TMI Tax Updates - e-Newsletter
November 11, 2019
Case Laws in this Newsletter:
GST
Income Tax
Insolvency & Bankruptcy
Central Excise
CST, VAT & Sales Tax
Indian Laws
Highlights / Catch Notes
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GST:
Organizing the Leadership program exclusively for its Lion members, can be considered as service or not? - the membership fee, collected by the Respondent from its members, will not construed as consideration for levy of GST; rather it is the registration fee, collected by the Respondent from its members for organising the skill oriented workshops, will be construed as consideration against the supply made by the Respondent to its members, and accordingly will be leviable to GST - Revenue appeal against the AAR allowed.
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Income Tax:
To the extent the expenditure incurred for construction of the building, out of unexplained source is concerned, it is to be construed as earned from the business and it will take character of the business income. Once this income is to be assessed under the “business income”, then all incidental benefits for set off from brought forward loss or any other expenditure is to be given to the assessee.
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Income Tax:
Penalty u/s 271(1)(a) - limitation to pass penalty order - Limitation, it goes without saying, has to be fixed and certain. Section 275(1A) speaks of giving effect to the orders passed by the appellate forums. It does not impose any condition whether to levy or not to levy the penalty.
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Income Tax:
Long Term Capital Gain - denial exemption u/sec 10(38) - purchase and sale of shares and astronomical increase of share price of LD&PL which led to returns at 350%, in our opinion, is unjustified. - assessee is the beneficiary of bogus transactions by accommodation entries - the assessee is not entitled to claim exemption u/s.10(38)
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Income Tax:
Bogus LTCG - exemption under section 10(38) denied - The onus was on the assessee to prove the transaction leading to claim of long-term capital gain was a genuine transaction. The assessee failed to justify manifold increase in the prices of the shares despite weak financials of the companies.
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Income Tax:
Foreign tax credit in respect of income pertaining to section 10A/10AA of the Act eligible units in India - the foreign tax credit would be available to the assessee in all cases except the foreign tax paid in Finland and Canada. The Assessing Officer is directed to grant credit accordingly.
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Income Tax:
Disallowance of State taxes paid overseas - relief under section 90 - Pertinently, unlike section 91 read with Explanation–(iv), section 90 does not provide for inclusion of tax levied by any State/ local authority of that country within the expression ‘income tax’.
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Income Tax:
LTCG - Deduction u/s 54 - The claim of the assessee for deduction of the disputed sum towards the additional construction cost was rejected only on the ground that the said sum was not deposited in the capital gain account. In view of findings Revenue is not justified in making such objection.
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Income Tax:
Set off of Interest on Income Tax Refund with Interest charged on income tax demands - It was a peculiar situation between the Assessee and the Department. The Tribunal has followed the similar exercise in the case of very Assessee on the prior occasion as well.
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Income Tax:
Revision u/s 263 - Disallowance of genuineness of salary and other expenses - payment of huge salary in cash - AO passed the order without proper verification is concerned - matter needs to be remitted to the AO only on question of verification of salary, rent and wages and freight expenses incurred by assessee for verification - Order of ITAT modified.
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Indian Laws:
Reference of matter to arbitrator - Levy of Liquidated damages - The intention of the parties to exclude some of the decisions of the Superintending Engineer from the purview of arbitration is clearly seen from the clause 2 of the contract. - The entire contract between the parties and the terms thereon have to be read as a whole to decide the rights and liabilities of the parties arising out of the contract.
Notifications
Circulars / Instructions / Orders
News
Case Laws:
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GST
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2019 (11) TMI 421
Time limitation - Appellant has filed this appeal beyond the period of 30 days from the date of the communication of the Advance Ruling Order - HELD THAT:- The Appellant has filed this appeal beyond the period of 30 days from the date of the communication of the Advance Ruling Order as envisaged under Section 100(2) of the CGST Act, 2017, which provides that every appeal shall be filed within a period of 30 days from the date on which the ruling sought to be appealed against is communicated to the concerned officer, the jurisdictional officer and the applicant. In view of the above delay, which amounts to 20 days beyond the date of the communication of the Advance Ruling, the Appellant has separately filed a separate application for the condonation of delay in filing of the present appeal incorporating, in detail, the reasons for the said delay, and has pleaded for the condonation of the delay, and for the admission of the instant appeal for hearing on merits. Classification of goods - Rate of Compensation Cess - Tata Harrier vehicle - intra-State supplies and inter-State supplies of goods - Notification No. 1/2017-Compensation Cess (Rate) dated 28.06.2017, as amended from time to time - scope of Sr. No. 52B of Cess Rate Notification - For the purpose of Cess @ 22% under Sr. No. 52B of Cess Rate Notification, whether the ground clearance of the vehicle is to be considered in laden condition or in unladen condition? - Vehicle whose ground clearance in unladen condition is more than 170mm but below 170mm in laden condition, whether will get covered under Sr. No. 52B of Cess Rate Notification? - challenge to AAR Decision. Whether the term ground clearance mentioned in the explanation to the Sr. 52B of the Schedule to the Cess Rate Notification No. 1/2017Compensation Cess (Rate), dated 28.06.2017 as amended is to be measured in laden state or unladen state? - HELD THAT:- The term ground clearance is not defined anywhere in GST Law including GST (Compensation to States) Act, 2017, which deals with the levy of compensation cess on the motor vehicles at various prescribed rates on the goods specified under the Schedule appended to the Cess Rate Notification No. 1/2017-Compensation Cess (Rate), dated 28.06.2017. Section 56 of Central Motor Vehicles Act, 1988 mandates the manufacturer of motor vehicle to obtain certificate from the competent authority, which in the present case is The Automotive Research Association of India ( ARAI ) to the effect that the vehicle manufactured by the manufacturer is complying with the Central Motor Vehicles Rules. The said certificate issued by ARAI is based upon the standards laid down in this regard. ARAI is a research institution of the automotive industry with the Ministry of Heavy Industries Public Enterprises, Government of India. The ARAI has been certifying the specification/ dimensions of vehicles including ground clearance in accordance with IS-9435 - Further, it is seen that IS-9435 is Indian Standard for terms and definitions relating to dimensions of road vehicles issued by Bureau of Indian Standards. Thus, on perusal of the Note part of the abovementioned clause, it is clearly revealed that the minimum ground clearance of any motor vehicles has to be measured only in fully laden state of that particular motor vehicle. There is no mention of unladen state anywhere in the said standard IS-9435 in so far as the measurement of ground clearance of a motor vehicle is concerned. Thus, it can decisively be inferred that as per the standards set out under IS 9435 : 2004 issued by Bureau of Indian Standard, which is followed by the ARAI, the authorized body for certifying the fitness of the motor vehicles, the