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Showing 441 to 460 of 1564 Records
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2024 (8) TMI 1124
Rectification order premised on original action u/s 148 - condition specified u/s 149 (1) (b) not fulfilled namely that income alleged to have escaped assessment should be Rs. 50,00,000/- or more - In the review petition, it had been sought to be contended that since the correct order could not be uploaded, complete facts could not be brought to the notice of the Court including that the income which had escaped assessment was in fact more than INR 50 lakhs, but review petition, dismissed with the Court observing that the so called “corrected order” had neither been issued nor served upon the assessee.
HELD THAT:- AO had clearly lost sight of the fact that once the orders under Section 148 had been quashed, there existed no determination which could have been possibly revived, rectified or corrected. We take note of the settled position in law that when a prerogative writ issues or an order comes to be quashed, it would be deemed to have never existed in the eyes of law. See Church of South India Trust Association CSI Cinod Secretariat, Madras [1992 (4) TMI 183 - SUPREME COURT]
We note that the power under Section 154 could have been invoked provided an order capable of rectification existed in the eyes of law. However, once the original reassessment orders came to be quashed, they would be deemed to have never existed. All that the review Court did was to accord liberty to the respondents to issue a fresh or rectified order. That would have necessarily entailed an order being framed anew and proceedings for reassessment commenced. In view of the aforesaid and the indisputable position in law which emerges we have no hesitation in coming to the conclusion that Section 154 could not have been possibly invoked.
Consequently, and for all the aforesaid reasons, we find ourselves unable to sustain the order impugned. The writ petition is allowed and the impugned order is hereby quashed.
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2024 (8) TMI 1123
Penalty u/s 271(1)(c) - disallowance of interest u/sec. 57(iii) wherein the taxpayer had claimed interest expenditure against interest income which he failed to substantiate despite filing all the relevant details - HELD THAT:- Even the Revenue could not rebut the clinching fact that such a failure on assessee’s part in filing all the relevant details along with the return and lack of substantiation thereof on his part, would hardly invite the impugned penal provision as per CIT vs. Reliance Petro Products (P) Ltd., [2010 (3) TMI 80 - SUPREME COURT] wherein their lordships’ have settled the law that on each and every quantum addition/ disallowance does not attracts the impugned penal provision automatically. We find force in learned counsel’s vehement submissions for deleting the impugned penalty. Ordered accordingly.
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2024 (8) TMI 1122
Rejection of the application to rectify the revised return filed - CPC not processed the revised return and rectification is not allowed - HELD THAT:- The original return filed by the assessee was processed by the CPC on 12/09/2017. However, it was found from form 26 subsequently that assessee revised the return u/s. 139(5) on 03/01/2018 and self assessment tax was paid at Rs. 10,820/-. Subsequently, the assessee once again paid SA tax which was not as per the returns so filed. The self assessment tax paid does not arise out of either the revised return or the original return filed by the assessee.
In the interest of justice, we are of the opinion that assessee is to file rectification application before the Ld.AO which the AO shall consider without considering any limitation issue that may be applicable.
There is bonafides on the part of the assessee as the assessee was erroneously misled to deposit taxes which is not in consonance with the income for the year under consideration. It is a trite law that no tax can be collected without the authority of law.
Based on this principle, we direct the Ld.AO to consider the rectification petition filed by the assessee. AO shall verify the returns filed by the assessee and shall compute the income in the hands of the assessee in accordance with law. Assessee shall furnish all relevant evidences in support of its claim. We may once again bring it to the notice of the authorities that the 154 petition filed by the assessee shall not be dismissed on the ground of limitation and shall process the return in accordance with law.
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2024 (8) TMI 1121
TP Adjustment - TPO has made mistakes apparent from record by considering non-AE revenue and non-AE cost in the computation of TP adjustment - as argued TPO has not followed the ITAT order during the remand proceedings and not verified the computation - HELD THAT:- We find that the TPO has not followed the ld. DRP directions and not commented on the erroneous computation wherein the non-AE revenue and non-AE cost has been considered for the purpose of computing TP addition.
Assessee has also filed a rectification application u/s 154 of the Act against the TP appeal effect order issued by the TPO wherein it was submitted that the TPO has made mistakes apparent from record by considering non-AE revenue and nonAE cost in the computation of TP adjustment.
TPO has not followed the directions of the ITAT and Ld. DRP in the second round of litigation and has erroneously considered non-AE revenue and non-AE cost for computation of TP adjustment. This is against the basic principles of transfer pricing regulations and Chapter X of the Act wherein addition on account of transfer pricing adjustment can be made only in respect of international transactions with the AEs and not the non-AEs. Hence, we direct the AO/TPO to consider transactions between the assessee and the AEs only and rectify accordingly. The AO/TPO shall not circumvent the directions given by the ITAT and the ld. DRP. Appeal of the assessee is allowed for statistical purpose.
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2024 (8) TMI 1120
Revision u/s 263 - Addition of Provision for doubtful debts to book profit under section 115JB - HELD THAT:- PCIT held the assessment order passed u/s.153A bad in law as the AO did not consider the provision for bad debts while computing the book profits u/s. 115JB. In observing so, PCIT relied on the clause (i) of explanation (1) of section 115JB(2) of the act.
