TMI Tax Updates - e-Newsletter
January 29, 2020

Case Laws in this Newsletter:

GST Income Tax Customs CST, VAT & Sales Tax

Articles

• Limited Scrutiny- scope is to be understood in reasonable manner and not to indulge into roving enquiry leading to litigation.
• STRICTURES AGAINST GST OFFICERS
• RECENT DEVELOPMENTS IN GST

News

• All must work collectively for effective multilateral trading system;

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• Government puts in place measures to protect Commercial decision making by Banks

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Notifications

Companies Law

• G.S.R. 46 (E) - dated 24-1-2020 - Co. Law
  Companies (Winding Up) Rules, 2020

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Income Tax

• 06/2020 - dated 27-1-2020 - IT
  Seeks to amend Notification No. 50/2014 dated 22/10/2014

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Circulars / Instructions / Orders

SEBI

• SEBI/HO/MRD/DDAP/CIR/P/2020/16 - dated 28-1-2020
  IPF Trust and Committees at Market Infrastructure Institutions (MIIs)
• SEBI/HO/CDMRD/DRMP/CIR/P/2020/15 - dated 27-1-2020
  Review of Margin Framework for Commodity Derivatives Segment

Customs

• 05/2020 - dated 27-1-2020
  Implementation of automated clearance on pilot basis

Highlights / Catch Notes

GST

• Classification of supply - activity of printing of question papers on behalf of educational institutions - The Applicant cannot be said to be supplying Question Papers as "goods" under the GST Act, but to be supplying the service of printing - Liable to GST @12%
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Income Tax

• Assessment u/s 153A - In the absence of any perusal of the record by the JCIT, it is clear that JCIT granted approval without application of mind and as such necessary conditions of Section 153D of the I.T. Act are not satisfied and as such the approval is invalid and bad in law.
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• Revision u/s 263 - assessee has claimed as exempt LTCG seemed to be bogus - it is too early on the part of the Pr. CIT to direct the AO to redo the assessment so that abuse of provision of section 10(38) is prevented and income is brought to tax in light of recent judgments in penny stock cases.
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• Addition u/s 56(2)(vii) on account of alleged excess share premium - AO on account of alleged excess share premium is unjustified when those very shares are sold in next financial year at much higher amount after proper due diligence, that to a non resident buyer
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• Deferred revenue expenditure - once the assessee himself chose to claim the same in a staggered manner, applying the ‘matching principle’ and when the same has been allowed, there could be no occasion for the assessee to be aggrieved, on this point.
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• Approval u/s 80G(5)(vi) - the company has been formed to carry out the corporate social responsibility of the other company - there is no averment or allegation that the assessee-company does not fulfil the condition as required under section 80G(5) - CIT(E) directed to grant the Approval.
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• Bifurcation done by the assessee under the two heads of income, i. e., "income from house property" and "income from business" is in conformity with law and the same has been done on the basis of comparative market rate as charged by him from the other parties including that of the hon'ble High Court
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• Valuation of shares invoking Rule 11UA - in case the balance sheet was not drawn up on the date of allotment, the previous balance sheet which was approved in the AGM has to be considered for valuation of FMV of the shares.
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• Valuation of shares invoking Rule 11UA and resultant addition made u/sec. 56(2)(vii)(c)(ii) - difference in FMV of the shares and the consideration paid by the assessee - whatever the shares allotted to the assessee was from the interest of his brother who is a close relative - there is no case for making any addition for allotment of shares.
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Customs

• Implementation of automated clearance on pilot basis - Clearance of goods for home consumption - The facility will only be for ICES locations where RMS is enabled and fully functional.
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• Payment of rent and warehouse charges - provisions of Section 63 of the Customs Act, 1962 which stand deleted from the Act, with effect from 14.05.2016 - The petition is dismissed.
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SEBI

• IPF Trust and Committees at Market Infrastructure Institutions (MIIs)
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• Review of Margin Framework for Commodity Derivatives Segment
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Case Laws:

• GST

• 2020 (1) TMI 1044
  Classification of supply - classification of goods or classification of services? - activity of printing of question papers on behalf of educational institutions - benefit of Sr. No. 27 of N/N. 11/2017-C.T. (R), dated 28-6-2017 as amended - benefit of S. No. 66 of N/N. 12/2017-C.T. (R), dated 28-6-2017 - question paper, whether exempt goods or not - Circular No. 11/11/2017-GST, dated 20-10-2017. Whether activity of printing of question papers on behalf of educational institutions can be classified as activity of supply of goods or supply of services? - HELD THAT:- The content of the printed matter is specific to the customer, and, neither is the matter pre-printed, nor has the Applicant any ownership to the content at any point of time, and, therefore, cannot transfer title of the above printed matters. Hence, the Question Papers are not the property of the Applicant - Furthermore, the Question Papers supplied by the Applicant to their customers are not marketable commodities in the open market and as goods they have no legitimate value to persons other than the specific customer who provides the input content. The Applicant, therefore, cannot be said to be supplying Question Papers as goods under the GST Act, but to be supplying the service of printing. If it is supply of services, referring to Sr. No. 27 of Notification No. 11/2017-C.T. (R), dated 28-6-2017 as amended by Notification No. 31/2017-C.T. (R), dated 13-10-2017, then benefit of S. No. 66 of Notification No. 12/2017-C.T. (R), dated 28-6-2017 is allowable as amended by Notification No. 2/2017-C.T. (R), dated 25-1-2018? - HELD THAT:- As defined in clause (y) of Para 2 of the said Notification No. 12/2017-Central Tax (Rate) 'Educational Institutions' means an institute providing services by way of (i) pre-school education and education up to higher secondary school or equivalent; (ii) education as a part of curriculum for obtaining a qualification recognized by any law for time being in force; (iii) education as a part of an approved vocational education course. The benefit (exemption from payment of GST) of Sr. No. 66 of Notification No. 12/2017-Central Tax (Rate) is admissible only in case where service is provided to an educational institution - The services of printing of question paper, supplied by the applicant to other than 'educational institutions' will be covered by Sr. No. 27(i) of Notification No. 11/2017-Central Tax (Rate), as amended, and will attract Goods and Services Tax @ 12%. If it is supply of goods, then question paper should be treated as exempted goods at S. No. 119 of exempted list at NIL rate of tax under chapter heading/ sub-heading of 4901 10 10 of printed books including Braille books ? - HELD THAT:- The applicant raised the issue whether supply of question papers is supply of goods, which is not applicable as we have already clarified that the activity of printing of question papers is supply of services. Hence, there is no need to consider the third question. It should be covered by Schedule I at S. No. 201 liable to tax at 2.5% CGST under brochures, leaflets and similar printed matter, whether or not is single sheets ? - HELD THAT:- The question raised by the applicant is applicable only when third question is affirmative i.e., activity of printing of question papers on behalf of educational institutions is considered as supply of goods, as the answer to the question is negative, hence fourth question is not applicable.

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• 2020 (1) TMI 1043
  Reopening of GST portal for filing of form GST TRAN-1 - transitional credit - transition to GST regime - HELD THAT:- Similar issue decided in the case of JODHPUR TRUCK PVT. LTD. VERSUS UNION OF INDIA, CHAIRMAN, GSTIN, GST, COUNCIL, THE COMMISSIONER, CENTRAL GOODS AND SERVICE TAX COMMISSIONRATE, JODHPUR. [ 2019 (11) TMI 820 - RAJASTHAN HIGH COURT] where the writ petition was disposed of with the direction to the respondents to permit the petitioner to submit offline GST TRAN-1 form, subject to furnishing a proof that he had tried to upload GST TRAN-1 form prior to 27.12.2017 and such attempt failed due to technical fault/glitch on the common portal. The respondents shall permit the petitioner to submit online GST TRAN-1 form, subject to furnishing a proof that he had tried to upload GST TRAN-1 form prior to 27.12.2017 and such attempt failed due to technical fault/glitch on the common portal - petition disposed off.

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• Income Tax

• 2020 (1) TMI 1042
  Carry forward and set-off unabsorbed depreciation - claim of carry forward and set-off unabsorbed depreciation of assessment year 1995-96 to 1999-2000 against the profits of assessment year 2008-09 - HELD THAT:- The issues raised in the present appeal are no longer res-integra as those are squarely covered by decision of this Court in the case of General Motors India (P) Ltd. v. DCIT [ 2012 (8) TMI 714 - GUJARAT HIGH COURT]

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• 2020 (1) TMI 1041
  Revision u/s 263 - entitlement to deduction u/s 80P(2)(a) and (d) - HELD THAT:- It has not been shown to us that the respondent has in any manner breached Section 80P(2)(a) and (d) of the Act. Whether Tribunal is right to allow the relief to the assessee by holding that the assessee being Co-operative Credit Society is not a Co-operative Bank hence entitled for deduction u/s 80P(4) ? - Tribunal dismissed the Revenue s appeal before it by relying upon the decision of its co-ordinate bench in the case of Kulswami Co-operative Society [2014 (4) TMI 355 - ITAT MUMBAI] . For the reasons indicated in our order [ 2017 (3) TMI 1799 - BOMBAY HIGH COURT] question as proposed does not give rise to any substantial question of law. - thus since on merits the issue is held in favour of the Respondent Assessee, the question of improper exercise of Commissioner in Revision under Section 263 of the Act is rendered academic.

