Newsletter: Where Service Meets Reader Approval.
TMI Tax Updates - e-Newsletter
July 1, 2022
Case Laws in this Newsletter:
GST
Income Tax
Customs
Service Tax
Central Excise
Articles
News
Notifications
Circulars / Instructions / Orders
Highlights / Catch Notes
GST
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Levy of GST - valuation - reimbursed amount of Stipend received from Industry Partner to be distributed to the trainees at actuals - pure agent service - the stipend paid by the Industry Partners to the applicant to be further paid to the trainees in full does not attract GST and is not required to be added to the taxable value. - AAR
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Profiteering - four towers/blocks of the project Celebrity Gardens - The Authority finds and determines that the Respondent has profiteered by an amount of Rs. 1,54,269/- for the project 'Celebrity Garden Block K' during the period of investigation i.e. 01.07.2017 to 30.09.2019. The above amount that has been profiteered by the Respondent from his Home buyers in the above mentioned project. The claim of their refund along with the interest @18% thereon, from the date when the above amount was profiteered by him till the date of such payment, in line with the provisions of Rule 133 (3) (b) of the CGST Rules 2017, need to be verified by the concerned CGST/SGST Commissionerate - NAPA
Income Tax
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Reopening of assessment u/s 147 - Time limit for notice - there is no document made available to prove that the notice under section 148 dated 31.03.2018 was sent for despatch to the appellant, within the end of the relevant assessment year i.e., 31.03.2018. Thus, it is crystal clear that the notice under section 148 for reopening the assessment was not sent to the appellant, within the time stipulated under section 149 of the Act and hence, the same vitiates the reassessment proceedings initiated under section 147 - HC
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Validity of assessment order passed in the name of non-existent entity - merger - amalgamated company - Mere fact that the assessee has participated in the proceedings before the AO will not cure this substantive illegality and the mere participation of the assessee in the assessment proceedings cannot debar the assessee from challenging the proceedings on this ground as there is no estoppel against law. - AT
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Addition made u/s.43CA - difference between the stamp duty value and the reported sale consideration - the difference added by the ld. AO in the assessment falls below the tolerance band of 10% and hence, by applying the proviso to Section 43CA of the Act, no addition is required to be made in the instant case u/s.43CA - AT
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Scope of limited scrutiny - AO went on to examine this aspect of low income, he then asked the assessee about the investment made during the year because the ld. Assessing Officer wanted to see why the assessee has earned low income when there are huge loans and advances. When AO was examining the loans and advances, he came to know that this is the first year of incorporation and the LLP has been converted from the company. AO asked the assessee about the source of investment. Then based on this question, the assessee submitted that the source is the share capital and security premium of the erstwhile company before being converted to LLP and the ld. AO went on to examine the issue of security premium reserve. - AO has not exceeded the jurisdiction - Decided in favor of revenue - AT
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Reopening of assessment u/s 147 - reopening beyond four years - the reopening of assessment u/s 147 in the present case, without any reference to failure on the part of the assessee to disclose all facts regarding the items in the return of income or books of account during the assessment proceeding, is not justified and is in violation to proviso to section 147. - AT
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LTCG - FMV detrmination - AO computed assessee’s share being 1/4th of the long term capital gain - scope of section 9B of the Act which was brought on the Statute book by Finance Act, 2021 w.e.f 1.4.2021 - As perused the provisions of Section 9B and also analysed the arguments made before us by both the Parties and find that there was no provision in the Act to compute the deemed gain in respect of assets of the firm upon reconstitution retirement of a partner. We also note that a specific provision was inserted by Finance Act, 2021 w.e.f. 1.4.2021 providing for making such deemed addition on account of capital gain upon retirement of a person from the partnership firm which are applicable for AY 2021-22 and not to the year under consideration. - AT
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Revision u/s 263 - Assessee merely kept referring to the decision that an enquiry was made by the ld. AO and section 263 should not have been invoked. We, however, find no merit in the contention of the ld. Counsel for the assesse with regard to the issue of claim of depreciation on electrical installation because though the inquiry was initiated, but the same was incomplete as the assessee did not reply to it in the way it ought to be. - Therefore, in real terms, there was no enquiry on the said issue. - Revision order sustained - AT
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Addition u/s.43CA - Addition deleted as difference in value between the stamp duty authority and the consideration reported by the assessee is less than 10% - whether this proviso could be given retrospective effect so as to confer benefit to the assessee in the instant case? - CIT(A) had rightly deleted the addition made u/s.43CA of the Act both under normal provisions of the Act as well as in the computation of book profits u/s.115JB of the Act. In any case, this sum does not fall within the ambit of Explanation to Section 115JB (2) of the Act and hence, the same can never be added back in the computation of book profits u/s.115JB of the Act. - AT
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Disallowance of remuneration paid by the assessee to its Working Partner u/s 40A(3) - Cash payment of expenditure in excess of specified limit - Scope of separate identity for the firm and its partners - As section 40A is a general provision and section 40(b) is a special provision and only in situation which are not covered by section 40(b), section 40A shall be applicable. In the present case, assessee being a partnership firm and section 40(b) being the special provision dealing with computation of income of firm, same shall be applicable for determining the amount of deduction available to the assessee. - No additions - AT
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Disallowance of claim of bad debts - the advance made by the assessee in the ordinary course of business which is stock in trade is to be valued at cost or market price, whichever is less. In the present case, the debt has become bad and it being stock in trade the value is NIL. Therefore, it has to be considered as business loss and allowed. - AT
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TDS u/s 194I - reimbursement of expenses - mobilization charges - the amount is part of rent of equipment or not - CIT(A) had merely reiterated the ultimate conclusions reached by the ld. AO without appreciating evidences filed by the assessee on record. But, the evidences filed by the assessee which are enclosed in the paper book filed before us together with the submissions thereon are staring on us which goes to prove clearly that the payments made by the assessee are nothing but reimbursements on which deduction of tax at source is not warranted. - AT
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TP Adjustment - ALP adjustment on account of receipt of commission for Marketing Services - main contention of the appellant is that the functions undertaken by the assessee for selling the product is significantly different from what is undertaken for the purpose of earning the commission income from A.E - CIT-A deleted the adjustments - The reasoning given by the TPO that these two segments of the cost does not contribute to profit does not stand to any reason, in as much as the depreciation and the material actually contributes to the profits in the manufacturing segment. - AT
Customs
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Import of Gold - bonafide baggage or not - the petitioner has violated the provisions of the Customs and Baggage Rules, 2016. The petitioner was duty bound to declare under provision of Baggage Rules, 2016 read with Customs Baggage Declaration Regulations, 2013. Sub-clause (b) to proviso Rule 3 read with annexure 1 of the Baggage Rules. 2016, gold or silver ornaments in any other form cannot be allowed to be cleared duty free as bonafide baggage if they exceeded Rs.15,000/-. Gold or silver in any other form are not bonafide baggage. - HC
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Exemption form Customs duty for goods imported for use in the manufacture of finished goods in the nature of PCB assemblies - the appellant’s factory is manufacturer of induction melting and heating furnace as well as induction welding equipment - the goods imported by the appellant is squarely covered under the table given in the notification and also the finished goods wherein the same is also clearly given in the table accordingly, the appellant is entitled for exemption. - AT
Service Tax
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Computation of Service tax liability - Works Contract - the order of Court below calculating the service tax liability on 100% of the turn-over under works contract service is illegal and irresponsible in view of the mandate of law - The appellant are directed to calculate the service tax payable under the Rules and file a calculation sheet before the assessing officer. If any amount is still payable by them they shall pay the same. It is further held that under such circumstances no interest is payable - AT
Central Excise
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Quashing of prosecution under Sections 9 and 9-AA of the Central Excise Act, 1944 - there is no exoneration or finding on merits by the CESTAT on the subject matter of the criminal complaints. In the said facts, the High Court was incorrect and wrong in quashing the criminal prosecution only on the ground that the tribunal has granted stay, subject to condition of pre-deposit, of the recovery of the tax and the penalty amount. - SC
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Clandestine Removal - Cigarettes - unaccounted stock - In absence of any linkage of the factory of appellants with the alleged Railway Receipts or third party private records or with third party statements, there are no grounds to hold manufacture and clandestine removal of such huge quantities of cigarettes. The demand based upon Railway receipt and document of transporters is not sustainable - AT
Case Laws:
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GST
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2022 (6) TMI 1286
Validity of search proceedings - Presence of petitioner during search proceedings - HELD THAT:- The petitioner will remain present at the business premises located at 2105, Ground Floor, Bawana Road, Narela, North Delhi, Delhi-110040, on 06.06.2022, at 11:00 AM. Insofar as the godown is concerned, which is located at Ground Floor, Plot No. 72/20, 21, Bawana Road, Gali No. 2, Prem Colony, Narela, Delhi-110040, the petitioner will remain present at the said premises on 07.06.2022, at 11:00 AM - Ms Shweta Singh, Advocate is also permitted to remain present at the premises referred to hereinabove, on the aforementioned dates, when search is carried out by the respondents. It is, however, made clear that Ms Singh will not intercede/interfere in the search proceedings. List the matter on 27.09.2022.
