TMI Tax Updates - e-Newsletter
April 29, 2014

Case Laws in this Newsletter:

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

Articles

1. CORPORATE SOCIAL RESPONSIBILITY (CSR) UNDER COMPANIES ACT, 2013 (PART II)

   By: Dr. Sanjiv Agarwal

News

1. RBI Reference Rate for US $ and Euro

Notifications

Companies Law

1. F.No.1/5/2014-CL-V - G.S.R. 297(E) - dated 28-4-2014 - Co. Law

Chapter XXIV – The Companies (Registration Offices and Fees) Amendment Rules, 2014

Circulars / Instructions / Orders

Customs

1. F. No. 450/23/2014- Cus IV - dated 25-4-2014

Corrigendum to Circular No. 07/2014-Customs

Companies Law

2. 09/2014 - dated 25-4-2014

AVAILABILITY OF E-FORM/NON-E-FORM UNDER THE COMPANIES ACT, 2013.

Highlights / Catch Notes

Income Tax

• Educational Institution Granted Tax Exemption u/ss 10(23C)(vi) and 11 for Non-Profit Operation.

  Case-Laws - AT : Entitlement for exemption u/s 10(23C)(vi) – Exemption u/s 11 – Deposits and donations added – Nature of the Institution – Educational OR profit motive - exemption allowed - AT
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• Jurisdiction Case: Diary Jottings Uncorroborated, Presumptions u/ss 132(4A) and 292C Inapplicable Against Assessee.

  Case-Laws - AT : Jurisdiction u/s 153A - there is no case that any part of the jottings in the diary has been corroborated from any other findings - presumption u/s 132(4A)/292C of the Act cannot be taken against the assessee - AT
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• Tax Deduction Approved for Air Spring Assembly Manufacturing u/s 80IC Using Local and Imported Materials.

  Case-Laws - AT : Deduction u/s 80IC – Manufacture activity - air spring assembly - the imported material as well as local materials are used in a manufacturing process which results in a final product which is quite distinct from the components used, and has distinct usage too - deduction allowed - AT
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• Revised Tax Return Accepted After Contract Termination: Focus on Actual Income, Not Accrual or Receipt Basis.

  Case-Laws - AT : Validity of revised return – Termination of agreement –the real question is not whether income is received on accrual basis or on receipt basis, but, it is whether actually there was an income at all - revised return accepted - AT
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• Section 68: Unexplained Sundry Creditors Shouldn't Be Added to Current Income If Opening Balances Are Verified.

  Case-Laws - AT : Deletion made u/s 68 of the Act – Unexplained sundry creditors – opening balances which could be verified from the books of accounts of the assessee cannot be added in current year's income as done by the AO – the AO was not justified in making addition u/s 68 or u/s 69 - AT
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• Section 12A: Registration Withdrawal Not Justified by Capitation Fees if Educational Activities Remain Unquestioned.

  Case-Laws - AT : Withdrawal of registration u/s 12A - mere accepting the capitation fee cannot be brought into the scope of Section 12AA(3) if the prominent activity of the assessee are not doubted being imparting of education and promotion of education - AT
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• Royalty Payment for Technical Know-How Approved by RBI and SIA, Not at Arm's Length.

  Case-Laws - AT : TPA - the payment is made as per the approval given by the RBI and SIA, Government of India - there cannot be any scope of doubt that the royalty payment on technical knowhow is not at arm’s length - AT
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• Court Rules Religious Practices Don't Affect Educational Institution's Tax Status for Educational Purpose.

  Case-Laws - AT : Nature of assessee – simply because the students have to read the Quran and do prayers and have specific dress code, it cannot be said that it is not an educational institution - AT
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Customs

• Court Rules Refund Inappropriate Without Discharge Certificate for Fulfilled Export Obligations Under Invoked Bank Guarantee.

  Case-Laws - HC : As the Bank guarantee has already been invoked, it may not be appropriate to direct the revenue to refund the amount unless the petitioner produces the discharge certificate from the competent authority regarding discharge of export obligation - HC
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Service Tax

• Penalties Confirmed u/ss 76, 78, and 80 for Partial Payment of Tax on Taxable Services.

  Case-Laws - AT : Penalty under Section 76 & 78 read with Section 80 - Even wherever the tax amount has been paid, tax has not been paid for the total value of taxable service but only a small part of the service - penalty confimred - AT
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• Services Like Lawn Maintenance and Courtyard Prep Not Classified as Interior Decorator for Tax Purposes.

  Case-Laws - AT : Interior decorator service - leveling of area and preparing of the courtyards - maintenance of lawn, providing water supply arrangement - These work order are for execution of work and nowhere these can be considered as advisory or consultancy or technical assistance - AT
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• Service Tax on Imported Services Before April 18, 2006, Deemed Unsustainable; Not Classified as Intellectual Property Services.

  Case-Laws - AT : Import of services - Technical Know how service - expert advice and assistance - None of these services can be called intellectual property service. demand for the period prior to 18.4.2006 is not sustainable - AT
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• Health Insurance Policy for Assessee Qualifies as Business-Related Service for CENVAT Credit Eligibility.

  Case-Laws - HC : CENVAT Credit - Group Insurance Health Policy taken by the assessee is a service which would constitute an activity relating to business which is specifically included in the input service definition - HC
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VAT

• Tax Authority's Deliberate Assessment Order Isn't a Mistake Justifying Revision Under Record Error Rules.

  Case-Laws - HC : If the taxing authority while passing order of assessment has given a judgment, exercising his power as a consequence of conscious deliberation then it cannot be said that there is any mistake apparent on the face of record justifying revision of assessment order - HC
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• Court Rules Interest Demand Necessary for Assessee to Receive Interest on Admitted Tax Refund Exceeding Due Amount.

  Case-Laws - HC : Refund of amount in excess of tax due - whether the assessee should make any demand for interest as a pre-condition for interest on admitted refund – held yes - HC
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Case Laws:

• Income Tax

• 2014 (4) TMI 942
  Confirmation of addition u/s 145(3) and section 68 of the Act - Rejection of books of accounts – Held that:- The contention of the assessee for setting aside the matter on the file of the AO is just and appropriate because during the search, books of accounts have been seized and there is nothing placed on record to show that such books of accounts have ever been handed over to the assessee and assessee had along been contesting for verification of the accounts from the books of accounts being held with the tax authorities – thus, the matter is remitted back to the AO for fresh adjudication – Decided in favour of Assessee.

