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2024 (11) TMI 1318
Demand u/s. 206C(1C) and (6) & (7) - assessee was to be held as being default for not collecting tax at source (TCS) a/w. interest on illegal mining, illegal storage and illegal transportation u/s. 206C(1C) and (6) & (7) and for its failure to deduct tax at source in respect of contribution towards District Mining Fund (DMF) - HELD THAT:- Issues involved here had been deliberated at length in the cases of District Mining Officer, Bemetara Vs. DCIT (TDS), Raipur (C.G) & ORs. [2023 (8) TMI 31 - ITAT RAIPUR], therefore, no infirmity did emerge from the order of the CIT(Appeals) who had rightly followed the same and dismissed the appeal of assessee.
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2024 (11) TMI 1317
Addition u/s 14A r.w.r. 8D - assessee contended that the assessee has not earned any exempt income and has also not incurred any expenditure as there was no such exempt income for the year under consideration - HELD THAT:- As observed that the assessee has not earned any exempt income during the impugned year and it is now a settled preposition of law that disallowance u/s. 14A cannot be made when the assessee has not earned any exempt income during the year under consideration.
It is also pertinent to point out that the amendment brought about in Section 14A introduced vide Finance Act, 2022 w.e.f. 01.04.2022 is prospective in nature which provides that disallowance u/s. 14A is to be made even when the assessee has not earned any exempt income and the same has been reiterated by the decision of Era Infrastructure (India) Ltd. [2022 (7) TMI 1093 - DELHI HIGH COURT] which has been followed in various other subsequent decisions. Appeal filed by the assessee is allowed.
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2024 (11) TMI 1316
Income deemed to accrue or arise in India - income received and accrued in Indonesia for rendering service outside India - assessee, an employee of an Indian company sent on a short-term assignment to Indonesia - number of days of stay in India [61 days] - CIT(A) contending that the foreign income during service rendered outside India qualifies for exemption u/s 5(2) of the Act and Article 15(1) of the India Indonesia DTAA - HELD THAT:- Assessee was present in India for only 61 days during the financial year 2015-16 which qualifies as a non-resident u/s 5(2) of the Act and only income received or deemed to have accrued or arisen in India, is taxable for a non-resident.
We undisputedly note that the assessee is a non-resident employee in IBM India Pvt. Ltd. (an Indian Company) and was sent to abroad to Indonesia for rendering services there. We find no dispute that the services were rendered in Indonesia and the foreign assignment allowances received by the assessee for services rendered in Indonesia and no evidence suggests that income accrued or arose in India.
We note that the assessee failed to produce the TRC before the AO which is a procedural lapse and does not negate the substantive compliance.
After considering the facts and circumstances of the case and following the decision in the case of DCIT vs. Sudipta Maity [2018 (8) TMI 730 - ITAT KOLKATA] we find it necessary to delete the addition made by the Assessing Officer based on the fact that the income related to services rendered received outside India is not taxable in India. The Assessing Officer is also directed to allow the refund as claimed by the assessee.
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2024 (11) TMI 1315
Disallowance of interest paid - AO observed on the basis of evidences filed by the assessee that assessee had paid interest on borrowed money whereas he has not charged any interest on the loan given to various parties - CIT(A) deleted addition - HELD THAT:- As observed by us from the order of the Ld. CIT(A) that assessee’s own interest free funds comprising of share capital, reserves and surplus and interest free loans were far more than the interest free loans then the presumption is that interest free loans were advanced out of interest free own funds available with the assessee and consequently no disallowance could be made with respect to interest paid which are relatable to interest free loans. The case of the assessee is squarely covered by the decision of Reliance Utilities & Power Ltd. [2009 (1) TMI 4 - BOMBAY HIGH COURT] and CIT Vs. HDFC Bank Ltd. [2014 (8) TMI 119 - BOMBAY HIGH COURT] No infirmity in the order of the Ld. CIT(A) and accordingly, the same is affirmed by dismissing the appeal of the revenue.
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2024 (11) TMI 1314
Addition u/s 69C - bogus purchases - HELD THAT:- The transactions were relating to sales to SINPL and therefore, the same could not be added u/s 69C of the Act as has been erroneously done by the Ld. AO and also confirmed by the Ld. CIT(A). The provisions of Section 69C of the Act relate to unexplained expenditure which are not recorded in the books of accounts.
AO was incorrect in law in applying the provisions of Section 69C on the transactions shown as sales to SINPL. The result of search itself indicated that SINPL had made payments against the purchase of machinery and parts from various entities which were bogus and were involved in providing bogus accommodation entry in the form of bogus sales. Since the purchases were made by SINPL, the disallowance, if any, should have been made in the case of SINPL.
There is merit in the argument of the assessee and which is also borne out from the facts of the case that since the assessee was providing accommodation entries, only the profit element on the sale could have been added.
