ITAT Kolkata Judgments — August 2023

The Tribunal held that the Assessing Officer could not suo motu disallow a deduction already granted without issuing a show-cause notice, especially when the assessee's application was for a specific TDS credit adjustment. The disallowance made without proper procedure was quashed.

The Tribunal found that the assessee had not claimed or availed any business loss from AY 2017-18. Therefore, the assessment order was neither erroneous nor prejudicial to the interest of revenue, and the PCIT's revisionary jurisdiction was wrongly invoked.

The Tribunal found merit in the assessee's submissions regarding the real income theory and the doctrine of estoppel, supported by judicial precedents. However, it also acknowledged the revenue's contention that the assessee, his spouse, or son were directors in companies conducting the real estate business, suggesting the possibility of lifting the corporate veil. For AY 2010-11, the AO had made an estimated addition for undisclosed income from flat sales. Considering the complexities and the factual observations made by the AO regarding the conduct of real estate business and the additions made in the assessee's hands, the Tribunal decided to remit the matter back to the AO for a de novo assessment. The AO is directed to ascertain the status of nineteen companies and developer Mani Square Pvt. Ltd. to verify their respective assessments for undisclosed income and to determine if additions were correctly made in the assessee's hands based on seized material. The Tribunal noted that the term 'may be presumed' in Section 292C implies a rebuttable presumption, and the onus is on the party claiming otherwise. The grounds raised by both the assessee and the revenue concerning real estate business income and Section 40A(3) were allowed for statistical purposes due to the remand. The Tribunal explicitly stated it was not expressing any view on the merits to avoid prejudicing the assessment proceedings before the AO. The issues for AY 2010-11 were also remitted on similar grounds.

The Tribunal found merit in the assessee's submissions regarding the real income theory and the doctrine of estoppel, supported by judicial precedents. However, it also acknowledged the revenue's contention that the assessee, his spouse, or son were directors in companies conducting the real estate business, suggesting the possibility of lifting the corporate veil. For AY 2010-11, the AO had made an estimated addition for undisclosed income from flat sales. Considering the complexities and the factual observations made by the AO regarding the conduct of real estate business and the additions made in the assessee's hands, the Tribunal decided to remit the matter back to the AO for a de novo assessment. The AO is directed to ascertain the status of nineteen companies and developer Mani Square Pvt. Ltd. to verify their respective assessments for undisclosed income and to determine if additions were correctly made in the assessee's hands based on seized material. The Tribunal noted that the term 'may be presumed' in Section 292C implies a rebuttable presumption, and the onus is on the party claiming otherwise. The grounds raised by both the assessee and the revenue concerning real estate business income and Section 40A(3) were allowed for statistical purposes due to the remand. The Tribunal explicitly stated it was not expressing any view on the merits to avoid prejudicing the assessment proceedings before the AO. The issues for AY 2010-11 were also remitted on similar grounds.

The Tribunal held that the Pr. CIT did not provide adequate opportunity to the assessee to present their case, violating principles of natural justice. The direction to re-frame the entire assessment was also considered inappropriate given the specific issues raised.

The Tribunal found merit in the assessee's submissions regarding real income theory and the doctrine of estoppel, while also acknowledging the revenue's points about the assessee being the ultimate beneficiary. The matter was remitted back to the AO for a de novo assessment.

The Tribunal held that there was indeed a typographical error in its order dated May 26, 2023. The error was in citing the Supreme Court case of PCIT vs. Maruti Suzuki India Limited (2019) 416 ITR 613 (SC) in paragraph 7 on page 10. The Tribunal accepted the assessee's submission and directed that the correct citation to be read in the order is PCIT vs. Abhisar Buildwell Pvt. Limited (2023) 149 taxmann.com 399 (SC). The reasoning for this decision was to ensure the accuracy of the judicial pronouncement and to reflect the correct legal precedent relied upon by the Tribunal. The operative direction is to rectify the original order. No other issues were decided or left undecided.

The Tribunal found merit in the assessee's submissions regarding real income theory and the doctrine of estoppel, while also acknowledging the revenue's points about the assessee being the ultimate beneficiary. The matter was remitted back to the AO for a de novo assessment.

The Tribunal held that the penalty notice issued under Section 274 of the IT Act was defective as it did not specify whether the penalty was for furnishing inaccurate particulars or concealing income. Following established precedents, the penalty was cancelled.

The Tribunal allowed the appeal for AY 2015-16. For AY 2014-15, the issue of capital work-in-progress written off was remanded to the AO for fresh consideration after providing the assessee an opportunity to submit details.

The Tribunal held that the disallowance of interest expenditure was not justified. The Assessing Officer's finding was not categorical; he did not pinpoint specific cash credits taken by the assessee that were not used for business. Instead, he merely referred to the assessee's net worth, non-current investments, and long-term loans and advances. The Tribunal noted that the loans or other credits obtained by the assessee, on which interest was paid, were not new and had been existing credits in prior years. Crucially, the interest expenditure had been allowed in earlier years. Therefore, disallowing such interest cost in the current years was incorrect, as the credits were taken and used for business purposes. The Assessing Officer had not conducted any inquiry to disprove this. Consequently, the Tribunal allowed this ground of appeal for both years and deleted the disallowances. No other grounds were pressed by the assessee.

