TMI Tax Updates - e-Newsletter
December 14, 2022

Case Laws in this Newsletter:

GST Income Tax Service Tax Central Excise CST, VAT & Sales Tax

Articles

1. ITC REVERSAL UNDER RULE 37: RECENT CHANGES

   By: Padmanathan KV

2. ITAT asks the Govt. to bring out a mechanism to ensure tax recovery from ARCs/Banks on the sale of security assets

   By: Bimal jain

3. UNLESS TWIN CONDITIONS IN SECTION 32E OF CENTRAL EXCISE ACT, 1944 ARE FULFILLED THE SETTLEMENT COMMISSION CANNOT MOVER FURTHER

   By: DR.MARIAPPAN GOVINDARAJAN

4. Mere E-Way Bill Expiry Does Not Establishes Intention to Evade Taxes

   By: Bimal jain

5. CBEC Circular related to valuation of goods sold to independent and related parties is not violative of central excise laws

   By: Bimal jain

Notifications

Customs

1. 107/2022 - dated 13-12-2022 - Cus (NT)

Notifying Kakrawah as LCS for clearance of any class of goods imported or exported by land by amendment of Principal Notification No. 63/1994-Customs (N.T.) dated 21st November, 1994.

2. 106/2022 - dated 12-12-2022 - Cus (NT)

Goods specified if exported under claim for drawback are likely to be smuggled back into India - Notification regarding inclusion of two Land Customs Stations in Notification No. 208/77 -Cus (N.T.) dated 01.10.1977

GST - States

3. CT-8-0005-2022-Sec-1-V-(70) - dated 8-12-2022 - Madhya Pradesh SGST

Amendment in Madhya Pradesh Goods and Services Tax Rules, 2017

SEZ

4. S.O. 5777(E) - dated 9-12-2022 - SEZ

Multi Product Special Economic Zone in the State of Maharashtra - Central Government de-notifies an area of 642.95 hectares, thereby making resultant area as 100 hectares.

Circulars / Instructions / Orders

DGFT

1. 43/2015-2020 - dated 12-12-2022

Amendment in Appendix 4J of Handbook of Procedures 2015-20

Highlights / Catch Notes

GST

• Court Rules GST Registration Can't Be Canceled on Undisclosed Directions from Head Office Dated 28.09.2022.

  Case-Laws - HC : Cancellation of GST registration - The reason given for such cancellation is that as per directions of the Head Office dated 28.09.2022, the registrations were suspended and cancelled. What was the direction of the Head Office was not disclosed. Suspending registrations on the basis of direction of the Head Office cannot be a reason for cancellation of GST registration. - HC
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Income Tax

• TNMM Chosen Over CUP for Arm's-Length Price in Brokerage Services Transfer Pricing Case.

  Case-Laws - AT : TP Adjustment - MAM selection - brokerage service income - CUP v/s TNMM - the transactional net margin method is the most appropriate method for determination of the arm’s-length price of the brokerage service income earned by the assessee. - AT
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• High Court Denies Income Tax Exemption u/s 10B Due to Assessee's Failure to File Mandatory Form-56G.

  Case-Laws - HC : Exemption claimed u/s.10(A)/10B - there can be no doubt that with the Assessee not having satisfied the mandatory requirement under Section 10B(5) of the Act of filing Form-56G, the exemption under Section 10B of the Act cannot be allowed - HC
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• High Court Criticizes Assessing Officer's Negligence in Reopening Assessment u/ss 147 & 148A Due to Procedural Errors.

  Case-Laws - HC : Reopening of assessment u/s 147 - notice u/s 148A(b) - the intent behind issuing the notice u/s 148A(b) is to inform the assessee of the allegations against him/her with sufficient particulars so that he/she can put forward his/her defence - AO has been negligent in incorporating the incorrect information and in not admitting the fact that he had committed a mistake while issuing a notice under Section 148A(b) of the Act even at the time of passing the order u/s 148A(d) of the Act. - HC
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• Penalty u/s 271(1)(b) Invalid if Notices Sent to Outdated Email; Proper Service Required for Enforcement.

  Case-Laws - AT : Levy of penalty u/s 271(1)(b) - Best judgment assessment - email notices sent to old ITP’s email address - without proper service of notices to the assessee, the assessee cannot be levied with penalty under Section 271(1)(b) for non-compliance of such notices. - AT
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• Taxpayer's Comparables Rejected by TPO; Internal TNMM u/r 10B Scrutinized for Transfer Pricing Compliance.

  Case-Laws - AT : TP Adjustment - TPO rejected the comparables selected by the assessee - As assessee, has applied the internal TNMM method as most appropriate and from the aforesaid rule we note that the rule 10B of the rules has to be apply to select the method for the purpose to determine the ALP and TNMM method could be applied as internal as well as external. - AT
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• Company Reports Rental Income as Business Income; Claims Deductions for Interest and Charges u/s 37(1.

  Case-Laws - AT : Nature of income earned by the assessee from letting out of property - undoubtedly the main objects of the assessee company provides to carrying on the business of letting out of properties and the assessee has let out its property during the year and earned rental income Which was offered to tax under the head “Income from Business” - the expenses incurred by the assessee towards interest and processing charges are allowable as deduction u/s 37(1) - AT
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• Assessing Officer Cannot Arbitrarily Disallow 20% of Expenses Without Evidence or Specific Instances Under Review.

  Case-Laws - AT : Ad-hoc Disallowance towards operational and maintenance expenses - disallowance 20% - the AO can not make any ad-hoc disallowance without pointing out the specific instances i.e AO can disallow the expenditure on actual basis, in case assessee failed to produce the evidence in support of its case. - AT
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• Assessment Reopening u/s 147 Justified: AO's Reasons Based on Directorate of Information Deemed Prima Facie Lawful.

  Case-Laws - AT : Reopening of assessment u/s 147 - AO has recorded the reasons after getting the information from the Directorate of Information New Delhi and applied his own mind in respect of the information received by him. - the reasons recorded, by the Assessing Officer, are prima facie in accordance with law. In the reasons so recorded, there should not be any final adjudication of the issue involved, by the assessing officer, in fact the reasons are recorded prima facie as per the scheme of the Act- AT
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• Deposits u/s 68 Explained by Sufficient Cash Flow; Assessee's Position Upheld by Tax Authorities.

  Case-Laws - AT : Addition of deposits found in bank statement u/s 68 - cash flow statement - adequate cash flow was available for deposits in the bank account. Hence, the assessee deserves to succeed on this count that there was available cash withdrawal from earlier period which is sufficient to cover the deposit amount. - AT
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• Dispute Over Stamp Duty Valuation vs. Actual Payment in Property Sale u/s 56(2)(vii)(b) of Income Tax Act.

  Case-Laws - AT : Addition u/s. 56(2)(vii)(b) - difference between the Stamp Duty valuation and the actual consideration paid - In the instant case, on the date of allotment the building was under construction and even on the date of registration of sale deed the assessee had not taken possession of the immovable property. Assessee had acquired right in the ownership of flat at the time of issuance of allotment letter. Therefore, in the facts of the case stamp duty value as on the date of allotment of flat is relevant. - AT
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• Assessee's Explanation for Unexplained Cash Deposits Deemed Reasonable; Section 68 Additions Deleted After Loan Repayment Verified.

  Case-Laws - AT : Addition u/s 68 - Unexplained cash deposits - The assessee’s contention that the loan has been repaid as he could not buy the residential property due to some unavoidable reasons is found to be genuine and reasonable cause. A.O. has not made any verification of the repayment of loan. In our considered view, the A.O. has made huge verification on small time assessees, many of them are seen to be agriculturists in a small village. - Assessee has filed confirmation from all the parties - Additions deleted - AT
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• Tax Credit Delay Approved After 14-Day Filing Lapse Due to Zambian Certificate Issue, Section 90 Involved.

  Case-Laws - AT : Relief u/s. 90 - Foreign Tax Credit (FTC) - In the instant case, the delay in filing of the FTC certificate in Form-67 was explained to be due to non receipt of the tax deduction certificate form the foreign deductor from Zambia within time for which the said Form-67 was filed belatedly by 14 days. As stated that the tax jurisdiction of the Zambian deductor follow different period for taxing the income and have different due dates for filing the return as compared to India. - AO directed to allow the FTC after due verification. - AT
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Indian Laws

• High Court Can't Resolve Intense Disputes or Compare Conflicting Technical Reports under Article 226 Jurisdiction.

  Case-Laws - SC : Power of the High Court in exercising extraordinary writ jurisdiction under Article 226 - assessment of conflicting technical reports - It is well settled that the High Court exercising its extraordinary writ jurisdiction Under Article 226 of the Constitution of India, does not adjudicate hotly disputed questions of facts. It is not for the High Court to make a comparative assessment of conflicting technical reports and decide which one is acceptable. - SC
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• Supreme Court: Interest Required on Withheld License Fees After High Court Dismisses Writ u/s 36.