On perusal of the financials of the assessee, having regard to the profit and loss account and the balance sheet, we note that there is a corresponding reduction from the loans and advances on the asset side of the balance sheet and consequently showing the net of provision for bad debt.
Hon’ble Supreme Court in case of HCL Comnet Systems and Services Ltd. [2008 (9) TMI 18 - SUPREME COURT] has observed that such actual write off would not be hit by clause (i) of explanation to section 115JB. Thus it cannot be only considered as a mere provision of account of bad and doubtful debts debited in the P&L account.
As noted that in case of CIT vs. Vijaya Bank Ltd.[2008 (9) TMI 18 - SUPREME COURT] has also observed that, by debiting to P&L Account for provision of bad and doubtful advances and by reducing the same amount from the loans and advances as appearing in the balance sheet there has obliterated the said provision from its accounts and therefore would be an instance of write off and not a mere provision.
Hon’ble Karnataka High Court in similar situation in case of CIT vs. Kirloskar Systems Ltd. [2013 (12) TMI 9 - KARNATAKA HIGH COURT] took the view that, the addition of provision of bad and doubtful debts as per P&L account to determine the book profits u/s. 115JB of the act is not warranted. We are of the view that the directions by the PCIT to AO to complete the assessment proceedings afresh in the light of the observations in the impugned order is bad in law. Grounds raised by the assessee stands allowed.
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2024 (8) TMI 1119
Accrual of income in India - Taxability of certain amounts received by the assessee from Indian customers as Fee for Technical Services (FTS)/Fee for Included Services (FIS) in terms with section 9(1)(vii) of the Act and Article 12(4) of India – USA Double Taxation Avoidance Agreement - AO observed, the assessee is not merely providing Content Services to the customers of India, but is also providing a whole range of “User Services”, which are user specific, and involve a high degree of human intervention - HELD THAT:- As could be seen from the highlighted portion of the observation of AO, without properly implementing the directions of learned DRP, he has merely stated that the agreement with Gandhi Institute of Technology and Management has been discussed in the draft assessment order. By these observations what the AO implies is, learned DRP has issued directions without proper application of mind. This, in our view, is highly objectionable and against the provision contained u/s 144C(13) of the Act.
AO’s findings/observations on the role of assessee are self-contradictory. While on one hand, the AO has acknowledged the fact that the assessee is an aggregation service provider and not a content creator, in the same breath, he says that assessee’s contention that it is a mere aggregator of educational courses is not correct.
AO has not brought on record any material to establish the fact that the assessee provides technical services through its online platform. Merely because the assessee has a customized landing page, it does not mean that the assessee provides technical services, that too, through human intervention.
AO in our view, has not been able to prove such fact. Even, assuming for argument’s sake, the services provided by the assessee is of technical nature, that by itself would not be enough to bring such receipts within the purview of Article 12(4) of India – USA DTAA, unless the make available condition is satisfied. Burden is entirely on the Revenue to prove that in course of rendition of services, the assessee has transferred technical knowledge, know-how, skill etc. to the service recipient, which enables him to utilize such technical knowledge, know-how, skill etc. independently without aid and assistance of the service provider.
As relying on Relx Inc. [2023 (4) TMI 239 - ITAT DELHI] and Elsevier Information Systems GmbH [2019 (5) TMI 405 - ITAT MUMBAI] we hold that the receipts do not qualify as FIS under Article 12(4) of India – USA tax treaty. Assessee appeals are allowed.
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2024 (8) TMI 1118
New plea of deduction u/s 54F - no capital gain was declared in the return of income. The income declared therein on profit from “business or profession” - AR submits that due to mistake by the previous authorized representative and the assessee, the capital gain deduction under section 54F of the Act could not be claimed in the return of income - HELD THAT:- We note that admittedly, no capital gain was shown in the return of income and no claim also made under section 54F of the Act. Had the assessee been declared capital gain in the return of income and no claim under section 54F of the Act thereon, this Tribunal would have directed the AO to consider the same by taking support from the decision of Goetze (India) Ltd. [2006 (3) TMI 75 - SUPREME COURT]
As discussed above, the assessee himself declared income under the head “business or profession” and no capital gain admitted. Therefore, having no declaration of capital gain in the return of income, directing the Assessing Officer to consider the claim under section 54/54F of the Act, does not arise. As rightly pointed out by the ld. DR that there is no tax liability standing in the hands of the assessee, therefore, we find no infirmity in the order of the ld. CIT(A) and it is justified. Thus, the grounds raised by the assessee are dismissed.
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2024 (8) TMI 1117
Classification of sale of shares as short term capital asset instead of long term capital asset - Period of holding - exemption u/s 54F - HELD THAT:- The undisputed fact is that the holding period of the impugned shares is around 31 months. It is true that provisions of Section 2(42A) of the Act has been amended to exclude the holding period of unlisted shares being held for 12 months to be treated as long term capital gain but the said amendment has come from AY 2015-16 and applicable therefrom and since the impugned AY is 2013-14, therefore, the amended provisions is not applicable.
