TMI Tax Updates - e-Newsletter
August 28, 2020
Case Laws in this Newsletter:
GST
Income Tax
Customs
Corporate Laws
Insolvency & Bankruptcy
Service Tax
Indian Laws
Highlights / Catch Notes
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GST:
Liability of GST - Funds received from Govt. of Kerala for paying the cost of the water metro project - the services rendered by the applicant to the Government of Kerala as executing and operating agency of the integrated water transport project is classifiable as pure services falling under service classification code 998339 - Exempt from GST - AAR
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GST:
Exemption from GST - Hostel facility to its students - Whether there is any tax liability on hostel fees collected from outside students staying at the hostel for study purpose at a rate of ₹ 250 per day per person including food. - as the value of supply of a unit of accommodation in the hostel facility provided by the applicant to outside students is below one thousand rupees per day, the applicant is eligible for the exemption - AAR
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GST:
Exemption from GST - education programme and training offered by the applicant - The applicant is not approved / recognised to conduct coaching/ training of students as per the syllabus / curriculum prescribed by the Universities or Institutes like ICAI, ICSI etc. - the applicant is not covered under the definition of “educational institution” - Liable to GST - AAR
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Income Tax:
Disallowance of interest on loan since interest free advances given to the parties - Once it is held that the amount was outstanding out of sales made, the business purpose is automatically established and there can be no question of disallowance in respect of outstanding amount for business purpose. - AT
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Income Tax:
TDS u/s 195 - Commission paid - when undisputedly TEI is not having any Permanent Establishment (PE) in India the income of TEI received as commission from assessee company was not chargeable to tax in India as the same was neither accrued in India nor received in India and as such was not required to deduct tax at source u/s 195 of the Act. - AT
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Income Tax:
CIT(A) rightly held that the artificial and hypothetical income created by mere general entries which were subsequently reverse cannot be brought to tax. Besides that the assessee made the statement before us that the income derived from the said project in subsequent Assessment Years has been offered to tax by the assessee. Thus, the Revenue is not at loss at any point of time - Additions deleted - AT
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Income Tax:
Nature of expenditure - A.O. as well as the Ld. CIT(A) were erred in coming to the conclusion that expenditure incurred on developing new software platform is expected to give enduring benefit and one can recognise the intellectual property in the same to come to conclusion that expenditure incurred for development of new software platform is capital in nature. - Additions deleted - AT
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Income Tax:
Disallowing social welfare expenditure - expenditure incurred under the head Social Welfare Expenditure for construction of houses to flood victims is in the nature of expenditure incurred wholly and exclusively for the purpose of business and deductible u/s 37(1) - AT
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Income Tax:
Levy of Interest u/s 201(1A) for late deposit of Tax Deducted at Source - payment of TDS by the assessee would relate back to the date of presentation of cheques by the assessee to the banker. Accordingly, TDS-CPC, Ghaziabad is directed to revise the aforesaid intimation by taking the date of tender of cheques by the assessee as the actual date of payment and re-compute interest payable by the assessee - AT
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Income Tax:
Unexplained cash credits - bank deposits - Both the AO as well as CIT(A) have not gone by the “source” explained to examine identity, genuineness and creditworthiness thereof in light of all the evidence available on record but they have ventured on “application” aspect of the cash deposits only - Additions deleted - AT
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Income Tax:
Penalty u/s 271(1)(c) - disallowance u/s 40(a)(ia) - The only reason for which the expenditure was disallowed is due to non–deduction of tax at source. In other words, it is statutory disallowance. That being the case, the assessee cannot be accused of submitting inaccurate particulars of income or concealing its income - No penalty - AT
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Income Tax:
Bogus purchases - the assessee could not produce the transportation evidences or expenditure incurred on account of transportation in regard to these purchases. - the assessee might have purchases from grey market and also saved VAT. Hence, a reasonable profit on these bogus bills can be estimated, as 5% - AT
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Customs:
Principles of Natural Justice - Classification of imported goods - Naptha - cross examination of the Chemical Examiner - lacunas in the testing procedure - It is seen that during cross examination of the Chemical Assistant Grade-I has clearly stated that log books and the registers are maintained in their laboratory, however, appellants chose not to ask for the same and Revenue chose not to produce the same - The entire purpose of remanding the case is defeated if the facts are not brought out completely. I - AT
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Corporate Law:
Winding up order - The Company was non-functional, it had already given its premises on rent and it was the only income of the Company. Therefore, we find that the Tribunal came to a definite conclusion of ‘oppression and mismanagement’ of the Company and ‘oppression’ of the Member - if the NCLT has ordered for winding-up of the Company, no interference is called for - AT
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Corporate Law:
Appeal against restoration of the name of the company in the Register of Companies - It is contended that the Appellants being the suspended Directors are helpless and the restoration of Company had been sought with malafide intentions - The pendency of litigations, at whatever stage, warranted restoration of name of Company to the Register of Companies, so as to safeguard the interests of Company and the stakeholders. - AT
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Corporate Law:
Revival of appellant company - removal of name for non filing of statutory documents for 3 years - The Appellant is in operation as they are entering into MOU’s. The Directors are professionals and to develop an I.T platforms also takes considerable time; it is supplementing “Make in India” programme. No doubt, Company’s business volume is too law but attempting to enter USA Market through MOU is a good sign. All this reflects that the Appellant is in operation. “Operation” in commercial sense means developing business platform also. - Name directed to be restored - AT
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Corporate Law:
Appealable order or not - the order having passed by the Judicial Authority (NCLT) under Section 45 of the ‘Arbitration and Conciliation Act, 1996’ and in absence of any power delegated under the ‘Arbitration and Conciliation Act, 1996’, it is held that the appeal is not maintainable. - AT
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Indian Laws:
Cancellation of Certificate of Registration of Non-Banking Financial Institution (NBFC) - The CoR of the petitioner was cancelled by RBI under the provisions of Section 45-IA(6)(iv) of the RBI Act, which does not entail providing any opportunity for complying with the provisions/ conditions violated by the petitioner. Otherwise also, sufficient opportunity had already been granted by the RBI in the notification dated 27.03.2015 to achieve prescribed NOF, i.e. to comply with its directions. In any case, shortfall in NOF in the Balance Sheet of the petitioner for the year 2016-17 cannot be rectified three years later in 2020. - Petition dismissed - HC
Articles
Notifications
Circulars / Instructions / Orders
News
Case Laws:
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GST
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2020 (8) TMI 681
Supply or not - Liability of GST - Funds received from Govt. of Kerala for paying the cost of the water metro project - requirement of GST invoice to be raised on Govt. of Kerala for transferring the value of assets on a back to back basis after completion of the works - input tax credit - Governmental Authority or not - exemption under N/N. 12/2017 dated 28-06-2017 - KMRL is a body established by the Government with ninety percent or more participation by way of equity to carry out function entrusted to a municipality under Article 243W of the Constitution - services rendered by KMRL as an executing agency to Govt. of Kerala - pure service as per Entry 3 of the Notification no. 12/2017 dtd.28-06-2017 or not.
Whether there is any supply by the applicant to the Government of Kerala? - HELD THAT:- Even though, consideration is an essential element of supply, as per Section 7 (1) (c) of the CGST Act, 2017, the activities specified in Schedule I, made or agreed to be made without a consideration is also supply. As per Sl.No. 2 of Schedule I; supply of goods or services or both between related persons or between distinct persons as specified in section 25, when made in the course or furtherance of business is an activity to be treated as supply even if made without consideration - Since the applicant is a joint venture with equal equity participation of the Government of Kerala and the Government of India, the applicant falls within item (iv) of explanation to sub section (5) of Section 15 and hence the applicant and Government of Kerala are related persons and consequently the services rendered by the applicant to the Government of Kerala without consideration will also fall under the definition of supply.
Thus, the services rendered by the applicant to the Government of Kerala as executing and operating agency of the Kochi Water Metro Project with or without consideration falls under the definition of supply under CGST Act, 2017.
Whether the services rendered by the applicant to the Government of Kerala can be considered as pure services falling under Service Classification Code 998339 Project management services for construction projects? - HELD THAT:- It is evident from the G.O (Ms) No.44/2016/Trans Dt.13.06.2016 that the State of Kerala is the dejure owner of the water ways, the boat jetties, the boats and all other infrastructure created for the project. The status of the applicant is that of an agency that is executing the integrated water transport project on behalf of Government of Kerala - The services rendered by the applicant to the Government of Kerala as executing and operating agency of the integrated water transport project is rightly classifiable under the Service Classification Code 998339 Project management services for construction projects.
The services rendered by the applicant are squarely covered by the above explanatory notes and hence are pure services falling under Service Classification Code 998339. Therefore, the applicant as the agency for executing the integrated water transport project in Kochi is rendering pure services to the Government of Kerala.
Thus, the services rendered by the applicant to the Government of Kerala as executing and operating agency of the integrated water transport project is classifiable as pure services falling under service classification code 998339; the services are exempted from payment of goods and services tax by virtue of the entry at Sl No. 3 of Notification No. 12/2017 Central Tax (Rate) dated 28.06.2017.
Whether the applicant can be considered as governmental authority as per Para 2 (zf) of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017? - HELD THAT:- The applicant is established by government with 90 percent or more equity participation and is entrusted with the functions which are entrusted to Municipality under Article 243W of the Constitution or to a Panchayath under Article 243G of the Constitution. Hence, the applicant squarely falls under the definition of “Governmental Authority” under Para 2 (zf) of Notification No. 12/2017 Central Tax (Rate) dated 28.06.2017.
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2020 (8) TMI 680
Exemption from GST - education programme and training offered by the applicant - Benefit of N/N. 12/2017 Central Tax (Rate) dated 28.06.2017 - HELD THAT:- The applicant is not approved / recognised by the Institute of Chartered Accountants of India or Institute of Cost Accountants of India or Institute of Company Secretaries of India or Universities to conduct coaching/ training of students as per the syllabus / curriculum prescribed by them to obtain the qualifications / certificates granted by the institutes / universities. Therefore, the applicant is not covered under the definition of “educational institution” in Para 2 (y) of the exemption notification and hence the services provided by the applicant is not exempted from GST.
