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2011 (6) TMI 1046
The Supreme Court of India, in the case cited as 2011 (6) TMI 1046 - SC Order, presided over by Hon'ble Mr. Justice G.S. Singhvi and Hon'ble Dr. Justice B.S. Chauhan, reviewed petitions challenging an order by the Delhi High Court. The High Court had denied bail to the petitioners under Section 439 of the Code of Criminal Procedure. The Supreme Court, after hearing arguments from both parties, upheld the High Court's decision, finding no "legal infirmity" in the reasons for denying bail. Consequently, the special leave petitions were dismissed. However, the Court granted the petitioners the liberty to file new applications for bail under Section 439 after the charges are framed. Petitioner No. 2 was also allowed to invoke Section 437 in her application. The Supreme Court directed that any new applications should be considered by the Special Court independently of the previous rejections.
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2011 (6) TMI 1045
ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment are: - Whether the land sold by the assessee in Egathur and Navalur villages qualifies as agricultural land and is thus exempt from capital gains tax under the Income-tax Act, 1961.
- Whether the funds utilized by the assessee for the purchase of NABARD bonds, to claim exemption under section 54EC of the Income-tax Act, were entirely derived from the sale of the agricultural properties.
- Whether the order passed by the Assessing Officer was erroneous and prejudicial to the interests of the Revenue, justifying the revision under section 263 by the Commissioner of Income-tax.
ISSUE-WISE DETAILED ANALYSIS 1. Nature of Land Sold Relevant legal framework and precedents: The primary legal question revolves around whether the land sold qualifies as a capital asset under section 2(14) of the Income-tax Act, 1961, which excludes agricultural land from the definition of a capital asset. Court's interpretation and reasoning: The Tribunal examined the evidence provided by the assessee, including certificates from the Village Administrative Officer and details of the land's distance from urban areas. The Tribunal found that the Assessing Officer had adequately considered these documents before concluding that the land was agricultural. Key evidence and findings: The assessee provided 23 pieces of evidence to support the claim that the land was agricultural. The Tribunal noted that the State Government's notification of the area as 'urbanisable' did not equate to it being urbanized at the time of sale. Application of law to facts: The Tribunal emphasized that no notification had been issued by the Central Board of Direct Taxes declaring the villages as urban areas. The historical acceptance of agricultural income from these lands in previous assessments further supported the assessee's claim. Treatment of competing arguments: The Tribunal rejected the Commissioner's reliance on the State Government's order, clarifying that it was not sufficient to reclassify the land for tax purposes. Conclusions: The Tribunal concluded that the land was agricultural and thus exempt from capital gains tax. 2. Exemption under Section 54EC Relevant legal framework and precedents: Section 54EC provides for exemption from capital gains tax if the gains are invested in specified bonds within a stipulated period. Court's interpretation and reasoning: The Tribunal considered whether the investment in NABARD bonds was made from the sale proceeds of the agricultural land. Key evidence and findings: The Tribunal found that the assessee had sufficient funds from the sale of properties to make the investment, and the precise tracing of funds was unnecessary. Application of law to facts: The Tribunal held that the assessee's overall financial position, including the sale proceeds, allowed for the investment in NABARD bonds within the statutory timeframe. Treatment of competing arguments: The Tribunal dismissed the Commissioner's argument that the funds were not entirely from the sale proceeds, noting that such a strict tracing requirement was contrary to the spirit of the law. Conclusions: The Tribunal concluded that the exemption under section 54EC was correctly claimed by the assessee. SIGNIFICANT HOLDINGS Preserve verbatim quotes of crucial legal reasoning: The Tribunal noted, "In the absence of any contrary document on record, the claim is allowed," indicating that the Assessing Officer's decision was based on adequate evidence. Core principles established: The judgment reinforces the principle that a mere notification of land as 'urbanisable' does not change its agricultural status for tax purposes unless further statutory notifications are issued. Final determinations on each issue: The Tribunal set aside the revision order by the Commissioner of Income-tax, affirming that the original assessment by the Assessing Officer was neither erroneous nor prejudicial to the interests of the Revenue. The appeal filed by the assessee was allowed, and the original assessment was upheld.
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2011 (6) TMI 1044
ISSUES PRESENTED and CONSIDEREDThe core legal issue considered in this judgment is whether a revised return filed by the assessee after the expiry of the time limit specified under section 139(5) of the Income-tax Act is valid. Specifically, the question is whether the Tribunal was correct in holding that the revised return filed by the assessee on October 29, 1991, beyond the prescribed time limit, was a valid return under section 139(5). ISSUE-WISE DETAILED ANALYSIS Relevant Legal Framework and Precedents The legal framework revolves around section 139(5) of the Income-tax Act, which permits an assessee to file a revised return if any omission or wrong statement is discovered in the original return. This revised return must be filed before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment, whichever is earlier. The court referenced the Supreme Court decision in Goetze (India) Ltd. v. CIT, which emphasized that claims must be made within the statutory provisions of the Act, and any deviation would render the claim non-entertainable. Court's Interpretation and Reasoning The Court interpreted section 139(5) strictly, emphasizing the importance of adhering to statutory time limits. The Court noted that the provision clearly stipulates the timeframe within which a revised return must be filed. The Court rejected the Tribunal's reliance on CIT v. Shelly Products, as it was not applicable to the facts of this case. The Court concluded that the statutory time limit is not merely procedural but substantive, and failure to comply renders the revised return invalid. Key Evidence and Findings The key finding was that the assessee filed the second revised return on October 29, 1991, which was beyond the one-year limit from the end of the assessment year 1989-90. This fact was undisputed and formed the basis for the Court's decision to invalidate the revised return. Application of Law to Facts The Court applied section 139(5) to the facts, determining that the assessee's revised return was filed beyond the permissible time limit. Consequently, the revised return was deemed non est in law. The Court emphasized that statutory provisions must be followed scrupulously, and any act done beyond the prescribed time loses statutory protection. Treatment of Competing Arguments The Revenue argued that the revised return was invalid due to the lapse of the statutory time limit, relying on the Supreme Court's decision in Goetze (India) Ltd. The assessee contended that the claim should be considered, as it was consistent with subsequent years, citing CIT v. Jai Parabolic Springs Ltd. The Court distinguished the latter case, noting that it dealt with additional grounds before the Tribunal, not the filing of a revised return. Conclusions The Court concluded that the Tribunal erred in allowing the assessee's claim based on a belated revised return. The statutory timeframe under section 139(5) is mandatory, and failure to comply renders the revised return invalid. The Court set aside the Tribunal's order, thereby upholding the decisions of the lower authorities. SIGNIFICANT HOLDINGS The Court held that the statutory time limit under section 139(5) for filing a revised return is substantive and must be strictly adhered to. The Court stated, "When the Act stipulates that a particular act has to be performed within a particular time, it goes without saying that anything done beyond the time limit set forth in the section loses the statutory protection." The core principle established is that statutory time limits in tax legislation are not merely procedural but are essential to the validity of claims and returns. The final determination was in favor of the Revenue, confirming that the revised return filed by the assessee was invalid due to non-compliance with the statutory timeframe.