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• 2020 (1) TMI 1040
  Benefit u/s 36(1)(iii) denied - expenditure on borrowals - HELD THAT:- From perusal of Section 36(1)(iii) of the Act, it is evident that 3 conditions have to be complied with namely, money must have been borrowed by the assessee, it must have been borrowed for the purpose of business and the assessee must have paid the interest on the aforesaid amount and claimed it as deduction. In the instant case, the Assessing Authority, by an order dated 31.03.2000 has held that the assessee mainly supplies its finished products to its sister concern which is engaged in the manufacturing of plywood, boards, etc. and exports to foreign countries as well as enjoys the benefit of deduction under Section 80HHC of the Act. On perusal of the books of accounts, it has been held that against the supply of finished products, the assessee firm does not directly collect the sale proceeds from the sister concern. Instead of using the sale bill pertaining to sister concern, the assessee has availed of the letter of credit discounting with the banks and has availed of the loan and has paid interest on the bank credit. Commissioner of Income Tax (Appeals) has upheld the aforesaid finding and has held that the assessee has tried to give the whole arrangement a colour of business expediency falling within the purpose and nexus to business. But on a close scrutiny, it is evident that it is nothing but shouldering the interest burden on itself, thereby diverting the benefit in favour of the sister concern. It has further been held that where the borrowing is illusory or colourable, the interest paid on such borrowings is not allowable. No prudent businessman pays interest on the payment to his creditors and at the same time does not charge corresponding interest on the delayed payment from its debtor. It has further been held that the aforesaid arrangement has been made with an object to circumvent the provisions of the Act to facilitate its sister concern to rest on the shoulders of the appellant. It has also been held that the appellant has deliberately created an artificial and colourable devise for reducing its income offered for taxation through an arrangement of letter of credit and thus, the deduction claimed by the assessee on account of interest paid to the bank and also to its creditors are not allowable. The aforesaid findings of fact have been recorded by the Assessing Authority, the Commissioner of Income Tax (Appeals) as well as the Income Tax Appellate Tribunal. The Tribunal has assigned cogent reasons for not treating the borrowings as business expenditure incurred during the course of business which is evident from paragraph 6.2 of the order passed by the Tribunal. Therefore, the first substantial question of law does not arise for consideration in this appeal. All the authorities have assigned cogent reasons which has been stated supra and have rejected the claim of the appellant filed under Section 36(1)(iii) of the Act Rejecting the claim u/s 36(1)(iii) towards the payment of interest on borrowing - second substantial question of law is based on incorrect factual finding inasmuch as the Assessing Authority, Appellate Authority as well as the Tribunal have doubted the genuineness of such a transaction and therefore, the substantial question of law as framed in the absence of any dispute with regard to genuineness of the transaction, whether the Tribunal was justified in rejecting the claim under Section 36(1)(iii) also does not arise for consideration. The Supreme Court in the case of SA BUILDERS LIMITED [ 2006 (12) TMI 82 - SUPREME COURT] has held that it is not in every case that interest on borrowed loan has to be allowed. If the assessee advances it to the sister concern, it all depends on the facts and circumstances of the respective case. Therefore, the question of genuineness of the transaction can be examined in the fact situation of the case. The aforesaid question has been examined in detail by the authorities under the Act by assigning reasons. Deduction under Section 80HHC - It is once again reiterated that all the authorities under the Act have assigned valid and cogent reasons which is evident from perusal of the orders passed by them. Therefore, by no stretch of imagination, it can be held that the sister concern of the appellant is eligible for more deduction under Section 80HHC of the Act on mere surmise and conjectures. The finding that the sister concern is eligible for more deduction under Section 80HHC of the Act is based on mere surmise and conjectures also does not arise for consideration. Accordingly, the aforesaid question of law is answered against the assessee and in favour of the revenue.

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• 2020 (1) TMI 1039
  Undisclosed income - assessment u/s158BC r.w.s.143(3) for the block period - adoption 4% gross profit on undisclosed turnover - assessee returned an undisclosed income in the block return of income - HELD THAT:- Assessing Officer was directed to re-calculate the addition at the rate of 2% on the gross profit. The Tribunal nowhere has said that the undisclosed income which was filed by the appellant himself should not be taken into account. It is also pertinent to mention here that the assessee himself before the Assessing Officer had made a request that the income of ₹ 62,27,305/- declared by him be accepted and the assessment be completed. From perusal of the order passed by the Commissioner of Income Tax (Appeals) also, it is evident that the dispute was only with regard to rate of gross profit on the income which was not disclosed by the assessee. Therefore, it cannot be said that the Assessing Officer has disobeyed the direction contained in the order passed by the Tribunal.

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• 2020 (1) TMI 1038
  Allocation of the R D expenditure to the Pondy unit - whether no such products were manufactured by the Pondy unit during the relevant year for which research was carried out by R D unit? - HELD THAT:- Two products namely DIANOUM/RETARD tablets and NOVOLID tablets were manufactured by the Pondicherry unit not in the relevant year, for which research was done by research and development unit during the relevant year and expenditure, if any, was incurred in the preceding year. Therefore, there could not have been apportionment of the current year s expenditure to the Pondicherry unit. It ought to have been appreciated that when research was helpful for other units, the question of apportionment of the expenditure to the Pondicherry unit would not arise. This fact can also be ascertained from the books of accounts of the Pondicherry unit. Thus, if the product is manufactured by other unit of the appellant, then only allocation of research and development expenses to the other unit is justified. Therefore, the first substantial question of law framed is answered in favour of the assessee and against the revenue. Deduction u/s 35(1) - tribunal justification in not excluding the capital expenditure from the total R D expenditure of ₹ 1.99 crores while allowing the expenditure on R D between the other units - HELD THAT:- Section 35(1) of the Act provides that in respect of expenditure on scientific research, the deductions made therein namely expenditure laid down or expended on the scientific research related to the business and an amount equal to one and one and a half times of any sum paid to a research association which has its object, the undertaking of scientific research or to a university, college or other institution to be used for scientific research. Since the amount of ₹ 99 lakhs was expended towards research and development, therefore, in view of Section 30(1) of the Act, the same ought to have been excluded from the total capital expenditure of ₹ 1.99 crores while allowing the expenditure on Research and development units. Accordingly, the second substantial question of law is answered in favour of the assessee Computation of deduction u/s 80HHC has to be done by reducing the deduction under Section 80-IB for the purpose of ascertaining eligible profit - tribunal was right in not following the principle laid down by the Hon ble Supreme Court in the case of JCIT Vs. Mandideep Engineering Packaging Industry Pvt. Ltd. 2006 (4) TMI 75 - SUPREME COURT while quantifying the deduction under Section 80HHC - HELD THAT:- Issue to be answered in favour of the assessee subject to the decision of the issue involved in the aforesaid substantial questions of law which is pending adjudication before the Supreme Court. Needless to state that depending on the view taken by the Supreme Court, the revenue shall be at liberty to take an action against the appellant, if so advised in accordance with law.

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• 2020 (1) TMI 1037
  Exemption u/s 11 - Depreciation of assets acquired by assessee trust - the capital expenditure is treated as application of income for charitable purposes - carry forward the depreciationHELD THAT:- Issue decided in RAJASTHAN AND GUJARATI CHARITABLE FOUNDATION POONA [ 2017 (12) TMI 1067 - SUPREME COURT] as in Commissioner of Income Tax v. Institute of Banking Personnel Selection (IBPS) [ 2003 (7) TMI 52 - BOMBAY HIGH COURT] correctly states the principles of law and there is no need to interfere with the same. It may be mentioned that most of the High Courts have taken the aforesaid view with only exception thereto by the High Court of Kerala which has taken a contrary view in 'Lissie Medical Institutions v. Commissioner of Income Tax' [ 2012 (4) TMI 115 - KERALA HIGH COURT] It may also be mentioned at this stage that the legislature, realising that there was no specific provision in this behalf in the Income Tax Act, has made amendment in Section 11(6) of the Act vide Finance Act No. 2/2014 which became effective from the Assessment Year 2015-2016. The Delhi High Court has taken the view and rightly so, that the said amendment is prospective in nature. Also once assessee is allowed depreciation, he shall be entitled to carry forward the depreciation as well.

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• 2020 (1) TMI 1036
  Powers to pass orders u/s 119(2)(b) for processing refund claims - Interest on belated refund claims - HELD THAT:- Power has been given under the circular to the Chief Commissioner of Income Tax for refund of amount not exceeding ₹ 50,00,000/-. The Circular also makes it clear that no interest will be admissible in case of belated refund claims. While A Division Bench of the Bombay High Court in Sitaldas K.Motwani -Vs- Director-General of Income-Tax and others [ 2009 (12) TMI 36 - BOMBAY HIGH COURT] has also considered this circular and has remitted back to the authority to consider the question of hardship as well as the correctness and genuineness of the refund claim. It is of the view that this case also should be remitted back to the respondent to pass appropriate order, keeping in mind, the purpose of circular issued under section 119 of the Income Tax Act, 1961 by construing it liberally. Impugned order is thus set aside and the case is remitted back to the respondent. The respondent shall pass appropriate order within a period of three months from the date of receipt of copy of this order.

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• 2020 (1) TMI 1035
  Revision u/s 263 - provision for bad and doubtful debts u/s 36(1)(va) - HELD THAT:- In this case, from the facts, it can be seen that the relief has been allowed only after making enquiries. Therefore, this clause has also not applicable in this case. Therefore, we are of the considered view that the conditions to invoke the powers u/s 263 of the Act are not satisfied and hence, the Ld.PCIT was erred in invoking the scope of provisions of 263 of the I.T.Act, 1961. Further, assuming for a moment, but not accepting in order to invoke 263, the other conditions, which is to be satisfied is that the order should be prejudicial to the interest of the revenue, because in respect of bad debts claim, if any deduction allowed u/s 36(1) (vii) of the Act, then when the recovery of the same in subsequent years needs to be offered to tax u/s 41(4) of the Act. In respect of payment towards contribution to the gratuity fund, whether or not deduction is allowed in full on payment basis in this year, but the same needs to be allowed in subsequent years, if said payment is not allowed during the year under consideration. Likewise, provision for wage arrears is also liable to be allowed, when the actual payment has been made. In this case, the assessee has made payment of the wage arrears in the subsequent years. Therefore, we are of the considered view that invocation of jurisdiction u/s 263 on these issues is also incorrect. We are of the considered view that the conditions prescribed u/s 263 are not fulfilled to invoke revisional jurisdiction by the Ld.PCIT to revise the assessment order passed by the Ld. AO u/s 143(3) of the I.T.Act, 1961. Therefore, we are of the considered view that the assessment order passed by the Ld. AO is neither erroneous, nor prejudicial to the interest of the revenue. We, therefore, quash the order of the Ld.PCIT u/s 263 of the Act, and allow the appeal of the assessee.

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• 2020 (1) TMI 1034
  Assessment u/s 153A - addition of sum received from Sh. Nusrat Ikram Khan Bagga as advance against sale of shop - excess jewellery found during the course of search as undisclosed income - HELD THAT:- We find that the premises of Shri Mahesh Jain was covered in the same search action and the facts as well as the legal issue involved are identical. The Tribunal in the case of brother of the assessee Shri Mahesh Jain [ 2017 (12) TMI 1744 - ITAT CHANDIGARH] has allowed the legal ground taken wherein held that limitation for completing the assessment for the assessment year relevant to the previous year in which search is conducted under section 132 or requisition is made under section 132A of the Act, but there being no provision as to under which provision of law, the assessee can be called upon to furnish its return for that assessment year only under the provisions of section 139 and it is only in case of failure of the assessee to furnish the return under section 139 that the AO can call for return of income for the previous year either under section 142(1) or under section 147 of the Act, as the case may be, and if it is so, then the assessment for assessment year relevant to that previous year can be made only under section 143(1) or 143(3) or 144 or 147 of the Act but cannot be made under section 153A of the Act. Reasons stated by the CIT(A), we are of the opinion that the CIT(A) was quite justified in holding that for the assessment year under consideration, the AO had no jurisdiction to pass an order under section 153A - Decided in favour of assessee.

