Income Tax Act, 1961 – Section 10(38) – Sale of shares – Arising of long term capital gains – Disallowance of exemption – Appellant/assessee filed his return of income for AY 2015-16 admitting an income after claiming exemption of long term capital gains under Section 10(38) of the Act on sale of shares of Life Line Drugs & Pharma Ltd. – AO disallowed exemption and brought entire sale consideration of shares to tax – CIT(A) dismissed appeal filed by assessee – Whether CIT(A) has erred in confirming action of AO in disallowing exemption claimed under Section 10(38) of the Act on sale of shares of Life Line Drugs & Pharma Ltd. – HELD – Various enquiries conducted by department unearthed a huge syndicate of entry operators, share brokers and money launderers involved in providing bogus accommodation of long term capital gains and short term capital loss – AO in assessment order dealt with trading pattern of Life Line Drugs & Pharma Ltd. as stated in BSE and noted unpredictably high rising of price, supporting presumption that all is not fair and there is manipulation of price – Assessee has meticulously completed paperwork by routing his entire investment through banking channel, but results thereof are altogether beyond pale of common course of natural events, human conduct and public and private business – Neither in past nor in subsequent years, assessee engaged into any such investment to have a huge windfall – Investment in unknown stock by assessee is not real and all paper work and routing money through banking channels is only to make it real or legal – It was a sham transaction to convert undisclosed income into disclosed by evading tax under garb of long term capital gains in connivance with entry providers – Action of CIT(A) is approved – Appeal dismissed
Income Tax Act, 1961 – Sections 194H and 201(1) – Payment of amount – Non-deduction of tax at source – Raising of demand – Assessee filed appeal against order of CIT(A) arising from order passed by AO under Section 201(1)/201(1A) of the Act for AY 2010-11 – Whether CIT(A) has erred in confirming order passed by AO by treating "discount" offered by Appellant to distributors as "commission" and thereby treating Appellant as "assessee in default" under Section 201(1) of the Act for non-deduction of TDS under Section 194H of the Act – HELD – Though AO has recorded fact that distributors are appointed by assessee through written agreements, however, AO has not considered terms and conditions of agreement which are crucial for determination of nature of transaction between assessee and distributors/dealers as to either payment allowed by assessee is in nature of discount or commission attracting provision of Section 194H of the Act – Another aspect which is also relevant for determining nature of transaction is treatment given by assessee to said transaction in its books of account – Both of these aspects are inevitably relevant for determining nature of transaction and consequential liability/obligation of assessee to deduct tax at source as per provisions of Section 194H of the Act – Impugned order passed by CIT(A) set aside – Matter remanded to record of AO for fresh adjudication as per law after proper verification and examination of agreements between assessee and distributors/dealers as well as entries in books of account for ascertaining nature of payments – Appeal allowed
Income Tax Act, 1961 – Sections 40A(3), 143(3) and 263 – Invoking of revisional jurisdiction – Setting aside of erroneous assessment order – Appellant/assessee filed his return of income for AY 2014-15 – AO completed assessment under Section 143(3) of the Act – Principal Commissioner of Income Tax (PCIT) set aside assessment order by invoking jurisdiction under Section 263 of the Act and directed AO to pass order afresh after making necessary verification and inquiries – Whether PCIT has erred in setting aside assessment order passed by AO by holding same as erroneous so far as prejudicial to interest of revenue – HELD – PCIT has invoked provisions of Section 263 of the Act on account of lack of proper inquiry by AO on issue of claim of cash purchase of cotton, which was allowed by AO despite absence of bills, vouchers, transportation receipts, weighment slips etc. – There is no dispute that assessee has made huge cash purchase and therefore, it is a clear contravention of provisions of Section 40A(3) of the Act – AO has not taken up issue of disallowance under Section 40A(3) of the Act and hence, there is a complete lack of inquiry on part of AO so far as this issue is concerned – When cash purchase falls in mischief of Section 40A(3) of the Act, then ignoring said aspect by AO at time of passing assessment order certainly renders assessment order erroneous so far as prejudicial to interest of revenue – PCIT has rightly exercised his jurisdiction under Section 263 of the Act to revise assessment order – Impugned order passed by PCIT affirmed – Appeal dismissed.
