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INCOME TAX ACT 1961

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A record of over 8.18 crore Income Tax Returns (ITRs) filed for A.Y. 2023-2024 upto 31.12.2023; Y-o-Y increase of 9%

A record of over 8.18 crore Income Tax Returns (ITRs) filed for A.Y. 2023-2024 upto 31.12.2023; Y-o-Y increase of 9%

Income Tax Department made over 103.5 crore outreaches through targeted e-mail, SMS and other creative campaigns

e-filing Helpdesk team handled approximately 27.37 lakh queries from taxpayers during the year upto 31.12.2023

Digital e-pay tax payment platform TIN 2.0 enabled user-friendly options for e-payment of taxes and real time credit of taxes to taxpayers making ITR filing easier and faster

The Income-tax Department has recorded a surge in filing of Income-tax Returns (ITRs), resulting in a new record of 8.18 crore ITRs for the A.Y. 2023-2024 filed upto 31.12.2023 as against 7.51 crore ITRs filed upto 31.12.2022. This is 9% more than the total ITRs filed for A.Y. 2022-23. The total number of audit reports and other forms filed during the period is 1.60 crore, as against 1.43 crore audit reports and forms filed in the corresponding period of preceding year.

It is also observed that a large number of taxpayers did their due diligence by comparing data of their financial transactions by viewing their Annual Information Statement (AIS) and Taxpayer Information Summary (TIS). A substantial portion of the data for all ITRs was prefilled with data pertaining to salary, interest, dividend, personal information, tax payment including TDS related information, brought forward losses, MAT credit, etc to further ease compliance by taxpayers. The facility was used extensively, resulting in smoother and faster filing of ITRs. 

Further, during this F.Y. 2023-2024, a digital e-pay tax payment platform – TIN 2.0 was made fully functional on the e-filing portal, replacing the OLTAS payment system. This enabled user-friendly options for e-payment of taxes such as Internet Banking, NEFT/RTGS, OTC, Debit Card, payment gateway and UPI. TIN 2.0 platform has enabled real time credit of taxes to taxpayers which made ITR filing easier and faster.

To encourage taxpayers to file their ITRs and Forms early, over 103.5 crore outreaches were made through targeted e-mail, SMS and other creative campaigns. Such concerted efforts led to fruitful results with 9% more ITRs being filed for A.Y. 2023-24 till 31.12.2023. The e-filing Helpdesk team handled approximately 27.37 lakh queries from taxpayers during the year upto 31.12.2023, supporting the taxpayers proactively during the peak filing periods. Support from the helpdesk was provided to taxpayers through inbound calls, outbound calls, live chats, WebEx and co-browsing sessions. Helpdesk team also supported resolution of queries received on the X(Twitter) handle of the Department through Online Response Management (ORM), by proactively reaching out to the taxpayers/ stakeholders and assisting them for different issues on near real-time basis. 

The IT Department further requests to the taxpayers to verify their unverified ITRs if any, within 30 days of filing the ITR to avoid any consequences.

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Penalty under Section 271(1)(c) unsustainable in the absence of income concealment or false information provided

Penalty under Section 271(1)(c) unsustainable in the absence of income concealment or false information provided

Fact and issue of the case

Following substantial questions of law are framed:

(a) Whether in the facts and circumstances of the case, the learned ITAT has erred in setting aside the findings of the CIT(A) and directing the Assessing Officer to delete the penalty u/s. 271(1)(c) of the Income Tax Ac, 1961 levied by him?

(b) Whether in the facts and circumstances of the case, the learned ITAT has erred in law and on facts in taking view that there is no furnishing of any inaccurate particulars of income by assessee when assessee had made adequate disclosure of all material facts in Form 3CEB, TPSR and also during TP assessment and scrutiny assessment when substantial proceedings addition/adjustment was confirmed by ITAT?

(c) Whether in the facts and circumstances of the case, the learned ITAT has erred in law and on facts in holding that Explanation 7 to Sec. 271(1)(c) of the Income Tax Act cannot be invoked while levying penalty in relation to the transfer pricing adjustment when the said explanation was neither referred to nor relied upon at the time of initiation of penalty proceedings under the Act?

(d) Whether in the facts and circumstances of the case, the learned ITAT has erred in law and on facts in holding that “Base Erosion” is a debatable issue when Kolkata Special Bench of ITAT and Ahmedabad ITAT itself has already taken a view against the appellant on the same issue in assessee’s own case?

(e) Whether in the facts and circumstances of the case, the learned ITAT has erred in law and on facts in holding that reimbursement of expenses does not qualify as FTS and hence no penalty can be levied u/s. 271(1)(c) of the Act on such expenses?”

The respondent assessee company is a Foreign Company registered in Netherlands, deriving income from Royalties or fees for technical services. A return of income of Rs.9,19,53,530/- was filed. Audit Report under Section 92E relating to international transactions for 3CEB was filed. The case was selected for scrutiny and a notice under Section 143(2) of the Act was issued on 22.09.2010. On verification of Form 3CEB, it was noticed that the assessee company had entered into international transactions. The case of the assessee was referred to the Transfer Pricing Officer vide letter dated 15.11.2010 for determination of Arm’s length price of the international transactions. A draft order was passed under Section 144C(1) and the assessee made objections before the Dispute Resolution Panel. The DRP vide order dated 31.08.2012 issued directions under Section 144C(5) of the Act. A reference was made under Section 92CA(1) of the Income Tax Act to the Transfer Pricing Officer who passed an order on 10.10.2011 making an upward adjustment of Rs.29,43,61,998/- on account of variations in service charges. The upward total adjustment by way of an order under Section 92CA(3) of Rs.29,43,61,998/- was made as above. By assessment order dated 25.10.2012 penalty proceedings were also proposed to be initiated under Section 271(1)(C) for furnishing inaccurate particulars of income and thereby concealing income. The assessment order was under challenge before the ITAT which dismissed the appeal and the assessee is in appeal before the High Court in Tax Appeals on quantum which are admitted and pending for final hearing.