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• 2020 (1) TMI 1033
  Validity of issue of notice u/s 153C - Mandation to record satisfaction in the case of searched person to assume the jurisdiction for initiating proceedings u/s 153C in the case of such other person - HELD THAT:- Department could not establish that the reasons were recorded in the case of searched person, respectfully following the view taken in M/S. SHETTYS PHARMACEUTICALS AND BIOLOGICALS LTD. [ 2014 (12) TMI 1067 - ANDHRA PRADESH HIGH COURT], SRI RAO SUBBA RAO (HUF) , [ 2014 (4) TMI 1109 - ANDHRA PRADESH HIGH COURT] and M/S SRI PADMAVATHI VENKATESWARA CONSTRUCTIONS NELLORE [ 2019 (6) TMI 1429 - ITAT VISAKHAPATNAM] we hold that the assumption of jurisdiction without recording the reasons in the case of searched person is invalid. Accordingly, uphold the order of the Ld.CIT(A) and dismiss the appeal of the revenue. Addition in respect of Blue Marino project from sale of 40 villas - unaccounted receipts - AO has taken reference to seized material found during the course of search - HELD THAT:- In the instant case, the searched person was Sri Lanka Anil Kumar, whereas Navaratna Estates is the assessee, a different partnership firm. Therefore, the material found during the course of search from the residence of Sri Lanka Anil Kumar cannot be attached with the assessee without having sufficient evidence. Though Sri Lanka Anil Kumar had stated that the material found during the course of search was relatable to the assessee he has not furnished the complete details with date of receipt whether it was over and above the registered price or not or whether the receipts mentioned on the reverse side of page No.6 was part of total sale consideration, registered consideration or over and above the registered sale consideration etc. In any case, the AO cannot solely depend on the material found from the residence of Sri Lanka Anil Kumar and loose sheets to make the addition of undisclosed income. In the instant case, the searched person was Sri Lanka Anil Kumar, whereas Navaratna Estates is the assessee, a different partnership firm. Therefore, the material found during the course of search from the residence of Sri Lanka Anil Kumar cannot be attached with the assessee without having sufficient evidence. Though Sri Lanka Anil Kumar had stated that the material found during the course of search was relatable to the assessee he has not furnished the complete details with date of receipt whether it was over and above the registered price or not or whether the receipts mentioned on the reverse side of page No.6 was part of total sale consideration, registered consideration or over and above the registered sale consideration etc. In any case, the AO cannot solely depend on the material found from the residence of Sri Lanka Anil Kumar and loose sheets to make the addition of undisclosed income. Unaccounted sale price of plots in Sea Pearl Project - AO made the addition on the basis of sale price of plots to 61 to 64 which were adjacent to Sea Pearl Project and has no connection with the project Sea Pearl - HELD THAT:- The plot No.61 to 64 and the Sea Pearl projects were completely different and not inter linked. As explained by the assessee, it has sold the bulk of plots to M/s Kranthi Properties @4000/- per sq.yd and any amount received over and above the agreed rate would accrue to Kranthi Properties, but not to the assessee. The assessee placed copy of MoU reached between the assessee and the Kranthi Properties in page No.190 to 192 of the paper book. No other evidence was brought on record by the department to controvert the finding of the Ld.CIT(A) or to controvert the contents of MoU between the assessee and the Kranthi properties dated 25.07.2013. Therefore, we do not find any infirmity in the order of the Ld.CIT(A) and the same is upheld. The appeal of the revenue is dismissed and the cross objections filed by the assessee becomes infructuos on this issue, hence dismissed. Unaccounted cash - deficit cash treated as income u/s 68 - HELD THAT:- In the instant case, there was a deficit cash, but not excess cash.. Therefore, the deficit cash cannot be treated as income u/s 68 as rightly observed by the Ld.CIT(A). Further in the instant case, Managing partner of the assessee firm had stated that he had withdrawn the amount. In reply to the show cause notice also, the assessee had explained that on updating the cash book, there was no deficit cash and also furnished the extract of updated cash book before the AO. From the explanation of the assessee, there was no deficit cash and the AO rejected the explanation of the assessee without going into further details. Since the assessee had explained the deficit cash found during the survey, we do not see any reason to interfere with the order of the Ld.CIT(A) and the same is upheld. The appeal of the revenue is dismissed. Addition towards unaccounted sale of land - loose sheets found during the course of search in the residence of Shri Shyam - HELD THAT:- Documents are to be taken as a dumb documents which cannot be inferred against the assessee firm. With regard to the assessee firm, the assessee had explained that the transaction was related to the sale of land to Nageswara Rao and explained in the statement recorded on 13.01.2016 by Manchukonda Shyam that no excess money was received. No other evidence was brought on record by the AO to controvert the statement given by Shri Manchukonda Shyam. Since the document was found in the residence of Manchukonda Shyam, presumption is available to the department to hold that the contents of the document are related to Sri Manchukonda Shyam. The AO did not make any cross verification or enquiry to establish that Navaratna Estates had received on money. The voucher is generally used for payment but not for receipt. The voucher does not contain the details of date, name and signature and the AO did not cross verify the transaction with the books of the assessee and Sri Nageswara Rao Hence, as observed by the Ld.CIT(A), the AO did not effectively contradict the submissions of the assessee. Therefore, we do not see any reason to interfere with the order of the Ld.CIT(A) and the same is upheld. The appeal of the revenue is dismissed.

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• 2020 (1) TMI 1032
  Minimum royalty payment - deduction of 80IC - deduction being minimum royalty payment against the sub-licensing income - HELD THAT:- As decided in own case [ 2019 (3) TMI 1298 - ITAT DELHI] tribunal observed in that year that the proposition of the Ld. AR that the sub-licensing fee, if any, ought to have been excluded on net basis after adjusting the royalty paid against income of sub-licensing because the sub-licensing income and royalty payment both have direct nexus with the know-how agreement, but excluding the direct nexus of sub-licensing to the manufacturing activity of the assessee. Thus, the Tribunal observed in A.Y. 2005-06 that the decision of Tribunal for A.Y. 2004-05 will not be applicable as from the beginning the sub-licensing fee is not directly connected with the manufacturing activity but is independent transaction itself. In the present Assessment Year as well (A.Y. 2007-08) also the facts remains the same. Thus, we direct the Assessing Officer to compute the sub-licensing fee by way of excluding on net basis after adjusting the royalty paid against income of sub-licensing. The assessee must provide all the information and the clauses to bifurcate the said sub-license fee from the original royalty payment. Thus, we remand back this issue to the file of the Assessing Officer. Needless to say, the assessee be given opportunity of hearing by following principles of natural justice. Therefore, additional ground is partly allowed for statistical purpose. Addition u/s 68 being the customers advance received - HELD THAT:- CIT(A) observed that in the end of the year there was some debit balance against which the amount received, which the amount received, which was in excess of the amount due from these customers. Excess amount from the said two parties thereafter in the subsequent years and up till the conclusion of the CIT(A) s proceedings were stated to be outstanding. The CIT(A) held that there was no transaction of sales as well and neither these amounts were refunded to the above parties. The CIT(A) submitted that the assessee failed to submit the confirmation certificate from the said two parties either at the assessment stage or at the appellate stage. Thus, the CIT(A) confirmed the additions to the extent of ₹ 4,31,376/-. From the perusal of the submissions made by the Assessee it can be found that the said sum amounting to ₹ 4,31,376/- has already been offered by the assessee in A.Y. 2011-12 and the same has already been assessed to tax. Since the assessee has already paid tax on the said amount in subsequent year, this addition does not survive. Exclusion of refund of excise duty/cenvat credit and being a capital receipt not includible while computing profit u/s 115-JB - HELD THAT:- Tribunal in A.Y. 2005-06 and 2006-07 held that similar issue has come up before the Tribunal in case of Montage Enterprises and the Tribunal decided this issue in favour of the assessee therein. The issue is identical in the present case (i.e. A.Y. 2007-08) as well. The eligibility of excise duty refund was on account of establishment of new industrial undertaking in the State of Jammu Kashmir as an incentive to promote industrial activity in the State of Jammu Kashmir and is in the nature of capital subsidy not liable to tax. Thus, the said excise duty refund has to be excluded from the computation of Section 115JB of the Act as well as it is a capital receipt. Allocation of expenses against sub-licensing income - HELD THAT:- The additional ground filed by the assessee is admitted by us, while accepting the assessee s contention that the sub-licensing income needs to be excluded on net basis after adjusting the royalty paid, therefore, this ground No. 1 of Revenue s appeal does not survive, hence dismissed. Trade advances adjusted against the supplies made in subsequent years - HELD THAT:- From the perusal of the order of the CIT(A), it can be seen that the CIT(A) observed that the assessee had received such advances from three parties for the supplies to be effected in subsequent years. This facts is not denied by the Ld. DR. The CIT (Appeals), after verification from the account of subsequent years of such parties that such parties are regular clients and advances so received have been adjusted against the supplies made in subsequent years and then had deleted the addition. The Ld. DR could not contradict these facts from the Assessment Order as well as from the order of the CIT(A). Hence, the findings of the CIT(A) to this extent is correct and there is no need to interfere with the same. Hence, Ground No. 2 of Revenue s appeal is dismissed. Refund of excise duty/Cenvat credit forming part of the manufacturing profit eligible for deduction u/s 80-IB - Whether excise duty refund/Cenvat credit is a capital receipt ? - HELD THAT:- The eligibility of excise duty refund was on account of establishment of new industrial undertaking in the State of Jammu Kashmir as an incentive to promote industrial activity in the State of Jammu Kashmir and is in the nature of capital subsidy not liable to tax. Thus, the said excise duty refund has to be excluded from the computation of Section 115JB of the Act as well as it is capital receipt. The decisions relied by the Ld. AR in case of Shri Balaji Alloys [ 2011 (1) TMI 394 - JAMMU AND KASHMIR HIGH COURT is applicable in the present case. Besides in A.Y. 2006-07, this issue is decided in favour of the assessee by the Tribunal and the facts are identical in the present Assessment Year as well - Refund of excise duty/cenvat credit - Whether excise duty refund/cenvat credit is not a capital receipt, but a revenue receipt and liable to tax and consequently also did not exclude such receipts while computing the income u/s 115-JB ? - HELD THAT:- It is pertinent to note that the eligibility of excise duty refund was on account of establishment of new industrial undertaking in the State of Jammu Kashmir as an incentive to promote industrial activity in the State of Jammu Kashmir and is in the nature of capital subsidy not liable to tax. Thus, the said excise duty refund has to be excluded from the computation of Section 115JB of the Act as well as it is capital receipt. The decisions relied by the Ld. AR in case of Shri Balaji Alloys [ 2011 (1) TMI 394 - JAMMU AND KASHMIR HIGH COURT] is applicable in the present case. Besides in A.Y. 2006-07 as well as in A.Y. 2007-08 hereinabove, this issue is decided in favour of the assessee by the Tribunal and the facts are identical in the present Assessment Year as well.

