Disallowance u/s 40(a)(ia) - Payment from the contract entered with the DTC for display of advertisement on DTC on their bus queue shelters and time keeper booths - HELD THAT:- AO after taking note of all documents has simply objected to admission of additional evidence, which in our opinion was not correct on the part of the AO.
When the mandate was given by the Ld. CIT(A) to verify the payment made to MCD which is flowing from the bank statement of the assessee placed before the AO during the course of assessment proceedings, then it was the duty of the AO to verify the same. CIT(A) has given a categorical finding that payment to MCD has been made through assessee’s bank account through cheque duly reflected in the bank account of DTC which is already part of the original record, which AO has not even bother to examine this issue at the time of assessment.
Complete failure on part of the AO himself while making such a disallowance u/s 40(a)(ia). Order of CIT (A) confirmed.
Since regular assessment of DTC, i.e., payee has been completed u/s 143(3) at a huge loss, wherein all the receipts of licence fee paid by the assessee has been reflected in its income, therefore, no disallowance is called for - We find that this fact that the payment made by the assessee is part of DTC’s receipts, has been duly noted by the Ld. CIT (A) - Once in the hands of the payee, receipts have been shown and income thereon has been assessed u/s 143(3), then no disallowance u/s 40(a)(ia) can be made in view of the second proviso to section 40(a)(ia) brought by the Finance Act 2012 w.e.f. 1.4.2013 which has held to be declaratory and curative in nature by cases including that of CIT vs. Ansal Land Mark Township (P) Ltd [2015 (9) TMI 79 - DELHI HIGH COURT] Thus the finding and observation of Ld. CIT (A) while deleting the said disallowance which has been reproduced above is affirmed and accordingly, ground raised by the revenue is dismissed.
Gambling or not - playing rummy - visit by respondent police, in the club, every now and then, under the guise of inspection - Preventing police personnel in doing their lawful activity - HELD THAT:- The respondent-Association by virtue of the order of the learned Single Judge cannot prevent the Police Personnel to do their lawful duty.
Whether the stake involved in playing the game of rummy amounts to gambling? - HELD THAT:- In this regard, it is pertinent to quote the Judgment of Constitution Bench of the Hon'ble Supreme Court with regard to gambling in STATE OF BOMBAY VERSUS RMD. CHAMARBAUGWALA & ANR. ADVOCATE-GENERAL OF MYSORE [1957 (4) TMI 55 - SUPREME COURT], wherein the Hon'ble Apex Court held that the prize competitions being of a gambling nature, they cannot be regarded as trade or commerce and as such, the respondent/petitioner cannot claim as fundamental right under Article 19(1) (g) in respect of such competitions, or they are entitled to the protection under Article 301.
Considering the fact that gambling is an evil and it is rampant, that gaming houses flourish as profitable business and that detection of gambling is extremely difficult. Further, in view of the Judgment of Constitution Bench of the Hon'ble Supreme Court in State of Bombay v. R.M.D. Chamarbagwala, and the reasons mentioned, it is opined that the order passed by the learned Single Judge in this regard are not sustainable and the same are set-aside.
Other directions given by the learned Single Judge remain unaltered - Appeal allowed in part.
Permission for withdrawal of petition - direction to examine the petitioner’s application uninfluenced by the orders passed by the FIPB - HELD THAT:- The present petition is dismissed as withdrawn with the liberty to the petitioner to move an appropriate application before the concerned authority.
Unexplained cash deposits in bank account and made cash payment for purchase of certain land - AO in the absence of any specific details rejected explanation of the assessee and held the cash deposit/payment as unexplained and made addition of the same to returned income - HELD THAT:- The assessee has provided necessary details in support of his claim and the AO in remand proceedings has neither doubted the genuineness of the relevant agreements/details nor given any contradictory finding. The claim of the assessee duly supported by documentary evidences cannot be rejected simply for the reason that the assessee could not produce the witnesses personally that too after lapse of several years from the relevant point of time.
Therefore ld. CIT(A) is not justified in not admitted the additional evidences and in rejecting the explanation of the assessee to the extent relating to refund of advances on cancellation of relevant agreements. As transpired from the record, the assessee apart from his explanation to the extent of Rs.12,50,000/-, has not submitted any other details/evidences. Thus under the totality of facts and circumstances of the case, the addition of Rs.12,50,000/- is hereby deleted and the balance addition of Rs.20,64,000/-is sustained.
Unexplained investment u/s 69 - cash deposited into the bank and payment made for purchase of agriculture land - HELD THAT:- As appears from the transactions contained in the bank accounts of the purchasers, it cannot be said that they have no means for paying relevant advance. There is a weight in the submission of the ld.AR that the burden lying upon the assessee u/s 68 of the Act, is to explain the source of funds and not the source of the source, therefore it is not the burden of the assessee to explain the source of funds of the purchasers paying advance for purchase of the land.
