ITAT Delhi Judgments — October 2024

The Tribunal affirmed that the payments received by HCL Singapore Pte Ltd from HCLT were in the nature of revenue sharing for services provided directly to foreign customers outside India, and utilized for business outside India. Such income was found not to accrue or arise in India, falling under the exclusion of section 9(1)(vii)(b) of the Income Tax Act. Consequently, the receipts were held not taxable in India, rendering DTAA-related grounds academic.

The Tribunal observed the significant time gap between the last notice and the ex-parte order, and the ongoing proceedings before the Delhi High Court. Upholding principles of objectivity, fairness, and justice, the Tribunal decided to restore the entire matter to the file of the CIT(A) for fresh adjudication, ensuring the assessee receives a proper opportunity to present its case.

The Tribunal upheld the CIT(A)'s decision, ruling that additions in completed assessments under Section 153A can only be made based on incriminating material unearthed during the search. Since no such material was found, and the share transactions were recorded in books and conducted through proper banking channels with STT paid, additions based merely on a statement were unsustainable. The Tribunal relied on the Supreme Court's ruling in PCIT vs. Abhisar Buildwell P. Ltd.

The Tribunal considered the assessee's claim of income from private tuitions, her past savings, and the cash received from her father. It concluded that, given these facts and the perceived smallness of the amount, the addition made by the lower authorities was not justified. Consequently, the addition was deleted, and the assessee's appeal was allowed, though the order is not to be treated as a precedent.

The Tribunal held that corpus donations are capital receipts and not income, thus not to be added to the total income. It further ruled that the requirement to furnish Form 10B is procedural and directory, and its belated filing with a pending condonation application constitutes substantial compliance, hence the benefit of exemption under Section 11(1)(d) cannot be denied.

The CIT(A) deleted the additions, finding that they were made merely on the basis of the assessee's statement, without any incriminating material found during the search. The Tribunal upheld the CIT(A)'s decision, relying on the Supreme Court's judgment in PCIT vs. Abhisar Buildwell P. Ltd., which stipulates that completed assessments can only be disturbed under Section 153A if incriminating material is unearthed during a search. Since no such material was found, and the transactions were recorded in the books and conducted via banking channels, the additions were deemed unsustainable.

The Tribunal noted the principle that expenditure cannot be disallowed if it has not been claimed by the assessee. Agreeing with the assessee's contention, the Tribunal decided to restore the entire issue back to the Ld.CIT(A) to provide the assessee with a proper opportunity to submit documentary evidence to justify its claim against the contingent liability adjustment.

The Tribunal observed that the loan was received and repaid within a short period of 10 days through banking channels, a fact unrebutted by the Revenue. It clarified that for AY 2010-11, the assessee was not required to prove 'source of source' for the lender's creditworthiness, as the amendment to Section 68 came into effect later. Therefore, the Tribunal found no grounds for the addition under Section 68 of the Act.

The Tribunal condoned the delay in filing the appeal, finding the medical reason genuine. It admitted the additional legal ground regarding the non-service of the Section 148 notice. As the notice was admittedly not served, the Tribunal held that the initiation of assessment proceedings lacked basis, and consequently, the assessment order was declared void ab initio and quashed.

The Tribunal, relying on various High Court and Supreme Court judgments, held that a penalty notice under Section 271(1)(c) must specifically indicate whether the penalty is for concealment of income or for furnishing inaccurate particulars. Since the notice dated 23.03.2022 failed to specify a definite limb, it was deemed non-maintainable, invalid, void, and ab-initio quashed. Consequently, the penalty proceedings initiated against the assessee were quashed.

The Tribunal found that the notice dated 10.03.2015 under Section 148 of the Act was issued to a different assessee, not the appellant. It was established that no valid notice under Section 148 was ever issued and served upon the assessee before the tribunal, thereby vitiating the reassessment proceedings. Consequently, the reassessment was quashed.

To ensure fair play and prevent miscarriage of justice, the Tribunal remitted the issue back to the CIT(A) for fresh consideration. The CIT(A) is directed to grant the assessee a fresh opportunity of being heard and to consider any evidence presented. The CIT(A) is also at liberty to pass orders as per law if the assessee fails to cooperate.

