TMI Tax Updates - e-Newsletter
March 2, 2021

Case Laws in this Newsletter:

GST Income Tax Customs Service Tax CST, VAT & Sales Tax

Articles

1. ALCO-BEVERAGES IN COVID TIMES

   By: Dr. Sanjiv Agarwal

News

1. GST Revenue collection for February 2021

2. GST compensation shortfall released to States reaches ₹ 1.04 Lakh crore

3. Income Tax Department conducts searches in Hyderabad

Notifications

GST

1. 04/2021 - dated 28-2-2021 - CGST

Seeks to extend the time limit for furnishing of the annual return specified under section 44 of CGST Act, 2017 for the financial year 2019-20 till 31.03.2021

GST - States

2. 291-F.T. - dated 26-2-2021 - West Bengal SGST

Seeks to notify amendment carried out in sub-sections (1), (2), (3), (4), (5), (6), (7), (8), (9) and (12) of section 2 of the West Bengal Goods and Services Tax (Amendment) Act, 2021 (West Ben. Act III of 2021) regarding amendments of section 2, section 10, section 16, section 29, section 30, section 31, section 51, section 122, section 132, and section 172 of the WBGST Act, 2017

Income Tax

3. 10/2021 - dated 27-2-2021 - IT

Modification of Notification No. 93/2020 dated the 31st December, 2020

Circulars / Instructions / Orders

DGFT

1. Trade Notice No. 44/2015-2020 - dated 1-3-2021

Online Module for Adjudication, Appeal, Review proceedings under Foreign Trade (Development & Regulation) Act, 1992, ('the Act') as amended and Foreign Trade (Regulation) Rules, 1993, ('the Rules') as amended.

Highlights / Catch Notes

GST

• Court Denies Maharashtra GST Practitioners' Request to Extend Annual Return Deadline Beyond Feb 28, 2021 Due to COVID-19.

  Case-Laws - HC : Seeking direction to the respondents to extend the periodicity of filing of annual returns in the State of Maharashtra in COVID-19 pandemic situation - we do not find that non-extension of the time-limit beyond 28.02.2021 would lead to any extinguishment of right - Also, it is noteworthy that it is the professional body of GST practitioners and not any individual taxable person expressing any difficulty in adhering to the extended timeline of 28.02.2021. - HC
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Income Tax

• High Court Upholds ITAT Decision: Section 153A Additions Deleted Due to Lack of Cross-Examination, Section 153C Violations.

  Case-Laws - HC : Assessment u/s 153A - Bogus LTCG - statement recorded in search action against a third person - the Assessee had no opportunity to cross-examine the said witness, but that apart, the mandatory procedure under section 153C has not been followed - ITAT rightly deleted the additions - HC
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• Burden of Proof Shifts to Revenue Authorities for Unexplained Cash Deposits u/s 68 with Donor Confirmation.

  Case-Laws - AT : Unexplained cash deposits u/s. 68 - receipt of gift from the relatives - Once the confirmation letter was filed by the assessee from Donor, the burden cast upon assessee is discharged and it would shift to revenue authorities. The Revenue authorities cannot make addition without making any further enquiry. - AT
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• Section 271(1)(b) Penalty Not Applicable: Assessee's Compliance and Explanation Accepted u/s 273B and Section 142(1) Notice.

  Case-Laws - AT : Penalty u/s. 271(1)(b) - default and non-compliance to the notice issued u/s. 142(1) - in the facts and circumstances of the case and in view of Section 273B of the Act when the assessee has finally complied with the notice issued by the Assessing Officer the penalty is not imposable as the explanation filed by the assessee was finally found to be correct and accepted in the quantum appeal. - AT
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• Assessing Officer Can Expand Limited Scrutiny to Complete Scrutiny with Written Approval from Pr.CIT/CIT Based on Evidence.

  Case-Laws - AT : Conversion of limited security to complete security - If the A.O. of the view that there is a potential escapement of income, he may convert the limited scrutiny in to complete scrutiny. But view should be reasonable view based on credible available or material available on record. And in this case, approval of the Pr.CIT/CIT is required and such approval shall be accorded by the Pr.CIT/CIT in writing after being satisfied about merit of the issues. - AT
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• CIT Appeals Limits Disallowance to 2% of Total Expenses, Citing Reasonable Profit Trends u/s 143.

  Case-Laws - AT : Genuineness of Expenses - hire charges paid to trucks - In the instant case also, in assessment year 2013-14, the assessee has shown net profit @ 3.08%, which was assessed u/s.143(3) of the Act. Further, in assessment year 2015-16, the profit was shown @ 2.99%, and accepted u/s.143(1) of the Act by the department, which is less than the net profit shown by the assessee in the present year under consideration i.e. 3.75%. Therefore, we find that the ld CIT(A) is justified in restricting the disallowance to 2% of the total expenses claimed by the assessee considering the quantum and nature of expenses and also the claim of earlier years. - AT
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• Transfer Pricing Adjustment: Authorities' Use of CUP Method Deemed Unsustainable Due to Differences Between AE and Non-AE Sales.

  Case-Laws - AT : TP Adjustment - benchmarking export of finished goods to associated enterprises - There are significant differences in the sales made by the assessee to its AEs and non-AEs, the effect of which has neither been given by the TPO nor it has been shown that how it can be given, we hold that the action of the authorities below in applying the CUP as the most appropriate method cannot be sustained. - AT
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• Section 56(2)(b)(viib) IT Act: Share Premium Justification via DCF Method Upheld; Valuation Report Binding Without Specific Defects.

