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2023 (12) TMI 231 - PUNJAB AND HARYANA HIGH COURT GST

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Issues involved:
The judgment involves the issues of correcting details in Form GSTR-1 for a specific period and the eligibility for refund under the Central GST Act, 2017.

Correction of Form GSTR-1:
The petitioner, a registered dealer in auto parts, sought a mandamus to correct details in Form GSTR-1 for December 2017. The petitioner faced difficulties in correcting the form due to errors in entering SEZ invoices, leading to a refund application issue. Despite approaching the GST Help Desk and relevant authorities, the petitioner was unable to rectify the form within the prescribed time limit. The respondent-department denied the correction citing a circular limiting corrections post the deadline of 31.03.2019. The High Court allowed the petitioner to re-submit the corrected Form GSTR-1 for the mentioned period, following precedents where similar permissions were granted.

Eligibility for Refund:
The petitioner made supplies to an SEZ unit and sought a refund as per zero-rated supply provisions under the Integrated GST Act, 2017. However, due to errors in Form GSTR-1 and the subsequent denial of correction, the petitioner's refund claim was affected. The respondent-department emphasized the importance of timely corrections and valid returns for processing refund claims. The High Court's decision to allow the correction of Form GSTR-1 aimed to address the technical grounds on which the refund application was initially dismissed. The judgment highlighted the petitioner's right to rectify errors under Section 37(3) of the Central GST Act, 2017, ensuring fair treatment in refund claims.

Conclusion:
The High Court allowed both petitions, directing the petitioner(s) to resubmit the corrected Form GSTR-1 for the specified period. The manual submission of applications and subsequent uploading of corrected details by the Department were mandated within four weeks. This decision aimed to uphold the petitioner's rights to correct errors in the form and facilitate the processing of refund claims under the Central GST Act, 2017.

Taxpayer allowed to correct December 2017 export supply details in Form GSTR-1 despite expired revision deadline
Punjab and Haryana HC allowed petition seeking correction of Form GSTR-1 for December 2017 export supply details. Following Madras HC precedent in Sun Dye Chem case, court found technical dismissal by department inappropriate. Despite revision deadline expiring on 31.03.2019, court permitted petitioner to re-submit corrected Form GSTR-1 within four weeks. Respondents directed to accept manual applications and upload corrected forms on web portal to enable refund processing under Central GST Act 2017.

Correction of GSTR-1 - furnishing outward supplies in Form GSTR-1 under Section 37 - refund of IGST on zero rated SEZ supplies - time limit for amendment of returns and CBIC circular - manual submission and departmental facilitation for portal upload Correction of GSTR-1 - time limit for amendment of returns and CBIC circular - manual submission and departmental facilitation for portal upload - Petitioner permitted to re-submit corrected Form GSTR-1 for December, 2017 and respondents directed to accept manual submission and upload the corrected details on the portal within four weeks. - HELD THAT: - The Court found that the petitioner was prevented from filing a refund claim because invoice details for supplies to an SEZ unit were entered in the wrong table in GSTR-1 and the portal rejected Statement-4 for refund with an error. Although the departmental circular set a deadline for corrections, the High Court relied on comparable High Court decisions permitting correction where technical or portal-related impediments prevented rectification within the prescribed period. Having regard to the assistance provided earlier by the GST Help Desk identifying the mis-entry and the petitioner's attempts to obtain remedy, the Court exercised its discretionary jurisdiction to permit re-submission of the corrected GSTR-1 for the stated period. The respondents were directed to receive the corrected application manually and facilitate uploading of corrected forms on the web portal, to enable processing of the refund claim, and the exercise was ordered to be completed within four weeks. [Paras 12, 13, 14] Writ petitions allowed; petitioners permitted to re-submit corrected GSTR-1 for December, 2017 and respondents directed to accept manual submissions and upload corrections on the portal within four weeks. Final Conclusion: Both petitions allowed; petitioners may re-submit corrected GSTR-1 for December, 2017 and the department shall receive manual applications and upload corrected details on the web portal within four weeks to enable refund processing.

2023 (12) TMI 60 - ITAT DELHI Income Tax

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ISSUES PRESENTED AND CONSIDERED

1. Whether the Assessing Officer validly assumed jurisdiction to reopen an assessment under section 147 read with the proviso to section 147 when the notice under section 148 was issued beyond four years from the end of the relevant assessment year.

2. Whether the reasons recorded for reopening disclosed failure by the taxpayer to make full and true disclosure of all material facts as required by the proviso to section 147.

3. Whether, having found jurisdictional infirmity in the reopening, it is necessary to adjudicate merits of the substantive addition sought to be made in reassessment.

ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Legal framework

Section 147/148 permit reopening of assessment where income has escaped assessment; where notice is issued after four years from the end of the relevant assessment year, the proviso to section 147 requires the Assessing Officer to record in the reasons that the assessee has failed to disclose fully and truly all material facts necessary for assessment.

Issue 1 - Precedent Treatment

The Tribunal followed the binding approach of high court authority holding that reasons for reopening must on their face disclose the alleged failure to disclose and cannot be supplemented by subsequent affidavit or oral submissions.

Issue 1 - Interpretation and reasoning

The reasons recorded by the Assessing Officer recited facts about purchases made on H-forms and an alleged inconsistency with manufacturing activities, and quantified the alleged excess deduction under section 10B, but contained no statement or finding that the assessee failed to disclose fully and truly all material facts. The notice under section 148 was issued beyond four years, engaging the proviso which mandates explicit recording of failure to disclose. The Tribunal held that reasons must manifest the Assessing Officer's mind and disclose the vital link between the alleged non-disclosure and the material relied upon; mere factual observations or change of opinion are insufficient.

Issue 1 - Ratio vs. Obiter

Ratio: Where a reopening is sought after the four-year period, the reasons must explicitly state and demonstrate failure to disclose fully and truly all material facts; absence of such a statement renders the assumption of jurisdiction invalid. This is treated as binding on the facts.

Issue 1 - Conclusion

The reopening was invalidly assumed and the notice under section 148 (and consequent reassessment) was quashed for want of compliance with the proviso to section 147.

Issue 2 - Legal framework

Principles require that reasons recorded for reopening must be clear, unambiguous, self-explanatory, based on available evidence, and should disclose which facts were not disclosed by the assessee; they cannot be supplemented later.

Issue 2 - Precedent Treatment

The Tribunal expressly followed the high court decision emphasizing that reasons are manifestation of the Assessing Officer's mind, must disclose the material omitted by the assessee, and cannot be supplemented by affidavit or oral submissions.

Issue 2 - Interpretation and reasoning

Examining the recorded reasons, the Tribunal found that they narrated purchases on H-form and asserted that manufacturing could not have been carried out given such purchases, thereby challenging the claim under section 10B. However, the reasons did not identify any particular material fact that the assessee had failed to disclose; they did not state that the assessee intentionally or otherwise withheld material facts nor did they indicate which disclosure was incomplete. The Tribunal applied the rule that the absence of an explicit finding of failure to disclose is fatal where the proviso applies.

Issue 2 - Ratio vs. Obiter

Ratio: Reasons that infer alleged tax escapement but omit to state that the assessee failed to make full and true disclosure (where the proviso applies) are legally defective; such deficiency cannot be cured post hoc. This constitutes the operative ratio on recorded-reason sufficiency.

Issue 2 - Conclusion

The recorded reasons failed to satisfy the statutory requirement of the proviso; they did not disclose failure by the assessee to make full and true disclosure of material facts, and therefore the reasons are legally inadequate to sustain reopening.

Issue 3 - Legal framework

When reopening is quashed for lack of jurisdiction or procedural fatality, adjudication on merits of additions in reassessment is unnecessary and may be left open to the revenue in a valid future action, subject to law.

Issue 3 - Precedent Treatment

The Tribunal followed the settled practice that once reopening is invalidated for want of jurisdictional compliance, substantive issues in the impugned reassessment need not be adjudicated in that proceeding.

Issue 3 - Interpretation and reasoning

Given that the reassessment itself was quashed for jurisdictional defect, any examination of the merits of the addition under section 10B would be academic in this proceeding. The Tribunal therefore refrained from deciding the substantive tax issue and left it open.

Issue 3 - Ratio vs. Obiter

Ratio: Quashing reassessment on jurisdictional grounds negates the need for adjudication on merits in that proceeding; merits may remain open for lawful future action. This is the operative conclusion applied.

Issue 3 - Conclusion

Substantive addition challenged by the revenue was not adjudicated because the reopening was quashed; the revenue's ground on merits was left open.

Assessment reopening beyond four years quashed due to inadequate reasons under section 147 proviso requirements
The ITAT Delhi quashed the reopening of assessment under section 147 where notice was issued beyond four years from the assessment year end. The tribunal held that the AO failed to establish that the assessee had not made full and true disclosure of material facts, which is mandatory when reopening beyond four years under the proviso to section 147. The reasons recorded by the AO were inadequate and did not specify which facts were not disclosed by the assessee. Following the precedent in Hindustan Lever Ltd case, the tribunal emphasized that reasons must be self-explanatory and establish a vital link between conclusion and evidence. The reopening was quashed in favor of the assessee.

Reopening of assessment under section 147 - proviso to section 147 - failure to disclose fully and truly - reasons recorded by Assessing Officer - quashing of reassessment for invalid assumption of jurisdictionReopening of assessment under section 147 - proviso to section 147 - failure to disclose fully and truly - reasons recorded by Assessing Officer - quashing of reassessment for invalid assumption of jurisdiction - Validity of the Assessing Officer's reopening of assessment under section 147 where notice was issued beyond four years without recording failure to disclose fully and truly all material facts - HELD THAT: - The original assessment for AY 2008-09 was completed under section 143(3). The notice under section 148 was issued more than four years after the end of the relevant assessment year, thereby invoking the proviso to section 147 which requires the Assessing Officer to record that the assessee failed to disclose fully and truly all material facts. The reasons recorded by the AO concern the nature of purchases (H-forms and penultimate sales) and the claim of deduction under section 10B, but do not state or identify any failure by the assessee to disclose material facts. Following the principle in Hindustan Lever Ltd v. R. B. Wadkar (268 ITR 332 (Bom)), reasons must disclose the AO's mind, be clear, based on evidence and indicate which facts were not disclosed fully and truly; they cannot be supplemented later. The recorded reasons here are silent on the required failure to disclose, and therefore the assumption of jurisdiction under section 147 is invalid. Because reopening is quashed for lack of jurisdictional compliance with the proviso, the Tribunal did not decide the revenue's substantive challenge to the allowance of deduction under section 10B and left those contentions open. [Paras 5, 6, 7]Reopening under section 147 quashed for failure to record the statutory finding of failure to disclose fully and truly all material facts; reassessment set aside and revenue's substantive grounds left open.Final Conclusion: Cross-objection of the assessee allowed; the reassessment for AY 2008-09 is quashed for invalid exercise of jurisdiction under section 147 and the revenue's appeal is dismissed, with merits of the addition left open for any future proceedings.

