TMI Tax Updates - e-Newsletter
February 16, 2024

Case Laws in this Newsletter:

Articles

1. Documents Required for Registration Of a Company in India

   By: Deepika Shukla

2. Assessee permitted to withdraw pre-deposit amount from frozen bank account for filing appeal

   By: Bimal jain

3. Learning from recently reported judgment in case of M/S. PASARI CASTING AND ROLLING MILLS PRIVATE LTD.

   By: DEVKUMAR KOTHARI

4. TDS Deductors may witness notices on deduction, if the counter-party disagrees

   By: Vivek Jalan

5. Penalties should not be imposed solely for technical errors lacking any intent to evade tax

   By: Bimal jain

News

1. Department of Revenue, Ministry of Finance, invites applications for appointment to the posts of the Judicial Members, Technical Members (Centre) and Technical Member (State) in Principal Bench and States Benches of GST Appellate Tribunal

2. APEDA hosts Capacity Building Programme and Buyer Meet in Mirzapur to unlock agricultural export potential

3. Exchange Rate Notification No. 13/2024- Customs (N.T.)

4. India’s merchandise exports in Jan 2024 registers 3.12 % growth at USD 36.92 Billion over USD 35.80 Billion in Jan 2023

5. Fundamental Shifts in the Global Economy: New Complexities, Challenges and Policy Options (Keynote Address by Shri Shaktikanta Das, Governor, Reserve Bank of India - February 15, 2024 - Delivered at the 59th SEACEN Governors' Conference in Mumbai)

6. Joint Press Statement [India and Peru Trade Agreement negotiations gains momentum – 6th Round takes place in Lima]

Notifications

Companies Law

1. G.S.R. 107(E) - dated 14-2-2024 - Co. Law

Companies (Registration Offices and Fees) Amendment Rules, 2024.

GST - States

2. S.O. 52 - dated 12-1-2024 - Jammu & Kashmir SGST

Seeks to amend Notification No. SRO-GST 13/2017, dated the 08th July, 2017

3. 198-F.T. - dated 31-1-2024 - West Bengal SGST

Seeks to notify special procedure to be followed by a registered person engaged in manufacturing of certain goods, such as, tobacco and tobacco products, pan masala etc.

4. 197-F.T. - dated 31-1-2024 - West Bengal SGST

Seeks to rescind Notification No.1487-F.T., dated the 28th day of August, 2023

5. 196-F.T. - dated 31-1-2024 - West Bengal SGST

Seeks to bring a technical change whereby HSN code for LPG is harmonised with the updated HSN code for LPG, resulting further amendments in this Department notification No. 1125-F.T., dated 28.06.2017.

6. 195-F.T. - dated 31-1-2024 - West Bengal SGST

Seeks to extend, u/s 168A, the time limit specified under sub-section (10) of section 73 for issuance of order under sub-section (9) of section 73 of the Act.

Highlights / Catch Notes

GST

• Court Sends Tax Refund Interest Dispute Back for Reconsideration Under TNGST Act Revision Guidelines.

  Case-Laws - HC : Scope of revision proceedings - refund order warrant revision or not - levy of interest under the impugned order was contrary to Section 50(3) of the TNGST Act or not - As a result of the amended Rule 89(5) and the subsequent upholding of such amendment by a Division Bench of this Court and the Hon'ble Supreme Court, learned Additional Government Pleader submits that no interference is warranted with the impugned revision order. - The High Court noted that, the petitioner has assailed the order on the ground that it travels beyond the scope of revision proceedings under Section 108 of the TNGST Act. No findings were recorded with regard to this objection in the impugned order. - Matter restored back for reconsideration.
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• Cash Cannot Be Seized Under CGST Act; Court Orders Immediate Return of Funds Seized Without Legal Basis.

  Case-Laws - HC : Resumption of seized cash/currency u/s 67 of CGST Act - Scope and definition of "goods / things" - cash was sale proceeds of unaccounted goods or not - The High court concludes that cash cannot be considered among the "things" subject to seizure under Section 67(2) of the CGST Act. - Furthermore, the court finds that there is no evidence to support the seizure of the cash as representing the sale proceeds of unaccounted goods, as required by the Act. - The action taken by the Officers was therefore a coercive action. CGST Act does not support such an action of forcibly taking over the possession of the currency from the premises of any person. - The amount directed to be released to the petitioner forthwith.
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• High Court Reviews Extension of Show Cause Notice Period Under GST Act Due to COVID-19 Force Majeure.

