Year: 2019

Unreported Decisions – October 2018

By Ajay R. Singh, Advocate

1. S. 153C: Assessment – Search or requisition – No addition can be made in respect of an unabated assessment which has become final if no incriminating material is found during the search. Provisions cannot be invoked

The assessee was subjected to proceedings u/s. 153C pursuant to search & seizure operations u/s. 132 on 09/01/2013 in the group cases belonging to M/s. Enpar. The quantum assessment order at para-3 record a finding that the trial balances belonging to assessee for the period April 2010 to March 2011, April 12 to 9-1-2013 & April 2011 to March 2012 were seized. In response to notice u/s. 153C, the assessee offered the same return of income as filed u/s. 139(1) at ₹ 41,400/-. From perusal of financial statements, it was found that the assessee raised a sum of ₹ 12.70 crore by way of issue of share capital from five parties, the details of which have already been extracted at para 7 of the quantum assessment order. The Ld. AO, not satisfied with creditworthiness of the share allottees, added the aforesaid amount to the income of the assessee as cash credit u/s. 68.

Held that though the documents relied upon by the AO for initiating the proceedings u/c. 153C for AY 2007-08 to AY 2012-13 pertain to period AY 2010-11, 2011-12 and 2013-14, no additions have been made in those assessment years. The only assessment year in which additions have been made is the AY 2008-09. Even in that assessment year, the additions made were not based on the documents as relied upon by the AO. This clearly shows that no incriminating documents relating to the appellant was seized for AY 2008-09. Further the assessment for AY 2008-09 was completed u/s. 143(3) r.w.s. 147 of the Act, before the date of initiation of the search. Therefore, respectfully following the decision of the Hon’ble jurisdictional Bombay High Court in case of CIT-11, Thane vs. Continental Warehousing Corporation (Nhava Sheva) Ltd., [(2015) 374 ITR 645] it was held that the AO was not justified in making the addition. Accordingly, the addition of ₹ 12,70,00,000/- was deleted.

DCIT vs. Silver Sand Beach Inn Private Ltd., ITA No. 4907/Mum/2016, DOH: 08/08/2018 (Mum.)(Trib.)

Silver Sand Beach Inn Private Ltd.

2. S. 154 : Rectification of mistake – claimed rebate u/s. 88E of the Act on account of STT paid – rebate admissible on the income arising from taxable securities transaction, considering the average rate – Debatable issue–Not a matter for rectification. [S. 88E]

The assessee company is engaged in the business of share trading and also investment. During the course of assessment proceedings, the assessee claimed rebate u/s. 88E of the Act on account of STT paid at ₹ 30,93,497/- and which was eventually allowed by the AO while completing the assessment u/s. 143(3) of the Act.

The AO issued notice u/s. 154 of the Act and according to AO, the assessment framed suffers from mistake apparent from record as the rebate u/s. 88E of the Act has been allowed excessive.

The assessee relied on Tribunal’s order in the case of DCIT vs. M/s. Malhar Traders Pvt. Ltd. in ITA No. 707/Mum/2011 for AY 2007-08, wherein Tribunal has categorically held that to invoke sub-section 88E of the Act, which clearly provides that the deduction of security transaction paid would be in total if the total income of the assessee includes income chargeable under the head profits and gains of business or profession.

Tribunal found that 88E of the Act provides where the total income of the assessee in previous year includes any income chargeable under the head “Profits and gains of business or profession” arising from transaction chargeable to securities transaction tax, he shall be allowed deduction of an amount equal to the securities transaction tax paid by him in respect of transactions chargeable to securities transactions tax entered into in the course of business during that previous year. From the amount of income-tax on such income arising from such transaction. According to the above provisions, we are of the view that an assessee is eligible for deduction from the amount of income-tax on such income arising from such transactions computed in the manner provided in section 88E of the Act i.e., an equal amount to the securities transaction paid by him in respect of taxable securities transaction entered into in the course of business during the previous year. It means that the issue has two plausible views and once, it is doubtful issue, the AO cannot resort to section 154 of the Act i.e., rectification of mistake apparent from record. Accordingly, allow the appeal of the assessee.

Prakash Securities Pvt. Ltd. vs. ACIT, ITA No. 2624/Mum/2017, DOH: 29/08/2018 (Mum.)(Trib.)

Prakash Securities Pvt. Ltd.

