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Showing 101 to 120 of 1551 Records
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2024 (2) TMI 1451
Wilful defaulter - resignation from a company per se - validity of an event of Wilful Default under Master Circular - as argued Petitioner resigned as the Executive Director of MBSL and Form-32 to that effect was filed with the Registrar of Companies (“RoC”) - Satisfaction to issue Show Cause Notice in the instant case - HELD THAT:- Under the Master Circular, to declare a person as a Wilful Defaulter, lender banks have to independently find that the “Wilful Default” is “intentional, deliberate and calculated” and the said conclusion must be based on “objective facts and circumstances of the case”. The Forensic Audit Report can act as a piece of corroboration for the said exercise, but not the sole basis. The lender banks must record their satisfaction of commission of Wilful Default which according to them are “intentional, deliberate and calculated”.
Under Clause 2.1.3 of the Master Circular, the lender banks have to keep in mind the track record of the borrower. The decision to declare an entity or person as Wilful Defaulter cannot be taken on the basis of isolated transactions/incidents. A similar obligation is cast on lender banks in Clause 2.5 of the Master Circular, which require the lender banks to put in place a transparent mechanism for the entire process so that the penal provisions are not misused and the scope of such discretionary powers are kept to the barest minimum. It is required to be ensured that solitary or isolated instances are not made the basis for imposing the penal action under the Master Circular.
In the present case, the satisfaction to issue Show Cause Notice, does not appear to have been recorded in accordance with the requirements of the Master Circular. Keeping the object of the Master Circular in mind and the consequences that it entails, both civil and penal, the lender banks have an obligation to comply with the inbuilt safeguards in the Master Circular. Lest, the line between persons who commit mere default in repayment of loan obligations and those who commit Wilful Default in terms of the Master Circular, would get obliterated.
Whether the Petitioner committed acts of Wilful Default? - Under the Master Circular, a lender bank has to record a finding of an act of Default to be Wilful if the same is “intentional, deliberate and calculated” on objective assessment of facts and circumstances. However, the said burden is not discharged by merely quoting the Forensic Audit Report, which itself has not drawn any conclusion of diversion of funds.
In the meeting held on 27.5.2014, the lender banks agreed to reduce the collateral security of Rs. 33 Crores to Rs. 25.53 Crores in lieu of the Petitioner’s personal guarantee. The Petitioner did not furnish his personal guarantee for the CDR package nor did he participate in any of the deliberations for the approval of the CDR package. The lender banks still approved the CDR package and acted upon it without the presence and personal guarantee of the Petitioner. The lender banks, therefore, tacitly acquiesced to the Petitioner’s exit from MBSL and approved the CDR package of MBSL without his presence in any capacity or personal guarantee. In this view of the matter, it is not open for the lender banks to contend that when MBSL was about to default in its repayment obligations, the Petitioner made an easy escape. In any case, resignation from a company per se is not an act of Wilful Default under the Master Circular.
Effect of Forensic Audit Report - The nature of Forensic Audit Report in respect of a company is discussed by the Calcutta High Court in Prashant Bothra & Anr. v. Bureau of Immigration & ORs [2023 (9) TMI 702 - CALCUTTA HIGH COURT] It was held that a Forensic Audit Report, at best, is a piece of evidence in liquidation proceedings and is in no manner a conclusive proof of any illegality committed under a law. The Forensic Audit Report is merely an opinion of the author, which is based on several disclaimers. The Forensic Audit Report cannot be conclusive proof of its observations.
Even under the Indian Evidence Act, 1872, the opinion of an expert witness under Section 45 is not a conclusive proof. It is subject to cross examination and the opinion and conclusions of an expert are subject to challenge.
The lender banks must follow the mandate of Clause 2.1.3 read with Clause 2.5 of the Master Circular and independently find acts of “Wilful Default” which are “intentional, deliberate and calculated” and the said conclusion should be based on “objective facts and circumstances of the case”. Any other view would lead to consequences where mere cases of default would be categorised as acts of Wilful Default under the Master Circular. The Master Circular is not to be invoked in every case of default but only when the default is Wilful Default as construed under the scheme of the Master Circular.
