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2009 (12) TMI 1012
Issues Involved:
1. Application for ad-interim injunction u/s Order 39 Rule 1 & 2 of CPC.
2. Allegation of disparagement in advertisement.
3. Defendant's defense and counter-arguments.
4. Legal principles on disparagement and malicious falsehood.
5. Examination of facts and evidence.
Summary:
1. Application for Ad-Interim Injunction u/s Order 39 Rule 1 & 2 of CPC:
The plaintiff sought an ad-interim injunction against the defendants to stop the telecast of an advertisement for "Good Knight Naturals Mosquito Repellant Cream," alleging it disparaged their product "ODOMOS."
2. Allegation of Disparagement in Advertisement:
The plaintiff claimed the impugned advertisement insinuated that their product caused rashes and allergies, thus denigrating it. They argued that disparagement could be both 'overt' and 'covert' and cited various judgments to support their claim.
3. Defendant's Defense and Counter-Arguments:
The defendant contended that:
- The suit lacked a cause of action.
- The advertisement stated facts without intent to disparage.
- There was no direct reference to the plaintiff's product.
- The advertisement highlighted the benefits of their product with natural additives.
They emphasized that advertising is a form of commercial speech protected under Article 19(1)(a) of the Constitution.
4. Legal Principles on Disparagement and Malicious Falsehood:
The court outlined principles from previous judgments:
- Puffery is permissible, but denigrating a rival's goods is not.
- Comparative advertisement is allowed if it does not have negative overtones.
- Generic disparagement is tortious and can be injuncted.
- Truth is a complete defense to defamation or slander of goods.
- Advertising is protected under Article 19(1)(a) but must adhere to reasonable restrictions.
5. Examination of Facts and Evidence:
The court examined the impugned advertisement and found:
- Both plaintiff's and defendant's products contained "N, N-Diethyl benzamide" and "Oil of Citronella."
- The defendant's claim that their product's milk protein base reduced the likelihood of rashes and allergies was not disparagement but puffery.
- The advertisement did not specifically target the plaintiff's product.
- The plaintiff failed to plead and prove malicious intent or special damage.
Conclusion:
The court concluded that the impugned advertisement did not prima facie constitute malicious falsehood and dismissed the application for an ad-interim injunction. The defendant was directed to file a written statement, and the case was listed for further proceedings.
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2009 (12) TMI 1011
Issues Involved:
1. Validity of the injunction restraining defendant No. 1 from continuing with the arbitral proceedings.
2. Validity of the plaintiff's claim regarding the cancellation of the contract and the quality of goods.
3. Applicability of the decision in Sukanya Holdings (P) Ltd. v. Jayesh H. Pandya and Anr.
4. Jurisdiction and appropriateness of granting anti-suit injunctions.
Detailed Analysis:
1. Validity of the injunction restraining defendant No. 1 from continuing with the arbitral proceedings:
The plaintiff sought an injunction to restrain defendant No. 1 from proceeding with arbitration at the International Chamber of Commerce, International Court of Arbitration, in London. The learned single Judge rejected this prayer, holding that such anti-suit injunctions can only be granted in exceptional cases. The judgment emphasized that the arbitration clause was valid, and the dispute was arbitrable. The court noted that the plaintiff had not raised any grievance about the quality of goods at the time of shipment and that defendant No. 1 had informed the plaintiff well in advance of invoking the arbitration clause.
2. Validity of the plaintiff's claim regarding the cancellation of the contract and the quality of goods:
The plaintiff claimed that it had validly canceled the contract and was not bound to accept the final shipment. The plaintiff also alleged that the certificates issued by defendant No. 2 regarding the quality of the goods were fraudulent and issued in connivance with defendant No. 1. However, the court found that the plaintiff had utilized the goods from the previous shipments and had only raised issues about the final shipment after defendant No. 1 had invoked the arbitration clause. The court observed that the plaintiff's actions seemed to be aimed at stalling the arbitration proceedings rather than addressing genuine grievances.
3. Applicability of the decision in Sukanya Holdings (P) Ltd. v. Jayesh H. Pandya and Anr.:
The plaintiff argued that the arbitration proceedings should not proceed due to the potential for multiplicity of proceedings, citing the Supreme Court's decision in Sukanya Holdings. However, the court distinguished the present case from Sukanya Holdings, noting that the latter dealt with Section 8 of the Arbitration and Conciliation Act, 1996, which was not applicable in this context. The court emphasized that the arbitration clause was valid, and the dispute was arbitrable, making the plaintiff's reliance on Sukanya Holdings misplaced.
4. Jurisdiction and appropriateness of granting anti-suit injunctions:
The court referred to the principles laid down by the Supreme Court in Modi Entertainment Network and Anr. v. W.S.G. Cricket Pte. Ltd., which outline the conditions under which anti-suit injunctions can be granted. The court noted that the plaintiff had not demonstrated any exceptional circumstances that would justify such an injunction. The judgment emphasized that the arbitration proceedings in London were independent and that the plaintiff's suit appeared to be an attempt to delay these proceedings. The court also referenced the Andhra Pradesh High Court's decision in Srivenkateswara Constructions and Ors. v. The Union of India, which held that adding unnecessary parties to a suit to circumvent an arbitration clause is not permissible.