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2011 (6) TMI 1043
Issues Involved:
1. Relevant Market Definition
2. Dominant Position of NSE
3. Abuse of Dominant Position by NSE
4. Leveraging Dominance
5. Exclusionary Conduct
Issue-wise Detailed Analysis:
1. Relevant Market Definition:
The Commission determined the relevant market as the stock exchange services for the currency derivatives (CD) segment in India. It was established that the CD segment is distinct from other segments like equity, F&O, and WDM, as well as from the OTC market. The CD segment was introduced as a new and distinct market by policymakers, and the services provided in this segment are functionally and statutorily segregated from other stock exchange services. The Commission rejected the applicability of the SSNIP test due to the lack of historical price data and the unique nature of the CD segment.
2. Dominant Position of NSE:
The Commission found NSE to be in a dominant position in the relevant market, defined as the stock exchange services for the CD segment in India. This conclusion was based on NSE's significant market share in various segments, its financial strength, extensive network, and vertical integration. NSE's ability to sustain a zero pricing policy and its substantial financial resources compared to competitors like MCX-SX and USE further reinforced its dominant position.
3. Abuse of Dominant Position by NSE:
The Commission identified several abusive practices by NSE, including the waiver of transaction fees, admission fees, and data feed fees, as well as the denial of APIC to ODIN software. These practices were deemed unfair and exclusionary, aimed at eliminating competition and harming competitors like MCX-SX. The zero pricing policy was considered annihilating or destructive pricing, contravening section 4(2)(a)(ii) of the Competition Act.
4. Leveraging Dominance:
NSE was found to have leveraged its dominant position in the non-CD segment to protect its position in the CD segment, violating section 4(2)(e) of the Act. The Commission concluded that NSE used its strengths from other segments to unfairly maintain its dominance in the CD segment, which was evident from its cross-subsidization practices and exclusionary conduct.
5. Exclusionary Conduct:
The Commission determined that NSE's conduct in denying APIC to ODIN and placing FTIL on a watch list was exclusionary, affecting both the aftermarket for trading software and the main relevant market. This conduct was aimed at foreclosing competition and imposing supplementary obligations on clients, contravening sections 4(2)(b)(i) and (ii), 4(2)(c), and 4(2)(d) of the Act.
Conclusion:
The Commission ordered NSE to cease and desist from unfair pricing and exclusionary conduct, maintain separate accounts for each segment, and modify its zero price policy. A penalty of Rs. 55.5 crores was imposed on NSE for its contraventions, reflecting 5% of its average turnover over the last three years. The decision emphasized the need for fair competition and the protection of consumer interests in the stock exchange services market.
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2011 (6) TMI 1042
The Bombay High Court dismissed the appeal regarding additional depreciation claimed by the assessee as Form 3AA was submitted during assessment proceedings, entitling the assessee to additional depreciation. Citation: 2011 (6) TMI 1042 - BOMBAY HIGH COURT.
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2011 (6) TMI 1041
Issues:
Appeal against revocation of registration under Section 12AA of the Income Tax Act.
Analysis:
1. The Assessee appealed against the Commissioner of Income Tax's order revoking the registration granted under Section 12AA of the Income Tax Act. The Assessee argued that it is a genuine charitable institution carrying out activities in accordance with its objectives, and the Commissioner exceeded jurisdiction in revoking the registration. The Assessee contended that the amendment of Section 2(15) applied incorrectly by the Commissioner, who failed to conclusively find the Assessee not genuine or acting beyond its objectives. The Assessee claimed the cancellation was illegal and arbitrary as it met the criteria for registration and was not given sufficient opportunity to establish genuineness.
2. During the hearing, the Assessee's representative emphasized the charitable nature of the organization's activities, including education for the poor, skill development training, and financial assistance to self-help groups. The Commissioner's decision to revoke registration was challenged as not aligning with legal precedents. The Assessee argued that the order was unsustainable and should be quashed. On the other hand, the Departmental Representative supported the Commissioner's decision.