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• 2020 (1) TMI 1031
  TP Adjustment - comparable selection - HELD THAT:- Referring to Engineering services rendered by the assessee to its AE companies functionally dissimilar with that of assessee need to be deselected from final list. ALP adjustment in relation to Reimbursement of management fees expenses - HELD THAT:- As decided in ow case [ 2020 (1) TMI 1008 - ITAT AHMEDABAD] Section 92C prescribes the manner of determination of the arm's length price and sub-section (1) thereof specifically lays down various methods by which the determination of arm's length price has to be made. It is quite clear that there is no adhocism permissible in the manner of computation of arm's length price of an international transaction, whereas the action of the Transfer Pricing Officer in considering the arm's length price @10% of the expenses recovered is not only adhoc but it also does not conform to any of the methods prescribed in section 92C(1) of the Act. On this count itself, the action of the TPO is suspect, even if, it is to be understood that the impugned transaction was an international transaction requiring computation of income having regard to its arm's length price. TPO has erred by making the disallowance on ad hoc basis. Arm length price of the insurance expenses claimed by the assessee has disallowed such expenses by observing that the same is prohibited under the insurance Act - HELD THAT:- There is no power available to the TPO to verify the allowability of any business expense. As such the role of the TPO is limited to the extent of determining the arm length price of the transaction carried out by the assessee with the AE. However in the case on hand, the TPO without determining the arm length price of the insurance expenses claimed by the assessee has disallowed such expenses by observing that the same is prohibited under the insurance that. Admittedly, such expenses are prohibited under the insurance Act. But the controversy arises whether such expenses can be disallowed by the TPO in the given facts and circumstances. In this regard we note that the role of the TPO is to determine the arm length price of the transactions of insurance premium as the impugned payment was prohibited, therefore the TPO has made the disallowance after considering the fact that there was no benefit derived by the assessee out of such expenses. AR also before us has not brought anything on record suggesting that the assessee has derived any benefit against such expenses. Thus, we feel that the assessee fails in the benefit test for such expenses. Hence, we do not find any reason to interfere in the order of the authorities below. Thus the ground of appeal of the assessee is dismissed. Denying the benefit of range (+/-5%) - HELD THAT:- As decided in own case [ 2020 (1) TMI 1008 - ITAT AHMEDABAD] assessee made a specific ground of appeal for the benefit of adjustment of + 5% to be given while determining the Arm Length Price, the ld. counsel for the assessee has not been point out as to how and in what manner, the order of ld. DRP in rejecting this claim of the assessee is improper and unjustified. Since both the parties have not been able to controvert the findings recorded by the ld DRP or point out any material to enable us to take a view other than view taken by the ld. DRP, we do not want to interfere in the order of the ld. DRP. Benefit to the assessee for the deduction under section 10B allowed.

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• 2020 (1) TMI 1030
  TP Adjustment - comparable selection - TPO rejected CG Vak as a comparable on the ground that it fails employee cost filter (6%). HELD THAT:- When we examine the filters applied by the TPO to benchmark the international transactions detailed in para 2.1, there is no such filter such as employee cost filter applied by the TPO. Even otherwise, when we examine annual report of CG Vak for AY 2011-12 along with Notes annexed forming part of accounts employee cost is ₹ 4,73,01,685/- which is 70.50% of the total operating expenses of ₹ 6.7 crores. Functionality of CG Vak vis- -vis taxpayer has not been disputed by the ld. TPO. In view of the financials of CG Vak, we hereby direct TPO/AO to verify employee cost of CG Vak with reference to next year annual report so as to decide the suitability of CG Vak as a comparable. Kals rejected as a comparable chosen by the taxpayer on the ground that segmental information is not matching with entity level financials - As decided in M/S. MERCEDES-BENZ RESEARCH AND DEVELOPMENT INDIA PVT. LTD. [ 2016 (6) TMI 1322 - ITAT BANGALORE] low turnover cap applied by the TPO in case of taxpayer is required to be restricted to ₹ 1 crore instead of ₹ 5 crores. Even by applying the rule of consistency, we are of the considered view that when there is no change in the business model of the taxpayer in AYs 2008-09, 2009-10 2012-13 as well as year under assessment for AY 2011-12, rule of consistency has to be followed and TPO is directed to apply the turnover cap of ₹ 1 crore as against cap of ₹ 5 crores applied by him. So far as, question of segmental information being not matching with entity level functions as has been held by ld. TPO is concerned, as per AS-17 on segment reporting, revenue derives from reportable segments should be at least 75% of the total external revenue as segmental results are not expected to match with entity-wise results. So, in these circumstances, Kals is ordered to be included in the final set of comparables. Melstar rejected as a comparable on the ground that it fails export filter - Detail of export sales was not available in public domain. So, when detail of export sales is not available Melstar cannot be rejected just like that. So, we direct the ld. TPO to rework the suitability of Melstar as a comparable vis- -vis taxpayer by supplying the copy of details of export sales of Melstar relied upon by him. Virnichi rejected which is taxpayer s comparable on the ground that it fails employee cost filter - When we examine filters applied by the ld. TPO to benchmark the international transaction, there is no such filter such as employee cost filter applied by the ld. TPO. In these circumstances, ld. TPO is directed to reexamine the Virnichi so as to find out the suitability as a comparable vis- -vis the taxpayer. Wipro is not a suitable comparable vis- -vis the taxpayer for benchmarking the international transaction qua software development services on ground of related party transactions on the basis of Master Service Agreement with Citi Group for delivery of Technical Infrastructure Services Ltd. and application of maintenance services for a period of 6 years. See CADENCE DESIGN SYSTEMS (I) (P.) LTD. VERSUS ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE- 5 (2) , NEW DELHI, [ 2018 (4) TMI 1574 - ITAT NEW DELHI] Infosys - Coordinate Bench of the Tribunal in case of Clear 2 Pay India (P.) Ltd. vs.ITO [ 2018 (6) TMI 1628 - ITAT DELHI] examined the comparability of Infosys vis- -vis the routine software development service provider in AYs 2011-12 2012-13 and ordered to exclude the same by relying upon the case of CIT vs. Agnity India Technologies (P.) Ltd. [ 2013 (7) TMI 696 - DELHI HIGH COURT] I Gate exclusion on the ground that the ld. TPO has erroneously excluded the same from the final set of comparables despite the fact that findings have been returned against its inclusion - I Gate is not a suitable comparable vis- -vis taxpayer who is a captive software development service provider having meager turnover vis- -vis I Gate and having huge intangibles in the form of goodwill of ₹ 225.99 crores as against nil of taxpayer, hence ordered to be excluded. Persistent exclusion on the grounds inter alia that Persistent is having huge fixed assets in the form of software and other intangibles which is 7.90% of the turnover - objections raised by the taxpayer against inclusion of Persistent as a comparable by the ld. TPO are correct having not been controverted by the ld. DR for the Revenue. When Persistent is having huge software and other intangibles and having invested in IPR and has created several IPs and is having revenue from licencing of product and royalties and having huge turnover of ₹ 645.39 crores which is 32 times of the taxpayer, it cannot be a suitable comparable vis- -vis the taxpayer who is a captive software service provider, hence ordered to be excluded. Sasken is not a suitable comparable vis- -vis the taxpayer on ground of functional dissimilarity and being into trademark products/patents having no segmental financials, hence ordered to be excluded as a comparable. CG Vak is shown to have the profit of ₹ 1,39,70,696/- for FY ending 31.03.2012 and ₹ 9,64,864/- for the year ending 31.03.2011. So, it has come on record that ld. DRP has lost sight of the actual figure showing profit by CG Vak and proceeded to reject the same on the basis of incorrect facts. So, the AO/TPO is directed to verify the facts and include CG Vak as a valid comparable vis- -vis the taxpayer. Kals - Annual report show that all the filters applied by the ld. TPO stood satisfied. So, in these circumstances, the ld. TPO/AO is directed to include Kals as a valid comparable. Infomile functionally similar to the taxpayer and directed the TPO to include the same as a valid comparable if it meets the filter approved by the ld. DRP. So, we direct ld. TPO to reconsider Infomile as a comparable vis- -vis the taxpayer by providing an opportunity of being heard to the taxpayer. Bells functionally - DRP held Bells functionally similar to the taxpayer and directed the TPO to include the same as a valid comparable if it meets the filter approved by the ld. DRP. So, we direct ld. TPO to reconsider Bells as a comparable vis- -vis the taxpayer by providing an opportunity of being heard to the taxpayer. L T is a giant company having huge intangibles and having dissimilar functional profile being into wide range of services and also into products, cannot be a suitable comparable vis- -vis the taxpayer.

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• 2020 (1) TMI 1029
  Revision u/s 263 - notice upon a non-existent entity - Commissioner having jurisdiction over Gallops for taking any action u/s 263 - merger scheme conceived - HELD THAT:- Gallops has been filing its returns at Ahmedabad from the assessment year 2015-16 i.e. after merger of SAPL with Gallops. In our view, in the above situation, the ld.Commissioner ought to have remitted the record to the Commissioner having jurisdiction over Gallops for taking any action under section 263 of the Act, if any such ground is available. It is pertinent to observe that long back on 3.8.1977, Hon ble jurisdictional High Court in the case of PV Doshi vs. CIT [ 1977 (8) TMI 29 - GUJARAT HIGH COURT] has observed that consent will not infuse jurisdiction in an authority. If an assessee gave consent for assumption of jurisdiction in the AO in passing an assessment order to Commissioner for exercising power under section 263 then also such jurisdiction will not be construed as valid jurisdiction. Jurisdiction deserves to be flowed from the Act in the authority, and not consent of the assessee. If we accept the contentions of the ld.CIT-DR, then it would suggest that notice would be given to A person by Commissioner under section 263, but ultimately on the basis of his order tax liability would fall upon XYZ . This is not permissible under the law nor has been contemplated in the section. Therefore, without going into other issues, we are of the view that notice under section 263 was issued upon a non-existent entity. It is not sustainable. Therefore, no proceeding could be assumed in legal sense and same is not sustainable. Consequently, order passed under section 263 of the income Tax Act against non-existent entity is treated as nullity and void ab inito. Hence, this order is quashed. - Decided in favour of assessee.

