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2024 (11) TMI 822
Jurisdiction of DCIT Bengaluru to issue notice u/s 153C - transfer of case u/s 127 - assessee’s case was transferred from ACIT, Circle – 6(1), Bengaluru to DCIT, Central Circle, Bengaluru on 20.07.2009, as per the order passed under Section 127(2) - As decided by HC 2021 (10) TMI 1058 - KARNATAKA HIGH COURT] notice issued by the DCIT Circle 1(1), Bangalore, is without jurisdiction and as such, all further proceedings would render void ab initio. The arguments of the learned counsel for the revenue with respect to Sections 292B and 292BB do not merit any consideration.
HELD THAT:- Special Leave Petitions are dismissed.
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2024 (11) TMI 821
Deduction of TDS on salary u/s 192 - Taxability of income received by Nuns, Sisters, Priests, or Fathers working as teachers in religious institutions - As decided by HC [2019 (3) TMI 1253 - MADRAS HIGH COURT] there is no exemption available even to the charitable or religious institutions themselves, who have to secure registration as such and then, their income and application of income for charitable or religious purposes only is regulated strictly in accordance with the provisions contained in Chapter III of the Act. These provisions have no application to the individual Nuns, Sisters or Missionaries so as to claim any exemption from income tax.
As far as the provisions with which we are concerned, namely Sections 15 and 192 of the Act, we do not have an iota of doubt that these provisions have nothing to do with religion or any other special status of the person receiving the income described to be salary by the payer of the same.
HELD THAT:- We are not inclined to entertain the Special Leave Petitions under Article 136 of the Constitution.
Special Leave Petitions are accordingly dismissed.
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2024 (11) TMI 820
Unexplained cash credits u/s 68 - Addition invoking provisions of Section 115BBE (Enhanced Rate of Tax) - AO as well as Ld. CIT(A) doubted the source of cash deposits by taking view that assessee has not shown cash-in-hand in the ITR for assessment years 2015- 16 and 2016-17 - HELD THAT:- Considering the overall facts and circumstances of the case, and the facts that no independent investigation of fact was carried out about agricultural holding nor discarded / rejected the receipt of agricultural produce. Thus in order to avoid the possibility of revenue leakage at reasonable disallowance would be sufficient to avoid the possibility of revenue leakage. Thus, considering the various heads of income of assessee, find that ad hoc disallowance @ 10% of addition would be sufficient to avoid the possibility of revenue leakage. In the result, ground No.1 of appeal is partly allowed.
Enhanced Rate of Tax u/s 115BBE - Divisions Bench as well as SMC Bench of this Tribunal in a series of case has held that enhance rate prescribed under section 115BBE is not applicable for AY 2017-18, reference is made in case of Samir Shantilal Mehta [2023 (5) TMI 1279 - ITAT SURAT] Arjunsinh Harisinh Thakor [2023 (6) TMI 770 - ITAT SURAT] and in Jitendra Nemichand Gupta [2023 (6) TMI 1338 - ITAT SURAT] and Punjab Retail Pvt. Ltd [2021 (11) TMI 405 - ITAT INDORE] and Sandesh Kumar Jain [2022 (11) TMI 126 - ITAT JABALPUR] In the result, ground of the appeal is partly allowed.
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2024 (11) TMI 819
Assessment u/s 153C - determination of six years prior to the relevant assessment year - HELD THAT:- We observed that the search in the case of Sunstar Group was carried on 19.12.2013 and as per records submitted before us, we observed that the notice u/s 153C was issued only on 20.01.2016.
Therefore, the satisfaction in the case of the assessee was recorded by the jurisdictional Assessing Officer prior to issue of notice issued u/s 153C, therefore, the relevant searched assessment year pertains to AY 2016-17. Accordingly, six years prior to the relevant assessment year covers AYs 2010-11 to 2015-16. In the case of the assessee, notice u/s 153C was issued to the assessee covering AY 2009-10 which is beyond jurisdiction as per the judicial precedence as held in the case of CIT-14 vs. Shree Jasjit Singh [2015 (8) TMI 982 - DELHI HIGH COURT]
We note that AY 2009-10 which was covered by the AO u/s 153C is beyond jurisdiction. Accordingly, we set aside the assessment made in this case. Assessee appeal allowed.
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2024 (11) TMI 818
Computation of deduction u/s 80IB/80IC and 10B - AO took the view that the assessee has increased the profits of eligible units by not allocating common expenses. Accordingly, he allocated Head office expenses to various units eligible for deduction and resultantly, the deduction u/s 80IB/80IC and 10B of the Act came to be allowed at a lower figure - HELD THAT:- We notice that the Tribunal is consistently restoring this issue to the file of the AO with certain directions.
A.R invited our attention to the order passed in assessee’s own case for AY 1993-94. In this order, the Co-ordinate Bench has followed the order passed for AY 2006-07 [2012 (12) TMI 458 - ITAT MUMBAI] in respect of deductions claimed u/s 80HH and 80I of the Act and restored the issue to the file of AO with the instruction to follow the directions given in AY 2006-07 with regard to allocation of common expenses incurred at the Head Office. It is also pertinent to note that the Co-ordinate Bench has also accepted the plea of the assessee that certain “common income” should also be allocated to the eligible units.
We notice that the CIT(A) has restored this issue to the file of the AO with the direction to follow the ITAT's order. Accordingly, we also direct the AO to allocate both common expenses and common income to the eligible units while computing deduction u/s 80IB/80IC and 10B of the Act as per the direction issued by the ITAT in the earlier years.
Miscellaneous income earned on sale of scraps and by products in eligible units are eligible for deduction u/s 80IB/80IC - We notice that the AO did not allow deduction in respect of these kinds of receipts, without making any specific discussion. CIT(A) also did not adjudicate this issue specifically.
