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2023 (12) TMI 53 - ITAT JODHPUR Income Tax

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Assessee's explanation for cash deposits accepted after providing affidavits from family members who sold land
ITAT Jodhpur allowed the assessee's appeal regarding undisclosed cash deposits. The assessee claimed gifts from grandmother and father who sold land, providing supporting affidavits. Following the SC precedent in Parimisetti Seetharamamma case, the tribunal held that once the assessee provided affidavits explaining the source, the onus shifted to the department to prove the facts were untrue. Since the department failed to provide contrary evidence, the tribunal accepted the assessee's explanation and allowed the ground.

Burden of proof shifts on Revenue once assessee offers prima facie explanation - gifts as non-taxable receipts where satisfactorily explained - rejection of a reasonable explanation cannot convert proof into no proof - addition held to be without basis where source of deposit is satisfactorily establishedBurden of proof shifts on Revenue once assessee offers prima facie explanation - gifts as non-taxable receipts where satisfactorily explained - rejection of a reasonable explanation cannot convert proof into no proof - addition held to be without basis where source of deposit is satisfactorily established - Whether the addition of Rs. 5,00,000/- on account of unexplained cash deposit should be sustained or deleted - HELD THAT: - The Tribunal examined the bank entries and the affidavits filed before the CIT(A) showing that the deposit of Rs. 5,00,000/- represented a gift from the assessee's grandmother (and related explanations regarding family land sale). Reliance was placed on settled principles that once an assessee furnishes a prima facie explanation and supporting affidavit, the onus shifts to the Department to disprove that explanation; the Department cannot merely reject a reasonable explanation and thereby convert proof into no proof. The Tribunal found that the Department did not bring any evidence to controvert the affidavits or to demonstrate inherent weakness in the explanation, and that if further clarification was required the CIT(A) could have sought it (including by recording statements under section 131). Applying the legal principles in the cited precedents, the Tribunal concluded that the assessee had satisfactorily explained the source of the deposit and that the addition was therefore unsustainable. [Paras 7, 8, 9, 10]Addition of Rs. 5,00,000/- deleted; Ground No. 7 allowed.Academic grounds - Treatment of Grounds Nos. 1, 2, 3, 4, 5 and 6 raised by the assessee - HELD THAT: - After adjudicating Ground No. 7 in favour of the assessee and directing deletion of the addition, the Tribunal held that Grounds Nos. 1 to 6 had become academic. The Tribunal therefore did not adjudicate these grounds on merits and dismissed them as not adjudicated, observing there would be no prejudice to the assessee by not deciding those grounds. [Paras 11]Grounds Nos. 1, 2, 3, 4, 5 & 6 dismissed as not adjudicated (academic).Not pressed - Ground No. 8 challenging reopening under section 147/148 - HELD THAT: - The assessee's counsel stated that Ground No. 8 was not intended to be pressed before the Tribunal. The Tribunal recorded that position and did not adjudicate the legality of reopening on merits. [Paras 13]Ground No. 8 dismissed as not pressed.Consequential grounds - Ground No. 9 regarding levy of interest - HELD THAT: - The Tribunal treated Ground No. 9 as consequential to the main relief granted and therefore did not entertain it for separate adjudication. [Paras 14]Ground No. 9 dismissed as consequential.Final Conclusion: The appeal is partly allowed: the Tribunal deletes the addition of Rs. 5,00,000/- (ground 7 allowed), while other grounds are either dismissed as not adjudicated, not pressed, or consequential; no costs are imposed.

2023 (12) TMI 355 - ORISSA HIGH COURT GST

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Issues involved:
The issues involved in this case are the challenge to the 1st appellate order under sub-sections (1) & (4) of Section 107 of the GST Act, the delay in preferring the appeal, and the constitution of the 2nd appellate tribunal.

Challenge to 1st Appellate Order:
The petitioner filed a writ petition challenging the 1st appellate order dated 09.06.2023, which was passed by the Additional Commissioner of State Tax, CT & GST. The appeal was not admitted by the authority as it was deemed to be in contravention of the relevant sections of the Odisha Goods and Services Tax Act, 2017. The petitioner contended that they are not liable to pay the tax and penalty, and since the 2nd appellate tribunal has not yet been constituted, this writ petition was entertained by the Court.

Delay in Preferring Appeal:
The Additional Standing Counsel argued that there was a delay in preferring the appeal, and the Court may not be able to condone the delay beyond four months. The appellate authority did not have the discretion to condone the delay beyond one month after the lapse of three months from the date of communication of the impugned order. The petitioner was required to pay 20% of the balance disputed tax if they wished to appeal before the 2nd appellate tribunal.

Constitution of 2nd 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 Court noted that the 2nd appellate tribunal had not yet been constituted, and the petitioner wanted to avail the remedy under the provisions of the law by approaching the 2nd appellate tribunal.

This case highlights the importance of timely appeals, the constitution of appellate tribunals, and the implications of challenging appellate orders under the GST Act. The Court provided interim relief to the petitioner while the 2nd appellate tribunal was not yet in place, emphasizing compliance with tax demands and procedural requirements.

Tax Appeal Procedural Relief: Petitioner Granted Interim Stay with 20% Tax Deposit Requirement Under GST Regulations
HC ruled on GST appeal procedural challenges, granting interim relief to petitioner. Court noted delay in appeal filing and absence of 2nd appellate tribunal. Directed petitioner to deposit 20% of disputed tax within 15 days and stayed remaining tax demand pending resolution. Emphasized procedural compliance while providing temporary judicial intervention in tax dispute.

Entertainment of writ petition for absence of second appellate forum - non-admission of appeal under Section 107(1) and (4) of the GST Act - condonation of delay in filing appeal - stay of tax demand on deposit of entire tax amount as interim measureEntertainment of writ petition for absence of second appellate forum - non-admission of appeal under Section 107(1) and (4) of the GST Act - Whether the High Court may entertain the writ petition challenging the first appellate order in view of the non-constitution of the Second Appellate Tribunal. - HELD THAT: - The Court entertained the writ petition only because the Second Appellate Tribunal has not yet been constituted and a further statutory appellate forum is therefore unavailable. The petitioner challenged the first appellate authority's order which refused to admit the appeal on the ground that it was in contravention of sub-sections (1) and (4) of Section 107 of the GST Act. The Court proceeded to issue notice and to consider interim relief in the absence of the second appellate forum, treating the absence of that forum as the basis for entertaining the petition notwithstanding the existence of a statutory two-tier appeal scheme. [Paras 2, 3]Writ petition entertained because the Second Appellate Tribunal has not been constituted and the petitioner is therefore permitted to seek relief in this Court against the first appellate order.Condonation of delay in filing appeal - stay of tax demand on deposit of entire tax amount as interim measure - Whether interim relief in the form of stay of the balance tax demand should be granted and on what conditions. - HELD THAT: - The Court observed the department's contention regarding delay in preferring the appeal and the limited scope for condoning such delay before the appellate authority. Noting that the petitioner desires to approach the Second Appellate Tribunal (not yet constituted), the Court granted an interim measure: subject to the petitioner depositing the entire tax demand within fifteen days, the remaining demand (beyond amounts already deposited) shall be stayed during the pendency of the writ petition. This order was framed as an interim arrangement to preserve the petitioner's remedy in the absence of the second appellate forum. [Paras 5, 8]Interim stay of the rest of the tax demand granted on condition that the petitioner deposits the entire tax demand within fifteen days; otherwise the stay would not subsist.Final Conclusion: In view of the non-constitution of the Second Appellate Tribunal the High Court entertained the challenge to the first appellate order and granted interim protection: the balance of the tax demand is stayed during the writ's pendency provided the petitioner deposits the entire tax demand within fifteen days; notice issued and returnable as directed.

2023 (12) TMI 132 - ITAT NAGPUR Income Tax

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Issues involved:
The judgment involves appeals filed by the assessee against the order passed by the Commissioner of Income Tax (Appeals) for assessment years 2007-08 and 2008-09.

Issue 1: Addition on account of commission income for A.Y. 2007-08
The assessee challenged the action of CIT(A) in confirming the addition made by the AO on account of commission income. The AO added Rs. 6,00,000 to the total income of the assessee based on the sale of property and commission received. The CIT(A) upheld the addition after considering evidence and explanations provided by the assessee.

The assessee derived income from commission and agriculture. The AO issued a notice u/s. 148 as no return of income was filed for A.Y. 2007-08. The assessee filed a return declaring income, and during the assessment proceedings, was asked to produce various details including bank statements and proof of deductions. The AO added Rs. 6,00,000 to the total income of the assessee based on commission received for the sale of a property.

The CIT(A) considered additional evidence provided by the assessee, including receipts endorsed by the sellers. However, the CIT(A) found the evidence to be self-serving and not supported by proof. The CIT(A) confirmed the addition made by the AO, stating that the appellant failed to produce the concerned persons for verification and did not provide satisfactory explanations for the transactions.

The AO attempted to verify the transactions by issuing summons, but they could not be served due to incorrect addresses. The assessee claimed that the burden of verification lay with the AO. The CIT(A) noted that no steps were taken to produce the concerned persons for verification, and the assessee failed to provide sufficient evidence to support the claim that the added amount was paid to the sellers and not received as commission.

The Tribunal upheld the CIT(A)'s decision, stating that no satisfactory explanation was provided by the assessee. The appeal challenging the addition on account of commission income for A.Y. 2007-08 was dismissed.

Issue 2: Similarity in facts for A.Y. 2008-09
The facts for A.Y. 2008-09 were found to be identical to A.Y. 2007-08, with the only difference being the amount involved. The Tribunal applied the findings from the appeal for A.Y. 2007-08 to the appeal for A.Y. 2008-09 and dismissed the assessee's appeal.

In conclusion, both appeals of the assessee were dismissed based on the findings for A.Y. 2007-08, as the facts were similar for A.Y. 2008-09 as well.

Assessee fails to prove commission claim on undisclosed deposits, addition upheld for lack of evidence
The ITAT Nagpur upheld the addition of commission income from undisclosed bank deposits. The assessee claimed receiving amounts via three cheques, retaining commission and paying the remainder to two sellers through banking channels. However, the AO and CIT(A) found the assessee's affidavit self-serving and unsupported by proof. Signatures on receipts didn't match sale deed signatures, and the assessee failed to produce the two persons for examination despite summons being issued. The CIT(A) correctly concluded that no satisfactory explanation was provided to support the claim that the added amount was paid to sellers rather than retained as commission income. The appeal was dismissed.

