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TMI Tax Updates - e-Newsletter
April 11, 2018
Case Laws in this Newsletter:
GST
Income Tax
Customs
FEMA
Service Tax
Central Excise
CST, VAT & Sales Tax
Wealth tax
Indian Laws
TMI SMS
Articles
News
Notifications
Circulars / Instructions / Orders
Highlights / Catch Notes
GST
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Constitutional validity of GST on long term lease premium (60 years) - one time premium / salami - levy of GST is not vitiated by any error of law - HC
Income Tax
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Recovery of tax dues from the Directors of the a Company - The show cause notice issued to the Directors of the Private Limited Company must indicate briefly the steps taken to recover the tax dues from the delinquent Private Limited Company and the failure to recover the same. - HC
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Bogus LTCG - undisclosed income - assessee has shown the long term capital gain income exempt u/s 10(38) - arrangement with the person providing accommodation entries - addition made by the AO is merely based on suspicion and surmises without any cogent material - no additions - AT
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TDS u/s 195 - Payments for software licenses fees as 'Royalty' as per Section 9(1)(vi) - Unilateral amendment by the Indian Government to the term ‘royalty’ by way of amendment to section 9(1)(vi) of the Act cannot be extended to the meaning of the term ‘royalty’ defined under DTAA. - AT
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There is neutral effect of writing off the closing stock & WIP on the profitability of the assessee as it has consequential effect. Indeed the profit of the current year shall come down by the amount written off during the year on account of over valuation of closing stock - claim of loss allowed. - AT
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Deemed divided u/s.2(22)(e) - interconnected companies - In the absence of assessee holding the shares in lending-company, the money received by assessee is thus not qualified to be taxed as ‘deemed dividend’ in the hands of assessee-company. - AT
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Application for registration u/s. 80G - Simply by mentioning the new objects in the application for grant of registration u/s 80G does not serve any purpose until and unless the same averment has to be specific with filing of amended Memorandum of Association - AT
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Validity of reopening of assessment - reasons to believe - purchases from grey market - addition @ 12.50% of alleged bogus purchases - Dealings in the grey market give the assessee various savings at the expense of the Exchequer - additions confirmed - AT
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Section 54/54F - exemption eligibility - LTCG - investment in residential property out of amount received from sale of basement - the basement is part and parcel of the same building, therefore, we cannot do any violence to the section and the provision has to be read as it is. - AT
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Depreciation on electric installations - to be classified as Furniture or Plant & Machinery - assessee failed to prove that electrical installations which are claimed to be falling within the block of assets “Plant and Machinery” are integral part of the plant and machinery and falls within the block of plant and machinery - AT
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Claim of trading loss - merely because the assessee itself has transferred a portion of loss to the account of the third party, the same would not disentitled the assessee to claim correct amount of loss before the tax authorities. - AT
Customs
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Classification of imported vessels - adjudicating authority has failed to appreciate the sense and implication of the expression 'navigability' which is required to be harmoniously read with the description in that subheading instead of being read as the distinction between that subheading and other subheadings of the chapter. - AT
Indian Laws
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Cheque bounced - Complaint u/s 138 of the N.I. Act - Prima-facie it appears that it is a dispute with regard to account having nature of civil dispute and the complainant without taking recourse to resolve the matter in civil side simultaneously has made efforts to implicate them by setting criminal case into motion. - HC
Service Tax
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Levy of tax on state police - Security Agency Services - providing security to banks, individuals, security for cricket matches, IPL, World Cup, Mumbai Port Trust, Mazagaon Dock, Tata Power, FCI and for other functions. - the activity undertaken by the police is not covered by the definition of Security Agency under Section 64(94) of the Act - AT
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Valuation - inclusion of sales value of prospectus in assessable value - The student only by filling of prospectus does not become entitled to get coaching from the Appellant. Hence the same cannot be considered as part of Commercial Training or Coaching Services’. - AT
Case Laws:
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GST
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2018 (4) TMI 409
Transitional credit - restriction on invoice upto twelve months only - Constitutional validity of Clause (iv) of sub-section (3) of Section 140 of the Central Goods and Services Tax Act, 2017 - Notice issued to the Attorney General, returnable on 22nd January, 2018.
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Income Tax
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2018 (4) TMI 460
Nature of income derived - ‘Royalty’ - Services provided by the Applicant to ONGC - whether to be construed to be in the nature of ‘Fees for Technical Services’ (‘FTS’) under section 9(1)(vii) - DTAA between India and UAE - PE in India - Held that:- The consideration for services provided by the Applicant to ONGC will not be construed to be in the nature of ‘Fees for Technical Services’ under section 9(1)(vii) of the Act. The consideration for services provided by the Applicant will not be construed to be in the nature of ‘Royalty’ under section 9(1)(vi) of the Act and/ or under Article 12 of the India UAE DTAA. The Applicant has a Permanent Establishment in India under Article 5 of the India UAE DTAA, in respect of its contract with ONGC. The income of the Applicant earned from its contract with ONGC would be taxable in India as business income. The income derived by the Applicant in respect of the contract with ONGC will be computed in accordance with provisions of section 44BB of the Income tax Act, 1961.
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2018 (4) TMI 459
Jurisdiction to proceed against the Directors of a delinquent Private Limited Company under Section 179(1) - recover from the petitioners as Directors of a Private Limited Company, the tax dues of the Private Limited Company in respect of the Assessment Year 2008-09 which it failed to honour - Held that:- It is an agreed position between the parties that the issue arising herein would stand concluded in favour of the petitioners by the decision of this Court in Madhavi Kerkar V/s. Assistant Commissioner of Income Tax (2018 (1) TMI 749 - BOMBAY HIGH COURT) as held that the jurisdiction to proceed against the Directors of a delinquent Private Limited Company under Section 179(1) of the Act will only arise when the Revenue is unable to recover the tax dues from the delinquent Private Limited Company. The show cause notice issued to the Directors of the Private Limited Company must indicate briefly the steps taken to recover the tax dues from the delinquent Private Limited Company and the failure to recover the same. In the above view, the impugned orders in respect of the two petitioners under Section 179(1) of the Act is quashed and set aside.
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2018 (4) TMI 458
Reopening of assessment - completion of project 'Sai Swar' - assessment year - Held that:- Finding of fact by the Tribunal in its order dated 2nd August, 2013 for the Assessment Year 2009-10 has not been challenged by the Revenue. This, in spite of the fact that the Revenue has preferred an Appeal from the order of the Tribunal dated 2nd August, 2012 in respect of Assessment Year 2009-10 to this Court being Income Tax Appeal No.385 of 2014. In fact, in its above appeal, no grievance was made by the Revenue in respect of the finding of the Tribunal that project 'Sai Swar' was being completed in the Assessment Year 201011. This finding of fact by the Tribunal that the project 'Sai Swar' was completed in the Assessment Year 201011 having being accepted by the Revenue in its order for the Assessment Year 2009-10, it is not now open to challenge the finding in the earlier order by way of the present proceedings. This is a concluded issue. In view of the aforesaid finding of fact in order dated 2nd August, 2012 (accepted on the above issue by the Revenue) ,the entire basis of reasons for reopening the Assessment for Assessment Year 2008-09 falls to the ground.
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2018 (4) TMI 457
Stay the recovery of demand - second respondent confirming the order of the respondent No.1 demanding 50% of the demand amount for grant of stay - garnishee notice u/s 226(3) directing the bank to make the payment towards the demand of tax from the account of the petitioner - Held that:- The order of the second respondent dated 14.02.2018 is a non-speaking order which cannot be sustained. Referring to the same, respondent No.3 has passed an order on 22.03.2018 that the request of the stay of demand cannot be considered in view of the decision taken by the second respondent which culminated in the issuance of garnishee notice dated 23.03.2018 at Annexure-Y in defiance with the order of this Court in not providing one week time before initiating coercive recovery action. Respondent No.3 referring to the same, failed to exercise the statutory powers vested with him. Statutory Appellate Authority ought to have adjudicated upon the Application for stay filed by the petitioner. The basis for declining to entertain the stay application is the order of the second respondent dated 14.02.2018 which goes to the root of the matter. Had the second respondent considered the request of the petitioner in accordance with law and passed the speaking order, it would have been appreciated. However, it is well settled principle that any order passed without assigning reasons is a nullity and not valid in the eye of law. Hence, the order of the second respondent is not in conformity with the well settled principles of law.
