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Showing 81 to 100 of 1266 Records
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2023 (11) TMI 1186 - ITAT DELHI
Income taxable in India - sale of off the shelf software considered treated as royalty - HELD THAT:-This issue is no more res integra as the quarrel has been settled by the Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence Pvt Ltd. [2021 (3) TMI 138 - SUPREME COURT] held that the amounts paid by resident Indian end-users/distributors to non-resident computer software manufacturers/suppliers, as consideration for the resale/use of the computer software through EULAs/distribution agreements, is not the payment of royalty for the use of copyright in the computer software.
Revenue from sale of off the shelf software to two new companies which were not there in the earlier - Since the ld. counsel for the assessee has fairly conceded that the revenue from these two companies are not covered by the agreement and the agreements are also not available, therefore, these companies may be taxed in the hands of the assessee as royalty - we direct the AO to consider revenue from these two companies as royalty and tax as per the relevant provisions of the Act.
Receipts for use of telecom bandwidth facility - considered as royalty and /Fees for technical services - India-Singapore DTAA - HELD THAT:- As decided in Planetcast International Pvt Ltd [2023 (8) TMI 30 - ITAT DELHI] no corresponding amendment in line with the amendment brought to section 9(1)(vi) of the Act has been made to Article 12(3) of India-Singapore DTAA. Therefore, in absence of any such amendment widening the scope of expression ‘royalty’ under the treaty provisions, the amendment made to section 9(1)(vi) of the Act cannot be automatically brought or imported to Article 12(3) of India- Singapore DTAA, as the treaty provisions have to be construed strictly in accordance with the language used in the provision. Thus, we hold that the receipts from internet bandwidth charges cannot be treated as royalty income under Article 12(3) of India-Singapore DTAA. Accordingly, we direct the Assessing Officer to delete the addition.
Receipts from providing information technology related support services- considered as royalty and/fees for technical services - India Singapore DTAA requires that services should be such that enable the person acquiring the services to apply the technology contained therein - claim of the assessee is that the services do not result in transmitting technical knowledge - HELD THAT:- We find that under identical situation, this Tribunal in the case of Planetcast International Pte Ltd [2023 (8) TMI 30 - ITAT DELHI] had held that while running the services, the assessee has not made available any technical knowledge, experience, skill in terms of Article 12(4)(b) of the DTAA and as such, receipts in question were not FTS liable to tax in India.
Thus we are of the considered view that payments received from Mphasis Ltd were not covered by Article 12(4) of the India Singapore DTAA. This addition is, accordingly, directed to be deleted.
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2023 (11) TMI 1185 - ITAT DELHI
TP adjustment - Comparable selection - provision of software development services rendered by the assessee - assessee is primarily engaged in the business manufacturing of automotive components - HELD THAT:- E-Infochips Bangalore Ltd should be excluded from the final set of comparables while benchmarking the software development services of the assessee as it is engaged in both IT as well as ITES. Further, the comparable company is also engaged in hard core reengineering apart from earning revenue from sales of computer software and products. The segmental data does not give break up of revenue bifurcating the revenue as well as the margins earned from aforesaid different streams of income. Hence, the margin on software development segment alone cannot be properly deduced from the data available in the audited financial statements of the comparable company.
Exclusion of Sonata Software Ltd - We deem it fit to restore the inclusion of this comparable alone to the file of the ld AO/ TPO for verification of the facts of the aforesaid table i.e. partywise details submitted by the ld AR herein above. If on verification, it is found that the aforesaid details mentioned by the ld AR are correct, then the said comparable should be excluded from the final list of comparables while benchmarking the international transaction of software development segment of the assessee.
Exclusion of Infosys Ltd - Infosys Ltd should not be treated as a comparable with low risk Captive Service Provider like that of the assessee company. Accordingly, we direct the ld AO/ TPO to exclude Infosys Ltd from the final set of comparables while benchmarking the international transaction of software development segment.
Exclusion of Thirdware Solution Ltd - We find that the Hon'ble Delhi High Court in the case of PCIT Vs. Open Solution Software Service Pvt. Ltd [2020 (5) TMI 440 - DELHI HIGH COURT] had upheld the findings of the Tribunal that in the absence of segmental data to work out the separate margins from software services, Thirdware Solutions cannot be held to be comparable with any assessee engaged in software development. Similar view was also taken in the case of PCIT Vs. FISERV India Pvt. Ltd [2016 (1) TMI 1276 - DELHI HIGH COURT] Hence respectfully following the aforesaid decisions of Hon’ble Jurisdictional High Courts, we hold that Thirdware Solution Ltd should be excluded from the final list of comparables while benchmarking international transaction of software development segment of the assessee.