As brought to our notice that the Mumbai Bench of Tribunal has examined an identical issue in the context of deduction u/s 80IC of the Act in the case of Addl.CIT vs. Sterlite Technologies Ltd. [2017 (1) TMI 1249 - ITAT MUMBAI] wherein it was held that the income arising on sale of scraps is held to be eligible for deduction u/s 80IB/80IC.
In the instant case, the amount received by the assessee is on account of sale of scraps and by products and they are generated out of manufacturing process. Hence, the scrap & by-products are inextricably connected with the manufacturing activities carried on by the eligible units. Accordingly, we are of the view that there is merit in the submission of the assessee that the sale value of scraps/by-products, in fact, will go to reduce the cost of materials used in manufacturing and hence it should be considered as "profits and gains derived from" industrial undertaking. The decision rendered by the Co-ordinate Bench in the case of Sterlite Technologies Ltd [2017 (1) TMI 1249 - ITAT MUMBAI] support the case of the assessee.
We direct the AO to allow deduction u/s 80IB/80IC of the Act in respect of sales value of scraps/by-products generated in the eligible units.
Adjustment on account of CENVAT credit - AO, following sec.145A of the Act, assessed the unutilized CENVAT amount as income of the assessee - HELD THAT:- Since, it is a case of method of accounting and since it is stated that there will be no impact on the profit under both Exclusive method and Inclusive method of accounting, following the decision rendered by the Co-ordinate Bench in AY 2006-07, we restore this issue to the file of the AO for examining the claim of the assessee.
Deduction of cost of Relief materials given to Tsunami victims - allowable business expenditure u/s 37(1) or not? - HELD THAT:- When the dominant objective is philanthropic in nature, the same cannot be considered as an expenditure laid out or incurred wholly and exclusively for the purposes of business. It is pertinent to note that the assessee has not shown that there existed any business connection in incurring this expenditure.
Assessee has also taken a plea that this expenditure should be considered as Sales promotion expenses. We are unable to accept the same. It is inconceivable that a business man would promote its products amongst the badly affected Tsunami victims, who have been rendered penny less. Hence, this plea of the assessee deserves rejection.
Assessee has also taken a plea that this expenditure should be considered as CSR expenditure. It was not shown that this expenditure has been incurred as per the requirement of Companies Act as CSR expenditure. It may be akin to CSR expenses, but it would not qualify as CSR expenses. Hence, we are of the view that the assessee cannot take support of the decisions rendered in respect of CSR expenses.
We are of the view that the Ld. CIT(A) was justified in confirming the disallowance of sum incurred on the relief materials given to the victims of Tsunami.
Claim of enhancement of Written Down Value (WDV) of assets by the amount of Insurance claim not received - HELD THAT:- We do not find any merit in the contentions of the assessee that the insurance claim amount of Rs. 8.00 crores refunded to the assessee should be considered as refund of part of purchase consideration, since the insurance claim of Rs. 8.00 crores was received by the then parent company in connection with destruction of Salt Pans and the said amount only was refunded to the assessee. Hence, in our view, it would fall within the meaning of “moneys payable”. In this connection, we are of the view that the mode or manner of paying the insurance compensation by M/s Conopco Inc to the assessee is irrelevant. In Ground No.12, the assessee is contending that the above said amount should be treated as capital receipt, which is liable to be rejected for the reasons discussed above.
We modify the order passed by Ld.CIT(A) on this issue and direct the AO to increase the WDV of AY 2005-06 in the following manner:-
(a) Increase the WDV of AY 2001-02 of the relevant block by Rs. 14.44 crores.
(b) Re-compute the WDV of AY 2005-06 of that block by reducing the depreciation amount of AY 2001-02 to 2004-05.
(c) Allow depreciation in AY 2005-06 on the WDV so computed. We order accordingly.
Reduction of Capital subsidy amount from the WDV of assets - HELD THAT:-Following the decision rendered by the co-ordinate bench of Kolkata in the case of Gloster Ltd. [2016 (2) TMI 700 - ITAT KOLKATA] we hold that the amount of subsidy referred above is not required to be deducted from the WDV for the purpose of computing depreciation, since the objective of subsidy scheme is to promote industrialization of backward areas and not to fund part of cost of assets. We also notice that identical view has been expressed in the case of Harinagar Sugar Mills [2017 (1) TMI 853 - BOMBAY HIGH COURT] Accordingly, we set aside the order passed by CIT(A) on this issue and direct the AO not to reduce the amount of subsidy from WDV while computing depreciation.
Dispute of rate of tax applicable to the dividend distributed to Non-resident shareholders - HELD THAT:- We notice that this issue has been decided against the assessee by the Special Bench of ITAT in the case of Total Oil India P Ltd. [2023 (4) TMI 988 - ITAT MUMBAI (SB)]
TP adjustment made by TPO/AO on various items of international transactions - assessee had selected TNM Method as most appropriate method and bench marked the international transactions at entity level - HELD THAT:- Since the Ld.CIT(A) has followed the decision rendered by the Co-ordinate Bench in the assessee’s own case in AY.2006-07 [2012 (12) TMI 458 - ITAT MUMBAI] wherein entity level bench marking under TNM Method has been accepted by the Tribunal, we do not find any reason to interfere with the order passed by the Ld.CIT(A) on Transfer Pricing issues urged before us.
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2024 (11) TMI 817
LTCG - deduction u/s 54 - assessee received two flats in exchange for old properties under a redevelopment agreement - HELD THAT:- As perused the provision of section 2(47) of the Act which define the terms ‘transfer’ to include various kinds of transactions. This section defines transfer as the ‘transfer of capital asset including the sale, exchange relinquishment or extinguishment of the capital asset or extinguishment of any right therein or the compulsory acquisition thereof under any law’. Since in the case of the assessee there is an exchange of capital asset (old flats no. 266 and 273) for another capital assets (new flats no. 23 and 23B) as discussed as per the re-development agreement entered with the developer therefore we direct the assessing officer to allow the claim of deduction u/s 54 of the Act as directed by the ITAT in the above referred case of Shri Dilip P. Ahuja [2014 (10) TMI 1078 - ITAT MUMBAI]
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2024 (11) TMI 816
Disallowance u/s 14A r.w.r.8D - suo-moto disallowance made by assessee - AO held that nowhere in the section 14A provides that disallowance is to be made only, if assessee has earned exempt income during the year - as argued AO without recording his dissatisfaction issue a Show Cause Notice to the assessee to explain as to why provisions of Rule 8D r/w section 14A should not be invoked - HELD THAT:- We hold that the reliance placed by the Ld AO of the CBDT Circular No.5 of 2014 to make disallowance u/s. 14A is legally not tenable and liable to be deleted.