Presumption under section 68 regarding unexplained credits - onus on the assessee to prove the nature and source of bank credits - admissibility and probative value of contemporaneous receipts and affidavits - verification by production of parties and service of summonsPresumption under section 68 regarding unexplained credits - onus on the assessee to prove the nature and source of bank credits - verification by production of parties and service of summons - admissibility and probative value of contemporaneous receipts and affidavits - Whether the additions made on account of unexplained credits in the assessee's bank account could be sustained where the assessee claimed the amounts were received on behalf of sellers and paid to them but failed to produce the concerned parties or satisfactory corroborative evidence - HELD THAT: - The Tribunal observed that the assessee admitted credits in his bank account and maintained that only a portion constituted his commission while the balance was handed over to the sellers. The AO sought verification by summoning the sellers/consenters but service could not be effected because the addresses furnished were incorrect. The assessee furnished affidavits and receipts only at the appellate stage; the signatures on those documents were not satisfactorily matched with the sale deed and no persons were produced for examination despite opportunities. The authorities below applied the legal principle that where a sum is credited in an assessee's account the primary onus is on the assessee to satisfactorily explain the nature and source of the credits; in absence of satisfactory explanation and corroboration, the presumption under section 68 is permissible. The Tribunal found no infirmity in the concurrent findings that the furnished evidence was self-serving and inadequate, that verification by production of the parties was not achieved, and that the assessee failed to discharge the onus of proof. Consequently the additions made in the assessments were held to be sustainable. [Paras 7, 8, 9, 10, 11]The additions on account of unexplained credits were upheld and the appeals are dismissed.Final Conclusion: The Tribunal dismissed both appeals for A.Y. 2007-08 and A.Y. 2008-09, upholding the additions made by the assessing officer and confirmed by the CIT(A) on the ground that the assessee failed to satisfactorily prove the nature and source of the bank credits or produce the concerned parties for verification.

2023 (12) TMI 622 - ITAT MUMBAI Income Tax

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Issues Involved:
1. Whether the Commissioner of Income-tax (Exemptions) erred in exercising powers under section 263 of the Income-tax Act, 1961 for revising the order dated February 13, 2021.
2. Whether the assessee satisfied the conditions mentioned in section 11 of the Income-tax Act for setting aside an amount of Rs. 16,15,000.
3. Whether the provisions of section 11 require the exact purpose for which the amount is set aside to be specified for claiming exemption.

Summary:

The appeal by the assessee challenges the order of the Commissioner of Income-tax (Exemptions) dated March 20, 2023, under section 263 of the Income-tax Act, 1961, for the assessment year 2018-19. The assessee raised several grounds of appeal, primarily arguing that the Commissioner of Income-tax (Exemptions) erred in exercising powers under section 263 for revising the order dated February 13, 2021, and that the conditions mentioned in section 11 of the Act were duly satisfied.

The brief facts of the case reveal that the assessee, a trust registered under sections 12A and 80G, filed its return of income declaring total income at Rs. 8,66,050. The case was selected for complete scrutiny on issues including receipts of trusts, approval under section 80G, and receipt of voluntary contributions. The Assessing Officer completed the assessment on February 13, 2021, accepting the returned income. However, notices under section 263 were issued by the Commissioner of Income-tax (Exemptions), who ultimately passed an order under section 263, leading to the present appeal by the assessee.

Upon reviewing the order of the Assessing Officer, notices issued under section 263, and submissions of the assessee, it was observed that the issues relating to accumulation under section 11(2) of the Act were specifically enquired by the Assessing Officer and duly responded by the assessee. The Commissioner of Income-tax (Exemptions) objected on the grounds that the "exact purpose" for accumulation was not specified. However, the assessee had specified the purpose as "charitable purpose" in form 10, and it was noted that the purpose of accumulation cannot be beyond the objects of the assessee.

The Tribunal referred to several judicial precedents, including decisions by the Karnataka High Court and the Delhi High Court, which supported the view that as long as the objects of the trust are charitable, and the purpose mentioned in form 10 aligns with the trust's objectives, the exemption under section 11(2) should not be denied merely due to lack of detailed specification.

In conclusion, the Tribunal found no error in the order passed under section 143(3) of the Act and held that the objection raised by the Commissioner of Income-tax (Exemptions) was not valid for initiating proceedings under section 263. Consequently, the appeal of the assessee was allowed, and the order under section 263 was set aside.

Order pronounced in the open court on August 7, 2023.

CIT's revision under section 263 invalid when assessee properly disclosed accumulation details in Form 10 for charitable purposes
ITAT Mumbai held that CIT's revision u/s 263 regarding exemption u/s 11(2) was invalid. The assessee had properly disclosed accumulation details in Form 10, specifying "charitable purpose" as the reason. The tribunal found that exact purpose specification is not legally required, as accumulation cannot exceed the organization's objects. The Assessing Officer had adequately enquired about the accumulation, and the assessee provided satisfactory responses. CIT's objection about non-specific purpose was deemed insufficient grounds for s 263 proceedings. The tribunal set aside the CIT's order and decided in favor of the assessee.

Compliance with section 11(2)(a) - specification of purpose for accumulation - Power of Commissioner under section 263 to revise assessment if order is erroneous and prejudicial to Revenue - Form 10 / rule 17(2) as evidence of accumulation particularsCompliance with section 11(2)(a) - specification of purpose for accumulation - Form 10 / rule 17(2) as evidence of accumulation particulars - Power of Commissioner under section 263 to revise assessment if order is erroneous and prejudicial to Revenue - Whether the assessee complied with the requirements of section 11(2) in respect of accumulation and whether the assessment order was erroneous and prejudicial thereby justifying revision under section 263. - HELD THAT: - The Tribunal found that the Assessing Officer had specifically inquired about accumulation under section 11(2) through notices under section 142(1) and the assessee replied, enclosing form 10 which specified amount, period and purpose of accumulation as 'charitable purpose' and explained utilisation within five years. The Commissioner revisional proceedings rested on the ground that the assessee failed to specify the 'exact purpose' of accumulation. The Tribunal accepted the assessee's reliance on judicial authority holding that the purpose stated in form 10 need not be more particularised than the objects of the trust and that purposes specified in form 10 which fall within the trust's charitable objects suffice for section 11(2)(a). Having regard to the enquiries made by the AO, the material on record (including form 10) and the binding judicial view that repetition of the trust's objects in form 10 does not automatically disentitle the assessee to accumulation, the Tribunal held there was no lack of enquiry or failure by the AO such as would render the assessment order erroneous and prejudicial to the Revenue. Consequently, the jurisdictional condition for invoking section 263 was not satisfied. [Paras 8, 9]The assessee complied with the requirements for claiming accumulation under section 11(2); no error prejudicial to Revenue was established in the AO's order and the revision under section 263 was unwarranted.Final Conclusion: Appeal allowed; order under section 263 set aside and assessment order dated February 13, 2021 upheld in respect of the accumulation claim for assessment year 2018-19.

2023 (12) TMI 391 - ITAT DELHI Income Tax

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ITAT allows appeal on Section 69 unexplained investments, rejects presumption-based additions without recorded statement
ITAT Delhi allowed assessee's appeal regarding addition u/s 69 for unexplained investments, holding that treating account "AP" as belonging to assessee was based on presumption without recording assessee's statement. The account showed various acronyms indicating transactions neither through bank nor cash, making inference to assessee unwarranted. Peak credit theory by CIT(A) became infructuous. For gold sale addition, ITAT directed AO to compute 2% profit instead of full amount. CIT(A)'s order on other u/s 69 additions was upheld. Trail balance profit addition was sustained only to extent of Rs. 1,16,365/- as cash payment without corroborative evidence of dabba trading business.

Treatment of seized third party ledger as belonging to assessee - unexplained investments under section 69 - parallel books maintained in Hazir Johri software - reliance on statements of persons from searched party and need for corroboration/cross examination - peak credit theory - dabba trading (private MCX) and trial balance as evidence of profit - presumption as to truth of seized documents under section 132(4A) and section 292CTreatment of seized third party ledger as belonging to assessee - parallel books maintained in Hazir Johri software - reliance on statements of persons from searched party and need for corroboration/cross examination - unexplained investments under section 69 - Addition based on the Hazir Johri ledger account code named 'AP' seized from Jindal Bullion Ltd. being attributed to the assessee and taxed as unexplained investments. - HELD THAT: - The Tribunal examined the Hazir Johri data, the loose sheets and the statements of witnesses from JBL and found no direct or corroborative evidence to establish that the ledger code 'AP' belonged to the assessee. The Assessing Officer's identification rested primarily on banking entries and statements of JBL employees; the material reproduced in the ledger contained multiple acronyms and names indicating transactions of various parties, not exclusively the assessee. The assessee had specifically sought production of statements and opportunity for confrontation; having not been afforded corroborative material linking 'AP' exclusively to him, the Tribunal held that the AO's conclusion was based on presumption. In these circumstances no addition could be sustained in the assessee's hands on the basis of the Hazir Johri ledger. [Paras 25, 26, 30, 31, 32]Addition based on the 'AP' Hazir Johri account is set aside and the appeals of the assessee on this ground are allowed; corresponding revenue appeals are dismissed.Peak credit theory - unexplained investments under section 69 - Whether benefit of peak credit allowed by the CIT(A) should be sustained where additions were made on the basis of seized Hazir Johri material. - HELD THAT: - The CIT(A) had applied peak credit to determine the quantum of unexplained receipts after finding unaccounted cash transactions. However, because the Tribunal has held that the Hazir Johri 'AP' account could not be attributed to the assessee and no addition on that basis is sustainable, the question of peak credit as applied by the CIT(A) becomes moot in respect of those additions. The Tribunal therefore observed that the peak credit determination becomes infructuous in the facts of these appeals. [Paras 17, 18, 32]The peak credit computation allowed by the CIT(A) (insofar as it related to the set aside Hazir Johri additions) is rendered infructuous and revenue appeals on that aspect are dismissed.Out of books sale of gold/silver treated as taxable transaction - application of profit rate (2%) on sales - Tax treatment of out gold/out silver quantities recorded in impounded Annexure A 1 - whether sale should be taxed on full amount or only profit. - HELD THAT: - For entries reflecting out gold/out silver which the AO treated as sales, the Tribunal accepted the assesssee's submission that, if such quantities are treated as sold, corresponding purchases must be assumed and therefore only the trading profit should be taxed. The Tribunal directed the AO to compute tax on 2% of the sale value as the taxable profit in respect of those gold and silver transactions. [Paras 33, 35, 36, 37]AO directed to compute taxable income at 2% (profit) on the recorded out gold and out silver transactions.Dabba trading (private MCX) and trial balance as evidence of profit - presumption as to truth of seized documents under section 132(4A) and section 292C - Whether a single page trial balance seized (Annexure A 2) is sufficient to treat the credit shown as profit from dabba trading and make an addition. - HELD THAT: - The seized single page trial balance listed multiple coded accounts and reflected a credit against 'self account' which the AO treated as profit. The Tribunal held that, without primary or corroborative evidence of running dabba trading (such as broker records, terminal data, settlement evidence or other back up), a solitary page cannot sustain the inference of profit. The Tribunal noted that the seized printout did contain a distinct line item 'Anoop Ji (cash)' and accordingly limited the addition to that identifiable cash amount. The broader addition based on the entire credit was not sustained. [Paras 38, 39, 40, 41]Addition on account of trial balance profit largely set aside; sustained only to the extent of the identifiable amount shown as 'Anoop Ji (cash)'.Seized cash and jewellery - proof of source - Confirmation of addition on seized cash/jewellery found at assessee's residence. - HELD THAT: - Cash seized at the residence was partly explained by withdrawals and exchange transactions adduced by the assessee. After considering the explanation, the Tribunal reduced the addition: it sustained only the unexplained balance after accepting the stated sources for portions of the seized cash. [Paras 42, 43]Addition in respect of seized cash/jewellery confirmed only to the extent of the unexplained balance; remainder accepted on explanation.Small quantum additions not pressed - Addition in respect of seized silver amounting to small quantum. - HELD THAT: - The assessee did not press the challenge to the addition relating to seized silver on account of the low quantum involved. Tribunal therefore dismissed that ground as not pressed. [Paras 44]Ground not pressed; addition dismissed.Final Conclusion: The Tribunal set aside the additions based on the Hazir Johri 'AP' ledger for A.Y. 2015 16, 2016 17 and 2017 18 for lack of corroboration linking the seized third party material to the assessee; consequential peak credit computations became infructuous and revenue appeals on that aspect were dismissed. For A.Y. 2017 18 other impounded document additions were partly sustained with directions: out of books gold/silver transactions to be taxed on 2% profit, the alleged dabba trading trial balance addition reduced to the identifiable cash item, seized cash addition limited to the unexplained balance, and a minor silver addition dismissed as not pressed.