Exclusion of Persistent Systems Ltd to be functionally not comparable with that of the assessee company and also in the absence of segmental data. Accordingly, we direct the ld AO/ TPO to exclude the same from the final set of comparables while benchmarking international transaction of the assessee in respect of software development segment.
Exclusion of E-Zest Ltd comparable company is rendering product development services and high end technology services which come under the Knowledge Process Outsourcing (KPO) services and cannot be comparable with Captive Software Development company like assessee.
Exclusion of Tata Elxsi comparable company is engaged in the development of Niche product and had to be considered incomparable with the routine software service provider.
TP adjustment - Comparable selection for international transaction of business support services rendered by the assessee - Exclusion of Alphageo (India) Ltd as not comparable from the final set of comparables while benchmarking the business support services of the assessee as the revenue has been generated predominantly out of six projects which was related to 3D seismic and 2D project seismic surveys which is a high value business and whereas, the assessee herein is engaged in providing low risk captive ITES services to its AEs.
Exclusion of Mitcon Consultancy Services Ltd. as it is involved in high end consultancy services whereas, the assessee herein is low end captive service provider to its AEs. Hence, we hold that the said company is functionally not comparable with that of the assessee herein. Accordingly, we direct the ld AO/ TPO to exclude this comparable company from the final list of comparables while benchmarking the international transaction of the assessee in respect of its ITES segment.
Exclusion of HCCA Business as the said company is involved in providing high end activities which required professional skill and domain expertise to render those services and accordingly would apparently fall under the category of Knowledge Process Outsourcing (KPO), thereby making it incomparable with the assessee company as it is low end Business Processing Outsourcing (BPO) services provider to its AEs. However, some of the activities carried out by this comparable company also falls within the ambit of BPO services. However, there is no segmental data available to ascertain the segmental margins from KPO services and BPO services separately. Hence, we hold that the said comparable company is required to be excluded from the final set of comparables while benchmarking the international transaction of the assessee in respect of its ITES segment.
Exclusion of Cyber Media Online Ltd company is engaged in media and media services, thereby making it completely functionally incomparable with that of the assessee company which is engaged in low risk captive ITES service provider to its AEs. Hence, we direct the ld TPO to exclude this company from final set of comparables while benchmarking the international transaction of the assessee in respect of its ITES segment of the assessee company.
Educational Consultants India Ltd as a comparable as excluded by the ld TPO - as pointed out by the ld DR that though this company is engaged in the business of provision of support services, it is also a company under the control of Govt. of India. As we have already held that the Govt company cannot be compared with the private concern like that of the assessee, we hold that this comparable company had been rightly excluded by the ld TPO.
TP Adjustment - ALP of International Transactions of import of fixed assets - validity of Benchmarking carried out by the TPO for import of fixed assets - HELD THAT:- TPO had not referred to any of the prescribed methods in section 92C of the Act to determine the ALP of international transaction in respect of import of fixed assets to be at Rs. Nil. The Ld. TPO is bound to follow any of the prescribed six methods as the most appropriate method for benchmarking the international transactions of the assessee. Without following any of the prescribed method, the Ld. TPO is prohibited from benchmarking the international transaction of the assessee.
Even though the Ld. TPO had mentioned that he is following CUP method as the most appropriate method for benchmarking this transaction, in effect, he had not adopted CUP method as per Rule 10B of the Rules. This is because of the fact that he had not brought on record any comparable uncontrolled transactions to justify the basis of adoption under CUP. In view of the same, the benchmarking carried out by the TPO for import of fixed assets is hereby directed to be deleted. Accordingly, the ground raised by the assessee is allowed.
TP Adjustment - delayed receipt of outstanding receivables from the AEs - TPO, in the order re- characterized the delay in receipt of receivables as unsecured loans advanced to the associated enterprise and imputed notional interest on the delay in receipt of receivable, at a rate of 14.88% being prevailing Prime Lending Rate issued by State Bank of India at 11.88% plus a mark-up of 300 bps -
AR argued with regard to additional evidences, the opening balance of receivables as on 01.04.2009 was never asked by the ld TPO in the show cause notice. Whatever details that were called for were duly furnished before the ld TPO. The ld AR also submitted in rebuttal that details of amounts payable to AEs were duly furnished by the assessee before the ld TPO - HELD THAT:- We deem it fit and appropriate that this is a fit case for admission of the additional evidences filed by the assessee. Accordingly, we admit the additional evidences and restore the entire issue in toto to the file of ld AO/ TPO for denovo adjudication in accordance with law after considering the entire additional evidences and decision of Hon’ble Delhi High Court in the case of Kusum Healthcare [2017 (4) TMI 1254 - DELHI HIGH COURT] The assessee is also at liberty to adduce further evidences, if any, in support of its contentions.
