TMI Tax Updates - e-Newsletter
August 12, 2022
Case Laws in this Newsletter:
GST
Income Tax
Customs
Corporate Laws
Insolvency & Bankruptcy
Service Tax
Central Excise
Indian Laws
Highlights / Catch Notes
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GST:
Constitutional Validity of 2nd proviso to Section 16(2) of the CGST Act, 2017 - Availabiltiy of ITC subject to payment to debtors within 180 days - whether the provision is ultra vires and dehors the provisions of the India Contract Act, 1872 Act? - It will be open for the petitioner to raise all contentions in respect of the show cause notice. It is clarified, while issuing rule as above in respect of the first prayer, that the authority shall proceed with the adjudication proceedings pursuant to the show cause notice - HC
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GST:
Seeking grant of bail - Conspiracy - Illegal and fraudulent availment of fake Input Tax Credit - It is pertinent to observe that Section 70 of CGST Act provides for recording of statements with regard to the proceedings under the Act. This section nowhere specifically says that such statements can be used against the maker of such statements during the trial. The complainant has not pointed out any legal provision which makes it impossible for the maker of the statement under Section 70 of CGST Act to retract the same - The complainant department has not given any specific reason why the accused was not summoned after 22.06.2022. - Bail allowed - DSC
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Income Tax:
Prosecution u/s 276-CC (ii) - evasion of tax - 72 days delay in filing return - considering discrepancy and considering that not only the notice issued to the petitioner before granting prosecution sanction, even the complaint filed by the Department alleges delay in filing return, while eliciting prosecution under Section 276-CC (ii) of the Act of 1961, this Court is of the view that the cognizance, which has been taken for evasion of tax is ex-facie erroneous and deserves to be quashed and set aside. - HC
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Income Tax:
Addition u/s 68 - Unexplained share application money - onus to prove - Where the assessee shows that entries regarding cash credit in a third party’s account are genuine and the sums were in fact received from the third party as loans or deposits, he has discharged the onus. In that case it is for the third party to explain the source of the moneys, and they cannot be charged as the assessee’s income in the absence of any material to indicate that they belong to the assessee. - AT
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Income Tax:
Rejection of book result u/s 145(3) - estimation of income - Deduction of depreciation from the estimated income - Depreciation should be allowable being statutory allowance where Assessing Officer has rejected the books of account and estimated the income of the assessee. However, the profit declared by the assessee in the return of income cannot be further reduced on account of partner's remuneration, interest on partner's capital and the depreciation. - AT
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Income Tax:
Addition u/s 68 - unexplained cash deposits - What is relevant is the source for the funds deposited in the bank account and assessee has proved that it has sufficient unutilised funds in the books. The availability of funds in the cash book supports the cash deposits in the bank. Therefore, Assessing Officer cannot go beyond the mandate unless he has contrary evidence. - AT
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Income Tax:
Disallowance u/s.40A(3) - expenses towards air ticket and hotel expenses in cash in excess of prescribed limit u/s.40A(3) - there is merit in arguments of the assessee that it has acted only as agent for his customers and has booked air ticket on behalf of its customers, because it is general practice in this kind of industry that tour operators will collect money from its customers and in turn, make cash payments for booking air ticket, because airlines generally does not accept cheque payments, other than cash payment or on line payment. Therefore, this fact needs to be verified from the Assessing Officer to ascertain fact with regard to arguments of the assessee that it has made cash payment to airlines on behalf of its customers as their agent and thus, same needs to be outside scope of section 40A(3). - AT
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Income Tax:
Addition u/s 56/68 - Unexplained credit in capital account - advances received by assessee for sale of the property against MOU - We notice that the AO has not expressed the view that the assessee has not discharged the initial onus placed upon it. The independent enquiry has been made by AO and the intended buyer has also confirmed the transaction and MOU. Hence, the registration or otherwise of MOU may not be relevant here, when the parties to the MOU have confirmed the execution of said agreement. - AT
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Income Tax:
Allowable business expenses u/s 37(1) - site encroachment charges, land owners’ payment etc. - Merely because the evictees did not have PAN or not assessed to tax, the same would not jeopardize the claim of the assessee. M/s SVC responded to notice u/s 133(6) and confirmed the payments. There is nothing adverse on record except for mere allegation that the transaction appeared to be collusive one and the bona-fides of the transactions were doubtful. There is no concrete material to substantiate this conclusion. - The claim was allowable as business expenditure. - AT
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Income Tax:
Nature of expenses - AO incorrectly applied matching principle for making disallowance, as he over looked the same line of business of the asessee where sales of vehicles are shown. In view of this, expenditure incurred by the assessee on setting up of a new line of assembly for manufacturing of commercial vehicle when assessee is already engaging in business of manufacturing commercial vehicle cannot be said to be capital expenditure. - Allowed as revenue expenditure - AT
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Income Tax:
TP Adjustment - determination of Arm’s Length Price (ALP) - The products are unique and not comparable to others. The terms and conditions and the economic circumstances under which the Assessee sells extruders parts and elements to AE are materially different from the comparable uncontrolled transactions. We are therefore of the view that the question of adopting the profit margins at the entity level based on the submissions made by the Assessee before the CIT(A) cannot be accepted. - AT
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Customs:
Criminal Conspiracy - Proceedings against the Superintendent of Customs, EOU (petitioner) - wrongful loss to the Government of India - The sanction given under Section 19(1)(c) for the offence punishable under Section 13 (2) read with Section 13 (1)(d) of the Prevention of Corruption Act, cannot be called as an invalid sanction in the eye of law. - HC
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Corporate Law:
Validity of summon order - Winding up of the company - Dishonor of Cheque - Section 138 of NI Act - in terms of Section 279(1) of the Companies Act, 2013, a suit or other legal proceedings can be commenced, or if pending on the date of the winding up order may be proceeded with by or against the company with the leave of the Tribunal and subject to such terms as the Tribunal may impose. - HC
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Indian Laws:
Dishonor of Cheque - cheques in question have not even been issued by the petitioner company - misuse of letter heads of the petitioner company - The petitioner company has sufficiently shown that they had no role in the case at hand and cannot thus be held liable for dishonour of a cheque which was not even issued by them or on their behalf in the first place. In these circumstances, where there are no ingredients made out against the petitioner-company, continuation of proceedings against them will be an abuse of the process of law. - HC
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IBC:
CIRP - Recovery proceedings initiated by the bank under SARFAESI Act - Respondent No. 1 certainly has the right to proceed against the collateral securities for recovery of its dues, which are independent of the resolution plan approved by the NCLT. If the resolution plan approved by the Adjudicating Authority is contravened by the concerned corporate debtor, any person other than the corporate debtor, whose interests are prejudicially affected, may make an application to the Adjudicating Authority for an order for liquidation. Where a resolution applicant succeeds as a corporate debtor, but fails to comply with its assurance in terms of the resolution plan, then subsequent step to be taken has been specified in Section 33(3) of the IBC - HC
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IBC:
Effect of interim moratorium - Dishonor of Cheque - ongoing CIRP proceedings - this court would have to interpret the terms “all the debts” and “any legal action or proceedings pending in respect of any debt” as occur in Section 96 of the Code, to mean that it would cover all such debts including any debt not pertaining to a corporate debtor for whom the accused in such a complaint under Section 138 stood as a personal guarantor to, even in his capacity as a Director of such corporate debtor - unless the wordings of a statute are “unworkable” or wholly impractical, nothing extra can be read into a statute or taken away therefrom. - Till a decision is taken by the Adjudicating Authority in terms of Sections 100 and 101 of the Code, on the application filed by the petitioner under Section 94(1) thereof, the proceedings before the learned trial court under Section 138 of the Act, would remain stayed - HC
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Service Tax:
Extended period of limitation - The assessee has not disclosed the value of taxable service for the period 10.9.2004 to 31.7.2007 in their ST 3 Returns filed to the department. Only when the department issued a show cause notice, the responded bank remitted the amount of tax. Hence, merely because they were exonerated under Section 80 of the Act from payment of penalty for reasonable cause for non payment the same yardstick cannot be taken by the bank to contend that the extended period of limitation as prescribed under proviso to section 73 of the Act is available. - HC
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Central Excise:
CENVAT Credit - Works Contract Services - Input Services - The expression “modernisation, renovation or repairs of a factory” was appearing in the definition of ‘input service’ both before and after 01.07.2012. It has not been denied by the department that the Coke Oven Project of the appellants was towards modernization and renovation of their existing plant/factory. - Appellants have correctly taken credit of service tax paid/borne in respect of all services - AT
Articles
Notifications
GST - States-
G.O. Ms. No. 9/2022-Puducherry GST (Rate) - dated
16-7-2022
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Puducherry SGST
Seeks to amend Notification G.O. Ms. No. 5/2017- Puducherry GST (Rate), dated 29th June, 2017
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G.O. Ms. No. 8/2022-Puducherry GST (Rate) - dated
16-7-2022
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Puducherry SGST
Seeks to amend Notification G.O. Ms. No. 3/2017- Puducherry GST (Rate), dated 29th June, 2017
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G.O. Ms. No. 7/2022-Puducherry GST (Rate) - dated
16-7-2022
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Puducherry SGST
Amendment in Notification G.O. Ms. No. 2/2017-Puducherry GST (Rate), dated 29th June, 2017
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G.O. Ms. No. 6/2022-Puducherry GST (Rate) - dated
16-7-2022
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Puducherry SGST
Amendment in Notification G.O. Ms. No. 1/2017-Puducherry GST (Rate), dated 29th June, 2017
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G.O. Ms. No. 5/2022-Puducherry GST (Rate) - dated
16-7-2022
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Puducherry SGST
Amendment in Notification G.O. Ms. No. 13/2017- Puducherry GST (Rate), dated 29th June, 2017
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G.O. Ms. No. 4/2022-Puducherry GST (Rate) - dated
16-7-2022
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Puducherry SGST
Seeks to amend Notification G.O. Ms. No. 12/2017-Puducherry GST (Rate), dated 29th June, 2017
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G.O. Ms. No. 3/2022-Puducherry GST (Rate) - dated
16-7-2022
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Puducherry SGST
Seeks to amend Notification G.O. Ms. No. 11/2017-Puducherry GST (Rate), dated 29th June, 2017
News
Case Laws:
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GST
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2022 (8) TMI 464
Seeking grant of regular bail - fraudulent and bogus transactions - floating of bogus firms - petitioner has submitted that there is no concrete evidence worth credence to establish his involvement in the alleged scam and that he has falsely been implicated in the instant case - HELD THAT:- Though the police does seem to have collected some evidence, which could point towards the complicity of petitioner, but at the same time this Court cannot lose sight of the fact that the petitioner has been in custody since the last more than 1½ years. Several other co-accused including the main accused Rajesh Mittal have already been granted bail. Conclusion of trial is likely to consume time inasmuch as 22 PWs have been cited and none has been examined so far.
The petition is accepted and the petitioner is ordered to be released on regular bail on his furnishing bail bonds/surety bonds to the satisfaction of learned Trial Court/Chief Judicial Magistrate/Duty Magistrate concerned - Application allowed.
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2022 (8) TMI 463
Constitutional Validity of 2nd proviso to Section 16(2) of the CGST Act, 2017 - Availabiltiy of ITC subject to payment to debtors within 180 days - whether the provision is ultra vires and dehors the provisions of the India Contract Act, 1872 Act? - violative of Articles, 14, 19(1)(g) and 300A of the Constitution or not? - Petitioner challenged SCN issued by the fourth and fifth respondents which is in the nature of intimation of tax payable under Section 73(5) / 74(5) of the Act read with Rule 142(1A) - HELD THAT:- There is no gain saying that by said show cause notice, the authorities have initiated the adjudicatory proceedings to ascertain the tax liability of the petitioner.
It is trite that the court in exercise of its writ jurisdiction, would be disinclined to set aside, much less to stay the show cause notice, more particularly when the impugned show cause notice are adjudication bound.
It will be open for the petitioner to raise all contentions in respect of the show cause notice. It is clarified, while issuing rule as above in respect of the first prayer, that the authority shall proceed with the adjudication proceedings pursuant to the show cause notice - Petition disposed off.
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2022 (8) TMI 462
Direction to open common portal for filing concerned forms for availing Transitional Credit through TRAN-1 and TRAN-2 - transitional credit - HELD THAT:- In view of the fact that opportunity to file the TRAN-1 and TRAN-2 Forms, has been opened to all concerned parties for a period of two months from 01.09.2022 to 31.10.2022, the grievance raised by the petitioner in this writ petition has been ventilated.
Petition disposed off.
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2022 (8) TMI 461
Seeking grant of bail - Conspiracy - Illegal and fraudulent availment of fake Input Tax Credit - it is also alleged that the funds from bogus billing have been transferred through shell companies - recording of statements - retraction of statements - HELD THAT:- There is no specific mention of M/s. Retro Electric Pvt. Ltd.. It is pertinent to observe that mere absence of the name of M/s. Retro Electric Pvt. Ltd. in the factual matrix summarized before the Hon’ble High Court does not per-se exonerate the accused. However, in the summarization of factual matrix before the Hon’ble High Court in TARUN JAIN VERSUS DIRECTORATE GENERAL OF GST INTELLIGENCE DGGI [2021 (12) TMI 135 - DELHI HIGH COURT], the reply filed in the present bail application and the observation of Ld. ASJ / Bail Roster Judge in order dated 05.03.2022 of the bail application of accused Mukesh Gupta it appears that whenever the bail application of any particular accused is argued before the court, his role is highlighted. In such circumstances and at this stage it is not possible for the court to observe with certainty as to who is the main culprit in the present case.
At this stage this court does not see any reason to believe that the role of any other accused is substantially more or less than the present accused in the present case.
It is pertinent to observe that Section 70 of CGST Act provides for recording of statements with regard to the proceedings under the Act. This section nowhere specifically says that such statements can be used against the maker of such statements during the trial. The complainant has not pointed out any legal provision which makes it impossible for the maker of the statement under Section 70 of CGST Act to retract the same - The complainant department has not given any specific reason why the accused was not summoned after 22.06.2022.
The applicant / accused Gorav Gupta is allowed to be released on bail in the event of arrest on furnishing of personal bond in the sum of Rs. 5 lakhs with two solvent sureties in the like amount to the satisfaction of Investigating officer / Apprehending Authority with the terms and conditions imposed - application allowed.
