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2022 (6) TMI 1368
TP Adjustment - adjustments towards the difference in the working capital between the assessee and the companies selected as comparables - HELD THAT:- This issue was considered by the Tribunal in the case of Huawei Technologies India P. Ltd. [2018 (10) TMI 1796 - ITAT BANGALORE], thus we remit the issue to the file of AO/TPO to compute the working capital adjustment after necessary examination in the light of the above observation and after allowing an opportunity of hearing to the assessee. This ground is partly allowed for statistical purpose.
Comparable selection - exclusion of M/s. Tata Elxsi Limited from the list of comparables - In the present case, the TPO considered the software development & services segment of Tata Elxsi Ltd. to compare with the assessee company, wherein he found that, that company is functionally comparable to the assessee company and passes through all the filters adopted by the TPO. It was also noted by TPO that revenue streams from this segment is on account of rendition of services and not on account of product sales. As per the information in annual report, in the software development & services segment, this company helps its customer to create new path and experience to drive their growth and also the TPO/DRP rightly commented on the various objections made by the assessee before them. The Ld. A.R. was not able to controvert the above findings before us. In view of this, we do not find any infirmity in including this comparable in the list of comparables. This ground of appeal of the assessee is rejected.
Exclusion of Mind Tree Ltd. from the list of comparables - Admittedly, this comparable is considered as not comparable in the case of Yahoo Software Development India Pvt. Ltd. [2020 (2) TMI 1365 - ITAT BANGALORE].Thus we are inclined to direct the TPO/AO to exclude this company from the list of comparables.
Exclusion of Larsen & Toubro Infotech Ltd. - We have heard the rival submissions and perused the materials available on record. This company as not considered as comparable in the case of Global Logic India Ltd [2020 (6) TMI 712 - ITAT DELHI] because of trading in software and owned significant intangible assets, thus we direct the AO/TPO to exclude this company from the list of comparables.
Exclusion of R.S. Software (India) Ltd. - As rightly pointed out by Ld. A.R., this company is not comparable with the assessee company as held by Tribunal in the case of Yahoo Software Development India Pvt. Ltd. Cited [2020 (2) TMI 1365 - ITAT BANGALORE] wherein the overseas staff and office expenses constitutes significant portion of operating cost of the company i.e. 68.82% which is very exorbitant and hence we are inclined to direct the AO to exclude this company from the list of comparables.
Exclusion of Persistent Systems Ltd - This company is considered as not comparable in the case of Yahoo Software Development India Ltd. cited [2020 (2) TMI 1365 - ITAT BANGALORE] wherein it is held that when the controlled transactions of Persistent Systems Ltd. constitutes at 32% of sales, as such it cannot be comparable to the assessee’s case.
Further, same view has been taken by Tribunal in the case of Goldman Sachs Services Ltd. [2020 (11) TMI 464 - ITAT BANGALORE] In view of the above, we remit this issue to the file of AO to consider the comparability of the company in the light of above observation of the Tribunal. The issue is remitted back to the AO/TPO for fresh consideration.
Exclusion of Nihilent Technologies Ltd. - In view of the high percentage of on site revenue compared to the assessee company, Nihilent Technologies Ltd. cannot be compared to the assessee and cannot be considered as a comparable. However, these facts were not verified or the assessee not raised these arguments before lower authorities. Hence, this issue is remitted back to the file of AO/TPO for fresh consideration to examine this issue afresh.
Aspire Systems (India) (P) Ltd. for exclusion - A.R. placed reliance on the order of Yahoo Software Development India Pvt. Ltd. [2020 (2) TMI 1365 - ITAT BANGALORE] for the proposition that on site revenue is very high to the total sales and to be excluded. However, we find that these facts are not examined by AO/TPO at their end. Hence, it is remitted to the file of AO/TPO for fresh consideration after giving opportunity of hearing to the assessee.
Exclusion of Infosys Ltd.cannot be compared with that of the assessee basically because of its business model, presence of onsite revenue.
Inclusion of I2T2 India Pvt. Ltd. - We direct the AO/TPO to include this company as comparable in the list of comparables.
Direction to AO/TPO to include comparables in the list of comparables while passing giving effect order to the DRP’s direction arbitrarily when the above comparable did not form part of the final list of comparables as per TPO order for SWD segment - Bhilwara Infotechnology Ltd., Nucleus Software Expots Ltd., Cybercom Datamatics Information Solotions Ltd. AND Consilient Technologies Pvt. Ltd. - After hearing both the parties, we direct the AO/TPO to pass the consequent orders in conformity with the direction to the Ld. DRP order. Ordered accordingly.
Excluding Infomile Technologies Ltd.- Admittedly, the assessee raised additional ground on this issue. As such in our opinion, lower authority have no occasion to examine it. Being so, in the interest of justice, we remit this issue to AO/TPO for fresh consideration.
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2022 (6) TMI 1367
TP Adjustment - MAM selection - contradicting observations about the MAM followed by the assessee for determination of ALP - TPO has stated that the assessee has followed TNMM as MAM, whereas again he has noted that assessee has followed internal CUP method for arriving at the ALP - HELD THAT:- The basis on which the TPO has proceeded with the comparability analysis is on the wrong fact that the assessee followed CUP method as the MAM. DRP has also not taken note of this contradicting findings of the TPO in his order and has proceeded to confirm the TP adjustment made by the TPO. The assessee in its TP study has clearly stated that the MAM followed in arriving at the ALP by the assessee is TNMM.
