ITAT Weekly Round-Up

A Round Up of the ITAT Cases Reported at Taxscan Last Week
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This weekly round-up analytically summarizes the key stories related to the Income Tax Appellate Tribunal ( ITAT ) reported at Taxscan.in during the previous week, from May 20 to May 25, 2024.

Failure to examine Ownership and Leasehold Right of Property Sold on behalf of assessee: ITAT directs Readjudication Rajni Dua vs ACIT CITATION: 2024 TAXSCAN (ITAT) 638

The two member bench of Delhi Income Tax Appellate Tribunal ( ITAT ) directed readjudication after finding that the lower authority failed to examine the ownership and leasehold rights of property sold on behalf of the assessee.

The tribunal observed that core issue of ownership, acquisition  of leasehold rights and subsequent sale of property/lease hold rights have not been examined by the revenue nor the assessee has furnished the relevant explanation as to why and how the amounts have been received by the assessee if the property is not owned by her.

Cash Deposited by 77-year-old Assessee looking to Saving for Old Age holding cannot be added u/s 68 of Income Tax Act: ITAT Aayodhya Jajra vs Commissioner of Income Tax(Appeals) CITATION: 2024 TAXSCAN (ITAT) 639

The Jodhpur Bench of the Income Tax Appellate Tribunal(ITAT) has held that cash deposited by a 77-year-old age assessee looking to save for old age holding cannot be added under section 68 of the Income Tax Act, 1961.

A two-member bench of Dr S Seethalakshmi, Judicial Member & Shri Rathod Kamlesh Jayantbhai, Accountant Member observed that the assessee is 77 years age and looking to the old age holding the cash out of the accumulated savings to the extent of Rs. 9,50,597/- cannot be doubted. The court viewed that the assessee has deposited cash into her bank account for an amount of Rs. 11,00,000/- cannot be added as unexplained income under section 68 of the Act for the year under consideration and directed to delete the addition made in hands of the assessee. While allowing the appeal, the ITAT directed to delete the addition made in the hands of the assessee.

Allegation Bogus Purchase: ITAT confirms Gross profit at 12 .5% as Sales are not DisputedDeputy Commissioner of Income Tax vs Shri Nilesh Shantilal Tank CITATION: 2024 TAXSCAN (ITAT) 640

The Mumbai bench of the Income Tax Appellate Tribunal( ITAT) confirmed the addition made by Income Tax Authorities on the gross profit margin @ 12.5% on the alleged bogus purchase by the assessee. The Tribunal observed that the assessee has failed to rebut the statement of Rajesh Doshi by any documentary evidence before the lower authorities or before the Tribunal.

The two member Bench of  Amarjit Singh (Accountant Member) and Kavitha Rajagopal (Judicial Member) observed that the assessee has failed to rebut the  statement of Rajesh Doshi by any documentary evidence neither before the lower authorities nor before the Tribunal.

Utilising specific Money deposited in Capital Gain Account Scheme towards New Investment is not Mandated under Income Tax Act: ITAT Shri Ramasubramaniam Sridhar Paul vs ITO CITATION: 2024 TAXSCAN (ITAT) 641

The Chennai bench of the Income Tax Appellate Tribunal ( ITAT ) held that utilising specific money deposited in a capital gain account scheme towards new investment is not mandated under the Income Tax Act,1961. There is no requirement that specific money as deposited in a capital gain account scheme should be utilized towards new investment, and the assessee may make investments from other funds as available to him and the same would not jeopardize the claim of the assessee.

The Bench found that the lower authorities had considered the dates of the construction agreement as the relevant dates to examine the claim of the assessee overlooking the fact that the construction agreement had stipulations that the construction would be completed in 18 months from the date when the builder gets approval.

CIT (A) cannot delete Disallowance without Observing Findings of AO: ITAT ITO vs Shri Piyushbhai Bhailalbhai Hirpara CITATION: 2024 TAXSCAN (ITAT) 642

The Ahmedabad bench of the Income Tax Appellate Tribunal (ITAT) has held that CIT (Appeals) cannot delete Disallowance without observing findings of the Assessing Officer (AO) and directed the CIT(A) to consider the arguments of both sides i.e. the AO and the assessee.

