Newsletter: Where Service Meets Reader Approval.
TMI Tax Updates - e-Newsletter
July 6, 2024
Case Laws in this Newsletter:
GST
Income Tax
Customs
Insolvency & Bankruptcy
Service Tax
Central Excise
Indian Laws
Highlights / Catch Notes
GST
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Cancellation order sans reasons violated precedents; notice & hearing mandatory pre-revocation to avoid business disruption if no dues.
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Petitioner denied natural justice; no notice u/s 73; failed to submit explanation despite adjournments; presumed delaying tactic; statutory remedy available.
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Order quashed, case remitted for fresh orders after depositing disputed tax. Treated as addendum to show cause notice. Partial relief granted.
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Breakwater construction ineligible for input tax credit under GST. Not 'plant & machinery' for outward supply. Ensures ship safety, not production.
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Appellate Authority dismissed appeal due to limitation; High Court can examine original order's legality. Petitioner's claim for GST cancellation revocation to be reconsidered on merit.
Income Tax
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IMG's services to BCCI for IPL taxed as business income, not FTS; bifurcation upheld; "effectively connected" clause left open.
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Trust's application can't be denied solely for not starting charitable activities. Authorities must verify objects' genuineness & activities' alignment.
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Cash transactions for sale & purchase proved. Denial of Sec 54 exemption on cash portion for reinvestment after property sale quashed. Undisclosed income doesn't negate exemption.
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Delayed filing of audit report condoned. Deduction u/s 11(1) allowed despite 134-day delay in Form 10B filing. Court: Don't deny exemption for delay if eligible. Liberal exercise of power required.
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CIT(A) rightly allowed appeal withdrawal despite objection, as revisionary order quashing necessitated consequential order's dismissal.
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E-filing lapses noted. Deduction denial unjust. Dept. must assess correctly, allow deductions per law & Constitution. Technicalities can't obstruct justice.
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Nexus between expenses & exempt income u/s 14A crucial. Rule 8D application requires due diligence. Bogus capital loss addition rightly deleted. Speculation loss treatment appropriate.
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Unsecured loans & capital intro during demonetization questioned. AO failed inquiries. Assessee claimed jewelry sales, past savings. Creditworthiness proved. Cash deposits not loans.
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Reassessment notice validly issued within 6-yr limit. AO recorded reasons before sanction & issued notice timely.
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Flawed valuation report benefits company's interest. Continuous losses lead to negative net worth. Share premium rightly taxed as income.
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TP adjustments: Equity broking markup tweaked, port fee allowed, no AE service markup. Program trades brokerage disallowed. Interest expense allowed due to interest-free funds.
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Compensation for rights transfer rightly taxed as income, not capital gains. Notional rent & interest income additions upheld. Deduction claim rejected due to lack of evidence.
Customs
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Monetary threshold for customs adjudication examined. Appellate authority rightly accepted lack of jurisdiction. Remand permissible. Limitation issue left open.
Corporate Law
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MCA portal migration from 4-14 Jul '24 will make eForm MGT-6 & BEN-2 unavailable. Due dates during this period get 15 days extension without late fees.
Indian Laws
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Petitions dismissed for delay, laches & not availing s.397 CrPC remedy. S.482 powers can't override specific provisions like s.397(2).
IBC
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Debt & default established through substantive evidence. Loan purpose irrelevant. Stamping issue inconsequential. AA's dismissal erroneous. Appeal allowed.
SEBI
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New timelines for CRAs: 1 day to communicate ratings, 3 days for appeals, 7 days for press releases. Website disclosures & 10-year records.
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Consolidated guidelines for registered Credit Rating Agencies (CRAs) - operations, obligations, inspections & code of conduct per SEBI norms.
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Brokers mandated to establish fraud prevention mechanisms, trading surveillance, internal controls & whistleblower policy as per SEBI regs.
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SEBI extends deadline for stock brokers/DPs to submit audited accounts/net worth certificate from Sep 30 to Oct 31 for ease of business.
Service Tax
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Insurance firms can avail CENVAT credit on invoices with service tax paid. Coordinate benches bound by precedents. Dissent & referral to 3rd member impermissible.
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IT-enabled services resale value can't exclude reimbursable expenses. Gross customer charge basis for principal's price u/s 67. Revenue neutrality no defense for limitation.
Central Excise
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Fatty Acid Pitch (FAP) exemption wrongly denied citing fuel use without evidence. Lack of inquiry despite details provided. Invoking extended period sans proof is untenable.
Articles
Notifications
Circulars / Instructions / Orders
News
Case Laws:
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GST
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2024 (7) TMI 293
Violation of principles of natural justice - petitioner could not file any reply to the notice on the date fixed - challenge to order passed u/s 74 of the UPGST Act, 2017 - HELD THAT:- Merit issue of time extension apart, at present it cannot be denied that the only date fixed in the proceedings was 11.03.2024 and that no order came to be passed on that date. It further cannot be denied that no other notice was issued to the petitioner for the date 10.05.2024. It is also not the case of the Revenue that the proceedings were concluded on 11.03.2024 and the adjudication order was reserved. No useful purpose will be served in keeping this petition pending or calling for a counter affidavit at this stage - Petitioner may treat the impugned order dated 10.05.2024 to be the final notice issued under Section 74 of the U.P. GST Act, 2017 - the impugned order is set aside - petition disposed off.
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2024 (7) TMI 292
Cancellation of registration of petitioner - appeal preferred by the petitioner has been dismissed by the respondent no.3 as barred by limitation as provided under section 107(4) of the UPGST Act - applicability of Doctrine of Merger - HELD THAT:- Admittedly from the perusal of the order dated 21.08.2023. it transpires that no reason has been assigned for cancellation of the registration of the petitioner. The order of cancellation is in the teeth of various judgments of this Court. The reasons are heart and soul of any judicial and administrative order. In absence of the same the order cannot be justified in the eye of law. Further since the appeal of the petitioner was dismissed on the ground of delay, this Court finds that the doctrine of merger will have no application considering the facts and circumstances of the present case. In M/S CHANDRA SAIN, SHARDA NAGAR, LUCKNOW THRU. ITS PROPRIETOR MR. CHANDRA SAIN VERSUS U.O.I. THRU. SECY. MINISTRY OF FINANCE, NEW DELHI AND 5 OTHERS [ 2022 (9) TMI 1047 - ALLAHABAD HIGH COURT] this Court has held ' In the present case from the perusal of the order dated 13.02.2020, clearly there is no reason ascribed to take such a harsh action of cancellation of registration. In view of the order being without any application of mind, the same does not satisfy the test of Article 14 of the Constitution of India, as such, the impugned order dated 13.02.2020 (Annexure - 2) is set aside.' The purpose of inserting the provision under Rule 23 of Rules, 2017 as to service of notice upon the assessee is to provide an opportunity to him to move a revocation application so as to save the registration from being cancelled permanently and his business being hampered. The coordinate Bench of this Court in M/S ANSARI CONSTRUCTION VERSUS ADDITIONAL COMMISSIONER CENTRAL GOODS AND SERVICES TAX (APPEALS) AND 2 OTHERS [ 2020 (12) TMI 266 - ALLAHABAD HIGH COURT] and two others while dealing with Section 29 of the GST, 2017 and Rule 23 of Rules, 2017, has held that once the Department has accepted the return and there remains no dues, the Department should not obstruct the business of an assessee. The order dated 21.08.2023 passed by the Assistant Commissioner, respondent no.3 is hereby quashed - Petition allowed.
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2024 (7) TMI 291
Violation of principles of natural justice - detailed explanation along with the documents submitted by the petitioner through his reply and the impugned order has been passed on 22.11.2023 without following the procedure prescribed u/s 169(1)(a) and 169(1)(b) of the GST Act - petitioner was not served any notice under Section 73 - HELD THAT:- The petitioner did not submit any reply but asked for an adjournment by his application dated 16.10.2023, such adjournment was granted on 5.11.2023 and 18.11.2023 was fixed as the next date for submitting explanation. The petitioner did not submit any explanation either through online mode or through person in the office. It was presumed that the petitioner had nothing to say with regard to provisional assessment, moreover, the petitioner was only buying time so that final orders could not be passed within the limitation period of three years as provided under the Act and the Rules, therefore, the impugned order has been passed. It has also been argued that the petitioner has statutory remedy under Section 107 of the GST Act. Petition disposed off.
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2024 (7) TMI 290
Failure to notice the three personal hearing notices - seeking one more opportunity to explain the case - time barred appellate remedy - HELD THAT:- This Court is of the view that the petitioner may be given partial relief by quashing the impugned order and remitting the case back to the respondent to pass fresh orders subject to the petitioner depositing Rs. 1,00,000/- of disputed tax to the credit of the respondent from its Electronic Cash Register. The impugned order, which stands quashed, shall be treated as addendum to the show cause notice that preceded the impugned order. The writ petition is allowed.