3. The Tribunal analyzed the arguments, legal citations, and precedents cited by both parties. Referring to past judgments, including Bharat Integrated Social Welfare Agency v. CIT, the Tribunal found similarities with the present case. Relying on legal principles established in previous cases, the Tribunal concluded that the Assessee's involvement in financial activities for charitable purposes did not warrant revocation of registration. The Tribunal set aside the Commissioner's order as unjustified and allowed the Assessee's appeal.
4. The Tribunal's decision, delivered on June 30, 2011, overturned the Commissioner's order and allowed the Assessee's appeal against the revocation of registration under Section 12AA of the Income Tax Act. The Tribunal emphasized the importance of adhering to legal precedents and ensuring that genuine charitable activities are not hindered by misinterpretation of the law.
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2011 (6) TMI 1040
Issues Involved:
1. Legality of the provisional attachment order u/s 5 of the Prevention of Money Laundering Act, 2002.
2. The role of the Respondents in the alleged fraudulent acquisition of shares.
3. Whether the Respondents' actions constituted money laundering.
4. Applicability of Section 5(1) of the Act to persons not charged with a scheduled offence.
Summary:
1. Legality of the Provisional Attachment Order u/s 5 of the Act:
The appeal challenged the Adjudicating Authority's order dated 26th September 2008, which declined to confirm the provisional attachment of 3,91,020 equity shares of IDFC. The attachment was under Section 5 of the Prevention of Money Laundering Act, 2002 (PMLA). The Tribunal found that the Adjudicating Authority did not consider the submissions made by the Appellant and instead took cognizance of non-est claims by the Respondents. The Tribunal concluded that the provisional attachment was valid and necessary to prevent the concealment or transfer of proceeds of crime.
2. Role of the Respondents in the Alleged Fraudulent Acquisition of Shares:
It was alleged that the Respondents provided funds to intermediaries who in turn transferred these funds to key operators for fraudulent acquisition of IPO shares reserved for Retail Individual Investors (RII). The investigation revealed that the funds provided by the Respondents were adjusted by transferring shares of IDFC to their demat accounts. The Tribunal noted that the Respondents were aware of the ultimate utilization of funds for subscribing to the IDFC IPO and the criminal antecedents of the shares received.
3. Whether the Respondents' Actions Constituted Money Laundering:
The Tribunal found that the Respondents deployed funds through intermediaries for subscribing to IPOs, knowing the end use of the funds. The shares received by the Respondents were part of the fraudulent scheme orchestrated by the key operators. The Tribunal rejected the Respondents' claim that the funds were provided as interest-bearing loans and concluded that the Respondents' actions constituted money laundering as defined under Section 3 of the Act. The shares received by the Respondents were considered proceeds of crime.
4. Applicability of Section 5(1) of the Act to Persons Not Charged with a Scheduled Offence:
The Tribunal held that the property involved in money laundering could be attached even if the person in possession of such property is not charged with a scheduled offence. This interpretation was supported by the Tribunal's previous judgment in Radha Mohan J. Lakhotia & Others vs. Dy. Director, PMLA, which was upheld by the Bombay High Court. The Tribunal emphasized that the legislative intent of the Act was to prevent money laundering and confiscate proceeds of crime, regardless of whether the person in possession of such proceeds is charged with a scheduled offence.
Conclusion:
The Tribunal reversed the Adjudicating Authority's order and confirmed the provisional attachment of the shares. The attachment would continue during the pendency of the criminal proceedings and would become final upon the conviction of the accused in the trial court. The Tribunal also directed that any dividend declared on the attached shares should be deposited in a separate bank account or fixed deposit with interest accumulation until the final outcome of the case.
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2011 (6) TMI 1039
Issues Involved:1. Levy of penalty u/s 271(1)(c) for concealment of income. Summary:Levy of Penalty u/s 271(1)(c) for Concealment of Income:The appeal by the assessee is directed against the order dated 29.2.2008 of the CIT(A) for the Assessment Year 2006-07, focusing on the levy of penalty u/s 271(1)(c) for concealment of income. Facts of the Case: The assessee, a builder and developer, was part of the "Earth Group" subjected to a search u/s 132 on 1.9.2005. Two diaries, A-11 and A-12, were seized. Diary A-11 contained cheque payments, while A-12 recorded cash sales not reflected in regular books. The cash receipts in A-12 were admitted as undisclosed income. Assessment Proceedings: The Assessing Officer (AO) found discrepancies in seven transactions from diary A-11 and four from diary A-12, leading to an addition of Rs. 2,42,07,888/-. Since only 83% of the project was completed, Rs. 2,00,92,546/- was treated as undisclosed sales and added to the total income. Penalty proceedings for concealment were initiated, and a penalty of Rs. 67,63,150/- was levied. CIT(A) Decision: The CIT(A) deleted the penalty related to diary A-11, noting that all payments were by cheque and supported by documentary facts. However, the penalty related to diary A-12 was confirmed. The Revenue did not appeal against the relief allowed by CIT(A), leaving only the penalty related to diary A-12 for consideration. Penalty Proceedings: The assessee argued that penalty proceedings are distinct from assessment proceedings and that mere addition does not automatically lead to concealment. Specific explanations were provided for discrepancies in flat No. 501, 1501, 1801/1802, and shop No. 19, but the AO rejected these explanations, noting a lack of supporting evidence and confirming the penalty. Tribunal's Analysis: The Tribunal admitted additional evidence submitted by the assessee, including sale agreements and assessment orders for subsequent years. However, it emphasized that penalty u/s 271(1)(c) is a civil liability and does not require proof of mens rea. The Tribunal found the assessee's explanations unsubstantiated and not bonafide, particularly noting the improbability of not disputing substantial additions if no sale had occurred. The Tribunal concluded that the assessee's case fell under Explanation 1 to section 271(1)(c) and upheld the penalty. Conclusion: The Tribunal dismissed the appeal, confirming the CIT(A)'s order and the levy of penalty for concealment of income. Order pronounced in the open court on 17.6.2011.