Note: The Whole decisions can be downloaded from the CTC website www.ctconline.org under Knowledge Centre.

Unreported Decisions – ST – September 2018

By CA Vinay Jain & Mr. Sachin Mishra, Advocate

1. Whether the ‘Registrar Accreditation Agreement’ between National Institute Exchange of India (Appellants) and its registrars to register ‘.in’ domain names is an agreement for rendering ‘Franchise Services’ by the Appellants to its registrars?

Facts & Pleadings: National Institute Exchange of India (hereinafter referred to as the ‘Appellants’) has been entrusted with the responsibility of setting up the registry for ‘.in’ domain name, and for operating as registry for ‘.in’ domain name in India. The Appellants in turn have entered into agreements with certain registrars to register ‘.in’ domain names known as ‘accreditation agreements’. The Appellants are receiving certain amounts from their registrars as accreditation fees.

It is the case of the department that the Appellants were rendering franchise services to the accredited registrars which is taxable under Section 65(105)(zze) of the Act. The Appellants were collecting charges from the accredited registrars for every domain name registered by the said accredited registrar per year as registration charges, transfer charges, renewal charges etc. These charges were in fact consideration for the franchise services rendered by the Appellants to the registrars.

The Appellants have on the other hand contended that the Appellants and the appointed registrars are two independent entities, and cannot be referred to as franchisor and franchisee. Further, the sum as received by the Appellants from the registrars is a mandatory accreditation fee as per the policy framework of Government of India. This is no consideration received by the Appellants from the registrars for any services provided by the latter to the former.

Judgment: The Hon’ble CESTAT noted that a franchise is said to exist only when an entity (franchisor) grants a representational right to another entity (franchisee). The right means the entity (franchisee) must surrender his own identity, and in addition must step into the shoes of the franchisor.

The Hon’ble CESTAT held that the registrar is not representing the Appellants in any manner. The accreditation agreement gives the registrar no right, power or authority to operate or manage ‘.in’ registry. The agreement further permits each party to independently own its intellectual property, and none shall have any right, title or interest over the others’ intellectual property. Besides, the registrar collects registration data about registered name holders and submits the same to the Appellants for entering in the database maintained by the Appellants.

The Hon’ble CESTAT therefore concluded that the Appellants and registrars are independent entities operating on principal-to-principal basis and have been erroneously termed as franchisor-franchisee. The Appellants are not rendering any services to the registrars to be liable to pay service tax.

National Internet Exchange of India vs. C.S.T., Service Tax, Delhi, CESTAT New Delhi decided on 27-7-2018 in Appeal No. ST/52214/2014 [DB]

National Internet Exchange of India

2. Whether a credit card ‘Issuing Bank’ is liable to pay service tax on the amount received from the bank of the merchant (Accruing Bank) under ‘Credit Card Services’?

Facts & pleadings: M/s ABN Amro Bank NV (hereinafter referred to as the ‘Appellants’) is a banking company which is engaged in the business of issuance of ‘credit cards’ to their customers. Credit card issuing banks are known as ‘Issuing Banks’. Normally, when the customers swipe their credit cards while making payment to merchants, the amount goes to the ‘Acquiring Bank’ (bank of the merchant).

The Acquiring Bank makes necessary payment to the merchants after deducting service charges from the total amount. Also, the Acquiring Bank pays service tax on the amount retained. After payment of service tax, it transfers a portion of the amount to the Issuing Bank i.e. the Appellants in the instant case.

It is the case of the department that the Appellants have in fact rendered ‘Credit Card Services’ to the Accruing Banks, and have received consideration for the same in terms of the amount transferred by the Acquiring Bank as aforementioned- which is taxable under Section 65(105) (zzzuu) of the Act.

The Appellants contended that the Acquiring Bank has already paid service tax on the total amount out of which a certain amount is transferred to the Appellants. Therefore, no service tax liability arises on the Appellants.

Judgment:  The Hon’ble CESTAT held that no service tax is payable by the Appellants when the same has been paid at highest level by the Acquiring Banks relying on the judgment of the Allahabad High Court in the case of CCE vs. Chotey Lal Radhey Shyam, 2018 (8) GSTL 225 (All).