2023 (12) TMI 624 - ITAT PUNE Income Tax

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Issues Involved:
1. Whether the interest income earned from a sister concern should be treated as "Income from Other Sources" or "Business Income".
2. Whether the interest paid on bank loans can be set off against the interest income earned.

Summary:

Issue 1: Treatment of Interest Income
The primary issue was whether the interest income earned by the assessee from its sister concern should be treated as "Income from Other Sources" or "Business Income." The assessee argued that the interest income was earned from idle funds that were temporarily loaned to its sister concern, Pride Purple Infrastructure, and should therefore be considered as business income. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] disagreed, citing the Supreme Court decision in Tuticorin Alkali Chemicals and Fertilizers Ltd. Vs. CIT, which held that interest income from surplus funds should be taxed as "Income from Other Sources" unless it is a separate business activity.

The Tribunal, however, found that the facts of the case were distinguishable from the Tuticorin Alkali case. The assessee's business had already commenced, unlike in Tuticorin Alkali, where the business had not started. The Tribunal cited the Bombay High Court's decision in CIT Vs. Lok Holdings, which held that interest income earned from surplus funds temporarily invested could be considered as business income if it was linked to the business activities. The Tribunal concluded that the interest income earned by the assessee had a direct nexus to its business activities and should be treated as business income.

Issue 2: Set-off of Interest Paid Against Interest Income
The second issue was whether the interest paid on bank loans could be set off against the interest income earned. The AO and CIT(A) had rejected the assessee's claim for set-off, citing the Supreme Court decision in Tuticorin Alkali, which held that interest expenses on business loans could not be set off against interest income assessable under Section 56 of the Income Tax Act.

The Tribunal, however, found that there was a clear nexus between the interest paid and the interest earned. The assessee had borrowed funds from the State Bank of India for its business project and temporarily loaned these funds to its sister concern, earning interest. The Tribunal cited several judicial precedents, including the Delhi High Court's decision in PCIT Vs. Jubilant Energy NELP-V Pvt. Ltd., which allowed the set-off of interest paid against interest earned when there was a direct nexus between the two. The Tribunal concluded that only the net interest should be capitalized and directed the AO to delete the addition of Rs. 1,27,82,145/-.

Conclusion:
The Tribunal allowed the appeal of the assessee, directing the AO to treat the interest income as business income and to allow the set-off of interest paid against interest earned, thereby deleting the addition of Rs. 1,27,82,145/-. The judgment emphasized the importance of the nexus between interest paid and interest earned and the concept of real income.

ITAT allows netting of interest income against expenditure following real income concept and Delhi HC precedent
The ITAT Pune allowed the assessee's appeal regarding netting of interest income against interest expenditure. The tribunal established a direct nexus between interest earned from investments in sister concern and interest paid on borrowed funds. Applying the real income concept and following the Delhi HC precedent in Triumph Reality Pvt. Ltd., the tribunal ruled that only net interest should be capitalized rather than gross interest income being taxed separately. The AO was directed to delete the addition made to the assessee's income.

Interest income categorisation (business income v. income from other sources) - nexus between interest earned and interest paid - netting off of interest receipts and interest expenditure - capitalisation of net interest as work in progress under project completion methodInterest income categorisation (business income v. income from other sources) - capitalisation of net interest as work in progress under project completion method - Interest earned on funds deployed in a sister concern in the year under consideration is attributable to the assessee's business and not exigible as income from other sources - HELD THAT: - Tribunal found that the assessee was an existing real estate developer carrying on construction of the 'Park Ivory' project using the project completion method and had commenced business prior to the year. The factual matrix showed advances from customers, ongoing construction activity and that amounts were temporarily placed with the sister concern; accounting and bank records established a nexus between the borrowings/working capital facilities and amounts advanced to the sister concern. On these facts the Tribunal held Tuticorin Alkali ( relied upon by the Revenue) distinguishable and applied the principle that interest which is directly related to and arises in the course of a running business must be treated as business income. The Tribunal relied on and followed precedents recognising that where interest arises out of business funds temporarily deployed and is linked to the assessee's trading activity, such interest is not a mere income from other sources but is connected to business and may reduce the cost of work in progress. [Paras 11]Assessee's interest income is attributable to business and not taxable solely as income from other sources; Tuticorin Alkali is distinguishable on facts.Nexus between interest earned and interest paid - netting off of interest receipts and interest expenditure - Interest paid on borrowings may be set off/netted against interest earned where a direct nexus exists, and only the net amount is to be considered for capitalisation or taxation - HELD THAT: - Having found a direct nexus between the interest received on amounts advanced to the sister concern and the interest paid by the assessee on borrowings, the Tribunal invoked the concept of 'real income' and the established principle of netting off expenditure incurred in earning receipts. The Tribunal referred to Supreme Court and High Court authorities recognising netting where receipts and expenditure are intertwined and arise from the same transaction or business exigency, and held that once nexus is established only the net interest is relevant for tax and for capitalisation to work in progress. Applying these principles to the facts and documentary records (including bank statements and balance sheet entries), the Tribunal directed deletion of the addition made by the AO and allowed capitalization of net interest. [Paras 12, 14, 15, 18]Where nexus between interest earned and interest paid is established, netting off is permissible; the addition made by the AO is deleted and only net interest is to be capitalised.Final Conclusion: The Tribunal allowed the appeal, holding that the interest earned had direct nexus with the assessee's business and that interest paid could be netted against interest received; the addition made by the Assessing Officer was deleted and the appeal was allowed.

2023 (12) TMI 176 - CESTAT ALLAHABAD Service Tax

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CENVAT credit allowed for input services at direct shop under Rule 2(l) despite third-party ownership
CESTAT Allahabad allowed the appeal regarding CENVAT credit for input services under Rule 2(l) of CENVAT Credit Rules, 2004. The tribunal held that the direct shop in Kolkata constituted the place of removal since duty was paid on sale value from that location, regardless of shop ownership by a third party. The appellant was entitled to CENVAT credit for services including rent, repair and maintenance at the depot and direct shop, as these related to manufacture and clearance up to the place of removal. The tribunal set aside the demand for duty, interest and penalty, finding no justification for denying the credit claims.

Input service - place of removal - assessable value determined at the place of removal - storage up to the place of removal - Cenvat credit for services used in relation to clearance up to place of removalInput service - place of removal - assessable value determined at the place of removal - Cenvat credit for services used in relation to clearance up to place of removal - Eligibility of Cenvat credit of service tax paid on rent, repair and maintenance of a direct shop at Kolkata treated as place of removal for clearance of excisable goods for the period April, 2015 to March, 2016. - HELD THAT: - The Tribunal examined Rule 2(l) of the Cenvat Credit Rules, 2004 (definition of "input service") read with rule 2(qa) inserting the statutory definition of "place of removal", and Rule 7 of the Central Excise Valuation Rules, 2000. It held that where goods are sold from premises other than the factory gate (such as a depot or direct shop), the "place of removal" can be that premises and the assessable value is to be determined with reference to the price at which goods are sold from that place. The Board's circulars and Supreme Court precedents confirm that value and the question of point of sale determine place of removal and that post-removal expenses relevant to sale from the place of removal fall within valuation. Applying these principles, the Tribunal found that if the appellant paid duty on the value at which motorcycles were sold from the Kolkata direct shop, expenses incurred in running that shop (rent, repair and maintenance) are services used in relation to clearance up to the place of removal and are eligible as input service credit. The Tribunal further observed that the adjudicating authority and Commissioner (Appeals) failed to determine whether duty was in fact discharged on the sale value at the direct shop and that there was no justification to deny credit when the place of removal was the direct shop. Consequentially, the demand for duty, interest and penalty founded on denial of that credit was set aside. [Paras 4, 5]Cenvat credit of service tax on rent, repair and maintenance of the Kolkata direct shop is allowable as input service where the direct shop is the place of removal and duty is paid on the sale value from that shop; the demand, interest and penalty based on denial of such credit are set aside.Final Conclusion: Appeal allowed. The impugned order denying Cenvat credit in respect of services at the Kolkata direct shop is set aside; consequential demand, interest and penalty are also set aside for the period April, 2015 to March, 2016.

2023 (12) TMI 59 - ITAT JAIPUR Income Tax

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Tribunal Remands Case for Review on Trust Registration and Activity Genuineness, Ensures Fair Hearing Opportunity.
The Tribunal remanded the case back to the Ld. CIT (Exemption) for further review, directing the appellant to present relevant documents regarding registration under the Rajasthan Public Trust Act, 1959, and to address concerns about the genuineness and profitability of its activities. The Tribunal emphasized the importance of providing the appellant a fair opportunity to be heard, without making any judgment on the merits of the case. The appeal was allowed for statistical purposes, with the order pronounced in open court.

Registration under section 12AB - Eligibility for charitable registration - Genuineness of activities - Profitability and charitability - Commencement of activities - Remand for fresh consideration and opportunity to be heardRegistration under section 12AB - Non-registration with Rajasthan Public Trust Act, 1959 - Genuineness of activities - Commencement of activities - Profitability and charitability - Remand for fresh consideration and opportunity to be heard - Application for registration under section 12AB was restored to the file of the Ld. CIT (Exemption) for fresh adjudication with an opportunity to be heard. - HELD THAT: - The Tribunal noted that the applicant did not appear before it and had not filed written submissions, whereas the Ld. CIT (Exemption) had rejected the Form No.10AB application on the basis of material on record and for reasons including absence of registration under the Rajasthan Public Trust Act, alleged lack of genuineness, commencement issues and profitability. Observing that the applicant was not given adequate opportunity to contest the show cause and that the matter involves contested questions which the Bench did not wish to decide on merits, the Tribunal directed restoration of the matter to the Ld. CIT (Exemption) so that the applicant samiti may produce all relevant papers and be heard. The Tribunal clarified that its remand carries no expression on the merits, which the Ld. CIT (Exemption) is to decide independently in accordance with law. [Paras 2, 3]Matter restored to the file of the Ld. CIT (Exemption) for fresh consideration and to afford the applicant an opportunity of being heard.Final Conclusion: The appeal is allowed for statistical purposes and the order of the Ld. CIT (Exemption) rejecting registration under section 12AB is set aside only to the extent that the matter is restored to the Ld. CIT (Exemption) for fresh adjudication after affording the applicant samiti an opportunity to file relevant documents and be heard; no expression is made on the merits.

