RAJINDER KUMAR HAK vs.INCOME TAX OFFICER

RAJINDER KUMAR HAK vs.INCOME TAX OFFICER

AMRITSAR TRIBUNAL

A.D. JAIN, JM.

ITA No. 507(Asr)/2014

Feb 26, 2016

(2016) 46 cch 0174 AsrTrib

Legislation Referred to

Section 50C

Case pertains to

Asst. Year 2005-06

Decision in favour of:

Assessee

Addition—Addition on account of unexplained investment—Assessment was made u/s 143(3) on basis of information received from ADIT Jammu that assessee had purchased certain flat from ’C’ for Rs 17.50 lacs—As per statement seized during course of search operation of ’C’, Assessee had made payments of Rs 8.50 lakhs by cheque and Rs 9 lakhs in cash—AO asked assessee to explain source of investments of Rs 17.50 lakhs made in cash and by cheque—Assessee however, could not explain source of Rs 50,000 paid to society and Rs 1,00,000 deposited in bank as margin money—AO assessed investment at Rs 18.50 lacs by making addition of Rs 10.50 lakhs as unexplained investment—CIT(A) confirmed addition made by AO—Held,assessment order did not find any mention that said information regarding other allottees was ever put to assessee—Details of said receipts of other allottees were also missing in short assessment order—No nexus between case of assessee and those of alleged other allottees was established by AO—CIT(A) admitted that papers/list of alleged allottees had not been recovered from assessee in search operations—It had been stated by CIT(A) that veracity of paper could not be questioned—Firstly, as noted, impugned paper was not computer generated document, but, undisputedly had merely been typed on computer, rendering it as of no evidentiary value against assessee so far as regards alleged understatement of purchase price—Then, as also earlier observed, said paper was ridden with numerous discrepancies which CIT(A) had not even attempted to meet—That said paper was not in hand-writing of assessee and it did not belong to assessee—Impugned paper did not contain date on which alleged cash payment had been made by assessee—CIT(A) merely observed that date of agreement and due date of payment mentioned in seized document fell in year under consideration and therefore, there was no reason to consider plea of assessee that payment could have been made in subsequent year—Observation of CIT(A) was wholly against facts as discussed, which had not been rebutted by CIT(A)—There was no rebuttal to assessee’s contention that only token amounts of Rs.20,000 and Rs.30,000 were paid which fell in F.Y. 2004-05—Payment of Rs.8,00,000 was made vide demand draft issued by UCO Bank which fell in F.Y. 2005-06—Receipts issued by Society qua three payments were placed on record by assessee—However, payment of Rs. 8,00,000 had still been taken by CIT(A) to have been made in F.Y. 2004-05, quite against record and without any basis—It is required to mention here that this amount of Rs. 8,00,000 was paid at time of registration of sale deed with Registering Authority—Sale deed executed on 18.05.2005 specified in no uncertain terms, the purchase consideration to be at Rs.8,50,000—Sale deed was admittedly registered one—As against this document, there was nothing on record, other than assumptions and presumptions of AO and CIT(A), which was also contradictory inter-se—There was no material on record to suggest any understatement of purchase price of flat by Assessee—Purchase value stood accepted as such by Registering Authority too, besides, provisions of s 50C also did not stand invoked—Impugned Order was passed on merely assumptions and presumptions, without any corroborative evidence to support observations made by CIT(A)—Addition made by AO was thus deleted—Assessee’s Appeal allowed

Held

CIT(A) admitted that the papers/list of alleged allottees had not been recovered from the assessee in the search operations. However, in the same breath, it has been stated by the ld. CIT(A) that the veracity of the paper could not be questioned. Firstly, as noted, this paper was not a computer generated document, but, undisputedly had merely been typed on a computer, rendering it as of no evidentiary value against the assessee so far as regards the alleged understatement of purchase price. Then, as also earlier observed, the said paper is ridden with numerous discrepancies which the ld. CIT(A) has not even attempted to meet. It goes without saying that the said paper was not in the hand-writing of the assessee and it did not belong to the assessee. It did not contain the date on which the alleged cash payment had been made by the assessee.

(Para 13)

CIT(A) merely observed that the date of agreement and due date of payment mentioned in the seized document fell in the year under consideration and therefore, there was no reason to consider the plea of the assessee that the payment could have been made in the subsequent year. This observation of the ld. CIT(A) is wholly against the facts as discussed, which facts have not been rebutted by the ld. CIT(A).

(Para 15)

There is no rebuttal to the assessee’s contention that only token amounts of Rs.20,000/- and Rs.30,000/- were paid on 17.09.2004 & 21.12.2004 respectively, which fell in the F.Y. 2004-05. The payment of Rs.8,00,000/- was made vide demand draft issued by UCO Bank on 19.05.2005, which fell in the F.Y. 2005-06. The receipts issued by the Society qua the three payments were placed on record by the assessee. However, the payment of Rs. 8,00,000/- has still been taken by the ld. CIT(A) to have been made in F.Y. 2004-05, quite against the record and without any basis. It requires mention here that this amount of Rs. 8,00,000/- was paid at the time of registration of the sale deed with the Registering Authority.

(Para 16)

As against the above, the sale deed executed on 18.05.2005 specifies in no uncertain terms, the purchase consideration to be at Rs.8,50,000/-. This sale deed is admittedly a registered one. The contents thereof are duly sworn before the Magistrate. As against this document, there is nothing on record, other than the above discussed assumptions and presumptions of the AO and the ld. CIT(A), which also are contradictory inter-se. There is no material on record to suggest any understatement of the purchase price of the flat by the assessee. The purchase value stands accepted as such by the Registering Authority too. Besides, the provisions of section 50C of the Act also do not stand invoked.

(Para 17)

Thus, looked at from any angle, the order under appeal is unsustainable in law. It has been passed on merely assumptions and presumptions, without any corroborative evidence to support the observations made. The same, is accordingly, reversed. The addition of Rs.10,50,000/- is, accordingly, deleted.

