TMI Tax Updates - e-Newsletter
May 10, 2022
Case Laws in this Newsletter:
Income Tax
Insolvency & Bankruptcy
Central Excise
Highlights / Catch Notes
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Income Tax:
Speculative transactions - set off of the loss - transaction in derivatives on recognized stock exchange as defined under Section 43 (5) (d) of the Income Tax Act, 1961 with reference to explanation given to Section 73 - the transactions in respect of the trading in derivatives as prescribed in clause (d) inserted in proviso to Section 43(5) would not be a speculative transaction. - The appellant was entitled to claim set off of the loss suffered by the appellant - HC
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Income Tax:
Reopening of assessment u/s 147 - reason to believe - The reasons recorded were totally unfounded and consequently the jurisdictional notice under Section 148 issued by the assessing authority was without jurisdiction - HC
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Income Tax:
Attachment of the land -Tax recovery proceedings - title and the ownership of the Non- Agricultural parcel of land - the only exercise which the Principal Commissioner needs to now undertake is to look into the documents produced by the writ applicants and ascertain as regards the title and possession over the property-in-question. - The Principal Commissioner shall look into all documents which are on record and take an appropriate call as regards the attachment of the property-in-question. - HC
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Income Tax:
Unexplained cash credit u/s 68 - Merely because the Investor Companies have shown meager income during the impugned assessment year, the same in my opinion, cannot be a ground to doubt the creditworthiness of the said company especially when the said company is having sufficient funds in its account in shape of share capital and free reserves. - AT
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Income Tax:
Addition on account of agricultural income - CIT(A) has granted more than fair relief to the assessee. The theory of agricultural income by the assessee is devoid of cogent evidence. In this view of the matter we do not find any infirmity in the order of learned CIT(A) in this regard. - AT
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Income Tax:
Revision u/s 263 - Addition u/s 68 - accepting the returned income - AO has conducted enquiry in respect of subject matter i.e. share capital and premium collected by the assessee-company. Therefore, the finding of Second Pr. CIT that the Second AO has not conducted enquiry is incorrect and is flowing from suspicion only. - AT
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Income Tax:
Disallowance of provision towards rental expenses - This is purely on the basis of the estimate and was rightly treated as contingent in nature and not allowed as a deduction by the Revenue authorities. In this regard, we are of the view that the assessee has not given any basis for its anticipated liability towards rental expenses nor has he quantified the basis of arriving at the anticipated liability. - Additions confirmed - AT
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Income Tax:
TP adjustment made on buy back of shares - The TPO has not explained the basis or rationale for adopting figures from different valuation reports. The assessee followed the valuation prescribed by RBI in AP (DIR Series) Circular No.16 dated 4.10.2004 for the purpose of determining the value of share buy back. The same is not disputed by the TPO. Further, the TPO has disturbed the independent valuation reports without bringing on record another independent valuation report to justify the addition. The TPOs valuation is also not as per the prescribed methods of determining the ALP. In view of the same. we affirm the findings of the DRP which deleted the TP addition - AT
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Income Tax:
Revision u/s 263 - Bogus sales - nature of the transactions being of accommodation entry taken - A.O. has failed to examine the complete bank statement of the assessee as only partial bank-account statement is available on record - revision order sustained - AT
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Income Tax:
Capitalization of Software Expenses - It is the user rights which has been purchased by the assessee and requires updation and modification at regular intervals. Hence, it cannot be said that the assessee has acquired any asset capital in nature by way of payment of software expenses. Hence, the addition made by the Assessing Officer is directed to be deleted. - AT
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IBC:
Initiation of CIRP - Period of limitation - Having regard to the fact that the date of NPA is 30/09/2014, there is an ‘acknowledgement of debt’ dated 19/12/2015 and the Financial Statements of the year ending 2016 evidence the loans taken by the ‘Corporate Debtor’, apart from the various Restructuring/OTS Proposals advanced between the parties, indicating the existence of a jural relationship between them - AT
Articles
Notifications
Circulars / Instructions / Orders
News
Case Laws:
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Income Tax
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2022 (5) TMI 378
Revision u/s 264 - Loss on account of derivative transactions - it is petitioner s case that when he realized his mistake treating F O loss as speculative loss he filed the revision petition before respondent no.1 requesting him to assess his income as per law - HELD THAT:- We should keep in mind that assessee should pay only such amount of tax as legally payable under the provisions of Income Tax Act. Mistakes happen and we also see that assessee has taken different stand earlier. But the fact that is required to be seen is whether transaction in respect of trading in any derivatives carried out in the recognized Stock Exchange can be treated as speculative transaction and loss or gain in such transaction is normal business loss or gain. Courts have held that even if, return as submitted by the assessee is accepted by the Assessing Officer, and if thereafter, the assessee comes to know about the mistakes committed, that he was not liable for more taxation or had paid more tax, he can definitely approach revenue authority and in such event, it is open to the revisional authority to exercise its jurisdiction u/s 264 of the Act. Once assessee is able to satisfy about mistake due to which there was over assessment, the Commissioner had power to correct the same u/s 264(1) of the Act. In such situation, we would expect the Commissioner to apply his mind to the question and decide the matter. Simply saying, additions which are voluntarily agreed, can not be the subject matter of revision, would be little harsh on assessee. Therefore, we hereby set aside order impugned in this petition and remand the matter to the Commissioner of Income Tax for denovo consideration of petitioner s application u/s 264 of the Act. We would expect the Commissioner to consider all the documents being submitted by petitioner and the submissions of petitioner and decide for himself whether loss as claimed would be speculative loss or non speculative loss, not withstanding the stand taken by petitioner in the original return of income or in the revised return filed. It will have to be an independent view of the Commissioner. Revision should be disposed by the Commissioner of Income Tax by 15.07.2022.
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2022 (5) TMI 377
Speculative transactions - set off of the loss - transaction in derivatives on recognized stock exchange as defined under Section 43 (5) (d) of the Income Tax Act, 1961 with reference to explanation given to Section 73 - Commissioner held that as provided under section 73, the loss suffered by the assessee would be a loss from speculative business and as such the appellant would not be entitled to claim setoff against the income from a non-speculative business - HELD THAT:- In the facts of this case, admittedly the assessment year in question is 2009-2010 and financial year is 2008-2009 i.e. after insertion of the said Clause (d) to the proviso to Section 43 (5) of the Income Tax Act, 1961. The principles laid down by this Court in the said judgment in case of Commissioner of Income Tax Vs. Shri Bharat R. Ruia (HUF) [ 2011 (4) TMI 37 - BOMBAY HIGH COURT] interpreting clause (d) inserted in the proviso to Section 43 (5) by Finance Act, 2005 with effect from 01.04.2006 apply to the facts of this case. Transactions in derivatives carried out by the assessee after 01.04.2006 thus would not be speculative transactions. Income Tax Appellate Tribunal could not have confirmed any addition on transaction in derivatives on recognised stock exchange as defined in Section 43 (5) (d) of the Income Tax Act, 1961 with reference to explanation given to Section 73 of the Income Tax Act, 1961 which is applicable to speculative transaction. By virtue of insertion of clause (d) to the proviso to Section 43 (5) of the Income Tax Act, 1961, the transactions in respect of the trading in derivatives as prescribed in clause (d) inserted in proviso to Section 43(5) would not be a speculative transaction. The appellant was thus entitled to claim set off of the loss suffered by the appellant in the said transactions in derivatives against the business income of the appellant from infrastructure business under Section 70 of the Income Tax Act 1961.
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2022 (5) TMI 376
Validity of National faceless assessment - Non-compliance of the provisions contained in Section 144B - HELD THAT:- Main thrust of learned counsel for petitioner at the time of submission of his case on merits is that non- following of the procedure prescribed under Section 144B of the Act of 1961 will make the proceedings non-est. The Ministry of Law and Justice (Legislative Department), New Delhi issued Gazette Notification dated 30.3.2022 wherein sub-section (9) of Section 144B of the Act of 1961 has been omitted w.e.f. 1.4.2021. By virtue of amendment brought in by the Legislature, the ground raised before this Court is not available as said provision itself stood omitted from the statute book with retrospective effect. Petitioner is having efficacious alternative statutory remedy of filing appeal before the appellate authority who can consider and decide other issues raised in this writ petition. We not inclined to entertain this writ petition as the petitioner is having efficacious alternate statutory remedy of appeal and it is accordingly dismissed. Petitioner may approach Appellate Authority under the Act of 1961 raising all grievances and grounds, as raised in this petition. If petitioner prefers an appeal within a period of thirty days from today, the Appellate Authority shall consider and decide the same on its own merits in accordance with law.