The Hon’ble CESTAT also noted that ‘Credit Card Services’ inter alia means settlement of any amount transacted through the credit card. According to the Hon’ble CESTAT, in the instant case, the Appellants are not undertaking settlement of any amount, it is merely the bank which has issued the credit cards. The Hon’ble CESTAT thus upheld that the Appellants are not rendering ‘Credit Card Services’, and the demand against the Appellants is not sustainable.

M/s. ABN Amro Bank NV (Presently known as Royal Bank of Scotland NV) vs. Commissioner, Central Excise, Customs & Service Tax, Noida, CESTAT, Allahabad decided on 23.7.2018 in Appeal No. ST/1921/2012-CU[DB]

ABN Amro Bank NV (Presently known as Royal Bank of Scotland NV)

Note: The Whole decisions can be downloaded from the CTC website www.ctconline.org under Knowledge Centre.

Unreported Decisions – September 2018

By Ajay R. Singh, Advocate

1. S.68: Cash credits – Subscriptions of share premium done through banks and recorded in books of account – Genuiness of transaction, identity of subscribers and capacity of subscribers proved – Addition was held to be not justified.

The assessee is a company engaged in the business of builders, contractors and developers. During the year under consideration, assessee made a preferential issue of equity capital of 2,62,500 equity shares of face value of ₹ 10/- each at a premium of ₹ 190 per share. Thus, it raised Equity Capital of ₹ 26,25,000/- and Share Premium of ₹ 4,98,75,000/- aggregating to ₹ 5,25,00,000/-.

In the course of assessment proceedings, the AO required the assessee to furnish details of the source of Share Capital raised and the Share Premium and confirmation of the receipts supported by the relevant documentary evidence. The notice u/s. 133(6) of the Act was also issued by the AO to M/s. Sumit Infotech Pvt. Ltd. requiring it to furnish details of its income-tax particulars, PAN, copy of financial statements of the relevant period, copy of application for share allotment, copy of bank statement, etc. Before the A. O assessee furnished the requisite details and also justified the Share Premium charged @ ₹ 190/- per share.

In support, assessee referred to a Valuation Report, which was obtained by it prior to issuance of fresh Share Capital, which showed the book value of the Equity shares at ₹ 27/- per share and Earnings Per Share (EPS) ratio of 2.43. The assessee justified the Share Premium by future projections and comparing the PE ratios of other companies in the same business.

The AO treated the entire sum of ₹ 5,25,00,000/- inclusive of Equity Share Capital and Share Premium as the ‘unexplained cash credit’ within the meaning of Sec. 68 of the Act.

The CIT(A) noted that the investor in question, i.e. M/s. Sumit Infotech Pvt. Ltd., was identified and that the payment has been received through banking channels. The CIT(A) also noted that M/s. Sumit Infotech Pvt. Ltd. was an existing assessee who was being subjected to tax. The investment was made by a group concern and that it could have been also made at the face value; that subscription to the Share Capital made at a premium led to savings on stamp duty on raising of Authorised Share Capital by the assessee-company and it made no difference in the control held by the promoters or the investment brought in. The CIT(A) also examined the provisions of Sec. 56(2)(viib) of the Act which according to him would apply in such a situation. However, the CIT(A) noted that the said section was applicable w.e.f. 1-4-2013 and thus it was not applicable for the assessment year under consideration.

The Tribunal held that the A.O merely went by surmises and conjectures without establishing any infirmity. In fact, the financial statements of the investor, M/s. Sumit Infotech Pvt. Ltd. itself show that it had raised Share Capital of ₹ 5,24,00,000/- being Equity Share Capital of ₹ 49,00,000/- and Share Premium of ₹ 4,75,00,000/- which it has used to subscribe to assessee company’s Share Capital. All said aspects were very much before the AO, who has merely disbelieved the same without establishing any infirmity therein. Thus, the Revenue appeal is dismissed.

DCIT vs. M/s. Sumit Woods Pvt. Ltd, ITA No.3195/Mum/2016, Bench: J , AY: 2011-12 DOH: 13/07/2018 (Mum)(Trib)

M/s. Sumit Woods Pvt. Ltd.

2. S. 271(1)©: Penalty – in absence of any concrete material which could disprove and dislodge the claim – no penalty under Sec. 271(1)(c) could be imposed u/s. 40A(3)

The assessee is engaged in the business of purchase and sale of textiles goods.

