Category: Uncategorized

Unreported Decisions – ST – November 2018

By Vinay Jain & Sachin Mishra, Advocate

1. Whether additional charges such as Preference Location Charges (PLC), External Development Charges (EDC), Internal Development Charges (IDC), Club charges, etc. recovered by the assessee from its customers while rendering Residential Complex Service are eligible for benefit of abatement under Notification No. 26/2012-ST?

Facts & Pleadings: Logix Infrastructure Pvt. Ltd. (hereinafter “appellants”) are providers of Residential Complex Service. The appellants were charging amounts from their customers under various heads such as Base Value, Preference Location Charges (PLC), External Development Charges (EDC), Internal Development Charges (IDC), Club charges, etc. The appellants paid service tax on the entire amount charged after claiming 75% abatement under Notification No. 26/2012-ST.

The Department contended that abatement in Service Tax is granted only in respect of such services where there is transfer of materials along with provision of service. While rendering Preferential Location Services and Internal or External Development Services, there is no transfer of material involved. Further, ‘Construction of a Complex/ Building’ is an independent activity, even without such services. Hence, abatement cannot be availed for such sundry services. Relying on CBEC-TRU on 26-02-2010, the Department contended that PLC, EDC, IDC, etc., are not covered by the provisions of Section 66F of the Finance Act, 1994 and deserve to be bifurcated into two components, ‘Residential Complex Services’ and ‘Special Services’.

The appellants contended that the provisions of 66F of the Finance Act, 1994 provide for taxation of bundled service. As per Section 66F, provision of bundled services shall be treated as provision of single service which gives the bundle its essential character. PLC, EDC and IDC do not have an independent existence and are associated with provision of Residential Complex Services. They are essentially components of the predominant Residential Complex Services and hence cannot be vivisected and treated separate. Further, there is no separate contract with customers for base value and separate contract for other charges..

Judgment: The Hon’ble CESTAT held that the CBEC letter issued by TRU about scope of valuation in respect of Residential Complex Service was introduced in 2010, when there was no provision of Section 66F of the Finance Act, 1994. After the introduction of the Section, its provisions would prevail over any clarification or view taken by the CBEC. The Hon’ble CESTAT further held that the components such as PLC, EDC and IDC are part and parcel of the main services i.e., Residential Complex Service. Thus, the entire consideration received by the appellants is eligible for abatement under Notification No. 26/2012-ST.

Logix Infrastructure Pvt. Ltd. vs. CCE & ST, CESTAT, Allahabad decided on 20-9-2018 in Appeal No. ST/70752- 70763/2018-CU[DB].

Logix Infrastructure Pvt. Ltd.

2. Whether ‘Crossing Over Charges’ charged by the assessee from their sub-franchisee courier agencies for enabling further movement of documents is taxable under Business Auxiliary Service (BAS) till September 2006 and under Business Support Service (BSS) thereafter?

Facts & pleadings: M/s. The Professional Couriers (hereinafter referred to as ‘appellants’) are inter alia engaged in providing courier services. The appellants were collecting certain charges as ‘crossing over charges’ from their subfranchisee agencies for enabling further movement of documents which originated from such sub-franchisees. The appellants contended that the disputed transaction is a continuous service of courier by a single network. Also, all the transactions are taking place in the name of the appellants. Further, no service is being rendered to a third party and hence there is no rendering of ‘Business Support Services’. Relying on the case of Concord Express Logistics India Pvt. Ltd., 2018-TIOL-2710-CESTAT-MAD, the appellants stated that the definition of ‘Business Auxiliary Services’ cannot be applied to the disputed transaction as it is within the same network for completion of services. There is no client-service provider relationship in the transaction. The appellants also contended that their activities are like that of a co-loader, and relying on Board Circular No. 341/43/96- TRU dated 01-11-1996, no service tax can be demanded from a co-loader. Further, the appellants contended that the very same service cannot fall under two different headings. The Department contended that there is no bar for the same activity to fall under ‘Business Auxiliary Services’ up to 2006 and ‘Business Support Services’ thereafter. The service category of ‘Business Support Services’ had been carved out of ‘Business Auxiliary Services’ only. The department alleged that the above Board Circular is not applicable in the present case as the same is applicable in case of co-loader and appellants cannot be considered as co-loaders. Department also alleged that the crossing over charges were collected towards logistic support and other support activities provided to the sub-franchisees and hence, taxable.

