018 (5) TMI 358 - SUPREME COURT] we hold that the gains earned on reduction of liability on the buyback of FCCBs at a discounted value in the sum cannot be brought to tax Recomputing the deductions u/s 10A, 10B and 10AA by setting off the losses of non-STP / non-tax holiday units - HELD THAT:- As decided in own case for the Asst Year 2012-13 lower authorities had erred in disallowing part of the assesses claim of deduction under Sec.10AA by wrongly aggregating the income and loss of various units while quantifying its entitlement towards deduction under Sec.10AA of the I.T Act. In terms of our aforesaid observations, we vacate the disallowance under Sec.10AA

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• 2019 (10) TMI 291
  Levy of penalty u/s 271(1)( c) - Defective notice - AO had not mentioned the specific charge of offence in the penalty notice by striking off the irrelevant portion - HELD THAT:- Hon ble Telangana Andhra Pradesh High Court in PCIT vs Smt Baisetty Revathi [ 2017 (7) TMI 776 - ANDHRA PRADESH HIGH COURT] also held that when penalty proceedings are sought to be initiated by the revenue u/s 271(1)(c ) of the Act, the specific ground which forms the foundation, therefore, has to be spelt out in clear terms. Otherwise, an assessee would not have proper opportunity to put forth his defence. When the proceedings are penal in nature, resulting in imposition of penalty ranging from 100% to 300% of the tax liability, the charge must be unequivocal and unambiguous. When the charge is either concealment of particulars of income or furnishing of inaccurate particulars thereof, the revenue must specify as to which one of the two is sought to be pressed into service and cannot be permitted to club both by interjecting one or between the two. Respectfully no hesitation in cancelling the levy of penalty on the technical ground of non-striking off of the irrelevant portion in the show cause notice for penalty by the revenue. Accordingly, the additional ground raised by the assessee for the Asst Year 1998-99 is allowed. In view of this decision, the other grounds raised by the assessee on merits need not be gone into and the arguments advanced by both the sides are left open and no decision is rendered herein on the same. Levy of penalty u/s 271(1)(c) - HELD THAT:- Asst Year 1998-99 on this technical issue of not striking off the irrelevant portion in the penalty notice would hold good for this asst year also except with variance in figures. Hence we have no hesitation in cancelling the levy of penalty on the technical ground of non-striking off of the irrelevant portion in the show cause notice for penalty by the revenue. Accordingly, the additional ground raised by the assessee for the Asst Year 2002-03 is allowed. In view of this decision, the other grounds raised by the assessee on merits need not be gone into and the arguments advanced by both the sides are left open and no decision is rendered herein on the same. Disallowance of lease rentals - HELD THAT:- We find that the issue in dispute is fully settled in favour of the assessee by the decision of the Hon ble Supreme Court in the case of ICDS Ltd [ 2013 (1) TMI 344 - SUPREME COURT] wherein it was held that depreciation on leased assets is allowable in the hands of the lessor who is the owner. Though this decision has been rendered on the allowability of depreciation on leased assets from the angle of the lessor, the principle laid down could be made very much applicable to the facts of the instant case conversely for allowability of lease rentals in the hands of the assessee (lessee). Hence respectfully following the said decision , we hold that the assessee is entitled for deduction of Rs. 42,48,067/- towards lease rentals paid on cars and we direct the ld AO accordingly. Disallowance u/s 14A read with Rule 8D of the Rules under normal provisions of the Act - HELD THAT:- Additional grounds contesting the point that no satisfaction was recorded by the ld AO before resorting to computation mechanism provided in Rule 8D(2) of the Rules and also on the point that the ld AO erred in considering all the investments instead of considering only dividend bearing investments. Disallowance u/s 14A of the Act read with Rule 8D of the Rules while computing book profits u/s 115JB - HELD THAT:- We direct the ld AO to delete the disallowance made u/s 14A of the Act in the sum both under normal provisions of the Act as well as in the computation of book profits u/s 115JB of the Act. Hence the additional ground raised by the assessee on non-recording of satisfaction is allowed in this regard. Disallowance of advertisement expenses - HELD THAT:- The revenue cannot be allowed to disallow the expenditure on one hand as incurred for non- business purposes and incurred on capital account and correspondingly tax the income on other hand which is nothing but the recoveries of the said expenditure. This would result only in double jeopardy to the assessee and also result in contradictory stand taken by the revenue. It is not in dispute that the assessee had indeed recovered group support fees of Rs. 27,60,00,000/- which also includes recovery made on account of advertisement expenses and this sum is duly offered to tax by the assessee. Assessee had effectively claimed only a sum of Rs. 21,46,63,119/- ( 23,20,51,011 1,73,87,892 disallowed voluntarily by assessee) as deduction in the return of income. This goes to prove that the assessee had effectively made a surplus / profit of Rs. 6,13,66,881/- out of rendering the group support services, which goes to prove that the assessee had recovered the entire group support fees including advertisement expenses with a mark up. Hence there cannot be any separate disallowance of group support fees including advertisement expenses. We direct the ld AO to delete the disallowance towards advertisement expenses.

