Bulletin No.A123 dated 19 September 2020

BULLETIN(Issue No.123)DT.19-09-2020

Compiled by Vinod Kumar Goel, Advocate

CASE LAWS

Triveni Engineering & Industries Ltd. Vs. Additional Commissioner of Income-Tax [2020] 118 taxmann.com 69 (Delhi)

I. Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of (Software implementation expenses) - Assessment years 2001-02 to 2005-06 - Assessee company was engaged in business of manufacturing turbine, gear and gear boxes etc. - During relevant year assessee incurred certain expenditure on implementation of a new software package - Assessee's claim for deduction of same was rejected by Assessing Officer holding that it was in nature of capital expenditure - It was undisputed that no ownership of any software was acquired by assessee as a consequence of ERP expenditure - It was also found that assessee had limited right to use concerned software product without acquiring any right of transferring same - Besides, expenditure in question was incurred for smooth working of organization and it did not result in any enduring benefit to assessee - Whether in view of aforesaid, assessee's claim for deduction of software implementation expenditure was to be allowed - Held, yes [Para 7] [In favour of assessee]

II. Section 14A of the Income-tax Act, 1961 - Expenditure incurred in relation to income not includible in total income (Ad hoc disallowance) - Assessment years 2001-02 to 2005-06 - Whether where assessee earned exempt dividend income by making investment in shares out of surplus funds, impugned ad hoc disallowance made by Assessing Officer under section 14A without establishing any nexus between expenditure incurred and earning of exempt dividend income was to be deleted - Held, yes [Para 10] [In favour of assessee]

Hansa Estates (P.) Ltd. Vs. Assistant Commissioner of Income-Tax [2020] 118 taxmann.com 244 (Madras)

Section 36(1)(iii) of the Income-tax Act, 1961 - Interest on borrowed capital (Loan to holding company) - Assessment year 2009-10 - During relevant year assessee gave interest free loan to its holding company - Assessee claimed that advances were made for acquiring land on its behalf for construction of a residential project - Assessee also referred to a joint development agreement entered into with holding company for said purpose - Assessing Officer, however, rejected assessee's explanation - Thus, he disallowed assessee's claim for deduction under section 36(1)(iii) - Tribunal upheld order passed by Assessing Officer - It was noted that assessee's holding company had borrowed loans from banks and thus there was no need for holding company to take advance from assessee for purpose of purchase of land - Moreover, Assessing Officer found that assessee was making payment of operational expenses and in ledger account it was shown as joint venture share of holding company - Thus, Assessing Officer opined that there was no necessity for assessee company to give any advance to holding company - Whether in view of aforesaid, impugned order passed by authorities below was justified and same did not require any interference - Held, yes [Paras 13 and 15] [In favour of assessee]

Principal Commissioner of Income-tax Vs. Lotte India Corporation Ltd. [2020] 118 taxmann.com 225 (Madras)

Section 72A of the Income-tax Act, 1961 - Losses - Carry forward and set off of accumulated loss, etc., in case of amalgamation (Filing of Form No. 62) - Assessment year 2006-07 - In appellate proceedings, Tribunal allowed benefit of carry forward of losses under section 72A to assessee which was an amalgamated company in respect of brought forward losses of amalgamating company - Revenue filed instant appeal contending that in view of assessee's failure to submit Form No. 62, benefit of set off of losses under section 72A could not be granted - Whether condition of filing Form No. 62 is only directory and non-compliance thereof would not disentitle assessee to claim carry forward losses to be set off against profits of company - Held, yes - Whether, since in instant case, there was no dispute that assessee had crossed 50 per cent of its installed capacity of production in fourth year of amalgamation, provisions of section 72A were duly complied with and, thus, impugned order passed by Tribunal allowing assessee's claim did not require any interference - Held, yes [Paras 6 and 7] [In favour of assessee]

Commissioner of Income-tax Vs. Smt. Umayal Annamalai [2020] 118 taxmann.com 80 (Madras)

Section 54F of the Income-tax Act, 1961 - Capital gains - Exemption of, in case of investment in residential house (Condition precedent) - Assessment year 2005-06 - Assessee sold property and invested sale proceeds in new property before due date of filing belated return and took possession within three years from date of transfer/sale of original asset - Assessee, however, had not invested sale proceeds in Capital Gain Account Scheme before due date filing of return under section 139(1) - Whether since assessee had complied with conditions under section 54F(1), she was entitled for availing benefit of exemption under section 54F - Held, yes [Para 6] [In favour of assessee]

