Tribunal Upholds Remand of Assessment; Assessee’s Appeal Dismissed Over Additions Under Sections 69A and 68 for Non-Compliance

Issue: Whether the additions made by the AO under sections 69A and 68 of the Income Tax Act without adequate opportunity to the assessee violated principles of natural justice, and whether the assessment should be quashed.

Facts:

• The AO issued multiple notices to the assessee regarding cash deposits during the demonetization period and unsecured loans/sundry creditors.

• The assessee failed to respond adequately, leading the AO to complete the assessment ex-parte under section 144.

• Additions made included Rs.83.27 lakhs under section 69A (unexplained cash), Rs.3.53 lakhs (sundry creditors), and Rs.2.02 crores (unsecured loans) under section 68.

• On appeal, the assessee contended the order was passed without proper notice, cross-examination opportunity, or consideration of books of accounts.

• The CIT(A) restored the matter to the AO for fresh assessment after giving the assessee a proper hearing.

Held:

• The Tribunal held that the assessee failed to participate in the assessment proceedings and did not convincingly demonstrate that the cash deposits were reflected in the books.

• The argument regarding lack of notice for unsecured loans was rejected based on facts showing sufficient notice was given.

• It upheld the CIT(A)'s decision to remand the matter back to the AO under section 251(1)(a) for reconsideration.

• Appeal dismissed.

Penalty Imposed u/s 271(1)(c) of Income Tax Act for AY 2011-12 to 2013-14 Canceled After Income Recomputed to Nil

The appeals involve the imposition of penalties u/s 271(1)(c) of the Income Tax Act for the AYs 2011-12, 2012-13, and 2013-14. The assessee had failed to file returns on time, leading to an assessment u/s 147, and was penalized for concealing income or providing inaccurate particulars. The CIT(A) upheld the penalty, but the assessee appealed, explaining a delay in filing due to personal issues and asserting that the penalty was wrongly levied.

The main issue was whether the penalty was justified, especially since the income was recomputed to be nil after the CIT(A)'s adjustments. The court found that once the income was determined to be nil, the penalty could not be imposed for concealment or inaccuracies in income reporting. As a result, the penalty was deleted for all three assessment years. All three appeals were thus allowed, with the penalty imposed by the AO being canceled.

Tribunal Condones 49-Day Delay in Assessee’s Appeal; Remands Case for Fresh Adjudication Due to Violation of Section 250(6)

The assessee filed an appeal against the order of the CIT(A)-NFAC, Delhi, related to AY 2020-21, with a delay of 49 days. The delay was explained through an affidavit citing confusion over the jurisdiction (Delhi vs. Hyderabad Tribunal) and issues during the COVID-19 pandemic. The Revenue objected, stating the reasons were vague and showed negligence.

Despite the assessee’s non-response to multiple notices from both the Assessing Officer and the CIT(A), the Tribunal, in the interest of justice, condoned the delay subject to a cost of Rs.5,000 to be deposited in the Prime Minister’s National Relief Fund.

It was noted that the CIT(A) dismissed the appeal for non-prosecution without adjudicating on merits, which violates Section 250(6) of the I.T. Act. Hence, the matter was remanded to the Assessing Officer for fresh adjudication after giving the assessee another opportunity to be heard.

Appeal Rendered Infructuous Post-Settlement Under Vivad se Vishwas Scheme and Withdrawal of Earlier Appeal

Issue: Whether the appeal filed by the assessee against the impugned order dated 12.03.2019 passed by the Learned PCIT-18, New Delhi, is maintainable after the assessee has settled the dispute under the Vivad se Vishwas (DTVSV) Scheme 2020 and withdrawn the earlier appeal against the order dated 29.12.2019 passed under section 143(3) read with section 263 of the Income Tax Act?

Facts:

1. The appeal arises against the impugned order dated 12.03.2019 passed by the Learned PCIT-18, New Delhi.

2. The assessee has informed that the matter has been settled under the Vivad se Vishwas (DTVSV) Scheme 2020.

3. Consequent to the settlement, the assessee withdrew the appeal filed before the CIT(A) against the order dated 29.12.2019 passed under section 143(3) read with section 263 of the Income Tax Act.