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Income Tax
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2022 (8) TMI 460
Garnishee order issued u/s 226(3) - garnishee order directs the bank to remit sum to the respondents/revenue - HELD THAT:- It is not in dispute that the aforementioned garnishee order rides on the back of the order dated 20.07.2022 issued by the Assistant Commissioner of Income Tax, Central Circle 17, Delhi.
ACIT via the aforesaid order, evidently, has rejected the application preferred by the petitioner, seeking stay of recovery proceedings.This application was moved by the petitioner under Section 220(6) of the Act.
It is also not disputed that the petitioner has moved an application for review of the aforesaid order, which is pending consideration with respondent no. 2 i.e., Principal Commissioner of Income Tax [in short, ‘PCIT’].
This step has been taken in consonance with the provisions of Office Memorandum dated 29.02.2016. Although the expression ‘review’ has been used in the memorandum, it is more in the nature of a revisional power, as the order which is sought to be reviewed has been passed by ACIT.
We are also informed (and something which is not disputed), that appeals against the separate orders of even date i.e., 31.05.2022, have been preferred concerning Assessment Years (AYs) 2019-20 to 2021-22, with the Commissioner of Appeals.These appeals, we are told are pending consideration.
Given the aforesaid position, the operation of the impugned garnishee order dated 25.07.2022 shall remain stayed till such time the PCIT i.e., respondent no. 2 disposes of the application for review/revision pending before it.
In case the decision of the PCIT/respondent no. 2 is adverse to the interests of the petitioner, no effect will be given to the same for one week from the date of service of order.
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2022 (8) TMI 456
Addition being “advances received from customers” and “other liabilities” - CIT-A deleted the addition - HELD THAT:- The matter, is restored to the file of the AO for working the income of the assessee's real estate business in terms of the foregoing. Further, income, we may clarify, is to be considered only to the proportionate extent, inasmuch as only the same could be said to have accrued during the relevant year. The exception may be where the entire money due on a construction has been received from the customers under the agreement, and uniformly so, signifying the passing of the rights to the buyers. The assessee shall in such a case be allowed estimated expenditure on the work yet to be completed.
The matter, accordingly, is set aside to the file of the AO for the purpose. AO shall adjudicate taking all the relevant facts and circumstances into account, in accordance with law, issuing definite finding of facts after hearing the assessee, who shall cooperate in the said proceedings, furnishing the materials sought and relevant for deciding the issues arising, as indeed for finalisation of accounts.
Receipt shall be a business receipt in his hands, though he has no means of writing his accounts as the right to receive arises, as it appears to us from the entries in the assessee”s accounts, only on the receipt of sale consideration by the assessee, i.e., where and to the extent it is regarded as a sale by the assessee. The land owner has thus no means to either specify the amount to sale; decide the time of sale; and finally, even the extent of its receipt, which is much after the receipt by the assessee; his accounts reflecting credit in no insubstantial sums due to the land owners (who rather than by name are stated in the name of the relevant project). It is all this that raises considerable doubts as to the genuineness of the credit/s; the land sale extending to years. CIT(A), though noting that the land owner is entitled to a part of sale consideration, has not issued any finding in the matter even as he deletes the addition. We have, even ignoring the legal aspect of the transaction, examining it strictly from the stand-point of accountancy and tax perspective, find it untenable from the point of view of confirmation, as indeed from the practical stand-point. It would be a different matter where the land owner and the assessee have entered into a joint venture, agreeing to share the profits of the real estate development.
The issue qua the genuineness of these credits, as indeed their true nature, is also, accordingly, restored to the file of the AO for proper verification and determination, followed by adjudication in accordance with law, issuing a clear and definite findings of fact/s, after allowing the assessee a reasonable opportunity of being heard. Needless to add, the conduct as well as evidence produced by the land-owners, including the accounting and tax treatment of the transactions, shall also be examined; the matter being indeterminate.
We clarify that we may not construed as having issued any final findings on the merits of the matters restored to the AO for adjudication; our observations being strictly on the basis of the pleadings before us and our examination of the material on record, finding the same as inextricably linked to the accounting of sales and recognition of income, leading us to the conclusion that the issue at hand is indeterminate. Nothing more nothing less. We decide accordingly.
Finally, we may advert to the addition in respect of other liabilities, i.e. other than the sums credited to the account of the land owners. We have already clarified no adverse findings by the AO qua this addition, remission to the file of the AO qua the credits in the case of land owners has been on account of the same having been found as inextricably linked to the income arising to the assessee from the business of the real estate development, even if u/s. 68. There is further no basis for addition of sums other than the sums credited to the account of and, thus, received from, the land owners, which is accordingly confirmed for deletion.
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2022 (8) TMI 457
TDS u/s 194A - Motor Accidents Claims - Can the directions be issued to Judgment Debtor-Insurance Company to deduct TDS at source on the amount of interest paid on the compensation under the Income Tax Act, 1961 read with Motor Vehicles Act, 1988? - HELD THAT:- CR dismissed and the others are disposed of by setting aside the impugned orders and the cases are remanded back to the concerned Motor Accident Claims Tribunal with a direction that if the interest on compensation is paid prior to 1.6.2015, then the Insurance Company will pay the amount of tax deducted at source to claimants and the Insurance Company may seek refund from the Income Tax Authorities by filing a revised income tax return. Where the interest on the compensation is actually paid after 1.6.2015, which is exceeding Rs.50,000/- per claimant per financial year, the Insurance Company will pay on securing the ‘Form 15-G’ of Rule 29-C of the Income Tax Act/Rules.
The parties will appear before the Motor Accident Claims Tribunal, concerned on 31.8.2022 and fresh orders will be passed within a period of one month, thereafter.
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2022 (8) TMI 455
Bogus purchase of computers - Disallowance of claim for depreciation on computers - HELD THAT:- CIT(A) has taken note of the fact that the entire purchases of computers during the year under consideration were not made by the assessee-company from RIPL and VCPL and in spite of the fact that some of the said purchases were made by the assessee-company from other parties, the AO disallowed the claim of the assessee for depreciation on all the computers purchased by the assessee during the years under consideration which clearly shows non-application of mind by the Assessing Officer as rightly observed by the learned CIT(A).
There was substantial increase in the turnover of the assessee-company for the years under consideration including exports as noted by the learned CIT(A) in his impugned order which, in our opinion, was difficult to achieve without the computers claimed to be purchased by the assessee during the years under consideration as rightly held by the learned CIT(A). Having regard to all these facts of the case and keeping in view the consistent view taken by the appellate authorities in assessee’s own case on a similar issue in the preceding years as well as succeeding years including the decision of the Tribunal for AY 2000-01, we are of the view that the disallowance made by the Assessing Officer on account of depreciation on computers by alleging the purchase of computers as not genuine was not sustainable and the learned CIT(A) was fully justified in deleting the same. In that view of the matter, we uphold the impugned order of the learned CIT(A) on this issue and dismiss Ground No.1 of the Revenue’s appeal.
Addition on account of interest - same is consequential in nature inasmuch as the claim of the assessee on purchase of computers having been held to be not genuine, the interest expenditure incurred by the assessee in respect of loan borrowed for the said purchase of computers was disallowed by the Assessing Officer by treating the same as not for the purpose of business - HELD THAT:- CIT(A), accepted the claim of the assessee for the purchase of computers as genuine and consequentially deleted the disallowance made by the Assessing Officer on account of interest. Since we have upheld the decision of the learned CIT(A) holding the purchase of computers by the assessee-company as genuine and allowing depreciation on the computers so purchased, it follows that the interest expenditure incurred by the assessee on loan borrowed from bank for the purposes of said purchase of computers is allowable as deduction being expenditure incurred wholly and exclusively for the purpose of assessee’s business. We accordingly uphold the impugned order of the learned CIT(A) giving relief to the assessee on this issue and dismiss Ground No.2 of the Revenue’s appeal.
Disallowance under Section 40A(3) - HELD THAT:- As observed that the said payment was made by the assessee on account of advance and since the same was not claimed as expenditure deductible while computing income, we find ourselves in agreement with the learned CIT(A) that the disallowance made by the Assessing Officer under Section 40A(3) of the Act was liable to be deleted.
Disallowance u/s 14A r.w.r. 8D - CIT-A deleted the addition - HELD THAT:- As per ratio laid down by the Hon’ble Supreme Court in the case of Essar Technoholdings Ltd [2018 (2) TMI 115 - SUPREME COURT] to hold that the disallowance made by the Assessing Officer under Section 14A of the Act for the year under consideration, i.e. AY 2001-02, was not sustainable. At the time of hearing before us, the learned DR has not been able to raise any contention to dispute this position. We, therefore, find no justifiable reason to interfere with the impugned order of the learned CIT(A) giving relief to the assessee on this issue.
Addition of preliminary expenses - CIT-A deleted the addition - HELD THAT:- As found by the learned CIT(A), there was nothing to show that the assessee during the year under consideration had floated any public issue or invited any share application from anybody. At the time of hearing before us, the learned DR has not been able to bring anything on record to rebut or controvert this finding recorded by the learned CIT(A). We, therefore, find no infirmity in the impugned order of the learned CIT(A) deleting the disallowance made by the Assessing Officer on account of preliminary expenses and dismiss Ground No.4 of the Revenue’s appeal for AY 2001-02.
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2022 (8) TMI 454
Addition u/s 68 - assessee having received share application money and share premium from two investor companies being unexplained - HELD THAT:- Both investor companies had placed on record supporting documentary evidences which duly substantiated their identity and creditworthiness, as well as the genuineness of the transaction in question, which had neither been rebutted by the A.O in the course of the original assessment proceedings; nor in the remand proceedings, therefore, the department without dislodging the primary onus that was duly discharged by the assessee could not have drawn adverse inferences as regards the transactions in question.
We find substantial force in the claim of the Ld. AR that now when the A.O i.e. ITO, Ward-11(1), Kolkata while framing the assessment of one of the investor company, viz. M/s. Neel Kamal Vanijya Pvt. Ltd. had accepted the share capital of Rs.11.67 crore that was received by it in A.Y.2009-10 against which it had allotted 233470 shares, and thereafter it had not raised any fresh capital upto the date of subscription of the shares of the assessee company, therefore, it could safely be concluded that the source of availability of funds with the said investor company was not only proved to hilt, but in fact the same had also been accepted by the department.
As regards the share application money received by the assessee company from the other investor company, viz. Chandrika Vanijya Pvt. Ltd., we find that though the documentary evidences substantiating the identity, creditworthiness and genuineness of the transaction in question that were filed by the assessee were confronted by the CIT(Appeals) to the A.O with a direction to file a remand report,, however, the A.O in the said case too had failed to rebut the documents as were available before him. Apart from that, the fact that the aforesaid share application money had been refunded by the assessee company in two tranches had also been lost sight of by the A.O while drawing adverse inferences as regards the authenticity of the transaction in question.
Thus now when the assessee company on the basis of substantial documentary evidences had proved to the hilt the identity and creditworthiness of the investor companies, as well as the genuineness of the respective transactions in question, which had not been dislodged by the A.O, as there is no whisper by him either in the course of the assessment proceedings or in the remand proceedings, therefore, the onus that was shifted upon him to disprove the claim of the assessee had remained undischarged.
Assessee in the course of the proceedings before the CIT(Appeals) had placed on record copies of the returns of income a/w. computation of income, bank details etc. to substantiate its claim of having received share application money from the aforementioned eight parties i.e. directors of the assessee company and their close relatives, however, the A.O in his remand report had failed to place on record any material which would dislodge the authenticity of the said documents. In the backdrop of the aforesaid facts, we are of the considered view that as the assessee had discharged the primary onus that was cast upon it as regards proving the identity, creditworthiness and genuineness of the transaction of having received share application money from the aforesaid eight parties i.e directors of the assessee company and their close relatives/friends, which the AO had absolutely failed to dislodge by placing on record any such material which would prove to the contrary - Decided in favour of assessee.
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2022 (8) TMI 459
Prosecution u/s 276-CC (ii) - evasion of tax - Delay in filing return - Income-tax Department had desired petitioner’s prosecution for 72 days’ delay in filing the return - HELD THAT:- There is not even a whisper of evasion of income-tax, whereas the learned trial Court, claiming to have perused the record, has observed that the accused (petitioner herein) has not filed his return of income for 2013-14 and has evaded the income-tax.
In the opinion of this Court, the order of the cognizance shows clear misreading of the complaint and the same suffers from manifest error of law, for which it is liable to be quashed and set aside.
Also correct in saying that the petitioner ought to have preferred a revision petition under Section 397 of the Code but then, considering that the petitioner and his group has filed about 80 petitions of identical nature, relegating the petitioners to file revision petition(s), that too when the order impugned suffers from palpable error of law and facts, would lead to multiplicity of litigation and passing of dockets from this Court to the Revisional Court.
The preliminary objection raised by the Income-Tax Department is thus, over-ruled.
Thus considering discrepancy and considering that not only the notice issued to the petitioner before granting prosecution sanction, even the complaint filed by the Department alleges delay in filing return, while eliciting prosecution under Section 276-CC (ii) of the Act of 1961, this Court is of the view that the cognizance, which has been taken for evasion of tax is ex-facie erroneous and deserves to be quashed and set aside.
The order granting prosecution sanction has neither been challenged in the present petition nor can the same be permitted to be questioned before this Court in its jurisdiction under Section 482 of the Code. Because, the act of granting prosecution sanction is an administrative or statutory exercise of powers.
Instant petition so also those enumerated in the appended scheduled are allowed. The cognizance order in each of the case is hereby quashed and set aside.
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2022 (8) TMI 453
Revision u/s 263 - As per CIT cost of improvement is not supported by any material evidences and also that the rental admitted by the Assessee under the head ‘income from house property’ was prima facie on the lower side, keeping in view the locality and the properties let out which would fetch more rental income than admitted - assessment framed by the AO is a ‘limited scrutiny’ case for verification of the deduction from the capital gains claimed by the Assessee - HELD THAT:- As the limited scrutiny was for the purpose of examining the claim of deduction from the capital gains and no other issue was there. Hence, we are of the view that this issue now cannot be examined while proceeding u/s.263 of the Act making revision to the assessment order. Hence, the scrutiny assessment is only for a limited issue, that was a claim of deduction u/s.54 of the Act which has been accepted by the Assessing Officer and even in the order giving effect to the order of the Principal Commissioner of Income Tax u/s.263 of the Act, the Assessing Officer has accepted the stand of the Assessee. Hence, according to us, the revision order on this issue is just academic and nothing more.