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• 2014 (4) TMI 941
  Entitlement for exemption u/s 10(23C)(vi) of the Act – Exemption u/s 11 of the Act – Deposits and donations added – Nature of the Institution – Educational OR profit motive - Revenue was of the view that the donations are not voluntary and they are linked to the admission of the students to the educational institutions of the assessee, and thus, the assessee has collected higher fee over and above the prescribed fee limit - Held that:- The assessee is an educational society registered under S.12A of the Act, and its objects as appearing in the memorandum of association are for carrying on activities of general public utility in the field of education and charitable purposes – the assessee has received donations from the parents of the prospective students seeking admissions into the assessee's educational institutions - A list of such donations together with the particulars of the donors has also been furnished before the Revenue authorities - The AO has proceeded to decide the issue of assessee's claim for exemption, merely on the basis of suspicions and surmises, and the CIT(A) simply confirmed the action of the Assessing Officer, ignoring the findings and observations of the Assessing Officer in the remand reports and other material available on record. The GOMs. No.33 by the Government of Andhra Pradesh in respect of formulation of rules for admission into the Under Graduate Professional Courses in Engineering in Unaided Non-Minority Professional Institutions was issued on 20.6.2003, which is after the closure of the academic year under consideration, viz. 2002-03 - those Government orders are of no application to the year under appeal, viz. assessment year 2003-04, in the case of the present assessee - In any event, there were no violation of the rules –also, in the absence of any clinching material brought on record by the Revenue, to indicate that there were, in fact, violations warranting denial of exemption under S.11 of the Act - the assessee is entitled to exemption under S.11 of the Act - the additions made by the AO in the have no legs to stand – the order of the CIT(A) set aside - Decided in favour of Assessee.

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• 2014 (4) TMI 940
  Extension of stay of outstanding demand – Denial of deduction u/s 80IA of the Act – Held that:- The extension of stay should be granted to the assessee – the decision in Atos Information Technology vs. ITAT [2014 (3) TMI 729 - BOMBAY HIGH COURT ] followed - when there is no change in circumstances which first led to granting of stay and continuing of the same by the Tribunal and accepted by the revenue, there is no reason as to why the stay should not be extended – thus, the stay is granted for a period of three months – Decided in favour of Assessee.

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• 2014 (4) TMI 939
  Revision u/s 263 - Claim of exemption u/s 10(10C) of the Act – Compliance of provisions of Rule 2BA of the Rules - Assessee had taken Voluntary Retirement and had received compensation of Rs. 6.01 lacs – Held that:- The decision in Uma Subramanian & two others [2014 (3) TMI 801 - ITAT MUMBAI] followed - the view taken by the AO while allowing the claim of the assessee for exemption u/s.10(10C) in the assessments framed u/s.143(3) was a possible view and the CIT was not justified in treating the assessments as erroneous and prejudicial to the interest of revenue - as held in Dy. CIT v. Krishna Gopal Saha [2009 (7) TMI 173 - ITAT CALCUTTA-B] the assessee, who had exercised the option for retirement under the Scheme floated by the employer bank and had received the compensation from the employer bank, was entitled to exemption u/s.10(10C) even though the said scheme was not in conformity with the requirement of Rule 2BA - thus, the assessee was entitled to get benefit of the exemption provided u/s.10(10C) of the Act - the order of the FAA is reversed – Decided in favour of Assessee.

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• 2014 (4) TMI 938
  Minimum alternate tax (MAT) - Addition of reserves - adjustment of book profits - Retrospective amendment in clause (g) of Explanation (2) to section 115JA - Whether the CIT(A) erred in deleting the addition made to book profit in respect of provisions for bad and doubtful debts holding that the provisions are made against the ascertained liability - Held that:- The decision in Whirlpool of India Limited and Another Vs. Union of India and Others. [2013 (3) TMI 414 - DELHI HIGH COURT] followed – the purpose of the Explanation is to broaden the base amount on which tax is payable by the company - No new levy is imposed - The tax-base stands widened by the amendment in as much as the amount or amounts set aside as provision for diminution in the value of any asset and debited to the profit and loss account shall be added to the book profit - the amendment does not provide for any new levy of income tax, there is no question of it being struck down on the ground of retrospectivity – the order of the CIT(A) set aside – Decided in favour of Revenue.

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• 2014 (4) TMI 937
  Jurisdiction u/s 153A of the Act – Held that:- CIT(A)’s view that in cases assessment u/s. 153A can be made without finding any seized material is not sustainable - it is not denied that it was a valid search and material was found from the premises which also houses of the group companies in which the assessee is also a Director – Relying upon CIT vs. SM Aggarwal [2007 (3) TMI 226 - DELHI High Court] it cannot be said that AO has assumed jurisdiction without any material found during search - Whether addition on the basis of the said material is sustainable or not is a matter which has to be considered subsequently after the assumption of jurisdiction - the contention of the assessee that the assumption of jurisdiction u/s. 153A was not proper cannot be accepted - the material was found from the premises which also belonged to the assessee group company – thus, the jurisdiction of assessment u/s. 153A was valid – Decided against Assessee. Failure in rebuttal of legal presumption u/s 132(4)/292C of the Act – Held that:- The seized material in the shape of diary did not belong to the assessee - It belonged to the assessee’s brother - He has not at all been confronted with the contents of the diary - Assessee cannot be called upon to explain the contents of diary which belonged to the assessee’s brother and was found from the brother. There is no mention of the assessee’s name in the particulars of diary - Though there is mention of the farm house belonging to the assessee, there is no mention of the total price paid etc. - the seller has denied having taken any money over and above the disclosed sale consideration - Even the total price paid for the property is not mentioned in the seized material - The jottings in the diary by no stretch of imagination can be treated as conclusive proof of on money transactions by the assessee - It is not the case that the circle rate or the value as per stamp registration authorities of the impugned property is more than what has been disclosed - Relying upon CIT vs. Kalyansundaram [2007 (9) TMI 25 - SUPREME COURT OF INDIA] - there is no case that any part of the jottings in the diary has been corroborated from any other findings - presumption u/s 132(4A)/292C of the Act cannot be taken against the assessee – the addition of on money transaction is not sustainable – Decided in favour of Assessee.

