TMI Tax Updates - e-Newsletter
February 16, 2015
Case Laws in this Newsletter:
Income Tax
Customs
Corporate Laws
Service Tax
Central Excise
Indian Laws
Highlights / Catch Notes
Articles
Notifications
Circulars / Instructions / Orders
News
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Indo American Chamber of Commerce - Detailed Pre-Budget Memorandum on Direct Taxes for 2015-16
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Pay IT dues in advance at RBI or at authorised bank branches
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India’s Foreign Trade (Merchandise): January, 2015
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Change in Tariff Value of Crude Palm Oil, Rbd Palm Oil, Others – Palm Oil, Crude Palmolein, RBD Palmolein, Others – Palmolein, Crude Soyabean Oil, Brass Scrap (All Grades), Poppy Seeds, Areca Nuts, Gold And Silver Notified
Case Laws:
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Income Tax
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2015 (2) TMI 508
Depreciation claim - cost incurred in civil work and foundation, electrical items, components in installation and common power evacuation while installing windmills - Held that:- Civil construction and electric fittings, which have no use other than for the purpose of the functioning of the windmill would become closely interconnected and are part and parcel of the windmill and, therefore, liable for depreciation. Legislature has provided for higher rate of depreciation of 80 per cent on renewable energy devises including windmill and any specially designed devise, which runs on windmill. See CIT AHMEDABAD III Versus PARRY ENGINEERING AND ELECTRONICS P. LTD. [2014 (12) TMI 752 - GUJARAT HIGH COURT] - Decided in favour of assessee.
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2015 (2) TMI 507
Condonation of delay - delay of five years (1825 days) - whether the applicant has shown sufficient cause so as to become entitled for condonation of delay? - Held that:- Applicant cannot fall within the parameters of sufficient cause so as to confer a benefit of condonation to the applicant. This is for the reason that the applicant had taken a well considered decision not to move further proceedings against the order dated 31.10.2008. Applying the test of a prudent litigant it cannot be held that once the applicant by his own volition had decided to accept a judicial order, the applicant can at any time assail the same may be for the reason that subsequently new decisions are rendered on that issue. Section 5 of the Limitation Act cannot be stretched to bring about a situation of unsettling judicial decisions which stood accepted by the parties. If the contention of the applicant is accepted, it would create a situation of chaos and unsettling various orders passed from time to time by the Tribunal as accepted by the parties. We are of the considered opinion that only because the applicant has succeeded on the same issue for the Assessment Year 2008-09, the same can not be said to be a sufficient cause so as to condone the delay of five years for the applicant to approach this Court in filing the appeal. - Decided against assessee.
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2015 (2) TMI 506
Deduction u/s 80IC - Tribunal held that the "interest income" earned by the Appellant/Petitioner cannot be said to be "derived by" the eligible undertaking/units as required for claiming deduction - Held that:- The said section 80IC postulates gross total income of an assessee shall include any profits and gains derived by an undertaking from any business referred to in sub-section(2)to be entitled to a deduction from such profits and gains as specified in sub-Section (3). Sub-section(2) applies to any undertaking which has begun or begins to manufacture or produce any article or thing. To our mind the facts of this case where the assessee has earned income from fixed deposits which deposits were profits and gains of the undertaking, the income obtained as interest on such profits and gains cannot be said to be derived from the business of manufacture or production of any article or thing by the assessee's undertaking.- Decided against the assessee. Deduction on account of scraps sale T&M Fee under Section 80IC allowed - expression "derived by" v/s "Attributable To" - Held that:- To say that the scrap materials has no direct link or nexus with the industrial undertaking cannot be at all be expected or commend acceptance. For the sake of emphasis, we may say that the scrap materials come within the manufacturing process of the industrial undertaking in the manufacture of certain products such as V-Belts, oil seals, O-Rings and certain rubber moulded products, etc. Thus profits and gains from the sale of scrap materials is eligible to deduction in an amount equal to twenty per cent under S. 80HH, inasmuch as such gains or profits are derived from the industrial undertaking and includible in the gross total income of the assessee. See Fenner (India) Ltd. Versus CIT [1998 (4) TMI 67 - MADRAS High Court] - Decided in favour of the assessee.
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2015 (2) TMI 505
Penalty u/s Section 271 (1) (c) - non deduction of TDS - disallowance of expenditure - Held that:- In the present case, records would indicate that in the course of the proceedings, the enquiries were made from Simoco and its books and returns were apparently scrutinized. These showed that the amounts received by the said concern were reflected. That apart, TDS deductions and deposits were also made in respect of the fees and amounts paid to the Simoco. Furthermore, Simoco was itself owned by third concern, i.e., Phillips UK. The assessee had explained the need to engage Simoco, i.e., that its ability to market its products, was restricted on account of lack of technical expertises and personnel. To substantiate this, it relied upon the response given by various government agencies/users, which had, in fact, stated that Simoco's representative used to visit it on behalf of the assessee. This Court is of the opinion that there can be no doubt that mens rea or willingness is not an essential principal requisite for initiation and imposition of penalty under Section, 271 (1) (c), yet, it is important to notice that the provision itself is discretionary and the assessee is free to furnish the justification for a particular conduct - in the present case, of claiming certain expenditure. That ultimately such expenditure was disallowed on merits could not automatically result in the imposition of a penalty, akin to the AO's approach. Having regard to the materials placed on the record, which were analysed in detail and discussed, this Court is of the opinion that the reasoning and conclusions of the courts below being entirely facts based, do not involve determination of any substantial question of law. The appeal is, therefore, dismissed. - Decided in favour of assessee
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2015 (2) TMI 504
Taxability of Gift - Genuineness of gift - Held that:- This Court considered the factual matrix. The revenue does not dispute the present relationship between the donor (through Mr. Waney) and Mr. Ashwani Suri. It also does not dispute that the letter in terms of which the initial donation was made to Mr. Ashwani Suri, directed the disbursement of amounts in a particular proportion, which he did. The assessee is also related to Mr. Ashwani Suri. In these circumstances, the underlined transaction whereby the donor directed amounts to be disbursed by Mr. Ashwani Suri to specified or named individuals cannot be treated as unnatural. Both the authorities - the CIT(Appeals) and the ITAT took note of these facts and further noticed that all the gifts were rooted to normal banking transactions. While Section 68 certainly enables the AO to bring to tax amounts which are suspect, in a transaction of the present kind, where the identity and the relationship of the donor are known, the AO in our opinion ought not to have concluded that the transaction - by which the assessee received the amount of ₹ 1,84,860/- was ingenuine. - Decided in favour of assessee.
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2015 (2) TMI 503
Condonation of delay - Held that:- Appellant in the present case has been lackadaisical in their approach and in a nonchalant manner they have tried to seek condonation of delay. The Supreme Court in the decision in Esha Bhattacharjee V. Managing Committee of Raghunathpur, Nafar Academy and others [2015 (1) TMI 1053 - SUPREME COURT] has deprecated the practice of showing leniency in unwarranted fact situation. The parameters laid down by the Supreme Court as to when the delay should not be condoned get squarely attracted to the facts of the present case and therefore, we find no reason to condone the delay. The Tribunal was correct in dismissing the appeal on that score. - Decided against assessee.
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2015 (2) TMI 502
Deduction under Section 80 IA disallowed - exclusion of contract persons - whether six persons working under control and supervision of the assessee, are not employee of the assessee? - Held that:- The assessee was a company and the total number of staffs was fourteen, out of which two were the Security Guards. Thus, 12 persons were engaged in the unit of the assessee out of which six were on contract basis, but they were working for the assessee as per direction of the assessee. In other words, the assessee was controlling not only the work to be done by these persons, but also the manner of doing the work. Thus, these contract persons will have to be counted for the purpose of Section 80-IA(2)(v). When it is so, then the assessee will get the benefit of deduction under Section 80IA of the Act for the assessment year under consideration. - Decided in favour of assessee. Disallowance of Staff Welfare Expenditure - Tribunal has sustained disallowance of ₹ 5,000/- out of of ₹ 16,885/- on estimate basis and given the relief of the balance amount - Held that:- Order of the Tribunal is hereby sustained to the extent it disallowed the amount of ₹ 5,000/- as relying on New Plaza Restaurant Vs. I.T.O. [2008 (7) TMI 260 - HIMACHAL PRADESH HIGH COURT], Sajay Oil Cake Vs. C.I.T. [2008 (3) TMI 323 - GUJARAT HIGH COURT], Vijay K. Talwar Vs. C.I.T. [2010 (12) TMI 2 - Supreme Court of India] and Commissioner, Custom Vs. Stoneman Marbels [2011 (1) TMI 15 - SUPREME COURT OF INDIA ] - Decided against assessee.
