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2024 (7) TMI 1342
Maintainability of Advance Ruling application - Reversal of input tax credit to the extent of tax element in credit note - no agreement between applicant and original supplier saying that the credit notes should not be treated as financial/ commercial credit notes - no agreement between the applicant and the supplier to have the ITC claim reduced - mismatch of ITC claim figures between GSTR-3B and GSTR-2A figures - impact of incorrect claim of output tax liability reduction based on a financial/ commercial credit note issued by him to applicant.
Whether the questions on which advance ruling is sought are admissible as per the provisions of the CGST Act, 2017 governing advance ruling Sec. 97 of the CGST / SGST Act specifies about the application for advance ruling? - HELD THAT:- The questions regarding Liability to reverse input tax credit (ITC) based on credit notes and Eligibility to claim ITC based on original supply invoices, falls within the purview of clause (d) of sub-section (2) of Section 97 of the CGST Act, 2017; i.e, “admissibility of input tax credit of tax paid or deemed to have been paid”.
The question on Rejection of ITC claims due to mismatch between GSTR-3B and GSTR-2A and Impact of supplier's incorrect output tax liability reduction on applicant's ITC claim, are not in respect of any matter that IS specified in Sect. 97 (2) of the CGST Act. This authority being a creature of statute has to function within the limits of the jurisdiction conferred on it. Accordingly, the jurisdiction of this authority does not extend to Issue rulings on these questions.
It is seen that in the instant case it is apparent that the original supplier has issued credit notes with tax elements and reduced their output tax liability, resulted in mismatching of the input Lax credit available in GSTR 2A of the applicant and the ITC availed in GSTR-3B. The applicant has not furnished adequate reasons for the said mismatch; instead they have filed an application for advance ruling to the competent authority and also submitted their readiness to reply to the proceedings on the receipt of advance ruling.
The GSTR 2A of the applicant shows that the supplier had issued credit notes in the form of reducing selling price through Invoices and it is seen that the credit notes issued by the supplier to the applicant are not commercial ones - Further, the Jurisdictional Officer has reported that the applicant has been served with a notice GST ASMT-10 dated 09.07.2020 under Section 61 of the CGST/SGST Act 2017 to the applicant for the discrepancies noticed in the scrutiny as per the scrutiny task parameters. The advance ruling application has been filed by the applicant on 19.08.2021.
On a combined reading of the provisions governing advance ruling under Sect, 97 & 98 of the CGST Act it is evident that the authority shall not admit the application where the question raised in the application is already pending or decided in any proceedings in the case of an applicant under any of the provisions of the CGST/SGST Act - Therefore, it is apparent that, proceedings are pending against the applicant on the date of filing of advance ruling online application on 19.08.2021 and liable to be rejected under first proviso to Section 98 (2) of the Act.
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2024 (7) TMI 1341
Delay of 294 days in preferring the Special Leave Petition - Validity of Reopening of assessment - assessment of the petitioner company was not done u/s 143(1) but u/s 143(3) - Sanction / Satisfaction of the proper authority u/s 151(1) - Income Tax Officer, Ward-I, Tinsukia had obtained satisfaction of Additional Commissioner of Income Tax, an authority who is not covered by the provision of Section 151(1) - as decided by HC [2023 (5) TMI 963 - GAUHATI HIGH COURT] writ petition under Article 226 of the Constitution would be maintainable because the two pre-conditions for exercise of power under Section 148 does not exist in this case
HELD THAT:- As perused the application seeking condonation of delay. It is noted from the memorandum of special leave petition that the affidavit verifying special leave petition is dated 24.05.2024 and the special leave petition has been filed on 04.06.2024. However, of the application seeking condonation of delay what is stated is otherwise. The explanation offered for the said delay is also not satisfactory and neither is it sufficient in law to condone the same.
In the circumstances, the application seeking condonation is dismissed. Consequently, the Special Leave Petition is also dismissed on the ground of delay.
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2024 (7) TMI 1340
Taxability of receipts in India - Income deemed to accrue or arise in India - receipts from Indian customers for services provided outside the territory of India - whether taxable u/s 9 (1) (vi) of the Income Tax Act, 1961 read along with Article 12 of the DTAA between India and Singapore - According to the appellants, the receipts become taxable under the Act since the services provided are liable to be viewed as being in connection with the “use” or “right to use” of process or equipment - Scope of amendments introduced in Section 9 -
HELD THAT:- Section 90 is a self-contained code which enables the Union to bring a tax treaty into force and is not predicated upon Parliamentary legislation.
Convention and domestic legislation - Changes in domestic legislation cannot, principally speaking, override the treaty provisions. If a contrarian position were to be accepted, it would lead us to hold that treaty provisions could be amended or overcome based upon the will of Legislatures of independent nations to amend domestic legislation unilaterally and without being bound by the Convention.
That is clearly not the position which merits acceptance from either a constitutional or statutory point of view.
It is this fundamental position which appears to have weighed upon the Court in New Skies Satellite [2016 (2) TMI 415 - DELHI HIGH COURT] to observe that a treaty cannot be overridden by independent legislative amendments that a contracting nation may choose to introduce. The fact that treaty provisions supervene and the option available to the assessee to opt for the more beneficial scheme stands statutorily recognised and reiterated in Section 90 (2) of the Act.
Applicability of Section 9 (1) (vi) and its provisions being liable to be read as overriding provisions contained in a Treaty - The arguments raised by the appellants based on the language employed by Section 9 as well as the Explanations inserted therein are clearly misconceived. Quite apart from us having serious reservations as to whether those Explanations could legitimately be accepted as being clarificatory and designed to remove an existing ambiguity in the statutory position, we are of the firm opinion that those unilateral amendments introduced in a domestic law cannot be accorded an overriding effect over the provisions of the DTAA. Even otherwise and as would be evident from the discussion which ensues, the transaction in question would not become subject to taxation even if it were tested on the anvil of Section 9 (1) (vi). However, we defer that discussion to subsequent parts of this decision.
