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DATE: December 4, 2020 (Date of pronouncement)
DATE: December 18, 2020 (Date of publication)
AY: 2014-15
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(i) A representative office of a foreign enterprise is not a taxable unit. The foreign enterprise is the taxable unit. A return of income filed in the name of the representative office, with the PAN of the enterprise, offering only the income of the representative office & excluding the other Indian income of the enterprise is not proper. However, as the error is inadvertent and without any consequences in terms of loss of revenue, a pragmatic approach must be adopted and the assessee should not be subjected to avoidable inconvenience (ii) As regards the taxability of interest income under the India-Germany DTAA, as the debt claim in question was not "effectively connected" to the alleged PE, the exclusion article 11(5) was not triggered and the taxability under article 7 does not come into play (Entire law discussed in detail)

It is an undisputed fact that the entire related interest income has been brought to tax in the hands of the foreign enterprise, even though on gross basis under article 11. In case any income is brought to tax on account of ALP adjustment, and bearing in mind the fact that such an income will also be relatable to earning the same interest income, it will indeed result in a situation that for revenue of ‘x’ amount earned from India, what will become taxable in India will be an amount more than ‘x’ amount- something which is clearly incongruous. The taxable amount in a tax jurisdiction cannot, under any circumstances, be more than the entire revenue itself in that jurisdiction. In this view of the matter, even an income on account of ALP adjustment for free rendition of services by the Indian representative office to the foreign enterprise itself- even if that be treated as an associated enterprise and a hypothetically independent entity, in the cases of banks where entire interest revenues are taxed on gross basis, is ruled out.

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DATE: February 11, 2020 (Date of pronouncement)
DATE: June 23, 2020 (Date of publication)
AY: 2001-02, 2003-04
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CITATION:
S. 36(1)(vii)/ 36(2): Write-off of inter corporate deposits and advances given for purchase of vehicles or plant and machinery is allowable as a bad debt. There is no requirement under the Act that the bad debt has to accrue out of income under the same head i.e 'income from business or profession' to be eligible for deduction. All that is required is that the debt in question must be written off by the assessee in its books of accounts as irrecoverable

It is a settled position in law that after 1.4.1989, it is not necessary for the assessee to establish or prove that the debt has in fact become irrecoverable but it would be sufficient if the bad debt is written off as irrecoverable in the accounts of the assessee. This is because, as held by this Court, decision to treat a debt as a bad debt is a commercial or business decision of the assessee. Recording of a debt as a bad debt in his books of accounts by the assessee prima facie establishes that it is a bad debt. If the Assessing Officer disputes that the onus would be on him to prove otherwise

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DATE: March 19, 2020 (Date of pronouncement)
DATE: March 25, 2020 (Date of publication)
AY: 2015-16
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S. 5, 9 + DTAA: The payment by an Indian company to a foreign celebrity (Nicholas Cage) for an appearance by him in Dubai, UAE, in a product launch event for promoting the business of the assessee in India, is taxable as arising from a "business connection" and also under Article 23(1) of Inda-USA tax treaty (All imp judgements referred)

business models are constantly evolving, and as the rapid communication modes such as internet and social media have completely transformed the way businesses communicate, it is time that the law is seen in tandem with the ground realities of the business world, rather than in the strict confines of what was decided in the judicial precedents, in the context of a different business world when these ground realities did not exist. Today, virtual and intangible business connections are perhaps far more critical, important and commonplace than the conventional brick and mortar business connections half a century ago, and, therefore, to disregard these business connections as a real and intimate business connection leading to earning of income by the non-residents, only because Hon’ble Courts, while delivering judgments several decades ago, could not visualize the same and hedge their observations about such possibilities, will certainly be travesty of justice.