Identification of Wilful Default has to be made keeping in view the track record of the borrower and not on the basis of isolated transactions/incidents - In the Flash Report, it is noted that MBSL could service all its debts till 30.11.2011 and even repaid the principal sum of the term loans.
The aforesaid position, which is accepted by the lender banks in their own document i.e., the FRS, does not show a consistent negative track record of MBSL. MBSL was seen as a global player in photovoltaic cells. It had presence in several countries. It had serviced its debt and largely repaid the principal dues. The Respondent Bank, under Clause 2.1.3 read with Clause 2.5 of the Master Circular, was obligated to reflect upon the entire track record of MBSL and then conclude whether there existed events of Wilful Default and not on the basis of isolated transactions/incidents.
Consequences of admitting MBSL for CDR under the CDR Scheme - This Court is of the view that it is incumbent upon banks who are dealing with public funds and discharging a public duty to make appropriate enquiries as to whether a borrower is in genuine financial difficulty or whether there exists events of fraud and malfeasance. If the lender banks find fraud or malfeasance, the CDR-EG must either refuse CDR completely or impose such additional onerous conditions as provided in the CDR Scheme itself.
In the present case, the lender banks were fully aware of all the transactions, which are now alleged to be acts of Wilful Default. This fact is part of the documents leading to the finalization of the CDR scheme. Despite noting all transactions, financial statements, balance sheets, TEV Report and Stock Audit Report, the lender banks placed MBSL in Class-B of CDR Master Circular which cannot be assigned if there is diversion of funds. They found no occasion to order a forensic audit of MBIL before finalization of CDR scheme. The lender banks, therefore, never treated the alleged acts of Wilful Default as an act of diversion or siphoning either during finalization of CDR scheme or after its failure.
It may not be open for lender banks to classify known acts as events of Wilful Default merely because subsequently, in respect of the same known acts, the Forensic Audit Report has made certain observations. To declare a person as a Wilful Defaulter, lender banks have to independently find that the “Wilful Default” is “intentional, deliberate and calculated” and the said conclusion is based on “objective facts and circumstances of the case”, as required under the Master Circular. The Forensic Audit Report, at best, can act as a piece of corroboration for the said exercise, but not the sole basis.
To take any other view would entail the transfer of jurisdiction to determine acts of Wilful Default to Forensic Auditors, which by law under the Master Circular is vested in the Identification Committee and Review Committee of the Respondent Bank. When a law requires a particular act to be done in a particular manner, then it has to be done in that manner alone and no other. [See: Tata Chemicals Ltd. v. Commr. of Customs [2015 (5) TMI 557 - SUPREME COURT] and Krishna Rai v. Banaras Hindu University [2022 (6) TMI 1436 - SUPREME COURT]
Thus orde passed by the Review Committee, confirming the Petitioner as Wilful Defaulter under the Master Circular, are unsustainable and the impugned order is accordingly, quashed and set aside.
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2024 (2) TMI 1450
Classification of service - Installation of Thermal Insulation v/s works contract - transfer of property of goods is involved in the execution of the contract or not? - demand of differential service tax - whether sale of goods are only eligible for classification under works contract for the purpose of payment of service tax? - HELD THAT:- Whether the activity of Installation of Thermal Insulation is classifiable under works contract service or otherwise has been settled by this Tribunal vide Final Order [2023 (1) TMI 690 - CESTAT AHMEDABAD] as held from the definition of Works Contract Service, it is clear that only specified categories of works contract are considered for levy of Service Tax under the said definition. These are enumerated in clauses (a) to (e). We find that in clause (a) thermal insulation also mentioned and in the present matter appellant had also paid VAT/ sales tax on goods which is used in installation of thermal insulation. We find that the impugned activity of the assessee was nothing but “works contract service”.
