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TMI Tax Updates - e-Newsletter
January 11, 2023
Case Laws in this Newsletter:
GST
Income Tax
Customs
Insolvency & Bankruptcy
Service Tax
Central Excise
CST, VAT & Sales Tax
Indian Laws
Articles
News
Notifications
Circulars / Instructions / Orders
Highlights / Catch Notes
GST
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Cancellation of registration of the petitioner-Firm - cancellation on the ground that he was not functioning/not existing at the principal place of business - The first Appellate Authority once it had taken note about the rent agreement, should have taken into consideration that the place of business of the Assessee has changed and an opportunity should have been given to the Assessee to place all material before it and the authority should have recorded findings before rejecting the appeal confirming the order of cancellation of registration. - HC
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Cancellation of registration of petitioner - delay in filing of appeal - the Assessee cannot be left remediless and the Appellate Authority should have entertained the appeal and decided the same on merits. The business cannot be hampered and suffered on mere technicalities of law and the Appellate Authority should have considered the appeal on merits. - HC
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Initiation of proceedings without issuance of SCN - notice in Part A of FORM GST DRC-01A having not been issued - validity of subsequent proceedings - As the initiation of proceedings itself are bad, the order passed consequent thereto will also fall. - HC
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Detention order - challenge on the short ground that the impugned proceedings are barred by the limitation prescribed under Section 129(3) of the GST Act, 2017 - the order u/s.129(3) of the Act is passed on the eighth day from the date of service of notice, whereas the time line stipulated under Section 129(3) of the Act is that the order ought to be passed within a period of 7 days from the date of service of such notice. - The impugned proceedings are set aside and the vehicles/goods in question shall be released forthwith - HC
Income Tax
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Validity of Assessment order framed u/s 143(3) r.w.s. 144B - opportunity to respond to the show-cause notice was not made available to the assessee - - the order passed u/s. 143(3) r.w.s. 144B quashed and set aside - The penalty proceedings and the demand notice are also quashed and set aside, however, we give liberty to the Assessing Officer to initiate the proceedings afresh from the stage of providing the opportunity to the petitioner of hearing if such request is made, and thereafter, to decide the matter. - HC
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Assessment u/s 153A - undisclosed income - The only stress placed by Revenue is that the amount was accepted as undisclosed income in the statement recorded u/s 132(4) of the Act. It is a settled law that only on the basis of the statement, and without any corroborating evidence no addition of income can be made. - AT
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Foreign tax credit u/s 90/90A - delay in filing Form no.67 - mere delay in filing Form No. 67 as per the provisions of Rule 128(9), as it stood during the year under consideration, will not preclude the assessee from claiming the benefit of foreign tax credit in respect of tax paid outside India. - AT
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Disallowing the NCDEX Trading Loss - Speculation Loss - It is not in dispute that the assessee's transactions in agricultural commodity derivative were otherwise eligible transaction within the meaning of Section 43(5)(e) of the Act, we set aside the orders of the lower authorities on this issue and direct the AO to treat the loss in said transaction as non- speculative business loss and accordingly allow set off of the same from other business income as per law. - AT
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Scope of additions beyond the limited scrutiny assessment u/s 143 - As such the entire issue should have been limited to the extent of the dispute raised in the notice issued under section 143(2) of the Act for the limited scrutiny but the AO in the present case has exceeded his jurisdiction as discussed above. Thus, we hold the addition made by the AO without having valid jurisdiction cannot be sustained. - AT
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Royalty receipt - domain registration services - Domain names serve to identify such internet resources with a text base label that is easier to memorise than the numerical addresses used in the Internet Protocols. Domain names are also used as simple identification labels to indicate ownership or control of a resource. - since the assessee had no right in the domain name, the income received by the assessee from domain name registration does not fall in the category of royalty as defined under Article 12(3) of the India UAE DTAA. - AT
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Reopening of assessment u/s 147 - AO can add other items of income along with the income for the escapement of which the assessment was reopened. However, without assessing that escaped income the Assessing Officer cannot make assessment of other items of income. Thus,no hesitation in holding that the addition made by disallowing the expenses claimed is unsustainable. - AT
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Unaccounted purchases - unaccounted income of the assessee - it is difficult to accept the arguments of the assessee that income earned out of unaccounted sales is plugged back into the business and which is source for unaccounted purchases, because, unaccounted purchases noticed by the Department is more than the amount of additional income offered by the assessee. - AT
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Revision u/s 263 - once the AO cannot examine any other issue except the issue as selected for limited scrutiny assessment, the PCIT can examine the only issue which was before the AO during the course of scrutiny assessment and not any other issue, which has not been subject matter of the AO for the assessment in a limited scrutiny assessment - Revision order set aside - AT
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Deduction claimed u/s. 54 - delay in depositing unutilized amount in capital gains account deposit scheme - Assessee has explained reasons for depositing unutilized amount of capital gains in capital gain deposit account scheme, and further claimed that ultimately he has invested entire amount of capital gain for acquiring new asset within three years from the date of transfer of original asset. - Benefit of exemption allowed - AT
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Withholding tax u/s 195 - foreign remittances - payment of examination fee collected from the students - The expression ‘teaching in or by educational institution’ cannot be confined to the activity of imparting the instructions alone, in a broader sense, teaching includes not only the imparting the instructions but also the verification of the extent of perception of such instruction by the pupil and thereby includes the activity of examinations also. In this sense, this particular activity falls in the ambit of the exemption clause in the DTAAs which exempt the amounts paid for teaching in or by the educational institutions. - AT
Customs
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Revocation of customs broker license - Appellant is not a valuation expert and had played no role in the under valuation of the goods. The appellant acted purely on the basis of documents as that of invoice/purchase orders supplied by the importers. - The appellant has not committed any alleged violation of Regulation 10(a), 10(d) and 10(n) of CBLR, 2018 - the order of revoking the license of appellant and of imposing penalty upon the appellant is absolutely wrong, unreasonable and unjustified. - AT
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Continuation of anti-dumping duty u/s 9A - The inevitable conclusion that follows from the aforesaid discussion is that the decision taken by the Central Government not to impose anti-dumping duty despite a recommendation having been made by the designated authority for imposition of anti-dumping duty, cannot be sustained as it does not contain reasons nor the principles of natural justice have been compiled with - AT
Indian Laws
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Demonetization - Scope of the term "Any" - Validity of N/N. 3407(E) dated 8th November 2016, issued by the Central Government in exercise of the powers conferred by sub-section (2) of Section 26 of the Reserve Bank of India Act, 1934 - Merely because on earlier two occasions the Government decided to take recourse to plenary power of legislation, this, by itself, cannot be a ground to give a restricted meaning to the word “any” in sub-section (2) of Section 26 of the RBI Act. As already discussed herein above, the legislative intent could not have been to give a restricted meaning to the word “any” in sub-section (2) of Section 26 of the RBI Act - we are unable to accept the contention that the word “any” has to be given a restricted meaning taking into consideration the overall scheme, purpose and the object of the RBI Act and also the context in which the power is to be exercised. We find that the word “any” would mean “all” under sub-section (2) of Section 26 of the RBI Act. - SC
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Enforcement of final foreign arbitral award - The respondents failed to establish any ground on which the recognition of the Foreign Award should be refused. Consequently, subject to the requirement of obtaining RBI approval before initiating further proceedings for enforcement, the Foreign Award is recognized and held to be enforceable as a decree of this Court. - HC
IBC
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Condonation of delay in filing appeal - appeal filed on the 35th day - Keeping in mind, the provisions of the I & B Code, 2016, having an overriding effect, in respect of other Laws, as per Section 238 of the Code, this Tribunal, taking into consideration of yet another fact that the I & B Code, 2016, is an inbuilt and a self-contained one, yet the Limitation Act, 1963, cannot supersede / march over, the I & B Code, 2016 - AT
Service Tax
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Levy of Service Tax - technical testing and analysis service - we do not find any merit in the argument that the charges recovered on account of storage beyond period of 3 months can be considered as part of the provision of technical testing and analysis service. - AT
Central Excise
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Gold Balas - Primary Gold seizure of gold ornaments pledged with the Appellant’s family - it is quite clear that a definite shape has been given to the gold Balas in question and had it been a primary gold, it would have been simple gold rod or plate or pieces, and it should not have been bent and also given a certain shape which is evident from the picture. Therefore, there is no room for doubt that these gold Balas are gold ornaments having a definite shape to be worn by the local people.- AT
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CENVAT Credit - Availment of credit by Appellant without a centralized registration - It is not a case of the department that on the input services/ invoices, no service tax was paid and there is no dispute about receipt and use of the services, which are the main criteria for allowing Cenvat credit on input service - only on the technical infraction should not be denied. - AT
VAT
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Input tax credit - eligibility of benefit of input tax credit claimed after six months from the date of invoice - the Apex court has held that credit is indefeasible. The Modvat credit is similar to the Input Tax Credit in this case. Therefore, no exception can be taken to the view taken by the Hon’ble Single Judge that the Input Tax Credit cannot be denied on the anvil of the machinery provisions or the provisions relating to the time frame. - HC
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Taxable turnover - works contract - earth work - deduction of 30% as labour charges - The Assessee – revisionist is not liable to pay any tax on the same, especially in view of the fact that neither the Assessing Authority nor the First Appellate Court nor the Second Appellate Court has held that Assessee – revisionist has income from other sources for the assessment year, therefore, the imposition of tax is illegal, hence, to be set-aside. - HC
Case Laws:
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GST
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2023 (1) TMI 381
Cancellation of registration of the petitioner-Firm - cancellation on the ground that he was not functioning/not existing at the principal place of business - HELD THAT:- From perusal of the order passed by first Appellate Authority it transpires that the order, which runs into five pages, actually takes note of the entire ground taken in the memo of appeal by the Assessee and it covers almost four pages. In one paragraph, the appellate authority has recorded its reasoning stating therein that on the date, when the survey was conduced, the Assessee was not running business on the place, which was informed to the Taxing Department when the registration was done. Apart from this fact, no other finding has been recorded by the first Appellate Authority on the ground which have been taken in the appeal. This Court finds that the first Appellate Authority is duty bound to consider all the grounds raised in the appeal. Before adjudicating any matter on merit, the first Appellate Authority should consider each and every ground so taken and record its findings. The order passed by first Appellate Authority on 27.10.2021 is a cryptic order and the cancellation of registration of GST has a ramification effect on the business of the petitioner - The first Appellate Authority once it had taken note about the rent agreement, should have taken into consideration that the place of business of the Assessee has changed and an opportunity should have been given to the Assessee to place all material before it and the authority should have recorded findings before rejecting the appeal confirming the order of cancellation of registration. The matter is remitted back to the Appellate Authority to reconsider the appeal on merits and deal with each and every grounds so taken in the appeal.
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2023 (1) TMI 380
Cancellation of registration of petitioner - delay in filing of appeal before the first Appellate Authority - HELD THAT:- Without entering into the merits of the case, this Court finds that as the GST regime was introduced PAN India in the year 2017, there was some teething problem in its implementation. The Government was inviting suggestion and making improvement in the functioning of the provisions of the said Act - Looking to the fact that the appeal has been filed by the Assessee-petitioner at a delayed stage and in between the COVID-19 pandemic had intervened, taking sympathetic view, this Court finds that the Assessee cannot be left remediless and the Appellate Authority should have entertained the appeal and decided the same on merits. The business cannot be hampered and suffered on mere technicalities of law and the Appellate Authority should have considered the appeal on merits. The order passed by first Appellate Authority dated 04.09.2021 is unsustainable in the eyes of law and the same is hereby set aside. The matter is remitted back to the first Appellate Authority to reconsider the appeal of the Assessee-petitioner on merits and decide the same strictly in accordance with law without going into the question of limitation, preferably within a period of one month from the date of production of certified copy of this order before him - Petition disposed off.
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2023 (1) TMI 379
Initiation of proceedings without issuance of SCN - notice in Part A of FORM GST DRC-01A having not been issued - validity of subsequent proceedings - HELD THAT:- As admittedly for initiation of proceedings against the petitioner a notice as provided for under Rule 142(1A) of the Rules in Part A of FORM GST DRC-01A was not issued, which provided for communication of details of any tax, interest and penalties as ascertained by the officer. Any subsequent reminder will not cure inherent defect in proceedings initiated against the petitioner. Similar view has been expressed by the Delhi High Court in GULATI ENTERPRISES VERSUS CENTRAL BOARD OF INDIRECT TAXES AND CUSTOMS ORS. [ 2022 (5) TMI 1137 - DELHI HIGH COURT] wherein also in identical facts pertaining to a case prior to the amendment of Rule 142(1A) of the Rules with effect from October 15, 2020, the impugned show cause notice was set aside and the matter was remitted back to authority concerned to initiate fresh proceedings in accordance with law - In the case in hand, the only difference being that subsequent thereto an order has also been passed on November 10, 2022, the same will not make any difference. As the initiation of proceedings itself are bad, the order passed consequent thereto will also fall. The impugned notice dated November 10, 2022 is quashed - Petition allowed.
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2023 (1) TMI 378
Detention order - challenge on the short ground that the impugned proceedings are barred by the limitation prescribed under Section 129(3) of the GST Act, 2017 - HELD THAT:- It is submitted by both the counsel for the petitioner and respondent that the order u/s.129(3) of the Act is passed on the eighth day from the date of service of notice, whereas the time line stipulated under Section 129(3) of the Act is that the order ought to be passed within a period of 7 days from the date of service of such notice. Inasmuch as admittedly, the impugned proceedings are beyond the time lines stipulated under Section 129(3) of the Act, the same is fatal to the order in terms of the order of this Court in A. IRUDAYARAJU VERSUS THE STATE TAX OFFICER, SALEM [ 2022 (10) TMI 555 - MADRAS HIGH COURT ]. The impugned proceedings are set aside and the vehicles/goods in question shall be released forthwith - Petition allowed.
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2023 (1) TMI 377
Levy of duty with interest - non-filing Tran 2 forms - HELD THAT:- Referring to the judgment of the Hon ble Apex Court in Union of India Another v. Filco Trade Centre Private Limited Another [ 2022 (7) TMI 1232 - SC ORDER] , learned counsel for petitioner would submit that in view of the directions contained therein, the respondent authorities are required to open the Tran I and Tran 2 for transactional credit between 01.09.2022 and 31.10.2022 and in view of the covered judgment, necessary directions may be issued to the respondents. A copy of the said judgment is also furnished to the learned Senior Standing Counsel and he has not disputed about the judgment covering the facts of the case. Having regard to the above and due to the information submitted by both parties that pursuant to the judgment of the Hon ble Apex Court, Tran 1 and Tran 2 are kept opened, we observe that the petitioner can avail the benefit of this judgment and upload the relevant material through Tran 1 and Tran 2 before 31.10.2022. Petition disposed off.