2023 (12) TMI 1 - CHHATTISGARH HIGH COURT Indian Laws

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Registered sale deed cannot be cancelled for cheque dishonour where later agreement seeks automatic cancellation.
A registered sale deed conveying immovable property cannot be cancelled merely because a later agreement provides for automatic cancellation on dishonour of a cheque for part of the consideration. Section 54 of the Transfer of Property Act treats a sale as a transfer of ownership for a price paid, promised, or partly paid and partly promised, and the registered conveyance remains effective unless set aside on recognised legal grounds. Non-payment or alleged non-receipt of the full consideration does not, by itself, justify cancellation of the registered instrument; the proper remedy lies elsewhere. The subsequent agreement clause could not override the registered sale deed.

Cancellation of registered sale deed for non-payment of consideration - Effect of a registered instrument vis-a -vis prior agreement - Section 54 Transfer of Property Act - definition of sale and requirement of registered instrument - Remedies for shortfall in consideration limited to recovery and criminal proceedings - Binding precedent between co equal Benches of the Supreme CourtCancellation of registered sale deed for non-payment of consideration - Effect of a registered instrument vis-a -vis prior agreement - Section 54 Transfer of Property Act - definition of sale and requirement of registered instrument - Remedies for shortfall in consideration limited to recovery and criminal proceedings - Whether the sale deed registered in favour of the defendants could be cancelled on the ground that a cheque given towards part consideration was subsequently dishonoured as per an agreement between the parties - HELD THAT: - The Court examined the registered sale deed (Ex.D/1) transferring ownership of the suit property and contrasted it with the prior/subsequent agreement relied upon by the plaintiff (Ex.P/3) which purportedly provided for automatic cancellation on dishonour of a cheque. Applying the definition of 'sale' in Section 54 of the Transfer of Property Act, 1882, the Court emphasised that a registered instrument transferring ownership cannot be negated by extraneous agreements which contradict the registered document. Reliance was placed on the Supreme Court precedent in Dahiben v. Arvindbhai Kalyanji Bhanusali that non payment of sale consideration by itself is not a ground to cancel a registered sale deed and that the remedy for non payment lies in recovery proceedings (and, where applicable, proceedings under the Negotiable Instruments Act) rather than annulling the sale. The High Court also addressed the question of conflicting Apex Court decisions, noting the principles on following co equal Benches, and held that the plea based on Ex.P/3 cannot override the registered sale deed. Consequently, the agreement provision for automatic cancellation on cheque dishonour could not be given effect to in the face of the registered sale deed transferring ownership. [Paras 10, 11, 12]The appellant's claim for cancellation of the registered sale deed on account of dishonour of the cheque is rejected; the registered sale deed stands and the appellant's remedy is limited to recovery/other proceedings.Final Conclusion: The appeal is dismissed; the impugned judgment and decree of the trial court are affirmed and the parties shall bear their own costs.

2023 (12) TMI 727 - GAUHATI HIGH COURT GST

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Issues: (i) Whether the respondent authorities had power to levy and collect cess under Section 21 of the Assam Agricultural Produce Market Act, 1972 after the Constitution (101st Amendment) Act, 2016 and the enactment of the GST laws; (ii) Whether the petitioners were entitled to refund or restitution of cess collected after the GST regime came into force.

Issue (i): Whether the respondent authorities had power to levy and collect cess under Section 21 of the Assam Agricultural Produce Market Act, 1972 after the Constitution (101st Amendment) Act, 2016 and the enactment of the GST laws.

Analysis: Cess levied under Section 21 was treated as a tax traceable to the State's taxing entries in the Seventh Schedule. After the 101st Amendment, Entry 52 of List II was omitted and Entry 54 was substituted, while Article 246A and the GST enactments created a comprehensive regime for taxation of intra-State supply of goods and services. The court also noted the notifications exempting services of Agriculture Produce Marketing Committees or Boards, reflecting that the earlier cess had been subsumed within the GST framework. Once that regime came into force, the statutory foundation for the impugned cess levy no longer survived.

Conclusion: The respondent authorities had no power to levy cess after the GST regime came into force, and the levy was unconstitutional and ultra vires.

Issue (ii): Whether the petitioners were entitled to refund or restitution of cess collected after the GST regime came into force.

Analysis: Refund was considered in the light of the doctrine of unjust enrichment and the principle that a refund claim succeeds only if the claimant shows that the burden was not passed on to others. The pleadings did not contain any assertion that the cess burden had not been passed on to customers. The court also noted the severe financial position of the respondent Board and declined to direct restitution from the Board or further recovery for that purpose.

Conclusion: The petitioners were not entitled to refund or restitution of the collected cess.

Final Conclusion: The levy of cess after the GST regime was held invalid, but no monetary restitution was ordered in favour of the petitioners, and the writ petitions were disposed of accordingly.

Ratio Decidendi: A cess that was a State tax under the pre-GST regime could not continue to be levied once the constitutional and statutory GST framework subsumed the field, but refund of illegally collected amounts is barred where the claimant fails to show that the burden was not passed on.

GST subsumes market cess levy and bars restitution absent proof that the tax burden was not passed on.
Cess under Section 21 of the Assam Agricultural Produce Market Act, 1972 could not continue after the 101st Constitutional Amendment and the GST framework had subsumed the field of State taxation of intra-State supply; the earlier statutory basis for the levy no longer survived, so the post-GST collection was ultra vires. Refund or restitution was nevertheless refused because the claim was tested against unjust enrichment, and the pleadings did not show that the cess burden had not been passed on to customers. The writ petitions were therefore disposed of without monetary restitution.

Power to levy cess - subsumption of State cess by Goods and Services Tax - ultra vires levy post-GST regime - effect of the Constitution (101st Amendment) and Article 246A - exemption notifications under GST - doctrine of unjust enrichment and refund - charging section as core of a taxing statutePower to levy cess - subsumption of State cess by Goods and Services Tax - effect of the Constitution (101st Amendment) and Article 246A - exemption notifications under GST - ultra vires levy post-GST regime - Respondent Board and Market Committees could not lawfully levy cess under Section 21 of the Assam Agricultural Produce Market Act, 1972 after the CGST Act, 2017 and AGST Act, 2017 came into force - HELD THAT: - Section 21 empowered Market Committees to levy cess traceable to Entries in List II (including Entry 52 and the pre-amendment Entry 54). The Constitution (101st Amendment) and insertion of Article 246A, together with the CGST and AGST enactments, subsumed State cesses insofar as they related to supply of goods and services. The State and Central notifications dated 28.06.2017 and 29.06.2017 exempted services by Agricultural Produce Marketing Committees/Boards (Sl. No.54, Heading 9986), demonstrating that the taxation field was occupied by GST. Once the charging power in List II was altered by the Amendment and GST statutes occupied the field, continued levy of cess under Section 21 amounted to an unconstitutional and ultra vires exercise of power. The Court therefore held that cess could not be lawfully levied by the Board/Market Committees after GST came into effect. [Paras 20, 22]Levy of cess under Section 21 after the CGST and AGST enactments was unconstitutional and ultra vires; the Respondent Board/Market Committees lacked authority to levy such cess for the period in question.Doctrine of unjust enrichment and refund - charging section as core of a taxing statute - exemption notifications under GST - Petitioners are not entitled to a refund or restitution of the cess collected from them during 01.07.2017 to 12.06.2020 - HELD THAT: - A claim for refund of tax illegally collected succeeds only if the claimant establishes that it has not passed on the burden to others. The writ petitions contained no averment that the petitioners had borne, and had not passed on, the burden of the cess collected. Applying the principles in Mafatlal and Swanstone (doctrine of unjust enrichment and restitution), the Court held that refund could not be granted to the petitioners in the absence of proof that they alone bore the burden. Independently, the Respondent Board ceased levy w.e.f. 12.06.2020 and placed on record acute financial distress and receipt of government grants; in the exercise of discretion and having regard to public interest and the Board's penurious state, the Court declined to direct restitution by the Board of amounts collected. [Paras 28, 31]No refund to the petitioners is ordered because they have not shown they did not pass on the cess; no direction for restitution by the Respondent Board is made in view of its financial position and public interest considerations.Final Conclusion: Writ petitions disposed. The Court held that cess levied under Section 21 of the Assam Agricultural Produce Market Act, 1972 after the CGST and AGST enactments was unconstitutional and ultra vires; however, no refund or restitution was ordered to the petitioners for amounts collected between 01.07.2017 and 12.06.2020 for the reasons stated.

2023 (12) TMI 398 - ITAT MUMBAI Income Tax

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Director's remuneration including salary and commission must be benchmarked as single aggregated transaction, not separately
ITAT Mumbai held that director's remuneration including salary and commission must be benchmarked as a single aggregated transaction rather than separately. The aggregate remuneration-to-profit ratio of 4.36% fell within the acceptable range of comparables, making the TPO's transfer pricing adjustment unjustified. Additionally, Industrial Promotion Subsidies received from state governments for setting up new units were held to be capital in nature, not revenue, following established precedents. The tribunal directed deletion of transfer pricing adjustments and allowed the assessee's appeal on both grounds.