Observation of the court

The issue pertains to penalty imposed by the Assessing Officer against the respondent-assessee. The Tribunal, by the impugned order, confirmed the view of the CIT(Appeals) deleting the penalty. The Tribunal, of course, cited the sole reason of the quantum additions being deleted for confirming the view of the CIT (Appeals). Learned counsel for the Revenue, therefore, would be correct in pointing out that when the Revenue has, challenged the judgment of the Tribunal concerning the quantum additions which appeal is pending before the High Court, the question of penalty should normally be further examined. However, for reasons entirely different from those recorded by the Tribunal it may be possible to confirm the order of the CIT (Appeals) deleting the penalty. This is so because the very issue on which the Assessing Officer had initiated proceedings and ultimately imposed the penalty proceedings for and ultimately imposed penalty was a highly debatable legal issue as can be seen from the Tribunal’s following observations in the judgement considering the quantum additions:

We have considered the rival submissions and perused the material available on record and the paper book containing 1 to 149 pages filed by the assessee. From the facts of the case it is evidence that the grouse of the learned AO for denying exemption u/s. 54 of the Act was due to the following three reasons:

(1) the asset which is the subject matter of transfer belonged to the assets of Late Shri Prabhashankar Patni which is separate assessable entity and not the assessee.

(2) The asset which is the subject matter of transfer is predominantly is a case of transfer of land and the same cannot be treated as transfer of building with land appurtenant thereto as envisaged u/s. 54 of the Act. (3) The subject matter of assets being transferred was converted to commercial asset and no more remained as house property as defined u/s. 22 of the Act.”

Thus, the Tribunal outlined three objections of the Revenue against granting the exemption to the assessee under section 54 of the Income Tax Act. The Tribunal thereafter proceeded to deal with each one of them threadbare and overruling each of the Revenue’s objections. There is no element of any suppression on part of the assessee of material facts. The assessee had neither withheld the source of income nor provide accurate particulars about the income.

Under the circumstances, tax appeal is dismissed.”

For the aforesaid reasons therefore the appeals deserve to be dismissed as no questions of law much less substantial questions of law are involved.

In the result, appeals are dismissed.

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It is time-barred to pass an assessment order two years following a directive from a dispute resolution panel

It is time-barred to pass an assessment order two years following a directive from a dispute resolution panel

Fact and issue of the case

Rule made returnable forthwith. By consent, the petition is taken up for final hearing at the admission stage.

Petitioner has called in question the failure of Respondent Nos. 1 & 2 to refund the amount paid by Petitioner for Assessment Year (“AY”) 2016-2017, which Petitioner claims to have paid in excess of the legitimate tax due on the returned income of Petitioner and seeks a refund of the said amount along with applicable interest.

The case of Petitioner is quite elementary and we are constrained to observe the complete apathy and negligent approach of the assessing officer concerned in discharging his duties, in accordance with the provisions of Income Tax Act, 1961 (“the Act”). Any dereliction and remissness on the part of officers entrusted with a duty to act within the strict contours of law affects the exchequer and has far reaching consequences on the prosperity and economic stability of the nation. Laxity in this regard has a propensity to destroy and bring to naught any effective system put in place by the Government for efficient and transparent administration of taxation laws and its regulations. Such an adverse effect on the exchequer is revealed in the present case.

The present proceedings emerge from a Return Of Income (“ROI”) filed by Petitioner for Assessment Year (“AY”) 2016-2017. The ROI disclosed a loss of Rs. 47,50,07,95,276/- under the normal provisions of the Act and loss of Rs. 292,80,62,889/- under Section 115JB of the Act. There was a claim of refund of prepaid taxes of Rs. 1128.47 crores, comprising of Tax Deducted at Source and Advance Tax. The assessment was selected for scrutiny and notice under Section 143(2) of the Act was issued. Since transactions of Petitioner involved international and specified domestic transactions with its associated enterprises, a reference was made under Section 92CA(1) of the Act to the Transfer Pricing Officer (“TPO”) for determination of Arms Length Price for the relevant AY. There is a history of proceedings filed by Petitioner for refund of various AYs including the subject year before the Delhi High Court as well as the Supreme Court. The same, however, is not directly relevant to determine the issue under consideration in the present proceedings, save and except a direction of the Apex Court dated 29thApril 2020 passed in Civil Appeal No. 2377 of 2020 directing the Revenue to conclude the assessment proceedings for AY 2016-2017 at the earliest.

In the meantime, the TPO passed an order proposing an adjustment to the value of the international transaction of Petitioner. The Assessing Officer (“AO”) passed a draft order dated 29thDecember 2019 under Section 144C(1) of the Act for the relevant AY and proposed various additions/disallowances. Petitioner filed objections under Section 144C(2)(b) of the Act before the Dispute Resolution Panel (“DRP”) on 27th January 2020. A notice was issued by the DRP and Petitioner responded by filing relevant documents/evidence in support of objections raised by it. Finally the DRP issued directions dated 25th March 2021 under Section 144C(5) of the Act. The directions of DRP were uploaded on the Income Tax Business Application (“ITBA”) portal on the same date and the said directions were served on Petitioner vide e-mail dated 6th April 2021. The grievance of Petitioner essentially is that the AO failed to pass the final order in terms of the directions of DRP within 30 days, the period of limitation prescribed by Section 144C(13) of the Act and consequently prays that the ROI as filed originally has to be accepted and excess tax paid be refunded with interest.

Observation of the court

In view of the aforesaid discussion, we have no hesitation in holding that the assessment order dated 31stAugust 2023 passed by FAO two years after the DRP directions, is time barred and cannot be Consequently, the ROI as filed has to be accepted. Petitioner is entitled to receive the refund together with interest, in accordance with law. The procedure to be completed within 30 days of this order being unloaded. This would, however, not preclude revenue, should the need arise, from reopening the assessment by following due process and in accordance with law.

Rule is thus made absolute in terms of prayer clause (A) which reads as under :

“A. that this Hon’ble Court be pleased to issue a Writ of Mandamus or any other writ in the nature of Mandamus, order or direction under Article 226 of the Constitution of India calling for the records of the case so as to examine the failure of Respondent Nos. 1 and 2 to give refund of tax paid by the Petitioner for the assessment year 2016-2017 which is in excess of legitimate tax due on the returned income of the Petitioner and directing Respondent Nos. 1 and 2 to forthwith grant the refund for the assessment year 2016-2017 along with the applicable rate of interest.”

Before we part, we strongly recommend that a detailed enquiry be initiated on the failure on the part of the Faceless Assessing Officer concerned to act in accordance with the provisions of the Act and the lack of diligence on the part of officials concerned and the system itself insofar as it relates to the present assessment. Strict action should be taken against persons responsible for the laxity and lethargy displayed which has caused a huge loss to the exchequer and in turn to the citizens of this country. A copy of this order be circulated to the CBDT and the Principal Secretary, Ministry of Finance, GOI.

Singh seeks stay of the judgment. Stay refused.

Notes:

1 [2022]139 335(Bombay).

2 2017 SCC OnLine DEL 8441.