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• 2014 (4) TMI 936
  Deduction u/s 80IC – Manufacture activity - air spring assembly - Held that:- The assessment order for the assessment year 2007-08 shows that the deduction u/s. 80IC has been allowed even in assessment u/s. 143(3) of the Act - Relying upon CIT vs. Modi Industries [2010 (8) TMI 51 - DELHI HIGH COURT] - once the claim for deduction u/s 80J has been allowed to the assessee in the first year and also for the subsequent two years, such deduction was allowable in the subsequent assessment years within the period of 5 years - the assessee has been granted deduction u/s. 80IC in earlier years and that also in assessment u/s 143(3) of the Act - Now in the 3rd year the Revenue cannot suddenly take up the ground that the assessee is not doing any manufacturing and therefore, is not entitled for deduction u/s. 80IC. The assessee is engaged in manufacture and production of an article or thing named air spring assembly - The assessee imports air spring component (fitted in the top plate) and emergency air spring component (fitted in the emergency spring and calibrated with the bottom plate) - These items are imported from Germany from M/s ContiTech Luftfedersysteme GmbH (Hannover, Germany) - Rest all other goods / raw materials required in the manufacturing process are procured from India and employed by the Appellant in the manufacturing process at the Paonta Sahib Unit - The description of manufacturing process amply proves that the imported material as well as local materials are used in a manufacturing process which results in a final product which is quite distinct from the components used, and has distinct usage too – thus, the order of the CIT(A) set aside and the Assessee was engaged in manufacturing of air spring assembly and is hence eligible for deduction u/s. 80IC for the manufacturing activity undertaken at its Paonta Sahib unit – Decided in favour of Assessee.

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• 2014 (4) TMI 935
  Validity of revised return – Termination of agreement – Held that:- The decision in Commissioner of Income Tax v. Shoorji Vallabhdas and Co. [1962 (3) TMI 6 - SUPREME Court] followed - The assessee already had this knowledge before completing the assessment and at the time of filing the revised return, therefore, at the first instance in the original return, even if the assessee had estimated profit out of the agreement entered into with M/s Mayflower Inno Reality Private Limited, immediately after understanding that the agreement would not be executed, he filed the revised return restating the correct income - Even though the formal termination agreement was executed later on, the assessee was very well aware before the completion of assessment that the income stated in the original return was wrong. In that way, the original computation of income filed by the assessee was “wrong statement”. When that is so, the case of the assessee is covered by Section 139(5) which enables him to file a revised return to state the real income available in hands, for the purpose of assessment for the assessment year - the real question is not whether income is received on accrual basis or on receipt basis, but, it is whether actually there was an income at all - If no income is likely to arise in the hands of the assessee, there is no fun in estimating income hypothetically on the basis of accrual concept - before the completion of assessment and before the expiry of time available for filing of revised return, the assessee observed the wrong statement made in the original return regarding the quantum of income and revised the return by stating the correct income liable for taxation - It had come to the knowledge of the assessee that he was not going to earn that much of income stated in the original return filed by him - the revision made by the assessee is justified - thus, the CIT(A) is justified in deleting the income from the income assessed by the AO – Decided against Revenue. Disallowance of expenses – Held that:- The business carried on by the assessee is as a facilitator for locating and aggregating land for builders and developers - Even though the agreement with M/s Mayflower Inno Reality Private Limited was vitiated later on, the expenses of Rs. 68,40,000/- have been incurred by the assessee in the course of carrying on of his business - It is the business of the assessee to enter into agreements with big parties for procurement of large parcels of land - even if an agreement is cancelled later on, the nature of expenditure incurred remained the same - What is spent is spent - When the expenses are incurred for the purpose of business, it has to be allowed as an expenditure irrespective of the income or loss from the particular agreement – thus, the order of the CIT(A) set aside – Decided in favour of Assessee. Assessment of share from the AOP – Held that:- An assessee having been assessed for his share from HUF as well, is entitled for the rebate in tax – the AO is directed Officer to give the assessee the benefit of rebate in tax while concluding his assessment – Decided in favour of Assessee.

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• 2014 (4) TMI 934
  Deletion made u/s 68 of the Act – Unexplained sundry creditors – Held that:- The CIT(A) was of the view that the addition in appellant's income could not be made on the basis of apprehensions as done by the AO - At the most these apprehensions may be a 'lead' for further investigation so-as-to establish the actual fact - The AO has not carried out any investigation on such lines - The only issue raised by the AO now remains that instead of sundry debtors, the assessee should have shown equivalent amount as 'cash-in-hand' in the balance sheet and thus should have paid wealth-tax on it - The AO's suggestion, though looking rosy from his angle, could only be implemented if such fact is established on record. The onus of proving it lies with the department and such approach could not be taken merely on the basis that the outstanding balances of sundry debtors could not be verified - Be it as may, since 'cash-in-hand' could not be treated as income in appellant’s hands by any stretch of imagination either u/s 68 or u/s 69 of the Act, the addition made by the A.O. does not stand - there are inherent contradictions in AO's approach in giving treatment to the closing balances of sundry debtors - The opening balances which could be verified from the books of accounts of the assessee cannot be added in current year's income as done by the AO – the AO was not justified in making addition u/s 68 or u/s 69 of the Act – Decided against Revenue.

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• 2014 (4) TMI 933
  Validity of proceedings u/s 153C of the Act – Income from house property and income from capital gain – Held that:- The decision in Hardevi Keshwani Versus A. CIT, Central Circle, Agra [2013 (8) TMI 105 - ITAT AGRA] followed - No satisfaction note has been recorded in this case before initiating proceedings u/s. 153C of the IT Act - The AO did not make any addition against the assessee on the basis of any adverse material - No material is produced to prove that the AO in the case of person searched was satisfied that any money, bullion, jewellery or other valuable articles or things or books of accounts, or documents seized or requisitioned belong to or belonging to a person other than person referred to in section 153A of the IT Act - No material is produced to show if any satisfaction was recorded by the AO in that case that the seized material belongs to the assessee. The requirements of section 153C are not satisfied - May be the assessee owned up Rs.4,00,000/- cash found during the course of search and declared in assessment year 2008-09, but according to the assessee, it was regular assessment u/s. 143(3), i.e., after search was completed - the conditions of section 153C are not satisfied, thus, there is no justification to sustain the initiation of proceedings u/s 153C of the IT Act – the order of the CIT(A) set aside – Decided in favour of Assessee.

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• 2014 (4) TMI 932
  Deletion of adjustment u/s 92CA(3) of the Act – Selection of comparables – Held tha:- While finalising the ALP,TPO had added two new comparables i.e. FEL and MIL to the eight comparables adopted by the assessee, that because of the inclusion of the two companies variation in operating margin arose, that the operating margin was within the range of 5% of the arithmetic mean of the operating margin of the comparable companies – the TPO had not given any reason as to why he was including FEL and MEL in the list of comparables - He did not give any notice to the assessee for inclusion of two new variables. Basic principles of natural justice demand and expect that assessees should be heard, before fastening tax-liability to them - It is not known as how did the TPO arrive at the conclusion that FEL and MEL could be compared with the other companies for arriving at operating margin. Similarly, it is also not known as whether both the companies were in the same line of business or not. If the TPO had some definite information, he should have brought it on record and should have confronted the assessee with it - It would have given a chance to the assessee to defend itself - By not affording an opportunity to the assessee, TPO had taken a unilateral decision and such decisions cannot be endorsed - TPO had not found any defect in TP Study carried out by the assessee - TPO had not discussed the reason for not accepting the operating margins of AIL, though the said company was in the same business - If the average operating margin shown by the assessee is compared with AIL, it is clear that same was within the +/-5% of the margins/transactions and was allowable as per the rules - while considering the basic data of AIL had ignored vital factors that have been highlighted by the FAA - FAA had correctly held that international transactions entered in to by the assessee were at arm's length and that no adjustment was required – Decided against Revenue.

