TMI Tax Updates - e-Newsletter
September 20, 2023

Case Laws in this Newsletter:

GST Income Tax Customs Corporate Laws Insolvency & Bankruptcy Service Tax Central Excise CST, VAT & Sales Tax

Articles

1. Old VS New tax regime Which regime is better?

   By: Sparsh wadhwa

2. Revenue Vs Capital Expenditure & Depreciation on Capital expenditure – the argument continues

   By: Vivek Jalan

3. DEFECTS IN FILING APPEAL - WHETHER COULD BE REJECTED BY APPELLATE AUTHORITY?

   By: DR.MARIAPPAN GOVINDARAJAN

4. No anticipatory bail to a professional who is accused of forgery and GST evasion

   By: Bimal jain

News

1. DPIIT notifies Quality Control Order for ‘Flux Cored Solder Wire’

2. The fourth & final meeting of the G20 FWG Successfully concluded in Raipur, Chhattisgarh today

3. CBDT extends due date for filing of Form 10B/10BB and Form ITR-7 for the Assessment Year 2023-24

4. Auction for Sale (re-issue) of (i) ‘7.06% GS 2028’, (ii) ‘7.18% GS 2033’ and (iii) ‘7.30% GS 2053’

Notifications

GST

1. 46/2023 - dated 18-9-2023 - CGST

Seeks to appoint Adjudicating Authority

GST - States

2. ERTS(T) 65/2017/Pt. III/Vol. I/554 - dated 31-7-2023 - Meghalaya SGST

Exemption from filing annual return for the said financial year to registered person whose aggregate turnover in the financial year 2022-23 is up to two crore rupees.

IBC

3. IBBI/2023-24/GN/REG106 - dated 18-9-2023 - IBC

Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) (Second Amendment) Regulations, 2023

4. IBBI/2023-24/GN/REG105 - dated 18-9-2023 - IBC

Insolvency and Bankruptcy Board of India (Model Bye-Laws and Governing Board of Insolvency Professional Agencies) (Amendment) Regulations, 2023

Circulars / Instructions / Orders

Income Tax

1. 16/2023 - dated 18-9-2023

Extension of timelines for filing of Form 10B/10BB and Form ITR-7 for the Assessment Year 2023-24

GST - States

2. TRADE CIRCULAR No. 13/2023 - dated 13-9-2023

Clarification regarding GST rates and classification of certain goods based on the recommendations of the GST Council in its 50th meeting held on 11th July, 2023

3. TRADE CIRCULAR No. 14/2023 - dated 13-9-2023

Clarifications regarding applicability of GST on certain services

Customs

4. 22/2023 - dated 19-9-2023

Implementation of Ex-Bond Shipping Bill in ICES 1.5

5. CAVR Order No. 01/2023 - dated 18-9-2023

Order under rule 5 of the Customs (Assistance in Value Declaration of Identified Imported Goods) Rules, 2023 for the Linear Alkyl Benzene (LAB)

6. PUBLIC NOTICE No. 28/2023 - dated 28-8-2023

Effective monitoring of Warehoused goods to safeguard revenue- reg.

Highlights / Catch Notes

GST

• GST Ruling: Supervision Fees Only Taxable When Recipient Covers Material & Installation Costs for Electric Line Services.

  Case-Laws - AAAR : Valuation - inclusion cost of material / reimbursement of expenses - where the value of materials and cost of execution of work for installation of electric lines are borne by the recipient of service and the appellant charges supervision fee only, the value of materials and cost of installation shall not be included in the value of supply for determination of taxable value under GST and the appellant shall be liable to pay GST only on the supervision charges. - AAAR
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• Does Mixing Perfumes with Tobacco Dust Qualify as Manufacturing Under GST? AAAR Examines Chapter 2401 Classification.

  Case-Laws - AAAR : Process amounting to manufacture or not - mixing of scent (mixture of various perfumes and not Jarda Scent) in raw unmanufactured tobacco dust - the product of the appellant is appropriately classifiable under Ch-2401 of GST Tariff subject to the process adopted by the appellant as provided under Explanatory Note to Ch-2401. - AAAR
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• ITC Reversal Required for Raw Materials in Finished Goods Destroyed by Fire, Confirms Authority for Advance Rulings.

  Case-Laws - AAR : Reversal of Input Tax Credit - raw materials purchased are already used in the manufacture of finished goods and the finished goods are destroyed in the fire accident completely - ITC is required to reversed - AAR
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• Electric vehicle spare parts not detailed in Notification No. 01/2017, classified under residual entry S.No 453, Schedule-III by AAR.

  Case-Laws - AAR : Classification of goods - Automobile Accessories - Electrical & mechanical spare parts of electric vehicle - Electrical & mechanical spare parts of electric vehicle are not covered by any description in the Notification No. 01/2017. Therefore they fall under residual entry S.No 453 of Schedule-III - AAR
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Income Tax

• Revenue's Appeal Fails: Omani Dividend Income Exempt Under Article 25 DTAA and Article 8 (bis) Omani Tax Laws.

  Case-Laws - SC : Income taxable in India - dividend income earned by the assessee - such income is exempted under Omani Tax Laws - Appellant (Revenue) has not been able to demonstrate as to why the provisions contained in Article 25 of DTAA and Article 8 (bis) of the Omani Tax Laws would not be applicable and, consequently, we hold that the appeals have no substance - SC
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• Court Questions Delay in Addressing High Court and Supreme Court Rulings in Section 147 Assessment Reopening Objections.

  Case-Laws - HC : Reopening of assessment u/s 147 - Failure to rely upon the decision of HC / SC at objection stage - We fail to understand why these decisions could not have been taken at this stage itself so that the AO, having regard to the law laid down by the courts and on the submissions made by petitioner, could have discharged the notice u/s 148 of the Act. There is no reason to postpone it to the assessment proceedings stage. - HC
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• High Court Affirms Company's Right to Depreciation on Goodwill in Demerger; Section 263 Revision Overturned.

  Case-Laws - HC : Revision u/s 263 - goodwill created by virtue of demerger scheme - the Assessing Officer had examined the aspect of the assessee’s claim during the course of acceptance, in the opinion of the Tribunal, the Assessing Officer while passing order u/s 143(3) had taken a plausible view sustainable in the eye of law. Relying on the decision, it was held that the assessee company is entitled to claim depreciation on goodwill expended at the time of amalgamation of companies. - Revision is not sustainable - HC
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• Assessment Reopened for Further Review on Purchase Transactions Due to Insufficient Explanation by Petitioner.

  Case-Laws - HC : Reopening of assessment - genuineness of the purchase transactions - information was not supplied to the petitioner - Despite these documents having been placed by the petitioner/assessee before the AO, the AO concluded that the petitioner had nothing to submit by way of a proper explanation regarding the transactions in issue. - Mater restored back - HC
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• High Court Upholds ITAT Decision: Dismissed Issues Cannot Justify Reopening Income Tax Assessment u/s 147.

  Case-Laws - HC : Reopening of assessment - under-declaration of the investment made - Whether merely because certain issues and additions were considered during the block assessment proceedings, which were deleted by the appellate authority on technical grounds, the same, could not form the basis for triggering reassessment proceedings? - ITAT rightly quashed the reassessment proceedings - HC
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• High Court Rules 'Off the Shelf' Software Sales Not a Royalty, Income Not Taxable Under Indian Law.

  Case-Laws - HC : Income deemed to accrue or arise in India - Royalty receipt - there was no transfer of copyright in the ‘off the shelf’ sale software; the consideration received thereby could not be construed as royalty and hence was not taxable - the Tribunal was right in concluding, that the consideration received by the respondent/assessee, did not constitute royalty - HC
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• Final Assessment Order Upheld; Assessee's Appeal Dismissed for Lack of Merit u/s 144C(2)(b)(ii).

  Case-Laws - AT : Validity of draft assessment order passed u/s 143(3) r.w.s. 144 r.w.s. 144C(1) - reference to DRP - the final assessment order was passed by the AO on 19.12.2017 and served the same to the assessee on 21.12.2017. Therefore assessee has an option to challenge the final assessment order before the CIT(A) in accordance with law. Therefore no merits in the grounds raised by the assessee. The present appeal filed by the assessee is devoid of merits and against the provisions of section 144C (2)(b)(ii). Therefore the appeal filed by the Assessee is hereby dismissed. - AT
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• Subsidy for Punjab industrial development not tied to asset acquisition; Assessing Officer's action delayed since 1999-2000.

  Case-Laws - AT : Depreciation - Determination of cost of acquisition - Reduction of amount of subsidy - Explanation 10 to section 43(1) - the said section is not applicable on the facts of the case in hand in as much as the subsidy has not been granted for meeting cost of any asset but for larger public interest of industrial development of the State of Punjab. - Further, even if the action of the Assessing Officer has to be accepted, then the same should have been taken in A.Y 1999-2000, and not after a gap of 10 years - AT
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• Court Orders Registration for Society's Charitable Activities u/s 12A, Overturning Initial Denial by Tax Commissioner.

  Case-Laws - AT : Denial of registration u/s 12A - activities are charitable in nature or not? - As per the bye laws of the assessee society, the membership is open to all state government officers, officers of All India Services serving in Uttarakhand and officers of central government serving and residing in Uttarakhand. - CIT(E) directed to grant registration - AT
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• Section 263 Revision: Cash Deposit Source Linked to Land Sale, AO Confirms Validity After Thorough Assessment.

  Case-Laws - AT : Revision u/s 263 - source of cash deposited in the Bank account - There is a direct nexus between the transaction of sale and the cash deposited in the bank account of the assessee as the transaction of sale of land is registered on 26.04.2010 and the cash was also deposited by the assessee on the same date. AO has accepted the deal of sale of agriculture land with a conscious and independent application of mind. - AT
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• Society's Bank Interest Income Taxed as Business Income u/s 80P(2)(a) of Income Tax Act.

  Case-Laws - AT : Deduction u/s 80P(2)(a) - interest income - When the assessee is wholly and exclusively doing its business for its members, the earning of interest on FDs with the banks is incidental to the assessee society’s business of accepting the deposit and provision of credit facilities from/to its members. Hence, the interest income has rightly been treated as business income by the assessee society and assessed to tax under the head “profit and gains of business”. - AT
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• Reassessment Order u/s 147 Quashed; No Sufficient Basis for Belief in Incorrect Deduction Claim u/s 48.

  Case-Laws - AT : Validity of the order passed u/s 147 - insufficient reason to believe - There is no basis mentioned in the reasons for the belief of the Assessing Officer that the assessee’s entire claim of deduction under Section 48 of the Act was incorrect. And this escapement of income has absolutely no link or correlation with the information in the possession of the AO that the other co-owner of land had incorrectly claimed deduction under Section 54B of the Act. - Reassessment order quashed - AT
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IBC

• NCLT Allows CIRP Application: OTS Proposal and Debt Acknowledgement Extend Limitation u/s 18 of Limitation Act.

  Case-Laws - SC : Validity of Admission of application for CIRP by the NCLT of the respondent no. 2 (SBI) after condoning delay and without making the appellant Bank as party - Period of limitation - if the OTS proposals are found to have been made by the Corporate Debtor and the balance sheet reflected the debt in the financial year ending 31st March, 2015, then in fact, there would be no delay on the part of the Respondent No. 2- State Bank of India in initiating the proceeding as the same would be within the extended period of limitation provided under Section 18 of the Limitation Act. - SC
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• CCI Approval Required Post-CoC Approval: Legal Precedents Support Flexible Sequence in Resolution Plans u/s 31(4) Proviso.

  Case-Laws - AT : Approval of Resolution Plan - when to obtain approval from the CCI? - Although, the RP subsequently clarified that approval can be obtained even after the approval by the CoC, which was in accordance with the prevalent legal position as settled by this Tribunal in Arcelor Mittal and other cases - Section 31, sub-section (4) proviso has to be read to mean that though the approval by the CCI is ‘mandatory’, the approval by the CCI prior to approval of CoC is ‘directory’ - AT
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• NCLT denies request to redirect tax refund mistakenly credited to CLCI after de-merger; jurisdiction over tax redirection debated.

  Case-Laws - AT : Who is entitled to get the income tax refund after de-merger - Jurisdiction to direct the IT Department and RBL Bank Ltd. - It is submitted that, income tax refund which had been wrongly credited by the IT Department to CLCI-Respondent No.4 - NCLT rightly dismissed the request of the appellant - AT
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Central Excise

• Factory Closure Allows CENVAT Credit Refund in Cash; No Limitation Period for Claims, Affirms Third Member Bench Decision.

  Case-Laws - AT : Refund of unutilised CENVAT credit on closure of factory in the form of cash - since the accumulated cenvat balance lying in the books was claimed as refund, in my considered view, it cannot be said that such claim is barred by limitation of time. In other words, availment of cenvat credit is an indefeasible right of an assessee and such right conferred under the statue cannot be taken away on the ground of limitation. - Third Member Bench decision - Refund allowed - AT
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VAT

• Kerala Finance Act 2017 Amendment is Prospective, Clarifies Assessment Timeline in Section 25 of KVAT Act.

  Case-Laws - SC : Effect of the amendment - Retrospective or prospective - It may be clarified that the expression “proceed to determine” is found in the amendment made to the KVAT Act with effect from 2017 Finance Act, whereas in the earlier amendment, the expression clearly was to “complete the assessment” in the third proviso of sub-section (1) of Section 25 which is also a clear indication of the intention of the Legislature to give a command to the concerned assessing officers seized of the proceedings which had been initiated under sub-section (1) of Section 25 to complete within the time-frame as stipulated in the said proviso. The amendment to the Kerala Finance Act, 2017 is with effect from 01.04.2017 and does not have any retrospective effect. - SC
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Case Laws:

• GST

• 2023 (9) TMI 857
  Refund of GST - Petitioner seeking permission to approach the Respondent No.7 by way of appropriate representation, which may be directed to be decided within time frame fixed by this Court - HELD THAT:- It is opined that no useful purpose shall be served by keeping the writ petition pending and, accordingly, dispose of the writ petition permitting the petitioner to approach the Respondent No.7 by filing an appropriate representation clearly stating his grievance within a period of two weeks from today. In the eventuality, the petitioner files representation within time allowed, it is expected that the Respondent No.7 shall proceed to consider all aspects of the matter and decide the same by speaking and reasoned order, expeditiously preferably within a period of four weeks from the date of service of a certified copy of this order. Petition disposed off.

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• 2023 (9) TMI 856
  Provisional attachment of Bank Accounts of petitioner - collected GST amount not been deposited with the Government - HELD THAT:- The petitioner is directed to pay a sum of Rs. 2.25 Crores to the GST authorities at Hyderabad within a period of 30 days from today and subject to such deposit, the provisional attachment of the bank accounts of the petitioner maintained with respondent Nos. 3 to 7 would stand suspended. List after a month on 10.08.2023.

