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2025 (1) TMI 392
Profiteering - Respondent had reduced, re-fixed and displayed the MRPS of the impacted SKUs commensurately w.e.f. 15.11.2017 after the rate of tax was reduced on them and conveyed the same to his Dealers or not - benefit of tax reduction passed on or not - violation of provisions of Section 171 of GST Act - HELD THAT:- From a bare perusal of the provisions of Section 171 of the Act and also the interpretation of Section 171 by the Hon'ble Delhi High Court vide its judgment dated 29.01.2024 [2024 (1) TMI 1248 - DELHI HIGH COURT] it emerges that the benefit of tax reduction must be passed on to the consumer by the manufacturer and sellers. The amount foregone from the public exchequer in favor of the consumers cannot be appropriated by the manufacturers, traders, distributors etc. When the Goods and Services Tax rate gets reduced the final price paid by the recipient requires to be reduced. The obligation of effecting/making a "commensurate" reduction in prices, is relevant to the underlying objective of the Goods and Services Tax which is to ensure that manufacturer/suppliers pass on the benefit of reduction in the rate of tax to the consumers, especially since the Goods and Services Tax is a consumption-based tax and the recipient (consumer) practically pays the taxes which are included in the final price. The tax foregone by the authorities has to be passed on to the consumers as commensurate reduction in price.
The Respondent was legally required to reduce, re- fix and display the MRPS of the impacted SKUs commensurately w.e.f. 15.11.2017 and was also legally required to affix sticker or stamp or online print the reduced MRPS on the stock lying with him as on 15.11.2017. By doing so the Respondent would have passed on the benefit of tax reduction to the ultimate consumers who bear the burden of tax as per the provisions of Section 171 of the CGST Act, 2017.
Conclusion - Since the final price paid by the end consumer has not been reduced commensurately, as per Section 171, the Report of the DGAP stating that the Respondent has not violated the provisions of Section 171 of the CGST Act, 2017 cannot be accepted. The DGAP is directed to re-investigate the case in terms of the Hon'ble Delhi High Court judgment dated 29.01.2024 and submit report under Rule 133(4) of the CGST, Rules, 2017.
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2025 (1) TMI 391
Validity of reassessment proceedings - order is at variance with the allegations that were made in the impugned notice issued u/s 148A (b) - HELD THAT:- We find merit in the contention that the allegations made in the impugned order u/s 148A (d) of the Act is at variance with that as was set out in the impugned notice issued u/s 148A (b) of the Act.
The very purpose of issuing a notice is to enable the assessee to explain the information available with the AO and to establish that the said information does not indicate that the petitioner’s income has escaped the assessment.
Since, the allegations made in the impugned notice issued under Section 148A (b) is at variance with the grounds raised in the impugned order passed u/s148A (d) of the Act, the petitioner did not have any effective opportunity to further explain that the said information did not indicate that its income had escaped assessment.
AO has not considered the petitioner’s claim that its income that is alleged to have escaped assessment, is a part of the income as was disclosed in its books of account and was also subject matter of the assessment.
We consider it apposite to set aside the impugned notice as well as the impugned order. It is so directed.
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2025 (1) TMI 390
Reopening of assessment - Report generated by the Central Goods and Service Tax (“CGST”) Authorities that certain entities were engaged in issuing/generating/providing fake/bogus invoices to pass on a fraudulent “Input Tax Credit” (“ITC”) without supply of goods - HELD THAT:- The approach of the assessing officer was totally unfounded for more than one reason. The primary reason being the assessing officer’s understanding of the GST transactions; secondly, the assessing officer’s complete mis-reading of the facts, this despite the correct facts being placed on the record of the assessing officer by the petitioner; and thirdly, tangible material in the form of all documents pertaining to the professional services as rendered by the petitioner to M/s Flash Forge and all the details in that regard as reflected in the books of accounts in relation to receipt of fees, the TDS amounts deposited as also the GST amounts deposited in the treasury, have been completely overlooked, misconstrued by the officer.
We are in fact not only surprised but pained with the approach of not only the assessing officer in showing such gross non-application of mind, but also with the mechanical approach of the PCIT, Mumbai, in according approval to the issuance of notice to the petitioner under Section 148A (b). This aspect we advert to little later.
We wonder as to how without verifying the petitioner’s credentials and merely on the basis of some information which was available with the CGST authorities, the assessing officer without verifying the returns which were filed by the petitioner and the supporting documents, qua the professional fees as received by the petitioner from M/s. Flash Forge, could have proceeded to issue a notice under section 148A (b)
The information which was gathered by the department indicated that M/s Flash Forge had made payments to the petitioner. However, there was no material for the assessing officer to jump to a conclusion, that having received such amount, the petitioner was deemed to be involved and/or was the beneficiary of any bogus input tax credit as being portrayed by the CGST authorities. In our opinion, when tested on record it was a wholly unwarranted and a wholly erroneous assumption of the assessing officer and the PCIT to reopen the petitioner’s assessment on such count. In fact, this is a case depicting a mechanical approach being adopted by both these officers.