Appeal of the assessee is partly allowed for statistical purposes.
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2023 (11) TMI 1184 - ITAT BANGALORE
Disallowance of contribution to provident fund, superannuation fund / gratuity fund or any other fund for the welfare of the employees - disallowance u/s. 43B - case of the assessee that the amount has been debited to the profit & loss account of the previous year - sum payable to an employee by way of contribution towards fund has been shown in the tax audit as not allowable expenses u/s. 43B - HELD THAT:- The amount, was not available for deduction in 2017-18 as the same amount was not paid by the assessee on or before the due date applicable in it’s case of furnishing his IT return u/s. 139(1) - in terms of the provision of the law, the same expenditure can be availed as deduction in the year of actual payment i.e. for A.Y. 2018-19.
The claim of making such payment in the previous year not appearing in the audit report due to some technical error. In that view of the matter, the assessee prayed for deletion of the adjustment made in the intimation u/s. 143(1) of disallowance of payment towards contribution of provident fund and superannuation for the year under consideration.
No evidence has been filed by the appellant to the amount as added back to the income of the appellant for A.Y. 2017-18, particularly the computation of income for A.Y. 2017-18 and the contention made by the appellant was not found to be acceptable as also the same fact is not appearing in the Audit Report as a technical error, the addition was upheld by the Ld.CIT(A).
At the time of hearing the instant appeals, assessee submitted before us that the issue may be remitted to the file of Ld.AO for verification of the same upon considering the evidences to be placed by the assessee in support of the case made out. The Ld.DR on the other hand relied upon the order passed by the Ld.CIT(A).
We in order to prevent the miscarriage of justice, find it fit and proper to remit the issue to the file of Ld.AO to adjudicate the issue afresh upon considering the evidence on record and any other evidence which the assessee may choose to file at the time of hearing of the matter. We also further make it clear that the assessee in that event be given an opportunity of being heard by the Ld.AO. This ground of appeal is, therefore, allowed for statistical purposes.
Addition u/s. 40(a)(ia) - non compliance with the provisions of chapter XVII-B - assessee’s case is this that the receiver of the above expenditure has offered as income in its return of income for the respective financial year - case of the revenue is this that no details have been furnished about the receiver neither evidence has been filed to show that the receiver of the said expenditure has offered this amount as income in its ITR filed for A.Y. 2018-19 u/s. 139 - HELD THAT:- As assessee submitted before us that the issue may be remitted to the file of Ld.AO for verification of the same upon considering the evidences to be placed by the assessee in support of the case made out. DR on the other hand relied upon the order passed by the Ld.CIT(A).
We in order to prevent the miscarriage of justice, find it fit and proper to remit the issue to the file of Ld.AO to adjudicate the issue afresh upon considering the evidence on record and any other evidence which the assessee may choose to file at the time of hearing of the matter.
Scope of limited scrutiny - Addition towards non-deduction of tds u/s 194H - assessee argued case was selected for limited scrutiny under CASS to verify the issue “verification of the genuineness of the expenses” and therefore the scope of making addition in the instant case is beyond the scope of limited scrutiny and thus the addition is not in accordance with law and thus liable to be deleted - HELD THAT:- The submission of the Ld.AR have not been able to be controverted by the Ld.DR rather consideration of the issue of payment of TDS is also within the scope of limited scrutiny for verification of the genuineness of the expenses as was the ultimate argument by him. However, according to us such submissions is found to be not tenable, the scope of limited scrutiny is only within the periphery of the verification of the genuineness of the expenses which does not include the payment of TDS as has been considered in this particular case by the Ld.AO and addition made thereof. Hence the same is not found to be justified and thus deleted.
TDS u/s 194H - Whether TDS is not liable deducted on whole receipts? - From the case in hand, we find that the parties are service providers who collect fees from participants and they collect gateway payment commission from the appellant after returning the gateway charges they transfer the balance amount collected from the participants to the appellant.
We find that the payments made to gateway providers are not brokerage and TDS u/s. 194H of the Act is not liable to be deducted. TDS is not liable to be made u/s. 194H. The addition, is, therefore, deleted.
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2023 (11) TMI 1183 - ITAT INDORE
Unexplained deposit made in the bank account - assessee filed the return of income declaring total income from the business of trading in Cattle Feed (Cotten Seed Cake) - HELD THAT:- Deposit as well as withdrawal mostly by issuing cheques in banks favour showing the narration y/s (yourself) clearly manifest the transactions of issuing drafts as explained by the assessee for purchase of the goods.