Income Tax – Transfer Pricing – Determination of arms’ length price – Selection of comparables – Appellant/assessee is a company engaged in providing IT and IT enabled services (ITeS) to Parexel Group companies, filed its return of income for AY 2018-19 – AO passed draft assessment order by incorporating transfer pricing adjustments proposed by Transfer Pricing Officer (TPO) – Pursuant to directions of Dispute Resolution Panel (DRP), TPO deleted TP adjustment in IT/SWD segment and reduced TP adjustment in ITeS segment – AO passed impugned final assessment order by incorporating TP adjustment as per TPO’s order giving effect to DRP’s directions – Whether AO/TPO has erred in selecting Infosys BPM Services Pvt. Ltd. and eClerx Services Ltd. as comparables – HELD – In assessee’s own case for AYs 2009-10 and 2011-12, e Clerx Services Ltd. and Infosys BPM Services Pvt. Ltd. were considered and excluded due to different model, brand value, diversified activities, non-availability of segmental data etc., apart from holding that e Clerx Services Ltd. is rendering KPO services – Infosys BPM Services Pvt. Ltd. was held to have been providing high end integrated services for business platforms, customer services, human resource outsourcing, legal process outsourcing, sales and fulfilment etc., and thus is not comparable to assessee’s ITeS segment – eClerx Services Ltd. was held to be a KPO company outsourcing substantial work to third parties, whereas assessee, an ITeS provider, was rendering back-office support services with their own human resource, and, therefore, not a good comparable with companies like assessee – AO/TPO is directed to exclude these two entities from list of comparables – Appeal partly allowed. Issue 2: Denial of working capital adjustment – Whether DRP has erred in confirming action of AO/TPO in rejecting assessee’s claim for working capital adjustment – HELD – Where complete working capital adjustment working had been given by assessee and no specific defect had been pointed out in these workings, then working capital adjustment as worked out by assessee must be allowed – For assessment years 2009-10 and 2011-12, working capital adjustment is said to have been granted to assessee – Issue set aside to file of AO/TPO to decide issue afresh in light of above after obtaining necessary information from assessee.
Income Tax Act, 1961 – Sections 68 and 153A – Receipt of unsecured loan – Discharge of onus – Deletion of addition – Pursuant to search & seizure operation conducted in J.P. Minda Group of cases, AO issued notice under Section 153A of the Act to Respondent/assessee – In response to said notice, assessee filed return declaring NIL income – During course of assessment proceedings, AO alleged that assessee along with its other group companies had received unsecured loans through various entry providing companies – AO treated unsecured loan received by assessee as unexplained cash credits under Section 68 of the Act and added same to income of assessee – CIT(A) deleted impugned addition – Whether CIT(A) has erred in deleting addition made by AO under Section 68 of the Act on account of receipt of unsecured loan by assessee company – HELD – Assessee has discharged its onus by submitted all documentary evidence in respect of unsecured loan in support of genuineness of transaction – Details submitted in this regard by assessee have also been made part of order by AO – No corroborative evidence is brought on record by AO to prove that share capital/share premium/share application money/unsecured loan is an accommodation entry – Material found during search cannot lead to conclusions drawn by AO – CIT(A) was perfectly justified in deleting addition made by AO under Section 68 of the Act – Appeals dismissed
Income Tax Act, 1961 – Sections 132 and 271AAB(1A) – Falsification of sub contract expense – Levy of penalty – Appellant/assessee is a company engaged in civil contract works filed its return of income for AY 2018-19 – During course of search and seizure operations conducted in premises of assessee, Managing Directors of assessee company declared an additional income in hands of assessee – AO concluded assessment and levied penalty under Section 271AAB(1A) of the Act of 30% of additional income – CIT(A) dismissed appeal filed by assessee – Whether CIT(A) has erred in confirming penalty levied by AO under Section 271AAB(1A) of the Act – HELD – Material seized during search and seizure operation under Section 132 of the Act ultimately lead to admission of income by assessee – Additional income is the result of falsification of sub-contract expense recorded in books of assessee – In their statements, sub-contractors denied having executed any sub-contracts or execution of sub-contract work or retaining amounts remitted to their bank accounts towards such sub-contracts – Sub-contractors stated that immediately after remittance of amounts in their bank accounts, they withdrew same and paid to Managing Directors of assessee company in cash – Entries in books of accounts were found to be bogus in respect of sub contract expenses, which were over booked by assessee than actuals by taking accommodation bills and thereby suppressed income, which fact could not have been detected without search and seizure – Impugned order passed by CIT(A) affirmed – Appeal dismissed
