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2024 (5) TMI 495 - ITAT AHMEDABAD
Application seeking approval u/s 80G(5)(vi) rejected - assessee trust was granted provisional registration u/s 80G in Form 10AC - application for regular registration was rejected stating that some of the objects of the applicant/assessee are religious in nature - HELD THAT:- It is evident that the assessee trust is granted registration u/s 12A by the CIT(E) with the same objectives as enlisted in the trust deed.
Though the assessee trust is established with some of the objectives involved in certain religious activities, on perusal of the audited financial statements, more particularly from the Income& Expenditure account for the periods, submitted as a part of paper book and also as submitted to Ld. CIT(E), it is not emanating that the assessee trust had incurred any expenditure on religious activities.
No show cause notice was issued to the assessee before rejecting the application u/s 80G by Ld. CIT(E). The show cause notice holds immense significance in income tax proceedings, ensuring procedural fairness and safeguarding the rights of taxpayers. There are many judicial pronouncements which have reinforced the indispensability of this notice, emphasizing that orders issued without its adherence may be deemed invalid.
On perusal of financials, facts, and circumstances of the present case, after thoughtful deliberations, we are of the opinion that the order passed by CIT(E) is bad at law. We are of the considered view that the assessee trust having not spent any money on religious purposes, is eligible for grant of approval u/s 80G(5) of the Act - Appeal of the assessee is allowed.
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2024 (5) TMI 494 - ITAT AHMEDABAD
Disallowance of employees' contribution to provident fund u/s. 43B - HELD THAT:- Issue decided against assessee in the light of decision of Hon’ble Apex Court in the case of Checkmate Services (P.) Ltd [2022 (10) TMI 617 - SUPREME COURT]
Disallowance u/s. 35D - AR submitted that the CIT(A) has not at all considered the alternative plea of the assessee while deciding the issue/ground and in fact has given his dismissal for which the Ld. AR requested that the matter may be remanded back to the file of the CIT(A) for proper adjudication of the issues - HELD THAT:- It is pertinent to note that in fact while deciding this issue, the CIT(A) has not given any independent finding and in fact has not considered or adjudicated the assessee’s alternative plea. Therefore, it is appropriate to remand back this entire issue to the file of the CIT(A) for proper adjudication of the same in consonance with the assessee’s plea before the CIT(A) and the issue be decided as per the Income Tax Statute. Needless to say, the assessee be given opportunity of hearing by following the principles of natural justice. Ground no.1 is partly allowed for statistical purpose.
TP Adjustment - Selection of MAM - CIT(A) affirming TPO’s action of rejecting most appropriate method (MAM) adopted by the assessee - AR submitted that the rejection of CUP method for benchmarking purchase transaction was not justified on the part of the TPO as the TPO himself has accepted CUP as most appropriate method for the same set of transactions carried with the Associated Enterprise (AE) in preceding years - HELD THAT:- CIT(A) has totally failed to take into account profit margins as well as how the comparables which were selected by the TPO are not as per the filters given by the TPO himself. The product is manufactured by the assessee as per the specification and quality needed by the AE for which necessary technical assistance for setting up, commissioning and running of plants and training of the Indian Technicians was provided by the AE.
All the functions of manufacturing are performed by the assessee according to the needs of the AE and in case the AE is unable to purchase the product, the AE will be liable to pay the entire amount equivalent to interest and instalment to the Bankers of the assessee. The risk factor was upon the AE and, therefore, the assessee while calculating the gross profit margin of the comparable has taken into consideration only the cost incurred in manufacturing process.
All these aspects including that of adjustments and other comparables in respect of actual rate of cost along with capacity utilisation adjustment were much below to that of assessee’s units. The TPO has not looked into these aspects along with the appropriate method taking into consideration the assessee’s manufacturing activities and its sale transactions. The assessee is 100% export unit (98%). Thus, the TPO as well as the CIT(A), both the Authorities have failed to take cognisance of the same and was not right in rejecting the contentions of the assessee. Therefore, the TPO is directed to look into the same. Matter is remanded back to the file of the TPO for proper adjudication.
Appeal of the assessee is partly allowed for statistical purpose.
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2024 (5) TMI 493 - ITAT AHMEDABAD
Revision u/s 263 - Bogus LTCG/Share transaction - as per CIT AO failed to make necessary enquiries to ascertain the actual strength of the company, investment profile of the assessee - assessee entered into transaction of only scrip (Suchak Trading Ltd) and the examination and inquiry of five entities, who purchased the shares sold by assessee, were left open without appropriate conclusion - as argued PCIT has not initiated this review on his own and therefore he was not right in assuming the jurisdiction - HELD THAT:- DR, in reply, explained that the review proposal sent by AO to PCIT is part of their internal procedure and Ld. PCIT has carried independent inquiry of the subject matter of review.
It is also clear from the material available on records that the AO in his proposal itself has stated that the assessment order is passed without proper examination of the facts.
We also take into consideration the fact that LD. PCIT, in his order, has distinguished the judicial pronouncements on which the assessee relied on.
Clause (a) of the Explanation 2 to section 263 empowers PCIT to invoke section 263. Clause (a) talks about the inquiry or investigation having not been made by the A.O., which ‘should have been made’. The phrase ‘should have been done’ as provided in this clause means the verification/ enquiry which ought to have been done. Considering this provision coupled with the observations recorded by the Ld. PCIT as mentioned in the facts of the case above, we are of the opinion that the Ld. PCIT has exercised his discretion reasonably. Ld. PCIT has applied his mind to the record his reasons for assuming the jurisdiction - no infirmity in the order of the Ld. PCIT in directing the AO to pass a fresh assessment order after allowing adequate opportunities of being heard to the assessee. Appeal filed by assessee is dismissed.
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2024 (5) TMI 492 - ITAT MUMBAI
MAT provision applicability on banking company u/s 115JB - HELD THAT:- Whether the provision of Section 115JB of the Act is applicable to a banking company has already been decided in case of Union Bank of India [2019 (5) TMI 355 - BOMBAY HIGH COURT] wherein it has been held that prior to its amendment by Finance Act, 2012, the provision of the computation of book profit tax u/s 115JB of the Act would not be applicable to banking company governed by the provision of Banking Regulation of 1949.
It is not in dispute that assessee is a banking company. Accordingly, we do not find any infirmity in the order of the learned CIT (A), who relied upon the decision of the Hon'ble Bombay High Court and also the decision of the co-ordinate Bench in assessee’s own case. Accordingly, as such impugned assessment year i.e. A.Y. 2005-06, we do not find any reason to hold that provision of Section 115JB of the Act applies to the assessee company prior to 1st April, 2013. Accordingly, ground Nos., 1 and 2 of the appeal are dismissed.
Allowability of interest u/s 244A(1A) - HELD THAT:- Admittedly, in this case, the co-ordinate Bench has passed the order on 30th March, 2016. The order giving effect of such order was passed by the learned Assessing Officer on 19th March, 2021. This order was served to the assessee on 3rd September, 2021, therefore, apparently the assessee is entitled to interest from the date of receipt of the order by PCIT till the order is received by the assessee.