AO has added the entire deposit in the bank account to the income of the assessee without even considering facts available on record in the shape of the bank account statement of the assessee having both entries of deposit as well as the payments through bank drafts. Therefore, the addition made by the AO ignoring the relevant facts available on record is not justified when the assessee have already explained the source of deposit as sale proceeds and corresponding withdrawals represent the payments made for the purchases through bank drafts corroborating explanation of the assessee.
Accordingly having considered the undisputed facts as reflected from the bank account statement of the assessee the addition made by the AO of the entire deposit made in the bank account is not justified and the same is deleted. Decided in favour of assessee.
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2023 (11) TMI 1182 - ITAT RAIPUR
Unexplained money u/s 69A - cash deposited in bank account - Assessee had not filed its return of income for the said year - HELD THAT:- So far, the A.O.'s observation that the assessee firm's explanation, regarding the source of cash deposits in its bank account did not inspire much confidence as they were made during the demonetization period; we are afraid that the same cannot be accepted.
On the contrary, the conduct of the assessee firm in depositing whatever cash that was available as Opening Cash In Hand [C.I.H] in its books of account during the demonetization period could be the only prudent approach that the assessee firm could have adopted.
Also, as the A.O had neither established that the C.I.H of Rs. 52.47 lac (supra) that was available with the assessee firm on 01.04.2016 was thereafter utilized by it for making any other investment or was exhausted towards incurring any expenditure, therefore, find no justification on his part in summarily rejecting the assessee’s explanation that the cash deposits of Rs. 33 lacs (supra) made in its bank account during the year were sourced out of the same.
Accordingly, explanation of the assessee firm as regards the source of the cash deposits in its bank account maintained with Federal Bank, Bilaspur merits acceptance. Thus vacate the addition made by the AO u/s 69A of the Act. The Ground of appeal no. 1 of the assessee firm is allowed.
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2023 (11) TMI 1181 - ITAT DELHI
Nature of expenses - Allowability of Penal Interest paid to NOIDA - capitalization of interest - AO made disallowance in of penal interest out of project expenses (work in progress) by holding that the interest being penal in nature is clearly not allowable under the provisions of the Act - assessee submitted that the impugned interest claimed by the assessee is neither related to any offence or arising out of any prohibition in law or any infraction of law but relates to the delay in payment for the lease amount to the Noida Authority - CIT(A) deleted addition and directed the AO not to reduce the said amount and allow it to be capitalized under project expenses - HELD THAT:- As there is no findings by the AO nor any submission by the ld Sr. DR to show that the interest paid by the assessee was penal in nature.
Per contra, from the findings and observations of ld CIT(A), as has been reproduced hereinabove, it is clear that the after evaluation of documentary evidence including agreement with the Noida Authority, CIT(A) noted that the interest claimed by the assessee neither relates to any offence or arising out of any prohibition in law or any infraction of law but relates to the delay in payment for the lease amount to the Noida Authority and thus parable as per the agreement @3% of the default amount for the period of delay in such payment.
With these observations CIT(A) correctly allowed the assessee to capitalize the interest paid by the assessee to Noida Authority. CIT(A) also observed that the said interest amount have been incurred towards project expenses and not liable to be reduced from the project expenses, being part and parcel of the project cost as additional interest payment due to delay in payment of lease charges.
We are inclined to agree with the conclusion of the ld CIT(A), where he directed the AO not to reduce the amount of interest from the work in progress and allow the same to be capitalized under the project expenses. Therefore, no interference is called for the in the first appellate order. Decided against revenue.
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2023 (11) TMI 1180 - SC ORDER
Maintainability of appeal - monetary limit involved in the appeal - HELD THAT:- The appeal is dismissed having regard to the low tax effect.
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2023 (11) TMI 1179 - SC ORDER
Maintainability of SLP - delay of 308 days in filing SLP - no proper explanation - HELD THAT:- There is a delay of 308 days in filing the Special Leave Petitions which has not been explained satisfactorily. The Special Leave Petitions are dismissed on the ground of delay.
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2023 (11) TMI 1178 - SC ORDER
Maintainability of appeal - monetary limit involved in the appeal - HELD THAT:- In view of the low tax effect, the civil appeals are dismissed. However, the question of law, if any, which arises in these appeals, is kept open to be agitated vis-a-vis the respondent assessee in respect of any subsequent assessment year.
Appeal dismissed.
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2023 (11) TMI 1177 - KERALA HIGH COURT
Seeking grant of Regular Bail - Smuggling - contraband gold in compound form - alleged involvement of the petitioner or not - HELD THAT:- Though the allegations against the petitioner are serious, considering the fact that the petitioner has been detained since 5.10.2023 and the investigation has progressed, it is held that bail can be granted to the petitioner.
Accordingly, this application is allowed, and the petitioner is granted bail subject to the conditions imposed.
