TMI Tax Updates - e-Newsletter
November 18, 2020

Case Laws in this Newsletter:

GST Income Tax

Articles

1. RECENT DEVELOPMENTS IN GST

   By: Dr. Sanjiv Agarwal

News

1. One held for fraudulently passing Input Tax Credit of ₹ 13.08 crore by DGGI Rohtak

2. Auction for Sale (Re-issue) of ‘4.48% GS 2023’, Auction for Sale (Re-Issue) of ‘GoI Floating Rate Bond 2033’, Auction for Sale (Re-issue) of ‘6.22% GS 2035’, and Auction for Sale (Re-issue) of ‘6.67% GS 2050’

3. DIPAM signs an agreement with World Bank for advisory services on Asset Monetization

Notifications

Central Excise

1. ORDER NO. 1/2020-SVLDRS, 2019 - dated 13-11-2020 - CE (NT)

Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 (Removal of Difficulties) Order, 2020.

Customs

2. 107/2020 - dated 13-11-2020 - Cus (NT)

Tariff Notification in respect of Fixation of Tariff Value of Edible Oils, Brass Scrap, Poppy Seeds, Areca Nut, Gold and Silver

GST

3. G.S.R. 712(E) - dated 13-11-2020 - CGST

Corrigendum – Notification No. 86/2020-Central Tax, dated the 10th November, 2020

4. G.S.R. 711(E) - dated 13-11-2020 - CGST

Corrigendum – Notification No. 82/2020-Central Tax, dated the 10th November, 2020

GST - States

5. GST/2020-21/F.No-509/56/Commercial Tax - dated 9-11-2020 - Uttar Pradesh SGST

Amendment in Notification No. GST-2020-21/F.No.-509/50/Commercial Tax Dated 22.06.2020

6. 1284 /XI-2-20-9(47)/17-U.P. Act-1-2017-Order-(159)-2020 - dated 2-11-2020 - Uttar Pradesh SGST

Seeks to amend Notification No. KA. NI.-2-1557/XI-9(47)/17-U.P. Act-1-2017-Order-(65) dated 15 November, 2019

7. 1283 /XI-2-20-9(47)/17-U.P. Act-1-2017-Order-(158)-2020 - dated 2-11-2020 - Uttar Pradesh SGST

Seeks to prescribe the due date for furnishing FORM GSTR-1 for the quarters October, 2020 to December, 2020 and January, 2021 to March, 2021 for registered persons having aggregate turnover of up to 1.5 crore rupees in the preceding financial year or the current financial year

8. 881/2020/7(120)/XXVII(8)/2020/CT-79 - dated 11-11-2020 - Uttarakhand SGST

Uttarakhand Goods and services tax (Twelth amendment) Rules, 2020

9. 880/2020/7(120)/XXVII(8)/2020/CT-77 - dated 11-11-2020 - Uttarakhand SGST

Substitution of words financial years 2017-18, 2018-19 and 2019-20 in notification no. 921 dated 8-11-2019

10. 879/2020/7(120)/XXVII(8)/2020/CTR-5 - dated 11-11-2020 - Uttarakhand SGST

Amendment in notification no. 530 dated 29-6-2017 regarding rate of tax of Satellite launch services

11. 878/2020/7(120)/XXVII(8)/2020/CT-74 - dated 11-11-2020 - Uttarakhand SGST

Time period for furnishing details in Form GSTR-1

SEZ

12. S.O. 4084 (E) - dated 9-11-2020 - SEZ

Central Government notifies the 23.345 hectares area at Village Bandhwari, Tehsil- Wazirabad, District Gurugram in the State of Haryana and constitutes an Approval Committee

Circulars / Instructions / Orders

FEMA

1. 06 - dated 17-11-2020

Foreign Exchange Management Act, 1999 (FEMA)- Compounding of Contraventions under FEMA, 1999

Central Excise

2. 1075/01/2020 - dated 14-11-2020

Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 (Removal of Difficulties) Order 2020 dated 13th Nov.,2020- procedure for filing of declaration by the eligible declarant in the UT of J & K and UT of Ladakh and its verification thereafter, etc.

Highlights / Catch Notes

GST

• GST Applicable on Co-op Housing Society: Member Contributions Considered Supply u/s 7(1)(a) of CGST Act, 2017.

  Case-Laws - AAAR : Levy of GST - Business or not - Supply or not - common law Principle of Mutuality - Co-operative Housing Society - contribution charges collected by the Appellant from the members of the society - The activities carried out by the Appellant would amount to supply in terms of Section 7(1)(a) of the CGST Act, 2017, and the same would be liable for GST subject to the condition that the monthly subscription / contribution charged by the society from its members is more than ₹ 7500/- per month per member and the annual aggregate turnover of the society by way of supplying of services and goods is also ₹ 20 lakhs or more. - AAAR
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Income Tax

• Material from Section 132 Searches Can Trigger Section 147, But Must Meet Conditions in Sections 147-151.

  Case-Laws - AT : Validity of the proceedings u/s 147 - Search proceedings u/s 132 - Whether Section 153A has overriding effect over Section 147 - material found during the course of search proceedings can be used for invoking the provisions of Section 147 of the Act. However, it is important to note that the provisions of Section 147 of the Act can be invoked only after complying the provisions/conditions as provided under Section 147/148/149/150 and 151. - AT
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• Section 153C Assessment Requires AO Satisfaction Note; Documents Must Link to Appellant from Searched Premises.

  Case-Laws - AT : Assessment u/s 153C - recording of satisfaction - A perusal of the satisfaction note would indicate that the AO nowhere held that documents belonged to the present appellants were found at the premises of searched person/entity. Though, section 153C is a procedural section, but the jurisdiction to assess an assessee under this section is being invoked with help of the section. - AT
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• Tax Dispute: Section 40(a)(i) Disallowance for Foreign Testing Payments; Assessee Cites Tax Treaties, Section 9(1)(vii) Exclusion.