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DATE: February 6, 2020 (Date of pronouncement)
DATE: February 22, 2020 (Date of publication)
AY: 2011-12
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S. 2(47)/45: A reduction of capital results in an "extinguishment of rights" in the shares and constitutes a "transfer‟. The fact that the percentage of shareholding remains unchanged even after the reduction is irrelevant. The loss arising from the cancellation of shares is entitled to indexation and is allowable as a long-term capital loss (Bennett Coleman 133 ITD 1 (Mum)(SB) distinguished, all imp verdicts referred)

The ld DR vehemently argued that the percentage of shareholding remains the same because reduction of shares had happened for all shareholders. We find that the ld DR relied on para 24 of the judgement of Special Bench of Mumbai Tribunal in 133 ITD 1 supra to support his proposition. In this regard, we hold that the percentage of shareholding has got no bearing for chargeability of capital gains under the Act. We further find that the provisions of section 55(2)(v) of the Act were applied in the Mumbai Special Bench decision also in para 28 thereon. We find that in the case before us, the provisions of section 55(2)(v) of the Act will have no application at all and if the assessee is not given the benefit, it will never get it and none of the clauses of section 55(2)(v) of the Act would be applicable to the assessee in the instant case. Hence reliance placed on para 28 of the judgement of Special Bench of Mumbai Tribunal does not advance the case of the revenue

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DATE: June 18, 2019 (Date of pronouncement)
DATE: June 24, 2019 (Date of publication)
AY: -
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S. 40A(9): The provision is not meant to hit genuine expenditure by an employer for the welfare and the benefit of the employees. Even contributions to unapproved and unrecognized funds have to be allowed as a deduction if they are genuine in nature

The very purpose of insertion of sub-section (9) of section 40A thus was to restrict the claim of expenditure by the employers towards contribution to funds, trust, association of persons etc. which was wholly discretionary and did not impose any restriction or condition for expanding such funds which had possibility of misdirecting or misuse of such funds after the employer claimed benefit of deduction thereof. In plain terms, this provision was not meant to hit genuine expenditure by an employer for the welfare and the benefit of the employees

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DATE: April 16, 2018 (Date of pronouncement)
DATE: November 9, 2018 (Date of publication)
AY: 2003-04
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S. 147 Reopening of s. 143(1) intimation: The submission of the Dept that in view of Rajesh Jhaveri 291 ITR 500 (SC), the AO can reopen the assessment for "whatever reason" is preposterous. The AO cannot reopen on the basis of info received from DIT (Investigation) that a particular entity has entered into suspicious transactions without linking it to the assessee having indulged in activity which could give rise to reason to believe that income has escaped assessment. Such reopening amounts to a fishing inquiry. The AO has to apply his mind to the information received by him from the DDIT (Inv.) and cannot act on on borrowed satisfaction

The reasons clearly shows that the Assessing Officer has not applied his mind to the information received by him from the DDIT (Inv.). The Assessing Officer has merely issued a reopening notice on the basis of intimation regarding reopening notice from the DDIT (Inv.) This is clearly in breach of the settled position in law that reopening notice has to be issued by the Assessing Office on his own satisfaction and not on borrowed satisfaction

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DATE: June 15, 2018 (Date of pronouncement)
DATE: October 10, 2018 (Date of publication)
AY: 2013-14
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S. 147: The computation of income is the basic document for making the s. 143(3) assessment. If there is a disclosure in the computation, it leads to the prima facie necessary inference that there is application of mind by the AO. The fact that the AO did not raise specific queries & is silent in the assessment order does not mean there is no application of mind (Techspan 404 ITR 10(SC) followed, other contra judgements distinguished)

There was also no reason in the present facts for the Assessing Officer to ask any queries in respect of this claim of the petitioner, as the basic document viz. computation of income at note 21 (Assessment Year 2013-14) and note 22 (Assessment Year 2014-15) thereof explained the basis of the claim being made to the satisfaction of the Assessing Officer. Thus, it must necessarily be inferred that the Assessing Officer has applied his mind at the time of passing an assessment order to this particular claim made in the basic document viz. computation of the income by not disallowing it in proceedings under Section 143(3) of the Act as he was satisfied with the basis of the claim as indicated in that very document. Therefore, where he accepts the claim made, the occasion to ask questions on it will not arise nor does it have to be indicated in the order passed in the regular assessment proceedings. Thus, issuing the impugned notices on the above ground would, prima-facie, amount to a change of opinion

