Newsletter: Where Service Meets Reader Approval.
TMI Tax Updates - e-Newsletter
December 9, 2023
Case Laws in this Newsletter:
GST
Income Tax
Customs
Corporate Laws
Securities / SEBI
Insolvency & Bankruptcy
Service Tax
Central Excise
CST, VAT & Sales Tax
Indian Laws
Articles
News
Notifications
Circulars / Instructions / Orders
Highlights / Catch Notes
GST
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Correctness of decision making process adopted by the respondents - In the instant case whether or not the petitioners have specifically asked for personal hearing, fact remains that the adverse decision was contemplated against the petitioners. In that event, it was obligatory and mandatory on the part of respondents to provide the petitioners opportunity of personal hearing. - HC
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Refund of accumulated Input Tax Credit - inverted duty structure - Under Clause (i) of the proviso to Section 54(3) of the CGST Act, refund of ITC is available in cases of zero rated supplies made without payment of tax. In terms of Clause (ii) of the proviso to Section 54(3) of the CGST Act, refund is admissible, where the credit is accumulated on account of rate of tax on inputs being higher than the rate of tax of output supplies. - Refund directed to process the refund application - HC
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Violation of principles of natural justice - Form GST DRC-01 served on the petitioner contains only the summary - Assuming that the order is made on 19.03.2020, it is submitted that 48 hours notice is nevertheless inadequate to respond. This Court finds that the opportunity granted was not real but illusory, thereby vitiating the proceedings. - Order set aside - HC
Income Tax
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Recovery proceedings - priority of rights over property as secured creditor - Income Tax Act has not provided any 1st charge of its debts. But there is 1st charge over the bank’s debt under SARFAESI Act. Moreover, the amendment of Section 26E is applicable to pending lis. Therefore, this Court is of the considered opinion that even though it is a statutory duty to attach property by the Income Tax Department, as and when the bank claims and exercise its 1st charge over the property, the Income Tax Department is liable to issue no objection certificate and also lift the attachment. - HC
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Reopening of assessment u/s 147 - Reason to believe - The principle that once a query is raised and answered, the AO would have formed an opinion, notwithstanding the fact that no reasons are recorded in the assessment order. In such circumstances, the reassessment proceedings, if initiated, would be construed as being invalid in law. This principle is founded on the rationale that the assessee has no control over the manner in which the AO chooses to frame the assessment order. One needs to remember that the AO wears two hats, that of an inquisitor and adjudicator. - HC
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Rectification u/s 154 - applicability of section 115BBDA - The assessee has claimed to have earned dividend income from mutual fund which are exempt u/s 10(35) of the Act. Evidence to this effect was also filed by way of statement of Mutual Fund. The assessee had clearly demonstrated the inapplicability of section 115BBDA of the Act to the facts of her case. - The CPC/ AO is directed to allow the rectification application of the assessee and delete the adjustment made to her income, taxed at the rate of 10% - AT
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Penalty u/s 271E - contravention of the provisions of Section 269T in the preceding assessment year - no proceedings pending before the Ld. AO qua the assessee for A.Y. 2014-15 - initiation of penalty proceedings under section 271E of the Act on the basis of assessment order for A.Y. 2015-16 is bad in law and imposition of impugned penalty by Ld. JCIT and confirmation thereof by the Ld. CIT(A) is not sustainable. - AT
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Benefit of exemption - Approval u/s 10(23C)(vi) was granted to trust as a whole or for specified institution only - We are in complete agreement with the ld. CIT(Exemptions) that the approval granted to the assessee-trust in the year 2012 cannot apply to a new institution added to the trust subsequently. Therefore, the argument of assessee that the approval u/s. 10(23C)(vi) of the Act would apply to the new institute also and hence there was no error in the order granting exemption to the income of the new institute is dismissed. - AT
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Deduction u/s 57 while computing interest income - AO / CIT(A) had allowed deduction by restricting the of cost of funds to the extent of 15% on ad-hoc basis of the interest income without any legal basis. The working of the cost of funds as provided by the assessee on facts of the instant case has not been refuted. Therefore, direct the AO to accept the same as cost of funds for earning the interest income which was assessed as ‘Income from Other Sources’. - AT
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Addition u/s 40(a)(ia) - non deduction of TDS on expenses relating to rent reimbursed to holding company - there is no lessor and lessee relationship between the holding company and the present assessee where the provisions of section 194-I are applicable - No TDS liability - Additions deleted - AT
Customs
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Seeks to exempt imports of Yellow Peas [HS 0713 10 10] from applicable BCD and AIDC up to 31.03.2024 - Notification
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Mandatory additional qualifiers in import/Export declaration in respect of certain products - Declaration on non availability of CAS & IUPAC details - Trade Notice
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Levy of penalty CFS / Customs Cargo Service Provider (CCSP) = Loss of revenue - on Smuggling - Red Sanders - Recovery of value of the lost goods from the Appellant - Once the appellant was bound by such undertaking as contemplated by Regulation 5(6) and having consciously accepted the fact that the goods worth Rs. 4,44,32,500/- have been stolen/pilfered, then certainly statutory obligation under Regulation 5(6) kicks in, so as to make the appellant liable to indemnify the said loss of goods which had occurred due to theft of the goods. - HC
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Benefit of Merchandise Export from India Scheme (MEIS) - Mis-declarion of goods - The authorities below has categorically recorded the findings on the basis of the test report that the description of the impugned goods to be exported have been mis-declared. The appellant has described the goods as ‘Whey Flour Powder’, however, they were found to be ‘Maida’. - There is no absolute right to claim provisional release and the same is subject to conditions - The order of provisional release of goods subject to Bond and Bank Guarantee is correct - AT
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Imposition of redemption fine and penalty - import of Kiwi Fruits - undervaluation - the appellant has incurred huge loss due to demurrage charges etc. as the goods have been ordered to be re-exported. The goods are of perishable nature. Since they are ordered to be re-exported, the redemption fine imposed is without any basis and requires to be set aside - AT
DGFT
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Export policy of onions under HS Code 0703 10 19 is amended from 'Free' to 'Prohibited, till 31.03.2024'.
Corporate Law
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Professional misconduct - Role of NFRA V/s ICAI on disciplinary matters of Chartered Accountants -Retrospective V/s prospective applicability of provisions as contained in Section 132 of Companies Act, 2013 as well as NFRA Rules, 2018 - NFRA has clear and required retrospective jurisdiction over the alleged offences by delinquent Chartered Accountants for period prior to formation of NFRA or prior to coming into effect relevant portion of Section 132 of Companies Act, 2013 - AT
Indian Laws
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Recovery of dues - priority over the charges - Apparently, the petitioner-Bank is the secured creditor and has created the first charge over the property in question as far as back in the year 2008 and thereafter in 2012 as against the charge created by the Excise Department in the year 2017 and, therefore, has the first right to realize its dues. - HC
IBC
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Initiation of CIRP - There being categorical default by the Respondent prior to Section 10A period, the Corporate Debtor was clearly not entitled to claim the benefit of Section 10A period. Since the liability to pay interest arose prior to Section 10A period since the default was committed prior to Section 10A period, we are of the considered opinion that the view taken by the Adjudicating Authority that the Section 7 application being premised on a letter calling for loan repayment which was dated 01.02.2021 and this date falling during the prohibited period under Section 10A renders the petition non-maintainable is misconceived and untenable in the eyes of law. - AT
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CIRP - extinguished claims - When CIRP has been terminated way back in 2017 and the Corporate Debtor is already in saddle after following the due process, allowing a Section 9 application to proceed on the basis of an extinguished claim which had not been preferred before the Resolution Professional within the stipulated time cannot be countenanced. The Operational Creditor has endeavoured to indirectly assail the approval of a resolution plan after more than 5 years by initiating a separate Section 9 proceeding which is legally not tenable. - AT
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Initiation of CIRP u/s 7 - Financial Creditor or not - In so far as the findings of the Adjudicating Authority are concerned that both the parties being joint venture partners, there was no financial debt in terms of Section 5(8) of IBC and hence the application u/s 7 of the IBC could not be entertained, there are no error in the impugned order - NCLT rightly rejected the application - AT
SEBI
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Power of SEBI - Charge of conspiracy and involvement in the fraud against CA firm - if the appellant had not carried out the statutory audit as per the accounting standards framed by the ICAI and in the event the appellant could not have resigned without filing the complete audit report or had failed to consider the netting of amount transferred as loans to Action and Avantha then it was open for SEBI to refer to the ICAI to take disciplinary action against the appellant for violation of the accounting standards. SEBI’s role was limited and confined to the conspiracy charge against the appellant with regard to fudging of the accounts of the Company. - AT
Service Tax
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Declared service - Act of toleration - Amount shown as miscellaneous income and receipts under head the “balance written back” - tolerated the situation - The alleged tolerance, in the given circumstances, is possible on the part of the receiver of machines. Hence, the question of tolerating any act by the appellant does not at all arise. The Appellant, therefore, cannot be held liable for rendering any declared service as defined u/s 66E(e) - AT
Central Excise
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Recovery of CENVAT Credit - scope of input service - dredging of creek bed - It is common ground that the waters, which had been deepened by dredging for approach of barges, did not belong to the appellant. Nor do the waters belong to any particular owner other than the Republic of India. - This is an aspect that the appellant has not been able to controvert and it is on this aspect that the eligibility of CENVAT credit must rest for, otherwise, rule 3 of CENVAT Credit Rules, 2004 would be rendered superfluous. - AT
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Clandestine removal - Reliability of Computer printouts - deemed document - Admittedly, the procedure set out in Section 36B has not been followed in this case - in the present case the author of entry of data has not been identified. As per the impugned order the entry in computer was done by 3 persons. However, no certificate was obtained from any of them - the material evidence available on record do not establish that the documents recovered from all the Factory, Registered office and the premises at Rameshwar Patna are all belonged to the Appellant Company and the data cannot be relied upon to demand duty - the questions answered in negative. - Demand set aside - AT
Case Laws:
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GST
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2023 (12) TMI 363
Cancellation of petitioner s GST registration - cancellation on the ground that the registration obtained by means of fraud, wilful misstatement or suppression of facts - HELD THAT:- The impugned SCN does not satisfy the rudimentary requirement of a show cause notice. In view of the above, the impugned order is void as having been passed in violation of the principles of natural justice. This is because the petitioner had no opportunity to respond to any allegation. The impugned order has been passed without affording the petitioner any opportunity to meet the allegations against it. The impugned order is also not informed by reason as it does not set out any ground for cancelling the petitioner s GST registration, save and except mentioning that it is pursuant to the impugned SCN. It is noted that there is a space for filling up the reasons, however, that space has been left blank. The respondent is directed to forthwith restore the petitioner s GST registration. It is clarified that this would not preclude the concerned authorities from initiating fresh proceedings albeit in accordance with the law - the impugned order as well as the impugned SCN are set aside - Petition disposed off.
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2023 (12) TMI 362
Correctness of decision making process adopted by the respondents - violation of principles of natural justice and statutory mandate ingrained in Sub Section 4 of Section 75 of the Goods and Services Tax (Act) - Requirement to provide opportunity of personal hearing - HELD THAT:- A plain reading of sub-section 4 of Section 75 of the Act makes it crystal clear that opportunity of hearing must be granted in two situations viz (a) where a request in specific is received in writing from the person chargeable; (b) where any adverse decision is contemplated against such person - This is trite that when language of statute is plain and unambiguous, it should be given effect to irrespective of its consequences. In the instant case whether or not the petitioners have specifically asked for personal hearing, fact remains that the adverse decision was contemplated against the petitioners. In that event, it was obligatory and mandatory on the part of respondents to provide the petitioners opportunity of personal hearing. Admittedly, no opportunity of personal hearing has been provided in both the matters. Resultantly, the decision making process adopted by the respondents is vitiated and runs contrary to the principles of natural justice and statutory requirement of sub-section 4 of Section 75 of GST Act. As a result, the impugned proceedings after the stage of reply of show cause notices, in both the cases are set-aside. The respondents shall provide opportunity of hearing to the petitioners - Petition disposed off.
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2023 (12) TMI 361
Refund of accumulated Input Tax Credit - inverted duty structure - denial on the ground that the rate of tax on input supply and output supply are the same - whether in the given facts refund of accumulated ITC is proscribed by virtue of Clause (ii) of the proviso to Section 54(3) of the CGST Act? - HELD THAT:- In terms of Section 54(1) of the CGST Act, any person claiming refund of tax and interest paid on such tax or any amount paid by him, is entitled to make an application for refund before expiry of two years from the relevant date, which is defined under Explanation (2) to Section 54 of the CGST Act. Sub-section (3) of Section 54 of the CGST Act provides that subject to provisions of Sub-section (10) of Section 54 of the CGST Act, a person may claim refund of unutilised ITC at the end of any tax period. However, the proviso to Sub-section (3) to Section 54 of the CGST Act restricts the entitlement to refund of unutilised ITC. It expressly provides that no refund of unutilised ITC would be allowed except in cases covered under Clauses (i) and (ii) of the proviso to Section 54(3) of the CGST Act. Under Clause (i) of the proviso to Section 54(3) of the CGST Act, refund of ITC is available in cases of zero rated supplies made without payment of tax. In terms of Clause (ii) of the proviso to Section 54(3) of the CGST Act, refund is admissible, where the credit is accumulated on account of rate of tax on inputs being higher than the rate of tax of output supplies. The Supreme Court had considered the proviso to sub-section (3) to Section 54 in UNION OF INDIA ORS. VERSUS VKC FOOTSTEPS INDIA PVT LTD. [ 2021 (9) TMI 626 - SUPREME COURT] had authoritatively held that the refund of unutilised ITC was confined to two categories as spelt out in Clauses (i) and (ii) of the proviso to Sub-section (3) of Section 54 of the CGST Act - petitioner s claim for refund is founded on Clause (ii) of the proviso to Section 54(3) of the CGST Act. According to the petitioner, the rate of tax on certain inputs is higher than the tax paid on outputs (bottled LPG). Resultantly, the petitioner has been unable to fully utilise the ITC on its inputs. It is also relevant to note that the Appellate Authority had, inter alia, found that the petitioner s claim for refund would not be admissible by virtue of the Circular No. 135/05/2020 as in terms of the paragraph 3.2 of the said Circular refund of accumulated ITC was not available, where the input and output supplies were the same. It is implicit in the contentions advanced on behalf of the Revenue before us that, this ground stands virtually abandoned. The concerned authority is directed to process the petitioner s applications for refund along with applicable interest in accordance with law as expeditiously as possible and in any event, within a period of six weeks from date - Petition allowed.
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2023 (12) TMI 360
Imposition of GST - grant of lease/royalty by the petitioner - HELD THAT:- In the wake of preceding discussion, the impugned order dated 02.08.2023 shall remain stayed till the next date of listing. Connect this matter with Writ Tax No.606 of 2023 (M/s Amorous Trading India Private Limited v. State of U.P. and 2 others).
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2023 (12) TMI 359
Maintainability of petition - availability of an efficacious alternative statutory remedy - writ petition against a show cause notice is maintainable or not - HELD THAT:- Various grounds have been raised while challenging the show cause notice, however, the fact remains that the Respondent No. 2 has only issued a show cause notice and the petitioner has been asked to explain within 30 days as to why GST cannot be imposed and recovered from the petitioner. The Apex Court in the case of HINDUSTAN COCA COLA BEVERAGE (P) LTD. VERSUS UNION OF INDIA AND OTHERS [ 2014 (9) TMI 585 - SUPREME COURT] in which it is held that:- when the statute provides for statutory appeal, the said remedy is to be availed by the litigating parties . In HAMEED KUNJU VERSUS NAZIM [ 2017 (7) TMI 1414 - SUPREME COURT] , the Apex Court held that any petition under Article 227 of Constitution of India should be dismissed in limine where there is statutory provision of appeal. In another case ANSAL HOUSING AND CONSTRUCTION LTD. VERSUS STATE OF U.P. AND ORS. [ 2016 (3) TMI 1435 - SUPREME COURT] it is held that when there statutory appeal is provided, then the said remedy has to be availed. In view of the aforesaid and also looking to the fact of availability of an efficacious alternative statutory remedy, it is not found proper to entertain this petition - The petition is dismissed on the ground of efficacious alternative statutory remedy.
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2023 (12) TMI 358
Actual owner of goods - Detention order - penalty imposed under section 129 (1) (b) of UPGST Act - HELD THAT:- The petitioner is to be treated as owner of the goods as the goods were detained along with proper e-invoice and e-way bill. In view of the same, the release of the goods upon payment penalty is required to be made under section 129 (1) (a) of the Act. In the present case, the order passed by the Assistant Commissioner dated November 22, 2023 has quantified the penalty under section 129 (1) (b) of the Act and, accordingly, the same is bad in law. The impugned order set aside - petition disposed off.
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2023 (12) TMI 357
Extension of time limit specified under Section 73 of the Act by virtue of the powers under Section 168A of the Act - case of petitioner is that having once extended the period by virtue of notification dated 05.07.2022, no subsequent extension could be made - HELD THAT:- Essentially, the notifications are of the Union of India and by virtue of such power the respondent No. 5 State has issued a show-cause notice dated 29.09.2023. Issue Notice to the respondents returnable on 30.11.2023.
