ITAT Bangalore Judgments — August 2023

The Tribunal held that advancing loans to SHGs is a charitable application of income, following a previous decision in the assessee's own case and CBDT Circular No. 100. The Tribunal found no infirmity in the CIT(Appeals) order.

The Tribunal held that the assessee's rectification application was filed within the prescribed time limits, considering the Supreme Court's orders on limitation extensions. It was also held that the double inclusion of income constituted a mistake apparent from the record, which should have been rectified by the revenue authorities.

The Tribunal held that the assessee is entitled to deduction under Section 80P(2)(a)(i) for interest earned on deposits to the extent they represent mandatory statutory deposits. For interest earned on deposits exceeding statutory requirements, the matter was remitted to the AO. The Tribunal also allowed the assessee to claim proportionate expenditure for earning the interest income.

The Tribunal held that the assessee is entitled to deduction under Section 80P(2)(a)(i) for interest earned on deposits to the extent they represent mandatory statutory deposits. For interest earned on deposits exceeding statutory requirements, the matter was remitted to the AO. The Tribunal also allowed the assessee to claim proportionate expenditure for earning the interest income.

The Tribunal held that the subscription revenue received by the assessee for granting access to an online video database does not constitute royalty under Article 12 of the India-US DTAA. The assessee's business model involves providing access to pre-recorded videos, not imparting specific industrial/commercial experience or granting rights to use equipment.

The Tribunal held that the foreign AE should be considered the tested party, following its own prior decisions. It also noted that the issue regarding testing the international transaction within a +/- 5% variation was already decided in favor of the assessee by the CIT(A).

The Tribunal held that the Interconnect Usage Charges (IUC) received by the assessee are not taxable in India as royalty or fees for technical services (FTS) under sections 9(1)(vi) and 9(1)(vii) of the Income Tax Act, 1961, nor under Article 13 of the India-Spain DTAA. The Tribunal relied on its own previous order for the assessee's Assessment Years 2010-11 to 2012-13, which had extensively considered the issue and judicial precedents, including judgments from the Hon'ble Karnataka High Court in the case of Vodafone. The Tribunal found that there was no transfer of intellectual property rights or grant of exclusive rights, and the installation and operation of sophisticated equipment were for earning income, not for granting the 'use or right to use' as contemplated under royalty provisions. The Tribunal also rejected the revenue's alternative argument that the income arises or accrues in India under section 5 of the Act, reiterating that the rendition of interconnect facility services takes place outside India, and the assessee has no presence in India. The payments were held to constitute business profits taxable in the resident country (Spain) and not in India due to the absence of a Permanent Establishment. The appeals were partly allowed.

The Tribunal held that the assessees failed to provide sufficient evidence to prove the lands were agricultural and actively used for cultivation. Mere entries in revenue records were deemed insufficient to establish agricultural use.

The Tribunal decided the issues as follows: Regarding working capital adjustment (Ground 1.18), the Tribunal held that the AO/TPO erred in not allowing appropriate adjustment towards working capital. It reasoned that if adjustments are not allowed for differences in working capital, then the comparable uncontrolled transactions would have to be treated as not comparable under Rule 10B(3) of the Rules, leading to a failure of the transfer pricing exercise. Therefore, following OECD guidelines, an endeavor should be made to bring in comparable companies for broad comparison. The Tribunal directed that the working capital adjustment as claimed by the assessee should be allowed. The AO/TPO was directed to give working capital adjustment as per actuals. Regarding interest on delayed receivables (Ground 1.21), the Tribunal noted that the TPO proposed an adjustment of INR 8,88,303/- by treating outstanding receivables as a loan facility and calculating interest. The DRP upheld the TPO's order. The assessee argued that no benchmarking analysis was done, no separate adjustment for interest on receivables was made if working capital adjustment was done, and that the TPO should have conducted a TP analysis. The assessee also relied on rulings in Verifone India Technology Pvt. Ltd. and Bechtel India Ltd. The Tribunal observed that this issue was considered in the case of Verifone India Technology Pvt. Ltd., where it was held that the Arm's Length Price (ALP) of transactions must be determined by following prescribed methods, which the TPO/DRP had not done. Accordingly, the Tribunal deemed it proper to restore this issue to the file of the AO/TPO for determining the ALP, i.e., interest on delayed receivables, by following the rules. The assessee was permitted to raise all contentions before the AO/TPO. The Tribunal expressly left undecided the grounds related to the treatment of "Remeasurement loss / (gain) on defined benefit plan", notional rent and employee costs, rejection/acceptance of comparables, bad and doubtful debts, foreign exchange fluctuations, and the applicability of Section 92B to receivables, as these were not explicitly addressed in the provided excerpt of the decision.