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2018 (4) TMI 456
Notice issued u/s 226 (3) - notice addressed to the petitioner's bankers stating that the petitioner is due and payable being the income tax for the AY 2018-19 - Held that:- The petitioner has to be partly blamed, because, while remitting the further advance tax of ₹ 30,00,000/- he ought to have filed Form 28 A. In any event, as on date, Form 28 A has been filed before the first respondent. Therefore, the said Form 28 A should be considered by the first respondent and decision be taken on merits and in accordance with law. However, in the meantime, the question of recovery of ₹ 96,41,650/- by attaching the petitioner's bank account does not arise and the notice under Section 226(3) dated 26.03.2018 should remain suspended. Writ Petition is disposed of, by directing the first respondent to consider the petitioner's Form 28 A, being the intimation to the Assessing Officer under Section 210 (5), regarding the notice of demand issued under Section 156 of the Income Tax Act, 1961, dated 09.02.2018 and pass appropriate orders on merits
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2018 (4) TMI 455
Broken period interest allowability - Held that:- In the case of the same assessee, for the assessment years 2001-02 to 2005-06, the same issue was dealt with by the Division Bench of this Court in the case of C.I.T. v. HDFC Bank Ltd. [2014 (8) TMI 119 - BOMBAY HIGH COURT]. The Division Bench answered the same question against the appellant by relying upon the decision of this Court in the case of American Express International Banking Corpn. v. C.I.T. [2002 (9) TMI 96 - BOMBAY High Court ] .
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2018 (4) TMI 454
Reopening of assessment - Disallowance u/s 14A - Change of opinion - Held that:- The entire material is available before the AO when he framed the assessment u/s 143(3) of the Act and being aware of the assessee earning tax free income and incurring some expenditure, the AO accepted the expenditure offered by the assessee under Rule 8D of the Rules In so far as the assessee had disclosed the interest expense in the Profit & Loss account and investment in the balance sheet and also disclosed exempt income in the returns, there is no failure on the part of the assessee to disclose all the material facts necessary for assessment and having accepted the same, the AO does not get jurisdiction to reopen the assessment beyond the period of four years and such a course is not permissible under law. In view of the facts and circumstances adverted to above and the case laws referred to, we are of the considered opinion that reopening of the proceedings in the matter are not in accordance with law and we find it difficult to sustain the same. - Decided in favour of assessee.
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2018 (4) TMI 453
Bogus Long term capital gain - undisclosed income - assessee has shown the long term capital gain income exempt u/s 10(38) - subsequent merger of the company as per the scheme of merger - arrangement with the person providing accommodation entries - Held that:- When the payment of purchase consideration paid through cheque directly to the company and the subsequent merger of the company as per the scheme of merger approved by the High Court, then the transaction and sale of shares in question cannot be held as bogus. The AO has passed the impugned order on the basis of the statement of Shri Deepak Patwari which is identical as in the case of Shri Pramod Jain & others vs. DCIT [2018 (2) TMI 300 - ITAT JAIPUR]. Accordingly following the order of the Coordinate Bench of this Tribunal, we hold that the addition made by the AO is merely based on suspicion and surmises without any cogent material to controvert the evidence filed by the assessee in support of the claim. Further, the AO has also failed to establish that the assessee has brought back his unaccounted income in the shape of long term capital gain. Hence we delete the addition made by the AO on this account. - Decided in favour of assessee
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2018 (4) TMI 452
Validity of assessment framed u/s. 147 - credit balance in the name of M/s. Mahindra & Mahindra - Held that:- The name of M/s. Mahindra & Mahindra in his books of account as reflected in the balance sheet and its annexure. It has surfaced during the course of scrutiny proceedings for the AY 2012-13 in the books of M/s. Mahindra & Mahindra that debtor has written off the corresponding debit balance in its books of account as on 31.3.2011 itself. Therefore, on the basis of these facts, the AO has properly formed a belief that income chargeable to tax has escaped assessment. In the light of these facts, we do not agree with the contentions of the assessee that no material was available before the AO to form a belief that income chargeable to tax has escaped assessment. More over, no regular assessment was framed u/s. 143(3) of the Act. Cessation of liability u/s. 41(1) - In any case, where the assessee has denied the knowledge of writing off of such huge amount of bad debt, it was incumbent upon the AO to dig out the truth by making necessary enquiries from M/s. Mahindra & Mahindra, but it was not done and without doing so, the AO has made the addition of the same in the hands of the assessee, having invoked the provisions of section 41(1) of the Act. We are therefore of the view that in the absence of complete information, the conclusion drawn by the AO is not proper. Therefore, it requires further enquiry and investigation from M/s. Mahindra & Mahindra with regard to any settlement undertaken between the parties under which M/s. Mahindra & Mahindra has written off huge amount of ₹ 3,08,03,419.13. Accordingly, we set aside the order of the CIT(Appeals) in this regard and restore the matter to the AO with a direction to make necessary enquiry from M/s. Mahindra & Mahindra and from the assessee also with regard to any settlement under which 3,08,03,419.13 has been written off by M/s. Mahindra & Mahindra.
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2018 (4) TMI 451
Addition of proportionate interest and adhoc expenses - Held that:- Since the authorities below have failed to point-out that funds have been extended to Ms. Monisha Mittal out of borrowed funds, therefore, none of the decisions cited by the Ld. D.R. would support the case of the Revenue. Therefore, there is no justification for the authorities below to disallow proportionate interest of ₹ 4,49,437/-. Similarly, out of addition of ₹ 30,000/- on account of disallowance of expenses, the A.O. has not given any specific finding against the assessee-firm as to how much expenses have not been supported by bills and vouchers and as to how the expenses are not admissible for deduction. The Ld. CIT(A) noted in his finding that disallowance have been made by A.O. on estimate basis only. It, therefore, appears that it is an adhoc addition in nature. Therefore, addition of ₹ 30,000/- would also not sustained. - Decided in favour of assessee.
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2018 (4) TMI 450
Validity of order u/s 201(1) - period of limitation - Held that:- As per provisions contained in Finance (No.2) Act, 2014, effective from 01.04.2010, the order u/s 201 was required to be passed within two years from the end of financial year in which statement is filed or four years from the end of financial year in which payment is made or credit is given in any other case. But, in the instant case, TDS verification letter / notice was issued on 23.01.2015 and order u/s 201(1) was passed on 30.03.2015 and 05.03.2015 for AYs 2008-09 and 2010-11 respectively which are hopelessly barred by limitation as the same were required to be passed within a period of two years or four years as the case may be, as amended provisions of Finance (No.2) Act, 2014 relied upon by AO as well as CIT (A) are not applicable in these cases. Assessment order passed by AO is beyond the period of limitation, which is without jurisdiction - Decided in favour of assessee.
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2018 (4) TMI 449
Payments for software licenses fees as 'Royalty' as per Section 9(1)(vi) - treatment to payment made for software licence fees - DTAA applicability - withholding of tax - Held that:- The present case before us the Assessing Officer has held that the payment made by the assessee was ‘royalty’ as per definition of ‘royalty’ under the DTAA also. We find no merit in the said stand of Assessing Officer, in view of the issue being so held in DIT Vs. Infrasoft Ltd. (2013 (11) TMI 1382 - DELHI HIGH COURT). We further hold that payment made for purchase of software was not royalty as per definition of ‘royalty’ under the DTAA between India and USA, Germany and Singapore, since the term ‘royalty’ under the DTAA with these different countries had not been amended. Even if the definition of ‘royalty’ under the Act stands amended but the assessee was not liable to withhold tax on the payments made to Non-resident entities on account of purchase of software. Unilateral amendment by the Indian Government to the term ‘royalty’ by way of amendment to section 9(1)(vi) of the Act cannot be extended to the meaning of the term ‘royalty’ defined under DTAA. Applying the principle laid down by the Hon’ble High Court of Delhi in DIT Vs. New Skies Satellite BV (2016 (2) TMI 415 - DELHI HIGH COURT), we hold that where the provisions of DTAA overrides the provisions of Income-tax Act being beneficial and the definition of ‘royalty’ having not undergone any amendment in DTAA, the assessee was not liable to withhold tax on the payments made for purchase of software. The amended provisions of section 9(1)(vi) of the Act brought into force by the Finance Act, 2012 are applicable to domestic laws and the said amended definition cannot be extended to DTAA, where the term ‘royalty’ had been defined originally and not amended. As per the definition of ‘royalty’ under the DTAA, purchase of software does not fall in realm of ‘royalty’. Accordingly, there was no liability on the assessee to withhold tax and the assessee cannot be held to be in default. The demand created under section 201(1) and interest under section 201(1A) of the Act is thus, cancelled.
