Newsletter: Where Service Meets Reader Approval.
TMI Tax Updates - e-Newsletter
November 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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Levy of penalty - evasion of payment of tax - The fact remains that vehicle could not reach its destination within the time mentioned in the e-way bill as the situation is beyond control of the petitioner as mentioned in the affidavit of driver of the vehicle and there was also no intention of the petitioner to evade the payment of tax - The order quashed - Amount deposited by the assessee as per the order, directed to be refunded - HC
Income Tax
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Validity of assessment order passed u/s 144C - The assessment order passed by FAO two years after the DRP directions, is time barred and cannot be sustained. Consequently, the ROI as filed has to be accepted. Petitioner is entitled to receive the refund together with interest, in accordance with law. - HC
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Reassessment proceedings against non existent entity - amalgamated company - Mere activation of PAN number may not give a right to the respondents to issue notice to a non-existent entity after appointed date i.e. 01.04.2017. Admittedly, the order under Section 148A(d) of the Income Tax Act has been passed by the respondents against a non-existent entity. - HC
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Offence punishable u/s 276B - delay in depositing the TDS amount - reasonable cause- delay is ranging between 31 to 214 days - delay due to COVID-19 Pandemic situation - the present complaint is vitiated - The order of sanction thus being found to have been passed without due application of mind and in a mechanical manner - criminal proceedings quashed - HC
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Revision u/s 263 - Failure to get books of account audited u/s 44AB - Incorrect claim of benefit of section 44AD - The assessee has not only failed to get its accounts audited, but while taking benefit and recourse u/sec. 44AD, it had even deducted the remuneration paid to partners, which is not allowable as deduction u/sec. 44AD of the Act. - AT
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TP Adjustment - Disallowance of non-operating and non-allocable expenses incurred for exploring new business in the line of Maintenance and Operations of Transportation - CIT(A) was not justified in disallowing non-operating non-allocated expenses and expenses incurred for exploring new business in the line of Maintenance and Operations of Transportation by the assessee. - AT
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Determination of cost of Acquistion of assets - reduction of amount subsidy from cost - entertainment subsidy being for the promotion of cinema/ multiplex industry; only because the methodology adopted is to cap it to capital cost of assets will not mean to reduce the cost of asset directly or indirectly in terms of Explanation 10 to Sec. 43(1). This ground of the assessee is allowed. - AT
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Revision u/s 263 against non-existence entity - two consecutive revision proceedings - When the original revisionary order was itself illegal and without jurisdiction, the same cannot be give rise any valid collateral proceedings in the second round as well. - AT
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Income deemed to accrue or arise in India - PE in India - Indo-UK Treaty - the “meaning of furnishing” emphasizes the idea of providing necessary or other services. It provides general meaning to emphasize to carry out certain services, which may include provision of services. It is fact on record that legal interpretation or technical interpretation of treaty will leads to nowhere. - AT
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Reopening of assessment u/s 147 - reasons to believe - Superannuation fund - Exemption u/s 10(25)(iii) - Evidently, as on the date of issuance of notice of reopening of assessment on 24-03-2014, the fund was an “approved fund” and therefore, the case of the assessee was reopened on the basis of incorrect assumption of fact that as on the date of issuance of reassessment notice the assessee fund was “not approved”. - AT
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Validity of assessment order passed u/s 153A - mandatory approval was being granted mechanically - A mere endorsement to a list of cases of Assessment Orders by putting signature with "rubber stamping" on the letter without application of mind will not satisfy the requirement of the law for approval or sanction u/s 153D of the Act. - AT
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Unexplained cash credit u/s 68 - sham transaction - Revenue authorities referred and relied on material and statements of various broker or entry operator recorded or collected by the DDIT Kolkata and Mumbai. However, any material/ statement was neither provided to the assessee for his rebuttable nor any independent cogent material brought on record suggesting any live link between the material received from the DDIT and transaction carried out by the assessee on hand - AT
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Revision u/s 263 by CIT - Balances of partner’s capital account - where the balances are carried forward from the earlier assessment year and there are no movements in these accounts during the year, it is a revenue neutral exercise and thus, there is no prejudice which is caused to the Revenue and in any case, the matter has been examined by the AO and no further enquiries have been conducted by the ld PCIT. - the findings of the ld PCIT holding the order so passed by the AO erroneous in nature due to non-examination of the opening balances is clearly not borne out of records. - AT
Customs
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Levy of penalty - Confiscation - dumb barge - the non-filing of IGM in the present case is certainly without any fraudulent intent, and at best is no more than an inadvertent omission, perhaps spurred because of the peculiarity of circumstances. For the reasons no penalty is also imposable on the owner/representatives and others concerned with, managing the affairs of the vessel. - AT
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Confiscation - town Seizure - Gold of foreign origin having inscription of 2(two) Swastika symbol - revenue has failed to prove reasonable belief that being the gold in question is smuggled one. In the absence of that the impugned gold cannot be seized under Section 110 of the Customs Act, 1962 and therefore the gold in question is not liable for confiscation and no penalty is imposable on the appellant. - AT
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Levy of penalty u/s 114 (i) and u/s 114 AA of FA - Smuggling - red sanders - replacement of the goods enroute with red sander - penalty imposed only on ground that the appellant have not informed the customs authorities, immediately about the stuffing of red sander in the container and informed only on the next day. the appellant have no direct involvement, the penalty even reduced cannot be upheld. - AT
Indian Laws
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Seeking appointment of an arbitrator for the adjudication of disputes - The two conditions contained in Clause 55 of the GCC, one relating to 7% deposit of the total amount claimed and the second one relating to the stipulation empowering the Principal Secretary (Irrigation) Government of Uttarakhand to appoint a sole arbitrator should be ignored and it is proceeded to appoint an independent arbitrator. - SC
VAT
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Entry Tax - “Fork Lift” to be considered as "Motor Vehicle" or not - Section 3 clearly states if vehicle is not liable for registration, then the respondent is not empowered to levy tax. In the present case, the vehicle is not liable for registration. Therefore, the respondent is not empowered to levy tax. When there is no jurisdiction to levy tax, then the respondent cannot levy tax. - HC
Case Laws:
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GST
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2023 (11) TMI 457
Seeking grant of bail - no notice for recovery of G.S.T. has been issued against the applicant - HELD THAT:- It is a settled law that while granting bail, the court has to keep in mind the nature of accusation, the nature of the evidence in support thereof, the severity of the punishment which conviction will entail, the character of the accused, the circumstances which are peculiar to the accused, his role and involvement in the offence, his involvement in other cases and reasonable apprehension of the witnesses being tampered with. Taking into account the totality of facts and keeping in mind, the ratio of the Apex Court's judgment in the case of State of STATE OF RAJASTHAN, JAIPUR VERSUS BALCHAND @ BALIAY [ 1977 (9) TMI 126 - SUPREME COURT ] , GUDIKANTI NARASIMHULU AND ORS. VERSUS PUBLIC PROSECUTOR, HIGH COURT OF ANDHRA PRADESH [ 1977 (12) TMI 143 - SUPREME COURT ] , RAM GOVIND UPADHYAY VERSUS SUDARSHAN SINGH AND ORS. [ 2002 (3) TMI 945 - SUPREME COURT ] , PRASANTA KUMAR SARKAR VERSUS ASHIS CHATTERJEE AND ORS. [ 2010 (10) TMI 1199 - SUPREME COURT ] and MAHIPAL VERSUS RAJESH KUMAR @ POLIA ANR. [ 2019 (12) TMI 1461 - SUPREME COURT ] , the larger interest of the public/State and other circumstances, but without expressing any opinion on the merits, this is deemed a fit case for grant of bail. Hence, the present bail application is allowed. Let applicant, Vikas Jain, be released on bail in the aforesaid case crime number on his furnishing a personal bond and two reliable sureties each in the like amount to the satisfaction of the court concerned subject to the conditions imposed - application allowed.
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2023 (11) TMI 456
Levy of penalty - evasion of payment of tax - goods not accompanied with proper documents - petitioner has failed to justify for not filing the documentary evidence at the time of detention - HELD THAT:- The purpose of e-way bill is that the department should know the movement of goods. Once the e-way bill has been generated and same has not been cancelled by the petitioner within the time prescribed under the Act, the movement of goods as well as genuineness of transaction in question cannot be disputed. The goods in question could not reach to its destination due to the breakdown of vehicle as stated above and after repair, the vehicle was ready for its onward journey but the same was intercepted in the intervening night of 2/3.6.2023. Since the authorities below have not recorded a finding that there was any intention of the petitioner to evade the payment of tax, the penalty is not justified. The fact remains that vehicle could not reach its destination within the time mentioned in the e-way bill as the situation is beyond control of the petitioner as mentioned in the affidavit of driver of the vehicle and there was also no intention of the petitioner to evade the payment of tax, thus the impugned orders are not justified in the eyes of law and are liable to be quashed. The authorities below are directed to refund the amount, if any, deposited by the petitioner in pursuance of the impugned orders, within a period of one month from the date of production of certified copy of this order before the concerned authority - Petition allowed.
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2023 (11) TMI 455
Levy of GST - grant of mining lease/royalty - ex-parte order or not - Section 73 of the U.P. GST Act, 2017 - HELD THAT:- Identical issue decided in the case of M/S JITENDRA SINGH VERSUS UNION OF INDIA AND 5 OTHERS [ 2022 (5) TMI 533 - ALLAHABAD HIGH COURT ] where it was held that Matter requires consideration, both on the issue of liability to pay GST and royalty as also as to jurisdictional error in the second proceeding for the same tax period. Petitioner prays for and is granted six weeks' time to file counter affidavit. Petitioner shall have two weeks' thereafter to file rejoinder affidavit - List thereafter.
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2023 (11) TMI 454
Cancellation of GST registration of petitioner - petitioner has not paid tax due alongwith the interest - It is submitted that the petitioner is ready to pay any other amount, if it is communicated to him within seven days from the date of communication of this order. HELD THAT:- Considering the submissions advanced by the learned counsel for the petitioner, on the basis of instructions, that the petitioner had filed returns, and paid the tax as well as interest, the respondent no.4 is directed to take steps for renewing the GST registration of the petitioner within a period of ten days from the date of communication of this order, and if any other amount is due, the petitioner should be communicated the same, which the petitioner shall pay within a period of seven days from its communication. Petition disposed off.
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2023 (11) TMI 453
Refund claim - claim rejected without affording an opportunity of personal hearing to the petitioner - violation of principles of natural justice - HELD THAT:- From a mere reading of Rule 92(3) of Central Goods and Services Tax (CGST) Rules, 2017, it is crystal clear that the no application for refund shall be rejected without giving the applicant an opportunity of being heard. However, in the instant case, the same has not been followed which is a clear violation of the principles of natural justice. In such view of the matter, this Court is inclined to set aside the order passed by the first respondent dated 26.07.2022 as well as the Second Respondent dated 20.01.2020. While setting aside the order, this Court remits the matter back to the second respondent for fresh consideration after affording an opportunity of personal hearing to the petitioner and pass orders afresh in the applications made by the petitioner on merits and in accordance with law. Petition allowed by way of remand.
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2023 (11) TMI 452
Seeking grant of Regular Bail - evasion of GST - availment of illegal Input Tax Credit by entering into large scale financial transactions - HELD THAT:- The allegation against the applicant is regarding the evasion of GST, but no procedure is initiated by the the GST department against the present applicant under the provisions of the GST Act. Without discussing the evidence in detail, this Court, prima facie, is of the opinion that, this is a fit case to exercise the discretion and enlarge the applicant on regular bail. Hence, present application is allowed and the applicant is ordered to be released on regular bail subject to conditions imposed.
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2023 (11) TMI 451
Maintainability of petition - opportunity of hearing not provided to petitioner - violation of principles of natural justice - HELD THAT:- Upon consideration of the submission made on behalf of the parties, this Court is inclined to hold that since the petitioner had no opportunity to appear before the authority to substantiate his case or file a reply to the show cause notice issued by the authority due to his precarious medical condition, justice demands that the petitioner be given an opportunity of hearing by the authority before any liability is slapped upon him. The order impugned passed on 24th August, 2021 is set aside - Petition disposed off.
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2023 (11) TMI 450
Appeal dismissed on the ground of time limitation - Section 5 of the Limitation Act, 1963 - entitlement for opportunity of hearing - HELD THAT:- This Court is inclined to hold that the petitioner is entitled to a hearing by the authority on merits before her appeal is disposed of and any liability slapped upon her - the order impugned dated 27th June, 2023 dismissing the appeal on the ground of limitation is therefore, set aside. The concerned authority, being the 3rd respondent herein, is directed to reconsider the appeal preferred by the petitioner on merits upon affording reasonable opportunity of hearing to all the interested persons including the petitioner and pass a reasoned order within one month from the date of communication of this order, in accordance with law - Petition disposed off.