Rental income under the head ‘income from house property - As regards to the second issue which was never before the Assessing Officer during the course of the original assessment and that the assessment was for a limited scrutiny, the issue of rental income cannot be examined in the revision proceedings. Hence, according to us, this issue on rental income is decided in favour of the Assessee and to that extent the revision order is quashed.
Claim of deduction u/s.54 of the Act, the Assessing Officer has already examined the issue and the issue only remains academic.
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2022 (8) TMI 452
Levy of penalty u/s 271(1)(c) - claim of deduction u/s 36(1)(viia) is not in accordance with the provisions of the Act and not found to be correct - HELD THAT:- Respectfully following the judgement of the Hon’ble Supreme Court in RELIANCE PETROPRODUCTS PVT. LTD. [2010 (3) TMI 80 - SUPREME COURT]wherein, it was held that making an incorrect claim in law cannot tantamount to furnishing of inaccurate particulars and the decision of the Hon’ble Jurisdictional High Court in the case of CIT v. Cholamandalam Investment & Finance Co. Ltd. [2014 (3) TMI 774 - MADRAS HIGH COURT] wherein, it was held that mere making of a claim, which is not sustainable in law, by itself, would not amount to furnishing of inaccurate particulars regarding the income of the assessee and that such a claim made in the return cannot amount to furnishing inaccurate particulars, we set aside the orders of authorities below and delete the penalty levied under section 271(1)(c) of the Act. - Decided in favour of assessee.
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2022 (8) TMI 451
Unexplained money u/s.69A - CIT-A treating the net cash transactions as unexplained money u/s.69A of the Act and not treating it as business income - HELD THAT:- We noted that the assessee neither before AO nor before CIT(A) filed any evidence in regard to prove the source of this cash, even the transactions of the alleged transactions of late Shri Subbarao. The assessee could not file even one evidence in regard to this except a bald statement made in the statement of facts, grounds of appeal before AO or before CIT(A). The assessee admitted the bank account maintained with ICICI bank and where this cash deposit made. Once the assessee is unable to prove the cash deposits, we have no alternative except to confirm the addition. Accordingly, in these two years, there is no reason to delete the addition and hence, we confirm the order of CIT(A) and dismiss the appeals of assessee.
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2022 (8) TMI 450
Weighted deduction u/s 35(2AB) - Quantum of deduction u/s 35(2AB) - difference arose because of the fact that DSIR grant approval for revenue expenditure only from 28.01.2014 whereas the assessee claimed expenditure incurred throughout the financial year - whether AO could grant higher deduction ignoring the certificate issued by competent authority? - HELD THAT: - We find that Ld. CIT(A) has sought distinction in the case law of Hon’ble Madras High Court in CIT Vs Wheels India Limited[2010 (11) TMI 42 - MADRAS HIGH COURT], However, after studying this case law, we find that the analogy of this case law would be applicable to the facts of the present case.
The facts in case law of Hon’ble Gujarat High Court in CIT V/s Claris Life sciences Ltd.[2008 (8) TMI 579 - GUJARAT HIGH COURT] were quite identical wherein it was noted that that DSIR approval was only from 27.02.2001 to 31.03.2003 but the assessee claimed weighted deduction for entire expenses as incurred during the year. The claim was allowed by Ld. AO w.e.f. 27.02.2001. However, Tribunal allowed the claim for the whole of the year - Thus we direct Ld. AO to grant full deduction to the assessee. - Decided in favour of assessee.
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2022 (8) TMI 449
Admission of additional evidence by CIT-A - HELD THAT:- It is not in dispute that during assessment proceedings, effective hearing commenced on 04/03/2013 for which the assessee filed replies on 21/03/2013 to the Assessing Officer. It is also not in dispute that the Assessing Officer did not provide any further opportunity, and completed the assessment on 28/03/2013. There is nothing on record to show that AO expressed any further requirements on or after aforesaid 21/03/2013 to the assessee requiring the assessee to support its claim by further evidence/materials.
We are of the view that the additional evidences filed by the assessee in the office of Ld. CIT(A) deserved to be admitted by Ld. CIT(A). Both sides were also in agreement at the time of hearing before us, that the Ld. CIT(A) may be directed to admit additional evidences already filed in the office of the Ld. CIT(A), and to pass a fresh appellate order after providing reasonable opportunity to the assessee.
Thus we set aside the impugned appellate order dated 18/02/2019 of the Ld. CIT(A); and we direct the Ld. CIT(A) to admit additional evidences already filed in the office of the Ld. CIT(A), and we further direct the Ld. CIT(A) to pass a fresh appellate order after providing reasonable opportunity to the assessee
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2022 (8) TMI 448
Addition on account of peak credit - undisclosed capital in the bank accounts of the assessee - CIT(A) allowed Rs. 6,00,000/- as genuine capital arises from past accumulated savings of assessee and remaining Rs. 10,00,028/- confirmed as undisclosed capital of the assessee - HELD THAT:- As we do not see any reasons to disagree with the ld. CIT(A)’s findings where the ld. CIT(A) regarding addition made by AO of Rs. 16,00,028/- on account of peak credit being undisclosed capital in bank a/c’s of the assessee where the ld. CIT(A) viewed that sum of Rs. 6,00,000/- as genuine capital i.e. out of accumulated past savings and remaining amount of Rs. 10,00,028/- was confirmed as undisclosed capital i.e. total addition of Rs. 16,00,028/- - Rs. 6,00,000/- = Rs. 10,00,028/- as undisclosed capital and it was a reasonable order passed under the provisions of law and accordingly we sustained the order passed by the CIT(A). Appeal of the assessee is dismissed.
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2022 (8) TMI 447
Reopening of assessment u/s 147 - Addition u/s 68 - investigation wing has identified the penultimate bank accounts maintained in the Central Bank of India through which it reached the beneficiary account. One such account with the Central Bank of India belongs to MCPL and the beneficiary being the assessee company - HELD THAT:- We observe from the record that assessee has placed purchase order with MCPL for purchase of Automation PLC and the quoted price of ₹.10.80 crores. As per the terms of the purchase order assessee has to make an advance payment of ₹.10.8 crores which was made promptly. It is brought to our notice the party was not able to deliver the material within the stipulated time and accordingly, assessee has cancelled the purchase order and demanded back the advance money paid in Financial Year 2007-08.
MCPL had returned ₹.8.54 crores out of the advance payment and out of balance assessee had received ₹.1.6 crores from them and assessee is still to recover ₹.2.26 crores which is still pending. These facts were brought to notice of the Assessing Officer and Assessing Officer rejected the same and proceeded to make the additions merely relying on the investigation report without any independent application of mind and further, he applied suspicion and preponderance of probability and proceeded to make additions invoking provisions of section 68 - Since the facts are very clear that assessee has received its own money from the defaulted supplier and may be the supplier having an account with Central Bank of India it does not mean that the transactions can become doubtful. We are in agreement with the findings of the Ld.CIT(A) and accordingly, we deem it fit and proper not to interfere with the findings of the CIT(A). Accordingly, grounds raised by the revenue are dismissed.
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2022 (8) TMI 446
Addition u/s 68 - Unexplained share application money - onus to prove - only grievance of the revenue that the assessee has accepted the amount in cash and the director of the company did not submit the clear reason as to why the share application money has been received in cash when the bank account transaction is possible in all most all the share application subscribers - HELD THAT:- In this case assessee has filed to sufficient details to prove satisfactorily the source of cash received the assessing Officer is entitled to draw the inference that the receipts are of an income nature and it is not necessary for him to locate their exact source. As the Supreme Court laid down in Kalekhan Mohammed Hanif [1963 (2) TMI 33 - SUPREME COURT] the onus is on the assessee to explain the nature and source of cash credits, whether they stand in the assessee’s account or in the account of a third party. The question of burden of proof cannot be made to depend exclusively upon the fact of a credit entry in the name of the assessee or in the name of a third party. In either case, the burden lies upon the assessee to explain the credit entry, through the onus might shift to the AO under certain circumstances.
Where the assessee shows that entries regarding cash credit in a third party’s account are genuine and the sums were in fact received from the third party as loans or deposits, he has discharged the onus. In that case it is for the third party to explain the source of the moneys, and they cannot be charged as the assessee’s income in the absence of any material to indicate that they belong to the assessee. Here in this case assessee has established the identity, capacity and genuineness of the transaction so far as it relates to all the share applicant. Based on the above facts and precedents applicable to these facts, as narrated above, we are of the considered view that the primary onus is discharged by the assessee so far as the share application money received in the year under consideration.
Therefore, we are not inclined to accept the contention of the AO in any manner and hence the addition so made by the assessing officer is not sustainable and therefore, we vacate the addition so made based on the evidences placed before us and we hold that the addition is unwarranted and requires to be deleted. Thus, the Ground raised by the assessee is hereby allowed.
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2022 (8) TMI 458
Accrual of Income - ITAT and CIT-A held the said amount not received by the assessee during the year under consideration could not brought to tax in the hands of the assessee in the year under consideration - HELD THAT:- Tribunal as observed that the learned departmental representative has brought out nothing on record to dispute the finding/observation arrived at by the Commissioner of Income Tax (Appeals). That apart, the tribunal also noted that the assessee has been following the Project Completion Method and another project namely, Poddar Project has been completed in the previous year relevant to the assessment year 2009-10 and the entire income from the said project actually accrued to the assessee in the assessment year 2009-10 and the same was accordingly recognised and offered to tax as could be seen from the assessment order dated 20th December, 2016.
On perusal of the said assessment order the tribunal noted that the amount of Rs.50,00,000/- has already taxed in the hands of the assessee for the assessment year 2009-10 when the relevant projected was completed and the amount in question actually accrued to the assessee as income on the basis of Project Completion Method followed by it. Furthermore, the tribunal also re-examined the relevant clauses of the agreement entered into by the assessee with M/s. Dheeraj Promoters and also noted the various conditions imposed therein. No substantial question of law.
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2022 (8) TMI 445
Deduction u/s. 54F - Claim denied by the CIT(A) as the flats were purchased in the name of appellant’s wife and son - whether the sale consideration received by a person from sale of capital asset if applied in the name of his wife or son for purchasing/constructing residential house whether the assessee can claim deduction u/s. 54F or 54 of the Act? - HELD THAT:- We observe that the assessee has filed registered sale deed dt. 17-10- 2015 for purchase of a building comprising of ground floor three flats and the purchaser(s) mentioned in this sale deed are Sri Mukkamala Srihari Rao(Self), Smt. Mukkmala Jhancy Lakshmi (Wife) and Sri Mukkamala Amar Rao (Son). As per said sale deed Flat No. 102 is registered under the name of assessee(self) and remaining two flats in the name of son and wife.
As in the case of Bhagwan Swroop Pathak [2020 (7) TMI 656 - ITAT DELHI] we find that similar issue was for consideration regarding the deduction u/s. 54F of the Act for the investments made in purchase of property in the name of assessee’s son. The Co-ordinate Bench, Delhi relied on the judgment of the Hon’ble Delhi High Court in the case of CIT Vs. Kamal Vahal [2013 (1) TMI 401 - DELHI HIGH COURT] wherein the assessee purchased new house in the name of his wife and the Hon’ble High Court held that deduction u/s. 54 is valid. Respectfully following the same the Delhi Tribunal decided in favour of assessee and allowed the deduction u/s. 54F of the Act claimed for purchase of property in the name of assessee’s son.
Similar view was also taken by the Tribunal (ITAT Ranchi) in the case of Anand Dhanuka [2020 (8) TMI 234 - ITAT RANCHI] wherein assessee invested the corresponding long term capital gain in name of his wife. This Tribunal in view of the judgment of the Hon’ble Apex Court in the case of CIT Vs. Vegetable Products Ltd [1973 (1) TMI 1 - SUPREME COURT] followed the judgment of the Hon’ble Delhi High Court in the case of CIT Vs. Kamal Wahal [2013 (1) TMI 401 - DELHI HIGH COURT] and decided in favour of assessee.
We, therefore, respectfully following the judicial precedence referred hereinabove (supra) are of the considered view that since in the instant case the assessee has applied the sale consideration received from sale of capital asset towards purchase of residential flat in the name of his wife and son, the assessee is eligible to claim deduction u/s. 54F of the Act subject to fulfilment of all other conditions provided u/s. 54F of the Act. We, thus, reverse the finding of the ld. CIT(A) and allow ground no.1 raised by the assssee and direct the ld.AO to allow the benefit of deduction u/s. 54F for two flats purchased in the name of assessee’s wife and son.
Deduction claimed by the assessee u/s. 54F towards cost of improvement of purchase of new flats - HELD THAT:- As perusal of the bills, we find that the bills placed at page-17 of the P.B is in the name of Kanishk Holdings dt.07-08-2015 for the renovation expenses - But this claim of the assessee remains in doubt because the flats in question has been purchased through sale deed executed on 17-10-2015 and there is no mention about any prior agreement and that include by the assessee and family members with the seller of the property and also the details of payment appearing in the back side of each copy of bills for renovation includes various payments made in cash. No evidence filed by the assessee to demonstrate the source of such expenditure. Under these given facts and circumstances of the case, we are of the view that this issue of claim of deduction u/s. 54F needs to be restored to the file of the ld. CIT(A), who shall call for remand report from the ld. AO ( if needed) regarding the genuineness of the expenditure claimed by the assessee. Needless to mention that adequate opportunity of being heard to be given to the assessee. The assessee is also directed to be vigilant and not to take adjournment unless otherwise required for reasonable cause. Thus, ground no.2 raised by the assessee is allowed for statistical purpose.
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2022 (8) TMI 444
Rejection of book result u/s 145(3) - estimation of income - HELD THAT:- As in the hands of the assessee being the partnership firm the interest/remuneration to the partners are the eligible expenses. Same is the case with the depreciation claimed by the assessee. It is also an admitted fact that the remuneration/interest to the partners though eligible for deduction from the income of the partnership firm but the same is taxable in the hands of the partners in their individual capacity. But, we have to see profit of the assessee which is the partnership firm before us. It is the onus upon the assessee to justify based on the documentary evidence that the profit declared by it, is correct and supported by the books of accounts and the corroborative evidences. But the assessee has not filed the books of accounts along with the supporting corroborative materials to justify that the profit declared in the income tax return is correct within the provisions of law. Thus, we hold that the assessee failed to discharge his primary onus cast upon it under the provisions of law.
