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2024 (7) TMI 1422
Scope of limited scrutiny - assessee argued that the case is selected only for limited scrutiny, and therefore, it should only limit to verifying “Deduction against Income” which are covered u/s 57 - Applicability of the principle of mutuality to the assessee's income and expenditures - conflict with the mutuality principle by enforcing contributions from nonbeneficiary advocates - whether the statutory provision allowing benefits only to members while extracting contributions from non-members could invoke the principle of mutuality ? - process of raising contributions to the Andhra Pradesh Advocates' Welfare Fund is comprehensively delineated in the State Act - HELD THAT:- The interconnected nature of deductions and the principle of mutuality means that the learned Assessing Officer shall examine the issue of mutuality since directly impacts the evaluation of the deductions claimed. In this case, the requirement to verify the deduction against Income, is the implicit requirement that the learned Assessing Officer shall touch upon the mutuality issue to ensure accurate assessment of deductions. Since it is not possible to evaluate the deductions claimed, without examining the mutuality, and violation of mutuality principle is apparent on the face of provisions of Sections 15A and Section 15(1) of The State Act, learned Assessing Officer is justified in examining such an incidental issue also. Since the issue relating to the principal of mutuality is sine qua non for determining the issue of deductions claimed by the assessee, and such an issue does not require any in-depth examination, question of obtaining the permission of higher authorities does not arise. . On this score, we reject the contention of the assessee.
Principle of mutuality - The argument advanced by the learned AR that a statute's provisions override this requirement and allow benefits only to members is not convincing. Hon’ble Supreme Court’s rulings in Chelmsford Club [2000 (3) TMI 4 - SUPREME COURT] made it clear that any breach of the identity between contributors and beneficiaries transforms the transactions into commercial ones, subjecting the surplus to taxation. Thus, the statutory mandate allowing benefits only to members while compelling contributions from non-members would not suffice to invoke the principle of mutuality and exempt the surplus from tax.
The doctrine of mutuality, which suggests that no person can trade with themselves, is breached when contributors to a common fund do not receive proportional benefits or when an entity operates with a profit motive. The Andhra Pradesh Advocates' Welfare Fund Act, 1987, inherently breaches mutuality by creating two classes of contributors: members and non-members. Members, who apply and are admitted to the Fund, are entitled to various benefits, while non-members are excluded. This differentiation disrupts the principle of mutuality, as not all contributors to the welfare mechanism receive reciprocal benefits.
No doubt, the Welfare Fund's structure does not align with typical commercial entities, as it is intended for the welfare of advocates rather than profit generation, but, at the same time, the differential treatment of advocates and the Fund's independent financial operations suggest a quasi-commercial character. Under Section 10, the Fund engages in activities like borrowing and investment, which are characteristic of commercial enterprises. Although these activities are for welfare purposes, the financial autonomy and the ability to generate income from various sources, namely, donations, investments etc., impart a commercial aspect to the Fund's operations.
Despite the statutory mandate and however high the primacy of statutory objectives and legislative intent in determining the character and legality of an entity’s operations, given the patent breach of mutuality, in the light of various decisions of Hon'ble apex court referred to above, the Fund is not entitled to the exemption on the ground of mutuality.
The doctrine of repugnance, as outlined in Article 254 of the Indian Constitution, addresses conflicts between laws passed by both the Central and State legislatures. This doctrine is typically invoked when a State law is repugnant to a Central law, necessitating the determination of which law prevails. According to Article 254(1), if a State law is repugnant to a Central law, the Central law prevails, and the State law becomes void to the extent of the repugnancy. However, Article 254(2) allows a State law to prevail in that State if it has received the President’s assent, although Parliament can subsequently override such State law.
When a Central Act explicitly states its non-application in areas where there is State legislation on the same subject, the invocation of the doctrine of repugnance is unnecessary. The Central Act's provision for its own non-application in the presence of State law avoids any conflict, thus negating the need for Article 254 to be applied.
We, therefore, hold that the doctrine of repugnance does not apply when a Central Act contains a clause that excludes its application where State legislation exists on the same subject. This clause demonstrates a clear legislative intent to defer to State law, effectively resolving potential conflicts and making the invocation of the doctrine of repugnance superfluous.
The scheme and framework of The State Act reinforces that expenditures are application of received funds, conducted in a structured and regulated manner, but does not grant an overriding title to any authority to spend the funds without leaving any discretion to the Committee. On the other hand, it mandates the collection, management, and application of receipts through a structured process governed by the Welfare Fund Committee, ensuring that all actions are within the framework of The State Act. We, therefore, hold that The State Act does not provide an overriding title for spending funds for the objectives of the Fund, but rather outlines the application of receipts after they are received.
In the framework of Income Tax Act, exemption provisions specifically Section 23, are conditional upon adherence to the mutuality principle and fulfilment of requirements set forth in Sections 11 and 12A. Conversely, Section 23 of the Andhra Pradesh Advocates’ Welfare Fund Act, 1987, also claims exemption from income tax, which poses a conflict due to the violation of the mutuality principle. Because of glaring breach of mutuality principle, despite the statutory objectives and legislative intent of the Andhra Pradesh Act, it cannot override or encroach upon the domain of central legislation concerning taxation. We accordingly find it difficult to accept the contention of the assessee.
