ITR’S TRIBUNAL TAX REPORTS

PRINT EDITION

Volume 111 : Part 4 (Issue dated : 22-4-2024)

SUBJECT INDEX TO SHORT NOTES OF CURRENT CASES

Business expenditure --Disallowance--Payments liable to deduction of tax at source--Non-resident--Fees for technical services--Assessee, company incorporated in Spain having branch office in India--Payments made by branch office to head office as reimbursements on cost-to-cost basis without mark-up of salary cost of expatriate employees working in branch office in India--Entire salary payments subjected to deduction of tax at source--Nothing brought on record by Department to show head office had provided any technical services to branch office--Held payments not fees for technical services taxable in India--Held that where assessee has deducted tax at source and deposited it in Government account within specified time, disallowance of salary cost not justified--Additions liable to be deleted--Income-tax Act, 1961, ss. 40(a)(i), 192, 195--Double Taxation Avoidance Agreement between India and Spain, arts. 7(3), 26-- Ayesa Ingenieria Y Arquitectura S. A. v. Asst. CIT (International Taxation) (Delhi) . . . 61

Capital gains --Computation--Brokerage or commission in connection with transfer--Assessee submitting details of payment containing names of parties and addresses, permanent account numbers, cheque numbers and dates and amounts and invoices from parties to whom commission paid--Assessee’s bank statement showing payment and Assessing Officer accepting that vouchers submitted in support of expenses--Genuineness of payment held established--Disallowance made only because agreements with respect to commission services not submitted--Held not justified--Income-tax Act, 1961, s. 48-- Sunil Kapoor v. Asst. CIT (International Taxation) (Delhi) . . . 64

----Computation--Cost of improvement--No clear description of built-up house in sale deed and no details of cash paid to contractor given--No details given by contractor of disbursement of cash to labourers for work done by them--Source of availability of cash vague--Nothing to show assessee requested for valuation of cost of construction valued through Departmental Valuation Officer--New pleas could not be raised before Tribunal--Disallowance of cost of improvement held justified-- Sunil Kapoor v. Asst. CIT (International Taxation) (Delhi) . . . 64

Depreciation --Assessee held a manufacturer of lubricant oil--Assessing Officer held not right in denying additional depreciation--Income-tax Act, 1961, ss. 2(29BA), 32(1)(iia)-- Addl. CIT v. Idemitsu Lube P. Ltd. (Delhi) . . . 59

Income-tax --Books of account--Rejection of--Estimation of profits--Assessing Officer rejecting books of account on ground of excess power and fuel cost as percentage of turnover--Taking fuel cost on comparison with other companies and computing revised estimate of profits--Assessee maintaining books of account with day-to-day quantitative details in respect of job work carried out and books of account audited--Assessee submitting various details during assessment before Assessing Officer--Auditors not passing any adverse remarks related to closing stock valuation of raw materials, colours nor Assessing Officer pointing out single transaction not accounted for or outside books of account--Assessee starting business with second hand machinery and machinery was almost obsolete--Consumption of power and fuel high even in earlier years and accepted by Department--Overall margin of profit increased substantially in year and consumption of power and fuel consistent--Units quoted by Assessing Officer dyeing and printing units and companies using high tech machinery not comparable--Net profit shown by assessee comprised net profit earned from power generation unit and dyeing unit--Combined profit of dyeing unit and generation unit taken by Assessing Officer--Held not proper--Books of account should not be rejected and turnover could not be enhanced on illogical basis--Income-tax Act, 1961, s. 145(3)-- Mahavir Dyeing and Printing Mills P. Ltd. v. Asst. CIT (Surat) . . . 53

----Income from house property--Deemed rent--Assessee having two house properties--One property exempt as self-occupied property--Second property was being used by company in which assessee was director--Held use of property by private company could not be considered as use for purposes of own business of assessee because company is separate legal person--Order bringing deemed rent to tax held proper--Income-tax Act, 1961, s. 23(4)(b)-- Hasmukhlal Inderchand Ranawat v. Deputy CIT (Mumbai) . . . 50

----Search and seizure--Assessment in search cases--Undisclosed income--Assessment for years for which assessments do not abate--Additions could be made only on basis of incriminating material found during search--Assessing Officer himself stating that deemed rent brought to tax on basis of assessment order passed for earlier year 2014-15--Held addition was not based on any incriminating material found during the course of search proceedings--Assessing Officer could not have made addition and addition was to be deleted--Income-tax Act, 1961, s. 153A-- Hasmukhlal Inderchand Ranawat v. Deputy CIT (Mumbai) . . . 50