The Tribunal held that the disallowance of interest expenditure was not justified. The Assessing Officer's finding was not categorical; he did not pinpoint specific cash credits taken by the assessee that were not used for business. Instead, he merely referred to the assessee's net worth, non-current investments, and long-term loans and advances. The Tribunal noted that the loans or other credits obtained by the assessee, on which interest was paid, were not new and had been existing credits in prior years. Crucially, the interest expenditure had been allowed in earlier years. Therefore, disallowing such interest cost in the current years was incorrect, as the credits were taken and used for business purposes. The Assessing Officer had not conducted any inquiry to disprove this. Consequently, the Tribunal allowed this ground of appeal for both years and deleted the disallowances. No other grounds were pressed by the assessee.

The Tribunal considered the prayer made by the assessee's counsel to dismiss the appeal as withdrawn. The Tribunal noted that the Revenue had not filed any Cross Objection and therefore could not object to the assessee's request. The Tribunal held that if the assessee, being the appellant, wishes not to pursue the appeal, the respondent (Revenue) cannot raise an objection. Consequently, the Tribunal dismissed the appeal as withdrawn. The operative direction was the dismissal of the assessee's appeal.

The Tribunal noted that the assessee, based on the audited annual accounts filed, appeared not to have earned any exempt income. In the absence of exempt income, the invocation of Section 14A and the consequent disallowance of Rs. 3,89,010/- could not be sustained. The Tribunal referred to the decision of the Hon'ble Delhi High Court in Chem Invest Ltd. vs. CIT. However, to ascertain the fact of whether the assessee earned any exempt income, the issue was restored to the file of the AO. The AO was directed to examine this fact and decide accordingly, also providing an opportunity of hearing to the assessee. If no exempt income was received, the disallowance was to be deleted. The grounds raised were allowed for statistical purposes.

The Tribunal noted that the assessee, based on the audited annual accounts filed, appeared not to have earned any exempt income. In the absence of exempt income, the invocation of Section 14A and the consequent disallowance of Rs. 3,89,010/- could not be sustained. The Tribunal referred to the decision of the Hon'ble Delhi High Court in Chem Invest Ltd. vs. CIT. However, to ascertain the fact of whether the assessee earned any exempt income, the issue was restored to the file of the AO. The AO was directed to examine this fact and decide accordingly, also providing an opportunity of hearing to the assessee. If no exempt income was received, the disallowance was to be deleted. The grounds raised were allowed for statistical purposes.

The Tribunal held that the CIT(Appeals) erred in dismissing the assessee's appeal as time-barred, citing a CBDT circular that allowed manual appeals filed before a certain date. The Tribunal also upheld the CIT(Appeals)'s deletion of additions related to gratuity and deferred tax credit, finding no error in its findings.

The tribunal held that the reassessment proceedings were bad in law due to a lack of application of mind by the Assessing Officer and reliance on 'borrowed satisfaction'. The incorrect mention of assessment years in the reasons recorded further invalidated the notice. Consequently, the penalty imposed under Section 271(1)(c) was also deleted as it was consequential to the quashed reassessment.

The Tribunal held that the assessee is entitled to 30% depreciation on moulds as they were used for business purposes, even if not in their own factory. The Tribunal also upheld the deletion of the addition for unrecovered excise duty, considering it a deductible expense.

The Tribunal allowed the appeal for AY 2015-16. For AY 2014-15, the issue of capital work-in-progress written off was remanded to the AO for fresh consideration after providing the assessee an opportunity to submit details.

The Tribunal held that the PCIT's assumption of jurisdiction under Section 263 was invalid. The AO had conducted inquiries, examined evidence, and taken a plausible view, which the PCIT could not simply overturn without conducting his own independent inquiry.

The Tribunal held that an appeal cannot be adjudicated in the name of a non-existent entity. Therefore, the appeal filed by the amalgamating company was dismissed.

The Tribunal held that the assessee is entitled to 30% depreciation on moulds as they were used for business purposes, even if not in their own factory. The Tribunal also upheld the deletion of the addition for unrecovered excise duty, considering it a deductible expense.

The Tribunal held that TDS was not required on labour charges as payments were made to casual labourers in small amounts, and there was no contractual obligation. The estimated disallowance of expenses was also deemed unsustainable as it was made on an ad-hoc basis without specific identification of unverifiable expenses.

The Tribunal held that the assessment order was invalid and bad in law because the Assessing Officer who framed the assessment did not issue the mandatory notice under Section 143(2) of the Act. This was considered a jurisdictional defect and not a curable one.

The Tribunal upheld the order of the CIT(A) which quashed the reopening of assessment. The Tribunal found that the AO had not applied his mind independently and had relied on vague information, constituting a 'borrowed satisfaction'.