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2022 (6) TMI 1285
Levy of GST - valuation - reimbursed amount of Stipend received from Industry Partner to be distributed to the trainees at actuals - pure agent service - HELD THAT:- Section 2 (5) of the CGST Act, 2017, defines the term Agent as a person including a factor, broker, commission agent, arhatia, del credere agent, an auctioneer or any other mercantile agent, by whatever name called, who carries on the business of supply or receipt of goods or services or both on behalf of another - It is found that the Applicant is registered as a facilitator under the National Employability Enhancement Mission ( NEEM Scheme ). The details of the NEEM Scheme are mentioned in the subject application and are therefore not reproduced again. The Applicant has submitted that, as a NEEM Facilitator, they are responsible to enroll NEEM trainees (`trainees ) and provide them with on job practical training through various Institutes, Factories, etc. ( Industry Partners ) to enhance the prospects of their employability. The applicant would enter into Agreements to enroll NEEM trainees ( trainees ) and provide them with on job practical training through the said Industry Partners. Applicant selects trainees for imparting practical training to them to coordinate between the trainees and the said Industry Partners for the proper implementation of scheme of training envisaged under the Apprentice Act 1961 and for such purpose, enters into a written agreement with the Industry Partners, for identifying and providing relevant eligible trainees to the Industry Partners, for which a fixed administrative fee per trainee per month will be charged from such Industry Partners and on which the applicant accepts that GST is payable. Regarding the issue in respect of stipend paid to the trainees by the applicant, it has been submitted by the applicant that the concerned Industry Partners will provide training to the trainees and are required to pay stipend to the trainees as per the NEEM Regulations. Even though, it is seen that the services will be provided by the trainees to the Industry Partners, for which stipend is mandated to be paid to the trainees by the Industry Partners, this stipend is not directly paid to the trainees by the said Industry Partners but will be routed through the applicant as per the NEEM Regulations. The entire amounts received as stipend from the Industry Partners will be paid to the trainees without any amount being retained. Thus, the applicant is only acting as an intermediary in collecting the stipend from the Industry Partners and then disbursing the same to the trainees in full without making any deductions from the stipend before disbursement to the trainees. The amount of stipend received by the applicant from the Industry Partners and paid in full to the trainees is not taxable at the hands of the applicant. Hence, in view of the submissions made by the applicant and also in agreement with the observations made by the jurisdictional officer, it is held that the stipend paid by the Industry Partners to the applicant to be further paid to the trainees in full does not attract GST and is not required to be added to the taxable value. In a similar case of IN RE: M/S. YASHASWI ACADEMY FOR SKILLS [ 2021 (8) TMI 1018 - AUTHORITY FOR ADVANCE RULING, MAHARASHTRA ] this Authority has held that the reimbursement by Industry Partner to the applicant, of the stipend paid to the trainees, does not attract tax under the GST Act - In the case of Yashaswi Academy for Skills, the Applicant Companies were registered as agents under National Employability Enhancement Mission (NEEM) of the Government of India and acted as a facilitator for extending support for mobilizing the trainees under NEEM Scheme of Government of India as per regulations, under notification issued by All India Council for Technical Education (AICTE), for providing on-the-job practical training in industries to trainees to enhance their future employability, and for which they entered into agreements with various companies/ organizations (called as industry partners) to impart actual practical training to the students. In the said case also, the applicants, in addition to taxable amounts received from its Industry Partners for services rendered, also received Stipends amounts (payable by the Industry Partners to the Trainees) which was paid in full to the trainees. Since the matters in the Yashaswi Academy case as case decided by this authority is very similar to the facts of the subject case, there are no reason to deviate from our ruling given in the said case, which are also applicable in the subject case. GST is not leviable in the instant case.
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2022 (6) TMI 1284
Profiteering - four towers/blocks of the project Celebrity Gardens - requirement to maintain separate bank accounts for each of the projects registered separately under the RERA Act, 2016 - benefit of reduction in the rate of ITC not passed on by way of commensurate reduction in the price - contravention of section 171 of CGST Act - penalty - HELD THAT:- It is on record that Applicant No. 1 had filed a complaint alleging that the Respondent has not passed on the benefit of ITC to him by way of a commensurate reduction in the price of the flat purchased by him (Applicant No. 1) from the Respondent. It is found that the DGAP, after investigation, has found that the Respondent has not passed on ITC benefit amounting to Rs.1,54,269/-(inclusive of GST) to his recipients/homebuyers as required under the provisions of Section 171 of the CGST Act, 2017. The Authority finds and determines that the Respondent has profiteered by an amount of Rs. 1,54,269/- for the project 'Celebrity Garden Block K' during the period of investigation i.e. 01.07.2017 to 30.09.2019. The above amount that has been profiteered by the Respondent from his Home buyers in the above mentioned project. The claim of their refund along with the interest @18% thereon, from the date when the above amount was profiteered by him till the date of such payment, in line with the provisions of Rule 133 (3) (b) of the CGST Rules 2017, need to be verified by the concerned CGST/SGST Commissionerate - This Authority under Rule 133 (3) (a) of the CGST Rules, 2017 orders that the Respondent shall reduce the prices to be realized from the buyers of the flats commensurate with the benefit of ITC received by him. Penalty - HELD THAT:- It is evident from the narration of facts that Respondent has denied the benefit of Input Tax Credit (ITC) to the customers/Home buyers in contravention of the provisions of Section 171 (1) of the CGST Act, 2017 and he has thus committed an offence under Section 171 (3A) of the above Act and therefore, he is liable for imposition of penalty under the provisions of the above Section. However, since the provisions of Section 171 (3A) have come into force w.e.f. 01.01.2020 whereas the period during which violation has occurred is w.e.f. 01.07.2017 to 30.09.2019, hence the penalty prescribed under the above Section cannot be imposed on Respondent retrospectively. This Order having been passed today falls within the limitation prescribed under Rule 133 (1) of the CGST Rules, 2017. Application disposed off.
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Income Tax
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2022 (6) TMI 1283
Reopening of assessment u/s 147 - Time limit for notice - maximum time limit for issuance of notice under section 148 - HELD THAT:- As the issuance of notice under section 149 is complete only when the same is issued in the manner as prescribed under section 282 r/w rule 127 of the Income Tax Rules prescribing the mode of service of notice under the Act. The signing of notice would not amount to issuance of notice as contemplated under section 149 - the requirement of issuance of notice under section 149 is not mere signing of the notice under section 148, but is sent to the proper person within the end of the relevant assessment year. Concededly, the notice dated 31.03.2018 issued by the respondent was served on the appellant through mail, only on 18.04.2018. Though the learned senior panel counsel appearing for the respondent produced the relevant pages of notice server book maintained by the department to show that the notice of the respondent dated 31.03.2018 under section 148 is within the limitation period, but the same only disclosed that the notice dated 31.03.2018 was returned on 06.04.2018. The decision in Aban Offshore Limited case ( 2016 (11) TMI 542 - MADRAS HIGH COURT] relied on the side of the respondent, is of no assistance, wherein, the postal cover showed that the franking was made on 01.04.2015, but the 'business post arrangement' between the Income Tax Department and the Department of Posts disclosed that the cover was despatched on 31.03.2015, i.e., within the period of limitation. Whereas, in this case, there is no document made available to prove that the notice under section 148 dated 31.03.2018 was sent for despatch to the appellant, within the end of the relevant assessment year i.e., 31.03.2018. Thus, it is crystal clear that the notice under section 148 for reopening the assessment was not sent to the appellant, within the time stipulated under section 149 of the Act and hence, the same vitiates the reassessment proceedings initiated under section 147
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2022 (6) TMI 1282
Reopening of assessment u/s 147 - Scope of amended Sections 148 and 148A - mandation of prior approval of specified authority - conducting of enquiries or issuance of show-cause notice or passing of order under section 148A - revenue submitted that by virtue of the order passed by the Apex Court [ 2022 (5) TMI 240 - SUPREME COURT] , all such impugned notices under un-amended Section 148 of the Income Tax Act are deemed to have been issued u/s 148A as substituted by the Finance Act, 2021 and construed and treated to be show cause notices in terms of Section 148A (b) - HELD THAT:- The requirement of conducting any enquiry, if required with the prior approval of specified authority under Section 148A(a) has been dispensed with as a onetime measure vis-a-vis those notices which have been issued under Section 148 of the un-amended Act from 01.04.2021 till date. The assessing officers have been directed to pass orders in terms of Section 148A (d) in respect of each of the concerned assessees. Thereafter, after following the procedure as required under Section 148A, the assessing officer may issue notice under section 148 (as substituted). The Apex Court has also made it clear that all defences which may be available to the assesees including those available under Section 149 of the I.T. Act and all rights and contentions which may be available to the concerned assessees and Revenue under the Finance Act, 2021 and in law shall continue to be available. As abundantly made clear at para 11 of the judgment, the order passed by the Apex Court under article 142 of the Constitution of India shall also govern the writ petitions pending before various High Courts in which similar notices under un-amended Section 148 issued after 01.04.2021 are under challenge. As such, nothing survives in the instant writ petitions to be adjudicated upon.