Application of internal TNMM and other external comparables followed by the assessee - As we notice that the coordinate Bench of the Tribunal in assessee’s own case for the AYs 2011-12 & 2012-13 has upheld the internal TNMM used by the assessee for determination of the ALP for international transactions.
Since the TPO in the present year under consideration has proceeded to make the TP adjustment on the mistaken fact that assessee has followed CUP method, we deem it fit and appropriate to remit this issue back to the TPO for fresh analysis considering the actual method followed by the assessee i.e., TNMM as the MAM. The TPO is also directed to consider the principles laid down by the coordinate Bench of the Tribunal in the earlier years in assessee’s own case in terms of considering the internal comparables for TNMM and also the stand taken by the TPO for the AY 2016-17 where the internal comparables has been accepted. Appeal by the assessee is allowed for statistical purposes.
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2022 (6) TMI 1366
Exemption u/s 10(23C)(v) - denial of exemption as funds of the trust were not properly utilized/supervised, assessee failed to furnish Audit report in Form No. 10BB u/s 10(23C)(v) r.w.r. 16CC and assessee trust does no enjoy the registration under the provisions of section 12AA - Whether CIT(A), has erred in granting exemption u/s 11 by accepting Form No. 10 filed during the course of assessment proceedings, even though the Trust is not registered u/s 12A? - HELD THAT:- As gone through the provisions of section 10(23C)(v) which does not prescribe any stipulation, which makes the registration u/s 12AA as a condition precedent for availing the exemption u/s 10(23C)(v) of the Act. In fact, the provisions of section 11 and section 10(23C)(v) are two parallel regimes and operate independently in their respective realms. This position was clarified by CBDT Circular No.14 of 2015 dated 17.08.2015 - it is well-known canon of construction of the Statute, no words can be added to in Act or a new stipulation which is not prescribed in the statute can be read into the Act as held by the Hon’ble Supreme Court in the case of CIT vs. Vadilal Lallubhai [1972 (8) TMI 1 - SUPREME COURT]
As regards to the delay in filing the audit report in the prescribed form, the Courts have taken a consistent view that filing of audit report in the prescribed form before completion of the assessment proceedings would constitute a sufficient compliance under the provisions of the Act as held in the case of Nagpur Hotel Owner’s Association [2000 (12) TMI 99 - SUPREME COURT], also by the Hon’ble Punjab & Haryana High Court in the case of National Horticulture Board [2008 (8) TMI 476 - PUNJAB AND HARYANA HIGH COURT] and in the case of Association of Corporation & Apex Societies of Handlooms [2013 (1) TMI 317 - DELHI HIGH COURT] Even the CBDT Circular No.19 of 2020 w.e.f. 03.11.2020 as amended by the CBDT Circular No.6 of 2021 dated 26.03.2021 had authorized the Commissioner of Income Tax to entertain the application belatedly upto the assessment year 2018-19. No illegality and unreasonableness in the order of the CIT(A) in reversing the findings of the AO denying the exemption u/s 10(23C)(v) - none of reasons assigned by AO while denying the claim of exemption u/s 10(23C)(v) can be sustained in the eyes of law - No merits in the grounds of appeal filed by the Revenue.
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2022 (6) TMI 1365
Penalty proceedings u/s.271B - belated filing of tax audit report as prescribed u/s.44AB - reasonable cause within the meaning of Sec.273B - HELD THAT:- Although the assessee has filed tax audit report beyond the stipulated period, but such tax audit report was made available to the AO before he completes assessment proceedings. The assessee has given reasons for delay in filing tax audit report. As per which, the audit of accounts of society done by the Dept. of Cooperative Audit, could not be completed on or before 31.10.2015 and said delay was not in the hands of the assessee. Therefore, there is a reasonable cause for not filing the tax audit report within prescribed time limit ad thus, penalty cannot be levied.
We find merits in the submission of the assessee for the simple reason that non-filing of audit report within the due date is a venial technical breach without any mala fide intention on the part of the assessee. Because, completion of audit of books of accounts of the society is under the control of Dept. of Cooperative Audit and thus, unless the Dept. of Cooperative Audit completes audit, the assessee cannot file return of income along with tax audit report. Therefore, reasons given by the assessee for not filing tax audit report prescribed u/s.44AB of the Act, is neither intention nor any mala fide intention, but it is venial technical breach and for this reason, penalty u/s.271B of the Act, cannot be levied. Decided in favour of assessee.
