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Income Tax - Case Laws
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2025 (3) TMI 1441
AI-generated order by the CPC or the computer portal - Return was declared invalid for non-filing a compulsory audit report u/s 44AB - Petitioner responded to the defects notice by pointing out that it had claimed gross receipts or income under the head of “Profits and Gains of Business or Profession” amounting to Rs.6.15 crores only, which was much less than the threshold limit of Rs.10 crores. Hence, the Petitioner submitted that there was no requirement to obtain and e-file a tax audit report.
HELD THAT:- The AI-generated impugned order contains no reasons in this case. The argument that the software is not programmed to record elaborate reasoning or that the previous system was too cumbersome may not be the answer. The new system certainly offers numerous advantages and is efficient. However, it must evolve to include what was essential in the earlier system.
For example, while no detailed judgment is expected when declaring a return invalid, the order must provide minimal reasoning so that the affected party can take corrective action or effectively challenge the reasoning. Such minimum compliance with the principle of natural justice cannot be dispensed with on the grounds of expediency or due to the machine's limitations. Nothing in the impugned order explains why the cause presented by the Petitioner was deemed unacceptable. There is no indication that the cause shown by the Petitioner was given due consideration despite the order’s format stating that a response was considered. The impugned order indeed resembles the “inscrutable face of a sphinx.”
Therefore, based upon the violation of principles of natural justice or because the impugned order is a nonspeaking order, we could have set aside the order and remanded the matter for fresh consideration. However, our apprehension is that the CPC or the portal, which is programmed in a particular manner, may be able to do no better, even upon remand. Therefore, a remand may not solve the problem.
However, where the Petitioner has an alternate and effective remedy in the form of a revision under Section 264 of the IT Act, we see no reason to entertain this Petition or investigate issues of compliance with the requirements of Section 44AB in the specific facts of each case. Such investigation would, as noted earlier, involve scrutiny of the returns, interpretation of the documents accompanying the returns, and not merely interpreting the provisions of Section 44AB. There would also be the question of interpreting the guidance note and other matters. In the present case, we are concerned with the alleged non-compliance with the requirements of Section 44AB. However, returns can be declared invalid under Section 139 (9) of the IT Act for various reasons.
In each such case, it would not be possible to exercise extraordinary jurisdiction and undertake such an elaborate exercise bypassing the alternate and statutory remedy under Section 264 of the IT Act. If such a remedy is resorted to, an official of the Commissioner of Income Tax rank would examine whether declaring the return as invalid was legal and proper. The factual matters which invariably arise could also be effectively investigated by the Commissioner exercising revisional jurisdiction in the first instance.
Petitioner is best placed to avail of the alternate remedy under Section 264 of the IT Act. At the same time, we believe that the Respondents must create a system in which their CPC or portal demonstrates thoughtful consideration, and the essence of the orders is not like the “inscrutable face of a sphinx. " Resorting to Artificial Intelligence (AI) is certainly welcome. However, when the application of thoughtful consideration through actual intelligence is required, it cannot be cast aside simply because AI and automation represent the expedient future. The principles of natural justice and fairness are too valuable to be sacrificed at the altar of AI and automation expediency.
We decline to entertain this Petition but relegate the Petitioner to avail of the alternate remedy under Section 264 of the IT Act.
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2025 (3) TMI 1440
Reopening of assessment u/s 147 - reopening notice is issued within the period of four years from the end of relevant assessment year - HELD THAT:- Respondents have recorded reasons without looking at the records of the Petitioner and on the same being pointed out by the Petitioner in its objections have not been rebutted. Therefore the reasons recorded are without any application of mind and without perusing the records of the Petitioner and therefore on this short ground itself, the impugned proceedings are required to be quashed and set aside.
For the sake of completeness, we examine each of the issues on which the reopening is sought to be initiated independently on what we have observed above.
Adding on account of provision of wage revision while computing the book profit u/s 115JB - As in the reasons recorded it is stated that this figure was disallowed under normal provisions of the Act in the assessment order on the ground that it is a contingent liability but however same was not added back while computing the book profit. In an appeal proceedings before CIT (A), on remand, the AO has admitted that this provision ought not to have been disallowed and accordingly CIT (A) based on this admission of the AO in the remand report has given relief to the Petitioner and deleted the addition.