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2023 (1) TMI 335
Demand of Interim Order - HELD THAT:- There is no scope of passing any interim order in the matter and the issue involved in this writ petition requires affidavit from the respondent for final adjudication. Let the respondents file affidavit-in-opposition within four weeks, petitioners to file reply thereto, if any, within two weeks thereafter - List this matter for final hearing after eight weeks.
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Income Tax
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2023 (1) TMI 376
Deduction u/s 80IC - deduction on foreign exchange gain - as argued Foreign Exchange Fluctuation Scheme was earned by the assessee on the import in the course of the business and purchase price of the product was reduced due to the rate fluctuations, as is settled, the same is to be held as having direct nexus with the business activity of the assessee undertaking and, thus, would be eligible for deduction under section 80IC - HELD THAT:- The issue is covered by the decision of this Court rendered in the case of ALPS Chemicals (P.) Ltd. [ 2014 (10) TMI 251 - GUJARAT HIGH COURT] as held that the exchange fluctuation was not on account of a delayed realization of export proceeds. The deposit of the receipts in the EEFC account and the exchange fluctuation which has arisen therefrom cannot be regarded as being part of the profits derived by the assessee from the export of goods or merchandise - Appeal is allowed in part to the extent Tribunal s decision relates to Section 80IA. Deduction on exports benefits u/s.80IC - AO disallowed the claim holding that the excess duty refund did not represent the income with first degree of nexus with the manufacturing profits - HELD THAT:- As in the case of Meghalaya Steels Ltd [ 2016 (3) TMI 375 - SUPREME COURT] has given a categorical finding that whenever the assessee received transport subsidy, interest subsidy, power subsidy, insurance subsidy which are reimbursement of manufacturing cost incurred by the assessee, the deduction of the said subsidies are allowed under sections 80IB and 80IC. Therefore, it held that CIT(A) was not wrong when it granted 80IC deduction to the assessee in respect of its export benefit representing refund of excise duty paid u/s 80IC - It held, therefore, that the assessee is eligible for deduction on export benefit on account of the refund of excise duty. There does not appear to be any error in understanding the ratio laid down by the Apex Court in the case of Meghalaya Steels Ltd (supra). Both the CIT(Appeals) and the Tribunal have rightly followed the decisions of Dharam Pal Prem Chand [ 2008 (11) TMI 231 - DELHI HIGH COURT] as well as Meghalaya Steels Ltd (supra) which held that the subsidies, which had been received would be income from other sources. Deduction on scrap value u/s.80IC - AO held that the scrap income does not represent income with first decree of nexus manufacturing profit - HELD THAT:- The decision of Harjivandas Juthabhai Zaveri and another [ 1999 (12) TMI 5 - GUJARAT HIGH COURT] when taken into consideration, it endorses the view of the assessee and has held against the Revenue If the assessee was not engaged in industrial activities, there was no question of empty barrels or bardans. Instead of manufacturing if the assessee was doing tranding activities, i.e., deal in in raw material, and if the assessee had sold the material on retain basis and earned amount by sale of bardans, then obviously this section will not apply. In view of what we have stated hereinabove, we find that there is no merit in the appeal, and the appeal stands dismissed.
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2023 (1) TMI 375
Validity of Assessment order framed u/s 143(3) r.w.s. 144B - opportunity to respond to the show-cause notice was not made available to the assessee - Violation of principles of natural justice - HELD THAT:- Section 144B(1)xvi (b) mandates to provide an opportunity to the assessee, in case any variation prejudicial to the interest of the assessee is proposed. It refers to serve a notice calling upon him to show-cause as to why the proposed variation should not be made. Section 144B (9) stipulates that an assessment made u/s. 143(3) or 144 shall be non est, if such assessment is not made in accordance with the procedure laid down under this section. Therefore, in our opinion, in the case on hand as the opportunity to respond to the show-cause notice was not made available to the assessee particularly, when the huge variation/ addition was proposed to be made which is prejudicial to the interest of the assessee, it violates the principles of natural justice. Resultantly, we allow the present petition and quash and set aside the order passed u/s. 143(3) r.w.s. 144B. The penalty proceedings and the demand notice are also quashed and set aside, however, we give liberty to the Assessing Officer to initiate the proceedings afresh from the stage of providing the opportunity to the petitioner of hearing if such request is made, and thereafter, to decide the matter.
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2023 (1) TMI 374
Rectification of mistake u/s 154 - TP Adjustment - Comparable selection - whether the TTK healthcare Ltd is a functionally comparable to the the Assessee or not for deciding the arm s length price of the international transaction of the assessee? - HELD THAT:- TPO after considering the explanation of the assessee issued a notice u/s 133 (6) to TTK healthcare limited which was replied to stating that medical devices segment of TTK healthcare limited is engaged in manufacturing activity having its own manufacturing units. Company has also submitted the margin in trading and manufacturing segments. The margin in trading segment is 1.36% which is very less. The learned TPO therefore held that TTK healthcare limited is not comparable to the assessee/tested party and therefore it is finally excluded from the list of final comparables. After that the learned TPO computed the margin of comparables at 2.69% and also computed the margin of the assessee at 3.98%. He held that since the profit level indicator of the assessee is higher than the profit level indicator of the comparables the international transactions under discussion is at arm s length. TTK healthcare limited is not a good comparable and therefore is required to be excluded. Further on exclusion of this comparable the margins of the assessee is higher than the margin shown by the comparables. Therefore, no transfer pricing adjustment can be made. This is the only dispute even in recalled order. We have heard the rival contentions and perused the orders of the learned transfer pricing officer passed under section 92CA (3) read with section 254 of the income tax act. The learned departmental representative could not show any reason that the order passed by the learned transfer-pricing officer pursuant to the direction of the coordinate bench, is not correct. Ground number 1 and 2 of the appeal of the assessee is allowed.
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2023 (1) TMI 373
Addition of introduction of capital by one partner u/s.68 - CIT(A) deleted the addition accepting the explanation that the cash drawing of Rs.10 lakhs on 05.03.2011 was available with him but restricted the addition at Rs.11 lakhs being unexplained - HELD THAT:- We notice that there is no dispute that there is returned income for assessment year 2012-13 of Rs.20,19,656/- and admittedly, there is a withdrawal of Rs.6,77,130/- during the year as cash as admitted by AO in assessment order while rejecting the assessee s explanation. There is no dispute that out of Rs.21 lakhs, the CIT(A) accepted the explanation of Rs.10 lakhs availability with the assessee which is out of withdrawal from the firm on 05.03.2011 just one month before. For balance Rs.11 lakhs, we are of the view that the assessee is able to explain the same out of the returned income of Rs.20,19,656/- and withdrawals admitted by AO at Rs.6,77,130/-. Hence, we delete the addition on merits and allow the appeal of assessee on this ground. This issue of assessee s appeal is allowed. Disallowing interest on debt balance of partners - HELD THAT:- As we noted that first of all there is no evidence that the assessee has diverted interest bearing funds for this debt balance of partners account. AO is unable to bring nexus that the interest bearing funds were diverted towards partner s debt balance. Secondly, can the notional interest be charged for making disallowance u/s.37 of the Act or not - interest can be disallowed if the assessee has diverted interest bearing borrowed funds for the purpose of non-business. But here there is no information that how much is borrowed funds and moreover only packing credit is meant for exports against orders. No reason that any diversion of these funds for debt balance of the partners - there cannot be any notional interest charged for taxing in the partner s debt balance specifically when there is no discussion in the partnership deed, if any, has provided any charging of interest on debt balance and rates specified therein. Since these evidences are not brought on record by the AO or there is no discussion, simpliciter the notional interest cannot be charged and cannot be disallowed u/s.37 - we delete the addition and allow this issue of assessee s appeal. Addition by disallowance of interest on TDS - HELD THAT:- We noted that this issue is covered in favour of Revenue and against assessee by the decision of ITAT, Ahmedabad in the case of ITO vs. Royal Packaging [ 2011 (4) TMI 1489 - ITAT AHMEDABAD] wherein it is held that interest on late payment of direct taxes is not deductible. Hence, we confirm the addition and dismiss this ground of assessee s appeal.
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2023 (1) TMI 372
Penalty u/s 271(1)(c) - defective notice u/s 274 - Non strike of irrelevant part - notionally computed commission paid to eam the long term capital gains without establishing any fact that the assessee had actually paid any commission - HELD THAT:- From the perusal of the notice issued under section 274 r/w section 271(1)(c) of the Act, we find that the Ao did not strike off any of the twin charges i.e., concealment of particulars of income or furnishing of inaccurate particulars of income. The case of the assessee is squarely covered by the decision of Mohd. Farhan A. Shaikh [ 2021 (3) TMI 608 - BOMBAY HIGH COURT] wherein the Larger Bench of the Hon ble Court has held that the defect in the notice by not striking off the irrelevant matter would vitiate the penalty proceedings. Accordingly, we reverse the findings of the lower authorities and quash the penalty order passed under section 271(1)(c) - Accordingly, the AO is directed to delete the penalty levied under section 271(1)(c) - Appeal by the assessee is allowed.
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2023 (1) TMI 371
Assessment u/s 153A - undisclosed income - assessee himself disclosed additional income in his statement recorded u/s 132(4) - AO noted that the assessee had made the retraction of the statement recorded u/s 132(4) of the Act and the retraction was made after 132 days of recording his original statement in the course of search proceedings - HELD THAT:- CIT(A) while holding that the revised return of income filed by the assessee to be in order has given a finding that during the course of search, assessee had admitted disclosure of income in the case of assessee as well as the group and the admission was offered as income in the case of 5 persons and taxes were also paid on such income. He has further given a finding that the disclosure made in the case of the assessee was not supported by any undisclosed asset/seized paper and the disclosure was a balancing figure after considering the disclosure and the amount disclosed as income in case of 5 persons. Also given a finding that the addition of undisclosed amount was not based on any evidence found during the course of search. The submissions of assessee had made disclosure of undisclosed income in the course of search was made for the assessee as well as other entities in the group has not been controverted by Revenue. Before us, no fallacy in the findings of CIT(A) has been pointed out by Revenue. The only stress placed by Revenue is that the amount was accepted as undisclosed income in the statement recorded u/s 132(4) of the Act. It is a settled law that only on the basis of the statement, and without any corroborating evidence no addition of income can be made. Appeal of Revenue is dismissed.
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2023 (1) TMI 370
Denial of foreign tax credit u/s 90/90A - delay in filing Form no.67 - Form No. 67 was filed by the assessee after the due date of filing the return of income u/s 139(1) as per the provisions of Rule 128(9) and thus claim of the assessee was rejected - HELD THAT:- We find that under Rule 128(9), as it stood during the year under consideration, provided that the statement in Form No.67, referred to in clause (i) of sub-rule (8) and the certificate or the statement referred to in clause (ii) of sub-rule (8) shall be furnished on or before the due date specified for furnishing the return of income under sub-section (1) of section 139, in the manner specified for furnishing such return of income. Thus, during the year under consideration, the assessee was required to furnish Form No. 67 on or before the due date of filing the return of income u/s 139(1) of the Act, as per the provisions of Rule 128(9). We further find that Rule 128(9) has recently been substituted by the Income-tax (Twenty-seventh Amendment) Rules, 2022, w.r.e.f. 01/04/2022 . Thus with effect from 01/04/2022, the time period for furnishing statement in Form No. 67 has been extended till the end of the assessment year in which the corresponding income has been offered/assessed to tax and the return of such assessment year has been furnished within the time specified under 139(1) or 139(4). We find that in another decision in Anuj Bhagwati [ 2022 (9) TMI 1397 - ITAT MUMBAI] the coordinate bench of the Tribunal while deciding a similar issue held that section 90/91 of the Act has not been amended insofar as grant of foreign tax credit is concerned and Rules cannot override the Act and therefore filing of Form No. 67 is not mandatory but it is directory. We are of the considered opinion that mere delay in filing Form No. 67 as per the provisions of Rule 128(9), as it stood during the year under consideration, will not preclude the assessee from claiming the benefit of foreign tax credit in respect of tax paid outside India. Since in the present case, the claim of the assessee was denied on this technical aspect without going into the merits, therefore, we deem it appropriate to direct the jurisdictional AO to decide the claim of the foreign tax credit on merits, after accepting the Form No. 67, and other related documents filed by the assessee. Accordingly, grounds raised by the assessee are allowed for statistical purposes. Levy of interest u/s 234A - HELD THAT:- We deem it appropriate to remand the issue to the file of the AO for de novo adjudication after the necessary examination of facts as to whether or not the return of income filed by the assessee is within the prescribed time limit under the Act. With regard to the levy of interest u/s 234B and 234C same are consequential in nature. Accordingly, ground raised in assessee s appeal is allowed for statistical purposes.
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2023 (1) TMI 369
Turnover calculation - Taxing income of the appellant @ 30% instead of 25% is covered u/s 143(1) - adjustment made in the intimation u/s 143(1) and confirmed by the Ld. CIT(A) - HELD THAT:- As in the case of Punjab Stainless Steel Industries [ 2014 (5) TMI 238 - SUPREME COURT ] while examining the meaning of turnover as occurring the Section 80HHC taking into consideration the guidance notes issued by Institute of Chartered Accountants of India, concluded that in normal accounting parlance turnover would mean total sale proceeds of the goods in which the assessee is dealing. Therefore, the scrap sales would not form part of turnover unless an assessee is dealing in scrap. The turnover would be adjusted for goods returned, price adjustments, trade discount and cancellation of bills. However, adjustments which do not relate to turnover should not be made e.g. writing off bad debts, royalty etc. In view of the above judgment we hold that Provisions for Doubtful Debts Write Back cannot be included in total turnover for the previous year 2016-17. On exclusion of the Provisions for Doubtful Debts Write Back the total turnover of the Appellant for the previous year 2016-17 falls below of INR 250 Crores. In view of the aforesaid, we hold that the Appellant was correct in offering its income to tax at the rate of 25% in the return of income. Additional tax demand raised on the Appellant on account of computing income tax liability by adopting rate of 30% (instead of income tax rate of 25%) is deleted. Present appeal is allowed.