  Case-Laws - AT : Addition u/s 56(2)(b)(viib) - rejecting the justification of Share Premium on the basis of Discounted Cash Flow (DCF) method - Observation of the Ld. CIT (A) that the Chartered Accountant has relied on the data supplied by the assessee in this regard is irrelevant in as much as the CA has carried out the valuation in accordance with the prescribed method as per Rule-11UA of the Income Tax Rules, 1962 and, therefore, such valuation report, in absence of specific defects being pointed out, has a binding value - AT
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• Loan Interest Disallowance Unjustified as 9% Rate Exceeds Fixed Deposit Rates; Removal Recommended.

  Case-Laws - AT : Interest expenditure - assessee had availed loan at the interest rate of 12% p.a., whereas, it has advanced loan to a sister concern by charging 9% interest p.a - The assessee’s claim that the rate of interest charged at 9% is more than the prevailing rate of interest on FDRs has not also been found to be false. In such circumstances, if the assessee has parked his surplus fund temporarily by charging interest at 9%, which is more than prevailing rate of interest on FDR, the interest so charged cannot be held to be unreasonable. Therefore, disallowance made out of the interest expenditure is uncalled for. Accordingly delete the disallowance. - AT
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• Assessment Reopening Invalid: AO Issued Notice Without Meeting Section 149(1)(b) Conditions; PCIT/CIT Sanction Lacks Proper Basis.

  Case-Laws - AT : Validity of Reopening of assessment u/s 147 - AO should not have issued notice without satisfying the condition precedent as laid down in clause (b) of section 149(1) of the Act. And the Ld. PCIT/CIT should not have given sanction to reopen on the basis of the reasons recorded by AO without satisfying the condition precedent as prescribed in section 149 of the Act. Failure to do so, makes the sanction of the authority u/s. 151 of the Act fragile for non-application of mind. - AT
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• IT Services Under MSA Qualify as "Fee for Technical Services" Per Article 13.4(c) in India-UK Tax Treaty.

  Case-Laws - AAR : Management Service Agreement ("MSA") to its subsidiaries - the majority of the services are technical in nature and the remaining one are in the area of consultancy. Therefore, we cannot agree with the submission that they were only managerial in nature and not in the nature of technical or consultancy services. - However, only "direct technical advice, support and management including implementation" service provided under Information Technology (IT) service meets the requirement Of 'make available' in clause (c) of Article 13.4 under the treaty. Therefore, only this particular service is found to be in the nature of "fee for technical services" under Article 13.4(c) of India-UK Tax Treaty. - AAR
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Customs

• Court Rules MEIS Benefits Cannot Be Denied for Technical Errors if Applicant Meets Eligibility Criteria.

  Case-Laws - HC : Benefits under the MEIS denied - denial solely on the ground of a seeming technical error especially when the eligibility of the writ-applicant is not disputed - It is a settled law that the benefit which otherwise a person is entitled to once the substantive conditions are satisfied cannot be denied due to a technical error or lacunae in the electronic system. - HC
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Case Laws:

• GST

• 2021 (3) TMI 14
  Seeking direction to the respondents to extend the periodicity of filing of annual returns in the State of Maharashtra in COVID-19 pandemic situation - section 44 of the Central Goods and Services Tax Act, 2017 read with Rule 80 of the Central Goods and Services Tax Rules, 2017 - HELD THAT:- It is not that the time-limit has not been extended. The initial due date of 31.12.2020 has been extended to 28.02.2021. That apart, on going through the relevant provisions of the CGST Act, more particularly the provision of section 47(2) thereof, we do not find that non-extension of the time-limit beyond 28.02.2021 would lead to any extinguishment of right - It is found from the written instructions dated 25.02.2021 that vide notification No.77 of 2020 - Central Tax dated 15.10.2020 filing of annual return in the prescribed form for businesses with annual turnover upto Rs. 2 crores has been made optional for the financial years 2017-18, 2018-19 and 2019- 20; and for businesses with annual turnover upto Rs. 5 crores filing of the prescribed form for the financial years 2018-19 and 2019-20 has been waived off vide notification No.79/2000 - Central Tax dated 15.10.2020. Also, it is noteworthy that it is the professional body of GST practitioners and not any individual taxable person expressing any difficulty in adhering to the extended timeline of 28.02.2021. Petition dismissed - decided against petitioner.

