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2024 (3) TMI 1134
Recovery of dues - Attachment of assets - dues of MVAT Authorities’ have charge in priority to the secured creditors or not - HELD THAT:- A plain reading of Section 26-E would show that once a secured creditor registers its security interest (under Section 26-B), notwithstanding any other law in force, the debts owed to the secured creditor shall be paid in priority over all other debts including taxes payable to the State Government. The “registration of security interest” referred to in Section 26-E of the SARFAESI Act, is the registration of such interest with CERSAI under Section 26-B.
The formulation of the two provisions in the SARFAESI Act and the MVAT Act respectively, is a conscious policy choice of balancing of interests of competing creditors who have finite assets to pursue in enforcing recovery of their claims. Dues owed to banks, if not paid, can have a harsher and wider adverse social impact. A collapse of banks would not only hurt the interests of various depositors but also inflict a wider deleterious impact on other segments of the economy. Potentially, it would be tax-payers’ funds that would have to be infused into the banks to bail them out to avoid such adverse social impact. On the other hand, if the banks are given a priority in recovery, and in the process, the secured assets are sold without hindrance to an auction purchaser, such asset would continue to be put to economic use, which would also generate tax revenues. In addition, other assets that are not the subject matter of a security interest registered prior in time can continue to be proceeded against in enforcement proceedings to recover tax dues.
The issue at hand has been extensively analysed in the case of Jalgaon Janta Sahakari Bank [2022 (9) TMI 163 - BOMBAY HIGH COURT]. Examining multiple fiscal statutes that create a statutory charge over assets of an assessee and their interplay with Section 26-E of the SARFAESI Act where such assessee has created a security interest in favour of secured creditors, the Full Bench of this Court held that where Section 26-E is attracted, the position in law is not that dues owed to a department of the State Government would have to be paid first. The Full Bench repelled exactly the same argument we were presented with – that Section 26-E only provides a “priority” but does not actually create a “first charge”, whereas provisions akin to Section 37 of the MVAT Act create a first charge. The Full Bench held that the secured creditor whose security interest is registered with CERSAI prior in time, would get precedence over the dues owed to the State. The Full Bench ruled that such a formulation is a conscious choice made by the legislature.
The assertion of the MVAT Authorities that they had priority over secured creditors was totally misconceived and without basis in law. Statutory authorities enforcing law must necessarily refrain from conducting themselves in a manner that conflicts with the law declared by a Full Bench of a constitutional court. There are no hesitation in declaring that none of the attachment orders can result in the MVAT Authorities stealing a march in priority over the registered security interest enjoyed by the Petitioner-led consortium of banks.
The impugned attachment orders of the MVAT Authorities dated 24th February, 2022, 7th April, 2022 (issued to the Borrower) and 31st July, 2023 (issued to the Petitioner) would not confer any priority over the registered security interest enjoyed by the Petitioner-led consortium banks over the Secured Assets - The Petitioner has the first priority in respect of enforcement against the Secured Assets by reason of Section 26-E and having a prior registration of the security interest with CERSAI. The Petitioner is therefore entitled to enforce such security interest enjoying priority over the MVAT Authorities.
Petition allowed.
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2024 (3) TMI 1133
Rejection of bid - requirement of uploading annual turnover certificate issued by the Chartered Accountant for the last five financial years bearing UDIN of Institute of Chartered Accountants of India with breakup of civil works and total works in each financial year is mandatory condition of contract and breach thereof - substantially responsive in terms of clause 25.1 of the ITB - submission/uploading of turnover for at least one out of the last five financial years bearing UDIN is substantial compliance of clause 4.2 (III)(a) read with clause 4.4 B(a) III (a) of the ITB and bid submitted by respondent No. 5 or not - HELD THAT:- Admittedly, in the instant case, the bid amount is more than Rs.200 lacs and, therefore, the bidder was required to show a minimum financial turnover equivalent to 75% of the amount put to bid. He was further required to show that at least 50% of such financial turnover which is equivalent to 75% of the bid amount is from civil engineering construction works. The bidder was also required to show that he had satisfactorily completed, as prime Contractor or sub-contractor, at least one similar work equal in value to one-third of the estimated cost of work of any Government/Semi Government Department (excluding maintenance cost for five years) for which the bid was invited.
The official respondents are fair in admitting before this Court that they did not take into consideration the turnover certificate issued by the Chartered Accountant on 23.12.2022 in respect of five years i.e 2017-18, 2018-19, 2019-20, 2020-21 and 2021-2022. The official respondents have, however, failed to explain by giving any cogent reason as to why and how the certificate dated 23.12.2022 which as per the official respondents was not admissible to be considered, has been relied upon to import the execution of requisite volume of civil work into the tax audit report which they considered to determine bid capacity of the respondent No. 5. The decision of the Technical Evaluation Committee in relying upon a part of annual turnover certificate dated 23.12.2022 issued by the Charted Accountant without bearing UDIN is, on the face of it, illegal, arbitrary and seemingly unfair and biased against the petitioner and in favour respondent No. 5.