It is classic case wherein certain information which may be relevant in so far as the CGST authorities are concerned in relation to the transactions qua a registered person under the CGST Act is being mechanically and without application of mind, taken to be relevant, in so far as the proceedings under the IT Act are concerned, more so, when it is a case of re-opening of the assessment.
We say so, as the CGST regime is governed by the provisions of the Central Goods and Service Tax Act and the State Goods and Service Tax Act as applicable. In so far as the income tax is concerned, it is governed under an independent enactment, namely the Income Tax Act, 1961. Both these Acts operate in different fields, with independent scheme of taxation, hence, there is no question of any overlapping or intermixing of the jurisdictions of these authorities, which stand compartmentalized.
Even if some information is available under the CGST regime in respect of the registered person (assessee), the same cannot ipso facto and/or automatically apply to an assessee under the IT Act, unless the assessing officer has tangible material to indicate that certain transactions, which are relevant to the CGST are also relevant and necessary, in so far as the returns filed by an assessee are concerned, and any bogus transactions or anything in relation to such transactions, becomes relevant in so far as in a given case, qua the income disclosed by the assessee under the IT Act is concerned.
Validity of PCIT Granting approval u/s 151 - A firm of Chartered Accountants, which is providing to its clients accounting and audit services, certainly cannot be alleged to have made bogus purchases from “One World Group of Entities” and in respect of which there was not a iota of material, over and above this, the petitioner has been alleged of having accommodation entries in regard to these purchases which are stated to be inflated resulting in suppression of profits, thereby reducing of the taxable income of the petitioner, while claiming fraudulent ITC, when there was no ITC whatsoever being claimed by the petitioner. All these remarks being made by the PCIT against the petitioner in granting approval under Section 151 of the IT Act for issuing notice under Section 148 of the IT Act, in our opinion, has crossed all limits of legitimacy in the discharge of the official duties by the PCIT.
From the reading of the PCIT’s remarks we may observe that if such high officers act with such colossal non-application of mind, amounting to an abuse of the authority and powers which are vested in him in law, which is coupled with a serious duty and an obligation to adhere to the correct facts of the case and on appropriate understanding of the law in grant of an approval, what can be the plight of the assessee.
Thus, the impugned show cause notice issued to the petitioner u/s 148A (b) and also the consequent order u/s 148A (d) quashed - Decided in favour of assessee.
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2025 (1) TMI 389
Reopening of assessment u/s 147 - unexplained cash u/s. 69 - addition on the basis of disclosure from seized documents and on the basis of the statements of the partner, accountant and account assistant - HELD THAT:- AO has not recorded the reasons for reopening the assessment. The objection of the assessee against the reasons were not disposed of by AO. No incriminating evidence was shared with assessee before making the quantum addition.
The addition has been made merely on the basis of unauthenticated documents found in search and on the basis of statements of Partner, Accountant and Account assistant. No opportunity to cross examine these persons was afforded to assessee.
Issue in the present case is directly covered by the order passed by ITAT Mumbai bench in [2024 (5) TMI 91 - ITAT MUMBAI] in assessee’s own case wherein held accountant in the statements recorded has explained how the entries are to be decoded for understanding what each entry means really. A sample entry has been considered and explained i.e. how to read the alphabets and the number in the entry.
AO based on the said explanation proceeded to interpret the impugned entries as pertaining to the assessee. However we notice from the assessment order that the AO has not brought out any specific finding on how the impugned entries are linked to the assessee and whether any other seized material other than what is shared with the assessee have been used to aid the interpretation. Decided in favour of the assessee.
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2025 (1) TMI 388
Addition u/s 68 - sale consideration received on sale of shares are not genuine transaction and is only accommodation entries in the form of Long Term Capital Gain - HELD THAT:- Today is the 10th time of hearing of this appeal, none appeared on behalf of the assessee and no Authorization given in favour of any Representative. Even in the previous occasion only stereo-typic adjournment letters were filed by the assessee and no evidence or Paper Book filed by the assessee. This clearly shows that the assessee is not interested in pursuing the above appeal.
Further the ground raised by the assessee is also general in nature without adducing any evidences in support of its claim. In the absence of the same, the Ld. CIT(A) confirmed the addition after calling for Remand Report from the AO. Further the case laws relied by the A.O. and CIT(A) are in favour of the Department. Decided against assessee.
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2025 (1) TMI 387
Addition u/s 68 - bogus share transaction - Allegation of price rigging or circulation of black money to generate LTCG - HELD THAT:- Assessee earned LTCG related to the scrip MPL through transactions conducted on the BSE. No adverse findings or comments have been issued by SEBI regarding this scrip, and the Ld. DR was unable to submit any such directions or allegations by SEBI related to the scrip in question. AO did not reject any of these primary pieces of evidence during assessment proceeding.
Hon’ble Bombay High Court in Shyam R. Pawar [2014 (12) TMI 977 - BOMBAY HIGH COURT] held that when details of share transactions are substantiated by DEMAT account statements and contract notes, and the AO fails to prove such transactions as bogus, the capital gains cannot be treated as unaccounted income under Section 68 of the Act.
We find no basis to conclude that the assessee was involved in any price rigging or circulation of black money to generate LTCG. The evidence and documents submitted during the assessment proceedings were neither denied nor challenged in terms of their authenticity. - Decided in favour of assessee.
