TMI Tax Updates - e-Newsletter
March 1, 2021

Case Laws in this Newsletter:

GST Income Tax Customs Corporate Laws Insolvency & Bankruptcy Service Tax Central Excise CST, VAT & Sales Tax

Articles

1. UNION BUDGET 2021-22 : WHAT IT HOLDS

   By: Dr. Sanjiv Agarwal

2. Income Tax Search and Seizure: Understanding the gamut of Dumb Documents unearthed in an Income Tax Search and Seizure action

   By: MOHIT GUPTA

News

1. Shri Piyush Goyal addresses the FICCI Higher Education Summit;

2. Sovereign Gold Bond Scheme 2020-21 (Series XII) – Issue Price

3. Finance Minister Smt. Nirmala Sitharaman attends virtual G20 Finance Ministers and Central Bank Governors Meeting

4. 2nd Advance Estimates of National Income 2020-21 and Estimates of Q3

Notifications

Customs

1. 25/2021 - dated 26-2-2021 - Cus (NT)

Tariff Notification in respect of Fixation of Tariff Value of Edible Oils, Brass Scrap, Poppy Seed, Areca nut, Gold & Silver

2. 22/2021-Customs (N.T./CAA/DRI) - dated 24-2-2021 - Cus (NT)

Amendment in Notification No.28/2020-Customs (N.T./CAA/DRI) dated 24.06.2020

GST - States

3. CT/LEG/GST-NT/12/17/2416 - 16/2020 - dated 30-12-2020 - Nagaland SGST

Seeks to extend the time limit for furnishing of the annual return

4. F.NO.FIN/REV-3/GST/1/08 (Pt-1) (Vol II)/31 - dated 22-12-2020 - Nagaland SGST

Seeks to waive late fee for FORM GSTR-4 filing in UT

5. F.NO.FIN/REV-3/GST/1/08 (Pt-1) (Vol II)/29 - dated 22-12-2020 - Nagaland SGST

Seeks to bring into force Section 11 of the Nagaland Goods and Services Tax (Fourth Amendment) Ordinance, 2020

6. F. NO. FIN/REV-3/GST/1/08 (Pt-1) (Vol II)/32 - dated 22-12-2020 - Nagaland SGST

Seeks to bring into force Sections of Nagaland Goods and Services Tax (Fourth Amendment) Ordinance, 2020

7. F. NO. FIN/REV-3/GST/1/08 (Pt-1) (Vol II)/30 - dated 22-12-2020 - Nagaland SGST

Seeks to bring into force Sections of Nagaland Goods and Services Tax (Fourth Amendment) Ordinance, 2020

8. F. NO. FIN/REV-3/GST/1/08 (Pt-1) (Vol II)/28 - dated 14-12-2020 - Nagaland SGST

Seeks to extend the due dates for compliances and actions in respect of anti-profiteering

Income Tax

9. 09/2021 - dated 26-2-2021 - IT

Direct Tax Vivad se Vishwas Act, 2020 - Extension of specified time limits -Amendment in Notification No. 85/2020, dated the 27th October, 2020

Circulars / Instructions / Orders

FEMA

1. 12 - dated 26-2-2021

Investment by Foreign Portfolio Investors (FPI) in Defaulted Bonds - Relaxations

DGFT

2. 40/2015-20 - dated 25-2-2021

Amendment in Appendix 1B, Hand Book of Procedure 2015-20

Highlights / Catch Notes

GST

• Liaison Office in India Not Required to Register for GST; Services Considered Self-Rendered u/s 7(1)(a) CGST Act.

  Case-Laws - AAAR : Supply of services or not - GST on services provided by liaison office - requirement of registration of liaison office - Since the parent company in Germany and the Appellant in India cannot be treated as separate persons but as one legal entity, the liaison activity performed by the Appellant for the parent company is in the nature of a service rendered to self A service rendered to oneself does not come within the purview of 'supply' under GST. Therefore, the activities of the Appellant as a liaison office does not amount to a supply of service. The activities of the liaison office are not a 'supply' under Section 7(1)(a) of the CGST Act and will also not be covered under the ambit of clause 2 of Schedule I of the said Act. - AAAR
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Income Tax

• Reopening Tax Assessment: Non-Compete Fees Disallowance u/s 147 Due to Incomplete Disclosure by Petitioner.

  Case-Laws - HC : Reopening of assessment u/s 147 - Disallowance of non - compete fees - Valuation in the Agreement has not been clearly explained by the petitioner. In the above background, it is to be noted that when the detailed questionnaire was issued by the Assessing Officer under Section 143(2) of the Income Tax Act, 1961 to the petitioner, in its reply dated 25.01.2005, the petitioner did not make true and full disclosure inasmuch as reference to Clause 2.4 of the II Agreement dated 17.08.2002 was not made. - HC
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• Court Discusses Reopening of Assessment u/s 147: Supporting Documents Needed to Verify Contract Terms for Revenue.

  Case-Laws - HC : Reopening of assessment u/s 147 - What was the term of the contract under which the revenue was generated or the bill raised on a client or a customer cannot be certified in the Audited Profit and Loss Account and the Balance Sheet. At best, they can corroborate what is there in the contract. Therefore, unless those supporting documents are produced, it cannot be said that there was full disclosure. - No justifiable reasons to interfere at this stage of the re-assessment proceedings. - HC
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• Orders u/s 92CA(3) invalid due to missed deadline; issued one day late after 21-month statutory period.

  Case-Laws - HC : Orders passed u/s 92CA(3) barred by limitation by one day - The period of 21 months therefore, expires on 31-12-2019 that must stand excluded since Section 92CA(3A) states 'before 60 days prior to the date on which the period of limitation referred to Section 153 expires'. Excluding 31-12-2019, the period of 60 days would expire on 1-11-2019 and the transfer pricing orders thus ought to have been passed on 31-10-2019 or any date prior thereto. Incidentally, the Board, in the Central Action Plan also indicates the date by which the Transfer Pricing orders are to be passed as 31-10-2019. The impugned orders are thus, held to be barred by limitation. - HC
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• Interest Expenditure Disallowance Unwarranted Due to Minor Rate Difference u/s 40A(2)(b) of Income Tax Act.

  Case-Laws - AT : Disallowance of interest expenditure by applying provisions of section 40A(2)(b) - Specified / Related parties - Difference between the interest paid by assessee at 15% and the reasonable rate of interest ultimately allowed by learned Commissioner (Appeals) at 13.73% works out to a negligible amount of 1.27%. That being the case, in my considered opinion, the provisions of section 40A(2)(b) would not be applicable in the present case - AT
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• AO's 10% Expenditure Addition Overruled: No Errors Found, Accounts Audited and Accurate, Section 145 Not Invoked.

  Case-Laws - AT : Addition being 10% of all the Direct & Indirect expenditure - AO has not pointed out any mistake in any of the bills/vouchers. Since, the accounts of the assessee are audited and the auditors have not pointed out any discrepancy and since the books of accounts were also produced before the CIT(A) and no discrepancy was found by him and considering the fact that books were also not rejected by the Assessing Officer by invoking the provisions of section 145 of the Act, therefore, no ad-hoc disallowance is called for. - AT
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• Interest Charged u/s 158BFA(1) Limited to Original Assessment Order Date; No Extensions Allowed Beyond Completion.

  Case-Laws - AT : Interest u/s 158BFA(1) - the interest u/s 158BFA(1) should be charged upto the date of original assessment order, i.e., the expression “date of completion of assessment under clause (c) of sec. 158BC” should mean the original assessment order only. We further notice that there is no provision under the Act to extend charging of interest beyond the date of completion of the original assessment proceedings. - AT
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• No Penalty for Minor Discrepancy in 26AS Form; Taxpayer's Conduct Not Contumacious, Section 271(1)(c) Inapplicable.

  Case-Laws - AT : Penalty u/s 271(1)(c) - there is small difference between 26AS and income returned. This is also very minor and the assessee does not deserve to be visited with the rigour of penalty. We are of the considered opinion that assessee's conduct is not contumacious and his claims are not mala fide. Hence, assessee should not be visited with rigour of penalty - AT
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• Penalty u/s 271G deemed unjustifiable due to diamond industry's unique challenges; reasonable cause u/s 273B acknowledged.

  Case-Laws - AT : Penalty u/s 271G - assessee failed to furnish documents as required under the Rule 10D(1) in respect of the international transactions - considering the reasonable cause for non-furnishing of the segmental details of the AE transactions and non-AE transactions because of the peculiar nature of the trade in diamond industry, penalty u/s. 271G even otherwise could not have been imposed as per the mandate of Sec. 273B. - AT
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• Court Rejects Revised Cash Book; Discrepancies Between Recorded and Physical Cash Lead to Additions Being Confirmed.

  Case-Laws - AT : Difference in cash as per cash book and physical cash - The assessee made up the cash book later on to present that there was no difference. However, nothing of this sort was stated at the time of survey that the cash book was not complete or certain transactions were omitted to be recorded.Contention of the assessee for the acceptance of books of account produced after the date of survey, cannot be countenanced - Additions confirmed - AT
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Customs

• Customs Broker's License Revoked, Security Deposit Forfeited; Earlier Entries Not Enough to Prove CBLR Violation.

  Case-Laws - AT : Revocation of Customs Broker License - forfeiture of security deposit - illegal removal of container / goods - For the mere reason that the appellant had filed earlier bills of entry for M/s. Sky and Sea Exports cannot be a ground to hold that the appellant has violated provisions of CBLR when the goods relating to the 10 bills of entry have been cleared and without any compliants. - AT
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• Discrepancy in Imported Goods Valuation: Penalties Imposed Due to Courier's Oversight, No Malafide Intent Found.

  Case-Laws - AT : Valuation of imported goods - difference between value as per proforma Invoice and actual value - no case of any malafide is made out against the appellant. At best, it is the mistake of the authorised courier who was not vigilant at the time of booking of the courier parcel to ensure the correct declaration by the shipper. - No case of any collusion is made out against the appellant shipper and /or against the courier - thus, penalty have been imposed mechanically without proper appreciation of the facts and the law applicable. - AT
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IBC

• Bank Guarantee Can Be Invoked During IBC Moratorium u/s 14(3)(b); Surety's Assets Separate from Corporate Debtor's.

