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2008 (3) TMI 732
Application for condonation of delay - unexplained period leading up to the issuance of the letter by the administrator pendente lite - revocation of the grant of probate was not made earlier - APL (Administrator Pendente Lite) powers - petitioner’s attempt at reopening a challenge that had been scoffed at in the earlier proceedings - legatees insist that Sharad and the petitioner is but the same person and refer to a document that the petitioner has relied upon to show that notwithstanding the petitioner’s feigned ignorance of all matters relating to Kamal Mitra’s Will prior to receipt of the first letter issued by the administrator pendente lite, in the petitioner’s acknowledgement in a declaration furnished to a statutory authority that Sharad was one of its key personnel there is admission of Sharad and the petitioner company being one and the same.
HELD THAT:- If the delay in the petitioner applying for revocation of the probate is condoned, and the petitioner’s apparent right to seek revocation is recognised, the entire process that culminated in the conclusion of the lis by the Supreme Court order would be undone and reopened for fresh adjudication. The matter is not, as the petitioner simplifies and puts it, of the court being liberal in the matter of condonation of delay to allow a right to be canvassed. Equally, the principal issue is not, as the legatees’ suggest, to affix the petitioner with the knowledge that Sharad had and to consequently find the petitioner’s explanation of the delay to be unmeritorious.
Sharad may not have had any legal duty to inform the company (if the company was any more different from himself) upon discovering, although in his capacity as executor, that Reba Mitra had acquired no right to the estate to transfer it to the petitioner. Yet it was so overwhelming a moral duty that a director of a company in Sharad’s place had, even if he were not its controlling shareholder, to inform the company of its imminent loss of its valuable asset, that the fine distinction between a legal duty and a moral duty vanishes. That Sharad had produced and relied upon the petitioner’s lease to assert that notwithstanding Kamal Mitra’s Will his estate passed to his widow, would also show that Sharad was aware that he was also fighting his company’s cause.
To ignore all that has gone on before and to accept the petitioner’s simple case and apparent innocence would lead to gross injustice and undoing the finality that is attached to the result on the substance of the dispute following the Supreme Court verdict.
The result is that the petitioner’s application for condonation of delay fails as the petitioner is deemed to have had notice for a period much prior to the receipt of the administrator pendente lite’s first letter of August 28, 2007 which the petitioner has chosen to ignore for want of any plausible explanation. As a consequence, the petitioner’s application for revocation of the grant is not taken on board, but even if it were it would have to be dismissed for the only issue therein having been decided in favour of the legatees in the earlier proceedings.
The petitioner will pay costs assessed at 2000 GMs. Urgent certified photostat copies of this judgment, if applied for, be supplied to the parties upon compliance with all requisite formalities.
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2008 (3) TMI 731
Contempt proceeding - Requisition for Acquisition of land - declaration u/s 6 of the Land Acquisition Act, 1894 - Grant sanction of plans for construction of buildings - Society deposited the entire amount of compensation - clerical or typographical error has crept in the judgment of the High Court - HELD THAT:- Patna Regional Development Authority (PRDA) is a statutory authority. It has been created by a statute. It was responsible for planned development of the city. For the said purpose, it was under a statutory obligation to grant sanction of plans for construction of buildings. If somebody has made constructions without obtaining any sanction, he must face the consequences therefor. Parameters of the jurisdiction of this Court under the Contempt of Courts Act, 1970 are well-settled. While dealing with such an application, the court is concerned primarily with : (i) whether the order passed by it has attained finality or not; (ii)whether the same is complied with or not.
While exercising the said jurisdiction this court does not intend to reopen the issues which could have been raised in the original proceeding nor shall it embark upon other questions including the plea of equities which could fall for consideration only in the original proceedings. The court is not concerned with as to whether the original order was right or wrong. The court must not take a different view or traverse beyond the same. It cannot ordinarily give an additional direction or delete a direction issued. In short, it will not do anything which would amount to exercise of its review jurisdiction.
This Court while exercising its jurisdiction under the Contempt of Courts Act or Article 129 of the Constitution of India must strive to give effect to the directions issued by this Court. When the claim of the parties had been adjudicated upon and has attained finality, it is not open for any party to go behind the said orders and seek to take away and/ or truncate the effect thereof. T.R. Dhananjaya v. J. Vasudevan[1995 (8) TMI 329 - SUPREME COURT].
So far as submission of Mr. Srivastava that a clerical or typographical error has crept in the judgment of the Patna High Court is concerned, we are of the opinion that it is not for this court to direct any correction therein.