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• 2014 (4) TMI 931
  Reassessment u/s 147 of the Act – reasons recorded for initiation of reassessment proceedings - Held that:- When the reasons for reopening the assessment itself is incorrect, the AO accepts that position by not making related addition, no further additions can be made in the course of such reassessment proceedings - The very initiation of reassessment proceedings in such a case ceases to be of any effect – Relying upon N.D. Bhatt, IAC v. I.B.M. World Trade Corpn. [1993 (7) TMI 7 - BOMBAY High Court] - the AO has not challenged the CIT(A)'s deletion of quantum addition made on the basis of reasons recorded for reopening the assessment - the reassessment proceedings were infructuous and no other additions could have been made by the AO either - CIT(A) has given categorical findings which run contrary to the reasons recorded while reopening the assessment and yet the revenue authorities have not raised, either in appeal or by any other mode, even a whisper against such findings which have thus reached finality - The very reassessment proceedings were also based on erroneous reading of facts which cannot lead to a legally sustainable addition – Decided in favour of Assessee.

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• 2014 (4) TMI 930
  Determination of ALP u/s 92C of the Act - Transfer pricing adjustment - Addition on interest – Held that:- Junk bond rate canot accepted while analyzing loans advanced internationally – Relying upon Siva Industries & Holdings Ltd. Versus Assistant Commissioner of Income-tax, Company Circle-VI(4), Chennai [2011 (5) TMI 451 - ITAT, CHENNAI] - assessee has advanced a loan of USD$150,000 to CES, USA @ 6% interest per annum - Another loan of USD$ 6,80,000 was converted into equity share capital and the value of interest received up to the date of conversion was at Rs. 15,56,833/-, for which rate of interest calculated at Libor Plus 157 basis points - Assessee has adopted Libor + 1.57% base points, there was no reason to restore the matter to the TPO as the rate of Libor + can be considered as ALP – Decided in favour of Assessee. Exclusion of communication expenses – Held that:- The decision in ITO v. Saksoft Ltd. [2009 (3) TMI 243 - ITAT MADRAS-D] followed - the AO is directed to exclude the communication expenses from the total turnover also and workout the deduction accordingly – Decided in favour of Assessee. Determination of ALP u/s 92C of the Act - Transfer pricing adjustment – Income from software segment, ITES segment and capital advances to AE – Held that:- As already decided that these companies are not to be selected on various reasons, the objections of Assessee s upheld and the TPO/AO is directed to work out the arithmetic mean of PLI on the balance of companies – Decided in favour of Assessee.

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• 2014 (4) TMI 929
  Deletion of deduction u/s 10B of the Act – Held that:-The revenue has not disputed the point that the assessee got approval as 100% EOU as per approval dated 27.01.1997 – CIT (A) has held that the AO was completely in error in holding that since the assessee started its business in AY 1992-93, then the prescribed period of 10 years for the purpose of exemption u/s 10B of the Act had come to an end by AY 2001-02 - section 10B envisages setting up of export oriented undertaking which is altogether different and distinct from setting up of a normal commercial activity unit - The AO has not controverted the fact that the assessee company established 100% EOU in FY 1997-98 for exporting of computer software – Relying upon LEGATO SYSTEMS INDIA (P) LTD. Versus INCOME TAX OFFICER [2005 (7) TMI 663 - DELHI HIGH COURT] - the CIT(A) rightly granted relief to the assessee by directing the AO to grant exemption u/s 10B of the Act for the assessee – Decided against Revenue. Deletion on account of TDS – Held that:- The assessee company filed some proof explaining the difference in question which could not be confronted to the AO, neither during the assessment proceedings nor during the appellate proceedings - The issue is related to the reconcilement of the difference – thus, the matte is required to be remitted back to the AO for fresh adjudication – Decided in favour of Revenue.

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• 2014 (4) TMI 928
  Withdrawal of registration u/s 12A of the Act – Acceptance of capitation fee - Whether the acceptance of capitation fee can be a ground for cancellation of registration granted u/s 12A by invoking Section 12AA(3) of the Act – Held that:- When the assessee is carrying on a number of educational institutions approved by the Central and State Government Board and University then it cannot be said that the activity of promotion and imparting education is not genuine – Relying upon Vidyavardhini Vs CIT [2012 (4) TMI 306 - ITAT MUMBAI] - the cancellation on the ground of receipt of capitation fee itself is not sustainable - mere accepting the capitation fee cannot be brought into the scope of Section 12AA(3) if the prominent activity of the assessee are not doubted being imparting of education and promotion of education. The Commissioner has also accepted the fact of the activity of the assessee that the assessee is engaged in the educational activity but he has opined that the educational activity has been converted into commercial venture - When nothing has been brought on record to say that the assessee has carried out the activities other than imparting and promoting the education then the cancellation of registration on the ground of accepting the capitation fee which has been used for the purpose of achieving the objects of the assessee is not sustainable – thus, the order of the Commissioner is set aside and the registration u/s 12A is restored – Decided in favour of Assessee.

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• 2014 (4) TMI 927
  Deletion on account of bogus sundry creditors – Held that:- There was no evidence to show that purchases were paid from disclosed sources of money - assessee had failed to produce any purchase bill or records in support of the purchases - Out of the three creditors, M/s. RVPL was not only not existing during the period when assessee claimed to have made purchases for it, but it had also denied any transaction with the assessee at all. It's Directors even stated that they were willing to pay 50% of the money to the Tax Department, if the assessee was willing to pay the amount shown as payable to them. Assessee was given an opportunity for producing the creditors and examining them. Assessee did not avail such opportunity – there was no fault in the order of AO for coming to a conclusion that the transactions, effected to the extent of the credit balances in the names of these three parties were not genuine and were bogus - assessee had definitely effected purchases, but not to the extent shown by it, as proved by the existence of bogus creditors – AO had not at any point of time stated that he was making the addition under section 68 of the Act - He never considered the amount as unexplained cash credit - He simply disbelieved the purchases to that extent – thus, CIT(A) fell in error, when he deleted the addition and directed a best of judgment assessment after rejecting the books, especially when AO had not done so – thus, the addition made for bogus sundry creditors is upheld – Decided in favour of Revenue. Addition of bogus loan credit – Held that:- The assessee had discharged the primary onus resting on her, by producing confirmation letters, PAN of the concerned parties - CIT(Appeals) has clearly brought out that concerned parties were having sufficient capital balance as on 31.03.2008 for justifying it - This has not been rebutted by the Revenue – thus, there is no reason to interfere with the order of CIT(A) – Decided against Revenue.