Scope of Amendment to Section 14A by the Finance Act, 2022 - Since very recently Hon’ble Guwahati High Court reversed the decision of the ITAT Guwahati Bench in Williamson Financial Services Ltd [2024 (9) TMI 1571 - GAUHATI HIGH COURT] and others and held that the Amendment to Section 14A by the Finance Act, 2022 is to be applicable Prospective only.
Own funds of the Assessee were much more than the investments made by the Assessee, hence no disallowance be made u/s. 14A of the Act on account of interest expenditure - Hon'ble Supreme Court in the case of CIT -Vs- UTI Bank Ltd [2022 (10) TMI 613 - SC ORDER] held that where interest free own funds available with assessee exceeded their investments in tax free securities, investments would be presumed to be made out of assessee’s own funds and proportionate disallowance was not warranted u/s. 14A. Thus we hold that the disallowance made by the Ld AO u/s. 14A is legally not tenable and liable to be deleted.
Mandatory for the AO to record dis-satisfaction as required u/s. 14(2) -Disallowance made invoking Rule 8 without recording dis-satisfaction by the Assessing Officer is against the provisions of section 14[2] and the addition is liable to be deleted.
MAT computation on section 14A addition - Provisions of section 14A cannot be applied for computing the book profit u/s. 115JB of the Act and thereby delete the addition made by the AO.
Depreciation on goodwill arising from amalgamation u/s. 32 - HELD THAT:- The basic fallacy in the approach of the Ld AO in this case is that he has proceeded further on the premise that the goodwill in question was transferred from "amalgamating company" to "amalgamated company" and hence depreciation on the same is not allowable in the eye of law. However, in the present case, as a matter of fact, "goodwill in question" is a "result of amalgamation" and has come into existence only pursuant to Scheme of Amalgamation duly approved by competent authority namely Hon’ble NCLT. Thus all the provisions relied upon by the Ld AO (enlisted hereinabove) would apply only in a case where an "asset" is "transferred" in the course of "amalgamation" by "transferor company" to the "transferee company" and would not apply when a particular "asset" is a "result" of amalgamation.
The reasoning given in the Memorandum explaining the Finance Bill, 2021 for excluding ‘goodwill’ from the ambit of intangible assets is that the actual calculation of depreciation of goodwill is required to be carried out in accordance with various other provision of the IT Act. Once those provisions are applied, in some situations (like that of business re-organization) there could be no depreciation on account of actual cost being zero and the WDV of that asset in the hands of the predecessor/amalgamating company being zero.
Goodwill, in general, is not a depreciable asset and it depends upon how the business runs, goodwill may see appreciation and in the alternative no depreciation to its value. Hence, for the said reasons assessee’s have been barred from claiming depreciation on goodwill. These amendments are to take effect from 01st April 2021 and will accordingly apply to the assessment years 2021-22 and subsequent assessment years. Therefore the amendments in question will have no impact on the claim of the assessee company in this appeal which pertains to the Asst. Years 2016-17 and 2017-18. In view of the above findings depreciation on goodwill created as a result of amalgamation is allowable and directed the JAO to allow the same by passing appropriate orders. Decided in favour of assessee.
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2024 (11) TMI 815
Taxability of income in India - Receipts under code sharing arrangements - Denial of benefit of exemption under Article 8 of the India-USA Tax Treaty -receipts with the third parties where the assessee has only booked the tickets and the actual transportation has been done by third parties - Disregarding alternative methodology for computing taxable income submitted by the Appellant
Assessee is a foreign airline company and a tax-resident of USA engaged in the business of operation of aircrafts in the international traffic. The assessee obtained an approval from the Director General of Civil Aviation (“DGCA”) to undertake scheduled air services in India on the routes specified under the India-US Air Transport Agreement (“ATA”) and established a branch office in India, to undertake activities related to the booking of air passenger tickets and air freight in India, with the approval of the Reserve Bank of India (“RBI”), which is an admitted Permanent Establishment (“PE”) in India.
HELD THAT:- It is relevant to note that in assessee's own case for AY 2010-11 [2015 (5) TMI 681 - ITAT DELHI], the coordinate bench has considered the same issue and held that the receipts under code sharing arrangements cannot avail the benefit of Article 8 of India-US DTAA and accordingly taxable in India.'
Since the terms of Treaty are negotiated between the two countries it is clear that the terms agreed between India and US while entering into the agreement, that India-US DTAA, generally follows the pattern of the US model tax convention but is different in a number of respects to reflect India's status as a developing country. This is supported by the fact that a combined reading of the above Article 8 as per US Model and Article 8 of India US DTAA, and accordingly leads to us to see the merit in the argument that the OECD commentaries have to be read into Article 8 while considering the applicability of the same to code-sharing arrangement.
One of the reasons for the coordinate bench to decide the issue against the assessee in AY 2010-11, is that there is no agreement to substantiate the terms under which code-sharing arrangement have been entered into by the assessee. For the year under consideration the assessee during the course of hearing provided a sample copy of the agreement entered into with Air France and submitted that similar agreements are available for all code-sharing arrangements with third party airlines. Therefore, the contention of the revenue that the receipts from code sharing agreement are not substantiated by any underlying agreements is not tenable for the year under consideration.
