ITAT Delhi Judgments — August 2024

For the MPA segment, the Tribunal upheld the treatment of foreign exchange gain/loss as non-operating, citing that the foreign AE bore the risk. It allowed the exclusion of Whirlpool and Penguin Electronics as non-comparable but rejected the inclusion of Zenith Computers. For the CSD segment, the Tribunal directed the exclusion of Infobeans Technologies, Persistent Systems, Larsen & Toubro Infotech, and Mindtree Limited due to functional dissimilarities, lack of segmental data, and other factors. The additional grounds for a DDT refund were dismissed, as DTAA provisions were deemed not applicable to DDT under Section 115-O unless explicitly stated in the treaty protocol.

The Tribunal found the findings of the AO and CIT(A) to be cryptic and based on a shallow assessment order, indicating a failure to conduct proper inquiry regarding the alleged loans taken by the minor child. Consequently, the Tribunal restored the issue back to the file of the AO for fresh adjudication (denovo assessment proceedings). The AO is directed to grant the assessee reasonable opportunity to make submissions and consider all furnished documents.

The Tribunal dismissed the assessee's appeal, holding that the foreign bank account information constituted incriminating material, justifying assessment under Section 153A, and that the assessee's refusal to sign a consent waiver form indicated culpability. For the Revenue's appeals, the Tribunal dismissed additions for imputed interest on foreign bank accounts, as the account was closed before the relevant AY. It also upheld the CIT(A)'s deletion of additions for unexplained jewellery and cash, finding the assessee's explanations and evidence credible.

The Tribunal dismissed the appeal, upholding the AO's findings and the DRP's decision. It ruled that the assessment proceedings were not without jurisdiction or barred by limitation. It affirmed that the properties received through the compromise deed represented a relinquishment of rights and therefore constituted a transfer of a capital asset, taxable as capital gains as calculated by the AO.

The Tribunal held that the assessee successfully demonstrated that the cash deposits were made from prior cash withdrawals of Rs.20 lakhs in October 2010. Citing precedents, the Tribunal ruled that an explanation of cash deposits being from earlier withdrawals cannot be rejected solely due to a time gap, especially without contrary evidence of other usage of the withdrawn funds. Thus, the source of cash was established.

The Tribunal held that the PCIT's revisional order u/s 263 was unsustainable. For unabated assessments, the AO could not have examined the 40A(3) issue in 153A proceedings without incriminating material. Crucially, as the assessments were passed u/s 153A with prior approval u/s 153D, they could not be revised u/s 263 without a finding that the approval itself was vitiated or erroneous.

The Tribunal dismissed the assessee's appeal for AY 2006-07, upholding the additions for the undisclosed foreign bank account, concluding that incriminating material existed and the assessee's refusal to cooperate indicated culpability. However, the Tribunal dismissed the Revenue's appeals concerning notional interest additions for subsequent years, as the foreign bank account was found closed before those years. Similarly, the Revenue's appeals regarding additions for unexplained cash, most of the jewellery, and penalties were dismissed, affirming the CIT(A)'s deletions.

The Tribunal confirmed the foreign bank account addition for AY 2006-07, finding that a 7-page document constituted incriminating material and the assessee's refusal to sign a consent waiver was not justified. However, it upheld the CIT(A)'s deletion of additions for imputed interest (as the account was closed before relevant AYs), unexplained jewellery, and cash, dismissing all Revenue's appeals on these points.

The Tribunal held that the assessment year 2014-15 was beyond the jurisdictional period for proceedings under Section 153C. For other assessment years, it found that the Assessing Officer failed to record proper satisfaction that the seized documents had a 'bearing on the determination of the total income' of the assessee as required by Section 153C. The Tribunal emphasized that additions cannot be made based on surmises, suspicion, uncorroborated retracted statements, or 'dumb documents' lacking evidentiary value. Therefore, the initiation of proceedings for all assessment years was deemed without proper jurisdiction.

The Tribunal dismissed the assessee's appeal (AY 2006-07), confirming the foreign bank account deposit additions, ruling that the DTAA information constituted incriminating material and the refusal to sign a consent waiver lacked justification. Separately, the Tribunal dismissed all Revenue appeals, upholding the deletion of notional interest additions and corresponding penalties, as the foreign bank account was closed by 2006. It also confirmed the CIT(A)'s relief on most unexplained jewellery and cash additions, finding the explanations reasonable.

The Tribunal dismissed the assessee's appeal for AY 2006-07, upholding the additions for the undisclosed foreign bank account, concluding that incriminating material existed and the jurisdictional issue was already decided. The Tribunal also dismissed all appeals by the Revenue, holding that notional interest could not be added as the foreign bank account was closed before the relevant assessment years, and upholding the CIT(A)'s decision to delete additions for unexplained jewellery and cash, finding the explanations plausible.

