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Income Tax - Case Laws
Showing 41 to 60 of 168831 Records
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2024 (11) TMI 956
Jurisdiction of ITAT at Delhi to entertain an Appeal - Order of AO who framed the assessment is situated in the State of West Bengal and assessee is situated in Delhi - HELD THAT:- Since the impugned assessment order is passed by the Assessing Officer situated at Kolkata, the present appeal of the revenue before Delhi Tribunal is not maintainable in view of the decision of ABC Papers Ltd. [2022 (8) TMI 863 - SUPREME COURT] wherein it settled the law that it is situs of the Assessing Officer which forms the clinching factor for exercising the appellate jurisdiction. Hence the Delhi Tribunal does not have power to adjudicate this appeal as the Assessing Officer was located in the State of West Bengal. Hence we dismiss the appeal of the revenue as not maintainable with liberty given to the revenue to approach the appropriate Bench by filing a fresh appeal together with a delay condonation petition.
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2024 (11) TMI 955
Income deemed to accrue or arise in India - assessee having business connection in India and the LO was treated as PE of the assessee in India - onus to prove - assessee is a US based company engaged in the business of supplying goods from outside India. The assessee is a wholly owned subsidiary of a General Electric Company and made offshore sale of goods and offshore sale of software and related support services to its various customers in India - as argued assessee has no PE or DAPE in India - HELD THAT:- Relevant documents were placed before the AO by the assessee to substantiate its claim of having no LO in India, the onus shifts on the Revenue to prove otherwise. The AO has made no effort to examine claim of the assessee and to check the veracity of documents furnished during the assessment proceedings. The Tribunal sought remand report from the AO in September 2023. Six weeks time was given to the AO to furnish the report.
AO furnished the report in December 2023, the said report is stated to be based on the information provided by the assessee. AO had also expressed his helplessness in providing the said report without complete verification due to paucity of time. We do not agree with the Revenue/AO on the excuse of time limitation in furnishing the report. This appeal is taken up for hearing after almost 10 months from the date of furnishing report.
If, the AO had something more to add to the report dated 19.12.2023 or had any contrary material to rebut the contentions of the assessee, the AO could have very well furnished the same by way of supplementary report. The AO has not placed on record any material whatsoever to rebut contentions of the assessee with regard to closure of LO operations and no expatriate employees in India during the relevant period. The closure of LO operations in India result in paradigm shift in taxability and attribution of profits in India. With the closure of LO operations in India, the assessee will have no PE or DAPE in India.
Revenue has not placed on record any material to show that even after closure of LO operations, the assessee still has business connection that can be termed as PE or DAPE in India. In light of above, we find merit in the case of assessee.
We have no hesitation in holding that the assessee has no PE in India during the impugned AY, hence, question of attribution of profits to PE in India does not arise. In the result, ground no. 1 to 11 of appeal are allowed.
Holding receipts from supply of software in India as ‘Royalty’ - We find that in the assessment order the AO has treated the receipts from sale of software as royalty under the provisions of section 9(1)(vii). The assessee raised objections before the DRP, the DRP directed the Assessing Officer to verify the records and, if, software supplied by the assessee is found to be embedded in hardware itself, the addition on account of royalty income was directed to be deleted. We find that the AO without complying with the directions of the DRP reiterated the findings given in draft assessment order and treated the receipts from software & related support as Royalty.
This issue was also considered by the coordinate Bench in assessee’s own case in the preceding assessment years i.e. AY 2012-13, 2014-15 & 2015-16 [2022 (3) TMI 1209 - ITAT DELHI] as held amounts paid by resident Indian end-users/distributors to non-resident computer manufacturers/suppliers, as consideration for the resale/use of the computer software through EULAs/distribution agreements, is not the pay of royalty for the use of copyright in the computer software, and that same does not give rise to any income taxable in India, as a result of the persons referred to in section 195 were not liable to deduct any TDS u/s 195 - Decided in favour of assessee.
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2024 (11) TMI 954
GST amount considered for the purpose of computing presumptive income u/s. 44B - Applicability of Section 145A in computing deemed income under Section 44B - HELD THAT:- Section 44B is a special provision for computing profits and gains of shipping business in the case of non-residents. Prior to insertion of Section 44B, taxable profits of foreign shipping enterprises were determined by suitably apportioning their global profits between their Indian business and foreign business or on the basis of "voyage accounts" which led to difficult and complicated issues in assessments. With a view to simplifying and rationalizing the assessments in such cases, Section 44B was inserted for computing profits and gains of shipping business in the case of non- residents at 7.5% of specified amounts. Insertion of Section 44B substituted computation as per normal provisions in which both debit of expenses and credit of income were considered.
Interpretation of Section 145A inserted by the Finance Act 2018 with retrospective effect from 01/04/2017 on the issue of applicability of income computation and disclosure standards - Ergo, amendment to Section 145A was to include taxes of cost of sales / services for valuation of inventory to align with ICDS-2 and nowhere it can be inferred that it tantamount to change the computation mechanism on presumptive basis of taxation. Earlier Section 145A was inserted to bring clarity with the method of accounting for valuation of purchase and sale of goods and inventory, to determine business income.