Classification of service - Service Accounting Code of the service of the applicant under GST law - HELD THAT:- As per the Scheme of Classification of Services notified as Annexure to Notification No. 11/2017 Central Tax (Rate) dated 28.06.2017 the education services provided by the applicant come under SAC - 9992- 999293 - Commercial training and coaching services - As per Explanatory Notes to the Scheme of Classification of Services the service code - 999293 includes any training or coaching provided by any institute or establishment providing commercial training or coaching for imparting skill or knowledge or lessons on any subject or field other than the sports, with or without issuance of a certificate and includes coaching or tutorial classes.
Whether there is any tax liability under GST law on the applicant for collecting and transferring examination fees and other fees of the recognised institutes or universities on behalf of the students studying at the institute of the applicant? - HELD THAT:- The value of taxable supply of goods and / or services is governed by the provisions of Section 15 of the CGST Act, 2017 - As per Section 15 of the CGST Act, 2017 the entire consideration received by the applicant from the recipient of services is liable to GST. However, if in respect of the amount collected as examination fees / other fees the conditions prescribed in Rule 33 of the CGST Rules, 2017 are satisfied then such amount can be excluded from the value of taxable supply as expenditure incurred by the applicant as a pure agent of the recipient of services.
Liability of GST - Hostel fee - applicant offers hostel facility to its students at a rate of less than ₹ 200/- per day per person including food and at a monthly rate of maximum ₹ 6000/- - HELD THAT:- The provision of coaching / training provided by the applicant to their students along with hostel facility qualifies as a composite supply as defined in Section 2 (30) of the CGST Act, 2017 and the tax liability on the composite supply has to be determined as per provisions of Section 8 (a) of the CGST Act, 2017. Therefore, the entire supply is to be treated as falling under SAC - 9992- 999293 - Commercial training and coaching services; being the principal supply and will be liable to GST at the rate applicable for the principal supply.
Whether there is any tax liability on hostel fees collected from outside students staying at the hostel for study purpose at a rate of ₹ 250/- per day per person including food? - HELD THAT:- The hostel facility provided by the applicant to outside students falls under the Service Classification Code - 9963 - 996322 - Room or unit accommodation services provided by Hostels, Camps, Paying Guest and the like as per the Scheme of Classification of Services notified as Annexure to Notification No. 11/2017 Central Tax (Rate) dated 28.06.2017 - In the instant case as the value of supply of a unit of accommodation in the hostel facility provided by the applicant to outside students is below one thousand rupees per day, the applicant is eligible for the exemption under SI No. 14 of the above notification in respect of the supply.
Tax liability on the applicant for selling text books to its students - HELD THAT:- The sale of text books to the students will attract GST as per the schedule of rates notified under Notification No. 01/2017 Central Tax (Rate) dated 28.06.2017.
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Income Tax
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2020 (8) TMI 676
Disallowance of interest on loan since interest free advances given to the parties - HELD THAT:- CIT(A) did not accept the assessee’s contention by observing that “however, no corroborative evidences have been filed by the appellant” in respect of the advances. We are unable to appreciate the view point of the CIT(A). Here, the assessee is contending that the amounts were recoverable out of sales made during the year. Once sales have been stated to be made, there could have been no further evidence to corroborate the same, unless the contention of the assessee of having made sales was faulted with. CIT(A) simply rejected the contention of having made sales to these parties without showing as to how the same was not correct. Once it is held that the amount was outstanding out of sales made, the business purpose is automatically established and there can be no question of disallowance in respect of outstanding amount for business purpose. We therefore, order to delete the addition.
Disallowance on account of rate difference - AO observed that the assessee purchased entire raw material in the form of Ingots/billets from its sister concern - rate difference was worked out on the basis of excess credit period allowed than the normal payment of one week - HELD THAT:- Considering the fact that the assessee uncontrovertedly contended to have availed excess credit period from Mauli Steels Pvt. Ltd. during the last six months of the financial year in contrast to normal credit period of one week during the first half, the contention of assessee for excess small payment for purchases made during such period cannot be rejected.
Relevant to note that the authorities below have tried to make out a case that the assessee made purchases at excessive rate from its sister concern. Impliedly, the provisions of section 40A(2) have been invoked, though specific reference to the same is absent. If the authorities were satisfied that the assessee made purchases at excessive rate, then it was upon them to bring on record some material to indicate that the purchase rate was excessive in comparison with some comparable case or the market rate of the goods purchased. As nothing has been done in this regard, we are of the considered opinion that the assessee deserves to succeed on this ground. This ground is allowed.
Outstanding under the head ‘Sundry Creditors’ - Addition invoking the provisions of section 41(1) AO made disallowance on the ground that the assessee could not show that the liability was existing - HELD THAT:- It can be seen from the impugned order that the assessee specifically stated that sum was unsecured loan. Such a finding has been recorded which has not been controverted by the ld. CIT(A). If it was a case of unsecured loans coming from the A.Y. 2005-06 onwards, there could have been no addition u/s 68 of the Act in the year under consideration, namely, A.Y. 2011-12. If we go with the AO’s point of view that the amount of ₹ 69.55 lacs was on account of sundry creditors, then section 41(1) was attracted, but still no addition could have been made because the liability was existing, which was discharged in later years by means to passing journal entries. Viewed from any angle, the addition of ₹ 69.55 lacs cannot be sustained and the same is directed to be deleted.
Enhancement of disallowance - HELD THAT:- Simply because there is a difference in closing balances of a creditor in the books of the assessee and the assessee’s account in the books of the creditor, it cannot, automatically, lead to the addition for the differential amount. One needs to verify the transaction for the year. It is only if certain transactions for the year have been suppressed/overstated by the assessee that the enquiry initiates in the direction of disallowance. Such a difference is the beginning and not the end of the road for making any addition. If the difference arises only on account of opening balances and the transactions for the year tally, there can be no addition to the income of the assessee for the year on that score. Since such necessary details are not available on record, we deem it fit to set aside the impugned order on this issue and restore the matter to the file of AO. The assessee is directed to produce proper reconciliation of accounts before the AO for enabling him to reach a positive conclusion about the sustainability or otherwise of the addition.
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2020 (8) TMI 675
Exemption u/s 11 - Application for granting registration u/s.12AA rejected - Charitable activity u/s 2(15) or not? - HELD THAT:- CIT(Exemption) in his entire order has not dealt with the examination of the objects of the assessee Trust/Institution and has also not given specific findings on the genuineness of the activities carried on by the Trust vis-à-vis facts as well as documents on records. This is more so, because the assessee Trust/Institution has not furnished the requisite details as called for by the Ld. CIT(Exemption) and therefore in the interest of justice, the CIT(Exemption) should re-adjudicate the matter on examining facts viz. (i) charitable nature of the objects of the assessee Trust/Institution (ii) genuineness of the activities carried on by the assessee Trust/Institution.
We set aside the order of the Ld. CIT(Exemption) and remit the matter back to his file for adjudicating the same as per directions mentioned aforesaid following the principles of natural justice. At the same time, the assessee Trust/Institution is directed to furnish requisite details as called for by the Ld. CIT(Exemption) for determining the case on merits. CIT(Exemption) should come out with a speaking order. The matter is therefore, restored to the file of the Ld. CIT(Exemption). Appeal of the assessee is allowed for statistical purposes.
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2020 (8) TMI 674
Application for registration u/s.12AA rejected - Exemption u/s 11 - HELD THAT:- CIT(Exemption) has analyzed legal periferi of exemption u/s.11 of the Act and registration u/s.12AA of the Act. He has not brought on record the examination of Memorandum of Articles of the assessee Trust/ Institution. CIT(Exemption) in his entire order has not dealt with the examination of the objects of the assessee Trust/Institution and has also not given specific findings on the genuineness of the activities carried on by the Trust vis-à-vis facts as well as documents on records.
This is more so, because the assessee Trust/Institution has not furnished the requisite details as called for by the Ld. CIT(Exemption) and therefore, we are of considered view, in the interest of justice, the Ld. CIT(Exemption) should re-adjudicate the matter on examining facts viz. (i) charitable nature of the objects of the assessee Trust/Institution (ii) genuineness of the activities carried on by the assessee Trust/Institution.
Remit the matter back to his file for adjudicating the same as per directions mentioned aforesaid following the principles of natural justice. At the same time, the assessee Trust/Institution is directed to furnish requisite details as called for by the Ld. CIT(Exemption) for determining the case on merits. CIT(Exemption) should come out with a speaking order. The matter is therefore, restored to the file of the CIT(Exemption). Appeal of the assessee is allowed for statistical purposes.
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2020 (8) TMI 673
Addition u/s 69 - Unexplained gifts - assessee submitted that amounts deposited in cash in her bank account represented gift from her husband - CIT-A held that A.O has simply rejected the valid explanation of the assessee without advancing any cogent reasons accordingly, he deleted an addition - HELD THAT:- In view of the quantum addition deleted by the CIT(A), we are of the considered view that this appeal of the revenue is covered by the CBDT Circular No.17/2019 dated 8th August, 2019, and is not maintainable and should be dismissed due to low tax effect. Appeal of the revenue is dismissed.
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2020 (8) TMI 672
TDS u/s 195 - Commission paid to M/s. Taiyo Enterprises Inc. (NRI) - chargeable to tax in India - Existence of PE in India - HELD THAT:- There is not an iota of evidence on file as to what type of managerial, technical or consultancy services have been rendered by TEI to the assessee company for installation or successful commissioning of cold rolling mill. There is also not an iota of evidence on file if TEI was having any such technical expertise and skills, as its functional profile is not on record nor claimed to have perused by AO/CIT(A), for installation and successful commissioning of cold rolling mill (turnkey project).