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2023 (12) TMI 356
Violation of principles of natural justice - Form GST DRC-01 served on the petitioner contains only the summary - annexure to DRC-01 was not furnished to the petitioner to enable them to respond - opportunity granted was not real but illusory - HELD THAT:- This Court finds merit in the submission of the learned counsel for the petitioner inasmuch as the impugned order suffers from more than one infirmity. Firstly, DRC-01 is not supported by the Annexure to show cause notice and thus the petitioner was not provided with the particulars necessary to respond. Secondly, the assessment order is made on 17.03.2020. One fails to understand as to how the show cause notice as well as the assessment order has been made on the very same day. Thus, the impugned order is made without affording any opportunity. Assuming that the order is made on 19.03.2020, it is submitted that 48 hours notice is nevertheless inadequate to respond. This Court finds that the opportunity granted was not real but illusory, thereby vitiating the proceedings. The impugned order is set-aside - Petition disposed off.
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2023 (12) TMI 355
Maintainability of petition - no second appellate forum - petitioner has already deposited 10% of the demanded tax amount before the first appellate authority - HELD THAT:- Since the petitioner wants to avail the remedy under the provisions of law by approaching 2nd appellate tribunal, which has not yet been constituted, as an interim measure subject to the Petitioner depositing entire tax demand within a period of fifteen days from today, the rest of the demand shall remain stayed during the pendency of the writ petition. Application disposed off.
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2023 (12) TMI 354
Cancellation of registration of petitioner - no service of SCN - petitioner could not file reply - self-contradictory impugned order - HELD THAT:- It would be just and proper to remand the matter back to respondent No. 5 to re-do the exercise after giving an opportunity of hearing to the petitioner. Matter remanded back to the file of the respondent No. 5. Since petitioner is now in receipt of a copy of the cancellation order including show cause notice dated 11-8-2022 which has been placed on record, it would be open to the petitioner to submit its reply to the show cause notice. If the petitioner submits its reply within seven days from today, the same shall be taken on board by respondent No. 5 who shall thereafter pass appropriate order in accordance with law after giving due opportunity of hearing to the petitioner.
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Income Tax
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2023 (12) TMI 353
Payment of interest on the amount of refund as due against the respondents - settlement of disputes under Vivad Se Vishwas Act - As argued provisions of Section 244A have no application, on the other hand Explanation to Section 7 of the VSV Act, 2020 specifically prohibits grant of any interest and application of provisions of Section 244A of the Income Tax Act and, therefore, the petition deserves dismissal - HELD THAT:- A perusal of Form No. 5 (Annex.9) clearly reveals that the order has been passed by the designated authority under the VSV Act, 2020 and Rules determining the amount of Rs.3,47,03,505/- refundable to the petitioner in accordance with the provisions of the Act. Once the order in Form No. 5 has been issued on 8/3/2021, the petitioner became entitled for the amount of refund. Admittedly, the said amount was refunded to the petitioner/adjustment towards the demands on 22/10/2021, 10/1/2022, 20/1/2022 and 30/5/2022. No reason worth the name has been indicated in response for the delay in refunding the amount to which the petitioner became entitled on passing of order in Form No.5 way back on 8/3/2021. The Delhi High Court in the case of Ms. Anjul [ 2022 (8) TMI 1438 - DELHI HIGH COURT] while relying on one judgment of Hon ble Supreme Court in Union of India v. Tata Chemicals Limited [ 2014 (3) TMI 610 - SUPREME COURT] held that the State having received the money without right and having retained and used it, is bound to make the party good, just as an individual would do under like circumstances. The obligation to refund money received and retained without right implies and carries with it the right to interest. Bombay High Court in the case of UPS Freight Services [ 2023 (9) TMI 34 - BOMBAY HIGH COURT] while following the order in the case of Ms. Anjul (supra) also ordered for payment of interest as per the rate prescribed under Section 244A of the Income Tax Act in similar circumstances. So far as the plea raised by learned counsel for the respondents with reference to provisions of Explanation to Section 7 of VSV Act, 2020 is concerned, the same has been noticed for rejection only. A bare perusal of the Explanation would reveal that the Explanation pertains to payment of any amount under the Income Tax Act for the period before filing the declaration under subsection (1) of Section 4 of the VSV Act, 2020 and nothing to do with the entitlement to interest for the period after issuance of Form No.5 indicating entitlement of the petitioner to the amount of refund. Thus for the delayed payment, the petitioner is entitled to interest on the refund amount for the delay beyond the period of 90 days from the date of refund i.e. 8/3/2021. WP allowed - It is directed that the respondents-revenue shall make payment of interest @ 6% p.a. on the delayed refund amount w.e.f. 8/6/2021 i.e. beyond the period of 90 days from the date of determination of refund amount on 8/3/2021 till the date of actual/last payment. As the payment/adjustment has been made on various dates, interest would be calculated on the balance amount till each respective date.
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2023 (12) TMI 352
Assessment u/s 153A - Unaccounted capital gain from sale of immovable property - addition was made on the basis of valuation report prepared by Shri Pankaj Mistry, Valuer which was accepted and never objected to by the assessee - Whether Tribunal has erred holding that there was no incriminating material without appreciating that the addition was based on the Valuation Report which in itself is an incriminating material and deleted addition? - HELD THAT:- We are of the opinion that there is no infirmity in the impugned order passed by the appellate authority as the appellant has failed to obtain any corroborative material put to the valuation report to come to the conclusion that any amount is received by the assessee on sale of the property in question and what is declared in the books of account. There is no allegation that the consideration declared by the assessee was above the value taken for the purpose of stamp duty by the valuation authorities as per provisions under Section 50C of the Act. No substantial question of law.
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2023 (12) TMI 351
Recovery proceedings of tax dues - Attachment orders - priority of rights over property as secured creditor - charge over the property already mortgaged with the bank - as argued charge over the property was created much prior than the notice issued by Income Tax Department - whether 1st charge over the bank s debt under SARFAESI Act? - primary contention of the bank is that the property was already mortgaged with the bank and hence u/s 26-E the bank had priority as a secured creditor - properties in the name of the deceased Arun were attached under section 281B of Income Tax Act provisionally following the approval of Income Tax Department - petitioner claims that the Tax Recovery Officer has to invoke section 179 to take action against Director of a company or invoke section 226 of Income Tax Act, but the respondents submitted that the owner of the property Mr.A.M.Arun is an assessee and a Tax Recovery Certificate under section 222 was drawn for a demand of Rs.565.34 crores plus interest for assessment years 2009-2010 to 2016-2017. HELD THAT:- For assessment year 2009-2010 the assessment was reopened in the year 2015, which means as on the date of mortgage there was no pending assessment proceedings for the assessment year 2009-2010. For the assessment year 2012-2013, the respondents had issued notice dated 16.08.2013 under section 143(2) for scrutiny assessment. According to the revenue the issuance of notice under section 143(2) would create an automatic charge over the property and any subsequent alienation would be liable to be set aside under section 281. But as per the Hon ble Supreme Court judgment in Gangadhar Vishwanath Ranade s case [ 1998 (9) TMI 1 - SUPREME COURT ] under Rule 11 of Second Schedule the Tax Recovery Officer had no power to declare a transfer void. When the Revenue has no power under Rule 11(6) to declare as void, likewise the Revenue has no authority to claim section 281 as automatic. Following the aforesaid judgment, this Court is of the considered opinion that when the Tax Recovery Officer has no power to declare as void, likewise the Revenue has no authority to claim the charge or attachment over the property as automatic. The above position would further be substantiated by section 281B, wherein the authority has to obtain prior permission from the Principal Commissioner for passing temporary attachment that too for six months and may be extended for another period of six months with prior approval of the Principal Commissioner of Income Tax. When the temporary attachment is restricted with time limit, then the power is not absolute. In the present case the Revenue had passed an order of provisional attachment on 03.11.2015 after approval of Principal Commissioner of Income Tax. Moreover, there was a search under section 132 of the Income tax Act in the case of M/s.Vasan Health Care Private Limited group of cases on 01.12.2015. And all other subsequent proceedings are on later dates, especially the approval of Principal CIT, Central-2, Chennai, was granted on 22.07.2016, for a list of 46 properties including the subject property and fresh approval was granted on 18.01.2017 for provisional attachment under section 281B and the same was extended for another 6 months vide proceedings dated 13.07.2017. Then Tax Recovery Certificate was issued on 14.09.2017 and the subject property was attached on 04.01.2018. The Revenue had created charge in this case on 04.01.2018. The respondents had reopened the assessment proceedings in the year 2015 for the assessment year 2009-2010 and the respondents had not stated the exact date of reopen in their counter. From the above narration of events, it is evident that the mortgage is on 17.04.2014 and the same is registered on 10.12.2014 which is prior to the reopen of assessment in the year 2015 and prior to attachment dated 04.01.2018, hence this Court is of the considered opinion that no assessment proceedings were pending when the petitioner bank has executed registered mortgage deed dated 10.12.2014, hence the petitioner bank s debt has priority over the respondent s crown debt. After considering section 281 and rule 48, the Court in ICICI Bank Limited Vs. Tax Recovery Officer [ 2019 (3) TMI 701 - TELANGANA AND ANDHRA PRADESH HIGH COURT ] has elaborately dealt with the issue and has held that there is no provision in the Income Tax Act by which a first charge is created automatically on the properties of the assesses. And also held it is now well settled that wherever the statute does not create a first charge over the property, the crown's debt does not take precedents over the claim of the secured creditor. Section 281 of Income Tax Act and section 26E of SARFAESI Act and 31B of the Recovery of Debts and Bankruptcy Act cannot operate simultaneously and there arises conflict and hence the attachment ought to be lifted whenever the challenge is made and whenever the mortgage by bank is prior to the attachment under Income Tax Act. Income Tax Act has not provided any 1st charge of its debts. But there is 1st charge over the bank s debt under SARFAESI Act. Moreover, the amendment of Section 26E is applicable to pending lis. Therefore, this Court is of the considered opinion that even though it is a statutory duty to attach property by the Income Tax Department, as and when the bank claims and exercise its 1st charge over the property, the Income Tax Department is liable to issue no objection certificate and also lift the attachment. In the present case this Court has already held that the mortgage by bank is prior to the attachment of the Revenue - Thus the impugned orders are liable to be quashed. 1st respondent is directed to lift the attachment. The 2nd respondent is directed to strike the name of the 1st respondent from the Encumbrance Certificate with respect to the property measuring about 33.43 cents vacant land at Chinthamani Village Salai limit T.S.No.21-part, New Ward B, Block 19, Trichy-2.
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2023 (12) TMI 350
Validity of Reopening of assessment - as argued no oral hearing was granted to the petitioner before passing the impugned order u/s 148A(d) - HELD THAT:- The affidavit filed by the respondents/revenue clearly states that no oral hearing was granted to the petitioner before passing the impugned order dated 30.03.2023 u/s 148A(d) - Having regard to the averments made in the aforementioned affidavit filed by the respondents/revenue, according to us, the best way forward would be to set aside the impugned order dated 30.03.2023 passed u/s 148A(d) and the consequent notice of even date i.e., 30.03.2023 issued u/s 148 of the Act, albeit with liberty to the AO to pass a fresh order after hearing the petitioner/assessee. Accordingly, the impugned order and the consequent notice of even date issued u/s 148 of the Act are set aside. Liberty is, however, given to the AO to pass a fresh order.
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2023 (12) TMI 349
Disallowance u/s 14A r.w.r. 8D - assessee had made a suo motu disallowance - HELD THAT:- In a series of judgments it has been held that the disallowance u/s 14A r.w.r. 8D of the Rules cannot exceed the exempt income. Therefore, to our minds, the addition made by the AO, which was sustained by the CIT(A), was wholly unsustainable and thus, according to us, the Tribunal correctly deleted the addition. Disallowance of interest expenses - Utilization of loan for purchase of shares - ITAT deleted the additions - Counsel for respondent / assessee contended that, Revenue, at the fag end of the proceedings came up with the argument that the CIT(A) had taken recourse to an alternate rationale based on the provisions of Section 36(1)(iii) - Revenue contention that although the AO was right in holding that in the balance sheet for FY in issue i.e., FY 2007-08, a part of the shares bought concerning Reliance Industries Ltd. (RIL) was shown as long term investment, they were sold and the profit earned therefrom was offered for imposition of tax. Mr Jain, thus, went on to state that the profit on the sale of all the shares mentioned in Table- II above, which included shares of RIL (except Reliance Liquid Fund) was Rs. 7,10,34,493/-, which as indicated above, was offered for levy of tax. Therefore, the argument advanced by Mr Jain was that notwithstanding the depictions in the balance sheet, once the appellant/revenue has accepted the transaction as one concerning the sale of shares held as stock-in-trade, neither the CIT(A) nor the AO could have made an addition qua interest paid on loan availed by the respondent/assessee. We tend to agree revenue. The borrowings were for the purpose of business. The shares bought from borrowed funds were sold and this profit earned was offered for levy of tax, which was accepted by the appellant/revenue. It is perhaps for this reason that the question proposed by the appellant/revenue does not raise the issue concerning the application of borrowed funds for long-term investment, and hence unavailability of deductions qua interest accrued on it [See Section 36(1)(iii)]. The question, as proposed, is confined to the disallowance made under Section 14A of the Act read with Rule 8D of the Rules. In any event, the well-established principle is that the manner of treatment of an item concerning expenditure and income in the books of accounts or financial statement does not determine its liability under the Act [See Kedarnath Jute Mfg. Co. Ltd. v. Commissioner of Income Tax, (Central), Calcutta [ 1971 (8) TMI 10 - SUPREME COURT] At this juncture, the appellant/revenue cannot spring upon the respondent/assessee a new case which is not articulated in the appeal preferred before us. Thus as the exempt income was only Rs. 35,347/-, the disallowance ordered by the AO amounting to Rs. 5,06,73,874/- could not have been made in view of the position in law
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2023 (12) TMI 348
Allowable business expenses - Supervisory and risk management expenses - addition made expenses were not incurred by the respondent/assessee for its business purposes - CIT(A) deleted addition - HELD THAT:- The record shows that the assessee is in the insurance brokerage business concerning both life and non-life products offered by various insurance companies. Assessee is said to have incurred, according to the stand taken before the AO, the aforementioned amount vis- -vis prospective clients. Concededly the said amount was paid by the respondent/assessee to its sister concerns, namely M.M. Carpets Industries Ltd. and Trinity Global Enterprises Ltd. The fact that the expenses were incurred for prospective clients should be good enough for the respondent/assessee to claim deduction qua the same, as every expense does not necessarily translate into corresponding income. Since, as noticed above, the appellant/revenue has treated the amount expended by the respondent/assessee as revenue receipt in the hands of its sister concerns, in our opinion, the same transaction cannot be treated differently in the hands of payer i.e., respondent/assessee. Besides, as noted above, in AY 2010-11, the AO had allowed deduction vis- -vis amounts expended towards supervisory and risk management charges. CIT(A), in AY 2013-14, as noticed above, had deleted the addition made by the AO. Thus, we are not inclined to interfere with the impugned order, since, according to us, no substantial question of law arises for our consideration.
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2023 (12) TMI 347
Deduction u/s 80IA - assessee claimed tax holiday u/s 80IA at the rate of 100% of the profits earned up until AY 2011-12 and, thereafter, at the rate of 30% between AY 2012-13 and AY 2016-17 - Whether expansion of services amounted to setting up a new and independent undertaking? - AO disallowed the tax holiday claimed for the AY in issue, albeit, on a proportionate basis (i.e., in proportion to the contribution of each segment) pivoted on the rationale that a new and separate undertaking had come into existence with respondent/assessee having acquired, in 2008, NLD and ILD Licenses - According to the Tribunal, in 2002-03, assessee had commenced its business by providing data transmission and internet services, which continued even after it acquired, in 2008, NLD and ILD licenses - HELD THAT:- We find that the Tribunal has noted that there was no material brought on record by the appellant/revenue to back its claim that a separate undertaking had been established to provide the NLD and ILD services offered by the respondent/assessee. There was also, according to the Tribunal, no case set up or established by the appellant/revenue there was reconstitution of the existing business.According to the Tribunal, in 2002-03, the respondent/assessee had commenced its business by providing data transmission and internet services, which continued even after it acquired, in 2008, NLD and ILD licenses. The only difference that was brought about, which is something that was noticed by the Tribunal, is that the respondent/assessee, with the acquisition of two new licenses, was now providing private internet services in a secure form to a closed group of users. In our opinion, given the aforementioned findings of fact returned by the Tribunal, it cannot be said that a new undertaking had come into existence after 31.03.2005. The respondent/assessee was and continued to provide internet services. The only difference was that it expanded its business footprint by it adding to it a niche consumer base. The legislative policy of providing deduction u/s 80IA is to give leg-up to certain undertakings, which are capital intensive. The attempt of the AO to excise a portion of the benefit, in our opinion, cannot pass muster upon perusal of the plain language of Section 80IA(4)(ii) of the Act. Thus, according to us, no interference is called for with the impugned order passed by the Tribunal. According to us, no substantial question of law arises for our consideration.