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2022 (5) TMI 375
Reopening of assessment u/s 147 - Eligibility of reasons to Believe - HELD THAT:- As decided in the case of Radha Krishna Industries [ 2021 (4) TMI 837 - SUPREME COURT] power to reopen an assessment must be conditioned on the existence of tangible material and that reasons must have a live link with the formation of the belief . Perusal of the impugned notice under Section 148 of the Act, 1961 and other impugned orders clearly shows that the reason to believe recorded by the assessing authority, failed to pass the standard of reason exercised by the assessing authority to be that of an honest and prudent person who would act on reasonable grounds and come to a cogent conclusion. The reasons recorded were totally unfounded and consequently the jurisdictional notice under Section 148 issued by the assessing authority was without jurisdiction. Once the notice under Section 148 of the Act, 1961 issued by the assessing authority was without jurisdiction, the subsequent proceedings, including re-assessment order, cannot be sustained. - Decided in favour of assessee.
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2022 (5) TMI 374
Validity of order passed by the learned Central Administrative Tribunal, Principal Bench, New Delhi upholding the issuance of Charge Memo - issuance of Charge Memo to the Officers of Rank of Commissioner - petitioner submits that the order is erroneous in facts and in law because a fundamental error has been committed, in the issuance of the purported Charge Memo to the petitioner on 26.06.2018, apropos his duties as Deputy Commissioner of Income Tax, Central Circle 3, New Delhi - HELD THAT:- The rule governing issuance of Charge Memo to the Officers of Rank of Commissioner is spelt out in Office Order No. 205/2005 dated 19.07.2005, it states that approval for issuing Charge Memo/sanction prosecution lies with the Finance Minister. Apropos the authority to issue such Charge Memo, the respondent had so clarified through a RTI reply, that sanction was not granted by the Union Finance Minister. In the said reply, the respondent has admitted that Chairman, CBDT gave approval for initiating penalty proceedings against the petitioner. That being the position, the initiation of the proceedings against the petitioner is without due sanction, against the prescribed rules and would therefore be deemed as non est. The impugned order has noted that the Minister of State for Finance (MoSF) is not subordinate to the Union Minister of Finance. From Office Orders make it clear that where the Appointing and Disciplinary Authority is the President of India, only the Finance Minister would be the authority concerned before whom the matters concerning such officers would be placed. The petitioner is a Group- A officer in the rank of the Joint Commissioner, his Appointing and Disciplinary Authority is the President of India. Therefore, only the Finance Minister would have had the jurisdiction apropos issuance of any Charge Memo or other related proceedings against the said officer. A reference has been made in the impugned order to the dicta of Supreme Court in Union of India and Others vs. B.V. Gopinath [ 2013 (9) TMI 1219 - SUPREME COURT ] However, the Government of India has itself clarified that the sole authority to issue Charge Memo or initiate any disciplinary proceedings against a Group A Officer or an Officer whose appointing authority is the President of India, would lie with the Finance Minister. The issuance of the Charge Memo cannot be sustained and is accordingly, set aside as being without due sanction, against the rules and as non est.
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2022 (5) TMI 373
Attachment of the land -Tax recovery proceedings - title and the ownership of the Non- Agricultural parcel of land situated at Bodakdev, bearing Survey No.177/2 admeasuring 4047 Sq. Mtrs. - HELD THAT:- Today, for the first time it has come to the notice of this Court that infact, Vikas Arvindbhai Shah passed away long time back. Therefore, the only exercise which the Principal Commissioner needs to now undertake is to look into the documents produced by the writ applicants and ascertain as regards the title and possession over the property-in-question. Let the aforesaid exercise be undertaken by the Principal Commissioner at the earliest and the same shall be completed within a period of two weeks from the date of receipt of the writ of this order. The Principal Commissioner shall look into all documents which are on record and take an appropriate call as regards the attachment of the property-in-question. With the aforesaid, this writ application is disposed of. We leave it open for the writ applicant to come back to this Court in case of any further difficulty.
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2022 (5) TMI 372
Penalty u/s 271(1)(c) - Addition on account of long term capital gain - bogus long term capital gain of penny stock - HELD THAT:- It is not in dispute that during the assessment the assessee filed revised computation of income and surrendered the long term capital gain. It is also undisputed fact that the AO has not issued any show cause notice to the assessee on the issue of long term capital or on penny stock. The case of assessee throughout the proceeding are that she intended to avail benefit of TDS Scheme, however, the case of assessee has already been selected for scrutiny so she could not apply for availing the benefit of IDS Scheme. As in CIT Vs Suraj Bhan [ 2006 (4) TMI 107 - PUNJAB AND HARYANA HIGH COURT] by following the decision of Hon'ble Supreme Court in CIT Vs Suresh Chand Mittal [ 2001 (6) TMI 63 - SC ORDER] held that when the assessee files a revised return showing higher income and gives explanation that he offered higher income to buy peace of mind and avoid litigation, penalty cannot be imposed merely on account of higher income having been subsequently declared. We are of the view that no penalty was leviable on the facts of the present case and we direct to delete the same. - Decided in favour of assessee.
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2022 (5) TMI 371
Deduction u/s 80P - whether since assessee was not a bank, whether it would be entitled to deduction under section 80P(2)(a)(i) on its income from providing credit facilities to its members? - HELD THAT:- As decided in EKTA CO-OP CREDIT SOCIETY LTD. [ 2018 (1) TMI 1244 - GUJARAT HIGH COURT] held that section 80P(4) would not be applicable to cooperative credit society and assessee would be entitled to deduction under section 80P(2)(a)(i) on its income from providing credit facilities to its members. Therefore, it is seen that this caselaw cited by the assessee is not relevant to the facts and issues before us. In the case of Jafari Momin Vikas Co-op. Credit Society Ltd [ 2014 (2) TMI 28 - GUJARAT HIGH COURT] the Gujarat High Court held that where assessee was not a credit co-operative bank but a credit co-operative society, its claim for deduction under section 80P(2)(a)(i) could not be rejected by invoking exclusion clause of subsection (4) of section 80P of the Act. Therefore, it is evident that the judicial precedent cited by the assessee in his grounds of appeal are not relevant to the facts of the case. In the instant facts, however, we note that there is no clarity as to how much interest has been earned by the assessee from deposits made in nationalised bank and how much interest has been earned from deposits made in cooperative bank. Having held that interest earned by the assessee on deposits held with nationalised banks are not eligible for deduction under section 80P of the Act, though only the net income would be taxable after allowing for administrative and other expenses incurred for earning such interest income and also that interest earned by the assessee on deposits made with cooperative banks are eligible for deduction under section 80 P(2)(d) of the Act, we are restoring the file to Learned Assessing Officer to ascertain how much interest pertains to interest earned from nationalised bank and the portion of interest relatable to cooperative bank, and then tax the same in accordance with decision above.
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2022 (5) TMI 370
Deduction u/s.80IA - Denial of deduction as assessee has not maintained and produced the separate books of accounts, more specifically separate sets of P L account and balance sheet in respect of power plant and assessee had failed to furnish the separate sets of audited profit and loss account in respect of power plant - HELD THAT:- A perusal of the provision of Section 80IA of the Act does not show the requirement of maintenance of separate sets of books of accounts in respect of the eligible business on which the claim of Section 80IA of the Act is made. What is required is that the profit/loss attributable to the power plant should be ascertainable from the regular books of accounts maintained. In the present case, a perusal of the assessment order itself clearly shows that the same is possible insofar as the assessee filed the revised statement giving the break-up of the income and expenditure in respect of Sponge Iron operation and also the power plant. This bifurcation has not been dislodged by the AO though disregarded as he was of the view that separate books should have been maintained. A perusal of the paper book also clearly shows that the requisite audit report u/s.80IA of the Act being in the Form 10CCB has also been submitted by the assessee before the AO. This being so, we are of the view that the assessee has, on the factual matrix, complied with the requirements which have been objected to by the AO in the assessment order for the purpose of denial of deduction u/s.80IA of the Act. This being so, we are of the view that the assessee is entitled to deduction u/s.80IA of the Act as claimed. - Decided in favour of assessee.