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• 2020 (1) TMI 1028
  Unexplained cash credit under section 68 - unsecured loan received by the assessee in the year under consideration from certain parties which was treated as unexplained cash credit u/s 68 - HELD THAT:- The provision of section 68 of the Act fastens the liability on the assessee to provide the identity of the lenders, establish the genuineness of the transactions and creditworthiness of the parties. These liabilities on the assessee were imposed to justify the cash credit entries under section 68 of the Act by the Hon ble Calcutta High Court in the case of CIT Vs. Precision Finance (P) Ltd [ 1993 (6) TMI 17 - CALCUTTA HIGH COURT] The amount of loan for ₹ 4,48,03,196.00 represents the loan which were outstanding in the books of the assessee as on 31 March 2003. This fact can be verified from the financial statements of the assessee available on record. Thus the loans which were squared up in the year under consideration were not part of the amount of loan appearing in the financial statements of the assessee as on 31 March 2003. It is also a fact on records that the assessee has duly furnished the details of the loans which were squared up in the year under consideration in its tax audit report available on record. But the AO either in the assessment proceedings or remand proceedings required the assessee to furnish detailsof such loans squared up during the year. Thus the assessee never got the occasion to furnish the details about such squared up loans. From the above letter dated 26 October 2012, it is transpired that the learned CIT (A) never enquired about the loans which were squared up in the year under consideration. Thus, the controversy arises whether the AO can extend the scope of dispute beyond the direction provided by the learned CIT (A). The answer stand negative in view of the judgement of Hon ble Gujarat High Court in the case of Saheli Synthetics Pvt. Ltd Vs. CIT [ 2008 (2) TMI 182 - GUJARAT HIGH COURT] We hold that the allegation of the AO in the remand proceedings that the assessee failed to furnish the details of the loans which were squared up in the year under consideration is not sustainable in the present facts and circumstances. Accordingly, we do not find any resentment affair in the order of the learned CIT (A). Hence the ground of appeal of the Revenue is dismissed. Disallowance of interest expenses on account of diversion of borrowed fund - borrowed fund has been diverted to the interest free loans and advances - HELD THAT:- Own fund including non-interest bearing fund exceeds the amount of loans and advances. Own fund of the assessee exceeds the interest free loans and advances as discussed in the assessment order - presumption can be drawn that the loans has been provided out of the owned funds of the assessee. See Reliance Utilities and Power Ltd. . [ 2009 (1) TMI 4 - BOMBAY HIGH COURT] No disallowance of interest expense claimed by the assessee can be made under the provision of Section 36(1)(iii) of the Act on account of diversion of interest bearing fund. Hence, we confirm the order of Ld. CIT-A. Accordingly, the AO is directed to delete the addition made by him. Hence the ground of appeal of the Revenue is dismissed. Addition on account of foreign travelling expenses - expense not incurred for the business purposes and the personal nature cannot be overruled - HELD THAT:- Assessee has not provided any documentary evidences to prove that the expenditure on foreign travelling was for the business purpose. Admittedly there is no doubt that the expense has been incurred on foreign travelling. But such expenses incurred for the business needs to be justified by furnishing the details of the person travelled, email correspondence, any business expansion from such foreign tour. Assessee has furnished before us detail of foreign exchange, ticket but these are not sufficient to establish the business purpose of such expenses. Therefore we are of the view that the expenditure on foreign tour was not for Business purpose. In this regard we draw support guidance from the judgment of Hon ble ITAT Ahmedabad in case of Genesis Organic (P) Ltd. [ 2014 (7) TMI 1101 - ITAT AHMEDABAD] wherein held Mere mentioning the name of the country visited along with mentioning of the total amount of expenditure under various heads of the expenses like, hotel bills, air-ticket, etc., does not indicate or establish the business purpose of the foreign travel expenses incurred by the assessee-company. In the facts and circumstances of the case of the assessee, we hold that in the absence of even elementary evidence to prove the business purpose of the foreign travel undertaken by the directors of the assessee private limited company, the expenditure was rightly disallowed - Decided against assessee.

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• 2020 (1) TMI 1027
  Assessment u/s 153A - Addition being amount disclosed before ADIT and not shown in return of income - whether the addition made is null and void as it is not arising out of any seized material - approval given by JCIT u/s.153D is without application of mind ? - HELD THAT:- Since in the present case the letter Dated 05.01.2016 was qualified and subject to documents to be supplied by the A.O, it is clear that admission of the assessee in the said letter was not correct and true because it was not based on any evidence or material if found during search. Thus, the Board Circular Dated 10.03.2003 (supra) would apply to the case of the assessee that the Department should concentrate of collection of evidence of income and should not based on addition merely on the basis of confession obtained from assessee through the letter Dated 05.01.2016. Thus, there is no evidence on record or statement of assessee recorded during the course of search so as to prove that assessee has earned undisclosed income of ₹ 2.50 crores. Since no corroborate evidence have been brought on record or brought in the Orders of the authorities below, therefore, there was no justification for the authorities below to make the addition of ₹ 2.50 crores against the assessee. We set aside the Orders of the authorities below and delete the addition - Appeal of the assessee is allowed. Approval granted by JCIT under section 153D without application of mind - In identical issue have been considered in the light of Judgment of Pr. CIT vs., Smt. Shreelekha Damani [2018 (11) TMI 1563 - BOMBAY HIGH COURT] and it was held that requirement of Section 153D of the I.T. Act are not satisfied in the case. It was, therefore, held that entire assessment order is vitiated and is null and void. Therefore, it was set aside and quashed. In the present case, it is clear that A.O. did not refer to the seized material or the assessment record to the JCIT for his approval. It is not verified as to how the draft have been sent on the same day i.e., on 22.12.2017 to the JCIT from Jabalpur to Bhopal and as to how the approval have been received back on the same day i.e., on 22.12.2017 from Bhopal to Jabalpur. In the absence of any perusal of the record by the JCIT, it is clear that JCIT granted approval without application of mind and as such necessary conditions of Section 153D of the I.T. Act are not satisfied and as such the approval is invalid and bad in law. Consequently, the entire assessment order is vitiated and is liable to be quashed. - Decided in favour of assessee.

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• 2020 (1) TMI 1026
  Deduction u/s 10B claimed for manufacturing segment - Revised return claiming deduction u/s 10B including receipts from R D services - HELD THAT:- This tribunal opined that assessee is eligible for claim under section 10B in respect of manufacturing activity. It is observed that Certificate issued by DC dated 31/08/04 has been placed at page 521 of paper book which is in continuation to certificate dated 16/04/04 placed at page 513 of paper book. Assessee thus cannot be denied the claim under section 10B in relation to manufacturing activity for year under consideration. Deduction u/s.10B of the entire claim, even though certificate issued by DC was not available during relevant period - Tribunal in original orde [ 2020 (1) TMI 985 - ITAT BANGALORE] expressed ratification of certification from original date of 31/08/04 paragraph 29, reproduced hereinabove for manufacturing segment. Under such circumstances we do not find any reason to deviate from view expressed by this Tribunal in order dated 08/02/19 in paragraph 29, which is reproduced hereinabove. Based upon the same we have granted deduction u/s.10B herein above. We upheld 10B deduction for A.Y 2009-10 in assessee s appeal, based upon view expressed by Tribunal in original order dated 08/02/2019(paragraph 29 reproduced hereinabove), assessee is eligible for deduction u/s.10B, for year under consideration, only in respect of income earned from manufacturing segment, which cannot be interfered with at this stage. Thus, in the present appeal filed by revenue, Ld.AO shall call for necessary details regarding bifurcation of total claim attributable to manufacturing and R D segment. Since this Tribunal has upheld contention of assessee regarding ratification of approval relating back to the date of original approval, assessee shall be granted claim u/s.10B, pertaining to income earned from manufacturing segment.

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• 2020 (1) TMI 1025
  Revision u/s 263 - assessee has claimed as exempt long term capital gains (LTCG) seemed to be bogus - HELD THAT:- Assessee has claimed exempt LTCG by trading in shares of LTL. The details filed by the assessee during the course of assessment proceedings have not been examined and inquired into by the AO. This is evident from the assessment order produced above and also from the documents available on record. One cannot miss the proposition that assessment made without inquiry is prejudicial to the interest of revenue. In Rampyari Devi Saraogi [ 1967 (5) TMI 10 - SUPREME COURT] it is held in order that the Commissioner may consider an order to be erroneous for the purposes of section 263, the error of law may not be apparent on the face of the order, the Commissioner may consider an order of the Assessing Officer to be erroneous not only if it contains some apparent error of reasoning or of law or of fact on the face of it but also because it is a stereo-typed order which simply accepts what the assessee has stated in his return and fails to make inquiries which are called for in the circumstances of the case. In view of the above position of law enunciated in Rampyari Devi Saraogi (supra) and because the AO has completed the assessment in undue haste or without inquiry, the Pr. CIT has rightly exercised his power u/s 263 by holding that the order of the AO is erroneous and prejudicial to the interest of revenue. However, it is too early on the part of the Pr. CIT to direct the AO to redo the assessment so that abuse of provision of section 10(38) is prevented and income is brought to tax in light of recent judgments in penny stock cases. We modify the above direction of the Pr. CIT and direct the AO to frame an order as per the provisions of the Act, after providing reasonable opportunity of being heard to the assessee. We direct the assessee to file the relevant documents/evidence before the AO.

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• 2020 (1) TMI 1024
  Rate difference in sale of flats/shops - Disallowance on account of difference in rate per sq.ft. charged to various customers vis- -vis the market rates per sq.ft. on the date of booking by these customers - HELD THAT:- Since the matter of controversy is quite similar to the case Triveni Construction Vs. DCIT Group concerns [ 2019 (6) TMI 1430 - ITAT MUMBAI] therefore, we are of the view that the finding in this case is quite applicable to the facts of the case also. The Hon ble ITAT has relied upon decision Neelkamal Realtors Erectors India (P.) Ltd. [ 2013 (8) TMI 557 - ITAT MUMBAI] M/s. Runwal Projects Pvt. Ltd. [ 2018 (7) TMI 1814 - ITAT MUMBAI] . Since the matter of controversy is the same, therefore, in view of the finding given by Hon ble ITAT in the assessee s own case we delete the addition raised by AO and decide this issue in favour of the assessee against the revenue.