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Donations cannot be regarded as anonymous under 115BBC because the givers’ details are published

Donations cannot be regarded as anonymous under 115BBC because the givers’ details are published

Fact and issue of the case

That the Commissioner of Income-tax (Appeals) erred on facts and in law in affirming the action of the assessing officer in treating voluntary donations to the extent of Rs. 11,60, 77,000as ‘anonymous donation’ under section 115-BBC of the Income Tax Act, 1961 (“the Act”).

That the Commissioner of Income-tax (Appeals) erred on facts and in law in not appreciating that the appellant had maintained complete records of the identity of the donor’s in compliance with provisions of section 11 5-BBC of the Act.

That the Commissioner of Income-tax (Appeals) erred on facts and in law in disregarding the confirmation(s) furnished by the appellant during the course of assessment/appellate proceedings.

That the Commissioner of Income-tax (Appeals) failed to appreciate that there was no requirement under the provisions of section 115-BBC of the Act to prove the ‘genuineness’ of voluntary contributions received by the appellant-trust.

That the Commissioner of Income-tax (Appeals) failed to appreciate that mere non-receipt of response to notice issued under section 133(6) of the Act would not ipso-facto mean that the voluntary contributions received were non-genuine.

That the Commissioner of Income-tax (Appeals) erred on facts and in law in not following the binding decision of the CIT(A) in the appellant’s own case for the earlier assessment year 2011-12, in gross violation of principles of judicial discipline.

That the Commissioner of Income Tax (Appeals) erred in confirming levy of interest under sections 234B of the Act.”

The ld counsel of the assessee submitted that the ld CIT(A) has erred in affirming the action of the Assessing Officer in treating the voluntary donations to the extent of RS. 11,60,77,000/- asanonymous donation u/s 115BBC of the Income Tax Act, 1961 (for short the Act). He further submitted that the ld first appellate authority has grossly erred on facts and in law in not appreciating that the appellant had maintained complete records of the identity of the donor’s in compliance with provision of section 115BBC of the Act and disregarding the confirmation furnished by the appellant during the course of assessment as well as appellate proceedings. The ld counsel vehemently pointed out that the ld CIT(A) failed to appreciate that there was no requirement under provision of section 115BBC of the Act to prove the genuineness of voluntary contributions received by the appellant trust and merely non receipt of response to notice issued u/s 133(6) of the Act would not ipso‑ facto mean that the voluntary contributions received were non-genuine. The ld counsel again drew our attention towards orders of authorities below and submitted that the ld CIT(A) is not following the binding decision of the ld CIT(A) in assessee’s own case for the earlier assessment year 2008-09, which was upheld by the Tribunal order 21.10.2022, which is gross violation of the principles of judicial discipline therefore, impugned orders of authorities below may kindly be set aside in deleting the addition made by the AO u/s 115BBC of the Act. He vehemently, pointed out that since the identical issue under similar circumstances has been decided by the Tribunal in favour of the assessee dismissing the appeal of Revenue, therefore, the issue is squarely covered in favour of assessee by the order of the Tribunal (supra) is assessee’s own case.

The ld counsel further placing vehement reliance on the order of ITAT Delhi Bench dated 21.10.2022 in the cross appeal in assessee’s own case of AY 2008-09 rendered in ITA No. 4775/Del/2015 (departmental appeal) and submitted that identical issue was decided in favour of the assessee by ld CIT(A) and the appeal of the revenue has been dismissed by the Tribunal by passing the said order and upholding the conclusion drawn by the ld CIT(A) in favour of the assessee, on the identical issue under similar facts and circumstances. The ld counsel of the assessee thus submitted that the issue is covered in favour of the assessee by the order of the coordinate bench of Tribunal for AY 2008-09 dated 21.10.2022 (supra).

Observation of the court

On careful and thoughtful consideration of above noted rival submissions, basis taken by the AO for making addition and observations of the ld CIT(A) while upholding the action of the AO are considered and evaluated in the light of findings and conclusion recorded by the ld. CIT(A) and coordinate bench of ITAT Delhi in assessee’s own case for AY 2008-09 then we find that the first appellate authority has granted relief to the assessee on the identical issue having similar facts and circumstances with present AY 2012-13. From the order of the coordinate bench of the Tribunal for AY 2008-09 (supra), wherein the appeal of Revenue has been dismissed approving conclusion of ld. CIT(A) deleting the addition, we note that the Tribunal upheld the order of ld CIT(A) by observing that the provisions of Section 115BBC of the Act would not be applicable to the facts of the case. The Tribunal further noted that details of the names, addresses, their PAN card nos., cheque nos., dates and amounts of donation of the donors has not been proved to be wrong. He, therefore, held that for these reasons also the donation received by the assessee-trust cannot be considered to be anonymous donation by virtue of sub-section (3) of Section 115BBC of the I.T. Act, 1961. Before us, no fallacy in the findings of the Ld. CIT(A) has been pointed out by the Revenue. With these observations the Tribunal dismissed the appeal of Revenue for A.Y. 2008-09 on identical issue, upholding the conclusion of Ld. CIT(A) i.e., deletion of addition made by the A.O. on the allegation of anonymous donation. The ld. CIT(DR) could not show us any contrary factual position or order or judgment which may lead us to take a contrary or different view as taken by the Tribunal for AY 2008-09. Accordingly, since the issue before us is squarely covered in favour of the assessee by the order of the Tribunal for AY 2008-09. Accordingly, respectfully following the same sole grievance of assessee, raised in the grounds noted above, is allowed and hence, the Assessing Officer is directed to delete the addition.

In the result, appeal of the assessee is allowed.

Order pronounced in the open court on 19/10/2023.

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According to Section 154 of the Income Tax Act, a debatable question cannot be resolved

According to Section 154 of the Income Tax Act, a debatable question cannot be resolved

Fact and issue of the case

The appeal by the Revenue in ITA No.981/CHNY/2020 is arising out of order of the Commissioner of Income Tax (Appeals), Puducherry in ITA No.47,48/CIT(A)-PDY/2017-18 dated 31.08.2020. The assessment was framed by the DCIT, Villupuram Circle, Villupuram, for the assessment year 2008-09 u/s.143(3) of the Income Tax Act, 1961 (hereinafter the ‘Act’) vide order dated 26.03.2015. ITA No.981/CHNY/2020

At the outset, it is noticed that this appeal by Revenue is barred by limitation by 37 days. The Revenue received the impugned appellate order on 18.09.2020 as per Form 36 and appeal was to be filed on or before 17.11.2020 but actually it was filed on 24.12.2020, thereby there was a delay of 37 days. The Revenue has filed condonation petition stating that this delay is due to pandemic period of Covid 19 and subsequent events. We noted that the Hon’ble Supreme Court in Miscellaneous Application No.665 of 2021 vide order dated 23.03.2020 has given directions that the delay are to be condoned during this period 15.03.2020 to 14.03.2021 and they have condoned the delay up to 28.02.2022 in Miscellaneous Application No.21 of 2022 vide order dated 10.01.2022. Since the Hon’ble Supreme Court has condoned the delay during the said period, respectfully following the same we condone the delay and admit the appeal.

