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2023 (12) TMI 1242
Levy of service tax - Declared Service - relinquishment charges under section 66E (e) of the Finance Act - charges are in the nature of consideration received towards rendition of the declared service i.e. tolerating of relinquishing access rights - HELD THAT:- It is well settled that the amount paid in the nature of compensation/damages on account of breach or non-performance of contract would not be considered in lieu of any service and, therefore, would not be leviable to service tax.
In view of the decision of the Tribunal in South-Eastern Coalfields Ltd. [2020 (12) TMI 912 - CESTAT NEW DELHI], it has to be held that relinquishment charges are not consideration received towards rendition of a declared service under section 66E (e) of the Finance Act.
It would not be necessary to examine the alternative submission made by the learned counsel for the appellant that in any view of the matter, the relinquishment charges recovered by the appellant are part of the electricity transmission service and, therefore, would be covered under the Negative List under section 66D (k) of the Finance Act.
The order dated 04.03.2021 passed by the Principal Commissioner cannot be sustained and is set aside - Appeal allowed.
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2023 (12) TMI 1241
Levy of service tax - Declared service or not - Recovery of penalty/liquidated damages recovered from customers and contractors - agreeing to the obligation to recover from an Act or to start an Act or a situation, or to do an Act - HELD THAT:- After considering the various provisions of Indian Contract Act therewith, it has been held that liquidated damages/ compensation for the breach of contract can be awarded to make good the loss or damage which actually arises or which the parties knew when they made the contract, “to be likely to result from the breach”. Hence it cannot be concluded that sum received is synonymous to “tolerating”. It is absolutely wrong to say that in breach of contract one appellant tolerates an Act or a situation, hence, the view taken by the Commissioner (Appeals) that the liquidated damages as have been received by the appellants towards “consideration” for “tolerating the Act” are leviable to service tax under section 66 E(e) of Finance Act is not at all sustainable.
In the fact of both the present appeals, it is found that the facts are almost identical. There appears nothing for us to differ from the above observations in the afore-mentioned final order of the said Tribunal. Respectfully, following those findings it is held that the amount in question cannot be called as consideration towards declared service as defined under Section 66E (e) of the Finance Act. The confirmation of tax demand qua said amount is therefore not sustainable.
Appeal allowed.
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2023 (12) TMI 1240
Refund claim - refund rejected solely on the ground that the TR6 challan, evincing payment of duty, had not been furnished - HELD THAT:- The issue of documentation prescribed under section 11B of Central Excise Act, 1944 for claiming of refunds came before the Tribunal in MAHARASHTRA STATE ELECTRICITY BOARD VERSUS COMMR. OF C. EX., NAGPUR [2004 (4) TMI 368 - CESTAT, MUMBAI] and it was held therein that The respondent has no case that the appellants have claimed refund of duty unduly or with any oblique purpose. The appellant is a public body and it can have no oblique motives. The orders of the lower authorities are set aside in so far as the refund claims in question are concerned. The claims are allowed.
The issue is the same as that in the dispute of the appellant for similar refund. It would appear that the lower authorities had erred in insisting upon the original document as proof of discharge of duty liability even though available with the central excise authorities - the impugned order is set aside and the application restored to the original authority for fresh determination of the application for sanction in consequence of judicial determination of non-excisability.
The appeal is allowed by way of remand.
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2023 (12) TMI 1239
Levy of Central Excise Duty - inclusion of sales tax concession retained by the assesses in the assessable value or not - extended period of limitation - penalty - HELD THAT:- The issue is no more res integra as the Hon’ble Supreme Court in the case of COMMISSIONER OF CENTRAL EXCISE, JAIPUR-II VERSUS M/S. SUPER SYNOTEX (INDIA) LTD. AND OTHERS [2014 (3) TMI 42 - SUPREME COURT], has held that the sales tax concession retained by the assesses is required to be added in the assessable value for the purpose of levy of Central Excise duty. By relying on the above decision of the Hon’ble Supreme Court, we hold that the sales tax concession retained by the Appellant is required to be added in the assessable value for the purpose of levy of Central Excise duty.
Since the Appellant has not collected the duty separately from the customers, the amount collected is to be treated as inclusive of duty - the demand for the normal period is to be computed by taking the amount collected as cum-duty.
Penalty - HELD THAT:- The appellant cannot be faulted for not including the same in the assessable value. In the impugned order, the adjudicating authority while agreeing that extended period not invocable in this case, imposed penalty equal to the duty confirmed under Section 11AC of the CEA, 1944 - the adjudicating authority has not given any proper finding for imposing penalty under Section 11AC. Accordingly, the penalty imposed under Section 11AC not tenable.
Extended period of limitation - HELD THAT:- In the present case, it is observed that the Adjudicating Authority has failed to show any positive act of suppression on the part of the Appellant. The details of VAT collected and retained by the Appellant are reflected in the audited Profit & Loss account and balance sheet of the impugned periods. Accordingly, by following the above Circular issued by the Board, it is held that extended period not invocable in this case and for the same reason penalty under Section 11AC of the CEA, 1944 also not imposable.
The appeal is disposed by way of remand for calculating the duty, payable for the normal period of limitation, with consequential relief, if any, as per law.