For the reasons recorded in the foregoing paragraphs, we are of the considered opinion that the impugned orders do not suffer any illegality or irregularity, and therefore, we uphold the same. Consequently, the appeal is found devoid of any merits and dismissed. Appeals of the assessee are dismissed.
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2024 (7) TMI 1421
Unexplained cash credit u/s 68 - opening balance in respect of unsecured loans taken by the assessee in earlier financial years - HELD THAT:- It is well settled law that addition u/s. 68 of the Act can be made only during the year in which such credits has been received and if the credit balances appearing in the account of the assessee is not pertaining to the year under consideration, the AO cannot make addition u/s. 68 of the Act in the subsequent assessment year. This view is supported by the decision of the ITAT Ahmedabad Benches in the case of Samir J Shah [2023 (4) TMI 96 - ITAT AHMEDABAD]
Accordingly, so far as the addition u/s. 68 of the Act on account of opening balances b/f are concerned, we are restoring this issue to the file of AO to verify/examine that out of the closing balances of Unsecured Loans as on 31/03/2017 how much were brought forward from the earlier years and accordingly delete the additions on Account of Opening Balances added u/s. 68 of the Act.
Balance of unsecured loans taken/accepted during the year under consideration - We also restoring this issue to the file of AO for fresh consideration with a direction to examine/verify the identities of the parties more particularly having sent their reply u/s 133(6) of the Act from the same Address as that of the Assessee in respect of the transactions entered in the year under consideration, genuineness of the Transactions & creditworthiness of the parties and to decide this issue in accordance with Law after giving reasonable opportunity of being heard.
Appeal filed by the assessee is partly allowed for statistical purposes.
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2024 (7) TMI 1420
Addition u/s 69A - unexplained money - HELD THAT:- As following the decision of Kesharwani Sheetalaya Sahsaon [2020 (4) TMI 765 - ALLAHABAD HIGH COURT] we are of the considered view that once the assessee explained the source for purchase of property out of capital contribution from Partners, then the AO cannot make addition towards investment in purchase of property in the hands of the appellant firm as unexplained money u/s 69A - CIT (A) without appreciating the relevant facts and without any valid reasons enhanced the assessment and made addition towards the amount for purchase of property as unexplained money for the impugned asst. year. Thus, we reverse the findings of CIT (A) and delete the enhancement in the case of the assessee u/s 69A.
Addition u/s 68 - consideration paid for purchase of property by cheque and towards stamp duty and registration charges for registration of the property - As we are of the considered view that when the entire contribution has been received from the Partners as a capital contribution and since the identity of the Partners are established and also the investment has been routed through proper banking channels, the question of making addition towards the consideration paid by cheque u/s 68 and amount paid for stamp duty and other registration charges by cheque u/s 69A does not arise. Therefore, we reverse the findings of CIT (A) on this addition and direct the AO to delete the addition made u/s 68 and 69A of the I.T. Act, 1961.
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2024 (7) TMI 1419
Revision u/s 263 - Character of income - rental income as business income or house property income - assessee has claimed deduction under section 24 of the Income Tax Act towards repairs and maintenance of such house property income - CIT was of the opinion that this issue has not been examined by the ld. Assessing Officer in the assessment order - HELD THAT:- There is a major shift in recognition of his income from house property. It is not ascertainable as to how the assessee has given different treatments to the same agreement. He has shown such rental income as a business income and then all of a sudden, he has a house property income. The income could be a house property income, but the shift made by the assessee has not been examined by the AO in the impugned assessment order. Therefore, an apparent error has been committed by the AO which has caused a prejudice to the interest of revenue.
As far as the judgment which has been upheld in the case of Shambhu Investment (P) Ltd. [2001 (3) TMI 77 - CALCUTTA HIGH COURT] is concerned, in this judgment, Hon’ble Courts are unanimous to propound that whether rental income is to be treated as a business income or house property income, it would depend upon the nature of agreement and user of the premises. In that case, the assessee had let out portion of the said property to various occupants by giving them additional right of using furniture and fixtures and other common facilities.
The rental income was assessed as a business income. How this exercise has not been done by the AO in the present case in A.Y. 2015-16. It is also pertinent to note that prior to A.Y. 2015-16, the assessee himself was showing rental income under the head “business income”. In this year, there is a change in the methodology, therefore, before accepting that change, AO ought to have enquired as to how the same agreement can give rise to income as a house property income. Therefore, ld. Commissioner has not committed any error while exercising the powers u/s 263. Decided against assessee.
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2024 (7) TMI 1418
Disallowance of loss arising out of trading in shares - bogus transaction - AO has given a finding that he was of the considered opinion that the trading loss arising on account of dealing in penny shares, that too at the fag end of the financial year, could not be understood from any prudent commercial point of view - HELD THAT:- Considering the finding given in the order of Namokar Builders Pvt. Ltd. [2024 (5) TMI 1454 - ITAT KOLKATA] and the fact that the ld. AO has not been able to prove that the impugned transactions were bogus and merely intended to neutralize the gain in trading of shares of M/s. Eros International Media Ltd, we are not inclined to agree with the findings of authorities below. We are also considerably persuaded by the argument that whereas the AO has adversely viewed the incurring of loss, he has taken the transaction leading to gain as being genuine.
