TMI Tax Updates - e-Newsletter
February 6, 2016

Case Laws in this Newsletter:

Income Tax Customs Corporate Laws Service Tax Central Excise CST, VAT & Sales Tax Wealth tax Indian Laws

TMI SMS

• Interest paid to partners on capital is not a statutory allowance u/s 40(b) but is an expenditure u/s 36(1) - Sec. 14A r.w.r 8D applicable

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Articles

1. GLIMPSES OF REPORT OF ‘THE COMPANIES LAW COMMITTEE’ – PART I

   By: DR.MARIAPPAN GOVINDARAJAN

2. GST ISSUES ON COACHING INSTITUTIONS

   By: Dr. Sanjiv Agarwal

News

1. Interest paid to partners on capital is not a statutory allowance u/s 40(b) but is an expenditure u/s 36(1) - Sec. 14A read with Rule 8D is applicable

2. State Bank of Patiala contributes ₹ 2.36 crores to the Prime Minister’s Relief Fund for Chennai Rain Victims

3. RBI Reference Rate for US $

4. Strengthening Free Enterprise in India (Dr. Raghuram G. Rajan, Governor - February 4, 2016 - 13th Nani A. Palkhivala Memorial Lecture, Mumbai)

5. Finance Minister Launches the Official Youtube Channel of the Ministry of Finance

Circulars / Instructions / Orders

Customs

1. F.No.390/Misc./163/2010-JC - dated 4-2-2016

Reduction of Government litigation – withdrawal of appeals by the Department before CESTAT

Highlights / Catch Notes

Income Tax

• Interest to Partners on Capital Not a Statutory Allowance; Classified as Expenditure; Disallowed if Income is Exempt.

  Case-Laws - AT : Disallowance u/s 14A - interest paid to partners on capital contribution is not a statutory allowance u/s 40(b) of the Act but is an expenditure u/s 36(1)(iii) - If the income is exempt, corresponding interest paid to partner will be disallowed us 14A - AT
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• Penalty Confirmed for Bogus Transaction u/s 271(1)(c) Due to Forged Invoices and Income Concealment.

  Case-Laws - AT : Penalty under Section 271(1)(c) - bogus transaction of sale and purchase of asset - it is a clear case of furnishing inaccurate particulars in the form of forged invoices and thereby concealed the particulars of income of the assessee. - Levy of penalty confirmed - AT
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• Lease Rental Taxation: Income Source Classification Can Change; Past Decisions Not Binding Under Res Judicata Principle.

  Case-Laws - AT : Lease rentals - Income from other sources OR Income from house property - There is no res judicata in so far as the taxation provisions are concerned, more specifically, when the earlier accepted position is contrary to the specific provisions of the Act. - AT
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• Film Licensing Income Taxed Over Seven-Year Period for Distribution Rights Exploitation.

  Case-Laws - AT : Accrual of income - Distribution rights in the film is a property - the income arising out of such licensing of the right to exploit the film for seven years is to be taxed on time basis - AT
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• Rental Income from Building with Amenities Classified as "Composite" u/s 56(2)(iii); No Deduction Allowed u/s 24(a).

  Case-Laws - AT : Rent received - the rental income of the assessee from letting out building along with said amenities is a "composite rental income" assessable under the head "income from other sources" u/s 56(2)(iii) - assessee is not entitled for claim of deduction u/s 24(a) - AT
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• Antivirus Software and Switches: Capital Expenditure with 60% Depreciation but Fully Allowed as Revenue Expense Due to Updates.

  Case-Laws - AT : Expenditure incurred on Antivirus software and switches treated as capital expenditure eligible for depreciation @ 60% - there is no acquisition of any capital asset giving any advantage of enduring nature to the assessee, as these required periodical updation and constant improvement from time to time. - 100% expenditure allowed as revenue expense - AT
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• Assessing Officer Rightly Classifies Amount as Unexplained Cash Credits Due to Lack of Proper Confirmations by Assessee.

  Case-Laws - AT : Addition on non confirmation of advances by the parties - It is true that in the absence of proper confirmations, the Assessing officer was justified in treating the amount in question as unexplained cash credits. The onus was on the assessee to prove the genuineness of the transactions. - AT
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• Assessee's attempt to lower Section 14A disallowance in revised tax return fails due to lack of evidence.

  Case-Laws - AT : Reduction of disallowance u/s 14A suo-moto in revised return - assessee could not demonstrate before the AO as to how the expenditure it has added back relating to earning of exempt income were inflated or added back under mistaken fact. - AT
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• Court Examines Retroactive Application of Section 40(a)(ia) TDS Default in Income Tax Act, Impacting Taxpayer Obligations.

  Case-Laws - AT : Disallowance u/s 40(a)(ia) - TDS default - prospective or retrospective effect of amendment of provisions of Sec.40(a)(ia) - To the extent the Assessee is made to pay tax on a higher income in one year, there would still be hardship. - AT
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• Deduction Denied: Renting Surplus Space Doesn't Qualify for Section 80P Exemption; Rent Income Not Eligible for Deduction.

  Case-Laws - AT : Denial of claim of deduction u/s. 80P - Letting out of surplus space in the building owned and used by the assessee is not such an activity falling under clause (c). The rent thus received by the assessee is not eligible for the exemption provided thereunder. - AT
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Customs

• MSO CBM Finger Print Reader Scanner Classified Under CTH 8471 for Automatic Data Processing Systems.

  Case-Laws - AT : Classification - import of MSO CBM (EMBALLE PAR 40) FINGER PRINT READER SCANNER - it is of a kind solely or principally used in an automatic data processing system, it is connectable to the central processing unit and is able to accept or deliver data in a form (codes or signals) which can be used by the system - classifiable under CTH 8471 - AT
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• Export Goods Re-imported for Repair Qualify for Duty-Free Under Notification No. 52/2003 for EOUs, No Duties Demanded.

  Case-Laws - AT : Re-import of export goods for repair - failure to export within 6 months - re-import will fall even in the general duty-free import allowed for EOU under notification No. 52/2003. Admittedly, all the conditions for such exemption have been satisfied by the appellant. - no demand - AT
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Corporate Law

• Director Prohibited from Competing with Own Company or Misleading Public with Company's Mark.

  Case-Laws - HC : Under no circumstances, the Director can be allowed to compete the business of the Company, in which he/she is already a Director, to exploit the mark in order to give the impression to the public at large that he/she has any association or affiliation of the Company in which he/she is still a Director. - HC
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Indian Laws

• Secured Creditors with 75% Consent Can Halt Proceedings Under Sick Industrial Companies Act, Enforce Security Interest Act 2002.

  Case-Laws - SC : Where secured creditors representing not less than 75% in value of the amount outstanding against financial assistance decide to enforce their security under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, any reference pending under the Sick Industrial Companies (Special Provisions) Act, 1985 cannot be proceeded with further - SC
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Wealth-tax

• Urban land used for hotel business exempt from wealth tax due to demonstrated business activities.

  Case-Laws - AT : Inclusion of Urban Land into Net Wealth - the intention of the assessee to utilize the urban land only for the purpose of its hotel business is proved beyond doubt by the subsequent activities of the assessee. - Not taxable - AT
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Central Excise

• CENVAT Credit Properly Availed; Duty Liability Accurately Paid on Transaction Value; Revenue's Input Removal Claim Misconceived.

  Case-Laws - AT : Reversal of CENVAT credit - the said product is manufactured by the appellant, it can be seen that the CENVAT credit was correctly availed by the appellant, the duty liability is discharged on the transaction value is correct. To our mind the case of revenue treating the said product as removal of inputs as such, is misconceived - AT
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• Appellant Not Liable for Higher Duty Rate Due to Lack of Knowledge of NTH Test Reports.

  Case-Laws - AT : Liability of the appellant for higher rate of duty based on the test reports of NTH - When the appellant were not aware of the test reports, there can be no mis-declaration of unknown facts - AT
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• Court Rules Against Adding Excess Freight Charges to Ex-Factory Transaction Value for Excise Duty Calculation.

  Case-Laws - AT : Excess amount towards freight charges recovered from the buyers than the amount actually incurred - demand central excise duty - there is no justification for any addition to the ex factory transaction value in the present case. - AT
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• Extended Limitation Period Not Applicable: Lack of Chassis Manufacturer Invoice Leads to Duty Demand and Suppression Charge Dismissal.