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2023 (12) TMI 1238
Reversal of cenvat credit - used/rejected capital goods on which Cenvat credit has not been taken are cleared as waste and scrap - transaction value as per Rule 3(5A) of the Cenvat Credit Rules - HELD THAT:- On going through the provisions of Rule 3(5) and 3(5A) of the Cenvat Credit Rules. A perusal of these Rules 3(5) and 3(5A) reveal that the expression "the capital goods" available in Rule 3(5A) refers to the capital goods on which Cenvat credit has been taken - Rule 3(5) provides for a situation where such capital goods are removed “as such” from the factory or premises of the provider of output service. Rule 3(5A) deals with a situation when such capital goods are cleared as "waste and scrap". It is apparent that both the provisions of Rules 3(5) and (5A), are concerned with capital goods on which Cenvat credit has been taken.
As the Appellant has not availed any credit on these rejected capital goods cleared as scrap, we hold that the provisions of Rule 3(5) and 3(5A) are not applicable in this case - the demand of duty confirmed in the impugned order is not sustainable. Since, the demand of duty itself is not sustainable, the question of demanding interest or imposing penalty does not arise.
The impugned order set aside - appeal allowed.
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2023 (12) TMI 1237
CENVAT Credit - inputs or not - wielding electrodes used in their factory premises towards repairs and maintenance activities - HELD THAT:- The Rajasthan High Court in the case of HINDUSTAN ZINC LTD. VERSUS UNION OF INDIA [2008 (7) TMI 55 - RAJASTHAN HIGH COURT] has held the expression “in the manufacture of goods” should normally encompass entire process carried on by the dealer, of converting raw materials into finished goods, where any particular process, or activity, is so integrally connected with the ultimate production of the goods, but for that process, manufacturing, or processing of the goods would be commercially inexpedient, goods required in that process would, fall within expression “in the manufacturing of goods”.
The Chhattisgarh High Court in the case of CST, Bilaspur Vs. Singhal Enterprises Pvt. Ltd. [2017 (7) TMI 1112 - CHHATTISGARH HIGH COURT] has held Welding Electrodes used in the manufacturing process are considered as inputs.
Since the present issue is squarely covered by the above decisions of the Hon’ble High Court, respectfully following them, the present Appeal is allowed.
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2023 (12) TMI 1236
Recovery of dues - priority over charges - whether the different departments of the State including Excise and Revenue will have priority over the secured creditors’ debt? - HELD THAT:- It would be evident from the replies filed by the respondents that they have nowhere disputed the lien of the State Bank of India as per Section 26 D noted and entered in the CERSAI (Annexure P-2), dated 06.03.2013, which clearly establishes the fact that the petitioner-Bank is not only a secured creditor but has created the first charge over the property in question as far as back in the year, 2013. Whereas the charge of respondents No. 1 and 2 had been created and reflected in revenue record vide rapat No. 459, dated 09.07.2015 and that of respondent No. 3 only vide Rapat No. 173, dated 05.02.2018.
Once the petitioner is a secured creditor and has moreover created the first charge over the property, then obviously, it has the first right to realise its dues and this question is no longer res integra in view of the authoritative pronouncement of the Hon'ble Supreme Court in Punjab National Bank Vs. Union of India & Ors. [2022 (2) TMI 1171 - SUPREME COURT].
The legal position has thereafter been reiterated in a recent judgment of this Court in Mankind Life Sciences Private Limited vs. The State of Himachal Pradesh & Anr., [2023 (10) TMI 867 - HIMACHAL PRADESH HIGH COURT], wherein it was held [2022 (2) TMI 1171 - SUPREME COURT].
This Court is left with no other option, but to allow the instant petition by directing respondents to remove the red entry qua the property in question made in the revenue record i.e. Rapat No. 459, dated 09.07.2015 and Rapat No. 173, dated 05.02.2018 forthwith.
The instant petition is allowed.
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2023 (12) TMI 1235
Dishonour of Cheque - rebuttal of presumption - main reason asserted both for dislodging execution of Ext.P1 and lack of consideration is that the similarity of handwriting in it with that in Ext.X1. PW1 has no case that Ext.P1 was in the handwriting of the petitioner - HELD THAT:- The petitioner did not adduce any evidence. It is true that in order to rebut the presumption in respect of a cheque, the accused can rely on the evidence and materials submitted by the complainant. The only thing is that the accused must be able to substantiate his case by preponderance of probabilities. The case set up by the petitioner during the cross-examination of PWs.1 to 3 and also in his answers to the question put to him under Section 313(1)(b) of the Code is that the cheque was issued as a security in respect of the transactions between himself and the 1st respondent - Lack of signature of PW1 in two pages of Ext.P6 does not assume much importance since its execution is proved by the evidence of PW3 and it is in favour of the 1st respondent. It was after considering the aforesaid evidence in detail the courts below concurrently held that the petitioner failed to rebut the presumption available under Section 139 of the N.I. Act in respect of Ext.P1.
The power of revision under Section 401 of the Code is not wide and exhaustive. The High Court in the exercise of the powers of revision cannot re-appreciate evidence to come to a different conclusion, but its consideration of the evidence is confined to find out the legality, regularity and propriety of the order impugned before it. When the findings rendered by the courts below are well supported by evidence on record and cannot be said to be perverse in any way, the High Court is not expected to interfere with the concurrent findings by the courts below while exercising revisional jurisdiction.
