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TMI Tax Updates - e-Newsletter
August 13, 2020
Case Laws in this Newsletter:
GST
Income Tax
Customs
Service Tax
CST, VAT & Sales Tax
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Articles
News
Notifications
Circulars / Instructions / Orders
Highlights / Catch Notes
Income Tax
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Penalty u/s 271(1)(c) - when the assessee company had been assessed to tax under the deeming provisions of Sec. 115JB of the Act, therefore, on the basis of our aforesaid observations no penalty u/s 271(1)(c) in respect of additions/ disallowances made under the normal provisions of the Act could have been imposed upon the assessee. - As the case of the assessee before us is for A.Y 2014-15 therefore, the post-amended ‘Explanation 4’ to Sec. 271(1)(c) would not be applicable in its case. - AT
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Addition u/s 68 - Identity of third party established - It will not before the assessee thereafter to explain further how or in what circumstances the third party obtained the money and how or why he came to make a deposit of the same with the assessee. In such a situation the burden will shift on to the department to show why the assessee's case cannot be accepted and why it must be held that the entry, for purporting to be in the name of a third party still represents the income of the assessee. - AT
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Estimation of income - Bogus purchases - Rejection of books of accounts - There is no error in the finding of the ld.CIT(A) for rejection of the books of accounts as well as estimation of profit at 7% on the total turnover. There is no justification at the end of the AO to estimate profit at 40% of the turnover, which is merely based on some illogical consideration of facts and figures. - AT
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Deduction u/s 10AA - SEZ Unit - violation under SEZ Act, 2005 - Non submission of accounting invoices to STPI/SEZ authorities, Non approval of units by SEZ authority - in absence of any adverse action by SEZ Authorities, no presumption could be drawn that assessee violated any requirements under the scheme - Nothing has been placed on record by Revenue to show that approvals relied upon by Ld.Counsel referred to herein above has been rejected by SEZ authority. - AT
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Disallowance on account of Principal NPA - Time Barred Interest on over-due NPA loan accounts - To avoid the double deduction, the proviso to section 36(1)(vii ) was inserted and the assessee has choice to choose between 36(1)(vii) and 36(1)(viia) whichever is beneficial. The finding of the LD. CIT (A) are not based on the complete details as to whether this amount on account of Time Barred Interest on NPA loans is fully satisfied the condition of section 36(2). - AT
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Exemption u/s 11 - Charitable activity u/s 2(15) - assessee trust was engaged in urban development and town planning - assessee is eligible to claim exemption/s. 11 of the Act as proviso of section 2(15) are not applicable in the case of the assessee. - AT
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Denial of refund of tax - Declaration of income in the return filed by the assessee is a voluntary act and admitted by the assessee which cannot be retracted subsequently only because the initiation of proceedings u/s 158BC were quashed by the High Court due to technical defect in the notice issued u/s 158BC - AT
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Levy of penalty u/s 271(1)(c) - disallowance of bogus purchases by applying the profit rate - Once there is no reason to disbelieve the sales made by the assessee and particularly when part of material is recorded in stock, it cannot be justified that the estimation made by the Assessing Officer warrants penalty under section 271(1)(c) - It can be a case of addition or disallowance of bogus purchases on estimate basis but it cannot be a case of levy of penalty for concealment of income under section 271(1)(c) - AT
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Loss incurred by the assessee in purchase and sale of shares - Whether a business loss or speculation loss? - In case, the assessee has earned profit from share trading activity, then Explanation to section 73 has no application and accordingly, the said loss needs to be treated as normal business loss and allowed to be set off against any other income. - AT
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TP Adjustment - arm’s length price of interest on short term loan granted to the AE - The fact that the assessee has provided a short term loan only for a period of 15 days to the AE has not been disputed. It is further noticed that assessee’s AE in Singapore has availed a loan from SBI, Singapore branch at interest rate of six months LIBOR plus 250 basis points. Considering the above, we are of the view that the rate of interest charged by the assessee is at arm's length requiring no further adjustment - AT
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Nature of land sold appurtenant to the bungalow - whether agricultural land within the meaning of Section 2(14)(a)(iii) of the Act and hence, its sale proceeds are exempt from tax’ ? - Department in the case of other two co-owners of the land has accepted their respective return of income wherein, the said co-owners have declared their respective share of income from sale of same agricultural land (as that of present assesse) as exempt. The Department cannot have two divergent views in case of two assessees who are on same footing, having common source of income germinating from same transaction. - AT
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Addition u/s 40A - rent payments have been made by the assessee company to one of its Directors, however, merely because payment has been made to a related person would not be sufficient to make the disallowance U/s 40A(2)(b) - AT
Customs
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Waiver of pre-deposit - section 129E of CA - The statute itself has waived 90% or 92.5% of the duty amount, as the case may be, assessed by the authorities under the Customs Act, 1962. The petitioner-assessee has to deposit only 7.5% or 10% (as the case may be) of the duty assessed. - HC
Service Tax
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Export of services or not - Services provided outside India - Parent Company / 100% holding company - Distinct Person or not - POPOS Rules - It appears that the respondents have assumed the jurisdiction on mere misinterpretation of the provisions of explanation 3 (b) to Section 65B(44) of the Act,1994 read with Rule 6A of the Rules, 1994 as by no stress of imagination, it can be said that the rendering of services by the petitioner No.1 to its parent Company located outside India was service rendered to its other establishment so as to deem it as a distinct person as per Item (b), explanation 3 of clause (44) of Section 65B of the Act, 1994 - HC
VAT
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Recovery of tax arrears from the Directors - Resignation from the post of Directors - respondent company wound up - all the petitioners, who held the status of a Director of the fifth respondent Company, had resigned much prior to the assessment years, when the Sales Tax arrears were due or the winding up of the Company - HC
Case Laws:
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GST
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2020 (8) TMI 201
Validity of proceedings initiated under the Kerala Goods and Service Tax Ordinance 2017 - permission to approach competent authority - a competent Appellate Authority has already been constituted by the respondents - HELD THAT:- In view of the submission made by the counsel for the petitioners, liberty is granted to the petitioner to approach the Appellate Authority. Petition disposed off.