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2025 (1) TMI 386
Addition of interest - interest expenditure claimed by the assessee u/s 57(iii) - no business exigency for which the loan was given at a lower rate of 5.22% which was availed by the assessee at a rate of 9.04%, accordingly, the AO restricted the interest expenditure to a rate of 5.22% - HELD THAT:- Revenue has emphasized on the aspect of business prudence in advancing the loans to the sister concern at lower rates than the rate at which the funds were borrowed by the assessee. In this regard, it is pertinent to note that it is trite law that the test of commercial expediency/business prudence is required to be judged from the point of view of the businessman and not the Revenue. Therefore, we do not find any basis for restricting the interest expenditure claimed by the assessee under section 57(iii) of the Act.
The loan availed by the assessee on interest was used to lend funds to the sister concern on interest and the interest expenditure incurred was claimed as a deduction under section 57(iii) of the Act.
We are considered opinion that the assessee is entitled to claim a deduction under section 57(iii) of the Act in respect of interest expenditure while computing the income under the head “income from other sources”. Accordingly, the impugned disallowance made by the AO and upheld by the learned CIT(A) is deleted. Appeal of the assessee is allowed.
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2025 (1) TMI 385
Deemed dividend addition u/s 2(22)(e) - advances received by company wherein assessee is one of the shareholders having 35% holding in the company - HELD THAT:- Circular No. 19 of 2017 dated 12/06/2017 issued by the Central Board of Direct Taxes, which provides that the trade advances, which are in the nature of commercial transactions, would not fall within the ambit of the word “advance” in section 2(22)(e).
We find that in Pradip Kumar Malhotra [2011 (8) TMI 16 - CALCUTTA HIGH COURT] held that gratuitous loan or advance given by the company to its shareholders would come within the purview of section 2(22)(e) but not the cases where the loan or advance is given in return to an advantage conferred upon the company by such shareholder.
In the present case, upon receipt of advance from M/s AGIV India Pvt. Ltd., M/s Paros Corp purchased the shares of IND-AGIV Commerce Ltd. and RST Technologies Ltd., which facilitated the completion of the transaction between M/s AGIV India Pvt. Ltd. and M/s FOR-A Group Japan. Thus, the advance was given in return for an advantage conferred upon M/s AGIV India Pvt. Ltd. by the assessee.
Such a transaction, being completely in the nature of a commercial transaction, would not fall within the ambit of the provisions of section 2(22)(e)and therefore the addition made by the AO is deleted. As a result, grounds raised by the assessee are allowed.
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2025 (1) TMI 384
Validity of Reassessment proceedings - reason to believe - assessee has not offered to tax certain receipts from Jindal Steel and Power Limited - HELD THAT:- We observed that as per the information on record, the AO was of the opinion that there is substantial receipts not offered to tax by the assessee and accordingly, he reopened the assessment. Even though there is a small factual error, however the gross amount in terms of rupees mentioned in the reasons supplied to the assessee and the additions made in the assessment order are same. Therefore, we are not inclined to proceed with the objections raised by the assessee for reopening of the assessment.
Consideration received for supply of drawings and designs should be classified as "Fees for Technical Services" (FTS) or "Business Profits" under the Double Taxation Avoidance Agreement (DTAA) between India and Germany - Coming to the issue on merits, we observed that the assessee has declared three invoices in its return of income as exempt from tax however when the case was reopened it has filed its return of income by bringing on record facts clearly and it was submitted before the AO as well as ld. CIT (A) that two invoices of Euro 2,35,000 and 30,500 relates to supply of drawings and designs to Jindal Steel and Power Limited and which is exempt from tax on the basis of ITAT, Vishakhapatnam decision which is in favour of the assessee (it is decided in the case of M/s. SMS Schloemann Siemag AG Germany [2001 (4) TMI 62 - ANDHRA PRADESH HIGH COURT] which is the sister concern of the assessee).
With regard to third invoice of Euro 9,49,600, it was submitted before the ld. CIT (A) that it is relating to supply of equipment.
CIT (A) appreciated the above facts on record and deleted the addition made by the AO relating to supply of equipments. However, he did not consider the decision of ITAT, Vishakhapatnam relating to supply of drawings and designs as royalty/FTS and he proceeded to sustain the addition on the two invoices which assessee has not declared in their return of income. After considering the factual matrix on record, we observed that the ITAT, Vizag has considered the similar issue on record and decided the issue of supply of drawings and designs in favour of the assessee even though as royalties. However, the provisions of royalties and FTS are similar in nature, therefore, we are inclined to accept the submissions of the assessee and we direct the AO to delete the additions proposed in this case.
