ITAT Mumbai Judgments — May 2024

The Tribunal noted that the CIT(A) had dismissed the assessee's appeal due to non-prosecution and for being filed beyond the limitation period, without considering the assessee's prayer for time due to a retinal surgery of the person handling the matter. The Tribunal decided to remit the matter back to the CIT(A) for a de novo adjudication on merits.

The Tribunal, following consistent views of its co-ordinate benches and applying the principle that ambiguous tax provisions should favor the assessee, held that interest income earned by a co-operative society from investments with co-operative banks is eligible for deduction under Section 80P(2)(d) of the Act. It concluded that Section 80P(4) applies only to co-operative banks performing banking business, not to co-operative societies like the assessee.

The Tribunal, while acknowledging the bogus purchases, held that the entire amount could not be added but only the profit element. To maintain consistency with a previous assessment year (AY 2010-11) where a 12.5% addition was made for similar bogus purchases, the Tribunal restricted the addition to 12.5% of the alleged bogus purchases or the voluntarily shown profit, whichever is higher.

The Tribunal considered the assessee's explanation that she was a non-resident, undergoing cancer treatment in the USA, and therefore, it was not possible for her to comply with the notices. It was held that there was a bonafide reason for non-compliance.

The Tribunal held that neither the Assessing Officer nor the CIT(A) provided sufficient evidence or findings on record to demonstrate how the appellant received the cash loans of Rs. 14,00,000 in contravention of Section 269SS. No addition was made by the AO during the assessment.

The Tribunal held that since there was no variation in income during reassessment and the original demand had been paid within the stipulated time, the assessee was not liable for interest u/s 234B for the period after the completion of the original assessment. Consequently, the interest levied by the AO for this period was deleted. The issue regarding the validity of reopening u/s 147 was deemed academic.

The Tribunal considered that the assessee had declared a gross profit of 8.29% on these purchases and that the revenue did not oppose applying a reasonable gross profit. The Tribunal found it reasonable to apply a gross profit rate of 10% on the bogus purchases, considering industry practices and previous rulings.

The Tribunal held that the CIT(A) erred by not considering the assessee's submissions, explanations, and the tax auditor's certificate regarding the adjustments made by the CPC. It directed the Assessing Officer to recompute the total income by taking into account all the assessee's submissions after providing a due opportunity of hearing.

The Tribunal noted the assessee's habitual non-compliance throughout the proceedings. However, taking a lenient approach, the Tribunal decided to remit the matter back to the CIT(A) for a fresh adjudication on merits. The Tribunal did not express any views on the merits of the case to avoid prejudice.

The Tribunal held that the AO failed to record his satisfaction regarding the assessee's working of disallowance before invoking Rule 8D. Citing Supreme Court decisions, the Tribunal emphasized that the AO must record non-satisfaction based on the assessee's accounts and give an opportunity to explain before applying Rule 8D.

The Tribunal held that since the assessment proceedings during which the penalty was initiated were quashed, the penalty cannot survive. The penalty was imposed under section 271(1)(c) for furnishing inaccurate particulars and concealment of income.

The ITAT condoned the delay in filing appeals, accepting the assessee's reasons. Recognizing the ex-parte nature of the assessments and the assessee's admission of being an accommodation entry provider, the Tribunal remanded all appeals to the Jurisdictional Assessing Officer (JAO). The JAO is directed to conduct a fresh investigation, identify the actual beneficiaries of the accommodation entries, determine the assessee's income, and provide the assessee a fresh opportunity to present his case and evidence within 90 days, adhering to natural justice principles.

The Tribunal held that the appeal filed in the name of a deceased person is not maintainable. Furthermore, the failure to file the complete order of the CIT(A) and the incomplete manner in which the appeal was filed were also grounds for dismissal.

The Tribunal noted that the assessee was an accommodation entry provider who did not cooperate with the lower authorities and attempted to conceal beneficiaries. However, the Tribunal condoned the delay in filing the appeals, citing a Supreme Court judgment on the discretionary power of condonation. The Tribunal also acknowledged the argument that additions were made ex-parte and restored the appeals to the Assessing Officer for further investigation.

The Tribunal noted that the quantum assessment proceedings for both assessment years, which were the basis for initiating penalty proceedings, had been quashed by a coordinate bench of the ITAT, and the quantum additions were deleted. The Tribunal affirmed the CIT(A)'s decision that when the underlying assessment proceedings and quantum additions are set aside, the penalty under Section 271(1)(c) cannot survive as there is no tax sought to be evaded, leading to the deletion of the penalties.

The Tribunal held that the interest on Fixed Deposits should not be taxed under 'Income from Other Sources' when the FD was used as a business asset, pledged for business loans, and the interest paid on the loan was higher than the interest earned on the FD. The Tribunal noted that identical issues for earlier assessment years were decided in favor of the assessee, and consistency should be maintained.