This Court is not expected to substitute the concurrent finding of the court below with a different view unless such findings are perverse and against the evidence - the revision lacks merits and liable to be dismissed - the revision petition is dismissed.
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2023 (12) TMI 1234
Penalty u/s.271CA - “assessee in default” for failure to collect tax at source u/s 206C - running bars on contract / licnece basis - empty bottles can be considered as scrap or not? - tax has also been imposed u/s 206CC and Section 206CCA and further interest u/s 206C(7) - HELD THAT:- Under Sub-Section (7) to Section 206C where a person responsible for collecting tax fails to collect it in accordance with Section 206C(1) shall be liable to pay tax to the credit of the Central Government in accordance with the provisions of Sub Section (3).
As per Sub-Section (3) to Section 206C any person collecting any amount under this Section shall pay within the prescribed time the amount so collected to the credit of the Central Government or as the Board directs. Provided that the person collecting tax on or after the 1st day of April, 2005 in accordance with the foregoing provisions of this Section shall, after paying the tax collected to the credit of the Central Government within the prescribed time, prepare such statements for such period as may be prescribed and deliver or cause to be delivered to the prescribed income-tax authority, or the person authorised by such authority, such statement in such form and verified in such manner and setting forth such particulars and within such time as may be prescribed.
As per Sub Section (7) to Section 206C a person responsible for collecting tax failing to pay tax to the credit of the Central Government on or before the date specified, either after collecting the tax or fails to collect tax, shall be liable to pay simple interest at the rate of 1% per month or part thereof on the amount of such tax from the date on which such tax was collectible to the date on which the tax was actually paid or payable and such interest shall be paid before furnishing the quarterly statement for each quarter in accordance with the provisions of sub-section (3).
In absence of definition for the expression “mechanical working of materials” in Section 206C the above doctrine of nocitur a sociis can be usefully applied to the facts of the case to resolve the legal conundrum. Court is faced with.
The meaning of the expression “mechanical working of materials” in Section 206C can therefore to be gathered by applying the doctrine of noscitur a sociis from the meaning of the expression “manufacture” in Section 2(29BA).
The definition of the expression “manufacture” in Section 2(29BA) of the Income Tax Act, 1961 is similar to the definition of “manufacture” in Section 2(f) of the Central Excise Act, 1944. Therefore, for a “waste” or a “scrap” to be liable to excise duty under Section 3 of the Central Excise Act, 1944, such “waste” or “scrap” was also to be specified in the 1st Schedule to Central Excise Tariff Act, 1985.
Certain activity may amount to “manufacture” yet not liable to Central Exercise Duty. An activity may resemble to a “manufacturing activity”, yet may not amount to “manufacture”. Only those activity can came within the purview of the expression of “mechanical working of material”.
Only those activity which resemble “manufacturing activity”, but are not a “manufacturing activity” can come within the purview of the expression of “mechanical working of material”. Only such “scrap” arising of such “mechanical working of material” are in contemplation of Section 206C.
Only such “scarp” generated from such “mechanical working of material” which are not “manufacturing activity” but are akin to “manufacturing activity” can be said to be in contemplation of Section 206C.
The expression “mechanical working of material” in Section 206C would apply only to such activity which are akin to “manufacturing activity” but not “manufacturing activity”. Only such “scrap” generated from such activity i.e. either “manufacturing activity” or from “mechanical working of material” can be construed to be in contemplation of Section 206C.
Mere opening, breaking or uncorking of a liquor bottle by mere twisting the seal in a liquor bottle will not amount to generation of “scrap” from “mechanical working of material” for the purpose of explanation to Section 206C.
Activity of opening or uncorking of the bottle is also not by the petitioner. These are independent and autonomous acts of individual consumers who decides to consume liquor purchased from the Tasmac Shops of the petitioner which have a licensed premises (Bar) adjacent to them under the provisions of the Tamil Nadu Liquor Retail Vending (in Shops and Bars) Rules, 2003.
No waste or scrap was generated by the petitioner for it to be sold by the petitioner. Scrap, if any, was generated at the licensed premises which was leased by the licensees from the provide owners of the premises.
Left over bottles after consumption are not owned by the petitioner. Neither the petitioner nor the licensee are the owner of the waste bottles. What the respective bar licensees are permitted under the terms of the license under the provisions of the Tamil Nadu Liquor Retail Vending (in Shops and Bars) Rules, 2003 is merely to sell food and water and clear the left over bottles more from the point of view of ensuring cleanliness. The bar owners incidentally monetize the left over bottles.
Rule 9(a) of the Tamil Nadu Liquor Retail Vending (In Shops and Bars) Rules, 2003 merely grants privilege to the respective bar owners only to run the bars to sell the eatables and to clear left over empty bottles. Bottles are neither “Scrap” nor a property of either the TASMAC or Bar Licensee.
Ownership over the bottles at best would stand vested with the respective bar owners / licensees who have been licensed. Sale of left over bottles are merely regulated. Mere regulation of such sale would not render the petitioner sale of bottles A mere privilege is conferred on the respective bar owners / licensees to collect the left over bottles and sell them to the breweries and distilleries. There is no scope to conclude sale bottles by the petitioners to the respective bar owners / licensees.