ground clearance of the motor vehicles in their unladen state has no significance or implication - it is observed that any vehicles whose ground clearance in laden state are below 170 mm. will not get covered under Sr. 52B of the Cess Rate Notification i.e. Notification No. 1/2017-Compensation Cess (Rate), dated 28.06.2017. Merits of the Advance Ruling order - Validity of order wherein the authority of the Advance Ruling has held that the ground clearance of the motor vehicle should be measured in unladen condition, which they attributed to the reasons that the weights of the passengers occupying any vehicle is not standardized, and will vary from passenger to passenger, and hence is not constant - HELD THAT:- The rulings made by the Advance Ruling Authority is arbitrary and ungrounded, and the same is based on the flimsy notion in so much as they inferred that the weights of the passengers occupying the motor vehicles is not standardized, as the same will vary with persons occupying the motor vehicle, and thereby causing fluctuation in the ground clearance of the motor vehicles. We would like to refer to the submissions made by the Appellant, wherein they relied upon the CESTAT Rulings in the case of COMMISSIONER OF CENTRAL EXCISE, PUNE-I VERSUS TELCO LTD. [ 2002 (2) TMI 717 - CEGAT, MUMBAI] which has been upheld by Hon ble Supreme Court in COMMISSIONER VERSUS TELCO LTD. [ 2002 (9) TMI 876 - SC ORDER] , wherein to compute payload of the vehicle the standard weight per passenger was considered as 68 kg in line with the yard stich proposed by motor vehicle law - In view of the above cited ruling of the CESTAT Mumbai, which was subsequently upheld by the Supreme Court, it is observed in the instant case that the Advance Ruling Authority has not followed the principle of the ratio decidendi, and thereby erred in holding that the weight of the persons occupying the motor vehicles cannot be standardized, and hence would not be constant for the purpose of determining the payload of the vehicle, which in turn will cause fluctuation in the ground clearance of the vehicle in the laden state. For the purpose of Cess @ 22% under Sr. No. 52B of Cess Rate Notification, whether the ground clearance of the vehicle is to be considered in laden condition or in unladen condition? - HELD THAT:- For the purpose of Cess @ 22% under Sr. No. 52B of Cess Rate Notification, the ground clearance of the vehicle is to be considered in laden condition only. Vehicle whose ground clearance in unladen condition is more than 170mm but below 170mm in laden condition, whether will get covered under Sr. No. 52B of Cess Rate Notification? - HELD THAT:- Vehicle whose ground clearance in unladen condition is more than 170mm but below 170mm in laden condition, will not get covered under Sr. No. 52B of Cess Rate Notification.
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2019 (11) TMI 420
Service or not - whether the activities, undertaken by the Respondent by way of organizing the Leadership program exclusively for their Lion members, can be considered as service or not? - meaning of services provided in the Section 2(102) of the CGST Act, 2017 - Challenge to AAAR decision - mistake apparent on record - HELD THAT:- We agree with the Respondent s submissions to the extent that membership fee collected by them will not subject to the GST and only the registration fee charged from the members for participation in the training programs/workshops will be subjected to GST. In light of the apparent mistake in the original order dated 23.04.2019, we proceed to amend the said original AAAR Order as per the provision of Section 102 of the CGST Act, 2017. Thus, original AAAR decision is amended as 'the membership fee, collected by the Respondent from its members, will not construed as consideration for levy of GST; rather it is the registration fee, collected by the Respondent from its members for organising the skill oriented workshops, will be construed as consideration against the supply made by the Respondent to its members, and accordingly will be leviable to GST, while maintaining that Lions Club of Poona Kothrud, on account of the activities i.e. organising training programs/workshops for its members, is liable to take registration for discharging their GST liability'.
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2019 (11) TMI 419
Permission to withdraw appeal - detention of mortgaged vehicle - effective physical possession of the vehicle in compliance of the order passed by the Debt Recovery Tribunal - HELD THAT:- Petition dismissed as withdrawn.
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Income Tax
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2019 (11) TMI 416
Deduction u/s 54 - enhancement of the deduction as the additional cost of construction under Section 54 - only objection raised by the Revenue is that the disputed sum has not been deposited in the capital gain account - HELD THAT:- Mere non compliance of a procedural requirement under Section 54(2) itself cannot stand in the way of the assessee in getting the benefit under Section 54, if he is, otherwise, in a position to satisfy that the mandatory requirement under Section 54 (1) is fully complied with within the time limit prescribed therein. The claim of the assessee for deduction of the disputed sum towards the additional construction cost was rejected only on the ground that the said sum was not deposited in the capital gain account. In view of findings Revenue is not justified in making such objection. On the other hand, it has to verify as to whether the said sum was utilised by the petitioner within the time stipulated under Section 54(1) for the purpose of construction. If it is found that such utilisation was made within such time, the Revenue is bound to grant deduction. Therefore, this Court is of the view that the matter needs to go back to the first respondent for considering the issue as to whether the disputed amount, claimed by the assessee as deduction, has been utilised by the petitioner towards the additional construction within the time limit prescribing under Section 54(1) and thereafter, to pass fresh order accordingly in the light of the findings and observations rendered supra. Accordingly, the writ petition is allowed and the matter is remitted back to the first respondent to pass a fresh order accordingly
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2019 (11) TMI 413
Revision u/s 263 - case of assessee was selected for scrutiny and assessment was completed under Section 143(3) of the Act - Disallowance of genuineness of salary and other expenses - payment of huge salary in cash - HELD THAT:- AO while making assessment had considered the Tax Audit Report filed in Form 3CB enclosed with the return. AO disallowed six expenses claimed under the heads electricity and water expenses, miscellaneous expenses, staff welfare expenses, telephone expenses, travelling expenses and wage and freight expenses. CIT while exercising power under Section 263 of the Act had remanded the matter back to AO on the ground that necessary enquiries were not conducted and he failed to apply his mind in all perspective on the issues mentioned in Paras 3(I), 3(II), 3(III) and 3(IV) of the show-cause notice dated 17.03.2008, as such the assessment order was set aside restoring file to AO for further verification. Tribunal while dealing with first substantial question of law as regards deposits introduced by members of AOP has recorded a categorical finding and held that CIT has not considered the assessment order as erroneous and prejudicial to the interest of revenue on the basis of these deposits at the time of examination of records and application of his mind thereto, it cannot be relevant to hold now that assessment order is erroneous and prejudicial to the interest of revenue.Thus, the first question raised is finding of fact, and no interference is required. Allowance of expenses by AO without proper verification - Assessment order does not reveal the fact that the AO had made any verification of the allowances as claimed by assessee and the CIT had rightly remanded the matter so far as the verification of salary, rent and expenses in respect of wages and freight incurred by assessee and allowed by assessing authority, is concerned - matter needs to be remitted to the assessing authority only on question of verification of salary, rent and wages and freight expenses incurred by assessee for verification.