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Income Tax
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2023 (11) TMI 449
Validity of assessment order passed u/s 144C - assessment order passed by FAO two years after the DRP directions - Refund of amount paid in excess of the legitimate tax due on the returned income along with applicable interest - HELD THAT:- Section 144C of the Act is a self contained provision which carves out a separate class of assessees, i.e., eligible assessee . Section 144C was inserted in the Finance Act of 2009 and came into effect from 1st October 2009. When a Statute prescribes the power to do a certain thing in a certain way, then the thing must be done in that way and other methods of performance are forbidden. Once the statute has prescribed a limitation period for passing the final order, it is expected that the internal procedure of the department should mould itself to give meaning to and act in aid of the provision. Any procedural defect (there is none in this case) in the internal mechanism of the working of E-assessment Scheme, cannot operate against the interest of assessee. Hence, the FAO cannot be believed that the DRP direction was received by him only on 23rd August 2023 despite being uploaded on the ITBA portal on 25th March 2021. The failure on the part of department to follow the procedure under Section 144C of the Act is not merely a procedural irregularity, but is an illegality and vitiates the entire proceeding. The assessment order passed by FAO two years after the DRP directions, is time barred and cannot be sustained. Consequently, the ROI as filed has to be accepted. Petitioner is entitled to receive the refund together with interest, in accordance with law. The procedure to be completed within 30 days of this order being unloaded. This would, however, not preclude revenue, should the need arise, from reopening the assessment by following due process and in accordance with law.
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2023 (11) TMI 448
Reassessment proceedings against non existent entity - notice issued against company amalgamated - HELD THAT:- So far as argument raised regarding availability of alternative remedy of appeal, is concerned, it is well settled that when the order is without jurisdiction and appears to be passed in blatant exercise of powers and the same is against the principles of natural justice, then the question of availability of alternative remedy does not come in the way for exercising jurisdiction under Article 226 of the Constitution of India. In the present case, the notices/order has been issued against a non existent / amalgamated entity. Hence, the objection regarding availability of alternative remedy of appeal is overruled . Secondly, in the present case, it is clear that the reassessment proceedings have been initiated against Company which had indeed ceased to exist with effect from 01.04.2017 based upon the scheme of amalgamation having been approved on 17.04.2018. Apex Court in case of Principal Commissioner of Income Tax, New Delhi vs. Maruti Suzuki [ 2019 (7) TMI 1449 - SUPREME COURT] has categorically held that if the company has ceased to exist as a result of the approved scheme of amalgamation, then in that case, the jurisdictional notice issued in its name would be fundamentally illegal and without jurisdiction. It is also held that upon amalgamating entity ceasing to exist, it cannot be regarded as a person under sub section (31) of Section 2 of the Act against whom assessment proceedings can be initiated. The participation by the amalgamated company in the proceedings would be of no effect as there is not estoppel against law. In view of the settled law, from the appointed date, under the scheme of amalgamation, the existence of the transferor company had merged into the transferee company. Mere activation of PAN number may not give a right to the respondents to issue notice to a non-existent entity after appointed date i.e. 01.04.2017. Admittedly, the order under Section 148A(d) of the Income Tax Act has been passed by the respondents against a non-existent entity. Therefore, the impugned notices and orders are bad in the eyes of law. Reassessment notice quashed - Decided in favour of assessee.
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2023 (11) TMI 447
Offence punishable u/s 276B - delay in depositing the TDS amount in the account of the Opposite Party (Complainant) ranging from 31 days to 214 days - COVID-19 Pandemic Effects - Reasonable and sufficient cause - as alleged Petitioners (accused persons) have committed the offence u/s 276(B) of the IT Act punishable with rigorous imprisonment for a term not less than three months and may extend to 7 years and fine for contravention of the provisions contained in chapter-XVII-B of the IT Act and Rule-30 of the Income Tax Rules, 1962 which mandates the deposits to be made by 7th of the next month - HELD THAT:- The Court must lean for an interpretation which is consistent with the object, good sense and fairness thereby eschew the others which render the provision oppressive and unjust, as otherwise, the very intent of the legislature would be frustrated. It is in all plausibility therefore to be inferred that to cater such exigencies, the legislature has enacted section 278AA of the I.T. Act. It is also crucial to note that the legislative intent is well discernable so far the usage of the word reasonable cause u/s 278AA of the I.T. Act is concerned which qualifies the penal provision laid under section 276B of the Act. Both the provisions accordingly are to be read together to ascertain the attractability of the penal provision. It is well settled law that in a criminal proceeding by merely showing a reasonable cause, an accused can be exonerated and for showing that reasonable cause, the standard of proof of such fact in support of the same is lighter than the proof of such fact in support of good and sufficient reason. A reasonable cause may not necessarily be a good and sufficient reason. It may not be out of place to note here that in case the ITO Vrs. Roshni Cold Storage [ 1998 (7) TMI 13 - MADRAS HIGH COURT] the terrible financial stringency, heavy losses, colossal losses and carry forward losses, have been recognized as reasonable cause in further holding that paucity of funds and financial stringency would fall as reasonable cause within the scope and ambit of the meaning of reasonable cause. This Court is of the considered view that the present complaint is vitiated as the failure on the part of the Petitioners to comply within the provision of law as to deposit of the deducted TDS was on account of the reasonable causes for the prevalence of COVID-19 Pandemic standing on their way. The order of sanction thus being found to have been passed without due application of mind and in a mechanical manner even putting the blame upon the Petitioners for not filing any exemption/ relaxation notifications / circulars, the same stands vitiated. The Court below in the facts and circumstances ought not to have taken cognizance of the offence under section-279B, section 2(35) and 278(B) of the I.T. Act when even the latter two are no penal provisions and as such is bad in law and liable to be set aside.Revision is allowed.
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2023 (11) TMI 446
Revision u/s 263 - Validity of reassessment proceedings - cash deposit - HELD THAT:- The notice u/s 263 was issued based on the assessment order passed on the ground that the assessment was to be treated as erroneous and prejudicial to the interest of revenue. After hearing the parties, in exercise of powers u/s 263 the revision was allowed which was a subject matter of challenge. Even the perusal of the order of the Tribunal which was challenged at the hands of the assessee indicates that, on facts the Tribunal found that during the course of assessment proceedings the inquires were made and it was found that the cash deposit was deposited by the assessee in his Savings Bank Account wherein the assessee was a joint holder with a son-Saral Kothari. When an explanation was rendered by the assessee as a set out in the order of the Tribunal, it cannot be said that the authorities could have exercised powers u/s 263 as the assessment order cannot be said to be erroneous or prejudicial to the interest of revenue. Tribunal has arrived at finding of fact that the assessing officer accepted genuineness of the claim of the assessee after inquiries and consideration of material placed on record. As clarified that we have not gone into the question of the issue of the Explanation 2 to the Section 263 of the Act. No substantial question of law arises.
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2023 (11) TMI 445
Revision u/s 263 - As per CIT assessee was required to get its accounts audited as having a turnover of more than Rs. 1 crore , which it had not done - As assessee found that the most appropriate provision would be sec.44AD and accordingly, had estimated the profit @ 8% of its total receipts - AO has not conducted any enquiry or verification regarding why the assessee had not got its accounts audited nor had verified whether in the business of assessee, sec. 44AD would be applicable and how the assessee had claimed deduction of remuneration paid to partners. Nothing was enquired by the AO and he has simply accepted the returned income without such necessary enquiry - HELD THAT:- It is precise and clear that the turnover of the assessee during the year was more that Rs. 1 crore and as per the dictate of the provision specifically sec.44AB of the Act, such assessee has to get its accounts audited. In this case, in spite of assessee having turnover of more than Rs. 1 crore, it had failed to get the accounts audited. If we agree with the submission of the AR, then in that case in every situation where the assessee has turnover of more than Rs. 1 crore, they will not get their accounts audited and would simply rely on sec.44AD and offer 8% of receipts as taxable income, when in fact the financial statute specifies a particular action that has to be strictly followed. Alternatively going by this version of AR, sec. 44AB in the applicable case scenario would be redundant as if non-existent in the Act while simply applying sec. 44AD of the Act and this certainly is not the intent of the legislature regarding the Act. The intention and purpose of the legislator in incorporating sec. 44AB in the statute cannot be nullified and withdrawn by substituting the provisions of sec.44AD. The assessee has not only failed to get its accounts audited, but while taking benefit and recourse u/sec. 44AD, it had even deducted the remuneration paid to partners, which is not allowable as deduction u/sec. 44AD of the Act. We are inconformity with the submissions of the DR that the mandatory requirement of sec.44AB, has to be complied wherever such situation arises as per the said provisions. That, there were also no enquiry or verification on any of these aspects by the AO and he has simply accepted the returned income. Therefore, no infirmity with the order passed by the PCIT invoking jurisdiction u/sec. 263 - Decided against assessee.
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2023 (11) TMI 444
Deduction u/s 54B - claim denied as said land is purchased in the wife s name - HELD THAT:- As decided in ASHOK KUMR case [ 2022 (12) TMI 1320 - ITAT DELHI ] as clearly and categorically held that deduction u/s 54B/54F of the Act is available in cases where investments are made in property purchased in the name of wife . Therefore, hold that the assessee is eligible for deduction u/s 54B. Decided in favour of assessee.
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2023 (11) TMI 443
Assessment u/s 153A - incriminating material unearthed during the search or not? - HELD THAT:- The entire issue stands settled in the case of M/s. Abhisar Buildwell P. Ltd.[ 2023 (4) TMI 1056 - SUPREME COURT ] wherein held that in case no incriminating material is unearthed during the search, the AO cannot assess or reassess taking into consideration the other material in respect of completed assessments/unabated assessments. Hence, we hold that no addition can be made in the case of the assessee sans seized material. Appeal of the assessee is allowed.
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2023 (11) TMI 442
TP Adjustment - Disallowance of non-operating and non-allocable expenses incurred for exploring new business in the line of Maintenance and Operations of Transportation - HELD THAT:- AO in the assessment order has not disallowed any expense out of Personnel expenses, Finance Cost and Depreciation. Further, no adverse inference was drawn by the TPO with respect to these expenses. The power of CIT(A) is confined to considering the matter which has been considered by the AO and determined in the course of assessment. Thus, CIT(A) was not justified in raising a new matter to make such disallowance. CIT(A) acted beyond its power by directing the AO to make such disallowance which was not subject matter of appeal before him. CIT(A) has not properly appreciated the facts of the case and disallowed the expenses under various heads on irrelevant facts. It is pertinent to note that for rendering management consultancy services to its AEs, as per the agreement, the assessee charged mark-up of 15% on the operating expenses directly attributable to the services rendered. An organization incurs both operating expenses as well as non-operating expenses for running the business. There are certain expenses which are not allocable to a particular activity. Non-allocable expenses even for a management consultancy providing company are costs that cannot be directly attributed to specific projects or client engagements and therefore cannot be allocated on a project-by- project basis. These expenses are more general in nature and are incurred to support the overall operations of the company rather than any particular client work. There have been non-operating non-allocable expenses in the range of 40% to 49% in these years and the position of the current year is also consistent with that of earlier years. Therefore, even on merits, we hold that the Ld. CIT(A) is not justified in allowing only operating expenses allocable to the segment of rendering management consultancy services and direct expenses on sub-letting and disallowing all the nonoperating and non-allocable expenses incurred by the assessee company. Further, it is essential to note that during the year under consideration the assessee company has also started expansion of its business activities towards maintenance and operation of transport such as road transport, rail transport etc. It is evident from the details of expenses furnished by the assessee that the assessee has incurred expenses as fees for professional services for bidding for Metro Rail projects and Road Transport projects - The agreement for Indore BRTS Bus Operation and Maintenance was executed on 26.11.2012. These activities clearly demonstrate that the assessee had incurred expenses for preparing technical and financial bids for obtaining contracts for maintenance and operation of BRT buses in Indore. Similarly, assessee had incurred expenses in preparing bids for metro rail and other road transport projects. The assessee was also successful in getting contract during the year related to Indore BRT Bus Operations and Maintenance of 50 buses for an initial period of six years. Hence CIT(A) was not justified in disallowing non-operating non-allocated expenses and expenses incurred for exploring new business in the line of Maintenance and Operations of Transportation by the assessee. Personnel Expenses - addition made mainly observing that there was a marginal increase in salary and wages and further that the proposal for maintenance and operations of BRT bus services in Indore was floated by the Government Authorities and any such proposal of bidding does not require manpower or employees as claimed by the assessee for which the assessee would have paid - HELD THAT:- The marginal increase in salary wages from earlier year that as mentioned above, in earlier years also there were nonoperating and non- allocable personnel expenses of about 43% in F.Y. 2010-11 and about 27% in F.Y. 2011-12 respectively whereas in the year under consideration, non-allocable personnel expenses were 24% only. The observation of Ld. CIT(A) that for getting contract of BRT bus services does not require manpower or employees is not tenable. The assessee has to prepare technical bid and financial bid to file tender for obtaining contract of BRT bus services in Indore which were required to be competitive with other bidders/parties and therefore, the assessee has to employ special manpower and lot of time and effort was involved in preparing the bids. These activities also required availing of consultancy services as well as traveling and other expenses. Assessee had incurred expenses for preparing technical and financial bids for obtaining contracts for Maintenance and Operation of BRT buses in Indore. Further, the assessee had also participated in bid for Maintenance and Operation of Chennai Metro Rail. The assessee was successful in getting one contract during the year related to Indore BRT Bus Operations and Maintenance of 50 buses for an initial period of six years. There were other employees also who were looking after the general administration of the company and their salary wages were not allocable to a specific segment. It is also a trite law that Income Tax Authorities cannot step into the shoes of the businessmen to determine as to how much expenditure should have been incurred for the purpose of business. We hold that the CIT(A) was not justified in disallowing total non-operating and non-allocable personnel expenses. Administrative and other expenses - CIT(A) observed that the assessee did not furnish evidence regarding the genuineness of the claim that these expenses were at all incurred or were related to particular business activity other than the management consultancy services being provided to the AEs - HELD THAT:- From the details of expenses furnished, it is clear that certain expenses were incurred for expansion of the business other than the main segment of Management Consultancy services such as the assessee has engaged the services of KPMG to assist the assessee company in reaching out to other potential target companies in sectors namely Transportation, Healthcare and Education and paid fee for such advisory services. Another payment of fees for professional services for Chennai Metro Rail Projects was given to M/s Indian Law Partners - These instances clearly prove that the assessee has incurred other expenses on business activities other than the main segment of rendering management consultancy services. Thus expenses debited by the assessee company were not genuine. Finance Cost - addition made observing that these expenses were on account of inter-corporate deposits and finance lease obligation outstanding for a number of years and have nothing to do with business development activities - HELD THAT:- Assessee has incurred finance cost in respect of Interest on Inter-Corporate deposit obtained from its related party Serco BPO India Private Limited in earlier years and paid interest @12% during the year - These funds were utilized for business purposes. Interest on Finance Lease as assessee had entered into finance lease with OAIS Auto Financial Services Ltd. for the cars taken on finance lease and has incurred interest expense as these cars were used for general business purposes of the company. Non-allocable depreciation - Disallowance made observing that the assessee has merely filed consolidated depreciation schedule pertaining to total assets owned by the company and the allocation of depreciation pertaining to management services being provided to the AEs was not genuine - HELD THAT:- As pertinent to mention that the total depreciation was as per books and which was added back in the computation of income and the assessee has claimed depreciation as per Income Tax Act which is less than the amount of depreciation charged from AEs for management consultancy service, therefore, on this account, no disallowance was required to be made. Addition u/s 68 - difference in opening balance and closing balance of sundry creditors (Trade Payables) - HELD THAT:- There is no contrary material on record to suggest that these were non-genuine expenses. The other liabilities of trade payables were also paid in the subsequent financial year. It is also evident from the fact that trade payables as on 31.03.2015 were of Rs. 33,85,497/- only, as shown in the Audited Balance Sheet of the assessee company for F.Y. 201415 which was nominal. This fact also establishes that the sundry creditors (trade payables) were subsequently paid and were genuine. Hence, on consideration of above-mentioned facts, we hold that no addition is called for u/s 68 on account of unexplained increase in sundry creditors in the books of account during the previous year. In the result, the disallowance u/s 68 made on account of difference in opening balance and closing balance of sundry creditors is hereby deleted.