Income Tax Act, 1961 – Sections 14A, 36(1)(iii) and 145(3) – Addition of surrendered amount – Deletion of addition – Respondent/assessee filed its return of income for AY 2012-13 – AO completed assessment by determining total income of assessee by making certain additions to returned income – CIT(A) deleted additions made by AO – Whether CIT(A) has erred in deleting addition made by AO on account of disclosure made by assessee during course of survey proceedings – HELD – There is no material on record to suggest that any discrepancy was found during course of survey in form of any incriminating document – In absence of any incriminating evidence collected at time of survey, disclosure made by assessee in form of a plain statement has no legs to stand – Disclosure made by assessee was not based on any incriminating material found during survey, but was only on estimation of profits he had expected to earn during the year which had drastically fallen on account of unprecedented circumstances which was evidenced by audited financial statements of assessee – Since there was no basis with AO except disclosure made by assessee which was duly explained, addition made on account of disclosure so made was not sustainable – There is no infirmity in order of CIT(A) deleting addition made on account of disclosure made by assessee during survey – Appeal dismissed. Issue 2: Estimation of net profits – Whether CIT(A) has erred in deleting addition made on account of estimation of net profits – HELD – AO rejected books of accounts of assessee under Section 145(3) of the Act and estimated profits at average of last three years – For rejecting books of accounts, there has to be a specific finding by AO that books are not reliable for arriving at a true and correct profits earned by assessee – Merely making a general statement that some vouchers were unsupported or there were expenses incurred in cash by assessee, cannot justify such adverse action of AO in rejecting audited books of accounts of assessee – Assessee had explained reasons for fall in net profit by pointing out that while its gross profits had increased during impugned year, net profit had fallen on account of increase in financial cost and huge foreign exchange losses incurred by it which were pointed out even by auditors of assessee company – No anomaly in accounts or claims of assessee has been found by AO – Rejection of books of accounts of assessee was totally unjustified – Addition made by estimation of net profits has been rightly deleted by CIT(A). Issue 3: Deletion of disallowance of expenses – Whether CIT(A) has erred in deleting disallowance of expenses incurred in relation to earning of exempt income in terms of provisions of Section 14A of the Act – HELD – CIT(A) deleted disallowance by noting that assessee had sufficient owned funds for making investment for earning exempt income – Revenue was unable to controvert factual findings of CIT(A) with respect to sufficiency of own funds available with assessee for purposes of making investment for earning exempt income – Where sufficient own funds are available, no disallowance of interest was warranted – Order passed by CIT(A) on this issue affirmed. Issue 4: Disallowance of interest expenditure – Deletion of disallowance – Whether CIT(A) has erred in deleting addition made by AO on account of disallowance of interest expenditure under Section 36(1)(iii) of the Act – HELD – Assessee had sufficient interest free funds to cover interest free advances given to assessee's sister concern for business purpose – Since interest free funds available at disposal of assessee are sufficient to meet interest free advances, presumption would arise that interest free advances were lent from interest free funds and not borrowed funds – There is no reason to interfere in order of CIT(A) deleting disallowance of interest expenses under Section 36(1)(iii) of the Act .
Income Tax Act, 1961 – Section 144C – Framing of assessment – Non-compliance of binding directions – Appellant/assessee filed its return of income for AY 2018-19 – On reference made by AO, Transfer Pricing Officer (TPO) suggested upward adjustment in Arm’s Length Price (ALP) of international transactions – AO passed draft assessment order under Section 144C of the Act by incorporating TPO’s recommendations – On objections filed by assessee, Dispute Resolution Panel (DRP) issued certain directions with regard to TP adjustments – AO passed final assessment order without complying with directions issued by DRP – Whether final assessment order passed by AO is bad in law as it does not conform to binding directions of DRP – HELD – Admittedly, final assessment order was passed by AO without incorporating directions of DRP – DRP has given certain directions which were to be given effect by TPO – AO has not received order giving effect by TPO till passing final assessment order – Since order giving effect of DRP’s direction passed by TPO was not received by AO, AO could not incorporate same in assessment order – In identical cases, jurisdictional High Court treated assessment order passed without incorporating DRP’s directions as a technical/procedural default and to cure same, restored proceedings at level of DRP/AO and given Department the opportunity to pass fresh assessment order after incorporating DRP’s directions – By respectfully following jurisdictional High Court decisions, issue remitted to file of AO to pass an order incorporating DRP’s directions which has been given effect by TPO – Appeal allowed.
