ITAT Mumbai Judgments — June 2024

The Tribunal, relying on the Supreme Court's decision in CIT vs. M/S Jayalakshmi Rice Mills, held that when the original assessment order (which is the basis for initiating penalty proceedings) is set aside or quashed as void ab initio, the penalty proceedings cannot survive. Since the reassessment orders u/s 147 for both assessment years were quashed by the Co-ordinate Bench of ITAT, the penalties imposed u/s 271D and 271E were deleted.

The Tribunal observed that the CIT(A) had passed the order without considering the assessee's reply. Therefore, the Tribunal set aside the CIT(A)'s order and restored the issues to the CIT(A)'s file for fresh adjudication, with an opportunity for the assessee to present further replies.

The Tribunal observed that notices were sent to an email address different from the one provided by the assessee in Form No. 35, and this fact was not refuted by the Revenue. Therefore, in the interest of justice, the case was remanded.

The Tribunal, relying on the Supreme Court's decision in CIT vs. M/S Jayalakshmi Rice Mills and a Co-ordinate Bench decision in DCIT vs. Karan Empire Pvt. Ltd., held that when the underlying assessment proceedings (reassessment u/s 147) are quashed as void ab initio, the penalty proceedings initiated therefrom, specifically under sections 271D and 271E, cannot survive. The Tribunal reasoned that the satisfaction recorded for initiating penalty proceedings becomes invalid once the assessment order itself is set aside. Consequently, the levy of penalty amounting to ₹11,40,000/- under section 271E was deleted, and all three appeals were allowed.

The Tribunal held that interest income derived by a co-operative society from investments with another co-operative bank is eligible for deduction under Section 80P(2)(d) of the Act. The Tribunal relied on various High Court decisions and observed that even though co-operative banks may not be entitled to deduction under Section 80P(4) after the insertion of the sub-section, they continue to be co-operative societies, and thus, income derived from their investments by another co-operative society is eligible for deduction.

The Tribunal observed that the assessee's mother's case with an identical issue was decided in favor of the assessee, allowing the method of accounting adopted while following ICDS for AY 2016-17. The Tribunal found the tax authorities' action improper, stating that the assessee has the right to change the valuation method for closing stock at any point if it's a prudent method.

The Tribunal noted that the CIT(A) had passed an ex-parte order. However, in the interest of natural justice, the Tribunal set aside the CIT(A)'s order and restored the appeal to the CIT(A)'s file for fresh examination after affording adequate opportunity to the assessee.

The Tribunal affirmed the CIT(A)'s decision, ruling that the TPO order dated 01.11.2019 was indeed barred by limitation. Citing the Madras High Court judgment in Pfizer Healthcare, the Tribunal reiterated that the TPO order should have been passed on or before 31.10.2019 (60 days prior to 31.12.2019, the last day for assessment). Consequently, since the TPO order was non-est due to being time-barred, the subsequent final assessment order was also deemed barred by limitation.

The Ld. Commissioner (Appeals) restricted the addition for bogus purchases to 12.5% of Rs. 2,25,04,993/-. The Revenue appealed against this reduction, seeking a 100% addition. The Tribunal, relying on the Hon'ble Jurisdictional High Court's dictum in PCIT vs. Ashwin Puruthotam Bajaj (ITA No.576 of 2018), affirmed the CIT(A)'s decision to sustain the addition at 12.5%, finding no reason to deviate from the established precedent.

The Tribunal held that the issue was a difference in the rate of depreciation due to interpretation of the asset's classification, not a false or bogus claim. Since the assessee disclosed all relevant facts and the dispute was on the taxability/interpretation of the law, penalty could not be imposed.

The Tribunal noted that the unsecured loan was received in A.Y. 2012-13, and the department had not questioned its genuineness or made any addition regarding this loan in that year, with the returned income being accepted. Consequently, the Tribunal ruled that the disallowance of interest on the loan in the current year (A.Y. 2013-14) is not justified since the loan was not treated as bogus/non-genuine in the preceding year. The addition of Rs. 2,15,014/- was therefore deleted.

The Tribunal condoned the delay in filing the appeals for both assessment years, considering the affidavit submitted by the assessee explaining the reasons for the delay. The matters were restored to the file of the CIT(A) for deciding them on merits.

The Tribunal observed that the assessee failed to demonstrate why they did not regularly check their ITBA portal and on what date they actually saw the impugned order. In the absence of sufficient cause and any supportive material for the delay, the application for condonation of delay was rejected.

The Tribunal noted that the CIT(A) passed the order ex-parte without adjudicating on merits due to the assessee's non-response. In the interest of natural justice, the Tribunal set aside the CIT(A)'s order and restored the issues to the CIT(A)'s file for fresh adjudication after providing an adequate opportunity of being heard to the assessee.