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2023 (11) TMI 441
Foreign tax credit u/s 90/90A - claim of additional/redetermined withholding tax - withholding done by the client initially was at the rate of 10% of the royalty paid and subsequently, the Australian company redetermined the withholding rate to be 15% - HELD THAT:- Since the Australian Tax Authorities revised the rate of withholding tax from 10% to 15% vide there letter dated 01.04.2019, the additional withholding tax @ 5% was deducted and paid to the Australian Government on 25.06.2019 and made the claim during the course of assessment proceedings. Moreover, the claim does not impact the income of the assessee but only relates to giving credit for additional taxes paid on the income already declared. Once credit for foreign withholding tax has been allowed @ 10%, the subsequent revisional rate of tax is also required to be allowed. Considering all we are of the opinion that the CIT(A) has rightly directed the Assessing Officer to allow the claim of additional withholding tax paid by the assessee. Thus, we find no reason to interfere with the order passed by the ld. CIT(A) and accordingly, the appeal filed by the Revenue is dismissed.
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2023 (11) TMI 440
Deduction u/s 80P(2)(d) - interest income received from the Co-operative Banks - HELD THAT:- From the perusal of section 80P(2)(d) of the Act, it is sufficiently evident that there is no restriction on claiming deduction under the said section in respect of interest income earned from the Co-operative society operating in multiple states. Section 80P(4) of the Act is of relevance only in a case where the taxpayer, who is a Co-operative Bank, claims a deduction under section 80P of the Act which is not the facts of the present case. We find that in Mavilayi Service Co-operative Bank Ltd [ 2021 (1) TMI 488 - SUPREME COURT] while analysing the provisions of section 80P(4) of the Act held that section 80P(4) is a proviso to the main provision contained in section 80P(1) and (2) and excludes only Co-operative Banks, which are Co-operative Societies and also possesses a licence from RBI to do banking business. Also held that the limited object of section 80P(4) is to exclude Co-operative Banks that function at par with other commercial banks i.e. which lend money to members of the public. Therefore, we find no merits in the reasoning adopted by CIT(A) in denying deduction u/s 80P(2)(d) to the assessee. Decided in favour of assessee.
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2023 (11) TMI 439
Bogus LTCG on sale of shares - Addition u/s 68 - Exemption u/s 10(38) denied - onus to prove - HELD THAT:- As decided in ASHOK AGARWAL, RITU AGARWAL, SEEMA AGARWAL, AJAY AGARWAL [ 2020 (11) TMI 650 - ITAT JAIPUR] there is no finding which proves assessee s connection, involvement or collusion with so called accommodation entry providers. Further in the aforesaid case, the issue as to whether the legal evidence produced by the assessee has to guide our decision in the matter or the general observations based on statements, probabilities, human behavior and discovery of the modus operandi adopted in earning alleged bogus LTCG and STCG, that have surfaced during investigations, should guide the authorities in arriving at a conclusion as to whether the claim is genuine or not has been discussed at length. And referring to legal proposition laid down that the burden of proving a transaction to be bogus has to be strictly discharged by adducing legal evidence held that the modus operandi, generalisation, preponderance of human probabilities cannot be the only basis for rejecting the claim of the assessee unless specific evidence is brought on record to controvert the validity and correctness of the documentary evidences produced, the same cannot be rejected. We are in complete agreement with the said view and in the instant case, we find that evidence produced by the assessee in support of his claim of purchase and sale of shares on the stock exchange have not been refuted by any adverse findings or material which could demonstrate involvement of the assessee or collusion with so called accommodation entry providers to obtain bogus LTCG as so alleged by the authorities below. As assessee has discharged the necessary onus cast on him in terms of claim of exemption of long term capital gains u/s 10(38) of the Act by establishing the genuineness of transaction of purchase and sale of shares and satisfying the requisite conditions specified therein and the gains so arising on sale of shares therefore has been rightly claimed as exempt u/s 10(38) - Decided in favour of assessee.
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2023 (11) TMI 438
Determination of cost of Acquistion of assets - reduction of amount subsidy from cost - Nature of receipt - Entertainment tax collected and retained by assessee as incentive / subsidy given by state Governments on account of development of new Multiplexes in the state - capital or revenue receipt - HELD THAT:- The issue is squarely covered by the decision of the coordinate Bench A.Y. 2006-07 [ 2013 (8) TMI 548 - ITAT DELHI] as held that Entertainment tax subsidy was not given to meet the cost of any specific asset. Our view is further fortified by the coordinate Bench judgment in the case of Sasisri Extractions Ltd. [ 2008 (1) TMI 485 - ITAT VISAKHAPATNAM] in which case incentive subsidy received for setting up of new unit for manufacture of edible oils was held to be not meant to directly or Indirectly reduce the cost of any asset was linked with the capital , only because the amount of subsidy cost of assets. In view of case of Chemicals Ltd [ 2008 (9) TMI 14 - SUPREME COURT] ;Sasisri Extractions Ltd. [ 2008 (1) TMI 485 - ITAT VISAKHAPATNAM] and the department itself proposed that there was no obligation on assessee to utilize it for any specific purpose will not be hit by Explanation 10 to Sec. 43(1). We are, therefore, of the view that entertainment subsidy being for the promotion of cinema/ multiplex industry; only because the methodology adopted is to cap it to capital cost of assets will not mean to reduce the cost of asset directly or indirectly in terms of Explanation 10 to Sec. 43(1). This ground of the assessee is allowed. Nature of expenses - expenses on account of ESOP and ESPS schemes - whether is a contingent liability not allowable as revenue expenses? - HELD THAT:- We find that this issue was decided by the coordinate Bench against the assessee in [ 2013 (8) TMI 548 - ITAT DELHI] A.Y.2006-07 but when the matter was agitated before the Hon ble High Court H.C set aside the issue in favour of the assessee in.. [ 2022 (8) TMI 1234 - DELHI HIGH COURT] held that assessee is of ESOPs is not a contingent liability but is an ascertained liability. entitled to claim deduction under the aforesaid provision if the expenditure has been incurred. The expression expenditure' will also include a loss and therefore, issuance of shares at a discount where the assessee absorbs the difference between the price at which it is issued and the market value of the shares would also be expenditure incurred for the purposes of section 37(1). Disallowance u/s.14A as per rule 8D - AO has disallowed considering all investments including those which do not yield any exempt income - HELD THAT:- We find that the assessee has computed the disallowance suo-moto as per rule 8D. On careful consideration we are of the considered view that rule 8D is not applicable for the year under consideration as held in the case of Godrez Boyce Manufacturing Company [ 2017 (5) TMI 403 - SUPREME COURT] Only those investments need to be considered which give exempt income as held in the case of Caraf Builders and Constructions [ 2020 (1) TMI 135 - SC ORDER] , ACB India Ltd. Vs. ACIT [ 2015 (4) TMI 224 - DELHI HIGH COURT] - we direct the AO to delete the impugned disallowance. Disallowance of depreciation under normal provisions permitted to be adjusted in book profit u/s.115JB - HELD THAT:- As relying on Apollo Tyres [ 2002 (5) TMI 5 - SUPREME COURT] and Malayala Manorama Co. Ltd [ 2008 (4) TMI 20 - SUPREME COURT] we direct the AO not to consider the impugned disallowance of depreciation for the computation of book profit u/s. 115JB of the Act. Similar would be the fate of disallowances u/s. 14A read with rule 8D though we have deleted the same above.
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2023 (11) TMI 437
Revision u/s 263 against non-existence entity - two consecutive revision proceedings - Company dissolved due to amalgamation - HELD THAT:- Undisputedly the assessee has been converted into M/s. Madhuban Dealers LLP with effect from 13th April, 2015 meaning thereby that the assessee-company stood wound up and is no more in existence. Therefore, the original revisionary order passed under section 263 of the Act was itself void ab initio and invalid and consequently notice issued under section 263 of the Act dated 15.02.2022 in the set aside proceedings as well as the impugned order dated 23.03.2022 were also rendered invalid and void regardless of the fact that revisionary order dated 13.03.2020 was restored to the Pr. CIT by the tribunal. The case of the assessee finds support from the decision of M/s. Durga Vinimay Pvt. Limited Others [ 2019 (11) TMI 1140 - ITAT KOLKATA] in which as held on the similar facts and circumstances that the revisionary order passed under section 263 on the non-existent company, to be bad-in-law since the said entity was amalgamated/dissolved. When the original revisionary order was itself illegal and without jurisdiction, the same cannot be give rise any valid collateral proceedings in the second round as well. Therefore, the impugned order passed under section 263 dated 23.03.2022 pursuant to such illegal and invalid original revisionary order dated 13.03.2020 deserves to be quashed. Reopening of assessment proceedings - The re-assessment notice was issued under section 148 of the Act by the ld. Assessing Officer without obtaining prior approval from ld. JCIT/Addl. CIT, Range- 4, Kolkata in terms of section 151 of the Act and, therefore, the order passed u/s 147 is rendered null and void. The facts of the case are that notice under section 148 was issued by the ld. ITO, Ward-4(1), Kolkata after the expiry of four years and within six years from the end of the relevant assessment year. In terms of section 151 of the Act as it stood then, at the relevant point of time, the ld. ITO was required to obtain prior approval of ld. Addl./Jt. CIT, Range-4, Kolkata before issuance of the notice under section 148 - we note that the sanction/approval proforma prepared by AO in terms of section 151 of the Act was not approved, as the ld. JCIT/Addl. CIT, Range-4, Kolkata has not signed the same and consequently the reopening is held to be invalid and null and void in absence of any approval of the competent authority. Thus where the re-assessment order passed under section 144/147 of the Act dated 27.12.2017 itself suffered from fundamental infirmity and jurisdictional defect, which is not curable and is invalid and void. Then all consequent actions including the revisionary order under section 263 of the Act is also invalid , non-est and bad in the eyes of law. The case of the assessee is squarely covered by the decision of the Hon ble Apex Court in the case of Kiran Singh vs.- Chaman Paswan [ 1954 (4) TMI 48 - SUPREME COURT] as held where a defect of jurisdiction, whether it is pecuniary or territorial, or whether it is in respect of the subject matter of the action, strikes at the very authority of the Court to pass any decree and such a defect cannot be cured even by consent of parties. Appeal of assessee allowed.