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• 2019 (10) TMI 290
  Penalty u/s 271G - assessee was unable to submit internal TNMM by working out the profitability of AE and non-AE segment - assessee failed to maintain documentation as required under Clause (g) and (h) of Rule 10D (1) - TPO accepted the transactions to be at Arm s Length Price - HELD THAT:- due to peculiar nature of the product and constant mixing and re-mixing of diamonds obtained from AEs and non-AEs, it would not be feasible to maintain records to determine segmental profitability to work out internal TNMM. The undisputed position that emerges is that the assessee has carried out certain international transactions during the year with its AE and benchmarked the same using TNMM method in its Transfer Pricing Study which has been accepted by Ld. TPO. The only basis of levying impugned penalty against the assessee is the fact that the assessee did not furnish internal TNMM by providing segmental profitability of AE and non-AE transactions. The same stood explained by the inherent nature of business being carried out by the assessee which has already been enumerated by us in the preceding paragraphs. The Ld. first appellate authority, while deleting the penalty, relied upon the binding judicial decision of Hon ble Delhi High Court rendered in CIT Vs. M/s. Leroy Somer Controls (India) Pvt. Ltd. [ 2013 (9) TMI 761 - DELHI HIGH COURT] and other decision of the Tribunal rendered on similar factual matrix. We also find that similar factual matrix stood covered in assessee s case by the recent decision of coordinate bench of this Tribunal rendered in DCIT V/s Leo Schachter Diamonds India Pvt. Ltd [ 2019 (3) TMI 690 - ITAT MUMBAI] - no infirmity in the impugned order in deleting the penalty u/s 271G. - Decided in favour of assessee.

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• 2019 (10) TMI 289
  Addition on account of depreciation on assessee trust - HELD THAT:- We note that the decision of the Hon`ble jurisdictional High Court of Calcutta in the case of CIT vs. Siliguri Regulated Market Committee [ 2014 (8) TMI 686 - CALCUTTA HIGH COURT] is applicable to the assessee, wherein the Hon ble High Court has held that depreciation claim is allowable even if asset had been claimed as application by assessee trust . Disallowance of administrative and establishment expenses - HELD THAT:- Administrative and establishment expenses is an allowable expenditure, as has been held by the jurisdictional High Court of Calcutta in the case of Birla Janahit Trust [ 1990 (8) TMI 5 - CALCUTTA HIGH COURT] . That being so we decline to interfere in the order passed by the ld CIT(A), his order on this issue is hereby upheld and grounds of appeal raised by the Revenue is dismissed.

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• 2019 (10) TMI 288
  Addition to advance/deposits - penalty u/s 271 (1) (c) - HELD THAT:- One of the persons Sh. Sanjay Patel could not attend the office as he was abroad. It has been further stated in the remand report that the creditworthiness and the genuineness of the transactions were examined on oath and it is verified from the statement/s recorded that all the 13 persons have made their bookings and that they have invested with the assessee for booking of the property. It has also been stated by the assessing officer that out of the 13 persons, 9 persons have stated that they have cancelled their bookings and have received back their booking amounts and have also submitted their confirmations in this regard. The remand report further states that the remaining 3 persons have stated that the cancellation amounts were converted into unsecured loans and interest was received by them on the said amounts. It has also been mentioned in the remand report that in the case of one Smt Smitaben Mahendra Kumar Patel she was allotted shop No. 3 against her booking. Thus a perusal of the remand report submitted by the assessing officer in this regard clinches the issue in favour of the assessee in as much as out of the 14 persons, 13 persons have duly accepted and confirmed the transactions. AO has also examined their creditworthiness and has not drawn any negative inference in this regard. Only one out of the 14 persons, one Sh. Sanjay Patel was not available for recording of the statement under oath as he was abroad. As seen that Sh. Sanjay Patel has only advanced an amount of Rs. 51,000/- and looking into the facts and totality of the circumstances that other 13 persons out of the 14 persons have confirmed the transactions of the assessee, the amount of Rs. 51,000/- loses significance. Accordingly, in view of the remand report of the assessing officer, we are of the considered opinion that the impugned addition does not have any foundation to survive. Accordingly we set aside the order of the CIT (Appeals) and direct the assessing officer to delete impugned addition. Since the quantum addition stands deleted, the consequential penalty imposed under section 271 (1) (c) also does not survive. The same also stands deleted.