  Case-Laws - AT : IBC - Invoking Bank Guarantee - Corporate Debtor has issued bank guarantee for ensuring the price of goods. The bank guarantee is irrevocable and unconditional and payable on demand without demur. The assets of the surety are separate from those of the corporate debtor, and proceedings against the corporate debtor may not be seriously impacted by the actions against assets of third party like surety. Bank guarantee can be invoked even during moratorium period issued u/s 14 of the IBC in view of the amended provision under section 14 (3)(b) of the IBC - AT
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• Operational creditor's CIRP bid rejected for failing Section 14, Limitation Act conditions; no Section 5 relief for delay.

  Case-Laws - AT : Initiation of CIRP by Operational Creditors - the Appellant has not fulfilled any of the conditions enumerated in Sub-Section 2 of Section 14 of the Limitation Act - thus it is not correct to accept the contention of the Appellant that the winding-up petition No.6 of 2015 was dismissed on the ground of mis-joinder of parties, and the benefit of Section 14 of the Limitation Act, 1963 cannot be allowed to appellant. - Relaxation under Section 5 of the Limitation Act, 1963 cannot be allowed for unexplained period of about two years and ten months. - AT
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Service Tax

• Service Tax on Liquidated Damages: Authorities to Reexamine Definitions Under Indian Contract Act, 1872.

  Case-Laws - AT : Levy of service tax - receipt of liquidated damages for compensating the appellant against the poor quality of material supplied - Both the authorities also have not dealt with the distinction between the ‘liquidated damage’ as claimed to have received by the appellant and the ‘consideration’, which department want to impose. Both the terms have been defined legally separately in the Indian Contract Act, 1872. - Matter restored back - AT
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Central Excise

• Early Hearing Dismissed: Appellants Fail to Show Financial Hardship u/s 35F in Central Excise Case.

  Case-Laws - AT : Waiver of pre-deposit - Application for early hearing - Can there be any ground for early hearing to be granted when the appellants/counsel for appellants, have them sought adjournment to the hearing of application for early hearing for more than six months? - There are no merits in the application made as the same is not supported by any documents of financial hardship etc. Further how can there be any financial hardship in view of the provisions of Section 35F - the application for early hearing is dismissed - AT
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Case Laws:

• GST

• 2021 (2) TMI 1164
  Supply of services or not - activities of a liaison office - requirement of registration of liaison office - liability of liaison office to pay GST - HELD THAT:- Establishment of a liaison office in India by foreign entities is regulated in terms of Section 6(6) of the Foreign Exchange Management Act (FEMA), 1999. The FEMA defines Liaison Office as a place of business to act as a channel of communication between the Principal place of business or Head Office by whatever name called and entities in India but which does not undertake any commercial / trading / industrial activity, directly or indirectly, and maintains itself out of inward remittances received from abroad through normal banking channel . A body corporate incorporated outside India (including a firm or other association of individuals) desirous of opening a liaison office in India has to obtain permission from the Reserve Bank of India under the provisions of FEMA, 1999. In this case, the Appellant has been granted permission by RBI vide letter dated 11-06-2014 to act as a liaison office for its Head office in Germany. We find from the records that the parent company in Germany is engaged in promoting applied research and development for the benefit of industry and society. The RBI permission has been obtained to set up a liaison office in Bangalore. As per the RBI permission, the liaison office shall undertake only permissible activities as mentioned in Schedule II of FEMA Notification No 22/2000 RB dated 3rd May 2000 as amended - The RBI permission is subject to the condition that the liaison office will not generate income in India and will not engage in any trade/commercial activity. Annexure I to the RBI permission dated 11-06-2014 lists out the terms and conditions for approval of establishing the liaison office in India. Since the parent company in Germany and the Appellant in India cannot be treated as separate persons but as one legal entity, the liaison activity performed by the Appellant for the parent company is in the nature of a service rendered to self A service rendered to oneself does not come within the purview of supply under GST. Therefore, the activities of the Appellant as a liaison office does not amount to a supply of service. The activities of the liaison office are not a supply under Section 7(1)(a) of the CGST Act and will also not be covered under the ambit of clause 2 of Schedule I of the said Act. Requirement of registration under GST - HELD THAT:- Section 22 of the CGST Act mandates that every supplier who makes a taxable supply of goods or services or both, whose aggregate turnover in a financial year exceeds Rs. 20 lakhs is required to be registered in the State from where he makes the taxable supply. The term taxable supply is defined in Section 2(108) of the CGST Act to mean a supply of goods or services or both which is leviable to tax under this Act - the activities of the liaison office do not amount to a supply under GST. Hence, there is no taxable supply and there is no requirement for obtaining a GST registration or payment of GST. When the liaison office is not required to be registered under GST, the question of whether they are a distinct person or establishment of distinct person is irrelevant.

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• 2021 (2) TMI 1160
  Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 - impugned show cause notice for the same period has been issued, demanding further amounts from the petitioner towards CGST - It is the contention of petitioner that under Section 129(1) of the Finance Act, 2019, after the issuance of discharge certificate, such notice could not have been issued - HELD THAT:- Issue notice. List on 15th March, 2021.

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• 2021 (2) TMI 1159
  Erroneous impleadment of Authority under the Central Goods and Services Tax as respondent, instead of the State Authority - HELD THAT:- Issue notice. List on 25th March, 2021.

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• 2021 (2) TMI 1156
  Maintainability of application - final order of confiscation in Form GST-MOV 11 has already been passed - HELD THAT:- It needs to be noted that the writ applicant herein is a purchaser of the goods in question. The MOV-11 order has been passed against the seller. According to Mr. Kathiriya, the learned AGP, the whereabouts of the seller are not known to the Department. In such circumstances, the only remedy now available for the writ applicant is to recover the amount paid, if any, to the seller in accordance with law - Application disposed off.

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• Income Tax

• 2021 (2) TMI 1163
  Advance ruling application u/s 245N - eligibility of deduction under section 80IA - no notice under section 143(2) for the A. Y. 2019-20 issued - Revenue has submitted that the application may not be admitted for the reason that the issue raised in the application was already pending before the Income-tax Authority - HELD THAT:- In the present case, the notice under section 143(2) for AY 2018-19 was issued prior to the filing of the present application which had raised the very specific question of Deduction Claimed for Industrial Undertaking u/s 80IA which was subject matter of the present application. As regards objection of the Applicant that no specific issue of pendency was raised in the report of the PCIT, the matter of pendency of the issue before any Income-tax Authority is required to be decided by the Authority while adjudicating the issue of admission of the application. Therefore, the issue of pendency can be brought to our notice even in the course of hearing and which has been done by Ld. DR in this case. Rather the conduct of the Applicant is not found transparent in this case as the fact regarding prior issue of notice under section 143(2) for A.Y. 2018-19 was not mentioned in the application filed before the Authority. As the said notice was received prior to filing of the application the Applicant should have disclosed this fact in the application and the left the issue of pendency for our adjudication. No notice under section 143(2) for the A. Y. 2019-20 - It is found that in the questions raised before us no assessment year is mentioned. Further, the eligibility of deduction under section 80IA has to be decided in the first year of claim. Once the claim is found eligible in the first year of claim the taxpayer is entitled for deduction in all the subsequent years and vice versa. Further, as per the provisions of the Act, it is not necessary that the issues raised in the application should be pending in all the years involved. Even if the issue is pending in a single year, it makes the application ineligible for admission under clause (i) of proviso to section 245R(2) of the Act. Issue involved in the questions raised in the present application filed before us was already pending before the Income-Tax Authority and the bar in terms of clause (i) of Proviso to Section 245R (2) is found attracted in this case. Therefore, the application is not admitted and consequently rejected.

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• 2021 (2) TMI 1162
  Reopening of assessment u/s 147 - Disallowance of non - compete fees - Whether amount incurred towards a sum under two agreements to the two companies was towards non compete fees for a short period and therefore were in the nature of a revenue expenditure? - HELD THAT:- As earlier a collaboration agreement dated 07.11.1977 was entered into between the petitioner and the Chicago Pneumatic Tool Company which had granted a license and know how to manufacture and sell the specified products which was being transferred permanently. Clause 2.4 which has been extracted above also seems to indicate that the license granted by the Chicago Pneumatic Tool Company to the petitioner was perpetual and that the petitioner was free to license the right to manufacture and sell the specified products and to disclose, impart and supply the know how received by it under the Collaboration Agreement to any person. Valuation in the Agreement has not been clearly explained by the petitioner. In the above background, it is to be noted that when the detailed questionnaire was issued by the Assessing Officer under Section 143(2) of the Income Tax Act, 1961 to the petitioner, in its reply dated 25.01.2005, the petitioner did not make true and full disclosure inasmuch as reference to Clause 2.4 of the II Agreement dated 17.08.2002 was not made. Though it was submitted that the Indian Company, namely Atlas Copco India Limited had paid a sum of Rs. 15 Crores to the petitioner, it is noticed from the Annual Report filed for the financial year ending on 31.03.2005 that only a sum of Rs. 1,50,000/- was paid under the II Agreement dated 17.08.2002. Further, it is also not clear whether the tax was indeed paid in the returns filed for the previous year 2004-2005/for the Assessment Year 2005-2006 as the total income declared was about Rs. 9 Crores. Therefore, there are also disputed questions of facts involved in the present case as to whether the tax has been paid by the petitioner during the succeeding assessment years. In our view, the decision of the Hon ble Supreme Court in Indi-Aden Salt Mfg. Trading Co. (P.) Ltd. Vs. Commissioner of Income Tax [ 1986 (3) TMI 342 - SUPREME COURT ] cited by the learned counsel for the respondent squarely applies to the facts of the present case. I therefore conclude that the respondent had correctly invoked the jurisdiction under Section 148 for the purpose of Proviso 2 to Section 147 of the Income Tax Act, 1961.