Section 145A of the Act takes into consideration "valuation of sale or purchase of goods/services and of inventory", whereas Section 44B (2) considers specified amounts i.e. "amount paid or payable on account of the carriage of goods shipped at any port in India" and "amount received or deemed to be received on account of the carriage of goods shipped at any port outside India. The terms amount paid or payable' and 'amount received or deemed to be received mentioned under Section 44B cannot be replaced with the term 'valuation' in the absence of any specific enabling provisions under Section 44B or Section 145A of the Act or any other provisions of the Act. For instance, Section 50CA is a deeming provision which enables replacement of consideration with 'fair market value' where the amount of consideration is less than the fair market value determined in a prescribed manner.
Thus, in our view adding GST component to the deemed income which has to be computed directly on specified amounts i.e. amount paid or payable on account of carriage of goods shipped which is revenue element only. For the earlier regime of service tax prior to GST, there were various judicial precedents which upheld exclusion of service tax while computing the provision u/s. 44B or other similar provisions.
Full Bench of Hon’ble High Court of Uttarakhand in case of DIT v. Schlumberger Asia Services Ltd [2019 (4) TMI 1177 - UTTARAKHAND HIGH COURT] held that service tax paid earlier by the assessee to Government of India is not on account of provision of services in connection with exploration and production of mineral oil, hence would not form part of aggregate taxable amount referred to in clauses (a) and (b) of sub-section(2) of section 44BB.'On perusal of the comparison of the relevant provision of service tax law and GST law it can be seen that both are indirect taxes and is recovered by the service provider on behalf of assessee and as an agent of the Government as such rates are specified and thus, the provision under the service tax law are similar to provision of GST law and therefore, in our opinion the judicial precedents delivered in respect of erstwhile tax law would apply mutatis mutandis to the GST laws also.
GST being a mandatory 'statutory levy’ cannot be said to be in the nature of 'charges' by the shipping Company towards the carriage. The incidence of GST is on account of taxability of services under the relevant parliamentary statute i.e., GST laws and not on account of the business activities as envisaged in Sections 44B(2)(i) and 44B(2)(ii) of the Act. Otherwise, including GST in gross receipts for purpose of section 44B would be akin to charging income tax on GST i.e., tax on tax, which would promote cascading effect which cannot be the intent of legislation.
A service provider acts in a fiduciary capacity out of statutory obligation casted upon it, while collecting service tax/GST on the behalf of exchequer and the same is ultimately deposited with the exchequer, hence there cannot be any iota of doubt that the impugned GST is not in the nature of specified income under Section 44B.
As argued amendment in the provisions of Section 145A of the Act brought by Finance Act 2018, since it includes “services” within its code therefore, income has to be computed in accordance with Section 145A and any taxes levied under services is included - If it is held that Section 145A are applicable for computing deemed income u/s.44B and GST is added to the specified amounts and provisions of Section 29 are invoked, then deduction of GST paid should be allowed while computing income under the head "profits and gains" of business or profession as per Section 43B.
Even otherwise also Section 44B over rights Section 28-43A and 43B and therefore, in case if department seeks to add GST on the turnover for the purpose of calculating the profit u/s.44B, then, deduction u/s.43B has to be allowed if it is paid on or before the due date and similarly it can be disallowed once GST has not been paid within the due date. However, this is purely academic, contention which has been raised because we have already held that for the purpose of Section 44B only specified amount mentioned in the sub-Section 2 of Section 44B alone is the subject matter of computation of profit @7.5% and Section 145A has no applicability. Thus we hold that while computing income u/s.44B, GST cannot be included. Thus, in our opinion, the minority view of the single member of the DRP is to be upheld that GST cannot be included while computing deemed income u/s.44B, accordingly, this issue is decided in favour of the assessee.
Computing of book profit u/s.115JB - Since assessee has offered income of operation of ships to tax under the deemed provisions of Section 44B r.w.s.90(2) and Article 8 of India-Hong Kong Tax Treaty. Thus, in view of the Explanation 4A to Section 115JB(1), the provisions of Section 115JB are not applicable to the assessee.
Short grant of tax deducted at source and credit of advance tax - As been stated that assessee has filed rectification application before the ld. AO which has not been disposed of. Accordingly, we direct the ld. AO to examine this issue and decide accordingly.
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2024 (11) TMI 953
TDS u/s 195 - disallowances made u/s. 40(a)(i) - ocean freight charges paid by the assessee company for availing those services falls under the definition of 'Royalty' as per article 12.3 of India-Korea DTAA - income deemed to accrue or arise in India - HELD THAT:- The assessee is a resident Indian Company, is engaged in the business of manufacture / job work of boiler pressure parts, panels, header and coils and designing, building, installation and maintaining engineering plants relating to thermal and coal power plants.