4. The assessee submitted a copy of the order dated 26.03.2021 passed by the Learned CIT(A), wherein it is specifically mentioned that the assessee opted for the Vivad se Vishwas Scheme by an application dated 28.12.2020.

5. The PCIT-12, Delhi certified the full and final payment of taxes in terms of Form No. 5 dated 25.03.2021, pursuant to the settlement under the DTVSV Scheme.

Held: In view of the assessee’s settlement under the Vivad se Vishwas Scheme 2020 and withdrawal of the earlier appeal, the present appeal is rendered infructuous and is accordingly dismissed as such.

Assessee’s Appeal Against Rs. 53.49 Lakh Addition for Unexplained Purchases Set Aside for Reconsideration with Fresh Evidence

The assessee, running a petrol retail business, filed an appeal against the National Faceless Appeal Centre’s order for AY 2017-18, which upheld an addition of Rs. 53.49 lakh by the Assessing Officer due to unexplained differences in purchase records from M/s. Essar Oil Limited. The difference of Rs. 52.57 lakh arose because the assessee’s purchases recorded were less than Essar Oil’s sales to them. The Assessing Officer disallowed this amount as unaccounted purchases and added income accordingly.

The assessee explained before the CIT(A) that the difference was due to VAT being accounted separately and not included in the Profit & Loss Account. However, this explanation was rejected due to lack of supporting evidence before the CIT(A).

The appellate tribunal noted the assessee had now submitted fresh evidence (VAT returns, purchase registers, ledger accounts) not previously presented. To ensure fairness, the tribunal set aside the matter and directed the Assessing Officer to give the assessee another opportunity to reconcile the purchase difference with proper evidence. The appeal was allowed for statistical purposes, and further proceedings were to be conducted at the Assessing Officer’s level.

Tribunal Sets Aside Ex-Parte CIT(A) Order; Remands Case for Fresh Hearing Citing Natural Justice Violations

The assessee filed an appeal against the order dated 17.10.2023 by the CIT(A), who had partly allowed its earlier appeal ex-parte, confirming an addition of Rs. 4.07 crore as unexplained sundry creditors. The assessee claimed it was unaware of hearing notices due to the death of its employee managing the case. Arguing denial of proper opportunity and violation of natural justice, the assessee sought condonation of the 377-day delay in filing. The tribunal accepted the explanation, set aside the CIT(A)’s non-speaking order, and remanded the matter for fresh adjudication, directing observance of natural justice and cooperation by the assessee. The appeal was allowed for statistical purposes.

Penalty under Section 271(1)(c) Deleted as No Concealment Found in Belated Loss Return Not Carried Forward by Assessee

Issue: Whether the penalty imposed under Section 271(1)(c) of the Income-tax Act, 1961, for alleged concealment or furnishing of inaccurate particulars of income is justified when the assessee had declared a loss in a belated return and chose not to carry it forward.

Facts:

• The assessee filed a belated return under Section 139(4) declaring a loss of Rs.15,41,784, which could not be carried forward.

• The case was reopened under Sections 147/148, and the assessee filed a return again declaring loss.

• Additions were made by the Assessing Officer resulting in a reduced loss of Rs.2,25,53,130.

• The assessee did not claim to carry forward the loss in subsequent years and voluntarily disallowed certain expenses.

• The penalty under Section 271(1)(c) was imposed for concealment/inaccurate particulars.

Held: Since the assessee neither claimed nor carried forward the loss to future years, and the adjustments had no effect on taxable income, there was no concealment or furnishing of inaccurate particulars. The penalty was not warranted and was directed to be deleted. Appeal allowed in favour of the assessee; penalty under Section 271(1)(c) deleted.

Denial of Cross-Examination Vitiates Proceedings: Supreme Court Affirms Its Fundamental Role in Upholding Natural Justice

The importance of the right to cross-examination and the fatal impact of its denial as addressed under Issue VI:

Issue VI – Denial of Cross-Examination and Its Effect on Investigation and Commission’s Order

Core Legal Principle:
While the Director General (DG) is entrusted with wide inquisitorial powers under the relevant Act, these are bound by the principles of natural justice, especially the right of the accused or affected party to challenge the evidence brought against them—primarily through cross-examination.