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2022 (6) TMI 1364
Seeking refund of IGST wrongly paid on ocean freight - N/N. 8 of 2017 and 10 of 2017 both dated 28.6.2017 read with corrigendum dated 30.6.2017 - HELD THAT:- This court in MOHIT MINERALS PVT LTD VERSUS UNION OF INDIA & 1 OTHER [2020 (1) TMI 974 - GUJARAT HIGH COURT] held the said notifications to be unconstitutional and ultra vires the statute. The decision has been followed in GOKUL AGRO RESOURCES LTD. VERSUS UNION OF INDIA [2020 (2) TMI 1242 - GUJARAT HIGH COURT], BHARAT OMAN REFINERIES LTD. VERSUS UNION OF INDIA & 1 OTHER (S) [2020 (8) TMI 568 - GUJARAT HIGH COURT]. The decision of this Court in Mohit Minerals Pvt. Ltd., came to be confirmed by the Supreme Court in UNION OF INDIA & ANR. VERSUS M/S MOHIT MINERALS PVT. LTD. THROUGH DIRECTOR [2022 (5) TMI 968 - SUPREME COURT].
The above position and law emanating from the decision of this court in Mohit Minerals Pvt. Ltd. could not be disputed by learned advocates for the respective parties. It may also be mentioned that similar issue came up for consideration before the co-ordinate Bench in ADI ENTERPRISES VERSUS UNION OF INDIA [2022 (6) TMI 849 - GUJARAT HIGH COURT], wherein the question was about refund of the IGST paid pursuant to the aforementioned Notifications. The court directed respondents to refund the amount of IGST already paid by the applicants pursuant to Entry No.10 of Notification No. 10 of 2017.
The claim for refund of the petitioner towards IGST is liable to be favourably considered. The competent authority of the respondents shall verify the amount of refund and grant such refund of the amount of IGST paid by the petitioner pursuant to the Entry No.10 of the above notification within eight weeks from the date of receipt of this order along with the statutory rate of interest - the respondent authorities are directed to accept the physical copy of the fresh application from the petitioner and grant refund with interest.
Petition allowed.
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2022 (6) TMI 1363
TP Adjustment - referring the case to the transfer pricing officer to determine the arm’s length margin - AR S international transaction of ‘guarantee’ between assessee and its AE, does not fall under the transfer pricing risk parameter and therefore the reference to the TPO was bad in law - HELD THAT:- The case of assessee satisfies the requirement as stipulated therefore no fault can be found with the Ld.AO in referring the case to the transfer pricing officer to determine the arm’s length margin, as observed by the DRP while adjudicating the issue of the DRP direction.
From the record it is evident that the assessee's case was selected for scrutiny for issues which also involve large international transaction (Form 3 CEB) which fall under the transfer pricing risk parameters. Thus, it is simply clear that the case was selected for scrutiny on transfer pricing risk parameters as well as non transfer pricing risk parameters. By no stretch of imagination, it can be said that the case was selected for scrutiny on non transfer pricing risk parameters only. Once it was evident that assessee's case was selected for scrutiny on the transfer pricing risk parameter, same fell under para 3.2 of circular dated 10-3-2016 which required reference to the TPO by the Assessing Officer mandatorily. There is no exception in this regard.
Disallowance u/s. 40(a)(ia) - Scope of amendment inserted by Finance Act No. 2 to section 40(a)(ia) - HELD THAT:- In the present facts of the case, there is no dispute that assessee did not receive the invoice in respect of the total payment that was payable to its parent company. However, in the computation of income, assessee disallowed 30% of the provision which is in consonance with the amendment inserted by Finance Act No. 2 to section 40(a)(ia) w.e.f. 01.04.2015. We note that various benches of this Tribunal has held that this amendment is curative in nature and disallowance u/s. 40(a)(ia) of the Act is to be restricted to 30% as against 100%. The assessment years under consideration is 2016-17 and therefore the disallowance made by the assessee suo moto is in accordance with the provisions that are applicable at the relevant period of time.
Addition of provision for bad and doubtful debts to the income computed under normal provisions of the Act and the book profits computed u/s. 115JB - HELD THAT:- It is a claim of the assessee that the effect of bad debts written off has been taken into consideration in the books of account whereas revenue contends that assessee did not credit the amount in relation to bad debts in the profit and loss account in any of the years preceding to the year under consideration. We are of the view that the issue needs verification by the Ld.AO of the books of account and the financial statements. The Ld.AO is directed to verify the amount of provision for doubtful debts in the books of account and the book profit as be computed as per explanation 1 to section 115JB of the Act.
Disallowance of interest expenditure claimed u/s. 57(iii) - assessee received external commission borrowing loan from its parent company for setting up a new manufacturing facility - Same was kept in short term fixed deposit against which interest was received - HELD THAT:- Adverting to the facts of the present case, the ECB that was kept as fixed deposit against which interest was earned by assessee was set off against the interest paid by assessee on the ECB loan. Admittedly, it is not the case of the revenue that the ECB loan obtained by the assessee was not for the purpose of business. In fact, the loan was taken by assessee for setting up a new manufacturing facility in Gujarat. Thus the nexus in respect of the interest earned and interest paid stands automatically established with the business of the assessee.
We note that assessee has raised an alternate plea wherein a prayer is made to consider the interest expenditure u/s. 37 of the Act. We are of the considered opinion that as the interest paid by the assessee is directly connected with the business activity, assessee succeeds on this ground. We therefore allow this claim of assessee as an allowable deduction u/s. 37 of the Act.