Conclusion:
The appeal was dismissed with costs, affirming the learned single Judge's decision to reject the plaintiff's prayer for an injunction. The court concluded that the plaintiff's application was not genuine and was intended to delay the arbitration proceedings. The plaintiff was advised to file its reply in the arbitration proceedings and cooperate with the process. The costs were quantified at Rs. 25,000, to be paid to respondent No. 1.
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2009 (12) TMI 1010
The Kerala High Court allowed the assessee's appeal, citing compliance with Section 43B of the Income Tax Act based on the Supreme Court's decision in CIT V. VINAY CEMENT LTD. The Tribunal found that the assessee made the payment before filing the return, leading to a reversal of the Tribunal's order and a remand to the assessing officer for deduction of the amount paid on time.
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2009 (12) TMI 1009
Issues Involved:
The Plaintiff filed a suit against the Defendant based on a defamatory advertisement published by the Defendant in a newspaper. The issues involved include defamation, misleading statements, disparagement, and unfair trade practices.
Issue 4 - Defamatory Advertisement:
The Defendant's advertisement published in a newspaper was found to be defamatory and disparaging towards the Plaintiff's institute. The court referred to established legal principles regarding comparative advertising and held that while a trader can promote their goods, they cannot defame or disparage the goods of another. The Defendant's use of words like "useless" and "no real successes" in the advertisement was deemed defamatory towards the Plaintiff's services. The court ruled in favor of the Plaintiff on this issue.
Issue 1 - Decree of Injunction:
In light of the defamatory nature of the Defendant's advertisement, the Plaintiff was granted a decree of injunction. The Defendant was permanently restrained from using any words in its advertisement that disparage or defame the Plaintiff's products, goodwill, or reputation.
Issue 3 and 4 - Recovery of Damages:
Since the Defendant was restrained from using defamatory statements in their advertisement, the Plaintiff's claims for recovery of Rs. 1 crore in damages and interest were rejected for lack of proof. The court found that the Plaintiff did not establish the quantified damages due to the injunction granted.
The Plaintiff presented witnesses and evidence to support their case, and the court analyzed the content of the advertisement in question to determine its defamatory nature. Ultimately, the court granted a decree of injunction in favor of the Plaintiff, restrained the Defendant from using disparaging words, and rejected the claims for recovery of damages due to lack of proof. The suit was disposed of with costs awarded to the Plaintiff.
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2009 (12) TMI 1008
Issues involved: Demand of duty amount, imposition of penalty, existence of suppliers, verification of letters and affidavits, remand for re-adjudication.
The judgment by Appellate Tribunal CESTAT AHMEDABAD involved a demand of duty amount of &8377; 12,31,622/- from the appellants due to non-existent suppliers of the goods as per department findings, along with an imposed penalty of &8377; 3,07,900/-.
Regarding the existence of suppliers, the appellants had submitted written submissions stating that the weavers, deemed non-existent by the department, had provided a letter to the range officer affirming their existence. The appellants also mentioned that show cause notices were issued to the suppliers demanding cenvat credit.
The Commissioner (Appeals) did not accept the appellants' contention about the weavers, as only letters were submitted initially and affidavits were provided later. The Learned SDR suggested remanding the matter for verification of the letters and affidavits, emphasizing the need for verification before re-adjudication.
Considering the submissions made by the appellants, including letters with affidavits from the suppliers in question, the Tribunal deemed it necessary to verify if the letters and affidavits were filed by the same individuals. It was also noted that show cause notices were issued to the weavers. Consequently, the Tribunal waived the pre-deposit requirement under Section 35F of the Central Excise Act, 1944, allowed the stay petition, and decided to remand the matter to the Original Adjudicating Authority for a fresh decision after providing the appellants with an opportunity to present their case.
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2009 (12) TMI 1007
Arbitration Proceedings - Application filled u/s 20 - for appointment of an arbitrator - Grant of interest by the arbitrator - Agreement was entered between the appellant and the North Eastern Railway for the construction of bridge - special conditions of the contract (SCC) and they stipulate that the General Conditions of Contract (GCC) and standard specifications of the North Eastern Railways shall form part of the aforesaid contract - payments made to the appellant after completion of the contract but they were received by them “under protest” - High Court considered Clause 30 of SCC and Clause 52 of GCC and found them to be similar and these clauses, according to High Court, bar interest and damages in respect of withholding or retention under the lien.
HELD THAT:- The arbitrator in his award after perusal of the level Book No.1, Graph-Sheets, Logbook No. 1A and Logbook No.4 came to a clear finding that there were manipulations/alterations/over writings by the railways and as a result of which the volume of work done by the contactor has been reduced.
