ITAT Delhi Judgments — November 2024

The Tribunal found that the ad-hoc disallowance of salary payments was not justified as there was no attempt to evade tax, the employees' tax rate was comparable to the company's, and two employees were not covered by Section 40A(2)(b). For interest disallowance, the Tribunal held that if sufficient interest-free funds were available, investments are presumed to be made from those funds. Both grounds of appeal were allowed, setting aside the CIT(A)'s order.

The Income Tax Appellate Tribunal (ITAT) found that the addition by the AO and confirmed by the CIT(A) was based purely on assumptions, surmises, and conjecture, without any cogent reasons or supporting evidence. The Tribunal noted that the assessee had adequately explained the source of cash deposits from regular business sales, a fact not disputed by the AO regarding the demonetization period itself. Therefore, the ITAT concluded that the impugned order and the additions made were unsustainable in law.

The Tribunal confirmed the allocation of common head office expenses and bank/loan processing charges to the MEPZ unit, distinguishing prior years' decisions where the MEPZ unit was loss-making. It remitted the issue of notional profit on inter-unit transfer of goods to the AO for fair market value ascertainment. The disallowance of prior period expenses was largely upheld where substantiation was inadequate. Crucially, payments for warehousing services to the non-resident were held not to be FTS under the India-USA DTAA, as 'managerial services' are excluded from the DTAA definition and the 'make available' condition for technical services was not met; thus, no TDS was required under Section 195. Consequently, penalties levied under Section 271(1)(c) related to this FTS disallowance were also deleted. Ad-hoc disallowances for foreign travel expenses (including 5% and 30%), irrecoverable excise duties, gifts, and garden expenses were also deleted, recognizing their business purpose.

The Tribunal condoned the delay in filing the appeals. It held that the lower authorities erred in sustaining the addition of Rs. 8 lakhs, finding the assessee's explanation of receiving cash sale consideration plausible. Consequently, the penalty of Rs. 9.5 lakhs levied under section 271D was also deleted, as the amount was deemed cash sale consideration and not a loan, thus not violating section 269SS.

For Section 14A disallowance, the Tribunal upheld the CIT(A)'s approach, confirming the AO's satisfaction for invoking Rule 8D and restricting disallowance to investments yielding exempt income, subject to the exempt income limit. For short credit of TDS and foreign tax credit (u/s 90/91), the AO was directed to verify and grant credit, while short credit of DDT was dismissed as an administrative matter. The Revenue's appeals against the allowability of ESOP compensation as revenue expenditure were dismissed, confirming it as an allowable deduction under Section 37(1).

The Tribunal upheld the CIT(A)'s modifications for Section 14A, clarifying that disallowance cannot exceed exempt income and applies only to investments yielding exempt income, while confirming adequate AO satisfaction. It directed the AO to verify and grant TDS and foreign tax credits, but dismissed DDT credit due to administrative/assessment year issues. Crucially, all Revenue appeals challenging ESOP compensation as revenue expenditure were dismissed, affirming its allowability under Section 37(1).

The Tribunal observed that it was not clear from the records whether the notices issued by the CIT(A) were properly served on the assessee. To ensure natural justice and provide a fair opportunity, the appeal was restored to the Assessing Officer for a de novo adjudication, with directions for the assessee to provide updated contact details and cooperate.

The Tribunal upheld the CIT(A)'s modification for Section 14A disallowance, confirming that it should exclude investments not yielding exempt income and should not exceed the exempt income. It found the AO's 'satisfaction' for invoking Rule 8D to be adequately recorded. For short credit of TDS, the Tribunal directed the AO to re-verify and grant credit as per law. The claim for DDT credit was dismissed as an administrative matter. All Revenue appeals against the allowance of ESOP compensation as revenue expenditure under Section 37(1) were dismissed, reaffirming previous rulings in the assessee's own case.

The Tribunal noted the assessee's repeated non-appearance and lack of interest in pursuing the appeal. It upheld the validity of the notice issued under Section 143(2) and confirmed the additions of Rs. 20,00,000/- under Section 68 and Rs. 40,000/- under Section 69C, as the assessee failed to discharge its onus or provide controverting material. The findings of the CIT(A) were upheld across all contested grounds.