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2023 (11) TMI 1176 - CESTAT NEW DELHI
Exemption from Levy of Customs Duty - goods removed from SEZ to DTA (initially procured from DTA) are chargeable to customs duties in terms of section 30 of SEZ Act, 2005 read with rule 47 of SEZ Rules, 2006 or not - re-import of goods - DTA unit has already claimed export benefits - HELD THAT:- The provisions of section 30 of the SEZ Act permits DTA clearances by a SEZ unit on certain conditions and that is goods to be removed from SEZ to DTA would be chargeable to duties of customs etc. It is a settled principle of law that once the provisions of an enactment are simple and there is no ambiguity there is no scope for interpretation. A three Judge Bench of the Apex Court in KALYAN ROLLER FLOUR MILLS (P) LTD. VERSUS COMMISSIONER OF COMMERCIAL TAXES, ANDHRA PRADESH [2014 (1) TMI 1802 - SUPREME COURT], observed that when the language is clear and plain, the courts cannot enlarge the scope by interpretative purposes.
The appellant has raised the contention that he has been wrongly denied the benefit of the exemption Notification No. 45/2017-Cus., which provides different levels / measures of exemption benefits to the re-imported goods depending upon which export benefits, like duty drawback, rebate etc., were availed and subject to several conditions - the Commissioner has noted, that the appellant has submitted few sample invoices and on perusal of one tax invoice issued by the DTA, namely M/s Lupin Limited, Palghar to the appellant bearing Invoice No. 0000002152 dated 08.03.2017, it is observed that it has been dispatched on payment of Central Excise duty and drawback too have been claimed, however, the appellate authority has failed to examine the issue of exemption benefit under the said notification in detail, giving specific reasons.
The matter needs to be remanded on the applicability of the exemption notification and whether the appellant is entitle to any benefit in terms thereof - Appeal partly dismissed and part matter on remand.
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2023 (11) TMI 1175 - CESTAT CHENNAI
Confiscation of imported goods - redemption fine - levy of penalties - Maxx Air Pedestal Fan with essential spares - evasion of Customs Duty - MRP of the goods assumed to be mis-declared by the importer - HELD THAT:- There was differential duty worked out, which was accepted and also paid by the appellant-importer. From the documents placed on record, we do not find any mala fides on the part of the appellant-importer. A perusal of the e-mail exchanged between the appellant and their vendor clearly indicates the request insofar as the MRP is concerned, but however, it was perhaps the mistake of the vendor/supplier in not effecting the required RSP tag. No doubt, the original price as per the purchase order, which is placed at page number 53 of the appeal memorandum (dated 27.05.2013) was INR 2400 per piece - The requirement of Section 4A(1) ibid. is the declaration on the package the retail sale price (RSP) of the goods and sub-section (2) thereof states that such declared value shall be deemed to be the retail sale price (RSP) declared on such goods less such amount of abatement, if any. The price tag admittedly on the package was the maximum retail price (MRP) displayed, which cannot be the RSP, since RSP may not always be the MRP and MRP also may not always be the RSP.
The case of the appellant comes out of the mischief of Section 112(a) since the alleged mis-declaration would not per se justify confiscation of the goods in question under Section 111. This is because the appellant perhaps chose to go by the new MRP list (placed at page 57 of the appeal memorandum) whereas the vendor, for the best reasons known, affixed MRP of INR 2100/- and hence, no mala fides could be attached on the part of the appellant.
Facts of the case on hand are very peculiar inasmuch as, clearly there was an understanding as regards the value is concerned, in support of which documents in the form of e-mails have been placed on record, which are not disputed by the Revenue. The value affixed on the label did not clearly show the price agreed upon in the purchase order dated 27.05.2013. Further, the said price tag was sought to be revised for the reason of fluctuation in the value of the Indian Rupee as against the U.S. Dollar, which fact was also not disputed, but however, the same apparently was not implemented by the foreign vendor / supplier.
Thus, the bona fides of the appellant cannot be suspected just because the vendor / supplier chose to affix a different price tag and therefore, there is no case for the Revenue to order confiscation of the goods in question - there is no question of redemption fine under Section 125 ibid - appeal allowed.
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2023 (11) TMI 1174 - CESTAT, ALLAHABAD
Failure to implement the order of the tribunal - Re-export of goods - Application filed under Rule 41 of the CESTAT (Procedure) Rules, 1982 for implementing the Final order of the tribunal - direction to permit the applicant/ appellant to re-export the gold jewelleries within a period of two months.