AR was fair enough to admit that a higher amount of 5% may be treated as commission on the transactions of Rs. 34,59,840/-. Accordingly, the Ld. AO is directed to apply the profit rate of 5% on the sales shown which are admitted to be accommodation entries, which works out to Rs. 1,72,992/- and is rounded off to Rs. 1,73,000/- on the transactions of Rs. 34,59,840/- and accordingly, add the same to the income of the assessee disclosed in the return of income in place added u/s 69C.
Commission rate of 5% is applied in place of 1% on the bogus accommodation sales bill entries instead of 1% mentioned in the ground of appeal.
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2024 (11) TMI 1313
Disallowance on account of excess production and broadcasting fee - payment under the head ‘Production and Broadcast Fees’ has not been made or that it was not genuine and also the fact that ‘Production and Broadcasting Fees’ was allowed @18.5% for AY 2012-13 deleted the disallowance - HELD THAT:- AO has not made any adverse comment on the merits of the allowability of the expenses towards ‘Production and Broadcasting Fees’ @15.70% and has only objected to the filing of the agreement in this regard effective from 01.04.2013 before the Ld. CIT(A) and not during the assessment proceedings despite opportunities given.
There is no ground to interfere with the finding of the CIT(A) in deleting the disallowance. Further, as per the submissions of the AR about the short time made available to the assessee company for submitting the agreement effective from 01.04.2013, which has not been contested by the AO, it is held that there is no violation of Rule-46A in this case in admitting the agreement effective from 01.04.2013 by the Ld. CIT(A). Ground no.1 and 2 of the appeal is dismissed.
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2024 (11) TMI 1312
Addition u/s 36(1)(iii) - assessee had advanced interest-free loans while incurring significant interest expenses on unsecured borrowings - AO held that the assessee failed to establish a nexus of these advances with interest-free funds and did not demonstrate any business purpose - HELD THAT:- We find that the assessee had sufficient interest-free funds which were more than adequate to cover the interest-free advances - CIT(A) did not address the assessee’s submission that no disallowance was made in earlier years despite similar advances.
The principle of consistency was disregarded. CIT(A)’s emphasis on the absence of a fund flow statement is unjustified, as the assessee’s financial statements clearly indicated the sufficiency of interest-free funds. CIT(A)’s reliance on S.A. Builders [2006 (12) TMI 82 - SUPREME COURT] is misplaced.
While that case emphasizes the requirement of commercial expediency, the principles laid down in CIT v. Reliance Industries Ltd. [2019 (1) TMI 757 - SUPREME COURT] a subsequent Hon’ble Supreme Court’s decision, clarify that where sufficient interest-free funds are available, the presumption arises that such advances are made from those funds. Following the principle established in CIT v. Reliance Industries Ltd. (supra), it is presumed that such advances are made from interest-free funds. The Revenue has failed to establish a direct nexus between borrowed funds and these advances. Therefore, the disallowance of interest expenses u/s 36(1)(iii) cannot be sustained.
Disallowance on account of sundry balances written off, citing non-compliance with Section 36(2) - The write-off pertains to non-recoverable advances given to employees, which are incidental to the assessee’s business operations. Such advances, though not strictly satisfying Section 36(2) qualify as deductible business expenses u/s 37. Considering the nominal amount involved, disallowance on this account is unwarranted. Appeal of the assessee is allowed.
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2024 (11) TMI 1311
Addition u/s 68 - assessee has deposited huge cash in the bank account during the demonetization period - HELD THAT:- It is clear that the assessee is unable to adduce any records to substantiate the source of cash deposit. Considering the conduct of the assessee, AO estimated business income of 8% against normal deposits which was reduced to 5% by Ld. CIT(A). This estimation, in our considered opinion, is quite reasonable and the same, therefore, would not require any interference on our part.
Artificial distinction created in deposits made during demonetization period is not correct. The transactions have happened throughout the year and the nature of transaction is similar. Therefore, similar estimation could be made against demonetization deposit - AO is directed to adopt similar estimation of 5% against these deposits.
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2024 (11) TMI 1310
Penalty u/s 271E as barred by limitation - HELD THAT:- It is well settled law that the period of limitation for initiating the penalty starts from the date of issuance of notice by the AO and not from the issuance of penalty notice by the JCIT/Addl.CIT. In the present case, the penalty notice has been issued by the AO on 31/12/2010 along with the passing of the assessment order and subsequent issue of another notice by Addl. CIT was on 30/06/2011. It would not mean that initial notice issued by the A.O. would seized to be valid or operative.
Thus, the imposition of penalty u/s 271E to be done before 30/06/2011 and not 31/12/2011. CIT(A) by following the judicial precedents of the Hon'ble High Courts and the Apex Court and also following the CBDT Circular 9 dated 26/04/2016, deleted the penalty which requires no interference by the Tribunal. Finding no merit in the Grounds of Appeal of the Revenue, we dismiss the same.