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2024 (7) TMI 289
Apportionment of credit and blocked credits - ITC on the construction / reconstruction of the breakwater - breakwater was a plant and machinery or not - HELD THAT:- The petitioner provides the services of regassification of LNG to Ratnagiri Gas and Power Company for which LNG is supplied to them by LNG carrier which are berthed at the captive jetty. LNG is then transferred to petitioner s unit for regassification. The breakwater has been constructed to ensure safety of the ship that are berthed at the jetty and also to allow the ship to reach the jetty and remain safe at any point of time irrespective of the severity in the weather conditions. The dictionary meaning used by respondents for the term plant indicates that it would mean and include a place where the industrial activity takes place and/or factory where certain material is produced or machinery are used to carry out certain process or production - In the present case, the breakwater wall or accropode that are essential, certainly do not qualify as plant and machinery. The breakwater wall can hardly be called plant or machinery . Accropode loses its identity when breakwater wall is constructed using accropode. Explanation to Section 17 also provides that plant and machinery should be used for making outward supply of goods or services. In the instant case, breakwater wall is used for protecting the vessel from tides while unloading the LNG received and not for making outward supply of goods or services. Therefore, even on this count, petitioner does not satisfy the condition provided in the Explanation to Section 17 to be eligible for ITC. There are no infirmity in the impugned order - there is no merit in the petition - petition dismissed.
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2024 (7) TMI 288
Cancellation of the GST registration of the Petitioner - Appeal dismissed as barred by limitation - doctrine of merger - HELD THAT:- A perusal of the material on record will indicate that it is no doubt true that the appeal preferred by the petitioner before the Appellate Authority was dismissed as barred by limitation. In this context, a perusal of the order of the Appellate Authority dated 12.10.2023 will indicate that the merits of the claim of the petitioner for revocation of the GST cancellation has not been examined by the Appellate Authority, which has proceeded to summarily dismiss the appeal as barred by limitation. It is needless to state that if an appeal is dismissed as barred by limitation, it is no appeal in the eye of law and dismissal of the appeal as barred by limitation would not result in merger of the order of the original authority with the order of the Appellate Authority. Merely because appeal preferred by the petitioner was dismissed by the Appellate Authority vide impugned order at Annexure D dated 31.08.2023, it cannot be said that this Court is denuded of its power or jurisdiction to examine the claim of the petitioner under Article 226 of the Constitution of India or to examine the legality, validity and correctness of the order of the original authority under Article 226 of the Constitution of India. Whether any indulgence is to be shown to the petitioner in the facts and circumstances of the instant case so as to enable the petitioner to seek revocation of the GST cancellation in its favour? - HELD THAT:- It is relevant to state that the petitioner has specifically contended that its inability and omission to file its returns within the prescribed / stipulated period was due to bona fide reasons, unavoidable circumstances and sufficient cause. Under these circumstances, in the light of the specific assertion on the part of the petitioner that petitioner would pay the entire outstanding tax dues together with interest subject to availment of Input Tax Credit and in the peculiar / special facts and circumstances of the instant case, it is deemed just and appropriate to exercise jurisdiction under Article 226 of the Constitution of India and the impugned Order-in-original at Annexure C dated 10.01.2023 is set aside and the matter remitted back to the respondent for consideration of the claim of the petitioner for revocation of GST cancellation after providing sufficient and reasonable opportunity to the petitioner. Matter is remitted back to the respondent for consideration of the claim of the petitioner for revocation of GST cancellation of the petitioner Society - petition allowed by way of remand.
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Income Tax
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2024 (7) TMI 287
Income deemed to accrue or arise in India - FTS - Geographical shift of IPL matches from India to South Africa and UAE - receipts as be attributable to a Permanent Establishment [PE] in India - whether business income was divisible under the DTAA even though it arose out of a single contract having regard to Articles 7 and 13 of the Convention? - services provided by IMG to BCCI under the Service Agreement qualify as fee for technical services in terms of Article 13 (4) (c) of the DTAA between India and UK or not? - Tribunal proceeded to dismiss the appeal of IMG and allow the appeal of the Department holding that receipts would be governed by Article 13 of the DTAA and liable to be taxed as FTS on a substantive basis - whether the furnishing of those services would fall within the scope of the make available requirement as appearing in Article 13 (4) of the DTAA? According to the respondents, the services provided by IMG UK involved provision of specialized knowledge and skill with respect to researching into structuring, organizing and commercially exploiting sporting leagues and as submitted that since the work undertaken by the appellant largely involved researching and advising, the same would clearly fall within the meaning of technical and consultancy services - HELD THAT:- Both the MoU as well as the Services Agreement unequivocally acknowledge the expertise of IMG to curate and conceptualize sporting leagues. Taking into account the requisite expertise required for conducting a sporting league of this magnitude, BCCI charged IMG with conducting research into and preparing the foundational charter which would inter alia cover the constitution of the IPL, the structure of the tournament, the rules and regulations for the league, franchisee agreements as also the estimated implementation budget. Besides these core responsibilities, IMG was also obligated to prepare a comprehensive outline for the exploitation of commercial rights and assets. This included franchise agreements, media rights, official suppliership, sponsorship, licensing and merchandising rights. Clause 4.1 significantly records that while IMG had carried out research and broadly advised the BCCI in connection with the formation and governance of the IPL, it would continue to advise and assist BCCI on areas enumerated therein. It is thus manifest that it was the technical expertise, specialized knowledge and extensive know-how available with IMG which formed the basis for the services which were extended to BCCI for the purposes of exploitation of the rights as defined and the provision of services throughout the territory and which as per Clause 1.1(x) of the MoU was not confined to India but covered the globe in its entirety. IMG appears to have established its India office and which came to constitute a Service PE in terms of Article 5 (2) (k) of the DTAA. This was also in light of the obligation of the IMG to depute adequate number of personnel for the purposes of effective administration of the league. IMG thus was to play a critical role in ensuring the successful conceptualization, execution and administration of the IPL. The global reach of IMG s obligations included managing international broadcasting rights, securing worldwide sponsorships and negotiating with corporations for official suppliership. What we seek to emphasise is that IMG s obligations required coordination and strategic planning on an international scale and thus travelling beyond the borders of India. As argued on behalf of IMG that once the Service PE had admittedly come into existence and the income attributable to that establishment subjected to tax, it would be impermissible for the respondents to assert that income other than that attributable to the Service PE would be liable to tax under Article 13 of the DTAA - It is essential to underscore that Article 5 of the DTAA neither serves as a head of taxation nor does it concern itself with a categorization or classification of income. Rather, Article 5 is specifically concerned with defining and delineating the concept of a Permanent Establishment and enumerating circumstances in which a PE could be said to have come into existence. The Article serves to enumerate the criteria and circumstances in which a non-resident entity s presence and activities in a Contracting State would be sufficient to constitute a PE. Thus, in terms of Article 5 (2) (k), the moment a resident of a Contracting State were to furnish services including managerial services within the other Contracting State through employees or other persons who had stayed in that State for a period or periods aggregating more than 90 days within a twelve month period, a Service PE would come into existence. DTAA characterizes profits and income under various independent Articles which form part of the Convention. This is evident from a perusal of Article 6 which defines the principles for taxation of income derived from immovable property, Article 7 which speaks of Business Profits, Articles 8 and 9 which deal with profits derived from the operation of aircrafts and ships, Article 11 which covers the subject of dividends and Article 13 which regulates the taxation regime with respect to royalties and FTS. We are thus of the firm opinion that merely because a part of the revenue earned by IMG was attributable to functions performed by the Service PE which came into existence by virtue of Article 5 (2) (k), the respondents were clearly not estopped in law from examining whether revenue other than that attributable to the Service PE could be subjected to tax under the separate and individual Articles of the DTAA. All that Article 5 (2) (k) regulated was whether a Service PE could be said to have been in existence in the relevant assessment year. The characterization of income, the extent to which it was attributable to the PE and the Article under which it was liable to be taxed were issues which were clearly open for examination. In our considered view, merely because IMG chose to treat the same as Business Profits, the respondents were neither estopped nor restrained from examining the issue independently and uninfluenced by the action of IMG offering a part of the revenue to tax albeit under the head of Business Income. Bifurcation of Income - whether sustainable? - Article 7 (9) of the DTAA must be interpreted and understood as incorporating a rule of interpretation which bids us to apply that Article pertaining to Business Profits only till such time as the revenue earned by the non-resident entity does not pertain to categories of income explicitly covered by the other Articles of the Convention. What needs to be emphasized is that Article 7, and when it speaks of Business Profits, is not intended to function as an overarching, all-encompassing provision that subsumes all forms of income or revenue irrespective of their intrinsic character. It is in fact intended to operate within a clearly defined scope respecting the distinct treatment accorded to various categories of income under the different Articles of the DTAA. The explanation provided by the commentaries on the OECD/UN Model Conventions as well as the authoritative texts noticed by us hereinabove reinforces this interpretative approach. The aspect of splitting of elements of a composite contract and the characterization of distinct heads of income have been succinctly explained by Vogel when it observes that the word profits would mean the aggregate of two or more items of income and the subsidiarity rule affecting those singular items. The bifurcation of income which is envisaged under Article 7 (9) itself and is in consonance with the scheme of the DTAA ensures that each type of income is subjected to the specific tax treatment it merits based on its intrinsic character and the particular circumstances under which it is earned. Bifurcation, where warranted would prevent an overgeneralization of income under a single category and which could potentially lead to inappropriate tax treatment. As apparent that by virtue of Article 7 (9) of the DTAA, it was incumbent upon the respondents to ascertain the true character of the income earned by IMG and the mere fact that it had chosen to offer up the revenue attributable to the Service PE as Business Profit was clearly not conclusive of the question which arose. The mere categorization of revenue by the taxpayer does not definitively resolve the issue of tax treatment. The authorities were clearly empowered and under an obligation to accurately determine the real nature and classification of income of IMG. Para 9 clearly envisages contingencies where profits earned may comprise of more than one item of income and which would consequently require the taxing authority to deduce and identify the most appropriate Article under which the item of income would be liable to be categorized. We thus find ourselves unable to sustain the submissions of the appellant addressed on this score. FTS - Whether the services rendered by IMG could be validly classified as FTS? - Mere rendition of technical