Newsletter: Where Service Meets Reader Approval.
TMI Tax Updates - e-Newsletter
December 15, 2022
Case Laws in this Newsletter:
GST
Income Tax
Benami Property
Customs
FEMA
Service Tax
Central Excise
CST, VAT & Sales Tax
Indian Laws
Articles
News
Notifications
Highlights / Catch Notes
GST
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Detention of goods - Levy of penalty - correct description of goods - the goods sold were on the basis of number of pieces and not according to the weight - old and damaged batteries - The Assistant Commissioner had wrongly detained the truck along with the goods of the petitioner and imposed a penalty - Amount deposited is to be refunded - HC
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Input Tax Credit (ITC) - validity of demand raised before issuance of show cause notice (SCN) - summary of notice in Form DRC-01 - mismatch of the GST payable on inward supplies as recorded in the Form GSTR 2A with the GSTR 3B returns - goods in transit as on 31st March (end of Financial year) - - SCN and demand notice quashed and set aside - HC
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Best Judgement assessment - Ex-parte order - Non-functioning of GST Tribunal - Failure to file the GST returns and pay the tax due to COVID for 10 months in time - failure of the assessee to file reply to the show cause notice issued u/s 46 - matter restored back to Appellate Authority for fresh adjudication - HC
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Levy of Penalty - transporting the vehicle in question after expiry of the e-way bill - time gap between the expiry of the bill and interception of the vehicle in question is about 21 hrs - Revenue could not make out any case against the petitioner that there was any deliberate or willful intention of the petitioner to avoid and evade the tax. - No penalty - HC
Income Tax
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Penalty u/s 271(1)(c) - disclosure or admission made u/s 132(4) of the Act during the course of search proceedings - assessee has taken specific plea that no money, bullion or jewellery or income based on any entries in any books of account or other documents for these two assessment years was found during the course of search - AO should have rejected the explanation of the assessee by demonstrating it as incorrect. Rather, the authorities have proceeded on the assumption that had there been no money, bullion, jewellery or income based on entries was not found, the assessee would not have made voluntary disclosure of the income in his returns. - AT
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Accrual of income - assessee was declaring LPS on outstanding credit receivables on accrual basis - hybrid system of accounting - the assessee has followed the directions of Ministry of Power dated 19.08.2003 and also considering the fact that in the past also huge amount of outstanding LPS are waived of and there is no certainity of receiving LPS charges from the Government companies and also considering the fact that similar views of accepting such treatment of LPS charges on cash basis even when the books of account are maintained on mercantile system have been taken by judicial forums, the view taken by the ld. AO was permissible in the law - Revision order u/s 263 quashed. - AT
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Prior period expenditure - interest liability for the 22 month period - Assessee following mercantile system of accounting, with prudence and conservatism being fundamental accounting principles, the same stands correctly provided for on 31/3/2008 inasmuch as the books for fy 2007-08 had not been closed by that date (12/6/2008). - AT
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Disallowance u/s 40(a)(ia) - non-deduction of tax at source (TDS) - the amendment brought in by Finance Act No. 2 of 2014 restricting the disallowance u/s 40(a)(ia) of the Act to the tune of 30% of the expenses was made effective from 01/04/2015. But thereafter, clause 14.3. of the explanatory memorandum to Finance Bill 14 was said to be brought to effect to remove hardships faced by the assessee and thus, the said amendment was held to be clarificatory in nature and applicable retrospectively. - AT
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Claim of interest expenditure - Nexus between investments and borrowed funds - A clear and direct nexus has to be established between the loan funds and the investments before a disallowance u/s. 56(1)(iii) of the Act is made. If there is a direct nexus between the loan funds and such investments, then the proposition that if the assessee had surplus funds with it, then the investment would be presumed to have been made from such surplus funds would not hold good and then the disallowance u/s. 36(1)(iii) of the Act would be fully justified. However, if there is no direct link between the borrowed funds and the investments, then the presumption would were in favour of the assessee. - AT
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Set off of brought forward business loss of earlier years - We also see no conflict in an income being taxable under the head profits and gains from business or profession, and an income being in the nature of a franchise fee earned in the course of business - even if it is taxed at a rate different than the rate at which the normal business income is taxed. All that really matters is the income being in the nature of profits and gains from business or profession being carried on by the assessee, and that aspect is not even in dispute - AT
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TP Adjustment - the TPO is erred in adopting CUP method for few transactions when he has accepted overwhelming majority of transactions under TNMM method. The DRP without appreciating the above facts, simply sustained TP adjustment suggested by the TPO. Hence, we direct the AO/TPO to delete TP adjustment made towards few transactions by adopting CUP as most appropriate method. - AT
Customs
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Misdeclaration of description and value - Validity of test report - Cross examination of Chemical Examiner - In the present matter, refusal to allow cross-examination of the Chemical Examiner is to be viewed as a serious violation of principles of natural justice. Had the cross examination been allowed, the appellant could have availed an opportunity to enquire the testing methodology and standards adopted by CRCL and its suitability vis-a-vis the ISI. - AT
FEMA
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Offence under FEMA - vicarious liability of the persons responsible - Responsibility of Directors - According to the scheme of this Act, he cannot relinquish his liability as regards the alleged contravention for this period at the time of and after export of the goods, till the time he remained as company’s ‘Director’ taking part in the affairs thereof, as suggested in the complaint, of course unless he rebuts the same with adequate materials. - HC
Direct Taxes
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Prohibition of Benami Property Transactions - provisional order of attachment - Section 2(9)(A) and 2(9)(C) - these two provisions cannot be applied to a transaction which took place prior to 01.11.2016. In that case, the transaction was dated 14.12.2011. Therefore, the show cause notice, provisional attachment order as well as the adjudicating order were declared null and void being without jurisdiction and consequently, quashed. - HC
Indian Laws
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Dishonor of cheque - Vicarious liability of non-executive Director / Promoter - Mere nomenclature in Form DIR-12 as Non-Executive Directed necessarily does not mean that the petitioner was not directly or indirectly related with the affairs of the respondent no. 2. If the petitioner is having the evidence that he was not responsible for the affairs of the respondent no. 2, it can be established and proved in accordance with law during the trial of the present complaints. - HC
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Dishonor of cheque u/s 138 - validity of statutory demand notice - The legal notice is not confined to the cheque amount. The respondents have not specifically asked for the payment of cheque amount within the stipulated period within the mandate of section 138 of NI Act. The cheque amount is not separately mentioned and identifiable from entire outstanding amount - Impugned order and proceedings quashed. - HC
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Doctrine of constitutional priority - Supremecy of attachment passed by the Tax Recovery Officer / Income Tax Department or to the mortgage created in favour of the secured creditors Dues of the Income Tax Department precedence over the dues of the secured creditor - In all these cases, the orders of attachment passed by the Tax Recovery Officer / Income Tax Department were subsequent to the mortgage created in favour of the secured creditors and hence, the same will have no legs to stand, in view of the principles laid above by this court. - HC
Service Tax
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The present case is a classic example wherein due to delay in passing of the adjudication order it appears that the most vital documents submitted by the assessee, being the reconciliation documents, were not considered and dealt with by the adjudicating authority despite the fact that they admit now in the supplementary counter affidavit that the same were available on record. - Matter restored back for fresh adjudication - HC
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Interest on delayed refund u/s 11BB - Cenvat Credit is in the nature of any duty/tax paid by the appellant or not - Refund of unutilized cenvat credit - export of services - Learned Commissioner seems to be not aware of the Principle of Judicial Discipline and in particular Article 141 of the Constitution of India, which provides that the decisions of the Hon'ble Supreme Court are binding on all the Courts in India and “all Courts” includes quasi-judicial authorities also, therefore he ought to have followed the law laid by the Hon'ble Supreme Court - AT
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Extended period of limitation - the Tribunal having come to the conclusion that the issue turned upon an interpretation of the provisions of Section 65(68) and Section 65(86b) of the Finance Act 1994, there was no warrant to allow the invocation of the extended period of limitation and to direct the determination of the penalty following the re-quantification of the demand. - SC
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Manpower recruitment or supply agency service - reverse charge - An employer-employee relationship exists between the agency and the individual and not between the individual and the person who uses the services of the individual. Such cases were held to be governed by the definition of "manpower recruitment or supply agency" in Section 65(68) and hence liable to service tax. - the fact that there may be no relationship of employment between VA and FSE would not be dispositive for the purposes of the statutory definition in Section 65(68). - SC
Central Excise
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Claim of rebate (refund) - Export of goods - Period of limitation - while making claim for rebate of duty under Rule 18 of the Central Excise Rules, 2002, the period of limitation prescribed under Section 11B of the Central Excise Act, 1944 shall have to be applied and applicable - HC
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Waiver of penalty in excess of 25% - irregularity in availing Cenvat Credit - it is clear that the appellant had paid duty along with interest and 25% of penalty on receipt of the Order in Original. The adjudicating authority has not given the option to pay 25% of the penalty in the order passed by him. - Benefit granted - AT
VAT
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Claim of exemption of penultimate sale in course of export - The disallowance of claim of the petitioner under Section 5(3) of the CST Act has been made by the Assessing Authority and confirmed by the Appellate Authority and the Odisha Sales Tax Tribunal was on account of non-production of copy of agreement between the Indian Exporter and the Foreign Buyer - Claim of the assessee allowed - HC
Case Laws:
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GST
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2022 (12) TMI 592
Seizure of goods in transit - the reason assigned in the Form GST MOV-06 for seizure of the goods that the purchaser firm was not in existence and it was a fake sale and invoice, is absolutely false - jurisdiction to proceed under Section 129(3) of the C.G.S.T Act 2017 - Notice issued in the name of Driver, despite the claim of the assessee HELD THAT:- Noticing the said submissions, we may record that the dispute pertaining to validity of the seizure order cannot be seen at this stage for the findings returned therein in FORM GST MOV-07 appended at page-'36' of the paper book that the invoice was for fake sale. Moreover, the remedy before the petitioner is to approach the competent authority by moving a proper application giving details of his name about the ownership of the goods in question. The application which is appended as Annexure-'8' to the writ petition is undated and there is no proof of the receipt of the same in the office of the respondent no.2. We, therefore, dispose of the present petition with the observation that the petitioner shall approach the competent officer putting forth his claim of being owner of the seized good by a moving proper application along with the copy of this order
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2022 (12) TMI 591
Detention of goods - Levy of penalty - correct description of goods - the goods sold were on the basis of number of pieces and not according to the weight - old and damaged batteries - HELD THAT:- The description of the batteries given in the tax invoice is under two headings, i.e., large damaged battery and small damaged battery. In the reply furnished by the petitioner in paragraph 3, it has been stated that the battery is purchased and sold on the basis of per piece and not on the basis of weight. The Adjudicating Authority while passing the order has not recorded any finding as to how the explanation accorded by the petitioner cannot be accepted and the trade practice of purchase and sale of battery is according to weight and not per piece. Similarly, the First Appellate Authority has failed to record any finding as to how it has arrived to the conclusion that the trade practice required the battery to be sold is according to the weight and not per piece, when the specific case of the petitioner was that he was purchasing and selling the battery on the basis of per piece and was maintaining the Books of Account, which has not been denied by the Taxing Authority. The Assistant Commissioner had wrongly detained the truck along with the goods of the petitioner and imposed a penalty - Amount deposited is to be refunded - Decided in favor of assessee.