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2018 (4) TMI 448
Penalty u/s 271(1)(c) - non specification of charge - defective notice - Held that:- The show cause notice issued in the present case u/s 274 of the Act does not specify the charge against the assessee as to whether it is for concealing particulars of income or furnishing inaccurate particulars of income. The show cause notice u/s 274 of the Act does not strike out the inappropriate words. In these circumstances, we are of the view that imposition of penalty cannot be sustained. The plea of the ld. Counsel for the assessee which is based on the decisions referred to in the earlier part of this order has to be accepted. - Decided in favour of assessee
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2018 (4) TMI 447
Addition on account of prior period expenses in respect of closing stock of raw materials and work in progress - Held that:- The undisputed facts are that the over valuation of stock and WIP was revealed on the basis of physical verification carried out by the firm of chartered accountants. The amount of over valuation of stock & WIP was duly debited in the profit and loss account of the assessee. As per the AO the over valuation of stocks & WIP represents the prior period items, therefore the same have been debited in the profit and loss account of the respective years to which it pertains. The fact of over valuation of closing stock was crystallized in the year under consideration therefore the same has to be written off in the current year only. In holding so, we find support and guidance from the order of ITAT Cuttack Bench in the case of National Aluminium Co Ltd (2005 (11) TMI 483 - ITAT CUTTACK). We are of the view that the loss on account of over valuation of closing stock/WIP is liable for deduction under section 37(1) of the Act. There is neutral effect of writing off the closing stock & WIP on the profitability of the assessee as it has consequential effect. Indeed the profit of the current year shall come down by the amount written off during the year on account of over valuation of closing stock - Decided against revenue
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2018 (4) TMI 446
Eligibility for exemption u/s. 80P(2)(a)(i) - gross interest income received by the assessee on fixed deposits kept with the cooperative banks - Held that:- As decided in Tumkur Merchants Souharda Credit Cooperative Ltd. Vs. ITO [2015 (2) TMI 995 - KARNATAKA HIGH COURT] the amount which was invested in banks to earn interest was not an amount due to any members. It was not the liability. It was not shown as liability in their account. In fact this amount which is in the nature of profits and gains, was not immediately required by the assessee for lending money to the members, as there were no takers. Therefore they had deposited the money in a bank so as to earn interest. The said interest income is attributable to carrying on the business of banking and therefore it is liable to be deducted in terms of Section 80P(1) of the Act. The order passed by the appellate authorities denying the benefit of deduction of the aforesaid amount is unsustainable in law. Accordingly it is hereby set aside. - Decided in favour of assessee.
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2018 (4) TMI 445
Deemed divided u/s.2(22)(e) - assessee-company as well as the lender-company are interconnected and has common shareholders holding ‘substantial interest’ in both the companies contemplated under s.2(22)(e) - Held that:- The assessee company in the instant case has received an amount of RS. 25 lakh from lender (Prima Transformers Pvt. Ltd.). In agreement with the contention of Mr. Pipara that where the assessee company was not a share holder of the lender- company per se, then notwithstanding a fact that both the companies have common share holder having substantial interest in both the companies, the taxability of deemed dividend in terms of provisions of s.2(22)(e) of the Act would not arise in the hands of the recipient-company (assessee) which is not the registered share holders of the lender company. In the absence of assessee holding the shares in lending-company, the money received by assessee is thus not qualified to be taxed as ‘deemed dividend’ in the hands of assessee-company. Hence, we do not see any reason to interfere with the order of the Ld. CIT(A) absolving the assessee from the clutches of s.2(22)(e) of the Act. Thus, we decline to interfere with the relief granted by the CIT(A). Trade advances stand excluded from the ambit of section 2(22)(e) of the Act. Reopening of assessment - Held that:- Protective assessment under s.147 to merely safe-guard the interest of the Revenue is not sustainable in re-assessment proceedings under s.147 of the Act. A protective assessment impliedly means that the AO is not sure about the escapement in the hands of this assessee but merely seeks to cover the possible revenue loss. This, in our view, is contrary to the mandate of section 147 which provides that it is incumbent upon the AO to have positive belief towards escapement (in contrast to probable escapement) based on the material available on record. Clearly, the action of the AO runs counter to the mandate of section 147 of the Act. Notably, the case of escapement of income qua assessee herein is not finally ascertained even at the assessment stage pursuant to notice for re-opening under s.147/148 of the Act.
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2018 (4) TMI 444
TPA - intragroup services in lieu of which assessee made payments to its associated enterprise - Assessee is engaged in providing of software development services, software deployment services, consultancy services, training services, software sublicensing and AMC activities - Held that:- On perusal of the order passed by this Tribunal in assessee’s own case for assessment year 2007-08 as well as 2008-09, it is observed that the issue has been set aside to Ld.TPO for considering evidences filed by assessee and to decide the issue as per law. In the facts of the present case before us, it is submitted that assessee already filed all relevant details before Ld.TPO and DRP which have not been considered while deciding this issue. We direct Ld.TPO to examine these evidences filed by assessee to establish the fact of having availed such services from AE and to decide the issue as per law. Addition in respect of interest paid by assessee on advances received from associated enterprises - Held that:- Set aside this issue to be decided in the light of evidences/invoices placed on record by assessee before Ld.TPO and TP Report in respect of receivables as well as payables. In the event it is established that the receivables as well as payables relate to assessee & AE inter se, then netting off shall be granted. On the contrary if it is established that only receivables are in the nature of loan then interest at the market rate shall be applied. Adjustment of provision of software development services and software consultancy services - Held that:- As we have already set aside the ground relating to management fees being ground No. 4 to Ld. AO for verification of the issue in the light of the evidences already placed on record, this ground now becomes infructuous. Disallowance of software license fees - revenue v/s capital expenditure - Held that:- We are at loss to appreciate as to how the assessee can be said to have created an 'Intangible asset' by paying the Licence fee to its AE in respect of sales made. Such payment @ 45 % of the invoice value was the obligation of the assessee ab initio without which it could not have procured the license of ENTERPRISE suite for sale in India. This amount can be loosely characterized as cost of goods transferred to the customers in India, which has necessarily to be allowed as a revenue expenditure. Similar view has been taken by the tribunal in its order for the immediately preceding year. We, therefore, overturn the impugned order on this score and direct the deletion of addition
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2018 (4) TMI 443
Addition of difference in working of capital gain - Held that:- As could be seen from the materials on record, AO has only considered the difference in value in respect of three properties where he found the assessee’s value to be more than the value of the Government approved valuer. However, as observed by the learned Commissioner (Appeals), in respect of other properties, the value of the assessee is less than the value determined by the Government approved valuer. Therefore, if assessee’s valuation vis–a–vis valuation of the Government approved valuer is considered in totality, the assessee’s value in respect of properties is less than the Government approved valuer. Disallowance of expenditure incurred towards legal and professional charges - Held that:- The claim of business expenditure on account of legal and professional charges was disallowed solely for the reason that income from the said property is assessed under the head income from house property. However, it has been submitted before us by AR that only a part of the property was let out and other part is used for business purpose. Aforesaid factual aspect has not been examined by the Departmental Authorities. We are inclined to restore the issue to the file of the Assessing Officer for verifying assessee’s claim that part of the property is also used for business. If assessee’s claim is found to be correct, the expenditure incurred towards legal and professional charges should be allowed. Ground is allowed for statistical purposes.
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2018 (4) TMI 442
Application for registration u/s. 80G - non filing of revised/amended objects of the society - institution is already registered under section 12AA of the Act - Held that:- We are in agreement with the Ld. CIT(E) that the AO and the assessment order cannot replace the prescribed authority as according to Sec.12AA/80G it mandates that where a trust or an institution has been granted registration u/s 12A of the Act then subsequently the prescribed authority can cancel the registration on the ground that the activities of the trust or institution are not genuine or are not being carried out in accordance with objects of the trust or institution as the case may be. It reflects from the record that in the instant case, the appellant did not file revised objects either before the prescribed authority who granted registration u/s 12AA of the Act or before the Ld. CIT(E) during the consideration of application u/s 80G of the Act. Simply by mentioning the new objects in the application for grant of registration u/s 80G does not serve any purpose until and unless the same averment has to be specific with filing of amended Memorandum of Association that the objects which were mentioned in the application are revised/amended having been approved by the authority, who granted the registration u/s 12A of the Act. What prevented the appellant to file the amended/revised objects/Memorandum of Association before the Ld. CIT(E) even after confrontation of the same. DR that even the original Memorandum of Association and amended Memorandum of Association as filed before us does not specify its registration and even no date is reflecting from the aforesaid Memorandum of Association of the appellant. In law, there is specified procedure for amendment of the objects, which required to be notified to the prescribed authority under the Income Tax and which the appellant herein failed to do.