During the assessment year the assessee had incurred expenses towards freight charges paid to a non-resident logistic company - Hyupjin Shipping Co. Ltd., Korea (‘HSC’). The Assessee had engaged HSC, a Korean logistics company for availing logistics services along with coordinating with port authorities for vessel berthing, loading, unloading, port clearances, approvals, licenses, permits etc. at various ports outside India.'Firstly, the impugned payment made by the assessee is not in the nature of Royalty under section 9(1)(vi) of the act as the payments were mere simplicitor freight charges.
We note that the AO’s conclusion in the Assessment order passed, referring to the explanation 2 of section 9(1)(vi) of the Act for treating the said consideration paid by the Respondent to HSC as ‘Royalty’ towards to right to use of industrial, commercial or scientific equipment i.e., vessel, devoid of merits. As observed from the documents produced by the assessee and as per agreement entered into with HSC, the services does not confer any right to use of the equipment i.e. ship. The services relate only to logistic services, i.e., for movement of goods across various ports outside India and hence the contention of the Ld. FAO factually incorrect and wholly contrary to law.
The claim of the assessee that the payment of ocean freight to a non-resident company does not tantamount to royalty. See A.P. Moller Maersk AS [2017 (2) TMI 993 - SUPREME COURT]
DTAA between India & Korea existing during the A.Y. 2015-16 - We note that the HSC does not have any place of business/office in India and further no activities are being carried out by HSC in India, there exists no business connection for HSC in India. Therefore, no income arises through business connection in India u/s. 9(1)(i).Further, as per the India-Korea tax-treaty, the business profits of a foreign company would not be taxable in India, if such company does not have a permanent establishment in India through which the business is carried on.
HSC (non-resident logistics company) does not have any place of business/office in India through which business activities of the Company are carried on and thereby, the profits arising from logistics services would be taxable only in the resident state i.e., Korea.
We note that HSC is a logistics company, the freight income earned by HSC would be governed by Article 7 and not Article 9 of the India-Korea tax-treaty. The Article 9 of the treaty covers only income which are earned from usage of ship / letting out of ships / charter of ships etc and not for providing logistics services in any manner whatsoever. Even on perusal of provisions of Section 195 of the IT Act, itattracts tax only on chargeable income, if any, paid to a non-resident. Where there is no liability, the question of tax deduction does not arise. Where no part of the income is chargeable in India, even clearance under Section 195(2) or 195(3) of the IT Act is not necessary.
HSC does not have any place of business/office in India, the profits arising from logistics services would be taxable only in the resident state i.e., Korea, no taxes were required to be withheld by the assessee while making the remittance of freight charges. Hence, the disallowance u/s. 40(a)(i) made by the AO in reassessment is devoid of merits - Decided against revenue.
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2024 (11) TMI 952
Reopening of assessment - reason to believe - borrowed opinion v/s independent inquiry - addition u/s 68 - Investigation Wing in its report had recorded that true nature of such transactions being sham transactions/accommodation entries and the entry giving entities had been shown to be mere shell companies of no means - as contended that the opinion of the AO is borrowed as it has highly relied on the report of Investigation Wing without independently verifying the issue and correct facts.
HELD THAT:- There is no dispute that the re-opening of assessment u/s 147 of the Act has it genesis in the search operation carried out by the Revenue at the premises of one Shri Tarun Goyal wherein it was found that the assessee had obtained entry from the entry operator. This transaction is the subject matter of dispute between the parties herein.
AO made addition being share application received from M/s. Tauraus Iron & Steel Company Ltd. u/s 68 of the Act treating non-genuine transaction and accommodation entry. Assessee during the course of hearing, submitted that even if it is assumed without admitting the same that the transaction is not a genuine transaction then also the assessment could not have been re-opened on the incriminating material found during the course of search.
AO was not justified in re-opening of the assessment u/s 147 of the Act. The proper course if any, under the facts of the present case when admittedly the incriminating material which is the basis of re-opening of assessment was recovered during the course of search at the premises of the third party would be proceedings u/s 153C of the Act. The impugned order passed by the AO thus, cannot be sustained. CIT(A) failed to advert to the submissions made by the assessee and the specific grounds taken before him regarding legality of re-opening of assessment.
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2024 (11) TMI 951
Income deemed to accrue or arise in India - Taxability of reimbursement received on account of SAP Software and Microsoft License Fee - Royalty receipts u/s 9(1)(vi) as well as Article 12 of the DTAA stands - HELD THAT:- DR could not dispute the fact co-ordinate bench has categorically held that the issue of taxability of reimbursement of software licence fees stands covered in Assessee’s favour by the Hon’ble Supreme Court’s decision in the case of Engineering Analysis Centre of Excellence (P.) Ltd. [2021 (3) TMI 138 - SUPREME COURT]
Taxation of payment received from PVM India on account of Information & Communication Technology Service Charges (“ICT Service Charges”) as FTS under Article 12 of DTAA - Where the DRP had directed the AO on the basis of the decision of the Tribunal in assessee’s own case for AY 2017-18 to examine the issue, the controversy before the AO was limited. AO had not examined the factual aspects of the agreements and nature of services in context to ‘make available’ clause introduced by the amendment dated 30.08.1999 in India Netherlands DTAA.