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2015 (2) TMI 501
Entitlement for higher depreciation - civil work, copper wound transformers, electric items and electric lines - Held that:- Civil construction and electric fittings, which have no use other than for the purpose of the functioning of the windmill would become closely interconnected and are part and parcel of the windmill and, therefore, liable for depreciation. See CIT AHMEDABAD III Versus PARRY ENGINEERING AND ELECTRONICS P. LTD. [2014 (12) TMI 752 - GUJARAT HIGH COURT],Commissioner of Income Tax Vs. K.K. Enterprises [2015 (2) TMI 508 - RAJASTHAN HIGH COURT] and Commissioner of Income Tax-I, Ludhiana Vs. M/s Eastman Impex [2015 (1) TMI 436 - PUNJAB & HARYANA HIGH COURT] - Decided in favour of assessee.
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2015 (2) TMI 500
Entitlement to benefit of capital gains - assessee sold the booking rights - whether assessee entering into the transaction and acquiring a property for ₹ 73,27,000/- (acquisition cost) amounted to his acquiring a capital asset? - Held that:- In the light of the definitions of “capital asset” under Section 2(14) and “transfer” under Section 2(47) as discussed in Gulshan (2014 (3) TMI 474 - DELHI HIGH COURT), this Court has no doubt that the assessee’s contentions were merited. The reference to Suraj Lamps (2011 (10) TMI 8 - SUPREME COURT OF INDIA), in the Court’s opinion, is of no consequence because the Supreme Court, on that occasion had to deal with a property transaction and whether a sale transfer, based upon confirming a GPA, amounted to sale or conveyance. That decision did not consider - rather had no occasion to deal with Sections 2(14) and 2(47) in the context of a claim of acquisition of rights of property and interest in a capital asset, for the purpose of income tax. - Decided against revenue Whether improved cost was deducted - Held that:- This Court has no manner of doubt that the Revenue does not dispute the acquisition of second property at Model Town. Given that the Revenue does not dispute that the second transaction of purchase took place, it has to necessarily follow that the cost of improvement was deductible. No substantial question of law arises on that score too. - Decided against revenue
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2015 (2) TMI 499
Grant of exemption and continuance thereof u/s 10(23C) rejected - application rejected as barred by one day's delay - power of Chief Commissioner of Income Tax to condone the delay - Held that:- There is no power for the Chief Commissioner of Income Tax to condone the delay. Thus, the question is left open. However, having regard to the fact situation, as there is a delay of only one day in presenting the application under Section 10(23C)(vi), this Court, exercising extra-ordinary jurisdiction under Article 226 of the Constitution of India, condones the delay of one day in filing the application and remits back the matter to the Chief Commissioner of Income Tax/the first appellant herein, for consideration of the respondent/writ petitioner's application, on its own merits and in accordance with law. We make it clear that this order shall not create any precedent as delay is being condoned by this Court, exercising extra-ordinary jurisdiction in respect of delay of one day. Decided in favour of assessee.
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2015 (2) TMI 498
Expenditure incurred for obtaining research report - capital v/s revenue nature - CIT(A) upheld AO's view that as the expenditure incurred by the assessee company was for expansion of business by means of acquisition of research reports, it is of capital nature - Held that:- The expenditure incurred in respect of same business, is allowable as revenue expenditure, even if it is for expansion of the business. In the instant case here too admittedly the expenditure even as per the revenue is for expansion of business and therefore such expenditure on research reports obtained in the course of advisory services is revenue expenditure. The assessee has declared income from advisory services after obtaining report of ₹ 1,06,47,974/- which is in excess to the expenditure incurred. Mere fact that part of the expenditure was incurred for marketing does not change the nature of expenditure. - Decided in favour of assessee.
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2015 (2) TMI 497
Undisclosed cash credit u/s 68 - peak credit balance of both the bank accounts - addition of ₹ 26,38,754/- made by the AO, the ld. CIT(A) has sustained the addition to the tune of ₹ 13,68,828/- - Held that:- The assessee has to explain the deposits made in odd figures, failing which the same is liable to be assessed to tax. From the summary of cash transactions, we ourselves worked out the deposits made in the round figures of ₹ 2000/- and above for the period started from 01.8.2007 to 25.3.2008, i.e., the period starting from first major withdrawal.The cash withdrawals made by the assessee from 13.6.2007 to 25.3.2008 works out to about ₹ 14,00,000/-. On comparison of both the amounts and in the absence of any other material, we are of the view that the assessee should, out of cash withdrawals of about ₹ 14,00,000/-, have utilized a sum of ₹ 11,18,000/- only for making re-deposits in the banks account. However, our computation, referred above, needs to be verified by both the parties. In our view, the Assessee may be given set off of aggregate amount of deposits made at a sum of ₹ 2,000/- and above during the period mentioned above against the cash deposit of ₹ 26,38,404/-. The AO is directed to verify the above said computation along with the assessee and give set off of the amount as arrived at by both, if the above said figure of ₹ 11,18,000/- is found to be erroneous. Since the remaining amounts of deposits after giving such set off remain unexplained, we sustain the same. Accordingly, we modify the order of ld. CIT(A) and direct the AO to sustain the addition of balance amount after giving set off of the deposit of ₹ 11,18,000/- or such other sum that may be arrived at by the AO. - Decided partly in favour of asessee. Unaccounted share transactions - CIT(A) deleted the addition ₹ 30,72,971/- as against ₹ 45,58,634/- - Held that:- d CIT(A) has noticed that the assessee has realized a sum of profit of ₹ 2,72,425/- out of share trading. Accordingly, the ld. CIT(A) has directed the AO to assess above amount as “Short Term Capital Gain”. In addition to the above, the Assessee has also received a sum of ₹ 2101/- from the share broker as interest and reward amount. The Ld CIT(A) has directed that the same to be assessed. Though we notice that the ld. CIT(A) has taken a conscious decision after analyzing the share transactions carried out by the Assessee and we notice that the revenue could not find any defect with the said analysis made by the ld. CIT(A). - Decided against revenue.
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2015 (2) TMI 496
Unaccounted investment in land - assessee has not placed any material on record suggesting that the original-deed was cancelled - Held that:- The undisputed facts remains that the assessee has placed on record a modification deed, wherein certain changes have been made in respect of the title of the land. The contention of the assessee is that due to defective title, earlier deed was cancelled and the land was purchased on the fresh terms and conditions. We find that the authorities below have not examined the sellers of the land whether there was any change into the terms and conditions. In the absence of the same, the AO was not justified in making the addition. The assessee has also failed to substantiate its claim that the development expenditure were required to be borne by the owners of the land since we do not find any such terms in the original agreement to sell. Therefore, in our considered view, it would subserve the interest of justice if this issue is restored back to the file of the AO for deciding it afresh. - AO would verify the claim of the assessee that in earlier agreement to sell the seller of the land was required to give developed land to the assessee and in modified terms, it is upon the assessee who would incur the expenditure - Decided in favour of assessee for statistical purposes.
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2015 (2) TMI 495
Registration under S.12AA denied - Held that:- Under Section 12AA were confined to satisfy himself about the genuineness of the activities of the trust as well as nature of its object being charitable, the action of the learned D.I.T(Exemption) in refusing to grant registration to the assessee trust on the ground of violation of the provisions of Section 13(1)(b) was not justified especially when he had not doubted either the genuineness of the activities of the assessee trust or the nature of its object being charitable. In that view of the matter, we set aside his impugned order and direct that registration applied for by the assessee trust under Section 12AA be granted to it. - Decided in favour of assessee.