When we examine clause 3 of the MOU it is categoric enough to explain that all the technical discussion shall be held by the first party (assessee company) directly with the prospective buyer. In case of any problem relating to getting of the order, the first party shall inform the same in writing to the second party. So, the limited role has been assigned to TEI as per MOU to introduce the prospective buyer for getting order for sale of the product of the assessee company.
When undisputedly TEI is not having any Permanent Establishment (PE) in India the income of TEI received as commission from assessee company was not chargeable to tax in India as the same was neither accrued in India nor received in India and as such was not required to deduct tax at source u/s 195 of the Act. So the question framed is answered in favour of assessee as the payment made by assessee company to TEI is “commission payment” and not a “fee for technical services”.
What has been discussed above, we are of the considered view that the AO as well as ld. CIT (A) have merely made addition on the basis of conjectures and surmises because no evidence whatsoever has been brought on record if TEI was having any managerial or technical expertise to provide technical services to the assessee company apart from procuring orders for the assessee company on commission basis as per MOU. So, the AO/ld. CIT (A) have erred in making disallowance / enhancing the disallowance u/s 40(a)(i)of entire commission which is not sustainable in the eyes of law, hence ordered to be deleted. Appeal filed by the assessee stands allowed.
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2020 (8) TMI 671
Revision of financial accounts - cancellation of sales in respect of sales effected during the year under review - revised computation filed by the assessee company claiming a deduction on account of revision of financial accounts on cancellation of sales - procedure for revised audit account - HELD THAT:- Assessee has revised the audited account and has given the relevant documentary evidence before the CIT (A) upon which the Assessing Officer has also commented through the remand report. AO has not pointed out any defects in the audited accounts which are allowed to be revised as per the guidelines issued by the Ministry of Finance and Company Affairs.
CIT(A) rightly held that the artificial and hypothetical income created by mere general entries which were subsequently reverse cannot be brought to tax. Besides that the assessee made the statement before us that the income derived from the said project in subsequent Assessment Years has been offered to tax by the assessee. Thus, the Revenue is not at loss at any point of time and hence the treatment given by the CIT(A) by directing the Assessing Officer to allow the claim of ₹ 9,00,00,000/- on account of revision of financial accounts is just and correct. - Decided in favour of assessee.
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2020 (8) TMI 670
Deduction u/s 54G - new unit set up at Nelamangala - CIT(A) held that, for purposes of capital gain computation, value of land as on the rate of JDA that is 05/10/2005 is to be taken and not the cost of construction of super built a period to be received - HELD THAT:- In interest of natural Justice, we direct Ld.CIT(A) to decide these issue on merits having regard to evidences filed by assessee.Needless to say that, proper opportunity of being heard should be granted to assessee in accordance with law.
Value of land to be considered for purposes of computing capital gains - As submitted that there is substantial difference between cost of construction adopted for purpose of computing capital gains on sale of capital assets and expenditure booked by the developer in the course of construction activity - HELD THAT:- As perused decision of CIT vs. Ved Prakash Rakhra [2012 (10) TMI 286 - KARNATAKA HIGH COURT] and note that, it squarely applies to present facts. Based upon the above observations by Hon’ble Karnataka High Court, we do not find any merits in the issue raised by revenue.
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2020 (8) TMI 669
Nature of expenditure - expenditure incurred on salaries for software product development and its marketing - assessee has also taken support from Accounting Standards-26 issued by the ICAI for accounting of expenditure on research and development to argue that in the research phase of a project, an enterprise cannot demonstrate that an intangible asset existed from which future economic benefits are probable - HELD THAT:- On perusal of facts available on record, it is very clear from facts brought out by the A.O. that actually the assessee is developing a new software platform but such new platform was abandoned during the subsequent financial year due to rapid change in technology and shifting of technology from desktop to mobile platform. The product has never been put to use and no depreciation has been claimed.
Expenditure incurred towards development of new software platform was treated as part of revenue expenditure and has never been debited to capital work in progress in the books of account.
When the product was in development stage during the year under consideration and the same has never been put to use even in subsequent financial year and finally abandoned, then it cannot be termed that an independent product was came into existence, which gives enduring benefit to the assessee to treat expenditure incurred on development of said product to be in capital in nature. At best, the expenditure incurred by the assessee towards development of new software platform is in the nature of expenditure incurred for preparation of feasibility of the new project in respect of same business, which is already carried out by the assessee, even if it is for expansion of business and definitely cannot be treated as capital expenditure incurred for development of a new product, which gives enduring benefit to the assessee.
This view taken by us is fortified by the decision of Karnataka State Industrial Development Corporation [1986 (2) TMI 16 - KARNATAKA HIGH COURT]where the court clearly held that expenditure incurred on investigation, research and feasibility studies laid out by assessee was revenue expenditure in nature and thus was an allowable deduction.
As per Accounting Standard-26 prescribed by the ICAI for treatment of expenditure of research and development expenses, the standard clearly laid down the procedure for accounting of research expenditure, as per which expenditure on research should be recognised as an expenditure when it is incurred. The Accounting standard further states that in the research phase of the project, an enterprise cannot demonstrate that an intangible asset exists from which future economic benefits are probable.
A.O. as well as the Ld. CIT(A) were erred in coming to the conclusion that expenditure incurred on developing new software platform is expected to give enduring benefit and one can recognise the intellectual property in the same to come to conclusion that expenditure incurred for development of new software platform is capital in nature. Hence, we direct the A.O. to delete additions made towards disallowance of salary expenses incurred for development of new software platform.
Marketing expenses Allowability - marketing expenses incurred by the assessee has no nexus with new product being developed by the assessee. Further, marketing expenses were incurred in order to show-cause the capabilities of Adadyn to the potential customers and from this it has a clear indication that expenses were incurred primarily towards attracting potential customers and further development of the business in general for the company.
When the marketing expenditure incurred towards the overall promotion of the business of the company and there is no direct nexus between the marketing expenses and the new software platform being developed by the assessee, the A.O. as well as Ld. CIT(A) were clearly erred in coming to the conclusion that marketing expenditure is in the nature of capital expenditure. Further, assuming that said marketing expenses were associated with the new platform developmental project, even then said expenditure is revenue in nature, because the product under development was never put to use and also the same has been abandoned in subsequent financial year.
Therefore,marketing expenses incurred by the assessee in USA to gauge the effect of new software platform cannot be treated as capital in nature. Accordingly, we direct the A.O. to delete additions made towards marketing expenses as capital in nature.
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2020 (8) TMI 668
Revised income being business loss - disallowance made on account of bad debts claimed by the appellant - HELD THAT:- A.O. had considered revised return filed by the assessee at the time of assessment proceedings which is evident from the fact that the additions made towards disallowance of bad debts is as per the revised return filed by the assessee. While computing income determined for the purpose of taxation and tax payable, he had considered income returned as per original return of income filed by the assessee.
The arguments of assessee that the issue needs to go back to the A.O. holds good. As regards the claim of bad debts, the claim of the assessee is that although the amount has been debited to bad debt account but in fact the amount represents reversal of income already recognised in books of accounts in earlier financial years on percentage completion method on advances received from customers even though the income was not accrued to the assessee from the projects - The assessee has filed necessary evidences to demonstrate the amount received from the debtors and amounts shown in books of accounts of the assessee are matched.
It is a settled position of law that mere entries in the books of accounts are not conclusive enough to make an assessment without verifying the veracity/authenticity of the same. Claim of the assessee is that amount debited under the head ‘bad debt’ account is in fact reversal of income recognised in books of accounts on advances received from customers in earlier financial years on the basis of confirmation from the debtors. The assessee claims that it is a reversal of income recognised in earlier financial years, whereas the A.O. claims that the amount represents bad debts written off. If, the claim of the assessee is correct, then it needs to be allowed as deduction, because income to that extent was already offered to tax for earlier years.
But, this fact is not clear from the order of the AO as well as the CIT(A). Therefore, the issue needs to be re-examined by the A.O. in the light of various averments made by the assessee. Hence, we set aside the issue to the file of the A.O. and direct him to reframe the assessment de-novo in accordance with law after considering necessary evidences filed by the assessee in support of its arguments. Appeal filed by the assessee is allowed for statistical purposes.
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2020 (8) TMI 667
Disallowing social welfare expenditure - Whether expenditure incurred for construction of houses to rehabilitate flood victims would be in the realm of business expenditure allowable u/s 37? - A.O. was of the opinion that expenditure incurred for social welfare expenditure is in the nature of donation given to Chief Minister Relief Fund but not in the nature of expenditure incurred wholly and exclusively for the purpose of business, which can be allowed u/s 37(1) - HELD THAT:- Identical issue has been considered in the case of Kanhaiyya Lal Dhuderia Vs. JCIT [2019 (9) TMI 354 - KARNATAKA HIGH COURT] where under similar set of facts, the High Court after considering various case laws considered by the Ld. A.O. came to the conclusion that where assessee entered into an MOU with State Government wherein assessee agreed to construct houses to rehabilitate flood victims, since assessee incurred this expenditure not only as a social responsibility but also keeping in mind goodwill and benefit it would yield in long run in earning profit, impugned expenditure would be in realm of business expenditure allowable u/s 37(1).
Therefore, by respectfully following the decision of Hon’ble High Court of Karnataka, we are of the considered view that expenditure incurred under the head Social Welfare Expenditure for construction of houses to flood victims is in the nature of expenditure incurred wholly and exclusively for the purpose of business and deductible u/s 37(1) of the Act. Hence, we direct the A.O. to delete additions made towards disallowance of social welfare expenditure. - Decided in favour of assessee.