or consultancy service would not lead to revenue, income or profits being placed under the broad head of FTS unless the taxing authority additionally finds that technical knowledge, skill, know-how or processes were made available. What we seek to emphasize is the impetrative of the make available condition being met and the imperative of the knowledge, skill, know how being made available to the payer. There appears to be no contestation on the nature of activities which were rendered by IMG and the respondents have not questioned those services falling within the scope of the expression technical and consultancy services . The principal issue of disputation was whether the make available test was satisfied. We come to the firm conclusion that there was no expertise, skill or know-how which could be said to have been made available to BCCI. The various functions which IMG was called upon to discharge was to be aided by the appellant drawing upon its expertise and special knowledge in the creation and conduct of leagues of the stature of the IPL. There was no discernible intent on the part of BCCI to absorb or internalise IMG s unique skills and knowledge in the curation of sporting leagues. No part of that knowledge or skill stood transferred to BCCI. Merely because research material would have been shared with BCCI or the service rendered by it been put to use and utilised cannot possibly lead one to conclude that the payer stood enabled or equipped with the special knowledge underlying the technical and consultancy service which was extended. The fact that IMG was retained to perform all of the aforenoted functions for a period of ten years is yet another indicator of BCCI having not been enabled or made available the special knowledge and skill possessed by IMG. The continued provisioning and rendering of service over a substantial period of time were factors which were duly recognised by the Court in Bio Rad as well when it observed that the same would clearly detract from an assumption that technical or consultancy services had been made available. We also bear in consideration the undisputable fact that the contractual arrangement contemplated a continued engagement and ongoing reliance on IMG s expertise without any transfer of know-how or skills to BCCI. Article 13(6) and Effective connections - While we have noticed the divergent views expressed in respect of the meaning to be assigned to the phrase effectively connected , in our considered opinion the scope of Article 13 (6) is an aspect which need not be answered or conclusively pronounced upon in these appeals bearing in mind the conclusions that we have arrived at on the issue of FTS. The phrase effectively connected , as would be evident from the preceding discussion, has been the subject of divergent and varying interpretations with different authorities and commentaries offering distinct perspectives on what would constitute a sufficient connection between income and PE or fixed base for tax purposes. However, in the context of these appeals, we find it unnecessary to delve into or definitively resolve the intricacies of Article 13 (6) given our determination on FTS and which sufficiently addresses the taxation issue. We consequently leave Article 13 (6) to be considered in a more appropriate case and where its interpretation and application may be central to the adjudicatory process. Section 9 (1) (vii) exception - Undisputedly, IPL in 2009 and 2014 though originally slated to be held in India, was, for exceptional reasons, shifted out and ultimately held in South Africa and UAE respectively. The services which were rendered by IMG in connection with those two events were clearly utilized outside India and were availed of for the purposes of earning income from a source outside India. The geographical shift meant that the services rendered by IMG were utilized outside India and were integral to earning income from sources outside India. The Tribunal clearly glossed over the significance of this relocation and which had fundamentally altered the context in which IMG s services were availed. The Tribunal thus clearly erred in failing to appreciate the significance of the event itself having shifted out of India and the services thus coming to be utilized in the nations noticed above and the same being indelibly connected to the earning of income from a source outside India. Explanation which has come to be incorporated in Section 9 neither erases nor overrides the exception which continues to exist in clause (vii). It is also pertinent to note that the exception forming part of clause (vii) existed on the statute book at the time when Finance Act, 2010 came to be introduced. Notwithstanding the above, Parliament in its wisdom chose not to delete or restructure clause (vii). According to us, while the Explanation does declare that FTS earned by a non-resident would be deemed to accrue or arise in India irrespective of whether it have a place of business or business connection therein or having rendered services in India, the same would not result in FTS paid by a resident for services utilized in connection with a business outside India or for the purposes of earning income from a source outside India becoming liable to tax. Conclusions - We find ourselves unable to uphold the findings of the Tribunal insofar as FTS is concerned. We are of the firm opinion that the Tribunal clearly erred in holding that the advice and consultancy services rendered by IMG enabled BCCI to absorb and apply the information and advice . It clearly failed to bear in mind the distinction that must be acknowledged to exist between the mere utilisation of technical or consultancy service in aid of business and the transfer, transmission and enablement which must occur in order for the twin conditions of Article 13 being satisfied. We, for reasons assigned hereinabove, also find ourselves unable to uphold the conclusions of the Tribunal on Section 9 (1) (vii) (b) of the Act. Insofar as Article 13 (6) and the issue of effectively connected is concerned we have, in light of our findings on FTS, desisted from expressing any final opinion. However and in light of the reservations expressed in the body of the judgment, this decision is not liable to be construed as an affirmation of the view in law as expressed by the Tribunal. Business income as divisible under the DTAA even though it arose out of a single contract - Tribunal has founded its decision on what appears to be an admitted dichotomy between the functions performed and services rendered by the IMG UK as distinguished from those discharged by its Service PE. However, the Tribunal has while dealing with the functions performed by IMG UK linked it to the issue of effectively connected which was relevant for the purposes of Article 13 The issue became further obfuscated with the appellant alternating between Articles 7 and 13 of the DTAA. In our considered opinion, the respondents while evaluating the attribution of income to the Service PE question were necessarily constrained to tread down this path and bear in consideration the nature of services rendered by IMG UK as distinguished from those discharged by the Service PE. In fact even the appellant does not appear to have seriously questioned the fact that a part of the advisory work was undertaken by its UK office without the involvement of the Service PE. In light of the admitted position of a Service PE existing in the relevant AYs , the income attributable to that entity was correctly offered to tax under Article 7 of the DTAA. This since the Revenue was concerned with revenue earned from the rendering of services in India and which services, concededly, fell outside the ambit of Article Revenue attributable to the UK office is concerned, we have already found that the same does not qualify for taxation under Article 13 since the make available test does not stand fulfilled. We consequently and on an overall analysis of all of the above, find no justification to interfere with the exercise undertaken by the Tribunal in this regard.
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2024 (7) TMI 286
Cancellation of registration u/s 12AA - application denied on the ground that the respondent trust is yet to start charitable activities as defined in Section 2(ii) - ITAT has set aside the order of the CIT(E) and held Trust cannot claim exemption unless it is registered us. 12AA of the Act and thus at that initial stage the test of genuineness of the activities cannot be a ground on which the registration can be refused - HELD THAT:- In matters where the trust recently came into existence and application for registration under Section 12AA (1) of the Act, 1961 is filed by the trust before the Principal Commissioner or Commissioner of Income Tax, then at that stage the Principal Commissioner or Commissioner of Income Tax has to satisfy himself that the objects and activities of such trust or institution are genuine and that its activities are in furtherance of the objects of the trust. Therefore, at the very initial stage i.e. immediately after the trust or institution came into existence and applies for registration u/s 12A, the Commissioner is required to satisfy himself that the objects of the Trust are genuine. If the trust or institution has started its activities then he shall also satisfy himself that the activities of such trust or institution are in furtherance of the objects of the trust. The application for registration u/s 12AA cannot be refused by the Principal Commissioner or Commissioner of Income Tax solely on the ground that such trust or institution has not yet started its activities. For all the reasons aforestated, we do not find any merit in this appeal. Decided against revenue.
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2024 (7) TMI 285
Validity of the Settlement Commission's order u/s 245D(4) - Rejection of exemption u/s 54 on the cash portion of the investment made by the petitioner to purchase the property after sale of the property - claim denied as not been made in return of income, secondly claim of exemption is not allowed on the concealed transaction and thirdly that the applicant has not deposited the amount of capital gain in the capital gain deposit scheme under Section 54(2) of the Act - as submitted that the petitioner has claimed exemption u/s 54 in the return of income, however so far as undisclosed income is concerned, obviously the petitioner would not have made such claim in the return of income - HELD THAT:- On perusal of the above provisions of Section 54 of the Act, which does not stipulate that the petitioner is required to disclose the amount of sale consideration received in cash while claiming exemption under Section 54 of the Act, in the return of income filed by the petitioner. The very basis of such reason denying deduction under Section 54 of the Act is contrary to the application filed by the petitioner for settlement of the tax dues vis-a-vis the undisclosed income. Settlement Commission/ Board is required to pass order in accordance with the provisions of the Act. Therefore, the grounds for rejection given by the board for denying the deduction under Section 54 of the Act apparently are not in accordance with the provisions of Section 54 of the Act. Therefore, exercising the scope of judicial review against the order of the Board as held in case of Jyotendrasinhji [ 1993 (4) TMI 1 - SUPREME COURT] wherein it is held that writ jurisdiction of the High Court is not barred and the Hon ble Supreme Court has further observed that the judicial review flowing from the exercise of such powers should be restricted to considering whether the order of Settlement Commission is contrary to the provisions of Income Tax Act. Not in dispute that the transactions reflected in excel sheet are pertaining to the cash portion received by the petitioner on sale of Sahajanand Bungalow and payment of cash for purchase of Sahajanand Villa. Therefore, the contention raised on behalf of respondent that there is no correlation between the receipt and payment of cash for sale and purchase of the property is without any basis. The petitioner is accordingly entitled to the benefit of deduction under Section 54 of the Act with regard to the cash transaction of sale and purchase of the property even if the petitioner did not disclose such cash portion of transaction in the return of income filed or that the petitioner did not deposit the said amount in the bank account when it is apparent from the seized materials that the cash transaction has been carried out of sale and purchase of the properties by receipt and payment of cash is carried out on the same dates as stated herein above. Therefore the grounds on which the deduction under Section 54 of the Act is denied by the board are not tenable, as none of the three grounds on which the deduction under Section 54 of the Act is denied can be said to be contrary to the provisions of the Act and that such contravention has prejudiced the appellant and the petitioner is entitled to get the deduction under Section 54 of the Act also qua the amount paid in cash to purchase the property as amount received in cash by the petitioner is considered as part of undisclosed income of the petitioner, then once the same is considered as undisclosed income, the petitioner is also entitled to deduction under Section 54 of the Act when it is also not in the dispute that the such amount has been invested for purchase of the property by payment of cash. Thus order of the Settlement Commission to the extent of denial of deduction u/s 54 of the Act in respect of cash portion is quashed and set aside - Decided in favour of assessee.