Transfer pricing adjustment - specified domestic transaction - arm's length price - benchmarking of director's remuneration - aggregation of salary and commission - Transfer Pricing - TNMM - industrial promotion subsidy - capital versus revenue nature of subsidy - purpose test for subsidy characterisation - mercantile system of accountingTransfer pricing adjustment - specified domestic transaction - arm's length price - benchmarking of director's remuneration - aggregation of salary and commission - Transfer Pricing - TNMM - Director's remuneration (salary and commission) is to be aggregated and benchmarked as a single remuneration package for transfer pricing purposes; TP adjustment made by TPO in relation to director's commission deleted. - HELD THAT: - The Tribunal accepted that the method (TNMM), set of six comparables and the PLI (ratio of aggregate remuneration to profit before tax) were not in dispute. The directors' remuneration comprised closely related fixed and variable components approved by the Remuneration Committee and shareholders as a single package. The Companies Act, 2013 (Section 197) prescribes limits for overall director remuneration without carving out distinctions by nomenclature, and Income-tax Act's definition of 'salary' includes commission; accordingly salary and commission form part of the overall remuneration. Applying the aggregate approach, the ratio of aggregate remuneration to profit before tax fell within the permitted range and percentiles of the comparables, showing the transaction to be at arm's length. The TPO's exercise of benchmarking salary and commission separately was therefore unwarranted and the resultant adjustment was unjustified. The Tribunal deleted the impugned transfer pricing adjustment on merits and did not adjudicate the alternate legal plea regarding omission of clause (i) of section 92BA as it became academic. [Paras 6, 7, 8, 9]Transfer pricing adjustment in relation to director's commission upheld by TPO is deleted; aggregate benchmarking of salary and commission accepted and Ground No.1 allowed.Industrial promotion subsidy - capital versus revenue nature of subsidy - purpose test for subsidy characterisation - mercantile system of accounting - Industrial Promotion Subsidies received under State incentive schemes for setting up units were capital receipts and not taxable revenue receipts; reconciliation/quantification deficiencies did not alter character of subsidy. - HELD THAT: - Applying the settled Supreme Court principle that the character of a subsidy depends on the object and purpose for which it is granted, subsidies whose principal object is to promote industry, enable setting up or expansion of units or augment capital base are capital in nature. The Tribunal followed its prior decisions in the assessee's own appeals and coordinate Bench decisions considering the respective State schemes (Maharashtra, Madhya Pradesh and Assam) which held similar incentives given to induce establishment/expansion of units in backward areas to be capital receipts. The assessee's reconciliations showed that subsidy was recognised on a mercantile basis and any later adjustments related only to quantification; Revenue could not point to infirmity in reconciliation that would change the character of the receipts. On these bases the Tribunal held the subsidies to be capital in nature and allowed the ground. [Paras 15, 16, 17, 18, 19]IPS subsidies received under the State industrial schemes are capital receipts and Ground No.2 is allowed.Final Conclusion: The appeal is partly allowed: the transfer pricing adjustment in respect of director's commission is deleted after holding that salary and commission must be aggregated for benchmarking; the Industrial Promotion Subsidies from State incentive schemes are held to be capital receipts and not taxable, and the appeal is allowed on that ground as well.

2023 (12) TMI 330 - ITAT RAJKOT Income Tax

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Assessment reopening under Section 147 quashed for borrowed belief without independent verification by AO
ITAT Rajkot held that reopening of assessment under Section 147 was invalid due to borrowed belief. AO relied solely on information from DCIT regarding alleged accommodation entry without independent verification or inquiry. AO failed to independently apply mind to determine if amounts were actually received by assessee or manner of receipt. The belief of income escapement was borrowed rather than AO's own independent assessment. Jurisdiction under Section 147 was deemed invalid without proper independent application of mind. Assessment reopening was quashed in favor of assessee.

Reopening of assessment - reason to believe - borrowed belief - jurisdiction to reopen under Section 147 of the Income tax Act, 1961 - verification of information before recording beliefReopening of assessment - reason to believe - borrowed belief - jurisdiction to reopen under Section 147 of the Income tax Act, 1961 - verification of information before recording belief - Validity of the assessment framed under Section 147 of the Act based on reasons recorded by the Assessing Officer. - HELD THAT: - The Tribunal examined the reasons recorded for reopening and found that at the time the Assessing Officer recorded his belief (23.03.2018) he only had information supplied by the DCIT, Central Circle 1, Rajkot that the assessee had received amounts by way of cheque/DD from M/s. National Shroff & Co. The detailed break up of those payments was obtained by the Assessing Officer only later (by notices under Section 133(6) in September 2018) and no contemporaneous verification from the assessee's records or inquiry was made prior to recording the reasons. The Tribunal held that the Assessing Officer's belief therefore rested on a borrowed belief supplied by another office and not on his own independent satisfaction; reliance solely on such borrowed information without independent verification is insufficient to assume jurisdiction to reopen assessments under Section 147. The Tribunal applied settled precedent that the belief of escapement must be that of the Assessing Officer himself and cannot be based on unverified information furnished by another authority, and concluded that the jurisdictional requirement for reopening was not fulfilled. [Paras 10, 11, 12]The assessment framed under Section 147 is invalid as the Assessing Officer's belief was a borrowed belief and therefore jurisdiction to reopen was not established; the assessment is quashed.Final Conclusion: The appeal is allowed: assessment framed under Section 147 for AY 2011 12 is quashed for want of jurisdiction because the Assessing Officer's reason to believe was based on a borrowed, unverified belief rather than his own independent satisfaction.

2023 (12) TMI 136 - ITAT KOLKATA Income Tax

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Tribunal Overturns Profit Addition, Accepts 2.5% Net Profit Rate Based on Audited Accounts for AY 2018-19.
The Tribunal allowed the appeal, overturning the Assessing Officer's addition of Rs. 85,59,348 to the assessee's income for AY 2018-19. It determined that the 8% profit estimation was unwarranted, as the assessee maintained duly audited books of accounts. The Tribunal directed acceptance of the 2.5% net profit rate declared by the assessee, emphasizing the importance of considering audited financial statements and proper scrutiny in profit estimation, especially when Section 44AD does not apply due to turnover exceeding Rs. 2 Crore.

Presumptive taxation under Section 44AD of the Income-tax Act - acceptance of audited books of account - estimation of profits on account of non maintenance of accounts - limited scrutiny versus complete scrutiny - estimation of income by assessing officerPresumptive taxation under Section 44AD of the Income-tax Act - acceptance of audited books of account - estimation of profits on account of non maintenance of accounts - limited scrutiny versus complete scrutiny - Whether the assessing officer was justified in applying the presumptive provisions and estimating net profit at 8% despite the assessee having audited books showing net profit at 2.5%, and whether the book results ought to be accepted. - HELD THAT: - The Tribunal observed that Section 44AD applies only to an eligible assessee whose total turnover in the previous year does not exceed Rs. 2 crore and therefore could not be invoked where the assessee's turnover was approximately Rs. 14.28 crore. The return, although mistakenly ticking the 'no account case' column, concurrently disclosed that books were regularly audited and furnished the tax audit report under Section 44AB with the audit report date and auditor details uploaded on the income tax portal. The assessing officer, having accepted the explanation for large cash deposits and not disputed the audited book results, should have examined the tax audit report and, if required, converted the limited scrutiny into complete scrutiny to verify accounts before resorting to estimation. Since the AO did not dispute the audited financial statements and merely applied presumptive estimation based on the inadvertent tick, the Tribunal found no justification for estimating profit at 8% and held that the book results showing net profit at 2.5% should have been accepted. [Paras 7, 8, 9]The application of Section 44AD was incorrect; the audited books and reported net profit of 2.5% are to be accepted and the addition by estimating profits at 8% is deleted.Final Conclusion: The appeal is allowed; the addition made by estimating net profit at 8% is deleted and the assessee's audited book results for AY 2018-19 showing net profit at 2.5% are accepted.

2023 (12) TMI 397 - ITAT RAJKOT Income Tax

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Issues involved:
The judgment deals with the issue of addition of agricultural income as unexplained cash credit under section 68 of the Income Tax Act, 1961.

Issue 1 - Addition of Agricultural Income:
The appellant contested the addition of Rs. 14,32,782 as unexplained cash credit under section 68 of the Income Tax Act. The Assessing Officer had treated 50% of the agricultural income as unaccounted, leading to the addition. The appellant argued that the agricultural income was earned legitimately through cultivation on his own land and leased land, supported by agreements with landowners. The appellant highlighted the lack of additional evidence like bills and vouchers as the reason for the AO's disbelief. The ITAT upheld the addition, stating that 50% of the agricultural income was considered genuine, while the remaining amount was treated as unaccounted income. The ITAT found the AO's actions reasonable, emphasizing the importance of producing all relevant details and evidence during assessment.

Issue 2 - Legal Grounds for Appeal:
The appellant raised several grounds of appeal, challenging the decision of the Commissioner of Income Tax (Appeals) to uphold the addition of agricultural income as unexplained cash credit under section 68 of the Income Tax Act. The appellant argued that the decision was arbitrary, legally unsound, and unjust. The appellant also sought to introduce additional grounds during the appeal hearing.

Judicial Analysis and Decision:
Upon thorough consideration of the submissions, evidence, and relevant case laws, the ITAT found that the Assessing Officer's application of section 68 to the agricultural income was legally incorrect. The ITAT noted that bank passbook entries could not be treated as unexplained cash credits under section 68, as the bank account was not part of the assessee's books of accounts. Citing precedents from various High Courts, the ITAT concluded that the additions made by the Lower Authorities were unwarranted. The ITAT ruled in favor of the appellant, allowing the appeal and directing the deletion of the addition to the agricultural income.

Conclusion:
The ITAT ruled in favor of the appellant, holding that the addition of agricultural income as unexplained cash credit under section 68 was legally unfounded. The ITAT emphasized the importance of considering bank passbook entries and maintaining proper books of accounts in such cases. The appeal was allowed, and the addition was ordered to be deleted.

Agricultural income cannot be treated as unexplained cash credit under Section 68 r.w.s. 115BBE
The ITAT Rajkot held that agricultural income cannot be treated as unexplained cash credit under Section 68 r.w.s. 115BBE. The assessee showed gross total income of Rs. 340 and agricultural income of Rs. 28,65,563. The Assessing Officer treated 50% of agricultural income as unexplained, but the Tribunal found this legally incorrect. Following coordinate bench precedents and Bombay HC ruling in CIT v Bhaichand N. Gandhi, bank passbook entries cannot constitute unexplained cash credits as they are not part of assessee's books of accounts. The addition was deleted.

2023 (12) TMI 271 - ITAT BANGALORE Income Tax

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Co-operative society denied Section 80P deduction on interest income from banks but allowed cost deduction under Section 57
The ITAT Bangalore denied deduction under Section 80P(2)(a)(i)/80P(2)(d) on interest income from co-operative banks, following Karnataka HC precedent in Totgars Co-operative Sales Society case. The tribunal held that interest income from investments in co-operative banks remains "income from other sources" regardless of investment type, and only operational income qualifies for Section 80P deduction. However, the tribunal accepted the alternative argument that cost of funds should be allowed as deduction under Section 57. The case was remanded to the Assessing Officer to examine expenditure incurred for earning interest income and allow such costs as deductions.

