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2023 (12) TMI 936
Exemption from deduction of Tax u/s 194N and 194A to Co-operative Societies - petitioner had taken a stand that they are business correspondents to pass on the cash benefits as mandated by the State Government and hence, they are qualified for being exempted under Section 194N - DR contented that Central government had also increased the limit of Rs. 1 crore as determined in the provisions of Section 194N of the IT Act to a sum of Rs. 3 Crore, and the same had came into force with effect from 01.04.2023 only with an intention to grant benefits to the members of the Co-operative Societies
HELD THAT:- The activities of the Co-operative Societies, such as accepting the deposits, paying the interest and thereafter redeeming the same for granting loan to agriculturists, weavers or to it's members, are appears to be partly as a banking activities, however, the active involvement of the petitioners/cooperative societies, to act as a business correspondents of a State Government for the distribution of the cash benefits to its members as well as to the non-members such as Pongal enam, flood relief, Covid reliefs and other reliefs, would appears that it is not a banking transaction but a transaction other than the banking activities in nature.
As far as the application of Section 194A of the IT Act is concerned, the petitioners are liable to deduct the TDS as provided thereunder. Whenever the deposits or investments are made with the societies, the societies are liable to deduct the tax on the interest payment. The eligibility for deduction must be tested by the Authorities in the course of assessment as it involves the determination of several questions of fact. The society is always entitled to, in the return of income filed by it, seek credit of the taxes attributable to the income returned by it and any excess deduction, if the stand of the societies is accepted in assessment, would have to be refunded to them. Therefore, it would be a premature petition to challenge the circular issued by the Authority concerned.
In the present case, the petitioners/Co-operative Societies have challenged the three circulars dated 16.03.2021, 05.08.2021 and 01.04.2021 issued by the 3rd respondent. The said circulars mandate the compliance of provisions of Sections 194A and 194N of the IT Act and in those circulars, the 3rd respondent had not mentioned anything contrary to the provisions of Sections 194A and 194N of the IT Act. Merely, they had brought into the knowledge of the petitioners/Societies to comply with the said provisions along with the latest amendments thereunder. At any cost, the same cannot be challenged under Article 226 of the Constitution of India, unless and otherwise, the provisions of Sections 194A and 194N of the IT Act are struck down with regard to the Cooperative Societies are concerned.
This Court had came across many cases, where the officers of the cooperative societies viz., Secretary or other Officials, in collusion with other officers, had opened hundreds of fictitious accounts and granted loans to those fictitious accounts. Thereafter, if there is any loan waiver or interest waiver granted by the Government, the same benefits will goes to the persons, who are all involved in the creation of those fictitious accounts. Hence, this is where the Societies are functioning in an unregulated manner. It is also due to the reason that the qualified Auditors had not been mandated to audit the accounts of the Societies and only the departmental audits have been conducted, which would pave the way for all sort of malpractices in those cooperative societies. Under these circumstances, Section 194N of the IT Act would be one of the ways to curb the malpractices in distribution of cash and encourage the cashless economy.
Now-a-days, the Central Government is granting benefits to the poor people through their bank accounts. Hence, if it is possible for the land-less people to open their bank accounts, certainly, the petitioners/Co-operative Societies cannot plead any excuse that its members, who are all having lands, are not in a position to open the bank accounts since it is very easy process to open the bank account for anyone at present.
If any distribution of cash for reliefs such as Pongal enam, flood relief, covid relief, etc., the same can be rooted through the respective bank accounts directly, whereby unnecessarily the members need not approach the Co-operative Societies for claiming the said reliefs. On the other hand, it will be automatically credited to their respective bank accounts and message, intimating the said deposit, will also be sent to their phones. In such case, the valuable time of the farmers and other members of the societies will be saved and the work of the cooperative society will also get reduced.
This Court is inclined to suggest and pass the following orders:
(i) Any benefit, such as pongal enam, flood reliefs, etc., shall be made only through the bank accounts of the respective members or non-members of the Co-operative Societies. The said act will save the valuable time of the members of the said Societies since if they are called for the payment of cash, initially they have to approach the Society or ration shop, etc., to register their name along with the address and thereafter, again they have to approach the Society or ration shop, etc., to collect the money, which would unnecessarily cause hardship for the members as well as the general public. On the other hand, if the funds are transferred to the respective bank accounts of the beneficiaries, it would be hassle-free for the public and there will be no question of mishandling of any cash;
(ii) If there is payment of cash for all the benefits provided by Government, such as pongal enam, flood reliefs, etc., it would only encourage and pave way for the mishandling of money and the same will also lead to the misappropriation of money and corruption at a large extent. When a way is available to completely eradicate the corruption and mishandling of money, etc., necessarily the Government/Societies, etc., should follow the same and distribute all sorts of reliefs through their bank accounts, in which case, the question of TDS would not arise.
(iii) When the reliefs are credited to the respective bank accounts of the beneficiaries, the withdrawal of the same should be allowed only in the presence of the beneficiaries in person. At any cost, the officials of the cooperative societies/ration shops, etc., should not be allowed for withdrawal of the said reliefs by bringing the cheques from its members. If it is allowed, there are chances for malpractices and mishandling of cash hereagain.
(iv) In a similar way, if any loan is granted to the members of the societies, the said loan has to be directly credited to the respective bank accounts of the members, in which case, the withdrawal should be permitted only in the presence of respective members of the cooperative society since there is a chance for collecting of cheques by the Societies from its members and withdrawing the loan amount under the guise of helping the poor farmers, which again lead to mishandling of money. Hence, the same should not be allowed. The aforesaid aspects has to be ensured by the respective banks and Co-operative Societies and other Government Agencies, who are involved in the distribution of cash to public.
(v) Further, this Court would suggest to consider and make a provision to audit the Co-operative Societies through the Chartered Accountant in addition to the present method of scrutinising the records by the Auditors.
