Appellate Tribunal Upholds FEMA Contravention for Unexplained Cash; Reduces Penalty Citing Seizure and No Prior Offences - The Tribunal’s order reaffirms the strict compliance requirements under FEMA regarding unexplained and unaccounted cash. Any unsubstantiated defence, especially one unsupported by contemporaneous documentation, is unlikely to be accepted. However, the Tribunal has also demonstrated willingness to exercise leniency in penalty imposition where the confiscated amount covers the alleged contravention and the appellant has no prior history of offences.
Appellate Tribunal Cites Lack of Foreign Exchange Loss, Reduces Penalty for NRI Land Purchase and Hotel Construction in Violation of FEMA - In summary, the Tribunal’s decision underscores the significance of substantiating claims with documentary evidence when contesting penalties under FEMA. However, where technical violations do not result in actual foreign exchange loss to the country, the authorities are inclined to exercise leniency in the imposition of penalties. Assessees must ensure that all transactions are adequately documented and that compliance with FEMA notifications is demonstrable.
Tribunal Overturns Confiscation of Goa Land Under SAFEMA; Partial Relief for Company in FEMA Contravention Case - The Tribunal’s decision provides clear guidance: penalties and confiscation orders based on presumptions or unsupported by evidence cannot be sustained. However, strict adherence to FEMA’s requirements regarding receipt of foreign funds and timely reporting to RBI is mandatory, and violations on these counts will attract penalties. Companies must distinguish between corporate entities and their directors for FEMA compliance purposes.
Income tax - Sections 148, 148A - Delhi High Court Quashes Reassessment Based on Audit Objection: Review of Concluded Assessment under Section 147 Held Impermissible for UK-Based Assessee Receiving Corporate Service Charges - The Delhi High Court concluded that the reassessment proceedings initiated against the assessee, based solely on an audit objection and without the emergence of any new material or information, amounted to an impermissible review of a concluded assessment. The AO was not justified in reopening the matter, as all relevant facts had already been considered in the original proceedings, and there was no tangible material indicating escapement of income. The exercise of reopening, therefore, was invalid and unsustainable in law.
Income tax - Sections 9(1)(vii), 197 - Delhi High Court Directs NIL Withholding Tax Certificate for Cross-Charges, Finds No FTS or Royalty under India-US DTAA without 'Make Available' of Technical Knowledge - The Delhi High Court’s decision establishes that unless technical knowledge, skill, or know-how is made available in a manner that enables the recipient to perform services independently, cross charges for management and support functions cannot be classified as FTS or FIS under the India-US DTAA. Furthermore, payments for access to centrally managed software, absent the grant of copyright or similar rights, do not constitute royalties. Consequently, in such factual circumstances, a NIL withholding tax certificate must be granted, relieving the payer from deduction obligations under Section 195.
Income tax - Sections 147, 148 - Delhi High Court Quashes Reopening Notices Under Section 148 for Lack of Tangible Material Alleging Dependent PE—Relief for Assessee - The Delhi High Court unequivocally held that, in the absence of tangible material for forming a reasonable belief regarding the existence of a Dependent PE or Fixed Place PE of the assessee in India, the issuance of notices under Section 148 was unsustainable in law. The reassessment proceedings initiated for AYs 2013-14 to 2017-18 were accordingly quashed, thereby granting relief to the assessee. Assessees facing similar circumstances may rely on this precedent to challenge reassessment notices lacking demonstrable new material.
Income tax - Sections 147, 195 - Delhi High Court Rules Payments for Standardized Cloud Services to US Providers Not Taxable as Royalty or FTS - The Delhi High Court unequivocally held that payments made by Indian companies to foreign cloud service providers, for standardized cloud computing services, are not taxable as royalty or fees for technical services under the Income Tax Act or the India-US DTAA. The Court’s decision relies heavily on the absence of any right given to the customer to use or commercially exploit the provider’s equipment, software, or intellectual property.