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DATE: September 4, 2018 (Date of pronouncement)
DATE: September 7, 2018 (Date of publication)
AY: 2003-04, 2004-05, 2005- 06
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S. 271(1)(c) Penalty: If appeals with reference to the quantum proceedings have been admitted by the Court on substantial questions of law, it means that there were debatable and arguable questions raised and so penalty u/s 271(1)(c) cannot be levied (PCIT v. Shree Gopal Housing 167 DTR 236 distinguished). Penalty also cannot be levied if the claim was as per judicial precedents prevalent at the time of filing the ROI. Also, there must be a finding that the details supplied by the assessee in its return were incorrect or erroneous or false

In all these appeals, we find that the appeals with reference to the quantum proceedings have been admitted by this Honourable Court on a substantial question of law. That has also been recorded by the Tribunal in the impugned order and the same is also not disputed before us. We find that the appeals were admitted as this Court found that there were debatable and arguable questions raised in the quantum proceedings. This being the case, we find that the Tribunal, in the facts and circumstances of the present case, was fully justified in confirming the order of the CIT (A) in all the three assessment years for deleting the penalty

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DATE: June 1, 2018 (Date of pronouncement)
DATE: June 2, 2018 (Date of publication)
AY: 2011-12
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CITATION:
S. 2(47)/ 45: Argument that the allotment of shares by the assessee's holding co to foreign investors at huge valuation results in a "transfer"/ "indirect transfer" of the assessee's assets to the foreign investors is not correct. Argument that a multi layered holding structure was deliberately created to avoid taxes in India and to conceal the information about the ultimate beneficiaries is also not correct

The AO had held that a multi layered holding structure was deliberately created to avoid taxes in India and to conceal the information about the ultimate beneficiaries. Having AE.s outside India in itself cannot be held against an assessee. Because of advancement of technology, the globe has become a villge. So, the nature of business has changed a lot. In our humble opinion, assessees are free to decide the manner in which they want to run their businesses.It is said that a citizen is perfectly entitled to exercise his ingenuity so to arrange his affairs as may make it possible for him legally and lawfully not to pay tax, and if his ingenuity succeeds, however reluctant the Court may be to acknowledge the cleverness of the assessee,the Court must give effect to the letter of the taxation law rather than strain that letter against the assessee.

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DATE: August 29, 2017 (Date of pronouncement)
DATE: September 25, 2017 (Date of publication)
AY: -
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S. 69C "On Money": If the unaccounted expenditure incurred is from the 'on money' received by the assessee, then, the question of making any addition u/s 69C does not arise because the source of the expenditure is duly explained. It is only the 'on money' which can be considered for the purpose of taxation. Once the 'on money' is considered as a revenue receipt, then any expenditure out of such money cannot be treated as unexplained expenditure, for that would amount to double addition in respect of the same amount

If the unaccounted expenditure is determined, then, necessarily the question which would arise for consideration before the Tribunal is whether the Assessing Officer was justified in making addition under Section 69C for the years under consideration. The Tribunal, in para 39 of the order under challenge, found that the explanation as derived from the records and placed by both can be traced to the ‘on money’ received at the time of booking/sale of shops. The statement of the senior partner is referred. The senior partner admitted that the sums have been received as ‘on money’ and at the stage aforesaid. Therefore, both the amounts, namely the ‘on money’ as well as the unexplained expenditure cannot be brought to tax, according to the Tribunal. If the unaccounted expenditure so incurred was from the ‘on money’ received by the assessee, then, the question of making any addition under Section 69C does not arise because the source of the expenditure is duly explained. It is only the ‘on money’ which can be considered for the purpose of taxation. That is what the Tribunal therefore concluded and once the ‘on money’ is considered as revenue receipt, then any expenditure out of such money cannot be treated as unexplained expenditure, for that would amount to double addition in respect of the same amount

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