(vi) The 1st respondent shall also consider with regard to the issuance of appropriate circulars for entertaining the cashless transactions by the Co-operative Societies by amending the IT Act. Once if the petitioners/Co-operative Societies have followed the above suggestions, there is no need for them to handle any cash transaction any more.
The above order would also avoid the distribution of reliefs in the fictitious name, since the same will happen very often at the cooperative societies, due to which, a large number of cases were also filed against the officials of the cooperative society and pending before the Courts. WP disposed of.
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2023 (12) TMI 935
Limitation for passing fresh assessment order - Whether assessment orders pursuant to the appellate orders of the Tribunal are barred by limitation in terms of section 153? - principal reason petitioner has approached this court is that since limitation under Section 153(2)(A)/153(3) had expired pursuant to the orders passed by Tribunal AO had been emasculated of the jurisdiction to pass a fresh assessment order - HELD THAT:- The counter-affidavit filed on behalf of the respondents/revenue, does not indicate the dates of which add ‘of’ the orders dated 21.11.2014 and 29.05.2015 passed by the Tribunal were served on the petitioner.
As would be evident, the best scenario for the respondents/revenue would be if the order of the Tribunal was served on or after 01.04.2016, but on or before 31.05.2016. It is not in dispute that as per Section 153(2)(A) [which is the old provision], the limitation would expire on 31.03.2018. However, if the amended provision, i.e., Section 153(3) of the Act were to be taken into account, the limitation would expire on 31.03.2017. It is also not disputed that this aspect of the matter is covered by the judgments of the coordinate bench rendered in Nokia India (P.) Ltd. [2017 (9) TMI 1298 - DELHI HIGH COURT] and Aricent Technologies (Holdings) Ltd [2023 (3) TMI 220 - DELHI HIGH COURT].
Thus, whichever regime we take into account, i.e., the time limit fixed as per Section 153(2)(A) of the Act or the time limit fixed by the amended provision i.e., Section 153(3) of the Act, as of today the AO is bereft of jurisdiction and hence, would have no legal locus to pass assessment order(s). Therefore, the prayers made in the writ petition are allowed.
Assessment proceedings concerning AY 1998-99 to AY 2009-10, pursuant to the orders of the Tribunal dated 21.11.2014 and 29.05.2015, have become time-barred. AO is thus directed to accept the return income lodged by the petitioner for the aforementioned AYs. Resultantly, the return as available on record will be processed and consequential orders would be passed.
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2023 (12) TMI 934
Income taxable in India - 15 percent of the revenue generated from the bookings made within India were attributable to the Permanent Establishment (PE) - HELD THAT:- The coordinate bench, in AY 2006-07 [2022 (9) TMI 311 - DELHI HIGH COURT], had sustained the said conclusion and had gone on to hold that no substantial question of law arose for its consideration. It is this decision that was affirmed by the Supreme Court, with the dismissal of the SLP as noted hereinabove. Tribunal via the impugned order, did not rule on the merits of the case for AYs 2007-08 to 2010-11.
Revenue, in the instant appeals, has not proposed a question on merits, perhaps, having regard to the aforementioned judgment of the Supreme Court as well as the decision of the Tribunal on the narrow issue of limitation.
Tribunal, in the instant case, had dismissed the appeal of the appellant/revenue on the ground of limitation for the AYs in issue, i.e., AYs 2008-09 and 2010-11.The reason given by the Tribunal for dismissal, on merits, was that the final assessment order was barred by limitation, as per Section 153 of the Income-tax Act
Appellant’s/revenue’s plea that the provisions of Section 144C of the Act would come into play was repelled by the Tribunal for the reason that framing a draft assessment order was not required for the periods in issue, and therefore, the non-obstante clause under Section 144C of the Act would not override Section 153 of the Act.
Since on merits the matter stands closed, in our view, these appeals need not be entertained vis-à-vis the questions proposed by the appellant/revenue as they have, in a sense, been rendered academic.
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2023 (12) TMI 933
Stay of demand during the pendency of the petitioner’s appeal before CIT (A) - petitioner states that the discretion to stay the demand during the pendency of an appeal has to be exercised judiciously and reasonably, based on relevant grounds, with due application of mind, and must not be exercised arbitrarily or capriciously or based on irrelevant considerations - He contends that doubting of genuineness of the transaction is based on considerations alien to Section 68 for which the Assessee is only required to show legitimate receipt of the money from the claimed person through normal banking channels, which has been undisputedly proven by the petitioner - HELD THAT:- Undoubtedly, the power vested u/s 220(6) of the Act, 1961 is discretionary and it is not mandatory to pre-deposit 20% of the assessed amount to obtain stay of deposit at the stage of filing the appeal before the CIT (Appeals). In the present case, AO in the assessment order has given a number of cogent findings against the petitioner. In fact, the AO after analyzing a number of relevant facts has virtually held that the transaction between the petitioner and the foreign entity was based on ‘reverse engineering’.
Keeping in view the aforesaid findings, this Court is of the view that the petitioner has not been able to make out a prima facie case in its favour. To put it mildly, the petitioner has a ‘lot to answer’ in the appeal.
The petitioner’s plea of financial stringency based on its balance-sheet also inspires no confidence as according to the Assessing Officer, the accounts have not been properly maintained. Accordingly, the writ petition is dismissed. However, this Court clarifies that the findings given by this Court are only in the context of the present writ proceedings and shall not prejudice either of the parties at the stage of the appellate proceedings.
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2023 (12) TMI 932
Exemption u/s 11(1)(d) - misutilization of receipts of earmarked funds as corpus donation - assessee-trust had taken loan- from bank for purchasing land from UIT but had repaid loan& interest by utilising the donation amount but not for construction of hospitals - HELD THAT:- The foreign donation was received as a corpus donation and within the meaning of section 11(1)(d). The fund was duly delayed for delay in approval from FCRA, where it is mentioned that the funds is for “construction/running of hospital/dispensary and clinic”.