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2023 (1) TMI 368
Disallowing the NCDEX Trading Loss - treating the same as Speculation Loss - Whether the lower authorities grossly erred in not considering the submission made by the assessee that the proviso (e) to clause 5 of section 43 of the Income Tax Act is applicable from 01-04-2013? - whether Delay in notifying the NCDEX as exchange, cannot nullify the legislative mandate of the enactment. Delay was attributable to the Central Board of Direct Taxes who had failed to issue necessary notification within time - HELD THAT:- As decided in M/S P.D. SEKHSARIA TRADING COMPANY PVT. LTD. [ 2019 (3) TMI 2011 - ITAT AMRITSAR] the Second proviso which has been inserted by the Finance Act 2018 is curative and therefore is to be treated as came into force from the date from which clause (5) itself was inserted In the statute i.e. with effect from 01.04.2014. Our above view finds support from the decision of the Hon'ble Supreme Court in the case of Allied Motors Pvt. Ltd. [ 1997 (3) TMI 9 - SUPREME COURT] wherein it was held that a proviso which is designed to eliminate unintended consequence which may cause undue hardship to the assessee and unjust in a specific situation is to be read as retrospective with effect from which the main section was inserted. To the same effect is the decision of Ansal Land Mark Township Pvt. Ltd. [ 2015 (9) TMI 79 - DELHI HIGH COURT] wherein decision of Rajeev Kumar Agarwal [ 2014 (6) TMI 79 - ITAT AGRA] was confirmed wherein it was held that a curative amendment to avoid unintended consequences is to be treated as retrospective in nature even though it may not state so specifically by the statue. It was held that Second proviso to Section 40(a)(la) of the Act must be given retrospective effect of the point of time when the related legal provision was introduced. It is not in dispute that the assessee's transactions in agricultural commodity derivative were otherwise eligible transaction within the meaning of Section 43(5)(e) of the Act, we set aside the orders of the lower authorities on this issue and direct the AO to treat the loss in said transaction as non- speculative business loss and accordingly allow set off of the same from other business income as per law. Thus, this ground of appeal of the assessee is allowed. Disallowing of car expenses, shop expenses, Staff tea expenses and telephone and mobile expenses claimed by the assessee - HELD THAT:- As During the course of hearing, the ld.AR of the assessee has not filed any written submission controverting the findings of the ld. CIT(A). Hence, Ground No. 2 of the assessee is dismissed.
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2023 (1) TMI 367
Condonation of delay in filling the appeal - whether CIT (A) erred by his action as condoned the delay but he has recorded just one line in his order that the delay is not condoned without any speaking order - HELD THAT:- The income of the assessee should not be over assessed even there is a mistake of the assessee. As such the legitimate deduction for which the assessee is entitled should be allowed while determining the taxable income. As decided in the case of Vareli textile industry versus [ 2006 (2) TMI 102 - GUJARAT HIGH COURT] as equally well-settled that where a cause is consciously abandoned (as in the present case) the party seeking condonation has to show by cogent evidence sufficient cause in support of its claim of condonation. The onus is greater. One of the propositions of settled legal position is to ensure that a meritorious case is not thrown out on the ground of limitation. Therefore, it is necessary to examine, at least prima facie, whether the assessee has or has not a case on merits. We are of the view that it is a fit case where the delay in filing the appeal by the assessee before the learned CIT-A deserves to be condoned. Accordingly, we proceed to decide the issue raised by the assessee on merit. Disallowance on account of cash payment u/s 40A(3) - Return of the assessee for the year under consideration was selected for limited scrutiny to verify the genuineness of cash in hand - Conversion of Limited Scrutiny into Complete Scrutiny - HELD THAT:- On perusal of notice under section 143(2) of the Act, we note that the notice for Limited Scrutiny was issued for examination of cash in hand . There was no mentioning/whisper about examination of the fact with regard to cash payment in violation of section 40A(3) of the Act. Further, there no whisper in the order of the authority below that the limited scrutiny was converted into complete scrutiny. DR before us has also not brought anything on record justifying that the Limited Scrutiny was converted by the Assessing Officer under normal scrutiny after obtaining necessary approval from the appropriate authority. Accordingly, we hold that the AO has exceeded his jurisdiction by making disallowances of cash payment as per the provision of section 40A(3) of the Act. The right course of action for the AO was to take the approval from the competent authority for expanding the scope of Limited Scrutiny to the regular assessment but he failed to do so. Thus, in our considered view inaction of the AO should not cause any inconvenience to the assessee. In holding so we draw support and guidance from the case of Rajesh Jain [ 2005 (4) TMI 629 - ITAT CHANDIGARH] . We are not convinced with the finding of the authorities below. As such the entire issue should have been limited to the extent of the dispute raised in the notice issued under section 143(2) of the Act for the limited scrutiny but the AO in the present case has exceeded his jurisdiction as discussed above. Thus, we hold the addition made by the AO without having valid jurisdiction cannot be sustained. - Assessee appeal allowed.
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2023 (1) TMI 366
Penalty u/s 271D - limitation U/s 275(1)(c) - violation of Section 269SS in respect of various deposits/ loan received by the assessee in cash in excess of Rs. 20,000/- - HELD THAT:- On careful perusal of the assessment order, we find that there is no whisper or reference in the assessment order about initiation of penalty u/s 271D. We further find that there is no whisper about making a reference to the Joint Commissioner or Additional commissioner for levying such penalty. We find that in Jai Laxmi Rice Mills [ 2015 (11) TMI 1453 - SUPREME COURT] , while considering the similar questions of law held that when no satisfaction recording regarding penalty proceedings under Section 271E, in the assessment order was recorded while passing the assessment order, no penalty could be levied. We further find that by following the order of Hon ble Apex Court in CIT Vs Jai Laxmi Rice Mills [ 2015 (11) TMI 1453 - SUPREME COURT] the Coordinate Bench of Tribunal in The Nizar Taluka Sahkari Kharid Vechan Sangh Ltd [ 2019 (12) TMI 1569 - ITAT SURAT] also held that when no satisfaction has been recorded by the Assessing Officer before initiating penalty, no penalty under Section 271D could be levied. The order of Hon ble Supreme Court, which is binding precedent by virtue of Article 141 of the Constitution of India and respectfully following the same the penalty order under section 271D dated 20/06/2005 is set aside/quashed. So far as submissions of ld CIT-DR for the revenue that non recording satisfaction of initiation is merely a curable defect, we are not convinced with such submission after clear cut finding of the Hon ble Apex Court in CIT Vs Jai Laxmi Rice Mills [ 2015 (11) TMI 1453 - SUPREME COURT] In the result, the second additional ground of appeal is allowed.
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2023 (1) TMI 365
Addition on account of income from domain registration services - Royalty receipt - whether the income earned by the assessee, who is a Registrar, from domain name registration will be taxable as royalty under the provisions of the Act or DTAA? -AO has treated the amount received from domain name registration taxable in India as royalty on the basis that the domain name is an intangible asset in the nature of trademark - HELD THAT:- Domain name is an internet network address that is readable in human language. Domain names are formed by the rules and procedures of the Domain Name System ( DNS ). Any name registered in the DNS is a domain name. In general, a domain name represents an Internet Protocol ( IP ) resource. Computers or any other internet resources communicate by using numbers, called IP addresses, to contact each other. Domain names serve to identify such internet resources with a text base label that is easier to memorise than the numerical addresses used in the Internet Protocols. Domain names are also used as simple identification labels to indicate ownership or control of a resource. We are of the considered opinion that since the assessee had no right in the domain name, the income received by the assessee from domain name registration does not fall in the category of royalty as defined under Article 12(3) of the India UAE DTAA. Further, once the taxability fails in terms of the treaty provisions, there is no occasion to refer to the provisions of the Act, as in terms of section 90(2) the provisions of the Act or the DTAA, whichever is more beneficial to the assessee shall be applicable. Decision of Godaddy.com 2018 (4) TMI 390 - ITAT DELHI relied upon by the AO, is factually distinguishable as in that case the taxpayer did not claim any benefit under the tax treaty. Hence, the AO is directed to delete the addition on account of income from domain registration services. Accordingly, ground No. I raised in assessee s appeal is allowed. Addition on account of income from web hosting services - independent right to use the server space - HELD THAT:- As per the assessee, the consideration paid is for use of the server space and the customers neither have an independent right to use the server space nor have physical access to it. Further, there is no right to use the technology platform nor there is any grant of license to use the platform. We find that the term royalty is not as widely defined in the India UAE DTAA as the same has been defined under the provisions of the Act. After the insertion of Explanation 5 to section 9(1)(vi) of the Act by Finance Act 2012, the possession or control or location of the right, property, or information is not relevant under the provisions of the Act. However, we find that similar amendment has not been carried out in the provisions of India UAE DTAA. In DIT vs New Skies Satellite BV 2016 (2) TMI 415 - DELHI HIGH COURT held that unless the DTAA is amended jointly by both parties, Finance Act, 2012 which inserted Explanations 4, 5 and 6 to section 9(1)(vi) by itself would not affect the meaning of term royalty as mentioned in the DTAA. Therefore, in absence of a grant of any control over the equipment belonging to the assessee to its customers, the findings of the AO that the amount so received will constitute royalty is not acceptable in view of the provisions of Article 12(3) the India UAE DTAA No basis in linking the taxability of income from web hosting services with income from domain registration services by the AO, as both are independent and mutually exclusive. Hence, the AO is directed to delete the addition on account of income from web hosting services. Accordingly, ground No. II raised in assessee s appeal is allowed. Addition on account of sponsorship income - Directions issued by the DRP to the AO to pass a speaking order - HELD THAT:- As under section 144C(8) of the Act the DRP may confirm, reduce or enhance the variation proposed in the draft assessment order, however, it cannot set aside any proposed variation or issue any direction for further enquiry and passing of the assessment order. Thus, we find that the directions issued by the DRP to the AO to pass a speaking order in respect of the existence of permanent establishment is completely contrary to the provisions of section 144C(8) of the Act. Earning sponsorship income from the sponsors was consequential to the advertising event in the 2 days conference. In the present case, there cannot be any dispute that organising such an event is not the core business activity of the assessee - under Article 5 of India UAE DTAA, the term permanent establishment means of a fixed place of business through which the business of an enterprise is wholly or partly carried on. In the present case, firstly mere conducting of a conference only for 2 days in India cannot be said to be a fixed place of business, and secondly, as noted above conducting a conference is not the core business activity of the assessee. Even if, at all, it can only be considered to be in the nature of the preparatory or auxiliary activity, which has been specifically excluded from the definition of permanent establishment under Article 5(3) of the India UAE DTAA. In absence of the permanent establishment of assessee in India, the sponsorship income cannot be taxed in India as business income. Accordingly, in view of aforesaid findings, the AO is directed to delete the addition on account of sponsorship income. As a result, ground No. III raised in assessee s appeal is allowed.
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2023 (1) TMI 364
Reopening of assessment u/s 147 - Additions beyond the scope of the reason on which assessment was reopened - cash deposits made in the bank account unexplained - disallowance of expenditure claimed by the assessee against income earned from tuition - HELD THAT:- AO apparently has accepted the explanation of the assessee regarding the source of deposits in the bank account, since, he has not made any addition in the assessment order with reference to the cash deposits made in the bank account - on examining the return of income he found that against the tuition income the assessee has claimed expenses the genuineness of which, according to the AO, the assessee failed to establish through supporting evidence. Thus, ultimately while completing the assessment AO treated the expenditure claimed as bogus and disallowed it. This is the only addition made by the Assessing Officer while completing the assessment. As evident that the addition ultimately made by AO while completing the assessment has no connection with the income for escapement of which the AO reopened the assessment u/s 147 - Thus, it is patent and obvious, the AO reopened the assessment for assessing a particular item of income, whereas, instead of assessing that income he has added another item of income which was not the subject matter of reopening. AO can add other items of income along with the income for the escapement of which the assessment was reopened. However, without assessing that escaped income the Assessing Officer cannot make assessment of other items of income. Thus,no hesitation in holding that the addition made by disallowing the expenses claimed is unsustainable. Accordingly, direct the Assessing Officer to delete the addition. Assessee appeal allowed.
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2023 (1) TMI 363
Estimation of income - bogus purchases @12% by CIT-A - HELD THAT:- Addition in the hands of the assessee is liable to be restricted only to the extent of the profit which the assesse would have made by procuring the goods at a discounted value from the open/grey market, as against the inflated value at which the same had been booked on the basis of the bogus bills in its books of account. Quantification of profit which the assessee would have made by procuring the goods in question from the open/grey market, we find that in the case of M/s. Mohhomad Haji Adam Company 2019 (2) TMI 1632 - BOMBAY HIGH COURT while upholding the order of the Tribunal, had observed, that the addition in the hands of the assessee as regards the bogus/unproved purchases was to be made to the extent of bringing the G.P rate of such purchases at the same rate of other genuine purchases. We are of the considered view that on the same lines the profit made by the assessee in the case before us by procuring the goods at a discounted value from the open/grey market can safely be determined by bringing the G.P rate of such bogus purchases at the same rate as that of the other genuine purchases. We, thus, in terms of our aforesaid observations restore the matter to the file of the A.O, with a direction to restrict the addition in the hands of the assessee qua the impugned bogus/unverified purchased by bringing the GP rate of such bogus purchases at the same rate as that of the other genuine purchases. Accordingly, we set-aside the order of the CIT(Appeals) to the said extent and restore the matter to the file of the A.O to give effect to our aforesaid observations.Appeals of the assessee and revenue are allowed for statistical purposes
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2023 (1) TMI 362
Unaccounted purchases - unaccounted income of the assessee - During the course of survey, unaccounted purchases unaccounted sales were noticed - HELD THAT:- It is only net result of unaccounted purchases unaccounted sales, needs to be taxed. Since, the Department had already taxed profit earned out of unaccounted transactions, the question of making further additions towards unaccounted purchases does not arise. In this case, the facts remain that the assessee has offered additional income for two assessment years towards unaccounted sales, whereas the total unaccounted purchases for the impugned assessment year - Therefore, it is difficult to accept the arguments of the assessee that income earned out of unaccounted sales is plugged back into the business and which is source for unaccounted purchases, because, unaccounted purchases noticed by the Department is more than the amount of additional income offered by the assessee. Therefore, assessee could not able to explain source for unaccounted purchases over and above what was disclosed during the course of survey. Hence, to cover up the deficit in source for unaccounted purchases, we direct the AO to estimate 25% of gross profit on unaccounted purchases and delete the balance additions made towards unaccounted purchases. Appeal filed by the assessee is partly allowed.