Deduction under Section 80P(2)(a)(i)/80P(2)(d) - Character of interest income (business income vis-a -vis income from other sources) - Exclusion of co-operative banks under Section 80P(4) and legislative intent - Allowability of expenditure (cost of funds) under Section 57 for income from other sourcesDeduction under Section 80P(2)(a)(i)/80P(2)(d) - Character of interest income (business income vis-a -vis income from other sources) - Exclusion of co-operative banks under Section 80P(4) and legislative intent - Claim for deduction under Section 80P(2)(a)(i)/80P(2)(d) in respect of interest earned on deposits with co operative banks denied. - HELD THAT: - Following the binding reasoning of the jurisdictional High Court in Totgar's Co operative Sale Society and subsequent High Court decisions, the Tribunal held that interest earned on deposits/investments of idle or surplus funds does not alter its character merely because it is earned from a co operative bank. The character of such interest remains income from other sources and is not business/operational income falling within the clauses of Section 80P(2). Section 80P(4)'s exclusion of co operative banks (except primary agricultural credit societies) and subsequent legislative indicators reinforce that interest from co operative banks is not within the exemption contemplated by Section 80P(2)(d) in the facts of this case. In consequence, the assessee's claim for deduction under Section 80P in respect of interest on fixed deposits with co operative banks is rejected and the assessment treating such receipts as income from other sources is upheld. [Paras 5, 6]Assessee's claim for deduction under Section 80P(2)(a)(i)/80P(2)(d) on interest from co operative bank deposits disallowed; appeals on this ground dismissed (partly allowed for statistical purposes where alternative relief granted).Allowability of expenditure (cost of funds) under Section 57 for income from other sources - Netting principle - only net income taxable - Whether expenditure/cost of funds incurred to earn the interest income assessable as income from other sources is allowable. - HELD THAT: - Recognising that the entire interest was treated as income from other sources, the Tribunal applied the principle that only net income is taxable and directed that the Assessing Officer examine whether the assessee incurred any expenditure in earning such interest. If expenditure relevant to earning that income is shown and substantiated, it is to be allowed under Section 57. The matter is therefore restored to the Assessing Officer for verification and decision on allowable expenditure, with directions to the assessee to furnish supporting evidence. [Paras 6, 8]Matter remitted to Assessing Officer to determine and allow, if proved, expenditure (cost of funds) deductible under Section 57 against interest income assessed as income from other sources.Disallowance of provisions (income tax reserve and general reserve) and consequence for business profit - Application of Circular No. 37/2016 where provisions are transferred out of business profits - Validity of disallowance of provisions made by the assessee (income tax reserve and general reserve) and whether such provisions represent transfer out of business profits entitling relief under the published circular. - HELD THAT: - The Tribunal observed that the disallowances pertain to enhancement of business profit and, in absence of final determination, remitted the issue to the Assessing Officer to decide whether the provisions were transferred out of business profits. If the AO finds that the provisions were so transferred, the assessee is to be considered for the benefit of Circular No. 37/2016 dated 2 11 2016. The Assessing Officer is directed to afford the assessee a reasonable opportunity and for the assessee to substantiate the claim with documents. [Paras 9]Issue remitted to Assessing Officer for fresh decision on whether the provisions were transferred out of business profits and, if so, to apply Circular No. 37/2016; assessee to substantiate with documents.Final Conclusion: Following the jurisdictional High Court's interpretation, deduction under Section 80P for interest on deposits with co operative banks is disallowed for the stated assessment years; the Tribunal, however, has remitted the appeals to the Assessing Officer to examine and allow, if substantiated, the cost of funds as deductible under Section 57 and to determine the correctness of disallowances of specified provisions, directing appropriate opportunity and verification.

2023 (12) TMI 270 - ITAT BANGALORE Income Tax

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Issues Involved:

1. Disallowance of foreign exchange loss under Section 43A of the Income Tax Act.
2. Disallowance under Section 14A read with Rule 8D.

Summary:

1. Disallowance of Foreign Exchange Loss under Section 43A:

The assessee contended that the foreign exchange loss of Rs. 48,23,924 incurred due to advance settlement of payment by letter of credit before receipt of fixed assets should not be disallowed under Section 43A. The assessee argued that the loss had no direct nexus with the acquisition of fixed assets and should be treated as revenue expenditure. The Assessing Officer (AO) and CIT(A) treated the loss as capital in nature, relying on judgments from the Supreme Court in cases like Woodward Governor Ltd., Tata Locomotive and Engineering Co. Ltd., and Sutlej Cotton Mills Pvt. Ltd. The Tribunal upheld the CIT(A)'s decision, stating that the loss suffered was directly linked to the purchase of fixed assets, which is capital in nature. The AO was directed to give the benefit of depreciation as per Section 32 of the IT Act.

2. Disallowance under Section 14A read with Rule 8D:

The assessee challenged the disallowance of Rs. 4,69,055 under Section 14A, arguing that only investments yielding exempt income should be considered for disallowance under Rule 8D(2)(iii). The CIT(A) had restricted the disallowance to Rs. 4,69,055 but did not fully consider the issue as per Rule 8D(2)(iii). The Tribunal, following the Delhi High Court's judgment in ACB India Ltd. v. ACIT, held that only investments that generated exempt income should be considered for disallowance under Section 14A. The Tribunal deleted the disallowance made under Section 14A, amounting to Rs. 4,69,055, and allowed the appeal for statistical purposes.

Conclusion:

The appeal filed by the assessee was allowed for statistical purposes, with directions to the AO to give the benefit of depreciation for the foreign exchange loss and to reconsider the disallowance under Section 14A by considering only investments that generated exempt income.

Foreign exchange loss on Letter of Credit for fixed asset purchase treated as capital expenditure, depreciation benefit allowed under section 32
The ITAT Bangalore upheld CIT(A)'s decision treating foreign exchange loss on Letter of Credit for fixed asset purchase as capital expenditure, not revenue. The tribunal ruled that forex loss directly linked to capital asset acquisition is capital in nature and cannot be charged to profit and loss account, following SC precedent in Tata Locomotive case. However, AO was directed to allow depreciation benefit under section 32. Regarding section 14A disallowance, the tribunal partially allowed the appeal, directing that only investments yielding exempt income should be considered for disallowance calculation under Rule 8D(2)(iii), not all investments.

Section 43A - treatment of foreign exchange loss on acquisition of capital asset - capital versus revenue characterisation of foreign exchange gain/loss on payments connected with purchase of fixed assets - Section 14A read with Rule 8D - calculation to be confined to investments yielding exempt income - prospective operation of Explanation to Section 14A (Finance Act, 2022)Section 43A - treatment of foreign exchange loss on acquisition of capital asset - capital versus revenue characterisation of foreign exchange gain/loss on payments connected with purchase of fixed assets - Whether the foreign exchange loss on advance payments made through Letter of Credit in connection with purchase of fixed assets is chargeable to profit and loss account or should be adjusted to the cost of the capital asset under Section 43A. - HELD THAT: - The Tribunal upheld the view that the foreign exchange loss incurred in arranging payments by Letter of Credit in relation to purchase of fixed assets is directly linked to the acquisition process and is capital in nature. Relying on earlier Supreme Court authorities cited by the lower authorities, the Tribunal accepted that forex gain/loss arising in the course of securing payment for capital asset acquisition is not chargeable to the profit and loss account but is to be treated in relation to the capital asset. The assessing officer is directed to allow consequential benefit of depreciation under section 32 in the current and, if affected, subsequent years. The issue is therefore decided in favour of the revenue on the question of characterisation, with consequential relief on depreciation to the assessee. [Paras 10]Foreign exchange loss on LC-advanced payments towards purchase of fixed assets is capital in nature and not allowable as revenue deduction; AO to give depreciation benefit as applicable; issue partly allowed for statistical purposes.Section 14A read with Rule 8D - calculation to be confined to investments yielding exempt income - prospective operation of Explanation to Section 14A (Finance Act, 2022) - Whether disallowance under Section 14A read with Rule 8D should be computed by reference to total investments or only to investments which actually yielded exempt income, and whether the Explanation inserted by Finance Act, 2022 applies to the assessment year under consideration. - HELD THAT: - The Tribunal found that disallowance under Section 14A/Rule 8D must be computed by considering only those investments which have generated exempt income, following the coordinate bench decision in the assessee's own case and authority of the Delhi High Court (as applied by that bench). The Tribunal noted that the Explanation to Section 14A inserted by Finance Act, 2022 has been held to be prospective and thus does not affect the assessment year 2012-13. Applying the correct approach under Rule 8D(2)(iii), the Tribunal deleted the disallowance made by the assessing officer. The issue is therefore decided in favour of the assessee and the addition is deleted. [Paras 11, 12]Disallowance under Section 14A/Rule 8D deleted by confining computation to investments yielding exempt income; Explanation to Section 14A (Finance Act 2022) held prospective and not applicable to 2012-13.Final Conclusion: The appeal is allowed for statistical purposes: the disallowance under Section 14A/Rule 8D is deleted as it must be computed only with reference to investments yielding exempt income, and the foreign exchange loss on LC-advance payments is held capital in nature (not chargeable to P&L) while directing the AO to grant depreciation benefits as applicable.

2023 (12) TMI 269 - ITAT COCHIN Income Tax

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Issues: (i) whether additions in section 153A proceedings could be sustained only to the extent supported by incriminating material and the date-wise cash flow explanation; (ii) whether sale proceeds and agricultural income relating to land held in the names of the assessee's wife and brother, and the related cash shortfall, were to be included in the assessee's hands; (iii) whether sale of land with a building/shed was to be treated as transfer of agricultural land or of a house property with appurtenant land; (iv) whether the investment in Pala land was correctly valued for purposes of unexplained investment; (v) whether income from cardamom and latex and receipt from scrap were to be assessed as explained or taxable in part.

Issue (i): whether additions in section 153A proceedings could be sustained only to the extent supported by incriminating material and the date-wise cash flow explanation.

Analysis: In search assessments, completed and unabated assessments survive only where incriminating material is found. A cash flow statement used to explain investment must be date-wise and must separately track cash and bank movements so that availability of funds on the relevant date can be tested. Where a receipt is not accepted, it has to be excluded from the cash flow for that year and only the resulting balance, if any, can be carried forward. A negative balance, by itself, does not justify an addition for another year in the absence of material for that year.