Income Tax Act, 1961 – Sections 56 and 80P(2) – Deposit of surplus amount – Receipt of interest income – Allowable deduction – Respondent/assessee is a Primary Agricultural Co-operative Credit Society filed its return of income for AY 2018-19 admitting Nil income after claiming deduction under Section 80P(2) of the Act – AO disallowed deduction to extent of interest income received from banks and brought same to tax under head ‘income from other sources’ under Section 56 of the Act – CIT(A) allowed appeal of assessee – Whether CIT(A) has erred in deleting addition made by AO on account of disallowance of interest income received from banks – HELD – Assessee is engaged in business of providing credit facilities, supply of agricultural inputs and consumer goods to its members – Assessee being a cooperative society make deposits in banks in its regular course of business as usual, but not with any intention to gain any benefit from other sources – It is an admitted fact that assessee has claimed deduction under Section 80P(2)(a)(i) of the Act on interest accrued and received by assessee from such deposits – Interest earned from retaining the amount payable to members shall not be considered as income from other sources – Assessee society is eligible for deduction under Section 80P(2)(a)(i) of the Act on interest income received from investment in banks – Impugned order passed by CIT(A) affirmed – Appeal dismissed
Income Tax Act, 1961 – Section 201(1) – Payment of external development charges – Non-deduction of tax at source – AO carried out a survey at premises of Haryana Urban Development Authority (HUDA) and noticed that External Development Charges (EDC) were received by HUDA from private builders/persons without TDS – As Respondent/assessee had made payments of EDC to HUDA in different years and no tax was deducted, AO treated assessee as assessee-in-default and made addition in respect of default under Section 201(1) of the Act – CIT(A) deleted demand raised by AO – Whether CIT(A) has erred in deleting addition made by AO under Section 201(1) of the Act on account of non-deduction of TDS on payment of EDC to HUDA – HELD – HUDA is engaged in acquiring land, developing it and finally handing it over for a price – EDC is fixed by HUDA from time to time – Payment has been made to HUDA through DTCP which is a Government Department and same is not in pursuance to any contract between assessee and HUDA – Payment of EDC is not for carrying out any specific work to be done by HUDA for and on behalf of assessee, but rather DTCP which is a Government Department which levies these charges for carrying out external development and engages services of HUDA for execution of work – Assessee was not required to deduct tax at source at time of payment of EDC, as same was not out of any statutory or contractual liability towards HUDA – There is no infirmity in order of CIT(A) in deleting made by AO under Section 201(1) of the Act on account of non-deduction of TDS on payment of EDC to HUDA – Impugned order passed by CIT(A) affirmed – Appeal dismissed
Income Tax Act, 1961 – Section 92CA – Computation of taxable income – Exceeding of jurisdiction – Appellant/assessee filed its return of income for AY 2017-18 declaring NIL income – Since assessee had entered into international transactions with its associated enterprises, AO referred case to Transfer Pricing Officer (TPO), who did not draw any adverse inference in respect of armed length price (ALP) – AO finalized assessment and computed taxable income of assessee by making addition on account of short term capital gain – Whether AO has erred in exceeding jurisdiction in not following order passed by TPO under Section 92CA of the Act – HELD – Dispute is with regard to sale consideration – In impugned assessment order, AO adopted sale consideration as against fair market value and computed capital gain – Under these facts, assessee has raised two fold objections, viz., AO exceeded its jurisdiction by not following order of TPO passed under Section 92CA(3) of the Act and value adopted by AO is erroneous and contrary to settled position of law – Fair market value was computed by assessee as per DCF methodology and was duly supported by a valuation report obtained from an independent Chartered Accountant – AO substituted sale consideration on basis of sale of shares of Wormhole by assessee in next financial year – There is no dispute that TPO did not propose any adjustment – As per Section 92CA(4) of the Act, AO is required to compute Arm’s Length Price in conformity with ALP so determined by TPO – AO deviated from order of TPO – Such deviation is not permissible under law in light of statutory provisions and judicial pronouncements as relied by assessee in its written submissions – Where TPO has not proposed any adjustment and valuation has been adopted by AO without verifying true and correct facts qua assets, there is no reason to sustain such erroneous finding given by AO – Appeal allowed
Income Tax – Purchase of windmill – Disallowance of depreciation – Appellant-assessee filed its return of income for AY 2015-16 – During assessment, AO noted that assessee has claimed depreciation and interest cost of borrowing for purchasing windmill as “revenue expenditure” – AO disallowed depreciation as well as interest cost – CIT(A) dismissed appeal of assessee – Whether CIT(A) has erred in confirming disallowance of depreciation and interest expenses – HELD – AO made disallowance by taking view that assessee failed to satisfy condition for claiming depreciation and interest on borrowed capital, as there was no business activity and as such, no expenses are allowable – Before CIT(A), assessee has not filed any written submissions – In absence of any submission, action of AO was confirmed by CIT(A) – Assessee raised plea that once cost of machinery is included in block of asset and was ready to use, depreciation cannot be disallowed on such asset – Assessee has now raised new pleas which was neither claimed before AO nor it was examined by AO – Even primary facts that wind mill was installed and was tested by Maharashtra State Electricity Distribution company and commissioning certificate was issued, was not examined and verified by AO – Considering the totality of facts, issue restored back to file of AO to examine facts on contentions raised by assessee before this bench and allow appropriate relief to assessee in accordance with law – Appeal allowed