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• 2019 (10) TMI 286
  Penalty u/s 271(1)(c) - disallowance of alleged bogus purchases - HELD THAT:- The penalty has been levied by the AO on the reason that there was no actual delivery of goods from the purchasers and only bills were issued which is evident from the fact that no supporting documents relating to the delivery of goods such as delivery challan, place of delivery, lorry receipts were furnished. As recorded by the AO, even during the course of penalty proceedings, the assessee could not produce any documentary evidence to establish the genuineness of the transaction. In Union of India v. Dharmendra Textiles Processors [ 2007 (7) TMI 307 - SUPREME COURT] has held that penalty u/s 271(1)(c) is a civil liability and the wilful concealment is not an essential ingredient for attracting civil liability, unlike the matter of prosecution u/s 276C. While considering an appeal against an order made u/s 271(1)(c), what is required to be examined is the record which the officer imposing penalty had before him and if that record can sustain the finding that there has been concealment, that would be sufficient to sustain penalty. - Decided against assessee.

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• 2019 (10) TMI 285
  Penalty levied u/s 271(1)(c) - difference in original return of income and revised return - difference in the items of the profit loss account filed along with the original return of income submitted on 30.09.2011 and the revised return on 25.09.2012 - HELD THAT:- Section 143(2) states that where a return has been furnished u/s 139, the AO, if he considers it necessary or expedient to ensure that the assessee has not understated the income or has not under paid the tax in any manner, shall serve on the assessee a notice requiring him, on a date to be specified therein, either to attend the office of the AO or to produce, or cause to be produced before the AO any evidence on which the assessee may rely in support of the return. For the purpose of making assessment, the AO may serve on any person a notice u/s 142(1) to produce or cause to be produced, such accounts or documents as the AO may require. Thus in the instant case, the assessee had no intention to declare its true income in the original return of income filed on 30.09.2011. Had it been the intention of the assessee to make a full and true disclosure of its income, it would have filed a revised return of income before the issuance of the notice 143(2)/ 142(1) by the AO. AO has rightly held that the assessee has deliberately and consciously failed to furnish full and true particulars of income and attempted to conceal income. To hold otherwise would be to exalt artifice over reality and to deprive the statutory provisions in question all serious purpose. However, the penalty is not levyable on the disallowance of Rs. 49,791/- (disallowance u/s 14A) and Rs. 5,00,000/- (salary). The AO is directed to restrict the levy of penalty u/s 271(1)(c) to 100% of the difference between revised income (Rs. 23, 92, 594/-) and original income (Rs. 9,733/-). - Decided partly in favour of assessee.

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• 2019 (10) TMI 284
  Penalty u/s 271(1) (C) - omission on the part of the assessee to return the rental income - HELD THAT:- As carefully gone through the notice issued u/s. 274 r.w.s. 271 of the Act the Assessing Officer has not struck out the irrelevant portion of the notice. In other words he has not specified whether he is levying penalty for concealment of particulars of income or furnishing of inaccurate particulars of income. As held in the case of CIT Anr. vs. M/s. SSA s Emerald Meadows [ 2015 (11) TMI 1620 - KARNATAKA HIGH COURT] that the notice issued by the Assessing Officer u/s. 274 r.w.s 271(1)(c) is to be bad in law as it did not specify which limb of section 271(1)(c) of the Act, the penalty proceedings had been initiated, i.e., whether for concealment of particulars of income or furnishing of inaccurate particulars of income. This view was confirmed by the Supreme Court in the same case, i.e., CIT Anr. vs. M/s. SSA s Emerald Meadows [ 2016 (8) TMI 1145 - SC ORDER] In view of the above discussion, we are inclined to hold that the penalty proceedings initiated by the AO is void ab initio and allow the appeal of the assessee