As we go through the decision in favour of assessee in AY 2017-18 we find that the Mumbai Bench of the Tribunal decision in SEA Hygiene Products [2021 (1) TMI 323 - ITAT MUMBAI] had been relied and squarely applied without any examination of the assessee specific agreements and nature of services. It is not the case before us that the nature of services in the case of SEA Hygiene Products are similar to that of assessee.
On the other hand the decision in SEA Hygiene Products (supra) was based on principles of law laid in the case of Steria India Ltd. [2016 (8) TMI 166 - DELHI HIGH COURT] and accordingly in SEA Hygiene Products (supra) it was held that the provisions of Article 12(4)(b) of the Indo-Portuguese Treaty being restricted in scope vis-à-vis Article 12(3)(b) of Indo-Swedish Tax Treaty will apply in the Indo-Swedish Tax Treaty as well and it was pari materia applied in the case of the assessee for Indo- Netherlands Treaty also. There was no plea on the basis of the said benefit being independently available under India Netherlands DTAA, through an amendment vide Notification No. S.O. 693(E), dated 30.08.1999, issued under section 90(1) of the Act.
Consequently we are of the considered view that as with regard to these grounds 11 to 13(d), the contentions as raised cannot be sustained without there being an opportunity with the AO, to examine the factual aspects involved about the nature of agreements and services in terms of the amendment dated 30.08.1999 in India Netherlands DTAA, with regard to restricted scope of ‘make available’ clause. Issue is restored to the files of AO, to reexamine the issue in the light of aforesaid observation of this bench.
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2024 (11) TMI 917
Correct head of income - True character of the income - Income from leasing or letting out the properties in shopping-cum-entertainment Mall - “income from business” or “income from house property” - ITAT held that where the letting out the property is the main object of a company, its income is to be computed under the head “income from business” and it cannot be treated as “income from house property”, affirmed the order passed by the CIT (A)
As decided in HC [2024 (4) TMI 753 - MADHYA PRADESH HIGH COURT] order passed by A.O. nowhere shows that the entire income or substantial income of the assessee was from letting out of the properties, which is admittedly not the principal business activity of the assessee. Therefore, we do not find any perversity in the findings recorded by the ITAT as well as the CIT (A)
HELD THAT:- Having heard the learned Additional Solicitor General appearing for the petitioner and having gone through the materials on record, we see no reason to interfere with the impugned order passed by the High Court of Madhya Pradesh at Indore.
Special Leave Petition is, accordingly, dismissed.
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2024 (11) TMI 916
Denial of foreign tax credit (‘FTC’) on tax paid on foreign income in Sri Lanka - non-filing of Form 67 at the time of filing of original return - procedural v/s mandatory provision - HELD THAT:- Article 23 of the India-Sri Lanka DTAA mandates that reliefs should be provided to avoid double taxation and FTCs should be granted when tax is paid in both the countries. Denying of FTC due to procedural delay in filing Form 67 goes against the DTAA’s objectives.
Section 90 allows relief in cases of double taxation. Although Rule 128(9) requires Form 67, the assessee’s compliance within this rule during the rectification stage demonstrated a good faith or effort to fulfil procedural requirement.
Hon’ble Courts and Tribunal has often held that procedural delay should not be hindered substantive relief when the claimant has made all other substantive requirement.
As the assessee fulfils the substantive requirement of paying taxes in Sri Lanka and subsequently claimed FTC as per DTAA u/s 90 of the Act and filing of the Form 67 during rectification process suffices as a procedural compliance to the claim of FTC. Moreover, the objective of the Article 23 of the DTAA and section 90 to mitigate double taxation which should not be compromised by procedural technicalities when substantive compliance is evident. We find that the assessee is entitled to FTC on foreign tax paid. Appeal of the assessee is allowed.
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2024 (11) TMI 915
Revision u/s 263 - unexplained income u/s. 69A r.w.s. 115BBE - whether the seized cash shown by the assessee under the head ‘income from other sources’ will be treated as unexplained income u/s. 69A r.w.s. 115BBE of the Act or not? - HELD THAT:- On perusal of section 263, it is abundantly clear that for invoking section 263 of the Act, the order of the Ld.AO should be erroneous and should be prejudicial to the interest of revenue.
As per Expln.2(a) of section 263 of the Act, any order shall be deemed to be erroneous in so far as it is prejudicial to the interest of revenue, if the order is passed without making enquiry or verification which should had been made.
In the instant case, as submitted by DR the claim of the assessee was not supported by any contemporaneous demonstrable evidences. Assessee did not provide the list of persons from whom he received the income and to whom he provided the services.