The Tribunal held that approval under Section 153D requires independent application of mind by the approving authority, which must be discernible from the approval order itself. The use of identical language and reasoning in approvals for different assessees demonstrated a mechanical process, indicating a lack of active consideration of the assessment records and draft orders. Consequently, the approvals granted were declared invalid, making the consequential assessment orders unsustainable.

To prevent a miscarriage of justice, the Tribunal granted the assessee another opportunity to explain the significant delay in filing the appeal before the CIT(A). The matter was remitted back to the CIT(A) to reconsider the condonation of delay and pass a reasoned order strictly in accordance with law.

The Tribunal upheld the addition made by the AO and sustained by the CIT(A), finding no infirmity in their conclusions. It was held that the assessee failed to discharge its primary onus to prove the identity, genuineness, and creditworthiness of the share subscribers, despite ample opportunities. The transactions were deemed bogus, lacking credibility, and pre-arranged to introduce unaccounted income, supported by detailed inquiries into the subscribers' lack of financial capacity and suspicious activities.

To uphold the principle of fair play and prevent a miscarriage of justice, the Tribunal remitted the case back to the CIT(A) for fresh consideration. The assessee is to be granted a further opportunity to be heard and present evidence, with the stipulation that non-cooperation would allow the CIT(A) to proceed strictly according to law.

The Tribunal, relying on the Apex Court's decision in PCIT vs. Abhisar Buildwell P. Ltd., held that completed assessments under Section 153A can only be interfered with based on incriminating material unearthed during the search. Since no incriminating material was found, and the transactions were duly recorded in the books of account with STT paid, the addition based solely on the statement was unsustainable. Therefore, the CIT(A)'s deletion of the addition was upheld.

The Tribunal, relying on precedents from the Supreme Court and High Courts, held that a penalty notice under Section 271(1)(c) must specifically state the ground for which penalty proceedings are initiated. Since the Assessing Officer's notice was vague and failed to mention a specific limb of the section, the initiation of penalty proceedings was deemed non-maintainable, invalid, and void ab-initio.

The ITAT held that the land sold was rural agricultural land as per Section 2(14) of the Income Tax Act, and therefore not a capital asset, thus no capital gains tax could be levied. The addition related to the land sale was consequently deleted. For the fisheries income, the ITAT restricted the addition to 20% of Rs. 7,78,000/-, as agreed by the appellant.

The Income Tax Appellate Tribunal (ITAT) upheld its previous decisions and High Court precedents, ruling that the payments received by the foreign AEs from HCLT were not taxable in India. The Tribunal found that HCL group entities operate as independent contractors, providing services directly to foreign customers, and the payments from HCLT were revenue sharing, not FTS. Since the services were performed and utilized outside India for a business carried on outside India, they fell under the exclusion of Section 9(1)(vii)(b) of the Income Tax Act.

The Tribunal, relying on its previous decisions, held that HCL group entities operate as independent contractors with a revenue-sharing model, not as one entity providing services to another. It found that the services were rendered by the foreign AEs directly to overseas customers outside India, and the income did not accrue or arise in India, falling within the exception under Section 9(1)(vii)(b) of the Income-tax Act. Therefore, the receipts were not taxable in India. The Tribunal also noted that grounds related to reassessment were not fully argued but effectively addressed the taxability issue in the assessee's favor.

The Tribunal dismissed the Revenue's appeal, holding that the tax effect was below the monetary limit stipulated by CBDT Circulars 09/2024 and 05/2024. The Tribunal clarified that the exception clause (Para 3.1.i) relied upon by the Revenue for appeal maintainability was applicable only to orders under sections 201(1)/201(1A) and not to disallowances under section 40a(ia). The Assessee's cross-objection was also dismissed as infructuous.

The Tribunal observed that the quantum proceedings, forming the basis of the penalty, had not reached finality and were pending before the CIT(A). Therefore, the Tribunal restored the penalty appeal to the CIT(A) for fresh adjudication, instructing them to consider the outcome of the quantum appeal.

The Tribunal accepted the request for withdrawal as the Learned Senior DR had no objection. Consequently, the appeal filed by the assessee was dismissed as withdrawn.

The Tribunal disagreed with the CIT(A)'s view that uploading the order on the ITBA portal constitutes sufficient service. It found that the assessee was not provided adequate opportunity by the AO. Consequently, the Tribunal remitted the issues back to the AO for fresh consideration, with directions to provide the assessee with an adequate opportunity of being heard.