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2024 (11) TMI 1309
Penalty u/s 271(1)(c) - Defective notice u/s 274 - No specific limb as to whether it is an instance of concealment or that of furnishing of inaccurate particulars thereof - HELD THAT:- This being the clinching fact emerging from the case file, the hon’ble jurisdictional high court in PCIT & Ors. V. M/s Sahara India Life Insurance Co. Ltd. [2019 (8) TMI 409 - DELHI HIGH COURT] has already settled the issue in taxpayer’s favour and against the department that such failure indeed vitiates the entire penalty proceedings. Accordingly, accept the assessee’s sole substantive grievance in very terms. Assessee appeal allowed.
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2024 (11) TMI 1308
Differential value and service tax - activity of renting shops fall under the taxable category of “Renting of Immovable Property”- Appellant has received the rent in excess of the rent booked in the books of accounts on the basis of four tenants' statements out of total tenants - As argued Revenue has calculated the service tax demand on hypothetical basis on the basis of assumption only on the basis of shop owners' statements regarding the payment to agent in cash, however no cash receipts has been found by the department from the tenants
HELD THAT:- Burden of proof is on the Revenue and same is required to be discharged effectively. Without corroborative evidence only on the basis of statements of few tenants it cannot be concluded that the appellant has collected the part of rent in cheques and balance is taken in cash. In the present matter tenants nowhere produced any records/piece of paper in support of their statement.
The only oral statements of service recipient cannot be accepted as admissible piece of evidence. No cash receipts has been relied upon by the department, no financial flow back has been relied upon by the department for the alleged collection of rent in cash, no rent agreement has been found by the department for the support of excess rent , no ledger entry in the books of accounts of the appellant found for so called excess collected rent. Moreover, none of the persons on whose statements reliance was placed by the department were cross-examined by the Ld. Adjudicating authority in the present matter. Clearly, the Adjudicating Authority had failed to follow the requirement of Section 9D of the Central Excise Act, 1944 regarding examination in chief of witness, therefore quantification of demand of service tax on the basis of statements of persons is not sustainable.
Before fastening the service tax demand, it was incumbent on the revenue to come up with tangible evidence to prove the suppression of taxable value and quantify the demand on the basis of documentary evidences. We also find that in the present matter appellant also produced the details of rent received from each tenant and shops during the disputed period before revenue and both Adjudicating authority. However, department has calculated the demand of services tax on all the shops for whole periods without verifying the details that whether the said shops has been given on rent during the whole disputed period or not; whether shops has been given on rent or sale basis; what is the actual rent recoverable or received by the appellant; how many months occupant’s have been holding the shops as a tenant. We noticed that in the present matter revenue has not considered the proper facts while calculating the liabilities against the appellant.
We, therefore, reduce the demand of Service tax from Rs. 25,81,955 to Rs. 9,52,944/- together with interest and remaining demand is set aside.
Penalties imposed - We find that the appellant in the present matter not has disputed the liability of services tax i.e. reduced amount as above and has admittedly paid the service tax well before the issuance of show cause notice. In these circumstances, we do not find that there was any mala fide on the part of the appellant. Therefore, benefit of Section 80 should be extended to the appellant and penalties imposed by the Ld. Adjudicating Authority are set aside.
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2024 (11) TMI 1307
Validity of approval granted u/s 153D - authority to approval granted by Ld. JCIT - JCIT had granted 39 approvals - HELD THAT:- Impugned approvals is invalid as approval has to be granted for separately for each assessment year for each assessee and in absence of it approval granted is not in accordance with law.
We have no hesitation in holding that the approval u/s 153D of the Act granted by Learned JCIT in the instant cases were in mechanical manner without due application of mind. Accordingly, the grounds by all the assessees for all the assessment years under consideration are allowed.
Since, the entire search assessment in the hands of all the assesses have been declared as bad in law and illegal the other grounds raised by assessee need not be gone into.
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2024 (11) TMI 1306
Rejection of books of accounts - Estimation of income - addition on account of suppression of closing stock - HELD THAT:- We find that, the AO had observed that, there was suppression of closing stock in FY 2012-13 and consequently the opening stock of subsequent FY 2013-14 was also under-reported by the same amount. It is not in dispute before us that, if the closing stock of the asseessee is enhanced by adding Rs. 1.5 crores in AY 2013-14, then, consequently in the subsequent financial year, there will be a corresponding increase in the opening stock which would reduce the profits for AY 2014-15 to such extent and therefore overall, the net effect would be NIL.
We however find ourselves in agreement with the Ld. CIT(A) that, once the books of accounts have been rejected u/s 145(3) and the profits for the year is being estimated, then the effect of increase in closing stock in AY 2013-14 & increase in opening stock in AY 2014-15 will get subsumed therein and hence no separate addition in this regard is warranted.