In our view this is a selective interpretation of the facts before him in as much as the ld. AO has cherry picked whatever is convenient to him and ignored what is not. Also, the very graphs reproduced in the body of the AO’s order show that millions of shares are being transacted in the three companies in which loss has occurred, with the assessee trading in those shares in the thousands only.
Therefore, any allegation of rigging the markets to suit a particular convenience is not borne out by the facts before us. Considering the totality of facts and circumstances and following the order in the case of NBL [2024 (5) TMI 1454 - ITAT KOLKATA] we hold that the impugned addition deserves to be deleted, with consequential relief to the assessee.
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2024 (7) TMI 1417
Addition w.r.t. increase in proprietor's capital - addition u/s. 68 w.r.t. increase in proprietor's capital considering the same as unexplained - HELD THAT:- As submitted by the assessee before us alongwith relevant ledgers of the above mentioned parties and demonstrated that the parties and amounts mentioned above are in the nature of trade capitals i.e. purchases were made in the previous years, but as the liability is no longer enforceable against the assessee, hence the same are written back and instead of routing the same through profit and loss account, directly credited to the capital account of the assessee.
This fact is not under challenge by either of the parties; hence the same is taxable undoubtedly. The orders of the lower authorities are confirmed with a variation that being trade creditors written off, same is taxable u/s. 41(1) of the Act instead of charging the same u/s. 68 - With this observation, there is a partial relief to the assessee in terms of charging section, but amount of addition is confirmed. In the result, ground no. 1 raised by the assessee is partly allowed.
Unsecured loans - Assessee submitted before us the ITR carrying details like name of the party, PAN No., Aadhaar No. and Bank a/c details, etc - HELD THAT:- As observed that all the above parties declared ample figures of income and have sufficient funds in their balance sheets furnished alongwith return which confirms the identity, genuineness and creditworthiness of the parties concerned. Assessee looks to be fair in his treatment of various accounting entries may be the trade creditors or otherwise.
While adjudicating ground no.1 wherein assessee suo moto declared an amount as trade liability no longer exists and the same is chargeable to tax u/s. 41(1) of the Act. Documents pertaining to the above mentioned unsecured loan were submitted before us and there was no challenge on the same by the other side. Based on above, we found that addition is not justified and the overall behaviour of the assessee and documents produced before us confirms the ingredients of section 68 of the Act, hence ground no. 2 raised by the assessee is allowed.
Bogus purchases u/s 69C - HELD THAT:- As department was not able to substantiate the findings of the AO and also not able to controvert the findings of Ld. CIT (A). We have gone through the submissions of the assessee alongwith the orders of the authorities below and found that although the name of the party was there amongst the high risk billers, but there is no action was ever taken by the GST department against the party, moreover the AO simply relied on a red flag shown by the Central Board of Indirect Taxes and Customs (CBIC), there was no objective investigation or observation was there against the party which confirms this addition / disallowance. Based on above, we do not see any perversity in the order of Ld. CIT (A), hence the same is confirmed and grounds raised by the revenue are dismissed.
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2024 (7) TMI 1416
Unexplained cash credit u/s. 68 - AO was not satisfied with the justification regarding share premium for want of evidence in respect of identity, creditworthiness and genuineness of the parties from whom share premium was received - HELD THAT:- Admitted under rule 46A of the rules and the final remand report submitted before learned CIT(A), the identity, genuineness of the transaction and the creditworthiness of the investor were unambiguously established in respect of the share capital and premium raised by the appellant by issue of preferential shares. We find that learned CIT(A) has left no stone unturned in taking out the grains from chaff.
CIT(A) has rightly deleted the aforesaid addition as share capital & premium raised by the assessee on the basis of cogent and convincing evidence as stated hereinabove. No interference is warranted in the impugned order to this effect. The first point in respect of ground–1, is determined in negative against the revenue.
Addition on account of section 14A - A Careful reading of the assessment order shows that learned AO found that the assessee company was in receipt of dividend which was claimed exempt u/s. 10(34) of the Act, however assessee did not apportion any expenditure attributable to the exempt income. AO thus computed interest expenditure by resorting to the computation as provided under rule 8D(2)(ii) of the Rules and worked out such interest expenditure.
CIT(A), on examination of assessee’s balance sheet found that as on 31.03.2012, appellant assessee had paid up share capital of Rs. 14.48 Crores and reserve and surplus of Rs. 151.97 Crores. The investment, yielding exempt income, were shown at Rs. 48.70 Crores as on 31.03.2012 as against 1.13 Crores as on 31.03.2011. It was noted that assessee’s own fund aggregating to Rs. 166.45 Crores were much higher than the investments of Rs. 48.70 Crores that yield exempt income.
Relying on HDFC Bank Limited [2014 (8) TMI 119 - BOMBAY HIGH COURT] CIT(A) deleted the aforesaid addition on the principle that if there are funds available, both interest free and interest bearing loans, than a presumption would arise that investments would be out of interest–free funds, generated or available with company provided that said funds are sufficient to meet investments. On the basis of assessee’s balance sheet, the reserves and surplus funds are in multiple times than the share capital of the assessee company. CIT(A), has thus rightly deleted the aforesaid addition.