Therefore, the assessee is held to be eligible for interest from 1st January, 2017 to 3rd September, 2021. The appeal effect order is passed after the introduction of this section and therefore, despite the assessment year being 2005-06, the assessee is eligible for the above interest because of the reason that when appeal effect order was passed, such provision was there on the statute book. - Decided against AO.
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2024 (5) TMI 491 - ITAT MUMBAI
Disallowance u/s 14A - Mandation to record satisfaction - assessee has computed a suo moto disallowance of administrative cost and Demat charges - HELD THAT:- According to Section 14A (2) of the Act, it is the duty of the AO to first record his satisfaction that why the claim of the assessee is not correct according to him on verification of the accounts of the assessee. There is no whisper in the assessment order about examination of claim of the assessee, holding such claim as not correct on examination of accounts of the assessee. Thus, The AO has failed to record his satisfaction as provided under that section.
Thus without recording of the satisfaction about the correctness of the claim of the assessee, the learned Assessing Officer does not have any authority to compute the disallowance by application of Rule 8D. The learned CIT (A) is also incorrect in holding that the learned Assessing Officer has recorded any satisfaction as provided under Section 14A (2) of the Act. Decided in favour of assessee.
Charging of interest u/s 234D - HELD THAT:- We direct the AO to verify whether the provision of Section 234D is applicable or not in this case and, if no such interest is chargeable, delete the demand of interest to that extent.
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2024 (5) TMI 490 - ITAT NAGPUR
Addition u/sec. 56(2)(vii) - Difference in value of agricultural land purchased from value of property for stamp duty purpose - HELD THAT:- DR failed to rebut the clinching fact that the foregoing differential amount nowhere 10% of the actual sale price as per sec. 56(2)(vii)(b) 3rd proviso adopting the tolerance margin given in sec. 50C(1) 3rd proviso mutatis mutandis.
As argued that the tolerance margin of 10% in sec. 50C(1) 3rd proviso substituting 5% by the Finance Act, 2020 is applicable w.e.f. 01.04.2021 whereas the impugned assessment year herein is 2014-2015. No merit in the Revenue’s instant arguments in light of C. Maria Fernandes vs. ITO [2021 (1) TMI 620 - ITAT MUMBAI] holding the foregoing tolerance margin as carrying retrospective effect. We delete the impugned addition made u/sec. 56(2)(vii) in very terms since falling within the statutory tolerance margin of 10% - Assessee’s appeal is allowed.
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2024 (5) TMI 489 - ITAT BANGALORE
Denial of 80P(2)(a)(i) deduction - interest income earned on its investments amount made with SBI out of internal fund (Share Capital plus other Funds) constituting its income from the business of providing credit facilities to the members - allowing the proportionate interest paid to the members of the society as well as administrative expenses u/s. 57(iii) - HELD THAT:- As relying on Katlary Kariyana Merchant Sahkari Sarafi Mandali Ltd [2022 (1) TMI 1309 - GUJARAT HIGH COURT] interest received on such investments by assessee is not eligible for deduction u/s. 80P(2)(a)(i)/80P(2)(d) on such interest received from State Bank of India (SBI). Since the interest income received on such investments from State Bank of India is not attributable to main business of the appellant, hence needs to be assessed as “income from other sources”.
Since the interest income received by the appellant was not attributable to the main business of the appellant the same should not be allowed as deduction u/s 80P of the Act. We further note that the revenue authorities have treated the entire income as income from other sources. The entire interest income cannot be taxed if the assessee has incurred expenses towards earning of such income.
We further note from the financial statement as on 31.03.2016 that FD with SBI is Rs. 4,36,328,811, however the internal fund is Rs. 5,17,72,069/- which is more than investments made with SBI, it shows that the assessee has not utilized external funds for investment with SBI. Therefore, relying on the judgment of Totgars’ Co-operative Sales Society Ltd [2015 (4) TMI 829 - KARNATAKA HIGH COURT] the assessee is eligible for claim of its expenditure towards earning of such interest income. Accordingly, the assessee is directed to provide the details of expenditure for earning interest income before the assessing officer. Therefore for allowing expenditure, we are remitting this issue to the assessing officer for determining the cost of funds for earning interest income. Appeals of the assessee are partly allowed for statistical purposes.
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2024 (5) TMI 488 - ITAT KOLKATA
Revision u/s 263 - setting aside assessment order passed u/s 147 of the Act for de-novo assessment - HELD THAT:- We note that for reopening of the assessment u/s 147 r.w.s. 148 of the Act, the Assessing Officer must have reasons to believe that the income of the assessee for the relevant assessment year has escaped assessment. The said reasons to believe could be based on any tangible material or information received by the Assessing Officer. In this case, the letter written by the assessee to the AO was nothing else, but an information received by the Assessing Officer of escapement of income of the assessee for the year under consideration. However, merely because the information of escapement of income was received from the assessee itself that itself did not give any jurisdiction to the AO to surpass the mandate of the statutory provisions as provided u/s 151 of the Act to get the necessary approval from the competent authority before issuing notice u/s 148 of the Act. Therefore, the reopening of the assessment u/s 147 r.w.s. 148 of the Act in this was bad in law for want of jurisdiction of the Assessing officer to reopen the assessment without approval of competent authority u/s 151 of the Act.
Thus since the base order passed u/s 147 r.w.s. 148 of the Act was bad in law being without jurisdiction for want of approval of the competent authority, therefore, the subsequent proceedings/orders which were on the basis of the said order passed u/s 147 of the Act are also held as bad in law. In view of the above discussion, the assessee succeeds on the legal ground.
PCIT exercised his revision jurisdiction in respect of order passed u/s 147 wherein the issue of share subscriptions was not the subject matter of reassessment - As assessment was reopened on a particular issue of the escapement of income earned by the assessee as profit on share dealing. The Assessing Officer examined that particular issue and made addition in respect of the said profits earned by the assessee. The issue relating to any other transaction i.e. share application money received by the assessee, was not the subject matter of the reassessment proceedings. Since, the issue of share application money on which the ld. PCIT has sought to revise the order was not the subject matter of the reassessment order, therefore, in the light of the decision of Alagendran Finance Ltd [2007 (7) TMI 304 - SUPREME COURT] it cannot be said that the reassessment order passed by the Assessing Officer was erroneous, therefore, the revision jurisdiction exercised by the ld. PCIT, in this case, cannot be held to be justified. In view of the discussion, since, the revision order passed by the Ld. PCIT u/s 263 of the Act was without jurisdiction, therefore the consequential assessment order passed by the Assessing Officer u/s 143(3) r.w.s. 263 of the Act was also not sustainable.
Addition u/s 68 - assessee had failed to prove the identity and creditworthiness of the share subscribers and genuineness of the transaction - Assessing Officer to get the identity and creditworthiness of the said share subscribers verified, had issued notices u/s 133(6) of the Act, which were duly complied with by all the share subscribers during the remand proceedings and they furnished the necessary details. Not only this, the Assessing Officer also issued summons u/s 131 of the Act and all the directors of the share subscribing companies personally appeared and their statements were recorded. Copies of the bank accounts of all the share subscribers were also furnished and all the share subscribers duly confirmed that they had made share subscription in the assessee company. The ld. CIT(A) has also noted that the Assessing Officer, himself, has admitted that the directors of the share applicant companies and source of such investor companies belonged to the same family and he produced the family tree to prove that funds were coming from the same companies with common family members. The ld. CIT(A) observed that this fact, itself, establishes that the share subscribers were interested parties for promotion of the assessee company and therefore, justification of premium was also proved.