Use/ Right to use question - Legal position in New Skies Satellite [2016 (2) TMI 415 - DELHI HIGH COURT] constitutes a resounding negation of the submission that was addressed based on Article 3 (2) of the DTAA. The ancillary argument relating to the DTAA having not defined the word “process” must consequently and for reasons aforenoted suffer a similar fate. All that need be additionally observed is that the broad intent of the amendments comprised in Explanation 6 would not override the use and the right to use tests which form the bedrock of the royalty Article comprised in the DTAA. In any event, the essay of Explanation 6 cannot be interpreted in a manner which would essentially amount to a reintroduction of Section 9 (1) (vi) yet again through a secretive back door.
Of equal significance are the doubts which were expressed in respect of the amendments which were introduced in Section 9 and which was sought to be described to be clarificatory of the statutory position. Section 9 (1) (vi) speaks of situations where income by way of “royalty” would be deemed to have accrued or arisen in India. Explanation 2 of Section 9 (1) (vi) while defining the word “royalty” in Clause (i), provides for taxation of consideration received for the transfer of all or any rights (including the granting of a licence in respect of a patent, invention, model, design, secret formula or process or trademark for similar property). In clause (iii), the word “royalty” is conferred a further expansive meaning, extending its coverage to the use of any patent, invention, model, design, secret formula or process.
Explanation 6 of Section 9 (1) (vi) stipulates by way of a purported clarification that the expression “process” would include and shall be deemed to have always included transmission by satellite, cable, optic fibre or by any other similar technology irrespective of whether or no such process was secret.
We, on an overall analysis of all of the above, find no justification to either draw a different line or doubt the correctness of the decisions handed down in Asia Satellite and New Skies.
even though Section 9 in its amended form had come to exist on the statute book, no corresponding amendments were introduced in Article 12. In fact the category of activities which are spoken of in Explanation 6 were also not included in the Hong Kong, Romania, Latvia, Malaysia and Sri Lanka Treaties which came to be enforced thereafter. A provision seeking to encompass subjects covered by Explanation 6 is however found in the DTAA pertaining to the United Mexican States. These facts further fortify the view that we have taken in respect of the Section 9 amendments.
On an overall conspectus of the above, we have no hesitation in holding that the issues which were sought to be canvassed on these set of appeals stand conclusively answered and settled by this Court in Asia Satellite and New Skies Satellite. Any doubt that could have been possibly harboured with respect to the amendments introduced in Section 9 stand laid to rest by virtue of the binding declaration of the law by the Supreme Court in Engineering Analysis [2021 (3) TMI 138 - SUPREME COURT]
We are also of the firm opinion that even if one were to assume that Explanations 2 and 6 to Section 9 of the Act applied, the position would remain unaltered. This since there was no transfer or conferment of a right in respect of a patent, invention or process. Customers and those availing of the services provided by Telstra were not accorded a right over the technology possessed or infrastructure by it. The underlying technology and infrastructure remained under the direct and exclusive control of Telstra. Parties availing of Telstra’s services were not provided a corresponding general or effective control over any intellectual property or equipment. The agreements merely enabled them to avail of the services offered by it. Similarly, the expressions “use” or “right to use” as they appear in clauses (iii) and (iva) of Explanation 2 would have to be understood in light of the principles that we have enunciated hereinabove. A person who is provided mobile communication services or access to the internet does not stand vested with a right over a patent, invention or process.
The word “process” being liable to be construed ejusdem generis is lent added credence by clause (iii) employing the expression “or similar property” which follows. It thus clearly appears to be intended to extend to a host of intellectual properties. This we observe only as an aside since the question raised in these appeals stands conclusively answered in any case in light of our conclusions rendered in the context of the extent of the applicability of Section 9 of the Act and the scope of Article 12 of the DTAA.
Thus, we would answer the question posited in the negative and against the appellants. We hold that neither the concept of process nor equipment royalty stand attracted and the consideration is thus not taxable as per Article 12 of the DTAA.
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2024 (7) TMI 1339
Taxability of income in India - deduction with respect to salaries paid by the appellant in foreign currency and outside India, to the expatriates of the appellant working in India - Indo-Japan tax treaty - HELD THAT:- As following the decisions of Emirates Commercial Bank Ltd. [2003 (4) TMI 2 - BOMBAY HIGH COURT] this ground is allowed.
We also bear in mind the view expressed by the Supreme Court in Goetze (India) Ltd. [2006 (3) TMI 75 - SUPREME COURT] and where an exception was carved out in respect of the statutory prohibition of a deduction being claimed outside the Return of Income and of the same not being applicable in case of a direction issued by a Tribunal or Court.
The writ petition is accordingly allowed. We quash the order dated 13 May 2022 insofar as it denied relief to the petitioner in respect of the deductions which were liable to be made pursuant to the order of the Tribunal dated 03 June 2019.
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2024 (7) TMI 1338
TP Adjustment - interest on receivables - payment of invoices raised to its AEs had not been received on time - it chose to treat those outstanding receivables as being liable to be recharacterized as unsecured loans - HELD THAT:- Issue stands conclusively answered against the appellants by a Coordinate Bench of this Court in terms of the judgment rendered in Principal Commissioner of Income-tax v. Kusum Health Care Pvt. [2017 (4) TMI 1254 - DELHI HIGH COURT]held that entire focus of the Assessing Officer was on just one assessment year and the figure of receivables in relation to that assessment year can hardly reflect a pattern that would justify a Transfer Pricing Officer concluding that the figure of receivables beyond 180 days constitutes an international transaction by itself. With the assessee having already factored in the impact of the receivables on the working capital and thereby on its pricing/profitability vis-a-vis that of its comparables, any further adjustment only on the basis of the outstanding receivables would have distorted the picture and re-characterised the transaction. This was clearly impermissible in law as explained by this court in CIT v. EKL Appliances Ltd [2012 (4) TMI 346 - DELHI HIGH COURT]
TP Adjustment - payment of management fee - whether payment made for Intra Group Services[IGS] was for commercial expediency? - assessee had not undertaken any benchmarking exercise in respect of IGS - HELD THAT:- We find that the TPO has essentially doubted those payments on the anvil of commercial expediency. In our considered opinion, this issue has been correctly answered by the Tribunal and which drew sustenance for its conclusions bearing in mind the decision rendered by this Court in Commissioner of Income-tax v. EKL Appliances Ltd [2012 (4) TMI 346 - DELHI HIGH COURT] as held So long as the expenditure or payment has been demonstrated to have been incurred or laid out for the purposes of business, it is no concern of the Transfer Pricing Officer to disallow the same on any extraneous reasoning. As provided in the OECD guidelines, he is expected to examine the international transaction as he actually finds the same and then make suitable adjustment but a wholesale disallowance of the expenditure, particularly on the grounds which have been given by the Transfer Pricing Officer is not contemplated or authorised.