  Case-Laws - AT : Demand of duty - charge of suppression - As the sale invoice of the chassis manufacturer was not in possession of the appellant, therefore, the appellant was not in a position to provide the same to the department. - The extended period of limitation is not invokable at all. - AT
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Case Laws:

• Income Tax

• 2016 (2) TMI 171
  Interest u/s 244A - from what date the respondents should be directed to pay the interest? - Held that:- Undisputedly, though the TDS was deducted and deposited at earlier point of time, the agreement between the petitioner and the German company was executed only on 1.7.1992 wherein the German company waived the instalment. However, even after that date, the petitioner waited till 31.1.1994 to make an application for refund. It is only when the petitioner brought to the notice of the respondent authorities that the German company had agreed to waive the third instalment and as such, the petitioner was entitled to refund of the TDS deducted and deposited on account of third instalment, the respondent Revenue would come to know about the same. In so far as the submission of Shri Thakur is concerned, we find that in the peculiar facts and circumstances of the case the petitioner would be entitled to refund only from the date on which the petitioner had applied for refund and brought the factual aspect to the notice of the respondent authorities. It is wellsettled that the law comes to the assistance of the vigilant and diligent. If the petitioners have chosen to be in slumber for long years, the respondents cannot be fastened with the liability for a period earlier to the date on which the petitioners have woken and brought this factual position to the notice of the respondents. In that view of the matter, we find that in the interest of justice, it would be appropriate to restrict the claim of the petitioner for interest in accordance with the provisions of Section 244A from 31.1.1994 till the date on which the actual amount was paid to the petitioners.

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• 2016 (2) TMI 170
  Disallowance u/s 14A - whether interest payable to partners on their capital u/s. 40 (b) is an expenditure of the firm instead of holding same as an allowance claimed by the assessee & therefore and does not fall within the ambit of section 14-A. ? - Held that:- We hold that ‘expenditure’ as envisaged by Section 14A of the Act, duly include interest paid to the partners by the assessee firm if the same is incurred in relation to the income which is not includible in the total income u/s Section 14A of the Act and in that circumstances this interest paid to partners are to be considered as allowable expenditure only against the exempt income u/s 14A of the Act provided other conditions are fulfilled. Thus, we hold that the interest on partner’s capital to the tune of Rs. 12,66,679/- as computed by the AO u/s 14A of the Act read with Rule 8D of the Income Tax Rules, 1962 is an expenditure , which is allowable as an expenditure being incurred by the assessee firm in relation to an income which does not form part of the total income of the assessee firm under the Act , and shall be allowed as deduction from the dividend income from Mutual Funds earned by the assesse firm as envisaged u/s 14A of the Act and shall go to reduce the exempt income earned by the assessee firm from dividend income from Mutual Funds as computed by the AO after applying provisions of Section 14A of the Act read with Rule 8D of Income Tax Rules, 1962 or in other words we uphold the disallowance of interest on partners capital to the tune of Rs. 12,66,679/- u/s 14A of the Act read with Rule 8D(2)(ii) of Income Tax Rules,1962.. We further hold that these allowance / deduction of expenditure of Rs. 12,66,679/- against the exempt income u/s 14A of the Act or in other disallowance u/s 14A of the Act, will not entitle the partner to claim relief in their individual return of income which shall be chargeable to tax as per the existing and applicable provisions of Section 28(v) of the Act read with Section 2(24)(ve) of the Act after including the afore-said interest income in the hands of the partners. Further, the AO has computed disallowance of Rs. 20,357/- under Section 14A of the Act read with Rule 8D(2)(i) of Income Tax Rules, 1962 being direct expenses incurred by the assessee firm having being incurred on STT paid of Rs. 18,633/- and PMS charges of Rs. 1,724/- paid to portfolio managers which is admitted to be paid by the assessee firm in relation to the earning of the exempt income, which disallowance we uphold . The AO has computed deemed expenses @0.5% of average investment under Section 14A of the Act read with Rule 8D(2)(iii) of Income Tax Rules, 1962 as per method vide formula laid down under Rule 8D(2)(iii) of Income Tax Rules, 1962 to cover administrative and other indirect expenses, which disallowance also we uphold. It is noteworthy that Rule 8D of Income Tax Rules, 1962 is held to be applicable w.e.f. assessment year 2008-09 by Hon’ble Bombay High Court in the case of Godrej and Boyce Manufacturing Limited (2010 (8) TMI 77 - BOMBAY HIGH COURT). - Decided against assessee TDS u/s 195 - disallowance u/s 40a(ia) - whether the assessee was using the services of overseas commission agent for procuring export orders and not for providing managerial/technical services attracting TDS? - Held that:- Keeping in view the facts and circumstances of the instant appeal , the assessee firm is entitled for deduction of export commission paid to foreign agents for sourcing of export orders in favour of the assessee firm without deduction of tax at source u/s 195 of the Act, as these export commission payments to the foreign brokers in not a sum chargeable to tax in the hands of the foreign brokers as contemplated u/s 195 of the Act and is neither a fee for technical/managerial services as defined in explanation 2 to Section 9(1)(vii) of the Act to bring it to tax under fiction created by the deeming provisions of Section 9 of the Act - Decided against revenue

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• 2016 (2) TMI 169
  Revision u/s 263 - improper enquiry on provisions for warranty, excise duy,sales tax and liquidated damages - Held that:- CIT has rightly invoked the provisions of section 263 of the Act as the A.O. failed to make proper enquiry, examination and verifications as warranted for the proper completion of the assessment, with respect to claim of deduction of Rs. 17.72 crores with respect to the provisions for warranty, excise duy,sales tax and liquidated damages. Regarding the contentions of the assessee company that the CIT should have set aside the orders passed by the AO after giving appeal effect to the orders of the tribunal in the first round has to be rejected as the basic facts remains that the AO has not made any enquiry, examination or verification of the claim of the assessee company with respect to claim of deduction of provision of Rs. 17.72 crores with respect to provisions for warranty, sales tax, excise duty and liquidated damages , the order of the Tribunal would have adjudicated issues arising out of the orders of the authorities below whereby the facts still remains that the AO has not made any enquiry, examination or verification of the claim of the assessee company with respect to claim of deduction of provision of Rs. 17.72 crores with respect to provisions for warranty, sales tax, excise duty and liquidated damages. The order of the Tribunal in the first round of litigation has not been incidentally enclosed by the assessee company in the documents/paper book filed with the Tribunal. It is an established principle under the Act that provisions and contingent expenses are not allowed as deduction while computing the income of the assessee. It is only an ascertained liability which has crystallized during the year and which is wholly and exclusively incurred for the purpose of business of the assessee company , is allowed as deduction while computing income under the Act. The A.O. was under duty to make necessary and proper enquiry, examination and verification’s with respect to Provisions of Rs. 17.72 crores with respect to the claim of deduction of the assessee company for provisions for liquidity damages, warranty, sales tax and excise duty, while on perusal of the assessment orders u/s 143(3) of the Act dated 28.12.2010 and other documents filed before us, we have observed that the AO has not made any enquiry whatsoever with respect to the claim of deduction of expenses of Rs. 17.72 crores towards Provision for Warranty, Sales tax and excise duty and liquidated damages claimed by the assessee company while computing the income of the assessee company and the claim of the assessee company was accepted without any inquiry, examination or verification whatsoever by the AO and In the absence thereof of enquiry, examination and verification of the claim of the asssesee company for deduction of provisions for Warranty, Sales tax and excise duty and liquidated damages amounting to Rs. 17.72 crores , we find no infirmity in the order dated 06.02.2013 of the CIT passed u/s 263 of the Act setting aside the assessment order dated 28.12.10 passed u/s 143(3) of the Act as erroneous in so far as prejudicial to the interest of the Revenue and directing the AO to assess the income of the assessee company after making necessary enquiries, examination and verifications , which order of the CIT dated 06.02.2013 , we uphold . - Decided against assessee