The AO being of the view that as the assessee had not produced any documentary evidence in support of the purchase and sale transactions, therefore, taking support of the cash transactions as had emerged from the documents seized in the course of the search & seizure proceedings conducted on Jhunjhunwala Group, thus concluded that the respective purchases aggregating to ₹ 1,87,774/- made by the assessee during the year under consideration were in excess of ₹ 20,000/- and had been made in cash.

The AO on the basis of his aforesaid conviction disallowed 20% of the purchase of ₹ 1,87,774/- by invoking the provisions of Sec. 40A(3) and made a consequential addition of ₹ 37,553/- in the hands of the assessee.

The CIT(A) not finding favour with the contentions of the assessee dismissed the appeal. The assessee did not carry the matter any further in appeal before the Tribunal, therefore, the order of the CIT(A) attained finality.

The AO while culminating the assessment proceedings initiated penalty u/s. 271(1)(c) and issued a show cause notice to the assessee. The AO being of the view that as the assessee had furnished inaccurate particulars of income leading to concealment of income as envisaged in Sec. 271(1)(c) of the Act, therefore, imposed a penalty of ₹ 7,466/- in the hands of the assessee.

The CIT(A) dismissed appeal on ex parte.

The Tribunal found that neither the AO had referred to any material which would irrefutably prove that the assessee had made cash purchases in contravention of Sec. 40A(3), which would conclusively evidence the same. The Tribunal observed that though the failure on the part of the assessee to produce the bills/invoices supporting the purchases made by him during the year under consideration would have justified making of disallowance by the AO under Sec. 40A(3) in the course of the assessment proceedings, but however, in the absence of any concrete material which could disprove and dislodge the claim of the assessee that he had not made any payments in excess of ₹ 20,000/- for making of purchases in contravention of the provisions of Sec. 40A(3), no penalty under Sec. 271(1)(c) could validly be imposed in his hands.

Shushil S. Jhujhunwala (HUF) vs. ITO-19(1)(4), ITA No.3001 to 3007/Mum/2015, DOH: 21/03/2018 (Mum)(Trib)

Shushil S. Jhujhunwala (HUF)

3. S. 80P : Co-operative societies – Providing credit facilities to members – Cannot be considered to be co-operative Bank for the purpose of section 80P(4)¡VEntitled to the benefit of deduction under section 80P(2)(a)(I)

The assessee a cooperative credit society engaged in providing credit facilities to its members, filed its return of income after claiming deduction of ₹ 2,29,20,225/- u/s. 80P(2) of the Act. The assessee has been collecting membership fees accepting deposits and providing credit facilities to the members. The assessee had kept fixed deposit with Mumbai District Central Co-operative (MDCC) Bank.

The AO asked the assessee to show cause as to why the disallowance claimed u/s. 80P should not be disallowed under the provisions of Sec. 80P (4) applicable with effect from 01-04-2007. The assessee contended that the assessee being cooperative credit society is entitled for deduction u/s. 80(2)(d) of the Act.

The AO disallowed the claim u/s. 80P of the Act, holding that since the assessee fulfils the condition laid down u/s. 56 (c)(ccv) of part-V of the Banking Regulation Act, 1949 and being cooperative bank, not entitled for deduction u/s. 80P (2)(a)(i) of the Act.

The CIT(A) allowed the appeal on the basis that the AO in the present AY has not demonstrated as to how the assessee qualifies to be a bank. It held that the assessee is a cooperative society and not a cooperative bank and is therefore eligible for deduction u/s. 80P(2)(a)(i).

On appeal by the revenue the Tribunal held that the assessee co-operative society is not licensed from the Reserve Bank of India to act as co-operative bank. Hence, as per the ratio emanating from the Hon’ble Apex Court judgment in case of Citizen Co-operative Society Ltd. vs. ACIT vide order dated 8-8-2017., the assessee is not affected by the provisions of section 80P (4). Accordingly, the assessee is entitled to deduction u/s. 80P(2)(a)(I).

M/s. Mumbai Sales Tax Staff Co-Op Credit Society Ltd vs. ITO-20(2)(1), ITA No.1820/Mum/2017, Bench :I, AY 2013-14, dated: 08/08/2018 (Mum)(Trib)

Mumbai Sales Tax Staff Co-Op Credit Society Ltd.