  Case-Laws - AT : TDS u/s 195 - disallowance u/s 40(a)(i) - payment to a foreign entity as testing /certification fees outside India - the assessee bonafidely believed that such certification fee was not liable to tax in India, as the same was not covered within the meaning of “ Fee for Technical Services” as provided u/s 9(1) (vii) of the Act and/or the overriding provisions of the Double Taxation Avoidance Agreements stands covered in favour of the assessee - AT
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• Export Commission Disallowance u/s 40(a)(i) Challenged: Non-Resident Agents Without PE in India Exempt from TDS Requirement.

  Case-Laws - AT : TDS u/s 195 - disallowance made u/s 40(a)(i) - export commission paid to overseas agents, who arrange for exports and procure export orders for the assessee - the said non-resident agents do not have any PE in India and that they are domiciled in U.K and USA - the provisions of section 195(2) of the Act would not come into operation at all. - AT
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• Section 40A Cash Payments for Property Purchases Examined; Business Expediency Justifies Transactions Without Additions.

  Case-Laws - AT : Addition u/s 40A - sum paid in cash in respect of purchase of the two immoveable properties - Sale deed has been executed on 18.8.2013 and the payment has been made on the said date which happens to be Sunday and thus a bank holiday again necessitating the payment in cash coupled with the fact that the seller doesn’t have a bank account - in respect of second sale transaction, the test of business expediency has been met as the initial/advance payment of ₹ 1 lac as insisted by the seller has only been made in cash to secure the transaction and rest all payments have been made through cheque. - No additions - AT
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• Dispute Over Rental Income Classification u/s 263: Business Income Status Accepted Consistently by Tax Authorities.

  Case-Laws - AT : Revision u/s 263 - Correct head of income - rental income from letting out of the shop - The assessee was not finding the buyer to sell the property which were kept as stock in trade, so it cannot be said that the assessee closed the business - it can be said that by considering the rental income received by the assessee as “business income” which was consistently claimed by the assessee in the preceding years also and the department had accepted the same, the assessment order passed by the A.O. was not prejudicial to the interest of the revenue - AT
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• ITAT Grants Exemption u/s 11; High Court Finds No Perversity, Assessee Not Profit-Making Entity.

  Case-Laws - HC : Exemption u/s 11 - Tribunal while allowed the exemption held that the proviso to Section 2(15) is not applicable to assessee - ITAT observed that, profit making is not the driving force or objective of the assessee. - The order passed by the Tribunal is based on the meticulous appreciation of materials on record and by no stretch of imagination can be said to be perverse. - HC
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• High Court Rules Assessee Entitled to Deduction u/s 36(1)(viii) as a 'Financial Corporation' Pre-2008 Amendment.

  Case-Laws - HC : Deduction u/s 36(1)(viii) - Whether assessee is eligible for deduction u/s 36(1)(viii) even though the assessee is not an eligible entity under the provisions of the Act prior to amendment w.e.f. 01.04.2008? - the assessee is squarely covered within the meaning of expression ‘Financial Corporation’ and is entitled to benefit of deduction under Section 36(1)(viii) of the Act. - HC
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• High Court finds petitioner was given opportunity to be heard before compulsory audit u/s 142(2A) was ordered.

  Case-Laws - HC : Compulsory audit u/s 142(2A) - Though the impugned action is questioned on the ground that effective opportunity of hearing was not given. However, the record reveals that before taking decision a notice was issued and petitioner was given the opportunity of hearing. Facts nullify the contention of the petitioner that they had no effective opportunity of hearing.- HC
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Case Laws:

• GST

• 2020 (11) TMI 489
  Levy of GST - Business or not - Supply or not - common law Principle of Mutuality - contribution charges collected by the Appellant from the members of the society would be construed as consideration in terms of Section 2(31) of the CGST Act, 2017 - HELD THAT:- The activities performed by the Appellant are entirely oriented towards providing facilities, benefits or convenience to its members, whether it is obtaining the conveyance of the right, title or interest from the promoter, or management, maintenance or administration of the property of the society, which are shared jointly by all the members of the society, or undertaking various social, cultural and recreational activities for the members. Therefore, all these activities would rightly get covered under the definition of the term business as provided under Section 2(17)(e) of the CGST Act, 2017, which unequivocally stipulates that provision by a club, association, society, or any such body (for a subscription or any other consideration) of the facilities or benefits to its members would be included under the meaning of the term business. The legislature wanted to bring the activities of clubs, association, society or any such body under the ambit of GST law. Therefore, this clause (e) under Section 2(17) has been categorically carved out under the CGST Act, 2017. Thus, provision of any facilities or benefits by a club, association, or society to its members against a subscription or any other consideration would be construed as business. It is needless to elaborate that any society is formed with the sole objective to provide help. benefits or facilities to its members by way of undertaking management, maintenance and proper administration of the society property, which are owned jointly by the society members. Thus, each and every member of the society is benefitted by the formation and functioning of the society. In the present case also, the Appellant is undertaking various sorts of activities, which inter-alia includes the management, maintenance, administration of the society property, payment of various statutory taxes like payment of electricity bill of the common area of the society, water tax levied by the local authority, etc. along with organising various social, cultural, and recreational events for the members of the society against the contribution called society charges , which can reasonably be construed as consideration in terms of Section 2(31) of the CGST Act, 2017.Under the provisions of the CGST Act, 2017, the Appellant is doing business in terms of its definition provided under Clause (e) of Section 2(17) the CGST Act, 2017. Since, the Appellant is providing services to its members against the consideration, named as society charges in the course or furtherance of business, therefore, the activities would be construed as supply in terms of Section 7(1)(a) of the CGST Act, 2017, and accordingly will be liable for GST. Even though the Appellant have contended that the said question can be categorized under Clause (e) of Section 97(2) of the CGST Act, 2017, which deals about the determination of the liability to pay tax on any goods or services or both, it is stated that the Clause (e) does not speak about the computation or assessment of the tax liability of any transaction, but only the determination of the liability as to whether any supply of goods or services or both are liable for GST or otherwise. Hence, the contention put forth by the Appellant is not acceptable. The activities carried out by the Appellant would amount to supply in terms of Section 7(1)(a) of the CGST Act, 2017, and the same would be liable for GST subject to the condition that the monthly subscription / contribution charged by the society from its members is more than Rs. 7500/- per month per member and the annual aggregate turnover of the society by way of supplying of services and goods is also Rs. 20 lakhs or more.