Determination of tax dues for a corporate debtor under liquidation, referencing the Insolvency and Bankruptcy Code (IBC) - In view of law laid down by Hon’ble Apex Court in Sundaresh Bhatt [2022 (8) TMI 1161 - SUPREME COURT] there is no shadow of any doubt that when the defaulter/corporate debtor goes either into corporate insolvency resolution process or under liquidation, the taxing authorities can stake their claims of tax dues either before the resolution professional or before liquidator or before the adjudicatory authority, as the case may be, within the time-limit for completion of insolvency resolution process provided under IBC.
Proactive approach of the taxing authorities to stake the claim of dues as creditor, immediately after determination of tax dues subject, of course to the outcome of any pending appeal, may substantiate the claim to a larger extent as the claim has to go through the waterfall mechanism provided u/s. 53 of the IBC as explained by Hon’ble Apex Court in Rajendra Prasad Tak [2023 (11) TMI 626 - SC ORDER] The copy of this order be sent to CBDT with a request to issue necessary directions to the concerned taxing authorities to avoid any possibility of extinction of such public dues, whenever the corporate debtor goes either into the corporate insolvency resolution process or under liquidation.
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2024 (7) TMI 1415
Validity of reopening of assessment - non-disposal of the objection filed by the assessee - exemption u/s 10(38) of long term capital gain on sale of shares be treated as unexplained cash credit u/s 68 by treating the same as a sham transaction - HELD THAT:- During the course of original assessment proceedings the assessee has made compliance with all the queries and detail called by the assessing officer on the issue of long term capital gain claimed on the sale of shares.
Also undisputed fact that assessing officer has not disposed off the objection filed by the assessee in respect of reopening of the case as directed in the case of GKN Driveshaft [2002 (11) TMI 7 - SUPREME COURT].
Therefore, we don’t find error in the decision of ld. CIT(A) in holding that reassessment order in the case of the assessee was passed by the assessing officer without justification on account of non-disposal of the objection filed by the assessee.
Assessee has demonstrated from the copies of various material as discussed supra in this order and in the finding of ld. CIT(A) that in the original assessment proceedings, the AO has specifically raised issue regarding information received from DIT(Investigation) Kolkata relating to claim of long term capital gains from operators and the AO has obtained the various explanation of the assessee and did not make any addition after raising the issue in the show cause notice issued.
During the course of assessment proceedings before us the assessee has also referred the decision of Kalpataru Land P. Ltd. [2022 (10) TMI 365 - SUPREME COURT] and case of TechSpan India (P) Ltd. [2018 (4) TMI 1376 - SUPREME COURT] on the proposition that when the assessing officer finalised the assessment and passed assessment order subsequent reopening can be said to be change of opinion on the similar information.
CIT(A) held that reopening of the assessment for the assessment year 2014-15 is bad in law as the conditions precedent for invoking the provision for reopening of the assessment are not complied, therefore, the assessment order passed u/s 143(3) r.w.s 147 of the Act was quashed. No infirmity in the decision of ld. CIT(A) and the ld. CIT(A) has rightly quashed the assessment order, therefore, all the grounds of the revenue stand dismissed.
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2024 (7) TMI 1414
Validity of assessment u/s 153C - said provisions are not applicable on the facts of the case - notice is issued to the 'other person' under Section 153C - difference to the computation of the block of six years preceding the AY relevant 'to the previous year /in which the search was conducted - HELD THAT:- We have taken into consideration the aforesaid findings of the CIT(A) and the relevant dates of search, recording of satisfaction and transmission of record are as such not disputed, then CIT(A) was not in error to rely the judgment of RRJ Securities Ltd. [2015 (11) TMI 19 - DELHI HIGH COURT].
In the present case since in the case of the 'other person' the AO issues notice only subsequent to the notices issued under Section 153 A to the searched person, the starting point for computation of the block period would be the date on which, based on the seized documents, notice is issued to the 'other person' under Section 153 C of the Act. Thus in the present case, the six year period prior to AY 2012-13 i.e. AY 2007-08 to AY 2012-13. Thus no notice could be issued under Section 153 C of the Act to reopen the Assessee's assessment for A Y 2006-07
In fact, the manner in which ground No. 1 to 3 are raised, without relying any contrary judicial decision, makes the grounds, superfluous. We have no reason to differ from the conclusion drawn by CIT(A). Accordingly, ground No. 1 to 3, of the appeal of revenue, which go to the root of the exercise of jurisdiction, cannot be sustained. Consequently, the appeal of the Revenue is dismissed.
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2024 (7) TMI 1413
Seeking quashing of complaint case as well as the summoning order - owner and beneficial owner of the foreign currency - whether the exoneration of the petitioner was on technical grounds or based upon merits? - HELD THAT:- The refusal of the Supreme Court as well as by Division Bench of this Court to interfere in the order passed by the CESTAT was after due consideration of the facts. A plain reading of the order passed by CESTAT leads to an irresistible conclusion that the decision by CESTAT, thereby exonerating the petitioner, is not on technical grounds but a conclusion based upon merits. The entire proceedings clearly show that the aforesaid adjudication had attained finality, and it had been determined that the petitioner was not the ‘beneficial owner’ of the foreign currency/exchange and could not be held liable.