This order of the CIT (A) was available to the AO while recording reasons for reopening the case on 27 March 2021. Therefore, on the date of recording the reasons which were based on the findings in the assessment order which findings were reversed by the CIT (A) and on the basis of admission in the remand proceedings by the Assessing Officer there could not have been any reasons to believe that any income has escaped assessment. The base of reopening falls to ground, therefore on this account, the reopening on the issue of provision for wage revision to be added while computing the book profit is required to be quashed and set aside.
Adding interest on non-performing investment while calculating book profit, the officer in the reasons recorded proceeds on footing that the profit and loss account is not prepared in accordance with Schedule III of the Companies Act, 2013. The Petitioner is banking company and the provisions of Schedule III of the Companies Act is not applicable. As per the second provision to Section 129 of the Companies Act 2013, the banking company is required to prepare its financials as per the Banking Regulation Act and not as per Schedule III of the Companies Act. Secondly, the issue of computation of book profit was examined during the assessment proceedings and the AO added various other items and calculated revised book profit. Therefore it cannot be said that the AO has not examined the issue of computation of book profit, qua interest on non-performing investment.
Petitioner is justified in relying upon the decision in the case of Century Textiles & Industries Ltd. [2018 (10) TMI 379 - SC ORDER] wherein it is held if certain aspects were examined in the course of the assessment proceedings, then reopening is not permissible on the ground that other aspects were not considered. Therefore, even on this count there could not have been any reasons to believe that income has escaped assessment.
Deduction u/s 36 (1) (viia), a specific query was raised in the course of the assessment proceedings on this issue and the Petitioner vide letter dated 30 November 2018 filed its detailed submissions. In the assessment order, sum was disallowed u/s 36 (1) (vii)/36 (1) (viia) of the Act. The said issue was also subject matter of appeal before the CIT (A). Therefore, in our view the issue of deduction under Section 36 (1) (vii) and 36 (1) (viia) was examined during the course of the original assessment proceedings and therefore any attempt to reopen the case on this issue would result into conferring power of review on the AO based on change of opinion which is not permissible u/s 147 of the Act.
The order disposing the objection does not give any reasoning for rejection of objection except reproducing the extracts of various case laws. In our view, this was not the correct approach. Therefore, even on this count the objection raised by the Petitioner goes unrebutted.
We have no hesitation in holding that the impugned proceedings are required to be quashed and set aside.
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2025 (3) TMI 1439
Rejection of the Rectification Petition - entire alleged TDS default are covered by Form 26 AS and relevant circulars, notification, issued under the Act - Stay petition - HELD THAT:- As petitioner is a state Owned Corporation and it plays an anchor role to the development of Power Sector Projects in the State of Tamil Nadu, and it is the specific claim of the petitioner that the money/funds received by the petitioner-Corporation from various depositors such as Universities, Temples, Government Companies, are all Statutory Bodies, exempted from payment of TDS, and also taking into consideration of the suggestion made by the learned Senior Counsel for the petitioner that the petitioner has voluntarily come forward to deposit Rs. 30 Crores, passed a conditional order, staying the operations of the Assessment Order passed by the Assessing Officer, till the disposals of the Appeals filed by the petitioners before the Appellate Authority.
Thus, present Writ Petition is disposed of granting liberty to the petitioner to agitate the issue with regard to the rejection of the Rectification Petition filed by the petitioner before the Appellate Authority, which shall entertained by the Appellate Authority, while dealing with the Appeals and pass orders in accordance with law.
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2025 (3) TMI 1438
Reopening of assessment beyond the period of limitation as stipulated u/s 149(1) - manner in which a block of six or ten assessment years for which assessments could be reopened in terms of Section 153C - HELD THAT:- The period of limitation of ten years is required to be reckoned from the end of the assessment year relevant to the financial year in which the decision to take action for re-opening the assessments was initiated, that is, the date on which the notice u/s 148 of the Act was issued.
The relevant assessment year in question (AY 2014-15) is beyond the period of ten years as contemplated u/s 153C r.w.s. 153A of the Act from the end of the assessment year. The petition is, accordingly, allowed and the impugned notice is set aside.
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2025 (3) TMI 1437
Maintainability of appeal before High Court on low tax effect -appellant would submit that the Government of India, Ministry of Finance has issued a new circular dated 17.09.2024, in which monetary limits for filing Income Tax Appeals by the department before the High Court has been enhanced to Rs. 2 Crores, whereas in the present case the tax liability of assess is less than Rs. 2 Crore
HELD THAT:- In view aforesaid submission of appellant where monetary limit (tax liability) in the present case is less than Rs. 2 Crores therefore, in light of aforesaid circular (Para-5) dated 17/09/2024, the instant Tax Case stands disposed of.