The assessee had utilized this donation for repayment of loan which is not at all violation section 11(1)(d) and duly covered with consent of the donor. Further the donor agreed to donate amount to Rs. 20 crores to the assessee in next two years for carrying out the activities of the assessee trust in Udaipur. The donor, Dr. Kirti Jain has also submitted the letter for the purpose of donation on dated 06.01.2014. The fund was donated by founder member of the trust. The source is well explained. There is no deviation in activities of trust as per the stated main object. Expenses were incurred for charitable activities. The delay in project was due to stuck up of construction as per order of Hon’ble Jurisdictional High Court. In our considered view, there is no violation of section 11(1)(d) r.w.s. 11(1). We find that there is no valid reason to interfere in the impugned appeal order. Therefore, the ground nos. 1, 2 & 3 of the revenue are dismissed.
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2023 (12) TMI 931
Revision u/s 263 - Applicability of section 56 on disputed property as purchased from relative - Whether disputed property is purchased from relative therefore, the provision to section 56(2)(x) with explanation 56(2)(vii) is not applicable under the facts of the case, more over it not a capital asset being a rural agriculture land? - HELD THAT:- It was the case of the assessee that the AO has specifically raised query regarding the said issue and it has been explained to the AO by the assessee that the land, which was purchased by the assessee, is purely a rural agricultural land situated more than 6 km. from Nagar Palika, Damoh as per the population is between 1,00,000 to 10,00,000 and the seller Mohd. Khalil alias Khalik is a relative of the assessee and in support of the above contention, a confirmation letter from the seller has also been furnished. AO accepted the said contention/clarification given by the assessee and made no addition. In our considered opinion, the said approach of the AO requires any interference u/s 263 of the Act.
Increase in unsecured loan during the assessment year under consideration, the assessee had furnished 41 lenders from unsecured loans which has been taken during the year under consideration - The assessee had also furnished the bank statement of the lenders. Learned counsel for the assessee contended that the assessee had passed the three tests i.e. identity of the lenders, creditworthiness of the lenders and genuineness of the transactions, except the case of Ganga Jamuna Traders of Rs. 60,00,000/- and all the transactions are being made through bank account. The learned Assessing Officer accepted the clarification which was supported by the documentary evidence given by the assessee and made no addition. The assessee had complied and answered all the queries raised by the Assessing Officer u/s 143(2) and 142(1) of the Act by submitting satisfactory details and clarifications in respect of both the issues i.e. ‘purchase value of the property less than the value as per stamp authority’ and ‘large increase in unsecured loan during the year’.
Considering the fact that the assessee has discharged his initial onus by providing the supporting evidence such as confirmation, PAN & Adhar Numbers of all 41 lenders and the Bank statements, the burden of the assessee is discharged which has been accepted by the A.O. Further in so far as second issue is concerned, since the assessee has purchased the land from the ‘relative’ and the said contention was duly supported by the genealogical tree, and the said fact has also already been examined by the AO, thus, in our considered opinion, the order of the Pr. CIT deserves to be quashed. Accordingly, we allow the grounds of appeal of the assessee and set aside the order impugned of the Pr. CIT - Appeal of the assessee is allowed.
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2023 (12) TMI 930
Jurisdiction of ACIT to complete assessment - Allocation of cases based on monetary limit - Issuance of notice u/s 143(2) by non jurisdictional AO - Addition u/s 68 - HELD THAT:- The assessee being a corporate assessee and located in a mofussil area and the income of the assessee being less than Rs. 20 Lakhs, the jurisdiction for assessing the income of the assessee vested with the Income-tax Officer. However, the assessment order in the case of assessee has been framed by the ACIT, Circle-38, Midnapore. In absence of any specific order u/s 127 of the Act, further giving powers to the prescriber authorities for transferring of the case, prima facie it indicates that the assessment in the case of the assessee ought to have been framed by the Income-tax Officer and not by the ACIT as the income declared in the Income-tax return is less than Rs. 20 Lakhs.
As relying on Deepak Kedia [2023 (12) TMI 895 - ITAT KOLKATA] indicates that issuance of notice u/s 143(2) of the Act by the Assessing Officer not having jurisdiction over the assessee renders the assessment proceedings as a nullity. However, the case of the assessee before us is on a much stronger footing because leaving aside the issuance of notice u/s 143(2) of the Act, even the final assessment order has been framed by the Assessing Officer not having jurisdiction over the assessee.
We allow the additional ground raised by the assessee and hold that the assessment order framed in the case of the assessee for AY 2013-14 dt. 26/03/2016 is without jurisdiction and is a nullity and is hereby quashed as the AO framing the said assessment did not have jurisdiction over the assessee as mandated in the CBDT Instruction No. 1/2011 - Decided in favour of assessee.
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2023 (12) TMI 929
Addition u/s 68 - unsecured loans raised by the assessee from nine different entities - non-appearance by the lenders in response to summons - As per AO assessee has failed to produce these parties despite specifically called upon to do so by issuing various communications by the AO - HELD THAT:- Undisputedly the assessee has raised loans from eight parties aggregating to Rs. 3,95,00,000/-. As per the direction of the ld. AO, the assessee filed all the necessary evidences comprising addresses, names, PANs, Bank statements, loan confirmations, details of Directors, financials of the lenders etc. Besides we note that the notices issued under section 133(6) of the Act to all lenders were also responded by the parties confirming the transactions by filing the necessary evidences. In our opinion the failure of the loan creditors to make personal appearance is not a ground to hold that the transactions were not genuine and/or the creditworthiness of the loan creditors was not proved.
We have also examined the documents filed before us and find that these companies had sources to advance the money to the assessee. We take note of the DR argument that no interest has been given on these loans, which has been controverted by the ld. A.R. by placing necessary evidences before the Bench, which showed that interest has been given and TDS has duly been deducted therefrom. We also observe that these loans were repaid in the subsequent years.