Judgment:  The Hon’ble CESTAT held that the disputed activity is a continuous service of courier by a single network i.e., service if any, is service to self only. Further, Hon’ble CESTAT noted that the amount charged for enabling such services approximately covered the expenditure involved in the re-routing of the packages. Since all centres of the appellants belonged to a single network, the concept of both ‘service’ and ‘client’ ceased to exist. The Hon’ble CESTAT further held that the various franchisees of the appellants are operating on a hub and spoke model, and that the crossing over charges, being collected only within the hub and spoke arrangement, cannot be said to be towards provision of any service. The disputed activity is only a continuation or culmination of courier services, and it cannot be alleged that the appellant is receiving or giving services within its own network. Accordingly, Hon’ble CESTAT held that there is no rendition of service in the present case.

Professional Couriers vs. CGST & CE, CESTAT, Chennai decided on 26-9-2018 in Appeal Nos. ST/54/2012 and ST/57/2012

Professional Couriers

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

Unreported Decisions – November 2018

By Ajay R. Singh, Advocate

1. S. 271(1)(c) : Penalty – furnishing inaccurate particulars – Bogus purchases – Levy of penalty was held to be not justified.

The assessee is engaged in the business of trading in chemicals and also dealing in shares & securities, filed his return of income for AY 2009-10 on 30-09-2009 declaring total income of Rs.15,90,000. The case was selected for scrutiny and the assessment was completed u/s 143(3) r.w.s. 147 of the Income-tax Act, 1961 determining the total income at Rs.15,90,000 by making addition towards 25% gross profit on alleged bogus purchase made from hawala dealers.

Thereafter, the AO initiated penalty proceedings u/s 271(1)(c) for furnishing inaccurate particulars of income and after considering relevant submissions of the assessee levied penalty of Rs.3,40,980 which is 100% tax sought to be evaded on the ground that the assessee has failed to offer any explanation with regard to the alleged bogus purchases made from hawala dealers.

The assessee claims that it has accepted addition made by the AO considering the fact that even after disallowance of gross profit on alleged bogus purchases, income from business in the year continued to be net loss, therefore, he was under the bona fide belief that penalty provisions for concealment of particulars of income u/s 271(1)(c) will not attract. The assessee further contended that he has agreed for estimation of gross profit on alleged bogus purchases, it was only for the purpose of avoiding litigation at the stage of assessment proceedings itself, but fact remains that he has furnished complete evidences to prove such purchases and also filed quantitative details of purchase and sales alongwith comparable gross profit ratio.

Tribunal found that the AO has estimated 25% gross profit on alleged bogus purchases, never made any observations with regard to the incorrectness in details filed by the assessee to prove such purchases. The AO never disbelieved information filed by the assessee, but he proceeded on the basis of information received from sales-tax department to make additions. The AO has made such addition on adhoc basis by estimating gross profit on alleged bogus purchases. From these facts, it is very clear that the AO failed to make a case of deliberate attempt by the assessee to furnish inaccurate particulars of income. Therefore, we are of the considered view that mere disallowance of purchases on adhoc basis does not tantamount to willful furnishing inaccurate particulars of income within the meaning of section 271(1)(c) of the Income-tax Act, 1961. Hence, we are of the considered view that the AO was erred in levying penalty u/s 271(1)(c) of the Act. Accordingly we direct the AO to delete penalty levied u/s 271(1)(c) of the Act.

Ajay Loknath Lohia  v ITO 25(2)(1), Mumbai, ITA No.2998/Mum/2017, DOH: 05/10/2018 (Mum)(Trib)

Ajay Loknath Lohia

2. S. 22 : Income from house property – Business income – Property held as stock-in-trade – unsold stock of completed units at various projects – not chargeable as notional rental value of the said units under the  head Income from House Property.