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• 2014 (4) TMI 926
  Transfer pricing adjustment – Determination of ALP – Transaction of Royalty for use of trademark and technical know-how – Held that:- The payment of royalty on technical knowhow, the assessee has been paying to its parent AE right from 1993, as, other group companies are paying across the globe - It has been accepted by the TPO that the payment does not affect the profitability of the assessee - In any case the payment of royalty on technical knowhow is at par with the similar payments from the group companies in other countries & region - Besides this, the payment is made as per the approval given by the RBI and SIA, Government of India - there cannot be any scope of doubt that the royalty payment on technical knowhow is not at arm’s length - For Royalty payment on trademark usage, the assessee, is paying a lesser amount, if the payments are compared with the payments towards trademark usage, by the other group companies using the Brand Cadbury in other parts of the world - the royalty payment on trademark usage is within the arms' length and does not call for any adjustment – thus, the order of the CIT(A) upheld – Decided against the revenue. Allowability of 50% of expenses - Renovation of office complex and other expenses to electric installation – Held that:- The CIT(A) taking into consideration the submissions placed, along with the evidence and details, pertaining to the issues of various renovation jobs, allowed benefit to the extent of 50% on the interior designs work and supply and installation of electrical items - the CIT(A) has allowed only 50%, though, on adhoc basis, the expense, which are quite reasonable – thus, the order of the CIT(A) upheld – Decided against the revenue. Disallowance of expenses on rural development – Held that:- The assessee has placed reliance on CIT v Madras Refineries Ltd. [2003 (11) TMI 47 - MADRAS High Court] - this case has not been considered by the CIT(A) - the issue should be held against the assessee, following the order of the coordinate Bench in the preceding year, but the fact that the assessee factory is located in the village belts at Induri, near Mumbai and Malana, in Madhya Pradesh - The upliftment of these areas, though not directly relatable to the business of the assessee but is certainly a matter of good corporate governance through corporate citizen, which is encouraged by the government – thus, in the interest of justice and the current need for being a better corporate citizen, the issue is remitted to the file of the AO, who shall re-examine the nature of expenses – Decided in favour of Assessee. Miscellaneous income and trade discounts – Held that:- The decision in Cadbury India Limited Versus Addl. Commissioner of Income tax, Range-5(1) Mumbai [2012 (12) TMI 682 - ITAT, Mumbai] followed - Miscellaneous income which included trade discounts, miscellaneous sales, sales tax, excise duty etc. had to be included in the total turnover except the sales tax and excise duty which did not contain an element of turnover – Decided in favour of Assessee. Reduction of gross interest - Computation of deduction u/s 80HHC – Held that:- The decision in Cadbury India Limited Versus Addl. Commissioner of Income tax, Range-5(1) Mumbai [2012 (12) TMI 682 - ITAT, Mumbai] followed - 90% of net interest income is required to be reduced after deducting expenses incurred having nexus with earning of interest income – thus, the matter is remitted back to the AO for working out 90% of net interest income – Decided in favour of Assessee. Payments made to third party manufacturers – Held that:- The decision in Cadbury India Limited Versus Addl. Commissioner of Income tax, Range-5(1) Mumbai [2012 (12) TMI 682 - ITAT, Mumbai] followed - Assessee was following mercantile system of accounting as per which contractual liability accrued on the date of its ascertainment and was allowable in the year of ascertainment - the liability was pending and therefore, it had not been incurred during the year – thus, the order of CIT(A) disallowing the claim is upheld - Decided against Assessee.

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• 2014 (4) TMI 925
  Transfer pricing - Determination of ALP - Selection of comparables – Held that:- As far as assessee s six comparables are concerned, 4 comparables selected by Assessee are not comparable either on functional profile or on other parameters as considered by TPO and accepted by Assessee after CIT(A) s order - There is no dispute with reference to two comparables i.e. Nucleus Net Soft s objections cannot be accepted that exclusion of Wipro BPO Solutions on the basis of the turnover alone - the order of CIT(A) is upheld as far as the issue of profitability vis-à-vis scale of operations/turnover is concerned – the view expressed by the TPO is accepted that it will not have significant effect on the profitability of a company, as far as the BPO sector is concerned – it would be appropriate to include the above company as comparable for the purpose of determining the average PLI in the relevant assessment year – thus, the AO is directed to work out the addition – Decided partly in favour of Assessee.

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• 2014 (4) TMI 924
  Nature of assessee – Charitable institution or not u/s 12A of the Act – Exemption u/s 10(23C)(iiiad) of the Act - Held that:- The assessee exists more than 127 years and the college is established for the purpose of Arabic language, literature and culture and the college is affiliated to Madras University and simply because the students have to read the Quran and do prayers and have specific dress code, it cannot be said that it is not an educational institution - all activities are necessary for the educational institution to maintain discipline and equality among the students - the educational institutions have their own code of conduct to maintain the discipline to achieve ultimate object of education – CIT(A) also that the assessee is an educational institution - the assessee is an educational institution and 12A registration is not required for the relevant assessment year and eligible to claim exemption u/s 10(23C)(iiiad) of the Act. Monetary limitation u/s 10(23C)(iiiad) of the Act – Held that:- CIT(Appeals) has rightly classified the annual receipts during the financial year 2003-04 at Rs. 51,86,887/-being the annual and recurring income of the assessee - The sale proceeds of land and bonds which are capital receipts in nature, are not recurring income and are once in a lifetime – Relying upon Commissioner of Income-tax Versus St. Mary's Malankara Seminary [2012 (3) TMI 263 - KERALA HIGH COURT] - CIT (A) has rightly classified the annual receipts and granted exemption to the assessee u/s 10(23C)(iiiad) of the Act - thus, the assessee is an educational institution and the annual receipt of the assessee is below Rs. 1.00 crore and eligible for deduction u/s 10(23C)(iiiad) of the Act – Decided against Revenue.

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• 2014 (4) TMI 923
  Disallowance of entrance fees paid to the Bangalore Club – Held that:- Necessary materials have been produced before the AO as well as before the DRP with regard to nature of payment - the AO and the DRP have stated that no documentary evidences were produced before them to take a positive view in favour of the assessee, the issue was decided against the assessee company - no details are placed with regard to the nature of the payment, the issue cannot be decided on merits - one more opportunity need to be given to the assessee to prove its case - the assessee is directed to produce documentary evidence with respect to payment of entrance fee to Bangalore Club and nature and break up the expenses – thus, the matter is remitted back to the AO for fresh consideration – Decided in favour of Assessee.