The functions of the PRDA are now being carried out by Patna Municipal Corporation. The statutory authority, thus, keeping in view the purport and object for which it has been created, in our opinion, must take appropriate action in accordance with law. As indicated, PRDA, the predecessor of Patna Municipal Corporation has given assurance before this Court. We hope it shall implement the same as expeditiously as possible.
The petition is disposed of accordingly with the directions and observations.
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2008 (3) TMI 730
Liquidation of company - Fraudulent Directors of the company - Non-filing of the statement of affairs by the ex-Directors and failure to produce the records and Accounts Books and assets of the company - Instituted proceedings u/s 454 of the Companies Act against the ex-directors and also to take action u/s 468 and 477 - misappropriation of the funds - Central bureau of Investigation (CBI) to enquire into the matter and submit an enquiry report as early as possible - funds of the Company in liquidation were channeled for the purpose of purchasing the property - Directors and their friends incorporated various business entities apart from the company in liquidation -
Applicants alongwith hundreds of other unsuspecting investors invested their lifelong savings in the company in liquidation on the promise of handsome returns @ 36% p. a. or thereabout - investments have, however, gone bad and the reason for the same is stated to be the misappropriation of the funds collected by the company on the representation, by its Directors, particularly the Managing Director Sh. Sunil Shakt and his wife Mrs. Shilpi shakt.
HELD THAT:- When the fraudulent conduct is undertaken by the Directors of a company, sitting in their own office, with a view to defraud the creditors/investors who, though the victim of the fraud, are not involved in the transactions which constitute such conduct, and may have no personal knowledge of the same.
In K. T. Dharanendrah v. R. T. Authority [1987 (2) TMI 521 - SUPREME COURT] the Supreme Court, while dealing with a case under the Customs Act, 1962 observed that "an economic offence is committed with cool calculation and deliberate design with an eye on personal profit regardless of the consequence to the Community. A disregard for the interest of the Community can be manifested only at the cost of forfeiting the trust and faith of the Community in the system to administer justice in an even handed manner without fear of criticism from the quarters which view white collar crimes with a permissive eye unmindful of the damage done to the National Economy and National Interest. "
From the reports of the CBI, prima facie it appears to me that this is a fit case for holding the directors of the company in liquidation personally liable, without any limitation of liability. At the same time, it is equally true that no one can be condemned unheard. The language of Section 542 itself shows that an opportunity has to be given to the concerned persons to lead evidence in support of their case.
The Director Sh. Sunil Shakt and his wife appear to have derived the funds for the purchase of the property directly or indirectly from the business of the company in liquidation. The funds of the company appear to have been siphoned off with the intent to defraud the creditors. The Directors of the company would have known that the withdrawal of the funds from the account of the company in liquidation, inter alia, for the benefit of the directors will result in the creditors being denied not only the handsome returns on their investments as promised, but also put in jeopardy the principal amounts invested by them. From the CBI reports, it appears that the action of the Directors of the Company in liquidation cannot be said to have been undertaken for the purpose of running the business of the company to generate income for the company sufficient to meet its expenses and fulfill its undertaken obligations towards the investors/creditors.
Therefore, direct the official liquidator to forthwith attach the property i. e. second floor and terrace above it. I further direct the SHO of the concerned police station to render all assistance required by the official liquidator in the attachment of the property. I further direct that the evidence in relation to this application be recorded by the Registrar (Companies), and the report be sent to this Court as expeditiously as possible. The applicants may file their affidavits by way of evidence before the Registrar (Companies) within six weeks. The official liquidator shall also place the material available with it on record with an affidavit. For this purpose, the official liquidator is directed to collect the documents, on the basis of which the reports have been prepared by the CBI, and the same be filed in this Court. Copies of the affidavit/documents be exchanged between the parties including Mr. Sunil shakt and Mrs. Shilpi Shakt Shakh through his/their counsel. The official liquidator shall file the affidavit after obtaining the copies within nine weeks. Mr. Shakt may respond to the evidence produced by the applicants and the official liquidator by filing an affidavit by way of evidence within four weeks, thereafter. It shall be open to Mrs. Shilpi Shakt as well to lead her evidence, in case she so desires.
Considering the fact that the applicant is an investor in the company in liquidation and, prima facie, it appears that the ex-Directors of the company have siphoned off the funds of the company, I am inclined to allow these applications. The applicant is, therefore, permitted to continue with the legal proceedings filed against the company as well as the ex-Directors, in view of the orders passed in this case today, this application does not survive.
Dismissed.
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2008 (3) TMI 729
Issues involved: Grant of benefit of SSI Notification No. 176/86, calculation of dutiable clearance, eligibility for exemption, levy of penalty.
