ITAT Weekly Round-Up


The stories on the Income Tax Appellate Tribunal (ITAT) that were published at Taxscan from December 1, 2023 to December 8, are summarized in this Round-Up.

Depreciation u/s 32(1) (ii) can’t be allowed when No Goodwill has been acquired by a Subsidiary Company nor by any Purchase: ITAT

Millennium Engineers & Contractors Ltd vs Dy. Commissioner of Income Tax CITATION:   2023 TAXSCAN (ITAT) 2684

The Pune bench of the Income Tax Appellate Tribunal (ITAT) held that the depreciation under Section 32(1) (ii) of the Income Tax Act, 1961 cannot be allowed when no goodwill has been acquired by a subsidiary company nor by any purchase.

The tribunal held that the subsidiary had no recorded goodwill, and the company failed to prove excess purchase consideration. The claim was denied as the acquisition lacked factual basis, rendering any depreciation request baseless.

The Pune ITAT bench, with members S.S. Viswanethra Ravi and G.D. Padmahshali, dismissed the appellant’s claim for depreciation. The tribunal ruled that no goodwill was acquired or excess payment made, warranting the disallowance of the appeal.

ITAT grants fresh Adjudication for Failure of AO to Examine Additional Evidences related to Disallowance of Sales Promotion Expenses

Merck Specialties Private Ltd vs Dy. Commissioner of Income Tax CITATION:   2023 TAXSCAN (ITAT) 2683

The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) granted fresh adjudication for the failure of the Assessing Officer (AO) to examine the additional evidence relating to the disallowance of sales promotion expenses.

The appellant argued that most expenses were not for gifts to doctors, violating Medical Council regulations, and sought admission of newly furnished evidence for a fair decision. The Departmental Representative countered that the AO had not examined the additional evidence.

The two-member ITAT bench, including B.R. Baskaran and Narendra Kumar Choudhry, admitted additional evidence, setting aside the CIT(A) order. The case was returned to the AO for a fresh examination, considering the furnished or potential additional evidence for accurate computation of the assessee’s total income.

Non-Issuance of notice u/s 143(2) of Income Tax Act is not Curable Defect: ITAT quashes Assessment Order

ACIT Circle 13(1) Hyderabad vs M/s. Suresh Productions Hyderabad CITATION:   2023 TAXSCAN (ITAT) 2682

The Hyderabad Bench of the Income Tax Appellate Tribunal (ITAT), quashed assessment order and observed that non-issuance of notice under Section 143(2) of the Income Tax Act, 1961 is not a curable defect.

The case involved a film production partnership firm that erroneously claimed Rs.1.5 crores. The reassessment, initiated after four years without evidence of non-disclosure, was deemed invalid.

Since the law is well settled that non-issuance of notice under Section 143(2) of the Act is not a curable defect and since in the instant case, the Assessing Officer has failed to issue the notice under Section 143(2) prior to finalizing the re-assessment order, therefore, the impugned assessment order suffers from patent illegality and therefore, deserves to be quashed” the Bench noted.

Failure of Assesse to offer Income on sale of Residential House neither in Original ITR or Return filed in response to Notice u/s 148: ITAT sustains Addition

Sudha Karbhari Nagre vs ITO CITATION:   2023 TAXSCAN (ITAT) 2681

The Pune bench of the Income Tax Appellate Tribunal (ITAT) sustained the addition and held that the failure of the assesse to offer income on the sale of the residential house neither in the original Income Tax Return (ITR) nor the return filed in response to notice under Section 148 of the Income Tax Act, 1961.

 Despite her husband filing an allegedly invalid return claiming full ownership, the tribunal affirmed her 50% ownership, leading to a Long-term capital gain of Rs.3, 78,420.

The Single member bench comprising of R.S. Syal (Vice-President) held that the addition had been rightly made and sustained and therefore, the appeal of the assesse was dismissed.