We observe that the assessee had submitted the documents required to establish the genuineness of the transactions and in respect of creditworthiness submitted the copies of income tax return and their financial statements etc. AO has not brought any adverse finding based on such documents filed by the assessee. We are of the considered view that the order passed by the ld. CIT(Appeals) is well reasoned order which has been passed after taking into account all the aspects of the matter. Moreover, mere non-appearance by the lenders in response to summons would not make these transactions as non-genuine as has been held by the Hon’ble Apex Court in the case of CIT Vs Orissa Corporation Pvt. Limited [1986 (3) TMI 3 - SUPREME COURT]
As decided in Rohini Builders [2001 (3) TMI 9 - GUJARAT HIGH COURT] phraseology of section 68 is clear. The Legislature has laid down that in the absence of a satisfactory explanation, the unexplained cash credit may be charged to income-tax as the income of the assessee of that previous year. In this, case the legislative mandate is not in terms of the words "shall be charged to income-tax as the income of the assessee of that previous year". The Supreme Court while interpreting similar phraseology used in section 69 has held that in creating the legal fiction the phraseology employs the word "may" and not "shall". Thus the un satisfactoriness of the explanation does not and need not automatically result in deeming the amount credited in the books as the income of the assessee as held by the Supreme Court in the case of CIT v. Smt. P. K. Noorjahan [1997 (1) TMI 6 - SUPREME COURT] - Decided against revenue.
Cessation of liability u/s 41(1) addition was made u/s 68 - HELD THAT:- As we find that loan taken from M/S Knavsukh Trading Pvt. Ltd in the earlier year has been added u/s 68 of the Act which was rightly deleted by the ld CIT(A) on the ground that loan was not taken in the current year. We also note that the said lender’s name was struck off from MSC and AO simplicitor held that liability on account of loan has ceased but CIT(A) correctly adjudicated the issue by holding that mere removal of name of the lender from MCA would not absolve the assessee from the liability to repay the loan. It was also held by CIT(A) that provisions of section 41(1) were not applicable to the instant case. Considering these facts and circumstances we are inclined to uphold the order of ld CIT(A) by dismissing the appeal of the revenue.
Addition of interest paid on the unsecured loans - Since we have already allowed the appeal of the assessee by holding that the unsecured loans were genuine and therefore consequentially, the interest paid on the said unsecured loans during the year is also allowable. Decided in favour of assesee.
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2023 (12) TMI 928
Issuance of assessment order without DIN - violation of CBDT Circular No.19/2019 requiring mandatory DIN - scope of subsequent issue of DIN - HELD THAT:- Issuance of assessment order without DIN as it is a matter of record that the impugned assessment order neither contain any DIN and nor any reason for non-mentioning of DIN thereof. Rather, we are in complete agreement with the above contentions of the assessee.
In our view, the subsequent communication issued by the Ld. AO generating DIN for the impugned assessment order cannot make good the deficiency in the assessment order issued without generating DIN. In taking this view we are supported by the ratio decidendi of the decision of Hon’ble Delhi High Court in CIT (International Taxation) vs. Brandix Mauritius Holdings [2023 (4) TMI 579 - DELHI HIGH COURT] - Thus we are inclined to quash the assessment order passed by the Ld. AO under section 153C/143(3) of the Act. Decided in favour of assessee.
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2023 (12) TMI 927
Disallowance u/s 14A - CIT (A) has made enhancement of disallowance u/s 14A after applying Rule 8D - HELD THAT:- As undisputed fact that Rule 8D is not applicable in A.Y.2007-08, as it has come into the statute in A.Y.2008-09 and now it is a settled issue that computation of disallowance under Rule 8D cannot be made prior to the A.Y.2008-09.
This Tribunal in A.Y. 2005-06 has restricted the disallowance under Section 14A 5% of the exempt income - assessee submitted the calculation of investments after reducing foreign investment and non-dividend yielding investment and other investments as per working given by him which has also been provided at page 101 of the paper book and has submitted that, based on this, the average of opening and closing of investment worked out and disallowance should be reduced substantially. However, his working is based on formula provided in Rule 8D (2)(iii), but once Rule 8D is not applicable in this year then we are not inclined to work out disallowance as Rule 8D.
Thus, in line with the earlier decisions of the Tribunal, we hold that 5% of exempt income will be taken as disallowance for the purpose of Section 14A and accordingly, assessee gets part-relief.
Disallowance of expenditure incurred on settlement claims - HELD THAT:- This issue is squarely covered by the decision of the Tribunal in assessee’s own case for A.Y. 2005-06 [2020 (3) TMI 799 - ITAT MUMBAI] wherein disallowance in respect of settlement of claims have been allowed. Decided in favour of assessee.
TP adjustment commission on letter of credit - international transaction or not? - AO has made addition in respect of non-recovery by the assessee from its AE and the issue of letter of credit holding that assessee has not charged any commission from the AE - HELD THAT:- We find that the Tribunal in A.Y.2005-06 [2020 (3) TMI 799 - ITAT MUMBAI] has decided this issue in favour of the assessee stating CIT(A) after appreciating the contention of assessee concluded that issuance of Letter of Comfort does not constitute an international transaction.
CIT (A) appreciated the difference between corporate guarantee and Letter of Comfort. AR further submits that there is a basic difference between corporate guarantee and Letter of Comfort. In a Letter of Comfort, the party issues only a letter that a subsidiary or group company would comply term of financial transaction and have no obligation to indemnify, however, in case of corporate guarantee, the party issuing guarantee is under obligation to the lender.
AR further submits that in fact this ground of appeal is also covered by the decision of Tribunal in case of The India Hotel Company Ltd [2019 (9) TMI 1340 - ITAT MUMBAI] wherein similar ground of appeal was considered and by following the decision of earlier years in that assessee and decision of Hon'ble Karnataka High Court in United Braveries Holding Ltd. Karnataka State Industrial Investment and Development Corporation Ltd. [2011 (8) TMI 1331 - KARNATAKA HIGH COURT] wherein it was held that Letter of Comfort merely indicates the parties assurance that respondent would comply with the term of financial transaction without guaranteeing performance in the event of default.
