Merely suspecting on borrowing capacity cannot be ground for addition u/s 68

section 68 addition, addition based on suspicious, income tax survey 

Mumbai ITAT in its very short judgement but made very important observations and held that section 195, is a vicarious liability and its survival entirely depends on survival of the primary tax liability of income, embedded in the related payments, in the hands of the recipient. Once that primary liability stands quashed, as in this case, the very foundation of tax withholding demands under section 195 ceases to hold good in law.
 
In this case the counsel of the assessee pointed out that the very taxability of payments, in respect of which impugned tax withholding demands are raised, have been negated in the hands of the recipient, i.e. Braitrim UK Ltd., by a coordinate bench. A copy of the related order dated 21st August 2019 (in Braitrim UK Ltd. vs. DCIT; ITA Nos. 1750 to 1753/Mum/2015).
 
The full judgment is reproduced as under:
 
Judgment / Order
 
Pramod Kumar, Vice President And Ravish Sood, Member (J)
 
For the Appellant : Vasanti Patel
 
For the Respondents : S.S. Iyangar
 
ORDER
 
Pramod Kumar, Vice President
 
1. By way of these appeals, the assessee appellant has challenged corrections of consolidated order dated 30th January 2014 in the matter of tax withholding demands under section 201 r.w.s. 195 of the Income Tax Act 1961, for the assessment years 2005-06 to 2012-13
 
2. When these appeals came up for hearing, learned counsel for the assessee pointed out that the very taxability of payments, in respect of which impugned tax withholding demands are raised, have been negated in the hands of the recipient, i.e. Braitrim UK Ltd., by a coordinate bench. A copy of the related order dated 21st August 2019 (in Braitrim UK Ltd. vs. DCIT; ITA Nos. 1750 to 1753/Mum/2015) was also placed before us. In this order, the coordinate bench has, inter alia, observed as follows:-
 
13. We have carefully considered the rival submissions and perused the material on record. We find that the assessee is required to give a rebate/discount to the retailers based on the volume/units of sales to garment suppliers achieved by the Braitrim group. Subsequently, the proportionate share of rebate/discount is recovered by the assessee from its group companies, including BIPL, based on the relative sales of those group companies to the respective retailers. The assessee has, accordingly entered into a reimbursement agreement with BIPL, whereby BIPL has acknowledged its obligation to reimburse its proportionate share of the discount/rebate to the assessee based on sale volumes/units achieved by it. As per the Cost Reimbursement Agreement (CRA), such reimbursements are depicted as 'Administration charges' by BIPL in its books of account.
 
14. We find it relevant to refer to the following clauses of the Cost Reimbursement Agreement (CRA) in order to appreciate the nature and characterisation of the amount of reimbursements:-
 
i) that the title to the agreement is described as 'Cost Reimbursement Agreement';
 
ii) that the preamble to the agreement mentions the fact of payment of administration charges by the Assessee to the customer companies in respect of goods supplied by worldwide entities of Braitrim group including BIPL and the purpose of the agreement is to recover such charges by the assessee from BIPL;
 
iii) that Article 3 requires BIPL to compensate the assessee towards the proportionate administration charges in respect of goods supplied to the customer companies/suppliers;
 
iv) that Article 4 prescribes the method of computation of the proportionate share of the administration charges to be borne by BIPL determined as proportion of its sale to customer companies to the total worldwide sales of the Braitrim group; and,
 
v) that Article 5 stipulates that the payments made under the agreement represent reimbursement of administration charges borne by the assessee.
 