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• Income Tax

• 2021 (3) TMI 21
  Advance ruling application 245Q(1) - Management Service Agreement ( MSA ) to its subsidiaries - rendering of technical/consultancy services - whether those services make available the technology to the recipient - Applicant is a company incorporated in England and Wales and is a non-resident entity - Applicant, has entered into a Management Service Agreement ( MSA ) with its subsidiaries including Aircom India, effective from 01st July, 2007 whereby the Applicant provides various Management Support Services to Aircom India with a view to rationalize and standardize the business conducted by Aircom India in India in accordance with the international best practices - Whether services specified under the MSA would be in the nature of Royalty within the meaning of the term in Article 13 of the India-UK Treaty? - HELD THAT:- The nature of services rendered has already been mentioned earlier. The services rendered in setting-up and maintaining strategic management support, target setting, direct customer negotiation, business review and consultation, sales, marketing and business development services including vendor management, sales presentations, general treasury and financial management advice and services, legal services including contract management, contract negotiations and advice, legal compliance assistance, consulting including advice on pricing, customer negotiations, customer management etc., human resource services, information technology (IT) and solution services including network sharing development and strategic development, advice on sales presentations, training of IT engineers/employees etc. are all technical services which cannot be provided without the domain knowledge of the relevant field. Thus, the majority of the services are technical in nature and the remaining one are in the area of consultancy. Therefore, we cannot agree with the submission that they were only managerial in nature and not in the nature of technical or consultancy services. Services in the nature of direct technical advice, support and management including implementation were not only technical in nature but were also made available to Aircom India. Such advice was not in respect of any outage on the Aircom network or troubleshooting of malfunctions in the I.T. infrastructure; rather it was in respect of the specific technical problem faced by the clients of Aircom India, which was flagged to the Applicant for resolution and the solution of which was provided through the employees of Aircom India. Therefore, this service was not only technical in nature but was also made available. We are of the view that payment received for various services in terms of the MSA was not managerial but technical in nature. However, we also hold that only direct technical advice, support and management including implementation service provided under Information Technology (IT) service meets the requirement Of make available in clause (c) of Article 13.4 under the treaty. Therefore, only this particular service is found to be in the nature of fee for technical services under Article 13.4(c) of India-UK Tax Treaty. Whether Royalty? - Revenue has contended that payment by Aircom India to Applicant was for the use of information concerning industrial, commercial or scientific experience and hence it was within the ambit of Royalty under India-UK DTAA - Core activities were not part of MSA and were not rendered by the Applicant under MSA. The Revenue could not point out any legally sustainable reason on the basis of which the payment for the services under MSA can said to be covered by Article 13.3 of India-UK DTAA. Thus, we agree with the contentions of the Applicant in this regard. The issue of IPR in the MSA has already been discussed earlier and held that the Applicant had only agreed under MSA for provision of various services to the subsidiaries and the clause regarding IPR had merely entitled the subsidiaries to enjoy the benefit of the services without violation of IPR rights of the Applicant. Further, the payment under the MSA was in respect of actual rendering of the services and not towards right to use the IPR. It was also held that only because the transfer pricing under the SLA was excluded from the total gross trading revenue for the purpose of calculating the service fee payable under MSA, it did not establish that the services provided under MSA were ancillary and subsidiary to the services under SLA. We are, therefore, of the view that the amount received by the Applicant towards the services rendered under the MSA would not be in the nature of Royalty . Whether Business Income? - Revenue has contended that there was a service PE as per Article 5(2)(k) of the India-UK Treaty - No substantive evidence of stay of any particular employee and rendering of service by them for more than 30 days in a twelvemonth period has been pointed out or brought on record by the Revenue. A mere stay of an employee doesn t establish that he had rendered the service all the time. In order to attract this provision there has to be concrete evidence to establish that the service was rendered through an employee for 30 days or more. In the absence of any such concrete evidence we can t hold that a Service PE was created in this case. The contention of Revenue is based on mere suspicion and not on hard facts. Further, as already discussed earlier the part of the services under MSA is found covered under Article 13 of the DTAA. We are, therefore, in agreement with the Applicant that it does not have a PE in India. As no business was carried out in India and in the absence of any PE, the payment for the services rendered under MSA cannot be considered as business income. Ruling:- Que. 1 The payment made by Aircom India to the Applicant under the MSA for the services specified there under would be characterized as fee for technical services ( FTS ) under Article 13(4) of the convention between India and UK only in respect of direct technical advice, support and management including implementation service provided under Information Technology (IT) service. The other services rendered under MSA are not found taxable under the convention. Que. 2 The payments made by Aircom India to the Applicant for availing the services specified under the MSA are not in the nature of Royalty within the meaning of the term in Article 13 of the India-UK Treaty. Que. 3 The payments received by the Applicant are not business income. Que. 4 The payments made by Aircom India to the Applicant would suffer withholding tax under section 195 of the Act only in respect of component of direct technical advice, support and management including implementation service provided under Information Technology (IT) service at the applicable rate.

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• 2021 (3) TMI 20
  Validity of Reopening of assessment u/s 147 - Assessment reopened after four years from the end of the relevant assessment year - as argued AO non satisfying the condition precedent as prescribed in clause (b) of section 149 of the Act as well as the Ld. PCIT/CIT should not have given the sanction to issue notice u/s. 148 on the reasons recorded by AO as a fit case, without satisfying the legal requirement of section 149 of the Act and, therefore, the sanction of PCIT/CIT is bad in law for non-application of mind - HELD THAT:- AO should not have issued notice without satisfying the condition precedent as laid down in clause (b) of section 149(1) of the Act. And the Ld. PCIT/CIT should not have given sanction to reopen on the basis of the reasons recorded by AO without satisfying the condition precedent as prescribed in section 149 of the Act. Failure to do so, makes the sanction of the authority u/s. 151 of the Act fragile for non-application of mind. Thus without satisfying both the legal requirements as stipulated u/s 149 and section 151 of the Act, the jurisdictional conditionprecedent, the AO could not have validly reopened the assessment by issuing notice u/s. 148 of the Act and in such an event, the AO does not enjoy jurisdiction to have validly reopen the assessment. And it is noted that this issue is no longer res integra and the Hon ble Allahabad High Court in the case of Amar Nath Agarwal [ 2014 (10) TMI 8 - ALLAHABAD HIGH COURT] Reasons are to be examined only on the reasons as recorded. Here, in this case, as noted the condition precedent as required u/s. 149(1)(a) and (b) having not been satisfied and since it was an essential ingredient for seeking the sanction u/s. 151 of the Act, the omission is fatal to the issue of notice u/s. 148 of the Act. Therefore, the AO lacked jurisdiction to issue notice u/s. 148 of the Act and, therefore, all consequent action is null in the eyes of law. And, therefore confirm the action of the Ld. CIT(A) and dismiss all the four appeals of the revenue.

