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Showing 1 to 20 of 1087 Records
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2021 (5) TMI 1088
Dismissal of arbitration petition filed by the appellant under section 34 of the Arbitration and Conciliation Act, 1996 - return of shares - applicability of period of limitation was applicable to the transactions in question prior to 29th August, 1998 - effect of the amendment to Bye-law 252(2) amended by the Stock Exchange, Mumbai providing that the provisions of Limitation Act, 1963 - vested rights had accrued in favour of the appellant by virtue of Section 2(4) of the Act or not.
Effect of the amendment to Bye-law 252(2) amended by the Stock Exchange, Mumbai providing that the provisions of Limitation Act, 1963 - HELD THAT:- In view of the fact that it is not the case of the respondent that the said Bye-law 252(2) of the Bye-laws framed by the Stock Exchange, Mumbai applied with retrospective effect, the judgment of Madras High Court in case of THE PROJECT DIRECTOR PROJECT IMPLEMENTATION UNIT NATIONAL HIGHWAYS AUTHORITY OF INDIA VERSUS K. PERIYASAMY AND ORS. [2018 (4) TMI 2000 - MADRAS HIGH COURT] would not assist the case of the appellant. The question now arises for consideration of this Court is, as to what is the effect of amendment of Bye-law 252(2) amended by the Stock Exchange, Mumbai providing that the provision of Limitation Act, 1963 would be applicable.
Allahabad High Court in case of Mt. Begam Sultan [1925 (7) TMI 4 - ALLAHABAD HIGH COURT] relied upon by the learned counsel for the respondent held that the law of limitation applicable to a suit or the proceeding is the law in force at the date of the institution of the suit or the proceeding unless there is a distinct provision to the contrary. It is held that there was no vested right in the decree holder to wait for an indefinite period of time in order to apply for execution. Supreme Court in case of Ramprasad Dagaduram [1966 (4) TMI 82 - SUPREME COURT] has held that the respondent had no vested right in the law of procedure for enforcement of mortgage though the period of limitation was abridged for the enforcement of the mortgage by Article 132 of the Indian Limitation Act, 1908. Such abridgment did not take away any vested right.
In view of Section 2(4) of the Arbitration and Conciliation Act, 1996, period of limitation was not applicable to the transactions entered into between the appellant and the respondent prior to 29th August, 1998 when the provisions of Limitation Act, 1963 were extended to the arbitral proceedings under the Stock Exchange Bye-laws. However, there would be no merit in the contention of the appellant that even after applicability of the provisions of the Limitation Act, appellant would be continued to be governed by no period of limitation in view of Section 2(4) - The alleged rights if any in favour of the appellant in view of Section 2(4) of the Arbitration Act to file claim without period of limitation stood abrogated in view of the amendment to Bye-law 252(2). The appellant would be thereafter governed by the amended Bye-law 252(2) for filing any claim in respect of cause of action having arisen prior to the date of amendment.
If the provisions of Limitation Act, 1963 apply to the transactions in question, whether the proceedings were filed by the appellant within a period of three years from 29th August, 1998 or not? - HELD THAT:- Under the proviso to sub-Section 3 of Section 166 of the Motor Vehicles Act, 1988, maximum period of delay which could be condoned was six months which expired on 22nd January, 1990. The Supreme Court held that it is true that the appellant earlier could have filed an application for condonation of even more than six months after the expiry of limitation but can this be treated to be a right which the appellant had acquired. It is held that it would be treated to be a right. So far as the period of limitation for commencing a legal proceeding is concerned, it is adjudicable in nature and has to be governed by the Motor Vehicles Act, 1988 subject to two conditions.
The Supreme Court adverted to the earlier judgment in case of New India Insurance Co. Ltd. v/s. Smt. Shanti Misra [1975 (10) TMI 101 - SUPREME COURT]. It is held in that matter that a period of two years was available to the respondent for instituting a suit for recovery of damages when the husband of the respondent had expired. In March, 1967, the claims tribunal under Section 110 of the Motor Vehicles Act, 1939 was constituted, barring the jurisdiction of Civil Court and prescribed 60 days as the period of limitation - The Supreme Court held that the period of limitation for lodging the claim under the old as well as the new Act was same six months which expired three weeks after coming in force of the new Act. It would be open to the appellant to file his claim within this period or even later by 22nd July, 1989 with a prayer to condone the delay. His rights to claim for compensation was not affected at all with substitution of one Act with another. Since, the period of limitation remained the same, there was no question of the appellant being taken by surprise. In this background, the appellant’s further default has to be considered. It is held that having actually initiated the proceedings when the old Act covered the field the claimant could say that his right which had accrued on the date of filing of the petition could not be taken away.
A perusal of Section 30 of the Limitation Act, 1963 makes it clear that any suit for which the period of limitation is shorter than the period of limitation prescribed by the Indian Limitation Act, 1908, may be instituted within a period of seven years next after the commencement of the said Act, 1963 or within the period prescribed for such suit by the Indian Limitation Act, 1908 whichever period expires earlier - by virtue of Section 2(4) read with Section 43 of the Arbitration and Conciliation Act, 1996, there would be no period of limitation even after amendment to Bye-Law 252(2) framed by the Stock Exchange, Mumbai.
Since this Court is of the view that limitation period of three years in this case would commence w.e.f. 29th August 1998, a question that arise for consideration is whether within the period of three years from 29th August 1998, the appellant had filed the claim before the Stock Exchange, Mumbai or not. It is not in dispute that the statement of claim was filed by the appellant on 1st July 2002. It is not in dispute that complaint filed by the appellant before the Investor’s Grievances Redressal Cell was pending during the period between 29th April 1999 and 29th September 2000 - Cause of action would not commence only from the date of rejection of complaint by the Investor’s Grievances Redressal Cell for the purpose of filing statement of claim for the first time.
The arbitral Tribunal has rendered various findings of facts after considering the pleadings, documents and the Bye-laws, Rules and Regulations framed by the Stock Exchange, Mumbai. Learned Single Judge while deciding the petition under Section 34 of the Arbitration and Conciliation Act, 1996 rightly did not interfere with the findings of facts and did not re-appreciate the evidence. The appellant did not make out any case for interference with the award rendered by the learned Single Judge. Scope of Section 37 of the Arbitration and Conciliation Act, 1996 is very limited. The appellant cannot expand the scope of Section 37 of the Arbitration and Conciliation Act, 1996 by advancing various arguments which are not advanced before the learned Single Judge while arguing the application under Section 34 of the Arbitration and Conciliation Act, 1996.
There are no infirmity in the impugned award rendered by the arbitral Tribunal and also in the impugned judgment rendered by the learned Single Judge - Appeal is devoid of merit and is dismissed.
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2021 (5) TMI 1087
Application under Order XXXIX Rules 1& 2 of the CPC of the respondent/plaintiff Black Diamond Motors Private Limited - Permanent injunction to restrain infringement of trade mark - whether the conduct of the respondent/plaintiff is bona fide and if not, whether it disentitles the respondent/plaintiff to the interim relief, which is discretionary, and awarded on equitable principles? - HELD THAT:- Section 34 of the Trade Marks Act provides that nothing in the said Act shall entitle the proprietor of registered trade mark to interfere with or restrain the use by any person of a trade mark, identical with or nearly resembling it, in relation to goods or services in relation to which that person or his predecessor in title has continuously used that trade mark, from a date prior to the use of the said trade mark by registered proprietor thereof in relation to those goods or services or prior to the date of registration of the trade mark in respect of those goods or services in the name of the proprietor thereof, whichever is the earlier.