To be a “seller” of used bottle, the petitioner should be the owner of the bottle. Neither the petitioner nor the Bar owners / licensees are the owners of the bottles left behind in the licensed premises (Bar). The petitioner merely decides the upset price and other terms and conditions in the tender process with the approval of the Commissioner of Prohibition and Excise. Merely because used bottles are to be cleared which implies sale by them would not render the petitioner “seller” for the purpose of Section 206C of the Act.
There is neither a “manufacture” nor a generation of “scrap” from ”mechanical working of materials”, the liability under Section 206C of the Income Tax Act, 1961 is not attracted.
Suffice to state that the petitioner is neither the owner of the bottle nor generates scrap as is contemplated under the Income Tax Act, 1961. The activity of opening and uncorking is not a “mechanical working of material”.
Invocation of Section 206 C, 206CC and 206CCA of Income Tax Act, 1961 was wholly misplaced and unwarranted under the circumstances against the petitioner for the alleged failure to collect tax at 1% on 99% of the license fee payable to the Government and 1% retained as agency commission. Therefore, there is no merits in the impugned order. Consequently, the question of paying simple interest under Section 206C(7) of the Income Tax Act, 1961 cannot be countenanced with.
Since Section 206C of the Income Tax Act, 1961 is not applicable, question of imposing liability on the petitioner to furnish the PAN Number of the Bar owners under Section 206CC of the Income Tax Act, 1961 cannot be countenanced with. WP allowed.
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2023 (12) TMI 1233
Tribunal not dealing with second issue/question - whether the respondent/assessee had a Permanent Establishment (PE) in India? and whether the subject transaction was at Arm’s Length and, if it was so, whether any profit could be attributed to the respondent/assessee?
Tribunal has dealt only with the first issue and concluded that the respondent/assessee neither a fixed place PE nor a dependent agent PE in India. Because the Tribunal reached this conclusion, it observed that the other issue was academic.
HE;D THAT:- As the record discloses that the respondent/assessee had raised an alternative plea concerning the second issue. In our opinion, it would save time and costs if the Tribunal were to render a view with regard to the second issue as well, which is broadly referred to hereinabove.
Therefore, without disturbing the impugned orders passed by the Tribunal, with the consent of counsel for the parties, the above-captioned matters are remitted to the Tribunal for rendering a decision with regard to the second issue.It is made clear that whichever party is aggrieved by the impugned order, as well as the order passed upon remand by the Tribunal, will have liberty to approach the court by way of a statutory appeal.
Since the instant appeal concerned the impugned orders passed by the Tribunal as and when the appellant/revenue files an appeal, the period spanning between the date when the above-captioned appeals were instituted in this court and the date when the Tribunal passes the order post remand, will not be factored in while calculating the period of limitation.
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2023 (12) TMI 1232
Refund of tax - Applications to condone delay in filing the return of income and claim of refund u/s 119(2)(b) rejected - HELD THAT:- Respondent could not have rejected the applications to condone the delay of the petitioners when in case of similarly situated persons, the respondent has ordered to condone the delay after considering the decision in case of Hari Singh and others [2017 (11) TMI 923 - SUPREME COURT] while exercising the jurisdiction u/s 119(2)(b) of the Act, 1961.
Therefore, the impugned orders rejecting the applications to condone the delay are required to be quashed and set aside in each petition with a direction to condone delay u/s 119(2)(b) as per order passed by the respondent in case of similarly situated persons, however, with a rider to direct the AO to issue refund with interest on the amount of refund claim from the date of deposit by the Executive Engineer, Irrigation department till the date of granting of refund.
For passing such direction of issuance of the refund with interest under section 244A, similar reasons as given by this Court in case of Special Civil Application No. 12466/2021 [2023 (12) TMI 1165 - GUJARAT HIGH COURT] the words "or the deductor, as the case may be," which is inserted with effect from 01.04.2017 would not be applicable as the petitioners have been permitted to file the refund claim for the AY 2013-2014 after condonation of delay and such delay in claiming the refund cannot be said to be attributable to the petitioners as the petitioners were not made aware about the deduction of tax at source by the deductor in absence of issuance of Form No. 16-A which was mandatorily required as per Rule 31(3) of the Rules.
In view of the foregoing reasons, the petitions succeed and are accordingly allowed. The respondents are directed to pass the order to condone the delay in filing the return for the Assessment Year 2013-2014 and to issue the refund with interest under section 244A of the Act, 1961 from the date of deposit of the amount of TDS till date of payment of refund as per provisions of section 244A of the Act, 1961
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2023 (12) TMI 1231
Recovery proceedings - Validity of Attachment of property - Encumbrance attachment entry - grievance of the petitioner is that the first respondent has attached the properties of the third and fourth respondents towards the income tax dues for the year 2018-19, and even though the mortgage properties were sold, the encumbrance certificate reflected, as if, there is a clog in the title by virtue of the entries made in the Encumbrance Certificate due to attachment order passed by the first respondent. It is under these circumstances, the present writ petition has been filed before this Court.
HELD THAT:- It is quite clear from the materials placed before this Court that the properties, which were attached by the first respondent in the year 2018-19, were already a subject matter of mortgage with the petitioner Bank in the year 2015 itself and it is apparent from the particulars that have been extracted supra. It is now too well settled that the Bank as a secured creditor will have a priority over the dues that are payable to the first respondent.
