ITAT Delhi Judgments — April 2024

The Tribunal considered the assessee's application and allowed the withdrawal of the appeal. Consequently, the appeal filed by the assessee was dismissed as 'withdrawn' by the order pronounced in open court.

The Income Tax Appellate Tribunal upheld the CIT(E)'s decision, finding that the assessee failed to satisfy the requirements for 80G approval under the Income Tax Act and Rule 11AA. The Tribunal noted that no material or submission was brought forth to contradict the CIT(E)'s findings, and the assessee's activities were not in line with its stated aims and objects, despite having 12AA registration.

The Tribunal held that the reopening of assessments for AYs 2007-08 and 2008-09 under Section 147 was void, deciding in favor of the assessee. Disallowance of interest expense on strategic investments in foreign subsidiaries was also allowed. Provisions for bad/doubtful advances/debts, write-off of trade debtors and stock were allowed on a 'write-off basis' with directions to the AO. However, the disallowance of employee's contribution to PF and ESI for AY 2015-16 was decided against the assessee, citing a Supreme Court judgment.

The Tribunal, relying on the Supreme Court's judgment in PCIT vs. Abhisar Buildwell Pvt. Ltd., held that an assessment completed u/s 153C r.w.s. 143(3) is an unabated assessment and cannot be subjected to revision u/s 263 without incriminating material. It was further held that the CIT(A) had correctly appreciated the evidence, and the assessee had discharged the onus regarding the identity, genuineness, and creditworthiness of the creditors.

The Tribunal, citing the Supreme Court's decision in Abhisar Buildwell, ruled that for unabated assessment years, additions under Section 153A can only be sustained if based on incriminating material found during the search. It found a direct link to search findings for the agri-land investments, thus partly allowing this ground with a direction to the AO. However, for the additions related to disallowance u/s 54F, unexplained investment in shares, and undisclosed investment in house property, no incriminating material was found during the search. Consequently, these additions were directed to be deleted.

The ITAT observed that the Ld.CIT(A) dismissed the appeal ex-parte without considering the merits. Therefore, in the interest of justice, the ITAT restored the appeal to the file of the Ld.CIT(A)-NFAC for a fresh decision on merits, ensuring adequate opportunity of being heard for the assessee.

The Tribunal held that based on precedents from the Supreme Court (Bharti Cellular) and Delhi High Court (Vodafone Idea), Section 194H of the Income Tax Act is not applicable to the facts. The assessee is not obligated to deduct tax at source on the income/profit component from payments received by distributors/franchisees from third parties or on sales of pre-paid coupons/starter-kits to distributors.

The Tribunal held that the Assessing Officer failed to record proper satisfaction for rejecting the assessee's suo moto disallowance under Section 14A, thus deleting the additional disallowance. It further ruled that no disallowance under Section 14A read with Rule 8D is warranted when computing book profits under Section 115JB, relying on a Special Bench decision.

The Tribunal partly allowed the appeal. It ruled that additions made in unabated assessment years without incriminating material found during the search cannot be sustained, following the Supreme Court's decision in Abhisar Buildwell (P.) Ltd. While partly sustaining the addition for unexplained investment in agricultural land, with a direction to the AO to adjust for cash withdrawn from the bank, it directed the deletion of other additions related to unexplained investments in shares, denial of Section 54F deduction, and unexplained investment in immovable property, as these were based on post-search information and not incriminating material.

The Tribunal dismissed the assessee's appeal, holding that interest earned from nationalized and other private banks on unutilized funds is taxable under section 56 and not eligible for deduction under section 80P(2)(a)(i). The Tribunal clarified that while the Ld. CIT(A) had directed allowing deduction for interest from co-operative banks and societies, this finding for co-operative *banks* might be misplaced based on Supreme Court precedents concerning co-operative *banks* versus co-operative *societies* investing in banks.

The Tribunal held that the reopening under Section 147 for AYs 2007-08 and 2008-09 was bad in law due to lack of new tangible material. It also allowed the interest expense disallowance in favour of the assessee, finding investments in foreign subsidiaries to be for commercial expediency. For provisions of bad/doubtful debts/advances and write-off of trade debtors/stock, the Tribunal held these should be allowed on an actual write-off basis, directing the assessee to provide details. The disallowance of employee's contribution to PF and ESI was decided against the assessee, as conceded, based on a Supreme Court ruling.

The Tribunal upheld the CIT(A)'s decision, ruling that the M2M losses, losses on forward contracts, and losses on forward premium accounts were not speculative. It found that these were genuine business losses/expenditures incurred in the normal course of business for hedging foreign currency fluctuation risks, consistent with mercantile accounting principles and supported by judicial precedents. Consequently, all grounds of appeal raised by the Revenue were dismissed.