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• 2016 (2) TMI 168
  Deemed dividend addition u/s 2(22)(e) - CIT(A) deleted the addition - whether the advance made by M/s Adampur Distributors Pvt. Ltd. is for business transaction or it is a loan or advance? - Held that:- The ledger extract of M/s Adampur Distributors Pvt. Ltd. clearly establishes that M/s Adampur Distributors Pvt. Ltd. purchased gold from M/s Mustafa Gold Mart, a proprietary concern of the assessee. It is also not in dispute that upto 2007-08, M/s Adampur Distributors Pvt. Ltd. engaged in the business of jewellery and later on, the business was diversified. To revive the gold jewellery business, M/s Adampur Distributors Pvt. Ltd. advanced money to M/s Mustafa Gold Mart for purchasing gold jewellery. In fact, M/s Mustafa Gold Mart delivered gold jewellery to M/s Adampur Distributors Pvt. Ltd. In those circumstances, it is obvious that the transaction between M/s Adampur Distributors Pvt. Ltd. and M/s Mustafa Gold Mart, is a business transaction. Hence, the advance paid by M/s Adampur Distributors Pvt. Ltd. to M/s Mustafa Gold Mart cannot be construed either as loan or advance. Therefore, this Tribunal is of the considered opinion that the provisions of Section 2(22)(e) of the Act cannot be applied to a business transaction. Therefore, this Tribunal do not find any reason to interfere with the order of the lower authority. Accordingly, the order of the CIT(Appeals) is confirmed. - Decided in favour of assessee Disallowance under Section 40A(2)(b) commission paid to Shri Ishtiaq Ahmed - CIT(A) deleted the disallowance - Held that:- It is for the assessee to decide whether commission is to be paid to any particular individual or not. In the interest of the assessee and for promoting the business, if the assessee comes to a conclusion that payment of commission is required, then the Assessing Officer cannot step into the shoes of the assessee and say that the payment of commission is not required. In this case, it is not the case of the Revenue that the payment of commission is not required. The only contention of the Assessing Officer is that the payment is unreasonable and excessive. As rightly submitted by the Ld.counsel for the assessee, the recipient Shri Ishtiaq Ahmed has disclosed the receipt of commission and paid taxes. The Assessing Officer accepted the income declared by the above said Shri Ishtiaq Ahmed as commission. In those circumstances, as rightly found by the CIT(Appeals), the disallowance made in the hands of the assessee is not justified.- Decided in favour of assessee Addition under Section 41(1) - CIT(A) deleted the addition - Held that:- Assessing Officer made deduction on the ground that the sundry credit existed for more than 7 years, therefore, the liability ceased to exist. This Tribunal is of the considered opinion that merely because the credit existed for more than 7 years, the liability cannot cease automatically. Time for legal suit to recover the amount may be barred under the provisions of Limitation Act, however, the right of the creditor to recover the amount still exists by other modes. In other words, what is barred is filing civil suit to recover the money but the other means are not barred at all. Moreover, the liability is shown in the year under consideration also. Therefore, the assessee accepted liability during the year under consideration. When the assessee accepted the liability, the period of limitation gets extended. In those circumstances, there is no question of any cessation of liability. It is not the case of the Revenue that the creditors waived the amount due to them. In those circumstances, the CIT(Appeals) has rightly deleted the addition - Decided in favour of assessee Addition made on account of unexplained jewellery - CIT(A) deleted the addition - Held that:- The quantity of gold jewellery depends upon the status of the assessee in the society. The assessee, being a businessman, commands respect in the locality where he resides. Therefore, naturally the parents of the girl would give gold jewellery as Sthreedhan property. This is a customary practice which prevails in the country. The customary practice that prevails in this part of the country cannot be brushed aside by the Assessing Officer to disbelieve the claim of the assessee. By taking into consideration the customary practice prevails in the country and the society of the assessee where he resides, this Tribunal is of the considered opinion that the assessee’s wife would have received gold jewellery as Sthreedhan property during her marriage and also would have received gifts on the occasions like marriage, birthday, etc. Therefore, this Tribunal is of the considered opinion that the CIT(Appeals) has rightly deleted the addition made by the Assessing Officer - Decided in favour of assessee Disallowance of expenses - Held that:- In the absence of proper vouchers, the CIT(A) has correctly restricted the disallowance to 20% claimed by the assessee. Disallowance made in respect of exemption claimed under Section 10 - assessee has also claimed travelling allowance as exempted - Held that:- The uniform allowance and conveyance allowance to the extent of Rs. 42,000/- and Rs. 9,600/- respectively have to be allowed since it is for the purpose of business or the employment carried out by the assessee. In respect of travelling expenses, the claim of the assessee was that he had to travel for advertisement at many places in the city of Chennai. This Tribunal is of the considered opinion that while claiming expenditure for the commission, the assessee has claimed salary and other expenses for making advertisement. Therefore, it may not be correct to say that the assessee had to travel for advertisement purpose. In other words, the travelling expenses for making advertisement was included in the expenditure claimed by the assessee for commission receipt. Therefore, another claim of Rs. 1,16,700/- is not justified. Accordingly, the order of the CIT(Appeals) is set aside in respect of travelling allowance to the extent of Rs. 1,16,700/- and the Assessing Officer is directed to make addition of Rs. 1,16,700/- towards travelling expenses. Charging of interest under Section 234B - Held that:- The return filed consequent to the notice issued under Section 153A has to be taken for computing interest under Section 234B of the Act.

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• 2016 (2) TMI 167
  Penalty under Section 271(1)(c) - bogus transaction of sale and purchase of asset - Held that:- The assessee is a banking company and claimed before the Assessing Officer that it entered into the sale and lease back transaction. The claim of the assessee that the asset was originally belonged to a particular person, was proved to be wrong. In fact, the invoices were forged in the name of the assessee. On examination, the suppliers of the asset confirmed that they did not issue any invoice in the name of the assessee. When the assessee was cornered on all the four corners and it was found to be a bogus transaction of sale and purchase of asset, the assessee withdrew the claim of depreciation. Therefore, it is not a case of making a claim after furnishing all the particulars of income. It is a case of making a claim on the basis of the so-called bogus transaction. The suppliers of the asset clarified that no transaction was entered into with the assessee. Therefore, it is a clear case of furnishing inaccurate particulars in the form of forged invoices and thereby concealed the particulars of income of the assessee. Therefore, this Tribunal is of the considered opinion that the CIT(Appeals) has rightly confirmed the penalty levied by the Assessing Officer under Section 271(1)(c) of the Act. This Tribunal do not find any reason to interfere with the order of the lower authority. - Decided against assessee

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• 2016 (2) TMI 166
  Penalty u/s 271(1)(c) - addition made u/s 41(1)(a) - Held that:- There was no cessation of trading liability during the year and the assessee had even denied the difference in its books of accounts and the reasons of difference were explained through reconciliation and also filed the copies of the bills of the said party and details of vouchers qua payments made. In our opinion the case of the assessee is squarely covered by decision of COMMISSIONER OF INCOME TAX Versus BHOGILAL RAMJIBHAI ATARA [2014 (2) TMI 794 - GUJARAT HIGH COURT] and we respectfully following the same decision delete the penalty levied by the AO by allowing the appeal of the assessee - Decided in favour of assessee

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• 2016 (2) TMI 165
  Lease rentals - falling under the head ‘Income from other sources’ OR ‘Income from house property’ - Held that:- As, admittedly, the assessee earned rental income from letting out of building, furniture & fixtures and electrical installations in a composite manner which are inseparable from each other, such income specifically falls under the head ‘Income from other sources’ and is liable to be taxed accordingly. The Hon’ble Supreme Court in a celebrated decision in Sultan Brothers (P) Ltd. vs. CIT (1963 (12) TMI 4 - SUPREME Cour), has held that where the building and fixtures were intended to be used together, then, combined rental income from such inseparable letting out should be charged to tax under the head ‘Income from other sources.’ Thus it is clear that the ld. CIT(A) has rightly treated lease rentals as falling under the head ‘Income from other sources.’ As regards the contention of the ld. AR for following the rule of consistency inasmuch as in earlier years such income was assessed under the head ‘Income from house property’, we find no force in the same as admittedly there can be no estoppel against the statute. When section 56(2)(iii) specifically provides for treating such income as falling under the head ‘Income from other sources’, there is no rationale in treating it as `Income from house property’ simply on the ground that in the earlier years such income has been wrongly taxed under section 22 of the Act. There is no res judicata in so far as the taxation provisions are concerned, more specifically, when the earlier accepted position is contrary to the specific provisions of the Act. We, therefore, refuse to countenance this argument. - Decided against assessee

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• 2016 (2) TMI 164
  Accrual of income - AO was of the view that the income arising out of the contract should be taxed as income during the current A.Y - Held that:- A.O. was in error in his conclusions that, whenever Rule 9B is applied for claims of expenditure, the income should also be accounted for and offered to tax in the year of receipt. Rule 9B of the Income Tax Rules, 1962 is a special rule which provides for claims of deduction in respect of expenditure, in respect of distribution of films. The Income Tax Act or Rules have not provided for any special manner in which income in such cases have to be taxed. Thus the general law prevails. Coming to the accrual of income, we find that the assessee has offered this income for the next subsequent six A.Ys i.e. A. Y. 2008–09 to 2012–13 at the rate of Rs. 9,21,428/- at prorate basis. The assessee has included in the paper book assessments for all these A.Ys. The income in question has been offered to tax and has been taxed by the department in all these A.Ys equally. The addition in this year amounts to double taxation. Distribution rights in the film is a property. This property has been licensed for a time period of seven years by the assessee to the third parties. The consideration received is for exploitation of certain rights in these films for a period of seven years. Thus we are of the considered opinion that the income arising out of such licensing of the right to exploit the film for seven years is to be taxed on time basis. We agree with the submissions made by the Ld.Counsel for the assessee that the income in question has to be taxed over the period of the contract. Hence the addition made is deleted and the appeal of the assessee is allowed. Also the penalty levied u/s 271(1)(c ) on such addition cannot be sustained.