The Tribunal deemed it appropriate to grant the assessee a further opportunity to present its case effectively before the CIT(A). Consequently, the issue was set aside for de novo adjudication by the CIT(A), with directions to provide a proper hearing and consider all evidence. The assessee's appeal was allowed for statistical purposes.

The Tribunal rejected the request to transfer appeals to Kolkata, affirming Delhi's jurisdiction. It allowed the assessee's appeal regarding the service tax addition under section 43B, finding it erroneous because the assessee had not claimed it as a deduction in the profit and loss account. However, the Tribunal dismissed the assessee's ground concerning the disallowance of employees' contribution to PF/ESI, citing the Supreme Court's decision in Checkmate Services Pvt. Ltd. The ground for late filing fees u/s 234F was dismissed as not pressed.

Relying on the jurisdictional High Court's 'clean slate' approach, the Tribunal held that since the revenue had not lodged its claim before the RP and no monies were allocated for statutory dues in the NCLT order, continuing the appeal would serve no purpose. The Tribunal concluded that even if the revenue succeeded, it could not recover any dues due to its failure to implead itself in the CIRP.

The Tribunal found that the assessee had sufficiently proved the investor company's existence, identity, and creditworthiness through MCA records, income tax returns, balance sheets showing substantial shareholder funds, and bank statements reflecting trading activities. Since the investment was received via banking channels and used as capital, the addition made under Section 68 was deleted.

The CIT(A) deleted the substantive addition made to the assessee, finding no corroborative evidence linking the payments to Shiv Murti Developers P. Ltd. and noting that conveyance deeds were in Murlidhar Infracon Pvt. Ltd.'s name. The CIT(A) directed the AO to re-examine the seized documents to identify the correct entity and initiate reassessment proceedings under section 150 of the Act. The ITAT upheld the CIT(A)'s decision, dismissing the Revenue's appeal, as there was no cogent material linking the payments to the assessee.

The Tribunal held that for unabated assessments (AYs 2015-16 & 2016-17), no additions under Section 40A(3) could be made under Section 153A without incriminating material. Crucially, it ruled that assessment orders passed under Section 153A with prior approval under Section 153D cannot be revised under Section 263 unless the approval itself is found vitiated. Relying on judicial precedents, the Tribunal found the PCIT's revisional order unsustainable due to lack of jurisdiction.

The Tribunal allowed the appeal, finding that the ad-hoc expense disallowances were not justified as the assessee's books were maintained, produced, and no specific defects were found or section 145(3) invoked. Regarding the cash deposits, the Tribunal held that the assessee had sufficient available cash balance, as per its cash book, to explain the source of the deposits made during demonetization.

The Tribunal dismissed the assessee's appeal, confirming the additions related to the foreign bank account deposits, ruling that incriminating material existed and the jurisdictional issue was concluded. However, it dismissed the Revenue's appeals, thereby upholding the deletion of additions for imputed interest (as the account was closed), unexplained jewellery (due to adequate explanations or Instruction No. 1916), and undisclosed cash (corroborated by family holdings). Consequently, penalties related to notional interest were also set aside.

The Tribunal affirmed the CIT(A)'s decision, finding that the assessee's activities, including sponsorship for international sports events, were non-profit driven and aimed at motivating sportspersons, with expenses often exceeding sponsorship receipts. It was held that these activities were not commercial and the Supreme Court judgment in the AUDA case was not applicable to the assessee.

The Tribunal held that the Rs. 11 crores received for the trademark were taxable as short-term capital gains, as the assessee had incurred registration costs making it a capital asset. The disallowance of the provision for leave encashment was allowed, following the Supreme Court's decision in Bharat Earthmovers Ltd. The capital loss on land surrender was allowed for AY 2001-02. The Tribunal upheld the deletion of penalty, finding the issues debatable and disclosures made, and noting that income was assessed under MAT.

The Tribunal found that the AO had conducted proper inquiries and applied a plausible view in allowing the Section 80G deduction, consistent with prior tribunal decisions. It reiterated that while CSR expenses are generally not deductible under Section 37(1), donations eligible under Section 80G can be allowed, unless specifically restricted. As the AO's order was neither erroneous nor prejudicial, the PCIT's invocation of Section 263 jurisdiction was invalid and the revisional order was quashed.