In the absence of necessary books of accounts and supporting materials, the income of the assessee cannot be deduced. Thus, the only option available to the AO is to determine the profit of the assessee in the scientific manner. For this purpose, we note that the AO has taken other assessee engaged in similar business for comparable and reached to the conclusion that the net profit of the assessee should have been declared at least 1.5% of the turnover. The industrial comparable rate selected by the AO while determining the profit has not been disputed by the assessee.
Deduction of depreciation from the estimated income - Estimate the income of an assessee by applying a net profit or gross profit to the gross receipts/turnover of the assessee - As provided by presumptive taxes, under sections 44AD, 44AE and 44AF, all deductions under sections 30 to 38 shall be deemed to have been allowed, and no further deduction under those sections would be allowable. No such provision has been mentioned in any other case of presumptive income or estimation by the Assessing Officer and, hence, depreciation should be allowable being statutory allowance where Assessing Officer has rejected the books of account and estimated the income of the assessee. However, the profit declared by the assessee in the return of income cannot be further reduced on account of partner's remuneration, interest on partner's capital and the depreciation.
Thus we uphold the rejection of the books of accounts made by the authorities below as well as the rate of profit estimated by the authorities below but subject to the direction that against the estimated profit the amount of depreciation, partners remuneration and interest to the partners on their capital should be allowed as deduction while calculating the taxable income in the hands of the assessee. Thus the ground of appeal of the assessee is partly allowed.
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2022 (8) TMI 443
Delayed Employees contribution to PF, ESIC and Labor Welfare Fund - AO disallowed the impugned amount on the ground that it was paid belatedly after the due date under the relevant Acts - Scope of amendment - HELD THAT:- We hold that the amendment brought about in the Finance Act, 2021 is only prospective and not retrospective and applies to assessment year 2022-23 and to subsequent assessment years thereto. Therefore, we are of the considered opinion that the contribution to PF, ESIC and Labour Welfare Fund paid after the specified due dates under the relevant Acts, nevertheless paid before the due date for filing the return of income is allowable. The Assessing Officer is directed to allow the deduction as claimed. - Decided in favour of assessee.
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2022 (8) TMI 442
Revision u/s 263 - Commissioner of Income-tax jurisdiction in invoking powers u/s 263 - Assessing authority has adopted the profit as per the profit and loss account without excluding the depreciation already debited in the profit and loss account under the provisions of the Companies Act - deductions for depreciation allowance twice, one computed under the Companies Act and the other computed under the Income-tax Act - HELD THAT:- As feared by the assessee, the Commissioner of Income-tax has not dealt with any issue that was subject matter of adjudication before the Tribunal. In that way the Commissioner of Income-tax has not exceeded his jurisdiction available to him under section 263 of the Act. Section 263 authorises a Commissioner of Income-tax to revise any order passed by any subordinate authority, which is found to be erroneous and prejudicial to the interests of the Revenue. The order passed by the assessing authority to give effect to the orders of the Tribunal is "any order" passed by an assessing authority, who is subordinate to the Commissioner of Income-tax. Therefore the Commissioner of Income-tax invoked the powers under section 263 within the permissible limits of Jaw. He has not exceeded jurisdiction.
Assessing authority has adopted the net profit for further giving deduction by way of depreciation, which was already modified by the depreciation allowance as provided under the Companies Act. Therefore, the excess amount of depreciation allowance has been granted to the assessee. Likewise, the division of depreciation allowance also has not been done while computing the benefit available to the assessee under section 10B of the Act. This also has resulted in excessive benefit to the assessee.
We, therefore, find that the order passed by the assessing authority is erroneous as well as prejudicial to the interests of the Revenue.
In these circumstances, the revision order passed by the Commissioner of Income-tax for the assessment year 2002-03 is in accordance with law and his order is upheld. The assessee fails in its appeal for the assessment year 2002-03."
Thus, it is already held that the order of CIT is proper and also the adding back of book depreciation is justified, otherwise assessee will get double benefit. It is an obvious mistake committed by the AO that while allowing depreciation as per IT Rules he mistakenly did not add back the book depreciation (quantified as per companies act). This mistake was rectified in the present order. Thus, assessee doesn't have a case on merits too.
Addition being interest paid to Global Trust Bank - HELD THAT:- Assessee has created M/s. Pentafour Software Employees Foundation (PSEF) for the purpose of allotment of shares to the employees and M/s. PSEF obtained loan from the Global Trust Bank and the same was deposited with the assessee as share application deposits for the purpose of utilizing the said deposit amount for allotment of shares to the employees from time to time. However, the assessee has not allotted any shares to the employees. The assessee has paid the loan interest to the Global Trust Bank against ESOP loan and the same was claimed as expenses.AO has disallowed the same on the ground that the assessee has not taken any loan for its business purpose and the same was confirmed by the Ld. CIT(A).
As per the facts available on record, the PSEF obtained the loan and the same was deposited with the assessee. Whether the assessee has utilized the amount for the purpose of business of the assessee was neither examined by the AO nor by the Ld. CIT(A).
Assessee was not able to produce any evidence to show that the loan amount borrowed by the PSEF deposited with the assessee has been used for the purpose of business of the assessee.
This aspect needs to be examined. Therefore, we set aside the order passed by the CIT(A) and remit the matter back to the file of the AO to examine and verify as to whether the borrowed amount deposited with the assessee has been used for the purpose of the business of the assessee and if at all it was utilized by the assessee, the interest expenditure has to be allowed or otherwise, not. Ordered accordingly.
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2022 (8) TMI 441
Exemption u/s 11 - registration under section 12A - whether CIT-A erred in issuing order granting registration "which imposed conditions on the basis of which the registration was granted, even though there is no provision under the Income Tax Act which permits the Commissioner of Income Tax to grant the conditional registration" - HELD THAT:- There are specific provisions of law which govern the cancellation of registration, and these provisions can neither be diluted or supplemented by the learned Commissioner. The consequences of any lapses by the assessee, even with respect to the points covered by these conditions, cannot simply be, or confined to be, cancellation of the registration, as is stated in the impugned, unless the law specifically so provides.
No matter what the conditions attached to the registration granted under section 12A state, these conditions are to be tested on the scheme of the law, and, if that be so- as indeed is the case, these conditions serve no purpose in law. We are therefore unable to see any legally sustainable merits in the approach adopted by the learned Commissioner.
Learned Commissioner's guidance about the conduct of the assessee- which is what in substance, the conditions attached to the registration, signify, cannot be treated, no matter how well intended is it, as a condition attached to the registration, nor this fact per se will govern, or limit, the consequences of lapses in this regard. While the assessee will be well advised to bear in mind and carefully examine his conduct vis-à-vis the points made by the learned Commissioner, these observations cannot be construed as legally binding in the sense that non-compliance with such guidance will not have any consequence, unless and beyond what is specifically envisaged by the statute- such as in Section 12AB(4) and (5) as indeed elsewhere, nor the implications of not doing what is set out in the conditions will remain confined to the cancellation of registration when the law stipulates much harsher consequences. To this extent, and in these terms, the legal effect of these conditions, as visualized in the conditional grant of registration dated 24th September 1991, stands vacated.
Appeal is allowed in the limited terms indicated above, and subject to the observations as above.
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2022 (8) TMI 440
Deduction u/s 80IA(8) - power supplied to the steel division - Whether CIT(A) was justified in holding that the market value of the power is the rate of power available in the open market namely the price charged by the Electricity Board? - Whether goods of one unit of a company can be transferred to another unit at a notional figure? - whether or not the A.O had rightly triggered the provisions of Section 80IA(8) of the Act by adopting the domestic purchase price of electricity by CSEB as the “market rate” and justifiably scaled down the assessee’s claim for deduction u/s.80IA(4)(iv)(a) ? - HELD THAT:- As claimed by the Ld. AR, and rightly so, the aforesaid issue as on date is squarely covered by the order of the Tribunal in the assessee’s own case for the assessment year 2008-09, i.e. ACIT-1(2) Vs. Mahindra Sponge and Power Limited [2015 (6) TMI 1243 - ITAT RAIPUR] - In its aforesaid order the Tribunal had after drawing support from the judgment of the Hon’ble High Court of Chhattisgarh in the case of CIT Vs. Godawari Power & Ispat Ltd. (2013 (10) TMI 5 - CHHATTISGARH HIGH COURT], found favor with the claim of the assessee and observed, that the “market value” of the power supplied by the assessee to its steel division was rightly computed by considering the rate at which power was available in the open market, namely, the price that was charged by the electricity board.
We, thus, in terms of our aforesaid observations finding no merit in the declining of the assessee’s claim for deduction u/s. 80IA(4)(iv)(a) by the A.O which had rightly been vacated by the CIT(Appeals), uphold the latters order. Thus, the Grounds of appeal Nos. (a) to (c) raised by the Revenue are dismissed in terms of our aforesaid observations.
Disallowance of claim u/s.14A r.w. Rule 8D(2)(ii) & (iii) - HELD THAT:- As the assessee company during the year under consideration had not earned any exempt income, therefore, on the said count itself no disallowance of any part of the expenditure could have been made u/s.14A of the Act. Thus no infirmity in the deletion of the disallowance under Sec. 14A by the CIT(Appeals), uphold his order. - Decided in favour of assessee.
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2022 (8) TMI 439
Late fees u/s 234E read with section 200A - statement in Form-26Q could not be filed within the prescribed period of times and therefore CPC imposed late fee u/s. 234E - AR submitted that admittedly the year involved in these appeals is Assessment Year 2014-15 whereas the effect of charging late fee u/s. 234E came into existence w.e.f. 01.06.2015 - HELD THAT:- We find that it is undisputed fact that the assessee has been charged late fee u/s. 234E for various returns filed in the Form-26Q for late filing of the statements. These cases relate to Assessment Year 2014-15. The various Hon'ble High Courts including the Hon'ble Karnataka High Court and Hon'ble Kerala High Court have held that the provisions of Section 234E are applicable w.e.f. 01.06.2015. See SRI. FATHERAJ SINGHVI AND OTHERS VERSUS UNION OF INDIA AND OTHERS [2016 (9) TMI 964 - KARNATAKA HIGH COURT] - Also see M/S. UNITED METALS VERSUS THE INCOME TAX OFFICER (TDS) KOCHI (2) , ERNAKULAM, THE UNION OF INDIA, NEW DELHI [2021 (12) TMI 1349 - KERALA HIGH COURT] - Decided in favour of assessee.
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2022 (8) TMI 438
Addition u/s 68 - unexplained cash deposits - assessee withdrawing huge cash on 4 occasions inspite of having sufficient cash in hand and no immediate use of cash, as pointed out by the AO in the show cause notice - as submitted assessee has withdrawn cash and there is a nexus with the deposits made by the assessee in the bank - AO noticed that assessee has redeposited cash of ₹.1.012 crores in the bank account during demonetization period
HELD THAT:- In order to verify the sources for such deposit, AO asked the assessee to prove the sources for the same. Assessee submitted the detailed submissions with the cash book, which disclosed the availability of sufficient cash in hand. The AO did not accept the details of cash withdrawals declared by the assessee during the year. We observe from the submissions that the assessee has disclosed the sufficient funds available with him to deposit the same.
There is no evidence with the Assessing Officer to dispute with the availability of funds with the assessee. We observe that assessee had sufficient funds more than the amount deposited in the bank. Merely because assessee did not explain the reasons for withdrawal and why not deposited full cash available in the cash book is not the proper reasons for the Assessing Officer to make addition.
It is for the Assessing Officer to bring on record any contrary evidence that assessee has misused the funds available on the record. What is relevant is the source for the funds deposited in the bank account and assessee has proved that it has sufficient unutilised funds in the books. The availability of funds in the cash book supports the cash deposits in the bank. Therefore, Assessing Officer cannot go beyond the mandate unless he has contrary evidence. Therefore, we do not like to alter the findings of the Ld.CIT(A) and it is not proper for Assessing Officer to apply preponderance of probity in this case. In our view, the case law relied by the Ld. DR are not relevant for the present case. Therefore, the grounds raised by the revenue are dismissed.
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2022 (8) TMI 437
Exemption u/s 54F - Property to be purchased in the name of assessee - appellant has purchased two adjacent flats which were used as a single unit - section 54F have two important phrases, “an assessee being an individual” and “the assessee has purchased” - HELD THAT:- For availing the benefit of deduction u/s 54F the new asset shall be purchased in the name of the assessee. Applying the said proposition of law to the present case, we hold that the Flat No. 401 is not in the name of the assessee, hence it is not eligible for exemption u/s 54F of the Act.
The assessee claimed that the amount for Flat No. 401 was invested by him. However, it is factually incorrect. It is observed from the documents filed in the paper book that the payments for Flat No.401 were made by Mrs. Uma Mundada.
Thus the new house should have been purchased by the assessee. The section 54F does not say that the assessee shall invest in the new house but it says the assessee shall purchase new house. Therefore, even on this ground the rejection of claim of section 54F for the Flat No. 401 is justified. Therefore, we hold that the Assessing officer has rightly restricted assessee’s claim for deduction u/s 54F for Flat No.402 only. Accordingly, grounds of appeal raised by the assessee is dismissed.
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2022 (8) TMI 486
Additional depreciation on capitalization of forex loss - Depreciation on the exchange rate fluctuation loss on new Plant and Machinery purchased during the earlier year denied - According to the assessee, loss incurred on foreign fluctuation loss incurred for acquisition of plant & machinery should be capitalized to cost of asset as per provisions of section 43A of the Act, and once loss incurred by the assessee goes to increase W.D.V of new plant & machinery, then, the assessee is entitled for additional depreciation as per provisions of section 32(1)(iia) - HELD THAT:- In this case, the assessee has claimed additional depreciation as per provisions of section 32(1)(iia) of the Act, on capitalized value of forex loss incurred on acquisition of plant & machinery during earlier financial years by taking clue from provisions of section 43A of the Act. In our considered view, arguments of the assessee is misplaced, because as per provisions of section 32(1)(iia) the assessee is entitled for additional depreciation only in the year of acquisition and installation of new plant & machinery, but not for subsequent financial years.