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2022 (6) TMI 1281
Reopening of assessment u/s 147 - scope of new section u/s 148A - principles governing exercise of writ jurisdiction by the High Court - Surprisingly the petitioner has challenged the assessment on the ground that no documents have been provided to him before passing the impugned order but there is no prayer in the present petition seeking those documents - HELD THAT:- Admittedly, in the present case the petitioner was provided with reasons for issuing notice to which the petitioner failed to respond. Request was made for providing information qua certified copies of the documents w.r.t. notice under Section 148-A(b) of the Act even though the information already stands furnished as Annexure to notice under Section 148-A(b) of the Act. Once, the petitioner has opted not to respond to the reasons accompanying notice under Section 148-A(b) of the Act, we find that plea raised by the petitioner w.r.t. wrongful assumption of jurisdiction at the hands of the respondent, is without merit. Surprisingly the petitioner has challenged the assessment on the ground that no documents have been provided to him before passing the impugned order but there is no prayer in the present petition seeking those documents. Faced with the situation, Senior Counsel submits that Communication dated 28th March, 2022 though titled as request letter are indeed objections and be treated so. Bare perusal thereof shall reveal that the objections sought to be raised in present petition have not been raised in the said communication. In the facts of this case we need to observe that the petitioner has been served with notice under Section 148 of the Act. In case the present proceedings culminate in the order of assessment under Section 147 of the Act, the same will be appealable. Statutory appeal is provided under the Act. All pleas raised herein can well be raised in the appeaL As relying on Apex Court summarized the principles governing exercise of writ jurisdiction by the High Court in the presence of alternate remedy in case of 'Radha Krishan Industries vs. State of Himachal Pradesh [ 2021 (4) TMI 837 - SUPREME COURT] we do not find that this is a case wherein writ jurisdiction under Article 226 of the Constitution of India should be exercised even though statutory remedy shall be available to the appellant against the final order of assessment.
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2022 (6) TMI 1280
Disallowance of interest paid on debit balance of the assessee-partner s capital account in the partnership firm - HELD THAT:- Proviso to section 36(1)(iii) stipulates that the amount of interest paid in respect of capital borrowed for acquisition of an asset for any period beginning from the date on which the capital was borrowed for acquisition of the asset till the date on which the asset was first put to use, shall not be allowed as deduction . This proviso makes a pitch for disallowance of interest only when the asset acquired with the borrowed funds is not put to use. No disallowance can be made if the borrowed funds are utilized for acquiring an asset which does not produce any income albeit it has been put to use. The relevant criterion for disallowing interest is to examine the date up to which the asset acquired with the borrowed funds was first put to use. If the asset has been actually put to use, deduction of interest cannot be denied even if no income resulted from such an asset. The ld. CIT(A) has gone with the `income criterion and not the `user criterion for disallowing the interest, which is not justified. AR submitted that the assessee acquired his share in the running hotel in the year 2013, however, failed to place any concrete evidence either before the AO or the ld. CIT(A) to demonstrate the activities of the hotel as to whether it was really in operation during the year. Similar position obtains before the Tribunal as well. Since the assessment order was passed u/s.144 and the assessee could not lead evidence before the authorities below in this regard, I consider it expedient to remit the matter to the file of the AO for examining the question of deductibility of interest on the touchstone of the discussion made herein above. Needless to say, the assessee will be allowed a reasonable opportunity of hearing to put forth the relevant evidence in support of his case. Assessee appeal is allowed for statistical purposes.
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2022 (6) TMI 1279
Validity of assessment order passed in the name of non-existent entity - merger - amalgamated company - whether the assessment framed in the name of a non-existent company is valid or suffers from the vice of illegality or this is just a curable procedural mistake on the part of the AO as per sec 292B - HELD THAT:- The assessment order in the name of non-existent company suffers from the substantive illegality and is invalid in the eyes of law. The case of the assessee is squarely covered by the decision of Hon ble Supreme Court in the case of PCIT vs Maruti Suzuki India Limited [ 2019 (7) TMI 1449 - SUPREME COURT] wherein it has been held that the assessment order in the name of non existent entity is to be set aside as this is a substantive illegality and not procedural irregularity of the nature as referred to in section 292B. Mere fact that the assessee has participated in the proceedings before the AO will not cure this substantive illegality and the mere participation of the assessee in the assessment proceedings cannot debar the assessee from challenging the proceedings on this ground as there is no estoppel against law. Also as in the case of BASF Ltd [ 2019 (11) TMI 1719 - ITAT MUMBAI] wherein it has been held that that assessment in the name of non existent entity is invalid and has to be quashed and the tribunal has followed the decisions of the Hon ble Apex court in the case of PCIT vs Maruti Suzuki India Limited [ 2019 (7) TMI 1449 - SUPREME COURT] and CIT Vs Spice Infotainment Ltd. [ 2011 (8) TMI 544 - DELHI HIGH COURT] - Decided in favour of assessee.
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2022 (6) TMI 1278
Disallowance with regard to foreign exchange loss arising on restatement / revaluation of foreign currency loans due to adverse foreign exchange fluctuations claimed u/s 37(1) - HELD THAT:- We infer that the assessee has extended loans / advances facility to its subsidiaries only for the purpose of business, as the nature of assessee s business relates to constructions and development of real estate properties. The contention of the Revenue that the impugned loss was only notional loss does not hold good. The reasoning that since there was no settlement of loan as on 31/03/2017 will not entitle the assessee to claim as per method of accounting followed and the provisions of section 43AA read with Income Computation Disclosure Standard (ICDS)-VI has been countered by the assessee stating that assessee has been following AS-11 which states that unrealised foreign exchange gain / loss should be booked at the year end. Though the principle of res judicata does not apply to taxing statute, principle of consistency does apply wherein the income from gain in forex fluctuation of the impugned loan in earlier year was considered by the Revenue and as such the method of accounting as per section 145 followed by the assessee was also not disputed earlier, by placing reliance on the decision of Hon ble Apex Court CIT vs M/s Woodward Governor India P. Ltd ( 2009 (4) TMI 4 - SUPREME COURT] , we hold that the addition made on account of foreign exchange fluctuation loss claimed as deduction under section 37(1) is disallowable, is not tenable. Assessee appeal allowed.
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2022 (6) TMI 1277
Addition made u/s.43CA - difference between the stamp duty value and the reported sale consideration - AO applied the stamp duty value prevailing in February 2011 and since the said value was more than the registered value in 2014 by the assessee AO brought to tax the differential sum as an addition u/s.43CA - HELD THAT:- As there is a proviso introduced by the Finance Act 2018 w.e.f. A.Y.2019-20 onwards and which was later amended by the Finance Act 2020 applicable from A.Y.2021-22, which states that if the difference between the stamp duty value and the reported sale consideration is not more than 10% then, the reported sale consideration shall have to be accepted and no addition in terms of 43CA is required to be made. We find that this amendment has been held to be retrospective in operation by the Co-ordinate Bench decision of this Tribunal in the case of Maria Fernandez Cheryl [ 2021 (1) TMI 620 - ITAT MUMBAI] wherein it was held that amendment made in scheme to Section 50C(1) of the Act by inserting the proviso thereto and by enhancing tolerance band for variations between sale consideration vis a vis stamp duty valuation from 5% to 10% are effective from date on which section 50C itself was introduced i.e. from 01/04/2003 and therefore, having retrospective applicability thereon. The language of provisions of Section 50C are exactly pari materia with provisions of Section 43CA of the Act. Hence, though the aforesaid decision was rendered in the context of Section 50C of the Act, the same analogy would apply for provisions of Section 43CA of the Act also as similar proviso is available in Section 43CA of the Act also. Hence, respectively following the aforesaid decision of this Tribunal, we hold that the difference added by the ld. AO in the assessment falls below the tolerance band of 10% and hence, by applying the proviso to Section 43CA of the Act, no addition is required to be made in the instant case u/s.43CA - Accordingly, the ld. AO is hereby directed to delete the addition of Rs.4,42,460/- made by him in the assessment. Accordingly, the grounds raised by the assessee are allowed. Revision u/s 263 by CIT - incorrect application of provisions of Section 43CA - HELD THAT:- In the instant case, the ld. AO had duly applied the provisions of the Act more particularly the provisions of Section 43CA(3) and 43CA(4) of the Act. We find that the ld. PCIT in the instant case is proceeding on incorrect application of provisions of Section 43CA of the Act by directing the ld. AO to adopt the ready reckoner rates on the date of sale ignoring the fact that the ready reckoner rate is to be considered on the date of initial booking / allotment as per the provisions of section 43CA of the Act itself. We hold that the ld. AO had made due enquiries in the instant case while framing the assessment and the ld. PCIT is only trying to substitute his incorrect view by incorrect application of law and we hold that the order passed by the ld. AO in the instant case is neither erroneous nor prejudicial to the interest of the Revenue and hence there is no question of invocation of revisionary jurisdiction by the ld. PCIT u/s.263 of the Act. Hence, the revision order passed u/s.263 by the ld. PCIT is hereby quashed. Accordingly, the grounds raised by the assessee are allowed.