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• Income Tax

• 2020 (11) TMI 488
  Compulsory audit u/s 142(2A) - seeking its quashment on the ground that the petitioner was not given an effective opportunity of hearing - HELD THAT:- A questionnaire was issued under sub-section (1) of Section 142. The reply was not found satisfactory for the reasons that the petitioner was not maintaining its books of account accurately and has not followed the accounting principles correctly and the nature of accounts being complex and bulky led the department to take recourse to compulsory audit. Though the impugned action is questioned on the ground that effective opportunity of hearing was not given. However, the record reveals that before taking decision on 31.12.2019 a notice was issued on 30.12.2019 to the petitioner vide DIN Letter No. ITBA/COM/F/17/2019-20/1023245419(1) dated 27.12.2019 was given the opportunity of hearing. Facts nullify the contention of the petitioner that they had no effective opportunity of hearing. In the case at hand, the petitioner was afforded an opportunity of hearing before taking recourse to sub-section (2A) of Section 142 directing the petitioner to get the accounts audited by an accountant. Petition fails.

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• 2020 (11) TMI 487
  Cash seized during the search - HELD THAT:- Assessee did not produce any material despite opportunity being afforded to show that the amount seized during the search belonged to M/s S.S.Tours and Travels. Even otherwise, the aforesaid finding is a pure finding of fact, which does not suffer from any perversity. It is well settled that this court in exercise of powers under Section 260A of the Act cannot interfere with the finding of fact until and unless the same is demonstrated to be perverse - Decided against assessee.

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• 2020 (11) TMI 486
  MAT computations u/s 115JB on banking companies - HELD THAT:- First substantial question of law has already been answered against the revenue in M/S. ING VYSYA BANK LIMITED [ 2020 (1) TMI 1116 - KARNATAKA HIGH COURT] . The aforesaid statement made by learned counsel for the assessee could not be disputed by learned counsel for the revenue. First substantial question of law framed by this Court is answered against the revenue. Deduction u/s 36(1)(vii) - bad debts - assessee has not debited any bad debts write off in the profit and loss account and only the provision for bad debts (prudential write off) has been claimed as deduction in the computation of income as bad debt write off? - HELD THAT:- Second substantial question of law has also been answered against the revenue in M/S. VIJAYA BANK [ 2014 (10) TMI 1015 - KARNATAKA HIGH COURT] -The aforesaid fact also could not be disputed by learned counsel for the revenue. Second substantial question of law is also answered against the revenue and in favour of the assessee. Depreciation on Held to Maturity category investments - Whether the same is notional in nature and against the RBI guidelines for valuation of securities? - HELD THAT:- Substantial question of law is also been answered against the revenue in the case of KARNATAKA BANK LTD. VS. ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE 2(1) [ 2013 (7) TMI 656 - KARNATAKA HIGH COURT] . The aforesaid aspect could not be disputed by learned counsel for the revenue. - Decided in favour of assessee. Deduction u/s 36(1)(viii) - Whether assessee is eligible for deduction u/s 36(1)(viii) even though the assessee is not an eligible entity under the provisions of the Act prior to amendment w.e.f. 01.04.2008? - HELD THAT:- The benefit of deduction under Section 36(1)(viii) of the Act was available to a Financial Corporation, which included the Public Company and Government Company. The explanation appended to clause (viii) further specifies that expression Public Company shall have the meaning assigned to it under Section 3 of the Companies Act, 1956 and the expression Government Company shall have the meaning assigned to it under Section 617 of the Companies Act, 1956. Admittedly, Vijaya Bank is not a Private Company. Therefore, the same fulfills the requirement of Section 3 of the Companies Act, 1956 and is a Public Company. It is also pertinent to note that 51% of the shares of Vijaya Bank are held by the Government of India and therefore, the same is a Government Company within the meaning of Section 617 of the Companies Act, 1956. Therefore, the assessee is squarely covered within the meaning of expression Financial Corporation and is entitled to benefit of deduction under Section 36(1)(viii) of the Act. For the aforementioned reasons, the fourth substantial question of law is answered against the revenue and in favour of the assessee. Disallowance made under section 14A - HELD THAT:- The aforesaid question is also answered against the revenue by a Bench of this Court in M/S. SYNDICATE BANK [ 2020 (1) TMI 1141 - KARNATAKA HIGH COURT] . The aforesaid fact could not be disputed by learned counsel for the revenue. - Decided in favour of assessee.

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• 2020 (11) TMI 485
  Benefit of Vivad Se Vishwas Scheme ( VVS Scheme ) - Substantial Questions of Law framed for consideration on account of certain subsequent developments - Option to appeal in case application for settlement is rejected - HELD THAT:- It may not be necessary for this Court to decide the Substantial Questions of Law framed for consideration on account of certain subsequent developments. The Government of India enacted the Direct Tax Vivad Se Vishwas Act, 2020 (Act 3 of 2020) to provide for resolution of disputed tax and for matters connected therewith or incidental thereto. The Act of the Parliament received the assent of the President on 17th March 2020 and published in the Gazette of India on 17th March 2020. In terms of the said Act, the assessee has been given an option to put an end to the tax disputes, which may be pending at different levels either before the First Appellate Authority or before the Tribunal or before the High Court or before the Hon ble Supreme Court of India. The assessee is given liberty to restore this appeal in the event the ultimate decision to be taken on the declaration to be filed by the assessee under Section 4 of the said Act is not in favour of the assessee. If such a prayer is made, the Registry shall entertain the prayer without insisting upon any application to be filed for condonation of delay in restoration of the appeal and on such request made by the assessee by filing a Miscellaneous Petition for Restoration, the Registry shall place such petition before the Division Bench for orders.

