ITAT Mumbai Judgments — March 2024

The CIT(A) upheld the AO's observation but reduced the rate from 1% to 0.5%. The Tribunal noted that while the assessee submitted purchase and sale invoices, the AO's case relied on statements admitting circular trading without delivery. The Tribunal found that the assessee should have substantiated actual delivery for purchases from M/s. Shatranj Trading Pvt. Ltd. when confronted with the statements. However, considering past judgments on commission rates, the Tribunal decided to reduce the commission rate.

The Tribunal noted that the CIT(A) dismissed the appeal by relying on the AO's findings without independent examination. The Tribunal found that the AO's determination of 'actual rate of sale' for additions related to unaccounted income was not clear. The Tribunal also noted issues with the CIT(A) proceedings due to the assessee's circumstances.

The Tribunal remanded the issue of disallowance under Section 14A to the CIT(A) for a decision on merits. The Tribunal allowed the assessee's cross-objections and dismissed the Revenue's appeal regarding the adjustment of book profit under Section 115JB, stating that Section 14A read with Rule 8D is not applicable for computing profit under Section 115JB. The Revenue's appeal regarding disallowance under Section 36(1)(iii) was dismissed, and the assessee's cross-objections were allowed. The Tribunal dismissed the Revenue's appeal and allowed the assessee's cross-objections concerning the addition for unexplained money from the sale of immovable property.

The Tribunal observed that while the information received from the Investigation Wing might be a ground for reopening, the AO failed to specify the exact material or information in possession to substantiate the addition. The assessee had also provided an explanation that the entire agreed value was not paid and the flat was surrendered.

The Tribunal noted that the CIT(A) did not properly appreciate the Assessee's submissions and failed to examine or adjudicate the contention that the right in the property was acquired more than 36 months before its sale. The CIT(A) also did not consider documents furnished by the Assessee and failed to provide factual findings.

The Tribunal held that the assessee did not appear before the AO and failed to furnish details, leading to disallowance of depreciation and addition of unexplained cash credit under Section 68. However, in the interest of justice, both issues were set aside and restored to the AO.

The Tribunal observed that the AO's finding amounted to a recording of dissatisfaction. The Tribunal decided to remand the issue of disallowance under Section 14A to the CIT(A) for decision on merits. Regarding book profit under Section 115JB, the Tribunal allowed the assessee's cross-objection and dismissed the Revenue's appeal. For disallowance of interest under Section 36(1)(iii), the Revenue's appeal was dismissed and the assessee's cross-objection was allowed. The Tribunal remanded the issue of transfer pricing adjustments for finance guarantee to the TPO.

The Tribunal held that the reopening of assessment was justified as the AO had analyzed the information received and formed his own belief. Regarding the disallowance of bogus purchases, the Tribunal noted that the assessee failed to produce the parties for verification and substantiate the genuineness of the transactions. The Tribunal restored the matter to the file of the Assessing Officer for a fresh determination, considering the outcome of related proceedings and the assessee's ability to prove the genuineness of purchases and the export of goods.

The Tribunal upheld the reopening of the assessment. Regarding the disallowance of purchases, the Tribunal noted that the assessee failed to provide sufficient evidence to prove the genuineness of the transactions and to substantiate the purchases from the concerned parties. The Tribunal observed that while the assessee provided documentary evidence, it did not establish the actual carrying on of the business or the corresponding sales. However, considering previous decisions where a percentage of addition was allowed, the matter was restored to the AO to determine the genuineness of purchases and, if found bogus, to examine the export details and potentially allow a partial disallowance.

The Tribunal found that the assessee had provided detailed submissions and relevant documents. The Assessing Officer failed to examine these documents before rejecting the books and making estimations. The CIT(A) correctly examined the books and deleted the additions, a decision the Tribunal found to be well-reasoned and without infirmity.

The Tribunal held that the management service fees charged by the assessee represent a pure allocation of actual cost, certified by auditors, and are not taxable in India as royalty. The services provided do not fall within the scope of 'Royalty' as defined in Article 12(4) of the India-Netherlands DTAA, as there was no imparting of know-how or transfer of knowledge. The Tribunal followed its previous decisions in the assessee's own cases for various assessment years.

The Tribunal held that the CIT(A) was correct in deleting the disallowance. The assessee made investments from its own funds, not borrowed funds. The disallowance made by the Assessing Officer was not sustainable as it considered all investments instead of only those yielding exempt income, and the Explanation to Section 14A, introduced by the Finance Act 2022, was not retrospective in application.

The CIT(A) reversed the AO's decision, allowing the exemptions. The Tribunal noted that similar issues for previous assessment years had been decided in favor of the assessee by both the CIT(A) and the Tribunal, following binding precedents.

The Tribunal held that while some charges like Infrastructure Charges might have a direct nexus with the building and development activity, others like society formation charges and common area maintenance charges may not. The material on record was insufficient to determine the nexus of all collected charges with the eligible business.

The Tribunal, relying on its previous decisions for the same assessee in identical circumstances for earlier assessment years, held that the CIT(A) was incorrect in dismissing the appeal as barred by limitation. However, regarding the merits, the Tribunal found no infirmity in the order levying the fee under Section 234E as the period for which the fee was charged fell after 01/06/2015.

The CIT(A) deleted the addition, holding that the AO's ad-hoc disallowance was arbitrary and without basis, especially since the assessee's books of account were audited and no specific discrepancies were found. The CIT(A) also noted that similar expenses were allowed in previous years and that the Supreme Court's decision in Principal Commissioner of Income Tax vs. R.G. Buildwell Engineers Ltd. supported the deletion of such ad-hoc disallowances when books are not rejected.