The contention of the senior counsel for the respondent/plaintiff that the appellants/defendants were not using 'BLACK DIAMOND' mark in relation to Class 12 goods, thus cannot be accepted because the appellants/defendants No. 5 & 3 i.e. Parvinder Singh Bhatia and his son Raminder Singh Bhatia, till separation on 31st March, 2014, were very much part and parcel of the respondent/plaintiff and were as such using the mark 'BLACK DIAMOND' in respect to Class 12 goods also. Rather, the respondent/plaintiff, incorporated in the year 2005, became entitled to use the mark 'BLACK DIAMOND' in relation to Class 12 goods, only for the reason of being a company incorporated by the Bhatias aforesaid, who and their predecessors had adopted the said mark way back in the year 1983 and who were using the said mark for all their mining businesses. In such a situation, it is not open to Pushpinder Singh Bhatia who is now in control of the respondent/plaintiff, to, using the garb of a corporate veil, contend that the other family members viz. Parvinder Singh Bhatia and his son Raminder Singh Bhatia who till 31st March, 2014 were part and parcel of respondent/plaintiff, were not using the mark 'BLACK DIAMOND' for Class 12 goods.
The present is not a case of the appellants/defendants having used the trade mark 'BLACK DIAMOND' with the permission of respondent/plaintiff; rather here the appellants/defendants were using the trade mark 'BLACK DIAMOND' in their own right, including with respect to the subject goods.
The impugned order cannot be sustained and the appeal is allowed and the impugned order set aside.
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2021 (5) TMI 1086
Seeking directions to the Respondents to deposit the outstanding amount due and payable - order of restraint from selling, transferring, alienating, relinquishing or creating any third party interest in respect of the assets/properties etc. - HELD THAT:- There is a consensus between the parties regarding the existence of the Arbitration Agreement and disputes having arisen between the parties and that the same have to be adjudicated in terms of the dispute resolution mechanism agreed upon.
Since the Arbitrator has been appointed, the learned counsel for the parties jointly pray that the present petition be directed to be considered by the learned Arbitrator as an application under Section 17 of the Act. The said request is accepted and accordingly, the present petition is disposed of, with a direction that same shall be treated as an application under Section 17 of the Act, which shall be considered and decided by the learned Arbitrator in accordance with law. Till such time, the statement made by Mr. Sikri, as recorded in the order dated 20th November, 2020, with the clarification as observed today, shall continue to bind the Respondents.
The parties are directed to appear before the learned Sole Arbitrator as and when notified. This is subject to the Arbitrator making the necessary disclosure under Section 12(1) of the Act and not being ineligible under Section 12(5) of the Act.
Petition disposed off.
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2021 (5) TMI 1085
Accrual of income in India - 'Permanent Establishment' ("PE") in Indi or not? - scope of business model of the assessee and the provision of Article – 5 of India –US DTAA - HELD THAT:- We find that Article -5 of India-US DTAA and Article -5 of India -Thailand DTAA have almost similar clause. Both sides are unanimous in stating that the nature of transactions and terms and conditions of transactions between assessee and Indian AE in both the cases are similar. The Revenue has not brought on record any distinguishing factor in the present set of appeals before us. Therefore, the findings given by the Co-ordinate Bench of Tribunal AY 2011-12 while adjudicating the appeal in the case of assessee’s group concern GIA-US would mutatis mutandis apply to present appeal. Respectfully following the order of Co-ordinate Bench we hold that GIA India Laboratories Pvt. Ltd. is not agency PE/PE of the assessee. Consequently, ground No.2 of the appeal is decided in favour of the assessee.
Non-granting of TDS credit - We deem it appropriate to restore this issue to the Assessing Officer for re-examination/reconciliation. AO is directed to allow benefit of TDS credit to the assessee after verification of records, in accordance with law. Ground of the appeal is allowed for statistical purpose.
Levy of interest u/s 234A - due date of filling returns as assessee is a foreign company - Since, the assessee has filed original return of income within due date under the provisions of section 139(1) of the Act, interest under section 234A is not leviable. The provisions of section 234A are triggered where there is default in furnishing return of income i.e. the return of income is filed beyond due date as mandated under section 139(1) or (4) of the Act. The issue is restored to the file of Assessing Officer for verification of facts. If the return is filed by the assessee within the due date, the provisions of section 234A of the Act are no attracted, hence, no interest to be levied
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2021 (5) TMI 1084
Validity of assessment order passed w/o issuing SCN - Addition taking recourse to Section 69 and tax at the rate of 60% has been levied in terms of Section 115BBE - petitioner alleged that questionnaires were served on the petitioner from time to time u/s 142(1) which replies were submitted by the petitioner, no show-cause notice, as envisaged in Central Board of Direct Taxes (‘CBDT’) Instruction No. 20 of 2015, dated 29.12.2015, has been served on the petitioner.
HELD THAT:- As respondent, says that he has not been able to obtain instructions in the matter as the concerned Principal Commissioner of Income Tax has been afflicted with coronavirus.
Having regard to the submissions made by the petitioner, we are inclined to entertain the instant writ petition.Accordingly, issue notice.
Mr. Agarwal accepts service on behalf of the respondent.Counter-affidavit will be filed within four weeks. Rejoinder thereto, if any, will be filed before the next date of hearing.
In the meanwhile, there shall be a stay on the operation of the impugned assessment order dated 03.04.2021. List the matter on 10.08.2021.
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2021 (5) TMI 1083
Seeking stay on the operation of assessment order under Faceless Assessment Scheme, 2019 - as submitted no show-cause notice was issued to the petitioner-assessee - HELD THAT:- Board desires that in all cases under scrutiny, where the Assessing Officer proposes to make additions or disallowances, the assessee would be given a fair opportunity to explain his position on the proposed additions/disallowances in accordance with the principle of natural justice. In this regard, the AO shall issue an appropriate show-cause notice duly indicating the reasons for the proposed additions/disallowances along with necessary evidences/reasons forming the basis of the same. Before passing the final order against the proposed additions/disallowances, due consideration shall be given to the submissions made by the assessee in response to the show-cause notice.
Accordingly, issue notice. Revenue, accepts service on behalf of the respondent. We are told that, due to personal difficulty, Mr. Sharma is not available today.
Counter-affidavit will be filed within four weeks. Rejoinder thereto, if any, will be filed before the next date of hearing.
List the matter on 10.08.2021. In the meanwhile, there shall be a stay on the operation of the impugned assessment order dated 31.03.2021
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2021 (5) TMI 1082
Petition Seeking restraint against the invocation/ encashment of the bank guarantee - extension of the EPCG authorisation - non-fulfilment of export obligations - HELD THAT:- The amount of the demand draft may be re-deposited by Yes Bank, and the Bank Guarantee shall be re-issued in favour of Respondent Nos.1 & 2, for a validity period of at least two years, on the same terms and conditions on which it was issued before. This would satisfy the prayers (a) and (b) of the petition.