Respectfully following the decision of Exim Rajathi India (P) Ltd. [2021 (9) TMI 866 - MADRAS HIGH COURT] we set aside the findings of the ld. CIT(A) and direct the AO to treat the gains arising from sale of shares as long term capital gains. Since we have held that the capital gains to the assessee are long term capital gain, therefore, we direct the AO to re-consider the claim of exemption u/s 54F of the Act and decide the issue afresh as per the provisions of law, after affording reasonable and adequate opportunity of being heard to the assessee. Thus, these grounds are accordingly allowed.
Cash deposits - explanation of the assessee that the same has been received out of the petty loans given to friends and relatives, cannot be brushed aside lightly, considering the returned income of assessee being more than Rs. 50 Lakhs and sale consideration being more than Rs. 2 Crores. The returned income and the capital gain go on to show the status of the assessee and, therefore, deposit of petty sum of Rs. 3,08,600/- on different dates should not be looked upon adversely - we direct the AO to delete the impugned addition. This ground is also allowed.
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2024 (8) TMI 1116
Condonation of delay - dismissal of assessee appeal against order passed u/s 250 on account of delay in filing - sufficient cause for condonation of delay exists or not? - as submitted assessee had filed an application u/s 154 of the Act for rectification and assessee was in the impression that since he has already filed rectification u/s 154 and unless it has been decided he is not entitled to file an appeal.
HElD THAT:- As D/R has been asked to submit before this Tribunal regarding the stage of the application u/s 154 - D/R has filed report and as per the report submitted by the ld. D/R, the rectification petition for AY 2019-20 has not been disposed off.
Keeping in view the facts that the assessee against the order passed u/s 143(1) of the Act has already filed a rectification petition and that petition is yet not been disposed off.
We are of this view that condonation petition should be allowed by the ld. CIT(A) and decide the case on merit.
Accordingly, the order of the ld. CIT(A) is hereby set aside and assessee has been given an opportunity to place the matter before the ld. CIT(A) as further directed to either he should dispose off the case on his own level or to direct to dispose off the application u/s 154 of the Act filed by the assessee within short period. Appeal filed by the assessee is allowed for statistical purposes.
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2024 (8) TMI 1115
Revision u/s 263 - source of investment in property - as per CIT AO should have examined the genuineness of loan transactions towards acquisition of the property by making independent enquiries - HELD THAT:- We do not find any enquiries being carried out by the AO in respect of the discrepancies as discussed in the preceding para, in the course of assessment proceeding. Thus, the AO had failed to make enquires and verifications which were required to be made in order to examine the issue for which the case was selected for scrutiny.
The bank statement also revealed that the assessee had no funds of his own to make these payments. It was explained that the payments towards sale consideration were made on the strength of loans taken from “Infinity International” and “Horizon Finvest” and a copy of confirmation in respect of the loans taken from these parties along with their ITR and accounts were brought on record.
The evidences filed by the assessee were accepted by the AO without any verification. AO should have examined whether any interest was paid on these loans obtained and whether TDS was deducted thereon. No such enquiry was made in the course of assessment and the documents and the evidences furnished in the course of assessment proceeding were accepted by the AO on their face value without any verification. It is, thus, evident from the above facts that the AO had not conducted proper enquiries in respect of the investment in the properties and, therefore, the order of the AO was rightly treated as erroneous and prejudicial to the interest of the revenue by the Ld. Pr. CIT.
It is a trite law and a well settled position that non application of mind or wrong assumption of facts or incorrect application of law by the A.O. will make the order erroneous and pre-judicial to the interest of revenue. Therefore, we do not find anything wrong with the assumption of jurisdiction u/s 263 of the Act by the Ld. Pr. CIT as the order of the AO was erroneous and pre-judicial to the interest of revenue - Decided against assessee.
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2024 (8) TMI 1114
Revision u/s 263 - Receipts of accommodation entries - reopening of assessment concluded - ‘lack of inquiry’ v/s ‘inadequate inquiry - HELD THAT:- AO had made detailed inquiries on the issue of accommodation entry which was denied by the assessee and no further evidence was brought on record to establish the said alleged transaction.
It was held in the case of CIT Vs. Sunbeam Auto Ltd. [2009 (9) TMI 633 - DELHI HIGH COURT] that one has to see from the records as to whether there was application of mind before allowing the expenditure and one has to keep in mind the distinction between ‘lack of inquiry’ and ‘inadequate inquiry’. If there was any enquiry, even inadequate, that would not by itself give occasion to the Commissioner to pass order under Section 263 of the Act merely because he has a different opinion in the matter. It is only in cases of ‘lack of inquiry’ that such a course of action would be open.
The present case cannot be treated as a case of ‘lack of inquiry’ as the AO had examined the issue in the course of assessment proceeding. The scope of Commissioner’s power u/s 263 of the Act would be available when the AO conducts no enquiry or no proper enquiry or doesn’t apply his mind to the legal issues arising out of the material on record; only then the revisional power is available. In the present case, the AO did conduct proper inquiries based on which the case was reopened and had accepted the explanation of the assessee - PCIT was not justified in invoking the revisional jurisdiction u/s 263 - Decided in favour of assessee.