15. Therefore, so far as the understanding of the parties to the CRA is concerned, the same has been understood to be in the nature of reimbursement of the rebate/discount passed on by the assessee to the retailers. Factually speaking, it has also been established that there is no mark-up retained by the assessee while recovering from BIPL the rebate/discount given to the retailers. It is also clear that BIPL has also made sales to other independent parties for which no discount/rebate or administrative charges are payable to the assessee company. The aforesaid undisputed features of the arrangement clearly bring out that the transaction in question cannot be construed to be 'royalty' as understood by the income-tax authorities. This becomes even more pertinent once the nature of such payments by BIPL to the assessee has been admitted as such in the assessment of BIPL for assessment year 2007-08
 
16. Pertinently, the assessee stated that the transaction for reimbursement of administrative charges by BIPL to the assessee was subject to transfer pricing proceedings during the assessment year 2007-08, wherein the TPO questioned the commercial expediency of the transaction of payment for administration charges and determined the arm's length price as 'Nil', which was effectuated accordingly by Assessing Officer in the draft assessment order.
 
17. Before the DRP, BIPL raised objections against the draft assessment order, which was based on the order of the Transfer Pricing Officer. The DRP held as under:-
 
"The DRP has carefully considered the order of the TPO, submissions of the taxpayer and objections of the taxpayer. The main issue here is that the assessee has paid to its AEs an amount of ₹ 1,87,30,339 slating that these charges are paid as administration charges. However, as accepted by the taxpayer, these expenses are nothing but reimbursement of expenses incurred by the AE for the discounts to be passed on to the retailers by Braitrim UK. After considering the arguments of the assessee it can be inferred that Braitrim UK negotiates globally with various garment retailers to use the hangers manufactured by Braitrim group companies all over the world. As part of these arrangements/agreements Braitrim UK agreed to pass on the discount at the rate 1% of sale of hangers by Braitrim group of companies to the retailers. As rightly stated by the assessee because of this arrangement the taxpayer is getting business without much effort on advertisement and marketing as evidenced by no expenses on marketing or advertisement debited in the profit and loss account for the FY 2006-07. The Braitrim group companies supply the hangers to the garment manufacturers, which in turn supply to the ultimate retailers in the form of pre-hanged clothes. The assessee also supplied hangers to garment manufacturers within and outside India. Based on the sale of these hangers by the assessee Braitrim UK has to pay to the retailers at the rate of 1% on these sales made by the taxpayer to retailers through garment manufacturers. Before the DRP, the taxpayer also produced invoices raised by third party retailers against Braitrim UK to show that the said discount @ 1% on sale of hangers by the Indian entity was passed on to the retailers.....In view of the above discussion, we are satisfied that the discount given by the AE, Braitrim UK to the retailers is helping the tax payer to get the business without much marketing effort, for which the taxpayer is reimbursing the AE at the rate of 1% of sale of hangers in India, which was ultimately passed on to the retailers by the AE."
 
However, the DRP revised the arm's length price as computed by the TPO on account of the timing difference between the recognition of administration charges/rebate in the books of account of BIPL, vis-&agrave;-vis the amount recognized by the assessee in its accounts; and, accordingly, the assessment was finalised. When BIPL filed appeal before the Tribunal, the Tribunal, while accepting the payments to be reimbursements, restored the issue to the file of the DRP for examination of the reconciliation of invoices raised by the assessee and the invoices recorded by BIPL. The TPO, in response to the remand report called for by the DRP, as directed by this Tribunal, had accepted the contentions of BIPL and found the same to be in order.
 
18. From the aforesaid, it follows that for the assessment year 2007-08 there is a concurrent acceptance of the claim of BIPL that the payments are in the nature of reimbursement by all the authorities, viz. the TPO, the DRP and the Tribunal. Therefore, in the face of such concurrent acceptance of the nature of payment as being a mere reimbursement, it is untenable for the Revenue to contend in the captioned cases that the nature of the amount is otherwise. Therefore, what follows is that the expenses have been incurred by the assessee on behalf of BIPL and the same were merely reimbursed to the assessee. Ostensibly, the contractual responsibility of the rebates to be paid to retailers lies with the assessee. However, since the sales are made by BIPL, the commercial prudence postulates that BIPL bears the ultimate responsibility of such rebates in respect of India sales, and thus the payment of such reimbursements. Admittedly, the liability is definite and crystallised in the books of BIPL, and it merely represents normal discount. Thus, we are inclined to uphold the grievance of the assessee that the payments qualify as a pure reimbursement of expenses and accordingly, not taxable in India. The reimbursements received by the assessee are in respect of specific and actual expenses incurred by the assessee and do not involve any mark-up and the assessee has furnished sufficient evidence to demonstrate the incurrence of expenses. There is thus no good reason to make any addition to income in respect of these reimbursements of expenses. The action of the Assessing Officer, as the learned counsel rightly contends, is on pure surmises and conjectures.
 