Since in the earlier year this precise issue has been decided in favour of the assessee, therefore, as precedence, following the aforesaid decision, we uphold the order of the ld. CIT (A) and consequently grounds raised by the Revenue are dismissed.
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2023 (12) TMI 926
Validity of reopening of assessment - Reason to believe - reopening beyond four years - assessee has not deducted TDS on interest payment - HELD THAT:- We noted that as the AO has not recorded in its reasons for reopening of assessment that there is any failure on the part of the assessee to disclose any material fact necessary for completion of assessment in the relevant assessment year, despite the fact that original assessment was completed u/s. 143(3) of the Act and time period of 4 years has expired from the end of the assessment year before reopening of assessment u/s. 147 r.w.s. 148 of the Act, we find no infirmity in the order of CIT(A) quashing the reopening.
we are of the view that reopening is beyond 4 years and as the original assessment was framed u/s. 143(3) of the Act, the Revenue could not establish any failure on the part of the assessee to disclose any material facts necessary for its assessment, the reopening in present case is bad in law. Decided against revenue.
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2023 (12) TMI 925
Unexplained money u/s. 69A - AO rubbished the entire transaction by dismissing the gift as the same was not evidenced by a registered gift deed - AO came to the conclusion that no portion of the property at Rani Jhansi Chowk, Delhi has been transferred to the assessee by way of gift, therefore, the assessee could not have sold and earned long term capital gains, therefore, the amount credited in her bank account was treated as income of the assessee u/s. 69A - HELD THAT:- It is true that the impugned property was purchased by the husband of the assessee and 1/3rd share in the said property was subsequently gifted by him to the assessee. No doubt the gift deed was not registered but the same cannot be rubbished as the sham transaction since the assessee was in full possession of the said property which was subsequently sold by her by way of a registered sale deed for a consideration of Rs. 12.50 crores which was credited to her bank account held with HDFC Bank.
By no stretch of imagination provisions of section 69A can be applied on such transactions as the credit is outcome of the sale of property. It is not a case of the revenue that the assessee has introduced her own unaccounted money by depositing the same in her bank account in the garb of sale of some immovable property. Decided against revenue.
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2023 (12) TMI 924
Deduction u/s 80P(2)(d) - interest received by the appellant from Baroda Gramin Bank Ltd. is not allowable deduction as this entity is not a cooperative society as provided u/s 80P(2)(d) - assessee is a registered cooperative society under the Rajasthan Cooperative Societies Act and engaged in the business of trading in milk and other milk products - HELD THAT:- In the present case, the appellant is a co-operative society whose primary object is to provide financial accommodation to its members who are all other cooperative societies and not member of the public.
Thus, the interest received by the appellant from Baroda Rajasthan Gramin Bank Ltd, a Regional Rural Bank and not a co-operative bank would not be allowable deduction u/s 80P(2)(d) of the Act as this entity is not a cooperative society as provided u/s 80P(2)(d) of the Act in the light of the latest judgment of the Apex Court in the case of “Kerala State Co-Operative Agricultural & Rural Development Bank Ltd. v [2023 (9) TMI 761 - SUPREME COURT]
However, addition of interest received by the appellant from Central Cooperative Bank is held to rightly deleted by the CIT(A). Thus, addition made in the assessment order in respect of the interest received by the appellant from Baroda Rajasthan Gramin Bank Ltd., a Regional Rural Bank which is not a cooperative bank would be liable to be sustained.
We accept the grievance of the revenue as genuine in respect of the addition on account of interest received by the appellant from Baroda Rajasthan Gramin Bank Ltd and as such, it is sustained. Appeal of the Revenue is partly allowed.
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2023 (12) TMI 923
Validity of notice issued u/s 143(2) - validity of the assessment order in absence of any effective order passed u/s 127 - HELD THAT:- We notice that the present issues are covered against the assessee in view of the Hon’ble Supreme Court judgment in the case of Kalinga Institute of Industrial Technology [2023 (6) TMI 1076 - SC ORDER] wherein as held that when assessee had participated pursuance to the notice issued u/s 142(1) and had not questioned the jurisdiction of the assessing officer as per section 124(3)(a) of the I.T. Act precludes the assessee from questioning the jurisdiction of the assessing officer. While going through the present facts of the case and issue involved, we find that assessee has never raised any question before the AO challenging the jurisdiction of AO within 30 days of receipt of notice u/s 142(1) of the Act as well as transfer of jurisdiction u/s 127 of the Act. In such circumstances both the grounds taken by the assessee has no merit, therefore, the grounds taken by the assessee are hereby dismissed.
Applicability of section 43CA - valuation of impugned sold out units as determined by the AO in terms of value determined by the stamp duty authority - whether agreement of sale was entered prior to applicability of the provision itself by the Finance Act, 2013 w.e.f. A.Y. 2014-15? - HELD THAT:- When the impugned order was passed by the ld. CIT(A) did not consider the DVO’s report as available with him while passing the impugned order, we feel it necessary to remand back the instant issue to the file of AO with the direction to reconsider the valuation report furnished by DVO by applying proposition of law as laid down in the case of Maria Fernandes Cheryl vs ITO [2021 (1) TMI 620 - ITAT MUMBAI] and also considering the documents as well as necessary submission made by the assessee before him and it is also directed that while doing so the ld. AO should give opportunity of being heard to the assessee. In terms of above, the instant issue is hereby allowed for statistical purposes.