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2018 (4) TMI 441
Penalty levied u/s 271(1)(c) - defective notice - non specification of charge - Held that:- The Hon’ble Karnataka High Court in the case of M/s Manjunatha Cotton & Ginning Factory in (2013 (7) TMI 620 - KARNATAKA HIGH COURT) has held that a notice issued u/s 274 r.ws 271 of the Act without specifying the nature of default; i.e; whether the notice is issued for concealment of particulars of income or furnishing of inaccurate particulars of income; is invalid and the consequential penalty proceedings/order are also not valid. - Decided in favour of assessee
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2018 (4) TMI 440
Addition on account of employees’ contribution to Provident Fund and ESI fund beyond due date - Held that:- We note that the payments of PF and ESI had not beenpaid by the assessee within the grace period as specified in the relevant statute. However, we note that the payment of ESI and PF have been made by the assessee within the due date of filing return of income u/s. 139(1) of the Act. Therefore, it is a sufficient compliance made by the assessee and there is no breach of duty or default on the part of the assessee and for that we rely on the judgment of the Hon'ble Supreme Court in the case of CIT vs. Alam Extrusions Ltd. (2009 (11) TMI 27 - SUPREME COURT ) Addition u/s. 14A r.w.r. 8D - Held that:- Disallowance cannot be made u/s. 14A r.w.r. Rule 8D of the IT Rules, where the assessee has not earned / received any exempt income during the assessment year under consideration i.e. until and unless there is receipt of exempt income for the concerned assessment year, the disallowance u/s 14A r.w.r. Rule 8D of the IT Rules cannot be invoked. Since in the assessee case under consideration, as the assessee had not earned any exempt income during assessment year 2011-12, therefore, the invoking of the provision of Section 14A r.w.r. Rule 8D of the I.T. Rules by the Assessing Officer is not warranted. Disallowance as interest on loan to subsidiary company - Held that:- We note that money was advanced to the subsidiary company on account of commercial expediency and the ratio of the judgment of Hon'ble Supreme Court in the case of S.A. Builders Ltd. vs. CIT And Another (2006 (12) TMI 82 - SUPREME COURT) is applicable to the facts of the assessee’s case under consideration. We also note that assessee was having sufficient interest free fund and the Assessing Officer was unable to establish any nexus between borrowed fund and the loan fund to the subsidiary company. Therefore the disallowance for interest on loan to subsidiary u/s 36(1)(iii) by the Assessing Officer is not justified. Addition made on account of bogus purchases of raw materials - Held that:- Assessee has produced details, such as copy of vouchers of purchases of raw jute,invoices, delivery memo, ledger account, bank statement and deduction of TDS for payment made for purchases etc. There is physical movement of goods in the assessee`s case under consideration. We also note that once sales were accepted by the assessing officer then the corresponding purchases could not be disallowed, because without purchase there can not be sale. Further, we note that Assessing Officer has not found any patent defect in the method of accounting and has accepted the books result of the assessee.In view of the totality of factual matrix of the case, we note that the Assessing Officer has failed to bring any cogent evidence on record to show that purchases made by the assessee are bogus. Revenue appeal dismissed.
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2018 (4) TMI 439
Validity of reopening of assessment - reasons to believe - purchases from grey market - addition @ 12.50% of alleged bogus purchases - Held that:- There was cause or justification for the AO to invoke provisions of sec. 147 and issue notice u/s. 148. As already mentioned, at the initiation stage, what is required to be seen is there are prima-facie 'reasons to believe1 but not the established fact of escapement of income. The AO also recorded proper reasons for formation of the belief that income has escaped assessment. It is also important to note that the information relating to Hawala operators was also made available in public domain i.e. in the official website of the Maharashtra Sales Tax Department and therefore the reasons for reopening the assessment are not based on mere suspicion. Thus, all the conditions necessary for reopening of the assessment under the provisions of sec. 147 and for issue of notice u/s. 148 are satisfied in the case of the appellant for the year under appeal. Hence the reopening the assessment u/s 148 of the Act was absolutely valid. For the addition for bogus purchases as seen assessee has engaged into dealings in the grey market. Dealings in the grey market give the assessee various savings at the expense of the Exchequer. Hence, on the overall consideration of facts and circumstances and following the decision of Hon’ble Gujarat High Court in the case of CIT vs Simit P. Sheth [2013 (10) TMI 1028 - GUJARAT HIGH COURT) hold that a disallowance of 12.5% of the bogus purchase would meet the end of justice. Hence, I affirm the order of the authorities below. - Decided against assessee
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2018 (4) TMI 438
Section 54/54F - exemption eligibility - LTCG - investment in residential property out of amount received from sale of basement - The stand of the Assessing Officer was that the basement does not fall within the purview of “Residential Flat” as envisaged u/s 54 of the Act. Thus, the same not being in the nature of capital asset, the gain arising therefrom should be taxed. - Held that:- If the two units are conjoint together and to make it habitable (situated on the same floor) it will satisfy the provision and exemption u/s 54F will be available to the assessee. However, in the present appeal before us it is an admitted fact that the basement is part and parcel of the same building, therefore, we cannot do any violence to the section and the provision has to be read as it is. There is nothing in the section which requires that the residential house should be built in a particular manner. A person may construct a house according to his plans and requirements. Most of the houses are constructed according to the needs and requirements and even compulsions. For instance, a person may construct a residential house in such a manner that he may use the ground floor for his own residence and let out the first floor having an independent entry so that his income is augmented. One may build a house consisting of four bedrooms (all in the same or different floors) in such a manner that an independent residential unit consisting of two or three bedrooms may be carved out with an independent entrance so that it can be let out or even the other family members can be adjusted and they can remain mutually supportive. In the instant case the basement is part and parcel of the same building / residential house. Considering all the assessee is entitled for exemption u/s 54 / 54F of the Act, therefore, we find no infirmity in the order of the ld. First Appellate Authority, therefore, it is affirmed. - Decided against revenue
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2018 (4) TMI 437
TPA - comparable selection criteria - companies comparable with assessee - Held that:- The assessee is engaged in providing software development support services based on the instructions and guidance provided by PubMatic Inc.[Holding company], thus companies functionally dissimilar with that of assessee need to be deselected from final list.
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2018 (4) TMI 436
TPA - AO/TPO clubbed the domestic transaction of IMFL with international transaction while applying TNMM - economic analysis undertaken by the appellant in respect of international transaction pertaining to purchase of CAP following a segmental approach by segregating manufacturing operations into BIIS and IMFL business verticals - Whether the international transaction of the appellant comply with the arm's length standard even if the TPO's approach of clubbing the BIIS and IMFL segment is to be followed for the year under consideration ? - Held that:- The economic analysis undertaken by the assessee in respect of international transaction pertaining to the purchase of CAP following segmental approach by segregating manufacturing operations into BIIS and IMFL business verticals is in accordance with the relevant Transfer Pricing Regulations. The assessee's international transaction pertaining to purchase of CAP, thus, complies with the Arm's Length Standard for the year under consideration. D.R. merely relied upon the Auditor's Note in the Accounts, which, according to assessee, is not relevant because from the accounting perspective, it is one line of business and accordingly, assessee was not required to disclose segmental reporting in its Note to the Accounts. The assessee filed the segmental accounting on both the segments before the authorities below, which have not been disputed by them. Therefore, there is nothing wrong in the analysis submitted by the assessee for the purpose of benchmarking of ALP. Both the segments cannot be clubbed together to determine the ALP. CIT(A), even on the alternative point considered that even if the TPO's approach of clubbing of both the segments is to be followed for the year under consideration and certain comparables which are not relevant to the issue are excluded, the assessee's would be entitled for full relief on account of T.P. adjustment. The reason given by the CIT(A) have not been disputed by the Ld. D.R. through any evidence or material on record. CIT(A) also considered that manufacturing activity in the IMFL segment largely comprises of contract manufacturing and bottling of liquor for other companies, for which, fixed return are received and in case of bottling, profit is excluded, then also, the ALP declared by the assessee was correct. In the absence of any serious challenge to the findings of the CIT(A) on this issue also, no interference is called for in the matter. No interference is called for in the matter. - Decided against revenue.
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2018 (4) TMI 435
Addition made on account of premium received by the assessee - Addition u/s 68 - Held that:- We find that the assessee had received share premium money at the rate of 10, 000/-per share, that the AO made an addition of ₹ 2. 97 crores to the income of the assessee invoking the provisions of section 68 of the Act, that it had obtained a valuation report from a CA about the market value of the shares, that the earning per share of the assessee was more than ₹ 40,000/- that it had charged premium of ₹ 10,000/- only per share, that the existing director said purchase the shares. In our opinion, once a valuation report this opted by an assessee from a professional it has to be given due weightage, until and unless it is proved that same was factually incorrect or was obtained by fraud. It had charged 1/4th premium, as compared to the earning per share. Order of the FAA does not suffer from any legal or factual infirmity. So, upholding the same, we decide the effective ground of appeal against the AO. - Decided in favour of assessee.