As this Court had held in EKL Appliances, it is clearly impermissible for the TPO to disregard the actual transaction unless it comes to the conclusion that an unrelated party would not have undertaken the same in usual course of business. More importantly it is wholly impermissible for the TPO to doubt commercial soundness of the expenditure that may be incurred.
It would also not be permissible for the TPO to engage in the restructuring of a transaction, unless the economic substance of a transaction differed from its form and if the form and substance of the transaction were the same but the arrangements relating to the transaction when viewed in totality differed from that which would have been adopted by independent enterprises acting in a commercially rational manner.This position has been duly affirmed by the decision rendered by this Court in Sony Ericsson Mobile Communication India P. Ltd. [2015 (3) TMI 580 - DELHI HIGH COURT] as held here is no material or justification to hold that no independent party would incur the AMP expenses beyond the bright line AMP expenses. Free market conditions would indicate and suggest that an independent third party would be willing to incur heavy and substantial AMP expenses, if he presumes this is beneficial, and he is adequately compensated. The compensation or the rate of return would depend upon whether it is a case of long-term or short-term association and market conditions, turnover and ironically international or worldwide brand value of the intangibles by the third party.
Decided against revenue.
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2024 (7) TMI 1337
Income from other sources u/s 56(2)(x) - difference in the stamp duty value and actual purchase value - HELD THAT:- . We find that the AO has drawn support from the provisions of Section 56(2)(x) of the Act. In our understanding of the law, Section 50C of the Act applies to the seller whereas Section 56(2)(x) applies of the buyer. Accordingly, immovable property is restricted only to land or building or both but not applicable to a developer who has taken over the possession of lawn or building or both for the purpose of the development in terms of the relevant development agreement or MOU for development of a property.
The assessee has not purchased any immovable property but has only acquired development rights and considering the facts of the case, in light of the decision of in the case of Seshasayee Steels (P) Ltd [2019 (12) TMI 702 - SUPREME COURT] we do not find any reason to interfere with the findings of the ld. CIT(A). Accordingly, the effective grounds raised by the revenue are dismissed.
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2024 (7) TMI 1336
Denial of exemption u/s 11 - Assessee failed to file Form 10B due to delay of the auditors in filing the audit report, which it filed the same belatedly, but before the assessment was finalised - HELD THAT:- As decided in the case of Ramji Mandir Religious and Charitable Trust [2023 (12) TMI 1295 - ITAT AHMEDABAD] after reviewing the entire case law on this aspect, in unequivocal terms, it was held that the requirement of filing Form 10/10B is merely directory in nature and failure to furnish Form 10/10B before the due date prescribed under section 139(1) of the Act cannot be so fatal as to deny the claim of exemption under section 11(2) of the Act, especially when Form 10/10B was available on record when the intimation was passed by CPC under section 143(1) of the Act.
Thus, since the Form 10B was available when the CPC passed the intimation in this case, disallowance of the claim of the assessee under section 11 of the Act is not proper. AO is, therefore, is directed to consider Form 10 available on record and to pass appropriate orders. Appeal of the assessee is allowed.
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2024 (7) TMI 1335
Exemption u/s 11 - activities of the Association are not charitable in nature - cancellation of registration u/s 12AA due to change in the definition of charitable purpose u/s 2(15) - assessee company is a section 25 company registered with Registrar of Companies and is a sports organization working for the advancement and promotion of games and sports, particularly, cricket in the State of Uttar Pradesh
HELD THAT:- As decided in Ahmedabad Urban Development Authority[2022 (10) TMI 948 - SUPREME COURT] Court is of the opinion that the ITAT – as well as the High Court fell into error in accepting at face value the submission that the amounts made over by BCCI to the cricket associations were in the nature of infrastructure subsidy.
In each case, and for every year, the tax authorities are under an obligation to carefully examine and see the pattern of receipts and expenditure. Whilst doing so, the nature of rights conveyed by the BCCI to the successful bidders, in other words, the content of broadcast rights as well as the arrangement with respect to state associations (either in the form of master documents, resolutions or individual agreements with state associations) have to be examined. It goes without saying that there need not be an exact correlation or a proportionate division between the receipt and the actual expenditure. This is in line with the principle that what is an adequate consideration for something which is agreed upon by parties is a matter best left to them.
Therefore, the issue is restored to the files of CIT(A) to decide afresh in the light of the Judgment of the Hon’ble Supreme Court in the case of ACIT vs. Ahmedabad Urban Development Authority (supra).
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2024 (7) TMI 1334
LTCG - Deduction u/s 54 - appellant did not fulfill the mandatory condition of acquiring a new residential flat within the specified time period - CIT(A)-NFAC invokes the former limb of “one year before the transfer” i.e., 28.03.2012 and the date of transfer itself dated 29.03.2012 to conclude that the same falls beyond the prescribed period of “one year” and therefore, the assessee is not entitled for the same - HELD THAT:- The relevant date in such an instance; for the purpose of computing the limitation in all three eventualities in sec.54, has to be taken in light of the payment of consideration and possession of the new house property only.
DR could hardly rebut the fact that the various judicial precedents in learned CIT(A)-NFAC’s detailed discussion Smt. Beena K. Jain [1993 (11) TMI 7 - BOMBAY HIGH COURT], Sunil Amritlal Shah [2024 (5) TMI 699 - ITAT MUMBAI] Bastimal K. Jain [2016 (6) TMI 1243 - ITAT MUMBAI] Sanjay Vasant Jumde [2023 (3) TMI 1222 - ITAT PUNE] already stand duly considered and therefore, we hold the assessee is entitled for the impugned sec.54 deduction in very terms. Decided in favour of assessee.