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• 2021 (2) TMI 1161
  Reopening of assessment u/s 147 - it is the contention of the Income Tax Department that the method followed by the petitioner has not disallowed the correct income - HELD THAT:- The petitioner is engaged in supply and installation of paint booth for automobile companies. The petitioner has adopted mercantile method of accounting which is one of the recognized method for the purpose of recognition of income under the Income Tax Act, 1961. The law on the subject is also clear. Every assessee is entitled to arrange its affair and follow the method of accounting which the department has earlier accepted. According to the petitioner, the method adopted by the petitioner has been accepted for the Assessment Years 2010-11, 2012-13, 2014-15 and thereafter. As per outcome of a construction contract can be estimated reliably, contract revenue and contract cost associated with the construction contract should be recognised as revenue and expenses respectively by reference to the stage of completion of the contract activity at the reporting date. Petitioner may have entered into several contracts with different clients with varied terms and conditions. These documents are required to be produced before the Assessing Officer at the time of assessments. The purpose of accounting under the Income Tax Act, 1961 is to ascertain the taxable income and to determine the tax payable by an assessee. Therefore, these documents and other ancillary documents are required to be produced before an AO or ITO during the assessment. A Proper Certification whether by an In-House Department of the Assessee or by an Independent Chartered Engineer certifying the percentage of work completed under the contract was required to be produced by the assessee before the Income Tax Officer for the purpose of assessment. What was the term of the contract under which the revenue was generated or the bill raised on a client or a customer cannot be certified in the Audited Profit and Loss Account and the Balance Sheet. At best, they can corroborate what is there in the contract. Therefore, unless those supporting documents are produced, it cannot be said that there was full disclosure. The enclosures filed before the Assessing Officer at the time of Section 143(3) Assessment do not indicate the same. Therefore, it cannot be said that there was true and full disclosure of all materials that were required for assessment before the Assessing Officer by the petitioner. At the same time, it is to be noticed that the reasons given in the communications dated 05.11.2018 for reopening the respective assessment have merely questioned the method of accounting adopted by the petitioner and show it was issued in a mechanical manner. As per Explanation 1 to Section 147 of the Income Tax Act, 1961, production before the Assessing Officer of the account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of Section 147 of the Act. In fact, Explanation incorporates the reasons given in the decision of the Hon ble Supreme Court in Calcutta Discount Co. Ltd. Vs. Income Tax Officer, [ 1960 (11) TMI 8 - SUPREME COURT] Conclusions arrived in the impugned communications dated 26.11.2018 overruling the objections of the petitioner for the reopening of the assessments by the impugned notices are not conclusive. They are only prima facie views of the Assessing Officer. It is for the petitioner to establish that it has correctly followed the accounting method by producing the supporting documents to substantiate the percentage of work that was completed for the purpose of proper determination of taxable turnover for payment of income tax. Mere disclosure in the Profit and Loss Account and Balance Sheet is not sufficient. No justifiable reasons to interfere at this stage of the re-assessment proceedings. Therefore, the first respondent is therefore directed to complete the re-assessment after examining the documents to be produced by the petitioner and pass reassessment orders on merits. The petitioner is therefore directed to file documents to substantiate its cases before the first respondent within a period of thirty days from date of receipt of a copy of this order. The first respondent shall pass orders within a period of 60 days thereafter.

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• 2021 (2) TMI 1158
  Deduction u/s 80HHC - Tribunal reversing the order of the first appellate authority and restoring that of the Assessing Officer for excluding receipts arising in the core business and not specified in Explanation (baa) to Section 80 HCC - HELD THAT:- Receipts constituting independent income had no nexus with exports were required to be reduced from business profits under Clause (baa). A bare reading of Clause (baa)(1) indicates that receipts by way of brokerage, commission, interest, rent, charges etc. formed part of gross total income being business profits. On a reading of all the variables, it becomes clear that every receipt may not constitute sale proceeds from exports and every receipt is not income under the Income Tax Act and every income may not be attributable to exports. In the case on hand, the insurance claim and miscellaneous income have no nexus with the assessee s business. Since there is no nexus, the Tribunal rightly reversed the order of the appellate authority restoring that of the Assessing Officer for excluding receipts arising in the core business and not specified in Explanation (baa) to Section 80 HCC. The insurance claim and miscellaneous income are not directly attributable to the business, hence, they are liable for 90% deduction. The ratio laid down by the Hon ble Supreme Court in the judgment [ 2007 (11) TMI 10 - SUPREME COURT] squarely applies to the facts and circumstances of the present case. Though there is no dispute with regard to the ratio laid down in the judgments relied upon by the learned counsel for the appellant, since the facts and circumstances of the present cases are different, the same are not applicable. No substantial question of law.

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• 2021 (2) TMI 1153
  Rectification u/s 254 - Tribunal had erred in disallowing the depreciation claimed by assessee in the revised return of income and therefore rectification of the error was required - HELD THAT:- There was no issue of depreciation involved in the Misc. Petition filed by the assessee and the Tribunal has stated that assessee has not claimed depreciation which is nobody s case. The above Order prima facie establishes that there is improper application of judicial mind in respect of the matters in issue and therefore, needs to be set aside and matter requires to be remanded to the Tribunal for fresh consideration in accordance with law. Appeal is allowed.

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• 2021 (2) TMI 1152
  Orders passed u/s 92CA(3) barred by limitation by one day - Assessments are to be completed within the limitation set out in Section 153 - HELD THAT:- The provisions of Section 144C prescribe mandatory time limits both pre and post the stage of passing of a transfer pricing order. Assessments involving transfer pricing issues are different and distinct from regular assessments and the intention of Legislature is to fast track such assessments. Bearing in mind the specialized nature of such assessments, a separate set of Officers attend to the framing of assessments and the DRP has been constituted for redressal of disputes involving TP issues, in a timely fashion. In this scheme of things, unable to accept the submission that the period of 60 days stipulated for passing of an order of transfer pricing, is only directory or a rough and ready guideline. This argument is rejected. How the 60 day period is to be computed - whether the period of 60 days would be computed including the 31st of December or excluding it? - Section 153 states that no order of assessment shall be made at any time after the expiry of 21 months from the end of the assessment year in which the income was first assessable. The submission of the revenue is to the effect that limitation expires only on 12 a m of 1-1-2020. However, this would mean that an order of assessment can be passed at 12 a m on 1-1-2020, whereas, in my view, such an order would be held to be barred by limitation as proceedings for assessment should be completed before 11.59.59 of 31-12-2019. The period of 21 months therefore, expires on 31-12-2019 that must stand excluded since Section 92CA(3A) states before 60 days prior to the date on which the period of limitation referred to Section 153 expires . Excluding 31-12-2019, the period of 60 days would expire on 1-11-2019 and the transfer pricing orders thus ought to have been passed on 31-10-2019 or any date prior thereto. Incidentally, the Board, in the Central Action Plan also indicates the date by which the Transfer Pricing orders are to be passed as 31-10-2019. The impugned orders are thus, held to be barred by limitation.

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• 2021 (2) TMI 1148
  Disallowance of interest expenditure by applying provisions of section 40A(2)(b) - assessee submitted, the assessee has paid 15% interest on the unsecured loan availed from related parties because they are long term loans compared to short term loans availed from unrelated parties - whether the interest paid by the assessee to the related parties can be considered to be excessive or unreasonable having regard to the fair market value of interest in terms of section 40A(2)(b) ? - HELD THAT:- Rate of interest normally charged by commercial banks on loan varies between 12% to 20%. Further, it cannot be denied that if the assessee would have availed loan from banks and financial institutions, apart from paying higher rate of interest it would have paid additional cost by way of processing charges and would also have been required to furnish collaterals to secure the loan. Whereas, while availing loan from the related parties, which are stated to be long term loans, the assessee neither has to pay any additional cost nor has to furnish any collaterals. Thus, the assessee is rather in an advantageous position as the related parties always run the risk of not being able to recover the loan in case of default. Considering the aforesaid factors, interest paid by the assessee @15% to the related parties cannot be said to be excessive or unreasonable having regard to the fair market value of the goods, services or facility for which the payment is made, in terms of section 40A(2)(b). Difference between the interest paid by assessee at 15% and the reasonable rate of interest ultimately allowed by learned Commissioner (Appeals) at 13.73% works out to a negligible amount of 1.27%. That being the case, in my considered opinion, the provisions of section 40A(2)(b) would not be applicable in the present case. - Decided in favour of assessee.