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2024 (7) TMI 284
Condonation of delay in filing the audit report u/s 119(2)(b) - denial of deduction u/s 11 (1) as Form 10B was filed on 02.09.2023 with a delay of 960 days - as submitted that the petitioner was denied the benefit of exemption only on account of belated filing of the audit report, but Supreme Court held that the benefit of exemption should not be denied only on the ground of belated filing, if the assessee concerned is otherwise eligible for such exemption - HELD THAT:- The petitioner has placed on record proof of filing of the return of income for assessment year 2020-2021 on 31.05.2021. Such return refers to the deduction under Section 11 (1) of the Income Tax Act. The acknowledgment of receipt of Form 10B is also on record. This document indicates that it was filed on 31.01.2021. Therefore, the period of delay, as regards filing of the audit report, should be treated as about 134 days and not 960 days. The filing of the return of income as well as the audit report was in May 2021 when the second wave of the Covid-19 pandemic paralysed the entire country. The petitioner has stated that the Managing Trustee as well as the Auditor are senior citizens. As per judgments of this Court and other High Courts, the power under Section 119 (2) (b) is required to be exercised liberally. The main consideration is whether the assessee would suffer genuine hardship. In this case, the assessee is a trust constituted for the welfare of students. In the overall facts and circumstances, the assessee would certainly be put to genuine hardship, unless the delay in filing the audit report is condoned. Thus the impugned order is set aside and the delay in filing the audit report is condoned. As a corollary, the third respondent is directed to receive and act on the audit report while finalizing the petitioner's assessment.
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2024 (7) TMI 283
Taxation of income as surrendered during the course of search proceedings - assessee surrendered the amount against bogus sundry creditors which was added to the total income of the assessee u/s 68 r.w.s. 115BBE - CIT(A) holding that undisclosed income of the assessee is income of the assessee u/s 41(1) of the Act and accordingly allowed set off of surrendered/undisclosed income with the business losses/unabsorbed depreciation claimed by the assessee - Department submitted that CIT(A) erred in changing the rate of interest from section 115BBE of the Act to the normal rate of tax as the income was surrendered during the course of search proceedings - HELD THAT:- As assessee submitted that AO has made addition based on the statement given during the search proceedings u/s 132(4) of IT Act. Shri Sachin Arora in response to question no 21 of the said statement has stated that he offers an additional income under HPS Concerete Pvt. Ltd i.e assessee to meet out possible leakage of revenues and to cover up all the long pending liabilities and expenditure. AO could not bring any evidence on record from which it may be concluded that this income may be categorized as deemed income , as per the provisions of sections 68 to 69D of the IT Act since the essential conditions of these sections of these sections are not fulfilled in case of this disclosure of income which has been made on account of cession of liabilities of long standing Sundry Creditors. In view of the above material facts apparent on record the arguments on behalf of the department of revenue being devoid of merits are untenable. Hence the appeal of the Revenue deserves dismissal.
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2024 (7) TMI 282
Withdrawal of appeal against the revision order u/s. 263 - CIT(A) allowing the assessee to withdraw the appeal against the order u/s. 263 on the ground that the Tribunal has quashed the section 263 order and that the CIT(A) has erred in not deciding the appeal on the merits of the case - Revenue contended that the ld. CIT(A) does not have the power to allow withdrawal of appeal on the request of the assessee without deciding the issue on the merits. HELD THAT:- Commissioner of Appeals has in his order discussed the power of ld. CIT(A) as per section 251 of the Act whereby he can confirm, reduce, enhance or annul the assessment while deciding the appeal u/s. 246A of the Act filed by the assessee which are within the purview of section 251(1)(a) of the Act. The ld. CIT(A) had also relied on the decision of Premkumar Arjundas Luthra [ 2016 (5) TMI 290 - BOMBAY HIGH COURT] wherein it was held that the power of allowing withdrawal of appeal is not within the provision of section 251(1)(a) of the Act and has further held that the ld. CIT(A) has to decide the issue on the merits of the appeal. CIT(A) has further stated that inspite of the fact that the assessee has filed an application seeking withdrawal of appeal, the appeal cannot be dismissed in limine without getting into the merits of the case. CIT(A) has further proceeded to conclude by saying that since the revisionary order u/s. 263 of the Act has been quashed, the consequential order which is the very edifice of the impugned consequential order u/s. 143(3) r.w.s. 263 of the Act would not survive in the eyes of law, is according to us has rightly been held so by the ld. CIT(A). Thus, no justification in the Revenue s objection that it is evident that the appeal has not been dismissed on the basis of the withdrawal application filed by the assessee, in holding so, we find no merits in the grounds of appeal raised by the Revenue.
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2024 (7) TMI 281
Rectification application u/s. 154 - Denial of deduction u/s 80P - assessee has not filed any appeal against the intimation u/s. 143(1) issued by CPC - Procedural lapses in filing the return of income - HELD THAT:- The e-filing of return of income is an evolving concept and is a complex process wherein large number of details are captured by department which also is increasing with the time, and there are regular changes made by the Department in the procedural aspects of filing the return of income including changes made in the ITR s. There is every possibility that some error could be committed by the tax payers keeping in view complexity in filing return of income. There is an error committed by the assessee which is admitted by the assessee. It is also true that the assessee has not filed revised return of income, but at the same time the department authorities are obligtated to assess the correct Income and to collect correct taxes under the mandate of the 1961 Act. Reference is drawn to Article 265 of the Constitution of India. Reference is also drawn to CBDT circular No. 14 of 1955 , dated 11.04.1955. The mandate is to assessee correct income and to allow correct deductions , so that correct taxes can be collected. The departmental officers are duty bound to follow the above mandate. If there is a procedural lapse, the department should not take advantage of the same and collect more taxes than what is legitimately due . The assessee return of income was processed by CPC u/s. 143(1) and the claim of deduction was disallowed. It is true that the assessee has not filed any appeal against the intimation u/s. 143(1) issued by CPC but the assessee has filed rectification application u/s. 154. The doors of justice cannot be shut merely on technicalities. It is equally true that the assessee has declared taxable income to be Nil in the return of income filed with the Department after claiming deduction of Rs. 7,88,092/-. The claims and contentions of the assessee both on legal as well factual aspects requires verification by the authorities below. This in the interest of justice, remanding the matter back to the file of ld. CIT(A) to reconsider the contentions, claims as well evidences filed by the assessee, and to pass appellate order on merit, both factual and legal, in accordance with law. Appeal of the assessee is allowed for statistical purposes.
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2024 (7) TMI 280
Disallowance u/s 14A r.w.r. 8D - necessity of establishing a nexus between the expenditure incurred and the earning of exempt income - as contended by assessee no direct expenses were incurred to earn the exempt income and that investments were made from interest-free funds - HELD THAT:- As decided in the case of Maxopp Investment Ltd. [ 2018 (3) TMI 805 - SUPREME COURT ] where it was held that the primary condition for applicability of Section 14A is that the expenditure should have been actually incurred in relation to exempt income. The Court also noted that the AO must record reasons for not being satisfied with the correctness of the claim of the assessee regarding the expenditure incurred in relation to exempt income before proceeding to make a disallowance under Rule 8D. As observed that in the present case, the AO had mechanically applied Rule 8D without recording the requisite satisfaction, thereby violating the procedural requirement stipulated under Section 14A(2) of the Act. We uphold the Ld.CIT(A) s decision to restrict the disallowance under Section 14A to the exempt income earned by the assessee. Bogus LTCL - loss on sale of shares treated as unexplained transaction - AO's conclusion was primarily based on data from the AST and information from higher authorities, particularly the Investigation Wing, Kolkata - CIT(A) deleted addition - HELD THAT:- We uphold the decision of the Ld.CIT(A) to delete the disallowance made by the AO. We concur with the Ld.CIT(A)'s observation that the AO failed to provide substantial evidence to disprove the genuineness of the transactions. We note the following key-points that AO's disallowance was based on information from the Investigation Wing without conducting independent verification or inquiries. The assessee provided comprehensive documentary evidence to substantiate the genuineness of the transactions. The investigation reports did not specifically implicate the assessee or their broker. The AO did not give the assessee an opportunity for cross-verification by failing to share the underlying information. - Decided against revenue. Addition of Speculation loss claimed under the head income from other sources - Assessee claimed proportionate depreciation relating to speculation business. AO concluded that the assessee claimed this as speculation loss under the head income from other sources - HELD THAT:- Based on the findings and conclusion drawn by the Ld.CIT(A), it is evident that the amount does not represent a speculation loss, but rather depreciation related to the speculation business. This depreciation has been separately accounted for by making a corresponding addition to the profits from the normal business, thereby having a nullifying effect on the returned income. As such, the observations made by the Assessing Officer are lack of factual basis. Consequently, this ground raised by the Revenue is dismissed.