The Hon’ble Jurisdictional High Court in the case of Labh Chand Bohra [2008 (4) TMI 731 - RAJASTHAN HIGH COURT] held that so far as capacity of the lender is concerned, in our view on the face of the judgment of the Daulat Ram’s case [1972 (9) TMI 9 - SUPREME COURT] capacity of the lender to advance money to the assessee was not a matter which could be required of the assessee to be established, as that would amount to calling upon him to establish source of the source. In this view of the matter, the addition made by the lower authorities is deleted. Thus solitary ground of the assessee is allowed
Interest on Secured Promissory Notes - admittedly the said interest was in respect of the capital borrowed for the purposes of the business of the assessee - HELD THAT:- We may notice that in case of this very assessee [2017 (11) TMI 63 - GUJARAT HIGH COURT] Assessee's claim of deduction arises out of section 36(1)(iii) of the Act under which while computing the income u/s 28 of the Act, the deduction of the amount of interest paid in respect of capital borrowed for the purposes of the business or profession would be a deductible expenditure.
The first objection of the Revenue is squarely covered by the judgment in case of Core health Care ltd [2008 (2) TMI 8 - SUPREME COURT] While confirming the decision of this Court, it was held that for the said deduction, all that was necessary was that the money i.e. capital must have been borrowed by the assessee, that it must have been borrowed for the purpose of business and lastly, that the assessee must have paid interest on the borrowed amount. All that is germane is whether the borrowing was, or was not, for the purpose of the business. It was held that the provision makes no distinction between money borrowed to acquire a capital asset or a revenue asset. Decided in favour of the assessee.
Requesting the Commercial Court to grant an injunction restraining the 1st respondent, its agents, servants, or any other persons claiming through or under it, from taking coercive action or otherwise, including but not limited to, restraining it from invoking or encashing the schedule bank guarantees issued by the 2nd respondent - Seeking to further restrain the 2nd respondent from honouring/encashing the schedule bank guarantees at the request of the 1st respondent.
Object and purpose of furnishing bank guarantee - HELD THAT:- A bank, issuing a guarantee, is not concerned with the underlying contract between the parties to the contract. The duty of the bank, under a guarantee, is created by the document itself. Once the documents are in order, the bank giving the guarantee must honour the same and make payment. Ordinarily, Courts will not interfere, directly or indirectly, to withhold payment for, otherwise, trust in commerce, internal and international, would be irreparably damaged - A bank, which gives a performance guarantee, is not concerned with the relations between the supplier and the customer: nor with the question whether the supplier has performed his contractual obligation or not; nor with the question whether the supplier is in default or not. The bank must pay according to its guarantees, on demand if so stipulated, without proof or conditions. If the documentary credits are irrevocable and independent, the banks must pay when demand is made.
Contract of Bank Guarantee is and independent contract:- HELD THAT:- A bank guarantee constitutes a separate, distinct and independent contract. This contract is between the Bank and the beneficiary. It is independent of the main contract between the person who has furnished the bank guarantee and the beneficiary - the bank guarantees, in the present case, are unconditional and, in terms thereof, the bank agreed to pay the first respondent, on demand, any or all monies payable by the appellant, to the extent referred to in the bank guarantees, without any demur, and even without reference to the appellant. The demand made by the first respondent on the bank, in terms of the contract of bank guarantees, was to be conclusive and binding notwithstanding any difference between the appellant and the first respondent or any dispute pending between them before any Court, Tribunal, arbitrator or any other authority.
Exceptions to the rule that an injunction should not be granted against invocation of bank guarantees, are not limited to fraud and cannot be placed in a strait jacket - HELD THAT:- As injunction against encashment of a bank guarantee is an exception and not the rule, cases of such exceptions must be evidenced by documents and pleadings on record, and should compulsorily fall within any of the following limited categories (i) if there is a fraud in connection with the bank guarantee which would vitiate the very foundation of such guarantee and the beneficiary seeks to take advantage of such fraud; (ii) the applicant, in the facts and circumstance of the case, clearly establishes a case of irretrievable injustice or irreparable damage; (iii) the applicant is able to establish exceptional or special equities of the kind which would prick the judicial conscience of the Court; and (iv) when the bank guarantee is not invoked strictly in its terms, and by the person empowered to invoke it under the terms of the guarantee. In other words, the letter of invocation is in apparent violation of the specific terms of the bank guarantee - While cases of irretrievable injury, fraud, extraordinary special equities and invocation of bank guarantee contrary to the terms of the bank guarantee itself, are exceptions to the rule, it is difficult to draw any straitjacket formula which would universally apply to all cases.
Can documents filed subsequent to the filing of OP, be relied upon? - HELD THAT:- In any event most of the documents, on which reliance is placed on behalf of the appellants, were filed in support of their claim that it is the first respondent’s failure to abide by its obligations under the underlying agreements which resulted in their inability to perform their obligations of conducting a provisional acceptance test.
When can a prima-facie case for grant of injunction restraining the invocation of Bank Guarantee be said to have been made out? - HELD THAT:- As the appellant has sought an injunction to restrain the first respondent from invoking the bank guarantee in the Section 9 petition, and in the appeal now filed before us, the scope and ambit of the contract of bank guarantee primarily necessitates examination, and not the underlying contract, for the rival claims, based on disputes arising from the underlying contract, are matters for examination and resolution in arbitral proceedings. Nonetheless, the contentions urged by the Learned Senior Counsel on either side are being noted to show that the appellant does not have a fool proof case of even the underlying contract being vitiated by fraud justifying an injunction being granted to restrain the first respondent from invoking the bank guarantees.