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2023 (1) TMI 361
Revision u/s 263 enlarging scope of limited scrutiny - revision order to revise the assessment for making disallowance of pre-operative expenses i.e. depreciation expenses debited only relating to employee benefits, administrative expenses, etc. - According to the PCIT, the AO has accepted the claim of the assessee without making any due verification and without conducting the necessary enquiries - original scrutiny assessment was taken up for limited scrutiny under the two heads of Import turnover mismatch and Custom Duty Payment Mismatch HELD THAT:- The CBDT Instruction No.20/2015 dated 29.12.2015 sub-clause (b) to Clause (3) categorically limits the power in limited scrutiny case and which confines only to the specific reasons/issues for which case has been picked up for scrutiny and further, the scope of enquiry shall be restricted to limited scrutiny issues only. This is the clear intention of the CBDT. Going through the above said instructions, we noted that the limited scrutiny can be enlarged to complete scrutiny, but subject to certain conditions that during the course of assessment proceedings, if it comes to the notice of the AO that there is a potential escapement of income exceeding Rs.5 lakhs in normal CIT charge and in metro CIT charge Rs.10 lakhs requiring special verification on any other issue, then he can take up for complete scrutiny with the approval of the PCIT concerned. In this case, the AO was not of such view that any other issue requires verification. The above CBDT Instructions later clearly establishes that it is not open for the AO to travel beyond the reasons for selection of the scrutiny for limited scrutiny and on that aspect the assessment order completed in this case in accordance with the CBDT Instruction No.20/2015 dated 29.12.2015. Considering the instruction issued by the CBDT No.20/2015 dated 29.12.2015 and in particular sub-clause (d) of Clause-3, we are of the view that once the AO cannot examine any other issue except the issue as selected for limited scrutiny assessment, the PCIT can examine the only issue which was before the AO during the course of scrutiny assessment and not any other issue, which has not been subject matter of the AO for the assessment in a limited scrutiny assessment. Hence, we quash the revision order and allow the appeal filed by the assessee.
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2023 (1) TMI 360
Reopening of assessment - Cash receipt against booking of flats - cash receipt will be subject to tax - unaccounted income of the company for its Nehru Vikas Minar Project - AO made the impugned addition relying only on the provisions of sub-section (4A) of section 132 - HELD THAT:- As observed that the company has denied the alleged cash receipt by it from the parties mentioned in xls sheet. AO made the impugned addition relying only on the provisions of sub-section (4A) of section 132 completely overlooking the fact that the presumption under section 132(4A) is rebuttable and where there is denial of such presumption, onus shifts to the Ld. AO to make further investigation which has not been done. No attempt has been made by the AO to examine the said parties to establish the veracity of the entries made in the xls sheet when their complete addresses have been mentioned therein. The records do not reveal that during re-assessment proceedings the assessee was confronted with the case of Shri I.E. Soomar in which on similar set of facts and circumstances, taxes have been paid on such cash investments. Record of the assessee needs to be examined as to whether in its case Percentage Completion Method (PCM) has been applied or assessment has been made on the basis of Project Completion Method. We are, therefore, of the view that it would be appropriate if the issue of the impugned addition is restored back to the file of the Ld. AO to carry out necessary investigation as to the receipt of the alleged cash by the assessee and arrive at the conclusion afresh in the light of the material gathered. Accordingly, we set aside the order of the Ld.CIT(A) on this issue and direct the Ld. AO to make reassessment afresh keeping in view the above directions. Appeal of the Revenue is treated as allowed for statistical purposes. Validity of the reassessment - It is observed that the CIT(A) has held that the reopening of the assessment is valid in the eyes of law for the reasons recorded in this behalf. We agree and reject this ground. Appeal of the assessee is dismissed.
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2023 (1) TMI 359
Disallowance of expenditure u/s 14A r.w.r. 8D - disallowance of interest expenditure under Rule 8D(2)(ii) - HELD THAT:- When the assessee has factually demonstrated that it had sufficient interest free fund available with it to take care of the investment, as per the settled legal principles, no disallowance of interest expenditure could have been made under Rule 8D(2)(ii). Accordingly, we delete the disallowance of interest expenditure made under Rule 8D(2)(ii). As regards the disallowance of administrative expenditure under Rule 8D(2)(iii), undisputedly in the year under consideration the assessee had earned exempt income. Whereas suo motu assessee has not made any disallowance under section 14A read with Rule 8D. In the course of assessment proceedings the AO had called upon the assessee to explain the reason for not making any disallowance. Though, the assessee filed its explanation, however, the Assessing Officer after recording his satisfaction regarding claim of the assessee has proceeded to make the disallowance. Therefore, he has complied with the provisions of Section 14A(2) of the Act. We uphold the disallowance made under Rule 8D(2)(iii). This ground is partly allowed. TDS u/s 195 - Disallowance u/s 40(a)(i) - assessee had paid an amount to some non-residents towards patent charges - Commissioner(Appeals) upheld the disallowance made by AO though, by treating the payment made as Fee for Technical Services (FTS) under section 9(i)(vii)(b) - HELD THAT:- We find that assessee s submissions have not been considered property in the context of facts and materials brought on record relating to the payment made. Further, the departmental authorities have taken divergent views regarding the nature of payment. While the Assessing Officer has treated the payment as royalty, learned Commissioner (Appeals) has treated it as FTS. This shows lack of application of mind to the facts and materials on record to ascertain the exact nature of payment. In view of the aforesaid, we are inclined to restore the issue to the Assessing Officer for fresh adjudication after providing due opportunity of being heard to the assessee. Further, we make it clear, to establish its claim, if the assessee wants to furnish further evidences, the Assessing Officer must allow the assessee to do so. This ground is allowed for statistical purposes.
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2023 (1) TMI 358
Disallowance of sales promotion expenses being payments made to Doctors u/s. 37(1) - freebies given to medical practitioners by Pharma companies - AO has disallowed sale promotion expenses in the nature of freebies distributed to Doctors and other medical professionals on the ground that said expenditure is not deductable u/s. 37(1) - HELD THAT:- Since acceptance of freebies by medical practitioners was punishable as per circular issued by Medical Counsel of India under MCI Regulations, 2002, gifting of such freebies by assessee Pharma Companies to medical practitioners would also be prohibited by law and thus, expenditure incurred for such freebies would not be allowed as deduction in terms of section 37(1) of the Act. Therefore, respectfully following the decision of Apex Laboratories Pvt Ltd [ 2022 (2) TMI 1114 - SUPREME COURT] we are inclined to uphold the finding of the ld. CIT(A) and reject the ground taken by the assessee. Disallowance of deduction claimed u/s. 35(1) (2) - R D expenditure - AO has disallowed R D expenditure incurred on the ground that the R D facility was approved only from the period 26.12.2014 to 31.03.2015 which is not covered in the impugned assessment year - HELD THAT:- We find that the R D facility of the assessee has been approved by the Competent Authority in terms of relevant provisions for the period 26.12.2014 to 31.03.2015, which is beyond the period of impugned assessment year. Therefore, we are of the considered view that the assessee is not entitled for claiming deduction towards R D expenditure u/s. 35(2) 35(1) for the impugned assessment year. We further noted that, before the AO the assessee has admitted mistake and accepted disallowance of expenses. There is no merit in the argument of the assessee that deduction claimed u/s. 35(2) (1) of the Act is in accordance with law and thus, we reject argument of the assessee and sustain the additions made by the AO towards disallowance of deduction claimed u/s. 35(1) (2)towards R D expenditure. Additional depreciation on new assets capitalized during the year u/s. 32(1)(iia) - Number of days asset put to use - AO has disallowed additional depreciation on the ground that the additional depreciation u/s. 32(1)(iia) is available only for the year of purchase of new assets, but not for subsequent financial years - argument of the assessee that since the new assets purchased was put to use for less than 180 days, it has claimed 50% of additional depreciation for assessment year 2013-14 and remaining 50% has been claimed for the impugned assessment year - HELD THAT:- We find no merit in reasons given by the AO for simple reason that as per law, the assessee is entitled for additional depreciation of 20% of new assets put to use, if certain conditions are satisfied. In this case, the AO accepted the fact that the assessee has satisfied conditions prescribed for additional depreciation. However, not allowed remaining 50% depreciation claimed on new asset in the subsequent financial year. In our considered view, the assessee is entitled for 20% additional depreciation on new assets and if assessee claims 50% of additional depreciation in one financial year owing to the purchase and use of said asset for less than 180 days as per law, then remaining 50% of additional depreciation should be given in the next financial year. Therefore, we are of the considered view that the AO is erred in disallowing additional depreciation on assets and thus, we direct the AO to delete additions made towards disallowance of additional depreciation. Re-computation of book profit u/s. 115JB - assessee has debited provision for leave encashment and provision for gratuity but not added back said provisions while computing book profit - AO re-computed book profit by making additions towards provision for leave encashment and provision for gratuity on the ground that provisions made for meeting liabilities other than ascertained liabilities need to be added back to book profit in terms of explanation (1)(c) to section 115JB - HELD THAT:- In this case, provisions for leave encashment and provision for gratuity is an ascertained liability which is created on the basis of actuarial valuation for service rendered by the employees. Therefore, said liability cannot be considered as unascertained liability and thus, same need not be added back to the book profit computed u/s. 115JB of the Act. The AO without appreciating fact simply recomputed book profit by making additions towards provision for leave encashment and provision for gratuity. Hence, we direct the AO to re-compute the book profit u/s. 115JB of the Act by excluding provision for leave encashment and provision for gratuity. Appeal filed by the assessee is partly allowed.
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2023 (1) TMI 357
Deduction claimed u/s. 54 - delay in depositing unutilized amount in capital gains account deposit scheme - Scope of technical breach - HELD THAT:- In this case, the assessee has satisfied all conditions, except there is a technical breach in one of the conditions of depositing unutilized capital gain amount in capital gains deposit account scheme on or before due date for filing return of income u/s. 139(1) however, such deposits has been made on or before extended due date for filing return of income u/s. 139(4) - Admittedly, in the present case, the due date for filing return of income was on 05.08.2016, whereas, the appellant had deposited unutilized amount of capital gains in capital gain deposit account scheme on 19.09.2016, with a delay of 45 days. Assessee has explained reasons for depositing unutilized amount of capital gains in capital gain deposit account scheme, and further claimed that ultimately he has invested entire amount of capital gain for acquiring new asset within three years from the date of transfer of original asset. In our considered view, when the assessee has satisfied all conditions including depositing unutilized portion of capital gain in capital gain deposit account scheme, then for minor technical breach, benefit of deduction u/s. 54 of the Act cannot be denied. This view is fortified by the decision of various High Courts including the decision of Hon ble Karnataka High Court in the case of CIT vs K Ramachandra Roa [ 2015 (4) TMI 620 - KARNATAKA HIGH COURT] held that when assessee utilizes entire sale consideration within three years from the date of transfer of land, he could not be denied exemption u/s. 54. In this case, there is no dispute with regard to the claim of the assessee, and is entitled for deduction, because the assessee has satisfied conditions prescribed therein u/s. 54 of the Act, and also deposited unutilized amount of capital gain in capital gain deposit account scheme in a nationalized bank. Though, there is a delay of 45 days, but the assessee has utilized full amount of capital gains for acquiring new residential house within three years from the date of transfer of original asset. Therefore, we are of the considered view, that the assessee is entitled for deduction u/s. 54 of the Act. The AO without appreciating facts disallowed deduction claimed u/s. 54 of the Act. Appeal of revenue dismissed.
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2023 (1) TMI 356
Provisional assessment framed u/s. 172(4) - assessee was held liable to pay tax on the freight earned on this voyage without any benefit of exemption as per the Double Taxation Avoidance Agreement with Greece as claimed by the assessee - HELD THAT:- Position of law which emerges is that where the assessee has exercised his right to be assessed under the normal provisions of the Act as per Section 172(7) by filing his return of income for the entire year then he ought to be assessed on the return of income so filed as per the normal provisions of the Act, taking note of all benefits and exemptions available to the assessee and the summary assessment orders passed u/s. 172(4) on each voyage undertaken earning freight from India, ought to be set aside. In the facts of the present case the appeal before us is in proceedings relating to summary assessment with the A.O. having passed an order u/s. 172(4) on freight earned by ship owned by the shipping company, of which the assessee is an agent, on a voyage undertaken from India on 17-09- 2014. But for the impugned year, the assessee had filed his return of income declaring income for the entire year as per the provisions of Section 139(1) - This fact was pointed out by assessee to the Ld.CIT(A) as is evident from its submissions reproduced and copy of the return of income filed u/s 139(1) placed - The decision of the ITAT in the case of CMA CGM Agencies (India) (P.) Ltd. [ 2012 (11) TMI 510 - ITAT, RAJKOT] will therefore squarely apply, as per which the summary assessment order passed u/s. 172(4) needs to be set aside .The A.O. is further directed to take such action as may be warranted in terms of Section 172(7) of the Act. Appeal of the assessee is allowed in above terms.
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2023 (1) TMI 355
Accrual of income - Fee received on accrual basis - Financial year/assessment year - HELD THAT:- Though the receipt is there in the last quarter of a financial year that relates to the period of instructions to be imparted by the assessee in the next quarter, which falls in the next financial year. It, therefore, goes without saying that though the receipt is there in the last quarter of a financial year, the corresponding service is rendered by the assessee in the next quarter which falls in a different financial year. Income accrues only when the right accrued by rendering of services and not by promise for services. Where the right to receive is anterior to the rendering of services, the income would accrue only on the rendering of services. As on the date of receipt of tuition fee, and for that matter in the quarter in which it was received, no service was rendered. Service was rendered in the following quarter which falls in a different financial year. It leaves no doubt in our mind that in this situation, the right to receive i.e., accrual happens only in the quarter in which the services were rendered, namely, in the following quarter. While respectfully following the decision of Dinesh Kumar Goes [ 2010 (10) TMI 287 - DELHI HIGH COURT] we are of the considered opinion that the assessee was right in recognizing the revenue in the financial year in which the corresponding service was rendered, because it is only on consideration of the expenses relating to the rendering of services, the correct picture of income emerges, and it is only such income is taxable and not every receipt. With this view of the matter, we uphold the findings of the CIT (A) and find the grounds relating to this issue are devoid of merits. Disallowance of foreign remittances are subject make - Assessee makes payment to two foreign universities/institutions in UK and Switzerland in connection with the schools run by it; that according to the assessee, these payments made by them are, firstly, towards payment of examination fee collected from the students, which are not exactly the payment made by the assessee but merely collected from students and remitted, secondly, as fees for syllabus, setting up of question papers, training of teachers, etc; and that in respect of these payments made, the assessee did not make any deduction of tax at source u/s. 195 before making the aforesaid payments taking the view that there was no income that accrued or arose to the aforesaid foreign universities and educational institutions in India - HELD THAT:- The finding of the CIT(A) that the assessee is only a pass through entity in the sense that they are collecting the exam fee on behalf of the foreign universities does not appear to be unreasonable or perverse. Article 13 (5)(c) of the DTA between India and the UK, and Article 12 (5)(a) of the DTAA between India and Switzerland clearly read that the definition of fee for technical services does not include any amount paid for teaching in or by educational institutions. CIT(A) took the view that in view of this provision contained in DTAAs, the amount paid to the above two universities do not come under the clutches of the technical services or the royalty services - CIT(A) made reference to the decisions reported in Mahindra Holidays and Resorts (I) Ltd [ 2010 (5) TMI 524 - ITAT, CHENNAI] and also DE Beers India Minerals P. Ltd.[ 2012 (5) TMI 191 - KARNATAKA HIGH COURT] to reach the conclusion that the activities conducted by the foreign universities in this case are out of technical/royalty services. The expression teaching in or by educational institution cannot be confined to the activity of imparting the instructions alone, in a broader sense, teaching includes not only the imparting the instructions but also the verification of the extent of perception of such instruction by the pupil and thereby includes the activity of examinations also. In this sense, this particular activity falls in the ambit of the exemption clause in the DTAAs which exempt the amounts paid for teaching in or by the educational institutions. We are of the considered opinion that the findings of the CIT(A) on this aspect do not suffer any perversity, illegality or irregularity and they are in consonance with the spirit of the Act. We, therefore, do not find any merit in the contention of the Revenue and dismiss the grounds on this aspect. Waiver of interest - HELD THAT:- It is always open for the learned Assessing Officer to ascertain the rate of interest payable by the assessee during this particular financial year, the interest paid by the assessee and if there is any waiver of such interest or a part thereof by the banker to bring the same to tax. All through the proceedings before the Ld. CIT(A), the assessee maintained that the mentioning of Rs.15.02 Crores in the notes to the audit report does not represent the interest, if any, waived by the bankers but it is only the estimate made by the assessee as to their probable liability contingent upon the default, if any, committed by the assessee in respect of the CDR guidelines or the bankers revoking the reduction of interest for any reason. As against this contention, AO did not demonstrate from the financial statements of the assessee that, as a matter of fact, an interest to the magnitude of Rs.15.02 Crores was in fact waived by the bankers. It goes undisputed that before making this addition,AO did not seek any clarification from the assessee before proceeding to assume anything in respect of the mentioning of Rs.15.02 Crores as contingent liability in the notes to audit report by the assessee. Had the learned Assessing Officer obtained any such clarification, it would have obviated the addition. In the absence of any proof as to the waiver of interest by the bankers, addition on that score basing on assumptions cannot be maintained. Ld. CIT(A) is perfectly right in deleting the same and we hold such finding. All the appeals of Revenue are dismissed.