CIT(A) had discussed the creditworthiness and financials of each of the 9 shareholders and has also observed only a part of their net worth was invested by the share subscribers into assessee company. The ld. CIT(A) has also relied various case laws including that of Sagun Commercial P Ltd. [2011 (2) TMI 1555 - CALCUTTA HIGH COURT] CIT(A), thereafter, impugned order has concluded that the identity, creditworthiness and genuineness of the transactions were duly established in this case. Decided in favour of assessee.
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2024 (5) TMI 487 - ITAT KOLKATA
Validity of Revision u/s 263 - assessment order passed u/s 147 r.w.s 143(3) set aside - as per CIT order AO passed u/s 147 r.w.s. 143(3) was erroneous and prejudicial to the interest of revenue because there was a report of the investigation wing that the assessee had received accommodation entry and that It was, therefore, unaccounted income of the assessee - HELD THAT:- A perusal of the revision order passed by the ld. Pr. CIT shows that the ld. Pr. CIT has not pointed out any error or discrepancy in the explanations and details furnished by the assessee and without examining such evidence and without counter questioning the assessee on the relevant points and even without considering the submission of the assessee furnished in reply to the show-cause notice, the ld. Pr. CIT, in our view, was not justified in setting aside the order, simply stating that in his view more enquiries were needed to be carried out by the AO.
Pr. CIT, taking shelter in Explanation 2 to Section 263(1) of the Act, held that the order of the Assessing Officer was erroneous and prejudicial to the interest of the revenue on the ground of lack of enquiry, which, in our view, is a general observation and no specific observation has been made in respect of any of the details or evidence furnished by the assessee and as to why the ld. Pr. CIT was not satisfied about such details/replies furnished by the assessee.
Simply because the ld. Pr. CIT felt that the Assessing Officer should have made further enquiries on the same issue or that the case was to be examined from some another angle, the same, in our view, cannot be a valid ground to set aside the assessment order. If such an action is allowed by the ld. Pr. CIT in his revision jurisdiction then, there would be no end to litigation and there would not be any finality to the assessment. The Explanation 2 to Section 263(1) of the Act does not give unbridled powers to the ld. Pr. CIT to simply set aside the assessment order by saying that the Assessing Officer was required to make further enquiries without pointing out as to what was lacking in the enquiries made by the Assessing Officer and why the ld. Pr. CIT was not satisfied with the reply and evidence furnished by the assesse
As decided in Usha Polychem India (P) Ltd [2023 (5) TMI 419 - CALCUTTA HIGH COURT] where Principal Commissioner involved revision jurisdiction under section 263 in case of assessee on basis of an information received from Dy. Director (Investigation) regarding huge amount of unaccounted funds received in bank account of assessee, since a reassessment proceeding was already invoked and completed on basis of same information, impugned revision was unjustified - Decided in favour of assessee.
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2024 (5) TMI 486 - ITAT DELHI
Income deemed to accrue or arise in India - Revenue earned from supply of software - ‘royalty’ u/A 13 of DTAA between India and United Kingdom - software is Shrink wrap software or customized software? - assessee was incorporated under the laws of United Kingdom (UK) with the primary objective of carrying on the business of specialist, engineers and dealers in computer system - HELD THAT:- As decided in assessee own case [2022 (8) TMI 1497 - ITAT DELHI] the software catered to by the assessee is a customized software and not a shrink wrap one as it is exclusively developed for the organization to suit its business requirement and that it is very expensive which is a logical corollary to the customized software.
The issue of royalty or not on software has been examined by the Hon’ble High Court in case of Nokia Networks OY [2012 (9) TMI 409 - DELHI HIGH COURT] Where in it was held that supply of software is not ‘royalty’ despite the amendments made by Finance Act 2012 to section 9(1)(vi) of the Act. It has been observed that though Explanation 4 was added to section 9(1)(vi) by the Finance Act 2012 with retrospective effect to provide that all consideration for user of software shall be assessable as “royalty”, the definition in the DTAA has been left unchanged. Following the decision in case of Siemens AG [2008 (11) TMI 74 - BOMBAY HIGH COURT] it was held that amendments cannot be read into the treaty. Once assessee has opted to be assessed by the DTAA, the consideration cannot be assessed as “royalty” despite the retrospective amendments to the Act.
The right to reproduce and the right to use computer software are distinct and separate rights, the former amounting to parting with copyright and the latter, in the context of nonexclusive EULAs, not being so. At this juncture, we have examined the written submission of the ld. DR and find that it would not make any material difference to the fact that the buyer of the software in the instant case also has the user right only. The buyer has no right to re-sale the product and it still remained a copyrighted article which the buyer cannot alter modified, reproduced i.e. own will unless authorized. And such authorization has been given to re-supply to BSNL for their use, at the same time, keeping the all other rights with the assessee.
Holding thus, the Hon’ble Supreme Court [2021 (3) TMI 138 - SUPREME COURT] decided the issue in favour of the taxpayer and laid down that the payments made by resident Indian end-users/distributors to non-resident computer software manufacture/suppliers as consideration for use/resale of shrink-wrapped software does not amount to payment for royalty for the use of copyright in the computer software considering the definition of royalty under the DTAAs. Hence, keeping in view the judgment of Hon’ble Apex Court, we hereby allow the appeal of the assessee on merits. Appeal of the assessee is allowed.
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2024 (5) TMI 485 - ITAT DELHI
Disallowance of various expenses debited in the P&L account, either in full or on ad hoc basis by the learned CIT(A) - non rejection of books of accounts - HELD THAT:- When the books of account and the book results had not been rejected by the Revenue, by pointing out specific defects therein, there is no scope for making disallowance of expenses on ad hoc basis or in full. In the instant case, the books of account have been duly subjected to audit by a Chartered Accountant and the audited books of account together with audited financial statements, were also duly placed on record before the learned AO. It is not the case of the Revenue that the said expenditures were not incurred by the assessee wholly and exclusively for the purpose of business. These expenses were subjected to disallowance only on flimsy grounds that on the vouchers, revenue stamps are not affixed. In this case, it is pertinent to note that the turnover of the assessee is Rs. 160.46 crores and the total administrative expenses debited by the assessee is hardly Rs. 58.64 lakhs. Hence, we have no hesitation to delete the entire disallowance of expenses debited in the P&L A/c. - Decided in favour of assessee.
Disallowance of interest paid on unsecured loans - HELD THAT:- No addition has been made by the learned AO for the receipt of unsecured loans - unsecured loans received by the assessee have been accepted as genuine by the learned AO. Assessee had duly furnished the confirmations from the unsecured loan creditors, which fact is also confirmed by the CIT(A) in his order. It is not the case of the Revenue that the said loans were not utilized by the assessee for the purpose of his business. Absent such findings, interest paid on unsecured loans which were considered as genuine, cannot be subjected to any disallowance. Hence, we direct the Ld. AO to grant deduction for interest - ground raised by the assessee is allowed.
