TMI Tax Updates - e-Newsletter
May 9, 2022

Case Laws in this Newsletter:

GST Income Tax Corporate Laws Insolvency & Bankruptcy PMLA CST, VAT & Sales Tax Indian Laws

Articles

1. UPDATED INCOME TAX RETURN

   By: DR.MARIAPPAN GOVINDARAJAN

2. Services of limited end-user licence as part of packaged software classifiable as supply of goods

   By: Bimal jain

News

1. Indian Retail Investors played key role during the last two years: Union Finance Minister

2. Resolution of Stressed Assets and IBC (Address delivered by Shri M. Rajeshwar Rao, Deputy Governor, Reserve Bank of India – April 30, 2022 – in the International Research Conference on Insolvency and Bankruptcy held at IIM Ahmedabad)

3. India looks forward to significant transformational and exponential growth in its trade with Italy - Shri Piyush Goyal

4. India sees the emergence of the 100th unicorn

5. Government is working to capitalise on demographic dividend to have investment-driven, export-led growth with greater engagement with the rest of the world in years to come: Shri Piyush Goyal

Notifications

GST - States

1. G.O.MS.No.276 - dated 22-4-2022 - Andhra Pradesh SGST

Providing Concessional Rate on Intra- State supply of bricks conditional to not availing ITC

2. G.O.MS.No.275 - dated 22-4-2022 - Andhra Pradesh SGST

The Andhra Pradesh Goods and Services Tax Act, 2017 – Amendment to Go.MS.No.258, Revenue (CT-II) Department, dated 29.06.2017

3. G.O.MS.No. 278 - dated 22-4-2022 - Andhra Pradesh SGST

The Andhra Pradesh Goods and Services Tax Act, 2017 - Amendment to Go.Ms.No.254, Revenue(CT-II) Department, dated 20.03.2019

4. G.O.MS.No. 277 - dated 22-4-2022 - Andhra Pradesh SGST

The Andhra Pradesh Goods and Services Tax Act, 2017- Amendment to Go.Ms.No.252, Revenue(CT-II)Department, dated 20.03.2019

5. FD 17 CSL 2022 - dated 21-4-2022 - Karnataka SGST

Constitution of Standing Committee for Consumer Welfare Fund Established under Goods and Services Tax Act and Rules – reg.

6. FD 20 CSL 2022 - dated 13-4-2022 - Karnataka SGST

Corrigendum - Notification (01/2022) No. FD 20 CSL 2022 dated the 31st March, 2022

Income Tax

7. 50/2022 - dated 6-5-2022 - IT

Income-tax Amendment (Thirteenth Amendment) Rules, 2022

Circulars / Instructions / Orders

IBC

1. IBBI/LIQ/2/2022 - dated 6-5-2022

Withdrawal of Circular dated 26th August, 2019 regarding applicability of the Insolvency and Bankruptcy Board of India (Liquidation Process) (Amendment) Regulations, 2019 notified on 25th July, 2019

Highlights / Catch Notes

GST

• Court Rules Interest Due on Delayed Refunds Submitted Physically; Misinterpretation of Law to Exploit Errors Rejected.

  Case-Laws - HC : Entitlement of interest on refund - Submission of refund application in physical form - It is well settled that law does not compel a man to do what he cannot possibly perform. - It is well settled that “construction which permits one to take advantage of one's own wrong or to impair one's own objections under a Statute should be disregarded. The interpretation should as far as possible be beneficial in the sense that it should suppress the mischief and advance the remedy without doing violence to the language” - the respondents cannot be allowed to take advantage of their own wrong so as to deny the payment of interest to the petitioner on delayed refund. - HC
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• Petitioner Challenges GST Registration Requirement u/s 24 for Casual Taxable Persons Despite Existing Delhi Registration.

  Case-Laws - HC : GST Registration of petitioner - petitioner claims that since it is already registered in Delhi, it cannot be required to be registered at any other place - Section 24 of the CGST Act, inter alia, states that notwithstanding anything contained in sub-section (1) of section 22, the following enumerated categories of persons shall be required to be registered under the Act. In the said category is: “casual taxable persons making taxable supplies”. - HC
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• Court Questions GST Inspecting Officers' Powers Post-04.10.2021 Circular; Interim Order Challenges Impugned Decision.

  Case-Laws - HC : Jurisdiction - power of inspecting officers - whether the powers vested on inspecting officers can be withdrawn - This Court, prima facie is of the view that the present officer, that is, the inspecting officer would not be a proper officer after 04.10.2021 in view of the Circular, dated 04.10.2021. Accordingly, this Court is of the considered view that the impugned order can be interfered with on the prima facie case by way of interim order - HC
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• Sub-Contractor in PMAY Scheme Denied 0.75% GST Concession; Benefit Reserved for Promoters Only.

  Case-Laws - AAR : Exemption from GST - sub-contractors to the builder / Developer / Contractor of Affordable housing under PMAY Scheme - In the instant case it is an admitted fact that the applicant is not a promoter but a sub-contractor and hence the benefit of the said entry i.e. concessional rate of GST of 0.75%, for the proposed construction, is not applicable to the applicant - other details need not be examined as the entry itself is not applicable to the applicant. - AAR
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• Appeal Rejection Overturned: Limitation Period Extended Due to Technical Issues with GSTN from 2019 to 2021.

  Case-Laws - HC : Maintainability of appeal - rejection of appeal on the ground of time barred - In face of clear evidence existing on record that such technical glitches were resolved by the GSTN authority on 17.09.2021, the period of limitation to file appeal started running from that date only. For the period 28.02.2019 to 17.09.2021, the period of limitation to file the appeal must always be deemed to have remained suspended for reason of appeal forum being not made available for filing of appeal by the petitioner, through prescribed mode. - HC
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• Court Discusses GST Registration Cancellation, Urges Authorities to Address Dealers' Challenges Under GST Acts of 2017.

  Case-Laws - HC : Revocation of cancellation of the GST registration of the petitioner - a permanent mechanism could not be developed until the aforesaid advisory dated 23.03.2022 - It is hoped that the GST Council and authorities under the Central Goods and Service Tax Act/States Goods and Service Tax Act 2017 shall be sensitive enough to address genuine problems of the dealers including the problems being faced in giving effect to the orders of appellate authority, Tribunal and courts. - HC
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• KPCL's payments for Royalty and coal-related fees to Maharashtra Government excluded from GST Value of Supply unless paid to applicant.

  Case-Laws - AAR : Valuation - coal excavated from the Mine - The amounts towards Royalty, MMDR, DMF Fund and Reserve Price, payable and paid by KPCL directly to the concerned Governmental Authority of Maharashtra are not includible in the Value of Supply for the purpose of levy of GST. However, in future if it is agreed between the applicant and KPCL to make payable and pay, the amounts towards Royalty, MMDR, DMF Fund and Reserve Price by KPCL to the applicant, in such a case, the amounts will be included in the Value of Supply of the impugned services and will be taxed at 18% GST. - AAR
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• Service Supply Confirmed: No Coal Ownership Transfer, Classified as Service under GST Regulations.

  Case-Laws - AAR : Classification of supply - supply of goods or supply of services - HSN Code - right and ownership on the Coal mined by the Applicant - he applicant is involved in supply of services in the instant case (as seen from the ‘Scope of Supply” in the Agreement) and there is no supply of coal by the applicant - thus, the impugned activity carried out by the applicant is supply of services and not supply of goods. - AAR
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Income Tax

• New Rule 2DCA Added to Income-tax Rules, 1962: Clarifies Calculations for Minimum Investment and Exempt Income u/s 10(23FE).

  Act-Rules : Computation of minimum investment and exempt income for the purposes of clause (23FE) of section 10 of the Act - New Rule 2DCA inserted - Income-tax Rules, 1962
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• Income-tax (Twelfth Amendment) Rules, 2022, update tax procedures and compliance standards for improved governance and transparency.

  Notifications : Income-tax (Twelfth Amendment) Rules, 2022. - Notification
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• Court Rules Reassessment u/s 147 Invalid Due to Change of Opinion on 'A Barracks' Rent Issue.

  Case-Laws - HC : Reopening of assessment u/s 147 - Keeping in view the aforesaid facts, this Court is of the view that the issue of rent of ‘A Barracks’ was within the knowledge of the Assessing Officer when he had passed the original assessment order as well as the subsequent order under Section 154 of the Act. Consequently, this Court is in agreement with the opinion of the ITAT that reassessment proceeding in the present case was based on a change of opinion and the same, therefore, cannot be sustained. - HC
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• Trust Classification for Tax Exemption: Not Solely Religious, Falls Under Charitable and Religious Trusts Per Sections 11 & 12AA.

  Case-Laws - AT : Exemption u/s 11 - grant of registration u/s.12AA - “Religious Trust” v/s “Charitable Trust” - The objects do not channel the benefits to any community and thus, would not fall as an institution existing solely for religious purpose. In that view of the matter, we are of the view that the Assessee is a charitable and religious trust which does not benefit any specific religious community and therefore, it cannot be held that it exists solely for religious purpose. It cannot be characterised as religious object especially when it does not make a distinction between caste, creed, race, religion, etc. - AT
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• Tax Authority Excludes Specific Expenses from Margin Calculation Using TNM Method; Assessee's Objections Rejected u/ss 28-44.

  Case-Laws - AT : TP Adjustment - amount disallowed by the AO, viz., Product development expenses, provision for customer claims should be excluded from the cost while computing margin of the assessee - Net margins of the assessee as well as comparable companies are computed under TNM method on the basis of book results without making any adjustment as prescribed in sec.28 to 44 of the Act (both in the hands of the assessee as well as in the hands of comparable companies.) Hence these contentions of the assessee are untenable and hence liable to be rejected. - AT
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• Court Rules on Capital Gain from Sale of Shares: Creditor Payments Not Considered Acquisition Costs Lacking Evidence.

  Case-Laws - AT : Determining capital Gain on sale of shares received in exchange of membership of the broking concern - dues paid to certain creditors of the broking concern as cost of shares - the theory of payment to creditor for obtaining shares of membership of the stock exchange is only an ipse dixit of the assessee, devoid of cogent corroborative material. - AT
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• Assessee's Unreported Interest Income as NPA: CIT(A) Overturns AO's Additions Due to Lack of Evidence.

  Case-Laws - AT : Interest income not offered to tax - AO has noted that the assessee has not offered the entire receipts on the ground that it is classified as NPA - There is no provision under the Act to assess the notional income based on TDS which is incorrectly claimed unless the Assessing Officer has material evidence towards suppression of income. - CIT(A) rightly deleted the additions - AT
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• Assessee's Appeal Allowed: Retrospective Cancellation of Registration Overturned; Income Exemption Denial u/s 11 Upheld.

  Case-Laws - AT : Exemption u/s 11 - denial of registration granted u/s 12AA/12A - where the receipts are coming under the purview of proviso to Section 2(15) of the Act, then the benefit of exemption to the income for the relevant previous year would not be available to the assessee and the Revenue can brought the said income to tax to secure the interest of the Revenue. But so far as the cancellation of registration with retrospective effect is concern, we are setting aside the order of the DIT(E) and allowing the appeal of the assessee. - AT
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• Penalty Imposed for Late Audit Report u/s 271B: Ignorance of Law Not Accepted as Excuse.

  Case-Laws - AT : Penalty u/s 271B - transactions requiring audit report u/s. 44AB - There is further no dispute that neither the assessee had got prepared his audit report nor the same had been furnished well within time to the assessing authority; as the case may be. We therefore hold that mere ignorance of law pleaded herein at the assessee's behest hardly deserves to be treated as a reasonable cause - Levy of penalty confirmed - AT
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• Challenge to Reopening Tax Assessment u/s 147: No New Evidence Found on Business Connection, Permanent Establishment.

  Case-Laws - AT : Reopening of assessment u/s 147 - having business connection as well as Permanent Establishment [PE] in India - evidence being sought to be used for initiating fresh enquiry against the assessee does not even pertain to the Assessment Year under consideration. In our considered opinion, whether a PE exists or not is a fact specific issue and is to be decided on year on year basis. - no new tangible material has been brought by the Assessing Officer to justify the reopening - AT
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• Tax Deduction at Source u/s 195: No Evidence of Permanent Establishment for Non-Resident Vendors' Payments.

  Case-Laws - AT : TDS u/s 195 - existence of permanent establishment (PE) - payment made to various non-resident being during the year under consideration for purchase, installation and supervision charges - Assessing officer could not bring any material on record which would establish such a relationship between the independent parties and non-resident vendors wherein habitual/sustained ability to negotiate or secure contracts could be demonstrated. The ld. assessing officer has jumped to the conclusion of existence of permanent establishment due to the involvement of local parties providing auxiliary services. - AT
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• Legal Expenses for Defending Directors in Criminal Cases Admissible if Protecting Business Interests.

  Case-Laws - AT : Nature of expenses - legal and professional expenses and other expenses defending the directors and their relatives - The expenses incurred even for defending the directors and their relatives in criminal litigations are admissible expenses provided that are incurred in order to protect the business interest of the assessee. - AT
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• Re-evaluate Working Capital Adjustments in Transfer Pricing; Follow OECD Guidelines and Ensure Assessee's Right to Be Heard.

  Case-Laws - AT : TP Adjustment - Adjustment on account of working capital adjustment - Guidance on comparability adjustments is found in paragraphs 3.47-3.54 and in the Annexure to Chapter III of the TPG. A revised version of this guidance was approved by the Council of the OECD on 22 July 2010. - the issue with regard to the grant of working capital adjustment should be directed to be examined by the TPO/AO afresh in the light of the decision of the tribunal referred to above, after affording opportunity of being heard to the Assessee. - AT
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Corporate Law

• New Rules Enhance Transparency and Compliance in Securities Issuance and Allotment for Companies Under 2022 Amendments.

  Notifications : Companies (Prospectus and Allotment of Securities) Amendment Rules, 2022. - Notification
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Indian Laws

• Arbitrator's mandate can't be terminated u/s 11(6) without a written contract; mutual consent prevails.

  Case-Laws - SC : Termination of mandate of sole arbitrator - absence of any written contract containing the arbitration agreement - In the present case, the parties themselves agreed on a procedure for appointment of the arbitrator and appointed and nominated an arbitrator by mutual consent. Therefore, the application under section 11(6) of the Act, 1996 was not maintainable at all. - Once the appointment of the arbitrator is made, the dispute whether the mandate of the arbitrator has been terminated on the grounds set out in section 14(1)(a) of the Act, shall not have to be decided in an application under section 11(6) of the Act, 1996. - SC
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• Court Upholds Cheque Dishonor Due to Insufficient Funds; Petitioner Fails to Provide Evidence of Adequate Balance.

  Case-Laws - HC : Dishonor of Cheque - insufficiency of funds - It cannot be stated that the respondent has failed to prove that the cheque in question was not dishonoured for insufficiency of funds. In any case, if petitioner had sufficient funds in his account at the relevant time, it was always open to him to produce statement of account while leading his evidence in defence. Having failed to do so, it has to be presumed that whatever is stated in the memo of dishonour of cheque in question is correct. - HC
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IBC

• LLP Partners Can Bind Firm: Appellant Must Prove Debt as 'Financial Debt' u/s 5(8) of Insolvency Code.

  Case-Laws - AT : Initiation of CIRP - Financial Debt - privity of contract between Petitioner and Corporate Debtor - It is pertinent to mention that the Appellant has for the first time, in this Appeal has pleaded that the partners can bind the LLP and relies on cheque copies and the Balance Sheet reference. The onus to establish that the amount which is ‘due and payable’ falls within the ambit of the definition of ‘Financial Debt’, as defined under Section 5(8) of the Code, is on the Appellant herein. - AT
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• Lease Rights Clarified: Post-CIRP Management by Appellant as per 2015 Lease Deed; No Extra Rights for Resolution Applicant.

  Case-Laws - AT : Cancellation of lease granted earlier, after initiation of CIRP - After CIRP is over, it shall be open for the Appellant to deal with the lease land which was leased to the Corporate Debtor in accordance with its rights as envisaged by the Lease Deed dated 20.01.2015 - In event, the plot, in question, is included in the Resolution Plan, the Resolution Applicant shall not acquire any better right to the rights which were held by the Corporate Debtor in the lease land along with liabilities attached therein. After CIRP is over, there is no fetter in the rights of the Appellant to take appropriate action in accordance with law with regard to lease land. - AT
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PMLA

• Insufficient Evidence in PMLA Case: Scheduled Offense Not Proven, Seized Property's Innocence Questioned u/s 2(1)(u).