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Income Tax
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2020 (8) TMI 200
Disallowing sample expenses and addition of undisclosed stocks in relevant to purchases - Tribunal remanded the matter back to the Assessing Officer to reconsider the expenditure for made-ups - Tribunal once again examined the factual position placed by the Assessee before the Assessing Officer, at the first instance when the assessment was completed, and also verified the details which were culled out during the assessment proceedings after the remand order of the Tribunal in the earlier round of litigation and dismissed the Revenue's appeal - HELD THAT:- This is the second round of litigation and the first round culminated with the order of the Tribunal, remanding the matter to the Assessing Officer. The Assessing Officer has done some factual exercises. This test was corrected by the CIT(A). The CIT(A) examined the matter and rendered a finding by partly allowing the Assess's appeal. Thereafter, the matter was taken before the Tribunal in the way of appeal by the Revenue, wherein, the findings of CIT(A) was re-examined by the Tribunal, and the Tribunal, after assigning independent reasons, affirmed the order of the CIT(A). There is no question of law, much less the substantial questions of law arises in this appeal.
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2020 (8) TMI 199
Penalty u/s 271(1)(c) - tax payable on income assessed under the normal provisions in the case of the assessee was less than the tax payable under the deeming provisions of Sec. 115JB - HELD THAT:- On the basis of the amendment, w.e.f Asst. Year 2016-17, even in a case where there are certain additions/disallowances under the normal provisions of the Act, penalty u/s 271(1)(c) can be imposed, irrespective of the fact that the assessee is assessed as per the deeming provisions of Sec. 115JB or Sec. 115JC of the Act. In fact, a careful perusal of the aforesaid amendment reveals that the machinery proviso for quantification of penalty had now been rendered as workable. On a perusal of the Explanatory Notes to the Provisions of the Finance Act, 2015 . As such, the legislature observed that in a case where tax was paid by an assessee under the deeming provisions of Sec. 115JB or 115JC, the excess of such tax paid over and above its tax liability under the general provisions would thereafter be available as credit for set off against its future tax liability. On the said premises, it was observed that in a case of understatement of income under the general provisions of the Act, would thus, result in larger amount of such credit becoming available to the assessee for set off in future years. As observed that, where concealment of income as computed under the general provisions has taken place, penalty under clause (c) of sub-section (1) of section 271 should be leviable even if the tax liability of the assessee for the year has been determined under provisions of section 115JB or 115JC of the Income-tax Act. But then, we find that the said amendment to Explanation 4 to Sec. 271(1)(c) had explicitly been provided to be effective from 1st April, 2016 and thus will accordingly apply, in relation to the assessment year 2016-17 and subsequent assessment years. As the case of the assessee before us is for A.Y 2014-15 therefore, the post-amended Explanation 4 to Sec. 271(1)(c) would not be applicable in its case. As the issue involved in the present case is squarely covered by the judgment in the case of CIT Vs. Nalwa Sons Investments Ltd. [ 2010 (8) TMI 40 - DELHI HIGH COURT] we thus respectfully follow the same. As such, now when the assessee company had been assessed to tax under the deeming provisions of Sec. 115JB of the Act, therefore, on the basis of our aforesaid observations no penalty u/s 271(1)(c) in respect of additions/disallowances made under the normal provisions of the Act could have been imposed upon the assessee. We thus in the backdrop of our aforesaid deliberations quash the penalty imposed by the A.O u/s 271(1)(c). - Decided in favour of assessee.
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2020 (8) TMI 198
Reopening of assessment u/s 147 - addition u/s 68 - HELD THAT:- As decided in own SMT. MEENA NAYYAR VERSUS ITO, WARD 41 (5) , NEW DELHI [ 2020 (3) TMI 957 - ITAT DELHI] onus shifts on to the department to conduct further enquiries with respect to the unsecure loan and establish that why assessee's case cannot be accepted - where the assessee had led evidences in support of the identity of the third party and his capability the initial burden which lies upon him stand discharged. It will not before the assessee thereafter to explain further how or in what circumstances the third party obtained the money and how or why he came to make a deposit of the same with the assessee. In such a situation the burden will shift on to the department to show why the assessee's case cannot be accepted and why it must be held that the entry, for purporting to be in the name of a third party still represents the income of the assessee. Thus where in a given case the assessee for his part produced the confirmations and identity proofs of Sh. Babu Jethani, which would be sufficient for the assessee to discharge his initial burden. Then it would be for the AO to bring material if he wants to negate the same. - Decided in favour of assessee.
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2020 (8) TMI 197
Estimation of income - Bogus purchases - Rejection of books of accounts - estimation of net profit made by the AO at 40% - CIT-A restricted addition by taking average estimated net profit at 7% - HELD THAT:- In terms of documentation, assessee might have fullfilled all necessary ingredients, but still it failed to bring any evidence apart from these peripheral documents to demonstrate actual work done by the LPPL or capacity of LPPL to carry out such work. Though we could have recommended for carrying out a fresh investigation in order to prove whether the assessee got this work done actually from the sub-contractor or from some third person, but considering the fact that the actual contract has been completed to the satisfaction of the contractee i.e. ONGC in the present transaction routed through LPPL assessee might have earned a little more profit than actually shown by it in its books of accounts in earlier years or this year. Therefore, we do not find any error in the finding of the ld.CIT(A) for rejection of the books of accounts as well as estimation of profit at 7% on the total turnover. No justification at the end of the AO to estimate profit at 40% of the turnover, which is merely based on some illogical consideration of facts and figures. AO has not provided any material for estimation that profit must have been earned at 40%. Therefore, considering the above facts and circumstances, we do not find any merit in both the appeals of the parties.