(Para 18)

Conclusion

Where paper on basis of which addition was made, was not computer generated document but merely typed on computer, rendering it as of no evidentiary value against Assessee and addition was made on merely assumptions and presumptions, without any corroborative evidence, same were justified to be set aside.

In favour of

TAMASEK HOLDINGS ADVISORS INDIA P. LTD. vs.DEPUTY COMMISSIONER OF INCOME TAX

TAMASEK HOLDINGS ADVISORS INDIA P. LTD. vs.DEPUTY COMMISSIONER OF INCOME TAX

BOMBAY TRIBUNAL

B R BASKARAN, AM & AMIT SHUKLA, JM.

ITA No. 776/Mum/2015

Feb 25, 2016

(2016) 46 cch 0175 MumTrib

Legislation Referred to

Section 92D

Case pertains to

Asst. Year 2010-11

Issue

Transfer Pricing Adjustments

Decision in favour of:

Assessee (Partly)

Transfer Pricing—Computation of Arm’s Length Price—Transfer Pricing Adjustment—Selection of Comparables—Exclusion of companies—Assessee was Private Limited Company incorporated in India and 100% subsidiary of ’X’—Assessee vide agreement with ‘X’ agreed to provide Investment Advisory Services— While rendering services, Assessee provided investment recommendation in India to ’X’, whereas later retained right of use of investment advice or information—Hence advisory services provided by assessee were in nature of non binding advisory services for which Assessee was compensated with cost plus markup—TPO made selection of comparables in determination of Arm’s Length Price (ALP) for provision of investment advisory services to its associate enterprises—TPO excluded five companies selected by Assessee from list of comparables—Assessee challenged action of TPO in excluding those five companies from final list of comparables—Held, with regard to Company ‘A’’ it was held that it was essentially providing consultancy services in diversified areas, like in government sectors, infrastructure, energy, corporate advisory, banking and financial services, etc.—It focused on consultancy and advisory which is its core area and competency—Revenue generation was purely from consultancy fees as evident from profit and loss account—Here it was not case where there was any unique functions materially affecting revenue or net margins vis-a-vis functions performed by this company— Hence on functional level it was good comparable— As stated, in earlier years, TPO accepted this company to be comparable and in later years Tribunal in AY 2008-09 & 2009-10 held this company to be good comparable qua functions of Assessee and there being no material change on facts, functional profile or any other factor in this year—ITAT held that Company ’A’ was good comparable and should be included in list of final comparables— With regard to Company ’B’ it was held that If on FAR analysis there were differences on account of either assets deployed and risk assumed materially affecting costs or margins then probably such comparability could be rejected—But here in this case, merely on ground that it had low turnover could not be reason or criteria for rejection—In case of nortel India Pvt Ltd vs Addl. CIT, Tribunal held that no company could not be excluded from comparable list merely for reason of low turnover especially, when no turnover filter was applied by either parties—Analysis in such cases had to be carried out on functional basis—It had been brought on record that said decision of Tribunal in appeal filed by Revenue before High Court had been upheld—In earlier years, this comparable had been held to be good comparable by TPO himself and Tribunal in two years accepted to be good comparable—Thus as matter of consistency, ITAT held that company ‘B’ should be included in comparability list—With regard to company ’C’ it was held that this comparable though accepted by TPO as good comparable, however, DRP additionally rejected this comparable—In case of Carlyle Advisory India Ltd., ITAT Mumbai Bench, Tribunal held that third company was a good comparable with companies rendering investment advisory services—Functions of advisory services of third company were quite similar to functions of Assessee and, therefore, this comparable could not be rejected from list of comparables—Accordingly, same was directed to be included in comparability list—Company ’D’’ was also accepted by TPO as good comparable, however, DRP rejected same— From perusal of annual report, it seen that it was primarily engaged in rendering investment advisory services only and its operating in single segment—Thus, there could not be any genuine reason for rejecting said comparable—DRP rejected this comparable on ground that it was in process of shutting down its business—However, during year, it continued to render investment advisory services and realignment agreement was effective from 1st January, 2010, realignment was also for investment advisory activities— Thus, there was not much impact on net margins especially in assessment year 2010-11, therefore, this company could not be rejected and TPO was directed to include same in final comparability list—With regard to Company ‘’E’’’ in case of Q India Pvt Ltd. and New Consolidate Advisory Ltd., this comparable company had not been contested by Assessee—Accordingly, ITAT held that this comparable had rightly been rejected and should not be included in final comparables—Company ‘F’ was in field of merchant banking—It was also involved in various professional activities of merchant banking—Merchant Banker provided capital to companies in form of share ownership instead of loans— It also provided advisory on corporate matters to companies in which they invested—Functions and activities carried out by this company was totally definitely from investment advisory services where core functions was to give advices for making investments in diversified fields—Company which was engaged in merger and acquisitions, private equity syndication, loan/credit syndication and performing most of function of Merchant Banker, then entire functions and transactions affected generation of revenue and margins—Such functions were entirely different from investment advisory services—Mere classification of revenue as ‘advisory fees’ Would not put company in comparable basket sans functional similarity and transactional analysis—In case of Carlyle India Advisors Pvt. Ltd , it was held that, merchant banking functions were entirely different from investment advisory services—It was held that this company could not be put into comparability list and was directed to be excluded--Assessee’s Appeal partly allowed.