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2024 (8) TMI 1113
Taxation of additional income u/s 115BBE - surrender of additional income at the time of search - valuation of the stock of jewellery found at the time of search - Government empanelled valuer arrived at valuation with the difference in the valuation of stock of jewellery on the date of search - HELD THAT:- Assessee had the full and complete break up of bills of the same based on the actual purchase price paid by it for such items to the supplier at the time of purchase of each items of jewellery which indeed had a definite tag and which clearly mentioned separately the weight of precious metal and weight of stones with value for purchasing. This value was completely ignored by the Govt valuer at the time of search thereby resulting in alleged discrepancy.
The discrepancy has been accepted by the assessee in the statement u/s 132(4) of the Act as well as in the revised return filed on 20.09.2018 by offering the discrepancy amount to tax as business income which is evident from the revised computation of income enclosed.
The disclosure of additional income was made by the assessee at the time of search on 18.11.2016 while giving statement u/s 132(4) of the Act at 10 PM whereas the higher tax rate of 60% got introduced u/s 115BBE of the Act only pursuant to Taxation Laws (2nd Amendment) Act, 2016 which got notified in the official gazette only on 15.12.2016, being the date of receipt of accent of the Hon’ble President of India which got further culminated as the Taxation Laws (2nd Amendment) Act, 2016. Hence, obviously the provisions of section 115BBE of the Act applying higher tax rate @ 60% cannot be applied at all in respect of search conducted prior to 15.12.2016 and incomes earned prior to 15.12.2016. Hence, the assessee is entitled for relief on this count also.
We have no hesitation to hold that the additional income is to be brought to tax only as business income liable to tax at normal rate and not @60% provided u/s 115BBE. Decided in favour of assessee.
Addition u/s 68 - cash deposits made during the demonetization period - HELD THAT:- No discrepancies whatsoever were found during the course of search conducted in the business premises of the assessee which was just 9 days after the date of announcing of demonetization by the Govt of India. The books of account of the assessee had not been rejected and to the extent of cash sales made , corresponding reduction in stock register had been duly made by the assessee.
As stated earlier, the assessee’s trade practice warranted monetary receipt of cash on its sales. The assessee had also duly explained the reasons behind issuing „estimate‟ chits to the customers for receiving advance in cash for the jewellery sales to be made in future. The sales made during the quarter ended December 2016 is very much comparable with that of December 2015 and December 2017 and no abnormality is being noticed thereon as is evident from the table reproduced in earlier part of this order qua this ground.
The turnover of the assessee during the year had indeed increased to Rs. 283.69 crores when compared to Rs. 216.88 crores in the immediately preceding year. The assessee had given adequate justification for huge increase in sales during the fag end of October 2016 till the first fortnight of November 2016 quoting the reasons of festivals season which fact cannot be disputed at all. There is absolutely no basis for the ld AO to arrive at the daily average sales of a particular day and arriving at the availability of cash sales as on 08.11.201 - very same transactions of Rs. 11.99 crores, being the addition made by the ld AO is already part of actual sales already disclosed by the assessee in its return of income and in the books of account. We hold that adding this sum of Rs. 11.99 crores will only result in double addition. The entire sales made by the assessee had been duly reflected in the VAT/ GST returns and no infirmity in any manner whatsoever was found by the concerned authorities. Decided against revenue.
Disallowance of advertisement and exhibition expenses on ad hoc basis - AO in the assessment proceedings made an ad hoc disallowance of 10% of total exhibition expenses and advertisement expenses on the ground that the assessee could not produce vouchers for some of the transactions and hence, the same remained unverified - CIT(A) deleted addition - HELD THAT:- We find that the books of account of the assessee, book results of the assessee were not rejected by the ld AO by invoking the provisions of section 145(3) of the Act. Hence, there is no question of making any ad hoc disallowance @10% of total advertisement and exhibition expenses. The same is absolutely without any basis. As stated by the ld CIT(A), even the 3 vouchers which the AO stated in the assessment order were produced by the assessee before the CIT(A) from where it was found that payments were made to the respective parties by account payee cheques after due deduction of tax at source. Hence, we do not find any reason to interfere in the order of the ld CIT(A) granting relief to the assessee in this regard.
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2024 (8) TMI 1112
Confiscation and redemption of goods - levy of penalty u/s 114A of CA - Suction pumps - capacity of suction pumps - Were they of 75GPD capacity as asserted by the appellant or were they of 100 GPD capacity but mis-declared as of 75GPD as asserted by the department? - If they were of 100 GPD capacity, was the method of redetermination and the value determined by the adjudicating authority correct? - Excess quantity of the non-textured fabric.
Capacity of pumps - Burden of prove - HELD THAT:- Since the department is disputing the declaration made by the appellant, the department has to produce evidence - In this case, the appellant filed the Bill of Entry making some declaration regarding the nature of the goods and their value. If Revenue asserts that the declarations are not correct, it has to produce evidence in support; otherwise it would fail.
The capacity declared by the appellant has not been established to be false or incorrect by the Revenue either through the certificate of the Chartered Engineer or through any other evidence. Consequently, there is no ground to reject the transaction value of the pumps. The value of the pumps declared in the Bill of Entry should therefore, have been accepted.