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2020 (8) TMI 196
Deduction u/s 10AA - Special provisions in respect of newly established Units in Special Economic Zones - MSA does not reveal any specific details regarding software development activity - HELD THAT:- Benefit under section 10A,10AA and 10 B cannot be denied as separate and specific MSA does not exist for each SOW. Be that as it may, from SOFTEX forms placed in paper book at page 536 onwards, columns 7 specifically reveals, export contract/purchase order, being filed with SEZ. We also note that, each form consist enclosures, like copies of export contract, royalty agreement, communication from foreign customers. Submissions by Ld.Standing Counsel for revenue is thus found to be contrary to SEZ approvals placed - transfer pricing adjustment proposed by Ld.TPO was in respect of payments received on account of services rendered by assessee under software development segment. Therefore, it cannot be held that services rendered by assessee, does not fall under software development service segment. So, to allege that, assessee was providing miscellaneous services, is like blowing hot and cold at the same time. Revenue has not been able to prove anything contrary by way of documentary evidences on this aspect before us. Therefore, this objection raised by revenue does not hold good in eyes of law and is rejected. No evidence of data transmission and export of software outside India - Coordinate bench of this Tribunal for assessment year 2008-09 [ 2013 (12) TMI 1539 - ITAT BANGLORE] has already taken a view that declaration on STPI forms should be held to be sufficient in this regard. Further, we agree with Ld.Counsel that, for purpose of eligibility of claim under section 10AA of the Act, this objection does not have any relevance. Therefore, respectfully following the same, this objection raised by authorities below is rejected at the threshold. Non submission of accounting invoices to STPI/SEZ authorities, Non approval of units by SEZ authority - In the present facts of the case assessee placed on record approvals obtained by SEZ authorities which has not been rejected. It is noticed that nothing has been brought on record by Ld.Standing Counsel to show that alleged units ceases to be an eligible unit registered with SEZ authority - in absence of any adverse action by SEZ Authorities, no presumption could be drawn that assessee violated any requirements under the scheme - Nothing has been placed on record by Revenue to show that approvals relied upon by Ld.Counsel referred to herein above has been rejected by SEZ authority. Respectfully following ratio laid in case of Gestentner Duplicators Pvt.Ltd vs CIT [ 1978 (12) TMI 1 - SUPREME COURT] it was not open for authorities below to assume any violation under SEZ Act, 2005 so long as certificates of approval/renewal of units are not withdrawn by a process known to law - this objection raised by Ld.AO does not hold good in test of law. RBI Approval for bank account maintained outside India with regard to export earnings not obtained - Apprehension of revenue regarding the question as to whether, foreign exchange remittances were in relation to export of computer software outside India. Assessee has placed on record SOFTEX forms at pages 536 of volume 2. Category mentioned in Column 9 in the form indicates that proceeds have been received for software exported under. However, from the reasoning by authorities below, it is noted that it has not verified, as to whether, convertible foreign exchange brought into India, represents consideration received towards export of computer software. As relying on own case 2008-09 [ 2013 (12) TMI 1539 - ITAT BANGLORE] we remand this issue to DRP to verify receipts if sale proceeds of computer software exported out of India, being brought into India in convertible foreign exchange. DRP is at liberty to examine whether, convertible foreign exchange brought into India represents consideration received for export of computer software. Analysis of books of account and unit wise P L account - Following observations by this Tribunal in asst. year 2008-09, we are of the view that there is no requirement for maintaining separate books of account for claiming deduction under section 10A/10AA of the Act, and books of account maintained by assessee is sufficient to enable computation of profits of various SEZ units. Further the circular issued by CBDT dated 17/01/2013 (supra) also clarifies that there is no requirement in law to maintain separate books of account and the same cannot be insisted upon. AO held that assessee continued existing business through SEZ units - Satisfaction of conditions in section 10AA(4) are required to be satisfied in the year of formation, we hold, this objection raised by Ld.AO does not hold good for the year under consideration. Exports proceeds declared by assessee in SOFTEX forms, has not been considered by authorities below - Assessee is directed to file all requsite information, as far as possible, mentioned in paragraph D..6.9.4, hereinabove. Ld.AO is directed to verify these documents and allow deduction to assessee relatable to sale proceeds from export of software development services. Eligibility of assessee to claim deduction under section 10AA - AO did not accept claim of assessee for enhanced deduction on additional income for purposes of computing deduction under section 10AA of the Act, though there was sufficient time to pass respective orders as per section 92CD(5)(b) - HELD THAT:- Assessee is eligible to claim deduction under section 10AA, on incremental income arisen pursuant to APA dated 29/12/2016. We direct DRP to grant deduction under section 10AA of the Act, to the extent of sale proceeds received from export of software services, brought into India in convertible foreign exchange within stipulated period. Disallowance under section 37 (1) - why amounts disallowed under section 40(a) suo moto by assessee, should not be disallowed under section 37(1) ? - payments that were reversed as on 1st April 2012 - HELD THAT:- From written submissions filed by assessee, we note that provisions in the books of account for assessment years 2012-13 and 2013-14 are towards sub contracting charges, commission, professional charges, contractor s charges, advertise meant and marketing expenses, recruitment expenses, repair and maintenance expenses, general expenditures, rent and others. It cannot be doubted that these are not related to day-to-day running of business of assessee. Thus, we are of the opinion that, these expenses cannot be disallowed u/s 37 (1). Assessee, suo moto disallowed these provision accounts under section 40(a) of the Act for non-deduction of TDS during the relevant year. All these aspects requires proper verification by DRP. Disallowance of provision account under section 40(a), and its subsequent reversal requires proper verification. Authorities below have not verified submissions of assessee, in