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2022 (6) TMI 1276
Scope of limited scrutiny - Securities premium reserve which stood transferred by the erstwhile company to the assessee-LLP upon conversion as a taxable profit - Whether Assessing Officer travelled beyond the scope of limited scrutiny or not? - HELD THAT:- Once a case is selected for limited scrutiny, though the role of the ld. Assessing Officer is confined to examine the issues for which the case is selected for limited scrutiny but then the AO has to go into the depth of such issue and minutely examine the facts attached thereto. AO just cannot casually examine the issue and come to the conclusion because the reasons are just indicative in nature and to reach the depth of the issue raised in the limited scrutiny, AO has to make the examination deeper and deeper examining all the aspects linked to such reason. In case of the complete scrutiny, AO has to examine all the financial transactions carried out by the assessee during the year, whereas in limited scrutiny s issues are limited but the same needs more intense, accurate and deep examination of the issue and facts attached to it. Low income in comparison to high loans/advances/investment in shares - The reason is just an indication for Assessing Officer to examine various aspects. Once the low income is to be examined, it has to be seen in consonance of the higher loans standing in the balance-sheet and in the present case, the interest income is shown only at Rs.14.29 lakhs, whereas the loans and advances are standing to the tune of Rs.13.97 crores. AO went on to examine this aspect of low income, he then asked the assessee about the investment made during the year because the ld. Assessing Officer wanted to see why the assessee has earned low income when there are huge loans and advances. When AO was examining the loans and advances, he came to know that this is the first year of incorporation and the LLP has been converted from the company. AO asked the assessee about the source of investment. Then based on this question, the assessee submitted that the source is the share capital and security premium of the erstwhile company before being converted to LLP and the ld. AO went on to examine the issue of security premium reserve. Second reason for high interest expenditure against new capital added in work - in-progress or addition made to fixed assets and the catch words are high interest expenditure, new capital added which in this case is partner s capital and Reserve Surplus( Security Premium Reserve) - On overall examining the financial statements of the LLP, erstwhile Private Limited Company, the reasons for selecting the case for limited scrutiny which covers various aspects of the assessee including low income, high loans, advances, investment in shares, high interest expenditure, new assets added in work-in-progress and additions in fixed assets, we find that the ld. AO has carried out the assessment proceedings only within the parameters provided under limited scrutiny and has fairly done well by reaching to the depth of the issue and was well within the jurisdiction to examine the source of investment i.e. share capital, Security Premium and unsecured loan of erstwhile Private Limited Company made during the year which were the source of investments fetching very low income. The source of investment as evident from the balance-sheet of LLP, is the share capital and security premium which was carried over from the Private Limited Company. AO has not exceeded the jurisdiction and has not travelled beyond the reasons for selecting the case of the limited scrutiny and ld. Assessing Officer has not done complete scrutiny of the case and has restricted his scrutiny proceedings only with regard to the two reasons mentioned hereinabove for carrying out limited scrutiny. We, therefore, find no merit in the legal issue raised by the assessee in the Cross Objection. The decisions referred and relied upon by the ld. counsel for the assessee and the Instruction of the CBDT referred in the paper book could have been of any help to the assessee only if AO has converted the scrutiny from limited to complete scrutiny, which is not the case before us. The legal issue raised in the Cross Objection filed by the assessee is dismissed. Addition for securities premium reserve which is transferred by the erstwhile company to the assessee- LLP upon conversion as a Reserve Surplus - As the assessee has claimed that all the assets and liabilities of the erstwhile Private Limited Company GDPL has been converted into assets and liabilities of newly incorporated GDLLP and the said conversion is not a transfer u/s. 2(47) of the Act as the proviso (a) to (e) of section 47(xiiib) of the Act are not attracted. In the instant case, clause (a) of the proviso to section 47(xiiib) needs to be examined. Since the Security Premium Reserve of the erstwhile Company was a liability and not eligible to be distributed as dividend to its shareholders, the same needs to carry the same characteristic in the converted LLP. But in the newly formed LLP, the Security Premium Reserve has been shown under the head Reserve Surplus , which for the purpose of GDLLP is a profit available for distribution to its designated partners after three years from the date of said conversion. Now since the nature of liability of Security Premium Reserve is not the same to the nature of liability shown in Reserve Surplus in the newly formed LLP, in our considered view, the assessee s case falls under the proviso (a) and since all the assets and liabilities are not converted into assets and liabilities of the Limited Liability Partnership, the said conversion is a transfer u/s. 2(47) of the Act and provision of section 45 of the Act needs to come into operation. As far as treatment of Security Premium Reserve in the books of newly incorporated LLP is concerned, we observe that Security Premium is not accumulated profit but it is a part of share capital to the extent it was received while issuing in shares by the erstwhile Private Limited Company. Since the Private Limited Company has been converted into a LLP, the only option left for the treatment of the Security Premium Reserve is to bring it to tax in the year in which the Company is converted into LLP. Such Security Premium standing in the balance-sheet at the close of the year before being converted first needs to be brought to tax under the provision of section 56(1) of the Act and then the amount needs to be transferred to Reserve Surplus and which will thereafter be free for withdrawal by the designated partners of the LLP as per the provision of the Act. CIT(Appeals) failed to examine this aspect of the Security Premium Reserve, which the ld. Assessing Officer has rightly observed in the assessment order. We also find merit in the finding of the ld. Assessing Officer for the reason that this issue of examining the treatment of Security Premium Reserve is possible only while examining the case of the assessee for the year in which such conversion takes place. Because if it is not examined in the year of conversion and the balance of Reserve Surplus converted from the Security Premium Reserve is transferred to Reserve Surplus Account and carried forward to subsequent years, then it will not be easy for the revenue authorities to track such adjustment. in view of the options available for utilization of Security Premium Reserve as per the provision of section 52 of the Companies Act, 2013, absence of clear-cut provisions for treatment of such Security Premium Reserve which though is a liability not available for distribution to shareholders of the Private Limited Company, but once the conversion takes place, its treatment in the LLP is only possible by way of treating such Security Premium as income of the LLP under section 56(1) of the Act as income from the other sources and to be brought to tax by crediting it in the Profit Loss Account and debiting the Security Premium Reserve Account, which will bring the Security Premium Reserve balance as NIL and the Reserve Surplus will be the income shown under section 56(1) of the Act and it will be brought to tax in the year when the Private Limited Company is converted into LLP and in the instant case, i.e. A.Y. 2015-16 for which the ld. Assessing Officer has rightly made the addition for the Security Premium Reserve of the erstwhile Private Limited as income of the newly incorporated LLP. We, therefore, reverse the finding of the ld. CIT(Appeals) and confirm the addition made by the ld. Assessing Officer and allow Ground No. 1 raised by the Revenue. Disallowance of expenses - Disallowance includes disallowance of rent and the remaining balance towards salary and other expenditure - So far as the rent expenditure is concerned, the assessee has filed the details of rent paid to Munush Chand HUF which are incurred in cash at Rs.1,72,000/- , which is below the limit provided u/s 194I of the Act. This disallowance of rent expenditure is deleted. As regards the remaining sum same relates to salary expenditure but no details of the same have been filed before the lower authorities. We direct the assessee to furnish the necessary details before the ld. Assessing Officer and if ld. Assessing Officer is satisfied, he can allow the claim in accordance with law. Thus Ground No. 2 is partly allowed for statistical purposes.
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2022 (6) TMI 1275
Addition u/s 69A - unexplained cash deposits - as submitted deposits made in to the bank out of collections from various members of Co-operative Credit Society - HELD THAT:- We find that before both the AO as well as before the Ld. CIT(A), the explanation of the assessee in respect of cash deposits is not on record due to non-compliance on the part of the assessee. Before us, the Ld. counsel of the assessee has given an undertaking that assessee is willing to submit necessary evidence in support of source of cash deposits and co-operate in appellate proceedings before the Ld. CIT(A). Thus in the interest of substantial justice, we restore this matter back to the file of the Ld. CIT(A) for deciding afresh in accordance with law after providing adequate opportunity of being heard to both the assessee as well as the Assessing Officer. The grounds raised by the assessee are accordingly, allowed for statistical purposes.
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2022 (6) TMI 1274
Reopening of assessment u/s 147 - reopening beyond four years - HELD THAT:- We note that during the course of assessment proceeding, the assessee furnished before the AO all the documents as desired including the audited annual accounts. and accordingly framed the assessment u/s 143(3) of the Act. Besides the assessee has made full disclosure of these transactions in the books of account which have been examined at length by the AO during the course of original assessment proceeding. Therefore, the reopening of assessment u/s 147 in the present case, without any reference to failure on the part of the assessee to disclose all facts regarding the items in the return of income or books of account during the assessment proceeding, is not justified and is in violation to proviso to section 147. Thus reopening of assessment is invalid and is accordingly quashed. Decided in favour of assessee.