It is true that to qualify for award of contract, the bidder is required to show that he has achieved in any one of the last five financial years, a minimum financial turnover of which 50% is from civil engineering construction work, equivalent to the amount of 75% of the bid amount where the bid amount is more than 200 lakhs, yet the requirement of submission of annual audit reports of five financial years cannot be dispensed with. The Technical Evaluation Committee was obliged to strictly adhere to clause 25 of the ITB and determine, inter alia, amongst other conditions that the bid submitted by respondent No. 5 was conforming to the eligibility criteria defined in Clauses 3 and 4 of the ITB.
This Court finds that the decision taken by the official respondents on 24.12.2022 is not only non-compliant in so far as the mandatory terms and conditions of ITB are concerned, but is otherwise irrational, arbitrary, unfair and in violation of Article 14 of the Constitution - Without entering into this controversy and with a view to doing the complete justice in the matter, this petition is disposed of in the following manner: Impugned decision taken on 24.12.2022 by the official respondents is quashed. The respondents are directed to issue fresh e-NIT inviting fresh bids from the eligible bidders for the subject work and proceed to conclude the bidding process strictly in accordance with the terms and conditions of the contract and the legal position stated above without any further waste of time.
Keeping the public interest in view and also that the execution of the work is already delayed, it is impressed upon the official respondents to embark upon the exercise of issuing fresh e-NIT at the earliest and conclude the same without any further waste of time.
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2024 (3) TMI 1132
Refund claim - rejection on the ground of time limitation - HELD THAT:- Clearly, the case of the petitioner is covered by the Notification dated 05.07.2022, which excludes the aforesaid period for computation of period of limitation. Accordingly, rejection of the claim for refund of the petitioner solely on the ground of limitation is not sustainable.
Impugned orders both dated 11.01.2022 for the respective tax period are set aside. Refund applications are restored on the record of the Assessing Authority, who is directed to decide the applications in accordance with law and pass appropriate orders within a period of four weeks from today.
Petition allowed.
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2024 (3) TMI 1131
Violation of principles of natural justice - impugned order does not take into consideration the reply submitted by the petitioner and is a cryptic order - demand including penalty - HELD THAT:- The observation in the impugned order dated 30.12.2023 is not sustainable for the reasons that the reply filed by the petitioner is a detailed reply. Proper Officer had to at least consider the reply on merits and then form an opinion whether the reply was incomplete, not duly supported by adequate documents and unsatisfactory. He merely held that the reply is not clear and unsatisfactory which ex-facie shows that Proper Officer has not applied his mind to the reply submitted by the petitioner.
Further, if the Proper Officer was of the view that the reply is incomplete, not duly supported by adequate documents and unsatisfactory, if further any details were required, the same could have been specifically sought from the petitioner. However, the record does not reflect that any such opportunity was given to the petitioner to clarify its reply or furnish further documents/details.
The impugned order records that petitioner’s reply is not clear, unsatisfactory, incomplete and not duly supported by adequate documents. Proper Officer is directed to intimate to the petitioner details/documents, as maybe required to be furnished by the petitioner. Pursuant to the intimation being given, petitioner shall furnish the requisite explanation and documents. Thereafter, the Proper Officer shall re-adjudicate the show cause notice after giving an opportunity of personal hearing and shall pass a fresh speaking order in accordance with law within the period prescribed under Section 75(3) of the Act.
The matter is liable to be remitted to the Proper Officer for re-adjudication. Accordingly, the impugned order dated 30.12.2023 is set aside. The matter is remitted to the Proper Officer for re-adjudication.
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2024 (3) TMI 1130
Retrospective cancellation of GST registration of the petitioner - SCN does not specify any cogent reason - Violation of principles of natural justice - HELD THAT:- The show cause notice and the impugned order are bereft of any details accordingly the same cannot be sustained. Neither the show cause notice, nor the order spell out the reasons for retrospective cancellation.
In terms of Section 29(2) of the Central Goods and Services Tax Act, 2017, the proper officer may cancel the GST registration of a person from such date including any retrospective date, as he may deem fit if the circumstances set out in the said sub-section are satisfied. The registration cannot be cancelled with retrospective effect mechanically. It can be cancelled only if the proper officer deems it fit to do so. Such satisfaction cannot be subjective but must be based on some objective criteria.
It is important to note that, according to the respondent, one of the consequences for cancelling a taxpayer’s registration with retrospective effect is that the taxpayer’s customers are denied the input tax credit availed in respect of the supplies made by the taxpayer during such period. Although, it is not considered apposite to examine this aspect but assuming that the respondent’s contention in this regard is correct, it would follow that the proper officer is also required to consider this aspect while passing any order for cancellation of GST registration with retrospective effect. Thus, a taxpayer’s registration can be cancelled with retrospective effect only where such consequences are intended and are warranted.
The order dated 18.02.2022 and Show Cause Notice dated 04.01.2022 cannot be sustained and are accordingly set aside. The GST registration of the petitioner is restored. The petitioner shall, however, make all necessary compliances and file the requisite returns and information inter alia in terms of Rule 23 of the Central Goods and Services Tax Rules, 2017 - petition disposed off.