Income Tax Act, 1961 – Sections 36(1)(vii), 36(2) and 37 – Receipt of sale consideration – Computation of capital gain – Denial of index cost of improvement – Appellant/assessee is a partnership firm filed its return of income for year under consideration – AO completed assessment by making various additions to returned income – CIT(A) partly allowed appeal filed by assessee – Whether CIT(A) has erred in sustaining action of AO in denying index cost of improvement claimed by Appellant – HELD – Assessee has sold property being vacant land for a consideration – Claim of assessee is that there was a building in said land, therefore, indexed cost of building should be allowed as a deduction while computing capital gain on receipt of sale consideration on transfer of property – From perusal of sale deed, it is clear that sale consideration received by assessee is only with regard to sale of vacant land and there was no mentioning of any building/shed – On date of transfer of impugned land, there was no existence of industrial shed so as to transfer it to purchaser – In absence of existing of industrial shed at time of entering sale deed, assessee cannot claim indexed cost of industrial shed existing thereon which is only imaginary in nature – Order passed by CIT(A) on this issue affirmed – Appeal partly allowed. Issue 2: Salary expenses – Adhoc disallowance – Whether CIT(A) has erred in confirming disallowance of salary expenses claimed by Appellant under Section 37 of the Act – HELD – AO made disallowance of 30% of salary expenses for reason of non-deduction of TDS doubting genuineness of payment – Adhoc disallowance by AO is not justified – Order of AO is ex-parte – Assessee filed breakup details of payment of salary, however, no ledger account has been furnished with details of payment made – Issue requires fresh examination at end of AO – Issue is remitted to file of AO for fresh consideration with a direction to assessee to place all details of payment of salary for his consideration. Issue 3: Disallowance of bad debt – Whether CIT(A) has erred in confirming disallowance of bad debt – HELD – Allegation of department is that assessee has not proved either it has been considered while computing income of assessee in any previous year in accordance with Section 36(1)(vii) read with Section 36(2) of the Act – Since assessment order is ex-parte, it is appropriate to remit issue to file of AO to examine issue afresh – If it is satisfied the provisions of Section 36(1)(vii) read with Section 36(2) of the Act, claim of assessee towards bad debts should be allowed.
Income Tax Act, 1961 – Sections 36(1)(vii), 36(2) and 37 – Receipt of sale consideration – Computation of capital gain – Denial of index cost of improvement – Appellant/assessee is a partnership firm filed its return of income for year under consideration – AO completed assessment by making various additions to returned income – CIT(A) partly allowed appeal filed by assessee – Whether CIT(A) has erred in sustaining action of AO in denying index cost of improvement claimed by Appellant – HELD – Assessee has sold property being vacant land for a consideration – Claim of assessee is that there was a building in said land, therefore, indexed cost of building should be allowed as a deduction while computing capital gain on receipt of sale consideration on transfer of property – From perusal of sale deed, it is clear that sale consideration received by assessee is only with regard to sale of vacant land and there was no mentioning of any building/shed – On date of transfer of impugned land, there was no existence of industrial shed so as to transfer it to purchaser – In absence of existing of industrial shed at time of entering sale deed, assessee cannot claim indexed cost of industrial shed existing thereon which is only imaginary in nature – Order passed by CIT(A) on this issue affirmed – Appeal partly allowed. Issue 2: Salary expenses – Adhoc disallowance – Whether CIT(A) has erred in confirming disallowance of salary expenses claimed by Appellant under Section 37 of the Act – HELD – AO made disallowance of 30% of salary expenses for reason of non-deduction of TDS doubting genuineness of payment – Adhoc disallowance by AO is not justified – Order of AO is ex-parte – Assessee filed breakup details of payment of salary, however, no ledger account has been furnished with details of payment made – Issue requires fresh examination at end of AO – Issue is remitted to file of AO for fresh consideration with a direction to assessee to place all details of payment of salary for his consideration. Issue 3: Disallowance of bad debt – Whether CIT(A) has erred in confirming disallowance of bad debt – HELD – Allegation of department is that assessee has not proved either it has been considered while computing income of assessee in any previous year in accordance with Section 36(1)(vii) read with Section 36(2) of the Act – Since assessment order is ex-parte, it is appropriate to remit issue to file of AO to examine issue afresh – If it is satisfied the provisions of Section 36(1)(vii) read with Section 36(2) of the Act, claim of assessee towards bad debts should be allowed.