Although, provisions of section 43A of the Act allows capitalization of forex loss incurred on acquisition of plant & machinery outside India to cost of assets, but said additional cost can only be eligible for normal depreciation as per provisions of section 32(1) of the Act, but not for additional depreciation as contemplated under section 32(1)(iia) of the Act. Therefore, we are of the considered view that the assessee is not entitled for additional depreciation on capitalized portion of forex loss incurred on plant & machinery acquired and installed during earlier financial year for the impugned assessment year. AO as well as the learned CIT(A), after considering relevant facts has rightly rejected additional depreciation claimed on capitalized portion of forex loss. Hence, we are inclined to uphold findings of the learned CIT(A) and dismiss appeal filed by the assessee.
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2022 (8) TMI 485
Exemption u/s 54F - Scope of amendment been brought in Section 54F vide Finance Act, 2014 - Capital gain on transfer of certain capital assets not to be charged in case of investment in residential house - whether the assessee is eligible for exemption u/s 54F in case of investment of capital gains through purchase of residential property outside India or not? - HELD THAT:- We have gone through the amendment brought out by the legislature wherein it was mentioned that with effect from 01.04.2015 for claiming benefit of exemption from payment of capital gain accruing on account of sale of property, the assessee must invest in a residential house in India. Thus, this amendment provides that prior to 01.04.2015 the investment made by assessee in residential property outside India were eligible for exemption under section 54/54F. Substituted for constructed, a residential house by Finance (No. 2) Act, 2014 w.e.f. 01.04.2015
Since, the amendment is not said to be retrospective in nature, as the amendment was brought by Finance Act, 2014 and made applicable in relation to Assessment Year 2015-16 and subsequent Assessment Years and since all the conditions laid down u/s 54F are satisfied by the assessee to avail the exemption, we hereby allow the claim of the assessee for exemption u/s 54F. Appeal of assessee allowed.
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2022 (8) TMI 436
Revision u/s 263 - computation of long term capital gain derived transfer of property - Applicability of section 50C -HELD THAT:- AO has caused necessary inquiries with regard to computation of long term capital gain derived transfer of property and has computed capital gain by taking into account cost of acquisition claimed by the assessee without disturbing consideration received from transfer of property, even though, there is difference in guideline value of property. From order of the AO, what we could notice is that although, provisions of section 50C could have been applied in the given facts and circumstances of the case, but the AO has failed to apply provisions of section 50C to determine correct consideration received for transfer of property.
PCIT, after verifying necessary evidences in light of various facts bought on record by the Assessing Officer has opined that the assessment order passed by the AO is erroneous, insofar as it is prejudicial to the interests of revenue on the issue of computation of long term capital gain from transfer of property, because the AO has failed to apply provisions of section 50C of the Act, while completing assessment. In our considered view, the AO has failed to apply his mind in light of facts of the case to relevant provisions of section 50C of the Act, while completing assessment.
Hence, the PCIT has rightly exercised his jurisdiction u/s.263 and set aside the assessment order, because the assessment order passed by the AO is erroneous, insofar as it is prejudicial to the interests of revenue. Therefore, we are of the considered view that there is no error in the reasons given by the ld. PCIT to set aside the assessment order and thus, we are inclined to uphold findings of the learned PCIT and dismiss appeal filed by the assessee.
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2022 (8) TMI 435
Disallowance u/s.40A(3) - expenses towards air ticket and hotel expenses in cash in excess of prescribed limit u/s.40A(3) - arguments of the assessee before the Assessing Officer as well as learned CIT(A) that its case comes under exception as provided under clause (k) of Rule 6DD of I.T Rules, 1962, and as per said Rule, where payment is made by any person to his agent, who is required to make any payment in cash for goods or services on behalf of such person, then cash payments in excess of prescribed limit cannot be disallowed u/s.40A(3) - HELD THAT:- In this case, if you examine facts of the assessee’s case in light of clause (k) of Rule 6DD we find that the assessee has not made cash payment to his agent, who is required to make payment in cash for goods or services on behalf of the assessee, but the assessee has made direct cash payment to airlines for booking air ticket. Therefore, the assessee’s case does not cover under Clause (k) of Rule 6DD.
However, there is merit in arguments of the assessee that it has acted only as agent for his customers and has booked air ticket on behalf of its customers, because it is general practice in this kind of industry that tour operators will collect money from its customers and in turn, make cash payments for booking air ticket, because airlines generally does not accept cheque payments, other than cash payment or on line payment. Therefore, this fact needs to be verified from the Assessing Officer to ascertain fact with regard to arguments of the assessee that it has made cash payment to airlines on behalf of its customers as their agent and thus, same needs to be outside scope of section 40A(3).
Cash payments made for hotel expenses - As observed that the assessee has paid cash for hotel expenses, whereas the assessee claims that it has paid cash for purchase of foreign currency and expenditure has been incurred in foreign currency by its customers. If at all, claim of the assessee is correct, then case of the assessee comes under clause (l) of Rule 6DD of I.T.Rules, 1962, which says where payment is made by authorized dealer or money changer against purchase of foreign currency or traveler cheque in the normal course of business, then cash payment cannot be disallowed u/s.40A(3). This fact needs verification from the Assessing Officer. If the Assessing Officer finds that the assessee being a forex dealer paid cash for purchase of foreign currency, then its case comes under exception as provided under clause (l) of 6DD of I.T. Rules, 1962, and thus, the Assessing Officer shall delete additions made towards disallowance of cash payment u/s.40A(3) of the Act. Hence, we set aside the issue to the file of the Assessing Officer and direct the A.O to reconsider the issue in light of our findings given hereinabove and decide the issue in accordance with law, after giving an opportunity of hearing to the assessee.
Appeal filed by the assessee is allowed for statistical purposes.
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2022 (8) TMI 434
Disallowance of interest u/s. 36(l)(iii) in respect of interest free loan/ advance to sister concern - HELD THAT:- seen from record, the assessee paid interest free loan to M/s. S.S. Enterprise, out of the interest free funds available with the assessee, who has made a profi during the assessment year 2015-16. It is not the case of the assessee that “borrowed funds” were given interest free loans and advances to the sister concern. Therefore the ratio of the Hon’ble Apex Court judgment in the case of S.A. Builders is not applicable to the present facts of the case. Also see PARESH LALCHAND SHAH (PROP : JYOTI STEEL CORPORATION) [2013 (4) TMI 767 - ITAT AHMEDABAD]
Thus we hold that the addition made u/s. 36(1)(iii) r.w.s. 40A(2)(b) by the lower authorities are hereby deleted and the grounds of appeal raised by the assessee are hereby allowed.
Addition u/s 68 - unexplained cash credit - HELD THAT:- AO in his assessment order stated no return of income filed by Ms. Rashmi Saraf and no PAN available and therefore made the addition u/s. 68 of the Act. Whereas the Ld. CIT(A) on going through the bank statement of Ms. Rashmi Saraf held that cash deposit in her bank account but actually it is a cheque deposit made by the lender. Thus factually the Ld. CIT(A) is not correct in confirming the addition of the advances. We further notice that the assessee has made TDS in the case of Ms. Rashmi Saraf and the loan is also repaid by way of cheque by the assessee through her bank account on 19.09.2015 by way of RTGS. Thus, the assessee has proved the identity, creditworthiness and genuineness of the above loan transactions with proper evidences. Therefore, the above addition of Rs. 10,00,000/- as cash credit is hereby deleted and the grounds raised by the assessee are hereby allowed.
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2022 (8) TMI 433
Addition u/s 56/68 - Unexplained credit in capital account - advances received by assessee for sale of the property - HELD THAT:- As it can be noticed that the assessee has explained the transactions entered with M/s Samarth Enterprises explaining the details of receipt of advance from it. The above said intended purchaser of the land has also confirmed the transaction to the AO in an independent enquiry made by him. The receipt of money was through banking channels only. The AO has not expressed any doubt on the identity of M/s Samarth Enterprises or its credit worthiness.
The assessee has also given copies of notices sent to M/s Samarth Enterprises asking them to complete the transaction. The said party has also confirmed the transaction in an independent enquiry. Hence we find no reason to doubt the genuineness of the transaction entered by the assessee with M/s Samarth Enterprises. The question as to whether the assessee should wait for completion of the sale transaction or should forfeit the advance money as per the clause stated in MOU is the matter to be decided by the assessee and, in our view, the tax authorities cannot enter into the shoes of the assessee in this matter. The important point is that there was sufficient reason for the assessee in not completing the sale transaction. Further, the Act contains specific provision with regard to the manner of treatment to be given for advances forfeited in respect of a sale transaction. Hence, in the facts and circumstances of the case, the question of applying the provisions of sec. 56(2) do not arise.
Tax authorities have given undue importance to the clauses of MOU and expressed the view as to how the assessee should have dealt with these transactions. Under the provisions of sec. 68, the initial onus placed upon the assessee is to prove three main ingredients, viz., the identity of the creditor, the credit worthiness of the creditor and the genuineness of the transactions.
We notice that the AO has not expressed the view that the assessee has not discharged the initial onus placed upon it. The independent enquiry has been made by AO and the intended buyer has also confirmed the transaction and MOU. Hence, the registration or otherwise of MOU may not be relevant here, when the parties to the MOU have confirmed the execution of said agreement. Accordingly, we are of the view that the AO has not made out a case for assessing the amount u/s 68 of the Act, i.e., we are of the view that the assessee has discharged the onus placed upon him in respect of cash credit and the assessing officer could not disprove them. Under these set of facts, we are of the view that the addition made u/s 68 cannot be sustained. - Decided in favour of assessee.
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2022 (8) TMI 432
Allowable business expenses u/s 37(1) - site encroachment charges, land owners’ payment etc. - DR submitted that impugned payments were not the liability of the assessee and the sale agreement was done with respect to already encroached property - HELD THAT:- There was continuous litigation at various fronts which led SVC wanting to cancel the deal.
Since M/s SVC incurred eviction charges, it sought reimbursement of the same from the assessee and accordingly, the expenditure has been debited as work-in-progress with corresponding credit to M/s SVC. It could also be seen that the payments were made by SVC through banking channel and acknowledgment / receipts from evictees were placed before Ld. AO. The details of payment so made were furnished to lower authorities. The assessee was also able to produce two of the evictees who confirmed having received the eviction charges.
Merely because the evictees did not have PAN or not assessed to tax, the same would not jeopardize the claim of the assessee. M/s SVC responded to notice u/s 133(6) and confirmed the payments. There is nothing adverse on record except for mere allegation that the transaction appeared to be collusive one and the bona-fides of the transactions were doubtful. There is no concrete material to substantiate this conclusion. It could also be seen that the assessee was into the business of real estate development and such expenditure would fulfill the test laid down u/s 37(1) and it could very well be said that the expenditure was incurred for business purposes of the assessee
Thus the claim as made by the assessee was allowable as business expenditure. To dispel the concern of the Ld. DR that the same amount could have been claimed as expenditure by M/s SVC, we direct Ld. AO to verify the fact that the aforesaid expenditure was never claimed by M/s SVC. If so, the expenditure would be allowable to the assessee. The same would be allowed to be capitalized and proportionate expenses as claimed by the assessee would be allowed.
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2022 (8) TMI 484
Penalty u/s 271 - Defective notice u/s 274 - non striking of irrelevant portions - whether no clear indication about the concealment of the particulars of income, nor there was clear indication for furnishing of inaccurate particulars of income? - HELD THAT:- As referring to notice A.O has not striked off the irrelevant part in the notice to specify whether the notice was issued for levying penalty for concealment of particulars of income or furnishing inaccurate particulars of income. It is clear that the notice did not indicate whether there was concealment of particulars of income or furnishing of inaccurate particulars of such income. The A.O has mentioned both limbs of Sec. 271(1)(c) of the Act i.e concealed the particulars of income or furnished inaccurate particulars of income in the notice.
Hon’ble Supreme Court in the case of Principal Commissioner of Income Tax (Central) Vs. Goa Coastal Resorts and Recreation (P) Ltd. [2021 (8) TMI 1285 - SC ORDER] held that where there was no record of satisfaction by A.O in relation to any concealment of income or furnishing of inaccurate particulars by assessee in notice issued for initiation of penalty proceedings under Section 271(1)(c), same being sine qua non for initiation of such proceedings.
Hon’ble High Court of Bombay in the case of Mohd. Farhan A. Shaikh [2021 (3) TMI 608 - BOMBAY HIGH COURT]held that where assessment order clearly records satisfaction for imposing penalty on one or other or both grounds mentioned in section 271(1)(c) a mere defect in notice, not striking off irrelevant matter would vitiate penalty proceedings. - Decided in favour of assessee.
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2022 (8) TMI 483
Validity of search proceedings - Treatment of jewellery found in locker as the stock in trade of the appellant - As in search of locker the jewellery and ornament worth Rs.70,10,799/- was found - HELD THAT:- The demand raised was on the basis of return of income. The statement recorded under section 132(4) dated 09.11.2012 while giving the answer to question No.18, the assessee has accepted the jewellery worth Rs.28 lakhs that includes stock of business as he was operating the business on small scale basis. The AO did not consider the statement of the assessee and also did not consider the capital gain, balance sheet, ITR and passed assessment order under section 153C read with section 143(3) - CIT(A) did not consider the same because the assessee was not having the place of business and the stock was found as in the locker. It is not a ground to decline the case of the assessee, because capital account, balance sheet, ITR, assessment order reflected the stock and claim to that extent is also liable to be given to the assessee in accordance with law. Hence, it is quite clear that it is not the income of the assessee and stock is not liable to be included as income. Accordingly, the finding of the Ld. CIT(A) is not justifiable, hence, is hereby ordered to be set aside and these issues accordingly are decided against the Revenue and in favour of the assessee.
Appeal of the assessee is hereby allowed.
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2022 (8) TMI 482
TP adjustment made in pursuance of Section 92BA (i) - specified domestic transactions - HELD THAT:- In the present case there is an adjustment made to the income of the assessee by determining arm’s-length price of specified domestic provisions by invoking the provisions of Section 92BA (i) of the act. The impugned assessment year before us is assessment year 2013 – 14. The above provision i.e. 92BA (i) of the act was inserted by The Finance Act, 2012 with effect from 1/4/2013 and is omitted by The Finance Act , 2017 with effect from 1/4/2017. The issue whether the adjustment can be made to the total income of the assessee by invoking the provisions of Chapter X of The Income Tax Act to the transactions covered by provisions of Section 92BA (i) for assessment year 2013 – 14 till it was omitted.