Further, insofar as the aspect of the petitioner being considered a beneficial owner is concerned, it must be noted that HMC (of which the petitioner was the Executive Chairman) and SEMPL are two distinct entities, and as recorded in the order passed by the Additional Commissioner of Customs, SEMPL was one of the independent, specialist third party service provider which provided certain services and raised invoices qua the same, which were duly paid by HMC. There existed no agent-principal or master-servant relation between SEMPL & HMC, and all transactions between them were on arms-length basis, duly audited by the statutory auditors of HMC.
Considering the aforesaid aspect as well as the categorical admission by the petitioner that he was unaware that Mr. Bali was carrying such foreign exchange and that he used to manage the personal expense from his own cards, it cannot be said that the said foreign exchange was being carried on his behalf. Thus, the conditions as regards being a ‘beneficial owner’ have not been satisfied qua the petitioner in the present case.
The petitioner not being the ‘beneficial owner’ as well as the fact that the subject complaint has been filed based upon the same facts as have been conclusively determined by the learned CESTAT, this Court finds that the continuation of the subject complaint would be nothing but an abuse of the process of law.
The complaint case as well as summoning order is quashed - petition allowed.
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2024 (7) TMI 1412
Refund of SAD - Applicability of Circular No. 18/2013-Cus dated 29.04.2013 - it is contended that appellant was not aware of the new Circular issued by the Director General of Foreign Trade - HELD THAT:- While it may be a fact that, based on the subsequent Circular issued by the Central Board of Excise and Customs (which has since been annulled by the Delhi High Court in the decision in Allen Diesels India Pvt. Ltd. [2016 (2) TMI 247 - DELHI HIGH COURT], the appellant did not satisfy a pre-condition for claiming refund, the fact remains that the payment of 4% SAD effected by the appellant at the time of import of the goods, albeit by debiting the DEPB scrips, was accepted by the Customs Authorities, who recognised the said payment as in the discharge of the appellant's liability in respect of the import duties at the time of import of the goods. If that be the case, then notwithstanding the Circular dated 29.04.2013 aforementioned, the respondents cannot take a stand that there was no "payment" of the 4% SAD by the appellant at the time of import of the goods.
At any rate, since the Delhi High Court has already annulled the Circular dated 29.04.2013, the respondents are now legally obliged to consider the refund application preferred by the appellant independently, on its merits, to see whether the conditions specified in Notification 102/2007-Cus dated 14.09.2007 have been satisfied by the appellant.
The Writ Appeal is allowed by setting aside the impugned judgment of the learned Single Judge and by directing the respondents to process the application for refund preferred by the appellant within a period of one month from the date of receipt of a copy of this judgment, after hearing the appellant.
Appeal allowed.
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2024 (7) TMI 1411
Refund of excess paid customs duty with interest at applicable rate from the date of deposit till the date of refund - rejection on the ground that NIC has not confirmed integration of payments of duties of customs - HELD THAT:- The issue involved in the present case is of grant of interest by the learned Commissioner (Appeals) from the date of deposit till the date of refund paid at the prescribed rate.
As per the respondent, the amount of interest, if calculated @12%, comes to Rs.7,89,678/- in Appeal No. C/60381/2022 and Rs.13,590/- in Appeal No. C/60382/2022 respectively. The decision of this Tribunal in the case of COMMISSIONER OF CUSTOMS ICD PATPARGANJ & OTHER ICDS VERSUS VSM IMPEX PVT. LTD. [2024 (5) TMI 1404 - CESTAT CHANDIGARH] is gone through wherein Division Bench of this Tribunal vide Final Order No. 60260-60285/2024 dt. 22.05.2024 has rejected 26 appeals filed by the Revenue under the National Litigation Policy by holding that the appeals filed by the Revenue are not maintainable in view of the instructions dated 02.11.2023 issued by the CBIC.
The present two appeals are also not maintainable in view of the instructions dated 02.11.2023 issued by the CBIC - both the appeals of the Revenue dismissed without going into the merits of the case.
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2024 (7) TMI 1410
Levy of Customs Duty - 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 Tribunal in the case of Navyug Ship Breaking Co. [2022 (12) TMI 100 - CESTAT AHMEDABAD] becomes relevant where it was held that 'the Oil contained in Bunker Tanks outside the engine room of vessel, despite duty was paid under protest, there is , however, no speaking order passed as regards the same, It can be seen that if the tank 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 not 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 Tacks 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 Navyug Ship Breaking Co - Appeal allowed by way of remand.
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2024 (7) TMI 1409
Classification of the imported goods - IC-Codecs - To be classified under Customs Tariff Item [CTI] 8542 39 00 of the Customs Tariff Act 1975 or under CTI 8517 62 90? - onus to prove - whether the imported goods are “apparatus” or “machines”? - benefit of exemption Notification dated 01.03.2005 - HELD THAT:- The goods imported are electronic integrated circuits used in the process of manufacture of mobile phones and tablets. The items covered under CTH 8517 constitute a complete machinery or apparatus in itself. The goods imported would not satisfy any of the description of goods covered under CTH 8517 as the ICs-Codecs cannot be described either as a machine or as an apparatus. The goods in the present case i.e. ICs are merely electronic integrated circuits.