The two-member Bench of Annapurna Gupta (Accountant Member) and Madhumita Roy (Judicial Member) observed that the CIT(A) has coterminous power with the AO. The appeal proceedings with the CIT(A) are also a continuity of assessment proceedings, and therefore, the CIT(A) gravely erred in deleting the disallowance on the basis that adverse information in the possession of the AO was not revealed during the assessment proceedings, nor modus operandi adopted by various entities.

Incorrect Amount of Expenses in Form 3CD due to Typographical Error, No Income Tax Addition:  ITAT Shri Charanjit Singh vs The Addl. CIT CITATION: 2024 TAXSCAN (ITAT) 643

The Chennai Income Tax Appellate Tribunal (ITAT) explained that a typographical error in mentioning the incorrect amount of expenses in Form 3CD does not call for any addition by the Assessing Officer to the assessee’s income.

The Bench found that due to a typographical error in form 3CD, the total commission or brokerage expenses for the financial year 2017-2018 has been disclosed at Rs.2,19,38,339/- which is an incorrect figure and incorrectly entered due to a typographical error. The Tribunal also noted that the profit and loss account, form No.3CB, Income Tax Return for the assessment year 2018-19 clearly reflects that the amount entered in form 3CB of Rs.2,1938,339/- is wrongly entered and the correct figure is Rs.1,45,83,780/-.

Merely making Entries in books not discharge initial burden of proof regarding claim of cost of Improvement of Assets: ITAT Shri Charanjit Singh vs The Addl. CIT CITATION: 2024 TAXSCAN (ITAT) 644

In a recent case, the Chandigarh bench of Income Tax Appellate Tribunal (ITAT) held that merely making entries in books does not discharge the initial burden of proof regarding the claim of cost of improvement of assets. It was noted that the assessee had failed to discharge the initial burden of proof rested on him to substantiate his claim of having incurred expenditure on improvement of the property.

The two member Bench of Aakash Deep Jain ( Vice President ) and Vikram Singh Yadav ( Accountant Member ) observed that merely making entries in the books of accounts and producing bills which are deficient in providing basic information regarding the transaction, is not sufficient for discharge of initial burden of proof on the assessee regarding its claim of cost of improvement.

Disallowance u/s 57(ii) of Income Tax Act allowable on Expenses Incurred wholly for earning Income from Other Sources: ITAT Shri Girishbhai Vadilal Shah vs The Dy.CIT CITATION: 2024 TAXSCAN (ITAT) 645

The Ahmedabad bench of Income Tax Appellate Tribunal (ITAT) has held that disallowance under section 57(ii) of the Income Tax Act, 1961 is allowable on expenses incurred wholly for earning Income From Other Sources. In the absence of the assessee’s explanation, there was no nexus between the interest-bearing funds and their utilization for making advances for earning interest income.

The two-member Bench of Annapurna Gupta (Accountant Member) and Madhumita Roy (Judicial Member) observed that what section 57(iii) requires is that expenses must have been incurred to earn income to be eligible to claim the same against the said income.

ITAT dismiss appeal filed against claim of  Foreign Tax Credit with respect to profit earned from Singapore Branch Office Deputy Commissioner of Income Tax vs M/s. Bytescale Technologies Pvt.Ltd. CITATION: 2024 TAXSCAN (ITAT) 646

The Mumbai bench of Income Tax Appellate Tribunal ( ITAT )  dismissed the appeal filed by the Income Tax Department  against claim of  foreign tax credit with respect to profit earned from singapore branch office

During the adjudication the bench observed that the Singapore income which is already offered to tax in Singapore is included in the Total income returned in India, thus the taxes paid at Singapore needs to be given credit in the total tax payable in India.

Addition u/s 68 Should Be Restricted To Extent Of Gross Profit At Same Rate Of Genuine Purchases: ITAT Murtuza Abdul Gaffar Khan 339 vs National Faceless Appeal Centre (NFAC)Delhi CITATION: 2024 TAXSCAN (ITAT) 647

The Bench of the Income Tax Appellate Tribunal ( ITAT ) observed that addition under section 68 of the Income Tax Act, 1961 should be restricted to the extent of gross profit at the same rate of genuine purchases.