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2023 (12) TMI 346
Additions against unexplained jewellery, paintings and wrist watches - search and seizure operation was conducted u/s 132 - source of the money concerning investment in the aforesaid articles was unexplained, additions were made qua each of these articles - ITAT deleted the additions - HELD THAT:- Insofar as the jewellery is concerned, the Tribunal noted that the entire family lived in one residential premises as a single family unit - jewellery declared/disclosed by the family as one unit in its wealth tax return was more than the jewellery found during the search action.Assessee had placed before the AO item-wise reconciliation of the articles mentioned in the wealth tax return, along with the valuation report prepared during the search No fault can be found with the approach adopted by the Tribunal with regard to the deletion of addition made by the AO qua jewellery. Besides the above observations, the Tribunal has also taken into account the fact that there were substantial withdrawals every month and also the income declared by the respondent/assessee. It is noted (something which is not disputed before us by Mr Kumar), that the returned income for the period in issue was Rs. 14.73 crores. Thus, as per contents of the wealth tax return, the Tribunal deleted the entire addition made in respect of jewellery. Addition made with regard to paintings , what has emerged is that not only had the respondent/assessee placed on record a valuation report, but also the appellant/revenue had the paintings valued by two valuers. The valuation arrived at by the two valuers appointed by the appellant/revenue were Yellow Flute and Delhi Art Gallery. Evidently, Yellow Flute valued the subject six paintings at Rs. 55,85,000/-, while Delhi Art Gallery valued the said paintings at Rs. 37,50,000/-. Valuer appointed by the respondent/assessee pegged the worth of five out of the six paintings at Rs. 19,50,000/-. Assessee had disclosed that out of five paintings, three paintings were purchased in 2004, while the remaining paintings were purchased in 2012 and 2017. Assessee s valuer has not estimated the worth of the sixth painting and, therefore, perhaps, has not provided the year in which it was purchased. Interestingly, insofar as the painting purchased in 2017 is concerned, the source of purchase was shown as bank . The remaining four paintings were claimed by the respondent/assessee as having been purchased by drawings . Tribunal, while taking into account the year of purchase (at least with regard to the paintings which were purchased in 2004), noted that this aspect had not been put in issue by the valuers appointed by the appellant/revenue. Based on this, the Tribunal, inter alia, concluded that no addition qua paintings purchased in 2004 could be made in the relevant period i.e., AY 2018-19. Tribunal noted, as indicated above, that the two valuers appointed by the appellant/revenue had estimated the worth of paintings differently and furthermore, had not pointed out any defect in the valuation report submitted by the expert appointed by the respondent/assessee. Tribunal concluded that insofar as valuation of artwork is concerned, experts could differ in their conclusions. Furthermore, given the fact that the valuers appointed by the appellant/revenue had not expressed any reservation with regard to the report submitted by the expert appointed by the respondent/assessee, the Tribunal held that the addition made with regard to the paintings was unmerited.Tribunal s approach, in the given facts and circumstances, cannot be faulted. Estimating the worth of an artwork can vary from expert to expert. Four out of five paintings were purchased, according to the respondent/assessee, in 2004; an aspect which was not contested by the valuers appointed by the appellant/revenue. Insofar as the painting which was purchased in 2017, the investment had been made, evidently, through banking channels - Thus, on the whole, the Tribunal, in our view, correctly deleted the addition. Addition made qua wrist watches - Having regard to the declared income and the fact that there were substantial withdrawals, the Tribunal deleted the additions made on account of investment in wrist watches.Once again, we are of the view that the Tribunal has, broadly, come to the correct conclusion. This is a case of wherein the Tribunal has returned the findings of fact after appreciating the material placed on record by the respondent/assessee. We are of the opinion that none of the findings of fact are perverse. We also notice that no question concerning perversity has been proposed by the appellant/revenue.
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2023 (12) TMI 345
Reopening of assessment u/s 147 - Reason to believe - as alleged accommodation entry said to have been received by the petitioner from Mr S.K. Jain [accomodation entry provider] - HELD THAT:- The notice issued to the petitioner was accompanied by two (2) sheets of paper, which, inter alia referred to the accommodation entries made available to the petitioner. The assessment order was thereafter framed in the first round, i.e., on 30.03.2015. Therefore, according to us, the material that was examined by the AO in the second round was no different from that which was examined when the assessment order dated 30.03.2015 was passed. As indicated above, the allegation with regard to the source of the accommodation entry and the amount was also similar, both when the assessment order dated 30.03.2015 was passed and when the 2018 notice was issued. Therefore, according to us, it is a clear case of change of opinion. Revenue s submission that the assessment order did not deal with the query raised with regard to the accommodation entry and the material furnished, in our opinion, is misconceived, as the aspect concerning accommodation entries was the focus of the assessment order, which is evident upon perusal of the said assessment order itself. AO adverts to the notices issued to the petitioner, to which we had made a reference above, and the material (i.e., two sheets of paper) which were alluded to the accommodation entry received by the petitioner. It is well-established that an AO need not write a detailed order, as long as the assessment record is indicative of the fact that a query was raised and it was answered; if such an exercise has been undertaken, it would not be open to the AO to reopen the same, unless fresh material comes to light which was not available when the matter was examined in the first instance. Thus principle that once a query is raised and answered, the AO would have formed an opinion, notwithstanding the fact that no reasons are recorded in the assessment order. In such circumstances, the reassessment proceedings, if initiated, would be construed as being invalid in law. This principle is founded on the rationale that the assessee has no control over the manner in which the AO chooses to frame the assessment order. One needs to remember that the AO wears two hats, that of an inquisitor and adjudicator. Decided in favour of assessee.
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2023 (12) TMI 344
Reopening of assessment u/s 147 - reassessment order was quashed, concerns the applicability of the third proviso appended to Section 147 - HELD THAT:- A careful perusal of the third proviso appended to Section 147 of the Act reveals that the AO is free to assess or reassess such income which is chargeable to tax, provided he has reason to believe that income has escaped assessment, other than income which is the subject matter of any appeal, reference or revision. Therefore, in order to appreciate as to which is the income that the AO cannot subject to assessment or reassessment, one would have to examine the grounds incorporated in the appeal [i.e., for AY 2010-11] which the appellant/revenue had preferred with the Tribunal. We may note that identical grounds were raised qua AY 2011-12, except for the difference in the amount that was added to the respondent s/assessee s income u/s 68 of the Act. Clearly, a perusal of the grounds of appeal would show that the appellant/revenue had directed its appeal towards the additions made under Section 68 of the Act. The reassessment proceedings, concededly, also dealt with the additions made under Section 68 of the Act. According to us, while the appeals preferred were pending adjudication with the Tribunal, the AO could not have triggered reassessment proceedings against the additions which were the subject matter of the appeal. The dicta of the two judgments cited by Mr Aggarwal [i.e., Commissioner of Income Tax, New Delhi (Central) vs. Edward Keventer (Successors) P. Ltd. [ 1979 (11) TMI 73 - DELHI HIGH COURT] and Alcatel Lucent France vs. ADIT [ 2016 (6) TMI 301 - DELHI HIGH COURT] ] is squarely applicable. Both judgments enunciate the principle that for zeroing down on matters which the AO cannot subject to assessment or reassessment proceedings under the third proviso to Section 147 of the Act the best way would be to examine the grounds of appeal.
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2023 (12) TMI 343
Revision u/s 263 against assessee as an agent of the non-resident Monet Ltd.- Validity of order passed u/s 163 whereby the respondent/assessee was treated as an agent of the non-resident company - whether the CIT could have exercised powers against the respondent/assessee i.e., Cairnhill CIPEF Ltd. when the principal had ceased to exist? - HELD THAT:- As noticed by us, Monnet Ltd. ceased to exist on 19.12.2018, whereas, the CIT exercised its revisionary power much later i.e., on 31.03.2021. The other submission made that the revisionary power under Section 263 of the Act is directed towards the assessment order is also, in our view, an untenable submission for the reason that the assessment order is framed qua an assessee . In this case, the assessee was Monet Ltd. and before exercising the power under Section 263 of the Act, notice would have to be issued to Monet Ltd. and in some cases (where principal, perhaps, is not found available) to its agent by exercising powers under Section 163 of the Act. In this particular case, the record shows that it is not the appellant s/revenue s assertion that Monet Ltd. was not available. The record, however, indicated, as alluded to above, that Monet Ltd. had ceased to exist, therefore, the submission that the CIT could revise the assessment order dated 12.12.2018 when Moent Ltd. was not in existence, in our view, is untenable in law. The third submission made that the assessee i.e., Cairnhill CIPEF Ltd. would be liable only to the extent of the benefit it received i.e., by way of acquisition of shares of Mankind Ltd., is again, in our view, misconceived because it ignores the fact that under Section 163 of the Act, it is only when an entity/person is treated as an agent of a principal, which is in existence, such approach is acceptable in law. The arguments of Appellant in sum, veers around the proposition that Section 163 of the Act recognizes a person or an entity as an agent, irrespective of whether or not the principal is in existence. In the usual and normal course, the expression agent suggests that there is a principal in existence, on whose behalf the agent acts. The fact that an entity or a person is treated as an agent only buttresses this point of view. In our opinion, none of the submissions made persuade us that the impugned order requires interference. No substantial question of law.
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2023 (12) TMI 342
Unexplained investments in share capital of its group companies - addition made as nothing was produced by the assessees to prove that the investments in the shares of SBQ Steels by the assessees are out of the explained investments - HELD THAT:- The main reason given by the Tribunal in the orders dismissing the appeals is that nothing was produced by the assessees to prove that the investments in the shares of SBQ Steels by the assessees are out of the explained investments. The contention of the learned counsel for the assessees in this regard is that they were ready to submit the relevant documents, but on the date of hearing of the appeals, 15 other cases relating to the group were also listed and due to the same, the assessees were not able to provide the documents. In view of the submission made on the side of the assessees that they are ready to submit the relevant documents, this court deems it appropriate to remand the matter to the Assessing Officer / respondent authority for fresh consideration. The learned standing counsel appearing for the respondent has no serious objection for the same. Questions of law raised in all these appeals are left open and the matters are remanded to the respondent authority / assessing officer for fresh consideration.
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2023 (12) TMI 341
Rectification u/s 154 - applicability of section 115BBDA - Assessee earned dividend income from mutual funds which were exempt from taxation u/s 10(35) - as argued assessee having not earned dividend exempt u/s 10(34) of the Act, therefore the invocation of section 115BBDA to the dividend income earned by the assessee was a mistake needing rectification - HELD THAT:- Section 115BBDA of the Act levies special rate of tax only on dividend income earned from domestic companies if exceeding Rs. 10 lakhs. This dividend income is exempt upto Rs. 10 lakhs under section 10(34) - The assessee has claimed to have earned dividend income from mutual fund which are exempt u/s 10(35) of the Act. Evidence to this effect was also filed by way of statement of Mutual Fund. The assessee had clearly demonstrated the inapplicability of section 115BBDA of the Act to the facts of her case. In the light of the same the Ld.CIT(A) s order upholding the rejection of her application seeking rectification to this effect is clearly untenable more particularly since we find that the Ld.CIT(A) has not even cared to deal with the contention of the assessee before upholding the order of CPC . Thus we hold, the rectification application filed by the assessee needs to be allowed. In view of the above the order of the CPC/AO, rejecting the assessee s rectification application seeking deletion of addition made to her income of dividend income earned from mutual fund and subjected to tax at 10%, is set aside. The CPC/ AO is directed to allow the rectification application of the assessee and delete the adjustment made to her income, taxed at the rate of 10%. Appeal of the assessee are allowed.
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2023 (12) TMI 340
Revision u/s 263 - as per CIT assessee has been assessed on the lower amount which is erroneous and causing prejudice to the interest of the revenue - mismatch between the income of the assessee shown in form 26AS and Audited Financial Statement and this fact has nowhere been inquired by the AO during the assessment proceedings - HELD THAT:- There is no loss to the revenue as far as income shown by the assessee from M/s Shivam Construction provided the same has been declared in two different AYs as demonstrated by the ld. AR for the assessee. As such, on aggregation of income of the assessee from M/s Shivam Construction in 2 different AYs i.e. 2012- 13 and 2013-14, it is transpired that the assessee has shown excess income as evident from the reconciliation statement filed by the assessee before the Ld. PCIT As decided in Gujarat Engineering Co. vs CIT [ 2017 (3) TMI 383 - ITAT AHMEDABAD] return of income filed by the assessee in not offering the job work charges in the assessment year 2006-07 when the income has already been offered in the earlier assessment year cannot be said to be erroneous by any stretch of imagination - one of the two conditions, as noted above, is clearly not satisfied. The order u/s 263 is, therefore, liable to be struck down this on score alone. Be that as it may be, what we find from the preceding discussion is this that the veracity of the contention raised by the assessee before the Ld. PCIT has nowhere been verified either by the AO during the assessment proceedings or by the Ld. PCIT and accordingly no finding is thereon of such contention of the ld. AR. As referred to the reply made by the assessee in response to the notice u/s 142(1) we find that the AO has not enquired the aspect highlighted by the Ld. PCIT in his order during the assessment proceedings. Accordingly, it appears to us that the AO in the given case has not conducted any inquiry qua to difference between income shown in form 26AS vis-a-vis Financial Statement. There remain no ambiguity that the assessment order is erroneous in so far prejudicial to the interest of revenue if it has been passed without making inquiries during the assessment proceedings. Accordingly, we do not find any reason to interfere in the finding of the Ld. PCIT. Decided against assessee.
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2023 (12) TMI 339
Assessment u/s 143(3) or u/s 153A r.w.s 153C - Bogus LTCG declared on sale of shares of a listed company through recognized stock exchange - HELD THAT:- There is no dispute that in the case in hand, the entire addition is based upon the incriminating material/information detected out of search proceedings u/s 132 conducted at the premises of the stock brokers. On the given facts, r.w. the above mentioned observations of the AO we do not find any merit in the submissions of the ld. DR. Even if the assessments were on going, but when search took place and when information came to the knowledge of the Revenue, pending assessments get abated as per the provisions of section 153A and proceedings u/s 153C are off shoot of proceedings u/s 153A. Therefore, the impugned assessment order should have been framed as per the provisions of section 153C of the Act as held by the Hon'ble Supreme Court in the case of Vikram Singh Bhatia [ 2023 (4) TMI 296 - SUPREME COURT] . Thus we set aside the assessment order as bad in law.
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2023 (12) TMI 338
Penalty u/s 271E - repayment of loan made by bearer cheque and not through crossed cheque - contravention of the provisions of Section 269T in the preceding assessment year - initiation of penalty proceedings before the Ld. CIT(A) for A.Y. 2014-15 while framing assessment for A.Y 2015-16 - HELD THAT:- It is an established fact that penalty under section 271E of Act for A.Y. 2014-15 in the case of the assessee has been initiated while completing assessment proceedings for A.Y. 2015-16. This, in our view, is not legally tenable. Penalty proceedings can be initiated at any time while the Ld. AO is in seisen of the assessment proceedings of the relevant A.Y. in which the default occurred and not afterwards. On facts similar to that of the assessee, as held in Mahonar Lal Thakral [ 2011 (1) TMI 538 - PUNJAB AND HARYANA HIGH COURT] that it being a case of processing the return of income, there is no finding in the assessing officer's order with regard to the applicability or otherwise of section 269T of the Act to the assessee s case. It was within the purview of the AO to bring the assessee s case to scrutiny and to make regular assessment under section 143(3) of the Act. It was also within the power of the AO at the appropriate stage to initiate proceedings under section 147 of the Act against the assessee. No such action was taken. It is not in dispute that there were no proceedings pending before the Ld. AO qua the assessee for A.Y. 2014-15. We, therefore hold that initiation of penalty proceedings under section 271E of the Act on the basis of assessment order for A.Y. 2015-16 is bad in law and imposition of impugned penalty by Ld. JCIT and confirmation thereof by the Ld. CIT(A) is not sustainable. The plea of Ld. Sr. DR that penalty under section 271D and 271E can be initiated dehors any pending proceedings for relevant A.Y. is devoid of merit. Appeal of the assessee is allowed.