Claim of the appellant to treat the proceeds towards such supervisory services as non-taxable business profits in the absence of Permanent Establishment ("PE") in India for relevant contracts in terms of Article 7 of the DTAA - CIT (A) has enhanced the addition on the other supervisory services provided by the assessee in the new project for a period of 30 days - HELD THAT:- CIT (A) has enhanced the addition with the observation that the project in which the assessee has provided supervisory services for a period of less than six months still he treated the assessee as a deemed PE and proceeded to enhance the addition. As per the facts on record, assessee has followed contract completion method and accordingly, offered to tax in AY 2016-17 and assessee has submitted the relevant Balance Sheet in its paper book. For the sake of verification, we deem it fit and proper to remit the issue back to the file of AO whether the assessee has offered the relevant revenue based on the method followed by it i.e. contract completion method in the AY 2016-17. In case, it is found that assessee has offered the same in the year of completion, no further addition can be made in the present assessment year. Accordingly, ground no.4 is remitted back to the file of AO with the limited purpose to verify the above aspect after giving opportunity of being heard to the assessee. Hence, ground no.4 is allowed for statistical purposes.
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2025 (1) TMI 383
Denying registration u/s 12AB - objects of the Trust exclusively for Jain Community which is violation of clause (d) to Explanation of Section 12AB(4) of the Act r.w.s. 13(1)(b) - scope of amended provisions of Section 12AB - HELD THAT:- A conjoint reading of Sections 11, 12, 12A and 12AA of the Act makes it clear that registration u/s 12A and 12AA is a condition precedent for availing benefit u/s 11 and 12. Unless an institution is registered under the aforesaid provisions, it cannot claim the benefit of Sections 11 and 12. Section 13[1][b] prescribes the circumstances wherein the exemption would not be available to a Religious or Charitable trust otherwise falling u/s 11 or 12. Therefore, it requires to be read in conjunction with the provisions of Sections 11 and 12 towards determination of eligibility of a Trust to claim exemption under the aforesaid provisions, while granting registration.
CIT [E] has considered the provisions of sec 13(1)(b) of the Act which is applicable only in a case of Charitable Trust or Institution created or established after commencement of this Act and only for the benefit of any particular religious community or caste namely “Jains” and thereby denied the registration, which in our considered view is well within the provision of amended law and therefore the order denying registration passed by CIT[E] does not require any interference. Decided against assessee.
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2025 (1) TMI 382
Penalty by invoking the provision of sec 271E - default of sec 269T while making repayment of loans by journal entries /book entries to the partners - transactions by way journal entry - HELD THAT:- Where the repayment has been made by the partnership firm to its partners, such transactions are not covered within the fold of s. 269SS/269T of the Act for the reason that under general laws, partnership firm is no different from partners constituting it and a firm is only a compendious name for partners who carry on business etc.
It is the case of the assessee that the repayment has been made by journal entry and a small part paid through banking channel. Thus, the facts available on record would show that no actual payment has been made in cash but has been merely effected by journal entry in the books of the assessee.
As in the case of CIT vs Noida Toll Bridge Co. Ltd. [2003 (1) TMI 46 - DELHI HIGH COURT] had taken judicial view that such repayment of loan by way of journal entry falls outside the ambit of s. 269T. In any case, such transactions are entitled to immunity available u/s 273B of the Act which stipulates that penalty u/s 271E is not to be imposed on a person for any failure, if he proves that there was reasonable cause for such failure in accepting/repaying the loan/deposits in modes other than the ones prescribed.
The journal entries in the instant case appear to have been made with the partner of the firm under the bonafide belief that such transactions would not be hit by the provision of s. 269T in light of various judicial decisions on the issue including the judgement of the Jurisdictional High Court.
There is no finding in the orders of the lower authorities that such transactions by way journal entry were undertaken to evade any tax in any manner. Appeal of the assessee is allowed.
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2025 (1) TMI 381
Expenditure incurred on CSR - Allowable business expenditure or not? - HELD THAT:- Expenditure incurred on CSR activities may not have direct nexus with the activities of the assessee but it may have indirect and may bring goodwill to the assessee. We observed that similar view was expressed by the coordinate Bench in the case of Ranbaxy Laboratories Ltd. [2009 (6) TMI 126 - ITAT DELHI-I] and decided the issue in favour of the assesse. Thus as the assessee has incurred expenditure for the development of their own staff/workers as well as in the general public interest without there being any obligation imposed upon them, ground decided in favour of assessee.
Addition on account of Long-Term Capital Gain ("LTCG) on sale of land - determination of cost of acquisition for the land in question - adjustment of impairment loss - HELD THAT:- Assessee has not brought on record after acquiring the assets from M/s. Brindavan Beverages, how the cost are allocated and for the purpose of registration, it has booked the value of Rs. 20,93,29,172/-, the combined value for land and building and when such slum sales are being recorded in the books of account the value has to be recorded on the basis of transfer value and if there is any difference between assets acquired and the liability, normally the difference would be charged to goodwill. Nothing has been brought on record to show that what is the value recorded by the assessee in FY 1999-00 after acquisition of the abovesaid factory with the parcel of freehold land and it has only filed fixed assets schedule it contains details of addition on freehold land of Rs. 15,66,92,008/- and also there are several additions in building as well.
It is the duty upon the assessee only to show the fixed assets schedule prepared for the purpose of income-tax alone and in which value of respective assets are disclosed in terms of addition and deletions which tallies with the fixed assets schedule prepared for the purpose of Companies Act. No depreciation schedule prepared for the purpose of income-tax for AY 1999-00 to AY 2014-15 are submitted. The reason for demanding depreciation schedule is, the assessee has acquired not only freehold land but also various buildings. The assessee must have declared the buildings separately and claimed depreciation. No depreciation is allowed in freehold land. Therefore, the claim of the assessee due to business impairment loss adjustment has altered the value of freehold land which assessee has subtracted during the year upon sale is not acceptable and considering the fact that the index cost of acquisition has to be calculated from the actual cost of land acquired by the assessee in FY 1999- 00 - Decided against assesee.