On perusal of records we notice that the assessee had filed an application with the Competent Authority (“CA”) under Art.27 of the India-US DTAA requesting that the authorities invoke Mutual Agreement Procedures(“MAP”) for resolving the impugned issue for the year under consideration along with the earlier years. US authorities have responded stating that despite prolonged efforts, a consensus could not be reached with the Indian authorities and that the US authorities are in agreement with the view that all of assessee's profits including revenue associated with interline and code sharing arrangement are to be exempt from Indian Taxation.
Thus we hold that the profits derived from the transportation of passengers under code sharing arrangement by the assessee is to be treated as profits from operation of aircrafts for the reason that –
i. the transportation of passengers either fully or party in third party aircrafts in a specific journey by way of a code sharing arrangement, would fall within the ambit of the word "charterer" and, accordingly would be within the scope of "operation of aircrafts " as defined in Article-8(2) of the India US DTAA.
ii. The passengers under code sharing arrangements are transported on behalf of the assessee by the third party airlines under the code sharing arrangement on a principal to principal basis where the ticket for the entire journey is issued by the assessee bearing specific code. Hence the same would fall within the scope of "operation of aircrafts"
iii. The transportation of passengers by the assessee under code sharing arrangement either fully or partly in a third party aircrafts is inextricably linked which is established in assessee's case here
Accordingly the receipts of the assessee under code sharing arrangement are covered under Article-8, of India US DTAA and cannot be taxed in India. The grounds including the additional ground raised by the assessee in this regard are allowed.
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2024 (11) TMI 814
Reopening of assessment after four years - Addition u/s 68 - independent application of mind v/s borrowed satisfaction - HELD THAT:- As undisputed fact that the original assessment in the case of the assessee u/s 147 was already completed on 27.11.2018. The notice u/s 148 for the second time for reopening of the case was issued on 22.03.2019 after the end of the four years period from the end of assessment year 2011-12.
The four years period was expired as on 31.03.2017. We have perused the return of income filed by the assessee as referred supra in this order wherein the assessee has disclosed the information and facts relating to the receipt of share capital from the three entities in the ITR Form 6 and in the financial statements filed before the AO at the time of original assessment order passed u/s 147 of the Act on 27.11.2018.
AO failed to substantiate that there was any fault on the part of the assessee to disclose fully and truly all material facts.
As decided in case of Everest Kanto Cylinder Ltd. [2024 (2) TMI 163 - BOMBAY HIGH COURT] since the notice u/s 148 has been issued more than 4 years after the expiry of the relevant assessment year, proviso to section 147 shall apply in as much as re-assessment is not permissible unless there has been failure to truly and fully disclosed necessary facts required for the assessment.
We have also perused the decision of Ananta Landmark (P) Ltd.[2021 (10) TMI 71 - BOMBAY HIGH COURT] wherein it is held that after a period of 4 years even if the assessing officer has some tangible material given to the conclusion that there is an escapement of income from assessment, he cannot exercise the power to reopen unless he discloses what was the material fact which was not truly and fully disclosed by the assessee.
Thus as considered that the assessee had already disclosed the detail of all the shareholder who have subscribed to the share capital of the assessee in the case of the shareholders, the assessing officer has already made addition in the case of one shareholder in the original reopening assessment order passed in the case of the assessee as already discussed above in this order.
It is categorically mentioned in the proviso to section 147 of the Act that condition of reopening of the assessment beyond the period of 4 years of the assessment year in which the return was filed is also applicable to the cases reopened u/s 147 of the Act. Therefore, we consider that reopening of the assessment in the case of the assessee made by the assessing officer beyond the period of 4 years without bringing on record any lapses on the part of the assessee for not disclosing fact of the case truly and fully is invalid. Appeal of the assessee is allowed.
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2024 (11) TMI 813
Stay the demand sought of assessment order passed u/s 143 (3) r.w.s. 144C - AR submitted that assessee is a wholly owned subsidiary of Multi-Accord Limited, a Hong Kong based company which holds 99.99% of share capital of the assessee - HELD THAT:- We observed that the issue under consideration is more or less covered by various decisions of Hon’ble Delhi High Court and other High Courts. We also observed that assessee has already remitted 20% of the total outstanding demand and relevant bank challan is already filed in the form of paper book. Considering the above facts on record and balance of convenience is in favour of the assessee, we are inclined to grant stay for a period of 180 days from the date of this order or till the date of disposal of present appeal, whichever is earlier, subject to the rider that the assessee shall not take unnecessary adjournment to prolong the appeal otherwise stay order would cease to operate.
The case of the assessee is also posted for hearing on 16.12.2024 along with other pending appeals which are posted on the same date. Since the date of hearing is announced in the open court, there is no requirement for issue of separate notice.
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2024 (11) TMI 812
TDS u/s 195 - addition u/s 40(a)(i) - assessee being resident corporate assessee is stated to be engaged in semi-conductor IC assembling and testing - Payment of marketing fees to entity without deducting tax at source - same was in pursuant to Marketing and Sale agreement as entered into by the assessee with that entity - income taxable in India u/s 9(1)(i) & Article-7 of respective DTAAs or not?
HELD THAT:- Upon perusal of clauses of the relevant agreements, it would appear that impugned payments are for marketing and sales services. The assessee has paid marketing fees to the payees. In such a case, in our opinion, the ‘make available’ condition would not be applicable at all. The arguments of Ld. AR are multifold i.e., these services do not constitute ‘Fees for Technical services’ since these are more of commission agent services which have been rendered in foreign territory. Since both the payees do not have any PE in India, the same would not be taxable in India in terms of cited judicial decisions.
Another argument of Ld. AR is that the impugned payments would be business profits for the payees and therefore, the same, as per the terms of applicable DTAAs, would be taxable in Singapore and US only.