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2022 (6) TMI 1362
Proceeding initiated or continued till the completion of liquidation proceedings - parallel proceedings under Income-tax Act, 1961 and IBC, 2016 - HELD THAT:- We observe that the liquidation proceedings has commenced as per the order of the Hon’ble NCLT, Mumbai, in assessee’s case thereby appointing Official Liquidator. We are aware that from the time of appointment of Official Liquidator, the assessee company became defunct and the Official Liquidator steps into the shoes of the assessee. In the present case, it is seen that the Official Liquidator has not appeared before us so far to present the case of the assessee. Even during the moratorium period specified under section 14(1)(a) of the IBC Code, the Ld.representative for the AR made no representation on several hearings and the case was adjourned on various hearings.
Therefore, we are of the considered opinion that no suit or other legal proceedings shall be initiated by or against the corporate debtor which is also applicable for pending proceedings and the Proviso to section 33(5) also provides prior approval of the Adjudicating Authority to be obtained by the Official Liquidator.
It is also to be observed that in case of parallel proceedings under Income-tax Act, 1961 and IBC, 2016, the IBC has an overriding effect over the provisions of the Income-tax Act which has been decided by Hon’ble Apex Court in Principal Commissioner of Income-tax Vs Monnet Ispat & Energy Ltd [2018 (8) TMI 1775 - SC ORDER] wherein the Hon’ble Apex Court had observed that as per section 238 of IBC, the IBC Code will override anything inconsistent contained in any other enactment, including the Income-tax Act. We hereby dismiss the cross appeals filed by the Revenue and the Assessee with the liberty to the appellants / Official Liquidator to recall the present order when the occasion warrants.
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2022 (6) TMI 1361
TP Adjustment - calculation of interest on delayed receivables - separate international transaction - TPO has held that the outstanding receivables from the AE is in the nature of loans and calculated the interest on receivables from AE by following CUP method - TPO added 100 basis points towards currency risk and arrived at the applicable rate of LIBOR + 400 points which worked to 4.836% - Whether interest on receivables is separate international transaction and requires benchmarking separately? - credit period considered by the DRP at 30 days - HELD THAT:- As relying on case of Applied Materials India Pvt. Ltd. v. ITO [2022 (6) TMI 1357 - ITAT BANGALORE] interest on receivable is a separate international transaction which has been rightly considered by the TPO/DRP.
Determination of ALP in respect of interest on receivables - We notice that the coordinate Bench of the Tribunal in the case of Barracuda Networks India Pvt. Ltd. [2022 (5) TMI 322 - ITAT BANGALORE] the issue with regard to determination of ALP in respect of the international transaction of giving extended credit period for receivables should be directed to be examined afresh by the AO/TPO on the guidelines laid down in the decision referred to in the earlier paragraph, after affording Assessee opportunity of being heard. As held in the aforesaid decision the prime lending rate should not be considered and this reasoning will apply to adopting short term deposit interest rate offered by State Bank of India (SBI) also. The rate of interest would be on the basis of the currency in which the loan is to be repaid.
Thus we are of the view that the issue has to be restored back to the AO/TPO for determination of ALP afresh with appropriate benchmarking. Assessee has entered into a service agreement with its AE with regard to providing ITeS on 1.10.2009 and later entered into amendment agreement on 26.12.2003 whereby clause 2.3 of the original agreement was amended to increase the credit period to 90 days. This fact has not been taken into consideration by the DRP - Thus direct the TPO to consider the credit period of 90 days while determining the ALP afresh, after providing reasonable opportunity of being heard to the assessee. The assessee is directed to provide the relevant details for fresh benchmarking of the ALP with regard to interest on receivables. With these observations, we set aside the order of the DRP on this issue and remit it back to the AO/TPO for fresh decision.
Appeal by the assessee is partly allowed.
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2022 (6) TMI 1360
Maintainability of petition - Principles of forum conveniens - Territorial Jurisdiction - the parties are all residents of Bangalore and that the principal order of attachment was also passed by an authority situate in that State, whereas the properties which form subject matter of the said writ petitions are all situate in the State of Karnataka - HELD THAT:- The Court notes that in AASMA MOHAMMED FAROOQ AND ANR. VERSUS UNION OF INDIA AND ORS. [2018 (12) TMI 443 - DELHI HIGH COURT]the Division Bench had also noticed the judgment rendered by the Court in VISHNU SECURITY SERVICES VERSUS REGIONAL PROVIDENT FUND COMMISSIONER AND ANR. [2012 (2) TMI 621 - DELHI HIGH COURT]. It was held that the Division Bench clarified in a case where the original authority is in one State and the seat of the appellate authority is located in another State, a writ petition would be maintainable in both the Courts and also that it is the petitioner who has a right to choose his forum, which need to be respected. The Division Bench clarified that normally in such circumstances, writ petition would be maintainable at both the places and only in extreme cases where the Court finds that it is totally inconvenient for a Court to entertain the writ petition and the other High Court may be better equipped to deal with such a case then the doctrine of forum conveniens has to be applied.
This Court is of the opinion that since the Appellate Forum has already been approached and the petitioner stands deprived of his right to pursue the remedy available, it cannot be said that the Court would lack territorial jurisdiction.
List on 04.11.2022.