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2011 (6) TMI 1038
Issues Involved:
1. Disallowance of deduction under Section 80IB(10) for Gawanpada Project.
2. Addition as deemed dividend under Section 2(22)(e).
3. Disallowance of deduction under Section 80IA(4)(iii) for industrial park projects.
4. Disallowance of deduction under Section 80IB(10) for Ashram Chawl Project.
5. Addition of alleged undisclosed sales.
Detailed Analysis:
1. Disallowance of Deduction under Section 80IB(10) for Gawanpada Project:
The assessee, engaged in real estate development, claimed deductions under Section 80IB(10) for the Gawanpada project. The AO disallowed the deduction, noting that the commercial space exceeded 2000 sq. ft., violating Section 80IB(10) conditions. The CIT(A) upheld this, focusing on the area of the plot being less than one acre. However, the Tribunal found that the project's approval dated before 31.03.2005 meant the conditions of Section 80IB(10) regarding commercial area were not applicable. Additionally, the Tribunal noted that the total plot area should be considered, not just the portion eligible for deduction. The matter was remanded to the CIT(A) for fresh adjudication considering CBDT Instruction dated 03.08.2010.
2. Addition as Deemed Dividend under Section 2(22)(e):
The AO added Rs. 13,34,412 as deemed dividend, noting the assessee held 24% shares in City Gold Management Services Pvt. Ltd., which had accumulated profits. The CIT(A) upheld the addition, rejecting the argument that transactions were inter-corporate deposits or current account transactions. The Tribunal, referencing its decision for the previous year, held that financial transactions between sister concerns, driven by commercial expediency, do not qualify as loans or advances under Section 2(22)(e). Hence, the addition was deleted.
3. Disallowance of Deduction under Section 80IA(4)(iii) for Industrial Park Projects:
The AO disallowed the deduction, arguing the CBDT notification was issued in 2006, applicable from AY 2007-08. The CIT(A) allowed the deduction, noting the approval from the Ministry of Commerce dated 31.12.2004, and that the CBDT notification did not specify a cut-off date. The Tribunal upheld the CIT(A)'s decision, confirming the deduction was valid from the date the industrial units were located in the park, which was before the relevant assessment year.
4. Disallowance of Deduction under Section 80IB(10) for Ashram Chawl Project:
The AO disallowed the deduction, stating the project plot size was less than one acre. The CIT(A) upheld this, considering only the eligible component of the project. The Tribunal, referencing its decision for previous years, held that the total plot area should be considered, not just the eligible portion. Thus, the deduction was allowed.
5. Addition of Alleged Undisclosed Sales:
The AO added Rs. 18,11,484 as undisclosed sales, based on brokerage bills indicating a higher sale consideration than recorded in the books. The CIT(A) upheld the addition, rejecting the typographical error claim. The Tribunal found no merit in the assessee's argument and upheld the CIT(A)'s decision.
Additional Grounds:
The Tribunal noted that the AO had accepted the claim for Maya Nagar Project in an order passed under Section 154, making the related additional ground infructuous. For the Ashram Chawl Project, the additional ground was remanded to the CIT(A) for fresh adjudication.
Conclusion:
The appeals filed by the assessee were partly allowed for statistical purposes, and the appeals filed by the revenue were dismissed. The Tribunal provided detailed directions for fresh adjudication on specific issues, ensuring compliance with legal provisions and CBDT instructions.
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2011 (6) TMI 1037
Sale of the suit property - time of the execution of the sale agreement - ready and willing to perform his part of the contract - agreement or assignation - Whether the alleged assignment of the suit sale agreement by the second Defendant in favor of the Plaintiff binds the first Defendant - Period of limitation - HELD THAT:- On taking into consideration of the submissions made on behalf of the first Defendant and on considering the submissions made on behalf of the Plaintiff has concluded that the second Defendant had No. right in the suit property at the time of assignation of suit sale agreement in favour of the Plaintiff under Ex.A2. This Court has also gone through the judgment of the trial Court and found that the trial Court has failed to see that when the agreement dated 10.04.1997 was not in force on 21.03.2000, the second Defendant could not have assigned his right under the sale agreement in favour of the Plaintiff.
It is substantiated that the first Defendant had terminated the suit sale agreement as early as on 28.07.1997. Ex.B4, true copy of the telegram would ratify this factum. This suit appears to have been filed on 24.08.2000. According to the first Defendant the suit is hopelessly barred as it has been filed beyond the period of limitation.
As evident from Ex.B4 true Xerox copy of the telegram, the sale agreement was terminated on 28.07.1997. Admittedly the suit is filed on 24.08.2000.
Article 54 of the Limitation Act contemplates that; for filing a suit for the relief of specific performance of a contract, the period of limitation is three years. The period of limitation shall be reckoned from the date fixed for the performance, or of No. such date is fixed, when the Plaintiff has notice that performance is refused.
Even in spite of receipt of the telegram, the second Defendant did not come forward to reply. The Plaintiff has also not chosen to summon the second Defendant to disprove the fact that the suit is barred by limitation.