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• 2021 (3) TMI 19
  Unexplained cash credit u/s 68 - difference between the outstanding liabilities shown in the name of M/s New India Roadways as per the assessee s books and as per the books of account maintained by the concerned party - Addition of evidence of additional evidences - HELD THAT:- As assessee has furnished certain information from the website of the MCGM by way of additional evidence to emphasize that Rs. 20 lakh which is the subject matter in dispute is, in reality, the earnest money deposit with MCGM. I have noticed, before the first appellate authority the assessee had also submitted that the amount of Rs. 20 lakh shown as liability due to M/s New India Roadways is because of a clerical mistake. However, the first appellate authority has not given any credence to such statement of the assessee. Assessee as well as the additional evidences now furnished which, have a crucial bearing in deciding the issue; hence, should be admitted, assessee s claim that the disputed addition of Rs. 20 lakhs actually represents the earnest money deposit with MCGM requires thorough examination. Since, evidences now furnished before the Tribunal were not filed before the departmental authorities, in my view, the issue needs to be remitted back to the Assessing Officer for examining assessee s claim vis- -vis the additional evidences filed by the assessee as well as the evidences already on record. Accordingly,restore the issue to the file of the Assessing Officer for fresh adjudication after due opportunity of being heard to the assessee. Disallowance of the interest expenditure claimed during the year - assessee has claimed deduction towards interest paid on loans availed - HELD THAT:- Though, it may be a fact that the assessee had availed loan at the interest rate of 12% p.a., whereas, it has advanced loan to a sister concern by charging 9% interest p.a; however, assessee s contention that it is a temporary advance of surplus funds available and was given on the condition that it has to be repaid on call, has not been disputed or denied. The assessee s claim that the rate of interest charged at 9% is more than the prevailing rate of interest on FDRs has not also been found to be false. In such circumstances, if the assessee has parked his surplus fund temporarily by charging interest at 9%, which is more than prevailing rate of interest on FDR, the interest so charged cannot be held to be unreasonable. Therefore, disallowance made out of the interest expenditure is uncalled for. Accordingly delete the disallowance. Disallowance made out of sales promotion and travelling expenses - HELD THAT:- Undisputedly, the part disallowance of sales promotion and travelling expenses has been made purely on ad hoc basis alleging non furnishing of complete evidence. Considering the nature of expenditure, it may not be possible on the part of the assessee to maintain the details of all the expenditure incurred on sales promotion and travelling. In view the possibility of inflation of expenditure by the assessee to some extent, in my considered opinion, disallowance of @20% out of the aforesaid expenditures would be fair and reasonable. Accordingly, I direct the AO to restrict the disallowance to 20% of the expenditure claimed towards sales promotion and travelling. This ground is partly allowed.

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• 2021 (3) TMI 18
  Deduction u/s 10A - Disallowing Foreign Exchange Fluctuation for the purpose of calculating deduction - net foreign exchange gain reduced from the net profit of the undertaking for the reason that the same was capital in nature - HELD THAT:- There is no dispute that the said income is capital in nature as the Ld. CIT (A) has given a categorical finding on the same. The Department has not disputed it and neither is the assessee challenging it. The only prayer of the assessee is that if the same is not included in the net profit of the undertaking for the purposes of computation of claim of deduction u/s 10A of the Act, the same should also be excluded from the computation of business income. In this regard, we are in complete agreement with the submissions of the Ld. Authorized Representative. If the net foreign exchange of gain of Rs. 4,80,613/- is excluded from the computation of claim of deduction u/s 10A of the Act for the reason that it is on capital account, the same should also not be included while computing the net profit of the assessee. The same is directed to be excluded from the computation of business income as well. Accordingly, the additional ground raised by the assessee stands allowed.

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• 2021 (3) TMI 17
  Addition u/s 56(2)(b)(viib) - rejecting the justification of Share Premium on the basis of Discounted Cash Flow (DCF) method - Share Premium has been charged on the basis of Valuation Report by qualified Chartered Accountant following Discounted Cash Flow (DCF) method - as submitted assessee had issued new shares at a price lower than that computed as per the DCF Method i.e. at the rate of Rs. 43/- per share against DCF value of Rs. 218.49 per share arrived at in the said valuation report.Revenue disregarded the valuation report mainly on the ground that valuation of equity shares was based on projection of revenue which did not match with the actual revenue during the subsequent years - HELD THAT:- In absence of any specific inaccuracies or short comings in the DCF valuation report other than stating that yearwise results as projected are not matching with the actual results declared in the final accounts, the Assessing Officer cannot substitute his own value in place of the value determined either on DCF method or NAV method. Therefore, we are of the considered opinion that the Lower Authorities were not justified in rejecting the valuation report as submitted by the assessee in this regard. Observation of the Ld. CIT (A) that the Chartered Accountant has relied on the data supplied by the assessee in this regard is irrelevant in as much as the Chartered Accountant has carried out the valuation in accordance with the prescribed method as per Rule-11UA of the Income Tax Rules, 1962 and, therefore, such valuation report, in absence of specific defects being pointed out, has a binding value. We note that neither the Ld. CIT (A) nor the Assessing officer have evaluated the valuation report in light of the relevant material but have only rejected the same on assumptions and presumptions and the same cannot be upheld - AO should examine the issue afresh after giving due opportunity to the assessee to present its case in this regard. Thus, this ground is allowed for statistical purposes. Disallowance of ROC fees paid by the assessee company - HELD THAT:- It is settled law that ROC fees paid are to be considered as preliminarily expenditure within the meaning of Section 35D of the Act. The same is directed accordingly. Accordingly, this ground stands allowed.