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• 2020 (11) TMI 484
  Benefit of Vivad Se Vishwas Scheme ( VVS Scheme ) - Substantial Questions of Law framed for consideration on account of certain subsequent developments - Option to appeal in case application for settlement is rejected - HELD THAT:- It may not be necessary for this Court to decide the Substantial Questions of Law framed for consideration on account of certain subsequent developments. The Government of India enacted the Direct Tax Vivad Se Vishwas Act, 2020 (Act 3 of 2020) to provide for resolution of disputed tax and for matters connected therewith or incidental thereto. The Act of the Parliament received the assent of the President on 17th March 2020 and published in the Gazette of India on 17th March 2020. In terms of the said Act, the assessee has been given an option to put an end to the tax disputes, which may be pending at different levels either before the First Appellate Authority or before the Tribunal or before the High Court or before the Hon ble Supreme Court of India. As observed, the assessee is given liberty to restore this appeal in the event the ultimate decision to be taken on the declaration to be filed by the assessee under Section 4 of the said Act is not in favour of the assessee. If such a prayer is made, the Registry shall entertain the prayer without insisting upon any application to be filed for condonation of delay in restoration of the appeal and on such request made by the assessee by filing a Miscellaneous Petition for Restoration, the Registry shall place such petition before the Division Bench for orders. In the light of the above, We direct the appellant / assessee to file the Form No.I on or before 20.11.2020 and the competent authority shall process the application / declaration in accordance with the Act and pass appropriate orders as expeditiously as possible preferably within a period of six (6) weeks from the date on which the declaration is filed in the proper form.

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• 2020 (11) TMI 483
  Exemption u/s 11 - Profit motive - Tribunal while allowed the exemption held that the proviso to Section 2(15) is not applicable to assessee - HELD THAT:- State Government acquires the land for the scheme of the assessee and hand over the same to the assessee after the acquisition for the development of the industrial area. The Tribunal has further held that the profit making is not the driving force or objective of the assessee. The Tribunal has therefore, recorded the conclusion that the assessee is engaged in the charitable activity through advancement of an object of general public utility and therefore, has concluded that the Proviso to section 2(15) of the Act is not applicable to the case of the assessee and has further held that the assessee is entitled to benefit of Section 11 of the Act. It has also been noticed that the Assessing officer has not disputed that the assessee fulfills the conditions, which is necessary for allowing the exemption of the deductions applicable under the Act except Proviso to Section 2(15) of the Act. Thus, the Tribunal has held that the Proviso to section 2(15) of the Act is not applicable to the case of the assessee. The order passed by the Tribunal, in our considered opinion, is based on the meticulous appreciation of materials on record and by no stretch of imagination can be said to be perverse. The issue with regard to the perversity is not raised on behalf of the revenue. Appeal dismissed.