On a perusal of Ex.A1, suit sale agreement the schedule of payment has been stipulated stage by stage. But this has not been followed by the second Defendant. As adumbrated supra, the Plaintiff has also admitted the latches on the part of the second Defendant in his evidence. Further the averments of E.A1 would go to show the intention of the parties to the contract, that time is the essence of the contract. Since, the second Defendant had failed to adhered to the norms and conditions stipulated in the suit sale agreement, the first Defendant had proceeded to terminate the contract of sale and therefore, as rightly observed in M.Mohar Ali v. Md. MamudAli reported in 1998 (3) CCC 328 (Gau) the suit itself is barred by limitation and this has also not been considered by the trial Court. Further the second Defendant was never ready and willing to perform his part of the contract. On the date of assignation of suit sale agreement i.e., under Ex.A2 on 21.03.2000, the second Defendant was not having any right or interest over the suit property so as to enable him to assign the suit sale agreement in favour of the Plaintiff.
In the result the appeal is allowed.
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2011 (6) TMI 1036
Issues Involved:
1. Proof of execution of the cheque.
2. Distinction between issuance and execution of the cheque.
3. Burden of proof in cases u/s 138 of the Negotiable Instruments Act.
Summary:
1. Proof of Execution of the Cheque:
The appellant filed a complaint u/s 138 of the Negotiable Instruments Act. The trial court acquitted the accused, noting that the accused did not admit the signature or execution of the cheque (Ext. P-1). The court emphasized that the complainant must prove the execution of the cheque for the offence u/s 138 to be established. The appellant argued that the accused admitted execution in the reply notice, but the court found that the accused only admitted to signing a blank cheque, not executing it. The court clarified that a signed blank cheque is not a "cheque" as defined under the Act and does not constitute an admission of execution.
2. Distinction Between Issuance and Execution of the Cheque:
The court explained that the term "execution" is not used in Section 138 of the Act, but the prosecution must prove that the cheque was "drawn" by the accused. The term "draw" means to create and sign a cheque. The court stated that proving the drawing of a cheque involves showing that the accused made, prepared, or created the cheque, including the order in writing and the signature. The court cited various legal sources to support this interpretation and noted that mere production of a cheque does not prove its execution.
3. Burden of Proof in Cases u/s 138 of the Negotiable Instruments Act:
The court highlighted that the prosecution must prove the drawing or execution of the cheque by direct or circumstantial evidence. The complainant must provide evidence that the cheque was created by the accused or under their instructions. The court noted that the mere fact that the cheque was in the complainant's possession is insufficient to prove execution. The court emphasized that each case must be evaluated based on its facts, and the prosecution must prove each circumstance relied upon to establish the drawing of the cheque by the accused.
Conclusion:
The court found that there was no allegation or proof that the cheque was "drawn" or "executed" by the accused. The trial court correctly acquitted the accused due to the lack of proof of drawing the cheque, which is essential for an offence u/s 138 of the Act. The court agreed with the trial court's distinction between issuance and execution, stating that issuance alone does not constitute the offence. The appeal was dismissed as the appellant failed to show any error or illegality in the trial court's findings.
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2011 (6) TMI 1035
Issues Involved:
1. Adjustment in arm's length price (ALP) on international transactions.
2. Exemption u/s 10A of the Income Tax Act.
3. Addition of prior period expenses.
Summary:
1. Adjustment in ALP on International Transactions:
The revenue appealed against the deletion of additions made by the Assessing Officer (AO) based on the Transfer Pricing Officer's (TPO) recommendations for adjustments in ALP on international transactions. The assessee, a subsidiary of Birla Soft Enterprises, engaged in software development, had transactions with associated enterprises (AEs). The TPO recommended an adjustment of Rs. 4,95,51,723, which the CIT(A) deleted, noting that the assessee's disclosed profit margin was within the tolerable band provided in the proviso to sec. 92C(2). The Tribunal upheld the CIT(A)'s decision, agreeing that the current year data should be used as per Rule 10B(4) and rejecting the TPO's approach of segregating each STP unit for ALP determination.
2. Exemption u/s 10A:
The revenue contested the CIT(A)'s decision to allow exemption u/s 10A for the STP unit on the third floor at STP Complex, Noida, which the AO had denied, considering it an extension of an existing unit. The CIT(A) referenced an ITAT order from the assessment year 2003-04, which had allowed the exemption, concluding that the unit was not an extension. The Tribunal upheld the CIT(A)'s decision, finding no reason to interfere.
3. Addition of Prior Period Expenses:
The revenue challenged the deletion of an addition of Rs. 19,26,120, which the AO had added back as prior period expenses. The assessee explained that the amount related to payroll taxes reconciled and paid in July 2003, following the Australian tax year. The CIT(A) deleted the addition, citing the Gujarat High Court decision in Sourasthra Cement & Chemical Ind. Vs. CIT. The Tribunal upheld the CIT(A)'s decision, agreeing that the liability had accrued and crystallized within the permissible period.
Decision:
The appeal by the revenue was dismissed, and the CIT(A)'s order was upheld in all respects. Decision pronounced in the open court on 17.06.2011.
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2011 (6) TMI 1034
Issues Involved:
1. Deletion of addition of bad debts.
2. Deletion of disallowance of interest on security deposit, commission, and gift paid to closely associated companies.
3. Deletion of disallowance of bid loss.
4. Deletion of disallowance of royalty.
5. Deletion of disallowance of over-draft interest.
6. Deletion of disallowance of brokerage earned written off and claimed as expenditure.
7. Deletion of addition of minimum guarantee charges.
8. Deletion of disallowance of administration and other expenses, interest & finance charges, and depreciation.
9. Deletion of disallowance under section 43B.
10. Assessment of interest income under 'Income from Business' instead of 'Other Sources.'
11. Deletion of disallowance of bad debts in respect of advances and trade advances written off.
12. Deletion of disallowance of compensation paid for breach of contract.
13. Deletion of disallowance of legal charges.
Issue-wise Detailed Analysis:
1. Deletion of Addition of Bad Debts:
The CIT(A) deleted the addition of bad debts of Rs. 868 crores, following the Tribunal's earlier decisions in the assessee's case for previous years. Both sides agreed that the issue was covered by the Tribunal's decision, and thus, the CIT(A)'s order was confirmed.