As noted that the above findings of the CIT(A) is supported by the decision of Bahubali Neminath Muttin [2017 (1) TMI 820 - KARNATAKA HIGH COURT] wherein it was held that, once the books of accounts have been rejected, then the same cannot be relied upon for arriving at closing stock. The Hon’ble High Court accordingly deleted the addition made on account of suppressed closing stock.
Addition of advances received by the assessee - Assessee was unable to conclusively substantiate that the aggregate sales towards which the impugned sum was received, had indeed formed part of the reported turnover and been offered to tax. Having considered the material placed before us and in light of several accounting anomalies found in the books of accounts maintained in tally software, we are in agreement with the foregoing finding of the CIT(A). At the same time, it is noted that, the CIT(A) held that, the entire sales value cannot be considered as income and instead only the profit element embedded therein ought to be taxed. Having already rejected the books of accounts of the assessee, it is noted that the Ld. CIT(A) directed the AO to increase the reported turnover by the impugned sum and estimate the profit at the rate of 2.21% on such increased turnover.
We find this action of the CIT(A) to be supported by the decision of CIT Vs President Industries [1999 (4) TMI 8 - GUJARAT HIGH COURT] wherein it was held that the amount of receipts/ sales by itself would not represent the income of the assessee.
We find that similar view has been taken in the cases of PCIT Vs. Anupam Organiser [2020 (9) TMI 973 - GUJARAT HIGH COURT] & CIT Vs. Abhishek Corporation [1999 (10) TMI 742 - GUJARAT HIGH COURT] and Hon’ble Bombay High Court in the case of CIT Vs Sumer Builders [2024 (2) TMI 468 - BOMBAY HIGH COURT] In all these decisions, it was held that the entire sale proceeds cannot be brought to tax but only the profit element embedded therein. Following these decisions (supra), we do not see any reason to interfere with the Ld. CIT(A)’s finding directing the AO to assess the profit element of 2.21% on the impugned advances.
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2024 (11) TMI 1305
Gain on sale of property - LTCG or STCG - date of acquisition of the property - Entitlement to exemption us 54EC - HELD THAT:- Original lands were owned by late husband of the assessee, in Kaushambi area of Ghaziabad. It is a fact on record that abovesaid lands were acquired by Ghaziabad Development Authority in the year 1984. It is also fact on record that because of acquisition of abovesaid lands, GDA was to grant equivalent piece of land in Kaushambi. The abovesaid order of 1996 was a subject matter of dispute and finally on 15.03.2002, late husband of the assessee was allotted land at Kaushambi which was 56% equivalent of the total lands acquired by the GDA.
As per the abovesaid allotment letter, late husband of the assessee entitled to the land admeasuring 3474.74 sq. mtrs. In Kaushambi which was acknowledged by GDA gainst the payment of development fee and freehold charges.
As assessee is not in a position to make such payment, accordingly a MOU was entered by the assessee with Meenal Housing Pvt. Ltd. and a consideration was fixed who paid the above charges to GDA directly on behalf of the assessee and also paid to the assessee an amount.
Thus it is clear that assessee being the legal heir of late husband was holding a lien on the land owned by late Ram Prakash Goel and only because of the lien held by the assessee through her late husband, the GDA has allotted the land admeasuring 3475sq.mts. on payment of development fees, lease rent and freehold charges.
The above facts are demonstrated by the assessee by filing the relevant letters and communications with the GDA in the form of paper book. It is clear that the assessee has owned lands which were acquired by the GDA in the year 1984. The GDA has merely acknowledged and finally transferred the title of the property only on 25.04.2014 and handed over the property title to the assessee on 25.11.2014. It does not mean that assessee has acquired the property only on 25.11.2014. It clearly shows that the assessee held the right of lien on the lands not physically but originally claimed with the GDA.
Assessee held the right on the land from the date of original purchase date of the property which was acquired by the GDA in the year 1984. Therefore, the property was transferred by the assessee for development to M/s. Royce Developers Pvt. Ltd. during the current assessment year. Therefore, we hold that the lands transferred by the assessee are a long term assets.
Cost of acquisition and cost of improvement - As the assessee having the rightful right over the property and the assessee was able to get the earmarked amount of lands sanctioned in the name of the assessee only on payment of development fees, lease rent and freehold charges to GDA and since assessee was not in a position to make such payments, Meenal Housing Pvt. Ltd. came into the picture by signing a MOU with the assessee and it is also a fact on record that Meenal Housing Pvt. Ltd. paid the above fees to GDA directly. Therefore, the assessee is eligible to claim indexed cost on cost of purchase as on 30.03.1987 and the payment of development fees etc. to GDA on 07.02.2013.