The reason for non-fulfilment of the same, as captured in the order dated 6th May 2021, is the COVID-19 pandemic, because of which the hospitality sector has been adversely hit. Accordingly, considering the fact that the COVID-19 pandemic has reduced tourism, as also the occupancy levels in hotels including that of the Petitioners, the present writ petition, insofar as it relates to prayers (c), (d) & (e), may be considered as a representation, by the Director General of Foreign Trade (“DGFT”). The said prayers for extension of the EPCG authorizations may be considered by DGFT, after giving a hearing to the Petitioner and a decision in respect thereof would be taken in accordance with the law on or before 31st July, 2021.
The decision taken, shall be communicated to the Petitioner and the Petitioner’s remedies, if any, in respect of the said decision that may be taken, are left open to be availed of in accordance with law.
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2021 (5) TMI 1081
Reduction of the tariff payable by Appellant No. 1 from Rs. 6.10/kWh to Rs. 4.36/kWh and imposition of damages of Rs. 20,00,000/- for delay in commissioning the plant - Whether the Project of the Appellants was delayed by one day in terms of Power Purchase Agreement and whether the Commission was justified in imposing liquidated damages on the Appellant for such delay in commissioning the Project? - HELD THAT:- Reduction of applicable tariff is permissible Under Article 12.2 of the PPA only when there is delay in commissioning of the Project beyond the Scheduled Commissioning Date. As discussed above, there is no dispute that the Scheduled Commissioning date shall be 12 months from the effective date. There is no quarrel between the parties that the effective date is 17.10.2016. The interpretation Clause contains three provisions which are 1.2.1(k), 1.2.1(l) and 1.2.1(m). According to 1.2.1(k), any reference to a month shall mean a reference to a Calendar month as per the Gregorian Calendar. 1.2.1(l) provides that references to any date or period shall mean and include such date, period as may be extended pursuant to the agreement. As per Article 1.2.1(m), any reference to any period commencing from a specified date and until the specified day shall include both such day or dates.
The conclusion of the Commission is not agreed upon that the definition of month is with reference only to one month and not more which is wrong a reading of the provision. The Commission applied 1.2.1(m) which refers to a period commencing from a specified date to a specified day for the purpose of including the date of the event. The Commission has committed an error in applying 1.2.1(m) when the provision that is applicable is 1.2.1(k) read with the definition of month in Article 21.1. There is a specific mention of 'twelve months' in the definition of 'SCOD' and Article 1.2.1(k) categorically provides that any reference to a 'Month' shall be a calendar month. Applicability of Article 1.2.1(k) excludes the operation of Article 1.2.1(m) to the facts of this case.
The next contention of the Appellant is that actual injection of power into the Grid was on 17.10.2017 and as the Scheduled is 16.10.2017, the reduction of the tariff in view of the delay of 1 day in commissioning is justified. The alternate submission that is made by the Respondents that even assuming that the Scheduled Commissioning Date is 16.10.2017 and not 17.10.2017, the Respondents commissioned the Solar Plants on 16.10.2017 itself - There is no dispute that the power was injected from the solar plants on 17.10.2017. In view of the conclusion reached by us on the issue relating to the Scheduled Commissioning Date being 17.10.2017, it is not necessary to adjudicate the point relating to the requirement of actual injection of power into the Grid to decide the date of commissioning.
The judgment of the Appellate Tribunal is upheld and the Appeals are dismissed.
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2021 (5) TMI 1080
Refusal to discharge the Appellant u/s 504 and 506 of Indian Penal Code, 1860 - It is alleged that the Appellant had threatened Respondent No. 2 to pump numerous bullets in his face so that he may not even be recognized - HELD THAT:- As a caveat it may be stated that the High Court, while exercising its afore-stated jurisdiction ought to be circumspect. The discretion vested in the High Court is to be invoked carefully and judiciously for effective and timely administration of criminal justice system. This Court, nonetheless, does not recommend a complete hands off approach. Albeit, there should be interference, may be, in exceptional cases, failing which there is likelihood of serious prejudice to the rights of a citizen. For example, when the contents of a complaint or the other purported material on record is a brazen attempt to persecute an innocent person, it becomes imperative upon the Court to prevent the abuse of process of law.
Further, it is well settled that the trial court while considering the discharge application is not to act as a mere post office. The Court has to sift through the evidence in order to find out whether there are sufficient grounds to try the suspect. The court has to consider the broad probabilities, total effect of evidence and documents produced and the basic infirmities appearing in the case and so on.
The High Court has committed jurisdictional error by not entertaining the revision petition on merits and overlooking the fact that 'discharge' is a valuable right provided to the Accused. In line with the fact that the High Court and the court below have not examined the fairness of criminal investigation in this case and other related aspects concerning improvement of witness statements, it is necessary for the High Court to reconsider the entire matter and decide the revision petition afresh.
The case remanded back to the High Court for its reconsideration in accordance with law - appeal disposed off by way of remand.
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2021 (5) TMI 1079
Validity of the jurisdiction of the AO - New Delhi v/s Kolkata - objection to the jurisdiction of ITO, Ward-10(2), Kolkata - PAN data base shows that the PAN jurisdiction was with Ward10(2), Kolkata - as submitted that the assessee was registered at New Delhi and has a registered office at New Delhi and it neither had any business nor any business connection in Kolkata, therefore, jurisdiction under the Income Tax Act lies with the Assessing Officer at New Delhi not at Kolkata - AO intimated that jurisdiction on assessee would lie to him on account of PAN data base and the PAN of the assessee was allotted from Kolkata - AO rejected the objection raised by the assessee at his own level without even invoking the provision of Section 124(4), wherein reference to PCIT has to be made mandatorily - assessee has challenged the jurisdiction and transfer of jurisdiction from Kolkata to Delhi by way of an alternative plea
HELD THAT:- All the returns of income have been filed electronically up till 2014-15 and the designation of the Assessing Officer has always been shown as Range-18, New Delhi.
The question of jurisdiction which was raised by the assessee before the ITO, Ward-10, Kolkata at the very first instance should have been referred to the ld. PCIT to decide the question of jurisdiction; and secondly even if the matter was referred to him by ld. DCIT, Circle-10 on 14.12.2014 then Ld. PCIT was bound to decide the issue of jurisdiction first, before directing the AO to pass the assessment. The Assessing Officer cannot on its own asked the assessee to move an application u/s.127 for migration of PAN, because the power of transferring the case u/s.127, lies with higher authorities. Power u/s. 127 has been given to PDG/DG/PCC/CC/PCIT or CIT to transfer the case of an assessee from one jurisdiction to other under various circumstances
The entire case of the revenue hinges upon the interpretation that allotment of PAN is the criteria and foundation of deciding the jurisdiction of the AO - Nowhere in the statute it has been provided that PAN address will decide the territorial jurisdiction of the AO. Section 139A merely provides who are the persons required to obtain PAN having regard to the nature of transaction of business and other conditions laid down that, AO may allot a PAN and other procedure and mechanism of allotment of the PAN. The territorial jurisdiction is decided by the CBDT in terms of Section 120 only.