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2022 (12) TMI 590
Input Tax Credit (ITC) - validity of demand raised before issuance of show cause notice (SCN) - summary of notice in Form DRC-01 - mismatch of the GST payable on inward supplies as recorded in the Form GSTR 2A with the GSTR 3B returns - goods in transit as on 31st March (end of Financial year) - It is submitted that, in 2018-19, the company availed less credit of GST than what was available to it in terms of the GSTR 2A returns. Whereas in 2019-20, owing to the delayed availment of credit on supplies effected in the previous financial year, the company took input tax credit in excess of the GST paid on the inward supplies effected in 2019-20. HELD THAT:- the show cause notice in terms of Rule-142(1) of the JGST Rules has not been served to the petitioner before issuance of summary of notice in Form DRC-01. - Accordingly, the impugned summary of show cause notice dated 03.11.2020 issued in Form-DRC-01(Annexure-1) is quashed and set aside. - Revenue are at liberty to initiate fresh proceeding from the stage of issuance of Show-Cause Notice in terms of Section 73 read with Rule 142(1) of the JGST Rules.
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2022 (12) TMI 589
Best Judgement assessment - Ex-parte order - Non-functioning of GST Tribunal - Failure to file the GST returns and pay the tax due to COVID for 10 months in time - failure of the assessee to file reply to the show cause notice issued u/s 46 - Appellate Authority, learned counsel submitted that Appellate Authority has taken note of this submissions but has ultimately negatived the appeal primarily on the ground that the returns were filed belatedly i.e., not within the prescribed time. HELD THAT:- this Court deems it appropriate to set aside the impugned order and remit the matter back to Appellate Authority with a further directive to examine the matter on merits based on available records and based on opportunity already given to the writ petitioner - assessee under subsection (8) of Section 107 of C-GST Act. This means that the Appellate Authority need not give opportunity of being heard to the writ petitioner-assessee again as the same has already been given, it is the discretion of the Appellate Authority. All that the Appellate Authority has to do is to articulate the dispositive reasoning qua aforesaid aspect of the matter. It is open to the Appellate Authority to articulate other reasons i.e., dispositive reasoning of other facets of the matter.
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2022 (12) TMI 588
Levy of Penalty - transporting the vehicle in question after expiry of the e-way bill - time gap between the expiry of the bill and interception of the vehicle in question is about 21 hrs - HELD THAT:- Revenue could not make out any case against the petitioner that there was any deliberate or willful intention of the petitioner to avoid and evade the tax. - impugned order of the appellate authority and adjudicating authority set aside - petitioner will be entitled to get the refund of the tax and penalty in question subject to compliance of legal formalities.
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Income Tax
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2022 (12) TMI 587
Disallowance on account of foreign exchange fluctuation loss (mark to market) wherein the loss being provisions for future is notional in nature - Whether Tribunal in deleting the disallowance/addition made by the AO was perverse having regard to the evidence and materials on record ? - HELD THAT:- It is not disputed by the revenue that questions involved in this case were considered by this Court in the case of Principal Commissioner of Income Tax-1, Kolkata vs.- M/s. Pricewaterhouse Coopers Pvt. Ltd [ 2021 (12) TMI 1400 - CALCUTTA HIGH COURT] as held that identical issue was considered in the case of Principal Commissioner of Income Tax vs. Suzlon Energy Ltd.[ 2018 (2) TMI 1789 - GUJARAT HIGH COURT] and the Court held that the decision of the Tribunal in so far as deleting the disallowance being notional loss on outstanding foreign derivative contracts was approved by holding that the decision is in-conformity with the decision of the Hon ble Supreme Court in Woodward Governor India [P] Ltd. Ors[ 2009 (4) TMI 4 - SUPREME COURT] . The revenue had filed a Special Leave Petition In the case of the same assessee, namely Suzlon Energy Limited, the Hon ble Supreme Court in Principal Commissioner of Income Tax vs. Suzlon Energy Ltd.[ 2020 (1) TMI 1505 - SC ORDER] approved the decision of the High Court upholding the order of the Tribunal allowing the assessee s claim of foreign exchange fluctuation loss on mark to market basis. In the light of the above, we find no grounds to interfere with the order passed by the Tribunal. Also see HINDUSTAN GUM AND CHEMICALS LTD. [ 2021 (1) TMI 1282 - CALCUTTA HIGH COURT] - Thus the appeal filed by the revenue is dismissed
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2022 (12) TMI 586
Liability to pay excise duty and service tax - admissible deduction under the law - Allowability of revenue expenditure in its P L account under commercial expediency - AO and the CIT (Appeals) upheld the disallowance merely on the ground that the liability to pay service tax is not of the assessee, but rather it is the client - HELD THAT:- Neither by the A.O in the assessment order nor by the Ld. CIT(A) in the first appellate order nor by the Ld. Senior D.R. before during argument before us, the factum was not controverted that the assessee could not recover impugned amounts of service tax and excise duty from its clients but paid the same to the Government and claimed it as business expenditure under commercial expediency to comply with the taxation provisions of the Government. It is not also a case of the A.O that the assessee recovered the amount from Vishakhapatnam Steel Plant and contract manufactures and did not pay the same to the Government or the assessee has wrongly claimed impugned amounts as revenue expenditure because the assessee had already recovered the same from Vishakhapatnam Steel Plant and contract manufacturers. In the situation when the assessee complying with the provisions of indirect taxation and deposit the service tax and excise duty to the exchequer as applicable to the business activity of the assessee. In a situation when the assessee is not able to recover such amounts fully or partially then the assessee is very well entitle to claim the same as revenue expenditure in its P L account under commercial expediency of complying with the taxation liability as well as maintaining business relations with the respective clients/costumers. Therefore we hold that the A.O was not right in making disallowance in the hands of assessee
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2022 (12) TMI 585
Penalty u/s 271(1)(c) - disclosure or admission made u/s 132(4) of the Act during the course of search proceedings - HELD THAT:- Presumption of admissibility of evidence is a rebuttable one, and if an assessee is able to demonstrate with the help of some material that such admission was either mistaken, untrue or based on misconception of facts, then, solely on the basis of such admission, no addition is required to be made. As true that admission being declaration against an interest are good evidence, but they are not conclusive, and a party is always at liberty to withdraw the admission by demonstrating that they are either mistaken or untrue. In law, the retracted confession even may form the legal basis of admission, if the AO is satisfied that it was true and was voluntarily made. But then basing the addition on a retracted declaration solely would not be safe. It is not a strict rule of law, but only a matter of prudence. As a general rule, it is unsafe to rely upon a retracted confession without corroborative evidence. Due to this grey situation, CBDT issued Circular No.286/2/2003 prohibiting the departmental officials from taking confession in the search. The board is of the view that often the officials used to obtain confessions from the assessee and stop further recovery of the material. Such confessions have been retracted and then the addition could not withstand the scrutiny of the higher appellate authority, because no material was found, supporting such addition. Keeping the provisions of section 132(4) in justaposition with provisions of Explanation 5A to Section 271(1) (c), the inference of ownership of any money, bullion, jewellery or other valuable articles, to our mind, ought not be based merely on the joint disclosure petition - When the assessee has taken specific plea that no money, bullion or jewellery or income based on any entries in any books of account or other documents for these two assessment years was found during the course of search, AO ought to have immediately referred the documents, entries or any asset found, which is relevant to these assessment years in the penalty proceedings. He should have rejected the explanation of the assessee by demonstrating it as incorrect. Rather, the authorities have proceeded on the assumption that had there been no money, bullion, jewellery or income based on entries was not found, the assessee would not have made voluntary disclosure of the income in his returns. Inference of availability of money, bullion or assets or income embedded in the entries cannot be drawn merely from the disclosure petition referred above. These should have been found in physical form and pertaining to these specific years in the course of conduct of such and seizure operation, only then deeming fiction of concealment as stated in Explanation 5A of Section 271(1) (c) would get triggered. Revenue authorities have not referred any documentary evidence demonstrating the fact that voluntary incomes offered by the assessee in these two years were actually unearthed during the course of search and are based on any entry in any books of account or other documents so unearthed which are specific to such additions whereon impugned penalty is imposed. Therefore, to our mind, penalty so imposed by applying Explanation 5A to Section 271(1)(c) deserves to be deleted. Accordingly, appeal of the assessee is al lowed and the penalty so imposed is deleted. Appeal of assessee allowed.