No merit in the impugned order demanding service tax from appellant. Therefore, the impugned order is set-aside. Decided in favour of assessee.
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2024 (2) TMI 1449
Levy of customs duty on the oil contained in the tanks in the ship imported for breaking purposes - HELD THAT:- In the instant case the Order in Original speaks only about the tank contained within the engine room and there is no specific finding about any tank outside the engine room. In this context, the para 5.5 of order of Tribunal in the case of NAVYUG SHIP BREAKING CO., DHAN STEELS PRIVATE LIMITED. AND OTHERS VERSUS C.C., JAMNAGAR (PREV) [2022 (12) TMI 100 - CESTAT AHMEDABAD] becomes relevant, where it was held that 'It can be seen that if the tanks containing Oils are connected with pipeline with the engine or machinery of the vessel, there may be no reason why the same cannot be treated as integral part of the engine or machinery of the vessel. However, since there is no speaking order on that part of issue, we direct the adjudicating authority to pass speaking order in respect of duty pertaining to Oil contained in Bunker Tanks outside the engine room of vessel.'
The impugned orders are set aside and matter is remanded to the adjudicating authority to decide in terms of order in the case of Nauyg Ship Breaking Co. - Appeal allowed by way of remand.
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2024 (2) TMI 1448
Seeking grant of bail - recovery of contraband Ganja (cannabis) - drawing of samples as per Section 52A of the NDPS Act or not - delay in trial - Delay in sampling and compliance of Section 52A of the NDPS Act.
HELD THAT:- There can be no doubt on the proposition that for being released on bail, the accused/appellant must satisfy the conditions as stipulated in Section 37 of the NDPS Act. There can also be no dispute that keeping in view the nature of offence, there is no occasion for applying the more liberal principles for grant of bail to the accused under the NDPS Act where the offence involves commercial quantity.
Error in procedure of sampling - HELD THAT:- In the present case, therefore, as there is a non-compliance with the procedure prescribed for sampling, the applicant is entitled to be released on bail.
Delay in trial - HELD THAT:- In Manmandal [2023 (9) TMI 1568 - SC ORDER], the accused therein had been in custody for almost two years and the Court found that the trial is not likely to be taken up for hearing in the immediate near future. The accused was, therefore, released on bail - in the present case, the applicant being in custody since 08.6.2021; and only 2 out of 22 witnesses having been examined in the trial, that that too only partially; coupled with the other factors as have been discussed in this judgment, the applicant is entitled to be released on bail on account of the delay in trial and there being no likelihood of it being concluded in the near future.
Delay in sampling and compliance of Section 52A of the NDPS Act - HELD THAT:- The applicant has also made out a case for being released on bail on the grounds of delay in the sampling procedure being carried out under Section 52A of the NDPS Act. As noted hereinabove, the alleged recovery has been made from the applicant on 08.06.2021; the application under Section 52A of the NDPS Act was filed by the prosecution only on 30.07.2021; and the samples were drawn only on 04.09.2023, that is, with a delay of almost three months - In Kashif [2023 (5) TMI 1383 - DELHI HIGH COURT], a Coordinate Bench of this Court considered the effect of delay in the sampling procedure, held that even a delay of one and a half months, as was the case therein, raises a doubt sufficient enough to entitle the accused to be released on bail.
The applicant has been able to make out a case for being released on bail on application of the test prescribed under Section 37 of the NDPS Act - it is directed that the applicant be released on bail in FIR No. 0285/2021 registered at Police Station: Sagarpur, South-West District, Delhi, under Sections 20/61/85 of NDPS Act in SC No. 420/2022 on furnishing a personal bond in the sum of Rs. 50,000/-with one local surety, each, of the like amount, subject to the fulfilment of conditions impsosed - bail application allowed.
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2024 (2) TMI 1447
Cancellation of petitioner's registration - No notice issued to or served on the petitioner before the impugned order - principles of natural justice - HELD THAT:- It does merit acceptance that the petitioner was not obligated to visit the GST portal to receive the show cause notices that may have been issued to the petitioner for the period of April, 2019 to March, 2020 through e-mode, preceding the adjudication order dated 20.6.2023 passed in pursuance thereto.