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• 2016 (2) TMI 163
  NP rate determination - Held that:- NP rate which should be considered for examination is NP rate before depreciation, interest and remuneration to partners. Nothing has been brought to your notice for deviating from the said settled position. Further, during the year under consideration, the NP rate before depreciation, interest and remuneration to partners is disclosed by the assessee at 9.02% which is on a progressive scale hence there is no basis to disturb the same. Secondly the expenses have been disallowed on an adhoc basis. In absence of any specific finding of the AO whereby specific expenses/transactions have been held to be not incurred for the purposes of the businesses, we are unable to accede to the position adopted by the AO. Hence we do not see any infirmity in order of ld. CIT(A) which is confirmed. - Decided against revenue

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• 2016 (2) TMI 162
  Penalty u/s 271(1)(c) - enhanced value of closing stock - Held that:- The assessee has submitted that the value of Rs. 682/- sq.mtr is computed by the assessee himself and is appearing in the detail stock valuation and it is simply a calculation mistake on his part, wherein he had considered the value of Rs. 488/- sq.mtr instead of Rs. 682/ sq.mtr. The assessee has however not provided any explanation regarding the basis/criteria for working out the value at Rs. 488/- s.mtr and why it was adopted at first place. The so called calculation mistake an be accepted where the same is apparent from the valuation working as submitted by the appellant and where by mistake, the appellant ha taken a particular value instead of another value. However, there is no such calculation/working determining value at Rs. 488/sq.mtr which is on record. Thus, the value of s. 488/- sq.mtr. is surrounded in mystery and explanation of the appellant does not inspire confidence that it was simply calculation mistake. In light of that, the explanation of the assessee is not substantiated and the bonafide of the case is thus not proved. Hence, the penalty levied on enhanced value of closing stock to extent of Rs. 1,61,400/- is confirmed.- Decided against assessee Regarding valuation of old marble slabs and old tiles at 25% of the average rate instead of 50% of the average cost - Held that:- it is clear that the submission of the assessee regarding the method of valuation s well as estimation of 50% of the closing stock of inferior quality has been duly accepted and confirmed by the Coordinate Bench. As far as matter of valuing the stock of inferior quality is concerned the assessee has valued the stock at 2% of the average cost confirm4d by the Coordinate Bench. Hence it would be relevant to note that the Coordinate Bench has accepted the submission and explanation of the assessee that the said inferior stock has been sold during the subsequent financial year at a lower price which is evident from sale bills of the subsequent period. But the opinion the Coordinate Bench, even though the said sale value is supported by the sale bills of the subsequent period but the same appears to be a lower side. Based on that, the coordinate Bench confirmed the valuation of inferior stock at 50% of the average stock as against 25% average cost taken by the assessee. The findings of the Coordinate Bench thus have a direct bearing on the subject levy of penalty and will equally apply in the present proceedings. It is therefore not a case where the assessee’s explanation can be said to be incorrect or false. The basis of taking the value of inferior stock has been duly supported by sale invoices of the subsequent period and thus it cannot be said that the assessee does not have a basis for such valuation to stand. It is purely a matter of opinion and judgement where the ld. CIT(A) and Coordinate Bench has taken a view which differs from that of the assessee on examination of same set of facts which have been duly disclosed. It is therefore not a matter which calls for levy of penalty under the provisions of section 271(1)(c) of the Act. - Decided in favour of assessee

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• 2016 (2) TMI 161
  Sale of shares - Short Term Capital Gain/Loss and Long Term Capital Gain /Loss - Held that:- Assessee is a regular investor and the assessee has shown the income of Short Term Capital Gain/Loss and Long Term Capital Gain /Loss from the sale of shares which is being shown consistently since preceding several year’s and the same was accepted in the preceding years by the Revenue. We have observed that the assessee has also valued the investment in shares at cost in his books of accounts and not ‘cost or market value’ which ever is lower which is again indicative that the shares are held by the assessee as investment. The shares purchased and sold are all delivery based transactions on which STCG/STCL or LTCG/LTCL is earned. The assessee has also offered for tax , income from sale of shares as speculative profits (net) of Rs. 3,03,915/- under the Act where the transactions are not backed with delivery. The assessee is partner in M/s Dia Export Corporation which is engaged in trading in diamond and assessee has made substantial investment in said partnership firm from which receivable as on 31-03-2010 stood at Rs. 6.74 crores and has substantial income from the said firm which stood at Rs. 32,88,053/- for the assessment year 2010-11 which again indicates that it must be occupying substantial time of the assessee as the assessee has also contended that he is working partner of the said firm M/s Dia Export Corporation . We have also observed that the assessee has not borrowed any funds for buying and holding the shares which also indicates that the assessee is an investor. In our considered view keeping in view facts and circumstances of the case , the CIT(A) has rightly classified and distinguished whereby the shares transacted repeatedly within short period of time within few days was held to be business income of Rs. 8,03,879.90 as per chart above in preceding para’s while the rest of income/gain from sale of shares is classified as STCG or LTCG and we do not find any infirmity in the well reasoned orders of the CIT(A) which we uphold. - Decided against revenue

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• 2016 (2) TMI 160
  Rent received - Income from other sources vs Income from house property - whether the letting is a composite or inseparable letting? - entitlement to claim of deduction u/s 24(a) - Held that:- Respectfully following the dicta laid down by Hon'ble High Court of Delhi in the case of Garg Dying and Processing Industries vs ACIT (2012 (12) TMI 191 - DELHI HIGH COURT ), we decline to accept the view taken by the CIT(A) in the impugned order and we uphold the view taken by the AO that the rental income of the assessee from letting out building along with said amenities is a "composite rental income" assessable under the head "income from other sources" u/s 56(2)(iii) of the Act and thus, the assessee is not entitled for claim of deduction u/s 24(a) of the Act. - Decided in favour of revenue

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• 2016 (2) TMI 159
  Adjustment of excise duty on opening stock U/s 145A - Held that:- The assessee furnished all the details before the lower authorities at the time of appellate proceedings and at the time of first appeal made before the ITAT thereafter in set aside proceeding, these details were given to the Assessing Officer. As decided in CIT Vs. Mahavir Alluminum Ltd [2007 (11) TMI 41 - HIGH COURT OF DELHI ]there is no question of any double benefit being given to the assessee. Valuation of inventory, this will affect both the opening as well as the closing stock. It is also to be noted that if any adjustment is required to be made by a statute, (as for example section 145A of the Act), effect to the same should be given irrespective of any consequences on the computation of income for tax purposes. Section 145A of the Act begins with a non obstante clause, and therefore, to give effect to section 145A of the Act, if there is a change in the closing stock as on March 31, 1999, there must necessarily be a corresponding adjustment made in the opening stock as on April 1, 1998.Therefore, we allow the assessee’s claim of adjustment of excise duty U/s 145A on opening stock as on 01/4/1998 at Rs. 16,20,151/-.- Decided in favour of assessee Deemed dividend U/s 2(22)(e) - Held that:- Assessing Officer had not given any finding on transaction but summarily rejected the submission made by the assessee. The ld CIT(A) also considered the title of the account for deciding the issue of deemed dividend U/s 2(22)(e) of the Act. The copy of account filed itself shows that the assessee has number of transactions related to goods purchased and sale, job work charges, paid and received rent and interest. In opening, there was a debit balance in the books of assessee and on closing it was a credit balance. The balance after every transaction changed the position some time it becomes credit and some time debit. Therefore, we hold that transactions made by M/s Chrome International Co. ltd. with assessee are business transactions during the ordinary course of business, which cannot be treated as deemed dividend U/s 2(22)(e) of the Act. - Decided in favour of assessee

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• 2016 (2) TMI 158
  Revision u/s 263 - in the assessment order deduction u/s. 36(1)(viia) was allowed to the extent of Rs. 14,47,40,656/- as against restricting it to the extent of eligible amount of reserve for Non-performing assets or provisions for bad & doubtful debts shown in the Balance Sheet as on 31.03.2007 at Rs. 68,20,002 - claim of the Ld. A.R. was that the provisions made as per Section-36(1)(viia) has to be allowed though debited under different name such as "Reserved for NPA account" instead of debiting under the Head "Provisions towards bad & doubtful debts - Held that:- Following the order of our predecessors, we hereby direct the Ld. Assessing Officer to verify the claim of the assessee to be in accordance with the provisions of Section 36(1)(viia) of the Act and found to be correct, allow the same without giving importance to the nomenclature of the account under which head such claim towards provision for bad & doubtful debts is made. - Decided in favour of assessee for statistical purposes