Held

From the perusal of the annual report, which is appearing from pages 156 to 187 of the paper book, ITAT find that it is essentially providing consultancy services in diversified areas, like in government sectors, infrastructure, energy, corporate advisory, banking and financial services, etc. It focuses on consultancy and advisory which is its core area and competency. The revenue generation is purely from consultancy fees which is evident from profit and loss account. Here it is not the case where there is any unique functions materially affecting the revenue or net margins vis-a-vis the functions performed by ICRA. Hence on functional level it is a good comparable. As stated earlier, in the earlier years, the TPO has accepted ICRA to be a comparable and in later years the Tribunal in AY 2008-09 & 2009-10 has held ICRA Management to be good comparable qua the functions of the assessee and there being no material change on facts, functional profile or any other factor in this year, then as matter of consistency, we do not want do deviate from our findings given in the earlier years. There cannot be a pick and choose of comparables every year unless there are some material difference in facts and circumstances compelling to take a different conclusion. Thus, ITAT hold that ICRA Management is a good comparable and should be included in the list of final comparables.

(Para20)

It is seen that, the company is concentrating on its main activity of corporate consultancy services and financial services. Being a NBFC has not changed the nature of activity undertaken by the company and its core business competency and its revenue is from consultancy services. If on FAR analysis there are differences on account of either assets deployed and risk assumed materially affecting costs or margins then probably such comparability can be rejected. But here in this case, merely on the ground that it has a low turnover cannot be the reason or criteria for rejection. Rather in the case of Nortel India Pvt Ltd vs Addl. CIT (supra), the Tribunal held that a company cannot be excluded from the comparable list merely for the reason of low turnover especially, when no turnover filter was applied by either parties. The analysis in such cases has to be carried out on functional basis. Before us, it has also been brought on record that the said decision of the Tribunal in the appeal filed by the Revenue before the High Court has been upheld that is, revenue’s appeal has been dismissed. Further as stated above, in the earlier years, this comparable has been held to be a good comparable by the TPO himself and Tribunal in two years have accepted to be a good comparable. Thus as a matter of consistency, ITAT hold that Kinetic Trust Ltd. should be included in the comparability list.

(Para21)

This comparable though accepted by the TPO as a good comparable, however, the DRP has additionally rejected this comparable. In assessment year 2008-09, the Tribunal has held to be a good comparable, Moreover, in the case of Carlyle Advisory India Ltd., ITAT Mumbai Bench, reported in 43 taxman.com 184, the Tribunal held that this company is a good comparable with the companies rendering investment advisory services. This decision of the Carlyle Advisors have also upheld by the Hon’ble Bombay High Court. Moreover, ITAT have already discussed the functions performed by the IDC India Ltd while dealing with Ld. Counsel’s argument that functions of advisory services are quite similar to the functions of the assessee and, therefore, ITAT accept the assessee’s contention that this comparable cannot be rejected. Accordingly, same is directed to be included in the comparability list.

(Para22)

This company is also accepted by the TPO as good comparable, however, the DRP has rejected the same. Such a rejection by the DRP is without giving any opportunity to the assessee. From the perusal of the annual report, which has placed in the paper book from pages 263 to 272, it is seen that it is primarily engaged in rendering investment advisory services only and its operating in a single segment. Thus, there cannot be any genuine reason for rejecting the said comparable. The DRP has rejected this comparable on the ground that it is in the process of shutting down its business. However, during the year, it has continued to render the investment advisory services and the realignment agreement was effective from 1st January, 2010, the realignment is also for investment advisory activities. Thus, there is not much impact on the net margins especially in the assessment year 2010-11, therefore, this company cannot be rejected and TPO is directed to include the same in the final comparability list.

(Para23)

Integrated Capital Services Ltd: This comparable has been admitted by the Ld. Counsel to have been rejected by the Tribunal Q India Pvt Ltd. (supra) and New Consolidate Advisory Ltd. (supra) therefore, this comparable company has not been contested by him. Accordingly, ITAT hold that this comparable has rightly been rejected and shall not be included in the final comparables.

(Para24)

Motilal Oswal Investment and Advisor Ltd : This comparable has been included by the TPO and while including the said comparable he has observed that its income is only from Advisory fees during the year and it is performing advisory services in that field of investment like assessee.. From the perusal of the directors’ report, it is seen that this company derives its business income from four different business verticals, i.e. Equity capital markets, merger and acquisitions, profit equity syndications and structured debt. It also give advises on cross border acquisition. Its core competence is in the field of merchant banking. It also provides comprehensive investment banking solutions and transaction expertise covering private placement of equity, debt and convertible instruments in international and domestic capital markets, monitoring mergers and acquisitions and advising M&A as professional and restructuring advisory and implementations. It is also involved in various professional activities of the merchant banking. A Merchant Banker provides capital to companies in the form of share ownership instead of loans. It also provides advisory on corporate matters to the companies in which they invest. The focus is on negotiated private equity investment. The wide range of activities include portfolio management, credit syndication, counseling on M&A, etc. This whole range of functions and activities carried out by Motilal Oswal is definitely are far wider and much different from investment advisory services where core functions is to give advices for making the investments in diversified fields. A company which is engaged in merger and acquisitions, private equity syndication, loan/credit syndication and performing most of the function of a Merchant Banker, then the entire functions and transactions affects the generation of revenue and margins. Such functions are entirely different from investment advisory services. Mere classification of revenue as ‘advisory fees’ will not put the company in a comparable basket sans functional similarity and transactional analysis. In case of Carlyle India Advisors Pvt. Ltd (supra), it has been held that, the merchant banking functions are entirely different from investment advisory services and this decision of the Tribunal has been upheld by the Hon’ble Bombay High Court. Thus, in view of plethora of judicial decisions as referred to by Ld. Counsel and in view of functional differences as discussed as above, ITAT hold that Motilal Oswal cannot be put into the comparability list and is directed to be excluded.

(Para25)

Conclusion

No company could not be excluded from comparable list merely for reason of low turnover especially, when no turnover filter was applied by either parties

WIPRO LTD. vs.INCOME TAX OFFICER (INTERNATIONAL TAXATION)

WIPRO LTD. vs.INCOME TAX OFFICER (INTERNATIONAL TAXATION)

BANGALORE TRIBUNAL

ABRAHAM P GEORGE, AM & VIJAYPAL RAO, JM.