The Tribunal held that the amendment to Rule 128(9) of the Income Tax Rules, which allowed filing of Form 67 by the due date of return filing u/s 139(4), should be applied retrospectively. The Tribunal also noted that filing Form 67 is directory and not mandatory, and delays should not preclude the assessee from getting tax credit benefits.

The Tribunal held that Section 70 of the Income Tax Act does not specify an order of precedence for setting off short-term capital losses against capital gains, nor does it differentiate based on tax rates. Therefore, the assessee is permitted to set off losses in a manner most beneficial to them.

The Tribunal found that the CIT(A) adopted an incorrect figure for TDS credit, leading to a short grant of INR 50,00,000/-. The Assessing Officer was directed to grant the correct TDS credit. For the interest under section 244A, the Assessing Officer was directed to re-compute the interest.

The Tribunal, relying on its own previous decision in the assessee's case for AY 2013-14, held that the interest income from FDs, pledged for business loans, should be treated as business income. It observed that the funds from the overdraft facility (secured by FDs) were used for business operations, and the interest rate on the loan was higher than on the FDs. Consequently, the Tribunal deleted the additions made by the lower authorities, allowing the netting off of interest expenditure against FD interest.

The Tribunal upheld the CIT(A)'s decision, applying the legal maxim 'sublato fundamento cadit opus', meaning 'a foundation being removed, the superstructure falls'. It was held that once the foundational revisionary order u/s 263 is quashed, any subsequent assessment proceedings initiated based on that order become bad in law and are not sustainable. Consequently, the additions made during such proceedings were quashed.

The Tribunal held that the CIT(A) erred in dismissing the appeal for non-prosecution without adjudicating on merits. The appellate provisions require the CIT(A) to decide on the merits even in the absence of the assessee.

The Tribunal noted that the assessee had suffered personal losses during the period and could not effectively participate in the appeal proceedings before the CIT(A). Therefore, without delving into the merits, the Tribunal restored the appeal to the CIT(A) for fresh consideration.

The Tribunal noted the delay in filing the appeals but condoned it after considering the assessee's explanation and the Supreme Court's stance on condonation of delay. On merits, the Tribunal observed that the assessee acted as a conduit for accommodation entries and that the beneficiaries should be identified and taxed. Therefore, the Tribunal restored the appeals to the Assessing Officer for further investigation.

The Tribunal found that the CIT(A) erred by confirming additions without properly addressing the assessee's contentions or calling for a remand report. It was noted that the estimated speculation profit was upheld without verifying actual profit/loss, professional fees were incorrectly treated as interest, and cash deposit/share investment additions were confirmed without examining bank statements. Consequently, the Tribunal set aside the CIT(A)'s order and remanded the case back to the Assessing Officer for fresh adjudication, directing the assessee to submit all relevant details.

The Tribunal held that penalty under section 271(1)(c) is not leviable on additions made on an estimate basis. The Assessing Officer must clearly prove concealment or inaccurate particulars. Since the addition was based on an estimate of 6% of bogus purchases, the penalty imposed was not justified.

The assessee failed to provide supporting documents for the claimed increase in expenses due to the change in accounting method. The CIT(A) dismissed the appeal for non-compliance. The Tribunal, considering principles of natural justice, provided one more opportunity for hearing.

The Tribunal held that Section 70 of the Income Tax Act does not prescribe any order of precedence for setting off short-term capital losses against short-term capital gains, nor does it differentiate based on tax rates. Relying on judicial precedents, the Tribunal directed the AO to allow the set-off.

The Tribunal noted that the CIT(A) passed an ex-parte order without specific reply or documents, potentially not deciding the appeal in its right perspective. Considering the circumstances, including the pandemic period when the order was passed, the Tribunal decided to set aside the order and remand the case back to the CIT(A) for a fresh decision.

The Tribunal upheld the CIT(A)'s decision to delete the disallowance under section 14A read with Rule 8D, affirming that no disallowance is warranted for investments not yielding tax-free income and in the absence of exempt income. It also upheld the deletion of foreign travel expense disallowance, finding that the expenses were incurred wholly and exclusively for business purposes.

The Tribunal observed that the primary issue was whether the assessee was an 'assessee in default'. Given the voluminous nature of data and the assessee's contention that recipients had paid taxes, the Tribunal decided to set aside the issues to the AO for fresh consideration.

The Tribunal noted that CBDT Circular No. 19/2023 dated 23/10/2023 allowed condonation of delay in filing Form 10-IC for AY 2021-22 under certain conditions. Since the appeal order was passed after the issuance of this circular, and the assessee fulfilled the conditions, the delay was condoned.

The Tribunal ruled that Section 70 of the Income Tax Act does not prescribe a specific manner or hierarchy for setting off short-term capital losses against short-term capital gains when differential tax rates apply. Citing judicial precedents, the Tribunal held that the assessee is entitled to choose the most beneficial method of set-off, irrespective of the tax bracket or STT payment. Consequently, the AO was directed to allow the set-off of short-term capital losses against short-term capital gains. Additionally, the Tribunal directed the AO to rectify computational errors and verify the applicability of interest under Section 234A, if the return was filed within the due date.