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2019 (11) TMI 412
Income from sale of property - income from business and profession OR capital gains - HELD THAT:- It is pertinent to observe that the alleged rate of profit for computation of income for assessment out of sale of property is depended upon the issue, whether the profit from sale of property is to be assessed as a business income or under the head capital gain from investments. In two years, this issue is subject matter of appeal before the Hon ble High Court. Therefore, there is no justification for dealing them specifically in this assessment year. The Assessing Officer has to first determine, whether profit from sale of property is to be assessed as income from business/profession or under the head income from capital gains. In case it is determined that income from such activity is to be assessed under the head business income/profession, then the rate of profit be determined afresh. Accordingly, both these grounds of appeal are allowed for statistical purpose. Unexplained cash found at the time of search - HELD THAT:- Assessing Officer ought to have appraised himself status of cash flow in the books of these persons, and how they have owned up the cash in their accounts. He ought to have not disbelieved the version of the assessee without any analysis. We have already set aside two issues to the file of the Assessing Officer for re-adjudication. We deem it appropriate to remit this issue also for re-adjudication. The ld.AO should make an analysis of the treatment given by the alleged creditors about the cash balance found at the time of search in their books, and thereafter form an opinion, whether cash found during the course of search stands explained or not. It is needless to say that observation made by us will not impair or injure the case of the AO and will not cause any prejudice to the defence/explanation of the assessee.
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2019 (11) TMI 411
Set off of Interest on Income Tax Refund with Interest charged on income tax demands - HELD THAT:- As in BANK OF AMERICA NT AND SA. [ 2014 (12) TMI 551 - BOMBAY HIGH COURT] Assessee claimed that this was business expenditure and this should have been allowed. The Assessee has received the interest of ₹ 1,07,57,930/-. It was submitted that the amount of interest paid by the Assessee should have been allowed to be set off against the interest deposited with the Department and taxed in the hands of the Assessee. The argument was that the interest paid to and received from is the same party i.e. Government of India and therefore, both transactions should be taken together. We do not find that the Tribunal has, in permitting this exercise, in any way violated any of the provisions of the Income Tax Act, 1961. It was a peculiar situation between the Assessee and the Department. The Tribunal has followed the similar exercise in the case of very Assessee on the prior occasion as well. Disallowance under section 14A of the Act read with Rule 8D - HELD THAT:- AO is directed to recomputed the disallowance u/s 14A of the Act afresh under normal provisions of the Act. Accordingly, the grounds raised by the assessee as well as by the revenue in this regard are allowed for statistical purposes subject to directions mentioned hereinabove. Disallowance u/s 14A while computing the book profits u/s 115JB - HELD THAT:- We find that this is a legal issue and goes into the root of the matter and does not involve any verification of facts and hence the same is admitted herein. We find that the Hon‟ble Special Bench of Delhi Tribunal in the case of Vireet Investments [ 2017 (6) TMI 1124 - ITAT DELHI] had categorically held that the computation mechanism provided in Rule 8D(2) of the Rules cannot be imputed in clause (f) of Explanation 1 to Section 115JB(2) of the Act. We find that the Special Bench further held that only the actual expenses debited to the profit and loss account that are relatable to earning of exempt income should be considered for the said purpose. We direct the ld AO to compute the disallowance in the light of the said Special Bench decision. Accordingly the Additional Ground No.2 A raised by the assessee is allowed for statistical purposes. Treating sale of 2% shares of Tata Consultancy Services Ltd (TCS) as Long Term Capital Gains as against business income taxed by the ld AO - HELD THAT:- In view of the aforesaid CBDT circular which is binding on the revenue authorities,we do not find any infirmity in the action of the ld CITA in directing the ld AO to treat the gains on sale of shares to be treated as long term capital gains and consequently grant exemption u/s 10(38) of the Act since STT was duly suffered thereon. Disallowance being the amount of taxes withheld on foreign dividend - HELD THAT:- Since the Indian tax applicable to the net foreign dividend amounts to ₹ 47,88,807/- which is in excess of ₹ 15,65,430/-, the assessee should be granted credit for double income tax of ₹ 15,65,430/-. We find that the ld AR had argued that this issue is settled in favour of the assessee in its own case for Asst Year 1995-96 and also by the decision of Hon‟ble Jurisdictional High Court in the case of CIT vs Ambalal Kilachand [ 1994 (4) TMI 67 - BOMBAY HIGH COURT] . Per Contra, the ld DR submitted that for Asst Year 2000-01, the tribunal had decided the same issue against the assessee. But the ld DR did not file the copy of the said tribunal order relied upon by him in the grounds. In the absence of the said order, we do not have any option but to direct the ld AO to decide the impugned issue in the light of tribunal order passed for Asst Year 1995-96
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2019 (11) TMI 410
Source of surrendered income - Deemed income against which no deduction/set off - HELD THAT:- In the case of Famina Knit Fabs [ 2019 (5) TMI 8 - ITAT CHANDIGARH] the Tribunal has examined this issue elaborately and propounded that onus is on the assessee to establish the source of surrendered income. If it failed to demonstrate such source, then, it is to be characterized as deemed income under sections 69,69A/B/C, and if that be happened, then such income to be taxed on the gross amount without setting off any expenditure or allowance against the same under section 115BBE The stand of the assessee is that expenditure incurred for construction of building was from the routine business, and such addition of ₹ 32 lakhs ought to be treated as business income. We find force in this contention of the ld.counsel for the assessee, because the expenditure incurred for creating a business asset and it must have been generated through the business carried out by the assessee. It is pertinent to bear in mind that expenditure laid out for the purpose of business is to be allowed deduction either as expenditure or to be capitalized on which depreciation will be allowed. The assessee might have earned income from the business which has not been accounted and used for constructing the business asset, though specific details have not been discussed either in the impugned order about the nature of evidence found during the course of survey. We also need not to ponder on this aspect because the assessee has admitted this unexplained expenditure on construction of building. This admission has to be accepted as given by the assessee, wherein it was alleged that it is for the purpose of the business. Therefore, to the extent the expenditure incurred for construction of the building, out of unexplained source is concerned, it is to be construed as earned from the business and it will take character of the business income. Once this income is to be assessed under the business income , then all incidental benefits for set off from brought forward loss or any other expenditure is to be given to the assessee. In the judgments relied upon the ld.counsel for the assessee, similar treatment has been given on the amounts which were admitted as trade receivable during the course of search/survey. Respectfully following the order of the Co-ordinate Bench, we direct the Assessing Officer to treat surrendered income to the extent of ₹ 32 lakhs as business income. As far as excess cash balance is concerned, the assessee failed to explain the source of such income, and it is to be treated as deemed income, and it is to be assessed on gross basis, as treated by the Assessing Officer. In view of the above discussion, the appeal of the assessee is partly allowed.