Excess quantity of the non-textured fabric - HELD THAT:- The appellant does not dispute that excess quantity was found and that duty has to be paid on the excess quantity. It has already paid the duty.
Jurisdiction to make re-assessment - HELD THAT:- It is clear that section 28 can be invoked only after the goods have been cleared for home consumption because until then, the assessment is still open and if any discrepancies are found or any adjustments have to be made, they can be done by the proper officer through re-assessment under section 17.
In this case, the appellant filed the Bill of Entry and selfassessed duty and before it could be re-assessed by the proper officer, the officers of the Commissioner of Customs (Preventive) intervened and the Additional Commissioner has done this reassessment instead of allowing the proper officer to do it. Thus, the demand which he confirmed is only a re-assessment under section 17 and is not a demand under section 28. Consequently, section 28AA and section 114A which are linked to section 28 do not apply to this case. This is simply a case of assessment of the goods where excess quantity of one of the goods was found on examination on which the appellant agreed and paid the excess duty. The proper officer could have done it in due course but the Additional Commissioner of Customs (Preventive) took over and did it.
Confiscation of the goods and the redemption fine - HELD THAT:- Section 111 makes certain goods liable for confiscation but does not mandate such confiscation. It is for the adjudicating authority to exercise his discretion and see if goods need to be confiscated in the facts of the case or not. In this case since the only violation is of import of excess quantity of one of the goods, it is found that no sufficient ground to confiscate the goods. Therefore, the confiscation of the goods and the redemption fine also deserve to be set aside.
The confirmation of demand of duty on the excess quantity of PU Fabric is upheld - rest of the order set aside - appeal allowed in part.
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2024 (8) TMI 1111
Professional Misconduct by the Auditors - alleged diversion of funds - Lapses in the audit of fraudulent diversion of funds to MACEL, understatement of such diverted funds and evergreening of loans through circulation of funds - Fraudulent understatements of loans and advances given to MACEL and evergreening of loans and advances - Lapses in audit of suspected diversion of funds by CDGL to M/S Classic Coffee Curing Works - Lapse in performing risk assessment procedure in respect of Interest Income of TDL - Omission and Commission by the Audit Firm - Penalty & Sanctions.
HELD THAT:- The failure in this audit engagement was due to violations of SAS, failure in the implementation of Standards on Quality Control and relevant provisions of the Act. Hence the role of the Audit Firm, whose responsibilities are mandated by the Act, is equally important as that of EP and EQCR Partners, whose responsibilities are prescribed in the SAS and SQC -1. Given the fact that the Audit Firm is the appointed auditor under the Act and that the EP remains mandatorily responsible for the individual audits subject to firm-level supervision, both the Audit Firm and the EP have joint and several responsibilities for the Audit. Section 132 (4) that provides for sanctions against both the chartered accountants and the firm of chartered accountants emanates from this basic premise.
There is not adequate evidence of effective supervision and oversight of this audit by M/S BSR & Associates LLP. Had the Audit Firm discharged its supervisory responsibilities timely and effectively such major lapses in the audit as discussed in the foregoing paragraphs could have been avoided. Further, in this case, the Firm's policies and procedures with respect to audit documentation have also been found to be non-compliant with SQC I and SA 230.
Due to these fraudulent transactions the consolidated financial statements of CDEL were grossly misstated and, therefore, did not present a true and fair view of the company's affairs. As a result, the unmodified audit report issued by the Audit Firm was false and misleading for the users of these financial statements. Had the Auditors properly discussed the audit procedures with the component auditors in response to the identified risks, advised them accordingly, and exercised due professional skepticism throughout the audit, (as required by SA 200), they could have identified the material and pervasive misstatements in the CFS - The lack of professional skepticism in challenging both the management and the component auditors and the failure to address contradictory evidence was apparent in significant areas of the audit. Such omissions and commissions by an experienced audit firm cannot be taken lightly, as they are detrimental to the public interest.
The "Firm and Engagement Performance Metrics" published by PCAOB on October 12, 2022, provides a detailed study of engagement level and firm-level quality matrices. Engagement level metrics provide information about a particular engagement of the firm, and firm-level metrics address an audit firm's overall strategy in complementing the engagement-level matrices - The report lists key Audit Quality Indicators reported by 9 leading audit firms (refer to page 14 of the report). This Audit Quality Indicators make it clear that in, actual practice across the world, the Audit Firm has an equally important role as that of EP to ensure overall quality in any audit undertaken by the Firm.
Thus, it is proved that they had failed to report fraudulent diversion of funds to related parties and failed to exercise due diligence in performance of audit. Based on the foregoing discussion and analysis, it is concluded that they have committed Professional Misconduct as defined under Section 132 (4) of the Companies Act 2013 in terms of section 22 of the Chartered Accountants Act 1949.
The Firm and the EP committed professional misconduct as defined by clause 5 of Part I of the Second Schedule of the CA Act, which states that an auditor is guilty of professional misconduct when he "fails to disclose a material fact known to him which is not disclosed in a financial statement, but disclosure of which is necessary in making such financial statement where he is concerned with that financial statement in a professional capacity" - This charge is proved as the Firm and the EP failed to disclose in their report the material non-compliances by the Company.