Shri Nawal Kishore Soni Vs. The ACIT Central Circle – 3, Jaipur vide ITA No. 1256, 1257 & 1258/JP/2019 

 

The A.O. as per discussion in assessment order mainly on the ground that assessee has not provided the names and address of those parties to whom he has sold gold rejected the explanation of assessee while accepting the explanation of assessee in respect to entry of Rs. 1,10,00,000/-. This left the entries of receipt of amount of Rs. 2,47,95,000/- by Ram Kumar Soni from Babu Lal Lawat i.e. assessee which was only for purchase of 7 kg gold. However, the A.O. on the basis of statement of assessee that he purchased 9 kg gold for Rs. 3,02,00,000/- from Ram Kumar Soni which was sold by him took into consideration the amount of Rs. 3,02,00,000/- and added the same to the income of assessee as undisclosed investment and also invoked provisions of section 68 and 115BBE of I.T. Act and subjected the same to tax @ 60%.

In this connection we observe that in above explanation of assessee in para – D was incorrect as at that time details were not provided by A.O. and assessee misunderstood facts while correct position is that A.O. took transactions of Rs. 2,47,95,000/- found noted in cash book of Ram Kumar Soni and transaction of Rs. 1,10,00,000/- deposit in PNB in A/c of Ram Kumar Soni while giving show cause for the sum of Rs. 3,47,95,000/-. The A.O. adopted amount of Rs. 3,02,00,000/- as per statement of assessee for purchase and sale of 9 kg gold while entries found in cash book of Ram Kumar Soni was for 7 kg gold for Rs. 2,47,95,000/-. As the assessee admitted purchase and sale of 9 kg gold for Rs. 3,02,00,000/- and also admitted the profit earned thereon amounting to Rs. 45,00,000/- and so same is not being disputed.

It is evident from entries found in cash book of Ram Kumar Soni and from statement recorded from assessee in course of survey that assessee purchased gold in period of demonetization which was obviously for sale to persons on receiving cash from them as the same is normal practice of gold trade. The gold purchased in period of demonetization was towards agreed sale to persons on receiving amount therefor from those persons. Thus the source of payment to Ram Kumar Soni for purchase of gold is out of amount received from its sales and so it is to be treated as properly explained. It is only profit on sale of said purchased gold which is income of assessee which was undisclosed income of assessee and the same could only be subjected to tax. It is settled law that in case of unaccounted sales only profit therefrom could only be taxed as income of assessee. The assessee relies on the judgement of ITAT, Ahmedabad Bench in case of DCIT Vs. Brijvasi Developers P. Ltd. ITA No. 290/Ahd/2013 order dated 17-5-2017. The payment for purchase gold is not made by assessee from his own but the same is either settled by direct payment to seller by buyer and/or payment made from advance from customer or credit from sales as per normal trade practice. The assessee admitted such profit at Rs. 45,00,000/- and disclosed that income in PMGKY, 2016 and paid due tax thereon. The assessee has not noted name(s) of person(s) whom gold was sold by him. In unrecorded transactions neither the purchaser informs his name neither assessee require it as the dealing ins cash based and even if name and address is given the person will not be found there or will deny it. Thus when the entries clearly reveals that transactions are of unrecorded purchase and sale of gold which A.O. also admits in assessment order than simply that name & address of purchasers are not provided the entire amount of sale cannot in law be treated as undisclosed income, only profit earned from said transactions which has been admitted by assessee at Rs. 45,00,000/- can only be assessed to tax. We also observe that assessee had disclosed in PMGKY the said undisclosed income of Rs. 45,00,000/- and paid tax in accordance with scheme and received certificate therefor from Pr. Commissioner of Income Tax, hence the same disclosed income cannot be included as income in assessment as per Section 199-I of PMGKY. However, the A.O. has allowed credit of amount of disclosed income in PMGKY from total income and so there being no consequence to assessee so the same was not objected to.