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2015 (2) TMI 494
Disallowance of expenses - CIT(A) allowed claim in part- Held that:- With regard to the expenses, we notice that the Ld CIT(A) has analysed each expense and has given proper reasoning to allow the same. As noticed earlier, the Ld CIT(A) has confirmed disallowance of transfer charges and car expenses. Since we have confirmed the decision of the Ld CIT(A) that the hoarding charges and trading in silver are required to be assessed as Business income, we do not find any infirmity in the decision of Ld CIT(A) in directing the AO to allow the expenses claimed. Accordingly we uphold his order on this issue. - Decided against revenue. Assessment of gain arising on sale of Pune land - claim of deduction u/s 54EC - Held that:- All the sequences in the case would show that the assessee has continued to hold the land as its Capital asset. Under these circumstances, we are of the view that the Ld CIT(A) was justified in holding that the gain arising on sale of land should be assessed as “Long term Capital gain” only. Consequently the Ld CIT(A) was also justified in holding that the assessee can claim deduction u/s 54EC of the Act, subject to the fulfillment of conditions prescribed in that section.- Decided against revenue. Disallowance of Car expenses in respect of the Car owned by a Director - Held that:- When it was asked as to whether the company has passed any resolution in respect of the Car expenses of the director or was there any agreement between the assessee company and the director with regard to the usage of car, the Ld A.R fairly admitted that the assessee did not possess such kind of documents. In the absence of any agreement or any other document to support the claim of the assessee, we have no other option, but to confirm the order passed by Ld CIT(A) on this issue. - Decided against assessee.
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2015 (2) TMI 493
Payments during the year to institutions for technical services - payment made on registration of patents - whether capital expenditure? - Held that:- As per the Memorandum of Association of the assessee, it is not in dispute that one of the objects of the assessee company is to conduct scientific technical and industrial research. After a careful perusal of the assessment order and the order of the Ld. CIT(A), we find that none of these authorities have discussed the Research agreement dt. 16.11.2000 which is between Unilever PLC and Unilever N.V and the assessee. Under the head ‘scope’ this agreement clearly provides for the services to be rendered by the assessee to Unilever group of companies for which ‘fees’ have been provided. We, further find that there is a specific clause in this agreement relating to ‘intellectual property rights’. We find that none of the revenue authorities have considered the facts of the case in the light of this agreement of the assessee. The AO is directed to decide this issue afreshn the light of clause (III) in the agreement dt. 16.11.2000 under the head “intellectual property rights”. - While deciding this issue afresh, the AO is also directed to consider the additional plea of the assessee u/s. 35(1)(ii) and Sec. 35(1)(iv) of the Act as per provisions of law - Decided in favour of assessee for statistical purpose. Disallowance of expenditure for earning tax free dividend income at 5% of the dividend income - Held that:- We find that the assessee has not allocated any expenditure for earning the exempt income, therefore, the AO was required to disallow certain expenses relatable to exempt income on proportionate basis for which the AO has disallowed 5% of the dividend income. The disallowance being very reasonable, we do not find any reason to interfere with the findings of the Ld. CIT(A). - Decided against assessee. Chargeability of interest u/s. 234D - Held that:- It is now well settled that provisions of Sec. 234D are with retrospective effect. We, therefore, do not find any reason to interfere with the findings of the Ld. CIT(A). - Decided against assessee.
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2015 (2) TMI 492
Non genuine business arrangement - suppression of receipts - applicability of arms length price - charging of ₹ 300 per sft payable by M/s. Sri Sai Builders is very low when compared to the cost of construction at ₹ 849.42 per sft - Held that:- Find no infirmity in the order of the CIT(A) as nothing h ad been brought out by the Department to prove that the agreement of the assessee with M/s. Sri Sai Builders is not genuine. The Department has also not been able to prove that the Joint Development Agreement and Agreement of Construction are between close relatives and we find that both the parties are independent. The rate of ₹ 300 per sft towards construction cost had been agreed upon after due deliberations between the parties in the year 2003-04 at the time of preparing and finalising the building plan at the then prevailing fair market rate for the cost of construction. The loss could have arisen due to escalation in the construction cost subsequently especially between the years 2006 and 2009 and, therefore, in these circumstances it cannot be held that charging of ₹ 300 per sft payable by M/s. Sri Sai Builders is very low when compared to the cost of construction at ₹ 849.42 per sft. Further in this project as a whole a gross profit of 25% and net profit of 19% was earned and had been declared. These profits were computed after absorbing the entire loss incurred on construction receipts from M/s. Sri Sai Builders. The person running the business has viewed the entire project instead of taking construction contract of a single stand alone transaction and that is why at the end of the project, the assessee firm made the net profit about 19%. In these circumstances, we confirm the order of the CIT(A) - Decided against revenue. Disallowance of deduction u/s. 80IB(10) - CIT(A) allowed the claim - Held that:- No infirmity in the order of the CIT(A) as the provisions of section 80IB(10) inter alia provide that 100% of the profit derived by an undertaking developing and building housing projects approved by a local authority shall be allowed as deduction in computing the total income for tax purpose. A plain reading of this provision requires that the profits are derived from an 'approved housing project' and such approval should be by a local authority. It does not provide that the approval of the local authority should only be in the name of the undertaking proposing to develop the housing project. As observed by the CIT(A) when the land on which housing project has been approved is sold the approval still continues to apply. Subsequent ratification or regularisation are required only if there are deviations from the approved plan. Hence the claim of deduction u/s. 80IB(10) of the Act cannot be rejected on the ground that sanction from the local authority for the housing project is standing in the name of M/s. Sai Developers. - Decided against revenue.
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2015 (2) TMI 491
Reopening of assessment - provision for doubtful debts are written back is an ascertained liability and hence the same should not be allowed as deduction - Held that:- Now the detail in regard to doubtful debts were fully disclosed in the return of income. Assessee has offered to tax provision for doubtful debts debited in the P&L A/c of ₹ 21,57,440/- . The assessee has claimed exclusion of provision for doubtful debts no longer required and written back amounting to ₹ 45,10,941/- and ₹ 21,50,151/- respectively. In the audited accounts, it is duly shown under Schedule-17 'Manufacturing, Selling and other expenses' and Schedule- 14 'Other Income'. From the above it is apparent that assessee has fully and truly disclosed all the materials in this regard. So it cannot be said that there was any failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. Hence manifestly this reopening is hit by the proviso to section 147 of the Act and in the light thereof reopening is not sustainable. - Decided in favour of assessee.
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2015 (2) TMI 490
Addition to income made on account of net profit rate applied - CIT(A) deleted the addition - double taxation - Held that:- As regards the addition of ₹ 34,48,820/-, the AO has taken gross receipts as per certificate available on record, which in fact, has been treated by the AO as per TDS certificate. But in fact, they were certificates in form 27D for the tax collected and meant for purchases and not for sales. This is the prime mistake which has been done by the AO while framing the assessment. As per TDS certificates, the total receipts from construction has been submitted to be at ₹ 2,57,75,427/- and sale of liquor business at ₹ 36,01,644/-, totaling receipts to ₹ 2,93,77,071/-, which has been reflected by the assessee in his books of account in the profit & loss account. The amount of ₹ 29,76,588/- has been reflected as purchases against tax collection certificate in Form-27D has also been explained by the assessee before the ld. CIT(A). All these materials in the form of TDS certificate as well as Form 27D and profit & loss account were available on record before the A.O. Therefore, it is not correct to say that such material was not available before the A.O. but the AO chose to collect the figures only from Form 27D, which is not correct. On perusal of the profit & loss account on record at PB 59, the gross receipts from construction business has been declared at ₹ 2,57,75,427/- and liquor business at PB 42 has been declared at ₹ 36,01,644/-. The purchases against liquor business are ₹ 29,76,558/- at PB-2 which is a matter of record. If the gross receipts from liquor business are reduced from the total gross receipts then the receipt from construction business comes at ₹ 2,57,75,427/- and the assessee has already declared the net profit from the liquor business at ₹ 93,788/- and from construction business at ₹ 5,87,632/- at PB 42 & 59. Therefore, the addition by the AO will tantamount to double taxation, which in fact is not called for. Therefore, in the facts and circumstances, the ld. CIT(A) has rightly deleted the addition made by the AO. As regards the second addition with regard to an amount of ₹ 5,33,542/-, the assessment record was called for, which was perused and reconciliation of the accounts was placed on record with M/s. Ericson India Pvt. Ltd; Gurgaon, where the opening balance of ₹ 14,25,263/- was also taken into consideration by the AO, which was meant in fact for the preceding year. Few adjustments were part of the reconciliation, as per statement of account of M/s. Ericson India Pvt. Ltd. and receipts as per TDS certificate. We find that the receipts from M/s. Ericson India Pvt. Ltd. were of ₹ 31,92,644/-, which in fact had been declared by the assessee in its total receipts from the contract business, therefore, by applying a net profit rate on the said amount by the AO will tantamount to a double taxation. The assessee having declared receipts in the profit & loss account cannot again be a subject matter of taxation, which the AO has done and the ld. CIT(A) has rightly deleted the said addition. - Decided against revenue.