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• 2023 (9) TMI 855
  Scope of Advance Ruling application - appellant is service recipient - construction, erection and commissioning of metro rail facility all over the state of Uttar Pradesh - Section 95 of the CGST Act 2017 - HELD THAT:- The appellant is receiving services from M/s KESCO and opts to seek advance Ruling under Section 95 of the CGST Act 2017 as a receiver of service - It is also found that the Authority for Advance Ruling has ruled that the Applicant M/S Uttar Pradesh Metro Rail Corporation Limited is receiver of the Goods/Services provided by M/s KESCO and under the provision of clause (a) of Section 95 of CGST Act 2017, only supplier of the services can file Application for Advance Ruling and accordingly no ruling can be given in the matter. Needless to say that meaning of the term applicant as defined under clause (c) of Section 95 of the act, should be derived only in consonance with clause (a) of Section 95 of the CGST Act 2017 which clearly provides that the applicant of Advance Ruling Should be related to a taxpayer who supplies the goods or services or both or who proposes to make supplies in future. As the wordings says the supply of goods or services or both and not the receipt of goods or services or both . This implies that the applicants seeking advance ruling should be suppliers of goods/services and not the recipient of goods/services. The appellant being a service recipient is not eligible to seek advance ruling under the provisions of Section 95 (a) of the CGST Act, 2017.

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• 2023 (9) TMI 854
  Valuation - inclusion of value of material and cost of execution of work for installation of lines will be included in the value of supply for determination of taxable value under GST where all such cost are taken as reimbursement or not - value of material and cost of execution of work for installation of lines will be included in the value of supply for determination of taxable value under GST where all such cost are borne by the recipient of service and only supervision fee charged by applicant? HELD THAT:- The supply has been defined under Section 7 of CGST Act, 2017 which includes all forms of supply of goods or services or both such as sale, transfer, barter, exchange, license, rental, lease, or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business . Further as per definition provided under Section 2(31) of GST Act, 2017, Consideration, means any payment made or to be made, whether in money or otherwise in respect of, in response to or for the inducement of the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given the Central Government or a State Government. The Authority for Advance Ruling is correct in holding that value of material and cost of execution of work for installation of lines will be included in the value of supply for determination of taxable value under GST where all such cost are taken as reimbursement. Entire cost is borne by the recipient of service - HELD THAT:- The Authority for Advance Ruling has held that the value of taxable supply shall not include the material cost and the appellant shall be liable to pay GST on supervision charge only to avoid double taxation subject to the condition that tire contractor/recipient of service should have GST invoice which should be submitted after completion of project - it is found that that there is no such provision stipulated under GST Act and this condition is unwarranted and having no legal backing as argued by the appellant. Thus, where the value of materials and cost of execution of work for installation of electric lines are borne by the recipient of service and the appellant charges supervision fee only, the value of materials and cost of installation shall not be included in the value of supply for determination of taxable value under GST and the appellant shall be liable to pay GST only on the supervision charges.

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• 2023 (9) TMI 853
  Process amounting to manufacture or not - mixing of scent (mixture of various perfumes and not Jarda Scent) in raw unmanufactured tobacco dust by the Appellant after procuring the same from various traders and, and its subsequent sale to customers on B to B and B to C basis, after ensuring packing from third party - processing of manufactured Tobacco dust by add mixing the scent (mixture of various perfumes and not Jarda Scent) would change the character of unmanufactured tobacco to manufactured Tobacco or not - HELD THAT:- Undoubtedly, in the present case the raw tobacco dust is the result of screening of raw tobacco through which tobacco leaves, its stem, and other tender parts are separated through the process of drying, winnowing, crushing and separating through sieving and the better parts are used for chewing tobacco and remaining part in raw form i.e. stems, veins, and leaves of tobacco plant are then crushed in the dust form and the dust is sold as such for human consumption. There is nothing on record which proves that mere mixing of various flavors (Not Jarda Scent) results in irreversible change and converts the nature of raw unmanufactured tobacco to manufactured tobacco. The Authority for Advance Ruling has wrongly held that process adopted by the appellant amounts to manufacture and their product to be classifiable under Ch-2403 of GST Tariff. In fact the process adopted by the appellant does not involve fermentation at all and accordingly their product may be appropriately classified under Ch-2401 of GST Tariff subject to the process adopted by the appellant as provided under Explanatory Note to Ch-2401. The impugned order passed by the Authority for Advance Ruling modified to the extent that the product of the appellant is appropriately classifiable under Ch-2401 of GST Tariff subject to the process adopted by the appellant as provided under Explanatory Note to Ch-2401.

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• 2023 (9) TMI 852
  Reversal of Input Tax Credit - raw materials purchased are already used in the manufacture of finished goods and the finished goods are destroyed in the fire accident completely - raw materials procured are lost in the fire accident before use in manufacture of finished goods - destroyed finished goods can be sold as steel scrap in the open market and output tax liability on such supply of scrap is paid - HELD THAT:- The statutory provision of the Act has to be interpreted in the context of other statutory provisions i.e., 17(2) and 18(4) and the meaning has to be discerned by applying the principle discussed above i.e., ex visceribus actus . The scheme of the Act becomes clear from the combined reading of three provisions that input tax credit is available to a taxable person only when such taxable person makes taxable supplies. When the taxable supplies are not made input tax credit is not available under Section 17(2) and 17(5)(h). If the input tax credit is already utilized such credit needs to be paid back as given under Section 18(4). Therefore the input tax credit to the extent of manufactured goods destroyed or inputs destroyed is not available to the applicant and the same needs to be paid back either through the credit available in the credit ledger or by cash - Scrap sold by the applicant is nothing but a destroyed goods therefore in the context of above discussion sale of scrap i.e., sale of destroyed goods are not eligible for input tax credit.

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• 2023 (9) TMI 851
  Classification of goods - Automobile Accessories - Electrical mechanical spare parts of electric vehicle - to be classified under HSN code 87031010 or not - HELD THAT:- In view of the clarification by Circular No. 179/11/2002-GST in f.no. CBIC-190354/172/2002-TRU of Govt. of India Ministry of Finance, all electrically operated vehicles including three wheeled electric vehicles are classified under HSN 8703 for the purpose of taxation under GST. Further the above entry does not have any reference to electrical and mechanical spare parts of the electrical vehicle. The Hon ble Supreme Court of India (5 Member constitution bench) in VVS. SUGARS VERSUS GOVERNMENT OF ANDHRA PRADESH AND OTHERS [ 1999 (4) TMI 519 - SUPREME COURT] held that A taxing statute must be interpreted as it reads, with no additions and no subtractions on the ground of legislative intent or otherwise . Therefore it cannot be inferred that parts of electrical vehicles fall under the above HSN code. Hence the goods Electrical and Mechanical spare parts of electrical vehicles fall under S.No 453 of Schedule-III of Notification no. 01/2017 dt:28.06.2017 i.e., Goods which are not specified in Schedule I, II, IV, V or VI falling in any chapter of HSN.

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• Income Tax

• 2023 (9) TMI 858
  Validity of the order passed u/s 147 - incorrect claim of deduction of capital gain - claimed deduction u/s 54B incorrectly by co-owners - HELD THAT:- We fail to understand how the AO arrives at this conclusion. The information in his possession being that Shri Riddhish B. Trivedi [co-owner] had claimed incorrect deduction u/s 54B of the Act of capital gain in which the assessee was also a co-owner, there is nothing in the reason revealing that there was any identity of facts of the assessee s claim of deduction against capital gain returned to tax with that of Shri Riddhish B. Trivedi. AO is not even aware of the Section under which the assessee has claimed deduction of its capital gain. In view of the same, we agree with assessee that, on the basis of information regarding incorrect claim of deduction of capital gain by Shri Riddhish B. Trivedi, AO could not have arrived at a belief that the assessee s income had also escaped assessment in the absence of complete particulars of deduction claimed by the assessee against the capital gain returned by him. It is settled law that the fulfilment of one of the basic condition for initiating action u/s 147 of the Act, of the AO having reason to believe that income has escaped assessment, requires live link between material coming to the knowledge of the AO and his formation of belief of escapement. The Hon ble apex court having held so in the case of ITO vs Lakhmani [ 1976 (3) TMI 1 - SUPREME COURT] We find that his belief of escapement of income of the assessee has nothing to do with any incorrect claim of exemption of capital gains, but is apparently on account of claim of deduction against consideration received from sale of land for computing capital gains earned.There is no basis mentioned in the reasons for the belief of the Assessing Officer that the assessee s entire claim of deduction under Section 48 of the Act was incorrect. And this escapement of income has absolutely no link or correlation with the information in the possession of the AO that the other co-owner of land had incorrectly claimed deduction under Section 54B of the Act. We are in complete agreement with the assessee that the reasons recorded by the AO showing his formation of belief of escapement of income of the assessee were insufficient for assuming a valid jurisdiction to frame assessment u/s 147 as reasons exhibited no live link between the information in the possession of the AO and the formation of belief of escapement of income, no basis for formation of belief of escapement of income and there was complete in application of mind by the AO while recording reasons for escapement of income. Decided in favour of assessee.

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• 2023 (9) TMI 850
  Income taxable in India - dividend income earned by the assessee - such income is exempted under Omani Tax Laws - Entitlement to assessee to the benefits of India and Oman DTAA - HELD THAT:- As per letter of the Omani Finance Ministry that the dividend distributed by all companies, including the tax-exempt companies would be exempt from payment of income tax in the hands of the recipients. By extending the facility of exemption, the Government of Oman intend to achieve its object of promoting development within Oman by attracting investments. Since the assessee has invested in the project by setting up a permanent establishment in Oman, as the JV is registered as a separate company under the Omani laws, it is aiding to promote economic development within Oman and achieve the object of Article 8 (bis). The Omani Finance Ministry concluded by saying that tax would be payable on dividend income earned by the permanent establishments of the Indian Investors, as it would form part of their gross income under Article 8, if not for the tax exemption provided under Article 8(bis). A plain reading of Article 8 and Article 8 (bis) would manifest that under Article 8, dividend is taxable, whereas, Article 8(bis) exempts dividend received by a company from its ownership of shares, portions, or shareholding in the share capital in any other company. Thus, Article 8(bis) exempts dividend tax received by the assessee from its PE in Oman and by virtue of Article 25, the assessee is entitled to the same tax treatment in India as it received in Oman. Assessee not having PE in Oman - As it is significant to note that from the year 2002 to 2006, a common order was made under Article 26 (2) of the Income Tax Law of Oman. As apparent that the assessee s establishment in Oman has been treated as PE from the very inception up to the year 2011. There is no reason as to why all of a sudden, the assessee s establishment in Oman would not be treated as PE when for about 10 years it was so treated, and tax exemption was granted basing upon the provisions contained in Article 25 read with Article 8 (bis) of the Omani Tax Laws. Letter issued by the Secretary General for Taxation, Ministry of Finance, Sultanate of Oman has no statutory force as per Omani Tax Laws, hence, the same cannot be relied upon to claim exemption. In our view, the above letter, as has been reproduced in the preceding paragraph of this judgment, is only a clarificatory communication interpreting the provisions contained in Article 8 and Article 8 (bis) of the Omani Tax Laws. The letter itself has not introduced any new provision in the Omani Tax Laws. In this view of the matter, the argument raised by the learned senior counsel would not convince us to deny exemption to the assessee. Appellant has not been able to demonstrate as to why the provisions contained in Article 25 of DTAA and Article 8 (bis) of the Omani Tax Laws would not be applicable and, consequently, we hold that the appeals have no substance and deserve to be dismissed which are hereby dismissed.

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• 2023 (9) TMI 849
  Disallowance of claim for expenses - difference between the actual and the declared amounts under all the heads is on the higher side - as decided by HC [ 2022 (10) TMI 660 - KERALA HIGH COURT] orders under appeal do not warrant our interference. Substantial questions of law framed are unavailable - HELD THAT:- High Court has rightly recorded that no substantial question of law arose in the appeals filed under Section 260A of the Income Tax Act, 1961. The special leave petitions are dismissed.

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• 2023 (9) TMI 848
  Reopening of assessment u/s 147 - reasonable belief that the income had escaped assessment - non considering of objections - HELD THAT:- In the present case, having regard to the law laid down by the Hon ble Apex Court in S.A. Builders Ltd. [ 2006 (12) TMI 82 - SUPREME COURT] it was impossible for any prudent person to form a reasonable belief that the income had escaped assessment. The reasons which have been recorded could never have led a prudent person to form an opinion that income had escaped assessment within the meaning of Section 147 of the Act. Even when those points were raised in the objections to the reopening notice filed by petitioner, Respondent No. 1 instead of dealing with the objections and submissions simply dismissed the same by saying that since there was no assessment done in the aforesaid case the department had no occasion to verify the veracity of the claim made in the income tax returns and all those points only have a bearing at the time of assessment to be undertaken in the proceedings and not on the issuance of notice u/s 148 - We fail to understand why these decisions could not have been taken at this stage itself so that the AO, having regard to the law laid down by the courts and on the submissions made by petitioner, could have discharged the notice u/s 148 of the Act. There is no reason to postpone it to the assessment proceedings stage.

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• 2023 (9) TMI 847
  Disallowance of 10% of expenses claimed under facility management - ITAT held in favour of the assessee by observing that in the case of companies which are having large volume of transactions, it would be practically difficult to bring all evidences to substantiate the expenses in one go and the ledger account that was furnished was sufficient and verifying the ledger account on test check basis was enough - HELD THAT:- The party-wise details provided by assessee amounted to approximately Rs. 55 Crores against the total expenditure of Rs. 62,84,30,804/- claimed, i.e., 89% of the total expenditure. The assessee also submitted the ledger accounts and even copies of sample invoices during the course of DRP proceedings. ITAT took a considered view that when assessee has, in compliance with the directions of the AO, placed on record substantial material that is complete party-wise details of purchases and labour expenses exceeding Rs. 10 Lakhs amounting to a total of Rs. 55 Crores approximately, which worked out to about 89% of the total expenses and also furnished copies of invoices of Rs. 82,22,049/- for verification on sample basis, the AO was not correct in disallowing an ad hoc 10% of the expenses.ITAT held that the assessee having substantiated almost 89% of the expenses claimed, in view of the large transactions involved, the AO was not justified in making a disallowance. There is also nothing to indicate in the assessment order that the AO also made any efforts to investigate the matter further if he had certain doubts or reservations as regard genuineness of the expenditure. The least the AO should have done is to verify those expenses on his own after clearly recording his reasons for so doing. No infirmities in the order passed by the ITAT

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• 2023 (9) TMI 846
  Revision u/s 263 - goodwill created by virtue of demerger scheme - CIT observed that 6th Proviso to section 32(1) of the Act makes it clear that the depreciation in the hands of the resulting company is to be calculated at the prescribed rates on the WDV of the assets in the books of the demerged company, which in this case would be Nil as the WDV of the corresponding assets itself is Nil - AO wrongly accepted the claim of depreciation on goodwill created by virtue of demerger scheme without examining the provisions of explanation 2 to section 43(6) r.w.s. 32 due to which the assessment order passed u/s. 143(3) of the Act has become erroneous and prejudicial to the interest of the Revenue HELD THAT:- Tribunal found that the assessee had furnished various factual and legal submissions dated 19.12.2017 where the assessee relied upon the case of Commissioner of Income Tax, Kolkata vs. Smifs Securities Ltd [ 2012 (8) TMI 713 - SUPREME COURT] - As observed by the Tribunal that the Assessing Officer had considered the action of granting approval and also the Valuation Report. Since therefore the Assessing Officer had examined the aspect of the assessee s claim during the course of acceptance, in the opinion of the Tribunal, the Assessing Officer while passing order u/s 143(3) had taken a plausible view sustainable in the eye of law. Relying on the decision, it was held that the assessee company is entitled to claim depreciation on goodwill expended at the time of amalgamation of companies. AO had also relied on the case of Smifs Securities Ltd. (supra) and allowed the claim for depreciation - no substantial question of law arises for consideration.