Thus, no useful purpose may be served in keeping the petition pending or calling counter affidavit at this stage or to relegate the present petitioner to the forum of alternative remedy.
The impugned order set aside - appeal disposed off.
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2024 (2) TMI 1446
Violation of principle of natural justice - loan account of the petitioner declared a “fraud” by the respondents-banks - HELD THAT:- Till the next date of hearing, there shall be stay of all further proceedings including registration of FIR No. RC2232020A0004 dated 6.8.2020, investigation and arrest in relation to the complaints/FIRs already registered on the complaints made by the respondents-banks until further orders.
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2024 (2) TMI 1445
Hearing of the application - HELD THAT:- The properties subject matter of this Writ Petition is put to auction on 29th February, 2024.
The petitioner is permitted to mention before the Roster Bench of the High Court for immediate listing. Once it is pointed out to the Roster Bench that the auction is scheduled for 29th February, 2024, the Roster Bench will give necessary priority to the hearing of the said Application.
The Writ Petition is disposed of accordingly.
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2024 (2) TMI 1444
Sanction of the Scheme of Amalgamation - Sections 230 to 232 and other applicable provisions of the Companies Act, 2013 and the Rules framed thereunder - HELD THAT:- Upon considering the approval accorded by the members of the Petitioner Companies to the proposed Scheme, and the affidavits filed by the Regional Director, the rejoinder and undertakings of the Petitioner Companies and the report of the Official Liquidator and the reply of the Petitioner Companies thereto, there appears to be no impediment in sanctioning the present Scheme.
The sanction is hereby granted to the Scheme under Sections 230 to 232 of the Companies Act, 2013, subject to the compliance with the directions imposed - application disposed off.
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2024 (2) TMI 1443
Foreign Tax Credit denied by way of tax relief u/s 90 - AO in the instant case rejected the 154 rectification application on the ground that Form 67 was not furnished before the due date as prescribed u/s 139(1) in compliance to Rule 128(9) - CIT (A) NFAC upheld the action of the AO on the ground that the filing of Income Tax Return offering the relevant income in USA is sine qua non for subjecting the income to tax in USA, which is the primary requirement of allowing foreign tax credit under Article 23 of the relevant DTAA.
HELD THAT:- We find identical issue had come up before the Coordinate Bench of the Tribunal in the case of Govinda Rajulu Dhondu [2023 (9) TMI 1209 - ITAT HYDERABAD] wherein the Tribunal, following the decision of the Coordinate Bench of the Tribunal in the case of Baburao Alturi [2022 (12) TMI 525 - ITAT HYDERABAD] and distinguishing the decision of the Vizag Bench of the Tribunal in the case of Muralikrishna Vaddi [2022 (6) TMI 693 - ITAT VISAKHAPATNAM] has restored the issue to the file of the AO with a direction to allow the FTC after due verification.
We restore the issue to the file of the AO with similar direction to allow the FTC after due verification. AO shall give due opportunity of being heard to the assessee and decide the issue as per fact and law. Appeal filed by the assessee is allowed for statistical purposes.
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2024 (2) TMI 1442
Dismissal of application u/s 60(5) of the Insolvency and Bankruptcy Code, 2016 - Corporate Debtor did not adhere to the payment schedule set out in the settlement - nature of the `debt’ of the Operational Creditor has now been changed because of the settlement which is no longer an Operational Debt for filing of application under Section 9 - condition precedent in the settlement - HELD THAT:- In this case, the facts are not much in dispute, because the matter has been settled between the Parties through a written settlement, in which one of the clauses permitted the Appellant to file an application for revival in case of breach on the part of the Corporate Debtor/Respondent. It is otherwise true that the application filed by the Applicant was initially dismissed as withdrawn on account of the settlement between the Parties and no permission was sought at the time for revival of the said application.