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2025 (3) TMI 1436
Validity of order passed u/s 143(3) - allegation of violation of the principles of natural justice due to a lack of opportunity for the petitioner to be heard - as argued petitioner has no source of income other than salary earned from 2005 onwards and the tax payable by her for each assessment year would be deducted at source by the respective employer and after such deduction, no further income tax was payable by her, therefore, there was no necessity for the petitioner to pay to file return of income, hence, the petitioner was not aware as to when the notice regarding re-assessment proceedings was caused by the respondent-Department.
HELD THAT:- As notices have been issued to the petitioner through all modes of service, viz., Online Portal, E-mail and RPAD. Insofar as notice sent through online portal is concerned, since the petitioner is not a regular income tax payer, she cannot be expected to view the Portal then and there.
Notice sent via. E-mail is concerned, since the same was stated to have bounced back, the same could not be known to the petitioner. Finally, the notice that was sent through RPAD is concerned, the same was returned with an endorsement, ''No such Addressee, as the petitioner is no longer resident of India, there is no possibility for her to respond to such notice. In the said scenario, it is sheer clear that the petitioner is totally unaware of the proceedings being initiated by the respondent-Income Tax Department.
That apart, the sale with regard to which, reassessment proceeding were initiated, was made in the year 2015-16, whereas, impugned proceedings were initiated in the year 2023- 24, therefore, the petitioner, being a non-tax payer, cannot be expected to view the Portal after a lapse of 8 eight years. Thus, the ignorance pleaded by the petitioner appears to be genuine.
Thus, this Court, in the interest of justice, is inclined to set aside the impugned orders as the order has been passed in violation of principles of natural justice, however, the same is subject to the payment of Rs.7,500/- to the Cancer Institute Adyar, Chennai.
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2025 (3) TMI 1435
Rejecting the application for grant of registration u/s 12A and approval u/s 80G - HELD THAT:- We find since the order of the Tribunal setting aside the issue to the file of the Ld. CIT(E) is still pending and the assessee filed another appeal before the Tribunal on the basis of extension of due date for filing of Form 10A/10AB vide CBDT Circular No.7/2024, dated 25.04.2024, therefore, considering the totality of the facts of the case and in the interest of justice, we deem it proper to restore the issue to the file of the Ld. CIT(E) with a direction to decide the issue afresh along with earlier order of the Tribunal setting aside the issue to his file. Appeals filed by the assessee are allowed for statistical purposes.
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2025 (3) TMI 1434
Reopening of assessment - Addition u/s 68 - AO based on the statements and findings of respective accommodation providers assessments, came to conclusion that the assessee has taken accommodation entries from the dummy or paper companies controlled by the accommodation providers - HELD THAT:- Merely because the assessee has taken the unsecured loan from the companies controlled by them, the addition was made rejecting the various supporting documents provided by the assessee relating to transactions.
In our considered view, the additions were made only on the basis of alleging that the loan taken by the assessee from the above said two companies are only accommodation entries and assessee’s own money was routed through these companies with the help of accommodation entry providers.
On careful note, the accommodation entries are taken which will remain in the books of account and they will ultimately written off over the period of time. These loans were normally not repaid. In the given case, it is brought to our notice that the assessee has received the unsecured loan through the banking channel and repaid through the banking channel.
Assessee has repaid the loan even before the assessment was reopened. When the assessee takes the loan and repaid along with the interest clearly shows that the transactions are genuine. By returning the loan, the assessee has only utilised the loan for the purpose of business and repaid the same. Merely because some operator has managed the affairs and all the transactions cannot be labelled as non-genuine. Every transaction has to be evaluated on its merit rather than on the basis of suspicion. Therefore, in this case, the assessee has submitted all the documents in support of the transaction before the AO and he has merely rejected the same on the basis of information available with him as the same on the basis of suspicion. Decided in favour of assessee.
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2025 (3) TMI 1433
Addition u/s 68 - Unexplained cash deposit - CIT(A) deleted addition - HELD THAT:- We find no reason to interfere with the well-reasoned order of the CIT(A). Endorsing the decision of the ld. CIT(A), the grounds taken by the Revenue stand dismissed and we direct the Assessing Officer to delete the additions. Decided against revenue.