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2024 (7) TMI 1333
Penalty u/s. 271(1)(C) - Appellant assessee is non–resident Indian and did not file the return of income for the assessment year 2014–15 - HELD THAT:- Perusal of records show that the appellant assessee, being non–resident Indian, was not required to furnish return of income u/s. 139(1) of the Act, if TDS on her only income of interest on investment, was deducted @12.5% as against 10% as per said DTAA between India & UAE.
The assessment order does neither contain any direction nor any satisfaction of the Assessing Officer for initiation of the penalty proceedings u/s. 271(1)(C) of the Act. The instant case is neither a case of concealment of income nor a case of furnishing of inaccurate particulars of income as the income declared by the assessee was accepted by the revenue. The submissions of the assessee, that she was under a bonafide belief that the tax at source was deducted properly and no additional tax was payable by her, being based on her legitimate expectation, deserves to be accepted. The penalty proceedings cannot thus be sustained under the law. The aforesaid point is thus determined in favour of the assessee and against the revenue.
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2024 (7) TMI 1332
Addition u/s 56(2)(viib) - valuation method adopted for Compulsory Convertible Preference Shares (CCPS) - transaction between holding and subsidiary companies - HELD THAT:- Shares are allotted to the holding company by wholly owned subsidiary and the financial projections were prepared and validated by independent technical expert.
We conclude that the DCF method adopted by the assessee for valuing the CCPS is legitimate and in accordance with Rule 11UA. The AO cannot reject the method chosen by the assessee if it is prescribed by law.
AO’s reliance on the company’s subsequent financial losses to question the valuation is misplaced. The projections must be assessed based on the facts and data available at the time of valuation, not on future outcomes, as held in various judicial pronouncements. The issuance of CCPS to the holding company does not align with the legislative intent of Section 56(2)(viib) of the Act to prevent the generation and use of unaccounted money.
The transaction between a wholly owned subsidiary and its holding company does not create any unaccounted income or inflated share value for tax evasion purposes unless it is specifically proved.
CIT(A) correctly applied the provisions of law and judicial precedents in deleting the addition made by the AO. The valuation of shares based on the DCF method is valid, and the AO’s objections lack merit. The order of the CIT(A) is upheld. The addition u/s 56(2)(viib) of the Act is hereby deleted. Appeal filed by the Revenue is dismissed.
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2024 (7) TMI 1331
Validity of assessment proceedings - no notice u/s. 143(2) has been issued, after taking into account the return filed by the assessee - whether curable defect u/s. 292B - HELD THAT:- AO had not issued any notice u/s. 143(2) of the Act before considering the return of income filed by the assessee and, therefore, the same is not in accordance with the law and the non issuance of the notice u/s. 143(2) is a fatal one and it cannot also be cured u/s. 292B of the Act. In view of the above discussion we come to the conclusion that the legal issue raised by the assessee is well founded.
As no notice u/s. 143(2) has been issued, after taking into account the return filed by the assessee, and, therefore, the assessment order passed by the ld. AO is illegal and liable to be set aside. Further in our case the assessee had filed a letter dated 20.05.2019 and requested the AO to treat the return filed u/s. 139(1) of the Act as return filed in response to the notice issued u/s. 148 whereas in the orders and judgements relied upon by D.R., no return or reply was filed by the assessees and, therefore, the above said order and judgements are not similar to the facts of the present case.
In the result we accepted the legal issue and held that the assessment order are not sustainable, hence allowed the appeal filed by the assessee.
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2024 (7) TMI 1330
Addition u/s 68 - unexplained cash deposited in the bank account - No return of income was filed by the assessee u/s. 139 but in pursuance to notice issued u/s. 148 - assessee argued that since he had opted for the presumptive taxation scheme u/s 44AD, which does not require maintaining books of accounts - HELD THAT:- The assessee having not maintained its books of accounts in the instant case, although was liable to maintain such books of account as are stipulated u/s 44AA cannot take the plea that provisions of Section 68 cannot be applied, as the assessee cannot take benefit of his own wrong, as there cannot be premium on non compliance.
Thus, hold that the assessee was required to explain the sources of cash deposits in his bank account maintained with IDBI Bank, genuineness of the transaction of the aforesaid cash deposits and creditworthiness as well identity of creditors, as are required under the deeming fiction of Section 68, which in the instant case, the assessee having failed to do so, and the authorities below have rightly invoked provisions of Section 68 and made the additions as income of the assessee within the four corners of deeming fiction of Section 68.
The case laws relied upon by the assessee were decided on their own facts and are not applicable to the instant case - Appeal filed by the assessee is hereby dismissed.
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2024 (7) TMI 1329
TDS u/s 195 - Taxability of income in India - PE in India - taxation of offshore supplies - Taxation of Fee for Technical Services (FTS) in the absence of FTS article under India-Thailand DTAA - HELD THAT:- In the case of HCIL for AY 2009-10, the issue under consideration was if HCIL, which is a subsidiary of M/s Honda Motors Company Ltd., was required to deduct tax at source for payments made for purchase of raw material, components, etc. from non-resident companies and those non-resident companies being associated enterprises numbering 17 were found to be not having a PE in India.
In fact, the Tribunal in its order [2016 (9) TMI 439 - ITAT DELHI] dated 29.06.2016 observes that the fact that these associated enterprises which included assessee also do not have PE in India stands accepted by DRP and the Department has not gone in appeal and, thus, the issue stands finalized. In this order it was held that except for Honda Motors, Japan, payments made to all other 17 non-resident associated enterprises does not attract the provisions of section 195 and, consequently, section 40(a)(i) of the Act has no operation on the income of these companies arising from the supply of part, etc., and same was not liable for tax in India. This question was determined in favour of the assessee on the basis that the assessee was not having a PE in India.
Taxation of offshore supplies - DRP after considering various contentions raised by the assessee, observed that since it has been held by DRP that the assessee has PE in India, profits need to be attributed to various operations carried out in such PE in India. Further, since the assessee is not maintaining India specific accounts, the AO is right in applying Rule 10. However, the panel directed that instead of adhoc profit rate of 25%, global profit rate of the assessee should be applied and 25% of such profits should be attributed to PE in India. Thus, where we have concluded that the assessee has no PE in India, the directions to attribute profits to various operations carried out in PE in India are not left with any substratum and, accordingly, the ground No.3 deserves to be allowed in favour of the assessee.