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• 2020 (11) TMI 482
  Assessment u/s 153C - recording of satisfaction or not - DR submitted that the assessment proceeding of the searched person was pending when the amendment in section 153C was made - Whether the material found at the premises of the searched person, would indicate that these documents falls in the category of documents, which could be termed as document belong to or belongs to the assessee or entry embedded in them falls within the ambit of expression pertains to or relates to ? - HELD THAT:- A perusal of both the satisfaction would indicate that the AO nowhere observed that these documents belonged to the assessee i.e. Shri Dilipkumar Lalwani. He only observed that these documents contained information which relate to the assessee. Thus, it could be construed that documents seized during the course of search; again carried out in the cases of concerned third person, were observed as relates to the assessee. They do not belong to the assessee. A perusal of the satisfaction note would indicate that the AO nowhere held that documents belonged to the present appellants were found at the premises of searched person/entity. Though, section 153C is a procedural section, but the jurisdiction to assess an assessee under this section is being invoked with help of the section. The AO will be in a position to pass assessment order only if during the course of search, any money, bullion, jewellery and other valuable article or thing, or the documents found belong to other person prior to 1.6.2015, and the AO of the searched person was satisfied that such documents disclosed undisclosed income. The documents belonged to the appellants considered under this compartment of the arguments were not found, rather certain information relating to the assessees were found to be embedded in these documents, but prior to 1.6.2015, jurisdiction under section 153C cannot be invoked on the basis of such information. - Decided against revenue. Whether the assessment under section 153A is to be framed directly based on incriminating material found during the search carried out in the cases of the concerned assessee? - HELD THAT:- For the purpose of section 153A that only seized material is required. However, if there is any other incriminating material belong to the assessee found at the premises of the some other person, then the assessment has to be made under other provisions and not under section 153A of the Act. See case of CIT Vs. Kabul Chawla [ 2015 (9) TMI 80 - DELHI HIGH COURT] . In the present group of three assessee in different assessment years, search was conducted, but the additions have been made on the basis of the material found during the search relating to some third person. In other words, the AO has not made the addition on the basis of material found during the course of search of these three assessees. We will discuss the material considered by the AO in the subsequent part of his order. Primarily, after looking the material considered by the AO and compiled in tabular form by the ld.counsel for the assessee, we have verified that these additions are not based on the material found during the course of search conducted at the premises of these three assessee. Additions made by the AO in the case of Rajesh Sunderdas Vaswani in different assessment years are not sustainable, because they are not based on the seized material found during the course of search carried out at his premises. Similarly, the additions made in the case of Sanjeet Motors and Finance are also not sustainable. As far as addition in the case of Deepak Budharmal Vaswani is concerned the addition in the assessment year 2015-16 it deserves to be confirmed because the material to this effect was found during the course of search carried out at the premises of the assessee. The rest of the additions are not supported by any material which was discovered during the course of search at his premises. Whether the assessments framed under Section 153A of the Act were within the limitation or not? - HELD THAT:- Search team has to justify in the order passed under Section 132(3) of the Act that books/documents/valuables are not practicable to seize along with the reasons other than those mentioned in second proviso to Section 132(1). A situation also arises where the authorised officers impose PO considering that the goods found in the search are not practicable to seize. On the subsequent visit, PO is revoked leading to inference that they consider that goods are now practicable to seize. But the authorised officer has not brought anything on record describing in the Panchnama or in the revocation order how it has become practicable to seize the documents. Conditions imposed under Section 132(3) of the Act for passing the prohibitory orders were not complied with. Accordingly, these orders passed under Section 132(3) of the Act have no validity in the eyes of law. Once the prohibitory orders in the case on hand has been held as invalid then the search concluded in the month of March 2015 shall be taken as the base for calculating the period of passing the assessment order as provided under Section 153B of the Act. In other words the time limit in the case on hand expires for passing the order as on 31 March 2017. Therefore, in the present case the orders have been framed beyond the time prescribed under the provisions of law. Bank lockers with respect to which prohibitory orders were passed under Section 132(3) of the Act were belonging to the other parties who are the income tax assessee. On this count only the prohibitory orders passed by the authorised officer in the name of the assessee in connection with the lockers held by other parties, though related to the assessee cannot be used for extending the time for the assessment provided under Section 153B of the Act. As we have held that assessment orders has been framed beyond the time provided under the statute which has no validity in the eyes of law, accordingly we quash the same. - Decided in favour of assessee. Validity of the proceedings u/s 147 - AR contended that search proceedings are the special proceedings as provided under Section 153A of the Act which has overriding effect over Section 147 - n whether the material found during the search proceedings under Section 132 of the Act can be used for invoking the provisions of income escaping assessment under Section 147 ? - HELD THAT:- The assessment under Section 153A of the Act as a result of search is applicable for the specified number of 6 years. Provision of Section 153A(1)(b) provides that in case of search, six assessment years preceding to A.Y. in which search was conducted or requisition made will be assessed or reassessed. Thus the situation arises whether the materials discovered during search proceedings for beyond six preceding A.Y. can be used for invoking the provisions of Section 147 of the Act for the period not covered under the provisions of Section 153A of the Act. The answer stands in favour of the Revenue - no denial under the provisions of law for using the search material under the provisions of Section 147 of the Act in a situation where the period/year in dispute is not covered within the provisions of Section 153A of the Act. It is not out of place to mention that the conditions precedent to invoking the provisions to Section 147 of the Act have to be complied by the Revenue - material found during the course of search proceedings can be used for invoking the provisions of Section 147 of the Act. However, it is important to note that the provisions of Section 147 of the Act can be invoked only after complying the provisions/conditions as provided under Section 147/148/149/150 and 151. We are not inclined to disturb the finding of the authorities below. Hence the contention raised i.e. the provisions of Section 147 of the Act cannot be invoked in view of the fact that there was special proceedings under Section 153A of the Act in case of search, by the assessee is dismissed. Thus the contention of the assessee is hereby dismissed. Whether the information received from the investigation wing/search team would constitute reason to believe empowering the Assessing Officer to reopen the assessment? - In the assessee s case, the crucial link between the information made available to the Assessing Officer and the formation of belief was absent. The reasons to believe recorded were not reasons but only conclusions and a reproduction of the information received from the Director (Investigation). Hence it is nothing but a Borrowed satisfaction . There is no mention in reasons recorded with respect to the fact that whether the assessee has filed original return or weather assessment under Section 143(3) was made earlier or not. if assessment under Section 143(3) completed earlier then how it was failure on the part of the assessee to disclose all material facts fully and truly during assessment proceeding for initiating reassessment proceeding after expiry of 4 year from the end of relevant assessment year. In the present case the search information received from the investigation wing was used to form the reason to believe by the AO but without applying the mind. Thus the reasons were merely recorded on the borrowed satisfaction by the AO. The source for all the conclusions was of the investigation report. The tangible material which formed the basis for the belief that income had escaped assessment must be evident from a reading of the reasons. The reasons failed to demonstrate the link between the tangible material and the formation of the reason to believe that income had escaped assessment. Third party information is only an information and does not constitute reason to believe until and unless the third party information is subjected to investigation and on the basis thereof independent reasons are recorded by the Assessing Officer before issuance of notice under Section 148. On comparison of the additions proposed in the reason to believe recorded for the assessment under Section 147 of the Act with the actual addition made by the AO as contended by the learned DR we find that the additions which were proposed in the reasons recorded were not matching with the actual additions made by the AO in the assessment order under Section 147/143(3) of the Act. As such the amount of addition viz a viz the basis of re-opening as proposed in the reasons recorded were not matching with the addition made by the AO in the assessment framed under Section 147/143(3) of the Act. Accordingly, we hold that there cannot be any addition in the assessment framed under Section 147/143(3) . Addition on account of interest free loans and advances provided to the partners - HELD THAT:- It was not mandatory to charge the interest on the amount of loans and advances given to the partners, rather it was based on the mutual acceptance of the partners. Accordingly, to our understanding, the assessee has not charged any interest from the partners on the amount of loan/advances provided to the partners. It was the wisdom of the assessee not to charge the interest from the partners and the AO cannot direct to do otherwise. In holding so we draw support and guidance from the judgment of Hon ble Gujarat High court in the case of Pr.CIT vs. Alidhra Taxspin Engineers. [ 2017 (5) TMI 1684 - GUJARAT HIGH COURT] . We also find force in the alternate contention of assessee. The amount of interest which is in dispute pertains to the earlier assessment year. At all any adjustment if need to be made , then the AO can do so in the respective assessment years 2012-13 and 2013-14 without disturbing the same in the year under consideration. We are not impressed with the finding of the authorities below and therefore decline to uphold the same. Thus we set aside the finding of the learned CIT (A) and direct the AO to delete the addition made by him. - Decided in favour of assessee.