2023 (12) TMI 141 - SC Order Income Tax

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Supreme Court of India dismisses petition due to 344-day delay, refuses to interfere with the previous judgment.
SC of India dismissed a special leave petition due to a delay of 344 days and chose not to interfere with the impugned judgment. The application for condonation of delay was also rejected.

2023 (12) TMI 268 - ITAT KOLKATA Income Tax

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Issues Involved:
1. Whether the Assessing Officer correctly applied the provisions of section 43CA of the Income Tax Act.
2. Whether the addition of Rs. 12,05,200/- on account of concealment of sale consideration was justified.

Summary of Judgment:

Issue 1: Application of Section 43CA of the Income Tax Act
The assessee contested the application of section 43CA, arguing that the agreements to sell were entered into before the introduction of this section on 01.04.2014. The Tribunal noted that section 43CA was inserted to check suppressed sales of immovable properties, deeming the stamp duty value as the sale value if the actual sale value was less. However, subsection (3) allows for the stamp duty value on the date of the agreement to be considered if the agreement and registration dates differ, provided the consideration or part thereof was received through banking modes as per subsection (4).

The Tribunal found that the agreements to sell were made in 2012-13, with payments received through cheques before the execution of the sale deeds, indicating that the agreements were genuine. The Tribunal cited the decision in Disha Construction vs. JCIT and the Bombay High Court's ruling in PCIT vs. Swananda Properties (P) Ltd., which held that section 43CA cannot be applied retrospectively. Consequently, the Tribunal concluded that the additions made by the Assessing Officer under section 43CA were not sustainable and ordered their deletion.

Issue 2: Addition of Rs. 12,05,200/- for Concealment of Sale Consideration
The assessee argued that the flat in question was sold by the landowner, not by the assessee, as per the development agreement. The Tribunal reviewed the evidence, including sale and gift deeds, and found that the sale consideration of Rs. 12,05,200/- was indeed not received by the assessee. Therefore, the addition made by the Assessing Officer on this issue was not sustainable and was ordered to be deleted.

Conclusion:
The Tribunal allowed the appeal of the assessee, deleting the additions made by the Assessing Officer under section 43CA and for the alleged concealment of sale consideration.

Developer wins challenge against Section 43CA additions for pre-2014 agreements lacking retrospective application
ITAT Kolkata ruled in favor of the assessee regarding additions under Section 43CA concerning difference between stamp duty value and actual sale consideration. The Tribunal held that agreements to sell executed before April 1, 2014 cannot be subject to Section 43CA as it lacks retrospective application, following precedents from Disha Construction and Swananda Properties cases. Additionally, additions for concealment of sale consideration were deleted as the flats were sold by the land-owner under development agreement, not by the assessee, who received no sale consideration.

Deemed full value of consideration under section 43CA - Stamp duty value v. sale consideration - Application of section 43CA to agreements entered into prior to its insertion - Sub section (3) - stamp duty valuation on date of agreement - Sub section (4) - requirement of payment by account payee cheque/electronic mode - Concealment of sale consideration Deemed full value of consideration under section 43CA - Application of section 43CA to agreements entered into prior to its insertion - Sub section (3) - stamp duty valuation on date of agreement - Sub section (4) - requirement of payment by account payee cheque/electronic mode - Whether additions under section 43CA could be sustained when agreements to sell were executed prior to 01.04.2014 and part payments were made by cheque before registration - HELD THAT: - The Tribunal examined the language and purpose of section 43CA - introduced w.e.f. 01.04.2014 to deem stamp duty value as full value of consideration for transfers of stock in trade (land/building) where sale consideration is less than stamp duty value. Sub section (3) permits using stamp duty value as on date of agreement where the agreement date and registration date differ, but sub section (4) limits that exception to cases where consideration or part thereof was paid by account payee cheque/bank draft/electronic mode on or before the date of agreement. On the facts, the assessee had executed agreements in 2012-13, booked flats then, and shown instalment receipts in ledgers, with many instalments paid by cheque well before execution of sale deeds in FY 2014 15. The Tribunal held that the cheque payments recorded before registration demonstrated that the agreements were genuine and acted upon, so that the stamp duty valuation on the date of agreement could be taken in the peculiar facts of the case. The Tribunal also relied on coordinate bench precedent and the Bombay High Court decision that section 43CA is not retrospective and cannot be applied to agreements executed prior to its insertion; accordingly the deeming fiction could not be imposed retrospectively to penalise pre existing agreements. Applying these principles, the Tribunal found the additions under section 43CA unsustainable and deleted them. [Paras 6, 7, 11, 12] Additions made under section 43CA deleted as section 43CA could not be retroactively applied to agreements entered into prior to 01.04.2014 and, on the facts, ledger/cheque payments established genuineness of earlier agreements. Concealment of sale consideration - Whether addition of the sale consideration of Rs. 12,05,200 was justified when the assessee did not receive or accrue that amount - HELD THAT: - The Tribunal examined the sale deed/gift deed and the chart on record which showed that the particular flat in question was transferred by the landowner (not by the assessee) and, in another case, was a gift executed by the landowner. The Assessing Officer had made an addition treating that consideration as concealed sale consideration of the assessee. On review of documents and ledger entries, the Tribunal found that the sum was not received by, nor did it accrue to, the assessee. Accordingly the addition on account of alleged concealment was unsustainable. [Paras 13, 15] Addition of the alleged concealed sale consideration deleted as the amount was neither received by nor accrued to the assessee. Final Conclusion: The Tribunal allowed the appeal: deletions made by Assessing Officer/CIT(A) under section 43CA and the addition for alleged concealed consideration were set aside and the assessee's appeal was allowed.

2023 (12) TMI 1050 - BOMBAY HIGH COURT GST

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Municipal Council Ordered to Deposit GST Amount Promptly, Enabling Input Credit Claim for Petitioner
HC ruled that Khopoli Municipal Council must deposit GST amount with tax authorities within two weeks, enabling petitioner to claim input credit. Court directed sympathetic consideration of potential interest and penalty, disposed of case with open contentions and no cost implications.

Deposit of tax collected with competent GST authorities - entitlement to input tax credit on lawful deposit - judicially directed interim deposit and transfer mechanism - sympathetic consideration by tax authorities in respect of interest and penaltyDeposit of tax collected with competent GST authorities - judicially directed interim deposit and transfer mechanism - Deposit of the amount erroneously paid to the Khopoli Municipal Council to be transferred to the jurisdictional GST authorities by the Court/Registry. - HELD THAT: - The petitioner had deposited the GST amount with the municipal council instead of the GST authorities. Having found that the municipal council could not retain the amount, the Court recorded that the sum of Rs.38,94,868/- was deposited in Court and directed the Registry to obtain bank account details of the jurisdictional GST authorities so that the amount could be transferred in even proportion to CGST and SGST. The Registry was directed to complete the compliance within two weeks and to effect the deposit within one week of receiving the requisite information. The Court thus provided a judicial mechanism to ensure the funds reach the competent GST authorities. [Paras 7, 8]The Court ordered the amount deposited in Court to be transferred to the concerned GST authorities through the Registry as directed.Entitlement to input tax credit on lawful deposit - Petitioner's entitlement to claim input tax credit once the deposited amount is placed with the GST authorities. - HELD THAT: - The Court observed that upon lawful deposit of the amount with the GST authorities, the petitioner would be entitled to claim the input tax credit. The Court recorded that the deposit made by the petitioner (permissible in law) confers the right to the claimed input credit and left the practical operation of credit to the statutory process, keeping other contentions open. [Paras 11]On deposit with the GST authorities, the petitioner is entitled to claim the input tax credit.Sympathetic consideration by tax authorities in respect of interest and penalty - Directed that the CGST and SGST authorities should sympathetically consider the petitioner's case in relation to interest and penalty arising from the inadvertent deposit. - HELD THAT: - Relying on a co ordinate Bench's observation in analogous circumstances, the Court held that, given the peculiar facts, the CGST and SGST authorities should consider waiving or mitigating interest and penalty and treat the petitioner's case sympathetically unless they have other reasons. The order does not itself waive interest or penalty but directs the tax authorities to exercise discretion in a sympathetic manner. [Paras 9, 10]The CGST and SGST authorities are directed to consider the petitioner's case sympathetically regarding interest and penalty.Final Conclusion: The Court directed that the GST sum erroneously paid to the municipal council, which has been deposited in Court, be transferred to the appropriate GST authorities by the Registry; held that the petitioner would be entitled to input tax credit once the amount is deposited with the GST authorities; and directed that the CGST and SGST authorities consider the question of interest and penalty sympathetically in the peculiar facts of the case. No costs.

2023 (12) TMI 1269 - AUTHORITY FOR ADVANCE RULING, UTTAR PRADESH GST

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Issues Involved:
1. Liability to pay tax under Reverse Charge Mechanism (RCM) on the upfront amount charged by NOIDA Authority.
2. Whether long-term lease is in the nature of sale of land and outside the scope of supply under CGST Act.

Summary:

Issue 1: Liability to pay tax under Reverse Charge Mechanism (RCM)

The applicant, M/s Lavish Buildmart Pvt. Ltd., sought an advance ruling on whether they are liable to pay tax under RCM on the upfront amount charged by NOIDA Authority as lease premium for a long-term lease of ninety years for commercial infrastructure development.

The applicant argued that NOIDA Authority does not qualify as a Central/State Government, Union Territory, or local authority under the CGST Act. They cited various judgments and statutory provisions to support their claim that NOIDA Authority is not a 'Government' or 'Local Authority' and thus, services provided by NOIDA Authority should not fall under RCM Notification SI No 5 and 5A. They also claimed that the transaction of long-term lease is a sale of land, which is not taxable under GST.

Issue 2: Nature of Long-term Lease

The applicant contended that the long-term lease is a transaction for the sale of land and should not be treated as a supply of service under GST. They referred to Schedule III of the CGST Act, which states that the sale of land is neither a supply of goods nor services and thus not taxable under GST. They also cited CBIC Circular No 101/20/2019-GST, which clarifies that upfront amounts payable for long-term leases are exempt from GST if determined upfront.

Discussion and Finding:

The Authority for Advance Ruling examined whether the issues raised fall under Section 97(2) of the CGST Act. It was found that the applicant, being a recipient of services, does not qualify to seek an advance ruling as per Section 95 of the CGST Act, which implies that only suppliers of goods or services can apply for advance rulings.

The authority concluded that M/s Lavish Buildmart Pvt. Ltd., as a service recipient, does not fall under the definition of a supplier and thus cannot seek an advance ruling.