However, in the case of IDBI Trusteeship Service Ltd. [2023 (5) TMI 770 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , PRINCIPAL BENCH , NEW DELHI], this Court while distinguishing the order in the case of SRLK Enterprises LLP [2021 (4) TMI 1358 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI] has held 'Adjudicating Authority committed error in rejecting the revival application 3196 of 2022 when the consent term itself contemplates a clause for revival in event of default and default having been committed by the Corporate Debtor, rejection of revival is to deny the Financial Creditor rightful remedy. Non-mention of specific liberty in the Order is inconsequential in view of the clear terms in the settlement which was the basis of withdrawal of Company Petition.'
Moreover, in case of Ahluwalia Contracts (India) Ltd. [2023 (9) TMI 239 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , PRINCIPAL BENCH , NEW DELHI], which was a case under Section 9 itself, the same observations have been made by this Court for the purposes of revival of the application filed under Section 9 on the ground that there was a provision made in the Settlement Agreement that in case of default, the Appellant would be entitled to get the application revived.
Thus, there is an error on the part of Adjudicating Authority in dismissing the application filed by the Appellant. The Appeal thus succeeds and the impugned order is hereby set aside - appeal allowed.
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2024 (2) TMI 1441
Miscellaneous application filled stating that there is no order of admission and consequent adjudication of additional ground of appeal - Disallowance of premium paid on account of repayment of optionally convertible debenture u/s 37 -Application of admission of additional evidence - HELD THAT:- In the order of the coordinate bench, neither the additional evidences were admitted/rejected nor the additional ground was also admitted or rejected, therefore, the order suffers from a mistake.
Accordingly, the above-impugned order is recalled to decide on admission of the additional ground of appeal raised by letter dated 16 March 2018.
To that extent, the miscellaneous application of the assessee is allowed and registry is directed to fix the appeal of the assessee to adjudicate on the admission of the additional ground and thereafter to proceed, if admitted, to adjudicate the same.
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2024 (2) TMI 1440
Seeking grant of bail - smuggling - recovery of contraband - Ganja/Bhang - offence(s) under Section 8/20 of the NDPS Act - HELD THAT:- The leaves of cannabis plant containing 28.600 gms are shown to be recovered from the accused-petitioner. Section 2 (iii)(b) of the NDPS Act contains the definition of Ganja and as per definition clause flowering of fruiting tops of cannabis plant falls within the ambit of Ganja. The seeds and leaves without tops are not termed as Ganja. Therefore, without commenting anything on the merits/demerits of the case, it is deemed just and proper to enlarge the accused-petitioner on bail.
The bail application under Section 439 Cr.P.C. is allowed and it is ordered that the accused-petitioner Rajesh Sharma S/o Murari Lal in connection with FIR No.32/2024 registered at Police Station Khandar, District Sawai Madhopur shall be enlarged on bail provided he furnishes a personal bond in the sum of Rs.1,00,000/- with two sureties of Rs.50,000/- each to the satisfaction of the learned trial Judge for his appearance before the court concerned on all the dates of hearing as and when called upon to do so.
Bail application allowed.
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2024 (2) TMI 1439
Seeking grant of regular bail - recovery of 135 grams of Cocaine was made from the house of the co-accused - case of the prosecution is based upon the disclosure of the co-accused Justin Izuchukwu Samuel - HELD THAT:- It is relevant to note that while the veracity of the disclosure statement of the co-accused is to be tested at the time of the trial, however, this Court cannot lose sight of the decision of the Hon’ble Apex Court in the case of TOFAN SINGH VERSUS STATE OF TAMIL NADU [2020 (11) TMI 55 - SUPREME COURT]. It was held that a disclosure statement made under Section 67 of the NDPS Act is impermissible as evidence without corroboration.
The present case relates to the recovery made from the coaccused on 18.06.2021. The WhatsApp chats, even assuming to be in relation to the sale and purchase of contraband, at this stage, do not appear to be in relation to the recovery made, which led to filing of the complaint in the present case - It is not the case of the prosecution that, at the contemporaneous time, the applicant was in contact with the co-accused in relation to the contraband which was seized from the co-accused on 18.06.2021.