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2022 (6) TMI 1273
LTCG - FMV detrmination - AO computed assessee s share being 1/4th of the long term capital gain - scope of section 9B of the Act which was brought on the Statute book by Finance Act, 2021 w.e.f 1.4.2021 - A.R. vehemently submitted before us that the AO should have referred the matter tothe DVO for ascert aining the fair market value as on the date of sale as well as on 1.04.1981 and as the calculation made by the AO is just a guess work which is based on presumptions and assumptions without any reasonable and rationale basis and therefore the same may to be sent back to the file of the AO for assessing the correct amount of capital gain after making necessary reference to the DVO for ascertaining the fair market value of the plot as on the date of sale as well as on 1.4.1981 - HELD THAT:- We find merits in the contentions of the assessee that the addition made by the AO is just on the basis of presumptions and assumptions without any valid basis. Accordingly we set aside the issue to the file of the AO with the direction to refer the matter to DVO for ascertaining the fair market value of the plot as on the date of sale as well as on 1.4.1981 and compute the long term capital on the basis of said report after affording reasonable opportunity of hearing to the assessee. Ground no. 2 is allowed for statistical purposes. Long term capital gain on sale of plot - HELD THAT:- AO has computed the capital gain on the basis of presumptions and assumptions by taking the value of plot measuring 16405.125 sq. ft on estimated basis. Consequently we restore the issue to the file of the AO as the same direction to ascertain the fair market value as on the date of sale as well as on 1.4.1981 by referring the matter to the DVO and accordingly assess the long term capital gain falling to the share of the assessee. Ground no. 3 is allowed for statistical purpose. Addition on account of short term capital gain received upon retirement from the registered partnership firm - HELD THAT:- We note that during the year the assessee has retired from the partnership firm w.e.f. 15.1.2011 in which the assessee was having 12.5% share in the profit. The Firm was having various assets as given above aggregating to Rs. 82,67,688/-. The AO calculated the short term capital gain by computing the deemed sale consideration at Rs. 6,45,83,358/- u/s 50C of the Act and assessee s share was calculated at Rs. 80,72,920/-. Similarly the proportionate asset cost which fall to the assessee s share was calculated at Rs. 10,38,460/- and thus calculated the short term capital gain at Rs. 70,30,31,460/- which was added to the income of the assessee. As perused the provisions of Section 9B and also analysed the arguments made before us by both the Parties and find that there was no provision in the Act to compute the deemed gain in respect of assets of the firm upon reconstitution retirement of a partner. We also note that a specific provision was inserted by Finance Act, 2021 w.e.f. 1.4.2021 providing for making such deemed addition on account of capital gain upon retirement of a person from the partnership firm which are applicable for AY 2021-22 and not to the year under consideration. Accordingly we set aside the order of ld CIT(A) and direct the AO to delete the addition. Appeal of assessee allowed.
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2022 (6) TMI 1272
Revision u/s 263 - claim of depreciation at higher rate/higher rate for claim of additional depreciation - HELD THAT:- The assessee has not provided the details relevant to the assets, which it is claiming as part of plant machinery. The assessee itself accepted that electrical installation are chargeable to depreciation @ 10%, but claimed the same at higher rate of depreciation. Onus is on the assessee to explain and prove the same with detail about such claim. Since no such specific reply was given by the assessee, the enquiry made by the ld. AO remained incomplete and it ought to have been addressed in the assessment order and Ld. AO should not have allowed the assessee s claim without examining the issues. This factual aspect remains unverified. Assessee merely kept referring to the decision that an enquiry was made by the ld. AO and section 263 should not have been invoked. We, however, find no merit in the contention of the ld. Counsel for the assesse with regard to the issue of claim of depreciation on electrical installation because though the inquiry was initiated, but the same was incomplete as the assessee did not reply to it in the way it ought to be. Therefore, in real terms, there was no enquiry on the said issue. We, therefore, confirm the findings of the ld. PCIT on the said issue of excess claim of depreciation on electrical installation and dismiss the grounds raised by the assessee challenging the validity of the order passed u/s. 263 of the Act on this issue. - Decided against assessee.
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2022 (6) TMI 1271
Income from house property - notional rent from house property in respect of flats held as stock in trade by the assessee - deemed rental income on unsold flats / units held by the assessee as stock in trade - assessee is in the business of real estate construction and development in India - AO noted that assessee had certain flats as unsold finished stock in its balance sheet and these represented the house properties owned by the assessee - HELD THAT:- It is not in dispute that the unsold flats lying in the balance sheet with the assessee were held as stock in trade by the assessee. It is not in dispute that the sale of flats shall be assessable as business income in the hands of the assessee, being stock in trade. We find that the provisions of Section 23(5) of the Act had been introduced in the statute for taxability of notional rent in respect of properties held as stock in trade , has been introduced only from A.Y.2018-19 onwards. Hence, the said provision cannot be made applicable upto A.Y.2017-18. We find that the issue in dispute is no longer res-integra in view of the decision of this Tribunal in the case of Pegasus Properties (P) Ltd [ 2021 (12) TMI 1210 - ITAT MUMBAI ] to hold that no addition on account of deemed rental income could be made in respect of unsold stock of flats held as stock in trade upto A.Y.2017-18. However, the amendment has been brought in the statute in Section 23(5) from A.Y.2018-19 providing a moratorium period of two years. Hence, no addition could be made even for A.Y.2018-19 also. Accordingly, the addition made towards notional rent is hereby directed to be deleted both under normal provisions of the Act as well as in the computation of book profits u/s.115JB. Addition u/s.43CA - Addition deleted as difference in value between the stamp duty authority and the consideration reported by the assessee is less than 10% - whether this proviso could be given retrospective effect so as to confer benefit to the assessee in the instant case? - HELD THAT:- We find that this issue is no longer res integra in view of the decision of this Tribunal in the case of Maria Fernandes Cheryl vs. Income Tax Officer [ 2021 (1) TMI 620 - ITAT MUMBAI] wherein the third proviso inserted in Section 50C of the Act has been held to be retrospective in operation from 01/04/2003 onwards. Though this decision has been rendered in the context of Section 50C of the Act for a capital asset, the same analogy could be drawn for Section 43CA also for asset held as stock in trade . CIT(A) had rightly deleted the addition made u/s.43CA of the Act both under normal provisions of the Act as well as in the computation of book profits u/s.115JB of the Act. In any case, this sum does not fall within the ambit of Explanation to Section 115JB (2) of the Act and hence, the same can never be added back in the computation of book profits u/s.115JB of the Act. Accordingly, the grounds raised by the Revenue in this regard are dismissed. Carry forward losses on sale of redeemable non-convertible zero coupon bonds, which was neither claimed by the assessee in the original return of income u/s.139(1) of the Act nor in the revised return filed u/s.139(5) of the Act but claimed during the course of assessment proceedings - HELD THAT:- The assessee succeeded on this issue before the ld. CIT(A) who by placing reliance on the decision of the Hon ble Jurisdictional High Court in the case of CIT vs. Pruthvi Brokers and Shareholders Pvt. Ltd [ 2012 (7) TMI 158 - BOMBAY HIGH COURT] and also by placing reliance on the decision of the Hon ble Supreme Court in the case of Goetze India Ltd., referred to supra stating that the claim of carry forward of loss of Rs.188 Crores could be allowed by the ld. CIT(A) even though it is not claimed in the return of income by the assessee. CIT(A) also observed that the restriction placed by the Hon ble Supreme Court in the case of Goetze India Ltd. [ 2006 (3) TMI 75 - SUPREME COURT] relied upon by the ld. AO does not apply to appellate authorities and the same applies only to the ld. AO. Accordingly, he directed the ld. AO to allow the long term capital loss after examining the correctness of its computation. The genuinity of the claim of this loss was not doubted by the lower authorities in the instant case. Even the ld. CIT(A) had merely directed the ld. AO to ascertain the correctness of the computation of loss claimed by the assessee. It is a fact that assessee had actually incurred a loss of Rs.188 Crores in the instant case on sale of non-convertible zero coupon bonds. In view of the decision of Hon ble Jurisdictional High Court in the case of Pruthvi Share Brokers referred to supra, the loss even though not claimed by the assessee in the return of income would be eligible for carry forward to subsequent years. In any case, the law is very settled that there is no estoppel against this statute and Revenue cannot take undue advantage of the ignorance of the assessee and that Article 265 of the Constitution clearly mandates that no tax shall be collected except by an authority of law. Hence, it is obligatory on the part of the ld. AO to educate the assessee of its legitimate rights and duties. Accordingly, we do not find any infirmity in the action of the ld. CIT(A) granting relief to the assessee in this regard. Accordingly, the ground No.2 raised by the Revenue is dismissed. MAT computation - whether the assessee is entitled for reduction towards an item which is mentioned as an audit qualification in the statutory audit report, while computing book profits u/s.115JB? - HELD THAT:- As the financial statements prepared in accordance with part II part III of the Schedule-VI of the Companies Act, 1956, should be read together with notes on accounts and the audit qualifications for the purpose of computing the book profits u/s.115JB - this conjoint reading of financial statements together with notes on accounts and audit report alone would be in full compliance with the provisions of Section 211 of the Companies Act, 1956. Section 115JB mandates that the accounts of the assessee company should be prepared as per the mandate provided in Section 211 of the Companies Act. Hence, we hold that audit report together with the audit qualification and notes on accounts should be read together with the balance sheet and profit and loss account for the purpose of determination of book profits u/s.115JB - Hence, the adjustment made by the statutory auditor in the revised form No.29B while computing revised book profits u/s.115JB is in order. Accordingly, we direct the ld. AO to grant deduction while computing book profits u/s.115JB of the Act. Accordingly, the grounds raised by the assessee are allowed.