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2023 (12) TMI 337
Assessment u/s 153A - Unexplained cash deposit u/s 68 - Assessee argued additions are devoid of any reference to any incriminating material found at the time of search - HELD THAT:- As regards the nature and source of cash deposit in IDBI Bank account was explained that the cash deposit is out of old savings, income earned during the year and withdrawal from banks and partnership firm. Nothing has been brought on record to dismantle the explanation of the assessee by the Ld. AO/CIT(A). It is not the case of the Revenue that the IDBI bank account was not declared by the assessee. The addition in our view is not sustainable as it is not based any solid factual and/or legal footing. Regarding credit received by the assessee in her IDBI Bank account, search was carried out on locker No. 474 IDBI Bank Ltd., Rajouri Garden, New Delhi and undisputedly no incriminating material was found which is evident from the Panchnama - Addition based on incorrect appreciation of facts on record is not sustainable. We find ourselves in agreement with the contention of the assessee that if the Ld. AO wanted to make addition to the income of the assessee on the basis of material found in the case of other person he should have followed the mandatory procedure prescribed under section 153C of the Act which has not been done. The case of the assessee on facts is covered in favour of the assessee following decisions Kabul Chawla [ 2015 (9) TMI 80 - DELHI HIGH COURT] , . Meeta Gutgutia [ 2017 (5) TMI 1224 - DELHI HIGH COURT] and Ms. Lata Jain [ 2016 (5) TMI 1273 - DELHI HIGH COURT] . Also ratio decidendi of Kabul Chawla s case [ 2015 (9) TMI 80 - DELHI HIGH COURT] has been affirmed by the Hon ble Supreme Court in PCIT vs. Abhisaar Buildwell P Ltd. [ 2023 (4) TMI 1056 - SUPREME COURT] We delete the additions sustained by the Ld. CIT(A) and decide ground in favour of the assessee.
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2023 (12) TMI 336
Revision u/s 263 - CIT alleging that the order u/s 143(3) is erroneous and prejudicial to the interest of revenue as the AO had not made proper verification of applicability of approval u/s 10(23C)(vi) to the trust particularly for unit of school of science - Error in the assessment order found by the ld. CIT(Exemptions) was grant of exemption u/s. 10(23C)(vi) of the Act to an institute run by the assessee-trust which was not granted approval u/s. 10(23C)(vi) HELD THAT:- The fact that the School of Science was not included in the list of institutes run by the assessee-trust which was granted approval u/s. 10(23C)(vi) vide order dated 17.04.2012 is not disputed. Assessee had explained the non-inclusion of this institute in the list of institute which was granted approval u/s. 10(23C)(vi) as being addition of this institute in the assessee-trust subsequent to the grant of approval i.e. in the year 2014 this institute was added to the trust while the approval u/s 10(23C)(vi) of the Act was granted in the year 2012. Argument of assessee that the approval originally granted is to be presumed to apply to this institute also considering the prevailing position of law that only one-time approval was required to be taken u/s. 10(23C)(vi) we find and hold, has been correctly rejected by the CIT(Exemptions). His finding that this relaxation provided by the legislature of seeking only one time approval does not imply that new institutions can be added by the assessee and the approval will suo moto will apply to the said institute, we hold is correct. We are in complete agreement with the ld. CIT(Exemptions) that the approval granted to the assessee-trust in the year 2012 cannot apply to a new institution added to the trust subsequently. Therefore, the argument of assessee that the approval u/s. 10(23C)(vi) of the Act would apply to the new institute also and hence there was no error in the order granting exemption to the income of the new institute is dismissed. The findings of the ld. CIT(Exemptions) in this regard are confirmed by us. The contention of assessee before us that the approval is granted to a trust and not a specific institute is also rejected since the certificate granting approval specifically mentions each institute which was being run by the assessee-trust at the relevant point of time. The approval obviously is specifically granted to the institutes mentioned . CIT is required to grant approval after examining the genuineness of activities carried out and therefore specifically having examined the activities of the then existing institutes the approval letter mentions each institute of the assessee trust found by him eligible to exemption u/s 10(23C) (vi) - This institute, i.e. School of Science added to the trust subsequent to grant of approval its activities needed to be examined and the assessee ought to have applied afresh for grant of approval to this specific institute. We agree with the ld. CIT(Exemptions) that the approval could not have extended to the new institute added subsequently. We see no reason to disagree with the ld. CIT(Exemptions). Undoubtedly, the assessee had not claimed its income exempt u/s 11 of the Act and merely because it has been granted registration u/s 12A of the Act, exemption u/s 11 of the Act is not automatic and the same needs verification. Assessee cannot contend that since it has been granted registration u/s 12A of the Act, its entire income is exempt by virtue of Section 11 of the Act and no prejudice therefore is caused to the Revenue. We agree with the ld. CIT(Exemptions) that this claim of the assessee, that it was not liable to pay any tax on account of its income being exempt u/s 11 of the Act, needed to be verified and in the absence of the same, it cannot be said that there was no prejudice caused to the Revenue. On this account, we agree with the ld. CIT(Exemptions) s rejection of this contention of the ld. Counsel for the assessee. Contention of the assessee is not acceptable since the CBDT vide its Circular No.1/2015 dated 21.01.2015 has debarred assessees from making alternative claim of exemption u/s. 10(23C)(vi) and Section 11 - As we hold assessee is not correct. We have gone through the relevant CBDT circular and we find that what has been debarred by virtue of the said circular, which is explanatory notes to the provisions of the Finance Act, 2014, is that assessees claiming exemption of their income u/s. 10(23C)(vi) of the Act or Section 11 of the Act are debarred from claiming exemption of such income under any other provision of Section 10 of the Act. What has been introduced by virtue of amendment made by Finance Act, 2014 is that assessees claiming exemptions of their income on account of carrying out charitable activities or running educational institutions are entitled to claim exemption under the relevant sections 11 and 10(23C)(vi) of the Act only subject to fulfillment of conditions specified therein. Such assessees have been disentitled/debarred from claiming their incomes as exempt by virtue of any other provisions exempting income provided in Section 10 of the Act. Therefore, this argument of the ld. DR, we find, is incorrect that the assessee cannot alternatively seek exemption of their income u/s. 10(23C)(vi) and Section 11 of the Act. Thus CIT(Exemptions) has rightly found the assessment order to be erroneous in granting exemption u/s. 10(23C)(vi) of the Act to the income of an institute run by assessee-trust which was not granted approval for the said purpose and finding that as a consequence prejudice has been caused to the Revenue. Assessee appeal dismissed.
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2023 (12) TMI 335
Rectification of mistake in calculation of interest chargeable u/s 234B and 234C while finalizing the assessment u/s 143(3) - HELD THAT:- The said order of the AO, to say the least, is cryptic and bereft of any reasoning. Order of CIT(A) also suffers from the same vice in as much as no reason has been advanced for dismissing the appeal of the assessee. It does not require much gain saying that the orders of the income tax authorities, which seek to fasten tax liability are in the nature of quasi-judicial orders, which ought to set forth reasons and the decision thereof, so that the factum of due application of mind by the authority, becomes evident. In the instant case, the orders of the authorities below, are conspicuous by absence of any reason for the decision thereof, and therefore, the same are grossly unsustainable. Thus, considering the entirety of circumstances, we set aside the orders of the lower authorities and remit the matter back to the file of the Assessing Officer for consideration afresh. AO shall consider the calculation of interest u/s. 234B and 234C as canvassed by the assessee in his application dated 16.11.2017 and thereafter pass a speaking order, in accordance with law
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2023 (12) TMI 334
Deduction u/s. 80IA - interest on Fixed Deposit with bank - As per appellate order, interest was held to be not eligible for deduction, thus, deduction on the above interest income was denied - HELD THAT:- As decided in assessee own case [ 2020 (6) TMI 5 - ITAT MUMBAI] fixed deposit interest income earned by the assessee could not be said to have any nexus with the eligible business for which deduction u/s 80IA of the Act is available. Anyway, assessee has stated before LD lower authorities that bank Fixed Deposit interest is earned where surplus sum was placed with the bank in the form of Fixed Deposits. Thus, ground no.1 of the appeal is dismissed holding that fixed deposit interest earned by the assessee cannot be said to be an income derived from the business of eligible infrastructure facility. Denial to consider only net interest income after reducing finance cost - HELD THAT:- If blanket netting off is allowed of above bank FDR interest, it will result in lower interest expenditure for determination of eligible income for deduction to that extent, thereby assessee will get the full deduction to the extent of amount of FDR interest. Therefore, the argument of the LD AR though looks attractive. But can be decided only after examination of facts. Before us, details of interest paid which has gone to reduce the eligible income for deduction, nor details of Interest on FDR as well as nexus of interest paid on funds is available. Thus, the alternative argument cannot be considered without ascertaining facts. Therefore , we restore this issue back to the file of AO with a direction to assessee to first show the facts about interest earned and interest paid along with nexus, and then substantiate why such netting off should be allowed and to what extent. AO may examine same, and if found in accordance with law, may recompute the deduction u/s 80 IA [4] of the Act. Accordingly, alternative ground of the appeal is allowed with above directions. Allowability of benefit u/s 80IA - income from sale of scrap - sale of scrap was stated by AI as not derived from the business of industrial undertaking - HELD THAT:- We find that assessee has earned income from sale of scrap by selling wire ropes, Scrap and Waste oil. These are the income generated out of the maintenance and operational activity of the port. These are either left over or old and used wire ropes. Necessary evidences in form of sales bills are also produced before lower authorities. Cost of these materials has already gone into the expenditure of operation of the port activities. We find that when scrap sold by the assessee has direct nexus with the business of the infrastructure facility, such income should be eligible for deduction u/s 80IA [4] of the Act. It is not the claim of revenue that such scrap sale is of totally unrelated items to the business of assessee. Therefore, income from sale of scrap is eligible for deduction u/s 80IA of the Act. Appeal filed by the assessee is partly allowed.
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2023 (12) TMI 333
Deduction u/s 57 while computing interest income - bringing to tax the interest income as Income from Other Sources rejecting the assessee s claim as business income - CIT(A) confirmed the action of the AO in reducing the cost of funds to the extent of 15% of the amount of interest income earned and balance amount was brought to tax - DR submitted that on the interest income earned out of providing credit facilities to its members, the assessee is allowed deduction u/s 80P(2)(a)(i) and that the interest paid on deposit made by members of the assessee cannot be allowed as cost of funds. HELD THAT:- Assessee is a co-operative society primarily engaged in providing credit facilities to its members. Naturally, the cost of funds will be primary cost for any entity engaged in such business / activities. It is well accepted that banking institutions which have similar operation to that of the assessee will also operate on net interest income which is arrived at by subtracting the interest they have to pay out of the interest income generated. The assessee had furnished detailed working with respect to the cost of funds which is coming to 77% of the interest income. The claim of assessee is backed by detailed workings which had not been refuted by the authorities. AO / CIT(A) had allowed deduction by restricting the of cost of funds to the extent of 15% on ad-hoc basis of the interest income without any legal basis. The working of the cost of funds as provided by the assessee on facts of the instant case has not been refuted. Therefore, direct the AO to accept the same as cost of funds for earning the interest income which was assessed as Income from Other Sources . Appeal of assessee allowed.
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2023 (12) TMI 332
TP Adjustment - Interest on outstanding receivables due from AEs - Whether outstanding receivables is not covered in the definition of international transaction as defined u/s 92B? - HELD THAT:- In the present case, DRP has not considered the submissions of the assessee on trade receivables and it is categorically mentioned that the period granted for furnishing the details was too short and therefore, there was violation of principles of natural justice and thereafter, DRP has directed the TPO to grant one more opportunity to the assessee to explain and decide the issue. TPO has passed the order pursuant to the direction of DRP on 22.06.2022 and thereafter, the AO has passed the order on 30.06.2022. In our view and in the light of the submissions made before us by AR that sufficient opportunity was not granted by the lower authorities, we are of the opinion that one more opportunity is required to be given to the assessee to explain its case before the TPO. We deem it appropriate to remand back the matter to the file of AO / TPO for passing a fresh order. Appeal of the assessee is allowed for statistical purposes.
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2023 (12) TMI 331
Deduction claimed u/s. 57(iii) - claim disallowed as assessee has failed to establish nexus between the interest income earned and interest expenditure which is wholly and exclusively for the purpose of making or earning such interest income - CIT(A) deleted addition - HELD THAT:- We find that AO has not disputed on the genuineness of claim of interest, which are duly supported with the audited financial statements and books of accounts maintained as per the provisions of the Act. Whereas, the assessee has demonstrated with the material evidences, the nexus between the interest income earned and interest expenditure claimed based on the Audited financial statements. Further the interest expenditure claimed is wholly and exclusively for the purpose of earning the interest income on advances and loans based on the evidences filed before the revenue authorities. CIT(A) has considered the facts, submissions and relied on the methodology of allocation of interest component and has passed a conclusive and reasoned order. Accordingly, we do not find any infirmity in the order of the CIT(A) on the disputed issues and uphold the same and dismiss the grounds of appeal of the revenue.
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2023 (12) TMI 330
Validity of Reopening of assessment u/s 147 - reasons to believe - borrowed belief - allegation of non Independent application of mind by AO - assessee had obtained accommodation entry - HELD THAT:- As on the date of recording of reasons by the Assessing Officer of the income of the assessee having escaped assessment, the only information with the Assessing Officer was that obtained from the DCIT, Central Circle-1, Rajkot, that the assessee had obtained accommodation entry from an alleged angadiya - That except for this, there was no other information with the AO and based on this information, he formed a belief that this amount represented unaccounted sales of the assessee and income to this extent had been escaped assessment. AO had made no attempt to verify whether these amounts had actually been received by the assessee and in what manner. Thus we completely agree with assessee that the Assessing Officer s belief of escapement of income was not his own belief but a borrowed belief. Jurisdiction assumed in the present case by the Assessing Officer to frame assessment under Section 147 of the Act is without valid jurisdiction. Decided in favour of assessee.
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2023 (12) TMI 329
Addition u/s 40(a)(ia) - non deduction of TDS on expenses relating to rent reimbursed to holding company - AR submitted that the assessee is paying rent to its holding company and in respect of premises taken by the holding company on rent paid is claimed as reimbursement since several years. This position has been accepted by the department in the proceedings and subsequent assessment years and never disputed even when the provision for TDS inserted on the statute since 1994 by inserting section 194-I of the I.T. Act, 1961 was in Act w.e.f. 01.06.1994 - HELD THAT:- The assessee is a subsidiary of holding company entered into lease agreement and applicable tax deducted at source by depositing thereon. As the assessee was occupying part of the said rented property and reimbursing its holding company towards rent partially. In the present case, the assessee is paying rent to the holding company as reimbursement since last couple of years. This position has been accepted by the department all through and it has been never disputed even when provisions for TDS were inserted on statute since 1994, section 194-I of the Act was inserted in Act w.e.f. 01.06.1994. Similarly, this position was not disputed even after amendment in section 40(a)(ia) of the Act by the Taxation Law (Amendment) Act, 2006 which is w.e.f. 01.04.2006. On this issue, there is no material change in the facts and circumstances of the case as well as the law during the year under consideration. AR placed before us the copy of lease deed which provided for use of the premises by subsidiary companies. The actual payments are made by the lessee (holding company) to the lessor and necessary tax was deducted there from. Further, the holding company also did not debit the whole rent to its books of account. It has only debited the rent which pertains to the part of the premises occupied by assessee. In such a situation, in our considered opinion, there is no lessor and lessee relationship between the holding company and the present assessee where the provisions of section 194-I are applicable. Keeping in view, on the facts of the case and following the decision rendered in the case of ACIT, Circle-15(1) vs M/s. Result Service Pvt. Ltd. [ 2012 (7) TMI 217 - ITAT DELHI] - Accordingly, we direct the AO to delete the addition made u/s 40(a)(ia) - Appeal of the assessee allowed.
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2023 (12) TMI 328
Maintainability of appeal in Tribunal - low tax effect - HELD THAT:- The Central Board of Direct Taxes, vide Circular No. 17/2019, dated 8th August, 2019, F. No. 270/Misc.142/2007ITJ(Pt.), has issued the direction in supersession of the Circular No. 3/2018 dated 11th July, 2018, F.No. 279 of Misc.142/2007-ITJ (Pt.), in consonance with the power entrusted under section 268A of the Income Tax Act, 1961 that no appeal should be filed before the Tribunal in case the tax effect does not exceed Rs. 50 lakhs. In the backdrop of the CBDT Circular No. 17/2019, the Ahmedabad Bench of the Tribunal, in its recent order passed in Dinesh Madhavlal Patel, Ahmedabad and other [ 2019 (8) TMI 752 - ITAT AHMEDABAD] disposing of 628 appeals and COs. It may be clarified that though every care has been taken by the Registry of the Tribunal in identifying the appeal, it may yet be that some error in working the tax effect may have occurred. It may also be that the appeal is otherwise saved by the exceptions listed at para 10 (scope of which stands widened vide amendment dated 20/8/2018) or para 11 of the Circular. Accordingly, liberty is hereby granted to the parties to move the Tribunal in this regard, in which case it shall, if satisfied on merits, recall the appeal for being heard on merits.