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2025 (3) TMI 1432
Unexplained investment - Sagar Plaza flat having been sold at value 14.29% above the circle rate - AO strangely concluded “kachi parchi” is not rough jotting but an agreement to sell for the immovable property writing down all the conditions for transfer of property - HELD THAT:- There is material substance in the submissions advanced on behalf of the assessee / appellant that hand written kaccha Slip did not exist as not found and seized by the search party and even upon the same, no mention of name of assessee and such a slip is can’t said to be in the handwriting of the assessee / appellant. The contention of the AR having force that upon the slip in question, there is no any name mentioned of witness or also no signature of any witness in order to endorse / establish the veracity of alleged document and above all there is no any signature of the assessee upon it.
Strangely, the Ld. CIT(A) confirms the observation of the Ld. AO by treating kachi parchi as agreement to sell and both the lower authorities ignored the basic principles of law, that for a valid agreement to sell of immovable properly, it needs to be in writing include key details like parities, property description, price, payment terms and timelines, and be signed by both parties, ideally with witnesses and registered with the sub-register’s office and in present case it is admitted fact that there is no signature of parties and witnesses upon it.
Unless and until, the contents of the documents are proved against a person, the possession of the document or hand writing of that person, on such document by itself cannot prove the contents of the documents. On the basis of above fact situation, we are of the considered opinion that the Ld. AO made addition in question only on the basis of surmises and conjectures, which was erroneously confirmed by the Ld. CIT(A) in quite unsustainable, in the eye of law and deserves to be deleted. Appeal of assessee is allowed
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2025 (3) TMI 1431
Addition u/s 68 r.w.s. 115BBE - unexplained cash credit - cash deposits made by the assessee during the demonetization period - HELD THAT:- The pattern of cash sales and cash deposits are consistent and same trend of cash sales and deposits thereof in bank account continues in the later period as well. There is no remarkable difference in the pattern of business in pre-demonetization period or in the post demonetization period.
The survey operation carried out by the Revenue as a surprise check also confirms the fact that assessee carried out cash sales and makes deposits thereof in the wake of absence of any discrepancy in the closing stock, cash in hand etc.
The books of accounts are audited and not rejected by the AO which further gives an assurance towards bonafide of cash sales. The receipts against cash sales have found its way in the bank account in the ordinary course of business. The consignment sale agreement and working of commission and service tax returns etc. yet again provide sound basis to the submissions propounded on behalf of the assessee.
In the absence of any anomaly detected either in the course of survey or in the books of account, the source of cash deposit during demonetization recorded to be out of cash sales of tobacco products in ordinary course could not have been treated as unsatisfactory by the AO. CIT(A), to our mind has rightly discredited the action of the AO on appraisal of factual matrix.
CIT(A) has examined the issue threadbare and has dealt with factual aspects in a very cogent and precise manner. The process of reasoning adopted by the CIT(A) resonates with the facts on record. We, thus, do not consider it expedient to reiterate and repeat each observations made by the CIT(A).
We fully endorse the process of reasoning adopted by the CIT(A) and conclusion derived thereon in the matter.
CIT(A) has rightly obliterated and reversed the additions made u/s 68 r.w.s. 115BBE towards cash deposits and rightly held that the source of cash deposits have live link and clear nexus to the cash sales carried out in a routine manner by the assessee. The adverse action of the AO is devoid of any weight whereas the direct and circumstantial evidences placed by the assessee carries overwhelming rationale and probative value and hence cannot be brushed aside. Decided against revenue.
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2025 (3) TMI 1430
Excess stock found in Survey - addition u/s 68 - Appellant prays to cancel the applicability of Sec.115BBE accepting the same as Business Income to which Normal Tax rate will be applicable.
Whether the value of excess stock found at the premises of the assessee during the course of survey u/s 133A is to be treated as ‘business income’ or ‘income from other sources’? - HELD THAT:- Excess stock found during the course of survey is from regular business income of assessee firm having no other source of income and has been rightly disclosed at business income in the audited financial statements as well as computation of income as business income and both the learned lower authorities erred in treating it as income from other sources and further erred in invoking section 68 r.w.s. 115BBE. Under similar set of facts and circumstances, this Tribunal in plethora of decisions have consistently held that if the unexplained income is from business sources then section 115BBE cannot be invoked.
Accordingly, finding of Ld. CIT(A)/NFAC is set-aside and the excess stock offered by the assessee in its books of accounts is held to be from business income and therefore Ld. Assessing Officer erred in invoking section 68 r.w.s. 115BBE of the Act. Effective grounds of appeal raised by the assessee are allowed.