  Case-Laws - HC : Extension of period for issuance of show cause notice u/s 73 of GST Act, 2017 - Validity of N/N. 09/2023 - The Hich Court noted that the Notification extends the time limit under Section 73(10) of the CGST Act, attributing the extension to the COVID-19 pandemic as a force majeure event. - The court acknowledges previous extensions of the time limit and the interim reliefs granted by other High Courts to noticees facing similar situations. - The court allows proceedings to continue on the Show Cause Notice but prohibits the passing of a final order until the returnable date.
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• High Court Rules Incorrect E-Way Bill Address as Clerical Error, Not Tax Evasion; Penalty Orders Quashed.

  Case-Laws - HC : Penalty order - wrongful mention of place of supply in E-Way bills - intent to evade tax or not - The High Court noted that the incorrect address mentioned in the E-Way bills was the registered office of the petitioner, suggesting a technical or clerical error rather than an intentional attempt to evade tax. - The court concludes that since most documents were accompanied with the goods and only some E-Way bills contained errors, with correct addresses mentioned elsewhere, no presumption of tax evasion arises. - Consequently, the penalty orders quashed and set aside.
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• Court Modifies Retrospective GST Cancellation Date to Align with Business Closure, Effective March 31, 2020.

  Case-Laws - HC : Cancellation of GST registration of the petitioner with retrospective effect - The High Court held that, Records clearly demonstrate that the Petitioner had submitted an application seeking cancellation of the GST registration on 17.07.2020 which was rejected and thereafter, vide order dated 30.09.2022, the registration of the petitioner has been cancelled retrospectively with effect from 01.07.2017 - It is clear that both the petitioner and the respondent want the GST registration to be cancelled, though for different reasons. - The petition is allowed, and the order of cancellation is modified to operate from 31.03.2020, aligning with the petitioner's discontinuation of business.
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Income Tax

• Supreme Court dismisses review petition; clarifies telecom expenses remain consistent despite changes in payment format.

  Case-Laws - SC : Nature of expenses - The Supreme Court Dismissed the review petition against the judgement [2023 (10) TMI 786 - SUPREME COURT] wherein it was held that, High Court of Delhi was not right in apportioning the expenditure incurred towards establishing, operating and maintaining telecom services, as partly revenue and partly capital by dividing the licence fee into two periods - The nomenclature and the manner of payment is irrelevant. The payment post 31 July, 1999 is a continuation of the payment pre 31 July, 1999 albeit in an altered format which does not take away the essence of the payment.".
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• Court Rules EDC Payments to HSVP Subject to Tax Deduction; HSVP Not Exempt as "Government" u/s 196.

  Case-Laws - HC : TDS u/s 194C - liability to deduct tax - External Development Charges (EDC) - payments made to the Haryana Shahari Vikas Pradhikaran [HSVP] (Earlier known as HUDA) - The High Court held that, Section 196 frees sums payable to the Government, RBI or a corporation established by or under a Central Act from the obligation of tax being collected at source. Undisputedly, HSVP would neither fall within the ambit of clause (1) or clause (3) of Section 196. The mere fact that HSVP has been constituted under a statutory enactment does not make it the “Government”. - The court found that EDC payments fall within the ambit of Section 194C, imposing a duty on the payer to deduct tax from payments made to a contractor, without discretion to assess the chargeability of the payment to tax.
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• Court Rules R&D Deductions Include All Expenses from 01 April 2018, Not Limited by DSIR Approval Date &D.

  Case-Laws - HC : Weighted deductions claimed u/s 35(2AB) - The petitioner challenged the restriction of the eligibility period for weighted deductions on R&D expenditure, contending it should cover all expenditures since 01 April 2018, not just from 27 February 2019. - The High Court held that the restriction was untenable and against the legislative intent of Section 35(2AB), which aims to encourage R&D by allowing deductions for related expenditures without linking them to the date of DSIR approval. - The Court clarified that the eligibility for deductions under Section 35(2AB) is not limited to expenditures incurred post the DSIR's approval of the R&D facility.
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• Tax Assessment Reopening Quashed for Non-Compliance with Section 148A Procedures; Case Remanded for Proper Notice Issuance.