Ruling:

No ruling can be given in the matter as the applicant does not qualify as a supplier under the Advance Ruling provisions.

Validity:

This ruling is valid within the jurisdiction of the Authority for Advance Ruling Uttar Pradesh and subject to the provisions under Section 103(2) of the CGST Act, 2017 until declared void under Section 104(1) of the Act.

Company denied GST advance ruling on lease premium as only suppliers can apply under Section 95
The AAR, Uttar Pradesh dismissed an application filed by a company seeking advance ruling on GST liability for upfront lease premium paid to NOIDA Authority for 90-year commercial plot lease. The Authority held that only suppliers can file advance ruling applications under Section 95 of CGST Act 2017. Since the applicant was a service recipient, not a supplier, the application was rejected without considering the merits regarding whether the long-term lease constituted supply of goods or services under GST provisions.

Advance ruling admissibility - applicant must be supplier for advance ruling - scope of "supply" under the CGST Act - binding nature of advance ruling on the applicantAdvance ruling admissibility - applicant must be supplier for advance ruling - scope of "supply" under the CGST Act - Application for advance ruling is not admissible because the applicant is a recipient of service and not the supplier contemplated by the Advance Ruling provisions. - HELD THAT: - The Authority examined the statutory scheme of advance rulings, notably the definition of "advance ruling" and "applicant" in section 95 read with the scope of "supply" in section 7 and the applicability provision in section 103. Section 95(a) contemplates an advance ruling in relation to supplies "being undertaken or proposed to be undertaken by the applicant," thereby implying that the applicant must be a supplier. The Authority found from the application that M/s Lavish Buildmart Pvt. Ltd. is the recipient of services from New Okhla Industrial Development Authority and has itself admitted to being a service recipient. Given that the Advance Ruling provisions are intended for suppliers (persons making or proposing to make supplies), the Authority held that the application does not fall within the statutory competence to decide on merits. As the ruling under section 103 is binding only upon the applicant, and the applicant does not qualify as a supplier entitled to seek an advance ruling, the application could not be admitted for consideration on the merits and no substantive ruling on issues such as applicability of reverse charge or classification of the lease was given. [Paras 11, 12, 13, 14, 15]Application for advance ruling is not admitted; no ruling on the merits can be given because the applicant is a service recipient and not a supplier as required under the Advance Ruling provisions.Final Conclusion: The Advance Ruling Authority declined to admit the application for determination of GST liability because the applicant is a recipient of the service and therefore does not qualify as an "applicant" (supplier) under the Advance Ruling provisions; accordingly, no ruling on the substantive questions was given.

2023 (12) TMI 52 - ITAT DELHI Income Tax

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Issues involved:
The disallowance of expenses incurred towards removal of encumbrances for the purpose of determining tax liability towards capital gain.

Summary:
The appeal was filed by the assessee against the order of the Commissioner of Income Tax (Appeals) concerning the disallowance of Rs. 2,12,29,422 claimed as deduction for indexed cost of improvement. The assessee, engaged in real estate business, declared capital gains from the sale of land parcel and claimed deduction for expenses incurred in removing encumbrances on the land. The Assessing Officer disallowed the deduction, leading to an enhanced capital gain. The CIT(A) granted partial relief based on the evidence provided by the assessee, but the assessee appealed to the Tribunal challenging the partial relief granted.

Detailed Judgment:
The assessee contended that the expenses incurred for removing encumbrances were disallowed by the Assessing Officer and partially accepted by the CIT(A). The assessee had purchased land where certain persons claimed rights of possession, leading to encumbrances. Negotiations were conducted with these claimants, and a total of Rs. 2,02,43,749 was paid by the assessee for removal of encumbrances. The cost was reflected in the balance-sheet of the preceding financial year. The assessee sold a portion of the land in the relevant assessment year and claimed deduction for the cost incurred in removing encumbrances. The Revenue Authorities questioned the legitimacy of these expenses due to lack of direct evidence, except for a payment of Rs. 15 lakh to one claimant, Shri Rajender Kumar.

Upon review of the bank statement, it was observed that withdrawals were made in the names of various parties during the period when the expenses were claimed to have been incurred. The Tribunal noted that the payment of Rs. 15 lakh to Shri Rajender Kumar was accepted as a cost of removing encumbrances. The bank statement indicated payments to multiple parties, suggesting the genuineness of the expenses. Considering the socio-economic context of India, where compensation is often paid for encroachments, the Tribunal found merit in the assessee's claim. Additionally, since the costs were accounted for in the preceding financial year, they could not be revisited. Therefore, the Tribunal accepted the plea of the assessee and reversed the disallowance made by the Assessing Officer.

Conclusion:
The Tribunal allowed the appeal of the assessee, setting aside the orders of the lower authorities and accepting the deduction claimed for the expenses incurred towards removal of encumbrances.

Assessee wins appeal on capital gains computation as expenses for encumbrance removal allowed despite Revenue's objections
The ITAT Delhi allowed the assessee's appeal regarding capital gains computation. The Revenue questioned expenses for removal of encumbrances, accepting only Rs. 15 lakh paid to one party while disallowing other payments due to lack of corroboration. The ITAT found bank statements showed payments to multiple parties for encumbrance removal, reflecting ground realities where landowners pay compensation to unauthorized occupants for clean possession. Considering the socio-economic context and that expenses were incurred and accounted in the preceding financial year, the ITAT accepted the assessee's claim and reversed the disallowance made by the Assessing Officer.

Deduction for cost of improvement - removal of encumbrances - capital gains-indexed cost of improvement - proof of expenditure-bank entries as corroboration - expenditure accounted in earlier year cannot ordinarily be revisitedDeduction for cost of improvement - removal of encumbrances - proof of expenditure-bank entries as corroboration - expenditure accounted in earlier year cannot ordinarily be revisited - capital gains-indexed cost of improvement - Validity of disallowance of deduction claimed as cost of improvement on account of payments made for removal of encumbrances in computation of long term capital gain - HELD THAT: - The Tribunal accepted that the assessee purchased land earlier and, on completion, found third-party claims of possession. The assessee paid various persons to remove encumbrances and included those payments in the balance-sheet for Financial Year 2010-11. For the portion of land sold in Financial Year 2011-12 (relevant to AY 2012-13), the assessee claimed pro rata indexed cost of such improvements. The Assessing Officer disallowed the deduction for lack of corroborative evidence except for one admitted payment of Rs. 15 lakh. On review of the bank statements the Tribunal found multiple withdrawals in the names of the alleged recipients occurring in the period October 2010 to March 2011, which furnished corroboration of payments to the persons claiming rights. One recipient admitted receipt in the appeal and the CIT(A) had granted partial relief; however, the Tribunal observed that the pattern of payments, their timing, the accounting of the expenditure in the earlier financial year and the socio economic context of eviction payments together supported the genuineness of the expenditure. The Tribunal held that costs accounted for in an earlier year cannot ordinarily be reopened in the manner adopted by the Revenue and, on the facts and materials, directed that the disallowance be reversed and the claimed indexed cost of improvement be allowed in computing capital gains. [Paras 7]Disallowance of deduction for cost of improvement on account of removal of encumbrances reversed; claimed indexed cost allowed in computation of long term capital gain.Final Conclusion: The appeal is allowed: the Tribunal set aside the disallowance made by the Assessing Officer and directed allowance of the claimed indexed cost of improvement (payments for removal of encumbrances) in computing long term capital gain for AY 2012-13.

2023 (12) TMI 418 - GUJARAT HIGH COURT GST

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Provisional Release Granted: Tax Payment and Bond Required for Seized Goods Under CGST Section 67(6)
SC granted provisional release of seized goods and conveyance under Section 67(6) of CGST Act, 2017, subject to specific conditions. Petitioner must deposit requisite tax, penalties, and furnish bonds. Respondent authority restrained from further action until final case disposal. Compliance with court-specified conditions mandates immediate release of goods and vehicle.

Provisional release of seized goods and conveyance under Section 67(6) of the CGST Act - conditional interim relief subject to deposit of tax, penalty and fine and furnishing of bonds - stay of further action under Section 130 of the CGST Act until final disposalProvisional release of seized goods and conveyance under Section 67(6) of the CGST Act - conditional interim relief subject to deposit of tax, penalty and fine and furnishing of bonds - stay of further action under Section 130 of the CGST Act until final disposal - Interim provisional release of the petitioner's goods and conveyance on compliance with specified conditions and restraint on further action under Section 130 of the CGST Act until final disposal of the petition. - HELD THAT: - The Court entertained the petition seeking provisional release of a seized conveyance and goods and, exercising its discretion, granted ad-interim relief conditioned on compliance by the petitioner with specified deposits and bond furnishing. The conditions imposed require deposit of the tax, deposit of the penalty, deposit of the fine in lieu of confiscation of the conveyance and furnishing fresh bonds in respect of fine in lieu of confiscation of the goods. The Court also directed that the respondent authority shall not pass any other or further order under Section 130 of the CGST Act till final disposal of the petition. The interim release is expressly made contingent upon strict compliance with the enumerated conditions and is liable to be vacated on non-compliance. [Paras 6, 7, 8]Goods and vehicle to be released provisionally on compliance with the specified deposits and bonds; respondents restrained from passing further orders under Section 130 of the CGST Act until final disposal; non-compliance will vacate the interim relief.Final Conclusion: Ad-interim relief granted: provisional release of the petitioner's goods and conveyance upon compliance with specified deposits and furnishing of bonds; respondents restrained from further action under Section 130 of the CGST Act until the petition is finally disposed; interim relief liable to be vacated for non-compliance.

2023 (12) TMI 1077 - CESTAT NEW DELHI Customs

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Issues: (i) Whether a non-scheduled (passenger) permit holder could use imported aircraft for charter operations and whether carriage of group-company personnel, ticketless travel, or one non-remunerative flight violated Condition No. 104 of the exemption notification; and (ii) whether interest was payable on refund of redemption fine, and whether the bank guarantees furnished by the importer were liable to be discharged.

Issue (i): Whether a non-scheduled (passenger) permit holder could use imported aircraft for charter operations and whether carriage of group-company personnel, ticketless travel, or one non-remunerative flight violated Condition No. 104 of the exemption notification.

Analysis: Condition No. 104 required import approval by the competent civil aviation authority and an undertaking that the aircraft would be used for non-scheduled (passenger) services or non-scheduled (charter) services. The expression "air transport service" in the Aircraft Rules was construed broadly to include carriage by air for remuneration, whether by individual seats or by charter, and the notification did not impose a restriction that a non-scheduled (passenger) operator could not conduct charter operations. The regulatory materials and prior binding decisions recognized that a non-scheduled operator could carry out charter operations, including for group companies, and that issuance of passenger tickets was not a condition of compliance. On the facts, a single non-remunerative flight for crew familiarisation did not establish breach of the condition when the overall use was for remunerative operations.

Conclusion: The issue was decided in favour of the assessee. The exemption condition was held to be satisfied and confiscation, duty demand, interest and penalty based on alleged misuse could not stand.

Issue (ii): Whether interest was payable on refund of redemption fine, and whether the bank guarantees furnished by the importer were liable to be discharged.