The Firm and the EP committed professional misconduct as defined by clause 6 of Part I of the Second Schedule of the CA Act, which states that a chartered accountant in practice is guilty of professional misconduct when he "fails to report a material misstatement known to him to appear in a financial statement with which he is concerned in a professional capacity" - This charge is proved as the Firm and the EP failed to disclose in the audit report the material misstatements made by the Company.
The Firm, the EP and the EQCR committed professional misconduct as defined by clause 7 of Part I of the Second Schedule of the CA Act, which states that a chartered accountant in practice is guilty of professional misconduct when he "does not exercise due diligence or is grossly negligent in the conduct of his professional duties" - This charge is proved as the Firm, the EP and the EQCR failed to conduct the audit in accordance with the SAS and applicable regulations, failed to report the material misstatements in the financial statements arising from diversion of tilllds & circulation of funds and failed to report non-compliances made by the Company.
The Firm and the EP committed professional misconduct as defined by clause 8 of Part I of the Second Schedule of the CA Act, which states that a chartered accountant in practice is guilty of professional misconduct when he “fails io obtain sufficient information which is necessary for expression of an opinion or its exceptions are sufficiently material to negate the expression of an opinion" - This charge is proved as the Firm and the EP failed to conduct the audit in accordance with the SAS and applicable regulations as well as due to his total failure to report the material misstatements and non-compliances made by the Company in the financial statements.
The Firm and the EP committed professional misconduct as defined by clause 9 of Part I of the Second Schedule of the CA Act, which states that a chartered accountant in practice is guilty of professional misconduct when he "fails to invite attention to any material departure from the generally accepted procedure of audit applicable to the circumstances” - This charge is proved since the Firm and the EP failed to conduct the audit in accordance with the SAS and related Quality Control Standards and Code of Ethics.
Penalties and Sanctions - Section 132(4) of the Companies Act, 2013 provides for penalties in a case where professional misconduct is proved. The seriousness with which proved cases of professional misconduct are viewed is evident from the fact that a minimum punishment is laid down by the law - the infraction of the law and non-adherence to the standards of Audit, Quality Control Standards and Code of Ethics by the Auditors of a listed company viz., CDEL. The Auditors did not report fraudulent diversion of funds despite having enough evidence that public money was moved to a promoters' entity which had no business connection with the listed company.
Considering the proved professional misconduct and keeping in mind the nature of violations, principles of proportionality and deterrence against future professional misconduct, we, in exercise of powers under Section 132(4)(c) of the Companies Act, 2013, hereby order imposition of monetary penalty of Rs ten crores upon M/S BSR & Associates LLP; Rs fifty lakhs upon CA Aravind Maiya; and Rs twenty five lakhs upon CA Amit Somani. In addition, CA Aravind Maiya is debarred for a period of ten years and CA Amit Somani is debarred for a period of five years, from being appointed as an auditor or internal auditor or from undertaking any audit in respect of financial statements or internal audit of the functions and activities of any company or body corporate.
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2024 (8) TMI 1110
Pr-existing dispute or not - whether in the instant case any preexisting dispute exists which would not allow initiation of Section 9 proceedings under the Code against the Appellant / Corporate Debtor/ Corporate Debtor?
HELD THAT:- It is not found that the claim of an operational creditor is undisputed and the operational debt remains unpaid.
The Corporate Debtor received goods from Respondent No. 1 / Operational Creditor and has an outstanding debt exceeding Rs. 1 lakh - The Appellant / Corporate Debtor’s claims of a pre-existing dispute due to the GST raids and alleged fake invoices are not substantiated with material on record as the correspondence and proceedings involving the GST authorities do not constitute a genuine preexisting dispute between the Corporate Debtor and Respondent No. 1 / Operational Creditor concerning the operational debt.
The Appellant / Corporate Debtor's contentions that the company is solvent and the matter should be resolved through civil proceedings or arbitration are not relevant to the initiation of CIRP under the IBC.
The appeal lacks merit as the Appellant / Corporate Debtor failed to demonstrate a pre-existing dispute as required under Section 9 of the IBC. The Adjudicating Authority rightly admitted the application filed by Respondent No. 1 / Operational Creditor and initiated the CIRP against the Corporate Debtor.
Appeal dismissed.
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2024 (8) TMI 1109
Admission of Section 95 petitions filed by Alchemist Asset Reconstruction Company Limited-Financial Creditor - denial of natural justice to the Appellant by the Adjudicating Authority - invocation of Deed of Guarantee of the PG stood circumscribed by the Put Option Agreement or not - entitlement to object to the Assignment Agreement between RBL/original lender and Respondent No.1.