The terms of DTAA or the provisions of the Act, whichever are more beneficial to the assessee, would apply. All these arguments as stated by Ld. AR need to be re-examined by lower authorities. The terms of the agreement, nature and place of services rendered would be decisive factors to ascertain the nature of payment. Beside this, the finding that whether the payees have PE in India or not, would also be vital to adjudicate the issue. Therefore, we set aside the impugned order and restore the impugned issue back to the file of Ld. AO for de novo adjudication in terms of various arguments as advanced by Ld. AR. All the issues are kept open. The assessee is directed to substantiate its case.
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2024 (11) TMI 811
Penalty imposed u/s 270A(9) - underreporting and misreporting of income - non specification of clear charge - HELD THAT:- Admittedly, in the notices issued u/s 274 r.w.s. 270A of the Act, no specific charge/limb is specified. Misreporting of income and under reporting of income, are having two different connotations and having its own different consequences.
We observe that the identical issue was dealt in Jaina Marketing & Associates [2024 (3) TMI 1007 - ITAT DELHI] wherein as relying on Schneider Electric South East Asia (HQ)[2022 (3) TMI 1295 - DELHI HIGH COURT] dealt with a cases wherein the ingredients of sub section 9 of section 270A of the Act, were not specified while imposing the penalty. The Hon’ble High Court ultimately affirmed the deletion of the penalty imposed u/s 270A(9).
Coming to the instant case, admittedly in the assessment order, the AO initiated the penalty proceedings u/s 270A of the Act without mentioning any sub clause of the section 270A of the Act or not specifying any limb of the penalty proposed to be levied. As the AO issued the vague notice without specifying any particular limb or sub clause for levying the proposed penalty. There is no whisper at all in the notice issued u/s 270A r.w.s. 274 of the Act about “misreporting of income” whereas the penalty has been levied ultimately for both 'under reporting' and 'misreporting of income' @ 200% in terms of section 270A(9) of the Act, for which show cause notice was never issued to the Assessee. Decided in favour of assessee.
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2024 (11) TMI 810
Assessment u/s 153A - Disallowance of wages payable, Unexplained investment u/s 69 AND Addition u/s 69C - HELD THAT:- The assessee, thus, denied that the entries as mentioned therein represent unaccounted cash expenditure and the same was nothing but a MIS report for the purpose of discussion. The notings were approximate project expenditure of different sites of the assessee’s projects. Thus, the statements have been contradicted and therefore, the same would loose its evidentiary value. Before lower authorities, the assessee has taken a stand that the aforesaid sheet has no evidentiary value since the same merely contain approximate project expenses only.
It was the further submissions that whatever the expenses were incurred, the same was accounted for in the regular books of accounts and therefore, the impugned addition would not be sustainable in the eyes of law.
Upon perusal of aforesaid notings, it could be seen that, on standalone basis, no inference of cash payment could be drawn against the assessee. The notings lack even the basis details i.e., date of payment, the persons to whom payments were made and the source of such payments. The notings are bald notings which do not convey much meaning. The figures as mentioned in the sheet are round figures without any more details which support the fact that these are mere estimations only. The sheet, in our considered opinion, is merely in the nature of dumb document having no evidentiary value.
These sheets even lack basic details so as to form an opinion of cash payment by the assessee. The complete details of the transactions could not be deciphered from the same. Under these circumstances, not much credence could be given to this document to make impugned additions in the hands of the assessee in the absence of corroboration of entries as contained therein. Therefore, the presumption of unaccounted / unexplained expenditure in terms of Sec. 69C is arbitrary and without any corroborative evidence establishing the same. There is no direct evidence of any cash payment by the assessee. Not even a single concrete evidence has been brought on record to establish that the assessee, in fact, has incurred cash expenditure which was not accounted for in the regular books of accounts. It could be seen that the assessee was subjected to search proceedings and after considering every incriminating material as found therein, the assessee already admitted additional income and Ld. AO made further additions in earlier years. Therefore, even otherwise, each and every unaccounted income whatever has been earned by the assessee-firm in earlier years, the same has already been brought to tax and therefore, no further addition could be made in the hands of the assessee at the time of expansion thereof. All these facts lends credence to the arguments of Ld. AR.
Similarly, Mumbai Tribunal, in the case of ITO vs. Kranti Impex Pvt. Ltd. [2018 (3) TMI 424 - ITAT MUMBAI] held that when the seized papers were undated having no acceptable narration and did not bear the signature of any party, they are in the nature of dumb documents having no evidentiary value and could not be taken to be the sole basis for determination of undisclosed income of the assessee. The onus would be on revenue to collect cogent evidences to corroborate the nothings therein. The ratio of other decisions as cited by the assessee during first appeal also supports the case of the assessee.
Upon cumulative consideration of aforesaid facts and reasoning, we would hold that impugned additions as made by Ld. AO merely on the basis of loose sheets without corroboration thereof, was not adequate enough to draw adverse inference of unexplained cash expenditure. Therefore, we delete the same and allow the corresponding grounds as raised by the assessee. The Ld. AO is directed to recompute the income of the assessee in terms of our adjudication.
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2024 (11) TMI 809
Bogus LTCG - Addition u/s 68 OR 69A - transactions of the assessee, in shares, leading to Long Term Capital Gain are sham transactions - HELD THAT:- Claim of exemption in respect of long term capital gains cannot be denied merely on the basis of presumption and surmises in respect of penny stock by disregarding the direct evidences filed by the assessee in support of such transaction viz., broker's contract notes, confirmation of receipt of sale proceeds through regular banking channels, payment of STT and the demat account.
AO is required to bring on record cogent corroborative material to establish that the appellant had unaccounted income which was routed back into the books and payments have actually been made to the brokers – suspicion cannot take the place of proof. Mere appreciation in the value of shares cannot justify the transactions being treated as fictitious and the capital gains being assessed as undisclosed income. Merely on the basis of report received from Investigation Wing conducting certain enquiries, the assessing officer cannot treat the share transactions as sham on the basis of suspicion. No adverse inference can be drawn against the appellant merely on the basis of ex-parte statements of the third party(ies) which were not confronted to the assessee.