Can the first respondent be a judge in its own cause and unilaterally hold the appellant responsible for the delay and encash the bank guarantee towards their claim for delay liquidated damages - HELD THAT:- The appellant does not allege fraud on the part of the first respondent in obtaining the bank guarantee. Their entire case is founded on the allegation that the first respondent made a false claim for liquidated damages in execution of the works by the appellants two days after the commencement of commercial operations of Unit II, and such a false claim was made only to avoid making payment of the amounts due to the appellant, and to illegally encash the bank guarantee. The appellant alleges fraud because the first respondent’s claim for liquidated damages is contrary to the terms of the underlying contract. The amounts which the appellant claims as due to them is also based on their claim of having performed their obligations under the primary contracts. It is not even pleaded by the appellant, much less proved, that the first respondent had fraudulently obtained the bank guarantee. It is evident, therefore, that the first exception to rule against grant of injunction for invocation of bank guarantee, i.e., the bank guarantee has been obtained by fraud, is not attracted.
Special Equities - whether the appellant has made out a case of irreparable injury, by proof of special equities for the Court to grant injunction to restrain the first respondent from encashing the bank guarantee? - HELD THAT:- Mere apprehension that the first respondent would not able to repay the amounts, which it would receive on encashment of the bank guarantees, is not enough to restrain them from invoking the bank guarantees. The appellant claims that they would also suffer huge loss if the first respondent were to unilaterally adjust the amount claimed as liquidated damages, with the amounts they would receive on encashment of the bank guarantees. This would, also, not constitute special equities justifying grant of an order of injunction restraining the first respondent from encashing the bank guarantees.
While claiming that the amounts due to it from the appellant is far higher than the amounts which they have sought to recover towards liquidated damages together with the retention money, the first respondent also contends that the amounts, which the appellant claims to be retention money and as payable to them in excess of Rs.300 Crores, constitute amounts representing milestone payment, which would fall due only on the appellant achieving provisional acceptance; and, till they do so, they are not entitled for the said sum. These are again matters which are required to be examined by the arbitral tribunal, and not by this Court in an appeal preferred against an order passed by the Commercial Court in a petition filed under Section 9 of the 1996 Act. Suffice it to hold that the appellant has not made out a case of special equities justifying an order of injunction being granted to restrain the first respondent from invoking the bank guarantees.
False plea in the section 9 petition filed by the appellant and its consequence - HELD THAT:- It is the duty of a party seeking injunction to bring to the notice of the Court all facts material to the determination of his right to that injunction; and it is no excuse for him to say that he was not aware of the importance of any facts which he has omitted to bring forward - While the ex facie false plea, of having already achieved provisional acceptance, in the Section 9 petition filed by the appellant, would have, by itself, necessitated denying them any relief, and in non-suiting them on this short ground, we have examined their claim on merits, including that the invocation of the bank guarantee is fraudulent and special equities are in their favour, as the increase in the number of cases seeking injunction, restraining invocation of bank guarantees, under the 2015 Act, made us feel the need to reiterate the law declared by the Supreme Court on these aspects.
Thus, there are no reason to restrain the first respondent from invoking the bank guarantees furnished by the appellant, as these bank guarantees are unconditional and unequivocal, and the appellant has neither made out a case of fraud vitiating the contract of bank guarantee nor of special equities justifying an order of injunction being granted restraining invocation of the bank guarantees.
Rejection of application filed by the applicant under Order VII Rule 10 and 11 read with Section 151 of CPC - seeking return and/or rejection of the plaint - whether the plaint discloses the cause of action, and whether the suit is barred under any law as contemplated in Clause (a) and Clause (d) respectively of Rule 11 of Order VII?
HELD THAT:- Order VI Rule 2 requires that every pleadings shall contain, and contain only a statement in concise form and of material facts on which the party pleading relies for his claim or defence as the case may be, but not the evidence by which they are to be proved. Thus, though the pleadings must contain a statement in concise form of material facts, it need not contain the evidence by which they are to be proved. At this juncture, it would be also relevant to mention that Order VII Rule 1 states as to what particulars should be contained in the plaint, and as per Clause (e) of the said Rule, the plaint must contain the facts constituting the cause of action, and when it arose. As per Clause (f) thereof, the plaint also must contain the facts showing that the Court has jurisdiction.
Order VI Rule 2 and Order VII Rule 1 it clearly emerges that the pleadings i.e. the plaint in the instant case, must state the material facts constituting the cause of action and as to when it arose, and omission of a single material fact leads to an incomplete cause of action, and the plaint becomes bad. Such infirmity may attract Clause (d) of Rule 11 of Order VII. The word "shall" used in Order VII Rule 11 also cast duty on the Court to reject the plaint when it is hit by any of the clauses mentioned in Rule 11.
In the instant case, the applicant Bank having already initiated the proceedings under Section 17 of the DRT Act, for crystallizing their dues as permitted by the BIFR, the suit filed by the respondent - plaintiff seeking reliefs in respect of the same subject matter would be completely barred under Section 18 of the said Act. It cannot be gainsaid that under Section 17 the Tribunal has powers and jurisdiction to entertain and decide applications from the banks and financial institutions for recovery of debts, and under Section 18 no other Court or authority has jurisdiction or powers in relation to the matters specified in Section 17 - when the applicant Bank has filed the proceedings before the DRT, the respondent was expected to claim set off or counter-claim in respect of the transactions in question, which were also the subject matter of the proceedings before the DRT. The respondent could not have asked for the prayers in the suit seeking stay of the proceedings pending before the DRT, Mumbai, which was not the Tribunal subordinate to the trial Court.