light of financial accounts for A.Y:2012-13 and TDS returns filed for subsequent assessment years, AY:2013-14 2014- 15, vis- -vis, invoices raised by payee during assessment years AY:2013-14 2014-15. Assessee raised identical issue before this Tribunal in assessment year 2008-09 set-aside the issue for fresh consideration to DRP, by observing that, DRP does not have power to set aside any proposed variation or issue with a direction under section 144C(5) of the Act, for further enquiry and passing of assessment order - respectfully following the view taken by Hon ble Bench for AY:2008- 09, we set aside for these issue to DRP for fresh consideration. TDS u/s 195 - Disallowance under section 40(a) - payments made to associated enterprises and non-associated enterprises, without TDS compliance - HELD THAT:- We have perused observations of this Tribunal for assessment year 2008-09 wherein, Hon ble Bench remanded the issue to DRP for fresh consideration and decision. Respectfully, following the same, we remand the issue to DRP with similar direction to consider the claim of assessee in light of evidences filed, after affording opportunity of being heard in accordance with law. Assessee is directed to file invoices raised in support of payments made by assessee to relevant parties. Assessee is at liberty to file all relevant details/evidences to substantiate its claim. DRP is then directed to verify nature of payment in the light of invoices filed by assessee. DRP is also directed to analyse payment made to non-residents on which tax has not been deducted at source in light of Explanation 2 to section 195. DRP shall grant proper opportunity of being heard to assessee. Disallowance of depreciation on leased assets - HELD THAT:- We note that this being a recurring issue a consistent approach has to be taken in this regard. Admittedly assessee has capitalised these assets. On one hand, Ld.AO accepts lease rentals received by assessee to be business income, and on the other hand disallowed depreciation. In our view, assessee is eligible for depreciation on leased assets, however the same has to be computed in accordance with law having regard to schedule of assets. In the interest of Justice, we remit this issue too Ld.AO for proper verification of all details filed by assessee and to consider claim in accordance with ratio laid down by Hon ble Supreme Court in case of ICDS Ltd. [ 2013 (1) TMI 344 - SUPREME COURT] . Needless to say that proper opportunity of being heard must be provided to assessee in accordance with law. Disallowance u/s 14A - HELD THAT:- It is noted that admittedly there is no exempt income earned by assessee during the year under consideration. Therefore respectfully following case of Cheminvest Ltd [ 2015 (9) TMI 238 - DELHI HIGH COURT] disallowance under section 14 A stands deleted. Depreciation on computer software been restricted from 60% to 25% - HELD THAT:- Coordinate bench in case of Infosys Ltd. vs ACIT [ 2017 (11) TMI 1675 - ITAT BANGALORE] we direct Ld.AO to consider the claim of assessee. Ld. AO is directed to verify if there is any software purchased that falls in the category of revenue expenditure, as then the question of granting depreciation would not arise. In respect of the other computer software that are capitalized, depreciation is to be granted to assessee at 60%. Needless to say that proper opportunity must be granted to assessee in accordance with law. Levy of interest under section 234B - HELD THAT:- Assessee is liable to pay interest under section 234B of the Act, on incremental income pursuant to APA.
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2020 (8) TMI 195
Disallowance on account of Principal NPA - addition on the ground that the provisions of 36(1)(viia) are not applicable to the assessee as the assessee is a primary Cooperative Agricultural and Rural Development Bank which is excluded from the Cooperative Bank - HELD THAT:- The assessee has not disputed that it is a primary Cooperative Agricultural and Rural Development Bank. The Cooperative Bank which is eligible for deduction under section 36(1)(vii) does not include a primary agricultural credit society or a primary cooperative agricultural and rural development bank. There are two exclusions from the broad category of cooperative banks which are (i) a primary agricultural credit society and (ii) a primary cooperative agricultural and rural development bank. Assessee being a primary cooperative agricultural and rural development bank falls in the exception provided in clause (viia) of section 36(1) of the Act. Therefore, the assessee is not entitled for deduction under section 36(1)(viia). CIT (A) has held that the assessee a primary Cooperative Agricultural Rural Development Bank is covered under the provisions of section 36(1)(viia). After giving a finding, the LD. CIT (A) held that the assessee is entitled for deduction. CIT (A) has discussed the quantum of deduction. Thus the finding of the LD. CIT (A) is based on misunderstanding of the provisions which is in fact not applicable in the facts of the assessee s case. Accordingly, the order of the LD. CIT qua this issue is set aside. Addition made on account of Time Barred Interest on over-due NPA loan accounts - AO has disallowed this amount and made the addition on the ground that this is a provision and, therefore, when the assessee is not covered under the provisions of section 36(1)(viia), it is not an allowable deduction - HELD THAT:- Even from the details filed by the assessee, it is not clear whether this whole amount was part of the Interest income shown in the Profit Loss account. Further, the details filed by the assessee are not part of the audited books of account being Schedule to the Balance Sheet but it is prepared subsequently without certified by the Auditors. Even otherwise, the possibility of over-lapping between the deduction under section 36(1)(vii) and 36(1)(viia) is not ruled out when it comes to the cases of bank. It is settled proposition of law that deduction under section 36(1)(vii) is allowable in respect of any bad debts written off as irrecoverable in the books of account for the relevant accounting year but only to the extent such bad debt exceeds the credit balance in the provisions for bad and doubtful debt account made under clause 36(1)(viia). To avoid the double deduction, the proviso to section 36(1)(vii ) was inserted and the assessee has choice to choose between 36(1)(vii) and 36(1)(viia) whichever is beneficial. The finding of the LD. CIT (A) are not based on the complete details as to whether this amount on account of Time Barred Interest on NPA loans is fully satisfied the condition of section 36(2). Accordingly in the facts and circumstances of the case and in the interest of justice, we set aside this issue to the record of AO to re-examine the same on the point whether the assessee has actually written off this amount. Appeal of the assessee is partly allowed for statistical purposes.