The principle of law thus is that the AO cannot treat a transaction as bogus only on the basis of suspicion or surmise. AO has to bring material on record tangible material to support his finding that there has been collusion or connivance between the broker and the assessee for the introduction of its unaccounted money. A transaction of purchase and sale of shares, supported by contract notes and demat statements and account payee cheques cannot be treated as bogus.
In the case of the appellant, shares were acquired by way of preferential allotment directly by the Company and not from any broker. Payment was made through banking channels. Deliveries were taken in the DEMAT account, where shares remained for more than one year. Contract notes were issued and shares were also sold on a recognized stock exchange. The SEBI has nowhere held the investee company to be a bogus or sham company.
Additions u/s 69A OR 68 - CIT(A) held section 68 is only applicable in case when there are credits in the books of account of the appellant and that the bank statement of the appellant cannot be considered as books of account - In the present case, the CIT(A) had directed to make addition under section 69A of the Act merely on the basis of the presumption that the assessee had redeployed his ‘undisclosed income’ in the form of capital gains. In concluding so, the CIT(A) had not placed on record any independent tangible material or evidence to both establish that the assessee had undisclosed income and further, that the share transactions undertaken by the assessee were bogus.
In the present case, undisputedly, the transaction is duly accounted for and recorded in the books of the assessee and there is no doubt whatsoever as to disclosure of the transaction. All the relevant documentary evidence qua sale of shares, viz., contract notes, copy of demat account, bank statements, etc., was duly furnished. Thus, section 69A of the Act was not at all applicable and the addition made deserves to be deleted.
Addition at the rate of 6.5% being unaccounted commission paid u/s 69C - AO presumed that the assessee had paid 6.5% commission to unidentified brokers, for providing accommodation entries in order to introduce the aforesaid bogus capital gains in the books of the assessee. The addition had been made merely on the basis of assumption, surmises and conjectures and accordingly calls for being deleted on this ground alone. Further, even otherwise, the addition made by the Assessing Officer, merely on the basis of presumption, without any corroborative evidence to substantiate that such payments were actually made, is wholly unjustified and calls for being deleted in view of the legal position, as discussed. The ld. CIT(A) has relied on the Hon’ble Supreme Court’s Judgement in the case of McDowell & Co Ltd. [1985 (4) TMI 64 - SUPREME COURT]. In this regard, it has been held that the act of questioning the very basis of a transaction and branding it as illegitimate or a camouflage has to be based on substantial, concrete and cogent evidence, wherein the proof of wrong-doing has to be clear and succinct.
Assessee appeal allowed.
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2024 (11) TMI 808
Eligibility to Merchandise Exports from India Scheme (“MEIS”) benefit due to error in shipping bills - inability to process amended shipping bills electronically - eligibility of manually corrected shipping bills - Petitioner’s Customs brokers inadvertently declared the Petitioner did not intend to claim the Merchandise Exports from India Scheme (“MEIS”) benefit by indicating the letter “N” instead of “Y” in the relevant digital REWARD column - seeking amendment made in three shipping bills
HELD THAT:- DGFT and its officials were not justified in refusing to consider the manually corrected shipping bills, particularly after the Customs Authorities allowed them to be amended by exercising their powers under Section 149 of the Customs Act. In any event, the DGFT and its officials were not justified in refusing to consider the amendments finally carried out electronically on the specious plea that the DGFT portal or the DGFT systems could not handle such situations.
Artificial intelligence cannot be at the cost of mortgaging human intelligence entirely. Technology is to serve the people and not to place booby traps and make life extremely difficult for the people. It is otherwise. If there are some gaps in the existing handling systems, bona fide parties cannot be made to suffer. The human element endowed with discretion and reason must step in. The officials operating such systems, or the officials tasked with implementing the law and the Government schemes, cannot abdicate responsibility, raise their hands, deny legitimate relief or make parties run from pillar to post and ultimately the Courts to get their dues. The officials who handle technology must deal with matters with the sensitivity and intelligence that the situation requires.
At no stage did we hear any argument that the Petitioner was disentitled to the MEIS scrips on merits or for any reason other than the DGFT’s handling electronic systems not being tuned to accept amended shipping bills. At least after this Court’s observations and directions in Technocraft Industries (India) Limited [2023 (2) TMI 74 - BOMBAY HIGH COURT] the situation should have been corrected.
At least after the Directorate General of Systems and Data Management (CBIC) issued Advisory No.7 of 2023, the DGFT should have aligned its systems with the advisory. This has not been done, and there is no grace to acknowledge this lacuna and sort out the matter as soon as possible.
DGFT cannot adopt an attitude that its technological systems are not geared to deal with such situations and that its officials will not deal with such situations. Human and artificial intelligence must join to serve the people and achieve ease of business and not be at loggerheads. Suppose any party is entitled to any benefits under the law or under the schemes formulated by the Government to promote exports or trade. In that case, such benefits must not be denied or unduly delayed by citing technological glitches or the fact that the current electronic systems meant to assist the implementation of the law or operation of such schemes are inadequate or need revamping. What the law grants cannot be denied or unduly delayed by technology meant only to assist in implementing the law. If such an approach continues, the claims of leveraging technology to serve the people or ease of doing business will remain paper slogans.
We direct the second and third Respondents to process Petitioner’s application for the release of MEIS Scrips and, if the Petitioner is found eligible for the issue of such MEIS Scrips, to release the same within 15 days from today. The above exercise must be completed within 15 days from today, particularly since Customs, states that the amended shipping bill has already been electronically transmitted to the DGFT Authorities.