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2023 (12) TMI 327
Undisclosed loans and advances - AO formed a belief that the assessee has given loans and advances outside the books of account - Basis the notings in this seized ledger AO made addition - HELD THAT:- It is true that presumption u/s 132(4A) /292C of the Act is that whatever is found and seized during the course of search proceedings has to be accepted as such but the contention of the ld. counsel for the assessee that if in the seized document the amount is written as Loan , then it should be accepted as loan and cannot be examined u/s 68 of the Act and cannot be accepted because it would make the entire scheme of Act redundant. Moreover, in none of the cases referred to and relied upon by assessee have given any findings on the non applicability of section 68 on the seized document. The finding is in respect of presumption u/s 132(4A)/292C of the Act and there is no denial of such presumption but the issue under consideration is whether provisions of section 68 can be made applicable on such mentioning of Loan in the seized document. Then, in our considered opinion, even if the mention is of loan then also the assessee has to prove that it is a loan and, therefore, provisions of section 68 squarely apply on such notings and the onus is on the assessee to establish the identity, capacity of the lender and genuineness of the transaction as is applicable in normal assessment proceedings. Since the assessee has grossly failed in all the three counts, we decline to interfere with the findings of the ld. CIT(A). Accordingly, Ground No. 4 of the assessee s appeal and Ground No. 1 of Revenue s appeal are dismissed. Addition on account of undisclosed interest - We direct the Assessing Officer to allow expenditure relating to payment of interest and bad debts and allocate balance interest income, if any, in the ratio 60:40 as done in earlier years between the assessee and his brother Shri Vinod Gupta. Accordingly, Ground No. 5 of the assessee s appeal is allowed for statistical purposes. Investment in jewellery - addition are that on the basis of seized documents - CIT(A) deleted addition - HELD THAT:- It is not in dispute that it is customary in affluent families to get jewellery on approval basis. All that we have to see is how much of the jewelry was purchased and whether the assessee has successfully demonstrated the source of investment. Thus only jewellery of Rs. 67 lakhs was purchased with necessary entries in Day Book clearly explaining the source of investment. On these facts, we do not find any reason to interfere with the findings of the ld. CIT(A). Undisclosed investment - CIT(A) deleted addition - HELD THAT:- The undisputed fact is that the impugned property was owned by Standard Enterprises which is a partnership firm having two partners, namely, Smt Madhu Gupta and Smt. Veena Gupta. It is also an undisputed fact that sale deed was executed on 06.07.2007 falling in F.Y. 2007-08 pertaining to A.Y 2008-09. On these undisputed facts, the ld. CIT(A) has rightly deleted the impugned addition, which calls for no interference. Accordingly, Ground is dismissed. Undisclosed share purchases - blank share transfer deed found during the search - HELD THAT:- We find that the undisputed fact is that as on 31.03.2009, Shri V.K. Bansal of Sora Marketing Pvt Ltd was still the registered share holder of the impugned shares which means that the share transfer deal never materialized and the impugned transaction never took place. We, therefore, decline to interfere with the findings of the ld. CIT(A). Interest u/s 234A for the period upto which the assessee was not provided copy of seized material - HELD THAT:- An identical issue was considered by the coordinate bench in assessee s own case for assessment year 2006-07 and 2007-08 interest u/s 234A not to charged for the period upto which the assessee was not provided copy of the seized material and in our humble understanding of law, this conclusion of the Commissioner of Income Tax (Appeals) is in accordance with the provisions of the Act and, therefore, we are unable to see any valid reason to interfere with the same and hence, we uphold the same. Income from trading commission - assessee explained that this entry was made forcibly by the search party on 01.08.2009 at 3.30 AM and contended that nothing emerges out of the said sheet as to from which trading commission of Rs. 1.02 crores has been earned by the assessee - CIT(A) deleted addition - HELD THAT:- The undisputed fact is that the entire addition is based upon the confession made by the assessee at the time of search. Other than this, there is no evidence brought on record to suggest that the assessee was doing some trading business from which he earned commission. It is also not in dispute that no excess cash or jewellery was found where this alleged unaccounted income must have been invested. Since the addition is not backed by any supporting evidences, the ld. CIT(A) has rightly deleted the said addition which calls for no interference.
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Customs
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2023 (12) TMI 326
Levy of penalty CFS / Customs Cargo Service Provider (CCSP) = Loss of revenue - on Smuggling - Red Sanders - Recovery of value of the lost goods from the Appellant - goods were pilfered - penalty under Regulation 12(8) of the Handling of Cargo in Customs Area Regulations, 2009 - levy of penalty under Section 117 of the Customs Act, 1962 - simultaneous penalty on the Appellant under Regulation 12(8) of the HCCAR and Section 117 of the Customs Act, 1962 for the same contravention. HELD THAT:- The opening words of Regulation 5 itself makes the provision mandatory when it uses the word shall fulfill the following conditions . It is manifest that sub-regulations (2), (5) and (6) of Regulation 5 are in the nature of undertakings. Regulation 5(6) clearly provides that the CFS is required to indemnify the Principal Commissioner of Customs or Commissioner of Customs, as the case may be, from any liability arising on account of damages caused or loss suffered on imported or export goods, due to accident, damage, deterioration, destruction or any other unnatural cause during the receipt of the goods, storage, delivery, dispatch or otherwise handling. Thus, Regulation 5(6) is quite widely worded, so as to take into account different situations, so as to cover not only the liability arising on account of damages, but also, loss suffered on imported or export goods, which may be on account of factors like accident, damage, deterioration, destruction or any other unnatural cause. The phrase any other unnatural cause would mean any cause other than the natural cause. Applying Regulation 5(6) to the facts of the present case, it is not in dispute that there is an undertaking on the part of the CFS to indemnify the Principal Commissioner of Customs or Commissioner of Customs, as the case may be, inter alia in regard to the loss suffered, and in the present case on export goods, by an unnatural cause, during storage of goods. Once the appellant was bound by such undertaking as contemplated by Regulation 5(6) and having consciously accepted the fact that the goods worth Rs. 4,44,32,500/- have been stolen/pilfered, then certainly statutory obligation under Regulation 5(6) kicks in, so as to make the appellant liable to indemnify the said loss of goods which had occurred due to theft of the goods. On a plain reading of Section 117 of the Customs Act, it is quite clear that the provision pertains to penalties for contravention of the provisions of the Act or in the event of abetment of any such contravention and /or failure to comply with the provisions of the Act, with which the person was under a duty to comply and where no express penalty elsewhere is provided for such contravention or failure, it is only in that event, Section 117 can be invoked. Thus, Section 117 of the Customs Act is an independent provision inter alia dealing with the contravention of the provisions of the Act - In the facts and circumstances of the present case, the Commissioner was justified in imposing a penalty for contravention of the provisions of Customs Act by the appellant in relation to the goods in question. Also the appellant has not raised a dispute, as the contention of the appellant is that there cannot be a simultaneous penalty under Section 117 of the Customs Act and Regulation 12(8) of the 2009 Regulations. Thus, no fault can be found on the penalty of Rs. 4,00,000/- as imposed under Section 117. Penalty under Regulation 12(8) - HELD THAT:- Regulation 12(8) of the 2009 Regulation mandates that if the Custom Cargo Service Provider (appellant in the present case) contravenes any of the provisions of the said Regulations or abets such contravention or fails to comply with any provisions of the regulation with which it was his duty to comply, then he shall be liable to a penalty which may extend to fifty thousand rupees. In the present case, there is a clear contravention of Regulation 5 and Regulation 6, hence, the penalty under Regulation 12(8) cannot be faulted. The appeal is without merit, it is accordingly dismissed.
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2023 (12) TMI 325
Benefit of Merchandise Export from India Scheme (MEIS) - Seeking provisional release of goods - Mis-declaration of goods - Conditions imposed on the provisional release of the impugned seized goods - quantum of bond and the bank guarantee - HELD THAT:- As per the settled position of law there is no absolute right to claim provisional release and the same is subject to conditions that may be imposed by the competent authority, though the conditions that may be imposed cannot be arbitrary and capricious. To safe guard the exercise of this power, the Board has issued the Circular. Perusal of the Circular, it is found that in case export goods are found to be mis-declared in terms of quantity, value and description, the first and foremost condition for grant of provisional release is execution of a bond which has to be of an amount equivalent to the value of the goods and along with that is the requirement of furnishing appropriate security so as to cover the redemption fine and penalty. The contents of the circular are simple, clear and there is no ambiguity in the terms and conditions prescribed therein and hence the same has to be complied. The authorities below has categorically recorded the findings on the basis of the test report that the description of the impugned goods to be exported have been mis-declared. The appellant has described the goods as Whey Flour Powder , however, they were found to be Maida . By virtue of the said mis-declaration, the appellant attempted to achieve the benefit of 10% of the FOB value as whey flour powder was covered under the MEIS whereas Maida was not covered under the said Scheme and therefore the appellant would not have been entitle to the benefit of the Scheme. Similarly, even in respect of valuation, the appellant has over valued the goods. Reliance placed by the appellant on Circular No. 17/2009 dated 25.5.2009 is misconceived as it specifically refers to norms for execution of bank guarantee under specified export promotion schemes, i. e. Advance License and EPCG Schemes, whereas the Circular dated 4.1.2011 specifically provides for conditions while ordering provisional release of export goods where they have been mis-declared. There are no infirmity in the impugned order and the same deserves to be upheld - appeal dismissed.
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2023 (12) TMI 324
Taxability of the processed goods leftover after completion of the export obligation - diverted goods or not - violation of Condition X mentioned in the Notification 21/2015-Cus dated 01.04.2015 - HELD THAT:- It is seen that the condition X of Notification No. 21/2015-Cus dated 01.04.2015, applies only to the goods imported under the duty exemption scheme, whereas the provision of para 4.16 of the Foreign Trade Policy 2015- 20 covers the goods manufactured out of imported goods. It is seen that para 4.16 of foreign trade policy 2015-20 specifically designed to deal with the cases like the instant case. In the case of PCL Oil Solvents Ltd [ 2019 (12) TMI 953 - CESTAT AHMEDABAD] in identical circumstances, it was held that Revenue has failed to notice Para 4.28 of HBP relates only to cases of bona fide default in fulfilling export obligation and it would naturally not apply to the cases where there is no default like in the instant case. Appeal allowed.
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2023 (12) TMI 323
Imposition of redemption fine and penalty - import of Kiwi Fruits which was stated to be of Chile Origin - goods were undervalued - enhancement if value - appellant argued that the impugned order is passed with much delay and is therefore to be considered as non-est in law - HELD THAT:- In para-9 of the impugned order the Commissioner (Appeals) has noted that there is no margin of profit as the goods are ordered to be re-exported. Further, it is also to be seen that the appellant has incurred huge loss due to demurrage charges etc. as the goods have been ordered to be re-exported. The goods are of perishable nature. Since they are ordered to be re-exported, the redemption fine imposed is without any basis and requires to be set aside. In the decision relied by the learned counsel for appellant M/S. GOYAL TRADING CO., M/S. GULAB FIBRES, M/S. UNITEC INC. VERSUS COMMISSIONER OF CUSTOMS, NHAVA SHEVA-III [ 2023 (10) TMI 294 - CESTAT MUMBAI ] it is held that when the goods are allowed to be re-exported, no redemption fine is to be imposed - it is found that redemption fine of Rs.5 lakhs imposed under Section 125 for redeeming the goods for the purpose of re-export only requires to be set aside. Penalty imposed under Section 112 (a) as well as Section 114AA of the Customs Act, 1962 - HELD THAT:- The facts bring out a case of forgery and manipulation of the documents submitted along with the Bills of Entry. It is the responsibility of the importer to furnish correct and genuine documents so as to assist in smooth clearance of the goods by the Customs Department - In the present case, the forgery and manipulation of the document is explicit and details are mentioned in the table in para 2.2. of the OIO. It is also noted that the Commissioner (Appeals) has observed that though the purchase was made on High Sea sale basis, there is room to doubt the bonafides of the importer - taking into consideration that the goods are being ordered to be re-exported, and also that the appellant has incurred huge demurrage charges, the penalty imposed under Section 112 (a) (i) can be reduced from Rs.5 lakhs to Rs.4,00,000 lakhs (Rupees Four lakhs only). So also, the penalty imposed under Section 114AA of the Act is reduced from Rs.10 lakhs to Rs.8,00,000/- (Rupees eight lakhs only). The impugned order is modified to the extent of setting aside redemption fine of Rs.5 lakhs without disturbing the order to re-export the goods. The penalty imposed under Section 112 (a) is reduced from Rs.5,00,000/- to Rs.4,00,000/-. Penalty imposed under Section 114AA is reduced from Rs.10,00,000/- to Rs.8,00,000/- - Appeal allowed in part.
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Corporate Laws
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2023 (12) TMI 322
Transfer of winding up proceedings - whether this court in exercise of its jurisdiction under the said proviso to Section 434(1)(c) of the Companies Act should transfer the winding up application to the NCLT? - HELD THAT:- The only conclusion that can be drawn is that there is no credible hope of revival of the company and that it would suit the interest of all stakeholders and of the public if its liquidation was speedily carried out. Thus the learned judge ought not to have passed the impugned order relegating this matter to the tribunal. It is directed that the winding up proceedings to be conducted and concluded as early as possible - the impugned order set aside.
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2023 (12) TMI 321
Validity of summons issued by the Serious Fraud Investigation Office [SFIO] - initiation of an investigation under Section 212 of the Companies Act, 2013 - appointment of an Investigating Officer. The challenge is essentially based on the contention of the petitioners that since proceedings under the erstwhile Companies Act, 1956 (2013 Act) had been initiated prior to the enforcement of Section 212 of the 2013 Act, the respondents stand denuded of jurisdiction to initiate proceedings afresh under Section 212. HELD THAT:- The powers conferred upon the Central Government to direct an investigation into the affairs of a company was predicated upon the submission of a report by the RoC in terms as contemplated under Section 234(6). On the receipt of such a report, the Union Government stood empowered to commence an investigation into the affairs of a company and to appoint Inspectors in connection therewith. The investigation under Section 212 of the 2013 Act, on the other hand, is not by the Union Government but by the SFIO. It becomes pertinent to note that the SFIO itself came to be constituted pursuant to the provisions contained in Section 211. In fact, even before the said provision came to be engrafted and enforced, the SFIO appears to have been constituted pursuant to the resolution of the Union Government dated 02 July 2003. As is manifest from a conjoint reading of Sections 211 and 212, the power of investigation which was originally exercisable by the Union Government was ultimately and in terms of Sections 211 and 212 placed in the hands of the SFIO. The SFIO is envisaged to be a body duly constituted for the purposes of carrying out investigations into the affairs of companies. Regard must be had to the fact that while the erstwhile provisions empowered the Union to investigate into the affairs of a company through investigators, the new regime saw the constitution of the SFIO and an investigation being undertaken by it in accordance with Sections 212 and 213 of the 2013 Act - the SFIO as an investigating arm of the Union was not even envisaged or contemplated under the 1956 Act. The continuance of Sections 234 and 235 till their ultimate repeal would thus be liable to be viewed as regulating the investigating power of the Union Government through Investigators only. The Union Government in terms of the 2013 Act is now empowered to commence an investigation into the affairs of a company either on the receipt of a report of a Registrar or on intimation of a special resolution passed by a company or in public interest. The SFIO is a specialized body which has come to be established for the purposes of investigating frauds relating to companies. SFIO as an independent investigating arm was not even contemplated under Sections 234 or 235 of the 1956 Act. As is evident from a reading of those provisions, the power to investigate as embodied in Section 235 was one liable to be exercised only by the Union Government itself albeit acting through Inspectors that it may have appointed - Since the SFIO itself came to be constituted only pursuant to the provisions of Section 211, the investigation by that body was in no manner trammelled or eclipsed by the continued existence of Sections 234 and 235 of the 1956 Act. The investigation which commenced pursuant to the order of 14 December 2018 passed by the SFIO, was thereafter modified in terms of the corrigendum dated 06 November 2019, when AIRL was deleted from that investigation. The position which therefore emerges is that the investigation as envisaged under Section 235 had commenced only against AIRL and it is the said investigation alone which would fall within the safe harbour as constructed in terms of Section 212(16). 50. Since the investigation which commenced on 05 November 2012 cannot possibly be countenanced as extending to the other writ petitioners, the challenge as laid, cannot be sustained. Petition dismissed.