Income Tax Act, 1961 – Section 37(1) – Payment of compensation – Disallowance of deduction – Appellant/assessee filed its return of income for year under consideration – AO disallowed deduction claimed by assessee on account of legal & professional expenses and compensation and added back same into total income of assessee – CIT(A) sustained order of AO – Whether CIT(A) has erred in upholding disallowance of compensation paid by assessee – HELD – Fire at theatre owned by assessee resulted in death of 69 persons besides injuring 103 persons – Compensation as granted by Supreme court and as paid by assessee was by way of restitution as well as punitive, in terms of rights of victim under Private Law – Compensation so granted by way of restitution had nothing to do with any criminal liability – Punitive damages can be awarded when wrongdoers conduct 'shocks the conscience' or is 'outrageous' or there is a willful and 'wanton disregard' for safety requirements – Punitive damages paid by assessee cannot be said to be an amount wholly and exclusively laid for purpose of business – CIT(A) had fallen in error in failing to distinguish two components of damages – Compensation paid by way of restitution is allowable as business expenditure allowable under Section 37(1) of the Act, however, punitive damages cannot be allowed as expenditure – Appeal partly allowed. Issue 2: Legal and professional expenses – Allowable deduction – Whether CIT(A) has erred in confirming disallowance of legal & professional expenses incurred by assessee – HELD – Revenue does not dispute genuineness of payment – Revenue also does not dispute checkered history of assessee litigating in various Courts to defend civil and criminal consequences of tragedy – Bills raised by lawyers and as shown in ledger account are not disputed nor alleged to be exorbitant or inflated – Lower authorities have not taken a prudent approach to understand nature of litigation faced by assessee that ran over the years and at different forums – Even if business activities were stopped, upcoming financial liabilities and even penal consequences required assessee to continue defending the cases in Courts and other forums – Legal and professional expenses were erroneously disallowed by lower authorities.
Income Tax Act, 1961 – Sections 14A, 80G and 143(3) – Income Tax Rules, 1962 – Rule 8D – Earning of exempt income – Computation of disallowance of expenditure – Respondent/assessee is a private limited company engaged in manufacturing of textile machines filed its return of income for year under consideration – AO completed assessment under Section 143(3) of the Act by making certain additions to returned income – CIT(A) partly allowed appeal filed by assessee – Whether CIT(A) has erred in deleting disallowance made by AO under Section 14A of the Act – HELD – Section 14A of the Act deals with expenditure incurred in relation to income not includible in total income – As per language of Section 14A of the Act, no deduction is allowable in respect of expenditure incurred by assessee in relation to income which does not form part of total income – AO is authorized to determine amount of expenditure incurred in relation to exempt income as per method prescribed under Rule 8D of the Rules – Assessee in its financial statement has clearly given detail of expenses related to exempt income – Besides that, assessee has suo moto disallowed 1.00% of dividend income – Apart from suo moto disallowance which consist of 1.00% of dividend income, direct expenses and 25% of director’s remuneration would be sufficient to meet ends of justice, so far as disallowance under Rule 8D of the Rules is concerned – AO is directed to compute disallowance accordingly – Appeal partly allowed. Issue 2: Grant of donations – Entitlement of deduction – Whether CIT(A) has erred in granting deduction claimed by assessee under Section 80G of the Act on account of donations made to trusts – HELD – Assessee claimed deduction of Section 80G of the Act on account of donations made to various trusts – AO disallowed deduction for want of registration certificate under Section 80G of the Act – Before CIT(A), assessee filed copy of receipt of donations by both trusts containing registration under Section 80G of the Act along with their PAN – Assessee claimed 50% deduction of donation to such trusts – CIT(A) on his satisfaction granted deduction under Section 80G of the Act on verification of facts – Order of CIT(A) is based on verification of facts, which does not require any interference.