Disallowance on account of penalty paid for wrong CENVAT utilized - AO disallowed the said expenses holding the same to be in the nature of penalty for violation of any law for the time being in force - HELD THAT:- As per the provisions of Section 37, Explanation 1, any expenditure incurred which is offence or prohibited by law shall not be deemed to be incurred for the purpose of business, which shall not be allowed to claim as business expenditure. That be the case, the issue under consideration is not yet settled, unless it is settled as compensation or compounding in nature, the same cannot be allowed to claim as expenditure. Therefore, the above expenditure is not allowable at this stage considering the nature of violation. Decided against assesee.
Delayed payment of the Employees contribution to the Provident Fund, ESI and other welfare funds - HELD THAT:- We observed that this issue is now settled in the case of Checkmate Service Pvt. Ltd. [2022 (10) TMI 617 - SUPREME COURT] Accordingly, in our considered view, this issue is already settled in favour of the Department.
Addition made by the AO on account of inventory loss and leakage - HELD THAT:- We observed that the same issue arose in assessee’s own case for AY 2010- 11 [2023 (7) TMI 1150 - ITAT DELHI] and the same was dismissed by a coordinate Bench of ITAT and the said order in AY 2010-11 has also been followed in subsequent AYs 2011-12 to 2013-14 and 2017-18.
Disallowance of traffic challans and disallowance of deposits from customers to be allowed in favour of assessee as relying on assessee own case [2023 (6) TMI 393 - ITAT DELHI] AY 2009-10 and [2023 (7) TMI 1150 - ITAT DELHI] AY 2010-11 respectively.
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2025 (1) TMI 380
Taxability in India - sale of software (prime) license fees - Fees for Technical Services (FTS) under the India-UK Double Taxation Avoidance Agreement (DTAA) or not? - ‘Fees for provisions for other related services’ - HELD THAT:- We note that during the present assessment year i.e. AY 2020-21, AO has accepted the claim of the assessee that the ‘sale of software (prime) license fee was not taxable. The Co-ordinate Bench of the Tribunal in AY 2019-20 in the case of the assessee [2023 (4) TMI 1088 - ITAT DELHI] held that when software itself was not taxable, the training and the related activities concerned with utilization and installation cannot be held to be FTS.
CIT-DR could not bring any distinguishing facts to controvert the findings of the above order of the Tribunal. Department has not brought any evidence on record to substantiate that ‘make available’ condition is satisfied in the case of the assessee for this assessment year.
Therefore, we are of the considered view that when software itself is not taxable, the ‘Fees for provisions for other related services’ will also not be taxable. Hence, the addition made treating the ‘Fees for provisions for other related services’ as taxable is not acceptable and the same is deleted. Assessee appeal allowed.
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2025 (1) TMI 379
Taxability of Illegal Income - Prosecution initiated by the Income-tax Department u/s 277 - fraudulent claim of refunds by producing forged challans - Having recovered the entire amounts from the assessee, can the same amounts be treated as income of the assessee ? - Income-tax Department taxing @ 30-35% of the fraudulent income earned by the assessee by defrauding the Government Department
HELD THAT:- While the taxability of the economic benefits derived from such fraudulent income is beyond the current scope, the fact that the assessee leveraged these funds for personal gains adds weight to the case for taxing the income in the year of accrual. This aligns with the established principle that income, once accrued or received, irrespective of its legality, must be taxed under the Income-tax Act, 1961.
As an undisputable fact that the assessee has admitted to fraudulently earning income and parking the same in the accounts operated by him. The deliberate act of parking funds in the accounts operated by him do not absolve the assessee of the taxability of such income. The assessee had dominion over the funds and utilized them for economic gains, including investments. This clearly establishes that the income accrued to the assessee, making it taxable in his hands.
The leveraging of fraudulently accrued income for economic benefits, such as investments in shares and deposits in the accounts operated by him, further supports its taxability in the hands of the assessee. While the taxation of economic benefits is beyond the current scope, it demonstrates that the assessee exercised full dominion and control over the funds. The fact that the fraudulent income was recovered or repaid in subsequent years does not negate the taxability of the income in the year of accrual.
The doctrine of real income requires taxation at the time of accrual, irrespective of later events.
In CIT v. Shoorji Vallabhdas & Co. [1962 (3) TMI 6 - SUPREME COURT] held that income is taxable when it is received or accrued, and subsequent adjustments do not affect its original taxability. Thus, the assessee’s claim for deductions in respect of recovery or repayment fails, as it does not satisfy the conditions enumerated in Section 57 of the Act. This provision permits deductions only for expenses incurred wholly and exclusively for the purpose of earning income. Recovery of fraudulent income is not an expense incurred for earning taxable income; rather, it represents restitution of wrongful gains.