The Tribunal found that the assessee failed to provide credible evidence for royalty expenses, leading to the disallowance of the claim as revenue expenditure. However, the DRP's direction to grant depreciation was upheld. The Tribunal also directed the AO to grant full credit for TDS after verification and remitted an issue regarding refund computation to the AO.

The Tribunal noted that the CIT(A) had passed an ex-parte order and that a fresh notice was issued by the AO based on CBDT instructions. Considering the totality of facts, the Tribunal decided to remit the issue back to the CIT(A) for fresh consideration of both appeals.

The Tribunal held that the assessees failed to provide sufficient evidence to prove the lands were actually used for agricultural purposes. Mere entries in revenue records were insufficient without proof of cultivation.

The Tribunal held that the assessees failed to provide sufficient evidence to prove the lands were agricultural, despite submitting revenue records and certificates. The nature of the land and the high sale price to a construction company indicated it was not primarily used for agriculture.

The Tribunal held that the assessees failed to provide sufficient evidence to prove the lands were agricultural and actively used for cultivation. Mere entries in revenue records were deemed insufficient to establish agricultural use.

The Tribunal condoned the delay in filing the appeal due to election activities of the assessee's husband. For the merits of the case, the Tribunal confirmed the CIT(A)'s action of sustaining an addition of Rs. 25 lakhs, finding no infirmity in light of a similar case.

The Tribunal held that the delay in filing Form 10B was attributable to technical glitches in the e-portal, and considering the Supreme Court's decision on exclusion of period due to COVID-19, there was no delay. The AO was directed to grant the exemption.

The Tribunal held that the Interconnect Usage Charges (IUC) received by the assessee are not taxable in India as royalty or fees for technical services (FTS) under sections 9(1)(vi) and 9(1)(vii) of the Income Tax Act, 1961, nor under Article 13 of the India-Spain DTAA. The Tribunal relied on its own previous order for the assessee's Assessment Years 2010-11 to 2012-13, which had extensively considered the issue and judicial precedents, including judgments from the Hon'ble Karnataka High Court in the case of Vodafone. The Tribunal found that there was no transfer of intellectual property rights or grant of exclusive rights, and the installation and operation of sophisticated equipment were for earning income, not for granting the 'use or right to use' as contemplated under royalty provisions. The Tribunal also rejected the revenue's alternative argument that the income arises or accrues in India under section 5 of the Act, reiterating that the rendition of interconnect facility services takes place outside India, and the assessee has no presence in India. The payments were held to constitute business profits taxable in the resident country (Spain) and not in India due to the absence of a Permanent Establishment. The appeals were partly allowed.

The Tribunal condoned the delay in filing the appeal due to election activities of the assessee's husband. For the merits of the case, the Tribunal confirmed the CIT(A)'s action of sustaining an addition of Rs. 25 lakhs, finding no infirmity in light of a similar case.

The Tribunal addressed three primary issues. Firstly, regarding the discrepancy in total income computations, the Tribunal held that if there is no mistake in determining the total income, the Assessing Officer (AO) should correct it while passing the Order Giving Effect to the Tribunal's order. Secondly, the ground challenging the limitation period for the NFAC's order was dismissed as not pressed by the assessee. Thirdly, concerning the capitalization of salaries and wages for developing new technologies, the Tribunal noted that this issue had been considered in the assessee's own case for AY 2016-17 and AY 2015-16. Following the co-ordinate bench's decision, which held such expenditures as revenue in nature, the Tribunal restored this issue to the AO for reconsideration in light of the earlier ITAT orders and the specific arguments presented by the assessee regarding the nature of the expenditure and the ad hoc adjustment for Bench employees. The Tribunal also directed the AO to consider the TDS credit as per the latest Form 26AS. The appeal was partly allowed for statistical purposes.

The Tribunal held that the interconnect charges received by the assessee do not constitute royalty or fees for technical services and are therefore not taxable in India. The assessee's income is considered business profit taxable in Spain, as there is no permanent establishment in India.

The Tribunal held that the payments received by the assessee towards interconnectivity utility charges cannot be considered as Royalty or FTS taxable in India. The payments were considered business profits taxable in Spain, not India, due to the absence of a permanent establishment.