It is well settled that the arbitrator is the master of facts. When the arbitrator on the basis of record and materials which are placed before him by the railways came to such specific findings and which have not been stigmatized as perverse by the High Court, the High Court in reaching its conclusions cannot ignore those findings.
But it appears that in the instant case, the High Court has come to the aforesaid finding that the items mentioned above are excepted matters and non-arbitrable by completely ignoring the factual finding by the arbitrator and without holding that those findings are perverse.
It goes without saying that in order to deny the claims of the contractor as covered under excepted matters, the procedure prescribed for bringing those claims under excepted matters must be scrupulously followed. The clear finding of the arbitrator is that it has not been followed and the High Court has not expressed any dis-agreement on that. Therefore, the finding of the High Court that those items are non-arbitrable cannot be sustained.
Before discussing the implication of these clauses, it may be noted that the Arbitration Act, 1940 does not contain any provision enabling the arbitrator to give interest. Section 29 of the Arbitration Act enables the Court to award interest from the date of the decree and at such rate as the Court deems reasonable.
The present Act of 1996 (the Arbitration and Conciliation Act, 1996), however, empowers the Arbitrator under Section 31(7)(a) and (b) to grant interest. Admittedly, in this case the 1996 Act is not attracted. Therefore, the provisions of 1940 Act will govern. The arbitrator’s power to grant interest is governed by the various judicial pronouncements and the provisions of Interest Act of 1978.
Under the Interest Act, Section 3 empowers the Court to allow interest. But sub-Section (3) of Section 3 contains a proviso, namely, Section 3, sub-Section (3), Clause (a) (ii).
Normally there are three periods for which interests are awarded -
(a) pre-reference period i.e. from the date of the cause of action for going to arbitration and to the date of reference;
(b) the pendente lite period i.e. from the date of reference to the date of award; and
(c) the postreference period i.e. from the date of the award to the date of realization.
In the instant case also the relevant clauses, which have been quoted above, namely, Clause 16(2) of GCC and Clause 30 of the SCC do not contain any prohibition on the arbitrator to grant interest. Therefore, the High Court was not right in interfering with the arbitrator’s award on the matter of interest on the basis of the aforesaid clauses. We therefore, on a strict construction of those clauses and relying on the ratio in Engineers [1995 (12) TMI 400 - SUPREME COURT] , find that the said clauses do not impose any bar on the arbitrator in granting interest.
In N.C. Budharaj [2001 (1) TMI 916 - SUPREME COURT] Justice Raju, speaking for the majority, considered the question of the arbitrator’s jurisdiction and authority to grant interest in great detail and also considered both Indian and English cases and the ratio of the Constitution Bench of this Court in G.C. Roy [1991 (12) TMI 268 - SUPREME COURT].
We are constrained to note that Hon’ble High Court unfortunately erred in appreciating the ratio of N.C. Budharaj [2001 (1) TMI 916 - SUPREME COURT] in passing the impugned judgment and order.
In view of such consistent views taken by both the Constitution Bench judgments, in G.C. Roy (supra) and N.C. Budharaj (supra), we are of the view that in the facts of this case, no interference is called for with the award passed by the arbitrator. The judgment of the High Court is, therefore, set aside and the award is upheld. The appeal is allowed.
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2009 (12) TMI 1006
Issues Involved:
1. Alleged cornering of retail shares in IPOs by appellants.
2. Allegations of fraudulent activities and manipulation of IPO allotment process.
3. Determination of the appellants as key operators in the IPO scam.
4. Legitimacy of off-market transactions conducted by the appellants.
5. Disgorgement of alleged unlawful gains by the appellants.
6. Legal implications of parallel proceedings under Sections 11 and 11B of the SEBI Act and adjudication proceedings under Chapter VIA.
Detailed Analysis:
1. Alleged Cornering of Retail Shares in IPOs by Appellants:
The central issue was whether the appellants had cornered the retail portion of shares issued by Jet Airways Limited and Infrastructure Development Finance Company Limited in their IPOs. The Board's investigation revealed that certain entities had opened multiple demat accounts in fictitious or benami names to corner shares meant for retail investors. However, the whole time member concluded that there was no material evidence to establish that the 553 demat account holders from whom the shares were transferred were benami or fictitious. They were genuine retail investors who applied for shares with their own funds and subsequently sold them in off-market transactions to the appellants. Thus, the appellants did not corner shares in the IPO allotment process.
2. Allegations of Fraudulent Activities and Manipulation of IPO Allotment Process:
The Board alleged that the appellants engaged in fraudulent activities by using 553 demat accounts to corner shares meant for retail investors. The show cause notice accused the first appellant of being the ultimate beneficiary of shares allotted to 553 entities, who were alleged to be mere name lenders or benamis. However, the investigation failed to substantiate that these demat account holders were benami or fictitious. The whole time member's findings indicated that the demat account holders were genuine, and there was no evidence to support the claim of manipulation or fraudulent activity in the IPO allotment process.