Payment made to Meenal Housing Pvt. Ltd., the assessee has made compensation to clear the title from all encumbrances and the abovesaid payment is nothing but a charge on the property as a lien. Therefore, the abovesaid payment has to be allowed as cost directly connected to the sale of the above land and stamp duty borne by the assessee of Rs. 9,67,5000/-. Therefore, we direct the AO to allow the claim of the assessee to the extent of above cost of improvement and cost of expenditure directly linked to the sale of the property. Accordingly, grounds raised by the assessee are allowed.
Exemption claimed by the assessee u/s 54EC - Since the issue under consideration is already addressed by ld. CIT (A) by remitting the issue back to the file of AO to verify the relevant bonds and allow the same after verification. Therefore, we do not see any reason to disturb the same. We direct AO accordingly.
Disallowance claim of expenditure on transfer charges as assessee has not made any fresh submission by bringing any material to substantiate its claim.
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2024 (11) TMI 1304
Validly assumed jurisdiction u/s 153C - deficiencies are evident from satisfaction note - Bogus LTCG - HELD THAT:- First of all there was no search conducted in the hands of the assessee. Hence factually incorrect statement was made in the satisfaction note.
The satisfaction note does not make any reference to any seized material found in the hands of Dev Priya Group of cases. On what basis, the investigation team or the Assessing Officer of Dev Priya Group had come to a conclusion that the exempt long term capital gain (LTCG) derived by the assessee on sale of shares of CCL International Ltd is bogus is not brought out. Neither the seized material, if any, to support the said allegation is brought on record by the ld AO nor the findings of the investigation team to prove categorically that the exempt LTCG declared by the assessee is bogus.
Satisfaction note clearly states the intention of the ld AO that he intends only to examine the exempt LTCG of the assessee on sale of shares of CCL International Ltd. Hence there was no conclusion drawn by the ld AO that the assessee’s claim of exemption of LTCG is bogus as such or such conclusion is drawn from any seized material or investigation findings.
It is trite law that no assessment proceedings u/s 153C of the Act could be initiated on a person merely to examine a particular aspect. This examination should be done prior to initiation of proceedings u/s 153C of the Act only then satisfaction could be drawn by the assessee that exempt LTCG shown by the assessee is only out of conversion of his unaccounted income. If this is not done, then the element of satisfaction of the ld AO to initiate proceedings u/s 153C of the Act preceded by formation of his opinion vanishes in thin air.
The entire satisfaction note does not even state that whether the findings of investigation , if any, or the seized documents, if any, on the aspect of exempt LTCG has any bearing on determination of total income of the assessee before us.
We hold that the entire assumption of jurisdiction u/s 153C of the Act in the instant case is void- ab-initio and hence quashed. Assessee appeal allowed.
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2024 (11) TMI 1303
LTCG - interest paid is a cost of acquisition/improvement or not? - Whether the benefit of indexation is to be allowed to the interest cost? - HELD THAT:- Assessee in the earlier years, as claimed in the A.Y. 2013-14 under consideration, has also claimed the similar deduction of the interest expenditure under the head income from house property and as cost of acquisition/improvement, which has been continuously allowed by the revenue Authorities and therefore the rule of consistency is required to be followed.
We are in agreement with the explanation offered by Ld. Sr. Advocate that from the aforesaid observations of the AO and the Ld. Commissioner it shows without saying that the Assessee has not claimed any double deduction and even otherwise in the earlier assessment years the same deduction was claimed and has been allowed.
Are agreeable that even otherwise before considering/calculating the capital gain, we should consider the provisions of section 48 of the Act, wherein the provision has been inserted in clause II vide Finance Act, 2023 and w.e.f. 01.04.2024, whereby it is provided that the cost of acquisition of the asset or the cost of improvement thereto shall not include the deductions claimed on the account of interest under clause (b) of section 24 or under the provisions of chapter VIA. And therefore for the period prior to that provision inserted and made applicable from 01.04.2024, no such restriction can be imposed and/or made applicable.
This particular amendment has been taken care of by the Ld. Commissioner, who by determining that the said amendment not being clarificatory in nature and therefore cannot be applied retrospectively. The Ld. Commissioner at last by considering the explicit provisions of section 24(b) of the Act as existed and applicable as on 31.03.2013, applied the same to the instant case and by following the decisions of the jurisdictional Tribunal favoring the Assessee and the dictum laid down in the case of CIT vs. Vegetable Products Ltd. [1973 (1) TMI 1 - SUPREME COURT] wherein it was held “that if two reasonable constructions of a taxing provision are possible, then the construction which favors the taxpayers must be adopted” ultimately allowed the claim of the Assessee.
Admittedly, prior to insertion of provision vide Finance Act, 2023 and made applicable from 01.04.2024, there was no such provision/restriction for excluding the deduction claimed on account of interest paid, under clause (b) of section 24 or under the provisions of chapter VIA of the Act.