The only issue in this appeal of Revenue is as regards to the order of CIT(A) quashing the reopening initiated u/s.147 r.w.s. 148 of the Act, according to CIT(A) the Revenue could not establish failure on the part of the assessee to disclose fully and truly the material facts required for the assessment of the relevant assessment year in view of the proviso to section 147 of the Act. For this, Revenue has raised following ground nos. 2 & 3:-

The Ld. CIT(A) erred in quashing the proceedings u/s.147 without appreciating that the reopening does not fall within the 1st proviso of section 147, therefore not requiring the AO to establish failure on the part of assessee to fully and truly disclose the material and facts required for correct assessment of income.

The Ld. CIT(A) has erred in quashing the reassessment by holding that the reasons recorded by the AO do not indicate as to how and why there is an escapement of income and the reasons recorded do not have the required ingredients for invoking the jurisdiction u/s.147.

Briefly stated facts are that the assessee is a co-operative bank and it files its return of income originally i.e. e-return for the relevant assessment year 2008-09 on 29.09.2008. This return of income was processed u/s.143(1) of the Act. The assessee’s case was selected for scrutiny assessment under CASS and accordingly notice u/s.143(2) of the Act was issued on 17.08.2009. Accordingly, assessment was completed by the AO u/s.143(3)(ii) of the Act vide order dated 28.12.2010. The AO made certain additions by making disallowance of inadmissible items and also recomputed the claim of deduction u/s.36(1)(viia) of the Act. The assessee is in appeal against this assessment order before CIT(A) i.e., separate proceedings pending. In the mean time, the reassessment proceedings was initiated vide notice issued u/s.148 of the Act dated 20.03.2014 and served on the assessee.

Observation of the court

We have heard rival contentions and gone through facts and circumstances of the case. We noted that the AO wanted to rectify the claim of deduction u/s.36(1)(viia) of the Act which was allowed by AO and consequently while giving effect to the order of CIT(A) dated 18.07.2017 at Rs.33,42,28,494/- instead of Rs.20,00,18,732/-. According to AO, deduction u/s.36(1)(viia) of the Act is allowable only to the extent of claim made in the books of accounts i.e., provision for bad and doubtful debts made in the books of accounts and it cannot be claimed in the computation simpliciter. We noted that there is a lot of debate and it is highly debatable issue and it cannot be decided while acting u/s.154 of the Act as there is a limitation in the provisions of section 154 of the Act that only the mistake apparent from record which can be rectified but where two views are possible or there is a debate available, it cannot be rectified u/s.154 of the Act. Here is the case where the AO has allowed this claim while giving effect to the order of CIT(A) dated 18.07.2017 and that cannot be rectified while acting u/s.154 of the Act. Hence the very issue on assumption of jurisdiction, we allow in favour of assessee and against Revenue. This issue of assessee’s appeal is allowed.

Coming to the issue on merits, since we have adjudicated the issue on jurisdiction in favour of assessee, the issue on merits has become academic. Hence, we need not go into the same. Therefore, this appeal of the assessee is allowed.

In the result, the appeal filed by the Revenue in ITA No.981/CHNY/2020 is dismissed and the appeals filed by the assessees in ITA No. 2645/CHNY/2019 & ITA Nos. 854, 855, 856, 857 & 858/CHNY/2020 are dismissed and the appeal filed by the assessee in ITA No.3154/CHNY/2019 is allowed

Order pronounced in the open court on 18th October, 2023 at Chennai.

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ITAT Delhi removes the addition for the error-causing difference between the opening and closing stock

ITAT Delhi removes the addition for the error-causing difference between the opening and closing stock

Fact and issue of the case

The appeals filed by the Revenue are directed against the consolidated order of the Ld. Commissioner of Income Tax (Appeals)-35, New Delhi (“CIT(A)”) dated 01.03.2019 pertaining to Assessment Year (“AY”) 2011-12 and 2012-13.

The Revenue has raised the following grounds of appeal:- AY 2011-12

On the facts and circumstances of the case and in law, Ld. CIT(A) has erred in deleting the addition of Rs. 1,73,33,666/- on account of disallowance of 40% of total direct/indirect expenses.

On the facts and circumstances of the case, Ld. CIT(A) erred in admitting the fresh/additional evidence under Rule 46A of the I.T. Rules, 1962 despite the fact that the A. O. had vide his remand report requested that assessee may not be allowed to submit fresh evidence, as it does not qualify for the same in view of the explicit provisions laid down under Rule 46A of the I.T. Rules, 1962.

On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs. 51,653/- on account of disallowance of assessee’s claim u/s 80C of the IT Act.” AY 2012-13 “

On the facts and circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of Rs. 1,75,71,490/- on account of disallowance of 40% of total direct/indirect expenses.

On the facts and circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of Rs. 76,09,453/- on account of difference in the opening stock figure of current year with closing stock figure of previous year.

On the facts and circumstances of the case, Ld. CIT(A) erred in admitting the fresh/additional evidence under Rule 46A of the I.T. Rules, 1962 despite the fact that the A.O. had vide his remand report requested that assessee may not be allowed to submit fresh evidence, as it does not qualify for the same in view of the explicit provisions laid down under Rule 46A of the I.T. Rules, 1962.

On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs. 51,653/- on account of disallowance of assessee’s claim u/s 80C of the IT Act.”

The facts in brief are that the assessee individual is in the business of manufacturing and export of garments in the name and style of M/s. P6 Design. He filed his return for AY 2011-12 on 29.11.2011 and for AY 2012­13 on 29.03.2013 declaring income of Rs. 11,27,066/- and Rs. 13,80,340/-respectively. Both the returns were processed under section 143(1) of the Income Tax Act, 1961 (the “Act”). Both the cases were selected for scrutiny through CASS. The reason given for selection in AY 2012-13 is “difference in the opening stock figure of current year with the closing stock figure of the previous year”. In response to statutory notice(s) for AY 2011-12 one appearance on 18.10.2013 was made and brief details of some expenses were filed by the assessee. Thereafter the assessee did not respond to notices leading to ex-parte order passed by the Ld. Assessing Officer (“AO”) on 04.03.2014 on total income of Rs. 1,85,12,385/- including therein disallowance of Rs. 1,73,33,666/- being 40% of total direct/indirect expenses claimed at Rs. 4,33,34,166/- and disallowance of deduction of Rs. 51,653/- claimed under section 80C of the Act. For AY 2012-13 also statutory notices were not complied with resulting in ex-parte assessment framed on 26.03.2015 under section 144 of the Act on total income of Rs. 2,66,12,936/- including therein disallowance of Rs. 1,75,71,490/- being 40% of direct/indirect expenses claimed at Rs. 4,39,28,726/-; addition of Rs. 76,09,453/- being difference between opening stock of AY 2012-13 and closing stock of the preceding AY 2011-12 and disallowance of Rs. 51,653/-claimed under section 80C of the Act.