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• 2023 (9) TMI 845
  Penalty u/s. 271(1)(c) - Addition u/s.68 - assessee miserably failed to discharge initial onus to prove the identity of the creditor so also the genuineness of the transactions - HELD THAT:- What is evident is that the Tribunal found on facts that the amount of loan received by the assessee was returned to the loan party during the year itself and all transactions were carried out through banking channel. ITAT on the decision of Rohini Builders [ 2001 (3) TMI 9 - GUJARAT HIGH COURT] held in favour of the assessee. The phraseology of section 68 is clear. The Legislature has laid down that in the absence of a satisfactory explanation, the unexplained cash credit may be charged to income-tax as the income of the assessee of that previous year. In this, case the legislative mandate is not in terms of the words shall be charged to income-tax as the income of the assessee of that previous year . The Supreme Court while interpreting similar phraseology used in section 69 has held that in creating the legal fiction the phraseology employs the word may and not shall . Thus the unsatisfactoriness of the explanation does not and need not automatically result in deeming the amount credited in the books as the income of the assessee as held by the Supreme Court in the case of CIT v. Smt. P. K. Noorjahan [ 1997 (1) TMI 6 - SUPREME COURT]

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• 2023 (9) TMI 844
  Reopening of assessment - genuineness of the purchase transactions has been flagged by the AO, by referring to the information which has not been supplied to the petitioner - HELD THAT:- AO did not consider bank statements and tax invoices to be relevant evidence. Furthermore, a perusal of the petitioner s reply dated 21.03.2023 would show that, although the petitioner furnished certain pieces of information to demonstrate that the transactions undertaken were genuine, the same were not considered by the AO. One such example is a piece of evidence concerning the production of the ledger account of the sellers which appears in petitioner s books of account. Petitioner placed on record documents to demonstrate that the transactions have been made through a banking channel. For example, in its reply the petitioner attached bank statements demonstrating payment made to the concerned parties. It appears that the petitioner has also placed on record the tax invoices and e-way bills. Despite these documents having been placed by the petitioner/assessee before the AO, the AO concluded that the petitioner had nothing to submit by way of a proper explanation regarding the transactions in issue. If AO had material to demonstrate that the sellers were dubious or non-existent, that material/information should have been put to the petitioner. Having failed to do so, in our opinion, the defence of the petitioner, in a sense, got compromised. Also there is reference to the non-existence of the vehicle No. HR99ACH0410. If the AO had relevant information based on which he concluded that the said vehicle did not exist, that information should have also been put to the petitioner. Thus the best way forward would be to set aside the impugned order, with liberty to AO to pass a fresh order.

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• 2023 (9) TMI 843
  Application u/s 12AA and 80G rejected - reason for rejecting the application was that it had been submitted physically, and not electronically - argument advanced on behalf of petitioner/assessee is that at the point in time when the subject application was filed the prescribed form was not available in electronic mode - HELD THAT:- We are unable to persuade ourselves to accept Revenue submission for the reason that until 05.03.2018 and thereafter, the Petitioner/assessee s application was firstly entertained and processed, and then documents in support of the application were sought, which were supplied by the petitioner-assessee. It was only in September, 2018 that the impugned communication was issued to the petitioner/assessee. Also on the date when the petitioner/assessee had filed the subject application physically, the prescribed form i.e., Form 10 A, was not available in electronic mode. The petitioner/assessee, in any case, till that date could not have taken recourse to electronic mode. Thus, for the foregoing reasons, we are inclined to allow the writ petition.

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• 2023 (9) TMI 842
  Reopening of assessment - Reason to believe - recorded in the reasons to believe i.e., that ROI had not been filed by the petitioner - reasons to believe recorded by the AO have strangely also received the approval of the superior i.e., the Principal Commissioner of Income Tax (PCIT) - HELD THAT:- As a matter of fact, because the AO proceeded on a factually erroneous ground, he also took recourse to CBDT Instruction No. 14/2013, dated 23.09.2013, which framed the Standard Operation Procedure (SOP) in the cases concerning non-filers i.e., those assesses who have not filed returns. Furthermore, we find that in the ROI, the petitioner has disclosed, not only the investments made, but also the amount earned as interest. The amount which the assessee has disclosed by way of Investment is Rs. 10,74,800/-. Likewise, insofar as the interest is concerned, the amount disclosed in the ROI is Rs. 1,23,857/-. The gross receipts noted in the ROI is the figure that is noted in the reasons to believe, which is shown as Rs. 2,93,11,115/-. Therefore, the petitioner was entitled to contend that, not only the contractual receipts were disclosed, but also the investment in debentures/bonds amounting to Rs. 5 lakhs and the interest earned, also formed part of its ROI. Thus the reasons to believe are the foundation on the basis of which the reassessment proceedings can be triggered against any assessee. Once the foundation is removed, the entire edifice would axiomatically collapse. In this case,the foundation was completely absent. The AO s reason to reopen the assessment proceedings was founded on an erroneous fact, which was that the petitioner had possibly not filed its ROI. The record has shown the contrary. Therefore, the reassessment proceedings will crumble. WP allowed.

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• 2023 (9) TMI 841
  Reopening of assessment - under-declaration of the investment made - Block assessment appeal was disposed of in favour of respondent/assessee on the ground that no incriminating material was found in the search and seizure action concerning the unexplained investment in the subject property - Whether merely because certain issues and additions were considered during the block assessment proceedings, which were deleted by the appellate authority on technical grounds, the same, could not form the basis for triggering reassessment proceedings? - HELD THAT:- Tribunal has, rightly, sustained the view of the CIT(A). A perusal of the proposed question of law would show that the appellant/revenue has instituted these appeals to agitate that aspect of the matter which relates to the validity of triggering reassessment proceedings, because some of the issues and additions involved were common to the block assessment proceedings as well as the reassessment proceedings. Thus, according to us, on merits, the impugned order needs no interference. The appeals are accordingly closed, with the caveat that the question of law raised by the appellant/revenue is left open.

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• 2023 (9) TMI 840
  Income deemed to accrue or arise in India - Royalty receipt - consideration received by assessee, i.e., a company incorporated and based in Israel - scope of India-Israel DTAA - Tribunal has taken the view that there was no transfer of copyright in the off the shelf sale software; the consideration received thereby could not be construed as royalty and hence was not taxable - HELD THAT:- As a matter of fact, the assertions made in the appeal seem to clearly indicate that even the appellant/revenue accepted that what was sold by the respondent/assessee was off the shelf software. Appellant also attempted to draw our attention to the agreement entered into by the respondent/assessee with Wipro Ltd.It is required to be noted this agreement has not been placed before us. In ground B, there is a short extract of the agreement has been set forth which adverts to the fact that the respondent/assessee also extends services in the nature of training to the employees of Wipro Ltd., at their own facility, which is presumably located in Israel or through virtual mode. These are the aspects, which, even according to Appellant were not raised before the statutory authorities and hence they had no occasion to discuss them. According to us, the Tribunal was right in concluding, that the consideration received by the respondent/assessee, did not constitute royalty in consonance with the principle enunciated by the Supreme Court in Engineering Analysis [ 2021 (3) TMI 138 - SUPREME COURT]

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• 2023 (9) TMI 839
  Condonation of delay u/s 119(2)(b) in filing Form- 10-IC read with Section 115BAA - application for stay of demand - HELD THAT:- This writ petition is disposed of by directing the Chairman, CBDT, to consider and dispose of the aforesaid application of the petitioner dated 6th December, 2022, in accordance with law and by passing a reasoned and speaking order after giving an opportunity of hearing to the petitioner or its authorised representatives, within a period of six weeks from the date of communication of this order. AO concerned/respondent no.1 is directed to consider and dispose of the application of the petitioner dated 6th December, 2022, for stay of demand in question by passing a reasoned and speaking order in accordance with law after giving an opportunity of hearing to the petitioner or its authorised representatives, within a period of eight weeks from the date of communication of this order.

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• 2023 (9) TMI 838
  Validity of draft assessment order passed u/s 143(3) r.w.s. 144 r.w.s. 144C(1) - reference to DRP - whether the DRP is right in dismissing the objection filed by the assessee which is beyond the period of 30 days as provided u/s.144C(2)(b)(ii)? - HELD THAT:- As delayed filing of objections gives rise to the same consequence as of non-filing of the objections. This is because objection filed after 30 days, which is beyond statutory limit, is as good as no Application filed by the assessee. Assessee did not satisfy the conditions as stipulated in sub-section 2(b)(ii) of Section 144C. When there is no objection petition filed by the assessee against the draft assessment order, the AO is required to pass, within further time period of 30 days, a final assessment order under sub-section (4) of section 144C. Here in this case, the final assessment order was passed by the AO on 19.12.2017 and served the same to the assessee on 21.12.2017. Therefore assessee has an option to challenge the final assessment order before the CIT(A) in accordance with law. Therefore no merits in the grounds raised by the assessee. The present appeal filed by the assessee is devoid of merits and against the provisions of section 144C (2)(b)(ii). Therefore the appeal filed by the Assessee is hereby dismissed.

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• 2023 (9) TMI 837
  Addition on account of undervaluation of stock - since freight expenses have separately been debited to the profit and loss account, but not included in the valuation of closing stock, the assessee has undervalued its closing stock - HELD THAT:- Any adjustment in the closing stock requires simultaneous adjustment in the subsequent opening stock. Thus, the entire exercise becomes tax neutral. Having said that, we find that the assessee has been consistently following the same method of valuation of closing stock, which has been accepted by the revenue in the earlier assessment years. We find no reason for deviating from the same. The assessee has never included freight charges while valuing its closing stock. Therefore, we do not find any reason for doing the same during the year under consideration. The findings of the ld. CIT(A) are set aside and the AO is directed to delete the addition - Thus, ground is allowed. Addition on account of subsidy - AO held that the aforesaid capital subsidy ought to have been reduced to from the actual cost of fixed asset in terms of Explanation 10 to section 43(1) and with this belief, AO computed the excess depreciation by reducing the actual cost by capital subsidy in the F.Y 1998 99 and adjusted in the WDV of each A.Y till the A.Y under consideration - HELD THAT:- It is strange to find that the Assessing Officer has taken such a view for the year under consideration. Though the Assessing Officer has revisited the WDV of the A.Y after 1999 2000, till the A.Y under consideration, yet, he chose not to take any action for any A.Y. earlier to the present A.Y. There is no dispute that subsidy was sanctioned for promoting of growth in industry in the State of Punjab under the policy in new unit which has come into commercial production on 01.10.1992, shall be eligible to claim incentive computed on the basis of Fixed Capital Incentive made by such a unit in land, building and plant and machinery. The quantum of incentive so receivable was dependent on the value of fixed capital investment made in the specified area(s) of the state. The said incentive was taken to the capital reserve account and was claimed as non-taxable in the return of income for assessment year 1999-00, treating the same as capital receipt. The same was accepted by the AO. However, during the year, AO has taken a position that since it has been given a part of capital investment, cost of assets needs to be reduced as per Explanation 10 to section 43(1) of the Act. We are of the considered view that the said section is not applicable on the facts of the case in hand in as much as the subsidy has not been granted for meeting cost of any asset but for larger public interest of industrial development of the State of Punjab. As decided in P.J. Chemicals Ltd. [ 1994 (9) TMI 1 - SUPREME COURT] Government subsidy, it is not unreasonable to say, is an incentive not for the specific purpose of meeting a portion of the cost of the assets, though quantified as or geared to a percentage of such cost. If that be so, it does not partake of the character of a payment intended either directly or indirectly to meet the actual cost . It would not be out of place to mention that even if the action of the Assessing Officer has to be accepted, then the same should have been taken in A.Y 1999-2000. However, we find that no action has been taken from A.Y 1999-2000 to A.Y 2006-07. Therefore, there being no change in the facts, it would be incorrect to take a different stand after a gap of 10 years - Decided in favour of assessee.

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• 2023 (9) TMI 836
  Denial of registration u/s 12A - activities are charitable in nature or not? - CIT(E) observed that they are indulging only in leisure and pleasure activities which is the privilege of only few sections of the society and is not available for the welfare of the general public at large - HELD THAT:- We find that the ld. CIT(E) however conceded to the fact that this society is formed by a group of specified individuals who had pooled their funds into the society which were then utilized for the benefit of the members of the society. This act of the members of the society is not charitable in nature according to ld. CIT(E). To buttress this finding, it would be relevant to address the relevant objects as reproduced supra again. We find that clause (m) of the objects of the assessee society provides that all the income, earnings, movable, immovable properties of the association shall solely be utilized and applied towards promotion of its aims and objects only as set forth in memorandum of association and no profit or part of their shall be paid or transferred directly or indirectly by way of dividend, bonus, profits or in any manner whatsoever to the present or past members of the association. No member shall have any personal claim or any movable or immovable properties of the association or make any profits whatsoever by virtue of his membership. We also find that the memorandum of association and its rules and regulations contained a clause on dissolution wherein it is provided that the dissolution of the association and disposal of the property on dissolution will be done in accordance with provisions of section 13 and 14 of the Societies Registration Act, 1860. As per the bye laws of the assessee society, the membership is open to all state government officers, officers of All India Services serving in Uttarakhand and officers of central government serving and residing in Uttarakhand. Hence we hold that the ld. CIT(E) is wrong in stating that the assessee society is meant only for the purposes to cater to the needs of particular section of the society. We are not for a moment trying to state that since the assessee society had not made any surplus and hence there is no profit motive at all. What is required to be seen for a charitable trust or a charitable society is that even in the event of earning profits or surplus, such profits or surplus remain with the society itself and again ploughed back into the coffers of the society for furtherance of its charitable objects. As long as the profits or surplus are not distributed to the private individuals of the assessee society either directly or indirectly in any manner whatsoever for malafide purposes, there is no harm in any charitable society earning profits / surplus. We hold that the assessee society objects are charitable in nature and would be entitled for registration u/s 12AA. Appeal of the assessee is allowed.

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• 2023 (9) TMI 835
  Reopening of assessment u/s 147 - Interest free advance given to sister concerns - reassessment proceedings initiated on the basis of audit objection - proof of commercial expediency proved or not? - AO noted that assessee is paying interest @ 12.75% whereas no interest has been charged from the sister concern - HELD THAT:- We find in the case of Indian and Eastern Newspaper [ 1979 (8) TMI 1 - SUPREME COURT] has held that the opinion of internal audit party of the Income Tax Department on a point of law cannot be regarded as information within the meaning of section 147(b) - We find in the case of GMR Holdings Pvt. Limited [ 2018 (9) TMI 353 - HIGH COURT OF KARNATAKA AT BANGLORE] while deciding an identical issue has held that re-assessment proceedings u/s 147/148 of the Act cannot be undertaken on a mere change of opinion or audit objection raised by the internal auditors of the Department. Similar view has been taken by the Mumbai Bench of the Tribunal in the case of Lionbridge Technologies Pvt. Limited [ 2020 (6) TMI 314 - ITAT MUMBAI] - The various other decisions relied upon by assessee also support his case to the proposition that re-assessment proceedings cannot be initiated on the basis of audit objections. We hold that the reassessment proceedings initiated on the basis of audit objection are not valid in law and accordingly, the re-assessment proceedings are quashed. Since we quash the re-assessment proceedings initiated by the AO on the basis of the audit objections, therefore, the grounds raised by the Revenue challenging the deletion on merit become academic in nature and therefore, are not being adjudicated. Decided against revenue.