This issue has been dealt with by the honourable Karnataka High Court in case of Texport overseas [2019 (12) TMI 1312 - KARNATAKA HIGH COURT] in favour of the assessee holding that as the provisions of Section 92BA (i) has been omitted from the Income Tax Act without any saving clause therefore the natural corollary would be that it did not exist at all in the statute book. Accordingly, we allow the additional ground of appeal and hold that the impugned transfer pricing adjustment made by the learned assessing officer is not sustainable.
Allowability of expenditure in terms of provisions of Section 40A (2) - As in the present case the assessee, itself has stated in its T P study report as well as Report of Accountant in 3CEB stated that these transactions are covered by the provisions of Section 40 (A) (2) of the act. Even otherwise, it is not the fact that revenue is given a second chance. In the present case earlier the impression of the revenue prior to the decision of the coordinate bench and of the honourable Karnataka High Court, was that specified domestic transaction i.e. transactions that are covered by the provisions of Section 40 A (2) are required to be tested in accordance with the provisions of chapter X of the act. However when the judicial precedents show that no such provision exist in the law, the natural corollary would be to examine the allowability of these expenses u/s 40A (2) of the act.
Nature of expenses - Expenditure on setting up of a new line of assembly for manufacturing of commercial vehicle - revenue or capital expenditure - HELD THAT:- Disallowance by the learned assessing officer is only because of matching principle, as revenue did not come from the setting up of new assembly line. However, AO lost sight of the fact that assessee is showing substantial sales of heavy vehicles - there is nothing, which has resulted into an enduring benefit to the assessee. In the present world, automobile companies are introducing 5 – 6 variants of different types of vehicles every year , due to frequent changes in the consumer demands as well as change in technology.
AO also incorrectly applied matching principle for making disallowance, as he over looked the same line of business of the asessee where sales of vehicles are shown. In view of this, expenditure incurred by the assessee on setting up of a new line of assembly for manufacturing of commercial vehicle when assessee is already engaging in business of manufacturing commercial vehicle cannot be said to be capital expenditure.
The learned dispute resolution panel has recorded in the facts that Assessee Company operates in three verticals i.e. heavy commercial vehicle segment, light commercial vehicle segment and spare parts segment. Therefore, it is apparent that expenses are incurred for development in an existing line of business of manufacturing of heavy commercial vehicles. The decision of the coordinate bench in case of Mahindra Navistar automotive Ltd [2016 (7) TMI 164 - ITAT MUMBAI] do not apply to the facts of the case as in the present case assessee is contesting that the expenses incurred are revenue in nature as no capital asset or benefit of enduring nature was acquired. Accordingly, we direct the learned assessing officer to delete the disallowance of the expenditure holding that expenditure incurred by the assessee is revenue in nature. The AO is directed to also withdraw the depreciation allowed in consequence of our above decision. Accordingly, ground number 1 of the appeal is allowed.
Disallowance of dealers incentive - whether the expenditure incurred by the assessee is on scientific research or not, the expenditure is allowable to the assessee either u/s 37 (1) of the act or u/s 35 (1) (i) of the act to the extent of expenditure incurred? - HELD THAT:- As without going into the controversy Explanation of assessee shows that it is carrying on product development activities. It is also an activity for the extension of knowledge in the field of manufacturing of vehicles. In fact, the activities carried out by the assessee are activities for extension of knowledge in the field of the business of the assessee company. It is also not the case of the revenue that it is not related to the business of the assessee. Hence, these are expenditure incurred by assessee on scientific research in the field of manufacturing of vehicles .
Therefore, we do not find any reason to uphold the action AO - Accordingly we direct him to allow deduction u/s 35 (1) (i) -Coming to the deduction u/s 35 (1) (iv) of the act on which the learned assessing officer has allowed depreciation only instead of allowing the whole expenditure in the year in which it is incurred. We have already held assessee is carrying on scientific research in the business of manufacturing of vehicle. Based on same reasons as given by us for allowing the expenditure of the assessee u/s 35 (1) (i) of the act we also direct the learned assessing officer to delete the disallowance of Rs. 7,088,075/-. As we have allowed the claim of the assessee u/s 35 (1) of the act the learned assessing officer as a natural corollary should withdraw the grant of depreciation allowance to the assessee. Accordingly, ground number 3 of the appeal of the assessee is allowed.
Nature of receipt - Revenue v/s capital receipt - claim of the assessee that industrial promotion subsidy received from government of Maharashtra pursuant to the package scheme of incentives - HELD THAT:- As held by Hon Supreme court in case of Ponni Sugar [2008 (9) TMI 14 - SUPREME COURT] decisive factor for considering the nature of subsidy as a ‘capital’ or ‘revenue’ receipt is the 'purpose' for which the subsidy has been granted and not the manner of its disbursal. Purpose of granting the subsidy, which is nothing but establishment of new industrial units in less developed areas of the State i.e. to develop underdeveloped areas of the state. Further, on identical facts and circumstances the coordinate bench in case of Mahindra vehicles Manufacturers Limited [2018 (12) TMI 629 - ITAT MUMBAI] wherein it has been categorically held to be a capital receipt.
Thus respectfully following the decision of the coordinate bench in assessee’s group concern, where on the same scheme it has been held to be a capital receipt, we also hold that subsidy received by the assessee is a capital receipt. Accordingly, ground number 4 of the appeal of the assessee is allowed.
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2022 (8) TMI 481
TP Adjustment - determination of Arm’s Length Price (ALP) - avabilability of comparable uncontrolled transactions - international transactions of sale of extruders and parts and elements of extruders manufactured by the Assessee to it’s Associated Enterprise (AE) - Whether the profit margins for the purpose of comparison of Assessee’s profit margin with that of the comparables has to be arrived at the entity level as was done by the Assessee or that part of the export sale to AE and non-AE as was done by the TPO or that part of the export sale to AE alone as was canvassed by the Assessee by way of an alternate plea? - HELD THAT:- As we find that there is no dispute in the present case that TNMM is the MAM. Rule 10B(1) (e) of the Rules provides the manner of determination of ALP under TNMM.
Rule 10A(d) defines transaction to include “a number of closely linked transactions”. In terms of Rule 10B(1)(e) (i) of the Rules, the net profit realized by an enterprise from an international transaction has to be ascertained first. Assessee in it’s Transfer Pricing study at page-12 paragraph 4.5.5 has given reasons for choosing profit margin of Assessee at entity level for the purpose of comparison. It has been stated therein that the transactions of sale and purchase of extruders and parts and elements of extruders, commission on sales, purchase of fixed assets and services received were considered as closely linked transactions. Therefore, the Assessee evaluated the international transactions by adopting Combined Transaction approach at entity level.
Admittedly as per TP Study the transaction of purchase of intangibles and interest received from China were benchmarked separately. The three international transactions are of purchase of extruders and parts from Steer China and payment of commission to Steer Japan and Steer America. The other international transaction is of purchase of fixed assets from Steer China. As to how these international transactions are interlinked and interdependent is not spelt out in the TP study. By it’s very nature, these transactions appear to be independent. We also find that in the transfer pricing study the Assessee has given reasons as to why CUP method was not suitable in its case. It has been stated therein that the extruders parts and elements are manufactured based on specific order. The products are unique and not comparable to others. The terms and conditions and the economic circumstances under which the Assessee sells extruders parts and elements to AE are materially different from the comparable uncontrolled transactions. We are therefore of the view that the question of adopting the profit margins at the entity level based on the submissions made by the Assessee before the CIT(A) cannot be accepted.
Whether the profit margin of export sale including sale to AE and non AE or only export sale to AE ought to have been considered by the TPO? - The sale and proportionate expenses relatable to sale to AE alone has to be considered to arrive at the profit margin of the Assessee for the purpose of comparison of Assessee’s profit margin. Similar exercise has to be carried out by the TPO with regard to the two comparable companies and the profit margin of the two comparable companies has to be arrived at by identifying expenses relatable to export sale to AE and for this purpose the TPO may exercise his powers u/s.133(6) of the Act and call for the required details from the the comparable companies.
Apportionment of expenses - As basis of apportionment as adopted by the TPO is just and fair and calls for no interference. The Assessee has not given any other manner of apportionment except to say that expenses attributed to the export sale are not proper. In our view the Assessee is in knowledge of its own affairs and should be in a position to justify a better manner of apportionment rather than simply contend that the basis of apportionment by the TPO was unfair.
Foreign exchange gain to be treated as part of the operating profits for the purpose of comparison of Assessee’s profit margin and that of the comparable companies - We agree with the plea of the Assessee. Foreign exchange fluctuation to the extent it relates to the international transaction has to be regarded as part of operating profit and the decision of Delhi high court in the case of Prl.CIT Vs. Ameriprise India [2016 (3) TMI 1272 - DELHI HIGH COURT] TP supports the plea of the Assessee in this regard.
Application of filter of 75% export sales - As we have already Rule 10B(1)(e) of the Rules, do not prescribe any fixed filters. An element of flexibility is always inbuilt in the rules. The idea is to get data for comparison. Assessee’s transaction with AE has to be compared with that of an uncontrolled transaction. The net profit margin referred to in the uncontrolled transaction has to be adjusted to take into account the differences, if any, between the international transaction and the comparable uncontrolled transactions, or between the enterprises entering into such transactions, which could materially affect the amount of net profit margin in the open market. In such circumstances, the reasoning of the TPO in applying export turnover filter at 25% of the turnover is proper and calls for no interference. The two comparable companies which are admittedly comparable companies available for comparison, cannot be excluded on the basis of a filter which has no relevance to the factual scenario in the present case.
We direct the TPO to determine the ALP in accordance with the directions contained in this order after affording the Assessee opportunity of being heard.
Correctness of determination of ALP in respect of provision of Corporate Guarantee by the Assessee to its AE - HELD THAT:- The law is by now well settled that providing corporate guarantee to AE is an international transaction and the provisions of Sec.92 of the Act are applicable to such transactions. Assessee had given a gurantee in favour of SBI, Shanghai for a cash credit facility availed by Steer China in a sum of Rs.2,18,00,000. The Assessee did not charge any commission from Steer China for providing such guarantee and hence the TPO determined the ALP by obtaining credit rating and relevant interest rate of corporate bonds from CRISIL at arrived at 0.925% as the appropriate rate at which the Assessee ought to have charged guarantee commission from the AE. By applying the said rate on the sum for which guarantee was extended the AO arrived at a sum of Rs.2,01,650 as the ALP of the international transaction of providing guarantee and the same was added to the total income of the Assessee and the action of the TPO was confirmed by the CIT(A). The limited prayer before the Tribunal is to adopt 0.5% as the appropriate rate and that too on the sum utilized by the AE from and out of the sum of Rs.2.18 crores extended as credit limit to the AE and the submission so made is based on the decisions of ITAT rendered in the case of Associated Capsules Pvt. Ltd.[2020 (11) TMI 334 - ITAT MUMBAI] - We are of the view that the prayer so made based on the decision cited is acceptable. We accordingly direct that the ALP be determined at 0.5% of the credit limit utilized and not that what is sanctioned.
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Customs
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2022 (8) TMI 480
Criminal Conspiracy - Proceedings against the Superintendent of Customs, EOU (petitioner) - wrongful loss to the Government of India - clearance of container No.CLHU-262095-4 containing the goods meant for export by accused No.4, without physically verifying the same before sealing the container - proper officer to accord sanction - offences punishable under Sections 120B read with Sections 420, 467, 468, 471 of the IPC and Sections 13 (2) read with Section 13(1)(d) of the Prevention of Corruption Act - HELD THAT:- In the case on hand, admittedly, the offences alleged against the present petitioner are punishable under Sections 120B, 420, 467, 468 and 471 of the IPC and under Section 13 (2) read with Section 13 (1)(d) of the Prevention of Corruption Act. Thus, none of the offences under Sections 132, 133, 134, 135 or 135-A of the Customs Act have been alleged against the present petitioner in the instant case. Therefore, the sanction need not be given under Section 137 of the Customs Act.
The sanction given under Section 19(1)(c) for the offence punishable under Section 13 (2) read with Section 13 (1)(d) of the Prevention of Corruption Act, cannot be called as an invalid sanction in the eye of law.
Whether the sanctioning authority was not the competent authority to accord sanction? - HELD THAT:- It is not the Commissioner of Customs, who has passed that order, but it was the Commissioner of Central Excise. Later, by the order dated 30-04-2002 passed by the Additional Commissioner of Customs, Head quarters, Bangalore, which was in pursuance of the Establishment Order dated 19-04-2002 of the Commissioner of Central Excise, Bangalore -I Commissionerate, the petitioner was transferred from Customs Go-down, Bangalore to Customs Division, Bangalore. Thus, under the Establishment Order passed by the Commissioner of Central Excise, the Additional Commissioner of Customs effected the said transfer - the Commissioner of Central Excise was, throughout, been the Controlling Authority of the present petitioner.
As on the date of according sanction, undisputedly, the petitioner was working in the Department of Excise only. In spite of the same, if it is the contention of the petitioner that the sanction order is not in accordance with law, then, it is not the question of ‘no sanction’ but it is a sanction with some irregularity. The said question of alleged irregularity in the sanction would be a subject matter of adjudication, provided the same is raised by the accused No.1/petitioner at the appropriate point of time in the Special Court.
The argument of the learned Senior Counsel for the petitioner that, there is no proper sanction to prosecute the petitioner for the alleged offences, is not acceptable - Criminal Revision Petition stands dismissed.
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Corporate Laws
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2022 (8) TMI 479
Validity of summon order - Winding up of the company - appointment of Provisional Liquidator of the company on the ocassion of winding up of the company - continuation of criminal proceedings - Dishonor of Cheque - Section 138 of NI Act - HELD THAT:- It is implicit through Section 273(1)(c) of the Companies Act, 2013 that the Provisional Liquidator of the company may be appointed by the Tribunal till the making of a winding up order. The order dated 28.02.2013 relied upon on behalf of the petitioner in Co.Pet. 36/2013 is not an order for winding up of the company M/s Catmoss Retail Private Limited. - in terms of Section 279(1) of the Companies Act, 2013, a suit or other legal proceedings can be commenced, or if pending on the date of the winding up order may be proceeded with by or against the company with the leave of the Tribunal and subject to such terms as the Tribunal may impose.