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• 2021 (3) TMI 16
  Additional depreciation u/s 32(1)(iia) - lower authorities have disallowed assessee s additional depreciation claimed for sole reason that relevant assets had been put to use in earlier year(s) than in the relevant previous year - HELD THAT:- We find no merit in Revenue s stand since hon ble Madras high court in Brakes India Ltd.. vs. ACIT [ 2017 (4) TMI 511 - MADRAS HIGH COURT] has accepted such additional depreciation claimed on the assets already put to use. The instant depreciation allowance is directed to be deleted. Assessee s appeal is allowed.

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• 2021 (3) TMI 15
  Estimation of income - bogus purchases - CIT-A restricting the addition to 12.5% as against the entire bogus purchases disallowed - HELD THAT:- The total purchases shown to be made from the aforesaid parties could not be held to be entirely bogus. It needs to be appreciated that in order to achieve the reported sales/turnover, there must be some corresponding purchases, whether effected from the alleged entry providers or from the grey market without bills. Thus, there ought to be some purchases made and hence, entire disallowance is not justified. No infirmity in the order passed by the Ld. CIT(A) in restricting the addition to 12.5% as against the entire bogus purchases disallowed by the Assessing Officer. Grounds raised by the revenue are dismissed.

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• 2021 (3) TMI 8
  Assessment u/s 153A - Bogus LTCG - statement recorded in search action against a third person - whether a statement under Section 132(4) constitutes incriminating material for carrying out assessment under S. 153(A) ? - ITAT deleted the addition - HELD THAT:- A reading of the impugned order reveals that the statement of Mr. Jindal recorded under Section 132(4) forms the foundation of the assessment carried out under Section 153A of the Act. That statement alone cannot justify the additions made by the AO. Even if we accept the argument of the Revenue that the failure to cross-examine the witness did not prejudice the assessee, yet, we discern from the record that apart from the statement of Mr. Jindal, Revenue has failed to produce any corroborative material to justify the additions. On the contrary we also note that during the course of the search, in the statement made by the assessee, he denied having known Mr. Jindal. Since there was insufficient material to support the additions, the ITAT deleted the same. This finding of fact, based on evidence calls for no interference, as we cannot re-appreciate evidence while exercising jurisdiction under section 260A AO has used this statement on oath recorded in the course of search conducted in the case of a third party (i.e., search of Pradeep Kumar Jindal) for making the additions in the hands of the assessee. As per the mandate of Section 153C, if this statement was to be construed as an incriminating material belonging to or pertaining to a person other than person searched (as referred to in Section 153A), then the only legal recourse available to the department was to proceed in terms of Section 153C of the Act by handing over the same to the AO who has jurisdiction over such person. Here, the assessment has been framed under section 153A on the basis of alleged incriminating material (being the statement recorded under 132(4) of the Act). As noted above, the Assessee had no opportunity to cross-examine the said witness, but that apart, the mandatory procedure under section 153C has not been followed. No perversity in the view taken by the ITAT. - Decided in favour of assessee.

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• 2021 (3) TMI 7
  Unexplained cash deposits u/s. 68 - HELD THAT:- As assessee received a sum from the three parties and this amount has been deposited into Bank account of the assessee with Punjab National Bank. Being so, to that extent it cannot be considered as unexplained deposit by the lower authorities. The assessee has discharged its burden in explaining the source of the deposit into assessee s Bank account. Hence, to this extent of this sum, the credit to be given by the Assessing Officer. Source of deposit of Cash from earlier withdrawal and receipt of gift from the relatives - Held that:- As gone through withdrawals and deposits into Bank Account with Punjab National Bank on various dates. As seen from the bank account, there is repeated withdrawals and deposit into same bank account - There is no presumption that the assessee expended this amount for any other purpose and the lower authorities are not justified in deciding that the assessee has spent the earlier withdrawals for some purpose instead of depositing into same bank account without any material in the hands of authorities. Accordingly, the earlier withdrawals are available to the assessee to redeposit into the said bank account. Further, the assessee explained that there was gift from mother, the assessee has filed confirmation letter from mother before CIT (Appeals), disbelieved it since the credit worthiness of donor was not proved. In our opinion, once the confirmation letter was filed by the assessee from Donor, the burden cast upon assessee is discharged and it would shift to revenue authorities. The Revenue authorities cannot make addition without making any further enquiry. Therefore in these circumstances, the lower authorities are not justified in making addition toward unexplained deposits into bank account. Being so, we have no hesitation in deleting the addition sustained by the CIT (Appeals) on this issue and the ground of appeal of the assessee is allowed.