The assessee being resident corporate entity was engaged as Real Estate Developer during impugned AY.  During assessment proceedings, upon perusal of details of closing  stock-in-trade, it was found that the assessee had unsold stock of  completed units in the shape of flats / shops at various projects being  carried out by the assessee during impugned AY. The cost of  construction of these units was reflected as Rs.14.39 Crores.

The AO, in terms of judgment of Hon’ble Delhi High Court rendered in CIT  Vs. Ansal Housing Finance & Leasing Co. Ltd. [354 ITR 180], opined  that notional rental value of the said units was chargeable under the  head Income from House Property. The AO notional rental value of these units @8.5% of cost of construction i.e.  Rs.14.39 Crores which came to Rs.1.22 Crores. After providing statutory  deduction of 30% as per Section 24(b), the net addition thus worked out  came to Rs.85.62 Lacs, which was added to the income of the assessee. 

The assessee submitted that recent judgment of this Tribunal rendered in the case of assessee’s  sister concern titled as ACIT Vs. Haware Construction Private Ltd. [ITA  Nos.3321/Mum/2016 & 3172/Mum/2016 dated 31/08/2018] and also relies on the judgment of the  Hon’ble Gujarat High Court in CIT vs. Neha Builders Pvt. Ltd. 296 ITR 661 (Guj.)  and the order of the Tribunal in M/s. Runwal Constructions vs. ACIT (ITA  No.5408/Mum/2016 dtd.22/02/2018) and Progressive Homes vs. ACIT (ITA  No.5082/Mum/2016 dtd. 16/05/2018).  to submit  that the issues under similar facts and circumstances, has been  adjudicated in assessee’s favour after considering the conflicting judicial  precedents.

Tribunal found that, on the above issue, we come across one decision for the assessee and  another decision for the revenue. The decision in Neha Builders Pvt.Ltd.(supra) is  for the assessee, whereas the decision in Ansal Hsg. Finance & Leasing Co. Ltd.,  (supra) is for the Revenue. The Hon’ble Supreme Court in the case of CIT vs.  Vegetable Products 88 ITR 192 (SC) has held that “if two reasonable constructions of a taxing provisions are possible, that construction which favours the tax payer must be adopted.”  In view of the above position of law, we shall follow the decision in Neha Builders  Pvt.Ltd.(supra).

We now come to the relevant provisions in the Act. The following sub-section  (5) has been inserted after sub-section (4) of section 23 by the Finance Act, 2017,  w.e.f. 01.04.2018: “(5) Where the property consisting any building or land appurtenant thereto is held as stock in-trade and the property or any part of the property is not let during the whole or any part of  the previous year, the annual value of such property or part of the property, for the period up  to one year from the end of the financial year in which the certificate of completion of  construction of the property is obtained from the competent authority, shall be taken to nil.”  Thus, in order to give relief to Real Estate Developers, section 23 has been  amended w.e.f. AY 2018-19 (FY 2017-18).

we hold that if a immoveable property in  the shape of flats / shops is held as stock-in-trade, then it becomes part  of trading operations for the assessee and as a natural corollary, any  income derived there-from would be Business Income and not Income  from House Property. Resultantly, the impugned additions as confirmed by first appellate authority stand deleted.  The appeal stands allowed in terms of our above order. 

Haware Engineers & Builders Private Ltd v DCIT, ITA No.7155/Mum/2016, DOH: 10/10/2018 (Mum)(Trib)

Haware Engineers & Builders Private Ltd

3. S. 68: High Sea trading loss – disallowed the losses on the basis that the goods are sold at the price lower than the purchase price – Law cannot oblige or compel a trader to make or maximise its profits – addition not justified

The assessee is closely held company-mainly engaged in the business of trading in edible oil.