Observation of the court

We have heard the Ld. Representative of the parties and perused the records. It is not in dispute that the assessment in AY 2011-12 and 2012-13 has been made ex-parte under section 144 of the Act for non-compliance of notice(s) of hearing. Before the Ld. CIT(A) the assessee furnished explanation for not responding to various notice(s) issued by the Ld. AO which has been accepted. Nothing adverse has been placed on record before us by the Ld. DR to doubt the veracity of explanation offered by the assessee.

It is observed that due to constraints the assessee could not produce evidence in support of the claims made by him in the return of both the AY(s). He therefore, urged the Ld. CIT(A) to admit additional evidence under Rule 46A of the Rules. The Ld. CIT(A) afforded opportunity to the Ld. AO and asked for remand report from him. The Ld. AO in his remand report only objected to admittance of additional evidence by the Ld. CIT(A). If he wanted, he could have examined the contents of the additional evidence furnished by the assessee during the course of remand proceedings but the Ld. AO did not do anything of the sort. On these facts, we are of the view that in the interest of justice and backed by the decision of Hon’ble Delhi High Court in Virgin Securities & Credits (P) Ltd. (supra) the Ld. CIT(A) was perfectly justified in admitting the additional evidence and adjudicating the issues raised before him by the assessee.

The common ground of the Revenue in AY 2011-12 and 2012-13 relates to ad-hoc 40% disallowance out of direct/indirect expenses claimed by the assessee and disallowance of claim under section 80C. On the basis of evidence produced by the assessee and admittance thereof under Rule 46A of the Rules, the Ld. CIT(A) has deleted the above disallowances. Nothing has been brought on record by the Revenue to enable us to take a view different from that of the Ld. CIT(A). Accordingly, we reject the grounds related to deletion of these disallowances by the Ld. CIT(A) in both the AY(s).

As regards the addition on account of difference in opening stock of the current year and closing stock of the preceding year, the Ld. CIT(A) has accepted the explanation offered by the assessee before him and deleted the addition. The explanation furnished by the assessee before the Ld. CIT(A) could not be faulted before us by the Revenue. We, therefore, reject this ground of the Revenue raised in AY 2012-13.

In the result, both the appeals of the Revenue for AY 2011-12 and 2012-13 are dismissed.

Order pronounced in the open court on 21st September, 2023.

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CIT(A) Must Offer Credible Justifications for Removing an Addition: ITAT

CIT(A) Must Offer Credible Justifications for Removing an Addition: ITAT

Fact and issue of the case

This appeal is filed by the Revenue feeling aggrieved by the order of Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi dt.22.03.2023 invoking proceedings under section 144 r.w.s. 142(1) of the Income Tax Act, 1961 (in short, “the Act”).

The appeal filed by the Revenue is barred by limitation by 40 days. It has moved a condonation petition explaining reasons thereof. We have heard both the parties on this preliminary issue. Having regard to the reasons given in the petition, we condone the delay and admit the appeal for hearing.

The grounds raised by the Revenue read as under :

The Ld. CIT(A) erred in restricting the addition to Rs.6,34,54,590/-, when the assessee company failed to explain the source and purpose of credits in bank accounts during the assessment proceedings.

The Ld. CIT(A) in restricting the addition to Rs.6,34,54,590/-particularly when the assessee company declared a turnover of Rs. 17,62,60,218/- only whereas the total credits in bank accounts as per assesseee submissions during the course of appeal proceedings for the F.Y. 2017-18 was Rs.26,84,68,274/-

The brief facts of the case are that assessee company filed its return of income for A.Y.2018-19 on 14/10/2018 declaring total income of Rs.16,77,160/-. The return was processed u/s 143(1) and the case was selected for scrutiny under CASS. Notice u/s 143(2) was issued on 22/09/2019 and the same was served on the assessee. In this case, Assessing Officer noticed that assessee company has made cash deposits with various banks at Rs.14,35,22,960/-. Hence, Assessing Officer issued various notices/letters to the assessee. Thereafter issued penalty proceeding for failure to comply with notices issued u/s 142(1) dated 24/12/2021 u/s 274 rws 272A(1)(d) dated 04/02/2021 by the assessee. Assessing Officer also issued notice u/s 133(6) to Axis Bank Ltd and HDFC Bank Ltd on 09/02/2021 however, got no reply from the said banks. As no reply was received from the assessee, show cause notice u/s 144 of the Act dated 05/04/2021 was issued.

Finally, as the assessee has not substantiate substantiated the source of credits of Rs. 39,05,06,143/- in his bank account with documentary evidence, Assessing Officer opined that assessee has no explanation to offer regarding nature and source of credits of Rs.39,05,06,143/- in his bank accounts. Therefore, he treated the said amount as undisclosed and unexplained income of the assessee and added it to the total income under Section 68, r.w.s. 115BBE of the Income Tax Act,1961, for the year under consideration. Thus, Assessing Officer completed the assessment u/s 144 r.w. 144B of the Act and passed assessment order on 13.05.2021.

Feeling aggrieved with the order of Assessing Officer, assessee filed appeal and thereafter, it was migrated to the ld. CIT(A), NFAC, Delhi, who granted partial relief to the assessee.

Aggrieved with the order of ld. CIT(A), Revenue is now in appeal before us.

Before us, Ld. D.R. submitted that Tribunal in the case of assessee in ITA No.213/Hyd/2023 for A.Y.2018-19 has remanded back the matter to the file of ld. CIT(A) with a direction to decide the issue afresh pertaining to cash deposits of Rs.6,34,54,590/-. Ld. DR contended that Assessing Officer had made an addition of Rs.39,21,83,300/- and as against the above said amount, the ld. CIT(A) has restricted the addition to Rs.6,34,54,590/-. The above said issue of Rs.6,34,54,590/- has been sent back to the ld. CIT(A) for fresh adjudication for the remaining amount.