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• 2020 (11) TMI 481
  Revision u/s 263 - Correct head of income - rental income from letting out of the shop - why the rental income received may not be treated as income from House Property rather than considering the same as Income from business and profession ? - According to the Ld. Pr. CIT, merely because there was an entry in the object clause of the business showing a particular object, would not be the determinative/conclusive factor to arrive at a conclusion that the income was to be treated as income from business - HELD THAT:- Main object of the assessee in its MOA was to carry on the business of real estate dealers developers including purchase sale of land, land development, colonization, opurchase, sale construction letting out of houses, flats, farm houses. However as per Clause 19 of the aforesaid MOA the assessee was authorized to sell, improve, alter, manage, develop exchange, lease, mortgage, dispose of etc of the business lands, property, assets etc in whole or in part in such manner and on such terms as the Directors may think fit. Therefore the income of the assessee received on lease out property was its business income. In the instant case, the assessee furnished a Chart before the authorities below explaining that if the income received by it was to be treated as income from house property instead of business income there would be an increase in the loss. The said Chart had been reproduced in the former part of this order. Pr. CIT by considering the wrong calculations, was of the view that there was a profit instead of loss claimed by the assessee, if the rental income to be considered as income from house property and not as business income while adopting the said calculation, the Pr. CIT did not allow the depreciation and the other expenses on this basis that the assessee was not involved in any business activity during the year under consideration he ignored this explanation of the assessee that there was lull in business, but the business activity was not closed and the assessee was having stock in trade. It is well settled that there is a difference between discontinuation of business and the closure of business - if there was no closure of the business, therefore, it cannot be said that the assessee was not allowed to claim expenses if those were incurred for the business purposes. The assessee was not finding the buyer to sell the property which were kept as stock in trade, so it cannot be said that the assessee closed the business, therefore the expenses incurred for the purposes of business as well as the depreciation claimed were allowable to the assessee as business expenses, as such the Ld. Pr. CIT was not justified in not considering the depreciation as well as the expenses to work out the income / loss of the assessee. In the present case, it can be said that by considering the rental income received by the assessee as business income which was consistently claimed by the assessee in the preceding years also and the department had accepted the same, the assessment order passed by the A.O. was not prejudicial to the interest of the revenue, particularly when the loss would have been more at Rs. 7,70,160.40 instead of Rs. 3,89,226/- if the rental income was to be considered as income from House Property , instead of business income , as declared by the assessee. Assessment order passed by the A.O. was not prejudicial to the interest of the Revenue. In that view of the matter, the impugned order passed by the Ld. Pr. CIT under section 263 of the Act is quashed. - Decided in favour of assessee.

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• 2020 (11) TMI 480
  Addition u/s 40A - sum paid in cash in respect of purchase of the two immoveable properties - HELD THAT:- The genuineness and the bonafide of both the transactions have been established as evidenced by sale deeds and assessee s books of accounts wherein the transaction particulars have been duly reflected. In terms of business expediency, the assessee has explained that the seller Smt Teeja Devi is a resident of village Chosla which has no banking facility and therefore, she doesn t had an occasion to open any bank account in absence of any bank and in fact, she doesn t have any bank account opened and maintained in her name as on the date of execution of the sale deed and therefore, in such circumstances, the assessee had no option but to discharge the sale consideration in cash. A/R has submitted the affidavit of the assessee as well as a confirmation issued by the Sarpanch which remain uncontroverted before us - where the seller resides in a village which doesn t have a banking facility and therefore, the seller doesn t have a bank account in her name and both the parties agree to execute a sale deed for sale and purchase of land and the consideration is discharged in cash, it is clearly a case of business expediency which has necessitated the assessee who wants to acquire the said piece of land to discharge the sale consideration in cash due to lack of formal banking facility and in absence of any bank account in name of the seller. Sale deed has been executed on 18.8.2013 and the payment has been made on the said date which happens to be Sunday and thus a bank holiday again necessitating the payment in cash coupled with the fact that the seller doesn t have a bank account - in respect of second sale transaction, the test of business expediency has been met as the initial/advance payment of Rs. 1 lac as insisted by the seller has only been made in cash to secure the transaction and rest all payments have been made through cheque. As held in case of Smt. Harshila Chordia[ 2006 (11) TMI 117 - RAJASTHAN HIGH COURT] the consequences, which were to befall on account of non-observation of sub-section (3) of section 40A must have nexus to the failure of such object. Therefore the genuineness of the transactions and it being free from vice of any device of evasion of tax is relevant consideration for which section 40A(3) has been brought on the statute books and which has been satisfied in the instant case. As relying on THE SOLUTION [ 2016 (5) TMI 287 - RAJASTHAN HIGH COURT] no disallowance is called for under section 40A(3) of the Act and the same is directed to be deleted. In the result, the ground of the assessee s appeal is allowed. Unsecured loans taken by the assessee - Non responses to notices issued - HELD THAT:- Where the assessee is in the financing business and there are loan transactions to the tune of Rs. 13.64 crores in respect of which necessary details and other confirmations have been filed and the notices have been responded, then merely because 4 persons having transactions worth Rs. 9 lacs, having received the notices, choosen not to respond to the said notices cannot be held against the assessee. It is not the case of the Revenue either that the confirmations of these parties so furnished during the course of assessment proceedings are either false or have been forged. Once these confirmations have been accepted and the transactions have been executed by the assessee as part of its normal financing business through banking channel and the transactions carry the necessary attributes of a loan transaction where the AO has taken into consideration the confirmation and other details submitted by the assessee, no adverse view can be taken against the assessee as the onus cannot be shifted back to the assessee in absence of any adverse findings on record in terms of documentation so submitted by the assessee. Given that these are existing income tax assessees, there is nothing on record that the AO has taken any further steps in terms of issuing summons u/s 131 or reaching out to jurisdictional officers for verifying their tax records, etc. As relying on UMBRELLA PROJECTS PVT. LTD. [ 2018 (4) TMI 379 - ITAT DELHI] addition so made by the AO and confirmed by the ld CIT(A) is hereby set-aside and the ground of appeal is allowed in favour of the assessee.