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• 2021 (2) TMI 1146
  TP Adjustment in the Manufacturing activities - Depreciation adjustment - first disputed item of operating costs is a claim for adjustment on account of depreciation - DRP ruled in this regard directing the AO/TPO that `depreciation adjustment should be worked out in the hands of the comparables and not for the assessee. Giving effect to such a direction, the TPO computed the mean PLI of comparables at 6.74% as against originally computed at 6.70% in the consequential order - HELD THAT:- Depreciation cost in the case of the assessee forming part of its operating costs base gets neutralized with the rent cost in the cost base of the comparables. Having taken the figure of operating profit as numerator, both in the case of the assessee and the comparables, one cannot again go back to the individual items of operating expenses/incomes culminating into the overall operating profit for claiming that adjustment on account of individual particular higher or lower expense/income should be granted. The same rationale of different items of expenses, such as depreciation and rent in the above illustration, not impacting the overall operating profits for comparison, applies to the composition of individual items of expenses also, such as depreciation in our case. Thus the contention of the ld. AR seeking depreciation adjustment on the ground that some of the items of assets possessed by the assessee did not appear in the schedule of assets of the comparables, is sans merit. Depreciation claim includes depreciation on certain Intangible assets - Claim of the assessee is that depreciation on the Intangible Assets, listed on page 372 of the paper book, should be ignored, as it is alien to the Manufacturing activity and hence do not qualify under sub-clause (i) of Rule 10B(1)(e). A list of six Intangible assets has been given, out of which the dispute is only w.r.t. five items, viz., Goodwill, Computer software, Noncompete fees, Technical knowhow and Customer relationships. It is evident and also admitted on behalf of the assessee that the first three intangible assets, namely, Goodwill Computer software and Non-compete fees are common to both the Manufacturing and Trading activities of the assessee. As such, depreciation on these three items of intangible assets is liable to be considered under sub-clause (i) of Rule 10B(1)(e). The fourth item of Intangible assets is Technical knowhow. There cannot be any dispute that Technical know-how can be used only for manufacturing and not trading activity. When we are determining the ALP of the international transactions of the `Manufacturing activity , the same is also liable to be considered even if some of the goods manufactured are sold in domestic market to unrelated enterprises. It is another matter that the transfer pricing addition will have to be restricted only to the international transactions. Intangible asset is `Customer relationships - AR could not precisely provide us the nature of this intangible asset or its manner of user. If it was utilized only for Trading segment, then depreciation on the same will require exclusion under rule 10B(1)(e)(i). In case, it was used either exclusively or jointly for the Manufacturing activity, which international transaction has been benchmarked by the TPO, then depreciation on the same will warrant inclusion in the operating costs. The impugned order on this issue is set aside. The AO/TPO is directed to verify this aspect and then decide accordingly. Prior period expenses - AR stated that the assessee incurred Administrative expenses of earlier years amounting to Rs. 4.18 crore which were booked in the year under consideration and hence, the same should be excluded from the determination of the operating cost base of the international transaction under the Manufacturing activity - We are confronted with a situation in which the TPO as well as the DRP categorically required the assessee to prove that Rs. 4.18 crore related to prior years. However, no such evidence could be filed. Unfortunately, the situation continues to remain the same before the Tribunal as well. In such a scenario, it is difficult to accept the assessee s contention for the exclusion of Rs. 4.18 crore from the operating cost base since the very foundation for such a claim, being, the expenditure pertaining to earlier years, could not be proved. We, therefore, uphold the impugned order on this score. Tooling provision reversal, Testing provision reversal and Sales tax refund - assessee computed its PLI by including Tooling provision reversal, Testing provision reversal and Sales tax refund as part of operating revenue - TPO held that these three items were not liable to be considered as operating income by relying on Rule 10TA, giving mechanism for the determination of the operating profit under clause (k) - what is relevant in this context is to find out the treatment given to them at the time of the creation of provision for Tooling expenses or Testing expenses on one hand or the payment of Sales tax on the other. In case these three items, at the time of their creation/payment - whether in this year or in any preceding year - were taken as part of operating costs, then the sequitur is that their reversal in the year under consideration would also draw the same colour, namely, that of operating nature and would constitute operating income and vice versa. The ld. AR did not readily have the relevant data to demonstrate their nature at the time of their creation/payment. Under these circumstances, we set aside the impugned order and remit the matter to the file of AO/TPO for seeing if the provisions of Tooling and Testing, at the time of their creation, were taken as part of the operating cost. In case, the answer is found to be in affirmative, then naturally, their reversal in the year under consideration would also lead to operating revenue. Similarly, if the amount of sales tax was taken as operating cost at the time of payment, then receipt of its refund in the year in question would also give rise of the operating revenue and vice-versa. Foreign exchange fluctuation gain - assessee treated this amount as operating revenue - TPO, again relying on the definition of operating revenue under Rule 10TA, did not accept the assessee s contention - HELD THAT:- We have held above that Rule 10TA is not applicable and as such the determination of the character of foreign exchange gain will have to be guided by the normal business understanding and commercial principles. It is fairly settled that foreign exchange gain/loss arising from business transactions is operating revenue/cost. Several benches of the Tribunal including a recent decision of the Pune Benches in Delval Flow Controls Pvt. Ltd. Vs. DCIT [ 2021 (2) TMI 938 - ITAT PUNE] have laid down to this extent. We, therefore, direct to take foreign exchange gain as part of operating revenue. Whether transfer pricing adjustment should have been confined only to the international transactions and not the entity level transaction? - Section 92 is the first section of the Chapter-X containing special provisions relating to avoidance of tax. Sub-section (1) of section 92 provides that: `Any income arising from an international transaction shall be computed having regard to the arm s length price . Thus it is graphically clear that the ALP and the consequential transfer pricing adjustment is contemplated only in respect of the international transactions and not the entity level transactions. It is seen from the TPO s order that he computed the transfer pricing adjustment under the `Manufacturing activity in respect of entity level transactions. It is, therefore, directed that the transfer pricing adjustment should be restricted to the international transaction alone. The impugned order is set-aside pro tanto for giving effect to this direction. Working capital adjustment - As fairly submitted that no such issue was taken up before the TPO. It was only before the DRP for the first time that the assessee sought such an adjustment. Relevant discussion has been made in para 5.2 of the direction in which the claim of the assessee has been rejected only on the ground that the data of comparables for this purpose was not available. This was countered by the ld. AR, who submitted that the relevant data was produced. In such circumstances, we set-aside the impugned order to this extent and remit the matter to the file of AO/TPO for allowing the working capital adjustment afresh as per law after giving reasonable opportunity of hearing to the assessee. Comparable selection - non-inclusion of two companies, namely, G.K.N. Driveline (India) Private Limited and Exedy India Limited - These two companies were directed to be not considered as these were not part of the assessee s TP study report . By now, it is fairly settled through several precedents that an assessee can make out a fresh case before the higher authorities for inclusion or otherwise of a company in the list of comparables, even though it was not before the authorities below. In view of the fact that the DRP has brushed aside the assessee s claim for inclusion of the above referred two companies only on the ground that these were not part of the assessee s TP study report, we cannot countenance the same. The impugned order is set-aside and the matter is restored to the file of AO/TPO for examining the assessee s contention and then decide their inclusion or otherwise as per law after allowing an opportunity of hearing to the assessee. Transfer pricing addition made by the AO in the international transaction of `Intra group Sales, General and Administration services - TPO determined Nil ALP primarily on the ground that the assessee could not adduce any evidence for receipt of services and also that no benefit was derived from such services - HELD THAT:- There is no rationale in applying the `benefit test while determining the ALP of intra-group services. Once a particular expenditure is incurred for which services are received, it does not matter whether or not such services resulted into any benefit to the assessee. This reasoning of the authorities below is jettisoned. Assessee could not lead any evidence to support the receipt of services - Considering the difference in the figures of revenue on one hand and inter-group services on the other for the current year vis-a-vis the preceding year, ex facie , the transaction cannot be declared at ALP, unless a detailed examination is carried out. As the TPO has determined Nil ALP on the preliminary premise that there was no evidence of receipt of services and we have noticed above the fact of receipt of services, we set-aside the impugned order on this score and remit the matter to the file of AO/TPO for determining the ALP of the international transaction of Intra-group Sales, General and Administrative services afresh as per law after allowing reasonable opportunity of hearing to the assessee. Disallowance on account of late deposit of the employees contribution to Provident Fund - AO invoked the provisions of section 36(1)(va) and made the disallowance u/s.43B - HELD THAT:- The Hon ble Delhi High Court in the case of CIT v. Aimil Limited [ 2009 (12) TMI 38 - DELHI HIGH COURT] has allowed deduction in respect of employees share when the amount was paid before the due date. When we consider these two judgments, it is manifested that both the employer s and employees contribution are allowable as deduction if these are deposited albeit belatedly under the respective Acts, but before the due date of filing of return u/s 139(1) of the Act. Similar view has been taken by the Hon ble Bombay High Court in CIT Vs. Ghatge Patil Transports Ltd. [ 2014 (10) TMI 402 - BOMBAY HIGH COURT] . It is seen as an admitted position that the assessee deposited the employees contribution towards EPF and ESIC before the due date u/s 139(1) of the Act. Respectfully following the aforenoted precedents, we order for the deletion of the addition. Disallowance towards contribution to the employees gratuity fund and contribution to superannuation fund - AO invoked the provisions of section 40A(7) for disallowing the claim made by the assessee on the premise of non-approval of the funds from the Commissioner of Income-tax - HELD THAT:- Considering the provisions of section 40A(7) of the Act, it is apparent that the deduction can be allowed only if the Gratuity and Superannuation Funds are duly approved by the Commissioner of Income-tax. As the requisite funds are still pending approval from the ld. Commissioner of Income-tax, we are constrained to directly grant any deduction in this regard. It is expected that the ld. CIT will shortly pass an order on the assessee s applications. The matter is sent back to the AO, who will decide the matter in conformity with such order of the ld. CIT.

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• 2021 (2) TMI 1145
  Deduction u/s 37(1) - addition of amount representing 15% of sale proceeds deducted by the Monitory committee from e-auction sale of mineral stock belonging to the assessee and which was contributed to Special Purpose Vehicle, as per the direction given by Hon ble Supreme Court - HELD THAT:- It cannot be said that these amounts are penal in nature. We notice that the Hyderabad bench of Tribunal in the case of NMDC Ltd [ 2018 (10) TMI 1120 - ITAT AHMEDABAD] came to the same conclusion by following the decision rendered by Hon ble Kolkatta High Court in the case of Shyam Sel Ltd [ 2016 (8) TMI 511 - CALCUTTA HIGH COURT] wherein identical types of payments made to remedy the river pollution caused by the parties were held to be compensatory in nature. Hence the provisions of Explanation 1 to sec.37 will not apply to these payments. Hence, as held by Hyderabad bench of Tribunal in the case of NMDC Ltd [ 2018 (10) TMI 1120 - ITAT AHMEDABAD] these expenses are allowable as deduction u/s 37(1) of the Act. Another important point we notice is that the recommendations made by CEC for making these payments have been made for the purpose of resuming the mining operations. Hence there is merit in the submission of the ld A.R that, without making these payments, the assessee could not have resumed the mining operations. Hence, these expenses are incidental to carrying on the business and hence allowable u/s 37(1) of the Act. We hold that the amount deducted @ 15% from the sale proceeds constitute trading receipts in the hands of the assessee, but at the same time it is allowable as deduction u/s 37(1) of the Act. Accordingly, we set aside the order passed by Ld CIT(A) on this issue in both the years under consideration and direct the AO to delete the impugned addition in both the years. Appeals of the assessee are allowed.

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• 2021 (2) TMI 1144
  Capital gains adopted on the basis of guideline value as per Stamp Duty Authorities - JDA entered into by the assessee - Year of assessment - assessee submitted that the capital gains should have been taxed in the year of commencement of construction after registering the Joint Development Agreement - HELD THAT:- In the present case, only for the purpose of loan required from the Bank, the Developer registered a Sale Deed on 18.07.2011, wherein it is also clearly mentioned that the property is already in Developer s possession as per the Registered Development Agreement dated 24.10.2007 and the present Sale Deed made was only for confirming the right already held by the Joint Developer by executing the Sale Deed. The Sub-Registrar while registering the Sale Deed adopted the Guideline value to determine stamp duty and Registration charges. However, since tax on capital gain on the same property transaction would be for assessment year 2008-09 as per provisions of Income Tax Act, no capital gain arises out of the impugned JDA/GPA during Asst. Year 2012-13. Grant of deduction 54G - since the investment is required to be done within 3 years from the date of deemed sale of factory and shifting the factory and since as per the AO, the capital gains has arisen due to registration of Sale Deed on 18.07.2011 i.e. FY 2011-12, and hence, according to the AO, the assessee is not eligible for any deduction - HELD THAT:- This ground is only academic in view of our findings with regard to nontaxability of capital gain in this assessment year i.e. AY 2012-13, however, for the purpose of completeness, we make it clear that assessee could claim deduction u/s. 54G in the appropriate assessment year when the capital gain is subject to tax. It is ordered accordingly. Applicability of section 50C - assessee objected for adopting value of 50C as per guidance value - HELD THAT:- Since while adjudicating ground No.1, we have already held that capital gain is to be taxed not in this assessment year 2012-13, being so, there is no question of application of section 50C of the Act and the registration of Sale Deed was only for the limited purpose of formalizing the bank request, who financed the assessee as discussed in para 28 of this order. In our opinion, there is no applicability of section 50C of the Act in the assessment year 2012-13 since transfer took place not in this assessment year. Thus, this issue is only academic as there was no incidence and chargeability of capital gain in AY 2012-13. Therefore, this ground by the assessee is allowed.