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2019 (11) TMI 409
Long Term Capital Gain - denial exemption u/sec 10(38) - penny sock - HELD THAT:- Foundation of doubt as laid by the AO which made him to enquire into the details of transactions of purchase and sale of shares of LD PL, finding the same as bogus led to denial of exemption u/s.10(38) of the Act. We find when there was no business operation of LD PL during the period of purchase and sale of shares and astronomical increase of share price of LD PL which led to returns at 350%, in our opinion, is unjustified. The assessee failed to controvert and put forth any evidence rebutting the investigation report DDIT, Kolkata showing the transactions of purchase and sale of shares are genuine. The suspension imposed by the Bombay Stock Exchange on trading of LD PL shares from 28-08-2015 is still in force. Therefore, we hold that the assessee is the beneficiary of bogus transactions by accommodation entries provided by the Jamakharchi companies i.e LD PL, DTPL and brokers KORP SL and GFSL through multiple layering of transactions, in view of the discussion made by us hereinabove, in the facts and circumstances of the case and the decisions relied upon, that the assessee is not entitled to claim exemption u/s.10(38) of the Act. We find no infirmity in the order of CIT(A) and it is justified - Decided against assessee Addition made on account of commission charged - AO on an examination found a commission @ 5% has was paid for arranging capital gain as payment of such a commission is a common practice - HELD THAT:- In view of the fact that we have countenanced the conclusion of the authorities below in treating the long term capital gain from transfer of shares as bogus, the sequitur is that the assessee did pay commission for arranging the bogus capital gain. However, considering the totality of the facts and circumstances of the instant case, we are of the considered view that the rate of commission be reduced to 2% instead of 5%. Thus, ground No.8 raised by the assessee is partly allowed. Addition made on account of set off of interest against professional fee - HELD THAT:- No evidence whatsoever put forth by the Ld. AR showing the said ₹ 24,00,000/- is a professional receipt from M/s. Sagar Paridhan Pvt. Ltd. Admittedly, the assessee is a Director of said M/s. Sagar Paridhan Pvt. Ltd. In the immediately preceding year also, similar amount was treated by the assessee as Salary and offered as such. In view of the same, we hold that the authorities below were right in treating the amount of receipt as chargeable to tax under the head `Salaries and consequently, not allowing the set off of interest of ₹ 5,09,800/-. Thus, the ground No.9 raised by the assessee fails and it is dismissed.
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2019 (11) TMI 408
Disallowance of State taxes paid overseas - relief under section 90 - addition u/s 40(a)(ii) - specific plea of the assessee that the State tax is not covered either under Indo US or Indo Canada tax treaty, hence, not eligible for any relief under section 90 - HELD THAT:- Section 40(a)(ii) of the Act says that any rate or taxes levied on the profits or gain in any business or profession would not be allowable as deduction. Explanation 1 to section 40(a)(ii) of the Act inserted by the Finance Act, 2006, w.e.f. 1st April 2006, further clarifies that any sum eligible for relief of tax either under section 90 or 91 of the Act would not be allowable as deduction under section 40(a)(ii) of the Act. It is the say of the assessee that the tax eligible for relief under section 90 of the Act are only those taxes which are levied by Federal / Central Government and not by any local authority of State, City or County. Thus, it is ineligible for any relief under section 90 of the Act. The aforesaid submissions of leaned Sr. Counsel for the assessee, prima facie, is acceptable if one has to strictly go by the meaning of tax , defined under section 2(43) of the Act, as it only refers to tax paid under the provisions of the Act. Pertinently, unlike section 91 read with Explanation (iv), section 90 does not provide for inclusion of tax levied by any State/ local authority of that country within the expression income tax . In view of the aforesaid, we direct the Assessing Officer to verify whether the State taxes paid by the assessee overseas are eligible for any relief under section 90 of the Act and if it is not found to be so, assessee s claim of deduction should be allowed. In view of our decision above, no separate adjudication of grounds no.1.2 is required. TDS u/s 195 - Disallowance of expenditure incurred for purchase of software by invoking the provisions of section 40(a)(i) - HELD THAT:- Further enquiry is required to be made by the Assessing Officer to factually verify the nature of transaction relating to acquisition of software product for trading purpose to find out whether it is sale of copyrighted article simpliciter or sale of copyright. In case, the payment made by the assessee is found to be royalty in view of Explanation 4 to section 9(1)(vi) of the Act, the contention of the assessee that it could not have withheld tax anticipating the change in law brought with retrospective effect, has to be considered keeping in view the decision of the Hon'ble Jurisdictional High Court in NGC Network India Pvt. Ltd. [ 2018 (5) TMI 1148 - BOMBAY HIGH COURT] In case, the payment made by the assessee does not fit into the definition of royalty as provided under the relevant tax treaty, the assessee certainly would get the benefit of the tax treaty and in that event the liability under section 195 of the Act cannot be fastened on the assessee. - Matter restored before AO. Advertisement expenditure - Nature of expenditure - revenue or capital expenditure - Admission of additional evidence - HELD THAT:- Since, the additional evidences furnished by the assessee will have a crucial bearing in determining the nature of expenditure, we are inclined to admit the additional evidences. However, considering the fact that these evidences were not furnished before the Departmental Authorities, to afford a fair opportunity to the Department to verify the authenticity of assessee s claim vis a vis the additional evidences furnished before us, we restore the issue to the Assessing Officer for de novo adjudication. Foreign tax credit in respect of income pertaining to section 10A/10AA of the Act eligible units in India - HELD THAT:- Where the respective tax treaty provides for benefit for foreign tax paid even in respect of income on which the assessee has not paid tax in India, still, it would be eligible for tax credit under section 90 of the Act. Like Article 25 of the Indo USA treaty, treaties with various other countries such as Indo Denmark, Indo Hungary, Indo Norway, Indo Oman, Indo US, Indo Saudi Arabia, Indo Taiwan also have similar provision providing for benefit of foreign tax credit even in respect of income not subjected to tax in