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2022 (5) TMI 369
Deduction u/s 80IB - sale of housing project/unit as per corresponding joint venture agreement - HELD THAT:- We make it clear that the learned counsel could hardly rebut the fact that the assessee had not raised any impugned 80IB deduction claim by filing Section 139(1) return within the due date prescribed in light of Section 80A(5) r.w.s. 80(a)(c) of the Act. We make it clear that Section 80A(5) postulates that no deduction under Chapter VI shall be allowed wherein the assessee concerned fails to make a claim in its return of income. This is coupled with the latter provision envisaging such a return is to be filed on or before the due date specified under Section 139(1) of the Act. There is further no issue that both these statutory provisions incorporate the clinching expression shall only. Meaning thereby that filing of a return on or before the date specified under Section 139(1) raising the impugned deduction claim very much forms a mandatory condition for the purpose of claiming Section 80IB(10 ) deduction. We thus adopt stricter interpretation in light of the Commissioner of Customs vs. Dilip Kumar [ 2018 (7) TMI 1826 - SUPREME COURT] to affirm the learned lower authorities action disallowing the assessee s Section 80IB(10) deduction in principle. Hon ble jurisdictional high court s recent decision in EBR Enterprises vs. Union of India [ 2019 (6) TMI 484 - BOMBAY HIGH COURT has also decided the instant issue against the assessee and in department s favour that no deduction under Chapter VI-C is admissible in absence of a Section 139(1) return raising the corresponding claim. Mr. Hari Krishan further made a very valiant attempt to buttress the point that when the Assessing Officer raises a particular issue in scrutiny in seeking to add an additional head of income/disallowance, as the case may be, the concerned assessee can very well raise its fresh deduction claim, if admissible in law. We find no merit in assessee s instant argument as its case is hit by the foregoing statutory embargo ie Section 80A(5) r.w.s. 80C of the Act having overriding effect over all general provisions. We accordingly reject the assessee s foregoing arguments to hold that its impugned Section 80IB(10) deduction is not allowable in law. Income derived from the foregoing housing project ought to be assessed under the head capital gains wherein the cost of acquisition is nil only - The same is going against the assessee s stand adopted all along that he is a developer having borne 20% risk in the housing project in the nature of adventure in real estate business. His computation has also treated this income as business income only. That being the case, we fail to understand as to how the assessee would be assessed as merely an investor in the land giving rise to the corresponding capital gains as prayed before us in the additional grounds. We accordingly reject assessee s instant additional ground as well as evidence since not relevant to the issue of assessment of its alleged business income sought to be claimed as eligible for Section 80IB(10) deduction. The assessee fails in all of his latter arguments as well
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2022 (5) TMI 368
Rectification u/s 154 - AO has not discussed the allowability or otherwise the high interest expenditure claimed against the addition to the fixed assets - HELD THAT:- The assessee has not claimed in the return of income in respect interest expenditure. Subsequently, the assessee filed a letter before the AO. AO has not considered the letter filed by the assessee with regard to the interest expenditure and concluded the assessment order under section 143(3) of the Act. Subsequently, the assessee has filed a petition u/s 154 of the Act to rectify the assessment order passed under section 143(3) of the Act dated 24.12.2016 and the same was rejected by the Assessing Officer on the ground that the assessee has not claimed interest expenditure in the original return of income filed by the assessee. On appeal, the ld. CIT(A) confirmed the rejection of petition filed by the assessee under section 154 of the Act. Since the Assessing Officer has no power to adjudicate a claim, which was not made in the original return of income filed by the assessee or filed any revised return of income before conclusion of assessment, we find no infirmity in the order passed by the ld. CIT(A) on this issue and accordingly, the appeal filed by the assessee is dismissed.
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2022 (5) TMI 367
Deduction u/s 80P(2)(d) - whether the assessee is eligible to claim deduction on interest earned from Co-Operative Banks u/s 80P(2)(d)? - HELD THAT:- The Hon ble Gujarat High Court in the case of State Bank of India Vs. CIT [ 2016 (7) TMI 516 - GUJARAT HIGH COURT] held that the interest income earned by a co-operative society on its investments held with a co-operative bank would be eligible for claim of deduction under Sec.80P(2)(d). In the case of Pr. Commissioner of Income Tax and Anr. Vs. Totagars Cooperative Sale Society [ 2017 (7) TMI 1049 - KARNATAKA HIGH COURT] the Karnataka High Court has held that the interest income earned by a co-operative society on its investments held with a co-operative bank would be eligible for claim of deduction under Sec.80P(2)(d) of the Act. Interest earned by the assessee on surplus held with cooperative bank would be eligible for deduction under Sec.80P(2)(d). Appeal of assessee allowed. :
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2022 (5) TMI 366
Unexplained cash credit u/s 68 - case was selected for limited scrutiny through CASS to verify whether the funds received in the form of share premium are from disclosed sources and have been correctly offered to tax - A.O. was not satisfied with the arguments advanced by the assessee and noted that the share premium so received by the assessee is nothing but an accommodation entry and implies that the whole transaction is a sham one - CIT(A) held that the assessee failed to prove on record any evidence to justify the basis of share premium charged in excess of its face value and held that the share premium received in excess of the face value should be held as income of the appellant under section 56 (2) (viib) on protective basis - HELD THAT:- As relying on MANTRAM COMMODITIES PVT. LTD. VERSUS ITO, WARD 1 (5) FARIDABAD [ 2021 (3) TMI 459 - ITAT DELHI] CIT(A) was not justified in making the addition on protective basis by invoking the provisions of Section 56(2)(vii)(b) of the I.T. Act, 1961. Addition u/s 68 - Assessee has filed the details such as P L A/c, balance-sheet, bank statements, confirmation letters, PAN, copy of acknowledgment of return, Memorandum and Articles of Association of Companies etc.to substantiate the identity and creditworthiness of the share applicants and genuineness of the transaction. Nothing has been brought on record to negate the various evidences filed by the assessee. A perusal of the audited balance-sheet of these Investor Companies shows that these companies are having sufficient capital and reserves to make the investment in the assessee company and the entire transactions have been made through banking channel. Merely because the Investor Companies have shown meager income during the impugned assessment year, the same in my opinion, cannot be a ground to doubt the creditworthiness of the said company especially when the said company is having sufficient funds in its account in shape of share capital and free reserves. Since the assessee in the instant case has proved the identity of the investors and filed sufficient details to substantiate the creditworthiness and genuineness of the transaction, therefore, hold that the Ld. CIT(A) was not justified in confirming the addition made by the A.O. under section 68 - therefore, set aside the Order of the Ld. CIT(A) and delete the addition. Grounds raised by the assessee are allowed.
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2022 (5) TMI 365
Exemption u/s 54 - denial of claim as new property was purchased in the name of the assessee s wife - diversified views - HELD THAT:- When discordant views are rendered by different High Courts, an inferior authority under one of such High Courts is bound to follow its jurisdictional High Court notwithstanding that the other view of the non-jurisdictional High Court may sound more appealing on individual level. The principle of following a view in favour of the assessee when contrary views are available, applies to the authorities acting under neutral High Courts, namely, which have not expressed any opinion for or against - on that point. Once the jurisdictional High Court decides a particular issue in a particular manner, that manner has to be mandatorily followed by all the authorities acting under it so long as it holds the field and is not deactivated by the Hon ble Supreme Court. In that view of the matter, we are bound to follow the view taken by the Hon ble jurisdictional High Court in in Prakash [ 2008 (9) TMI 234 - BOMBAY HIGH COURT ] therefore, hold that the authorities below were justified in denying the benefit of exemption u/s 54 of the Act. Assessee appeal dismissed.
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2022 (5) TMI 364
Reopening of assessment u/s 147 - Unexplained deposit of cash - explanation of the assessee was that the cash was deposited out of cash balance withdrawn from the account, however, no evidence was furnished - HELD THAT:- There is no dispute that the assessee had made cash deposits in the bank account. It is categorically recorded by the Assessing Officer that no income-tax return was filed by the assessee. Therefore, at the time of reopening there was no explanation regarding source of cash deposits by the assessee. In our considered view it was sufficient for the Assessing Officer to form a belief that the income chargeable to tax has escaped assessment. Hence, he was justified to reopen the assessment u/s 147 of the Act. After reopening of assessment, the Assessing Officer can in his wisdom proceed to make assessment regarding other issues as well. There is no prohibition under law that the Assessing Officer is required to confine assessment on the issue for which the assessment was reopened by him. Hence, ground nos. 1 and 2 of the assessee s appeal are devoid of any merit and stand dismissed accordingly. Treatment of sum as net profit out of gross receipt - HELD THAT:- The assessee has not filed any evidence to controvert the finding of the Assessing Officer. Therefore we do not see any reason to interfere in the finding of the authorities below. Ground no. 2 of the assessee s appeal is dismissed Addition without giving notice to the assessee - HELD THAT:- It is seen that the Assessing Officer had given a notice dated 22.12.2018. In response thereto no one attended the proceedings. Therefore, it cannot be inferred that the assessee was not given notice by the assessing Officer. Hence, ground no. 3 of the assessee s appeal has no merit and is rejected accordingly.
