ITAT Mumbai Judgments — January 2024

The Tribunal noted that construction expenses related to pending bills or works for Tower D1, even if incurred after sale, are allowable as they pertain to common areas or unfinished works, which are builder's responsibility. Regarding establishment and interest expenses, the Tribunal found that if the assessee continued its real estate business activities, these expenses are deductible without direct linkage to a specific project.

The Tribunal held that the Ld. CIT(A) should have decided the appeal on merit, even without the assessee's representation. Since the appeal was not decided on merit and the assessee's submissions were not considered, the impugned order was set aside.

The Tribunal noted that the sale consideration was received by the assessee's son, who had declared it in his return of income. The AO should have reopened the son's assessment for the difference between the sale price and the stamp valuation. The addition in the hands of the assessee was directed to be deleted.

The Tribunal noted that the CIT(A) passed an ex-parte order due to the assessee's non-appearance. In the interest of justice, the assessee was granted another opportunity to present their case on merits before the CIT(A). The matter was restored to the CIT(A) for de novo adjudication.

The Tribunal noted that the assessee failed to provide necessary submissions and documents to substantiate its claim before the lower authorities, leading to ex-parte decisions. However, considering the peculiar facts, the Tribunal remanded the case to the Commissioner for a fresh decision.

The Tribunal held that the assessee is entitled to exemptions under Section 10. The revenue's grounds of appeal were dismissed, and the assessee's appeal was partly allowed. The Tribunal followed its previous decisions and judgments of higher courts regarding the computation of income for insurance businesses and the applicability of exemptions.

The Tribunal held that disallowances under Section 14A were not warranted to the extent computed by the AO, especially concerning interest expenditure attributable to tonnage tax activities. The foreign exchange gain on cancellation of vessel construction contracts was treated as a capital receipt and not taxable. The transfer pricing adjustment on performance guarantee was partly allowed, considering it was in existence for only one month.

The Tribunal held that the SPVs are distinct legal entities and are the 'enterprises' executing the infrastructure facility. The assessee, by providing advisory services, was engaged in a works contract and therefore not eligible for deduction under Section 80IA.

The Tribunal held that for the Pr. CIT to invoke section 263, the AO's order must be demonstrably erroneous and prejudicial to the revenue. The Pr. CIT must conduct necessary inquiries before assuming jurisdiction. In this case, the AO had applied his mind and considered the information provided. The grounds raised by the Pr. CIT were found to be based on an incorrect appreciation of facts and law, or a mere difference of opinion. The tribunal found that the AO had applied one of the possible views based on the information and that the Pr. CIT's action was not acceptable.

The Tribunal held that for completed/unabated assessments, additions under Section 153A cannot be made in the absence of incriminating material found during search. The Tribunal noted that the deficiencies in KYC documents and byelaws, while warranting action under other statutes, did not constitute incriminating material for the purpose of additions under the Income Tax Act in unabated assessments.

The Tribunal held that the material found during the search was not incriminating in nature as it did not prove that the real transaction was different from what was recorded or that the assessee had undisclosed income. The AO could not make additions under section 153A for concluded assessments in the absence of incriminating material.

The Tribunal held that reassessment proceedings under section 147 were validly initiated because the information received was tangible evidence from a search, and the assessee had failed to disclose material facts. However, the addition made under section 69 was deleted as the Assessing Officer failed to establish that the investments were not recorded in the books of accounts.

The Tribunal observed that the Ld. CIT(A)'s direction to compute the arithmetic mean of 14 Indian companies for comparison with the margin of tested parties was not in accordance with law, as Section 251 of the Income-tax Act does not permit restoring the matter back to the Assessing Officer. Furthermore, Section 250(4) of the Act allows for inquiries but no such inquiry was conducted by the Ld. CIT(A). Therefore, the Tribunal set aside the finding of the Ld. CIT(A) and restored the matter back to him for deciding afresh after providing adequate opportunity of being heard to both parties.