19. Here, we would also like to refer to the judgment in the case of AP Moller (supra). Facts of that case were that the assessee was a foreign company engaged in shipping business and was a tax resident of Denmark; that it had agents working for it, who booked cargo and acted as clearing agents for the assessee; and, that in order to help all its agents across the globe, the assessee had set up and maintained a global telecommunication facility called Maersk net system which was a vertically integrated communication system. The agents would pay for the system on pro rata basis. According to the assessee, it was merely a system of cost sharing and the payments received by the assessee from its agents in India were in the nature of reimbursement of expenses. The Assessing Officer, however, did not accept this contention and held that the amount paid by these three agents to the assessee were FTS rendered by the assessee and held them taxable in India under Article 13(4) of the Double Taxation Avoidance Agreement (DTAA) between India and Denmark and brought them to tax at 20% u/s. 115A of the Act. The CIT(A) dismissed the assessee's appeal, but the Tribunal allowed its further appeal. The Hon'ble High Court dismissed the Department's appeal holding that the Tribunal had rightly observed that the Maersknet-communication-system was an automated software based communication system which did not require the assessee to render any technical services; that it was merely a cost sharing arrangement between the assessee and its agents to efficiently conduct its shipping business; and, that it was part of the shipping business and could not be captured under any other provisions except under the DTAA. The Hon'ble Supreme Court, dismissing the appeal held as under:-
 
"....... the facts that the assessee had its information technology system, that the assessee had appointed agents in various countries for booking of cargo and servicing customers in those countries, preparing documentation, etc., through these agents, that for the sake of convenience of all these agents, a centralised system was maintained to avoid unnecessary cost, that the system comprised booking and communication software, hardware and a data communications network and was, thus, an integral part of the international shipping business of the assessee and ran on a combination of mainframe and non-mainframe servers located in Denmark, that the expenditure incurred for running this business was shared by all the agents and that the systems enabled the agents to co-ordinate cargos and ports of call for its fleet were findings of fact. Once these were accepted, by no stretch of imagination, could the payments made by the agents be treated as fees for technical services. The payments were in the nature of reimbursement of cost whereby the three agents paid their proportionate share of the expenses incurred on these said systems and for maintaining those systems. Neither the Assessing Officer nor the Commissioner (Appeals) had stated that there was any profit element embedded in the payments received by the assessee from its agents in India. Once the character of the payment was in the nature of reimbursement of the expenses, it could not be income chargeable to tax. Moreover, freight income generated by the assessee in the assessment years in question was accepted as not chargeable to tax as it arose from the operation of ships in international waters in terms of article 9 of the DTAA. Once that was accepted and it was also found that the Maersk net system was an integral part of the shipping business which was allowed to be used by the agents of the assessee as well in order to enable them to discharge their role more effectively as agents, and the business could not be conducted without it, it could not be treated as any technical services provided to the agents."
 
20. Quite clearly, payments by way of reimbursement of expenses incurred on behalf of the payer cannot be construed as income chargeable to tax in the hands of the payee, a proposition which is approved by the Hon'ble Bombay High Court in the case of Siemens Aktiengesellschaft (supra). In view of the above discussion, we direct the Assessing Officer not to treat any part of reimbursement of expenses received by the assessee as income of the assessee. The assessee gets the relief accordingly on Ground No. 2 of the aforesaid appeal.
 