  Case-Laws - SC : Demand of interest - Period during which recovery of license fee under Section 36 of the Act was stayed by the High Court and eventually when the writ petition was dismissed - On the dismissal of the proceedings or vacation of the interim order, the beneficiary of the interim order shall have to pay interest on the amount withheld or not paid by virtue of the interim order. - SC
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Service Tax

• Service Tax Compliance Valid Under Composition Scheme Notification No. 32/2007 at 2% Compounded Rate.

  Case-Laws - HC : Composition scheme - exercising option prior to payment of service tax - The payment of tax under the composition scheme upon notification of the scheme vide a notification no. 32 of 2007 dated 26.05.2007 by filing the return and paying tax at the compounded rate of 2% is sufficient compliance of exercise of option under the scheme and therefore the subject contracts for which tax had been remitted by the appellant at the rate of 2% is permissible and acceptable under law. - HC
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Central Excise

• Penalty Challenged for Excess Credit on Capital Goods; Section 11A(2B) Cited, No Malintent Found by Appellant.

  Case-Laws - AT : Levy of penalty - availing 100% credit instead of 50% and remaining 50% to be availed in the next Financial year in respect of capital goods - In this fact the case should have been concluded, on the basis of appellant’s reversal of excess credit of 50% along with payment of interest thereon which could have resulted into non issuance of SCN and consequently no penalty should have been imposed. Therefore, in this fact since there is no mala fide on the part of the appellant, the case is clearly covered by Section 11A(2B). - AT
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Case Laws:

• GST

• 2022 (12) TMI 554
  Maintainability of petition - availability of alternate remedy - demand on the basis of excess TDS Credit in GSTR 2A of the petitioner s employer namely IGIMS against the payment made to the petitioner in the period October 2019 to March 2019 - Section 73(9) of BGST Act - HELD THAT:- Having heard learned counsel for the parties as also perused the record made available, we are of the considered view that this Court, notwithstanding the statutory remedy, is not precluded from interfering where, ex facie, we form an opinion that the order is bad in law. Violation of principles of natural justice, i.e. Fair opportunity of hearing. No sufficient time was afforded to the petitioner to represent his case - order passed ex parte in nature, does not assign any sufficient reasons even decipherable from the record, as to how the officer could determine the amount due and payable by the assessee. The order, ex parte in nature, passed in violation of the principles of natural justice, entails civil consequences. Petition disposed off.

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• 2022 (12) TMI 553
  Cancellation of GST registration of the petitioner - no SCN issued for cancellation of registration - principles of natural justice - HELD THAT:- It is evident that there is no reason at all to issue show cause notice for cancellation of GST registrations of the petitioners. Respondent simply mentioned that in case the petitioners have obtained GST registration by means of fraud, wilful misstatement or suppression of facts, then their GST registrations were liable to be cancelled. No particulars of any such fraud, wilful misstatement or suppression of facts have been mentioned. In fact the notice issuing authority himself was not certain whether the GST registrations were obtained by the above means. Therefore, he says that in case registrations were obtained by such means . Issuance of show cause notice for cancellation of GST registration has got serious consequences and could not have been issued in such a cavalier manner. In the present case, the petitioners had submitted show cause reply on 12.10.2022 and on the very same day i.e., on 12.10.2022, the impugned orders were passed cancelling GST registrations of the petitioners. The reason given for such cancellation is that as per directions of the Head Office dated 28.09.2022, the registrations were suspended and cancelled. What was the direction of the Head Office was not disclosed. Suspending registrations on the basis of direction of the Head Office cannot be a reason for cancellation of GST registration. From a conjoint reading of the show cause notices and orders for cancellation of the registrations, we are of the view that conduct of the first respondent does not at all inspire the confidence of the Court. There appears to be something amiss in the entire affair. The show cause notices were issued and the impugned orders were passed in a most mechanical manner exhibiting complete non-application of mind - the impugned orders for cancellation of GST registration dated 29.09.2022 of the petitioners is set aside. Petition allowed.

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• 2022 (12) TMI 548
  Cancellation of registration of petitioner - appeal dismissed on the ground of being time barred - HELD THAT:- By order of Apex Court dated 10.01.2022 [ 2022 (1) TMI 385 - SC ORDER] the period of limitation would start running from 01.03.2022 and, as such, appeal filed by the petitioner was well within time as provided under 107 of the Act of 2017. In view of the said fact the order passed by the first appellate authority on 29.07.2022 is hereby set-aside. Appellate authority is directed to decide the appeal afresh on merits within a period of one month from the date of production of certified copy of this order. Writ petition stands partly allowed.

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• Income Tax

• 2022 (12) TMI 552
  Disallowance u/s 14A read with rule 8D - assessee has made suo-moto disallowance which includes disallowances of 5% salary expenses paid to 3 employee - HELD THAT:- Percentage of exempted income in relation to the gross total income of the assessee stands at 1.73 % approx - the exempted income in relation to gross total income stands only at 1.73% whereas the proportion of the administrative expenses as calculator by the AO against the exempted income is much greater than the proportion of the income discussed above. Thus, in such facts and circumstances the disallowance cannot be made under the provisions of rule 8D(2) of the income tax rule which will provide absurd result. The basis adopted by the assessee is certainly not proper. It is for the reason that though there was no change in the investment in equity shares but there were transactions in the mutual funds. Admittedly, for the sale, purchase of the mutual funds, there must have been called board meetings, involvement of the supporting staff and likewise certain expenses in the form of stationary, refreshment, building repairs, Misc. expenses etc. must have been incurred by the assessee. However, the assessee has nowhere made any disallowance of such expenses. AO rightly disagreed with the correctness of the claim made by the assessee. But the question arises, if the AO is not satisfied with the correctness of the claim made by the assessee, can he resort to the provisions of rule 8D(2) of income tax rule. The answer stands in affirmative but subject to one caveat, he has to refer the books of accounts of the assessee. But in the given case the AO has certainly pointed out the defects in the claim made by the assessee for the expenses against the exempted income, but he did not consider the accounts of the assessee and directly jumped to the provisions of rule 8D of Income Tax Rule for the purpose of the disallowance which have given absurd amount of disallowance of the administrative expenses as discussed above. Accordingly, we are not convinced with the approach of the AO to make the disallowance as per the provisions of rule 8D of income tax rules in the given facts and circumstances. Administrative expenses as discussed above cannot be allowed to the assessee as deduction in entirety against the taxable income. In our considered view, some part of such expenses should be allocated to the exempted income of the assessee. As we note that there was no infirmity pointed out by the revenue with respect to the basis of the disallowance of the salary expenses of Rs. 17,82,826/- being to the tune of 5% of the salary paid to 3 employees as discussed above, we are of the view that the justice will be served to the revenue and the assessee if 5% disallowances is made of the expenses as discussed above.Appeal of the assessee is partly allowed whereas the appeal of the revenue is dismissed.

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• 2022 (12) TMI 551
  Assessment u/s 153A - unexplained jewellery - whether no search warrant or Panchnama drawn in the case of the assessee? - HELD THAT:- As admitted fact that the bill has also been found seized from the same locker no. 144, in the name of Sh. Roop Sachdeva and on the same analogy, it is for Shri Roop Sachdeva to explain the source of purchase of such jewellery and in absence of any satisfactory explanation, the addition, if any is required to be made in the hands of Shri Roop Sachdeva and not in the hands of the assessee. Merely because the name of the assessee is mentioned on the said bill, the same doesn t automatically result in discharge of burden on part of Shri Roop Sachdeva as the bill has been found and seized from the locker in name of Shri Roop Sachdeva and it is quite likely that he had purchased the jewellery in the name of his wife out of his own sources of income. Therefore, the presumption is that he has made the purchases out of his own sources of income and it is for him to explain the same and in absence thereof, the action, if any as per law can be taken in his hands. In light of the same, we find that there is no basis for making the addition in hands of the assessee and the same is directed to be deleted. Addition u/s. 115BBE - Unexplained investment in the jewellery - jewellery was found from the residence owned by Sh. Krishan Lai Sachdeva, head of the family and part of the jewellery was found from the locker in the name of Sh. Roop Sachdeva - HELD THAT:- Case of the Revenue is that the jewellery has been found from the locker of the assessee and the onus is therefore on the assessee to explain the source of investment in the jewellery so found and seized. As we have seen in A.Y 2013-14 wherein similar addition was made in hands of the assessee basis certain bills found in the same locker no. 144 no. which was in the name of Sh. Roop Sachdeva and not in the name of the assessee, the ld. CIT(A) has returned a finding that the bill amounting to Rs. 1,52,390/- have been found seized from the locker no. 144, in the name of Sh. Roop Sachdeva and cognizance of the same should have been taken in his hands and addition, if any, was required to be made in the case of Sh. Roop Sachdeva. We failed to understand why the same reasoning doesn t apply or has not been applied in the instant case. It is an admitted and undisputed fact that locker no. 144 is not in the name of the assessee but in the name of Sh. Roop Sachdeva and therefore, very basis of making the additions in the hands of the assessee doesn t survive. As we have held above, it is for Shri Roop Sachdeva to explain the source of purchase of such jewellery and in absence of any satisfactory explanation, the addition, if any is required to be made in the hands of Shri Roop Sachdeva and not in the hands of the assessee. Any inaction on part of the Revenue in case of Shri Roop Sachdeva doesn t bestow the right on the Revenue to take action in hands of the assessee. In the result, the addition so made is directed to be deleted. Appeal of the assessee is allowed.