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• 2020 (1) TMI 1023
  Revision u/s 263 - interest received on the income tax refund against the interest paid on the taxes to the income tax department - HELD THAT:- We are unable to comprehend as to how the order passed by the A.O under Sec. 143(3) r.w.s 144C(13), dated 24.02.2017 could be held as erroneous. Be that as it may, in our considered view as the A.O while framing the assessment had arrived at a plausible view and therein concluded that the claim of netting off the interest received on income-tax refund as against the interest paid by the assessee to the tax department U/ss. 234B and 234C was in order, therefore, the same could not have been brought within the realm of the revisional jurisdiction of the Pr. CIT u/s 263. On the basis of our aforesaid observations, we are of the considered view that the Pr. CIT had clearly exceeded the scope of the jurisdiction vested with him under Sec. 263 and revised the assessment framed by the A.O under Sec. 143(3) r.w.s 144C(13), dated 24.02.2017. Accordingly, we set aside the order passed by the Pr. CIT under Sec. 263, dated 28.03.2019 and restore the assessment framed by the A.O Sec. 143(3) r.w.s 144C(13), dated 24.02.2017. As we have quashed the order passed by the Pr. CIT under Sec. 263 of the Act, dated 28.03.2019, therefore, we refrain from adverting to the other contentions advanced by the ld. A.R on the basis of which the validity of the impugned order has been assailed before us. Appeal filed by the assessee is allowed

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• 2020 (1) TMI 1022
  Addition u/s 56(2)(vii) on account of alleged excess share premium - difference between the share premium received in excess of valuation as determined under Rule 11UA - prescribed method being DCF followed - HELD THAT:- As relying on M/S LALITHAA JEWELLERY MART PVT. LTD. VERSUS THE ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 1 (4) , CHENNAI. [ 2019 (8) TMI 400 - ITAT CHENNAI] and legislative intent behind insertion of section 56(2)(viib), I hold that addition made by AO on account of alleged excess share premium is unjustified when those very shares are sold in next financial year at much higher amount after proper due diligence, that to a non resident buyer and further there is no case of unaccounted money being brought in garb of stated share premium, hence, addition made u/s 56(2)(vii) of the Act is hereby deleted. - Decided in favour of assessee.

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• 2020 (1) TMI 1021
  Addition on the basis of the survey carried out at the premises of the assessee - Assessee made the surrender of income - HELD THAT:- The entire addition is based on the surrender on the basis of a letter dated 24.03.2012 which stand retracted by letter dated 30.03.2012 and 02.07.2012. Moreover, this surrender is not under oath. The AO has not brought any material to rebut the explanation of the assessee. Further, the issue is also covered by the judgment of the Hon ble Supreme Court in the case of CIT vs. Khader Khan Son [ 2013 (6) TMI 305 - SC ORDER] wherein the Court has held that section 133A of the Act does not empower any Income Tax Authority to examine any person on oath and therefore any admission made in a statement recorded during survey cannot by itself be made the basis of addition - the addition in dispute made by the AO and confirmed by the Ld. CIT(A) is not tenable in the eyes of law, hence, the same is deleted. - Decided in favour of assessee.

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• 2020 (1) TMI 1020
  Rectification u/s 254 - initiation of levying penalty u/s 271(1)(c) instead of 271AAA - HELD THAT:- It is pertinent to note that the Hon ble Delhi High Court [ 2019 (10) TMI 1248 - DELHI HIGH COURT] has admitted the appeal filed by the Revenue, on the same issue contested in the present Misc. Application filed by the Revenue. Therefore, the Misc. Application does not survive. Besides this reason, the Revenue is also seeking review of the order [ 2019 (4) TMI 1029 - ITAT DELHI] which is beyond the scope of Section 254 of Income Tax Act, 1961. There is no mistake apparent from the record.

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• 2020 (1) TMI 1019
  Disallowance of Non-compete fee - assessee purchased software business of M/s. Fujitsu ICIM Ltd. (FIL) (assessee s holding company) and entered into a non-compete agreement with the said entity for a period of 10 years - total consideration paid by the assessee was ₹ 20 Crores and the accordingly, the same was amortized over a period of 120 months being duration of the non-compete agreement - HELD THAT:- Upon perusal of documents on record, we find that the assessee has entered into 2 separate agreement, both dated 31/12/1996, the copies of which have been placed on record. By virtue of agreement for purchase of software business undertaking, the assessee has acquired the undertaking for a consideration of ₹ 25 Crores. There is another agreement titled as non-compete agreement which restrict FIL to compete with assessee in development and sale of software for exports market for a period of 10 years. The consideration has been fixed at ₹ 20 Crores payable in the specified manner. Thus, there are two separate agreements against which separate payments have been made by the assessee to the transferor. Referring to cases CARBORANDUM UNIVERSAL LTD. [ 2012 (10) TMI 178 - MADRAS HIGH COURT] , M/S. EVEREST ADVERTISING PVT. LTD. [ 2015 (1) TMI 968 - BOMBAY HIGH COURT], ASIANET COMMUNICATIONS LTD. [ 2018 (8) TMI 1554 - MADRAS HIGH COURT] unanimous view is that any payment to ward-off rival competition over a certain period of time in furtherance of business interest would be revenue in nature. If the advance consisted merely in facilitating the assessee s trading operations or enabling the management and conduct of the assessee s business to be carried on more efficiently or more profitably while leaving the fixed capital untouched, the expenditure would be on revenue account, even though the advantage may endure for an indefinite future. We find that fact of the present case to be quite similar and are of the considered opinion that the aforesaid payment made by the assessee to ward off rival competition in a particular business segment in overseas market would be in furtherance of assessee s business interest and would enable the assessee to carry out its business more efficiently and profitably. Therefore, we hold that the said expenditure would be deductible revenue expenditure. Deduction being the payment made towards non-compete fees - admission of additional ground as well as additional evidences - HELD THAT:- Hon ble Apex Court in Taparia Tools Ltd. V/s JCIT [ 2015 (3) TMI 853 - SUPREME COURT] has held that normally the ordinary rule is to be applied namely revenue expenditure incurred in a particular year is to be allowed in that year. Thus, if assessee claims that expenditure in that year, the department cannot deny the same. However, in those cases, when the assessee himself wants to spread the expenditure over a period of ensuing years, if can be allowed only if the matching concept is satisfied. We find that it was the assessee s submissions all along that the benefits were perceived over a period of 10 years, being the life of restrictive covenants and accordingly, the claim was spread over a period of 10 years. Therefore, once the assessee himself chose to claim the same in a staggered manner, applying the matching principle and when the same has been allowed, there could be no occasion for the assessee to be aggrieved, on this point. Therefore, in view of the stated reasons, we decline to entertain the additional ground as well as additional evidences. Accordingly, the same stand dismissed. Taxability of Interest Rent - HELD THAT:- We find that this issue stood against the assessee by the decision of this Tribunal for AY 2001-02 [ 2010 (12) TMI 850 - ITAT MUMBAI] wherein similar income has been held to be assessable under the head income from other sources. Taxability of Misc. Receipts - Computation of deduction u/s 80HHE - HELD THAT:- Items represented miscellaneous write-backs recoveries which arose in the course of carrying on business activities. The same could not be said to be an altogether of new stream of income for the assessee and therefore, could not be assessed under residuary head viz. Income from other sources. In fact, reversal of provision for doubtful debts was similarly treated as income from other sources in AY 2001-02 which was reversed by Ld. CIT(A). Upon further appeal by revenue, Tribunal confirmed the stand of Ld. CIT(A) and dismissed this ground [ 2010 (12) TMI 850 - ITAT MUMBAI] . Therefore, we direct Ld.AO treat these receipts to be part of business income and accordingly consider the same for the purpose of Sec. 80HHE. Software expenditure - amortization expenses over a period of 36 months - HELD THAT:- Assessee purchased software for ₹ 30.34 Lacs during December, 1995 to April, 1997 and amortized the expenses over a period of 36 months. Accordingly, for year under consideration, it claimed proportionate expenditure of ₹ 12.22 Lacs which included exchange variation of ₹ 0.75 Lacs. As done in earlier years, the exchange variation was not allowed. It was also noted that there was no import of software during the year and thus, there would be no question of payment of exchange variation. However, Ld. CIT(A) after considering assessee s submissions, allowed the same. Upon due consideration of factual matrix, we find that no such addition of ₹ 11.67 Lacs as stated in the additional ground has been made while computing assessee s income and therefore, this ground is dismissed as infructuous.

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• 2020 (1) TMI 1018
  Estimation of income of trading transaction in derivatives U/s 44AD - Non accepting the returned loss - whether converting a loss into estimated profit not only is unjustified but also, unwarranted as per the statutory provisions and the loss from trading transaction in derivatives deserves to be well recognized, accepted and has to be allowed - HELD THAT:- When the Assessing Officer without disputing the amount of equity loss has stated in the said gain/loss statement issued by the share broker as on 31.3.2016, then the amount of loss from other share transaction cannot be disallowed or disbelieved. On estimation of profit @ 8% by the AO, it is of the view that this action is baseless, meaningless and has not been supported by any documents or corroborative evidence. Therefore, such kind of estimation cannot be held as sustainable and thus,demolish the same. Respectfully following the proposition rendered by ITAT Delhi in the case of Felex Enterprises Pvt Ltd [ 2013 (9) TMI 1247 - ITAT DELHI] , direct the Assessing Officer that the amount of ₹ 22,30,251.19 should be allowed to the assessee as normal business loss. Disallowance of set off of business loss U/s 71 - HELD THAT:- AO has wrongly estimated the net income of the assessee and was not correct in treating the loss as speculative loss and same has to be treated as normal business loss. Therefore, as per provisions of section 71(1) of the Act, where in respect of any assessment year, the net result of the computation of income under any head of income, other than capital gains , is a loss and the assessee has income assessable under the head capital gains such loss may, subject to the provisions of the Chapter -VI, be entitled to, if the amount of such loss set off against his income, if any, assessable for that assessment year under any head of income. Therefore, keeping in view the said subsection( 1) of Section 71 direct the Assessing officer to allow set off the loss incurred by the assessee from trading transaction in derivatives from other heads of income. Accordingly, the Assessing Officer is directed to recalculate the taxable income of the assessee. Ground No.3 is allowed.