Judicial Observation (Para 71):

The denial of the right to cross-examine was held to violate settled legal precedents and natural justice, making the Commission’s order unsustainable.

Citing Andaman Timber Industries v. CCE:

• It was held that non-grant of cross-examination of witnesses, whose statements formed the basis of an adverse order, rendered the order a nullity.

• The Court emphasized that guesswork by adjudicating authorities or tribunals regarding what would have been elicited in cross-examination is impermissible.

Conclusion:

• The denial of the opportunity to cross-examine and reliance on pre-statute material constitute serious procedural lapses.

• These lapses are sufficient to vitiate the DG’s investigation and render the Commission’s findings invalid.

This decision reinforces that cross-examination is not a mere procedural formality but a core safeguard under natural justice, without which the integrity of the adjudicatory process collapses.

Tribunal Deletes Rs.7.22 Crore Addition Under Section 68 as Unexplained Cash Credit from M/s Ratio Distributors Pvt. Ltd. for AY 2013–14, Holding Lender’s Non-Response to Section 133(6) Notice Insufficient to Dispute Assessee’s Documentation, Dated - 13-05-2025

Background and Facts:

The assessee filed its income return declaring Rs.51.27 lakh. The case was reopened under Section 147 due to alleged receipt of accommodation entries in the form of unsecured loans totaling Rs.8.42 crore from Ratio Distributors Pvt. Ltd. Despite furnishing comprehensive documentation (loan confirmations, audited financials, ITRs, bank statements, etc.), the Assessing Officer (AO) added Rs.7.22 crore as unexplained cash credit under Section 68, citing inadequate proof of the lender’s creditworthiness and non-response to a Section 133(6) notice. The CIT(A) upheld the AO’s decision without independently evaluating the evidence.

Before the Tribunal, the assessee relied on a prior ITAT decision (ITA No. 355/KOL/2024, AY 2017–18) involving the same lender, where a similar addition had been deleted. The assessee argued that it had discharged its burden of proof and that the loan was genuine, backed by extensive documentation and partly repaid. The Revenue countered that the lender had weak financials and was part of a larger scheme of accommodation entries.

Tribunal’s Ruling:
The Tribunal ruled in favour of the assessee, finding that the burden under Section 68 had been discharged. It noted no discrepancies in the documentation and held that non-response under Section 133(6) alone was insufficient to deem the loan non-genuine. The Tribunal followed its earlier decision involving the same lender and deleted the addition.

ITAT Pune Holds Denial of Foreign Tax Credit (FTC) Unjustified Solely Due to Delay in Filing Form 67, When Form Was Submitted Before Processing of Return—Rules That Requirement Under Rule 128 is Directory, Not Mandatory

Issue: Whether the Centralized Processing Centre (CPC), Bangalore was justified in denying Foreign Tax Credit (FTC) solely because Form 67 was filed after the due date for filing the return under Section 139(1) of the Income Tax Act, 1961.

Facts:

• The assessee filed Form 67 on 23.03.2020, which was after the due date for filing the return under Section 139(1).

• The return was processed on 18.02.2021, and Form 67 was already on record with the CPC by then.

• Despite this, the FTC claim of Rs.2,15,252 was denied, citing delay in filing Form 67.

Ruling:

• The Income Tax Appellate Tribunal (ITAT), Pune ruled in favour of the assessee.

• It held that FTC cannot be denied just because Form 67 was filed late, as long as:

• The form was filed before the return was processed, and

• The FTC claim is genuine and verifiable.

Observations: Rule 128 of the Income Tax Rules requires Form 67 to be filed on or before the due date under Section 139(1), but this requirement is directory, not mandatory.

ITAT relied on:

• Madras High Court ruling in Duraiswamy Kumaraswamy v. PCIT (W.P. No. 5834/2022, dated 06.10.2023)

• ITAT Pune ruling in Samiran Arunkumar Dutta v. DCIT (ITA No. 1195/PUN/2024, dated 14.08.2024)

Conclusion (Held):

• FTC should not be denied merely for late filing of Form 67, if:

1. The form is submitted before return processing, and

2. The FTC claim is valid and substantiated.

• The appeal was allowed, and CPC was instructed to grant the FTC after due verification.