The Courts are not expected to accept every allegation made by the prosecution as a gospel truth. The bar, as provided in Section 37 of the NDPS Act, cannot be invoked where the evidence against the accused appears to be unbelievable and does not seem to be sufficient for the purpose of conviction of the accused - In the present case, the prosecution has been given an adequate opportunity to oppose the present application. In view of the facts of the case, prima facie, this Court is of the opinion, that at this stage there are reasonable grounds to believe that the applicant is not guilty of the alleged offences. Moreover, it is also not disputed that the applicant has clean antecedents, and is thus not likely to commit any offence whilst on bail.
The applicant is directed to be released on bail on furnishing a personal bond for a sum of ₹20,000/- with two sureties of the like amount, subject to fulfilment of conditions imposed - bail application allowed.
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2024 (2) TMI 1438
LTCG - Addition u/s 50C - sale of tenancy rights in Premises - assessing the difference between the agreement value and the market value as determined by the stamp duty authorities as income by way of long-term capital gains - CIT(A), came to conclusion that the Appellate prepared tenancy agreement which was a colourable device for lower incidence of stamp duty as well as to get away with the violation of section 50C but enjoy all the benefits of ownership - contention of the assessee is that the assessee has not transferred the capital asset but only the tenancy rights therein and therefore provisions of section 50C is not applicable.
HELD THAT:- Clauses of the agreement it is clear that the assessee has transferred only the tenancy rights in the property owned by the assessee and the tenant has acquired only the right to use the property on payment of monthly rental subject to the conditions stated in the agreement. We further observed that though the agreement does not specify any end date it cannot be said to be a perpetual agreement since clause-8 contains terms by which the assessee has reserved the right to evict the tenant if the terms and conditions are breached. Therefore we tend to agree with the submission that there is no transfer of property in the given case but only the tenancy rights therein.
Section 50C of the Act is invoked when there is a transfer of capital asset being land or building or both. In assessee's case, however, the transfer is not of a capital asset but the tenancy rights of the property. Therefore, we see merit in the contention of the ld. AR that the AO is not correct in invoking the provisions of section 50C of the Act.
As relying on Ashwin Vardhichand Shah [2024 (2) TMI 688 - ITAT MUMBAI] we hold that the AO is not correct in making the addition u/s 50C of the Act. Accordingly, the addition is hereby deleted. Appeal of the assessee is allowed.
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2024 (2) TMI 1437
Scope of statutory alternative remedy - Petitioner has a statutory alternative remedy, we find no justification to entertain the instant writ petition. It shall consequently stand dismissed subject to liberty being reserved to the writ petitioner to raise all contentions before the appellate authority.
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2024 (2) TMI 1436
Disallowance u/s 14A - expenditure incurred on exempt income - HELD THAT:- Even if the assessee has not earned any exempt income, the issue is no longer res integra and there are several decisions to the effect that amendment made u/s 14A of the Act by Finance Act, 2022 will be applicable prospectively and disallowance should not exceed the exempt income earned by the assessee during the year. The PCIT has also noted the decision of Chettinad Logistics Pvt. Ltd. [2018 (7) TMI 567 - SC ORDER] and Oil Industries Development Board[2019 (3) TMI 1571 - SC ORDER] - Decided against the revenue.
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2024 (2) TMI 1435
Retraction of additional income disclosed under the head 'income from other sources/undisclosed income/undisclosed investment' - whether such a retraction was impermissible and unsustainable in law? - ITAT sustaining the deletion of Addition on account of retraction of additional income disclosed
HELD THAT:- What has weighed upon the ITAT is the fact that the waiver of INR 86 crores was in any case not chargeable in the hands of the individual assessees. It also appears to have taken into consideration the fact that Cellcap Securities being a foreign company was not taxable in India. With regards to the retraction or modulation of the original offer which was made, the ITAT observes that the same was based on incorrect legal advice and was retracted soon thereafter. More importantly, the ITAT notes that the appellant had not relied upon any material including that which may have been gathered in the course of the search and which may have justified taxation of INR 86 crores.