AO failed to verify the same. Therefore we are of the considered view that, there was failure on the part of the AO to make necessary enquiry / verification, hence the order of the Ld. AO is erroneous in so far as it is prejudicial to the interest of revenue. Therefore, in our opinion the invocation of section 263 by the PCIT(C) is as per law. Accordingly, we dismiss this ground of appeal of the assessee.
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2024 (11) TMI 914
Reopening of assessment u/s 147 - assessee claimed to be not engaged in any business activities and had purchased two residential properties - Disallowance of deduction u/s 54F - assessee had claimed deduction in respect of capital gains against the entire sale consideration for purchase of properties during the year and the AO was not satisfied with the purchases of two properties and held that benefit of section 54Fcan be given in respect of “a residential house”, which means ‘one residential house’ therefore, capital gain was recalculated and addition - HELD THAT:- On the basis of admitted facts it comes up that investment was made in two floors of the same building which assessee was using for residence. This aspect that the two floors of the same building were purchased from the same seller is not disputed.
Interpretation of "a residential house" u/s 54F - AO has allowed relief only in respect of one floor and before us several decisions have been referred to by learned AR wherein it is settled that the expression “a residential house” in section 54F(1) has to be understood in the sense that the building should be of residential nature and “a” should not be understood to indicate a singular number. Thus, even in case of purchases of two residential flats assessee is entitled to exemption u/s 54F. Thus, we are inclined to sustain ground no. 1 in favour of the assessee.
Addition of cash deposit - We find that during assessment proceedings the assessee had filed an affidavit, wherein it was deposed that during financial year relevant to the present assessment year assessee was not involved in any business activity. We find that without any piece of evidence to the contrary the AO has inferred on the basis of cash/credit entries in the bank account that assessee must have been engaged in business activities and such approach itself is not justified for making the addition.
AO discarding the claim of assessee that he was not engaged in any business activity - We find that AO has taken into consideration the credit of the cheque disowned of Rs. 5,72,500/- as business receipts; cash receipt of Rs. 19,37,500/- on sale of property as established by the copy of sale-deed, available at pages 66 of the paper book. There were receipt of Rs. 35,50,000/- by the assessee from his real brother through banking channel as a share of the compensation received on acquisition of ancestral rural agricultural land; and assessee himself had received Rs. 14,02,500/- from the Government of U.P. on the acquisition of ancestral rural agricultural land. Learned AR has also established that certain credit entries of Rs. 44,00,000/- which AO has treated as business receipts were counter entries of repayment of loan given/ debit in bank account during the same financial year from various persons.
AO has extended too far his jurisdiction of reassessment to examine the cash deposits and treating it as business receipts, without any effective enquiry from the assessee. Assessee appeal allowed.
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2024 (11) TMI 913
Bogus purchases - estimation of profit - AR submitted that the assessee has made purchases after due verification of the bonafides of the GST Registration of the impugned two suppliers - HELD THAT:- Where the related sales were accepted, the amount of bogus purchases in its entirety cannot be added to the returned income and only certain percentage of profit embedded in such tainted purchases is to be added as additional income and further, the estimation of profit is over and above the profit already declared by the assessee in the return of income, we feel appropriate to arrive at the profit margin of 10% on the bogus purchases and thus, addition to the extent/partly is deleted. Thus, appeal of the Revenue is dismissed.
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2024 (11) TMI 898
Stay of demand - direction as called upon the writ petitioner to make a pre-deposit of 20% - As decided in PPK NEWSCLICK STUDIO PVT. LTD [2024 (8) TMI 888 - SC ORDER] admitted fact that 30% of the demand has already been recovered by the respondent. ITAT shall consider the appeal of the appellant in accordance with law on its own merits
HELD THAT:- There is omission on the part of the ICICI Bank which has not complied with the order of this Court dated 09.08.2024 and instead is seeking to comply with the communication dated 15.12.2023 issued by the Office of the Deputy Commissioner of Income Tax, Central Circle 1, Delhi to them.
It is needless to observe that the order of this Court dated 09.08.2024 is subsequent to the aforesaid communication.
Direction is issued to the Branch Manager, ICICI Bank, E-30, Saket, New Delhi to comply with the order of this Court dated 09.08.2024 both in letter and spirit forthwith.
Miscellaneous Application has been filed seeking the following reliefs:
“(i) Set aside the notice dated 15.12.2023 bearing No.ITBA/COM/F/17/2023-24/1058789726(1) sent by the Respondent to ICICI Bank, Saket Branch; AND
(ii) Direct that any amount credited in the Petitioner’s bank accounts with the ICICI Bank, Saket Branch, bearing Account Nos.017105010200 and 017105009185, shall not be debited to the Income Tax Department, pursuant to their letter dated 15.12.2023; AND
(iii) Direct that normal banking operations shall resume in the Petitioner’s bank accounts with the ICICI Bank, Saket Branch, bearing Account Nos.017105010200 and 017105009185; AND
(iv) Pass such further orders as this Hon’ble Court may deem fit in the facts and circumstances of the case.”
The prayers stated above at (ii) and (iii) are granted.