IT.(I.T.) A. Nos. 1544 to 1547/Bang/2013 (S.P. Nos.175 to 178/Bang/2013)

Feb 12, 2016

(2016) 46 cch 0187 BangTrib

Legislation Referred to

Section 156, 200A, 90A(2)

Case pertains to

Asst. Year 2011-12

Decision in favour of:

Assessee

TDS—Processing of statements of tax deducted at source—Tax demand— Adjustment u/s 200A on account of short deduction of tax at source in respect of payment to non-residents—Jurisdiction—Assessee filed its quarterly E-TDS returns in Form No.27Q in respect of payment to non-residents—AO issued intimation giving summary of short deduction and interest payable for delayed deposit of tax—AO along with intimation u/s 200A also issued Demand Notice u/s 156—AO held that Assessee not deducted tax in accordance with provisions of respective DTAA and therefore there was no shortfall in deduction of tax at source in respect of payments made to non-residents— Demand of tax had been raised by AO vide intimation u/s 200A on ground that assessee has not furnished PAN of non-residents/recipients and accordingly as per provisions of section 206AA, TDS should have been deducted @ 20%—Assessee challenged jurisdiction of AO u/s 200A, for making such adjustment and raising the consequential demand, because issue of applying rate of tax was not arithmetical error in statement or an incorrect claim apparent from any information in statement—Held, while making adjustment AO ignored provisions of DTAA which were applicable on payment in question—There was no dispute that beneficial provisions under the Act as well as DTAA were applicable for non-resident assessee— Payment in question was made to non-resident and provisions of DTAA were applicable, as same had not been disputed by AO—Thus, issue of applying rate of tax at 20% and ignoring provisions of DTAA was debatable issue and did not fall in category of any arithmetical error or incorrect claim apparent from any information in statement, as per provisions of section 200A (1)—Explanation below sub-section-1 of Section 200A clarifies that in respect of deduction of tax at source where such rate was not in accordance with provisions of this Act could be considered as incorrect claim apparent from statement—However, in assessee’s case it was not simple case of deduction of tax at source by applying rate only as per provisions of Act, when benefit of DTAA was available to recipient of amount in question—Therefore, question of applying rate of 20% as provided u/s 206AA of the required long drawn reasoning and finding—Applying rate of 20% without considering provisions of DTAA and consequent adjustment while framing intimation u/s 200A was beyond scope of said provision—AO travelled beyond jurisdiction of making adjustment as per provisions of Section 200A— Provisions of TDS had to be read along with DTAA for computing tax liability on sum in question and therefore when recipient was eligible for benefit of DTAA then there was no scope for deduction of tax at source @ 20% as provided under the provisions of section 206AA—-Similarly, on issue of jurisdiction, question of computing rate of 20% u/s 206AA was debatable issue when recipient was eligible for benefit of provisions of DTAA and therefore AO could not proceed to make adjustment while issuing the intimation u/s 200A—Assessee’s Appeal allowed

Held

While making the adjustment the AO has ignored the provisions of DTAA which are applicable on the payment in question. There is no dispute that the beneficial provisions under the Act as well as the DTAA are applicable for the non-resident assessee. The payment in question was made to the non-resident and the provisions of DTAA are applicable, as the same has not been disputed by the AO before us. Thus, the issue of applying the rate of tax at 20% and ignoring the provisions of DTAA is a debatable issue and does not fall in the category of any arithmetical error or incorrect claim apparent from any information in the statement, as per the provisions of section 200A (1) of the IT Act, 1961.(Para13)

Explanation below sub-section-1 of Section 200A of the IT Act, which clarifies that in respect of deduction of tax at source where such rate is not in accordance with provisions of this Act can be considered as an incorrect claim apparent from the statement. However, in the case in hand, it is not a simple case of deduction of tax at source by applying the rate only as per the provisions of Act, when the benefit of DTAA is available to the recipient of the amount in question. Therefore, the question of applying the rate of 20% as provided u/s 206AA of the IT Act is a issue which requires a long drawn reasoning and finding. Hence, we are of the considered opinion that applying the rate of 20% without considering the provisions of DTAA and consequent adjustment while framing the intimation u/s 200A is beyond the scope of the said provision. Thus, the AO has travelled beyond the jurisdiction of making the adjustment as per the provisions of Section 200A of the IT Act, 1961. In view of the above discussion, as well as the facts and circumstances of the case, we decide this issue in favour of the assessee and consequently the cross objection of the assessee is allowed.”No contrary view or decision has been brought to our notice by the learned Departmental Representative and therefore in view of the decision of the co- ordinate bench as well as the other decisions as followed by the co-ordinate bench, ITAT decide this issue in favour of the assessee on both grounds that the provisions of TDS has to be read along with DTAA for computing the tax liability on the sum in question and therefore when the recipient is eligible for the benefit of DTAA then there is no scope for deduction of tax at source @ 20% as provided under the provisions of section 206AA. Similarly, on the issue of jurisdiction, the question of computing the rate of 20% under section 206AA of the Act is a debatable issue when the recipient is eligible for the benefit of provisions of DTAA and therefore the Assessing Officer cannot proceed to make the adjustment while issuing the intimation under Section 200A. This is beyond the scope of the said provisions.(Para14)

Conclusion

Applying rate of 20% without considering provisions of DTAA and consequent adjustment while framing intimation u/s 200A was beyond scope of said provision hence adjustment made u/s 200A not justified.