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2022 (6) TMI 1270
Correct head of income - arbitration award received by the assessee - Special income - as per AO arbitration award was not awarded only with reference to the retirement of the assessee from the partnership firm but was in lieu of relinquishment of all her rights, claim and demand of any nature whatsoever against the partnership firm M/s P.N.Writer Co. and all other entities owned and controlled by the firm and partners and for withdrawing all the Suits against all the entities - As per AO assessee's rights and claims were converted into money terms through mutually agreed consent terms of Arbitration award and, hence, the amount was held as taxable u/s 28(iv) - CIT(A) deleted the addition made by A.O under the head 'Income From Other Sources' - HELD THAT:- We observed that exactly similar issue was considered and decided by the Coordinate Bench in assessee s own case [ 2018 (4) TMI 1640 - ITAT MUMBAI] neither the Arbitration award nor the concerned terms made any mention or a declaration or a decision for a finding that the assessee retired from the firm in the year 1997. Neither does the Arbitration Award or Consent Terms anywhere specify that the sum of Rs.28 crores represents the payment to the assessee for her retirement from P.N.Writer Co. As a matter of fact, the basis of the Arbitration Award was never given. As rightly observed by the ld. Commissioner of Income Tax (Appeals) that the retirement of a partner from the firm has to be an evident fact and is not required to be indirectly inferred or to be guessed in substance. The assessee has received a consideration in lieu of a composite bundle of conditions which included giving up her rights and interests in assets which have no connection with her interest in the firm or its assets and also for withdrawal of all suits/legal proceedings filed by her against the other persons and against firms and entities owned or controlled by them. We agree with the ld. Commissioner of Income Tax (Appeals) that it is judicially settled that the special income must be considered in its wider sense. The definition of income is an inclusive one having a wide amplitude. Section 56(1) provides that income of every kind which is not to be excluded from the total income in this Act shall be chargeable to tax income under the head income from other sources if it is not chargeable to income tax under any of the head as specified in section 14. Accordingly, in the background of the aforesaid discussion and precedent, we uphold the order of the ld. Commissioner of Income Tax (Appeals). - Decided against revenue.
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2022 (6) TMI 1269
Disallowance of remuneration paid by the assessee to its Working Partner u/s 40A(3) - Cash payment of expenditure in excess of specified limit - Scope of separate identity for the firm and its partners - HELD THAT:- It is trite that the partnership firm is not a juristic person and there is no separate identity for the firm and its partners. The partnership is only a collective of separate persons and not a legal person in itself. For the purpose of the Act, a firm is considered as a unit of assessment by special provisions. The Hon ble Supreme Court in the case of CIT v. R.M. Chdambaram Pillai ( 1976 (11) TMI 2 - SUPREME COURT] while holding that payment of salary to a partner represents a special share of the profits and the salary paid to the partner retains the same character of the income, observed that remuneration paid to the partner is share of profits of the partnership firm and same cannot be treated to be in the nature of salary paid to the employee. It is not the case of Revenue that the transaction of payment of remuneration to the Working Partner was of colourable nature. As the remuneration is from the firm to the Working Partner, which is nothing but sharing of profits, the identity of the payer and payee is also not doubted by the Revenue. Further, the genuineness of remuneration and source is also not in dispute. Thus, even in view of the above, the applicability of section 40A(3) of the Act, in the present case, is not justified. As section 40A is a general provision and section 40(b) is a special provision and only in situation which are not covered by section 40(b), section 40A shall be applicable. In the present case, assessee being a partnership firm and section 40(b) being the special provision dealing with computation of income of firm, same shall be applicable for determining the amount of deduction available to the assessee. Further, in the present case, there is no dispute that the remuneration was paid to the Working Partner. Also, there is no allegation that conditions of section 40(b) of the Act are not complied with. Thus, in view of the aforesaid judicial pronouncements also, we are of the view that section 40A(3) was wrongly invoked by the Revenue for disallowing remuneration paid to the Working Partner, which is within the permissible limits as per section 40(b) of the Act. Therefore, in view of our aforesaid findings, the order passed by the learned CIT(A), affirming the disallowance made under section 40A(3) of the Act, is set aside and the grounds raised by the assessee in present appeal are allowed.
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2022 (6) TMI 1268
Disallowance of claim of bad debts - Amount written off in the books of accounts as non-recoverable loan out of the loan advanced during the regular course of business claimed as bad debt u/s 36(1)(vii) r.w.s 36(2) - Alternative prayer being that if the same is not allowed u/s 36(1)(vii) r.w.s. 36(2) it was allowable u/s 37(1) - HELD THAT:- As admitted facts are that the assessee is carrying on money lending business and has been taxed so under the head business for the last 9 years which has been overlooked by the authorities. If the assessee is not in money lending business it cannot lead to the conclusion that when money advanced by the assessee becomes bad, it cannot be written off. Even if the assessee advanced money without money lending business, if the advance becomes bad, it should be allowed as a bad debt in terms of s. 36(1)(vii) r.w. 36(2)(i) - For the purpose of Income tax Act, for grant of claim of assessee as bad debt, holding the money lending business is irrelevant consideration. We have to look into the issue from the point of view of the assessee, whether assessee has advanced money and it became bad debt and same was written off in the books of accounts as bad debt. In the present case, assessee has advanced money in the ordinary course of carrying on business of the assessee and income earned from money lending business was offered to tax from year to year. Due to circumstances beyond the control of assessee, assessee was not able to recognize interest income on the impugned advance made to Pie Education Ltd. The main argument of the ld. DR is that income from these advances made to Pie Education Ltd. has not gone into the computation of income in any assessment year. This has been explained by the assessee that due to circumstances beyond the control of assessee, the debt being non-performing asset, no interest income is recognized on this count which cannot be the reason to disallow the claim of bad debt. For this purpose, we rely on the judgment in the case of CIT v. T. Veerabhadra Rao, K. Koteswara Rao Co [ 1985 (7) TMI 2 - SUPREME COURT] . In our opinion, the advance made by the assessee in the ordinary course of business which is stock in trade is to be valued at cost or market price, whichever is less. In the present case, the debt has become bad and it being stock in trade the value is NIL. Therefore, it has to be considered as business loss and allowed. We find merit in this claim of the assessee. The debt written off by the assessee in the books of account is to be allowed as bad debts and accordingly we allow the grounds taken by the assessee. Disallowance u/s. 14A r.w.r. 8D - HELD THAT:- As expenditure debited in the profit loss account and we find that only bank charges, remuneration to auditors, salary and wage, travelling and conveyance, vehicle maintenance are expenses which are general in nature and all other expenses are attributable to the activities other than activity of investment in shares which are likely to yield exempt income. Only the aforesaid expenses can be considered for disallowance under rule 8D(2)(iii). We may also mention here that the mandate of section 14A of the Act is that the expenditure incurred in relation to income which does not, form part of total income has to be determined having regard to the account of the assessee. Therefore, nexus between expenses sought to be disallowed and earning of dividend income has to be seen before applying the provisions of rule 8D of the IT Rules. As far as appeal of the revenue is concerned, there is no merit in the appeal because the law, by now is well settled that disallowance u/s 14A of the Act cannot exceed exempt income earned by the assesse - Thus we direct AO to restrict the disallowance on similar lines.
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2022 (6) TMI 1267
TDS u/s 194I - Disallowance of expenditure representing reimbursement thereon u/s.40(a)(ia) - renting of equipments - assessee Company is in the business of providing Marine Seismic Services used for Research and Development to explore the utilisation of recourses available in sea and also provide complete Survey Solution including Bathmetry, Fishing Managements, Chase Boats and other related logistic services for data processing services required - As pleaded that the said mobilization charges are nothing, but reimbursement of expenses incurred by the owner of a vessel such as Fuel, Survey, arrangement of Expat Seismic Crew, Port charges, and various clearing charges from Naval custom authorities to upgrade the Vessel so as to qualify as per Seismic norms prescribed under the contract - HELD THAT:- AO submitted before the lower authorities that the payment made by the assessee was duly shown as receipt by the ship owner company as its income and offered the same to tax. The ld. AR placed on record the profit and loss account and balance sheet of the ship owner company wherein this sum was included as income under the head sale of services as on 31/03/2014 in the audited financial statements and a Chartered Accountant Certificate dated 27/12/2017 was also furnished in the prescribed format stating that recipient had duly offered to tax the said sum of Rs.2,57,55,269/- together with the PAN of the recipient company CIT(A) had merely reiterated the ultimate conclusions reached by the ld. AO without appreciating evidences filed by the assessee on record. But, the evidences filed by the assessee which are enclosed in the paper book filed before us together with the submissions thereon are staring on us which goes to prove clearly that the payments made by the assessee are nothing but reimbursements on which deduction of tax at source is not warranted. Hence, there cannot be any disallowance u/s.40(a)(ia) - we also find that the payee had duly reflected the said receipt as its income in its profit and loss account. This is also supported by the certificate from Chartered Accountant. Hence, on this count also there cannot be any disallowance u/s.40(a)(ia) of the Act in terms of second proviso thereon. Accordingly, the grounds raised by the assessee are allowed.