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2023 (12) TMI 320
Professional misconduct - Role of NFRA V/s ICAI on disciplinary matters of Chartered Accountants - Retrospective V/s prospective applicability of provisions as contained in Section 132 of Companies Act, 2013 as well as NFRA Rules, 2018 - Violation of Principle of natural justice w.r.t. separate division of NFRA - Role of Statutory Auditors of the Company V/s Statutory Auditors of the Branches of the company - Are Standards of Auditing (SA) mandatory or Advisory or to be treated as guidance notes to Auditors - What is professional misconduct for member of ICAI and legal provisions - True intent of Standard of Audits and other related standards relevant for audit and issue regarding alleged violation by the Appellants herein - Alleged violation of the Code of Ethics issued by ICAI and impact on Appeals before this Appellate Tribunal - Excessive V/s adequate imposition of penalties on Appellants, herein - Can automatic stay is triggered on deposit of 10% of penalty and appeal is made before NCLAT. Role of NFRA V/s ICAI on disciplinary matters of Chartered Accountants - HELD THAT:- After going through provision of Chartered Accountant Act, 1949 and Companies Act, 2013 it becomes clear that disciplinary jurisdiction over the Chartered Accountants remain with both the ICAI and NFRA on concurrent basis. However, on carefully reading it reveals that NFRA has superior and overriding powers in matters relating to professional misconduct of the Chartered Accountants in terms of Section 132 of Companies Act, 2013 - On a pointed query to the Appellants to confirm our understanding, the Learned Counsel for the Appellant confirmed that both the ICAI and NFRA have jurisdiction over Chartered Accountant Act, 1949 - it is observed that for all matters, by default, ICAI has disciplinary jurisdiction over Chartered Accountant. However, it is required to be clearly understood that in term of Companies Act, 2013 and NFRA Rules, 2018 over important and serious matters especially involving large alleged accounting or financial frauds, or matters of public interest, etc., NFRA suo-moto can initiate investigation or take for investigating and ICAI will cease to exercise such disciplinary jurisdiction - NFRA has been consciously and deliberately given superior authority over ICAI on oversight of auditors and in disciplinary matters as stipulated in Section 132 of Companies Act, 2013. Retrospective V/s prospective applicability of provisions as contained in Section 132 of Companies Act, 2013 as well as NFRA Rules, 2018 - HELD THAT:- After taking into consideration the background for forming NFRA, the judgment of the Apex Court, proven scams, need to restore shaken confidence of public and investors at large and prevent any adverse impact on Indian economy, it is held that NFRA has clear and required retrospective jurisdiction over the alleged offences by delinquent Chartered Accountants for period prior to formation of NFRA or prior to coming into effect relevant portion of Section 132 of Companies Act, 2013. Violation of Principle of natural justice w.r.t. separate division of NFRA - HELD THAT:- Prior to amendment in Rule 2(g) of NFRA Rules 2018, the division was not defined but Ministry of Corporate Affairs vide amendment dated 13.11.2018 on NFRA Rule, 2018 specified as to what constitute division under Rule 2(g). We note that the Respondent used the division as stipulated in the Companies Act, 2013 and NFRA Rules, 2018, hence there has been no violation of principles of natural justice. This fact was also fairly conceded by the Appellant also during final stage of hearing. Role of Statutory Auditors of the Company V/s Statutory Auditors of the Branches of the company - HELD THAT:- The role of branch auditor, though limited primarily to the branch, however, is critical for overall audit of the company and the Auditors of the Branch cannot absolve his responsibilities - the fact cannot be overlooked that the allegations of fraud involving Rs. 31,000 Crores by the DHFL including banking fraud of about 3,700 Crores by Directors of DHFL happened and the Auditors clearly failed in their duties. Are Standards of Auditing (SA) mandatory or Advisory or to be treated as guidance notes to Auditors - HELD THAT:- According to Section 143 (9) of the Companies Act, 2013 every auditor shall comply with auditing standard. Section 143 (10) of Companies Act, 2013 further empowers Central Government to prescribe the Standards of Auditing (SAs) as recommended by ICAI in consultation and after examination of the recommendation made by NFRA. As per the proviso to Section 143 (10) until any auditing standard are notified, any standard or standards of auditing specified by ICAI shall be deemed to be auditing standard - the Accounting Standards and Auditing Standards have been defined in the Companies Act, 2013 and both sets of standards are to be mandatorily followed by all stakeholders including the companies and the Chartered Accountants. Thus, the Appellants as Auditors were duty bound to follow these standards which they alleged to have been breached in respect of SA 210, SA 230, SA 315, SA 320, SA 330, SA 700 along with few other paragraphs of other SAs and Section 143(8) of the Companies Act, 2013 - the SAs are mandatory and not as advisory or a guidance note to auditors. What is professional misconduct for member of ICAI and legal provisions - HELD THAT:- There is no bar on ICAI or NFRA to restrict investigation of professional misconduct covered only under Section 22 of the Chartered Accountants Act, 1949. The powers are far more and wider and any conduct which makes auditor of unbecoming of such profession will make him liable for suitable investigation and if found guilty may face punishment as per law - NFRA derives the power regarding disciplinary action on professional or other misconduct of the members of ICAI under Section 132 (4) (c) of the Companies Act, 2013 - NFRA has far more powers and authority for professional misconduct of members of ICAI in comparison to powers and authority of ICAI itself. True intent of Standard of Audits and other related standards relevant for audit and issue regarding alleged violation by the Appellants herein - HELD THAT:- Standards on Quality Control (SQC) are for ensuring quality by firms that performs audits and Reviews of Historical Financial Information, and Other Assurance and Related Services Engagements. SQC requires that the firm should establish a system of quality control designed to provide it with reasonable assurance that the firm and its personnel comply with professional standards, regulatory, legal requirements, and that reports issued by the firm or engagement partner(s) are appropriate in the circumstances. SQC is for enhancing the quality of audit. Alleged violation of the Code of Ethics issued by ICAI and impact on Appeals before this Appellate Tribunal - HELD THAT:- Violation of Code of Ethic will hold the Auditor to be liable for the penalty as stipulated in Section 132 of the Companies Act, 2013 - It is clear from ICAI Code of Ethics, 2009 that it is responsibility of the auditors to ascertain and ensure compliance with the provision of law is applicable and therefore, the Respondent has correctly pointed out that it is incumbent on the part of Auditors to verify the relevant record of the company to ascertain whether the company has complied with the provisions regarding appointment and other relevant issues rather than accepting the statements of the company that they have complied with - It is undisputed fact that the Appellants themselves did not verify if DHFL followed correct procedures for appointment of Branch Auditors before the Appellants accepted the same. The submissions of the Appellants are therefore not convincing. Excessive V/s adequate imposition of penalties on Appellants, herein - HELD THAT:- NFRA applied the principle of proportionality and imposed minimal permissible penalty i.e., a monetary fine of Rs. 100,000 and the Appellants have been barred from practicing for a period of one year which is 10% of max. penalty permissible - The need to deter fraud or collusive behaviour and reckless behaviour of the Auditors and repercussions of negligent audits are quite evident - the penalty as imposed by NFRA on all four Appellants were imposed as deterrent, perhaps keeping in mind all facts, including limited role as branch auditors. This cannot be considered excessive after all; it is fact that there has been fraud in DHFL of Rs. 31,000 Crores and Auditors can t pretend to be ignorant of what was happening. Can automatic stay is triggered on deposit of 10% of penalty and appeal is made before NCLAT - HELD THAT:- This Appellate Tribunal observes that the averments of the Appellants regarding interpretation of Rule 11 12 of NFRA Rules, 2018 are not correct as this Appellate Tribunal has discussed at length the interpretation of Rule 11 12 of NFRA Rules, 2018 and clarified that mere filing of appeal does not affect the order on debarment with respect to compliance of Rule 12. Final Conclusions - It is of utmost importance that Auditors realise their responsibilities which is necessary not only to the company but also to the public. In view thereof, giving effect to the Impugned Orders which highlights the professional misconduct and other misconduct on the part of the appellant vis- -vis a public listed company become quintessential so as to make public aware and enable them to make informed and sound financial decisions and investments. Any deviation to this will only result is catastrophic effect on economy of the nation and cause immense prejudice and harm to the public, shareholders and various stakeholders such as banks, lenders, and creditors. NFRA, as an independent audit regulator has been entrusted by the Parliament after great debate for protecting public interest including of the creditors by exercising effective oversight over accounting and auditing functions. There are no error in the Impugned Orders of NFRA as challenged - appeal dismissed.
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2023 (12) TMI 319
Professional Misconduct - Jurisdiction of NFRA - failure to exercise due diligence, and being grossly negligent in the conduct of professional duties - failure to obtain sufficient information which is necessary for expression of an opinion or its exceptions are sufficiently material to negate the expression of an opinion - failure to invite attention to any material departure from the generally accepted procedures to audit applicable to the circumstances - sanctions and penalties. Jurisdiction of NFRA - HELD THAT:- From the specific wordings of Section 132 and Rule 10, it is clear that NFRA has the sole and exclusive jurisdiction to initiate proceedings in cases of professional misconduct committed in earlier years too or else it would lead to an anomalous situation of a regulatory gap where any misconduct committed before the formation of NFRA will go unpunished. The law enabling investigation into professional and other misconduct, being in existence in the period before 2018, cannot be said to be retrospective and NFRA jurisdiction is established for implementing the process of investigation into misconduct committed in the past as well. Thus, the challenge to the jurisdiction of NFRA with respect to misconduct committed before 2018 does not stand - NFRA has the requisite jurisdiction to monitor compliance with accounting standards, monitor and enforce compliance with the SAS and to investigate matters of professional misconduct of Chartered Accountants falling under the NFRA domain. Charges of Professional Misconduct - HELD THAT:- The EQCR Partner did not perform his duties as per the Standards and the Law in conducting the Engagement Quality Control Review of the statutory audit of DHFL FY 2017-18. Based on the discussion and analysis, we conclude that the EQCR Partner has committed Professional Misconduct as defined in the Act, as below: i. CA Amit Vinay Chaturvedi committed professional misconduct as defined by Section 132 (4) of the Companies Act, 2013, read with Section 22 and Clause 7 of Part I of the Second Schedule of the Chartered Accountants Act, 1949 (No. 38 of 1949) as amended from time to time, which states that a Chartered Accountant is guilty of professional misconduct when he does not exercise due diligence or is grossly negligent in the conduct of his professional duties . This charge is proved, as the EQCR Partner failed to conduct the review in accordance with the SAS and applicable regulations. He failed to notice and document the serious omissions and commissions by the ET that led to the issue of a baseless audit report by the EP, as explained in paras 28 to 35 above. ii. CA Amit Vinay Chaturvedi committed professional misconduct as defined by Section 132 (4) of the Companies Act, 2013, read with Section 22 and Clause 8 of Part I of the Second Schedule of the Chartered Accountants Act, 1949 (No. 38 of 1949) as amended from time to time, which states that a Chartered Accountant is guilty of professional misconduct when he fails to obtain sufficient information which is necessary for expression of an opinion or its exceptions are sufficiently material to negate the expression of an opinion This charge is proved, as the EQCR Partner failed to conduct the review in accordance with the SAS and applicable regulations. He failed to notice and document the serious omissions and commissions by the ET that led to the issue of a baseless audit report by the EP, as explained in paras 28 to 35 above iii. CA Amit Vinay Chaturvedi committed professional misconduct as defined by Section 132 (4) of the Companies Act, 2013, read with Section 22 and Clause 9 of Part I of the Second Schedule of the Chartered Accountants Act, 1949 (No. 38 of 1949) as amended from time to time, which states that a Chartered Accountant is guilty of professional misconduct when he fails to invite attention to any material departure from the generally accepted procedure of audit applicable to the circumstances . This charge is proved since the EQCR Partner failed to conduct the review in accordance with the SA 220 and SQC-I as explained in Paras 28 to 35 above but falsely certified that he had performed the review as per SAS. Thus, it is concluded that the charges of professional misconduct in the SCN, as detailed above, stand proved based on the evidence in the Audit File, the audit reports on the standalone financial statements and consolidated financial statements for the FY 2017-18 and the submissions made by the EQCR Partner. Sanctions and penalties - HELD THAT:- Considering the nature and seriousness of violations and principles of proportionality, we, in the exercise of powers under Section 132 (4) (c) of the Companies Act, 2013, following is being imposed: (i) Imposition of a monetary penalty of Rupees Five Lakh upon CA Amit Vinay Chaturvedi, (ii) In addition, CA Amit Vinay Chaturvedi is debarred for Five years from being appointed as an auditor or internal auditor or from undertaking any audit in respect of financial statements or internal audit of the functions and activities of any company or body corporate.
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Securities / SEBI
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2023 (12) TMI 318
Power of SEBI to initiation action against Chartered Accountant (CA) / Auditor of the company - Charge of conspiracy and involvement in the fraud against CA firm - statutory auditor working against the fiduciary capacity - appellant is a leading firm of Chartered Accountants consisting of 14 partners and 250 accountants, article assistants and others - appellant was appointed as the joint statutory auditor - appellant had acted against the fiduciary capacity and instead of working in the interest of the shareholders of the company the appellant facilitated the scheme of cleaning up the books of account of the Company despite being aware of the irregularities and misstatements in the financial statements of the Company - investigation report alleged that on the basis of the hand written note the appellant had facilitated the scheme of cleaning up of the books of the Company and therefore recommended initiation of adjudication proceedings. Accordingly, adjudication proceedings were initiated against the appellant under Section 15HA of the SEBI Act - Whether appellant was not involved in the fudging of the books of accounts? HELD THAT:- In Price Waterhouse Co. Vs. SEBI [ 2019 (9) TMI 592 - SECURITIES APPELLATE TRIBUNAL, MUMBAI] this Tribunal while considering the role of the appellant as a firm of the C.A.s found that the scope of the enquiry was only restricted to the charge of conspiracy and involvement in the fraud and not to any charge of professional negligence since the C.A. / C.A. firm were not dealing directly in the securities. This Tribunal held that in absence of inducement, fraud was not proved nor there was connivance or collusion by the C.A.s and therefore, the provision of section 12 (A) of SEBI Act and Regulation 3 4 of PFUTP Regulations are not applicable. This Tribunal held that gross negligence or recklessness in adhering to the accounting norms in the course of auditing can only point out to the professional negligence which would amount to a misconduct to be taken up only by ICAI. Once an investigation or a finding in the inquiry comes that the appellant was not involved in the fudging of the books of accounts and that there was no collusion or connivance by the appellant as a statutory auditor with any employee, promoter or director of the Company then the matter has to be dropped and SEBI could not proceed any further. The scope of inquiry was only restricted to the charge of conspiracy and involvement in the fraud and not to any charge of professional negligence since the chartered accountant or chartered accountant firm were not dealing directly in the securities. Considering the aforesaid the show cause notice only alleged that the appellant had facilitated the scheme of cleaning up of the books of accounts of the Company. There is no finding of the appellant s direct involvement in the cleaning up of the books of accounts or in the fudging of the books of accounts of the Company. There is also no finding of the appellant s collusion or connivance with any director, promoter or employee of the Company and consequently the appellant cannot be charged under Section 12A of the SEBI Act read with Regulation 3 and 4 of the PFUTP Regulations. While conducting the statutory audit of a company, one of the objectives of an auditor is to identify and assess the risks of material misstatement, whether due to fraud or error, at the financial statement and assertion levels. For this purpose, the relevant standard is the Standard of Auditing ( SA ) 315 titled identifying and Assessing the Risk of Material Misstatement Through Understanding the entity and its Environment . As per the said standard, identification of risk of material misstatement is a matter of professional judgement. In the context of SA-315 pertaining to identifying and assessing the risks of material misstatements in financial assessment, it is pertinent to bear in mind that any audit is subject to inherent limitations and that owing to such inherent limitations of an audit, there is an unavoidable risk that some material misstatement of the financial statements may not be detected even though the audit is properly planned and performed in accordance with the SA s which was also stated by the appellant in the engagement letters executed with CG Power. Risk of not detecting a misstatement resulting from fraud is higher than the risk of not detecting a misstatement resulting from an error. Similarly, the risk of not detecting a material misstatement resulting from management fraud is greater than that resulting from an employee fraud. The standard of accountancy framed by the ICAI makes a distinction between a statutory auditor and a forensic auditor. We may state here that the role of a statutory auditor is not to function like a forensic auditor. Any statutory audit unlike an internal or forensic audit is inherently carried out on a test check / sampling basis which in the instant case had been done by the appellant. As part of the audit process the appellant had duly carried out the exercise of identifying and assessing the risk of material misstatements in the financial statements in accordance with SA 315. Accordingly, in its professional judgement and after exercising reasonable professional skepticism, ledger accounts with zero balance in the advance to suppliers / advance from customer account were not identified as those which were subject to risk of material misstatement since zero balances would not have impacted the financial statements and therefore, were not considered for further audit procedures. Conversely, those accounts which had a closing balance in advance to suppliers / advance from customer account were considered for further audit procedures such as obtaining balance confirmation, verification of underlying service agreements and supply contracts etc. Further, any statutory audit, unlike an internal or a forensic audit, is inherently carried out on a test-check / sampling basis, which was done by the appellant in the case of CG Power also. We are of the view that if the appellant had not carried out the statutory audit as per the accounting standards framed by the ICAI and in the event the appellant could not have resigned without filing the complete audit report or had failed to consider the netting of amount transferred as loans to Action and Avantha then it was open for SEBI to refer to the ICAI to take disciplinary action against the appellant for violation of the accounting standards. SEBI s role was limited and confined to the conspiracy charge against the appellant with regard to fudging of the accounts of the Company. The impugned order cannot be sustained and is quashed. The appeal is allowed.