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• 2022 (12) TMI 550
  Delay in making the payment towards the employees contribution for the provident fund, under section 36(1)(va) r.w.s. 2(24)(x) - intimation u/s 143(1) - HELD THAT:- As decided in KALPESH SYNTHETICS PVT LTD. VERSUS DEPUTY COMMISSIONER OF INCOME TAX, CPC BENGALURU. [ 2022 (5) TMI 461 - ITAT MUMBAI] when the due date under Explanation to Section 36(1)(va) is judicially held to be not decisive for determining the disallowance in the computation of total income, there is no good reason to proceed on the basis that the payments having been made after this due date is indicative of the disallowance of expenditure in question.Tax audit report can not be reason enough to make the impugned disallowance. While preparing the tax audit report, the auditor is expected to report the information as per the provisions of the Act, and the tax auditor has done that, but that information ceases to be relevant because, in terms of the law laid down by Hon ble Courts, which binds all of us as much as the enacted legislation does, the said disallowance does not come into play when the payment is made well before the due date of filing the income tax return under section 139(1). Viewed thus also, the impugned adjustment is vitiated in law, and we must delete the same for this short reason as well. In view of the detailed discussions above, we are of the considered view that the impugned adjustment in the course of processing of return under section 143(1) is vitiated in law, and we delete the same. Assessee appeal allowed.

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• 2022 (12) TMI 549
  TP Adjustment - MAM selection - brokerage service income - CUP v/s TNMM - rejection of transactional net margin method adopted by the assessee and adoption of cup method as the most appropriate method by the learned transfer-pricing officer - HELD THAT:- As relying on assessee own case [ 2020 (3) TMI 1133 - ITAT MUMBAI] no hesitation in holding that the transactional net margin method is the most appropriate method for determination of the arm s-length price of the brokerage service income earned by the assessee. Accordingly the adjustment made by the learned transfer pricing officer and confirmed by the learned CIT A is not sustainable. Hence deleted. - Decided in favour of assessee.

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• 2022 (12) TMI 547
  Exemption claimed u/s.10(A)/10B - Failure to furnish audit report in form 56G - Assessee had been claiming 100% deduction u/s 10B since AY 2004-05 - Whether the Assessee was entitled to exemption under Section 10B of the Act as claimed by it? - Tribunal reject the Tax Exemption claimed u/s.10(A) of the Act stating the reason that the appellant is not a unit under Special Economic Zone - HELD THAT:- As far as the above question is concerned, there can be no doubt that with the Assessee not having satisfied the mandatory requirement under Section 10B(5) of the Act of filing Form-56G, the exemption under Section 10B of the Act cannot be allowed. The question is accordingly answered in the negative, i.e., in favour of the Revenue and against the Assessee. Whether under the facts and circumstances there exists any issues to be decided by the Appellant Tribunal when the respondent himself settles the issue revising the Original assessment and original demand (U/s.156 of I.T. Act) ? - As regards the second question framed by this Court, Mr. Ray submitted that the Revenue had in fact given appeal effect to the order of the CIT(A) but failed to bring this to the notice to the ITAT when the appeal was argued. According to Mr. Ray, having accepted the verdict of the CIT(A), the Revenue could not have gone in appeal to the ITAT. The Court is unable to accept the above submission. The mere fact that the computation giving appeal effect to the order of the CIT(A) may have been prepared by the Revenue does not mean that it is precluded from challenging that order before the ITAT. Such computation by way of giving appeal effect would obviously be subject to the result of the Revenue s appeal before the ITAT. Consequently, the second question is answered in the negative, i.e., in favour of the Revenue and against the Appellant/Assessee.

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• 2022 (12) TMI 546
  Reopening of assessment u/s 147 - notice issued u/s 148A(b) of the Act are on distinct and separate grounds and party name - HELD THAT:- This Court is of the view that the Kingsway Camp property was mentioned in the notice issued u/s 148A(b) and the petitioner was never asked to explain the transaction with regard to the sale of the Rohini property. This Court finds that not only is the description of the property different in the notice issued u/s 148A(b) of the Act and the order passed u/s 148A(d) of the Act, but also the sale consideration and circle rate in both the documents are different. It seems to this Court that though the AO prior to passing the impugned order under Section 148A(d) realised that he had committed a mistake while issuing the notice u/s 148A(b) yet he proceeded with the same and even went to the extent of wrongly stating in the Section 148A(d) order that he had issued the notice under Section 148A(b) of the Act with regard to the Rohini property instead of Kingsway Camp property. A perusal of the file also reveals that the information with the Assessing Officer received from the ITO, Ward 35(1), Delhi was with regard to violation of Section 269SS and not with regard to non-declaration of long term capital gain, for which the notice had been issued. Consequently, the impugned show cause notice is contrary to the record. As settled law that the intent behind issuing the notice u/s 148A(b) is to inform the assessee of the allegations against him/her with sufficient particulars so that he/she can put forward his/her defence. In the present instance, the assessee specifically replied to the allegation that was mentioned in the notice issued under Section 148A(b) and for this, she cannot be faulted with. AO has been negligent in incorporating the incorrect information and in not admitting the fact that he had committed a mistake while issuing a notice under Section 148A(b) of the Act even at the time of passing the order u/s 148A(d) of the Act. Present writ petition is allowed and the show cause notice issued under Section 148A(b) of the Act as well as the order passed u/s 148A(d) and the notice issued under Section 148 for the Assessment Year 2017-18 are set aside.

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• 2022 (12) TMI 545
  Levy of penalty u/s 271(1)(b) - Best judgment assessment - Scope of the term used shall - email notices sent to old ITP s email address - genuineness and reasonable cause in the case of the assessee - Non-compliance of such notices - assessee could not attend the assessment proceedings as well as penalty proceedings which result in best judgment assessments - assessee was duly served upon a notice u/s 153C on the registered email, requiring the assessee to file a Return of Income in response to the notice - HELD THAT:- As clearly demonstrated that the hearing notices were been sent to the email [email protected] which was belong to the former Tax Consultant of the assessee. Further, no physical notices were been served upon the assessee, thereby even to comply to the 153C notices itself by the assessee. Further perusal of the ex-parte assessment orders make it clear that the assessee has never filed Return of Income in response to 153C notices, however, the Assessing Officer concluded the 153C assessments based on the original returns filed u/s 139(1) by the assessee for five Assessment Years and made additions only two Assessment Years 2016-17 and 2017-18 based on some seized materials. In our considered opinion, the assessee could not said to be in default, when the assessee was not served with the notices. The assessee also pleaded that he is not aware of the faceless assessment proceedings and the ITBA portal of the Income Tax Department which has resulted in filing statutory appeals before the CIT(A) with a delay of 96 days. Thus, without proper service of notices to the assessee, the assessee cannot be levied with penalty under Section 271(1)(b) for non-compliance of such notices. For the above reasons we hold that the levy of penalty under Section 271(1)(b) is unjustified and therefore, the same are deleted. Appeal filled by assessee allowed.

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• 2022 (12) TMI 544
  Exemption u/s 11 - renewal of exemption u/s 80G - exemption denied as assessee filed incomplete Form No. 10G and failed to furnish the required documents as prescribed under Rule 11AA(2) - HELD THAT:- The case of the Assessee Trust that it were being enjoying exemption u/s 12AA of the Act for long time and also granted exemption u/s 80G(5) of the Act between 01.04.1998 to 31.03.2001. In order to make the renewal of exemption under Section 80G, the assessee filed incomplete Form No. 10G and failed to furnish the required documents as prescribed under Rule 11AA(2) of the Rules. We, therefore, deem it fit to restore the matter back to the file of the Ld. CIT(E) to reconsider the application filed by the assessee, provided the assessee submits all the required and relevant documents as prescribed under Form 10G and then pass order in accordance with law. Needless to say the assessee shall cooperate with the CIT(E) in the de novo proceedings. With this observation we dispose of the appeal and treat the same as allowed for statistical purpose.

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• 2022 (12) TMI 543
  Deduction u/s 80IC/80IE - manufacturing activity - Claim denied as assessee is not manufacturing/producing gases and is merely refuelling gases - HELD THAT:- From perusal of the above finding of ld. CIT(A) given in the order u/s 250 of the Act as well as u/s 154 of the Act allowing the assessee s claim for deduction u/s 80IC/80IE of the Act for the units located at Sivasagar, North Lakhimpur and Duliajan, we note that ld. CIT(A) has followed the ratio laid down in the case of Hindustan Petroleum Corpn. Ltd. [ 2017 (8) TMI 197 - SUPREME COURT] and has analysed the details and the process carried out by the assessee of converting the liquid oxygen into oxygen in gaseous form and also observing that bulk LPGs is received in the bottling plants located at respective units and then unloading in the spheres/bullets through LPG compressors having variable levels of pressure for suction, unloading and vapour recovery and thereafter refilling/bottling of the LPG in cylinders and then conversion of the same in gaseous form for the industrial and medical consumers and after analysing this process ld. CIT(A) has rightly arrived to the conclusion that the assessee is engaged in the production activity and thus, eligible for deduction u/s 80IC/80IE of the Act. Since ld. D/R has failed to controvert these facts and the applicability of the ratio laid down in Hindustan Petroleum Corpn. Ltd. (supra) by placing any other binding precedence in its favour and since all other necessary requirements as provided u/s 80IC/80IE of the Act have been complied, we fail to find any infirmity in the finding of ld. CIT(A) and thus, all the grounds of appeal raised by the Revenue are dismissed.