As held by Supreme Court in case of T. ARIVANDANDAM VERSUS T.V. SATYAPAL & ANOTHER [1977 (10) TMI 116 - SUPREME COURT], followed in N.V. SRINIVASA MURTHY AND ORS. VERSUS MARIYAMMA (DEAD) BY PROPOSED LRS. AND ORS. [2005 (7) TMI 705 - SUPREME COURT], and various other cases, if clever drafting has created an illusion of a cause of action, the Court must nip it in the bud at the first hearing.
The Court is of the opinion that the plaint, not disclosing the cause of action and even otherwise barred under the provisions contained in Section 18 of the DRT Act, deserves to be rejected under Clause (a) and (d) of Rule 11 of Order VII. The Court is also of the opinion that the suit filed by the respondent is absolutely vexatious and dishonest litigation, filed with a view to misuse and abuse the process of law to avoid payments to the applicant Bank. The trial Court having failed to discharge the statutory duty cast upon it under Order VII Rule 11, and having failed to exercise the jurisdiction vested in it, the impugned order passed by it deserves to be set aside and is hereby set aside.
Reference to dispute resolution panel u/s 144C - time limit for passing the order u/s. 144C(13) r.w.s. 143(3) - time limit mandated as per section 153(6) - HELD THAT:- The time limit prescribed in section 144C(13) refers to the time limit upon receipt of the directions of the DRP within which the A.O. has to pass the order. Thus as per section 144C(13), when such an assessment is done upon the receipt of direction from the ld. Dispute Resolution Panel, the time limit of one month is mandatory.
In the present case, as discussed hereinabove, the order passed by the Assessing Officer is not upon the receipt of the directions issued by the ld. Dispute Resolution Panel, but upon the receipt of an order by the Hon’ble High Court, wherein the direction of the ld. Dispute Resolution Panel has been modified. Hence, the Assessing Officer has to pass the order under direction of ld. Dispute Resolution Panel upon which the Hon’ble High Court has passed as order. Hence, this is clearly a case wherein the provisions of section 153(6) come into play. As already found hereinabove, the assessment order passed by the Assessing Officer is well within the time limit mandated as per section 153(6) of the Act. Hence, the additional ground raised by the assessee stands dismissed.
Disallowances of interest expenditure u/s. 36(1)(1) - HELD THAT:- Interest mentioned in item number (i) and (ii) loan given to employees and margin deposits are covered in favour of the assessee by the decision of the tribunal in assessee's own case mentioned above.
DR did not dispute this proposition. Accordingly, we hold that respectfully following the precedent in assessee's own case, these interest incomes mentioned in item number (i) and (ii) above should be treated as income from business.
Interest on ICDs and interest on fixed deposits, assessee fairly conceded that these should be treated as income from other sources. Accordingly, we uphold the order's of the authorities below, confirming the treatment of this interest income as income from other sources.
Addition for the provision of income tax recoverable from Gujarat Electricity Board and Essar Steel Ltd while computing normal income under the Act as well as computing book profit u/s. 115 JB - HELD THAT:- The issue as regards the addition under the normal provisions of the Act is covered against the assessee by the tribunal's order in assessee's own case as mentioned in the chart above. Accordingly, under the normal provisions of the Act, we confirm the addition for the provisions made in this regard.
Addition while computing the book profit u/s. 115 JB of the Act is concerned, the same is covered in favour of the assessee by the decision of ITAT in assessee's own case. Hence, we set aside the order of the authorities below on this issue and hold that no addition in this regard is sustainable while computing book profit u/s. 115 JB of the Act.
Disallowance u/s. 14A r.w.r. 8D - disallowance on account of exempt income - HELD THAT:- Disallowance u/s. 14A is required when the assessee has not earned any exempt income. We may gainfully refer to the decision of Hon’ble jurisdictional High Court in the case of a Ballarpur Industries Ltd. [2016 (10) TMI 1039 - BOMBAY HIGH COURT] -Hence, respectfully following the precedent, we set aside the orders of the authority below and hold that since the assessee has not earned any exempt income, no disallowance u/s. 14A is required.
Disallowance of interest expenditure claimed - HELD THAT:- Section 36(1)(iii) provides for allowance of amount of interest paid in respect of capital borrowed for the purpose of the business or profession. Thus, for allowance of interest expenditure u/s. 36(1)(iii) firstly, the capital should be borrowed and secondly, it should be for the purpose of business or profession. As the facts of this case detailed herein above clearly indicate that at the time of the said borrowal of fund of Rs.50 crores, the assessee already had given an advance free of interest of Rs.60 crores to VPCL towards equity share capital.
As a matter of fact, the assessee gave further advances towards equity and equity shares were allotted only on 29.09.2008 which is more than three months from the said date of borrowal. Hence, it is crystal clear that as on the date of borrowal and upto 3 months thereafter, no equity shares had been allotted and the lender company was indebted to assessee for a sum of Rs.60 crores. Hence, it is clearly evident that this is not a case of capital borrowed but the assessee’s own money given free of interest for advance for equity shares coming back as interest bearing inter corporate deposit. Hence, the assessee clearly fails the test of the amount having been borrowed, for allowance of interest under section 36(1)(iii).