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2022 (6) TMI 1359
Penalty levied u/s 271(1)(c) - bogus purchases - AO made estimated addition of 12.5% of bogus purchases - HELD THAT:- Undisputedly, the additions made on account of bogus purchases were partially confirmed by the Tribunal. The assessee failed to discharge its onus in proving genuineness of the purchases and dealers. During assessment proceedings, the addition was made on estimation @ 12.5%. In first appeal, the addition was restricted to 3% and on further appeal to the Tribunal by the Revenue, the addition was enhanced to 6%. The entire addition right from assessment stage to the Tribunal was merely on estimations. There is no definite finding on the quantum of concealment of income. It is an accepted legal position that penalty u/s 271(1)(c) of the Act levied on additions made merely on estimations is unsustainable.
As in the case of CIT vs. Krishi Tyre Retreading and Rubber Industries [2014 (2) TMI 21 - RAJASTHAN HIGH COURT] has held that where addition is made purely on estimate basis, no penalty u/s. 271(1)(c) of the Act is leviable. Thus penalty levied u/s. 271(1)(c) of the Act on estimated addition has been held to be unsustainable. - Decided against revenue.
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2022 (6) TMI 1358
Revision u/s 263 - CIT setting aside the 2nd assessment orders - question of limitation - whether principle of merger of original assessment with the reassessment order, does not apply, when the issues settled in the original assessment order remain untouched in the reassessment order? - HELD THAT:- Limitation to invoke jurisdiction under Section 263 of the Act in respect of the issues that stood resolved in the original assessment, ought to be reckoned from the date of original assessment. Tribunal correctly allowed the appeals, holding that the assessments are barred by limitation.
We find that the order of the Tribunal holding that the exercise of power under Section 263 of the Act by the Commissioner of Income Tax is barred by limitation in terms of the judgment of Alagendran Finance Ltd. [2007 (7) TMI 304 - SUPREME COURT] does not warrant any interference.
The substantial question of law relating to limitation is answered against the Revenue. Accordingly, the appeals stand dismissed. Substantial question of law pertaining to deduction of 10% of cumulative advances under section 36(1)(viia) raised herein, is left open for adjudication in appropriate cases.
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2022 (6) TMI 1357
TP adjustments - determination of Net Cost Margin - Determining effective NCP margin for provision of the software development services - TPO was of the view that the sub-contracting charges formed part of the operating cost of the Assessee for provision of SWD services and thus cannot be excluded from either its cost base or operating revenues as it would not give a correct picture of the profit margin earned by it - HELD THAT:- Determination of net cost margin excluding the sub-contract charges is decided against the assessee by the Tribunal in assessee’s own case for the AY 2011-12 [2016 (9) TMI 1458 - ITAT BANGALORE] as held outsourcing cost in software development services activity is part and parcel of cost of providing the service to the AE and cannot be separated from the operating cost and operating revenue of the said segment of services. Accordingly, the cost of software development services cannot be treated in this fashion as claimed by the assessee. Hence we do not find any merit in the contention raised by the assessee on this issue.we see no reason to interfere with the decision of the lower authorities and hence these grounds of the assessee are dismissed.
Comparability analysis adopted by TPO for determination of ALP - HELD THAT:- We direct the AO/TPO to apply 15% RPT filter in respect of all the comparables.
Interest on the average outstanding trade receivables - TPO Rejected the contentions of the Assessee and computed the TP adjustment on the basis of average receivables and considered the interest rate at LIBOR+400 basis points - HELD THAT:- As relying on judgment of AMD (India) Pvt. Ltd [2018 (8) TMI 2094 - KARNATAKA HIGH COURT] we hold that the treatment of interest on deferred receivables is rightly considered as an independent international transaction and benchmarked separately by the revenue authorities.
Calculation of interest - Considering the fact that the average receivable days is 83 and that the TPO in assessment year 2018-19 has allowed 90 days credit for the assessee, we are of the view that it is reasonable to allow 90 days credit for the purpose of calculating interest on receivables. We are also of the opinion that the interest rate to be adopted is LIBOR rate + 2%, taking a consistent view as held in the aforesaid order of the Tribunal, following the judgment of Aurionpro Solutions Ltd [2017 (6) TMI 1087 - BOMBAY HIGH COURT] We direct the AO to recompute the interest on delayed payments accordingly.
Reduction in amount of income-tax depreciation claimed on computer peripherals - HELD THAT:- In the year under consideration, the assessee has produced the list of assets with the details of date of purchase. We notice that the AO while computing the disallowance had not taken into consideration the date of put to use of the asset. We also notice that in assessee’s own case [2020 (5) TMI 407 - ITAT BANGALORE] the coordinate bench of the Tribunal has allowed the rate of depreciation based on the nature of assets. Given this, we remit the issue back to the AO to verify the nature of asset and allow depreciation considering the principle laid down by the coordinate bench of the Tribunal in assessee’s own case (supra) and the date of asset being put to use. This ground is allowed in favour of the assessee for statistical purposes.