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2024 (11) TMI 807
Refund claim as appellant had paid the Duty twice due to ‘ICEGATE error’ - double payment was made because the first payment on 10.01.2020 was not appropriated against the Bill of Entry No. 6415996 dt.10.01.2020, hence another payment made on 17.01.2020 - refund sanctioning authority held the refund claim as time barred as the same was not filed before the expiry of one year period from payment of Duty and interest - Whether the amount deposited is in the nature of duty or it is in the nature of deposit and if it is in the nature of deposit, whether Section 27 can be made applicable to the same or otherwise for the purpose of determining the limitation?
HELD THAT:- Barring the situation where the refund is filed on account of unconstitutionality of the levy itself, all kinds of refund have to be dealt with the statutory provisions within the statute and its entire provisions would be applicable in full force including limitation. In the present appeal, it is not disputed that the amount has been paid twice because of some miscommunication or any other factor including what appellants are saying as malfunctioning of ICEGATE. It is not the case where it has been paid under the provision which has been held to be ultra vires of the constitution or it was paid due to incorrect appreciation of law. At best, it will fall within the category of clerical error or factual mistake or lack of information but by no stretch of imagination, such payment would fall under the nature of deposit or illegal levy.
In this case there has been a mistake in making excess payment of Customs Duty, which is not being disputed by either sides, however, this excess payment, whether it is in the nature of duty or otherwise has been discussed in detail the foregoing paras and it is clear that in the given set of facts, it was in the nature of duty only and therefore, it would be required to be dealt with in accordance with the provisions under Section 27 of the Customs Act in view of various judgments cited in support of the submissions that refund of any amount under the Customs Act has to be dealt with in accordance with Section 27 only and not otherwise.
Thus, following the various judgments cited by learned AR and especially the majority decision in the case of Mafatlal Industries Ltd [1996 (12) TMI 50 - SUPREME COURT] the provisions of Section 27 will be applicable in full force. The claim was filed before the customs authority, who is a creature of statute and therefore, he is bound by the provisions of the Act itself while considering the claim for refund unlike the Hon’ble High Courts and Hon’ble Supreme Court, who have wider jurisdiction and power under Article 226 and Article 32 of the Constitution respectively.
It is also no longer res integra that the Tribunal is a creature of statute, which has to function within the four walls of statute itself. Therefore, in the facts of the case, no fault can be found with the rejection of the refund claim, which has admittedly been filed beyond the limitation period under the relevant statute i.e., Customs Act, 1962 and therefore, there is no ground for interfering with the order of the Commissioner (Appeals).
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2024 (11) TMI 806
Manner in which export consignments dealt with by the customs authorities during the period between ‘in principle debonding’ and the ‘final exit’ in terms of the Foreign Trade Policy (FTP) - appellant had sought formal approval for conversion of shipping bills from that of ‘export oriented unit (EOU) scheme’ to that under ‘claim for drawback’ appear to have been rejected on non-compliance with the stipulation in circular [no. 36/2010-Cus dated 23rd September 2010] of Central Board of Excise & Customs (CBEC).
HELD THAT:- As decided in M/S SECO TOOLS INDIA PVT LTD [2022 (9) TMI 1583 - CESTAT MUMBAI] in view of the settled position, elaborated in Haldiram Foods International Pvt Ltd, [2020 (12) TMI 1229 - CESTAT MUMBAI] on the irrelevance of the deadline stipulated in the circular of Central Board of Excise & Customs (CBEC) relied upon in the impugned order, we set aside the rejection of the applications for amendment and direct the original authority to decide the matter afresh within the framework of section 149 of Customs Act, 1962 on the propriety of the changes sought for in the shipping bills. Appeal is, accordingly, disposed off.
Furthermore, it has been brought to our notice that, on the same set of facts and circumstances, the competent authority had rejected these 155 bills pertaining to exports through Nhava Sheva while those effected through ICD Bhamboli and ICD Talegaon had been allowed.
We set aside the impugned order and restore the application back to the original authority for disposal in accordance with law as prevailing at the relevant time.
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2024 (11) TMI 805
Revocation of Customs Broker License - show cause why duty drawback should not be denied and the goods already exported should not be confiscated and penalty should not be imposed u/s 114 (iii) and 114AA of the Customs Act, 1962 - HELD THAT:- It would be necessary to consider the charges that were leveled against the appellant in the show cause notice. It is seen that there is no specific allegation in the show cause notice, either with regard to violation of the provisions of Regulation 11 (n) or with regard to violation of Regulation 17 (9) of 2013 Regulations. Paragraphs 1 and 2 of the show cause notice, which have been reproduced above, merely talk of the Customs Broker License having been issued to the appellant and the order dated 07.02.2023 passed by the Additional Commissioner, which order has also been enclosed as a relied upon document no. 01.
Paragraph 3 of the show cause notice is merely a reproduction of the order dated 07.02.2023 passed by the Additional Commissioner and continues from pages 135 to 173 of the appeal memo. After having reproduced the order passed by the Additional Commissioner in these many pages, the show cause notice, in paragraph 4 which has also been reproduced above, merely states that it appears that the Customs Broker violated these four Regulations and these four Regulations have been reproduced in the same paragraph.
It clearly transpires that the show cause notice does not give any reason as to why the said four Regulations of the 2013 Regulations had been violated. The order impugned in this appeal is, therefore, liable to be set aside for this reason alone as the show cause notice is the very foundation of an order.
The order that has been passed by the Commissioner of Customs can also been examined on merits.
The Commissioner of Customs, after reproducing the reply filed by the appellant, merely observes that the Customs Broker had not obtained the KYC document directly from the exporter and secondly billing M/s Satyam Aviation Pvt Ltd. instead of the exporter would constitute a violation of Regulation 11 (n).
Thus, it is not possible to sustain the finding recorded by the Commissioner of Customs that Regulation 11 (n) of the 2013 Regulations has been violated.
In regard to violation of Regulation 17(9) of 2013 Regulations, it is to be noticed that apart from the fact that the show cause notice does not contain any specific allegation regarding violation of the Regulations, the Commissioner of Customs has merely reproduced the reply submitted by the appellant and, thereafter, the order passed by the Additional Commissioner and from those two facts has concluded that the Regulation 17 (9) of the 2013 Regulations had been violated.