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2020 (8) TMI 194
Exemption u/s 11 - Charitable activity u/s 2(15) - assessee trust was engaged in urban development and town planning - AO was of the view that the assessee was carrying out the activities of advancement of other general public utility in the nature of trade/commerce/business, therefore, the provision of section 2(15) r.w. proviso 1 2 were applied to the case - HELD THAT:- As decided in Ahmedabad Urban Development Authority [ 2017 (5) TMI 1468 - GUJARAT HIGH COURT ] Object and purpose for which the assesses is established / constituted under the provisions of the Gujarat Town Planning Act and collection of fees and cess is incidental to the object and purpose of the Act, even the case would not fall under second part of proviso to Sect/on 2(15). Assessee is eligible to claim exemption/s. 11 of the Act as proviso of section 2(15) are not applicable in the case of the assessee. Carrying forward of excess capital expenditure of earlier years against the income of subsequent year - carry forward the depreciation as well - correctness of decision of Id. CIT(A) of allowing the benefit of the carrying forward - HELD THAT:- Gone through the material on record and it is noticed that ld. CIT(A) has placed reliance on decision of Shri Plot Shwetambar Murtipujak Jain Mandal [ 1993 (11) TMI 17 - GUJARAT HIGH COURT ] wherein it is held that excess of expenditure over the income would be allowed to be carried forward to be set off against the future income. CIT(A) has also placed reliance on the decision of CIT vs. Rajathan Gujarat Charitable Trust, Pune [ 2017 (12) TMI 1067 - SUPREME COURT ] wherein it is held that once the assessee is allowed depreciation, he shall be entitled to carry forward the depreciation as well. In the light of the above facts/findings of the ld. CIT(A) and the decision of Hon ble Supreme Court in the Subros Education Society [ 2018 (4) TMI 1622 - SC ORDER ] as referred by ld. counsel, we do not find any infirmity in the decision of ld. CIT(A). - Decided against revenue.
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2020 (8) TMI 193
Denial of refund of tax paid by the assessee while filing the return of income u/s 158BC - block assessment - refund u/s 240 is only in respect of the amount which has resulted due to the addition made by the AO during the assessment - main contention of the assessee is that once the assessment is quashed by the Hon'ble High Court, the tax paid by the assessee on the income declared in the return of income filed in response to notice u/s 158BC also becomes refundable - HELD THAT:- In case of block assessment where the initiation of proceedings are quashed, the judgment of the Hon'ble Supreme Court in case of Shelly Products [ 2003 (5) TMI 4 - SUPREME COURT] is applicable and consequently the refund of tax is limited only to the extent of the tax liability due to the addition made by the AO and not the tax paid by the assessee on the income declared by it while filing the return in response to notice under section 158BC. Declaration of income in the return filed by the assessee is a voluntary act and admitted by the assessee which cannot be retracted subsequently only because the initiation of proceedings under section 158 BC were quashed by the High Court due to technical defect in the notice issued under section 158BC. We have already noted that the return of income was filed by the assessee after 20 days of the notice issued under section 158 BC and, therefore, the mandatory period as provided under section 158BC was availed by the assessee in filing the return of income. Once the return of income was a valid return and there was no bonafide or apparent mistake in the said return, then the tax paid on the income declared in the return is not refundable in view of clause (b) of proviso to section 240 of the IT Act. Accordingly, the appeal of the assessee has no merit.
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2020 (8) TMI 192
Levy of penalty u/s 271(1)(c) - disallowance of bogus purchases by applying the profit rate - furnishing of inaccurate particulars of income and concealment of particulars of income - HELD THAT:- We could not find anything recorded by the Assessing Officer that there is actual concealment of income by the assessee. Merely suspicion or doubt cannot be the basis for levying penalty under section 271(1)(c) of the Act of the Act either for concealment of particulars of income or for furnishing of inaccurate particulars of income as the case may be. Once there is no reason to disbelieve the sales made by the assessee and particularly when part of material is recorded in stock, it cannot be justified that the estimation made by the Assessing Officer warrants penalty under section 271(1)(c) - It can be a case of addition or disallowance of bogus purchases on estimate basis but it cannot be a case of levy of penalty for concealment of income under section 271(1)(c) - In the present case the entire purchase totaling to ₹89,044/- are treated as bogus purchases and addition is only to the extent of disallowance of depreciation at the rate of 60% on the fixed asset of ₹62,500/- as ₹37,560/-. Thereby, the total addition on account of bogus purchases and disallowance of deprecation of bogus purchases comes to ₹1,26,604/-. - Penalty deleted - Decided in favour of assessee.
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2020 (8) TMI 191
Loss incurred by the assessee in purchase and sale of shares - Whether a business loss or speculation loss? - HELD THAT:- CIT(A) has recorded categorical finding that the assessee has earned profit from share trading activity. We further noted that although, the assessee claims to have earned profit from share trading activity, but such profit has been computed without considering direct and indirect expenses relatable to share trading activity, although the major portion of income or loss of the assessee is from share trading activity. The facts and consequent findings recorded by the Ld. AO, and the Ld.CIT(A) are contrary to each other and requires fresh verification from the Ld. AO, in light of the fact that the assessee has not considered expenditure incurred in relation to share trading activity. We are of the considered view that the assessee is hit by the provisions of Explanation to section 73 in the case of Snowtex Investments Ltd.[ 2019 (5) TMI 1165 - SUPREME COURT] and accordingly, in case, the assessee incurred losses from share trading activity, the same needs to be considered as deemed speculative loss and cannot be allowed to be set off against profit derived from trading in derivatives. In case, the assessee has earned profit from share trading activity, then Explanation to section 73 has no application and accordingly, the said loss needs to be treated as normal business loss and allowed to be set off against any other income. Issue needs to be re-examine by the Ld. AO, in light of various facts brought out by both the parties and to recompute profit after considering relevant expenditure relatable said trading activity and then to decide applicability of Explanation to section 73. Accordingly, we set aside the issue to the file of the Ld. AO and direct him to reconsider the issue afresh in accordance with law. Disallowances of expenditure incurred in relation to exempt income u/s 14A - HELD THAT:- There is no merit in the arguments of the assessee that no interest expenditure could be disallowed. Insofar as, disallowances of expenditure under Rule 8D(2)(iii) of I.T.Rules, 1962, it is a settled position that only, those investments, which has earned exempt income for the year under consideration needs to be considered for the purpose of average value of investments to determine disallowances of expenditure @ 0.5% of average value of investments. Therefore, we direct the AO to consider only those investments which yeild exempt income for the year for disallowance of expenditure. To sum up, the issue needs to go back to the file of the Ld. AO to determine disallowances of expenditure, in relation to exempt income u/s 14A, in light of our discussions given hereinabove and accordingly, we set aside the issues to the file of the Ld. AO and direct him to recompute the disallowances in accordance with in terms of our observations given hereinabove.