DVO’s report in the case of assessee was furnished beyond the limitation period as prescribed under the law, therefore, the DVO’s report cannot be considered for the purpose of assessing the income of the assessee - While going through the impugned order, we notice that DVO’s report was never taking into consideration for the purpose of assessing the income of the assessee by the authority below and while going to the facts and circumstances of the case, we find that present issue involved in this appeal is similar to the decision [supra] would apply mutantis mutandis. Accordingly, we set aside the matter to the file of AO with a direction to decide the issue afresh.
Both the appeals of the assessee are hereby allowed for statistical purposes.
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2023 (12) TMI 922
Deemed dividend u/s 2(22)(d) - Determination of accumulated profit - capital gains arising pursuant to capital reduction by the Indian company - migration from IGAAP to Ind-AS - opening balance as on 01.04.2016 for computation of the accumulated profit / (losses) as on date of capital reduction should be considered as per the amount taken up in accordance with the Indian Accounting Standard - AO recomputing the accumulated profit as against the actual accumulated loss of Novateur as on the date of capital reduction - whether treating the capital gains as dividend, the AO/ DRP erred in recomputing the accumulated profit as against the actual accumulated loss of Novateur as on the date of capital reduction? - HELD THAT:- The financial statement prepared and approved by the share holders prior to Ind-AS are based on policies and method of accounting adopted by the assessee's. As per the new Ind-AS, general accepted policies and method in line with the global acceptance are being adopted to present the financials of the company. In order to achieve the transition, Ind-AS 101 was introduced to facilitate the companies to prepare the first balance sheet.
This requires the companies to prepare the current (FY 2016-17) and previous year (FY 2015-16) balance sheet by adopting the new and accepted policies and method proposed in the Ind-AS. The argument that the figures reinstated is only comparative purpose is not proper considering the fact that the reinstated figures are based on the new accounting method and new policies as per the Ind-AS, which the company proposes to follow consistently in the future.
Reinstated figures are not for past performance but for the future adoption of the policies. The reinstated figures are the actual status and financial position of the company based on the accepted new method of accounting proposed in the Ind-AS. The balance sheet adopted by the share holders as on 31.03.2016 are based on the previous set of accounting method as per Indian GAAP and when the company adopts the new accounting standards as per Ind AS, the assets and liabilities in the balance sheet will certainly change. The changes in the assets and liabilities are reflected in the reinstatement of figures declared by the company in the current financial year.
The argument put forth by the assessee cannot be accepted. The figure declared by the assessee in the balance sheet in the retained earning opening balance sheet is the actual accumulated loss carried forward by the company Novateur India based on the adoption of new accounting policies. Hence, Ground Nos.1 and 2 are dismissed.
Assessment proceedings of Novateur India, the assessing officer has accepted the submissions of the company and it amounts to acceptance of the department that the figures declared by them are proper and same has to adopted in the case of the assessee -Both the assessments are independent and if there is any financial impact, we could consider the same in both the assessments. Merely because the AO has collected the information and not discussed anything in the assessment order, we cannot presume his acceptance. Therefore, we are inclined to follow the accumulated loss declared by the Novateur India in their reinstated balance sheet as the proper accumulated loss based on the new set of accounting method and policies adopted by them and it is not mere comparative figures. Hence, the accumulated profit determined by the tax authorities are proper and the determination of dividend as per section 2(22)(d) is proper, accordingly sustain their findings.
Exemption u/s 10(34) denied (which is available if the income is in the nature of dividend referred to in the section 115-O of the Act) - exemption was denied on the premise that Novateur India has not paid Dividend Distribution Tax (DDT) and that dividend on account of capital reduction does not fall u/s. 115O - Whether exemption under section 10(34) would be applicable only for the amount, which has suffered tax under section 115-O? - HELD THAT:- We observe from the record that the claim of the assessee that the deemed dividend u/s 2(22)(d) is also eligible to claim exemption u/s.10(34) of the Act- since the provisions of the section 115-O does cover the definition of dividend except specifically as mentioned in the proviso to section 115Q of the Act.
In Smt. Kayan Jamshid Pandole case [2018 (11) TMI 1340 - BOMBAY HIGH COURT] gave the decision in favour of the assessee considering the fact the share holder should not suffer on the failure of the company, the revenue can recover from the company with the other specific provisions for recovery. The ratio of the decision clearly shows that the individual share holders should not suffer because of gross failure on the part of the company.
We observe the fact in the present case is distinguishable to the fact in the above case. In the present case, the assessee is a holding company holding majority shares (By B Ticino SPA – Holding company and the assessee holding 99.999%) in the Novateur India. Basically, the management of the Novateur India is controlled by them and the failure of the Novateur India to pay additional tax in the form of DDT is nothing but failure of the assessee itself. They cannot claim the benefit both sides. In the case of Smt Kayan Jamshbid Pandole (supra), the group of individual share holders does not have any control over the company whereas in the given case, the situation is different. One hand, we cannot hold the Novateur India as defaulter and other hand, we cannot allow the same management to take the advantage of benefit u/s 10(34) of the Act for the failure of the same management. It is fact on record that Novateur India has not paid any DDT on the dividend, hence the benefit u/s. 10(34) cannot be claimed even though the definition of dividend u/s.2(22)(d) is covered u/s 115O of the Act.
Assessee has received the gross dividend including DDT. In the normal case, the company will deduct DDT at the applicable rate and remit the net dividend. Therefore, as per the provisions of section 10(34) r.w.s. 115O the dividend received by the shareholders are exempt. In this case, the assessee has received gross dividend. The option available to the assessee is two-fold, considering the fact that same management is responsible to deduct DDT. Either they should remit the DDT to the Novateur India and Novateur India will remit the DDT and thus assessee can claim exemption or other option is to pay the applicable tax under DTAA on the Gross dividend received by them which has lower rate of taxation. Therefore, we are inclined to reject the factual submissions of the assessee and accordingly, the plea raised by the assessee in the Ground No 3 is rejected.