The jurisdiction of the AO over an assessee is decided by the CBDT on the basis of from where the assessee is either carrying the business in that area assigned to the Assessing Officer u/s.120 or the assessee is residing within that area. Admittedly, the assessee company does not only have registered office in New Delhi but also has been carrying out all its activities from which it has been earning income from New Delhi and has been filing the return of income from New Delhi. Even in the software of the Income Tax Department where return of income is uploaded online, the designation of the Assessing Officer as per the address has always been mentioned as Range-18, New Delhi.
Had there been the allotment of jurisdiction by virtue of PAN, then the software of the Department would have assigned the jurisdiction as when assessee uploads the return of income electronically online. Be that as it may, nowhere in the statute it has been provided that allotment of a PAN would be the determinative factor for jurisdiction of the AO.
Thus, we hold that ITO, Ward-10(2)/DCIT, Circle-10(2), Kolkata did not have any jurisdiction over the assessee company and any order passed without jurisdiction is null and void. Appeal of assessee is allowed.
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2021 (5) TMI 1078
Classification of goods intended to be imported - preparation/product of betel nut (API supari, Chikni supari, unflavoured supari and boiled supari) commonly known as Supari, which does not contain lime or katha (catechu) or tobacco but may or may not contain any other ingredients such as food starch, cardamom, copra, mulethi, menthol (flavours), perfume etc. - classifiable under the CTH 2106 90 30 as food preparation or not? - HELD THAT:- In these cases, one set of processes are found to be intended for cleaning; the second set for enhancing preservation; and third set for enhancing appearance or presentation, Addition of starch would be included under such process. It is found that these processes are clearly covered by the Chapter Note 3 to Chapter 8. It is also noted that during the personal hearings the learned advocate requested to consider the distinction arising out of moderate and heavy boiling. In this regard, it is also submitted in the application that with the process of boiling, betel nut loses the character of being fresh & dried nut therefore the item will not be covered under Chapter 8.
It is found in the instant case, betel nuts after being boiled are dried; and this fact per se would not exclude the end-products from the scope of "dried nuts". Further, it is equally obvious to me that boiling or mere addition of certain additives for the limited purpose of enhancing preservation or appearance or ease of consumption per se does not result in obtaining a preparation of betel nut. Speaking more generally, in view of the design of the Schedule to the CTA, HSN and plethora of judgements, besides common understanding and parlance, every irreversible process docs not result in obtaining a new product with a distinct classification even at the eight or ten-digit level; and every irreversible process does not result in coming into being of a "preparation of the raw material".
The processes to which raw betel nuts have been subjected to obtain API supari, Chikni supari, unflavoured supari and boiled supari are squarely in the nature of processes referred to in the Chapter Note 3 to Chapter 8 and HSN Note. Therefore, at the end of the said processes, the betel nuts retain the character of betel nut and do not qualify to be considered as "preparations" of betel nut, which is sine qua non for a good to be classifiable under Chapter 21.
Flavoured supari - whether the addition of special flavouring agents would render the betel nuts into preparations of betel nuts, classifiable under Chapter 21? - HELD THAT:- Hon'ble Supreme Court of India in the case of CRANE BETEL NUT POWDER WORKS VERSUS COMMR. OF CUS. & C. EX., TIRUPATHI [2007 (3) TMI 6 - SUPREME COURT] in the case of AZAM LAMINATORS PVT. LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, TRICHY (VICE-VERSA) [2019 (3) TMI 782 - CESTAT CHENNAI] [where scented betel nut was being manufactured by cracking of dried betel nut into small pieces, and thereafter, gently heating it with addition of vanaspati oil, sweetening and flavouring agents and marketed in small pouches as Nizam Pakku (in Tamil)/Betel Nut (in English), the Hon'ble CES TAT held the resultant product classifiable under sub-heading 08029019 of Central Excise Tariff and not under 21069030 as supari for period after 07.07.2009] are relevant.
Put simply, these decisions clearly imply that addition of flavouring agents do not change the character of the good, meaning in the present case betel nut would continue to remain betel nut and not become preparation of betel nut.
Thus, all the five goods placed before me for consideration, i.e., API supari, chikni supari, boiled supari, unflavoured supari, and flavoured supari, merit classification under Chapter 8 of the First Schedule to the Customs Tariff Act, and more precisely, under the heading 0802. This is so in view of the fact that the processes to which raw green fresh betel nuts have been subjected to obtain the said five goods are squarely in the nature of processes mentioned in Note 3 to Chapter 85 and have not materially changed the essential character of betel nuts, as held by the Hon'ble Supreme Court in the M/S Crane Betel Nuts case. Further, the said five goods are not classifiable under sub-heading 21069030, as contended by the applicant, since they have not attained the character of "preparations" of betel nut, which is sine qua non for a good to be so considered.
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2021 (5) TMI 1077
Non-granting of the transport subsidy - claiming benefit of transport subsidy at prescribed rates with interest.
Case of the petitioner is that its unit fulfilled all the requirements of grant of transport subsidy and for which all the documents were supplied to the department despite which such subsidy was not granted and on account of which the petitioner was unable to repay its dues to the secured creditors and faced bankruptcy.
HELD THAT:- A new industrial unit is defined as to mean an industrial unit which has set up its manufacturing capacity and comes into production on or after the date of commencement of the scheme. It may be noted that the scheme was brought into effect from 15.07.1971. The term “selected area” would mean several regions and States specified therein including the North Eastern region comprising of the State of Assam, Meghalaya, Manipur, Nagaland and Tripura and Union Territories of Arunachal Pradesh and Mizoram. Paragraph-6 of the scheme envisages grant of transport subsidy to the industrial unit located in the selected areas in respect of raw materials which are brought into and finished goods which are taken out of such areas. However, industrial units will not be eligible for transport subsidy for internal movement of raw materials and finished goods within such areas.
The eligibility period for claiming subsidy may be 5 years, the scheme nowhere provides that only if a new industrial unit continues such manufacturing activity for a period of 5 years that it can claim the transport subsidy. Therefore, even if, as pointed out by the respondents, the petitioner at some later point of time after commencing its production got engaged into the same activity as a job worker, this would not amount to breach of any of the eligibility conditions of the scheme.
Transport subsidy would not be available for movement of raw materials as also finished goods as long as the movement thereof is confined between two locations both of which are situated in the North Eastern region. In the present case, even going by the case of the petitioner the raw material was procured from Assam which forms part of the North Eastern region for the purpose of the said scheme.
Appeal dismissed.
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2021 (5) TMI 1076
Remission of Labour Cess computed at 1% of the contract value, under Sections 3 sub-section (1) and (2) of the Building and Other Construction Workers’ Welfare Cess Act, 1996 - High Court accepted the submission of the Respondent No. 1 that in the absence of levy and assessment under the Cess Act 1996 and the Rules made thereunder, the letters of the UPPTCL were not sustainable in law.
HELD THAT:- It is nobody’s case that Respondent No. 1 has committed any breach or default in performance of the First Contract, that is, the Supply Contract, rendering it liable for any damages, costs or expenses. The Respondent No. 1 duly discharged its obligations under the First Contract (Supply Contract) to the satisfaction of UPPTCL, and accordingly all payments due to it were cleared. The Performance Guarantees furnished by the Respondent No. 1 were also partially discharged except to the extent of covering cess on the First (Supply) contract. This is apparent from the communication of the UPPTCL dated 1st June 2018 to the Bank (Respondent No. 2).