Grant of benefit of SSI Notification No. 176/86:
The appeal arose from an Order-in-Appeal remanded by CESTAT to the Commissioner to examine the plea of the assessee for the grant of benefit of SSI Notification No. 176/86. The Commissioner, in Para 51 & 52, upheld the plea of SSI exemption. However, there was a discrepancy in the dutiable clearance value, with the appellants claiming it to be &8377; 5,44,500, while the Commissioner calculated it as &8377; 12,27,570. The appellants also asserted eligibility for a 10% exemption, with a chargeable duty of only 5%, amounting to &8377; 25,000. They contested the confirmation of demand of &8377; 1,93,343, including a penalty of &8377; 45,000, arguing that their calculation should be accepted.
Calculation of dutiable clearance and eligibility for exemption:
The Commissioner accepted the appellants' plea for SSI exemption under Notification No. 175/86 CE, acknowledging their dutiable clearance as &8377; 5,44,500. The appellants claimed eligibility for a 10% exemption, with duty payable at 5%. The Tribunal found that the matter needed reconsideration by the Commissioner to rework the dutiable clearances, confirm the duty, and levy any appropriate penalty after granting the assessee a hearing. The case was remanded to the Commissioner for de novo consideration within four months from the date of the order.
Levy of penalty:
The learned DR argued that the matter should be sent back to the Original authority to rework the total value of clearances and confirm the duty and penalty, as the assessee contested the details provided in the impugned order. The Tribunal directed the Commissioner to reevaluate the dutiable clearances, confirm the duty, and decide on any penalty, ensuring a fair opportunity for the assessee to present their case.
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2008 (3) TMI 728
Issues involved:
The issues involved in the judgment are the maintainability of an appeal u/s 35G of the Central Excise Act, 1944 before the High Court, based on the interpretation of a notification regarding exemption from central excise duty for industrial units in Jammu and Kashmir.
Issue 1: Maintainability of appeal u/s 35G:
The Commissioner of Customs and Excise, J&K appealed under section 35G of the Act, questioning the retrospective effect of a notification and the grant of benefits based on such effect. The respondent raised a preliminary objection, arguing that the appeal should be before the Supreme Court u/s 35-L due to the direct nexus of the exemption notification with the rate of duty. However, the appellant contended that the issue was about the location of the respondent's unit, not the rate of duty, and thus the appeal was maintainable in the High Court.
Issue 2: Interpretation of exemption notification:
The dispute revolved around whether the respondent's unit, located in SIDCO Industrial Complex Bari Brahamana, was eligible for exemption under the notification meant for units in Industrial Area Export Promotion (EPIP) Kartholi, Bari Brahamana. The respondent argued that the exemption's eligibility was directly related to the rate of duty of excise, citing relevant judgments. However, the appellant maintained that the issue was about the unit's location, not the rate of duty or goods' value for assessment purposes.
Judicial Interpretation and Decision:
The High Court examined the provisions of sections 35G and 35L of the Act, along with the facts of the case. It was found that the issue of locational eligibility for exemption did not directly relate to the rate of duty or goods' value for assessment. Relying on the principle established in a previous Apex Court decision, the Court held that the appeal filed by the Union of India was maintainable u/s 35G. The objections raised by the respondent were rejected, and the appeal was admitted for further proceedings.
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2008 (3) TMI 727
Issues Involved:
1. Entitlement to further claims post-acceptance of the final bill.
2. Legality of the interest awarded from the date of the decree.
3. Justification for damages due to late payment of bills.
4. Validity of claims for extra work done.
5. Legitimacy of claims for losses due to prolongation of work and material escalation.
6. Arbitrator's jurisdiction and adherence to the contract terms.
7. Misconduct and errors in the arbitration process.
Issue-wise Detailed Analysis:
1. Entitlement to Further Claims Post-Acceptance of the Final Bill:
The Court found that merely accepting the final bill did not preclude the respondent from raising further claims. It was noted that there was no declaration from the respondent stating they would not raise any further claims upon accepting the final bill. Therefore, the respondent was not estopped from making additional claims.
2. Legality of the Interest Awarded from the Date of the Decree:
The Court agreed with the appellant that the High Court erred in granting interest from the date of the decree under Section 29 of the Arbitration Act. The Subordinate Judge had not granted such interest, and it was not a clerical or arithmetical mistake that could be corrected under Section 152 of the Code of Civil Procedure. The respondent's remedy was to either appeal or file a review petition, not to seek correction under Section 152.
3. Justification for Damages Due to Late Payment of Bills:
The arbitrator found an inordinate delay in the payment of the 10th R/A bill, which was paid a year after the work's completion. Damages were awarded at 12% on the delayed amount for 343 days. The Court upheld this finding as it was based on factual determination by the arbitrator.