In the facts of the present case, whether there has been denial of natural justice to the Appellant by the Adjudicating Authority? - HELD THAT:- The application of principles of natural justice requires to be determined in the background of the facts and circumstances of each case as there is no one-size fits all formula. Having said that, we need to also appreciate the background in which the Adjudicating Authority decided to reserve the matter for orders. It is significant to note that the Adjudicating Authority while reserving the matter for orders observed that the that RP had filed its report under Section 99 of IBC “long back” and the matter at hand was “old” - the statutory provisions of IBC under Section 100 provides for only 14 days time to the Adjudicating Authority to adjudicate on the admission or rejection of Section 95 application from the date of submission of the Report of the RP. In view of such stringent timelines provided under the IBC for initiation of Insolvency Resolution Process under Chapter-III of the IBC, prima facie, the Adjudicating Authority cannot be faulted in the given circumstances for having proceeded with reserving the matter for orders after giving the Appellant due liberty to file further written submissions.
In view of the time-bound nature of IBC proceedings, there are no infirmity in the endeavour made by the Adjudicating Authority to expedite disposal of the present Section 95 application rather than prolong the matter.
The matter remanded back to the Adjudicating Authority would be a time-consuming process and frustrate the time-lines set under IBC.
Whether the invocation of Deed of Guarantee of the PG stood circumscribed by the Put Option Agreement? -Whether the Appellant-PG was entitled to object to the Assignment Agreement between RBL/original lender and Respondent No.1? - HELD THAT:- No prior consent of PG or any intimation was given to the PG about the Assignment Agreement. Since PG had given guarantee to the original lender/RBL and not to Respondent No 1, therefore, no action can be initiated against the PG. It is also canvassed by the Appellant that the Assignment Agreement was entered into to overcome the ramifications of the Put Option Agreement and aimed at securing an unfair advantage to Respondent No.1 to fabricate claims against the PG. It has been asserted that the Adjudicating Authority has failed to appreciate that the Assignment Agreement was not executed in good faith.
The Deed of Guarantee entered between the original lender and PG is an independent, distinct and a special contract which has to be construed on its own terms. The terms of the Deed of Guarantee are therefore extremely material as the invocation of the guarantee had to be purely in accordance with the terms of guarantee. It is clear from the reading of the clauses contained in Deed of Guarantee that guarantee was given by the PG in unequivocal terms and the guarantee amount was to be paid by the guarantors without demur or objection once the guarantee was invoked - In the letter invoking the guarantee, it was clearly stated that the Corporate Debtor had not performed its obligation of debt repayment. It is an admitted fact that the Corporate Debtor did not discharge the debt. It is a settled position in law that under Section 128 of the ‘Indian Contract Act’, the liability of the surety is coextensive with that of principal debtor unless it is otherwise provided by the contract.
This legal precept has been laid down by the Hon’ble Supreme Court in the matter of Maharashtra State Electricity Board, Bombay Vs. Official Liquidator, High Court, Ernakulam and Anr. [1982 (10) TMI 134 - SUPREME COURT]. In the present case, once the principal borrower failed to discharge the debt, the liability of the guarantor got triggered on the invocation of guarantee. By virtue of this Deed of Guarantee, the PG was therefore mandatorily obliged to honour its guarantee.
The Adjudicating Authority did not commit any error in holding that the right of the Respondent No.1 to recover money from the PG emanates from the terms of the Deed of Guarantee which were not in any manner obliterated, overwhelmed or superseded by the Put Option Agreement with the latter having its own sphere of operation. The liability of the PG was purely dependent on the terms of the Deed of Guarantee which was independent of the Put Option Agreement - Once the Assignment Deed was duly executed and registered, the Respondent No.1 by operation of law was substituted in place of the original lender in all actions for realisation of the debt vis-à-vis the Corporate Debtor. The legal position recognising the rights of an Asset Reconstruction Company to act in furtherance of assignment of debt as a valid legal right is no longer res integra. That being so, the borrower or the guarantor has no locus or right to challenge any such assignment.
This Bench is of the considered view that the liability of the Appellant as surety being coextensive with that of the principal debtor in terms of the Deed of Guarantee and the Respondent No.1 having stepped into the shoes of the original lender pursuant to the Assignment Deed executed in its favour and Appellant having failed to show that debt of the principal borrower stands extinguished and having failed to honour the guarantee obligation despite invocation of personal guarantee, no error has been committed by the Adjudicating Authority in the impugned order admitting Section 95 application.
There is no merit in the Appeal - Appeal dismissed.
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2024 (8) TMI 1108
Money Laundering - scheduled offence - proceeds of crime - misappropriation of funds of JKCA with criminal conspiracy with other accused persons.
Registration of an FIR/case for a scheduled offence is a condition precedent for the registration of a case for money laundering under Section 3 of the PMLA or not - Enforcement Directorate can independently determine the commission of scheduled offences based on the charge-sheet filed by another investigating agency or not.
HELD THAT:- The offence of money laundering, as defined under Section 3 of PMLA, is not made out. For commission of offence of money laundering under Section 3 of PMLA, it is required to be demonstrated that the accused has directly or indirectly, knowingly or unknowingly involved in any process or activity connected with the proceeds of crime. Such activity could be concealment possession, acquisition or use of the proceeds of crime and projecting it as untainted property.