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• 2023 (9) TMI 834
  Deduction u/s 80-IB - whether the unit of Guwahati was new unit or was a result of splitting up of any other unit ? - HELD THAT:- Turnover of Baddi and Guwahati units are increasing and there is no transfer of old machinery of Guwahati unit. Both the units are manufacturing different products and, therefore, their growth profits are not comparable. The cost of production of Guwahati unit is lower as compared to Baddi unit for certain verifiable reasons. AO had observed that books of account were not produced. Material on record shows that books of account were produced before the AO and without any justification books of a/c were rejected. Thus, there is no error in the findings of learned CIT(A). Ground is decided against the Revenue. Application of gross profit rate of Guwahati unit to Baddi unit - HELD THAT:- A perusal of finding of learned CIT(A) shows that he mentions that he has himself verified the accounts and accordingly observed that there was error on the part of learned AO in rejecting the books of a/c without stating as to how and in what manner provisions of Section 145(3) were applicable. Thus, the application of gross profit rate of Guwahati unit to Baddi unit was rightly deleted by CIT(A) and the same requires no interference. The ground is decided against the Revenue. Disallowance u/s 40A(2)(a) - HELD THAT:- CIT(A) has duly examined the facts which establish that there was no payments of excessive nature calling for disallowance u/s 40A(2)(a) - Apparently in the absence of any concrete evidences and evaluating the fair marketing value of the goods and services by learned AO, the ad hoc additions were made which have been deleted by the CIT(A) and the same require no interference. The ground is decided against the Revenue. Disallowance of various expenses - HELD THAT:- CIT(A) has duly examined the facts which establish that there was no payments of excessive nature calling for disallowance u/s 40A(2)(a) - Apparently in the absence of any concrete evidences and evaluating the fair marketing value of the goods and services by AO, the ad hoc additions were made which have been deleted by the CIT(A) and the same require no interference. The ground is decided against the Revenue. Disallowance of non-business expenses - HELD THAT:- As observed that nature of business of the assessee requires extensive research and development and the Ld. AO, without pointing out any discrepancy in the expenses incurred has disallowed the expenditure. It can also be appreciated that no deduction is claimed by assessee on these expenses incurred and without examining the business expediency the disallowance was made. The findings of learned CIT(A) require no interference. Ground is decided against the Revenue. Unexplained loans - HELD THAT:- As considered all the evidences of assessee, including details of the advances recoverable in cash, to conclude that loans were raised for specific purpose and are secured loans. None of the advances is of the nature which is not related to business of the appellant or is given to any of his sister concern. Learned CIT(A) appreciated that it is no where stated by the Ld. AO as to which part of the loan was not used by the appellant for business purpose. Moreover, the findings of Tribunal in assessee s own case that the appellant s own fund are much more than the loan raised by the appellant, was also relied by learned CIT(A) to make the deletion and the same requires no interference. The ground is decided against the Revenue. Disallowance of 50% of the expenses incurred on promotion of Ozone Mission by concluding that assessee had purchased sales promotion material such as candles, incense sticks (Agarbatti) etc. from Ozone Mission, which is a trust, to promote products of the Trust rather than promoting its own product - Assessee had explained that the assessee does not get any benefit by making over payment to any entity as entire profit of the unit is exempt u/s 80-IB - HELD THAT:- The Bench is of the considered view that the materials purchased by the assessee from Ozone Mission were having specific designs and logo which were not available in the open market. Thus justification of making the purchases has been duly considered by learned CIT(A). Learned AO does not dispute 50% of the expenses on promotion on the basis of being relevant to the business of assessee thus denying remaining 50% for the reason it also benefited Ozone Mission, which was supplying the promotional material is arbitrary. The finding of learned CIT(A) requires no interference. Disallowance being the balances outstanding of sundry creditors - HELD THAT:- AO has questioned the existence and genuineness of the parties on the basis that there were no transactions during the year. The Bench is of the considered view that merely because creditors are stable for three years is no reason to make the addition, as the question of remission of liability has not been examined. The fact that there were opening balances itself justifies the existence and genuineness of the parties. Without any evidence that these parties are not business creditors or that parties had denied the transactions, the ground raised by the Revenue has no substance. Addition by disallowing 50% of the depreciation claimed by the assessee on the motor vehicles - HELD THAT:- AO has observed that use of vehicles wholly and exclusively for the purpose of business has not been established to deny the depreciation, without being thoughtful, that the same may be a ground to deny the expenses for maintenance or petrol expenditure but as long the asset stands in the name of company depreciation, has to be allowed. Even if there was doubt with regard to use of the vehicle for personal purpose that also does not affect the claim of depreciation. Learned CIT(A) has duly dealt with the issue and the same requires no interference.

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• 2023 (9) TMI 833
  Addition u/s 40A - amount paid in cash for purchase of meat - HELD THAT:- In the present case the assessee could not establish that the purchase were made through agent. CIT(A) before upholding the disallowance noted from the relevant fact that the cash purchase made from 54 individuals were in respect of purchase of frozen meat being a produce of raw meat that is processed for long term storage, was to be produced by meat processing undertakings having plant and machinery for converting raw meat into frozen meat. Thus, we are in agreement to the conclusion drawn by the ld CIT(A) that frozen meat could be purchased only from the meat processing units and therefore, the said suppliers, who are claimed to be illiterate villages with no bank accounts, cannot be held as cultivators or producer of frozen meat. Therefore, the explanation of assessee being devoid of merits and far away truthful factual positions was rightly discussed by the ld AO CIT(A). Hence, the payment of assessee made in cash in violation of section 40A(3) of the Act is not eligible for benefit of exceptions envisages under Rules 6DD(f). Appeal of the assessee is dismissed.

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• 2023 (9) TMI 832
  Levying penalty u/s.271(1)(c) - defective notice u/s 274 - sale of shares as voluntarily offered for taxation by the assessee during the course of assessment proceedings - non striking of irrelevant portion on notice - HELD THAT:- As recording of satisfaction by AO in relation to any concealment of income or furnishing of inaccurate particulars by the assessee in notice issued u/s 271(1)(c) is the sine qua non for initiation of such proceedings. Further, we find that the ITAT, Pune in Ashok Sahahakari Sakhar Karkhana Ltd. [ 2017 (11) TMI 1048 - ITAT PUNE] had held that where in a notice issued u/s 274 of the Act the AO had used conjunction or to mention both limbs, i.e, concealment of income or furnishing inaccurate particulars of income and charge for levy of penalty was not explicitly clear from notice, then, the same was to be held as bad in law and penalty was liable to be set-aside. As the A.O had clearly failed to discharge his statutory obligation of fairly putting the assessee to notice as regards the defaults for which it was being proceeded against, therefore, the penalty under Sec. 271(1)(c) imposed by him being in clear violation of the mandate of Sec. 274(1) of the Act cannot be sustained - Decided in favour of assessee.

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• 2023 (9) TMI 831
  Revision u/s 263 - source of cash deposited in the Bank account - undisclosed interest on savings/deposits - appellant s case was reopened after recording reasons and obtaining necessary approval from PCIT that the assessee had deposited cash in her savings bank account maintained with the Oriental Bank of Commerce during the financial year 2010-11 and that no return had been filed for the year under consideration u/s 139(1) - HELD THAT:- In the present case, all the facts have been independently verified by the Ld. AO. Thus, there appears to be merely a change of the opinion of the Ld. Pr. CIT in observing that there was incorrect application of mind by the AO by not carrying proper enquiry in the case of the assessee, and thus, a Show-Cause Notice was issued u/s. 263 to the assessee on account of difference of opinion is bad in law. There is a direct nexus between the transaction of sale and the cash deposited in the bank account of the assessee as the transaction of sale of land is registered on 26.04.2010 and the cash was also deposited by the assessee on the same date. AO has accepted the deal of sale of agriculture land with a conscious and independent application of mind. Under the facts and circumstances, we hold that the application of provision of section 263 of the Act, on account of difference in opinion of Pr. CIT is invalid and unwarranted. The impugned order u/s. 263 of the Act is quashed. Decided in favour of assessee.

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• 2023 (9) TMI 830
  Penalty levied u/s 271(1)(c) - deduction u/s 10A - HELD THAT:- Disallowance of claim made u/s 10A of the Act has been made on account of non-filing of mandatory Audit Report in Form 56F of the Act and also for claiming deduction u/s 10A before set-off of brought forward losses/unabsorbed depreciation. It is a case of rejection of a claim on technical reasons and also on account of difference of opinion between the assessee and the AO on the methodology of computation of deduction. None of the particulars given in the financial statements were found to be inaccurate. Hence, these facts would not lead to a case of furnishing of inaccurate particulars of income. This deduction has not been claimed by the assessee as an expenditure in the Profit Loss Account, but has been claimed only in computation of total income. Since this deduction is allowed as an incentive to promote exports, in the case of ACIT vs BSL Software Ltd.,[ 2012 (4) TMI 360 - ITAT DELHI] has held that where claim for deduction was made u/s 10A on the basis of certificate of Accountant which was bona fide and the required facts relating thereto were furnished, then assessee could not be held to be liable for penalty. Accordingly, we are of the view that the AO was not justified in levying penalty u/s 271(1)(c) of the Act on the disallowance of claim of deduction u/s 10A of the Act. Disallowance made u/s 40(a)(ia) - Upon examination of the various expenses claimed by the assessee, the Assessing Officer noticed that assessee is liable to deduct tax at source on the payments made towards Audit fee, Professional fee, Consultancy charges and Software development charges aggregating - Accordingly, the Assessing Officer disallowed a sum u/s 40(a)(ia) for non-deduction of tax at source. AO also levied penalty under Section 271(1)(c) for furnishing inaccurate particulars of income. This is also a case where the disallowance is required to be made in view of legal fiction provided in Section 40(a)(ia) of the Act, i.e. when the assessee has failed to deduct tax at source on certain payment, the relevant expenditure is liable to be disallowed. Hence, the statutory disallowance made as per the legal fiction inserted in the Act would not result in furnishing of inaccurate particulars of income. In this regard from the decision rendered by co-ordinate bench of the Tribunal in the case of Tanushree Basu [ 2013 (5) TMI 881 - ITAT MUMBAI] Accordingly, we hold that the AO was not justified in levying penalty on this disallowance. Penalty levied relates to disallowance of expenditure claimed by assessee holding the same as capital expenditure - AO noticed that the assessee has incurred for increasing its Share Capital and claimed same as Revenue expenditure . AO treated the same as Capital expenditure by placing reliance on the judgment rendered in the case of Brooke Bond India Ltd. [ 1997 (2) TMI 11 - SUPREME COURT] and levied penalty under Section 271(1)(c) for furnishing inaccurate particulars of income. We heard the parties on this issue and perused the record. In our view, it is a case where assessee has made a claim and same has been disallowed as, according to the AO the said expenditure is capital in nature. First of all, the decision taken by the AO is a debatable one and hence no penalty could be levied on such a debatable issue. In the case of CIT vs Reliance Petroproducts (P.) Ltd., [ 2010 (3) TMI 80 - SUPREME COURT] has held that mere making of a claim which is not sustainable in law by itself will not amount to furnishing of inaccurate particulars of income. Accordingly, we are of the view that the Assessing Officer was not justified in levying penalty on this disallowance also. We are of the view that penalty u/s 271(1)(c) of the Act cannot be levied on all the three disallowances made by the AO. Accordingly, we set-aside the order passed by the CIT(A) and direct the AO to delete the penalty levied u/s 271(1)(c) of the Act for the year under consideration.

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• 2023 (9) TMI 829
  Revision u/s 263 - Assessee had deposited the cash out of cash sales of fish trading - As per CIT AO has not properly examined and simply estimated the profit at 0.75% without any basis - HELD THAT:- AO issued notices and in response to the said show cause notice, he explained that since the fish is highly perishable commodity, it has to be marketed as quickly as possible and that the commission changes from person to person depending upon the bargain and therefore requested to accept the commission admitted in the return filed taking into account the expenses to be incurred in deriving the commission. Based on these findings, the AO estimated the net profit at 0.75% of gross receipts. After perusal of the assessment order, the assessing officer himself admitted that the assessee has not furnished any books of accounts, proof of evidence in the form of bills /vouchers for total quantity of fish sold to the traders through mediation during the year to ascertain actual quantity of fish sold and also price per kg. and commission derived etc. Therefore, in the absence of such bills, the AO has estimated the profit @0.75%, but he has not verified the sources for cash deposits. Therefore, we are of the view that the Ld.Pr.CIT has rightly set aside the order passed by the AO, saying that it is erroneous and prejudicial to the interest of the revenue. Therefore, we uphold the order passed by the Ld. Pr. CIT u/s 263, hence, the grounds raised by the assessee are dismissed.

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• 2023 (9) TMI 828
  Deduction u/s 80P(2)(a) - interest income by the assessee from its funds parked with nationalized and commercial banks - HELD THAT:- As deposit of funds by the assessee society with the nationalized/commercial banks, earning interest thereon with total cost of investment shows that the investment made by the assessee society was in compliance to the mandatory provisions of Maharashtra Co-operative Society Act thus integral part of its business and profession. When the assessee is wholly and exclusively doing its business for its members, the earning of interest on FDs with the banks is incidental to the assessee society s business of accepting the deposit and provision of credit facilities from/to its members. Hence, the interest income has rightly been treated as business income by the assessee society and assessed to tax under the head profit and gains of business . We are of the further view that in the present scenario parking of funds with nationalized and commercial banks is safe and easy for ease of business of the assessee society because many of co-operative banks have crumbled during the last many years. We are of the considered view that the CIT(A) has erred in disallowing the deduction claimed by the assessee society u/s 80P(2)(a)(i) and consequently we direct the AO to allow the deduction claimed by the assessee society.