4. S. 271(1)©: Penalty – Mere disallowance of Legal claim – does not amount to furnishing inaccurate particulars of income

The assessee company is engaged in the business of running motor lorries and motor taxies. The AO noted that the assessee has diverted the interest bearing funds to make investment in shares/securities. Hence the AO held that the interest expenditure cannot be held to be incurred wholly and exclusively for the purpose of business of the assessee, the entire interest expenses was disallowed u/s. 36(1)(iii) of the Act. Without prejudice the AO further held that the interest expenditure was directly attributable towards investment activity and, therefore, it was also liable for disallowance u/s. 14A. Hence, the entire interest expenditure is hereby disallowed u/s. 14A of the Act. Assessee had not preferred any appeal.

The AO levied penalty u/s. 271(1)(c) of the Act on the above said disallowance for filing of inaccurate particulars of income leading to concealment of income.

Before the CIT(A) the assessee contended that the issue of genuineness of the expenditure on interest is not in dispute. That it was only by applying a legal fiction that a part of the interest expenditure has been disallowed. That there was no deliberate and malafide misconduct on the part of the assessee. Hence, it was submitted that no penalty is leviable in its case. However the CIT(A) confirmed the penalty.

The Tribunal found that all the particulars of interest were duly disclosed. The veracity of the expenditure claimed has not been doubted by the authorities below. The assessee has explained that it has claimed the expenditure as in the opinion of the assessee it has set up the business which mandates the allowance of claim of expenditure. It was the assessee’s opinion that it was not necessary to carry on the business. This explanation has not been accepted by the authorities below. The explanation by the assessee is a plausible one. The assessee’s admission that it was not carrying on business was admittedly with respect to the transport business inasmuch as A.O. had himself admitted that the assessee was making huge investment by diverting interest bearing funds. In this view of the matter, the very premise that the assessee was not carrying on ‘any’ business fails. By no stretch of imagination, that assessee’s explanation can be said to be spurious, vexatious, mere bluster or frivolous. In similar situation, the Hon’ble Apex Court in the case of Reliance Petroproducts (P.) Ltd. (supra) has held that disallowance of a claim made by the assessee or a wrong claim by the assessee cannot by itself lead to levy of penalty u/s. 271(1)(c) of the Act.

M/s. Robust Transportation Private Limited vs. DCIT-3(3)(1), ITA No.3195/Mum/2018, Bench D, AY: 2014-15 dated: 23/08/2018 (Mum)(Trib)

Robust Transportation Private Limited

Note: The Whole decisions can be downloaded from the CTC website www.ctconline.org under Knowledge Centre.

Unreported Decisions – ST – August 2018

By CA Vinay Jain & Mr. Sachin Mishra, Advocate

1. Whether the cost of food supplied to the airlines which are being served by the airlines to its customers will be included in the value of taxable service?

Facts & Pleadings: M/s. EIHA (Unit of Oberoi Flight Services) (hereinafter referred to as ‘the Appellant’) is inter-alia engaged in the business of providing food to various airlines along with the responsibility of packing and handling of food, loading and transportation of food trolleys, storage and handling of dry stores, cleaning of equipment and laundry services. The Appellant pays service tax on the consideration for the said services.

It is the case of the department that the cost of food supplied by the Appellant to the airlines must also be included for the purpose of computation of service tax on the services under ‘Outdoor Catering Services’.

The Appellant submitted that the activity of supplying food in the instant case will be covered under deemed sale under Article 366 (29A) of the Constitution of India. The Appellant thus submitted that they were selling packed food to the airlines, and that they were paying VAT on the value thereof. The Appellant further submitted that notification No.12/2003-ST dated June 20, 2003 exempts the Appellant from the service tax demanded.

Judgment: The Hon’ble CESTAT distinguished ‘Outdoor Catering Services’ from ‘services rendered in a restaurant or a hotel’ on the ground that the choice of food is limited to a definite menu in case of the latter. While in case of outdoor catering services, different kinds of food/drinks are supplied as per the choice of the person availing the services.

The Hon’ble CESTAT thereafter held that the sale of eatables by the Appellant is complete as soon as the goods are loaded on the aircraft trolley. It was also opined that when food is supplied and served simultaneously, it is ‘Outdoor Catering Service’ else it is sale of goods especially when invoice presents a separate element. Following from the same, the Hon’ble CESTAT noted that in the present case the Appellant is solely supplying the food, and not serving the food to the passengers on board. Further, the invoice of the Appellant shows sale of food separately from the charges of other services rendered in addition. It was thus held that it was merely sale of goods on which VAT is payable, and the same cannot be termed as ‘Outdoor Catering Services’ to ascertain any liability of service tax.