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2022 (12) TMI 584
Revision u/s 263 by CIT - accrual of income - accounting of delayed payment surcharge ( LPS ) on cash basis - assessee was declaring LPS on outstanding credit receivables on accrual basis - hybrid system of accounting - HELD THAT:- AO has conducted the necessary enquiry on the said issue referred in the show-cause notice u/s 263 called for the details, made proper applcation of mind on the said details, considering the fact that the said treatment of LPS on cash basis is consistently being followed from AY 2003-04 onwards and accepted by predecessors and financial statements are duly audited by three auditors including CAG and the assessee has followed the directions of Ministry of Power dated 19.08.2003 and also considering the fact that in the past also huge amount of outstanding LPS are waived of and there is no certainity of receiving LPS charges from the Government companies and also considering the fact that similar views of accepting such treatment of LPS charges on cash basis even when the books of account are maintained on mercantile system have been taken by judicial forums, the view taken by the ld. AO was permissible in the law and not unsustainable and, therefore, in our considered view, the order of the ld. AO is neither erroneous nor prejudicial to the interest of revenue. We accordingly quash the revisionary proceedings carried out under section 263 by ld. PCIT and allow the grounds of appeal raised by the assessee.
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2022 (12) TMI 583
Ex-parte order - Computation of Long Term Capital Gains - assessee s father purchased two properties 1961 in the name of the assessee and his brother who at the time were minor children. After the death of the farther, the aforesaid properties vested with both the sons in equal proportion as per the will of their Father - aforesaid properties (two) were sold by the assessee and his brother, with his sister acting as a power of attorney holder) vide sale deed - CIT-A so computed unexplained credits in the hands of assessee, interest income and short-term capital gains on mutual funds in the hands of assessee - HELD THAT:- In the instant case, we observe that despite a large number of opportunities, the assessee has not caused appearance before us to argue his case on merits. We observe that Ld. CIT(A) has after taking into consideration all the facts has passed a detailed and reasoned order, the relevant extracts of which have been reproduced above. The assessee has not produced any material or given any arguments to controvert any of the findings made by Ld. CIT(A). Accordingly, in our view, we find no infirmity in the order of Ld. CIT(A) and we accordingly dismissed the appeal of the assessee in light of the detailed order passed by Ld. CIT(A) considering the facts of the case. Appeal of the assessee is dismissed.
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2022 (12) TMI 582
Expenditure claimed on account of overstatement of expenditure - over-statement of expenses, i.e., on account of the same relating to a prior period - deduction of interest expenditure on GPF - HELD THAT:- The impugned sum comprises three sums representing liabilities on account of interest and employee terminal benefits, admittedly pertaining to the immediately two preceding years, while the fourth is a credit representing a lower provision for depreciation on fixed assets, ostensibly on account of a smaller assignment of fixed assets to the assessee-company. It is not clear if the differential depreciation is on account of the revision therein for the current year and/or the preceding year/s. Continuing further, while the AO relied on the statutory auditor s report, further stating that the impugned expenditure does not relate to the current assessment year, the ld. CIT(A) has allowed relief on the basis that the liability has crystalized only during the year under consideration. In fact, the sense that we got on hearing the parties, as indeed the documents referred to thereat, was that it is the increased liability/s as on 31/5/2005, i.e., in the opening statement of assets and liabilities (balance-sheet) as on 01/6/2005, to the extent modified by GoMP, that stands claimed by the assessee through debit to the profit loss account, i.e., the operating statement, for the relevant year. The same, even as also observed by the Bench during hearing, are capital liabilities, of course at net of capital assets. As even, notwithstanding the fact that they stand to the extent modified or varied, intimated and confirmed by GoMP only later, so that they could not be co-opted in the books of account on 31/5/2005 (31/3/2005), but only later, i.e., on 12/6/2008 (31/3/2008), would be of no consequence inasmuch as the same does not alter the nature of the liability (asset) as on capital account, but only its quantum. The interest liability for the 22 month period, i.e., from 01/6/2005 to 31/3/2007, would, in the given facts and circumstances of the case, stand to arise to the assessee only on 12/6/2008, i.e., during fy 2008-09, corresponding to AY 2009-10. Assessee following mercantile system of accounting, with prudence and conservatism being fundamental accounting principles, the same stands correctly provided for on 31/3/2008 inasmuch as the books for fy 2007-08 had not been closed by that date (12/6/2008). Assessee could not have provided for the same at any time earlier; the books for fys. 2005- 06 2006-07 having been since closed, and the delay in making the provision in its respect is not on account of any error or omission in finalizing the accounts for those years. Reference in this regard may be made to Accounting Standards I II issued by the Central Government u/s. 145(2) of the Act. It is therefore not necessary to dwell on the accounting standards by ICAI. There is no question of accrual and, resultantly, accounting for the interest obligation for the period prior to 01/6/2005, i.e., the period prior to the transfer date, as, as afore-explained, it is a capital liability in the assessee s hands, and which stands incorporated at its value as on 31/5/2005. The expenditure on the salary or GPF of the employees of other entities and, correspondingly, interest thereon, cannot possibly be the liability of the assessee s business, even if statutorily assumed by the assessee. The Income Tax Act is, as is well-settled, a separate code in itself for the computation and assessment of income liable to charge to tax thereunder. The same would therefore, where so, need to be segregated. We may though hasten to add that if however a separate, dedicated funding in its respect, i.e., the capital liability/salary in respect of the employees other than the assessee s employees, stands provided for by GoMP on reorganisation, though it does not appear to be so, the income arising on these assets shall stand to be assessed u/s. 56 as Income from other sources and, consequently, corresponding interest liability deductible as expenditure there against u/s. 57(iii). The matter shall accordingly travel back to the file of the AO, who shall: (a) subject to (b), compute the qualifying amount for deduction of interest expenditure on GPF at Rs. 2317.76 lacs for the 22 month period (from 01/6/2005 to 31/3/2007), as per the interest arising under the relevant arrangement/s. (b) segregate the interest on GPF to the extent it relates to the employees other than the assessee s employees, and exclude it from the total interest on GPF (i.e., Rs. 2317.76 lacs); (c) set-off the interest liability as excluded (as per (b)) against income, if any, arising to the assessee from the separate, dedicated funding provided by GoMP in respect of the proportionate GPF. If not, the said excluded amount cannot be setoff by regarding it as the liability of the assessee s business. (d) Likewise for the interest cost on loan for Rs. 1318.75 cr. (as against earlier figure of Rs. 1379 cr.), i.e., as per (a). It would though need to be clarified as to how the interest liability (which is to be in terms of underlying agreement/s) arises; the final loan (capital borrowed), rather than exhibiting an increase with reference to the provisional sum, stands decreased by Rs. 6025.44 lacs in the final opening balance sheet (as on 01/6/2005). There ought to be thus, on the contrary, a reversal of the interest provided on the excess loan for the preceding two years, resulting in a prior period income, i.e., on the same basis and principle as the increased liability results in an additional interest cost/liability. The adjudication, thus, though in agreement with the assessee s stand in principle, would need to be determined on quantum, and which may though result in an income, qua which the AO shall of course seek clarification, and issue clear and definite finding/s. e). the interest as per (a) and (d) shall be allowable u/s. 36(1)(iii) (loan) or s. 37(1) (GPF), in computing the assessee s business income. However, the interest liability shall, where and to the extent subject to the condition of tax deduction at source and/or of payment, its deductibility would subject to relevant provisions, viz. s. 40(a)(ia); 43B, et. al. Needless to add, the requisite data, information and explanation/s for the purpose shall be furnished by the assessee, as also the necessary working. The AO shall make necessary verification in the manner deemed proper and, in case of any difference, extend reasonable opportunity to the assessee to present and explain it s working, deciding as per law issuing clear findings of fact. We decide accordingly. Liability in respect of the terminal benefits, being pension and gratuity, provided at defined rates for the two preceding years - HELD THAT:- The quantum of provision is to be governed by the underlying arrangement/s. We make it clear that the allowance of provision shall though be subject to specific provisions, if any, under the Act in respect thereof viz. s. 40A(7); s.43B, etc. Further, if and to the extent the same relates to the employees of other than the assessee s business, i.e., employed by it and working therefor, the same shall be subject to the same directions/adjudication as in respect of GPF. We are conscious that the pension liability could be in respect of the retired (i.e., as on 31/5/2005) employees of the Board. The same shall be subject to the same adjudication as qua the employees of other than the assessee s business. The AO shall, upon verification, allow the assessee s claim accordingly, granting it reasonable opportunity to present and explain its working. Credit for a lower depreciation charge - HELD THAT:- The written down value (WDV) of the fixed assets is to be u/s. 43(6) the actual cost less depreciation actually allowed. The actual cost to the assessee-company, it may be clarified, would be the transfer price (value), i.e., at which it takes-over/is assigned the fixed asset/s. The AO shall work the depreciation claim exigible u/s. 32(1) based on the revised working, adopting the cost as now revised, and modify the assessee claim for depreciation, i.e., if and to the extent not consistent with the working u/s. 32(1) r/w s. 43(6), of course, upon allowing the assessee an opportunity to present and explain itself working. Reference in this context be made to Maharana Mills (P.) Ltd [ 1959 (4) TMI 7 - SUPREME COURT] - We are conscious that the fixed assets as finally allotted to the assessee are at an increase (i.e., by Rs. 252.74 lacs, after adjusting the capital WIP), rather than a decrease, over that initially assigned, and which should therefore result in an enhanced charge for depreciation. So, however, the methodology adopted, which is to be in terms of s. 32(1) r/w s. 43(6), would coalesce the charge of depreciation for the current year to a single sum, obviating the need for any reversal of, or additional, charge for depreciation for the current year.
