ITAT Mumbai Judgments — February 2024

The Tribunal noted that the assessee was non-compliant before the first appellate authority and had failed to provide any written submissions or supporting documentary evidence. In the interest of natural justice, the Tribunal decided to remand the issue back to the CIT(A) for a fresh consideration.

The Tribunal found the assessee's arguments regarding improper notice and hearing to be factually correct. The notice for hearing was sent to an incorrect email address, and the order was passed before the specified response date.

The Tribunal held that the assessee was not provided with an adequate opportunity of being heard as notices were not received. Citing the Supreme Court's decision in Land Acquisition Collector vs. MST Katiji & Others, the Tribunal condoned the delay, stating that substantial justice should be preferred over technical considerations. The appeals were ordered to be heard on merits.

The Tribunal noted that similar issues in the assessee's own case for earlier years resulted in a restricted addition of 12.5% of bogus purchases, reduced by the gross profit rate declared. Following this precedent and observing that the assessee had declared a GP rate higher than 12.5%, the Tribunal held that no disallowance was warranted on account of additional GP. The addition was deleted.

The Tribunal observed that the assessee failed to prove the identity and creditworthiness of parties and the genuineness of transactions before the AO and CIT(A). Even before the Tribunal, no supporting documentary evidence was provided. The CIT(A) had not decided the issues on merits, hence the case was remanded.

The Tribunal held that penalty under Section 271(1)(c) cannot be levied if the addition is made on an estimated basis. The AO had made the addition based on an estimated percentage of gross profit on alleged bogus purchases. Following various High Court and Tribunal decisions, the penalty was deleted.

The Tribunal observed that for Ground No. 1, the issue regarding the sale of shares had already been decided in favour of the assessee by the ITAT and was pending before the High Court, with no incriminating material found. For Ground No. 2, it was held that no addition could be made without incriminating material found during the search.

The Tribunal condoned the delay in filing the appeal, acknowledging that the assessee and their current AR did not receive the notices from the Ld. CIT(A). The ex-parte order by the Ld. CIT(A) was found to be a violation of natural justice as it was not decided on merits.

The Tribunal held that Section 14A disallowance is applicable only when there is an actual receipt of income which does not form part of the total income. If no exempt income is received or receivable during the relevant previous year, Section 14A will not apply. The Tribunal further noted that the amendment to Section 14A by the Finance Act, 2022, is prospective and not retrospective.

The Tribunal held that the assessee did not get a proper opportunity before the AO, violating principles of natural justice. Relying on the Supreme Court's decision in Tin Box Company Vs. CIT, it was decided that the assessment order must be made after giving the assessee a reasonable opportunity.

The Tribunal noted that similar issues have been decided in favor of the assessee by referring to decisions of the Kerala High Court and previous ITAT orders, allowing the claim for deduction of interest income.

The Tribunal noted that the AO passed an ex-parte order without considering the assessee's explanation and the filed return of income. The delay in filing the appeal was condoned, and the documents, though kept in Calcutta and delayed due to the Covid pandemic, were crucial for a merit-based decision. The Tribunal found it imperative to examine and verify these documents.

The Tribunal noted that the services were rendered by non-resident agents outside India and the payments were made outside India. Relying on decisions of the Bombay High Court and Supreme Court, it was held that such commission income cannot be deemed to have accrued or arisen in India. The assessee's agents did not have a Permanent Establishment in India.

The Tribunal held that the CIT(A) erred in dismissing the appeal ex-parte without providing adequate opportunity of being heard, which violates the principles of natural justice. The Tribunal found that the assessee had attempted to provide submissions and documents.

The Tribunal held that the expenses incurred for leasehold improvements and related legal charges were revenue in nature and incurred for business purposes. The Assessing Officer's reasoning that these expenses were not related to operational income was found to be flawed. The Tribunal noted that no capital asset was created by these expenditures.

The Tribunal observed that the assessment proceedings were conducted during the Covid-19 period, and the assessee claimed they were not given a proper opportunity to explain their case. The Tribunal found that both the Assessing Officer and the Commissioner of Income-tax (Appeals) made additions and sustained them without proper consideration of documents and explanations. Therefore, the Tribunal set aside the impugned order.

The Tribunal held that the CIT(A)'s order in deleting the addition was not infirm. The CIT(A) had accepted the assessee's subsequent adoption of the transactional net margin method (TNMM) over the resale price method (RPM) and found the assessee's margin to be higher than the comparables. The Tribunal confirmed the CIT(A)'s order, dismissing the AO's appeal.

The Tribunal held that substantial justice should be preferred over technical considerations. Given that the assessee did not receive adequate opportunity of being heard due to technical glitches and issues with notice delivery, the ex-parte order was set aside. The appeals were condoned for delay and remitted for fresh adjudication.

The Tribunal noted that the assessee was given opportunities for hearing but did not effectively present its case, citing reasons like COVID impact. However, considering the circumstances, the Tribunal restored the appeal to the CIT(A) for fresh adjudication with a direction to the assessee to submit all details without seeking further adjournments.

The Tribunal noted that similar issues have been decided in favor of the assessee by this Tribunal, citing other ITAT and Kerala High Court decisions that allow such deductions. Therefore, the Tribunal followed these precedents.

The Tribunal noted that the assessee failed to discharge the primary onus to prove the identity, creditworthiness, and genuineness of the transactions before the lower authorities. However, considering the assessee's request for another opportunity, the Tribunal restored the issue back to the file of the AO.