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• 2016 (2) TMI 157
  Addition being recoveries from abroad - CIT(A) deleted the addition - Held that:- In this case, the amount of Rs. 5.04 crores was received by the assessee from the foreign Central Banks and was classified in the Balance sheet as a "liability" which was as in accordance with the accepted accounting practice followed by the assessee right from the earlier years. The assessee has held the amount as a "trust" that is in fiduciary capacity on behalf of the exporters. Consequently, such amount had not been routed through profit and loss account by the assessee, as per the accounting system followed by the assessee. Hence, in accordance with the provisions contained in section 44 read with first schedule, such an adjustment by the AO for taxing the income in this year is wholly untenable. Apart from that, the Ld. CIT(A) has categorically noted the fact that during the previous year relevant to the assessment year 2009-10, the assessee after identifying the exporters has paid back the substantial amount which were collected on their behalf and whatever amount could not be identified, the same has been offered as an income in that year. Thus, the whole of the amount has now been accounted for and income has also been offered by the assessee in the assessment year 2009-10. On these facts, we do not find any reasons to deviate from the finding and the direction given by the CIT(A). - Decided against revenue Disallowance of deduction on account of estimated expenses to be reimbursed to General Body of Insurance Council - CIT(A) deleted the addition - Held that:- The assessee being Member of GBIC was required to make a payment towards fees / subscription. Such a levy of fees and subscription by the GBIC has been authorized by the Insurance Act itself and regulations thereof. Thus, such a payment definitely falls within the realm of revenue expenditure incurred by the assessee. Since this expenditure is an ascertained liability which is required to be paid every year, therefore, the same is allowable as a 'deduction' while computing the income of the assessee in this year, even if the said payment has been made in the subsequent year, because the said expenditure has definitely accrued to the assessee in the year under consideration. Thus, the finding given by the CIT(A) on this score is upheld.- Decided against revenue Expenditure incurred on Antivirus software and switches treated as capital expenditure eligible for depreciation @ 60% - CIT(A) deleted the addition - Held that:- We agree with the finding given by the CIT(A), because here in this case, the expenditure has been incurred on antivirus software which is used in the operating system of the computer which in turn is for running of the business more efficiently. No capital asset of any enduring benefit has been acquired by the assessee. In the case of switches also, there is no acquisition of any capital asset giving any advantage of enduring nature to the assessee, as these required periodical updation and constant improvement from time to time. In the decisions cited by Ld. Counsel it has been consistently held that such an expenditure on softwares is nothing but revenue in nature.- Decided against revenue Disallowance u/s 40A(9) being amount paid to Employees Recreation Club - CIT(A) deleted the addition - Held that:- This issue had come up for consideration before the Tribunal in AY 2006-07, wherein the Tribunal has directed the AO to examine the facts and if the expenditure is found to be in the nature of reimbursement then same should be allowed following the decision of Hon'ble High Court in the case of CIT vs Bharat Petroleum Corporation of India [2001 (3) TMI 20 - BOMBAY High Court ]. He further informed that, the AO after examining the facts has deleted the addition. Accordingly we also direct the AO to decide the issue in the light of the directions given by the Tribunal in the AY 2006-07 - Decided in favour of assessee by way of remand Disallowance u/s 14A r.w. Rule 8D(2)(iii) - overriding effect - Held that:- The assessee company is engaged in the business of General Insurance and under the specific provisions given in the Income-tax Act, its income has to be computed strongly in accordance with section 44 r.w. First Schedule. It is a non obstante clause having overriding effect over the other provisions contained in the Act. For making a disallowance of any expenditure or allowance, which falls under the provisions of sections 30 to 43B. It should be firstly, be an expenditure or allowance and secondly, it should not be admissible under sections 30 to 43B. Otherwise no other disallowance can be made. For the purpose of the Income-tax, first of all the figures of the income of the assessee is to be drawn-up in accordance with the provisions of First Schedule to the Income-tax Act and satisfying the requirement of Insurance Act and such a determination of income is binding on the AO and there is no power to tinker with such an account.Thus, when the income of the assessee as well as the expenditure are governed by specific provision which have an overriding effect, then it is not open for the AO to invoke the other provisions of the Act for carrying out the disallowance or adjustment in the income. Thus, we hold that, no disallowance u/s 14A can be made in the case of the assessee - Decided in favour of assessee

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• 2016 (2) TMI 156
  Addition on non confirmation of advances by the parties - CIT(A) deleted the addition - Held that:- The assessee did not furnish the confirmation letters from the concerned parties. It appears that assessee did not cooperate with the Assessing officer and the Ld. CIT(A) has admitted the alleged additional evidence in violation of provisions of Rule 46A of the I.T. Rules, 1962. Sub Rule (2) provides that the CIT(A) while admitting such evidence must record its reasoning in writing. Sub Rule (3) of Rule 46A provides that Commissioner of Income Tax (Appeals) could not accept such evidence unless the Assessing officer has been given reasonable opportunity of examining the evidence so produced. In the instant case, the Ld. CIT(A) has not recorded the reasons for admitting the additional evidence. Similarly, no opportunity has been given to the Assessing officer to examine the additional evidence, if any, submitted by the assessee because no confirmation was submitted with respect to the amount for Rs. 20,36,703/-. Thus remand the matter to the Assessing officer with a direction to decide the issues afresh - Decided in favour of revenue for statistical purposes Addition on non confirmation of cash credits - CIT(A) deleted the addition - Held that:-Assessing officer noted that the assessee had furnished the confirmation of two parties without PAN from whom advances were shown by the assessee. It is stated that assessee submitted only copy of the account given by the parteis but no PAN was mentioned on the letter head of the parties. Therefore, in the absence of proper confirmations, the Assessing officer treated the amount of Rs. 3,63,750/- as unexplained cash credit and added the same to the total income off the assessee. It is true that in the absence of proper confirmations, the Assessing officer was justified in treating the amount in question as unexplained cash credits. The onus was on the assessee to prove the genuineness of the transactions. Without PAN., it was not possible to verify the transactions particularly when one of the parties is stated to be from State of Gujarat. The Ld. CIT(A) himself has observed that the Assessing officer has reported that in case of M/s Vishvnagar CT Scan Centre, Gujarat, the letters have been received back un-served. Thus, the very existence of the party is doubtful.Thus remand the matter to the Assessing officer with a direction to decide the issues afresh - Decided in favour of revenue for statistical purposes

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• 2016 (2) TMI 155
  Disallowance u/s 14A r.w.r. 8D - Reduction of disallowance u/s 14A suo-moto in revised return - whether CIT(A) has erred in confirming the disallowance made by the AO under section 14A r.w. Rule 8D? - Held that:- AO has not made addition with the help of Rule 8D. The AO has observed that keeping in view the quantum of investment i.e. Rs. 8.9 crores expenses added by the assessee itself at Rs. 21,74,52/- is reasonable expenses, hence, he is satisfied with the accounts of the assessee and does not want to make further enhancement. Now, the assessee wants to go back with the declaration made by it. It is true that Income Tax officer is supposed to determine true taxable income of the assessee as observed by the Hon'ble Gujarat High Court in the case of Milton Laminates (supra), but the fact is where is the lapse ? how one can plead that the AO has failed to carry out his exercise ? According to the assessee, the disallowance under section 14A ought to be Rs. 6,93,201/- which it has worked out in the alleged revised return. But, what is basis to work out this disallowance? The assessee could not demonstrate before the AO as to how the expenditure it has added back relating to earning of exempt income were inflated or added back under mistaken fact. Here it is not the case that some statutory benefit was available to the assessee, which by mistake it refrain to claim such benefit. In the present case, the assessee has to work out the expenditure relatable to earning of exempt income, which it has worked out itself. Unless it is pointed out that such working was based on misconception of fact or misconstruction of law, it cannot be allowed to take somersault from the declaration made by it in the return of income. Therefore, the assessee cannot draw any benefit from the judgment cited before us. We do not find any error in the order of the ld. CIT(A), which is upheld. - Decided against assessee

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• 2016 (2) TMI 154
  Validity of assessment u/s 153 - extension of period of limitation - whether the extended period of limitation as provided under Explanation 1(iii) of Section 153 is available to the Assessing Officer for completion of assessment u/s 143(3), or not? - Held that:- A notice u/s 148 or reasons recorded by the A.O prior to re-opening of assessment cannot be challenged separately. But an assessment order can be challenged in an Appeal before the Ld. CIT(A) or the ITAT on the ground that the re-opening itself is bad in law, as the notice is illegal or not served or that there is no material based on which reasons were recorded etc. Every facet of an assessment can be challenged in appeal to deny once liability to be charged to tax or to challeng the quantum of tax demanded. In the case of hand, the legality of the orders passed u/s 142(2A) or u/s 142(2C) can be challenged to demonstrate that the order of assessment has been passed beyond the period of limitation. Thus, we reject this contention of the Ld. CIT. DR. Extension of time framed by the A.O for submission of audit report u/s 142 (2C) of the Act vide order dated 28th June, 2004 is bad in law. Consequently the Assessing Officer would not get extension of time for completion of assessment in terms of Explanation 1 (iii) to Section 153 for the purpose of computation of limits. Hence, the assessments are barred by limitation as per the table given at Para 7 of the order. The Assessment for the A.Y 1996-97 was to be complete on or before 31/3/2004 and the assessment order for the Assessment Year 1997-98 to 2000-01 had to be completed on or before 22/9/2004 and the assessment for the A. Y 2001-02 had to be completes on or before 23/8/2004, but all these assessments were completed on 27/9/2004, which is beyond the period of limitation specific in the Act. Hence they are bad in law. - Decided in favour of assessee

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• 2016 (2) TMI 153
  Disallowance u/s 40(a)(ia) - prospective or retrospective effect of amendment of provisions of Sec.40(a)(ia) - Held that:- Reasoning of the Hon’ble Supreme Court in the case of Alom Extrusions Ltd (2009 (11) TMI 27 - SUPREME COURT ) will equally to the amendment to Sec.40(a)(ia) of the Act whereby a second proviso was inserted in sub-clause (ia) of clause (a) of Section 40 by the Finance Act, 2012, w.e.f. 1-4-2013. The provisions are intended to remove hardship. It was argued on behalf of the revenue that the existing provisions allow deduction in the year of payment and to that extent there is no hardship. We are of the view that the hardship in such an event would be taxing an Assessee on a higher income in one year and taxing him on lower income in a subsequent year. To the extent the Assessee is made to pay tax on a higher income in one year, there would still be hardship. It is of the view that the order of CIT(A) on the issue challenged in this appeal should be set aside and the matter be remanded to the AO for fresh consideration for the limited purpose of the receipts from the assessee after declaring the same received from the assessee in their return of income. The plea of the assessee is supported by the decision referred to by the ld. Counsel for the assessee. AO shall afford adequate opportunity of being heard to the assessee. - Decided in favour of assessee for statistical purposes.