To prevent a miscarriage of justice and ensure a decision on merits, the Tribunal remanded the case back to the Assessing Officer. The AO is directed to provide the assessee a fresh opportunity of being heard and to consider any evidence presented, allowing the appeal for statistical purposes.

The Tribunal observed that the assessee was not given adequate opportunity before the AO and expired during the CIT(A) proceedings. With no objection from the DR, the Tribunal remitted the entire matter back to the AO. The AO was directed to decide the issues afresh after providing a proper opportunity of hearing to the assessee's legal heir.

The Tribunal ruled that the sanction for initiating reassessment proceedings under Section 148 beyond four years, as required by Section 151(1) of the Income Tax Act, was mistakenly provided by the Additional CIT instead of the Principal CIT or Chief Commissioner. This rendered the Assessing Officer's assumption of jurisdiction invalid and the Section 148 notice bad in law. Consequently, the assessment order was quashed.

The Tribunal agreed with the assessee, finding that the approval under Section 153D suffered from non-application of mind, was merely a symbolic act, and therefore 'non-est' in law. Following a similar precedent, the Tribunal quashed the assessment orders passed in consequence of such mechanical approval, rendering the additions/disallowances invalid without adjudication on merits.

The Tribunal held that the assessee did not have a PE or DAPE (Dependent Agent PE) in India for the impugned assessment years, as its LO was closed, no business activity was conducted through it, and no expatriate employees were present. Consequently, no profits could be attributed to a PE. Further, following the Supreme Court's decision in Engineering Analysis Center of Excellence Pvt Ltd., the Tribunal ruled that receipts from software supply are not royalty and directed the AO to delete this addition. Grounds related to consequential interest and premature penalty proceedings were dismissed.

The Tribunal observed that the assessee was denied a proper opportunity of being heard, violating principles of fair play. Consequently, the matter was set aside to the Assessing Officer for fresh consideration on merits, with a clear direction to provide the assessee a full opportunity to be heard and present all relevant material and evidence.

The Tribunal held that exemption under sections 11 & 12 should be allowed to Children Welfare Trust as retrospective application of 12AA registration is valid. The CIT(A)'s enhancement of income from 'Building Fund' and 'Amalgamation Fund' for both entities was quashed, as it constituted a new source of income beyond the CIT(A)'s enhancement powers and failed to consider the application of funds for charitable objects. Additionally, CIT(A)'s observations on Section 13 for the Trust and advice for unrelated AYs for the Society were expunged for being outside jurisdiction.

The Tribunal found that with the closure of LO operations and absence of expatriate employees, the assessee ceased to have a PE or DAPE in India for the impugned assessment years, thus disallowing profit attribution to a PE. Following a Supreme Court precedent, the Tribunal also directed the deletion of additions treating software receipts as 'Royalty', confirming such receipts do not constitute royalty for copyright usage. However, the appeals against the levy of interest under sections 234A and 234B and the initiation of penalty proceedings under section 270A(9)(a) were dismissed as consequential or premature.

The Tribunal held that the penalty notice issued under Section 271(1)(c) was invalid and non-maintainable because it did not clearly specify the exact limb (concealment of income or furnishing inaccurate particulars) under which the penalty proceedings were initiated. Citing Supreme Court and High Court precedents, the Tribunal concluded that such proceedings were void ab-initio and accordingly quashed the penalty.

The Tribunal held that the assessee did not have a PE or DAPE in India for the impugned assessment years, as its LO operations had ceased, and no expatriate employees were present. Consequently, no attribution of profits to a PE was warranted. Regarding software receipts, following Supreme Court precedent, the Tribunal ruled that these should not be treated as 'Royalty'. However, the levy of consequential interest under sections 234A and 234B was upheld, and the challenge to penalty proceedings under section 270A(9)(a) was dismissed as premature.

The Tribunal ruled that the assessee successfully demonstrated the closure of its LO operations and the absence of expatriate employees in India for the impugned years, shifting the burden of proof to the Revenue, which failed to provide contrary evidence. Consequently, the Tribunal held that no PE or DAPE existed in India, and no profits could be attributed. Following a Supreme Court precedent, receipts from software supply (embedded in hardware) were not considered royalty. Interest levies under sections 234A and 234B were upheld as mandatory, but penalty proceedings under section 270A(9)(a) were dismissed as premature.