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2023 (11) TMI 436
Suppression of professional receipts from the patients under OPD category - assessee has shown some Zero Receipt Patients in IPD indoor patient department - AO worked out average consultancy fees of OPD category @ Rs. 150/- per patient and added sum as unaccounted income of assessee - CIT(A) while passing order u/s 154 restricted such addition to the extent of 30% being profit element of unrecorded receipt and deleted remaining addition. HELD THAT:- We find that Assessing Officer has adopted a figure of Rs. 100/- as minimum charge and Rs. 3,00/- as maximum charge of consultancy fees in OPD and worked out average consultancy fees of Rs. 150/- per patient adopting average consultancy fees, is nothing but on presumption. We further find that assessing officer made similar addition in respect of indoor patient (IPD patient), and on appeal before ld CIT(A) it was also restricted to 30% by ld CIT(A) in order dated And on further appeal before Tribunal such additions were deleted [ 2022 (12) TMI 1472 - ITAT SURAT] - Decided in favour of assessee.
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2023 (11) TMI 435
Addition u/s 56(2)(vii)(b) - difference between circle rate and actual amount paid for purchase of land - Assessee argued that land was purchased for the purpose of business and the same was shown as stock in trade as brother of assessee being co-owner was under treatment for some serious illness during F.Y. 2016-17 and impugned addition has been made by recording incorrect facts and findings and in violation of principles of natural justice - HELD THAT:- The land was purchased by assessee and his brother on 10.12.2013 during F.Y. 2013-14 and even after laps of 3 years up to A.Y. 2015-16 except signing MOU no other action had been taken by the assessee and his brother showing their intention to develop the land as a business venture. Expect signing an MOU, there is no action or evidence on record by the assessee and his co-owner brother after laps of three years till his co-owner brother fall ill. There is no other documentary evidence to show that the Shri Safdar Hussain Khan[brother] is continuously sick till date. There is no action or efforts by the assessee and his brother before illness of his co-owner brother to show that the assessee and his brother formed any partnership firm or LLP entity or Company for said business venture and showing any action to apply for any approvals or permissions from the Government Authorities regarding development of land as a Multistory Commercial/Residential Project. Therefore, we are inclined to hold that the benefit of order of Ashok Agarwal HUF [ 2020 (8) TMI 94 - ITAT JAIPUR] is not available for the assessee in the present case. We reach to a logical conclusion that the AO was right in making addition by invoking provision under section 56(2)(vii) of the Act as a land in question was a capital asset and the same was not kept as stock-in-trade by the assessee and his co-owner brother. Appeal of assessee is dismissed.
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2023 (11) TMI 434
Income deemed to accrue or arise in India - PE in India - attribution of income relating to work done outside India to the PE - consideration of disbursement as income attributable to the PE and invocation of article 15 of the DTAA - HELD THAT:- We observe from the record that the similar issue was considered by the coordinate bench and decided the issue against the assessee in AY 1995-96 [ 2010 (7) TMI 1226 - ITAT MUMBAI] where they dealt with the issue of existence of permanent establishment wherein it was held that assessee s permanent establishment exists in India under Article 5(2)(k) of the DTAA. has elaborately discussed the Article 5 and its sub Articles 5(1), 5(2) and 5(3) of the Indo-UK Treaty. They came to the conclusion by bringing on record the relevant clauses of the treaty, by also discussing the other model conventions like OECD, UN along with its commentaries. They held that the Article 5(2) is no more than an illustration or examples of application of permanent establishment under basic rule under Article 5(1). However, so far as the provisions of India - UK tax treaty are concerned, the clauses (j) and (k) of Article 5(2), which are on the lines of provisions in Article 5(3) in all most standard model conventions. Therefore, they rejected the earlier submissions of the assessee that unlike the applicability of basic rule are in consonance with the illustrations contained in Article 5(2)(a) to (i) and even the clauses (j) and (k) has to pass the test of basic rule. We observe that the meaning of furnishing emphasizes the idea of providing necessary or other services. It provides general meaning to emphasize to carry out certain services, which may include provision of services. It is fact on record that legal interpretation or technical interpretation of treaty will leads to nowhere. It is also a fact on record that the assessee provides various services to the clients in the contracting state, i.e., in India. When the other conditions contained in the clause (k) exists like the employees or other personnel are in India for more than 90 days in the twelve months, the deeming provisions get attracted. Decided against assessee. Assess only fees relatable to work performed in India - We observe from the record that identical issue is decided in favour of the assessee for the A.Y. 1997-98 [ 2014 (11) TMI 725 - ITAT MUMBAI] wherein as relying on Clifford Chance. [ 2013 (6) TMI 544 - ITAT MUMBAI] decided issue in favour of assessee which held that the profit which is attributable to the PE, can only be assessed in India. Reimbursement of expenses as an income - HELD THAT:- Identical issue is decided in favour of the assessee for the preceding Assessment Years [ 2015 (9) TMI 1532 - ITAT MUMBAI] as held that reimbursements received by the assessee are in respect of specific and actual expenses incurred by the assessee and do not involve any markup, there is reasonable control mechanism in place to ensure that these claims are not inflated, and the assessee has furnished sufficient evidence to demonstrate the incurring of expenses. There is thus no good reason to make any addition to income in respect of these reimbursements of expenses. Interest u/s 234B was not chargeable in the case of assessee, as all sums chargeable to tax in the hands of the assessee are liable to deduction of tax at source u/s 195. Liability to tax in India under Article 15 of the tax Treaty between India and the U.K - HELD THAT:- As identical issue is decided in favour of the assessee for the A.Y. 1995-96 [ 2010 (7) TMI 1226 - ITAT MUMBAI] as held that while we agree with the learned counsel that Article 15 will not be applicable on the facts of the present case, this finding does not really come to the rescue of the assessee since, as we have already held, the assessee did have a PE in India under Article 5(2)(k) of the India UK tax treaty, and, accordingly, profits attributable to the PE are taxable under Article 7 of the India UK tax treaty.
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2023 (11) TMI 433
Reopening of assessment u/s 147 - reasons to believe - Superannuation fund - Exemption u/s 10(25)(iii) - excess funds do not form part of approved fund , and hence is not exempt from taxation - HELD THAT:- Notice for reasons for reopening of assessment does not make any indication of violation of conditions of approval of Superannuation Trust, thereby leading to the deemed withdrawal of approval as on the date of violation. Instead, the notice for reopening of assessment has been issued on the assumption that as on the date of issuance of notice, the assessee trust is not an approved fund. A perusal of order passed under Rule 3 of Part B of Schedule-IV of the Income Tax Act, 1961 dated 31-03-2014 shows that the approval of the fund was only withdrawn with effect from the date of passing of the aforesaid order, which was on 31-03-2014. Therefore, evidently, as on the date of issuance of notice of reopening of assessment on 24-03-2014, the fund was an approved fund and therefore, the case of the assessee was reopened on the basis of incorrect assumption of fact that as on the date of issuance of reassessment notice the assessee fund was not approved . Accordingly, since the reasons for the opening of assessment itself were based on an incorrect assumption of facts, the reassessment notice and consequential assessment proceedings are liable to be set aside. It is a well-settled law that reopening of reassessment on an incorrect assumption of facts is invalid - Decided in favour of assessee.
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2023 (11) TMI 432
Validity of assessment order passed u/s 153A - whether a valid approval granted by the additional commissioner of income tax u/s 153D? - HELD THAT:- The draft proposal of Assessment Orders was sent on 31.12.2018 and approval u/s 153D was granted on 31.12.2018 itself. From the Letter of proposal for approval, it is revealed that the AO has written in office letter No. section 153B whereas in the subject he had written section 153D of the Act per se reveals the Non-application of mind by the AO in framing the Assessment and the approving authority in granting approval u/s 153 D of the Act on the same date. A mere endorsement to a list of cases of Assessment Orders by putting signature with rubber stamping on the letter without application of mind will not satisfy the requirement of the law for approval or sanction u/s 153D of the Act. Therefore, we hold that in the present case, the prior approval of the Additional CIT required before passing of the Assessment Orders in pursuant to a search operation being a mandatory requirement of section 153D of the Act, was not granted as per law because such approval is not meant to be given in mechanical manner without application of mind by the Additional CIT which resulted in vitiating the assessment orders per se. We hold that mandatory approval was being granted mechanically without application of mind by Additional Commissioner of Income Tax, Central- Range, Jalandhar, and therefore, this mechanical exercise of power has vitiated entire assessment proceedings and consequently, the said assessment orders are rendered void ab initio. Accordingly, the impugned order is held to be infirm, illegal and bad in law and same is as such quashed. Appeals of the assessee are allowed.
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2023 (11) TMI 431
Unexplained cash credit u/s 68 - disallowance of exempted capital gain u/s 10(38) - AO on analysis of trade data from BSE also found that the counter party (exit provider) who purchased shares from the assessee were also managed by entry operator - HELD THAT:- The conduct of the assessee suggests that he was not involved in rigging or any wrongdoing. The case laws relied by the authorities below are distinguishable from the present facts of the case in so far there was SEBI enquiry conducted and found guilty of wrong practices, but it is not so in the case on hand. In our view, the income generated by the assessee cannot be held bogus only based on the modus operandi, generalisation, and preponderance of human probabilities. To hold income earned by the assessee as bogus, specific evidence has to be brought on record by the Revenue to prove that the assessee was involved in the collusion with the entry operator/ stockbrokers for such an arrangement. In absence of such finding, it is not justifiable to link the fact with the finding unearthed in case of some third party or parties with the transactions carried out by the assessee. Further the case laws relied by the AO are regarding the test of human probabilities which may be of greater impact but the same cannot used blindly without disposing off the evidence forwarded by the assessee. There were not brought any evidence from independent enquiry to corroborate the allegation. As such, the AO has highlighted various suspicious circumstances, but no addition can be made merely on the basis of suspicious circumstances or presumption unless some cogent material evidence brought on record. See case of CIT vs. Sumitra Devi [ 2014 (2) TMI 1205 - RAJASTHAN HIGH COURT] Whether a person who genuinely purchases the shares at a low price and sold at high price, therefore, he enjoyed the windfall from such scripts, can he be disallowed the benefit of tax exemption provided under section 10(38) of the Act in a situation where it is established that the share price of the company was rigged up to extend the benefit to certain parties. Justice cannot be delivered in a mechanical manner. what we see on the records available before us, sometimes we have to travel beyond it after ignoring the same. Furthermore, while delivering the justice, we have to ensure in this process that culprits should only be punished, and no innocent should be castigated. An innocent person should not suffer for the wrongdoings of the other parties. In the case on hand, admittedly there was no evidence available on record suggesting that the assessee or his broker was involved in the rigging up of the price of the script of M/s Comfort Fincap Ltd. Thus, it appears that the assessee acted in the given facts and circumstances in good faith. Furthermore, the shares were held by the assessee for almost 3 years. Thus, it was not possible for the assessee to foresee the price of the script in future. Thus in absence of any specific finding against the assessee in the investigation wing report, the assessee cannot be held to be guilty or linked to the wrong acts of the persons investigated as far as long-term capital gain earned on sale of share of M/s Comfort Fincap Ltd is concern. Also the addition was made by the AO based on the statements/information received from the 3rd party, but no opportunity was afforded by the revenue for the cross-examination which is against the principles of natural justice as held in the case of Andaman Timber Industries [ 2015 (10) TMI 442 - SUPREME COURT] Likewise, the Hon ble Apex court in the case of Kishinchand Chellaram [ 1980 (9) TMI 3 - SUPREME COURT] held that the income tax authorities before relying upon any material are required to provide such material to the assessee for rebuttable. In the case on hand, the revenue authorities to hold the transaction carried out by the assessee as sham transaction referred and relied on material and statements of various broker or entry operator recorded or collected by the DDIT Kolkata and Mumbai. However, any material/ statement was neither provided to the assessee for his rebuttable nor any independent cogent material brought on record suggesting any live link between the material received from the DDIT and transaction carried out by the assessee on hand. Therefore, no adverse inference can be drawn against the present assessee - Decided in favour of assessee.