Whether the amount borrowed was used for business purposes? - AO has gone on to mention that the assessee has unnecessarily burdened the business by inter corporate deposit obtained from VPCL. We further note that before ld. Dispute Resolution Panel also the assessee has not produced necessary details or evidence showing that the borrowed funds have been utilized for the purpose of business. This aspect has been clearly mentioned in the direction of the ld. Dispute Resolution Panel wherein it has been categorically stated that the assessee had not shown any evidence in this regard.
Before us also the assessee had not submitted any detail to counter this clear finding of the authorities below that there was absence of necessary evidence to show that the amount borrowed was used for the purpose of business. Assessee had submitted that the matter may be remitted to the Assessing Officer to enable the assessee to prove this aspect. In our considered opinion, at this stage, there is no cogency in this submission. The assessee has not produced any detail of the utilization of the said borrowed amount for business purpose, despite adverse comments by AO and DRP at any stage even upto the level of ITAT. Hence, there is no point of remitting the matter again. Accordingly, we uphold the order of the authorities below holding that the payment of interest claimed on account of ICD from VPCL is not allowable as per the provisions of section 36(1)(iii).
Deemed dividend u/s 2(22)(e) - deemed dividend has to be taxed in the hands of the partnership firm OR in the hands of partner as beneficial partner - CIT(A) deleted the addition on the basis of observation that no deemed dividend could be assessed in the hands of the assessee since the assessee firm itself was not a shareholder in the payer company - HELD THAT:-Provisions of Section 2(22)(e) of the Act are applicable in respect of transaction of unsecured loans and further ld. AR could not substantiate the reasons of obtaining unsecured loan by the assessee firm from the M/s Orissa Stevedores Limited. We find that the CIT(A) has dealt on the disputed issue and also the provisions of law applicable and directed the AO to treat the dividend in the hands of partner Shri Mahimananda Mishra. On the query from the bench whether this deemed dividend was taxed in the hands of Shri Mahimananda Mishra, the ld. AR and DR could not substantiate with any convincing answer, which is proved that the transaction comes within the purview of deemed dividend and the question now before us to be taxable in the hands of firm or in the hands of partner.
Also it is not clear as to whether it is taxed in the hands of assessee’s partner and the ld. AR could not substantiate the fact that the shares invested by the director are not out of funds of partnership firm and CIT(A) mistook the fact of taxing in the hands of director, therefore, in the interest of substantial justice, we remit the disputed issue to the file of CIT(A) to verify the fact and decide the issue after providing opportunity of hearing o the assessee and grounds of appeal of revenue are allowed for statistical purpose.
Addition on account of interest attributable to advance made to Sh. Arun Kumar - Action of the AO in disallowing interest as interest attributable at 12% on the ground that this sum has been advanced interest free to Sh. Arun Kapoor S/o Sh. BD Kapoor son of Sh. Janki Dass Kapoor, founder of the company - HELD THAT:- We note that this issue is already covered and been adjudicated in favour of the assessee for the AY 2003-04 to 2011-12 holding that the said amounts have been embezzled by Sh. Arun Kapoor and therefore, the question of charging interest or foregoing interest does not arise. On the same analogy, the disallowance made by the AO in the year was rightly deleted by the Ld. CIT(A), which does not need any interference on our part, therefore, we affirm the impugned order on the issue in dispute involved in ground no. 1 and accordingly reject the same.
Addition under the sub-head marriage gift - HELD THAT:- We note that the expenditure incurred by the assessee is only towards meeting the social obligation towards the dealer and employees which is an important tool of business promotion and staff welfare. Moreover, the same is also covered matter, the disallowance made by the AO was rightly deleted by the Ld. CIT(A), which does not need any interference, hence, we uphold the same.
Addition under the sub-head subscription expenses - We find that since the AO could not bring anything on record that the payments are not genuine/ not expended wholly and exclusively for the business purpose and further the issue being a covered matter, the adhoc disallowance made by the AO was rightly deleted by the Ld. CIT(A), which does not need any interference on our part, hence, we uphold the action of the Ld. CIT(A) on the issues in dispute and accordingly reject the ground no. 2 raised by the Revenue.
Addition under the consultancy expenses - HELD THAT:- It was noted that it was the contention of the A.R. that the advertisement was to pay tribute / homage to the founder of the company by the management, staff and workers of all the units which was allowed in the appeal by the ITAT and the Ld. CIT(A), hence, the Ld. CIT(A) has rightly deleted the addition by following the precedence, which does not need any interference on our part, therefore, we affirm the impugned order on the issues in dispute involved in ground no. 3 and accordingly reject the same.
Addition under the sub head glow shine board expenses - HELD THAT:- We are of the considered opinion that this expenditure has been considered to be Revenue in nature, hence, Ld. CIT(A) has rightly deleted the addition in dispute being a covered matter, which does not need any interference on our part, therefore, we affirm the impugned order on the issue in dispute involved in ground no. 4 and accordingly reject the same.
Addition of foreign travel expenses - HELD THAT:- We find that AO had disallowed adhoc amount of Rs. 4 lacs without resorting to actual disallowance on being satisfied that particular tours have not been undertaken for business purposes. CIT(A) considering the facts of the case and the decision of the ITAT, has rightly deleted the adhoc disallowance made by the AO of Rs. 4 lacs, which does not need any interference on our part, therefore, we affirm the impugned order on the issue in dispute involved in ground no. 5 and accordingly reject the same.