2. Deletion of Disallowance of Interest on Security Deposit, Commission, and Gift Paid to Closely Associated Companies:
The CIT(A) deleted the disallowance of Rs. 10.20 crores, following the Tribunal's earlier decision in the assessee's own case. The Tribunal confirmed the CIT(A)'s order, noting that the issue was covered by its earlier decision.
3. Deletion of Disallowance of Bid Loss:
The CIT(A) deleted the disallowance of bid loss of Rs. 8.89 crores, following the Supreme Court's decision in M/s. Bilahari Investment P. Ltd. The Tribunal confirmed the CIT(A)'s order, respecting the Supreme Court's decision.
4. Deletion of Disallowance of Royalty:
The CIT(A) deleted the disallowance of royalty of Rs. 64.53 lakhs, following the Tribunal's earlier decisions in similar cases. The Tribunal confirmed the CIT(A)'s order, following the Supreme Court's decision in Jonas Woodhead and Sons (India) Ltd. v. CIT.
5. Deletion of Disallowance of Over-Draft Interest:
The CIT(A) deleted the disallowance of over-draft interest of Rs. 22.73 lakhs, holding that there was commercial expediency. The Tribunal confirmed the CIT(A)'s order, noting that no interest-bearing funds were diverted for non-business purposes.
6. Deletion of Disallowance of Brokerage Earned Written Off and Claimed as Expenditure:
The CIT(A) directed the AO to delete the disallowance of Rs. 50,18,909/-, noting that the assessee had shown this amount as income in an earlier year. The Tribunal confirmed the CIT(A)'s order, finding that the income had been offered in the assessment year 1996-97.
7. Deletion of Addition of Minimum Guarantee Charges:
The CIT(A) deleted the addition of minimum guarantee charges, following the Tribunal's earlier decisions in the assessee's own case and similar cases. The Tribunal confirmed the CIT(A)'s order, respecting its earlier decisions.
8. Deletion of Disallowance of Administration and Other Expenses, Interest & Finance Charges, and Depreciation:
The CIT(A) deleted the disallowance, noting that the expenses were general in nature and not related to any specific project. The Tribunal confirmed the CIT(A)'s order, finding that the expenses were regular business expenditures.
9. Deletion of Disallowance under Section 43B:
The CIT(A) deleted the disallowance under section 43B, following the Supreme Court's decision in CIT v. Vinay Cement Ltd. The Tribunal restored the issue to the AO for verification in line with the Supreme Court's decision.
10. Assessment of Interest Income under 'Income from Business' Instead of 'Other Sources':
The CIT(A) directed the AO to assess the interest income as 'Income from Business', noting that the assessee was engaged in money lending. The Tribunal confirmed the CIT(A)'s order, respecting the assessee's business activities.
11. Deletion of Disallowance of Bad Debts in Respect of Advances and Trade Advances Written Off:
The CIT(A) directed the AO to delete the disallowance, noting that the advances were trade advances and allowable as business expenditure. The Tribunal modified the CIT(A)'s order, directing the AO to allow the advances as business expenditure under section 37.
12. Deletion of Disallowance of Compensation Paid for Breach of Contract:
The CIT(A) deleted the disallowance of Rs. 2.2 crores paid as compensation, noting that the liability arose from the assessee's business activities. The Tribunal confirmed the CIT(A)'s order, finding that the expenditure was incurred wholly and exclusively for business purposes.
13. Deletion of Disallowance of Legal Charges:
The CIT(A) deleted the disallowance of legal charges of Rs. 27,20,130/-, noting that the charges were related to the relevant previous year. The Tribunal confirmed the CIT(A)'s order, respecting the business nature of the expenditure.
Conclusion:
The appeals of the Revenue in ITA Nos. 1512, 1513, 1516, and 1518/Mds/2010 were dismissed. The appeals of the Revenue in ITA Nos. 1514, 1515, and 1517/Mds/2010 were partly allowed for statistical purposes. The order was pronounced in the court on 24/06/2011.
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2011 (6) TMI 1033
Issues Involved:
1. Validity of penalty levied under section 271E of the Income Tax Act.
2. Interpretation and application of sections 269T and 273B of the Income Tax Act.
3. Examination of the genuineness and nature of transactions.
4. Consideration of reasonable cause for non-compliance with the statutory provisions.
Issue-wise Detailed Analysis:
1. Validity of Penalty Levied Under Section 271E of the Income Tax Act:
The appeal by the revenue challenges the cancellation of penalty levied under section 271E of the Income Tax Act. The AO observed that the assessee repaid amounts to ex-partners and relatives of the partners by means other than account payee cheques/drafts, amounting to Rs.30,92,700/-. The Addl. CIT imposed a penalty of Rs.30,92,700/- for violating section 269T of the Act. The CIT(A) canceled the penalty, concluding that the repayments were genuine and not intended to evade tax.
2. Interpretation and Application of Sections 269T and 273B of the Income Tax Act:
Section 269T prohibits repayment of loans or deposits exceeding Rs.20,000/- by means other than account payee cheques/drafts. Section 271E prescribes a penalty for such violations. However, Section 273B provides that no penalty shall be imposed if the assessee proves that there was a reasonable cause for the failure. The CIT(A) held that the repayments were not loans or deposits but were returns of capital contributions made by ex-partners, thus not attracting section 269T. The CIT(A) also considered the legislative intent behind sections 269SS and 269T, which aim to curb tax evasion through unaccounted cash.