The Tribunal, relying on the Supreme Court's judgment in Bharti Cellular Limited and the Delhi High Court's ruling in Vodafone Idea Limited, held that the assessee is not obligated to deduct tax at source on the income component from sales of prepaid coupons or starter-kits by distributors. Consequently, Section 194H is not applicable to these transactions, and the prior orders were set aside.

The Tribunal held that the reopening of assessments for AYs 2007-08 and 2008-09 was bad in law due to lack of new tangible material. It allowed the deduction for interest expense on investments in foreign subsidiaries, finding them commercially expedient and strategic. Disallowances related to provisions for bad debts/advances and write-off of trade debtors/stock were also allowed for statistical purposes, subject to production of write-off details, following previous Tribunal orders. However, the disallowance of employee's contribution to PF and ESI for AY 2015-16 was upheld, citing a Supreme Court judgment.

The ITAT upheld the decision of the CIT(A), ruling that there was no reason to interfere with the deletion of the addition. The tribunal found that the assessee had provided sufficient evidence for cash sales, stock availability, and purchases made through banking channels before demonetization, establishing the genuineness of the transactions. The AO had not disputed the availability of stock or pointed out specific defects in the submitted details.

The Tribunal found that the PCIT passed an ex-parte order under Section 263 without affording the assessee an adequate opportunity of being heard, despite notices being issued. To ensure substantial justice and a decision on merits, the Tribunal remanded the matter back to the PCIT for de-novo adjudication, instructing the assessee to cooperate.

The Tribunal held that the AO failed to record proper satisfaction under section 14A(2) for rejecting the assessee's suo moto disallowance, thus no further disallowance under Rule 8D read with section 14A was warranted. It further held that disallowance under section 14A read with Rule 8D is not applicable for computing book profits under section 115JB, citing the Special Bench decision in Vireet Investments.

The Tribunal held that the reopening of assessments u/s 147 for AYs 2007-08 and 2008-09 was bad in law. It allowed the disallowance of interest expense, provisions for bad and doubtful advances/debts, and write-offs of trade debtors and stock in favor of the assessee, primarily on a write-off basis. However, the disallowance of employee's contribution to PF and ESI for AY 2015-16 was decided against the assessee, citing a Supreme Court judgment.

The Tribunal held that the reassessment proceedings u/s 147 for AYs 2007-08 and 2008-09 were void. Disallowance of interest expense on strategic investments in foreign subsidiaries, provisions for bad/doubtful debts/advances, and stock write-offs were decided in favour of the assessee. However, the disallowance of employee's contribution to PF and ESI for AY 2015-16 was decided against the assessee, citing a Supreme Court judgment.

The Tribunal dismissed the Revenue's appeals, affirming the CIT(A)'s decision to delete the additions. It held that the CIT(A) was correct in concluding there was no incriminating material to support the additions and had properly applied settled legal principles. The Tribunal found no substance in the grounds raised by the Revenue.

The Tribunal partly allowed the appeal, noting that the assessee demonstrated sources for cash payments towards agricultural land purchases from her bank withdrawals, directing the AO to adjust the additions accordingly. For other additions related to Section 54F disallowance, investments in companies, and house property, the Tribunal, relying on the Supreme Court's decision in Abhisar Buildwell (P.) Ltd., directed their deletion as these were based on post-search information and not on incriminating material found during the search for the unabated assessment years. Grounds regarding natural justice and general grounds were dismissed.

The Tribunal dismissed the Revenue's appeals, upholding the CIT(A)'s decision to delete the additions. It found that no incriminating material was brought on record concerning the share capital or loans. The Tribunal noted that the CIT(A) had correctly applied settled legal propositions, and the DR failed to demonstrate any factual or evidential error.

The Tribunal noted the non-appearance of the assessee's legal heirs and the complete lack of evidence or submissions to substantiate the assessee's claims or challenge the additions by the lower authorities. Finding no reason to interfere with the orders of the CIT(A) and AO, the Tribunal dismissed the appeal. Liberty was granted to the legal heirs to file an application for recalling the order if desired.

The Tribunal found that the AO failed to conduct an independent inquiry into the alleged time deposit and proceeded purely on ITS data, thus violating principles of natural justice. It set aside the assessment and CIT(A) orders, restoring the matter to the AO for fresh assessment to verify the factual correctness of the time deposit. If the assessee's contention of no such deposit is found true, the addition must be deleted.