Conclusion: The additions were not to be mechanically sustained across years and had to be reworked year-wise on the basis of incriminating material and a proper date-wise cash flow.

Issue (ii): whether sale proceeds and agricultural income relating to land held in the names of the assessee's wife and brother, and the related cash shortfall, were to be included in the assessee's hands.

Analysis: The sale proceeds of land standing in the wife's name were accepted as available to the assessee, as the wife had no independent source and the funds were controlled within the family banking pattern. By contrast, the brother's claim was not proved: the alleged agreement lacked reliable proof, the funds were not linked to the assessee's account, and the asserted benami arrangement was not established. As to agricultural income, the assessee failed to produce credible, contemporaneous evidence showing production, storage, processing, and actual sale in a manner consistent with the landholding. In the absence of reliable proof, the income was required to be estimated on accepted norms for cardamom cultivation and the excess, if any, treated according to the source attribution accepted in law.

Conclusion: Relief was granted only in respect of the wife's land-related receipts, while the brother-related claim was rejected and the agricultural income was directed to be determined on an estimated basis.

Issue (iii): whether sale of land with a building/shed was to be treated as transfer of agricultural land or of a house property with appurtenant land.

Analysis: The character of the transferred property depended on the actual nature and use of the asset. The assessee did not establish that the building was merely incidental to agricultural use. The sale deed described a property consisting of a building and appurtenant land, and the consideration pattern suggested that the land was not being sold as pure agricultural land in the statutory sense. Separate valuation of the building and land did not alter the substance of the transaction on the facts proved.

Conclusion: The addition relating to this transfer was upheld and the claim that it was a sale of agricultural land was rejected.

Issue (iv): whether the investment in Pala land was correctly valued for purposes of unexplained investment.

Analysis: The seized agreement fixed the consideration for the entire property and was corroborated by subsequent conduct, including advance payment and registered conveyances. No material was produced to show that the assessee's share was lower than the prorated rate adopted by the Assessing Officer. The statutory presumption attached to the seized document and the assessee failed to dislodge it.

Conclusion: The shortfall was validly brought to tax as unexplained investment, subject to the common directions on recomputation of the cash flow.

Issue (v): whether income from cardamom and latex and receipt from scrap were to be assessed as explained or taxable in part.

Analysis: Cardamom receipts were not proved by reliable contemporaneous accounts and, where supported only by sale bills without proof of cultivation capacity and matching landholding, required estimation by accepted agricultural norms. Latex sale was not governed by the rule applicable to manufacture of rubber and, on the facts, was to be treated as agricultural income to the extent proved, with the assessee bearing the burden of production. Scrap sale was treated as capital in nature, but taxability depended on the written down value of the relevant block of assets, which the assessee did not establish.

Conclusion: The cardamom-related additions were sustained subject to estimation and recomputation, the latex issue was allowed conditionally on proof, and the scrap receipt was taxable to the extent it exceeded the written down value of the block.

Final Conclusion: The Tribunal substantially sustained the Revenue's additions but granted limited relief on the wife-related receipts and remitted the matters for year-wise recomputation of the cash flow and consequential additions.

Ratio Decidendi: In search assessments under section 153A, additions must rest on incriminating material and a properly sequenced cash flow analysis, and claims of ownership, agricultural income, or source of funds must be proved by credible, contemporaneous evidence rather than by uncorroborated assertions or post facto explanations.

Search assessment additions need incriminating material, date-wise cash flow, and credible proof of land-related income and investment.
In search assessments, additions under section 153A must be supported by incriminating material and a proper date-wise cash flow, so year-wise recomputation is required rather than mechanical carry-forward of balances. Claims that land sale proceeds or agricultural income belonged to the assessee must be proved by credible contemporaneous evidence; receipts linked to the wife's land were accepted, but the brother-related claim was rejected and agricultural income was to be estimated on accepted cultivation norms. Transfer of land with a building/shed was treated on the proved character of the asset, not as pure agricultural land. Seized agreements and corroborating conduct sustained the valuation of Pala land and unexplained investment, while cardamom, latex and scrap receipts were taxable or adjusted according to proof and written down value.

Validity of assessment under section 153A where incriminating material is found in search - explanation of investments by a consolidated cash flow statement and requirement of date-wise cash bank segregation - inclusion of spouse's agricultural receipts in assessee's hands and application of section 64 - treatment of unexplained investment and deposits as income - applicability of section 69B - determination of agricultural income for rate purposes by adoption of normative/board or bank estimates - characterisation of sale as agricultural land versus house property and relevance of section 2(1A) and section 10(37) - taxability of receipts on sale of capital assets and adjustment against written down value of block of assetsValidity of assessment under section 153A where incriminating material is found in search - Survival and scope of assessments completed under section 153A where incriminating material was found in search - HELD THAT: - The Tribunal held that assessments under section 153A survive only to the extent incriminating material for particular years is found and seized during the search; incriminating material relating to investment in immovable property, bank deposits, repayments, etc., can justify opening or continuing assessments under section 153A. Receipts which the Revenue does not admit for a year must be excluded from that year's cash flow and closing cash carried forward; negative cash balance in a year, in absence of incriminating material for that year, cannot be taxed under section 153A but may be examined in regular or section 147 assessments. The AO is directed to verify and rework date wise cash flows, considering all bank accounts, and to re-compute additions only to the extent supported by incriminating material found in search.Assessments under section 153A are sustained only insofar as incriminating material relating to the respective years was found; matters remitted to AO to rework cash flows and additions within that scope.Explanation of investments by a consolidated cash flow statement and requirement of date-wise cash bank segregation - Adequacy of the assessee's consolidated cash flow statement (CFS) as explanation for investments and the form in which it must be furnished - HELD THAT: - The Tribunal found the submitted CFS deficient because it was not prepared date wise and combined cash and bank components without necessary segregation, thereby failing to establish availability of funds at specific times. The assessee was directed to prepare a date wise cash book/bank book style statement segregating cash and bank transactions, with documented evidence or reasonable monthly estimates for undocumented personal expenses and agricultural receipts tied to harvest periods; only such a working CFS could be examined and, where particular sources are rejected, the resultant cash deficit alone can be added for the relevant year.CFS as submitted rejected in part; assessee to furnish date wise segregated cash and bank workings and supporting details so AO can rework additions.Inclusion of spouse's agricultural receipts in assessee's hands and application of section 64 - Whether sale proceeds and agricultural income attributable to the assessee's wife can be treated as the assessee's source of funds and included under section 64 - HELD THAT: - On the facts, the Tribunal accepted that sale proceeds of land held in the wife's name could be regarded as available to the assessee where he managed the funds and there was no independent source of income for the wife; consequently such receipts could be treated as the assessee's for source of funds purposes and, where applicable, included in his income for rate purposes under section 64. However, the claim qua the brother's land was rejected for lack of corroboration and on public policy/benami considerations. The AO's computation was to be adjusted to reflect acceptance qua the wife and rejection qua the brother, with corresponding adjustments to bank balances.Sale proceeds and agricultural income of the wife accepted as available to the assessee and assessable accordingly; the brother's transactions are not attributable to the assessee and are disallowed.Determination of agricultural income for rate purposes by adoption of normative/board or bank estimates - Method for determining agricultural income where assessee fails to substantiate claimed receipts from cardamom sales - HELD THAT: - Because the assessee failed to maintain credible contemporaneous accounts, production infrastructure evidence, or consistent sale documentation tied to landholdings, the Tribunal directed that agricultural income be adopted on the basis of estimates provided by the State Agricultural Board/University or norms used by banks for granting agricultural loans for cardamom for the relevant land category and harvest periods; where the assessee is assessed under state agricultural law, returns or assessments thereunder can be adopted for rate purposes. Any excess ascribed to the brother (unproved) will be treated as unexplained and taxed accordingly.Claimed agricultural receipts accepted only to the extent supported by normative/official estimates or state returns; unsubstantiated amounts to be taxed as unexplained income.Treatment of unexplained investment and deposits as income - applicability of section 69B - Taxability of shortfall in recorded investment in Pala land and applicability of section 69B - HELD THAT: - An agreement for purchase of Pala land, seized in search and corroborated by a co buyer's statement, attracted the statutory presumption and showed the gross consideration; the assessee admitted investment but failed to prove his share at a value lower than the average rate applied by the AO. The Tribunal upheld the AO's pro rata valuation and sustained the addition of the shortfall as unexplained investment under section 69B.Addition under section 69B for unexplained investment in Pala land sustained; AO's valuation by average rate upheld.Characterisation of sale as agricultural land versus house property and relevance of section 2(1A) and section 10(37) - Whether the sale of 1.74 acres (with building/shed) constituted transfer of agricultural land exempt under sections 2(1A)/10(37) or transfer of house property - HELD THAT: - The question was factual: whether the immovable constituted agricultural land or house property with appurtenant land. The assessee failed to produce evidence to show the building was an out house used in agriculture (e.g., smoke house) or that the property was otherwise agricultural; the sale consideration and comparative rates suggested a premium consistent with house property. The Tribunal found no basis to interfere with the CIT(A)'s conclusion treating the transaction as not wholly agricultural land and upheld the addition.Transaction treated as sale of house property with appurtenant land rather than purely agricultural land; exemption under section 10(37) not available.Taxability of receipts on sale of capital assets and adjustment against written down value of block of assets - Treatment of receipt from sale of scrap of firm assets and whether reduction should be against block WDV regardless of prior depreciation claim - HELD THAT: - The Tribunal accepted in principle that the receipt was a capital receipt and not income under section 56(1) if matched against the relevant block of assets. The CIT(A)'s direction that the amount be reduced from the block's WDV was correct; the permissible reduction is limited to the extent of the written down value of the relevant block(s). The assessee bears onus of proving the WDV; any excess realisation over WDV is taxable under section 50 as capital gain.Receipt to be adjusted against WDV of relevant block(s); excess, if any, taxable as capital gain-assessee to show WDV for computation.Final Conclusion: The appeals are partly allowed: several additions and explanations were modified in part and matters remitted to the Assessing Officer for reworking date wise cash flows, verifying bank accounts and sources, adopting normative estimates for agricultural income where appropriate, and recomputing additions consistent with this order. The assessee(s) must furnish required details and cooperate; adverse inferences may follow non cooperation.