The Ld CIT(A) in para 23 of appeal gave his findings. For ready reference the said findings are reproduced herein below:- 23. I have perused the written submissions submitted by the Ld. A/R and the order of AO. I have also gone through various judgments cited by the Ld. A/R. I have also gone through the relevant pages in the paper book filed by the Ld. A/R. It is seen that in course of search at the premises of Ram Kumar Soni, Sikar a cash book was found which was seized and marked Ann. AS. Ex-12 in which certain transaction for payment of purchase of gold from Ram Kumar Soni were noted in the name of Babu Lal Lawat (appellant) in between the dates of demonization of currency totalling to 2,47,95,000/- and these transactions were unaccounted transactions for purchase and sale of gold in period post demonetization. These transactions were for purchase/sale of 7 Kg gold. However appellant in his statement dated 24-12-2016 u/s 131 admitted sale/purchase of 9 kg gold for Rs. 3,02,20,000/- and stated that gold was purchased by him from Ram Kumar Soni and directly sold to people of nearest place(s) who themselves made direct payment to Ram Kumar Soni and he only earned profit on such transaction of sale of 9 kg gold which he admitted to be @ Rs. 5,00,000/- per kg total Rs. 45 Lakhs. This income was later on disclosed under the provisions of PMGKY Scheme, 2016. The Ld. AO in assessment order on the basis of statement of appellant that the purchased 9 kg gold for Rs. 3,02,00,000/- from Ram Kumar Soni which was sold by him took into consideration the amount of Rs. 3,02,00,000/-. The AO held that these transactions were through old demonetization currency which was barred transaction under demonetization scheme. The AO therefore required appellant to furnish details related to parties to whom gold was so sold and on failure of appellant to provide such details the AO made addition of Rs. 3,02,00,000/- in income of appellant u/s 68 r.w.s. 115BBE of the Act. 23.2 It is evident from entries found in cash book of Ram Kumar Soni and from statement recorded from appellant in course survey that appellant purchased gold in period of demonetization which was for sale to persons on receiving cash from them as the same is normal practice of gold trade. 23.3 I find that the Ld. AO also in assessment order has not held that the transaction of sale are not from purchases by appellant or it was out of unaccounted stock of appellant but on the inability to give the identity of purchasers of gold he made addition of total sale price of Rs. 3,02,00,000/- in the income of appellant. Further the payments to Ram Kumar Soni also appear in Hazir software seized in course of survey which contain the unaccounted purchase/sale of appellant. Thus the source of payment to Ram Kumar Soni for purchase of gold is to be taken out of amount received from its sales and so it is to be treated as explained. 23.4 It is settled law that not only from the illegal business but also the unaccounted transaction of purchase and sale only profit/ income on sales could be assessed as undisclosed income and could be subjected to tax. Case laws to the point are as under: 1. Dr. T.A. Quereshi (157 taxmann.com 514) (Supreme Court) 2. Piara Singh (124 ITR 40) (Supreme Court) 3. S.C. Kothari (82 ITR 794 (Supreme Court) 23.5 The appellant admitted such profit at Rs. 45,00,000/- and disclosed that on said transactions income in PMGKY, 2016 and paid due tax thereon. The copy of certificate issued by PCIT is placed on record. Thus when that transactions are of unrecorded purchase and sale of gold, which Ld. AO also admits in assessment order, then simply that name & address of purchasers are not provided the entire amount of sale cannot in law be treated as undisclosed income, only profit earned from said transactions which has been admitted by appellant at Rs. 45,00,000/- can only be assessed to tax more so when the appellant has disclosed in PMGKY the said undisclosed income of Rs. 45,00,000/- and paid tax in accorandce with scheme and received certificate there for from Pr. Commissioner of Income Tax, hence the same disclosed income cannot be included as income is assessment as per Section 199-I of PMKGY. However Ld. A.O. has allowed credit of amount of disclosed income in PMKGY from total income as so the addition on this account is restricted to Rs. 45,00,000/- and balance is deleted. The appellant thus gets relief of Rs. 3,02,00,000-45,00,000 = Rs. 2,57,00,000/-.”

In view of the above facts and submissions made herein above the Ld. CIT(A) is correct in deleting the addition of Rs.2,57,00,000/- made by the AO on account of alleged undisclosed investment in purchase of Gold.  In the result, all the appeals of the revenue are dismissed whereas all the appeals of the assessee are allowed.

 

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