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2020 (8) TMI 666
Deduction allowable u/s 10AA - adjustment of expenditure incurred on telecommunication expenses from the export turnover - HELD THAT:- Taking into consideration the decision rendered in the case of CIT v. Tata Elxsi Ltd [2011 (8) TMI 782 - KARNATAKA HIGH COURT] we are of the view that telecommunication charges should be excluded both from export turnover and total turnover. We are of the view that as of today, law declared by the Hon'ble High Court of Karnataka which is the jurisdictional High Court is binding on us. Order of the Hon’ble Karnataka High Court has been upheld in the case of CIT v. HCL Technologies Ltd. [2018 (5) TMI 357 - SUPREME COURT] - The aforesaid additional grounds by the assessee are therefore allowed.
Disallowance u/s 14A - assessee submitted that disallowance u/s. 14A would go to increase profits of the business on which deduction u/s. 10AA will be allowed and prayed that AO should be directed to allow deduction u/s. 10AA on the profits of the business as enhanced by the disallowance u/s 14A - HELD THAT:- We find force in the submissions of the assessee on this issue because if part of expenses claimed by the assessee against business income is considered as expenses incurred for earning tax free income and is disallowed u/s 14A, the business income stands increased by that amount and only such increased business income should be considered for computing the amount of deduction u/s 10A. AO is directed accordingly. We direct the AO to allow deduction u/s. 10AA of the Act on the profits of the business as increased by addition u/s. 14A of the Act.
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2020 (8) TMI 665
Levy of Interest u/s 201(1A) for late deposit of Tax Deducted at Source - cheque towards the amount of TDS was tendered by the assessee to the government bank within the stipulated time period OR not? - delay on the part of the bank or the clearing house in making the remittance - HELD THAT:- After going through the cited order of this Tribunal in Oil and Natural Gas Corporation Ltd. V/s DCIT [2018 (12) TMI 286 - ITAT MUMBAI] we find that identical factual matrix as well as controversy has been dealt by the Tribunal and ultimately the issue has been decided in assessee’s favour as held as the assessee had admittedly tendered the cheque with the bank well within the stipulated 'due date', therefore, it cannot be held as being in default for the delay on the part of the bank or the clearing house in making the remittance of the said amount to the Government Account.
Circular No. 261, dated 08/08/1979 issued by the CBDT, unless withdrawn or amended, would hold the ground and would be binding on the revenue.
Payment would be deemed to have been made on the date the cheque was handed over to the banker and the date of payment was to be taken as the date of presentation of the cheques by the assessee.
It also supports the proposition that the payment would relate back to the date of presentation of cheque unless the cheque is dishonored. The binding decisions cited by the assessee before Ld. CIT(A) also supports the said proposition.
Similar view has been taken in ITO V/s Broadcom Communication Technology Pvt. Ltd. 2015 (10) TMI 2295 - ITAT BANGALORE]. No contrary decision is on record. Respectfully following the ratio of all these decisions, we hold that payment of TDS by the assessee would relate back to the date of presentation of cheques by the assessee to the banker. Accordingly, TDS-CPC, Ghaziabad is directed to revise the aforesaid intimation by taking the date of tender of cheques by the assessee as the actual date of payment and re-compute interest payable by the assessee, if any. The interest demand u/s 220(2) being consequential in nature, may also be recomputed. Resultantly, the appeal stands allowed to the extent indicated in the order.
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2020 (8) TMI 664
Unexplained cash credits - bank deposits made by assessee - HELD THAT:- Explanation supported by the foregoing documentary evidence of books of account, audited balance-sheet, coupled with cash books maintained at both individual as well as the company’s level and sec. 143(3) assessment framed in latter case for the very assessment year have nowhere has been disputed in either of the lower proceedings. All this voluminous evidence; including the cash in issue from “M/s ANPL” crediencial to assessee’s explanation of source of deposits.
There is not an iota of doubt coming from the lower authorities side disputing the assessee’s stand adopted throughout that the cash deposit had in fact, come from the company’s cash-in-hand for meeting the day-to-day requirements at the site level. Both the AO as well as CIT(A) have not gone by the “source” explained to examine identity, genuineness and creditworthiness thereof in light of all the evidence available on record but they have ventured on “application” aspect of the cash deposits only. Impugned addition in light of all the supportive evidence coming from the assessee’s side cannot be sustained - Decided in favour of assessee.
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2020 (8) TMI 663
Assessment passed under Section 143(3) - Miscellaneous Petition seeking dispensation of production of the original order of assessment - Entitlement to an exemption u/s 80P - application of the principles of mutuality - HELD THAT:- The impugned order is one of assessment, amenable to statutory appeal. No case whatsoever has been made out in the affidavit filed in support of the Writ Petition as to why the matter is liable to be interfered with under Article 226 of the Constitution of India. The only ground raised is in relation to the petitioner’s claim that it is entitled to an exemption under Section 80P of the Act by an application of the principles of mutuality. This is the sole ground raised by the petitioner.
We had occasion to deal with the identical issue in the case of other Co-operative Societies and have directed that a statutory appeal be filed challenging the orders of assessment.
In the interests of consistency, this petitioner is also permitted to file an appeal and such appeal, if filed within a period of two (2) weeks from date of uploading of this order, shall be taken on file by the office of the Commissioner of Income Tax (Appeals) and disposed without reference to limitation, in accordance with law.
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2020 (8) TMI 679
Disallowance u/s 40(a)(ia) - TDS not remitted within the due date as prescribed under the Act - HELD THAT:- Substantial question of law has been answered against the revenue by the Supreme Court in ‘COMMISSIONER OF INCOME-TAX, KOLKATA Vs. CALCUTTA EXPORT COMPANY’ [2018 (5) TMI 356 - SUPREME COURT] - Decided in favour of the assessee.
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2020 (8) TMI 662
Rectification u/s. 154 - disallowance u/s. 36(1)(viia) - AR submits that the disallowances u/s. 36(1)(viia) is a subject matter of litigation and the same cannot be matter of rectification u/s. 154 - debatable issue - HELD THAT:- We find that the contentions made before us by the ld. AR were not raised before the AO and fairly conceded that if this Tribunal remand the matter to the file of AO the assessee will take the same contentions before this Tribunal.
Taking into consideration the facts and circumstances of the case and submissions of ld. AR and ld. DR, we deem it proper to remand the issue to the file of AO for its fresh consideration. The assessee is liberty to file evidences if any in support of its claim. Thus, only issue raised by the assessee is allowed for statistical purpose.
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2020 (8) TMI 661
Rectification of mistake u/s 154 - non considering of the judgment of Hon’ble Madras High Court - jurisdiction of the Tribunal U/s 254(2) - present Misc. Application that the Tribunal has decided the appeal of the assessee by following decisions of Hon’ble Karnataka High Court as well as other decisions on the point of validity of initiation of penalty proceedings however, there is a judgment of Hon’ble Madras High Court which is in favour of the Revenue - HELD THAT:- We do not agree with this contention and plea of the Revenue simply due the reason that while deciding this issue the Tribunal has taken a firm view which is supported by various judgments including the judgment of Hon’ble jurisdiction High Court in case of Seveta Construction Co. [2016 (12) TMI 1603 - RAJASTHAN HIGH COURT].
The judgment of jurisdiction High Court is binding on this Tribunal specifically Jaipur and Jodhpur Benches of the Tribunal. The decision of Hon’ble Madras High Court was not relied upon or cited by the Revenue at the time of hearing of the appeal. Further, even in case of divergent view of the Hon’ble High Courts on a issue the Tribunal is bound by the view taken by the Hon’ble jurisdiction High Court. Hence, the decision which was not cited by the reviewed or relied upon by the Revenue at the time of hearing cannot be a ground for mistake in the order of the Tribunal when the Tribunal has followed the various other decisions of Hon’ble High Courts as well as decision of Hon’ble jurisdiction High Court. It is settled proposition of law that the jurisdiction of the Tribunal U/s 254(2) of the Act is very limited and circumscribed and does not permit any review or revision of its own decision taken on merits. Therefore, we do not find any merit or substance in the Misc. Application of the Revenue, the same is dismissed.
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2020 (8) TMI 678
Disallowance u/s 14A r.w. Rule 8D - whether no exempt income was earned by the Appellant from this investment during this year ? - Whether ITAT was right in law in reinstating the deletion made on account of disallowance u/s 14A r.w. Rule 8D by the Commissioner of Income Tax (Appeals) notwithstanding the fact that no exempt income was earned by the Appellant from this investment during this year ? - whether the decision of the Special Bench of the Delhi Tribunal in the case of Vireet Investment Pvt. Ltd [2017 (6) TMI 1124 - ITAT DELHI] can be pressed into service after the decision of the Hon’ble Supreme Court in the case of Maxopp Investment Ltd. [2018 (3) TMI 805 - SUPREME COURT]? - HELD THAT:- Substantial questions of law framed for consideration with regard to the decision of the Hon’ble Supreme Court in the case of Maxopp Investment Ltd. Vs. CIT [2018 (3) TMI 805 - SUPREME COURT]we have to necessarily hold that such questions cannot be canvassed, as the decision rendered by the Hon’ble Supreme Court would cover those questions
A decision has to be arrived at as regards the applicability of the decision of the Special Bench of the Delhi Tribunal in the case of Vireet Investment Pvt. Ltd., post the decision of the Hon’ble Supreme Court in the case of Maxopp Investment Ltd. In fact, in the assessee’s own case for the assessment year 2014-15 where the Tribunal remanded the matter to the Assessing Officer, the Tribunal took note of the decision of the Special Bench of the Delhi Tribunal in the case of Vireet Investment Pvt. Ltd., and passed such a remand order. We find that the effect of the remand order passed by the Special Bench of the Delhi Tribunal after the decision of the Hon’ble Supreme Court in the case of Maxopp Investment Ltd., has not been specifically decided though the Departmental Representative made certain submissions to the said effect.