It was submitted by the ld. DR that the order passed by the ld. CIT(A) was cryptic, non-speaking and perfunctory order as the ld. CIT(A) was conspicuously not discussed the remand report and he has not made any comments either agree or disagree with the remand report in his order. It was submitted that the ld. CIT(A) has vaguely and unscrupulously granted the partial relief to the assessee and without any reason has deleted the major additions. It was submitted that the order passed by the ld. CIT(A) is without any basis and is therefore required to be set aside.

Per contra, the ld.AR firstly submitted that the appeal filed by the Revenue is barred by limitation and during the course of appellate proceedings in ITA No.213/Hyd/2023, the Tribunal has pointed that whether the revenue has preferred the appeal against the deletion made by the ld. CIT(A) or not. To the pointed query, the ld. DR had mentioned that no such appeal has been filed by the Revenue. However, quite contrary to the above, the Revenue has preferred appeal after a delay which was condoned. On merit, it was submitted that the ld. CIT(A) before deleting the major addition in para 6.4 of his order had given background for the same, however, the remand report of the Assessing Officer is self-speaking. Ld. A.R. further submitted that based on remand report, the ld. CIT(A) has deleted the addition. It was submitted that the assessee had filed detailed elaborate evidence in support of deletion of addition before the ld. CIT(A) and based on that, the remand report was called for, which forms the basis of deletion of the addition by the ld. CIT(A).

Observation of the court

We have heard the rival submissions and perused the material on record. In the present case, impugned order was received in the office of PCIT-4, Hyderabad on 06.06.2023. Thereafter, the PCIT has mentioned the last date for filing of appeal was 05.08.2023. However, the letter was communicated on 23.08.2023. Based on the above said application, another application for condonation was filed wherein it was mentioned that due to technical glitches and procedural lapses, there was a delay in filing the appeal and the delay in filing the appeal may be condoned. We have heard the rival submissions and perused the material on record on this issue. We are of the opinion that the delay is well explained and therefore, we deem it appropriate to remand back the matter to the file of Assessing Officer.

Coming back to the merits of the case, admittedly, the ld. CIT(A) in Para 6.5 has merely given a vague and unsubstantiate and cryptic finding on the issue. No reasons were provided by the ld. CIT(A) for deleting the additions which are the subject matter of the appeal. In our view, it is the duty of the ld. CIT(A) to adjudicate the grounds raised by the assessee in appeal and further, it is also the duty of the ld. CIT(A) to dispose of the appeal while passing the order and in the order of the ld. CIT(A), as per the mandate provisions u/s 250(6) of the Act, he has to state the points for determination and the decision thereon and the reasons for the said decision. In the present case, ld. CIT(A) has failed to follow the procedure as contemplated under section 250(6) of the Act and has not given reasons much less the plausible reasons for deleting the addition. In view of the above, we are of the opinion that the matter should be remanded back to the file of ld. CIT(A) for fresh adjudication. Hence, we remand back the matter to the file of Ld. CIT(A) with a direction for passing a detailed speaking order after affording due opportunity of hearing to the assessee in accordance with law. Further, the assessee is directed to appear before the Ld. CIT(A) on the date of hearing fixed by the Ld. CIT(A) and shall file all the documents / evidence in support of its case. In case, the assessee failed to file any documents in support of its case, Ld .CIT(A) shall decide the matter in accordance with the law. Accordingly, the appeal of assessee is allowed for statistical purposes.

In the result, the appeal of the Revenue is allowed for statistical purposes.

Order pronounced in the Open Court on 17th October, 2023.

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Since insurance activities did not fall under the purview of banking business, no deduction was permitted

Since insurance activities did not fall under the purview of banking business, no deduction was permitted

Fact and issue of the case

This appeal is filed by the assessee feeling aggrieved by the order of Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi dt.24.09.202 1 invoking proceedings under section 143(3) of the Income Tax Act, 1961 (in short, “the Act”).

The captioned appeal filed by the assessee is barred by limitation by 581 days. The assessee has moved a petition requesting the bench to condone the delay. In this connection, the assessee has filed an affidavit for condonation of the said delay wherein, it was, inter-alia, affirmed that due to lock down imposed by the central government as preventive measures to contain the spread of Covid- 19 form 23/03/2020, caused the impugned delay in filing the appeal belatedly. We rely on Case law Collector Land Acquisition Vs. Mst. Katiji & Ors, 1987 AIR 1353 (SC) and University of Delhi Vs. Union of India, Civil Appeal No. 9488 & 9489/2019 dated 17 December, 2019, hold that such a delay; supported by cogent reasons, deserves to be condoned so as to make way for the cause of substantial justice. We accordingly hold that impugned delay in filing this appeal is neither intentional nor deliberate but due to the circumstances beyond its control. The same stands condoned. Case is now taken up for adjudication on merits.

The grounds raised by the assessee read as under :

The order of the learned CIT (A) is erroneous both on facts and in law.

The learned CIT (A) erred in confirming the action of the Assessing Officer in rejecting the deduction u/s 80P(2) of the T. Act.

The leaned CIT (A) ought to have seen that the appellant is entitled for deduction u/s 80P of the I. T. Act and the claim for deduction of Rs.38,22, 78 1/- should have been allowed by the learned CIT (A).

The learned CIT (A) erred in holding that the appellant is not eligible for deduction u/s 80P (2) on the ground that the activities of the appellant also include micro insurance premium, NPS contribution, loan insurance premium etc.

The learned CIT (A) ought to have seen that the exemption is allowable u/s 80P and in the alternate on the principles of mutuality and the learned CIT (A) ought to have allowed the exemption in total.

The learned CIT (A) ought to have seen that it is a credit society formed for working on the co-operative principles and, therefore, is eligible for deduction.”

Observation of the court

In the present case, the assessee has not filed any document showing that the assessee has not claimed the deduction as indicated by the Assessing Officer in Paras 6 and 7 reproduced hereinabove. The ld. AR submitted that the Assessing Officer has included the total receipts from insurance business as against the income from said activity. It was contended that even perusing that that the activities of assessee are not eligible under section 80P of the Act, then also the Assessing Officer has required to disallow only the income even for the reason that the activities of the assessee does not fall within the purview of section 80P(2) of the Act.

In our view, admittedly, the assessee can only claim the deduction in respect of the gross total income earned by the assessee from the activities mentioned in sub-section (2) of Section 80P of the Act. Undoubtedly, the activities of the insurance do not form a part and parcel of carrying on the business of banking and providing credit facilities to its members. In our considered opinion, the activities of the insurance do not fall within the realm of the banking activities as banking activities are separate and distinct from the insurance activities. The banking activities are regulated by the Banking Regulations Act, 1949 and the insurance activities are governed by the Insurance Regulation of Development Authority Act, 1999. The banking and insurance activities are two separate and distinct activities, governed by two different Acts and hence, it cannot be presumed that insurance activities were subsumed in banking activities. The banking activities are quite different than the insurance activities and therefore, the contention of the assessee that the activities carried out by the assessee, being the insurance activities, would fall within the banking activities is devoid of merit and we do not agree with the said contention.