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2022 (5) TMI 363
Levy of penalty u/s 271(1)(c) - AO held that absence of any explanation regarding the receipt of money, which is in the exclusive knowledge of assessee, it leads to an adverse inference against the assessee and is statutorily considered as amounting to concealment of income under the first part of clause (A) of Explanation to section 271(1)(c) - HELD THAT: - As in case of transfer of mortgaged property, if the consideration does not flow to the assessee, then the same would not amount to transfer of asset and no capital gains tax would accrue in the hands of the assessee. The case of CIT v. Smt. Thressiamma Abraham[ 1996 (9) TMI 60 - KERALA HIGH COURT] has held that since purchasers paid entire sale consideration directly to creditors and it was only thereafter mortgaged property was released, it could be said that sale consideration was diverted to creditors by overriding title and, in such circumstances, no capital gains accrued to assessee. We see that there are conflicting judicial precedents on the issue under consideration before us and therefore, it may be inferred that the issue before us is one in which two views are possible. Further, we note that the Hon'ble Gujarat High Court has also admitted the assessee's appeal in quantum proceedings. We are of the considered view that the instant case is not a fit case for levy of penalty u/s. 271(1)(c) of the Act. The issue is clearly debatable on which various Courts have taken conflicting views. The assessee's view is also one which is a plausible view as held by various appellate forums. Therefore, in our considered view, the Ld. CIT(A) has erred in law and in facts in confirming penalty u/s. 271(1)(c) of the Act. We accordingly direct the Revenue to delete penalty u/s. 271(1)(c) of the Act imposed on the assessee. - Decided in favour of assessee.
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2022 (5) TMI 362
Assessment u/s 153A - No valid approval under section 153D - HELD THAT:- As assessee fairly admitted that there is due approval in the records which was duly shown to learned CIT(A). However he submitted that there is no mention of the same in the assessment order. We find that this is frivolous ground not sustainable in law. Approval is duly on record hence this ground raised by the assessee is dismissed in as much as learned counsel himself has agreed that due approval is already on record which was shown to learned CIT(A) in the first appellate proceedings. Addition on account of agricultural income - HELD THAT:- Learned counsel reiterated the submission that claim for agricultural income is cogent and learned CIT(A) erred in not deleting the same. On a query from the Bench whether land revenue record in the form of 7/12 extracts were furnished before the authorities below learned counsel admitted that only a miniscule portion of the same was submitted. A perusal of them shows that it also mention status of the land is BANJAR i.e. non-cultivable. As already emanating from the orders of the authority below there is no cogent evidence of agricultural income and agricultural expenses incurred by the assessee. Entire submissions of the assessee are an afterthought and make believe submission. We note that the revenue is not in appeal against the relief granted by learned CIT(A). In our considered opinion learned CIT(A) has granted more than fair relief to the assessee. The theory of agricultural income by the assessee is devoid of cogent evidence. In this view of the matter we do not find any infirmity in the order of learned CIT(A) in this regard. Hence, we confirm the same. Addition for cash and jewellery - HELD THAT:- In the present case it is not at all the case that there is any seizure. The issue here is that cash and jewellery was found during search and the onus was upon the assessee to explain the same. However, before the Assessing Officer, as recorded in the assessment order the assessee has not made any submission in this regard after due notice. Before learned CIT(A) also nothing was submitted as it has been duly noted by learned CIT(A) that the assessee has all along being harping upon the validity of notice and jurisdiction of assessment. As noted by us hereinabove this has been not been pressed by learned counsel. Even this plea of relief of jewellery found on the basis of CBDT guideline was also not made before learned CIT(A). Hence, this new plank raised by learned counsel is not emanating from the orders of authorities below. As noted by learned CIT(A) except for submitting that the items found in search were not unusual, no explanation was made by the assessee before learned CIT(A). In the absence of any material on record in this regard we are not inclined to grant any relief whatsoever by simply mentioning of that CBDT guideline. In this view of the matter this ground raised by the assessee stands dismissed. Appeal of assessee dismissed.
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2022 (5) TMI 361
Bogus purchases/ transactions - accommodation entries - HELD THAT:- As perused the material available on record and gone through the orders of the authorities below. I find that the AO had made verification regarding genuineness of the transaction and reiterated the finding that the transactions were not genuine and have been executed merely for accommodation entries. The assessee has not brought any material to rebut the finding of the Assessing Officer. Hence, we do not see any reason to interfere in the finding of Ld.CIT(A), the same is hereby dismissed. Grounds raised by the assessee in this appeal are therefore, dismissed.
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2022 (5) TMI 360
Addition u/s 69A read with section 115 BBE - house hold expenses - assessee deposited in cash in bank accounts during the period of demonetization - assessee during the period of demonetization had deposited cash in saving bank account in Vijaya Bank and Assessing Officer had added back the entire amount by rejecting the explanation of the assessee that some of the deposits were made out of earlier cash withdrawal which were kept with his brother Shri Anil Singh - HELD THAT:- A total addition of Rs. 17,57,130/- was made by the Assessing Officer. Before the Ld. CIT(A) the assessee explained the sources of cash deposits which were out of receipt from his brother and out of withdrawals from the bank account. The Ld. CIT(A) while agreeing the submissions of the assessee has allowed substantial relief to the assessee but upheld an addition of Rs. 2.00 lacs by holding that there must be some expenditure which the assessee must have used for household expenses. While holding so, it has escaped the attention of Ld. CIT(A) that in the position of cash as on 18.11.2016 the assessee had already reduced an amount of Rs. 2,92,872/- as withdrawals of household expenses therefore further sustenance of Rs. 2.00 lacs on account of assumed household expenses is not justified and therefore delete the same. Appeal of assessee allowed.
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2022 (5) TMI 359
Short Term Capital Gain - CIT(A) deleted the addition on the grounds that there is no evidence of receipt of the sale price handing over of the possession of the property - CIT(A) held that the provisions of Section 45(1) and Section 2(47)(v) are not applicable on the facts of the case and since the ownership has not been transferred, the applicant remain to be the owner of the property no capital gains arises - HELD THAT:- This issue is a grey matter which needs to be proved undisputedly owing to the conflicting nature of the documents as filed with the Income Tax Department, Registration Department and the arguments taken before us by both the parties. The assessee claims that he continuous to be in the possession of the property. No material has been brought on record by the revenue to prove the receipt of the money against argument that the assessee has not received the amounts. The purchaser has paid stamp duty of Rs. 58.50 lacs which cannot be expected to be spent profligately by the purchaser. The purchaser has not taken any steps to occupy the property as per the documents. At the same time, the revenue has also not confirmed with regard to the payments received by the assessee, as to which account the amounts have been credited or as to the receipt of money by both the parties namely, the assessee and Sh. Manjit Singh. The assessee is 33% owner of the property whereas Sh. Manjit Singh is 67% owner. The returns of Sh. Manjit Singh, the amounts received by Sh. Manjit Singh, the taxation thereof the receipts of 67% owner have not been brought on record to examine the issue in a holistic manner. While the assessee disputed the receipt of the payment, no enquiries have been conducted from BIC Logistics Ltd. to confirm whether they have fulfilled or defaulted the payments as mentioned in the agreement. Under these circumstances, it needs to be investigated and confirmed by the revenue that the assessee has indeed received monies from BIC Logistics Ltd. Investigations are also required to find out the fact whether the assessee is still in the possession of the property or parted with the property. Hence, in the interest of justice and in order to avoid duplication of work and for accelerated disposal, the matter is being remanded back to the file of the Ld. CIT(A) to get the investigations conducted under his/her supervision and obtained the much-needed factual reports from the Assessing Authorities/Investigation Wing as deemed fit and pass a speaking order in provisions of the Income Tax Act. The assessee shall comply with the notices issued by the revenue without seeking any unnecessary adjournments. Appeal of the Revenue is allowed for statistical purpose.