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2024 (3) TMI 1129
Violation of principles of natural justice - impugned order does not take into consideration the reply submitted by the petitioner and is a cryptic order - demand including penalty - HELD THAT:- The observation in the impugned order dated 30.12.2023 is not sustainable for the reasons that the reply filed by the petitioner is a detailed reply. Proper Officer had to at least consider the reply on merits and then form an opinion whether the reply was incomplete, not duly supported by adequate documents and unsatisfactory. He merely held that the reply is not clear and unsatisfactory which ex-facie shows that Proper Officer has not applied his mind to the reply submitted by the petitioner.
Further, if the Proper Officer was of the view that the reply is incomplete, not duly supported by adequate documents and unsatisfactory, if further any details were required, the same could have been specifically sought from the petitioner. However, the record does not reflect that any such opportunity was given to the petitioner to clarify its reply or furnish further documents/details.
The impugned order records that petitioner’s reply is not clear, unsatisfactory, incomplete and not duly supported by adequate documents. Proper Officer is directed to intimate to the petitioner details/documents, as maybe required to be furnished by the petitioner. Pursuant to the intimation being given, petitioner shall furnish the requisite explanation and documents. Thereafter, the Proper Officer shall re-adjudicate the show cause notice after giving an opportunity of personal hearing and shall pass a fresh speaking order in accordance with law within the period prescribed under Section 75(3) of the Act.
The matter is liable to be remitted to the Proper Officer for re-adjudication. Accordingly, the impugned order dated 30.12.2023 is set aside. The matter is remitted to the Proper Officer for re-adjudication.
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2024 (3) TMI 1128
Violation of principles of natural justice - impugned order does not take into consideration the reply submitted by the petitioner and is a cryptic order - demand including penalty - HELD THAT:- The observation in the impugned order dated 30.12.2023 is not sustainable for the reasons that the reply filed by the petitioner is a detailed reply. Proper Officer had to at least consider the reply on merits and then form an opinion whether the reply was incomplete, not duly supported by adequate documents and unsatisfactory. He merely held that the reply is not clear and unsatisfactory which ex-facie shows that Proper Officer has not applied his mind to the reply submitted by the petitioner.
Further, if the Proper Officer was of the view that the reply is incomplete, not duly supported by adequate documents and unsatisfactory, if further any details were required, the same could have been specifically sought from the petitioner. However, the record does not reflect that any such opportunity was given to the petitioner to clarify its reply or furnish further documents/details.
The impugned order records that petitioner’s reply is not clear, unsatisfactory, incomplete and not duly supported by adequate documents. Proper Officer is directed to intimate to the petitioner details/documents, as maybe required to be furnished by the petitioner. Pursuant to the intimation being given, petitioner shall furnish the requisite explanation and documents. Thereafter, the Proper Officer shall re-adjudicate the show cause notice after giving an opportunity of personal hearing and shall pass a fresh speaking order in accordance with law within the period prescribed under Section 75(3) of the Act.
The matter is liable to be remitted to the Proper Officer for re-adjudication. Accordingly, the impugned order dated 30.12.2023 is set aside. The matter is remitted to the Proper Officer for re-adjudication.
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2024 (3) TMI 1127
Seeking an order granting Police custody of A.1 for ten days - creating false GST accounts and claiming irregular Input Tax Credit - conspiracy with the companies with a common intention of misappropriating funds - HELD THAT:- There is no dispute that the Respondent/A.1 served as an Additional Director at Messrs. Avexa Corporation Private Limited for 67 days, specifically from 09.12.2019 to 14.02.2020. In the impugned Order, the learned Magistrate noted that the alleged forged invoices, submitted by the Accused company's Directors to claim the input tax credit, and Annexure-9A, consisting of purported fake bills from the shell company Tanisha Infra Zone Private Limited, as referenced on pages 15, 16, and 17, were relied upon by the Prosecution. Notably, these bills were raised on 18.03.2019, 22.03.2019, and 26.02.2019, respectively, when A.1 was not serving as an Additional Director at M/s. Avexa Corporation Private Limited. The learned Magistrate arrived at this conclusion based on the documents presented by the Prosecution, considering it as one of the reasons for denying the Order for police custody.
The learned Magistrate has additionally considered the remarks provided in the remand report, which highlight that the Directorate General of Goods and Services Tax Intelligence (DGGI) had previously investigated the submission of counterfeit invoice bills by the shell companies associated with the firm. These entities purportedly claimed to be engaged in development activities in the Amaravati region, although no actual work transpired. Consequently, the DGGI recommended a penalty of Rs. 16 crores against A.1's company under the Central Goods and Services Tax Act, 2017. This indicates that the DGGI, Hyderabad, has already undertaken a significant portion of the investigation.
It is also observed in the report that after verifying all the existing records available with ADCL, the payment was released to the extent of work done after following the due procedure of the Department and per the terms and conditions of the agreement and after due certification by PMC M/s. LEA Associates South Asia Private Limited, at every stage, as mentioned in Para No. 6(A), to ensure that the requisite quality & quantity checks are done both by the PMC in the presence of the Department & the Principal Contractor.
