Rule 29 of the ITAT Rules: Entire law on admission of additional evidence explained

(ii) On the issue regarding existence of a PE, a factual finding is required to be recorded on the basis of evidence on record and, if the Tribunal considers that additional evidence is relevant to the fact in issue, which is existence or not of PE, then in order to advance the cause of justice, the additional evidence should be admitted. In order to enable the Tribunal to decide disputes before it in a lawful, fair and judicious manner, it necessarily is required to look into and consider such and other material having a direct nexus and bearing on the subject matter of the appeal. Merely because the Linkedin profiles was available in public domain and was not referred to by the AO the department cannot be prevented from bringing that information on record so as to arrive at the correct factual finding on the issue regarding PE. This cannot be said to be a case of inordinate delay because the AO had drawn an adverse inference on account of non-furnishing of information by assessee and when assessee is trying to take mileage out of its conduct, the department is bringing on record additional evidence in the form of linkedin profile of employees to demonstrate that the conclusion drawn by department was fully justified. All the cases relied upon by the assessee & CIT(DR) are with reference to additional evidence brought before the Tribunal for the first time by assessee. But none of the cases deals with a situation where the assessee withholds some information from the department and then claims that information relevant to the facts in issue should not be admitted. The inordinate delay theory cannot be invoked in a case where cause of justice will be defeated rather than being sub-served;

Though accepting/ repaying loans/ advances via journal entries contravenes s. 269SS & 269T, penalty cannot be levied if the transactions are bona fide & genuine. The time limit for penalty u/s 271D & 271E is governed by s. 275(1)(c) & not 275(1)(a)

(ii) The acceptance and repayment of loans vide journal entries attracts s. 269SS & 269T as held in Triumph International 345 ITR 370 (Bom). However, in that case penalty u/s 271E was deleted on the basis that there was “reasonable cause” u/s 273B as the transactions were bona fide and genuine and did not involve unaccounted money. On facts, there is no finding by the AO that the transactions constitute unaccounted money or that they are not bona fide or not genuine. The assessee’s explanation for the journal entries, viz that they are alternate mode of raising funds, assignment of receivables, squaring up transactions, operational efficiencies/MIS purpose, consolidation of family member debts, correction of errors, etc are commercial in nature and not non-business. Also, what is the point in issuing hundreds of account payee cheques / account payee bank drafts between sister concerns of the group, when transactions can be accounted in books using journal entries, which is also an accepted mode of accounting? Journal entries should enjoy equal immunity on par with account payee cheques or bank drafts provided the transactions are for business purposes and do not involve unaccounted money and are genuine. In fact, such journal entries shall save large number of cheque books for the banks. There is consequently reasonable cause to delete the penalty.

S. 47(xiiib)/ 47A(4): Giving of interest-free loans to partners of the LLP does not contravene Proviso (c), though it contravenes Proviso (f), to s. 47(xiiib). Capital gains have to be computed on the book value of assets transferred & not on market value

(i) Proviso (c) to s. 47 (xiiib) bars the shareholders of the company from receiving any consideration or benefit in any form or manner other than by way of a share in the profit and capital contribution in the LLP. This means that both the company and the LLP must exist for the shareholders of the company to receive any consideration. As, in the present case, the company does not exist after conversion, the question of a violation of Proviso (c) to s. 47(xiiib) does not arise;

S. 50/ 112: Though gains on depreciable assets held for more than 3 years have to be treated as STCG u/s 50, the gains have to be taxed at the rate applicable to a LTCG

The assessee’s stand that s. 50C does not apply to depreciable assets is not acceptable in view of United Marine Academy 130 ITD 113(Mum) (SB). As regards the rate of tax, s. 50, which deems the capital gains as short-term capital gain is only for the purposes of sections 48 and 49 which relate to computation of capital gain. The deeming provisions have to be restricted only to computation of capital gain and for the purpose of other provisions of the Act the capital gain has to be treated as long-term capital gain. Consequently, though for the purpose of computation of capital gain, the flat has to be treated as short-term capital gain u/s 50, for the purpose of applicability of tax rate it has to be treated as long-term capital gain if held for more than three years (ratio of Ace Builders 281 ITR 410(Bom) & Manali Investments 139 TTJ 411(Mum) followed)

S. 254(2): Pendency of an appeal filed in the High Court u/s 260A bars the hearing of a MA filed u/s 254(2) even if the appeal is not admitted

The assessee has moved an instant Miscellaneous Application (MA) against the order of the !TAT. At the time of hearing, the AR for the assessee-appellant informed that the assessee has filed an appeal u/s 260A before the Hon’ble Bombay High Court, but is yet to be admitted. Since the appeal has been filed before the Hon’ble Bombay High Court, the judicial propriety does not allow the assessee to seek efficacious remedy simultaneously before two authorities and in particular where the issue is seized by a higher judicial forum, even if pending admission. On this ground, the instant MA is rejected

S. 201/ 201(iA): The payer is not liable for TDS default if the Dept does not show that the tax could not be recovered from the recipient

(i) A short deduction of tax at source, by itself does not result in a legally sustainable demand u/s 201(1) and u/s 201(1A). As held in Hindustan Coca Cola Beverages vs. CIT 293 ITR 226, taxes cannot be recovered once again from the assessee in a situation in which the recipient of income has paid due taxes on income embedded in the payments from which tax withholding requirements were not fully or partly, complied with. In Jagran Prakashan vs. DCIT 21 TM.com 489 (All) it was held that the deductor cannot be treated an assessee in default till it is found that assessee has also failed to pay such tax directly. Thus, to declare a deductor, who failed to deduct the tax at source as an assessee in default, condition precedent is that the recipient has also failed to pay tax directly;

Circumstances leading to formation of PE and estimation of profit attributable therto under Rule 10 explained. Even foreign assessees are liable for interest u/s 234B

(i) The contract entered between the assessee and Reliance Infocom is a turnkey contract, indivisible contract for supply, installation, testing, commissioning etc. Nortel India has undertaken the responsibility for negotiating and securing the contracts. The contract for installation and commissioning was also undertaken by Nortel India. These arrangements show that assessee is getting its work executed through Nortel India. The assessee is merely a shadow company of Nortel Group and for all practical purposes, all the facilities and services available to the Nortel Group of Companies are equally available to the assessee. The hardware supplied through it is installed by Nortel India. The contracts were pre-negotiated by Nortel India. Thus, Nortel India is a fixed place of the business and dependent agent PE of the assessee. The Liaison Office of Nortel Canada is rendering all kinds of services to all the group companies including the assessee. The LO building pertaining to Nortel Canada constitutes fixed place PE of the assessee. The assesee’s contention that sales were completed overseas and installation was done under a separate contract is not acceptable. The compensation which has been represented as a sale consideration for the equipment represents the payment for works contract where entire installation and customisation has been carried out in India