3. It is thus submitted that once the primary liability of the recipient has come to an end, vicarious liability of the payer cannot survive. We are urged to quash the impugned demands for this short reason alone.
 
4. Learned Departmental Representative does not dispute the facts stated by the learned counsel, but relies on the orders of the authorities below nevertheless.
 
5. The plea of the learned counsel is indeed well taken. A tax withholding liability, particularly under section 195, is a vicarious liability and its survival entirely depends on survival of the primary tax liability of income, embedded in the related payments, in the hands of the recipient. Once that primary liability stands quashed, as in this case, the very foundation of tax withholding demands under section 195 ceases to hold good in law. We, therefore, quash the impugned demands under section 201(1) r.w.s. 195 as well. The assessee gets the relief accordingly.
 
6. As we part with the matter, we make it clear that the present appeals are disposed of for short reasons discussed above. All other issues raised by the assessee have become infructuous, and are, therefore, dismissed as such.
 
7. In the result, all the appeals are allowed in the terms indicated above. Pronounced in the open court today on the 21st May, 2021.

Once the primary liability of the recipient has come to an end, vicarious liability of the payer cannot survive

section 195 tds, tax on non resident, tds on non resident NRI Taxation

<h2>Facts of the Case</h2>
 
The assessee company is engaged in the business of manufacturing machine tools, textile machines, air conditioning and refrigeration work, casting and job work for air conditioning and humidification, air control equipment and trading in engineering. The original return of income was filed by the assessee on 26/09/2013 and revised return was filed on 14/05/2014 declaring loss of Rs.4,65,01,710/- under the normal provisions of the Act and book profit of Rs.61,77,000/- u/s.115JB of the Act.
 
The assessee company owned a constructed building on a plot of land in the city of Coimbatore. The said land along with the super structure was acquired by the company vide sale deed dated 15.04.1967. During the Financial Year 2012-13 relevant to Asst Year 2013-14, the assessee company proposed to sell the said land along with its super structure and therefore entered into negotiations with various parties. During the negotiations, the company became aware of the fact that post acquisition of the land and the constructed building, the Development Control Regulations Rules (DCR) in the city of Coimbatore had undergone a change. Consequently, the company engaged the services of Dadbhawala Architects, Engineers and Valuers Pvt. Ltd., to examine the amendments in the DCR and furnish a report giving the fair market value of the land, the constructed building and the additional FSI, if any.
 
In the meanwhile, the negotiations for sale of the immovable property in Coimbatore, culminated in an understanding on 15.09.2012 when the prospective purchasers visited the premises of the company. A letter of understanding was executed on the said date by the purchasers. The purchasers agreed on a total consideration of Rs.11,14,00,000/-. Further, the said consideration based on discussions and negotiations was broken up as Rs.5,72,84,600/- for the land, Rs.64,90,400/- for the constructed building and Rs.4,76,25,000/- for the additional FSI. The valuers also submitted three reports giving the fair market value of the land constructed building and the additional FSI on 21.09.2012. As per the report submitted by the valuers, the company had obtained an additional benefit of 0.8 by way of additional FSI. The valuers arrived at a fair market value of Rs. 5,01,79,800/- in respect of additional FSI of 0.8 whereas, the company had arrived at a negotiated price with prospective purchasers‟ for the additional FSI of Rs.4,76,25,000/-.
 
While filing the return of income, the company excluded the sum of Rs.4,76,25,000/- received towards additional FSI from its total income computed under normal provisions of the Act, treating the same as a capital receipt. However, while computing its book profit u/s.115JB of the Act, the said sum of Rs.4,76,25,000/- was included in the book profit.
 
<h2>During the assessment proceeding</h2>
 
The AO observed that FSI attached to the land is neither separable from the said land nor could be treated independently;
 
The availability of increase in FSI is merely a value addition to the land provided by the Government; that any buyer, while purchasing the land will also take over the FSI and that the purchase price is determined by the benefits attached to the land 
 
He further observed that the assessee has neither maintained the land with it and transferred the FSI to a third party nor has transferred the land and FSI to different people.
 