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2020 (8) TMI 190
TP Adjustment - adjustment made to the arm s length price of Corporate Guarantee issued in respect of payment of outstanding hire charges - TPO rejecting assessee s claim has charged guarantee commission at 2.5% which has been reduced to 1.75% by learned DRP - HELD THAT:- Basis on which the Transfer Pricing Officer and learned DRP have determined the arm s length price of guarantee commission is the commission charged by the State Bank of India, Singapore Branch, @ 1.25% per annum on the bank guarantee availed by the AE. We find substantial merit in the submission of the learned Authorised Representative that performance/corporate guarantee cannot be equated with bank guarantee. Even DRP has also observed that the assessee has provided an unsecured performance guarantee. It is further evident, the assessee itself has availed a bank guarantee from ICICI Bank on payment of guarantee commission of 0.25%. Keeping in view the aforesaid facts, we are of the considered opinion that the arm s length price of the guarantee commission can be reasonably fixed at 0.25% by adopting as internal CUP the guarantee commission charged by the ICICI Bank on provision of bank guarantee to the assessee. Ground no.1, raised by the assessee is partly allowed. Addition made on account of adjustment made to the arm s length price of interest on short term loan granted to the AE - HELD THAT:- Looking at the financial needs of the subsidiary, the assessee had provided short term loan for a period of 15 days or thereabout. For providing such loan, the assessee had charged interest at LIBOR plus 1.5%. The Transfer Pricing Officer, however, did not accept the rate of interest charged by the assessee. Adopting the prime lending rate of State Bank of India @ 7.50% and adding a mark up of 1.50%, the Transfer Pricing Officer determined the arm's length interest rate @ 9.% and accordingly determined the arm s length price of interest to be charged on the loan provided to the AE. While deciding the issue, learned DRP directed the Assessing Officer to charge interest @ LIBOR plus 4%. The fact that the assessee has provided a short term loan only for a period of 15 days to the AE has not been disputed. It is further noticed that assessee s AE in Singapore has availed a loan from SBI, Singapore branch at interest rate of six months LIBOR plus 250 basis points. Considering the above, we are of the view that the rate of interest charged by the assessee is at arm's length requiring no further adjustment. Ground no.2, is allowed. Levy of interest under section 234A - HELD THAT:- We find that the return of income for the impugned assessment year has been filed within the due date provided under section 139(1) of the Act. That being the case, no interest under section 234A of the Act is chargeable. Ground no.4, is allowed. Levy of interest under sections 234B and 234C - HELD THAT:- We hold that since levy of interest under section 234B of the Act is consequential, assessee s ground insofar as this issue is concerned, need not be adjudicated. As regards levy of interest under section 234C of the Act, we direct the Assessing Officer to charge such interest not on the assessed income, but on the income returned by the assessee. Thus, ground no.5, is partly allowed. Addition on account of difference between the interest credited to the Profit Loss account and interest as shown in Form no.26AS - HELD THAT:- As submitted that the AO without seeking any explanation from the assessee has added the differential amount suo motu. Further, it has been submitted that interest amounting to ₹ 9,48,516, has been offered to tax by the assessee in the subsequent financial year. Considering the submissions made by the learned Authorised Representative, we are of the view that the issue requires to be restored back to the file of the Assessing Officer for verifying assessee s claim. The assessee must be given sufficient opportunity to reconcile the difference. After considering the submissions of the assessee, the Assessing Officer must decide the issue by taking into consideration all the evidences submitted by the assessee. With the aforesaid observations, the issue is restored back to the file of the Assessing Officer for fresh adjudication after due opportunity of being heard to the assessee.