Consequently, the Miscellaneous Application stands disposed of in the aforesaid terms and the application for appropriate Orders/Directions is allowed.
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2024 (11) TMI 897
Validity of Reopening of assessment u/s 147 - As decided by HC [2023 (10) TMI 1454 - BOMBAY HIGH COURT] this is not a fit case to exercise our discretionary jurisdiction under Article 226 of the Constitution of India. At the same time, Petitioner may raise all grounds which Petitioner has before the AO in reply to the notice u/s 148. The officer shall consider the objections and points raised by Petitioner and pass such order as he deems fit
HELD THAT:- On instructions, respondents states that the respondents have no objection to the notices issued u/s 148 being quashed, as the transaction in question was between a mother and son.
In view of the aforesaid position, the impugned judgment/order is set aside, quashing the aforesaid notices. The appeal is allowed. The writ petition will be treated as allowed.
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2024 (11) TMI 896
Deduction u/s 54EC - premature cancellation of the bonds - Petitioner sought to cancel PFC bonds to utilize the sale proceeds for a property purchase in Noida, claiming mistaken advice regarding tax benefits - legislative intent behind the bonds, lock-in period of 5 years as integral to ensuring long-term capital allocation and financial stability.
HELD THAT:- The PFC bonds, are known as “54EC Capital Gain Tax Exemption Bonds – Series VIII”. This is a type of investment instrument authorized by the Income Tax Act, 1961. These bonds provide an opportunity for individuals to save on long-term capital gains taxes incurred from the sale of property or assets. By investing in these bonds, one can defer the payment of capital gains tax and enjoy the potential benefits of a reliable investment option. Such investment is held for 5 years and the bonds so acquired cannot be transferred or converted into money or any loan and neither can an advance be taken on security of such bond within 5 years from date of acquisition. Any such action would result in withdrawal of the capital gain exemption benefit.
Thus, the subject bonds issued by the Respondent fall within the category of ‘long-term specified assets’, in terms of notification dated 8th June, 2017 issued by the Ministry of Finance, and as defined in Section 54EC of the Act to mean “any bond, redeemable after five years and issued on or after the 1st day of April, 2018”. The long term specified assets/bonds can be redeemed only after 5 years from the date of the issuance due to the lock-in period under Section 54EC of the Act as amended by Section 21 of the Finance Act, 2018. Furthermore, this information with regard to the lock-in period is mentioned in Clause 13 of the information memorandum issued by the Respondent regarding the subject bonds.
In the opinion of the Court, having regard to the statutory scheme and the terms and conditions of the subject instrument, the Petitioner’s request for cancellation or redemption, cannot be accepted. The funds raised through the 54EC bonds are specifically intended to support Respondent’s financial objectives. The ‘Object of the Issue’ of the PFC Capital Gain Tax Exemption Bonds is – ‘to augment resources of PFC for meeting fund requirement’. These funds are in the nature of long term funds borrowing. This intent, combined with the five year lock-in period, imposes a clear embargo on premature redemption, as it ensures that the investments remain committed to Respondent’s financial stability and to meet the object of the Issue. This lock-in period is not a mere formality but a substantive requirement, integral to the legislative intent behind Section 54EC.
Terms and conditions governing the bonds, stipulated by the Respondent clearly restrict any withdrawal, redemption, or transfer of these bonds before the completion of the mandated 5-year period. This restriction applies regardless of whether the Petitioner has claimed the capital gains exemption or not, and regardless of any willingness on the Petitioner’s part to forgo interest, as these bonds are essentially bound by legislative and contractual rigidity. Permitting any deviation from the stipulated lock-in period would compromise the object and purpose underlying these bonds, creating an avenue for circumventing statutory obligations under Section 54EC.
The statutory framework does not just seek to incentivize tax savings but to ensure that these savings result in actual, long-term capital allocation. Allowing premature redemption through judicial intervention would not only be against the contractual terms, but also contravene the statutory intent of encouraging long-term investment. Thus, it is beyond the scope of this Court, particularly under the writ jurisdiction under Article 226 of the Constitution, to modify or rewrite the conditions stipulated for allocation of bond.
Court is of the view that the judgment in Major Amandeep Singh [2015 (8) TMI 1585 - DELHI HIGH COURT] 3does not apply to the present case. Upon issuance of the bonds to the Petitioner, the rights and obligations of both parties are governed by the specific terms of the financial instrument. Neither party can alter the same unilaterally. Any attempt would not only contravene the contractual terms, but would also be against the statutory purpose underlying the bond scheme.
Although not expressly argued, and only vaguely alluded to, the Petitioner’s claim for cancellation appears to stem from an alleged mistake of fact and reliance on misguided financial advice. Such grounds, in the opinion of the Court, do not create any enforceable right and cannot be adjudicated under Article 226 of the Constitution.