The Tribunal confirmed the addition of Rs. 1,20,37,863/- for undisclosed foreign assets for AY 2006-07, ruling that the 7-page document from foreign authorities constituted incriminating material and the assessee's refusal to cooperate justified adverse inference. For other assessment years, the Tribunal dismissed the Revenue's appeals, thereby upholding the CIT(A)'s deletion of additions for imputed interest (as the account was closed), most unexplained jewellery, and unexplained cash, as well as the deletion of penalties.

The Tribunal rejected the assessee's request to transfer the appeals to Kolkata, affirming Delhi's jurisdiction. For AY 2017-18, the addition under section 43B regarding service tax was deleted because the assessee had not claimed it as a deduction and had routed it as a balance sheet item. However, the disallowance of employees' contribution to PF/ESI was upheld, citing the Supreme Court's decision in *Checkmate Services Pvt. Ltd Vs. CIT*. The decisions for AY 2017-18 applied to AY 2019-20, and the ground challenging the late filing fee u/s 234F for AY 2019-20 was dismissed as not pressed.

The Tribunal dismissed the assessee's appeal, holding that the jurisdictional issue under Section 153A was already settled in the first round, and the assessee's non-cooperation in providing a consent waiver form for foreign bank account verification led to an adverse inference. However, the Tribunal dismissed the Revenue's appeals for notional interest on the foreign bank accounts, finding that the account was closed before the relevant assessment years. Similarly, the additions for unexplained cash and certain jewellery were also dismissed, as the assessee provided sufficient explanations and documentation, or the additions fell within the ambit of CBDT instructions or pertained to third-party assets.

The Tribunal held that the assessment for AY 2014-15 was beyond jurisdiction, as the relevant six assessment years for Section 153C would start from AY 2015-16. For all assessment years, the Tribunal found that the Assessing Officer failed to record proper satisfaction, as required by Section 153C, by not adequately demonstrating how the seized documents had a 'bearing' on the assessee's total income. Consequently, the initiation of proceedings under Section 153C was deemed without proper jurisdiction and bad in law. The Tribunal allowed the appeals without adjudicating on the merits of the additions.

The Tribunal dismissed the assessee's appeal (AY 2006-07), affirming the additions related to the undisclosed foreign bank account. It ruled that the jurisdictional issue under Section 153A was previously decided and the 7-page document constituted incriminating material. The Tribunal distinguished *Shyam Sunder Jindal* and upheld the CIT(A)'s confirmation of the foreign bank account addition. For the Revenue's appeals, the Tribunal dismissed them, upholding the CIT(A)'s deletion of additions for notional interest (as the account was closed before the relevant years), unexplained jewellery, cash, and associated penalties.

The Tribunal dismissed the assessee's appeal for AY 2006-07, confirming the additions for undisclosed foreign bank accounts, ruling that the jurisdictional issue regarding incriminating material was settled and the assessee's non-cooperation justified adverse inference. Conversely, the Tribunal dismissed the Revenue's appeals regarding additions for notional interest (as the foreign bank accounts were closed before the relevant period) and upheld the CIT(A)'s deletion of additions for unexplained jewellery and cash, finding these sufficiently explained.

The Tribunal dismissed the assessee's appeal for AY 2006-07, affirming the additions related to the foreign bank account, citing the presence of incriminating material and the assessee's non-cooperation. It dismissed the Revenue's appeals regarding additions for notional interest on foreign accounts for subsequent years, as the account was closed before those years. The Revenue's appeals against the deletion of additions for unexplained jewellery and cash were also dismissed, upholding the CIT(A)'s findings. Consequently, penalty proceedings under Section 271(1)(c) related to notional interest were also found not justified.

The Income Tax Appellate Tribunal (ITAT) upheld the CIT(A)'s decision, ruling that the AO's addition against the assessee was based purely on presumption without corroborative evidence. The Tribunal noted that the assessee was a commission agent, had no direct link to the seized documents, and the land deeds were in Murlidhar Infracon Pvt. Ltd.'s name, which also accepted making payments. The substantive addition in the assessee's hands was deleted, and the AO was directed to proceed against the correct entity under section 150 of the Act.

The Tribunal found that the assessee had provided detailed evidence including cash sales bills, stock registers, and a cash book showing a sufficient cash balance (Rs. 1,24,88,229/- on 08.11.2016) to cover the deposits. It noted that stock was correspondingly reduced, and purchases were not doubted. The Tribunal concluded that the lower authorities had no basis to treat the cash sales as bogus or reject the books of account, and the sales were even accepted by VAT authorities. Consequently, the addition of Rs. 88,42,038/- was deleted.

The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decision. It held that deemed dividend under Section 2(22)(e) is taxable in the hands of the shareholder, not the loan recipient company, citing Delhi High Court and Supreme Court precedents. For deemed interest under Section 56(1), the Tribunal ruled that there is no statutory provision to tax notional interest savings on interest-free loans as income in the borrower's hands.