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• Customs

• 2014 (4) TMI 947
  Validity of Adjudicating Authority, Customs Letter - Execution of Bond for provisional release of goods - Seizure of fabric rolls - Direction to re-measure fabric rolls – Held that:- Assessee is ready to fulfil the conditions for provisional release of the goods - However, the grievance of the petitioner is that the mahazars dated 10-2-2012 and 3-7-2012 show different quantity of fabrics - Therefore, Respondent No. 3 is directed to re-measure the fabrics at the cost of the petitioner, at the time of delivering possession, in the presence of the petitioner, after the petitioner fulfils all the conditions mentioned in the letter dated 18-2-2013 vide Annexure-J - Assessee can furnish the translated version of Annexure-C to the concerned Authorities – Decided partly in favour of Assessee.

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• 2014 (4) TMI 946
  Refund of amount recovered – Invocation of Bank guarantee - Discharge of Export Obligation - Free shipping bills and DEEC Shipping bills - Held that:- From the order passed by the first respondent and the Appellate Authority, it is clear, the bills produced by assessee are free shipping bills and not DEEC Shipping bills - Unless aseessee discharges his export obligation and produces discharge certificate from the competent authority, the petitioner cannot contend that Bank guarantee cannot be invoked – According to Paras 4.25 and 4.26 of the Handbook the license holder shall furnish EP copy of shipping bill(s) containing details of shipment effected or bills of export in case of export to SEZ - Before discharging BG/LUT against physical exports, the Customs shall verify that the details of the exports as given in the “Redemption Certificate” are as per their records. Assessee sought for conversion of free shipping bills into DEEC Shipping bills that has not been granted – Thus, Respondents 1 and 2 have invoked the Bank guarantee - As the Bank guarantee has already been invoked, it may not be appropriate to direct the Respondents 1 and 2 to refund the amount unless the petitioner produces the discharge certificate from the competent authority regarding discharge of export obligation - As and when the petitioner produces the discharge certificate, the Respondents 1 and 2 may consider refund of the amount which has been realised by invoking the Bank guarantee – Decided against assessee.

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• 2014 (4) TMI 945
  Quashment of FIR – Property in question repurchased which formed basis of the surety bonds - Section 482 of CrPC, 1973 – Section 420 IPC – Held that:- Since, the land which had been sold by Petitioner`s husband to one Sanjeev Goyal has been repurchased by him - Thus, presently Petitioner`s husband is the owner of the property in question - Petitioner had furnished surety bonds along with her husband – Thus, continuation of criminal proceedings against the petitioner would not serve any useful purpose, as now property in question is again owned by her husband which formed basis of the surety bonds - Accordingly, FIR and Challan u/s 420 IPC and 120-B IPC and all the subsequent proceedings arising therefrom are quashed – Decided in favour of Applicant.

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• Corporate Laws

• 2014 (4) TMI 944
  Winding up of company - inability to pay debts - whether the defence raised by the respondent is a bonafide defence - Held that:- winding up petition is admitted and the petitioner is directed to publish the citations in the ‘Statesman’ (English) and ‘Veer Arjun’ (Hindi) for a hearing to be held on 12.08.2014. The Official Liquidator is also appointed as a Provisional Liquidator to take charge of the assets and the books of accounts of the respondent company. The Directors of the respondent company will file the Statement of Affairs within 21 days of the appointment of the Provisional Liquidator coming into effect. The respondent company is restrained from selling, transferring, encumbering or in any manner alienating any of its assets - However, in order to enable the respondent to make arrangements to discharge its dues and to arrive at an amicable settlement with the petitioner, the directions for publication of citations and for appointing the Official Liquidator as a Provisional Liquidator will not come into effect for a period of four weeks from today. The order admitting the winding up petition is also kept in abeyance for a period of four weeks. In the event, the respondent is able to discharge its debts to the petitioner or arrive at an amicable settlement for repayment of the same within the period of four weeks, the directions as stated above will not come into effect. In the event the parties are unable to arrive at an amicable settlement for discharge of the dues of the petitioner, the counsel for the petitioner shall inform the Official Liquidator, who shall on receipt of such communication proceed to take the necessary steps in accordance with law and in conformity with the directions as issued herein - Decided conditionally in favour of assessee.

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• Service Tax

• 2014 (4) TMI 958
  Waiver of pre-deposit of penalty - penalty imposed under sec. 76, 77 & 78 - Held that:- appellants are paying service tax regularly as provider of banking and financial services. It was only during the audit, it was found certain discrepancy in respect of service tax. The service tax immediately paid along with interest. Thereafter, show-cause notice was issued. In these circumstances, we find that there is no intention on the part of the appellants to evade payment of tax and appellants were under the bonafide belief that the appellants were paying appropriate tax. It was only during the audit, certain discrepancy was found. In view of this, we find that the appellants are not liable for any penalty under sec. 76, 77 & 78 of the Finance Act as per provisions of sec. 80 of the Finance Act. Hence, penalty imposed under the impugned order is set aside - Decided in favour of assessee.

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• 2014 (4) TMI 957
  Penalty under Section 76 & 78 read with Section 80 - Held that:- appellant had not taken the registration initially and took registration only in October 2003. We also note that that even after taking the registration, half yearly returns of service tax were not filed. The service tax returns were filed in 2006 after initiation of the investigation by the revenue. We have also gone through the annexure to the show-cause notice which details the date of payment of service tax as also period involved. We find that except in the case of Business Auxiliary Service where the tax was paid regularly from April 2005 to March 2006, in respect of no other service, the service tax has been paid on due dates. Even wherever the tax amount has been paid, tax has not been paid for the total value of taxable service but only a small part of the service. A perusal of the said two Sections indicate that penalty is imposable on an assessee in the event of his failure or as enumerated under the two Sections. As elaborated earlier, appellant has been continuously failing to pay service tax even after collecting and has paid the said tax after a long delay. We therefore hold that Section 76 is correctly invoked and penalty under Section 76 is correctly imposed. Similarly we find that ingredients of Section 78 are clearly visible in the present case. There have been suppression of facts as inasmuch as the duty was not paid on time, returns were not filed for years together after the due date and even when the returns were filed after initiation of investigation, these did not represent the facts correctly. We are therefore hold that penalty under Section 78 is also imposable - Decided against assessee.

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• 2014 (4) TMI 956
  Interior decorator service - Held that:- The work order is for leveling of area and preparing of the courtyards and for plantation of trees/shrub and laying pebbles and water fall around lake. The other contract is in respect of maintenance of lawn, providing water supply arrangement and for maintenance of trees and plant including trimming, removing grass shrubs etc. These work order are for execution of work and nowhere these can be considered as advisory or consultancy or technical assistance - Decided in favour of assessee.