Addition under the head sales promotion being unvouched - HELD THAT:- We find that before the Ld. CIT(A) the assessee has submitted all the voucher-wise details of expenses and stated that all the expenses were incurred for business purpose only, hence, after considering the same, the Ld. CIT(A) has rightly deleted the addition in dispute, which does not need any interference on our part, therefore, we affirm the impugned order on the issue in dispute involved in ground no. 6 and accordingly reject the same.
TP Adjustment - interest rate for loan advanced to foreign subsidiary by Indian company - HELD THAT:- We find that there is no dispute that the interest paid by the assessee on ECB is within the range of interest payment sanctioned by RBI in its master circular being LIBOR + 500 basis points. As per two tribunal orders cited by ld. AR of assessee, it was held that this is a valid basis to determine the ALP of interest payment on ECB. Regarding judgment of in the case of CIT vs. Cotton Naturals (I) (P.) Ltd [2015 (3) TMI 1031 - DELHI HIGH COURT] cited by ld. DR of revenue, we find that as per this judgment also, interest rate for loan advanced is to be determined as per market rate applicable on the basis of interest payable on currency in which the loan has to be repaid.
In the present case, loan has to be repaid in EURO and therefore, EURIBOR + 500 basis points is proper for determining the ALP of interest payment as per this judgment also. Thus the revenue gets no help from this judgment rather this judgment of Hpn’ble Delhi High Court supports the case of the assessee. Hence we delete the addition made by the AO and TPO. Appeal filed by the assessee is allowed.
Refund claim - respondents submits that the Petitioner has to file ‘C’ forms in physical form with the Authorities and thereafter the claim for refund can be processed by the Authorities - HELD THAT:- It will be open to the petitioner to file the physical ‘C’ forms with the Authorities within a period of 15 days from today and the respondent authority will thereafter process the refund claim of the petitioner within the statutory period. In case there is a delay in the process of refund claim of the petitioner beyond the statutory period, it would be open to the petitioner to file an application in these writ petitions and ask for revival.
Exemption u/s 11 - contribution to the building development fund - HELD THAT:- Assessee submitted audited accounts for the year ending 31/03/2011, partywise details of contributions to the building fund etc - On examining the details of the contributions towards building development fund, we notice that the receipts are issued by the assessee stating that the contributions made by the donors are for specific purpose of putting up infrastructure, namely building.
The contribution received for building fund has not been denied the benefit of section 11(1)(d) for the earlier assessment years. In the case of DIT(Exemption) vs. Sri Ramakrishna Seva Ashrama [2011 (10) TMI 369 - KARNATAKA HIGH COURT] had held that if the intention of the donor is to give money to a Trust and to utilize the same for carrying out a particular activity, it satisfies the definition of the word ‘corpus fund’. It was concluded by the Hon’ble Karnataka High Court that the assessee would thus be entitled to the benefit of section 11(1)(d) of the Act.
We are of the view that the assessee is entitled to exemption under section 11(1)(d) of amount received during the concerned assessment year, i.e., 2011-12. Therefore, we see no reason to interfere with the order of the CIT(A) and we uphold the same as correct - Appeal filed by the Revenue is dismissed.
Penalty imposed u/s 271D - starting point for initiation of penalty proceedings - period of limitation - whether the limitation period has to be calculated from the date on which the penalty proceedings were first initiated, that is the date of the assessment order or from the date on which the show cause notices under section 271D were issued, that is March 2009? - HELD THAT:- Limitation period was to be calculated from the date on which a reference was made by the AO to the ACIT and not from the date on which the show cause notice was issued. In the present appeals before us, the penalty proceedings were initiated in the assessment orders itself and, therefore, the limitation period will begin to run from December 2008 itself and not from March 2009 when the penalty notices were issued.
Respectfully following the ratio laid down by JKD CAPITAL & FINLEASE LTD. [2015 (10) TMI 1281 - DELHI HIGH COURT] , MAHESH WOOD PRODUCTS PVT. LTD., [2017 (5) TMI 433 - DELHI HIGH COURT] we have no hesitation in holding that all the three penalty orders were barred by limitation and were void ab initio. Accordingly, without going into the merits of the cases, we dismiss all the three appeals of the Department as the penalty orders itself were void ab initio being barred by limitation. Decided in favour of assessee.
TP Adjustment - Addition on account of interest on receivables because it is not an independent transaction and it should be considered together as per Rule 10A (d) - TPO has allowed interest free period of 30 days as agreed to in terms of the agreement with AE - credit agreed was 180 days but actual credit allowed - HELD THAT:- We examine the applicability and ratio of the judgment rendered in the case of CIT vs. Kusum Health care Pvt. Ltd. [2017 (4) TMI 1254 - DELHI HIGH COURT] - As per the facts of this case, it is seen that in that case also, the credit agreed was 180 days but actual credit allowed was more as in the present case and such receivables were treated as a separate international transaction. The tribunal in that case noted that differential impact of working capital of the assessee vis a vis its comparables had already been factored in the pricing/profitability and therefore, any further adjustment to the margins of the assessee on the pretext of outstanding receivables is unwarranted and wholly unjustified. The revenue filed appeal before Hon’ble Delhi High Court. The Hon’ble Delhi High Court followed its own earlier judgment rendered in the case of CIT vs. EKL Appliances Ltd. [2012 (4) TMI 346 - DELHI HIGH COURT].