M/s. EIHA (Unit of Oberoi Flight Services) vs. C.S.T., Delhi decided on 26-6-2018 in Appeal No. ST/54205/2014-CU [DB]

M/s. EIHA (Unit of Oberoi Flight Services)

2. Whether ‘installation of goods’ such as air conditioners, carpets etc. on motor vehicles for vehicle owners amounts to ‘production or processing of goods for or on behalf of the client’ under the category of ‘Business Auxiliary Services’?

Facts & pleadings: Prime Engitech (hereinafter referred to as the ‘assessee’) is inter alia engaged in the activity of modification and ornamentation of motor vehicles such as tempo traveller. The assessee carried out installation of goods such as air conditioners, carpets etc. as well as other minor modifications of the vehicle such as seating etc. The assessee considered the activity as supply of goods and paid VAT on the same.

It is the case of the department that as the activity under consideration does not amount to ‘manufacture’ as defined under S.2 (f) of the Central Excise Act, 1944, service tax is payable on the same. It is further argued by the department that the assessee is carrying out ‘production or processing of goods for or on behalf of the client’ and are liable to pay service tax under the category of Business Auxiliary Services (BAS).

The assessee on the other hand argued that BAS require three parties namely service provider, service recipient and a third party on whose behalf services are being provided. However, in the instant case, the assessee is carrying out the said activity for his clients directly without the involvement of a third party. Therefore, the levy of service tax under BAS is not justified. Further, it was argued that the assessee has paid VAT on the entire consideration received for the activity and therefore, service tax is not leviable.

Judgment:  The Hon’ble CESTAT noted that the present activity involves only two parties namely the assessee and its customer. The assessee has not carried out the activity on behalf of a third party. The Hon’ble CESTAT thus upheld that in the absence of a third party in the transaction, the activity cannot be termed as BAS. Further, it was held by the Hon’ble CESTAT that, once the transaction has been declared as sale of goods and liability of VAT has been discharged, it cannot be considered as a service.

CCE & ST, Alwar vs. Prime Engitech Pvt. Ltd. decided on 25-6-2018 in Appeal No ST/53476/2015-(DB) and Prime Engitech Pvt. Ltd vs. CCE & ST, Alwar decided on 25-6-2018 vide Appeal No ST/53631/2015-(DB)

Prime Engitech Pvt. Ltd.

Note: The Whole decisions can be downloaded from the CTC website www.ctconline.org under Knowledge Centre.

Unreported Decisions – August 2018

By Ajay R. Singh, Advocate

1. S.28(iv): Profits chargeable to tax – preference share capital received, could not be treated as income of assessee under section 28(iv)

The assessee is a private limited company, engaged in the business of trading in shares and securities, leasing out property held as investment, etc. A search and seizure action was carried out u/s. 132 of the Act, 1961 in JSW group of cases on 16-03-2011. During the course of search, the assessee gave declaration of income in a group of cases as per which, an amount of ₹ 8.75 crore towards write back of preference shares has been offered as undisclosed income in assessee’s case. However, the assessee has not offered the same, while filing return of income. In assessment, assessee filed detail submissions, as per which the assessee stated that the company has received loan from M/s. South India House Investments Ltd., during the period 19-5-2003 to 30-5-2003 as subscription money towards preference shares. The company has allotted 87,50,000 2.5% redeemable non cumulative preference shares of ₹ 10 paid up each to the said applicant. The said shares were alive and outstanding in the books of VSPL on 16-03-2011 and compulsorily redeemable prior to 1-6-2003. Owing to search action, to buy peace and avoid litigation, the assessee has agreed for disclosure of undisclosed income of ₹ 8.75 crore by writing off redeemable non cumulative preference shares in its books of account. But facts remain that, such redeemable preference shares cannot be redeemed before the specified period, as per provisions of section 80 of Companies’ Act, 1956. The assessee also stated that the said admission during the course of search is of mistaken understanding of facts, therefore, without any further evidence found during the course of search, only on the basis of admission of the assessee, a receipt in the nature of capital receipt cannot be taxed u/s. 28(iv) of the Income-tax Act, 1961.