The Tribunal noted that the Commissioner rejected the application without affording the assessee an opportunity to be heard and on a hyper-technical ground, sidelining the provisional certificate. For substantial justice, the case was remanded.

The Tribunal noted that the assessee failed to establish the genuineness of the loan amount and its utilization for business purposes, as well as the genuineness of the interest paid on the loan. The Tribunal found no reason to contradict the findings of the CIT(A) and upheld the additions.

The Tribunal noted that while the assessee was out of India, the lower authorities dismissed the appeals for non-prosecution without deciding on merits. Therefore, the Tribunal decided to grant one more opportunity to the assessee.

The Tribunal noted that the assessee did not represent their case before the AO or CIT-A, despite opportunities. However, considering the assessee was out of India during proceedings, it was deemed appropriate to grant one more opportunity. The CIT-A had dismissed the appeals for non-prosecution without deciding on merits.

The Tribunal condoned the delay of 30 days in filing the first appeal, considering the peculiar facts and circumstances and the Supreme Court's ruling on limitation. The Tribunal further decided to remand the case back to the Ld. Commissioner for adjudication on merits.

The Tribunal held that a cooperative bank is a type of cooperative society and that the interest earned by the assessee from investments made in a cooperative bank is eligible for deduction under Section 80P(2)(d). The initial adjustment by the CPC was beyond the scope of Section 143(1)(a) as the return was filed within the due date.

The Tribunal, relying on its previous decision in the assessee's own case (AY 2012-13) and other precedents, held that the administrative support services provided did not make technical knowledge or expertise 'available' to JIPL and therefore did not qualify as Fees for Technical Services (FTS) or Fees for Included Services (FIS) under Article 12(4)(b) of the India-USA DTAA. Consequently, the additions made by the AO for both administrative service fees and expense reimbursements were deleted. The Revenue's appeals were dismissed, and the assessee's cross-objections were dismissed as infructuous.

The Tribunal observed that in previous assessment years and in similar cases decided by co-ordinate benches, interest earned from investments in co-operative banks has been allowed as a deduction under Section 80P(2)(d). Following these precedents, the Tribunal held that the assessee is entitled to claim the deduction for interest income earned from co-operative banks.

The Tribunal noted that while penalty proceedings were initiated for concealment of income, the AO ultimately levied the penalty for furnishing inaccurate particulars of income. The Tribunal held that the AO did not record any satisfaction for initiating penalty proceedings for furnishing inaccurate particulars, and the penalty cannot be levied on a limb for which no satisfaction was recorded.

The Tribunal held that penalty proceedings initiated under Section 271D and 271E cannot survive if the underlying reassessment proceedings are quashed as void ab initio. Relying on the Supreme Court's decision in CIT vs. M/S Jayalakshmi Rice Mills, the Tribunal found that the penalty order loses its basis when the assessment order it was based upon is annulled.

The Tribunal held that a cooperative bank is a species of a cooperative society and therefore, interest income earned from it is eligible for deduction under Section 80P(2)(d). The judgments relied upon by the revenue were distinguished as dealing with different sections or facts.

The Tribunal took on record additional evidence submitted by the assessee. It was observed that most expenses were paid via account payee cheques, through banking channels, and with TDS deducted where applicable. However, for 'other sundry expenses', a portion was incurred in cash and deemed unverifiable.

The Tribunal held that interest income earned by a cooperative society from its investments with other cooperative societies is deductible under section 80 P (2) (d) of the Income Tax Act. The provisions of section 80 P (4) are not applicable as the assessee is not a cooperative bank.

The Tribunal acknowledged that the cash deposits were part of the assessee's business receipts from sales, and since no other income source was established and sales were admittedly in cash, the net profit rate of 8% as offered under the presumptive taxation scheme should be applied to the cash deposits. The AO was directed to apply this 8% net profit rate.

The Tribunal held that the administrative support services provided by the assessee to its Indian subsidiary do not constitute FTS or FIS under the India-USA DTAA, as they do not 'make available' technical knowledge, skill, or expertise. Relying on its own previous decisions for the assessee and various case laws, the Tribunal affirmed that these services are merely supportive for day-to-day management. Consequently, the additions made by the AO were deleted, and both the revenue's appeals and the assessee's cross-objections were dismissed.

The Tribunal held that the AO and CIT(A) rejected the assessee's explanation and supporting documents without proper opportunity for examination or cross-examination of the family members. The addition of Rs. 15,00,000/- made under OCM was deemed not justified as the deposit was made before demonetization and the assessee provided evidence of its source.

The Tribunal noted that the Commissioner rejected the application without providing an opportunity to the assessee to substantiate its case or expressing an opinion on the rejection. Therefore, the case is remanded to the Commissioner for a fresh decision on merits.