India. However, Indo Canada and Indo Finland treaties do not provide for such benefit unless the income is subjected to tax in both the countries. Therefore, the foreign tax credit would be available to the assessee in all cases except the foreign tax paid in Finland and Canada. The Assessing Officer is directed to grant credit accordingly. Addition made on account of provision of interest free loans provided to the AEs - HELD THAT:- After considering the submissions of the parties and examining the material on record, we are convinced that various submissions made by the assessee before learned Commissioner (Appeals) have not at all been dealt with. The primary contention of the assessee that the advance made to the AEs is in the nature of quasi equity and falls within shareholder s activity has not been properly addressed by the Departmental Authorities keeping in view the ratio laid down in the relevant case laws. It also requires deliberation whether it can be considered as an international transaction under section 92B r/w Explanation 1(c). Since, the aforesaid legal and factual aspects have not been considered properly, we are inclined to restore the issue to the file of the Assessing Officer for de novo adjudication after due opportunity of being heard to the assessee. The Assessing Officer must examine all relevant facts to find out the exact nature of the advances made to the AEs. He should also examine the applicability of the ratio laid down in the case of DLF Hotel Holdings Ltd. [ 2016 (11) TMI 1031 - ITAT DELHI] and any other case laws which may be cited before him. The assessee must be afforded reasonable opportunity of being heard. Ground is allowed for statistical purposes. Addition made on account of provision for various guarantees - HELD THAT:- After introduction of Explanation (i)(c) to section 92B of the Act, with retrospective effect from 1st April 2002, provision of guarantee to AEs has to be considered as an international transaction. Different Benches of the Tribunal have also expressed similar view on the issue. Therefore, we hold that the provision of guarantee to the AEs is an international transaction. In fact, the aforesaid view has been expressed by the Co ordinate Bench in WNS Global Services Pvt. Ltd. [ 2019 (1) TMI 1128 - ITAT MUMBAI] . Therefore, following the aforesaid decision of the Co ordinate Bench and the decision of the Hon'ble Jurisdictional High Court in Everest Canto Cylinders Ltd. [ 2015 (5) TMI 395 - BOMBAY HIGH COURT] we direct the Assessing Officer to charge guarantee commission @ 0.5% per annum both on performance / lease guarantee as well as financial guarantee. Claim of exemption under section 10A of the Act in respect of units for which deduction under section 80HHE - HELD THAT:- The purpose of subsection (5) of section 80HHE was to avoid double benefit and that would not mean that if the assessee for a particular assessment year wanted relief only under section 10A of the Act that would be denied to the assessee. The only embargo was not to give relief under both the provisions. total turnover for the purpose of section 10 of the Act cannot be understood as defined for the purpose of section 80 HHE. It was further held that thus the expenses which are to be excluded from the export turnover, would also have to be excluded for the purpose of computing total turnover. TDS u/s 195 - Disallowance of commission paid to non residents under section 40(a)(i) - HELD THAT:- No material has been brought on record by the Assessing Officer to demonstrate that the non resident agents either have any business connection in India or have PE in India so as to bring the commission payment within the tax net. The factual finding recorded by learned Commissioner (Appeals) that the non resident agents have rendered the services in their respective countries and do not have either any business connection in India or any PE in India has not been controverted by the Revenue. Further, the nature of payment viz. commission has also not been disputed by the Revenue. That being the case, since the commission paid to the non resident agents is not chargeable to tax in India at their hands, there is no necessity for the assessee to withhold tax under section 195(1) of the Act on such payment. Accordingly, we uphold the decision of learned Commissioner (Appeals) on this issue. Comparable selection - HELD THAT:- learned Commissioner (Appeals) has taken pains to examine in detail the alternative benchmarking done by the assessee with foreign comparables and after detailed analysis has shortlisted the final comparables to be considered for comparability analysis. No convincing argument or evidence has been brought on record by the learned Departmental Representative to persuade us to disturb the finding of learned Commissioner (Appeals) on these issues. In view of the aforesaid, we do not find any merit in the grounds raised by the Revenue on the issues. Accordingly, grounds are dismissed.
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2019 (11) TMI 407
Deduction u/s 80(P)(2)(a)( i) - HELD THAT:- As is discernible from a perusal of Sec. 80P(2)(a)(i), the same envisages a deduction in respect of the whole of the amount of profits and gains of business attributable to the specified activities of the co-operative society. In our considered view, the term attributable to which is much wider in impact than the expression derived from , would thus also cover receipts from other activities related to the business of banking. As the assessee before us is co-operative credit society and not a co-operative bank, therefore, it would not be hit by the provisions of Sec.80P(4) as had been made available on the statute by the Finance Act, 2006, w.e.f 01.04.2007. - Apart there from, we find that the Tribunal in the assesses own case for A.Y 2014-15 [ 2019 (6) TMI 1293 - ITAT MUMBAI] had concluded that the assessee society was duly entitled for claim of deduction u/s 80P(2)(a)(i) of the Act. - the assessee society was duly entitled for claim of deduction u/s 80P(2)(a)(i) of the Act. We thus not finding any infirmity in the order of the CIT(A), who had rightly concluded that the assesses claim for deduction under Sec. 80P(2)(a)(i) was in order, uphold his order in context of the issue under consideration. Deduction under Sec. 80P(2)(d) - Power of CIT(A) u/s 251 to bifurcate the income into Business income u/s 218 and investment income u/s 56 - HELD THAT:- the assesses claim for deduction under Sec. 80P was declined by the A.O on the standalone basis of a conjoint reading of Sec.80P(2)(a)(i) r.w.s 80P(4). In our considered view, the CIT(A) before resorting to the aforesaid fresh basis for restricting the assesses claim for deduction under Sec.80P to an amount of ₹ 52,12,193/-, in all fairness, should have afforded an opportunity of being heard to the assessee and called for his objections, if any, as regards the same. Appeal of the revenue is dismissed and the appeal the assessee is allowed for statistical purposes.