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2024 (11) TMI 895
Revision u/s 263 - assessee to be a beneficiary on account of funds received from four parties - PCIT cancelled the assessment framed u/s 147 r.w.s. 144 by directing AO to frame the assessment afresh after doing necessary verification - HELD THAT:- The assessment framed by AO cannot be said to be being erroneous nor prejudicial to the interest of revenue as these items of so-called bogus loans of Rs. 3,13,000.- from four parties did not come to the notice of the AO during the assessment proceedings warranting the addition by the AO. Therefore, we are inclined to hold that the jurisdiction exercise by ld. PCIT is bad in law.
In our opinion the assessment framed by the AO u/s 147/144 of the Act is neither erroneous nor prejudicial devoid of which the jurisdiction u/s 263 of the Act cannot be invoked.
The case of the assessee is supported by the judgment of Malabar Industries Limited [2000 (2) TMI 10 - SUPREME COURT] wherein it has been held that in order to invoke jurisdiction u/s 263 of the Act, the assessment order passed has to be erroneous as well as prejudicial to the interest of revenue and even if one of the two conditions are satisfied, even then section 263 by ld. PCIT cannot be invoked. Appeal filed by the assessee is allowed.
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2024 (11) TMI 894
Addition u/s 68 - unexplained cash credit - non proving in identity, creditworthiness, and genuineness of the share premium received by the assessee - HELD THAT:- Hon’ble Supreme Court in the case of CIT vs. Kamdhenu Steel & Alloys Ltd. [2012 (9) TMI 950 - SC ORDER] held that mere non-appearance of director cannot be held to be justified in treating the share premium and share capital as unexplained income if sufficient documentary evidences are provided. In the present case of the assessee, the shareholders were scrutinised u/s 143(3)/147 of the Act, further detailed evidences were submitted to establish genuineness of the transactions.
In this regard, we rely on the decision of Lovely Exports (P) Ltd. [2008 (1) TMI 575 - SC ORDER] wherein, it was held that once company proves the existence and authenticity of shareholders, it had discharged its burden u/s 68 of the Act. We find merit in the contention of the ld. AR.
That the premium is matter of business prerogative as held in the Coordinate Mumbai Bench of the Tribunal in the case of M/s Greek Infra Ltd. [2013 (12) TMI 949 - ITAT MUMBAI] and in the case of Trident Shelters Pvt. Ltd. [2014 (1) TMI 1224 - ITAT HYDERABAD]
That revenue cannot question the quantum of share premium in the absence of evidence of collusion or mala fide intent.
We hold that the addition made by the AO as unexplained cash credit u/s 68 of the Act is unsustainable since the assessee has sufficiently established the identity, creditworthiness and genuineness of the transaction relating to the share capital received during the relevant financial year. We, therefore, direct the Assessing Officer to delete the addition u/s 68 - Appeal of the assessee is allowed.
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2024 (11) TMI 893
Levy of penalty u/s. 271(1)(c) - defective notice u/s 274 - omnibus notice - Non mentioning of charge for which penalty is to be levied - HELD THAT:- An examination of the first notice reveal that it is in a preprinted performa, wherein both limbs of section 271(1)(c) of the Act have been mentioned.
AO has not struck off irrelevant clauses in the preprinted performa. The omnibus notice is vague. The subsequent notice is equally ambiguous as the AO has not mentioned any of the limbs of section 271(1)(c) of the Act in the notice for which the penalty is to be levied. Non mentioning of charge for which penalty is to be levied makes the notice as much defective as non striking of irrelevant clauses in the notice. Both make the notice ambiguous and vague. Hence, the proceedings arising from defective notice are vitiated.
Hon’ble Jurisdictional High Court in the case of PCIT vs. Sahara India Life Insurance Company Ltd. [2019 (8) TMI 409 - DELHI HIGH COURT] following the decision rendered in the case of CIT vs. Manjunatha Cotton & Ginning Factory [2013 (7) TMI 620 - KARNATAKA HIGH COURT] deleted penalty where the AO failed to clearly specify the limb of section 271(1)(c) of the Act for levy of penalty in the notice.
Also in the case of Mohd. Farhan A Shaikh [2021 (3) TMI 608 - BOMBAY HIGH COURT (LB)] has held that where assessment order records satisfaction for imposing penalty on one or other or both grounds mentioned in section 271(1)(c) of the Act, a defect in notice in not striking of irrelevant matter would vitiate penalty proceedings. An omnibus notice suffers from the vice of vagueness. Assessee appeal allowed.
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2024 (11) TMI 892
TDS u/s 194A - Demand u/s. 201(1) r.w.s. 201(1A) - TDS on profits earned from commodity transactions treated as interest income - Forward Market Commission directed NSEL to stop launching contracts after the payment default and this led to the closure of NSEL in July 2013 - As per the findings of the Investigation agencies, the brokers had sold the commodities on the floor of National Spot Exchange to the clients by assuring them fixed returns and transactions on the exchange were carried out in the guise of commodity trading without ensuring delivery of the commodity traded on the exchange
HELD THAT:- As borne out from the records and also from the finding of the lower authorities that assessee was acting as a broker and intermediary as the entire set of transactions carried out by the assessee was on behalf of the client of NSEL platform. The assessee had undertaken the transactions only to earn brokerage and such income from brokerage have duly been offered to tax.