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2018 (4) TMI 434
Rectification of mistake - whether provisions of sec.80AC of the Act are mandatory or directory? - Held that:- Not making a reference to the decision of Delhi High Court in the case of M/s. Unitech Ltd. (2015 (10) TMI 950 - DELHI HIGH COURT) is neither a mistake apparent from the record nor does it cause any prejudice to the assessee. For the very same reasons not making a reference to the decisions of the Hon’ble Supreme Court in the case of Straw Board Manufacturing Ltd. (1989 (4) TMI 4 - SUPREME Court) and Poddar Cements Pvt. Ltd. (1997 (5) TMI 2 - SUPREME Court) by the Tribunal in it’s order does not give rise to any mistake apparent on the face of the order of the Tribunal as on the principle (a) a liberal construction should be put on the language of a statute when concessional rates are provided for encouraging an industrial activity and (b) when two interpretations are possible, the view in favour of the assessee has to be adopted. Both these decisions cannot be applied by the Tribunal to hold that provisions of sec.80AC of the Act are directory only, contrary to the decision of Hon’ble Calcutta High Court in the case of M/s Shelcon Properties (P)Ltd. (2015 (3) TMI 579 - CALCUTTA HIGH COURT). We are therefore of the view that there is no mistake apparent on the face of the record of the Tribunal.
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2018 (4) TMI 433
Depreciation on electric installations - to be classified as Furniture or Plant & Machinery - Held that:- As seen from Appendix-I which given the depreciation schedule that furniture including electrical fittings is considered as a separate block of asset. Therefore it is necessary that the assessee should show that electrical installations which are claimed to be falling within the block of assets “Plant and Machinery” are integral part of the plant and machinery and falls within the block of plant and machinery and not within the block of furniture and fittings and electrical installations. The AO has clearly brought out in the assessment order that each item had independent functions and was not an integral part of the plant and machinery. In the given circumstances we are of the view that order of the revenue authorities on this aspect does not require any reconsideration. Disallowance u/s 14A - Held that:- The assessee had not earned or received any dividend income during the previous year, we are of the view that there can be no disallowance u/s 14A of the Act. Accordingly the addition made u/s 14A of the Act is directed to be deleted. Addition of interest on fixed deposit - Held that:- Before us the ld. Counsel for the assessee submitted that submissions were made before CIT(A) on this issue. We are of the view that it would be just and appropriate to direct the CIT(A) to decide this issue afresh Unexplained cash credit - no credit entry in the books of accounts - Held that:- It is clear from the ledger account of Flower Trading & Investment Co.Ltd. as appearing in the books of accounts of the assessee that there was a debit of ₹ 20,00,000/- on 22.06.2011 towards refund of loan and a corresponding credit entry on 25.06.2011 reversing the debit entry. These entries are contra entries and do not represent any transaction. Flower Trading & Investment Co.Ltd in their books of accounts have not recognized these transactions at all. It is only because of this that there is a difference between the assessee’s books of accounts and the books of accounts of Flower Trading & Investment Co. Ltd. In our opinion the assessee has rightly reconciled the difference and the addition made by the AO is purely on surmises and ignoring the fact that loan confirmation from Flower Trading & Investment Co.Ltd does not reflect the sum of ₹ 20 lakhs either as loan given to the assessee or loan repaid by the assessee. - Appeal decided partly in favour of assessee
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2018 (4) TMI 432
Computation of long term capital gain - Property acquired by assessee through memorandum of family arrangement cum compromise deed - cost of acquisition - Disallowing of Index Cost for calculating Long Term capital Gains - Held that:- It is settled law that when parties entered into family arrangement, the validity of the family arrangement is not to be judged with reference to whether the parties who raised disputes or rights or claimed rights to certain properties had in law any such right or not. A perusal of the record in the present case before me, establishes that a dispute was there in the family as per memorandum of family arrangement cum compromised deed and family arrangement was arrived at was documented much prior to the sale of the property in 2011. The family arrangement was made in 2004. In view of these, treat the family arrangement as genuine and distribution of sale consideration according to the same is to be assessed as capital gains. The consequential benefits and deductions are to be allowed as per law. Accordingly, the appeal of the assessee is allowed.
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2018 (4) TMI 431
Addition on account of statement given by the Director in the course of survey - Held that:- No reference to any incriminating material to justify the aforesaid difference as unaccounted income. The long line of judicial precedents quoted in the order of the CIT(A) uniformly holds that mere statement given by an assessee making disclosure, which is not supported by any corroborative material, cannot be assigned evidentiary value for the purposes of additions of alleged undisclosed income in the hands of the assessee - the reasonings adopted by the CIT(A) while granting relief to the assessee are based on sound legal proposition and thus cannot be faulted. In the absence of any reference of incriminating materials to justify the addition, we find no infirmity in the order of the CIT(A) towards cancelling the addition made by the Assessing Officer on this score. Therefore, we decline to interfere with the order of the CIT(A) in this regard. Addition u/s 68 - Held that:- Where the trail for obtaining the loan and repayment thereof is proved and the lender has duly filed its return of income the encompassing transaction with the assessee; we see little merit in the grievance of the Revenue on the aforesaid issue. The conclusion drawn by the CIT(A) is based on proper appreciation of evidences and founded on peculiar facts of the case. Therefore, we decline to interfere with the conclusion drawn by the CIT(A) deleting the addition towards unexplained credit. - Decided against revenue.
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2018 (4) TMI 430
Disallowance of interest under section 14A of the Act read with Rule 8D(2)(ii) in respect of interest - Held that:- The assessee has availability of sufficient own funds which was claimed by assessee before AO as well as before CIT(A). The company has own funds of ₹ 7945.94 crores as on 31-03-2012 as per financial accounts and out of which company has made temporary investments in mutual funds and earned dividend income. The assessee has made investment of ₹ 342.54 crores as on 31-03-2012 in subsidiaries and associate companies as on 31-03- 2012. We are of the view that subject to limited purpose of verification of facts whether the assessee’s investments in instruments giving interest free income is in commensurate with that the interest free funds available, the AO will not make any disallowance qua that. Secondly, the AO will not include the strategic investments while computing these disallowances. The AO will accordingly compute the disallowance if any. Accordingly, this issue of Revenue’s appeal is dismissed and that of the assessee is allowed subject to verification as suggested by us. Disallowance of bad debts under section 36(1)(viia) - Held that:- Hon’ble Supreme Court in the case of Catholic Syrian Bank Ltd. v. CIT (2012 (2) TMI 262 - SUPREME COURT OF INDIA) wherein it is held that the assessee is entitled for deduction under section 36(1)(vii) read with section 36(2)(v) of the Act and also this deduction is independent of provisions made in section 36(1)(viia) of the Act. Accordingly, we are of the view that the CIT(A) has rightly allowed the claim of the assessee and we confirm the same. This issue of Revenue’s appeal is also dismissed. Expenditure incurred by the assessee on Employees State Option Plan (ESOP) is to be allowed. See Biocon Ltd. Vs. DCIT [2013 (8) TMI 629 - ITAT BANGALORE]
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2018 (4) TMI 429
TPA - comparable selection criteria - Held that:- Assessee is classified into software development segments, thus companies functionally dissimilar with that of assessee need to be deselected from final list. Risk adjustment qua comparables and the assessee - Held that:- It is for the assessee to demonstrate as to how the assessee who is a captive service provider to its AE has more risk in comparison to the other comparables retained by the Tribunal. Since no details and working has been provided, therefore, we do not deem it appropriate to grant any risk adjustment to the assessee. Accordingly this ground is rejected.
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2018 (4) TMI 428
Deduction u/s 10A - exclude the communication charges from the export turnover as well as total turnover - Held that:- The Hon'ble Bombay High Court in case of CIT v. Gem Plus Jewellery India Ltd. [2010 (6) TMI 65 - BOMBAY HIGH COURT] as well as ITO v. Sak Soft Ltd. (2009 (3) TMI 243 - ITAT MADRAS-D) have held that communication charges attributable directly to the export of article or thing outside India has to be excluded both from export turnover as well as total turnover while computing exemption u/s 10A of the Act. In view of the above, we are in agreement with the order of DRP and direct the AO to exclude the communication charges from the export turnover as well as total turnover while computing 10A deduction. Transfer pricing adjustment on account of corporate guarantee - Held that:- Assessee has provided corporate guarantee to its AE in the current AY without charging any fees for the same. The term 'guarantee' was inserted in the definition of international transaction by inserting an explanation in the Finance Act, 2012 with retrospective effect from 01/04/2012. There is no dispute that the corporate guarantee is an international transaction and different assessees are adopting different methods of treatment. Some assessees charges nominal rate to the AEs, whereas other assessees are treating this as shareholder service. Here, the assessee has objected to include this transaction as international transaction for the reason that the Finance Act, 2012, which has inserted an explanation, which will be applicable prospectively from AY 2013-14 and the corporate guarantee transaction will not be applicable to the current AY. Thus we reject the treatment of corporate guarantee as international transaction and consequently, ALP adjustment is not warranted on this aspect Unrealised gains on foreign exchange forward contracts - Held that:- Real gain/loss is only when the contracts are concluded. Therefore, recognition of this notional gain or loss depends upon accounting policies or method of accounting regularly followed by the assessee, since the assessee is following mercantile system of accounting, recognition of gain/loss are traceable over the years. Since, all the notional gain/loss are regularly declared by the assessee in its financial accounts. Therefore, in our opinion, assessee is consistently following a method of accounting and also discloses foreign currency transactions in its books of account and consistently following the same method of accounting over a period of time. As per the Instruction No. 03/2010 dated 23/03/2010 issued by CBDT notional losses are not allowed to set off against taxable income. Similarly, notional gain also should not be added to the taxable income. Therefore, in our considered view, assessee is allowed to follow its method of accounting followed by it consistently over the period and, therefore, notional gain on forex transaction should be allowed to reduce from the net profit, which is arrived for tax purpose. Accordingly, ground raised by the assessee is allowed.