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2024 (7) TMI 279
Rejection of registration of trust u/s 12AB - objects beneficial to a section of the public is an object of general public utility - scope of objects of the trust u/s 2(15) - trust created for the benefit of public at large or incorporated to take care of the interest of the members HELD THAT:- We observe that in the case of Jamiatul Banaat Tankaria [ 2024 (3) TMI 376 - ITAT AHMEDABAD] the ITAT held that where objects of assessee-trust were primarily charitable rather than favouring any specific religious community, CIT(E) was not justified in denying registration u/s 12A, by invoking Section 13(1)(b) as said provisions would be attracted only at time of assessment and not at time of grant of registration. In the case of Malik Hasmullah Islamic Educational and Welfare Society [ 2012 (8) TMI 680 - ITAT, LUCKNOW] the ITAT held that since provisions of Sections 11, 12 and 13 are intended for exercise of jurisdiction by an AO in an assessment proceedings, Commissioner is not competent to invoke such provisions for purpose of declining registration u/s 12AA. In the case of St. Joseph Academy [ 2015 (2) TMI 495 - ITAT HYDERABAD] the ITAT held that provisions of Section 13 can be invoked by Assessing Officer while framing assessment and not by Commissioner while considering application for registration u/s 12AA. We are of the considered view that the provisions of Section 13 can be invoked only at the time of assessment while considering the applicability of section 11/12 with respect to assessee s set of facts and not at the time of grant of registration under Section 12A of the Act. Our view is further supported by the decision of Bayath Kutchhi Dasha Oswal Jain Mahajan Trust [ 2016 (9) TMI 8 - GUJARAT HIGH COURT] wherein on the issue of denial of grant of registration u/s 12A of the Act by invoking Section 13(1)(b) of the Act, it was categorically held that the provisions of Section 13 would be attracted only at the time of assessment and not at the time of grant of registration. Thus the matter is restored to the file of CIT (E), for de novo consideration, after giving due opportunity of being heard and with the direction not to disentitle the assessee for grant of registration only on the grounds as mentioned in its order passed for rejecting the application filed by the assessee trust for grant of registration u/s 12A of the Act. Appeal of the assessee is allowed for statistical purposes.
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2024 (7) TMI 278
Addition u/s 69 - unexplained cash deposit in the bank account - addition of share capital receipts - HELD THAT:- With respect to the unsecured loan received by the assessee company from the father of the Director of the assessee as observed that the confirmation and bank statements are filed. However, loan to the assessee company by the father of the Director is preceded by depositing of cash of similar amount. However, the authorities below have not considered these confirmations and the bank statements of the father of the Director etc. filed by the assessee , and have simply dismissed the appeal of the assessee while these documents have been claimed by the assessee to have been filed before the Assessing Officer and CIT(A). Father of the assessee Director who have advanced loan of Rs. 7,50,000/- to the assessee company has claimed that he is an agriculturist and into husbandry business as well Retired Pro Vice-Chancellor from Agricultural University, Dantiwada, and the source of advances are from these activities. These aspects were not considered by any of the authorities below and simply additions were confirmed. Similar observations are there with respect to the other loans raised by the assessee company wherein the authorities below have not considered the contentions of the assessee. With respect to cash deposits made in the bank, the assessee has claimed same to be cash sales of seeds. The assessee has filed ledger accounts, but the assessee has not filed conclusive evidence to prove that these purchase and sale of seeds has taken place and that the assessee in the business of trading of seeds. These aspects requires further verification by authorities below as the evidence filed are also not considered. Similarly for purchase of seeds, the assessee has claimed that the payments have been made in cash. AO has disallowed purchases to the tune of 10%. The assessee has filed additional evidences before the CIT(A) and has also filed certain additional evidence before the Tribunal . CIT(A) has not called for remand report from the AO on these additional evidences which led to breach of Rule 46A, and the ld. CIT(A) has also have not given his decision whether the additional evidences are to be admitted or not. The additional evidences were also filed before us. Under these circumstances, in the interest of justice, the entire matter wrt all the additions made by the AO and as confirmed by ld. CIT(A), needs to be set aside to the file of Assessing Officer for de-novo assessment. AO shall also admit all the evidences filed by the assessee while framing de-novo assessment on merit in accordance with law after giving proper opportunity to the assessee. Appeal of the assessee is allowed for statistical purpose.
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2024 (7) TMI 277
Addition u/s 68 - unsecured loans and capital introduced by the assessee - cash deposit out of cash sales during demonetisation - HELD THAT:- From examination of record in light of rival contention it is crystal clear that CIT(A) confirmed addition from Smt Sanjesh and Shree Ratan Agro Industries. AO failed to make inquiries regarding the above. So the addition is unsustainable. Addition u/s 68 on account of capital introduced by the assessee during the year out of business of sale purchase of jewellery in his proprietary concern M/s. Balsons Jewellers - Assessee claimed to have consideration from the sale of ornaments which was duly declared in the return of income and was taxable capital gain on account of indexed cost apart from balance amount from the past saving. It is a fact that appellant assessee is a proprietorship firm having introduced total capital. Resultantly the findings of the CIT(A) are not just fair, reasonable and deserves to be set aside. Consequently the appeal of the assessee deserves to be allowed. The creditworthiness was proved and cash deposit out of business receipts as trader cannot be concluded that appellant has given the same to the lenders. Regarding payment by Shri Satyanarayan Gupta regarding cheque received on 6.10.2016 and amount returned on 6.11.2017 by assessee through banking transaction. Rs. 2,03,87,482/- was deleted by the CIT(A). Assessee had submitted documents regarding purchase bills, confirmation, ITR of seller, sales and purchase bills. No bill was above Rs. 2 lacs, in October 2016, Mahanavmi, Vijaydashmi, Dhan Teras and Deepawali festivals. See Agson Global (P.) Ltd. [ 2022 (1) TMI 848 - DELHI HIGH COURT ] As well settled principle of law the findings of CIT(A) deleting the amount deserved to be upheld. Addition on account of capital introduced the assessee had filed copy of cash book, copy of sales book along with sales bill, copy of purchase book along with purchase bills, copy of expenses ledger, copy of confirmation of loans outstanding and copy of stock register for the period 1.4.2016 to 31.3.2017. Appeal of the assessee is allowed and appeal of the revenue is dismissed.
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2024 (7) TMI 276
Validity of reassessment notice u/s 148 without getting approval u/s 151 - as argued notice u/s 148 has not served / issued within time limit of 6 years and therefore, the proceeding is bad in law and void - HELD THAT:- AO has recorded reasons for reopening the assessment on 19.03.2018, which is prior to the sanction u/s 151 of the Act dated 23.03.2018. Notice u/s 148 of the Act was issued on 27.03.2018. The last date for issue of notice for AY 2011-12 was 31.03.2018. Hence, the issue of notice was well within the time. The AO has also mentioned in his assessment order that notice u/s 148 with prior approval was issued on 27.03.2018. After carefully considering facts of the case, rival submissions including paper book filed by Ld.AR of the assessee and the original assessment records of the AO, we find that the AO has duly followed the procedure mandated in the Income-tax Act, 1961 and the procedure laid down by Hon ble Supreme Court in case of GKN Driveshofts (India) Ltd. [ 2002 (11) TMI 7 - SUPREME COURT] and hence, we do not find any infirmity in the order of Ld.CIT(A). Reasons to believe - Similar addition had come up for consideration before this Tribunal in the case of Sunilkumar Parasmai Jain [ 2024 (5) TMI 582 - ITAT SURAT] as held AO validly assumed the jurisdiction for making re-opening u/s 147 on the basis of information of investigation wing Mumbai. When assessing officer received information from the investigation wing that two well known entry operators of the country provided bogus entries to various beneficiaries, and assessee was one of such beneficiary, assessing officer was justified in initiating reopening proceedings. Estimation of income - bogus purchases - assessee has stated that the books of account have not been rejected and therefore there is no question of making any addition - HELD THAT:- As following the case of Pankaj K. Chaudhary [ 2021 (10) TMI 653 - ITAT SURAT] we restrict the disallowance to 6% of the disputed bogus purchase.