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2023 (11) TMI 430
Revision u/s 263 by CIT - source of cash deposits in the bank account, and opening balances of partner s capital account, unsecured loans and stock at the beginning of the year as well as remuneration paid to the partners of the firm, the order so passed by the AO has been held by the ld PCIT to be erroneous as well as prejudicial to the interest of the Revenue - HELD THAT:- Examination of source of cash deposits in the bank account - As we find that the case of the assessee was reopened precisely for the reason that the assessee has not filed any original return of income and there were cash deposits in the bank account maintained by the assessee - notices were issued during the course of assessment proceedings wherein the AO has specifically enquired about the source of said cash deposits in the bank account maintained with SBI along with documentary evidence. In response to the notices, the assessee has submitted that cash deposit relates to cash sales arising out of its poultry farming business which has been deposited from time to time in the bank account maintained with SBI and in support, has submitted its stock statement detailing the opening stock, purchases during the year, sales during the year and closing stock, list of purchasers and sellers exceeding Rs 5 lacs as called for by the AO AO thereafter has examined and has recorded a specific finding in the assessment order that the assessee s source of income is from poultry farming business and audited financial statements, books of accounts, bank statement and explanation called for from the assessee regarding source of cash deposit has been duly examined and thereafter, no adverse finding has been recorded. Thus the matter relating to source of cash deposits has been duly examined during the course of assessment proceedings and it is clearly not a case of lack of enquiry as so held by the ld PCIT. Balances of partner s capital account, unsecured loans and stock at the beginning of the year not verified due to non-filing/invalid treatment of original return of income - As far as non-filing of the original return of income, we find that the present proceedings were initiated precisely for the reason that the original return of income was not filed and therefore, what is relevant to examine is the return of income filed pursuant to notice u/s 148 and subsequent assessment proceedings so conducted by the AO and the order passed u/s 147 r/w 143(3) which has been made subject matter of the revisionary proceedings. Once the original return of income has been treated as invalid return of income, what has been reflected or not reflected in the said return of income has no bearing on the proceedings initiated u/s 147 and consequent proceedings u/s 263 of the Act. There is no dispute that where the assessee has filed its return of income for the earlier assessment year 2013-14, the opening balances which are carried forward from the said assessment year to the year under consideration are easily verifiable. At the same time, in the instant case, we find that the AO has called for and examined the audited financial statements for the previous financial year relevant to earlier assessment year 2013-14 and thus, where the audited financial statements for the previous financial year are on record and the same has been examined by the AO, the findings of the ld PCIT holding the order so passed by the AO erroneous in nature due to non-examination of the opening balances is clearly not borne out of records. Opening stock - AO has examined the same and accepted the turnover and closing stock as well as trading results and gross profit declared by the assessee. Thus, where stock statement has been verified and book results have been accepted and no adverse finding has been recorded by the AO as well as by ld PCIT, the order so passed by the AO cannot be held as erroneous in nature as well as prejudicial to the interest of the Revenue. Non-verification of partner s capital account and unsecured loans - We find that these are again opening balances which are carried forward from the earlier assessment year as apparent from the audited financial statements for the earlier assessment year which is available on record and duly examined by the AO. Further, during the course of assessment proceedings, the AO has called for and examined the partnership deed and it has also been submitted by the assessee that there is no addition to the capital account during the year. We thus, find that where the balances are carried forward from the earlier assessment year and there are no movements in these accounts during the year, it is a revenue neutral exercise and thus, there is no prejudice which is caused to the Revenue and in any case, the matter has been examined by the AO and no further enquiries have been conducted by the ld PCIT. Thus, the findings of the ld PCIT in this regard that the order so passed by the AO is erroneous in so far as prejudicial to the interest of the Revenue are again not borne out of records and thus deserve to be set-aside. The matter has been duly examined by the AO and nothing has been brought on record in terms of any further enquiries conducted by the ld PCIT so as to reach a prima facie finding that the order so passed is erroneous in so far as prejudicial to the interest of the Revenue - no basis for setting aside the assessment order and that too, a speaking order, thus, the order so passed by the ld PCIT u/s 263 is hereby set- aside and that of the AO is sustained. Decided in favour of assessee.
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2023 (11) TMI 429
Unexplained credit in the Foreign bank account - AO on submissions of the assessee and statement recorded on oath u/s. 131 observed that assessee has not submitted any documentary evidences to justify the claim that funds available in the foreign bank account were earned outside India and that they had been offered to tax outside India- HELD THAT:- Since assessee has submitted financial statements and which is submitted as an year end balances by bringing on record the fact that assessee held enough funds with M/s. Lennox Overseas Inc., and we also observe that the financial statements of Salome Holdings INC and Hereford Properties Limited also certified by the same auditor. Since these documents proves that assessee has enough funds with the M/s. Lennox Overseas Inc., and in our considered view the informations submitted by the assessee shows only the year end outstanding balances in M/s. Lennox Overseas Inc., Since the certified auditor is based in Mumbai we direct the assessee to submit the consolidated ledger account of M/s. Lennox Overseas Inc., from F.Y. 1998-99 to F.Y. 2008-09 with the movement of balances during this period before the AO. Since the additional evidences also submitted before us needs verification accordingly, we remit this issue also back to the file of the Assessing Officer to verify the claim made by the assessee along with consolidated ledger accounts of M/s. Lennox Overseas Inc., from the assessee and verify the same and delete the addition if found proper. Accordingly, ground raised by the assessee is allowed for statistical purpose. Addition of petty foreign currency in hand this being a small petty cash deposits it does not need any proof of earning. This being a petty cash held by the assessee, we direct the Assessing Officer to delete the same. Addition of amount from HSBC Life (UK) Ltd., toward paid up value of Life Insurance Policy - We observe from the record that assessee has received insurance maturity amount of GBP 35295.58 and assessee has submitted a confirmation from HSBC Life (UK) Ltd., and relevant bank statement along with the confirmation of insurance policy from HSBC Life (UK) Ltd., goes to prove that the credit received by the assessee in his bank account is nothing but insurance surrender value. Since the bank itself has submitted the confirmation of surrender value from insurance company. Therefore, it goes to prove that what assessee has received is only an insurance surrender value. Therefore, we do not see any reason to hold otherwise. Further, this information relates to A.Y. 2009-10, we do not see any reason to hold it otherwise. Accordingly, Ground raised by the assessee is Accordingly, allowed.
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2023 (11) TMI 428
Disallowance u/s 14A attributed for earning dividend income - HELD THAT:- AO is directed to re-work disallowance u/s.14A under rule 8D(2)(iii) on investment which has yielded exempt income. Addition of unutilized CENVAT Credit - HELD THAT:- As per Department Appeal for AY 2005-06 [ 2023 (2) TMI 1210 - ITAT MUMBAI] irrespective of the method of accounting followed by the assessee, i.e. 'Inclusive method', wherein the taxes are included in the opening stock, purchases, etc. or the 'Exclusive method', the MODVAT credit does not have any impact on the profit of the assessee. Thus, following the ratio laid down in the case of Indo Nippon Chemicals Co. Ltd. [ 2003 (1) TMI 8 - SUPREME COURT] and followed by Diamond Dye Chem Ltd. [ 2017 (7) TMI 616 - BOMBAY HIGH COURT] we set-aside the order of the CIT (A) and direct the Assessing Officer to delete the addition made on account of unutilised MODVAT credit. Nature of receipt - refund of sales tax - Revenue or capital receipt - HELD THAT:- Sales tax incentives received by assessee are rightly considered as Capital Receipts by Ld. CIT(A). Excise duty exemption received by assessee are capital receipts both for the purpose of computing income as per normal provision of the Act as well as book profit u/s 115JB of the Act and the addition made by Assessing Officer is deleted. Preoperative expenses - assessee itself had claimed the expenses as capital expenses and added them to its capital work-in progress/fixed assets and there is no provision in Income-tax Act permitting the allowance of such expenses - HELD THAT:- It is observed that identical issue was decided by coordinate bench of Mumbai ITAT in the case of holding company of the assessee being Ambuja Cement Limited [ 2022 (11) TMI 1420 - ITAT MUMBAI] held as in the books of account the assessee had capitalised the expenses does not prevent the assessee from claiming them as revenue expenses since the question of allowance of expenses has to be considered in the light of the legal position and the accounting treatment cannot be conclusive.The limited grievance raised by the Assessing Officer is thus devoid of any legally sustained merits, and we reject the same. Additional depreciation u/s 32(1)(iia) - whether additional depreciation is allowable only on new machinery be the first year in which it is put to use? - HELD THAT:- It is observed that coordinate bench in its later decision in the case of Ambuja Cement Limited [ 2022 (11) TMI 1419 - ITAT MUMBAI] holding company of assessee has allowed similar claim of depreciation. When coordinate bench of ITAT in its latest decision has decided issue in favour of assessee by holding that assessee is entitled for additional depreciation u/s 32(1)(iia), such later decision would prevail over the decision of Everst Industries Limited [ 2018 (4) TMI 426 - ITAT MUMBAI] relied upon by Ld DR. As a result, since this aspect of the matter is no longer res integra, we see no reasons to take any other view of the matter than the view so taken by the coordinate bench in the group concern s case of the assessee. We uphold the plea of the assessee and direct the Assessing Officer to allow depreciation u/s.32(1)(iia) of the Act. Deduction u/s 80IA on TG-3 located at Wadi allowed - As deduction u/s. 80-IB was granted for an initial assessment year, same could not be rejected for subsequent assessment years unless relief for initial year was withdrawn. Auditor s fee and director s remuneration (indirect expenses) should not be apportioned for computing deduction u/s 80IA - AO is directed to allocate Head office expenses (other than auditor fees and CMA expenses) on the basis of expenditure incurred by the units vis- -vis overall expenditure. Thus, related ground of appeal in departmental appeal is dismissed. Addition of provision for gratuity made while computing book profit u/s 115JB is deleted. Wealth tax provision is not required to be added back while computing Book Profits under Section 115JB. Disallowance u/s 14A cannot be made while computing book profit u/s.115JB . See Vireet Investments Pvt Ltd [ 2017 (6) TMI 1124 - ITAT DELHI] Expenditure incurred on club entrance fee and subscription fee is allowable revenue expenditure. Nature of receipts - sales proceeds of Voluntary Emission Receipts (VER's) - Sale proceeds from CERs is treated as capital receipts and accordingly, this ground of appeal raised by the assessee is accordingly allowed. Reduction in deduction u/s 80-IA on power generating undertakings due to modification in Market Value of electricity generated - HELD THAT:- As observed that while computing the output of the CPP, the Assessing Officer has excluded the transmission loss which was considered by assessee in their calculations but during the course of hearing before bench, assessee conceded the ground on the exclusion of the units lost in transmission for the purpose of computing the turnover of CPP. As observed that Ld AR has filed details regarding rate to be taken based upon decisions referred supra, such working was not available with the file of AO hence on this limited purpose of verification for the year under consideration, the AO is directed to verify the working as submitted by Ld AR before us and directed to consider the market value of power sold by CPP units at the Electricity rate at which CMM units at different location is purchasing electricity from SEBs as held/discussed by various courts. Accordingly, this ground of appeal is allowed for statistical purpose. Deduction u/s.80IA on Rail Infrastructure to be allowed. Delete the Adjustment on account of CENVAT in the profits of the eligible units for deduction u/s 80IA . Proportionate Head Office expenditure while computing deduction u/s 80IA/80IC - Allocate Head office expenses (other than auditor fees and CMA expenses) on the basis of expenditure incurred by the units vis- -vis overall expenditure. LTCG on Sale of Air Pollution Control (APC) Business - sale as slump sale by invoking the provision of sec. 50B - HELD THAT:- In the present case, assessee has valued each assets separately in agreement itself and same was already on record of Assessing Officer hence the transaction would be item wise sale and such facts cannot be ignored. Hon ble Madras High court in the case of CIT v. Shiva Distilleries Ltd [ 2019 (7) TMI 706 - MADRAS HIGH COURT] has held that Where transfer price of undertaking was based on individual assets and liabilities, said sale would not qualify as 'Slump Sale' as per section 2(42C). Thus it is found that AO has wrongly invoked provisions of Section 50B of the Act for computing Income from Capital gain on sale of a divisions without transfer of other related business assets and liabilities of undertaking in the year under consideration. The assessee has correctly treated transaction of sale as item wise sale in return of income and computed Income from capital gain as applicable to sale of Individual item of assets. Thus, addition made by Assessing Officer and sustained by CIT(A) cannot be upheld and related ground of appeal is allowed. Denial of claim for deduction of Leave Encashment on provision basis - Hon'ble supreme court in the case of UOI v. Exide Industries Ltd. [ 2020 (4) TMI 792 - SUPREME COURT] has upheld constitutional validity of provision of section 43B(f) for provision for leave encashment liability and considering binding decision of Hon'ble Supreme Court claim cannot be allowed. However, if payment of such provision towards leave encashment is made in subsequent year, deduction may be allowed to assessee in such years if not allowed till date. Therefore, Assessing Officer is directed to verify and the same and allow the same as per our above directions. Write off of CWIP expenditure pertaining to referred projects which are part of existing business activity hence such expenditure is allowable expenditure. The addition made by Assessing Officer is thus deleted and related ground of appeal is allowed. Provision for leave encashment made while computing book profit u/s 115JB is to be deleted. Sales tax and excise duty incentive be excluded while computing book profits u/s. 115JB
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Customs
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2023 (11) TMI 427
Violation of principles of natural justice - appellant's request for cross-examination of parties, whose statement has been relied upon, has not been considered - Opportunity of hearing not granted - Article 14 of the Constitution of India - HELD THAT:- While the submission is agreed that cross-examination is also a part of/ facet of natural justice, however, there is no absolute right for cross-examination, for it would depend on the facts of each case. As found by the learned Judge, whether the appellant was granted personal hearing or not, turns out to be a disputed question of fact. The examination of such disputed question of fact is normally an exercise, which is beyond the realm of writ jurisdiction - It is also found that when there is an alternate remedy that is available, Courts would exercise restraint in entertaining the writ petitions. Further, entertaining the writ petitions is a matter of discretion and such discretion having been exercised by the learned Judge by rejecting the writ petition on the ground of existence of alternate remedy, this Court in appeal would normally be loathe in interfering with exercise of such discretion. There are no reason to interfere with the order of the learned Judge - this court permits the appellant to file appeal before the Appellate Authority, within a period of 30 days from the date of receipt of a copy of this judgment - appeal disposed off.