HELD THAT:- From the facts as narrated, it is quite evident that concerned officers are acting in defiance of the orders of this tribunal, by violating the principles of judicial discipline. Sufficient time and opportunity has been given to the concerned authorities to act as per the law, and follow the rule of law as has been provided by the Constitution of India. However the arrogance of these officers by not implementing the orders of this tribunal is self evident even when by the order dated 21.06.2021, the tribunal by asking the applicant to file a bank guarantee and keep it alive till the disposal of the Appeal Filed by the revenue before Hon’ble Allahabad High Court has protected the interests of revenue.
As the Respondent Commissioner and Commissioner of Customs (Exports) New Delhi has not implemented the order of the Tribunal even after being directed under Rule 41 of CESTAT Procedure Rules, 1982 and having been allowed sufficient time and opportunity, this is a fit case for imposition of cost on the Commissioner to ensure that he understands the meaning of the phrase “Judicial discipline’ - As the Commissioner has acted in flagrant falling the authority of this Tribunal the matter needs to be referred to the Hon’ble jurisdictional High Court for initiation of contempt proceedings against the concerned Commissioner.
It is directed that the concerned Commissioner should implement the order dated 12.09.2019 within fortnight of the receipt of this order - List this matter for reporting compliance with this order on 11.12.2023.
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2023 (11) TMI 1173 - NATIONAL FINANCIAL REPORTING AUTHORITY
Professional Misconduct - Chartered Accountant (CA) - Failure to report non-consolidation of subsidiary - Failure to prepare audit documentation - Failure to report issues related to disclosure of Credit Risk Exposure - Failure to plan the audit of Financial Statements - Failure to perform Analytical Procedures - Failure to determine Materiality - Failure to perform risk assessment procedures and response to such risks - Failure to obtain Sufficient Appropriate Audit Evidence (SAAE) - Failure to prepare documentation regarding Auditor’s responsibilities relating to fraud in an Audit of Financial Statements - Failure to communicate with Those Charged with Governance (TCWG) - Failure to report non-disclosure of Related Party Loans on gross basis - Failure to report non-disclosure of Trade Payable covered under the Micro, Small and Medium Enterprises Development Act, 2006 - Failure to report full particulars of loan to Related Party - Failure to report non-disclosure of Material Information relating to pledge of fixed deposits - Penalty and Sanctions.
Failure to report non-consolidation of subsidiary - HELD THAT:- In the qualified opinion by the EP, when there was sufficient basis for an adverse opinion, was without due diligence and without obtaining sufficient appropriate audit evidence, and thus the EP failed to comply with Para 8 of SA 705 - the EP too during personal hearing has acknowledged this lapse.
Failure to prepare audit documentation - HELD THAT:- The Executive Counsel to the Financial Reporting Council (FRC), the UK Audit Regulator, in the matter pertaining to Deloitte LLP and John Charlton in the audit of Mitie Group plc. for the year ended 31 March 2016, imposed a financial sanction of Two Million Pounds, a published statement in the form of severe reprimand against Deloitte and a financial sanction of 65,000 Pounds and a published statement in the form of a severe reprimand against Charlton besides other things, for breach of ISA 230 as they failed to adequately document the audit work papers.
Failure to report issues related to disclosure of Credit Risk Exposure - HELD THAT:- There is no evidence in the Audit File of the Letter of Credit stated as security for the secured Trade Receivables. There is no evidence of receipts from M/s. Tecnimont after 31.03.2017 and no ageing analysis of the Trade Receivables performed by the EP. In the absence of such evidence, the reply of the EP seems an afterthought and is not acceptable. It is evident that the EP’s conclusion about the credit risk being low was not based on sound documented analysis. In light of the above, we find that the EP was negligent in not reporting the non-disclosure of trade receivables in accordance with Para 35M and 35N of Ind AS 107, not obtaining external confirmation as per SA 505 and not exercising due care in the audit of Trade Receivables.
Failure to plan the audit of Financial Statements - HELD THAT:- Failure to make an appropriate audit plan has been viewed seriously by other regulators as well. For example, PCAOB, the US Regulator, charged L.L. Bradford & Company, LLC (the "Firm") for its failure to develop an appropriate audit plan for the audit of Web:XU Inc.'s ("WebXU") and concluded that the "the Firm violated PCAOB rules and auditing standards with respect to an audit and a quarterly review of one issuer audit client. Specifically, the Firm in conducting its audit of the financial statements of WebXU for the year ended December 31, 2011, failed to properly assess the risks of material misstatement. As a result, the Firm failed to properly identify significant risks in connection with the 2011 WebXU audit. The Firm also failed to properly establish an overall strategy for the audit and develop an audit plan that included planned risk assessment procedures and planned responses to the risks of material misstatement.
Failure to perform Analytical Procedures - HELD THAT:- It is evident that the Audit File does not evidence any analytical procedures performed, which proves that the EP failed to design and perform analytical procedures and enquire with the management regarding fluctuations in the figures from previous FY - It is concluded that the EP has violated Para 3(b) and Para 6 of SA 520.