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• Customs

• 2023 (9) TMI 827
  Classification and rate of duty payable - whether for deciding the classification and rate of duty payable, the Fe %age of Iron Ore Fines is to be determined on Dry Metric Ton (DMT) basis or Wet Metric Ton (WMT) basis? - HELD THAT:- The issue stands decided as early as 1997 by Hon ble Supreme Court in the case of UNION OF INDIA VERSUS GANGADHAR NARSINGDAS AGGARWAL [ 1995 (8) TMI 73 - SUPREME COURT ] and subsequent CBEC Circular No. 4/2012- Cus dated 17.12.2012 which was issued for adoption of uniform Customs procedure in all Customs Houses. In the said Circular, it was stipulated that for the purpose of charging of export duty the assessment of Iron ore, determination of Fe contents is required to be made on Wet Metric Ton (WMT) basis which in other words mean deducting the weight of all impurities (inclusive of moisture) out of the total weight/Gross Weight to arrive at Net Fe contents. While finalizing the assessment of subject S/B, the assessing officers have overlooked the most important aspect of assessment, namely, determination of Fe content for the purpose of classification/rate of duty applicable - This method of determining Fe content in WMT is elaborately by discussed by Hon ble High Court of Bombay in case of V M Salgaokar Brothers [ 2022 (9) TMI 1306 - BOMBAY HIGH COURT] . The Court mentions that it is universally recognised and followed for determination of Iron content in natural iron fines. The assessing officers directed to determine Fe content on WMT basis by deducting the moisture given in the test reports of NABL accredited government approved Private Laboratory - it is directed to convert the %age of Fe on DMT basis to %age of Fe on WMT basis by applying the universally recognised formula for determination of classification of IOF exported - it is directed to finalise the assessments accordingly. The impugned orders are set aside - Appeal allowed.

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• 2023 (9) TMI 826
  Re-determination of classification of imported goods - DB 49-213270-000F 15 DC LCD display - Diebold AUO Q150*Go3 V2 5621,USA - to be classified under tariff item 8473 50 00 of First Schedule to Customs Tariff Act, 1975 or 8528 5900 of First Schedule to Customs Tariff Act, 1975?. The appellant claims that the goods find use in more than one equipment and, owing to such adaptability, fits within the generality of the claimed classification. Revenue relies upon the specificity of monitors in heading 8528 of First Schedule to Customs Tariff Act, 1975 to justify overwhelming precedence over the claimed heading. HELD THAT:- The impugned order has discarded the validity of section notes which is relevant only when rule 3(3) of General Rules for Interpretation of the Tariff is brought to bear on a classification dispute. In the light of the claim of the appellant on the classification approved by the Hon ble Supreme Court in re Secure Meters Ltd [ 2015 (5) TMI 241 - SUPREME COURT] , qualification of the substituted classification to be at par with claimed classification, and amenable to choice by recourse to rule 3(3) of General Rules for Interpretation of the Tariff is questionable. There are too many gaps, despite the abundance of material in the order of lower authorities, that has grown beyond the brief proposal in the show cause notice to enable determination at the second appellate level that the impugned goods would be covered by description corresponding to a particular heading, sub-heading and tariff item. The importer proposed one in accordance with their lights and to their benefit. The adjudicating authority who is expected to independently justify the proposed heading has not adhered to that responsibility. That requires rectification. The show cause notice restored before the original authority to render a fresh decision that would be in conformity with the decisions of the Hon ble Supreme Court on the adversarial engagement in classification disputes and on the distinction, if any, between LCD and monitor to justify the appropriateness of the proposed classification. Appeal is, thus, allowed by way of remand.

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• 2023 (9) TMI 825
  Valuation of goods for the purpose of assessment of Customs Duty - inclusion of royalty and lumpsum fees in the assessable value of imports effected from a related person - calculation of invoice value - HELD THAT:- It is noticed that the order of acceptance of invoice value as reliable enough guide to the proper officer for assessing future imports under section 17 of the Customs Act, 1962 was disputed by reviewing authority. By setting aside that order, the first appellate authority has effectively exercised power of assessment and has confined the proper officer to such assessment on goods that were yet to be imported. On a query, Learned Counsel admitted that the proceedings which culminated in the impugned order had been initiated without a show cause notice; apparently, the prevailing practice is for all transactions between related persons to be subjected to such scrutiny, evaluation and direction to assessing authority. Thus, it is the appeal before the lower authority that took on the appearances of show cause notice. The internal procedures for providing expert consultation to the statutorily empowered assessing officers, even if of long standing existence, do not vest the institution, established by executive fiat for such purpose, with the same statutory empowerment; notwithstanding, the arrogation of direction, one way or the other, by the Deputy Commissioner, Special Valuation Branch (SVB), its recommendatory character cannot be elevated to that of an order in the absence of statutory support - Customs Act, 1962 is concerned with levy of duty, as well as the enforcement of prohibitions, under law, on import/export goods. Other consequences such as differential duty, refund, drawback, fines and penalties may arise but only in consequence. The possible detriment that may arise on a future date is not a grievance that should be entertained unless and until it does translate as one upon occurrence of import or export of goods. The proceedings under section 18 of Customs Act, 1962 not interfered except if terms of such assessment is a cause of grievance. Even so, no incidence of provisional assessment is impugned. Chapter XV of Customs Act, 1962 contains the design and hierarchy of appeals and that entrusted with Commissioner of Customs (Appeals) is one of the sources of appellate jurisdiction of the Tribunal. The same hesitancy that informs our jurisdictional dilemma attaches also to the first appellate authority - The first appellate authority should have dealt with the appeal, at the behest of jurisdictional Commissioner of Customs, within such circumscribing and passed such order as is legal and proper for disposal of appeal. Notwithstanding the lack of appellate recourse, that the jurisdictional Commissioner of Customs opted for review does not fall within empowerment, or that of Commissioner of Customs (Appeals), to prevent; but it is certainly within empowerment to render appropriate disposal in terms of our exposition on the true nature of Special Valuation Branch (SVB). The appeal preferred is restored at the instance of the jurisdictional Commissioner of Customs before the first appellate authority for a fresh disposal - appeal allowed by way of remand.

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• 2023 (9) TMI 824
  Valuation of imported old and used worn clothing - restricted item or not - enhancement of value - confiscation - redemption fine - penalty - HELD THAT:- This issue came up before this Tribunal in the case of Venus Traders Vs. Commissioner of Customs (Import), Mumbai reported in [ 2018 (11) TMI 625 - CESTAT MUMBAI] , wherein this Tribunal has observed The failure of the original authority to comply with the direction in remand to disclose the margin of profit that prompted the fine and penalty, the matter would normally have to be remitted back by another remand order. However, the paucity of evidence and the negligible scope for ascertainment at this stage deters us from doing so. Thus, the redemption fine and penalty imposed on the respondents by the adjudicating authority is sufficient to meet the end of justice. Therefore, the redemption fine and penalty confirmed by the adjudicating authority are upheld - impugned order upheld. Appeal filed by Revenue dismissed.

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• Corporate Laws

• 2023 (9) TMI 823
  Professional Misconduct - Failure to report non-recognition of Interest Cost on Borrowings classified as Non-Performing Assets (NPAs) - Failure to report effect of Income Tax order in the Financial Statements of the company - Non-assessment of going concern assumption - Non-evaluation/ verification of Property, Plant and Equipment (PPE) - Non-assessment of risk of material misstatement in balances of Trade Receivables - Non-appointment of Engagement Quality Control Reviewer (EQCR) - Non-planning of Audit - penalty and sanctions. Failure to report non-recognition of Interest Cost on Borrowings classified as Non-Performing Assets (NPAs) - HELD THAT:- In the Independent Auditor s Report on the financial statements of BCL for the FY 2017-18, the previous auditor had issued a qualified opinion on the basis, among others, of non-recognition of interest cost on the borrowings classified as NPAs. The Auditors, in complete disregard of the previous audit opinion, certified the true and fair view of the accounts, while the BCL continued to adopt the same policy on the basis of which the accounts for FY 2017-18 had been qualified by the previous auditor. The flawed accounting treatment by BCL resulted in understatement of liability and reported loss for the FY 2018-19 by t 15 .66 crores. The Auditors were required to report this material misstatement in their audit report, which they failed to do. Therefore, the charge against the Auditors of failing to report nonrecognition of interest cost on borrowings is established. Failure to report effect of Income Tax order in the Financial Statements of the company - HELD THAT:- The Auditors were aware about the ITAO and, therefore, they were required to ensure that its impact was reflected as a provision for the liability or as disclosure of the contingent liability, which they failed to do. Accordingly, the Auditors responsible for the charge pertaining to their failure to report non-recognition of provision for liability or failure to report non-disclosure of contingent liability on account of additional income tax. Non-assessment of going concern assumption - HELD THAT:- The Auditors incorporated an Emphasis of Matter on the going concern basis, however, we did not find any working paper in support of inclusion of such EoM. According to SA 706, an EoM can be included by an auditor if he has obtained sufficient appropriate audit evidence that the matter is not materially misstated in the financial statements. Therefore, it was incumbent on the Auditors to evaluate the matter accordingly, especially in view of the qualified opinion given by the previous auditor and several other factors (as mentioned in Para 29 above), that raised a question mark on the going concern assumption. The Auditors, based on their own independent evaluation, were required to determine if they needed to modify their opinion - the Auditors failed to do this and issued an unmodified opinion - Respondents did not have a reasonable basis for making these statements and issuing their audit report . For misconduct including this and others, PCAOB censured the firm by revoking its registration and imposed a civil monetary penalty of $ 10000 on the firm. Bravos was barred from being an associated person of a registered public accounting firm. Non-evaluation/ verification of Property, Plant and Equipment (PPE) - HELD THAT:- The internal audit report was a part of the audit file and therefore, as per Para 11 of SA 500 23 , any inconsistency in the findings of the internal audit report vis-a-vis the findings of the Auditors had to be resolved and the Auditors had to determine what modifications or additions to audit procedures were necessary to resolve the matter, and had to consider the effect of the matter, if any, on other aspects of the audit. However, we did not find any working paper that conclusively records that physical verification of PPE was carried out by the management and concluding that the internal audit report was not reliable - It is observed that the conditions that prevailed during FY 2018-19 at BCL were of consistent losses, erosion of the net worth and default in the payment of loans taken from financial institutions. Such conditions qualify for the stipulations of Para 12(f) of lnd AS 36 and, therefore, the Auditors were duty bound to evaluate if there was need for impairment of assets; however, no evaluation was carried out by the Auditors in this regard. Therefore, the Auditors responsible for not ensuring the testing of impairment of PPE, and the resultant non-reporting of misstatement in the financial statements, as the PPE accounted for 84% of the total assets. Non-assessment of risk of material misstatement in balances of Trade Receivables - HELD THAT:- FY 2018-19 was the first audit year for the Auditors and accordingly, they were required to consider the most recent FS, i.e., of FY 2017-18 and the predecessor auditor s report thereon for information regarding opening balances - In the instant case, since the previous auditor had qualified the debtor balances, the Auditors in FY 2018-19 were required to perform additional audit procedures as required by SA 510 for evaluating the effect of debtors in the current year s FS. The audit file contains no such working - the Auditors failed in assessment of risk of material misstatement in balances of trade receivables. Non-appointment of Engagement Quality Control Reviewer (EQCR) - HELD THAT:- The respondent failed to cooperate with a Board investigation by submitting audit documentation to the Division that they knew to contain false declarations . For this misconduct, including others, PCAOB censured the Firm and revoked its registration permanently. Further, Douglas A. Labrozzi, CPA, the Engagement Partner, was barred from associating with any registered public accounting firm. Non-planning of audit - HELD THAT:- The Auditors stated that a detailed audit plan was prepared by CA Manjeet Kumar Verma, Managing Partner of the Firm, and implemented by the team; the Audit Plan was reportedly checked by CA Gaurav Vijay and Aayush Kejriwal; that both the audit team members had left the audit firm in July 2020, and some documents were left unreturned by CA Gaurav Vijay at that time. Such documents were enclosed by the auditor along with the reply to the SCN - The Auditors further submitted that all the requirements to check purchase, sales, bank accounts and stock etc. were fully met and there was no negligence in this regard; that they had reviewed the off-take agreement with Ultratech Cement Ltd. and that all the sales were made in accordance with off-take agreement; and that the audit papers were prepared regularly but a copy of the same had not been kept, since there was no requirement to keep and maintain every working paper. It is concluded that all the charges of professional misconduct in the SCN stand proved based on the evidence in the Audit File, the Audit Reports issued by the EP on behalf of the Firm, the submissions made by the Auditors and the Financial Statements of BCL for the FY 2018-19. Penalty and sanctions - HELD THAT:- Section 132(4) of the Companies Act, 2013 provides for penalties in a case where professional misconduct is proved. The seriousness with which proved cases of professional misconduct are viewed, is evident from the fact that a minimum punishment is laid down by the law - The substantial deficiencies in Audit, abdication of responsibility and inappropriate conclusions on the part of M/s K. Pandeya Co. (Audit Firm) and CA Manjeet Kumar Verma (EP) establish their professional misconduct. The Auditors chose to place blind reliance on the assertions of the management without applying professional skepticism to the assessment of impact of IT AO, accounting of interest cost on borrowings classified as NP As and assumption of Going Concern basis for the preparation of Financial Statements and failed in discharging their statutory duty to protect public interest by exercising professional skepticism and questioning the management s decisions leading to material misstatement in the Financial Statements. Considering the proved professional misconduct and keeping in mind the nature of violations, principles of proportionality and deterrence against future professional misconduct in exercise of powers under Section l32(4)(c) of the Companies Act, 2013, it is ordered that: i. Monetary penalty of Rupees Five Lakhs upon CA Manjeet Kumar; ii. CA Manjeet Kumar Verma is debarred for Five Years from being appointed as an auditor or internal auditor or from undertaking any audit in respect of financial statements or internal audit of the functions and activities of any company or body corporate.