Having not disputed the detailed report of the committee, it is now somewhat difficult to appreciate the contention of the Petitioner/Complainant that the diversion of Government funds by Avexa through the shell companies has to be investigated - Upon considering the entire material on record, this Court finds no illegality in the Order passed by the learned Magistrate, and it needs not be interfered with.
The Criminal Revision Case is dismissed.
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2024 (3) TMI 1126
Assessment u/s 153C - Requirement of satisfaction note - inordinate delay in commencement of proceedings - HELD THAT:- While the Section 153C notice was issued on 07 March 2023, the Satisfaction Note appears to have been provided to the petitioner on 28 and 30 June 2023. These writ petitions came to be preferred long thereafter on 19 March 2024. We take note of the statutory timeframes stipulated under Section 153B of the Act for completion of assessment proceedings and more particularly the Second and Third Proviso’s which mandate assessment itself being completed within twelve months from the time when the books of account or material is handed over to the AO of the non-searched person. This would mean that in the present case and taking the date of handing over or recordal of satisfaction as constituting the date from which that period is liable to be reckoned, the assessment is liable to be completed by 31 March 2024.
Writ petitioner has thus chosen to approach this Court only a few days before the time for completion of assessment would expire and at the proverbial fag end of the proceedings. We consequently find no justification to interdict the assessment proceedings at this belated stage by invoking our jurisdiction under Article 226 of the Constitution. However and whether the asserted delay in commencement of proceedings would be fatal to the assessment itself is a question that we leave open to be urged at an appropriate juncture.
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2024 (3) TMI 1125
Validity of Reopening of assessment u/s 147 - validity sanction u/s 151 - as argued approval has been applied for and granted mechanically - HELD THAT:- As stated that in the notice the transaction value was taken gross and subsequently it was seen that there were duplicate entries which were corrected while passing the order dated 19th April 2023. The notice issued does not contain any duplicate entries. If there were duplicate entries, the AO was duty bound to issue clarification in the order and also give details of what were those duplicate entries.
AO should have come clean on the error made. Therefore, if only the PCCIT or the other officers had bothered to see the records and had really applied their mind to the same, these errors would not have crept in. This displays total non-application of mind by all those persons who have endorsed their approval for issuance of notice u/s 148 of the Act. With great regret, we have to mention that these approvals are being granted mechanically and without application of mind and this is not the only matter.
Innumerable orders passed u/s 148A(d) of the Act are being set aside in view of the approval being granted without application of mind. Officer should realize that this is also delaying assessment/ reassessment proceedings and is also affecting the revenue of the nation. We find that the approval has been granted in a most casual manner. The power vested in the Authorities u/s 151 to grant or not to grant approval to the AO to reopen the assessment is coupled with a duty. The Authorities were duty bound to apply their mind to the proposal put up for approval in the light of material relied upon by the AO.
That power cannot be exercised casually on a routine perfunctory manner. The important safeguards provided in Section 147 and 151 were treated lightly by the officers. While recommending and granting approval it was obligatory on the part of the officers to verify whether there was any genuine material to suggest escapement of income. It was obligatory on all the Authorities and PCCIT in particular to consider whether or not power to reopen is being invoked properly.
We are of the opinion that if only the Authorities had read the record carefully, they would never have come to the conclusion that this is a fit case for issuance of notice u/s 148 of the Act. They would have either told the AO to correct the figures in Column 7 or would have sent the papers back for reconsideration. These officers have substituted the form for substance.
We, therefore, quash and set aside the impugned order passed u/s 148A(d) of the Act. The consequent notice issued u/s 148 of the Act also is also quashed and set aside.
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2024 (3) TMI 1124
Penalty u/s 271(1)(c) - loss on sale of machinery which was not eligible for deduction in the profit and loss account - assessee has made adjustment on the sale of plant and machinery in the block of asset which evidences that the assessee has not claimed any excessive depreciation therein, such loss on the sale of machinery was inadvertently not added back in the computation of income - HELD THAT:- We note that the assessee has made necessary adjustments in the block of assets of the plant and machinery which was also not doubted by the authorities below.
From the above, it is transpired that the assessee on one hand has adjusted the gross block of asset but on the other hand omitted to make the addition on the loss of sale of machinery to the total income of the assessee. Thus, we find there is a contradictory stand taken by the assessee as evident from the financial statement and computation of income. This contradictory stand of the assessee gives reason to believe that such mistakes has been committed by the assessee due to oversight and inadvertently, therefore we are of the view that the assessee should not made to suffer if such bona-fide mistake is committed by the assessee. Decided in favour of assessee.
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2024 (3) TMI 1123
Disallowance u/s 80P - claim disallowed u/sec. 143(1)(a)(ii) by way of “processing” as an instance of “incorrect claim if such incorrect claim is there from any information in the return” - HELD THAT:- Legislature has introduced such a disallowance provision in sec. 143(1)(a)(v) dealing with deduction claim(s) provided in Chapter-VI-A of the Act by way of Finance Act, 2021 w.e.f. 01.04.2021 with prospective effect whereas the assessment year herein is 2017-2018 only.