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2020 (8) TMI 189
Long term capital gain on sale of land - AO mandate to refer the matter to DVO for Fair Market Value - CIT -A deleted the addition as AO did not have mandate to refer the matter to DVO for Fair Market Value - HELD THAT:- As far the FMV as on 4.09.2008 is concerned, the DVO has correctly valued the property as on 4.09.2008 at ₹ 40,20,54,000/ -, of which the appellant is a co-owner having share of 16,639 sq. mhos. Accordingly, the sale consideration of the appellant's share of the property @ ₹ 4806.67 (₹ 40,20,54,000/- divided by the total area of the property i.e. 83,645 sq. mtrs.) works out to ₹ 8,02,37,742/ -. Therefore, the sale consideration of the appellant's share of the property, as determined by the DVa, is taken at ₹ 8,02,37,742/-. As per the provisions of Section 55A of the Act for the year under consideration, reference can be made by the AO to the Valuation Officer for ascertaining the PMV of a capital asset where the AO is of the opinion that the value of the asset as claimed by the appellant, is less than its PMV. However, in the instant case, the AO has referred the matter to the DVO to verify the correctness of the value adopted by the Valuer's report as on 1.04.1981. This is not in line with the provisions of Section 55A of the Act as the section implies that the AO should be of the considered opinion that the value of asset claimed by the appellant is less than its PMV and not for any verification purpose. In the DVO's report, the PMV as on 1.04.1981 was determined at ₹ 68,45,000/- which was much lower than the valuation of the Approved Valuer of the aggregate amount of ₹ 2,27,08,814/-. Therefore, in light of the existing provisions of Section 55A of the Act, relevant for the A.Y. under consideration, the AO did not have the mandate to refer the matter for valuation of FMV as on 1.04.1981 to the DVO u/s 55A of the Act amendment to Section 55A of the Act by the Finance Act, 2012 wherein the words 'is less than its fair market value' was substituted by 'is at variance 'with its fair market value' is w.e.f. 1.07.2012 which was not applicable for the A.Y. in the instant case i.e.A.Y. 2010-11 with respect to seeking Valuation Report from the DVO for the FMV as on 1.04.1981. CIT(Appeals) has given a categoric findings on the issue after placing reliance on the various judicial pronouncements and therefore, there is no reason to interfere with the findings of the Ld. CIT(Appeals) and the same is thereby upheld. Thus, the grounds raised by revenue in the appeals are dismissed.
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2020 (8) TMI 188
Nature of land sold appurtenant to the bungalow - whether agricultural land within the meaning of Section 2(14)(a)(iii) of the Act and hence, its sale proceeds are exempt from tax ? - one of the reason for rejecting assesse s claim is that the assesse has not declared any income from agriculture operations - HELD THAT:- The Hon ble Bombay High Court in the case of CIT vs Debbie Alemo [ 2010 (9) TMI 560 - BOMBAY HIGH COURT ] has held that if a land is shown in the revenue records to be used for agriculture purpose and no permission was ever obtained for nonagriculture use, it is inconsequential whether any income from agricultural operation was declared by the assesse in the return of income or not. Thus, the objection of the revenue is without any merit. Department in the case of other two co-owners of the land has accepted their respective return of income wherein, the said co-owners have declared their respective share of income from sale of same agricultural land (as that of present assesse) as exempt. The Department cannot have two divergent views in case of two assessees who are on same footing, having common source of income germinating from same transaction. We find merit in the grounds raised by the assesse/appellant and direct the Assessing Officer to delete the addition qua sale of agriculture land, being exempt from tax. - Decided in favour of assessee. Order being pronounced after ninety (90) days of hearing - COVID-19 pandemic and lockdown - HELD THAT:- Taking note of the extraordinary situation in the light of the COVID-19 pandemic and lockdown, the period of lockdown days need to be excluded. See case of DCIT vs. JSW Limited [ 2020 (5) TMI 359 - ITAT MUMBAI ]
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2020 (8) TMI 187
Stay of recovery of outstanding demand - assessee has already paid more than 27% of the amount - HELD THAT:- We are of considered view that assessee deserves the benefit of stay of recovery of outstanding demand. The assessee shall pay a sum of ₹ 4.00 lacs in two instalments of ₹ 2.00 lacs each. Assessee shall furnish proof of deposit of aforesaid amounts to the Registry of the Tribunal within a week from the date of such deposits and shall also furnish copy of the same to the Office of D.R. The assessee shall not seek frivolous adjournments.
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2020 (8) TMI 186
Capital gain computation - Cost of acquisition of assessee s capital asset acquired way back in the year 1957 and sold on 26.02.2012 - HELD THAT:- Neither of the two parties have been able to justify their valuations i.e., exact location and on sale consideration basis; respectively. We therefore are of the view that neither party s stand deserves to be accepted in entirety. We thus conclude that a lump sum cost of acquisition on estimation basis of ₹ 3,00,000/- w.e.f. 01.04.1981 by adopting rule of thumb would meet the ends of justice. Both parties get part relief in same terms. Necessary computation including that of interest shall follow as per law keeping in mind hon'ble jurisdictional high court s decision in Ajay Prakash Verma vs. ITO [2013 (1) TMI 140 - JHARKHAND HIGH COURT] .
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2020 (8) TMI 185
Addition u/s 40A - Disallowance of payment of rent - Assessee company has paid rent to one of its directors for its registered office - onus is on the Revenue to bring on record comparable instances wherein the rent payment for similar premises are the lower than the rent paid by the assessee-company - HELD THAT:- It is not the entire premises which have been taken on rent by the assessee- company rather the premises situated at first floor only which have been taken on rent by the assessee-company for the purpose of its business. The director of the assessee-company is staying at the ground floor and the first floor has been for taken on rent by the assessee company which is clearly specified in the rent agreement. The said premises are used as the registered office of the assessee-company as the every company registered under the Company Act is statutorily required to have a registered office within the jurisdictional limit of the concerned Registrar of Companies where all statutory and other correspondence can be received on behalf of the company. Further, on perusal of the minute books of the assessee- company, it is noted the meetings of Board of Directors and also of the shareholders in terms of annual general meetings are regularly held at this place. Thus said office premises have been used for the purposes of assessee-company s business and it has established the necessary nexus of the rent expenses being incurred for the purpose of its business - rent payments have been made by the assessee company to one of its Directors, however, merely because payment has been made to a related person would not be sufficient to make the disallowance U/s 40A(2)(b) - There is nothing on record which has been brought by the Revenue to hold the payment as excessive. Therefore disallowance so made by AO is hereby deleted and the sole ground by the assessee-company is allowed.
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Customs
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2020 (8) TMI 184
Grant of Equipment Type Approval (ETA) applied by the petitioner - import of Wireless Communication Module - release of consignment without insistence on the ETA - HELD THAT:- The respondent No.2 are directed to release the said consignment in accordance with law, rules, regulations and Government policies applicable to the facts of the case as expeditiously as possible and practicable, within a maximum period of one week from today. Petition disposed off.