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2023 (11) TMI 426
Seeking direction to respondents to permit the petitioner to utilize the ROSCTL scrip and to take steps to retrieve the illegally utilized ROSCTL scrip within the time as fixed by this Court - HELD THAT:- Though there is no representation on behalf of the respondent, considering the limited scope of the prayer in this Writ Petition, this Court is of the view suffice, it would be to dispose of the Writ Petition by directing the second respondent to consider the representation made by the petitioner within the stipulated time and to pass orders. This Writ Petition is disposed of by directing the second respondent to consider the representation of the petitioner, dated 29.07.2023 and after affording an opportunity of hearing to the petitioner shall pass orders on merits and in accordance with law within a period of eight weeks from the date of receipt of a copy of this order.
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2023 (11) TMI 425
Smuggling - Absolute confiscation of 22 numbers of gold bars - levy of penalty u/s 112(b)(i) of the Customs act - match with respect to the serial numbers on the gold biscuits - HELD THAT:- It is found that it is evident from the facts apparent in the show cause notice, that the serial numbers of the 22 gold biscuits are covered within the 40 kg gold purchased by DP Gold Pvt Ltd., Chennai from MMTC-PAMP India Pvt Ltd., and there after they had sold the gold to other dealers/ other jewellers. Thus, the allegation of smuggled nature of gold in question, does not stand - it is further held that the gold in question is not smuggled in nature. The gold in question has already been sent to appropriate Government Authority for re-sale and or melting by the Government. Accordingly, the Revenue is directed either to return the gold to the appellant - M Sunil Kumar, or to pay the value, amount of gold as valued on the date of sale/melting with interest as per rules. Appeal allowed.
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2023 (11) TMI 424
Confiscation - dumb barge Century Star-3002 (without self propulsion) - movement in and out of the country the barge in any event will have to be construed as a foreign going vessel or as Imported goods ? - HELD THAT:- In view of the law propounded in the case of SHAHI CONTAINERS VERSUS COMMISSIONER OF CUSTOMS (IMPORT), MUMBAI [ 2003 (9) TMI 453 - CESTAT, MUMBAI ], it is amply clear that the adjudicating authority had erred in imposing penalty and confiscating the barge Century Star-3002, even though it was allowed conversion from foreign to coastal run. The plea that the duty paid in respect of the barge was with reference to consumables alone that were required for consumption during the coastal run, is only open for consideration of the appropriate juridical authority, who in the first place allowed the conversion or by way of appeal proceedings of the said orders. That being not the case herein, the plea is not open for such an assertion. It need be pointed out that if at all any duty was required to be paid on the dumb barge at the time of conversion, the jurisdiction to collect such duty rested with Paradip Customs only and would certainly not fall within the territorial jurisdiction of the present authority. The fact that the barge was already converted from foreign to coastal run and thereafter Customs Duty was paid on the bunkers for voyage, question of any illegal import of the dumb barge Century Star-3002 into India does not arise. Any consequence flowing out of a mis-conceived assumption of jurisdiction and subjecting the appellants herein to penal consequences, confiscation and imposition of penalty on the barge and accordingly on all others concerned in facilitating the movement of the dumb barge or associated with discharge of other formalities concerned, at subsequent port of call, are not liable to be subjected to any failure or to any consequences of an assumed failure. The confiscation of the dumb barge Century Star-3002, under section 115(2) of the Customs Act is not called for. Further, in terms of section 115(2) of the Act ibid, any conveyance used as a means of transport in the smuggling of goods is liable for confiscation, unless it is proved by the owner of the conveyance that it was so used without the knowledge of the owner or his agent, if any or the persons in-charge of the conveyance. In the present case there is not even a whisper to assert, least of all establish that the tug Century Star-1 was used as a means of transport for smuggling of goods and that too with the knowledge or connivance of the owner, agent or the captain of the vessel - confiscation of the tug under section 115(2) of the act cannot be sustained - It is also demonstrated from records that the non-filing of IGM in the present case is certainly without any fraudulent intent, and at best is no more than an inadvertent omission, perhaps spurred because of the peculiarity of circumstances. For the reasons no penalty is also imposable on the owner/representatives and others concerned with, managing the affairs of the vessel. The order of the lower authority suffers from inherent weaknesses and is not in accordance with the legal prescriptions, and therefore liable to be set aside. Since neither confiscation nor imposition of penalty is sustainable and in view of precedent decisions, the appeals filed are liable to be allowed and the penalties imposed upon the appellants liable to be set aside. Appeal allowed.
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2023 (11) TMI 423
Confiscation - town Seizure - Gold of foreign origin having inscription of 2(two) Swastika symbol - failure to prove reasonable belief that being the gold in question is smuggled one - HELD THAT:- To decide the issue this Tribunal in the case of SHRI BALWANT RAJ SONI VERSUS COMMISSIONER OF CUSTOMS (PREVENTIVE) , PATNA, SHRI ANURAG JALAN VERSUS COMMISSIONER OF CUSTOMS (PREVENTIVE) , PATNA AND SHRI MANOJ KUMAR SETH VERSUS COMMISSIONER OF CUSTOMS (PREVENTIVE) , PATNA [ 2023 (5) TMI 940 - CESTAT KOLKATA] has examined the issue and observed the reasonable belief on which the DRI officers presumed that the gold bars/pieces were of smuggled nature is not supported by any corroborative evidence. There is no document available on record to establish that gold bars/pieces were smuggled into India from Bangladesh. The impugned order has concluded that the said gold bars/pieces were smuggled into India only on the basis of assumptions and presumptions without any concrete evidence to substantiate this claim. Hence, we hold that material evidence available on record does not establish that the gold bars/pieces were smuggled into India without any valid documents. It is apparent from the records itself that it is a case of town seizure. The purity of gold is 99.5% and having no embossing of foreign mark, in that circumstances, revenue has failed to prove reasonable belief that being the gold in question is smuggled one. In the absence of that the impugned gold cannot be seized under Section 110 of the Customs Act, 1962 and therefore the gold in question is not liable for confiscation and no penalty is imposable on the appellant. There are no infirmity in the impugned order - the appeals filed by the revenue are dismissed.
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2023 (11) TMI 422
Levy of penalty u/s 114 (i) and u/s 114 AA of FA - Smuggling - red sanders - replacement of the goods enroute with red sander - penalty imposed only on ground that the appellant have not informed the customs authorities, immediately about the stuffing of red sander in the container and informed only on the next day. HELD THAT:- It is found that the appellant has given a statement that in the evening when he knew about the stuffing of red sander in the container he was in Mumbai and after returning from their next day itself he informed the customs authorities. The act of the appellant was not found malafide by the Learned Commissioner (Appeals) in his order. The learned Commissioner (Appeals) accepting that the appellant did not have direct involvement in the illegal export of prohibited good red sander reduced the penalty substantially - once the Commissioner (Appeals) is of the view that the appellant have no direct involvement, the penalty even reduced cannot be upheld. In an appeal against the Commissioner (appeals) order this Tribunal set aside the penalty in KARAN BABUBHAI CHAUHAN VERSUS C.C. MUNDRA [ 2023 (5) TMI 1267 - CESTAT AHMEDABAD] where it was held that I do not see any reason or role of the appellant to attract penalties under Section 114 (i) and Section 114 (AA). From the above decision it can be seen that identical facts and same allegation was made against the appellant in the above decision and the Tribunal has set aside the penalties - in the present case also the appellants being identically placed as appellant in the above decision the penalty are not sustainable. Hence, the same are set aside. Appeal allowed.
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2023 (11) TMI 421
Maintainability of appeal - non-fulfilment of pre-deposit - Seeking clarification from the Appellant as to whether he is contesting the Customs Duty arrived at by the Adjudicating Authority enhancing the value and re-determining the same at Rs.3,41,984/- - HELD THAT:- It is observed that the Commissioner (Appeals) has dismissed the Appeal on account of non-fulfillment of pre-deposit. Even before the Tribunal, the Appellant has not complied with the directions given on 17th July 2023. No explanation is forthcoming from the Appellants in spite of several opportunities given to them. Appeal dismissed.
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Insolvency & Bankruptcy
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2023 (11) TMI 420
Seeking direction to Respondent to adhere to the terms of Agreement dated 03.03.2010 and supply immediately the 26 WTGs lying with the Corporate Debtor against the advance payment already made by the Applicant - HELD THAT:- From the facts brought on record, it is clear that the RP is claiming payment of dues of about Rs.75 crores from the Appellant, for which arbitration proceedings have been initiated. When the Corporate Debtor has not received the dues from the Appellant for which proceedings are pending, the decision taken by the RP, not to handover the 26 WTGs is as per the wisdom of RP, who is to run the Corporate Debtor as a going concern. The Operational Creditor having filed the claim, which has been already admitted for an amount of Rs.132 crores and odd, the same has to be dealt with as per the CIRP and the Appellant has no right to claim that 26 WTGs lying in the inventory of the Corporate Debtor should be handed over to the Appellant. The decision of the RP refusing to handover 26 WTGs lying with the Corporate Debtor, is a decision which RP is entitled to take as per the scheme of the Code, which decision cannot be said to be contrary to any provisions of the Code or in breach of any right of the Appellant. The Adjudicating Authority has not committed any error in rejecting the IA filed by the Appellant. There are no error in the order of the Adjudicating Authority, rejecting the IA filed by the Appellant - appeal dismissed.
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Service Tax
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2023 (11) TMI 419
Levy of Service Tax - Commercial Training or Coaching Services - imparting coaching for competitive examinations to its own students enrolled in +2 +3 courses - renting of immovable property - HELD THAT:- Larger Bench of this Tribunal was constituted to resolve divergent views taken by two Benches of this Tribunal in SRI CHAITANYA EDUCATIONAL COMMITTEE (SCEC) VERSUS COMMISSIONER OF CUSTOMS, CENTRAL EXCISE AND SERVICE TAX, GUNTUR, COMMISSIONER OF CUSTOMS, CENTRAL EXCISE AND SERVICE TAX, GUNTUR VERSUS SRI CHAITANYA EDUCATIONAL COMMITTEE (SCEC) [ 2015 (6) TMI 627 - CESTAT BANGALORE (LB) ] and M/S. ITM INTERNATIONAL PVT. LTD. VERSUS C.S.T., DELHI [ 2017 (11) TMI 1230 - CESTAT NEW DELHI (LB) ]. Interestingly when both the Members of both the Benches could not agree on the taxability of Commercial Training and Coaching imparted by the Appellant therein and the issue was referred by them to Third Members respectively, the Third Members gave divergent findings holding the same to be taxable in M/s. Shri Chaitanya Educational Committee case and not taxable in ITM International Pvt. Ltd. case. So, in order to resolve divergent findings of Third Members, a three Members Larger Bench was constituted that ultimately concluded that when Appellant does not issue certificate recognized by Law, its activities fall under the category of Commercial Training or Coaching Services for which the decision of the Tribunal in M/s. Shri Chaitanya Educational Committee was stated to have laid the correct position of law. The Appellant case is squarely covered by the decision of this Tribunal passed in SRI CHAITANYA EDUCATIONAL COMMITTEE VERSUS COMMISSIONER OF CUS, CE ST GUNTUR (VICE-VERSA) [ 2018 (4) TMI 664 - CESTAT HYDERABAD ] where it was held that and essentially an activity by an 'educational institution' as defined with reference to Section 66D of the Finance Act, 1994 was outside the purview of service tax and the appellants are squarely covered in the ambit of the same, accordingly demand of service tax der any category fails. In so far as renting of immovable property is concerned the demand being made on an amount which is below the threshold of Small Scale exemption, the same can t sustain. The impugned order set aside - appeal allowed.
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2023 (11) TMI 418
Refund of accumulated credits on inputs received towards export of services - rejection on the ground that export commenced after October 2013 in which input credits accumulated prior to registration of Appellant Company in 2012 is included as refundable amount - other ground for rejection is that refund is claimed for several quarters in one refund claim application - HELD THAT:- There is no bar in availing credit before the Company got registered with Service Tax Authority, if the same is utilized for the purpose of generating export output as the only requirement stipulated under Notification 27/2012-CE(NT) is that refund application is to be filed before the Jurisdictional Assistant/ Deputy Commissioner of Central Excise under whom the premises of the provider of output service that has exported was registered, as contemplated in Para 3(a)(II) and by the time refund applications were filed, Appellant had its Service Tax registration number. Also, Para 2(a) of the said notification puts a restriction for filling more than one refund application for every quarter and it has become a settled principle of Law that the said restriction would not prohibit claiming of Refund for more than one quarter in one application for refund. Time Limitation - HELD THAT:- The reason for denial of refund on the ground of limitation by taking into account the dates of export invoices as relevant date is not tenable in law, in view of the Larger Bench findings in the case of COMMISSIONER OF CUSTOMS, CENTRAL EXCISE SERVICE TAX, GOA VERSUS M/S. RATIO PHARMA INDIA PVT LTD [ 2015 (4) TMI 462 - CESTAT MUMBAI-LB] and the subsequent amendment made in conformity to the said finding. Therefore, the apprehension of the Principal ADG as Commissioner (Appeals) raised in para 6 of his order that prior to 29.11.2013, export invoices were not serially numbered would be of no consequence to the Appellant s case since, no export benefit is claimed for the prior period nor any refund claim against the said period was filed. The refund of unutilized CENVAT credit in export of services having a purpose to encourage/promote export and earn foreign exchange, minor procedural infraction would not stand in the way of grant of refund and Appellant is, therefore, entitled to get the entire amount of refund claimed for the period from October 2013 to March 2015 except on domestic turnover which was worked out as Rs.1,16,350/- and except an amount of Rs.46,427/- on which it has abandoned its claim. The order to the extent of rejection of CENVAT credit except on domestic turnover and lack of nexus between input and output services, is here by set aside - appeal allowed.