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• 2021 (3) TMI 6
  Addition u/s 69A - Addition of bank loan liability with the income of the appellant as unexplained money - assessee maintained personal loan account - CIT(A) was of the view that the loan transaction should have been reflected in the balance sheet and non-disclosure of the same need to be treated as undisclosed liability incurred by the assessee - HELD THAT:- From this observation the AO made it clear that the assessee has not shown any asset being acquired by the assessee for the amount of loss which the assessee has recorded as an item of asset in the balance sheet. Therefore, the question of taxing the asset which is not existing in the balance sheet does not arise and the AO erred in making the addition u/s 69B of the Act. Coming to the action of the Ld. CIT(A) he confirmed the addition u/s 69A of the Act treating it as unexplained money in possession of the assessee u/s 69A of the Act which is also erroneous, since the source of loan is acknowledged by the AO as from Vijaya Bank and therefore the question of unexplained money does not arise and so addition u/s. 69A of the Act is not legally sustainable. Therefore, the addition made by the authorities below on the facts and circumstances of the case is erroneous and, therefore, even though for whatever reason/over-sight the assessee had not disclosed the loan as liability in the balance sheet and since the incurring of interest on it has been disallowed being personal in nature and the source of loan is from Vijaya Bank as noted by the AO, the loan amount of Rs. 2,33,950/- cannot be taxed as it is a liability and not income, so, I am inclined to direct the deletion of Rs. 2,33,950/-.

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• 2021 (3) TMI 5
  Penalty u/s. 271(1)(b) - there is a default and non- compliance on the part of the assessee to the notice issued u/s. 142(1) - unexplained source of deposit made in the bank account - AO as also stated that the assessee has not made compliance to the show cause notice issued u/s. 271(1)(b) - HELD THAT:- That cannot be a ground for imposition of penalty u/s. 271(1)(b) of the Act. In the quantum appeal, the ld. CIT(A) vide its order dated 22.09.2020 has deleted the addition made by the Assessing Officer and therefore, it amounts to acceptance of the explanation of the assessee filed during the assessment proceedings. Hence, in the facts and circumstances of the case and in view of Section 273B of the Act when the assessee has finally complied with the notice issued by the Assessing Officer the penalty is not imposable as the explanation filed by the assessee was finally found to be correct and accepted in the quantum appeal. Consequently the penalty levied u/s. 271(1)(b) of the Act is deleted. - Decided in favour of assessee.

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• 2021 (3) TMI 4
  Addition on protective addition - CIT(A) has dismissed the appeal of the assessee by exparte order - CIT(A) has confirmed the said addition without even considering the status and outcome of the substantive addition made by the Assessing Officer - HELD THAT:- Without knowing the status of the substantive addition made by the Assessing Officer the protective addition cannot be decided conclusively. The impugned order has been passed by the ld. CIT(A) due to non appearance of the assessee but the situation prevailing at that point of time when the hearing were fixed by the ld. CIT(A) was certainly inordinate situation of COVID-19, Pandemic and therefore, the assessee deserves one more opportunity of hearing to present his case. When the ld. CIT(A) has passed the impugned order without even considering the fate of substantive addition and the assessee has already explained the sufficient reason for not attending the proceeding before the ld. CIT(A) the impugned order of the ld. CIT(A) is set aside and matter is remanded to the record of the ld. CIT(A) for deciding the same afresh after giving one more opportunity of hearing to the assessee. Needless to say that the protective addition is dependent on the outcome of the case where the substantive addition was made by the Assessing Officer. Appeal of the assessee is allowed for statistical purposes.

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• 2021 (3) TMI 3
  Conversion of limited security to complete security - income from undisclosed source - assessee has made more withdrawal against the available deposit - HELD THAT:- AO issued four notices u/s. 142(1) all the notices were duly replied by the ld. A.O. though assessee case was selected for limited scrutiny but in each facts, Ld. A.O. went beyond contents of earlier facts. As per CBDT Circular, Ld. A.O. can only examine those issues which the case has been selected or the issues mentioned therein. If the A.O. of the view that there is a potential escapement of income, he may convert the limited scrutiny in to complete scrutiny. But view should be reasonable view based on credible available or material available on record. And in this case, approval of the Pr.CIT/CIT is required and such approval shall be accorded by the Pr.CIT/CIT in writing after being satisfied about merit of the issues. Necessitating complete scrutiny in that case but in the case in our hand, no prior permission was taken by the assessee. The only purpose for the selection of the case was mistaken cash deposit which is Assessing Officer extended to other issues such as how Chartered Accountant can deposit such huge cash deposit and withdrawal the cash. Same is not permissible under law particularly when case was selected for limited scrutiny. In the result, appeal of the assessee is allowed on legal ground however we do not want to go into the merit of the case.

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• 2021 (3) TMI 2
  Addition under the head hire charges paid to trucks - assessee had failed to produce books vouchers in support of the claimed expenditure - CIT-A reduced addition to 2% as against 20% made by the AO - HELD THAT:- Expenditure claimed by the assessee during immediately previous two assessment years and succeeding assessment year has been accepted by the department without any dispute and the profit percentage, which comes to 2.75% of total turnover after considering the part addition confirmed by the CIT(A) is sufficient to cover all possible leakage of revenue. Therefore, in absence of any substantial and acceptable submission of the ld CIT DR, we do not find any valid reason to interfere with the findings of ld CIT(A). Hon ble Supreme Court in the case of Radhasoami Satsang [ 1991 (11) TMI 2 - SUPREME COURT ] held that the principle of resjudicata is not applicable in the Income tax matter. But findings of earlier years on the same matter are relevant where all fundamental facts permitting through different assessment years have been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. In the instant case also, in assessment year 2013-14, the assessee has shown net profit @ 3.08%, which was assessed u/s.143(3) of the Act. Further, in assessment year 2015-16, the profit was shown @ 2.99%, and accepted u/s.143(1) of the Act by the department, which is less than the net profit shown by the assessee in the present year under consideration i.e. 3.75%. Therefore, we find that the ld CIT(A) is justified in restricting the disallowance to 2% of the total expenses claimed by the assessee considering the quantum and nature of expenses and also the claim of earlier years. Decided against revenue.