The AO observed that in principle, the assessee has admitted sum of ₹ 8.75 crores is no longer payable to M/s. South India House Investments Ltd. There has been no retraction by the assessee on this issue till date. Since the amount is no longer payable, it was held that it is a benefit directly arising out of business activity of the assessee and, therefore, chargeable to tax u/s. 28(iv) of the Income-tax Act, 1961.

The Ld.CIT(A), after considering relevant submissions of the assessee and also relying upon the decision of Hon’ble Bombay High Court in the case of Vodafone India Services Ltd (WP) No. 871 of 2014 held that preference share capital received in financial year 2003-04 is capital in nature and cannot be taxed u/s. 28(iv) of the Income-tax Act, 1961.

The Tribunal found that there is no mention in the entire statement whether the statement was being given by Shri Rao on behalf of the assessee company also. It has nowhere been admitted that the aforesaid amount represents undisclosed income of the assessee. In this case, facts are identical to the case already considered by the co-ordinate bench in the case of Nalwa Chrome Pvt Ltd ITAT, H-Bench. The share capital receipt cannot be taxed either u/s. 28(iv) or 41(1) of the Act. In the result, appeal filed by the revenue was dismissed.

Dy. CIT vs. Vrindavan Services Pvt. Ltd., ITA No. 235/M/2015 dt.18/07/2018, AY 2011-12 (ITAT Mumbai)

Vrindavan Services Pvt. Ltd.

2. S. 68 : Cash credits – Sale of shares–DMAT account and contract note showed the credit details – facts, transactions in shares were to be genuine

The assessee declared long term capital gains of ₹ 42.22 lakhs arising on sale of 2,50,000 shares of M/s. Prraneta Industries Ltd., and claimed the same as exempt u/s. 10(38) of the Act. The return of income was initially accepted but later on the Assessing Officer reopened the assessment by issuing notice u/s. 148 of the Act on 30-7-2009 in order to verify the correctness of the claim of long term capital gains referred above.

The AO noticed that the assessee had sold scrips of Kotak Mahindra, NIIT Ltd. and Steel Authority of India Ltd. on 27-4-2004 through M/s. DPS Shares and Securities P. Ltd. and the same has resulted in net gain of ₹ 47,133/-. On 29-4-2004, the assessee purchased ₹ 25,000 shares of M/s. Prraneta Industries Ltd. for an amount of ₹ 47,040/-, which was adjusted against the profit earned by the assessee. The 25,000 shares were converted into 2,50,000 shares of ₹ 1.00 each. The assessee sold all the shares and earned long term capital gain of ₹ 42.22 lakhs. The AO conducted, enquiries in this regard. The inquiry made by the Assessing Officer with Bombay Stock Exchange revealed that sale of shares of Kotak Mahindra, NIIT Ltd. on 27-4-2004 was genuine, but the BSE informed that there was no trading on 29-4-2004 in the shares of M/s. Prraneta Industries Limited. The Assessing Officer summoned the assessee and also authorised representative of M/s. DPS Shares and Securities P. Limited. A person named Mr. Rajkumar Masalia, Senior Accountant of M/s. DPS Shares and Securities P. Ltd., appeared before the Assessing Officer and confessed that the bills for purchase and sale of shares of M/s. Prraneta Industries Ltd. were not genuine and further submitted that they were given to the assessee for the purpose of providing accommodation entry. However, the assessee maintained his stand that the capital gains earned by him were genuine. The A.O. accordingly, rejected the claim of long term capital gains and assessed the same as income of the assessee. The learned CIT(A) also confirmed the same.

When the matter reached the Tribunal, the assessee filed an affidavit of Shri Pratik C. Shah, who was director of M/s. DPS Shares and Securities P. Limited, the share broker of the assessee. In the affidavit, the above said director confirmed the genuineness of the transactions entered by the assessee in the shares of M/s. Prraneta Industries Limited. Hence, the ITAT restored the matter to the file of the Assessing Officer for examining the claim of the assessee afresh by duly considering the additional evidences furnished by the assessee. In the set aside proceedings, the Assessing Officer confirmed the addition as same. The learned CIT(A) also confirmed the same.