Tribunal should take a decision on the above extracted two grounds, which were raised by the assessee in their cross objection and the Tribunal should decide as to the applicability and effect of the remand order of the Special Bench of the Delhi Tribunal in the case of Vireet Investment Pvt. Ltd., post the decision of the Hon’ble Apex Court in the case of Maxopp Investment Ltd. We leave all the issues open and the assessee as well as the Revenue shall canvass all the points and more so because the decision of the Special Bench of the Delhi Tribunal in the case of Vireet Investment Pvt. Ltd., was not placed for consideration before the Hon’ble Apex Court while deciding the case of Maxopp Investment Ltd.
Appeal is partly allowed, substantial question of law Nos.1 and 2 are held against the assessee and in so far as the third substantial question of law is concerned, the matter is remanded to the Tribunal to consider the effect of the decision of the Special Bench of the Delhi Tribunal in the case of Vireet Investment Pvt. Ltd., post the decision of the Hon’ble Supreme Court in the case of Maxopp Investment Ltd.
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2020 (8) TMI 677
Disallowance u/s 40(a)(ia) - appellant failed to deduct and remit tax on contract and professional charges payable within due date - Retrospective effect of amendment made by the Finance Act, 2010 in Section 40(a)(ia) - HELD THAT:- Substantial question of law has been answered against the revenue by the Supreme Court in ‘COMMISSIONER OF INCOME-TAX, KOLKATA Vs. CALCUTTA EXPORT COMPANY’ [2018 (5) TMI 356 - SUPREME COURT] - Decided in favour of the assessee.
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2020 (8) TMI 660
Penalty u/s 271(1)(c) - disallowance u/s 40(a)(ia) - as per AO assessee should have disallowed the corresponding expenditure and not the TDS amount - bonafide mistake or not? - HELD THAT:- In the statutory audit report itself, the auditor has furnished the details of expenditure in respect of which tax was not deducted at source. It is also evident that the assessee has voluntarily made some disallowances under section 40(a)(ia) - mistake committed by the assessee is, instead of disallowing expenditure incurred which was subject to TDS, it has computed the TDS amount of such expenditure and has disallowed under section 40(a)(ia) - a bonafide mistake on the part of the assessee, as submitted by the learned Authorised Representative.
AO has not doubted either the genuineness of the expenditure claimed or the payments made. The only reason for which the expenditure was disallowed is due to non–deduction of tax at source. In other words, it is statutory disallowance. That being the case, the assessee cannot be accused of submitting inaccurate particulars of income or concealing its income. Accordingly, we delete the penalty imposed under section 271(1)(c) - Decided in favour of assessee.
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2020 (8) TMI 659
Addition on account of unexplained cash credit u/s 68 - assessee discharged its onus to prove genuineness of the loan transactions and creditworthiness of the lenders or not? - HELD THAT:- Assessee had filed additional evidences before CIT(A) to substantiate genuineness of the loan transactions and the lenders. The assessee filed bank statements of the creditors along with PAN details and confirmations. CIT (A) has brushed aside evidences filed by the assessee and confirmed the addition.
We deem it appropriate to restore this issue back to the file of AO for deciding the issue afresh after considering additional evidences filed by the assessee before the CIT (A). AO before re-adjudicating this issue shall grant reasonable opportunity of hearing to the assessee in accordance with law. The ground No.2 of the appeal is allowed for statistical purpose.
Rejection of Claim of write off of project expenses - assessee has amortized project cost that was shelved due to change in specifications, over a period of ten years - HELD THAT:- After being unsuccessful before the Assessing Officer and the CIT (A), the assessee carried the issue in appeal before the Tribunal.The Co-ordinate Bench after considering the facts allowed the assessee’s claim of amortization. The facts in the impugned assessment year are identical. For parity of reasons we direct the AO to delete the addition and allow write off of proportionate (10%) expenditure. The ground no. 3 of the appeal is allowed, accordingly.
TP Adjustment - assessee has declared cost plus @10% margin on the sales made to it’s AE in UK - TP adjustment by estimating profit margin @15% on the basis of GP declared in subsequent assessment year - HELD THAT:- Merely for the reason that the assessee has declared higher GP in subsequent year, current year GP should not be estimated by adopting the same. Further, the case of assessee is that 15% GP in subsequent year has been computed after inclusion of sale of assets, etc. and hence, it does not depict correct picture of operating profits. We further observe that the assessee has also failed to furnish complete details as required under transfer pricing provisions. Arm’s Length Price of the transaction with AE has to be determined by applying one of the method prescribed under the provisions of section 92C. Under the facts of the case, we deem it appropriate to restore the issue back to the file of Assessing Officer for de-novo adjudication after affording reasonable opportunity of hearing to the assessee, in accordance with law. The findings of authorities below on this issue are set aside and the ground No.4 of the appeal is allowed for statistical purpose.
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2020 (8) TMI 658
Bogus purchases - addition made by AO off non-genuine and bogus purchases by applying profit rate at the rate of 12.5% - HELD THAT:- Neither the AO nor CIT(A) has doubted the sales made by assessee out of these bogus purchase.
Assessee has produced all the necessary documents in support of purchased transactions such as purchase invoices, purchase register, sales register, stock register, bank statement evidencing payment made by account payee cheque etc. But it is a fact that the assessee could not produce the transportation evidences or expenditure incurred on account of transportation in regard to these purchases.
Hence, a reasonable profit can be estimated because the estimation of profit is on higher side -Both the authorities lower had admitted assessee have made sales which is not denied out of these purchases. It means that the assessee might have purchases from grey market and also saved VAT. Hence, a reasonable profit on these bogus bills can be estimated. Hence, estimate the profit on these bogus bills at the rate of 5% and direct the AO to recompute the income accordingly. Appeals of assessee are partly allowed.
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Customs
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2020 (8) TMI 656
Principles of Natural Justice - Classification of imported goods - Naptha - cross examination of the Chemical Examiner - lacunas in the testing procedure emerged from the cross examination - introduction of new witness - primary defense of the appellant before original adjudicating authority was that as per Note 4 to Chapter 27 of the Customs Tariff Act, 1975, for the purpose of classification of the good under sub heading 2710 11 “light oils and preparations” the testing is to be carried out in the method prescribed under ASTM D 86 - HELD THAT:- From the cross-examination of Shri. Dilip Mehta, Assistant Chemical Examiner it the apparent that he has not conducted the test himself and the test was conducted by Shri. T.K. Myelvalganan Chemical Assistant Grade-I cross examination of the Chemical Examiner Grade-I shows that while he kept insisting that the ASTM D 86 method was followed. When asked to substantiate it, he would refer to some records and logs. No records were produced, no log book was produced. Even after the entire excise the cross examination done by Revenue the impugned order could only come to the conclusion that “thus during the cross examination the noticee have not be able to bring out the fact of Chemical Examiner had not followed the ASTM D 86 method”. On the strength of above assertion the impugned order come to the conclusion that the ASTM D 86 method was followed.
Thus, it is apparent that Commissioner after examining all the facts of the case and the cross examination of Assistant Chemical Examiner Chemical Assistant Grade-I could only reach to a conclusion that the appellant have failed to establish of ASTM D 86 method was not followed. Thus, we find the impugned order cannot be sustained in the present form. It is seen that during cross examination of the Chemical Assistant Grade-I has clearly stated that log books and the registers are maintained in their laboratory, however, appellants chose not to ask for the same and Revenue chose not to produce the same - The entire purpose of remanding the case is defeated if the facts are not brought out completely. In view of above we set aside the order and remand the matter for fresh adjudication after fresh cross examination of the Chemical Assistant Gr.-I, the person who actually undertook the tests. He will produce all the lab records necessary to ascertain actual reading recorded and equipment used during testing and to prove his assertions.
Appeal allowed by way of remand.
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2020 (8) TMI 657
Maintainability of petition - Settlement of total dues of entire shipment - While the petitioner is aggrieved against non issuance of the delivery order for the 1x40' container, the third respondent is aggrieved against the non payment of the detention charges and non return of the 2x20' containers - HELD THAT:- The third respondent disputes that they are not a CCSP, but are freight forwarders and delivery agents. The Bill of lading dated 02.03.2020 pertaining to the 1x40' container, identifies the third respondent as an agent for the carrier. As per the definition in the aforesaid Regulations, “any person” responsible for receipt, storage, delivery, dispatch or otherwise handling of imported and exported goods would fall within the purview of the definition of a CCSP. Merely because the petitioner has not sought for an approval from the authorities to be recognized as a CCSP, it cannot be said that the provisions of Handling of Cargo and Customs Areas Regulations, 2009 will not be applicable to them, since the Regulations would be applicable to any person who fulfills the ingredients of the definition clause of a CCSP. If that be so, Regulation 5(5) mandates such a person to comply with the provisions and abide by all the provisions of the Act including the rules, regulations, notifications and orders issued therein.
Thus, a combined reading of the Regulation 2(b) and 5(5) along with Regulation 6(1)(l) would qualify the third respondent to be a CCSP.
In similar situations, when statutory regulations came to be violated by a CCSP and the maintainability of a Writ Petition against the CCSP was questioned before this Court in Balaji Dekors' case [2017 (8) TMI 686 - MADRAS HIGH COURT], this Court has held that the matter involved is not contractual but involves the implementation of the statutory regulation and therefore, the Writ Petition would be maintainable.
Whether the third respondent is justified in withholding the delivery order for the 1x40' container, by insisting for clearance of the dispute against the 2x20' containers? - HELD THAT:- The cause of action for the present writ petition arose when the petitioner had paid the delivery charges for the 1x40' container and the third respondent herein had insisted for payment of the detention charges and return of 2x20' containers covered under different bills of lading, as a pre condition for the issuance of a delivery order. Insofar as the outstanding due for the 1x40' container is concerned, both the parties admit that a sum of ₹ 8,61,358.30/- is outstanding.
In A.K.Gupta & Sons Vs. Damodar Valley Corporation [1965 (9) TMI 68 - SUPREME COURT], the Hon’ble Apex Court had held that the expression “cause of action” does not mean every fact which is material to be proved to entitle the plaintiff to succeed, but only a new claim made on a new basis, constituted by new facts. In only a new claim made on a new basis, constituted by new facts.