  Case-Laws - HC : Validity of reopening of assessment - grievance raised that the objections raised were not specifically dealt - Procedure prescribed u/s 148A followed or not? - The Central Board of Direct Taxes (CBDT) after the decision of Supreme Court in Ashish Agarwal issued guidelines for issuance of notice u/s 148 - The High court found that the impugned order did not adhere to the prescribed procedures u/s 148A of the Act and the CBDT guidelines. The order was quashed, and the matter was remitted back to the respondent for further proceedings in accordance with the law. - Consequently, the HC remanded the matter back to proceed with notice u/s 148-A(b) in accordance with law.
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• Block Assessment Invalid Due to Lack of Satisfaction Recording; Ownership of Seized Cash Proven Valid by Appellant.

  Case-Laws - HC : Block assessment - Validity of assessment u/s 158BC r.w.s. 158BD - The High court allowed the appeal, holding that the assessment proceedings were illegal due to the failure of the assessing officer to record satisfaction as required under Section 158BD of the Income Tax Act. The appellant provided sufficient evidence to support the ownership claim of the seized cash, and the assessing officer's doubts were deemed unjustified.
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• Assessment Order u/s 144C Challenged; Court Finds Lack of Clarity, Remands for Compliance with DRP Directions.

  Case-Laws - HC : Validity of assessment order u/s 144C - petitioner filed objection to the draft assessment order well within the time of thirty days before the DRP - The High Court held that, if the assessing authority who issued the notice himself did not mention that the objection to the draft assessment order was to be filed before the Dispute Resolution Panel as well as the assessing authority, presuming that the petitioner must have known that the objection was required to be filed before the assessing authority is a very high expectation by the assessing authority from the assessee. - The matter remanded back to the assessing authority to consider the direction issued by the DRP and pass a fresh assessment order in accordance with the law.
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• Tribunal Upholds DRP Directions on Transfer Pricing; Orders Compliance on Working Capital Adjustments by Assessing Officer.

  Case-Laws - AT : Transfer Pricing Adjustments - The Tribunal upheld the Ld. DRP's directions on various objections raised by the taxpayer, including the consideration of multiple-year data, peculiar economic conditions, abnormal business loss, under-utilization of capacity, and treatment of expenses. - However, the ITAT found that the Assessing Officer (AO) had not fully complied with the Ld. DRP's directions, specifically regarding working capital adjustments. It directed the AO/TPO to consider all of the Ld. DRP's directions while drafting the final assessment order. - Matter restored back.
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• Taxability of Interest Under Land Acquisition Act: ITAT Upholds AO's Decision, Quashes PCIT's Revision Order.

  Case-Laws - AT : Revision u/s 263 - taxability of interest under section 28 of Land Acquisition Act - ‘no enquiry’ or ‘lack of enquiry’ - The ITAT held that, the opinion of the Ld. PCIT that the Ld. AO should have passed the assessment in accordance with the amended law and binding decision in Mahender Pal Narang’s case [2020 (3) TMI 1115 - PUNJAB AND HARYANA HIGH COURT] overlooking the decision of Hon’ble Supreme Court in Ghanshyam’s HUF’s [2009 (7) TMI 12 - SUPREME COURT] case is not sustainable. - The ITAT further observed that, it can at best be said to be a debatable issue on which two views are possible and the Ld. AO accepts one of the views. - Revision order quashed.
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• Tribunal Rules TNMM Includes Notional Interest on Receivables; Orders Removal of Adjustment for Overdue AE Receivables.

  Case-Laws - AT : TP Adjustment - Notional Interest on Outstanding Receivables - While acknowledging that receivables from AEs constitute an international transaction, the tribunal held that when TNMM is applied, the net margin already accounts for such notional interest costs. Thus, no separate adjustment for notional interest on receivables was warranted, and the tribunal directed the AO to delete the upward adjustment made for overdue receivables from AEs. - Further, Ld. AO / TPO directed to examine and consider the appropriate adjustments arising out of the working capital differences in the computation of the ALP.
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• Tribunal Excludes Garment Manufacturing Companies from Comparables List Due to Functional Differences with Assessee.

  Case-Laws - AT : TP Adjustment - selection of comparables - The tribunal directed exclusion of three comparables from the TPO's list, as they were involved in garment manufacturing, not processing services like the assessee. The tribunal found these companies functionally different from BAI and, therefore, not comparable.
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• Key Disclosure Retracted: Tribunal Rules Business Income Not Taxable Without Evidence of Undisclosed Sources.