A two member bench of Rahul Chaudhary (Judicial Member) and Prashant Maharishi (Accountant Member) observed that the assessee had given the quantitative sales corresponding to the quantitative purchase, which is from alleged bogus suppliers. The Bench found that the resultant gross profit from alleged bogus purchases and sales is 5.096%.

Section 194C is  not applicable on payments  made by assessee Unless a charge is being determined: ITAT M/s. RSD Natural Resources Private vs Deputy Commissioner of Income Tax CITATION: 2024 TAXSCAN (ITAT) 648

The Kolkata bench of Income Tax Appellate Tribunal (ITAT) ruled that Section 194C of the Income Tax Act,1961 is  not applicable on the  payments  made by the assessee  unless a charge is being determined.

After reviewing the facts the ITAT bench of Rajpal Yadav, (Vice-President) and Rajesh Kumar(Accountant Member) observed that Section 194C of the Income Tax Act,1961 is  not applicable on the  payments  made by the assessee  unless a charge is being determined.

Failure to prove Ownership of Company with respect to Purchase Agreement of Land for Develop Property: ITAT upholds STCG from Transfer to Non Agriculture Land Dhan Bahadur Gagan vs Commissioner of Income CITATION: 2024 TAXSCAN (ITAT) 649

The  Mumbai  bench of Income Tax Appellate Tribunal ( ITAT ) while upheld the Short Term Capital Gain ( STCG ) from the transfer of the non agriculture land observed that the assessee failed to prove the ownership of the company with respect to purchase agreement of land for development of the property.

It was observed by the AO that the land was earlier purchased by the appellant assessee, hence, added short-term capital gain of ₹1,45,60,000/- in his total income for the relevant AY 2016-17.

Bonafide Mistake of Applying for Registration in Form 10 AB Instead of Form 10 A is Condonable: ITAT Mandava Foundation vs Income Tax Officer CITATION: 2024 TAXSCAN (ITAT) 650

The Hyderabad bench of the Income Tax Appellate Tribunal ( ITAT ) viewed that the bonafide mistake of applying for registration in Form 10 AB instead of Form 10 A is condonable and directed the CIT(E) to dispose of the request of the assessee by allowing it to apply under Form 10A.

CIT(E) observed that on an earlier occasion, the assessee applied under 12A(1)(ac)(vi) of the Act instead of 12A(1)(ac)(i) of the Act, since the assessee holds a registration under section 12A of the Act, issued on 26/12/2005.  Assessee submitted that by mistake, on earlier occasion, wrong code under section 12A(1)(ac)(iv) of the Act was selected instead of 12A(1)(ac)(i) of the Act and, therefore, the mistake may be excused and registration may be done.  CIT(E) rejected the application filed in Form 10AB for regular registration under section 12AB of the Act, holding it infructuous and barred by limitation.

Registration of Charitable Trust u/s 12 of Income Tax Act: ITAT grants Opportunity to Prove Genuineness of Its Charitable Activity Our Lady of Hope Church vs CIT (Exemption) CITATION: 2024 TAXSCAN (ITAT) 651

In a recent case, the Pune bench of Income Tax Appellate Tribunal (ITAT) set aside the order of CIT(E) and remanded the matter back to specifically examine the genuineness of the charitable activities performed by the trust as per his satisfaction. The court observed that CIT(E) cancelled the provisional registration granted to the assessee trust and also rejected the registration of the said applicant trust under section 12AB of the Income Tax Act, 1961.

A two member bench comprising of Partha Sarathi Chaudhury (Judicial Member) and Dr. Dipak P. Ripote (Accountant Member) observed that the CIT(E) must come up with a speaking order as to the activities performed by the applicant trust and given those activities whether they are genuine or not, meaning thereby he must conduct adequate examination and verification of facts and form his opinion accordingly and at the same time, he must mention regarding the applicant trust whether it is also abiding with the existing laws in force, these areas are not at all discussed and adjudicated in the order of CIT(E).