During the year the AO noted that assessee-company makes a High Court transaction with M/s. Ruchi Soya Industries Ltd. the sale price is lower than the purchase price. Thus, the assessee incurs artificial losses & creates artificial profit to M/s. Ruchi Soya Industries Ltd, for which assessee incurred loss of Rs. 25,91,875/-  which was the benefit transferred to /s. Ruchi Soya Industries Ltd which cannot allowed and the same was added to the total income of the assessee which came to Rs.25,91,875/-. The A.O also analysed other transactions by following the same method. Therefore, the A.O held that total losses to the tune of Rs.4,93,44,276/- should not be allowed to the assessee and the same was added to the total income of the assessee.

Tribunal found that during the assessment proceedings the assessee had produced all sales and purchase bills for verification by AO. The books of accounts of the assessee are duly audited. The ledger accounts as well as bank statements have also been verified by AO. The AO has not found any discrepancies therein. It is also a fact that overall the assessee has made profit on forward trading. The AO has not disputed or doubted those transactions where it resulted in profits. The AO disputed or doubted those transactions where it resulted in losses. Therefore, the Id AO has adopted only onside approch, that Is, he picked only those transactions which has resulted into losses. We noted that profit making transactions and loss making transactions, both have settled through banking channels and no difference at all so that contractual terms are concerned, hence by the same logic, even the transactions resulting in losses should be taken as genuine unless proved otherwise. M/s Ruchi Soya Industries Ltd has submitted confirmation before CIT(A). The confirmation was not available when the assessment proceedings were going on, therefore assessee could not submitted before A.O.  Hence, there is no sustainable logic for presuming that the forward trading losses were effected to transfer benefit to certain trading partners. The AO has not disproved any of the contentions or explanations of the assessee and the addition is solely on suspicion. That being so, we decline to interfere with the order of Id. C.I T.(A) deleting the aforesaid addition. In the result, appeal filed by the Revenue is dismissed.

ITO-12(2)(4) v Inu Exports Pvt. Ltd, ITA No.786/Mum/2016, DOH: 29/06/2018 (Mum)(Trib)

Inu Exports Pvt. Ltd

Unreported Decisions – ST – October 2018

By CA Vinay Jain & Mr. Sachin Mishra, Advocate

1. Whether services by way of supervision and approvals for ‘construction of railways siding’ from the Railway authorities to the assessee amounts to ‘Business Support Services’ thereby rendering the assessee liable to pay service tax under reverse charge mechanism?

Facts & Pleadings: M/s. Nabha Power Limited (hereinafter referred to as the ‘Appellants’), a wholly owned subsidiary of Larsen and Toubro, has a Thermal Power Plant in Rajpura. The coal required to generate power in the plant is being transported to the power plant through network of railways. However, the last railwaystation was at a considerable distance from the power plant. Therefore, the Appellants required to construct railways siding for transportation of coal from the last station to the power plant. The construction of the siding involved various alterations and modification to the existing station which required mandatory approvals, permits and supervisions of the Railways. Therefore, the Appellants constructed the siding under the mandatory supervision and approval of the Railways and made payment to the Railways in relation to the same.

It is the case of the department that the Appellants have in fact availed ‘Business Support services’ under section 65(105)(zzzq) from the Railways by way of supervision and approvals, and are required to pay service tax under reverse charge mechanism. According to the department, the construction or supervision of ‘private railway sidings’ at hand is not a statutory function. It was also contended that the consideration paid to the Railways for the services at hand does not stem from a statute but is based on the letters issued by the Railways board thereby denying that Railways are rendering statutory functions. The department also relied on the judgment of the Hon’ble High Court of Delhi in the case of Union of India vs. Competition Commission of India to say that the activity undertaken by the Indian Railways amount to ‘Business Support Services’.

The Appellants relied on the Circular dated 10-6-2012 to say that in the present case the supervision services have been provided by Railways (Government) in terms of their sovereign rights to business entities and which are not substitutable in any manner by any private entity. Further, the services at hand cannot be performed by the Appellants themselves. Therefore, these services cannot be termed as Business Support Services. The Appellants also added that the consideration has been paid into the Consolidated Fund of India and has not been retained by the Railways. Additionally, the Appellants contended that services received in relation to construction of siding are exempt from levy of service tax under entry no.14A of the Notification No. 25/2012-ST dated 20-6-2012.