He also observed that FSI is fastened to the land and is not separable there from, except in circumstances where only the FSI is permitted to be sold out by maintaining the title of land with the owner.
 
Accordingly, the AO brought the amount of Rs.4,76,25,000/- shown under the head "transfer of FSI" to tax under the head long term capital gain.
 
<h2>Before the CIT(A)</h2>
 
The ld. CIT(A) observed that assessee had sold the land, super structure situated in the said land and the FSI in lock, stock and barrel to only one purchaser for a total consideration of Rs.11,14,00,000/-. However, taking the help of the valuer, the same was broken into three parts and thereafter, sale consideration to the extent of Rs.4,76,25,000/- has been attributed on account of sale of additional FSI by the assessee.
 
The said additional FSI has not been sold separately as TDR and there has been no separate document for the same.
 
The inseparable FSI had been sold in one single deal by the assessee to the same party.
 
CIT(A) Distinguished the reliance placed on the decision of the Hon'ble Jurisdictional High Court in 370 ITR 325 supra by stating that in that case, the TDR was sold separately by the society after completion of construction as per the available FSI.
 
CIT(A) also observed that in that case, the land and building earlier in possession of the assessee continued to remain with it and even after the transfer of the right or additional FSI, the position did not undergo any change. Whereas, in the instant case, the land and building have been transferred together with additional FSI within a single deal to a single purchaser. 
 
With these observations, the ld. CIT(A) upheld the action of the ld. AO.
 
<h2>Before the ITAT</h2>
 
The Tribunal Observed that &ldquo;the bifurcation of the total sale consideration into land, building and additional FSI is not in dispute. What is in dispute before us is only whether the said sum of Rs.4,76,25,000/- received by the assessee on sale of additional FSI could be treated as a capital receipt and thereby making it nonexigible to tax both under normal provisions as well as in the computation of book profits u/s.115JB of the Act&rdquo;
 
In the instant case, we find that the Development Control Regulations in the city of Coimbatore had undergone a change which had admittedly conferred a benefit or by virtue of which the assessee got vested with additional benefit of 0.8 by way of additional FSI.
 
Hence, the issue now boils down to the fact that when there is no cost incurred by the assessee for obtaining any additional benefit of 0.8 by way of additional FSI, then, whether any sum received by the assessee pursuant to a sale of such additional FSI could be brought to tax under the head &ldquo;income from capital gains&rdquo;. We hold that assessee could not have pre-empted any change in the Development Control Regulation Rules in the city of Coimbatore at the time of purchase or before the sale.
 
Admittedly no cost was incurred by the assessee for getting such benefit by way of additional FSI. Hence, it could be safely concluded that the additional benefit derived by the assessee by way of getting vested with additional FSI on the land and building owned by the assessee is only a wind fall gain by operation of law, and which had not costed the assessee any money.
 
The tribunal followed the judgment of Jurisdictional High Court in the case of Commissioner of Income Tax vs. Kailash Jyoti No.2 CHS Ltd., in Income Tax Appeal No.1607 of 2013 and held that the sum received by the assessee in the sum of Rs.4,76,25,000/- on sale of additional FSI, is not exigible for long term capital gains.
 
The tribunal also held that the sum of Rs.4,76,25,000/- being a capital receipt from its inception, is to be excluded while computing book profits u/s.115JB of the Act and also on the ground that it does not form part of operational working results of the company by relying assessee&rsquo;s own case in ITA No.5428/Mum/2015 for A.Y.2011- 12.
 