Section 194 is attracted when a person is responsible for payment of interest other than income by way of income and securities. However, in the case of the assessee, assessee being a broker of certain exchange cannot be held to be a person who has been paying any interest to the clients and therefore, we hold that provision of Section 194A cannot be invoked in the case of the assessee because it cannot be reckoned as a person responsible for payment of income by way of interest to the clients.
Ld. Counsel has referred few judgments of CIT vs. Hardarshan Singh [2013 (1) TMI 314 - DELHI HIGH COURT] and CIT vs. Cargo Linkers [2008 (3) TMI 619 - DELHI HIGH COURT] wherein as held that provision of TDS cannot be applied in case of intermediary / agents acted on behalf of its clients and intermediary cannot be held to be person responsible for the purpose of TDS provisions. Though these decisions have been rendered in the case of CNF agents, however, the same principle will apply in the present case also because assessee was also an intermediary between the clients and the NSEL and was never party to any counter party members.
CIT(A) has referred to SEBI order dated 29/11/2022 and in that order SEBI in para 28 held that the primary responsibility was on NSEL and not the brokers. In short there was and adequate collateral to secure the sale orders posted on its platform. The entire responsibility has been put on to the exchange and not of the brokers facilitating these transactions. Thus, the order of the ld. CIT (A) holding that assessee is not required to deduct TDS u/s. 194A is upheld and consequently, the grounds raised by the Revenue are dismissed.
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2024 (11) TMI 891
Unexplained cash credit u/s. 68 - taxation under the provisions of section 115BBE - CIT(A) deleted the addition by accepting the submissions of the assessee that the cash receipt by various sources i.e., cash sales, debtors outstanding realization and debtors of current year realized is matching with the VAT returns and hence, he accepted the cash deposited during the year before demonetization - HELD THAT:- As noted that the assessee has explained the cash deposit in SBNs received during demonetization period on account of cash sales during the relevant assessment year, realization of debtors outstanding in previous years and also debtors during current year which is a fact as per books of accounts.
Admittedly, there are amount received on account of current debtors from specified parties - assessee has also reconciled the cash sales, debtors outstanding, viz-a-viz VAT returns.
Admittedly, the assessee’s turnover during the year is Rs. 810 crores as compared to last year turnover of Rs. 383 crores, which means that the turnover has jumped 211.48% during the year. These facts show that the cash realized through cash sales, debtors is not abnormal and the AO could not point out any defect in the same. Admittedly, these parties, from whom the assessee has realized the debts, the confirmation was received late and assessee now before us filed the confirmed account statement, which were filed before CIT(A). Once there is no defect in the books of accounts and the VAT returns which accepted as it is and corresponding sale is also not disturbed, we find no infirmity in the generation of this cash on or before 08.11.2016. This cash generation is over the period from 01.04.2016 to 08.11.2016. Out of total cash available in assessee’s books of accounts as on 08.11.2016 of Rs. 3,09,45,227/-, a sum of Rs. 3,05,14,820/- is in demonetized currency i.e., Specified Bank Notes.
As the cash is explained and sources are recorded in books of accounts and books of accounts are not rejected by AO and there is no iota of evidence that the assessee has introduced unaccounted cash, the cash deposited by assessee during demonetization period in SBNs stands explained. Further, we find that this issue is covered by the decision of TamilNadu State Marketing Corporation Ltd [2024 (10) TMI 1614 - ITAT CHENNAI] wherein it is held that simpliciter the SBNs will not be added when the source of cash is explained.
Thus, no fault in the order of CIT(A) and hence, the same is confirmed. Accordingly, this appeal of Revenue is dismissed.
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2024 (11) TMI 890
Disallowance u/s. 36(1)(iii) - advance to related parties - Since the reserves and surplus of the assessee was less than the advance given to related parties, the AO made a disallowance u/s. 36(1)(iii) - assessee contended that the advance was not given during the year under consideration and that the balance shown is the outstanding carried forward from earlier years - HELD THAT:- We notice that there was an opening outstanding balance of Rs. 10,47,87,979/- as on 01.04.2011 and the assessee had given an advance of Rs. 28 crores during the financial year relevant to AY 2012-13. We further notice that the balance is the reserve and surplus stood at Rs. 61,60,35,571/- as on 31.03.2012. We also notice that the outstanding balance in the impugned advance account has been decreasing YoY. Therefore there is merit in the contention of the ld AR that no new advance is extended to sister concern and that the revenue did not bring anything on record to controvert the said contention. See Brindavan Beverages Pvt. Ltd [2016 (10) TMI 1242 - KARNATAKA HIGH COURT].
AO is not correct in making the disallowance u/s. 36(1)(iii) of the Act and direct the AO to delete the disallowance made in this regard. Decided in favour of assessee.
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