3. Determination of the Appellants as Key Operators in the IPO Scam:
The Board identified the first appellant and Deepak Kumar Shantilal Jain as key operators in the IPO scam. Key operators were defined as entities allowing their demat accounts for temporarily parking credits received from multiple afferent accounts before transferring them to financiers. However, the investigation revealed that the demat accounts from which shares were transferred to the first appellant were genuine. Therefore, the appellants did not fit the definition of key operators as they did not receive shares from fictitious accounts nor transferred them to financiers. Consequently, the appellants were not key operators in the IPO scam.
4. Legitimacy of Off-Market Transactions Conducted by the Appellants:
The appellants argued that they purchased shares from original allottees in off-market transactions, which is not prohibited by law. The whole time member found that the appellants bought shares from genuine retail investors in the secondary market, and there was no evidence of any illegality in these transactions. The appellants' actions of purchasing shares in off-market transactions and subsequently selling them at a profit did not constitute a violation of securities laws or manipulation of the IPO allotment process.
5. Disgorgement of Alleged Unlawful Gains by the Appellants:
The whole time member directed the appellants to disgorge alleged unlawful gains made from trading the shares. The first appellant was ordered to disgorge Rs. 12,02,302, and the second appellant Rs. 2,24,280, based on the difference between the purchase price and the average sale price. However, since the appellants did not commit any wrongdoing in trading the shares, the direction to disgorge the amounts was not justified. The concept of disgorgement applies to profits obtained through illegal or unethical acts, and since the appellants' actions were lawful, the disgorgement order was set aside.
6. Legal Implications of Parallel Proceedings under Sections 11 and 11B of the SEBI Act and Adjudication Proceedings under Chapter VIA:
The judgment highlighted the anomaly arising from parallel proceedings under Sections 11 and 11B of the SEBI Act and adjudication proceedings under Chapter VIA. The whole time member and the adjudicating officer arrived at vastly different figures regarding the quantum of unlawful gains, leading to conflicting conclusions. The judgment suggested that a single inquiry body should handle both the issuance of directions and imposition of monetary penalties to avoid such anomalies and expedite matters. This recommendation would require legislative amendment.
Conclusion:
The appeals were allowed, and the impugned orders were set aside. The appellants were not found guilty of cornering shares in the IPO allotment process, acting as key operators, or engaging in fraudulent activities. The direction to disgorge alleged unlawful gains was also set aside, and the judgment recommended legislative changes to address the issues arising from parallel proceedings.
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2009 (12) TMI 1005
Issues Involved:
1. Legality of reopening the assessment.
2. Validity of the assessment order framed beyond the time limit.
3. Confirmation of additions on account of bogus investment in share capital.
Summary:
1. Legality of Reopening the Assessment:
The assessee contended that the reopening of the assessment was invalid as it was based merely on the direction given by the Commissioner of Income Tax (Appeals) [CIT(A)] in the block assessment. The Tribunal held that the CIT(A) had no power to give such a direction, and thus, the reopening of the assessment on 6.3.2006 was beyond the prescribed time limit and bad in law. The Tribunal allowed the application for admission of additional grounds raised by the assessee, emphasizing that the order of the Tribunal dated 17.10.2008, which quashed the CIT(A)'s direction, was non-existent at the time of filing the appeal.
2. Validity of the Assessment Order Framed Beyond the Time Limit:
The Tribunal noted that the prescribed limit for issuing a notice u/s 148 is six years, which had already expired as the notice was supposed to be issued by 31.3.2004. The Tribunal further stated that the provisions of sections 150 to 152 were not applicable since the direction of the CIT(A) had been quashed, making the reopening of the assessment invalid.
3. Confirmation of Additions on Account of Bogus Investment in Share Capital:
The Tribunal referred to its previous order in the block assessment case of the assessee, where it was held that there was no justification for making any addition of Rs. 28.35 lakhs as no evidence was found during the search to suggest that the share capital was bogus or non-genuine. The Tribunal quashed the direction issued by the CIT(A) to initiate reassessment proceedings u/s 148 for the assessment years 1996-97, 1997-98, and 2002-03. It was emphasized that the share capital appeared in the books of accounts of the assessee company prior to the search, and no independent belief or finding was recorded by the Assessing Officer.
Conclusion:
The Tribunal concluded that the reopening of the assessment was invalid and beyond the prescribed time limit. Consequently, the appeals of the assessee were allowed, and the assessment orders were quashed. The Tribunal pronounced the order in open Court on 11th December, 2009.
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2009 (12) TMI 1004
Issues:
Violation of the Foreign Exchange Regulation Act, 1973; Penalty imposition on the appellant; Interpretation of orders passed by CESTAT and the High Court.