<h2>Citation</h2>
 
ITA No.6228/Mum/2017, Dated 21/05/2021

Neither capital gain tax nor MAT on sum received towards Additional FSI

MAT, additional fsi, tax on capital gain additional fsi

<h2>Facts of the Case</h2>
 
The A.O. noticed that during the year under consideration, the assessee society had deposited a sum of Rs. 83,95,000/- in its bank account maintained with Axis bank Ltd., Sikar. The assessee society has not filed its return of income for the year under consideration. Notice U/s 148 of the Act was issued to the assessee.
 
In compliance of the notices issued, the assessee filed its return of income on 28/09/2017 declaring NIL income.
 
Assessing Officer completed the assessment after due consideration and examination of allthe issues specifically related to the corpus donation and he was satisfied with the evidences andsubmissions of the assessee as well as the manner in which it was shown in the accounts of theassessee. He mentioned his satisfaction in the office note attached with the assessment order, which isthe part of the assessment order. The copy of the certified copy of office note is attached herewith forready reference at Page No. 12 of Paper book. The relevant portion of the office note is reproducedhere under-
 
<blockquote class="wp-block-quote">
"(ii) Issue of Corpus donation has been examined carefully and satisfying with evidence produced by the assessee during the course of hearing, no adverse inference has beendrawn on this issue."
</blockquote>
 
<h2>Findings of the CIT(E)</h2>
 
The ld. CIT(E) in his order has observed that the assessee has no details of donors and whenever this detail is sought, it comes up with a story to avoid it.
 
The ld. CIT(E) further observed that in the order sheet, the A.O. has noted that corpus donations have been examined, he has not made any of requisite inquiries regarding identity and address of the claimed donors, particularly when all these donations were received in cash, therefore, the ld. CIT(A) has held that the order passed by the A.O. is deemed to be erroneous in so far as it is prejudicial to the interest of revenue within the meaning of Explanation 2(a) r.w. Section 263 of the Act.
 
Against the order of the ld. CIT(E), the assessee is in further appeal before the ITAT..
 
<h2>Grounds of the Assessee</h2>
 
<blockquote class="wp-block-quote">
the order of CIT(E) is illegal and against the law because the Ld. Assessing officer has examined and considered the matter involved in this order. 
the donation so received was received for a specific purpose and use, hence it was Corpus Donation. The corpus donation cannot be treated as part of Income and Expenditure account.
the order of the CIT(E) is otherwise unjustified because the assessee submitted the sufficient and proper explanation during the course of assessment proceedings and accepted by the Ld. Assessing officer
</blockquote>
 
<h2>ITAT held</h2>
 
The tribunal held that assessment order under consideration does not fall in any of the limb mentioned in the explanation 2 of the Section 263(2) of the Act, therefore the assessment is proper and cannot be said as erroneous and prejudicial to the interest of the revenue.
 
The assessee replied the queries raised by the assessing officer during the course of assessment _proceedings. After examination of the records and submissions found him satisfied and complete the assessment. Therefore, it could not be said the assessing officer has not examined the issue raised in the show cause notice under consideration. It is also reveals from the certified copies of the order sheet that the issue which is limited issue related to the cash deposited into bank, in spite of that he went beyond mandate and examined the entire issues, which is also without getting permission of the Commissioner. Hence it cannot be said that the assessment was without any enquiry or investigation.
 
The issue was already examined, discussed and considered by the then Assessing officer and issue of show cause notice by the CIT(E) on the very same issue is amounts to change of opinion
 
The ld AR of the assessee apart from the other grounds as discussed by us in detail, has also submitted before us that the notice issued by the ld. CIT(E) was on the basis of proposal of subsequent ITO, therefore, this act does not provide such powers to the ITO U/s 263 of the Act. The ld AR also submitted that as per provisions of Section 263 of the Act, the Pr.CIT/CIT may call for and examine the proceedings under this Act if he considers that any order passed therein by the A.O. is erroneous in so far as it is prejudicial to the interest of the revenue but in the present case, the proposal was sent by the subsequent A.O. to the CIT(E) on the basis of which a show cause notice was issued which is against the provisions of the Act. However, on this proposition, our view is not in favour of the ld AR as we convinced with the arguments of the ld. CIT-DR who had submitted that there is no prohibition U/s 263 of the Act for the Commissioner to act on the basis of proposal by the A.O. if other conditions under the said Section are satisfied. In this regard, the ld. CIT-DR has relied on the decision in the case of Apollo Tyres Ltd. Vs ACIT (1998) 65 ITD 263 (Delhi) and Stewarts and Lloyds of India Ltd. Vs CIT (2016) 67 taxmann.com 41, therefore, we reject this contention raised by the assessee.
 