For Section 14A disallowances, the Tribunal largely upheld the CIT(A)'s approach, confirming the AO's 'satisfaction' for Rule 8D invocation and limiting disallowance to investments yielding exempt income, capped by the exempt income itself. Appeals regarding TDS, TCS, and foreign tax relief were remitted to the AO for verification and suitable orders, while appeals for DDT credit were dismissed as they involved administrative resolution due to challan errors beyond the Tribunal's scope. All Revenue appeals challenging the allowance of ESOP compensation as revenue expenditure were dismissed, consistent with prior years' decisions for the same assessee and rulings by various High Courts.

The Tribunal upheld the CIT(A)'s modification to Section 14A disallowance, restricting it to investments yielding exempt income, and confirmed the AO's 'satisfaction' for invoking Rule 8D. Issues related to short credit of TDS and foreign tax credit were remanded to the AO for re-verification and appropriate action. For the DDT credit issue, the Tribunal declined to interfere, deeming it an administrative matter. All Revenue appeals challenging the allowability of ESOP compensation as revenue expenditure under Section 37(1) were dismissed, reaffirming it as an allowable expense.

The Tribunal largely upheld the CIT(A)'s modifications for Section 14A disallowance, confirming the AO's recorded satisfaction for invoking Rule 8D, and directed that disallowance should not exceed exempt income. For TDS and foreign tax relief, the AO was instructed to verify and grant credits expeditiously. The Tribunal declined to intervene on DDT credit issues due to clerical errors, suggesting administrative resolution. Crucially, all Revenue appeals concerning the disallowance of ESOP compensation were dismissed, affirming it as an allowable revenue expenditure.

The Tribunal held that the Assessing Officer's reasons for reopening the assessment were based on mere doubt rather than tangible material, which is not sustainable in law for an assessment already completed under Section 143(3). Citing CIT v. Insecticides India Ltd., the Tribunal concluded that such a reopening was invalid and accordingly quashed it. Consequently, all other pleadings on the merits of the case became academic.

The Tribunal held that once the option under Section 115BAA is exercised in a previous year, it creates a substantive right that applies continuously to subsequent assessment years and cannot be withdrawn. Therefore, the requirement of re-filing Form 10IC in subsequent years is an irrelevant consideration. The matter was remitted to the AO to verify if the assessee's claim for AY 2020-21 under Section 115BAA was duly acknowledged and accepted by the Income Tax Department.

The Tribunal partly allowed the appeal, recognizing that it is customary for ladies to hold Stree Dhan and have cash savings. Considering the assessee's consistent income disclosure and CBDT Circular No.3 of 2017, an additional Rs. 2,50,000/- (beyond the Rs. 2,70,000/- already allowed) was deleted from the addition. Thus, a total of Rs. 5,00,000/- was deleted, and the balance addition of Rs. 5,77,000/- was upheld.

The tribunal noted that the Learned Senior DR had no objection to the withdrawal. Consequently, the tribunal accepted the assessee's request and dismissed the appeal as withdrawn.

The tribunal accepted the explanation for Rs.12,50,000/- of the cash deposits in IndusInd Bank, attributing it to business receipts based on VAT returns showing increased turnover, and deleted this portion of the addition. However, the explanation for Rs.12,00,000/- deposited in Kotak Mahindra Bank, claimed as surplus cash from FDs matured two years prior, was rejected as being 'farfetched and afterthought'. Consequently, the total addition under Section 69A was restricted to Rs.14,00,000/-.

The tribunal, relying on the Delhi High Court's decision in the case of RELX Inc., held that the subscription fees received by the appellant for providing access to its database are in the nature of business profit/income. Since the appellant does not have a Permanent Establishment in India, this income is not taxable in India. Consequently, the addition of INR 248,077,042 for AY 2016-17, and for AY 2017-18 mutatis mutandis, was deleted.

The Tribunal held that the assessee cannot be penalized for the delayed deposit of EPF when the delay was caused by technical glitches on the EPFO portal, which were beyond the control of the employer. Relying on judicial precedents and EPFO circulars, the Tribunal found that the circumstances did not constitute a default on the part of the employer. Consequently, the impugned orders confirming the disallowance were set aside.