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• 2019 (10) TMI 283
  Penalty proceedings u/s 271D - violation of provisions of section 269SS - HELD THAT:- Similar issue was considered by the coordinate bench of ITAT,Jaipur bench in Smt. Kusum Dhamani.v. Additional Commissioner of Income-tax, Range-5, Jaipur, [ 2015 (4) TMI 144 - ITAT JAIPUR] and held that where assessee running a proprietorship concern, took cash loans from her husband carrying on another proprietorship business on account of business exigencies for making payments to labourers and lenders, there being no violation of provisions of section 269SS, impugned penalty order passed under section 271D was to be set aside. In the instant case, the assessee has taken a loan from his wife due to business expediency and the AO has not doubted the genuineness and the sources of the loan. Therefore, respectfully following the view taken by this Tribunal and the decision of coordinate Bench in the case of Smt. Kusum Dhamani [ 2015 (4) TMI 144 - ITAT JAIPUR] we hold that the penalty is not leviable in this case and accordingly, we set aside the orders of the lower authorities and delete the penalty. - Decided in favour of assessee.

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• 2019 (10) TMI 282
  Penalty u/s 271(1)(c) - non-striking of the irrelevant portion of the notice issued u/sec. 274 - HELD THAT:- Hon ble High Court of Telangana A.P. in the case of Smt. Baisetty Revathi [ 2017 (7) TMI 776 - ANDHRA PRADESH HIGH COURT] being a latest judgment has considered the very same issue and held that non-striking of the irrelevant portion of the notice issued u/sec. 274 is invalid. The very same judgment has been followed by the coordinate bench of this tribunal in the case of Konchada Sreeram [ 2017 (11) TMI 1164 - ITAT VISAKHAPATNAM] . Therefore, respectfully following above referred to judicial precedents, we hold that the notice issued under section 274 read with section 271(1)(c), dated 25/03/2013 is invalid - Decided in favour of assessee.

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• 2019 (10) TMI 278
  Income from house property in respect of stock in trade u/s.23 - deemed rental income with respect to the properties held as stock in trade under section 23 - HELD THAT:- As in NEHA builders private Ltd [ 2006 (8) TMI 105 - GUJARAT HIGH COURT] wherein it was held that the income from the property held as stock in trade should be treated as business income. Income with respect to the properties held as stock in trade can be taxed under the head business and profession. Thus there is no question of computing the income qua the properties held as stock in trade under the head income from house property. We further hold that there is no provision under the head of income, namely income from the business and profession for computing the deemed rental income qua the properties held as stock in trade. Therefore, we are of the view that there cannot be any income under the head house property on account of deemed rent with respect to such properties held as stock in trade. We hold that there cannot be any income under the head house property qua the properties held as stock in trade on account of deemed rental income. As the assessee succeeds on the reasoning as elaborated in the preceding paragraph, therefore we are not inclined to adjudicate the other contentions raised by the assessee. Hence the ground of appeal of the assessee is allowed.

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• Corporate Laws

• 2019 (10) TMI 300
  Transfer of the present winding up petitions to National Company Law Tribunal - whether in exercise of powers under the proviso to Section 434 of the Companies Act, 2013, this court should transfer the present proceedings to NCLT? HELD THAT:- It is manifest that two functionaries, namely, OL under the Companies Act, 1956 and Liquidator under IBC cannot concurrently carry out their functions. Such a proposition would create a needless confusion. Once a liquidator is appointed by the company court in saved matters, the process of liquidation commences. Ordinarily, the liquidator takes time and efforts to consolidate the assets of the respondent company, to evaluate the same and put them for auction. He seeks to take other steps to dissolve the company. Once this process has started, no purpose is served by handing over the same to another liquidator who would also perform a similar function all over again. This would set the entire effort of the Official Liquidator at naught which would not have been intended. Normally, this court would transfer the matter to NCLT. This would also give an opportunity to try and revive the company by the Insolvency Resolution Process. There may be exceptional circumstances where the Liquidator has made much progress and the chances of Insolvency Resolution Process are very bleak then, in that eventuality this court may exercise its discretion and not transfer such a matter. Application disposed off.