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2022 (5) TMI 358
Disallowance of purchase expenses claimed - HELD THAT:- We observe that though the Assessee submitted the relevant missing bills before the Assessing Officer on 23.11.2017, however, the AO failed to consider properly and in hurried manner without affording reasonable opportunity to explain the documents submitted by the Assessee, passed the order on 29.11.2017. Hence, considering the peculiar facts and circumstances, as the Assessee did not get proper opportunity of being heard and/or to explain the queries and documents submitted before the authorities below, hence without going into the merits of the case, we deem it appropriate to remand the case to the file of the Assessing Officer for just decision of the case. Consequently, the case is remanded to the file of the Assessing Officer to re-examine the facts and documents qua addition of Rs. 35,42,719/- only and to pass an order afresh, suffice to say by affording reasonable opportunity of being heard to the Assessee. Appeal filed by the Assessee stands allowed for statistical purposes.
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2022 (5) TMI 357
Taxability on Deferred Tax provided - CIT(A)-1 not adjudicating Ground No.1 viz.Deferred Tax provided is not income liable to tax and therefore loss determined - HELD THAT:- Even the learned DR has not been able to dispute this position which is clearly evident from the record. We, therefore, remit this matter back to the learned CIT(A) with the direction to consider and decide the issue raised by the assessee specifically in Ground No.1 after considering the written submission and paper-book already filed by the assessee and after giving the assessee a proper and reasonable opportunity of being heard. Ground Nos. 1 2 of the assessee s appeal are accordingly treated as allowed for statistical purposes. Delayed Employee PF contribution - DR has contended that this claim, specifically made by the assessee for the first time before the Tribunal, requires verification by the Assessing Officer - HELD THAT:- We find merit in this contention of the learned DR. The impugned order of the learned CIT(A) on this issue is accordingly set aside and the matter is restored to the file of the Assessing Officer for the limited purposes of verifying the claim of the assessee that the payments in question towards Employees Provident Funds having been made within the grace period allowed under the relevant Act, there was no delay in the said payment and the disallowance is not called for. Ground No.3 of the assessee s appeal is accordingly treated as allowed for statistical purposes.
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2022 (5) TMI 356
Revision u/s 263 - Addition u/s 68 - Pursuant to the 1st revisionary order passed by the Ld. Pr. CIT in the second-round of reassessment, the 2nd AO framed the re-assessment order dated 19.08.2016 by accepting the returned income under section 143(3) /263 - 2nd Pr. CIT jurisdiction to interfere with the order of the AO even if it happens to be second assessment order or 3rd assessment order - whether the Second Ld Pr. CIT can again interfere in the re-assessment order framed by the AO which was pursuant to the first revisional order passed by the First Ld. Pr. CIT u/s. 263 of the Act, when the subject matter was the same and the re-assessment order of the second AO has merged with the First Revisional order of First Ld. Pr. CIT? - HELD THAT:- We find that the first AO has issued notice u/s 133(6) of the Act pursuant to which all the seven (7) share subscribers have replied along with all documents requisitioned by him which was found by the Ld. First PCIT in the assessment folder. So we safely presume that all the seven (7) share subscribers having replied to the notice of AO u/s. 133(6) of the Act to discharge the proof of identity, genuineness of the transaction. In the second round, the AO had acknowledged to have gone through the ITR, audited accounts, details of directions, share trading registered office, details of increase of share capital, Form 2 Form 5, shareholders list, bank a/c details and stated to have examined the same. Thereafter, the second AO has clearly stated that he has verified the documents and verified the documents submitted by them to prove their respective identity, creditworthiness genuineness of the share capital premium. We are of the considered opinion that the AO after verification of their PAN/CIN/ITR, has not drawn any adverse opinion or doubted the identity of the share applicants which view of AO is a possible view in the light of the documents referred to and also by applying the presumption in section 114 of Indian Evidence Act 1872, we presume that the quasi-judicial act of the second AO have been regularly performed. Second AO has conducted enquiry in respect of subject matter i.e. share capital and premium collected by the assessee-company. Therefore, the finding of Second Pr. CIT that the Second AO has not conducted enquiry is incorrect and is flowing from suspicion only. We note that the assessee has discharged its onus, as required by the law in force in this AY 2012-13, then if the Ld. Pr. CIT was not satisfied with the enquiry conducted by second AO, then he ought to have called for whatever additional documents/materials or issued summons or issued notices and collected those facts which according to Second Ld. Pr. CIT, the AO omitted to collect and then demonstrated that those actions/documents which he collected in that process gave result to a different finding of fact which will turn upside down the claim of the assessee and thus able to show that the actions/omission of AO in conducting the investigation was erroneous, which unfortunately is not the case before us. Since the assessee company has discharged its onus as discussed supra, and still if the Second Pr. CIT had to find the order of Second AO erroneous for lack of enquiry or for not collecting the entire facts, then the Second Pr. CIT ought to have called for the additional facts which he thinks that the Second AO has not collected from the assessee or the shareholders and then explained in his impugned order as to what effect those additional documents would have made on the second assessment order/reassessment order or in other words the impact on the decision making process of framing the second assessment order due to the failure of second AO s omission to collect the additional documents. However, we note that the Second Pr. CIT has not carried out any such exercise or even spelled out in his impugned order, which all documents the second AO failed to collect for considering the total facts; and even if we presume he has conducted such an exercise, then he has not been able to bring out any adverse factual finding to upset the view of Second AO. So we find no merit in the vague allegation of second Pr. CIT that the second AO has not collected the full facts necessary to decide the issue of share capital premium. The second Ld. Pr.CIT, again cannot rake-up the same subject matter without the second Ld. Pr.CIT in the second revisional order spells out where the error happened to second AO as an investigator or adjudicator, which exercise the Second Ld. Pr.CIT has not done. So the second Ld. Pr. CIT cannot be permitted to again ask the AO to start the investigation in the way he thinks it proper on the very same subject on which merger has taken place by virtue of the order of First Ld. Pr. CIT. And if this practice is allowed, then there will be no end to the assessment proceedings meaning no finality to assessment proceedings and that is exactly why the Parliament in its wisdom has brought in safe-guards, restrictions conditions precedent to be satisfied strictly before assumption of revisional jurisdiction. Be that as it may be, as discussed above, we find that the Second Ld. Pr. CIT without satisfying the condition precedent u/s 263 of the Act has invoked the revisional jurisdiction (second time), so all his actions are ab initio void. Ld. CIT(A) has made a bald statement that the AO s assessment order attracts Explanation 2(c) u/s. 263 of the Act. However, he failed to spell out in his impugned order how the action of AO while framing the assessment order is not in accordance to any order, direction or instruction issued by the Board under section 119 of the Act. So, the deeming fiction as envisaged in Explanation (2) u/s. 263 of the Act cannot be used to interfere with the order of AO. This action of Ld. Pr. CIT is bad for non-application of mind. - Decided in favour of assessee.
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2022 (5) TMI 355
TP adjustment - Comparability - determination of Arm s Length Price (ALP) in respect of an international transaction of rendering software development services by the assessee to its Associated Enterprises (AE) - HELD THAT:- As referring to assessee as software development company and relying on M/S. APPLIED MATERIALS INDIA PVT. LTD. [ 2016 (9) TMI 1458 - ITAT BANGALORE] we direct the AO to exclude Persistent Systems and Solutions Ltd., and Persistent Systems Ltd., from the list of the comparable companies and remand the question of comparability of Sasken Communication Technologies Ltd., to the TPO for fresh consideration. Companies functionally dissimilar with that of assessee need to be deselected from final list of comparability. Negative working capital adjustment - HELD THAT:- As the assessee is a captive service provider entirely funded by its AE and has no working capital contingent, we accept the contention of the assessee and allow ground and hold that adjustment on account of negative working capital does not arise in the present case. Exclusion of operating expenses while computing the operating margin - Assessee filed application to file additional evidence before the Tribunaln - HELD THAT:- We find that on this issue, the DRP has merely observed that no submissions were made on the above ground of appeal. Assessee has however pointed out that in Annexure 1.26 of the objections filed by the assessee before the DRP, the submissions have been made with regard to the computation of operating margin. Since this issue has not been adjudicated by the DRP, we are of the view that it would be just and appropriate to remand this issue to the TPO/AO for consideration afresh with liberty to the assessee to file additional evidence before AO/TPO. The issue was not raised before the TPO in the assessment proceedings. Therefore, it would be appropriate if the TPO/AO are directed to consider the claim of the assessee in this regard. The TPO/AO will decide the issue after affording assessee opportunity of being heard. Disallowance of provision towards rental expenses - HELD THAT:- The deduction has been claimed by the assessee towards provision for rental expenses based on the possibility of increase in rental expenses. This is purely on the basis of the estimate and was rightly treated as contingent in nature and not allowed as a deduction by the Revenue authorities. In this regard, we are of the view that the assessee has not given any basis for its anticipated liability towards rental expenses nor has he quantified the basis of arriving at the anticipated liability. In such circumstances, we are of the view that the Revenue authorities were justified in rejected the claim of the assessee. Accordingly, this ground of appeal raised by the assessee is dismissed.