In favour of

Assessee

Cases Referred to

CIT vs. R.M. Muthaiah (1993) 202 ITR 508
Azadi Bachao Andolan and Others vs. UOI, (2003) 263 ITR 706 (SC)
CIT vs. Eli Lily & Co., (2009) 312 ITR 225 (SC)
GE India Technology Centre Pvt. Ltd. vs. CIT, (2010) 327 ITR 456 (SC)

Counsel appeared:

B.K. Manjunatha, C.A for the Appellant.: Rajashekar, Addl. CIT (D.R)for the Respondent

ORDER

1. These four appeals by the assessee are directed against the order dt.19.9.2013 of Commissioner of Income Tax (Appeals) arising from the orders passed under Year 2011-12.

2. The assessee has filed its quarterly E-TDS returns in Form No.27Q in respect of the payment to non-residents. The Assessing Officer issued an intimation giving the summary of short deduction and interest payable for delayed deposit of tax. The Assessing Officer along with an intimation under Section 200A has also issued a Demand Notice under Section 156 of the Act. Therefore, the assessee challenged the action of the Assessing Officer before the CIT (Appeals) on the ground that without giving an opportunity of hearing to the assessee, the Assessing Officer raised the demand under Section 200A including interest. The assessee further contended before the CIT (Appeals) that the computation has been done without giving effect to the provisions of section 90A(2) r.w. relevant provisions of DTAA is entered into with respective countries which provides that one will be governed by the DTAA or the provisions of I.T. Act which is more beneficial to the assessee. Thus the assessee contended before the CIT (Appeals) that the assessee has deducted the tax in accordance with the provisions of the respective DTAA and therefore there was no shortfall in the deduction of tax at source in respect of the payments made to non-residents. The CIT (Appeals) did Assessing Officer.

3. Aggrieved by the order of the CIT (Appeals), the assessee filed these appeals and raised the following grounds :

“1. That the order under Section 200A read with 250 of the Income Tax Act, 1961 (in short 'the Act') issued by the learned CIT (Appeals) – IV, Bangalore is without jurisdiction and contrary to law, facts and circumstances.

RUSTAGI ENGINEERING UDYOG PVT. LTD. & ORS. vs.DEPUTY COMMISSIONER OF INCOME TAX & ORS.

RUSTAGI ENGINEERING UDYOG PVT. LTD. & ORS. vs.DEPUTY COMMISSIONER OF INCOME TAX & ORS.

HIGH COURT OF DELHI

S. MURALIDHAR & VIBHU BAKHRU, JJ.

W.P. (C) 1289/1999, W.P.(C) 1290/1999, W.P.(C) 1293/1999, W.P.(C) 1291/1999, W.P.(C) 1292/1999

Feb 24, 2016

(2016) 95 CCH 0054 DelHC

Legislation Referred to

Section 148, 391, 394, 143(3)

Case pertains to

Asst. Year 1989-90 to 1993-94

Decision in favour of:

Assessee

Reassessment—Issue of notice of reassessment—Reason to believe—Validity of notice—Assessee was engaged in business of manufacturing of sheet metal components—Further, Assessee was also engaged in business of transportation under name and style of ‘’X’’—Assessee also carried on business of leasing assets during relevant years—Assessee purchased several assets which were reflected under head “Plant & Machinery” in respect of which Assessee claimed depreciation at rate of 100%—Those assets were leased to various independent entities and formed part of plant and machinery used by said entities—Lease rental received from such entities in terms of agreement entered into with them, were duly declared as business income by Assessee during relevant period—Returns filed by Assessee for AY 1990-91 and 1991-92 were subjected to scrutiny and thereafter assessment orders u/s 143 (3) were passed—Assessee received notice u/s 142(1) calling upon Assessee to file its return of income for AY 1996-97—Assessee responded to said notice by letter dated 3rd October, 1997 and informed AO that it was not required to file return as Assessee stood dissolved with effect from 1st April, 1995 in terms of scheme sanctioned by High Court—Assessee sought reasons for re-opening of assessments and issued notice u/s 148—AO had reason to believe that income of assessee had escaped assessment—According to Assessee, impugned notices were invalid as same were issued to Assessee, which at material time, stood dissolved—Assessee challenged validity of notice issued u/s 148—Held, it is well settled that in a case of amalgamation, amalgamating company would stand dissolved from date on which amalgamation/transfer took effect—Impugned notices must also be set aside as AO had no reason to believe that income of the Assessee for relevant assessment years had escaped assessment—AO had no tangible material in regard to any of transactions pertaining to relevant assessment years—Although AO might have entertained suspicion that Assessee’s income had escaped assessment, such suspicion could not form basis of initiating proceedings u/s 147—Reason to believe could not be considered as reason to suspect as a precondition for exercise of jurisdiction u/s 147—Assessment order for Assessment Year 1994-95, which formed basis for initiation of re-assessment proceedings and issuance of impugned notices, was set aside by CIT(A)—Assessee had contested AO’s finding that transaction of purchase and lease of moulds in year 1993-94 relevant to assessment year 1994-95 was sham transaction—AO’s conclusion that particular transaction was sham transaction could not be reason to believe that other transactions including which were accepted by AO after due scrutiny in AY 1990-91 and 1991-92 in respect of which AO had no material were also sham transactions—Impugned notices u/s 148 were also liable to be set aside— Assessee’s Petitions allowed.

Held

It is well settled that the in a case of amalgamation, the amalgamating company would stand dissolved from the date on which the amalgamation/transfer takes effect.

(Para17)

In High Court view, the impugned notices must also be set aside as the AO had no reason to believe that the income of the Assessee for the relevant assessment years had escaped assessment. Concededly, the AO had no tangible material in regard to any of the transactions pertaining to the relevant assessment years. Although the AO may have entertained a suspicion that the Assessee’s income has escaped assessment, such suspicion could not form the basis of initiating proceedings under Section 147 of the Act. A reason to believe – not reason to suspect - is the precondition for exercise of jurisdiction under Section 147 of the Act.

(Para21)

It is also relevant to mention that the assessment order dated 27th March, 1997 for the Assessment Year 1994-95, which formed the basis for initiation of re-assessment proceedings and issuance of impugned notices, was set aside by Commissioner of Income Tax (Appeal). The Petitioner had contested the AO’s finding that the transaction of purchase and lease of moulds in the year 1993-94 relevant to assessment year 1994-95 was a sham transaction.