We also find that the Income-tax Department has initiated prosecution u/s 277 of the Act. This prosecution is primarily launched as per the provisions of the income-tax act for making false statements in verification under the IT Act.
The deductions claimed for the recovery or repayment of fraudulent income in subsequent years are disallowed. Recovery of such income does not constitute an expense incurred wholly and exclusively for the purpose of earning income under Section 57 of the Act. Therefore, the order of the ld CIT(A) confirming the addition of the fraudulent income is hereby upheld. The denial of deductions for subsequent recovery is also upheld, as it aligns with statutory provisions of the Act as well as judicial precedents.
Taxability arises at the point of accrual or receipt. Even if the income is later restituted or recovered, its taxability remains unaffected for the year of accrual. Subsequent adjustments do not negate the taxability for the original period for the matter generation, recovery and restitution are separate transactions. Thus, the act of restitution or recovery is treated independently for taxation purpose. Taxability remains intact for the year of accrual and recovery does not create a retroactive exemption. Under Section 57 of the Act, only expenses incurred wholly and exclusively for the purpose of earning income or deductible. Restitution does not meet the criterion. Allowing deductions for restitution of fraudulently earned income would undermine public policy by creating an incentive to commit fraud.
In this case, the Income-tax Department has to act in dual role of the executor of the income-tax statute and also as an arm of Government. The prosecution launched was limited in its role as the executor of the income-tax statute. The act of perpetuation of a criminality per se have been ignored by the Income-tax Department as a part of Govt. of India. It is well settled principle that tax authorities are not only responsible for enforcing compliance under Income-tax Act but also act as an arm of Government in ensuring that violations of other laws particularly involving public exchequer are addressed through appropriate legal mechanisms. That is the reason inter-departmental organizations such as CEIB/SFIO/FIO have been established. Decided against assessee.
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2025 (1) TMI 378
Validity of assessment made u/s 153C being barred by limitation - AR submitted that the assessment year 2009–10 to 2012–13 would be beyond the block of 10 assessment years as per first proviso to section 153C and Explanation-1 to section 153A and assessment made u/s 153C dated 31/03/2022 for the assessment year 2009–10 would be time barred, is liable to be quashed - HELD THAT:- We find that the assessment year 2009-10, 2010-11 and 2011-12 is beyond the block of 10 year as per first proviso to section 153C read with Explanation-1 to section 153A and, therefore, notice issued under section 153C and assessment made under section 153C by the Assessing Officer for the assessment year 2009-10, 2010-11 and 2011-12 is barred by limitation and is invalid, bad in law and is hereby quashed for the want of valid assumption of jurisdiction on the part of the Assessing Officer.
Validity of Satisfaction Note recorded by the AO of the searched person - We find that it is an admitted position that the consolidated satisfaction note was recorded by the Assessing Officer of the searched person before transmitting the documents/ information to the AO of the non-searched person i.e., the assessee in this case for the assessment year 2009–10 to 2019–20 i.e., for 11 years and thereafter the documents have been transferred on 21/01/2021 to the AO of the non–searched persons i.e., the assessee company and subsequently the AO of the assessee company has further recorded consolidated satisfaction note for the assessment year 2009–10 and 2010–11 and thereafter the AO further recorded another consolidated satisfaction note for the assessment year 2011–12 to 2013–14, which is clear from the above discussions.
We rely on the judgment of Sunil Kumar Sharma [2024 (2) TMI 116 - KARNATAKA HIGH COURT] wherein it has been held that satisfaction note is required to be recorded u/s 153C for each assessment year and in the impugned proceedings, a consolidated satisfaction note has been recorded for different assessment year by both the AO i.e., the Assessing Officer of the searched person has recorded consolidated satisfaction note for the assessment year 2009–10 to 2019–20 and thereafter the Assessing Officer of the assessee has recorded consolidated satisfaction note for the assessment year 2009–10 and 2010–11 and another consolidated satisfaction note for the assessment year 2011–12 to 2013–14. There is no co–relation with the documents year–wise to clearly point out as to how the documents pertain to the assessee.
Additions on account of unexplained cash credit and that too share capital / unsecured loans & advances - In our opinion, as the very usurpation of jurisdiction under section 153C is found to be bad in law for want of jurisdiction, the Assessing Officer was precluded from making any other addition in the assessments made for the assessment year 2009-10 to 2013-14. Hence, the action of the Assessing Officer in making addition under section 68 in the relevant assessment year 2009-10 to 2013-14 is held to be unsustainable for want of jurisdiction and is, therefore, it is invalied and bad- in law. Therefore, in view of the aforesaid discussions, we hold that the Assessing Officer’s action of making addition under section 68 of the Act for the relevant assessment year 2009-10 to 2013-14 is untenable in the eyes of law and it is hereby quashed.
Validity of approval granted u/s 153D by the Addl. CIT, Central Range–1, Nagpur, for making assessment under section 153C of the Act for the assessment year 2009–10 to 2013–14 - From perusal of the approval granted u/s 153D it emerges that it is granted on the same day itself on 31/03/2022 on the basis of letter dated 31/03/2022 by the Assessing Officer for seeking approval, though it is separate approval for each year but it is stereo-type approval, in mechanical & routine manner, though it is recorded that he has perused the draft assessment order but he has not pointed out the mistake / error committed by the Assessing Officer in the alleged draft order.