The ITAT held that the reassessment order was bad in law because the mandatory notice under Section 143(2) of the Income-tax Act was not issued. The tribunal noted that this issue was jurisdictional and went to the root of the assessment proceedings.

The ITAT condoned the 49-day delay in filing the appeal, acknowledging the assessee's genuine reasons based on his educational background and dependence on a practitioner. It observed that the CIT(A) had confirmed the additions without adequately examining the merits, such as the justification for the 12% estimated commission or further inquiry into the cash deposits. Consequently, the ITAT set aside the entire appeal to the CIT(A) for re-adjudication, directing that the assessee be given a proper opportunity of hearing.

The Tribunal held that Section 70 of the Income Tax Act allows for the set-off of short-term capital losses against short-term capital gains without specifying an order or differentiating based on tax rates or STT applicability. The Tribunal relied on judicial precedents, including a decision by the Calcutta High Court, to support the assessee's claim.

The ITAT condoned a 15-day delay in filing the appeals, acknowledging the assessee's difficulties and the principle of substantial justice. On merits, the Tribunal noted the assessee's non-cooperation with lower authorities but decided to restore all appeals to the Jurisdictional Assessing Officer (JAO) for fresh investigation. The JAO is directed to conduct a thorough investigation, identify the beneficiaries of the bogus transactions, and then redetermine the assessee's income, with the assessee being given 90 days to present his arguments and evidence.

The tribunal found that the CIT(A) erred in dismissing the appeal when the assessee had paid tax under the VSV Scheme and was awaiting Form 5. The tribunal held that the Assessing Officer should verify the payment made under Form 3 and subsequently issue Form 5 or communicate any issues to the assessee. The merits of the Section 68 addition were not adjudicated due to the VSV option.

The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s order. It held that interest paid to a firm is deductible from interest received, making only the net interest taxable, citing High Court and Supreme Court precedents. Furthermore, the reopening under section 147 after four years was invalid as no failure to disclose material facts by the assessee was alleged or proven.

The Tribunal held that Section 70 of the Income Tax Act does not prescribe a specific order for set-off of short-term capital losses against capital gains, nor does it distinguish based on tax rates or STT applicability. Following judicial precedents, the Tribunal ruled that the assessee is allowed to set off capital losses against capital gains in a manner beneficial to them, irrespective of the tax bracket.

The Tribunal held that the CPC violated mandatory provisions of section 143(1) by not providing any intimation or opportunity to the assessee before making the addition. Furthermore, the remuneration payment was allowable under section 40b of the Act, which permits up to Rs. 1,50,000 or 90% of book profit, whichever is higher.

The Tribunal noted that the assessee did not appear for the hearing and had a history of non-compliance. Despite this, considering the facts, the Tribunal decided to remit the matter back to the CIT(A) for a fresh adjudication in the interest of justice.

The Tribunal, following the Bombay High Court's decision in Pr. CIT v. Bombay Stock Exchange Ltd., held that the AO was not justified in invoking Rule 8D without recording explicit or implied dissatisfaction with the assessee's suo-motu disallowance of expenditure for earning exempted income. The disallowance made by the AO was deleted, and the appeal was allowed.

The Tribunal held that while the notices, despite being unsigned, were valid as they fulfilled the authentication requirements of Section 282A and Rule 127A, their date of issuance was the dispatch date (16/04/2021), not the generation date (31/03/2021). Consequently, the new reassessment regime and procedures mandated by the Ashish Agarwal judgment and CBDT Instruction No. 1/2022 applied. As the Revenue failed to follow these new procedures, the assessment orders passed under the un-amended provisions were quashed as bad in law, rendering the Revenue's appeals on merits infructuous.

The Tribunal restricted the disallowance on circular trading from 1% to 0.30% based on precedents. Disallowances for rent expenses (Rs. 6000) and preliminary expenses (Rs. 6400) were upheld due to lack of supporting evidence. The issue regarding the difference in total income (Rs. 3846) was remanded to the AO for re-verification, and the ground challenging penalty initiation and interest charging was dismissed as premature/consequential.

The Tribunal upheld the CIT(A)'s decision, ruling that the provisions of section 11(5) of the Act apply to the modes of investment by a trust, not to the initial acceptance of donations. Since the assessee disinvested the shares and invested the proceeds in specified modes (fixed deposits and savings bank accounts with HDFC Bank) by the stipulated deadline, and the dividend income was directed by the donor to form part of the corpus, it rightfully qualifies as a corpus donation and is exempt under section 11(1)(d). The Tribunal relied on the *Mata Amrithanandamayi Math* case, which held that interest earned on a corpus donation, when so directed by the donor, also takes the character of corpus.