So far as the Revenue’s case quoting sec. 80AC is concerned, it would be very much relevant to observe that once the legislature itself has made the impugned provision in sec. 143(1)(a)(v); the same could not have led to the assessee’s 80P deduction disallowance in summary “processing”.
As in Veerappampalayam Primary Agricultural Cooperative Credit Society [2021 (4) TMI 1169 - MADRAS HIGH COURT] is also found to be distinguishable on facts as their lordships’ had dealt with assessment year 2018-2019 vide judgment dated 07.04.2021 thereby not having benefit of the amendment made in the Finance Act, 2021 in foregoing terms. That being the clinching fact that sec. 143(1)(a)(v) itself is not applicable in assessee’s case specifically dealing with filing of a sec. 139(1) return, sub-clause(ii) could not be pressed in action being in the nature of a general provision only.
We adopt principles of stricter interpretation as per Dilip Kumar And Co. & Ors. [2018 (7) TMI 1826 - SUPREME COURT] to conclude that both the learned lower authorities action disallowing the assessee’s sec. 80P deduction(s) claim(s) by way of sec. 143(1)(a)(ii) or 143(1)(a)(v) “processing” has to be reversed. Assessee appeal allowed.
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2024 (3) TMI 1122
Nature of loss - Marked to market loss on hedging of the transaction - treated as speculative loss or normal business loss - HELD THAT:- The issue is squarely covered by the various decisions in the case of CIT vs. Soorajmull Nagarmull [1980 (9) TMI 69 - CALCUTTA HIGH COURT] and in the case of CIT v. Badridas Gauridu (P.) Ltd. [2003 (1) TMI 61 - BOMBAY HIGH COURT].
The similar view has taken in the case of Shankara Infrastructure Materials Ltd. [2021 (7) TMI 306 - KARNATAKA HIGH COURT] wherein, it has been held that the loss incurred by the assessee on account of hedging the transaction to avoid higher loss on account of foreign exchange fluctuation was to be allowed as deduction u/s 37(1) of the Act. Appeal of the assessee stands allowed.
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2024 (3) TMI 1121
Penalty u/s 271(1)(c) - bogus claim u/s 80C deduction(s) is an instance of “furnishing inaccurate particulars of income” - HELD THAT:- It as a fit case for confirming the impugned penalty after having found the assessee having concealed his taxable income. A deviation regarding applicability of the statutory twin “limbs” of “concealment of taxable income vis-à-vis furnishing of inaccurate particulars thereof ” is not sustainable in law in light of hon’ble jurisdictional high court’s decision in Mohd. Farhan A. Shaikh [2021 (3) TMI 608 - BOMBAY HIGH COURT (LB)] - The impugned penalty is deleted in very terms.
Penalty u/s 270A(8) - non specification of corresponding limb(s) of “under-reporting of income in consequence of any mis-reporting”- HELD THAT:- Revenue could not dispute the clinching fact that although the learned lower authorities have levied 200% penalty(ies) in assessee’s case going by sec. 270A(8) on one hand; whereas they nowhere specify the corresponding limb(s) of “under-reporting of income in consequence of any mis-reporting” thereof; as prescribed sub-sec.( 9) containing (a) to (f) clauses. Faced with this situation, we adopt stricter interpretation as Dilip Kumar And Co. & Ors. [2018 (7) TMI 1826 - SUPREME COURT] and conclude that these twin penalties also deserve to be deleted.
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2024 (3) TMI 1120
Entitlement to benefits of treaty exemption - India-Singapore DTAA - Taxation of shipping companies - funds which have been received in Singapore or not? - assessee's first condition for Article 24 of India-Singapore Treaty to be applicable is that “income from sources in a Contracting State shall be exempt from tax or taxed at a reduced rate in that Contracting State” - HELD THAT:- Notably, even OECD commentary speaks of exemption from “source taxation” especially when discussing about permanent establishment being “exempted from tax in the source country”. Therefore, on a harmonious interpretation, Article 24 of the DTAA speaks of those incomes, which are exempted from “source taxation”, as well. This is for the reason that profits derived from operation of ships in international traffic, should be normally subject to tax in the country of residence under Article 8. However, this is subject to the limitation in Article 24 that such profits are remitted to Singapore, which follows a territorial system of taxation wherein offshore income is taxed in Singapore on part that only which has been received or remitted in Singapore.
Accordingly, in our considered view Article 8 of India- Singapore Tax Treaty exempts income earned by an enterprise from operation of ships in international traffic from “source taxation”, subject to such profits being remitted / or received in Singapore which alone are taxable in Singapore. Therefore, in our considered view, looking into the instant facts, the argument of assessee that condition “one” has not been satisfied in the instant facts cannot be accepted, for this would lead to Article 24 of the India-Singapore DTAA as being redundant / otiose and the non-resident taxpayer getting benefit of double non-taxation of India sourced income, which is clearly not intended under the India-Singapore Tax Treaty.
Accordingly, this argument of assessee is hereby rejected for the aforesaid reasons cited above.