The Tribunal held that the reasons recorded by the AO for re-opening the assessment were contradictory and did not establish a valid "reason to believe" that income had escaped assessment. The AO's reasons indicated escapement of income in the hands of the share-issuing company, not the assessee. Therefore, the re-opening was deemed invalid.

The Tribunal held that the Assessing Officer (AO) rightly invoked Section 147 for reassessment, finding sufficient material to believe income had escaped assessment. Grounds related to the reopening, unexplained expenditure, depreciation disallowance, and interest on loan were dismissed due to lack of substantiating evidence from the assessee.

The Tribunal found that the AO did not consider the documents filed by the assessee and passed an ex-parte assessment order. The CIT(A) also dismissed the appeal ex-parte. Therefore, the matter was restored to the AO for de novo adjudication with an opportunity of being heard.

The Tribunal held that the assessee discharged its initial onus by providing identity, creditworthiness, and genuineness of the loan transactions through bank statements, ITRs, and annual reports of the lenders. The AO failed to conduct further inquiry to disprove the assessee's claims, relying solely on investigation wing reports and suspicions. The reassessment proceedings were also challenged.

The Tribunal held that the Transfer Pricing Officer (TPO) erred in making adjustments for administrative support services. The method used by the assessee was deemed appropriate, and the grounds related to transfer pricing were allowed. Regarding the interest on income tax refund, the Tribunal held that it is exempt from tax under Article 11(3)(a)(i) of the India-Canada DTAA, as the payer was the Government. The appeals were partly allowed or allowed based on these findings.

The Tribunal noted that the AO primarily relied on a generalized report from the investigation wing without specific material to link the assessee's transactions to price manipulation. The assessee's transactions were conducted through banking channels and supported by documentary evidence. The Tribunal found that the AO failed to discharge the onus of proving the transactions were bogus.

The Tribunal held that the reassessment proceedings were not barred by limitation. For AY 2009-10, Grounds 5 and 6 regarding gross profit estimation were partly allowed, directing the AO to recompute taxable income using a corrected gross profit rate of 3.05%. For AY 2011-12, Grounds 1 and 2 concerning gross profit were also partly allowed, with a similar direction to use a corrected rate of 3.07%. Ground 7 regarding an addition of INR 1,69,25,000/- for unsecured loans in AY 2009-10 was allowed due to the AO's non-compliance with tribunal directions. Ground 3 concerning disallowance of interest in AY 2011-12 was remanded to CIT(A). Ground 4 regarding unsecured loans in AY 2011-12 was partly allowed, with additions of INR 1,50,000/- and INR 50,000/- deleted.

The Tribunal condoned the delay of 437 days, citing the Hon'ble Supreme Court's extension of limitation due to the pandemic and the assessee's lack of familiarity with new procedures. Upon perusing the reasons recorded by the AO for reopening the case, the Tribunal found that the basis for reopening was an alleged cash loan of Rs.2,45,00,000/-. However, the AO did not make any addition on account of the cash loan itself, but only added interest on it. The Tribunal relied on the Bombay High Court's decision in CIT vs. Jet Airways and Sanjeev Amritlal Chhedda, which held that if a loan is not treated as income, there cannot be escapement of income for the loan amount, and if the basis for reopening is not valid, the entire reopening is vitiated.

The Tribunal held that the ground regarding unexplained stock addition is restored to the CIT(A) for fresh examination of additional evidence admission. Regarding the bogus salary expenses, the Tribunal found no infirmity in the lower authorities' orders confirming the disallowance, as the HR manager's statement and other evidence supported the finding of bogus payments made on the management's instructions.

The Tribunal held that the transfer pricing adjustment was not justified, and grounds related to it were allowed. Regarding the interest income on refunds, the Tribunal found merit in the assessee's claim for exemption under the India-Canada DTAA, overturning the previous decisions.

The Tribunal observed that the TPO failed to adopt any of the prescribed methods under Section 92C of the Act for determining the arm's length price. Citing various precedents, including decisions in the assessee's own case, the Tribunal held that such ad-hoc determination of ALP dehors the prescribed methods cannot be sustained. The Tribunal also noted that in a similar issue concerning Ground No. 2, it was deemed appropriate to remit the issue back to the TPO for fresh analysis.

The Tribunal held that the provisions of Article 11(3)(a)(i) of the India-Canada DTAA are applicable. The interest on income tax refund was paid by the Government, making it exempt from tax in India. The Tribunal distinguished this case from others where the DTAA provisions were different or the interest was effectively connected to a PE.

The Tribunal held that for ITA No. 473/Mum/2022, grounds related to the addition of ₹14,33,45,343/- are set aside to the Assessing Officer for fresh adjudication. The addition of ₹29,61,985/- as commission income was deleted as it was already accounted for. For ITA No. 2145/Mum/2022, grounds concerning additions on account of cash deposits were restored to the Assessing Officer for fresh inquiry. Additions regarding commission income were deleted. Both appeals were allowed for statistical purposes.

The Tribunal held that the addition related to deposits from members (Grounds 2-6 in ITA No. 473/Mum/2022) was partially sustained, with a direction to the AO to re-examine the case for certain members. The addition for commission income (Ground 7 in ITA No. 473/Mum/2022) was deleted as it was already accounted for in the assessee's books. The additions in ITA No. 2145/Mum/2022 were largely set aside to the AO for fresh inquiry.

The Tribunal held that the transfer pricing adjustment concerning administrative support services was not justified, allowing the assessee's appeal on those grounds. Regarding interest on income tax refunds, the Tribunal ruled that it is exempt from tax under Article 11(3) of the India-Canada DTAA, allowing the assessee's appeal.