(Para22)

In any view of the matter, the AO’s conclusion that a particular transaction is a sham transaction cannot be a reason to believe that other transactions – including which were accepted by the AO after due scrutiny in AY 1990-91 and 1991-92 – in respect of which the AO has no material are also sham transactions. Thus, the impugned notices under Section 148 are also liable to be set aside for the foresaid reason.

(Para23)

Accordingly, the Petitions are allowed and the impugned notices are set aside. The interim order passed on 10th March, 2000 is made absolute. In the circumstances, the parties are left to bear their own.

JAGRAON EXPORTS vs.COMMISSIONER OF INCOME TAX

JAGRAON EXPORTS vs.COMMISSIONER OF INCOME TAX

SUPREME COURT OF INDIA

KURIAN JOSEPH & ROHINTON FALI NARIMAN, JJ.

CIVIL APPEAL NO. 5759 OF 2012, 5760 OF 2012, 5761 OF 2012, 5762 OF 2012, 5763 OF 2012, 5764 OF 2012, 5765 OF 2012, 5766-5771 OF 2012, 5772 OF 2012, 2531 OF 2013, 10916 OF 2013

Feb 18, 2016

(2016) 95 CCH 0058 ISCC

Legislation Referred to

Section 80HHC

Case pertains to

Asst. Year

Decision in favour of:

Assessee

Deduction u/s 80HHC—Deduction in respect of profits retained for export business—Inclusion of proceeds generated from sale of scrap in total turnover—Authority held that sale proceeds generated from sale of scrap would be included in total turnover for purpose of deduction u/s 80HHC—Held, in case of Commissioner of Income Tax Vs. Punjab Stainless Steel Industries & Ors. reported in [2014] 364 ITR 144 (SC) it was held that sale proceeds generated from sale of scrap would not be included in total turnover for purpose of deduction u/s 80HHC—Following above, assessee’s Appeal was allowed

Held

ANZ GRINDLAYS BANK vs.DEPUTY COMMISSIONER OF INCOME TAX AND ORS.

ANZ GRINDLAYS BANK vs.DEPUTY COMMISSIONER OF INCOME TAX AND ORS.

HIGH COURT OF DELHI

S. MURALIDHAR & VIBHU BAKHRU, JJ.

ITA 32/2004

Mar 1, 2016

(2016) 95 CCH 0056 DelHC

Legislation Referred to

Section 40(a)(iii), 260, 221, 276B, 192

Case pertains to

Asst. Year 1991-92

Decision in favour of:

Assessee

Business expenditure—Interest, commission, brokerage etc. to a resident—Deduction of salaries paid to ex-patriate employees overseas—Denial of deduction—Failure to deduct tax at source—During relevant period ,Assessee was non-resident banking company and its principal place of business was situated outside India—Assessee also carried on banking business in India through its branches situated within country— During relevant period, Assessee seconded some of its employees from overseas to its branches in India—Those expatriate employees were employed for business carried on in India—Employees received part of their remuneration by way of salaries and perquisites in India which were duly reflected in Profit and Loss Account drawn up by Assessee in respect of its Indian operations—Assessee also deducted tax at source on so much of remuneration that was payable to expatriate employees in India—Undisputedly, such TDS was deposited with Government—Assessee claimed deduction u/s 40(a)(ia) for salaries paid to ex-patriate employees overseas—AO denied deduction claimed by Assessee holding that Assessee failed to deduct tax at source within prescribed time—CIT(A) rejected Assessee's claim for grant of deduction u/s 40(a)(ia) by holding that such claim could not be made in appellate proceedings—CIT(A) also observed that no deduction could be claimed in view of Section 40(a)(iii)—Tribunal held that since no tax had been deducted at source under Chapter XVII B within prescribed time, no deduction u/s 40(a)(iii) was permissible—Held, in absence of provision similar to proviso to sub- clause (i) of clause (a) of Section 40 it could not be disentitled Assessee to claim deduction even though it had complied with condition under sub-clause (iii) of clause (a) of Section 40—Plain reading of proviso to sub-clause (i) of clause (a) of Section 40 indicates that where Assessee had not deducted or paid tax at source in terms of Chapter XVII B in respect of any sum as specified under sub-clause (i) of clause (a) of Section 40, Assessee can, nonetheless, claim deduction in year in which assessee deposited tax—This benefit was not available to assessee in respect of payments chargeable under head “Salaries” which fall within sub-clause (iii) of clause (a) of Section 40 and not sub-clause (i) of clause (a) of Section 40—Thus, assessee would not be entitled to claim deduction on account of salaries if it failed to deduct or pay amount under Chapter XVII B—Assessee lost its right to claim deduction for period of six years , even though Assessee had paid TDS on expenses pertaining to said period—If provision similar to proviso to Section 40(a)(i) was applicable to Section 40(a)(iii) then Assessee would have been entitled to claim entire expenses on account of salaries paid overseas pertaining to relevant financial years 1984-85, as payment for tax for aforesaid years was paid on 20th July, 1994— However, absence of provision similar to that under sub-clause (i) of clause (a) of Section 40 does not mean that Assessee would also be disentitled to claim deduction on account of salaries in year to which such expenses pertained even though Assessee subsequently discharged its obligation to deposit tax and overcome rigor of sub- clause (iii) of clause (a) of Section 40—Tribunal proceeded on basis that if tax due on salaries paid overseas was not deposited strictly within time prescribed under Chapter XVIIB, Section 40(a)(iii) would be applicable—Plain language of Section 40(a) (iii) does not permit such interpretation—It was apparent that condition to deposit TDS within prescribed time could be read into sub-clause (iii) of clause (a) of Section 40 as unlike language of item (B) of sub-clause (i) of clause (a) of Section 40 same had not been specifically enacted—Question of law was answered in favour of Assessee and against Revenue—Assessee’s Appeal allowed