The Full Bench judgment of this Court in UTI Bank Ltd [2006 (12) TMI 2 - MADRAS HIGH COURT] also took note of the priority of the Bank over the dues as against the crown's debts.
The relief as sought for by the petitioner is granted. There shall be a direction to the second respondent to make necessary footnote and delete the attachment entries made by the first respondent. It is made clear that this order will not stand in the way of the first respondent to recover the income tax dues from the third and fourth respondents, if other properties are available for sale and recovery of dues.
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2023 (12) TMI 1230
LTCG - Deduction towards the ‘Cost of Improvement’ in the Lucknow House u/s 54 - AO observed that the photographs produced by the assessee were vague and insufficient to prove the year of incurrence of expenditure as claimed - HELD THAT:- We find that the AO has categorically accepted that Air conditioning, modular kitchen and kitchen chimney, tube-well and submersible pump are not a part of the building.
AO also accepts the fact that the building was valued as per the CPWD guidelines. Having said so, the AO holds that the expenses relatable to Air conditioning, modular kitchen and kitchen chimney, tube-well and submersible pump are not allowable as cost of improvement. The AO again agrees that the valuation report cannot be completely disregarded and parts of it are based on evidence and is in line with existing CPWD guidelines but has an objection that the photographs produced by the assessee are vague and insufficient to prove the incurrence of expenditure.
AO also held that the photographs do not portray the exact specification of the improvement made. It cannot be said that the house operated, made to live without a modular kitchen. The availability of submersible pump is a finding of fact and not mentioning it in the agreement doesn’t entitle the deduction. All the improvements made necessarily lead to the improvement in the value of the sale. The authorities have blown hot & cold in disallowing the expenditure. The selective reading of the sale agreement and lack of mentioning of pump and modular kitchen cannot necessarily lead to disallowance. AO could not bring anything on record that the statement given by the valuer is wrong on facts or had inconsistencies. Hence, we allow the appeal of the assessee on this ground.
Cost of improvement - Bangalore property - We find that the revenue has not disputed the import of Pneumatic Vacuum Elevator (PVE) however held that it is not essential for the improvement of the house to make it habitable. Whether to have a lift in the house or not is certainly not the purview of the Assessing Officer. Notwithstanding that, we find that the father of the assessee, Brig. V. K. Ghai is 90 years old staying with the assessee which is also a fact on record before the AO. Hence, we hold that the sum of Rs. 12,00,000/- incurred for installation of lift is an allowable item of cost of improvement. The amount of Rs. 1,80,000/- was made with regard to installation of the lift and the other sundry expenses to make the house habitable and hence the amounts are also to be allowed. Hence, we allow the appeal of the assessee on this ground.
Eligibility for deduction u/s 54 though the assessee did not purchase new house property himself rather got it as gift from parents - As find that the ld. CIT(A) had diligently, meticulously & conscientiously, after considering the Hon’ble jurisdictional High Court judgments in the case of ACIT Vs. Suresh Verma [2012 (3) TMI 256 - ITAT DELHI] & CIT Vs. Kamal Wahal [2013 (1) TMI 401 - DELHI HIGH COURT] came to a valid conclusion that the investments have been made by the assessee from his bank account of Rs. 17,65,000/- on 14.08.2014 and Rs. 3,31,82,000/- dated 21.08.2014 for payment to Sh. V. Ravindran, seller of the property and the parents have gone to registration owing to the absence of the assessee in India. It is also a fact that such registered property has also been gifted to the assessee by the parents on 10.06.2015. Hence, we decline to interfere with the order of the ld. CIT(A) invoking rule of purposive construction and object of Section 54F and allowing the deduction u/s 54F on the house registered in the name of the parents of the assessee.
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2023 (12) TMI 1229
Disallowance u/s. 14 r.w.s. 8D - sufficiency of own funds - expenditure incurred on earning exempt income - HELD THAT:- The undisputed fact is that the exempt income of the assessee is Rs. 1615/- only, therefore, in the light of the decision of Caraf Builders and Construction [2018 (12) TMI 410 - DELHI HIGH COURT] disallowance should not exceed the exempt income.
Suo-moto disallowance As decided in case of GMR Enterprises Private Limited [2021 (11) TMI 565 - ITAT BANGALORE] following the decision of M/s. Marg Limited [2020 (10) TMI 102 - MADRAS HIGH COURT] disallowance u/s 14A of the 1.T.Act cannot exceed the exempt income earned during the relevant assessment year irrespective whether larger amount was disallowed by the assessee u/s. 14 A of the IT Act while filing the return of income - we direct the AO to delete the disallowance and restrict the same to Rs. 1615/- only. Appeal of the assessee is partly allowed.
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2023 (12) TMI 1228
Addition u/s 69A - taxability at higher rate of tax u/s 115BBE - on-money in respect of 100% of unit is brought on record - HELD THAT:- As incriminating material is not found relating to each and every unit. AO extrapolated the rate in respect of all 384 units. No independent investigation of facts was carried out by AO during assessment proceedings. There is no refinance in the assessment order that the search party while preparing appraisal report suggested collection of on money in respect of all the units. There is no allegation of AO that units were sold below the Jantri rate. No other independent evidence or material to substantiate the on-money in respect of 100% of unit is brought on record.