Income Tax Act, 1961 – Sections 9(1)(vi), 40(a)(ia), 68, 143(3) and 194J – Receipt of share application money – Deletion of addition – Assessee is a company engaged in business of telecasting television channels and providing broadcasting services filed its return of income declaring Nil income for year under consideration – AO completed assessment under Section 143(3) of the Act by making various additions to returned income – CIT(A) partly allowed appeal of assessee – Whether CIT(A) has erred in deleting addition made by AO under Section 68 of the Act on account of share application money received by assessee – HELD – Addition under Section 68 of the Act is required to be tested based on identity and creditworthiness of investor as well as genuineness of transaction – Assessee has received share application money through bank remittance from NSR PE Mauritius LLC – To prove identity and credit worthiness of investor, assessee submitted ledger account of share application money, relevant board resolution of assessee company, foreign inward remittance certificates from HDFC bank and shareholders agreement – Revenue authorities are only aggrieved with genuineness of transaction – Absence of one evidence or presence of some other evidence is crucial to decide genuineness of transaction – Issue set aside to file of AO to consider all evidences furnished by assessee, information received from Mauritius tax authorities, investment strength of investor etc. – AO is directed to examine transaction as per parameters of Section 68 of the Act – Appeal partly allowed. Issue 2: Payment of channel placement fees – Allowable deduction – Whether CIT(A) has erred in deleting disallowance made by AO under Section 40(a)(ia) read with Section 194J of the Act in respect of channel placement fees – HELD – Disallowance of expenditure under Section 40(a)(ia) of the Act can only be made, if payment is Royalty in terms of Explanation 2 to Section 9(1)(vi) of the Act – Since payment made for channel placement as a fee is not Royalty in terms of Explanation 2 to Section 9(1)(vi) of the Act, no disallowance of expenditure can be made under Section 40(a)(ia) of the Act – There is no infirmity in order of CIT(A). Issue 3: Income Tax Act, 1961 – Sections 14A, 35DD and 115JB – Computation of book profits – Addition of book debts – Whether CIT(A) has erred in upholding order of AO by making an addition of amount representing provision for doubtful advances, to book profits as computed under Section 115JB of the Act – HELD – Assessee claimed that “book debt‟ is not an asset which can diminish in value and hence, provisions thereof is not covered by requirement of disallowance of such provision for deduction to value of asset – There is no reason to agree with argument of assessee, because “book debts‟ are the assets of company and by making a provision for bad and doubtful debts, there is a provision of diminution in value of such book assets – Order passed by CIT(A) on this issue affirmed – Appeal partly allowed. Issue 4: Absence of exempt income – Deletion of disallowance of expenditure –Whether CIT(A) has erred in confirming addition made by AO to book profit on account of disallowance under Section 14A of the Act – HELD – Claim of assessee is that there is no exempt income earned during the year – If there is no exempt income earned during the year, there cannot be any disallowance under Section 14A of the Act for impugned assessment year – Naturally, there is no adjustment required to book profit as such – Impugned disallowance is directed to be deleted. Issue 5: Payment of legal fees – Applicability of provisions – Whether CIT(A) has erred in confirming disallowance of legal and professional fees paid to Ernst & Young for services rendered in connection with providing assistance in relation to demerger of general entertainment channel business of assessee to Zee entertainment Enterprises Ltd. – HELD – Assessee has paid amount to E&Y for rendering services in connection with providing assistance in relation to demerger – AO applying the provisions of Section 35DD of the Act allowed 1/5th of such expenditure as deduction – According to provisions of Section 35DD of the Act, if assessee incurs any expenditure exclusively for purpose of demerger of an undertaking, assessee shall be allowed deduction of an amount equal to 1/5 of such expenditure for each of five successive previous years beginning with previous year in which demerger takes place – Lower authorities are correct in applying provisions of Section 35DD of the Act. Issue 6: Addition of differential amount – Whether CIT(A) has erred in upholding addition made by AO on account of mismatch between books of assessee as well as in information contained in form number 26AS – HELD – AO noted that there is a difference between receipt recorded in books of account and receipt disclosed in form number 26AS of assessee – AO issued notices to various parties – Many of parties did not respond – Outcome of this enquiry was made known to assessee, but no effort was made to reconcile amount – Issue restored back to file of AO by directing assessee to produce reconciliation of amount – One more opportunity is granted to assessee to explain difference with parties with which it has transacted – AO may examine submission of assessee and decide issue afresh. Issue 7: Content cost – Restriction of deduction – Whether CIT(A) has erred in restricting allowance of content cost to extent of 85% and in amortizing balance 15% over three equal instalments in immediately succeeding years – HELD – Revenue expenditure which is incurred wholly and exclusively for purpose of business must be allowed in its entirety in year in which it is incurred and it cannot be spread over a number of years even if assessee has written it off in his books over a period of years – Revenue expenditure incurred by assessee should be allowed in year in which those expenses are incurred – There cannot be any formula to allow expenditure in various years in equal instalments, because it does not have support of law – Direction of CIT(A) to consider 85% of amount as revenue expenditure and spread rest of amount over a period of three years in three equal instalments is without any logic and support of law – Issue restored back to file of AO to decide it afresh keeping in view the above findings.