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• 2020 (1) TMI 1017
  Approval u/s 80G(5)(vi) denied - contention has been raised is that the company has been formed to carry out the corporate social responsibility of the other company - Whether registration u/s 12A was not sufficient condition for claiming approval under section 80G(5) ? - HELD THAT:- There is no averment or allegation that the assessee-company does not fulfil the condition as required under section 80G(5) So far as the contention of the learned Commissioner of Income-tax (Exemptions) that the company has been formed to fulfil the corporate social responsibility of the another company, the issue has been settled by the co-ordinate Delhi Bench of the Tribunal in Nanak Chand Jain Charitable Trust v. CIT(E) [ 2018 (2) TMI 874 - ITAT DELHI] wherein, it has been held that merely because the assessee-trust/ company has been formed by another company for complying the corporate social responsibility requirements, it cannot be denied registration under section 12AA unless the genuineness of the activities of the assessee-trust or its charitable objects is doubtful. Also see ESCORTS SKILL DEVELOPMENT VERSUS CIT (EXEMPTIONS) , CHANDIGARH [ 2019 (5) TMI 770 - ITAT DELHI] - Decided in favour of assessee.

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• 2020 (1) TMI 1016
  Correct head of income - Income bifurcation - Income from letting of the property - adding back one-third statutory deduction after treating the income from house property as income from business - whether the assessee was justified in bifurcating the receipts from M/s. PACL Ltd. as income under two heads, i. e., income from house property and income from business ? - HELD THAT:- We notice that the AO had ignored the addendum agreement as the same was not registered. Whereas it is also a factual position that even the agreement dated December 31, 2010 was also an unregistered document, therefore, in such a situation, the Assessing Officer was not expected to adopt the pick and choose method. Even otherwise, the Revenue failed to demonstrate as to how the addendum dated April 12, 2011 was compulsory registerable. AO had simply mentioned that the addendum dated April 12, 2011 was an afterthought. As per the factual position, the said addendum cannot be termed as an afterthought as the same was submitted before the Assessing Officer along with the agreement dated December 31, 2010 at the time of assessment proceedings and when once both the documents were presented by the assessee to the Assessing Officer during the course of assessment proceedings, thus, in that circumstances, it was incumbent upon the Assessing Officer to verify the genuineness and veracity of the said document. The Assessing Officer was not expected to adopt the short method and simply reach to the conclusion that the said addendum dated April 12, 2011 was an afterthought without recording any reasons or basis for reaching to the said conclusion. Bifurcation done by the assessee under the two heads of income, i. e., income from house property and income from business is in conformity with law and the same has been done on the basis of comparative market rate as charged by him from the other parties including that of the hon'ble High Court. That since the bifurcation has been done on scientific basis and no infirmity has been pointed out on record by the Assessing Officer by placing on record any counter rates or has not been able to rebut the said comparative market rates placed on record by the assessee, no new facts or circumstances have been brought before us in order to controvert or rebut the well reasoned finding, so recorded by the Commissioner of Income-tax (Appeals), thus, we have no reasons to interfere into or deviate from the findings so recorded by the learned Commissioner of Income-tax (Appeals). Therefore, this ground raised by the Revenue stands dismissed. Additions made on account of claim of depreciation - HELD THAT:- Similar additions were also made in the assessment year 2011-12 which were deleted by the Commissioner of Income-tax (Appeals) vide order dated May 25, 2017 wherein 100 per cent. depreciation was allowed by the Commissioner of Income-tax (Appeals). On handsets, phones 80 per cent. depreciation has been allowed and 60 per cent. depreciation was allowed on projector, therefore, following the said decisions the Commissioner of Income-tax (Appeals) had decided this ground. Revenue has not placed on record any material to rebut the contentions of the Commissioner of Income-tax (Appeals) or has not placed on record any order of higher authority disagreeing with the order of the Commissioner of Income-tax (Appeals) in the earlier orders. Thus, we find no reasons to interfere into the said finding recorded by the Commissioner of Income-tax (Appeals). Therefore, this ground raised by the Revenue also stands dismissed.

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• 2020 (1) TMI 1015
  Addition u/s 68 - unexplained cash deposits - HELD THAT:- We find that AO had concluded that assessee has not explained the source of cash deposits in the books of accounts satisfactorily as there was equal amount of cash deposits before the giving of loan by Mr. Uttam Chordiya to assessee. Before us, assessee has not controverted the submissions made by Ld. D.R. but has simply stated that assessee had furnished the confirmation and his PAN No. and thus assessee has complied with the requirements of Sec.68 of the Act. Before us also no satisfactory explanation about the source of cash deposits in the bank account of Mr. Uttam Chordiya has been provided by the assessee. In such a situation, considering the totality of the facts, we find no reason to interfere with the order of Ld.CIT(A). Thus, the grounds of the assessee are dismissed.

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• 2020 (1) TMI 1014
  Reopening of assessment u/s 147 - liability to deduct tax at source under section 194C on labour expenses - as per assessee reason is erroneous as the assessee being an individual was not liable to deduct tax at source, since the assessee was not covered under section 44AB in the preceding year, the Explain-L to section 194C of the Act was not applicable. HELD THAT:- While reopening of assessment the AO has considered current assessment year s turnover to invoke provisions of section 194C which is not applicable as the assessee being individual. Hence, reasons were on wrong premises, which are not permitted under the statutes. Further, the AO has improved reasons for reopening of assessment during assessment proceeding, however, same is also not permissible. Further, the AO has erroneously considered total turnover including WIP which is not correct as turnover does not include WIP as held by Co-ordinate Bench of Kolkata Tribunal as discussed above. Further, the AO had no new tangible material, in his possession and relied on same assessment records which were already available with him and duly examined during scrutiny proceedings under section 143 (3) of the Act. Therefore, reopening of assessment on same material is not permissible as held by the Hon`ble Supreme Court in the case of ACIT v. ICICI Securities Primary Dealership Ltd. [ 2012 (8) TMI 754 - SC ORDER ] wherein it was held that where accounts had been furnished by assessee when called upon and thereafter, assessment was completed u/s.143(3), subsequently, on a mere re-look of said accounts earlier furnished by assessee it is not permissible under section 147 to reopen assessment of assessee on ground that income has escaped assessment . In view of these facts and circumstances, we quash the reopening of assessment and allowed the grounds of appeal the assessee.

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• 2020 (1) TMI 1013
  Maintainability of appeal - low tax effect - HELD THAT:- Admittedly, the tax effect in the Departmental Appeal is less than ₹ 50 lakhs. Vide Circular No.3/2018 Dated 11th July, 2018 issued by CBDT under section 268A of the I.T. Act, it has been directed that the Department shall not file appeal before the Tribunal in case where the tax effect does not exceed the monetary limit of ₹ 20 lakhs. It is also directed that this instruction will apply retrospectively to pending appeals and appeals to be filed henceforth in the Tribunal. Pending appeals below the specified tax limit may be withdrawn/not pressed by the Department. CBDT Vide Circular No.17/2019 Dated 08.08.2019 amended the earlier Circular No.3/2018 (supra) whereby it has been directed that monetary limit for filing the Departmental appeal in Income Tax Cases may be enhanced further through this amendment in para-3 of the Circular mentioned above and accordingly, the monetary limit for filing the appeal before the Appellate Tribunal have been enhanced to ₹ 50 lakhs. Since Circular No.17/2019 Dated 08.08.2019 have been issued to amend its earlier Circular No.3/2018 (supra), therefore, all the conditions of earlier Circular No.3/2018 shall apply accordingly. D.R. in view of the above Board s Circulars did not press the Departmental Appeal. The case of the Department would not fall in the exceptions provided in the above Board Circulars. In the result, the Departmental appeal is not maintainable as the appeal is filed against the Board instructions referred to above and therefore, the appeal of the Department is liable to be dismissed.

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• 2020 (1) TMI 1012
  Valuation of shares invoking Rule 11UA of the Income Tax Rules, 1962 and resultant addition made u/sec. 56(2)(vii)(c)(ii) - difference in FMV of the shares and the consideration paid by the assessee - DR argued that the shares were not only allotted to the assessee but also allotted to others - HELD THAT:- There is no dispute that the assessee and other shareholders are close relatives, therefore the consideration received rather excess consideration passed on from the share of his brother is exempt from taxation u/sec. 56(2)(viii)(c)(ii) of the Act. Thus, we hold that the difference in FMV of the shares and the consideration paid by the assessee is squarely covered by the exemption clause provided u/sec. 56(2)(vii) of the Act and case law relied on by the assessee in the case of Sri Kumar Pappu Singh [ 2018 (12) TMI 525 - ITAT VISAKHAPATNAM] is squarely applicable in the assessee s case. DR argued that the shares were not only allotted to the assessee but also allotted to others and submitted that the case law of Kumar Pappu Singh has no application in this case. We are unable to accept the argument of the Ld.DR, since, prior to the allotment of shares on 05/04/2013 the share holders are only the assessee and his brother. In the fresh allotment apart from the assessee some applicants were allotted the shares. Therefore whatever the shares allotted to the assessee was from the interest of his brother who is a close relative. Hence, to the extent of shares allotted to the assessee the same is covered by the decision of this tribunal. Thus, we hold that there is no case for making any addition for allotment of shares allotted on 05/04 2013. Accordingly, we set aside the orders of the authorities below on this issue and delete the addition made by the Assessing Officer. FMV of the shares allotted to the assessee on 26/03/2014 - contention of the assessee is that for arriving at the FMV of the shares, the book value of the shares required to be adopted for determination of FMV of the share. Accordingly, the Assessing Officer arrived at the value of the share at ₹ 14.48 and the ld. CIT(A) arrived at ₹ 12.02. Though, the valuation means the date of property or consideration received as per Rule 11UA. This issue is considered by the coordinate bench in Sadhvi Securities Ltd [ 2019 (7) TMI 1074 - ITAT DELHI] and held that in case the balance sheet was not drawn up on the date of allotment, the previous balance sheet which was approved in the AGM has to be considered for valuation of FMV of the shares. For arriving the FMV of shares previous Balance sheet which is audited and approved in the AGM has to be taken in to consideration, before the allotment of shares. Accordingly, we set aside the order of ld. CIT(A) on the shares allotted on 26/03/2014 and confirm the addition. Thus, this ground of appeal raised by the Revenue is allowed partly.