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• 2019 (10) TMI 287
  Oppression and mismanagement - Non-fulfillment of eligibility criteria as fixed under Section 244 of the Companies Act, 2013 - HELD THAT:- Admittedly, the pleadings were incomplete and the parties were yet to lay the relevant material and evidence before the Tribunal in support of the stands they would respectively take in their pleadings. In these circumstances, the Tribunal could not reach a finding in regard to the issues raised in the Company Petition. In so far as making out of a prima facie case for purposes of grant of interim relief in terms of provisions of Section 242(4) is concerned, the observations made by the Tribunal that the Respondents had been removed from the Board and their shareholding had been cancelled without due notice not in consonance with law are not based on application of mind. The proposition of law that there must be a prima facie case entitling the party seeking interim relief besides other considerations cannot be disputed. It is also indisputable that in appropriate cases, which can be stated to be rarest of the rare cases, the Tribunal may even grant interim relief having the attributes of a final order but the Applicant in such cases will have to establish a strong prima facie case in addition to other legal considerations like an imminent legal injury of irreparable nature and balance of convenience lying in favour of the Applicant. Shockingly, the Tribunal made some observations regarding the validity of notices qua holding of Board Meeting and EoGM without knowing the respective stands of the parties which could be ascertained only after the pleadings were completed. In the given circumstances, observations of Tribunal though short of finding in regard to existence of a Prima facie case, much less a strong prima facie case, are unwarranted. It cannot be said that the Respondents had been able to demonstrate that they had raised a fair question which required probe. In absence of pleadings being complete, when the version of adversary is yet to come before the Tribunal, it cannot be said that the issue raised constituted a fair question. Viewed in this perspective, the impugned orders cannot be supported. The inescapable conclusion deducible from the foregoing discussion is that the impugned orders being seriously flawed and suffering from legal infirmities have to be set aside - Appeal allowed.

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• Insolvency & Bankruptcy

• 2019 (10) TMI 301
  Maintainability of application - initiation of CIRP - Amount due and payable by the appellant-corporate debtor to the respondent-operational creditor - whether before initiation of the proceedings under Section 9 of the IBC, a consent of the Central Government as provided under Section 16G(1)(c) of the Tea Act, 1953 is required and/or whether in absence of any such consent of the Central Government the proceedings initiated by the respondent5 operational creditor under Section 9 of the IBC would be maintainable or not? HELD THAT:- On the facts and circumstances of the case, and more particularly when, despite the notification under Section 16E of the Tea Act, the appellant-corporate debtor is continued to be in management and control of the tea gardens/units and are running the tea gardens as if the notification dated under Section 16E has not been issued, Section 16G of the Tea Act, more particularly Section 16G(1)(c), shall not be applicable at all. On a fair reading of Section 16G of the Tea Act, we are of the opinion that Section 16G of the Tea Act shall be applicable only in a case where the actual management of a tea undertaking or tea unit owned by a company has been taken over by any person or body of persons authorised by the Central Government under the Tea Act. Taking over the actual management and control by the Central Government or by any person or body of persons authorised by the Central Government is sine qua non before Section 16G of the Tea Act is made applicable. Therefore, in the facts and circumstances of the case, Section 16G(1)(c) shall not be applicable at all, as the appellant corporate debtor is continued to be in management and control of the tea units/gardens. Section 16G(1)(c) refers to the proceeding for winding up of such company or for the appointment of receiver in respect thereof. Therefore, as such, the proceedings under Section 9 of the IBC shall not be limited and/or restricted to winding up and/or appointment of receiver only. The winding up/liquidation of the company shall be the last resort and only on an eventuality when the corporate insolvency resolution process fails. As observed by this Court in SWISS RIBBONS PVT. LTD. AND ANR. VERSUS UNION OF INDIA AND ORS. [ 2019 (1) TMI 1508 - SUPREME COURT] , referred to hereinabove, the primary focus of the legislation while enacting the IBC is to ensure revival and continuation of the corporate debtor by protecting the corporate debtor from its own management and from a corporate debt by liquidation and such corporate insolvency resolution process is to be completed in a timebound manner. Therefore, the entire corporate insolvency resolution process as such cannot be equated with winding up proceedings . Thus, considering Section 238 of the IBC, which is a subsequent Act to the Tea Act, 1953, shall be applicable and the provisions of the IBC shall have an overriding effect over the Tea Act, 1953. Any other view would frustrate the object and purpose of the IBC. The impugned judgment and order dated 20.06.2019 passed by the learned NCLAT holding that insolvency petition under Section 9 of the Insolvency and Bankruptcy Code, 2016 initiated by the respondent operation creditor shall be maintainable, is hereby confirmed - appeal dismissed.