Held

Absence of a provision similar to the proviso to sub- clause (i) of clause (a) of Section 40 of the Act cannot be read as to disentitle an Assessee to claim a deduction even though it has complied with the condition under sub-clause (iii) of clause (a) of Section 40 of the Act. A plain reading of proviso to sub-clause (i) of clause (a) of Section 40 of the Act indicates that where an Assessee has not deducted or paid the tax at source in terms of Chapter XVII B in respect of any sum as specified under sub-clause (i) of clause (a) of Section 40 of the Act, the Assessee can, nonetheless, claim a deduction in the year in which the assessee deposits the tax. This benefit is not available to an assessee in respect of payments chargeable under the head “Salaries” which fall within sub-clause (iii) of clause (a) of Section 40 and not sub-clause (i) of clause (a) of Section 40 of the Act. Thus, an assessee would not be entitled to claim deduction on account of salaries if it fails to deduct or pay the amount under Chapter XVII B of the Act. In cases where such assessee deposits the amount in a subsequent year, the Assessee would still not be able to claim the deduction in the year in which such tax is deposited; his claim for deduction can be considered only in respect of the year to which such expense relates. Therefore, in cases where the assessments stand concluded, the Assessee would lose the benefit of deduction for the expenses incurred on account of its failure to have deposited the tax at source. Thus, concededly, in the present case the Assessee has lost its right to claim a deduction for a period of six years - AY 1985-86 to AY 1990-91- even though the Assessee has paid the TDS on the expenses pertaining to said period.

(Para14)

If a provision similar to the proviso to Section 40(a) (i) was applicable to Section 40(a) (iii) then the Assessee would have been entitled to claim the entire expenses on account of salaries paid overseas pertaining to financial years 1984-85 to 1993-94 in the financial year 1994-95 relevant to AY 1995-96 as the payment for the tax for the aforesaid years was paid on 20th July, 1994. However, absence of a provision similar to that under sub-clause (i) of clause (a) of Section 40 does not mean that the Assessee would also be disentitled to claim deduction on account of salaries in the year to which such expenses pertained even though the Assessee has subsequently discharged its obligation to deposit the tax and has thus overcome the rigor of sub- clause (iii) of clause (a) of Section 40 of the Act.

(Para 15)

Income-tax Officer, Ward 8(1), Ahmedabad v. Sanghvi Fincap Ltd

IT : Where assessee, engaged in trading of shares, purchased certain shares but same could not be transferred in its name due to some dispute and accordingly payment towards said shares was also not made, in spite of lapse of 12-13 years, there being nothing to suggest that there was remission or cessation of said liability during previous year, no addition could be made under section 41(1) on account of cessation of said liability
IT : Where Assessing Officer noticing shortage of closing stock of shares by 500 shares, added amount of said shares as unaccounted sales, in view of fact that such shortage was on account of transaction of purchase of certain shares in last month of year out of which there was short delivery of 500 shares at year end, addition was not justified
■■■
[2016] 65 taxmann.com 220 (Ahmedabad - Trib.)
IN THE ITAT AHMEDABAD BENCH 'D'
Income-tax Officer, Ward 8(1), Ahmedabad
v.
Sanghvi Fincap Ltd.*
SHAILENDRA KR. YADAV, JUDICIAL MEMBER
AND ANIL CHATURVEDI, ACCOUNTANT MEMBER
IT APPEAL NO. 536 (AHD.) OF 2011
[ASSESSMENT YEAR 2007-08]
MAY  14, 2015
I. Section 41(1) of the Income-tax Act, 1961 - Remission or cessation of trading liability (Applicability of) - Assessment year 2007-08 - Assessee, engaged in business of trading of shares and securities, had purchased certain shares from various parties and same were delivered to it in physical form - However, same could not be subsequently transferred in name of assessee-company on account of certain disputes between parties and, therefore, payment towards said shares was not made and it remained outstanding in books of assessee since 1996-97 - Assessing Officer held that said liability had ceased - Whether provisions of section 41(1) would apply where there had been remission or cessation of liability during year under consideration and since instant case, it was not case of Assessing Officer that assessee-company had received any cash or benefit in respect of trading liability by way of remission or cessation thereof and assessee had filed various details and explanation in respect of outstanding creditors showing that liability was outstanding till date, addition made under section 41(1) was to be deleted - Held, yes [Para 2.1][In favour of assessee]
II. Section 69 of the Income-tax Act, 1961 - Unaccounted investments (Unaccounted sales) - Assessment year 2007-08 - Assessee was engaged in business of shares and securities - On verification of record, Assessing Officer noticed that assessee should have shown 62,272 shares of Spectra as closing stock while it had been showing 61,772 shares - He added amount of balance shares as unaccounted sales - Facts revealed that certain shares were purchased on 29-3-2007 and there was short delivery to extent of difference noticed by Assessing Officer at year end - Whether there was no reason for additions on basis of shortage of delivery since contra account of broker also showed stock at 62,272 shares - Held, yes [Para 4] [In favour of assessee]