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2018 (4) TMI 427
Initiation of proceedings u/s. 147 - deposition of cash in the saving bank account during the financial year 2006-07 based on AIR Information and not filing of return of income by the assessee - non application of independent mind by AO - Held that:- Pursuant to receipt of AIR information from an external agency that cash has been found deposited in assessee’s savings bank account, there has been no further examination by the AO as to whether the cash so found deposited in the assessee’s bank account has been reflected or has any connection with the reported turnover in the return of income so filed by the assessee. The reason for the said action on part of the AO is not hard to found out as the AO has concluded that the assessee has not filed any return of income after looking at the Department’s IT system and without verifying the physical records maintained by the department which shows that the assessee has filed the return of income. There is a clear contradiction on part of the AO to hold that assessee has not filed his return when the records so filed before us shows, and a fact which remain undisputed, that the return of income has been filed even though manually and which has been duly acknowledged. In the instant case, the AO has thus failed to examine the AIR information so received which would have provided the nexus or the vital link to form a prima facie opinion that income of the assessee had escaped assessment for the impunged assessment year. In absence of necessary nexus between the tangible material and formation of belief, the reassessment proceedings cannot be sustained in the instant case. - Decided in favour of assessee.
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2018 (4) TMI 426
Assessment of sales tax incentive - Held that:- Sales tax incentive is not required to be deducted from the cost of asset, if the same is considered as capital receipt by the AO in the set aside proceedings. Deduction respect of Provision of leave encashment - Held that:- As in Supreme Court in the case of M/s Exide Industries Ltd (2007 (6) TMI 175 - CALCUTTA High Court) held that the assessee shall pay tax on the disallowance of Provision for leave encashment as if sec. 43B(f) is on Statute book. Hence the addition made by the AO is required to be sustained. If the decision of Hon ble Supreme Court comes in favour of the assessee in future, then the assessee is free to seek amendment of assessment order. Additional depreciation claimed u/s. 32(1)(iia) - Held that:- By insertion of the above said proviso in sec. 32 though Finance Act 2015 w.e.f. 1.4.2016, the parliament has approved the view taken by the Tribunal/Courts in respect of additional depreciation allowable u/s 32(1)(iia) of the Act. This provision also makes it very clear that the additional depreciation is allowed only once. We notice that the Kolkatta bench of Tribunal did not consider the third proviso inserted by Finance Act, 2015. Since the legislative intent in inserting sec.32(1)(iia) has been made clear by the third proviso inserted in sec. 32(1) by Finance Act 2015, we are unable to follow the view expressed by the Kolkatta bench of Tribunal in the case of Gloster Jute Mills (2017 (3) TMI 143 - ITAT KOLKATA), which was in turn followed in the assessee s own case. Since the decision rendered by Ld CIT(A) on this issue is in accordance with the legislative intent discussed above, we affirm the same. Accordingly this issue is decided against the assessee. Disallowance of foreign exchange fluctuation loss arising on currency swap/derivative transactions - Held that:- Following the decision rendered by the co-ordinate bench in the assessee s own case, we reverse the order passed by Ld CIT(A) on this issue and direct the AO to allow the claim of the assessee. Taxability of excise duty exemption - Held that:- Excise incentive received by the assessee is considered as capital in nature, the same would go to reduce the Cost of assets as per Explanation 10 to section 43 of the Act for the purpose of allowing depreciation. We have earlier noticed that the learned CIT(A) has made similar observations in respect of sales tax incentive scheme and we have dealt with the same in earlier paragraphs of this order. Since, the issue relating to determining the nature of receipt of Excise incentive has been restored to the file of the Assessing Officer, we restore this issue also to the file of the Assessing Officer with the direction to decide the same in the light of discussions made by us in earlier paragraph in respect of sales tax incentive. Disallowance of foreign exchange fluctuation loss arising on account of restatement of loan taken for the business purposes - Held that:- In the instant case, the nature of foreign currency loan availed by the assessee; whether it was held as fixed capital or circulating capital etc., have not been examined or brought on record. The assessee has simply taken the plea that the foreign currency loan has been used for the purpose of business and hence the loss arising its revaluation is allowable. In our view, it may be difficult to accept the said proposition of the assessee without examining the nature of loan and its utilisation. The facts relating to the foreign currency loan of USD 12 million availed by the assessee have to be examined in the light of principles discussed in the preceding paragraphs in order to arrive at a fair and just conclusion of the matter. We notice that neither the assessee nor the tax authorities have brought relevant facts on record. In the absence of the same, it will not be possible for us to apply the legal principles discussed above. Under these set of facts, we are of the view that this issue requires fresh examination at the end of the assessing officer. Accordingly we restore this issue to the file of the assessing officer with the direction to examine the same afresh Claim for deduction of Education cess as part of income tax, dividend distribution tax and fringe benefit tax - AO disallowed the claim by holding that education cess is part of income tax and is covered by the provisions of sec. 40(a)(ii), 40(a)(ic) and sec. 115O(5) - Held that:- The character of surcharge and education cess was examined by Hon ble Calcutta High Court in the case of Srei Infrastructure Finance Ltd (2016 (8) TMI 967 - CALCUTTA HIGH COURT) and has held that both surcharge and Education Cess are part of income tax, though payable in addition to the income tax. Also observed that the various provisions of Finance Act speak about income tax being increased by the amount of surcharge and cess. Accordingly it was held that the surcharge and education cess is not anything other than income tax. The CBDT circular, relied upon by the assessee, only explains the difference between the provisions of Income tax Act, 1922 and 1961. It does not clarify the nature of Education cess levied under Finance Act. The nature of Cess mentioned in 1922 Act is also not explained. Since the education cess has been levied under Finance Act as an item to increase income tax and since it has been held to be part of income tax by Hon ble Calcutta High Court, we are of the view that there is no merit in the contentions of the assessee. Accordingly we reject this ground of the assessee. Disallowance of various expenses u/s 69C - Held that:- Since the assessee has proved majority of expenses and since the assessee has furnished primary details for all the expenditure, we are of the view that the disallowance of entire amount of ₹ 369.93 lakhs may not be warranted under these set of facts. However, since there is failure on the part of the assessee to reconcile the difference and to obtain confirmation letters from certain parties, we are of the view that a part of expenditure may be disallowed to take care of revenue leakages, if any. Accordingly we sustain disallowance of 20% of ₹ 369.93 lakhs and the same, in our view, would put this issue to rest. Accordingly we modify the order passed by Ld CIT(A) on this issue and direct the AO to sustain disallowance to the extent of 20% of ₹ 369.93 lakhs. Claim of the assessee to exclude Sales tax incentive and Excise incentive from book profit computed u/s 115JB - Held that:- In the earlier paragraphs, we have restored the issue relating to both Sales tax incentive and Excise incentive to the file of the AO with the direction to examine the relevant Schemes and then decide about their nature, i.e., whether they are capital in nature or revenue in nature. Hence we are of the view that these issues relating to 115JB also required to be set aside to the file of the assessing officer, since the decision taken by the AO in the set aside proceedings on the original issues will have bearing on these issues. Accordingly we set aside the orders passed by Ld CIT(A) on these two issues and restore them to the file of the assessing officer for examining them afresh in the light of decisions taken by him on the original issues.