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• 2021 (2) TMI 1143
  Disallowance of interest paid - interest charged by banks for late payment of credit card dues - Allowable business expenses or not? - HELD THAT:- Assessee, before the AO as well as CIT(A), has explained that credit cards were used for business related expenses and therefore such interest on late payment of credit card dues has to be allowed as business purposes - we find merit in the above argument of the ld. Counsel for the assessee. The various expenses so incurred for which payments made through credit card were claimed as business expenses and no such disallowance has been made by the AO. Therefore, merely because there is delay in payment of credit card for which interest has been charged by the bank for late payment of credit cards, the same in my opinion, cannot be disallowed. We find merit in the arguments of the ld. Counsel that the amount used through credit cards are just like temporary loans and therefore interest charged by banks for late payment of credit card dues partakes the character of business expenses. Disallowance of wastage and shrinkage expenses - assessee failed to furnish the details or documents in support of the claim nor produced books of accounts - HELD THAT:- While the Assessing Officer in his remand report has given his comment that shrinkage is possible to the extent of 3%, however, he is silent in his comments on wastage. As earlier mentioned, there is bound to be some wastage while cutting the cloths for making of dresses in a garment factory. The lower authorities have completely closed their eyes on this issue. The assessee also filed various articles showing that there is wastage of cloths to the extent of ranging from 16 to 20% in garments industry. Since, the assessee in the instant case has shown about 10% of the wastage and shrinkage, therefore, in considered opinion that the same is reasonable under the facts and circumstances of the case and no disallowance is called for on this issue. The order of the CIT(A) is accordingly set-aside and the Assessing Officer is directed to delete the addition. Ad-hoc disallowance on account of household withdrawing - HELD THAT:- It is submission of the Ld. Counsel for the assessee that the family of the assessee consists of the assessee, his wife and daughter. The wife and daughter are tax payers and are also contributing towards the house hold expenses. However, on a pointed query by the Bench as to what is the amount shown by the wife and the daughter of the assessee for household expenses, the learned counsel for the assessee was not in a position to substantiate the same. Therefore, the contention of the assessee that the amount of Rs. 93,632/- shown by the assessee as withdrawals for household expenses is sufficient to run the family along with the withdrawals shown by the wife and the daughter of the assessee cannot be accepted in full. At the same time, the estimation made by the Assessing Officer at Rs. 2,50,000/- in absence of any material in his hand to show any lavish life style of the assessee appears to be on the higher side. Disallowance of Rs. 1 lakh lump sum on ad-hoc basis on the facts and circumstances of the case will meet the ends of the justice. I hold and direct accordingly. The order of the CIT(A) is accordingly modified and the Assessing Officer is directed to restrict the disallowance at Rs. 1 lakh. Addition being 10% of all the Direct Indirect expenditure - HELD THAT:- Admittedly, the accounts of the assessee are audited and no discrepancies have been pointed out by the auditors. Assessing Officer has not invoked the provisions of section 145 of the Act and has straightway applied the rate of 10% for making ad-hoc disallowance. He has not pointed out any mistake in any of the bills/vouchers. Since, the accounts of the assessee are audited and the auditors have not pointed out any discrepancy and since the books of accounts were also produced before the CIT(A) and no discrepancy was found by him and considering the fact that books were also not rejected by the Assessing Officer by invoking the provisions of section 145 of the Act, therefore, no ad-hoc disallowance is called for. Thus direct the AO to delete the disallowance. Appeal of the assessee is partly allowed.

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• 2021 (2) TMI 1141
  Determining the undisclosed income - Search proceedings - A.R. submitted that the addition has been made on the basis of a balance sheet found during the course of search proceedings - HELD THAT:- There are no corroborative evidences to show that the Balance sheet found during the course of search represents true nature of transactions. On the contrary, the assessee, being a limited company, has filed annual reports containing Balance sheets with Registrar of companies, which is based on books of accounts. Hence the balance sheet found during the course of search has to be considered as a dumb document only. In that view of the matter, the quantum of investment made as share application money in the above said company should be taken as Rs. 131 lakhs only. The assessee has claimed that he has invested Rs. 130 lakhs. Since the claim of the assessee is supported by the books of accounts, the same is required to be accepted. Assessee has explained the sources, major portion of which represents agricultural income and it has been declared to the revenue in the returns of income filed prior to the date of search. The revenue has not found any material to show that the agricultural income and other income declared by the assessee in the returns of income are false. Hence, we are of the view that the AO, in the block assessment proceedings, cannot tinker with the income/agricultural income already declared by the assessee in the returns of income filed prior to the date of search. Hence the sources for Rs. 130 lakhs also require to be accepted. Accordingly, in effect, there is no incriminating material available with the AO in support of the undisclosed income determined by him. Accordingly, we set aside the order passed by Ld CIT(A) and direct the AO to delete the entire amount of undisclosed income determined by him. Surcharge levied u/s 113 - HELD THAT:- Since we have deleted the entire undisclosed income in the earlier paragraphs, the question of levying of surcharge has become academic. In any case, it is the submission of the assessee that the decision rendered in the case of Suresh N Gupta [ 2008 (1) TMI 396 - SUPREME COURT] has since been modified by Hon ble Supreme Court in the case of Vatika Township ([ 2014 (9) TMI 576 - SUPREME COURT] Accordingly, in case if any need arise for levying of surcharge in the instant case, the law laid down by Hon ble Supreme Court in the case of Vatika Township (supra) needs to be followed. Interest u/s 158BFA(1) of the Act upto the date of original assessment order and not upto the date of assessment order passed in the set aside proceedings - HELD THAT:- As rightly pointed out by Ld A.R, the order passed by the Tribunal earlier and the order passed by the AO in the set aside proceedings are continuation of original assessment proceedings. It is not a case of quashing of original assessment order and initiation of altogether new proceedings. Hence, we agree with the view expressed the Ld CIT(A) that the interest u/s 158BFA(1) should be charged upto the date of original assessment order, i.e., the expression date of completion of assessment under clause (c) of sec. 158BC should mean the original assessment order only. We further notice that there is no provision under the Act to extend charging of interest beyond the date of completion of the original assessment proceedings. Accordingly, we confirm the order passed by Ld CIT(A) on this issue.

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• 2021 (2) TMI 1140
  Limited Finality - Proper and reasonable opportunity at the first stage (at the stage of Assessing Officer) - Disallowance being reimbursement of expenses by the appellant to its wholly owned subsidiary in United states for development of its business in United States of America - addition made by assessing officer for claiming double deduction of expenses as well as non deduction of tax at source on payment made to non residents - assessee was unable to produce evidences to show that the expenditure has been incurred by the assessee wholly and exclusively for the purpose of business; and further that no evidence was adduced to show that the EII made concerted effects to locate any business arrangements in USA - grounds for making the disallowance was not adjudicated by the Ld. CIT(A); and instead the Ld. CIT(A) followed a entirely different reasoning, as aforesaid, for confirming the disallowance - HELD THAT:- Assessee has the right to explain his case first to the Assessing Officer; before he is forced to explain his case to appellate authorities. If an assessee explains his case at the first stage, i.e. at the stage of the Assessing Officer to the satisfaction of the Assessing Officer; the matter, in a way, attains Limited Finality because Revenue has no right of appeal against the order of the Assessing Officer. Though the matter can be revisited by Revenue under exceptional circumstances, such as, for example, in the circumstances prescribed under sections 147, 263, 264, 154, 153A 153C, etc. of I.T.Act; the fact that Revenue has no right of appeal against the order of Assessing Officer implies that the matter attains Limited Finality , barring the exceptional circumstances as aforementioned, if the assessee is able to satisfactorily explain the matter to the Assessing Officer. That is why it is of utmost importance that the assessee gets proper and reasonable opportunity at the first stage (i.e. at the stage of Assessing Officer), so that the assessee has a chance to avail of Limited Finality which is an assessee s statutory right. In the present case reasoning adopted by the Ld. CIT(A) for dismissing the assessee s appeal was not considered at the stage of assessment proceedings before the Assessing Officer; which has resulted in violation of the assessee s right of Limited Finality . In view of the foregoing, and as both sides have agreed to this, we set aside the issue of disallowance of the aforesaid Rs. 86,41,053/- to the file of the Assessing Officer for fresh order as per law after providing reasonable opportunity to the assessee to produce relevant materials and to make necessary submissions. All the grounds in the present appeal are disposed of in accordance with aforesaid directions and are treated as partly allowed for statistical purposes

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• 2021 (2) TMI 1139
  Unexplained cash in the bank account maintained with HDFC account - assessee could not explain the source of such cash deposits in the bank account maintained with HDFC account on the ground that assessee could not explain the source of such cash deposits - CIT(A) upheld the action of the AO - HELD THAT:- It is the submission of assessee that such cash deposit is out of the realisation of sundry debtors and out of sale proceeds of the closing stock lying with the assessee apart from some opening cash in hand. It is also his submission that given an opportunity the assessee is in a position to explain the source of such cash deposit so made in the bank account. Restore the issue to the file of the AO with a direction to grant one final opportunity to the assessee to substantiate its case and decide the issue as per fact and law. Thus hold and direct accordingly. Grounds raised by the assessee are accordingly allowed for statistical purposes.

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• 2021 (2) TMI 1138
  Disallowance u/s. 14A r.w. Rule 8D(2) - disallowance offered by the assessee suo-moto - HELD THAT:- Assessee reflects the share capital, reserves and surplus to an extent of Rs. 32,38,52,976/- which is admittedly more than the investments made. Further, we note that Note No. 9 in Assets clearly discloses the Non-Current Assets to an extent of Rs. 16,18,55,626/- showing that the assessee made investments during the year under consideration out of which Rs. 1,00,00,000/- invested in government bonds. It is needless to say that the investments made in government bonds yield no dividend but only interest. It is a settled proposition that if the own funds are more than the investments made should be presumed that the assessee made investments from its own funds. As discussed above, the assessee made investments to the tune of Rs. 15.18 crores in the year under consideration, to which the Balance Sheet as on 31-03-2012 clearly shows as non-current investments, and also shows own funds at Rs. 32,38,52,976/- which is more than the investments made. Therefore, the interest expenses disallowed under Rule 8D(2)(ii) is not maintainable. The disallowance relating to 0.5% of investments to the tune of Rs. 6,47,273/- is confirmed. Thus, suo-moto disallowance made by the assessee under Rule 8D(2)(ii) of Rs. 12,20,303/- and the enhanced disallowance made by the Assessing Officer of Rs. 3,31,763/- totaling to Rs. 15,52,067/- requires to be deleted for the reasons indicated above and the disallowance under Rule 8D(2)(iii) is confirmed. Thus, the order of CIT(A) is set aside and the ground Nos. 1 to 4 raised by the assessee are partly allowed. Deduction paid towards Education Cess under Finance Act while computing the taxable income - HELD THAT:- The Hon ble High Court of Bombay in the case of Sesa Goa Limited [ 2020 (3) TMI 347 - BOMBAY HIGH COURT] was pleased to hold that the Education Cess is an allowable expenditure as per the provision of the I.T. Act. - we direct the AO to allow deduction in respect of Education Cess paid by the assessee. Accordingly, the additional ground raised by the assessee is allowed.