Depreciation on leasehold improvements included in the block of 'furniture and fixtures' - Denial of depreciation as assessee had not furnished the invoices & bills supporting the expenditure and that the assessee had not provided evidence for completion of the work - HELD THAT:- We notice that the AO has considered the entire WDV while computing disallowance and not the current year additions to the assets which is not the right way to compute the disallowance. In our considered view, the computation of disallowance should be restricted to the additions made during the year. We therefore set aside the issue and restore it to the AO with a direction for proper verification of additions made to assets in the year under consideration based on the evidences submitted by the assessee for the purpose determination of disallowance in accordance with law. Accordingly this issue is remitted to the AO for fresh decision, after giving opportunity of being heard to the assessee.
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2022 (6) TMI 1356
Arbitration petition - decision of Project Director in respect of levy of compensation at the rate specified therein was final and binding - levy of consequent compensation - claim for Labour Cess @ 1% and DVAT @ 3% of the amount of work done, correct or not.
First contention of the petitioner-DSIIDC is that as per Clause 2 of the Agreement, decision of Project Director in respect of levy of compensation at the rate specified therein was final and binding and, therefore, the question of delay/prolongation and consequent compensation was not arbitrable - HELD THAT:- This aspect has been explained in the decision of VIDYA DROLIA AND OTHERS VERSUS DURGA TRADING CORPORATION [2020 (12) TMI 1227 - SUPREME COURT] decided by the Hon‟ble Supreme Court in December, 2020. It was observed that non-arbitrability is basic to arbitration as it relates to the very jurisdiction of the Arbitral Tribunal. Non-arbitrability has multiple meanings.
In J.G. ENGINEERS PVT LTD VERSUS UNION OF INDIA AND ANR [2011 (4) TMI 1467 - SUPREME COURT] similar clause as under consideration in the present case, was examined and the Hon‟ble Supreme Court concluded that the decision of the specified Authority on the question whether the contractor is responsible for delay is not final and binding, but the decision of the specified Authority on the consequential issue of quantification of compensation is final. It was, thus, held that the question of determination of delay is an arbitrable dispute to be decided by the Arbitral Tribunal.
Arbitration being a matter of contract, the parties are entitled to fix the boundaries so as to confer and limit the jurisdiction and legal authority of the arbitrator. An arbitration agreement can be comprehensive and broad to include any dispute or can be confined to specific disputes. The scope of arbitrator's jurisdiction invariably arises when the disputes that are arbitrable are enumerated or the arbitration agreement provides for exclusions as in case of “excepted matters” which are the matters where the parties expressly exclude certain disputes to be referred to arbitration in respect of which the Arbitral Tribunal may not have jurisdiction to adjudicate such disputes. The will of the parties as to the scope of arbitration is a subjective act personal to the parties.
The argument raised by the DSIIDC that the claim of the petitioner fell in an excepted manner and could not have been adjudicated by Arbitral Tribunal was found to be an after-thought and not supported by the pleadings and it has been rightly upheld by the Arbitral Tribunal's decision to award a sum of ₹1,04,60,700/- to HRD which was recovered by DSIIDC in the Final Bill. The conclusion arrived at by the learned Single Judge that the question of determination of delay was not an excepted matter, is based on the evidence and pleadings and does not suffer from any patent illegality.
Whether the Arbitral Tribunal's decision to allow the M/s H.R. Builders's claim for Labour Cess @ 1% and DVAT @ 3% of the amount of work done is patently illegal? - HELD THAT:- A sum of ₹48,45,700/- which was awarded by the Tribunal as overheads on account of prolongation of works, was also challenged. The reasoning given by the Arbitral Tribunal while allowing this claim, was that HRB was required to be compensated for the prolongation of work on account of overheads incurred by it during the extended period and the sum so awarded and the Arbitral Tribunal moderated the amount as claimed by the HRB and awarded ₹48,45,700/- by applying Hudson formula. Again, it is a finding arrived at on the basis of evidence and is a factual conclusion which was found to be reasonable by the learned Single Judge and cannot be said to be perverse or patently illegal warranting interference by this Court - Similarly, the award of interest and cost had been challenged as being exorbitant but again grant of interest @ 8.5% was held to be reasonable. This again was a determination on facts and thus, cannot be re-agitated in the present proceedings.
The scope of interference under Section 34 and Section 37 of the Act, 1996 is extremely limited to when an award is in conflict with the public policy of India, which includes cases of fraud, breach of fundamental policy of Indian law and breach of public morality or is patently illegal as held by the Apex Court in its decision in MEDERMOTT INTERNATIONAL INC. VERSUS BURN STANDARD CO. LTD. & ORS. [2006 (5) TMI 442 - SUPREME COURT] and M/S. DYNA TECHNOLOGIES PVT. LTD. VERSUS M/S. CROMPTON GREAVES LTD. [2019 (12) TMI 842 - SUPREME COURT] and again reiterated in the recent decision of PROJECT DIRECTOR, NATIONAL HIGHWAYS NO. 45 E AND 220 NATIONAL HIGHWAYS AUTHORITY OF INDIA VERSUS M. HAKEEM & ANR. [2021 (7) TMI 1343 - SUPREME COURT].
The conclusions arrived at by learned Arbitrator in his Award dated 13th April, 2018, including dismissal of the counter claim, were found to be well reasoned and based on the interpretation of various Clauses of the contract and the facts, which could not be termed as perverse or patently illegal and rightly held to be beyond the scope of interference under Section 34 of the Act, 1996 by learned Single Judge in the impugned order dated 11th August, 2021.