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2019 (11) TMI 406
Assessment u/s 153A - disallowance being 20% of fee paid to ROC as capital expenditure - Penalty u/s 271(1)(c) - HELD THAT:- Nature of addition which is made in the hands of the assessee is 20% fee paid to ROC for increase in share capital. The disallowance has not been made on the basis of any incriminating material found during the course of search. In absence of the same, the Assessing Officer cannot exercise his jurisdiction u/s 153C of the Act for the captioned Assessment Year. We place reliance on the ratio laid down by the Hon ble Apex Court in the case of Sinhgad Technical Education Society [ 2017 (8) TMI 1298 - SUPREME COURT] and Kabul Chawla [ 2015 (9) TMI 80 - DELHI HIGH COURT] Hence, the assessment order passed by the assessee u/s 153C r.w.s. 143(3) do not stand. The additional ground raised by the assessee is thus allowed. Disallowance of interest paid to Y2K System, on the ground that the loan taken from Y2K System, was treated as unexplained in Assessment Year 2003-04 - HELD THAT:- Admittedly, the said loan which was raised vide loan agreement dated 16.03.2002 was advanced to the assessee was interest free for a period of four years. - earlier agreement came to an end and a fresh loan agreement was entered into between the parties, under which it was agreed that the interest @ 6 % would be charged. There is no dispute of the aforesaid stand of the assessee. The only question whether by a subsequent agreement between the parties, interest free loan can be converted to interest bearing loan the answer to the same is yes . The parties in the first go had agreed that the loan would be non interest bearing but later on lender had demanded interest @ 6 % w.e.f. 01.04.2006 which was agreed upon by the borrower of the assessee company. In these circumstances, the interest claimed by the assessee was to be allowed in its hands in its entirety. Coming to the next statement of the assessee that since it had losses, the interest expenditure was reversed back in Assessment Year 2009-10 on which taxes were paid in the said year. The said fact is again not disputed and while deciding the present appeal, we consider the facts for the present year and decide the issue on its merit. Accordingly, we allow the claim of the assessee vis- -vis the interest expenditure. Diminution in value of foreign exchange loan - HELD THAT:- Loss on re-statement of the foreign exchange loan was claimed as deductible in the hands of the assessee. As per the Standard AS-11 of Accounting principles, such restatement of foreign exchange loan is the requirement of accounting principles. On such re-statement, the loss or gain arising there from is to be allowed as a deduction or added as income in the hands of the assessee, as the case may be. The assessee has filed tabulated chart in this regard wherein in Assessment Year 2005-06 loss arises in the hands of the assessee of ₹ 17,20,000/-, which has been allowed as a deduction. Further, the gain arising in all the other years has been added in the hands of the assessee. Following the similar principle of accounting, the assessee in the year under consideration had debited expenditure of ₹ 2.22 crore, which merits to be allowed as revenue expenditure. Accordingly, we hold so. We also find that the said issue stands covered by the ratio laid down by the decision of Hon ble Supreme Court in the case of CIT vs Woodward Governor India Pvt.Ltd [ 2009 (4) TMI 4 - SUPREME COURT] Disallowance u/s 14A - HELD THAT:- wherein no exempt income has been earned by the assessee during the year. Following the ratio laid down by the Hon ble High Court in the case of Cheminvest Ltd. vs CIT [ 2015 (9) TMI 238 - DELHI HIGH COURT] , we hold that no disallowance in such cases is to be made in the hands of the assessee. Hence, Ground No.4 raised by the assessee is thus allowed. Penalty u/s 271(1)(c) - disallowance of foreign exchange loss and the disallowance made u/s 14A - HELD THAT:- CIT(A) deleted the penalty against which the Revenue is in appeal. We have in paras above already deleted the disallowance made in the hands of the assessee both on account of foreign exchange loss and addition u/s 14A of the Act. Hence, there is no basis for levy of any penalty for concealment of income u/s 271(1)(c)
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2019 (11) TMI 405
Unsecured loans - additions u/s 68 - identity and genuineness of the creditors - HELD THAT:- Opening balance could not be added on account of the fact that it has already been accepted in the immediately preceding A.Y. At the same time, the assessee has filed documentary evidence/s to prove the identity and genuineness of the creditors from whom the credits have been received during the year. They all are assessed to tax and PAN details were disclosed in the Audit report itself. The assessee has filed the copy of their ITRs as well as copy of their bank accounts. Confirmations of all these creditors have also been filed. Therefore, we are of the opinion that the Ld. CIT (A) did not commit any error in deleting this addition. Accordingly, we decline to interfere with the relief granted by the Ld. CIT (A) in this issue. This ground of the revenue is dismissed. Addition on account of sundry creditors - HELD THAT:- It is seen that in the present case, the AO did not disturb the trading results of the assessee and the books of account have not been rejected. The outstanding balances in respect of the purchases constitute only 7.95% of the purchases made during the year. Thus, it is a case where the genuineness of the sundry creditors cannot be doubted for the simple reason that either the outstanding balance is on account of opening balance or it is on account of purchases made during the year under consideration. Therefore, we hold that to the extent of ₹ 1,96,52,805.72, for which the confirmations were filed before the AO, the addition has been correctly deleted by the Ld. CIT (A) and we decline to interfere with such deletion. The assessee did not furnish confirmations of sundry creditors to the tune of ₹ 1,62,12,538.37 before the AO and to this extent the confirmations were submitted only before the Ld. CIT (A), we are of the opinion that it would be just and proper to restore this remaining addition to the extent of ₹ 1.62,12,538.37 to the file of AO with the direction that from the purchase bills to be submitted by the assessee it is to be verified that the amount outstanding is only on account of purchases and also to verify from the accounts of the assessee that the opening balance is the brought forward balance. If from such verification it is found by the AO that the outstanding balance in the name of these creditors is comprising either of opening balance or of purchases made during the year or is on account of both the opening balance and purchases made during the year under consideration then no addition should be made on this account. Needless to say, the assessee will furnish before the AO the copy of list of sundry creditors Addition relates to interest paid to bank on secured loans - HELD THAT:- The proceeds of the maturity were also deposited in the bank account of the firm and were utilized only for the purpose of business. Therefore, it has been held by the Ld. CIT (A) that such contribution was obligatory for the assessee in the course of availing loan facilities from the bank for the purpose of business only. It is observed by the Ld. CIT (A) that it was obligatory on the part of the assessee to give funds out of its capital for FDR as the assessee has been availing loan from bank. Thus, it is held by the Ld. CIT (A) that there was business purpose behind the investment and addition of ₹ 4,28,550/- was deleted. DR has placed reliance on the order of the AO while arguing on this ground. However, he could not point out any factual infirmity in the findings recorded by the Ld. CIT (A) while deleting the disallowance. Therefore, looking into the facts of the case and findings of fact recorded by the Ld. CIT (A), which could not be negated by the Department, we find no reason to disturb the findings of the Ld. CIT (A) on the issue. Appeal of the revenue stands partly allowed for statistical purposes.
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2019 (11) TMI 404
Penalty u/s 271(1)(a) - limitation to pass penalty order - HELD THAT:- Keeping the logic of the provision in consideration, it is an order that determines, inter alia, the rights of the parties finally, for the completion of penalty proceedings. Otherwise, in the case of maintainability of an appeal filed by either the revenue or the assessee, if there comes about a withdrawal of that appeal, without an order, the period of limitation would be deemed to subsist. The fact as to whether an order becomes final at the instance of one party, i.e., that of filing and prosecution or, on the withdrawal of an appeal cannot, in our considered opinion, be determinative of the period of limitation. Limitation, it goes without saying, has to be fixed and certain. Section 275(1A) speaks of giving effect to the orders passed by the appellate forums. It does not impose any condition whether to levy or not to levy the penalty. The section empowers the authorities to follow the appellate orders of higher forums within a period of six months from the date when the orders are passed. Section 275(1A) speaks of modification of the penalty passed within limitation. If no penalty order has been passed within limitation, the provisions of section 275(1A) are not operative. Thus, all considered, in view of the above discussion, it cannot at all be said that the limitation in the present case is governed by the provisions of section 275(1A) of the Act and not section 275(1)(a) of the Act. We, accordingly, answer the question, as to whether the ld. CIT(A) correctly held the penalty order to be beyond the limitation period by the provisions of section 275 (1)(a) of the Act, against the Department and in favour of the assessee. As per provisions of section 275(1)(a), the penalty order should have been passed within six months from the end of the month in which the order of the Tribunal was received by the Department. However, we find that the order giving effect to Tribunal s order is dated 24/09/2014, which means that the said order was received by the Department in the month of September 2014. If the said date, i.e., 24/09/2014 is taken as the date on which the order of the Tribunal was received by the Department, then, the penalty u/s 271(1)(c) of the Act could be levied upto 31/03/2015. However, the Assessing Officer has levied the penalty u/s 271(1)(c) of the Act on 27/01/2016, which proves that the penalty order is barred by limitation. CIT(A) has duly taken all the above facts into consideration while holding and, in our considered opinion, rightly so, that the penalty order was barred by the limitation prescribed by the provisions of section 275(1)(a) - Appeals of the Revenue are dismissed.