In the present case, the goods are IC chips which are incapable of stand-alone function or connection with any other device. The ICs are only capable of functioning as compressor/decompressor upon connection with external peripherals like power supply and interface. The goods imported only interact with components which are mounted on the PCB. No network like LAN/WAN is established between the impugned goods and other components of PCB. The imported goods are not in the nature of machines or apparatus which are deployed in a network like LAN/WAN.
CTH 8542 deals with “electronic integrated circuits” i.e. ICs. They would, therefore, be specifically covered under CTH 8542 - HSN Explanatory Notes to CTH 8542 provides that monolithic ICs may be in the form of un-diced wafers. The IC-Codecs, as imported by the appellant, are in form of rolls i.e., un-diced wafers - the goods imported by the appellant are IC-Codecs and are classifiable under Customs Heading 8542 and more specifically under CTI 8542 39 90.
Benefit of exemption Notification dated 01.03.2005 - HELD THAT:- The appellant is entitled to the benefit of exemption Notification dated 01.03.2005, which exempts whole of the customs duty leviable on the goods imported into India falling under CTH 8542.
As the order on merits cannot sustain, the appeal filed by the department deserved to be dismissed - Appeal of assessee allowed.
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2024 (7) TMI 1408
Application u/s 7 of IBC is barred by limitation - maintainability of second Application under Section 7 of IBC, against the Corporate Debtor as for the same debt and default - CIRP has already been taken place against the Corporate Guarantor and the Financial Creditor has accepted the amount in full and final settlement of all its dues - HELD THAT:- There is no dispute that the 1st respondent financial creditor had granted a loan of Rs.100 crores to the 2nd respondent corporate debtor. The loan was secured by the corporate guarantee furnished by ACIL, which is the holding company of the corporate debtor. There is no dispute that the 2nd respondent-corporate debtor committed a default in payment of the loan amount. Therefore, the guarantee was invoked by the 1st respondent-financial creditor, which led to the filing of an application under Section 7 of the IBC against ACIL. The CIRP of ACIL was completed, and the resolution plan was approved. The claim lodged by the 1st respondent-financial creditor was of Rs.241.27 crores. However, as per the resolution plan, the 1st respondent-financial creditor had to accept a haircut as it was provided therein that the 1st respondent-financial creditor would get only a sum of Rs.38.87 crores from the resolution applicant.
Liability of Guarantor/surety - HELD THAT:- The law is very well settled. The liability of the surety and the principal debtor is co-extensive. The creditor has remedies available to recover the amount payable by the principal borrower by proceeding against both or any of them. The creditor can proceed against the guarantor first without exhausting its remedies against the principal borrower. Chapter VIII of the Contract Act contains provisions regarding indemnity and guarantee.
Section 137 lays down a settled principle that it is not necessary for the creditor to first sue the principal debtor or adopt a remedy against him. If the creditor omits to do that, unless there is a contract to the contrary, it will not amount to discharge of the surety. This means that without proceeding to recover the debt against the principal debtor, the creditor can proceed against the surety unless there is a contract to the contrary. Even if the creditor discharges one surety, it will not amount to the discharge of the other surety. There are two other contingencies provided under Sections 138 and 139 - if there is a compromise or settlement between the creditor and the surety to which the principal borrower is not a consenting party, the liability of the borrower qua the creditor will remain unaffected. The provisions regarding the discharge of the surety discussed above show that involuntary acts of the principal borrower or creditor do not result in the discharge of surety.
In the case of Lalit Kumar Jain [2021 (5) TMI 743 - SUPREME COURT], this Court dealt with the legal effect of approving the resolution plan in CIRP of the corporate debtor on the liability of the surety. This is in the context of Section 135 of the Contract Act, which provides that if the creditor compounds with or gives time or agrees not to sue the principal debtor, it amounts to discharge of the surety.
In such a loan transaction secured by a guarantee, the guarantor has an obligation to repay the loan amount to the creditor, and there is a separate and distinct obligation on the borrower to pay the amount to the creditor. Such a transaction creates a right in favour of the creditor to proceed against the guarantor and borrower for recovery. However, he has the right to recover the amount only to the extent of the loan amount payable by the borrower.
Simultaneous proceedings under the IBC against the Corporate Debtor and Guarantor - HELD THAT:- Sub-section (2) of Section 60 contemplates separate or simultaneous insolvency proceedings against the corporate debtor and guarantor. Therefore, sub-section (3) of Section 60 provides that if CIRP in respect of the corporate guarantor is pending before an adjudicating authority and if the CIRP against the corporate debtor is pending before another adjudicating authority, CIRP proceedings against the corporate guarantor must be transferred to the adjudicating authority before whom CIRP in respect of the corporate debtor is pending. Thus, consistent with the basic principles of the Contract Act that the liability of the principal borrower and surety is co-extensive, the IBC permits separate or simultaneous proceedings to be initiated under Section 7 by a financial creditor against the corporate debtor and the corporate guarantor.
Whether the assets of the Corporate Debtor were part of CIRP in respect of ACIL, Corporate Guarantor - HELD THAT:- There is a mandate of clause (d) of sub-section (4) of Section 36 of the IBC that the assets of an Indian subsidiary of the corporate debtor shall not be included in the liquidation estate assets and shall not be used for the recovery in liquidation. Section 18 entrusts several duties to the IRPs concerning the corporate debtor's assets. Consistent with the provisions of Section 36(4)(d), the explanation (b) to Section 18(1) provides that the term ‘assets’ used in Section 18 shall not include the assets of any Indian subsidiary of the corporate debtor. Perhaps the reason for including these two provisions is that it is well-settled that a shareholder has no interest in the company's assets.