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2015 (2) TMI 489
Reopening of assessment - excessive depreciation claim on rolling mill rollers and vehicles - Held that:- The learned Departmental Representative correctly submitted that the assessee has not questioned the jurisdiction of the AO during the pendency of the assessment proceedings nor did he challenge the jurisdiction in the appellate proceedings before the CIT(A). Therefore, he is precluded from challenging the jurisdiction of the AO at this stage before the Tribunal. As the assessee has appeared in the proceedings before the AO as well as the CIT(A) without any protest and therefore in view of the provisions of sec.124(3)(a), we are of the opinion that the assessee is not entitled to raise this question at this stage. Therefore ground relating to validity of the reopening of the assessment u/s 148 of the Act is rejected. - Decided against assessee. Notice u/s 143(2) challenged as barred by limitation - Held that:- The proviso to sec.148 clearly applies to the facts of the case before us and as provided under clause (b) of the said proviso, the notice which is u/s 143(2) issued after the expiry of 12 months from the end of the month in which the return was filed but before the expiry of the time limit for making the assessment, re-assessment or re-computation as specified in sub-sec.(2) of sec.153 shall be deemed to be a valid notice.- Decided against assessee. Disallowance of depreciation on rolling mill rollers - Held that:- The assessee is not eligible for the claim of depreciation on the leased assets which are found to be not in existence. The learned counsel for the assessee, in addition to the above, has raised an alternative contention that if the lease of rolling mill rollers was held to be a bogus lease, then income offered by the assessee as 'lease rentals' should also be reduced and the tax levied accordingly. This contention of the assessee appears to be reasonable. When the lease itself has been held to be only a paper transaction and a bogus transaction, then income there-from also cannot be accepted. In view of the same, we direct the AO to consider the contention of the assessee and reduce the lease rental income from the taxable income and levy tax accordingly subject to the condition that the assessed income shall not be less than the returned income. - Decided in favour of assesee for statistical purposes. Higher rate of depreciation - @40% on leased out trucks allowed by CIT(A) OR 25% allowed by the AO treating the 'leased trucks' as plant and machinery - Held that:- CIT(A) has appreciated the contention of the assessee that leasing is also a part of hiring and therefore there is bound to be higher wear and tear due to rough use and the Hon'ble Madras High Court in the case of CIT vs. Madan & Co.(2001 (9) TMI 50 - MADRAS High Court ) has held that the essence of higher depreciation on assets given on hire is that there is higher wear and tear due to rough use. The Revenue has not been able to present before us any decision to the contrary or any evidence to the contrary. In view of the same, we are not inclined to interfere with the order of the CIT(A). - Decided against revenue.
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2015 (2) TMI 481
Disallowance u/s 14A - whether amount invested in securities were not out of borrowed funds - Held that:- In view of the fact that specific term loans were obtained for specific assets and investment in net working capital was much more than working capital limit, it can be said that no borrowed funds were used for making investment and therefore disallowance of interest u/s 14A was not justified. The incurring of short term loss from mutual funds and earning from long term capital gains on shares proves that assessee was continuously engaged in investment activities both short term and long term which cannot be done without proper human resources and proper infrastructure. Therefore, we are of the considered opinion that the Assessing Officer had rightly disallowed 0.5% of expenditure as disallowance u/s 14A of the Act. In view of the above, we restrict the disallowance to the extent of ₹ 5,64,016/- and delete the addition of ₹ 18,39,156/- on account of disallowance of interest u/s 14A of the Act. - Decided partly in favour of assessee
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Customs
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2015 (2) TMI 513
Benefit of Notification No. 203/92-Cus dated 19/05/2002 - violation of the condition V(A) of Notification No. 203/92-Cus - Held that:- In the show cause notice, the allegations made and the Commissioner confirmed in adjudication holding that the transferor-exporter has availed MODVAT credit and therefore, the appellant is not entitled for the exemption Notification No. 203/92-Cus. It is observed that neither in the show cause notice nor in the impugned order, the allegation of availment of MODVAT credit by the transferee of the licence was supported by any evidence from which any inference can be drawn that the exporter has availed MODVAT credit. Though the adjudicating authority has recorded that there is a declaration of non-availment of MODVAT credit by the exporter on the shipping bill/AR4s. However, it could not be established by the adjudicating authority by adducing any evidence that the declaration is incorrect or false. In such a situation, it cannot be concluded that the exporter has availed input stage MODVAT credit in terms of Rule 57A of the Central Excise Rules, 1944 and there is any violation of condition (V)(A) of Notification No. 203/92-Cus. Demand of customs duty was confirmed on the appellant, who is the transferee of the advance licence. However, as regard the condition of non-availment of MODVAT credit provided under Condition No. V(A) of Notification No. 203/92-Cus., the obligation is on the exporter and not on the transferee of the licence. Therefore, the entire basis of the show cause notice and the consequent confirmation of demand is incorrect. - Commissioner has wrongly denied the exemption Notification No. 203/92-Cus to the appellant and confirmed the customs duty demand by denying the benefit of exemption Notification No. 203/92. - Decided in favour of assessee.
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2015 (2) TMI 512
Demand of differential duty - benefit of CVD exemption under Notification No. 02/2011-CE dated 01/03/2011 - department was of the view that the goods under import are not food mixes but food supplements having medicinal qualities containing "specific proteins, minerals and vitamins with sustained release of strength - Held that:- The "Pediasure" is an instant food consisting of starch, sugar, oil, etc., with minor quantities of minerals and vitamins. The product "Ensure" is also a similar product mainly consisting of starch, sugar, protein with minor quantities of vitamins and minerals and this is for consumption by the elderly people, who need essential nutrition in their diet. The product is consumed by mixing them with water. From the product literature available, it is clearly seen that they are food mixes meant for different age group. The notification covers "all food mixes including the instant food mixes". The notification does not stipulate that it should be for consumption by all people or by all age groups. The reliance placed by the Revenue on the decision of Dry Tech Processors India P. Ltd., (2011 (4) TMI 591 - CESTAT, NEW DELHI) is not applicable to the facts of the case because in that case the products consisted of only minerals and vitamins. In the present case minerals and vitamins are in minuscule quantity and bulk of the constituents are carbohydrates, protein, sugar, etc. Therefore, the facts involved in the present case are different and distinguishable from the Dry Tech Processes (I) Pvt. Ltd. case. In the case relied upon by the appellants, namely, Sankalp Food Products [2003 (4) TMI 302 - CEGAT, MUMBAI], Sonic Biochem Extraction (P) Ltd., (2004 (4) TMI 325 - CESTAT, NEW DELHI), this Tribunal has given a liberal interpretation to the term food mixes and held that protein isolate and textured soya, etc. would come within the scope of food mixes. Similar in the case of Pioma Industries, it was held that soft drink concentrate would come within the scope of food mixes. Product imported by the appellant falls within the category of food mixes and the appellant would be eligible for the benefit of Sr. 8 of in the table of Notification No. 02/2011-CE dated 01/03/2011 in respect of CVD - Decided in favour of assessee.