2023 (12) TMI 208 - ITAT DELHI Income Tax

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Section 50C doesn't apply to leasehold rights transfer; long-term capital gains with indexation allowed
The ITAT Delhi held that Section 50C does not apply to transfer of leasehold rights in land and buildings, following Green Hotels precedent. The tribunal accepted sale consideration of Rs. 75 lakhs for leasehold transfer. Land held for over three years qualified for long-term capital gains with indexation benefits, while building depreciation was governed by Section 50. The tribunal allowed cost of construction claims supported by financial statements and permitted business expense deductions, ruling that absence of transactions in one year doesn't establish business abandonment per Mokul Finance precedent. Assessee's appeal was allowed.

Applicability of section 50C to transfer of leasehold rights - determination of sale consideration for capital gains on leasehold transfer - classification of leasehold land as long-term capital asset and indexation benefit - diminution and depreciation treatment of superstructure under section 50 - deductibility of expenditure where corporate business is dormant - nexus between expenditure and income producing purpose / going concern principleApplicability of section 50C to transfer of leasehold rights - determination of sale consideration for capital gains on leasehold transfer - classification of leasehold land as long-term capital asset and indexation benefit - diminution and depreciation treatment of superstructure under section 50 - Whether stamp duty valuation under section 50C could be applied to the transfer of leasehold rights and the appropriate characterisation and computation of capital gain on sale of leasehold land with superstructure. - HELD THAT: - The Tribunal held that section 50C could not be applied to the transfer of leasehold rights, following the ratio relied upon from higher judicial authority. Consequently the actual sale consideration declared by the assessee for the transfer was to be taken into account. On facts the industrial plot allotted on lease was held by the assessee for more than three years and therefore the gain on the leasehold land qualified as long term capital gain with benefit of indexation. The superstructure (building) constructed subsequently was held for less than three years and depreciation had been claimed; accordingly the building component was to be dealt with under the deeming/diminution provisions of section 50 and treated as a depreciable asset. The assessee's contemporaneous books and the recorded construction expenditures were accepted as evidencing cost of construction, and there was no justification to reject those claims by the authorities.Sale consideration taken as declared sale price; section 50C not applied to leasehold transfer; land component treated as long term capital asset with indexation; building treated as depreciable asset for computation under section 50.Deductibility of expenditure when corporate business is dormant - nexus between expenditure and income producing purpose - existence of company as going concern - Whether expenses claimed by the assessee during the year when gross sales were nil were allowable as business deductions. - HELD THAT: - The Tribunal accepted that the assessing officer did not impugn the genuineness of the expenditures but disallowed them solely because no active business transactions were recorded in the year. Relying on established authorities, the Tribunal held that a company, as an artificial juridical person, must incur certain expenditures to maintain existence and to realize or preserve assets and recover dues. Mere dormancy or temporary lack of trading activity in a year does not amount to abandonment of the business; expenses incurred with a nexus to maintaining the company or for realization/management of assets are deductible. In the circumstances and on the authorities cited, the disallowance was unsustainable.The disallowance of the claimed expenses was set aside and the expenses were allowed as deductible.Final Conclusion: The appeal is partly allowed: the addition made by applying stamp valuation was reversed for the leasehold transfer (actual sale consideration to be taken; land treated as long term with indexation; building treated as depreciable under section 50), and the disallowance of corporate expenses declared during a year of dormancy was vacated and the expenses allowed.

2023 (12) TMI 1191 - ORISSA HIGH COURT GST

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Issues involved: Delay in constituting Second Appellate Tribunal under GST Act, challenge to 1st appellate order, liability to pay tax and penalty, petition for writ jurisdiction due to absence of Second Appellate Tribunal.

Summary:

1. Challenge to 1st Appellate Order: The petitioner filed a writ petition challenging the 1st appellate order dated 31.03.2023 by the Joint Commissioner of State Tax(Appeal) CT & GST, Koraput Range at Jeypore. The petitioner contended that the order contravened Sub-Sections(1) & (4) of Section 107 of the GST Act and rejected the appeal under Sub Section(1) of Section 107 of the Odisha Goods and Services Tax Act, 2017.

2. Liability to Pay Tax and Penalty: The petitioner argued that they are not liable to pay the tax and penalty. The counsel stated that the petitioner had already deposited 10% of the demanded tax amount before the first appellate authority. However, the Additional Standing Counsel contended that the petitioner is liable to pay the tax and must deposit 20% balance disputed tax for consideration of its appeal by the 2nd Appellate Tribunal.

3. Delay in Constituting Second Appellate Tribunal: The Court observed that despite the GST Act being in operation since 1st July 2017, the Tribunal has not been constituted, causing pressure on High Courts. The Central Government was directed to create the GST Tribunal for adjudication of GST cases, as it is a statutory mandate that cannot be ignored.

4. Writ Jurisdiction Due to Absence of Second Appellate Tribunal: As an interim measure, subject to the petitioner depositing the entire tax demand within fifteen days, the rest of the demand was stayed during the pendency of the writ petition. The matter was listed for further hearing on 31st October, 2023.

5. Notice Issued: Notice was issued to the opposite parties and Mr. P.K.Parhi, learned counsel for the Central Government to explain the non-constitution of the 2nd Appellate Court for dealing with GST matters. Mr. Digant Das, learned Standing Counsel for the department accepted the notice for the opposite parties.

6. Further Directions: Mr. Parhi, learned DSGI for the Central Government was also served notice. Replies were to be filed within the specified timelines, and the case was scheduled for further proceedings.

High Court Demands Immediate Action on GST Tribunal Formation, Challenges Tax Liability and Seeks Comprehensive Explanation from Central Government
HC issued notice to Central Government regarding delay in constituting Second Appellate Tribunal under GST Act. Petitioner challenged first appellate order and tax liability. Court directed Central Government to establish GST Tribunal, providing interim relief by staying remaining tax demand subject to partial deposit. Matter listed for further hearing, with notices served to relevant parties to explain tribunal's non-constitution.

Entertainment of writ petition due to non-constitution of statutory tribunal - constitution of appellate tribunal - interim stay of tax demand on deposit - jurisdiction of High Court when appellate forum absent - delay in preferring appeal and condonation limitsEntertainment of writ petition due to non-constitution of statutory tribunal - jurisdiction of High Court when appellate forum absent - constitution of appellate tribunal - High Court may entertain writ petition when the statutorily mandated Second Appellate Tribunal has not been constituted - HELD THAT: - The Court entertained the writ petition because the Second Appellate Tribunal envisaged under the GST scheme has not been constituted, leaving no alternate appellate forum. The Court recorded that non-constitution of the Tribunal, despite the GST Act being in operation since 1 July 2017, imposes pressure on High Courts and that creation of the Tribunal is a statutory mandate which the Central Government is duty bound to fulfil. Consequently, the petition has been admitted for consideration and notice issued to the Central Government to explain the non-constitution of the appellate forum. [Paras 2, 6, 7]Writ petition entertained and notice issued to the respondents, including the Central Government, on account of non-constitution of the Second Appellate Tribunal.Interim stay of tax demand on deposit - delay in preferring appeal and condonation limits - Interim relief in the form of stay of remaining tax demand subject to deposit of the entire tax demand within a stipulated time - HELD THAT: - Although the first appellate authority had refused to admit the appeal (citing non-compliance with procedural timelines), the Court granted an interim measure to preserve the petitioner's right to challenge the demand while the writ is pending. As an interim measure, the Court ordered that if the petitioner deposits the entire tax demand within fifteen days, the balance of the demand shall remain stayed for the duration of the writ proceedings. The Court also directed service of the petition and issuance of notices with timelines for filing replies and rejoinder, thereby preserving procedural contest between the parties while the substantive issue of absence of the Tribunal is examined. [Paras 10]Subject to deposit of the entire tax demand within fifteen days, the remaining tax demand is stayed during the pendency of the writ petition; procedural directions for service and pleadings were issued.Final Conclusion: The High Court entertained the writ petition because the Second Appellate Tribunal has not been constituted, issued notice to the respondents including the Central Government, and granted interim stay of the balance tax demand subject to the petitioner depositing the entire tax demand within fifteen days; matter listed for further hearing.

2023 (12) TMI 1178 - CESTAT KOLKATA Customs

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Customs valuation enhancement rejected for bypassing the prescribed sequence and relying on an unsupported market survey.
Declared transaction value of imported goods was rejected in favour of a market survey-based enhanced assessable value, but the valuation method failed to follow the sequential scheme under the Customs Valuation Rules, 2007. Contemporaneous import data of identical goods was available, yet the survey report did not disclose the purchase or sale invoices used to fix the average price, and an ad hoc discount was applied without a legally sustainable basis. The enhancement was therefore not legally sustainable, and the impugned valuation order was set aside in favour of the assessee.

Customs valuation - rejection of declared value under Rule 12 - sequential application of Rules 4 to 12 of the Customs Valuation Rules, 2007 - transaction value - market survey evidence - NIDP data and contemporaneous imports - assessable valueRejection of declared value under Rule 12 - transaction value - sequential application of Rules 4 to 12 of the Customs Valuation Rules, 2007 - Validity of departmental enhancement of declared import value without first putting the importer on notice and without following the sequential provisions of the Customs Valuation Rules, 2007 - HELD THAT: - The Tribunal found that the Department did not put the Appellant on notice as to why the transaction value declared in the Bill of Entry was unacceptable before proceeding to enhance value. The Customs Valuation Rules, 2007 require that Rules 4 through 12 be applied in sequence to determine value; that procedure was not followed. Documentary evidence produced by the Appellant (NIDP/contemporaneous import data) showing several identical imports at the relevant time was not given due regard. For these reasons the enhancement based on rejection under Rule 12 was held legally unsustainable. [Paras 6, 7]Enhancement based on rejection of declared transaction value without notice and without sequential application of Rules 4-12 is unsustainable; the enhancement is set aside.Market survey evidence - NIDP data and contemporaneous imports - assessable value - Reliability and admissibility of the Department's market survey report and the method of arriving at assessable value by applying an unexplained discount - HELD THAT: - The Tribunal observed that the Department relied on a Market Survey Report prepared by officials who collected unspecified market information. The report did not identify any purchase or sale invoices relied upon to compute the average price, and then an arbitrary 60% discount was applied to arrive at the assessable value. There is no legal provision authorising such an ad hoc practice. Given the existence of contemporaneous import data (NIDP) produced by the Appellant and the opaque methodology of the survey, the value fixed by the Revenue was found to be neither realistic nor legally sustainable. [Paras 5]Market survey without documentary support and the application of an unexplained discount to determine assessable value is inadmissible; the resultant valuation cannot be sustained.Final Conclusion: The Tribunal set aside the impugned order enhancing customs value and allowed the appeal, holding that the Department failed to comply with the statutory procedure for valuation, relied on an unsatisfactory market survey lacking documentary support and applied an impermissible ad hoc discount; consequential relief, if any, to follow as per law.