We find that in CIT Vs Standard Tea Processing Co. Ltd. [2013 (7) TMI 539 - GUJARAT HIGH COURT] held that the addition for undisclosed income on account of inflated purchase price can be made only for the period to which document found during the search is related and not for the entire block period
As in CIT Vs B. Nagendra Baliga [2014 (6) TMI 114 - KARNATAKA HIGH COURT] held that the Assessing Officer has not entitled to extrapolate undisclosed income detected in the course of search for a particular period to entire block period on estimate basis.
The Coordinate Bench of Tribunal in ACIT Vs M/s Amar Corporation Ltd. [2011 (3) TMI 1676 - ITAT AHMEDABAD] and in Sayan Textiles Park Ltd. [2015 (4) TMI 184 - ITAT AHMEDABAD] also held that question of extrapolation can only arise only in a situation when the documents give an indication that it was a regular occurrence in a systematic manner. Thus, in view of aforesaid factual and legal discussion, we uphold the order of ld. CIT(A) on our aforesaid observations. In the result, grounds of appeal raised by revenue as well as assessee are dismissed.
Taxing of addition u/s 115BBE - We find that no such provision was invoked by AO while making addition in the assessment order. We further find that combination this bench in case of Dagina Jewellers ([2023 (4) TMI 1277 - ITAT SURAT] held that when the source of income was explained and is apparently established, hence section 115BBE is not applicable for such business receipts. It was held that the provisions of Sections 68 and 69 are not applicable for trading transactions like deposit of cash out of cash sales and excess closing stock. While giving such finding, we have made reliance on the decision of Shilpa Dyeing & Printing Mills Ltd, [2015 (7) TMI 691 - GUJARAT HIGH COURT] Thus, in view of aforesaid position, the Assessing Officer is directed to tax the addition under normal provision/rate applicable on assessee. In the result, the ground No. 2 of appeal is allowed.
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2023 (12) TMI 1227
TP Adjustment - apportioning the expenses of assessee’s affiliates - HELD THAT:- We note that the Ld.TPO has not considered the agreements between the assessee and its AE and the nature of the transaction entered into, the services rendered by the assessee to its AE and the benchmarking method adopted by the assessee on a consistent basis. In the interest of justice, we remand this issue back to the Ld.AO/TPO to consider the claim of assessee by analysing all the details vis-à-vis the contracts and the functions performed by the assessee in respect of the services rendered.
Also noted that the assessee has received certain services from its AE which has been treated by the Ld.TPO at arms length by the assessee. However, the Ld.TPO has apportioned 1/5th of the expenses once again to the assessee and proposed a TP adjustment which in our view amounts to double addition. Such kind of computation of adjustment is not in accordance to the sound principles of transfer pricing rules. We direct the Ld.AO/TPO to consider the segments of the assessee under the receipt of business development services from its AE denovo in accordance with law. Needless to say that proper opportunity of being heard must be granted to assessee.
Grant of depreciation at the rate of 60% on NMS CG/TX Cards, switches, etc., on the ground that these items do not come within the definition of “computers” - HELD THAT:- Identical issue has been considered by Coordinate Bench of this Tribunal for A.Y. 2015-16 [2022 (8) TMI 1343 - ITAT BANGALORE] we direct the Ld.AO to allow the depreciation at 16% on the CG/TX Cards, switches etc.
TDS u/s 195 - grant of deduction of tax paid outside India in respect of which no foreign tax credit is eligible in India by holding that the same would be outside the scope of Section 40(a)(ii) - HELD THAT:- We direct the Ld.AO to verify the amount of foreign tax credit paid that is attributable to the income accruing / arising in India and to allow the same. Accordingly in the light of the decisions relied by Coordinate Bench of this Tribunal hereinabove in assessee’s own case for A.Ys. 2014-15 and 2015-16 Accordingly, Ground nos. 2-3 raised by revenue is remanded to the Ld.AO to consider the claim in accordance with law. Needless to say that proper opportunity of being heard must be granted to assessee.
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2023 (12) TMI 1226
Disallowance of loss in derivative transactions on the platform of National Exchange of India (NSE) - as submitted by the assessee before the CIT(A) that the loss in derivative segment arose as a result of transactions made through registered brokers on the platform of NSE which are duly verifiable from the records and the Assessing Officer has rejected the claim of loss cursorily without any opportunity to the assessee to corroborate its claim - HELD THAT:- The derivative loss claimed by the assessee is supported threadbare by scrip-wise tabular statement. The mis-match between derivative loss claimed qua the working of the CIT(A) is found to be explained and is on account of unilateral omission on part of the CIT(A) to take cognizance of the losses arising on account of open position at the beginning of the year which matured during the year in question and likewise open position which remained unmatured and carried forward in the subsequent financial year. The approach of the assessee to recognize profits/losses in open contracts appears to be prima facie in tune with the accounting practices. The effect of open position if not taken will give rise to totally absurd conclusions.