  Case-Laws - SC : Money Laundering - schedule offence - proceeds of crime - Section 44(1) of PMLA - On analysing the report of I.T. Department and the reasoning given by CBI while submitting the final closure report in RC MA1 2016 A0040 and the order passed by the Adjudicating Authority, it is clear that for proceeds of crime, as defined under Section 2(1)(u) of PMLA, the property seized would be relevant and its possession with recovery and claim thereto must be innocent. In the present case, the schedule offence has not been made out because of lack of evidence. - SC
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SEBI

• SEBI Amends InvITs Regulations 2022 to Boost Transparency, Efficiency, and Investor Protection in Infrastructure Investments.

  Notifications : Securities and Exchange Board of India (Infrastructure Investment Trusts) (Amendment) Regulations, 2022. - Notification
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Case Laws:

• GST

• 2022 (5) TMI 348
  Maintainability of appeal - rejection of appeal on the ground of time barred - cancellation of petitioner s registration - HELD THAT:- Whatever be the exact nature of communication sought to be made by the GSTN portal, it cannot be disputed that there exists clear evidence of admission made by the GSTN authority of difficulty faced by the petitioner in instituting his appeal against the order dated 28.02.2019, within the normal period of limitation, computed from the date of that order. Also, there is clear evidence of the said difficulty having been first resolved on 17.09.2021, well after expiry of the statutory period of limitation and the extended period of limitation, to file the appeal under Section 107 of the Act. Since the petitioner had been disabled from filing appeal (electronically) through the prescribed mode, against the order dated 28.02.2019, for reasons attributable solely to the GSTN authority and not for reasons attributable to the petitioner, it has to be assumed, for the limited purpose of the dispute at hand that the forum of appeal was first made available to the petitioner on 17.09.2021, and not earlier. It is so because 17.09.2021 was the date when GSTN authority first resolved the technical issues that had restrained or prevented the petitioner from approaching the appeal authority to file his appeal, against the order dated 28.02.2019. The statutory right of appeal is not an illusory remedy given to the assessee or a person aggrieved. It is an effective and real remedy granted within the structure of the statute to allow for redressal of genuine grievances - In face of clear evidence existing on record that such technical glitches were resolved by the GSTN authority on 17.09.2021, the period of limitation to file appeal started running from that date only. For the period 28.02.2019 to 17.09.2021, the period of limitation to file the appeal must always be deemed to have remained suspended for reason of appeal forum being not made available for filing of appeal by the petitioner, through prescribed mode. The appeal was filed by the assessee on 20.09.2021, within time. The Appeal Authority has completely erred in rejecting the appeal as time barred - Petition allowed.

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• 2022 (5) TMI 347
  Entitlement of interest on refund - whether under the facts and circumstances, the petitioner is entitled for interest on the amount which was liable to be refunded in terms of the order of the First Appellate Authority dated 30.06.2018 but it was refunded on 04.04.2022 - Sections 54 and 56 of the C.G.S.T. Act and Rule 89 of the C.G.S.T. Rules - HELD THAT:- As per provisions of Section 54(1) of the CGST Act, 2017, the petitioner could claim refund by making an application before the expiry of two years from the relevant date in such form and manner as may be prescribed. The relevant date for the purposes of the present case is referable to Explanation 2(d) appended to Section 54 which provides that in case where the tax becomes refundable as a consequence of judgment, decree, order or direction of the Appellate Authority, Appellate Tribunal or any court, the date of communication of such judgment, decree, order or direction. It is undisputed that the proper office while accepting the deposit of tax and penalty by bank-draft from the petitioner for Rs.4,70,400/- for release of goods pursuant to the order dated 30.12.2017 under Section 129 (3) of the U.P. Goods and Service Tax Act, 2017, mistakenly shown the deposit under the aforesaid Act instead of IGST Act and further committed a manifest error whether deliberately or otherwise, to deposit the aforesaid amount by creating a temporary ID at its own, without informing any relevant fact or password etc. to the petitioner. Therefore, it was wholly impossible for the petitioner to apply online for refund under Section 54(1) of the Act read with Rule 89 of the Rules. It is well settled that law does not compel a man to do what he cannot possibly perform. Under the circumstances, the petitioner admittedly moved a refund application dated 09.07.2018 in physical form for refund of the aforesaid amount pursuant to appellate order dated 30.06.2018 and also enclosed a copy of the appellate order along with the refund application. As per own admitted case of the respondents, they themselves firstly proceeded arbitrarily and deposited the amount received from the petitioner, by creating a temporary ID and did not give access to the petitioner to the said ID and even the said temporary ID was not available at the end of the proper officer s login and its password was not provided to the petitioner as per own stand taken by the respondents in the afore-quoted paragraph-16 of the personal affidavit dated 25.04.2022. Under the circumstances, when the appellate authority vide order dated 30.06.2018 directed for refund and the order was communicated to the respondents by the petitioner vide letter dated 09.07.2018, then, the respondents were bound to refund the amount along with interest under Section 56 of the CGST/ U.P. GST Act, 2017 but on one hand, they arbitrarily withheld the refund of the petitioner for more than 33 months and on the other hand, they again arbitrarily acted and have not granted interest to the petitioner on the delayed refund of the amount in question. The principal amount deposited was refunded by the respondents to the petitioner only on 04.04.2022. Thus, the petitioner is entitled for interest under Section 56 of the Act, 2017. In the present set of facts, the respondents have committed wrong firstly by not showing the deposit under IGST Act, secondly by showing the deposit by creating temporary ID at its own and thirdly, not informing the petitioner the password for the temporary ID so created, to enable him to apply in the prescribed form. The Respondent No.1 in paragraphs-16, 17 and 18 of her personal affidavit dated 25.04.2022 (aforequoted) has herself stated that due to technical glitches, the temporary I.D. of the petitioner was not available at the end of proper officer s login as it was at development stage of GST Portal and hence it was not possible to provide the password to the petitioner from the proper officer s end - the respondents arbitrarily and illegally withheld the amount of refund despite the order of the first appellate authority dated 30.06.2018 for refund. It is well settled that construction which permits one to take advantage of one s own wrong or to impair one s own objections under a Statute should be disregarded. The interpretation should as far as possible be beneficial in the sense that it should suppress the mischief and advance the remedy without doing violence to the language - the respondents cannot be allowed to take advantage of their own wrong so as to deny the payment of interest to the petitioner on delayed refund. The respondents are directed to pay interest to the petitioner within a month from today, for the period from 09.09.2018 to 31.03.2022, at the rate notified under Section 56 of the Act - Petition allowed.

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• 2022 (5) TMI 346
  Revocation of cancellation of the GST registration of the petitioner - restoration of GST registration of the petitioner on the GST portal - seeking direction not to levy any late fees/penalty for late filing of returns by the petitioner for the months of August 2021 to March 2022 - HELD THAT:- From the records, it appears that as per own case of the respondents a temporary mechanism to restore cancelled registration was created in the back end and an advisory vide e-mail dated 16.06.2021 was issued in this regard to restore registrations cancelled on the request of the dealers or pursuant to the orders passed by appellate authorities/High Court, but a permanent mechanism could not be developed until the aforesaid advisory dated 23.03.2022 - But now it developed and deployed a functionality in the name of Restoration of Cancelled Registration with effect from 23.03.2022 to facilitate the jurisdictional Range Officers to restore the registration in pursuance of judicial/appellate orders. It is hoped that the GST Council and authorities under the Central Goods and Service Tax Act/States Goods and Service Tax Act 2017 shall be sensitive enough to address genuine problems of the dealers including the problems being faced in giving effect to the orders of appellate authority, Tribunal and courts. Petition disposed off.

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• 2022 (5) TMI 345
  GST Registration of petitioner - petitioner claims that since it is already registered in Delhi, it cannot be required to be registered at any other place - HELD THAT:- The concern of the petitioner that the petitioner has no place of business in Hyderabad where the successful bidder in respect of the tender in question will be required to make supplies and render services is sufficiently addressed by the aforesaid definition of Casual taxable person . Section 24 of the CGST Act, inter alia, states that notwithstanding anything contained in sub-section (1) of section 22, the following enumerated categories of persons shall be required to be registered under the Act. In the said category is: casual taxable persons making taxable supplies . Petition disposed off.

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• 2022 (5) TMI 344
  Cancellation of GST registration of petitioner - default in filing of returns - Rule 68 of the Central Goods and Services Tax Rules, 2017 - HELD THAT:- It is admitted by the learned Standing Counsel for the State that in fact, no notice, as envisaged in Rule 68 of the Rules, was issued, rather a postal notice (Annexure No. 2 to the writ petition) was sent - It is a settled principle of law that if enactment or legislation prescribes a particular procedure to conduct business affairs, then it has to be followed. In this case, impugned order has been passed without issuing electronic notice to the petitioner but by issuing registered postal notice. The writ petition is allowed.

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• 2022 (5) TMI 343
  Jurisdiction - power of inspecting officers - whether the powers vested on inspecting officers can be withdrawn - whether after inspection is over, the inspecting officers has to forward the Inspection Report to the jurisdictional officer to initiate action or issuance of show cause notice and proceed with the adjudication? - CCT Circular No.72/2019-TNGST, dated 31.05.2019 - HELD THAT:- Under CCT Circular No.72/2019-TNGST, dated 31.05.2019 instructions had been given by the Head of the Department, that is, State GST, that the officers of the Intelligence Wing were permitted to exercise the powers vested under Sections 62, 63, 64, 73 or 74 of the TNGST Act, 2017 in respect of the cases inspected by the said officers - After sometime, this issue has been examined at length by the Head of the Department, pursuant to which, the Department has come to a conclusion that the power vested with the inspecting officers can be withdrawn and after inspection is over, the inspecting officers has to forward the Inspection Report to the jurisdictional officer to initiate action or issuance of show cause notice and proceed with the adjudication. In this case, though such an inspection has been conducted by the inspecting officer, without sending the report to the jurisdictional officer as contemplated in the Circular, has initiated action on their own by issuing the show cause notice, dated 12.10.2021. Therefore, Ms.Aparna Nandhakumar, learned counsel appearing for the petitioner, by relying upon the afore-stated Circular, has contended that, the inspecting officer, who issued the show cause notice, dated 12.10.2021, is not a proper officer, therefore, he does not have the jurisdiction to issue the show cause notice. Therefore, on the ground of want of jurisdiction, the said impugned show cause notice is under challenge, hence she seeks indulgence of this Court. This Court, prima facie is of the view that the present officer, that is, the inspecting officer would not be a proper officer after 04.10.2021 in view of the Circular, dated 04.10.2021. Accordingly, this Court is of the considered view that the impugned order can be interfered with on the prima facie case by way of interim order - Post the matter after four weeks for filing counter.

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• 2022 (5) TMI 342
  Classification of supply - supply of goods or supply of services - HSN Code - Classifiable under HSN 2701 or under HSN 9986? - rate of GST - right and ownership on the Coal mined by the Applicant - single consolidated contract or a divisible contract in view of the fact that four components of the contract (viz. Excavation of Coal, Transport Service, Handling Charges (incl. Additional Handling Charges) and Restoration and Rehabilitation charge] are clearly distinguishable and separately identifiable? - other components like Royalty, MMDR, DMF Fund, Cess, Stowing Excise Duty, Reserve Price, etc. which are levied on the coal excavated from the Mine. Whether the impugned activity carried out by the Applicant under the subject Agreement is supply of Goods or is a supply of Service and whether the said activity should accordingly be subject to GST under HSN 2701 (chargeable @ 5% as supply of coal) or under HSN 9986 (chargeable @ 18% as Support Services to Mining)? - HELD THAT:- The coal, as goods, belongs to the Mine Owner i.e. the Government of India and the Government of India has allotted the Mines to Karnataka Power Corporation Limited (KPCL) for mining of coal, to be used only for captive purpose in generation of power by the KPCL. The fact that the KPCL has been given the authority as the owner of the Mines is reflected in Article 5.7.1 of the impugned Agreement which states that, Subject to the provisions of this Agreement, the Authority (i.e. KPCL) shall be the Owner of the Mines for the purposes of the Mines Act, 1952. Thus, the said Article of the Agreement clearly proves that the owner of the coal is KPCL and not the applicant. Therefore, there is no supply of coal by the applicant, purely because the applicant neither has any ownership rights on the coal nor has any rights to sell the coal that has been excavated by it. Hence, the applicant is involved in supply of services in the instant case (as seen from the Scope of Supply in the Agreement) and there is no supply of coal by the applicant - thus, the impugned activity carried out by the applicant is supply of services and not supply of goods. Under which Service Accounting Code (SAC) does the impugned supply fall under? - HELD THAT:- The impugned services, related to mining (mining of coal), was covered under Sr No 24 (ii) of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 - In view of the amendment made to Sr. No. 24 (ii) and since the impugned services cannot be considered as Service of exploration, mining or drilling of petroleum crude or natural gas or both, the impugned service is not covered under Sr. No. 24 (ii) of the amended Notification No. 11/2017 - Central Tax (Rate) dated 28.06.2017 - the impugned services related to mining of coal, is covered under Sr. No. 24 (iii) with effect from the date of the amendment i.e. 25.01.2018, attracting 18% GST. Whether the Applicant required to consider other components like Royalty, MMDR, DMF Fund, Cess, Stowing Excise Duty, Reserve Price, etc. (which are levied on the coal excavated from the Mine and is payable/paid directly by KPCL to the Government of India and the State Government of Maharashtra and which the Applicant neither has any liability to pay nor does it makes any payment of such amount), for the purpose of determining the transaction price? - HELD THAT:- Even though the amounts towards Royalty, MMDR, DMF Fund and Reserve Price are shown in the invoices as directed by KPCL, these amounts are not paid to the applicant. We also observe that these amounts are due from KPCL to the concerned Governmental Authority and are accordingly paid by KPCL to the Department of Geology Mining. Further, Article 6.1.3 of the impugned Agreement clearly states that KPCL shall pay, at all times, during the subsistence of the impugned Agreement, all Taxes and levies, duties, Royalties including demands, if any, cesses and all other statutory charges payable in respect of excavation and delivery thereof directly to the Governmental Instrumentality. The applicant does not show any liability on account of any of the aforesaid Government Payments (Royalty, MMDR, DMF Fund and Reserve Price) in its books. As per Article 5.6 of the Agreement, the applicant shall pay all GST and cess payable in respect of supply of goods (or) services under the impugned Agreement directly to the Government instrumentality and which shall be reimbursed by KPCL to the applicant - from a reading of Articles 6.1.3 and 5.6 of the Agreement it is crystal clear that, GST is payable by KPCL to the applicant while all other taxes are payable and paid by the KPCL to the concerned Governmental Authority. In the subject case, it is found that the applicant (supplier of service) and KPCL (recipient of service) are not related persons and price is the sole consideration for the supply - there is no amount that the supplier i.e the applicant, is liable to pay in relation to the impugned supply which has been incurred by the recipient i.e. KPCL of the supply and not included in the price actually paid or payable for the services - none of the provisions of Section 15 are attracted in the subject case with respect to amounts towards Royalty, MMDR, DMF Fund and Reserve Price, payable and paid by KPCL directly to the concerned Governmental Authority of Maharashtra and therefore the said amounts are not includible in the Value of Supply for the purpose of levy of GST. A perusal of the impugned agreement (relevant Articles discussed above), reveals that the components like Royalty, MMDR, DMF fund Cess, Reserve Price are not at all liable to be paid by the supplier of service, in this case, the applicant and further, the said components are liable to be paid exclusively by KPCL who is the recipient of the impugned supply. Thus KPCL is incurring the expenses towards the said components on its own behalf and not on behalf of the applicant as is seen from the relevant clauses of the impugned agreement. The amounts towards Royalty, MMDR, DMF Fund and Reserve Price, payable and paid by KPCL directly to the concerned Governmental Authority of Maharashtra are not includible in the Value of Supply for the purpose of levy of GST. However, in future if it is agreed between the applicant and KPCL to make payable and pay, the amounts towards Royalty, MMDR, DMF Fund and Reserve Price by KPCL to the applicant, in such a case, the amounts will be included in the Value of Supply of the impugned services and will be taxed at 18% GST.