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2024 (7) TMI 275
Determination of fair market value of the shares - networth of the company to be negative because of incurring of continuous loss - taxability of premium receipts - CIT(A) deleting the addition relying on the valuation report in respect of the immovable property held by the assessee company - HELD THAT:- It is difficult to comprehend as to how valuation can be done on 01/04/2012, when the date of valuation is on 01/10/2012, by registered valuer. We also deem it expedient to reproduce the report of the Government Registered Valuer which is placed to have a clear understanding of the issue. It appears that the Valuer has adopted a rate of valuation of 2,000 per sq.mtrs. as per the market rate. However, there is not absolutely any piece of evidence to substantiate the adoption of such value. No comparable instance has been brought on record to buttress the rate so adopted. It is surprising to note that during the year under consideration on 25/05/2013 31/03/2014, the appellant company had allotted 3,47,980 shares. Out of these shares, 3,12,980 shares of face value ₹ 100, each were issued at par to the promoters and the remaining 35,000 shares of ₹ 100, each were issued at a premium of ₹ 450, (shares were @ ₹ 550 per share) to three investors in lieu of 10% share in the company. The valuation report was obtained much before the date of allotment. We are unable to reconcile the fact as to why the no premium was taken from the promoters of the company when shares were issued within some financial year. Adoption of the FMV as Determined under Rule 11UA - We have numerous decisions of the Co ordinate Bench of the Tribunal, where the valuation in accordance with rule 11UA, has been remanded back to the Assessing Officer for fresh determination. But since in this case, valuation as per rule 11UA has not been adopted, we do not consider it fit to remand the matter for re determination. The facts clearly highlighted that the Registered Valuer s report was made to suit the interest of company and is not based on any corroborative evidence. Accordingly, we deem it fit and proper to hold that no cognizance shall be taken of the valuation report which is full of infirmities. AO has correctly calculated the networth of the company to be negative because of incurring of continuous loss as per the Balance Sheet. Hence, the entire premium is taxable under the head Income From Other Sources . Accordingly, we set aside the impugned order passed by the learned CIT(A) and uphold the order passed by the Assessing Officer. Thus, the grounds of appeal raised by the Revenue are allowed.
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2024 (7) TMI 274
TP adjustment on account of equity broking services (Non-DVP segment / CH settlement) - selection of MAM [most appropriate method] - TPO rejecting the application of the TNMM method for benchmarking these transactions - HELD THAT:- Since at the time of hearing we made it clear that we are not going to the controversy of whether TNMM is most appropriate method or CUP and both the parties agreed that CUP should be applied after taking into consideration, proper comparability analysis because the functions performed by the assessee for the AEs are non-AEs were the same. We find that the ld. TPO also under the DVP segment has taken the brokerage commission received from all AEs on an aggregate basis which was compared with the brokerage commission received from third party FIIs. Since the weighted average brokerage commission rate earned from AEs was higher than the weighted average brokerage commission earned from third party FIIs, the ld. TPO has treated it to be at ALP. Therefore, if the same yardstick is adopted and the same benchmarking of aggregate basis as been upheld by the ld. TPO in assessee s own case in the subsequent years right from A.Y.2004-05 to 2011-12 is taken into consideration, then weighted average brokerage rate earned by assessee from AEs if compared with rate earned by third party FIIs, the difference is 0.07%. Further, we find that ld. CIT(A) has given adjustment of sales cost of 0.6%, which we find is most reasonable basis for benchmarking the sale cost adjustment, because assessee has to incur extra sales cost in the case of third party FIIS which may not be the case with the AEs - Thus, at the most adjustment would be of 0.01% if at all which is too miniscule to apply to make adjustment and therefore, we hold that no adjustment is required to be made. Port Fee charges paid - CIT(A) applying the markup to cost at 15% as against 25% applied by the AE for determining the ALP in respect of the port fee charges paid by the appellant and thereby confirming addition - HELD THAT:- As per the agreement it was agreed that the charges were be at cost +25% which were applied to previous relevant assessment year under question before us. The assessee had submitted the break-up of the cost per user ID per month certified and provided by ML and the relevant agreements. These charges were allocated to AEs on the basis of total no. of mailboxes used over a period of 12 months. Thus, the proper allocation and proper work has been given for allocation and cost plus mark-up. Based on this details, we do not find any reason for adhoc mark-up of 15% applied by the ld. CIT (A) and moreover ld. TPO has not given any basis for taking it Nil . Accordingly, we accept the cost plus mark-up of 25%. Accordingly, ground of the assessee is allowed. Addition u/s 92CA(3) in respect of administrative support services provided by the appellant to the AE - HELD THAT:- Once in the TP study report the arm s length mark-up under the comparison with comparable uncontrolled transaction worked out at 13.67% which has not been rejected by the ld. TPO and assessee had shown the margin of 17.2% in the TP study report and it is also that even the 15% mark-up adopted by the ld. CIT(A) is greater than the arm s length price determined by the assessee in TPSR. Therefore, assessee s margin has to be reckoned at arm s length and therefore, no adjustment is required. Addition of brokerage for program trades - TPO had made adjustment in respect of brokerage commission earned by assessee from programme trades by comparing the rate charged to the client for programme trades for brokerage commission rate charged by assessee with third party FIIS for the DVP rates - HELD THAT:- After hearing both the parties and on perusal of the order as noted above programme trades are third party trades entered into by the assessee where rates are negotiated by AE. Since the contract note and brokerage income is settled directly between third party and assessee which has been reported as a deemed international transaction in terms of 92B (2). Nonetheless these are third party independent transactions where assessee got its negotiated brokerage from these parties directly and no benefit is cost on to ML entities from the business transacted by the assessee in these third parties. The certificate from Merill Lynch to the effect that brokerage in respect of premium rate is received directly by the clients of DSPML has been placed in the paper book also before us. Further, in subsequent years, i.e., from A.Y.2006-07 onwards, the ld. TPO himself has accepted the transaction to its arm s length in assessee s own case. Thus, we do not find any reason to tinker with the order of the ld. CIT(A) and same is confirmed and consequently the Revenue s grounds are dismissed. Disallowance u/s 14A - assessee had earned dividend income which was claimed exempt u/s 10(33) - suo-moto additiona made by assessee - HELD THAT:- As it is a well established law that Rule 8D is not applicable in the A.Y.2002-03 and the basis of which AO has made the disallowance cannot be sustained, firstly, that no interest expenses can be attributed as noted above assessee had more surplus interest free funds by sixth investment made by the assessee. Thus, in such a case no disallowance can be made. Secondly, in so far as Revenue expenses are concerned, AO has taken 5% of dividend income. CIT (A) has reduced the addition after applying Rule 8D(2), the disallowance upheld by CIT(A), which is almost to the extent of suomoto disallowance offered by the assessee which under the facts and circumstances and looking to the fact that Rule 8D is not applicable is far more sufficient. Thus, suomoto disallowance offered by the assessee is accepted. Consequently, assessee s appeal is allowed and Revenue s appeal is dismissed. TP adjustment of equity broking services (non-DVP / CH segment) - TPO has made the adjustment by applying CUP method and comparing weighted average commission rate charged by assessee to all AEs and brokerage commission rates charged by the assessee to all third party FII clients in the CH/ Non-DVP Segment - HELD THAT:- Average rate comes to 0.49% if the adjustment is given by the ld. CIT (A) on account of sales of marketing function performed by the assessee from its AE vis- -vis third party client is given which we have upheld in the earlier year. Thus, out of average rate of 0.49%, adjustment of 0.08% towards sales and marketing function is to be released. Thus, ALP brokerage rate comes to 0.41%. Accordingly, adjustment shall be made under the DVP segment by taking the ALP of 0.41% and accordingly, ld TPO is directed to make suitable adjustment. Accordingly, ground No.3 4 of assessee s appeal is partly allowed and ground No.1 of Revenue s appeal is dismissed. Disallowance of interest expenses - HELD THAT:- As assessee s own surplus funds were far more than investment made and therefore, no disallowance of interest can be made in view of the decision of South Indian Bank Ltd. [ 2021 (9) TMI 566 - SUPREME COURT] wherein it has been held that in case there are mixed funds available with the assessee i.e. owned funds as well as owed funds, the investments made by the assessee ought to be considered to be made out of the interest-free funds and the assessee has the right of appropriation of the funds, where 'sufficient interest-free funds are available. Thus, the grounds raised by the Revenue are dismissed.
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2024 (7) TMI 273
Correct head of income - Income from other sources OR capital gain - amount received as compensation for transferring the rights accrued in favour of the assessee - sale deed executed by the landlords, wherein the assessee was a consenting party - HELD THAT:- In view of the above clause of the sale deed and deed of nomination, we are of the view that the amount received by assessee on account of compensation by way of deed of nomination is compensation for transferring the rights accrued in favour of the first party, in favour of the second party and hence, these cannot be assessed under the head long term capital gains and it has rightly been assessed by AO and CIT(A) under the head income from other sources . We confirm the order of the CIT(A) and this issue of assessee appeal is dismissed. Computation/calculation of notional rent - HELD THAT:- AO adopted this precedent of reasonable realizable rental value and assessed the rental income in the hands of Shri. M.G. Vasan, husband of the assessee for the assessment year 2009-10 and determined the rental value at Rs. 3 lakhs. AO accordingly assessed the proportionate income from these three units at Rs. 2.01 lakhs as against offered by assessee s husband at Rs. 1,78,125/-. We noted that the estimation made by the Assessing Officer in assessee s husband case can be adopted here also and we direct that the same rate be adopted for assessee, also can be assessed notional rent at Rs. 2.01 lakhs in assessee s case and accordingly, this ground of assessee is partly allowed. Addition being the interest income, brought to tax under the head 'interest from other sources' - HELD THAT:- AO assessed the interest income and when confronted to the assessee, he stated that income has been admitted, but this income is on account of assessee s spouse invested some of his funds in assessee name and assessee s husband has already included this income u/s. 64(1)(iv) of the Act being clubbing provision, but when confronted the assessee neither before the AO nor before the CIT(A) could produce any evidences. Even now before us, simply bald statement was made but no evidence whatsoever was produced. Hence, we have no hesitation in confirming the action of the AO and that of the CIT(A) and hence, addition is confirmed. This issue of assessee s appeal is dismissed. Addition to claim of deduction under Chapter VIA - as argued C IT(A) faile d to appreciate that the notes of arguments filed with evidences on all issues comprised of 97 pages was completely overlooked and brushed aside - HELD THAT:- We noted that only plea of the assessee is that the assessee could not produce evidence neither before CIT(A) nor before the Assessing Officer and even now before us he could not produce any evidence and hence, the order of the Assessing Officer and that of the CIT(A) are confirmed. Appeal filed by the assessee is partly allowed.