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• 2022 (12) TMI 542
  TP Adjustment - proposed downward adjustment made by the AO/TPO on account of raw materials and components purchased from the AEs which was not in accordance to the arm s length principles - whether the action of the TPO was correct to adopt the comparable selected by the assessee for its contract manufacturing activity for the purpose of comparing the margin with the PLI of the assessee to determine the ALP? - HELD THAT:- The answer stands in negative. It is for the reason that the comparable selected by the assessee were based on the import of raw materials whereas the comparable used by the TPO were based on sale of finished goods. As such the basis/methodology for selection of comparables with respect to purchase of raw materials and components viz a viz sale of finished goods cannot be the same. Thus, the entire basis adopted by the TPO for comparing the PLI of the assessee with respect to the import of purchases of raw materials and components viz a viz sales of finished goods is baseless and devoid of any merit. It is for the reason that both the transactions are different and independent to each other and therefore no nexus of whatsoever between them could be established. This fact was very much brought to the notice of the TPO during the assessment proceedings by the assessee vide letter dated 25th January, 2021. The action taken by the TPO which was subsequently confirmed by the Ld. DRP is not maintainable in the given facts and circumstances. Whether the TPO was right in rejecting the comparables selected by the assessee with respect to its transactions of purchases of raw materials and components from the AE s? - In the absence of any specific defect pointed out by the authorities below with respect to comparable selected by the assessee, we are not in agreement with the decision of the authorities below for selecting the other comparable which were chosen by the assessee for its sale of finished goods of its contract manufacturing unit. In holding so, we draw support and guidance from the judgment of Frigoglass India (P.) Ltd[ 2014 (4) TMI 556 - ITAT DELHI] Admittedly the assessee has categorized its segments in four compartments which have been discussed in the preceding paragraph. The assessee further has made two compartments under the category of license manufacturing which was based on the basis of purchases for raw materials and components from associated enterprise and non-associated enterprise. All these segments were duly reported under the transfer pricing study report and this fact can be verified from - This fact was also accepted by the TPO in his order that there exists a separate AE Segment under license manufacturing. As per the judgment of Virtusa Consulting Services Pvt. Ltd.[ 2021 (2) TMI 378 - MADRAS HIGH COURT] the transfer pricing report is considered as one of the authentic document which cannot be ignored while determining the ALP until and unless some adverse material is available on record. As assessee, has applied the internal TNMM method as most appropriate and from the aforesaid rule we note that the rule 10B of the rules has to be apply to select the method for the purpose to determine the ALP and TNMM method could be applied as internal as well as external. Whether the margin shown by the assessee under the contract manufacturing can be compared with the license manufacturing ? - We find that the risk involved under contract manufacturing is less and the assessee is also not required to maintain the inventory at its own risk whereas in the case of license manufacturing the assessee has to maintain its own inventory and greater risk is attached under this segment. Thus, we are of the view that the profit margin of the contract manufacturing segment cannot be compared with the license manufacturing. As such an apple can be compared with another apple that is the underlying theory/ concept of the transfer pricing provisions. In this connection we draw our attention to the order in the case of ACIT Vs. Ishwar Manufacturing Co. Pvt. Ltd. [ 2016 (3) TMI 535 - ITAT CHANDIGARH] wherein it was held that For making a comparative analysis, apples are to be compared with apples and not with oranges. We are not convinced with the order of the authorities below for adopting the margin of the contract manufacturing as comparable to determine the ALP with respect the purchase of raw materials from the AE s under the activity of license manufacturing. Once we have accepted the transaction shown by the assessee for the import of raw materials and components at the arm length price, no adjustment with respect to other transactions aggregated with the transactions in dispute is required to be made. In other words, the impugned transactions discussed above have to be treated at arm length price as applicable for the purchase of raw materials and components. As contended before us by the learned AR for the assessee that whatever adjustments needs to be made by the revenue authorities should be with respect to the international transactions with the AE which are in dispute - We find force in the argument of assessee and accordingly direct the revenue to make the adjustments with respect to the international transactions with the AE s which are in dispute. However, we are conscious to the fact that the direction at this stage will not make any difference to the assessee for the reason that the appeal has been decided in favour of the assessee. However, we have recorded this observation for the statistical purposes. Enhancing the income in relation to receipt of data management and other related service fees paid by the Appellant to its AEs by rejecting the TP documentation maintained by the Appellant and arbitrarily determining arm s length price as Nil by applying Comparable Uncontrolled Price Method( CUP ) Method - It is pertinent to mention here that there is no dispute on the legal proposition that if the TPO finds that the method applied by the assessee is not appropriate, it can carry out his own analysis however he has to follow the methodology as provided in Chapter-X of the Income-tax Act. Starting point for applying the CUP method as per the transfer pricing provisions is availability of the price of the same product or service in uncontrolled conditions and according to that the ALP of the product or service can be ascertained. Thus, the action of the TPO of applying CUP method and at the same considering the value of such transaction as Nil in absence of comparable uncontrolled transactions, is in itself contradictory and without any basis/logic. Therefore, the contention of the TPO to apply CUP method as MAM is not tenable under the law. The entire grounds consists of two issues, whether in fact the services were rendered and availed by the assessee and if so, whether the mark-up of 6% can be considered as comparable with the market averages. Culling from the details filed and arguments of both the parties, we find that there is no dispute about availing of the services. The evidences include the invoices, agreements along with details of cost allocation submitted - Hence, it cannot be said that the services have not been provided to the assessee. With regard to the mark-up of 6% paid by the assessee, we find that the economic analysis submitted by the assessee in TPSR available in the paper book is acceptable. Hence, we hold that no adjustment is called for while determining the ALP on account of payment for Intra Group Services in the form of Data Management and Other Related Services. Reimbursement of expenses received from the AEs - DRP enhancing the income of the Appellant pertaining to reimbursement of expenses received from the AEs by re-characterizing reimbursement of expenses received as provision of support services thereby imputing a markup of 5% on the cost of the reimbursements without providing any detailed/cogent reason for the same - HELD THAT:- Before us no material has been placed by Revenue to demonstrate that value addition has been done by the assessee and is not in the nature of reimbursement of primary third party expenses which were initially incurred by the assessee. Admittedly, there was no value addition done by the assessee by incurring the cost on behalf of the AE which was subsequently reimbursed. However, such transaction falls within the definition of international transaction with the AE and therefore the same needs to be benchmarked. A non-associated party will not incur any cost without having any benefit from the party. Indeed, the assessee must have employed its resources in providing administrative services to the AE and therefore we are of the view that the assessee should have charged some amount of fees on account of such transaction. However, the assessee in the given case has not determined the ALP of the transaction in hand, therefore the same was benchmarked by the AO/TPO on reasonable basis. As such it was the onus upon the assessee to bench-mark the transactions in hand but it failed to do so. Hence, we do not find any infirmity in the order of the authorities below. Thus, the ground of appeal of the assessee is hereby dismissed.

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• 2022 (12) TMI 541
  Allowability of expenditure u/s 37(1) from Income from Business - income earned by the assessee from letting out of property - interest and processing charges on home loan as allowable expenditure - HELD THAT:- As could be seen from MOA one of the main objects of the assessee company is to construct, acquire hold buildings, tenements and such other movable and immovable property and to rent let on hire and managed immovable property. Therefore, we noticed that undoubtedly the main objects of the assessee company provides to carrying on the business of letting out of properties and the assessee has let out its property during the year and earned rental income Which was offered to tax under the head Income from Business . Applying the ratio of the decisions of Rayale Corporation Ltd. [ 2016 (8) TMI 522 - SUPREME COURT] and Chennai Properties Ltd. [ 2015 (5) TMI 46 - SUPREME COURT] and also the other decisions referred to above, we hold that the income earned by the assessee from letting out of property is assessable under the head Income from Business . The decision of Sultan Brother [ 1963 (12) TMI 4 - SUPREME COURT] relied upon by the Ld. AO has already been distinguished by the Apex Court in Chennai Properties (Supra). As noted above, the property was let out by the assessee as per defined business objectives and lease rent earned by the assessee is rightly disclosed as business income. As we have held that the income from letting out of property is assessable under the head Income from Business the expenses incurred by the assessee towards interest and processing charges are allowable as deduction u/s 37(1) of the Act. We sustain the order of the Ld. CIT(A) and reject the grounds raised by the Revenue.

