ITAT Mumbai Judgments — September 2024

The Tribunal held that the digital signature is a mandatory requirement for completing an assessment order in the e-assessment regime. Since the assessment order was digitally signed on 01.10.2021, beyond the prescribed limitation period, it was deemed to be time-barred and hence invalid. Consequently, the Tribunal did not find it necessary to adjudicate on the other grounds of appeal raised by the assessee.

The Tribunal noted that the assessee did not respond to multiple opportunities granted by the CIT(A). The impugned order of the CIT(A) was not supported by reasons, indicating a non-application of mind. Therefore, the Tribunal remitted the matter back to the CIT(A) for adjudication on merits.

The Tribunal held that the penalty was not leviable. The appellant consistently maintained a stand of being a small businessman, admitting a profit of Rs. 1.5 lakhs on a turnover of Rs. 31.5 lakhs. The Revenue treated all cash deposits as income without considering withdrawals. Reliance Petroproducts case was deemed applicable, and the appellant had already paid tax and interest on the deposits.

The Tribunal held that the assessee's newspaper publication activity had consistently resulted in losses, and therefore, it could not be considered as an activity of trade, commerce, or business falling within the ambit of 'cess, or fee, or any other consideration'. The Tribunal followed its own previous decisions and the Supreme Court's judgment in the case of Ahmedabad Urban Development Authority.

The Departmental Representative submitted that the tax effect in the appeal was below the threshold limit of Rs. 60,00,000, as per CBDT Circular No. 09/2024. Therefore, the Revenue sought to withdraw the appeal. The Tribunal noted that the tax effect was indeed below the threshold and agreed with the withdrawal.

The Tribunal held that since the newspaper publication activity resulted in losses or nominal profits, it did not fall under the ambit of 'cess, or fee, or any other consideration' towards 'trade, commerce or business'. Therefore, the proviso to Section 2(15) was not attracted for this activity.

The tribunal held that an unsigned assessment order has no value and the assessment proceedings are only complete upon digital signing. Since the assessment order was digitally signed on 01.10.2021, after the limitation period of 30.09.2021, it was deemed barred by limitation. Consequently, the tribunal did not delve into the merits of other issues.

The Tribunal noted that the appellant assessee did not respond to multiple opportunities granted by the first appellate authority. However, in the interest of justice, the matter was remitted back to the CIT(A) for adjudication on merits afresh, with a direction to the assessee to be diligent.

The Tribunal held that the reopening of assessment was not sustainable as it amounted to a change of opinion without new material. The Tribunal noted that the issue of deduction calculation had been decided in favor of the assessee in previous assessment years, and consistency should be maintained. The disallowance of Rs. 1,43,07,033/- was deleted.

The Tribunal held that the assessment order passed by the Assessing Officer was barred by limitation as the extended period for passing the order under Section 153(4) of the Income Tax Act was not available when the reference to the TPO was quashed. Consequently, the assessment order was deemed a nullity.

The Tribunal held that the AO lacked valid reasons to reopen the assessment for AY 2011-12 as the reliance on statements from alleged entry operators was flawed and they did not directly implicate the assessee. For AYs 2012-13 and 2014-15, the notices for reopening were issued beyond the prescribed time limits, making them invalid.

The Tribunal held that the delay of 1219 days should be condoned, considering the liberty granted by the CIT(A) and the principle of substantial justice over technical considerations. The appeals were remitted back to the CIT(A) for adjudication on merits.

The Tribunal found that the basis for the CIT(A)'s decision to allow 40% of the claim was not clearly discernible. Given the submissions by the Revenue, it was deemed appropriate to remand the matter back to the CIT(A) for fresh adjudication. This would involve calling for a remand report from the Assessing Officer and providing an opportunity for both parties to be heard.

The Tribunal held that the AO wrongly relied on Clause 23 of the Tax Audit Report, which pertains to payments to specified persons under Section 40A(2)(b), and not to TDS non-compliance. The relevant clause for TDS reporting non-compliance is 21(B)(ii), where the assessee's name was not mentioned. The Tribunal also noted that the AO did not dispose of the assessee's objections with a speaking order, rendering the reassessment proceedings void ab initio. On merits, the assessee had submitted evidence of TDS deduction.

The Tribunal held that the AO lacked the application of mind and relied on incorrect facts and unreliable statements. The Tribunal found no vital link between the materials and the alleged reason to believe that income had escaped assessment. The reopening of assessment for AY 2011-12 and 2012-13 was deemed invalid. For AY 2014-15, the reopening notice was issued beyond the prescribed limitation period.

The Tribunal noted that the CIT(A) passed an ex-parte order and the Assessing Officer did not verify the interest income. To meet the ends of justice, the Tribunal condoned the delay, set aside the CIT(A)'s order, and remitted the issues back to the Assessing Officer for fresh adjudication on merits. The assessee was to be given adequate opportunity of hearing.