----Search and seizure--Presumption that assets seized belong to assessee--Statement of assessee at time of search that cash found in premises belonged to him and his books of account not updated--Retraction of statement after updating books stating cash belonged to concerns carrying on business in same premises--Facts that assessee did not carry on any business activity in his individual name, that business activities were carried on by three concerns from same premises, and these concerns had cash balance in their books on date of search not rebutted by Department--No material to show assessee carried on any activity outside books, which could have generated cash balance--Held assessee had furnished credible evidence to show that his admission was not correct and Assessing Officer had rejected them without any justification--Income-tax Act, 1961, s. 132(4)-- Hasmukhlal Inderchand Ranawat v. Deputy CIT (Mumbai) . . . 50

Investment allowance --Claim of assessee that it had made investment exceeding threshold limit--Finding of Commissioner (Appeals) installation of plant and machinery completed during year under consideration and put to use for production of lubricant oil on which normal claim of depreciation had been allowed--Assessee entitled to investment allowance--Income-tax Act, 1961, ss. 2(29BA), 32AC-- Addl. CIT v. Idemitsu Lube P. Ltd. (Delhi) . . . 59

----Condition precedent for deduction--Assessee must manufacture or produce any article or thing--Assessee engaged in business of manufacture or production of lube oil and contending blending of lube oil was tantamount to manufacture or production--Provision not restricted to manufacturing activity but includes production--Held assessee was engaged in manufacturing or production activity and entitled to investment allowance--Income-tax Act, 1961, ss. 2(29BA), 32AC-- Addl. CIT v. Idemitsu Lube P. Ltd. (Delhi) . . . 59

Unexplained money --Conditions precedent--Burden of proof--Cash found from certain business premises--Facts that three concerns operating from same premises, that these business concerns maintained books of account and cash balances available with them on the date of search more than cash seized from premises--Fact that assessee did not carry on any business in his personal capacity--Held assessee had discharged burden placed upon him--Cash found in search could not be taxed in assessee’s hands as unexplained money--Income-tax Act, 1961, s. 69A-- Hasmukhlal Inderchand Ranawat v. Deputy CIT (Mumbai) . . . 50

----Surveys conducted at premises of several entities including assessee--Assessing Officer treating amount received by assessee from bank accounts of another entity as assessee’s own funds brought into its books as unsecured loans--Finding of Tribunal that entire facts in knowledge of Department and modus operandi clearly disclosed that money received by assessee did not remain with assessee, and had immediately been passed on to another party, which in turn, had transferred funds to ultimate beneficiary by way of share capital--Held funds received by assessee could not be treated as its own funds as assessee only being intermediary in entire process--Held addition in assessee’s hands was not sustainable and was to be deleted--Income-tax Act, 1961, s. 69A-- Global Ship Trade P. Ltd. v. ITO (Ahmedabad) . . . 56

PRINT EDITION

ITR (Trib) Volume 111 : Part 4 (Issue dated : 22-4-2024)

SUBJECT INDEX TO CASES REPORTED IN THIS PART

Assessment --Validity--Limited scrutiny--Additions and disallowances made on extraneous issues which had never formed basis for “limited scrutiny”--Assessing Officer not obtaining approval for converting “limited scrutiny” into “complete scrutiny”--Assessing Officer exceeding his jurisdiction--Order to be vacated--Income-tax Act, 1961, ss. 147, 148--Central Board of Direct Taxes Circular No. 20 of 2015, dated 29-12-2015-- Pioneer Carbon Co. P. Ltd. v. ITO (Raipur) . . . 409

Double taxation avoidance --Dependent personal services--Assessee, a resident--During year assessee on an international assignment to U. S. A.--Stay of assessee in India was for only 16 days--Salary received in India in his bank account for exercising his employment in U. S. A--According to article 16(1) of DTAA, salary or remuneration of assessee liable to be taxed in United States only--Income not taxable in India--Income-tax Act, 1961, ss. 6(1), 90--Double Taxation Avoidance Agreement between India and the U. S. A., art. 16-- Somnath Duttagupta v. Asst. CIT (Kolkata) . . . 385

International transactions --Transfer pricing--Arm’s length price--Determination--Interest on outstanding receivables--Issue remitted to Assessing Officer/Transfer Pricing Officer for deciding it in conformity with Orange Business Services India Solutions P. Ltd. v. Dy. CIT --If working capital adjustment subsumes outstanding receivables, no separate characterisation to be made--Receivables falling outside working capital adjustment pertaining to year under consideration--Rate of interest charged at LIBOR + 300 basis points considering credit period of 90 days--Income-tax Act, 1961, s. 92B-- Etisalat Software Solutions P. Ltd. v. Deputy CIT (Bangalore) . . . 475