  Case-Laws - AT : Addition based on voluntary disclosure made by the key person of the assesse group during the course of search which has subsequently been retracted - The statement recorded u/s 132(4) - The Tribunal observed that admissions made under duress or misconception can be retracted. The reliance solely on such statements for making additions, without corroborative evidence, is not sustainable. - The Tribunal held that without any incriminating material specifically linking the income to undisclosed sources, the disclosed income should be treated as business income, not taxable u/s 115BBE.
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• Invalid Assessment Order Voids Revisionary Proceedings Due to Missing Notice; Late Returns Not Dismissed as Non-Est.

  Case-Laws - AT : Revision u/s 263 against non-Est order - The ITAT held that, return filed beyond the prescribed time limit under notice u/s 148 should not be treated as non-est. - However, the Tribunal held that, the order passed u/s 147 r.w.s. 143(3) in the present case was invalid on account of non-issuance of notice u/s 143(2) by the Ld. AO which is an accepted fact discernible from the order of Ld. PCIT, wherein it has been impliedly observed that no notice u/s 143(2) was issued, stating that the issuance of notice u/s 143(2) is not required. - Consequently, the revisionary proceedings initiated u/s 263 are without appropriate jurisdiction with the Ld. PCIT, since, the same cannot be invoked on the foundation of an invalid/ void ab initio assessment order.
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• Tribunal Adjusts Profit Estimation on Suspected Bogus Purchases, Reduces Rate from 25% to 12.5% Based on Precedents.

  Case-Laws - AT : Estimation of income - Bogus purchases - CIT(A) has disallowed 25% of the purchases on the grounds that the assessee could have made some super profits - The tribunal found that, given the assessee's exports and corresponding sales, purchases were necessary for production. It concurred with the CIT(A)'s decision but adjusted the profit estimation embedded in the bogus purchases to 12.5%, based on judicial precedents and the specific facts of the case.
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• Tribunal Rules on Software Sales Taxation, Arm's Length Compensation, and Misinterpretation of Agreements in India.

  Case-Laws - AT : Taxability of software sale by the US entity to Indian entities - Indian subsidiary is held as DAPE [Dependent Agent Permanent Establishment] of the assessee in India - when DAPE is remunerated at arm’s length - The Tribunal, following its previous rulings, found the assessment to misinterpret the distribution agreement and BAPA, holding that if the DAPE is remunerated at arm's length, no further addition can be made.
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Customs

• Appellant Wins: Tribunal Grants Concessional Duty Rate on Malaysian Foods Due to Unfair Burden of Proof in Trade Agreement Case.

  Case-Laws - AT : Import of foods of Malaysian origin - Benefit of Exemption under Preferential Trade Agreement - failure to prove the condition of qualifying value content of the goods should not be less than 35% of the FOB value - cost structure on the basis of data privacy was not provided - onus of prove shifts to Department (shifting burden) - The Tribunal held that the burden of proof was unfairly placed on the appellant despite documentary evidence and government-to-government verification. - Failure of Indian authorities to get more detailed verification or underlying cost data from the Malaysian Government authorities cannot be held against the appellant. - Benefit of concessional rate of Customs Duty allowed.
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• Customs Tribunal Overturns Broker's License Revocation; Emphasizes Verification Over Document Accuracy.

  Case-Laws - AT : Revocation of Customs Broker license - Regulation 10(n) requires the Customs Broker to verify correctness of Importer Exporter Code (IEC) number, Goods and Services Tax Identification Number (GSTIN),identity of his client and functioning of his client - The CESTAT referenced previous judgments and legal interpretations to support its findings, emphasizing that Customs Brokers cannot be held responsible for the correctness of documents issued by government officers, as long as they verify the authenticity of those documents. - The CESTAT set aside the impugned order, revoking the Customs Broker's license, forfeiting the security deposit, and imposing a penalty
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• Tribunal Corrects Misclassification of Imported Goods, Confirms Eligibility for Import Duty Exemption.

  Case-Laws - AT : Classification of import of Ores - The CESTAT held that the lower authorities erred in classifying the imported goods as 'iron ore concentrate' based on speculative inferences from the supplier's website and without proper analysis conforming to standards. - The Tribunal found that the classification adopted by the appellant as 'iron ore' under tariff item 2601 1119 was correct, making the import eligible for exemption under notification no. 12/2012-CE.
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Indian Laws

• Complaint u/s 138 Quashed for Excluding Partnership Firm; Court Cites Defect in Filing Process.