Adhoc Disallowance made without Rejecting Books of Account is Invalid: ITAT ACIT vs M/s. Merchant Agri Global Private Limited CITATION: 2024 TAXSCAN (ITAT) 652

The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) held that the ad hoc disallowance made without rejecting books of account was not justified and needed to be deleted. The court observed that when books of account maintained by the assessee having been duly audited have not been rejected by the AO the ad-hoc disallowance made based on surmises is not sustainable.

AO noticed that the assessee has not furnished even the documentary proof for the major expenses claimed under the heads freight, transport, coolie and cartage, loading/unloading charges, godown expenses, other expenses, brokerage/commission on purchases etc. nor has filed ledger in relation to these expenses.  So the AO reached the conclusion that the assessee has failed to substantiate the expenses, hence made adhoc disallowance of 10% of the expenses which comes to Rs.7,85,54,891/- and thereby framed the assessment under section 143(3) of the Income Tax Act, 1961 ( ‘the Act’.) On appeal, the CIT(A) confirmed the addition by dismissing the appeal.

ITAT directs to allow Stamp Duty & Registration Charges Incurred to Transfer as per Scheme of Arrangement approved by NCLT Dy. Commissioner of Income Tax vs M/s. Larsen & Toubro Limited CITATION: 2024 TAXSCAN (ITAT) 653

The Income Tax Appellate Tribunal (ITAT) directed to allow the stamp duty and registration charges after due verification. It was viewed that when the assessee has incurred the amount in question to complete the transfer as per the scheme of arrangement approved by the NCLT, without which the transfer could not have been effected.

A two-member bench comprising Kuldip Singh (Judicial Member) and Padmavathy S (Accountant Member) observed that when it is proved on record that the assessee is entitled for upfront lease rental expenses incurred in relation to the transfer of slump sale business while computing the capital gains under section 48(i) of the Act the assessee is also entitled for deduction of stamp duty and registration charges.

Payments Received Towards Interconnectivity Utility Charges From Indian Customers Is Not Royalty under Article 12 of DTAA: ITAT M/s. KDDI Corporation vs The Deputy Commissioner of Income Tax CITATION: 2024 TAXSCAN (ITAT) 654

The Bangalore bench of the Income Tax Appellate Tribunal (ITAT) has held that payments received by the assessee towards interconnectivity utility charges from Indian customers or end users cannot be considered royalties to be brought to tax in India.

The two-member bench of Beena Pillai (Judicial Member) and Laxmi Prasad Sahu (Accountant Member) has observed that the process involved in providing the services to the end users or customers is not “secret” but a standard commercial process followed by industry players. Therefore, the process also cannot be classified as a “secret process,” as is required by the definition of “royalty” mentioned in clause 3 of Article 12 of the India-Japan DTAA.

Income Tax Applicable on Unsold Flats In real Estate Business as on AY 2018 -2019: ITAT deletes Addition on Notional Rent Mack Star Marketing Private Limited vs National Faceless Appeal Centre CITATION: 2024 TAXSCAN (ITAT) 655

The Mumbai Bench of Income Tax Appellate Tribunal (ITAT) held that income tax is applicable on unsold flats in the real estate business as of AY 2018–19. The Tribunal further deleted the notional rent.

The two member bench of Sunil Kumar Singh (Judicial Member) and Narendra Kumar Billaiya (Accountant Member) has observed that the CIT(A) has erred in as much as it relied upon the provisions brought into statute by the Finance Act, 2017, and Section 23(5) has not been held to have a retrospective effect. Therefore, if the rental income has been taxed, then the assessee is equally eligible for the vacancy allowance as per Section 23(1)(c) for the vacant commercial units.

ITAT allows Deduction claimed u/s 54F of Income Tax Act with respect all apartment units received pursuant to JDA ACIT vs Shri Narayanappa Ramanna CITATION: 2024 TAXSCAN (ITAT) 656

The two member bench of Bangalore Income Tax Appellate Tribunal ( ITAT ) allowed the deduction claimed under Section 54F of the Income Tax Act, 1961 with respect to all apartment units received pursuant to Joint Development Agreement ( JDA).