<h2>Conclusion</h2>
 
The Tribunal allowed the appeal of the assessee and quash the revisionary proceedings u/s 263 initiated by issuing impugned show cause notice.
 
<h2>Citation</h2>
 
Swami Keshwanand Sikshan Sansthan Versus C.I.T. (Exemption) , Jaipur (Rajasthan) ITA No. 273/JP/2020 (Assessment Year: 2010-11) Dated 18 January 2021

No revision u/s 263 on Change of Opinion even though proposal was sent by the subsequent AO to the CIT

Hon'ble Madras HC in its recent decision upheld the findings of Tribunal and observe that the only expenditure, which was proved to be incurred in relation to earning of tax free income, could be disallowed and such provision could not be extended to disallow the expenditure, which was assumed to have been incurred for earning tax free income.
 
The AO found that the assessee had invested in SBI Magnum Insta Cash Fund to the tune of Rs.7.25 Crores and secured loans, which were outstanding as on 31.3.2011. The Assessing Officer also found that the assessee incurred finance cost, out of which, a sum of Rs. 12.93 Crores was towards interest on term loan and working capital facilities, that the assessee company made investments in mutual funds, out of which, there was a POSSIBILITY OF EARNING DIVIDEND INCOME. Accordingly, a notice was issued to show cause as to why the disallowance should not be made under Section 14A of the Act.
 
The assessee sent a reply stating that they had not incurred any expenditure for making such investment and that in the absence of any expenditure incurred, the question of disallowance did not arise. However, AO rejected the stand taken by the assessee and made disallowance u/s 14A.
 
The assessee preferred an appeal before the CIT(A) who allowed the appeal by order dated 16.6.2016. The CIT(A) accepted the stand taken by the assessee that the investments were in growth funds and not dividend funds and therefore, did not constitute tax free income. In this regard, the CIT(A) referred to the decision of the Delhi High Court in the case of Cheminvest Ltd. Vs. CIT [reported in (2015) 378 ITR 33] as well as the decision of the Chennai Tribunal in the case of ACIT Vs. M.Baskaran [ITA.No.1717/Mds/2013 dated 31.7.2014] and accordingly set aside the finding rendered by the Assessing Officer. The Tribunal took note of the decision of this Court in the case of Redington India Ltd. Vs. CIT [reported in (2017) 77 Taxmann.com 257] and dismissed the appeal filed by the Revenue.
 
The Hon'ble Madras HC held that "we find that the Tribunal rightly understood the scope of the transaction done by the assessee. The consistent case of the assessee was that they invested a sum of Rs.7.25 crores in SBI Magnum Insta Cash Fund, that the amount was invested on 30.3.2011, that they had not incurred any expenditure in making such investment and that at the year end, the assessee did not earn tax free income from such investments. In terms of Section 14A of the Act, the only expenditure, which was proved to be incurred in relation to earning of tax free income, could be disallowed and such provision could not be extended to disallow the expenditure, which was assumed to have been incurred for earning tax free income."
 
Hon'ble HC also observed that "to apply the provisions of Section 14A of the Act, the Assessing Officer should have recorded a finding as to how SubSection (1) of Section 14A of the Act would stand attracted. In the absence of any such finding, the disallowance made was not justifiable. In fact, the Assessing Officer straightaway proceeded to the second limb of Section 14(2) of the Act, which is impermissible. The Tribunal rightly took note of the decision in the case of Redington India Ltd., wherein it was held that the provisions of Section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962 cannot be made applicable in vacuum i.e in the absence of exempt income. Therefore, we find that the Tribunal was right in deciding the issue against the Revenue and in favour of the assessee."
 