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• 2022 (12) TMI 540
  Disallowance towards operational and maintenance expenses - disallowance 20% of the site maintenance and repair charges on the ground that assessee could not substantiate with evidence to his satisfaction by producing relevant bills and vouchers and could not reconcile each item of bills vis a vis each claim of expenses under this head - CIT-A deleted the addition - HELD THAT:- It is the settled position of law that for claiming any expenditure as allowable expenditure, the onus is always on the assessee to substantiate with evidence to the satisfaction of the AO by producing relevant bills and vouchers with supporting documents that the expenditures were actually incurred, which were relatable to the business of the assessee. It is also settled position of law that the AO, without pointing any specific instance of non production of bills / vouchers etc can not disallow the expenditure on ad-hoc basis especially when the assessee s accounts were duly audited and the auditors had not pointed out any specific discrepancy in the bills/ vouchers of the assessee. Considering all we deem it proper to restore the issue denovo to the file of AO with a direction to verify each and every bills and voucher and make only specific addition where he finds that the assessee failed to substantiate the expenditure by producing necessary evidence to his satisfaction. In our opinion, the AO can not make any ad-hoc disallowance without pointing out the specific instances i.e AO can disallow the expenditure on actual basis, in case assessee failed to produce the evidence in support of its case. Needless to say the AO shall decide the issue as per fact and law after following the principle of natural justice.Hence, the ground raised by revenue is allowed for statistical purposes. Unexplained work in progress - CIT-A deleted the addition - HELD THAT:- Considering submissions of the assessee and also on account of fact that the ld.CIT(A) had passed a non-speaking, cryptic and perfunctory order without dealing with the objection of the Assessing Officer, had allowed the ground of the assessee, therefore, in the interest of justice, we deem it proper to restore the issue to the file of the Assessing Officer with a direction to grant one more opportunity to the assessee to substantiate its case by leading evidence to his satisfaction. The Assessing Officer shall decide the issue as per fact and law after giving due opportunity of being heard to the assessee. Though, in the written submission, the ld.AR had referred to certain decisions, those decisions are not applicable to the facts of the present case and moreover, none of these decisions were referred during the course of arguments before us. Disallowance towards provision for site restoration costs - AO in this case made the additions on the ground that assessee has not incurred any such expenditure till date and could not submit any bills and vouchers and assessee was conveniently creating a provision for future possible likely or unlikely liability and claiming the same as present year attributable expenditure - CIT-A deleted the addition - HELD THAT:- In the present case, CIT(A) had decided the ground without calling for a remand report from the Assessing Officer. At this juncture, it was the submission of the learned AR that if given an opportunity, the assessee is in a position to substantiate with evidence to show that expenses were actually incurred in the year under consideration for site restoration. We deem it proper to restore the issue to the file of the Assessing Officer with a direction to grant one more opportunity to the assessee to substantiate its case by leading evidence to his satisfaction. The Assessing Officer shall decide the issue as per fact and law after giving due opportunity of being heard to the assessee. We hold and direct accordingly.

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• 2022 (12) TMI 539
  Reopening of assessment u/s 147 - necessity of serving notice u/s 143(2) - reliance on borrowed information or independent application of mind - information provided by the Joint Director of Income-tax (Inv.),Unit-1, New Delhi who carried out the search and seizure Operation u/s 132 - Addition u/s 68 - HELD THAT:- We note that satisfaction recorded by the Income Tax Authority is in accordance with law. We have also gone through the online approval given by the CIT and noted that approval given by CIT is in accordance with law, therefore plea taken by the ld Counsel to the effect that approval was not given in accordance with law, hence it is not acceptable. Notice under section 143(2) of the Act, has been served on the assessee. The ld Counsel provided vague information before the Bench and contended that notice under section 143(3) of the Act, was not served on the assessee. Hence, we reject the contention raised by ld Counsel. Whether reasons recorded by the assessing officer is defective and original assessment was framed under section 143(3)? - We have gone through the reasons recorded by the Assessing Officer and noted that assessing officer has recorded the reasons after getting the information from the Directorate of Information New Delhi and applied his own mind in respect of the information received by him. The assessing officer examined the information received from the Directorate of Information and satisfied himself and applied his own mind to issue notice under section 147/148 of the Act. Therefore, assessing officer did not accept the information from the Directorate of Information blindly and without application of mind. We note that in the reasons recorded the figure mentioned at Rs.1,57,00,055/- is part of the total amount of Rs.2,40,00,000/-, therefore, reasons recorded by the assessing officer can not vitiate on account of arithmetical figure. Thus, the reasons recorded, by the Assessing Officer, are prima facie in accordance with law. In the reasons so recorded, there should not be any final adjudication of the issue involved, by the assessing officer, in fact the reasons are recorded prima facie as per the scheme of the Act. Therefore, we do not find any infirmity in the order of ld. CIT(A) in holding that reassessment proceedings are in accordance with law. Assessment was reopened after a period of four years and assessee has disclosed fully and truly all material facts in the original assessment u/s 143(3) of the Act, hence reopening is not valid? - As observed earlier not only there existed new information with the AO from the credible sources, but also he had applied his mind and recorded the conclusion that the assessee is engaged in accommodation entries, which were non-genuine and therefore bogus, (clearly meaning that what was disclosed in original assessment was false and untruthful). The requirements of section 147 r.w.s. 148 have clearly been met; and the reopening is held justified and legal. The Ld Counsel s contention that the report/information of the Directorate (Inv) of Income Tax Department, cannot constitute a reason to believe within the meaning of section 147 is misplaced in law and facts. As held in the case of Pushpak Bullion (P) Ltd [ 2017 (8) TMI 961 - GUJARAT HIGH COURT] wherein the court held that the AO had tangible materials at his command to form a bonafide belief on the basis of the information received from Investigation Wing. At the stage of issuance of notice the only question is whether there was the relevant material on which a reasonable person could have formed a reasonable belief. - Decided against assessee. Addition u/s 68 - HELD THAT:- We have observed from the above findings of CIT(A), that assessee has not furnished the important documents and evidences before the lower authorities for their examination and conclusion on the factual position. We note that assessee did not submit copy of the bank account in respect of certain parties, as noted by ld CIT(A) above, therefore loan transactions stood unverified. We have observed from the order of ld. CIT(A) that assessee-trust has failed to furnish certain evidences and documents before the lower authorities, as noted by us above, hence we are of the view that one more opportunity should be given to the assessee-trust to plead his case and furnish these documents and details before the ld. CIT(A).Therefore, we deem it fit and proper to set aside the order of the ld. CIT(A) and remit the matter back to the file of the ld. CIT(A) to adjudicate the issue afresh on merits. For statistical purposes, ground No. 2 and 4 are allowed. Disallowance of claim of depreciation and was not allowed set off against income added - HELD THAT:- We have heard both the parties and note that depreciation claim of the assessee and claim of set off, if any, should be allowed as per the provisions of law, therefore, we direct the ld. CIT(A) to examine the claim of the assessee and adjudicate the issue in accordance with law. The ground no. 5 raised by the assessee is allowed for statistical purposes.

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• 2022 (12) TMI 538
  Disallowance u/s 14A in accordance with Rule 8D - Expenditure incurred on earning exempt income - HELD THAT:- No disallowance of expenditure could be made by the AO in the case of the assessee u/s 14A of the Act r.w.r. 8D of the Income-tax Rules, 1962 as no exempt income was earned by the assessee during the year under reference, i.e., AY 2015-16. CIT(A) has placed reliance on the judgement in the case of Cheminvest Ltd. [ 2015 (9) TMI 238 - DELHI HIGH COURT] which is binding on all the tax authorities including the Tribunal. Therefore, we are unable to see any ambiguity, perversity or any other valid reasons to interfere with the findings of the ld.CIT(A). The ground raised by the Revenue are dismissed.

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• 2022 (12) TMI 537
  Disallowance on delayed payment of employee s contribution to ESI and PF - Payement beyond the due date by invoking the provisions of section 36(1)(va) - disallowance u/s 143(1)(a) - HELD THAT:- It is very clear from the intimation u/s 143(1)(a) that while issuing intimation, the reply of the assessee has been duly considered and therefore the period of 30 days becomes irrelevant. In the facts and circumstances of the given case, we are of the view that the disallowance u/s 143(1)(a) is valid in view of the decision in the case of Checkmate services [ 2022 (10) TMI 617 - SUPREME COURT] . Assessee will not be entitled to deduction of belated payment of ESI and PF of employees share of contribution as per the provision to section 36(1)(va) of the Act. We find no merits in this appeal and accordingly appeal filed by the assessee is dismissed.

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• 2022 (12) TMI 536
  Disallowance of interest on account of unsecured loans - unsecured loan u/s. 68 - assessee to avail the scheme of direct taxes VSV Act 2020 - HELD THAT:- It is clear that the impugned unsecured loans were taken in A.Y. 2010-11 i.e. A.Y. 2009-10 and not during the year under consideration. It is worthwhile to note that in A.Y. 2009-10 these loans were accepted as genuine but since under the VSV Act 2020. The assessee had to settle the dispute in respect of the entire amount, therefore, the dispute relating the unsecured loans taken by the assessee has been settled under the VSV Act, 2020 which also included the impugned loans whose genuineness had already been accepted in earlier assessment years As in our considered opinion the CIT(A) could not have imputed the surrender under the VSV Act, 2020 and sustained the impugned disallowance of interest which was not part of the settlement of dispute under the VSV Act, 2020. Considering the facts of the case in totality in the light of the discussion herein above we direct the AO to delete the impugned disallowances of interest from the captioned assessment years.