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Central Excise
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2023 (11) TMI 417
Continuation/abatement of appeal - continuation after initiation of Corporate Insolvency Resolution Process (CIRP) and Order approving the Resolution plan passed/approved by the Learned NCLT under Insolvency and Bankruptcy Code, 2016 - HELD THAT:- Undisputedly, during the pendency of the said Appeals, pursuant to the petition filed by one M/s Bharat Steel Industries, Hyderabad, proceeding has been initiated under IBC, 2016. The Hon ble NCLT vide Order dated 19.07.2017 admitting the petition appointed the Interim Resolution Professional (IRP) in the case. The Resolution Plan has been approved by the Hon ble NCLT vide Order dated 13.04.2018. Consequent to the said Order approving the Resolution Plan, the appellant is now before this Forum. The Mumbai bench of this Tribunal in the case of M/S. ALOK INDUSTRIES LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, BELAPUR AND COMMISSIONER OF CEN. EXCISE, MUMBAI CENTRAL [ 2022 (10) TMI 801 - CESTAT MUMBAI] ) analysed in detail Rule 22 of CESTAT (Procedure) Rules, 1982 and the case laws on the issue including those cited by the Ld. Advocate for the appellant observed that aforesaid Rule 22 should be applicable the moment the successor interest with sufficient rights is appointed by NCLT to make an application for continuation of the proceeding. Thus, as observed by the Hon ble Supreme Court and High Courts in a catena of cases that the Tribunal is a creature of the statute; it cannot travel beyond the express powers vested under the Statute or Rules framed under the statute, while deciding a statutory Appeal filed before it against the Orders of the prescribed statutory authorities mentioned under the statute. The corollary, any order passed by the Tribunal beyond the vested powers under the statute would be non est in law. The view consistently expressed by this Tribunal in a series of cases that the appeal abates once the IRP is appointed and/or Resolution plan approved - the appeals abate as per Rule 22 of CESTAT (Procedure) Rules, 1982.
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2023 (11) TMI 416
Abatement of appeal on appointment of IRP - continuation of proceedings under Rule 22 of CESTAT (Procedure) Rules, 1982 - HELD THAT:- The Mumbai bench of this Tribunal in the case of M/s Alok Industries Ltd s case [ 2022 (10) TMI 801 - CESTAT MUMBAI] analysed in detail Rule 22 of CESTAT (Procedure) Rules, 1982 and observed that Rule 22 should be applicable the moment the successor interest with sufficient rights is appointed by NCLT to make an application for continuation of the proceeding. The view consistently expressed by this Tribunal in a series of cases that the appeal abates once the IRP is appointed, is agreed upon - the appeal abates as per Rule 22 of CESTAT (Procedure) Rules, 1982.
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2023 (11) TMI 415
Imposition of penalty under Rule 209A of CER, 2002 - procurement of unaccounted raw material i.e. MS Scrap and using the same in the clandestine manufacture of MS Ingots - HELD THAT:- There are no evidence as to the manufacture of MS Ingots using the alleged unaccounted raw material. There is no investigation or enquiry conducted as to whom M/s Jaibhavani has sold/supplied the MS Ingots clandestinely. The investigation carried out, statements recorded and documents relied upon are all in regard to the alleged procurement of raw materials from M/s Sujana. Even though search was conducted in the premises of M/s Shree Ganesh Steel Rolling Ltd, no documents are alleged to be recovered for clandestine clearance of M.S Ingots. It is clearly stated by M/s Anantha Subramanian that they receive the MS Ingots from M/s Jaibhavani under delivery challans - It is found that the entire Show Cause Notice and impugned order has only emphasized on the alleged unaccounted scrap cleared by M/s Sujana to M/s Jaibhavani. After appreciating the facts we find that the Department has miserably failed to establish clandestine manufacture and clearance of finished products by M/s Jaibhavani during the disputed period, which is the basis for demand of duty, interest and penalties. The adjudicated authority has imposed penalty of Rs.5,50,000/- on the appellant. From the facts and evidences placed, there are no hesitation to conclude that the penalty imposed on the appellant is not justified and requires to be set aside. The impugned order is modified to the extent of setting aside the penalty imposed on the appellant - Appeal allowed.
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2023 (11) TMI 414
Reversal of CENVAT Credit under protest - inputs deployed for repairs - deployment of the impugned goods not for manufacture but for repair and which was neither within the ambit of rule 2(k) of CENVAT Credit Rules, 2004 nor cleared as such within flexibility afforded by rule 4 of CENVAT Credit Rules, 200 - HELD THAT:- Nonetheless, the repair executed by the appellant, even if not manufactured, would be tantamount to service and to the extent that the impugned goods had been deployed in rendering of taxable service or service that had exported, eligibility for availment of CENVAT credit cannot be denied. Accordingly, there is no merit in the appeal of Revenue which is dismissed. In view of the finding that the impugned goods constitute inputs in terms of rule 2(k) of CENVAT Credit Rules, 2004, rejection of claim for restoration of credit is not tenable. Accordingly, the applications are restored to the original authority for disposal in terms of section 11B of Central Excise Act, 1944 Appeal disposed off.
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2023 (11) TMI 413
Classification of goods - Tata-207 Vajra Vahan - merits classification as a specially designed vehicle falling under CETH 8705 or a vehicle principally designed for transport of passengers falling under CETH 8703? - change in classification - HELD THAT:- The Department argues on the point that the impugned vehicle does not fall under the above group going by the principles of ejusdem generis and for these reasons, the impugned vehicle should be categorized along with vehicles falling under CETH 8703 3392 along with vehicles like ambulances, prison vans etc. Interestingly, learned Commissioner in the impugned order relies on the same principle to classify the goods under CETH 8705. It is to see whether the vehicle is a special purpose vehicle or meant for transportation of persons though with some additional features. From the material available on record, it is found that the vehicle is specially adopted, equipped and designed for riot control. It is not the case of the Revenue that the vehicle is utilized for transportation of police personnel alone. A distinction has to be made between the basic manufacture of the vehicle and the body build upon it. An undisputed fact in the case is that the chassis supplied by M/s Tata Motors is similar to all the vehicles in the series 207 or others. It is the body-builders like the appellants give shape to the vehicle depending on the requirement. The design of the impugned vehicle has been conceptualized by VRDE and DRDO to suit special requirements. Understandably, in the impugned case, the vehicle is made to have so many features that help the police personnel in controlling riots. It could be that the vehicle may be helpful to carry the police personnel to a place where the riots are taking place. However, for that reason, the vehicle does not cease to be special purpose vehicle - Most of the vehicles classifiable under CETH 8705 do also require personnel to man the vehicle and use the equipment provided. Such personnel also need to be transported and for that reason, such vehicles cannot be held to be primarily designed for transportation of personnel. The certificate, for compliance to the Central Motor Vehicles Rules, issued by VRDE, Ahmednagar has classified the vehicle as special purpose vehicle (multi role riot control vehicle) - accordingly, the Transport Commissioner of Uttar Pradesh has also certified the same - the Larger Bench of the Tribunal in the case of Mahindra Mahindra [ 2015 (4) TMI 563 - CESTAT MUMBAI ] held that Motor Vehicles Act, 1988 and chapter 87 of Central Excise Tariff Act are pari materia Statutes for the purpose of determining the classification of motor vehicles - the certificates issued by VRDE and the Transport Commissioner cannot be ignored unless the same are proved to be wrong or inconsistent with the provisions of the Statute. Change in classification - HELD THAT:- The Department also argued that the appellants have classified the impugned vehicles earlier under CETH 8707 and have changed the classification to avail the benefit of notification - It is found that there is no estoppel in revenue matters; no party can be expected to continue the mistake, if any, which occurred in the past and that the appellants have a legal right to change the classification. Thus, no case has been made by the Revenue so as to interfere with the impugned order as far as the classification of the impugned special purpose vehicle (multi role riot control vehicle) is concerned - the appeal is devoid of any merits and therefore is liable to be dismissed - appeal dismissed.
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2023 (11) TMI 412
Condonation of delay of approximately 6.4 years in filing appeal - Section 37 C (1) of the Central Excise Act, 1944 - HELD THAT:- It can be seen that the order shall be served by tendering the same or sending it by register post with acknowledgment due or by speed post with proof of delivery or by courier approved by the Central Board of Central Excise and Customs constituted under the Central Board of Revenue Act 1963 to the person for whom it is intended or is authorized agent. In the present case it is admitted fact from the report of Jurisdictional Assistant Commissioner dated 22.07.2014 that the order was neither tendered personally to the appellant nor send by registered post or by speed post to the appellant. However, the same was pasted/affixed on the gate of the appellant factory. As per the Clause (b) of Section 37 C(1) it is clear that only if the order cannot be served in the manner provided in clause (a )then only the order should be affixed to some conspicuous part of factory or warehouse or other business etc. as the case may be. The revenue has admittedly failed to comply with the provision of Clause (a) of Section 37 C (1). Therefore, the service of the order by affixing on the factory gate is absolutely illegal and incorrect and the date of such affixing, cannot be taken as date of service of order. Consequently, the date of receipt of order copy by the appellant from their Dena Bank can only be considered as communication of the order to the appellant. From the date of receipt of order from Dena bank the appellant had filed the appeal before Commissioner (Appeals) well within stipulated time of 60 days. Therefore, there is no delay in filing the appeal. The ld. Commissioner (Appeals) should not have dismissed the appeal on time bar. Therefore, the impugned order is clearly not sustainable. Hence, the same is set aside. The appeal is allowed by way of remand to the learned Commissioner (Appeals) for deciding the matter on merit.
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2023 (11) TMI 411
CENVAT Credit - credit taken based on Supplementary Invoice raised by the Dankuni unit - extended period of limitation - suppression of facts or not - HELD THAT:- It is observed that the Appellant s Dankuni Unit was issued several Show Cause Notices during the period July 1998 to June 2001. As per the Table contained at Page 12 of the OIO passed in respect of that unit, 16 such Show Cause Notices were issued. On going through this Table, it is seen that in the case of all the 16 Show Cause Notices, they were issued for the normal period only without invoking the provisions of extended period without reference to suppression, mis-statement, etc. Therefore, when the Show Cause Notices have been issued in the normal course for the normal period and there has been no suppression clause brought in, the provisions of Rule 7(1)(b) of CCR 2004, would not be applicable. Therefore, the confirmed demand is required to be set aside on this account alone. Further, it has been held in catena of decisions, it has been held that only when any demand stands confirmed on account of fraud, suppression or willful misstatement, etc. only after having attained finality, the Cenvat Credit will not be eligible when such duty element is passed on by way of supplementary invoices. In the present case, against the proceedings initiated against the Dankuni Plant, the confirmed demands (in fact only for the normal period) are being contested by the Appellant at the Tribunal level. Therefore, the confirmed demand at the lower level cannot be said to have attained finality. Even on this account, the allegations contained in the present proceedings are not found to be legally sustainable. Hence the provisions of Rule 7(1)(b) of the Cenvat Credit Rules are not applicable. Appeal allowed.