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• 2020 (11) TMI 479
  TDS u/s 195 - disallowance made u/s 40(a)(i) - export commission paid to overseas agents, who arrange for exports and procure export orders for the assessee - assessee pleaded that these overseas agents are not having any permanent establishment (PE) in India and are residents of the respective foreign countries - CIT(A) also held that the payment of commission made to non-resident agents is not chargeable to tax in India in terms of section 195 of the Act and hence, there is no requirement to deduct tax at source as no part of income arises in India in the hands of the said non-resident agent - HELD THAT:- It is not in dispute that the non-resident agents to whom commission was paid by the assessee have rendered services outside India for sale of the goods of the assessee outside India. It is not in dispute that the said non-resident agents do not have any PE in India and that they are domiciled in U.K and USA. In view of these facts, it could be safely concluded that there is no income chargeable to tax in India in terms of section 195(1) of the Act in the hands of the non-resident agents and accordingly, the provisions of section 195(2) of the Act would not come into operation at all. Reliance in this regard had been rightly placed by the Ld. CIT(A) on the decision of Hon ble Apex Court in the case of GE Technology Center Pvt.Ltd. [ 2010 (9) TMI 7 - SUPREME COURT ] wherein held The parties merely source the prospective buyers for effecting sales by the assessee, and is analogous to a land or a house / real estate agent / broker, who will be involved in merely identifying the right property for the prospective buyer / seller and once he completes the deal, he gets the commission. Thus, by no stretch of imagination, it cannot be said that the transaction partakes the character of fees for technical services as explained in the context of Section 9(1)(vii) of the Act. As the non-residents were not providing any technical services to the assessee, as held above and as held by the Commissioner of Income Tax (Appeals), the commission payment made to them does not fall into the category of fees of technical services and therefore, explanation (2) to Section 9(1)(vii) of the Act, as invoked by the Assessing Officer, has no application to the facts of the assessee s case. We hold that under factual matrix of the case no additions u/s 40(a)(i) of the 1961 Act read with Section 195 are warranted in the instant case on payments made by assessee to four overseas agents towards commission expenses for generating export orders or facilitating import for the assessee. We affirm the decision of learned CIT(A) and Revenue fails in this appeal. Disallowance u/s 14A of the Act r.w.Rule 8D(2) of the I.T.Rules - HELD THAT:- We find that during the year under consideration, the assessee had not earned any exempt income from the investments made by it, on which fact, there is no dispute. We find that the Ld. AO proceeded to make disallowances in the sum of Rs. 3,78,632/- being the disallowances worked out u/s 14A of the Act r.w.Rule 8D(2) of the I.T.Rules CIT(A) deleted the said disallowance on the ground that since, no exempt income has been earned, there cannot be any disallowance made u/s 14A of the Act by placing reliance on the decision of various High Courts. We find that various High Courts already had held that when there is no exempt income, the disallowance u/s 14A of the Act would not come into operation at all. Hence, we do not find any infirmity in the order of the Ld. CIT(A) granting relief to the assessee in this regard. - Decided against revenue.

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• 2020 (11) TMI 478
  TDS u/s 195 - disallowance u/s 40(a)(i) - payment to a foreign entity as testing /certification fees outside India - whether testing/ certification fees paid outside India was not chargeable to tax under the provisions of the Act read with the overriding provisions of the applicable DTAA? - HELD THAT:- Foreign entity was authorized for certification of products for export which is a mandatory requirement for selling products in Europe, Middle East Countries, and South African Countries. The explanation given by the assessee before the AO for not withhold tax at source on the aforesaid payment of Rs. 5,68,856/- made to the overseas entity, since the assessee bonafidely believed that such certification fee was not liable to tax in India, as the same was not covered within the meaning of Fee for Technical Services as provided u/s 9(1) (vii) of the Act and/or the overriding provisions of the Double Taxation Avoidance Agreements stands covered in favour of the assessee by the order of the Tribunal passed in the assessee s own case for Assessment Year 2006-07 [ 2020 (9) TMI 31 - ITAT DELHI] held that the payment made by the assessee to very same party i.e. M/s KEMA Quality BV Netherland cannot be brought to tax in India as Fees for Technical Services in accordance with India Netherland DTAA. Disallowance provisions made for sales incentive in respect of Shahenshah Sales Incentive Scheme - assessee made a provisions in respect of Shahenshah Scheme towards Sales Incentives payable to its dealers and distributors - HELD THAT:- As during the previous year Assessment Year 2007-08, the assessee made a provisions in respect of Shahenshah Scheme towards Sales Incentives payable to its dealers and distributors. The said scheme was introduced to promote sales and ensure timely collection of payments from its customers. Out of the provisions made till date payment was made by the assessee during the Assessment Year under consideration. The Tribunal in A.Y. 2007-08 held that the provision made by the assessee in respect of Shahenshah Scheme was on a scientific basis and, therefore, allowable deduction. The facts in the present assessment year is identical, thus the issue is squarely covered in assessee s own case for Assessment Year 2007-08. [ 2020 (9) TMI 31 - ITAT DELHI] Claim of deduction under Section 80-IA/IB - Losses of earlier years in respect of Baddi Unit and Hridwar Unit - same was not allowed to be set off against profits/income of the other units/business and, therefore, no part of losses remain to be set off against the profits of the eligible units as per the contention of the Ld. AR. - rejected the claim of the assessee on the ground that the gross total income of the assessee, before deductions under Chapter VI-A, was nil and, therefore the assessee was not entitled to the benefit of deductions under Sections 80HH and 80-I - HELD THAT:- The loss of earlier Assessment Year(s) 2006-07 and 2007-08, pertaining to the eligible unit(s) viz., Baddi Unit- 2 and Haridwar Unit, stood actually set off against profits of non-eligible unit(s) of the assessee-company in the respective year(s). The entire loss was set off against profits of non-eligible units and there was no loss that was actually carried forward to Assessment Year 2008-09. But the Assessing Officer set-off notional losses of earlier years, for the purpose of computing deduction u/s 80-IC - the losses of earlier years already set off against income of previous year should not be reopened again for computing deduction under Section 80IC - The case laws relied by the Ld. AR laid down the same principle and thus, applicable in the present case as well - DR could not controvert the fact that the entire loss was set off against profits of non-eligible units and there was no loss that was actually carried forward to Assessment Year 2008-09. AO was not correct in setting off notional losses of earlier years, for the purpose of computing deduction under Section 80-IC Foreign exchange gain realized on remittance of amount received on redemption of shares in foreing subsidiary as taxable income - assessee s claim to treat the same as capital receipt not liable to tax - HELD THAT:- In the present case, the net gain/loss on redemption of shares was Nil since the shares were redeemed at par value and thereby there was no capital gains taxable under Section 45 of the Act. From the perusal of Section 45 of the Act it can be seen that for taxation of any profits or gains arising from the transfer of a capital asset, only gains accruing as a result of transfer of the asset can be taxed. In the present case, there was no gain on transfer/redemption of the shares in so far as the shares were redeemed at par value. Thus, there was no gain which accrued to the assessee as a result of redemption of such shares, since the shares were redeemed at par value. AR submitted that gain arose to the assessee on account of repatriation of foreign currency to India, which is an event separate and distinct from the event of transfer of shares of the subsidiary company. The exchange gain was only a consequence of repatriation of the consideration received in Euro to INR and cannot be construed to be part of consideration received on redemption of shares. Thus, the applicability of Section 45 does not come in picture in the present case. Therefore, the Assessing Officer was not right in applying Section 45 for making the addition. Allowance of deduction in respect of Education Cess and Secondary Higher Education Cess - HELD THAT:- Levy of education cess on Income tax is distinct from that of an income tax or surcharge since the letter to form part of part one of the First Schedule which defines income tax and provides rate of levy thereof. Unlike income tax and surcharge which are levied for general purpose, Government has explained an education cess and is admittedly levied for specific purpose that is to fulfill the commitment of the government to provide quality health services and finance universalized quality basic education and secondary and higher education. Unlike surcharge which was an exclusive component of income tax, education cess as introduced vide Finance Act, 2004 was also imposed an additional levy on indirect taxes namely Customs, Excise and Service Tax. Education cess does not part take the care of being a component of income tax per say as levied under the provisions of the Act.he claim of the assessee in respect of the education cess is allowable as deduction for the purpose of computation of taxable profits under the Act as held in the Hon ble Bombay High Court s decision in case of Sesa Goa Ltd. [ 2020 (3) TMI 347 - BOMBAY HIGH COURT] . Deduction of excess provision of bad debts written back - HELD THAT:- It is pertinent to note that the Assessing Officer has not verified the proper deduction of excess provisions of bad debts written back and the contentions of the assessee during the assessment proceedings were not verified. Therefore, it will be appropriate to remand back this issue to the file of the Assessing Officer for proper adjudication and verification.