Addl.CIT did not mention anything in the approval order passed under section 153D dt.31/03/2022, even though for each year separately, towards his process of deriving satisfaction so as to exhibit his due application of mind. The Addl.CIT has failed to satisfactorily record its concurrence. Even the approval granted by the Addl.CIT does not refer to any seized material/assessment records/ satisfaction note or any other documents which could suggest that the Addl.CIT has duly applied his mind before granting approvals.
There is no recording of satisfaction by the Addl.CIT in the impugned approval order as to whether the assessment records/ assessment folders/ files/ seized materials or any incriminating documents or other connected documents and papers/ various statements recorded under section 132(4) and section 131(1A) of the assessee or any other person/ appraisal report of the Investigation Wing of the Department/ materials on hand with the Department at the time of initiation of search or material evidences gathered were placed for its verification and the same were duly verified and/or examined by him as mandated under section 153D.
In the absence of compliance of the above mandate, the approval order dated 31/03/2022, passed under section 153D becomes an empty formality without due process of law and, thus, not sustainable. This is nothing but an approval by way of mere mechanical exercise accepting the draft assessment order without any independent application of mind by the Addl.CIT.
Thus approval given by the Addl.CIT, in our opinion, is invalid in the eyes of law and, therefore, hold that approval gvien under section 153D was granted in a mechanical manner and without application of mind and hence, it is treated as invalid and bad in law.
Addition u/s 68 - The said sum is not found credited in the books of account of the assessee-Company in the assessment year 2009–10, which is sine qua non/ pre-requisite/ pre-condition for making addition under section 68 on account of unexplained cash credits and in absence of this pre-condition of recording of credit entry in the books of account which is mandatory for applying section 68, the addition is unjustified. Thus, we conclude that addition of ₹ 60 lakh made in the assessment year 2009-10 is merely on presumption, surmises and conjectures without bringing any material/ evidence on record by the Revenue for substantiating its contention that it is an undisclosed income in the hands of the assessee-Company for the assessment year 2009-10.
Addition on account of unexplained cash credit u/s 68 involved in the assessment year 2013–14 in respect of the amount of ₹ 50 lakh received as share application money from M/s.Suraksha Projects Ltd. in the assessment year 2013-14, which was recorded in the books of account and has been declared income shown in IDS, 2016 (supra) and due taxes has been paid by the assessee. Further, for ₹ 40 lakh received as share application money from Shridhan Jewellery P. Ltd. in the assessment year 2013–14, which was recorded in the books of account and has been declared income shown in IDS, 2016 (supra) and due taxes has been paid by the assessee-Company; on 11/10/2016 as per the surrender made in survey under section 133A dated 26/09/2016 on account of share capital / share application money by the assessee and hence, further making addition of ₹ 1,25,00,000 by the Assessing Officer in assessment made u/s 153C on 31/03/2022 would tantamount to be double addition on the same amount which had already been offered for taxation by the assessee, which we hold to be unsustainable in the eyes of law, and hence, the addition of ₹ 1,25,00,000 lakh is liable to be deleted.
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2025 (1) TMI 377
Accrual of income India - salary accrued to a non-resident seafarer - foreign income of the assessee taxable in India or not? - salary income in foreign exchange to a non-resident assessee whose salary is accrued/ received outside India and remitted to India - process of remittance of funds from out of India to the NRE account of the assessee, the amount was credited in NRE account of the assessee.
HELD THAT:- A perusal of the Circular No. 13/2017 dated 11.04.2017, which is clarificatory in nature, shows that the salary accrued to a non-resident seafarer for services rendered outside India on a foreign ship shall not be included in the total income merely because the said salary has been credited in the NRE account maintained with an Indian bank by the seafarer.
In view of the CBDT Circular, the assessee is entitled to the claim of relief from the applicability of the provisions of section 5(2)(a) of the Act, which is also allowable to the income accrued outside India in view of the decision of Smt. Sumana Bandopadhyay & Another [2017 (7) TMI 503 - CALCUTTA HIGH COURT]
Thus income is held to be not taxable merely because it is credited in the NRE account of the assessee and the findings of the Ld. CIT(A) in this regard are reversed. Decided in favour of assessee.
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2025 (1) TMI 376
Delay filling appeal before CIT(A)/NFAC - non admission of appeal on reasonable cause for the purpose of condoning the delay arising therein - HELD THAT:- DR could hardly dispute the clinching fact that the CIT(A)/NFAC herein has even included the time period of Covid - 19 Pandemic outbreak on 15th March, 2020 till the date of filing of the appeal coming to 30th September, 2021 despite the fact that hon’ble apex court’s landmark decision in Re: Cognizance for Extension of Limitation [2022 (1) TMI 385 - SC ORDER] has already directed exclusion thereof. We deem it appropriate to clarify that this is indeed not the Revenue’s case that the assessee has not explained the impugned delay up to 15th March, 2022 in her condonation petition.
Larger interest of justice would be met in case the assessee’s instant appeal is restored back to the AO for his afresh appropriate adjudication. Assessee’s appeal is allowed for statistical purposes.