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• 2021 (2) TMI 1137
  Ex-parte appeal decided by CIT-A - AR submitted that the Ld. CIT(A) has dismissed all the appeals without giving adequate opportunity to the assessee of being heard - DR vehemently argued that the assessee should not be permitted to take advantage of their carelessness and non cooperative approach and that the appeals of the assessee deserved to be dismissed in view of the failure of the assessee to establish their claims with documentary evidences before both the Lower Authorities - HELD THAT:- Having heard both the parties and duly taking note of the fact that both the parties have agreed that these appeals can be restored to the office of the Ld. CIT(A), for the cause of substantial justice, we deem it expedient to restore all the captioned appeals to the file of the Ld. CIT(A) for being adjudicated upon afresh by passing a speaking order after giving proper opportunity to the assessee to present their cases. We also direct the assessees to fully co-operate during the course of the first appellate proceedings failing which the Ld. CIT(A) shall be at liberty to proceed ex-parte qua the assessees in accordance with law. Assesee all the appeals stand allowed for statistical purposes.

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• 2021 (2) TMI 1135
  TP Adjustment - payment made towards SAP ERP implementation - HELD THAT:- Cost paid by the assessee for implementation of SAP ERP system without any mark up cannot be treated as nil by applying the benefit test. It is for the assessee to decide whether a particular system or investment would be beneficial to him or not. The Transfer Pricing Officer certainly cannot step into the shoes of the assessee or the Assessing Officer to evaluate the business expediency of a cost incurred for business purpose and the benefit derived. His job is to determine the arm s length price by adopting any one of the prescribed methods. In the facts of the present case, though, the Transfer Pricing Officer has stated that he has adopted CUP method for determining the arm s length price, however, in reality, he has determined the arm s length price at nil on purely ad hoc basis by stating that the assessee has not derived any benefit. Moreover, the allegations of the Transfer Pricing Officer and learned Commissioner (Appeals) that the assessee has failed to furnish supporting evidence to establish its claim is found to be baseless as the assessee has furnished sufficient documentary evidences not only to prove the implementation of SAP ERP system but also the benefit derived by it from such system. Moreover, when the Transfer Pricing Officer has accepted the payment made towards SAP ERP implementation in the earlier years, there is no reason to deny the same in the current year by determining the arm s length price at nil. In any case of the matter, it is a fact on record that the assessee has implemented the SAP ERP system and is utilizing it for its business purpose. The Transfer Pricing Officer has also stated that SAP ERP system is a necessary tool for carrying out business works. That being the case, the determination of arm s length price at nil, that too, on ad hoc basis is unsustainable. Accordingly, we have no hesitation in deleting the addition made on account of transfer pricing adjustment. Disallowance u/s 14A - disallowance of interest expenditure under rule 8D(2)(ii) - HELD THAT:- No interest disallowance should be made when the assessee has surplus interest free fund available with it. Secondly, only those investments which have yielded exempt income during the year should be considered for disallowance under rule 8D(2)(iii). On a perusal of impugned order of learned Commissioner (Appeals), we find that the assessee had made a submission that as against the interest free surplus funds available of Rs. 281,90,44,000, investment stood at Rs. 150,85,55,000 - assessee had sufficient interest free fund available with it to take care of the investment. Therefore, as per the settled legal principles, no disallowance of interest expenditure can be made under rule 8D(2)(ii). Hence, the disallowance made under rule 8D(2)(ii) has to be deleted. As regards disallowance of administrative expenditure under rule 8D(2)(iii), we direct the Assessing Officer to compute such disallowance by taking into account only those investments which have yielded dividend income during the year. In this regard, the Assessing Officer is directed to verify the correctness of disallowance computed by the assessee at Rs. 3,91,961.79. This ground is disposed off accordingly. Disallowance u/s 43B - leave encashment paid - HELD THAT:- We find that while deciding the issue in assessee s own case for the assessment year 2007 08, the Tribunal [ 2016 (5) TMI 1546 - ITAT MUMBAI] has restored the issue to the Assessing Officer for fresh adjudication. Facts being identical, following the aforesaid decision of the Co ordinate Bench, we restore the issue to the Assessing Officer for fresh adjudication. Ground is allowed for statistical purposes. Disallowance of depreciation claimed on the WDV of the royalty expenditure - HELD THAT:- We find that the royalty expenditure incurred by the assessee in the assessment year 2001 02 was held to be of capital in nature. However, the Tribunal directed the Assessing Officer to allow depreciation on such expenditure. Therefore, when depreciation has been allowed to the assessee on the expenditure incurred on royalty in the preceding assessment years, consequential benefit of depreciation has to be allowed to the assessee in the impugned assessment year as well. The ground raised by the assessee is allowed.

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• 2021 (2) TMI 1134
  Penalty u/s 271(1)(c) - Addition u/s 43B - Assessee voluntarily offered to tax the outstanding MVAT and sales tax liability as its income - HELD THAT:- We find that learned CIT(A) is totally wrong in holding that just because 43B liability is shown by tax audit report penalty has to be fastened upon the assessee. The assessee has furnished all particulars there is no concealment or furnishing of inaccurate particular of income. Just because assessee s claim is not accepted the same does not ipso facto lead to levy of penalty. Similarly, there is small difference between 26AS and income returned. This is also very minor and the assessee does not deserve to be visited with the rigour of penalty. We are of the considered opinion that assessee s conduct is not contumacious and his claims are not mala fide. Hence, assessee should not be visited with rigour of penalty. Accordingly, we set aside the orders of the authorities below and delete the penalty. Appeal filed by the assessee stands allowed.

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• 2021 (2) TMI 1132
  Penalty u/s 271G - assessee failed to furnish documents as required under the Rule 10D(1) and sub-section (3) of the section 92D in respect of the international transactions entered into by it - HELD THAT:- Respectfully follow the view taken by the Tribunal in the case of Navinchandra Exports Pvt. Ltd. [ 2017 (11) TMI 1307 - ITAT MUMBAI ] wherein it was observed that considering the practical difficulties involved in furnishing the segmental details of AE transactions and non-AE transactions in the diamond industry, penalty under Sec. 271G could not be justifiably imposed. Before parting, we may herein observe, that the Tribunal in its aforesaid order had observed that considering the reasonable cause for non-furnishing of the segmental details of the AE transactions and non-AE transactions because of the peculiar nature of the trade in diamond industry, penalty u/s. 271G even otherwise could not have been imposed as per the mandate of Sec. 273B. No infirmity emerges from the order of the CIT(A) who had rightly vacated the penalty imposed by the TPO under Sec. 271G - Decided against revenue.

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• 2021 (2) TMI 1131
  Ex-parte assessment order by AO and CIT-A - HELD THAT:- The present case it is an admitted fact that the A.O. passed the assessment order ex parte and the Ld. CIT(A) also passed the impugned order ex parte . It is noticed that the Ld. CIT(A) mentioned in the impugned order that various notices were issued to the assessee but there was no compliance and that the latest notice was issued on 07/08/2018 for compliance on 14/08/2018. Nothing is brought on record to substantiate that the notices issued either by the A.O. or by the Ld. CIT(A) were served upon the assessee. It is well settled that nobody should be condemned, unheard as per the maxim, audi alteram partem . We therefore keeping in view the principles of natural justice deem it appropriate to set aside this case back to the file of Ld. A.O. to be adjudicated afresh in accordance with law after providing due and reasonable opportunity of being heard to the assessee.

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• 2021 (2) TMI 1129
  Addition towards excess stock - GP estimation - HELD THAT:- As examined the trading account of the assessee split in two parts, i.e. before survey and after survey. If the amount of surrender of Rs. 5.76 lakh is excluded, the rate of gross profit in both the periods comes to roughly 17% each. In order to bring down the value of closing stock as on the date of survey from market price to cost price, the amount of gross profit is required to be unloaded from the market price taken by the survey team for ascertaining the excess value of stock purchased by the assessee. If such gross profit rate of 17% is applied to the market value of stock determined by the authorities as on the date of survey to Rs. 27.08 lakh, a reduction in the value of stock would be warranted to the tune of Rs. 4,60,360/- for finding out its cost price to the assessee. This amount of Rs. 4.60 lakh is, therefore, directed to be excluded from the addition of Rs. 8,81,692/- made and confirmed by the authorities in this regard. Addition being difference in cash as per cash book and physical cash found at the time of survey - HELD THAT:- The survey team counted physical cash and tallied it with the cash in hand as per cash book. There was excess cash of Rs. 73,228/- which was accepted by the assessee as an additional income, but not offered for taxation in the return of income. The assessee made up the cash book later on to present that there was no difference. However, nothing of this sort was stated at the time of survey that the cash book was not complete or certain transactions were omitted to be recorded.Contention of the assessee for the acceptance of books of account produced after the date of survey, cannot be countenanced. Thus, the resultant addition on account of excess stock is hereby confirmed.

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• 2021 (2) TMI 1128
  Estimation of income - Bogus purchases - HELD THAT:- As relying on M/S BECON CONSTRUCTIONS PVT. LTD. VERSUS ACIT, CENTRAL CIRCLE-8, NEW DELHI [ 2020 (12) TMI 988 - ITAT DELHI] we are of the view that Assessing Officer should retain the addition @ 9.25%. Appeal of revenue partly allowed.