Analysis: The Tribunal applied the settled position that, in the absence of a specific statutory provision, interest is not payable on refund of redemption fine paid pursuant to an adjudication order later set aside. Reliance on equitable considerations was rejected for granting such interest. Since the underlying adjudication order was set aside, the bank guarantees furnished in relation to that order were no longer sustainable and had to be discharged.

Conclusion: The issue was decided partly in favour of the assessee and partly against the assessee. Refund of the redemption fine was allowed, but interest on that refund was denied, while the bank guarantees were directed to be discharged.

Final Conclusion: The impugned confiscation and demand order was set aside to the extent of the substantive duty and penalty action, the redemption fine was ordered to be refunded, interest on that refund was declined, and the bank guarantees were released.

Ratio Decidendi: A non-scheduled (passenger) operator may satisfy the customs exemption condition by using the imported aircraft for remunerative charter operations, and absence of ticket issuance or isolated non-remunerative use does not by itself establish breach; however, interest on refund of redemption fine is not payable unless a statute expressly provides for it.

Charter use of imported aircraft satisfied exemption conditions; interest on refunded redemption fine was denied absent statutory authority.
A non-scheduled (passenger) operator was held capable of complying with the customs exemption condition by using imported aircraft for charter operations, because the aircraft rules broadly treated air transport service as carriage by air for remuneration and the notification did not bar charter use. Carriage of group-company personnel, absence of ticket issuance, or one non-remunerative familiarisation flight did not by itself establish breach; the alleged misuse-based confiscation, duty demand and penalty therefore could not stand. On refund of redemption fine, interest was denied because no statutory provision authorised it, while the bank guarantees furnished for the underlying adjudication order were directed to be discharged.

Interpretation of Condition No. 104 of the exemption notification - scope of non-scheduled (passenger) services vis-a -vis non-scheduled (charter) services - definition of air transport service under the Aircraft Rules - use by group companies and availability to members of the public - requirement to issue passenger tickets for non-scheduled operations - entitlement to refund of redemption fine and liability to pay interest - discharge of bank guarantees on setting aside of confiscation orderScope of non-scheduled (passenger) services vis-a -vis non-scheduled (charter) services - interpretation of Condition No. 104 of the exemption notification - definition of air transport service under the Aircraft Rules - Whether a permit for non-scheduled (passenger) services qualifies the holder to provide non-scheduled (charter) services for the purposes of Condition No. 104. - HELD THAT: - The Tribunal, following the Larger Bench decision in VRL Logistics and the decisions of the Delhi High Court, held that the definitions in the Aircraft Rules and the Explanation to Condition No. 104 are wide enough to cover remuneration-based charter operations within the ambit of non-scheduled (passenger) services. The term air transport service includes transport for any kind of remuneration and does not restrict the mode of charging (seat-wise or charter). CAR provisions explicitly permit a non-scheduled (passenger) operator to conduct charter operations and paragraph 2.4/2.5 of the CARs confirm that the same aircraft may be used on per-seat or charter basis. The exemption notification does not prohibit a non-scheduled (passenger) permit-holder from conducting charter operations; the subsequent amendment (explanation added by Notification No.21/2011-Cus) further clarifies that use interchangeably for passenger or charter by the respective operators is not a violation. Consequently, a non-scheduled (passenger) permit holder can provide charter services for the purposes of Condition No. 104. [Paras 15, 16, 17, 36, 37]A non-scheduled (passenger) services permit-holder may lawfully provide non-scheduled (charter) services and such use satisfies Condition No. 104.Use by group companies and availability to members of the public - interpretation of Condition No. 104 of the exemption notification - Whether use of the imported aircraft for remuneration by group companies (including transport of their personnel) violates Condition No. 104. - HELD THAT: - Relying on the Larger Bench reasoning, the Tribunal held that flights undertaken for remuneration-even for personnel of group companies-constitute air transport service and thus public transport for the purposes of the rules. The definitions distinguish scheduled services by features such as timetabling and openness to the public but do not exclude group-related remunerative charters. The CARs explicitly allow revenue charters for related entities provided they are for remuneration. Therefore, use by group companies for consideration does not amount to a breach of Condition No. 104. [Paras 14, 15, 18]Flights operated for consideration for group companies fall within non-scheduled (passenger) services and do not contravene Condition No. 104.Requirement to issue passenger tickets for non-scheduled operations - interpretation of Condition No. 104 of the exemption notification - Whether an isolated non-remunerative flight (or non-issuance of passenger tickets) amounts to violation of Condition No. 104. - HELD THAT: - The Tribunal accepted the appellant's explanation that the solitary flight in question was a crew-familiarization/test flight and that the passengers were prospective users. The Larger Bench and Delhi High Court authorities establish that non-issuance of tickets is not a determinative factor for negating non-scheduled (passenger) services; CARs and the Carriage by Air Act do not mandate ticket issuance for domestic non-scheduled operations. Even sporadic non-remunerative flights do not convert the aircraft into private use where the overall operations include remunerative air transport services. Given the factual finding that the majority of flights were remunerative and the particular flight was not a commercial carriage, Condition No. 104 was not breached by that isolated instance. [Paras 15, 19, 20]A single non-remunerative familiarization flight and non-issuance of tickets do not, by themselves, constitute a violation of Condition No. 104.Entitlement to refund of redemption fine and liability to pay interest - discharge of bank guarantees on setting aside of confiscation order - Whether the redemption fine deposited by the appellant is refundable and whether interest is payable on that refund; and whether bank guarantees furnished must be discharged. - HELD THAT: - Because the Commissioner's confiscation order and concomitant demand were set aside, the Tribunal directed refund of the redemption fine deposited and ordered discharge of the bank guarantees. However, on the question of interest, the Tribunal applied the Larger Bench precedent in Advance Mechanical Works which, relying on the Supreme Court decision in Orient Enterprises, holds that interest is not payable on redemption fines refunded following setting aside of an adjudication order. The Supreme Court's approach precludes an award of interest in such circumstances absent a specific statutory provision; equitable doctrines invoked in unrelated statutory contexts (e.g., Godavari Sugar Mills) do not justify granting interest here. Accordingly, the redemption fine must be refunded without interest, and the bank guarantees are to be released. [Paras 26, 27, 29, 30, 31]The redemption fine deposited shall be refunded; no interest is payable on that refund; and the bank guarantees furnished by the appellant shall be discharged.Final Conclusion: The Commissioner's order of confiscation and demand is set aside. The appellant is entitled to refund of the redemption fine paid (without interest) and to discharge of the bank guarantees; the appellate relief is otherwise governed by the Tribunal's application of the cited precedents regarding Condition No. 104 and interest on redemption fines.

2023 (12) TMI 848 - CESTAT NEW DELHI Service Tax

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Issues Involved:
1. Classification of wireline logging and perforation services.
2. Applicability of service tax under TTA services.
3. Invocation of the extended period of limitation.

Summary:

1. Classification of Wireline Logging and Perforation Services:
The appellant, M/s. Schulmberger Aisa Services Ltd., provided services in the exploration and production sector, including wireline logging, perforation, and other mechanical jobs. The primary contention was whether these activities should be classified under 'technical testing and analysis' (TTA) services as defined under section 65(106) of the Finance Act, 1994. The Tribunal examined the nature of the services provided, which involved gathering measurements of underground rock formations and creating holes in casings using explosives. It was determined that these activities did not constitute 'testing' or 'analysis' but rather involved measurement and mechanical operations. Consequently, the Tribunal concluded that these services could not be classified under TTA services.

2. Applicability of Service Tax under TTA Services:
The appellant initially registered under TTA services and paid service tax but stopped after being informed by ONGC that wireline logging services were not covered under TTA services. The appellant believed that the newly introduced 'mining service' from 01.06.2007 was comprehensive enough to cover their activities. The Tribunal agreed, stating that the activities of wireline logging, perforation, and other mechanical jobs were integrally connected with the mining of oil or gas and thus fell under 'mining service' from 01.06.2007. The Tribunal referenced several decisions, including Aryan Energy and Indian National Shipowners' Association, to support the view that the introduction of a new service entry presupposes that there was no earlier entry covering the said services.

3. Invocation of the Extended Period of Limitation:
The Commissioner invoked the extended period of limitation under section 73(1) of the Finance Act, alleging willful suppression of facts by the appellant. The Tribunal, however, found that the appellant had repeatedly informed the department about their service tax positions and had been paying service tax under 'mining services' from 01.06.2007. The Tribunal referred to several Supreme Court and High Court decisions, including Pushpam Pharmaceuticals and Bharat Hotels Limited, which held that suppression of facts must be deliberate and with an intent to evade payment of duty. The Tribunal concluded that the extended period of limitation could not be invoked as the appellant had acted in good faith and disclosed relevant information to the department.

Conclusion:
The Tribunal set aside the impugned order dated 28.08.2012, confirming the demand with interest and penalty, and allowed the appeal, concluding that the appellant's activities were not covered under TTA services and that the extended period of limitation was not justifiably invoked.

Wireline logging and perforation activities classified as mining services not technical testing analysis under Section 65
CESTAT New Delhi held that appellant's wireline logging and perforation activities during 2003-2008 did not constitute technical testing and analysis services. The tribunal found these activities involved only data collection and measurement, not testing or analysis. Since the department acknowledged these services fell under mining services category from June 2007, they could not be classified under TTA services prior to that date. The tribunal also ruled that extended limitation period was improperly invoked as appellant had consistently informed the department about non-applicability of TTA services. The Commissioner's order was set aside and appeal allowed.

Classification of services - technical testing and analysis - technical testing and analysis agency - mining service - overlap of tax entries - extended period of limitation - suppression of facts - wilful suppression - intent to evade payment of tax - requirement of direct or proximate nexusTechnical testing and analysis - technical testing and analysis agency - mining service - classification of services - overlap of tax entries - requirement of direct or proximate nexus - Whether wireline logging, perforation and related wireline activities fall within 'technical testing and analysis' prior to 01.06.2007 or, alternatively, are covered by 'mining service' from 01.06.2007 - HELD THAT: - The Tribunal examined the statutory definition of 'technical testing and analysis' and the meanings of 'testing', 'analysis', 'measurement' and 'logging' in standard dictionaries and technical literature. The activities undertaken by the appellant were found to be primarily measurement and recording (well-logging) and mechanical operations (perforation) involving mobilisation of specialised equipment to capture data which ONGC itself analyses. The work contracted required capturing measurements and communicating processed data/ logs to ONGC rather than undertaking testing or analytic interpretation that establishes quality against standards. Technical literature cited showed well-logging to be the process of recording rock and fluid properties and perforation to be purely mechanical. Consequently, those activities do not fall within 'technical testing and analysis'. However, the Tribunal accepted that services like wireline logging, perforation and ancillary mechanical wireline operations are integrally connected with drilling and mining of oil/gas and therefore fall within the scope of the taxable category 'mining service' as introduced w.e.f. 01.06.2007. Applying the established principle that the introduction of a new taxing entry (without amendment of the earlier entry) indicates that the covered services were not taxable under the earlier entry for prior periods, the Tribunal held that service tax could not be charged under TTA for periods prior to 01.06.2007 where the department admits those activities fall under mining services from 01.06.2007. [Paras 33, 34, 35, 44, 45]Wireline logging and perforation activities are not 'technical testing and analysis' and, while these activities do not attract TTA prior to 01.06.2007, they are covered by 'mining service' from 01.06.2007; accordingly service tax under TTA cannot be charged prior to 01.06.2007.Extended period of limitation - suppression of facts - wilful suppression - intent to evade payment of tax - Whether the extended period of limitation under the proviso to section 73(1) of the Finance Act could be invoked against the appellant - HELD THAT: - The Tribunal reviewed statutory provisions and precedents which construe 'suppression of facts' in the proviso to section 73(1) as requiring deliberate or wilful omission with intent to evade tax. The record showed the appellant repeatedly informed the department (by letters dated 23.12.2004 and subsequently) that wireline logging services were not within TTA and thereafter registered and paid tax under 'mining service' w.e.f. 01.06.2007. The show cause notice invoking extended limitation was issued on 23.10.2008, after these communications and after the appellant had sought refunds and disclosed the position in returns. Applying the settled principle that mere omission or dispute about taxability does not amount to wilful suppression, and that the burden lies on Revenue to prove deliberate suppression with intent to evade, the Tribunal found no material to establish wilful suppression or intent to evade and held the extended period was not invocable. [Paras 52, 56, 58, 65, 66]Extended period of limitation under section 73(1) could not be invoked as there was no wilful suppression or evidence of intent to evade tax; thereby the extended limitation was not applicable.Final Conclusion: The impugned order dated 28.08.2012 confirming demand, interest and penalty is set aside. The Tribunal held that the appellant's wireline logging and perforation activities did not constitute 'technical testing and analysis' for periods prior to 01.06.2007 (and are covered by 'mining service' from 01.06.2007) and that the extended period of limitation could not be invoked; the appeal is allowed.