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2019 (11) TMI 402
Bogus LTCG - exemption under section 10(38) denied - HELD THAT:- Contention of the assessee that the transaction leading to longterm capital gains are supported by documents of sale and purchase, bank statement etc., cannot be accepted keeping in view of the facts and circumstances of the case brought on record by the AO after proper examination of the material facts and taking into account the corroborating evidences. The onus was on the assessee to prove the transaction leading to claim of long-term capital gain was a genuine transaction. The assessee failed to justify manifold increase in the prices of the shares despite weak financials of the companies. Initial investment in the company of unknown credential and subsequent jump in the share prices of such a company, cannot be an accident or windfall but could be possible, because of manipulation in the share prices in a pre-planned manner, as brought on record by the Assessing Officer. In view of the failure on the part of the assessee to discharge his burden of proof and explain nature and source of the transaction and huge profit in all shares traded by the assessee against the human probability, in our opinion, the Ld. CIT(A) has rightly confirmed the addition in dispute, which does not require any interference on our part - Decided against assessee
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2019 (11) TMI 401
Rejection of books of accounts - trading addition - Estimation of income by the AO by applying 8% NP rate and enhancement made by the ld. CIT (A) by applying 11% NP rate on gross receipts - HELD THAT:- AO has adopted the net profit rate as estimation of the income. Similarly the ld. CIT (A) has also applied the net profit though at a higher percentage for estimation of income, therefore, even if considering net profit for the purpose of estimation of the income, the average of past history of the assessee has to be the proper and reasonable basis. The average of the preceding three years 2006-07 to 2008-09 of net profit before tax, interest and depreciation comes to 5.11% in comparison to the current year s net profit declared by the assessee at 5.38%. Therefore, the net profit declared by the assessee for the year under consideration is in line with the past history of the assessee and consequently even after the rejection of books of account no trading addition is warranted in the case of the assessee. There is another point involved in this matter regarding the closing stock shown by the assessee at ₹ 5,00,000/- regarding the contract amount which was not certified by one of the companies, namely, M.C. Nally Bharat Engineering Co. Ltd. and consequently the assessee has shown the same in the closing stock instead of recognizing the same as sales for the year under consideration. This is only a method of accounting and if the assessee has been following a consistent method of accounting for recognizing the revenue/sales subject to the certification of the work by the awarder company, then it shall have no revenue effect as the same will be shown as sales in the subsequent year. The assessee has also claimed that this amount of ₹ 5,00,000/- shown in the closing stock has been offered as part of the income of the subsequent year and, therefore, if an addition is made in respect of the said amount for the year under consideration, it would be double taxation. Since this is a method of accounting consistently followed by the assessee and having no revenue impact, then considering the said amount as part of sale is not justified. Accordingly, the addition made by the AO and enhancement made by the ld. CIT (A) are deleted. Interest on the fixed deposits was treated as income from other sources as against the claim of business income - HELD THAT:- Interest on FDRs taken for the purposes of guarantee furnished in relation to the contract will be part and parcel of the business income. Ground No. 2 is decided in favour of the assessee Penalty under section 271(1)(c) - addition being enhancement of income - HELD THAT:- In view of the finding of the Tribunal on quantum appeal when the said enhancement is deleted, the penalty levied under section 271(1)(c) will not survive. Even otherwise, the penalty levied against the addition made on the basis of estimation of income is not justified in view of decision of coordinate bench of the Tribunal dated 16.12.2016 in case of Shri Collector Ram Sharma vs. ACIT [ 2016 (12) TMI 1794 - ITAT JAIPUR] as relied upon by the ld. Counsel for the assessee. Accordingly, the penalty levied under section 271(1)(c) is deleted.
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Insolvency & Bankruptcy
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2019 (11) TMI 403
Maintainability of application - initiation of CIRP - non-payment of the claim amount made in the petition by the Operational Creditor pointing out to a default as envisaged under the provisions of Section 9 of IBC, 2016 - HELD THAT:- This Tribunal in the circumstances taking into consideration the provisions of law as well as on facts is constrained to order for liquidation of the corporate debtor and in such background the corporate debtor stands liquidated with the incidence of liquidation to follow, on and from the date of this order in terms of the provisions of IBC, 2016 and more particularly as given in Chapter - III of IBC, 2016 and also in terms of Insolvency and Bankruptcy (Liquidation Process) Regulations, 2017 along with the directions imposed. Application admitted - moratorium declared.
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2019 (11) TMI 400
Maintainability of application - initiation of CIRP - Restoration of supply of electricity disconnected - electricity to all the three units, which were disconnected owing to non-payment of dues during the Corporate Insolvency Resolution Process - HELD THAT:- If any amount due for the period of the Corporate Insolvency Resolution Process was not paid, in such case, Electricity Board should have moved before the Adjudicating Authority for payment of current dues of Corporate Insolvency Resolution Process , but it had no jurisdiction to disconnect the electricity in violation of Section 14(2) of the I B Code - The Electricity Board provides services by supplying electricity and thereby comes within the meaning of Operational Creditor as defined under Section 5(20) read with Section 5(21) of the I B Code . Similar matter fell for consideration before this Appellant Tribunal in Uttrakhand Power Corporation Ltd. v. M/s. ANG Industries Ltd. [2018 (1) TMI 1445 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI] wherein this Appellate Tribunal taking into consideration the fact that the order of Moratorium had been passed held that Uttarakhand Power Corporation Limited cannot recover any amount as was due for the earlier period prior to the date of initiation of Corporate Insolvency Resolution Process , though it was entitled to submit the claim before the Resolution Professional . This Appellate Tribunal further observed that the amount payable towards the current charges during the Corporate Insolvency Resolution Process was payable to the Uttarakhand Power Corporation Limited . Thus, it is not open to the Electricity Board to disconnect the electric supply of the Corporate Debtor during the Corporate Insolvency Resolution Process , the Resolution Professional should not have paid any dues of the earlier period for restoration of electricity. The Resolution Professional should have brought the fact to the notice of the Adjudicating Authority, who should have ordered for restoration of electricity with clear direction to pay the dues of the current charges of the Corporate Insolvency Resolution Process . The Resolution Plan having been approved by the Adjudicating Authority on 24th July, 2018 under Section 31, it was not open to the Adjudicating Authority to pass order subsequently on 25th February, 2019 to release the amount of ₹ 3.25 Crores in favour of Electricity Board Appeal allowed.