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2018 (4) TMI 425
Addition made u/s. 68 - Held that:- Admittedly the assessee could not furnish any details relating to loan amount of ₹ 468.35 lakhs taken by him. There should not be any dispute that initial burden of proof is placed upon the assessee u/s. 68 i.e. the assessee is required to prove three main ingredients namely identity of creditors, creditworthiness of the creditors and genuineness of the transaction. Assessee has failed to discharge the initial burden of proof placed upon him u/s. 68. The requirement of proving cash credits would lie upon the assessee even in respect of funds received under portfolio management scheme. The tax authorities are justified in assessing the amount of ₹ 468.35 lakhs as unexplained cash credit. AO has assessed the same separately without specifying any head of income. The same may be assessed as income from other sources and the provisions of the Act may be applied accordingly. Not allowing claim of trading loss - Held that:- When the assessee could not prove the claim of receipt of funds under portfolio investment scheme; when the funds were treated as unexplained cash credits and when the assessee has carried on share trading transactions in his own name, in our view, there should not be any bar in allowing the loss in his hands, simply for the reason that the assessee has transferred the said loss to the account of creditors. It is well settled principles of law that there is no estoppels against law, meaning thereby, merely because the assessee itself has transferred a portion of loss to the account of the third party, the same would not disentitled the assessee to claim correct amount of loss before the tax authorities. Accordingly, we are of the view that the loss incurred by the assessee has to be allowed in his hands Loss on trading of shares disallowed - Held that:- Admittedly, trading transaction has been carried out by Mrs. J.S. Sardesai and Mr. Ashok Kapoor in their respective accounts. The only link is that the assessee has claimed to have advanced to these two persons. The Assessing Officer has also recorded that the contract notes and bills stand in the name of respective persons and not in the name of the assessee. Under these set of facts, we are of the view that the Assessing Officer as well as Ld CIT(A) was justified in rejecting the claim of the assessee. Accordingly, we uphold the order passed by the learned CIT(A) on this issue. Loss on futures and options disallowed - Held that:- We noticed that the Assessing Officer did not find fault with them and did not raise any doubt about the genuineness of those documents. Under these set of facts, we are of the view that the Assessing Officer was not justified in rejecting the claim of loss trading on futures and options only for the reason that the assessee did not furnish confirmation letters obtained from the brokers - the learned CIT(A) was not justified in confirming the disallowance so made by the Assessing Officer. Accordingly, we set aside the order passed by the learned CIT(A) on this issue and direct the Assessing Officer to allow the claim of the assessee.
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2018 (4) TMI 424
Addition under the head salary & wages - assessee failed to discharge his onus of proving the genuineness of the claim of expenditure with proper supporting evidence - Held that:- Addition on account of undisclosed profits by way of enhancement and sustaining disallowance of 5% of salaries and wages. These grounds were also directed to be examined by the Tribunal if it becomes necessary. Since the issues that arises for consideration on remand by Tribunal of assessee’s appeal and the grounds of appeal in this appeal are same, we are of the view that the grounds raised by the revenue in this appeal should also be directed to be considered by CIT(A). We accordingly set aside the order of the CIT(A) and remand the issues raised by the revenue in this appeal before us for fresh consideration along with the issues remanded by the Tribunal in the assessee’s appeal. For statistical purposes the appeal is treated as allowed. - Appeal by the revenue is allowed for statistical purposes.
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2018 (4) TMI 410
Addition u/s 68 - Held that:- All the requirement under Section 68 of the Income Tax Act, 1961 has been duly proved by the assessee by giving all the details and the findings recorded by the learned Appellate Tribunal, they are the findings of fact based on proper appreciation of documents on record. - Decided against revenue
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Customs
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2018 (4) TMI 422
Rectification of Mistake - classification of imported vessels - Jurisdiction - Held that: - In considering the submissions of the notice on classification, the adjudicating authority has not paid sufficient attention to the harmonious construction of the descriptions in chapter 89 of the First Schedule to the Customs Tariff Act, 1975 - Under the scheme of the tariff, there are certain governing principles: the specific prevailing over the general and the later being more valid than the previous are relevant here. It would appear from the findings of the adjudicating authority that the declaration furnished at the time of filing the bill of entry for the ships, when customs duties were 'nil' and, therefore, susceptible to placement without thought of consequence, weighed heavily. Chapter 89 covers all manner of vessels: from ships, ocean-going or otherwise, to diverse others. Heading 8905 applies to floating structures intended for specialized use with navigability as a subsidiary feature. This does not imply that navigation is the significant and compelling feature of those vessels that are classifiable under 8901. All the goods enumerated in chapter 89 have some association with the waters and it is only flotsam, jetsam and wrecks that may be deprived entirely of navigability. It would appear that the adjudicating authority has failed to appreciate the sense and implication of the expression 'navigability' which is required to be harmoniously read with the description in that subheading instead of being read as the distinction between that subheading and other subheadings of the chapter. The classification merits fresh determination particularly in the light of the various judicial decisions dealing with import of 'supply vessels - the mistakes in the order of the Tribunal require rectification. These issues do not find sufficient coverage in the adjudication order. The plea of the applicant for remanding the matter to the original authority till disposal of the dispute on jurisdiction is not to be ignored - In view of the above terms of remand, which would require determination of dutiability itself, recourse to section 111 of Customs Act, 1962 is in jeopardy. it would, therefore, be appropriate to set aside the confiscation in the order-in-original. Application for ROM disposed off.
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FEMA
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2018 (4) TMI 421
Violation of Section 9(1)(e) of Foreign Exchange Regulations Act, 1973 - failure to comply with the mandatory requirement of Section 61(2) of FERA - Held that:- The subject complaint was filed on 29.05.2002. Since petitioners were never granted an opportunity, as mandated by Section 61(2) of FERA, there is clearly a breach of the mandate of law. Since the requirements of Section 61(2) of FERA have not been complied with, reliance placed by the respondent on the statement recorded at the time when proceedings under Section 40 of FERA were being undertaken and reliance on the same in the impugned order as sufficient compliance of Section 61(2) of FERA, is clearly misplaced. Since respondents have failed to comply with the mandatory requirement of Section 61(2) of FERA, the Trial Court clearly erred in taking cognizance. The impugned order on charge dated 11.07.2017 cannot be sustained and is liable to be set aside. The impugned order dated 11.07.2017 is, accordingly, quashed. The present petition is allowed.
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Service Tax
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2018 (4) TMI 418
Levy of tax on state police - Security Agency Services - providing security to banks, individuals, security for cricket matches, IPL, World Cup, Mumbai Port Trust, Mazagaon Dock, Tata Power, FCI and for other functions. - Held that: - In case of DY. COMMISSIONER OF POLICE, JODHOUR Vs. CCE & ST [2016 (12) TMI 289 - CESTAT NEW DELHI] the Tribunal has held that police department, which is an agency of the State Govt., cannot be considered to be a person engaged in the business of running security services. Consequently, the activity undertaken by the police is not covered by the definition of Security Agency under Section 64(94) of the Act - demand set aside - appeal allowed - decided in favor of appellant.
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2018 (4) TMI 417
Valuation - inclusion of sales value of prospectus in assessable value - Commercial Training or Coaching Services - Held that: - the prospectus is only for the purpose of screening of students by way of Admission Screening Examination and is not a part of the services. The student only by filling of prospectus does not become entitled to get coaching from the Appellant. Hence the same cannot be considered as part of Commercial Training or Coaching Services’. The sale of prospectus is not a part of the Commercial Training or Coaching Services’ as held by Tribunal in case of Balaji Society [2014 (10) TMI 64 CESTAT – MUMBAI]. Appeal allowed - decided in favor of appellant.
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Central Excise
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2018 (4) TMI 416
Utilization of accumulated CENVAT credit for the payment of service tax - recipient of service - GTA service - amendment of Rule 2(p) of CCR 2004 vide N/N. 8/2006-CE(NT) dated 19.04.2006 - April 2007 to March 2008 - Held that: - the judgment of the Larger Bench of the Tribunal, referred in the impugned order, concerns a prior period, namely, 1st January, 2005 to 31st March, 2006 - the Tribunal could have examined the matter in the light of the fact that there is no judgment of the jurisdictional High Court and/or otherwise. It is only in the absence of a view taken by either the Hon'ble Supreme Court of India or the jurisdictional High Court that the Tribunal could have followed the view taken by the other High Courts. The Appeal shall now be re-heard by the Tribunal on its own merits and in accordance with law, totally uninfluenced by any earlier conclusions.
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2018 (4) TMI 415
Clandestine removal - issue emerged from Difference of Opinion - Whether the findings that there are not sufficient evidences available to establish unaccounted manufacture and clandestine removal of the goods; and the demand of duty along with interest and imposition of equivalent penalty on the appellant, M/S. Stovekraft Pvt. Ltd., therefore, are required to be set aside as held by Member(Judicial)? Held that: - In the instant case, it appears that the working of both the business entities was not in a proper manner. There was interchangeable in the brand names, and sometimes, the goods including the raw material too. As per the statement of Shri S.N. Lokesh, the goods are inter changeable at every stage. But at the cost of the repetition, both were separate legal entities during the period under consideration. The retraction is of course is in mild form by stating that the earlier statements were obtained under pressure. When there is a retraction of the statement of key persons, it was expected from the Department to collect some corroborative evidences. The same was not collected - it cannot be agreed that the statement need no further corroborated evidence especially when it was retracted. The Department has not collected the sufficient/corroborative evidence. Hence, there is no justification to raise the demand in the hands of SKPL. In view of the majority order, the impugned order, confirming the demand of duty against M/S. Stovekraft Pvt. Ltd. and imposing penalty upon them as also on Shri Rajendra J. Gandhi, Managing Director, is set aside. Appeal allowed.