To the extent of agreed credit period, the sale price to AE or non AE is inclusive of possible interest on such agreed debt and therefore, for such credit allowed to AE, it cannot be said that this is an independent international transaction. But when extra credit is allowed beyond the agreed credit period, the same is a subsequent independent event and interest for such extra credit period cannot be factored in the price agreed. Only because the agreed price without considering extra credit period is in excess of the ALP, it cannot be said and held that for such independent subsequent event of allowing extra credit also, the agreed prices takes care and this is not an independent international transaction requiring separate benchmarking.
In transfer pricing analysis, the purpose is not to compare profit of the tested party with that of the comparables but the purpose is to compare the prices charged by the tested party with the prices charged by the comparables although when TNMM is adopted as MAM, the process of such price comparison is by comparing profits of tested party with that of the comparables and therefore, if the profit of the tested party is equal or above the profit of comparables, even after taking into account the effect of working capital adjustment and the ALP is less that the price charged by the tested party, it cannot be said that the extra credit allowed is not an independent international transaction and not required to be separately benchmarked. In our considered opinion, the first requirement is this that it has to be first decided that whether it is an independent international transaction or not and if it is found that it is not so, then obviously, no separate benchmarking is required but if it is found that it is an independent international transaction then separate bench making has to be done and TP adjustment is to be made as per law irrespective of whether any TP adjustment is required to be made in respect of main transaction of sale.
We first decide this aspect as to whether this is an independent international transaction or not. In our considered opinion, in respect of agreed credit period which is 30 days in the present case, there is no independent international transaction because the effect of the credit to that extent is factored in the agreed prices. But for extra credit, the effect of the credit to that extent cannot be factored in the agreed prices because it is not even known at that stage as to how extra credit will be allowed and therefore, that is an independent international transaction and hence, separate bench making has to be done and TP adjustment is to be made as per law.This is worth noting that by allowing extra credit in excess of agreed period of 30 days, profit shifting is there because if credit period is more, prices go up which is not done in the present case since, the prices are determined on the basis of 30 days credit period.
Having decided this aspect, now we decide the rate of interest for such benchmarking. We find that this aspect is covered by the tribunal order rendered in the case of M/s Goldstar Jewellery Ltd. [2015 (2) TMI 58 - ITAT MUMBAI] - This was held in this case that extra credit allowed can be considered as an independent international transaction and the same be compared with internal CUP being average cost of the total funds available to the assessee. Respectfully following this tribunal order, we direct the A. O. to find out the cost of the total funds available to the assessee and the same should be adopted as internal CUP for benchmarking of this independent international transaction i.e. allowing extra credit in addition to agreed credit period of 30 days.
Deduction u/s.80IA(4) - operating of Container Freight Station (CFS) - scope of term infrastructure facilities - Denial of deduction as CFS set up by assessee does not fall within the meaning of “Port” as envisaged under the definition of “infrastructure facility” in Explanation to Section 80IA(4) - whether the activities undertaken by the assessee fall within clause (d) of Explanation to Section 80IA(4) defining the term ‘infrastructure facility’? - HELD THAT:- The Tribunal for assessment year 2008-09 [2012 (8) TMI 893 - ITAT MUMBAI] by following the decision of Special Bench in the case of M/s. All Cargo Global Logistics Ld. [2012 (7) TMI 222 - ITAT MUMBAI(SB)] held that the assessee is eligible for claiming deduction u/s. 80IA(4) of the Act. The aforesaid decision of the Tribunal has been upheld by the Hon’ble Bombay High Court in appeal filed by Revenue titled CIT Vs. Continental Warehousing Corporation [2015 (5) TMI 656 - BOMBAY HIGH COURT]
The dispute whether Container Freight Station set up within precincts of the port, considering its proximity to sea port fall within the meaning of “infrastructure facility” and admissible for deduction u/s. 80IA(4), has been decided in favour of the assessee by Hon’ble Jurisdictional High Court in assessee’s own case. Further, the Co-ordinate Bench of Tribunal in immediate preceding assessment years i.e. assessment years 2009-10 [2014 (11) TMI 1262 - ITAT PUNE] & 2010-11 [2016 (10) TMI 1367 - ITAT PUNE] have taken a consistent view holding assessee is to be eligible for claiming deduction u/s.80IA(4) of the Act. We find no reason to take a divergent view. Thus, we find no merit in the appeal filed by Revenue and the same is dismissed.
Eligibility for abatement under Notification No. 15/2004-ST dated 10/09/2004 and No. 1/2006-ST dated 01/03/2006 - civil as well as interior fit out work - demand of the service tax on the ground that value of free supply items is includable in the gross value for the purpose of abatement - HELD THAT:- The activities undertaken by the appellant involves both supply of material as well as provision of labour. The appellant had raised the invoice on its contractees showing payment of VAT and such VAT payment particulars were duly reflected in the periodic VAT returns filed before the Jurisdictional VAT authorities. Since the activities undertaken by the appellant is composite in nature, involving both supply of materials as well as execution of assigned tasks, the said services should fall under the purview of Works Contract Service and will not be excisable to service tax prior to 01/06/2007 as per the judgment of Hon’ble Supreme Court in the case of COMMISSIONER, CENTRAL EXCISE & CUSTOMS VERSUS M/S LARSEN & TOUBRO LTD. AND OTHERS [2015 (8) TMI 749 - SUPREME COURT].