4. Validity of Claims for Extra Work Done:
The arbitrator awarded a sum for extra work done by the respondent. However, the Court noted that the arbitrator failed to consider specific contractual clauses that required written orders for additional work and timely submission of claims. The arbitrator's jurisdiction was confined to the contract's terms, and ignoring these terms was an error.
5. Legitimacy of Claims for Losses Due to Prolongation of Work and Material Escalation:
The Court scrutinized the claims related to losses due to work prolongation and material escalation. The appellant had provided a secured advance and essential materials, and the arbitrator should have considered the contract's provisions and relevant correspondences. The arbitrator's failure to do so was deemed an overreach of his jurisdiction.
6. Arbitrator's Jurisdiction and Adherence to the Contract Terms:
The Court emphasized that an arbitrator must operate within the contract's confines and cannot disregard its terms. The arbitrator's role is to arbitrate within the contract's terms, and any deviation or overreach constitutes a jurisdictional error. The Court cited several precedents underscoring that arbitrators cannot act beyond their contractual mandate.
7. Misconduct and Errors in the Arbitration Process:
The Court identified several instances where the arbitrator acted beyond his jurisdiction, ignored critical contractual clauses, and failed to consider relevant materials. These actions amounted to legal misconduct. The Court referenced multiple cases to highlight that such errors warrant judicial intervention.
Conclusion:
The appeals were allowed to the extent that the matter required reconsideration. The disputes related to Claim Item Nos. 3, 7, and 11 were referred to a retired Judge of the Jharkhand High Court for arbitration. The Court directed the new arbitrator to expedite the award process, considering the prolonged nature of the case. No costs were awarded.
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2008 (3) TMI 726
Issues Involved:
1. Reopening of assessment u/s 148 of the IT Act, 1961.
2. Addition of Rs. 4,32,331 as unexplained cash credit u/s 68 of the IT Act, 1961.
Summary:
Issue 1: Reopening of Assessment u/s 148
The taxpayer challenged the reopening of the assessment u/s 148 of the IT Act, 1961. The AO had issued a notice based on the taxpayer receiving a gift of Rs. 4,32,331 from his NRI sister, Smt. Smitaben Patel, without sufficient details provided. The CIT(A) upheld the validity of the notice, stating that the reopening was done by recording proper reasons and on grounds of reasons to believe that income chargeable to tax had escaped assessment. The Tribunal, however, found that the reasons recorded by the AO did not amount to "reasons to believe" that income had escaped assessment. The Tribunal emphasized that mere statements of facts cannot substitute for the required reasons and that the AO's actions appeared to be an arbitrary exercise of power. The Tribunal concluded that the initiation of proceedings under s. 147/148 was without jurisdiction and thus invalid, annulling the assessment.
Issue 2: Addition of Rs. 4,32,331 u/s 68
The AO had added Rs. 4,32,331 to the taxpayer's income as unexplained cash credit u/s 68, questioning the genuineness of the gift and the creditworthiness of the donor. The CIT(A) upheld this addition, citing the lack of a gift deed, evidence of the donor's creditworthiness, and the unusual nature of the gift given the taxpayer's financial status. The Tribunal, however, did not adjudicate on this issue as the assessment itself was annulled due to the invalid reopening of the assessment.
Conclusion:
The Tribunal allowed the appeal, annulling the assessment on the grounds that the reopening of the assessment u/s 148 was invalid. Consequently, the issues regarding the addition of Rs. 4,32,331 as unexplained cash credit did not survive for adjudication.
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2008 (3) TMI 725
Issues involved: Violation of principles of natural justice in passing the impugned order.
Summary:
1. The Appellate Tribunal CESTAT NEW DELHI remanded the case to the Adjudicating Authority due to the non-speaking nature of the impugned order. The Tribunal emphasized the need for a well-reasoned order with findings. The appellant argued that the order violated natural justice as they were denied the opportunity to cross-examine key witnesses relied upon by the adjudicating authority.
2. The appellant contended that the revenue's case was based on evidence of higher production not reflected in statutory records. Despite requesting cross-examination of specific witnesses, the appellant was denied this opportunity, citing lack of direction from the Tribunal in the remand order. The Tribunal agreed with the appellant that the impugned order lacked reasoning and violated natural justice principles.
3. The Tribunal found merit in the appellant's argument and remanded the matter to the Adjudicating Authority for a fresh decision. The Authority was directed to allow cross-examination of witnesses, provide a personal hearing, and decide the case in accordance with the law. The appeals were disposed of through remand, ensuring adherence to principles of natural justice.