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2022 (5) TMI 354
Disallowing the debit note issued by the assessee on account of transit loss - HELD THAT:- There is no dispute that the assessee has duly shown the debit notes in the ledger accounts of the purchasers and claimed the same on account of loss in transit. In order to verify the correctness of the claim, the AO issued notices under Section 133(6) of the Income Tax Act. However, except one party namely M/s Heinz India Private Limited Gaziabad, none has responded to the notices issued by the AO under Section 133(6). The AO has mentioned in the assessment order that the assessment is time barring on 31st March, 2015 and accordingly the remaining claim of the loss in transit was added for want of any material in support of the claim. AO has not asked the assessee to furnish confirmation because of time constrain as the impugned order was passed on 30th March, 2015 just one day before the limitation, which is also mentioned by the AO in the assessment order at the bottom of Page No. 2 It is clear that the CIT(A) has not even considered the confirmation filed by the assessee while deciding this issue. Thus, it is apparent from the record that neither the AO has conducted a proper inquiry to verify the correctness of the claim due to time constrain nor the CIT(A) has considered the confirmations filed by the assessee. Accordingly, in the facts and circumstances of the case this issue is set aside to the record of the AO for proper verification and fresh adjudication after giving an opportunity of hearing to the assessee as well as considering the confirmation filed by the Assessee. Disallowance of Coal Handling Expenses - excess claim on the part of the assessee when the net amount of coal is shown by the assessee in the books is considered and the differential amount is rightly added to the income of the assessee - HELD THAT:- As pointed out by the Ld. AR of the assessee, there is a difference in the gross amount of coal purchased by the assessee and coal handling charges are claimed to have been paid on the gross amount and not on the net amount. The AO computed the coal handling charges on the net quantity. However, this point was not raised by the assessee either before the AO or before the CIT(A). Therefore, these facts of gross amount and net amount of coal purchase during the year under consideration were unverified at the level of AO as well as CIT(A) - this issue is set aside to the record of the AO for reconsideration the same after giving an appropriate opportunity of hearing to the assessee. Appeal of the assessee is allowed for statistical purposes.
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2022 (5) TMI 353
TP Adjustment - comparable selection - Selection criteria for ITS and ITeS segments - HELD THAT:- We direct the AO/TPO to consider the comparables in both ITS and ITeS segments having turnover of 1-200 crores and decide the issue accordingly. Non-grant of deduction for education cess and secondary higher education cess - HELD THAT:- As relying on case of M/S. WIPRO LIMITED [ 2020 (10) TMI 605 - ITAT BANGALORE] we hold that the education cess is allowable as deduction.
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2022 (5) TMI 352
TP Adjustment in respect of royalty income - ALP of the software segment - HELD THAT:- In the present-case. it is not in dispute that the royalty payment of Rs.3.83 crore is considered as an operating expenditure in computing the net profit margin of the software segment. [page 266 of PB 1] The Net operating profit ratio based on operating cost of the software segment is 33.37% and the same is higher than the average profit margin of 21.84% of the comparable companies. TPO has accepted the ALP of the software segment. The margin of 33.37% is computed after factoring in the royalty payment of Rs. 3.83 crore. Thus, when the segment level profit margins are accepted by the TPO, it is impermissible to isolate the royalty payment and 'Separately evaluate the ALP of the same. In view of the above, the TP adjustment in respect of the royalty payment is liable to be deleted Interest on outstanding dues from AEs (outstanding for more than six months) - TPO treated the above debts outstanding for a period of more than six months in respect of transaction with assessee s AEs as a deemed loan and applied CUP method to benchmark the transaction - HELD THAT:- As sales to AE is more than sales to non-AEs. Hence, the debtors are more in AE as compared to non-AE. More importantly, percentage of debtors to sales is less in AE as compared to that of non-AE. No interest is charged from both AE and non-AE. The Hon ble Rajasthan High Court in the case of PCIT v. Sharda Spuntex P Ltd. [ 2018 (5) TMI 1835 - RAJASTHAN HIGH COURT] has held that when interest is not charged on non-AE debtors, there cannot be any occasion to make ALP adjustment for notional interest on delay in realization of trade debts from the AEs. The outstanding receivables from AE even though an international transaction, is a closely linked transaction to the international transaction of sales to AE. The receivables from AE arise due to sales to AE and hence it is closely linked transaction. The TPO has accepted the net profit margin of the software services segment. The net profit margin of the assessee in software segment is 33.18% which is higher than the net profit margin of the 11 comparable companies selected by the TPO at 24.32%. NPM of the assessee was within arm s length range even after working out the comparability adjustment on account of working capital. The working capital adjustment available to the assessee on comparison with all the comparable companies selected by the TPO would be (-)6.94 per cent (refer page 1350 to paper book Vol.1). Accordingly, the ALP margin post working capital works out to be 31.25 per cent which is lower than the margin of the assessee at 33.18 per cent (refer page 4 of TP order). Accordingly, the margin of the assessee includes the compensation for the credit period in connection with the delayed receivables and hence there is no need for a separate adjustment on account of interest should have been charged on debtors outstanding for more than six months. This is exactly in consonance with the direction of the DRP. The DRP has rightly held that if after working capital adjustment the margin of the assessee is within ALP range, no separate adjustment is required. Therefore, we fully endorse the directions of the DRP. Hence, the AO / TPO is directed to examine if the working capital adjusted margin of the assessee corresponding to the international transaction, which are related to such transaction is better than that of the comparables, no separate adjustment is required to be carried out in this regard. Accordingly, ground 2.1 to 2.6 are allowed for statistical purposes. Denial of tax benefit u/s 10A - AO disallowed the claim of deduction with respect of STPI Unit-2 Bangalore - HELD THAT:- As A.R. submitted that the assessee enters into contract with various customers and execution of the work is carried out through various units of the assessee identifying the unit suitable to carry out the work - it is an internal matter of the company as to how the work should be executed and the client is not concerned about the units/undertakings through which his work was executed. Accordingly, the execution of work in Unit-2 in respect of contract entered with any of its clients should not be a reason to reject the deduction claimed u/s 10A of the Act. We find merit in the above said contentions. We notice that there is no bar in law to execute work from a new unit, so long as the condition of splitting up/reconstruction of the existing unit is not violated. Hence, we are of the view that the above said reasoning cannot be a ground to reject the claim for deduction u/s 10A of the Act. The second reasoning given by the A.O. is that the unit No.2 is only a paper unit or it is a case of splitting up or reconstruction of the existing unit. Before us, the Ld. A.R. submitted that the A.O. has not brought any material on record in support of the above said reasoning - Before us, the assessee has filed details of seating capacity and other infrastructure facilities pertaining to Unit-1 2 in support of the contentions made before us. A perusal of the same would show that the capacity of Unit-1 remains intact. We notice that the AO has not examined this issue by considering factual aspects presented before us. Since the A.O. has not examined the details now furnished before us by the assessee, we restore those details to the file of the A.O. for examining them. Assessee has furnished corrected Softex forms in respect of unit-2 as additional evidences before