Appeal dismissed.
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2022 (6) TMI 1355
Stay on recovery of outstanding demand - proposing the draft assessment order National Faceless Assessment Centre (NFAC) has not followed the mandatory procedure of section 144B - HELD THAT:- The case of the assessee qua the violation of section 144B is, without issuing a show-cause notice and providing the assessee an opportunity of hearing, AO has proposed the draft assessment order. As observed, while disposing of assessee’s objection in this regard, DRP has directed the AO to pass a speaking order on assessee’s allegation of violation of provisions of section 144B - In the final assessment order, AO has remained completely silent on the issue.
As observed, the major addition resulting in the present demand being share capital received from non-resident shareholders treated as unexplained investment u/s 68 - While disposing of assessee’s objection on this issue, learned DRP, while observing that the AO has not considered the evidences filed by the assessee, directed him to consider the evidences and pass a speaking order.
We find, AO, while passing the final assessment order on the issue has simply repeated the observations made in the draft assessment order. The aforesaid facts clearly reveal that while passing the final assessment order the AO has failed to implement the directions of DRP in letter and spirit.
AO, as it appears, has not followed the mandatory provisions of sub-section (10) and (13) of section 144C of the Act. Though, at this stage, we are not required to dwell upon the merits of the disputed issues, however, on appreciation of facts and materials placed before us and keeping in view the relevant statutory provisions and ratio laid down in the judicial precedents cited before us, we are convinced that the assessee has made out a strong prima facie case in its favour.
Considering the prima facie case and balance of convenience, we are inclined to grant stay on recovery of outstanding demand for a period of 180 days from the date of this order or till the disposal of the corresponding appeal, whichever is earlier.
Further, accepting assessee’s prayer for early hearing of appeal, which was not opposed by learned Departmental Representative, we direct the Registry to fix the appeal for hearing on 29.08.2022 on an out of turn basis. Paper-books, if any, must be filed by the parties sufficiently ahead of the date of hearing of appeal. Since, the date of hearing of appeal was announced in open court, in presence of both the parties, there is no need for issuance of separate notice of hearing to the parties. It is made clear, in case, the assessee seeks unnecessary adjournment, the stay granted will be vacated.
We make it clear, the observations made by us in this order are purely in the context of grant of stay on recovery of outstanding demand and will have no bearing on the decision to be taken in deciding the appeal.
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2022 (6) TMI 1354
Inaction on the part of the respondent authorities concerned in completing the investigation - statutory period for completion of investigation - Circular No.131/1/2020-GST dated 23rd January, 2020 - HELD THAT:- Considering the submission of the parties and report submitted by Mr. Banerjee on behalf of the respondents, all the respondents concerned are directed to co-ordinate with each other and complete the investigation in question within six months from date positively and in case of failure to complete the investigation in question within this stipulated time it will be treated as respondent has no case against the petitioner since enough time has already been passed as appears from record and that petitioner has complied with the formalities of submitting the requisition documents on 25th March which is more than a year before.
Learned advocate for the petitioner submits that he is entitled for claim of some refund for which he is free to file appropriate application before the authority concerned. In course of investigation, respondent shall not allow any unnecessary adjournment to the petitioner.
Petition disposed off.
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2022 (6) TMI 1353
Disallowance of write-off - write-off represents amounts due to the assessee by various state transport corporations - assessee submitted that these amount represent price difference / discounts deducted by the Government undertakings which were written off as bad debts since they were not recoverable though they were in the nature of discounts - AO held that the assessee could not produce any details such as copies of invoices to prove the claim relating to the claim of discounts and any correspondence to show that the Government undertaking claimed discounts on the invoices raised by the assessee - HELD THAT:- The undisputed position that emerges is that the assessee has received short-payment against invoices from various transport undertakings. The same is evident from the ledger extract furnished by the assessee. Undisputedly, these undertakings are the customer of the assessee and the shortfall of amount so received by the assessee has been claimed as bad-debts / discounts.
In our considered opinion, to claim the same, it was not necessary for the assessee to map each of the amounts against particular invoices. It was sufficient to show that there was shortfall in receipt of amount against the invoices. This fact has already been established by the assessee. Therefore, the expenditure is clearly allowable as business loss. Assessee appeal allowed.
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2022 (6) TMI 1352
Additional depreciation - Whether Tribunal is justified in deleting the disallowance of claim of additional depreciation during the year by merely relying upon the judgment passed in M/s Brakes India Limited [2017 (4) TMI 511 - MADRAS HIGH COURT] not applicable to the facts of the present case and ignoring the Tax Audit Report in Form 3CD issued by the Tax Auditor certifying the allowable depreciation as per law?
Whether the instant case falls under the exception clause in circular no. 3 of 2018 issued by the CBDT, where Board has directed to file an appeal on merits in cases where audit objection has been accepted by the department?
HELD THAT:- Issue notice on the respondent in the post admission matter, for which requisites under registered cover with A/D and speed post be filed within two weeks. Office to track the speed post-delivery. Additionally, appellant shall also effect service of notice on the official e-mail address of the Respondent containing attachment of the entire Memo of Appeal and its Annexures within the same time and file supplementary affidavit to that effect within one week thereafter.