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• 2019 (10) TMI 297
  Liquidation of Corporate Debtor - approval of Committee of Creditors - irregularity in appointment of Resolution Professional - collusion between the Resolution Professional and the COC - bias and fraud - HELD THAT:- The Appellant vehemently argued that collusion between the Resolution Professional and the COC paved the way for liquidation of the Corporate Debtor. However, he was unable to demonstrate any material irregularity of substance to substantiate his argument. Admittedly, statutory Corporate Insolvency Resolution Period of 180 days further extended by 90 days computed from the date of appointment of Interim Resolution Professional has elapsed and there is no legal scope for extension of the period. Any irregularity or illegality right from order of admission till passing of the order of liquidation, if any, should have been challenged before the competent forum at the appropriate stage. The Corporate Insolvency Resolution Process is time bound and the timelines set out by I B Code, Rules and the Regulations framed thereunder have to be adhered to scrupulously. There is no ground for interference with the impugned order of liquidation. However, the direction enumerated in clause (g) of para 11 of the impugned order is repugnant to law and virtually conflicts with the recommendation of CoC for liquidation of Corporate Debtor as a going concern. The Adjudicating Authority landed in error in directing that the liquidation order shall be deemed as a notice of discharge to the officers, employees and workmen of the Corporate Debtor. This cannot be supported either in law or on the facts of this particular case. Appeal disposed off.

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• 2019 (10) TMI 281
  Maintainability of application - Corporate Debtor - mandatory notice - notice has been sent by e-mail as well as by post but the notice sent by post has not been served for the reason as the addressee left without instructions. - dishonor of cheque - Section 9 of the Insolvency Bankruptcy Code, 2016 - HELD THAT:- In view of the facts that the notice dated 4th December, 2018 though stated to have been sent by the Operational Creditor by post to the Corporate Debtor, but it could not be delivered due to the absence of the Corporate Debtor at its registered address. Section 8(1) specifically mentions that an Operational Creditor may, on the occurrence of a default, deliver a demand notice of unpaid Operational Debt . The law specifically mandates that the Operational Creditor shall see to it that the demand notice is actually delivered by the Operational Creditor or any of its Agents, Postal Authorities or whatever mode is adopted by him to deliver the demand notice but, there should be specific physical delivery of the notice - It is further clarified that the Corporate Debtor shall be bound to bring to the notice of the Operational Creditor about the existence of dispute or payment of unpaid Operational debt within a period of 10 days of receipt of demand notice or copy of the invoice mentioned in sub section (1) of Section 8. It is thus clear that the Operational Creditor has admittedly not complied with the provisions of Section 8 of the Insolvency and Bankruptcy Code and therefore the application thus fails and is deserve an order of rejection under Section 9(5)(ii)(c) of the Code. Petition dismissed.

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• 2019 (10) TMI 280
  Maintainability of application - initiation of CIRP - Time limitation - forum hunting - proceedings under the SARFAESI Act 2002 were pending - Status of the applicants who are the assignee of the loan - HELD THAT:- The proceeding under the SARFAESI 2002, were initiated well within that period and subsequent follow up action was also taken. Therefore, for the purposes of the Code also, the application under Section 7 filed on 25.09.2018 is to be taken as well within the time. There is no averment that the winding up proceedings were initiated. No provision in the Code has been brought to our notice by which application under Section 7 of the Code cannot be filed where proceedings under SARFAESI 2002 are pending. Status of the applicants who are the assignee of the loan - The Hon ble High Court had held that the challenge of assignment debt is wholly devoid of merit and the other argument that the financial creditor was an agent and thus could not be assigned the debt is again not tenable. The conditions provided for by Section 7(5) (a) of the Code being satisfied in the present case, we direct that the application for initiation of CIRP against Corporate Debtor be admitted. The directions regarding moratorium and appointment of IRP issued.