Punjab Cricket Association v. Commissioner of Income-tax-II, Chandigarh

IT : Commissioner is empowered to cancel registration granted to a society under section 12A from assessment year 2011-12 onwards, he cannot assume such power for earlier assessment years
IT : Consideration of first proviso to section 2(15) has no role to play in matters relating to registration of a trust or institution under section 12A in respect of granting or declining or cancelling registration
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[2016] 65 taxmann.com 239 (Chandigarh - Trib.)
IN THE ITAT CHANDIGARH BENCH
Punjab Cricket Association
v.
Commissioner of Income-tax-II, Chandigarh*
H.L. KARWA, VICE-PRESIDENT
AND MS. RANO JAIN, ACCOUNTANT MEMBER
IT APPEAL NO. 834 (CHD.) OF 2012
OCTOBER  19, 2015
Section 12AA, read with sections 12 and 2(15), of the Income-tax Act, 1961 - Charitable or religious trust - Registration procedure (Cancellation of) - Assessment year 2009-10 - Whether amendment to section 12AA(3) giving power to Commissioner to cancel registration granted under section 12A has been conferred by Finance Act, 2010, which explicitly provides that said powers are available to Commissioner with effect from 1-6-2010 and same accordingly can be applied for assessment year 2011-12 and subsequent assessment years and, in view of this, Commissioner, could not assume jurisdiction to cancel registration of assessee society from assessment year 2009-10 onwards - Held, yes - Whether consideration of first proviso to section 2(15) has no role to play in matters relating to registration of a trust or institution under section 12A in respect of granting or declining of registration or in respect of cancellation - Held, yes - Whether amendment to proviso to section 2(15) brought by Finance Act, 2008 cannot be basis for cancellation of registration already granted in earlier year under section 12A - Held, yes - Whether where Commissioner had not given findings that activities of assessee were not genuine or not being carried out in consonance with objects of assessee, action of Commissioner in cancelling registration was not as per law - Held, yes [Paras 13 & 14] [In favour of assessee]
Circulars and Notifications : Circular No. 1/2011, dated 6-4-2011

Commissioner of Income-tax(Central) v. Keti Construction Ltd

IT: Where assessee had not paid self assessment tax in return of income under sections 153A and 143(2), application for settlement was not valid
■■■
[2016] 65 taxmann.com 263 (Madhya Pradesh)
HIGH COURT OF MADHYA PRADESH
Commissioner of Income-tax(Central)
v.
Keti Construction Ltd.*
P.K. JAISWAL AND J.K. JAIN, JJ.
WRIT PETITION NO. 6313 OF 2014
JULY  7, 2015
Section 245C of the Income-tax Act, 1961 - Settlement Commission - Application for settlement of cases (Validity of) - Assessment years 2006-07 to 2012-13 - In respect of assessment years in question respondent assessee made an application to Settlement Commission for settlement of case - In such an application, respondent declared an undisclosed income of Rs. 1.58,00,000 - For said years, respondent had filed returns of income under section 139(1) and after issue of notices under section 153A for said years, he had offered to tax Rs. 34,74,39,663, which was total amount admitted under section 132(4) for aforesaid years, but tax and interest computed suo moto was not paid and was shown as payable - Whether respondent was required to deposit additional tax on Rs. 34,74,39,663 and due to non-payment of taxes due therein application under section 245D(2C) would not be valid - Held, yes [Para 33] [In favour of revenue]

Flextronics Software Systems Ltd. v. Deputy Commissioner of Income-tax, Circle-11(1), New Delhi

IT/ILT : Where in support of genuineness of payments of administrative/corporate charges made to AE, assessee brought on record some additional evidence in course of appellate proceedings, matter was to be remanded back for disposal afresh in light of evidence so produced
■■■
[2016] 65 taxmann.com 264 (Delhi - Trib.)
IN THE ITAT DELHI BENCH 'I-1'
Flextronics Software Systems Ltd.
v.
Deputy Commissioner of Income-tax, Circle-11(1), New Delhi*
S.V. MEHROTRA, ACCOUNTANT MEMBER
AND A.T. VARKEY, JUDICIAL MEMBER
IT APPEAL NO. 5550/DELHI/2011
[ASSESSMENT YEAR 2007-08]
JANUARY  7, 2016
Section 92C of the Income-tax Act, 1961 - Transfer pricing - Computation of arm's length price (Comparables and adjustments/Adjustments - Administrative expenses) - Assessee-company was engaged in business of production of computer software products and provision of software development services for communication industry - Assessee entered into international transactions relating to software development services with its AEs - In transfer pricing proceedings, TPO proposed an addition on ground that administrative/corporate charges paid by assessee to its AE had no recognizable value and, thus, arm's length price in respect of said transaction was taken at Nil - DRP set aside objections raised by assessee - In appellate proceedings, assessee submitted additional evidence in support of genuineness of payments in question - Whether on facts, impugned addition was to be set aside and, matter was to be remanded back for disposal afresh in light of new evidence produced by assessee - Held, yes [Para 16] [Matter remanded]

RBL Bank Ltd. v. Income-tax Officer (TDS), Ward-1, Belgaum

IT: Where recipient, to whom assessee-bank paid interest without deducting tax at source, had shown such interest income in its return of income but had not paid tax thereon claiming same to be exempt, assessee could not be treated as assessee-in-default
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[2016] 65 taxmann.com 219 (Panaji - Trib.)
IN THE ITAT PANAJI BENCH
RBL Bank Ltd.
v.
Income-tax Officer (TDS), Ward-1, Belgaum*
N.S. SAINI, ACCOUNTANT MEMBER
AND GEORGE MATHAN, JUDICIAL MEMBER
IT APPEAL NOS. 329 TO 331 (PNJ) OF 2015
[ASSESSMENT YEARS 2011-12 TO 2013-14]
NOVEMBER  24, 2015
Section 201, read with section 194A, of the Income-tax Act, 1961 - Deduction of tax at source - Consequence of failure to deduct or pay (Assessee-in-default) - Assessment years 2011-12 to 2013-14 - Assessee-bank paid interest to a university (recipient) without deducting TDS - Assessing Officer treated bank as assessee-in-default - Recipient of interest showed nil income treating all income as exempt and, thus, did not pay any tax - Whether where no tax was paid by recipient of income because as per recipient, its entire income was exempt or on which no tax was payable, then unless it was shown that due tax could not be recovered by department from recipient, assessee-payer could not be treated as 'assessee-in-default' - Held, yes [Para 13] [In favour of assessee/Matter remanded]