The activities of the assessee are primarily in the nature of insurance activities as mentioned by the Assessing Officer and confirmed by the ld.CIT(A). In view of the above, we do not find any reason to state that the assessee is entitled to any deduction under section 80P( 1) of the Act. Having held that in our opinion, the Assessing Officer is only entitled to disallow the deduction claimed by the assessee in the return of income with respect to insurance business. For the above said purposes, we deem it proper to remand back the matter to the file of Assessing Officer for the limited purpose with a direction to disallow the deduction claimed by the assessee in return of income which is directly relatable to the insurance activities, as it do not fall under section 80P(2) of the Act i.e., Insurance activities. Accordingly, we remand back the matter to the file of Assessing Officer for the limited purposes of verifying the deduction claimed in return of income and to pass a fresh order after affording due opportunity of hearing to the assessee in accordance with law. Further, the assessee is directed to appear before the Assessing Officer on the date of hearing fixed by the Assessing Officer and shall file all the documents / evidence in support of its case. In case, the assessee failed to file any documents in support of its case, Assessing Officer shall decide the matter in accordance with the law. Accordingly, the appeal of assessee is allowed for statistical purposes.

In the result, the appeal of the assessee is allowed for statistical purposes.

Order pronounced in the Open Court on 17th October, 2023.

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Employee PF/ESIC Contributions Paid After the Due Date Are Not Allowed Under Section 36(1)(va)

Employee PF/ESIC Contributions Paid After the Due Date Are Not Allowed Under Section 36(1)(va)

Fact and issue of the case

The Assessee has preferred this appeal against the order dated 30.09.2021 impugned herein, passed by National Faceless Appeal Centre (NFAC), Delhi {in short ‘NFAC’}/Ld. Commissioner of Income Tax (in short “Ld Commissioner”) u/s 250 of the Income Tax Act 1961 (in short ‘the Act’).

This is recalled matter. Though, the notice for the date of hearing on 05.10.2023 was issued to the Assessee however, the Assessee neither appeared nor filed any adjournment application, hence in the constrained circumstances, I am inclined to decide this appeal as ex-parte.

In the instant case, the AO/CPC vide intimation dated 11th Feb, 2020 u/s 154 of the Act, made addition of Rs. 8,10,552/- as disallowance on account of late deposit of employees’ contributions towards PF & ESIC before prescribed due dates as prescribed under the relevant statutes . The said addition was affirmed by the ld. CIT(A) against which the Assessee is in appeal before the tribunal.

Admittedly in the case under considerations, the Employees’ contributions for Provident Fund and ESI have been deposited after the last date, as prescribed in the respective statutes, which resulted into making the aforesaid addition/disallowance u/s 36(1) (va) read with section 2(24)(x) of the Act.

The Hon’ble Apex Court in the case of Checkmate Services Pvt. Ltd. Vs. CIT (2022) 448 ITR 518 (SC) has laid down the dictum that payment towards Employees’ contribution on account of PF/ESIC made after the due date as prescribed under the relevant statutes, is not allowable as deduction under section 36(1)(va) of the Act, by concluding as under:

When Parliament introduced section 43B, what was on the statute book, was only employer’s contribution (Section 34(1)(iv)). At that point in time, there was no question of employee’s contribution being considered as part of the employer’s earning. On the application of the original principles of law it could have been treated only as receipts not amounting to income. When Parliament introduced the amendments in 1988-89, inserting section 36(1)(va) and simultaneously inserting the second proviso of section 43B, its intention was not to treat the disparate nature of the amounts, similarly. As discussed previously, the memorandum introducing the Finance Bill clearly stated that the provisions – especially second proviso to Section 43B – was introduced to ensure timely payments were made by the employer to the concerned fund (EPF, ESI, etc.) and avoid the mischief of employers retaining amounts for long periods. That Parliament intended to retain the separate character of these two amounts, is evident from the use of different language. Section 2(24)(x) too, deems amount received from the employees (whether the amount is received from the employee or by way of deduction authorized by the statute) as income – it is the character of the amount that is important, i.e., not income earned. Thus, amounts retained by the employer from out of the employee’s income by way of deduction etc. were treated as income in the hands of the employer. The significance of this provision is that on the one hand it brought into the fold of “income” amounts that were receipts or deductions from employees income; at the time, payment within the prescribed time – by way of contribution of the employees’ share to their credit with the relevant fund is to be treated as deduction (Section 36(1)(va)). The other important feature is that this distinction between the employers’ contribution (Section 36(1)(iv)) and employees’ contribution required to be deposited by the employer (Section 36(1)(va)) was maintained – and continues to be maintained. On the other hand, section 43B covers all deductions that are permissible as expenditures, or outgoings forming part of the assessees’ liability. These include liabilities such as tax liability, cess duties etc. or interest liability having regard to the terms of the contract. Thus, timely payment of these alone entitle an assessee to the benefit of deduction from the total income. The essential objective of section 43B is to ensure that if assessees are following the mercantile method of accounting, nevertheless, the deduction of such liabilities, based only on book entries, would not be given. To pass muster, actual payments were a necessary pre-condition for allowing the expenditure.

The distinction between an employer’s contribution which is its primary liability under law – in terms of section 36(1)(iv), and its liability to deposit amounts received by it or deducted by it (Section 36(1)(va)) is, thus crucial. The former forms part of the employers’ income, and the later retains its character as an income (albeit deemed), by virtue of section 2(24)(x) – unless the conditions spelt by Explanation to section 36(1)(va) are satisfied i.e., depositing such amount received or deducted from the employee on or before the due date. In other words, there is a marked distinction between the nature and character of the two amounts – the employer’s liability is to be paid out of its income whereas the second is deemed an income, by definition, since it is the deduction from the employees’ income and held in trust by the employer. This marked distinction has to be borne while interpreting the obligation of every assessee under section 43B.