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2008 (3) TMI 724
Huge of Delay 2205 days in filing a review application - Whether suppression of a material fact would entail allowing of an application for condonation - HELD THAT:- We are not oblivious of the fact that the authorities of the State have made a complete goof up with the situation. By its action, it allowed subsequent events to happen, viz. sales of the lands have taken up, constructions have come up, but the question which arises for our consideration is as to whether even in such a situation, this Court would allow a suppression of fact to prevail.
It is now a well settled principle that fraud vitiates all solemn acts. If an order is obtained by reason of commission of fraud, even the principles of natural justice are not required to be complied with for setting aside the same.
The allottees have acquired a statutory right. Only because the State was not aware of the factual position and/or the legal implication of the 1999 Act which led to withdrawal of the writ petition from the High Court, the same by itself may not be sufficient to deprive the allottees from their legal right to hold the said land.
Therefore, we are of the opinion that the merit of the matter as also the question in regard to adjustment of equities may be considered by the High Court. We, for the foregoing in exercise of our jurisdiction in Article 136 of the Constitution of India refuse to interfere with the impugned judgment.
The appeal is dismissed with costs.
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2008 (3) TMI 723
Issues involved: The judgment involves four questions referred by the Tribunal under s. 256(1) of the Act, concerning the admissibility of depreciation on factory premises, generator as a renewable energy device, reconstruction of boundary wall expenditure, and exclusion of certain expenses for computing disallowance under IT Act, 1961.
Admissibility of Depreciation on Factory Premises:
The Tribunal referred the question of whether depreciation on the entire factory premises at 10% is justified against separate rates of 5% and 10% for non-factory and factory buildings. The High Court considered previous judgments from different High Courts, including Madras, Bombay, and Calcutta, which emphasized a functional approach to determine if a structure qualifies as a factory building. The Court agreed with the functional perspective and held that the administrative block within the factory campus qualifies as a factory building, making depreciation at 10% admissible.
Admissibility of Depreciation on Generator as a Renewable Energy Device:
The question revolved around whether a generator qualifies as a renewable energy device for depreciation purposes. The Court relied on a judgment in Agarwal Transformers' case, which established that electric generator sets fall under renewable energy devices, allowing depreciation at 30%. No contrary judgment was presented by the Revenue, leading the Court to rule in favor of the assessee based on the established precedent.
Reconstruction of Boundary Wall Expenditure:
The issue addressed whether expenditure incurred on the reconstruction of a boundary wall should be considered as revenue expenditure. The Court examined various judgments, including cases involving coal mining business, oil seed crushing, and textile technology institution construction. Citing these precedents, the Court concluded that the expenditure on the boundary wall reconstruction should be treated as revenue expenditure, aligning with the decisions in similar cases.
Exclusion of Certain Expenses for Disallowance Calculation:
The final question pertained to the exclusion of driver's salary, car depreciation, and car repairs for computing disallowance under section 37(3A)/(3B) of the IT Act, 1961. The Court referenced a decision in CIT vs. Udaipur Distillery Co. Ltd., which provided a clear precedent for the exclusion of these expenses. Consequently, the Court answered this question in line with the established decision.
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2008 (3) TMI 721
The Allahabad High Court directed respondent no. 2 to decide the petitioner's application under Section 245-C by 31.03.2008. If the Settlement Commission cannot decide the application, petitioner can raise other challenges without contempt application. The writ petition is disposed of accordingly.
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2008 (3) TMI 720
The High Court Bombay High Court ruled on the constitutional validity of Section 245D(2D) and 245HA of Income Tax Act, 1961. The Settlement Commissioner was directed not to consider the Settlement Application filed by the Petitioner No. 1 during the pendency of the petition. The Revenue counsel sought time to file an affidavit in reply.
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2008 (3) TMI 719
Issues involved:
The petition seeks the quashing of Complaint Case No. 458 of 2001 u/s 482 of CrPC concerning multiple offenses under IPC pending in the Court of the Metropolitan Magistrate, Delhi.
Details of the Judgment:
1. Multiple Complaints on Same Set of Facts:
The petitioner challenged the third complaint filed by AFGIS, alleging that it was based on the same set of facts as the earlier two complaints. The Supreme Court's judgments in G. Sagar Suri v. State of U.P. and T.T. Antony v. State of Kerala were cited to support the argument that filing multiple complaints on the same transaction is an abuse of the legal process.
2. Contentions and Analysis:
The complaints filed by AFGIS pertained to investments in NCDs, dishonored cheques, and security shares. The court observed that all three complaints related to the same facts but provided incomplete information. The offenses mentioned in the third complaint were common to all three, indicating a repetitive nature of the complaints.