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2023 (1) TMI 354
Non-service of notice u/s 143(2) - HELD THAT:- Keeping in view the undisputed fact that the envelope containing the notice u/s 143(2) was not served on the assessee as admitted by the AO and also by the CIT(A) - we hold that the service of notice u/s 143(2) within the prescribed time limit is a sine qua non for completion of assessment u/s 143(3). Appeal of the assessee is allowed.
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Customs
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2023 (1) TMI 353
Revocation of customs broker license - forfeiture of the whole amount of security deposit - imposition of penalty - imeline of Regulation 16 and 17 of Customs Broker License Regulations (CBLR), 2018 was mandatory to be followed or not - Whether once the order suspending the license of CHA/appellant was revoked, the proceedings of revocation of license under Regulation 17 of CBLR, 2018 could not be initiated? - violation of Regulation 10(a), 10(d) and 10(n) of CBLR, 2018. Whether the timeline of Regulation 16 and 17 of Customs Broker License Regulations (CBLR), 2018 was mandatory to be followed while revoking the license and the order of revocation of license of appellant, Customs Broker (CB) is barred by time as the same has not been followed? - HELD THAT:- The time limit prescribed in Regulation 17(1) has to be understood in the context of the strict time schedule prescribed in various portions of the Regulations. Regulations 17(1) prescribes a time limit of 90 days from the date of receipt of offence report within which action is to be initiated i.e. for issuance of Show Cause Notice to Customs Broker who has to file his defense within 30 days of receipt of said Show Cause Notice. Reverting to the facts of the present case, we observe that DRI proceeded based on the information about certain undervalued imports and conducted search at various premises of different importers based in Mumbai and Hyderabad on 12.04.2017. The goods recovered during those search were seized on 22.06.2017. But the requisite show cause notice could not be issued within six months, the time prescribed by the statute for the purpose. However, a show cause notice praying time extension under Section 110(2) of Customs Act, 1962 was issued on 06.10.2017 and the time was extended vide Order-in-Original dated 11.10.2017. It is department s case that the show cause notice of 11.04.2018 / offence report was received in Delhi, the Commissionerate of competent jurisdiction, only on 25.02.2019 and as such the show cause notice dated 23.05.2019 is well within the period of 90 days. In view of entire above discussion and in view of Regulation 17(1) of CBLR, 2018 and that the timeline prescribed under Regulation 17 being mandatory in nature, it is held that the Commissioner of Customs who received the offence report dated 11.04.2018 on 25.02.2019 has issued the show cause notice to the CHA on 23.05.2019, while following strictly the timeline, well within 90 days of receiving the offence report - the show cause notice in question was within 90 days from the date when Delhi, Commissionerate received the intimation about alleged acts / omissions of Customs Broker / appellant and the period of 90 days has to reckon from the date of receipt of offence report by the Commissioner issuing show cause notice. The statute i.e. CBLR, 2018 is prescribing the time limit which is otherwise mandatory unless there is a gross abuse of process of law by the alleged defaulter and there is utmost bona fide and diligence on the part of the officers proceeding against the said alleged defaulter - the issue is decided in affirmative holding that the timeline of Regulations is mandatory to be followed and Commissioner (Customs), Delhi has duly followed the same. Thus impugned show cause notice dated 23.05.2019 issued against the appellant is well within time. Whether once the order suspending the license of CHA/appellant was revoked, the proceedings of revocation of license under Regulation 17 of CBLR, 2018 could not be initiated? - HELD THAT:- The action under regulation 16 can be taken during the pendency of proceedings initiated under regulation 14 to revoke the license of the Customs Broker. It becomes abundantly clear that any order whether of continuation of suspension of CB s Lincese or of revocation thereof is not a bar for the inquiry as has already been initiated under Regulation 14 following the procedure prescribed under Regulation 17 of CBLR, 2018. Hence, the contention of appellant is not sustainable and we hold that irrespective of the order of revocation of suspension of appellants license the proceedings for revocation under Regulation 17 of CBLR, 2018 thereof have rightly been continued against him. Issue is decided in negative holding that the findings recorded under Regulation 16(2) of CBLR, 2018 cannot in any manner have any bearing on the findings recorded under Regulation 17. Whether the appellant has violated Regulation 10(a), 10(d) and 10(n) of CBLR, 2018? - HELD THAT:- There is no evidence on record to prove that the appellant had any personal or pecuniary interest in the impugned imports or that the imports were for any other personal benefit of the appellant. From the above discussion about the documents and information of the importer, it is crystal clear that the CHA herein had played his role diligently. The only allegation otherwise about the imported goods is that of under valuation thereof. Appellant is not a valuation expert and had played no role in the under valuation of the goods. The appellant acted purely on the basis of documents as that of invoice/purchase orders supplied by the importers. The Commissioner has wrongly concluded that there is no evidence to rebut the veracity the statement of Shri Sidharth Sharma. It is rather observed that Shri Sidharth Sharma had submitted a letter dated 25.10.2017 on behalf of M/s. Maggie Marketing Pvt. Ltd. retracting his earlier statements but the order under challenge is miserably silent to the same. Mention of said retraction is even found recorded in subsequent statement of Shri Sidharth Sharma dated 08.11.2017, wherein, he acknowledged his retraction and reiterated that his earlier statements were given under pressure - the findings of adjudicating authority below are held to be based on presumptions and surmises only. Even the Show Cause Notice as served upon the appellant is based on third party evidence i.e. on the documents recovered from premises of Shri Yusuf Pardawala. The Commissioner (Appeals) has committed an error while ignoring the most cogent part of the statement of Shri Siddharth Sharma, wherein, he has specifically acknowledged that payments and charges for clearance etc. were paid to the appellant from the accounts of the concerned companies in whose names the Bills of Entry were filed. The another cogent deposition absolving entire liability of the appellant is that the clearance work of the import consignments of power bills and other related items in his company was handled by Shri Pankaj Singh alias Banti who did not work for M/s. ICS Cargo rather was the Director of a freight forwarding company in the name of M/s. JMD Clearing and Forwarding Pvt. Ltd. The said deposition has been corroborated by Shri Pankaj Singh himself - There was nothing with appellant to hide from the department. Mere taking certain documents of importer from a person appearing on behalf of the importer who is otherwise validly existing at the declared address and having valid IEC and GSTIN is highly insufficient to hold that CHA has failed in performing his duties of Customs House Agent deliberately. The third issue of adjudication in favour of the appellant holding that the Commissioner (Appeals) has wrongly confirmed the violation of Regulation 10(a), 10(d) and 10(n) of CBLR, 2018 against the appellant. Though the revocation of suspension of appellant s license was not an impediment while proceeding with the inquiry under Regulation 14 in terms of Regulation 17 of CBLR, 2018 and that the department has strictly followed the mandatory timeline of this provision - The appellant has not committed any alleged violation of Regulation 10(a), 10(d) and 10(n) of CBLR, 2018 - the order of revoking the license of appellant and of imposing penalty upon the appellant is absolutely wrong, unreasonable and unjustified. Appeal allowed.
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2023 (1) TMI 352
Refund of excess duty - refund was rejected on the ground of time bar that the appellant had filed the refund claim after one year from the date of final assessment - HELD THAT:- The sanctioning authority has considered the letter F.No S/9 -241 GATT/2012 GVC S/9-261 GATT/2012 GVC dated 22.03.2017 as final assessment order however on perusal of the said letter I find that through the said letter the appellant was directed to approach the concerned assessing authority for finalization of assessment where the provisional assessment was undertaken in their bills of entry. As per the said letter it is not clear when the final assessment order was issued. The learned counsel has also given a sample copy of bills of entry and on the bill of entry also there is no mention of final assessment. There are force in the argument of the Learned counsel that the bond was cancelled on 04.08.2018 therefore, if there is no formal final assessment order was issued then the date of cancellation of bond shall be treated as finalization of assessment, however it is not on record that whether any formal final assessment order was issued. Accordingly, the matter needs to be remanded back to the adjudicating authority to ascertain the facts about the actual date of finalization of bills of entry and to pass a reasoned order on the refund. Appeal is allowed by way of remand to the Adjudicating Authority.
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2023 (1) TMI 351
Continuation of anti-dumping duty under section 9A of the Customs Tariff Act 1975 - contention that has been advanced is that the office memorandum, communicating the decision of the Central Government not to continue anti-dumping duty, despite a recommendation having been made by the designated authority in the final findings to continue anti-dumping duty should be set aside for the reason that the principles of natural justice have been violated and even otherwise the decision is arbitrary, unreasoned and bad in law - Principles of natural justice. HELD THAT:- The Gujarat High Court in Realstripes Limited 1 other(s) vs. Union of India 1 other(s) [ 2022 (9) TMI 1171 - GUJARAT HIGH COURT] also examined whether quasi-judicial process was involved in issuance of the notification by the Central Government and after analyzing the decision of the Supreme Court in Indian National Congress vs. Institute of Social Welfare [ 2002 (5) TMI 847 - SUPREME COURT] , the Gujarat High Court held that the notification issued by the Central Government would be quasi-judicial in nature. The inevitable conclusion, therefore, that follows from the aforesaid discussion is that the decision taken by the Central Government not to impose anti-dumping duty despite a recommendation having been made by the designated authority for imposition of anti-dumping duty, cannot be sustained as it does not contain reasons nor the principles of natural justice have been compiled with and the matter would have to be remitted to the Central Government for taking a fresh decision on the recommendation made by the designated authority. The matter is remitted to the Central Government to reconsider the recommendation made by the designated authority - Appeal allowed by way of remand.
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Insolvency & Bankruptcy
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2023 (1) TMI 350
Condonation of delay in filing appeal - appeal filed on the 35th day, in terms of the Computation of the Limitation Period, and not the 46th day, as averred by the Respondent / Respondent - submission of the Petitioners / Appellants is that, the period beginning from 05.09.2022, Viz. the date of Application for Certified Copy of the Order to 15.09.2022, Viz. the date on which, the Certified Copy of the Order was provided to the Petitioners / Appellants, is to be excluded, from the Period of Limitation, in view of Section 12 (2) of the Limitation Act, 1963. HELD THAT:- In the instant case, the order impugned in CP/IB/113/CHE/2021 was passed by the Adjudicating Authority (National Company Law Tribunal, Special Bench I, Chennai) on 26.08.2022. The Appellants, had preferred the instant Comp. App (AT) (CH) (INS.) No.418 of 2022 before this Tribunal, through E-Portal on 10.10.2022 (on the 46th day vide Transaction Ref. No.: 1010220030268 dated 10.10.2022; 7.52 P.M.), whereby, a Sum of INR 6,000, through Internet based Online payment, in the account of Filing Fee, was received by the Office of the Registry, of this Tribunal - In the present case, this Tribunal, aptly points out that the Appellants, had filed the physical copy of the Appeal Paperbooks, before the Office of the Registry of this Tribunal, only on 31.10.2022. It cannot be gainsaid, that the Expiry of 30 days, after the Pronouncement of the impugned order, dated 26.08.2022, was on 24.09.2022. The 30 days period in preferring the Appeal, by any Person Aggrieved, in respect of an Order, passed by the Adjudicating Authority, is the deadline prescribed as per Section 61 (2) of the Insolvency and Bankruptcy Code, 2016. If an Appellate Tribunal (NCLAT), is satisfied on sufficient cause, being shown to its subjective satisfaction, in regard to the preferring of an Appeal (after the Expiry of 30 days period), then, such period, shall not exceed 15 days, as per Section 61 (2) of the Code. Admittedly, the completion of 45 days (30 + 15 days), was on 09.10.2022. In effect, the maximum 45 days being the outer limit (30 + 15 = 45 days), beyond which, the Appellate Tribunal (NCLAT), is bereft of any power, to condone the delay, in the teeth of the mandate, prescribed under the I B Code, 2016, as opined by this Tribunal. So far as the ingredients of Section 61 of the I B Code, 2016, are concerned, the Time Limit, enjoined under Section 61 (1) (2) [30 + 15 = 45 days], is the Legislative Mandate, and the same, cannot be tinkered and tampered with, in any manner, by any Person / Litigant / Stakeholder, as the case may be. Suffice it, for this Tribunal, to pertinently point out that the Parties, under I B Code, 2016, are to be alert, diligent, not to be an indolent and further not to adopt a laissez-faire attitude and lackadaisical approach. Rules of Limitation - HELD THAT:- There is no second opinion of an established fact, that the Rules of Limitation, being Rules of Procedure, do not create any Rights, in favour of any Individual nor do they define or create causes of action - After all, they just specify that a remedy, can be exercised, only upto a particular / certain period, and not later on. In the instant case, this Tribunal, pertinently points out that even if one goes by the Appellants version, as projected by them, the last date for preferring the instant Appeal, was on 04.10.2022. Keeping in mind, the provisions of the I B Code, 2016, having an overriding effect, in respect of other Laws, as per Section 238 of the Code, this Tribunal, taking into consideration of yet another fact that the I B Code, 2016, is an inbuilt and a self-contained one, yet the Limitation Act, 1963, cannot supersede / march over, the I B Code, 2016, cemented on the accepted maxim genralia specialbus non derogant, on a consideration of attendant facts and circumstances of the present case, which float on the service, in a cumulative manner, comes to a resultant cocksure conclusion, that the instant Comp. App (AT) (CH) (INS.) No. 418 of 2022, filed by the Appellants, through E-Portal on 10.10.2022 (the 46th day), is clearly out of time, and in reality, it exceeds the outer limit of 30 + 15 = 45 days, permissible under Section 61 of the Code. Appeal dismissed.