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• 2022 (12) TMI 535
  Addition of deposits found in bank statement u/s 68 - CIT-A confirmed part addition - HELD THAT:- Assessee has duly submitted the cash flow statement and cash balance adequate to cover the deposits was reflected therein. On the ground of inadequate withdrawal for personal purpose, the Assessing Officer did not give any credit and added entire deposit. As regards merit of the cash flow, adequate cash flow was available for deposits in the bank account. Hence, the assessee deserves to succeed on this count that there was available cash withdrawal from earlier period which is sufficient to cover the deposit amount. CIT(A) has been totally arbitrary in allowing part addition without any basis. Hence, the assessee deserves to succeed on this count only and in my considered opinion that the cash flow statement submitted which has been duly recognised by the Ld. CIT(A) also is covering the cash deposits in the bank account. The authorities below have made part disallowance only on presumption about the personal expenses of the assessee, which is totally based on surmises and cannot be sustained. Hence we set-aside the order of the Ld. CIT(A) and decide the issue in favour of the assessee.

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• 2022 (12) TMI 534
  TP Adjustment - payment of interest to Associated Enterprise on Compulsory Convertible Debentures (-CCD ) - ALP determination - HELD THAT:- We are of the opinion that CCDs are nothing but debt till the date of conversion and recharacterization of the same is impermissible and this issue stands covered by the order of the Tribunal in the case of ACIT Vs. CAE Flight Training India Pvt. Ltd. [ 2019 (8) TMI 554 - ITAT BANGALORE] as held RBI policy of FDI is governed by this that what will be future repayment obligation in convertible foreign currency and since, CCDs does not have any repayment obligation, the same was considered by RBI as equity for FDI policy. Now the question is that such treatment given by RBI for FDI policy can be applied in every aspect of CCDs. Whether the holder of CCDs before ins conversion can have voting rights? Whether dividend can be paid on CCDs before its conversion? In our considered opinion, the reply to these questions is a BIG NO. On the same logic, in our considered opinion, till the date of conversion, for allowability of interest u/s 36 (1) (iii) of Income tax Act also, such CCDs are to be considered as Debt only and interest thereon has to be allowed and it cannot be disallowed by saying that CCDs are equity and not debt. We hold accordingly. This issue is decided. ALP of the interest paid - Interest on Compulsory Convertible Debentures - As in assessee s own case in assessment year 2011-12 [ 2021 (12) TMI 1167 - ITAT BANGALORE] admittedly, the CCDs are issued in INR, interest is paid in INR and CCD s are repaid also in INR. Therefore, placing reliance on the judgment of Cotton Naturals (I) Pvt. Ltd. [ 2015 (3) TMI 1031 - DELHI HIGH COURT] . we hold that the TP study of the assessee to justify the interest rate by arriving at average rupee cost and comparing the same with SBI prime lending rate is correct. As held in assessment year 2012-13 [ 2022 (2) TMI 1279 - ITAT BANGALORE] TP study done by the assessee to arrive at the interest rate of 9% and 12% calculated based on the average rupee cost comparing the same with SBI prime lending rate. The assessee s claim in this ground is allowed. Thus taking a consistent view, we remit this issue to the file of AO/TPO in both the years for a decision as per law as discussed in earlier years as above and pass fresh order. This issue is partly allowed for statistical purposes in both the appeals. ALP of royalty - As payment of royalty at 4% on sale is to be treated at Arm s Length as in earlier year. Ordered accordingly. Determining the arm s length price of payment towards technical service fees to its AE at 1% of net sales - Justification of payment of technical services fees to its AE with commensurate benefits - difference between the services for which technical service fee is being paid and the technology for which royalty payment is being made - HELD THAT:- Fees paid was amounted from USD 975000 to USD 217500 and this amendment will have no bearing on the issue in hand. Consideration for services can increase or decrease depending on the projects for which services are availed. TPO s case of declaration of services stand squarely covered in the assessee s own case where there is a categorical finding that payment of technical service is not a declaration of royalty payment. Accordingly, these grounds of the assessee s appeal in AY 2014-15 are allowed. Foreign exchange loss on Kelvin Loan - HELD THAT:- This issue is squarely covered by the earlier decision of Tribunal in assessment year 2013-14 [ 2022 (8) TMI 1272 - ITAT BANGALORE] as held cash flow statement does not provide any basis to the finding that the amount is used for the repayment of short term loans unless there is a thorough examination is done on the inflows and outflows in the cash flow statement. We also take into consideration the fact that the assessee has offered the forex gain in respect of the same loan in the previous year and in the interest of justice it is only correct when the loss arises out of forex movement the same be allowed - loss claimed by the assessee due to the forex fluctuation of the loan is to be allowed. This ground is allowed in favour of the assessee. Disallowance of expenditure u/s 14A by applying the provisions of Rule 8D - necessity of recording satisfaction - HELD THAT:- As decided in assessee own case for the AY 2013-14 [ 2022 (8) TMI 1272 - ITAT BANGALORE] .AO has recorded vague, stereotyped reasons de hors the accounts of the assessee for making the disallowance under section 14A. There is no satisfaction of the AO having regard to the accounts of the assessee. Addition u/s 14A as per clause (f) of Explanation 1 to section 115JB of the Act for computing book profits - The case of CIT v. Gokaldas Images P Ltd. [ 2020 (11) TMI 345 - KARNATAKA HIGH COURT] has held that disallowance u/s 14A of the I.T.Act cannot be added to book profits of assessee under section 115JB. Thus, we delete the disallowance made under section 14A in computing the total income under regular provisions and book profits under section 115JB. Disallowance of other expenses - HELD THAT:- The assessee herein filed the additional evidence before us along with petition and prayed that these additional evidences are to be admitted in the interest of justice. Accordingly, these additional evidences are admitted for consideration and after admitting the same, we remit the entire issue in dispute to the file of AO for fresh consideration. The assessee has to make available all the additional evidences filed before us to the AO for consideration. After considering the same, the AO has to decide the issue afresh. Accordingly, the issue is set aside to the file of AO for fresh consideration. Short credit of TDS - HELD THAT:- We direct the AO to give correct TDS credit as appearing in Form 26AS relevant to the assessee in these assessment years. Ordered accordingly.

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• 2022 (12) TMI 533
  Addition u/s. 56(2)(vii)(b) - difference between the Stamp Duty valuation as on the date of registration less the actual consideration paid - assessee submitted that the sale consideration agreed in the letter of allotment can be treated as an agreement for this purpose - assessee submitted that in so far as the ground of Revenue that the sale consideration is less than stamp duty valuation on the date of registration, the assessee has two fold submissions - date of allotment would be the date of purchase of immovable property - HELD THAT:- A bare perusal of the first Proviso to section 56(2)(vii)(b) would show that where the date of agreement fixing the amount of consideration for transfer of immovable property and the date of registration are not same, the stamp duty value as on the date of the agreement may be taken. The provisions of clause (b) to section 56(2)(vii) were amended by the Finance Act, 2013 w.e.f. 01/04/2014. CIT(A) in the impugned order referred to the Memorandum to the Finance Act, 2013 explaining the reason for amending the provisions of section 56(2)(vii)(b) - The purpose for introducing proviso to clause (b) to section 56(2)(vii) of the Act was to avoid taxable differential arising due to time gap between the booking of a property and registration of sale deed. In the case PCIT vs. Vempu Vaidyanathan [ 2019 (1) TMI 1361 - BOMBAY HIGH COURT] has held that for computing capital gain tax, the date of allotment of flat would be the date on which the purchaser of flat is stated to have acquired property. In the instant case, on the date of allotment the building was under construction and even on the date of registration of sale deed the assessee had not taken possession of the immovable property. Assessee had acquired right in the ownership of flat at the time of issuance of allotment letter. Therefore, in the facts of the case stamp duty value as on the date of allotment of flat is relevant. CIT(A) in the impugned order has referred to various decisions explaining the term transfer as per section 2(47) of the Income Tax Act - We concur with the findings of the CIT(A), hence, the same are upheld and the appeal of the Revenue is dismissed being devoid of any merit. Appeal by the Revenue is dismissed.

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• 2022 (12) TMI 532
  TP Adjustment - determination of Arms Length Price (ALP) in respect of the international transaction of rendering SWD services to the AE - Comparable selection - turnover filter - HELD THAT:- We hold that the 7 companies listed whose turnover in the current year is more than Rs.200 Crores should be excluded from the list of comparable companies. TPO is directed to compute the ALP of the international transaction of rendering SWD services by the Assessee to its AE as per the directions contained in this order after affording opportunity of being heard to the Assessee.