The Tribunal held that the payments received by the assessee towards interconnect utility charges from Indian customers/end-users cannot be considered as Royalty or FTS taxable in India under Section 9(1)(vi)/(vii) of the Act or as per the India-Spain DTAA. The Tribunal reasoned that these payments constitute business profits of the assessee, taxable in Spain, and not in India, as the assessee has no Permanent Establishment in India, a fact not disputed by the revenue. The Tribunal relied on the decisions in Vodafone Idea Ltd. and Vodafone South Ltd., and also noted that the Hon'ble High Court in the Vodafone case held that non-resident service providers do not have any presence in India. Furthermore, the Tribunal held that Indian tax authorities lack jurisdiction to tax income arising from extra-territorial sources, as the facilities are situated outside India and agreements are with foreign entities without presence in India. The issue of withholding tax liability at a higher rate was also decided against the revenue, following CIT Vs. M/s. Wipro. The liability for non-reduction of tax at source was also held against the revenue, citing Engineering Analysis, as the assessee cannot be expected to do the impossible, especially when amendments to Section 9(1)(vi) were made after the relevant AYs, and the assessee is entitled to DTAA benefits. Consequently, Ground Nos. 3 and 4 for AYs 2010-11 and 2011-12, and Ground Nos. 3 and 6 for AY 2012-13 were allowed in favour of the assessee. Legal issues in Ground Nos. 1 and 2 for AYs 2010-11 and 2011-12 were dismissed as not pressed. Interest under Section 234A, 234B, and 234C were held as consequential and not adjudicated. General grounds were not adjudicated. The appeals were partly allowed.

The Tribunal allowed the assessee's request to withdraw the appeal. Since the assessment year was covered by the APA's rollback period, the grounds raised by the assessee were dismissed as withdrawn.

The Tribunal condoned the delay in filing the appeals, citing substantial justice over technicalities. It admitted additional evidence and remanded the issues to the AO for de novo consideration.

The Tribunal found that the CIT(A) did not adequately verify the source of cash deposits, especially in light of demonetisation. The issue was remanded to the CIT(A) for fresh verification as per CBDT circulars.

The Tribunal held that EPFO falls under Sl. No. 1 of Table 1 of Rule 3 of the Income Tax Rules, 1962, and therefore, TDS is not deductible on the perquisite value of unfurnished accommodation provided to its employees. The Tribunal agreed that EPFO collects license fees in lieu of House Rent Allowance from its employees for these accommodations.

The Tribunal held that EPFO falls under Sl. No. 1 of Table 1 of Rule 3 of the Income Tax Rules, 1962, and therefore, TDS is not deductible on the perquisite value of unfurnished accommodation provided to its employees. The Tribunal agreed that EPFO collects license fees in lieu of House Rent Allowance from its employees for these accommodations.

The Tribunal held that EPFO falls under Sl. No. 1 of Table 1 of Rule 3 of the Income Tax Rules, 1962, and therefore, TDS is not deductible on the perquisite value of unfurnished accommodation provided to its employees. The Tribunal agreed that EPFO collects license fees in lieu of House Rent Allowance from its employees for these accommodations.

The Tribunal condoned the delay in filing the appeals, citing substantial justice over technicalities. It admitted additional evidence and remanded the issues to the AO for de novo consideration.

The Tribunal found that the AO did not conduct necessary inquiries with M/s. H.G. Narayan Associates before making the addition. Therefore, the issue was remitted back to the AO for further investigation.

The Tribunal condoned the delay, finding sufficient cause. It held that the appeal was dismissed in limine by the CIT(A) without a proper adjudication on merits, and therefore, the matter needed to be examined afresh.

The Tribunal held that conducting activities outside India mandates prior permission from the CBDT under section 11(1)(c). The trust failed to obtain this permission and also did not provide sufficient evidence to prove the genuineness of its charitable activities.

The Tribunal rejected the ground related to lease deed expenses, finding no evidence of accrual or incurrence in the assessment year. For the issue of short deduction of tax, the Tribunal remitted the matter back to the Assessing Officer for reconsideration.

The Tribunal found that the disallowance of gratuity payment might be incorrect if the assessee correctly accounted for it in their books. The issue of gratuity disallowance was remitted back to the AO for verification of the provision and actual payment. The carried forward loss amount was corrected to reflect the allowed gratuity deduction.

The Tribunal held that the excess application of income from earlier years can be set off against the subsequent year's surplus income. The Tribunal relied on its own previous decisions and a Karnataka High Court judgment supporting this view.