MFN Clause - Whether if the alleged dividend is taxed in the hands of the assessee, the applicable tax rate should be considered as 5% in view of the Most Favoured Nation or MFN Clause of the tax treaty (read with the protocol to the Tax Treaty)? - HELD THAT:- Where tax has been levied at source at excess under the provisions of Article 10 to 12, applications for refund of the same have to be lodged with the competent authority of the state which levied the tax within a period of three years after the expiration of the calendar year in which the tax has been levied. In this case, the tax under DTAA rates were levied by the Assessing Officer. Now the assessee takes the plea that in case the dividend income is chargeable to tax then the applicable rate would be based on the MFN clause, which is lesser than the applicable treaty rate.
As discussed in this case, Assessing Officer has levied the applicable tax, the period of claiming the excess tax has already elapsed. Therefore, in this case, the assessee cannot claim any benefit under treaty or under MFN clause. Therefore, we are not inclined to entertain the claim of the assessee at this stage based on the above discussion. Accordingly, the ground raised by the assessee is dismissed even though they relied on the decision of Hon’ble High Court, in our view, the issue raised is time barred and even the CBDT has raised circular objecting to unilateral implementation of protocol by the Netherland. Unless it is notified by the Indian government under section 90(2) of the Act. Accordingly, Ground No. 4 is dismissed.
Capital gain claimed as not taxable in India as per the para 5 of Article 13 of the Tax Treaty - HELD THAT:- Capital reduction by way of an order of the NCLT cannot be reckoned as alienation of shares in the course of corporate organization, re-organization, amalgamation, division or similar transaction. What has been canvassed before us is that, the first exception is only applicable if the alienation takes place to the resident of that other state i.e. India, if it is sold to a resident of India, i.e., other than NOVATEUR INDIA. Such a plea in our opinion cannot be accepted, because exception for taxability of capital gains in the state of resident which has been carved out, clearly envisages that if alienation of shares are more than 10% of the Indian company and such an alienation takes place to an Indian resident, then resident based taxation cannot be applied if the Netherland company had more than 10% interest in the Indian Company.
Undisputedly, the alienation took place to resident of India and therefore, it cannot be held that only if some other Indian company or Indian resident could have bought shares, then only this exception would apply is too farfetched understanding of the Para No. 5. In any case, the alienation of shares is by way of capital reduction and in lieu of such capital reduction where Indian company has paid consideration for alienation of such shares which it has bought back and had paid a compensation, is nothing but a consideration of transfer of shares and therefore, it tantamount to gain on alienation of shares taxable under the head 'capital gain' in India. As stated above, second exception is not applicable.
Contention of the assessee before us is that it falls under the first limb which categorically provides that in case of alienation of shares, resident country had right to tax the capital gain i.e. Netherland - Though under Article 13(5), it is a resident based taxation, however, if the exception has been carved out if the threshold of alienation of shares which forms part of 10% interest in the capital stock of Indian Company is present, then resident based taxation is shifted to source based taxation and the source country i.e. India has right to tax under DTAA. Accordingly, this ground raised by the assessee is dismissed.
AO computed surcharge and cess on the rate of tax for dividend (ie, 10%) provided in the tax treaty in the computation sheet to final assessment order - HELD THAT:- As relying on SUNIL V. MOTIANI [2013 (12) TMI 1105 - ITAT MUMBAI] we direct the Assessing Officer to follow the ratio as laid down in the above judgment, accordingly, we direct the Assessing Officer to levy only the applicable rate of tax as per the treaty without additional surcharge or cess since the applicable tax is inclusive of surcharge and education cess. Accordingly, this ground of appeal is allowed.
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2023 (12) TMI 921
Rental income earned from lease of building - Denial of deduction claimed u/s 24(a) - "income from other sources" or "Business and profession" instead of "House Property" - As argued CIT(A) has not classified the stand of granting depreciation which will only enhance the deduction in favour of the appellant - HELD THAT:- DR submitted that while dismissing the grounds of assessee the ld. CIT(A) has followed order of ITAT Delhi [2017 (5) TMI 1102 - ITAT DELHI] AY 2008-09 & 2009-10 respectively wherein the Tribunal held that the rental income earned by the assessee from lease of building would be taxable under the head “income from business and profession and the AO was also directed to grant depreciation on the capital asset/building while computing the income from business. On being asked by the bench the ld. counsel of assessee, in all fairness, submitted that the issue has been decided against the assessee by the Tribunal. Since the ld. CIT(A) followed order of the Tribunal for AY 2008-09 & 2009-10 while upholding the action of the Assessing Officer treating the rental receipts as income from business or profession and also directed to grant deprecation on the building.
Therefore we are unable to see any valid reason to interfere with the findings recorded by the ld. CIT(A) on this issue based on order of Tribunal in assessee’s own appeals - Decided against assessee.
Addition u/s 40(a)(ia) - "cost of sales" as covered by the provision of section 194C(6) & 194C(7) - HELD THAT:- As we note that the Hon'ble Delhi High Court in the case of CIT Vs. Ansal Land Mark Township (1) Pvt. Ltd [2015 (9) TMI 79 - DELHI HIGH COURT] has taken the view that the insertion of the second proviso to Sec.40(a)(ia) of the Act is retrospective and will apply from 1.4.2005.
Once it is held that the Assessee is entitled to the benefit of 2nd proviso to Sec.40(a)(ia) of the Act, the CIT(A) ought to have directed the AO to verify whether the recipients have included the receipts paid by the assessee in their respective returns of income and also paid taxes on the same. To the extent the recipients from the Assessee have so included the sum in their returns of income and filed the same, no disallowance u/s.40(a)(ia) of the Act ought to have been sustained by the CIT(A).
CIT(A) ought to have also directed the AO that in case the recipient parties are not cooperating in providing details, the AO should call for the information u/s. 133(6) or 131 of the Act, for verification of the same. We therefore set aside the order of the CIT(A) to the extent to which he had sustained the order of the AO on the disallowance u/s.40(a)(ia) of the Act and remand the issue to the file of the AO to verify whether the recipients have included the receipts paid by the assessee in their respective returns of income and also paid taxes on the same. Accordingly, ground of assessee is allowed for statistical purposes.