The Tribunal condoned the 870-day delay, acknowledging the assessee's non-receipt of the order and the Supreme Court's suo-motu cognizance of limitation issues during COVID-19. It found that the CIT(A) erred in dismissing the appeal as infructuous since the assessee had not opted for the Vivad se Vishwas Scheme for AY 2012-13. The Tribunal restored the appeal to the Learned CIT(A) for a fresh decision on merits.

The Tribunal found that Shri Bhim Sen Grover had sufficient funds, and the loan was received and repaid through banking channels, establishing the genuineness and creditworthiness of the transaction. Citing the principle from *CIT vs. Shri Ram Narain Goel*, the Tribunal reiterated that the assessee is not required to prove the source of the loan for the creditor, and suspicion cannot replace evidence. Therefore, the appeal was allowed, and the assessment order and the CIT(A)'s order were set aside.

The ITAT observed that the CIT(A) had dismissed the appeal ex parte due to the assessee's non-appearance, without addressing the merits. Therefore, in the interest of justice, the ITAT restored the matter back to the CIT(A) for a fresh decision on merits after granting the assessee an adequate opportunity of being heard.

The Tribunal quashed the reopening for AYs 2007-08 and 2008-09 as being bad in law. It allowed the disallowance of interest expense, holding that investments in foreign subsidiaries were for commercial expediency and presumed to be from own funds. Disallowances related to bad/doubtful debts, trade debtors, farmer advances, and stock write-offs were allowed on an actual write-off basis, following previous coordinate bench orders. However, the disallowance of employee's contribution to PF and ESI for AY 2015-16 was upheld against the assessee, based on a Supreme Court ruling.

The ITAT noted that the Ld. CIT(A) dismissed the appeal ex parte for non-prosecution, without recording findings on the grounds raised. In the interest of justice, the ITAT restored the appeal to the file of the Ld. CIT(A) for a fresh decision in accordance with law, ensuring the assessee is provided an adequate opportunity of being heard.

The Tribunal deleted the disallowance of salary paid to partners, finding that the partnership deed authorized it as per Section 40(b)(v) and the assessee had already added it back to income. For electricity expenses, Rs. 3,32,903/- was allowed based on a rent agreement, but Rs. 75,585/- was sustained due to lack of evidence. The ad-hoc disallowance of staff salary was upheld due to the absence of proper bills, vouchers, or salary slips for cash payments.

The Tribunal upheld the Ld.CIT(A)'s decision, ruling that income from fit-out charges should be assessed as business income. This decision was consistent with the Tribunal's earlier order for AY 2011-12, which found that separate rent and fit-out agreements indicated a business purpose, and all relevant facts were disclosed by the assessee.

The Tribunal affirmed the decisions of the AO and CIT(A), stating that Section 54F mandates investment in a residential property, a condition not met by the assessee. Given the property's proven commercial nature, the claim for deduction was rightly rejected, as confirmed by inspector reports and local inquiries. Consequently, the appeal was dismissed.

The Tribunal admitted the additional ground on jurisdiction, ruling that the ITO, Ward-02(3), New Delhi, lacked both territorial and pecuniary jurisdiction. It found the notice issued under Section 143(2) by the New Delhi ITO to be `non est` in the eyes of law, thereby vitiating the entire assessment proceedings under Section 143(3). The Tribunal relied on CBDT Notification No. 50/2014 and Circular No. 1/11 to support its finding on lack of jurisdiction.

The Income Tax Appellate Tribunal (ITAT) found that the approval for reopening the assessment, granted by the PCIT under section 151, was mechanical and without due application of mind, as indicated by merely writing "Yes, I am satisfied." Relying on precedents from the Supreme Court and High Courts, the Tribunal concluded that such an invalid approval renders the entire reassessment proceedings without jurisdiction.

The Tribunal, citing the Supreme Court's ruling in PCIT vs. Abhisar Buildwell Pvt. Ltd., held that the PCIT's jurisdiction u/s 263 was invalid as it sought to revise an unabated assessment completed u/s 153C r.w.s. 143(3) without incriminating material, making the order void ab initio. The Tribunal further found that the CIT(A) correctly determined that the assessee had discharged the onus regarding the identity, genuineness, and creditworthiness of the loan creditors.

The Tribunal noted that while some confirmations were filed, others were incomplete due to unserved notices to donors. To ensure no prejudice is caused, the Tribunal decided to remand the entire matter to the Assessing Officer for a de-novo adjudication of all issues, granting the assessee a proper opportunity to furnish the necessary details and confirmations.

The Tribunal held that the AO erred by not giving a set-off for cash withdrawals and matured fixed deposits against the cash deposits. The AO failed to establish that the withdrawn funds were utilized for other purposes, and therefore, the impugned addition was deleted.