Income Tax Act, 1961 – Section 68 – Receipt of advance – Addition as unexplained money – Appellant/assessee is a company engaged in business of earning commission on sale and purchase of property filed its return of income for AY 2014-15 – AO completed assessment under Section 143(3) of the Act by making certain additions to returned income – CIT(A) confirmed additions made by AO – Whether CIT(A) has erred in sustaining addition made by AO on account of alleged unexplained money received from investors/customers/creditors under Section 68 of the Act – HELD – Assessee received business advances from investors/customers/creditors – During assessment proceedings, addresses and confirmations of prospective customers were duly furnished by assessee – AO made impugned addition without conducting any enquiry or investigation – Assessee was not afforded fair, proper and meaningful opportunity of being heard – Additional evidence filed by assessee depicts that most of customers from whom advances were received during the year have been paid back – It would be just, fair and in interest of justice to send matter back to AO to examine additional evidence and make necessary investigation and verification thereof and decide issue afresh in light of his findings as a result of such verification/investigation – Appeal partly allowed. Issue 2: Addition of differential amount – Whether CIT(A) has erred in confirming addition made by AO on account of alleged difference in cash withdrawal from Kotak Mahindra Bank and cash in hand as per books of accounts under Section 68 of the Act – HELD – Factum of cash withdrawal from Bank has not been disputed by CIT(A) – Only objection of CIT(A) is that withdrawals are not made by assessee – Three persons have made withdrawals from Bank and not assessee – Assessee submitted that said three persons are employees of assessee company who withdrew money from bank on behalf of assessee – CIT(A)/AO could have examined said persons to ascertain veracity of assessee’s explanation, but this has not been done – It would be judiciously expedient to send back matter to AO for necessary verification and decision afresh in light of his verification – Matter restored to file of AO to decide it afresh after allowing adequate opportunity of being heard to assessee.
Income Tax Act, 1961 – Section 119 – Order of assessment – Validity – Assessee filed appeal against order of CIT(A) for Assessment Year 2018-19 – Whether CIT(A) has erred in sustaining order of assessment passed by AO without appreciating fact that assessment order passed by AO is null and void as it is in violation of CBDT Circular No.19/2019 requiring mandatory Document Identification Number (DIN) – HELD – Object behind bringing CBDT Circular No.19/2019 is for creating an audit trail – Paragraph 2 of Circular clearly mentioned that no communication shall be issued by any income tax authority relating to assessment, appeals, orders, etc. to assessee on or after 1-10-2019, unless a computer generated DIN has been allotted and is duly quoted in body of such communication – Paragraph 3 of Circular carves out certain exceptions to paragraph 2 by providing that under certain exceptional circumstances, communication may be issued manually but only after recording reasons in writing – Paragraph 4 of Circular provides that any communication which is not in conformity with paragraph 2 and 3 shall be treated as invalid – Circular issued under Section 119 of the Act has statutory force and binding on subordinate authorities working under Central Board of Direct Taxes – In body of AO’s order, no DIN is mentioned nor there is any reason of not mentioning DIN in order of AO – In such situation, AO order will lose its validity – Impugned AO order is invalid and shall be deemed to have never been passed – Impugned order passed by AO quashed – Appeal allowed
Income Tax Act, 1961 – Sections 194C, 194H and 201(1) – Bill discounting charges – Non-deduction of tax – Making of addition – Sustainability – Appellant/assessee is engaged in business of manufacturing of machined engine parts for Hero MotoCorp Ltd. – Department conducted inspection/survey at premises of assessee and noticed that assessee had not deducted TDS on bill discounting charges and freight charges – AO treated assessee as assessee-in-default under Section 201(1) of the Act and made additions on account of non-deduction of tax at source – CIT(A) upheld action of AO – Whether CIT(A) has erred in confirming demand raised on account of non-deduction of tax on bill discounting charges/factoring charges under Section 194H of the Act – HELD – For deducting tax in terms of Section 194H of the Act, income should be in nature of commission or brokerage – Assessee incurred bill discounting charges in order to receive/make immediate payment of a bill and no TDS was deducted on such bill discounting charges borne by assessee – Transaction of bill discounting charges was not between a Principal & Agent – Charges were paid as a consideration for immediate payment received/paid for an invoice whose realization was due after a certain period – Amount of bill discounting charges borne by assessee do not constitute commission – When charges in itself are not in nature of commission and more particularly when there is no principal & agent relationship, transaction falls out of ambit of Section 194H of the Act and no TDS is liable to be deducted – Addition made by AO and confirmed by CIT(A) on account of non-deduction of tax by holding that bill discounting charges are in nature of commission and liable for tax deduction under Section 194H of the Act is bad and liable to be deleted – Appeals allowed. Issue 2: Payment of freight charges – Tax deductibility – Whether CIT(A) has erred in confirming addition made by AO on account of non-deduction of tax on payment of freight charges under Section 194H of the Act – HELD – During year under consideration, assessee paid freight charges to three parties – All these three transporters owned not more than 10 goods carriages at any time during previous year – Declaration to this effect along with PAN of transporters was duly submitted by assessee before AO – Once assessee submits declaration to substantiate that transporters did not own more than 10 goods carriages, question of deductibility of tax under Section 194C of the Act does not arise – Addition made by AO and confirmed by CIT(A) on account of non-deduction of tax on freight charges is bad and liable to be deleted.