----Transfer pricing--Arm’s length price--Determination--Selection of comparables--Persistent loss filter--Company must have incurred losses consistently for three years--Export service income filter--Assessee’s submission that export turnover earned by company more than 75 per cent.--Objections of assessee may be verified having regard to annual reports and claim for inclusion of comparables considered in accordance with law--If contentions of assessee found to be true, two comparables directed for inclusion--Assessee to file all relevant documents in support of claim--Income-tax Act, 1961-- Etisalat Software Solutions P. Ltd. v. Deputy CIT (Bangalore) . . . 475

----Transfer pricing--Arm’s length price--Determination--Selection of comparables--Turnover filter--Companies whose turnover in current year more than Rs. 200 crores--To be excluded from list of comparables--Companies lacking segmental information and functionally dissimilar with assessee--Cannot be taken as comparables--Income-tax Act, 1961-- Etisalat Software Solutions P. Ltd. v. Deputy CIT (Bangalore) . . . 475

Non-resident --Income deemed to accrue or arise in India--Assessee providing computerised reservation system services on behalf of airlines and hotels to travel agents in India--No computer, hardware, software or communication link provided to travel agents--Only access to centralised mainframe located in USA provided--Revenue’s burden of proving existence of permanent establishment in India not discharged--No intermediary or exclusiveness between parties to global subscriber agreement--No entity habitually procuring contracts for assessee or binding assessee to any contracts--No agency permanent establishment also present--Profits not liable to tax in India--Income-tax Act, 1961, ss. 5(2), 9(1)(i)-- Sabre GLBL Inc. v. Asst. CIT (International Taxation) (Delhi) . . . 446

Reassessment --Jurisdiction--Assessing Officer while framing assessment not making addition on issue on which assessee’s case was reopened--Assessing Officer wrongly assuming jurisdiction--Order quashed--Income-tax Act, 1961, ss. 147, 148-- Pioneer Carbon Co. P. Ltd. v. ITO (Raipur) . . . 409

Search and seizure --Assessment in search cases--Assessment of third person--Absence of recording date of handing over of documents for making assessment of third person--Date of satisfaction note shall be reckoned as date of handing over of materials--Time-limit of calculating six years to be calculated from that date--Assessment for assessment year 2008-09 barred by limitation--Addition deleted--Income-tax Act, 1961, ss. 153A, 153C-- Asst. CIT v. Enpro Telecom P. Ltd. (Delhi) . . . 400

----Assessment in search cases--No reference to any seized documents or materials based on which Assessing Officer had made addition--Assessing Officer in course of assessment proceedings issuing show-cause notice to establish genuineness of transaction and creditworthiness of parties on basis of submission of assessee that it had taken various unsecured loans--Held addition made not based on any seized documents or materials impounded in course of search or requisition--Addition to be deleted--Income-tax Act, 1961, ss. 153A, 153C-- Asst. CIT v. Enpro Telecom P. Ltd. (Delhi) . . . 400

SECTIONWISE INDEX TO CASES REPORTED IN THIS PART

Double Taxation Avoidance Agreement between Indian and the U. S. A. :

Art. 16 --Double taxation avoidance--Dependent personal services--Assessee, a resident--During year assessee on an international assignment to U. S. A.--Stay of assessee in India was for only 16 days--Salary received in India in his bank account for exercising his employment in U. S. A--According to article 16(1) of DTAA, salary or remuneration of assessee liable to be taxed in United States only--Income not taxable in India-- Somnath Duttagupta v. Asst. CIT (Kolkata) . . . 385

Income-tax Act, 1961 :

S. 5(2) --Non-resident--Income deemed to accrue or arise in India--Assessee providing computerised reservation system services on behalf of airlines and hotels to travel agents in India--No computer, hardware, software or communication link provided to travel agents--Only access to centralised mainframe located in USA provided--Revenue’s burden of proving existence of permanent establishment in India not discharged--No intermediary or exclusiveness between parties to global subscriber agreement--No entity habitually procuring contracts for assessee or binding assessee to any contracts--No agency permanent establishment also present--Profits not liable to tax in India-- Sabre GLBL Inc. v. Asst. CIT (International Taxation) (Delhi) . . . 446

S. 6(1) --Double taxation avoidance--Dependent personal services--Assessee, a resident--During year assessee on an international assignment to U. S. A.--Stay of assessee in India was for only 16 days--Salary received in India in his bank account for exercising his employment in U. S. A--According to article 16(1) of DTAA, salary or remuneration of assessee liable to be taxed in United States only--Income not taxable in India-- Somnath Duttagupta v. Asst. CIT (Kolkata) . . . 385