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• 2019 (10) TMI 279
  Forfeiture of entire bid amount amount - e-auction - failure of the Applicant to honour the commitment - HELD THAT:- The Clause 12 of the Tender document has already been extracted, which clearly provides that the defaulting bidder shall have no right to claim any amount deposited by him/her and shall have no claim over the property . The Applicant has accepted all the terms and conditions of the Tender document consciously after reading and understanding the same, and he has not sought any clarification from the Liquidator as was requested by the Liquidator vide intimation letter dated 26th October, 2018 under the head Important Note - Therefore, the Liquidator has rightly forfeited the entire amount deposited by the Applicant which is completely in accordance with the terms and conditions of the Tender document, acceptance thereof and the conditions contained in the intimation letter dated October 26, 2018 sent by the Liquidator to the Applicant. Application dismissed.

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• 2019 (10) TMI 277
  Admissibility of application - initiation of CIRP - Corporate Debtor defaulted in repaying the loan amount - existence of debt and dispute or not - HELD THAT:- Since it is not the case of the Corporate Debtor that debt and default are not in existence and there being no settlement between the parties, this case is fit for admission whereby this Bench hereby admits this petition by appointing Mr. L.K. Sivaramakrishnan, as Interim Resolution Professional (IRP) looking at the consent by the IRP with directions - Petition admitted - moratorium declared.

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• 2019 (10) TMI 276
  Maintainability of application - initiation of CIRP - default in repayment - failure to discharge duty of a Guarantor in respect to the loans given - existence of debt and default or not - HELD THAT:- The Corporate Debtor Counsel having not disputed existence of debt and default, this Bench being satisfied that the Petitioner has proved existence of debt and default, I am of the view that this case is fit for admission whereby this Bench hereby admits this petition by appointing Mr. Savan Godiawala, as Interim Resolution Professional (IRP) looking at the consent given by the Insolvency Professional with directions. Application admitted - moratorium declared.

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• 2019 (10) TMI 275
  Maintainability of application - initiation of CIRP - Amount outstanding against Corporate debtor - existence of debt and dispute or not - HELD THAT:- The perusal of the Counter filed by the Corporate Debtor reveals that the Corporate Debtor has fairly admitted that to execute the orders placed by the Operational Creditor, the Corporate Debtor has received an amount of Rs. 1,75,000/- from the Operational Creditor and it could neither perform its obligation nor could repay the amount received from the Operational Creditor - there is a clear admission of the outstanding debt due to the Operational Creditor by the Corporate Debtor. The Operational Creditor has fulfilled all the requirements of law for admission of the Application. This Authority is satisfied that the Corporate Debtor has committed default in making payment of the outstanding debt claimed by the Operational Creditor - Application admitted - moratorium declared.

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• Indian Laws

• 2019 (10) TMI 299
  Dishonour of cheque - Service of statutory demand notice - Whether service of statutory demand notice as contemplated under Section 138(b) of the Negotiable Instruments Act, 1881, on the drawer of the cheque can be held invalid on the ground that the office copy of the said notice filed by the complainant alongwith the complaint under Section 138 of the N.I.Act , does not bear the signature either of the counsel, who sent the said notice or of the drawee of the cheque? HELD THAT:- The Honourable Apex Court [ 2012 (12) TMI 154 - SUPREME COURT] has held that the complaint under Section 138 of the N.I.Act, without signature can be maintained when such a complaint is verified by the complainant and the Process is issued by the Magistrate after due verification It is quite obvious that only after noticing that the office copy filed alognwith the complaint is unsigned, the respondent has cleverly raised a defence of non-compliance of the provisions under Section 138(b) of the N.I.Act. Had the office copy be bearing signature either of the party or his Advocate, perhaps the respondent may not have taken any such defence. It is thus evident that, to defeat the claim of the complainant, the respondent had raised a technical plea that there was no compliance of Section 138(b) of the N.I.Act and therefore the complaint was not maintainable. Unfortunately, the technical plea so raised prevailed with the learned Magistrate and resultantly the complaint was dismissed by the Trial Court. There is no hesitation in holding that the Trial Court has grossly erred in dismissing the complaint filed by the present appellant under Section 138 of the N.I.Act, on the ground that the office copy of the statutory mandatory notice as contemplated under Section 138(b) of the N.I.Act, filed alongwith complaint was not signed either by the complainant or his Advocate. The impugned Judgment and order, therefore, cannot be sustained and deserves to be set aside - appeal allowed.

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