The Tribunal held that the PCIT cannot invoke Section 263 to dictate the manner of inquiry or to disagree with a plausible view taken by the AO. The PCIT failed to demonstrate how the AO's order was erroneous and prejudicial to revenue, especially when the AO had examined the evidence provided by the assessee.

The Tribunal held that the PCIT's assumption of jurisdiction under Section 263 was invalid. The AO had conducted inquiries, examined evidence, and taken a plausible view, which the PCIT could not simply overturn without conducting his own independent inquiry.

The Tribunal found merit in the assessee's claim of non-service of notice. It held that substantial justice should prevail and the assessee should not be denied a hearing due to circumstances beyond their control.

The ITAT held that the CIT(A) deleted the addition without proper verification of the assessee's claims of a cashless barter transaction. The tribunal found no material to support the CIT(A)'s findings and upheld the AO's addition.

The Tribunal found that the assessee had sufficient source for the cash deposits, as the money received from customers was utilized for coal purchases. The additions made by the AO and confirmed by the CIT(A) were therefore set aside.

The tribunal restored the sundry balances issue to the AO for fresh examination with details. It reversed the addition of the short-term capital loss, holding that a loss cannot be treated as an unexplained cash credit.

The Tribunal held that since the assessee had sufficient interest-free funds (share capital and reserves) exceeding the investments yielding exempt income, no disallowance of interest was warranted. The presumption is that investments are made out of interest-free funds when available.

The tribunal held that the reassessment proceedings were bad in law due to a lack of application of mind by the Assessing Officer and reliance on 'borrowed satisfaction'. The incorrect mention of assessment years in the reasons recorded further invalidated the notice. Consequently, the penalty imposed under Section 271(1)(c) was also deleted as it was consequential to the quashed reassessment.

The Tribunal held that mere non-compliance with summons under Section 131 is insufficient to make an addition under Section 68 if the assessee has provided sufficient documentary evidence for identity, creditworthiness, and genuineness of transactions. The Tribunal also held that disallowance under Section 14A is only permissible if exempt income has been earned.

The Tribunal found that the assessee's total sales, including VAT and non-taxable sales, as per VAT returns and reconciliation statements, fully explained the cash deposits. Therefore, the addition made by the AO was deleted.

The Tribunal held that the share capital and premium were received in earlier years and were brought forward as opening balances. Section 68 of the Income Tax Act cannot be invoked for amounts received in earlier years.

The Tribunal held that the assessee's classification of shares into investment and trading portfolios, as maintained in its books of accounts, should be respected. The mere fact that shares were held for a short period does not automatically convert capital gains into business income.

The Tribunal found that the assessee had provided sufficient evidence to support its cash sales transactions during the demonetisation period. The Tribunal noted the reduction in outstanding debtors despite increased sales, indicating efficient debt recovery.

The Tribunal noted that the share capital and unsecured loans might represent opening balances from a slump sale acquisition in the preceding year. If no fresh credit was received in the current year, Section 68 would not apply.

The Tribunal restored the appeal to the file of the CIT(A) with a direction to decide the case on merits. The assessee was granted one more opportunity to present its case, and was directed to cooperate in the proceedings.

The Tribunal held that since the re-opening was done after four years from the end of the assessment year and the original assessment was under Section 143(3), the proviso to Section 147 applies. The Assessing Officer failed to demonstrate any failure on the part of the assessee to disclose material facts, making the re-opening bad in law.

The Tribunal held that as per the amalgamation scheme sanctioned by the High Court, all taxes including TDS belonging to the transferor companies from the appointed date should be treated as belonging to the transferee company. Therefore, the assessee is entitled to the TDS credit.

The Tribunal held that the addition was based on conjecture and surmises, as the assessee had provided sufficient documentary evidence, and the mere non-production of directors was not a ground for addition. The disallowance under Section 14A was restricted to the amount of exempt income.

The Tribunal held that the CIT(Appeals) erred in dismissing the assessee's appeal as time-barred, citing a CBDT circular that allowed manual appeals filed before a certain date. The Tribunal also upheld the CIT(Appeals)'s deletion of additions related to gratuity and deferred tax credit, finding no error in its findings.

The Tribunal held that the assessee had provided all necessary documents regarding the loan creditor and had repaid the loan with TDS. The AO's failure to conduct further investigation despite the assessee furnishing details led to the deletion of the addition.

The Tribunal held that the penalty notice was defective as it failed to specify one of the two limbs under which penalty was proposed, denying the assessee a proper opportunity to respond. Therefore, the penalty order based on such a defective notice is invalid.

The Tribunal held that the CIT(A) acted within his powers by dismissing the appeal as withdrawn, as the assessee consciously opted for an alternative remedy under Section 264. The assessee's subsequent attempt to revive the appeal before the CIT(A) after failing to get relief under Section 264 was not entertained.

The Tribunal held that both the AO and CIT(A) failed to appreciate the facts on record that the assessee had not issued any share capital or received any premium during the year. The addition made on this account was therefore deleted.

The Tribunal held that the penalty notice under Section 274 was defective as it did not specify the exact charge against the assessee. Following the jurisdictional High Court's decisions, the Tribunal found that such a vague notice renders the penalty invalid.