The Income Tax Appellate Tribunal (ITAT) observed that the assessee was not given adequate opportunity by the AO, and the DR did not object to this contention. In the interest of justice, the ITAT remitted the issues back to the AO with directions to provide the assessee with an adequate opportunity of being heard and decide the matter afresh.

The Tribunal held that the employer's affidavit and supporting documents, explaining the source of the credit card payments as reimbursements for business-related expenses, appeared genuine. Finding no contrary evidence from the revenue, the Tribunal concluded that the addition made under Section 69 was not sustainable and ordered its deletion.

The tribunal held that the combined and consolidated approval granted under Section 153D was 'non-est' (non-existent in law) due to non-application of mind by the approving authority. Citing a precedent, the tribunal concluded that the assessment orders passed based on such a mechanical approval were invalid and must be quashed, making it unnecessary to adjudicate the merits of the additions/disallowances.

The tribunal held that the approval granted by the superior authority under Section 153D was 'non-est' (non-existent in law) due to a clear non-application of mind, relying on an identical dispute in the case of 'Mysore Bhaskara Pankaja'. The mechanical nature of the combined approval, granted hastily for numerous cases and assessment years, indicated a failure to objectively evaluate the proposed assessment orders. Consequently, the assessment orders passed based on such an invalid approval were quashed, and the tribunal stated that the additions/disallowances did not require adjudication on merits.

The Tribunal held that the assessee had duly explained the source of the cash deposits, finding that they originated from prior bank withdrawals and genuine savings from an erstwhile business of train tickets. Consequently, the addition made by the CIT(A) was not justified and was deleted.

The Tribunal found the assessee's explanation regarding their CA's illness and death to be genuine and accepted it. It quashed the ex-parte order of the CIT(A) and remanded the matter back to the CIT(A) for fresh adjudication, directing that the assessee be given a proper opportunity of hearing and to present evidence.

To ensure that justice is served and to prevent a miscarriage of justice, the Tribunal decided to remand the case back to the Assessing Officer. This allows the assessee a fresh opportunity to be heard and present evidence, enabling the matter to be decided on its merits.

The tribunal found that the assessee provided comprehensive documentary evidence, including bank statements and demat accounts, proving the genuineness of the transactions. It concluded that the revenue failed to present cogent evidence linking the assessee to any price manipulation or bogus activities, noting that suspicion alone cannot substitute legal proof. Therefore, the tribunal ruled that the lower authorities erred in denying the exemption under Section 10(38) and in making the addition under Section 69C.

The Income Tax Appellate Tribunal (ITAT) referred to several of its own binding precedents, including *Ratna Sagar Pvt. Ltd.* and *Interglobe Technology Quotient Private Limited*. It held that disallowance of CSR expenditure under Section 37(1) does not bar a deduction under Section 80G. The Tribunal affirmed that CSR expenditure, although an application of income and not a business expense, qualifies for 80G deduction if all other conditions of that section are met, and the mandatory nature of CSR under the Companies Act does not negate the voluntary nature of a donation for 80G purposes.

The Income Tax Appellate Tribunal held that the PCIT lacked jurisdiction to revise the TPO's order for issues prior to the Finance Act, 2022 amendment. It also found that the AO had conducted adequate inquiries on the matters of discontinued business, share-based compensation (which the assessee had suo-moto disallowed), and customer contract payments. Therefore, the Tribunal concluded that the assessment order was neither erroneous nor prejudicial to the revenue, thus quashing the PCIT's order under section 263.

The Tribunal noted the assessee's counsel's submission that no notice from the CIT(A) was received, thus preventing a submission. The Revenue's DR had no objection to the proposition of remitting the case. The Tribunal, in the interest of justice, remitted the matter back to the CIT(A) for fresh consideration, with directions to provide the assessee an adequate opportunity of being heard.

The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decision to delete the addition of Rs. 35 crores. The Tribunal held that the assessee had discharged its primary onus under Section 68 by providing evidence of the identity, creditworthiness, and genuineness of the transactions, which the Assessing Officer failed to rebut with any adverse material or further inquiry despite issuing notices under Section 133(6). The AO's reliance on suspicion, un-confronted material, and contradictory stances in assessing the investor companies was found unsustainable.