Clause 8 of the Special Conditions of the Contract merely says that duties, taxes, fees etc. as are legally applicable, shall be paid at actuals by the contractor. This clause does not enable UPPTCL to withhold payments or to realize cess by revocation of a Performance Guarantee.
The clear statutory scheme of the BOCW Act excludes a supply contract from within its ambit. On behalf of the Respondent No. 1, it is pointed out that several public authorities and corporations, such as the Delhi Metro Rail Corporation and Karnataka Power Transmission Corporation Limited, have issued instructions that no cess under the BOCW Act is leviable on a contract for supply of goods. Copies of the KPTCL circulars dated 22.8.2012 and 28.8.2012 to this effect are annexed to the Rejoinder of the Respondent No. 1 in the High Court.
The Respondent No. 1 is apparently not a contractor, within the meaning of Section 2(1)(g) of the BOCW Act in respect of the first, second and fourth contracts. Nor is the Respondent No. 1 employer within the meaning of Section 2(1)(i) of the BOCW Act. Section 2(1)(i) of the BOCW Act defines ‘employer’ to include the contractor in relation to a building and other construction work carried on by or through a contractor or by employment of building workers supplied by a contractor. The Respondent No. 1 neither falls within the definition of ‘contractor in Section 2(1)(g) nor 2(1)(i)(iii) of the BOCW Act. Apparently, the Respondent No. 1 is not liable to cess in respect of the First, Second and Fourth contracts.
Cess under the Cess Act read with BOCW Act is leviable in respect of building and other construction works. The condition precedent for imposition of cess under the Cess Act is the construction, repair, demolition or maintenance of and/or in relation to a building or any other work of construction, transmission towers, in relation inter alia to generation, transmission and distribution of power, electric lines, pipelines etc. Mere installation and/or erection of pipelines, equipments for generation or transmission or distribution of power, electric wires, transmission towers etc. which do not involve construction work are not amenable to Cess under the Cess Act. Accordingly no intimation or information was given or any return filed with the Assessing Officer under the Cess Act or the Inspector under the BOCW Act in respect of the First and Second Contracts, either by UPPTCL or by the Respondent No. 1.
UPPTCL demanded and partly realized cess on the supply Contract, solely on the basis of report of the CAG. In the absence of any adjudication, it was impermissible for UPPTCL to issue the impugned communication to realize cess solely on the basis of the report of the CAG - In CENTRE FOR PUBLIC INTEREST LITIGATION & ORS. VERSUS UOI. & ORS. [2012 (2) TMI 568 - SUPREME COURT], this Court held that when CAG report was subject to scrutiny of the Public Accounts Committee and the Joint Parliamentary Committee, it would not be proper to refer to findings and conclusions contained therein.
In this Case, there is apparently no dispute, difference or controversy between UPPTCL and the Respondent No. 1 as to the true construction, meaning or intent of any part of the conditions of contract or to the manner of execution or the quality or description or payment for the same. Nor is there any dispute as to the true meaning, intent, interpretation, construction or effect of the clauses of contract, specifications or drawings or any of them. UPPTCL has changed its stand only after the CAG report. Cess in respect of of the First Contract has been deducted only in view of the audit objection raised by the Office of Comptroller and Auditor General (CAG).
It is well settled that availability of an alternative remedy does not prohibit the High Court from entertaining a writ petition in an appropriate case. The High Court may entertain a writ petition, notwithstanding the availability of an alternative remedy, particularly (1) where the writ petition seeks enforcement of a fundamental right; (ii) where there is failure of principles of natural justice or (iii) where the impugned orders or proceedings are wholly without jurisdiction or (iv) the vires of an Act is under challenge.
The action of UPPTCL in forcibly extracting building cess from the Respondent No. 1 in respect of the first contract, solely on the basis of the CAG report, is in excess of power conferred on UPPTCL by law or in terms of the contract. In other words, UPPTCL has no power and authority and or jurisdiction to realize labour cess under the Cess Act in respect of the first contract by withholding dues in respect of other contracts and/or invoking a performance guarantee. There is no legal infirmity in the finding of the High Court that UPPTCL acted in excess of power by its acts impugned, when there was admittedly no assessment or levy of cess under the Cess Act - It is well settled that when statute requires a thing to be done in a particular manner, it is to be done in that manner alone. UPPTCL could not have taken recourse to the methods adopted by it. The impugned communications have rightly been set aside.
The judgment and order of the High Court impugned does not call for inference under Article 136 of the Constitution of India. The Special Leave Petition is, therefore, dismissed.
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2021 (5) TMI 1075
Suit for partition or separation of shares of Respondent No. 1 - Recovery of amount - rendition of accounts and permanent injunction against the Appellants herein and Respondent No. 2 - HELD THAT:- As is evident from a reading of the recommendations of the Law Commission, a distinction was carved out between 'beneficiary nominee' and 'collector nominee' and Section 39 of the Insurance Act, 1938 was amended accordingly, adding sub-Section (7). Beneficiary nominee means a nominee who was entitled to receive the entire proceeds under an insurance policy and a collector nominee means a nominee other than a beneficiary nominee. Keeping this distinction in mind, sub-section (7) of Section 39 was carefully and cautiously drafted and the words used by the legislature are 'beneficial interest'.
In the present case, Appellants had specifically flagged the issue of applicability of the amendment to Section 39 on the ground that Late Shri Vineet Huria died on 11.07.2018 and the policy had matured after the Amendment to Section 39, came into force. It was thus incumbent upon the Trial Court to have considered and examined the issue, once the same was raised and highlighted by the Appellants and taken a decision accordingly, with respect to the benefits accruing under the insurance policies, in question.
Since the Trial Court has not considered the legal issue of the 2015 Amendment to the Insurance Act 1938, raised by the Appellants, it would be appropriate to remand the matter back to the Trial Court. Accordingly it is directed that the learned Trial Court shall consider the matter afresh, taking into account the respective contentions of the parties and the law on the subject. In so far as the respective claims to other moveable assets are concerned, excluding the policies, the same shall be decided by the Trial Court, separately and at the appropriate time.
The appeal is allowed and the order of the Trial Court is set aside.
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2021 (5) TMI 1074
Income taxable in India - dependent agency permanent establishment (DAPE) in India - profits of the DAPE on account of advertisement sale revenues - distribution revenues earned by the assessee are taxable under article 12 of the Indo-US tax treaty - whether profits on account of advertisement sale revenues can be brought to tax in the hands of such a DAPE?
HELD THAT:- We find that it is not even revenue’s case that the dependent agent has not been paid an arm’s length remuneration. As a matter of fact, the assessee has filed the evidences in support of the stand that these transactions have been held to be arm’s length transactions. Given this factual position, we find that this issue is squarely covered in favour of the assessee by case of ADIT vs Asia Today Ltd [2021 (2) TMI 95 - ITAT MUMBAI] - Thus we hold that as the dependent agent has been paid an arm’s length remuneration, nothing survives for taxation in the hands of the DAPE and therefore even existence of DAPE is wholly infractuous and tax neutral. To this extent, we uphold the plea of the assessee and delete the impugned taxability of advertisement sale revenues. The assessee gets the relief accordingly.