3. Examination of the Genuineness and Nature of Transactions:
The CIT(A) and the Tribunal noted that the transactions were genuine, recorded in the books of both parties, and there was no evidence of sham or bogus transactions. The capital contributions by ex-partners were returned upon their retirement, and no interest was paid on these amounts. The Tribunal emphasized that the character of the introduction of capital remains the same at the time of repayment and does not transform into a loan or deposit.
4. Consideration of Reasonable Cause for Non-compliance with the Statutory Provisions:
The Tribunal considered various judicial precedents and Board Circulars that highlight the importance of reasonable cause in determining the imposition of penalties. The Tribunal found that the assessee had a bona fide belief, supported by legal counsel, that the provisions of section 269T were not applicable. The Tribunal also noted that the transactions involved closely related persons, and the source of payments was not in doubt. The Tribunal concluded that the default was technical and did not result in any loss of revenue, thus justifying the cancellation of the penalty.
Conclusion:
The Tribunal upheld the CIT(A)'s decision to cancel the penalty, finding that the assessee had a reasonable cause for the non-compliance and that the transactions were genuine and bona fide. The appeal by the revenue was dismissed, and the order pronounced in open court on 17-06-2011 affirmed the cancellation of the penalty.
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2011 (6) TMI 1032
Issues involved:
The judgment involves the legality of tax deduction at source from compensation for acquired agricultural land and the entitlement of the petitioners to a refund of the deducted amount.
Issue 1: Tax Deduction at Source
The petitioners sought writ of certiorari to quash the respondents' action of deducting tax at source from the compensation for acquired agricultural land. The petitioners also sought a writ of mandamus to direct the release of the deducted amount along with interest. The respondents had deducted Rs.44,118/- as Tax at Source from the compensation paid for the acquired land, which the petitioners contended was not authorized under the Income Tax Act, 1961. The petitioners argued that no tax should have been deducted on the enhanced compensation for agricultural land acquired by the State.
Issue 2: Legal Arguments
The petitioners relied on a previous court order to support their claim that no tax was payable on the enhanced compensation for agricultural land. They contended that the tax deduction at source by the Land Acquisition Officer was unsustainable, and therefore, they were entitled to a refund of the deducted amount. The petitioners highlighted that tax had been deducted at source on both the principal amount of enhanced compensation and the interest received on it in all three writ petitions.
Judgment
The court noted that the interest element on the enhanced compensation was taxable in the year of receipt, requiring the petitioners to file a tax return as tax was payable on that amount. The court pointed out that the petitioners had the option to file income tax returns and adjust the tax deducted at source against their tax liability. If any excess amount had been deducted, the petitioners were entitled to a refund as per the provisions of the Income Tax Act. Consequently, the writ petitions were disposed of, granting the petitioners the liberty to file income tax returns and seek refunds of any excess tax deducted at source in accordance with the law.
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2011 (6) TMI 1031
Issues involved: Jurisdiction of assessment u/s.153A, validity of assessment orders u/s.153A, production of search warrant, assessment under Section 153C.
Summary:
Jurisdiction of assessment u/s.153A:
The Tribunal had directed the CIT(A) to first decide the additional ground of the assessee relating to the jurisdiction of assessment u/s.153A. The High Court held that the Tribunal must verify if there was a search warrant in the name of the assessee. The Department failed to produce the search warrant, leading to the conclusion that no proceedings u/s.153A could be initiated against the assessee. The Tribunal found that the assessments made u/s.153A were without jurisdiction and quashed them.
Validity of assessment orders u/s.153A:
The Department argued that the assessment orders made u/s.153A were valid as the assessee's case fell under Section 153C. However, the Tribunal found that without the search warrant issued in the name of the assessee, the proceedings u/s.153A were not sustainable. The Tribunal quashed the assessments as they were found to be without jurisdiction.
Production of search warrant:
The Department failed to produce the search warrant issued in the name of the assessee, as contended by the High Court. This led to the Tribunal's decision that no proceedings u/s.153A could be initiated against the assessee without the warrant of search.
Assessment under Section 153C:
The Department's contention that the assessment orders made u/s.153A were valid under Section 153C was rejected by the Tribunal. It was held that without the necessary warrant of search, the proceedings u/s.153A were without jurisdiction and liable to be quashed.
Conclusion:
The Tribunal allowed all the appeals of the assessee, quashing the assessments made u/s.153A due to the absence of a search warrant in the name of the assessee. The Tribunal relied on the decision of the Calcutta High Court and concluded that there was no need to adjudicate the merits of the additions made in the assessments.
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2011 (6) TMI 1030
Issues Involved:
1. Unexplained investment in the purchase of office property.
2. Reliance on seized documents and comparable cases.
3. Application of legal principles and precedents.
Summary:
Unexplained Investment in Purchase of Office Property:
The appeal by the assessee challenges the order of the CIT(A) confirming the addition of alleged unexplained investment in the purchase of an office at Dev-Shops & Offices. The AO added Rs. 25,00,000/- as unexplained investment u/s 69B of the IT Act based on seized documents during a search u/s 132 at the residence of Shri Dipak Thakkar. The AO concluded that the assessee made a cash payment of Rs. 25,00,000/- in addition to a cheque payment of Rs. 5,00,000/- for the office purchase.
Reliance on Seized Documents and Comparable Cases:
The AO referred to similar transactions involving other parties who admitted to making cash payments over and above the recorded amounts. The AO cited various legal precedents to support the addition, including cases where the prevailing practice of paying "on money" was considered even if denied by the purchaser. The CIT(A) upheld the AO's decision, relying on the loose papers found during the search.