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Customs
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2024 (7) TMI 272
Jurisdiction - power of appellate authority to remand the matter to the adjudicating authority - monetary threshold - HELD THAT:- The Department appealed against the order in original primarily on the basis of N/N. 29/2022. Such notification authorizes the Deputy Commissioner of Customs or the Assistant Commissioner of Customs to adjudicate matters where the duty involved is up to Rs.5 lakhs. If such duty is up to Rs.50 lakhs, the Additional Commissioner of Customs and the Joint Commissioner of Customs are authorized. Only the Principal Commissioner of Customs and the Commissioner of Customs are authorized to make the assessment without any monetary limit. Since the contention that the order in original was without jurisdiction was accepted by the appellate authority on the basis of the above mentioned notification, a remand could not have been made to the authority which issued the order in original. Sub-Section 3 of Section 128A empowers the Commissioner (Appeals) to remand the matter to the adjudicating authority. The appellate authority was empowered to remand the matter to a person who qualifies as adjudicating authority. Such adjudicating authority means a person competent to pass orders. On the facts of this case, in view of the jurisdictional objection, which was accepted by the appellate authority, remand could not have been made to the original authority. Therefore, the contention that the remand could not have been made to the proper officer is rejected as untenable. On examining the impugned order from this perspective, undoubtedly, the order does not record a finding on this issue. The order impugned before the appellate authority was set aside on the limited ground that the officer who issued the order in original did not have jurisdiction. Consequently, the matter was remanded to a proper officer. It is always open to the petitioner to raise the plea of limitation before the proper officer upon remand. Hence, interference with the impugned order is not warranted on this ground. Petition dismissed.
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Insolvency & Bankruptcy
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2024 (7) TMI 271
Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - financial creditors - existence of debt and default or not - Stamping of Promissory Note. Existence of debt and dispute or not - HELD THAT:- The primary requirement for admitting an application under Section 7 of the IBC is the existence of a debt and default. The Appellant has presented several documentary evidence like Loan Agreement dated 01.10.2018, Unsecured Demand Promissory Note dated 01.10.2018, Independent Audit report by N.R. Panchal Co and also record of information utility authenticated by NeSL on 22.08.2023 - argument of the Respondent-CD that the loan amount of Rs.70,00,000/- was for general Corporate purposes and was in nature of business loan and not a financial loan as explained under Section 5(8) of the Code is not borne out from the facts and the loan agreement itself and cannot be accepted - the evidences presented by the Appellant, including the balance sheet and the 'Record of Default', unequivocally establishes the debt and default. Stamping of Promissory Note - HELD THAT:- It is evident that, the debt and default are clearly established by the material on record in the form of the Loan Agreement, the Audit Report and also Record of Default (Form D) from the Information Utility (NeSL) taken together, as was examined in earlier part of the Appraisal. This Appellate Tribunal finds that the Adjudicating Authority erred in dismissing the application under Section 7 of the IBC. The existence of debt and default has been clearly established, and the procedural requirements have been met by the Appellant. The issue of stamping does not outweigh the substantive evidence of debt and default - impugned order set aside - appeal allowed.
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Service Tax
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2024 (7) TMI 270
Writ petition against the split decision / difference of opinion - Validity of sending the matter to Third Member - The similar issue has already been decided in various cases - CENVAT Credit - no service has been provided to the petitioner by the dealers or manufacturers - petitioner, as a provider of output service, can avail CENVAT input credit on the invoices generated by the dealers or not - doctrine of precedents - difference of opinion between Member (Judicial) and Member (Technical). HELD THAT:- It is important to point out that the co-ordinate benches of the Tribunal, in several cases, have dealt with the aforesaid issue. In this connection, reference was made to the decision of the CESTAT, Chennai in the case of M/S. CHOLAMANDALAM MS GENERAL INSURANCE CO. LTD. VERSUS THE COMMISSIONER OF G.S.T. CENTRAL EXCISE, CHENNAI [ 2021 (3) TMI 24 - CESTAT CHENNAI] , by the learned Senior Counsel for the petitioner. In that case, the assessee entered into agreements with car dealers and Insurance policies have been issued through dealer network. While so, the Credit availed by the Insurance company on the basis of invoices issued by dealers of motor vehicles has been questioned by the Commissioner of GST Central Excise. In the decision of the CESTAT, Mumbai in the case of ICICI LOMBARD GENERAL INSURANCE COMPANY LTD. VERSUS COMMISSIONER OF CGST AND CENTRAL EXCISE, MUMBAI CENTRAL [ 2023 (2) TMI 1093 - CESTAT MUMBAI ], relied on the side of the petitioner, on the basis of the invoices issued by the automotive dealers, service tax was paid by the automotive dealer to the government and the service recipient availed CENVAT credit. However, the Commissioner of CGST and Central Excise, Mumbai not only questioned the availment of CENVAT credit, but also recovered it along with interest and penalty. When the denial of CENVAT credit and recovery of the same were questioned, the CESTAT, Mumbai, following the ratio laid down in Cholamandalam case, held that when tax had undisputedly been received by the Government from the automotive dealers, the denial of CENVAT credit is unreasonable and arbitrary. As per the principles enunciated by the Hon'ble Supreme Court in the case of Official Liquidator v. Dayanand and others [ 2008 (11) TMI 679 - SUPREME COURT ], it is clear that High Court cannot sit in appeal in an earlier order passed by it in the same matter, which has already attained finality and set aside that order. Further, the doctrine of precedents is well explained by observing that a coordinate Bench of the High Court is bound by the order of another coordinate Bench where the order has attained finality and judicial discipline has to be maintained in this regard. The dissent expressed by the Member (Technical) of the Tribunal in derogation of the various orders passed by the coordinate benches of the Tribunal on the very same issue, cannot be countenanced - the very reference made to the third member to adjudicate an issue, which was already set at naught by the coordinate benches of the Tribunal, is unnecessary. The prejudicial portion of the order dated 25.07.2023 passed by the Member (Technical) of the CESTAT, is quashed - Petition allowed.
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2024 (7) TMI 269
Levy of service tax - ex-gratia amount received - Section 66E of the Finance Act, 1994 - HELD THAT:- The issue is no more res integra and is squarely covered by the decision of the Tribunal in the case of M/S K.N. FOOD INDUSTRIES PVT. LTD. VERSUS THE COMMISSIONER OF CGST CENTRAL EXCISE, KANPUR [ 2020 (1) TMI 6 - CESTAT ALLAHABAD ] where it was held that ' As such the present ex-gratia charges made by the M/s Parle to the appellant were towards making good the damages, losses or injuries arising from unintended events and does not emanate from any obligation on the part of any of the parties to tolerate an act or a situation and cannot be considered to be the payments for any services.' The facts of the present case are squarely covered by the aforesaid decision of the Tribunal - the impugned order cannot be sustained - Appeal allowed.
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2024 (7) TMI 268
Determination of taxable value - whether in terms of Reseller Agreement, the amount which was being repatriated after deducting profit margin and costs incurred in the course of reselling the ITSS is the correct value in terms of Section 67 or otherwise? - legal services - reverse charge mechanism - Short payment of Service Tax - Extended period of limitation - penalty - revenue neutrality. Determination of taxable value - HELD THAT:- On going through the Reseller Agreement as well as observations made by Commissioner (Appeals) and submissions made by the Appellants, it is obvious that they have been incurring certain expenses, which used to be offsetted and reimbursed to them by their principal, who has supplied them the said services. It is not in dispute that the price at the time of import could not have been worked out as the same is linked to the price which is ultimately realized from their customer in India. In terms of Reseller Agreement, they cannot exclude this amount from the gross value charged from their customer, which forms basis for computing their value on which they are determining the price which is charged by their principal abroad to them for providing ITSS. Since in terms of RCM provisions, the Appellants are to be treated as service provider, therefore, the gross value would obviously include any reimbursable expenditure/costs by them since it would be deemed that they are service provider for the purpose of discharging Service Tax and therefore, Section 67 will be applicable. Extended period of limitation - penalty - revenue neutarlity - HELD THAT:- The matter has been remanded back for redetermination of fact as to whether revenue neutrality is available as defense against invocation of extended period or imposition of penalty, for the subsequent period, the Commissioner (Appeals) has found that revenue neutrality is not at all available for the Appellants in the facts of the case as a defense against invocation of extended period or imposition of penalty. Both the SCNs have been issued within the normal period of limitation. There are no infirmity in the Orders of the Commissioner (Appeals), especially with regard to the inclusion of operating/marketing expenses in the gross value for the purpose of discharging Service Tax. In so far as invocation of extended period and imposition of penalty is concerned, it is found that the same is to be decided by the Adjudicating Authority in de novo proceedings having regards to facts. Appeal dismissed.