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• 2021 (3) TMI 1
  Claim of education cess - Whether liability for education cess on income tax paid for the year ought to be allowed as tax deductable expenses while computing the taxable income. - HELD THAT:- Circular F No.91/58/66-ITJ (19) dt. 18th May, 1967, the Hon ble Rajasthan High Court in Chambal Fertilisers and Chemicals Ltd[ 2018 (10) TMI 589 - RAJASTHAN HIGH COURT] has held that Education cess is not disallowable u/s.40(a)(ii) of the Act. The said judgment has also been followed by the Pune bench of the Tribunal in DCIT Vs. Bajaj Allianz General Insurance Company Ltd. [ 2019 (8) TMI 370 - ITAT PUNE] . No contrary precedent has been brought to our notice by the ld.DR. Following the precedent, we allow this additional ground of appeal. - Also see SESA GOA LIMITED, VERSUS THE JOINT COMMISSIONER OF INCOME-TAX, RANGE 1, PANAJI GOA. [ 2020 (3) TMI 347 - BOMBAY HIGH COURT] - Decided in favour of assessee. Depreciation on the expenditure of premises - revenue or capital expenditure - HELD THAT:- As decided in own case [ 2019 (8) TMI 448 - ITAT PUNE] assessee purchased a property during the year and carried out suitable repairs/renovation to make it fit for use. The decision of the ld. CIT(A) capitalizing 40% of the expenditure as against 80% done by the AO, was approved by the Tribunal. Once a particular amount has been held to be capital expenditure on a building purchased by the assessee, the same has to be subjected to depreciation. As the Tribunal has approved the capitalizing of certain amount to Building account, we, therefore, direct the AO to allow depreciation on such amount as per law. Disallowance of depreciation on the expenditure of software - HELD THAT:- Once such software development have been treated as capital expenditure, then it is but natural that depreciation on the same will have to be allowed in the succeeding years as well, including the year under consideration. However, it is relevant to keep in mind that the assessments of the assessee for the assessment years 2008-09 and 2009-10 have been quashed by the Tribunal on a legal issue. Thus while granting consequential depreciation on the software development cost for the year under consideration, the AO should keep in mind to compute the opening w.d.v. by reducing not only the depreciation granted by him for the A.Y. 2007-08 but also deemed depreciation at the rate of 60% for the next two years, whose assessments have been quashed. Only the remaining amount will constitute opening w.d.v. of the software development cost on this score. Accordingly, additional ground No.3 is allowed to this extent. TP Adjustment - benchmarking export of finished goods to associated enterprises - TPO accepted that TNMM is the most appropriate method for sales - HELD THAT:- Sales to its AE and non-AEs which were effected, they belongs to different geographical location, different quantities lifted and customization of products. Such differences have significant bearing on the price charged by the assessee. No adjustment has been allowed by the TPO on account of such differences. In the same manner, the ld. DR also could point out any mechanism for giving adjustment on account of such material differences. In such circumstances, the price charged from AEs and non-AEs cannot be compared under the CUP method. The Hon ble jurisdictional High Court in Pr. CIT Vs. Amphenol interconnect India Pvt. Ltd.. [ 2018 (3) TMI 536 - BOMBAY HIGH COURT] has held that the CUP method is not appropriate method in case of geographical difference, volume difference, timing difference, risk difference and functional difference. There are significant differences in the sales made by the assessee to its AEs and non-AEs, the effect of which has neither been given by the TPO nor it has been shown that how it can be given, we hold that the action of the authorities below in applying the CUP as the most appropriate method cannot be sustained. Following the view taken by the Tribunal in the earlier year in assessee s own case [ 2019 (8) TMI 1053 - ITAT PUNE] we set aside the impugned order and remit the matter back to the file of the AO/TPO with similar directions. Disallowance u/s.14A r.w.r. 8D - HELD THAT:- Assessee , has own fund exceeding investment made and the borrowings and therefore, based on the decision of the Hon ble Bombay High Court in the case of CIT Vs. Reliance Utilities and Power Ltd. [ 2009 (1) TMI 4 - BOMBAY HIGH COURT] and HDFC Bank [ 2014 (8) TMI 119 - BOMBAY HIGH COURT] there should not be any disallowance of interest expenses u/s.14A. Therefore, out of the total disallowance made by the Assessing Officer u/s.14A r.w.r.8D, the disallowance in respect of interest expenditure is, therefore, deleted. Disallowance under rule 8D @ 0.5% of the average investment yielding exempt income towards administrative expenses as relying on own case [ 2019 (7) TMI 949 - ITAT PUNE] we direct the Assessing Officer to sustain % of the disallowance on administrative expenses attributable to exempt income.

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• Customs

• 2021 (3) TMI 13
  Violation of principles of natural justice - Validity of order of adjudication passed by the Principal Commissioner of Customs (Prev.) - HELD THAT:- This Court is of the view that the bar of alternative remedy does not operate in the event an appellable order is challenged on the ground of jurisdiction and violation of principles of natural justice. This issue in the instant case requires more detailed hearing which can be done only after calling for affidavits. Let affidavit-in-opposition be filed within four weeks from date; reply thereto, if any, within two weeks thereafter. Liberty to mention after eight weeks for inclusion in the list under the heading Hearing .