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• 2023 (9) TMI 822
  Professional Misconduct - Failure to detect fraudulent diversion of funds and evergreening of loans through structured circular transactions of funds - Continuation of Audit engagement disregarding Independence requirements - Tampering of Audit File and related lapses (SA 230 Audit Documentations) - Lapse in audit of sale of Global Village Undertaking - Failure to report non compliances with section 134(1) of the Act - Failure to comply with SA 315 - Identifying and assessing the risk of material misstatement through understanding the entity and its environment , SA 330 Auditors response to assessed risk and SA 500 Audit Evidence - Failure to comply with SA 700 Forming an Opinion and Reporting on Financial Statements - penalty and sanctions. Failure to detect fraudulent diversion of funds of Rs 2,448.23 crores and evergreening of loans through structured circular transactions of funds - HELD THAT:- The Auditors were charged with non-Compliances with SA 550 (Related Parties) SA 505 (External Confirmations), as they failed to perform appropriate audit procedures to identify the risk of material misstatements associated with related party relationships and transactions. Further, the Auditors were charged with failure to obtain balance confirmations from related parties. The Auditors have denied the charge stating that they have disclaimed the Financial Statements of TDL as a whole. They stated that they had verified completeness of related party list; obtained management representation; mapped nature of relationships in first year of audit; tracked related party transactions (RPT); checked authorisation of RPT and reported the RPT outside the normal course of business in the audit report and obtained balance confirmations. They also attached copies of balance confirmations obtained from related parties. Having considered the reply, it is noted that the reply is not supported by the evidence in the Audit File except that the Auditors had verified the arithmetical accuracy of the related party transactions - In similar cases of diversion of funds and failures to perform audit procedures and exercise professional skepticism in related party transactions and internal control over financial reporting, PCAOB (Public Company Accounting Oversight Board- US Audit regulator) have penalised the auditors. Continuation of Audit engagement disregarding Independence requirements - HELD THAT:- The Auditors were charged with non-compliance with requirements relating to independence of auditors as per SQC 1, SA 200 and SA 220. Before proceeding with the charge , a look at these provisions would be relevant. SQC 1 establishes standards and provides guidance regarding a firm s system of quality control for audit. SQC 1 requires an Audit Firm to establish policies and procedures designed to provide it with reasonable assurance that the firm and its personnel are subject to independence requirements (including experts contracted by the firm and network firm personnel), and maintain such independence where required by the Code of Ethics. SA 200 requires an auditor to comply with relevant ethical requirements, including those pertaining to independence, relating to audit engagements of financial statements. SA 220 requires the Auditor to form a conclusion on compliance with independence requirements that apply to the audit engagement. Tampering of Audit File and related lapses - SA 230 Audit Documentations - HELD THAT:- Considering the provisions of the auditing standards and the affidavit filed by the Firm, the submission of the Auditors regarding the additional documents cannot be accepted and in light of the facts, circumstances and analysis above, we find these additional documents to be an afterthought to cover up the deficiencies in the Audit. Further, this also constitutes tampering of the Audit File. This is unbecoming behavior on the part of Professionals. Besides our Standards, the case laws quoted above show that internationally Regulators treat the integrity of the Audit file as sacrosanct and any kind of tampering is viewed seriously attracting significant sanctions - the Auditors have violated SQC 1, SA 200, SA 220 and SA 230. Lapse in audit of sale of Global Village Undertaking at a net consideration of Rs 721 crores - HELD THAT:- The Auditors were charged with failure to obtain and examine the valuation report of GVU. The transaction was arranged in such a fashion that the liabilities of Rs 1520.64 crores and assets of Rs 1051.25 crores were transferred to GVTPPL, which issued debentures of Rs 721 crores to TDL. Thereafter, the GVTPPL was taken over by the Sattva Group. Debentures worth Rs 286.72 crores were redeemed and debentures worth Rs 434.28 crores are held as investment in the balance sheet of TDL - There is no evidence in the Audit File that consent from the lenders was obtained before transfer of borrowings by TDL to GVTPPL. The Auditors did not verify whether TDL had complied with the requirement of lnd AS 109 before extinguishing financial liabilities. Failure to report non compliances with section 134(1) of the Act - HELD THAT:- As per section 134(1) of the Act, approval of the Financial Statements by the Board and its signing by the persons authorized by the Board are prerequisites before an auditor makes a report on such approved signed financial statements. Further, the reliance on the Doctrine of Indoor Management is misplaced as this Doctrine is applicable to third parties, not having access to the internal records of a company. The Auditors should have obtained a certified copy of the Board resolution approving the Financial Statements and authorizing the Directors to sign the Financial Statements and should have kept the same in the Audit File before its assembly. The Auditors did not do the same. Thus, the charge that the Auditors did not ensure compliance with section 134(1) of the Act by TDL, is proved. Failure to comply with SA 315, Identifying and assessing the risk of material misstatement through understanding the entity and its environment , SA 330 - Auditors response to assessed risk and SA 500, Audit Evidence - HELD THAT:- The risk assessment procedures are required to be performed every year by understanding the company and its environment. There is no evidence in the Audit File about performing any risk assessment procedure at planning stage of audit. No analysis of borrowings and loans/advances granted to related parties was done by the Auditors at planning stage to identify RoMM. Accordingly, we conclude that Auditors have failed to understand TDL and perform basic audit procedures for identification of RoMM, and thus violated SA 315, SA 330 and SA 500. Failure to comply with SA 700, Forming an Opinion and Reporting on Financial Statements - HELD THAT:- With respect to non-consideration of Disclaimer of Opinions given by the Auditors in case of GVIL and by their related Audit Firm M/s ASRMP Co. in case of TRRDPL, the Auditors stated that it was premature to disclaim the Financial Statements as far as advances given to GVIL and TRRDPL were concerned. The detailed analysis of the replies in support of each charge mentioned above has already been done at section C-I and found not satisfactory. We are of the view that such fraudulent transactions were required to be considered while drawing conclusions, which the Auditors failed to do. Accordingly, the Auditors were grossly negligent in drawing conclusions and forming audit opinion. We find that the Auditors did not comply with SA 700. Failure to comply with SA 260, Communication with Those Charged With Governance (TCWG) SA 265, Communicating deficiencies in Internal Control to Those Charged With Governance and Management - HELD THAT:- The communication with TCWG its documentation in Audit File is a mandatory requirement, to be complied with by the auditors, which they did not comply. Further, deficiencies in internal control with reference to diversion of funds to promoter owned entities and evergreening of loans through structured circulation of funds have already been proved. The Auditors have failed to communicate such deficiencies in internal control with TCWG. Accordingly, it is found that this charge is proved - Auditors were also charged with non-compliance with SA 210- Agreeing the terms of audit engagements. Having considered the reply, this charge is dropped. Penalty and Sanctions - HELD THAT:- Section 132(4) of the Companies Act, 2013 provides for penalties in a case where professional misconduct is proved. The seriousness with which proved cases of professional misconduct are viewed is evident from the fact that a minimum punishment is laid down by the law. Considering the proved professional misconduct and keeping in mind the nature of violations, principles of proportionality and deterrence against future professional misconduct, in exercise of powers under Section 132(4)(c) of the Companies Act, 2013, it is hereby ordered: a) Imposition of a monetary penalty of Rs One Crore upon M/s Sundaresha Associates. In addition, M/s Sundaresha Associates is debarred for a period of four years from being appointed as an auditor or internal auditor or from undertaking any audit in respect of financial statements or internal audit of the functions and activities of any company or body corporate. This debarment period will run concurrently along with debarment ordered by the Order no. NF-23/14/2022 dated 26.04.2023 in case of TDL for FY 2018-19 and Order no. NF-23/14/2022 dated 30.05.2023 in case of GVIL for FY 2019-20. b) Imposition of a monetary penalty of Rs Five Lakhs upon CA C. Ramesh. In addition, CA C. Ramesh is debarred for a period of five years from being appointed as an auditor or internal auditor or from undertaking any audit in respect of financial statements or internal audit of the functions and activities of any company or body corporate. This debarment period will run concurrently along with debarment ordered by the Order no. NF- 23/14/2022 dated 26.04.2023 in case of TDL for FY 2018-19 and Order no. NF-23/14/2022 dated 30.05.2023 in case of GVIL for FY 2019-20. c) Imposition of a monetary penalty of Rs Five Lakhs upon CA Chaitanya G. Deshpande. In addition, CA Chaitanya G. Deshpande is debarred for a period of five years from being appointed as an auditor or internal auditor or from undertaking any audit in respect of financial statements or internal audit of the functions and activities of any company or body corporate. This debarment period will run concurrently along with debarment ordered by the Order no. NF-23/14/2022 dated 30.05.2023 in case of GVIL for FY 2019-20 d) Proceedings initiated against CA Megha Sundaresha Andani are hereby dropped.

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• Insolvency & Bankruptcy

• 2023 (9) TMI 821
  Admission of application u/s 7 of the IBC after condoning the delay - time limitation - whether Respondent No.2 (SBI) would be entitled to the benefit of Section 18 of the Limitation Act and whether Section 5 of the Limitation Act thereof would also be applicable? - HELD THAT:- Section 3(1) of the Limitation Act creates bar for the institution of any suit, appeal, or application made after the prescribed period of limitation to be dismissed, even though limitation has not been set up as a defence - Section 5 of the Limitation Act provides for an extension for the prescribed period in certain cases where sufficient cause for not preferring the appeal or where the application could not be made within the prescribed time. Coming to the benefit available under Section 18 of the Limitation Act, the following sequence of events and the law thereon would be relevant. The State Bank of India declared the Corporate Debtor as an NPA on 28.06.2013. Therefore, the limitation period would be three years from the last date of the financial year previous to the declaration of NPA, which would be 31.03.2013, and would run up to 31.03.2016. If there were no further intervening circumstances or developments relating to acknowledgment, the contention raised by the appellant that the petition under Section 7 of IBC having been filed much beyond 31.03.2016, in 2020 to be specific on 22.01.2020, the petition would be clearly barred by limitation. Whether the debt acknowledged in the balance sheet of the financial year would end on 31st March, 2015 and whether the three OTS proposals would give a fresh life of limitation of three years from each of the respective dates? - HELD THAT:- The documents relating to acknowledgement claiming benefit of Section 18 were introduced at appellate stage, and such documents being balance sheets and settlement offers. It was held that the same could be accepted even at the appellate stage and a settlement offer akin to an OTS proposal would be an acknowledgment of debt for the purpose of Section 18 of Limitation Act. The only caveat was that such acknowledgments should be before the expiry of limitation prescribed under law - A balance sheet acknowledging debt is also a document relevant for calculating the limitation. This has already been held in case of Asset reconstruction Company India Ltd. [ 2021 (4) TMI 753 - SUPREME COURT] . Another argument raised by the counsel for the appellant was with respect to the genuineness of the OTS proposals giving several reasons to discard the same. All the said reasons will be tested in the proceedings before the Adjudicating Authority as and when raised by the Corporate Debtor or any other party having locus to raise such plea. Presently in this appeal the said issue cannot be taken up for two reasons: firstly, the Adjudicating Authority as well as NCLAT have accepted the explanation of Respondent No.2 for the delay caused in filing the Section 7 IBC petition to be satisfactory and have condoned the same. Secondly, in view of the first and second OTS proposals by the Corporate Debtor being not questioned by the suspended Directors, there is no reason to disbelieve or to cast any doubt on the said documents at the instance of the appellant. There are no merit in the appeal. The same is accordingly dismissed.

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• 2023 (9) TMI 820
  Approval of Resolution Plan - Plan approved by CoC with 98% vote share - seeking reconsideration of the plan - HELD THAT:- The approval of the CCI, which is provided for a combination and the time prescribed under the Competition Act is 210 days. It is also noticed that CIRP Regulations also provide a timeline. Section 12 of the Code, contemplate completion of CIRP within 180 days, subject to further extension. Section 12, further provides that CIRP shall be completed within a period of 330 days from the insolvency commencement date. It is noticed that timeline prescribed under Regulation 40A for submission of Resolution Plan to CoC take additional 30 days and 135 days are provided for submission of Resolution Plan. Till the submission of Plan and by 165 days, the Plan is required to be considered by the CoC. The question of obtaining approval from the CCI only arises when Resolution Plan submitted contains a combination and require approval from the CCI. After submission of Plan, the Resolution Applicant applies for approval of combination from the CCI. It is not in his hand that as to when CCI will grant the approval. The CCI has to act as per statutory provisions of the Competition Act and it has been given 210 days to take a decision - It cannot be held that since provision is there, approval by CCI has to be obtained prior to approval of Plan by the Adjudicating Authority - it is noticed that the judgments of this Tribunal where it has been laid down that approval by CCI, prior to approval by the CoC is directory because there is no consequences provided for non-compliance of Section 31(4) proviso. In the present case, RFRP provided that CCI s approval has to be obtained prior to approval of Plan by the CoC, which RFRP was in accordance with Section 31(4). Although, the RP subsequently clarified that approval can be obtained even after the approval by the CoC, which was in accordance with the prevalent legal position as settled by this Tribunal in Arcelor Mittal and other cases - Section 31, sub-section (4) proviso has to be read to mean that though the approval by the CCI is mandatory , the approval by the CCI prior to approval of CoC is directory - there are no error in the order of the Adjudicating Authority dated 28.04.2023 rejecting the I.A. No.1497/KB/2022 filed by the Independent Sugar Corporation Ltd. There are no ground to interfere with the impugned order - appeal dismissed.

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• 2023 (9) TMI 819
  Who is entitled to get the income tax refund after de-merger - Jurisdiction to direct the IT Department and RBL Bank Ltd. - It is submitted that, income tax refund which had been wrongly credited by the IT Department to CLCI-Respondent No.4 - rightful claimant of the tax refund - HELD THAT:- The issues concerning payment of interest on tax refund and extension of time to pay tax are matters which intrinsically relate to conduct of assessment proceedings. Such an exercise squarely falls within the competent jurisdiction of the income tax assessing authority and cannot be arrogated by the Adjudicating Authority - there are no error on the part of the Adjudicating Authority in refusing to look into the prayers on jurisdictional grounds. Rightful claimant of the tax refund - HELD THAT:- The Adjudicating Authority has only spelt the need on its part to exercise abundant care and caution so as not to interpret the core assessment provisions of the Income Tax Act - the modicum of restraint exercised by the Adjudicating Authority in not getting into computational aspects of income tax assessment or applying the assessment related provisions of the Income Tax Act is appreciated and instead confining itself to the facts and circumstances on record to arrive at a conclusion as whether the Appellant or the Corporate Debtor was the rightful recipient of the tax refund. Hence, the contention of the Appellant that the Adjudicating Authority had raised the issue of lack of jurisdiction is devoid of merit and misconceived and therefore not acceptable. CLCI had addressed a series of communications to the IT Dept through their authorized representative on 09.07.2019, 06.08.2019, 16.09.2019, 13.11.2019, 19.11.2019, 21.11.2019 wherein the Department was requested to give effect to the order of ITAT and issue income tax refund to them. These letters barring that of 09.07.2019 categorically state that the refund amount payable to CLCS belongs to CLCI. It is also noteworthy that in these communications sent by CLCI to the IT Dept, it was explained at length that CLCS was de-merged and all the assets and liabilities of CLCS as on the date of de-merger had been transferred to Apro - it is not wrong on the part of the Adjudicating Authority to have come to the conclusion that CLCS and CLCI collectively wanted the refund to go to CLCI-Corporate Debtor. It was vehemently contended by the RP-Respondent No. 4 that only after CLCI went into CIRP and the CLCS came to realize that the refund money cannot therefore be utilized by the ex-management of the Corporate Debtor to their benefit that they wrote to the IT Dept for the first time on 22.02.2020 for crediting the refund to CLCS and not to the Corporate Debtor. There is force in this contention since the material available on record also substantiates that only after the CLCI-Corporate Debtor was admitted into CIRP on 03.01.2020, that CLCS started addressing communications to the IT Dept to issue refund to CLCS. Even the tax consultant had initially informed the RP that refund was due only to the CLCI but on 03.04.2020, the tax consultant changed its stand and informed the RP that the refund was due to CLCS - both the Appellant as well as the tax consultant have taken a somersault post CIRP of the Corporate debtor in claiming the tax refund for the Appellant without stating any credible grounds for the change in their stance. The Adjudicating Authority did not commit any error in dismissing the application - there are no reason to interfere with the impugned order - appeal dismissed.

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• Service Tax

• 2023 (9) TMI 818
  Valuation - completion and finishing services - inclusion of value of materials consumed while providing the finishing services - it was held by CESTAT that appellant has correctly discharged Service Tax on the service portion - HELD THAT:- There are no ground to interfere with the impugned Order dated 31 .10. 2019 passed by the Customs Excise Service Tax Appellate Tribunal, South Zonal Bench, Chennai. Appeal dismissed.

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• 2023 (9) TMI 817
  Business Auxiliary Service - marketing and promotion of pesticides/insecticide manufactured by their principal - extended period of limitation - CESTAT held that service in question do qualify as Agricultural Extension Services and are covered under negative list as per Section 66D of the Finance Act, 1944. HELD THAT:- There are no ground to interfere with the impugned Order dated 30-08-2018 passed by the Customs, Excise and Service Tax Appellate Tribunal. Appeal dismissed.