The show cause notice should have spelt out specific charges in regard to violation of Regulation 17(9) of the 2013 Regulations. Even the reply submitted by the appellant has not been considered at all and a finding is based on the order dated 07.02.2023 passed by the Additional Commissioner.
Thus, the Commissioner of Customs was not justified in holding that the provisions of the Regulations 17 (9) of the 2013 Regulations have been violated.
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2024 (11) TMI 803
Oppression and Mismanagement - Dispute between two shareholders/directors affecting company operations - failure to make statutory compliances, legal authorization etc. - HELD THAT:- Apparently, the company is not able to complete the statutory and legal compliances due to differences between the Directors.
The Learned Counsels for the Appellant and Respondent in their submissions are ad idem regarding differences between the Directors leading to non-compliances of statutory and legal requirements of the company. In the interest of the company, the Ld. NCLT is requested to nominate an independent Director to the Company for meeting of Board of Directors wherein only the Agenda for statutory and legal compliances be taken up. The Independent Director be given usual statutory remuneration and in case of deadlock, will have a casting vote. The Ld. NCLT is requested to appoint the independent Director within three days, considering the urgency of meeting the statutory compliances by the Company.
Appeal disposed off.
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2024 (11) TMI 802
Jurisdiction to enter into issue as to whether the subject land is asset of the corporate debtor - parties were required to be relegated to the Competent Civil Court having jurisdiction or not - proceedings conducted by Sole Arbitrator and the orders passed by the Sole Arbitrator amounts to arbitral award under the Arbitration & Conciliation Act, 1996 determining the rights of both the parties so as to bind the parties in any subsequent proceedings - IRP/ RP could or could have been included the subject land in the Information Memorandum/ CIRP process of the corporate debtor by virtue of Section 18(1)(f) explanation.
Whether the Adjudicating Authority had jurisdiction to enter into issue as to whether the subject land is asset of the corporate debtor or the parties were required to be relegated to the Competent Civil Court having jurisdiction? - HELD THAT:- Whether an asset is required to be reflected in the Information Memorandum or the asset belong to the Corporate Debtor are the question which arise out of or in relation to the insolvency resolution process. The present is a case where the Corporate Debtor has claimed development rights in the land. It is no more res-integra that the development rights are property within the meaning of Section 3(27) of the IBC. We may refer to the judgment of the Hon’ble Supreme Court in “Victory Iron Works Ltd. vs. Jitendra Lohia & Anr. [2023 (3) TMI 699 - SUPREME COURT] where the Hon’ble Supreme Court had held that the development rights created in favour of the corporate debtor constitute “property” within the meaning of Section 3(27) of the IBC.
The question as to whether the assets which are included in the Information Memorandum are the assets of the corporate debtor is foundation of entire CIRP process. When the inclusion of the said asset is questioned before the NCLT by the Appellant, Adjudicating Authority does not lack jurisdiction in entering into question and deciding as to whether assets are part of the CIRP or it should be excluded. We, thus, are of the view that the above question could be determined by the Adjudicating Authority and parties need not have to be relegated to the Civil Court having jurisdiction, the view of the NCLT to the contrary cannot be approved. Judgment of the Hon’ble Supreme Court in Victory Iron [2023 (3) TMI 699 - SUPREME COURT], clearly has held that the NCLT and NCLAT can exercise jurisdiction in the above facts.
Whether proceedings conducted by Sole Arbitrator and the orders passed by the Sole Arbitrator dated 27.05.2014 and 15.07.2015 amounts to arbitral award under the Arbitration & Conciliation Act, 1996 determining the rights of both the parties so as to bind the parties in any subsequent proceedings? - HELD THAT:- In view of the statutory scheme of the Arbitration & Conciliation Act, 1996, and the fact that both City Civil & Session Court Judge as well as High Court of Karnataka having held that the order dated 15.07.2015 passed by the Sole Arbitrator is an order under Section 33(2)(c), the order dated 15.07.2015 cannot be held to be arbitral award within the meaning of Arbitration & Conciliation Act, 1996 so as to make it binding on the parties under Section 35 of the Act. Thus, in view of the fact that the Sole Arbitrator terminated the arbitration proceedings under Section 33(2)(c) by order dated 15.07.2015, the order dated 15.07.2015 cannot be held to be an award within the meaning of Arbitration & Conciliation Act, 1996.
Whether the IRP/ RP could or could not have included the subject land in the Information Memorandum/ CIRP process of the corporate debtor by virtue of Section 18(1)(f) explanation? - Whether Adjudicating Authority erred in not allowing the IA No.4648 of 2020 as prayed by the Appellant? - HELD THAT:- The present is a case where corporate debtor is not claiming any ownership rights over the subject land. Corporate debtor is claiming development rights and the ownership of the Appellants is not even denied by the Resolution Professional. Reply to the IA was filed by the Resolution Professional. In the reply, Resolution Professional has pleaded that the Resolution Professional has rightly included the project in the Information Memorandum as besides receiving the compensation due and payable by the Applicants in terms of clause 6, the Resolution Professional is also required to deal with the claims of Real Estate Allottee pertaining to said project.
IRP/RP has rightly included the subject land in the Information Memorandum/ CIRP and he was not precluded by virtue of Section 18(1)(f) explanation from asserting development rights in the subject land - Adjudicating Authority did not commit any error in not allowing IA No.4648 of 2020 which prayed for exclusion of subject land from the Resolution Plan/CIRP of the corporate debtor.
Whether the Adjudicating Authority committed error in allowing the IA No.58 of 2023 filed by the SRA? - HELD THAT:- The Adjudicating Authority did not commit any error in allowing Intervention Petition filed by Art Construction Pvt. Ltd.
The order dated 30.04.2024 passed in IA No.58 of 2023 upheld - appeal dismissed.
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