TaxTMI 
TaxTMI 
2024 (4) TMI 1269
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....(2) of the Act was issued on 29.06.2022. The Assessing officer ( further mentioned as 'AO') had examined the issue that the assessee has claimed to be involved in providing services to M/s Justice and Education Fund Inc. and M/s Tricontinental Ltd., which are entities based in US ( further mentioned as 'JEF' or "Foreign Body"). The AO questioned the foreign remittances of approximately Rs. 16.45 crores from 62 entities allegedly in the form of service fee/consultancy fee/website maintenance fee based on content services being provided to the Foreign Body. Based on the response of the assessee, the AO had considered these remittances to be unexplained cash credit and additions were made u/s 68 of the Act. The assessee went in appeal before the CIT(A), which was dismissed on 31.01.2024 against which the assessee is in appeal before this Tribunal and wherein the application in hand has been moved. 4. In support of application, the ld. AR for the applicant has submitted that ld. tax authorities below have fallen in error in invoking section 68 of the Act when the question of identity of the service recipient being JEF and source of remittances is not disputed. He submitted that the ....
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....ovide certain information about eligibility of the persons creating the content. The ld. AR submitted that it is not a case of fraud or bogus transaction which is sought to be passed off by the assessee as a legitimate transaction, so to allege that whole transaction is farce. 8. Referring to certain mails placed in the Paper Book, it was submitted that the ld. tax authorities have fallen in error to examine the genuineness of transaction by alleging that there were no directions from the JEF with regard to the nature of services. The ld. AR also pointed out that ld. tax authorities have fallen in error in doubting the genuineness of the transaction on the ground that the assessee had received pre-determined advances to the tune of 90% of the estimated budget. 9. Particularly referring to the order of first appellate authority, the Ld. AR submitted that CIT (A) erred in discarding the relevance of the expenses while determining the genuineness of the transaction between the applicant and JEF. It is submitted that the Applicant incurred expenses, inter alia, on salaries of employees and professional charges, in order to supply the content to JEF as per the Services Agreement. ....
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....ticles / videos / scripts was duly recognized by the applicant. This was done in terms of the Creative Commons licence granted by Peoples Dispatch, as recorded on its website, and also in the 1st Addendum to the Service Agreement. He argued that the CIT (A) has also failed to appreciate that apart from the applicant, several news organizations all over the world use the articles / videos / scripts from Peoples Dispatch for their own websites under the same Creative Commons Licence. Thus, the ownership of the content rested with JEF and such content was subject to a Creative Commons Licence. 12. Ld. AR has then alleged and submitted that the CIT (A) has erred in adopting a patently absurd logic to claim that 84% of the links were uploaded on Peoples' Despatch and the website of the almost at the same time. He submitted that the CIT (A) has failed to appreciate that the applicant had uploaded only some of the articles / videos / scripts from Peoples Dispatch on its own website, and that too after giving credit to Peoples Dispatch for the same. It is submitted that news content is by its very nature time sensitive, and therefore, there was no illegality in some of the content being....
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....e Tribunal was constrained to direct the revenue to refund the amount recovered to the assessee (emphasis supplied) 15. He has submitted that once a prima facie case is established, this Tribunal can grant stay under Section 254 of the Act, either by requiring the Assessee to deposit 20 % of the outstanding demand or security equivalent of 20 % of the outstanding amount. He relied Delhi Bench order in the case of India Property (Mauritius) Company II v. Assistant Commissioner of Income Tax, (2023) 106 ITR (Trib) 130, and contended that the Bench has granted stay based on similar considerations. The relevant part relied by him is reproduced below; "4. We find that the arguments advanced by the learned authorised representative and the learned Departmental representative require to be verified from various documents and requires extensive hearing, which could be done during the course of hearing of main appeal. At the time of stay application, what is to be seen is whether a prima facie case had been made out by the assessee and whether balance of convenience is in favour of the assessee. In our considered opinion, in order to come to a conclusion whether a prima facie ca....