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Central Excise
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2019 (11) TMI 415
Provisional assessment of clearances made - Circular No.26/89 dated 24.04.1989 and Circular No.13/90-CX-6 dated 25.05.1990 issued by CBEC - time limitation - HELD THAT:- The appeal is admitted on substantial questions of law. List this appeal for hearing on 11th December, 2019.
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2019 (11) TMI 414
Permission for withdrawal of appeal - monetary limits - SSI exemption - dummy firm - cross-examination of persons - no documentary evidence of purchase from a legitimate source - non-examination of statement of a person, Late Sh.Ashok Kumar, Assistant Manager of Truck Union of Samana, who is dead - seizure of excess stock - HELD THAT:- It is averred in the application that Central Board of Indirect Taxes and Customs has issued instruction dated 22.8.2019 and revised the monetary limits for filing appeal before this Court to ₹ 1.00 Crore and the said instructions are applicable to pending appeal. It is further averred that office of Commissioner of Central Goods and Service Tax, Mohali has sent instruction to the effect that personal penalty involved in the appeal being ₹ 80, 23, 000/- is below prescribed threshold limit and as such prayer for withdrawal of the appeal. Appeal dismissed as withdrawn.
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CST, VAT & Sales Tax
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2019 (11) TMI 418
Enhancement of turnover tax - suppression of turnover - Best judgement assessment - power to do re-assessment - HELD THAT:- Section 39(1) of the Act empowers the Prescribed Authority to do the re-assessment where the Prescribed Authority has grounds to believe that any return furnished which is deemed as assessed or any assessment issued under Section 38 of the Act understates the correct tax liability of the dealer - It may, based on any information available, re-assess, to the best of its judgment, the additional tax payable and also impose any penalty under sub-section (2) or sub-sections (4) and (5) of Section 72 of the Act and demand payment of any interest and shall issue a notice of re-assessment to the dealer demanding that the tax shall be paid within 30 days of the date of service of the notice after giving the dealer the opportunity of showing cause against such re-assessment in writing. It is not in dispute that the Assessee has admitted the suppression of turnover at the time of the Enforcement Authority inspecting the business premises of the Assessee. It is not once, but on two occasions the business premises of the Assessee was inspected. On both the occasions, it was detected by the Enforcement Authority that the Assessee had indulged in the practice of not accounting the sales in the regular books of accounts - The conduct of the Assessee in not maintaining the regular books of accounts would be good ground for the Prescribed Authority to enhance the turnover including the deficit in stock noticed at the time of inspection. The questions of law raised by the petitioner requires to be answered against the Assessee and in favour of the Revenue. Levy of penalty u/s 72(2) of the Act - HELD THAT:- The penalty levied at ₹ 1,00,631/- under Section 72(2) of the Act requires to be re-considered in view of the return filed by the petitioner for the tax period September, 2013 disclosing the sales turnover detected by the enforcement authority. Hence, penalty under Section 72(2) of the Act has to be redetermined by the Assessing Authority - matter remanded to the Prescribed Authority to redetermine the penalty levied under Section 72(2) of the Act. Decided partly against assessee and part matter on remand.
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Indian Laws
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2019 (11) TMI 417
Reference of matter to arbitrator - Levy of Liquidated damages - Interpretation of terms of contract - Clause 2 of the contract regarding liquidated damages/compensation levied by the Superintending Engineer - price escalation clause - Whether the levy of pre-estimated liquidated damages and reasonable compensation by the Superintending Engineer in terms of Clause 2 of the contract between the parties is arbitrable ? - Whether the respondent-ONGC is right in contending that the levy of liquidated damages in terms of Clause 2 of the contract is final and an excepted matter not falling within the jurisdiction of the Arbitrator and whether the learned Arbitrator has travelled beyond the terms of the contract? HELD THAT:- A reading of Clause 2 makes it clear that the Superintending Engineer has been conferred with not only a right to levy compensation; but it also provides a mechanism for determination of the liability/quantum of compensation. The very Clause 2 itself would show that such a decision taken by the Superintending Engineer shall be final. The finality clause in the contract in terms of Clause 2 makes the intention of the parties very clear that there cannot be any further dispute on the said issue between the parties; much less before the arbitrator. The intention of the parties to exclude some of the decisions of the Superintending Engineer from the purview of arbitration is clearly seen from the abovesaid clause. Claim No.6 made by the appellant is to declare that the penalty imposed by ONGC under Clause 2 was illegal and unwarranted and the amount withheld by ONGC was payable to the appellant. The very prayer to declare the amount levied by the Superintending Engineer as illegal is against the tenor of the terms of the contract (Clause 2) between the parties. By virtue of the finality clause in the contract, any decision taken by the Superintending Engineer in levying compensation cannot be referred to an arbitrator. A reading of the other terms of the contract would further indicate that under Clauses 13 and 14 of the agreement, the parties have agreed for payment of compensation and non-payment of compensation in certain situations. Significantly, Clauses 13 and 14 of the agreement do not have any finality clause which indicates that any dispute arising out of such clauses may be a dispute referable to arbitration. However, in respect of levy of compensation for the delay, Clause 2 of the agreement specifically makes the decision of the Superintending Engineer, final. The entire contract between the parties and the terms thereon have to be read as a whole to decide the rights and liabilities of the parties arising out of the contract - The finality clause in the contract cannot therefore be frustrated by calling upon the arbitrator to decide on the correctness of levy of compensation by the Superintending Engineer. Reference can be made to decision in the case of VISHWANATH SOOD VERSUS UNION OF INDIA ANR. [ 1989 (1) TMI 314 - SUPREME COURT] where it was held Once the parties have decided that certain matters are to be decided by the Superintending Engineer and his decision would be final, the same cannot be the subject matter of arbitration. In the present case, the parties themselves have agreed that the decision of the Superintending Engineer in levying compensation is final and the same is an excepted matter and the determination shall be only by the Superintending Engineer and the correctness of his decision cannot be called in question in the arbitration proceedings and the remedy if any, will arise in the ordinary course of law. The total amount awarded by learned Arbitrator in favour of the appellant is ₹ 1,24,47,416/- (₹ 66,36,252/- + ₹ 58,11,164/-). Total amount of compensation/liquidated damages withheld by ONGC is ₹ 66,99,117/- (₹ 36,80,142/- + ₹ 30,18,975/-). Towards satisfaction of the arbitral award, ONGC has deposited an amount of ₹ 2,10,41,965/- - In compliance of the order of the Supreme Court dated 09.04.2009, the appellant has deposited ₹ 75,00,000/- before the Supreme Court and the same has been invested in a nationalised bank. The amount of ₹ 74,88,768/- along with accrued interest is ordered to be paid to the respondent-ONGC. The balance of ₹ 11,232/- (₹ 75,00,000 ₹ 74,88,768/-) along with accrued interest be refunded to the appellant. Appeal dismissed.
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