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2025 (3) TMI 1429
Disallowance u/s 14A r.w.r. 8D - HELD THAT:- In the present case admittedly assessee was having exempt income in the shape of dividend and also claimed interest on borrowed funds. It is a case where mixed funds were available for making investments and AO has failed to make out a case where interest bearing funds are directly applied in making such investments. Disallowance made u/s 14A should be restricted to the exempt income earned by the assessee. Therefore, we uphold the addition.
Depreciation claimed @ 100% on temporary structures - The Assessing Officer has disallowed 10% of such depreciation claimed without appreciating the fact that the scraps, if any, generated had also used in the other work sites. Therefore, no such ad hoc disallowance could be made. It is further seen that depreciation is a statutory allowance and it is not a case where AO alleged that the assets created were not used or there were no temporary structures created by the assessee. CIT DR has failed to controvert the finding of the Ld. CIT(A) in this regard. Thus, we find no occasion to interfere in the order of the Ld. CIT(A) on this score. Accordingly this ground of appeal of the Revenue is dismissed.
Disallowance of the remuneration paid to one of the Director Smt. Vinita Guliani @ 10% of the total remuneration paid - While making the disallowance the Assessing Officer observed that the assessee has failed to substantiate the services rendered by her with credible documentary proof he thus invoked the provisions of section 40A(2)(b) and made disallowance of only 10% of total payment made to her.
CIT(A) has followed the order of preceding assessment year while deleting the disallowance. During the course of hearing, the Ld. CIT DR has not controverted the findings of the Ld. CIT(A). Thus, we are not inclined to interfere in the order of CIT(A) more particularly when the AO himself has accepted the fact of services rendered though no documentary evidences were filed by the assessee. Further the fact remained that otherwise the AO has accepted the services of Smt. Vinita Guliani and, therefore, the disallowance made is rightly deleted by the Ld. CIT(A) which order is hereby upheld.
Disallowance being 2% of total purchases of shuttering and scaffolding - HELD THAT:- From the perusal of the facts and the details filed by the assessee on this issue, we find that the expenditure includes purchases of some items such as wooden frames, plywood, sawn timber, imported pine sawn timber, shuttering pine wood, etc. and the nature of which was such that they have to be consumed within a short period of time. It is also a matter of fact that assessee is having multiple sites where such consumables are required on regular basis. It is also seen that a total revenue generated was of 65.07 crroes on contractual work as against which the expense on consumables were claimed as 7.78 crores which is around 12% of the total revenue. We are in conformity with the order of the Ld. CIT(A) that consumable items are inevitable part for execution of the contract work and, therefore, we uphold the order of the Ld. CIT(A) confirming the deletion of the disallowance so made. Thus, this ground of Revenue is dismissed.
Addition observing that assessee has made earnest money deposited with its subsidiary and no interest is received - HELD THAT:- AO applied 10% interest rate and made addition of Rs. 3 lakhs as notional interest. Ld. CIT(A) has deleted the addition by placing reliance on the decision of Tribunal in the case of assessee for AY 2003-04, 2004-05 and 2005-06. CIT DR during the course of hearing placed reliance on the order of AO on this issue and failed to controvert the findings given by Ld. CIT(A).
Disallowance of sub contract charges paid and job, labour and other cite expenses - AO has made the disallowances u/s 69C of the Act all these expenditures as un-explained - HELD THAT:- CIT(A) by observing that the AO has failed to provide an opportunity of cross-examination of such parties and further observed that when the assessee has filed all the necessary details such as bills, etc. and payments were made through banking channel has deleted the disallowance. However, the fact remained that the assessee has failed to controvert the observations made by AO with plausible evidences so as to prove the genuineness of the expenses claimed. Under the circumstances, in our considered view these two issues need further examination on the part of the AO. Accordingly we remand these issues back to the file of the AO with the direction that assessee be provided an opportunity of cross examination of the persons whose statements are relied upon by the AO and also the assessee is directed to file all the necessary details and evidences.
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2025 (3) TMI 1428
Penalty u/s 271(1)(c) - non specification of clear charge - defective notice u/s 274 - AR submit that from the perusal of the notice, it could be seen that it was not specified whether the penalty proceedings were initiated for concealment of particulars of income or for furnishing inaccurate particulars of income - HELD THAT:- The penalty provisions of section 271(1)(c) are attracted where the assessee has concealed the particulars of income or furnished inaccurate particulars of such income. It is also a well-accepted proposition that the aforesaid two limbs of section 271(1)(c) of the Act carry different meanings. Therefore, it was imperative for the Assessing Officer to strike- off the irrelevant limb so as to make the assessee aware as to what is the charge made against him so that he can respond accordingly.