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.... the Hon'ble High Court Delhi judgment in Valvoline Cummins Ltd. v. Deputy Commissioner of Income Tax, Delhi, 2008 SCC OnLine Del 634. We consider it appropriate to reproduce here in below the relevant part of the said judgment, Ld. AR has relied:- "40. It may be recalled that the returned income of the Assessee was Rs. 7.25 crores, but the assessed income is Rs. 58.68 crores, which is almost 8 times the returned income. In this regard, learned counsel has drawn our attention to Instruction No. 96 dated 21st August, 1969 issued by the CBDT, which deals with the framing of an assessment which is substantially higher than the returned income. The relevant portion of the Instruction reads as follows:- "1222. Income determined on assessment was substantially higher than returned income - Whether collection of tax in dispute is to be held in abeyance till decision on appeal 1. One of the points that came up for consideration in the 8th meeting of the Informal Consultative Committee was that income-tax assessments were arbitrarily pitched at high figures and that the collection of disputed demands as a result thereof was also not stayed in spite of the specific....
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....ts of the case and even consider public interest. 19. Now before entering on merits of the application we consider it expedient to bring on record certain settled principles of law, having an impact on determination of the application for stay of demand and, for this, we would like to rely on a recent Order of this Bench in Stay Application No.61/Del/2024 dated 8th March, 2024, wherein, with regard to the power of the Tribunal to stay the recovery proceedings, we have observed as follows:- "17. So far as the power of the Tribunal to stay the recovery proceedings is concerned, the same has been judicially well-recognized, being an inherent power, and, it has also been impliedly imparted statutory acceptance by way of insertion of first and second Provisos below Section 254(2) of the Act. The Hon'ble Supreme Court in the case of Income-tax Officer, Cannanore Vs. M.K. Mohammed Kunhi - [1969] 71 ITR 815 (SC) expressly opined that the Tribunal has power to grant stay, considering it to be a power which is incidental or ancillary to its appellate jurisdiction. In this context, we may refer to the following discussion by the Hon'ble Supreme Court : "It could w....
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.... the above, it is discernable that while exercising the power of stay, it is imperative for the Tribunal to not only consider factors, such as, existence of a prima facie case, balance of convenience and irreparable loss/hardship but also to be circumspect; and, that the stay on the recovery proceedings should not be granted as a matter of course or in a routine manner. Thus, each Application would have to be decided on its own merits, having regard to the facts and circumstances of the case. 21. We may also refer to the first Proviso below Section 254(2A) of the Act, which reads as under :- "Provided that the Appellate Tribunal may, after considering the merits of the application made by the assessee, pass an order of stay in any proceedings relating to an appeal filed under sub-section (1) of section 253, for a period not exceeding one hundred and eighty days from the date of such order and the Appellate Tribunal shall dispose of the appeal within the said period of stay specified in that order:" 22. Shorn of other details, for the purpose of the present controversy, it would suffice to note the words "...............after considering the merits of the ....
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....following observations in para 5.3.2 of his order:- "5.3.2 Vide questionnaire issued u/s 142(1), the assessee was asked to make a link between the receipts and the expenses incurred especially in the view of the fact that approx 95% receipts are from one party only. In service sector if an entity is receiving such a huge part of the receipt from one entity then it is natural that the expenses incurred are geared towards delivery of those critical services and the linkage between deliverables and cost incurred can be established with relative ease. But strangely assessee is not able to correlate the expenses with the receipts when only one party is the source of majority of the receipts. The assessee submitted the whole data of the expenses incurred by him during the financial year. No specific bifurcation was given by him so that relation of the expenses incurred for the unit of the services provided in the lieu of the receipts. Hence, no satisfactory reply was made by the assessee." 23. Thus what comes up is that AO has taken note of a relevant fact, on the basis that as to if after paying 90% of the budget, even before the start of the quarter, whether the Foreign Bod....