FTS receipts are not liable to tax in the absence of FTS article in India-Thailand DTAA - Section 9 of the Act enumerates certain incomes to be deemed to accrue or arise in India and Section 9(1)(vii) of the Act provides under what conditions FTS income shall be considered to accrue or arise in India. Explanation 2 to Section 9(1)(vii) of the Act gives definition of FTS and which provides that any service falls within the definition of FTS are either be in the nature of managerial services, technical services or consultancy services. Thus FTS is a species of business income with specific definition and components and in DTAA, are made taxable specifically. If not, then they are brought to tax, as business income and in that case, again the existence of PE in India is necessary, but which is not established in case of assessee. Accordingly, this ground is decided against the Revenue.
Interest under section 234A, 234B and 234C - HELD THAT:- As grounds challenging levy of interest are consequential and, accordingly, adjudicated in favour of the assessee.
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2024 (7) TMI 1328
Addition on the basis of statement recorded u/s 132 (4) supported by unsubstantiated documents found during the course of search - unaccounted cash receipts from students - HELD THAT:- As we examine the seized material relevant to this addition of Rs.50 lakhs. For making addition of Rs.50 lakhs, the ld. AO relied on the following seized materials received from Utsav Shetty for the academic year 2019-20 containing two cheques for Rs.25 lakhs each for MBBS course. The screen shot of the ledger submitted by the assessee in this case shows that Utsav Shetty paid Rs.40 lakhs and Rs.10 lakhs on 19.8.2019 and 1.2.2021 respectively for the academic year 2019-20.
AO made addition as unaccounted fees collected from Utsav Shetty. It is to be see that statement from Uday Shetty, father of the student has been recorded on 14.3.2022. He stated that Rs.15 lakhs discount has been given by management due to Covid and remaining fees Rs.10 lakhs was paid through RTGS and he was advised by the management not to disclose the giving of discount to him and therefore, he has mentioned cash instead of discount in his Whatsapp message and he has paid only Rs.15 lakhs cash.
AO observed that Dilip Kumar as mentioned in the seized material of “15 L pd to V.S”. AO decoded 15LRs. Paid to Vishwanath Shetty in his statement. However, Dilip Kumar has not mentioned to the question No. 14 to sworn statement dated 11.8.2021 that Rs.15 lakhs was paid to Vishwanath Shetty.
As noted that nowhere he has mentioned in his answer that Rs.15 lakhs was paid to Vishwanath Shetty and he also said in his answer to next question that he has not paid any attention of whatsapp message of Uday Shetty, father of Utsav Shetty. However, it is to be noted that the amount of Rs.15 lakhs is not encircled in the seized material. Being so, it cannot be said that the said amount of Rs.15 lakhs has been paid.
Collection of unaccounted fees - addition made by the AO is based on unsubstantiated loose sheets and jottings or Excel sheets - Statements recorded u/s 132 (4) solely cannot constitute as incriminating material so as to make these additions.
Addition made by the AO is based on unsubstantiated loose sheets and jottings or Excel sheets - As it cannot be stated as full-proof of material evidence to substantiate the addition. In our opinion seized documents do not support the AO’s contention that assessee has received unaccounted fees for admission of the students to the college.
Going through the entire facts of the case it creates only a suspicion in the minds of the revenue authorities that the assessee has collected unaccounted fees. The suspicion not enough to hold that the assessee has collected unaccounted fees in absence of concrete evidence bought on record by the authorities concerned. The suspicion cannot replace the material evidence brought on record by the authorities.
The rough noting in the loose papers are not full-proof evidence without proving the correctness of the same. Nothing was recorded in the orders of lower authorities that assessee has deviated from its objects for which approval u/s. 12A was granted and not applied its funds towards its objects. No evidence was brought out to show that the amount of unaccounted fees alleged to have been collected resulted in creation of any unaccounted assets by the trust or trustees or by any interested person. On this count also the addition cannot be sustained.
No assets commensurate with the alleged estimated collection of fees were found by the revenue authorities. The unbounded loose sheets having jottings are not speaking either by itself or in the company of others and not corroborated by enquiry, cannot be the basis of any inference that unaccounted fees was collected not entered in the accounts so as to sustain the addition.
We are of the opinion that the evidence collected by the authority is not sufficient to establish that the assessee has collected unaccounted fees for admission of students to various courses in the assessee’s college. Entire evidence has to be appreciated in a wholesome manner and even where there is documentary evidence in favour of an assessee, the same can be overlooked if there are surrounding circumstances to show that the claim of assessee is opposed to normal course of human thinking, conduct and human probability.
Even applying this principle to the present case, we have difficulty in rejecting the assessee’s plea as opposed to normal course of human conduct. The circumstances surrounding the case are also not enough to reject the assessee’s explanation. We have considered all the material on record and also the statement of the parties as discussed in the earlier paragraphs.
We are of the opinion that the department cannot rely on those statements, more so when it was confronted to the assessee’s employees during cross-examination, they have denied the collection of unaccounted fees. The department failed to collect proper information from any source corroborating collection of unaccounted fees, except un-corroborating entries in the loose sheets.
All attempts for corroboration failed. There is nothing to suggest that the trust has deviated from the objects for which registration was granted and not applied the funds for its objects. No evidence was brought on record to show that amount of alleged unaccounted fees which have been collected and misused by the assessee or by any interested persons. There is no instance of recovery of any assets commensurate with the alleged estimated unaccounted collection of unaccounted fees as found by the AO.
The activities of the trust are genuine. There is no allegation by the lower authorities that activities of the trust are not genuine. Also there was no allegation that the activities of the trust are not carried on in accordance with the objects of the trust. There is no allegation that the assessee is not imparting education and it is an admitted fact that thousands of students are studying in the college and assessee has been carrying on educational activities imparting medical education. It fulfilled the requirement of imparting education which are not doubted or challenged by the authorities. Being so, the impugned collection of unaccounted fees cannot be determined and brought to tax.