3. Abuse of Legal Process:
Referring to the Supreme Court's disapproval of filing subsequent cases on the same allegations, the court concluded that the third complaint was an abuse of the legal process. It was deemed impermissible to allow the complainant to pursue the third complaint based on the same facts as the earlier two complaints.
4. Judgment and Quashing of Complaint:
In light of the above analysis, the court quashed Complaint Case No. 458 of 2001 along with all proceedings, including the summoning order. The petition was allowed without any costs imposed.
This judgment highlights the importance of avoiding the abuse of legal processes by filing repetitive complaints on the same set of facts, as established by relevant Supreme Court precedents.
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2008 (3) TMI 718
Issues Involved:
1. Disallowance of depreciation on building.
2. Disallowance of repairs to building.
3. Disallowance of increase in directors' remuneration.
4. Disallowance of foreign travel expenditure of directors.
Summary:
Issue 1: Disallowance of depreciation on building
The assessee claimed depreciation on buildings let out on rent, which was disallowed by the Assessing Officer (AO) amounting to Rs. 4,45,045/- on the grounds that no depreciation is allowable while computing income under the head "Income from house property." The CIT(A) allowed depreciation only on the area used for business purposes (5640 sq. ft.) and disallowed the rest. The Tribunal confirmed the CIT(A)'s order, rejecting the assessee's contention that depreciation should be allowed on the entire area of the buildings.
Issue 2: Disallowance of repairs to building
The AO disallowed the claim for repairs amounting to Rs. 97,762/-. The CIT(A) allowed repairs only for the portion of the building used for business purposes and disallowed the rest. The Tribunal upheld the CIT(A)'s decision, confirming the disallowance of repairs for the portions not used for business purposes.
Issue 3: Disallowance of increase in directors' remuneration
The AO disallowed the increase in directors' remuneration from Rs. 3 lacs to Rs. 6 lacs, deeming it unreasonable and excessive u/s 40A(2)(a). The CIT(A) confirmed the disallowance, noting the lack of significant business activity to justify the increase. The Tribunal, however, found the increase justified, considering the directors were running the business and the same increase was accepted in the subsequent assessment year. The Tribunal deleted the disallowance, allowing the ground in favor of the assessee.
Issue 4: Disallowance of foreign travel expenditure of directors
The AO disallowed the foreign travel expenditure of Rs. 7,56,168/-, claiming it was not related to the business. The CIT(A) upheld the disallowance, stating the expenditure was not for the current business. The Tribunal found the expenditure genuine and for business purposes, noting similar expenses were allowed in the subsequent year. The Tribunal set aside the CIT(A)'s findings and allowed the expenditure, ruling in favor of the assessee.
Conclusion:
The appeal was partly allowed, with the Tribunal confirming the disallowances related to depreciation and repairs but allowing the claims related to directors' remuneration and foreign travel expenditure.
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2008 (3) TMI 717
Issues involved: Dispute regarding duty on imported raw materials used in manufacturing goods/wastes/rejects.
Summary:
The Appellate Tribunal CESTAT AHMEDABAD, comprising Ms. Archana Wadhwa, Member (J) and Shri M. Veeraiyan, Member (T), addressed the appeals by the Revenue against the Commissioner's orders concerning the duty on imported raw materials used in manufacturing goods/wastes/rejects. The Commissioner had dropped the duty demand on the imported raw materials, stating that no duty can be sustained on them as it was not a case of removal of duty-free inputs. The Tribunal referred to a previous order and found that the provisions of Section 72 related to goods improperly removed from the warehouse, which did not apply in this case as the raw materials were used for manufacturing and not cleared in contravention of the Customs Act. As a result, the Tribunal upheld the Commissioner's decision of non-demand of duty on the raw materials and rejected the appeals by the Revenue.
In conclusion, the Tribunal found no infirmity in the Commissioner's decision and rejected the appeals by the Revenue.
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2008 (3) TMI 716
Issues involved: Interpretation of deduction under section 32AB of the Income-tax Act for the assessment year 1988-89.
Summary:
Issue 1: Claim of deduction under section 32AB
The appellant claimed deduction under section 32AB on investment, but the Assessing authority found discrepancies in the claimed investment in plant and machinery. The Commissioner of Income-tax (Appeals) upheld the disallowance, but the Tribunal accepted the plea of the appellant based on legal precedents. The Tribunal emphasized the utilization of the amount for the purchase of machinery during the previous year, setting aside the findings of the Commissioner of Income-tax (Appeals).