Article 24 is not applicable to the instant facts because under the laws in force in Singapore, the said income is subject to tax on “accrual basis” and not by reference to the amount which is “remitted to or received in” Singapore - As the letter issued by IRAS does not refer to any statutory provisions under the Singapore Tax Laws and is more in the form of a unilateral opinion / declaration that since the income has been earned by the assessee on “accrual basis”, Article 24 of the DTAA (Limitation of Relief Clause) will have no applicability to the assessee’s set of facts. Since the entire case of the assessee for various assessment years under consideration hinges on the statement issued by the Singapore Tax Authority and as noted by the Gujarat High Court, the certificate is merely in the form of an opinion, in our considered view, it is a fit case where the basis of issuance of this certificate needs to be looked into in more detail, especially in the absence of any statutory provisions being cited in the aforesaid certificate of as to how the assessee is taxable in Singapore on “accrual basis” (especially when Singapore follows a territorial tax system where offshore income is taxable on receipts / deemed remittance basis) and on what basis the Singapore Tax Authority has come to the unequivocal conclusion that income has been derived from “business carried on in Singapore” by the assessee.
In the result, the matter is restored to the file of AO to verify the contents of the aforesaid certificate and in case, the Department is unable to obtain any specific material to rebut the contents of the certificate issued by Singapore Tax Authorities, then respectfully following the decision of Gujarat High Court in the assessee’s own case [2016 (9) TMI 19 - GUJARAT HIGH COURT] relief may be granted to the assessee, in accordance with law. Appeal of the assessee is allowed for statistical purposes.
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2024 (3) TMI 1119
Jurisdiction powers to issue Reopening notice in metro city - notice u/s 148 issued by an officer who had no jurisdiction over the Petitioner - accommodation entries of long term capital gain in penny stock - as alleged the return of income filed by the assessee is more than ₹ 30 lacs and as assessee is resident of Mumbai, the jurisdiction of the assessee lies with Astt. Commissioner of Income Tax or Dy. Commissioner of Income Tax and not with the Income Tax Officer - HELD THAT:- The instruction no.1 of 2011, dated 31st January, 2011, clearly provided that assessee being a corporate resident of metro city, having filed return of income at a loss of ₹2.73 crores, will have a jurisdiction of the Dy. Commissioner or Asst. Commissioner of Income Tax only.
As decided in case of Ashok Devi Chand Jain [2022 (3) TMI 1466 - BOMBAY HIGH COURT] considering the above instruction has categorically held that the notice issued in that case by the ITO, where the income of the assessee was ₹64.34 lacs is correctly without jurisdiction. The Hon'ble High Court also held that notice under Section 148 of the Act is jurisdictional notice and any defect therein is not curable. - Decided in favour of assessee.
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2024 (3) TMI 1118
LTCG - Disallowance u/s 54 - construction of new house begun before the sale of the old house - construction with the amount borrowed instead of actual sales proceeds - relevant date for taking possession of the property - as per AO two properties sold by the assessee during the assessment year under consideration when the assessee has taken possession of the constructed property after the date of sale of the two properties - HELD THAT:- Identical issue came up in the case of C. Aryama Sundaram [2018 (8) TMI 864 - MADRAS HIGH COURT] It is not a requisite of Section 54 that construction could not have commenced prior to the date of transfer of the asset resulting in capital gain. If the amount of capital gain is greater than the cost of the new house, the difference between the amount of capital gain and the cost of the new asset is to be charged under Section 45 as the income of the previous year. If the amount of capital gain is equal to or less than the cost of the new residential house, including the land on which the residential house is constructed, the capital gain is not to be charged u/s 45.
We further observed that in the case of CIT Vs. Kapil Kumar Aggarwal [2015 (12) TMI 1075 - PUNJAB AND HARYANA HIGH COURT] that section 54F of the Act, nowhere envisages that sale consideration obtained by the assessee from original capital asset is mandatorily required to be utilized for purposes of meeting cost of new asset. It was, therefore, held that where investment made by the assessee although not entirely sourced from capital gains but was within stipulated time and if more than capital gain earned by assessee, the assessee is entitled to exempt u/s 54F.
Hon’ble Allahabad High Court in the case of CIT Vs. H.K. Kapoor [1997 (8) TMI 44 - ALLAHABAD HIGH COURT] held that exemption on capital gains u/s 54 of the Act could be allowed notwithstanding the fact that the construction of new house had begun before the sale of the old house. Thus direct the AO to allow deduction u/s 54 of the Act as claimed by the assessee. Decided in favour of assessee.