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2022 (12) TMI 581
Unexplained income/Debtors - violation for receiving SBN [Specified Bank Note] - assessee explained that the cash was received from Sundry Creditors the amount was received in SBN - assessee submitted the confirmation of AD Traders, bank account as proof of deposited amount during demonetization - HELD THAT:- Considering the order of the revenue authorities the assessee was not able to submit the confirmation from the sundry debtor, M/s AD Traders. The assessee received SBN during demonetization period on dated 10.11.2016. The amount was deposited in the bank account. The amount was received before the appointed day i.e.,dated 31.12.2016. So, the assessee shall not in a violation for receiving SBN as per the Act. In Income tax Act the source was unexplained before the revenue authorities as the evidence was not able to submit before any of the lower authorities by the assessee - we direct to set aside the matter before the ld.AO for necessary verification denovo . Both the revenue and the counsel of the assessee had not made any objection for remanding back the issue before the ld. AO. AO shall provide proper and adequate opportunity of being heard to the assessee in set aside proceedings. Appeal of the assessee allowed for statistical purposes.
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2022 (12) TMI 580
Reopening of assessment u/s 147- unexplained cash deposits - Assessee filed the return but had not disclosed the deposit of cash in the return of income - assessee took the plea that the said amount was accumulated for the sale of land, but the assessee was unable to produce any instrument related to proof of sale of land.HELD THAT:- In the factual ground the grievance of the revenue that the acceptance of the instrument related to transfer of the property like agreement and power of attorney was in question. In the hearing before bench, the assessee also placed the registered power of attorney and the copy of the agreement as proof of the transaction. The revenue authority had not verified the purchaser of the property M/s R.K. Associates, Grain Market, Tanda, Distt., Hoshiarpur. In our opinion, the primary evidence, and party who paid the cash to the assessee for purchasing the land before the Bench, was unable to submit any registered deed related to transfer of property. As per the ld. Sr. DR, the total transfer of the land is incomplete without a registered deed of the property. But the ld. Counsel argued that the source of the cash was proved on basis of this transaction. In any case, we are set aside the issue to ld. AO for verification to the purchaser of the property M/s R.K. Associates. The issue should be disposed off accordingly with the above direction. Appeal of the assessee is allowed for statistical purposes.
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2022 (12) TMI 579
Addition u/s 69 - Search Seizure action u/s 132 - information as available in the seized records - Discharge of onus - unexplained investment was opening capital of assessee - HELD THAT:- Here in this case the revenue did not controvert the contention of the assessee from the same very evidence that the opening capital is in fact the income of the current year. We have also observed that the ld. AO has made the addition u/s. 69 of the Act. On careful perusal of the provision of the act the AO can make the addition if the assessee is found to have made investments which are not recorded in the books of accounts whereas when the assessee has accepted the content making the addition u/s. 69 is also not correct as the ld. AO has not established that the investments in fact really belonged to the assessee and thus even on this aspect the ld. AO has not discharged his onus casted upon him. CIT(A) has dealt and made in detailed observation while dealing with the appeal of the assessee and we do not find any infirmity in the reasoned finding recorded by the CIT(A) and the revenue has not controverted any of the findings of the CIT(A) even though the bench has also granted proper opportunity to the revenue to place their contentions. Since, there is no refuting submission that the opening capital is in fact is income of the assessee when from the said tally data income for the current year is duly accepted. Thus, we do not find any infirmity in the finding of the CIT(A) that the opening capital reflected in the same tally data cannot be considered as income for the year under consideration. In terms of these observations, we do not find any merit in the ground no. 2 3 raised by the revenue and thus, the same is dismissed.
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2022 (12) TMI 578
Reopening of assessment u/s 147 - income element on account of refund of empty bottles - HELD THAT:- It is an undisputed fact that assessee has duly reported the net amount as miscellaneous receipt in its P L Account and offered the same for taxation in its return of income. It is also noted that the Excise Department of Govt. of West Bengal had issued an order wherein it is stated that the refundable price of empty bottles in which country spirit of different quantities is supplied in capsule and labelled bottles shall be as follows throughout the State . Evidently, ld. Counsel has demonstrated from the ledger account of miscellaneous receipt that there is no suppression of reporting of any income element on account of refund of empty bottles which formed the basis for the reassessment. Considering the facts on record, and the statutory requirement under the order of Excise Department, Govt. of West Bengal referred above, we hold that the addition made by the Ld. AO is to be deleted. Accordingly, ground taken by the assessee is allowed.
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2022 (12) TMI 577
Delay in deposit of Employees Contribution of Provident Fund and Employees State Insurance (PF ESI) - disallowance made u/s. 36(1)(va) - HELD THAT:- The issue relating to grounds taken by the assessee have come to rest by the recent verdict of the Hon ble Supreme Court in Chekmate Services Pvt. Ltd. [ 2022 (10) TMI 617 - SUPREME COURT] wherein it has been held that deduction u/s 36(1)(va) in respect of delayed deposit of amount collected towards employees contribution to PF cannot be claimed when deposited within the due date of filing of return even when read with Section 43B of the Income-tax Act,1961. Appeal of the assessee is dismissed.
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2022 (12) TMI 576
Unexplained Cash credit u/s. 68 - AO treating the unsecured loans received from the depositors as unexplained - HELD THAT:- On perusal of ledger account of assessee, in the books of Madhav Infra Project Ltd. we found that the Madhav Infra as on 1st April 2012 has debited the ledger of the assessee by the account of one Shri Mahendra Solanki. The link in all these adjustment entry was not properly explained. The provision of section 68 requires the assessee to establish the identity of creditor, genuineness of transaction and credit worthiness of the parties. Merely the fact that the amount received through banking channel does not make the transaction as genuine. The assessee needs to explain the transaction properly based on the documents within the parameters of section 68. Coming to the loan amount credited from other two parties namely Akshar Trading Co. and M.S. Carting Contractor - We note that the assessee before us filed a fresh evidences regarding repayment of loan to the above mentioned two parties. Evidences of the repayment of the loans by the assessee is very crucial for deciding the genuineness of the loan entries. These fresh evidences were not available before the lower authorities and therefore, the same needs to be verified at the level of the AO. Considering the ambiguity in the evidences field by the assessee with regard to the addition of Rs. 36 lakh on account alleged loan from Shir Ashok Khurana and fresh material furnished with respect to other two parties, we hereby set aside the issue to file of the AO for de-novo assessment in the light of above discussion as per the provisions of law - AO is directed to provide proper opportunity to the assessee to represent her case and needless to say the assessee will furnish required details and explanation necessary for deciding the issue. Ground of appeal of the assessee is hereby allowed for statistical purposes.
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2022 (12) TMI 575
Nature of expenditure - expenses on repairs under renovation - capital expenditure or revenue expenditure - HELD THAT:- On perusal of the material and the facts is the case in Landmark Automobiles Pvt. Ltd. [ 2014 (12) TMI 753 - ITAT AHMEDABAD] are identical in nature. The Coordinate Bench followed jurisdictional High Court judgment in the case of Desai Bros.[ 1974 (9) TMI 9 - GUJARAT HIGH COURT] and other High Court judgments. In our considered view this issue is no more res integra. Therefore, respectfully following the ratio of the judgment rendered by the Coordinate Bench in the case of Landmark Automobiles Pvt. Ltd.. [ 2014 (12) TMI 753 - ITAT AHMEDABAD] we have no hesitation in confirming the order passed by the CIT(A) holding that the expenditure incurred by the assessee for renovating its four business showrooms are revenue in nature. Appeal filed by the Revenue is dismissed.
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2022 (12) TMI 574
Disallowance u/s 40(a)(ia) - non-deduction of tax at source on the professional charges paid to three persons - non-submission of details regarding payment of the above mentioned amount to different professionals - Scope of amendment brought in by the Finance Act (No. 2) 2014 effective from 01/04/2015 made in the provisions of Section 40(a)(ia) for 100% disallowance of expenditure, the disallowance u/s 40(a)(ia) of the Act was limited to the extent of 30% of such expenditure - HELD THAT:- As similar issue came for adjudication and the Tribunal relying on various decision including the decision of Amruta Quarry Works [ 2016 (7) TMI 1246 - ITAT AHMEDABAD] and decision of Neena Kual [ 2019 (5) TMI 1697 - ITAT MUMBAI] held that the amendment brought in by Finance Act No. 2 of 2014 restricting the disallowance u/s 40(a)(ia) of the Act to the tune of 30% of the expenses was made effective from 01/04/2015. But thereafter, clause 14.3. of the explanatory memorandum to Finance Bill 14 was said to be brought to effect to remove hardships faced by the assessee and thus, the said amendment was held to be clarificatory in nature and applicable retrospectively. Since the ld. D/R failed to bring any binding decision in its favour and the decision relied upon by the assessee is squarely applicable on the issue involved in the instant appeal, we are inclined to hold that 100% disallowance of Rs.2,85,500/- made u/s 40(a)(ia) of the Act be restricted to 30% i.e., Rs.85,650/-. Thus the assessee gets relief of Rs.1,99,850/-. Ground Nos. 1 2 raised by the assessee are partly allowed.