A holding company and its subsidiary are always distinct legal entities. The holding company would own shares of the subsidiary company. That does not make the holding company the owner of the subsidiary's assets - the assets of the subsidiary company of the corporate debtor cannot be part of the resolution plan of the corporate debtor.
By virtue of the CIRP process of ACIL (corporate guarantor), the 2nd respondent-corporate debtor does not get a discharge, and its liability to repay the loan amount to the extent to which it is not recovered from the corporate guarantor is not extinguished.
Subrogation u/s 140 of the Contract Act - HELD THAT:- The words used in Section 140 are “upon payment or performance of all that he is liable for”. When the principal debtor commits a default and when the liability under the deed of guarantee of the surety is not limited to a particular amount, its liability is in respect of the entire amount repayable by the principal debtor to the creditor. The words ‘all that he is liable’ used under Section 140 cannot be ignored. The principal borrower must continuously indemnify the surety. Section 140 of the Contract Act may be founded on the said obligation - the surety gets invested with the rights of the creditor to recover from the principal debtor the amount which was paid as per the guarantee. If the surety pays only a part of the amount payable to the creditor, the equitable right the surety gets under Section 140 will be confined to the debt he cleared.
Only the liability of ACIL under the corporate guarantee to repay the loan to the 1st respondent-financial creditor has been extinguished on the payment of Rs.38.87 crores. By the involuntary act of the creditor of accepting part of the amount from the surety in the discharge of the entire liability of the surety, even if Section 140 is attracted, it will confer on the guarantor or the appellant the right to recover only the amount mentioned above from the corporate debtor. The subrogation will be only to the extent of the amount recovered by the creditor from the surety.
The view taken by NCLAT cannot be faulted. Accordingly, the appeal is hereby dismissed.
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2024 (7) TMI 1407
Non-affording of personal hearing to the petitioner - Suspension of registration under the Foreign Contribution (Regulation) Act, 2010 - allegation that there has been mis-management of funds of foreign contributors - whether the petitioner should have been afforded a personal hearing in terms of sub-section (2) of Section 14 of the Act prior to passing of the order dated 04-09-2023?
HELD THAT:- The words “reasonable opportunity of being heard” cannot be read in isolation. They have to be read along with sub-section (3) of Section 14 of the Act, the consequences of passing of an order of cancellation.
Sub-section (2) of Section 14 of the Act permits cancellation of registration. The consequence thereof is found in sub-section (3) which permits no registration under the Act for an entity which suffered cancellation for a period of three years. This is the dire civil and economic consequence that would ensue. Therefore, it cannot be said that sub-(2) of Section 14 of the Act is restricted only to hearing, hearing would mean only issuance of a show cause notice. Therefore, the contention of the learned Central Government Counsel is to be repelled and is accordingly repelled. I am in respectful agreement with what the learned single Judge of the High Court of Madhya Pradesh has held, interpreting sub-section (2) of Section 14 of the Act. Principles of natural justice, is trite cannot be stretched to unlimited extent. But, it is equally trite that when consequences thereof are grave, it should be complied with in its entirety even stretching in a little further.
Therefore, the words depicted in the Act ‘reasonable opportunity of being heard’ cannot be restricted to issuance of a show cause notice but a personal hearing in the peculiar facts of the case owing to the peculiarity of sub-section (3) of Section 14 of the Act must have been afforded to the petitioner. Non-affording of personal hearing to the petitioner has rendered the order unsustainable and the unsustainability of it, would lead to its obliteration. Let there be no confusion that there can always be a fusion between hearing and personal hearing.
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2024 (7) TMI 1406
Money Laundering - predicate offence - involvement of an illegal racket of kidney transplantation and committed various offences including the offence punishable under section 307 IPC and the offences punishable under sections 18/19/20 of TOHO Act which are scheduled offences under PMLA.
If in case an accused is acquitted/discharged in a predicate offence, in that eventuality, whether the prosecution initiated by the respondent/ED can be allowed to be continued or is liable to be quashed?
HELD THAT:- The above issue was considered by the Supreme Court in case of Vijay Madanlal Choudhary [2022 (7) TMI 1316 - SUPREME COURT] and it was observed that 'The Authorities under the 2002 Act cannot prosecute any person on notional basis or on the assumption that a scheduled offence has been committed, unless it is so registered with the jurisdictional police and/or pending enquiry/trial including by way of criminal complaint before the competent forum. If the person is finally discharged/acquitted of the scheduled offence or the criminal case against him is quashed by the Court of competent jurisdiction, there can be no offence of money-laundering against him or any one claiming such property being the property linked to stated scheduled offence through him.'
A Coordinate Bench of this Court in case of Nayati Healthcare [2023 (10) TMI 822 - DELHI HIGH COURT] has also considered the issue whether the prosecution initiated by the respondent/ED can be continued in a case where the accused has already been acquitted/discharged for the predicate offence, where it was held that 'the present complaint filed by the ED and the proceedings arising therefrom cannot survive. Considering that the FIR has been quashed by this court and that it has not been challenged till date, there can be no offence of money laundering under section 3 of the PMLA against the petitioners.'