Issue 2: Interpretation of section 32AB
The Division Bench of the Bombay High Court held that the payment of advance amount for the purchase of plant and machinery amounts to utilization in the year of advance, making the deduction under section 32AB admissible. The Court clarified the difference between sections 32A and 32AB, emphasizing that under section 32AB, the purchase should be out of income from eligible business or profession, and the concept of utilization should be understood with reference to actual payments made to the supplier.
In conclusion, the Court dismissed the appeal, holding in favor of the appellant and against the revenue, based on the interpretation of section 32AB and the utilization of the amount for the purchase of new machinery or plant as contemplated under the Act.
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2008 (3) TMI 715
Taxability of income - Mercantile System of Accounting - In the year the assessee got the right to receive the income or the year of accrual as per the system of accounting followed by the assessee - interest payable under ss. 234B and 234C - HELD THAT:- We conclude that payment of royalty to the assessee by GGL was fixed by the IDBI, for which assessee had also consented, and the same was dependent on the terms and conditions of no overdue debt to the financial institution and there being availability of sufficient cash flow in the hands of GGL, at the time of payment of instalment, can be considered as sufficient riders for postponing the assessee's rights to receive the royalty and the same was to be received only when GGL was having sufficient cash flow and no overdue to any financial institution. Both these conditions could be complied only at the time of payment of instalments of royalty and prior to the said date there existed uncertainty as to the ultimate payment of the royalty amount.
Therefore, notwithstanding the mercantile system of accounting being followed by the assessee, royalty income accrued in favour of assessee only in the years the right to receive such royalty income accrued in favour of assessee as per the terms of consent letter.
Accordingly, royalty accrued in favour of the assessee in the AY 2003-04 and AY 2004-05. As the assessee was in receipt of royalty of from GGL for the period 1st April, 1993 to 31st March, 1995 during the relevant assessment year under consideration, the same is liable to be taxed accordingly in the AY 2002-03 under consideration. We direct accordingly.
Charging of interest under ss. 234B and 234C is consequential in nature, the AO is directed to give due credit for the TDS pertaining to the income received by the assessee and recompute the interest chargeable under ss. 234B and 234C of the Act.
In the result, the appeal of the assessee is allowed in terms indicated hereinabove.
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2008 (3) TMI 714
Issues Involved:
1. Validity of proceedings u/s 148.
2. Taxability of Rs. 542 lakhs as non-compete fee.
Summary:
Issue 1: Validity of proceedings u/s 148
The first issue raised is that the Commissioner of Income Tax (Appeals) erred in holding that the proceedings u/s 148 were invalid. The Assessing Officer noted that the assessee had an extraordinary item of receipt of Rs. 542 lakhs, which was not offered as income for assessment year 1997-98. As the said income escaped assessment within the meaning of Section 147, notice u/s 148 was issued and assessment was made. The assessee contended that particulars relating to the amount of Rs. 542 lakhs were furnished in the regular assessment u/s 143(3) and the re-opening amounted to a change of opinion. The Commissioner of Income Tax (Appeals) held that this was a mere change of opinion and since the assessee had disclosed all the materials, re-opening of the assessment beyond a period of four years cannot be upheld. The Revenue contended that the issue of taxation of this amount under normal computation was never considered by the Assessing Officer and the query in the original assessment was for the limited purpose of computation u/s 115JA.
The Tribunal found that the proviso to Section 147 states that no action shall be taken after the expiry of four years unless there is a failure on the part of the assessee to disclose fully and truly all material facts. It was noted that the amount involved was shown as an extraordinary item in the Profit and Loss Account, hence there was no fault on the part of the assessee. However, the Tribunal found that the decisions relied upon by the Commissioner of Income Tax (Appeals) were not applicable as there was no formation of opinion on this issue by the Assessing Officer in the original assessment. The Tribunal drew support from various case laws, including Nawabganj Sugar Mills Co. Ltd. vs. CIT, Dr. Arnin's Pathology Laboratory vs. JCIT, Sri Krishna (P.) Ltd. vs. ITO, Calcutta Discount Co. Ltd. vs. ITO, and Indo-Aden Salt Mfg. and Trading Co. (P.) Ltd. vs. CIT, which emphasized the necessity of full and true disclosure of all material facts. The Tribunal concluded that the reopening in this case was perfectly justified.
Issue 2: Taxability of Rs. 542 lakhs as non-compete fee
On the merits of the case, the assessee claimed that a sum of Rs. 542 lakhs was paid as a non-compete fee for not engaging in forex business. The Assessing Officer noted that no agreement in this regard was produced and that the assessee was still maintaining cash balance in forex, indicating continued engagement in forex business. The Commissioner of Income Tax (Appeals) held that the agreement was restrictive and the amount was a non-compete fee, not taxable as Section 28(v)(a) was inserted w.e.f. 1.4.2003.