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2015 (2) TMI 511
Denial of refund claim - Refund of SAD in terms of Notification No. 102/2007-Cus. dated 14.9.2007 - Held that:- Following decision of Chowgule & Company Pvt. Ltd. vs. CC&CE [2014 (8) TMI 214 - CESTAT MUMBAI (LB)] - appellant has made out a case. - Decided in favour of assessee.
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2015 (2) TMI 510
Suspension of CB licence - Held that:- CBLR 2013 lays down time limits to initiate the inquiry and completion of the same and for passing of the final order. The stipulated time limit available is 9 months from the date of receipt of the offence report by the licensing authority. The CBEC also, in circular no. 9/2009 dated 8/4/2009, has emphasized the need for completion of inquiry within time limit stipulated. - In the present case time limit has already expired. In these circumstances, we set aside the continued suspension of CHA licence No. 11/369 of M/s. Mahindra Shipping Agency and direct the Licencing Authority to allow the appellant to function as CHA. However, Revenue is at liberty to complete the inquiry and thereafter, take appropriate action in accordance with law. - Appeal disposed of.
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2015 (2) TMI 509
Conversion of free shipping bills - whether case involving conversion of free shipping bill to drawback shipping bill can be heard by Single Member Bench or Division Bench - Held that:- disputed cases other than cases involved determination of question having relation to the rate of duty of Custom or value of the goods for the purpose of assessment is in the issue and if the amount does not exceed 50 lakhs, should be heard by Single Member Bench. - conversion of free shipping bills to drawback shipping bills does not involve any issue either of rate of duty or value of goods and it does not involve any quantum of drawback. Therefore, there is no doubt that the present case falls under clause (b) of sub-section of Section 129C and should be heard by a Single Member Bench. From the provisions of Section 129 C (4) and also view taken by the various coordinate single member benches, I am of the view that the present case which involves only conversion of free shipping bill to drawback shipping bills can be heard by Single Member Bench. Since coordinate bench in the case - [2014 (11) TMI 857 - CESTAT MUMBAI] Midex Global Pvt. Ltd. Vs. Commissioner of Customs, Pune has taken different view that this nature of cases should be heard by Division Bench and not by Single Member Bench, I direct the registry to place this matter before the Hon'ble President for constituting a larger bench to decide the issue “whether case involved conversion of free shipping bills to drawback shipping bills can be heard by the Single Member Bench or by Division Bench”.
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Corporate Laws
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2015 (2) TMI 482
Maintainability of petition - Whether the present petition ought to be entertained in view of the alternate dispute resolution mechanism as provided under OM dated 22.01.2004 (i.e. the PMA). And, whether the petitioner can be permitted to challenge the jurisdiction of the Appellate Authority after participating in proceedings before the said authority without protest or any reservation. - Held that:- SAIL preferred an appeal before the Appellate Authority and pursued its appeal before Shri T.K. Vishwanathan. The contention that SAIL was not aware of the designation of Shri T.K. Vishwanathan cannot be accepted as the same was clearly indicated in the communications issued by the said Authority for holding hearings. A notice for hearing before the Appellate Authority that was issued on 23.02.2010, has been produced by EPIL which conspicously mentions that the hearing is before “T. K. Vishwanathan, Adviser to Minister of Law and Justice, Ministry of law and Justice”. It is also not disputed that Shri T.K. Vishwanathan held a rank equivalent to a Secretary, Government of India. It is also clear that SAIL pursued its remedy before the said Appellate Authority willingly and without any reservation. SAIL filed an appeal against the award of the Sole Arbitrator on 07.04.2008 and the appellate award was passed on 17.02.2011. Notably, SAIL preferred the present petition on 18.12.2012, that is, twenty two months after the appellate award and more than four and a half years after filing its appeal before the Appellate Authority. SAIL’s challenge to the jurisdiction of the Appellate Authority has to be viewed in this factual context. SAIL cannot be permitted to impugn the jurisdiction of the Appellate Authority in these circumstances. It would be manifestly unfair to EPIL, if SAIL is permitted to do so after having availed of its chance before the Appellate Authority. The principle that the jurisdiction cannot be vested by consent of parties has limited application to alternate dispute resolution mechanisms, principally for the reason that such mechanisms are consensual and aquire their validity from agreement between parties. - Decided against Petitioner.
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Service Tax
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2015 (2) TMI 525
Levy of tax on interest income - Hypothecation - banking and financial services - No provision under Finance Act, 1994 to tax interest income - Held that:- The financial leasing services and hire purchase of vehicles/machineries squarely falls under the explanation of financial leasing services as defined under Section 65(12) of the Finance Act, 1994. But from the reading of the aforesaid provisions of law and judgment of the Apex Court, it can held that the service tax is the tax on an activity carried out and consideration received for carrying out such activity is only taxable by the Act. Interest being a consideration for the liquidity forgone by the Bank due to lending of the fund, that is not brought within the purview of the Finance Act, 1994 for taxation in absence of any consolidated service charges included in such interest receipt and discernable. No evidence in this regard came to record. - Decided in favour of assessee.
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2015 (2) TMI 524
Goods Transport Operators - Interest and penalties under Sections 76, 77 & 78 - Held that:- Following decision of Precot Mills vs. UOI [2009 (11) TMI 627 - KERALA HIGH COURT] and CCE vs. Eimco Elecon Ltd. [2010 (7) TMI 477 - GUJARAT HIGH COURT] - demand raised vide show-cause notice dated 09.11.2004 is not maintainable. - Decided in favour of assessee.
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2015 (2) TMI 523
Waiver of predeposit of CENVAT credit - Capital goods - adjudicating authority has confirmed the demand on ineligible credit on capital goods as well as on input services utilized in various activities and for construction of rest room in the railway yard - Held that:- applicants have used rails, dust separation system, tyre cleaning system etc. in the railway yard. The applicants have also availed input service credit on the construction service for the construction of railway rest room at railway yard. - all the capital goods are installed and used in the railway yard for handling and transportation of coal from the railway yard to the captive power plant. The Hon'ble High Court of Rajasthan in the case of Aditya Cements (2007 (3) TMI 190 - HIGH COURT RAJASTHAN) held that use of materials in the railway track are essential for transporting fuel for manufacture of final product in the plant. As regards the input service, I find that the applicants have availed input service tax of construction service used in the construction of rest rooms in the railway yard which has no nexus to the manufacture of excisable goods. The case law relied by the applicants are not applicable to the present case. Prima facie, the applicants have not made out a prima facie case for waiver of predeposit of entire dues in respect of demand on input service credit. - Partial stay granted.
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2015 (2) TMI 522
Demand of service tax - Works contract service - Held that:- Nevertheless the adjudication order came to be passed against the appellant since the appellant did not reply to show-cause notice at all and did not attend the personal hearing also. After hearing the appellant and taking note of the fact that appellant is an individual and from the submissions made, it was felt that appellant has got into trouble because of ignorance of law and also peculiar circumstances which were explained in detail. We consider that appellant deserves another chance to defend himself and to make his detailed submissions. Accordingly, the impugned order is set aside and the matter is remanded to the original adjudicating authority to pass an order on merits after following principles of natural justice. - Decided in favour of assessee.
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Central Excise
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2015 (2) TMI 521
Demand of differential duty - Levy of duty on molasses - Held that:- When the prevailing price of the molasses was at ₹ 100 per metric tone, the appellant have sold the molasses at much reduced price of ₹ 10 per metric tonne and have paid duty on this basis for which there is no justification. We find that it is not disputed that during the period of dispute there was control of the State Excise Authorities over the production storage and sale of molasses and that sale of molasses, in question, at reduced price was under intimation to the State Excise Commissioner. It is seen that in the sale invoices of the molasses, the same has been mentioned as of second grade. In this case, there is neither allegation nor there is any evidence that the sale of the molasses was not to independent buyers and that the price was not the sole consideration of sale. When it is not disputed that the sale was to independent buyers and price was the only consideration for sale and was not influenced by any other consideration, in our view, there would be no justification for rejecting the sale price and adopting the comparable price at which the molasses was being sold by other manufacturers as the assessable value. Moreover, when the sale invoices show the molasses sold on of second quality, if the Department alleges that it was of first quality, and therefore, must have been sold at much higher price, it is for the Department to produce evidence in this regard, which has not been done. - Impugned order not sustainable - Decided in favour of assessee.