2023 (12) TMI 354 - TELANGANA HIGH COURT GST

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GST Registration Cancellation Overturned: Procedural Flaws Exposed, Petitioner Given Chance to Respond and Seek Fair Hearing
HC allowed petitioner's writ challenging GST registration cancellation. Court found procedural irregularities in cancellation order and remanded matter to tax authority. Petitioner granted seven days to submit reply, and authority instructed to pass reasoned order within four weeks, ensuring principles of natural justice are followed.

2023 (12) TMI 204 - ITAT DELHI Income Tax

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Issues Involved:
1. Disallowance under Section 14A of the Income Tax Act.
2. Disallowance of proportionate interest under Section 37(1) of the Income Tax Act.

Summary:

Issue 1: Disallowance under Section 14A

The Assessee filed an appeal against the disallowance of Rs. 6,37,90,540/- under Section 14A of the Income Tax Act. The Assessee argued that a suo moto disallowance of Rs. 64,02,092/- had already been made and that the Assessing Officer (AO) did not record any satisfaction note as required by law. The Assessee relied on the Supreme Court judgment in Maxopp Investment Ltd. vs. Commissioner of Income Tax, New Delhi, which mandates that the AO must record satisfaction before applying the theory of apportionment. The Tribunal observed that the AO did not consider the Assessee's suo moto disallowance and did not provide reasons for rejecting it. The Tribunal also noted that in the Assessee's own case for the assessment year 2010-11, similar disallowances were restricted by the First Appellate Authority and confirmed by the Tribunal, which was upheld by the Delhi High Court. Consequently, the Tribunal restored the issue to the files of the AO to reconsider the principles recognized in the Maxopp Investments Ltd. case and the Assessee's own case for AY 2010-11.

Issue 2: Disallowance of Proportionate Interest under Section 37(1)

The Assessee contested the disallowance of Rs. 78,20,000/- under Section 37(1) for interest expenses on funds borrowed and given as interest-free loans to related parties. The Assessee argued that sufficient surplus funds and capital receipts from share issuance were available, and the borrowed funds were not utilized for these loans. The Tribunal observed that the Assessee had sufficient surplus funds and capital receipts, and merely raising loans or paying interest does not justify the disallowance. The Tribunal relied on the Supreme Court judgment in South Indian Bank Ltd. vs. Commissioner of Income Tax, which recognizes that if interest-free own funds are available, investments are presumed to be made from these funds. The Tribunal concluded that the disallowance was not justified and deserved to be deleted.

Conclusion:

The Tribunal allowed the appeal, directing the AO to reconsider the disallowance under Section 14A in light of the Supreme Court judgment and previous assessments, and deleted the disallowance under Section 37(1) for proportionate interest. The order was pronounced on 30th June, 2023.

Assessee wins on Section 14A disallowance and Section 36(1)(vii) deduction for subsidiary loans
The ITAT Delhi ruled in favor of the assessee on two key issues. Regarding Section 14A disallowance, the tribunal found that tax authorities failed to consider the assessee's suo-moto disallowances and that fresh investments were made from own funds raised through equity issuance, not borrowed funds. The matter was remanded to the AO for fresh consideration following SC precedents. On Section 36(1)(vii) deduction for interest-free loans to subsidiaries, the tribunal allowed the deduction, noting the assessee had sufficient surplus funds and raised capital through share issuance. Following SC precedent in South Indian Bank Ltd., investments were presumed made from interest-free own funds when such funds exceeded investment amounts.

Disallowance under section 14A read with Rule 8D - Requirement of recording AO's satisfaction before applying apportionment to suo moto Section 14A disallowance - Remand for fresh consideration in light of binding precedents - Allocation of interest expenses to interest free advances and proportional disallowance under section 37(1) - Presumption that investments are made out of own funds where reserves or fresh share capital sufficeDisallowance under section 14A read with Rule 8D - Requirement of recording AO's satisfaction before applying apportionment to suo moto Section 14A disallowance - Remand for fresh consideration in light of binding precedents - Disallowance made under Section 14A r.w. Rule 8D not finally sustained and matter remitted to the Assessing Officer for fresh consideration. - HELD THAT: - The Tribunal found that the Assessing Officer and the CIT(A) did not properly address the assessee's suo moto computation of disallowance and failed to record the requisite satisfaction before applying apportionment under Rule 8D, contrary to the principle in Maxopp Investments Ltd. The Tribunal also noted that the assessee had placed material on record showing investments were made out of own funds/fresh share capital and that the assessee's earlier proceedings (AY 2010 11) and the Delhi High Court order are on identical facts. In view of these lacunae and the need to apply the ratio of Maxopp and the pertinent findings in the assessee's earlier case, the Tribunal directed that the issue be restored to the file of the Assessing Officer for fresh adjudication applying the correct legal tests and recording reasons as required. [Paras 6, 7, 8]Issue remitted to the Assessing Officer to reconsider the Section 14A disallowance in accordance with the ratio in Maxopp Investments Ltd. and the assessee's earlier decision.Allocation of interest expenses to interest free advances and proportional disallowance under section 37(1) - Presumption that investments are made out of own funds where reserves or fresh share capital suffice - Disallowance of proportionate interest under Section 37(1) in respect of interest free advances to related parties was deleted. - HELD THAT: - The Tribunal accepted the assessee's case that substantial reserves and a capital receipt from issuance of shares were available during the year and had been used for loans/advances, so that a presumption arises that investments/advances were made out of own funds. Applying the principle recognised by the Supreme Court in South Indian Bank Ltd., and having regard to the absence of any finding that the investments lacked commercial nexus with the assessee's business, the Tribunal concluded that the Assessing Officer's proportional disallowance was not justified and deserved deletion. [Paras 11, 12]Proportionate interest disallowance under Section 37(1) deleted and relief granted to the assessee on this ground.Final Conclusion: The appeal is allowed in part: the proportional interest disallowance under Section 37(1) is deleted; the Section 14A disallowance is remitted to the Assessing Officer for fresh consideration in accordance with the applicable precedents and with reasons recorded.

2023 (12) TMI 91 - ITAT MUMBAI Income Tax

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ISSUES PRESENTED AND CONSIDERED

1. Whether amounts received from sale of metal/CRC sheets characterized as "defective sheets" fall within the statutory definition of "scrap" so as to attract liability to collect tax at source under section 206C.

2. Whether proceedings and orders initiated and passed under section 206C(6A)/206C(1) and demand of TCS and interest under section 206C(7) are time-barred where taken after four years from the end of the relevant financial year.

3. Whether interest under section 206C(7) and penalty under section 271CA remain leviable where the substantive order under section 206C is quashed as barred by limitation.

ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Applicability of section 206C to sales of defective/CRC sheets (Legal framework)

Legal framework: Section 206C requires collection of tax at source on sale of "scrap" as defined in the statute - meaning waste and scrap produced by manufacturing or mechanical working which is not usable as such.

Precedent treatment: The Tribunal considered authorities that interpret the scope of "scrap" and whether trading in usable defective sheets amounts to sale of scrap; those authorities have been relied upon by parties in support of differing contentions. (See cross-reference to reasoning on limitation where precedential approach to similar provisions is discussed.)

Interpretation and reasoning: The Tribunal examined the statutory definition emphasizing that "scrap" connotes material not usable as such without further processing and arising from manufacturing/mechanical working. The assessee's case, as recorded, was that the traded items were defective sheets that remained usable as such and not the product of manufacturing scrap; therefore they did not fall within the statutory concept of "scrap". The lower authorities treated the sales as scrap and levied TCS.

Ratio vs. Obiter: The Court did not finally decide the substantive characterization dispute on its merits because the Tribunal disposed of the appeal on limitation grounds (see Issue 2). Accordingly, any observations regarding the characterization of the goods as scrap are obiter in the context of the present decision.

Conclusion: No operative conclusion on the substantive applicability of section 206C to the transactions was reached because the substantive demand was quashed on limitation grounds; thus the question remains unadjudicated in ratio and any comment is non-binding obiter.

Issue 2 - Limitation for initiating proceedings under section 206C (Legal framework)

Legal framework: Section 206C does not prescribe an explicit time-limit for initiation of proceedings to levy TCS/assess defaults; principles of limitation applicable to analogous TDS/TCS proceedings have been considered by higher fora. Where no specific limitation is provided, a reasonable period for initiation has been judicially recognized.

Precedent treatment (followed): The Tribunal followed established higher-forum jurisprudence holding that, in the absence of a prescribed limitation, a reasonable period for initiating prosecution or proceedings under provisions akin to sections dealing with TDS/TCS is four years from the end of the relevant financial year. That four-year benchmark has been treated as applicable to orders for failure to collect tax at source where no special limitation is prescribed.

Interpretation and reasoning: Applying the four-year reasonable-period principle, the Tribunal computed the limitation from the end of the financial year concerned. For the assessment year in question the four-year period expired before issuance of the show-cause notice and before the order under section 206C was passed. The Tribunal held that the Assessing Officer's show-cause notice and subsequent order were therefore beyond the reasonable period and lacked legal sustainment.

Ratio vs. Obiter: This finding is ratio decidendi for the adjudication of the appeal because it disposes of the appeal on a pure question of law - the maintainability of the order for want of limitation - and is the operative basis for quashing the demand.

Conclusion: Proceedings and order under section 206C(6A)/206C(1) taken after the four-year period from the end of the relevant financial year are time-barred; the Tribunal quashed the order and demand on that ground.

Issue 3 - Consequences for interest under section 206C(7) and penalty under section 271CA when substantive order is quashed (Legal framework)

Legal framework: Interest under section 206C(7) and penalty under section 271CA are consequential on the substantive establishment of a TCS liability or default.

