TaxTMI 
TaxTMI 
2026 (10) TMI 352
X X X X Extracts X X X X
X X X X Extracts X X X X
...., final assessment was completed vide order dated 20th January, 2015 under Section 143(3) read with Section 144C of the Act. As per the said order, income of the assessee was assessed at Rs. 4649,87,40,313/ -. Against the aforesaid assessment order, the assessee filed appeal before the ITAT, which was decided vide order dated 9th February, 2023. The Tribunal deleted certain additions/disallowances and set aside certain issues back to the file of the Assessing Officer, with specific directions. In pursuance to the aforesaid order, the Assessing Officer passed impugned order dated 31st March, 2024 under Section 254 read with Section 143(3) of the Act, after making additions/disallowances as under :- (i) Disallowance of deduction under Section 43B of the Act amounting to Rs. 2,76,77,437/- representing balance in RG23A as on 31st March, 2010. (ii) Disallowance of Rs. 16,95,78,062/- under Section 14A of the Act read with Rule 8D. (iii) Re-characterization of gains arising from sale of shares and securities claimed as 'capital gains' to 'business income'. (iv) Disallowance of purchases made for SMC for non-deduction of tax at source. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Officer in A.Y. 2010-11 on this issue and after considering the reply of the assessee in the current year, I disallow the claim of the assessee. 14.7 The assessee company filed its objection before the Hon'ble Dispute Resolution Panel-2, New Delhi. The Hon'ble Dispute Resolution Panel-2, New Delhi, vide para 35 on page 15 of order dated 20.11.2015 has held that "DRP has examined the issue. The primary issue involved is whether investment in mutual funds by the assessee should he treated as stock in trade or capital investment. The AO has relied upon his finding in preceding AY since facts of the present year are the same as those in earlier year. For AY 2010-11, then DRP has decided the matter against the assessee. It is noted that assessee's purchase and sale of securities were for short periods and in high volume out of mixed pool of funds over a long period of time involving great number of staff etc. Since factual matrix of the year under consideration is the same as that in preceding year, concurring with view taken by then DRP for preceding AY, the panel upholds the action of the AO. The objection is dismissed". 14.8 In view of the decision of Ho....
X X X X Extracts X X X X
X X X X Extracts X X X X
....oking to the volume of transaction, the total purchase price of mutual fund is Rs. 1004,58,57,202/- in respect of long term capital gain and Rs. 1587, 10,65,228/- in respect of short term capital gain which is substantial by any standard. Hence, he treated the transaction as the business activity of the assessee. Law is well settled now that intent is required to be examined whether it is for investment or otherwise for business of course to arrive at any conclusion certain factors need to be kept in mind. If such factors point towards business activity certainly then any surplus arising would partake character of business profit however, if it for parking surplus fund or is mandatorily made under government policy or otherwise then it will fall in category of investment. Therefore, Considering the totality of the facts, to verify the claim of the assessee that the transaction in question are pure investments by the assessee, the impugned disallowance is hereby set aside and the issue is restored back to the file of AO for decision afresh. The AO would consider all the objections of the assessee in the light of binding precedents. The Ground Numbers 13 to 13.5 are allowed for stati....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n. In the result, ground nos. 9 to 9.4 raised by the assessee are allowed with the above observations." 6.2.4 Therefore, respectfully following the judicial discipline and following the judgement of Hon'ble Jurisdictional ITAT dated 08.10.2025 in the case of the appellant in ITA No.287/Del/2016 for AY 2011-12 (lead case), as discussed above, these grounds are allowed." 7. We noted that the facts are exactly identical and the issue is squarely covered by the decision of the Tribunal in assessment year 2011-12, 2012-13 and 2013-14 cited supra. Hence, respectfully following the decision of the Tribunal in assessee's own case, we confirm the order of learned CIT(A) deleting the addition. Accordingly, this ground of Revenue's appeal is dismissed. 8. The second issue in this appeal of the Revenue is the order of learned CIT(A) deleting the disallowance made by the Assessing Officer invoking the provisions of Section 40(a)(ia) of the Act holding that provisions of Section 40(a)(ia) cannot be applied in view of the provisions of DTAA. 9. At the outset, learned Counsel for the assessee stated that this issue also is covered by the decision of the Tribunal for a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he purchases made from M/s SMC, Japan, as per the provision of Section 195 of the Income-tax Act. The assessee has not submitted the details regarding the business profits accrued to M/s SMC on above purchases, hence, it is estimated that the Net Profit on the above sales to the assessee @20% of the sales. It is further held that 50% of the above profit is attributable to the business of operations of M/s SMC in India, in absence of any information. Thus, the business profit of M/s SMC on the sales made to the assessee comes out to Rs. 238,20,87,484/- on which the assessee was liable to deduct TDS us. 195 which the assessee failed to deduct. 15.5 The assessee company filed its objection before the Hon'ble Dispute Resolution Panel-2, New Delhi. The Hon'ble Dispute Resolution Panel-2, New Delhi, vide para 38 on page 17 of order dated 20.11.2015 has held as under: "38.1 DRP has examined the issue. It is seen that AO has based his finding on conclusion drawn in preceding AY 2010-11. Then DRP has decided the matter against the assessee. The case of the assessee is that SMC does not have any PE in India and hence its business receipts are not subject to tax in I....