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2022 (6) TMI 1351
Tax Collection at Source (TCS) - licence for the said business was in the name of Mrs. Pramila P. Rai[ assessee brothers wife] - TCS was made on behalf of the license holder, who is a different person than the assessee - claim was rejected by the AO as well as the CIT(A) for the reaon that as per the procedure for claiming credit for TCS laid down in Rule 37-I of the I. T. Rules read with section 206C(4) credit can be given only for Mrs.Pramila Rai and not the Assessee - claim of the assessee that there was a family settlement and understanding by which the business of M/s. Prashanth Wines was to be carried beneficially by the assessee, though the licence for the said business was in the name of Mrs. Pramila P. Rai - HELD THAT:- The issue requires to be set aside to the AO for examination afresh in the light of the outcome before the Central Excise authorities for transfer of excise licence from Mrs. Pramila P. Rai to the assessee. AO can take necessary safeguards to ensure that the interest of the Revenue is not affected or prejudiced in any manner. We therefore, set aside the issue of grant of credit of TCS to the AO for examination afresh on the lines indicated above. Appeal of the assessee is treated as allowed for statistical purposes.
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2022 (6) TMI 1350
TP Adjustment - Comparable selection - HELD THAT:- Companies whose turnover in the current year is more than Rs.200 crores needs to be excluded for the purpose of comparable companies.
R.S.Software Ltd., should be excluded from the list of comparables.
Rectification of margin of Harbinger Systems Pvt. Ltd. - The weighted average margin of the company was rightly computed by the TPO 14.74%, however in the final list of comparables of the TPO order, the TPO adopted the margin at 15.06%, which is an apparent mistake. We therefore direct the TPO to consider this afresh while recomputing the ALP in the SWD services segment in the light of the directions given in this order.
Disallowance of provision for Bad Debts - HELD THAT:- We notice that the party wise details of the bad debts written off as furnished before the DRP- Further the sum was created as a provision in the financial year relevant to assessment year 2014-15 was offered to tax in the said year which fact is substantiated by the relevant extracts of the financial statements and the statement of computation of income for the assessment year 2014-15 that can be seen - Based on these facts we are of the considered view that that the disallowance which was already disallowed in the computation of income of the assessee should be deleted since otherwise the same would result in double disallowance.
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2022 (6) TMI 1349
Revision u/s 263 - Deduction u/s 80P(2)(a)(i) - assessee had earned an amount as interest income on deposits with Banks - HELD THAT:- As per section 80P(2)(a)(i) reproduced above, the sums referred in sub-section (1) would be in case of a co-operative society engaged in carrying on the business of banking or providing credit facilities to its members, the whole of the amount of profits and gains of business attributable to any one or more of such activities.
As per section 80P(4), the provisions of section 80P would not apply in relation to any co-operative bank other than Primary Agricultural Credit Society or Primary Co-operative Agricultural and Rural Development Bank. As per the explanation, the terms “co-operative bank” and “primary agricultural credit society” shall have the meanings respectively assigned in Part V of the Banking Regulation Act, 1949. We note that by virtue of section 80P(4), the co-operative banks other than those mentioned therein were meant to be excluded for the purpose of deduction u/s 80P. In this context, in the case of M/s. Jafri Momin Vikash Co-operative Society Ltd. [2014 (2) TMI 28 - GUJARAT HIGH COURT] has held that exclusion clause of section 80P(4) will not apply to cases where the assessee is a primary agricultural co-operative credit society.
PCIT while arriving at a conclusion to set aside the impugned assessment order for fresh consideration by the AO has relied on the decision of Totagars Co-operative Societies Ltd. [2010 (2) TMI 3 - SUPREME COURT] to which ld. counsel placed on record that the said decision is not applicable to the facts of the assessee duly supported by the financial details submitted before us which are reproduced above.
The order of the AO may be or may not be wrong. CIT cannot direct reconsideration on this ground but only when the order is erroneous. An order of remit cannot be passed by the CIT to ask the AO to decide whether the order was erroneous. This is not permissible. An order is erroneous, unless the CIT holds and records reason why it is erroneous. CIT must after recording reasons, hold that order is erroneous. The jurisdictional pre-condition stipulated is that CIT must come to the conclusion that the order is erroneous and is unsustainable in law. It was further observed by the Hon’ble High Court that the material, which the CIT can rely up on includes not only the records as it stands at the time when the order in question was passed by the AO but also records as it stands at the time of the examination by the CIT. Nothing prohibits CIT from collecting and relying new/additional material which evidence to show and state that the order of the AO is erroneous.
We find that Ld. PCIT in the present case has not carried out any enquiry of his own and has merely set aside the assessment to the file of the AO to pass a fresh assessment order on the issue of claim of deduction u/s 80P(2)(a)(i) - Therefore, it is contrary to the guidelines as mandated in the case of ITO v. DG Housing Projects Ltd. [2012 (3) TMI 227 - DELHI HIGH COURT] - Therefore, the consideration arrived at by the PCIT invoking provisions of section 263 of the Act on the issue recorded by him is not justified and cannot be sustained under the facts and circumstances of the present case. Appeal of the assessee is allowed.
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