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• 2021 (3) TMI 9
  Benefits under the MEIS denied - denial solely on the ground of a seeming technical error especially when the eligibility of the writ-applicant is not disputed, and the office of the Commissioner has already allowed amendment to the Relevant Shipping Bills - HELD THAT:- The respondent no.4, after due verification of the documentary evidence existing at the time of the export duly amended the shipping bills manually from MEIS SCHEME No to MEIS SCHEME YES by way of Amendment Certificate dated 09.10.2018. Hence, the writ-applicant now having satisfied the MEIS conditions i.e. exported Notified Goods (Metro Coaches) to Notified Territory (Australia) cannot be deprived of the necessary MEIS benefits. The entitlement to MEIS benefits is governed by the ChapterIII of the Foreign Trade Policy 201520 (FTP 201520) and accordingly, the scheme for the grant of the benefit will be governed thereunder. In other words, the substantive rights and obligations are created by the MEIS Scheme under ChapterIII of the FTP. It also becomes apparent from Para 3.04 of the Policy that once the notified goods are exported to a notified market, the exporter becomes entitled to the MEIS benefits - Thus, entitlement, restriction thereof and conditions, if any, have to be found within the letters of the ChapterIII of the FTP 2015-20. Thus, the writ-applicant becomes entitled to the MEIS benefits once it exports the notified goods to the notified market. This benefit cannot be defeated due to procedural infirmity of missing to mark/tick Y in the rewards column. The writ-applicant submits that as per its understanding, the EDI system, which is an electronic system developed and managed by the respondent no.3 with an objective to digitalize transmission of shipping bills between Respondents, suffers from lacunae that it does not permit amendment, which is specifically permitted in terms of Section 149 of the Customs Act, 1961, to be carried electronically through EDI system - It is a settled law that the benefit which otherwise a person is entitled to once the substantive conditions are satisfied cannot be denied due to a technical error or lacunae in the electronic system. A reference is made to the decision in the case of DARSH PHARMACHEM PVT. LTD. VERSUS SUPERINTENDENT, CENTRAL GST [ 2020 (3) TMI 696 - GUJARAT HIGH COURT] wherein this Court, having regard to the fact that the TRAN-1 could not be filed on account of technical glitches in the electronic system, directed the respondents therein to permit the writ-applicant therein to file form in TRAN-1. The present writ-application succeeds and is hereby allowed.

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• Service Tax

• 2021 (3) TMI 12
  Levy of Service tax - expenses incurred towards Royalty - principal argument of the learned counsel appearing for the writ-applicant is that the royalty is not a payment in respect of any taxable service - HELD THAT:- It is pointed out that the matters have been admitted vide order dated 19th September 2018. Let notice of Rule be issued to the respondents, returnable on 19/04/2021. Let there be an adinterim order in terms of Para6( b).

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• CST, VAT & Sales Tax

• 2021 (3) TMI 11
  Valuation - inclusion of amount of total TDS deducted in the exempted turnover - entitlement of tax to be deducted at the hands of the appellant while computing the tax payable - HELD THAT:- From perusal of Rules 3(2) and (h) of KVAT Rules, it is evident that all the amounts collected by way of tax under the Act shall be deducted from the total turn over. In the instant case, the TDS has been collected from the appellant under the provisions of the Act. Therefore, the amount of TDS to the extent of Rs. 23,40,187/- cannot be allowed to be added in the total turn over and the revisional authority has rightly dropped the proceedings in respect of the deduction of tax on the aforesaid amount. However, the aforesaid aspect of the matter has not been appreciated by the Additional Commissioner of Commercial Taxes and it has been erroneously held that the amount of total TDS deducted cannot form part of the exempted turn over in the absence of such provisions of the Act and Rule. The Assistant Commissioner of Commercial Taxes failed to appreciate Rule 2(h) of the Rules. Therefore, in view of the preceding analysis, the substantial questions of law involved in this appeal are answered in favour of the appellant and against the respondent - Appeal allowed - decided in favor of appellant.

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• 2021 (3) TMI 10
  Validity of reversal of order of the First Appellate Court on the basis of facts and circumstances of the case - whether the reversal was justified particularly on the ground that the assessee did not file a revised return under Section 35(4) of the KVAT Act, 2003 - HELD THAT:- Powers under Section 64 of the Act can be invoked only if the order is erroneous insofar as it is prejudicial to the interest of the revenue. Thus, twin conditions are required to be satisfied for invoking the powers under Section 64 of the Act viz., that the order sought to be revised is erroneous insofar as it is prejudicial to the interest of the revenue. However, from perusal of the impugned order dated 08.06.2015, it is evident that the Additional Commissioner of Commercial Taxes has not recorded a finding that the order passed by the Joint Commissioner of Commercial Taxes is erroneous insofar as it is prejudicial to the interest of the revenue. The Joint Commissioner of Commercial Taxes has acted like an Appellate Authority while passing the impugned order dated 08.06.2015. The condition precedent for invocation of power under Section 64 (1) of the Act having not been satisfied, the impugned order cannot be sustained in the eye of law. In the result, the order dated 08.06.2015 passed by the Additional Commissioner of Commercial Taxes is hereby quashed - the substantial questions of law are answered in favour of the appellant and against the respondents.

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