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2022 (6) TMI 1266
TP Adjustment - Arms Length Price adjustment on account of payment of Royalty - Admittedly, the royalty was paid @ 5% of domestic sales and 8% of the export sales in consideration of receipt of technology in the form of know-how, technical training and technical assistance for the purpose of manufacturing the compressors. The TPO determined the ALP of the royalty payment at 3% of the sales by taking it as appropriate benchmark - HELD THAT:- TPO adopted this benchmark considering the transaction of payment of royalty by it s A.E. i.e., Wuxi Atlas Copco Compressor Co Ltd., which is undisputedly controlled transactions, and the difference between two and the actual price was suggested as TP adjustment u/s 92CA of the Act without even going into the issue whether the approval of payment of RBI will constitute a CUP method or not. The issue in the present ground of appeal was adjudicated by Co-ordinate Bench of this Tribunal in assessee s own case for A.Y. 2010-11 [ 2021 (9) TMI 635 - ITAT PUNE] - Decided against revenue. ALP adjustment on account of receipt of commission for Marketing Services - main contention of the appellant is that the functions undertaken by the assessee for selling the product is significantly different from what is undertaken for the purpose of earning the commission income from A.E - CIT-A deleted the adjustments - only bone of contention between the Department and the assessee is exclusion of the cost of material consumed and the depreciation in the total cost for the purpose of determining the percentage of marketing cost to the total cost - HELD THAT:- The reasoning given by the TPO that these two segments of the cost does not contribute to profit does not stand to any reason, in as much as the depreciation and the material actually contributes to the profits in the manufacturing segment. An identical issue was examined by the Co-ordinate Bench of this Tribunal in assessee s own case for A.Y. 2010-11 [ 2021 (9) TMI 635 - ITAT PUNE] issue decided in favour of assessee. Prepayment of liability under Sales Tax Defferal Scheme - CIT-A deleted the addition - HELD THAT:- The issue in the ground of appeal is no more res integra as the issue was decided in favour of assessee by the Hon ble jurisdictional High Court in the case of CIT vs. Sulzer India Limited. [ 2014 (12) TMI 267 - BOMBAY HIGH COURT] wherein it was held that when the sales tax liability was discharged at Net Present Value, the difference between the sales tax liability and NPV of the sales tax liability cannot be brought to tax within the provisions of section 41(1) of the Act applying the ratio of the decision of Hon ble High Court of Karnataka in the case of CIT vs. McDowell Co Ltd [ 2014 (11) TMI 272 - KARNATAKA HIGH COURT] We do not find any reason to interfere with the order of ld. CIT(A) and we do not find any merit in the present ground of appeal. In the circumstances, this ground of appeal filed by the Revenue stands dismissed. Nature of expenses - expenditure incurred on the renovation of lease premises - allowability of expenditure incurred on items interior decoration, etc on the rented premises which are used for the business purpose of the assessee - HELD THAT:- The identical issue was examined by the Co-ordinate Bench of this Tribunal in assessee s own case for A.Y. 2010-11 [ 2021 (9) TMI 635 - ITAT PUNE] wherein after making reference to the provisions of Explanation (1) to section 32 and the decisions of Hon ble Madras High Court in the cases of CIT Vs. ETA Travel Agency Pvt. Ltd. [ 2019 (8) TMI 932 - MADRAS HIGH COURT] and CIT Vs. Viswams [ 2019 (4) TMI 1127 - MADRAS HIGH COURT] held expenditure incurred on rented premises cannot be treated as revenue in view of the plain provisions of Explanation 1 to Sec.32 of the Act. The ld.CIT(A) is in total ignorance of the provisions of Explanation 1 of Sec.32 of the Act held it to be revenue in nature. The decision relied upon by the learned counsel has no application after insertion of Explanation 1 of Sec.32 of the Act. In the above circumstances, we reverse the order of ld.CIT(A) and restore the issue in this ground to the file of Assessing Officer. Thus we are of the considered opinion that this is a fit case to remand to the file of Assessing Officer with a direction to verify the true nature of expenditure i.e. whether revenue or capital and also examine the applicability of Explanation (1) to section 32(1) of the Act, even in respect of expenditure incurred is revenue in nature. Thus, this ground of appeal is partly allowed for statistical purposes. Disallowance of the minimum expenditure - AO found that out of the miscellaneous expenses, the assessee could not produce supporting documents, details, vouchers - HELD THAT:- During the course of assessment proceedings, the respondent / assessee company could not furnish the evidence, bills, vouchers etc to the extent of Rs.2,59,407/- out of the total Miscellaneous Expenditure. On appeal before ld.CIT(A), ld.CIT(A) restricted the disallowance to Rs.1,00,000/- which is in accordance with the decision of his order in assessee s own case for the earlier assessment years. On the principle of consistency, we uphold the order of ld.CIT(A). Accordingly, this ground of appeal stands dismissed. Addition of commission expenditure - HELD THAT:- Admittedly, the appellant had filed the primary details such as name, address, invoice, payment made etc. However, the assessee could not furnish the confirmations from payees and for want of the confirmations, Assessing Officer made disallowance. The ld.CIT(A) following the decision of his order in assessee s own case in earlier years has deleted the addition. From the material on record, it is clear that the respondent / assessee had discharged the onus cast upon it by filing the primary details. Mere inability to furnish the confirmation letters from the recipients cannot be the reason to disallow the commission expenditure without causing any further enquiries by the Assessing Officer as to the genuineness or otherwise of the expenditure. The identical issue was examined by the Co-ordinate Bench of this Tribunal in assessee s own case for A.Y. 2010-11 [ 2021 (9) TMI 635 - ITAT PUNE] held that there is no material on record exhibiting the nongenuineness of the expenditure - CIT(A) is justified in deleting the commission expenditure and accordingly, this ground of appeal is dismissed.
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Customs
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2022 (6) TMI 1265
Import of Gold - bonafide baggage or not - cause of action has arisen within the jurisdiction of this Court or not - respondents submits that the writ petition is infructuous inasmuch as the petitioner has accepted the order of the first respondent and has paid the redemption fine and penalty for re-export of the imported goods - HELD THAT:- In KUSUM INGOTS ALLOYS LTD. VERSUS UNION OF INDIA [ 2004 (4) TMI 342 - SUPREME COURT] , the Hon ble Supreme Court held that When an order, however, is passed by a Court or Tribunal or an executive authority whether under provisions of a statute or otherwise, a part of cause of action arises at that place. Even in a given case, when the original authority is constituted at one place and the appellate authority is constituted at another, a writ petition would be maintainable at both the places. In other words as order of the appellate authority constitutes a part of cause of action, a writ petition would be maintainable in the High Court within whose jurisdiction it is situate having regard to the fact that the order of the appellate authority is also required to be set aside and as the order of the original authority merges with that of the appellate authority . No part of cause of action has arisen within the jurisdiction of this Court. Therefore, on this count alone this Court is liable to be dismissed. That apart, the petitioner has also re-exported the crude gold which was ordered to be confiscated and subsequently released pursuant to the impugned order. Therefore, on this count also there is no merits in the present writ petition - That apart, the petitioner has violated the provisions of the Customs and Baggage Rules, 2016. The petitioner was duty bound to declare under provision of Baggage Rules, 2016 read with Customs Baggage Declaration Regulations, 2013. Sub-clause (b) to proviso Rule 3 read with annexure 1 of the Baggage Rules. 2016, gold or silver ornaments in any other form cannot be allowed to be cleared duty free as bonafide baggage if they exceeded Rs.15,000/-. Gold or silver in any other form are not bonafide baggage. There are no infirmity in the order of the first respondent Principal Commissioner Ex-Officio Additional Secretary to the Government of India, passed in his capacity as the Revisional Authority under Section 129DD of the Customs Act, 1962 - petition dismissed.
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2022 (6) TMI 1264
Appearance before the concerned officer - petitioner company says that, without any prejudice to the rights and contentions of the petitioner company, the persons employed with it, who have requisite technical knowledge, along with one director, will appear before the concerned officer - HELD THAT:- The date, time and venue will be indicated by the concerned officer to the petitioner, via e-mail. A copy of the e-mail will also be sent to Ms Anjali Jha Manish - Application disposed off.
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2022 (6) TMI 1263
Exemption form Customs duty for goods imported for use in the manufacture of finished goods in the nature of PCB assemblies - benefit of N/N. 25/2002-Cus as amended by N/N. 8/2004-Cus dated 08.01.2004 - case of the department is that the exemption notification under the Sl. No. 11,29 57 of the table of the notification is applicable to only IT Industries whereas, the appellant s factory is manufacturer of induction melting and heating furnace as well as induction welding equipment, and therefore the benefit of exemption was denied - The appellant also submits that since the demand in the present case is in pursuance of the earlier order which has already been set aside by this tribunal hence, the appeal be allowed. HELD THAT:- There is no dispute that the subject imported material are clearly specified in the table given in the notification, the notification does not prescribe a condition that the imported goods are eligible for exemption only for IT Industries therefore, so long the goods are specified in the notification against the given Sr.Nos. as mentioned above the exemption cannot be denied. The issue has been already decided by the Tribunal in INDUCTOTHERM INDIA PVT LTD VERSUS C.C. -AHMEDABAD [ 2021 (10) TMI 1341 - CESTAT AHMEDABAD] where it was held that the exemption was d enied merely on the basis that heading of the notification given by the publisher is of Exemption to the goods of IT/Electronic industry and also on the basis of budget speech. We find that the heading is not a part of the notification however, the goods imported by the appellant is squarely covered under the table given in the notification and also the finished goods wherein the same is also clearly given in the table accordingly, the appellant is entitled for exemption. It can be seen that this proceeding is consequent to the earlier proceeding carried out by Order-In-Original dated 08.04.2019 and OIA dated 09.12.2019. The above cited judgment of this tribunal was passed against the OIA dated 09.12.2019 therefore, this case being only for the subsequent period on the same issue, following the aforesaid previous order, the impugned order will not sustain. Appeal allowed - decided in favor of appellant.