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• 2022 (5) TMI 341
  Exemption from GST - sub-contractors to the builder / Developer / Contractor of Affordable housing under PMAY Scheme - applicability of Serial No.3(i) of Notification No.03/2019-Central Tax (Rate) New Delhi, the 29th March, 2019 (parent Notification No. 11/2017-Central Tax (Rate), dated the 28th June, 2017 as amended by Notification No.30/2018-Central Tax (Rate), dated the 31st December, 2018 - Eligibility of concessional rate of CGST at 0.75% as per the Notification No.03/2019-Central Tax (Rate) New Delhi, the 29th March, 2019 amended from time to time. HELD THAT:- It could be seen from the column 3 (description of the service) of entry number 3(i) of the principal notification No. 11/2017-Central Tax (Rate) dated 28.06.2017, as amended by the Notification No.3/2019-Central Tax (Rate) dated 29.03.2019, effective from 01.04.2019 that, the concessional rate of 0.75% CGST is applicable only to the promoter in respect of the Construction of affordable residential apartments in a Residential Real Estate Project (herein after referred to as RREP) which commences on or after 1st April, 2019. The concessional rate is also applicable in case of an ongoing RREP in respect of which the promoter has not exercised option to pay central tax on construction of apartments at the rates as specified for item (ie) or (if) below, as the case may be, in the manner prescribed therein. In the instant case it is an admitted fact that the applicant is not a promoter but a sub-contractor and hence the benefit of the said entry i.e. concessional rate of GST of 0.75%, for the proposed construction, is not applicable to the applicant - other details need not be examined as the entry itself is not applicable to the applicant.

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• Income Tax

• 2022 (5) TMI 1665
  Deduction claimed u/s 80IB(10) - return of income has not been filed within the due date u/s 139(1) as required by section 80AC - sufficient and reasonable cause occurred in filing the return late - HELD THAT:- It is sufficiently clear from the assessee s averments that the learned lower authorities have declined to entertain its Section 80IB(10) deduction claim for the reason that the same had not been raised in its return filed within the due date prescribed under Section 139(1) of the Act. And that the learned lower authorities quote Sections 80A(5) r.w.s. 80AC of the Act. Case law in EBR Enterprises vs. Union of India [ 2019 (6) TMI 484 - BOMBAY HIGH COURT] .holds that filing of such return under Section 139(1) for claiming Chapter VIA deduction is very much a mandatory condition. We thus adopt stricter direction in light of Commissioner of Customs vs. Dilip Kumar [ 2018 (7) TMI 1826 - SUPREME COURT] and affirm learned lower authorities action rejecting the impugned deduction claimed. Our attention to the assessee s petition dated 23.04.2022 that it had filed an application before the CBDT under Section 119(2)(b) seeking condonation of delay in filing the above statutory return. He clarified that the Board had rejected the same on 11.10.2019. And that the assessee s Writ Petition challenging the same is pending for final adjudication before the hon ble jurisdictional high court. He therefore sought adjournment to await its final outcome. We find no merit in assessee s instant adjournment request as its return is found to have been filed well beyond the due date prescribed in Section 139(1) of the Act. The assessee s foregoing pleas fail accordingly. Assessee appeal dismissed.

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• 2022 (5) TMI 340
  Reopening of assessment u/s 147 - Eligibility of reason to believe - change of opinion - opinion on the issue of rent payable - HELD THAT:- In the present case, during original assessment proceedings, the Assessing Officer had issued notices to the assessee seeking reasons for decline in the gross profit. The Respondent/assessee vide replies dated 22nd January, 2009 and 09 th February, 2009 had stated that decline in gross profit was due to the rent of Mumbai Branch premises and rent of A Barracks and provisions for pay revision. Subsequently, the Assessing Officer had issued notice under Section 154 of the Act on the issue of Other Provisions . The Respondent/assessee, in response to said notice had submitted a break-up of Other Provisions , which included the rent of A Barracks of Rs. 4.19 Crores. Keeping in view the aforesaid facts, this Court is of the view that the issue of rent of A Barracks was within the knowledge of the Assessing Officer when he had passed the original assessment order as well as the subsequent order under Section 154 of the Act. Consequently, this Court is in agreement with the opinion of the ITAT that reassessment proceeding in the present case was based on a change of opinion and the same, therefore, cannot be sustained.

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• 2022 (5) TMI 339
  Validity of reopening of assessment - rejecting petitioner s objections to reopening - four years from the end of the relevant assessment year has expired before the issuance of notice - Validity of approval granted by the Additional Commissioner of Income Tax - HELD THAT:- Since four years had expired from the end of the relevant assessment year, as provided under section 151(1) of the Act, it is only the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner who could have accorded the approval and not the Additional Commissioner of Income Tax. On this ground alone, we will have to set aside the notice dated 31.03.2021 issued under section 148 of the Act, which is impugned in this petition. In view thereof, the consequent orders and notices will also have to go. - Decided in favour of assessee.

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• 2022 (5) TMI 338
  Validity of faceless assessment u/s 144B - Main thrust of learned counsel for petitioner at the time of submission of his case on merits is that non-following of the procedure prescribed under Section 144B will make the proceedings non-est - HELD THAT:- The Ministry of Law and Justice (Legislative Department), New Delhi issued Gazette Notification dated 30.3.2022 wherein sub-section (9) of Section 144B of the Act of 1961 has been omitted w.e.f. 1.4.2021. By virtue of amendment brought in by the Legislature, the ground raised before this Court is not available as said provision itself stood omitted from the statute book with retrospective effect. Petitioner is having efficacious alternative statutory remedy of filing appeal before the appellate authority who can consider and decide other issues raised in this writ petition. We not inclined to entertain this writ petition as the petitioner is having efficacious alternate statutory remedy of appeal and it is accordingly dismissed. Petitioner may approach Appellate Authority under the Act of 1961 raising all grievances and grounds, as raised in this petition. If petitioner prefers an appeal within a period of thirty days from today, the Appellate Authority shall consider and decide the same on its own merits in accordance with law.

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• 2022 (5) TMI 337
  Reopening of assessment u/s 147 - Scope of new provision section 148A - challenge to issuance of impugned notice u/s 148 on the grounds that the same is barred by limitation and that the respondent-income tax authority concerned, before issuing the impugned notices u/s 148 has not observed the statutory formalities under section 148A as prescribed by the Finance Act, 2021 which are applicable with effect from 1st April 2021 before issuance of notices under section 148 of the 1961 Act on or after 1st April 2021 - HELD THAT:- As considered view that this case clearly falls under the amended Act relating to proceedings under section 147 of the Act under which issuance of notice under section 148A of the Act is mandatory before issuing any notice under section 148 of the amended Act which has not been complied with in this case. Considering the above facts and circumstances of the case and in view of the order of this court in the case of Bagaria Properties and Investment Private Limited Anr. [ 2022 (1) TMI 742 - CALCUTTA HIGH COURT] and also in the case of Monoj Jain [ 2022 (1) TMI 741 - CALCUTTA HIGH COURT] the impugned notice under section 148 of the Act and all subsequent proceedings are not sustainable in law and the same are quashed. However, quashing of the impugned notice and proceeding will not debar the respondent-authority concerned to issue any fresh notice in future in accordance with law. This writ petition is allowed subject to payment of costs of Rs.5,000/- to the Calcutta High Court Legal Services Committee, since the impugned notice under section 148 of the Income Tax Act, 1961 has been issued on 31st March, 2021 as appears from record and this writ petition has been filed in April 2022, that is, almost after ten months from receipt of the impugned notice, without any explanation for such delay in filing this writ petition

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• 2022 (5) TMI 336
  Penalty proceedings u/s 271(1)(c) - Nature of land sold - assessee had received sale consideration on sale of agricultural land in Dehradun andhad claimed this amount as exempt as it was sale of agricultural land but as held by Ld. AO the income derived from sale of such assets was liable to taxation and not exempt - HELD THAT:- As in the assessment order the Ld. AO has not given any conclusive finding as to if the particulars furnished before the Tax Authorities were inaccurate to the knowledge of the assessee. There were certainly disputed facts. Revenue authority registering the sale deed had not made objection to the recital that land was outside the Municipal Area. It appears that the ld. AO had to himself take assistance of the local revenue and Municipal Authorities and technical expertise and apparatus to come to a decisive conclusion that three plots sold by assessee were within six kilometers from western limits of Municipal Corporation Dehradun. No reason was mentioned by the ld. AO to discredit the submission of assessee that on advise of Patwari they had taken the Municipal Limit from Ghantaghar (Clocked hour). There is no force in the grounds of appeal raised by the revenue. Accordingly appeal of the revenue is dismissed.

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• 2022 (5) TMI 335
  Excess payment of remuneration to partners in contravention of provision of section 40(b)(v) - assessee submitted that copy of the supplementary deed which is executed on 1st April, 2011 at assessee s paper book and also filed the copy of the audit report for Assessment Year 2012-13 wherein there is allowance higher remuneration based on the change in remuneration clause in partnership deed - HELD THAT:- In the light of two set of evidences when these records are forming part of assessment records, for earlier year, there is no need to call for the remand report of the Assessing Officer at the stage of ld. CIT(A)/NFAC and therefore, we find no infirmity in the finding of the ld. CIT(A)/NFAC and the action of ld. CIT(A)/NFAC is considered and the appeal of the department considering the above finding on fact placed by the assessee is considered and ground for disallowance raised by revenue is dismissed and thus the appeal of the revenue is dismissed.

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• 2022 (5) TMI 334
  Exemption u/s 11 - grant of registration u/s.12AA - Religious Trust v/s Charitable Trust - CIT(E) exemption was of the view that the objects of the trust were for religious purpose and therefore registration can be granted only as Religious Trust rather than Charitable Trust - HELD THAT:- Section 13(1)(a) bars exemption to any private religious trust, which does not enure for the benefit of the public. Section 80G(5)(iii) makes a distinction in cases of institutions or funds, which are for the benefit of any particular religious community or caste - say for Hindus, Muslims, Christians or for Brahmins, etc. Donors to such trusts are debarred from claiming benefit of deduction from income for donations made to such trusts. Conversely, it follows that for donations made to religious bodies, which do not fall in the category mentioned in section 80G(5)(iii), benefit of deduction under section 80G can be claimed. Thus, it could be said that a public religious trust, not meant for the benefit of a particular community, caste or section, will be entitled to claim exemption on its income in the same way as a public charitable trust. A perusal of the original will of late His Holiness Sri.Channa Basava Swamy, reveals that he had only public benefit in mind to be the beneficiaries and the benefit was through performing puja and all kinds of religious activities. No private person belonging to any caste or creed, is the beneficiary. Assessee is admittedly carrying out the activities of providing free food and Hostel Facilities to Students and also to General Public. The facilities provided are for people without distinction relating to caste, creed or community. The Author of the trust has clearly specified in his Will that he has received monies and properties from people of different caste and creed which clearly proves that the Trust is not dedicated to only one religion or caste. People from different walks of life are free to enter the Holy place, meditate, pray and worship. The monies collected in the form of voluntary contributions are utilised for providing food and hostel facilities, Conducting Training for creating employment, helping the needy people by giving them Sewing machines and other necessary equipment and support for sustaining livelihood for mainly people below poverty line. The Audited Financial Statements for the past three Assessment years clearly shows the nature of activities carried out which are majorly charitable in nature. Besides the above, the Assessee has also enclosed Newspaper reports in support of its claim that the activities carried out are in the nature of supporting general public and not related to any particular caste, community or creed. We are of the view that the objects and purposes of the Assessee are both charitable and religious, the Assessee does not exist exclusively for the benefit of a particular religious community. The objects do not channel the benefits to any community and thus, would not fall as an institution existing solely for religious purpose. In that view of the matter, we are of the view that the Assessee is a charitable and religious trust which does not benefit any specific religious community and therefore, it cannot be held that it exists solely for religious purpose. It cannot be characterised as religious object especially when it does not make a distinction between caste, creed, race, religion, etc. Thus we are satisfied that the plea of the Assessee to recognize it as existing for Charitable Purpose deserves to be accepted and is accepted. We accordingly allow the plea of the Assessee and direct that the registration be allowed treating the Assessee as existing for Charitable purpose . - Assessee appeal allowed.

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• 2022 (5) TMI 333
  Unexplained cash deposit in bank account of assessee - Application of theory of opening and closing cash balance - HELD THAT:- Assessee has specifically demonstrated by way of submitting relevant sale deeds that he has received cash amount of Rs.24,45,000/- as sale consideration from various land purchasers and executed 8 registered sale deeds during the financial year 2012-13 and the Assessing Officer has not considered this amount towards cash deposits in the bank account of the assessee. Therefore, in our humble understanding, this amount received in cash against sale consideration of land to 8 persons, has to be taken into consideration and the explanation of the assessee in this regard is plausible and sustainable one. We direct the Assessing Officer to recalculate the disallowance u/s. 68 of the Act by giving credit of Rs.24.45 lacs received by the assessee against sale of land to 8 persons during the immediately previous financial period which also gets support from the amount of opening cash balance in the hands of the assessee which was Rs.30,62,450/- . Accordingly, the appeal of the assessee is partly allowed sustaining the remaining addition of Rs.9,70,725/- (34,15,725 24,45,000). Appeal of assessee allowed.

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• 2022 (5) TMI 332
  Determining capital Gain on sale of shares received in exchange of membership of the broking concern - dues paid to certain creditors of the broking concern as cost of shares - HELD THAT:- We find that assessee s claim of incurring 1.58 crore in connection with the acquisition of shares has no cogency whatsoever. No details were given to the Assessing Officer of the so called credit payment. Before learned CIT(A) also an attempt was made to give a sketchy details of payments which has rightly been rejected by learned CIT(A). Moreover the theory of payment to creditor for obtaining shares of membership of the stock exchange is only an ipse dixit of the assessee, devoid of cogent corroborative material. Hence, we do not find any infirmity in the well reasoned order of the authorities below. - Decided against assessee.

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• 2022 (5) TMI 331
  Disallowance made under section 14A r.w. Rule 8D - Assessee made suo moto disallowance - Mandation of recording satisfaction - HELD THAT:- The assessee has received dividend income and has suo motu disallowed expenses under section 14A of the Act as expenses relating to exempt income. However, the Assessing Officer disallowed an additional amount but while making additional disallowance under section 14A of the Act, the Assessing Officer has not recorded any satisfaction as to how the claim of the assessee was incorrect and had resorted to the provisions under section 14A r.w. Rule 8D. Assessing Officer has not given any findings in the assessment order with regard to the correctness in respect of expenditure incurred to earn exempt income. Moreover, before the ld. CIT(A) also the assessee has revised the disallowance. The ld. DR could not controvert the decision of the Hon ble Supreme Court in the case of Maxopp Investment Ltd.[ 2018 (3) TMI 805 - SUPREME COURT] - thus we hold that the Assessing Officer was not justified in making disallowance under section 14A - Decided in favour of assessee Disallowance of royalty payment - as assessee has claimed royalty paid to Shriram Ownership Trust for use of the logo by treating the expenditure as capital expenditure, the Assessing Officer allowed depreciation @25% - HELD THAT:- As decided in own case [ 2016 (7) TMI 1642 - ITAT CHENNAI] CIT(A) directed the Assessing Officer to allow the royalty payment by treating it as revenue expenditure. DR could not controvert the above decision of the Tribunal in assessee s own case. Just because the Revenue has filed an appeal against the order of the Tribunal before the Hon ble Madras High Court, we cannot take a different view until and unless the decision of the Tribunal has been reverted or modified. The ld. CIT(A) has rightly followed the decision of the Tribunal and thus, we find no infirmity in the order passed by the ld. CIT(A). Accordingly, the ground raised by the Revenue stands dismissed. Interest income not offered to tax - AO has noted that the assessee has not offered the entire receipts on the ground that it is classified as NPA - Since the assessee has claimed full TDS credit as in Form 26AS, the Assessing Officer has called for explanation on why the above two amounts not offered to tax should not be added to the total income - CIT(A) has observed that as per the provision of section 198 and section 199 of the Act, an assessee can claim credit for TDS against the income declared - HELD THAT:- There is no provision under the Act to assess the notional income based on TDS which is incorrectly claimed unless the Assessing Officer has material evidence towards suppression of income. Since no material evidence towards suppression of income was brought on record and in view of the above facts, the ld. CIT(A) has rightly deleted the addition of Rs. 1.23 crores made by the Assessing Officer towards undeclared interest income and further directed the Assessing Officer to assess the corresponding interest income in the relevant assessment year in which it actually arises and to allow TDS thereof in the relevant assessment year in which interest income is offered in respect of those two parties. Consequently, the ld. CIT(A) has also directed the Assessing Officer not to allow credit for the TDS in respect of those two parties. Hence, we find no reason to interfere with order passed by the ld. CIT(A) on this issue and thus, the ground raised by the Revenue is dismissed. Exclusion of disallowance under section 14A while computing the book profits under section 115JB - HELD THAT:- So far as disallowance under section 14A of the Act while computing the book profit under section 115JB of the Act is concerned, in the recent judgement in the case of Sobha Developers Ltd. [ 2021 (1) TMI 378 - KARNATAKA HIGH COURT] has held that the disallowance made under section 14A of the Act could not be added to book profits of the assessee under section 115JB. Allowability of credit for TDS by Jinal Mercantile and Mehul Chinubhai Choksi in the assessment year 2014-15 - HELD THAT:- By considering the submissions of the assessee that there was uncertainty in realizing interest income and since there was no provision under the Act to assess the notional income based on TDS, the ld. CIT(A) has deleted the addition of Rs. 1.23 crores made by the Assessing Officer towards undeclared interest income. Further, the ld. CIT(A) has directed the Assessing Officer to assess the corresponding interest income in the relevant assessment year in which it actually arises and to allow TDS thereof in the relevant assessment year in which interest income is offered in respect of those two parties. Consequently, the ld. CIT(A) has also directed the Assessing Officer not to allow credit for the TDS in respect of those two parties. Therefore, we are of the opinion that there is no merit in the ground raised by the assessee and accordingly, the ground raised by the assessee is dismissed.