Taxability of distribution revenues under article 12 of the Indo-US tax treaty - The first settled proposition is that the distribution rights cannot be treated as copyrights, as consistently held by the co-ordinate benches, e.g. in the case of the DDIT vs SET India Pvt. Ltd. [2012 (4) TMI 604 - ITAT MUMBAI] as stated that the assessee submitted before him that the cable operator only retransmits the television signals transmitted to it by a broadcaster without any editing, delays, interruptions, deletions, or additions and, therefore the payment made by the assessee to the Non-resident company is not for use of any copyright and consequently cannot be characterized as Royalty. CIT(A) has held that Broadcasting Reproduction Right is not covered under the definition of Royalty under section 9(1)(vi) of the Income tax Act as well as Article 12 of the Treaty. Accordingly, the payment is not in the nature of Royalty but in the nature of business income.
Definition of term ‘process’ as defined by the Finance Act 2012 w.e.f. 1st June 1976 - So far as assessment years prior to 2012-13 are concerned, the issue is now settled by Hon’ble Supreme Court’s judgement in the case of Engineering Analysis Centre of Excellence Ltd [2021 (3) TMI 138 - SUPREME COURT] wherein their Lorships have held that the insertion of explanation 6, dealing with definition of process, is not retrospective in nature.
Even so far as subsequent years are concerned, it is well settled in law, as was also held by Hon’ble jurisdictional High Court in the case of CIT vs Siemens [2008 (11) TMI 74 - BOMBAY HIGH COURT] and New Skies Satellite BV [2016 (2) TMI 415 - DELHI HIGH COURT] a mere amendment in domestic law will not override the provisions in the applicable tax treaties. Revenue thus derives no advantage, so far as present case is concerned, from amendment by way explanation 6 to section 9(1)(vi).
Also one argument adopted by the authorities below, in support of taxability on royalty and that is for the assessee having given licence for use of trademarks associated with NGC Asia. Such as incidental use of trademark and trade name etc. is only incidental to rendition of broadcasting services, and in the light of law laid down in the case of DIT vs Sheraton International Inc [2009 (1) TMI 27 - DELHI HIGH COURT] it cannot result in taxation as royalty either. Learned Departmental Representative nevertheless relies upon the stand of the authorities below.
On all the three aspects, thus, this issue, regarding taxability of distribution revenues is also covered, in favour of the assessee.
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2021 (5) TMI 1073
Allowability of the sales promotion expenses incurred by assessee/pharmaceutical company - freebies given to doctors in light of the CBDT Circular No. 5/2012 read a/w the Medical Council of India (MCI) Regulations, 2012 - HELD THAT:- Expenses wholly and exclusively incurred by a pharmaceutical company in the normal course of its business towards, viz. gifts, travel facility, conference expenses or similar freebies to medical practitioners or their professional associations would not be hit by the ‘Explanation 1’ to Sec. 37 of the Act.
Tribunal had concluded that even if the assessee had incurred expenditure on distribution of ‘freebies’ to doctors and medical practitioners, the same, may though not be in conformity with the Indian Medical Council (Professional Conduct, Etiquette and Ethics) regulations, 2002, however, as the same only regulates the code of conduct of the medical practitioners/doctors, therefore, in the absence of any prohibition on the pharmaceutical companies on incurring of such sale promotion expenses, it cannot be held to have incurred an expenditure for a purpose which is an offence or is prohibited by law. See M/S. ARISTO PHARMACEUTICALS PVT. LTD. VERSUS DCIT-2 (1) (1) (VICE-VERSA) [2020 (1) TMI 777 - ITAT MUMBAI]
In the case of the present assessee before us, as it is neither a fact nor the case of the revenue that the assessee had incurred expenses for the purpose of personal benefit/enjoyment of the doctors or their spouses, therefore, on a similar footing as in the case of PHL Pharma P. Ltd. (2017 (1) TMI 771 - ITAT MUMBAI), the order passed by the Tribunal in the case of Liva Healthcare Limited (2016 (9) TMI 856 - ITAT MUMBAI] being distinguishable on facts would not assist the case of the revenue.
Thus we are of the considered view that the CIT(A) had erred in upholding the disallowance of the assessee’s claim for deduction of sale promotion expenses.
Entitled for deduction of “cess” - HELD THAT:- As respectfully following the judgment of Sesa Gold Limited [2020 (3) TMI 347 - BOMBAY HIGH COURT] we are principally in agreement with the assessee’s claim that “Education Cess” and the “Secondary and Higher Education Cess” are not disallowable as a deduction u/s 40(a)(ii) of the Act. However, as the aforementioned claim had been raised by the assessee for the very first time before us, we, therefore, in all fairness restore the matter to the file of the A.O for considering the said claim of the assessee in the backdrop of our observations recorded hereinabove, though, subject to verification of the factual position as had been claimed by the assessee before us. Ground of appeal No. 4 is allowed for statistical purposes in terms of our observations recorded hereinabove.
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2021 (5) TMI 1072
Infringement, by the defendants, of certain Standard Essential Patents (SEPs), held by the plaintiff and registered in their name - whether the Wuhan Court was justified in granting anti-suit injunction, vide its order dated 23rd September, 2020, and, secondly, whether this Court would be justified in injuncting the respondent from enforcing that order against the plaintiffs? - HELD THAT:- The surviving considerations, in the order of the Wuhan Court, are (i) that the acts of the plaintiffs indicated disrespect to the procedure of the Wuhan Court, and an intention to interfere with the said proceedings, (ii) that the plaintiffs, despite being put on notice, had not responded, or caused appearance before the Wuhan Court, (iii) instead, the plaintiffs were seeking, by initiating the present proceedings before this Court, to exclude the jurisdiction of the Wuhan Court and deliberately interfere with the Wuhan proceedings, (iv) there was a possibility of an adjudication conflict, were both proceedings to be allowed to continue side by side and (v) grant of anti-suit injunction would not prejudice the plaintiffs in the present proceedings, except to the extent of delay in obtaining relief.
Even as regards the main complaint and the documents filed by the defendants, in that regard, the Wuhan Court records, candidly, that service of the complainant and the documents were still in process, but that it was nevertheless proceeding to issue the anti-suit injunction "directly", "in a sense of behavior preservation". Whether the Wuhan Court was justified in doing so, or not, is not for me to comment on, in the present proceedings. Suffice it to state that, in the circumstances, the contention that the order of the Wuhan Court was passed after due notice to the plaintiffs is obviously unacceptable. The record reveals, rather, that it was only during the pendency of these proceedings in this Court that the plaintiffs were ever made aware of the fact that the defendants had filed an anti-suit injunction application in the Wuhan Court.
The failure, of the plaintiffs, to enter appearance consequent to notice being issued by the Wuhan Court in the complaint filed by the defendants, i.e. consideration, cannot be treated as relevant for the purposes of granting anti-suit injunction, restraining the plaintiffs from prosecuting the present proceedings.
The remaining considerations which prompted the Wuhan Court to pass the order dated 23rd September, 2020 require, in order for their proper appreciation, a juxtaposed view of the case of the plaintiffs in the present suit, vis-à-vis the case of the defendants in the complaint before the Wuhan Court.