Precedent treatment: Where the substantive demand or order is set aside as invalid (for example, for being barred by limitation), ancillary demands such as interest and penalties founded on that order lose their legal basis and fall with the principal order.

Interpretation and reasoning: The Tribunal observed that, since the substantive order under section 206C was quashed as barred by limitation, the interest levied under section 206C(7) and the penalty imposed under section 271CA had no independent footing and could not survive independently of the principal order.

Ratio vs. Obiter: The conclusion that consequential interest and penalty fall when the principal demand is quashed is part of the operative ratio in so far as it follows directly from the Tribunal's primary finding on limitation.

Conclusion: Interest under section 206C(7) and penalty under section 271CA were dismissed as having no legs to stand once the principal order under section 206C was quashed for being time-barred.

Cross-references and ancillary procedural point

The Tribunal addressed delay in filing an appeal against the penalty and applied the pandemic-period exclusion of time from national jurisprudence to hold there was no delay; this procedural finding enabled adjudication on merits of the penalty appeal without rejecting it on limitation grounds. However, ultimate dismissal of the penalty was on substantive/consequential grounds tied to quashing of the principal order.

TCS order under section 206C(1) quashed as four-year limitation period expired before show cause notice issued
ITAT Mumbai quashed AO's order imposing TCS under section 206C(1) and interest under section 206C(7) for AY 2012-13. The four-year limitation period expired on 31-03-2016, but the show cause notice was issued on 27-06-2017 and order passed on 26-07-2017, both beyond the statutory limitation period. The tribunal held the order was not maintainable in law due to being time-barred and liable to be quashed.

Limitation for initiation of proceedings for failure to collect Tax at Source - Application of a four-year reasonable period where no statutory limitation is prescribed - Liability for Tax Collected at Source under section 206C and interest under section 206C(7) - Penalty under section 271CA consequent upon a tax demandLimitation for initiation of proceedings for failure to collect Tax at Source - Application of a four-year reasonable period where no statutory limitation is prescribed - Liability for Tax Collected at Source under section 206C and interest under section 206C(7) - The demand and interest levied by the Assessing Officer for failure to collect TCS for A.Y. 2012-13 were barred by limitation and the order passed by the AO is to be quashed. - HELD THAT: - The Tribunal applied the settled principle that where no specific limitation is prescribed for initiating proceedings (as in the provisions invoked for failure to collect TCS), a reasonable period of four years from the end of the relevant financial year is to be followed. Relying on precedents of higher forums (including decisions of the Gujarat and Delhi High Courts and ITAT authority), the Tribunal observed that the four-year period for the financial year relevant to A.Y. 2012-13 expired on 31-03-2016. The show-cause notice and the order were issued on 27-06-2017 and 26-07-2017 respectively, i.e., beyond the four-year period. Consequently, the order under the provisions invoked for failure to collect TCS and the consequent interest were held to be time-barred and not maintainable, and therefore quashed. [Paras 6, 7, 8]The AO's order demanding TCS and interest for A.Y. 2012-13 is quashed as barred by limitation.Penalty under section 271CA consequent upon a tax demand - The penalty imposed under section 271CA for A.Y. 2012-13 was dismissed as it stood consequential upon and dependent on the quashed tax demand. - HELD THAT: - The Tribunal took the view that once the substantive demand for TCS and interest was quashed as time-barred, the penalty levied under section 271CA had no basis to survive. Accordingly, the penalty order was set aside as consequential to the quashing of the demand. [Paras 11, 12]The penalty under section 271CA is dismissed.Final Conclusion: The appeals are allowed: the order raising demand and interest for failure to collect TCS for A.Y. 2012-13 is quashed as barred by limitation (four-year rule), and the penalty under section 271CA is consequently dismissed.

2023 (12) TMI 203 - ITAT MUMBAI Income Tax

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Issues Involved:
1. Assumption of jurisdiction under Section 263 of the Income Tax Act, 1961.
2. Taxability of revenue pertaining to offshore services in India.

Summary:

1. Assumption of Jurisdiction under Section 263:
The Appellant challenged the order passed by the CIT under Section 263 of the Income Tax Act, 1961, which set aside the Assessment Order dated 30/05/2021, holding it to be erroneous and prejudicial to the interest of the Revenue. The CIT concluded that the Assessing Officer (AO) failed to conduct necessary inquiries and verification regarding offshore services rendered by the Appellant outside India and the Appellant's claim under the Double Taxation Avoidance Agreement (DTAA) between India and Korea. The CIT noticed that the AO did not properly verify the total receipts, tax treaty benefits claimed, offshore services rendered, and the attribution of income from Indian operations to the Permanent Establishment (PE) in India. The CIT issued a notice under Section 263(1) requiring the Appellant to show cause why the assessment order should not be set aside. Despite the Appellant's detailed submissions, the CIT was not convinced and noted that the AO passed the assessment order without proper application of mind and necessary inquiry.

2. Taxability of Revenue Pertaining to Offshore Services:
The CIT held that no offshore activities were performed by the Appellant and all activities were performed onshore in India. The CIT concluded that the offshore services rendered by the Appellant were provided at the project offices through employees, constituting a service PE in India. Thus, the entire offshore revenue towards such services was attributable to the PE under Article 7 of the DTAA and taxable in India. The Appellant contended that the payments made by Indian Project Owners to the Head Office were not liable to tax in India as they were for offshore services. The Appellant argued that similar payments were examined in earlier years and no additions were made. However, the CIT concluded that the AO failed to make necessary inquiries and verification regarding the payments made to the Head Office, and therefore, the assessment order was erroneous and prejudicial to the interest of Revenue.

Conclusion:
The Tribunal held that the CIT had jurisdiction to exercise power of revision under Section 263 as the AO failed to carry out necessary inquiries and verification. However, the Tribunal found merit in the Appellant's contention that the CIT was not justified in concluding that the payments made by Indian Project Owners to the Head Office were liable to tax in India without confronting the Appellant, leading to a violation of principles of natural justice. The Tribunal directed the AO to examine the issue of taxability of payments made by Indian Project Owners directly to the Head Office afresh as per the provisions of the Act and Tax Treaty, after giving the Appellant an opportunity of being heard. The appeals were partly allowed with the modification that the AO should re-examine the taxability issue.

AO's assessment erroneous for failing to examine foreign payments and offshore services under Section 263
ITAT Mumbai dismissed the assessee's appeal challenging CIT's revision order u/s 263. The tribunal held that the AO's assessment order was erroneous and prejudicial to revenue interests as it failed to examine foreign payments made directly by Indian Project Owners to Head Office and the nature/scope of offshore services. While TPO accepted domestic payments to Project Offices as arm's length, no inquiry was conducted regarding Head Office payments despite material on record indicating such transactions. The tribunal found CIT had valid jurisdiction under s.263 as AO granted tax treaty relief without proper verification of offshore services and income attribution to Indian Project Offices, triggering Explanation 2 to Section 263.

Revision under section 263 where assessment order is erroneous for want of inquiry or verification (Explanation 2 to section 263) - Obligation of the Assessing Officer to make necessary inquiry/verification into undisclosed receipts and treaty claims - Permanent Establishment and attribution of income under the Tax Treaty - Limited reference to Transfer Pricing Officer does not discharge AO's duty to examine offshore receipts - Violation of principles of natural justice by issuing substantive taxing directions without confronting the assesseeRevision under section 263 where assessment order is erroneous for want of inquiry or verification (Explanation 2 to section 263) - Obligation of the Assessing Officer to make necessary inquiry/verification into undisclosed receipts and treaty claims - Whether the Commissioner was justified in invoking revisionary jurisdiction under Explanation 2 to section 263 on the ground that the Assessing Officer had not made necessary inquiries/verification. - HELD THAT: - The Tribunal found on the material on record that although the AO issued detailed notices under section 142(1) and received reconciliations and contract copies, there were no follow-up queries or any substantive inquiry into (a) the nature and scope of offshore services, (b) apportionment of receipts between Project Offices and the Head Office, and (c) the eligibility for treaty relief. The TPO's examination was confined to domestic payments to the Project Offices and did not cover payments made directly to the Head Office. Given that a substantial portion of receipts were paid directly to the Head Office and the case was selected for scrutiny on parameters pointing to unexplained receipts and refund claims, the absence of inquiry into these specific aspects meant the assessment order was passed allowing relief without requisite verification. Consequently, the conditions of Explanation 2 to section 263 were attracted and the CIT rightly entertained revision under section 263 and set aside the assessment order. [Paras 20, 21, 22, 23]The CIT was justified in setting aside the assessment order under section 263 on the ground that the AO had not carried out necessary enquiry/verification; the assessment order was erroneous insofar as prejudicial to the revenue.Violation of principles of natural justice by issuing substantive taxing directions without confronting the assessee - Permanent Establishment and attribution of income under the Tax Treaty - Whether the directions issued by the CIT to bring payments made to the Head Office to tax and to deny treaty benefits could be sustained when the assessee was not confronted with those specific substantive taxability conclusions. - HELD THAT: - Although the Tribunal agreed that the AO had failed to make necessary inquiries, it held that the CIT's specific directions to treat payments made directly to the Head Office as taxable in India and to deny treaty benefits amounted to substantive findings on taxability which were not put to the assessee in the show-cause proceedings under section 263. Such directions, issued without giving the assessee an opportunity to respond on that particular contention, violated principles of natural justice. Therefore the Tribunal modified the CIT's directions and directed that the AO should examine the taxability and attribution issues afresh under the Act and the Tax Treaty after taking into account the CIT's observations and after affording the assessee an opportunity of being heard. [Paras 23]The CIT's directions to tax payments to the Head Office and to deny treaty benefits were quashed to the extent they imposed substantive taxability without confronting the assessee; the matter is remitted for fresh examination with opportunity of hearing.Limited reference to Transfer Pricing Officer does not discharge AO's duty to examine offshore receipts - Obligation of the Assessing Officer to make necessary inquiry/verification into undisclosed receipts and treaty claims - Whether the AO's reference to the TPO in respect of domestic transactions absolved the AO from independently examining foreign payments made directly to the Head Office. - HELD THAT: - The Tribunal emphasised that the TPO's mandate was confined to determining arm's length price of domestic transactions referred to it; acceptance of ALP for domestic payments to Project Offices could not be treated as conclusive proof that payments made directly to the Head Office represented genuine offshore services or were not taxable in India. The AO ought to have enquired into both onshore and offshore receipts, the contractual bifurcation and the factual scope of services before allowing treaty benefits. The lack of such inquiry by the AO supported the conclusion that the assessment was passed without necessary verification. [Paras 22, 23]The AO could not rely on the TPO's limited inquiry to satisfy his obligation; separate examination of payments made to the Head Office was necessary and its absence contributed to the assessment being erroneous.Final Conclusion: The CIT's exercise of revisionary jurisdiction under Explanation 2 to section 263 was upheld insofar as the AO failed to make requisite inquiries/verification, and the assessment order was set aside. However, the directions of the CIT to tax payments made to the Head Office and to deny treaty benefits were modified because those substantive conclusions were not put to the assessee; the matter is remitted to the Assessing Officer to examine taxability and attribution afresh under the Act and the Tax Treaty after considering the CIT's observations and after affording the assessee an opportunity of being heard. Both appeals are partly allowed.