“Proceeds of crime” is defined in Section 2 (1) (u) clearly means any property derived or obtained directly or indirectly by any person as a result of criminal activity relating to a scheduled offence. Coming to the charge-sheet presented by the CBI before the CJM, Srinagar, no scheduled offence is disclosed to have been committed. From a plain reading of Section 3 PMLA, it appears that offence under Section 3 PMLA can only be committed after a scheduled offence is committed. It is, thus, trite that commission of a scheduled offence is sine qua non for existence of proceeds of crime and commission of offence of money laundering under Section 3 of the PMLA Act.
In the instant case, indisputably, the jurisdictional police, the CBI has not registered any case for commission of any scheduled offence. Enquiry by way of complaint before the CJM, Srinagar is also not in respect of any scheduled offence. In the absence of there being any case registered for commission of scheduled offence or any case pending enquiry or trial in respect of scheduled offence, authorities under PMLA have no jurisdiction to register ECIR and launch prosecution for offence of money laundering under Sections 3/4 of PMLA. When there is no scheduled offence having been registered or pending enquiry or trial, there are no proceeds of crime and, thus, there is no offence of money laundering under Section 3 of the Act.
There are merit in the plea of the learned counsel for the petitioner and regret my inability to accept the argument of learned Additional Solicitor General of India which he very vehemently projected here.
This petition is, accordingly, allowed.
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2024 (8) TMI 1107
Demand of service tax - Invocation of extra ordinary jurisdiction of this Court under Article 226 of the Constitution inspite of the statutory remedy available - SCN reply not submitted - health issues of the petitioner - HELD THAT:- From the decision in the case of PHR INVENT EDUCATIONAL SOCIETY VERSUS UCO BANK AND OTHERS [2024 (4) TMI 466 - SUPREME COURT (LB)], it is seen that the Supreme Court had observed that the High Court ought not to ordinarily entertain a writ petition under Article 226 of the Constitution, if an effective remedy is available to the aggrieved person and such a principle should be applied with great rigour in matters involving recovery of taxes, cess, fees and other types of public money.
Merely because of the fact that the petitioner could not submit the reply to the show cause notice on the ground that he was incapacitated on account of his health problems cannot be a ground to involve the writ remedy more so, when the documents enclosed to the writ petition do not show the petitioner was infact incapacitated from filing the reply to the show cause notice at that relevant part of time. Therefore the question of violation of the principles of natural justice as claimed by the petitioner do not arise. Under such circumstances, this Court finds no ground to entertain the instant writ petition, taking into account that there is an alternative and an efficacious remedy available to the petitioner for which the instant writ petition stands dismissed.
This Court is of the opinion that the interest of justice would be met, if further 30 (thirty) days time is granted from today to the petitioner to file an Appeal before the Appellate Authority as mentioned in the impugned order dated 26.03.2024 itself. Accordingly, this Court observes and directs that if the petitioner herein files an appeal within 30 (thirty) days from the date of the instant order, the Commissioner (Appeals) shall decide the appeal on merits without going into the question of limitation.
Petition disposed off.
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2024 (8) TMI 1106
Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 - non-filing of ST-3 returns - Circular No. 1074/07/2019-CX dated 12th December 2019 - HELD THAT:- From the impugned order dated 19th June 2023 it appears that respondent no. 3 has admitted in paragraph 14 that petitioner has discharged its liability for Financial Year 2016-2017 and 2017-2018 as per the declaration filed under the SVLDR Scheme - notwithstanding the outcome of Financial Year 2015-2016, in our view, petitioner certainly be entitled for issuance of Form-4 for Financial Year 2016-2017 and 2017-2018. Therefore, respondent no. 3 is directed to issue Form 4 for Financial Year 2016-2017 and 2017-2018 within one week of this order being uploaded.
The show cause notice cum demand notice dated 30th December 2020, which is also impugned in the petition, is quashed and set aside - The time to issue fresh show cause notice, if required for Financial Year 2015-2016 is extended for a period of 30 days after the disposal of petitioner's declaration for Financial Year 2015-2016 - Petition disposed off.
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2024 (8) TMI 1105
Denial of interest claimed u/s. 11BB of the Central Excise Act, on delayed refunds sanctioned under Rule - 5 of the Cenvat Credit Rules, 2004 - HELD THAT:- Consistent decisions are available on the issue of payment of interest on delayed refund of unutilized credit since provision of the Law, supported by judgments of Hon’ble Gujarat High Court in COMMISSIONER OF CENTRAL EXCISE VERSUS RELIANCE INDUSTRIES LTD. [2010 (10) TMI 190 - GUJARAT HIGH COURT] was pronounced favouring such interest payment except the one passed in Gionee India Pvt. Ltd. case, in which its inadmissibility is distinguishable and could never be taken as binding precedent for not having considered the settled position of law in this case, apart from the fact that provision under Rule 11B covers refund of accumulated cenvat credit that is payable on export under Rule-5 of Cenvat Credit Rules, which is put in the category of refund of duty and section 11BB grants interest to such refund sanctioned three months beyond receipt of the refund application, which is consistently held to be counted from the date of filing of first refund application.
The appellant is entitled to get interest on refund sanctioned to it from three months after expiry of the date of filing of its first refund application for respective appeals - appeal allowed.
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