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Insolvency & Bankruptcy
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2023 (12) TMI 317
Maintainability of application - initiation of CIRP - default committed prior to Section 10A period and continues in the Section 10 A period - Failure to pay the interest on the unsecured loan which period was prior to the Section 10A period and the default had continued thereafter in the Section 10A period. The principal finding of the impugned order is that the Section 7 application was not maintainable by holding the date of default to be February 2021 which was during the prohibited period under Section 10A of the IBC. HELD THAT:- A plain reading of Section 10A signifies that no application/ proceedings under Sections 7, 9 and 10 can be initiated for any default in payment which is committed during Section 10A period. The object and purpose of Section 10A has been explained in the ordinance by which Section 10A was brought into operation. What is essentially barred is initiation of CIRP proceedings when the Corporate Debtor commits any default during the Section 10A period. However, if the default is committed prior to the Section 10A period and continues in the Section 10A period, this statutory provision does not put any bar on the initiation of CIRP proceedings - the aim and objective of Section 10A was to protect a Corporate Debtor from the filing of any insolvency application against it for any default committed during the period when Covid-19 pandemic was prevailing. It was never intended to cover any default which occurred before Section 10A period and continuing thereafter. The present is a case where prima facie the default has been committed by the Corporate Debtor since 2018 which is prior to commencement of Section 10A period. Hence, this is a case where the default was undisputedly committed before the bar of Section 10A came into play. There being categorical default by the Respondent prior to Section 10A period, the Corporate Debtor was clearly not entitled to claim the benefit of Section 10A period. Since the liability to pay interest arose prior to Section 10A period since the default was committed prior to Section 10A period, we are of the considered opinion that the view taken by the Adjudicating Authority that the Section 7 application being premised on a letter calling for loan repayment which was dated 01.02.2021 and this date falling during the prohibited period under Section 10A renders the petition non-maintainable is misconceived and untenable in the eyes of law. There are no hesitation in holding that the finding returned by the Adjudicating Authority that the Section 7 application was not maintainable as the alleged default occurred during the section 10A period is not tenable. The impugned order is, therefore, set aside - appeal allowed.
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2023 (12) TMI 316
Maintainability of Section 9 application in respect of extinguished claims - Seeking initiation of Corporate Insolvency Resolution Process against Corporate Debtor - extinguishment of right of the Operational Creditor in respect of their claims - resolution plan of the Corporate Debtor already been approved - the claims of the Operational Creditor is being part of the resolution plan or not - HELD THAT:- Having come to the finding that the Appellant had not filed their claims before the Resolution Professional before approval of the resolution plan by the Adjudicating Authority and that there is no unambiguous proof that the claim of the Appellant was reflected in the records of the Corporate Debtor we now make a foray into the question whether the claims which did not constitute part of the resolution plan stood extinguished and, if so, whether the Appellant can file a Section 9 application at this stage in respect of such extinguished claims. It is undisputed that the Corporate Debtor had started its operations with a clean slate after settlement of dues with the creditors in terms of the orders of the Adjudicating Authority dated 17.10.2017. It is also a well settled legal precept that a resolution applicant cannot be expected to make a provision in relation to any creditor who has failed to make a claim within the stipulated time-line. It logically follows therefore that there is no legitimate scope in the IBC framework for agitating or initiating any proceeding in respect of a claim which was not part of the resolution plan or was not preferred at the relevant time - in the present case, when CIRP has been terminated way back in 2017 and the Corporate Debtor is already in saddle after following the due process, allowing a Section 9 application to proceed on the basis of an extinguished claim which had not been preferred before the Resolution Professional within the stipulated time cannot be countenanced. The Operational Creditor has endeavoured to indirectly assail the approval of a resolution plan after more than 5 years by initiating a separate Section 9 proceeding which is legally not tenable. Thus, no error has been committed by the Adjudicating Authority in rejecting the Section 9 application - appeal dismissed.
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2023 (12) TMI 315
Condonation of delay in filing the Appeal - ground taken in the Delay Condonation Application is that order passed by the Adjudicating Authority was uploaded on the NCLT, E-Portal only on 10th September, 2023 hence the period from 30th August, 2023 to 10th September, 2023 shall be excluded for the purpose of limitation. HELD THAT:- The only explanation given by the Appellant in this Application that limitation will commence from the date when the order was uploaded does not commend in view of the settled law - Appellant s submission that he was only informed about the operative portion of the Order shall not stop the commencement of the limitation period. The Appeal has been admittedly filed on 19.10.2023 i.e. beyond the period of 45 days. The jurisdiction to condone the delay is limited to only 15 days. The Appeal having been filed beyond 15 days after expiry of the limitation, the delay cannot be condoned and Delay Condonation Application is dismissed.
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2023 (12) TMI 314
Initiation of CIRP - non-service of notice to Appellant/Corporate Debtor under Section 8 of IBC - Operational Creditor has failed to adduce valid proof of delivery of demand notice - HELD THAT:- There is no doubt that in terms of the statutory construct of the IBC, an application for initiation of corporate insolvency resolution process can be filed by Operational Creditor only after expiry of period of 10 days from the date of delivery of the Section 8 demand notice on the Corporate Debtor. The impugned order has held at paragraph 19 that the Corporate Debtor was served with a notice dated 04.11.2019 which notice was not responded to by the Corporate Debtor. However, there is no specific finding recorded on whether the notice was actually served on the Corporate Debtor, a factum which has been seriously contested by the Corporate Debtor. Further it is the case of the Appellant that the proof of service claimed by the Operational Creditor was wrong proof of service. In view of the mandatory provision under Section 8 of IBC read with Rule 5 of Insolvency and Bankruptcy, (Application to Adjudicating Authority) Rules, 2016 which entails that for initiation of insolvency resolution by an Operational Creditor a demand notice has to be served by the unpaid Operational Debtor on the Corporate Debtor, the contention of the Appellant deserves due consideration. The order of the Adjudicating Authority is silent on the actual delivery of the Section 8 notice which is a bone of contention between the two parties - this aspect needs to be appropriately examined and hence matter remanded back to the Adjudicating Authority to consider the Section 9 application afresh with particular reference to actual and proper delivery of the demand notice on the Corporate Debtor. Appeal allowed by way of remand.
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2023 (12) TMI 313
Seeking that the amount which is still to be refunded to the investors need to be kept separate from the CIRP of the Corporate Debtor - Corporate Debtor is asset management company of the trust i.e. OAF and all inventories and assets of the OAF has been handed over to the Resolution Professional - HELD THAT:- The Resolution Professional has directed for forensic audit which report has also been received and has been relied by the Resolution Professional. It is not shown as per the forensic report that the amount of Rs.30,86,62,832/- belonging to OAF lying with the Corporate Debtor or is reflected in the accounts of the Corporate Debtor, no material has been placed either before the Adjudicating Authority or before this Tribunal by the Appellant to show that the said amount is reflected in the books of the account of the Corporate Debtor which amount is claimed to be belonging to OAF. The Adjudicating Authority has returned the finding that no direct investment/deposit from OAF reflects in the books of the Corporate Debtor. In the appeal also, neither any foundation has been laid nor any material has been produced to indicate that the said finding is incorrect. Even though the Appellant has not filed its claim, the Resolution Professional has already pleaded that the Resolution Plan notices the amount to be refunded as per the SEBI s order dated 28.05.2021. The Resolution Plan also contains a clause for discharge of the liability of the SEBI. There shall be no question of extinguishment of the claim of the SEBI pursuant to the order dated 28.05.2021 on completion of the CIRP of the Corporate Debtor. The Resolution Plan envisaged for clearing such liability as per scheme envisaged in the Resolution Plan. Counsel for the Resolution Professional is right in his submission that during currency of moratorium which was imposed by order dated 19.12.2021, no recovery can be affected from the Resolution Professional of the Corporate Debtor as per SEBI s order dated 28.05.2021. Thus, no error has been committed by the Adjudicating Authority in rejecting IA No.3787 of 2022 filed by the Appellant - appeal dismissed.
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2023 (12) TMI 312
Initiation of Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor u/s 7 - Financial debt or not - financial assistance of Rs.25 crore given by the Appellant to the Respondent by way of an ICD for the purpose of buying land for a real estate project which was being jointly developed under a JVA - Financial Creditor - HELD THAT:- A careful perusal of the JVA and the ICD between the two parties show that there are unmistakable signs of reciprocal rights and obligations contained in both the agreements besides evidence of common participation as well as sharing of profits and losses in the real estate projects. This spirit of being collaborators and profit-sharing partners is writ large in both the JVA and the ICD and therefore the Adjudicating Authority has committed no error in holding that the JVA and the ICD are interdependent and inter-related and not independent of each other. Undisputedly both parties being partners in developing the project together, the purchase and availability of land for the project was an essential ingredient thereof and hence any assistance by the Appellant to the Respondent tantamount to financing the operations of the joint venture. When shared liability for profit is so clearly manifested in the JVA and the ICD and responsibilities well demarcated in the execution of the real estate projects, it cannot be overlooked that both parties are development partners and co-sharers in the real estate projects. The JVA and ICD laid the foundations of a legal and binding relationship with mutual financial obligations towards each other. Given this backdrop, clearly the present transaction is in the nature of investment for profit and not disbursement for time value of money and hence does not fall within the canvas of financial debt as defined under Section 5(8) of the IBC - This Tribunal has also observed time and again that the primary focus of IBC, as a beneficial legislation, is to ensure revival and continuation of the Corporate Debtor and that the provisions of IBC cannot be misused for staging recovery of debt and for treating the Adjudicating Authority as a debt recovery forum. In so far as the findings of the Adjudicating Authority are concerned that both the parties being joint venture partners, there was no financial debt in terms of Section 5(8) of IBC and hence the application under Section 7 of the IBC could not be entertained, there are no error in the impugned order - the Appellant is not a Financial Creditor in terms of Section 5(7) of IBC and the application under Section 7 at the instance of the Appellant was not maintainable and hence the same has been rightly rejected by the Adjudicating Authority. Appeal dismissed.
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Service Tax
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2023 (12) TMI 311
Non-payment of service tax - Information Technology Software Service - appellant pointed out that the Software sold by the appellant is goods and therefore not liable to Service Tax - HELD THAT:- The software has been supplied on a medium on payment of VAT/Sales tax. It has been pointed out that the medium is in the nature of USB Stick/DVD/Hard Drive. Reliance has been placed on the decision of the Hon ble Apex Court in the case of COMMISSIONER OF SERVICE TAX DELHI VERSUS QUICK HEAL TECHNOLOGIES LIMITED [ 2022 (8) TMI 283 - SUPREME COURT ]. It is notice that the Hon ble Apex Court in the case of Quick Heal Technologies Ltd. has clearly held that software loaded on a medium like USB/CD/Hard Drive etc. is goods and not services. From the above case, it is apparent that with software is supplied loaded on a medium then the same is to be treated as sale and not a service. In the instant case, it is not in doubt that software has been supplied loaded as a medium. Therefore it attains character of goods. Consequently, the demand in the instant case cannot be sustained. The impugned order is set aside - appeal is allowed.
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2023 (12) TMI 310
Declared service - amount shown as miscellaneous income and receipts under head the balance written back in the balance sheet of 2016-17 - Department formed an opinion that the appellants have tolerated the situation and thus are covered under the ambit and scope of declared service as provided under section 66E (e) of the Finance Act, 1994 - levy of penalty - HELD THAT:- The appellant has not agreed to tolerate an act or a situation nor has agreed to the obligation to refrain from any act. What has been agreed by the appellant is, commitment of performance towards the machines supplied by them in case those perform subdued as per the standard committed performance. The alleged tolerance, in the given circumstances, is possible on the part of the receiver of machines. Hence, the question of tolerating any act by the appellant does not at all arise. The Appellant, therefore, cannot be held liable for rendering any declared service as defined under section 66E (e) of Finance Act, 1994. The findings to that extent of order under challenge are therefore, not sustainable and are thus liable to be set aside. Levy of penalty - HELD THAT:- It is held that the admitted facts on record and the findings above are sufficient to hold that there is no liability of payment any service tax on the part of the appellant, the question of evasion, thereof, does not at all arises. Penalty is, therefore, not imposable upon the appellant. The presence of any malafide intent to evade becomes irrelevant in the given scenario. Thus, there is neither any legal basis nor factual with the adjudicating authorities to penalize the appellant. Resultantly, the order imposing penalty is also held liable to be set aside. Appeal allowed.
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2023 (12) TMI 309
Short payment of service tax - turnover shown by them in the ST-3 Returns was lower than the turnover shown by them in their Income Tax and Balance Sheet - HELD THAT:- Coming to the Appeal filed by the Revenue, a cursory glance of the Show Cause Notice would clarify that the same was issued for the period which is even beyond the extended period of five years. This shows that the proper care was not taken by the Department while issuing the Show Cause Notice. The Show Cause Notice has been issued merely on the ground that the income shown by the Appellant in their P L Account is higher than the turnover declared in the ST 3 Return - the Adjudicating Authority carried out thorough verification and has given reasoned Order for dropping the demand as well as confirming the demand. Therefore, there are no reason to interfere with his Order in respect of the dropped demand of Rs.73,07,023/-. Accordingly, the Appeal filed by the Revenue is dismissed. Demand of Rs.25,70,758/- - Adjudicating Authority has held that the services provided by the assessee can not be termed as the Services provided by the sub-contractor to the main contractor - HELD THAT:- The submission of the assesse is agreed upon that till the new clarification was given on 23/08/2007, the Revenue was bound by the earlier clarification issued by the CBIC. Therefore, the demand prior to 22/08/2007 is legally not sustainable. Extended period of Limitation - HELD THAT:- The Department in its over-enthusiasm has issued the Show Cause Notice even for the period prior to five years. The Show Cause Notice has been issued for Rs.98.77 Lakhs whereas after thorough verification and reconciliation, the Adjudicating Authority has dropped the demand of Rs.73.07 Lakhs. Even in respect of balance 25.7 Lakhs confirmed demand, we find that the clarification given on 23/08/2007 has been applied for the transaction carried out between April 2006 to 31/03/2008 - the demand for the extended period is legally not sustainable and confirmed demand for the extended period is set aside on account of limitation also. Thus, the Appellant is required to pay the Service Tax on sub-contract work (map making) undertaken by them for the main contractor between the period October 2007 to March 2008 only. It is noted from the OIO that the amounts paid by the assesse during the proceedings have been appropriated. The amount payable, if any, for the period October 2007 to March 2008 is required to be adjusted against such appropriation. The Appeal filed by the Assessee is disposed of.
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Central Excise
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2023 (12) TMI 308
Levy of Central Excise Duty - sale of computer systems - examination of documents not carried out properly - principles of natural justice - HELD THAT:- There was a specific direction given in the remand order of Tribunal to pass order after considering the documents. It is seen from the impugned order that while it contains a list of documents numbers there is no examination of documents whatsoever even on the sample basis. The order of Commissioner is based on his belief that at the material time what was the practice in the trade. There is no examination whatsoever of the documents like invoices. Not even one invoice has been examined in detail. The impugned order merely repeats the allegations made in the show cause notice that too without giving any independent finding whatsoever. In this background, the impugned order which is based on presumptions cannot be sustained and the same is set aside. The onus of proving that the activity of manufacture had taken place was on the revenue and revenue has failed to fulfill the said obligation despite repeated opportunities being given. There are no merit in the case, the same is set aside - appeal allowed.
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2023 (12) TMI 307
CENVAT Credit - availment of credit after payment of Additional Customs Duty (ACD) SAD on the demurrage charges - HELD THAT:- It is found that the whole demand of Customs Duty on demurrage is misconceived - Appellant had rightly taken Cenvat credit on the basis of challans and bills of entry. Further, there is no element of fraud, suppression, etc., involved and the issue is wholly interpretational in nature. Accordingly, the Impugned Order is set aside so far disallowance of Cenvat credit on the issue of demurrage is involved along with penalty imposed. Appeal allowed.
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2023 (12) TMI 306
Chargeability of interest in terms of rule 7 of Central Excise Rules, 2002 following confirmation of demand on finalization of provisional assessment - assessments were rendered as provisional under rule 9B of Central Excise Rules, 1944, the finalization occurred after Central Excise Rules, 2002 came to into effect - HELD THAT:- The issue pertaining to leviability of interest on finalization of provisional assessment, in all cases pertaining to clearances prior to 2001, has been set at rest by the Central Board of Indirect Taxes Customs (CBIC) circular no. 354/66/2001-TRU dated 21st June 2021 where it was held that In Rule 7 relating to provisional assessment, provision has also been made for charging of interest or for allowing refund, as the case may be. It may be clarified that these will apply to cases in which provisional assessment is resorted to on or after 1-7-2001 and not to past cases of provisional assessment even if the assessments are finalized on or after 1-7-2001. Furthermore, in another dispute of theirs decided by the Tribunal, in CADBURY INDIA LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, PUNE-I [ 2009 (1) TMI 701 - CESTAT, MUMBAI ], it was held that interest will be payable from 1-7-2001 from which date these rules became effective. The Hon ble High Court of Bombay, in M/S. DGP HINODAY INDUSTRIES LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, PUNE-1 [ 2012 (3) TMI 327 - BOMBAY HIGH COURT] has clearly held that interest liability would arise only when the assessments were made provisional after the new rules came into existence. The impugned order does not sustain and is accordingly set aside - Appeal allowed.