It is obviously disingenuous, on the part of the defendants, to contend that the order of the Wuhan Court merely suspends, and does not altogether foreclose, the plaintiffs from pursuing the present claim for injunction against the defendants. There being no other forum before which the plaintiffs could agitate their claim against infringement, it is totally unthinkable that a forum which has no jurisdiction in that regard could injunct the plaintiffs from agitating the issue before the only forum which has. Such injunction cannot be allowed to continue even for a single day - The defendants have not chosen to undertake not to use the technology, involving the allegedly infringed suit patents, during the pendency of the Wuhan proceedings. What the defendants suggest is, therefore, that the plaintiffs should sit back and helplessly watch continued infringement of their suit patents by the defendants (as the plaintiffs would allege) without being able to lift a finger to prevent it, even while legal remedies, for redressal, continue to remain available in this country under the Patents Act. This would, clearly, render the Patents Act, and the statutory guarantees available thereunder, both otiose and impotent. Damages are but poor solace, once the damage itself is done.
The submission that, in order to avoid an "unseemly race" to obtain a decree, the prayer for anti-enforcement injunction of the plaintiff sought to be rejected, fails to impress. The question of an "unseemly race" would arise where the nature of the reliefs sought by the plaintiffs in the defendants is similar. It is not so in the present case. The plaintiffs seek injunction against infringement of their suit patents, whereas the defendants seek fixation of a global FRAND rate, for the entire portfolio of the plaintiffs' patents. The plaintiffs and the defendants are not, therefore, racing towards the same goal.
Thus, to conclude, it is totally impermissible for a Court in one sovereign jurisdiction to injunct the party before it from pursuing its cause against infringement of its intellectual property before another sovereign jurisdiction, where such latter jurisdiction is the only forum competent to adjudicate the claim of infringement, save and except where continuation of the infringement proceedings are vexatious or oppressive to the proceedings pending before the former, injuncting, court. The mere fact that one or other aspect of the controversy may overlap cannot be a ground to grant such injunction. Nor can the consideration of the two courts arriving at differing decisions on that part of the issue which may overlap be regarded as sufficient to grant such injunction, which would result in denying the plaintiff seeking injunction against infringement the right to agitate such claim before the only forum competent to adjudicate thereon. Such injunction would be ex facie destructive of the principle of comity of courts.
This application is allowed in the following terms and to the following extent:
(i) The ad interim injunction granted by this Court on 9th October, 2020 is made absolute, pending disposal of CS (COMM.) 295/2020. The defendant shall remain restrained, during the pendency of the present suit, from enforcing, against the plaintiffs, the order dated 23rd September, 2020, passed by the Wuhan Court.
(ii) In the event of any orders been passed by the Wuhan Court, or any other measures being taken, against the plaintiffs, towards deposit of the fine of RMB 1 million per day, as directed by the order dated 23rd September, 2020 of the Wuhan Court, the defendants shall, within one week of passing of the said order (which period may be reduced or extended at that stage, if necessary), secure such amount of fine, imposed on the plaintiffs, by depositing, with the Registrar General of this Court, an equivalent amount, by way of crossed cheque/demand draft, and the plaintiff shall be entitled, on such deposit, to withdraw the said amount, or have been transferred to the account of the plaintiffs.
(iii) As the plaintiffs have not pressed the prayer, in this application, for a direction to the defendants to withdraw the complaint filed by them before the Wuhan Court, no orders are being passed on the said prayer which is, accordingly, disposed of.
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2021 (5) TMI 1071
Violation of Clause 36 of the Listing Agreement read with Section 21 of the SCRA - corporate announcement of the cancellation / truncation of the orders was not made known to the stock exchange - Penalty for failure to furnish information, return, etc - HELD THAT:- As the words material / materiality means anything which is likely to impact an investor’s investment decision and depends on the facts of each case. In the instant case, we find that when the appellants received the contract the said information was disclosed on the stock exchange platform and which was rightly done but when the orders were cancelled or truncated on three occasions the cancellation / truncation orders were not disclosed on the stock exchange platform.
Non-disclosure of this information was a material information which could have an impact on the financials of the Company. In our view the objective of Clause 36 of the Listing Agreement is to enable the shareholders and the public to appraise position of the Company and enable investors to take an informed decision. In our view the cancellation / truncation of the contracts has a material impact which warrants a disclosure on an immediate basis. The responsibility was on the appellant no. 1 which it failed to do so.
It is duty of the Compliance Officer to ensure that the Company complies with all the legal obligations. In the instant case as we have held the cancellation / truncation of the orders had a material impact and was price sensitive information which could have an impact on the financials of the Company. Thus, Clause 3.2 of the Code of Conduct was violated. Since there is no separate provision for imposition of penalty the provisions of Section 15HB of the SEBI Act was invoked and the penalty was rightly imposed. We do not find any error on this aspect.
Penalty for failure to comply with provision of listing conditions or delisting conditions or grounds - sum of Rs. 1 crore has been imposed for violation of Section 23E of the SCRA - Section 23E has nothing to do with the violation of the provisions of the Listing Agreement especially Clause 36. Section 23E provides that where a Company fails to comply with the listing conditions or delisting conditions or grounds or commits a breach thereof then penalty would be a minimum of Rs. 5 lakh upto maximum of Rs. 25 crore. The words “fails to comply with the listing conditions” cannot mean failure to comply with the conditions in the Listing Agreement.
Rule 19 of the SCRR provides certain requirements with respect to a listing of securities on a recognized stock exchange. Rule 19A provides that a Company has to continuously maintain listing requirements. Rule 21 provides conditions for delisting of securities. Failure to comply with the listing conditions which are stated in Rule 19 would entail a penalty as provided under Section 23E. Thus, in our view violation of Clause 36 of the Listing Agreement will attract Section 23A(a) of the SCRA and will not attract Section 23E. The AO has made an error.
The penalty of Rs. 1 crore under Section 23E is patently erroneous and cannot be imposed and the order to that extent cannot be sustained.
While confirming the order of the AO with regard to violation of Clause 36 of the Listing Agreement and Clause 3.2 of the Code of Conduct to the PIT Regulations of 1992 we affirm the penalty imposed upon appellant no. 1 under Section 23A(a) to the extent of Rs. 5 lakh and also affirm the order of the AO to the extent of imposition of Rs. 5 lakh on appellant nos. 1 and 2 under Section 15HB of the SEBI Act. The imposition of penalty of Rs. 1 crore under Section 23E of the SCRA is set aside.
Appeal is partly allowed.
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2021 (5) TMI 1070
Constitutional Validity - whether Sub-section (4) of Section 8 of the Prevention of Money Laundering Act, 2002 (PMLA) is intravires the Constitution of India for the purpose of initiating proceedings under Section 3 of the PMLA, or not?
HELD THAT:- The Co-ordinate Bench of this Court in SRI M.B. VIKRAM VERSUS DEPUTY DIRECTOR, DIRECTORATE OF ENFORCEMENT, BANGALORE [2021 (2) TMI 1355 - KARNATAKA HIGH COURT] having already refused to interfere in the matter and having permitted the appellants therein to agitate all their contentions before the Appellate Tribunal, it is opined that the same would be applicable to the present proceedings. Hence, it is deemed appropriate to dispose of the appeals by relegating the appellants to the Appellate Tribunal reserving liberty to press for interim/protective orders pending disposal of the appeal by the Appellate Tribunal.