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2023 (1) TMI 349
Maintainability of application - seeking to bring the Corporate Debtor under the rigours of Corporate Insolvency Resolution Proceedings - Operational creditors - HELD THAT:- It is an undisputed fact that Shri Moti Kumar resigned from the Corporate Debtor firm finally on 08.10.2016 at which point of time he worked both with the Corporate Debtor and the Operational Creditor. There is also no doubt in our mind that at the time of joining the partnership firm, he was barred from taking any outside duties in terms of the appointment letter issued by the Corporate Debtor. Given the above, we are satisfied that the doubts expressed by the Adjudicating Authority about the questionable role of Shri Moti Kumar is not unfounded - It has also been observed by the Adjudicating Authority that the Operational Creditor actively concealed this material fact in their Section 9 application that their partner Shri Moti Kumar was working as an accountant in the Respondent Company during 2014 to 2016 when the transactions under reference have occurred between the parties. The Adjudicating Authority has therefore come to the conclusion that this dual employment of Shri Moti Kumar not only casts serious doubt on the transactions carried out between the Operational Creditor and the Corporate Debtor during the period of February 2014 to May 2016 but also points towards possible manipulation. The Adjudicating Authority having noted the material concealment of the fact by the Operational Creditor regarding the fact that Shri Moti Kumar was working concurrently in both the entities i.e. the partnership firm of the Operational Creditor and the Corporate Debtor at the time of transactions and after having considered the rival submissions and after seeing the documents on record have held that it raises serious doubts as to whether the Respondent really committed any default or there is an element of fraud in the transactions. It has therefore held that the dispute needs more investigation and beyond the scope of the Adjudicating Authority in terms of the judgement of the Hon ble Supreme Court in MOBILOX INNOVATIONS PRIVATE LIMITED VERSUS KIRUSA SOFTWARE PRIVATE LIMITED [ 2017 (9) TMI 1270 - SUPREME COURT] . It is well settled that in section 9 proceeding, the Adjudicating Authority is not to enter into final adjudication with regard to existence of dispute between the parties regarding the operational debt. What has to be looked into is whether the defence raises a dispute which needs further adjudication by a competent court. The Adjudicating Authority has rightly dismissed the application of the Appellant filed under Section 9 of IBC - Appeal dismissed.
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2023 (1) TMI 348
Recovery of dues - overriding effect of IBC - Jurisdiction conferred on an Adjudicating Authority to waive the Electricity Dues recoverable from the premises - HELD THAT:- The Judgment passed by this Tribunal in SOUTHERN POWER DISTRIBUTION COMPANY OF ANDHRA PRADESH LTD. VERSUS KALPTARU STEEL ROLLING MILLS LTD., ANDHRA BANK, ANDHRA PRADESH STATE FINANCIAL CORPORATION [ 2023 (1) TMI 290 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI] , applies to the facts of the instant case - it was held in that case that IBC having been given overriding effect under Section 238, any contrary provision in any other statute under Electricity Act, 2003 shall be overridden. Therefore, it shall not be open for the Appellant to contend that Appellant shall recover the entire preCIRP and post-CIRP dues from the Successful Auction Purchaser in pursuance of Regulation 8.4, as noticed above. The Appellant is entitled to recover its dues under the IBC proceedings. Application disposed off.
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Service Tax
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2023 (1) TMI 347
Rejection of the form of declaration made by the applicant no.1 firm from time to time under Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 launched by Finance (No. 2) Act, 2019 - seeking direction to accept form of declaration under Section 125 of the Act and undertaken the process of verification by designated committee and to issue the statement under sub-sections (1) and (4) of Section 127 of the Act - HELD THAT:- Considering the fact that this Court has already finally adjudicated in M/S. SUNSHINE CORPORATION VERSUS UNION OF INDIA [ 2022 (2) TMI 1322 - GUJARAT HIGH COURT] , no point will be served in allowing the additional prayer in this disposed of petition nor can this be done. The Court virtually has become functus-officio and again, the attention of the Court ought to have been drawn at the relevant point of time to this aspect. Noticing the fact that it was a covid time and the matter was being proceeded through the video conference coupled with the fact that the petitioner no.3 had already preferred the petition before this Court in MUMTAZBIBI YUSUFKHAN RANGAWALA VERSUS UNION OF INDIA [ 2021 (6) TMI 1128 - GUJARAT HIGH COURT] which was permitted to be withdrawn for him to be impleaded as a party for seeking the prayers against the respondent, so as not to render the petitioner vulnerable and remediless, we deem it appropriate to permit her to revive the petition which was, in particular, preferred by her being Special Civil Application No. 6525/2021. Once revived, the office shall place it for hearing in about a week s time before the concerned Bench - Application disposed off.
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2023 (1) TMI 346
Refund claim - rejection of application filed by the appellant for rectification of mistake in the earlier order - rejection on the ground of time limitation and unjust enrichment - appellant had not produced any documentary proof to establish that it had not passed on the burden of tax to the customers in response to the show cause notice - HELD THAT:- It is not possible to accept the contentions advanced by the learned counsel for the appellant. It is not in dispute that the issues that arose in all the three appeals were identical. It is true that the Department had filed one appeal only before the Madhya Pradesh High Court in connection with the refund claim of Rs. 1,95,37,953/- in Service Tax Appeal No. 843 of 2012 and no appeal was filed in relation to the refund claim of Rs. 25,18,316/- and Rs. 24,32,609/- which were the subject matter of Service Tax Appeal No. 845 of 2012, and Service Tax Appeal No. 844 of 2012 presumably for the reason that the amount involved was below the monetary limit fixed by the Government for filing appeal. However, what needs to be noticed is that the Tribunal had passed a common order and it is this order which was in appeal before the Madhya Pradesh High Court. The findings of the Tribunal have been reversed and the order passed by the adjudicating authority has been upheld. It cannot, therefore, be urged by the learned counsel for the appellant that the Additional Commissioner committed an illegality in rejecting the refund applications filed for refund of Rs. 25,18,316/- and Rs. 24,32,609/-. It needs to be noted that the appellant had not filed any appeal to assail the order passed by the adjudicating authority and only applications for rectification of the alleged mistake in the orders were filed. Appeal dismissed.
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2023 (1) TMI 345
Levy of Service Tax - technical testing and analysis service - whether the charges recovered on account of storage beyond period of 3 months can be considered as part of the provision of technical testing and analysis service? - HELD THAT:- It is not in dispute that the appellant are providing the service of technical testing and analysis service. It is also not in dispute that the storage charges are collected by the appellant only in cases of storage beyond the period of three months which is included in the technical testing and analysis services already provided by the appellant - On perusal, the article 10 clearly indicates that the service of storage after the period of three months is purely optional and independent service. It can by no stretch of imagination be called technical testing and analysis service. The impugned order observes that the service of storage and technical testing are not mutually exclusive service. We do not agree with this contention and the Article 10 clearly prescribed that only at the request of client the service of storage beyond period of 3 months provided. The agreement also provides separate and independent charges for the purpose of storage. In this background we do not find any merit in the argument that the charges recovered on account of storage beyond period of 3 months can be considered as part of the provision of technical testing and analysis service. The demand therefore cannot be sustained. Appeal allowed.
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Central Excise
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2023 (1) TMI 344
Gold Balas - Primary Gold as defined under Section 2(r) of the Gold Control Act, 1968, as amended or not - Confiscation - penalty - existence of corroborative evidences or not - HELD THAT:- The Appellant Shri Sailendra Narayan Panda has filed some documents which would go to show that he is the legal heir of Late Binod Bihari Panda - Further, in the order impugned before me Shri Sailendra Narayan Panda has been considered as the legal heir of Late Binod Bihari Panda. I find that the Hon ble High Court of Orissa, the Chief Commissioner and the Principal Commissioner have already considered Shri Sailendra Narayan Panda, the Appellant before me as legal heir of Late Binod Bihari Panda. Now the question of legal heir being raised by the Authorized Representative for the Department in the course of hearing does not have any legs to stand at this juncture. This is totally uncalled for and the Authorized Representative before raising such legal issues should have properly gone through the records of the case and once Shri Sailendra Narayan Panda has been considered as the legal heir he has no authority to question and raise doubts on such consideration. In support of the stand of the Appellant, with regard to 11 gold Balas to be ornaments, the evidence is available on record such as statement of important personality of the area and affidavits filed by the then Deputy Minister of Orissa Cabinet and the then Member of Orissa Legislative Assembly from Koksara Constituency in the district of Kalahandi. The finding of the Adjudicating authority, holding it primary gold is based on mere surmises. The Adjudicating authority failed to appreciate the evidence adduced by the claimant of the gold Balas that it is usual and common that the said gold Balas are used by the people of that locality as ornaments in their neck and also wrist. It is clear that the Adjudicating authority is of the opinion that 11 gold Balas are ornaments. Had it been otherwise, he would have re-adjudicated the matter afresh - the Principal Commissioner passed order for confiscation of the gold Balas in question and further imposed penalty of Rs.50,000/- (Rupees Fifty Thousand only) on a dead person. It is settled principle of law that any order passed against a dead person is a nullity. It would appear from the impugned order that there are pictures of gold seized. If those pictures are perused, a correct conclusion can be drawn that these are in the form of ornaments and the same is worn by the people of western Odisha. It is evident from the photographs of the item seized under the impugned order dated 31.12.2020, it is quite clear that a definite shape has been given to the gold Balas in question and had it been a primary gold, it would have been simple gold rod or plate or pieces, and it should not have been bent and also given a certain shape which is evident from the picture. Therefore, there is no room for doubt that these gold Balas are gold ornaments having a definite shape to be worn by the local people. In any view of the matter the seized gold Balas are ornaments and may be released to the Appellant - appeal allowed.
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2023 (1) TMI 343
SSI Exemption available under Notification No.8/2003-C.E. dated 01.03.2003 - use of brand name of others - case of Revenue is that since the appellant has used brand Bintex belonging to some other person, benefit of exemption under the said notification is not available - penalty - HELD THAT:- The Bintex brand is registered with Trade Mark Registry wherein, the appellant partner Shri Rajesh Kumar Harshdrai Punatar is also one of the owner - From the registration, it is clear that the appellant s partner Shri Rajesh Kumar Harshdrai Punatar is one of the owner of the brand name Bintex out of the other family members. It is also submitted by the appellant that Shri. Rajesh Kumar Harshdrai Punatar is a partner in M/s. Abhay Industries from 01.04.2001 onwards. In this fact, it is opined that the appellant firm using the brand name of Bintex for which the appellant firm partner Shri Rajesh Harshdrai Punatar is one of the owner of the brand name Bintex , the appellant firm is eligible for exemption under Notification No. 8/2003-CE dated 01.03.2003. This Tribunal in various judgments cited by the appellant held that if brand is owned by any of the member or jointly by the family, any member of the family if use the said brand, it cannot be said that assessee is using the brand name of other person. The present case is on much better footing for the reason that the appellant s partner Shri Rajesh Harshdrai Punatar himself is one of the owner of the brand Bintex as per the Trade Mark Registration, therefore, there is no doubt that the brand name cannot be said to be belonging to any other person. Consequently, the appellant is eligible for exemption notification. Penalty - HELD THAT:- Since the demand against the main appellant is not sustainable in view of the above discussion and finding, the penalty on the partner also will not sustain. Moreover, since the penalty on partnership firm was imposed, a separate penalty on the partner cannot be imposed as held by the Hon ble Gujarat High Court in the case of COMMISSIONER OF CENTRAL EXCISE VERSUS JAI PRAKASH MOTWANI [ 2009 (1) TMI 501 - GUJARAT HIGH COURT ]. Appeal allowed.
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2023 (1) TMI 342
CENVAT Credit - removal of cenvatable components/ spares as such under CT-3 certificate without reversal of Cenvat Credit - contravention of the provisions of Rule 3(5) of the Cenvat Credit Rules, 2004 read with Notification No. 22/03-CE dated 31.03.2003 - recovery alongwith interest and penalty - whether the assessee was required to reverse the cenvat credit availed on components/ spares (inputs) cleared as such to EOUs units against the CT-3 certificate? - HELD THAT:- On the identical issue the tribunal in the matter of M/S AROMA CHEMICALS VERSUS COMMISSIONER (APPEALS-I) , CENTRAL EXCISE, MEERUT [ 2018 (2) TMI 383 - CESTAT, ALLAHABAD] has held that if the Cenvat credit is availed on inputs and if the same are cleared to 100% EOU as provided under sub-rule (6) of Rule 6 of Cenvat Credit Rules, 2004, Cenvat credit of duty paid on such inputs cannot be denied. In the present matter it is undisputed fact that on imported spares/ components appellant has undertaken the testing process. The Department and Ld. Commissioner both are of the view that the process carried out by the appellant within the factory do not bring about any new product. After undertaking of testing there is no new products with distinctive name, use and character is emerged and the components/spares of the EPBAX systems remains same even after mere electrical and functional testing which can not be considered as manufacture as defined under Section 2(f) of the Central Excise Act, 1994. Therefore, the contention is that the spares/ components cleared to EOUs are nothing but removal of Input as such and in terms of Rule 3 (5) of the Cenvat Credit Rules, 2004 assessee have to reverse the cenvat credit - there is no justification for demand of an amount in terms of Rule 3(5) of the Cenvat Credit Rules. Clearly, the process carried out is in the nature of finishing process which can be considered as ancillary to the manufacture of a finished product. In the facts and circumstances of the case, we find no justification for demand of such amount under Rule 3(5) on the clearances made to 100% EOU. Cenvat demand of Rs. 1,25,65,890/- on input services rendered by the Foreign Service providers - HELD THAT:- Under the un-amended provisions of sub-rule (4) of Rule 3 of the Cenvat Credit Rules, 2004 (effective up to 30-6-2012), there were no specific restrictions imposed for utilization of credit for discharging the liability of service tax under reverse charge mechanism by the recipient of service. Such restriction was brought with effect from1-7-2012, by amending the provisions of the said rule. In the present case, since the period of dispute is prior to 01.07.2012, the case of the appellant will be governed under the provisions of unamended Rule 3(4) ibid and in absence of specific restrictions contained therein for non-utilisation of Cenvat credit by the service recipient, the benefit of the existence rule is available to the assessee for utilization of Cenvat credit for payment of service tax under reverse charge mechanism - the argument of revenue for confirming the demand cannot sustain in law. Denial of Cenvat Credit pertaining to other premises/ branch offices of the Appellant - HELD THAT:- The credit could not have been denied on the ground that the appellant did not have centralized registration during the period. Availment of credit by Appellant without a centralized registration - HELD THAT:- The appellant had applied for centralized registration. The non obtaining the centralized registration at the best is a technical issue, since there is a substantive adherence of law in view of the fact that service tax has been apparently paid on the basis of centralized registration therefore credit could have been taken in the centrally registered office. Therefore it cannot be said that credit has been availed wrongly. It is not a case of the department that on the input services/ invoices, no service tax was paid and there is no dispute about receipt and use of the services, which are the main criteria for allowing Cenvat credit on input service - only on the technical infraction should not be denied. Further, Assessee was also registered with Central Excise Department from 1998 as manufacturer. The manufacturer can also avail the Cenvat Credit. The assessee is entitled for cenvat credit - Appeal allowed - decided in favor of assessee.