Failure to determine Materiality - HELD THAT:- The EP’s assertion that nothing has been set out to indicate or prove that alleged misstatements have significantly impacted the usability of Financial Statements is false and misleading. Examination of the Audit File revealed that EP did not even determine materiality or performance materiality in the audit of Financial Statements of MIIL - it is emphasised that materiality is one of the most important concepts in the audit of Financial Statements. Where material information is omitted or misstated, the Financial Statements will not be in compliance with the requirements of the SAs and therefore of the Law as Section 143(9) of the Companies Act, 2013 requires the auditors to comply with the SAs - As there is no working paper in the Audit File evidencing determination of materiality by the EP, it is concluded that the EP has failed to adhere to the mandatory requirements of determining Materiality in accordance with SA 320 and falsely stated in his report that he had conducted the audit in accordance with the SAs specified under Section 143(10) of the Act.
Failure to perform risk assessment procedures and response to such risks - HELD THAT:- It is observed from the Audit File and the reply submitted, that the EP has failed to identify and document the applicable financial reporting framework where he is found wanting with non-identification of Ind AS 101, an Ind AS having most critical impact on the financial statements for the year ending 31.03.2017 under investigation - it is noted that a number of errors in the financial statements and non-compliances of Ind ASs by the Company, which the EP has failed to identify and appropriately modify his audit report. As a result, there are a number of fundamental fatal lapses in the audit work which render the audit of financial statements for FY 2016-17 unreliable.
Failure to obtain Sufficient Appropriate Audit Evidence (SAAE) - HELD THAT:- There is no evidence at all of work done in this fundamental audit area. In the light of the EP’s failure to adhere to the requirements of SAs and failure to report non-compliance of Ind AS and Companies Act, 2013 provisions, it is concluded that the EP has been grossly negligent in his professional duties and has failed to obtain SAAE in critical areas of audit mentioned above, thereby violating SA 200.
Failure to prepare documentation regarding Auditor’s responsibilities relating to fraud in an Audit of Financial Statements - HELD THAT:- There is no evidence in the Audit File that the EP had identified and assessed the risks of material misstatement to comply with the requirements of Para 16 of SA 240 where Auditor is required to perform the procedures as mentioned in Paragraphs 17 to 24 of SA 240, to obtain information for use in identifying the risks of material misstatement due to fraud. Further, the EP failed to evaluate whether the information obtained from other risk assessment procedures and related activities performed indicates that one or more fraud risk factors are present and therefore did not comply with Para 24 of SA 240 - it is nowhere documented in the Audit File whether EP had inquired from the company’s staff in respect of internal control processes or observed the staff performing the controls. The reply is an afterthought to mislead NFRA and hide his deficiencies in conduct of audit. In the light of above, we conclude that the EP failed to comply with the requirements of Para 16 and 24 of SA 240.
Failure to communicate with Those Charged with Governance (TCWG) - HELD THAT:- EP has failed to exercise due diligence and was grossly negligent in not identifying and communicating with TCWG and consequently, failed to comply with the requirements of SA 260 and SA 265.
Failure to report non-disclosure of Related Party Loans on gross basis - HELD THAT:- combined reading of various prescriptions of Ind AS 24 in Para 18, Para 20, Para 21 and Para 24, shows that they require the entities to disclose Related Party Transactions (RPT) on gross basis, since the overarching objective of Ind AS 24 is to disclose information that is relevant to understand the effect on financial position as well as profit or loss of the entity. For example, outstanding receivables and payables to a related party, though arising from transactions in earlier years would affect the financial position or nature of its assets and liabilities. Further, disclosure of RPTs on a net basis would obscure the extent (volume) of quantitative effect of RPTs on the financial performance and cash flows of the entity, if they have been squared off or netted before the year end - it is found that the EP has erred by failing to exercise due professional care by not reporting such non-disclosure.
Failure to report non-disclosure of Trade Payable covered under the Micro, Small and Medium Enterprises Development Act, 2006 - HELD THAT:- The EP has failed to address the non-disclosure in respect of MSME and explain its impact on the Financial Statements. The EP also failed to state his opinion on the Financial Statements, taking into account the inappropriate disclosure. In view of this, we conclude that the EP failed to report the non-disclosure of the amount of principal and interest outstanding as required under the Micro, Small and Medium Enterprises Development Act, 2006 during the year as per Schedule III of the Companies Act, 2013.
Failure to report full particulars of loan to Related Party - HELD THAT:- As Related Party Transactions are often prone to misuse, including diversion of funds and therefore a material area of audit and subject to stricter legal scrutiny, the EP was required to be more cautious and exercise professional skepticism in this sensitive area of audit - It is concluded that this is a clear case of afterthought, and the EP has failed in his attempt to cover up for his nonchalant attitude by not performing the duties of a statutory auditor of a PIE.