As seen from the seized material and Excel sheets that these are handwritten loose documents and undisclosed income of the assessee cannot be determined on the basis of these documents. There is no direct evidence or conclusive evidence to prove the collection of the unaccounted fees.
The statements of parties of whosoever is relied upon are evasive replies given to the revenue authorities on the basis of which the AO made an estimate of collection of fees. This is only based on conjectures and surmises and only on circumstantial evidence. AO failed to established the live link between the seized material and the unaccounted fees which resulted in creation of any unaccounted assets in the form of possession of money, bullion, jewellery or other articles or any immovable properties in the name of the trust or the trustees.
In our opinion, the unsubstantiated and uncorroborated seized material alone cannot be considered as conclusive evidence to frame these assessments. The words “may be presumed” in section 132 (4) of the Act given an option to the AO concerned to presume these things, but it is rebuttable and it does not give a definite authority and conclusive evidence.
The assessee is having every right to rebut the same. The entire case depends upon the rule of evidence. There is no conclusive presumption with regard to unsubstantiated seized material to come to the conclusion that that assessee has collected unaccounted fees. In the present case, the assessee categorically denied collection of unaccounted fees. If it was collected, it was unauthorized collection by the person who is looking after the admission and that it is why it is unauthorized by the trust. Further, there is no confirmation from the students who get admitted into various courses and even there was statements recorded from two students/parents which were not confronted to the assessee for cross-examination.
The revenue authorities cannot draw inference on the basis of suspicion, conjectures and surmises. Suspicion, however strong, cannot take place the material in place of evidence of the AO. AO should act in a judicial manner, proceed in a judicial spirit and come to the judicial conclusions. AO is required to act fairly as a reasonable person, not arbitrarily and capriciously.
The assessment u/s. 153A of the Act should have been supported by adequate material and it should stand on its own leg. The AO without examining the students / parents who have paid the unaccounted fees cannot come to the conclusion that the assessee has received unaccounted fees. The basis for donation is notebook / loose sheet. This notebook or loose sheets found during the course of search is only circumstantial evidence and not full proof evidence to sustain the addition.
No addition can be made in the absence of any corroborative material. If it is circumstantial evidence in the form of loose sheets and notebook, it is not sufficient to come to the conclusion that there is conclusive evidence to hold that assessee has collected unaccounted fees. The notes in the diary/loose sheets are required to be supported by corroborative material. Since there was no examination or cross-examination of persons concerned, the entire addition in the hands of the assessee on the basis of uncorroborated writings in the loose papers found during the course of search cannot be sustained. The evidence on record is not sufficient to uphold the stand of revenue that assessee is collecting huge unaccounted fees in the guise of carrying on educational activities.
In our opinion the seized material relied by the assessing officer for sustaining addition is not speaking one in itself and also not speaking in conjunction with some other evidence with authorities found during the course of search or post search investigation. Thus, the well settled legal position is that a non-speaking document without any corroborative material, evidence on record and finding that such document has not materialised into transactions giving rise to income of the assessee which had not been disclosed in the regular books of accounts of the assessee has to be disregarded for the purpose of assessment to be framed pursuant to search and seizure action.
In these cases, moreover these documents are relied upon by the AO without confronting them for cross examination. In our opinion, these documents cannot bring assessee into tax net by merely pressing to service the provision of Sec 132(4A) r.w.s Sec 292C of the IT act, which creates deeming fiction on the assessee subject to search wherein it may be presumed that any such document found during the course of search from the possession and control of such document are true. What has to be noted here is that deemed presumption cannot bring such a document in the tax net and the presumption is rebuttable one and the deemed provisions have no help to the department. In our opinion, in these cases addition is made by AO on arbitrary basis relying on the loose papers, containing scribbling, rough and vague noting’s in the absence of any corroborative material and these materials cannot be considered as transacted into collection of unaccounted fees by assessee giving rise to income which are not disclosed in the regular books of accounts by assessee.
There is no documentary evidence either to support the statements of employees or of the parents of the students; and
The seized material are in the form of various loose sheets, scribblings, jottings and Excel sheets taken from the computer having no signature or authorization from the assessee’s side. These are unsubstantiated documents and there is nothing to suggest any undisclosed assets of assessee found during the course of search. More so, search action not resulted in recovery of any undisclosed assets in the form of landed property, building, investments, money, bullion, jewellery or any kind of movable or immovable assets.
As also noted that on cross examination of the employees, they have denied the receipt of the unaccounted fees. Further, out of 43 students alleged to have been paid unaccounted fees, 35 students denied the same in affidavit, 5 denied in their sworn statement and whereabouts of 3 students were not known. No efforts has been done to find out their whereabouts.
Some of the statements have been recorded under section 131 by the authorized officer subsequent to completion of search and these statements cannot be considered as conclusive evidence in view of the below mentioned CBDT Circular.
AO has made the addition only on the basis of sworn statements of the various parties backed by unsubstantiated loose slips/excel sheets, which cannot be basis for addition on that reason that it is uncorroborated as discussed above.
On the date of search action on 6.8.2015, the search party found physical cash - This has been compared with the books of account on the date of search and it was observed by AO that this has been tallied with the same. Being so, it cannot be said any unaccounted cash was unearthed during the course of search action. This also supports the assessee’s argument that there were no unaccounted fees collected by the assessee in the assessment year under consideration as in the earlier assessment years. It is to be accepted that the discount has been given by assessee to its students for payment of full fees only in this assessment year due to Covid Pandemic which has been given to them on their request on need basis considering the hardship faced by their parents during this Covid period.
On this count, it is not possible disbelieve it and to hold that assessee is involving in collection fees in the guise of discount by not accounting the same, more so, the beneficiaries confirmed the getting of discount in fees payment during the Covid period.
Thus, we are agreeing with the contention of ld. AR that placing reliance on the seized material is not proper and all the additions on the basis of the above are deleted. These grounds of appeal of the assessee are allowed.
Claim of the appellant is that an amount is the accumulated interest on various fixed deposits and is actually not received by it and therefore is to be reduced from the gross receipts. In this regard, the appellant has to file Form 9A as prescribed in the Income Tax Rules with the concerned PCIT - In our opinion, it is appropriate to remit this issue to the file of AO to examine the same in the light of Form No.9A before PCIT, if any filed by the assessee.