Judgment: The Hon’ble CESTAT held that no service tax is payable by the Appellants considering several grounds. Firstly, ‘siding’ falls within the definition of ‘Railways’ as per the Railways Act. Secondly, the Hon’ble CESTAT noted that the Appellants are making mandatory deposits to the Railways for various approvals and supervisions for construction of siding as per Circular No.1/2012.

The Hon’ble CESTAT also considered the Circular dated 20-6-2012 and held that the supervision services and approvals availed from the Railways cannot be done by the Appellants themselves or any other agency and hence, do not constitute support services. Further, the Hon’ble CESTAT noted that the services by Government or local authority in relation to the transport of goods or passengers are exempt from service tax under the negative list u/s. 66D of Finance Act, 1994 which in turn exempts the services at hand.

The Hon’ble CESTAT also noted that the amount paid by the Appellants to the Railways has gone to the Consolidated Fund of India which shows that the activity undertaken by the Railways are statutory in nature. Therefore, the Appellants are not liable to pay service tax. Lastly, the Hon’ble CESTAT considered the Notification No. 25/2012-ST dated 20-6-2012, Serial No. 14A which exempts the services in relation to ‘construction, erection, commissioning or installation of original works pertaining to railways’ from payment of service tax. It was thus held that since railways include siding and yard, the Appellants are not liable to pay service tax on services (supervision) in relation to construction of railway siding as per the aforementioned Notification.

M/s. Nabha Power Limited vs. Commissioner of Central Excise & ST, Chandigarh decided on 16-8-2018 in Appeal No. ST/52893/2015-DB

M/s. Nabha Power Limited

2. Whether the ‘Dormant Account Charges’ charged by banks for operating an account of a customer which remained inoperative or dormant is leviable to service tax under Finance Act, 1994?

Facts & pleadings: M/s. Karur Vysya Bank Ltd. (hereinafter referred to as the ‘Appellants’) is a banking company which is engaged in providing Banking and other Financial Services. The Appellants were charging ‘Dormant Account Charges’ from its customer for operating their accounts that remained inoperative or dormant for more than 12 months.

It is the case of the department that the Appellants have in fact received the said amount for rendition of ‘Banking and other Financial Services’ as the financial services of ‘operation of bank accounts’ is liable to service tax w.e.f. 19-9-2004. The department further alleged that the ‘Dormant Account Charges’ is directly linked to the services provided by the Appellants to its customers by way of maintaining their inoperative bank accounts and by way of keeping such account in a dormant status in their operating scheme.

The Appellants contended that in a ‘Dormant Account’, there is no ‘operation of bank account’ as such accounts remain inoperative for more than 12 months. Further, the ‘Dormant Account Charge’ is a penalty for a customer who is not operating the bank account on regular basis and the purpose of the implementation of this charge is for regulating the dormant bank account into an operative one (or) to eliminate those accounts from the system for the effective utilisation of the other operative customers.

Judgment:  The Hon’ble CESTAT held that there was no service being provided by the Appellants to its customer in the course of levying ‘Dormant Account Charge’. The Hon’ble CESTAT observed that in any case, the customer was not operating his account for quite some time, only for which reason the account was declared dormant or inoperative by the bank. By levying “dormant account charges” such account holders were not getting any additional services or benefits that they were not getting earlier. Therefore, the Hon’ble CESTAT concluded that levy of such charges are nothing but a penalty imposed on such account holders for keeping their account inoperative. Banks need a constant rolling of money and deposits, and inoperative or dormant account will not help this purpose. The dormant account charges are therefore nothing but a charge in the nature of penalty.

M/s. Karur Vysya Bank Limited vs. Commissioner of Central Excise, Tiruchirappalli, CESTAT Chennai decided on 10-8-2018 in Appeal No. ST/480/2010

M/s. Karur Vysya Bank Limited

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

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.