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2024 (3) TMI 1117
Disallowance of VAT expenses - Disallowance as "fee" or "charge" u/s40(a)(iib) - assessee is a state government owned company which is engaged in wholesale business of foreign liquor in Chhattisgarh - CIT(A) deleted the additions / disallowance - HELD THAT:- Identical issue has been dealt with by the Co-ordinate Bench of the Tribunal, Raipur in assessee's own case for the A.Ys.2015-16, 2016-17 and 2017-18 [2022 (12) TMI 1498 - ITAT RAIPUR] relying upon the law laid down in the case of Kerala State Beverages Manufacturing & Marketing Corporation Ltd. [2022 (1) TMI 184 - SUPREME COURT] wherein as approved the view taken by the Hon’ble High Court of Kerala that as “surcharge on sales tax” is a “tax”, and Section 40(a)(iib) does not contemplate “tax”, and surcharge on sales tax is not a “fee” or a “charge”, therefore, no disallowance under the said statutory provision was called for in the hands of the assessee. Accordingly, finding no infirmity in the view taken by the CIT(Appeals), we uphold the same and the addition is vacated. Decided in favour of assesse.
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2024 (3) TMI 1116
TP Adjustment - corporate guarantee transaction given by the assessee on behalf of AE to a bank - HELD THAT:- We are of the considered opinion that there is no change in facts of this present appeal, this issue is to be remitted back to the file of the ld. A.O. with the direction to determine the arm's length price ('ALP' for short) on corporate guarantee commission on the basis of the interest saving approach of the international transactions by respectfully following the above said decision in assessee own case [2023 (12) TMI 1299 - ITAT MUMBAI]
Addition on account of arm’s length adjustment to income on interest from loans advance to AE - Neither the assessee nor the lower authorities have bench marked the transaction of the assessee lending money to its AE - A.O./TPO has considered 10.68% to be a reasonable estimation on the notional interest to be levied by the assessee on the basis of the crisil bonds and made an adjustment for the loan advanced by the assessee - TPO/A.O. has also without prejudice considered the safe Harbour Rules notified on 18.09.2013 for the loan transaction upto Rs. 50 crores where the interest rate to be applied has to be the base rate of State Bank of India as on 30th June which is 12.28% + 150 basis point during the year under consideration and held that 10.68% to be at arm’s length rate would be reasonable - HELD THAT:- CIT(A) has also not bench marked the said transaction and had merely restricted the rate of interest to be 5% keeping in view the earlier interest rate charged by the assessee and by stating that 5% would be a reasonable rate had the assessee advanced loan within India.
The assessee, on the other hand, has also not bench marked the said transaction and had charged 2% notional interest on the loan advanced to its AE. It is evidenced that to determine the arm’s length price of any international transaction, there has to be a reasonable bench marking conducted by both the sides. Here the assessee and the Revenue in the present case has not carried out the same. In the absence of such bench marking, we are not justified in upholding either the interest rate considered by the assessee nor by the ld. A.O./TPO and the ld. CIT(A). For this purpose, we deem it fit to remand this issue back to the file of the ld. CIT(A) for the purpose of bench marking the said transaction. Hence, ground allowed for statistical purpose.
Addition u/s. 14A read with Rule 8D - assessee had interest free fund more than the borrowed fund during the year under consideration - HELD THAT:- As there are various judicial precedence on the proposition that when there are mixed funds, then the presumption would be that the assessee has made investment out of the own funds and not borrowed fund for the purpose of investment which has yielded exempt income. It is also pertinent to point out that the decision relied upon by the assessee in the case of Vireet Investment Pvt. Ltd. (2017 (6) TMI 1124 - ITAT DELHI] has held that while computing the average value of investments only those investments which has yielded income are to be considered and not the investments which has not earned exempt income during the year. Hence, we deem it fit to remand the issue back to the file of the ld. A.O. for restricting the disallowance to the extent of the investment which has yielded the exempt income during the year under consideration and also to verify that the assessee had sufficient interest free funds during the relevant year where the assessee has made investment which had yielded the exempt income.
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2024 (3) TMI 1115
TP Adjustment - adjustment to the value of international transaction as against adjustment made by the TPO with reference to entire turnover of the assessee - HELD THAT:- TP adjustment cannot be made with reference to entire turnover of the assessee and ought to be restricted to the value of international transactions. We draw support from the decision of Hindustan Unilever [2018 (10) TMI 1611 - SC ORDER] Keihin Panalfa Ltd [2016 (5) TMI 203 - DELHI HIGH COURT] and Tara Jewel Exports [P] Ltd [2015 (12) TMI 1130 - BOMBAY HIGH COURT].
Respectfully following [supra], TP adjustment made by the TPO and sustained by the ld. CIT(A) cannot be sustained and is liable to be deleted as difference between operating profit margin of the assessee at 3.85% and that of comparable companies at 6.19% is 2.34%, no TP adjustment is warranted in terms of Proviso 92C(2) and if we look at the list of comparables exhibited elsewhere, we find that except for Hindustan Motors Limited, all other companies selected by the TPO are engaged in manufacture and sale of commercial vehicles and are therefore, functionally not comparable with the assessee, a company engaged in the manufacture and sale of passenger vehicles. - Decided against revenue.
Deduction u/s 43B - disallowance of amount of Excise Duty actually paid on purchase inputs and included in RG 23A Part II - HELD THAT:- A similar issue was considered by this Tribunal in [2018 (10) TMI 1398 - ITAT DELHI] and Hon'ble High Court of Delhi in assessee’s own case [2017 (12) TMI 590 - DELHI HIGH COURT]. The Assessing Officer is directed to decide the issue as per the directions given in earlier A.Ys 2009-10 and 20101-11 mentioned hereinabove to verify the claim and if found proper be allowed for deduction for amount forming part of RG 23A balance to the extent it has been directly paid to custom authorities. Ground Nos. 2.3 and 2.4 are allowed for statistical purposes.