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• Customs

• 2021 (2) TMI 1149
  Revocation of Customs Broker License - forfeiture of security deposit - illegal removal of container / goods - It was found that the Bills of Entry was not filed by the importer and the container was detained and lying at Viking CFS. The same container was removed illegally from Viking CFS by forging the import clearance documents - HELD THAT:- Apart from 108 statement of the Shri A.C. Hari Babu, the department has not been able to adduce any evidence to support such allegation that instead of the appellant herein, Sathish Kumar had done the filing of bill of entry and the clearance activities. So also there is no evidence to show the passing of consideration of Rs. 1,000/- per bill of entry from Sathish Kumar to the appellant herein. Although it is alleged that earlier the 10 bills of entry for M/s. Sky and Sea Exports were filed by Shri Sathish Kumar and that appellant did not collect KYC documents etc., all the goods as per these previous 10 bills of entry which have been for M/s. Sky and Sea Exports have been cleared and there are no complaints. There is no case for the department that the bill of lading with regard to Container No. FCIU9286908 for M/s. Sky and Sea Exports detained by SIIB was filed by the appellant or Sathish Kumar. The appellant had nothing to do with such import of goods by M/s. Sky and Sea Exports. For the mere reason that the appellant had filed earlier bills of entry for M/s. Sky and Sea Exports cannot be a ground to hold that the appellant has violated provisions of CBLR when the goods relating to the 10 bills of entry have been cleared and without any compliants. Bill of entry filed for M/s. Raj Enterprises dated 19.5.2017 - HELD THAT:- Without proving the entire link between these persons the appellant cannot be implicated only for the mere reason that they have filed the bill of entry. So also there is no evidence to prove that appellant allowed other persons to work customs clearance activities or that to file forged documents. There are no evidence to show that the appellant engaged unauthorized persons who faked customs out of charge documents and also paid for the CFS operations running into lakhs in cash. There is no evidence before us to show any payment made for CFS operations or the faking of customs out of charge documents by the appellant herein. However, unlike the first case of M/s. Sky and Sea Exports, in this case, the appellant has acted as Custom Broker and has filed the bill of entry for M/s. Raj Enterprises. The container got detained and appellant ought to have been careful till the goods are cleared. However, the omission would not call for a harsh punishment of revocation of licence. We therefore are of the considered opinion that mere forfeiture of security deposit as well as penalty would suffice. The impugned order is to be modified to the extent of setting aside the revocation of licence of the appellant - Appeal allowed in part.

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• 2021 (2) TMI 1142
  Valuation of imported goods - difference between value as per proforma Invoice and actual value - 1, 3-DIHYDROXYNAPHTHALENE - It appeared to Revenue that the importer has misdeclared the value of the imported goods to evade customs duty - Confiscation - penalty u/s 112(a) of Customs Act as well as u/s 114AA of the Customs Act, 1962 - HELD THAT:- It is the obligation of the authorised courier to file the Courier Bill of Entry based on the information contained on the package. Evidently, it is a case of clerical mistake by the shipper, who has wrongly declared the lower value instead of the correct value. It is further found that the appellant have at the very first instance on query raised by the Department, have come forward with the correct value based on the proforma invoice. Further, it is an admitted fact that the appellant have remitted the price of USD 21500 through authorised banking channel, and as such no case of any malafide is made out against the appellant. At best, it is the mistake of the authorised courier who was not vigilant at the time of booking of the courier parcel to ensure the correct declaration by the shipper. No case of any collusion is made out against the appellant shipper and /or against the courier - thus, penalty have been imposed mechanically without proper appreciation of the facts and the law applicable. The order of confiscation as well as the penalties imposed under section 112(a) and 114AA of the Act is set aside - appeal allowed - decided in favor of appellant.

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• Corporate Laws

• 2021 (2) TMI 1136
  Oppression and mismanagement - seeking approval of the scheme for payment/contribution - contention of the Applicants/Respondents that in a Company Petition under Section 241 there can only be one Respondent Company is denied - HELD THAT:- It is quite apparent from a bare reading of the aforesaid provision of Section 241 that Mismanagement means the affairs of the company are being conducted in a manner prejudicial to public interest or in a manner prejudicial to the interest of the company. Further, mismanagement is when a material change has taken place in the ownership of the company s share or if it has no share capital in its membership or in any other manner whatsoever and that by reason of that change it is likely that the affairs of the company will be conducted in a manner prejudicial to public interest or in a manner prejudicial to the interests of the company. In the Company Petition the Petitioner seeks approval of the scheme for payment/contribution and to direct changes in the shareholdings and directorships of the 7 companies based on a MoU dated 15.09.2016 entered between the parties with the aim to put an end to the cross holdings of the Coparceners and 100% ownership will devolve on the persons who are presently managing and in control of the Companies. Such reliefs cannot be granted by this Tribunal under Section 241/242 of the Companies Act, 2013. Thus, filing of the petition under Sections 241 and 242 seeking such reliefs is a misconceived exercise, as firstly, the Petitioner has to firmly establish the oppressive acts in which he has aggrieved or mismanagement involved in the Companies to which he has filed the Petition - the Company Petition does not raise a single act of oppression or mismanagement in the affairs of the Company i.e. prejudicial to the interests of the stakeholders/members or to the public. Technical irregularities - HELD THAT:- Since the shareholding pattern and Board of directors of the Company varies from Company to Company a Petition against 7 different Respondent Companies is not permissible under Section 241 of the Companies Act, 2013. The Petitioner failed to provide the Articles of Association (AoA) and Memorandum of Association (MoA) of each Company which were arrayed as Respondents - The petitioner has filed the Company Petition against 7 Companies, who does not hold minimum threshold mentioned under Section 244 of the Companies Act, 2013. According to the Applicants the Petitioner is not a Shareholder in 3 Companies i.e. RBG Commodities, RBG Broking, RBG Vyapar. Petition is not maintainable as it is not filed in compliance with Companies Act, 2013 and Rules by paying the appropriate fee prescribed under the Rules - application disposed off.

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• Insolvency & Bankruptcy

• 2021 (2) TMI 1157
  Territorial Jurisdiction to entertain the petition - Seeking enforcement and execution of partial Award - Foreign Award or not - Jurisdiction of Courts where the Award-debtor resides or where the assets, which are subject-matter of the Award are situated - Whether this Court has territorial jurisdiction to entertain the present petition? - HELD THAT:- The term subject-matter of the arbitration cannot be confused with subject-matter of the suit . The term subject-matter in Section 2(1)(e) is confined to Part I. It has a reference and connection with the process of dispute resolution. Its purpose is to identify the courts having supervisory control over the arbitration proceedings. Hence, it refers to a court which would essentially be a court of the seat of the arbitration process. In our opinion, the provision in Section 2(1)(e) has to be construed keeping in view the provisions in Section 20 which give recognition to party autonomy. Accepting the narrow construction as projected by the learned counsel for the appellants would, in fact, render Section 20 nugatory. In our view, the legislature has intentionally given jurisdiction to two courts i.e. the court which would have jurisdiction where the cause of action is located and the courts where the arbitration takes place. This was necessary as on many occasions the agreement may provide for a seat of arbitration at a place which would be neutral to both the parties. Therefore, the courts where the arbitration takes place would be required to exercise supervisory control over the arbitral process. Issue of territorial jurisdiction of a Court in the context of Sections 47 and 48 of the Act again came up for consideration before the Bombay High Court in WIRELESS DEVELOPERS INC VERSUS INDIAGAMES LTD [ 2012 (1) TMI 391 - BOMBAY HIGH COURT] . Relying on the judgment in case of TATA INTERNATIONAL LTD., MUMBAI VERSUS TRISUNS CHEMICAL INDUSTRY LTD. [ 2001 (10) TMI 1187 - BOMBAY HIGH COURT] , the Court in clear words observed that at the stage of arbitration the subject-matter would be a contract and therefore factors such as place where the contract was entered into and related issues would become material to decide the territorial jurisdiction. However, once the arbitration concludes, and enforcement is sought, the only question that needs determination is the subject-matter of the Award as the disputes inter se the parties translated into Arbitration proceedings and have culminated into an Award. Therefore, it is with reference to the Award that the jurisdiction of the Court would have to be seen and decided. By virtue of the Amendment, the definition of Court under Section 2(1)(e) of the Act stood amended in relation to International Commercial Arbitration and a Proviso was inserted to Section 2(2) making the provisions of Sections 9, 27 and 37(3) and 37(1) (a) of the Act applicable to International Commercial Arbitrations even if the place of arbitration is outside India and the Arbitral Award is enforceable under Part II of the Act. Significantly, the definition of Court as contained in Explanation to Section 47 of the Act was also amended to confer jurisdiction on the High Court to decide the questions forming the subject-matter of the Award. The object behind the Amendments were evidently to provide an efficacious remedy to a party seeking interim relief against the other party whose assets are located in India and there is a likelihood that the other party may dissipate its assets in the near future - it is clear from a reading of the provisions of Explanation to Section 47 of the Act and the various judgments referred to above that Court as defined in under Section 47 of the Act is a Court distinct from a Court defined under Section 2(1)(e) of the Act. The position of law in this respect, in my view, is unchanged post the 2015 Amendment to the Act. The Court while enforcing the Foreign Award is concerned, post the Amendment, with the questions forming subject-matter of the Award which can only be construed to mean and connote the Relief given by the Award and can be a direction to pay money or a direction of specific performance etc. Subject-matter of the Award in question in the present case - HELD THAT:- The subject-matter of the Award would determine the territorial jurisdiction of this Court in as much as in case the relief is in the nature of a money Award, the place of location of assets of the judgment debtor would give jurisdiction to the Court, while in case it is in the nature of specific performance then the considerations of the situs of the shares, registered office of the judgment debtor, etc. as argued by Respondent No.1 would be the relevant factors. Counsel for Respondent No.1 has conceded fairly during the course of arguments that in case the Award is a money Award, this Court would have jurisdiction as then the place of location of the assets of the Judgement Debtor shall be the determinative criterion for the territorial jurisdiction of the Court. The learned Senior Counsel for the Petitioner is right in its argument that the Award in question is a money Award and not an Award for specific performance. The two Clauses referred to above are clearly in the nature of exit clauses which entitled the Petitioner to sell shares in the event of default by the Respondents. This was not dependent on any corresponding / reciprocal obligation on the part of the Respondents and in fact the Respondents were bound by the terms of the clauses to buy back the shares and pay the money to the Petitioner of a value equivalent to the fair market value of the shares plus 25% IRR. The direction to the Petitioner to return the title documents, was only a consequential direction once the shares were sold to Respondent No.1 and the money was received by the Petitioner. It is evident from a reading of the affidavit that at this stage the Petitioner is not proceeding against Respondent No.2. Although it may be completely irrelevant at this stage, however, the Court prima facie finds merit in the contention of the Petitioner that the shareholding of the Petitioner in Respondent No.2 is an asset of the Petitioner and Section 18 of the IBC, inter alia, applies to assets over which the Corporate Debtor has ownership rights, besides the fact that the NCLAT order has directed that Respondent No.2 is to continue functioning as a going concern and the Petitioner s shares in any case are dematerialized and not in a physical form and thus do not require an instrument of transfer / share transfer form. Since this Court has held that this Court has Territorial jurisdiction to entertain the petition, the petition be now listed before the Roster Bench for further proceedings on 15.03.2021, subject to orders of Hon ble the Chief Justice.