Thus, when the third respondent herein had not disputed the receipt of the delivery charges and when it is mutually admitted that the outstanding dues for the 1x40' container is ₹ 8,61,358.30/-, there is no justification on the part of the third respondent to combine the cause of actions of the 2x20' containers with that of the 1x40' container and thereby refrained from issuing the delivery order for the 1x40' container.
Waiver of the detention charges for the 1x40' container during the Covid19 lock down period - HELD THAT:- If the petitioner is granted liberty to settle the entire outstanding dues for the 1x40' container to the third respondent and thereby direct the third respondent to release the delivery order, the ends of justice could be secured. It is needless to point out that it is always open to the third respondent to ventilate their grievances in accordance with law, for any claim that may be due in connection with 2x20' containers.
A Writ of Mandamus is hereby issued, directing the third respondent to release/handover the delivery order vide Bill of Lading No.ACL/JEA/MAA-766/20, dated 02.03.2020 for the 1x40' container on receiving a sum of ₹ 8,61,358.30/- from the petitioner and consequently deliver the goods pertaining to this Bill of lading to the consequently deliver the goods pertaining to this Bill of lading to the petitioner - Petition allowed.
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Corporate Laws
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2020 (8) TMI 655
Principles of Natural Justice - allegation that the Appellant was not served with advance copy of the said Application and without giving opportunity of hearing impugned order has been passed - Impleadment of appellant - attachment of appellant assets - Section 421 of the Companies Act, 2013 - HELD THAT:- Admittedly, the Appellant was the Executive Director of PNB, Head Office, New Delhi i.e. employee of other organization. Therefore, he cannot be impleaded as Respondent in the Company Petition NO. 277 of 2018. Which is against the Nirav Modi Group and Gitanjali Group of Companies.
Appeal allowed.
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2020 (8) TMI 654
Oppression and Mismanagement - wilful disobedience - mis-operation of Locker - appellant is a 3rd party to the proceedings - maintainability of order under Section 241-242, 337 and 339 of the Companies Act, 2013 - HELD THAT:- As far as operation of locker is concerned if the Appellant have ulterior motive then they should have done on the very first day and would not have waited for the subsequent times.
We have gone through the Hon’ble Supreme Court judgment delivered of USHA ANANTHASUBRAMANIAN VERSUS UNION OF INDIA [2020 (2) TMI 1081 - SUPREME COURT]. The fact of the two cases are different Ms.Usha Ananthasubramanian was the former MD and CEO of Punjab National Bank for a limited period 2015 to 2017 whereas she was not related party to Directors of M/s.Gitanjali Geems ltd., and the charges on her was “omitted to take precaution or preventive steps to prevent the fraud perpetrated by Mr. Neerav Modi”; whereas in the present case either the money has been transferred by Mr. Ramesh.C.Bawa, or noncompliance of NCLT order has happened.
Impleading a party does not mean that charges are proved on them but their presence would enable the court to effectively and adequately adjudicate the matter involved in the case.
Appeal dismissed.
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2020 (8) TMI 653
Appointment of the Government Nominated Directors - Section 388B of the Companies Act, 1956 - HELD THAT:- The Central Government is empowered under Section 241(2) of the Companies Act, 2013 to file application in cases, if it is of the opinion that the affairs of the Company are being conducted in a manner prejudicial to public interest. The Tribunal in terms of Section 242 of the Companies Act, 2013, if of the opinion, that the Company’s affairs or/ are being conducted in a manner prejudicial to the public interest and to wind up the Company would unfairly prejudice member or members, but that otherwise the facts would justify the making of a winding-up order on the ground that it was just and equitable that the Company should be wound up, it (Tribunal) with a view to bring to an end the matters complained of, make such order as it thinks fit.
Thus, even in absence of Section 388B of the Companies Act, 1956, with a view to bring an end of the matters complained of, the Tribunal is empowered to pass similar order relying on Sections 241 & 242 of the Companies Act, 2013 as was empowered under Section 388B of the old Act.
In view of the fact that the affairs of the Company are being conducted in the manner prejudicial to the public interest as noticed from the report of the SFIO, it is held that the Tribunal is empowered to replace the present Management and to replace it with Directors nominated under the control and management by the Central Government - appeal dismissed.
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2020 (8) TMI 652
Winding up order - non-maintenance of records of the company - HELD THAT:- It has not been disputed that Respondent No.1- Mr. Asher E. Melamed had 51% shareholding and the Appellants had 49% of shareholding in the Respondent No.2 Company. The Respondent No.1- Mr. Asher E. Melamed was appointed as Director with effect from 14th March, 2000. He was removed from the Directorship in the year 2009 by deleting from the Ministry of Corporate Affairs records. Thereafter, the entire control of business of the Company was vested with the Appellants. Therefore, it is clear that there is no delay in preferring the Petition filed by the Respondent.
The Respondent No.1- Mr. Asher E. Melamed (Petitioner) transferred 1 lakh US Doller through Deutsche Bank for the purchase of property of the Company to procure one premises to be utilized for business purposes. Further, when it was not so utilized, the same was given on rent. The profit and loss account for the accounting period of 31st March, 2009 to 31st March, 2012 shows that the business was running in a manner, which was prejudicial to the interest of the Company. The Tribunal noticed the Accounts Book results and the Financial position of the Company and observed that for the rest of the Accounting period, apart from the year 2009 to 2012, no Statutory Books of Accounts were maintained. It was also brought to the notice that no Register was maintained for recording the Meetings of the Members of the Board.
The Tribunal came to definite conclusion that the 1st Respondent cannot be blamed for losses and for maintenance of the records etc., which the Appellant failed to do while holding the post of Director and was required to maintain the records - The dispute had reached at a stage of deadlock of business activity. The Company was non-functional, it had already given its premises on rent and it was the only income of the Company. Therefore, we find that the Tribunal came to a definite conclusion of ‘oppression and mismanagement’ of the Company and ‘oppression’ of the Member, i.e., the 1st Respondent- Mr. Asher E. Melamed.
In the aforesaid circumstances, if the Tribunal has ordered for winding-up of the Company, no interference is called for - Appeal dismissed.
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2020 (8) TMI 651
Maintainability of application - whether an employee of the Respondent No. 1 - a Public Sector Undertakings is eligible to file application under Section 213 (b) (ii) of the Companies Act? - HELD THAT:- Perusal of the relevant portions of Section 213 show that what is material is the “satisfaction” of the NCLT that there are circumstances suggesting that the persons concerned in the management of the affairs of the company are guilty of misfeasance or other misconducts towards the company which Appellant claims is fraudulent mismanagement. In the context of the present matter this is the only relevant aspect. Thus important is the satisfaction of the Learned NCLT. We find that NCLT has given reasons for its non-satisfaction, which cannot be said to be baseless.
Going through the material, it appears to us also that the Appellant has grudge against the Respondent No. 2 employee regarding overtime and other benefits Respondent No. 2 received in performing his job over number of years. The allegations made by the Appellant are quite sweeping in nature. The case put up by the respondents before Learned NCLT shows that the Appellant was also part of maintenance team on several occasions and although he is only 8th standard pass and was appointed as an unskilled worker he had also received similar benefits. The respondents put up the case before the Learned NCTL that the teams deployed for carrying out the maintenance jobs were under the direct supervision of AME/Engineer-in-chief who alone was incharge and responsible for the job. For such “maintenance and inspection” the team used to include even non-technical employees for assistance.
The Appellant failed to bring material which could invoke satisfaction of existence of circumstances to initiate action under Section 213 of the Act. The Learned NCLT rightly dismissed the Application with costs.
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2020 (8) TMI 650
Oppression and Mismanagement - dilution of stake of company - original equity in the Respondent Company was 20%, was brought down to 6.85% in the year 2003 - basic allegation being made by the Appellant (Petitioner) while praying for amendment is that there have been various holes in the Auditing System which has given rise to a massive and systematic fraud of at least ₹ 1500 crores, if not ₹ 8700 crores, in the form of siphoning off the funds based on fraudulent transactions, which could not have gone unnoticed by the auditors.
HELD THAT:- In the present case, the Appellant having failed to show the ground to implead the other Auditor as party Respondent No.12 and the reasons to amend the name of Respondent No.11, they having knowledge of all the facts, Company Petition filed in the year 2015 merely because SFIO is investigating into the matter under Section 212 of the Companies Act, 2013, cannot be a ground to amend the name of the Auditor as Respondent No.11 nor can be a ground to implead another Auditor as Respondent No.12.
Appeal dismissed.
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2020 (8) TMI 649
Appeal against restoration of the name of the company in the Register of Companies - Section 248 of Companies Act, 2013 - It is contended that the Appellants being the suspended Directors are helpless and the restoration of Company had been sought with malafide intentions. - HELD THAT:- In the instant case though name of the Company has been struck off from the Register of Companies due to statutory non-compliances i.e. nonfiling of Annual Returns and Financial Statements, the Tribunal, on appeal, directed restoration of name of Company in the Register of Companies after observing that litigation was pending since long against the Company, its Directors and Shareholders whose continuity will be affected by striking off the name of the Company. Pendency of such litigation was treated by the Tribunal as a just ground for ordering restoration. Though the Registrar of Companies has shown ignorance as regards any business being carried on by the Company, three suspended Directors of the Company (Appellants herein) appear to have opposed appeal preferred by Respondents No. 2 and 3 herein (Appellants before the Tribunal) and resisted their move to seek restoration of the Company.
In the wake of litigations involving the Company and its management a just ground existed justifying restoration of the struck off Company to the Register of Companies. The impugned order does not suffer from any legal infirmity in so far as exercise of power under Section 252(3) of the Act by the Tribunal acting as Appellate Authority against the order of ROC is concerned. The pendency of litigations, at whatever stage, warranted restoration of name of Company to the Register of Companies, so as to safeguard the interests of Company and the stakeholders.