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• 2022 (5) TMI 330
  Exemption u/s 11 - denial of registration granted u/s 12AA/12A - Cancellation of registration with retrospective effect - Cancellation of registration based on Proviso to s.2(15) - HELD THAT:- DIT (E) nowhere in the order dated 27.03.2014 observed that the activities of the Slum Rehabilitation Authority are not genuine or that the activities carried out are not in accordance with its objects. The requirement for rejecting the registration under Section 12AA(3) is that if the trust or institution is carrying out non-genuine activities and the activities beyond the scope of its defined objects. But in the present case, the DIT(E) has not pointed out any such violation of the conditions. DIT(E) is solely stated that the assessee is generating huge income by charging premium which over and above and the amount is invested in Fixed Deposit and not transmitted to the government body. As per the Maharashtra Slum Areas (Improvement, Clearance and Rehabilitation) Act, 1971 more specifically Section 3M, the Slum Rehabilitation Authority is utilizing and investing its fund as per the guidelines set out in the said Act. In the present case, the Slum Rehabilitation Authority has not changed its objects or deviated from its objects notified before the Revenue Authority at the time of registration under Section 12A of the Act i.e. from 01.04.2002. Therefore, withdrawing the registration with retrospective effect from the date of grant of registration (i.e. 01.04.2002) by the DIT(E) is bad in law and will not sustain in the eyes of law. It is pertinent to note here that where the receipts are coming under the purview of proviso to Section 2(15) of the Act, then the benefit of exemption to the income for the relevant previous year would not be available to the assessee and the Revenue can brought the said income to tax to secure the interest of the Revenue. But so far as the cancellation of registration with retrospective effect is concern, we are setting aside the order of the DIT(E) and allowing the appeal of the assessee.

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• 2022 (5) TMI 329
  Addition u/s 69A unexplained cash seized - As contended during the course of hearing that it is clear from a perusal of the assessee s income tax return, computation and balance sheet that the impugned sum represents the accumulated balances as well as cash sales realized in liquor business - HELD THAT:- We have given our thoughtful consideration to rival pleadings and find no reason to accept either party s foregoing submissions in entirety. This is for the reason that neither the assessee has been able to reconcile the liquor stock in trade with the sales/profits realized therefrom vis- -vis the cash seized nor the department could altogether rebut the foregoing prima facie evidence to this effect. Faced with this situation, we deem it appropriate that a lump sum addition of Rs. 25 lakhs than that in issue of sum of Rs. 37.35 lakhs would be just and proper with a rider that the same shall not be treated as a precedent. The assessee gets relief of Rs. 12.35 lakhs in other terms. Necessary computation shall follow as per law.

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• 2022 (5) TMI 328
  Penalty u/s 271B - transactions requiring audit report u/s. 44AB - delay caused in filing a report and the enclosures as per sec 44AB - HELD THAT:- It is an admitted fact that the assessee s case is very well covered u/s. 44AB of the Act as his turnover has indeed exceeded the basic threshold limit of Rs. 40 lakhs in the relevant previous year. There is further no dispute that neither the assessee had got prepared his audit report nor the same had been furnished well within time to the assessing authority; as the case may be. We therefore hold that mere ignorance of law pleaded herein at the assessee s behest hardly deserves to be treated as a reasonable cause for disturbing the impugned penalty as upheld in the CIT(A) s lower appellate discussion. The same stands confirmed therefore.

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• 2022 (5) TMI 327
  Penalty u/s 271(1)(c) - CIT(A) cancelled the penalty levied by the Assessing Officer in the second revised penalty order on the basis of technical issue of not obtaining prior approval from JCIT - HELD THAT:- CIT(A) has cancelled the second revised order on procedural aspect of not obtaining prior approval from JCIT. In our considered view, it is rectifiable mistake therefore we remit the second revised penalty order back to the file of the AO to obtain proper approval and pass the order. Accordingly, the Ground Nos. 2 and 3 raised by the revenue are allowed for statistical purpose. Whether CIT(A) has erred in directing the Assessing Officer to recompute the quantum of penalty only to the extent of the addition confirmed by the ITAT without appreciating the fact that the revenue is not accepted the order of the ITAT and same is challenged before Hon ble High Court which is still pending? - In our considered view once the quantum appeal is decided by the ITAT the same is applicable on both Ld.CIT(A) as well as Assessing Officer, therefore the order passed by the Ld.CIT(A) is binding on the Assessing Officer. Therefore, the ground raised by the revenue is accordingly dismissed.

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• 2022 (5) TMI 326
  Reopening of assessment u/s 147 - AO was of the opinion that the assessee was having business connection as well as Permanent Establishment [PE] in India and the PE was engaged in activities which cannot be termed as auxiliary and preparatory - HELD THAT:- We find that in the appeals under challenge before us, the assessee had raised specific objections to the notice issued u/s 148 of the Act qua the reasons recorded therein. Therefore, the findings of the Tribunal given on specific facts of those Assessment Years are totally distinguishable on the facts of the years under consideration. As mentioned elsewhere, in the reasons recorded for reopening the assessment, we do not find any mention of any expat employee present during the relevant year nor there is any mention of such employees in the assessment order. In our considered opinion, there needs to be close nexus between the material before the Assessing Officer and the belief which he has formed. The Hon ble Supreme Court in the case of Ganga Saran Sons [ 1981 (4) TMI 5 - SUPREME COURT] has remarked The words has reason to believe are stronger than the words is satisfied. . The belief entertained by the Income Tax Officer must not be arbitrary or irrational. It must be reasonable or, in other words, it must be based on reasons which are relevant and material. We are of the view that the belief of the Assessing Officer is a condition precedent for assuming jurisdiction and without such belief, the Assessing Officer would not have jurisdiction to initiate proceedings u/s 147 of the Act. We are of the view that the fulfillment of this condition is not a mere formality but it is mandatory and failure to fulfill that condition would vitiate the entire proceedings. We find that there is no rationale connection between the information in the possession with the Assessing Officer and formation of belief that there has been escapement of income for Assessment Years 2008-09 to 2011-12. On a perusal of the assessment order/DRP order, we find that strong reliance has been placed on various documents found during the course of survey which was carried out at the premises of General Electric International Operations India Liaison Office on 02.03.2007 whereas the assessment orders under challenge pertain to Assessment Years 2008-09 to 2011-12. Therefore, evidence being sought to be used for initiating fresh enquiry against the assessee does not even pertain to the Assessment Year under consideration. In our considered opinion, whether a PE exists or not is a fact specific issue and is to be decided on year on year basis. We are of the considerAssessment Years under challenge, no new tangible material has been brought by the Assessing Officer to justify the reopening and as mentioned elsewhere, the reason why reopening was upheld by this Tribunal in Assessment Year 2001-02 which was followed by it in subsequent years i.e. 2002-03 to 2006-07 are totally distinguishable, in as much as, in those years in the reasons itself, as mentioned elsewhere, the Assessing Officer had given specific findings in respect of expat employees present in India, which fact finding is absent in the Assessment Years under consideration. Reasons for reopening the assessment cannot be improved in the body of the assessment order. Appeal of assessee allowed.

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• 2022 (5) TMI 325
  TDS u/s 195 - existence of permanent establishment (PE) - Treating the assessee in default for not deducting tax at source on the payment made to various non-resident being during the year under consideration for purchase, installation and supervision charges - Whether AO exceeded his jurisdiction by ignoring the finding of the Tribunal by applying the provision of section 5(2)(b) r.w.r.t. 9(1) of the Act in place of DTAA provisions? - HELD THAT:- The scope of enquiry and assessment of remittances made to foreign parties abroad was limited to the question whether any of the foreign suppliers had rendered installation, assembly or supervisory services and/or carried out such project in India in connection with the supply of plant and machineries and whether the period of rendition of such services exceeded the prescribed threshold limit in the respective DTAAs so as to constitute an installation/assembly/supervisory PE in India. It is noticed that the Ld. AO never considered this limited issue which was set aside by the ITAT. The AO also chose to remain silent on the relevant facts and materials placed on record which showed that no installation, assembly, or supervisory services were tendered by foreign suppliers in India. In fact, it is not even the AO s case while holding that foreign suppliers had PE in India that such PE was pursuant to any installation, assembly or supervisor services rendered by any of the foreign suppliers. Instead, the AO harped on the fact that each supplier had appointed agent in India and made unsubstantiated and hypothetical allegations that terms for sale and/or contract for supplies were concluded in India through the agents in India and therefore a portion of the remittances made to such foreign suppliers were taxable in India. This Tribunal had set aside the order on the limited issue to the Ld. AO. to verify whether any of the foreign suppliers had a Permanent Establishment in Under the respective DTAAs. This ITAT has held that the installment or supervisory services in connection to sale of machinery or equipment has to cross the specified time threshold limit for the non-resident entity too be treated as having a permanent establishment in India. AO. while passing the order has not followed the directions of this ITAT and has in fact relied on the provisions of section 5(2)(b) read with section 9(1)(i) of the Act to hold that the nonresident entities had a business connection in India. Further, Ld. AO. has failed bring in material on record to establish that the foreign suppliers had a PE in accordance to the DTAAs and the decision of this ITAT. AO. has clearly exceeded his jurisdiction by making enquiries and examining issues which were clearly beyond the ambit of the set aside proceedings directed by the this Tribunal. Thus, the findings and observations recorded by the Ld. AO. are factually and legally unjustified, untenable and unsustainable therefore, the order of the Ld. AO is quashed on the ground of being illegal and beyond jurisdiction and demand raised in the said order are deleted. Common legal issues raised in ground no.1 2 of assessee s appeals for A.Y. 2010-11 2011-12 are allowed. PE in India - whether Assessing Officer erred in holding that the non-resident were having a Permanent Establishment in India without bringing any thing on record to establish that dependent Abench PE existed in light of the Article 5 6 of DTAA - HELD THAT:- We notice that Ld. Assessing Officer has not brought any other material to substantiate his allegation that may demonstrate that the agent involved has habitually concluded contracts on behalf of the vendor, or has habitually maintained the vendor s stock of goods, or has habitually secured orders for the assessee. It is to be noted that all three clauses in the DTAA use the word habitually . It may be relevant to further mention that the expression has shall mean a legal existence. The vendors of the appellant only used auxiliary and supplemental services in the process of procurement. The ability to accept and refuse contracts and negotiate technical and financial terms was retained with the vendors itself and in no way delegated to any party in India. The ability to accept and refuse contracts and negotiate technical and financial terms was retained with the vendors itself and in no way delegated to any party in India. Whereas habitually secures orders shall mean a systematic conduct on the part of the agent. The AO has considered these parties to be an agency permanent establishment of the vendors solely based on the fact that the parties were marked in the purchase order/letter of intent sent to the vendors. Thus, it is not only a legal right to secure order but also it is to be found, as a matter of fact that agent has habitually secured order or habitually negotiates contract. Assessing officer could not bring any material on record which would establish such a relationship between the independent parties and non-resident vendors wherein habitual/sustained ability to negotiate or secure contracts could be demonstrated. The ld. assessing officer has jumped to the conclusion of existence of permanent establishment due to the involvement of local parties providing auxiliary services. The assessing officer s contention is that the communication has been routed through the agent and the agent was involved in the negotiations and discussion with the appellant to finalise the transaction. The assessing officer made the farfetched assumption that all negotiations were entered into by agents on behalf of the vendors only on the basis of marking of such parties in communication of final POs and LOIs between the appellant and the vendors. AO thus contradicts all his arguments made to establish a Dependent Agency PE by suggesting that only 12% of payment made to the non-resident vendors by the assessee is attributable to income which in no way establishes existence of financially dependency of the third parties. Further, no documents or evidence was brought on record to conclude that contracts were habitually concluded by the third parties on behalf of the non-resident vendors. No enquiry with any of the parties was conducted by the ld. Assessing officer to establish that the conditions of existence of PE as per the DTAAs were satisfied. Further, dependency of the third parties was not established by the ld. Assessing officer. It is the assessee s contention that the ld. Assessing officer has incorrectly established existence of permanent establishment without conducting sufficient enquiries and bringing sufficient material on record in light of the articles of the DTAAs. Transaction carried out between the assessee and non-resident vendors are on principle to principle basis and rates were finalized by way of communication between principle to principle and there was no permanent establishment of the foreign supplies in India as per relevant provisions of the DTAA. We notice that the foreign supplies have not exceeded the threshold time limit to constitute the PE as specified in the respective DTAA. We hold that the alleged Indian entities(agents) did not had any authority to conclude contracts on behalf of the non-resident suppliers and the alleged Indian entities do not maintain any stock of goods or mercantile on behalf of the alleged non-resident entities in India. We also hold that the alleged Indian entities/agents are not mainly or wholly securing orders on behalf of the non-resident in India. Therefore, the finding of both lower authorities of constituting PE of the vendors in India deserves to be set aside and since we have hold that none of the alleged non-resident entities/vendors have any permanent establishment under the provisions of section 5(2)(b) r.w.s. 9 as well as DTAA, finding of Ld. CIT(A) in treating the assessee in default for not charging tax u/s 195 of the Act is reversed. - Decided in favour of assessee.

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• 2022 (5) TMI 324
  Nature of expenses - legal and professional expenses and other expenses defending the directors and their relatives - treating the same as capital and personal expenditure not pertaining to the business of the assessee - HELD THAT:- Assessee has incurred these expenses by way of legal and professional fee, travelling expenses and staying and boarding expenses in connection defending the matters before the special court. This is also undisputed that the assessee has huge business interest in other entity in which huge investments to the extent of Rs.593/- crores were made by the assessee. Under these circumstances, we are certainly of the belief that if these directors/their relatives are not defended, the business interest of the assessee will be jeopardized and it may be put the assessee to huge financial and commercial losses. As the business of the related concern is not similar to that of the assessee s business of construction, however, undoubtedly the interest of the assessee is certainly there in the success of these criminal cases in defending its directors/their relatives. Therefore, we are not in agreement with the conclusion drawn by the Ld. CIT(A)/AO that these expenses are not wholly and exclusively incurred for the purpose of business of the assessee and are of capital in nature as the business of Etisalat DB Telecom Pvt. Ltd. has not commenced or personal nature of the directors and their relatives. The expenses incurred even for defending the directors and their relatives in criminal litigations are admissible expenses provided that are incurred in order to protect the business interest of the assessee. As in the case of CIT vs. Ahmedabad Controlled Iron and Steel Reg. Stockholders Association Pvt. Ltd. [ 1973 (9) TMI 45 - GUJARAT HIGH COURT ] held that the money spent in defending the managing director of the assessee company in a criminal prosecution under Essential Commodities Act is an expenditure wholly and exclusively for the purpose of business of the assessee and as such allowable. Appeal of assessee allowed.