The Tribunal condoned the delay in filing the appeal. Considering the assessee's contention that the cash deposits were part of their turnover and the assessment was completed ex-parte, the Tribunal decided to send the matter back to the AO for de novo consideration.

The Tribunal admitted additional evidence filed by the assessee and found it impactful. It decided to remit the matter back to the Assessing Officer for fresh consideration in light of this new evidence.

The Tribunal admitted additional evidence filed by the assessee and found it impactful. It decided to remit the matter back to the Assessing Officer for fresh consideration in light of this new evidence.

The Tribunal held that its jurisdiction, and that of the High Court, is determined by the situs of the Assessing Officer who passed the assessment order. Therefore, the appeal filed in Bangalore was not maintainable.

The Tribunal held that the receipts from the sale of online advertisement space by the assessee to Indian customers are not taxable in India. The Tribunal relied on its own previous decisions in the case of Urban Ladder Home Décor Solutions Pvt. Ltd. and Myntra Designs Pvt. Ltd., which dealt with similar issues for the same assessment years and involved the same assessee (under its former name). These decisions held that payments for online advertisement space do not fall within the definition of 'royalty' under the Act or the DTAA, as the non-resident entities only provide enabling facilities for placing advertisements and do not grant any license or right to use underlying intellectual property or equipment. The Tribunal noted that the DRP had acknowledged the Urban Ladder decision but did not follow it due to the Revenue's appeal before the High Court. Since the issue on merits was decided in favour of the assessee, the jurisdictional grounds (grounds 4 to 7) were not adjudicated and were left open. General grounds (1 to 3) and consequential grounds (11 to 13) were dismissed.

The Tribunal held that the receipts from the sale of online advertisement space by the assessee to Indian customers are not taxable in India. The Tribunal relied on its own previous decisions in the case of Urban Ladder Home Décor Solutions Pvt. Ltd. and Myntra Designs Pvt. Ltd., which dealt with similar issues for the same assessment years and involved the same assessee (under its former name). These decisions held that payments for online advertisement space do not fall within the definition of 'royalty' under the Act or the DTAA, as the non-resident entities only provide enabling facilities for placing advertisements and do not grant any license or right to use underlying intellectual property or equipment. The Tribunal noted that the DRP had acknowledged the Urban Ladder decision but did not follow it due to the Revenue's appeal before the High Court. Since the issue on merits was decided in favour of the assessee, the jurisdictional grounds (grounds 4 to 7) were not adjudicated and were left open. General grounds (1 to 3) and consequential grounds (11 to 13) were dismissed.

The Tribunal held that the receipts from the sale of online advertisement space by the assessee to Indian customers are not taxable in India. The Tribunal relied on its own previous decisions in the case of Urban Ladder Home Décor Solutions Pvt. Ltd. and Myntra Designs Pvt. Ltd., which dealt with similar issues for the same assessment years and involved the same assessee (under its former name). These decisions held that payments for online advertisement space do not fall within the definition of 'royalty' under the Act or the DTAA, as the non-resident entities only provide enabling facilities for placing advertisements and do not grant any license or right to use underlying intellectual property or equipment. The Tribunal noted that the DRP had acknowledged the Urban Ladder decision but did not follow it due to the Revenue's appeal before the High Court. Since the issue on merits was decided in favour of the assessee, the jurisdictional grounds (grounds 4 to 7) were not adjudicated and were left open. General grounds (1 to 3) and consequential grounds (11 to 13) were dismissed.

The Tribunal held that while the Assessing Officer cannot entertain fresh claims without a revised return, the Appellate Tribunal can consider such claims if all facts are on record. Regarding Section 14A, the Tribunal reiterated that no disallowance can be made if no exempt income is earned.

The CIT(A) held that the excess stock, admitted and voluntarily declared by the assessee, constituted normal business income and not unaccounted investment. The tribunal upheld this decision, finding no error in treating it as business income subject to normal tax rates.

The Tribunal held that the CIT(Appeals) should have adjudicated the appeal on merits instead of dismissing it as infructuous. The issue of setting off business loss against capital gain was not properly considered.

The Tribunal held that the Assessing Officer (AO) failed to examine the agreement between the assessee and its dealers regarding sales incentives, which was crucial to determine if TDS under section 194H was applicable. Therefore, the AO's order was passed without necessary verification, justifying the PCIT's revisionary powers.