Disallowance on account of difference in purchases debited by the assessee vis a vis corresponding value shown by the suppliers in their response to notice issued u/s 133(6) - HELD THAT:- Though there are certain differences in terms of accounting policies/ deficiencies carried out by the suppliers in their respective books, still the closing balance outstanding as on 31.03.2010 reflected by the said supplier duly matches in both the parties books. This clearly goes to prove that the reconciliation submitted by the assessee hereinabove is factually correct and no adverse inference could be drawn thereon. Hence, the disallowance made by the Ld. CIT(A) based on the remand report of the Ld. AO with regard to Thiru Arooran Sugar Ltd. deserves to be deleted and is hereby deleted.
With regard to difference in balance in the case of Dwarikesh Sugar Industries Ltd., we find that the assessee had duly explained the same by way of proper reconciliation that the purchases has been duly accounted by the assessee after 01.04.2009 on the date on which the goods were actually received by him, whereas the supplier had shown it as sales in the month of March 2009 itself. This had admittedly led to the difference. We find, the assessee had clearly explained the difference in the value and hence no addition is required to be made.
Appeal of the assessee is partly allowed.
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2024 (5) TMI 484 - ITAT MUMBAI
TP Adjustment - addition on account of corporate guarantee - international transaction or not? - HELD THAT:- This issue is decided against assessee by the Coordinate Bench in earlier assessment year [2020 (9) TMI 1101 - ITAT MUMBAI] for the A.Y.2012-13 the arguments that the said transactions could not be considered to be international transaction do not convince us and therefore, we hold that the same was to be benchmarked on ALP principles.As assessee’s risk in such a case would be very low since both the AEs were assessee’s subsidiaries only. Therefore, considering the fact that it was a corporate guarantee for which no fees was paid by the assessee we estimate the TP adjustments against both the transactions @0.20% - Decided against assessee.
Short credit for the taxes paid in Kenya u/s 90 - HELD THAT:- During the course of the assessment proceedings the assessee submitted proof of tax paid in the foreign countries based on which corresponding Double Taxation Avoidance Relief was allowed to the assessee. The assessee also claimed relief in respect of tax paid at Kenya but the same was denied invoking Rule 128 of the I.T. Rules wherein it has been provided that the tax paid in foreign countries on such income will be allowed only on furnishing of Form No. 67 for availing tax credit. We find that Rule 128 of I.T. Rules has been inserted by income tax 18th Amendment Rules, 2016 and has made applicable w.e.f 01.04.2017. We fail to understand how the Rule which came into effect from 01.04.2017 be made applicable to the return filed on 27.11.2015. Thus set-aside this issue to the file of the AO as directed to allow the credit of tax paid in Kenya after due verification.
Short credit of TDS credit arising on account of payment made by Madhya Pradesh Government to KEC TNR Infra JV - tax credit has been denied to the assessee on finding that the impugned income has not been shown as its income by the assessee - It is the say of the counsel that the impugned income belongs to KEC TNR Infra JV and the TDS has been deducted in the name of KEC TNR Infra JV - HELD THAT:- We have given a thoughtful consideration to the orders of the authorities below, in the interest of justice and fair play, we deem it fit to set-aside this issue to the file of the AO. AO is directed to verify in whose hands the income has been shown and allow the credit of Tax Deducted at Source as per the relevant provisions of the law. This ground is allowed for statistical purpose.
Disallowance u/s 14A while computing the book profits u/s 115JB - HELD THAT:- As decided by this Tribunal in assessee’s own case in A.Y. 2014-15 [2023 (12) TMI 1312 - ITAT MUMBAI] we find that this issue is squarely covered in favour of the assessee by the decision of special bench in case of Vreet investments private limited [2017 (6) TMI 1124 - ITAT DELHI] Even otherwise it is stated that assessee has not received any exempt income during the year and therefore there is no question of making any disallowance under section 14 A of the income tax act even in the normal computation of total income and therefore the same also cannot be imputed while computing the book profit under section 115JB - Decided in favour of assessee.
TP adjustment in respect of business advances given to EJP KEC Joint Venture, South Africa - HELD THAT:- As decided in own case A.Y. 2013-14 [2023 (5) TMI 1324 - ITAT MUMBAI] advances were more in the nature of capital contribution and by advancing the same, the assessee had protected its own business interest which is evident from the financial statements of JV. The advances were towards fulfilment of the assessee’s obligation of being a JV partner as any financial incapacitation of JV would adversely affect the continuation of the project and ultimately jeopardize the interest of the assessee. Therefore, the said advances could not be put in the category of loans as done by the lower authorities. Further, it could not be said that JV entity derived / gained certain benefits out of such advances but rather it was the assessee who would ultimately gain by continuing with the projects and taste the fruits of the success of project. Hence, not convinced with impugned adjustments. Decided in favour of assessee.
Restricting guarantee commission in respect of guarantee given to ICICI Bank, U.K. in favour of U.S. subsidiaries at 0.2% of the guarantee - HELD THAT:- Respectfully following the latest decision of the Coordinate Bench [2023 (9) TMI 1466 - ITAT MUMBAI] for the A.Y. 2018-19 we direct the Assessing Officer to apply corporate guarantee rate @0.6%. This ground is partly allowed.
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2024 (5) TMI 483 - ITAT RANCHI
Assessment u/s 153A/153C - Addition u/s 68 - unexplained unsecured loan - assessee had not discharged his onus - additions made are in reference to material found and seized from the premises of the third persons in their respective search operations - CIT(A) deleted addition - HELD THAT:- It will be important to note that section 292C of the Act provides for a presumption that the documents, assets, books of account, etc found at the time of search in the premises of a person is always presumed to be belonging to him/them unless proved otherwise. The presumption derived under this section is a rebuttable presumption. Thus, the person on whom such a presumption is drawn, has got every right to state that the said document does not belong to him/them.
AO, if he is satisfied with such explanation, has got recourse to proceed on such a person in terms of section 153C of the Act. In the present case, the seized documents used by the AO for making the additions u/s 153A while making assessment of the assessee were found and seized from the third persons as noted above. Thus, the only legal recourse available to the Revenue is to proceed on the assessee in terms of section 153C of the Act.
Whether the addition can be made u/s 153A in an unabated year, in absence of incriminating material found and seized in the course of search conducted on the assessee, for the additions made by the AO? - We take note of the recent decision of Abhisar Buildwell Private Limited [2023 (4) TMI 1056 - SUPREME COURT] wherein the assessment framed u/s. 153A of the Act are liable to be quashed where additions have been made without reference to any incriminating material found in the course of search relating to the addition so made.
There is no reference to any incriminating material found and seized during the course of search from the premises of the assessee in his search, in respect of the additions made. It is also undisputed that the year under consideration is an unabated year, considering the date of conduct of search within the meaning of section 153A of the Act. Admittedly, no incriminating material has been referred which was found in the course of search of the assessee for the impugned assessment year, thus no addition could be made. Decided in favour of assessee.