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• 2022 (12) TMI 531
  Credit of TDS - unclaimed TDS brought forward from earlier years and claimed in the year on the basis of mercantile system of accounting - CIT(A) submitted that as per the amended Form ITR-5, it is for the assessee to carry forward unclaimed TDS to subsequent financial years and in case the assessee does not carry forward TDS, then the CPC will allow credit for TDS as per Form 26AS - HELD THAT:- We find that the assessee has claimed credit for TDS pertains to earlier financial years, because income relating to said TDS has been offered to tax for the impugned assessment years on the basis of mercantile system of accounting. The assessee had also furnished necessary details of TDS brought forward from earlier financial years in Form ITR-5 filed for impugned assessment years. As per the provisions of section 199 200 of the Act, credit for TDS should be allowed when the assessee has offered income relating to said TDS. The assessee claims that income relating to said TDS has been offered to tax for the impugned assessment years. If, the claim of the assessee is correct then the credit for TDS should be allowed on the basis of claim of the assessee including TDS brought forward from earlier financial years. The fact needs to be verified. Therefore, we set aside the issue to the file of the AO and direct the AO to verify the claim of the assessee and in case the AO finds that income relating to said TDS has been offered to tax for the impugned assessment years, then the credit for TDS also needs to be allowed as claimed by the assessee.

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• 2022 (12) TMI 530
  Addition u/s 68 - Unexplained cash deposits - HELD THAT:- AO during the Remand proceedings has taken much pain in verifying the genuineness of the loans by the various creditors by issuing them summons and notices u/s. 133(6) - AO disbelieved the loan amount given by assessee s wife who is said to be engaged in the sale of homemade namkeen dairy items and garment job work. As further claimed that the cash deposits made in the bank account is the joint account with the assessee s wife only. Similarly in the case of loan received from assessee s father in turn assessee s father borrowed loans from his five friends who are also engaged in agricultural activities. Similarly the other creditors wherein loan received by the assessee are less than Rs. 20,000/- each. The assessee s contention that the loan has been repaid as he could not buy the residential property due to some unavoidable reasons is found to be genuine and reasonable cause. A.O. has not made any verification of the repayment of loan. In our considered view, the A.O. has made huge verification on small time assessees, many of them are seen to be agriculturists in a small village. Assessee has filed confirmation from all the parties. Assessee also produced land ledger account of the various creditors to prove that they are engaged in agricultural activities. In the above circumstances, we do not find that the addition made by the AO is correct in law. For the above reasons, the addition confirmed by the Ld. CIT(A) are hereby deleted. Appeal filed by the Assessee is allowed.

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• 2022 (12) TMI 529
  Disallowances u/s 43B - VAT and Entry Tax - addition on the ground that in the revised return the assessee has added back the same - HELD THAT:- As the observation made by the CIT(A) that the Assessing Officer ignored the details of revised return and in fact the revised return includes the disallowed amount of entry tax and VAT. AO totally ignored the fact that when the said amount was already disallowed there cannot be disallowance of the same because the revised return had replaced the original return prior to assessment and even prior to issue of notice under Section 143(2) of the Act. Thus, there is no need to interfere with the finding of the CIT(A). Ground No. 2 is dismissed. Disallowance being short term provisions appearing in the balance sheet on the basis of fresh evidence - HELD THAT:- CIT(A) had observed that if the Assessing Officer had looked at the further details of the balance sheet it would have revealed that the said provision amount comprises of unpaid interest, provision for expenses and warranty which was also reflected in books of accounts available before the Assessing Officer. Therefore, there is no need to interfere with the findings of the CIT(A). Ground No. 3 is dismissed Disallowances of spare part expenditure - Expenditure claimed for the first time - HELD THAT:- CIT(A) has given a categorical finding that the assessee is an authorized dealer of Ford Vehicles having gross revenue of nearly Rs. 100 crores. Discount on vehicles and purchases were duly entered in the books of account by the Assessee. We agree with the finding of the CIT(A) that merely on the ground that first time discount expenses on spare part cannot be a valid reason for disallowing the same. Ground No. 4 is dismissed. Disallowances out of interest as the assessee had paid huge interest whereas it had not charged any interest on advances made by it - CIT(A) has erred in holding that the AO has made notional addition of interest income, whereas, the language Of the assessment order is that, there is disallowance out of interest expenditure - HELD THAT:- As addition was on notional income and the Assessing Officer could not point out that the assesses was entitled to receive such interest. There is no need to interfere with the finding of the CIT(A). Ground No. 5 is dismissed. Disallowances u/s. 40(a) - qualification made by the auditor in the audit report, on the ground that TDS has been deducted - no evidence in this regard was given to the AO and no proof of the same is filed during the appellate stage even the appellate is not taking the plea that it had deducted and paid TDS (as can be seen from the submission of the assesse reproduced in the appellate order - HELD THAT:- As the assessee submitted before the CIT(A) that due TDS has been deducted and paid subsequently on such amounts. In fact, the assessee has given the copy of ledger account as well during the assessment proceedings. Therefore, the CIT(A) has rightly deleted this addition. Ground Nos. 6 and 7 are dismissed.

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• 2022 (12) TMI 528
  Accrual of income - interest derecognized on NPA - Assessee following mercantile system of accounting as per the provisions of section 145 - HELD THAT:- We find that CIT(A) while deleting the addition has noted that on identical facts in earlier years the issue has been decided in favour of the assessee and further for A.Y. 2004-05 to 2008-09 [ 2013 (1) TMI 368 - ITAT DELHI] , the reference was made by the Department against the order of Tribunal but the reference was dismissed by Hon ble High Court. Before us, Revenue has not placed any material on record to demonstrate that the decision of Hon ble High Court and the decision of Tribunal in assessee s own case has been stayed/set aside/overruled by higher judicial forum. We, therefore, find no reason to interfere with the order of CIT(A). Thus, the ground of the Revenue are dismissed.

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• 2022 (12) TMI 527
  TP Adjustment - Addition made by the A.O. in the draft assessment order - application of CUP method as MAM - HELD THAT:- The arm s length rate of interest in CCDs was arrived @8.58% as per Bloomberg database. The assessee applied the same rate of interest both in foreign AE and domestic AE. No other uncontrolled comparable is determined during the TP study under CUP method. The application of CUP method as MAM without taking care the risk adjustment in terms of Rule 10B(1)(e )(iii) of the Rules, which are generally involved in a third-party transaction vis - vis between AEs to facilitate maintain the level and was not transaction of rendering actual service to AE. The benchmarking done by the appellant by way of search conducted on NSE, BSE NSDL comprising of following 7 comparable should be accepted in TP study by the TPO. Revenue in TP study had considered the interest paid on loans in the oil, gas and infrastructure industries as comparable to interest on CCDs under cup method. So, the two comparables from list of comparable selected by the TPO be rejected as per the ground number 9 of the assessee. During the study the TPO should take care specific characteristics of the products being compared, functions performed, contractual terms and conditions. It is directed that the benchmarking undertaken by the assessee under CUP method using correct filter on NSE, BSE and NSDL data. We accepted, arithmetic mean of which comes 18.13%then the interest rate on CCD in respect of the impugned international transaction of 17.65% is at arm s length. The benchmark performed on Bloomberg database by the appellant be considered, the impugned international transaction of interest on CCD paid at 17.65% is at arm s length. We delete the T.P. adjustment addition proposed by the TPO and made by the A.O. in the draft assessment order and accordingly, grounds of appeal of the assessee company are setting aside to TPO considering the findings of the Bench. Needless to say the assessee should get reasonable opportunity for the case. Disallowance of legal and professional expenses - HELD THAT:- Examples of research activity involves activities aimed at obtaining new knowledge, the search for alternatives and the formulation, design, evaluation and selection of possible alternatives. Since the above said expenses cannot be characterized as expenditure incurred for obtaining enduring benefit and cannot be included in the definition of project cost as per Guidance Note, it was characterized as revenue expenditure and expensed out in books of accounts. We noticed that the professional fees paid by MHPL to respective service providers post landacquisition was for availing consultancy services to assess the development opportunity with respect to residential real estate market dynamics and formulate the product-mix for MHPL. Therefore, it could be said that since MHPL is engaged in construction and development of residential projects, these professional fees paid has business nexus and incurred wholly and exclusively for business purposes. Since the said expenses were incurred post commencement of business and are intricately related to business of the assessee company, therefore, the same should be allowed as revenue expenses under section 37(1) - Accordingly, grounds of appeal Nos.14 and 15 are allowed. Advertisement and sales promotion expenses and miscellaneous expenses - HELD THAT:- Expenses incurred towards advertisement and sales promotion expenses are in the nature of revenue expenses allowable under section 37(1) - We, therefore, delete the addition made on account of advertisement and sales promotion expenses and miscellaneous expenses added by A.O. to the total income of the assessee company, in absence of any contrary decision of any higher judicial forum brought to our notice by the Ld. D.R - Accordingly, grounds of appeal of the assessee company are allowed.