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2022 (12) TMI 573
Capital gain - Addition made with regard to sale of Madambakkam Land - Year of assessment - period of holding of asset - considering date of allotment or date of final sale deed executed for conveying the title - HELD THAT:- If you take sequence of events, it is undoubtedly clear that the assessee has acquired right over the above property in the year 1984 and is enjoying the title and interest. However, legal ownership has been finally came to the assessee through sale deed dated 06.01.2012. If you consider the date of allotment and subsequent documents, it can be clearly held that the assessee has acquired the property in the year 1984 and thus, if you consider said date, the period of holding of asset is more than 36 months and thus, profit from sale of asset is assessable under the head long term capital gains as claimed by the assessee. Therefore, we direct the AO to assess profit from sale of land under the head long term capital gains as claimed by the assessee, because various courts including case of CIT vs Ravindar Kumar Arora [ 2011 (9) TMI 343 - DELHI HIGH COURT] held that for the purpose of computing period of holding, date of allotment should be considered, but not the final sale deed executed for conveying the title and interest in the property. Hence, we direct the AO to compute long term capital gains as claimed by the assessee. Deduction claimed u/s. 54F - We find that the assessee has spent about Rs. 88,75,400/- towards construction of another residential house which includes purchase of land, payment for labour charges and payment to M/s. Raj Constructions for material supply. However, the contractors M/s. Chintu Constructions and M/s. Raj Constructions could not complete construction for various reasons. In the mean time, the assessee went out of India for official work and could not oversee construction work and only after she came back settled dispute with contractors and ultimately completed construction in the year 2009 and obtained necessary electricity connection to prove that the house property has been successfully completed. No doubt, the assessee could not complete construction of house within three years from the date of transfer of original asset. However, for any reason which is beyond control of the assessee, construction could not be completed and also assessee has spent entire amount of consideration received for transfer of original asset for acquiring new asset, then there is no reason for the AO to deny deduction u/s. 54F. Provisions of section 54F should be construed liberally as per various High Court decisions including case of CIT vs Sardarmal Kothari [ 2008 (6) TMI 15 - MADRAS HIGH COURT] and also Ravindar Kumar Arora [ 2011 (9) TMI 343 - DELHI HIGH COURT] . Thus we are of the considered view that, the AO has erred in denying deduction u/s. 54F of the Act and thus, we direct the AO to allow deduction as claimed by the assessee. Appeal filed by the assessee is allowed.
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2022 (12) TMI 572
Disallowance pertaining to the interest credited to the account - disallowance u/s. 36(1)(iii) - direct link or nexus between the borrowed funds and investment in shares - AO was of the view that in terms of provisions of section 36(1)(iii) the deduction for interest was admissible only when the capital is borrowed directly for the purpose of business whereas, the investment in unquoted shares was not relating to the business of the assessee - HELD THAT:- As basic contention of the Ld. AR that interest free funds were not utilised for the purpose of investing in shares of the sister concern does not stand proved. Taking the logic further, the inference that if the assessee has sufficient surplus funds, then it is to be assumed that the investments were made from surplus funds would also hold not true. Also that on one hand it is the assessee's contention that the borrowings were made for the purpose of investing in shares coupled with the arguments that these investments were strategic in nature and on the other hand, it has been contended that the inference should be that the investments were made out of surplus funds. Thus, there is an apparent contradiction in the stand taken by the assessee. It is not clearly brought out either from the assessment order or from the Ld. CIT(A)'s order as to whether there is a direct nexus or link between the borrowed funds and the investments. A clear and direct nexus has to be established between the loan funds and the investments before a disallowance u/s. 56(1)(iii) of the Act is made. If there is a direct nexus between the loan funds and such investments, then the proposition that if the assessee had surplus funds with it, then the investment would be presumed to have been made from such surplus funds would not hold good and then the disallowance u/s. 36(1)(iii) of the Act would be fully justified. However, if there is no direct link between the borrowed funds and the investments, then the presumption would were in favour of the assessee. Restore this issue to the file of the AO with a direction to verify as to whether there is any direct link or nexus between the borrowed funds and investment in shares. If it is so found, then the impugned disallowance shall hold good. Appeal of the assessee stands allowed for statistical purposes.
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2022 (12) TMI 571
Set off of brought forward business loss of earlier years with the current year income received on account of Franchise Fees - HELD THAT:- We find that Section 72(1), as it stood at the relevant point of time, inter alia provided that, Where for any assessment year, the net result of the computation under the head Profits and gains of business or profession is a loss to the assessee be carried forward to the following assessment year, and- (i) it shall be set off against the profits and gains, if any, of any business or profession carried on by him and assessable for that assessment year . Clearly, therefore, all that is necessary for the income to be set off must consist of the profits and gains of any business or profession carried by the assessee and assessable for that assessment year. On the facts of the present case, there is not even a dispute that the franchise fee is earned by the assessee in the course of its business and is, therefore, assessable as such. The only issue, as raised by the Assessing Officer, is with respect to the rate at which this franchise fee is taxable, but then the rate of taxation is, in our considered view, not a relevant factor so far as eligibility of income for set-off is concerned. We also see no conflict in an income being taxable under the head profits and gains from business or profession, and an income being in the nature of a franchise fee earned in the course of business - even if it is taxed at a rate different than the rate at which the normal business income is taxed. All that really matters is the income being in the nature of profits and gains from business or profession being carried on by the assessee, and that aspect is not even in dispute on the facts of the present case. The grievances raised by the Assessing Officer are thus devoid of legally sustainable merits.
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2022 (12) TMI 570
TP Adjustment - adjustment made towards international transactions of the assessee with its associated enterprises - Most appropriate method - benchmarking of transaction - adjustment towards few transactions by adopting CUP as most appropriate method and few as TNMM - TPO has never disputed TNMM method adopted by the assessee and has accepted the fact that the TNMM as most appropriate method in respect of 100% of transactions, except few transactions of export of threads - HELD THAT:- It is incorrect to adopt two methods for one class of transactions and bench mark such transactions by cherry picking few transactions out of a lot of transactions undertaken by the assessee with its AEs and this principle is supported by the decision of ITAT Pune Bench in the case of Amphenol Interconnect India Pvt. Ltd. [ 2014 (5) TMI 1066 - ITAT PUNE] where an identical issue has been decided by the Tribunal and after considering relevant facts held that when the TPO has accepted 90% of export to the AEs are at ALP, there is no reason to apply CUP method for remaining part of the exports. Also held that when the TPO has accepted TNMM as most appropriate method for an overwhelming majority of exports to AEs, then there is no reason why for the balance of exports of goods, TNMM method should be not be applied. In this case, the TPO has accepted 99.95% of export of threads to AEs under TNMM method, but he had cherry picked 0.05% of transactions and applied CUP method without there being any valid reason. Therefore, we are of the considered view that the TPO is erred in adopting CUP method for few transactions when he has accepted overwhelming majority of transactions under TNMM method. The DRP without appreciating the above facts, simply sustained TP adjustment suggested by the TPO. Hence, we direct the AO/TPO to delete TP adjustment made towards few transactions by adopting CUP as most appropriate method. Appeal of assessee allowed.
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2022 (12) TMI 569
Addition on account of expenditure as paid/credited in F.Y. 2010-11, but was accrued/became due during F.Y. 2009-10 - HELD THAT:- It is emerges from the material on record that, the assessee was maintaining books of accounts which being duly audited by expert, i.e. Chartered Accountant. The report of the chartered accountant has been furnished before the A.O. At the time of assessment proceedings, AO has disallowed the expenditure only on the ground that, it has been claimed as prior period expenditure although the assessee was following the merchandise system of the accounting. A.O has not of the opinion that the expenditure itself is bogus per se. The expenditure has been incurred for the business and it is not the case of the A.O that, it is not allowable u/s 37 (1) - Since, the assessee has already paid more tax in Financial Year 2009-10, which is in the tax bracket of 30% and the claim is revenue neutral, i.e. that is there is no loss of Revenue. While deleting the addition made by the A.O, Ld.CIT(A) has also considered all the above facts. Therefore, we do not find any reason to interfere with the finding of the facts by the CIT(A) and also the conclusion arrived by the Ld.CIT(A). Therefore, the order of Ld. CIT(A) which requires no interference. Accordingly, we inclined to dismiss the Revenue s Grounds of Appeal.