Hon'ble Supreme Court in the case of Dilip N. Shroff [2007 (5) TMI 198 - SUPREME COURT] has also noticed that where the AO issues notice under section 274 of the Act in the standard proforma and the inappropriate words are not deleted, the same would postulate that the Assessing Officer was not sure as to whether he was to proceed on the basis that the assessee had concealed the particulars of his income or furnished inaccurate particulars of income.
According to the Hon'ble Supreme Court, in such a situation, levy of penalty suffers from non application of mind. In the background of the aforesaid legal position and having regard to the manner in which the Assessing Officer has issued notices under section 274 r.w.s. 271(1)(c) of the Act without striking off the irrelevant words, as reproduced above, the penalty proceedings shows the non-application of mind by the Assessing Officer and is, thus, unsustainable.
Appeal of the assessee is allowed.
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2025 (3) TMI 1427
LTCG on sale of agricultural land (inherited from late father of the appellant) - AO observed that the land was ancestral land which the assessee has inherited and the relevant value as on 01.04.1981 is Rs. 20 per sq.yds - HELD THAT:-the solatium was awarded for other purposes that cannot be considered. Therefore, the assessee can adopt the value of Rs. 85 per sq.yds. as on 1962 and assessee has to determine the value as on 01.04.1981.
We noticed that there is a gap of 19 years between 1962 to 1981. Since there is no data available on record in order to dispense the justice, however even if we take 3% year on year increase of index cost, the total index cost for 19 years would be 57%. By adopting the same, the cost of acquisition as on 01.04.1981 would be Rs. 150/- (i.e. Rs. 85 ÷ 57 x 100). Therefore even though the cost of acquisition determined by Hon’ble Supreme Court for compulsory acquisition, however the rate determined by Hon’ble Supreme Court for the lands within the vicinity of the lands of the assessee. Therefore, nothing wrong in adopting the same rate as on 1962. We are inclined to direct the Assessing Officer to determine the value of Rs. 150 as on 01.04.1981 and direct the AO to recalculate the index cost of acquisition and allow the difference.
Deduction u/s 54F on purchase of one house in the name of his widow mother - This is a peculiar case wherein assessee has declared as a single owner and sold the property, however purchased two properties and registered one property in the name of his mother on the basis of inheritance. This fact cannot be denied.
Considering the peculiar facts on record, we are inclined to allow the claim of the assessee based on the facts brought on record. The AO has not disputed the fact nor brought any material to dispute the above facts on record. Therefore, we are inclined to allow the claim of the assessee in Ground No.3 and additional grounds.
Even otherwise, if we consider the inheritance as per Hindu Succession Act, the property sold by the assessee has to be apportioned on the basis of inheritance and the portion of sale consideration in the name of the mother of the assessee will have tax neutral considering the fact that the relevant sale consideration is already invested in the property and the same would be available for deduction u/s 54F. Therefore, it will lead to tax neutral and considering the peculiar facts on record, we are inclined to allow the claim of the assessee.
Appeal filed by the assessee is partly allowed.
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2025 (3) TMI 1426
TP Adjustment - validity of the assessment order on the ground that the AO had no recorded any reasons to refer the matter to the TPO - HELD THAT:- The issue has been answered by the decision of Aztec Software & Technology Services Ltd. [2007 (7) TMI 50 - ITAT BANGALORE] against the assessee. In view of the same the ground 1 and 2 are dismissed.
Intra Group Services - We are of the considered view that the coordinate Bench of the ITAT Delhi in assessee’s own case [2023 (11) TMI 804 - ITAT DELHI] has decided the issue in favour of the assessee.
DR has argued at length on the validity of ALP adjustment but has not been able to controvert the submission of the assessee that there is no material distinguishing feature in facts of the case for the instant year compared to the facts available in AY 2010-11. The action of the TPO and the CIT(A) in making/sustaining the adjustment to the ALP is not sustainable. We therefore direct the AO to delete the addition on Intra Group Services. Ground no 3 and its sub-grounds are allowed.