The profit/loss carried already reported for a part of the period in the preceding accounting year will get accounted for again during the year. Similarly, the profits/losses accounted for covering a part of the financial period during the year will again get accounted for in the subsequent year on termination of derivative contracts at the time of maturity. The action of the CIT(A) is apparently flawed and has lead to manifestly absurd results. The action of the CIT(A) cannot be justified in any manner and thus liable to be set aside. The derivative loss claimed by the assessee appears fully justified and requires to be accepted. The plea on behalf of revenue that such loss from open position has no effect on profit and loss is devoid of any merit. We thus set aside the order of the CIT(A) and direct the Assessing Officer to allow the claim towards derivative losses as business losses of the assessee as claimed.
Penalty u/s 271(1)(c) on the impugned derivative losses disallowed - The imposition of penalty under Section 271(1)(c) has thus lost the very premise to hold its sustainability. The penalty u/s 271(1)(c) in question thus cannot be sustained in law. Besides, the action of the assessee is fully supported by the documentary evidences, the confirmation from the registered SEBI brokers and the audited financial statement showing presence of open interest in derivative scrips both at the beginning of the year as well as at the end of the year. This being so, in the absence of any mistake or culpability in the action of the assessee, the imposition of penalty cannot be justified by any stretch of imaginations. We thus set aside the impugned first appellate order and delete the penalty.
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2023 (12) TMI 1225
Additions u/s 41(1) - Cessation of liability - Freezer Deposit (security deposit) considered as lapsed liability u/s 41(1) - Relevant in which such incomes taxable - assessee-company manufactured ice creams and frozen foods, sold it through distributors from whom it obtained deposits in lieu of installing deep freezers at their premises - HELD THAT:- There is, we observe, no dispute on the primary facts. That is, the refundable deposits, to secure the assessee’s interest, are accepted from it’s dealer by the assessee on provision of equipment to them, which is though subject to depreciation. Though refundable only on termination of the agreement, the amount refundable reduces at a definite rate for each year (or part thereof) of the agreement, corresponding with the rate of depreciation, i.e. @25% p.a. The amount refundable thus reduces at a defined rate each passing year. This ascertained reduction in the amount refundable and, thus, the ceasing of the assessee’s liability qua deposit is regarded as it’s income by Revenue. How, one wonders, being axiomatic, could that be disputed, signify as it does the right to receive, case law on which is legion
The amount having been already received, income arises to that extent; the assessee acquiring a dominion or unqualified right over the same. That the assessee may not have appropriated it as it’s income in it’s accounts is another matter, it being trite that that the passing or, as the case may be, non-passing of accounting entries is not determinative of the matter. Accounting entries do not create income, but only recognize it. Non-booking of income in accounts would be to no consequence Sutlej Cotton Mills Ltd. v. CIT [1978 (9) TMI 1 - SUPREME COURT]. Reliance on case law, de hors the facts and ratio, is of no moment, rendered in fact of no consequence in view of identity of the ratio or the principle of law relied upon.
The assessee’s challenge, in fact, is not based on merits per se, but on precedence, which we have again found to be in agreement with the Revenue’s case, i.e., cessation of liability signifying accrual of income. For the reasons unknown, this cessation has, as it appears, in assessee’s view, coincided with the termination of agreement, which represents the fundamental flaw in assessee’s case. It is not the amount refundable, which is only on the said termination, but that non-refundable, which is independent of termination, which results in accrual of income.
True, termination also signifies the amount refundable, but then that is only the amount not non-refundable, since determined at the expiry of each year. The exercise is to be carried out at each year-end, determining the deposit amounts no longer refundable. There being no dispute on quantum at any stage, we have no hesitation in according our approval to the impugned addition. We are conscious that the said sum or part thereof may have been booked as income in the subsequent years, i.e., on termination of the relevant agreements. It is, however, again trite that income is liable to be taxed for the right year, and it being taxed in another year is no ground for it being not brought to tax for the right year [CIT v. British Paints India Ltd. [1990 (12) TMI 2 - SUPREME COURT]; CIT vs. Chunilal V. Mehta & Sons P. Ltd. [1971 (8) TMI 4 - SUPREME COURT].
Disallowance u/s 14A - expenditure incurred on earning exempt income - HELD THAT:- Until and unless there is diversion of funds, of which there is no whisper, the term loan, as indeed working capital loan/advance, are for business purposes, would not stand to be allocated, which is only qua common expenses. The assessee has also claimed that it has sufficient funds of it’s own, i.e. vis-a-vis the investment yielding non-taxable income, being at an average of Rs. 305 lakhs and Rs. 19 lakhs respectively, and that therefore no part of the tax-free investment could be regarded as financed from interest bearing borrowings. The matter is completely factual. It is only in the absence of the assessee exhibiting it’s case with reference to facts and figures that the average formula prescribed u/r. 8D comes into play.
The comparison as made is misplaced. The term loan, for example, does not finance the fixed assets to the extent of 100%, so that the balance is by own capital, as indeed the repayment of the term loan, increasing the share self-financed to that extent. Similarly, for the working capital borrowing, which also entails margin money. Money has no bones and, therefore, it is only the fund flow statement (or Balance Sheets as at the end of the year/s) that would clarify the financing pattern of the taxable assets and, by implication, of the non-taxable or the tax-free investment. No such exercise has been done at any stage for us to issue any finding in the matter. No interference, therefore, apart from the exclusion of the term loan aforesaid is warranted in computing disallowance u/s. 14A.
Assessee’s appeal is partly allowed.