Hon’ble Delhi High Court has also considered the judgment passed in Fort Gloster Industries Ltd. [1969 (6) TMI 16 - CALCUTTA HIGH COURT] and ultimately held that the interest amount towards the actual cost of the land, was rightly added by the Tribunal.
Interest paid on the borrowed funds for the purchase of property for the period prior to the provision inserted vide Finance Act, 2023 which was made applicable from 01.04.2024, over and above claimed u/s 24(b) of the Act, would be deductable while computing the capital gains. Decided in favour of assessee.
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2024 (11) TMI 1302
Assessment u/s 153C - disallowance made u/s 37 - AO observed no supporting evidence in respect of expenses claimed has been furnished by the assessee and the assessee did not cooperate during the search and post search enquiries - HELD THAT:- As other than expenses towards the ‘Accommodation Charges under the head ‘Administrative Expenses’, ‘Business Promotion Expenses and ‘Tour & Travel Expenses under the head ‘Selling and Distribution Expenses’, the other expenses are of routine nature and are acceptable.
Shri Jatinder Pal Singh has offered an amount as salary income received from the assessee company. Further, the assessee company had disallowed depreciation debited in the P & L Account and therefore the disallowance of the same by the AO is not justified. Similarly, the assessee company had disallowed interest on late deposit of TDS debited in the P & L Account and therefore the disallowance of the same by the AO is not justified. Therefore, the claim of expenses partly is acceptable and to that extent the decision of the ld. CIT(A) is acceptable.
However, no evidence other than the ledger account of accommodation charges, business promotion expenses and tour and travel have been filed. Further, there are no details available in respect of the balance amount of salary. Apart from the ledger account, etc. other supporting evidences of these expenses are not available. This being the old matter and purpose will not be served in sending back to the AO and hence, we can estimate a reasonable disallowance. For computing the reasonable disallowance, we have to consider that the assessee itself has offered disallowance of Rs. 9 lakhs and considering the same, out of total expenses of Rs. 42,42,974/-, we restrict the disallowance of Rs. 15 lakhs.
Challenging the proceedings u/s 153C of the Act is dismissed in view of the decision of Nau Nidh Overseas Pvt. Ltd [2017 (3) TMI 108 - DELHI HIGH COURT] wherein on similar facts, the Hon’ble Court upheld the proceedings u/s 153C of the Act.
Appeal of the Revenue is partly allowed.
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2024 (11) TMI 1301
Disallowance of depreciation claimed on goodwill - AO held that the assessee has failed to substantiate the nature and elements of “goodwill” that it has acquired from the amalgamating company upon amalgamation - primary contention of the assessee is that the goodwill recognised by the assessee in the process of amalgamation of the amalgamating company with the assessee company falls within the ambit of the expression “business or commercial rights of similar nature” under section 32(1)(ii)
HELD THAT:- There is no dispute regarding the fact that the amalgamation was accounted by the assessee in its books as per the “Purchase Method” as prescribed by Accounting Standard-14. We find that due disclosure in this regard was also made by the assessee in its audited financial statements for the year under consideration.
W find that in the facts of Smifs Securities Ltd. [2012 (8) TMI 713 - SUPREME COURT] the excess consideration paid by the taxpayer over the value of net assets acquired of the amalgamating company was considered as goodwill arising on account of amalgamation. It is further evident that the AO in the aforesaid decision concluded that no amount was actually paid on account of goodwill. However, in further appeal, the learned CIT(A) concluded that the difference between the cost of an asset and the amount paid constituted goodwill and the taxpayer in the process of amalgamation has acquired a capital right in the form of goodwill because of which the market worth of the taxpayer stood increased.
It is evident from the perusal of the aforesaid decision that the aforesaid finding of the learned CIT(A) was upheld by the Tribunal and in further appeal, the Revenue restricted its challenge only qua the question as to whether the goodwill is an asset under section 32 of the Act and whether depreciation on “goodwill” is allowable under the said section. Therefore, it is evident from the record that the method of calculation of goodwill on which depreciation was claimed in Smifs Securities Ltd. (supra), i.e. the difference between the value of net assets acquired and consideration paid, is similar to the instant case. Thus, at the outset, we are of the considered view that the Revenue having once accepted the computation of goodwill in one case and not challenged its correctness, it will not be opened to the Revenue to challenge its correctness in the case of the other assessee without just cause. In support of the aforesaid conclusion, gainful reference can be made to the decision of the Hon’ble Supreme Court in Berger Paints India Ltd. [2004 (2) TMI 4 - SUPREME COURT]
Submission of the Revenue that the amount is merely the difference between the purchase consideration and the net assets acquired of the amalgamating company and the goodwill was nothing but a balancing factor while merging the accounts of the amalgamating company into the accounts of the assessee - As following the “Purchase Method” of accounting for amalgamation as per Accounting Standard-14, the assessee sought a valuation report dated 04/07/2016 to estimate the fair value of identified intangible assets, i.e. Dealer Network and Customer Relationships (“Identified Intangible Assets”) and major tangible fixed assets i.e. land, buildings and plant and machinery (“Specified Tangible Fixed Assets”) as per the Indian Accounting Standards for the purpose of purchase price allocation exercise as at 31/03/2015, i.e. the valuation date. As noted in the foregoing paragraphs, Accounting Standard-14 further requires that any excess of the amount of the consideration over the value of net assets of the amalgamating company acquired by the amalgamated company should be recognised in the amalgamated company’s financial statements as goodwill on amalgamation. Therefore, even though there is no intangible asset under the head “goodwill” in the books of the amalgamating company on the date of acquisition by the assessee and the goodwill was not already recorded in the books of the amalgamating company which was valued by the independent merchant banker, it is pertinent to note that the value of the goodwill arose in light of the principles of Accounting Standard-14 followed by the assessee to account for the amalgamation in its accounts.