Application of Legal Principles and Precedents:
The assessee argued that only Rs. 8,89,700/- was paid through cheques and no additional cash payment was made. The assessee cited an ITAT Ahmedabad order in a similar case (M/s. Trident Creation Pvt. Ltd.) where an identical addition was deleted. The Tribunal found that the seized papers did not conclusively prove the payment of "on money" by the assessee. The Tribunal noted that no statements from the builder or comparable cases were relied upon by the AO. The Tribunal emphasized that the burden of proof was on the AO to establish the payment of "on money," which was not discharged.
Conclusion:
The Tribunal concluded that the addition was made merely on suspicion and assumptions without sufficient evidence. The Tribunal set aside the orders of the authorities below and deleted the entire addition of Rs. 25,00,000/-. The appeal of the assessee was allowed.
Order Pronounced on 30-06-2011.
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2011 (6) TMI 1029
Issues involved: Appeal against addition of rural electrification subsidy wrongly claimed and written off.
Facts: The assessee-Board filed its return of income showing a total loss. Assessment u/s 143(3) was completed, adding the amount of subsidy written off by the assessee as irrecoverable.
Key Points: The assessee-Board was entitled to rural electrification subsidy, but the claim was found to be irrecoverable. The decision to write off the amount was made before the finalization of accounts for the year under appeal.
AO's Decision: The AO declined the claim as premature, stating that the decision to write off the amount was made after the relevant period. The CIT(A) concurred with this view.
Tribunal's Analysis: The Tribunal found that all conditions for writing off the amount were satisfied. The decision to write off was an acknowledgment of the irrecoverability of the sum, even though the formal resolution was passed after the relevant period.
Conclusion: The appeal was allowed as the Tribunal considered the decision to write off the amount as valid, given the irrecoverable nature of the subsidy. The timing of the decision did not invalidate the claim.
Judges: D.K. Srivastava, Accountant Member and Sushma Chowla, Judicial Member.
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2011 (6) TMI 1028
Issues Involved:
1. Reopening of assessment under section 147 of the Income Tax Act, 1961.
2. Validity of reasons for reopening the assessment.
3. Compliance with procedural requirements for reopening.
4. Tangibility of material for forming "reason to believe."
Detailed Analysis:
1. Reopening of Assessment under Section 147:
The primary issue in this case is whether the reopening of the assessment under section 147 of the Income Tax Act, 1961, for the assessment year 2010-11 was valid. The assessee, a public charitable trust, contested the reopening on the grounds that no tangible material was available to the Assessing Officer (AO) to justify the reassessment.
2. Validity of Reasons for Reopening the Assessment:
The reasons for reopening the assessment, as recorded by the AO, included:
- The assessee earned capital gains on the sale of quoted shares and invested in prohibited modes of investment, leading to an escape of income amounting to Rs. 267.5 Crores.
- The assessee claimed an exemption under section 10(33) amounting to Rs. 96,16,26,397/- which was not in order.
- The assessee claimed a deduction under section 11(1)(a) amounting to Rs. 54,56,784/- which was not in order.
The assessee argued that these reasons did not constitute new or tangible material and were merely a review of the return and annexures already filed.
3. Compliance with Procedural Requirements for Reopening:
The procedural compliance for reopening the assessment involved the issuance of a notice under section 148 and the subsequent provision of reasons for reopening to the assessee. The AO issued the notice and provided the reasons during the course of the reassessment proceedings. The assessee contended that the reasons were not provided in a timely manner, but the CIT(A) found that the reasons were supplied within a reasonable time, thus dismissing this ground of appeal.
4. Tangibility of Material for Forming "Reason to Believe":
The Tribunal emphasized that the term "reason to believe" should be based on tangible material and not merely on suspicion or a review of existing documents. The Tribunal cited the judgment of the Hon'ble Delhi High Court in CIT vs Orient Craft Ltd., which clarified that the "reason to believe" must be based on some new or tangible material. The Tribunal also referred to the Hon'ble Supreme Court's decision in Rajesh Jhaveri Stock Brokers, which reiterated that the AO must have a "reason to believe" based on tangible material for reopening assessments.
The Tribunal concluded that in the present case, the AO initiated reassessment proceedings based solely on the return and annexures filed by the assessee, without any new or tangible material. This did not satisfy the jurisdictional condition of "reason to believe" as required under section 147 of the Act.
Conclusion:
The Tribunal held that the reassessment proceedings initiated by the AO under section 147 were invalid due to the lack of new or tangible material. Consequently, the jurisdictional condition of "reason to believe" was not met. The Tribunal allowed the appeal by the assessee on this ground, rendering all other grounds academic and infructuous. The appeal by the Revenue was dismissed.
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2011 (6) TMI 1027
Issues involved: Challenge to assessment order regarding existence of permanent establishment (PE) and attribution of profit to the PE.
Regarding existence of PE: The appellant challenged the assessment order which confirmed the PE status of the assessee subsidiary in India. The Dispute Resolution Panel (DRP) upheld the assessment order without addressing the detailed submissions made by the assessee's representative. The appellant argued that the order passed by DRP ignored the principles of natural justice as it did not deal with the submissions in a speaking manner. The matter was restored to the file of the DRP to grant a reasonable opportunity of being heard to the assessee and pass a speaking order.
Regarding attribution of profit: The Assessing Officer based the attribution of profit on available details and explained the taxability of claimed expenses, including IPLC cost at 10% as per Double Taxation Avoidance Agreement (DTAA) and decisions of Advance Ruling and ITAT. The appellant's objections to the draft order were not considered by the DRP, leading to the matter being restored for a proper hearing and a speaking order to be passed.
Decision: The appeal was treated as allowed for statistical purposes, emphasizing the importance of following due process and principles of natural justice in tax assessments.
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