us and they constitute about 73% of the aggregate number of forms. These additional evidences require examination at the end of the A.O. Accordingly, we restore this issue to the file of the A.O. for examining the additional evidences furnished by the assessee. Considering the time period that has elapsed till date and the attached practical difficulties, we suggest that the A.O. may take a liberal view in respect of Softex forms. A.R. placed his reliance on the circular No.1/2013 issued by CBDT and submitted that the services rendered by the assessee falls in the category of ITES services prescribed by the CBDT. We are of the view that the above said claim of the assessee needs to be examined at the end of the AO. Addition on account of Mark to Market (MTM) losses - AR during the course of hearing, had submitted that if MTM losses if disallowed, the same goes to increase the business income of the assessee and consequently, the assessee ought to be granted the enhanced benefit of deduction u/s 10A - HELD THAT:- As in assessee s own case in assessment year 2008-2009 we direct the A.O. to grant the benefit of deduction u/s 10A of the Act in respect of disallowance of MTM losses. It is ordered accordingly. Disallowance under section 40(a)(ia) - HELD THAT:- The assessee has only provided a broad reconciliation of the various expenses codes, the nature of expenses and the corresponding tax withholding and in certain expenses reasons as to why tax withholding was not applicable. Therefore, the assessee admits that due to significant transaction, it is not possible to provide a reconciliation at transactional level. Therefore, we confirm the disallowance made u/s 40(a)(ia) of the Act. However, the A.O. is directed to allocate the expenses so disallowed over the STPI units of the assessee while computing the relief u/s 10A of the Act (The assessee shall provide a reasonable working to the A.O. as how the expenses so disallowed is attributable to each of the STPI units). Hence, ground allowed for statistical purposes. Disallowance u/s 14A - HELD THAT:- The amount of expenditure directly relating to income which does not form part of total income, was voluntarily disallowed by assessee [amounting to Rs.3,50,000 Rule 8D(2)(i)]. There is no disallowance made by the A.O. invoking the provisions of section 14A r.w. Rule 8D(2)(ii). The disallowance made by the A.O. and confirmed by the DRP is sum of Rs.27,40,203 under Rule 8D(2)(iii). As per the order of Special Bench of the Tribunal in the case of VIREET INVESTMENT (P.) LTD. [ 2017 (6) TMI 1124 - ITAT DELHI] only those investments, which have yielded exempt income has to be considered for the purpose of computing average value of investments for computing disallowance under Rule 8D. We direct the A.O. to compute disallowance accordingly. Short grant of TDS - HELD THAT:- A.O. in the final assessment order, despite the directions of the DRP, without any discussion has granted TDS credit of only Rs.1,19,13,873 instead of Rs.1,78,59,370 claimed by the assessee. Therefore, we restore the issue raised to the files of the A.O. TP adjustment made on buy back of shares - TPO held that the assessee has paid for buyback from its internal accruals/reserves - HELD THAT:- TPOs reasoning for rejection of two independent valuation reports have been rejected by the DRP on merits. The DRP has clearly brought out on record the various inconsistencies in the TPOs valuation. It is evident from the TPOs valuation that the TPO cherry picked the numbers and figures from different methods of valuation in both the valuation reports in the manner beneficial to revenue. The TPO has not explained the basis or rationale for adopting figures from different valuation reports. The assessee followed the valuation prescribed by RBI in AP (DIR Series) Circular No.16 dated 4.10.2004 for the purpose of determining the value of share buy back. The same is not disputed by the TPO. Further, the TPO has disturbed the independent valuation reports without bringing on record another independent valuation report to justify the addition. The TPOs valuation is also not as per the prescribed methods of determining the ALP. In view of the same. we affirm the findings of the DRP which deleted the TP addition of Rs.55,48,13,611 on buy back of shares. Consequently. deletion of the secondary TP adjustment of Rs. 3,98,07,877 by the DRP is also confirmed. Assessee has raised the additional 'grounds in non applicability of transfer pricing provisions for the buy back of shares and the consequent secondary adjustment of the notional interest. The assessee relied on the Bombay High Court decision in the case of Vodafone India Services P Ltd v Union of India [2014] 368 ITR 1 and other AAR rulings in support of the contention that the transaction of buy back of shares by the assessee is outside the purview of Indian TP regulations in the absence of any income chargeable to tax for the assessee arising out of such transactions. However, as the issue is decided in favour of the assessee on merits, we need not adjudicate the additional grounds.
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2022 (5) TMI 351
Revision u/s 263 - Bogus sales - as per CIT A.O. erred in appreciating only 25% of the bogus sales to tax without any basis whereas according to the ld. PCIT, the whole amount of the bogus sales need to be examined considering the nature of the transactions being of accommodation entry taken - HELD THAT:- A.O. is not expected to put blinkers on his eyes and mechanically accept what the assessee claims before him. It is his duty to ascertain the truth of the facts stated and the genuineness of the claims made in the return. The order passed by the Assessing Officer becomes erroneous when an enquiry has not been made before accepting the genuineness of the claim which resulted in loss of revenue. AO has restricted the assessment only to bogus sale made by assessee to Shri Ram Trading Co. and he has presumed and assumed that bogus sale was only made to that party and not to any other party. In fact, he has not made any enquiries to find out the genuineness of other sales made by the assessee, which he was supposed to make, when the initiation of assessment proceedings itself was on account of bogus business transactions only. Thus, it is case of incorrect assumption of facts without any enquiries or verification As question is not filing the documents by the assessee with the A.O. during the assessment proceedings, however, here the question is with respect to carrying out necessary verifications on the information of the department and that of the documents submitted by the assessee. Unfortunately, we have not been able to lay our hands of any sort of verification carried out by the A.O. In our view, the A.O. has proceeded only on the basis that modus operandi of providing bogus sales cannot be relied upon in the light of the concrete information available on the record. Thus, in this way, only on this basis, the A.O. treated the sales as bogus and charged 25% as income derived out in lieu of accommodation entries without any basis, enquiry or verification. Even, throughout the assessment proceedings, there is not even any whisper from the side of the A.O. that he had carried out any sort of investigation or verification or recorded his satisfaction. Thus, we are in consonance with the findings of the ld. PCIT and upheld the order passed by the PCIT wherein he has pointed out the discrepancies in the order of A.O. as A.O. has not considered the investigation done by the department in respect of accommodation entry given by M/s Shri Ram Trading Company to the assessee firm, nor any verification from M/s Shri Ram trading Company has been carried out. The assessee s contention that sales were actual as is supported by documentary evidence in form of C-form and invoiced etc. was refuted by the AO, stating that the modus operandi of providing bogus sales also involve completing the due process of submitting prescribed form to the Commercial Taxes Department. The AO did not rely upon the evidences submitted before him and treated the sales of Rs. 11,80,000/- as bogus sales. However, the A.O. has not given any justification on record as why only 25% of the bogus sales are brought to tax. A.O. has failed to examine the complete bank statement of the assessee as only partial bank-account statement is available on record which pertained to period 11-06-2010 to 17-06-2010 to support a receipt of Rs. 6,00,000/- on 12/06/2010 and Rs. 5,80,000/- on 17/06/2010. AO has also not carried out any stock verification around the dates of these sales and also of the purchases made around this period. Thus we uphold the order passed by the ld. PCIT u/s 263 - Decided against assessee.