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2022 (12) TMI 557
Doctrine of constitutional priority - Certain transfers to be void u/s 281 - Supremecy of attachment passed by the Tax Recovery Officer / Income Tax Department or to the mortgage created in favour of the secured creditors Dues of the Income Tax Department precedence over the dues of the secured creditor - Scope and ambit of Section 281 of the Income Tax Act, 1961 and Section 26E of SARFAESI Act and Section 31B of the Recovery of Debts and Bankruptcy Act, 1993 - Tax recovery proceedings - priority in payment of debts due to a secured creditor over all other debts including revenues, taxes, cesses, etc. - attribute of sovereignty and a necessity for attaining the constitutional goals and objectives, tax dues would prevail and take precedence over the rights of the secured creditors - What is the nature of taxes and the right of the State to recover the same? - HELD THAT:- The power to tax is an inherent part and an attribute of sovereignty and is meant for being used for public welfare. Without taxes, the Government cannot run nor discharge its constitutional obligations set out in the form of Directive Principles of State Policy under Article 39 of the Constitution. In other words, taxes are collected in public interest and the taxes so collected cannot be used for any purpose other than common public good. Having dealt with the status and purpose of tax under the Constitution, it may be relevant to examine the priority of collection of taxes. Doctrine of priority of Crown Debts - The principle of priority of Government debts is founded on the rule of necessity and public policy. If the legislation provides for a charge or a priority, then, if the crown debt and the private secured creditor concurs in point of time, the crown debt would prevail. If the private secured creditor is prior in time that would prevail. If the State s charge is prior in time, then the State s charge would prevail. If a first charge or a priority is provided/granted under the provisions of the Act or if it is expressly provided to override other claims including that of secured creditors, then it appears that it would be the State which would be entitled to preference even over secured creditors. Whether fiscal/tax legislations provide for a charge in respect of the taxes/revenues that are due and if so, what are the kind/nature of charges created in fiscal/tax legislations and its status? - We find that the recovery mechanism under the Income Tax Act suffers from the above deficiency, in the absence of a provision creating a charge in respect of the property of the defaulter to enable recovery of their dues arising out of the above enactment. We say so, for in contrast to other tax enactments referred to above, we do not find any provision under the Income Tax Act, which creates a charge in respect of tax or any sums that may become payable under the same. This aspect ought to be borne in mind for we find that both the learned Judges have proceeded on the basis that they had to decide the priority of charge under the Income Tax Act vis-a-vis SARFAESI Act and Recovery of Debts and Bankruptcy Act, while the first view proceeds on the basis that priority must be granted to recovery of Government dues on the basis of doctrine of constitutional priority , the second view proceeds on the basis that attachment results in creation of charge and if the same is subsequent to mortgage, the right of the existing mortgagee would prevail. Insofar as the first view is concerned, the law relating to the Government's right to recover dues commonly known as Crown debt stands resolved by a series of decisions, wherein, it has been consistently held that Crown/State would have preferential right to recover only over ordinary unsecured creditors but would not be entitled to precedence over a secured debt unless express provisions are incorporated. Therefore, reliance on doctrine of constitutional priority for which we do not find any basis, is in any view unsustainable as it is contrary to the settled legal position. Coming to the second view, it has been held that a charge gets created only when the attachment is made. This view is again unsustainable since attachment would not constitute a charge. The broad distinction between a mortgage and a charge is that a charge only gives a right to payment out of a particular fund or particular property without transferring that fund or property, whereas a mortgage is in essence a transfer of an interest in specific immovable property. A mortgage is a jus in rem, a charge is a jus ad rem and the practical distinction is that mortgage is good against subsequent transferees and a charge is only good against subsequent transferees with notice. A charge does not amount to a mortgage. In every mortgage, there is a charge, but every charge is not a mortgage. Having examined the scope of charge , it may be relevant to note that the second view holding that an attachment creates a charge is unsustainable as attachment and charge are distinct and attachment does not by itself create a charge as stated supra. In any view, we find that the Income Tax Act does not create a charge towards recovery of dues. Section 281 only declares certain transactions to be void and cannot be understood as creating a charge in favour of the Income Tax Department in respect of dues arising under the same. Certain transfers to be void - Whether Section 281 of the Income Tax Act only contains declaration of voidity in respect of transactions falling within its mischief or does it create a charge in respect of any sum payable under the Income Tax Act in favour of the Revenue and what is the scope of operation of Section 281 of the Income Tax Act vis-a-vis Section 26 E of the SARFAESI Act and Section 31 B of the Recovery of Debts and Bankruptcy Act and whether the priority of charge created in favour of the secured creditors under the SARFAESI Act and Recovery of Debts and Bankruptcy Act would prevail over the declaration of voidity contained in Section 281 of the Income Tax Act or any other recovery proceedings including attachment under the Income Tax Act? - Section 281 of the Income Tax Act declares certain transactions to be void, now can it be understood that the declaration of voidity would prevail despite Sections 26E and 31B of the SARFAESI Act and Recovery of Debts and Bankruptcy Act conferring primacy in very wide terms. There is no doubt that Parliament's intention was to give priority to secured creditors which is to prevail over revenue, taxes, cesses, etc, in view of the express provisions contained in Sections 26E and 31B of the SARFAESI Act and Recovery of Debts and Bankruptcy Act. This is further reinforced by the Statement of Objects and Reasons (SOR) appended to the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Bill, 2016 which introduced sections 26E of the SARFAESI Act and 31B of the Recovery of Debts and Bankruptcy Act. According to the SOR, priority was accorded to secured creditors in repayment of debts in order to augment economic growth and ease of doing business. This gives a glimpse of the position earlier and what the amendment sought to remedy. Keeping the above background in mind, it does not seem that section 281 of the Income Tax Act and sections 26E of the SARFAESI Act and 31B of the Recovery of Debts and Bankruptcy Act can operate simultaneously without conflict. As applying the Heydon s Rule or Purposive construction, the non-obstante clause contained in Sections 26E and 31B of the SARFAESI Act and Recovery of Debts and Bankruptcy Act, which was introduced to give primacy to the secured creditors and expressly provides that it would prevail over all taxes, cesses etc., ought to be construed/interpreted in a manner that would promote and not defeat the object of the Parliament to protect and safeguard the interest of the secured creditors, intended in larger public interest and as a matter of policy. One more rule of construction is that when two competing Acts construed to further the purposes behind them produce a conflict; the court may resolve the conflict by taking into consideration as to which Act represents the superior purpose , as held in the case of Allahabad Bank v. Canara Bank[ 2000 (4) TMI 757 - SUPREME COURT] Thus in view of the fact that the Parliament must be understood to have given priority to the secured creditors under Section 26E of the SARFAESI Act and Section 31B of the Recovery of Debts and Bankruptcy Act, fully aware and conscious of the status and importance that taxes enjoy under the Constitution. Therefore, with regard to operation of section 281 of the Income Tax Act vis-a-vis the operation of sections 26E and 31B of the SARFAESI Act and Recovery of Debts and Bankruptcy Act, sections 26E and 31B according priority to secured creditors shall prevail and thus, the attachment by the Tax Recovery Officer is impermissible in the facts and circumstances of the case. We arrive at the following conclusion: (i)Appellant is a secured creditor, who offered credit facilities to the Respondents 4 and 5, for which, mortgages were created in favour of appellant on 23.04.2013 vide document No.453 of 2013, on 18.08.2014 vide document No.2467 of 2014 and on 22.10.2015 vide document No.3168 of 2015. However, the Income Tax Department passed the order of attachment on 03.11.2015, for recovery of the tax dues, in respect of the properties over which mortgages were already created. (ii)Appellant sought to quash the communication of the Respondent dated 27.12.2007 with respect to recovery of income tax arrears of M/s.NEPC Agro Foods Limited and its Directors, on the premise that mortgage in respect of the property, was executed in favour of the Bank on 31.03.1999 itself, i.e., prior to the recovery proceedings. (iii)Writ petitioner / Bank challenged the attachment notice dated 27.03.2017 issued by the Income Tax Department, in respect of the properties which were offered to them as security by way of mortgage by deposit of title deeds for securing loans on 10.02.2014. The learned Judge allowed the writ petition on the ground that the mortgage preceded the attachment. (iv)Appellant / Bank sought a direction to the first respondent Tax Recovery Officer, Income Tax Department to remove the attachment made on 16.06.2017 and 23.07.2017 in respect of the properties, which were already mortgaged on 28.01.2016 and 07.02.2016, by the fourth and fifth Respondents to raise loan. In all these cases, the orders of attachment passed by the Tax Recovery Officer / Income Tax Department were subsequent to the mortgage created in favour of the secured creditors and hence, the same will have no legs to stand, in view of the principles laid above by this court. Therefore, the orders impugned in the writ appeals are quashed.
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Benami Property
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2022 (12) TMI 568
Prohibition of Benami Property Transactions - provisional order of attachment - HELD THAT:- As it is evident that this Court took the view that Section 2(9)(A) and 2(9)(C) of the Benami Property Act inserted by the Amendment Act of 2016 are prospective in nature because these two provisions have significantly and substantially widened the definition of benami transaction than as was there in the unamended Benami Property Act of 1988. Taking note of the fact that Central Government had notified the date of coming into force of the Amendment Act of 2016 as 01.11.2016, this Court held that these two provisions cannot be applied to a transaction which took place prior to 01.11.2016. In that case, the transaction was dated 14.12.2011. Therefore, the show cause notice, provisional attachment order as well as the adjudicating order were declared null and void being without jurisdiction and consequently, quashed. In Ganpati Dealcom Pvt. Ltd. [ 2022 (8) TMI 1047 - SUPREME COURT] which went to the Supreme Court from a decision of the Calcutta High Court, the question which was considered by the Supreme Court was whether the Benami Property Act as amended by the Amendment Act of 2016 has a prospective effect? While examining this question, Supreme Court went into the constitutionality of the original Act i.e., Benami Property Act. Supreme Court came to the conclusion that Section 3 (criminal provision), Section 2(a) (definition clause) and Section 5 (confiscation proceedings) of the Benami Property Act are overly broad, disproportionately harsh and without adequate safeguards. Though such provisions were in a dormant condition, nonetheless, Supreme Court declared Sections 3 and 5 of the Benami Property Act as unconstitutional from inception. Supreme Court has declared that the Amendment Act of 2016 is not merely procedural but prescribes substantive provisions. Therefore, concerned authorities cannot initiate or continue criminal prosecution or confiscation proceedings for transactions entered into prior to coming into force of the 2016 Amendment Act i.e., 25.10.2016. As a consequence, all such transactions or confiscation proceedings prior to 25.10.2016 shall stand quashed. Supreme Court has also clarified that in rem forfeiture provision under Section 5 of the Amendment Act of 2016 being punitive in nature can only be applied prospectively and not retroactively. In view of the finality of the law declared by the Supreme Court, the provisional attachment order dated 27.12.2021 cannot be sustained. Accordingly, the same is hereby set aside and quashed.