Tribunal Remands Matter Back to CIT(Exemption) for Reassessment of Trust's Application for Registration u/s 12AB

This appeal challenges the CIT(Exemption), Ahmedabad's decision on 28th December 2024, rejecting the appellant's application for registration u/s 12AB of the Income Tax Act. The appellant argues that the CIT(Exemption) failed to consider the difficulties faced by elderly trustees in responding to notices and handling complex documentation. It also contends that partial compliance was overlooked and that the trust’s provisional registration was not properly acknowledged. The appellant seeks remand for further review, claiming that adequate time and assistance were not provided, and urges a more compassionate approach towards the elderly trustees.

Tribunal Rules in Favour of Arm's Length Pricing on Royalty Payments and Receivables Adjustments

The appeal concerns the assessee challenging the assessment order for the AY 2020-21, with the main issue being the transfer pricing adjustment on royalty payments to Toyota Boshoku Corporation (TBC), Japan. The TPO concluded that the payments were unjustified, as the assessee was seen more as a contract manufacturer than a licensed one, and benchmarked the royalty payments at NIL. The assessee disagreed, asserting that it was a licensed manufacturer and that the payments were at arm's length. The Dispute Resolution Panel (DRP) largely upheld the TPO's decision but asked the TPO to verify the royalty amount.

The tribunal had previously favoured the assessee in similar cases by using the Transactional Net Margin Method (TNMM) to benchmark royalty payments, rejecting the Profit Split Method (PSM) used by the TPO. The tribunal concluded by upholding the TNMM and directed the authorities to apply it for determining the arm's length price for the royalty, allowing the assessee’s appeal.

Additionally, the assessee disputed the TPO’s adjustment regarding outstanding receivables from an associated enterprise (AE), arguing that extended credit periods were a normal business practice. The DRP supported the TPO's view that extended credit should be treated as an international transaction requiring arm's length pricing (ALP). The tribunal upheld this view and directed the authorities to recompute interest based on LIBOR + 200 basis points.

The assessee also contested a disallowance of gratuity expenses u/s 43B, which the tribunal resolved by granting relief, stating that such issues should be addressed in the regular assessment. The appeal was partly allowed, with directions to recalculate interest on receivables and address the gratuity expenses in the regular assessment.

Tribunal Sets Aside Ex Parte Orders in Assessee's Appeals, Remands Case to AO for Fresh Assessment with Costs for Non-Compliance

The assessee filed three appeals challenging orders passed by the AO u/s 147, 144, and 271(1)(c) of the Income-tax Act for the A.Y. 2015-16 and 2016-17. These appeals were filed late due to the assessee relying on an accountant who failed to file them on time, which the assessee explained through affidavits. The delay was condoned, and the appeals were admitted for adjudication.

In A.Y. 2015-16, the AO reopened the case u/s 147, made an ex parte assessment, and added Rs. 14,01,00,425 u/s 68 for unexplained cash credits in a bank account. In A.Y. 2016-17, a similar process led to an addition of Rs. 2,32,40,022. In the penalty appeal for A.Y. 2016-17, a penalty of Rs. 80,42,907 was imposed u/s 271(1)(c) for alleged concealment of income. The CIT(A) confirmed the additions and penalty without examining the merits due to the lack of representation by the assessee.

The assessee contended that the cash deposits were from third-party transactions, and he had no control over the funds. However, no supporting evidence was provided. The CIT(A) dismissed the appeals ex parte. During the appeal hearing, the assessee's representative argued that the failure to comply was due to the uneducated background of the assessee, and that necessary material was not provided to him.

The tribunal found merit in the assessee’s arguments and determined that the case should be sent back to the AO for a fresh examination, as the prior proceedings did not allow for a fair opportunity to present the case. A cost of Rs. 10,000 per appeal was imposed on the assessee as a deterrent for non-compliance. The tribunal set aside the CIT(A)'s orders and directed the AO to review the cases with a proper opportunity for the assessee to present evidence. The appeals were allowed for statistical purposes.