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2024 (5) TMI 482 - ITAT CHENNAI
TP Adjustment - computation of PLI - exclusion of forex loss/forex gains as non-operating for the purpose of computation of operating margin - cherry picking of definition provided in Safe Harbor Rules - CIT(A) rejected the arguments of the assessee’s on the ground that, forex loss/forex gains relating to revenue items is operating in nature because it has direct and inextricable link to business activities of the assessee’s - TPO/CIT(A) also rejected the arguments of the assessee’s for applying Safe Harbor Rules on the ground that said rules should be applied as a whole and not with specific reference to forex loss or gains - HELD THAT:- Forex loss/gain is derived on account of trading account/revenue account, then such forex loss/gain should be treated as revenue in nature and also operating in nature - loss arisen on account of fluctuation in foreign currency for payment made to suppliers of materials or receipts from buyer of assessee product is also arisen out of main business activity of the assessee and thus, same cannot be considered as non- operating in nature.
In so far as Safe Harbor Rules is concerned, Rule 10TA has notified Safe Harbor Rules for international transactions and as per said Rules, operating expenses and operating income has been defined, which excludes loss arising on account of foreign currency fluctuations and said Rules has been notified w.e.f. assessment year 2013-14.
In the present case, the assessee could not furnish any evidences to prove that it has opted for Safe Harbor Rules for determining ALP of international transactions. Unless, the assessee opts for Safe Harbor Rules for international transactions, the cherry picking of definition provided in Safe Harbor Rules cannot be considered to determine forex loss/gain as operating in nature or not. Since, the appellant itself has treated forex loss/gain as operating in nature for earlier years and also the Tribunal has considered in assessee’s own case and held that forex loss is operating in nature, in our considered view there is no merit in grounds taken by the assessee challenging exclusion of forex loss/gain from operating expenditure or operating income.
Same issue has been decided in the case of M/s. Hyundai Motor India Ltd [2021 (9) TMI 1013 - ITAT CHENNAI] where one of us is also signatory and held that forex loss/gains is revenue is nature and operating expenditure/income. Therefore, we are of the considered view, that there is no error in the reasons given by the TPO/CIT(A) to include forex loss/forex gains as operating in nature, for the purpose of computing PLI or operating margin of the assessee. Decided against assessee.
Denial of working capital adjustment - assessee submitted that, TPO/CIT(A) both are erred in not providing working capital adjustment even though the assessee demonstrate with evidences that the working capital position of the assessee when compared to comparable companies is different and suitable adjustments needs to be provided on par with working capital level of comparable companies - HELD THAT:- In the present case, the assessee claims that it has filed working explaining working capital position of comparable companies vis-a-vis the working capital position of assessee company and suitable adjustment is required to be provided. But, the TPO and CIT(A) rejected the claim of the assessee. The assessee has filed computation explaining working capital adjustment which needs to be considered by the lower authorities. Therefore, we are of the considered view that this issue needs to go back to the file of the AO/TPO to verify the claim of the assessee with reference to computation, if any, along with other supporting evidences to be filed by the assessee for providing working capital adjustments. Thus, we set aside the order of the ld. CIT(A) on this issue and direct the AO/TPO to re-examine the claim of the assessee with regard to working capital adjustments and decide the issue in accordance with law in all cases.
Entity level adjustments - assessee argued assessee that, as per section 92 of the Act and Rule 10B(1)(e) of IT Rules, 1962, any income arising from international transactions shall be computed having regard to Arm’s Length Price - HELD THAT:- From a plain reading of section 92 of the Act and Rule 10B(1) of IT Rules, 1962, it is very clear that any income arising from an international transaction shall be computed having regard to arm’s length price alone, which means, very purpose of said provision is to establish arm’s length nature of the international transactions only. The transactions with Non- AE have to be presumed to be at arm’s length price because, there is no relationship which is likely to influence pricing. See case of High Court of Madras in the case of M/s. Hyundai Motor India Ltd [2021 (9) TMI 1013 - ITAT CHENNAI] - Thus TPO/CIT(A) erred in making downward adjustment on entity level including transactions with non-AE. We direct the AO/TPO to make adjustment to international transactions of the assessee alone in all cases.
TDS u/s 195 - disallowance u/s. 40(a)(i) of the Act for non-deduction of tax on interest payable to foreign company on delayed payment of import payables - whether said interest is taxable on accrual basis or receipt basis? - HELD THAT:- As per the provisions of section 195 of the Act, any person responsible for paying to a non-resident, shall at the time of credit of such income to the account of the payee or at the time of payment thereof, whichever is earlier, deduct income-tax thereon at the rates in force. Since, the DTAA is silent on taxability of interest income i.e., whether on accrual basis or receipt basis, in our considered view, as per provisions of section 195 of the Act, the payee is responsible for deducting tax at the time of credit or payment, whichever is earlier - case law relied upon by assessee M/s. Pramerica ASPF II Cyprus Holding Limited [2019 (3) TMI 1668 - BOMBAY HIGH COURT] as clearly held that, royalty and fees for technical services should be taxed on receipt basis, but not on accrual basis. Since, the case law relied upon by the assessee is applicability of DTAA between India and Cyprus and also on payment of royalty and fee for technical services, in our considered view, this issue once again needs to be examined by the Assessing Officer, in light of the decision of Hon’ble Bombay High Court and also DTAA between India and Korea. Thus, we set aside the issue to the file of the AO and direct the AO to examine the issue in light of our discussions given herein above.
Re-computation of book profit with reference to downward TP adjustment - HELD THAT:- ITAT Mumbai in the case of GTS e- Services Private Ltd [2019 (7) TMI 296 - ITAT MUMBAI] following the decision of Apollo Tyres [2002 (5) TMI 5 - SUPREME COURT] held that, no adjustment can be made to book profit with reference to TP adjustment because there is no such provision under law that permits the AO to make adjustment on account of transfer pricing adjustment to the amount of profit shown by the assessee in its profit and loss account for the purpose of computation of book profit u/s. 115JB - Thus we direct the AO to delete additions made towards book profit on account of downward adjustment made under TP Provisions.
Exclusion of creditors write off for the purpose of computation of operating margin - AO has excluded creditors write off from other income for the purpose of computing operating margin on the ground that writing back of creditors depends upon the wisdom of the businessman with regard to timing of its identification and showing it as income - HELD THAT:- Write off of creditors should relates to operating activity of the assessee or any creditor if any, on account of capital account cannot be considered as operating in nature. Further writing back of creditors depends upon wisdom of business enterprises with regard to timing of its identification etc. The very nature of credits written back is such that it is not peculiar to all the business transactions and so it cannot be considered as normal and direct income. Therefore, in our considered view while working out operating margin, only items of receipts and expenditure, which have direct relation for determining the operating profit have to be taken into account. Since, the assessee could not provide any details with regard to nature of credits write off, in our considered view merely because the assessee has treated it as other income, said write off of creditors cannot be treated as operating in nature, for the purpose of computing operating margin. Therefore, we are of the considered view that there is no error in the reasons given by the Ld. TPO/DRP to exclude creditors write off for the purpose of computation of operating margin - Decided against assessee.
Disallowing set off of brought forward losses - as argued assessee has filed necessary evidences to prove that it has satisfied conditions prescribed for set off of brought forward losses - HELD THAT:- We set aside the issue to the file of the AO and direct the AO to verify the claim of the assessee with reference to necessary evidence, if any that may be filed by the assessee and decide the issue in accordance with law.