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Customs
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2022 (12) TMI 567
Misdeclaration of description and value - Validity of test report - Cross examination of Chemical Examiner - Import of Suspension grade PVC Resin - consignment was declared to be off grade and wet - On examination, the goods imported found to be PVC resin but without any marking off grade or wet on any of the bags - Recovery of dues in view of CIRP proceedings under IBC HELD THAT:- Appellant objected on the said test report right from the investigation on the ground that non-mention of method of testing, not testing relevant parameters, quantity of remnants not mentioned, delay in re-testing and there are other parameters like density, VCM in residual PPM, absorbing amount of plasticizer for 100Gms resin, degree of polymerization has not been tested. We also find that the appellant had requested for cross-examination of the Chemical Examiner. However, no such opportunity was granted to them.In the present proceeding the Test reports are the only evidences with the Revenue to say that imported goods are Prime Grade , therefore, adjudicating authority was not right in rejecting the cross-examination of the chemical examiner. In the present matter, refusal to allow cross-examination of the Chemical Examiner is to be viewed as a serious violation of principles of natural justice. Had the cross examination been allowed, the appellant could have availed an opportunity to enquire the testing methodology and standards adopted by CRCL and its suitability vis-a-vis the ISI. As regard quality of the imported goods in question, we find that there is clear understanding between the supplier and the appellant importer that the goods in question has more moisture content and therefore the quality of goods is inferior to the prime material and on that basis the supplier agreed to sell the goods at lower price. As against this fact, the revenue could not adduce any evidence to reject this fact. Therefore the claim of the appellant that the goods in question is off grade is legitimate and convincing. Recovery of dues in view of CIRP proceedings under IBC - HELD THAT:- For the reason of aforesaid NCLT order in the appellant case and the above cited Apex Court judgments, the dues of the Government, including the present dues, if any, is not prima facie recoverable. However, since we decide this appeal on its merit and fact of the case, we do not incline to give conclusive finding on the basis of NCLT order. Decided in favor of importer / assessee.
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FEMA
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2022 (12) TMI 566
Offence under FEMA - vicarious liability of the persons responsible - Responsibility of Directors - accused person following alleged contravention by him of the provisions of the said Act, being the Director of the company, along with the company and other co-accused persons, for alleged commission of such contraventions/offence - HELD THAT:- During all these time petitioner was a Director of the accused company. He remained so till 2nd August, 1996, that is a date well within the statutory period of six months time. According to the scheme of this Act, he cannot relinquish his liability as regards the alleged contravention for this period at the time of and after export of the goods, till the time he remained as company s Director taking part in the affairs thereof, as suggested in the complaint, of course unless he rebuts the same with adequate materials. Under the circumstances, it cannot be said that the allegations made against the petitioner in the complaint do not prima facie constitute any offence, show the involvement of the petitioner therein, or make out a case against him, or that it do not disclose any cognizable offence at all. It can also not be said that the allegations made in the FIR are only absurd and inherently improbable, or that there is no sufficient ground for proceeding against him. The factual aspects of the case as discussed above, would definitely discard any intention of malafide or malice of the complainant, who intends to proceed against the accused person on the basis of available materials against him, prima facie constituting an offence. This should not lead to quashing a proceedings initiated to unearth the truth. See BHAJAN LAL [ 1990 (11) TMI 386 - SUPREME COURT] Petitioner though being designated or appointed in the accused company as a Director , he was not entrusted with the management, affairs or policy of the same as part of his duty as a Director - Company s records and more so the specific averments in the complaint show otherwise. This, at one end, prima facie constitutes a contravention/offence and make out a case against him and at the other, duly complies with the statutory provision and dictum of the Hon ble Supreme Court in N. Rangachari s judgment (mentioned earlier). Hence this case shall not fall within the category of cases, where the power of this Court under section 482 Cr.P.C, 1973, may be exercised to prevent abuse of the process of the court or otherwise to secure the ends of justice. Contrarily, by following the ratio of the judgment of N. Harihara Krishnan vs. J. Thomas [ 2017 (9) TMI 1 - SUPREME COURT] it can be stated that taking cognizance of an offence by the court is one of the initial steps in the whole process. Upon existence of prima facie material, the process of the court should not be hampered. Thus no merit in petitioner s case, this revision is dismissed.
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Service Tax
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2022 (12) TMI 565
Demand of service tax - Time Gap between personal hearing and passing of final adjudicating order - Difference in value declared in ST-3 returns and income/receipts declared by the assessee in its Income Tax Returns and 26AS statements - Reconciliation of statements - Principle of natural justice - Petitioner in reply to show cause notice submitted detailed reconciliation statement of difference of the figures between ST-3 Return and 26AS Statement for the financial years 2012-13 to 2015-16, and, asked for additional four weeks time to submit reconciliation for the period 2016-17 to 2017-18 (up to June, 2017). However, to the utter surprise of the Petitioner, it received adjudication order straight away. HELD THAT:- A series of circulars have been issued by CBEC laying down guidelines that there should not be any unreasonable delay in passing adjudication orders which will be causing difficulties and obstacle in realizing public revenue expeditiously. In fact, in the interest of revenue itself, delay in passing of the adjudication orders would act as an impediment in timely realization of the disputed amount. That apart, pronouncement of judgment, being a part of justice dispensation system, has to be without delay, as justice should not only be done but should also appear to have been done. The present case is a classic example wherein due to delay in passing of the adjudication order it appears that the most vital documents submitted by the assessee, being the reconciliation documents, were not considered and dealt with by the adjudicating authority despite the fact that they admit now in the supplementary counter affidavit that the same were available on record. An obvious inference of omission to make reference to the documents can be due to the delayed delivery of the Judgment causing grave prejudice to the assessee and miscarriage of justice. Matter restored back for fresh adjudication.
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2022 (12) TMI 564
Maintainability of petition - availability of alternative remedy - whether we should exercise writ jurisdiction to set aside the order passed by the Tribunal against which a substantive appeal is available? - HELD THAT:- The Tribunal has sought to reconcile the decisions in the cases of SBI Card and Payments Services Pvt Ltd [ 2015 (11) TMI 909 - CESTAT NEW DELHI] and Citi Bank [ 2016 (2) TMI 983 - CESTAT CHENNAI] and of the larger bench in Standard Chartered Bank [ 2015 (8) TMI 686 - CESTAT DELHI (LB)] . Tribunal has considered the decisions of the co-ordinate benches and that of the larger bench and, in its opinion, found that the decisions of the larger bench have not been considered in proper perspective and that it will follow the decision of the larger bench. This view could ultimately be found in appeal as erroneous in law, but it cannot be considered as indiscipline. The Tribunal can conclude that it will follow the decision of larger bench. Though the words per incuriam have not been specifically used but the reasoning of the Tribunal indicates that it has proceeded on those lines. There was a direct refusal to follow the decisions of the co-ordinate bench. In light of such a stark refusal, the Division bench found that extraordinary jurisdiction had to be exercised despite the availability of an appeal remedy. We do not find that the case at hand is of such nature as the case of Mercedes Benz India, where writ jurisdiction needs to be exercised, and the appropriate remedy for the Petitioner would be of appeal. Filing an appeal by itself cannot be considered as prejudice. As regards the prejudice by erroneous finding is concerned if the finding is erroneous and patently contrary to the record, that can be corrected in appeal. It is not that the moment there is an erroneous or incorrect finding, writ jurisdiction has to be exercised. As emphasized in the order passed in Infra Dredge Services Pvt. Limited, totality of the circumstance will have to be considered and not only the stand-alone grounds. No case is made out for the exercise of writ jurisdiction. Writ Petition is dismissed.