Income tax - Sections 92B, 40(a)(ia), 194C - ITAT Jaipur Rules Supply of Food Packets to Employees Not Attracting TDS Under Section 194C; Disallowance of Business Promotion Expenses Upheld - The ITAT Jaipur has clarified that payments made for the supply of food packets, where the transaction is a sale of goods and not a service contract, do not attract the provisions of section 194C, and hence, there is no requirement to deduct TDS. For business promotion expenses, unless the nature of the expenditure as employee incentives is clearly established and documented, such claims may be subject to disallowance if TDS is not deducted where applicable.
Income Tax - Sections 54, 144C - ITAT Delhi Rules Section 54 Exemption Available Despite Pre-Sale Construction and Prior Payments for New Residential Flat - The ITAT Delhi has reaffirmed that Section 54 exemption cannot be denied merely on the grounds that construction or payments towards the new residential house began prior to the sale of the original asset. It is sufficient for the taxpayer to demonstrate that the acquisition or construction of the new property (including the property becoming fit for occupation) is completed within the prescribed statutory period from the date of sale. Actionably, assessees should meticulously document the date on which the new property becomes habitable and ensure that all investments are clearly linked to rendering the property fit for residential use within the three-year window.
Income tax - Sections 12A, 40, 43B, 44AB - ITAT Panaji Rules Delay in Filing Audit Report Under Section 12A(b)(ii) is Curable: Exemption U/s 11 & 12 Allowed Where Audit Completed Within Specified Date - In light of the above analysis, the ITAT set aside the NFAC’s order and directed the Assessing Officer to recognize the audit report in Form-10B as filed within the prescribed time and grant exemption under sections 11 and 12. The ruling affirms that delayed filing of the audit report, when the audit itself was completed in time and the delay was bona fide, is a curable defect that does not irreversibly extinguish the exemption claim.
ITAT Mumbai Rules Management Support Service Fees as Non-Taxable Reimbursement, Not Royalty, Under Indo-Netherlands DTAA - The ITAT Mumbai decisively ruled that management and support service fees received by a non-resident parent company from its Indian subsidiary—where the payments merely represent cost reimbursements without any markup and do not involve transfer of knowhow or proprietary information—cannot be taxed as royalty under Article 12(4) of the India-Netherlands DTAA. Taxpayers in similar circumstances should ensure that service agreements and payment structures clearly evidence pure cost allocation, devoid of any markup or profit element, and that the services rendered do not amount to transfer of knowledge, skill, or expertise.
Income Tax - Section 68 - Delhi ITAT Orders Fresh ALP Computation on Segmental Basis and Reinclusion of Comparable; Remands Notional Interest and Section 68 Additions for Verification - The ITAT’s decision mandates a fresh determination of the Arm’s Length Price by the TPO on a segmental basis, with the inclusion of Fiberfox India Pvt. Ltd. as a valid comparable. It also requires the Assessing Officer to re-examine the Section 68 addition in light of new evidence and to ensure that notional interest is not arbitrarily imposed on outstanding trade receivables if the facts do not warrant it. The directions are actionable: taxpayers must ensure that proper segmental results are maintained and produced, and that comparable selection is supported by robust function, asset, and risk analysis. Additionally, taxpayers must maintain documentary evidence regarding the settlement of trade creditors and the nature of their borrowings to defend against unwarranted notional interest adjustments.
Income tax - Sections 92CA, 144C - ITAT Chennai Restricts Corporate Guarantee ALP Adjustment to 0.5% for Letter of Comfort Provided to Associated Enterprise - Relying on binding High Court decisions and consistent Tribunal precedents, the ITAT Chennai held that the arm’s length commission for corporate guarantees (including letters of comfort) provided to associated enterprises should be capped at 0.5% of the guarantee value. The TPO’s higher rate, based on bank charges, was not upheld. Taxpayers with similar transactions should ensure that adjustments for guarantee commissions are restricted to this rate, provided they are in jurisdictions where such precedents apply.
Income tax - Sections 144C - ITAT Mumbai Rules DRP Directions Immediately Accessible in ITBA System; Transfer of Shares by Gift to Mauritius Entity Not a Tax-Efficient Shield - On the issue of limitation, ITAT unequivocally held that once DRP directions are digitally signed and available in the ITBA system, the statutory period for passing the final assessment order under Section 144C(13) commences immediately. Delays or lack of awareness by the AO are not grounds for extending the limitation, and any order passed beyond the time limit is void ab initio and liable to be quashed.