Dishonor of Cheque - HELD THAT:- Undoubtedly, in the instant case, the complaint has been instituted under Section 138 of the Negotiable Instruments Act, 1881 on 12.08.2013 and that thus, the said complaint under Section 138 of the Negotiable Instruments Act, 1881 has been filed after the date 28.02.2013 when the Provisional Liquidator had been appointed in Co.Pet. 36/2013 qua M/s Catmoss Retail Private Limited - The complaint filed in CC No.452/2014 relating to the cheque bearing No.206731 dated 30.06.2013 for an amount of Rs.8,00,000 was instituted on 12.08.2013 prior to the winding up order dated 27.03.2014 and vide order dated 10.07.2017 in CA No.52/2017 in Co.Pet. 36/2013, permission had been granted to the applicant thereof to continue with the complaint CC No. 2913/1/15.
Application disposed off.
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Insolvency & Bankruptcy
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2022 (8) TMI 478
CIRP - Recovery proceedings initiated by the bank under SARFAESI Act - petitioner stood as a guarantor to a loan facility - resolution plan qua the borrower was approved under Section 31 of the under the Insolvency and Bankruptcy Code, 2016 - Parallel proceedings or not - SARFAESI action has been initiated with the sole intent to recover amounts in excess of the resolution plan - vires of approval order of the NCLT or not - HELD THAT:- The law relating to maintainability of a writ petition in matters relating to SARFAESI Act is no longer res integra. The Supreme Court in Phoenix ARC Pvt. Ltd. v. Vishwa Bharti Vidya Mandir and Ors. [2022 (1) TMI 503 - SUPREME COURT], has held that where proceedings are initiated under the SARFAESI Act, and the borrower is aggrieved by any of the actions of the bank for which the borrower has remedy under the SARFAESI Act, no writ petition should be entertained.
Whether the proceedings are in derogation of the Approval Order of the NCLT - availability of other remedy available - HELD THAT:- The issue is settled by Supreme Court in Lalit Kumar Jain v. Union of India [2021 (5) TMI 743 - SUPREME COURT], where the Supreme Court has, in very clear terms, held that discharge of the corporate debtor from a debt owed by it to its creditors, by way of an involuntary process such as insolvency proceedings, does not absolve the guarantor of its liability since it arises out of an independent contract. Thus, the passing of a resolution plan does not ipso facto discharge the personal guarantor.
Non-implementation of the resolution plan - HELD THAT:- The aggrieved party is actually Respondent No. 1, who has not been paid in terms of the resolution plan approved by NCLT. As pointed out by the counsel for Respondent No. 1, there has been a default on the part of the resolution applicant in payment of instalments, and as per the counter affidavit, 15 instalments amounting to Rs. 4,53,60,000/- remain pending. It is therefore for Respondent No. 1 to now take action for recovery of its dues from the resolution applicant, as it may deem fit, utilizing any remedy available to it under law.
Respondent No. 1 certainly has the right to proceed against the collateral securities for recovery of its dues, which are independent of the resolution plan approved by the NCLT. If the resolution plan approved by the Adjudicating Authority is contravened by the concerned corporate debtor, any person other than the corporate debtor, whose interests are prejudicially affected, may make an application to the Adjudicating Authority for an order for liquidation. Where a resolution applicant succeeds as a corporate debtor, but fails to comply with its assurance in terms of the resolution plan, then subsequent step to be taken has been specified in Section 33(3) of the IBC - Petitioner’s grievance regarding non-implementation of the resolution plan, too, cannot be a ground for this Court to entertain the instant petition.
There are no merits in the petition - petition dismissed.
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2022 (8) TMI 475
Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Operational Creditors - existence of debt and dispute or not - time limitation - service of demand notice - whether the demand notice in Form 3 dated 29.04.2019 was properly served? - HELD THAT:- The petitioner has placed a tracking report, whereunder it was stated that the speed post was delivered to the corporate debtor and no reply to that has been received.
Whether the operational debt was disputed by the corporate debtor? - HELD THAT:- It is to be noted that none appeared on behalf of the corporate debtor despite repeated service and has been set ex parte vide order dated 11.02.2020. Moreover, the petitioner has appended affidavit u/s 9(3)(b) stating that there is no reply to the demand notice and the corporate debtor has not cleared the outstanding dues for which the present petition has been filed by the operational creditor.
Whether this application is filed within limitation? - HELD THAT:- This application was filed on 05.07.2019 vide Diary No.3220 Whereas the date of default is 06.11.2018, therefore, this Adjudicating Authority finds that this application has been filed within limitation.
There is a total unpaid operational debt (in default) of ₹19,00,356/-. The operational creditor has supplied goods to the corporate debtor and raised invoices attached as Annexure F. Accordingly, the petitioner proved the debt and the default, which is more than Rupees one lakh (prior to the amendment in threshold limit of one crore vide notification No. S.O.1205(E) dated 24.03.2020) by the respondent-corporate debtor - It is seen that the petition preferred by the petitioner is complete in all respects. The material on record clearly goes to show that the respondent committed default in payment of the claimed operational debt even after demand made by the petitioner.
Petition admitted - moratorium declared.
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2022 (8) TMI 474
Seeking direction to the respondents to release a refund for Assessment Year 2018-19 along with interest to the Corporate Debtor - Nature of the debt arising out of unpaid Income Tax and other such dues of the corporate debtor - the amount of refund for Assessment Year 2018-19 has been set off against the demand for Assessment Year 2016-17 after the Income Tax Department issued a notice under Section 245 to the applicant dated 20.09.2019 and the same was not contested.
Whether refund due can be adjusted against pre-CIRP dues?
Nature of the debt arising out of unpaid Income Tax and other such dues of the corporate debtor - HELD THAT:- This issue fell for consideration before the Hon’ble NCLAT in Pr. Director General of Income Tax (Admn. & TPS) Vs. M/s. Synergies Dooray Automotive Ltd. & Ors. [2019 (3) TMI 1238 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI] wherein the Hon’ble NCLAT observed and held that We hold such statutory dues has direct nexus with operation of the Company. For the said reason also, we hold that all statutory dues including ‘Income Tax’, ‘Value Added Tax’ etc. come within the meaning of ‘Operational Debt’.
In the present case, there was a demand against the corporate debtor for Assessment Year 2016-17 by the Income Tax Department on 06.12.2018 much prior to 28.02.2019 i.e., the CIRP commencement date. The said demand was to be paid within 30 days upto 06.01.2019 under the relevant provisions of the Income Tax Act. The corporate debtor has filed an appeal challenging the order dated 06.12.2018 of the Assessing Officer before the Commissioner of Income Tax (Appeals) on 14.12.2018 as per Annexure A-8 of the reply. The claim that the demand for Assessment Year 2016-17 has not crystallised because of the pending appeal appears to be an afterthought as the Department has already treated it as a crystallized demand and filed a Form B on 01.12.2020 before the Resolution Professional for the demand for the Assessment Year 2016-17 after deducting the refund amount of Rs.43,49,040/- which was already adjusted.
Following the decisions of the Hon’ble NCLAT in the case of Pr. Director General of Income Tax (Admn. & TPS) Vs. M/s. Synergies Dooray Automotive Ltd. & Ors., it is noted that under the provisions of IBC, the Income Tax Department is an operational creditor and is entitled to dues arising out of the existing law are ‘Operational Creditor’ within the meaning of Section 5(20) of the ‘I&B Code. With the initiation of CIRP, the Moratorium under section 14 of the IBC, 2016 came into force on 28.02.2019. The provisions of Section 14 of the IBC provide that on the insolvency commencement date, the Adjudicating Authority shall, by order, declare a moratorium prohibiting the institution of suits or continuation of pending suits or “proceedings” against the corporate debtor, including the execution of any judgment, decree, or order in any court of law, Tribunal, Arbitration Panel, or any other authority.
The present refund of Rs.43,49,040/- for the Assessment year 2018-19 was determined on 18.09.2019 and adjusted on 29.10.2019, i.e. after the initiation of the CIRP and the declaration of the moratorium period under the provisions of Section 14 of the IBC, 2016, which is unjustified being against the settled law - the respondent is directed to release the refund of an amount of Rs.43,49,040/- with interest up to the date of the issuance to the applicant - appeal allowed.
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2022 (8) TMI 476
Moratorium - raising of presumptions - It is the contention of the Learned Counsel for the Applicant/Appellant that once a Moratorium is in place, continuation of any Suit or Proceeding in any Court/Tribunal/Forum/Authority against the Corporate Debtor shall be stopped until the completion of CIRP - continuation of the proceedings will be in violation of Section 14 of the I & B Code, 2016 - interplay between section 14 and section 32A of IBC - HELD THAT:- As a matter of fact, the word Moratorium is defined in P RamanathaIyer’s Advanced Law Lexicon (5th Edition) 2017 Vol. III at Page 3348 meaning Authorisation of suspension of payments by a Debtor for a specified time - The term Moratorium is described as a legal authorisation to a Debtor to defer the payment for a certain time as per Schedule Article 53 of the Asian Development Bank Act.
Raising of presumption - HELD THAT:- It is pertinently pointed out by this Tribunal that the employment of the word Shall raises a presumption that specific provision is imperative - It is worthwhile to mention that Rule 57 (2) of Schedule 2 to the Income Tax Act, 1961, provides that the full amount of purchase money payable shall be paid by the Purchaser to the Tax Officer on or before 15th day from the date of Sale of Property.
Effect of Moratorium& its Breach - HELD THAT:- A mere running of the eye of the word Shall employed in Section 14 (1) of the I & B Code, 2016, symbolises that on declaration of Moratorium, it is mandatory for the Adjudicating Authority to pass an Order prohibiting the filing or continuation of pending Suits or Proceedings; against the Corporate Debtor. In this connection, this Tribunal points out that when a Statute employs the word Shall ex facie, it is mandatory.
As per Section 14 (4) of the Code, the Order of Moratorium is to have effect from the date of such an Order till the completion of Corporate Insolvency and Resolution Process. However, during the Corporate Insolvency and Resolution Process, if the Adjudicating Authority (NCLT) approves the Resolution Plan as per Section 31 (1) of the I & B Code or passes an Order for Liquidation of Corporate Debtor under Section 33, the Moratorium has to cease to have effect from the date of such an Approval or Liquidation, as the case may be - No wonder, Section 74 of the I & B Code, 2016, prescribes punishment for violation of the terms of the Moratorium Order under Section 14 of the Code or approved Resolution Plan, under Section 31 of the Code.
Application disposed off.
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2022 (8) TMI 473
Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial Creditors or not - Company Petition has been filed by the Debenture Trustee - default in redemption of debentures - Section 10A of the IBC - HELD THAT:- It is important to mention here that the Corporate Debtor did not choose to file any reply even after taking number of adjournments. On the other hand, the counsel appearing for the Corporate Debtor, on 5th May 2022, mentioned before this Bench as if the Corporate Debtor is admitting the liability which was recorded in the daily order dated 5th May 2022. Thereafter, the matter was reserved for orders. Since the order could not be passed by this Bench due to demitting office by one of the Member, the matter was reopened and relisted for de novo arguments.
On hearing the counsel for the Petitioner and upon going through Form-1 filed by the Petitioner and the related materials, this Bench is of the view that the Corporate Debtor has committed default in repayment of a financial debt. The above CP being filed on 11.11.2021 is within 3 years from the date of default. Thus the CP satisfies all the legal requirements for admission.
The initiation of Corporate Insolvency Resolution Process (CIRP) is ordered against Gagan I-Land Township Private Limited - petition admitted - moratorium declared.
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2022 (8) TMI 477
Effect of interim moratorium - Dishonor of Cheque - stay on criminal proceedings under Section 138 of the Negotiable Instruments Act, 1881, in terms of Section 96 of the Code - the cheque in question was not issued to discharge a corporate debt, though issued by a personal guarantor qua a corporate debtor - the cheque is not qua parties as are adversaries or litigants in any proceedings before the National Company Law Tribunal/Resolution Professional/Interim Resolution Professional - scope of the phrases “all the debts” and “any legal actions or proceedings pending in respect of any debt” -
Whether the interim moratorium under Section 96 of the Code would apply to the complaint filed by the respondent herein under Section 138 of the NI Act, or not?
HELD THAT:- After the amendment of 2018 in the Code, sub-section (2) of Section 60 effectively states (even in terms of sub-section (1) thereof) that an application relating to the insolvency resolution or bankruptcy of a corporate guarantor or a personal guarantor, shall be filed before the NCLT. Further, any application filed by a personal guarantor to a corporate debtor can only be filed if a corporate insolvency resolution process or liquidation proceeding of a corporate debtor is pending before the NCLT. In other words, a plain reading of the aforesaid provision would show that a personal guarantor to a corporate debtor cannot independently seek initiation of insolvency or bankruptcy etc. proceedings even before the NCLT in terms of sub-section (1) of Section 60, unless the corporate debtor itself is already subject to such pending proceedings before the Tribunal.
In the present case, the application filed by the present petitioner (copy Annexure P-17), under the provisions of Section 94(1) of the Code read with Rule 6 of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for personal Guarantors to corporate Debtors) Rules, 2019, is to initiate “an insolvency resolution process in respect of VIJAY KUMAR GHAI”, which would only be possible, on a bare reading of Section 60 (2), if the company of which he is a Director and stands as a personal guarantor to, i.e. M/s Priknit Retails Ltd., is already in proceedings before the NCLT for insolvency resolution/liquidation, either initiated by itself or initiated by the two banks or the company as have been made respondents by the petitioner in his application, i.e. M/s ICICI Bank, State Bank of India and ASREC (India) Ltd.