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• 2022 (5) TMI 323
  TP Adjustment - adjustment for under utilization capacity for manufacturing segment - HELD THAT:- We notice that the capacity utilisation achieved by the assessee in the year relevant to the assessment year 2004-05 was 42%, while the capacity achieved by the comparables was around 70%. During the year under consideration, the Ld. A.R. submitted that the assessee has achieved capacity utilisation of 41% only. Though the Ld. A.R. did not mention about the capacity utilisation achieved by the comparable companies, yet following the decision rendered by the coordinate bench in assessment year 2004-05, we are of the view that the assessee should be allowed capacity utilisation adjustment. Accordingly, we restore this issue to the file of AO/TPO for examining the claim of the assessee. Transfer pricing adjustment in manufacturing segment relates to the error in computing net margin on cost of comparable companies - A.R. submitted that the TPO has computed net margin on cost of comparables as 8.16% while the actual margin works out to 9.10%. The ld. A.R. submitted that the assessee has raised this issue before Ld. DRP but the DRP did not adjudicate the same - HELD THAT:- We heard Ld. D.R. on this issue. Since this claim of the assessee requires verification, we restore this issue to the file of AO/TPO to examine this claim of the assessee. Transfer pricing adjustment made in manufacturing segment relates to claim for working capital adjustment - HELD THAT:- There should not be any dispute that the working capital adjustment should be allowed if the working capital levels of comparable companies differ from that of the assessee. The claim of the assessee gets support from the decision rendered by the co-ordinate bench in the case of Huawei Technologies India P Ltd. [ 2018 (10) TMI 1796 - ITAT BANGALORE] . Accordingly, we restore this issue to the file of the AO/TPO with the direction to allow working capital adjustment on actual basis. TP adjustment made in manufacturing segment relates to the action of TPO in not restricting the transfer pricing adjustment to the sales made to Associated Enterprises - HELD THAT:- There should not be any doubt that the object of Transfer pricing study is to determine Arms Length price of international transactions. Under TNMM method the Profit level indicator may be determined at entity level, but the Transfer pricing adjustment is required to be restricted to only international transactions only. We find support for this proposition from the decision rendered by the co-ordinate bench in the case of IKA India (P) Ltd [ 2018 (10) TMI 923 - ITAT BANGALORE] Accordingly, we restore this issue to the file of AO/TPO with the direction to restrict the TP adjustment to international transactions entered with AEs only. TP adjustment made in manufacturing segment relates to error in treating Forex gain as Forex loss and including the same as part of cost - HELD THAT:- The mistake pointed out by Ld. A.R. is a computational mistake, which requires to be corrected in order to arrive at correct margin. We notice that the Ld. DRP has already directed the TPO to verify the claim of the assessee and correct the mistakes. It is unfortunate that the TPO has not followed the directions so given by Ld. DRP. In any case, the claim of the assessee requires verification at the end of the TPO, so that the mistake could be corrected. Accordingly, we restore this issue to his file for examining the claim of the assessee and to take appropriate corrective measures. TP adjustment made in respect of intra-group services - HELD THAT:- As in the assessee s own case [ 2016 (5) TMI 277 - ITAT BANGALORE] has been considered by the Tribunal and the issue was restored to the file of AO/TPO with a direction to examine this issue afresh by considering the evidences that may be produced by the assessee to prove the receipt of benefit from AEs in respect of payment made. It was also held that the assessee is duty bound to bench mark such services by comparing it with uncontrolled transaction by independent enterprises where similar services are received. TPA - amount disallowed by the AO, viz., Product development expenses, provision for customer claims should be excluded from the cost while computing margin of the assessee - HELD THAT:- Entire exercise of determination of ALP and consequent transfer pricing adjustment are the result of legal fiction enacted in Income tax Act. There should not be any doubt that it is altogether a different exercise unconnected with the provisions relating to allowance or disallowance of expenses. Net margins of the assessee as well as comparable companies are computed under TNM method on the basis of book results without making any adjustment as prescribed in sec.28 to 44 of the Act (both in the hands of the assessee as well as in the hands of comparable companies.) Hence these contentions of the assessee are untenable and hence liable to be rejected. Adjustment for customs duty due to difference in the quantum of imported goods purchased by assessee vis- -vis comparable companies - HELD THAT:- We find merit in the contentions of the Ld A.R. We notice that the AO has only assumed that these expenses would give rise to creation of any patent or know-how and accordingly took the view that these expenses are capital in nature, i.e., there is no material with the AO to show that these expenses have resulted in creation of any patent or know how as assumed by him. Hence, we are of the view that the AO has disallowed this claim of the assessee on surmises and conjectures only. Accordingly, we direct the AO to delete this disallowance. Disallowance of provision for customer claims - HELD THAT:- It is unfortunate that the AO did not follow the directions given by Ld DRP. Accordingly, we restore this issue to the file of the AO with the direction to examine the claim of the assessee in accordance with the principles laid down by Hon ble Supreme Court in the case of Rotork Controls India case. [ 2009 (5) TMI 16 - SUPREME COURT] Disallowance of bad debts claim - Before Ld DRP, the assessee submitted that the above said difference represents amount of bad debt actually written off by the assessee accordingly, the Ld DRP directed the AO to re-examine this issue with reference to the books of account - HELD THAT:- We deprecate the careless approach of the AO in not complying with the directions of Ld DRP, since the AO is required to mandatorily pass assessment order in conformity with the directions given by Ld DRP. Accordingly, we restore this issue to the file of AO with the direction to strictly follow the directions given by Ld DRP.

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• 2022 (5) TMI 322
  TP Adjustment - comparable selection - application of RPT filter at 15% - HELD THAT:- RPT filter has to be applied adopting the threshold limit of 15%. Comparables selected accordingly. Companies whose turnover in the current year is more than Rs. 200 Crores should be excluded from the list of comparable companies. Exclusion of Infobeans Software Ltd. - As far as the argument that RPT is to be calculated as a percent of total RPT income and expense/Total operating sales, there is no such proposition as contended by the learned counsel for the Assessee and the decisions cited in this regard have only applied the RPT filter adopting the threshold limit as 15% and above as the limit for exclusion of companies. The argument in this regard is therefore devoid of any merit. As far as the argument that RPT filter is to be considered at 15% of operating sales, the computation given by the Assessee in this regard is inclusive of managerial remunerations and if the same is excluded then the percentage of RPT would be less than 15%. In our view when Transaction Net Margin method is adopted as MAM, it is only the similar transaction that has to be compared and therefore the ratio of total sales to sales to related party alone has to be seen. Therefore the plea of the Assessee that RPT is in excess of 15% is devoid of any merit and the same is rejected. Therefore we find no ground to exclude this company from the list of comparable companies. Inteq Software Private Limited - Mere absence of response from this company to the notice u/s. 133(6) of the Act cannot be the basis to hold that this company is not comparable. - Regarding the argument that there are some unusual features observed from the financial statements of this company, these features do not affect the comparability. By merely pointing out that there is a substantial increase in value of intangible assets, the Assessee cannot seek to exclude this company from the list of comparable companies, unless the Assessee is able to show that the presence of intangibles is owing to factors which can affect the functional comparability of this company with the Assessee. With regard to exclusion of this company on the basis of inconsistencies in the financial statement, we find that this objection was not raised before the TPO as can be seen from the discussion of the TPO - There is no inference drawn with regard to how these disparities will influence comparability in the light of the functions performed, assets employed, risk assumed. Just by pointing out some inconsistencies, the Assessee cannot seek to exclude a company which otherwise is found to be comparable. We therefore find that none of the arguments advanced seeking exclusion of this company from the list of comparable companies are sustainable and hence we uphold inclusion of this company in the list of comparable companies. Adjustment on account of working capital adjustment - HELD THAT:- As in Huawei Technologies India Pvt. Ltd. [ 2018 (10) TMI 1796 - ITAT BANGALORE ] on an identical issue, the Tribunal held that working capital adjustment has to be given. The tribunal reasoned in the aforesaid decision that a reading of Rule 10B(1)(e)(iii) of the Rules read with Sec. 92CA of the Act, would clearly show that the net profit margin arising in comparable uncontrolled transactions has to be adjusted to take into account the differences, if any, between the international transaction and the comparable uncontrolled transactions, which could materially affect the amount of net profit margin in the open market. The tribunal referred to Chapters I and III of the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (hereafter the TPG ) contain extensive guidance on comparability analyses for transfer pricing purposes. Guidance on comparability adjustments is found in paragraphs 3.47-3.54 and in the Annexure to Chapter III of the TPG. A revised version of this guidance was approved by the Council of the OECD on 22 July 2010. We are therefore of the view that the issue with regard to the grant of working capital adjustment should be directed to be examined by the TPO/AO afresh in the light of the decision of the tribunal referred to above, after affording opportunity of being heard to the Assessee. Delayed realization of trade receivables from the AE - International transaction or not? - determination of ALP by construing the delayed realization of receivable by the Assessee from its AE as a separate international transaction and determining ALP of such delayed receivables - non-charging or under- charging of interest on the excess period of credit allowed to the AE, for the realization of invoices amounts to an international transaction and the ALP of such an international transaction - HELD THAT:- Non-charging or under- charging of interest on the excess period of credit allowed to the AE, for the realization of invoices amounts to an international transaction and the ALP of such an international transaction is required to be determined. In view of the above observations. the reliance placed by the ld. counsel for the assessee on earlier decisions cannot be accepted. Similarly, Considering the above discussion, it is held that deferred trade receivable constitutes international transaction.Having concluded that deferred trade receivables constitute international transaction, we come to the computation of the ALP of the international transaction of debt arising during the course of business. This has two ingredients, viz., the amount on which interest should be charged and the arm s length rate at which the interest should be charged. On this aspect we can take useful guidance from the decision of the ITAT Delhi Bench in the case of Techbooks International (P.) Ltd. v. Deputy Commissioner of Income-tax, Circle-3, Noida [ 2015 (7) TMI 473 - ITAT DELHI ] wherein the Tribunal laid down guidelines on the manner of determination of ALP. We are of the view that the issue with regard to determination of ALP in respect of the international transaction of giving extended credit period for receivables should be directed to be examined afresh by the AO/TPO on the guidelines laid down in the decision referred to in the earlier paragraph, after affording Assessee opportunity of being heard. As held in the aforesaid decision the prime lending rate should not be considered and this reasoning will apply to adopting short term deposit interest rate offered by State Bank of India (SBI) also. The rate of interest would be on the basis of the currency in which the loan is to be repaid.

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• 2022 (5) TMI 301
  Validity of reopening of assessment u/s 147 - petitioner states that the impugned notices are void ab initio as they have been issued in the name of a non-existing partnership firm - Denial of natural justice - Petitioner had not been given an opportunity either to deal with or to respond to the show cause notices - HELD THAT:- Having heard the learned counsel for the parties, this Court is of the view that even if the submission of learned counsel for the respondent is accepted, then also the impugned orders are liable to be set aside as the Petitioner had not been given an opportunity either to deal with or to respond to the show cause notices dated 28th March, 2022 inasmuch as it had been issued after the date and time of compliance had expired. Consequently, the impugned orders are set aside on the ground of being violative of the principle of natural justice and the matter is remanded back to the Assessing Officer for fresh adjudication. The Petitioner shall file its response to the show cause notices dated 28th March, 2022 within four weeks.

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• 2022 (5) TMI 300
  Validity of faceless assessment u/s 144B - On the last date of hearing petitioner had stated that the facts and figures mentioned in the impugned assessment order dated 30 th March, 2022 do not pertain to the petitioner - HELD THAT:- Keeping in view the aforesaid concession as well as the fact that the facts and figures mentioned in the impugned order do not pertain to the petitioner, the present matter is allowed and the impugned Assessment Order as well as demand notice dated 30th March, 2022 are quashed. If the law permits the respondent-revenue to take further steps in the matter, it shall be at liberty to do so. Needless to state that if and when such steps are taken and if the petitioner has a grievance, it shall be at liberty to take its remedies in accordance with law. This Court is actually surprised that despite an elaborate mechanism of checks and balances and multiple authorities like (assessment units, verification units, technical units, review units, Regional Faceless Assessment Centres and National Faceless Assessment Centre) being set up u/s 144B of the Act, such glaring mistakes can happen. This Court is also of the view that faceless assessment does not mean that no responsibility can be fixed for passing such an erroneous order. PCIT, National Faceless Assessment Centre is directed to be more cautious while passing the Assessment Orders and the CBDT is directed to ensure that such glaring mistakes do not occur in the future.

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• 2022 (5) TMI 299
  Order by appropriate authority for purchase by Central Government of immovable property u/s 269UD - Undervaluation of property- determining the fair market value of the property - why the fair market value of the said property should not be taken as Rs.75,94,560/- and why an order should not be made in accordance with the provisions of Section 269UD (1) - HELD THAT:- In the case at hand, there is no finding that the undervaluation was intended to evade tax, let alone discharge the onus of establishing that undervaluation was with a view to evade tax. In the impugned order, it is only stated that the transaction under consideration was proposed to take place at a rate lower than the fair market value by more than 15% considering the fair market value determined by the Appropriate Authority. On this ground alone, the impugned order is liable to be quashed and set aside. In our view, the view taken by the Appropriate Authority is palpably erroneous and cannot stand to the scrutiny of law even on merits. Therefore, to recap, the Valuation Officer has noted on 22nd April 1991 and the Deputy Commissioner of Income Tax (A.A.) has noted on 24th April 1991 that the said property was not undervalued. The Appropriate Authority (respondent no.2) has not stated in its reasons recorded in 1991 why they did not accept these two reports. The Appropriate Authority (respondent no.2) has not stated anywhere why it was not accepting the three comparables mentioned by VO. The Appropriate Authority (respondent no.2) has not given the basis for comparing Sea Face Park and Navroze Apartment with the said property, when those two properties were farther away than the three properties used by VO to compare Valuation of Navroze Apartment used in the first order dated 29th April 1991 by the Appropriate Authority (respondent no.2) was only about 9% more compared to the said property. The mathematical calculations by adding and subtracting advantages and disadvantages to arrive at a conclusion that there was undervaluation in excess of 15% limit can be stated to be far from being honest. This 15% limit also cannot be applied mechanically but a reasonable margin of error has to be considered. There is also no finding that the undervaluation was intended to evade tax, which, as held in Mrs. Amarjit Thapar (Supra), was mandatory vitiating the stand of respondents. Even for a moment we assume there was a difference of 15%, the Appropriate Authority cannot assume jurisdiction under Section 269UD of the Act automatically. Various factors determine the price for a property like demand, supply, terms of payment, the urgency for the seller to sell or for the buyer to buy, relationship between parties, dominance of a party etc. None of these points are also considered by the Appropriate Authority while arriving at its conclusions in the impugned order. The impugned order, therefore, requires to be set aside. Respondent no. 2 could not have acquired the said property under Section 269UD. We hold that petitioner shall be entitled to the said property alongwith the shares in the society upon payment to respondent nos.1 to 4 of consideration of Rs.61,77,411/-. If this amount is not paid within twelve weeks from today, interest thereon at 12% p.a. shall become payable until payment / realisation. Petitioner shall pay all society charges payable at the relevant time, i.e., 1991, together with interest, if any, for getting the shares transferred in its name. The Prothonotary and Senior Master shall refund to respondent nos.1 to 4 the sum of Rs.1,75,500/- deposited during the second petition together with accumulated interest, if any. This amount shall be paid provided (a) respondent nos.1 to 4 file a declaration that they are not challenging this order or judgment or (b) the SLP or petition to be filed by respondent nos.1 to 4 is dismissed or rejected. From the minutes of the order dated 13th September 1991 filed in the second petition, there is a sum of Rs.1,22,589/- that would become payable to respondent nos.5 to 7 in that petition together with interest thereon at 10% per annum from 13th September 1991 until payment.