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• 2020 (1) TMI 1011
  Addition u/s 40(a) (ia) - paid vs payable in context of disallowance u/s 40(a) (ia) - HELD THAT:- The issue stands squarely covered against assessee by decision of Hon ble Supreme Court in case of Palam Gas Services vs CIT [ 2017 (5) TMI 242 - SUPREME COURT] . Accordingly we allow these grounds raised by revenue. Computation of deduction u/s 10A - direction to reduce telecommunication charges from both export turnover as well as total turnover by Ld.CIT (A) for purposes of computation of deduction - HELD THAT:- Issue stands settled in favour of assessee by decision of Hon able Supreme Court in case of CIT vs HCL Technologies Ltd. [ 2018 (5) TMI 357 - SUPREME COURT] wherein, it is been held that, expenses reduced from export turnover should also be reduced from total turnover while computing deduction under section 10A. Allowing deduction under section 10A before setting off brought forward losses and unabsorbed depreciation - HELD THAT:- Admittedly, it has been submitted that this issue stands settled in favour of assessee by decision of Hon able Supreme Court in case of CIT vs Yokogawa India Ltd [ 2016 (12) TMI 881 - SUPREME COURT] and CIT vs JP Morgan services India Pvt.Ltd. [ 2017 (5) TMI 640 - SC ORDER] wherein it has been held that deductions under section 10 A, 10 B should be allowed in respect of current year profits of the undertaking before setting off brought forward losses and unabsorbed depreciation. Deduction u/s 10A - Reduction of foreign currency expenses from export turnover - HELD THAT:- Assessee incurred expenditure in foreign currency in relation to sales and marketing activities, process study and analysis by experts of company who visit client location, expenditure incurred for providing training to employees of assessee in regard to business process of client. These services in our considered opinion cannot be considered to be one falling as defined in definition of computer software in Explanation 2 (i) to section 10A of the act. We are therefore unable to concur with arguments advanced byLd.AR. It is also observed that decisions relied upon by Ld.AR by Hon ble Jurisdictional High Court are on different set of facts and are of no assistance to assessee in present facts. However assessee cannot be denied benefit of exclusion of foreign currency expenses from total turnover as has been held by Hon ble Supreme Court in case of CIT vs HCL Technologies Ltd [ 2018 (5) TMI 357 - SUPREME COURT] Respectfully following the same, we direct Ld.AO to exclude foreign currency expenditure incurred by assessee from total turnover as well. Accordingly this ground raised by assessee stands dismissed. Addition on account of deferred revenue - HELD THAT:- Addition of deferred revenue is revenue neutral as corresponding increase in income has been treated as profit of business and deduction under section 10 A has been allowed by Ld.AO for assessment year 2007-08. He has also submitted that deferred revenue for assessment year under consideration has actually been recognised and accounted for as revenue for assessment year 2008-09 and the same has been considered in computing total income for assessment year 2008-09. It is observed that Ld.CIT (A) directed Ld.AO to verify the amount of ₹ 11,69,38,859/- from income for assessment year 2008-09. We therefore set aside this issue to Ld. AO for due verification as per direction and to consider claim of assessee as per law. Disallowance under section 14A having regards to Rule 8D (iii) - HELD THAT:- Admittedly, year under consideration is 2007-08 and Rule 8D has been prospectively implemented. Ld.AO thus erred in resorting to computation as per Rule 8D. However considering fact that assessee earned exempt income which do not form part of total income for the year under consideration and no suo moto disallowance has been made by assessee, we direct Ld.AO to restrict disallowance under section 14 A to the extent of ₹ 10,000 only. Disallowance of expenses under 40(a)(i) / 40(a)(ia) - HELD THAT:- Software payments are in the nature of 'royalty' and hence liable for TDS.See SAMSUNG ELECTRONICS CO. LTD. OTHERS [ 2011 (10) TMI 195 - KARNATAKA HIGH COURT] Setting off loss from forward option contract while computing business income as against income from other sources contended by assessee - HELD THAT:- Admittedly, assessee is not a dealer in foreign exchange. What is necessary to be analysed is, dominant purpose for entering into forward contract and option contracts. As we analyse reply filed by assessee on query raised by Ld. AO(referred to herein above), it is observed that forward contract was entered into by assessee in respect of all 5 units as a whole, to hedge against currency fluctuation in respect of receipts (98%) in view of services rendered by assessee to USA and European countries. It has been submitted in written submission dated 16/07/19 by Ld.AR that such contract was entered into by assessee to safeguard its interest. It is very clear that loss has been incurred by assessee upon hedging transaction of export, being business activity carried on by assessee. We therefore do not find force in submissions made by Ld.AR regarding forward contract in foreign exchange partaking character of treasury operations. Forward contract has been entered by assessee in relation to business income and therefore any loss or gain earned by assessee on account of such contract would partake nature of business income. In our view merely because Assessing Officer in preceding years and some of succeeding assessment years has not observed the issue does not mean, same should be allowed to perpetuate. Any claim made by assessee has to be analysed having regard to law applicable. Further, decisions relied upon by assessee has been decided on a different context and are factually not similar or even seemingly identical with that of assessee. Accordingly, ratio laid down in these decisions are of no assistance to assessee under present factual matrix. Alternative plea of Ld.AR in considering such loss to be set off against profits of 10A units before allowing deduction under section 10A cannot be ignored. Accordingly, we direct Ld.AO to apportion such loss against the profits of STPI unit s in ratio of turnover and to grant set of against such profit before computing deduction under section 10 A in respect of such unit. Brand building expenses claimed by assessee - nature of expenses - capital in nature OR revenue expenditure - HELD THAT:- In the present facts of case, assessee incurred such expenses in the process of an ongoing business activity and therefore it was not right on behalf of authorities below to hold such expenditure to be capital in nature. Direct Ld. AO to delete disallowance made. Foreign tax credit - HELD THAT:- As submitted that during the year assessee claimed foreign tax credit amounting to ₹ 1,10,183/-as double taxation relief under section 90 in the process of computing income tax. We direct Ld. AO to verify the same and allow the claim of assessee as per law. Accordingly this ground raised by assessee stands allowed.

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• 2020 (1) TMI 1008
  TP Adjustment - comparable selection - Whether Ace software Exports Ltd. margin computed by the TPO is correct in the given facts and circumstances - HELD THAT:- We find that the issue is factual in nature and accordingly we set aside to the file of the TPO to work out the actual margin of Ace software and adjudicate the issue accordingly. Whether the comparable namely Rolta needs to be rejected in the given facts and circumstances - Whether the comparable namely Geometric should be included in the list of comparable - The financial statement of Rolta India Ltd was for the entire group which was used as comparable in the case of the assessee company. In our considered view the consolidated financial statements cannot be compared with the assessee. It is because the consolidated financial statement of Rolta India Ltd. also contain the information/financial result of the entire group. As such, the provisions of the Act requires that only the Indian company of Rolta group can be considered as one of the comparable for working out the ALP of the assessee. Thus company namely Rolta India Ltd. cannot be considered as comparable. Accordingly, we reverse the finding of the learned DRP and direct the TPO not treat this company as the comparable for the purpose of working out the ALP of the assessee with respect to the transactions carried out with its associated enterprises. As, we have rejected Rolta India Ltd as one of the comparable, we do not find any reason to adjudicate the issue for the inclusion of Geometric Software Solution Co Ltd. Hence, the ground of appeal of the assessee is partly allowed for statistical purposes. ALP adjustment in relation to Reimbursement of management fees expenses - HELD THAT:- Regarding the ad hoc disallowance of management fee expenses, we note that there is no power under the provisions of the Act which allows to the TPO to make the disallowance on ad hoc basis. As such the law is fairly clear and requires the TPO to determine the arm length price of the international transaction with the AE. As such there is no power available to the TPO to make the ad hoc disallowance while computing the income under the head business and profession. See M/S. FLAKT (INDIA) LTD. (NOW KNOWN AS M/S SOLYVENT FLAKT INDIA LTD.) [ 2016 (6) TMI 557 - ITAT CHENNAI ]. We hold that the TPO has erred by making the disallowance on ad hoc basis. Accordingly we delete the addition made by the authorities below. We are also conscious to the fact that the assessee in the said facts and circumstances will get double benefit. First of all the assessee did not furnish the basic requirements as desired by the Income Tax Department and at the same time it has not been penalized. But, the provisions of law is supreme which requires that the TPO to determine the ALP of the transactions referred by the AO. The TPO as such cannot make the disallowance on ad hoc basis. In view of the above and after considering the facts in totality, the ground of appeal raised by the assessee is partly allowed. Restrict adjustments if any to the amount of international transactions only - HELD THAT:- Adjustment in determining the income shall be limited to the extent of international transactions entered between the associated enterprises. Accordingly, we direct the AO if any adjustment needs to be made then it should be limited to the extent of international transaction between the associate enterprises. In this regard we find support and guidance from the judgment of Mumbai Tribunal in case of Phoeinx Macano (India Pvt Ltd) [ 2014 (1) TMI 1023 - ITAT MUMBAI ] - Thus we direct the TPO to make the addition for the adjustments if any limited to the extent of international transactions between the specified persons. We order accordingly. Hence the ground of appeal of the assessee is allowed. Benefit of adjustment of + 5 % to be given while determining the Arm Length Price. See Globle Ventedge Pvt Ltd v/s DCIT [ 2009 (12) TMI 668 - ITAT DELHI ] Benefit to the assessee for the deduction under section 10B allowed . See M/S TYCO VALVES CONTROL INDIA PVT LTD. [ 2013 (1) TMI 540 - ITAT AHMEDABAD ] Full depreciation charged by assessee on asset costing less than ₹ 5000/- - HELD THAT:- Both the parties and perused the materials available on record. The issue in the present case relates whether the assessee has claimed 100% deduction in respect of the assets costing less than ₹ 5,000.00 or it has claimed depreciation thereon as per the provisions of law. In this regard, we note that the learned DRP has given a direction to allow the claim of the assessee after necessary verification. We find no infirmity in the direction of the learned DRP in view of the fact that the issue involved is factual in nature. Accordingly we hold that no separate adjudication is required in the given facts and circumstances. Thus, we dismiss the ground of appeal raised by the assessee.

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• Customs

• 2020 (1) TMI 1010
  Payment of rent and warehouse charges - provisions of Section 63 of the Customs Act, 1962 which stand deleted from the Act, with effect from 14.05.2016 - HELD THAT:- The petition is dismissed. However, since proceedings are stated to be pending before NCLT as against the exporter and a moratorium under Section 14 has been granted with a Resolution Professional ('RP') appointed for initiation of CIRP, the petitioner is permitted to approach the RP with a claim for the amount due from the Corporate Debtor. Such claim, if submitted will be considered by the RP strictly in the order of priority, as set out under Section 53 of the Insolvency and Bankruptcy Code, 2016.

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• CST, VAT & Sales Tax

• 2020 (1) TMI 1009
  Taxability and quantification of receipts - job works of galvanization - periods 2010-11 and 2011-12 - HELD THAT:- The Revenue has filed an Appeal against the order before the Tamil Nadu Sales Tax Appellate Tribunal. Thus, both Writ Petitions are allowed and the impugned order for 2012-13 is set aside - The proceedings for assessment for the period 2012-13 as well as the show cause notices for the later two years will be kept in abeyance till disposal of the Revenues' appeal by the Tribunal. Petition closed.

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