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• 2022 (12) TMI 526
  TP adjustment - International Transaction of provision of contract research and development (R D) services - Functional profile of assessee company - whether the assessee is providing contract research and development activities or merely providing contract software development services of bug fixing? - HELD THAT:- As the TPO and the DRP without verifying, the actual functions performed by the assessee were guided only by the title of the agreement, characterizes assessee as research and development service provider. Lower authorities also without looking into the functional profile claimed by the assessee in form no. 3CEB have changed the characterization of assessee. As the functions performed by assessee is not verified and merely based on agreement, lower authorities have upheld the benchmarking of International Transactions. Decision of coordinate benches in assessee s own case for earlier years on this issue has also set aside benchmarking back to the AO/ TPO. We set aside the whole of issue back to the file of the Transfer Pricing Officer with a direction to the assessee to substantiate that it is not a research and development service provider but a contract software development service provider. The assessee is at liberty to produce such documents as well as cost incurred in provision of the services, work force employed, certificate of work, and various other material such as contract papers, engagement letters etc to substantiate the same. Assessee is also directed to show benchmarking analysis of these transactions. AO/ TPO are directed to examine nature of services provided by the assessee and then, determine its arm s length price in accordance with the law.

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• 2022 (12) TMI 525
  Relief u/s. 90 - Foreign Tax Credit (FTC) - Appellant had filed the return of income and the said Form 67 filed was late by 14 days from the due date of filing the return of income - As submitted that the delay was due to reasons beyond the control of the appellant, inasmuch as the Tax Deduction Certificates were received from the foreign deductor from Zambia belatedly, the said Form No.67 was filed belatedly by 14 days - HELD THAT:- We find the NFAC upheld the action of the AO, the reasons of which have already been reproduced in the proceeding paragraph. It is the submission of the ld.Counsel for the assessee that filing of foreign tax credit certificate in Form-67 is directory in nature and not mandatory and therefore the NFAC is not justified in denying the Foreign Tax Credit. In the case of M/s. 42 Hertz software India Pvt.Ltd [ 2022 (3) TMI 834 - ITAT BANGALORE] while deciding an identical issue has held that FTC cannot be denied to the assessee, where the assessee filed FTC in Form No.67, although belatedly since filing of such Form 67 is not mandatory but directory in nature. In the instant case, the delay in filing of the FTC certificate in Form-67 was explained to be due to non receipt of the tax deduction certificate form the foreign deductor from Zambia within time for which the said Form-67 was filed belatedly by 14 days. As stated that the tax jurisdiction of the Zambian deductor follow different period for taxing the income and have different due dates for filing the return as compared to India. So far as the decision relied on by ld. DR in the case of Muralikrishna Vaddi [ 2022 (6) TMI 693 - ITAT VISAKHAPATNAM] we find there is a delay of more than two years without any valid and reasonable cause. Therefore, the said decision in our opinion cannot be applicable to the facts of the present case. In any case, when there are two view possible, the view which is favourable to the assessee has to be followed as in the case of CIT vs. Vegetable Products Ltd.[ 1973 (1) TMI 1 - SUPREME COURT] . Since, the assessee in the instant case has filed FTC certificate in Form No.67 with delay of only 14 days, therefore following the decision in the case of M/s. 42 Hertz Software India Pvt.Ltd.[ 2022 (3) TMI 834 - ITAT BANGALORE] we direct the AO to allow the FTC after due verification. Assessee Appeal are allowed.

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• 2022 (12) TMI 524
  Validity of Order on a non-existing entity - order as it is passed on a non-existing entity i.e. erstwhile Marlabs Software Pvt. Ltd - approved scheme of amalgamation - HELD THAT:- Respectfully following in case of PCIT vs. Maruti Suzuki India Ltd. [ 2019 (7) TMI 1449 - SUPREME COURT] we hold that, since the assessee ceased to be in existence as on the date when the Ld.AO passed the impugned order of assessment, the assessment so framed is not sustainable in the eye of law. The final order of assessment is therefore liable to be annulled, and is hereby annulled. Assessee s appeal stands allowed.

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• Service Tax

• 2022 (12) TMI 523
  Constitutional Validity of N/N. 7 of 2008 dated 01.09.2008 enhancing the rate of service tax from 2% to 4% - levy of additional burden of service tax upon the contracts for which the option under Notification No. 32 of 2007, dated 22nd May, 2007 as already been exercised by the appellant - applicability of composition scheme. Does the scheme contemplate a mode of exercising option and what would be the correct meaning that has to be assigned to the words shall exercise option in respect of the works contract prior to payment of service tax ? HELD THAT:- In T. Azhakesan Versus State Tax Officer and Others [ 2021 (10) TMI 123 - MADRAS HIGH COURT] , the Division Bench of the High Court of Madras considered a similar issue, but, arising under the provision of the Tamil Nadu Value Added Tax Act, 2006. The said Act also contained a similar provision stating that the option should be exercised by the dealer prior to payment of tax. Similarly, under the said Act, there was no prescribed form for exercising such option. In GE T and N India Limited Versus Commissioner of Central Excise and Service Tax, Large Tax Payer Unit, Chennai [ 2019 (12) TMI 858 - MADRAS HIGH COURT] , identical issue was considered and the Division Bench approved the view taken by the tribunal in the case of Vaishno Associates Versus CCE ST, Jaipur [ 2018 (3) TMI 417 - CESTAT NEW DELHI] wherein the court considered the composition scheme and pointed out that no format has been prescribed for making/exercising an option nor has it been specified as to whom the option must be addressed, the fact of the paying service at composition rate in the return filed by the service provider is enough indication to show that they have opted for payment under the works contract composition scheme. The payment of tax under the composition scheme upon notification of the scheme vide a notification no. 32 of 2007 dated 26.05.2007 by filing the return and paying tax at the compounded rate of 2% is sufficient compliance of exercise of option under the scheme and therefore the subject contracts for which tax had been remitted by the appellant at the rate of 2% is permissible and acceptable under law. Extended period of limitation - HELD THAT:- The disputed period can be divided into two the first of which being from March 2008 to March 2012. For this period, the show cause notice for the periods from March 2008 to March 2011 have all been issued after a long delay as the show cause notices were issued on 17.04.2013. The said show cause notice also covered the period from April 2011 to September 2011 and October 2011 to March 2011 but for such period the show cause notice was within the time permitted. The question would be whether extended period of limitation could have been invoked in the facts and circumstances of this case and courts have held that such extended period of limitation can be invoked only when that there is a deliberate intention to evade payment of tax and it does not empower the department to invoke the extended period on the sole ground of omission - the department invoking the extended period of limitation, for the period indicated above, is thoroughly flawed and illegal. Penalty u/s 78 of FA - HELD THAT:- The learned advocate submits that the court may consider the case and direct that the penalty should not be levied under Section 78 of the Act. We are not able to accede such a prayer as it is beyond the scope of the prayer sought for in the writ petition nor such contention appears to have been raised in the writ petition. However, we give liberty to the appellant to raise all contentions both on law and facts in the event there is proposal to levy penalty for the aforementioned period. The appellant has exercised the option prior to 01.03.2008 and therefore would be entitled to the compounded rate of tax at 2% for the relevant period and this cannot extend to the period from April 2012 to March 2013 which the appellant has conceded to pay tax at the enhanced rate along with the interest - Appeal allowed.

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• Central Excise

• 2022 (12) TMI 522
  Levy of penalty under Rule 15(2) - charge that appellant have availed 100% credit instead of 50% and remaining 50% to be availed in the next Financial year in respect of capital goods - malafide intent or not - HELD THAT:- The appellant has not disputed the excess availment of credit of 50% in advance. However, admitting the same lapse they have reversed the credit and also paid the interest. There is no mala fide can be attributed towards the appellant for this lapse as the appellant is otherwise eligible for Cenvat credit of remaining 50% within a short time i.e. in the next financial year. Therefore, this lapse is inadvertent and cannot be said that there is any intention to evade duty or fraudulent availment of Cenvat credit. In this fact the case should have been concluded, on the basis of appellant s reversal of excess credit of 50% along with payment of interest thereon which could have resulted into non issuance of SCN and consequently no penalty should have been imposed. Therefore, in this fact since there is no mala fide on the part of the appellant, the case is clearly covered by Section 11A(2B). The penalty is not imposable on the appellant - Appeal allowed - decided in favor of appellant.

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• CST, VAT & Sales Tax

• 2022 (12) TMI 521
  Illegal gratification from the traders under the jurisdiction - it is submitted that the punishment of dismissal from service imposed under the impugned G.O. is disproportionate to the nature of charge levelled against the petitioner - HELD THAT:- The charge against the petitioner is that he along with his colleagues had collected Diwali Mamool from the traders and the petitioner s share was Rs.6,000/- from the said collection and therefore, he has failed to maintain absolute integrity and devotion to duty. Admittedly, similarly placed employees were given lesser punishment namely two years increment cut with cumulative effect. On the face of the charge framed against the petitioner also, this Court is of the considered view that punishment of dismissal from service imposed on the petitioner is disproportionate to the nature of charge. The petitioner having admitted his guilt by filing a memo before this Court, after giving due consideration to the nature of charge, this Court is of the considered view that the petitioner shall also get the benefit of reduction of punishment instead of dismissal from service as was given to his colleagues who were also involved in the incident of collecting bribe as Diwali mamool from the traders. The writ petition is disposed off.

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