Citation: Tax Case Appeal No.26 of 2018, Madras HC.

Investment in Growth Fund does not attract 14A disallowance

Mutual fund taxation, growth fund, 14A deduction, income tax

Get the insight of important judicial precedent on Section 36(1)(iii) by clicking on the following link-
 
<h2><a href="https://public.tableau.com/shared/BMY3C6KS7?:display_count=y&amp;:origin=viz_share_link&amp;:showVizHome=no" target="_blank" rel="noreferrer noopener">Tableau Public (Link)</a></h2>
 
Just hover over the chart area, you will get the citation and head note of the case law.
 
Author, Manish Harchandani, CA

Insight of important judicial precedent on Section 36(1)(iii).

judgments on section 36(1)(iii) interest deduction, tax benefit 

A formal Memorandum of Understanding (MoU) was signed today between the CBDT) and the SEBI for data exchange. This will facilitate the sharing of data and information between SEBI and CBDT on an automatic and regular basis. The information will also be shared on request and&nbsp;suo moto&nbsp;basis for the purpose of carrying out their functions under various laws. The formal press release is as under:
https://www.sebi.gov.in/media/press-releases/jul-2020/sebi-signs-mou-with-cbdt_47030.html

CBDT and SEBI sign MoU for data sharing

CBDT Income tax MoU with SEBI, data sharing MoU

Hon'ble Kolkata ITAT allowed the appeal of the assessee and directed the AO to re-compute the disallowance under Rule 8D(2)(iii) by taking into consideration only the value of investment in shares which actually fetched exempt dividend income to the assessee during the year under consideration.
 
The learned counsel for the assessee had contended that the disallowance u/s 14A read with rule 8D is required to be worked out by taking into consideration only the value of investment in shares which actually fetched the exempt dividend income to the assessee and not the value of entire investment as done by the AO. This contention of the learned counsel for the assessee was duly supported by the decision of Hon'ble Kolkata High Court in the case of REI Agro Ltd. GA No. 3022 of 2013 (ITAT No. 161 of 2013).
 
Citation: ITA No. 2061/Kol/2019
 
Author, Manish Harchandani, CA
 
Disclaimer: The contents of this article are solely for informational purpose. It does not constitute professional advice or a formal recommendation. While due care has been taken in preparing this document, the existence of mistakes and omissions herein is not ruled out. Harchandani &amp; Associates does not accepts any liabilities for any loss or damage of any kind arising out of any inaccurate or incomplete information in this document nor for any actions taken in reliance thereon.

Disallowance u/s 14A r.w. rule 8D to be made by taking into consideration only the value of investment in shares which actually fetched exempt income and not the all investments

14A disallowance, Rule 8D, investment in shares 14A disallowance

Delhi ITAT delete the addition made on account of agency commission paid to Foreign Party (Non Resident) - relied on assessee's own case, wherein it was held that
 
<blockquote class="wp-block-quote">
"the assessee-firm&nbsp; made&nbsp; payments&nbsp; of commission&nbsp; to&nbsp; those&nbsp; agents,&nbsp; since&nbsp; those agents had&nbsp; their&nbsp; offices&nbsp; situated&nbsp; abroad&nbsp; and, moreover, services&nbsp; were&nbsp; also&nbsp; rendered&nbsp; by them&nbsp; outside&nbsp; India, assessee&nbsp; was&nbsp; not required&nbsp; to&nbsp; deduct&nbsp; tax&nbsp; at&nbsp; source while making&nbsp; payments&nbsp; in&nbsp; question.&rdquo;
</blockquote>
 
Citation: ITA.No.5959/Del./2017
 
Author,
 
Manish Harchandani, CA
 
https://harchandani.in/

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