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2022 (5) TMI 350
TP Adjustment - comparable selection - Functional similarity - HELD THAT:- Avani Cincome Technologies Ltd. - We find that this was not allowed as a comparable for the similarly placed companies owing to high operating margins and different asset base with regard to Motorola Solutions India Pvt. Ltd. During the year with regard to the assessee, we find that the comparable has replied that they are into software development only. We find that 97 per cent. of the revenue of the comparable is from software development which is similar to the functions of the assessee who is also having a software development facility centre. Hence, the contention of the learned authorised representative that in the absence of segmental data, the Avani CT Ltd. is not a right comparable, cannot be accepted. Celestial Labs Ltd. comparable is dissimilar to the functions performed by the assessee-company. E-Zest Solutions Ltd. - There is no segmental data available in the annual report of the company. The service income filter which was applied by the Transfer Pricing Officer clearly has not been followed by the Transfer Pricing Officer in this company while selecting as comparable. Therefore, this company has to be excluded. We, therefore, direct Transfer Pricing Officer to exclude this company from comparable. Flextronics Software Systems Ltd.is not a correct comparable owing to the diversified segment of software services and products are grouped together. Helios and Motherson (IT) Ltd. comparable fails the employee cost filter implied by the Transfer Pricing Officer himself and also the fact that the company is engaged in the services like information technology enables services/ business process outsourcing/off-shore delivery/project management and maritime practices makes it functionally dissimilar to be a right comparable. KALS Information Systems Ltd. - The reply of the company that the use of ready-made object laboratories is only to the tune of about (0.33 to 3) per cent. in the year 2005-06 and 2006-07 has been examined by the Tribunal and came to the conclusion that what has been written is that the company's use the ready-made object laboratories is only to the tune of maximum three per cent. and it doesn't convey that the software products' revenue stands at three per cent. . On examination of the reply in detail, the Tribunal rejected the comparable hitherto. Hence, we direct that this comparable needs to be excluded. Persistent Systems Ltd.directed to be deleted owing to amalgamation of the company.- See Infogains India Pvt. Ltd. [ 2020 (3) TMI 1138 - ITAT DELHI] Since, the facts remain undisputed, owing to the incidence of the extraordinary event, the same cannot be considered as a right comparable. Infosys Technologies Ltd company has set up a network of research labs and granted patents which are intangible assets on which revenue is generated. Infosys is a giant risk taking company. Besides that, it is engaged in development and sale of software products and also owns intangible assets. The assessee company is engaged in the business of digital switching equipment and related software, cellular exchange/transmission equipment and provides related services, intelligent network and broadband solutions, equipment and related services. Thus, the functions of both the companies are different. There is no segmental bifurcation available of Infosys Limited. Hence, the comparable may be scored through the list of comparable. Similar observation is applicable to Wipro Ltd. Thirdware Solutions Ltd. is engaged in product development and earns revenue from trading of software licences and subscription. Further, the segmental information of different streams of revenue is not available. Megasoft Ltd. - Transfer Pricing Officer while determining the arm's length price used the entity wise margins instead of segmental margins. Hence, needs to be obliterated. Akshay Software Technologies Ltd. and SQL Star International Ltd., cannot be considered as the revenue filter and the export turnover filter have not been met. Ishir Infotech Ltd. the information provided under section 133(6) clears the employee filter. Lucid Software Ltd. - The company submitted that it is a pure software development company and does not have any revenue from sale of products or licence. Hence, the appellant's contention on the similarity of the functions is overruled. Similarly, the contention that amount incurred in product development and owing of the software product does not influence the profit levels on annual basis. Hence, we decline to interfere with this comparable. Capitalization of Software Expenses - assessee debited software expenses to its profit and loss account whereas the Assessing Officer altered the expenses to capital expenditure - HELD THAT:- We have also gone the judgment of the hon'ble apex court in the case of Empire Jute Co. Ltd. v. CIT [ 1980 (5) TMI 1 - SUPREME COURT] From the facts, relevant to the instant case, we find that the assessee has not acquired any capital asset of enduring in nature with regard to the software purchases. It is the user rights which has been purchased by the assessee and requires updation and modification at regular intervals. Hence, it cannot be said that the assessee has acquired any asset capital in nature by way of payment of software expenses. Hence, the addition made by the Assessing Officer is directed to be deleted. Computation of deduction under section 10A - exclusion of communication charges, expenditure incurred in foreign exchange from the export turnover - HELD THAT:- The issue of computation of deduction under section 10A has reached a finality in view of the judgment of the hon'ble Supreme Court in the case of CIT v. HCL Technologies Ltd. [ 2018 (5) TMI 357 - SUPREME COURT] as held that when the object of the formula is to arrive at the profit from export business, expenses excluded from export turnover have to be excluded from total turnover also. Otherwise, any other interpretation makes the formula unworkable and absurd. Hence, we are satisfied that such deduction shall be allowed from the total turnover in same proportion as well.
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Insolvency & Bankruptcy
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2022 (5) TMI 349
Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial Creditors - NPA - existence of debt and dispute or not - date of default - application barred by time limitation or not - HELD THAT:- The letter dated 02/12/2015 shows that the dues were classified as NPA on 30/09/2014 and the Section 7 Application was filed on 24/04/2018. Admittedly, there was communication and correspondence between the parties wherein several proposals for Restructuring an OTS were attempted. The Restructuring Proposals dated 08/10/2014, 09/10/2014 and 02/12/2014 are on record apart from the OTS Proposals made between the parties on 03/03/2018, 13/03/2018, 11/06/2018, 13/06/2018 and 07/11/2018 and thereafter - It is significant to mention that the Appellant does not deny this acknowledgment. It is only their case that as proposal for Restructuring was pending, such a letter of acknowledgement does not construe an acknowledgement in the legal sense. In the instant case, the issue raised regarding Limitation is not solely whether the communication initiated between the parties with a view to restructure the loan/OTS Proposals construes acknowledgement of debt , but whether the debt acknowledged vide letter dated 19/12/2015 and signed by the Appellants and further whether the amounts reflected in the Balance Sheets tantamounts to acknowledgement as defined under Section 18 of the Limitation Act, 1963. Having regard to the fact that the date of NPA is 30/09/2014, there is an acknowledgement of debt dated 19/12/2015 and the Financial Statements of the year ending 2016 evidence the loans taken by the Corporate Debtor , apart from the various Restructuring/OTS Proposals advanced between the parties, indicating the existence of a jural relationship between them, the ratio of the Hon ble Supreme Court in Dena Bank [ 2021 (8) TMI 315 - SUPREME COURT ] is squarely applicable to the facts of this case and hence we hold that the Application filed under Section 7 of the Code is well within the period of Limitation. Appeal dismissed.
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Central Excise
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2022 (5) TMI 381
CENVAT Credit - Capital goods - various steel items like angle, channels, beams, plates, etc for manufacture of goods to be used in the manufacture of final products - period in dispute is from 2012-13 to 2014-15 - HELD THAT:- Hon ble Chhattisgarh High Court has set aside the decision of the Tribunal s Larger Bench in the case of M/S VANDANA GLOBAL LIMITED AND OTHERS VERSUS COMMISSIONER, CENTRAL EXCISE AND CUSTOMS, CENTRAL EXCISE [ 2018 (5) TMI 305 - CHHATTISGARH, HIGH COURT] . It is further observed that the principle of user test also need to be considered while deciding the entitlement of assessee to avail CENVAT Credit as laid down by the Hon ble Supreme Court in the case of COMMISSIONER OF CENTRAL EXCISE, JAIPUR VERSUS M/S RAJASTHAN SPINNING WEAVING MILLS LTD. [ 2010 (7) TMI 12 - SUPREME COURT] . Following the said decision, the Hon ble Madras High Court in the case of M/S. THIRU AROORAN SUGARS, M/S. DALMIA CEMENTS (BHARAT) LTD. VERSUS CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL, THE COMMISSIONER OF CENTRAL EXCISE [ 2017 (7) TMI 524 - MADRAS HIGH COURT] , has held that iron and steel items and cement used for erection of foundation and support structures would also come within the ambit of the definition of input so long as it satisfies the user test . In the facts of the present case, it is not in dispute that various steel items have been used for the purpose of setting up of iron ores concentrates plant for manufacture of final products. Therefore, applying the user test principle, the Appellant is entitled to avail credit on the steel items - the Appellant is entitled to avail credit - appeal allowed - decided in favor of appellant.
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2022 (5) TMI 380
CENVAT Credit - input services - outward freight - sale on FOR basis - period 01.04.2008 to March, 2009 - HELD THAT:- The appellant have admittedly made sales on FoR destination basis. Further, it is the appellant who have borne the incidence of freight and has paid the service tax on the same. Further it is held that the place of removal is the premises of the buyer, and accordingly in terms of the amended provision in Rule 2(l), the appellant is entitled to cenvat credit on outward transport under dispute, the same has been incurred upto the place of removal. CENVAT Credit allowed - appeal allowed - decided in favor of appellant.
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2022 (5) TMI 379
CENVAT Credit - input services - outward GTA services - place of removal - prior to 01.04.2008 - HELD THAT:- Prior to 01.04.2008, the services related to removal of the goods was from the place of removal which was replaced as amended with effect from 01.04.2008 as up to the place of removal . Therefore, the Cenvat Credit prima facie is available in case of outward transportation for the services availed from the place of removal up to the customers place - Learned Authorized Representative is also relied upon that Board has prescribed certain conditions for allowing credit which need to be satisfied. Since the adjudicating authority has not verified the fact that, whether the said conditions of Board Circular have been complied with or not, the matter needs to be reconsidered. Appeal deserves to be remanded to the Adjudicating Authority for passing a fresh order after verifying the documents to ascertain that whether the appellant has fulfilled the condition as prescribed in the Board s Circular No. 97/8/2007-ST dated 23.08.2007 - Appeal allowed by way of remand.
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