The Tribunal found no infirmity in the CIT(A)'s direction to assess the income on a net basis, especially considering that the AO had allowed expenditure claims in the order giving effect. The Revenue's plea to remit the issue for verification of expenses was not accepted.

The Tribunal held that the reopening of assessment for AY 2011-12 was invalid due to the AO's lack of application of mind and reliance on incorrect facts and unreliable statements. The same reasoning was applied to AY 2012-13. For AY 2014-15, the reopening was found to be barred by limitation as the time limit for issuing notice under Section 148 had expired.

The tribunal held that the assessee failed to comply with the defect memo regarding the shortage in appeal fee. Consequently, the tribunal rejected the appeal in limine, granting liberty to file a fresh appeal upon payment of the requisite fee.

The Tribunal noted that details regarding the company's business and the nature of the transactions were not adequately filed before the lower authorities. While the assessee claimed the business was money lending and the account was an open mutual current account, these claims required further verification. Due to the lack of sufficient evidence and non-compliance, the Tribunal set aside the CIT(A)'s order.

The Tribunal held that the issue was covered by the decision of the Hon'ble Jurisdictional High Court of Bombay in the case of Mohmmad Haji Adam & Co. The High Court's decision stated that additions should be restricted to bring the gross profit rate on purchases to the same rate as other genuine purchases. Since the assessee claimed a gross profit rate of 4%, the Tribunal found no reason to interfere with the CIT(A)'s findings.

The Tribunal found that the commission income of Rs. 22,85,000 appearing in Form 26AS for AY 2017-18 was indeed declared by the assessee in their profit and loss account for that year. Therefore, the addition made by the AO was deleted, and ground No. 1 of the appeal was allowed.

The CIT(A) deleted both additions, concluding that the seized loose papers were for management information or proposals and lacked corroborative evidence for cash transactions. The tribunal upheld the CIT(A)'s decision, noting the AO failed to conduct independent inquiries, prove actual cash transactions, or controvert the assessee's documented bank receipts. The tribunal found the 'balance of convenience' favored the assessee, justifying the deletion of the additions.

The Tribunal noted that in an identical case for AY 2010-11, the addition was restricted to 10% of the bogus purchases. Following this precedent and the High Court's decision in PCIT v. Mohommad Haji Adam & Co., the Tribunal directed the AO to restrict the addition to 10% of the bogus purchases.

The Tribunal held that the Ld. CIT(A) correctly deleted the penalty. This was in line with established legal precedents, including decisions from the Madras High Court and co-ordinate benches of the Tribunal, which state that no penalty can be levied for additions made on an estimate basis.

The Tribunal held that there was no finding by the TPO/AO that the information provided by the assessee was inaccurate or insufficient, nor was there any lack of bonafides. The penalty under Section 271G was unsustainable because the TPO had accepted the benchmarking done by the assessee, and subsequent TP adjustments were deleted by the DRP and accepted by the Revenue.

The Tribunal upheld the CIT(A)'s decision to delete the addition of Rs. 3.6 Crore interest income, affirming that hypothetical or notional income from an NPA, when not actually received, should not be taxed under the 'real income' theory. However, the Tribunal, invoking Section 198 of the Income Tax Act and relying on judicial precedent, held that the Rs. 36 lakhs of TDS, duly reflected in Form 26AS, must be treated as income in the hands of the assessee. The Assessing Officer was directed to recompute the total income accordingly.

The Tribunal held that the denial of benefits of Section 11 on the sole ground of delayed filing of the Audit Report in Form 10-B cannot be fatal, as the requirement is procedural. The assessee had filed a petition for condonation of delay, which was not adequately considered by the lower authorities.

The Tribunal, following the Bombay High Court precedent in Mohd. Farhan A. Shaikh, held that the penalty notice was invalid due to its ambiguity and failure to specify the exact charge. Consequently, the penalty imposed was deleted, and the assessee's jurisdictional ground was allowed, rendering other grounds academic.

The Tribunal, referring to a co-ordinate bench's order for AY 2017-18, found that the CIT(A)'s decision to allow the deduction under Section 80ID did not suffer from impropriety or illegality. The Tribunal also found no reason to interfere with the CIT(A)'s deletion of additions related to unsecured loans, salary/commission payments, and unexplained cash credits, as the assessee provided supporting documentary evidence.

The Tribunal held that the PCIT's revision proceedings under section 263 were initiated based on borrowed satisfaction from audit objections, not an independent application of mind. The Tribunal also noted that the larger issue of LTCG was pending before the CIT(A), making the revision on smaller issues unsustainable. The PCIT's observations were based on assumptions rather than factual findings.

The Tribunal held that the reopening of assessment for AY 2011-12 and 2012-13 was invalid as the AO lacked valid reasons and had not applied his mind to the facts. The Tribunal further held that the reopening notices for AY 2013-14 and 2014-15 were barred by limitation, as they were issued after the expiry of the time limit prescribed under the Act, and the extended period under TOLA did not validate these notices. Therefore, the assessment orders were quashed.