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• 2023 (9) TMI 816
  Levy of service tax - various projects executed by the appellant under Construction of Residential Complex Service and Works Contract Service - miscellaneous income which was treated as receipts towards construction services - HELD THAT:- The issues which arise in these appeals are covered by the judgment of this Court in Total Environment Building Systems Pvt. Ltd. vs. Deputy Commissioner of Commercial Taxes and Others [ 2022 (8) TMI 168 - SUPREME COURT] where it was held that The judgment in Larsen and Toubro Ltd. has been correctly decided and does not call for a reconsideration insofar as the period prior to 1st June, 2007 is concerned. Since the aforesaid judgment applies on all fours to these appeals, the Civil Appeals stand, accordingly, disposed of.

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• 2023 (9) TMI 815
  Classification of services - membership fee collected by the appellants is exigible to service tax under Club or Association Service or not - demand raised under the wrong Head can be confirmed for the reason that it is taxable to duty under one Head or the other or not - demand confirmed on the basis of difference in the figures between ST-3 Returns and balance sheets. Whether the membership fee collected by the appellants is exigible to service tax under Club or Association Service ? - HELD THAT:- The issue is no longer res integra having been decided by a number of judgments. Hon ble Apex Court laid down the principle in the case of STATE OF WEST BENGAL ORS. VERSUS CALCUTTA CLUB LIMITED AND CHIEF COMMISSIONER OF CENTRAL EXCISE AND SERVICE ORS. VERSUS M/S. RANCHI CLUB LTD. [ 2019 (10) TMI 160 - SUPREME COURT] and re-affirmed the same in the case of M/S RAJASTHAN CO-OPERATIVE DAIRY FEDERATION LIMITED VERSUS COMMISSIONER, CENTRAL EXCISE, JAIPUR [ 2022 (5) TMI 482 - CESTAT NEW DELHI] . It was held in the Calcutta Club that The expression body of persons may subsume within it persons who come together for a common purpose, but cannot possibly include a company or a registered cooperative society. Thus, Explanation 3(a) to Section 65B(44) does not apply to members clubs which are incorporated. Whether a demand raised under the wrong Head can be confirmed for the reason that it is taxable to duty under one Head or the other? - HELD THAT:- In the facts of the case, the demand was made on account of services provided by the assessee in respect of the supply of third-party software, software developed in house or customised software/ The assessee had temporarily transferred the right to use the said software to their clients. Thus, prior to 16th May 2008, such service was classifiable under the category of Intellectual Property Service and with effect from 16th May, 2008, it was classifiable under the category of Information Technology Software . In fact, the management, maintenance and repair services of computer hardware as well as software under the annual maintenance contract was covered by the category of Management, Maintenance or Repair services which was defined under Section 65(64) of the Finance Act. Thus, the classification mentioned in the first show cause notice was completely erroneous - the demand made on the basis of the first show cause notice was illegal. Therefore, there is no merit in the appeal preferred by Revenue. Whether a demand confirmed on the basis of difference in the figures between ST-3 Returns and balance sheets? - HELD THAT:- It is a settled principle of law that service tax can be levied only when there is a clear identification of service provider, service recipient and consideration paid for the same. In the absence of any such evidence of the service recipient and the service provided, service tax cannot be demanded and confirmed. For this reason, it is not open for the Department to raise demands on the basis of other statutory returns like Income Tax Returns or balance sheets without proving that such service has been rendered by the assessee and consideration thereof has been received. Similarly, no service tax demand can be raised and confirmed on the basis of notional income. The impugned order cannot be sustained and is liable to be set aside - Appeal allowed.

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• 2023 (9) TMI 814
  Refund of Service Tax - input services - Terminal Handling Services - GTA Service - CHA Services - HELD THAT:- These services have been rendered for handling the export containers at the port of exports and they fall in the nature of port services. Further, the Terminal Handling Services have been held to be specified services and the appellant is entitled to refund of the same in view of the various decision in M/S TRIDENT LIMITED (FORMERLY ABHISHEK INDUSTRIES LIMITED) VERSUS CCE, CHANDIGARH-I [ 2017 (6) TMI 472 - CESTAT CHANDIGARH] . GTA Services - HELD THAT:- The GTA service has been received from third party transporter for transporting the stuffed containers with seal from the factory of the appellant to ICD/CFS or to the port of export. CHA services - HELD THAT:- The CHA Services are specifically covered and the appellant has furnished the bills issued by the CHA containing the details of the payment. The impugned order is not sustainable in law and the same is set aside - appeal allowed.

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• 2023 (9) TMI 813
  Classification of services - renting of immovable property service - levy of interest - extended period of limitation - penalty - HELD THAT:- The matter involved legal interpretation, which was litigated and even the tenant of the appellants had challenged the same before the Hon ble Kerala High Court. It is a matter of record that the said litigation is pending even as on date before the Hon ble Constitutional Bench of the Hon ble Apex Court in the case of MINERAL AREA DEVELOPMENT AUTHORITY ETC. VERSUS M/S STEEL AUTHORITY OF INDIA ORS [ 2011 (3) TMI 1554 - SUPREME COURT ]. Levy of interest - HELD THAT:- The same is mandatory in nature, but however, the same has not been quantified by the adjudicating authority. In view of the facts and circumstances of the case, it is held that any interest liability payable for the normal period alone could be demanded / adjusted. Extended period of limitation - HELD THAT:- The matter involved legal interpretation, which was litigated and even the tenant of the appellants had challenged the same before the Hon ble Kerala High Court. It is a matter of record that the said litigation is pending even as on date before the Hon ble Constitutional Bench of the Hon ble Apex Court in the case of MINERAL AREA DEVELOPMENT AUTHORITY ETC. VERSUS M/S STEEL AUTHORITY OF INDIA ORS [ 2011 (3) TMI 1554 - SUPREME COURT ]. Penalty - HELD THAT:- The suppression or fraud within the meaning of Section 78 cannot be attributed to the appellants for levying penalty under Section 78. Therefore, the penalty under Section 78 cannot sustain and to this extent, the impugned order stands set aside. Moreover, the plea that the demand that survives, as proposed in the Show Cause Notice, was only the penalty since the entire tax demand stood appropriated in the Order-in-Original, is agreed upon. Thus, the demand of interest under Section 75 of the Finance Act, 1994 is concerned, is held to be payable for the normal period alone - imposition of penalty under Section 78 ibid. stands set aside and the appeals to this extent are allowed - invocation of extended period of limitation is not in order. Appeal disposed off.

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• 2023 (9) TMI 812
  Non-payment of service tax - erection, commissioning and installation services - composite works contract service - extended period of limitation - suppression of facts or not - HELD THAT:- At paragraph 8.1 of the impugned order dated 22.01.2014, the Ld. Commissioner accepts that the assessee was a manufacturer and supplier of WTGs / Windmills and were also providing erection, commission and installation work against the composite contract work order, to make the WTG operational. This is the understanding between the parties and hence, the manner of raising the invoices does not matter. It is also a fact borne on the record that sale of the materials involved were subject to VAT, but however, the same was exempted. At paragraphs 8.1 and 8.2, the Ld. Commissioner, in the impugned order, has categorically observed that the assessee had undertaken the provision of service based on a composite contract. Further, the very fact that the Ld. Commissioner has allowed 67% abatement towards the material cost and 33% towards the service thereby extending the benefit of Notification No. 01/2006-S.T. dated 01.03.2006 itself suggests that the service rendered by the appellant was nothing but works contract. These facts, according to us, are sufficient to uphold the claim of the appellant that the nature of service was clearly works contract service. There was no tax liability since the appellant continued to pay tax under works contract service for the periods under dispute, which is also as per the decision of the Hon ble Apex Court in the case of M/s. Larsen Toubro Ltd. [ 2015 (8) TMI 749 - SUPREME COURT] and therefore, the appellant has to succeed. The nature of service rendered by the appellant in the case on hand is in the nature of a composite works contract, since it involves both service as well as transfer of the property in goods/materials. This is clearly, therefore, not taxable under the head of erection, commissioning and installation service prior to 01.06.2007 as declared by the Hon ble Apex Court. Hence, just because the Revenue brought to tax under a category other than works contract service, the same does not tantamount to suppression of facts, etc., to justify invoking the larger period of limitation. The impugned orders reclassifying the impugned service under erection, commissioning and installation cannot sustain and resultantly, the same are set aside - Appeal allowed.

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• 2023 (9) TMI 811
  Exemption from Service Tax - services of construction and maintenance of railways - applicability of N/N. 25/2012-ST dated 20.06.2012 - Manpower service - transportation services - Director s services - levy of penalty - HELD THAT:- The said activity is exempted from payment of service tax in terms of Notification No.25/2012-ST dated 20.06.2012 and the same has been held exempted by this Tribunal in the case of M/S HARI CONSTRUCTION ASSOCIATES PRIVATE LIMITED VERSUS COMMISSIONER OF CGST EXCISE, PATNA II [ 2023 (9) TMI 454 - CESTAT KOLKATA] , wherein this Tribunal has held the appellant is entitled for benefit of Notification No.17/2005-ST dated 07.06.2005 prior to 01.07.2012 and under Notification No.25/2012-ST dated 20.06.2012 for the period post 01.07.2012 - Thus, the activity of construction of railways and maintenance thereof, no service tax is payable by the Appellant No.(1) (2). Therefore, the demand of service tax on that account is set aside. Manpower service - HELD THAT:- It has been admitted by the appellant that in reply to the show-cause notice, they paid the service tax thereon. Therefore, the same is not contested. Transportation services - HELD THAT:- The appellant is not contesting the same. Director s services - HELD THAT:- The said demand is not sustainable in the light of the decision of this Tribunal in the case of M/S. MAITHAN ALLOYS LTD. VERSUS CCE ST, BOLPUR [ 2019 (4) TMI 1595 - CESTAT KOLKATA] , wherein it has been held Demand of service tax on remuneration paid to whole time directors cannot be sustained - the demand of service tax on account of construction of railways and maintenance thereof and the Director s service, is not sustainable against the Appellant. Penalty - HELD THAT:- No penalty is imposable on all the appellants. Appeal disposed off.

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• 2023 (9) TMI 810
  Classification of services - Business Auxiliary services or not - appellants were engaged in the activity of production or not - HELD THAT:- The issue came up before this Tribunal in the appellants own case M/S FERRO SCRAP NIGAM LIMITED VERSUS CCE, RAIPUR [ 2014 (1) TMI 1049 - CESTAT NEW DELHI ] and this Tribunal has observed that appellant s activity prior to June 2005 cannot be held to be exigible to service tax under the category of BAS. Thus, the activity undertaken by the appellants is not taxable service - no service tax is payable by the appellants - appeal allowed.

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• 2023 (9) TMI 809
  Valuation of services - reimbursement of expenses received by the Respondent are includable in the assessable value for the purpose of payment of service tax or not - pure agent services - period from 2000-01 (October) to 2004-05 (September) - HELD THAT:- Service tax (Determination of Value) Rules, 2006, has brought in the concept of Pure Agent to address the taxability issues of reimbursements. As per the said Rules, expenditure incurred as a Pure Agent were excluded from the assessable value. In the present matter under dispute, a perusal of the agreements entered with the different principals clearly revels that there were specific amounts for remuneration to be charged as a C F Agent - It is also observed that the Respondent has recovered precisely the same amount from the recipient that has been paid on their behalf by producing the documentary evidence in regard to such expenditure. Thus, it is clearly established that the Respondent has acted as Pure Agent while incurring such expenditure. It is observed that all the reimbursement expenses have been included in the consideration with effect from 14/05/2015. Hence while calculating service tax, the service provider has to include all the expenses whatever he incurred for rendering service, w.e.f.14.04.2015 only and not before that period. The dispute in the present appeal pertains to the period from 2000-01 (October) to 2004-05 (September) and hence, the substitution brought in the definition of Consideration vide Finance Act, 2015 would not be applicable for the period in the present appeal. The ratio of the decision in the case INTERCONTINENTAL CONSULTANTS AND TECHNOCRATS PVT. LTD. VERSUS UOI. ANR. [ 2012 (12) TMI 150 - DELHI HIGH COURT] , squarely applicable in this case, where it was held that By including the expenditure and costs, Rule 5(1) goes far beyond the charging provisions and cannot be upheld - Thus, Section 94(4) does not add any greater force to the Rules than what they ordinarily have as species of subordinate legislation. It is observed that the adjudicating Authority has dropped the demand made in the Notice on the ground that the remuneration for C F work and reimbursement for miscellaneous activities have been separately mentioned against specific items and they got reimbursement on actual basis - impugned order upheld - appeal of Revenue dismissed.

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• 2023 (9) TMI 808
  Classification of services - Business Auxiliary Services or not - service relating to machining work on the forged wheels received from M/s Durgapur Steel Plant (DSP) under job work and sent it back the same to the principal manufacturer - HELD THAT:- The said issue came up before this Tribunal in the case of M/S FERRO SCRAP NIGAM LIMITED VERSUS COMMR. OF CGST EXCISE, BOLPUR (VICE-VERSA) [ 2021 (1) TMI 711 - CESTAT KOLKATA] , wherein this Tribunal has observed For the period prior to 16.06.2005, the definition of BAS under Section 65(19)(v) of the Act, inter-alia, mean any service in relation to production of goods on behalf of the client. The Principal Bench in assessee s own case, M/S FERRO SCRAP NIGAM LIMITED VERSUS CCE, RAIPUR [ 2014 (1) TMI 1049 - CESTAT NEW DELHI] as relied by the assessee, has already observed in identical set of facts that there is no third person in the instant case, whereas the tax can be levied under BAS only in case the service is provided on behalf of the client i.e. there would be involvement of three parties. As the issue has been settled in favour of the appellant, therefore, the appellant is not liable to pay service tax on the activity of machineries and accordingly, the impugned order is set aside. Appeal allowed.

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• Central Excise

• 2023 (9) TMI 807
  Capital goods or not - CENVAT Credit - HELD THAT:- Although, the merits of the said question are engaging the intention of this Court in other pending matters, it is noticed that the impugned order merely held that the extended period of limitation could not have been invoked by the revenue, regard being had to the fact that conflicting views of the Tribunal expressed in different Benches was prevailing at that time. In these circumstances, this Court is of the opinion that no substantial question of law is involved. Petition dismissed.