Even for the period from 01/06/2007, the said service will not be subject to levy of service tax under CICS, since admittedly the activities undertaken falls under the Works Contract Service - Tribunal in the case of M/S. URC CONSTRUCTION (P) LTD. VERSUS COMMISSIONER OF CENTRAL, SALEM [2017 (1) TMI 1363 - CESTAT CHENNAI] has set aside the demand for the period from 01/06/2007 on the ground that composite nature of service should not be classified under CICS service.
Disallowance u/s. 14A - expenditure incurred on exempt income - HELD THAT:- We find that though the assessee has made investment in mutual funds, but during the impugned assessment years it has not received any dividend income on such investment according to the assessee. Therefore, in the absence of exempt income, no disallowance u/s. 14A can be made. It has been repeatedly held by the various High Courts and the Tribunal that where assessee did not earn any exempt income, no disallowance u/s. 14A can be made. In this case, the revenue has disputed the fact of receipt of exempt income, therefore, we find it appropriate to restore the matter to the file of the AO for verification of the fact. If the assessee does not have any exempt income, no disallowance u/s. 14A can be made, otherwise the AO may act in accordance with the law.
Validity of Order passed under section 143(3) r.w.s. 153A - HELD THAT:- We find that undisputedly assessment u/s. 143(3) was completed before the search took place upon the assessee. Nothing has been demonstrated before us that any incriminating material was found during the course of search which was used for completing the assessment u/s. 143(3) r.w.s. 153A - Therefore there is no incriminating material found during the course of search on the basis of which concluded assessment can be reopened and fresh assessment can be framed u/s. 143(3) r.w.s. 153A of the Act. The question that arises in this case is “whether the AO can reframe the assessment u/s. 153A on the basis of search conducted upon the assessee wherein no incriminating material is found?” This question was examined by this Bench of the Tribunal in which one of the Members was a party to it and the Tribunal having examined both the judgments of the Hon'ble jurisdictional High Court passed in the cases of Lancy Constructions [2016 (2) TMI 797 - KARNATAKA HIGH COURT] and Canara Housing Development Company [2014 (8) TMI 642 - KARNATAKA HIGH COURT] has concluded that in the absence of any incriminating material, proceedings u/s. 153A cannot be initiated and concluded assessment cannot be reopened
Thus as in the absence of incriminating material, the concluded assessment cannot be reopened and assessment u/s. 153A cannot be framed. In the instant case, undisputedly no incriminating material was found, therefore the assessment framed u/s. 143(3) r.w.s. 153A of the Act is not sustainable and we accordingly knock down the assessments. - Decided in favour of assessee.
Depreciation based on the disallowance of expenses as not eligible for depreciation - assessee has allocated capital work-in-progress [“CWIP”] to assets and accordingly had claimed depreciation on assets - HELD THAT:- CIT(Appeals) correctly re-examined the issue and directed the AO to consider certain amount as not eligible for forming part of CWIP which is to be utilized at the time of achieving the commercial operation of the assessee. AO was directed to consider the amounts as held not eligible for capitalization in deciding the appeal for AY 2007-08 & 2008-09 for the purpose of allowing depreciation.
TDS u/s 192 or 194J - Director sitting fees paid for attending audit committee meetings, board meetings, etc.- AO has disallowed this expenses on the ground that TDS has not been deducted on the said expenses - HELD THAT:- As we find that undisputedly amendment u/s. 194J was brought w.e.f. 1.7.2012, therefore it would apply from AY 2014-15, not in the impugned assessment year. Therefore, we find that the CIT(Appeals) has properly adjudicated the issue in the light of relevant provisions of the Act and we find no infirmity therein. We accordingly confirm his order.
Jurisdiction - power of Metropolitan Magistrate (MM) - accused not arrested by investigating agency - authoritative determination - Whether a MM can examine the discretion exercised by the IO for arresting or non-arresting the accused persons, while considering the charge-sheet at the stage of taking of cognizance and if it is found that the IO has not exercised his discretion lawfully, whether the Court of MM can return the charge-sheet for further investigation on the point of arrest of accused persons?
HELD THAT:- The view taken by the learned Magistrate that in offences, whereof the sentence is beyond seven years, the investigating agency should necessarily arrest the accused and produce the accused in custody at the time of filing the charge-sheet under Section 173, Cr.P.C. before the Magistrate, has no basis and is contrary to the statutory scheme. In this regard, reference may be made to Sections 2(c), 41, 41(1)(b), 41(1)(b)(a), 157(1), 173(2)(e), 173(2)(f) & 173(2)(g) of the Code, which put the matter beyond any doubt that the investigating agency is not obliged to arrest the accused whenever a cognizable offence is registered. The discretion to arrest the accused has to be exercised by the investigating agency by applying the principles laid down in the Code itself.
The Metropolitan Magistrate cannot examine whether the discretion of the IO to arrest, or not to arrest the accused, has been properly exercised. He is only concerned with the chargesheet, as filed. He may return the charge-sheet if he finds that the investigation is not complete, or the charge is not borne out from the evidence collected and filed with the charge-sheet. But he cannot return the same merely because the accused has not been arrested and produced in custody at the time of filing the charge-sheet. The reference stands answered.
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