Disallowance of mark-up charged by AEs on ‘purchase of fixed assets’ - DR has argued at length on the validity of ALP adjustment but has not been able to controvert the submission of the assessee that there is no material distinguishing feature in facts of the case for the instant year compared to the facts available in AY 2010-11 - HELD THAT:- The action of the TPO and the CIT(A) in making/sustaining the adjustment to the ALP is not sustainable. We therefore direct the AO to delete the ALP adjustment on account of ‘purchase of fixed assets’. Ground no 4 and its sub grounds are allowed.
Addition on account of ALP adjustment of payment of royalty -We find that in EKL Appliances [2012 (4) TMI 346 - DELHI HIGH COURT] has negatived the application of need-benefit test and ruled in favour of the assessee’s on this issue.
We also find that when the assessee has aggregated the transaction of 'payment of royalty' with other closely linked transactions and benchmarked them under TNMM, the TPO can not segregate some transaction out of the aggregated whole and reduce their ALP to NIL under CUP as held in Magneti Marelli Powertrain India (P.) Ltd. [2016 (11) TMI 123 - DELHI HIGH COURT]
The basis for reducing the ALP of royalty transaction to NIL itself does not hold ground in light of the judicial precedent cited above and therefore, we are of the considered view that the appeal of the Department on this issue can not succeed. In view of the above discussion the appeal of the Revenue is dismissed.
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2025 (3) TMI 1425
Rectification u/s 154 - Deduction in respect of Provision created on account of litigation u/s 43B - HELD THAT:- As substantive ground seeking to allow its deduction representing provision created on account of litigation, which has been disallowed by the learned lower authorities by quoting section 43B of the Act. The assessee’s case before us is that it has already filed section 154 rectification before the Assessing Officer on 6th of August, 2024, which is yet to be decided.
Faced with this situation, we deem it appropriate to accept the assessee’s instant second substantive ground for statistical purposes with a direction to AO to finally decide the foregoing section 154 rectification as per law within three effective opportunities. Ordered accordingly.
Beneficial withholding rate of 5% pertaining to the Dividend Distribution Tax “DDT” involving various overseas payees going by the Most Favoured Nation “MFN” clause(s) in the respective “DTAA” - As submits very fairly that this tribunal’s special bench in DCIT Vs. Total Oil India Pvt. Ltd. [2023 (4) TMI 988 - ITAT MUMBAI (SB)] has already decided the issue against the assessee and in the department’s favour that such an application of “MFN” clause is not automatic. We accordingly reject the assessee’s instant third and fifth substantive grounds in very terms.
Deduction of Education Cess “EC” and secondly Higher Education Cess “HEC” - Ld' concel submits very fairly that the same is no more allowable in light of Section 40(2) Explanation- III inserted by Finance Act, 2022 with retrospective effect from 01.04.2005. Rejected accordingly.
Assessee’s appeal is partly allowed for statistical purposes.
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2025 (3) TMI 1424
Presumptive taxation scheme of section 44BB v/s Fee for Technical Services (FTS) u/s 115A - services related to well engineering and other related activities - HELD THAT:- We make it clear first of all that section 44BB is indeed in the nature of a special provision for computing profits and gains in connection with the business of exploration etc. of mineral oils which is not even doubted by the both learned lower authorities in their respective findings. This being the clinching factual backdrop, it is noticed that in Oil & Natural Gas Corporation Ltd [2015 (7) TMI 91 - SUPREME COURT] has already settled the instant issue in assessee’s favour.
As per CBDT Circular No. 1862, dated 22.10.1990 to conclude that the learned lower authorities have erred in law and on facts in rejecting the assessee’s impugned claim seeking assessment under section 44BB of the Act in very terms. Assessee appeal allowed.
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2025 (3) TMI 1423
Revision u/s 263 - lack of enquiry regarding genuineness of the source of cash deposit and in old SBNs during demonetization period - HELD THAT:- No information has been brought on record that the figure of SBNs that was obtained by the AO from the assessee, was inaccurate or incomplete. Nothing has been brought on record to show that the assessee did not make the sales that it claimed to have made.
Assessee, in the course of its reply to the Ld. PCIT had submitted that the nature of the trade is such that sales are unverifiable being mostly made in cash and bills are not drawn up and even if bills are drawn up the names and address of the parties are not recorded in such bills and it has brought on record instances of the cases where the Hon'ble Courts and Tribunal have held that since liquor trade is a controlled commodity, lack of bills will not make a difference to determining sales because the sales are determined with regard to the quantity of purchases and the closing stock.
We observe that the AO has verified the purchases from the figure recorded in Form 26AS and also obtained statement of closing stock from the assessee.