Analysis:
The judgment pertains to a case where the appellant was penalized under the Foreign Exchange Regulation Act, 1973 for alleged misuse of foreign exchange. The appellant had imported iron and steel scrap, for which foreign exchange was obtained. The Tribunal, relying on a previous order by the Commissioner, Customs, had initially upheld the penalty. However, subsequent proceedings revealed that the order by the Commissioner, Customs was challenged and set aside by the CESTAT, which was then confirmed by the High Court. It was established that the appellant had indeed used the foreign exchange for the intended purpose of importing scrap, thereby no violation of the Act occurred.
The penalty on the appellant was based on the premise that the foreign exchange was not utilized as intended. However, the orders passed by the CESTAT and upheld by the High Court clarified that the appellant had, in fact, imported the specified material for which the foreign exchange was granted. Since there was no violation of the Foreign Exchange Regulation Act, the imposition of the penalty was deemed unjustified. The Tribunal's decision to uphold the penalty was based on incorrect information regarding the challenge to the Commissioner's order, which was later rectified by the CESTAT and the High Court.
In light of the established facts and the correct interpretation of the orders passed by the higher authorities, the High Court set aside the impugned order of the Tribunal. Consequently, the appeal was disposed of in favor of the appellant, emphasizing that the penalty imposition was unwarranted due to the appellant's compliance with the provisions of the Foreign Exchange Regulation Act, 1973.
This judgment underscores the importance of accurate interpretation of legal orders and the necessity to ensure that penalties are imposed only when violations are conclusively proven. The case serves as a reminder of the significance of upholding procedural fairness and adhering to the principles of natural justice in legal proceedings involving regulatory compliance.
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2009 (12) TMI 1002
Issues involved:
Appeal by revenue against Tribunal's decision on interest income classification as business income or income from other sources.
Details of the judgment:
1. Issue 1 - Classification of interest income:
The respondent, constituted under the Kerala Infrastructure Investment Fund Act, raised funds through public borrowings by issuing bonds. The Assessing Officer initially treated the interest income as income from other sources, citing the need for the respondent to advance funds for infrastructure projects to be considered as commencing business. However, the CIT (Appeals) and the Tribunal held that the setting up of the fund itself marked the commencement of business, allowing the interest income to be assessed as business income. The Tribunal found that the interest earned on deposits of borrowed funds was part of the business activity of financing infrastructure projects. The court differentiated this case from a previous Supreme Court decision involving a manufacturing company, emphasizing that the respondent's primary activity was financing for infrastructure projects, justifying the treatment of interest income as business income.
2. Decision:
The court upheld the Tribunal's decision, dismissing the revenue's appeals. It concluded that the respondent's raising of funds through bonds and subsequent deployment for infrastructure projects constituted the commencement of business. Therefore, the interest income earned on the deposited funds was rightly classified as income from business, entitling the respondent to all applicable deductions in the computation of business income.
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2009 (12) TMI 1001
The Supreme Court dismissed the case with the order after condoning the delay. The High Court reference was from the Gujarat High Court. Justices S.H. Kapadia and Aftab Alam were involved in the judgment. Mr. Mohan Parasaran, Mr. Tapesh Kumar Singh, Mrs. Lakshmi Iyengar, and Mr. B.V. Balaram Das represented the petitioner.
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2009 (12) TMI 1000
Issues involved: The judgment involves two main issues: i) Whether certain expenditures in foreign currency should be reduced from the total turnover for the purpose of deduction u/s 10A of the Act, and ii) Whether profits derived from rendering services outside India are eligible for deduction u/s 10A of the Act.
Issue i - Expenditure in Foreign Currency:
The Tribunal referred to previous decisions and held that expenses incurred in foreign currency on travel and telecommunication should be excluded from both the export turnover and the total turnover for the purpose of deduction u/s 10A of the Act. This decision was based on established precedents and was in favor of the assessee.
Issue ii - Profits from Technical Services:
The Assessing Officer had disallowed a portion of the profits earned from technical services for the relevant assessment years, based on estimated percentages of foreign currency traveling expenses. However, the Commissioner of Income Tax (Appeal) found errors in the assessment and issued a corrigendum. The Tribunal noted that this issue was previously addressed in the assessee's case for a different assessment year, where it was decided in favor of the assessee. The Tribunal upheld the order of the CIT(A) based on consistency with previous decisions.
Conclusion:
The Tribunal dismissed the appeals filed by the revenue, affirming the decisions in favor of the assessee on both issues. The judgment was pronounced on 18th December 2009 by the Appellate Tribunal ITAT Bangalore.
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2009 (12) TMI 999
Issues involved: Appeals challenging duties short paid on clearances of finished goods availing SSI Exemption.
Summary:
Issue 1: Eligibility for SSI Exemption
- Facts: M/s. Sudha Industries, M/s. Gowrie Sankar Engineering Works, and M/s. Laksmipathi Water Pump Industries challenged duties short paid on clearances of finished goods availing SSI Exemption.
- Contention: Appellants argued that impugned clearances were eligible for SSI exemption.
- Decision: Impugned goods bore a registered brand name of another person, making them ineligible for SSI exemption as per relevant Notifications.