Allowable business expenditure - expenditure incurred on foreign travel by the employees and partners - HELD THAT:- Addition has been upheld by observing that since the assessee failed to prove the business expediency of foreign trip to Europe therefore the primary onus has not been discharged by the appellant either during the assessment or during appellate proceedings. CIT(A) also rightly concluded that the appellant has failed to prove that these expenses identified by the Assessing Officer, were incurred wholly and exclusively for the business purpose of assessee. We are unable to see any valid reason to interfere with the findings recorded by the ld. CIT(A) as the submissions of assessee does not hold merits. Accordingly, ground of assessee is dismissed upholding the addition.
Addition u/s 68 - capital contribution to the assessee firm by a partner - HELD THAT:- From the order of ITAT Delhi Bench in the case of Alliance Engineers and Construction [2019 (2) TMI 2095 - ITAT DELHI] is relevant to note that wherein the Tribunal held that when a partner introduces the money/capital in the firm either in the shape of capital or loan to the partnership firm, addition, if any, can be made only in the hands of partner and not in the hands of partnership firm as long as the partner confirms to have invested towards capital or as loan to the firm.
In the present case the assessee has filed documents but we are unable to see any confirmation from the contributing partner confirming the capital contribution to the firm. The Assessing Officer and the ld. CIT(A) has noted detailed findings while confirming the addition u/s. 68 of the Act but they have not show cause the assessee to file relevant documentary evidence including confirmation etc. substantiating the claim of capital contribution. Therefore in our consider view the assessee should be allowed to explain his case before the Assessing Officer with the support of all relevant material, documentary evidence etc. Hence the issue of capital contribution by the partner is restored to the file of the Assessing Officer for readjudication of issue after allowing due opportunity of hearing to the assessee.
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2023 (12) TMI 920
Smuggling - Betel Nuts - Violation of order dated 31 March 2017 passed by the Authority for Advance Rulings (AAR) under the Chapter V B of the Customs Act, 1962 (the Act) containing Sections 28E to 28M.
The only contention raised by the respondents is that because of change in law on account of dismissal of appeal by the Supreme Court against the order passed by CESTAT in case of other assessees, advance ruling is not binding.
HELD THAT:- It is a well settled in law that the assessee can invoke writ jurisdiction under Article 226 of the Constitution of India, despite an alternate statutory remedy of an appeal interalia on the ground that there is a breach of fundamental rights, breach of natural justice, order passed is without jurisdiction or there is a challenge to the vires of the statute. In these circumstances, the Court can exercise writ jurisdiction inspite of appeal remedy being available to the petitioner.
The decision of the CESTAT, Chennai Bench in case of S.T. Enterprises [2021 (3) TMI 27 - CESTAT CHENNAI] and Ayush Business Overseas [2021 (3) TMI 1285 - SC ORDER] certainly cannot be a binding precedent on High Court nor can it be binding on all the authorities/assessees throughout the country. The decision of the Chennai Bench of CESTAT is binding interse between the parties before the Tribunal and not the petitioner or the authorities having jurisdiction over the petitioner. The dismissal by the Supreme Court without going into merits of the case acts only as res judicata between the parties before the Court and same cannot be said that CESTAT bench decision amounts to a declaration of law. Therefore dismissal of appeal by the assessees before the Chennai Bench of CESTAT, by the Supreme Court does not attract provisions of Section 28 J(2) of the Act for not following decision of the advance ruling rendered in the petitioner’s own case.
In the instant case, the respondents have passed the O-I-O contrary to the provisions of Section 28J of the Act and, therefore, the same is without jurisdiction. In view of the above discussion that the impugned order is passed without jurisdiction, writ petition is maintainable. The petitioner hence ought not to be relegated to take recourse to an appellate remedy.
The impugned O-I-O dated 11th November 2022 is hereby quashed and set aside - Petition allowed.
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2023 (12) TMI 919
Prayer for direction upon the respondent customs authority concerned to pay to the petitioner value of goods in question as on the date of seizure - seizure was on the ground of foreign origin and that it was smuggled in nature - HELD THAT:- Considering the facts and circumstances of the case and submission of the parties and in view of the order of the appellate authority dated 1st March, 2021 holding that the adjudication order confiscating the goods in question and imposition of penalty not sustainable in law, action of respondents customs authority neither returning the seized goods in question to the petitioner nor paying the value of goods as on the date of the seizure is arbitrary and illegal and accordingly the respondent customs authority concerned is directed to pay to the petitioner the value of goods in question as on the date of seizure within a period of four weeks from the date of communication of this order.
Petition disposed off.
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2023 (12) TMI 918
Provisional release of goods - Valuation of goods - applicability of N/N. 5/2023 which imposes minimum cap of Rs. 50/- per kg. for import of Apples - HELD THAT:- The petitioner is entitled to provisional release of goods as prayed for for more than one reason. Notification No. 5/2023 which imposes minimum price of Rs. 50/- per kg for import of apples has been stayed by the Kerala High Court. Secondly, only issue is with respect of valuation and goods being perishable in nature and further the petitioner is willing to comply with the terms and conditions to be put forth by respondent no. 2 for provisional assessment of goods there does not seem to be justifiable release to detain the goods. In the light of these facts, it would be in the interest of justice that the petition be allowed.
The Respondents are directed to provisionally assess the Bill of Entry No. 8733339 within a period of four days from today and release the goods on the petitioner furnishing the bond - petition disposed off.
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2023 (12) TMI 917
Maintainability of appeal - non-prosecution of the case - HELD THAT:- There are no justification for adjourning the matter beyond three times which is the maximum number statutorily provided.
The Appeal is dismissed for non prosecution in terms of Rule 20 of CESTAT Procedure Rules, 1982.
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