The Income Tax Appellate Tribunal (ITAT) found that the issue of PE was already decided in the assessee's favor by previous tribunal orders and confirmed by the Delhi High Court for multiple assessment years. It was held that the activities of the assessee's employees in India were not supervisory in nature linked to a building site, construction, installation, or assembly project, as required by Article 5(4) of the DTAA, and thus no PE was constituted. Consequently, the impugned addition was deleted.

At the hearing, the assessee submitted a written petition requesting to withdraw the appeal, stating they no longer wished to press it. The Revenue's representative confirmed no objection to the withdrawal. Consequently, the Tribunal granted the request and dismissed the appeal as withdrawn.

The Tribunal upheld the invocation of Rule 8D for Section 14A disallowance but directed that the disallowance be restricted to investments yielding exempt income and capped at the exempt income amount. Issues of short TDS and foreign tax credit were remanded to the Assessing Officer for verification. The non-grant of DDT credit was dismissed as an administrative issue, while the disallowance of ESOP compensation, challenged by the Revenue, was dismissed, affirming it as an allowable deduction under Section 37(1).

The Tribunal held that the reopening of assessment initiated beyond three years (notice issued 29.03.2022 for AY 2015-16) was invalid. As per Section 149(1)(b), the threshold for reopening beyond three years is Rs. 50 lakhs, but the actual addition made by the AO was only Rs. 47 lakhs. The AO's reliance on the cumulative value of property transactions (Rs. 1.33 crore) without differentiating the actual income escaping assessment was deemed a mechanical reopening. Therefore, the reopening was vitiated for lack of jurisdiction.

The Tribunal ruled that "lease rights" do not fall under the definition of "immovable property" as per Section 56(2)(vii) Explanation (d)(i) and similar provisions in Section 50C, citing relevant case law. Consequently, the Tribunal concluded that the impugned addition made by the lower authorities was unsustainable and deleted it.

The Tribunal accepted the assessee's request to withdraw the appeal, noting that the assessee had already availed the Vivad Se Vishwas Scheme 2024 for the assessment year in question. Consequently, the appeal was dismissed as withdrawn.

The Tribunal upheld the CIT(A)'s decision, finding no error in rejecting the condonation of delay application. It concluded that the assessee demonstrated "absolute callousness and irresponsible conduct" by waiting over 12 years for suo moto rectification without showing bona fide reason or taking steps to rectify the intimation. Consequently, the appeals were dismissed on the ground of limitation.

The Tribunal partly allowed the assessee's appeals concerning Section 14A, confirming that disallowance should be limited to investments yielding exempt income and not exceed the exempt income itself, and that the AO had properly recorded satisfaction for invoking Rule 8D. Grievances regarding short credit of TDS and denial of tax relief under Section 90/91 were remitted back to the AO for verification and appropriate action. However, the claim for short credit of DDT was dismissed, being an administrative matter beyond the Tribunal's scope. All Revenue appeals challenging the allowance of ESOP compensation as revenue expenditure under Section 37(1) were dismissed, consistent with prior judgments in the assessee's own case and High Court rulings.

The Tribunal confirmed the allocation of common expenses to the profitable MEPZ unit but remitted the notional profit issue to the AO for Fair Market Value ascertainment. It ruled that payments for warehousing services to the US-based non-resident were not Fees for Technical Services under the India-USA DTAA, as managerial services are not covered under FTS in the DTAA and 'make available' conditions were not met, thus no TDS was required. Furthermore, disallowances related to foreign travel, irrecoverable excise duty, gift, and garden expenses were allowed as valid business expenditures, leading to the deletion of the consequential penalty.

The Tribunal upheld the allocation of common head office expenses to the MEPZ unit, finding previous favorable decisions distinguishable due to changed factual circumstances (no MEPZ unit loss in the current year). The issue of inter-unit goods transfer valuation was remitted to the AO for Fair Market Value ascertainment. Crucially, payments for warehousing services to the non-resident were held not to be 'Fees for Technical Services' under the Income Tax Act or India-USA DTAA, as 'managerial services' were not included in the DTAA definition and the 'make available' condition was not met, thereby exempting the assessee from TDS. Most disallowances related to foreign travel, irrecoverable taxes (excise duty on sales return), gift/present, and garden expenses were deleted, and a consequential penalty u/s 271(1)(c) on the FTS disallowance was also quashed.