Income-tax - Sections 143(3), 144C - ITAT Delhi Directs Fresh Review on Transfer Pricing Adjustments for Outstanding AE Receivables: Emphasizes Working Capital Impact and Comparable Analysis - The ITAT set aside the adjustment made solely on the basis of outstanding receivables, directing the TPO to conduct a fresh examination. This review must include an analysis of the impact of receivables on the assessee’s working capital and profitability, consideration of actual business practices with both AEs and unrelated parties, and an assessment of netting off receivables and payables with AEs. The TPO is also required to analyze each assessment year’s facts independently, factoring in whether the assessee is debt-free and the industry-wide comparables’ treatment of receivables. Only after such comprehensive analysis can any adjustment, if warranted, be justified under the provisions of section 92CA read with Rule 10B.
Income tax - Sections 10AA, 263 - ITAT Pune Affirms AO’s Deduction of Section 10AA on Section 14A Disallowance—Order Not Erroneous Despite Revenue’s Pending Appeal - Based on the above analysis, the ITAT held that the AO’s order, passed in consonance with binding judicial precedents, cannot be deemed erroneous merely because the Revenue has not accepted such precedents and has preferred an appeal. Both conditions under Section 263 must be satisfied, and in this instance, the absence of error precluded the assumption of revisionary powers by the PCIT. The ITAT’s decision is actionable in that it reinforces the protection against revisionary action when the AO acts in accordance with binding appellate or High Court decisions.
Income tax - Sections 44BB, 195, 201 - Equipment Rental Charges for Offshore Drilling by Foreign Companies Taxable Under Section 44BB, Not as Royalty or FTS - On the facts and law, the ITAT held that payments made to foreign companies for services and equipment rentals in connection with offshore drilling and extraction of mineral oil are taxable under the presumptive regime of section 44BB and not as royalty or fees for technical services under section 115A read with section 44D. The AO’s order treating the assessee as an assessee-in-default under section 201 was set aside.
Income Tax - Sections 143(3), 144C(13) - ITAT Hyderabad Rules LIBOR, Not SBI Rates, Apply for Benchmarking Interest on Foreign Currency Receivables from Associated Enterprises - The ITAT Hyderabad’s decision unequivocally establishes that, for international transactions involving loans or outstanding receivables denominated in foreign currency, the arm’s length interest rate must be benchmarked using international rates such as LIBOR or EURIBOR, not domestic Indian banking rates like SBI PLR. This approach aligns the benchmarking process with commercial principles and international judicial consensus. The order is actionable in that tax officers and transfer pricing professionals must use LIBOR or comparable international benchmarks, with appropriate mark-ups, for such cross-border receivables, and must allow a commercially reasonable interest-free period (here, 60 days) before imputing interest for tax purposes.
Income tax - Section 92CA, 263 - ITAT Delhi Quashes PCIT’s Section 263 Revision: No Justification for Substituting TPO’s Arm’s Length Determination of Interest on CCDs - The ITAT’s ruling affirms that revisionary jurisdiction under Section 263 cannot be exercised simply because the PCIT holds a different view on the determination of the arm’s length price of an international transaction, particularly where the TPO has conducted a thorough and reasoned inquiry. The PCIT must demonstrate specific errors or prejudice to the interests of the revenue, failing which such revisionary orders are liable to be quashed.
Income Tax - Sections 143(3), 144C(13), 143(3A), 143(3B) - ITAT Delhi Rules Bank Commission Rate Not Appropriate Benchmark for Arm’s Length Pricing of Standby Letter of Credit Guarantee to Subsidiary - The Delhi ITAT has categorically held that, for benchmarking guarantees or SBLC facilities extended to AEs under transfer pricing regulations, internal comparables, where the assessee has paid commission for securing its own guarantees, should take precedence over external rates charged by commercial banks. The TPO was instructed to apply the 0.5% internal rate, reflecting the actual commission paid by the assessee in similar circumstances, instead of the 1.3% bank guarantee commission rate.