The Tribunal held that a cooperative bank is a species of the genus 'cooperative society' and therefore falls within the purview of Section 80P. The provisions of Section 80P(4) do not make Section 80P inapplicable to cooperative banks. The interest income earned from cooperative banks is eligible for deduction under Section 80P(2)(d).

The Tribunal noted that the issue of double deduction arises when the cost of a capital asset is claimed as an application of income, and then depreciation is also claimed on the same asset. However, it was observed that the assessee claimed depreciation on a capital asset which was never claimed as a deduction for application of income. This aspect was not properly examined.

The Tribunal held that the assessee is eligible for deduction of interest income earned from cooperative banks under Section 80P(2)(d). It distinguished the reliance on Supreme Court judgments regarding Section 80P(4) and Section 80P(2)(a)(i), finding them inapplicable to the present case concerning Section 80P(2)(d).

The Tribunal held that the Assessing Officer (AO) failed to record his dissatisfaction with the assessee's suo motu disallowance, which is a prerequisite for invoking Rule 8D. Therefore, the disallowance made by the AO under Section 14A and the enhancement by the CIT(A) were deleted.

The Tribunal condoned the delay in filing the appeals for both assessment years, citing the reasons provided in the assessee's affidavit. The matter was restored to the file of the CIT(A) for a decision on merits after providing the assessee with an opportunity of being heard.

The tribunal held that the assessee had claimed interest expenditure under the head 'business income' which could not be allowed as such. However, the AO disallowed the excess interest expenditure of Rs. 4,01,576/- without assigning a valid reason and without establishing a lack of nexus between borrowed funds and funds advanced. Therefore, the addition was deleted.

The Tribunal held that in cases where sales are undisputed and purchases are made through account payee cheques with disclosed sources, the addition should be restricted to the gross profit rate. The Tribunal applied a 5% GP rate over and above the GP disclosed by the assessee on the impugned purchases.

The Tribunal, following previous judgments of co-ordinate benches, held that interest income earned by a cooperative society from its investment in a cooperative bank is allowable for deduction under section 80P(2)(d) of the Act, even after the insertion of sub-section (4) of Section 80P.

The Tribunal, following its own precedents and decisions of other benches, held that the interest income earned by a cooperative society from its investment in co-operative banks is allowable for deduction under Section 80P(2)(d) of the Income Tax Act, 1961.

The assessee sought withdrawal of the appeal on the grounds that registration under section 80G of the Act was granted on 13.05.2024. The revenue did not raise any objection to the withdrawal.

The Tribunal noted that the assessee had provided invoices, made payments through banking channels, and mapped these purchases to sales. Following the Bombay High Court's decision, the Tribunal held that only the profit element on such bogus purchases could be added to the total income.

The Tribunal, citing the Bombay High Court's decision in *Principal Commissioner of Income Tax-17 v. Mohommad Haji Adam & Co (2019)*, ruled that only the profit element embedded in such bogus purchases should be added, as the assessee demonstrated corresponding sales and banking channel payments. Consequently, the AO was directed to restrict the addition to 11.58% of the alleged bogus purchases for both assessment years.

The Tribunal held that since the assessee had already credited the amount of Rs.60,19,934/- to its P&L account and computed its total income by including this sum, the further addition made by CPC under section 41(1) resulted in impermissible double taxation. Consequently, the Tribunal set aside the CIT(A)'s order and directed the Assessing Officer to delete the addition.

The Tribunal held that the first addition was unsustainable as the expenses were already disallowed in the computation of income and disallowing them again would lead to double disallowance. For the second addition, since the assessee had not earned any exempt income, no disallowance under Section 14A was warranted.

The Tribunal held that the addition of Rs.98,93,046/- was based on incorrect reporting by Avas Evam Vikas Parishad, a UP State Government authority with whom the assessee had no transaction. The assessee had proactively informed the party to rectify their returns and had also denied any such transaction. The Tribunal emphasized that the onus was on the Revenue to prove the income, and in the absence of such proof, the assessee could not be penalized for incorrect reporting by another entity. The adjustment made by the CPC was deleted.

The Tribunal held that the primary adjustment made by the AO was invalid as the assessee had filed its return and audit report by the due date, fulfilling the conditions for claiming the deduction. The delay in filing the appeal before the CIT(A) was considered reasonable due to the Chartered Accountant's medical condition.

The Tribunal affirmed the CIT(A)'s finding that the administrative support services do not 'make available' technical knowledge, experience, skill, know-how, or processes to JIPL, thereby not meeting the criteria for FTS/FIS under Article 12(4)(b) of the India-USA DTAA. Relying on prior judgments and its own decisions, the Tribunal concluded that these services, including reimbursements, are not taxable in India and consequently deleted the additions made by the AO.

The Tribunal held that the holding period for computing capital gains should commence from the date of the allotment letter, making the gain long-term. Consequently, the assessee is eligible for deduction under Section 54F.