The Tribunal ruled that the assessee's business was 'set up' in A.Y. 2013-14, even if commercial operations commenced later. The interest earned from FDRs, being from funds raised as share capital specifically to meet regulatory requirements for setting up the AMC, was "inextricably linked" to the business and hence constitutes 'business income'. Consequently, related expenses incurred during the set-up phase are allowable deductions.

The Tribunal observed there was no material to prove the assessee herself deposited the cash sums. Since the husband made the deposits and the addition was made in the wife's hands at 50%, the Tribunal found no merit to sustain the impugned addition against the assessee. The appeal was allowed as the assessee had not made any cash deposit.

The Tribunal upheld the allocation of head office expenses and bank/loan charges to the MEPZ unit, distinguishing from previous years where such allocations were tax-neutral due to MEPZ losses. The issue of goods transferred to the MEPZ unit was remitted to the AO for fair market value ascertainment. Disallowance of prior period expenses was partly sustained. Payments for warehouse services to the non-resident ESG International (USA) were held not to be FTS under the India-USA DTAA, as managerial services were excluded and 'make available' conditions were not met, thus no TDS was required. Foreign travel expenses (partially), irrecoverable taxes, gift expenses, and garden expenses were allowed as business expenditure. The penalty levied u/s 271(1)(c) for FTS was deleted as the underlying addition was removed.

The Tribunal upheld the allocation of head office and bank/loan processing charges to the MEPZ unit for AY 2011-12 but remitted the issue of notional profit on goods transferred to the AO for fair market value determination. It ruled that warehousing charges paid to a US entity were not Fees for Technical Services (FTS) under the India-USA DTAA, leading to the deletion of related disallowances and penalties. Additionally, disallowances for certain foreign travel, irrecoverable excise duty, gift, and garden expenses were also deleted, recognizing them as legitimate business expenditures.

The Tribunal observed that the assessee was denied reasonable and effective opportunity to present evidence. It found it appropriate, in the interest of justice and proper verification, to set aside the CIT(A)'s order and remit the matter back to the Assessing Officer. The AO was directed to decide the issue afresh after providing the assessee a proper opportunity of being heard.

The Tribunal observed that the CIT(A)'s order did not comply with the requirements of section 250(6) regarding detailed adjudication. Consequently, the matter was restored to the CIT(A)-NFAC for fresh adjudication, with the condition that the assessee actively presents their case within three opportunities.

The Tribunal found that the reasons recorded by the AO constituted borrowed satisfaction from AIR information, and the sanctioning authority failed to apply independent mind or identify any tangible material suggesting escaped income. Consequently, the Tribunal held that the reassessment proceedings were void-ab-initio and quashed them.

The Tribunal upheld the disallowance of Rs. 71,375/- for gratuity paid to an unapproved fund. However, it remitted two issues back to the AO for fresh decision: the disallowance of Rs. 13,49,827/- for bonus and gratuity shown payable, and the addition of Rs. 68,03,907/- due to receipts discrepancy, citing the need for reconciliation and considering the Supreme Court's decision in Checkmate Services Pvt. Ltd.

The Tribunal observed that the appeal was filed by the legal representative of the deceased assessee. Recognizing that the legal heirs were not given a proper opportunity to present their case and substantiate contentions before the CIT(A), the Tribunal set aside the order of the CIT(A). The matter was remitted back to the CIT(A) for fresh adjudication after providing a reasonable opportunity of hearing to the assessee's legal heirs.

The Tribunal held that head office expenses and bank/loan charges should be allocated to the MEPZ unit, especially when it is profitable. Payments for warehousing services to a US-based non-resident were found not to be FTS under the India-USA DTAA, as they did not involve 'make available' conditions or managerial services, thus no TDS was required. Foreign travel, irrecoverable excise duty on sales returns, gift/present, and garden expenses were allowed as business expenditures. The disallowance of Rs. 5,05,156/- for prior period expenses was sustained, and the matter of inter-unit transfers to MEPZ was remanded for fair market value ascertainment. Consequently, penalties levied under Section 271(1)(c) related to FTS were deleted.