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• 2020 (11) TMI 477
  Estimation of income - bogus purchases - HELD THAT:- Considering the nature of business of the assessee the Ld. AO has made peak amount invested in alleged bogus purchases, whereas the Ld.CIT(A) has scaled down addition to 12.50% gross profit on total alleged bogus purchase. Although, both authorities have taken different method and rate of profit for estimation of income from alleged bogus purchase, but no one could support said rate of gross profit with necessary evidences or any comparable cases. In this case, the assessee is into the business of trading in ferrous and nonferrous metals and the rate of profit in this kind of business is very low. Considering facts and circumstances of this case and consistent with view taken by the Co-ordinate Bench in number of cases, we are of the considered view that 12.50% gross profit rate adopted by the ld. CIT(A) appears to be on higer side and hence, we direct the ld. AO to estimate 6% gross profit on alleged total bogus purchases from those parties. - Decided partly in favour of assessee.

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• 2020 (11) TMI 476
  TP Adjustment - MAM selection - CIT(A) in determining the arm s length price of the international transactions based on aggregate benchmarking approach under TNMM instead of transaction-by-transaction approach - HELD THAT:- On careful consideration of all the facts of this case, the arguments of both the sides and the material available on record, we hold that the Transactional Net Margin Method in relation to the impugned international transactions at the entity level, is accepted and this ground of the revenue is dismissed. MAM selection - CUP OR TNMM - CIT(A) rejecting the Comparable Uncontrolled Price (CUP) Method for benchmarking the transaction of purchase of raw materials/components and adopting TNMM on an entity level for determining arm s length price of the said transaction - HELD THAT:- As relying on ATLAS COPCO (INDIA) LIMITED [ 2019 (8) TMI 448 - ITAT PUNE] and NLC NALCO INDIA LTD. [ 2016 (3) TMI 639 - ITAT KOLKATA] TPO has erroneously applied the CUP Method in the instant case without considering two important factors of comparability such as geographical location and volume of purchase. TPO, in similar circumstances for the AY 2003-04 and AY 2004-05 and AY 2006-07, has accepted that the international transaction involving purchase of raw materials by the assessee from associated enterprises is at arm s length under the TNMM and he has not directed ALP adjustment in respect of this international transaction by applying the CUP Method on transaction-by-transaction basis. Hence, we uphold the order of the ld. CIT(A) on this issue and dismiss Ground No. II of the revenue. Computing the figure for value addition for royalty computation - CIT-A considering only the cost of standard materials without appreciating the fact that cost of non-standard materials should also be considered for the purpose of analysis as raw material means both standard and non-standard materials - HELD THAT:- In the order issued under section 92CA (3) TPO has not disputed the computation of operating revenue and operating cost made by the assessee of its transfer pricing study report as aforesaid. As the operating cost includes royalty expenses in the instant case, we, in the light of the aforesaid decision of M/S. KAYPEE ELECTRONICS ASSOCIATES[ 2018 (6) TMI 36 - KARNATAKA HIGH COURT] decide that there is no need to benchmark royalty separately in the instant case. TPO, for the immediately succeeding assessment years (AY 2006-07 and 2007-08) has accepted that the international transaction involving payment of royalty by the assessee to EPCOS AG under the TALA is at arm s length on the same facts - Dismiss Ground No. 3 of the revenue Sales revenue generated by associated enterprise in the Indian market - action of the CIT(A) in stating that the financial indicator for the indenting activity segment of the assessee has nothing to do with the sales revenue generated by associated enterprise in the Indian market without appreciating that the indenting activity is performed for promoting sales of AE in the Indian market - HELD THAT:- TPO has erroneously considered the sales made by associated enterprise directly in India (INR 50,64,18,000/-) through the marketing service rendered by assessee to the associated enterprise, as sales of the assessee and based on this consideration, he has taken the aforesaid sales figure as the denominator of the financial indicator of the assessee under the indenting segment (0.492% i.e. INR 2494835 / INR 50,64,18,000). That the TPO has failed to appreciate that the aforesaid sales figure does not pass through the books of account of the assessee and it is solely the commission income (INR 2,95,50,194/-) that passes through the books of account of the assessee as revenue under the indenting segment. CIT(A) has correctly computed the financial indicator of the assessee under the indenting segment at 8.44% (=24,94,835/2,95,50,194). We uphold the same and dismiss this ground of the revenue.

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