Once goodwill has been recognised by the assessee in its financial statement, pursuant to the amalgamation, we are of the considered view that it is entitled to claim depreciation on the same under section 32(1)(ii) of the Act in light of the decision of the Hon’ble Supreme Court in Smifs Securities Ltd. (supra).
Anticipated advantages/benefits/profitability to its business which is attributable to the goodwill - We find that the Hon’ble Karnataka High Court in Padmini Products (P.) Ltd. [2020 (10) TMI 424 - KARNATAKA HIGH COURT] held that fifth proviso (now sixth proviso) to section 32(1)(ii) of the Act restricts aggregate deduction by the predecessor and successor and if in a particular year there is no aggregate deduction, the provisions of the proviso shall not be applicable. It was further held that until and unless it is the case of aggregate deduction, the proviso has no role to play. Thus, adverting to the facts of the instant case, since the amalgamating company did not have any goodwill recorded in its books of accounts or as part of a block of depreciable assets, prior to amalgamation, therefore the question of claim of depreciation on goodwill by the amalgamating company does not arise in the instant case. Accordingly, we are of the considered view that the provisions of the sixth proviso to section 32(1) of the Act are not applicable to the facts of the present case since the goodwill did not exist in the books of the amalgamating company but has arisen in the process of amalgamation.
Reliance upon the provisions of Explanation 7 to section 43(1) - As relying on Urmin Marketing (P.) Ltd. [2020 (11) TMI 47 - ITAT AHMEDABAD] we are of the considered view that provisions of the sixth proviso to section 32(1), Explanation 7 to section 43(1) and Explanation 2(b) to section 43(6) of the Act have no applicability to the facts of the present case.
Applicability of provisions of section 49(1)(iii)(e) and section 55(2)(a)(ii) - As it is pertinent to note that these provisions form part of the Chapter dealing with “Capital Gains” and section 47 of the Act specifically excludes transfer of capital assets, pursuant to a scheme of amalgamation, from the purview of section 45 of the Act. Therefore, we are of the view that these provisions have no relevance to the facts of the present case.
Thus the assessee is entitled to claim depreciation on goodwill arising on account of amalgamation under section 32 of the Act. Accordingly, the AO is directed to allow the claim of the assessee. As a result, the impugned order on this issue is set aside and ground no.1 raised in assessee’s appeal is allowed.
Disallowance of depreciation on the distribution network and customer relations - HELD THAT:- Accounting Standard-14 provides that the identifiable assets and liabilities may include assets and liabilities not recorded in the financial statement of the transferor company. Thus, similar to our findings rendered in respect of the claim of depreciation on goodwill, we find no merits in the findings of the lower authorities that no separate asset under the head of assets by the name of “customer relationship” or “distribution network” was existing in the books of the amalgamating company. Further, we also do not find any merits in the findings of the learned CIT(A) that the aforementioned two intangible assets are actually the balancing figures while merging the accounts of the amalgamating company, as the fair value of these assets was specifically computed by the independent valuer vide valuation report dated 04/07/2016.
We find merit in the claim of the assessee and accordingly we direct the AO to grant the depreciation on “customer relationship” and “distribution network” arising on account of amalgamation under section 32 of the Act. As a result, grounds no.2 and 3 raised in assessee’s appeal are allowed.
Claim of refund of excess tax paid on dividend distributed by the assessee to its non-resident shareholder - We find that this issue is covered in favour of the Revenue by the decision of Total Oil India Private Ltd, [2023 (4) TMI 988 - ITAT MUMBAI (SB)]. Accordingly, respectfully following the aforesaid decision of the Special Bench of the Tribunal, ground no.9 is dismissed.