Appeal dismissed.
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2020 (8) TMI 648
Oppression and mismanagement - Illegal allotment of shares - It is argued that the allotment of 20 lakh shares made in pursuance of the scheme of 2002 is liable to be set aside in view of the fact that it violates the provision of section 18(3) of SICA - appellant sought relief of Status quo ante on the shareholding pattern of the Respondent No.1 company as prior to the allotment of 25 lakhs shares to Respondent No.2 in 2005 - HELD THAT:- It is not in dispute that the unsecured loan was given to Respondent No.1 company by the 2nd Respondent. It is also not in dispute that the Respondent No.1 company was in financial stress and a reference was made and the company was referred to BIFR who approved rehabilitated scheme and directed that the unsecured loan to the tune of ₹ 2,50,00,000/-granted by 2nd Respondent be converted into equity shares and accordingly these were converted into shares. It is also noted that during the arguments the appellant is agitating that the allotment of 25 lakh shares is illegal but have never come forward to argue that the appellant is ready to infuse the fund and the shares may be allotted to him. In the absence of any such offer and in the light of the Scheme approved by the BIFR directing the conversion of unsecured loan to equity shares what other alternatives could be operated in the circumstances - It is but natural that who has granted unsecured loan to the company, will be allotted shares as per the scheme approved by BIFR and upheld by AAFIR. The Hon’ble High Court has dismissed the appeal filed by the appellant challenging the orders of BIFR and AAIFR - impugned order upheld.
Oppression and mismanagement - allotment of shares - Allegation that the Respondent No.2 beached his trust and abused the position of power to usurp control on the company and resort to illegal enrichment at the cost of appellant - HELD THAT:- It is not in dispute that the unsecured loan was given to Respondent No.1 company by the 2nd Respondent. It is also not in dispute that the Respondent No.1 company was in financial stress and a reference was made and the company was referred to BIFR who sanctioned the Scheme and directed that the unsecured loan to the tune of ₹ 2,00,00,000/-granted by 2nd Respondent be converted into equity shares and accordingly these were converted into shares. We also note that during the arguments the appellant is agitating that the allotment of 20 lakh shares is illegal but have never come forward to argue that the appellant is ready to infuse the fund and the shares may be allotted to him. On the other hand when he was offered shares he refused the offer. It is but natural that who has granted unsecured loan to the company, will be allotted shares as per the scheme sanctioned by BIFR. The Hon’ble High Court has dismissed the appeal filed by the appellant challenging the orders of BIFR and AAIFR in another matter - Impugned order upheld.
Both the appeals dismissed.
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2020 (8) TMI 647
Oppression and Mismanagement - restraint them from convening any board meetings without proper representation of the Appellants and to stop them from selling the properties of the Respondent Company or create any encumbrances upon the property - HELD THAT:- The Extra Ordinary General meeting as ordered by NCLT be convened after convening the Board Meeting and giving proper notice in accordance with provisions of Companies Act, 2013. After approval of the Board, the specific agenda with statement in accordance with section 102 of Companies Act, 2013 to consider the proposal to sell the property based on Auction through the newspaper and online modes be placed before Extra Ordinary General Meeting. An Independent Administrator be appointed by the NCLT in order to have a proper voting by poll and not by show of hands and all material facts in relation to sale of the property be placed in the Extra Ordinary General Meeting and all the deliberations are properly recorded. Based on the decision of Extra Ordinary General meeting the sale of property of the Company, if approved, be acted upon. The requirement of the Appellant herein to be the joint signatory to an agreement to sell or to a sale deed according to the impugned order is therefore removed.
The NCLT is to review Independent Administrator’s report for proper disposal of the cases at hand - matter remanded back to NCLT, Hyderabad.
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2020 (8) TMI 646
Revival of appellant company - removal of name of the Appellant Company from the register of companies on the ground that that the Appellant Company had not filled the statutory documents with the Respondent i.e. Registrar of Companies and the Appellant Company had not filed its financial statements and Annual returns for period from 2014-15, 2015-16-, 2016-17 for the last 3 years - section 252 of the Companies Act, 2013 - HELD THAT:- The Memorandum of Understanding dated 09.04.2015 and 06.05.2015 reveal that the Appellant is operational. The Appellant Company delayed filing of returns but have paid additional Fee of ₹ 73,800 also e-form ADT-1 was filed on 01.10.2018 with additional fee of ₹ 3,600/- for the delay caused. Hence, ROC notice dated 03.11.2018 to the company to file its statutory returns for financial year 2017-18 shows that the name of the company was still existing in the records of ROC even after the removal of name of the company.
The Appellant is in operation as they are entering into MOU’s. The Directors are professionals and to develop an I.T platforms also takes considerable time; it is supplementing “Make in India” programme. No doubt, Company’s business volume is too law but attempting to enter USA Market through MOU is a good sign. All this reflects that the Appellant is in operation. “Operation” in commercial sense means developing business platform also.
The order of National Company Law Tribunal, Chandigarh Bench order is set aside and Registrar of Companies is directed to restore the name of the Company to the Register of Company - Appellant is directed to pay ₹ 1,00,000/- by way of Bank draft in favour of Pay & Account Officer, Ministry of Corporate Affairs, Chandigarh/ New Delhi towards cost for not filing statutory documents as required under Companies Act, 2013.
Application disposed off.
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2020 (8) TMI 645
Appealable order or not - whether the order of refusal passed by the Judicial Authority (National Company Law Tribunal) under Section 45 of the ‘Arbitration and Conciliation Act, 1996’ is appealable under Section 421 of the Companies Act, 2013?
HELD THAT:- Since promulgation of the Companies Act, 2013, the power of the Hon’ble High Court vested under different provisions stands transferred to ‘National Company Law Tribunal’ in terms of Section 434 of the Companies Act, 2013 and the appeal power is not vested with the Hon’ble High Court but before this Appellate Tribunal.
The Hon’ble Supreme Court in SUMITOMO CORPORATION VERSUS CDC FINANCIAL SERVICES (MAURITIUS) LTD. [2008 (2) TMI 627 - SUPREME COURT] observed in paragraph 25 of the said judgment that the expression ‘court’ not simpliciter but qualified by the wording “authorised by law to hear appeals from such order”. - In the present case, the order having passed by the Judicial Authority under Section 45 of the ‘Arbitration and Conciliation Act, 1996’ and in absence of any power delegated under the ‘Arbitration and Conciliation Act, 1996’, it is held that the appeal is not maintainable.
Appeal disposed off.
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Insolvency & Bankruptcy
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2020 (8) TMI 644
Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its debt - existence of debt and default or not - HELD THAT:- The Ld. Adjudicating Authority have failed to consider the letter dated 27.12.2018 filed before this Tribunal at Page No. 17 vide Diary No. 18698 dated 06.02.2020 whereby refer to the minutes of the consortium meeting dated 18th September, 2018 the Syndicate Bank (Respondent No. 1) agreed to open further LCs in favour of the Appellant as the Appellant was going through cash difficulties and also agreed to restore the sanctioned limits of the Appellant. The LC limits to the extent of ₹ 46.50 Crores and further it was agreed that the amount which have been deposited in TRA, the amount will be paid to Respondent No. 1 after opening the TRA.
There was no fault on the part of the Corporate Debtor - As the Ld. Adjudicating Authority failed to notice the aforesaid facts, the impugned order passed by National Company Law Tribunal, Division Bench-I, Chennai, is set aside.
The Order(s) passed by the Ld. Adjudicating Authority appointing ‘Interim Resolution Professional / Resolution Professional’, declaring moratorium, freezing of account, and all other order(s) passed by the Ld. Adjudicating Authority pursuant to impugned order and action taken by the ‘Interim Resolution Professional / Resolution Professional’, including the advertisement published in the newspaper calling for applications, all such orders and actions are declared illegal and are set aside - application dismissed - appeal allowed.
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2020 (8) TMI 643
Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of dues - forged signature - Operational Creditor is disputing the signature of its representative on acknowledgment of defects as stated in letter - HELD THAT:- The Operational Creditor has also provided third party Govt. approved labs for sampling and testing of goods as appearing at page No.433-434 of Reply of Operational Creditor. The Corporate Debtor has failed to communicate the Operational Creditor after receipt of Demand notice for the dispute and hence he has not complied with the provisions of Section 8(2) (a) of the IBC, 2016.
Return of cheques - HELD THAT:- The cheques were of 2nd January, 2018 to 3rd March, 2018 from the details matching with the challan date and cheque date as appearing at page 161 to 169 of the appeal paper book, all the cheques have been returned in an approximately 60 days after receipt of goods. This is a business relationship and in business such things happen. In this context, the Interim Resolution Professional (for short IRP) has also submitted that the Corporate Debtor has 41 Operational Creditors and one Financial Creditor Page 3-10 of the Affidavit in reply filed by IRP.
Appeal dismissed.
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2020 (8) TMI 642
Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - pre-existing dispute or not - Scope of disputed claim - HELD THAT:- The Appellant has actively rendered his services in availing the loan facility from Indiabulls. It is also clear that emails on record are between Appellant and Indiabulls, therefore the contention of the Corporate Debtor is not acceptable that Appellant has not played any role in availing the loan facility from Indiabulls.
Going to the mandate agreement dated 9.3.2016 which is an admitted document and the terms and conditions of services rendered by the Appellant is explicitly written. In this agreement in clause 4 break up of services and the scope of services provided by the Appellant is mentioned in detail. Clause 4 (f) provides that obtaining appropriate sanction from bank/NBFC. In this agreement it is nowhere mentioned that the Appellant will organise funding from Nationalised or scheduled bank at low rate of interest. Thus the dispute is not supported by any document.Therefore, we find no basis for such dispute - it is to be seen that in the clause 7 of mandate agreement total fees payable to the Operational Creditor and schedule for all payments are described. It is mentioned in clause 7(d) that on signing of the mandate for assigning the contracts ₹ 2 lakhs out of the total fee will be payable with the condition that the advance amount of ₹ 2 lakhs are subject to success of the assignment otherwise; it is fully refundable.