In the second round the ITAT found that the assessee has furnished copies of contract notes in support of the purchase and sale of shares. He has also furnished copies of demat account which shows entry and exit of shares. The assessee has also received payment towards sale of shares though it was received from two other persons on behalf of DPS Shares and Securities P. Limited. The assessee has proved the genuineness of purchase and sale of shares of M/s. Prraneta Industries Ltd., and hence long term capital gains arising on sale of above said shares cannot be doubted with. The AO did not make inquiries with regard to demat account furnished by the assessee and also could not disprove the affidavit filed and statement given by DPS Shares and Securities P. Limited. Hence, decision rendered by Hon’ble Bombay High Court in the case of Shyam R. Pawar ((2015) 229 Taxman 256,) fully supports the case of the assessee. Accordingly, the claim of long term capital gains of ₹ 42.22 lakhs and allow exemption u/s. 10(38) of the Act claimed by the assessee. In the result, appeal filed by the assessee is allowed.

Jaymin Kiritbhai Sanghvi vs. ITO 18(1)(5), ITA No. 6070/M/2016 dated 18-07-2018, (ITAT Mumbai)

Jaymin Kiritbhai Sanghvi

3. S. 43B : Deductions on actual payment – Claim not made in the return [Ss. 139, 154]

The assessee is a company engaged in the business of clearing and forwarding agent. The assessee filed return of income on 20-09-2008 declaring total income of ₹ 4,57,01,174/- and claimed credit for payment of aggregate taxes to the tune of ₹ 1,55,37,327/- out of which, inter-alia, claim of credit of TDS was ₹ 89,44,765/-. The AO issued intimation u/s. 143(1) wherein the AO, inter-alia, granted TDS credit of ₹ 79,05,771/- as against claim of TDS credit of ₹ 89,44,765/- filed by the assessee in the return of income filed with the Revenue.

Aggrieved by the grant of the short TDS credits allowed by the AO in the intimation issued u/s. 143(1), the assessee filed rectification application vide letter dated 24-05-2013 u/s. 154 filed with the AO, inter-alia, for correcting mistake w.r.t. short credit of grant of TDS wherein credit allowed stood at ₹ 79,05,771/- as against the claim for TDS credit of ₹ 89,44,765/- filed by the assessee in its return of income. During the course of aforesaid proceedings conducted by the AO u/s. 154, the assessee vide one letter dated 2-7-2013 filed with the AO filed additional claim for grant of TDS credit of ₹ 9,93,555/- for the first time which was not earlier claimed by the assessee in the return of income filed with the Revenue.

The assessee, however, submitted that the assessee offered corresponding income for taxation to the said TDS of ₹ 9,93,555/- in the return of income filed with the Revenue but the income-tax deducted at source on the said income by the persons responsible for making payments deposited the said income-tax late to the credit of Central Government and consequentially the TDS certificates were also issued late by the said deductors to the assessee which is the main reason for the non claim of the credit of TDS earlier by the assessee in the return of income filed with Revenue and the assessee cannot be held responsible for such delay in filing of the claim as no fault lies with assessee and hence the assessee cannot be penalised for the same.

The Tribunal found that the assessee has raised this claim in the proceedings which were conducted by the AO u/s. 154 otherwise than by filing revised return of income u/s 139(5). If the AO could not have taken cognisance of the fresh claim filed by the assessee which was not filed by filing revised return of income u/s. 139(5), the learned CIT(A) being appellate authority could have always admitted the said fresh claim and thereafter adjudicated the same on merits. Hon’ble Bombay High Court decision in the case of CIT vs. Pruthvi Brokers & Shareholders reported in (2012) 349 ITR 336(Bom) is relevant and binding being jurisdictional High Court. Thus, the assessee could not be denied the said claim of credit of TDS to the tune of ₹ 9,93,555/- but however for limited purposes for verification of contentions raised by the assessee, matter was restored to the file of the AO for necessary verification of the TDS certificates filed by the assessee purported to be received from Elecon Engineering Co. P. Ltd. and Prayas Engineering Ltd. as to the credit of taxes to Central Government and also for verification of offering of the corresponding income by the assessee to taxation in the return of income filed u/s. 139(1) on 20-09-2008, before allowing credit for said TDS amount of ₹ 9,93,555/- . Accordingly appeal of the assessee is allowed.

Express Global Logistics Pvt. Ltd. vs. ACIT, ITA No. 1194/M/2017 dated 11/07/2018, AY 2008-09 (ITAT Mumbai)

Express Global Logistics Pvt. Ltd.

Note: The Whole decisions can be downloaded from the CTC website www.ctconline.org under Knowledge Centre.