The Income Tax Appellate Tribunal upheld the PCIT's revision order, confirming that the AO failed to conduct adequate examinations into the identified financial discrepancies. The Tribunal noted that the assessee could not produce evidence that these issues were investigated by the AO, thus establishing the assessment order as erroneous and prejudicial to the revenue. Consequently, the PCIT was justified in setting aside the assessment order and remanding the case to the AO for a fresh, thorough inquiry.

The Tribunal held that the assessment for AY 2008-09 was beyond the ten-year period from the end of the relevant assessment year in which the search was conducted, making the assessment order passed under Section 153A without jurisdiction and barred by limitation. It was also noted that the search was conducted on a non-existent entity, and no incriminating material was found, rendering the proceedings unlawful.

For Section 14A disallowance, the Tribunal upheld the CIT(A)'s modifications, clarifying that disallowance must not exceed exempt income and should only relate to investments yielding exempt income, acknowledging the AO's recorded satisfaction. Issues regarding short credit of TDS and foreign tax relief were remanded to the AO for verification and appropriate action. The claim for DDT credit was dismissed, as it was deemed an administrative matter beyond the Tribunal's jurisdiction. All appeals by the Revenue challenging the allowability of ESOP compensation as revenue expenditure were dismissed, consistent with prior decisions in the assessee's own case.

The Tribunal largely upheld the CIT(A)'s modifications regarding section 14A disallowance, restricting it to investments yielding exempt income and confirming the AO's satisfaction for Rule 8D invocation. It directed the Assessing Officer to verify and grant proper credit for TDS and foreign tax relief claims. However, it dismissed the appeals concerning DDT credit, deeming it an administrative issue beyond the ITAT's jurisdiction. The Revenue's appeals against the allowability of ESOP compensation as revenue expenditure were dismissed, consistent with the assessee's own prior year cases and various High Court decisions.

The Tribunal, in the interest of justice, found that the assessee deserved a reasonable opportunity of being heard. Therefore, it set aside the CIT(A)'s order and remitted the matter back to the Assessing Officer for de-novo consideration, instructing the AO to provide proper opportunities to the assessee before a decision on merits.

The ITAT, relying on the Delhi High Court's decision in a group entity's case (RELX INC), held that the subscription fees received for database access constitute business profit/income. Since the appellant/assessee does not have a PE in India, this income is not taxable in India. Consequently, the tribunal deleted the addition made by the AO for AY 2016-17, and this ruling extends to AY 2017-18.

The ITAT upheld the CIT(A)'s decision, ruling that the assessee's explanation for the inordinate delay of over 12 years in filing appeals did not constitute 'sufficient cause'. The tribunal found that the assessee's conduct showed 'absolute callousness and irresponsible conduct' and a failure to demonstrate a bonafide reason or lack of negligence in not pursuing rectification for such a long period.

The Tribunal observed that neither the assessee fully proved the source of deposits nor the department could entirely rebut the claims. Considering the peculiar facts, the Tribunal held that a lump sum addition of Rs. 10 lakhs was just and proper, thereby granting the assessee a relief of Rs. 11.5 lakhs. This estimation is not to be treated as a precedent.

The Tribunal held that adjustments under Section 143(1) of the Income Tax Act cannot be made for debatable and controversial issues. Relying on previous judgments, the Tribunal found the addition made by the revenue concerning employee contributions, even if deposited after the statutory due dates but before the ITR due date, to be beyond the scope of Section 143(1). Consequently, the order passed by the CPC Bangalore was deemed erroneous and quashed.

The Tribunal observed that the assessee possessed sufficient surplus own funds (share capital, reserves & surplus) and had made no fresh investments. Citing Supreme Court precedents, the Tribunal held that if own funds are sufficient, a presumption arises that investments were made from these funds, thus disallowance under Section 14A is not warranted.