Tribunal Allows FPI to Set Off STT-Paid Capital Losses Against Non-STT Capital Gains Under Section 70(2)

Issue: Whether the assessee, a Foreign Portfolio Investor (FPI), is entitled to set off brought forward short-term capital losses from equity transactions subject to Securities Transaction Tax (STT) against short-term capital gains on sale of rights (not subject to STT) under Section 70(2) of the Income-tax Act, 1961.

Facts:

• The assessee filed a return of income for AY 2022–23 declaring total income of ?1,309.50 crore.

• The assessee reported short-term capital gains (STCG) of ?196.34 crore (subject to STT, taxed at 15%) and ?3.16 crore (not subject to STT, taxed at 30%), and STCL of ?24.24 crore (subject to STT).

• The assessee set off the brought forward STCL (STT-paid) first against STCG (non-STT) and then against STCG (STT-paid), in accordance with Section 70(2), which does not differentiate based on STT applicability.

• The Assessing Officer (AO), rejecting this methodology, computed tax by first matching losses and gains of the same STT status and treated the mismatch STCG (?175.26 crore) as "Income from Other Sources", resulting in increased tax liability and interest.

• The Dispute Resolution Panel (DRP) upheld the AO's position, noting the absence of judicial finality.

Held:

• The Tribunal ruled in favour of the assessee.

• It held that Section 70(2) allows set-off of short-term capital losses against any short-term capital gains, without distinction based on whether STT was paid.

• The rate of tax (15% or 30%) or the applicability of STT does not affect the computation method under Sections 48 to 55.

• The Tribunal relied on precedent, including the Calcutta High Court’s ruling in Rungamatee Trexim Pvt. Ltd. and its own earlier ruling in iShares MSCI EM UCITS ETF USD ACC vs DCIT.

• Consequently, the assessee was entitled to set off STCL (STT-paid) against STCG (non-STT) in the manner it had adopted.

Reopening of Assessment under Section 148 Invalid as Change of Opinion; Prior Possession of Broker Transaction Details Bars Reopening — Supreme Court Dismisses Revenue’s SLP for AY 2011-12 on Delay and Merits

The Income-tax Act, 1961 Section 68 read with Section 148, for AY 2011-12, the assessee's return was scrutinized, and an assessment under Section 143(3) was completed, with additions made under Section 68 (cash credits). Later, the Assessing Officer issued a reopening notice under Section 148, claiming the assessee failed to fully disclose facts regarding broker transactions and asserting that the return was only processed under Section 143(1) without a scrutiny assessment.

However, it was found that during the original assessment, the Assessing Officer already had the relevant broker transaction details, making the reopening attempt a mere change of opinion, which is not legally valid.

The High Court ruled in favour of the assessee, and the Supreme Court dismissed the Special Leave Petition (SLP) filed by the revenue due to both:

• A delay of 308 days in filing the SLP without satisfactory explanation, and

• The case lacking merit, as the reopening was unjustified.

Deduction Allowed for Gujarat Cleanliness Fund Donation under Section 80G; Revision of Section 14A Disallowance Without Justification Rejected

Section 80G (Donations): The assessee claimed a deduction under Section 80G for a Rs. 3.57 crore donation to the Gujarat Cleanliness Fund as part of CSR activities. The claim was allowed because the restriction under Section 80G(2)(a)(iiihk) and (iiihl) limits deduction only to donations made to Swachh Bharat Kosh and Clean Ganga Fund, not to other eligible funds. The deduction for the Gujarat Cleanliness Fund was therefore upheld.

Section 14A (Expenditure on Income Not Taxable): The assessee initially disallowed Rs. 14.31 crore under Section 14A but later revised this to Rs. 98,872 during assessment without proper justification or a revised audit report. This revision was rejected, and the original disallowance was maintained in favour of the revenue.

In essence:

• Deduction for donation to Gujarat Cleanliness Fund under 80G allowed.

• Unsupported reduction in disallowance under Section 14A rejected.