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....d over without any exclusivity to the Foreign Body, that in fact makes the nature of remittances in the hands of the assessee suspect, and justifies the observations of the ld. AO that the receipts from JEF is nothing, but, donation. 25. In this context, the modus operandi of the assessee has also been examined by the AO and we consider it relevant to reproduce para 5.9 in that regard:- "5.9 Further, on examination of MCA Database, it is gathered that M/s PPK Newsclick Studio Private Limited, was erstwhile existing as M/s PPK Newsclick Studio LLP. As per the details filed in Income Tax Returns of M/s PP Newsclick Studio LLP, it was incorporated on 28.04.2015 and was not carrying out any operations. Further, on analysis of the digital evidences gathered in the survey proceedings, it is revealed that the LLP was converted into Private Limited company only for the purpose of receiving foreign funding." 26. The CIT(A), confirming the findings of AO and the assessment order, has made certain observations which are prima facie appealing and we consider it appropriate to reproduce the same:- "Findings, and Decision 22. The appellant has levelled a serious ....
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....ks of accounts, the transaction has been recorded as revenue and therefore, provisions of section 68 do not apply to such receipts. 26. It is established position of law that the manner of recording an entry in the books of accounts is not determinative in deciding the taxability of receipt. Taxation is dependent upon the actual nature of transaction. What is the nomenclature given in the books of accounts or how the entry has been passed cannot determine the taxability of the receipts. Taxability of a receipt or allowance of a deduction is dependent upon the actual nature of transaction. This position of law has been affirmed by Hon'ble Supreme Court in the case of Kedarnath Jute Manufacturing Co. Ltd. vs CIT reported in [1971] 82 ITR 363 (SC). In view of the above position of law, the argument that as the receipts were disclosed in the books of accounts as income, therefore, addition u/s 68 cannot be made is not a valid argument. 27. One of the arguments of the appellant is that the addition is made on the basis suspicion is unfounded. From perusal of the assessment order, It is seen that me Assessing Officer has examined the documents furnished by the appel....
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....aimed to be belonging to the JEF. The appellant further argued that the content was uploaded on his website as per Creative Commons license. However, analysis of timing of uploading the links establishes that the appellant was uploading the content on its website like any owner of the content would upload. Therefore, the argument of the appellant that JEF was the owner of the content is not established. 32. There was a service agreement dated 01.01.2019 between the appellant and JEF. The said service agreement was amended on 01.04,2019 for the first time and on 01.01.2020 for the second time. As per the agreement, the appellant was to receive USD 200 for each article, USD 1300 for each video and USD 150 for each short script. The annexure A to the agreement provided for the following rates. S. No. Item Hourly Rate (in USD) 1. Man Hours 25 2. Use of studio space for the creation of content, including camera, electricity, computer etc. 900 Methodology for Unit cost calculation: Items Hours/per item Cost unit USD Unit Cost per item Story/report 8 25 $200 Per video man hour 16 25 $1300 Studio charges (C....
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....shes that the payment to the appellant was not actually based on any content creation. In normal business parlance, if any content is created for another party, in that case, the payment is as per the topic, length etc. of the content. In this case, there is no co-relation between the content and the payment received by the appellant from the JEF. 36. In normal business parlance, the right over the content rests with the person who is paying for it, In the instant case, the contents were created by the appellant on money paid by JEF. The content was uploaded on the website of the appellant as well as the JEF, This establishes that the was actually the owner of the content and not the JEF as claimed. By uploading the content on the website, the appellant also receives some amount. In normal business if any person uses the content owned by someone else, in that case, a payment has to be made to the owner, Such is not the case with the content developed by the and claimed to be owned by JEF. 37. The JEF do not have any IPR over the content created by it because it is freely used by the appellant also and posted on its website simultaneously along with that of JEF. ....
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....o receive funds whether or letter and spirit of the contract was followed. 43. The service agreement was basically a facade and smoke screen to hide the actual nature of transaction. In order to circumvent the FCRA regulation, firstly, the LLP was converted into the company and then in the garb of service fee, the amount was received by the appellant. Therefore, the Assessing Officer was correct and justified in treating the agreement as a sham agreement. 44. The funds received by the appellant were not out of any business considerations. The service agreement was a device to introduce unexplained funds routed through JEF to the accounts of the appellant. 45. The above discussion establishes that the transaction reported by the appellant was not a genuine business transaction. The money received by the appellant was for any purpose but business. 46. In order to escape the applicability of section 68, the appellant is required to establish a. Identity of the creditor b. Creditworthiness Of the creditor and c. Genuineness of the transaction. 47. If any of the three limbs are not established, in that ease, the pro....