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• 2022 (5) TMI 298
  Revision u/s 264 - validity of Reopening of assessment u/s 147 - disallowance of interest paid by the Assessee to banks/financial institutions - Petitioner responded to notice reiterating that he had sufficient funds to make such advances and there was no nexus between the borrowed funds and such advances - HELD THAT:- PCIT has failed to deal with one of the principal grounds of challenge to the assessment order viz., that without considering the Petitioner s objection to the reopening of the assessment under Section 147 of the IT Act, the reassessment order could not have been framed and that this was contrary to the dictum of the Supreme Court in GKN Driveshafts (India) Ltd. v. Income Tax Officer [ 2002 (11) TMI 7 - SUPREME COURT] On a perusal of the impugned order, it reveals that the above objection was in fact not considered by the PCIT. The Court is of the view that the impugned order of the PCIT is unsustainable in law in so far as it is failed to consider the principal objection of the Petitioner to the opening of the assessment. Therefore, the flaw vitiates the order of reassessment equally vitiates the impugned order of the PCIT as well. In this connection, references were being made to the decision of this Court in Viresh Hemani v. Income Tax Officer [ 2021 (4) TMI 1175 - ORISSA HIGH COURT] and the recent decision M/s. Tuff Tubes (Orissa) Pvt. Ltd. v. The Deputy Commissioner of Income Tax [ 2022 (2) TMI 1228 - ORISSA HIGH COURT] - Reassessment order set aside - Decided in favour of assessee.

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• 2022 (5) TMI 297
  Disallowance of interest - AO observed that the assessee had withdrawn certain amounts through journal entries from the firms in which deduction under section 80IB was claimed, which were invested, again through journal entries, to the firms in which no deduction u/s 80IB was available - assessee had made transfers by withdrawal from a firm M/s. Eisha Properties (eligible for section 80IB deduction) on different dates during the year and the same was transferred to firms Eisha Realtors; Eisha Vastu Construction; Eisha Asset Developers; and Eisha Concord Realtors etc. (none eligible for deduction u/s 80IB) - HELD THAT:- Assessee passed transfer entries by crediting Eisha Properties (the firm claiming deduction u/s 80IB) and debiting other firms (not having the benefit of deduction u/s 80IB). In this way, payment of interest by the assessee amounting to Rs.1.13 crore created income in the hands of Eisha Properties and expenditure in the hands of the assessee. In the like manner, the assessee received interest amounting to Rs.35,12,686 from various firms not having benefit of deduction u/s 80IB. By doing this exercise, interest income was created in the hands of Eisha Properties whose income was otherwise eligible for deduction u/s 80IB. This is how, the assessee created excess debit interest of Rs.78.56 lakhs in his hands for adjusting the same with the income earned from construction work in his proprietorship concern, M/s. Sohal Construction. As the transactions of withdrawals and investments were routed through transfer entries, there was a direct nexus between the amounts transferred from Eisha Properties through journal entries to other firms, such as, Eisha Asset Developers. The journal entries were passed with a view to create loss in the hands of the assessee by means of excess payment of interest without any corresponding liability of paying tax on interest in the hands of Eisha Properties. It is not even a case of mixed pool of funds in the hands of the assessee. Rather it is a straight transfer from one firm s account to another thereby ingraining direct nexus between the two. Obviously, such an amount of interest paid for extra commercial considerations cannot be allowed as deduction. On an earlier occasion, a report was called for from the concerned AO on the correct amount of excess interest. Such report dated 23.02.2022 has been placed on record, in which the AO has tabulated the amount of interest received at Rs.66,31,094 from certain concerns and interest paid at Rs.1.13 crore with differential excess amount of interest at Rs.47,38,541. We, therefore, uphold the disallowance at Rs.47,38,541 as against Rs.78.56 lakhs confirmed in the first appeal. This ground is partly allowed. Disallowance u/s 14A r.w.r. 8D - HELD THAT:- It is seen as an admitted position that the assessee was having exempt income and no disallowance was offered u/s 14A. The ld. CIT(A) was reasonable in making disallowance at 0.5% of average investments under rule 8D(2)(iii). Such a disallowance, being, in conformity with the relevant provision, is hereby confirmed.

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• 2022 (5) TMI 296
  Penalty u/s 271(1)(c) - addition on account of capital gain and income from other sources being compulsory acquisition of land - On further appeal before Tribunal, the Tribunal held that addition of capital gain on account of transfer of land/ acquisition of land is not taxable as the said land / impugned land is not capital asset as defined under section 2(14)(iii)(a) - HELD THAT:- The land transferred by individual assessee(s) does not falls in the Municipal Area. Hazira Notified area is not a Municipal area or deemed municipal area, therefore, the receipt/ gain on transfer of land is not taxable under Income tax Act - the assessee on their alternative pleas were also held eligible for exemption under section 10(37) of the Act as the land was compulsorily acquired by Government of Gujarat by completing statutory formalities under Land Acquisition Act, 1882. The land was used for agriculture purpose for two years prior to its acquisition. And the assessee(s) fulfilled all the requisite condition for seeking exemption under section 10(37) of the Act. The other addition made under the head capital gains against the cost of pucca structure, the assessee s was allowed 60% as cost of acquisition or cost of improvement, against the relief of 50% as allowed by Ld. CIT(A). Further, in some cases, the agricultural income offered by assessee(s) were treated as income from other sources has been held as income from agricultural activities . Thus, in quantum appeals all the assessee was granted substantial relief in deleting major part of additions and only part of capital gains only on account of cost of improvement on pucca structure was partly upheld on estimation basis. Therefore, all substantial additions were either deleted or upheld only on estimation basis. In our considered view no penalty under section 271(1)(c) of the Act is leviable on this assessee. In the result, the grounds of appeal raised by the assessee are allowed.

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• 2022 (5) TMI 295
  Valuation of closing stock - Rejection of books of accounts - assessing officer made addition in respect of closing stock valuation of rough diamonds - AO rejected the working of closing stock by taking view that complete details were not furnished by the assessee - HELD THAT:- The assessee follows weighted average basis of valuation for valuation of stock as recognized in para- 16 of Accounting Standard -2, dealing with the valuation of inventories issued by Institute of Chartered Accountants of India. Date wise, quantity -wise polished Diamond, stock register, date wise polished diamond, quantitative details regarding the rejection of diamonds, date wise quantity and value floor of the polished diamond register along with the valuation of closing stock were furnished. We find that the submissions of ld AR of the assessee are contrary to the submissions recorded by the assessing officer. It is not the case of assessee that the finding of the assessing officer is perverse. We are conscious of the fact that that this is second round of litigation and instead of sending matter back, we are proceeds to adjudicate the issues. We find that there is objection of the assessing officer that the complete details were not provided by the assessee on the other hand, now we noted that the assessee has now taken stand that assessee follows weighted average basis of valuation for valuation of stock as recognized in para-16 of Accounting Standard -2, dealing with the valuation of inventories issued by Institute of Chartered Accountants of India. No such explanation or stand was asserted by the assessee before assessing officer. The assessee has taken new plea, which is not acceptable to us. Thus, we affirm the order of assessing officer in rejecting the valuation of closing stock. Valuation of stock - addition of account of valuation of stock - GP estimation - AO reinstated the addition by taking view that no details were furnished by the assessee despite providing opportunity to the assessee - CIT(A) made additions by applying 20% rate to the total inward of diamonds (opening stock plus purchases) - HELD THAT:- Working of addition the CIT(A) recorded certain discrepancies in the books of the assessee viz; no finance charges are claimed, sales and administrative expenses are only Rs. 3.44 Lacks only, labour charges were Rs. 18.30 lakhs and that the monthly net profit shown by the assessee is only Rs. 27,544/- which is equal to the normal salary of semi-skilled diamond labour. We further find that the ld CIT(A) estimated the unaccounted profit at the rate of 20% on the total inward of diamonds consisting of opening stock plus purchases. The ld CIT(A) worked out the addition of Rs. 40,87,076/-, which was rounded off to Rs. 41,00,000/-( forty one lakhs). On making addition the unaccounted profit on estimation, went upto 36% of the turnover, if it is added the gross profit of the assessee it would be 42 %, which is quite unrealistic in the in the trade of diamonds. The assessee has already declared GP at 5.88%. We further noted that Central Board. of Direct Taxes (CBDT) in its Circular No 2/2008 dated 22nd February 2008 had came with instruction that profit to the extent of 6% in the trading and manufacturing of diamonds is acceptable as results. We find that total sale of the assessee is not disputed by the assessing officer. Considering the facts that we have upheld the rejection of books of account, and further held that estimation adopted by ld CIT(A) is not realistic that is higher side, therefore, we direct the assessing officer to consider the consider the unaccounted profit of assessee at 10% of the sales during the year under consideration, which in our view will be sufficient to avoid the possibility of revenue leakage. As the assessee has already declared 5.88% GP, the assessee be granted set off of the GP already declared by it. In the result, the Ground No. 3 raised by the assessee is partly allowed.

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• 2022 (5) TMI 294
  Estimation of income - Bogus purchases - purchases made from the non-existent vendors - HELD THAT:- As relying on case of the assessee s father SHRI KANTILAL KACHARA GADA AND VICE-VERSA [ 2022 (2) TMI 1226 - ITAT MUMBAI] addition restricted to the extent of 5% of the bogus purchase. - Decided partly in favour of assessee.

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• Corporate Laws

• 2022 (5) TMI 321
  Sanction of Scheme of Arrangement by way of Amalgamation - Section 230-232 of Companies Act, 2013, and other applicable provisions of the Companies Act, 2013 read with Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 - HELD THAT:- Various directions with regard to holding, convening and dispensing with various meetings issued - directions with regard to issuance of various notices issued. The scheme is approved - application allowed.

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• 2022 (5) TMI 320
  Sanction of Scheme of Amalgamation - Section 230(6) read with Section 232(3) of the Companies Act, 2013 - HELD THAT:- Various directions with regard to holding, convening and dispensing with various meetings issued - directions with regard to issuance of various notices also issued. The scheme is approved - application allowed.

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• 2022 (5) TMI 319
  Illegality committed by Respondents 2 to 4 in collecting various commission amounts from various broadcasters - seeking to disclose on oath the exact nature of arrangement - direction to respondents herein to produce copies of the interconnection agreements that they have executed with various pay channel companies - HELD THAT:- The relief sought for by the applicant, who is the petitioner in the main Company Petition is two-fold. On one stretch he wants to produce various documents by the respondents and on the other stretch he wants to stay the operation of the Annexure A10 minutes of the Board meeting held on 17.07.2021. After going through the records, it is learnt that there is a dispute between the applicant and the respondents. The applicant was the Chairman of the 1st respondent Company for some time and he is well aware of the transaction in the company during the period of his Chairmanship. Without objecting to at that time, now he has come forward with this application after his removal from the Chairmanship stating that whatever is happening in the 1st Respondent company is against the interests of the 1st respondent company. These issues are pending consideration in the main Company Petition and a separate order is not necessary now as to whether mismanagement is there in the 1st Respondent Company. These matters will be considered at the time of final disposal of the Company Petition. Moreover, the respondents in their counter stated that they are ready to disclose an oath the exact nature of the arrangements they have with various Broadcasters and produce all the documents and when demanded by this Tribunal. They are also ready to produce the copies of various interconnection agreements executed by the 1st Respondent company. In view of the submission of Respondents, they are directed to produce the aforesaid documents in a sealed cover before this Tribunal during the time of final hearing of the Company Petition. At this moment it is not necessary to stay the operation of Annexure A 10, by which certain decisions have been taken in the Board of Directors Meeting held on 17.07.2021, such as the outsourcing of maintenance of accounts of the Company, to outsource the procurement of the set-top boxes in bulk and also to increase the shares. Application dismissed.

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• 2022 (5) TMI 318
  Maintainability of petition u/s 241-242 of Companies Act - legality of removal of the Petitioner from the Directorship - Right of the shareholders/Petitioners - Permission to Petitioner and six other Petitioners/Directors/shareholders, who have been elected as Directors of the Company at 24th AGM, 25th AGM, and 26th AGM, to continue in their office as Directors for the terms for which they have been duly elected - removal of the Petitioner from the Directorship will be oppressive or prejudicial to attract Section 241-242 of the Companies Act or not. Whether the Petitioner is eligible to maintain this Petition under Section 241-242? - HELD THAT:- The Petitioner obtained the consent of 56 shareholders constituting 13.21% of the total number of shareholders of the Company holding about 20% of the paid-up capital to file this company petition under Section 241-242 of the Companies Act, 2013. The consenters are aware that their consent is for the purpose of filing a petition before this Tribunal questioning the action taken by the Respondents. Hence, the consent provided by the shareholders to the Petitioner for filing a petition is sufficient and the same can be accepted. In view of the above facts, the Petitioner is eligible to file a Company Petition under Section 241-242 of the Companies Act, 2013. Whether the removal of the Petitioner from the Directorship is illegal? - HELD THAT:- On reading of Section 169 of the Companies Act, 2013, which deals with the removal of Directors, shows that to remove a director from the Company, the Company has to comply with the procedure under Section 169 of the Companies Act, 2013. As per Section 169(2) a special notice is required to remove a Director under this Section or to appoint somebody in place of a Director so removed, at a meeting at which he is removed. The Company shall forthwith send a copy thereof to the Director concerned, and the Director shall be entitled to be heard on the resolution at the meeting. In the instant case such an Extraordinary General Meeting was convened by the Requisitionists Shareholders on 3rd March 2020. The Extraordinary General Meeting was called by the Requisitionists shareholders mainly for the purpose of removing seven out of twelve existing directors of the Respondent Company. The act of the shareholders in the matter of appointing or removing the directors of the company from the Board cannot be a subject matter of judicial scrutiny since the right to appoint or remove directors is supreme as a part of the corporate democracy. Whether the removal of the Petitioner from the Directorship will be oppressive or prejudicial to attract Section 241-242 of the Companies Act? - HELD THAT:- It is seen from the records that the removal of the Petitioner from the Directorship of the Respondent Company was done following all the mandatory requirements in accordance with law. We could not find any oppression and mismanagement in the Company, while doing so - one of the crucial rights which Companies Act, 2013 gives to the shareholders is the right to remove the Directors of the Company, if they are not acting in consonance with the Articles of Association of the Company, but only utilizing their powers for their benefits. Therefore, the said removal of the Petitioner from the Directorship is not an illegal act done against the Petitioner and the Petitioner failed to prove any continuing oppressive acts on the part of the Company or its management. Hence this Tribunal cannot hold that the removal of the Petitioner is an oppressive act. Hon ble Supreme Court in TATA CONSULTANCY SERVICES LIMITED VERSUS CYRUS INVESTMENTS PVT. LTD. AND ORS. [ 2021 (3) TMI 1181 - SUPREME COURT ] held that under Sub-Section (1) of Section 242 of the Company Act, 2013 the Tribunal may, with a view to bringing to an end the matters complained of, make such order as it thinks fit cannot be interpreted as conferring on the Tribunal any implied power of directing reinstatement of a director or other officer of the company who has been removed from such office and that even in cases where the Tribunal finds that the removal of a Director was not in accordance with law or was not justified on facts, the Tribunal cannot grant a relief under Section 242 unless the removal was oppressive or prejudicial. Petition dismissed.

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• Insolvency & Bankruptcy

• 2022 (5) TMI 317
  Seeking supply of the information - seeking supply of all details and documents pertaining to any material developments concerning the Corporate Debtor on a continuing basis pending approval of the Resolution Plan - HELD THAT:- The Adjudicating Authority has rightly not entertained the Application on the view that the plan which was submitted by the Appellant was based on the Information Memorandum as was available and since the plan approval is engaging attention of the Adjudicating Authority, no further information need to be provided, there are no error in the order rejecting the Application. Appeal dismissed.