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2015 (2) TMI 519
SSI exemption notification no.9/2002-CE - whether the SSI exemption would be admissible to the appellant, when the declaration, though sent by the appellant under certificate of posting was not received either in the office of the Dy. Commissioner or in the office of the jurisdictional Range Superintendent - Held that:- For the declaration, the appellant’s unit would be eligible for SSI exemption. There is also no dispute that the appellant had sent the declaration under certificate of posting through postal authorities, Mayapuri, New Delhi - department does not dispute the appellant s claim regarding sending of declaration from Mayapuri Post Office under certificate of posting and also it is not disputed that otherwise, the appellant are eligible for exemption, the benefit of exemption cannot be denied just because the declaration was not received in the office of the Dy. Commissioner or in the Range Superintendent more so, when a copy of the declaration dated 28.08.2002 has been produced before the Asstt. Commissioner. In our view, the requirement of filing of the declaration has been substantially complied with and since as held by the lower authorities, the appellant are otherwise eligible for exemption, the benefit of exemption can not be denied just because the declaration was not received. The impugned order, therefore, is set aside - Decided in favour of assessee.
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2015 (2) TMI 518
Differential duty liability - Assessee collected additional amounts as transportation charges by raising various debit notes but not indicating the said amounts on the invoice - Held that:- there is nothing on the records to show that the amounts collected were not freight charges but something else. On perusal of the records it also transpires that the respondent had collected only an amount, which is freight paid by them to the transporters and raised a debit note separately. We find strong force in the contention raised by the learned Counsel that the issue is now covered by various decisions and recent being CCE vs. Garware Enterprises Ltd. - [2014 (6) TMI 819 - CESTAT MUMBAI]. We find it so. The issue in hand is squarely covered by the decision in the case of Garware Enterprises Ltd. (supra). In view of the foregoing, we hold that the impugned order is correct and do not suffer from any infirmity. - Decided against Revenue.
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2015 (2) TMI 517
Clandestine removal of goods - shortage of finished goods - Reversal of CENVAT Credit - Held that:- Average basis counting of the MS Ingots was done and there after it was arrived that physical finished goods available in the factory of the appellant was compared with the statutory records and a shortage of 8-8.5% was found. I find that apart from that, no other corroborative evidence has been ascertained in this matter to allege the clandestine removal of the goods. Although the authorized representative of the appellant has admitted the shortage but he has not admitted any fact that any goods have been removed from the factory without payment of duty. - In that scenario charge of clandestine removal of the case is not sustainable. I further find that in that case, the shortage was found on average basis more than 10 percent but in the case in hand the shortage is less than 10 percent. - The physical verification of the goods has been done on average basis and there is a shortage of only 8-8.5%, further there is no corroborative evidence has been brought on record to allege clandestine removal of the goods. In this scenario, I hold that appellant is not liable to pay duty on the shortage of finished goods found during the course of visit on 07.08.2010. - After going through the CBEC Circular No.877/15/2008 dated 17.11.2008, I find that on such discount given by the supplier on defective goods, the appellant is not required to reverse the Cenvat Credit availed on the inputs - as duty is not payable by the main appellant, therefore the penalties cannot be imposed on both the appellants - Decided in favour of assessee.
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2015 (2) TMI 516
Availment of SSI exemption - CENVAT Credit - Suppression of stock - Held that:- Counsel submitted a worksheet according to which it is seen that CENVAT inputs contained in the closing stock of the final product is only 18,087 kilogram and duty payable on that quantity is only ₹ 40,166/-. The learned counsel drew my attention to another worksheet which showed the details of invoices on which credit was taken and the learned counsel submitted that appellant had followed FIFO method and arrived at the quantum of cenvated inputs used in the final products and such cenvated inputs contained in the final product lying in stock. Prima facie, I found that worksheet to be in order and even though learned AR requested that the matter may be remanded for verification, I find that in view of the submissions by the learned counsel that the figures are correct and the unit has closed down and now it may not be possible to do any further verification also even though learned counsel promised to produce records. Accordingly, the appellant is directed to deposit the amount of CENVAT credit worked out by them with interest within eight weeks and report compliance on 6.3.2015. After noting the compliance, the matter will be finally decided. Prima facie, I have also taken a view that this is not a case where penalty should be imposed since this type of mistake can be made by SSI units. - Decided partly in favour of assessee.
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2015 (2) TMI 515
Denial of Cenvat Credit - generation of electricity in captive power plant - electricity was sold to M/s. Ajmer Vidyut Vitran Nigam Ltd. and some electricity was cleared to their sister unit. - Held that:- Considering the fact that the electricity which was cleared by M/s. Ajmer Vidyut Vitran Nigam Ltd. the appellant is not entitled to take Cenvat Credit on inputs which are attributable to the electricity sold to M/s. Ajmer Vidyut Vitran Nigam Ltd. Therefore, appellants are required to reverse the amount of inputs used in generation of electricity sold to M/s. Ajmer Vidyut Vitran Nigam Ltd. Further, I find that the electricity which was transferred to their sister unit for manufacturing of final product, the appellant is entitled to take Cenvat Credit as held by this Tribunal in their own case. As the fact of clearance of electricity to M/s. Ajmer Vidyut Vitran Nigam Ltd. came to the knowledge during the course of investigation otherwise the appellant would not have reversed the said credit and the same fact has not been brought in the knowledge of the department. Therefore, appellant is liable to be penalised on that account - Decided against assessee.
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2015 (2) TMI 514
Waiver of pre deposit - Denial of CENVAT Credit - Bogus invoices - Supreme dismissed appeal filed by assessee against the order of High Court [2014 (11) TMI 458 - BOMBAY HIGH COURT] - after giving option to assessee that if order of the Customs, Excise and Service Tax Appellate Tribunal is complied with within three months from today, the delay in compliance shall be treated as condoned and the appeal shall be heard and decided on merits by the Tribunal.
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Indian Laws
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2015 (2) TMI 488
Maintainability of petition - petitioners were not parties to the said memorandum of understanding which contained arbitration agreement - Held that:- A perusal of the record clearly indicates that none of the members of the society were parties to the development agreement entered into between the respondent no.1 and the society. It is however the case of the petitioners that since the society did not challenge the impugned award and the said award has affected the rights of the petitioners in respect of their respective flats in the society, petitioners who are claiming through the society are also thus parties to the arbitration agreement and being parties aggrieved are entitled to challenge the impugned award though the society has not impugned the said arbitral award. Only the parties to the arbitration agreement can exercise various rights and invoke the mechanism of adjudication of disputes by arbitration by referring their disputes to arbitration for adjudication and not by an outsider. The only exception carved out under the Act is under sections 40 and 41 i.e. in case of the death of a party to the arbitration agreement which can be enforceable by or against the legal representative of the deceased and in case of insolvency, if such insolvant was party to arbitration agreement and if official assignee or receiver adopts such contract. Arbitral tribunal is a private forum and gets jurisdiction to adjudicate upon the disputes between the parties to the arbitration agreement and not the persons who are not parties to the arbitration agreement. Proceedings under section 34 of the Act are not by way of an appeal. There is no other provision under the Act for challenge of an arbitral award except what is provided under section 34 of the Act. In my view only a party to the arbitration agreement which is defined under section 2(1) (h) of the Act can challenge an arbitral award under section 34 of the Act and not by a person who is not a party to the arbitration agreement unless covered by sections 40 and 41 of the Act. However if a person is wrongly impleaded as party to the arbitration proceedings and is aggrieved by arbitral award, he can invoke section 34 of the Act. Since the petitioners herein could not have been impleaded as parties to the arbitration proceedings before the learned arbitrator for want of arbitration agreement between the petitioners and the respondent no.1, nor the petitioners were parties to the arbitration proceedings, petitioners have no locus to file petition under section 34 of the Act for setting aside such an arbitral award. - Principles laid down by this court in the said judgment in the case of Supreme Megha Constructions LLP would be applicable to the application made by the petitioners under section 34 of the said Act. I am therefore of the view that this petition is not maintainable at the instance of the petitioners. - Decided against appellants.