The Tribunal acknowledged that the assessee consistently follows the accrual method of accounting. It noted that the unspent foreign contribution grant of Rs. 69,84,169/- pertaining to AY 2021-22 was properly recognized as income and offered to tax in the subsequent AY 2022-23. Since the income was already accounted for and offered to tax in the succeeding year, the Tribunal found no reason to sustain the addition in the current assessment year, and thus deleted the addition.

The Tribunal restored the appeal to the file of the Assessing Officer (AO). The AO was directed to re-examine the assessee's contentions regarding the clerical mistake in the tax audit report. If the contentions are found to be true, the AO is instructed to delete the impugned addition.

The Tribunal held that the AO failed to conduct proper inquiries (u/s 133(6) or 131(1)) into the genuineness and creditworthiness of the family donors after the assessee provided her explanation. It accepted the assessee's contention that the funds were legitimate family gifts received over time and deposited during the demonetization period due to practical difficulties, directing the deletion of the Rs. 10.98 lakh addition. However, the Tribunal dismissed the ground challenging the assessment for not specifying the head of income under Section 115BBE, citing a Delhi High Court ruling.

The Tribunal found that the assessee successfully proved the source of the cash deposits by providing bank statements of himself, his wife, and his father, demonstrating prior cash withdrawals and receipt of exempt land compensation. The Tribunal concluded that no material to the contrary was brought on record by the authorities below. Therefore, the assessment order passed under sections 144/147 was quashed, and the grounds of appeal were allowed.

The Tribunal held that Section 115QA was not applicable as the buy-back consideration was less than the issue price, meaning there was no 'distributed income', and consequently, Section 10(34A) also did not apply. Thus, the denial of long-term capital loss was legally incorrect, and the assessee's claim was an incorrect interpretation of law, not furnishing inaccurate particulars, rendering the penalty under Section 271(1)(c) unsustainable. The penalty was directed to be deleted.

The Tribunal held that Section 44AD was incorrectly applied by the AO as the assessee's turnover exceeded Rs. 1 crore. Taking into account all facts, the Tribunal directed the Assessing Officer to re-compute the income by estimating the net profit at 5% of the gross turnover, instead of the 8% previously applied.

The Tribunal relied on its prior consolidated order for AYs 2014-15 and 2015-16 in the assessee's own case, which held that royalty income from foreign OEMs without Permanent Establishments (PEs) in India, where manufacturing occurred outside India, was not taxable. Finding the factual situation unchanged for AY 2017-18 and the assessment based on a previously reversed order, the Tribunal directed the deletion of the additions made by the Assessing Officer under section 9(1)(vi)(c).

The Tribunal held that the issue of taxability of royalty income from non-resident OEMs (Grounds 3 to 9) was covered in favour of the assessee by its own previous decisions for earlier assessment years, which established that such royalty income is not taxable in India if manufacturing occurs outside India and OEMs lack a PE in India for the relevant business. Procedural grounds (1 & 2) were dismissed as not argued, and consequential interest/penalty grounds (10 & 11) were not separately adjudicated. The additions made by the AO based on a previously reversed assessment order were deemed unsustainable, and the AO was directed to delete these additions.

The Tribunal acknowledged the genuine difficulties faced by the assessee, which prevented them from proper compliance and prosecution of their appeal before the CIT(A). Finding that the CIT(A) had dismissed the appeal for non-prosecution without a merits-based adjudication, the Tribunal decided to restore the appeal to the file of the CIT(A) for a de novo adjudication, ensuring the assessee a reasonable opportunity to be heard and present fresh evidence.

The Tribunal remanded the matter back to the CIT(A) for adjudication on merits, finding that no prejudice would be caused to the revenue by granting the assessee an opportunity to file submissions. The department was granted liberty to initiate proceedings under the Income Tax Act for non-compliance if necessary.

Citing the Supreme Court's decision in *Checkmate Services Pvt. Ltd Vs. CIT*, the Tribunal held that employee contributions to PF & ESI, if deposited beyond the statutory due dates, are not allowable as a deduction, even if deposited before the income tax return filing date. The claim for deduction by the assessee was deemed an incorrect claim warranting a prima facie adjustment under Section 143(1) of the Act.

The Tribunal condoned the 122-day delay in filing the appeal, determining it was not willful but due to the Authorized Representative's mistake. It found the Ld.CIT(A)'s ex-parte order to be cryptic and lacking merits consideration. Therefore, the matter was restored to the Assessing Officer for a fresh order after giving adequate opportunity to the assessee.