The Tribunal held that the requirement to file the audit report in Form no.10CCB by the specified date is directory and not mandatory. The amendment by the Finance Act, 2020, was aimed at enabling pre-filling of returns, not to make the filing mandatory. Since the audit report was filed before the return of income, it met the intent of the law.

The Tribunal ruled that disallowances under Section 14A for stock-in-trade, interest on IPDI bonds, broken period interest, amortization of HTM premium, and loss on sale to ARCs were unwarranted. It also held that Section 115JB was not applicable to the bank and that recovery of bad debts not previously deducted under Section 36(1)(vii) was not taxable. Penalties paid to RBI for non-compliance with internal regulations were allowed as business deductions, while the deduction u/s 36(1)(viii) was remitted to the AO for re-computation.

The Tribunal held that the assessee failed to provide any agreement or MOU with Facebook Ireland Ltd. for the services availed. The nature of the transaction and whether the payments were royalty could not be verified without these documents. The Tribunal noted that Facebook's platform uses patented technology and algorithms to analyze user data for targeted marketing, which could be construed as royalty.

The Tribunal found that the Ld. CIT(A) was required to decide the appeal on the grounds raised by the assessee by way of a reasoned order. Since the Ld. CIT(A) did not decide the grounds on merit, the order was set aside and restored back to the Ld. CIT(A) for fresh decision.

The Tribunal upheld the CIT(A)'s order, affirming the assessee's entitlement to both exemptions under Section 10(23FB) and Section 10(35) of the Act. It clarified that these sections operate independently and found no violation of SEBI regulations or the trust deed concerning investments in mutual funds, thus concluding that the assessee's income in VCU and dividend income are rightfully exempt.

The Tribunal held that disallowance under section 14A is not warranted for exempt income from stock-in-trade, and interest on IPDI bonds is an allowable deduction. It further ruled that recovery of bad debts not previously deducted is not taxable, and Section 115JB (MAT) does not apply to the assessee bank. The Tribunal also upheld the allowability of broken period interest, amortization of HTM premium, deletion of unrealized NPA interest, loss on sale of assets to ARCs, and penalties paid to RBI for internal regulation non-compliance.

The Tribunal noted that the monetary limit for filing appeals by the Revenue has been enhanced by CBDT Circular No. 09/2024 dated 17.09.2024. This circular applies to pending appeals as well. Consequently, the Revenue sought to withdraw the appeal.

The ITAT held that the disallowance under Section 14A cannot exceed the expenditure claimed by the assessee or the exempt income earned. Furthermore, disallowance computed under Rule 8D cannot be imported into the provisions of Section 115JB for computing book profit. The ITAT noted that the AO had not recorded specific dissatisfaction with the assessee's claim.

The Tribunal noted that a coordinate bench had previously quashed the original assessment regarding the bogus long-term capital gain. Therefore, the addition of commission, being consequential to the quashed addition, did not have a legal basis to stand. The CIT(A) had rightly deleted this consequential addition.

The Tribunal found that the Ld. CIT(A) had primarily directed the Assessing Officer to verify the quantum of TDS and foreign tax credit. The Tribunal agreed that credit of tax, including foreign tax credit, is subject to verification by the Assessing Officer. Therefore, the matter was restored back to the Assessing Officer for reconsideration.

The Tribunal noted that the assessee was not granted sufficient opportunity of being heard due to the gap in notices. Therefore, the Tribunal set aside the CIT(A)'s order and restored the appeal to the CIT(A) for fresh adjudication.

The Tribunal, following the decision in PCIT v. Mohommad Haji Adam & Co., held that purchases cannot be rejected without disturbing sales in case of a trader. Additions should be restricted to the extent of gross profit on impugned purchases.

The Tribunal noted that the Madras High Court in the case of Dr. Smt. P.K. Vasanthi Rangarajan held that joint ownership of a property does not disentitle an assessee from claiming deduction under Section 54F if they do not exclusively own a residential house. The Tribunal also considered a similar view from a coordinate bench and the principle of construing tax provisions in favor of the assessee when ambiguities exist.

The Tribunal found that the Ld. CIT(A) had not provided adequate reasoning for sustaining the additions made by the AO. It was also noted that only one notice was issued for each assessment year, and no other hearing notice was issued for the subsequent four years, despite the appeals being dismissed in 2024.

The Tribunal noted the AO's error in not reducing the interest income from the business profit after classifying it as 'income from other sources', which resulted in a double addition. It also found that the assessee did not adequately establish the nexus between the interest income earned and the interest expenditure incurred before the lower authorities. Therefore, the Tribunal restored the matter to the CIT(A) for a fresh decision, allowing the assessee an opportunity to furnish further submissions.

The Tribunal held that the AO cannot assume the role of a businessman and estimate profits arbitrarily. The AO did not bring any material on record to show that the assessee's books of accounts were unreliable or that the offered explanations for the fall in GP ratio were incorrect. The assessee's submission of a specific bill showing a GP of 4.58% was noted, and the Tribunal relied on a precedent where similar additions were deleted.