The Tribunal considered various grounds of appeal from both parties. Several issues involved the allocation of expenses, depreciation, and the nature of certain expenditures. The Tribunal relied on previous decisions of coordinate benches and High Courts to decide these matters.

The Tribunal held that the disallowance of interest expenditure pertaining to tonnage tax business should be excluded as it is directly attributable to tonnage tax activities and already excluded from total income. The Tribunal also noted that the assessee had sufficient own funds for investments, thus no disallowance of interest was warranted. Furthermore, the Tribunal found that the exchange difference on cancellation of vessel construction contracts was a capital receipt and not exigible to tax. The issue of transfer pricing adjustment on performance guarantee was partly allowed, with adjustments to be made only for the period the guarantee was in existence.

The Tribunal held that the SPVs, which entered into agreements with NHAI and executed the infrastructure projects, are the 'enterprises' eligible for deduction under Section 80IA. The assessee, by providing advisory services and raising invoices to the SPVs, acted as a contractor and not as the owner of the enterprise. The profit/loss of the SPVs are not reflected in the assessee's profit and loss account, confirming their separate legal entity.

The Tribunal held that for completed assessments, additions under Section 153A are permissible only if incriminating material is found during the search. The deficiencies in KYC and account opening forms, while violations, were not considered 'incriminating material' as they did not prima facie prove that the assessee's transactions were different from what was recorded, nor did they reveal undisclosed income. Therefore, no additions could be made under Section 153A.

The Tribunal noted that the assessee's main contention was that the alleged fraudulent claim was lodged by Mr. Rajesh Tiwari, who was not a competent Chartered Accountant and had no degree. The assessee claimed they never availed of such a fraudulent claim. The Tribunal considered that the AO had made additions under section 68 on the ground of fraudulent refund claims and the assessee's AR had expressed inability to produce documentary evidence. Therefore, a reasonable opportunity was to be provided to the assessee.

The Tribunal held that the SPVs, not the assessee, were the 'enterprises' eligible for deduction under Section 80IA as they directly entered into agreements with NHAI and executed the infrastructure projects. The assessee acted as a works contractor for these SPVs.

The Tribunal held that the omission of Section 92BA(i) by the Finance Act, 2017, without a saving clause, rendered any transfer pricing adjustment invalid for the assessment year 2016-17, even if the transaction occurred in that year. The disallowances under Section 14A were partly deleted based on the assessee's calculation and Supreme Court rulings. The disallowance for depreciation was also allowed in favor of the assessee. Certain other grounds were academic or not pressed.

The Tribunal considered various grounds of appeal. Key issues included the disallowance of provision for leave encashment, the treatment of Cenvat credit in inventory valuation, claims for additional depreciation, the allowability of education cess as a deduction, the accrual of retention money as income, the allocation of sales commission expenses, club membership fees, and the disallowance of expenses under Section 14A. The Tribunal referred to various High Court and Supreme Court decisions and relied on its own previous rulings.

The Tribunal held that the SPVs, not the assessee, were the enterprises that executed the infrastructure facility and entered into agreements with NHAI. The SPVs were considered separate legal entities, and the assessee's role was that of executing a works contract for the SPVs.

The Tribunal observed that the facts of the present case were similar to previous cases (Krupa Land Ltd. and Lavanya Pvt. Ltd.) where similar additions were deleted. They noted that the Revenue had not provided sufficient material to substantiate the allegations of cash payments. Relying on the decisions of the Co-ordinate Bench of the Tribunal and the Jurisdictional High Court, the Tribunal found no reason to interfere with the CIT(A)'s findings.

The Tribunal held that the Pr.CIT erred in assuming jurisdiction under section 263. The Assessing Officer had applied his mind and accepted a possible view based on the information provided. The Pr.CIT's action was deemed unacceptable as the Assessing Officer's order did not satisfy the twin conditions of being erroneous and prejudicial to the interest of revenue. Consequently, the Pr.CIT's order was set aside.