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CST, VAT & Sales Tax
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2023 (1) TMI 341
Input tax credit - eligibility of benefit of input tax credit claimed after six months from the date of invoice - Section 10(3) of the K-VAT Act - tax period April 2010 to March 2011 - HELD THAT:- The amended After 2015 amendment w.e.f 01.04.2015., provision of Section 10(3) of the KVAT Act clearly provides that the input tax availed by a dealer in a tax period shall be relatable to goods purchased during immediately preceding five tax periods of such tax period and shall be accounted for in accordance with the provisions of KVAT Act. In the connected appeal, M/s Sonal Apparel Pvt Ltd. v. State of Karnataka Ors [ 2016 (3) TMI 1286 - KARNATAKA HIGH COURT ], the assessees have raised a common ground challenging the Section 10(3) of the KVAT Act, as ultra vires the Constitution of India as well as the object and Scheme of the KVAT Act - Hon ble Single Judge held that Section 10(3) of the KVAT Act, prior to its amendment vide the Karnataka Value Added Tax (Amendment) Act, 2015, shall be read down to enable the petitioners to calculate the net tax liability by deducting the input tax paid on its purchases from its output tax liability, irrespective of the month in which the selling dealer raises invoices. It is settled that the input tax credit is an indefeasible right. The main issue is whether the assesses who have filed the returns belatedly are entitled for input credit or not. A plain reading of provision of Section 10(3) of the KVAT Act, 2003, shows that no time limit or restriction is prescribed for availing the input tax credit. In Dai Ichi Karkaria Ltd. [ 1999 (8) TMI 920 - SUPREME COURT ], the Apex court has held that credit is indefeasible. The Modvat credit is similar to the Input Tax Credit in this case. Therefore, no exception can be taken to the view taken by the Hon ble Single Judge that the Input Tax Credit cannot be denied on the anvil of the machinery provisions or the provisions relating to the time frame. The assessees shall be eligible to avail the input tax credit as and when the tax is paid by them, without any limitation of time - Petition allowed.
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2023 (1) TMI 340
Validity of assessment order - not considering the impugned Transaction as Branch Transfer Transaction - exemption from payment of Tax under Section 6A of the CST Act - absence of any means rea of the Appellant or an intent to evade payment of tax - levy of penalty @150%. HELD THAT:- The attention of this Court is drawn to the analysis of the facts by the Tribunal on 08.07.2022. It is also not in dispute that the methodology adapted for the Maharashtra Branch, where 15 transactions are made, the Tribunal at Maharashtra has accepted lorry receipts and that aspect has been overlooked by the Assessing Officer while analyzing the facts. Likewise, two transactions which had taken place at Rajasthan also has been overlooked by A.O. Noticing the fact that essential dealing on the facts and this glaring facts have been overlooked, let the matter be remitted back to the Tribunal. Till the Tribunal decide this aspect by applying its mind after availing the opportunity to the parties, there shall be no recovery. As pre-deposit is already made of Rs.1,25,000/-, the Tribunal shall also be entitled to consider the request for the stay of the matter, once the parties are appeared. The Second Appeal before the Tribunal will be restored being Second Appeal No.736 of 2012 with regard to the bank accounts which have been attached pursuant to the recovery initiated shall be lifted by the Authority. Application disposed off.
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2023 (1) TMI 339
Reopening of assessment - deemed assessment - whether the Respondent Authorities would have the power to reopen the assessment made without there being an assessment order, only accepting the deemed assessment made by the Assessee and treating it to be the assessment order? HELD THAT:- As regards the factual aspect, whether there has been an assessment order as such passed under Section 22(1) of the VAT Act by the Authorities, it is not disputed by learned State Counsel. However, learned State Counsel only tried to justify their stand inasmuch as, an assessment order is not required and the deemed assessment submitted by the Petitioner under Section 21(1) of the VAT Act is good enough for reopening of assessment invoking Section 22 and the deemed assessment itself has to be considered and treated as an order of assessment. Given the submissions made by learned Counsels for parties, what is also required to be taken note of is, the fact that this very argument raised by learned State Counsel is one which has been dealt with extensively by the Division Bench while deciding the matter in M/S TATA TELESERVICES LIMITED VERSUS STATE OF CHHATTISGARH, COMMISSIONER, COMMERCIAL TAX, RAIPUR (C.G.) , COMMERCIAL TAX OFFICER, CIRCLE-5, RAIPUR (C.G.) [ 2018 (3) TMI 1416 - CHHATTISGARH HIGH COURT] . This has further been followed by the Division Bench again in the aforementioned TAXC No.74/2022, reiterating the same stand earlier taken by the Division Bench. It has been emphatically held that unless there is a specific order of assessment under Section 21(1) passed by the Authorities concerned, there cannot be reopening of an assessment made under Section 21(2) of the VAT Act. Petition alowed.
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2023 (1) TMI 338
Taxable Turnover - works contract - earth work - deduction of 30% as labour charges - violation of provisions of Sub-Section 3, 7 and 9 of Section 3 of the Uttarakhand Value Added Tax Act, 2005 or not - HELD THAT:- A plain reading of sub-section 7, especially Clause (ii) therein of Section 3 which deals with the case involving execution of work contract, taxes shall be levied when the taxable quantum Rs. 5,00,000/- onwards. It is admitted in this case that the contractor was paid of Rs. 1,11,930/- towards the work executed of Rs. 4,61,670/- being not liable to be included in the turnover of the Assessee revisionist while calculating the taxable quantum. The Assessee revisionist is not liable to pay any tax on the same, especially in view of the fact that neither the Assessing Authority nor the First Appellate Court nor the Second Appellate Court has held that Assessee revisionist has income from other sources for the assessment year, therefore, the imposition of tax of Rs. 1,11,930/- is illegal, hence, to be set-aside. The revision is allowed. The impugned judgments are set-aside, hence, the Assessee revisionist is not liable to pay any sales/commercial tax for the period in consideration.
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Indian Laws
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2023 (1) TMI 337
Demonetization - Validity of N/N. 3407(E) dated 8th November 2016, issued by the Central Government in exercise of the powers conferred by sub-section (2) of Section 26 of the Reserve Bank of India Act, 1934 - validity of declaration that the bank notes of denominations of the existing series of the value of five hundred rupees and one thousand rupees shall cease to be legal tender with effect from 9th November 2016, to the extent specified in the impugned Notification - scope of judicial review - discrimination of District Co-operative Banks by excluding them from accepting deposits and exchanging demonetized notes. Whether the power available to the Central Government under sub-section (2) of section 26 of the RBI Act can be restricted to mean that it can be exercised only for one or some series of Bank notes and not all series in view of the word any appearing before the word series in the said sub-section, specifically so, when on earlier two occasions, the demonetization exercise was done through the plenary legislations? - HELD THAT:- While holding that the word any in the context would mean all , this Court observed that a right of appeal is always conferred by a statute. It has been held that, while conferring such right, a statute may impose restrictions, like limitation or pre-deposit of penalty or it may limit the area of appeal to questions of law or sometime to substantial questions of law. It has been held that whenever such limitations are imposed, they are to be strictly followed. It has been held that in a case where there is no limitation, the right of appeal cannot be curtailed by this Court on the basis of an interpretative exercise. It is clear that it is a settled principle that the modern approach of interpretation is a pragmatic one, and not pedantic. An interpretation which advances the purpose of the Act and which ensures its smooth and harmonious working must be chosen and the other which leads to absurdity, or confusion, or friction, or contradiction and conflict between its various provisions, or undermines, or tends to defeat or destroy the basic scheme and purpose of the enactment must be eschewed. The primary and foremost task of the Court in interpreting a statute is to gather the intention of the legislature, actual or imputed - To avoid patent injustice, anomaly or absurdity or to avoid invalidation of a law, the court would be justified in departing from the so-called golden rule of construction so as to give effect to the object and purpose of the enactment. Ascertainment of legislative intent is the basic rule of statutory construction. Construction of sub-section (2) of Section 26 of the RBI Act - HELD THAT:- The RBI Act is a special Act, vesting all the powers and functions with regard to monetary policy and all matters pertaining to management and regulation of currency with the RBI. The Central Government is required to take its decision on the basis of the recommendation of the Central Board - the power is vested with the Central Government and that power has to be exercised on the recommendation of the RBI. Both sides agree that RBI plays a unique role in the matter of monetary policy and issuance of currency. The Central Government is empowered under sub-section (2) of Section 26 of the RBI Act to notify any series of bank notes of any denomination to cease to be a legal tender. The effect of such a notification would be that the liabilities as provided under Section 34 of the RBI Act and the guarantee as provided under sub-section (1) of Section 26 of the RBI Act shall cease to have effect on such notification being issued thereby demonetizing the bank notes. The policy underlining the provisions of Section 26 of the RBI Act is to enable the Central Government on the recommendation of the Central Board, to effect demonetization. The same can be done in respect of any series of bank notes of any denomination. The legislative policy is with regard to management and regulation of currency. Demonetization of notes would certainly be a part of management and regulation of currency. The legislature has empowered the Central Government to exercise such a power. The Central Government may take recourse to such a power when it finds necessary to do so taking into consideration myriad factors - An interpretation which, in effect, nullifies the purpose for which a power is to be exercised, in our view, would be opposed to the principle of purposive interpretation. Such an interpretation, in our view, rather than advancing the object of the enactment, would defeat the same. Merely because on earlier two occasions the Government decided to take recourse to plenary power of legislation, this, by itself, cannot be a ground to give a restricted meaning to the word any in sub-section (2) of Section 26 of the RBI Act. As already discussed herein above, the legislative intent could not have been to give a restricted meaning to the word any in sub-section (2) of Section 26 of the RBI Act - we are unable to accept the contention that the word any has to be given a restricted meaning taking into consideration the overall scheme, purpose and the object of the RBI Act and also the context in which the power is to be exercised. We find that the word any would mean all under sub-section (2) of Section 26 of the RBI Act. In the event it is held that the power under sub-section (2) of section 26 of the RBI Act is construed to mean that it can be exercised in respect of all series of Bank notes, whether the power vested with the Central Government under the said sub-section would amount to conferring excessive delegation and as such, liable to be struck down? - HELD THAT:- Though the Court found the power under Section 5(2)(b) of the Gold (Control) Act, 1968 suffered from excessive delegation and, therefore, constitutionally invalid; it, however, categorically rejected the contention insofar as Section 5(2)(a) of the Gold (Control) Act, 1968 is concerned, inasmuch as it provided a safeguard that the regulation of the price should be made by the Administrator after consultation with the RBI - though the Court found the power under Section 5(2)(b) of the Gold (Control) Act, 1968 to be invalid on the ground of excessive delegation, yet it found the power under Section 5(2)(a) of the Gold (Control) Act, 1968 to be valid since it provides an inbuilt safeguard that the Administrator has to act after consultation with the RBI. The Court observed that the growth of the legislative powers of the Executive is a significant development of the twentieth century. The theory of laissez faire has been given a go-by and large and comprehensive powers are being assumed by the State with a view to improve social and economic well-being of the people. It has been held that most of the modern socio-economic legislations passed by the Legislature lay down the guiding principles and the legislative policy. It is not possible for the Legislatures to go into matters of detail. Therefore, a provision has been made for delegated legislation to obtain flexibility, elasticity, expedition and opportunity for experimentation - It has been observed that the role against excessive delegation of legislative authority flows from and is a necessary postulate of the sovereignty of the people. It has been held that the rule contemplates that it is not permissible to substitute in the matter of legislative policy the views of individual officers or other authorities, however competent they may be, for that of the popular will as expressed by the representatives of the people. It can thus be seen that this Court has held that a mere possibility or eventuality of abuse of delegated powers in the absence of any evidence supporting such claim, cannot be a ground for striking down such a provision. It has been held that if a challenge is made to the delegated legislation framed by the executive, the same can be examined by the constitutional court. It has been held that applying the policy and guideline test, if it is found that the delegated legislation does not satisfy the said test, the legislation can be struck down without affecting the constitutionality of the rule-making power conferred under Section 186 of the Finance Act, 2017. Status of the RBI - HELD THAT:- This Court has noted that the RBI, which is a bankers' bank, is a creature of statute. It has large contingent of expert advice relating to matters affecting the economy of the entire country. It has been held that the RBI plays an important role in the economy and financial affairs of India and one of its important functions is to regulate the banking system in the country. It has been held that it is the duty of the RBI to safeguard the economy and financial stability of the country - It can thus be seen that this Court has held that the RBI is the sole repository of power for the management of currency. It is also vested with the sole right to issue bank notes and to issue currency notes supplied to it by the Government of India. It has been held that the RBI has an important role to play in evolving the monetary policy of the country. The RBI is an expert body entrusted with various functions with regard to monetary and economic policies. Perusal of the scheme of the RBI Act would reveal that it has a primary role in the matters pertaining to the management and regulation of currency. We, therefore, find that there is sufficient guidance to the delegatee when it exercises its powers under sub-section (2) of Section 26 of the RBI Act, from the subject matter of the statute, and the other provisions of the Act - there is sufficient guidance in the preamble as well as the scheme and the object of the RBI Act. As already discussed herein above, there cannot be a straitjacket formula, and the question whether excessive delegation has been conferred or not has to be decided on the basis of the scheme, the object and the purpose of the statute under consideration. In the present case also, the delegation is to the Central Government, i.e. the highest executive body of the country. We have a Parliamentary system in which the Government is responsible to the Parliament. In case the Executive does not act reasonably while exercising its power of delegated legislation, it is responsible to Parliament who are elected representatives of the citizens for whom there exists a democratic method of bringing to book the elected representatives who act unreasonably in such matters - sub-section (2) of Section 26 of the RBI Act does not suffer from the vice of excessive delegation. As to whether the impugned notification dated 8th November 2016 is liable to be struck down on the ground that the decision making process is flawed in law? - HELD THAT:- The Central Board had taken into consideration the relevant factors while recommending withdrawal of legal tender of bank notes in the denomination of Rs.500/- and Rs.1000/- of existing and any older series in circulation. Similarly, all the relevant factors were placed for consideration before the Cabinet when it took the decision to demonetize. It is to be noted that a draft scheme to implement the proposal for demonetization in a non-disruptive manner with as little inconvenience to the public and business entities as possible was also prepared by the RBI along with the recommendation for demonetization. The