- Reference: Commissioner (Appeals) relied on the Apex Court judgment in Commissioner of Central Excise v. Rukmani Pakkwell Traders.
Issue 2: Interpretation of SSI Exemption Condition
- Facts: Appellants had cast iron components manufactured by M/s. Lakshmi Ganapathy Engineering Works, Tenali, bearing a different brand name.
- Contention: Appellants argued that the appellate authority wrongly relied on the ratio of Rukmani Pakkwell Traders case.
- Decision: Impugned orders consistent with the Apex Court's interpretation of the condition regarding brand name for SSI exemption.
- Conclusion: The Tribunal sustained the impugned orders and dismissed the appeals.
This judgment highlights the importance of strict interpretation of exemption notifications and the impact of using a brand name of another person on the eligibility for SSI exemption.
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2009 (12) TMI 998
Issues involved: Challenge to notice u/s 148 of the Income-tax Act for assessment year 2006-07 based on Departmental Valuation Officer's report.
Summary:
The petitioner, engaged in manufacturing Flexi Circuit Boards, challenged a notice issued u/s 148 for the assessment year 2006-07, based on a report by the Departmental Valuation Officer (DVO) regarding the construction of a factory building. The petitioner contended that the notice solely relying on the DVO's report was not valid as per legal precedents. The Department justified the notice citing a significant difference in investment valuation between the assessee and the DVO's report. After hearing both parties, the Court noted that in previous assessment years, additions based on the DVO's report were deleted. The Court referred to legal precedents where it was held that the DVO's report cannot be the sole basis for reassessment in cases of construction valuation. Relying on these precedents, the Court set aside the notice issued by the department u/s 148 of the Income-tax Act. The writ petition was allowed with no order as to costs.
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2009 (12) TMI 997
Issues involved:
The judgment involves issues related to the upholding of rental income as income from other sources and the disallowance of deduction u/s 24 of the Income Tax Act for the assessment years 2001-02 and 2004-05.
Upholding of Rental Income as Income from Other Sources:
The AO observed that the assessee had shown rental income under "income from house property" but was not the owner of the property at Centre Point, S. V. Road, Mumbai. The AO issued a show cause notice as to why the rent should not be considered as income from other sources. The assessee claimed to be the legal owner, but the AO rejected this, citing section 22 of the Income Tax Act which requires ownership for rental income to be considered as income from house property. The CIT(A) also rejected the claim, stating that the assessee did not qualify as a deemed owner under section 269 UA (f) of the Act. The Tribunal upheld these decisions, emphasizing the necessity of ownership for rental income to be treated as income from house property.
Disallowance of Deduction u/s 24 of the Income Tax Act:
The assessee challenged the disallowance of deduction u/s 24 of the Income Tax Act. The Counsel for the assessee argued that the leave and license agreement made the assessee the deemed owner of the property as per section 27 (iii b) of the Act. However, the Tribunal found that the agreement did not constitute a lease, as required by the relevant provisions, and thus, the assessee did not qualify as a deemed owner. Referring to a precedent, the Tribunal concluded that the income should be treated as from other sources, and the deduction was rightly disallowed.
Conclusion:
The Tribunal dismissed the appeals of the assessee, as the rental income was upheld as income from other sources due to the lack of ownership of the property. The disallowance of deduction u/s 24 was justified as the leave and license agreement did not meet the criteria for the assessee to be considered a deemed owner. The Tribunal found no merit in the appeals and upheld the decisions of the authorities below.
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2009 (12) TMI 996
The High Court of Bombay disposed of the appeal in terms of the minutes of order dated December 16, 2009, with no order as to costs. Appellant represented by J.D. Mistry and respondent by Ms. Anamika Malhotra.
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2009 (12) TMI 995
Advertisement for sale of manufacturing units - Non-existence of the independent approach road - Refund of the Earnest money illegally forfeited along with interest - subsequently during negotiations enhanced to ₹ 50,00,000 - deposited an amount of ₹ 2.5 lakhs by way of earnest money - appellants/Corporation called the respondent for negotiations - resulted in enhancement of the bid from ₹ 25 lakhs to ₹ 50 lakhs.
The respondent, however, again raised the issue regarding the passage at the open house held by the appellants/Corporation. According to the appellants/ Corporation, as per the revenue record and the demarcation report of the revenue officials dated 27.6.1998, therein 16.5 ft. rasta is provided in the west of the Unit. However, not satisfied, the respondent did not pay the balance amount. Therefore the appellants/Corporation invited fresh tenders for sale of land. On 30.9.1998 the appellants/Corporation forfeited the sum of ₹ 2.5 lakhs which had been deposited by the respondent as earnest money.
HELD THAT:- We see no reason to take any different view. We are also of the opinion that the Division Bench was justified in further concluding that in law the appellants/Corporation undoubtedly has the power to forfeit the earnest money provided there was a failure on the part of the respondent to make the deposit. The Division Bench, however, observed that the respondent was dealing with an instrumentality of state. He was entitled to legitimately proceed on the assumption that the appellants, a Statutory Corporation, an instrumentality of the State, shall act fairly. The respondent could not have suspected that he would be called upon to pay the amount of ₹ 50 lakhs without being given even a proper passage to the Unit that he was buying.