We thus find that the view as taken by the ITAT was clearly one which could be said to be reasonable and just in view of the facts that obtained.
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2024 (2) TMI 1434
Allowability u/s 37(1) - Expenditure incurred by the assessee on replacement of nine “ring frames” - whether Tribunal was erroneous in not properly appreciating the decision of Ramaraju Surgical Cotton Mills [2007 (8) TMI 39 - SUPREME COURT] a later decision of the Hon’ble Supreme Court and specifically referred to in the petitioner’s submission before the Tribunal?” - HELD THAT:- Identical question being inter parties have been decided today by this Court [2024 (2) TMI 1432 - CALCUTTA HIGH COURT] and both the questions have been answered against the assessee and in favour of the revenue.
Respectfully following order [supra] both the afore-quoted substantial questions of law are answered against the assessee and in favour of the revenue.
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2024 (2) TMI 1433
Penalty u/s 271B - not auditing accounts u/s 44AB - HELD THAT:- We note that the assessee has been showing commission income in his books of accounts and this fact has not been doubted by the authorities below. Therefore, we are of the view that the assessee was under the bona fides believe that his accounts are not liable to be audited under section 44AB of the Act.
We also find that the penalty is not levied automatically under the provision of law. The Authorities Below are empowered to waive the penalty if they find that there was sufficient and reasonable cause for not getting the accounts audited under the provisions of section 44 AB of the Act as per the provision of Section 273B of the Act.
The penalty can be waived off if the default was committed by assessee on account of unavoidable circumstances. Accordingly, we are of the view that the default has been committed by the assessee inadvertently. Thus we hold that, there cannot be penalty under section 44AB of the Act. Accordingly, we direct the Assessing Officer to delete the penalty levied u/s 271B of the Act. Hence, this ground of appeal of the assessee is allowed.
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2024 (2) TMI 1432
Nature of expenditure - Allowability u/s 37(1) - expenditure incurred by the assessee on replacement of nine “ring frames” - whether is a revenue expenditure and allowable as deduction under Section 37? - Tribunal was erroneous in not properly appreciating the decision of the Hon'ble Supreme Court in RE: Ramaraji Surgical Cotton Mills, [2007 (8) TMI 39 - SUPREME COURT] a later decision of the Hon'ble Supreme Court and specifically referred to in the petitioner’s submission before the Tribunal?”
HELD THAT:- As per law settled; ring frame in a textile mill is an “independent and separate” machine. Each machine in a textile mill is part of the integrated process of manufacture and is integrally connected to the other machine in the mill for production of the final product. But this interconnection does not take away the independent identity and distinct function of each machine. Therefore, each machine in a textile mill is liable to be treated independently as such and not as mere part of an entire composite machinery of the spinning mill. Thus “ring frame”, at best, is part of an integrated manufacture process employed in a textile mill.
Therefore, replacement of an old ring frame by a new one would constitute the bringing into existence a new asset in place of the existing ring frame. Such a new asset in the assessee’s textile mill is not for temporary use but it gives an enduring benefit of better and more efficient production over a period of time.
In Lakshmi Sugar Mills P. Co. v. CIT [1971 (8) TMI 13 - SUPREME COURT] Hon'ble Supreme Court has held that bringing into existence a new asset or an enduring benefit for the assessee amounts to capital expenditure.
In Travancore Cochin Chemicals Ltd. [1977 (1) TMI 2 - SUPREME COURT] has held that an expenditure is of capital nature when it amounts to enduring advantage for the business. Repair is entirely different as it does not bring into existence a new asset. Thus, amount spent by the assess on replacement of existing old ring frames by a new one is not of revenue nature rather it is capital in nature. Hence the amount so spent is not an allowable expenditure under Section 37 of the Act, 1961. Decided in favour of revenue.
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