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2024 (5) TMI 481 - ITAT SURAT
Disallowance u/s 80IB - additional income earned by means of ‘on-money’ - no evidence whatsoever, at least, to indicate that the amounts, admittedly received by the assessee, are received from only and only from the flat owners in lieu of the purchase of flats - HELD THAT:- The assessee does not have any other business other than real estate development and in the impugned assessment year, the assessee had income being generated from the project ‘Rushikesh’. Hence, the income is earned from the said eligible business. The seized material found during the course of search showed that the additional income earned by means of ‘on-money’ was from Rushikesh project, which was eligible for deduction u/s 80IB of the Act. Therefore, based on these facts and circumstances, the ld CIT(A) held that assessee is eligible for deduction u/s 80IB of the Act, and hence ld CIT(A) allowed the deduction correctly. Dismiss ground No.1 raised by the Revenue.
Unexplained cash credit u/s 68 - During the course of search and later verification proceedings u/s 131 Loose Paper file was found and seized from partner of assessee firm related to cash amount received from various persons in the financial year 2008-09 for purchase of land - HELD THAT:- We find merit in the submission of ld Counsel to the effect that the disputed land was brought into the books of the assessee - firm during the assessment year 2009-10 and not in the impugned assessment year, 2008-09. We note that the term 'Person' has been defined in clause 31 of section 2, to include seven categories of persons, all of which are independent and distinct from each other. A literal interpretation of the above provisions leads to the conclusion that only a right person as per the Act, is liable to pay tax on his income and no option is available to tax income in the hands of the person other than the one in whose hands it is taxable. The Hon'ble Supreme Court in case of ITO vs. Ch. Atchaiah [1995 (12) TMI 1 - SUPREME COURT] has held that the assessing officer must tax the right person and right income, alone. Thus, the transaction in respect of disputed land, if any, may be taxable in the assessment year 2009-10 and not in the impugned assessment year, 2008-09. Thus, on this legal issue, we find that order passed by ld CIT(A) is correct.
Loose papers on the basis of which this addition has been made was found in the residential premises of Shri Rajesh Vaghani, the partners of the Assessee firm - The loose papers showed receipt over a period of 3 assessment years namely 2008-09, 2009-10 and 2010-11. Out of the said amount, the two partners namely have admitted the undisclosed investment and offered the same in their returns, for AY 2009-10. The AO added the balance amount in the hands of the assessee- firm. In fact, as seen from the 'seized material, the amount ought to have been taxed in the impugned assessment year was Rs. 1,12,00,000/- as this amount was shown as received in AY 2008-09 and Rs. 3,60,60,000/- in AY 2009-10 and Rs. 92,90,000/- in AY 2010-11 as per the said seized loose sheets. However, the AO added the entire amount in the assessment year 2008-09. Thus such addition need to be deleted - Decided against revenue.
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2024 (5) TMI 480 - DELHI HIGH COURT
Validity of a Central Board of Indirect Taxes and Customs [CBIC] Instruction dated 09 July 2022 - impugned Instruction invalid or ultra vires Section 151A of the Act - Warehousing of imported capital goods used in the generation of solar power - Cancellation of license of warehousing as granted in terms of the MOOWR Regulations - Whether solar power generation could be said to be an operation or activity permissible u/s 65 of the Act - Principle of purposive interpretation - HELD THAT:- The impugned Instruction, as would be manifest from a plain reading thereof, appears to place the licensing authorities under a clear mandate to proceed on the basis that generation of electricity as a subject per se falls outside the ambit of the MOOWR Regulations. The Instruction proceeds further to hold that all licenses granted as well as applications which may be made thereafter would be guided by the view expressed by the Board. This clearly appears thus to travel far beyond the advisory and clarificatory function which stands placed in the Board by virtue of Section 151A of the Act.
We find ourselves unable to uphold the validity of the impugned Instruction bearing in mind the well settled precepts of administrative law and which abhor abdication of an independent decision making power as well as a quasi-judicial authority being compelled to act under the dictates of a superior authority.
Undisputedly, the power to consider whether a license is liable to be cancelled under Section 58B of the Act would place the licensing authority under the obligation to examine whether a licensee had either acted in violation of the Act or contravened a statutory provision or command. In light of the impugned Instruction, the petitioners now face the inevitable specter of the license being cancelled consequent to the peremptory directions as contained in the communication of the Board. Since the directive of the Board binds the licensing authorities, the exercise of calling upon the petitioners to show cause is essentially rendered otiose and a mere formality. This, more so when the Board has already come to the definitive conclusion that solar power generation is an activity which would fall outside the ambit of Section 65 of the Act as well as the MOOWR Regulations. The Instruction thus clearly amounts to a dictate binding the licensing authority to cancel all subsisting licenses and thus falling foul of the principles noticed.
The SCN is clear evidence of the licensing authority having understood the Instruction as requiring it to cancel the existing license.
THE INTERPLAY BETWEEN SECTIONS 61 AND 65 - We are of the considered opinion that the mere fact that input-output ratio norms may not apply in the case of generation of electricity would not be determinative of the controversy which stands raised. This, since those norms are prescribed to take care of contingencies where a part of the imported goods get consumed in the process of manufacture. They would similarly also not be attracted in the case of manufacture of textiles or automotive parts as discussed hereinabove. The inapplicability of those factors in the case of generation of electricity, thus is neither an oddity nor can it be said to be a legislative oversight.
In our considered opinion, Section 65 clearly stops short of making an exception or excluding a certain category of manufacturing activities from its ambit. It also fails to exclude from its application the manufacture of intangible goods in explicit terms. Section 61 clearly envisages both capital and non-capital goods being imported and housed in a warehouse for the purposes of manufacturing activity being undertaken in terms of permissions granted under Section 65 of the Act. The statute enables capital goods being housed in the warehouse till such time as they may be cleared for home consumption. While Section 61, prior to the 2016 amendments envisaged the maximum retention period to be five years, post amendment, that stipulation came to be substituted with the Legislature permitting the retention of those goods without any maximum time frame operating. The clear and unambiguous scheme which thus emerges from a reading of Sections 61 and 65 is of the importer being enabled to bring into the country capital goods which may be utilized in connection with manufacture or other operations in a licensed warehouse and the resultant goods alone being subjected to tax.
MOOWR REGULATIONS AND THE CONTEMPORANEOUS MATERIAL - The principal argument of the respondents was that the MOOWR Regulations were never intended to extend to a situation where imported capital goods do not get subsumed in the final product which may emerge out of a licensed warehouse and that Section 65 was meant to apply only to manufacturing operations being undertaken on the imported capital goods itself. We have in the preceding parts of this decision already found that neither Section 61 nor Section 65 would warrant such a meaning being ascribed to those statutory provisions. This, in light of the plain text of the provisions neither impliedly nor in explicit terms excluding any particular category of manufacture or basing the extent of the applicability of those provisions dependent upon the nature of the resultant goods which may be obtained at the end of a manufacturing process.