Assessee is partly allowed for statistical purpose
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2024 (7) TMI 1327
Validity of the reopening by AO u/s 147 - Addition u/s 68 - ‘reasons recorded’ by AO need to be examined to see whether he had satisfied the conditions precedent necessary for doing so, as prescribed u/s 147 - HELD THAT:- We find that the foundation on the basis of which the AO has formed the belief is itself incorrect, in other words the AO has reopened the assessment based on the wrong assumption of fact. We note that the assessee had already undergone scrutiny assessment u/s 143(3) wherein some addition was made in the assessment proceedings.
And the assessee had duly disclosed in its return to have received share application by account payee cheques from M/s Suryadeep Salt Refinery & Chemical Works Ltd and pursuant thereto, they were allotted shares of assessee as per the Companies Act and details of which were produced before the AO in the original assessment proceedings and accepted by him.
In such a back drop, where the AO received adverse information from office of the CIT(A)-37, Mumbai vide letter he ought to have made preliminary enquiry and noted the correct facts in respect of the issue, rather than forming his belief of escapement of income on incorrect assumption of facts as noted which action of AO cannot be countenanced.
In this context, it should be borne in mind that adverse information made trigger ‘reason to suspect’ and not ‘reason to believe’ which is necessary condition precedents for reopening the assessment.
When the AO receives adverse information about the assessee he should carry a preliminary enquiry and collect material and thereafter, he should have recorded reasons to believe escapement of income, which exercise AO has not done in this case. Consequently, the notice issued by the AO u/s 148 is vitiated and held to be bad in law and quashed. Appeal filed by the assessee is allowed.
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2024 (7) TMI 1326
Second SCN issued, pending adjudication of first SCN, withdrawn subsequently - jurisdiction of first SCN - It is contended that the second show cause notice was issued on the same cause of action and after dropping of the first show cause notice, based on the second show cause notice proceedings could not be initiated - HELD THAT:- The withdrawal of the first show cause notice was after issuance of the second show cause notice. The question, if Section 28 (4) of the Act with respect to the period of limitation of 5 years, is attracted or not, at this stage, depends on the contents in the notice, which contains the averment of suppression of facts. Whether there was suppression of fact or not cannot be determined at this stage by this Court in the exercise of review jurisdiction, or even in the exercise of the writ jurisdiction under Article 226 of the Constitution of India, it being a question of fact and requiring evidence/material to establish or negative the same. On the face of the second show cause notice, the submission is not acceptable, that Section 28 (4) of the Act is not attracted. By the judgment under review the petitioner has the opportunity to submit reply and before the authority it can be demonstrated that there was no suppression of fact.
In the present case, the dropping of the first show cause notice vide letter dated 17.05.2023 is after issuance of the second show cause notice for demand of differential amount, not identical amount, and clearly stating in the withdrawal letter about the second show cause notice dated 10.04.2023 also mentioning for the said purpose, the first show cause notice, was thereby withdrawn. Here, the second show cause notice is not after withdrawal of the first show cause notice nor for identical amount. The second show cause notice is within 5 years limitation under Section 28 (4) of the Act.
In Swatch Group India Pvt. Ltd. [2023 (8) TMI 864 - DELHI HIGH COURT], the show cause notice under Sections 28 and 124 of the Customs Act, was dated 14.02.2018 and the corrigendum was dated 28.02.2018. Section 28 (9) of the Customs Act was amended on 29.03.2018. The notice and corrigendum as issued in the said case was prior to the amendment. The Delhi High Court considered the explanation to the Section 28 (9) of the Customs Act which specifically provided that in cases where the notice had been issued after the 14th day of May, 2015 but before the date on which the Finance Bill, 2018 received the assent of the President, the said notice shall continue to be governed by the provisions of Section 28 of the Customs Act as it stood immediately prior to the amendment - In the present case, the show cause notices are after the amendment and consequently, the same shall not be governed by the unamended provision of Section 28 of the Act. The judgment in the case of Swatch Group India Pvt. Ltd. of the Delhi High Court is therefore not on the point as raised in the present review petition.
Under the guise of review the petitioner cannot be permitted to reagitate and reargue the questions which have already been addressed and considered. The review petitioner is also not permitted to raise new grounds, new arguments, which were not taken or not argued by the writ petitioner’s counsel, after engaging a new counsel in the review petition - In Vadde Pavan Kumar [2024 (5) TMI 1451 - ANDHRA PRADESH HIGH COURT], on the scope of review jurisdiction, a coordinate Bench of this Court, after referring to various pronouncements of the Hon’ble the Apex Court, reiterated that under the grab of filing a review petition, a party cannot be permitted to repeat old and overruled arguments for reopening the conclusions arrived at in a judgment.
In Smt. Krishna Pathak v. Vinod Shankar Tiwari [2005 (2) TMI 914 - ALLAHABAD HIGH COURT] the Allahabad High Court held that if a counsel has argued a case to his satisfaction and he had not raised the particular point for any reason whatsoever, it cannot be a ground of review for the reason that he was the master of his case and might not have considered it proper to press the same or could have thought that arguing that point would not serve any purpose. If a case has been decided after full consideration of arguments made by a counsel, he cannot be permitted, even under the garb of doing justice or substantial justice, to engage the Court again to decide the controversy already decided.
There are no error apparent in the judgment under review - By the judgment under review, the petitioner has the opportunity to file response to the show cause notice, which we have not restricted. It is open for the review petitioner to raise such objection, as may be open under law and as may be advised, including the objection of jurisdiction - No case for review is made out to reopen the proceedings of the writ petition.
The Review Petition is dismissed.
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2024 (7) TMI 1325
Maintainability of the application before the Advance Ruling Authority - Classification of imported goods - components / parts/ sub-assemblies - to be classified as motor vehicle under Tariff Heading 87.03 or as Completely Knocked Down (CKD) kit under Sr. No. 437 of Notification No. 12/2012-Cus., dated 17.3.2012, as amended - If the import of components/parts/sub-assemblies by the applicant will not be classified as motor vehicle or as CKD kits, whether the applicants imports will be classified under their respective headings/sub-headings of the Customs Tariff Act, 1975 or under Tariff Heading 87.08 of the Customs Tariff Act, 1975?