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2023 (12) TMI 305
Classification of finished goods - printed plastic sheets - to be classified under sub heading 3920 39 as printed PVC sheets or as products of printing industry corresponding to sub heading 4901 90 in Schedule to Central Excise Tariff Act, 1985? - HELD THAT:- The facts do not appear to be straightforward inasmuch as the submission of both sides appear to be at cross purposes. On the one hand, it is claimed by the appellant that they manufacture plain plastic sheets which, upon clearance on payment of duty, are transferred to a group entity at the same premises for printing and, thereafter, sought to be cleared on payment of nil duty applicable to goods corresponding to sub-heading 4901 90 of Schedule to Central Excise Tariff Act, 1985. On the other hand, this fine distinction remains unattended in the orders of lower authorities who have proceeded merely to hold that the finished goods are in conformity to the description corresponding to sub-heading 3920.39 of Schedule to Central Excise Tariff Act, 1985 with applicable rate of duty - In either situation of the last activity being undertaken by separate unit, or even by the same unit, legitimizing of clearance, as manufacture of plastic sheets with attendant duty liability at the earlier stage, is implicit owing to submission of the appellant not having been challenged by the respondent-Commissioner herein. It is proceeded on the assumption that the duty had been discharged on plain plastic sheets which are, thereafter, subject to further processing. The decision of the Hon ble Supreme Court in re Caprihans India Ltd, [ 2015 (11) TMI 1170 - SUPREME COURT] for the earlier period, has held that the activity of printing does not amount to manufacture and, if such activity was sought to be charged to duty at the last stage, the proceedings would fail on that score. If, on the other hand, the appellant had not discharged duty liability on plain plastic sheets , then such liability will arise notwithstanding further processing into a non-dutiable item, owing to the decision rendered by the Hon ble Supreme Court. The impugned order set aside - matter remanded back to the original authority - appeal disposed off.
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2023 (12) TMI 304
Availment of CENVAT credit fraudulently without actually receiving the goods in the factory - denial of relief for penalty as provided under SVLDR Scheme - declaration as required under the SVLDR Scheme not made - HELD THAT:- It is clear from the provision of Section 124 that the applicants are eligible for relief of entire penalty or late fee. Now the question arises as to whether the immunity or relief is automatic or is consequent upon the declaration required to be filed by the assessees. The statutory provisions indicate that the appellants are eligible for relief for the entire amount of penalty or late fee. The relief is not subject to the satisfaction of the committee constituted for operationalization of the Scheme as in the case of settlement of duty. Had the appellants filed declarations, the said committee had no role but to give relief as contained in Section 124 - the filing of declaration, more so, in the instant case, where only penalty is involved, remains a procedural issue or a formality. Tribunal and High Courts have been consistently holding that procedural infractions, if any, should not come in the way of a substantial right. Penalty - HELD THAT:- Though, no positive act of connivance was evidenced by the above appellants, Commissioner goes on to impose penalty on the appellants - such an order passed without appreciation of the facts and law cannot be sustained. On going through the records of the case, it is seen that no investigation at the end of the transporter/ truck drivers has taken place to falsify the claims of the appellants and to support the allegations by the Department. In the absence of the same, penalty cannot be fastened to the appellants merely because of the fact that there was a fraud committed by the company which procured goods from the appellants. Also, the financial transactions claimed by the appellants have not been negated - penalty cannot be imposed on the appellants. The benefit of the Scheme cannot be denied to the appellants just because they did not file the declaration under SVLDR Scheme - the impugned order cannot be sustained on merits also as far as the imposition of penalty, on the appellants herein, is concerned - Appeal allowed.
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2023 (12) TMI 303
Recovery of CENVAT Credit - scope of input service - dredging of creek bed - HELD THAT:- The principal issue in this dispute is neither that of the appellant not having paid for the service inclusive of tax liability as recorded in the bills raised by the provider nor of such service not having been provided within the factory premises but, in fact, turns on whether the appellant was recipient of service. While input service in rule 2(l) of CENVAT Credit Rules, 2004 is broad enough to cover activities that found even indirect use in manufacture, the primary eligibility, arising from rule 3 of CENVAT Credit Rules, 2004 accruing only to the recipient of such service , is untenable. It is common ground that the waters, which had been deepened by dredging for approach of barges, did not belong to the appellant. Nor do the waters belong to any particular owner other than the Republic of India. The administrative control over such waters is vested with the Maharashtra Maritime Board (MMB) and any improvement, or enhancement of capability, would render the Maharashtra Maritime Board (MMB) to be recipient of service irrespective of the source of payment for such service. This is an aspect that the appellant has not been able to controvert and it is on this aspect that the eligibility of CENVAT credit must rest for, otherwise, rule 3 of CENVAT Credit Rules, 2004 would be rendered superfluous. In M/S. JSW JAIGARH PORT LTD. VERSUS COMMISSIONER OF CGST, KOLHAPUR [ 2023 (6) TMI 239 - CESTAT MUMBAI] , the issue for consideration was the entitlement for credit by the port operator that rested upon the area of the port being under the control of the appellant therein. In M/S. JSW STEEL (SALAV) LTD. AND M/S. WELSPUN MAXSTEEL LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, RAIGAD [ 2022 (1) TMI 967 - CESTAT MUMBAI] , the dispute pertains to the services availed for setting up of, and operation, of the jetty which was under undisputed lease to the appellant. The tax discharged on services performed on such leased property, while the waters and creek bed were not, does conform to the secondary qualification of being the recipient of the service entitling availment of credit of tax paid on taxable service that conform to threshold eligibility by inclusion in definition. The decision of the Tribunal in CCE, NAGPUR VERSUS ULTRATECH CEMENT LTD., [ 2010 (10) TMI 13 - BOMBAY HIGH COURT] arose in similar circumstances of claim by recipient of service and, hence, would not apply to the resolution of the present dispute. There are no merit in the appeal which is dismissed.
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2023 (12) TMI 302
SSI Exemption - unregistered unit - clearance exceeded the threshold limit or not - no evidence to indicate actual exports of corrugated boxes in which fruits/vegetables were claimed to have been shipped - HELD THAT:- It would appear that the appellant is an unregistered unit and, therefore, had not been following the procedure prescribed under Central Excise Rules,1944 and corresponding notifications in relation to the procedure for export of goods, including packing material through third parties - the duty liability has been fastened on the importer solely on the ground that no evidence existed to indicate actual exports of corrugated boxes in which fruits/vegetables were claimed to have been shipped. The decision of the Tribunal in VADAPALANI PRESS VERSUS COMMISSIONER OF C. EX., CHENNAI [ 2007 (3) TMI 151 - CESTAT, CHENNAI] , which had been cited by the appellant before the original authority and neglected to be considered by him, was distinguishable on the ground that the correlation of the clearances from the factory and the exports had been established. The argument of the first appellate authority that the inability to determine, by use of records, that corrugated boxes supplied by the appellant had in fact been part and parcel of the scheme of export consignment, to be specious. It is natural that fruits/vegetables are exported in suitable containers and it is the reality that the containers themselves are not to be found specifically enumerated in the shipping document. Nonetheless, it is established procedure, in terms of central excise law, to permit such containers to be cleared without payment of duty subject to establishing that the goods did ultimately find use by the merchant-exporter - The evidentiary value of such statutory documents, even though not related to central excise law, appears to have been mis-construed by the first appellate authority. It is, therefore, necessary, for the first appellate authority to appreciate the context in which that evidence was admissible and to examine the details thereof before interfering with the order of the original authority. Having failed to do so, it is only appropriate that such exercise be undertaken now. To facilitate that, the impugned order is set aside - matter remanded back to the first appellant authority to ascertain the applicability of the evidence of form H and to explicitly detail reasons, if any, for non-acceptance of information contained therein. Appeal allowed by way of remand.
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2023 (12) TMI 301
Seeking refund of differential duty demanded without issuing show cause notice and without affording an opportunity of hearing to the appellant - violation of principles of natural justice - HELD THAT:- The Hon ble Supreme Court has consistently held in various decisions that show cause notice is a condition to demand any tax in this regard. Reference made to the decision of the Hon ble Apex Court in the case of GOKAK PATEL VOLKART LIMITED VERSUS COLLECTOR OF CENTRAL EXCISE [ 1987 (2) TMI 64 - SUPREME COURT] wherein in para 9 and 10 the Hon ble Apex Court has observed An opportunity to be heard is intended to be afforded to the person who is likely to be prejudiced when the order is made before making the order thereof. Notice Is thus a condition precedent to a demand under sub-section (2). In the instant case, compliance with this statutory requirement has not been made, and, therefore, the demand is in contravention of the statutory provision. The ratio of the decision cited is squarely applicable in the present case because in the present case also, no show cause notice as required in law was issued to the appellant and no opportunity of hearing as required under law was accorded. Hence, by following the ratio of the Hon ble Apex Court decision, the rejection of refund claim of Rs. 19,55,010/- deposited by the appellant under protest is liable to be refunded to the appellant as prescribed by the law - appeal allowed.
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2023 (12) TMI 300
Clandestine removal - facts not verified properly - violation of principles of natural justice - HELD THAT:- It is seen that in the year 1996-97 itself, the appellant has made more than 15 clearances under DSL. Similarly in respect of exports through others while the Adjudicating Authority has considered only two shipping Bills/Invoices, the Appellant has given the details of nine clearances during 1999-98 and 21 clearances during the period 1998-99. For each of these Invoices, the Appellant has also enclosed the relevant Shipping Bill, E-Way Bill/Bill of Lading and other documentary evidence. This shows that the Adjudicating Authority has not gone through all the documentary evidence properly before coming to his conclusion. The entire proceedings have been taken up on the basis of the turnover shown by the Appellant in their Profit Loss Account and Balance Sheet. When the Appellant provides the proof that turnover also consists of direct exports and exports through merchant exporters along with the documentary evidence, it is the duty of the Adjudicating Authority to get these facts properly verified and to give a detailed findings as to why the documentary evidence submitted would not be sufficient to prove their exports, if he intends to confirm demand. As the matter pertains to 1996-97 and 1997-98 and denovo adjudication was to be taken up in 2008, much better and larger efforts should have been made by the Adjudicating Authority to follow the principles of natural justice and to get proper verification done, which has not been done in this case - Appeal allowed by way of remand.
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2023 (12) TMI 299
Clandestine removal - M.S.Rods - Reliability of Computer printouts - deemed document - demands confirmed in the impugned order has relied mainly on the documents recovered from various premises and the statements recorded during the course of investigation - corroborative evidences or not. Whether the data retrieved from various premises belonged to the Appellant's company and the data can be relied upon as evidence to demand duty? - Whether the conditions mentioned in Section 36B has been followed in this case or not, to rely upon the data retrieved through computer printouts as evidence? - HELD THAT:- Section 65B of Evidence Act is parimateria with Section 36B of the Central Excise Act, 1944. From the above observation of the Hon'ble Apex Court, it is found that unless the conditions of Section 65B(2) of the Evidence Act, which is parimateria with Section 36B(4) of the Central Excise Act are complied with, no reliance can be placed on any computer printouts . Admittedly, the procedure set out in Section 36B has not been followed in this case - in the present case the author of entry of data has not been identified. As per the impugned order the entry in computer was done by Shri Chittaranjan Bhukta or Sri Rajeev Agarwal or Sri Manoj Kumar Sahoo. However, no certificate was obtained from any of them - the material evidence available on record do not establish that the documents recovered from all the Factory, Registered office and the premises at Rameshwar Patna are all belonged to the Appellant Company and the data cannot be relied upon to demand duty - the questions answered in negative. Whether the procedure as set out in Section 9D of the Central Excise Act, !944 was followed in this case or not? If not followed, then whether the statements recorded under Section 14 of the Central Excise Act, 1944 can be relied upon to demand duty? - HELD THAT:- Had the adjudicating authority followed the provisions of Section 9D and examined the witnesses who have given the statements, the truth in this statement could have come out. Thus, the statements recorded in this case has lost its evidentiary value by not following the provisions of Section 9D. Thus, Procedure set out in Section 9D has not been followed in this case - Question answered in negative. Whether the allegations of clandestine clearance of finished goods by the Appellants are substantiated with corroborative evidence? - Whether the demands confirmed in the impugned order on clandestine clearance of finished goods is sustainable in the absence of any evidence of procurement of the major raw materials for manufacture of the finished goods M.S. Rods, without invoices? - HELD THAT:- The investigation has not brought in any corroborative evidence to substantiate the allegation of clandestine removal. In view of the above findings, the investigation has failed to establish the alleged clandestine clearance of goods by the Appellants and hence the demands confirmed in the impugned order are not sustainable - question answered in negative. Whether penalty is imposable on the Appellant company and it's Director and Chief Accountant on the basis of the evidences available on record? - HELD THAT:- In the impugned order, the adjudicating authority has concluded that Shri. G.D Agarwal is behind the entire clandestine activities. The MD of the company was in the direct knowledge of the entire clandestine operations in the company. The Chief Accountant was involved in the preparation of documents. Accordingly, penalty has been imposed on them. However, the evidences brought on record has not established that they are involved in clandestine manufacture and clearance of the goods. As the evidence available on record does not establish the clandestine manufacture and clearance, the penalty imposed on the above said persons is not sustainable - question answered in negative. Accordingly, the demand of duty confirmed in the impugned order are liable to be set aside. When the duty demand itself is not sustained, the question of demanding interest and imposing penalty does not arise - the impugned order set aside - appeal allowed.
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CST, VAT & Sales Tax
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2023 (12) TMI 298
Violation of principles of natural justice - impugned order Annexure P/4 rejecting the application for rectification was passed without affording opportunity of being heard to petitioner - HELD THAT:- From bare perusal of Section 54 of the MP VAT Act, it is obvious that Commissioner is vested with the power to rectify clerical/ arithmetical mistakes or error arising from any omission in an order passed earlier. The said power is circumscribed by an exception in subsection (1)(ii) of Section 54, that if rectification leads to enhancing the tax or reducing the amount of refund then a prior opportunity of being heard shall be afforded to the Revenue by issuing notice - However, the provision is silent as regards affording of any opportunity to the assessee who preferred the application for rectification. Since the Revenue has not denied that petitioner-assessee was not afforded prior opportunity of being heard before passing the impugned order dated 27.03.2017 (Annexure P/4) and dated 17.04.2017 (Annexure P/6), this Court deems it appropriate to interfere in the impugned order for having been passed without affording reasonable opportunity of being heard to petitioner-assessee - Petition allowed.
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2023 (12) TMI 297
Classification of goods - home UPS which is marketed / advertised as meant for use in homes - to be classified under S.No. 68 of Part B of the First Schedule to the TNVAT Act which covers Information Technology products notified by the Government or not - HELD THAT:- This Court finds that the impugned order has been made in perfunctory manner and thus liable to be set aside. However there is lack of clarity as to whether the product namely the UPS in question is capable of being used along with Information Technology products. The matters are remanded back to the assessing authority for the limited purpose of examining whether these UPS sold by the petitioner are capable of being used with Information Technology products. If it is found that it is capable, the assessing authority shall levy tax at 5% treating it as falling under S.No. 68 of Part B of the First Schedule to the TNVAT Act, though it is capable of multiple uses and some of such use being general in nature and not in relation to Computers / Information Technology. The above exercise shall be carried out after providing the petitioners an opportunity of hearing and the same shall be completed within a period of 8 weeks from the date of receipt of copy of this Order. Petition disposed off.
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Indian Laws
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2023 (12) TMI 296
Recovery of dues - priority over the charges - whether the different departments of the State including Excise and Revenue will have priority over the secured creditors debt? - HELD THAT:- Apparently, the petitioner-Bank is the secured creditor and has created the first charge over the property in question as far as back in the year 2008 and thereafter in 2012 as against the charge created by the Excise Department in the year 2017 and, therefore, has the first right to realize its dues. The issue in question is no longer res integra in view of the authoritative judgment of the Hon ble Supreme Court in Punjab National Bank Vs. Union of India Ors. [ 2022 (2) TMI 1171 - SUPREME COURT ] where it was held that the provisions contained in the SARFAESI Act, 2002, even after insertion of Section 11E in the Central Excise Act, 1944 w.e.f. 08.04.2011, will have an overriding effect on the provisions of the Act of 1944. The legal position has thereafter been reiterated in a recent judgment of this Court in Mankind Life Sciences Private Limited vs. The State of Himachal Pradesh Anr., [ 2023 (10) TMI 867 - HIMACHAL PRADESH HIGH COURT ], wherein it was held that Once the petitioner has only purchased the Industrial Plots-Immovable Properties, which had been leased out to the Original Lessee by department of industries and the petitioner has never purchased the past or ongoing business of the original lessee therefore, the petitioner-auction purchaser cannot be fastened with the liability of State taxes, which had accrued and were connected with and were solely attributable to the business of the original lessee only. In view of the settled legal position, this Court is left with no other option, but to allow the instant petition by directing respondents No. 1 and 2 to remove the red entry qua the property in question made in the revenue record i.e. rapat No. 484 , dated 27.5.2017 forthwith - petition allowed.
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