Pending disposal of the appeal to be filed by the appellants and consideration of any interlocutory application to be filed by the appellants, the respondents are restrained from taking any precipitative action against the appellants.
Appeal disposed off.
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2021 (5) TMI 1069
Professional misconduct - Overstatement in reporting of Sales and Purchase figures - evaluation of the accounting policy for revenue recognition has improper audit planning - failing to understand the nature of the entity - non-verification of account balances of debtors and creditors - non-communication with the Those Charged with Governance (TCWG) - Non-appointment of Engagement Quality Control Review partner - Imposition of a monetary penalty off Rs.Five Lakhs upon CA Rakesh Puri - CA Rakesh Puri is debarred for Five years from being appointed as an auditor or internal auditor or from undertaking any audit in respect of financial statements or internal audit of the functions and activities of any company or body corporate.
Failure in evaluation of Accounting Policy relating to Recognition of Revenue - HELD THAT:- The EP has been inconsistent in his replies. It is not clear how he obtained guidance from the GN on derivative accounting issued in 2015} which was not even in existence at the time of audit - The GN issued in the year 2003 was applicable for Equity Derivative Instruments and not for the Commodity Future Contracts. It was withdrawn with effect from 01.04.2009. Therefore, the EP's reliance on the GNs was misplaced - In the extant case, the SSWL recognised the revenue corresponding to the closing position of Futures Commodity Contract on daily basis without actual settlement of such contract. The risk and reward of the contract remained with the company. The EP failed to consider the basic principle of the transfer of "risk and reward" while auditing the SSWL's accounting policy on in revenue recognition.
Non evaluation of risk of fraud in revenue recognition - HELD THAT:- The EP ignored to investigate the exponential rise in revenue to the tune of 1026% that evidently posed significant risk of material misstatement in the revenue of SSWL and would therefore have alarmed any prudent person to the risk of fraud in recognition of revenue, however the EP failed to consider such alarming signals - The contention of the EP that he did not presume the risk in revenue underlines the open admission of his gross negligence and lack of due diligence in the face of such contradictions between the reported and actual state of affairs in the Company, which the auditor failed to identify and report and therefore his defence of his actions is baseless. Such a huge increase in revenue as indicated above warranted a risk assessment and therefore, the EP had to document the rationale behind non-presumption of the risk in revenue in compliance with Para 47 of SA 240.
Failure to check contract notes of the commodity trades - HELD THAT:- The audit documentation in the Audit File regarding contract notes. Notwithstanding the same, if the reply of the EP to SEBI is to be believed, then there were glaring procedural deficiencies, as the contract notes were selected by the company and not by the EP. The sampling approach of the EP was also not in compliance with the Para 7 and 8 of SA 530[SA 530 "Audit Sampling"], which specify appropriate sample size and its selection method.
Improper planning of audit - HELD THAT:- The saying that good planning is success half done is quite relevant in the conduct of audit as well. As per SA 300 and 315, the BP was duty bound to understand the business of the entity, assess the specific risks to the entity and plan his audit to mitigate such risks. However, in the present case, there is no evidence or documentation in the audit file to show that the EP took any steps to understand the business of SSWL and to plan the audit.
Failure to ensure existence of preconditions for the audit - HELD THAT:- Evidently, the EP allowed himself to work under conditions of scope limitation. The contention of the EP that low quantum of audit fee i.e.,Rs…and non-bearing of travelling expenses by the company cannot be an excuse for non-performance of the statutory duty. There are no document which shows that any communication occurred between the EP and Mr. Anil Mistry, the Director of the Company. Absent any interaction with the key management, audit committee etc., it is difficult to accept that the EP had understood the business of the entity and its internal controls. The EP’s reference to the two letters written by him to the Audit Committee on 1.8.2013 and 31.7.2014 to claim that he understood the business of the entity cannot be accepted as these letters were written at the time of submitting the draft financial statements and cannot be taken as evidence of any significant interaction with TCWG. Moreover, these are not a part of the audit file, not much credence can be attached to them - If the EP felt that the limitations had been imposed on performing of the audit by constraints such as travel cost etc., then the EP could have chosen not to accept such audit engagement in accordance with SA 210, which he failed do. Accordingly, the reply and explanation of the EP is not acceptable and we hold him guilty of having violated SA 210.
Non verification of balances of debtors and creditors - HELD THAT:- Trade receivables accounted for 20.57% in FY 2012- 13 and 13.58% in FY 2013-14 of the total assets of the Company, hence constituted a material class of account balances. However, aside from the fact that there was no audit documentation of the external confirmation, the EP's claim that he depended on SSWL for independent confirmations shows complete ignorance of Para 7 and A31 of SA 500[SA 500 "Audit Evidence"] read with Parn2 of SA 505, which emphasise that audit evidence obtained directly by the auditor is more reliable than audit evidence obtained indirectly or by inference. Accordingly, the procedure claimed to have been adopted by the EP was devoid of independence, as he left the responsibility of obtaining confirmations to the entity and not to himself.
Non-communication with Those Charged with Governance (TCWG) - HELD THAT:- The audit committee is only a sub-group of TCWG and not TCWG in itself. As per Para 6 (a) of SA 260, TCWG is defined as the person(s) or organization(s) (e.g., a corporate trustee) with responsibility for overseeing the strategic direction of the entity and obligations related to the accountability of the entity. This includes overseeing the financial reporting process. For some entities, those charged with governance may include management personnel, for example, executive members of a governance board of a private or public sector entity, or an owner-manager. Therefore, communication of the EP with TCWG was not in accordance with provisions of SA.
Non-appointment of Engagement Quality Control Reviewer (EQCR) - HELD THAT:- Since SSWL is a listed company, the EP was required to determine that EQCR was appointed.
Article of Charges of Professional Misconduct by the Engagement Partner (EP) - HELD THAT:- The Engagement Partner (EP) has made a series of serious departures from the Standards and the Law, in his conduct of the audit of SSWL for FY s 2012-13 and 2013-14. Based on above discussion, it is proved that the EP had issued unmodified opinion on the Financial Statements without any basis. The poor quality of Audit, the cover up in terms of submission of additional documents that did not exist in Audit File, incomplete documentation and attempt to mislead through false and evasive replies further compound the professional misconduct on the part of the EP. Based on the foregoing discussion and analysis, it is concluded that the EP has committed Professional Misconduct as defined under Section 132 ( 4) of the Companies Act 2013 in terms of section 22 of the Chartered Accountants Act 1949.
Penalty & Sanctions - HELD THAT:- Considering the proved professional misconduct and keeping in mind the nature of violations, principles of proportionality and deterrence against future professional misconduct, in exercise of powers under Section 132(4)(c) of the Companies Act, 2013, it is hereby ordered:
I. Imposition of a monetary penalty of Rs. Five Lakhs upon CA Rakesh Puri;
II. In addition, CA Rakesh Puri is debarred for Five years from being appointed as an auditor or internal auditor or from undertaking any audit in respect of financial statements or internal audit of the functions and activities of any company or body corporate
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