It was observed that the AO had denied the exemption under section 54F of the Income Tax Act  in respect of 14 apartment  units  for the reason that pursuant to the JDA, assessee had received multiple residential units and not a single residential unit.

ITAT deletes Addition made u/s 69 of Income Tax Act without considering Evidence related Agreement of Sale Shri Vipul Gupta vs DCIT/ACIT CITATION: 2024 TAXSCAN (ITAT) 657

The two member bench of Delhi Income Tax Appellate Tribunal ( ITAT ) deleted the addition made under Section 69 of the Income Tax Act, 1961 without considering the evidence related to agreement of sale.

The tribunal observed that the AO has not even made any enquiry about the value of the property purchased by the assessee. Since the document relied as incriminating material to make addition in assessment under Section  153C of the Income Tax  Act, is not one which is kept in ordinary course of business, and the author of the document is not identified and disclosed to the assessee and the transaction is not verified by any enquiry, then only on the content of the documents the addition is not justified.

ITAT upholds Cash Sales of Business of Trading of Gold/Silver Jewellery during Demonetisation Period were Bonafide ACIT vs Delhi Spot Bullion Trading Co. Pvt. Ltd. CITATION: 2024 TAXSCAN (ITAT) 659

The two member bench of Delhi Income Tax Appellate Tribunal ( ITAT ) upheld that cash sales of business of trading of gold /silver jewelry during the demonetisation period were bonafide.

After reviewing the facts the ITAT bench of Astha Chandra (Judicial Member) and Dr. B. R. R. Kumar(Accountant Member) upheld that cash sales of business of trading of gold /silver jewelry during the demonetisation period were bonafide.

ITAT directs to Verify Real Intention of Trust  regarding Purchase of Land for Construction of School Building Samaja Seva Mandali vs ITO CITATION: 2024 TAXSCAN (ITAT) 660

The two member bench of Bangalore Income Tax Appellate Tribunal ( ITAT ) directed to verify the real intention of trust regarding the purchase of land for the construction of a school building.

The tribunal observed that t authorities always have the freedom to “go behind” documents to find out the real intention of the parties as always been recognized.

ITD Failure to consider receipts from Offshore Supplies as Income of PE: ITAT directs Readjudication J.M. Voith SE vs DCIT CITATION: 2024 TAXSCAN (ITAT) 661

The two member bench of Delhi Income Tax Appellate Tribunal ( ITAT ) directed readjudication after finding that the Income Tax Department failed to consider the receipts from the offshore supplies as income of Permanent Establishment ( PE ).

Accordingly the bench observed that various claims and contentions of the assessee have not been considered by the departmental authorities, while attributing part of the receipts from offshore supplies as income of the PE

AO cannot rectify an issue which already decided by way of appeal by CIT(A): ITAT deletes additionAnurag Singh vs Income Tax Officer CITATION: 2024 TAXSCAN (ITAT) 662

The two member bench of Delhi Income Tax Appellate Tribunal ( ITAT ) ruled that the assessing officer could not rectify an issue which had already been decided by way of appeal by the Commissioner of Income Tax (Appeal).

The tribunal observed that the provisions o f Section 154 stipulates that the Assessing Officer is an empowered to rectify any mistake apparent from the record under Section  154(1) and as per Section 154(1A), the Assessing Officer is also no t empowered to rectify any matter that has been considered and decided in any proceeding by way of appeal.

No Cogent Evidence to Establish that Properties Sold by Taxpayer are Agricultural Land: ITAT deletes Addition of Rs.16.8 lakhs Shri D. Ramagopal vs ACIT CITATION: 2024 TAXSCAN (ITAT) 663

The Chennai bench of the Income Tax Appellate Tribunal ( ITAT ) deleted the addition of Rs.16.8 lakhs, stating that there was no cogent evidence to establish that the properties sold by the taxpayer were agricultural land.

The two member bench of the tribunal comprising Mahavir Singh (Vice President) and Manoj Kumar Agarwal (Accountant member) found that there was no cogent evidence to establish that the properties sold by the assessee were agricultural land. The assessee was also unable to furnish any evidence of incurring expenditure also.

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