The Tribunal, however, noted that the transaction was between sister concerns with the same directors, and there was no special expertise or huge profits in the forex business. The Tribunal found no reason for the non-compete fee agreement and concluded that the sum of Rs. 542 lakhs received by the assessee cannot be termed as non-compete fee or capital receipt not liable for taxation. The Tribunal drew support from the case of Sumati Dayal vs. CIT and held that the sum should be brought to tax as revenue receipt. The Tribunal set aside the order of the Commissioner of Income Tax (Appeals) and restored that of the Assessing Officer.
Conclusion:
In the result, the appeal by the Revenue is allowed.
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2008 (3) TMI 713
Issues Involved:
1. Whether the sum of Rs. 121,03,75,000 received by the appellant as a gift from its parent company is taxable as income under Section 2(24) of the Income Tax Act, 1961.
2. Whether the payment of facilitation charges amounting to Rs. 5,95,00,000 is allowable as a business expense under Section 37(1) of the Income Tax Act, 1961.
3. Whether the provision for warranty expenses amounting to Rs. 84,06,000 is allowable as a business expense.
Issue-Wise Detailed Analysis:
1. Taxability of Rs. 121,03,75,000 as Income:
The primary dispute revolves around whether the Rs. 121,03,75,000 received by the appellant from its parent company Hughes Network Systems, Inc. (HNS) as a gift should be classified as income under Section 2(24) of the Income Tax Act, 1961. The appellant claimed this amount as a capital receipt, arguing it was a voluntary, unconditional, and irrevocable gift without any quid pro quo. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] disagreed, holding that the receipt was inextricably linked to the appellant's business activities and services rendered, thus constituting business income.
The CIT(A) upheld the AO's view, emphasizing that the payment was not an unsolicited gift but a necessary incident of carrying on the appellant's business. It was noted that the amount was received in the course of the appellant's business operations, specifically related to the Tata transaction and Mittal settlement. The CIT(A) also observed that the appellant's status as a wholly owned subsidiary of HNS and the ongoing business relationship between HNS and the appellant were substantial reasons for the receivables being assigned to the appellant.
The ITAT found gaps in the facts and directed the AO to re-examine the character of the receipt, considering the treatment given to the amount in the books of HNS, which was shown as an investment rather than a gift. The ITAT emphasized the need to determine whether the receipt was genuinely a gift or arose from the appellant's business activities.
2. Allowability of Facilitation Charges of Rs. 5,95,00,000:
The appellant claimed a deduction of Rs. 5,95,00,000 paid as facilitation charges to Shri V.K. Mittal for ensuring the recovery of debts from Hughes Telecom (India) Ltd. (HTIL). The AO disallowed the claim, questioning the necessity and genuineness of the payment. The CIT(A) upheld the disallowance, noting that the payment was made at the behest of HNS and not based on any actual evaluation of the claim by the appellant.
The ITAT found that the appellant had not provided sufficient evidence to justify the payment as being wholly and exclusively for business purposes. The ITAT restored the issue to the AO for fresh adjudication, directing the AO to verify the necessity and reasonableness of the payment and its connection to the appellant's business.
3. Allowability of Provision for Warranty Expenses of Rs. 84,06,000:
The AO disallowed the provision for warranty expenses, arguing it was based on estimation and not actual expenditure. The CIT(A) allowed the claim, finding that the provision was reasonable and based on past experience. The CIT(A) noted that the warranty expenses were consistently around 1.5% of the turnover, which was a reasonable estimate.
The ITAT upheld the CIT(A)'s decision, referencing the Supreme Court's ruling in Bharat Earth Movers Ltd. v. CIT, which allows for the deduction of business liabilities that are certain to arise, even if they are quantified and discharged in the future. The ITAT found that the provision for warranty expenses met these criteria and was therefore allowable.
Conclusion:
The ITAT directed a re-examination of the Rs. 121,03,75,000 receipt to determine its true nature and taxability, restored the issue of facilitation charges to the AO for further verification, and upheld the allowability of the provision for warranty expenses. The appellant's appeal was allowed for statistical purposes, and the departmental appeal was dismissed.
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2008 (3) TMI 712
The Delhi High Court admitted the appeal and framed substantial questions of law regarding the Income Tax Appellate Tribunal's actions in a case involving cross-examination of a witness. The Court questioned the Tribunal's decision to proceed without allowing the Assessee to cross-examine Mr. Mittal and to rely on Section 33 of the Indian Evidence Act.
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