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2023 (12) TMI 1224
Eligibility of exemption u/s 11 - main grievance of the revenue is that the relevant year under consideration is AY 2018-19; and the Parliament had substituted the first and second proviso of section 2(15) of the Act by Finance Act, 2015 w.e.f 01.04.2016 which is applicable for the year under consideration - whether the assessee’s case falls under mischief of proviso to section 2(15)? - HELD THAT:- We note that the relevant year under consideration is AY 2018-19 and the Parliament had substituted the first and second proviso of section 2(15) of the Act by Finance Act, 2015 w.e.f 01.04.2016 which is applicable for the year under consideration.
And the Hon’ble Supreme Court had laid the law on the issue regarding claim of exemption by similar assessee’s in the case of Ahmedabad Urban Development Authority [2022 (10) TMI 948 - SUPREME COURT] [as well as in the case of Servants of People Society [2023 (2) TMI 535 - SUPREME COURT]] which was decided after considering the proviso to section 2(15) of the Act, which admittedly the Ld. CIT(A) did not consider, before he passed the impugned order.
n the light of the recent decision of the Hon’ble Supreme Court in the case of Ahmedabad Urban Development Authority (supra) as well as Servants of People Society (supra), we are of the opinion that Ld. CIT(A) erred in merely following the order of the Tribunal in assessee’s own case for AY. 2011-12 to AY. 2013-14 passed on 06.09.2022. And that AO has framed the assessment only discussing the ‘Principle of Mutuality’ and did not consider the application of proviso to section 2(15) of the Act. And since the ratio laid by the Hon’ble Supreme Court (supra) is applicable in the case of assessee for assessment [regarding claim of exemption] for the relevant year under consideration, in the interest of justice and fair play, we are inclined to set aside the impugned order and restore the assessment back to the file of AO for denovo assessment.
AO to decide the issues [claim of exemption] involved in assessment for AY. 2018-19 after giving proper opportunity to assessee and assessee is directed to file relevant/details/written submission and request for video conference as per rules. Appeal of the revenue stands allowed for statistical purpose.
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2023 (12) TMI 1223
Addition of share premium - AO has treated the amount received by the assessee from its holding company as unexplained cash credit u/s 68 on the ground that source of funds has not been explained - CIT(A) deleted addition admitting of additional evidence as provided in sub-rule (2) of Rule 46A of the Income Tax Rule 1962 - HELD THAT:- We find that assessee has explained before the ld. CIT(A) that it has submitted the relevant details as sought by the assessing officer during the course of assessment proceedings and no further any notice was received for calling any other details. Therefore, the assessee has further submitted the following details before the ld. CIT(A) as additional evidences under Rule 46A of the Income Tax Rule. Under the aforesaid circumstances the ld. CIT(A) has rightly admitted the same as additional evidences. We find that the assessing officer has not contrary disproved the genuineness of the various documents as discussed in the finding of the ld. CIT(A).
CIT(A) has elaborated in his finding the relevant supporting document furnished by the assessee which categorically established the identity, genuineness and creditworthiness of the transactions. CIT(A) has also referred the CBDT instruction 2/2015 dated 29.01.2015 that premium on share issue was on account of capital account transaction and does not give rise to income and, hence not liable to transfer pricing adjustment as held in the case of M/s Vodaphone Services Pvt. Ltd. Vs. Union of India & Others [2014 (10) TMI 278 - BOMBAY HIGH COURT]
During the course of appellate proceedings the ld. Counsel has also referred the decision of ITAT in the case of ITO 6(2)(4) Vs. Chiripal Poly Films Ltd. [2019 (4) TMI 1422 - ITAT MUMBAI] wherein held that the assessee complied with the requirements of RBI guidelines by filing FIRC with RBI and also filed Unique Identification number received from RBI. Further it had also filed FCGPR with RBI that the assessee was having sufficient authorised share capital to issue shares to investor then no addition could be made u/s 68 of the Act. In view of the above facts and finding we don’t find any error in the decision of ld. CIT(A). Therefore, these ground of appeal of the revenue stand dismissed.
Disallowance of 20% of advertisement and Sales promotion expenses and 25% of travelling expenses - CIT(A) deleted the addition - HELD THAT:- AO has disallowed the expenditure on estimated basis without considering the aforesaid details furnished by the assessee. The assessee explained that advertisement and sale promotion expenditure were related to the marketing of Carlisle Brand of products which had global presence and this expenditure incurred on year to year basis and such expenditure constitutes only of small proportion of the revenue of the assessee.
Travelling expenses the assessee submitted that it has reimbursed the claim of its employee for incurring expenses for business travel and such expenses comprised incidental expenses towards meals refreshment and travel expenses for which it is not feasible to furnish invoices and vouchers for all such expenses CIT(A) has elaborated in his finding that assessing officer has not brought on record any cogent basis for disallowing such expenditure without considering the percentage of expenditure compared to the revenue generated by the assessee company.
During the course of appellate proceedings before us the ld. Counsel has also referred decision of R.G. Buildwell Engineers Ltd. [2018 (10) TMI 252 - SC ORDER] wherein the decision of Hon’ble High Court was upheld for not making adhoc disallowance of expenses without rejecting the books of account. No infirmity in the decision of ld. CIT(A), therefore all these grounds of appeal of the revenue are dismissed.
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