Maintainability of the application before the Advance Ruling Authority - appellant raised a preliminary objection as to the maintainability of the application before the 1st Respondent, on the premise that the jurisdiction of the Advance Ruling Authority under Section 28E(b) of the Customs Act, 1962 is to determine a question of law or fact specified in the application regarding the liability to pay duty in relation to an “activity” which is proposed to be undertaken by the applicant - HELD THAT:- The object of Advance ruling is avoidance of litigation and promoting better relationship. In the era of globalisation of business, the purpose for creating the Authority is for expeditious disposal and determination of question of law or fact specified in the application regarding the liability to pay tax in relation to a transaction proposed by the applicant for which the Authority is required to give advance ruling. The Authority has been created to promote better compliance inter alia with the provisions of the Customs Act, 1962, on the lines of a similar Authority constituted under the Income-tax Act, 1961. The advance ruling would enable an importer to obtain in advance, a binding view from the Authority under the Act on issues which could arise in determining his tax liability
A reading of the above provision would show that an advance ruling would be binding only unless there is a change in law or fact. In other words, if there is a change in fact which has a material bearing on the question raised for ruling by the authority, the Advance Ruling Authority would no longer be binding. This is indicative of the legislative intent that the expression “business” employed in Section 28E(a) of the Customs Act must be given a wide meaning so as to include business qua models / modus operandi and not business qua product.
On reading of Sections 28 E and 28 I of the Customs Act conjointly, if there is a change in fact or law which substantially alters the position, the same would constitute “activity” for the purpose of Section 28 E of the Act. In the present case, AAR has found that there is change in facts and in our view, the change in modus adopted is extensive and would thus constitute “business activity” for the purpose of Section 28E of the Act. Thus, the challenge to the maintainability premised on construction by the Revenue in giving a narrow / restricted meaning to "business" is liable to be rejected.
A reading of Section 28 I(2) of the Act would show that mere obtaining of an Advance Ruling in respect of a product does not bar an applicant from approaching the Advance Ruling Authority if there is a change in fact or law. Admittedly, there is change in business model. The 1st Respondent has on examination admitted the application which remains unchallenged. It is trite law that when an order resulting in adverse consequences is not challenged immediately / at the earliest / within the prescribed period (if limitation is prescribed) the same must be treated as having attained finality and then ought not to be disturbed lightly - the challenge to the maintainability raised as a preliminary issue by the appellant not agreed upon.
Classification of imported goods - HELD THAT:- It has been repeatedly held that until all the components of the complete article are presented together for assessment at the same point of time, Rule 2(a) cannot be invoked to classify the parts as complete article. It has also been held that consignments removed / presented at different points of time from different factories cannot be clubbed together to classify the parts as complete article. The sine qua non for the application of this Rule is that any imported article, which is “as presented”, must have the essential character of the “complete or finished article”. It is also a settled position in law that the goods would have to be assessed in the form in which they are imported and presented on import and not on the basis of the finished goods manufactured after subjecting them to some process after the import is made.
Rule 2 (a) if applied to the facts considered by the 1st Respondent, the import cannot be understood as that of motor vehicles. Six essential components viz., Engine along - with Transmission Unit, Door Panel, HVAC and Cooling Module, Exhaust System and Axle are being procured from vendors in India.
There are no reason to interfere with the impugned order - this Writ Petition stands dismissed.
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2024 (7) TMI 1324
Classification of imported goods - Roasted Area Nut/Beetle Nut and Roasted Area Nut/Beetle Nut Cut - classifiable under CTH 080280 or not - HELD THAT:- In Commissioner of Customs, Chennai-II vs. Shahnaz Commodities International Pvt Ltd. [2023 (8) TMI 492 - MADRAS HIGH COURT], this Court considered the similar issue and held that roasted betel/areca nut having been specifically classified under CTH 2008 19 20, the attempt to classify under CTH 08 02 80 would fall foul of the settled rule of construction that specific entry would prevail over general entry.
The said judgment is squarely applicable to the facts of this case - appeal dismissed.
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2024 (7) TMI 1323
Request for provisional release of the goods pending investigation - use of the tyres imported by the appellants - whether this imported tyres can be released provisionally to the appellants pending investigation? - HELD THAT:- It is the case of the appellants that the tyres are of a kind used in mining and other off-road purposes whereas it is apprehended by the department that the tyres are being misused as truck and bus tyres. It is found that the impugned goods are not subjected to any tests/analysis by any authority having technical competence. The apprehension of the department is on the basis of a statement, of Shri Pannalal Choudhary, who looks after maintenance of trucks belonging to M/s Vikas Road Carriers Ltd, stating that these tyres are being used for trucks and buses.
It is found that no corelation has been made to identify the tyres imported by the appellants and the subsequent mis-use, if any, thereof. It is settled principle of law that the classification of the goods is to be made with reference to the technical parameters of the goods in the condition in which they are imported and end-use or subsequent possible mis-use cannot be a criteria for the classification of the goods.
The Learned Commissioner (Appeals) and the lower authority have relied upon the CBEC circular 35/2017-Cus dated 16/08/2017 stating inter alia that goods prohibited, under the Customs Act, 1962 or any other Act for the time being in force, may not be released provisionally - the impugned orders have not appreciated the circular in a correct manner. Whereas the circular advices that prohibited goods may not be released provisionally, the nature of the impugned goods being prohibited is yet to be established. No test report whatsoever, has been placed on record.
There are force in the argument of the appellants that in case of any such misuse the competent authority, i.e. the road transport authority can take necessary action in public interest. The customs cannot assume the cause of such authority. In view of the discussion, the department has made no case for rejection of provisional release of the impugned goods. However, since the investigation is pending it will be in the interest of justice to accord provisional release subject to some conditions and restrictions.
The impugned goods shall be provisionally released, within two weeks of receipt of this order subject to the fulfilment of conditions imposed - the impugned order is set aside and the appeals are partly allowed.
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