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• 2022 (5) TMI 316
  Transfer of money back to the Corporate Debtor s account within two weeks - HELD THAT:- It is noted that the ledger submitted by Mr. Sandeep Sood was maintained by Simran Technologies Pvt. Ltd. (attached at pp.163-164 of the appeal paper book), which do not make it clear as to the purpose for which such transactions were made. Moreover, Mr. Sandeep Sood has not given any proof or evidence to the RP to establish that these payments were made against supply of goods. Similarly his e-mail dated 4.10.2019 (attached at pp.167-168 of the appeal paper book), he has stated that the Genset lying at his home has been purchased by him against value consideration from Seitz India Pvt. Ltd., but there is no mention about the consideration or any proof thereof. Non-submission of reply by Mr. Sandeep Sood - HELD THAT:- It is noted that the proxy Counsel undertook to file reply within two weeks, when the matter in CA No. 574/2019 was taken up on 16.12.2020. But the reply was not filed and the case was listed for ex-parte hearing on 16.2.2021. While it is correct that a copy of the reply was sent to Mr. Alexander Seitz, it is clear from the order-sheet dated 22.7.2021 that the case had already been proceeded ex-parte vide order dated 21.1.2021 and no reply has come on record nor any relief is sought from the court. Thus, it is clear that the Appellant was completely remis in seeking permission of the Adjudicating Authority for taking its reply on record and hence the matter was finally adjudicated ex-parte. The transactions that are the subject of Impugned Order were all done after 5.8.2018 and therefore, in the absence of any reply/clarification/ explanation by Mr. Sandeep Sood to explain the transactions - the Adjudicating Authority has not committed any error in inferring that the said transactions were hit by section 46 of the IBC. Thus, the Adjudicating Authority has correctly directed Mr. Sandeep Sood, ex-Director of the Corporate Debtor to transfer the monies which are stated in paragraph 4 of the Impugned Order back to the Corporate Debtor account - appeal dismissed.

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• 2022 (5) TMI 315
  Replacement of Resolution Professional (RP) - appointment of Mr. Vijay Kumar Gupta as Resolution Professional by replacing Mr. Khushvinder Singhal, Resolution Professional - Committee of Creditors vide its meeting approved the replacement of the Appellant with Mr. Vijay Kumar Gupta - HELD THAT:- A perusal of the Order especially paragraph 8 of the Order indicates that in different item the Professional Fee and CIRP cost from 31st March, 2021 to 31st January, 2022 has been claimed in a tabular form. The paragraph indicates that CIRP cost also includes cost which has been incurred subsequent to the decision of the CoC on 17th May, 2021. There are no error in the Direction of the Adjudicating Authority for considering CIRP costs since major portion of the CIRP as claimed is subsequent to the resolution dated 17th May, 2021. It is the CoC which is to examine the factual aspects of the claim and take an appropriate decision, the Adjudicating Authority has not committed any error in directing the CoC to consider the CIRP cost and pass appropriate order. In the present case, the decision of the CoC on which reliance is placed are of 30th April, 2021 and 17th May, 2021 where fee has been approved. It is submitted that the validity of such decision cannot be questioned subsequently. In the CIRP process, the CoC is fully competent to revise the fee even if it was earlier approved by any earlier CoC decision - there are no error in the order of the Adjudicating Authority directing the reconstituted CoC to consider the CIRP cost. Appeal dismissed.

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• 2022 (5) TMI 314
  Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial Debt - privity of contract between Petitioner and Corporate Debtor - HELD THAT:- The material on record evidences that the Supplementary Deed was executed between the Tridhaatu Group and the Prince Care Group and signed accordingly by their representatives. It is the main case of the Appellant that there is a privity of contract between the Appellant and the Corporate Debtor Company having regard to the principal outstanding amount being reflected in the Balance Sheet for the year ending March 2019; the Supplementary Retirement Deed executed by the continuing partners of the Corporate Debtor recording the factum of unsecured loans and finally the cheques issued by the Corporate Debtor in favour of the Appellant towards payment of the due amount - It is evident from the material on record that both the Retirement Deed dated 12/08/2016 and the Supplementary Retirement Deed dated 13/08/2016 were entered into between the Tridhaatu Group and Prince Care Group , to which the Corporate Debtor Tridhaatu Aranya Developers LLP is not a party. The Corporate Debtor is a Limited Liability Partnership incorporated under the provisions of the Limited Liability Partnership Act, 2008, and is a body incorporate independent of its partners. It is to be seen whether any debt/liability has been taken up by a partner in the name of the LLP. In the Application under Section 7 of the Code filed by the Appellant herein the Corporate Debtor is described as an LLP, and as a part of the Tridhaatu Group . The Corporate Debtor is a distinct legal entity and the aforenoted Deeds do not construe any privity of contract between the Corporate Debtor and the Appellant and further establishes that mere issuance of these 2 cheques does not construe liability having consideration for time value of money . Further, the LLP Retirement Deed refers to a lumpsum amount of Rs.45,08,08,384/- to be paid by the Tridhaatu Group . It is the case of the Respondent that out of this sum, a sum of Rs.6,13,34,457/- is towards miscellaneous expenses and the remaining amount is not bifurcated and is towards One Time Settlement - It is an admitted fact that there were disputes between the Appellant and continuing partners of the Respondent LLP. It is also evident from the Supplementary Deed which records that the parties may exchange ownership of facts to settle their obligations. It is pertinent to mention that the Appellant has for the first time, in this Appeal has pleaded that the partners can bind the LLP and relies on cheque copies and the Balance Sheet reference. The onus to establish that the amount which is due and payable falls within the ambit of the definition of Financial Debt , as defined under Section 5(8) of the Code, is on the Appellant herein. There is no ascertained sum crystallised as due and payable . To reiterate, there is no documentary evidence filed to prove that the two cheques amount to acknowledgement of any Financial Debt , especially in the light of the fact that the Retirement Deed and the Supplementary Retirement Deeds have been entered into between the Tridhaatu Group and Prince Care Group , for which the Respondent/ Corporate Debtor is not a party - the amounts do not possess the essential ingredients of Financial Debt as defined under Section 5(8) of the Code. This Tribunal has also observed in a catena of Judgements that IBC is not a recovery proceeding or a Code for settlement of collateral disputes. Appeal dismissed.

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• 2022 (5) TMI 313
  Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial Creditors - existence of debt and dispute or not - HELD THAT:- The Financial Creditor vide the Debenture Trust Deed dated 17.11.2017 issued Non-convertible Debentures to the Corporate Debtor of value of Rs.10,00,000/- each for the cash at par aggregating to Rs.310,00,00,000/- - The Corporate Debtor has not disputed the claim amount nor denied the Debenture Trust Deed entered between the parties. On perusal of the documents submitted by the Applicant, it is clear that financial debt amounting to more than Rs.1,00,00,000/- is due and payable by the Corporate Debtor to the Applicant. There is default by the Corporate Debtor in payment of debt amount. Therefore, we do not have any objection on record against the application filed for initiation of CIRP against the Corporate Debtor - The application is complete and has been filed under the proper form. The debt amount is more than Rupees One Crore and default of the Corporate Debtor has been established and the application deserves to be admitted. Application admitted - moratorium declared.

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• 2022 (5) TMI 312
  Cancellation of lease granted earlier, after initiation of CIRP and enforcement of Moratorium under Section 14 of IBC - HELD THAT:- The present is a case where effects and consequences of Section 14(1) (a) and (d) are to be considered. What is the effect of Moratorium came to be considered before the Hon ble Supreme Court in several cases. Reliance placed in the judgment of the Hon ble Supreme Court in RAJENDRA K. BHUTTA VERSUS MAHARASHTRA HOUSING AND AREA DEVELOPMENT AUTHORITY AND ANOTHER [ 2020 (3) TMI 34 - SUPREME COURT ]. In the above case, the CIRP against the Corporate Debtor was initiated on 24.07.2017. After imposition of the Moratorium under Section 14, a termination notice to the Corporate Debtor stating that upon expiry of 30 days from the date of receipt of the notice, the joint development agreement would stand terminated issued by Maharashtra Housing and Area Development Authority (MHADA). An Application was filed before the NCLT to restrain MHADA from taking over possession of the land till completion of the CIRP which was dismissed by the NCLT - The Hon ble Supreme Court in the above case held that after imposition of Moratorium there is statutory freeze limited by Section 31(3) of the Code i.e. till the period, all the things referred to under Section 14 must be strictly observed so that the Corporate Debtor may finally be put back on its feet albeit with a new management. The present is a case where CIRP was initiated on 11.03.2019 and the Notice dated 08.11.2019 terminating the lease agreement and Notice for taking possession was issued on 08.11.2019 i.e. after the imposition of Moratorium - All the institution of suits or continuation of pending suits and proceedings against the Corporate Debtor are prohibited under Section 14(1)(a) of the Code with the object that status quo regarding Corporate Debtor be maintained and further proceedings against the Corporate Debtor be not permitted during the continuance of the CIRP to preserve the Corporate Debtor from any financial assault or other proceeding to stop off its current situation for purpose of Resolution. Similarly, under Section 14(1)(d), recovery of any property by any owner or lessor which is occupied by the Corporate Debtor is prohibited. In view of the fact that Moratorium has kicked in w.e.f. 11.03.2019 due to currency of Moratorium, the Appellant could not have taken possession of the leased property by virtue of restrain under Section 14(1)(d). Further continuation or initiation of any other proceeding under Section 14(1)(a) which also prohibited the Appellant to cancel the lease during currency of the Moratorium. Although after CIRP is over, there is no fetter on the right of the Appellant to take proceeding for breach of terms of the lease by the Corporate Debtor. After CIRP is over, it shall be open for the Appellant to deal with the lease land which was leased to the Corporate Debtor in accordance with its rights as envisaged by the Lease Deed dated 20.01.2015 - In event, the plot, in question, is included in the Resolution Plan, the Resolution Applicant shall not acquire any better right to the rights which were held by the Corporate Debtor in the lease land along with liabilities attached therein. After CIRP is over, there is no fetter in the rights of the Appellant to take appropriate action in accordance with law with regard to lease land. Appeal disposed off.

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• 2022 (5) TMI 311
  Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial Creditors - existence of debt and dispute or not - time limitation - HELD THAT:- The Petitioner has filed certain documents in the form of supplementary affidavit on 21.03.2022 and annexed two letters date 03.01.1997 and 13.09.2002, and annexed a Memorandum of Understanding executed on 03.01.1997 between the Petitioner and the Respondent, where the loan amount of Rs. 50,00,000/- has been agreed to give to the Respondent at the rate of 24% p.a. for the period of two years beginning from 03.01.1997. Time Limitation - HELD THAT:- As per the MOU dated 03.01.1997, the loan has been agreed to be given for two years. As per the MOU executed between the parties, as per clause 1 at page 14 of the Supplementary Affidavit, the Ist default occurred on 03.01.1999. The letter dated 13.09.2002 has been given by the Respondent admitting the loan has been obtained from the Petitioner is annexed at page 17 of the supplementary affidavit - There is no explanation as to what happened between 14.09.2002 upto 27.07.2014 - almost (12) twelve long years. Thereafter, from 28.07.2014 upto the date of demand notice i.e. 28.05.2021, there is a long period that has elapsed which will be approx, seven (07) years. The petitioner is repetitively showing the recent acknowledgements submitted by the Respondent in the form of Reply to the demand notice dated 28.05.2021 annexed at page 59 of the petition in which the Respondent has admitted its inability to repay the loan. This bench is of the view that, Petitioner has not filed any Record of default recorded with the Information Utility, as per section 7(3)(a), nor the Petitioner has filed the certified copy of entries in the relevant account in the bankers book as defined in clause (3) of section 2 of the Bankers Books Evidence Act, 1891 and nor an order of a court or tribunal that has adjudicated upon the non-payment of a debt, where the period of appeal against such order has expired, as per Regulation 2A of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process For Corporate Persons) Regulations, 2016. Hence on the point of proof of debt and limitation the petitioner has failed to establish a case on merits. Petition dismissed.

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• 2022 (5) TMI 310
  Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial Creditors - existence of debt and dispute or not - Time Limitation - HELD THAT:- In the instant matter, the Corporate Debtor had time and again acknowledged the debt within limitation period which resulted in fresh period of limitation. The Corporate Debtor never disputed the bank statement or any other documents annexed by the Applicant. There is a payment of 50 lakhs has not been denied and the Financial Creditor has also annexed in the petition year vise ledger account of Corporate Debtor in which the interest has also been charged. Therefore, the present Application is within the period of limitation and not barred by law. Application admitted - moratorium declared.

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• PMLA

• 2022 (5) TMI 309
  Money Laundering - schedule offence - proceeds of crime - Section 44(1) of PMLA - HELD THAT:- It is clear that the I.T. Department made search in the official/commercial premises of the appellant and other connected persons. Later, I.T. Department vide communication dated 16.5.2019 which was issued in response to the letter of the appellant dated 1.5.2019 and also of I.T. Department dated 13.5.2019 was satisfied that the cash which was recovered from the officials/commercial premises of the appellant is explained and tax was paid in the selfassessment for the Financial Year 2016-17 - Therefore, the proceedings started on the basis of intriguing recovery of cash and other items in fact, does not exist and the I.T. Department itself was satisfied with the recovery after investigation in the year 2019. Therefore, the finding recorded in the impugned order by the High Court in paragraph 14 with regard to recovery of new currency notes of denomination of Rs. 2000 cannot be countenanced. On the basis of the intimation given by the I.T. Department and registration of the FIR by the CBI which was closed, the Directorate of ED registered ECIR/CEZO/19/2016 under Sections 3, 4 8(5) of PMLA. After the said FIR, Deputy Director (ED) passed an order under Section 5(1) of PMLA on 1.6.2017 attaching the property. For confirmation of attachment, OC No. 785 of 2017 was filed by the Department which is rejected by the Adjudicating Authority while exercising the power under Section 5(5) of PMLA. On analysing the report of I.T. Department and the reasoning given by CBI while submitting the final closure report in RC MA1 2016 A0040 and the order passed by the Adjudicating Authority, it is clear that for proceeds of crime, as defined under Section 2(1)(u) of PMLA, the property seized would be relevant and its possession with recovery and claim thereto must be innocent. In the present case, the schedule offence has not been made out because of lack of evidence. The Adjudicating Authority, at the time of refusing to continue the order of attachment under PMLA, was of the opinion that the record regarding banks and its officials who may be involved, is not on record. Therefore, for lack of identity of the source of collected money, it could not be reasonably believed by the Deputy Director (ED) that the unaccounted money is connected with the commission of offence under PMLA - On perusal of the statement of Objects and Reasons specified in PMLA, it is the stringent law brought by Parliament to check money laundering. Thus, the allegation must be proved beyond reasonable doubt in the Court. Even otherwise, it is incumbent upon the Court to look into the allegation and the material collected in support thereto and to find out whether the prima facie offence is made out. Unless the allegations are substantiated by the authorities and proved against a person in the court of law, the person is innocent. The High Court by the impugned order has recorded the finding without due consideration of the letter of the I.T. Department and other material in right perspective. Therefore, these findings of the High Court cannot be sustained. Appeal allowed - decided in favor of appellant.

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• CST, VAT & Sales Tax

• 2022 (5) TMI 308
  Doctrine of promissory estoppel and legitimate expectation - Validity of assessment order - Benefit of N/N. S.O. 70 dated 17.07.2004 - period 15.11.2000 to 31.03.2005 - Whether petitioner is entitled for the benefit of exemption from payment of electricity duty for a period of ten years from the date of commercial production of its 30 MW Captive Power Generation Plant in terms of Clause 15.2.2 of the Industrial Policy-2001? HELD THAT:- The bare reading of Clause 15.2.2 leaves no iota of doubt that State Government was keen to encourage private sectors to establish such number of CPPs as would be required by it to meet the existing and future demand of its Industrial units. Even generation of surplus energy through CPPs could have been purchased by SEB from private sectors. This clear emphasis on establishment of CPPs was to fulfill the dual objective to be achieved by the State Government, namely, to ensure that industries situated in the State are not starved of power and, further, if CPPs are encouraged and established by private sector, State resources towards supply of power can be utilized to supply power to other sectors/industrial units which could not establish CPPs. It is with the said avowed objective, it was clearly stipulated in the Policy that power generated from such CPPs would be exempted from payment of electricity duty for a period of 10 years from the date of commercial production. It is an admitted fact that Petitioner has established 25 MW and 10 MW CPPs on 26.03.2002 and 15.11.2004 respectively, and, since the said CPPs were established before 31.03.2005, Respondent-State of Jharkhand extended the benefit of exemption from payment of electricity duty to said CPPs for a period of 10 years, which has already been availed by the petitioner - Even an additional ground of production of Certificate of Commercial Production from Director of Industries was taken by the Appellate Authority for denying the benefit of exemption. The main thrust of the arguments of the Respondent-State is upon Clause 29.2 of the Policy. However, from a bare reading of Clause 29.2, it would be evident that the incentive enumerated under the said Clause 29.2 only would be admissible only once to a unit and the said incentives are specifically enumerated in the said Clause itself. One of the incentives enumerated under Clause 29.2 is Captive Power Generating Subsidy - In fact, Clause 29.2 read with Clause 29.4 buttresses the contention of the petitioner that exemption from payment of electricity duty was not restricted to only one CPP established during the subsistence of the Industrial Policy-2001 as the Policy itself incorporated restriction where it intended to restrict the benefit available under the Policy only once . The petitioner is entitled to the benefit of exemption from payment of electricity duty under the Bihar Electricity Duty Act, 1948 in respect of its 30MW Captive Power Generation Plant having date of commercial production on 04.05.2009 in terms of the provisions contained under Clause 15.2.2 of the Jharkhand Industrial Policy-2001 - matter remanded back to Respondent No.3-Deputy Commissioner of Commercial Taxes, Adityapur Circle, Jamshedpur to pass fresh assessment orders extending the benefit of exemption from payment of electricity duty in respect of 30 MW CPP to the petitioner and to issue consequential excess demand notices for refund of the amount of electricity duty realized, if any, from the petitioner in respect of its 30 MW CPP. Application allowed.