Thus, failure to produce sales vouchers does not materially alter the fact that sales were duly explained by the utilization of stock. Therefore, we are not able to agree with the PCIT that the AO had not done enquiries with regard to the genuineness of the cash deposits that were sought to be explained out of cash sales.
AO did not enquire about the details of licences issued to the assessee for trading of liquor - As license fees were duly recorded in the books of account of the assessee and these books of accounts have been produced before the AO. Thus, the source of payment of licence fees stood explained from the books of accounts, in which no infirmity has been pointed out. As observed that the payment of licence fee for the running of excise shops is not immediately relevant to the reasons for selection of the case for scrutiny. Therefore, even though, the books of accounts have been produced and examined and to that extent the license fee has been considered by AO, this observation of the PCIT would not, in our opinion, constitute an item of lack of inquiry, given the reasons for selection of case for scrutiny.
AO had failed to obtain the ledgers/confirmation from the parties through which the assessee had made purchases - The assessee has submitted that the liquor is a controlled commodity and all purchases were made from distilleries and excise was paid by the assessee to the distilleries during the purchases of liquor from them. It was the distiller which was deposited the excise to the credit of the Government on the amount of liquor distilled/manufactured. Since the entire extent of purchases stood confirmed by Form 26AS of the assessee, further verification from the distilleries with regard to the extent of purchase was not necessary. We would agree that, for this reason, the failure to cross verify the purchases from the distilleries cannot support the conclusion of the PCIT, that the purchases stood unverified.
PCIT has held that enquiries have not been made was the failure to examine the genuineness and creditworthiness of persons who have been given unsecured loans to the assessee and sundry creditors - Examination of expenses primarily pertains to the second issue on which account the case was picked up for scrutiny i.e. “abnormal increase in sales with lower profitability” and we find that the AO vide his notice dated 24.03.2019 has examined the gross profit/net profit shown in corresponding turnover for the current year and the past year, wherein he has asked the assessee to furnish details of turnover, gross profit, G.P ratio, net profit, and N.P ratio and after such examination, the AO has observed that net profit ratio of the assessee was much higher than previous years and therefore, the AO has not drawn any adverse inference on this account. Therefore, we are not able to agree with the PCIT that the AO has not examined the major expenses incurred by the assessee.
Payment of rent expenses in cash stating that the said issue had not been examined by the AO - We note that vide his notice dated 04.07.2019, the AO had asked for details of TDS liability discharged on payment of rent & salary and vide his notice dated 20.12.2019, he has asked the assessee to furnish a copy of rent agreement and the details of TDS made along with documentary evidences. We, further, notice that in response to these notices, the assessee furnished copies of rent agreement to the AO along with ledger accounts and stated that TDS, wherever necessary, was deducted and deposited in Central Government Account.
This is not a case where Explanation-2(a) of Section 263 of the Act is applicable because all enquiries which in the opinion of the Ld PCIT ought to have been made, were made by the Assessing Officer, albeit in not exactly the same manner as desired by the Ld. PCIT, but very substantially and towards verifying the very same set of facts.
After considering the facts of the case and the law as laid down by the courts, we hold that the Ld. PCIT was not justified in holding that the order of the AO was erroneous and prejudicial to revenue and therefore we quash the order of the Ld. PCIT u/s 263 of the Act and restore the order of the Ld. AO passed u/s 143(3) of the Act. Accordingly, all the grounds of appeal of the assessee are allowed.
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2025 (3) TMI 1422
TP Adjustment order passed in the name of a non-existing company - HELD THAT:- We find an identical issue had come up in the case of M/s. Allscripts (India) LLP (As a successor in interest of Allcripts India Pvt. Ltd.) vs. NFAC [2023 (5) TMI 1044 - ITAT AHMEDABAD] wherein the Tribunal while deciding the issue of validity of the order passed by the TPO on a non-existing company. The Tribunal after relying on the various decisions held that the order passed on a non-existing company is a nullity.
We find some force in the arguments of the Ld. Counsel for the assessee that the TPO is not given any concession under the Act to pass any order as per his choice and once he fails to do so, it is a nullity. The provisions of section 292BB of the Act in our opinion cannot come to the rescue of the TPO this being a jurisdictional issue. Since in the instant case, despite number of letters addressed by the assessee to the TPO to drop the proceedings on the ground that the same are being proposed on a non-existing company, the TPO passed the order in the name of a non-existent company, therefore, we hold that such order of the TPO passed in the name of a non-existing company is a nullity. Decided in favour of assessee.
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