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2015 (2) TMI 487
Encashment of bank guarantee - Conditional bank guarantee or unconditional bank guarantee - petitioner had submitted bank guarantee to the respondent No.1 on execution of MoUThe respondents' case is that these are unconditional bank guarantees. - Held that:- The petitioner has not pleaded anywhere, either in his petition or in his rejoinder that these bank guarantees were unconditional bank guarantees. However, during the course of arguments and also in his written submissions, it is argued by the petitioner that the bank guarantees were not unconditional, but were related to the MoU, hence these are conditional bank guarantees and cannot be encashed unless the terms and conditions of the MoU are fulfilled. It is argued that one of the terms and conditions of the MoU was that the respondent No.1 was to clear the RA bills and also make the payment of the escalation amount, as per the schedule. It is submitted that part of the money towards RA bills is still due and that no payment has been made towards escalation charges, therefore, the respondent cannot encash the bank guarantee. The bank guarantee is an independent contract between the beneficiary and the bank. So, if it is unconditional, then this contract between the beneficiary and the bank has to be honoured. The Court cannot restrain the two contracting parties to honour their agreement, unless except on the two grounds, i.e., an egregious nature of fraud has been played upon the petitioner, which had issued this bank guarantee, or that he shall suffer an irretrievable loss. The bank guarantees in dispute had been issued towards mobilization, advance purpose/execution of the works awarded. The language used in all the three bank guarantees is the same, except that one qualifies as bank guarantee towards mobilization and other towards advance purpose/execution of work. The language and the title of subject bank guarantees emphatically show that it is an unconditional irrevocable bank guarantee and not the conditional one, as argued by learned counsel for the petitioner. The contention that this bank guarantee is in relation to MoU does not make the bank guarantee as conditional one because all the bank guarantees are given by the contractors, pursuant to the some agreement and thus all the bank guarantees are pursuant to some agreement. That does not make a bank guarantee a conditional one, unless it is shown in the bank guarantee that the banks are to honour the bank guarantee on fulfilment of some condition on the part of any party. Under this bank guarantee, the bank was under obligation to encash the bank guarantee in favour of the beneficiary on demand. Thus, the bank guarantees are unconditional bank guarantees and the argument of the petitioner to the contrary has no force. Whether any fraud has been played upon the petitioner for obtaining the bank guarantees in dispute - Held that:- Fraud can be ascertained on the basis of facts. The person who comes before the Court with the allegation that a fraud has been played upon him has to establish those facts on record, which constitute the fraud. In its pleading, the petitioner has only pleaded in para 21 that threat to encash the bank guarantee amounts to a clear egregious fraud by respondent No.1. No other fact has been pleaded by the petitioner which constitute fraud. In rejoinder also, the petitioner has not pleaded any facts which constitute fraud, except that the egregious fraud is made out from documents and pleadings. In written synopsis and during arguments, it has been submitted that the fraud on the part of respondent No.1 is clear from the fact that the respondent did not pay the escalation charges under MoU and also failed to pay the balance amount of RA bills and that the encashment of bank guarantee was a consideration towards such payment. From the bare reading of the MoU, it is apparent that payment of escalation charges was not the condition precedent of submitting the bank guarantee. Encashment of the bank guarantee was also not made conditional to the clearance of RA bills. It is thus clear that the submission of bank guarantee was unconditional. During the course of arguments, however, it is argued by the learned counsel for the petitioner in a desperate attempt to succeed that the petitioner was induced into the MoU by misrepresentation and fraudulent representations by respondent with the sole intention to obtain the three bank guarantees with sole purpose to encash them in order to save themselves from financial crisis and to get enriched. These facts they were cheated into the MoU are not pleaded by the petitioner, rather in the petition, contrary facts have been pleaded. The petitioner, therefore, has failed to satisfy this Court that he has been induced by respondent No.1 into this MoU and has put him in a position of undue disadvantage, while putting respondent in a position of undue advantage. Both parties have voluntarily as part of a settlement entered into MoU and pursuant to that while the respondent refunded the cash amount of ₹ 4,28,00,000/-, the petitioner executed the present unconditional bank guarantee. The petitioner, therefore, has failed miserably to show that any egregious fraud had been played upon him for execution of the present bank guarantees. There is no dispute to the fact that the respondent is a company worth of ₹ 6270.83 crores as an individual and worth of ₹ 7568.69 crores as a group and is not a sick company, as stated by respondent No.1 on affidavit. - It, therefore, cannot be said that the petitioner shall suffer an irretrievable injury if the stay is not granted to it. - petitioner is not entitled to any relief - Decided against Petitioner.
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2015 (2) TMI 486
Encashment of bank guarantee - petitioner submitted that bank guarantees were deposited towards security deposit in terms of clause 9.1 of the GCC - Held that:- There is no dispute to the fact that under Clause 9.1 of GCC the petitioner was required to furnish security deposit. This clause also gives liberty to the petitioner to deposit the security either in cash or in the form of government securities or fixed deposit receipts or bank guarantees furnished by any of the nationalised banks. The petitioner had chosen to furnish the said security deposit in the form of bank guarantees. From the language of the bank guarantee it is apparent that all the bank guarantees are unconditional bank guarantees. The bank has clearly stated “to unconditionally pay the amount claimed by the Corporation on demand and without demur to the extent aforesaid”. The bank guarantees in dispute, clearly in unequivocal terms and unconditionally recite that the amount would be paid without demure or objection. The bank guarantee thus is an independent contract between the bank and the beneficiary and can be challenged only on the ground of fraud and irreparable injury. Petitioner has challenged the invocation of the bank guarantee only on the ground of irreparable injury. The plea of irreparable injury is based on the contentions that the petitioner since having financial problems would suffer irreparable loss, if the respondent be allowed to encash the band guarantees. Whether this constitutes irreparable injury of the nature which is sufficient to restrain the respondent from invoking the bank guarantees is the matter which requires consideration. Now what is an irreparable loss and injury on the basis of which court can restrain the respondents, has been discussed and the principle laid down by the supreme court in the U.P.State Sugar Corporation’s case (1996 (12) TMI 294 - SUPREME COURT OF INDIA). From the principles laid down in the Itek Corporation v. First National Bank of Boston [1983 (6) TMI 203 - UNITED STATES DISTRICT COURT], it is apparent that the petitioner can be said to have suffered irreparable injury if he has been able to show that he shall suffer irreparable harm. - petitioner has failed to bring on record which can show that the petitioner shall suffer an irreparable harm. The petitioner has failed to show that in case he succeeds before the arbitrator, he will not be able to recover the refund of his security amount. It is not his case that the respondent is not financially sound or would not be in a position to refund the decretal amount. Clause 9.1 of GCC clearly contemplates that the security deposit is refundable only on completion of the work and after the engineer-in-charge certifies in writing that the work has been completed as per the condition 31. Admittedly, in the present case the petitioner has only completed work of 35% worth of contract amount and thus in view of clause 9.6 of GCC the petitioner is not entitled for the refund of security deposit and the security deposit is to remain with respondent no.1. For this reason also the petitioner is not entitled for the relief. - Mere pendency of a reference before the arbitrator is also not a ground to issue restrain order to the bank guarantee. Therefore, the pendency of the arbitration proceedings also is not a ground to restrain the respondent no.1 from invoking the bank guarantees. Also in the case of Vinitec Electronics Private Ltd. vs. HCL Infosystems Ltd. reported in [2007 (11) TMI 588 - SUPREME COURT] the Supreme Court has clearly held that the process of the arbitral proceedings is not a ground to restrain the invocation of the bank guarantees especially when there is no allegation that it would be difficult to realise the amount from the respondent. no ground to hold that the petitioner is entitled to any relief. - Decided against Petitioner.