2023 (12) TMI 202 - ITAT PUNE Income Tax

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Issues involved:
The issues in this case involve the correctness of the order passed under section 263 of the Income Tax Act for the assessment year 2017-18. The specific issues raised by the assessee include the jurisdiction of the Principal Commissioner of Income Tax, the taxability of deemed annual letting value, the deduction of TDS on advertisement expenses, and the treatment of interest on TDS.

Jurisdiction of Principal Commissioner of Income Tax:
The assessee contended that the order passed by the Principal Commissioner of Income Tax (PCIT) under section 263 was erroneous and beyond jurisdiction. The assessee argued that the Assessing Officer (AO) had considered all relevant details during the assessment proceedings, citing the decision in the case of Malabar Industrial Company Ltd. v. CIT. The Tribunal noted that when there are two legally possible views and the AO adopts one of them, the assessment order cannot be deemed erroneous solely on this ground.

Taxability of Deemed Annual Letting Value:
The Tribunal referred to the case of Kumar Properties and Real Estate (P.) Ltd. v. CIT and highlighted the conflicting views on the taxability of unsold flats held as stock-in-trade. It noted that the Finance Act, 2017 introduced provisions regarding the treatment of such properties, but these provisions were not applicable for the assessment year in question. Citing precedents from the Hon'ble Supreme Court and various High Courts, the Tribunal emphasized that when two legally possible views exist and the AO adopts one, the assessment order cannot be considered erroneous.

Deduction of TDS on Advertisement Expenses:
Regarding the deduction of TDS on advertisement expenses paid to Silk Route Communications, the Tribunal found that the assessee had indeed deducted the TDS and provided details to the AO during the assessment proceedings. As the assessment order was not erroneous in this regard, the order under section 263 concerning TDS on payment to Silk Route Communications was set aside.

Treatment of Interest on TDS:
The Tribunal observed that the AO had not conducted any inquiry or sought details regarding the interest on TDS. Consequently, it agreed with the PCIT that the AO had failed to carry out necessary inquiries, rendering the assessment order erroneous and prejudicial to the interest of revenue. Therefore, the order under section 263 regarding interest on TDS was upheld.

Conclusion:
The Tribunal dismissed the general issues raised in Ground Numbers 1 and 2, as each specific issue had been adjudicated on merit. The appeal of the assessee was partly allowed, with the Tribunal issuing its order on 27th June 2023.

AO's assessment on deemed annual letting value and TDS deduction upheld, but interest on TDS revision confirmed under section 263
ITAT Pune-AT partly allowed assessee's appeal against CIT's revision order u/s 263. Tribunal held that AO's view on taxing deemed annual letting value of unsold flats at 5% under s.23(1)(a) was legally possible, making assessment not erroneous. Similarly, TDS deduction on payments to third party was properly documented during assessment proceedings. However, Tribunal upheld CIT's revision regarding interest on TDS, finding AO failed to conduct necessary inquiry on this issue, making assessment erroneous and prejudicial to revenue interests.

Revisional jurisdiction under section 263 - two views doctrine - income from house property versus business income (stock-in-trade) - annual letting value of unsold flats - TDS verification and recordation during assessment proceedings - interest on TDS and requirement of AO's inquiryTwo views doctrine - income from house property versus business income (stock-in-trade) - annual letting value of unsold flats - Revisional jurisdiction under section 263 - Taxability of unsold flats shown as closing stock as 'Income from house property' and validity of order under section 263 in that regard - HELD THAT: - The Assessing Officer had recorded closing stock of ready flats and adopted the view of not taxing them as income from house property. At the time relevant to A.Y.2017-18 there existed conflicting judicial views on whether annual letting value of unsold flats held as stock-in-trade is taxable as income from house property or is exigible only as business income. Where two legally possible views exist and the AO adopts one permissible view, the assessment cannot be held to be erroneous and prejudicial to the revenue so as to invoke revisional jurisdiction under section 263. Reliance placed on binding and persuasive authorities showing that exercise of revisional power is inappropriate when the AO's view is a possible view. Applying this principle, the PCIT's exercise of jurisdiction under section 263 in respect of taxing the unsold flats was not justified. [Paras 4, 5, 6]Order under section 263 set aside insofar as it directs taxation of unsold flats as income from house property; ground allowed.TDS verification and recordation during assessment proceedings - Revisional jurisdiction under section 263 - Validity of revisional order under section 263 in respect of alleged failure to deduct TDS on payments to Silk Route Communications - HELD THAT: - The assessee produced details during assessment proceedings showing that TDS had been deducted on payments made to Silk Route Communications and these particulars were placed before the AO. The Tribunal verified that TDS was deducted and that the particulars were on record at the assessment stage. Since the AO had before him the relevant details and the assessment order reflected that position, the order under section 263 could not be sustained on this issue. [Paras 7]Order under section 263 set aside insofar as it relates to alleged non-deduction of TDS on payments to Silk Route Communications; ground allowed.Interest on TDS and requirement of AO's inquiry - Revisional jurisdiction under section 263 - Validity of revisional order under section 263 in respect of interest on TDS and whether the assessment was erroneous and prejudicial for lack of inquiry - HELD THAT: - The AO did not make any inquiry nor call for details regarding interest on TDS during the assessment proceedings. The Principal Commissioner found that necessary inquiries were not conducted by the AO. In these circumstances the assessment order was held to be erroneous and prejudicial to the interests of the revenue. The Tribunal agrees that the AO failed to carry out necessary inquiry and accordingly upholds the revisional order under section 263 limited to this issue, directing fresh consideration by the AO under the assessment provisions. [Paras 8]Order under section 263 upheld insofar as it relates to interest on TDS; ground dismissed and matter remitted for fresh examination by the AO.Final Conclusion: The appeal is partly allowed: the revisional order under section 263 is set aside in respect of (a) taxation of unsold flats as income from house property and (b) alleged non-deduction of TDS on payments to Silk Route Communications; the revisional order is upheld in respect of interest on TDS and the matter is remitted for fresh inquiry and assessment action by the Assessing Officer.

2023 (12) TMI 1237 - CESTAT KOLKATA Central Excise

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Cenvat credit on welding electrodes used for repairs and maintenance is available when integrally connected with manufacture.
Welding electrodes used in a factory for repairs and maintenance were treated as eligible for Cenvat credit because the definition of "inputs" was read broadly to include goods used in or in relation to manufacture, whether directly or indirectly. Goods that are integral to the smooth functioning of production and connected with the manufacturing process fall within this expanded scope. On that reasoning, welding electrodes used for maintenance-related work were considered sufficiently linked to manufacture, and denial of Cenvat credit was held unsustainable in favour of the assessee.

Cenvat Credit on inputs used for repairs and maintenance - Welding electrodes as inputs used in or in relation to manufacture - Scope of the expression "in the manufacture of goods" to include activities integrally connected with production - Principle that inputs need not be ingredients or directly incorporated in final productCenvat Credit on inputs used for repairs and maintenance - Welding electrodes as inputs used in or in relation to manufacture - Principle that inputs need not be ingredients or directly incorporated in final product - Denial of Cenvat credit in respect of welding electrodes used in the factory for repairs and maintenance was not sustainable; such goods qualify as inputs and credit is allowable. - HELD THAT: - The Tribunal examined whether welding electrodes employed in repairs and maintenance at the factory fall within the definition of "input" and thus attract Cenvat credit. It relied on and followed preceding High Court and Tribunal decisions which interpret the expression "in the manufacture of goods" broadly to include processes and activities integrally connected with production, and which hold that inputs need not be ingredients or directly incorporated into the final product. The Tribunal noted the ratio in JK Cottons viewed in the cited authorities that goods used for purposes such as lighting, exhaust, or other factory auxiliaries were held necessary for effective manufacturing and therefore within the scope of inputs. The Tribunal also relied on decisions considering welding electrodes as inputs used in the manufacturing process [Panipat Co-operative Sugar Mills Ltd. ; Hindustan Zinc Ltd. v. UOI ; CST, Bilaspur v. Singhal Enterprises Pvt. Ltd. ; CCE v. Ace Glass Container Ltd. ] and, applying that reasoning, held that welding electrodes used for repairs and maintenance are goods used in or in relation to manufacture of final products and hence eligible for Cenvat credit. Concluding that the issue is squarely covered by those decisions, the Tribunal allowed the appeal.Appeal allowed; denial of Cenvat credit in respect of welding electrodes set aside and credit held admissible.Final Conclusion: The Tribunal allowed the appeal and held that welding electrodes used in factory repairs and maintenance qualify as inputs used in or in relation to manufacture, entitling the assessee to Cenvat credit.

2023 (12) TMI 726 - KARNATAKA HIGH COURT GST

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Refund verification timeline under GST circular must be followed, failing which risky exporter alerts may be stayed.
Refund verification under Circular No. 131/01/2020-GST had to be completed within the prescribed 14 working days after receipt of the required particulars, with escalation and completion within the further stipulated period if not finished. Because verification remained incomplete despite lapse of time, the authorities were required to strictly follow the circular timeline, and the continued 'risky exporter' alert and E.O. remark were liable to be stayed if verification was still not completed within the further time granted. Lawful verification could still proceed thereafter.

Mandamus to revoke classification as "risky exporter" - completion of verification within prescribed timelines under Circular No.131/01/2020-GST - staying of alert and E.O. remark classifying exporter as "risky" for grant of refundCompletion of verification within prescribed timelines under Circular No.131/01/2020-GST - Authorities must adhere to the timeline for verification prescribed in Circular No.131/01/2020-GST (Annexure-A). - HELD THAT: - The Court noted the admitted fact that the verification required by Circular No.131/01/2020-GST had not been completed. The Circular prescribes that the jurisdictional CGST office shall complete verification within 14 working days of receipt of the required information, with escalation to a nodal cell and to the Jurisdictional Pr. Chief Commissioner/Chief Commissioner if not done, and a further 7 working days for completion on escalation. In light of the non-completion, the Court directed the authorities to strictly adhere to these timelines and to expedite verification in accordance with the procedure set out in Annexure-A to the Circular. [Paras 4, 5]Directed strict compliance with the time frame in Circular No.131/01/2020-GST; verification to be completed in accordance with the procedure in Annexure-A.Mandamus to revoke classification as "risky exporter" - staying of alert and E.O. remark classifying exporter as "risky" for grant of refund - Conditional relief in the form of stay of the alert and E.O. remark classifying the petitioner as a "risky exporter" if verification is not completed within the specified short period. - HELD THAT: - The Court provided interim relief balancing the need for risk mitigation with protection of genuine exporters. It ordered that if verification is not completed within three weeks from the date of the order, the alert and the E.O. remark tagging the petitioner as a "risky exporter" insofar as it impedes grant of refund shall stand stayed. This conditional stay is without prejudice to the respondents completing verification thereafter, which the Court directed must be done within one month following the lapse of the three-week period. [Paras 5]If verification is not completed within three weeks, the alert and E.O. remark classifying the exporter as "risky" (for the purpose of grant of refund) shall be stayed; verification must thereafter be completed within one month.Final Conclusion: Petition disposed by directing strict compliance with verification timelines in Circular No.131/01/2020-GST; a conditional stay on the "risky exporter" alert/E.O. remark affecting refund was ordered if verification is not completed within three weeks, with verification to be completed within one month thereafter.

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