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CST, VAT & Sales Tax
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2018 (4) TMI 414
Validity of assessment order - TNVAT Act - short payment of tax treating the galvanizing as works contract - availment of input tax credit on ineligible rules - non-payment of TDS, as per section 13 of the Act, on construction of the building - Held that: - there cannot be a combined notice for submitting objections as well as personal hearing. This is so, because, if, on objections being filed by the petitioner, if the assessing officer is fully convinced with the objections, he may not be required to examine the dealer at all and he may drop the proceedings. However, if there is any clarification to be given, then the assessing officer will issue notice directing the dealer to appear before him, on an appointed date and give his explanation. This procedure has not been adopted by the respondent for both these assessment years (2010-11 and 2011-12). The matters are remanded back to the respondent, for fresh consideration - petition allowed by way of remand.
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2018 (4) TMI 413
Validity of assessment order - TNVAT Act - pre-revision notices - Held that: - In order to consider as to how the assessing officer has proceeded with the matter, the court directed the learned Government Advocate to produce the original files. From a perusal of the original files, it appears that the pre-revision notices have been issued, pursuant to the directions issued by the enforcement, vide communication, dated February 23, 2017. The respondent had no other option except to implement the proposal and that is obviously appears to have been the reason for passing such a cryptic assessment orders - matter remanded back for fresh consideration - petition allowed by way of remand.
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2018 (4) TMI 412
Liability of Sales Tax - Form H - According to the appellant, payment of sales tax is exempted since the buses are meant for export - Held that: - the documents filed by the respondent would show that it is the liability of the appellant to pay sales tax in the absence of any exemption. The documents marked are not disputed. The terms and conditions along with purchase order would make the position very clear - the suit is very much maintainable since what is sought is one under the terms of the contract. Therefore, no statutory authority is involved. A mere pendency of the proceeding before this Court as held by the trial Court would not bar the civil dispute. All the issues are to be answered in favor of the respondents and against the appellant - appeal suit disposed off.
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Wealth tax
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2018 (4) TMI 411
Treating value of freehold land as a taxable asset u/s 2(ea) - whether the freehold land held by the assessee as vacant as on the valuation date i.e. 31.3.2009 , on which the construction has been started for setting up of its office and service centre, could be stated to be used for ‘industrial purposes’, so as to fall within the ambit of definition of ‘urban land’ and consequential exemption from levy of wealth tax? - Held that:- The expression ‘industrial purpose’ should mean , in our considered opinion, as applicable to all industries that are engaged in manufacturing as well as servicing activities. Admittedly the assessee herein is engaged in service activity. Hence we are afraid to give a restricted meaning to the expression ‘industrial purposes’ used in exception to definition of urban land in wealth tax act. On the contrary, we hold that the expression ‘industrial purpose’ has been loosely used and hence need to be given a wider import so as bring even the service industry within its meaning. The assets deployed for service activities are treated as productive assets and accordingly the construction / set up of office and service center by the assessee and used as such for its business purposes would be outside the ambit of wealth tax in the same manner in which the factory structure or manufacturing establishment is excluded and the beneath land on which such structure to come should have the same wealth tax treatment. The assessee had used the land only for its business purposes by constructing a building in the subject mentioned land and is carrying on its regular business from the said premises. Hence we hold that the land was used by the assessee only for its business purposes. - Decided in favour of assessee.
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Indian Laws
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2018 (4) TMI 423
Import of sand/river sand - licence, permit, transport slip, etc., under the Tamil Nadu Minor Mineral Concession Rules, 1959 - N/N. 97 (RE-2013)/2009-2014 - the petitioner failed to prove that the river sand imported by the petitioner does not contain any metal as prescribed under Chapter 26 and hence, the same has to be chemically analysed to ensure that it does not contain any hazards or heavy metals, etc., in public interest. Held that: - the scope of Rules 38-A, 38-B and 38-C was to regulate the quarrying of minor minerals, including sand and regulate the stocking, transportation and sale of such quarried minor minerals, within the State of Tamil Nadu. After introduction of Rule 38-A, the mining activity is to be done only by the Public Works Department and when a person purchases sand from the Department, he has to obtain a licence for storage and transportion. The Rules does deal with the imported sand, be it ordinary sand or silica sand or any other form or for the matter of fact, it cannot deal as because in the first place, the Rules did not deal with the import, the Rules were framed in 1959 and the permission to import with a Plant Quarantine Certificate has been accorded in 2014. Also, The introduction of Rules 38-A, 38-B and 38-C did not alter the original position. The conditions prescribed in the Tamil Nadu Prevention of Illegal Mining, Transportation and Storage of Minerals and Mineral Dealers Rules, 2011 cannot be imposed on the importers. The word 'import' used in Rule 7 is applicable in cases of minerals imported from other States as there is only a ban in movement of sand from one State to another. Similarly, the Rules came into force in 2011 and therefore, it cannot be extended to an import permitted by the import policy of the year 2012 and revised by the notification dated 07.11.2014 issued by the Department of Director General of Trade and Finance to obtain a Plant Quarantine Certificate, under the Regulations which though was in vogue in 2003 itself. When in a case of a prospecting or mining operation given under a license or lease such a restriction could be made, Section 23-C should necessarily be construed giving power to the State Government to control and regulate the movement of the minerals", rejected the contention of the appellant. The restriction contemplated under Section 38-B would apply when either the licencee moves the goods without the Form or is in possession of excess quantity of mineral, mined or purchased and in case of movement with the Form, moves the goods elsewhere or stocks it at a place other than the authorised stock yard. This Court feels, that the State will keep the public interest as paramount rather than any other interest and raise to the emergent occasion to protect and preserve the natural resources and environment of the State, which in turn, would pave way for a better life to our future generations. Petition allowed.
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2018 (4) TMI 420
Territorial jurisdiction - dishonor of cheque - the aforesaid cheques issued by the petitioner/accused were deposited/presented for encashment at Bhagalpur which gave the sole jurisdiction to a competent Court at Bhagalpur to try the case - Held that: - since the cheques in question in the case in hand were presented at Bhagalpur in the bank account of O.P. No. 2, only the Court at Bhagalpur shall have the jurisdiction to try the instant complaint. According to Section 125 of the Act, the holder of the cheque may cross it generally or specially. In that event, even if a cheque is un-crossed, if it is presented in the drawee bank (payee bank), it is aimed at getting encashed through the account only - there is no option for the complainant or the accused to seek or confer jurisdiction on any other Court except the Court within whose territorial jurisdiction, the payee bank where the cheque has been presented, is located. The present petition has been filed under Section 407 of the Code of Criminal Procedure, thus necessitating a discussion on the issue of forum convenience. The criminal case/police case lodged by the complainant/O.P. No. 2 may be against the petitioner only but that case operates in a different field, for a different offence or set of offences. The O.P. No. 2 has deliberately chosen to file a complaint at Bhagalpur where he maintains an account in which the cheques were presented and seeks to oppose the present petition as well. Application dismissed.
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2018 (4) TMI 419
Mis-utilization of cheques issued - sub-contract - the proceeding has been challenged here on the ground that prima-facie there is no material to take cognizance against the petitioners with regard to commission of aforesaid offences - it is contended that this is purely a civil dispute - Held that: - the substance of the grievance is that the cheque book was given after signature with a specific direction to use with regard to payment if required for implementation of contract relating to construction of road but the cheque was used for other purposes than that and efforts were made to encash it and after getting the cheque dishonored, the petitioners’ company filed complaint under Section 138 of the N.I. Act against the respondent no. 2 /complainant. It is also evident that the complaint under Section 138 of the N.I. Act has been filed by M/s. BVSR Construction Company, therefore, the beneficiary under the alleged act is the company and the petitioners have merely worked on behalf of the company. Prima-facie it appears that it is a dispute with regard to account having nature of civil dispute and the complainant /respondent no 2 without taking recourse to resolve the matter in civil side simultaneously has made efforts to implicate them by setting criminal case into motion. The Apex court in the case of Sharad Kumar Sanghi Versus Sangita Rane [2015 (2) TMI 1117 - SUPREME COURT], has held that when the act is done on behalf of the company and the company has not been arrayed as an accused, no criminal proceedings can be initiated against the representatives / employees of the company unless they are personally responsible for the act. This court is of the considered view that the proceedings against the petitioners on the complaint filed by the respondent no 2 / complainant deserves to be set aside - petition allowed.
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