Failure to report non-disclosure of Material Information relating to pledge of fixed deposits - HELD THAT:- EP submits that he cannot be held responsible when both external and internal audit evidence gathered reflected that there was no lien on the fixed deposit - In view of the explanation and workpapers submitted by the EP, the 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 fact that professional misconducts have been proved and considering nature of violations and principles of proportionalities, in exercise of powers vested under Section 132(4) (c) of the Companies Act,2013, it is ordered that:
(a) Imposition of monetary penalty of Rs.5,00,000 (Rupees Five Lakhs Only) upon CA Nilesh Chheda.
(b) In addition, CA Nilesh Chheda is debarred for 5 (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 (11) TMI 1172 - SC ORDER
Maintainability of SLP - Special Leave Petitions/Civil Appeals have been filed prior to the adjudication under Section 100 of the Insolvency and Bankruptcy Code 2016 - HELD THAT:- As the petitioners/appellants would be able to pursue all remedies before the Adjudicating Authority at the stage of Section 100, these Special Leave Petitions/Civil Appeals cannot be entertained.
The Special Leave Petitions and Civil Appeals are accordingly dismissed.
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2023 (11) TMI 1171 - SC ORDER
Refund of pre-deposit amount - HELD THAT:- The pre-deposit amount, deposited by the appellant herein before the CESTAT may be refunded to the appellant, in accordance with law.
Application disposed off.
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2023 (11) TMI 1170 - MADRAS HIGH COURT
Rejection of application filed by the petitioner under Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 (SVLDRS, 2019) - rejection on the ground that Quantification of tax dues was not done on or before 30.06.2019 - HELD THAT:- In the present case, the petitioner has field belated returns between 07.01.2018 and 22.02.2018 for the returns in ST-3 for the period between 2014-2015 and 2017-2018 as is evident from the reading of the Show Cause Notice - The variance in the amount is only Rs. 1,93,440/-. Thus, there is quantification by the petitioner based on the audit that was conducted which has culminated in the issuance of Show Cause Notice No.84/2019-ST dated 08.11.2019.
The petitioner is entitled to be relief under the scheme. Consequently, the proposals in the Show Cause Notice No.84/2019-ST dated 08.11.2019 was unwarranted - Petition allowed.
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2023 (11) TMI 1169 - CESTAT NEW DELHI
Levy of penalty u/s 78 of Finance Act - Benefit of reduced penalty is available or not - entire amount of service tax demanded along with interest and penalty equal to 25% of the penalty imposed already paid - HELD THAT:- In the written submissions of the appellant, the only request made is that the benefit of section 76 of the Act should be given to the appellant as it had already paid the entire amount of service tax demanded along with interest and penalty equal to 25% of the penalty imposed. It is found that this is a fact which needs to be verified. There is no dispute regarding the amount of service tax liability. The only issue that has to be seen is whether the appellant had deposited only Rs. 17,85,662/- as held by the original authority or it had deposited Rs. 13,87,713/- as asserted by the appellant. It also needs to be verified that whether the appellant had deposited 25% of the penalty of Rs. 13,87,713/- within 30 days to avail the benefit of the proviso to section 78 of the Act.
The factual verification may be done by the original Benefit of section 76 of the Act by the original authority and if the entire amount of service tax, as asserted by the appellant, was already paid and the penalty under section 78 of the Act was also paid within 30 days, as asserted by the appellant, the appellant should have no grievance - the impugned order upheld - appeal dismissed.
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2023 (11) TMI 1168 - CESTAT NEW DELHI
Classification of services - composite works contract or not - whether the collaboration agreement is for rendering commercial or industrial construction service or commercial or industrial construction service - HELD THAT:- It is not in dispute that the impugned order has given abatement to the appellant so as segregate the goods portion of the contract with the service portion. The activity performed by the appellant would, therefore, classify as works contract. The finding recorded by the Additional Director to the contrary cannot be sustained.
Such being the position, no service tax could have been demanded from the appellant prior to 01.06.2007 and for the period post 01.06.2007 the demand of service tax cannot be sustained for the simple reason that the show cause notice alleged that the appellant had rendered commercial or industrial construction service and the Adjudicating Authority has also confirmed the demand under this head.
Such being the position, it is not possible to sustain the order dated 30.11.2016 passed by the Additional Director - impugned order set aside - appeal allowed.
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2023 (11) TMI 1167 - SC ORDER
Maintainability of appeal - Monetary limit involved in the appeal - low tax effect - HELD THAT:- The Civil Appeals are dismissed owing to low tax effect.
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