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2024 (11) TMI 1300
Addition u/s 68 - appellant has proved the identity, creditworthiness of the creditor and genuineness of the transaction - onus to prove - CIT(A) deleted addition - HELD THAT:- The primary onus has been duly discharged by filing relevant confirmation, ITR, Bank statements etc which all have been glossed over and ignored by the AO.In such circumstances, the assessee could do nothing any further and as such had discharged the burden. It has been rightly pointed out that although the AO issued notice u/s 133(6) of the Act and obtained all relevant documents from SDPL, he without making any further enquiry or investigation summarily treated it as paper company.
Once the assessee has proved the identity of his creditors the genuineness of the transactions which he had with his creditors, and the creditworthiness of his creditors vis-a-vis the transactions which he had with the creditors, his burden stands discharged and the burden then shifts to the revenue to show that the amount in ques-tion, actually belonged to, or was owned by the assessee himself.
A delicate balance must be maintained while walking the tightrope of section 68.The burden of proof cannot be discharged to the hilt by the assessee. If the Assessing Officer harbors any doubt about the legitimacy of the loan, he is empowered to carry out investigations thoroughly. But if he is unable to unearth any discrepancy, he cannot obdurately adhere to his suspicion and treat the loan as unexplained. Thus, we hold that the AO was not justified in invoking provisions of section 68 - Decided in favour of assessee.
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2024 (11) TMI 1299
Reopening of assessment u/s 147 - Addition u/s 68 - unexplained cash credits - objection raised by the assessee (Respondent) under Rule 27 of the Income Tax Appellate Tribunal Rules 1963 - HELD THAT:- In the Forms for recording the reasons for initiating proceedings u/s 147 of the Act at Column No.6 it is required to specify the quantum of income escaped assessment. However, without specifying the amount of income escaped, the assessing officer has only mentioned more than Rs. 1 lakh. Therefore, it is evident that the AO has not complied with the mandatory requirement of quantifying the escaped assessment and merely stated that income escaping assessment was more than Rs. 1 lakh.
Similarly, in the other column i.e. 9 in the Form For recording the Reasons the AO considered that assessment in the case of the assessee to be made for the first time as no prescribed information specified by the AO against the required particulars. It is also evident that noticed u/s 148 was issued in the case of the assessee on 03.03.2017 pertaining to the A.Y. 2011-12 after the expiry of four years from the end of relevant assessment year. As per section 147 no action can be initiated under section 147 of the Act after the expiry of 4 years from the end of the relevant assessment year unless the income chargeable to tax has escaped assessment for the reason of failure on the part of the tax payer to disclose fully all material facts necessary for assessment.
Nowhere the AO has brought on record in the reasons recorded the fault of the assessee in not disclosing the true and full facts of the case. During the original assessment order passed u/s 143(3) AO has also made verification on the issue of exemption claimed by the assessee in respect of long term capital gain.
We consider that in the case of the assessee the assessing officer has failed to establish that there was any failure on the part of the assessee to disclose fully and truly any material fact in the case before reopening of the completed assessment after the 4 years from the end of the relevant assessment year.
We have also gone through the decision in the case of Tanhee Heights [2023 (2) TMI 596 - BOMBAY HIGH COURT] wherein held that for reopening of the assessment beyond 4 years from the end of the relevant assessment year, the assessing officer has to additionally satisfied that in a case where assessment u/s 143(3) of the Act had been completed, the assessee had failed to disclose fully and truly of material fact necessary for assessment during the original assessment proceedings.
As perused the decision of ITAT, Mumbai in the case of Ankur Power Projects Pvt. Ltd. [2023 (11) TMI 1313 - ITAT MUMBAI] wherein the reopening of assessment held as bad in law because of various defects in the reasons recorded i.e. the assessment had earlier been completed u/s 143(3) but the AO referred only to the intimation issued u/s 143(1) in the reasons recorded, in the application submitted to JCIT seeking his approval, the AO has stated that assessment was proposed as first assessment etc.
We find that in the case of the assessee, it is evident from the material and information as discussed above in this case that there is no application of mind at the level of assessing officer as in the reasons recorded the assessing officer has stated that assessment is proposed for the first time whereas the case of the assessee was already originally assessed u/s 143(3) of the Act. Further the AO has also not specified the amount of escapement of income in the form for recording the reasons as discussed supra in the order.
Even the case of the assessee was reopened after end of 4 years from the relevant assessment year however as required in the provisions of Act, the assessing officer has failed to specify how the assessee has failed to disclose fully and truly the material facts in the original assessment proceedings.
Thus, reopening of assessment is not valid because of various defects and irregularities evident in the reassessment proceedings initiated in the case of the assessee as demonstrated from the material facts discussed supra in this order. As a result, the objection raised by the assessee (Respondent) under Rule 27 of the Income Tax Appellate Tribunal Rules 1963 is allowed. As a consequence thereto, the appeal of the Revenue is dismissed and issues raised on merit are left open. Decided in favour of assessee.
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