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• 2022 (5) TMI 307
  Validity of assessment order - Levy of entry tax and penalty - paver finisher purchased by the appellant from a dealer in Gujarat - purchase omission and consequential sales suppression - HELD THAT:- It appears that the assessment order passed by the first respondent for the assessment year 2015-16 levying entry tax and the assessment orders dated 28.03.2018 passed by the first respondent for the assessment years from 2012-2013 to 2015-16 under the TNVAT Act, 2006, were set aside by this court vide orders dated 12.06.2018 and 19.06.2018 respectively. Thereafter, no assessment order afresh was passed by the first respondent till date. While so, the first respondent by proceedings dated 07.03.2022, directed the second respondent to attach the bank account of the appellant for the tax liability, which was challenged in WP.No.7138 of 2022 and the said writ petition was disposed of, by the order impugned herein. It is not in dispute that the appellant has paid 15% of the disputed tax, as directed by the learned Judge, in the order dated 19.06.2018 in WP.Nos.13329 to 13332/2018. However, what was disputed on the side of the respondents is the objections dated 02.08.2018 said to have been filed by the appellant. In view of the same, the learned Judge directed the appellant to pay another 50% of Rs.42,00,000/- representing the balance tax demand penalty, for the purpose of lifting the attachment made on its bank account. It is the grievance of the appellant that they have been facing serious financial crisis and due to the attachment of the bank account, they could not run their business and meet out the day today activities. This court, to sub-serve the interests of justice, is inclined to modify the order dated 24.03.2022 passed in WP.No.7138 of 2022 by reducing the payment of 50% of Rs.42,00,000/- to Rs.15,00,000/- alone and is accordingly, modified. The other directions / conditions issued therein qua passing of the assessment orders, lifting the bank attachment etc. remain unaltered. The time for payment of Rs.15,00,000/- by the appellant is six weeks from the date of receipt of a copy of this judgment. Appeal disposed off.

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• 2022 (5) TMI 293
  Attachment Order - whether on 02.08.2018 as claimed by the petitioner, the reply had been given treating the earlier orders as a show cause notice as directed as a condition by the learned Judge in the earlier round of litigation or not? - HELD THAT:- Even though vehemently contended by the learned counsel appearing for the petitioner that, on 02.08.2018 reply had been given, it appears that the said reply whether had been given or not cannot be concluded now as there is no proof to that effect. In view of the stand taken by the Revenue that, no such reply had been given, this Court has to consider that no such reply had been filed by the petitioner in time - If the second condition is not complied with, then as per the orders of this Court in the earlier order referred to above dated 19.06.2018, the Revenue is not precluded from proceeding to recover the money. Therefore, the present order of attachment, which is impugned herein has been passed - this Court feels that, there can be no procedural irregularity on the part of the Revenue in passing the impugned order. Tax demand or due with penalty - HELD THAT:- It comes about Rs.51,32,799/-, out of which, according to the petitioner counsel, a sum of Rs.8,99,352/- is on a different foot, where entry tax demand has been made, that assessment order also has been set aside by this Court in the earlier round of litigation, pursuant to which, no further proceedings have been issued, therefore, that demand cannot be now made without passing any order as per the direction of this Court made earlier - If the said amount of Rs.8,99,352/- is deducted from the total demand, now made it comes out about Rs.42,00,000/- and odd. This Court feels that out of this Rs.42 lakhs due i.e., tax demand + penalty, if the petitioner comes forward to pay 50% of the amount, an indulgence can be shown by this Court, under which, the matter can been remitted back to the respondent for re-consideration. The matter is remitted back to the respondent for reconsideration - petition allowed by way of remand.

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• Indian Laws

• 2022 (5) TMI 306
  Termination of mandate of sole arbitrator - absence of any written contract containing the arbitration agreement - difference and distinction between subsection (5) of section 11 and subsection (6) of section 11 of the Act, 1996 - application under subsection (6) of section 11 shall be maintainable in a case where the parties themselves appointed a sole arbitrator with mutual consent? - undue delay on the part of the sole arbitrator in concluding the arbitration proceedings - rejection of application under section 14(2) of the Act, 1996 in exercise of powers under Order VII Rule 11 of CPC - HELD THAT:- In the present case, the sole arbitrator was appointed by the parties themselves by mutual consent and in the absence of any written contract containing the arbitration agreement. Therefore, application under section 11(6) of the Act, 1996 in absence of any written agreement containing arbitration agreement was not maintainable at all. Whether, in exercise of powers under subsection (6) of section 11 of the Act, 1996, the High Court can terminate the mandate of the sole arbitrator and substitute the arbitrator in view of section 14(1)(a) of the Act, 1996 on the ground that he has failed to act without undue delay and in such a situation aggrieved party has to approach the court to terminate his mandate? - HELD THAT:- Section 13 of the Act, 1996 shall be applicable only in a case where the arbitrator is challenged on the grounds mentioned in section 12 of the Act, 1996 - Sections 14 and 15 provide for termination of the mandate of the arbitrator. Section 14 of the Act, 1996 provides that the mandate of the arbitrator shall terminate and he shall be substituted by another arbitrator in case of any eventuality mentioned in section 14(1)(a). As per subsection (2) of section 14, if a controversy remains concerning any of the grounds referred to in clause (a) of 24 subsection (1), a party may, apply to the court to decide on the termination of the mandate. On a conjoint reading of section 13, 14 and 15 of the Act, if the challenge to the arbitrator is made on any of the grounds mentioned in section 12 of the Act, the party aggrieved has to submit an appropriate application before the Arbitral Tribunal itself. However, in case of any of the eventualities mentioned in section 14(1)(a) of the Act, 1996 and the mandate of the arbitrator is sought to be terminated on the ground that the sole arbitrator has become de jure and/or de facto unable to perform his functions or for other reasons fails to act without undue delay, the aggrieved party has to approach the concerned court as defined under section 2(e) of the Act, 1996 - The reason why such a dispute is to be raised before the court is that eventualities mentioned in section 14(1)(a) can be said to be a disqualification of the sole arbitrator and therefore, such a dispute/controversy will have to be adjudicated before the concerned court as provided under section 14(2) of the Act, 1996. Whether, in a case where the parties themselves have referred the dispute for arbitration and appointed and/or nominated the sole arbitrator by mutual consent and in the absence of any arbitration agreement and contract containing an arbitration agreement once the arbitrator is appointed, an application under section 11(6) of the Act, 1996 to terminate the mandate of the arbitrator and to substitute the arbitrator would be maintainable? - HELD THAT:- An application under section 11(6) of the Act, 1996 shall be maintainable only in a case where there is a written agreement and/or the contract containing the arbitration agreement and the appointment procedure agreed upon by the parties, application under section 11(6) of the Act, 1996 shall be maintainable. Otherwise, the application under section 11(6) of the Act, 1996 shall not be maintainable - In the present case, the parties themselves agreed on a procedure for appointment of the arbitrator and appointed and nominated an arbitrator by mutual consent. Therefore, the application under section 11(6) of the Act, 1996 was not maintainable at all. It is to be noted that as such in the present case the proceedings before the concerned court under section 14(2) of the Act, 1996 at the instance of respondent No. 1 and 3 herein to terminate the mandate of the sole respondent under section 14(1)(a) of the Act were already pending before the concerned court when respondent No. 1 moved an application under section 11(6) of the Act and such a dispute was at large before the court in a proceeding under section 14(2) of the Act. Whether the learned Trial Court was justified in rejecting the application submitted by the appellant, which was filed to reject the applications under section 14 of the Act, in exercise of powers under Order VII Rule 11 of CPC is concerned? - HELD THAT:- It appears and it is not in dispute that the application under section 14(2) of the Act was sought to be rejected on the ground that there was no undue delay on the part of the arbitrator and therefore, his mandate is not required to be terminated under section 14(1)(a) of the Act, 1996. However, such a dispute is to be adjudicated on merits by the concerned court before whom the proceedings under section 14(2) of the Act were initiated and at the most, it can be said to be the defence, which was to be adjudicated by the concerned court. As per the settled position of law, at the stage of deciding the application under Order VII Rule 11 of CPC only the averments and allegations in the application/plaint are to be considered and not the written statement and/or reply to the application and/or the defence. Therefore, as such the learned Trial Court rightly dismissed the application under Order VII Rule 11 of CPC. The impugned judgment and order passed by the High Court is unsustainable and the same deserves to be quashed and set aside and is accordingly quashed and set aside. The controversy and/or the dispute, whether the mandate of the sole arbitrator under section 14(1)(a) of the Act, 1996 stands terminated or not shall have to be considered by the court on an application filed under section 14(2) of the Act, 1996. Application disposed off.

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• 2022 (5) TMI 305
  Dishonor of Cheque - Acquittal of the accused - in cases where two views are possible, whether the appellate court should interfere with the finding of acquittal recorded by the court below? - HELD THAT:- It is well settled by is catena of decisions that an appellate Court has full Power to review, re-appreciate and consider the Evidence upon which the Order of Acquittal is founded. However, the Appellate Court must bear in mind that in case of Acquittal, there is prejudice in favour of the Accused, firstly, the presumption of innocence is available to him under the Fundamental Principle of Criminal Jurisprudence that every person shall be presumed to be innocent unless he is proved guilty by a competent Court of Law. Secondly, the Accused having secured his Acquittal, the presumption of his innocence is further reaffirmed and strengthened by the trial Court. It may be noted that as per the settled legal position, when two views are possible, the judgment and order of acquittal passed by the trial Court should not be interfered with by the Appellate Court unless for the special reasons. The Criminal Appeal being devoid of merits is dismissed.

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• 2022 (5) TMI 304
  Dishonor of Cheque - insufficiency of funds - discharge of legally enforceable debt or a security cheque - contradictory covenants in the agreement or not - Section 29 of the Contract Act - HELD THAT:- The petitioner has filed the instant petition under Section 561-A of Cr.P.C. read with Section 435 of J K Cr.P.C. invoking inherent and revisional jurisdiction of this Court. So, while approaching this case, it has to be borne in mind that it is only if there is any illegality or impropriety writ large in the impugned orders passed by the courts below or there has been any failure of justice resulting from the aforesaid orders that this Court would step in and invoke its inherent or revisional jurisdiction. The concurrent findings of fact recorded by the learned courts below cannot be gone into by re-appreciating the evidence on record unless the findings of the learned courts below are patently illegal and perverse. The legal position as regards the question as to whether proceedings under Section 138 of the NI Act can be initiated in case a cheque issued by way of security is dishonoured for insufficiency of funds, has been a topic of discussion in a number of cases. In Sampelly Satyanarayna Rao v. Indian Renewable Energy Development Agency Ltd. [ 2016 (9) TMI 867 - SUPREME COURT] , the Supreme Court has, while answering the issue as to what constitutes a legally enforceable debt and other liability as contained in section 138 of N.I. Act held that Dishonour of cheque in the present case being for discharge of existing liability is covered by Section 138 of the Act, as rightly held by the High Court. In the instant case, as per the agreement dated 5th March, 2013, it was clearly indicated therein that the petitioner owed a sum of Rs. 9.50 lacs to respondent. It was further agreed by the parties that the petitioner would liquidate the aforesaid amount and that he had issued the cheque in question as security to the respondent. The agreement also provides that the petitioner would be bound to deposit the sum in the savings bank account of the respondent maintained with J K Bank Aircargo Branch to liquidate the aforesaid liability. The agreement also provides that the petitioner would pay the amount of Rs. 9.50 lacs to respondent positively. From the foregoing covenants of the agreement, there is no manner of doubt about the fact that the petitioner owed a sum of Rs. 9.50 lacs to respondent at the time when he issued the cheque in question in favour of the respondent. Learned counsel for the petitioner has harped on the expression security used in the agreement and he has laid much emphasis on the covenant which provides that the cheque in question would not be presented for encashment - The cheque in question has been, admittedly, issued by the petitioner in favour of the respondent as security to discharge his liability. Once the petitioner failed to discharge his liability, the respondent had no option but to present the cheque for encashment. The covenant that the cheque in question is not to be presented for encashment is to be ignored and its enforcement has to be avoided in order to give effect to the intention and purport of the covenants of the agreement. It cannot be stated that the respondent has failed to prove that the cheque in question was not dishonoured for insufficiency of funds. In any case, if petitioner had sufficient funds in his account at the relevant time, it was always open to him to produce statement of account while leading his evidence in defence. Having failed to do so, it has to be presumed that whatever is stated in the memo of dishonour of cheque in question is correct. The argument of learned counsel for the petitioner is, therefore, rejected - Petition dismissed.

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• 2022 (5) TMI 303
  Dishonor of Cheque - insufficiency of funds - the basic averments that a Director was incharge of, and responsible to, the conduct of business of the company, would suffice or else a specific accusation showing as to how such Director is responsible for conduct of business of the company should also be made in the complaint? - Section 141 of NI Act, 1881 - HELD THAT:- A perusal of Section 141 of the Act, 1881 i.e. offences by the companies, Section 141 (1) specifically contemplates that if the person committing the offence is a company, every person who at the relevant point of time, was incharge of, and was responsible to, the company for conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall also liable to be proceeded against and punished accordingly. In the case on hand, A.3 to A.5 are the Directors of A.1 company and they are incharge of, and responsible to, the day to day affairs of the company. There is no dispute with regard to the fact that such an averment has been mentioned in the complaint as far as A.3 to A.5 are concerned. It is further averred in the complaint that A2 to A.6 are actively and physically participating in all the day to day business transactions of A.1 - this aspect has to be considered during the course of trial and it is a premature stage where this Court would not be in a position to conduct a roving enquiry to go into the details of the transactions that have taken place. Admittedly, prima facie, the basic ingredients of Section 141 (1) of the Act, 1881 has been satisfied and the ground that the specific role has to be stated in the complaint, is not necessary. As far as A.6 is concerned, this Court feels that a specific role is attributed as against A.6. It is essential that a specific role has to be attributed in the complaint as against A.6 is concerned, for the reason that prima facie he comes within the purview of Section 141 (2) of the Act, 1881. A perusal of the complaint and the additional material papers which were filed by 2nd respondent goes to show that there are certain messages which have been issued by A.6 to the complainant and certain letters were written by A.6 to the complainant - Truth or otherwise of the said accusations that are made in the complaint has to be established in the course of trial, and it is a premature stage where this Court is not inclined to go into the details of the case. This Court cannot conduct a roving enquiry with regard to the truth or otherwise of the allegations made. There are no merits in the present Criminal Petition - Petition dismissed.

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• 2022 (5) TMI 302
  Dishonor of Cheque - amicable settlement of dispute - compounding of offences - Section 138 of the Negotiable Instruments Act - HELD THAT:- The revision application is required to be allowed and the parties be permitted to compound the offence. The applicant-accused is acquitted of the charge under Section 138 of the Negotiable Instruments Act except he is not convicted in connection with any other offence - the revision application is allowed.

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