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2023 (11) TMI 410
Area Based Exemption - undertaking substantial expansion for installed capacity by more than 25%. It is alleged that by clearing their goods without payment of central excise duty, the appellants have attempted to evade the payment of excise duty by mis-declaring the facts about substantial expansion of their units so as to wrongly fit in the requirement of the exemption notification. HELD THAT:- A look at Circular No. 772/5/2004-CX. dated 21.01.2004 makes it clear that emphasis was given to factual increase of 25% capacity by installation of additional plant and machinery. The enhancement post cutoff date is reported to have increased the installed capacity by more than 25%. To put it in other words, while using the word additional plant and machinery , in the circular, it has not been insisted that the existing plant and machinery should remain. What has been held out, is that such additional plant and machinery or the parts thereof, irrespective secondhand should be brought in due to which installed capacity of a manufacturing unit stands extended by more than 25%. The circular, makes it abundantly clear that the additional plant and machinery mentioned therein though may not be in addition to existing equipments but it should signify something new brought in the manufacture process, which in turn, increases the installed capacity more than 25%. Hon ble High Court of Uttarakhand in the case of COMMISSIONER OF CUS. C. EX. VERSUS UTTARANCHAL IRON ISPAT LTD. [ 2010 (12) TMI 491 - UTTARAKHAND HIGH COURT] , wherein it was held that by making the modification of already existing machinery if the installed capacity gets increased by more than 25%, the assessee shall be entitled to the benefits of Notification No.50/2003-CE dated 10.06.2003. This Tribunal in another decision in the case of ASSAM PETROCHEMICALS LIMITED VERSUS COMMISSIONER OF C. EX., SHILLONG [ 2004 (2) TMI 191 - CESTAT, KOLKATA] , held that in case of existing manufacturing units, the date on which the enhanced capacity of the unit is installed, should be the relevant date. Reverting to the facts of the present case, it is observed that the department has raised the demand of duty on the premise that since the expansion programme was undertaken by the appellants prior to 07.01.2003, the appellants unit is not entitled for the exemption of Notification No. 50/2003. Whereas, the case of appellant is that although the expansion programme was inititated before 07.01.2003 however the installed capacity of more than 25% was got enhanced after 07.01.2003. Hence, the benefit of notification is definitely available to the appellant - There appears no evidence as produced by the department that those parts got installed prior cutoff date or that same contributed to enhancement in the installed capacity by any percentage. The fact of the present case is that the appellants factory never remained shut for the maintenance and enhancement of installed capacity. Also it is the minimum rather negligible apparatus which were procured prior to the relevant date. The installed capacity got enhanced post relevant date i.e. 07.01.2003 to the extent beyond 25% (per cent). Hence it is held that decision of M/S VISHVAKARMA PAPER AND BOARDS LTD. VERSUS THE COMMISSIONER OF CENTRAL EXCISE, [ 2010 (4) TMI 641 - UTTARAKHAND HIGH COURT] has wrongly been relied upon by the adjudicating authority. Thus, the benefit of clause 2(b) of Notification No. 50/2003 is wrongly denied to the appellant. The findings in order under challenge are liable to be set aside with respect to this aspect. Inclusion of area (khasra) of appellant in the notifications - HELD THAT:- The notification extends exemption to such goods as notified in annexure - I thereof and cleared from such units as are located in Industrial Growth Centre or Industrial Infrastructure Development Centre or Export Promotion Industrial Park or Industrial Estate or Industrial Area or Commercial Estate or the scheme area as the case may be. The unit of appellant exist in Ranipur, Haridwar is admittedly included in annexure - II of the notification. It is also an admitted fact that Rawli, Mehdoodpur, Ranipur is an integrated industrial park - appellants were not eligible for the duty exemption in terms of the said notification. Denying eligibility despite holding appellant s area to be covered under notification is absolutely a wrong finding. Due to this apparent contradiction also, the order is liable to be set aside. The findings in order under challenge that benefit of impugned notification could not be extended to the appellants as their unit is not located in an existing industrial area are not sustainable - The order under challenge is hereby set aside - Appeal allowed.
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2023 (11) TMI 409
CENVAT Credit - input services - outdoor catering service - period January, 2016 to June, 2017 - invocation of extended period of limitation - suppression of facts or not - HELD THAT:- The issue is no more res integra in view of the decision of the Larger Bench of the Tribunal in the case of Wipro Ltd. [ 2018 (4) TMI 149 - CESTAT BANGALORE] , wherein it has been held that the definition of input service has been amended w.e.f. 01.04.2011 providing the exclusion clause, wherein the definition of input service under Rule 2(l) ibid, specifically excludes outdoor catering services . It has been concluded in the said order that the outdoor catering service is not eligible for input service credit post amendment dated 01.04.2011 vide Notification No. 3/2011-CE (NT) dated 01.03.2011. The issue of availing CENVAT Credit on input service on outdoor catering service in respect of the canteen facility in the case of appellants has already been settled by this Tribunal in the assessee-appellant s own case in [ 2018 (1) TMI 201 - CESTAT MUMBAI] , where it was held that relying on the decision of the Tribunal in case of Ultratech Cement Ltd. [ 2016 (12) TMI 381 - CESTAT HYDERABAD] and Hindustan Coca Cola Beverages Pvt. Ltd. [ 2016 (8) TMI 35 - CESTAT HYDERABAD] the appeal is allowed. Invocation of extended period of limitation - suppression of facts or not - HELD THAT:- The department is not only well aware of the fact that the appellants were taking CENVAT credit on outdoor catering service but were also defending their case. Thus, it cannot be accepted that there exists any ground for suppression on this particular aspect. Hon ble Supreme Court, in the case of PUSHPAM PHARMACEUTICALS COMPANY VERSUS COLLECTOR OF C. EX., BOMBAY [ 1995 (3) TMI 100 - SUPREME COURT ] have ruled that when the Revenue authorities were aware of the facts about the assessee s activities, then issuance of show cause notice should be confined to the normal period. The demand of CENVAT Credit of Service Tax paid on outdoor catering service for the normal period alone is sustainable. However, the demand of interest for extended period is not sustainable as Department was aware of the issue as evidenced by the order of the Tribunal dated 29.11.2017 and as the issue was agitated in the highest Court by various appellate authorities - the interest and penalty imposed/confirmed in the impugned order by upholding the Order-in- Original dated 27.06.2019 is set aside - matter is remanded back to the original authority to re-quantify the demand for the normal period with regard to impugned outdoor catering service on which CENVAT Credit was taken by the appellants. Appeal partly allowed by way of remand.
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2023 (11) TMI 408
Seeking restoration of credit availed under CENVAT Credit Rules, 2004 that had been disallowed as ineligible - goods transport agency service for outward transportation up to the place of buyer - outdoor catering service - manpower recruitment and supply agency service - place of removal - Availment of credit of tax paid on charges levied by Mumbai International Airport Ltd in connection with the vending machines and kiosks installed in the airport premises - denied on the ground that the goods themselves are exempt from duty of central excise. HELD THAT:- Considering the lack of detailed examination of the submissions of the appellant herein in relation to the several heads on which CENVAT credit was directed to be recovered, it would be appropriate for the matter to be decided afresh for which purpose, the impugned order set aside and the dispute remanded back to the original authority for fresh determination. Needless to say, appellant herein shall be given an opportunity to present their submissions and the adjudicating authority shall, thereafter, determine the scope and extent of recovery proposed in the show cause notice in terms of settled law and the factual matrix. Appeal allowed by way of remand.
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CST, VAT & Sales Tax
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2023 (11) TMI 407
Validity of impugned order - barred by limitation under Section 8(5) of the Tamil Nadu Tax on Entry of Motor Vehicles into Local Areas Act 1990 - HELD THAT:- The Division Bench in SRI BALAKRISHNA TRANSPORT VERSUS COMMERCIAL TAX OFFICER, TAMBARAM I ASSESSMENT CIRCLE, CHENNAI [ 2009 (2) TMI 787 - MADRAS HIGH COURT] has categorically held that the authorities cannot make an assessment when the assessee had not filed any return. In other taxes like income tax there are provisions to take action if the assessee has not filed any return. The income tax authorities are empowered to take action, to impose penalty, if returns are not filed. Such provisions are not available in the present Act. The Act only states every person liable to pay tax under the Entry Tax Act ought to file a return. If return not filed, then the Act is not empowering the authorities to take action. In such circumstances, the authorities are not having jurisdiction to pass any order if return is not filed. In the present case since the order is passed beyond the period of limitation of three years, the order cannot be sustained. Whether as per the definition of Motor Vehicle , the Fork Lift will not come under the definition or not? - HELD THAT:- On perusing the photos and brochures of the said vehicle, this Court is of the considered opinion that the vehicle can be used only in the enclosed premises and it cannot be used on the roads. Therefore, on perusing the brochures and the usage of the vehicle, this Court is of the considered opinion that the vehicle cannot come under the definition of Motor Vehicles . Section 3 clearly states if vehicle is not liable for registration, then the respondent is not empowered to levy tax. In the present case, the vehicle is not liable for registration. Therefore, the respondent is not empowered to levy tax. When there is no jurisdiction to levy tax, then the respondent cannot levy tax. Since under Article 265 of the Constitution of India, any tax can be levied, by the authority of law. If there is no authority, the respondent is not empowered to levy tax. Therefore, the respondent is not empowered to levy tax, since there is no jurisdiction. This Court is of the considered opinion that the impugned order is liable to be quashed and accordingly quashed - Petition allowed.
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Indian Laws
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2023 (11) TMI 406
Seeking appointment of an arbitrator for the adjudication of disputes - Section 11(6) of the Arbitration and Conciliation Act, 1996 - It is the case of the petitioner that instead of appropriately responding to the notice of arbitration, the respondent issued a letter dated 09.05.2022, terminating the Contract alleging non-compliance of work and nonfulfilment of the contractual obligation. Whether the dictum as laid down in ICOMM TELE LTD. VERSUS PUNJAB STATE WATER SUPPLY AND SEWERAGE BOARD AND ORS. [ 2019 (3) TMI 600 - SUPREME COURT] can be made applicabl e to the case in hand more particularly when Clause 55 of the General Conditions of Contract provides for a pre-deposit of 7% of the total claim for the purpose of invoking the arbitration clause? - Whether there is any direct conflict between the decisions of this Court in S.K. Jain [ 2009 (2) TMI 926 - SUPREME COURT ] and ICOMM Tele Limited? - HELD THAT:- The principles of law discernible from the aforesaid observations made by this Court in ICOMM Tele Limited are as under: (a) That the pre-deposit condition in an arbitration clause is violative of Article 14 of the Constitution of India being arbitrary. (b) Unless it is first found or prima facie established that the litigation that has been embarked upon is frivolous, the exemplary costs or punitive damages cannot follow. (c) Deterring a party to an arbitration from invoking the Alternative Dispute Resolution Process by pre-deposit of certain percentage would discourage arbitration. This would run contrary to the object of de-clogging the court system and would render the arbitral process ineffective and expensive. In the decision of the Calcutta High Court in M/S AMAZING INDIA CONTRACTORS PVT. LTD. VERSUS THE AIRPORT AUTHORITY OF INDIA AND ORS. [ 2023 (6) TMI 1331 - CALCUTTA HIGH COURT] , ICOMM Tele Limited and PERKINS EASTMAN ARCHITECTS DPC ANOTHER VERSUS HSCC (INDIA) LTD. [ 2019 (11) TMI 1154 - SUPREME COURT] were relied upon and ultimately, it was held that Clause 33 of the agreement therein between the parties providing for constitution of a Dispute Resolution Committee with a stipulation that before availing of dispute resolution clause, the disputed amount has to be deposited, was held to be invalid and contrary to law. As such there is no conflict between S.K. Jain and ICOMM Tele Limited, as the relevant arbitration clauses that fell for the consideration of this Court in both the cases stood completely on a different footing. What is relevant to note are the points of law on which S.K. Jain [ 2009 (2) TMI 926 - SUPREME COURT] was distinguished and explained in ICOMM Tele Limited. Keeping the aforesaid in mind, on looking into the 7% pre-deposit condition in the case on hand, as contained in Clause 55 of the GCC it is evident that nothing has been provided as to how this amount of 7% is to be ultimately adjusted at the end of the arbitral proceedings. With a view to salvage this situation, the learned counsel appearing for the respondent invited the attention of this Court to Clause 3 of the GCC, which relates to the security deposit for performance. Whether this Court while deciding a petition filed under Section 11(6) of the Act 1996 for appointment of a sole arbitrator can hold that the condition of pre-deposit stipulated in the arbitration clause as provided in the Contract is violative of the Article 14 of the Constitution of India being manifestly arbitrary? - HELD THAT:- Kelson s pure theory of law has its pyramidical structure of hierarchy based on the basic norm of Grundnorm. The word Grundnorm is a German word meaning fundamental norm. He has defined it as the postulated ultimate rule according to which the norms of this order are established and annulled, receive or lose their validity . It is the Grundnorm which determines the content and validates the other norms derived from it. But from where it derives its validity, was a question which Kelson did not answer, stating it to be a metaphysical question. Grundnorm is a fiction, rather than a hypothesis as proposed by the jurist - The argument canvassed on behalf of the respondent that the petitioner having consented to the pre-deposit clause at the time of execution of the agreement, cannot turn around and tell the court in a Section 11(6) petition that the same is arbitrary and falling foul of Article 14 of the Constitution is without any merit. It is a settled position of law that there can be no consent against the law and there can be no waiver of fundamental rights. Whether the arbitration Clause No. 55 of the Contract empowering the Principal Secretary/Secretary (Irrigation), State of Uttarakhand to appoint an arbitrator of his choice is in conflict with the decision of this Court in the case of Perkins Eastman [ 2019 (11) TMI 1154 - SUPREME COURT] ? - HELD THAT:- There are a plethora of judgments of this Court even prior to the amendment of Section 12, where courts have appointed the arbitrators, giving a go-by to the agreed arbitration clause in certain contingencies and situations, having regard to the provisions of unamended Section 11(8) of the Act which, inter alia, provided that while appointing the arbitrator, Chief Justice, or the person or the institution designated by him, shall have regard to the other conditions as are likely to secure the appointment of an independent and impartial arbitrator. The courts in the United States of America have also deliberated upon the doctrine of unconscionability on numerous occasions. The Court of Appeal of California in the case of Patterson v. ITT Consumer Financial Corporation, had the occasion to consider whether the requirement for the claimants to pay a filing fee along with hearing fees for the purpose of resolving the matter could be said to be unconscionable. The Court of Appeals held that such a condition was incomprehensible and discouraged the borrowers from pursuing their claims. The two conditions contained in Clause 55 of the GCC, one relating to 7% deposit of the total amount claimed and the second one relating to the stipulation empowering the Principal Secretary (Irrigation) Government of Uttarakhand to appoint a sole arbitrator should be ignored and it is proceeded to appoint an independent arbitrator. Application allowed.
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