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• 2014 (4) TMI 955
  Demand of service tax - import of services - Technical Know how service - Held that:- The service tax is sought to be demanded on the amount being paid by the appellant to BPB, UK in terms of Article 8.2 of their agreement with them. While in terms of the Article 8.1 of the Agreement, the appellant were required to pay a lump sum amount of Rs. 400000 as consideration for technical knowhow provided, within a specified period and the same amount has already been paid, Article 8.2. provides for recurring annual payment @3% of the annual sales turnover for technical services provided by M/s. BPB to the appellant. The technical services being provided are those mentioned in Annexure-II to the agreement, which are expert advice and assistance with identification specification and preparation of linerboard (paper) gypsum and other indigenous raw materials to be used by the appellant in India, the expert advice and assistance during installation, erection and commissioning of the plant and also in the subsequent modifications or addition to the manufacturing plant, expert advice and assistance with the manufacture of the products and jointing compounds and joint filler including occasional supervision and problem solving, expert assistance in marketing of the final products etc. None of these services can be called intellectual property service. demand for the period prior to 18.4.2006 is not sustainable in view of the judgement of Hon’ble Bombay High Court in the case of Indian National Ship-owners Association [2008 (12) TMI 41 - BOMBAY HIGH COURT] - Decided in favour of assessee.

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• 2014 (4) TMI 948
  CENVAT Credit - Whether, the Tribunal was correct in allowing CENVAT Credit on Insurance Services for payment of Service Tax on output service viz., Manpower recruitment or Supply agency services’ wherein such services do not have any nexus for providing the output service and do not qualify as ‘input service’ as per Rule 2(1)(i) of CENVAT Credit Rules, 2004 - Held that:- In so far as Insurance coverage to the employees is concerned in the course of employment if the employees suffer injury or dies, there is a vicarious liability imposed on the employer to compensate the employee. If the employer employs its own transportation facility in order to cover the risk which also includes the risk of workers who are covered in that statutory establishment, he has to take the insurance policy without which the vehicle cannot go on the road. Under the Workmen’s Compensation Act he has to obtain the Insurance Policy covering the risk of the employees. The Employee State Insurance Act takes care of the health of the employees also and casts an obligation on the employer to provide insurance services. Under these circumstances, this Group Insurance Health Policy though is also a welfare measure is an obligation which is cast under the Statute that the employer has to obey. Section 38 of the Employees State Insurance Act, 1948, mandates that subject to the provisions of the Act, all employees in factories or establishments to which this Act applies shall be insured in the manner provided by this Act. May be the employees also have to contribute but the employer is under an obligation to take an Insurance policy and contribute his share. Therefore, the said Group Insurance Health Policy taken by the assessee is a service which would constitute an activity relating to business which is specifically included in the input service definition - Following decision of COMMISSIONER OF CENTRAL EXCISE, BAGNALORE v/s M/S. STANZEN TOYOTETSU INDIA (P) LTD., BANGALORE [2011 (4) TMI 201 - KARNATAKA HIGH COURT] - Decided against Revenue.

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• Central Excise

• 2014 (4) TMI 951
  Recall of order - Non consideration of full arguments - Held that:- Quite apart from the grievance of the appellant that an important ground/contention raised in written submission was not considered, we notice that the appellant had not remained present before the Tribunal but had merely sent a request letter to decide the appeal on merits after considering the synopsis and compilation already filed. To avoid further complications the counsel for the appellant stated that if the appeal is remanded before the Tribunal for fresh consideration, the appellant would appear in person or through his authorized representative and canvas all available arguments before the Tribunal. - Matter remanded back for fresh consideration - Decided in favour of assessee.

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• 2014 (4) TMI 950
  Fraudulent availment of CENVAT Credit - Violation of principle of natural justice - Held that:- Impugned order passed is in violation of the Principles of Natural Justice. The notice was issued on 30.07.2007. 7 days' time has been allowed to file the reply. Certain documents had been relied upon in the show cause notice. it is stated that the said show cause notice has been received by the petitioner on 3rd September, 2007, therefore, the petitioner has 7 days' time to file the reply. According to the petitioner, the reply was filed on 6.09.2007. In paragraph 20 of the writ petition, it is stated that the reply of the show cause notice was filed, which has been replied by the paragraph 18 that the reply was not filed within time. It is further stated that it has been replied on 6th September, 2007 when the order was passed. Thus, in the counter affidavit, it is admitted that the reply has been received on 6th September, 2007. It is unfortunate that even though, the reply was received on 6th September, 2007 but in the impugned order, it is alleged that no reply has been filed and no request has been made for the personal hearing. - impugned order has been passed in gross violation of Principles of Natural Justice and therefore, is not sustainable and is liable to be set aside - Decided in favour of assessee.

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• 2014 (4) TMI 949
  Denial of rebate claim - Reply not filed in time - Ex parte order passed - Violation of principle of natural justice - Held that:- impugned order passed is in violation of the Principles of Natural Justice. The notice was issued on 28.08.2007. 7 days' time has been allowed to file the reply. Certain documents had been relied upon in the show cause notice. In paragraph 15 of the writ petition, it is stated that the said show cause notice has been received by the petitioner on 29th August, 2007, therefore, the petitioner has 7 days' time to file the reply. According to the petitioner, the reply was filed on 4.09.2007. In paragraph 16 of the writ petition, it is stated that the reply of the show cause notice was filed, which has been replied by the paragraph 18 that the reply was not filed within time. It is further stated that it has been replied on 6th September, 2007 when the order was passed. The 7 days time granted to file the reply appears to be less and in as much as the authority should have waited up to 6th September 2007, while the order was passed exparte on 05.09.2007. Moreover admittedly the documents relied upon in the show cause notice have not been provided to the petitioner. - Matter remanded back - Decided in favour of assessee.

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• CST, VAT & Sales Tax

• 2014 (4) TMI 954
  Revision of an order - Taxability u/s 58 of the Value Added Tax Act - whether a judgment of this Court delivered subsequent to the passing of an order of assessment wherein a different view has been taken in respect of taxability, would justify exercise of power u/s 22 of U.P. Sales Tax Act, 1948 on the part of Assessing Authority for revising the already made assessment order –Held That:- Decision in Concrete Spun Pipe Works Versus The Sales Tax Officer, Sector V, Kanpur [1968 (10) TMI 90 - ALLAHABAD HIGH COURT] and Master Construction Co. (P.) Ltd. Versus The State of Orissa and Another [1965 (12) TMI 108 - SUPREME COURT OF INDIA] followed – if the taxing authority while passing order of assessment has given a judgment, exercising his power as a consequence of conscious deliberation then it cannot be said that there is any mistake apparent on the face of record justifying revision of assessment order u/s 22 - The jurisdiction of Assessing Authority is confined to rectification of mistake apparent on the face of record of assessment - When there is a conscious deliberation in making a judgment, question of mistake cannot arise – other aspect that it must be apparent on the face of record that is to say it is not an error which depends for its discovery, elaborate arguments on questions of fact or law - Tribunal is correct and the order passed by Assessing Authority is beyond the purview of Section 22 – Decided against revenue.