Thus, the present complaint filed by the respondent/ED and the consequential proceedings cannot survive. Considering that the co-accused Dr. Jeevan Kumar has been acquitted by the trial court vide judgment dated 22.03.2013 and that the said judgment has not been challenged till date, there can be no offence of money laundering under section 3 of PMLA against the petitioner. Accordingly, the impugned order is set aside qua the petitioner along with all consequential proceedings arising therefrom stated to be pending before the concerned court.
Petition disposed off.
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2024 (7) TMI 1405
Seeking to quash the impugned order passed by respondent No.2 under section 73 (1) of the erstwhile Finance Act, 1994, by invoking the extended period of limitation - jurisdiction of issuing the show cause notice under section 73 (1) of the Act - HELD THAT:- This Court is of the opinion that to invoke the proviso to Section 73 (1) of the erstwhile Finance Act of 1994, the necessary mandatory requirements are contemplated in the Act of 1994, which is ingrained in the proviso to section 73 (1) of the Act. The same has been stated in the show cause notice with regard to the petitioner being liable to pay the service tax and why penalties should not be imposed except for narrating in detail with regard to the requirements as contemplated under proviso to Section 73 (1) of the Act of 1994.
Once the show cause notice is issued under the proviso to Section 73 (1) of the erstwhile Finance Act, invoking the extended period of limitation beyond the 30 months and once an inquiry is conducted, opportunity is given to file reply when adjudication is held the grounds whatever urged by the petitioner herein would have to be challenged by way of an appeal provided under the Act of 1994, rather than challenging the jurisdiction of the revenue for issuance of the show cause notice - As subsequently in the course of the show cause notice and the hearing, the opportunity was provided to the petitioner to substantiate the same by answering the requirement of not registering himself under the service tax registration and payment of service tax.
The invocation of the writ jurisdiction under Article 226 of the Constitution of India whether could be entertained when there is an alternative efficacious remedy of appeal available under this statute. It is not in dispute, but in the present case, Section 85 of the Act, 1994 provides for appeal against any orders passed by the authorities. If at all the petitioner is aggrieved by the order of the authorities, he would have to approach the appellate authority rather than invoking the writ jurisdiction.
There are no good ground made or cogent reasons of the revenue having not provided sufficient cause and reasons to invoke the proviso to section 73 (1) of the Act, 1994, for the extended period of limitation - petition dismissed.
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2024 (7) TMI 1404
Rejection of refund of unutilized Krishi Kalyan Cess (KKC) u/s 142(9)(b) of the CGST Act, 2017 - HELD THAT:- This Tribunal in the case of Bharat Heavy Electricals Ltd. [2019 (4) TMI 1896 - CESTAT NEW DELHI] has held by relying the judgment in the case of Slovak India Trading Co. Pvt. Ltd. [2019 (4) TMI 1896 - CESTAT NEW DELHI] that assessee is eligible for cash refund of cesses lying as Cenvat credit balance as on 30.06.2017 in their accounts; but this judgment was appealed against by the department before the Hon’ble Madhya Pradesh High Court and the Hon’ble Madhya Pradesh High Court admitted the appeal - Further, the Hon’ble High Court in the meantime has directed that the refund granted by the Tribunal shall remain stayed till the final output of the appeal.
The Division Bench of this Tribunal in the case of Lupin Ltd. [2023 (3) TMI 741 - CESTAT HYDERABAD] has decided the issue of refund of KKC accumulated prior to 01.07.2017 holding that 'we reject the amount of refund for KKC RS 5.46,759/-, following the ruling of Larger Bench in the case of Gauri Plasticulture Pvt. Ltd [2019 (6) TMI 820 - BOMBAY HIGH COURT] wherein it was held that a non-utilised portion of Cenvat credit cannot be claimed as refund in cash, distinguishing the ruling in Union of India v. Slovok India Trading Company [2006 (7) TMI 9 - KARNATAKA HIGH COURT], as not a declaration of law under Article 141 of the Constitution.'.
Since, the Division Bench of this Tribunal in case of refund of KKC has decided in favour of Revenue, therefore, by following the ratio of the said decisions, it is opined that the appellants are not entitled to the refund of the KKC - appeals dismissed.
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2024 (7) TMI 1403
CENVAT Credit - tower and shelter in terms of Rule 2(k) of the CENVAT Credit Rules, 2004 - input service used for providing telecommunication services/passive infrastructure in terms of Rule 2(l) of the CENVAT Credit Rules, 2004 or not - HELD THAT:- The issue has been settled by this Tribunal in the case of COMMISSIONER OF CENTRAL EXCISE AND SERVICE TAX-GURGAON VERSUS BHARTI INFRATEL LIMITED [2019 (2) TMI 1736 - CESTAT CHANDIGARH], wherein this Tribunal has observed 'the assessee-appellant are entitled to avail cenvat credit on items, towers, shelter parts thereof being input used for providing output service.'
The CENVAT Credit availed by the appellant, is allowed - impugned order is set aside - Consequently, no demand is sustainable against the appellant - appeal allowed.
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