same was also taken into consideration by the Cabinet. As such, we are of the considered view that the contention that the decision-making process suffers from non-consideration of relevant factors and eschewing of the irrelevant factors, is without substance. The contention that the Meeting of the Central Board dated 8th November 2016 is not validly held for want of quorum is concerned, is without substance. The Court must defer to legislative judgment in matters relating to social and economic policies and must not interfere unless the exercise of executive power appears to be palpably arbitrary. The Court does not have necessary competence and expertise to adjudicate upon such economic issues. It is also not possible for the Court to assess or evaluate what would be the impact of a particular action and it is best left to the wisdom of the experts. In such matters, it will not be possible for the Court to assess or evaluate what would be the impact of the impugned action of demonetization - the legislative and quasi-legislative authorities are entitled to a free play, and unless the action suffers from patent illegality, manifest or palpable arbitrariness, the Court should be slow in interfering with the same. It can thus be seen that confidentiality and secrecy in such sort of measures is of paramount importance. When demonetization was being done in the year 1978, R. Janakiraman, who had drafted the Ordinance, was not permitted to communicate with anyone including the Bank s central office at Bombay. It would thus show as to what great degree of confidentiality was maintained. In any case, the material placed on record would show that the RBI and the Central Government were in consultation with each other for at least a period of six months preceding the action - the impugned notification dated 8th November 2016 does not suffer from any flaws in the decision-making process. As to whether the impugned notification dated 8th November 2016 is liable to be struck down applying the test of proportionality? - HELD THAT:- There is a direct and proximate nexus between the restrictions imposed and the objectives sought to be achieved. As held by this Court in the case of M.R.F. LTD. VERSUS INSPECTOR KERALA GOVT. ORS. [ 1998 (11) TMI 674 - SUPREME COURT] , if there is a direct nexus between the restrictions and the object of the action, then a strong presumption in favour of the constitutionality of the action naturally arises. The impugned notification dated 8th November 2016 does not violate the principle of proportionality and as such, is not liable to be struck down on the said ground. As to whether the period provided for exchange of notes vide the impugned notification dated 8th November 2016 can be said to be unreasonable? - HELD THAT:- The Constitution Bench found that if the time for such exchange was not limited, the high denomination bank notes could be circulated and transferred without the knowledge of the authorities concerned, from one person to another and any such transferee could walk into the Bank on any day thereafter and demand exchange of his notes. It was held that, in such an eventuality, the very object which the Demonetization Act sought to achieve would have been defeated. The Court found that between 16th January 1978 and 19th January 1978, the holder was entitled to get the exchange value of his notes from the Bank without any limit or hindrance. The challenge that the period of three days was unreasonable, unjust and violative of the petitioners fundamental rights, stood specifically rejected. As to whether the RBI has an independent power under sub-section (2) of section 4 of the 2017 Act in isolation of the provisions of section 3 and section 4(1) thereof to accept the demonetized notes beyond the period specified in notifications issued under sub-section (1) of section 4 of the 2017 Act? - HELD THAT:- Though in view of the impugned Notification and in view of Section 3 of the 2017 Act, demonetized notes have ceased to be a legal tender and have ceased to be the liabilities of the RBI under Section 34 of the RBI Act and the guarantee of the Central Government under sub-section (1) of Section 26 of the RBI Act, a window is provided by Section 4 of the 2017 Act. Clause (i) of sub-section (1) of Section 4 of the 2017 Act deals with a citizen of India who makes a declaration that he was outside India between 9th November 2016 and 30th December, 2016, subject to such conditions as may be specified, by notification, by the Central Government. Accordingly, a notification is issued by the Central Government on 30th December 2016 - The provisions of sub-section (2) of Section 4 of the 2017 Act are somewhat analogous to the provisions in sub-sections (1) and (2) of Section 8 of the 1973 Act. Sub-section (3) of Section 4 of the 2017 Act provides that any person, aggrieved by the refusal of the RBI to credit the value of the notes under sub-section (2), can make a representation to the Central Board of the RBI within fourteen days of the communication of such refusal to him. This provision is somewhat analogous with sub-section (3) of Section 8 of the 1973 Act. The RBI does not have independent power under sub-section (2) of Section 4 of the 2017 Act in isolation of the provisions of Sections 3 and 4(1) thereof to accept the demonetized notes beyond the period specified in notifications issued under sub-section (1) of Section 4 of the 2017 Act. As per Nagarathna, J; The following conclusions are arrived at: (i) According to subsection (1) of Section 26 of the Act, every bank note shall be legal tender at any place in India in payment or on account for the amount expressed therein and shall be guaranteed by the Central Government. This provision is subject to subsection (2) of Section 26 of the Act. (ii) Subsection (2) of Section 26 of the Act applies only when a proposal for demonetisation is initiated by the Central Board of the Bank by way of a recommendation being made to the Central Government. The said recommendation can be in respect of any series of bank notes of any denomination which is interpreted to mean any specified series of bank notes of any specified denomination. (iii) The expression any series of bank notes of any denomination has been given its plain, grammatical meaning, having regard to the context of the provision and not a broad meaning. Thus, the word any will mean a specified series or a particular series of bank notes. Similarly, any denomination will mean any particular or specified denomination of bank notes. (iv) If the word any is not given a plain grammatical meaning and interpreted to mean all series of bank notes of all denominations , it would vest with the Central Board of the Bank unguided and unlimited powers which would be exfacie arbitrary and suffer from the vice of unconstitutionality as this would amount to excessive vesting of powers with the Bank. In order to save the provision from being declared unconstitutional, the meaning of the provision is read down to the context of the Central Board of the Bank initiating a proposal for demonetisation by making a recommendation to the Central Government under subsection (2) of Section 26 of the Act of a particular series of bank note of any denomination. (v) On receipt of the said recommendation made by the Central Board of the bank under subsection (2) of Section 26 of the Act, the Central Government may accept the said recommendation or may not do so. If the Central Government accepts the recommendation, it may issue a notification in the Gazette of India specifying the date w.e.f. which any specified series of bank notes of any specified denomination shall cease to be legal tender and shall cease to have the guarantee of the Central Government. (vi) The provisions of the Act do not bar the Central Government from proposing or initiating demonetisation. It could do so having regard to its plenary powers under Entry 36 of List I of the Seventh Schedule of the Constitution of India. However, it has to be done only by an Ordinance being issued by the President of India followed by an Act of Parliament or by plenary legislation through the Parliament. The Central Government cannot demonetise bank notes by issuance of a gazette notification as if it is exercising power under subsection (2) of Section 26 of the Act. In such circumstances when the Central Government is initiating the process of demonetisation, it would not be acting under subsection (2) of Section 26 of the Act but notwithstanding the said provision through a legislative process. (vii)When such power is exercised by the Central Government by means of a legislation, it is by virtue of Entry 36, List I of the Seventh Schedule of the Constitution of India which deals with currency, coinage and legal tender; foreign exchange which is a field of legislation. Hence, the power of the Central Government to demonetise any currency is notwithstanding anything contained in Section 26 of the Act. (viii) When the Central Government proposes demonetisation of any bank note, it must seek the opinion of the Central Board of the Bank having regard to the fact that the Bank is the sole authority to regulate circulation of bank notes and secure monetary stability and generally to operate the currency and credit system of the country and to maintain price stability. (ix) The opinion of the Central Board of the Bank ought to be an independent and frank opinion after a meaningful discussion by the Central Board of the Bank which ought to be given its due weightage having regard to the ramifications it may have on the Indian economy and the citizens of India although it may not be binding on the Central Government. On receipt of a negative opinion from the Central Board of the Bank, the Central Government which has initiated the demonetisation process may still intend to go ahead with the said process after weighing the pros and cons only by means of an Ordinance and/or Parliamentary legislation but not by issuance of a gazette notification. In other words, the Central Government in such circumstances cannot resort to exercise of power under subsection (2) of Section 26 of the Act by issuing a notification in the Gazette of India as if it were exercising executive powers. Even if the Central Board of the Bank concurs with the proposal of the Central Government, the Central Government would have to undertake a legislative process and not carry out the measure by simply issuing a gazette notification. (x) In view of the aforesaid conclusions, I am of the considered view that the impugned notification dated 8th November, 2016 issued under subsection (2) of Section 26 of the Act is unlawful. In the circumstances, the action of demonetisation of all currency notes of Rs.500/and Rs.1,000/is vitiated. (xi) Further, the subsequent Ordinance of 2016 and Act of 2017 incorporating the terms of the impugned notification are also unlawful. (xii) However, having regard to the fact that the impugned notification dated 8th November, 2016 and the Act have been acted upon, the declaration of law made herein would apply prospectively and would not affect any action taken by the Central Government or the Bank pursuant to the issuance of the Notification dated 8th November, 2016. This direction is being issued having regard to Article 142 of the Constitution of India. Hence, no relief is being granted in the individual matters. SLP disposed off.
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2023 (1) TMI 336
Enforcement of final foreign arbitral award - restraint on first respondent from utilising the sum of INR 265 crores from and out of monies remitted by the third and fourth respondents - direction to deposit the sum of INR 265 crore in a separate lien marked account - whether the object of or consideration stipulated in the SPAs violates FEMA and, particularly, the Security Transfer Regulations? - HELD THAT:- The SSHAs deal with the investment by two non resident entities and a SEBI registered venture capital fund in an Indian company. The investment was in equity shares, CCPS and OCPS and the aggregate investment was about INR 125 crore. Under FEMA, a general prohibition in respect of dealing in foreign exchange or making payment to or receiving payment from a non-resident is contained in Section 3. This is subject to the other provisions of FEMA and the rules and regulations framed thereunder. Transactions in securities are classified as capital account transactions and are, in general, subject to greater regulation than current account transactions. The SSHAs, which were executed prior to the amendment, specified exit options at Clause 15.2 thereof. Sub clause 15.2.4 provides for a put option as an exit option. The relevant clauses, which are extracted supra at paragraph 13 of this order, stipulate a guaranteed exit price at an IRR of 24% on the investment. Since the restrictions under FEMA read with the Security Transfer Regulations are intended inter alia to prevent foreign exchange outflow on account of equity transactions at prices higher than the fair market value at the time of exit by the non resident, exit under the SSHAs by the non resident at a price higher than the fair market value may not have been permissible without the prior approval of the RBI. The admitted position is that none of the exit options under the SSHAs were exercised and, therefore, there was no foreign exchange outflow under the SSHAs. The Arbitral Tribunal examined whether clause 3 (c) of the Letter Agreement provides for a genuine pre-estimate of loss (liquidated damages) or a penalty and concluded at paragraphs 215 to 225 of the Foreign Award that it is a stipulation by way of penalty because INR 401 crore exceeds the losses incurred by the petitioners even as per their expert witness - The conclusion of the Arbitral Tribunal that the stipulation is in the nature of penalty cannot be faulted because the nature of the stipulation should be tested by examining whether the stipulated compensation bears a reasonable correlation to anticipated loss in the event of breach. In order to determine reasonable compensation, as per the alternative claim, which is in the nature of a claim for unliquidated damages under Section 73 of the Contract Act, the Arbitral Tribunal accepted the contention of the respondents that the difference between the price agreed under the share purchase agreement and the market price on the date of breach would be the appropriate measure of reasonable compensation - The Arbitral Tribunal was acutely conscious of this as is evident from the conclusions in paragraph 128, 139 and 172 that the relevant shares could have been transferred with RBI approval. Therefore, such conclusions also do not contravene the fundamental policy of Indian law. It remains to be considered whether the award of damages of INR 195 crore to non-resident entities for the breach of contracts for the purchase of shares contravenes FEMA and, therefore, the fundamental policy of Indian law, and I turn to this issue next. The Arbitral Tribunal awarded aggregate damages of INR 195 crore plus interest for breach of contracts to purchase shares that were subscribed to by the petitioners for the aggregate consideration of about INR 125 crore - Given that FEMA is a statute aimed at regulating foreign exchange, in my view, the receipt of damages equivalent to the entire unpaid sale consideration of INR 195 crore pursuant to the Foreign Award for breach of contracts to buy shares at an aggregate sum of INR 200 crore, when the market value of the shares at the time of breach was zero, requires the prior approval of RBI. While undertaking this exercise, the RBI will do well to bear in mind that an Indian company received investments by representing and warranting that the agreements are valid and enforceable under Indian law and thereafter reneged on contractual obligations. The next issue is whether the object or consideration of the SPAs and the Letter Agreement violate public policy because it violates Section 67(2) of CA 2013. Sub-section 2 of Section 67 prohibits a public company from directly or indirectly providing any form of financial assistance for the purchase of its shares or those of its holding company - Since Shriram EPC Limited is a public limited company and one of the purchasers under the First to Third SPAs, it was contended by learned senior counsel that the object and consideration of the SPAs is to finance the purchase of shares of Shriram EPC Limited by the petitioners in terms of the Fourth SPA and the Second Letter Agreement. All that remains to be considered is the award of interest. Interest was awarded by referring to and relying upon Section 20 of the Singapore International Arbitration Act and Rule 32.9 of the SIAC Rules 2016. Section 20 empowers an arbitral tribunal to award either simple or compound interest at the rate agreed to by parties or, in the absence of an agreed rate, at a rate and from the date determined by such arbitral tribunal. Thus, it is similar to Section 31(7) of the Arbitration Act - The fixation of interest is within the jurisdiction of the Arbitral Tribunal under Section 20(3) of the Singapore International Arbitration Act and such fixation by taking into account and awarding interest at the current rate of interest of 7.25% per annum certainly does not violate the fundamental policy of Indian law. The respondents failed to establish any ground on which the recognition of the Foreign Award should be refused. Consequently, subject to the requirement of obtaining RBI approval before initiating further proceedings for enforcement, the Foreign Award is recognized and held to be enforceable as a decree of this Court. As a corollary, subject to and in accordance with terms and conditions, if any, imposed by the RBI in its approval, the respondents are required to pay the amounts claimed by the petitioners in paragraph 36(b) of the petition - If the Foreign Award is not complied with, after obtaining RBI approval, it is open to the petitioners to institute appropriate proceedings in accordance with the applicable provisions of the Code of Civil Procedure, 1908. Application closed.
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