Observation of the court

In the opinion of this Court, the reasoning in the impugned judgment that the non-obstante clause would not in any manner dilute or override the employer’s obligation to deposit the amounts retained by it or deducted by it from the employee’s income, unless the condition that it is deposited on or before the due date, is correct and justified. The non-obstante clause has to be understood in the context of the entire provision of Section 43B which is to ensure timely payment before the returns are filed, of certain liabilities which are to be borne by the assessee in the form of tax, interest payment and other statutory liability. In the case of these liabilities, what constitutes the due date is defined by the statute. Nevertheless, the assessees are given some leeway in that as long as deposits are made beyond the due date, but before the date of filing the return, the deduction is allowed. That, however, cannot apply in the case of amounts which are held in trust, as it is in the case of employees’ contributions- which are deducted from their income. They are not part of the assessee employer’s income, nor are they heads of deduction per se in the form of statutory pay out. They are others’ income, monies, only deemed to be income, with the object of ensuring that they are paid within the due date specified in the particular law. They have to be deposited in terms of such welfare enactments. It is upon deposit, in terms of those enactments and on or before the due dates mandated by such concerned law, that the amount which is otherwise retained, and deemed an income, is treated as a deduction. Thus, it is an essential condition for the deduction that such amounts are deposited on or before the due date. If such interpretation were to be adopted, the non-obstante clause under section 43B or anything contained in that provision would not absolve the assessee from its liability to deposit the employee’s contribution on or before the due date as a condition for deduction.

In the light of the above reasoning, this court is of the opinion that there is no infirmity in the approach of the impugned judgment. The decisions of the other High Courts, holding to the contrary, do not lay down the correct law. For these reasons, this court does not find any reason to interfere with the impugned judgment. The appeals are accordingly dismissed.

Hence respectfully following the dictum laid down by the Hon’ble Apex Court, I do not have any hesitation to affirm the addition made by the AO and confirmed by the Ld. Commissioner.

In the result, appeal filed by the Assessee stands dismissed.

Order pronounced in the open court on 10-10-2023.

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Retirement Partner Payment is a Capital Expenditure: ITAT

Retirement Partner Payment is a Capital Expenditure: ITAT

Fact and issue of the case

This is an appeal filed by the Revenue directed against the order of ld. Commissioner of Income Tax (Appeals)-8, Pune [‘the CIT(A)’] dated 13.12.2019 for the assessment year 2014-15.

Briefly, the facts of the case are that the assessee is a partnership firm engaged in the business of development of lands. The Return of Income for the assessment year 2014-15 was filed on 29.11.2014 declaring Rs.Nil income. Against the said return of income, the assessment was completed by the Income Tax Officer, Ward-7(1), Pune (‘the Assessing Officer’) vide order dated 23.12.20 16 passed u/s 143(3) of the Income Tax Act, 1961 (‘the Act’) at a total income of Rs.Nil after making addition of Rs.5,60,73,3 19/- being the amount paid to be retiring partner, namely, Kumar Housing Corporation Limited. The factual background of the case is as under :

During the previous year relevant to the assessment year under consideration, the assessee firm debited development expenses of Rs.13,40,50,885/- which includes an amount of Rs.5,60,73,319/- paid to retiring partner, namely, Kumar Housing Corporation Limited. The factual background of the issue was explained by the assessee vide his letter dated 30.11.2016, which is extracted by the Assessing Officer vide para no.4.1 of the assessment order, which reads as under :-

“Sarsan Developers Private Limited (SDPL) and Kumar Housing Corporation Limited (KHCL) had entered into an agreement forming a Registered Firm namely Sarsan Kumar Developers (SKD) on 21.10.2006, to develop its property located at No.367+368+ 369+372+373+ 374, Narayan Peth, Laxmi Road, Pune 411 030. The Market conditions was of recessionary Nature during 2009 to 2013 due to which Kumar Housing Corporation Limited (Builders) was not interested to develop/continue the development of the property. The matter had to come to a dead lock situation in 2013. Hence, SDPL has decided to remove KHCL from the Partnership firm SKD. As per Para No.16 of the registered partnership deed between the parties, compensation needs to be paid to the partner in the event of his removal/ exit before completion of the project, as per market rate. Since the property was not developed fully, as per mutual consent, SDPL has repaid Rs. 10,000/- towards Fixed Capital Rs.1,22,25,442/- towards Current Capital Rs. 78,26,720/- for the period 01.04.2013 to 01.08.2013 SDPL has also paid the exit cost of Rs.4,99,90,000/- as per agreed terms to the outgoing partner KHCL towards settlement. The assessee firm has thus paid Rs. 5,60, 73,319/- as settlement cost to Kumar Housing Corporation Limited. In the event, the above cost may not be allowed as an expenditure towards the project, the same should be allowed to be amortised once the sale of the properties commence. The assessee has treated the above settlement cost as an expenditure, which is duly transferred to capital work in progress. This cost will be offered as revenue expenditure in the year once sale of properties commence in future. The total saleable area of the project after completion will be 48,000 sq.ft. and taking into account average price realization of Rs. 15,000/-, the total revenue will be approx Rs. 72, Crore.”

The Assessing Officer was of the opinion that the amount paid on retirement of partner cannot be allowed as deduction and, accordingly, added to the closing work-in-progress by disallowing the same as deduction u/s 37(1) of the Act.

On appeal before the ld. CIT(A), the ld. CIT(A) held that the provisions of section 45(4) of the Act has no application and, therefore, disallowance of payment by holding to be capital expenditure is not justified, it should be allowed as revenue

Being aggrieved by the decision of the ld. CIT(A), the Revenue is in appeal before us in the present appeal.

It is contended on behalf of the Revenue that the ld. CIT(A) without appreciating proper facts of the case wrongly held that the amount paid to the retiring partner is revenue nature.

On the other hand, ld. AR submits that the amount was paid to the retiring partner on account of settlement arrived at between two partners towards the expenditure incurred at that time and, therefore, it is not the amount paid to the retiring partner.

Observation of the court

We heard the rival submissions and perused the material on record. We had carefully gone through the registered settlement deed, wherein, it clearly shows that the amount of Rs.4,99,90,000/- was paid to the retiring partner in terms of settlement arrived at between two partners for giving up his interest in the partnership firm, there cannot be any dispute that the amount paid to a retiring partner for giving up his interest in the partnership firm is a capital expenditure. Reference in this regard can be made to the following decisions :-

(i) CIT vs. Sangam Enterprises, 240 ITR 13 (AP).

(ii) CIT vs. Standard Makings & Allied Products Corpn., 226 ITR 1 (Guj.).

The ld. CIT(A) without appreciating proper facts of the case went on to hold that the payment of money to the retiring partner is revenue expenditure. In the circumstances, the findings of the ld. CIT(A) cannot be accepted in the eyes of law. Therefore, the decision of the ld. CIT(A) is reversed. Thus, the grounds of appeal filed by the Revenue stand allowed.

In the result, the appeal filed by the Revenue stands allowed.

Order pronounced on this 10th day of October, 2023.

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