Floor Bed Area Open to sky and Balcony Area below Floor level doesn’t form part of Constructed Area, Deduction u/s 80IB (10) shall be allowed: ITAT

Deputy Commissioner of Income – Tax vs M/s. Nahar Builders CITATION:   2023 TAXSCAN (ITAT) 2680

The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) held that the floor bed area open to the sky and balcony area below the floor level doesn’t form part of the constructed area and shall be allowed as a deduction under Section 80IB(10) of the Income Tax Act, 1961.

 The assesse, a construction developer, claimed deductions totaling Rs.1,16,16,45,271. The AO disallowed part of it, but the CIT (A) reversed the decision. The revenue appealed to the tribunal.

The Two-member bench upheld that open-to-sky floor bed area and balcony space below floor level are excluded from the constructed area for Section 80IB (10) deductions. The tribunal found no issues in CIT (A)’s decision, dismissing the revenue’s appeal.

No need to get Accounts Audited when Gross Business Receipts is less than Rs.1.00 Crore as prescribed u/s 44AB: ITAT allows Appeal by Treating ITR as Valid

Wholery Infrastructure Private Ltd vs The DCIT CITATION:   2023 TAXSCAN (ITAT) 2679

The Jaipur bench of the Income Tax Appellate Tribunal (ITAT) allowed the appeal of the assesse by treating the Income Tax return (ITR) as valid and held that there is no need to audit the accounts when the gross business receipts are less than the threshold limit of Rs.1.00 Crore as prescribed under Section 44AB of the Income Tax Act, 1961

The AO invalidated the return based on a CPC order, stating defects were unrectified. The tribunal found a legal mistake and accepted the appeal.

The Two-member bench clarified that the assessee’s rectification application wasn’t related to the invalid return, and the gross business receipts were below Rs.1.00 crore, exempting audit under Section 44AB. The bench deemed the return valid, directing the AO/CPC to process it accordingly. The assessee’s appeal was allowed.

Life Insurance Business prepares Financial Statement as per IRDA regulations, for Purpose of Taxation Section 44 can Apply: ITAT grants relief to HDFC Life Insurance

ACIT vs HDFC Life Insurance Company Limited CITATION:   2023 TAXSCAN (ITAT) 2678

The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) granted relief to HDFC Life Insurance Company and held that when the life insurance business prepares the financial statement as per the Insurance Regulatory and Development Authority Act (IRDA) regulations, then for the purpose of taxation the provision of Section 44 of the Income Tax Act, 1961 can apply.

The AO’s adjustments to the assessee’s income were rejected by the CIT (A), relying on a precedent. The bench upheld the decision, citing identical facts and previous relief granted to the assesse in similar assessments.

The bench acknowledged the merit in the assessee’s argument, citing a coordinate bench’s decision that recommended computing income under Section 44 of the Income Tax Act. Consequently, the bench upheld the CIT (A)’s decision to tax the income under Section 115B of the Income Tax Act.

Receipt of Compensation for Hardship is in Nature of Capital Receipt and shall not be liable to Tax: ITAT deletes Addition made on corpus fund

Mrs. Pushpa R. Chawla vs ITO-Ward-23(2) (5) CITATION:   2023 TAXSCAN (ITAT) 2677

The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) deleted the addition made on the corpus fund and held that the receipt of compensation for hardship is in the nature of capital receipt and shall not be liable to tax.

Compensation for hardship in a housing society redevelopment, totaling ₹52,88,045, was deemed a capital receipt, not subject to tax. The AO’s argument of it being a commercial activity resembling dividends was rejected, and the income was not taxed under “income from other sources.”

The assesse received multiple compensations, including a ₹21, 77,069 corpus amount, ₹9, 50,000 for individual members’ shifting expenses, and ₹21, 60,976 for temporary transit accommodation during construction, lasting for an initial 24-month period. These details were presented in the submission for consideration.

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