There are no substance in the dispute raised by the Corporate Debtor that the invoices were issued much prior to the actual sanction of loan by Indiabulls. It is also pertinent to note that when the Appellant has raised invoices then Corporate Debtor has asked the Appellant about the Tan Number and Pan Numbers - In the mandate agreement there is no such clause that the Appellant will organise unsecured loan for the Corporate Debtor and for the same the Corporate Debtor will hand over post-dated cheques as security.Such dispute was first time raised in reply to notice and not supported by any documentary evidence.
The Appellant has explained that Corporate Debtor has handed over ten cheques out of these, at the request of Corporate Debtor the Appellant has not presented three cheques in Bank for encashment.These cheques were issued after TDS amounting of ₹ 4,30,000/-, 4,50,000/- and 4,50,000/-. Subsequently, the Corporate Debtor has made payment in cash on 08.06.2016, 13.07.2016 and 25.08.2016 total 15 lakhs. The Appellant has explained that the Corporate Debtor has not sufficient funds in the Bank and therefore, at his request Appellant has not presented these three cheques and received the cash amount, this fact is mentioned in the Cashbook of the Appellant, Copy of which filedalongwith the Application. In such circumstances, no one can believe that without getting 15 lakhs the Appellant has wrongly, mentioned in the Cashbook that they received payment of ₹ 15 Lakhs from the Corporate Debtor - the disputes raised by the Corporate Debtor in the reply to the notice, not supported by any documentary evidence, are spurious, Hypothetical and illusory. Therefore, we are unable to convince that there is any pre-existing dispute.
The Learned Adjudicating Authority has erroneously, rejected the Application at the time of admitting the Application the Adjudicating Authority has only to see whether there is an Operational Debt exceeding ₹ 1 lakh as defined in Section 4 of the I&B Code, and whether the documentary evidence furnished with the Application shows that the aforesaid debt is due and payable and has not yet been paid - The Adjudicating Authority wrongly rejected the claim on the ground that the claim raised by the Appellant falls within the ambit of disputed claim.Merely disputing the claim cannot be ground.
The Corporate Debtor has defaulted to pay more than ₹ 1 lakh and in absence of any pre-existing dispute, and the record being completed, we hold that the application under Section 9 preferred by the appellant was fit to be admitted - Case remitted to the Adjudicating Authority for admitting the application under Section 9 of I&B Code - appeal allowed.
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2020 (8) TMI 641
CIRP process - Principles of natural justice - Adjudicating Authority has decided the application without considering the submissions made by the Respondent - Cancellation of encumbrance which had been created by way of attachment - attachment prior to the initiation of CIRP process - HELD THAT:- The Adjudicating Authority has passed the impugned Order without considering the attachment order dated 04th August, 2017. It is on record that the Recovery Officer in order to realise outstanding dues, attached the immovable properties belonging to the Corporate Debtor, in the exercise of powers vested in him under Section 8(B) of the EPF and M.A. Act, 1952 - On perusal of the letter produced, it is clear that Authorised officer, Regional officer, Vellore, issued a Recovery Certificate to the Recovery Officer, Regional Office, Vellore in exercise of powers conferred under Section 8(B) to 8(G) of the Employees Provident Fund and Miscellaneous Act, 1952. Copy of Order of attachment EPFCP-16 is also enclosed with the attachment order passed by the Recovery Officer, Employees Provident Fund Organization. Thus, it is undisputed that the attachment of immovable property of the Corporate Debtor was made by the Recovery Officer EPFO Organization on 04th August 2017 much before the petition under Section 7 of the Code.
The Recovery Officer had issued a reminder to Sub Registrar for issuance of encumbrance certificate about the property attached by EPFO Vellore, to put a restriction on the Corporate Debtor from alienating the property, already attached by the Recovery Officer for the dues of Employees Provident Fund, by Order dated 04th August, 2017. The Recovery Officer has also demanded the encumbrance certificate duly incorporating the attachment of EPFO - It is also apparent that the Sub Registrar failed to incorporate the attachment in the register. Therefore, the Recovery Officer of EPFO issued a reminder on 10th May 2018 and 29th November 2019 for incorporating attachment of the immovable property in the record. The Respondent has filed the attachment order dated 04th August 2017, which shows that the attachment order of immovable property of the Corporate Debtor was made by the Recovery Officer Employees Provident Organization on 04th August 2017. The petition under Section 7 was admitted by the Adjudicating Authority by Order dated 04th February 2019. Thus it is apparent that the attachment of the immovable property in question had already existed prior to the initiation of CIRP of the Corporate Debtor.
The alleged encumbrance certificate which was issued during Moratorium is only the incorporation of earlier Order in the record. But in fact attachment of the property was made much before the initiation of Corporate Insolvency Resolution Process. It is also clear that the Adjudicating Authority has passed the Order even without considering the submission and objections of the Appellant. Adjudicating Authority failed to consider the fact that attachment of the property was made much before the issuance of the CIRP - thus, the Adjudicating Authority failed to take notice that attachment of the property of the corporate debtor was made much before the initiation of CIRP, but it was only recorded in the register during CIRP. It is on record that the impugned order is passed without considering the objections of the Recovery Officer, EPFO, though the objection by EPFO was already filed in the Registry of NCLT.
Appeal allowed.
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Service Tax
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2020 (8) TMI 640
Rectification of mistake - mistake apparent on the face of record - applicability of extended period of limitation is not denied - HELD THAT:- From the facts on record as recorded in the Final Order in para 3 (d), and further the pleadings of the appellant recorded in para 11, it is apparent that the movable goods whatsoever as aforementioned, the possession and control is transferred to the lessee. Thus, we find that there is apparent mistake on record in the observation of this Tribunal that the movable goods are in the constructive possession of the appellant lessor. Accordingly, we allow this ground.
Extended period of limitation - HELD THAT:- Tribunal have not decided the ground on applicability of extended period of limitation. From the facts and circumstances, we find that the appellant was registered with the Service Tax Department since 07.02.2008 in the category of management consultancy, renting of immovable property, club/ association membership, tour operator, health club, bar association etc. The accounts of the appellant have been audited by the Central Excise Department from time to time till 2011. Further, the period under dispute is from August, 2008 to June, 2012. Thus, the affairs of the appellant were in the knowledge of the Department - all the transactions have been duly recorded in the books of the account maintained in the regular course of business - no case of suppression or fraud or contumatious conduct is made out against the appellant - the extended period of limitation is not applicable.
Application allowed.
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Indian Laws
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2020 (8) TMI 639
Cancellation of Certificate of Registration of Non-Banking Financial Institution - HELD THAT:- The petitioner has not made any effort to justify its calculation of NOF given in its Balance Sheet for the year 2016-17. This contention raised during hearing of the writ petition does not find mention in the body of the writ petition, therefore, has not been responded by RBI in its reply filed to the writ petition. However, in its letter dated 04.12.2018 submitted in response to Bank’s letter dated 30.11.2018 and in its reply dated 15.01.2019 to the show cause notice dated 03.01.2019, the petitioner had specifically relied upon the above extracted circular to justify its calculations of NOF made in the Balance Sheet for the year ending on 31.03.2017. In its appeal preferred under Section 45-IA(7) of the RBI Act, the petitioner again defended its calculations in arriving at NOF on the strength of Master Circular of RBI.
A bare perusal of the circular relied upon by the petitioner makes it evident that NOF described therein only pertains to Exposure norms to be followed by All India Financial Institutions namely Exim Bank, NABARD, NHB and SIDBI. NOF described therein cannot be read for calculating NOF of petitioner NBFC. The NOF of petitioner has to be calculated only in terms of Section 45-IA of RBI Act. Petitioner has not disputed investment of ₹ 17 Lakhs and loans of ₹ 54.41 Lakhs advanced by it to its Group Companies. Therefore, these amounts in excess of 10% of Owned Fund have been justifiably deducted by RBI while determining ₹ 150.33 Lakhs as NOF of the petitioner.
In its notification dated 27.03.2015, the RBI had specified ₹ 200 Lakhs as minimum NOF required by an NBFC to commence or carry on business of NBFI. The then existing NBFCs holding CoR for carrying on business of NBFI were given timeline upto 01.04.2016 for achieving NOF of ₹ 100 Lakhs and upto 01.04.2017 for attaining NOF of ₹ 200 Lakhs. Petitioner NBFC did not achieve the minimum prescribed limit of NOF within the stipulated period. It failed to comply with the directions issued by the Bank under the provisions of Chapter III B of RBI Act. Therefore, no opportunity for complying with the directions could be granted to it as the CoR was cancelled by taking recourse to Section 45-IA(6)(iv).
Thus, Master Circular relied upon by the petitioner for calculating its NOF is not applicable to it. NOF of the petitioner for the year ending on 31.03.2017 (2016-17) is required to be and justifiably determined by RBI in accordance with Explanation I of Section 45-IA of the RBI Act - Since NOF of the petitioner-NBFC determined under the applicable provisions of RBI Act fell short of minimum limit of ₹ 200 Lakhs prescribed by RBI for carrying on the business of NBFI, therefore, its CoR was cancelled by RBI taking recourse to Section 45-IA(6)(iv) of the Act - The CoR of the petitioner was cancelled by RBI under the provisions of Section 45-IA(6)(iv) of the RBI Act, which does not entail providing any opportunity for complying with the provisions/ conditions violated by the petitioner. Otherwise also, sufficient opportunity had already been granted by the RBI in the notification dated 27.03.2015 to achieve prescribed NOF, i.e. to comply with its directions. In any case, shortfall in NOF in the Balance Sheet of the petitioner for the year 2016-17 cannot be rectified three years later in 2020.
Petition dismissed.
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