We are of considered opinion that the respondent had deposited the sum of ₹ 2.5 lakhs on the clear understanding that there would be an independent approach road to the Unit. This is understandable. Without any independent passage the plot of land would be not more than an agricultural plot, not suitable for development as a manufacturing unit. We therefore don't find any substance in the submission made by the learned counsel for the appellants/Corporation.
The appellants cannot be given the benefit of Clause 5 of the advertisement. The appellants /Corporation cannot be permitted to take advantage of their own wrong. Clause 5 undoubtedly permits the forfeiture of the earnest money deposited. But this can only be, if the auction purchaser fails to comply with the conditions of sale. In our opinion the respondent has not failed to comply with the conditions of sale. Rather, it is the appellants/Corporation which has acted unfairly, and is trying to take advantage of its own wrong.
The reliance on Section 29 of the State Financial Corporations Act, 1951 is wholly misplaced. The aforesaid Section pertains to action which the Corporation can take against the Unit which had defaulted in payment of loan. In such circumstances the Corporation has the power to sell the property that has been hypothecated or mortgaged with the Corporation. Respondent herein is an auction purchaser and therefore cannot be confused with the defaulting unit. We are also of the considered opinion that the reliance placed on the judgment of this Court by the counsel for the appellants in the case of Union Bank of India vs. Official Liquidator and Ors.[1993 (10) TMI 231 - SUPREME COURT] is wholly misconceived. The judgment clearly goes on to further hold as follows:
"The case of the Official Liquidator selling the property of a company in liquidation under the orders of the Court is altogether different from the case of an individual selling immovable property belonging to himself."
The aforesaid observation would be clearly applicable to the Corporation as it is exercising the rights of an owner in selling the property. The appellants/Corporation is not selling the property as an official liquidator.
It was also the duty of the appellants/Corporation to inform the respondent that the passage mentioned in the revenue record was not fit for movement of vehicles. The appellant also failed to produce to the buyer the entire documentation as required by Section 51 (1) (b) of the aforesaid Section. We are therefore satisfied that the appellants/Corporation cannot seek to rely on the aforesaid provision of The Transfer of Property Act, 1882.
In our opinion, the reliance on Section 29 of the State Financial Corporations Act, 1951 is wholly misplaced. The aforesaid Section pertains to action which the Corporation can take against the Unit which had defaulted in payment of loan. In such circumstances the Corporation has the power to sell the property that has been hypothecated or mortgaged with the Corporation. Respondent herein is an auction purchaser and therefore cannot be confused with the defaulting unit.
It appears that the judgment of the High Court had been stayed by this Court on 2.9.2002. In view of the dismissal of the appeal, we direct that the forfeited amount be refunded to the respondent with 12 per cent interest w.e.f. 1.2.1998 till payment. The amount be paid to the respondent within a period of two months of producing the certificate copy of this order. We also direct that in the event the aforesaid amount is not paid within the stipulated period the respondent shall be entitled to interest at the rate of 18 per cent per annum till payment. We also direct the respondent shall be entitled to costs which are assessed as ₹ 50,000/-.
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2009 (12) TMI 994
Issues Involved:
1. Deduction u/s 80IA for Goa unit (I.T.A.No.4781/M/81 - Revenue's appeal A.Y 99-00).
2. Validity of reopening assessment u/s 147 and other related issues (I.T.A.No.4433/M/07 - Assessee's appeal A.Y 99-00).
3. Deduction u/s 35[1][iv] for capital expenditure on building for research (I.T.A.No.4782/M/07 - Revenue's appeal A.Y 2001-02).
Summary:
1. Deduction u/s 80IA for Goa unit (I.T.A.No.4781/M/81 - Revenue's appeal A.Y 99-00):
The revenue's appeal contested the CIT[A]'s decision to allow the assessee's claim u/s 80IA despite discrepancies in the GP ratios of eligible and non-eligible units. The AO had restricted the deduction due to improper expense allocation, resulting in higher profits for the 80IA unit. The CIT[A] found no discrepancies in the books and justified the GP ratio differences due to distinct product lines and operational efficiencies in the Goa unit. The Tribunal upheld the CIT[A]'s order, dismissing the revenue's appeal.
2. Validity of reopening assessment u/s 147 and other related issues (I.T.A.No.4433/M/07 - Assessee's appeal A.Y 99-00):
The assessee challenged the reopening of assessment u/s 147 and other issues. Grounds 1 and 2 were deemed general and rejected. Ground 3, concerning the validity of reopening for excess deduction u/s 80IA, was dismissed as the Tribunal upheld the CIT[A]'s finding that the deduction was valid. Ground 4, related to the computation of "profits of the business" u/s 80HHC, was rejected based on a precedent. Ground 5, concerning interest u/s 234B & 234C, was deemed consequential. Ground 6, regarding penalty proceedings u/s 271[1][c], was considered premature. The assessee's appeal was partly allowed.
