ITAT Chennai Judgments — September 2024

The Tribunal held that for services to be taxed as 'fees for included services' under the India-US DTAA, they must make available technical knowledge, expertise, skill, know-how, or processes to the recipient, enabling them to use it independently. The services provided by the assessee were found to be repetitive and ongoing, requiring continuous recourse to the assessee, thus not making the technology available. Therefore, the services are not taxable in India.

The Tribunal held that the delay in filing Form 10B was minimal and primarily due to technical glitches and uncertainties in due dates, exacerbated by the Covid-19 pandemic. Considering these factors and the CBDT's circulars allowing condonation of delay, the delay in verification deserves to be ignored in the interest of justice.

The Tribunal held that while the AO's disallowance of direct expenses under Rule 8D(2)(i) was confirmed, the computation of indirect expenses under Rule 8D(2)(ii) was set aside for fresh adjudication. The disallowance under Rule 8D(2)(iii) was directed to be computed at 0.5% of investment yielding exempt income. The issue of interest on debentures, denial of deduction for provision for bad and doubtful debts, and disallowance of interest cost on zero percent bonds were decided in favor of the assessee, relying on previous decisions and judicial precedents. The disallowance of mark-to-market losses was also allowed.

The Tribunal held that the AO's satisfaction note did not sufficiently demonstrate the 'jurisdictional fact' required to invoke Section 153C for extended assessment years. The seized material did not relate to the assessee or contain incriminating evidence of escaped income in the form of an 'asset' as defined by the law. Furthermore, for unabated assessment years, additions can only be made based on incriminating material found during the search.

The Tribunal noted that the assessee failed to establish that the cash advances received were culminated into sales and recorded in the books. Despite directions from the ITAT to verify this, the assessee could not provide sufficient evidence. The CIT(A) had also found no infirmity in the order of the lower authorities.

The Tribunal held that the satisfaction note prepared by the AO did not satisfy the requirement of law as stipulated under Section 153C of the Act, as the seized material did not pertain to the assessee or contain anything incriminating. The notice issued under Section 153C was bad in law for want of jurisdiction. For AY 2014-15, the disallowance of loss and addition for commission were not permissible as they were not based on any incriminating material found during the search. The addition for cash interest income was also held to be unjustified as it was already admitted and offered to tax by the searched person.

The Court held that the AO's issuance of notice u/s 153C was bad in law due to lack of jurisdiction, as the seized material did not pertain to the assessee and did not contain any incriminating evidence against them. Furthermore, for unabated assessments, additions are only permissible if based on incriminating material found during the search.

The Tribunal held that the interest earned on investment in the Co-operative Society is eligible for deduction under section 80P(2)(d), but the interest earned from the savings bank account cannot be treated as income or dividend from investment. Since the assessee could not provide material to show the savings account amount was an investment, the CIT(A)'s order was upheld.

The Tribunal held that the PCIT's revisionary power under Section 263 was not permissible as the subject matter of the revision was already pending before the CIT(A). Citing the Hon'ble Madras High Court's decision, the Tribunal concluded that the PCIT cannot revise an assessment order when a larger issue is pending before the Commissioner of Appeal.

Despite the assessee's negligence, the Tribunal accepted the prayer to restore the issue of the Rs. 54.60 Lacs SBN deposit addition back to the AO for de novo adjudication, imposing a cost of Rs. 5,000.

The assessee argued that a resolution plan approved by the NCLT and subsequently by the Supreme Court settled all operational creditors, including income-tax, at NIL value. The Tribunal accepted this argument, stating that the penalty under section 271(1)(c) of the Act does not survive and should be deleted.

The Tribunal found that for cash deposits, the assessee had provided some evidence but failed to establish the nature of furniture sold. For rental advance and amount payable, there was no change in the figures from the previous year, making the additions unsustainable. The share of profit addition was also found to be unsubstantiated.

The Tribunal held that the PCIT erred in invoking revisional jurisdiction. Citing decisions from the Madras High Court in CIT v. CRK Swamy and CIT v. CMRL, the Tribunal found that the PCIT had distorted the assessment order by assuming a finding of concealment or inaccurate particulars which was not present in the AO's order. The Tribunal concluded that without such a finding by the AO, the omission to initiate penalty proceedings could not be considered erroneous or prejudicial to the revenue.

The Tribunal held that the penalty orders were passed beyond the time limit prescribed under Section 275(1)(c) of the Act, making them bad in law. The court followed the Delhi High Court's decision in PCIT v. JKD Capital & Finlease Ltd.

The Tribunal held that the PCIT erred in invoking revisional jurisdiction based on the omission to initiate penalty proceedings. It was found that the PCIT had distorted the assessment order by alleging a finding of concealed income, which was not present in the original assessment. The Tribunal relied on decisions from the Madras High Court.

The Tribunal held that the Supreme Court's decision in the case of State Bank of India against M/s. Accord Life Spec Private Limited confirmed the NCLT order approving the Resolution Plan, which settled income-tax liabilities at NIL value. Consequently, the penalty imposed under section 271(1)(c) of the Act was deemed to not survive and was deleted.

The CIT(A) reduced the addition to Rs. 22,84,069/- by considering the cash book entries and the nature of the business. However, the Tribunal noted that the CIT(A) did not consider the opening cash balance as on 07.09.2017. The Tribunal directed the Assessing Officer to examine the cash book for the whole year and satisfy the opening cash balance.

The Tribunal held that the seized material alone, being incomplete and lacking crucial details, could not be treated as standalone evidence. Furthermore, the statement of Shri K. Srinivasulu, who later retracted it, could not be relied upon as corroborative evidence. The addition made by the Assessing Officer was therefore not sustainable.

The Tribunal held that the weighted deduction on R&D expenditure is allowable as the R&D facility was approved by DSIR. The forex loss was also allowed as deduction. For the Revenue's appeal, the disallowance of depreciation and maintenance cost of aircrafts was set aside to the JAO for verification. Depreciation on UPS at 60% was allowed. The disallowance of consultancy expenditure for non-deduction of TDS was held to be not warranted.

The Tribunal held that the weighted deduction on R&D expenditure is allowable as the facility was approved by DSIR, and prior to the amendment in Rule 6(7A), DSIR approval of the facility was sufficient. Regarding forex loss, the Tribunal directed the AO to allow deduction when the underlying transaction crystallizes. For the Revenue's appeal, the Tribunal set aside the issue of depreciation and maintenance cost of aircrafts to the AO for verification. It also dismissed the Revenue's ground regarding depreciation on UPS and allowed the assessee's ground on consultancy expenditure, holding that TDS was not warranted due to beneficial provisions of DTAA.

Despite the assessee's negligence, the tribunal restored the appeal to the CIT(A) for fresh adjudication in the interest of natural justice. The assessee was directed to properly substantiate its case.

The Tribunal condoned the delay, citing the principle of natural justice, despite the assessee's negligence. The appeal was restored to the CIT(A) for de novo adjudication with a direction to the assessee to substantiate its case.

The Tribunal found that both issues require verification by the Assessing Officer (AO). The impugned order was set aside, and the issues were restored to the AO for adjudication on merits after providing the assessee an opportunity to be heard.

The tribunal noted that appeals before ITAT are maintainable only if the tax effect exceeds Rs.60 lakhs, as per the circular. The tax effect in this appeal was Rs.56,16,878/-, which is less than the prescribed limit.