2023 (12) TMI 535 - ITAT SURAT Income Tax

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Assessee's 7% property share qualifies for Section 56(2)(x) benefits despite not being original agreement party
The ITAT Surat reversed the CIT's revision order under Section 263 regarding the applicability of Section 56(2)(x) to co-owners who were not original parties to a property agreement. The assessee held a 7% share among ten co-owners. The CIT had denied benefits of the first and second proviso to Section 56(2)(x)(b) since the assessee wasn't party to the original agreement and made no direct payment. However, the ITAT found that part consideration was paid by family members and close relatives of the assessee. Following the Mumbai ITAT precedent in Sulochana Saijan Modi, the tribunal held that the AO's assessment accepting returned income was not erroneous, thus the twin conditions for invoking Section 263 were not satisfied.

Applicability of first and second proviso to section 56(2)(x)(b) to co-owners where part payment was made by some co-owners - Jurisdiction under section 263 for revising an assessment as erroneous and prejudicial to the revenue - Change of opinion doctrine in exercise of revisional jurisdiction - Requirement of examination and application of mind in assessment under section 143(3)Jurisdiction under section 263 for revising an assessment as erroneous and prejudicial to the revenue - Change of opinion doctrine in exercise of revisional jurisdiction - Requirement of examination and application of mind in assessment under section 143(3) - Whether the Principal Commissioner of Income-tax rightly invoked section 263 and held the assessment under section 143(3) to be erroneous and prejudicial to the interest of revenue. - HELD THAT: - The Tribunal found that the Assessing Officer had issued detailed queries during scrutiny, received comprehensive replies and documentary evidence, and accepted the returned income after considering the applicability of Section 56(2)(x). The revisional order of the PCIT was based on a differing view as to facts (that the appellant was not party to the original agreement and had not made part payment), but the record shows the issue was examined by the AO and a reasonable view was taken. The Court relied on co-ordinate authority and concluded that the twin conditions for invoking section 263 - that the assessment is erroneous and prejudicial to the revenue - were not satisfied where the AO had applied his mind and taken a legally sustainable view. Consequently the PCIT's order was held to be invalid as amounting to a mere change of opinion rather than demonstrating an absence of application of mind or an illegality in the assessment order. [Paras 10, 11, 12, 13]Order passed under section 263 quashed; assessment upheld as not erroneous or prejudicial to revenue and appeal allowed.Applicability of first and second proviso to section 56(2)(x)(b) to co-owners where part payment was made by some co-owners - Requirement of examination and application of mind in assessment under section 143(3) - Whether a co-owner who was not party to the original agreement and who did not himself make part-payment by account-payee cheque can claim the benefit of the first and second provisos to Section 56(2)(x)(b) where part-payment was made by other co-owners who are family members or close relatives. - HELD THAT: - On the facts, part payment of the transaction was made by certain co-owners who are family members or close relatives of the assessee. The Tribunal, following the view taken by a coordinate bench in Sulochana Saijan Modi (Mum-Trib), held that where part payment before the agreement was made by joint/co-owners (here family members/close relatives) the benefit of the provisos is available to the co-owners in the jointly held property. The Tribunal observed that the AO had considered the documents and explanations and that the factual matrix showed payments by family/close relatives; therefore the provisos apply and no addition under Section 56(2)(x)(b) was warranted in the assessee's case. [Paras 3, 4, 12]Provisos to Section 56(2)(x)(b) held applicable on the given facts; addition under Section 56(2)(x) not sustained and appeal allowed.Final Conclusion: Both appeals are allowed: the revisional order under section 263 is quashed and the assessments for AY 2018-19 are sustained in favour of the assessees, the provisos to Section 56(2)(x)(b) being held applicable on the facts and the AO's views treated as legally sustainable.

2023 (12) TMI 495 - ITAT CHENNAI Income Tax

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Issues Involved:
The judgment involves issues related to the acceptance of on-money by the assessee, retraction of statement, assessment based on impounded material, lower sale consideration, and the addition of income offered during the survey.

Acceptance of On-Money and Retraction of Statement:
The assessee initially admitted to receiving on-money in a sworn statement but later retracted the statement. The assessment was completed by adding the amount to the total income based on the impounded MOU and the initial statement. The lower authorities upheld the addition due to the delayed retraction of the statement after seven months, emphasizing the value of statements given on oath as important evidence. The sale consideration being lower than the purchase price raised doubts about the credibility of the transaction. The Tribunal observed that the retraction made after seven months held no value, and without supporting material, the retraction was deemed unacceptable.

Assessment Based on Impounded Material:
The impounded material found during the search operation was crucial in the assessment process. The Tribunal noted that similar incriminating material was discovered in the premises of another entity during a separate search operation, further strengthening the case against the assessee. The failure of the assessee to provide evidence against the statements made by others, coupled with the lack of cross-examination of relevant individuals, worked against the assessee's case.

Lower Sale Consideration and Addition of Income:
The Tribunal analyzed the financial statements and confirmed that the additional income offered during the survey had already been declared and taxed by the assessee. Despite this, the assessing officer made a separate addition to the income, which was deemed impermissible under the law. The Tribunal directed the assessing officer to delete the additional addition made towards on-money received during the sale of property, as the amount had already been declared, taxed, and credited to the profit and loss account by the assessee.

In conclusion, the Tribunal allowed the appeal of the assessee, setting aside the orders of the lower authorities and directing the assessing officer to delete the additional addition made towards on-money received during the sale of property, as the amount had already been declared, taxed, and credited by the assessee during the survey process.

Tribunal Overturns Lower Decisions: Orders Removal of Additional Income from Property Sale Already Declared and Taxed.
The Tribunal allowed the appeal of the assessee, overturning the decisions of the lower authorities. It directed the assessing officer to remove the additional income addition related to on-money received during the property sale. The Tribunal found that the amount had already been declared, taxed, and credited to the profit and loss account by the assessee during the survey. The delayed retraction of the assessee's statement and lack of cross-examination were noted, but the Tribunal emphasized that the additional income addition was impermissible since the income had already been accounted for.

Value of statement on oath as evidence - retraction of statement - weight of contemporaneous incriminating material found during survey - treatment of income offered during survey - prohibition on double taxation / duplication of additionValue of statement on oath as evidence - retraction of statement - weight of contemporaneous incriminating material found during survey - Evidentiary value of the assessee's sworn statement admitting receipt of on-money and the efficacy of his subsequent retraction made after seven months. - HELD THAT: - The Tribunal accepted the finding that the assessee had given a sworn statement during the survey admitting receipt of on-money and had offered an amount for taxation. The subsequent retraction made seven months later was held to be of no value, the court observing that a statement on oath is an important and weighty piece of evidence and that a retraction, to be effective, must be made at the earliest; no supporting material was furnished by the assessee to rebut the original statement. The presence of similar incriminating material and statements from other searched premises was noted as corroborative. On these facts the retraction was rejected. [Paras 9]Retraction after seven months rejected; the sworn statement and contemporaneous incriminating material retained evidentiary weight.Treatment of income offered during survey - prohibition on double taxation / duplication of addition - Whether an addition made by the Assessing Officer in respect of the same amount already offered and taxed during the survey could be sustained. - HELD THAT: - The Tribunal found on the assessee's financial statements and affidavit that the amount of Rs. 1,00,00,000/- had been offered as additional income during the survey, credited in the profit and loss account and taxed. The AO's separate addition of the same amount would result in duplication of the same income being taxed twice, which is impermissible. The Tribunal held that the AO erred in making a fresh addition of the identical amount and directed deletion of that addition. [Paras 10]Addition of the amount already offered and taxed set aside; Assessing Officer directed to delete the duplicate addition.Final Conclusion: The assessee's appeal is allowed: the retraction of the sworn statement was rejected as belated, but the addition of Rs. 1,00,00,000/- made by the AO was set aside because the same amount had already been offered and taxed during the survey, and the AO was directed to delete that addition.

2023 (12) TMI 494 - ITAT SURAT Income Tax

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Assessee wins appeal as addition based solely on Form 26AS entries deleted without proper factual verification
The ITAT Surat allowed the assessee's appeal against addition made under income from other sources based on Form 26AS entries. The CPC had added the difference between interest income in Form 26AS and net interest shown in income computation. The tribunal found the assessee had properly shown bank interest under other sources and netted interest earned against interest incurred in business income. The tribunal held that additions cannot be made solely on Form 26AS basis without factual verification, as established by various tribunal benches. The addition made by AO and confirmed by CIT(A) was deleted.

Addition based solely on Form 26AS entries - Mechanical processing by CPC and allowability of deductions - Requirement of verification before making income enhancementAddition based solely on Form 26AS entries - Mechanical processing by CPC and allowability of deductions - Requirement of verification before making income enhancement - Deletion of addition/adjustment of Rs. 4,12,540/- made by CPC by comparing Form 26AS entries with return without allowing corresponding expenditure. - HELD THAT: - The Tribunal examined the computation of income and the material on record and found that the CPC's enhancement arose from a mismatch between interest shown in Form No. 26AS and the amounts in the assessee's return. The assessee had disclosed gross interest receipts and claim of net interest (interest paid exceeding interest received) by setting off the difference against business income; bank interest was shown separately under other sources. The Tribunal held that the CPC, being an automated processing system, could not, by mechanical comparison of Form 26AS entries, take into account the allowability of corresponding deductions. The Tribunal further observed that confirmation of the addition by the CIT(A) proceeded on different conjectures rather than examining the factual material and the computation submitted by the assessee. In view of settled practice that an addition cannot be sustained solely on the basis of Form 26AS without verification of facts and allowability of expenditure, the Tribunal allowed the appeal and deleted the addition. [Paras 7, 8]The addition/adjustment of Rs. 4,12,540/- made by CPC and confirmed by the CIT(A) is deleted and the grounds of appeal are allowed.Final Conclusion: The Tribunal allowed the appeal for AY 2017-18, holding that an enhancement of income based solely on Form 26AS mismatch by automated CPC processing-without verification of the allowability of corresponding deductions-cannot be sustained, and accordingly deleted the addition.

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