Excess consumption of raw materials and components to be deleted placing reliance on two factors, namely, that the net difference of stock is negligible in tune with the observations of the Hon’ble Apex Court in M/s Maruti Suzuki India Ltd [2015 (8) TMI 493 - SUPREME COURT] and that the Tribunal has taken similar view in the assessee’s own case in the earlier assessment years including the immediately preceding year.
Disallowance u/s 14A - excess of own funds - HELD THAT:- As the assessee had surplus funds and that no disallowance of interest was called for u/s 14A of the Act.
Disallowance u/s 35DDA - HELD THAT:- Similar as per assessee’s own case [2017 (11) TMI 1632 - ITAT DELHI] A.Y 2008-09 we follow the decisions above and direct the Assessing Officer to allow the deduction under section 35DDA being 1 /5th of the total expenditure incurred by the appellant company, in respect of payment made to its employees under the voluntary retirement scheme.
TDS u/s 195 - Disallowance of payments made outside India u/s 40(a)(ia) - HELD THAT:- The co-ordinate bench in A.Y 2001-02 [2009 (5) TMI 1013 - ITAT DELHI] commission has been paid to the agents for the sale of the vehicles and re- imbursement of advertisement expenses incurred outside India. Obviously, these expenditures incurred outside India does not make them taxable in India under the Act and the non-resident itself is not taxable in India. Thus provisions of Section 195 will not be attracted in the case of these payments and the CIT (A) was right in deleting the disallowances made.
Nature of receipt - Sales Tax Subsidy - revenue or capital receipt - HELD THAT:- Hon'ble High Court of Delhi in [2017 (12) TMI 474 - DELHI HIGH COURT] answered the said issue in favour of the Assessee and against the Revenue to be treated as revenue receipt.
Not allowing set off of brought forward depreciation - Scope of amendment brought in provisions of section 32(2) of the Act by the Finance Act, 2001 w.e.f 01.04.2002 wherein it has been provided that unabsorbed depreciation could be used to set off against any head of income except salary - HELD THAT:- The claim was denied by the Assessing Officer placing reliance on pre-amended provision of section 32 of the Act.We are of the considered view that the Assessing Officer should consider the set off as per the amended provisions of the Act. We order accordingly and direct the Assessing Officer to consider the same as per relevant provisions of law. This ground is allowed for statistical purposes.
Excise Duty paid under protest - HELD THAT:- As decided in own case AY 2006-07 while dealing with 'Excise duty paid under protest' by holding that first the Profit and loss account be recast as per 'Inclusive method' in terms of section 145A and then some adjustments as stated above be separately made. Such directions are fully applicable pro tanto to the customs duty paid under protest. The AO is directed to follow the same - While following the same for AY 2007-08, Tribunal set aside the matter to the file of the Assessing Officer to decide it afresh as decided above by the ITAT after affording opportunity of being heard to the assessee. Thus this Ground is allowed for statistical purposes.
Disallowing liabilities on account of increased prices - HELD THAT:- There is no dispute that the same method of accounting is regularly and consistently followed by the assessee as such rule of consistency is applicable as per which under the similar facts and circumstances, department ought to follow same approach on an issue in other assessment years. We, therefore, respectfully following the reasoning adopted by the coordinate Bench of this ITAT for the AY 2007-08 [2016 (5) TMI 1469 - ITAT DELHI] set aside the matter to the file of the AO with direction to decide the issue afresh after affording opportunity of being heard to the assessee as per the first appellate order on the issue in the assessment year 2003-04.
Under valuation of stock - HELD THAT:- CIT(A) was convinced that the assessee has maintained complete records, matching of returned vehicles with sales returned report, finished goods stock report and finished goods stock valuation report. CIT(A) gave a factual finding that the vehicles which have been returned during the year and have remained unsold have been included in the closing stock of finished goods and have been accounted in the books of account.
No factual error has been pointed out in the findings of the ld. CIT(A). We, therefore, do not find any reason to interfere with the findings of the ld. CIT(A). This ground is dismissed.
Disallowance of long term capital loss as speculative loss - HELD THAT:- The co-ordinate bench in A.Y 2001-02 [2009 (5) TMI 1013 - ITAT DELHI] held that redemption of the preference shares cannot be held to be the sale of the shares and as there is no sale of the shares, there is no question of this being treated a speculative loss on the sale. It is further noticed that the revenue has not raised any specific ground that such shares were not held as stock-intrade and it is noticed that the shares are held by the assessee as investment. In the circumstances, we are of the view that this loss on the redemption of the preference shares cannot be treated as speculative loss.
Expenses incurred on club membership - HELD THAT:- As decided in own case A.Y 2009-10, [2018 (10) TMI 1398 - ITAT DELHI] such expenditure is allowed as business expenditure.
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