The Tribunal, relying on the Supreme Court's decision in Abhisar Buildwell (P.) Ltd., held that additions in unabated assessment years are unsustainable if no incriminating material was found during the search. While acknowledging some information regarding land purchase emerged post-search, the assessee demonstrated sources for these investments. Consequently, Ground 3 (unexplained investment in land) was partly allowed with a direction to the AO for adjustment, and Grounds 4 to 7 (denial of S.54F, unexplained investment in shares and house construction) were fully allowed as they lacked incriminating material from the search.

The ITAT observed that the CIT(A) dismissed the appeal for non-prosecution without deciding the issues on merits and without considering the assessee's adjournment request. In the interest of justice, the ITAT restored the appeal to the file of the CIT(A) for adjudication on merits after providing the assessee an adequate opportunity of being heard.

The Tribunal partly allowed the appeal. It ruled that additions for unabated assessment years can only be made if based on incriminating material found during the search, citing the Supreme Court's decision in `Abhisar Buildwell (P.) Ltd.`. While a direct link was found between search findings and payments for agri-land, the AO was directed to adjust the additions to the extent of funds withdrawn from the bank. However, for other additions (disallowance u/s 54F, unexplained investment in shares, and other immovable property), the Tribunal found no incriminating material and directed their deletion.

Following the precedent set by PCIT vs. JKD Capital & Finlease Ltd. (Del. High Court), the Tribunal concluded that penalty proceedings under section 275(1)(c) are initiated from the date of reference by the AO to the JCIT (25.09.2014). Since the penalty order was passed on 25.02.2016, which is beyond the statutory 6-month period (expiring 31.03.2015), the penalty order was deemed squarely barred by limitation and required to be deleted. The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s finding.

The Tribunal held that for Sec 10A/10AA deductions, items reduced from export turnover in the numerator must also be reduced from total turnover in the denominator, citing the Supreme Court's HCL Technologies Ltd. decision. It upheld the CIT(A)'s consistent ruling that 5% of inter-company cost recoveries were non-eligible profits. Interest income (fixed deposits, inter-corporate, employee loans) and foreign exchange gains from hedging export receivables were deemed eligible for Sec 10A/10AA deduction as business income. Customer discounts, provided on a scientific basis and consistent with industry practice, were held deductible, and computer peripherals were eligible for depreciation at computer rates as an integrated system. However, the additional ground for DDT refund was dismissed based on a Special Bench decision.

The Tribunal dismissed the Revenue's appeal as not maintainable, confirming that the tax effect was below the monetary limit of Rs. 50 lakhs set by CBDT Circular No. 17/2019 for departmental appeals to the ITAT. It granted the Revenue liberty to seek recall of the order if the tax effect is later found to exceed the limit or if any exceptions apply.

The Income Tax Appellate Tribunal (ITAT) noted that the CIT(A) had proceeded ex-parte despite a valid adjournment request from the assessee. The ITAT deemed the request for *de novo* adjudication fair and reasonable. Consequently, the ITAT restored the appeal to the file of the CIT(A) for fresh adjudication, ensuring the assessee is given a reasonable opportunity of being heard and allowed to furnish fresh evidence.

The Tribunal found that the approval under Section 153D was granted mechanically, without due application of mind or examination of assessment records and seized material, thereby violating the legislative intent and judicial precedents. Consequently, the assessment orders passed based on this invalid approval were quashed and the impugned orders of the First Appellate Authority were set aside.

The Tribunal held that the approval granted by the Additional Commissioner under Section 153D was a mechanical exercise without any application of mind, as draft assessment orders for multiple assessees and assessment years were approved on the same day without examining assessment records or seized material. Citing various judicial precedents, the Tribunal reiterated that such an approval is invalid and quashed the assessment orders, setting aside the First Appellate Authority's impugned orders.

The Tribunal held that the approval granted by the Additional Commissioner of Income-tax under Section 153D was a mechanical exercise without due application of mind, failing to meet the legal requirements. Citing various judicial precedents, the Tribunal emphasized that such approval is not a mere formality and requires independent scrutiny of material for each assessee and assessment year. Therefore, the assessment orders passed based on this invalid approval were quashed, rendering the Revenue's cross-appeals infructuous and leading to their dismissal.

The Tribunal held that the approval granted by the Additional Commissioner of Income Tax under Section 153D was mechanical and did not reflect due application of mind, as draft assessment orders for numerous assessees and assessment years were approved on the same day without proper scrutiny of records or seized materials. Citing judicial precedents emphasizing the non-mechanical nature of such approvals, the Tribunal concluded that this invalid approval vitiated the assessment proceedings. Consequently, the impugned assessment orders were quashed and set aside.