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• 2021 (2) TMI 1151
  Seeking direction to Appellant not to demand the release of bank guarantee amount from the Respondent No. 2, in view of the moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 (IBC) against the M/s J.P. Engineers Private Limited. (Corporate Debtor) Respondent No. 1 - HELD THAT:- Admittedly the Appellant had entered into an agreement for sale and purchase of aluminium products for the period 01.04.2019 to 31.03.2020 with J.P. Engineering s (Corporate Debtor). For ensuring the payments the Respondent No. 2 issued bank guarantee dated 22.04.2019 for an amount of Rs. 1 Crores 60 Lakhs in favour of the Appellant. The Respondent No. 2 vide letter dated 21.10.2019 extended the period of guarantee till 21.04.2020. The Appellant on 03.03.2020 sent a letter to the Respondent No. 2 for invocation of the bank guarantee - Ld. Adjudicating Authority rightly held that bank guarantee in question is a financial bank guarantee and not a performance bank guarantee. Whether the financial bank guarantee can be invoked after issuance of moratorium under Section 14 of the IBC? - HELD THAT:- After substitution of Sub-Section 3(b) the provision of Section 14(1) of the IBC shall not apply to surety in the contract of guarantee to a Corporate Debtor - This amendment has been made on the recommendation of Report of Insolvency Law Committee March, 2018. In para 5.10 5.11 of the Report of Insolvency Law Committee specifies that the assets of the surety are separate from those of the Corporate Debtor and proceedings against the Corporate Debtor may not be seriously impacted by the actions against the assets of third parties like sureties. In Para 5.11 of the Report of Insolvency Law Committee concluded that Section 14 of the IBC does not intend to bar actions against assets of guarantors to the debts of the Corporate Debtor and recommended that explanation to clarify this may be inserted in Section 14 of the IBC. The scope of moratorium may be restricted to the assets to the Corporate Debtor only. Validity of argument that the amendment of 2018, which makes it clear that Section 14(3), is now substituted to read that the provisions of sub-section (1) of Section 14 shall not apply to a surety in a contract of guarantee for corporate debtor - HELD THAT:- The object of the IBC is not allowed such guarantors to escape from an independent and co-extensive liability to pay off the entire outstanding debt, which is why section 14 of the IBC is not applied to them. Also held that contract of guarantee is between the creditor and principal debtor and the surety whereunder the creditor has a remedy in relation to his debt against both the principal debtor and surety. As per Section 128 of the Contract Act, 1872 the liability of surety is coextensive with that of principal debtor and the creditor may go against either principal debtor or surety or both in no particular sequence. Corporate Debtor has issued bank guarantee for ensuring the price of goods. The bank guarantee is irrevocable and unconditional and payable on demand without demur. The assets of the surety are separate from those of the corporate debtor, and proceedings against the corporate debtor may not be seriously impacted by the actions against assets of third party like surety. Bank guarantee can be invoked even during moratorium period issued under section 14 of the IBC in view of the amended provision under section 14 (3)(b) of the IBC - Ld. Adjudicating Authority has not considered the aforesaid amended provision. Therefore, the impugned order is not sustainable in law. It is declared that the bank guarantee in question can be invocated/encashed even during the moratorium period under section 14 of the IBC against the Corporate Debtor (Respondent No. 1) - application allowed.

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• 2021 (2) TMI 1147
  Maintainability of application - initiation of CIRP by Operational Creditors - Adjudicating Authority has dismissed the application under Section 9 of IBC filed by the Operational Creditor (Appellant) as being barred by limitation of time - non-fulfilment of conditions of Limitation Act - HELD THAT:- Under Sub-Section 2 of Section 14 of the Limitation Act, in computing the period of limitation, exclusion of time can be claimed when in the court of first instance or of Appeal or revision, against the same party and for the same relief, such proceedings are prosecuted in good faith which the said court is unable to entertain, from defect of jurisdiction or other cause of like nature - Admittedly, the Appellant was not party in the winding up Petition. Thus, this case may be of non-joinder of parties and not the mis-joinder of parties. The Petition was dismissed by the Hon ble High Court on the ground that the question of fact involved in the petition as to whether the Respondent Company is liable to pay the amount or not, which can only be proved by detailed evidence. Thus, the Appellant has not fulfilled any of the conditions enumerated in Sub-Section 2 of Section 14 of the Limitation Act - thus it is not correct to accept the contention of the Appellant that the winding-up petition No.6 of 2015 was dismissed on the ground of mis-joinder of parties, and the benefit of Section 14 of the Limitation Act, 1963 cannot be allowed to appellant. Date of filing application under Section 9 of the IBC - HELD THAT:- In the impugned order, the winding up petition was filed in the High Court of Allahabad on 10.7.2015. Since, it was taken up for hearing, we accept that the winding up petition was filed within three years from the date of default, which appears to be 12.7.2012 (which is the date of clearing of the last payment cheque dated 10.6.2012). Since the benefit of Section 14 of the Limitation Act, 1963 is not available to the Appellant and no exclusion of time period spent in prosecuting the winding-up petition is possible, the time period starting from the date of default i.e. 12.07.2012 to the date of filing of application under Section 9 of IBC i.e. 06.01.2020 needs to be explained for deriving the benefit of extension of limitation under Section 5 of Limitation Act, 1963. Relaxation under Section 5 of the Limitation Act, 1963 cannot be allowed for unexplained period of about two years and ten months. The delay in filing the application was not adequately explained as required in law - application filed by the Appellant under Section 9 of the IBC is very clearly out of limitation - appeal dismissed.

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• Service Tax

• 2021 (2) TMI 1150
  Levy of service tax - recovery of certain amounts from its supplier which in view of the Revenue are in the nature of liquidated damages for compensating the appellant against the poor quality of material supplied to the appellant by its supplier - Section 66(E)(e) of the Finance Act, 1994 - HELD THAT:- The facts are not in disputed that amount recovered by the appellant is towards the poor quality of goods purchased by them. The appellant have taken the ground before the Adjudicating Authority as well as Commissioner (Appeals) that the amount which they have received is in the form of liquidated damage and not in the form of consideration towards any service for the reason that the said amount is for supply of lower quality of goods and thus the effect is only reduction in the transaction value of the goods. However, this vital point raised by the appellant has not been considered either by the Adjudicating Authority or by the first appellate authority. Both the authorities also have not dealt with the distinction between the liquidated damage as claimed to have received by the appellant and the consideration , which department want to impose. Both the terms have been defined legally separately in the Indian Contract Act, 1872. Time Limitation - HELD THAT:- The same has also not been considered on its true facts and the legal issue involved in the present case. Since the issues have not been dealt in a proper manner by both the lower authorities, the matter needs to be reconsidered as a whole - Appeal allowed by way of remand.

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• Central Excise

• 2021 (2) TMI 1133
  Levy of penalty u/r 15(1) of Cenvat Credit Rules, 2004 - suppression on the part of the assessee or not - allegation is that assessee have not come out with full and proper details before the Revenue authority at first instance - input - MT HDT Feed - HELD THAT:- No case of imposition of penalty under Rule 15(2) of Cenvat Credit Rules, 2004 is made out. Further cogent explanation given by the assessee have not been found wrong in the impugned adjudication order. It has been held by the Hon ble Bombay High Court in Commissioner of Central Excise, Pune-II Vs. Ajinkya Enterprises [ 2012 (7) TMI 141 - BOMBAY HIGH COURT] , that payment of duty on output/finished goods amounts to reversal of Cenvat credit taken on inputs. Appeal dismissed - decided against Revenue.

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• 2021 (2) TMI 1130
  Waiver of pre-deposit - Application for early hearing - Can there be any ground for early hearing to be granted when the appellants/counsel for appellants, have them sought adjournment to the hearing of application for early hearing for more than six months? - HELD THAT:- It is quite evident that the appellants/counsel for the appellants are only seeking adjournments to avoid the hearing on this application for early hearing. Country is facing the pandemic situation on account of COVID-19, and the tribunal is hearing the matter in virtual mode, whereby the counsel has not even to travel upto the premises of this tribunal for hearing in the matter and can attend the hearing from the comfort of her residence/office. Also we find that Annexure 1 (prescribing PROCEDURE FOR E-HEARING OF APPEALS BY CESTAT) to Public Notice No 02 of 2020 Regarding E-Hearing Dated 10.08.2020 issued by the Registrar CESTAT - The casual approach on the part of appellant/appellant s counsel in attending the hearing in virtual mode in the present case is quite apparent, and the adjournment of nearly six months sought upto now itself goes contrary to the request for early hearing of the appeal. There are no merits in the application made as the same is not supported by any documents of financial hardship etc. Further how can there be any financial hardship in view of the provisions of Section 35F - the application for early hearing is dismissed - the appeal should be listed in normal course.

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• CST, VAT & Sales Tax

• 2021 (2) TMI 1155
  Passing of assessment orders - case of petitioner is that It was thus incumbent upon the Officer to have passed orders of assessment on or before 23.8.2019, instead of which he issues a notice on 28.08.2019 granting one more opportunity of personal hearing - HELD THAT:- In the affidavit filed in support of this writ petition, the only ground raised is that the timelines fixed by this Court on 20.06.2019 have not been adhered to. This ground fails in light of the reply of the petitioners dated 12.07.2019 requesting the officer to keep the matters in abeyance till such time the batch is decided by the Bench. There are no merit in these writ petitions - Let notice be issued afresh and proceedings concluded after hearing the petitioners in accordance with law.

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• 2021 (2) TMI 1154
  Levy of Entry Tax - Section 4 of the Entry Tax Act - no opportunity of personal hearing granted - HELD THAT:- Pursuant to the order of remand, the petitioner appeared before second respondent and submitted their objection. The same is also enclosed at Page No.12 of the typed set of papers. Even though, this Court had specifically stated that the point of set off should also be dealt with, in the impugned order, dated 31.08.2020, I find that the set off point has not at all been dealt with. There is considerable force in the contention of the learned Counsel for the petitioner that the direction given by this Court has not been complied with by the second respondent. The second respondent need not issue any more hearing notice to the Writ Petitioner. All the materials are very much on record. The second respondent will consider the same and pass fresh orders in accordance with law - Petition allowed.

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