From observation it is clearly establishes that the MOOWR Scheme was concerned with both imported goods which may be used in the course of manufacture or as inputs for further processing. This clearly demolishes the contention of the respondents that the expression “in relation to” necessitates the capital goods themselves being worked upon.
As evident, the respondents clearly held out that both raw materials and capital goods could be imported and that in both contingencies, the import duty would stand deferred. The duty element and the time when the same would get attracted was explained to be when finished goods are cleared for the domestic market, and in which case, import duty would stand attracted on the imported raw materials used in production of the finished goods. It was further clarified that import duty on capital goods would be payable only when they are cleared to the domestic market. This too is indicative of the underlying imperatives of input-output ratio declarations being made and those being principally concerned with imported raw materials.
The “Invest India” portal also spoke of the unlimited period of warehousing which would be applicable in the case of capital as well as non-capital goods and non-capital goods being described to include raw materials, components, etc. It is thus manifest that the contemporaneous material and literature gave no indication of an avowed intent of the MOOWR Regulations being inapplicable to a manufacturing process which may have continued without any prescription of a maximum period for which capital goods could have been warehoused. The promotional material, the FAQs, as well as the 01 October 2019 Circular issued by the Board also did not speak of an exclusion of any particular genre of manufacturing activity or the nature of the “resultant goods” which may be produced with the aid of capital goods housed in a licensed warehouse.
We come to the firm conclusion that neither Section 61 nor Section 65 can be justifiably construed as incorporating an inherent or implied exclusion of solar power generation. The material that was placed for our consideration cannot possibly be interpreted as indicative of an intent of a particular type of self-consuming capital goods alone being intended for import. Neither the statutory provisions nor the contemporaneous material embodies an underlying policy intent for capital goods themselves being worked upon in the warehouse and constituting a part of the resultant goods. In fact, and to the contrary as we have found, the primary objective of the scheme was to give a fillip to domestic manufacturing albeit with the aid of imported capital goods. On an overall conspectus of the above, we find ourselves unable to accede to the submissions addressed by the learned ASG.
DISTORTION OF THE LEVEL PLAYING FIELD - The learned ASG had vehemently contended that the activity of solar power generation has led to the creation of inequalities between domestic manufacturers and those like the petitioner who have claimed undue benefit of the MOOWR Regulations. It was in the aforesaid context that the respondents had sought to urge that we must interpret Section 65 in a manner which would subserve the larger policy objectives and the impetus sought to be accorded to domestic generation of solar power.
While we have no reason to doubt the salutary purpose and objective underlying the framing of those measures, as a Court, we cannot be unmindful of our primary function being confined to interpret the statutory provisions in accordance with well-defined precepts of interpretation. The construction of a statute cannot be guided or influenced by the subsequent experience of the executive or of discerned inequitable results. As we have found hereinabove, the statutory scheme underlying the MOOWR Regulations cannot be construed as seeking to exclude solar power generation in terms of permissions granted u/s 65. The contemporaneous literature also fails to lend credence to the submission of the respondents. In fact, it clearly tends to be indicative of a contrary position and the absence of an intent to exclude any particular activity of manufacture. It is this which leads us to doubt whether even the principles of purposive interpretation could be justifiably deployed.
APPLICABILITY OF PURPOSIVE INTERPRETATION PRINCIPLES - The principle of purposive interpretation is one which Courts resort to in order to overcome anomalies and to avoid resultant absurdities. GP Singh, in his seminal work on Principles of Statutory Interpretation succinctly explained the rule of purposive construction as being liable to be resorted to in order to avoid absurdity, repugnancy, or inconsistency. However, and as the learned author explained in the said treatise, the aforesaid principle is liable to be adopted in situations where the language of the statute itself is capable of bearing more than one construction or a plain grammatical construction leads to an apparent contradiction of the underlying object of the statute.
The language in which Sections 61 and 65 are couched does not give rise to any ambiguities. This is also not a case where a plain grammatical construction leads to an apparent contradiction or a position of irreconcilability between two provisions present in the same enactment. Our conclusions are based on a harmonious construction of Sections 61 and 65 along with the contemporaneous material which accompanied the promulgation of the MOOWR scheme.
While we have dilated on the aspect of purposive interpretation, one cannot possibly lose sight of the fact that the arguments addressed by the respondents with respect to the illegality of the activities undertaken by the petitioners were not based on an asserted statutory anomaly, absurdity or irreconcilability, principles which are often spoken of in the context of statutory interpretation. The learned ASG also did not argue that the statutory provisions suffered from ambiguity. The entire plank of the argument against solar power generation being permissible u/s 65 was based on the inequitable impact that such activity was likely to have on domestic industry and local generators. That, however, and as was observed by us in the preceding parts of this decision, is an aspect pertaining to policy and which cannot constitute a legitimate basis for the Court to reconstruct a statutory provision. The respondents essentially bid us to introduce a condition of ineligibility in the garb of statutory interpretation. It would be wholly incorrect for us to recreate or reassemble Section 65 so as to exclude a particular category of activity based upon the experience of its working or its perceived negative impact on domestic industry.
While and hypothetically, it may be open for the respondents to adopt appropriate remedial measures if they be of the opinion that solar power generation by virtue of permissions granted u/s 65 is negatively impacting local generators or distorts the “level playing field”, this Court would clearly not be justified in deploying principles of purposive interpretation to correct that projected and asserted anomaly.
FINAL DETERMINATION - Accordingly, we allow the present writ petitions. The impugned Instruction of the Board dated 09 July 2022 insofar as it mandates review of existing licences and taking of “follow-up” action is hereby quashed. For reasons aforenoted, we also quash the SCNs’ dated 13 July 2022. As noted above, we allow W.P.(C) and quash the impugned order dated 19 July 2022 for reasons aforenoted. W.P.(C) shall stand disposed of.
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2024 (5) TMI 479 - CESTAT MUMBAI
Re-determination of value - Misdeclaration - reclassifying of the impugned goods - chargeable to duty - confiscation - Penalty - Consequent upon ‘first check’, the goods were not ‘waste and scrap’ but ‘alloy steel powder’ meriting re-classification thereon and consequent re-valuation - HELD THAT:- The demand for imposition of fine in lieu of confiscation and of penalty without issue of notice, or waiver of notice in the full knowledge of such intent on the part of customs authorities, is in excess of law and not admissible in the context set out in the grounds of appeal.
The grounds of appeal have not established that respondent had been placed on oral notice and, at his request, for that to suffice as proposal to confiscate the goods and impose penalty. The grounds of appeal have not essayed upon incorrectness of exercise of mind by the adjudicating authority and in the stated circumstances, on the declaration before him, that no offence u/s 111(m) of Customs Act, 1962 was evident. It is not their case in the grounds of appeal that every revision of classification and valuation is statutorily to be followed by invoking of section 111(m) of Customs Act, 1962 and section 112 of Customs Act, 1962.
Thus, there is no merit in the appeal which is dismissed.