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2022 (12) TMI 563
Interest on delayed refund u/s 11BB - Cenvat Credit is in the nature of any duty/tax paid by the appellant or not - Refund of unutilized cenvat credit - export of services - Rule 5 of Cenvat Credit Rules, 2004 - HELD THAT:- the learned Commissioner ought to have followed the law laid down by the Hon'ble Supreme Court in the matter of Ranbaxy Laboratories [ 2011 (10) TMI 16 - SUPREME COURT ] rather than distinguishing it. Learned Commissioner tried to distinguish the aforesaid judgement passed by the Hon'ble Supreme Court by observing that in the said judgment the Hon'ble Supreme Court has ordered interest on delayed refund as duty paid therein was found refundable under section 11BB ibid, whereas in the instant case appellant was sanctioned refund of accumulated Cenvat Credit due to export under Rule 5 ibid which is not in the nature of any duty/tax paid by the appellant which was subsequently found refundable under section 11B. Therefore, according to learned Commissioner the judgement of Hon'ble Supreme Court shall not be applicable in the instant case. Learned Commissioner seems to be not aware of the Principle of Judicial Discipline and in particular Article 141 of the Constitution of India, which provides that the decisions of the Hon'ble Supreme Court are binding on all the Courts in India and all Courts includes quasi-judicial authorities also, therefore he ought to have followed the law laid by the Hon'ble Supreme Court
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2022 (12) TMI 556
Demand of service tax under various heads, including manpower recruitment or supply agency service under reverse charge, programme producer service, sponsorship service, and other services - Extended period of limitation - The Commissioner ruled that the consideration paid to FSE for appearance of VA for a sports tournament is taxable under the definition of manpower recruitment or supply agency . The Commissioner observed that the source of supply of skilled manpower is outside India and has been received by the Appellant in India. The Commissioner further ruled that any programme made by a programme producer and then offered for sale to different TV channels or broadcasters for relay is a taxable activity. The Commissioner concluded that the transaction made by the Appellant with Zee Telefilms includes element of service and is taxable. - Tribunal confirmed the order of Commissioner HELD THAT:- An employer-employee relationship exists between the agency and the individual and not between the individual and the person who uses the services of the individual. Such cases were held to be governed by the definition of manpower recruitment or supply agency in Section 65(68) and hence liable to service tax. The CBEC circular dated 23 August 2007 deals with a situation where there exists a relationship of employer and employee between the agency which supplies the service and a person whose service is supplied. But it does not postulate that such a relationship must exist for the statutory definition to be attracted. Hence, the fact that there may be no relationship of employment between VA and FSE would not be dispositive for the purposes of the statutory definition in Section 65(68). For the above reasons, we are of the view that the decision of the Tribunal on this aspect of the matter cannot be faulted with. Programme produce - The Tribunal relied upon its decision in the case of Board of Control for Cricket in India 2014 (9) TMI 598 - CESTAT MUMBAI] - in terms of the contract, BCCI had appointed the producer to exclusively produce the feed for and on behalf of BCCI for each match. This is the distinguishable feature of the decision of the Tribunal in BCCI which is absent in the present case. Therefore, we are of the considered view that the Tribunal was in error in holding that the decision would apply squarely to the facts of the present case. The view of the Tribunal to that extent would have to be and is accordingly reversed. Extended period of limitation - In paragraph 4.20 of its order, the Tribunal has specifically observed that the present case involves the interpretation of statutory provisions. - We are of the considered view that the Tribunal having come to the conclusion that the issue turned upon an interpretation of the provisions of Section 65(68) and Section 65(86b) of the Finance Act 1994, there was no warrant to allow the invocation of the extended period of limitation and to direct the determination of the penalty following the re-quantification of the demand. Levy of penalty - there was no warrant for the imposition of the penalty as the dispute in the present case essentially turned on the interpretation of the statutory provisions and their inter play with the circular issued by the CBEC. Decided partly in favor of assessee.
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Central Excise
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2022 (12) TMI 562
Claim of rebate (refund) - Export of goods - Period of limitation - Rule 18 of the Central Excise Rules, 2002 - Notification No. 19/2004 - Claim of interest on delayed rebate / refund - HELD THAT:- The Hon ble Supreme Court [ 2022 (12) TMI 49 - SUPREME COURT] has answered the question in favour of the Revenue as, while making claim for rebate of duty under Rule 18 of the Central Excise Rules, 2002, the period of limitation prescribed under Section 11B of the Central Excise Act, 1944 shall have to be applied and applicable. Decided against the Petitioner.
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2022 (12) TMI 561
Waiver of penalty in excess of 25% - irregularity in availing Cenvat Credit - Passing of excessive cenvat credit by the supplier - Reversal of Cenvat Credit on Inputs removed as such - the appellant is not contesting the duty or interest confirmed by the authorities below. In fact, the appellant had paid the duty and the interest along with 25% of the penalty within 30 days from receipt of the Order in Original. HELD THAT:- it is clear that the appellant had paid duty along with interest and 25% of penalty on receipt of the Order in Original. The adjudicating authority has not given the option to pay 25% of the penalty in the order passed by him. - payment of 25% of the penalty amount paid by the appellant would suffice. The impugned order confirming the equal penalty is set aside without disturbing the confirmation of duty and interest. The appeal is partly allowed in above terms with consequential relief if any.
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CST, VAT & Sales Tax
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2022 (12) TMI 560
Claim of exemption of penultimate sale in course of export - production of H Forms and export documents including Bill of Lading in respect of claim under Section 5(3) and 5(4) of the CST Act - Validity of order of remand for levy of penalty - there was no appeal or cross objection by the State - HELD THAT:- mere non-production of agreement entered into between the Indian Exporter and the Foreign Buyer would not invalidate the claim of the petitioner-penultimate seller for exemption under Section 5(3) of the CST Act. Furthermore, the authorities have not complained that the petitioner has not complied with the terms of sub-section (4) of Section 5. The disallowance of claim of the petitioner under Section 5(3) of the CST Act has been made by the Assessing Authority and confirmed by the Appellate Authority and the Odisha Sales Tax Tribunal was on account of non-production of copy of agreement between the Indian Exporter and the Foreign Buyer. - Decided in favor of assessee. Levy of penalty - HELD THAT:- In the First Appellate stage, the petitioner had been granted relief with respect to penalty for non-submission of statutory forms. There was neither cross-appeal nor cross-objection by the Revenue. It deserves to be noted, therefore, that in the appeal of the petitioner-dealer, the Odisha Sales Tax Tribunal was not legally correct to grant relief to the opponent-State of Odisha by remanding the matter to the Assessing Authority to take action as deemed proper as per requirement of statute qua matter of imposition of penalty. - Decided in favor of Assessee.
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Indian Laws
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2022 (12) TMI 559
Dishonor of cheque - Vicarious liability of non-executive Director / Promoter - The petitioner challenged the impugned orders on the ground that the impugned orders are abuse of process of law. There is no proximate of direct or indirect involvement of the petitioner in the affairs of the respondent no. 2 as he was only a Non-Executive Director as such, he never involved in its day-to-day activities. - It is argued that the petitioner was appointed as director in the respondent no. 2 only to lend prestige to the respondent no. 2 due to his standing in the society. HELD THAT:- The Form DIR-12 clearly reflects that the petitioner was not away from the affairs of the respondent no. 2 and was directly or indirectly involved in the affairs of the respondent no. 2. The petitioner is not an independent director of the respondent no. 2 although the petitioner is named as Non-Executive Director in Form DIR-12. Mere nomenclature in Form DIR-12 as Non-Executive Directed necessarily does not mean that the petitioner was not directly or indirectly related with the affairs of the respondent no. 2. If the petitioner is having the evidence that he was not responsible for the affairs of the respondent no. 2, it can be established and proved in accordance with law during the trial of the present complaints. Petition dismissed.
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2022 (12) TMI 558
Dishonor of cheque u/s 138 - validity of statutory demand notice - as per the legal notice, the respondents have claimed the entire outstanding amount from the petitioners instead of raising claim of cheque amount - partial discharge of their contractual liability - HELD THAT:- It is accepted proposition of law that a notice has to be read as a whole and in the demand notice, a demand for cheque amount is required to be made. If no such demand is made, then the demand notice would not pass the test of legal requirement of section 138 NI act. If in addition to the cheque amount, the claims of interest, cost etc. are also made, then the validity of the notice would depend upon the language of the notice. If in the demand notice, the breakup of the claims i.e., cheque amount, interest, damages etc. are specifically and distinctly mentioned then the demand notice is not bad in law for the purpose under section 138 of NI Act. It was held in case of Suman Sethi V Ajay K. Churiwal and another [ 2000 (2) TMI 822 - SUPREME COURT ] The Supreme Court in case of M/s Rahul Builders V Arihant Fertilizers Chemicals [ 2007 (11) TMI 399 - SUPREME COURT ] as relied upon by the petitioners considered the issue that failure on the part of complainant to serve proper notice, strictly in terms of proviso appended to section 138 of NI Act would lead to quashing of criminal proceedings. The perusal of demand notice 14.03.2013 reflects that although the respondents have also referred the dishonor of three cheques, subject matter of the present complaint but they have claimed the entire outstanding amount - The legal notice is not confined to the cheque amount. The respondents have not specifically asked for the payment of cheque amount within the stipulated period within the mandate of section 138 of NI Act. The cheque amount is not separately mentioned and identifiable from entire outstanding amount - In notice, an omnibus demand is made without specifying the cheque amount and as such notice dated 14.03.2013 failed to meet legal requirements of section 138(b) of NI Act. The demand notice accordingly is bad in law i.e., as per section 138(b) of NI Act. Impugned order and proceedings quashed.
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2022 (12) TMI 555
Writ of quo warranto - appointed of Vice Presidents of the Income Tax Appellate Tribunal. - HELD THAT:- We are of the considered view that no recourse to the writ jurisdiction of the High Court to seek a writ of quo warranto could have been taken. There is no challenge to the eligibility of the fourth and fifth respondents. If there are other remedies available in respect of the alleged breach of the directions in Roger Mathew vs South Indian Bank Limited and Others [ 2019 (11) TMI 716 - SUPREME COURT] , it is open to an aggrieved individual to pursue such remedies in accordance with law.
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