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2025 (1) TMI 375
Addition u/s. 69A r.w.s 115BBE - cash deposits during demonetization - possibility of assessee’s unaccounted money being deposited in cash - HELD THAT:- Schedule 5 to the Balance Sheet as on 31.03.2017, the assessee has given details of advances from customers.The assessee has furnished details of cash deposits in the bank on various dates which shows that the cash deposits in the bank are from either cash sales or advances from the customers. The assessee has also given comparative analysis of cash sales during Financial Year 2015-16 & 2016-17.
A comparative analysis of above tables reveal that cash sales during Financial Year 2016-17 are less than in Financial Year 2015-16 and there has been no cash sales in Financial year 2016-17 after December 2016.
Details furnished by the assessee reveals that there has been consistent cash deposits in the bank. It is not a case where cash deposits were only during the period of demonetization. The cash deposits in the bank were evenly spread out during whole year. The assessee has also given details of cash deposits during preceding assessment year. The assessee in the normal course of business has been depositing cash every month in the bank account. Thus the explanation furnished by the assessee cannot be rejected out rightly. The assessee has substantiated that in normal course of business, the assessee has been making cash sales and has been depositing same in bank account and has also been receiving cash advances from the customers which were also deposited to the bank account of the assessee.
CIT(A) have taken a pedantic view in rejecting explanation furnished by the assessee especially when entire sales including cash sales are duly reflected by the assessee in books of account and the same has been accepted by the AO. Decided in favour of assessee.
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2025 (1) TMI 374
Reopening of assessment u/s 147 - reproduction of the Investigation Wing report - eligibility of reasons to believe - non independent application of mind - HELD THAT:- Reasons are merely reproduction of the Investigation Wing report and not a word of any material otherwise relied or examined from the assessment record of assessee or any other piece of document containing such information has been relied by the AO to indicate that there was any application of mind
The settled proposition of law is that reasons for reopening should not be merely a conclusion to make reopening. It is necessary that there is independent application of mind by the AO to the tangible material which is relied to form the reasons to believe that income has escaped assessment. The conclusion of the AO in the present form are at best reproduction of the conclusion in the Investigation report and indeed it is a borrowed satisfaction. Thus, relying the judgment of Meenakshi Overseas Pvt. Ltd. [2017 (5) TMI 1428 - DELHI HIGH COURT] AND Akik Marketing India Pvt. Ltd. [2024 (1) TMI 608 - ITAT DELHI] inclined to allow assessee appeal.
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2025 (1) TMI 373
Validity of reopening of assessment - AO issuing the notice u/s 143(2) who did not have the jurisdiction over the case of appellant - improper service of notice - HELD THAT:- Admitted case of the assessing officer is that only one statutory notice u/s 143(2) was issued on 18.09.2013. There is no mention in the assessment order that the service was by postal mode or by substituted service. The narration of facts in assessment order only indicate that after the centralization notice was issued on 18.09.2013. Admittedly, the case was centralized by order dated 26.11.2013 from ITO, Ward 9(3), Kolkata to DCIT, Central Circle-14, New Delhi. Furthermore, if the copy of this letter dated 26.11.2013 is examined which is also made available on record with the report of the Department, this order was passed on 26.11.2013 and the endorsement was forwarded to the concerned authorities for giving effect to the order was signed on 03.12.2013. It can be observed that at Sl.No.4 a direction is issued to ITO, Ward 9(3), Kolkata with a request to intimate the concerned assessee and send compliance report to the CIT(A), Kolkata-III, Kolkata, after physical transfer of records are completed. This even makes it questionable as to how even without the communication of the letter dated 26.11.2013, the ITO, Ward 9(3), Kolkata may have forwarded the record with the Central Circle-14, New Delhi for issuance of statutory notice u/s 143(2) on 18.09.2013.
Coming to the alleged fact of service of a notice dated 19.08.2013 by JAO by affixation, the affixation report dated 09.09.2013 is first of all silent with regard to the fact that the notice were actually ‘affixed’ as no expression in that context is used.
Now the said officer has merely mentioned ‘Therefore, I served the notice’. The report is silent of the exact places where the notice was allegedly affixed. There is no independent witness. There is no order sheet supporting the conclusion of the AO of any denial on the part of the assessee to receive the notices or that the assessee was in any way avoiding the personal service so as to order for service by affixation.
In fact without specific direction to the serving inspector to serve by way of affixation there was no right with serving inspector to serve by affixation, without endorsing in report as what compelled to serve by substituted service instead of personal service.
Whatever shortcoming the ld. Counsel has pointed out in context to allegation of non-compliance of rules for substituted service stand un-rebutted and only establish there was invalid mode and manner of service. In fact if this notice was part of the record when transferred to CC-14 New Delhi, in pursuance of transfer of further proceedings by virtue of section 127 of the Act, then at time of passing the assessment order it should have been made part of the assessment order to show as to how the jurisdiction was assumed at Delhi on the basis of notice u/s 143(3) of the Act served by JAO at Kollata.
As jurisdictional AO has not issued the notice u/s 143(2) of the Act, in the prescribed time and mode. Consequentially all the assessment proceedings are vitiated and make the impugned assessment order a nullity. Decided in favour of assessee.
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