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2015 (2) TMI 485
Validity of a two tiered arbitration agreement - whether a writ petition would be maintainable against an appellate award made under the PMA - Held that:- SAIL has not challenged the PMA and/or the provision of a two tier arbitration procedure in its petition. Secondly, this is contrary to SAIL’s conduct in other proceedings. In another case - [2015 (2) TMI 482 - DELHI HIGH COURT], which also relates to arbitration proceedings under the PMA in respect of disputes with EPIL, SAIL had preferred an appeal against an award made by an arbitrator before the Appellate Authority and has pressed for its right to the appellate remedy provided under the PMA, before this court. A two tier arbitration procedure does not fall foul of the A&C Act. An arbitration agreement providing for an appellate procedure was permissible under the Indian Arbitration Act, 1899 as well as Arbitration Act, 1940. The Single Jugde in previous case set aside the award of the Committee on the ground that the award of the committee did not conform to the scheme of the Indian Arbitration Act, 1899. Principle is equally applicable to the A&C Act and there is no provision in A&C Act that proscribes a two tier arbitration procedure. - However, it is not necessary to delve into this issue any further as it is not determinative of the fate of this petition. As noted earlier, SAIL has not impugned the PMA or the two tier procedure; on the contrary SAIL had voluntarily accepted the same. Thus, the validity of a two tiered arbitration agreement need not be considered in this petition. - Decided against Petitioner.
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2015 (2) TMI 484
Appointment of Arbitrator - Non consensus between parties - Interpretation of clause 39.2 which governs the arbitration agreement between the parties - Held that:- From the bare reading of subject clause, it is apparent that the clause itself prescribes a mode of appointment of an Arbitrator in case of default of either of the parties to nominate its Arbitrator for constitution of the Arbitral Tribunal, within 60 days - Admitted facts clearly show that the respondent invoked the arbitration clause and nominated its Arbitrator and the petitioner did not nominate his Arbitrator within 60 days, the period prescribed in the clause. The contention of the petitioner is that on receiving a letter from the respondent invoking the arbitration clause, they wrote a letter dated 20.05.2014 and asked the respondent to give them time up to 01.08.2014 for appointment of the Arbitrator. It is pertinent to mention here that the petitioner did not appoint their Arbitrator even by 01.08.2014, the time they sought from respondent for appointment of the Arbitrator. Their contention that they did so is contrary to their own documents placed on record. Their letter dated 31.07.2014 clearly shows that till 31.07.2014, they had not nominated any Arbitrator. The letter dated 13.08.2014 of the petitioner clearly shows that a letter for appointment of the Arbitrator dated 02.08.2014 was signed by their Director only on 07.08.2014. Vide letter dated 02.08.2014 the petitioner had informed the respondent that they had appointed Justice K.S. Gupta (Retd.) as the nominee Arbitrator. Since the letter dated 02.08.2014, appointing the Arbitrator by the petitioner, was executed only on 07.08.2014, it cannot be said that the petitioner had nominated his Arbitrator before 07.08.2014. Even if we presume that the respondent by remaining silent on the letter of the petitioner for seeking time till 01.08.2014 to appoint an Arbitrator amounts to consent or acquiescing to the request, still the petitioners were bound to nominate their Arbitrator atleast by 01.08.2014. It is also apparent from the letter of the respondent dated 06.08.2014 that they turned down the request of the petitioner in its letter dated 31.07.2014 for grant of further time for nomination of the Arbitrator and pursuant to second part of the arbitration clause appointed their nominated Arbitrator as the sole Arbitrator. The respondent had done so before the petitioner appointed its arbitrator. From these facts, it is apparent that while the respondent had acted as per the procedure prescribed under the arbitration clause binding the parties, it was the petitioner, who had failed to comply the procedure under the arbitration clause. This clearly shows that the petitioner is a defaulting party. An arbitration agreement is an independent agreement and is binding on both the parties. It is a settled law that neither of the parties can unilaterally change the terms and conditions of any agreement. The petitioner under this agreement was bound to nominate its Arbitrator within 60 days, but admittedly, he did not do so for some reason given by him in his letter dated 20.05.2014 and requested the respondent to give him the time to nominate his Arbitrator till 01.08.2014. Even if I say that the silence on the part of the respondent to this request of the petitioner amounts to consent and grant of time to petitioner for nominating the Arbitrator till 01.08.2014, still, admittedly, the petitioner did not appoint the Arbitrator within that extended period. There is therefore a complete violation of procedure of Arbitration clause by the petitioner. - it was the petitioner who had failed to follow the procedure of appointment of Arbitrator and thus is a defaulting party. Since the petitioner had failed to appoint its nominee Arbitrator in terms of Arbitration agreement, it cannot be said that the appointment of nominee Arbitrator by him is as per the agreed procedure. Part II of Clause 39(2) clearly stipulates that if either of the parties fails to appoint their Arbitrator, the nominated Arbitrator appointed by one party shall act as a sole Arbitrator. In the present case since the respondent had invoked the arbitration clause, and petitioner had failed to nominate his Arbitrator in terms of agreement, the respondent has rightly vide letter dated 06.08.2014 nominated its Arbitrator as a sole Arbitrator. This Court under Section 11(6) of the Act therefore has no jurisdiction to appoint any other person as an Arbitrator. - it is apparent that the petition has no merit and the same is liable to be dismissed. - Decided against Petitioner.
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2015 (2) TMI 483
Pre deposit for reference to arbitration - Whether in view of Section 8 of the Arbitration Act and Section 408 of the BPMC Act, mere existence of a clause for arbitration in an agreement, ipso-facto casts an obligation on the Court to refer the matter for arbitration - Held that:- There is no dispute as regards the execution of the agreement dated 22nd April, 2009 and Clause-6 therein for reference of the dispute relating to rateable value and tax charged by the Corporation on the properties in question to arbitration. - question of existence of an arbitration agreement arose for consideration of the Apex Court in the facts of discharge of the agreement by performance and satisfaction. The dispute before the Apex Court had arisen out of a contract of insurance, which contained a clause for arbitration. There was a settlement arrived at between the parties as regards the insurance claim and the insured had issued “discharge voucher-inadvance” acknowledging receipt of amount in full and final settlement of the insurance claim. The insured, however, subsequently raised a dispute as regards the settlement alleging that settlement had been arrived at under duress and coercion. It filed an application under Section 11 of the Arbitration Act in this Court. The application was opposed by the insurer with a contention that the insured could not invoke the arbitration clause in the agreement as the agreement stood discharged by accord and satisfaction. Courts below are correct in their conclusion that, deposit of the amount in Escrow Account was condition precedent to the arbitration agreement. In the circumstance, unless the condition is fulfilled, the arbitration agreement does not get activated and come into existence. A mere writing on a piece of paper with signature of the parties by itself cannot mean existence of an agreement. What is material, is the intention of the parties in executing the document. Both the Courts below have also held that, the application for reference to arbitration is nothing but an attempt to protract the hearing of the appeals. It is nobody's case that the appeals have remained pending on account of procedural delay. The Court, as well as, KDMC are ready and anxious for taking up the appeals for hearing. But, there was clear reluctance on the part of the petitioner in prosecuting the appeals. After obtaining concession from the Apex Court in November, 2006 the petitioner has not taken any step to lead evidence of it's valuer. Today, it is 18 years since the filing of the first appeal by the petitioner and 10 years since the filing of the last appeal. It would also be relevant to note here that, the petitioner had initially filed Writ Petition to challenge the demand for taxes when the petitions were patently not maintainable. Had the petitioner on due adjudication of the dispute discharged it's tax liability, a substantial amount would have been available to KDMC for utilisation for public purposes. On account of the mischievous and dishonest conduct on the part of the petitioner, the public body has been deprived of it's legitimate funds from the year 1996 till date. Petitioner shall pay costs quantified at ₹ 1,00,000 for each petition to respondent no.1, KDMC. The costs to be paid within a period of 2 weeks from today. If the costs are not paid within the time granted, the appeals filed by the petitioner in the Court of Civil Judge Senior Division, Kalyan shall stand dismissed without further reference to the Court. After payment of costs, the petitioner, if it so desires, is at liberty to deposit the amount of ₹ 6,68,76,000 in Escrow Account within the same period of 2 weeks and renew it's application for reference to arbitration. - Decided against appellant.
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