Interpretation of the phrases “all the debts” and “any legal actions or proceedings pending in respect of any debt” - HELD THAT:- Though in the opinion of this court otherwise a proceeding under Section 138 of the Act, qua a debt as is wholly incurred qua an individual who is not in any manner connected to the corporate debtor that the petitioner stood a personal guarantor for, nor to the corporate debt itself, would need to proceed independently so as not to make the complainant in such proceedings under Section 138 suffer further delays, especially when in the present case he has already suffered a delay of about 10 years since his complaint was initially filed, however, in the light of the fact that Section 96 of the Code does not specifically carve out any exception qua such a debt as is subject matter of an instrument in the context of which a complaint under Section 138 of the Act has been filed, this court would have to interpret the terms “all the debts” and “any legal action or proceedings pending in respect of any debt” as occur in Section 96 of the Code, to mean that it would cover all such debts including any debt not pertaining to a corporate debtor for whom the accused in such a complaint under Section 138 stood as a personal guarantor to, even in his capacity as a Director of such corporate debtor - unless the wordings of a statute are “unworkable” or wholly impractical, nothing extra can be read into a statute or taken away therefrom.
Whether proceedings under Section 138 of the Act would be deemed to have been stayed in terms of Section 96 of the Code in view of the fact that the complaint against the petitioner was filed 8 to 9 years prior to the petitioners' application under Section 94 and even about 6 years before the initiation of proceedings against the corporate debtor by the State Bank of India under Section 7 of the Code? - HELD THAT:-It would have to be held that by virtue of the term “any legal action or proceedings pending in respect of any debt (as per Section 96), proceedings under Section 138 of the Act, would be deemed to be stayed irrespective of the fact that such proceedings were initiated far before the application under Section 94 of the Code was filed by the personal guarantor to a corporate debtor - even though the respondent herein may suffer longer delays due to the stay that would be deemed to be operating on the proceedings in the complaint filed by him under Section 138 of the Act, by virtue of the interim moratorium stipulated in Section 96 of the Code, there would seem to be no option with this court but to allow the petition and set aside the impugned order passed by the learned JMIC, Jalandhar, dated 25.05.2021.
Till a decision is taken by the Adjudicating Authority in terms of Sections 100 and 101 of the Code, on the application filed by the petitioner under Section 94(1) thereof, the proceedings before the learned trial court under Section 138 of the Act, would remain stayed - Application disposed off.
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Service Tax
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2022 (8) TMI 471
Classification of supply (service includes supply of goods) - Commercial or Industrial Construction Services - contract is inclusive of supply of goods - availability of benefits of abatement to exclude the value of goods so as to arrive at the assessable value for raising demand of service tax - HELD THAT:- The issue has already been examined in detail by the Tribunal in the case of M/S. URC CONSTRUCTION (P) LTD. VERSUS COMMISSIONER OF CENTRAL, SALEM [2017 (1) TMI 1363 - CESTAT CHENNAI] where it was held that even as the services rendered by them are taxable for the period from 1st June, 2007 to 30th September, 2008 the narrow confines of the show cause notices do not permit confirmation of demand of tax on any service other than ‘commercial or industrial construction service.
Since the issue is no longer res-integra, the instant demand of service tax under the category of Commercial or Industrial Construction cannot be sustained and hence, set aside - appeal allowed - decided in favor of appellant.
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2022 (8) TMI 472
Extended period of limitation - Payment of service tax on being pointed out - Failure to disclose the value in the ST-3 return - Waiver of penalty levied u/s 78 by section 80 of FA - fraud, wilful, mis-statement or suppression of facts existed or not - Invocation of extended period of limitation - whether the period from 10.9.2004 to 31.7.2007, is barred by limitation, or not - HELD THAT:- Section 80 of the Act starts with a non-obstante clause. According to the learned counsel for the appellant even though penalty under section 78 of the Act is waived invoking section 80 of the Act, if the assessee proves that there was reasonable cause for the failure of payment of service tax, the same yardstick cannot be brought into section 73(1) of the Act. Section 73(1) of the Act gives a right to the Central Excise Officer for the recovery of the service tax due. Exonerating the respondent from the payment of penalty under Section 78 of the Act, by invoking Section 80 of the Act will not absolve the Bank from payment of service tax and recovery of the avoided service tax by the extended period of limitation under section 73 of the Act.
The facts in the present case show that on issuance of the summons on 21/11/2007, the Chief Financial Officer appeared and gave his statement that the non payment of service tax on full value received by the branches, was not intentional, but due to system failure, and they immediately upon receipt of difference on the short payment, remitted the entire differential amount of service tax due to the government inclusive of interest. So they indirectly admit that service tax is due to the appellant from the respondent bank.
The non payment of service tax was noted by the department only through the Intelligence report and when non-payment was informed to the respondent bank only, they paid the service tax due along with the interest. The assessee has not disclosed the value of taxable service for the period 10.9.2004 to 31.7.2007 in their ST 3 Returns filed to the department. Only when the department issued a show cause notice, the responded bank remitted the amount of tax. Hence, merely because they were exonerated under Section 80 of the Act from payment of penalty for reasonable cause for non payment the same yardstick cannot be taken by the bank to contend that the extended period of limitation as prescribed under proviso to section 73 of the Act is available.
In this case having taken centralised registration on 1.4.2007, the respondent failed to remit the service tax. Thus, it can be seen that there was non-payment of service tax from 1.4.2007 and it can be brought under clause (d) of section 73 of the Act, which is suppression of fact. Hence the invocation of extended period of limitation by the department can only be sustained. The Tribunal went wrong in holding that since the penalty under section 78 of the Act is waived, there was no intention to evade payment of tax on the part of the appellant and thus, the extended period of limitation available under section 73 of the Act is not available to the department and the entire period from 10.9.2004 to 31.7.2007 was held to be barred by limitation.
The findings of the Tribunal regarding the extended period of limitation is wrong and the same is set aside - Appeal allowed - decided in favor of appellant.
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2022 (8) TMI 470
Classification of services - activity of loading, transportation and unloading of coal from one point to another point within the mining area - to be classified under transport of goods by road service or under cargo handling service? - HELD THAT:- This issue has been decided by a Division Bench of the Tribunal in SINGH TRANSPORTERS VERSUS COMMISSIONER OF CENTRAL EXCISE, RAIPUR [2012 (7) TMI 566 - CESTAT, NEW DELHI] and it has been held that the activity would not fall within the definition of “cargo handling service”.
Appeal allowed - decided in favor of appellant.
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Central Excise
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2022 (8) TMI 469
CENVAT Credit - GTA Services - place of removal - requirement of ISD registration - case of department is that the GTA credit could be availed only upto the place of removal and not from place of removal, the Head Office could not distribute credit without having ISD registration, the credit was to be proportionately distributed to all the units - extended period of limitation - Admissibility of credit on GTA services upto 1.4.2008 - HELD THAT:- The issue is no more res integra on merits itself in the light of judgment of Hon’ble Supreme Court in the case of COMMISSIONER OF CENTRAL EXCISE SERVICE TAX VERSUS ULTRA TECH CEMENT LTD. [2018 (2) TMI 117 - SUPREME COURT] where it was held that Cenvat Credit on goods transport agency service availed for transport of goods from place of removal to buyer’s premises was not admissible to the respondent - Therefore, following the same, it is held that the credit on GTA services from the place of removal upto 1.4.2008 was rightly admissible to the Appellant.
Issue of distribution of credit prior to 1.4.2016 - HELD THAT:- Rule 7 of CCR provided mechanism to distribute the credit and it was only after amendment made in 2016, the condition for proportionate distribution was inserted. This issue has also been settled by the Tribunal in the case of PIRAMAL GLASS PVT LTD VERSUS C.C.E. & S.T. -SURAT-I [2021 (9) TMI 1198 - CESTAT AHMEDABAD]) that prior to 1.4.2016 there was no need to proportionately distribute credit to all the units. Therefore, the credit was rightly distributed to the appellant by its Head Office during the period in dispute.
Distribution of credit by the Head Office without obtaining ISD registration - HELD THAT:- The issue involved being of general in nature, the law has already been settled by the Hon’ble Gujarat High Court in COMMISSIONER OF CENTRAL EXCISE VERSUS DASHION LTD [2016 (2) TMI 183 - GUJARAT HIGH COURT] where it was held that credit cannot be denied on the basis of non-registration of Head Office as ISD - the impugned order denying credit on the basis of non- registration of Head Office as ISD is not sustainable.
Extended period of limitation - HELD THAT:- Since the appeals are allowed on merits itself, there otherwise remains no need to look into the issue of limitation.
Appeal allowed - decided in favor of appellant.
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2022 (8) TMI 468
CENVAT Credit - Works Contract Services - Input Services - Department took the view that the services provided by the contractors were in the nature of ‘works contract services’ which, was excluded from the definition of input service under the Cenvat Credit Rules, 2004 - period from 01-04-2011 to July, 2015 - HELD THAT:- The definition of ‘ínput service’ has an inclusion clause and an exclusion clause. The intention of the government could never have been to cover certain services in the inclusion part and at the same time cover them also in the exclusion clause. The cases cited by the learned advocate for the appellants support this view. The expression “modernisation, renovation or repairs of a factory” was appearing in the definition of ‘input service’ both before and after 01.07.2012. It has not been denied by the department that the Coke Oven Project of the appellants was towards modernization and renovation of their existing plant/factory.
In the case of RELIANCE INDUSTRIES LTD. VERSUS C.C.E. & S.T. -RAJKOT [2022 (4) TMI 729 - CESTAT AHMEDABAD], the facts were similar to that of the present case where the party had undertaken modernization and expansion of their facility, where it was held that The service provider has classified the services under ECIS and not under Construction Service and paid service tax under the head of ECIS. The ECIS Service independently not covered under the exclusion clause therefore, for this reason also credit cannot be denied. There is a catena of case laws wherein, it was held that the classification of service cannot be disturbed or challenged at the end of service recipient particularly for denial of cenvat credit. Once the classification is finalized at the service provider end, the same cannot be altered at the service recipient end.
The Appellants have correctly taken credit of service tax paid/borne in respect of all services which were used for the Coke Oven Project as part of the modernization/renovation plan of the existing plant/factory - Appeal allowed - decided in favor of appellant.
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2022 (8) TMI 467
Captive Consumption - intermediary goods - manufacture of coir mattresses and intermediate products, namely, PU Foam and PU Foam SST - PU Foam by the appellant without payment of duty - N/N. 67/1995-CE dated 16th March, 1995 - separate account in the name and style as “captive use” has been maintained by the appellant in their ER-returns - demand of duty alongwith penalty - HELD THAT:- Keeping in view that the ER returns and the figures mentioned therein have to be meticulously examined specifically the figures of the column of “captive use” are concerned to recalculate the ratio of material consumed and final product cleared. Apparently, these figures included the captive use of PU Foam & PU SST.
The original adjudicating authority is, therefore, required to look into the documents on record, to consider the re-conciliation chart, if any, filed by the appellants so as to calculate the quantity of PU Form/ PU Foam SST as have been captively used and that amount thereof in the final product cleared, and to decide the case afresh independent of the decisions already on record.
The present appeal hereby is allowed by way of remand.
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Indian Laws
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2022 (8) TMI 466
Dishonor of Cheque - vicarious liability of Director - Managing Director or Joint Managing Director in charge of the business or not - liability of signatory of cheque - Section 141 of the N.I. Act - HELD THAT:- While it is correct that there can be no deemed liability of Directors, there is a simultaneous requirement that when the petitioner seeks the quashing of a complaint, there is an onus on the petitioner to furnish some kind of sterling and incontrovertible material or other reasonable circumstances to substantiate his contention that he was not in-charge of and responsible for the conduct of the business of the accused company. A complaint cannot be quashed merely on the ground that no particulars are given in the complaint about his role if the basic averment was sufficient to make out a case in the complaint.
There are averments that both the Directors had acted on behalf of the accused No.1 for the manufacture and supply by the complainant/respondent of 12,000 STBs Units at a particular price. The complainant has averred that it had entered into an MoU on 14th June, 2018 and had executed to Tripartite Agreement dated 18th September, 2018 and 2nd December, 2018 with the accused No.1 in this regard, whereafter the post dated cheques drawn in favour of the complainant were issued. The complaint further sets out how when the accused No.1 company failed to make timely payments, a demand notice was specifically issued for the payment of outstanding dues to the tune of Rs.27,13,10,296/-. The 15 cheques were presented which were then dishonored leading to the filing of the complaints - the document relied upon by the respondents does not reflect the fact that the petitioner while being a Director of the accused company was participating in the conduct of the business by entering into trade agreements on behalf of the company. The averments do not find support from the very documents relied upon by the complainant/respondent.
The petitioner is not responsible for and in-charge of the business of the accused company. It is not pleaded in the complaints that the dishonoured cheques had been signed by the petitioner. Nor has it been so urged before this Court. Thus, the averments made in the complaints even if be fully accepted, the documents annexed thereto ex facie show that the petitioner though a Director of the accused company was not in-charge of or responsible for the conduct of its business. Thus, an essential ingredient of Section 141 N.I. Act based on which vicarious liability could be attached to the petitioner is missing.
The position of law being what it, is no two views can be taken in the present matters - Petition allowed.
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2022 (8) TMI 465
Dishonor of Cheque - cheating or not - cheques in question have not even been issued by the petitioner company - misuse of letter heads of the petitioner company - agreement to sell with regard to flat - issuance of any cheque or not - legally enforceable debt or not - section 138 of NI Act - HELD THAT:- The mandate under section 138 is clear. It is only to be invoked where a cheque has been drawn by a person for any amount of money in discharge of part or whole of any debt or liability, and that cheque remains unpaid on account of insufficient funds lying to the credit of the drawer of the cheque or if it exceeds the amount arranged to be paid from that account.
In the present case, the petitioner company has not issued the cheques in question nor was there any debt or liability due from them. There has been no averment in the 138 complaint as regards to any debt owed by the petitioner to respondent no.2 - It is pertinent to note that the ingredients of Section 138 NI Act have not been fulfilled in the present case as the cheques in question have not even been issued by the petitioner company thereby not even meeting the first ingredient of the requirement u/s 138 Negotiable Instruments Act, 1881. The petitioner company is neither the drawer of the cheque nor is there any debt or liability shown against the petitioner-company.
The petitioner company has sufficiently shown that they had no role in the case at hand and cannot thus be held liable for dishonour of a cheque which was not even issued by them or on their behalf in the first place. In these circumstances, where there are no ingredients made out against the petitioner-company, continuation of proceedings against them will be an abuse of the process of law.
The fact that the revision petition had been filed and had been withdrawn will not come in the way of the inherent jurisdiction exercisable by this Court u/s 482 Cr.P.C. where the complaint itself fails to disclose the ingredients of section 138 Negotiable Instruments Act, being made out against the petitioner - Petition allowed.
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