S. 9(1)(i) --Non-resident--Income deemed to accrue or arise in India--Assessee providing computerised reservation system services on behalf of airlines and hotels to travel agents in India--No computer, hardware, software or communication link provided to travel agents--Only access to centralised mainframe located in USA provided--Revenue’s burden of proving existence of permanent establishment in India not discharged--No intermediary or exclusiveness between parties to global subscriber agreement--No entity habitually procuring contracts for assessee or binding assessee to any contracts--No agency permanent establishment also present--Profits not liable to tax in India-- Sabre GLBL Inc. v. Asst. CIT (International Taxation) (Delhi) . . . 446

S. 90 --Double taxation avoidance--Dependent personal services--Assessee, a resident--During year assessee on an international assignment to U. S. A.--Stay of assessee in India was for only 16 days--Salary received in India in his bank account for exercising his employment in U. S. A--According to article 16(1) of DTAA, salary or remuneration of assessee liable to be taxed in United States only--Income not taxable in India-- Somnath Duttagupta v. Asst. CIT (Kolkata) . . . 385

S. 92B --International transactions--Transfer pricing--Arm’s length price--Determination--Interest on outstanding receivables--Issue remitted to Assessing Officer/Transfer Pricing Officer for deciding it in conformity with Orange Business Services India Solutions P. Ltd. v . Dy. CIT --If working capital adjustment subsumes outstanding receivables, no separate characterisation to be made--Receivables falling outside working capital adjustment pertaining to year under consideration--Rate of interest charged at LIBOR + 300 basis points considering credit period of 90 days-- Etisalat Software Solutions P. Ltd. v. Deputy CIT (Bangalore) . . . 475

S. 147 --Assessment--Validity--Limited scrutiny--Additions and disallowances made on extraneous issues which had never formed basis for “limited scrutiny”--Assessing Officer not obtaining approval for converting “limited scrutiny” into “complete scrutiny”--Assessing Officer exceeding his jurisdiction--Order to be vacated-- Pioneer Carbon Co. P. Ltd. v. ITO (Raipur) . . . 409

----Reassessment--Jurisdiction--Assessing Officer while framing assessment not making addition on issue on which assessee’s case was reopened--Assessing Officer wrongly assuming jurisdiction--Order quashed-- Pioneer Carbon Co. P. Ltd. v. ITO (Raipur) . . . 409

S. 148 --Assessment--Validity--Limited scrutiny--Additions and disallowances made on extraneous issues which had never formed basis for “limited scrutiny”--Assessing Officer not obtaining approval for converting “limited scrutiny” into “complete scrutiny”--Assessing Officer exceeding his jurisdiction--Order to be vacated-- Pioneer Carbon Co. P. Ltd. v. ITO (Raipur) . . . 409

----Reassessment--Jurisdiction--Assessing Officer while framing assessment not making addition on issue on which assessee’s case was reopened--Assessing Officer wrongly assuming jurisdiction--Order quashed-- Pioneer Carbon Co. P. Ltd. v. ITO (Raipur) . . . 409

S. 153A --Search and seizure--Assessment in search cases--Assessment of third person--Absence of recording date of handing over of documents for making assessment of third person--Date of satisfaction note shall be reckoned as date of handing over of materials--Time-limit of calculating six years to be calculated from that date--Assessment for assessment year 2008-09 barred by limitation--Addition deleted-- Asst. CIT v. Enpro Telecom P. Ltd. (Delhi) . . . 400

----Search and seizure--Assessment in search cases--No reference to any seized documents or materials based on which Assessing Officer had made addition--Assessing Officer in course of assessment proceedings issuing show-cause notice to establish genuineness of transaction and creditworthiness of parties on basis of submission of assessee that it had taken various unsecured loans--Held addition made not based on any seized documents or materials impounded in course of search or requisition--Addition to be deleted-- Asst. CIT v . Enpro Telecom P. Ltd. (Delhi) . . . 400

S. 153C --Search and seizure--Assessment in search cases--Assessment of third person--Absence of recording date of handing over of documents for making assessment of third person--Date of satisfaction note shall be reckoned as date of handing over of materials--Time-limit of calculating six years to be calculated from that date--Assessment for assessment year 2008-09 barred by limitation--Addition deleted-- Asst. CIT v. Enpro Telecom P. Ltd. (Delhi) . . . 400

----Search and seizure--Assessment in search cases--No reference to any seized documents or materials based on which Assessing Officer had made addition--Assessing Officer in course of assessment proceedings issuing show-cause notice to establish genuineness of transaction and creditworthiness of parties on basis of submission of assessee that it had taken various unsecured loans--Held addition made not based on any seized documents or materials impounded in course of search or requisition--Addition to be deleted-- Asst. CIT v. Enpro Telecom P. Ltd. (Delhi) . . . 400