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Central Excise
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2024 (7) TMI 267
Issuance of SCN in view of the specific provision of Section 11A(2B) of the Central Excise Act, 1944 as it existed at the relevant point of time - HELD THAT:- In the order-in-original itself that the adjudicating authority has mentioned that the entire amount of duty of Rs.4,13,18,733/- and interest of Rs.68,24,912/- was deposited by the respondent/assessee vide challan No.00326 dated 06.05.2012. The remaining amount of interest of Rs.10,542/- was also paid by the assessee vide challan No.00115 dated 19.07.2013. The demand-cum-show cause notice was issued by the adjudicating authority on 14.08.2012 i.e. much subsequent to the deposit of the amount of duty along with interest. There is no factual dispute that the entire amount of duty along with interest was deposited by the assessee much prior to the issuance of notice. It is also admitted fact that information about the aforesaid deposit of the amount of duty and interest was given by the assessee to the Central Excise Officer concerned - the provisions of sub-Section (2B) of Section 11A of the Central Excise Act, 1944 is fully attracted on facts of the present case which specifically provides the circumstance in which the Central Excise Officer shall not serve any notice under sub-Section (1) of Section 11A of the Act, 1944 in respect of the duties paid. Section 11A(2B) is fully attracted on facts of the present case. There are no irregularity in the findings recorded by the Tribunal in paragraph 6 of the impugned order - appeal dismissed at admission stage.
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2024 (7) TMI 266
Activity amounting to manufacture - Section 2(f) of the Central Excise Act, 1944 - Eligibility to avail Cenvat Credit on duty paid input machineries - HELD THAT:- Tribunal has noted the facts that It is an undisputed fact that the appellant procured duty paid machineries, parts and accessories of Continuous Automatic Coil to Coil Colour Coating Line and Briqueting Hydraulic Press and carried out the processing jobs thereon as set out in the impugned order, which included assembly to produce the aforesaid final products which were exported upon payment of duty under claim of rebate. It is also seen from the records that the input machines, parts and accessories were goods classifiable as excisable goods by themselves under tariff items different from the tariff items under which the exported final products were classified - the activities undertaken by the appellant amounted to manufacture of excisable goods within the meaning of Section 2(f) of the Central Excise Act, 1944 - it was also held that the appellant is eligible to avail Cenvat Credit of the duty paid on the said input machineries, parts, etc. under the Cenvat Credit Rules and there is no infirmity on the part of the appellant in availment of Cenvat credit in the instant case. The findings recorded by the tribunal are findings of fact based on consideration of relevant evidences on record - no substantial question of law arises from the impugned order of the Tribunal - Appeal dismissed.
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2024 (7) TMI 265
Captive exemption - Fatty Acid Pitch (FAP) - Benefit of N/N. 67/95-CE dt.16.03.1995 - FAP emerging as an intermediate product but otherwise excisable in the factory of the Appellants - manufacturing both dutiable goods as well as non-dutiable goods - Rule 6(3A) of Cenvat Credit Rules - extended period of limitation. HELD THAT:- The Adjudicating Authority has made certain conclusions based on the purported observations made by the Audit team as regards the factual position of presence of boilers and there having no clear cut demarcation for its use in the manufacture of dutiable and exempted products. The SCN, is referring to some observations of Audit team without referring to any Audit memo or report based on any factual verification done by the Audit team or subsequently by the Department and is merely relying upon two letters from the Appellants themselves. The Adjudicating Authority has presumed that the Appellants have not been able to bring any evidence to the effect as to from where they were getting steam for the manufacture of exempted goods and because of that, it was reasonably postulated by him that FAP was used as fuel in one of the boilers, which in turn produces steam and which in turn was used in the manufacture of certain exempted final goods. Despite the Appellants making repeated claims about the FAP not being used for any exempted goods and furnishing all the relevant details to the Department, no further enquiry or investigations were carried out to crosscheck as to whether Appellant s assertions were correct or otherwise. In fact, they have gone a step further by invoking the extended period also, even though there is no evidence on record to establish that the FAP has been used for manufacture of exempted product and that it was done deliberately and intentionally to evade payment of duty. In fact, the Appellants themselves have informed the Department about their intended use way back in 2007 itself and till the issue of SCN in 2012 no verification was carried out to prove to the contrary by the Department. There is no cogent verifiable evidence on the record to suggest that FAP was used in the manufacture of exempted products also and therefore, liable to duty by denying the benefit of N/N. 67/95-CE. - In the absence of any categorical evidence from the Department to the effect that steam generated by FAP through the boiler was used in the manufacture of any of the exempted products, the conclusions drawn by the Adjudicating Authority in the impugned order is not legally tenable. Merely because they could not adduce evidence as to where they got steam for exempted product, it cannot lead to conclusion that FAP was used in boiler and steam so generated was used for manufacture of such products. In the absence of any detailed inquiry/investigation rebutting the factual assertions of the Appellant, Department could not have relied inherently on letters sent by Appellant themselves and some vague observations of Audit team, Report of which has not been even relied upon in SCN. Extended period of limitation - HELD THAT:- There is sufficient evidence on record that Appellants have not tried to hide anything from the Department and in fact were furnishing all the relevant information as required by the Department from time to time and in fact making categorical assertions about not having used FAP in manufacturing of exempted products. There is nothing on record to suggest that any of these assertions were found to be wrong on inquiry or investigation by the Department. Therefore, in the facts of the case, invocation of extended period is also bad in law. Both on account of merits as well as on limitation, the impugned order is not sustainable and is set aside - appeal allowed.
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2024 (7) TMI 264
Process amounting to manufacture - process of mixing and blending makes a new product which is marketable in commercial parlance and it is a different product from MS and HSD - CBEC Circular No.139/08/2000-CX-4 dated 03.01.2001 - HELD THAT:- In respondent s own case this Tribunal entertained the issue M/S. I.O.C. LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, PATNA [ 2019 (4) TMI 1072 - CESTAT KOLKATA ] and held that the process or treatment to enhance the marketability of a product or to improve the value addition does not amount to manufacture relying on the Tribunal s decision in HINDUSTAN PETROLEUM CORPN. LTD. VERSUS COMMR. OF C. EX, DELHI ROHTAK [ 2008 (9) TMI 154 - CESTAT, NEW DELHI ]. As the issue has already been decided in favour of the respondent in respondent s own case for the earlier period, therefore, following the precedent decision in respondent s own case, there are no merit in the appeal filed by the Revenue - appeal dismissed.
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Indian Laws
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2024 (7) TMI 263
Dishonour of Cheque - mainatinability of petition - delay and laches as also for the failure of the petitioners to avail of their alternate efficacious remedy in form of Revision Petitions under Section 397 of the Cr.P.C. - HELD THAT:- There are merit in the submission made by the learned counsel for the Complainant that the present set of petitions is liable to be dismissed on the ground of delay and laches as also for the failure of the petitioners to avail of their alternate efficacious remedy in form of Revision Petitions under Section 397 of the Cr.P.C. It need not be emphasized that powers under Section 482 of the Cr.P.C. are discretionary in nature and though there may not be a total ban on the exercise of such power where the situation so warrants, at the same time, there are limitations of self-restraint that are recognized and followed by the Courts in exercising this jurisdiction. One such limitation is where the petitioner had an alternate efficacious remedy, however, did not avail of the same within the period of limitation and thereafter filed the petition under Section 482 of the Cr.P.C. to overcome the objection of limitation. In Prabhu Chawla [ 2016 (9) TMI 1595 - SUPREME COURT] , the Supreme Court quoted with approval its earlier judgment in Madhu Limaye [ 1977 (10) TMI 111 - SUPREME COURT] , wherein it had been held that though availability of an alternate efficacious remedy of a Revision under Section 397 of the Cr.P.C. does not affect the amplitude of the inherent power under Section 482 of the Cr.P.C. that the High Court possesses, at the same time, easy resort to inherent power is not to be allowed except under compelling circumstances; it should not invade areas set apart for specific power under the Cr.P.C. itself. It was held that while it is true that Section 482 of the Cr.P.C. is pervasive, it should not subvert legal interdicts written into the same Code, such, for instance, in Section 397 (2) of the Cr.P.C. Clearly, the petitioners have let the water flow and the proceedings to continue and it is only when the complaint cases have reached the stage of recording of the Complainant s evidence that they woke up from their slumber to file the present petitions and challenge the maintainability of the same. The petitions are, therefore, liable to be dismissed not only on account of inordinate delay and laches, but also on account of the petitioners not availing of their alternate efficacious remedy in the form of Revision Petition, but instead filing these petitions much beyond the period of limitation and with delay that would have haunted them had they filed the Revision Petitions. There are no reason to interfere in the complaint cases in exercise of powers under Section 482 Cr.P.C - there are no merit in the challenge of the petitioners to the Complaints or to the Impugned Orders - petition dismissed.
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