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• 2023 (9) TMI 806
  Clandestine removal of chemicals - as per the opinion of Sher-E-Kashmir, University of Agricultural Sciences Technology, Srinagar, the chemicals cannot be used for post-harvest treatment of apples - HELD THAT:- The opinion relied upon by the Department is inconclusive inasmuch as the same certificate which asserts that the said chemicals cannot be used for post-harvest treatment of apples beyond the period of 25 days also mentions that the university has not undertaken any studies regarding the use of such chemicals in the post-harvest scenario. Therefore, the certificate cannot be said to be conclusive. Moreover, the Jammu Centre of the University has certified that the said chemicals can be used for treatments of apples; the Department counters the submissions of the appellants and the opinion of the Jammu Centre of the University merely by stating that as apples are not grown in Jammu, the certificate cannot be relied upon. If the Department did not want to rely upon the technical opinion, the same should have been done by countering technical opinion by expert opinion authoritatively countering the opinion given. This having not been attempted or done, the Department cannot brush aside the technical opinion as per the whims and fancies or even for Revenue considerations - It is found that learned Commissioner has, categorically, observed that the Jammu unit of the university have given opinion at the instance of the Department only and the Department cannot be selective in using the reports. Clandestine removal - HELD THAT:- There are no attempt has been made by the Department to ascertain the stock available and the stock consumed. Though, it has been alleged that the respondents have cleared the stock of inputs clandestinely, no investigation, whatsoever, appears to have taken place in this regard to ascertain the purchasers, the transportation and the receipt of such sale - the learned Commissioner observed that no evidence was put on record to substantiate the said allegations; the show-cause notice is silent on important issues like from where the job work was done, to whom and how these chemicals were sent; onward movement and return of formulations and there is no evidence on the purported use of the formulations in any of the orchards. Therefore, the Department has not made any case of clandestine removal against the appellants. The learned Commissioner has gone through the issue raised in the show-cause notice and the submissions of the appellants and has given a considered and reasoned opinion on the basis of available evidence on record. The Department has not brought out any cogent reason, whatsoever so as to negate the findings of the learned Commissioner. Under the circumstances, no case has been made out against the impugned order. The impugned order is sustainable and requires no interference - Appeal of Revenue dismissed.

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• 2023 (9) TMI 805
  Revenue neutrality - clearance of goods without payment of duty - period involved in the year 2010- 2011 to 2014-2015 and the show-cause notice has been issued on 23.03.2016 - time limitation - HELD THAT:- It is fact on record that the appellant has cleared the goods from their unit without payment of duty to their sister unit and the said sister unit cleared the said coals on payment of duty. Although it is a situation of revenue neutrality, but the appellant was monthly required to pay duty at the time of clearance from the transferor unit, otherwise, the Central Excise Act will become redundant - thus, at the time of clearance of goods, the appellants were liable to pay duty. Time Limitation - HELD THAT:- In the facts and circumstances of the case that when the fact of clearance of coals from the transferor unit without payment of duty was in the knowledge of the respondent as various correspondences were made during the impugned period and the show-cause notices have been issued to the appellant by invoking extended period of limitation, in that circumstances, it is held that whole of the demand is barred by limitation. Accordingly, on limitation, the appellants succeed. Thus, on merit appellants are liable to duty, but on limitation, the show-cause notice fails - appeal allowed.

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• 2023 (9) TMI 804
  Clandestine Removal - control panels and fans - liability of duty on the goods cleared by them to their principal manufacture - Reversal of CENVAT Credit - allegation that the inputs were not received in their factory and cleared directly to their customers - Inclusion of drawings and design supplied by the principal manufacturer to the appellant. Liability of appellant to pay duty on the goods cleared by them to their principal manufacture - HELD THAT:- In this case the principal manufacturer is sending inputs to the appellant on job work challans on which the appellant has not taken the cenvat credit and after job-work, the appellant is clearing the same to the principal manufacturer without charging any duty and the appellant is charging only the job-work charges and the principal manufacturer is discharging duty on final product. In that circumstances, relying on the decision of this Tribunal in the case of AUTOMATIVE STAMPINGS ASSEMBLIES LTD. VERSUS COMMR. OF C. EX., VADODARA [ 2009 (6) TMI 773 - CESTAT, AHMEDABAD] , wherein this Tribunal has observed We find no reasons to add the value of such lugs in the value of the clutch covers manufactured by the appellant, especially when such job has been done by the appellant in terms of Rule 4(5)(a) of the Cenvat Credit Rules, 2002 - the appellant is not liable to pay duty on job-worked goods. Reversal of CENVAT Credit - allegation that the inputs were not received in their factory and cleared directly to their customers - HELD THAT:- Although the goods were not received in their factory and cleared directly to their customers, but on payment of duty. When the inputs have been cleared to their customers directly on payment of duty, the payment of duty shall be treated as reversal of cenvat credit as held by the Hon ble Bombay High Court in the case of THE COMMISSIONER OF CENTRAL EXCISE, PUNE VERSUS AJINKYA ENTERPRISES [ 2012 (7) TMI 141 - BOMBAY HIGH COURT] , wherein Hon ble the Hon ble High Court has observed once the duty on final products has been accepted by the department, CENVAT credit availed need not be reversed even if the activity docs not amount to manufacture - he appellant is not required to reverse the cenvat credit on the input cleared without receiving in the factory on payment of duty. Inclusion of drawings and design supplied by the principal manufacturer to the appellant - HELD THAT:- The inclusion sought to be made in the assessable value on the basis of imaginary figures, which is not sustainable. It is a fact on record that the appellant has not borne any cost of drawings and design supplied by the principal manufacturer and the principal manufacturer has borne the cost of design and drawings and paid duty on their final product - the cost of design and drawings cannot be included in the job-charges of the appellant, therefore, no duty is payable by the appellant. The impugned order is set aside and in the result, the appeal is allowed.

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• 2023 (9) TMI 803
  Levy of Excise Duty - Angles, Channels, Joist, TMT Bars etc. used captively for fabrication of capital goods/support structures which were embedded to earth - mis-utilization of the benefit of Notification No.67/95-CE(NT) - HELD THAT:- It is not disputed by the revenue that these items have been used by the appellant for fabrication of capital goods which has been captively consumed for fabrication of capital goods and support structures which were ultimately used in manufacture of their final product i.e. ingot. Relying on the decision of the Hon ble Chhatisgarh High Court in the case of M/S VANDANA GLOBAL LIMITED AND OTHERS VERSUS COMMISSIONER, CENTRAL EXCISE AND CUSTOMS, CENTRAL EXCISE [ 2018 (5) TMI 305 - CHHATTISGARH, HIGH COURT] , wherein the Hon ble High Court has observed Section 37 of the Central Excise Act, 1944 is a rule making power. Section 37(2)(xvia) provide for the credit of duty paid or deemed to have been paid on the goods used in, or in relation to, the manufacture of excisable goods. Though the power to make rules include the power to give retrospective effect, while doing so the provision under consideration is neither made retrospective nor could it be treated as one. The appellant is not required to pay duty on the items in question which has been used by them captively for fabrication of support structures and capital goods as inputs, which has been ultimately used for manufacture of their final product, i.e. M.S. ingots wire rods - the impugned order is set aside - the appeal is allowed.

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• 2023 (9) TMI 802
  Refund of unutilised CENVAT credit on closure of factory in the form of cash - applicability of binding judicial precedent that would govern the field than the statutory enactments - Doctrine of merger. - Scope of the Decision of Supreme Court where SLP was dismissed in a short order. Appellant is challenging the legality of such order of the Commissioner of Central Tax (Appeals) who followed the latter Division Bench Order on the Hon ble Bombay High Court passed in M/S. GAURI PLASTICULTURE P. LTD., AND OTHERS VERSUS THE COMMISSIONER OF CENTRAL EXCISE AND UNION OF INDIA AND ORS. [ 2018 (4) TMI 1233 - BOMBAY HIGH COURT] and not the previous one namely JAIN VANGUARD POLYBUTYLENE LTD. VERSUS COMMISSIONER OF C. EX., NASHIK [ 2009 (6) TMI 790 - CESTAT, MUMBAI] judgement of the same High Court that was passed following the judgment of the Hon ble Supreme Court passed in UNION OF INDIA VERSUS SLOVAK INDIA TRADING CO. PVT. LTD. [ 2007 (1) TMI 556 - SC ORDER] - difference of opinion. Matter was referred to third member bench in [ 2021 (9) TMI 1478 - CESTAT MUMBAI] Opinion given by S.K. MOHANTY - INTERIM ORDER NO. 31/2023 - ORDER ON DIFFERENCE OF OPINION - HELD THAT:- The opinions of the learned Members in the Bench are explicitly divergent only on the effect of the dismissal of SLP of Revenue against the decision of the Hon ble Karnataka High Court in the case of Slovak India Trading Co. Pvt. Ltd. The issue of limitation raised by the learned Member (Technical), though has not been discussed separately by the learned Member (Judicial); but vide the Interim Order dated 28.09.2021, since has directed for grant of refund along with interest, a divergent stand has been taken impliedly. The other issues, though stated explicitly as points of reference, are not required to be addressed inasmuch as no discussions have been made by either of the Members on those issues in the body of the Interim Order. On reading of the judgement of Hon ble Supreme Court, it is amply made clear that the issue regarding cash refund of accumulated Modavt/Cenvat credit, in the case of closure of factory was appreciated by the Hon ble Court and upon consideration of various decisions rendered by the Tribunal, in allowing such refunds, the concession made by the learned ASG to such extent was accepted and accordingly, the SLP was dismissed. Further, it is an admitted fact on record that the decisions of the Tribunal referred to by the Hon ble Supreme Court in the judgement dated 25.01.2007 have not been appealed against by the Revenue, meaning thereby that the principles or the issue dealt with and decided by the Tribunal were accepted by the Revenue. In view of the judgment of the Hon ble Apex Court in the case of COMMISSIONER OF C. EX., HYDERABAD VERSUS NOVAPAN INDUSTRIES LTD. [ 2007 (1) TMI 5 - SUPREME COURT] it cannot be said that the Hon ble Supreme Court had dismissed the SLP in case of Slovak India Trading Co. Pvt. Ltd., without assigning any reasons therein. The issue in context with doctrine of merger was discussed by the Hon ble Supreme Court in the case of GANGADHARA PALO VERSUS REVENUE DIVISIONAL OFFICER [ 2011 (3) TMI 252 - SUPREME COURT] , wherein the Hon ble Court have held that even if the SLP is dismissed with reasons, however meagre (one sentence), there is merger of orders. It has further been held that once the SLP is dismissed, giving reasons by the Hon ble Supreme Court, however meagre, it becomes a declaration of law. Thereafter, the decision which is merged with the decision of Hon ble Apex Court, is non-existent, and thus, cannot be reviewed. Since the principle of the doctrine of merger has been adequately dealt with by the Hon ble Supreme Court in Gangadhara Palo, it is not felt proper to discuss the binding precedence of the judgments referred to by the learned Members at the referral paragraphs. It is concluded holding that the ratio of the judgment by the Hon ble Supreme Court in Slovak India Trading Co. Pvt. Ltd., has the binding effect on all Courts, Tribunal etc., in view of the mandates, contained in Article 141 of the Constitution of India - the limitation aspect would not apply to the facts of the present case for denial of the refund benefit to the appellant. The learned Member (Judicial) that the impugned order is required to be set aside agreed upon and the appeal is required to be allowed with consequential benefit to the appellant - appeal allowed (majority order).

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• CST, VAT & Sales Tax

• 2023 (9) TMI 801
  Interpretation of statute - Effect of the amendment - Retrospective or prospective - sub-section (1) of Section 25 of KVAT Act as well as the third proviso of the said Section - initially the third proviso was not part of the Section but was later inserted in the year 2010 by the Finance Act 2010 and every year till Finance Act, 2018 the said proviso has been substituted - interpretation to be given to the words at any time within five years from the last date of the year to which the return relates, proceed to determine as found in sub-section (1) of Section 25 and the third proviso to the said sub-section as inserted with effect from 01.04.2015, extending time limitation for initiation of proceedings for reassessment of escaped turnover. Whether, the third proviso to sub-section (1) of Section 25 extends the period of limitation for the initiation of proceedings for reassessment insofar as escaped turnover is concerned? - HELD THAT:- What has to be interpreted is the expression proceed to determine as it occurs in sub-Section (1) of Section 25 as well as the third proviso to the said sub-Section as amended in Finance Act, 2017. No doubt, in both the provisions, the expression used is proceed to determine. The said expression must be considered in light of the words that occur prior to and subsequent to the said expression. Under sub-Section (1) of Section 25, the intention of the use of the expression proceed to determine is in the context of initiation of proceedings at any time within five years (now six years after the 2018 amendment) from the last date of the year to which the return relates. The object and purpose is that there cannot be a belated initiation of proceedings and at the whims and fancies of the Department so as to re-open stale returns, which had already been concluded under the provisions of the said Act. However, the object of the proviso which also uses the words proceed to determine must be in the context of completion of the Assessment which had already been initiated in accordance with sub-Section (1) to Section 25 within the time-frame as prescribed therein. The department is not right in contending that the expression proceed to determine in the third proviso gives a lease of life or an extension of the period of limitation by one year at a time for initiation of the reassessment proceeding under sub-section (1) of Section 25 of the Act. Such an interpretation would lead to absurdity as a proviso cannot militate against the intention of the main provision in sub-section (1) of Section 25 and thus a proviso cannot extend the limitation period which is fixed under the main provision. The normal function of a proviso is to exempt something out of the provision or to qualify something enacted therein which, but for the proviso, would be within the purview of the provision. It may be clarified that the expression proceed to determine is found in the amendment made to the KVAT Act with effect from 2017 Finance Act, whereas in the earlier amendment, the expression clearly was to complete the assessment in the third proviso of sub-section (1) of Section 25 which is also a clear indication of the intention of the Legislature to give a command to the concerned assessing officers seized of the proceedings which had been initiated under sub-section (1) of Section 25 to complete within the time-frame as stipulated in the said proviso. The amendment to the Kerala Finance Act, 2017 is with effect from 01.04.2017 and does not have any retrospective effect. There are no merit in these appeals. The appeals are hence dismissed.

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• 2023 (9) TMI 800
  Validity of remanding the case on the issue which had already attains finality after the order of the first appellate authority passed in appeal filed against the provisional assessment order - HELD THAT:- On perusal of the aforesaid observation made in provisional assessment order, it transpires that query was put to the revisionist that at the time of survey dated 13.5.2015, calcium octet was not found at his business premises but on production of stock register, entries of 1710 kgs of calcium octet were mentioned however while issuing show cause notice for provisional assessment the commodities has wrongly been mentioned but the assessing authority has not discussed anything about the fact that at the time of survey stock of some specific chemical was not found though the same has been mentioned in the stock register. Further the assessing authority observed that no adverse inference should be drawn against the revisionist. The assessing authority has neither assigned any reason nor any finding has been recorded for not drawing any adverse inference against the revisionist. The first appellate authority has observed that at the time of survey dated 3.5.2015 stock of calcium octet was not found but same was available in the factory. The said fact is accepted by the Assessing Authority. However, neither anything was brought on record to support the said finding nor any discussion had been made in the provisional assessment order to clarify the justification given by the assessee, as such, the findings recorded by the first appellate authority in this respect is perverse - Further the observation of the 1st appellate authority that the chemical was available in the factory is without any material on record or discussion, therefore has no leg to stand. Once neither any discussion nor any finding has been recorded by any of the authority about shortcomings of chemical found at the time of survey dated 13.5.2015, it will be incorrect on the part of the revisionist to argue and suggest that once on the provisional assessment order the finding has been recorded in favour of the revisionist, which was confirmed by the first appellate authority, the matter ought not to have remanded the matter for redetermination of the said fact. Thus, no interference is called for by this Court in the impugned order. The revision is dismissed.

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