  Case-Laws - HC : Dishonour of cheque - insufficient funds - vicarious liability of partners - The court concludes that the complaint filed under Section 138 of the Negotiable Instruments Act, solely against the partners without impleading the partnership firm, is flawed. It exercises its power under Section 482 of the Criminal Procedure Code to quash the complaint.
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IBC

• Foreign Lender Gains Inclusion and Voting Rights in Corporate Debtor's Committee of Creditors After NCLAT Ruling.

  Case-Laws - AT : Inclusion of the Appellant in the Committee of Creditors (CoC) and also to provide voting rights to the Applicant/ Appellant - The appellant, a foreign financial lender, extended loans to the Corporate Debtor - Appellant is a related party of the Corporate Debtor or not - The NCLAT found no substantial evidence that the Corporate Debtor acted on the appellant's advice, directions, or instructions as required under Section 5(24)(h). The actions of Rembert Biemond as a director of the Corporate Debtor could not be construed as directions from the appellant. - The NCLAT set aside the Adjudicating Authority's order, allowing the appellant's inclusion in the CoC with proportionate voting rights, based on the admitted claim amount in the CIRP.
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• Resolution Professional's Authority Affirmed: NCLAT Supports Request for Additional Proof in Insolvency Claims Verification.

  Case-Laws - AT : Scope of duty of RP - Seeking acceptance of the claims which had been rejected by the Resolution Professional - Proof of services provided and debts - The NCLAT held that the RP did not exceed his powers by seeking additional proof to substantiate the claims. The RP's role includes verifying claims to ensure their accuracy for the CIRP process, and the request for additional proof was within his administrative powers, not constituting adjudication. - The Tribunal found that the RP acted within his mandate by seeking further evidence to ensure the credibility of the insolvency process.
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PMLA

• Supreme Court Grants Bail in Money Laundering Case Due to Lack of Evidence Linking Assets to Predicate Offenses.

  Case-Laws - SC : Money Laundering - commission of eight predicate offences - The Supreme Court allowed the bail to the appellant by observing that, at highest, the allegation against the appellant is of possession of unaccounted money and illegal acquisition of immovable properties. But, prima facie, there is nothing to link the assets of the appellant with the predicate offences.
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• Anticipatory Bail Denied in Bike Bot Scam; Court Highlights Economic Crime Gravity and Investigation Need.

  Case-Laws - HC : Rejection of anticipatory bail - Money Laundering - Bike Bot Scam - Funds were diverted to shell companies for concealing the true purpose of collecting it and for rotation - proceeds of crime - The Allahabad High Court rejected the application for anticipatory bail, citing the serious nature of the economic offenses involved, the ongoing investigation's requirements, and the legal strictures against bail in such cases.
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• Court Rules PMLA Adjudicating Authority Need Not Include Members with Legal Expertise, Supported by Appellate Review.

  Case-Laws - HC : Composition of Adjudicating Authority under PMLA and its Jurisdiction - Whether the quasi judicial bodies should consist of members having requisite qualification in the field of law and should be appointed instead of members having no experience in the field of law? - The Telangana High Court set aside the learned Single Judge's order, holding that the PMLA does not mandate the Adjudicating Authority to include a member with legal experience. The PMLA provisions allow for the Authority to perform its designated functions without this requirement, supported by the appellate mechanism that ensures judicial review and adherence to legal standards.
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Central Excise

• Dispute Over MCCB Valuation: MRP vs. Transaction Value Under Central Excise Act, Tribunal Sides with Appellant.

  Case-Laws - AT : Valuation - MRP based value u/s 4A or transaction value u/s 4 - Extended period of limitation - package of MCCBs cleared to industrial/institutional consumers - The entire issue has arisen because of change of opinion due to differing legal interpretations. The Appellant has contended that he was under the bonafide belief that there was no requirement to affix MRP on the switchgear products sold by them industrial/institutional consumers through their dealers - The tribunal set aside the demand on the ground of period of limitation.
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VAT

• Court Dismisses Petition; Upholds Tax Assessment for Turnover Suppression and Evasion Under Kerala VAT Act.

  Case-Laws - HC : Validity of assessment order u/s 25(1) of the Kerala Value Added Tax Act, 2003 - suppression of turnover - evasion of tax - The court held that the petitioner did not respond to the notices, objections, or appear for the personal hearing. The court finds no jurisdictional error or violation of the law in the assessment order and dismisses the writ petition. However, the petitioner is advised to explore other available remedies if advised.
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