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2024 (5) TMI 478 - CESTAT CHENNAI
Methodologies for re-determination of CVD payable on imports on MRP basis - Imports of notebook / laptop computers - free distribution to students - suppressing the actual sale price by mis-declaring the MRP to evade Customs duty (CVD) - limitation - Valuation - Confiscation of goods - interest - demand - penalty and redemption fine - Whether the rejection of MRP declared on the laptops imported by appellant and redetermination of the MRP is legal and sustainable - HELD THAT:- The facts reveal that the appellant had entered into contract with ELCOT to supply laptop with carry bag. Admittedly, appellant has not imported the carry bags. While supplying the goods to ELCOT, the appellant has altered the MRP and affixed stickers showing higher MRP on the composite supply of laptop and bag. This is the genesis of the dispute. According to appellant, as they were clearing the imported laptop with locally purchased carry bag and inclusive of its’ VAT, the MRP had to be altered and had affixed the higher MRP on the goods while supplying to ELCOT.
The appellant has purchased backpack locally. In such circumstances the appellant, no doubt, is entitled to add this value while supplying to ELCOT. It is not a case where only the imported laptop computer is supplied to ELCOT. According to appellant, they procured the backpack which has market price of Rs.2500/- at a negotiated price of Rs.225/-. The appellant has affixed the new increased MRP on the basis of purchase price agreed with ELCOT. This purchase price includes the price of laptop computer, backpack, the booklet, instruction guide etc.
It can be seen that even though a methodology to ascertain the RSP is laid down, the same will apply only in situations of (a) and (b) of subsection (4) of Section 4A. On examining the facts, the appellant has adopted a new RSP for the combined goods of laptop computer + carry bag + booklet + Instruction guide. The department has redetermined the RSP of the imported laptop computer alleging misdeclaration of MRP. As there is no methodology or machinery for redetermining the MRP of goods imported for the purpose of payment of CVD, we hold that such re-determination of MRP is against the provisions of law.
Moreover, in the present case, though the adjudicating authority has stated that Rule 6 of 2008 is applied to redetermine RSP, it can be seen that the method of arriving at the redetermined MRP is not within the principles or provisions of Section 4A of the Central Excise Act & Rules. The methodology adopted by adjudicating authority is to deduct the negotiated price of the backpack (Rs.225/-) from the Purchase order price. The Purchase order Price or bid price is inclusive of items which are not imported. Further, the department has no case that such backpack can be obtained at Rs.225/- from market. All these factors would lead to the conclusion that the redetermined MRP cannot be sustained. Consequently, the demand of differential duty also cannot be sustained and require to be set aside. Ordered accordingly.
The Ld. Counsel has put forward arguments on the grounds of limitation also. The show cause notice is dated 08.08.2017. the imports are made during the period 09.05.2012 to 09.06.2014. The facts reveal that the officers have visited the warehouse on 2.7.2013 and 16331 numbers of laptops were seized. The Department was thus aware of the entire situation in 2013 itself. The statements were also recorded in 2013. Thereafter, show cause notice has been issued after 4 years alleging suppression of facts with intent to evade payment of Customs duty invoking the extended period.
The issue is with respect to redetermination of MRP of the composite supply of laptop and laptop bags. The issue as to whether there is undervaluation of MRP when the goods are in a composite supply form is debatable and is interpretational in nature. Taking all these aspects into consideration, we are of the considered opinion that there are no grounds for invoking the extended period. The show cause notice is time-barred and the demand cannot sustain on the ground of limitation also.
The appellant has argued that confiscation of goods, interest demand, penalty and redemption fine imposed cannot be sustained in relation to CVD leviable u/s 3 (1) of Customs Tariff Act, 1975. The Hon’ble Bombay High Court in the case of Mahindra & Mahindra Ltd. v. Union of India 2022 (10) TMI 212 - BOMBAY HIGH COURT had considered the said issue and held that interest and penalty in relation to CVD cannot be demanded in the absence of specific provisions for levy of interest, penalty in the Customs Tariff Act, 1975. The said decision was upheld by Hon’ble Apex Court in 2023 (8) TMI 135 - SC ORDER. Following the same, we hold that the confiscation of goods, interest on CVD, redemption fine and penalties cannot sustain on this ground also.
In the result, the impugned order is set aside. The appeal is allowed with consequential relief, if any.
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2024 (5) TMI 477 - CESTAT KOLKATA
Seeking Provisional release of four gold bars - seizure - Whether the 4 gold bars seized from the employees of the appellant company are the gold bars purchased by the appellant company from M/s. HDFC or not - HELD THAT:- We hold that the appellant has prima facie established the correlation between the 4 kgs. of gold bars purchased by them from M/s. HDFC Bank Ltd. and the gold seized by the Officers on 11.10.2023. The present proceedings are only related to provisional release of the seized gold. The documents submitted by the appellant prima facie establish a correlation between the 4 gold bars purchased by them from M/s. HDFC Bank Ltd and the 4 gold bars seized by the officers. Thus, the 4 gold bars seized can be released provisionally, subject to certain conditions to safeguard the interest of the Revenue.
We observe that this Tribunal has already passed an order dated 20.02.2024 for release of the gold with certain conditions as observed at paragraph 2.1. of this order (supra). As the conditions are found to be reasonable, we hold that the appellant should fulfil the same conditions for provisional release of the gold. Since the present proceedings are in connection with provisional release of the gold in question, we refrain from expressing any opinion about the merits or otherwise of the issue, which shall be decided at the time of adjudication by the ld. adjudicating authority. Accordingly, we order for provisional release of the 4 seized gold bars on the condition that the appellant provides a Bond for the full value of the seized gold supported by Bank Guarantee to the extent of 25% of the value of the seized goods.
The Department is directed to release the gold on provisional basis to the appellant, subject to fulfilment of the above conditions. The appeal is disposed of on the above terms.
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2024 (5) TMI 476 - CESTAT AHMEDABAD
Levy of Anti-Dumping Duty - Mis- declaration of the country of origin in bills of entry - import of PVC Sheeting Flex Banner (in rolls) of Malaysian origin - Penalty - Certificate of origin showing the goods of Malaysian origin has been proved as fake or not genuine or not - HELD THAT:- The retroactive check by the customs authority needs to be done with the issuing authority of certificate of origin of originating country i.e. Malaysia. However, it is admitted fact that the investigating agency has not complied with the of Customs Tariff (Determination of Origin of Goods under the Preferential Trade agreement between the Government of Republic of India and Malaysia) Rules, 2011. Therefore, merely on the basis of any other material such as various statements and bill of lading, the certificate of origin issued by the Governmental Authority of Malaysia cannot be doubted.
The identical issue has been considered by this Tribunal in case of Alfakrina Exports [2023 (9) TMI 86 - CESTAT AHMEDABAD] wherein this Tribunal considering the various judgments and Rule 9 of Customs Tariff (Determination of Origin of Goods under the Preferential Trade agreement between the Government of Republic of India and Malaysia) Rules, 2011 held that without compliance of Rule 9, the certificate of origin cannot be discarded.
It is settled that without complying the provisions of Rule 9 of Custom Tariff (Determination of Origin of Goods under the Preferential Trade agreement between the Government of Republic of India and Malaysia) Rules, 2011 the certificate of origin issued by Malaysia Government cannot be disputed. Accordingly, the entire proceeding is vitiated.
Accordingly, we are of the view that the impugned order is not sustainable. Hence, the same is set aside. Appeal is allowed with consequential relief, if any, in accordance with law.
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