3. Deduction u/s 35[1][iv] for capital expenditure on building for research (I.T.A.No.4782/M/07 - Revenue's appeal A.Y 2001-02):
The revenue appealed against the CIT[A]'s decision to allow the assessee's claim of Rs. 8,93,64,936/- u/s 35[1][iv] for capital expenditure on a research building. The AO had disallowed the claim, invoking sec.35[2AB], which excludes expenditure on land or building. The CIT[A] differentiated between sec.35[1][iv], which allows 100% deduction for capital expenditure on scientific research, and sec.35[2AB], which provides 1.5 times deduction but excludes land/building costs. The Tribunal upheld the CIT[A]'s order, dismissing the revenue's appeal.
Order Pronounced:
The appeals were adjudicated on December 7, 2009.
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2009 (12) TMI 993
Issues involved:
The judgment involves the interpretation of penalty imposed u/s. 272 A (2) (c) of the Income Tax Act for delay in furnishing annual returns of tax deduction at source u/s. 206, focusing on the expressions "deductible" or "collectible" and the requirement of timely submission of returns for the financial years 1990-1991, 1993-1994, and 1994-1995.
Details of the Judgment:
1. Interpretation of Penalty Provision:
The Assessing Officer imposed penalties for delays in filing annual returns of tax deduction at source, despite tax being deducted and deposited on time. The Commissioner of Income Tax upheld the penalties, citing the proviso to section 272 A which limits penalties to the amount of tax "deductible" or "collectible." The Tribunal also confirmed the penalties, rejecting arguments of ignorance of law and absence of tax deductible or collectible.
2. Arguments and Considerations:
In the appeal, the applicant argued that the delay was due to ignorance of the law and absence of tax deductible or collectible. The Tribunal, however, upheld the penalties based on the failure to file returns within the prescribed period, disregarding the reasons provided by the Executive Engineer responsible for the filings.
3. Justification for Penalty:
The applicant contended that as the tax was deducted and deposited on time, the penalty for late filing should not apply, especially considering the lack of loss to the Revenue and absence of unlawful gain. Section 273 B of the Act allows for penalties to be waived in certain circumstances, including reasonable cause for the failure to act.
4. Tribunal's Decision:
The Tribunal's decision to levy penalties for late filing, despite no loss of Revenue and timely tax deposits, was deemed unjustified. The purpose of the penalty provision is to ensure compliance, not punishment, especially when there is no financial impact on the department. The Tribunal failed to consider if there was a reasonable cause for the delay in filing the returns.
5. Judgment:
The Court ruled in favor of the assessee, stating that there was no justification for the penalty for late filing of returns when the tax was deducted and deposited within the stipulated period. The penalty order was deemed unwarranted, and the question referred was answered in favor of the assessee. No costs were awarded in the judgment.
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2009 (12) TMI 992
Issues Involved:
The judgment involves the assessment of the entire purchase amount as bogus and nongenuine, the rejection of the books of accounts u/s 145 of the Income Tax Act, and the determination of the appropriate gross profit rate for calculating the income of the assessee.
Assessment of Entire Purchase Amount:
The assessee's appeal was against the order upholding the entire purchase of Rs. 3,97,63,022/- as bogus and nongenuine. The AO treated the purchases as unexplained, non-genuine, and bogus, leading to the rejection of the assessee's books of accounts u/s 145 of the Income Tax Act. The AO added the entire purchase amount to the income of the assessee, considering it as unexplained. The assessee challenged this addition before the CIT(A), which was dismissed in default.
Determination of Gross Profit Rate:
The learned Counsel for the assessee argued that once the books of accounts were rejected, the proper course of action should have been to apply a gross/net profit rate to determine the income instead of making a substantial addition for unexplained purchases. It was contended that without purchases, no sales could have been made. The Counsel suggested applying the same gross profit rate of 1.50% as in the preceding assessment year.
Judgment:
The ITAT held that only income can be subjected to tax u/s 145 of the Income Tax Act and that the entire purchases cannot be treated as income without proper verification. The AO's decision to treat the entire purchase amount as income was deemed against the law. It was noted that the assessee's sales were accepted, and without purchases, no sales could have occurred. The ITAT directed the AO to delete the addition of Rs. 3,97,63,022/- on account of bogus purchases and instead make an addition of Rs. 4,79,518/- as profit earned by the assessee on rejection of book results. This adjustment was based on the application of a gross profit rate of 1.50%, similar to the preceding assessment year, which was considered reasonable and just.
Conclusion:
The ITAT set aside the orders of the authorities below and directed the AO to restrict the addition to Rs. 4,79,518/-, thereby partly allowing the appeal of the assessee. The judgment was pronounced on 18th Dec, 2009.
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