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• 2016 (2) TMI 152
  Denial of claim of deduction u/s. 80P being interest received from other co-operative societies - Held that:- Section 80P(2)(c) of the Act exempts income of co-operative societies to the extent mentioned therein if the profits or gains are attributable to the activity in which the co-operative society is engaged. The expression "attributable to" is much wider than the expression "derived from" and it covers receipts from sources other than the actual conduct of the business of the assessee. In this view of the matter, interest earned by a cooperative society, which was carrying on the business of supplying surgarcane on statutory investment in Government securities, was held profit attributable to the carrying on of the activity of supplying sugarcane (CIT vs. Co-operative Cane Development Union Ltd. (1979 (2) TMI 91 - ALLAHABAD High Court ) The profits and gains from such investments were connected with or incidental to the carrying on of the actual business. Where, however, the assessee as owner of certain property lets out that property and receives rental income, the income thus received cannot partake of the character of profits and gains attributable to an activity carried on by the society. The building let out is not a commercial asset or the rent received is not profit or gain arising from the exploitation of a business asset. The word "activity" is wider than the word "business". It connotes a specified form of supervised action or 0field of action. Read in the context of the profit earning activity of a co-operative society, it means the corporate activity of the society, that is to say, whether or not they amount to a business, trade or profession in the ordinary sense. Clause (c) of section 80P(2) is intended to cover receipts from sources other than the actual conduct of the business but attributable to an activity which results in profits and gains. Letting out of surplus space in the building owned and used by the assessee is not such an activity falling under clause (c). The rent thus received by the assessee is not eligible for the exemption provided thereunder. In this view, assessee's claim is correctly rejected - Decided against assessee.

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• Customs

• 2016 (2) TMI 142
  Maintainability of revenue appeals - Power of the tribunal to consider points in the appeal - Respondents / assessee contended that the Committee of Chief Commissioners while exercising power u/s 129D of the Act to authorize filing of appeal by Revenue did not hold that the order appealed was neither legal nor proper, while such objection was neither made by respondents earlier before Tribunal in the first round of litigation nor before Hon'ble High Court in appeals. Held that:- The Appellate Tribunal can not only go into points arising out of the decision or order as may be specified by the Committee of Chief Commissioners, but also go into the points raised by the respondent in its cross-objections. In other words, the Tribunal is not obligated to confine its scope only to the decision on the points arising out of the order or decision as may be specified by the Committee of Chief Commissioners, but also cover the points raised in the memorandum of cross-objections but in the absence of the cross- objections, the Tribunal is to confine itself only for the determination of such points arising out of the order of the Commissioner as may be specified by the Committee of Chief Commissioners in its order. On the basis of evidence on record against each respondent, the Commissioner's findings exonerating each of them are legal and proper and accordingly, the Revenue's appeals are to be rejected - Decided against the revenue.

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• 2016 (2) TMI 141
  Classification - import of MSO CBM (EMBALLE PAR 40) FINGER PRINT READER SCANNER - classifiable under Customs Tariff heading 8543 or under CTH 8471 - Held that:- It is clear that the impugned item is of a kind solely or principally used in an automatic data processing system, it is connectable to the central processing unit and is able to accept or deliver data in a form (codes or signals) which can be used by the system. The exclusions contained in chapter note 5(D) do not cover the impugned item. In the present case the machine essentially performs data processing function inasmuch as it processes the data relating to fingerprint with the finger print data in the motherboard / Centre processing unit (CPU). Thus, it does not have any specific function other than data processing. The impugned goods are therefore not eased out of CTH 8471 by the provisions of Chapter notes 5(D) & 5(E) CTH 85.43 covers electrical machines and apparatus having individual functions, not specified or included elsewhere in chapter 85. Thus, this heading is a sort of residuary heading for the goods otherwise covered under chapter 85. As the impugned goods are found to be covered under CTH 8471 as per above analysis, they are obviously out of chapter 85 and hence out of CTH 85.43 too. The impugned goods are classifiable under CTH 8471 - Decided in favor of assessee.

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• 2016 (2) TMI 140
  Refund - unjust enrichment - in the relevant invoices, issued to the customers higher rate of duty has been mentioned - Chartered accountant in the statement dated 14/02/2007 recorded under section 108 of the Customs Act , 1962 stated that he had examined the documents on random basis - Held that:- As has been stated earlier the lower authorities have noted that the appellant could not establish that at the lower levels. We however take note of the appellant's contention that it is in a position to give evidence to establish this fact even now. - Appeal allowed by way of remand - Matter remanded back.

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• 2016 (2) TMI 139
  Revocation of CHA license - forfeiture of the whole amount of security deposit - appellant pleaded that he is not arguing the issue on merit but only the issue of non-observance of the time lines prescribed in the CHA Licensing Regulations, 2004 adding that the show cause notice in this case was issued on 17.7.2013 while the enquiry report was submitted on 26.6.2015 which was beyond the time period prescribed in Regulation 22 of the said Regulations, and that such violation of the prescribed time limit makes the impugned order unsustainable. Held that:- if any of the intermediary steps such as issue of show cause notice, drawing up of an inquiry report, or passing of a revocation order is beyond the periods mandated under Regulation 20 of the 2013 Licensing Regulations, (corresponding to Regulation 22 of the Customs House Agents Licensing Regulation, 2004 as amended in 2010), the eventual order of revocation would be invalid. - the impugned order cannot be sustained and is accordingly quashed. Appeal is allowed. - Decided in favor of appellant.

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• 2016 (2) TMI 138
  Import of Weft Straightener” Type MDC Machine - concessional rate of duty as per Notification No.21/2002-Cus - It is submitted that in textile technology, “Weft Straightening Machine” is one system and “Calendaring Machine” is another system and there is no machine called as “Weft Straightening and Calendaring Machine” - Held that:- the appellants are entitled for the concession of duty in terms of the Notification No.21/2002-Cus for the machine imported by them. - Decided in favor of assessee.

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• 2016 (2) TMI 137
  Re-import of export goods for repair - failure to export within 6 months - exemption from Customs duty in terms of notification No. 158/95 Cus - 100% EOU - Held that:- As EOU the appellant is eligible for duty free import which includes goods re-imported within three years from the date of exportation for repair or reconditioning. They have a general B 17 Bond for binding themselves for due exportations of goods. While it is necessary for appellant to claim a particular exemption notification and to follow the conditionalities, in the present case, we find that the impugned re-import will fall even in the general duty-free import allowed for EOU under notification No. 52/2003. Admittedly, all the conditions for such exemption have been satisfied by the appellant. Considering the facts of the present case, we find that appellant cannot be denied such exemption only on the ground that they claimed and followed another exemption notification. Demand of customs duty in the present case is not sustainable - Decided in favor of assessee.