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Service Tax
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2022 (6) TMI 1262
Valuation - inclusion of free supply of materials namely, cement and steel by the appellant to the contractor, in the value of service provided by the contractor engaged for construction work in the appellant factory - HELD THAT:- In COMMISSIONER OF SERVICE TAX ETC. VERSUS M/S. BHAYANA BUILDERS (P) LTD. ETC. [ 2018 (2) TMI 1325 - SUPREME COURT] , the Supreme Court observed that the value of taxable services cannot be dependent on the value of goods supplied free of cost by the service recipient and such a value has no bearing on the value of services provided by the service recipient. The Supreme Court had examined this precise issue as to whether the cost of material supplied free of cost can be included in the taxable value of service, and is thus applicable to the present case. Appeal allowed - decided in favor of appellant.
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2022 (6) TMI 1261
Computation of Service tax liability - Works Contract - whether the adjustment of excess paid tax in the first half of the Financial Year 2015-16, have been rightly denied? - HELD THAT:- It is found that the order of Court below calculating the service tax liability on 100% of the turn-over under works contract service is illegal and irresponsible in view of the mandate of law and more fully mentioned in Notification No.24/2012-ST read with section 65(105)(zzzza) which provides for taxation to service tax only the proportion of service involved in works contract. The appellant are directed to calculate the service tax payable under the Rules and file a calculation sheet before the assessing officer. If any amount is still payable by them they shall pay the same. It is further held that under such circumstances no interest is payable. Penalties imposed are set aside. Appeal allowed - decided in favor of appellant.
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Central Excise
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2022 (6) TMI 1260
Quashing of prosecution under Sections 9 and 9-AA of the Central Excise Act, 1944 - quashing on the ground that the CESTAT has granted stay on the recovery of the tax and penalty amount - HELD THAT:- It is an accepted and admitted case that the appeal preferred by the respondents is pending before the CESTAT and has not been adjudicated and decided. On examination of stay order which directs the appellant therein, namely, M/s Kavveri Telecom Products Limited, to make pre-deposit of Rs.15 lakhs. Therefore, there is no exoneration or finding on merits by the CESTAT on the subject matter of the criminal complaints. In the said facts, the High Court was incorrect and wrong in quashing the criminal prosecution only on the ground that the tribunal has granted stay, subject to condition of pre-deposit, of the recovery of the tax and the penalty amount. Petition allowed.
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2022 (6) TMI 1259
Clandestine Removal - Cigarettes - unaccounted stock - It is alleged that no raw-material was shown to have been issued for manufacturing of 9,80,000/- cigarettes (98 cartons) which was lying in stock - no entry for receipt or issue of raw-material after 28.04.2010 - HELD THAT:- It is found from the facts on record that the sole reason for confirming the above demands and imposing penalties on Appellants is alleged incriminating papers/ records seized from third parties viz. traders, railway agent and transporter and their statements. None of the alleged incriminating documents and papers were seized from M/s ETCL or person connected with the said firm. The central excise duty is on manufacture and removal of goods and it can be recovered from the manufacturer when there is evidence of manufacture and removal of goods. The charges of clandestine manufacture and removal has to be shown by adducing evidence of receipt of unaccounted raw/packing material in factory, use of raw material for unaccounted manufacture of finished goods, installed capacity, consumption of electricity, labour employed and payment made to them, clandestine removal of goods with reference to entry of vehicle/truck in the factory premises, loading of goods therein, security gate records, receipt of sale proceeds. We find from the records that not a single evidence to the above effect has been led either in the show cause notice or the impugned order. The show cause notice and the impugned order even fails to show manufacture of excess cigarettes. The statement of the director of M/s ETCL Shri Shyam Khemani is exculpatory. No evidence of production staff or labour/ loading person is on record which can show that cigarettes were manufactured and cleared clandestinely. No excess raw material or any evidence was found. The adjudicating authority has heavily relied upon the records and statements of traders, godown owners, railway agent and transporter staff, and the alleged incriminating papers found from them. However we find that the transport records viz. Challan and RRs shows the goods as 'pop / Allu Papdi or have some other description but none of these records shows the goods as Cigarettes. It is only on the basis of statements of the traders/ transport staff of M/s Lucky Bagga Transport and Railway Agent, the allegation has been made that the cigarettes were transported under mis-description of goods. However there is no corroborative evidence at the end of M/s ETCL, that the goods were cleared from their factory. None of these documents and statements which are all of third party records do not prove clandestine removal of goods from the factory of M/s ETCL. The case against M/s ECTL is purely on the basis of third party statements, seizures and records be it traders, transporters or railway agent. Not a single record or document was seized from M/s ETCL or its director. Merely on the basis of entries available in code words in the records of transporter and the railway agent, it cannot be concluded that the cigarettes were produced and cleared by M/s ETCL clandestinely. Further there is no investigation to establish any linkage of goods seized from traders or third party godown with the goods manufactured in registered factory of M/s ETCL. No evidence has been adduced to establish that seized goods were manufactured in the factory of the appellants and were clandestinely cleared and transported to the alleged places. There cannot be a demand of duty of central excise without establishing manufacture of excisable goods. In absence of any linkage of the factory of appellants with the alleged Railway Receipts or third party private records or with third party statements, there are no grounds to hold manufacture and clandestine removal of such huge quantities of cigarettes. The demand based upon Railway receipt and document of transporters is not sustainable since there is no evidence or nexus of M/s ETCL factory with such RRs and other evidences - There are no evidences of transportation of cigarettes from ETCL to Railway station or LBTC and in absence of same it cannot be held that there was any clandestine removal of the finished goods, especially when all the other evidences were seized from the third party and not from the premises of ETCL. There are no purchase of unaccounted raw material viz. tobacco, filter rod, cigarette papers, CFC Cartons or raw material and finished goods storage at factory. There are no evidence of transportation of goods from factory. No person from the transporter firm or railway has named any person from ETCL who might have booked the consignments. No person from the statements makers has named any person connected with ETCL who has dealt with them. The demands on the basis of calculation of transport records and railway receipt is derived on assumption basis since these are private records. Further in respect of finished goods allegedly cleared by M/s ETCL, no investigation nor any primary or secondary evidence such as transporters statement, truck drivers statements, loading or unloading evidences or statement of persons handling goods at Itarsi Station or taking the goods to Lucky Bagga Transport is on record. Neither there is evidence of sale or receipt of any consideration by M/s ETCL. The revenue has not brought on record even the primary evidence of any nexus of ETCL with alleged Railway Receipts or Lorry Receipts of Lucky Bagga Transport carrying description of goods as poly bundles, PP, or packaging materials. All the purported documentary evidences with cryptic entries have been sourced by revenue from unrelated third parties No evidence has been seized from factory and hence demand cannot be made from ETCL. The private record of third party i.e entries in notebooks or diaries of railway parcel agents and road transport agency without any basis cannot be alleged to be pertaining to alleged clandestine removal of Cigarette by M/s ECTL as held in case of ASWANI CO. VERSUS COMMISSIONER OF CENTRAL EXCISE, DELHI-I [ 2014 (12) TMI 1213 - CESTAT NEW DELHI ]. Coming to the reliance placed in show cause notices on statements and documents of third parties viz. trader, transport clerks, and railway agent which is sole basis for demand, it is found that the Appellant during adjudication had sought cross examination of persons and panchas/witnesses and traders/transport employees whose statements were relied upon in the show cause notices - since the persons who were called upon for cross examination have refused/retracted from their statement and there is no corroboration of their statements from M/s ETCL, hence the statements and their record cannot be made basis to demand duty from M/s ETCL - the impugned order passed by the adjudicating authority by relying upon partly the statements and not considering the cross examination is not appreciable and erroneous. The revenue has not found a single document/ record showing any illicit production and removal of goods from M/s ETCL or its director, nor any consideration against alleged clandestine removal has been shown to have been received by M/s ETCL. Further as regard note book maintained by Shri CSM Althaf, Railway Agent, it is not the case of the Revenue that parcel agents maintained these Note Books under the instructions of ETCL. Further, these Note Books were not in the handwriting of any of the persons of ETCL or its accountant or clerk or any employee. Thus the relied upon document has no probative value. Merely because the document has been produced during investigation, it does not establish its probative value. Also, the Adjudicating authority has not given any findings on the submission of the Appellant that other manufacturers were making fake/ counterfeit cigarettes bearing brand name(s) of M/s ETCL and even the department knew about the same. There is no evidence of manufacture of excess cigarette by M/s ETCL. The allegation of clandestine production and removal has to be established against any person by independent and tangible evidence in the form of receipt of raw material in factory and non accountal thereof, use of such raw material in clandestine manufacture of finished goods, consumption of electricity, labour employed and payment made to them, packing material used, discrepancy in stock of raw materials and finished products, security gate records, independent evidence of transportation of goods and its linkage from removal from factory, transport documents, receipt of goods by the buyer and receipt of sale proceeds by the consignor. No such evidence has been brought on record. The show cause notice and the impugned order has not found any evidence from factory showing contravention of law. No evidence of clandestine removal of goods from the factory or any instance is on record. Hence there is no reason to demand duty. Demand is set aside - appeal allowed - decided in favor of appellant.
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