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nvoked the above provisions on the basis of non-deduction of tax at the time of payments. First let us discuss the taxability of the above transactions under section 40(a)(i) and section 195 of the Act. In our considered view, it is settled position of law that any payment to a non-resident, tax has to be deducted only upon the transaction or payment which is chargeable to tax under Income Tax Act, as held in the case of GE India Technology Centre (P) Ltd vs CIT 327 ITR 456 (SC), Engineering Analysis Centre of Excellence Pvt Ltd vs. CIT: 125 taxmarin.com 42 (SC)] It is precondition that the AO had to establish that the payments made are chargeable to tax under the provisions of Income Tax. In the given case, the disallowances were made on the significant payments towards purchases to the SMC, Japan Which is the parent company. The issue is whether the provisions of with holding tax applicable to the purchases ?. In our view, the provisions are outside the scope of payments towards purchases. It is fact on record that the manufacturing of the goods imported by the assessee are made outside the territory of India. In our view, the above transaction has to be evaluated on the basis of....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the pay roll of the assessee company or not, whether there can be any place of management issue, issue of dependent agent PE has to be analyzed at the back drop of analyzing the international transaction with the related concern. This is not domain of the assessing officer, it is the domain of technical units like TPO. Therefore, in our considered view, TPO had already considered the issues involving the transfer pricing at the reference of the AO, the same cannot be revisited with the wrong additions proposed by the AO. The additions proposed by the AO have no legs to stand. 43. With regard to article 24 non-discrimination clause of the treaty, we have already held that the payment for purchases are not subjected to the TDS provisions, it falls under the Article 5 and 7 of the treaty, this has to be evaluated under the transfer pricing. The article 24 has direct implication when the tax authorities impose TDS provisions differently for domestic and foreign entities. In the domestic transactions, the TDS provisions are not applicable in the case of purchases, similar treatment has to be extended to the nonresidents involving similar purchases, only difference is it should....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... in not appreciating that the assessing officer referred to the provisions of Rule 8D(2)(iii) of the Rules without appreciating that jurisdictional conditions for invoking the said rule were not satisfied." 12. Brief facts are that the assessee company is a public limited company engaged in the business of manufacture, purchase and sale of automobiles. The assessee filed its return of income declaring an income of Rs. 3259,18,58,726/ -. Assessment was framed under Section 143(3) read with Section 144C(1) of the Act. The Assessing Officer, while framing assessment, made disallowance of Rs. 32,57,05,335/- of expenses relatable to exempt income by invoking the provisions of Section 14A of the Act read with Rule 8D(2)(iii) of the Rules. The assessee has made suo motu disallowance of expenses relatable to exempt income amounting to Rs. 1,69,36,938/- being administrative expenses. The matter was carried up to the Tribunal and, the Tribunal, vide order dated 9th February, 2023 in ITA No.961/Del/2015 and 1507/Del/2015, remanded the matter back to the file of the Assessing Officer with the following directions (these directions are culled out from paragraph 45 of the Tribunal's order....
X X X X Extracts X X X X
X X X X Extracts X X X X
....uired to justify the suo-moto disallowance as to why the provision of Rule 8D of the Rules should not be made applicable on the facts of the present case. Therefore, we restore this issue to the file of AO for a limited purpose to verify the claim of the assessee regarding administrative expenses incurred for maintaining such huge investment. Thereafter, AO would make disallowance as per law. Thus, Ground Nos.5 to 5.6 raised by the assessee are partly allowed for statistical purposes." 16. For this proposition, learned Counsel for the assessee relied on the decision of Hon'ble Delhi High Court in the case of H.T. Media Ltd. Vs. PCIT - [2017] 85 taxmann.com 113 (Delhi) and Coforge Ltd. Vs. ACIT - [2021] 128 taxmann.com 99 (Delhi). Learned Counsel for the assessee relied on paragraph 30 of the decision in the case of H.T. Media Ltd. (supra), wherein it is held as under :- "30. Rule 8D(1) states more or less what Section 14 A (2) of the Act states. It requires the AO to first examine the accounts of the Assessee and then record that he is not satisfied with (a) the correctness of the Assessee's claim of expenditure or (b) the claim made by the assessee that no expe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lled for. 35. In order to disallow this expense the AO had to first record, on examining the accounts, that he was not satisfied with the correctness of the Assessee's claim of Rs. 3 lakhs being the administrative expenses. This was mandatorily necessitated by Section 14 A (2) of the Act read with Rule 8D (1) (a) of the Rules. 36. In para 3.2 of the assessment order, the AO records that, in answer to the query posed by the AO requiring it to produce calculation for disallowances, the Assessee "submitted that they have not incurred any expenditure for earning the dividend income." Thereafter, in para 3.3, the AO records "I have considered the submissions of the Assessee and found not to be acceptable." Thereafter, the AO proceeded to deal with the said provisions of Section 14A and Rule 8D and observed, in para 3.3.1, that making of investment, maintaining or continuing investment and time of exit from investment are well informed and well coordinated management decisions that, in relation to earning of income, are embedded in indirect expenses. It is then stated in para 3.4 that, in view of the above, the provisions of sub-section (2) of Section 14A and Rule 8....