The Tribunal noted that physical appeals for the same assessment years had already been disposed of. Consequently, the e-filed appeals were rendered infructuous and the assessee requested their withdrawal.

The Tribunal, following its own prior decisions on identical facts for earlier assessment years, held that the subscription fees for CAS and PUBS divisions are not taxable as royalty in India. The assessee provided access to databases and journals but did not transfer any copyright, thus constituting business profits not taxable in the absence of a Permanent Establishment in India.

The Tribunal noted that the e-filed appeals were infructuous as the physical appeals for the same assessment years had already been disposed of. The assessee requested withdrawal of these e-filed appeals.

The Tribunal held that the depreciation claimed by the assessee was in accordance with Section 11(6) of the Income Tax Act, as the cost of the fixed assets had not been claimed as an application of income in the relevant or preceding assessment years. Therefore, the disallowance was deleted.

The Tribunal held that the disallowance made by the Assessing Officer under Section 14A is not sustainable in law. It was observed that the investments yielding exempt income were made from the appellant's own funds, not borrowed funds, and that the CIT(A) correctly deleted the disallowance. The Tribunal also noted that the Explanation to Section 14A, introduced by the Finance Act 2022, is not retrospective and does not affect the assessment years in question.

The Tribunal held that the assessee's activities, including holding seminars, receiving subscriptions, selling publications, and displaying sponsor products, were incidental to and in furtherance of its dominant charitable object of promoting the Fragrance and Flavours industry. These activities were not considered to be in the nature of trade, commerce, or business.

The Tribunal held that if the purchases were bogus, the corresponding sales would also have to be bogus for the transaction to be completed. However, if the sales were genuine, the purchases could not be entirely bogus. Thus, only the profit element in the alleged bogus purchases should be assessed. The Tribunal found that the gross profit rate in the diamond trading business is approximately 3%, and since the assessee had declared 1.42%, the addition should be restricted to the difference.

The Tribunal noted that the addition was made due to the deeming provisions of Section 50C of the Act. It held that the mere fact that an addition was made based on a difference between the sale consideration and the stamp duty/DVO valuation does not automatically imply furnishing of inaccurate particulars of income, especially when the assessee had disclosed all material facts and the sale deed was registered. Reliance was placed on the judgment of the Hon'ble Bombay High Court in CIT V. Fortune Hotels and Estates (P.) Ltd.

The Tribunal held that the proviso to Rule 8D clearly states that the disallowance under Rule 8D(2)(i) and 8D(2)(ii) cannot exceed the total expenditure claimed by the assessee. The assessee's interpretation of limiting the disallowance to administrative costs was not supported by the rule. The AO's disallowance was found to be within the total expenditure.

The Tribunal, following a Special Bench decision, held that Dividend Distribution Tax (DDT) under Section 115-O of the Act is payable at the rate prescribed in the Act, not at the rate specified in the Double Taxation Avoidance Agreement (DTAA) between India and Singapore for non-resident shareholders. The DTAA does not get triggered for DDT paid by a domestic company.

The CIT(A) deleted the disallowance under normal provisions and Section 115JB, noting that the AO had not recorded dissatisfaction regarding the assessee's suo-motu disallowance. The CIT(A) directed the AO to recompute the disallowance under Section 14A, excluding shares held as stock-in-trade.

The Tribunal noted that the assessee had provided sufficient evidence, including STPI and customs approvals, audited accounts, tax audit reports, and CBDT notifications, to establish the nature of services rendered and the eligibility for deduction. The Tribunal also relied on previous decisions in the assessee's own case for earlier assessment years where similar claims were allowed.

The Tribunal held that the reopening of assessment was invalid. The AO had already examined the issue of the deduction claim during the original assessment and allowed it. The reopening was based on a re-appraisal of the same material available during the original assessment, which amounted to a change of opinion and not on any new tangible material. This is legally impermissible.

The Tribunal held that the issue of research and development expenditure was already decided in favour of the assessee by a coordinate bench, and thus dismissed the AO's ground of appeal. For the section 14A disallowance, the Tribunal noted that the assessee earned no exempt income and relied on High Court decisions, deeming the explanation to section 14A prospective. Thus, grounds 2 and 3 were also dismissed.

The Tribunal noted that the AO had information about bogus purchases from seven parties. The assessee failed to substantiate the genuineness of these purchases, and notices to the suppliers were not responded to. The Tribunal acknowledged that while the AO made a 100% addition, similar cases and judicial precedents allowed for additions to cover the profit element of unproved purchases, generally at 20%.

The Tribunal, following its own precedent in similar earlier cases for the same assessee, held that the income earned from offshore supplies of escalators and elevators to DMRCL and MMRCL is not taxable in India. The Tribunal noted that the title in the goods passed at the port of shipment outside India, and the transaction was on a CIF basis, indicating the completion of the sale outside India.

The Tribunal considered the rival contentions and the orders of the lower authorities. The Tribunal decided to admit additional evidence submitted by the assessee and remitted the issue back to the AO for fresh adjudication. The AO's appeal was dismissed, and the assessee's appeal was allowed for statistical purposes.

The CIT(A) restricted the addition to 20% of the bogus purchases to cover the profit element. The Tribunal, in agreement with the CIT(A) and relying on judicial precedents, confirmed this restriction. The Tribunal noted that the AO did not provide any basis for a higher profit element than the 20% upheld by the CIT(A).

The Tribunal held that the assessee's argument that no expenditure was incurred for earning dividend income from mutual funds was unacceptable, especially considering the significant portfolio of investments and the dynamic nature of mutual fund transactions. The Tribunal found no infirmity in the AO's disallowance under Section 14A read with Rule 8D(2)(iii).