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• Corporate Laws

• 2016 (2) TMI 134
  Director competing the business of company in which he/she is already a Director - Infringement of goodwill - declaration, rendition of account, damages, permanent and mandatory injunctions seeked - violation of Section 166 of the Companies Act, 2013 and Section 88 of the Trusts Act, 1882 by defendant No.1 - Held that:- Defendant No.1 being the Director of defendant No.3 is entitled to 50% net-profit of the Company but at the same time, as she has violated her fiduciary duties and is guilty of breach of Section 166 of the Companies Act, 2013, the undue gain already made by her is liable to be paid to the Company under sub-Section 5 of Section 166 of the Act and the Director of the company is not to assign his office unless the breach is stopped. But under no circumstances, the Director can be allowed to compete the business of the Company, in which he/she is already a Director, to exploit the mark in order to give the impression to the public at large that he/she has any association or affiliation of the Company in which he/she is still a Director. Subject to the condition and by filing of an affidavit of undertaking that (i) the defendants No.1 and 2 shall not use the mark PARAMOUNT, its goodwill in any manner in its Company – defendant No.2 and shall not poach teachers, students or staff members of defendant No.3 and within two weeks shall remove the word PARAMOUNT from all hoardings, advertisements, brochures and other materials and shall not open any new centre within the range of 100 meters where the centre of defendant No.3 already exists; (ii) she shall furnish the true account from February, 2015 till December, 2015 and every quarterly till the decision of the suit; the first statement would be filed by 15th February, 2016; (iii) she will not create any hurdle in smoothly going of defendant No.3 and she shall perform her fiduciary duties under the Act and sign all the requisite papers of the defendant No.3 and shall not create any hindrance of running business of defendant No.3 directly or indirectly. In case of above said compliance and undertaking, the defendants No.1 and 2 are allowed to continue with the business of defendant No.2. In case of any breach, the plaintiff is entitled to move before Court for modification of order and then the Court may pass any appropriate orders. Mr.Abhimanyu Mahajan, Advocate (Mobile No.9811103447) is appointed as a Local Commissioner to oversee the entire situation as per direction passed by this Court. In case the defendant No.1 wishes to inspect the record of defendant No.3 or attend the meeting or to visit office of the Company for any purposes, she will inform the Local Commissioner so that smooth atmosphere is created in order to avoid any untoward incident as earlier happened. The defendant No.3 and plaintiff shall also maintain the correct accounts and to file before this Court from the date of filing of suit till December, 2015 and continue to file the same every quarterly so that actual figures of profits of defendant No.2 and defendant No.3 be ascertained after trial for adjustment purposes. The fee of the Local Commissioner is fixed at Rs. 60,000/- per visit at this stage which shall be paid by both the parties in equal proportion from the account of defendant No.3, subject to final adjustment.

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• 2016 (2) TMI 133
  Scheme of amalgamation - Having examined the Scheme of Amalgamation, this Court finds nothing prejudicial to the interest of creditors, members of both the Transferor and Transferee Company or to public interest. All required procedures had been followed.

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• Service Tax

• 2016 (2) TMI 174
  Levy of penalty u/s 78 - appellant has admittedly paid the entire service tax with interest before filing ST-3 returns - bonafide error on the part of assessee - waiver of penalty u/s 80 - Held that:- Counsel lastly contended that by virtue of proviso to Section 78, if the tax demand is based on records maintained by the assessee the penalty would be 50% of otherwise imposable. He pointed out that the term specified record used in the said provision has now been defined by including an explanation to Section 78. However, we notice that such a contention was never raised before the Tribunal and being a mixed question of law and facts, we do not permit same before us for the first time. However, if it is open for the appellant to file a rectification application before the Tribunal on such basis, we do not prevent him from doing so. Tax Appeal is therefore dismissed. - Decided against the asessee.

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• 2016 (2) TMI 173
  Import of services - receipt of service charges relating to the export proceeds - SEZ unit - learned single Judge had dismissed the Writ Petitions filed by the appellants making it clear that it would be open to the appellants to avail the alternative remedies available to them, under the relevant provisions of the Finance Act. As such, we are of the considered view that the appellants have not shown sufficient cause or reason for this court to interfere in the common order passed by the learned single judge - Writ petition dismissed.

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• 2016 (2) TMI 172
  Levy of penalty u/s 78 - delayed payment of service tax due to financial hardship - Extended period of limitation - Held that:- The explanation offered by the assessee was not accepted. It was the case of the assessee that unaware of the tax liability, the service tax was not deposited with the department. Had this been the case, the assessee would have surely pleaded that such service tax was never collected from the service recipient. The defence that due to financial hardship such service tax was not paid would firstly destroy the assessee’s case of ignorance of service tax liability. - Levy of penalty confirmed. Simultaneous penalties under Sections 76 and 78 - Held that:- we answer the additional question in favour of the appellantassessee and delete the penalty under Section 76 of the Finance Act, 1994, while upholding the penalty imposed under Section 78 and other penalties. - Decided in favor of assessee.

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• Central Excise

• 2016 (2) TMI 150
  Denial of SSI exemption - demanding duty and imposing penalty - APSL was clearing the goods bearing brand name 'Newman' belonging to other person viz. Newman Valve Industries [NVI] who has applied for registration of the brand name 'Newman' - Held that:- On examining the documents we do not find any substance in the contention put forward by Revenue. As already stated, these documents show that NVPL had applied for registration of trademark. So the brand name Newman does not belongs NVI. NVPL being a company incorporated, and having separate legal identity it cannot be said that merely because Shri Ashwini Sharma has signed the letter or application for registration the brand name 'Newman' would belong to NVI. The appellants have put forward a consistent case from the very beginning denying the fact that brand name 'Newman' belongs to NVI. Further the documents substantiate this contention. In such circumstances, the impugned order passed denying the SSI exemption and demanding duty and imposing penalty is not legal and proper. The same is liable to be set aside. - Decided in favour of assessee

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• 2016 (2) TMI 149
  Reversal of CENVAT credit - clearance of inputs as such or clearance of manufactured product - product received from the job worker - demand of the duty liability with interest was confirmed and penalties were imposed - whether the appellant is required to reverse the Cenvat Credit availed as sought by the revenue authorities or otherwise, on the clearances of the said product? - Held that:- The said product is undergoing the process of removal of moisture is not in dispute. In our considered view, removal of moisture is also a process, as a customer purchases said product from the appellant needs to have specification of non-existence of moisture in the final products for his consumption. Removal of moisture is a process which may be done by traditional method of exposure to heat by spreading the said products in the sun light or in dryers. Be that as it may, removal of moisture is a process that would render the product marketable to their customers cannot be disputed. It is also further to be noted removal of moisture from said product, appellant has to empty from the containers which was received from the job workers, and after removal of moisture, quality test repack them in new containers and label the said product as their own products, which activity falls within ambit of chapter note no. 10 of the chapter 29 and we have to hold that the said product is manufactured by the appellant, it can be seen that the CENVAT credit was correctly availed by the appellant, the duty liability is discharged on the transaction value is correct. To our mind the case of revenue treating the said product as removal of inputs as such, is misconceived. - Decided in favour of assessee.

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• 2016 (2) TMI 148
  Denial of CENVAT credit on MS Plates/ Channels, HR Plates, Bars, Rounds, Joit etc. - demand of CENVAT credit alongwith interest and imposed penalty of equal amount of CENVAT credit - Held that:- The capital goods as defined under Rule 2(a) of the Rules covers the components, spares and accessories of the machinery as specified in Clause (i) and (ii) of the said definition. The eligibility of the Cenvat Credit of capital goods is depending upon the utilisation of the said materials. In the present case, the appellant initially took a stand that these items were used in the machinery. In the Chartered Engineer certificate, it is certified that these items were used as components, spare parts of the machineries. So, it is required that the adjudicating authority should have examined the utilisation of the items and thereafter the order should have been passed. In view of the above discussions, the impugned order is set-aside. The matter is remanded to the adjudicating authority to decide afresh after examining the utilisation of these items.

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• 2016 (2) TMI 147
  Liability of the appellant for higher rate of duty based on the test reports of NTH - Held that:- The purpose of the order was to equalize prices and secure supply of cement through out the country. The object is to see that the price is controlled or in other words to see that it does not go beyond the maximum price fixed. The quality of the cement for this rate is fixed as per the contract entered by appellant with DGS and when there is no evidence to show that appellant sold the cement of higher quality at a higher price, merely on the basis of certain test reports it cannot be concluded that appellant has committed any suppression of facts. There is no evidence to show that the appellant were in receipt of certain test reports indicating higher specific surface of 3500 CM2/g which would have established the case of mis-declaration. When the appellant were not aware of the test reports, there can be no mis-declaration of unknown facts. As such, we find that the demand against the appellant is not sustainable both on merits and on time bar. - Decided in favour of assessee

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• 2016 (2) TMI 146
  Area based exemption - Denial of exemption under notification no.50/2003-CE dated 10.06.2003 - appellant has wrongly mentioned their installed capacity as 30000 Mts. in certain documents - duty demand along with interest and the penalty - Held that:- In this case although the appellant sought proposed annual capacity in the year 1995-96 to 30,-000 MT p.a. but the installed capacity was only 26400 pm. The progress report filed by the appellant for the period June, 2003 with IFCI, shows 5400 MT/PA by way of expansion from 21000 MT to 26400 MT. We also find that audit report by the departmental officers clearly indicates that the licensed capacity and installed capacity of the appellant was 30,000 MT p.a. and 26400 MT. respectively. The letter dated 17.07.2001 issued by the IFCI supplied by CA also proposed that the installed capacity prior to October, 2003 was 26400 MT. We also observe that the ld. Commissioner (Appeals) in another proceedings also held that the installed capacity prior to extension took place in the month of October, 2003 was 26400 MT. and the said order has been accepted by the department. In these set of facts, we also hold that prior to October, 2003 when substantial expansion took place in the factory premises of the appellant the installed capacity was 26400 MT p.m. The installed capacity was increased to 33000 MTs in the month of October, 2003, which is substantial expansion i.e. more than 25% of the installed capacity. In that circumstances, the appellant is entitled for the benefit of the duty free under exemption notification no.50/2003-CE dated 10.06.2003. Therefore, the duty cannot be demanded from the appellant. - Decided in favour of assessee.