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2020 (8) TMI 183
Waiver of pre-deposit - section 129E of CA - Classification of imported goods - satellite/viewing cards and others parts of set up boxes - classified under CH85235290 or under CH85299090? - HELD THAT:- In view of the amendment in the Act, especially Section 129E thereof, there is no question whatsoever of the waiver of pre-deposit. The statute itself has waived 90% or 92.5% of the duty amount, as the case may be, assessed by the authorities under the Customs Act, 1962. The petitioner-assessee has to deposit only 7.5% or 10% (as the case may be) of the duty assessed. Thus, there is no question of further waiver of the amount which is required to be deposited under Section 129E of the Customs Act, 1962. The amount to be deposited by the petitioner before CESTAT, New Delhi in their statutory appeal under the Customs Act, 1962 comes to ₹ 4.23 Crores for one appeal, which is 0.0705% of the total turnover. Hence, there are no reason to entertain this writ petition looking to the total turnover of the petitioner as well. As the appeals preferred by the petitioner under Section 129A of the Customs Act, 1962 are pending before CESTAT, we are not at all inclined to observe anything on the merits of the case. There are no reason to entertain this writ petition - petition dismissed.
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2020 (8) TMI 182
Provisional release of imported seized goods - Dry Dates - it is submitted by petitioner that it would suffice for the disposal of this writ petition, if the respondents are directed to grant provisional assessment of the goods in question at the earliest - HELD THAT:- The respondent authorities are directed to conduct provisional assessments of the goods in question (Dry Dates) which have been imported, in accordance with law, rules, regulations and Government policies applicable to the facts of the case, within a period of two weeks from today. Petition disposed off.
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Service Tax
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2020 (8) TMI 181
Validity of SCN - Export of services or not - Services provided outside India - Parent Company / 100% holding company - Distinct Person or not - POPOS Rules - services rendered by the Petitioner No.1 to Linde AG, Germany - extended period of limitation. HELD THAT:- Rule 6A of the Rules, 1994 provides that services rendered would be treated as Export of services when clause (a) to clause (d) refers to provider of service is located in the taxable territory and recipient of service is located outside India and the service is not a service specified in Section 66D of the Act and the place of the provision of the service is outside India and as per clause (e) the payment for such service has been received by the provider of service in convertible Foreign Exchange. It emerges that the petitioner is fulfilling all the conditions, however, so far as the clause (f) of Rule 6A of Rules, 1994 is concerned, it provides that the provider of service and recipient of service are not merely establishments of a distinct person in accordance with Item (b) of explanation 3 of clause (44) of Section 65B of the Act. It appears that the respondents have assumed the jurisdiction on mere misinterpretation of the provisions of explanation 3 (b) to Section 65B(44) of the Act,1994 read with Rule 6A of the Rules, 1994 as by no stress of imagination, it can be said that the rendering of services by the petitioner No.1 to its parent Company located outside India was service rendered to its other establishment so as to deem it as a distinct person as per Item (b), explanation 3 of clause (44) of Section 65B of the Act, 1994, the petitioner No.1 which is an establishment in India, which is a taxable territory and its 100% holding Company, which is the other company in non taxable territory cannot be considered as establishments so as to treat as distinct persons for the purpose of rendering service. Therefore, the services rendered by the petitioner No.1-Company outside the territory of India to its parent Company would have to be considered export of service as per Rule 6A of the Rules, 1994 and Clause (f) of Rule 6A of the Rules, 1994 would not be applicable in the facts of the case as the petitioner No.1, who is the provider of service and its parent Company, who is the recipient of services cannot be said to be merely establishment so as to be distinct persons in accordance with Item (b) explanation 3 of Clause (44) of Section 65B of the Act, 1994. Thus, the respondents would not have any jurisdiction to invoke the provisions of the Act, 1994 read with Rules, 1994 to bring the services rendered by the petitioner No.1 to its parent Company within the purview of levy of service tax under the provisions of the Act, 1994. Extended period of limitation - HELD THAT:- The impugned show cause notice is also not tenable in law as the same is issued invoking Section 73 of the Act,1994 for extending the period for the issuing the Notice on the ground of alleged willful mis-statement or suppression of the facts on the part of the petitioner No.1. The petitioners cannot be said to have made any willful mis-statement or suppressed any fact as the petitioners cannot be made liable for levy of service tax by wrongly treating the petitioners and its parent Company as establishment of the same Company. The impugned show cause notice issued by the respondent No.1 is without jurisdiction and as such the petition is maintainable under Article 226 of the Constitution of India - Petition allowed - decided in favor of petitioner.
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CST, VAT & Sales Tax
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2020 (8) TMI 180
Recovery of tax arrears from the Directors - Resignation from the post of Directors - respondent company wound up - HELD THAT:- Section 19(b) of the Tamil Nadu General Sales Tax Act as well as Section 18 of the Central Sales Tax Act makes, such of those Directors of the Company at the time of winding up, liable for the tax imposed. The said provisions would apply only if a Company had wound up and the Directors, who held the status during the time of winding up of the Company, could be held liable for the tax liability. In the present case, all the petitioners, who held the status of a Director of the fifth respondent Company, had resigned much prior to the assessment years, when the Sales Tax arrears were due or the winding up of the Company. As such, by no stretch of imagination, can the petitioners herein be deemed to be the Directors of the fifth respondent Company at the relevant point of time, when the tax liability arose. There is absolutely no justification in the tax recovery proceedings initiated by the first respondent as to how these petitioners are otherwise liable. A Writ of Prohibition is hereby issued, prohibiting the respondents from taking any proceedings against the petitioners herein for recovery of the sales tax arrears of M/s. Mothercare India Ltd., / fifth respondent herein - Petition allowed.
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