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• 2014 (4) TMI 953
  Refund of amount in excess of tax due - whether the assessee should make any demand for interest as a pre-condition for interest on admitted refund – Held that:- Judgment in M/s Bal Govind Bhola Nath Construction Corporation vs. Trade Tax Officer, Sector 1, Allahabad and others [2004 (10) TMI 568 - ALLAHABAD HIGH COURT] followed - Revenue has to itself refund the entire amount, which was sought to be adjusted against the demand for future years and therefore, there was no justification as to why they should not be asked to pay interest also – Section 40(4) is applicable to the extent of the amount for which a request for adjustment has been made and has been adjusted from the future liabilities - The amount, which was found refundable and has been refunded, would attract interest for which the Act does not provide any application or any further demand to be made - In view of the Circular issued by the CCT, UP dated 22.5.2004, the interest is payable on the amount, which is found refundable and which in the present case has actually been refunded by the Revenue – Writ petition disposed of with directions to Revenue to calculate and pay the interest payable to the petitioner on the amount refunded to him - Decided in favour of assessee.

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• 2014 (4) TMI 952
  Liability to pay development tax - Tax rate as Per notification u/s 3-H of the U.P. Trade Tax Act – Determination of Aggregate turnover – Effect of Act being rescinded - Held that:- Applying the principle u/s 18 tax authorities have found that the aggregate determined turnover of the assessee was more than Rs. 37.50 lacs for a period of 9 months and accordingly development tax @ 1% u/s 3-H of the Trade Tax Act - It is no doubt true that the assessee has not discontinued his business - It is also true that because of the Act itself having been rescinded, the business carried on within the ambit of the said Act therefore came to an end on 31st December, 2007 - The discontinuation of the business under the Act after 31.12.2007 was by operation of law - It is also not in dispute that for the period 01.01.2008 to 31.03.2008 the assessee has been assessed under the VAT and his liability for payment of tax has been determined under the said Act itself - The provision of the U.P. Trade Tax Act had not been applied in respect of the said period commencing from 01.01.2008 – There is no illegality in the order of the Tribunal, whereby the aggregate turnover of the assessee has been determined w.r.t. Section 3(2) r/w Section 18 of the Trade Tax Act for the period of 9 months during which he had done his business under the U.P. Trade Tax Act - Revision is dismissed – Decided against assessee.

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• Indian Laws

• 2014 (4) TMI 943
  Validity of auction sale - Violation of mandatory Rules 8 and 9 of SARFAESI Act - Proper notice not issued - Valuation of property not done before auction sale - High Court set aside sale - Held that:- there were no terms settled in writing between the parties that the sale can be affected by Private Treaty. In fact, the borrowers – respondent Nos. 1 and 2 were not even called to the joint meeting between the Bank – Respondent No.3 and Ge-Winn held on 8th December, 2006. Therefore, there was a clear violation of the aforesaid Rules rendering the sale illegal - generally proceedings under the SARFAESI Act, 2002 against the borrowers are initiated only when the borrower is in dire-straits. The provisions of the SARFAESI Act, 2002 and the Rules, 2002 have been enacted to ensure that the secured asset is not sold for a song. It is expected that all the banks and financial institutions which resort to the extreme measures under the SARFAESI Act, 2002 for sale of the secured assets to ensure, that such sale of the asset provides maximum benefit to the borrower by the sale of such asset. Therefore, the secured creditors are expected to take bonafide measures to ensure that there is maximum yield from such secured assets for the borrowers. Sale consideration is only Rs. 10,000/- over the reserve price whereas the property was worth much more. It is not necessary for us to go into this question as, in our opinion, the sale is null and void being in violation of the provision of Section 13 of the SARFAESI Act, 2002 and Rules 8 and 9 of the Rules, 2002. letter dated 13.11.2006 sent by the borrower to the Bank clearly depicted that the borrower had waived his right under Rule 9 (1) and the provisions contained in Rule 9(3) and Rule 9(4) as well. It was also found that at the time of auction sale on 11.1.2006, the borrower was present but did not object to the auction being held before expiry of 30 days from the date of which public notice of sale was published. Not only this, he agreed that the bid given by the auction purchaser, which was the highest bid, be accepted as the auction purchaser happened to be his known person. Another important feature which was noted was that the borrower expressly gave consent in writing that the balance sale price may be accepted from the auction purchaser even when tendered after some delay and the sale certificate be issued to him. There was a written agreement between the borrower and the Bank for extension of time upto 15.4.2006 within which the auction purchaser had made the payment. Court came to the conclusion that condition in Rule 9(4) viz. “such extended period as may be agreed upon in writing between the parties” would be treated as substantially satisfied. Again, pertinently, the Writ Petition was filed by the borrower more than 4 years after the issuance of the sale certificate. On these facts the court concluded that there was a waiver of the aforesaid mandatory provisions by the borrower. From what is argued by the appellants, at best it can be inferred that the borrower tried to thwart the earlier attempts of the Bank in selling the property. When the first notice was issued, the borrower filed the writ petition. However, it is to be borne in mind that in the said Writ Petition no interim order was passed staking the auction on the stipulated date. The only stay granted was against confirmation of sale. That did not preclude anybody from participating in the auction. We are mindful of the ground realities that many times pendency of such a Writ Petition challenging the auction notice and the kind of stay granted, even partial in nature, deter the intending buyers to come forward and participate in the auction. Be as it may, we find out that even in the second attempt when the reserve price was reduced to Rs. 2.39 crores, the highest bid received was in the sum of Rs. 2.25 crores. Further, even the bid of the appellant which was accepted was in the sum of Rs. 2.16 crores. Likewise, after the second auction when the Bank requested the borrower to accept the bid of Rs. 2.25 crores giving its reasons and the borrower instead of doing so took initiative resulting in OTS but defaulted therein, it would merely indicate that the borrower was at fault in not adhering to the OTS. By no logic it can be deduced therefrom that the Bank was relieved from its obligation not to follow the mandatory procedure contained in the Rules, while taking fresh steps for the disposal of the property - Sale set aside - Order of High Court confirmed - Decided against appellant.

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