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• 2016 (2) TMI 145
  Excess amount towards freight charges recovered from the buyers than the amount actually incurred - demand central excise duty - assessable value subjected to levy - whether freight is not part of the assessable value when the sales are effected at the factory gate? - Held that:- There is no allegation to the effect that the price mentioned in the purchase orders are not true transaction value and certain extra consideration is received towards the sale of such excisable goods. Certain amount is specifically agreed upon by the appellant and the buyer towards freight for transportation of the goods to the buyer’s premises. The variation in actual cost of transportation has no relevance so as to effect the ex factory transaction value. The Hon'ble Supreme Court in the case of Indian Oxygen Ltd. (1988 (7) TMI 58 - SUPREME COURT OF INDIA ) held that if the ex factory is ascertainable, the cost of transportation or transit expenses were not to be considered as they have nothing to do with the manufacture of goods. When the price at factory gate is available, any extra amount collected in transportation charges cannot be considered for addition. In the case of Filament India Vs. CCE, Jaipur reported in (2003 (6) TMI 110 - CESTAT, NEW DELHI ), the Tribunal held that when the sale and delivery take place at the factory gate and freight charges, which are in relation to an independent transaction is mentioned separately in the invoices, the amount of freight has no relevance for valuation purposes. Considering the above discussion, we find that there is no justification for any addition to the ex factory transaction value in the present case. We accordingly set aside the impugned order and allow the appeal with consequential relief, if any. - Decided in favour of assessee

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• 2016 (2) TMI 144
  Reversal of credit during the defaulted period from Cenvat Account - Failure to discharge the duty liability on enrichment basis at the time of removal of goods, without utilizing the CENVAT credit - Constitutional validity of Rule 8(3A) of the Central Excise Rules 2002 - duty demand alongwith interest and to impose penalty - Held that:- The short payment of Rs. 44,462.00 for the month of June 2013 is a bonafide mistake on the part of the appellant. It is noted that the appellant detected the mistake and reversed the amount alongwith interest. Thereafter, the Central Excise Officers visited the appellant's factory and directed the appellants to debit the amount of Rs. 10,09,097.00 from PLA, which was debited and re-credited by the appellant in the same month. The Adjudicating Authority observed that the appellant wrongly utilized the amount of Rs. 44,09,029.00 from the Cenvat Credit Account in contravention of Rule 8 (3A) of the Valuation Rules, 2002. The Hon'ble Gujarat High Court in the case of Indsur Global Ltd. vs Union of India (2014 (12) TMI 585 - GUJARAT HIGH COURT ) held that the condition contained in Sub Rule (3A) of the Rule 8 for payment of duty without utilizing Cenvat Credit till an assessee pays the outstanding amount including interest is declared unconstitutional. Therefore, the portion "without utilizing the Cenvat Credit" of Sub Rule (3A) of Rule 8 of the said Rules 2002 shall be rendered invalid. So, the demand of amount paid by utilizing CENVAT credit during the defaulted period is not sustainable. In the present case, the entire proceeding was initiated for contravention of Rule 8 (3A) of the said Rules for payment of duty from Cenvat Account during the defaulted period. The Hon'ble Gujarat High Court already struck down the portion of the Rule 8 (3A) of the said Rules, and therefore, the impugned order cannot survive. - Decided in favour of assessee

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• 2016 (2) TMI 143
  Extended period of limitation - charge of suppression - Held that:- Nothing was asked from the appellant. Only on 8.4.2008, first time the sale invoice of the chassis manufacturer was asked from the appellant as the same was not in possession of the appellant, the appellant showed their inability to provide the same and thereafter they summoned to the chassis manufacturer to provide such details which were provided. As the sale invoice of the chassis manufacturer was not in possession of the appellant, therefore, the appellant was not in a position to provide the same to the department. In that way, it cannot be said that as the appellant has not supplied the complete details regarding the sale price of the chassis manufacturer and same attracts to suppression, therefore, the charge of suppression stands not proved The extended period of limitation is not invokable at all. Therefore, the demand pertaining to the period prior to March, 2008 are held as barred by limitation. - Decided in favour of assessee

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• CST, VAT & Sales Tax

• 2016 (2) TMI 136
  Demand of VAT on Kerosene for Public Distribution System - Unreported sale due to deceit and fraud committed by the erstwhile staff - However, the learned counsel for the petitioner though raised various grounds on legality, seeks indulgence of this Court for providing them an opportunity for producing documentary evidences along with detailed reply to the notice already issued. Since the partner Mr.Kamalakumar suddenly passed away, this Court is inclined to consider the request made by the learned counsel for the petitioner in the interest of justice. - Matter remanded back.

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• 2016 (2) TMI 135
  Demand of tax on the basis of Customs Data without providing documents and opportunity to the assessee - TNVAT with CST - Held that:- When such being the case, without furnishing the relied documents, the respondent cannot pass an order, which is against the principles of natural justice. The rights of the petitioner to offer explanation/objections would be prejudiced, if those documents are not furnished, despite specific request was made. This Court finds considerable force in the stand taken by the learned counsel appearing for the petitioner. - Matter remanded back.

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• Wealth tax

• 2016 (2) TMI 151
  Whether the land held for business purposes would be liable for wealth tax - assessee had held the unused urban land for its hotel industry purposes and started construction activities thereon commencing from Asst Year 1999-2000 onwards after carrying out the activities of land filling, leveling , earth filling, soil testing etc for the purpose of construction of hotel building. Held that:- The approval for construction of hotel building was obtained by the assessee and ultimately the hotel business had commenced in Asst Year 2005-06. The subsequent conduct of the assessee of finally completing the construction of hotel strengthens its original stand of urban land meant to be utilized for the purpose of hotel business. Hence the intention of the assessee to utilize the urban land only for the purpose of its hotel business is proved beyond doubt by the subsequent activities of the assessee. The urban land is not liable for wealth tax - Decided in favor of assessee.

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• Indian Laws

• 2016 (2) TMI 132
  Interplay between the Sick Industrial Companies (Special Provisions) Act, 1985 and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Whether the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 prevails over the Sick Industrial Companies (Special Provisions) Act, 1985? - Whether the expression “where a reference is pending” in Section 15 (1) proviso 3 of the Sick Industrial Companies (Special Provisions) Act, 1985 would include all proceedings before the BIFR or only proceedings at the initial reference stage Held that:- Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 will continue to apply in the case of unsecured creditors seeking to recover their debts from a sick industrial company. This is for the reason that the Sick Industrial Companies (Special Provisions) Act, 1985 overrides the provisions of the Recovery Of Debts Due To Banks And Financial Institutions Act, 1993. Where a secured creditor of a sick industrial company seeks to recover its debt in the manner provided by Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, such secured creditor may realise such secured debt under Section 13(4) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, notwithstanding the provisions of Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985. In a situation where there are more than one secured creditor of a sick industrial company or it has been jointly financed by secured creditors, and at least 60 per cent of such secured creditors in value of the amount outstanding as on a record date do not agree upon exercise of the right to realise their security under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 will continue to have full play. Where, under Section 13(9) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, in the case of a sick industrial company having more than one secured creditor or being jointly financed by secured creditors representing 60 per cent or more in value of the amount outstanding as on a record date wish to exercise their rights to enforce their security under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985, being inconsistent with the exercise of such rights, will have no play. Where secured creditors representing not less than 75 per cent in value of the amount outstanding against financial assistance decide to enforce their security under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, any reference pending under the Sick Industrial Companies (Special Provisions) Act, 1985 cannot be proceeded with further – the proceedings under the Sick Industrial Companies (Special Provisions) Act, 1985 will abate. In conclusion, it is held that the interim order dated 17.1.2004 by the Delhi High Court would not have the effect of reviving the reference so as to thwart taking of any steps by the respondent creditors in this case under Section 13 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. This is because the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 prevails over the Sick Industrial Companies (Special Provisions) Act, 1985 to the extent of inconsistency therewith. Section 15(1) proviso 3 covers all references pending before the BIFR, no matter whether such reference is at the inquiry stage, scheme stage, or winding up stage. The Orissa High Court is not correct in its conclusion on the interpretation of Section 15(1) proviso 3 of the Sick Industrial Companies (Special Provisions) Act, 1985. This being so, it is clear that in any case the present reference under Section 15(1) of the Appellant No. 1 company has abated inasmuch as more than 3/4th of the secured creditors involved have taken steps under Section 13(4) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. The appeals are accordingly dismissed.

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