Newsletter: Where Service Meets Reader Approval.
TMI Tax Updates - e-Newsletter
August 13, 2019
Case Laws in this Newsletter:
GST
Income Tax
Corporate Laws
Insolvency & Bankruptcy
Service Tax
Central Excise
CST, VAT & Sales Tax
Indian Laws
Articles
News
Notifications
Circulars / Instructions / Orders
Highlights / Catch Notes
GST
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Bail application of professional accountant - During the investigation, various firms were found to have been created by the accused in order to commit the alleged offence and to fraudulently claim the input tax credit (ITC). - No bail granted.
Income Tax
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Clarification with respect to assessment of Startup Companies involving application of section 56(2) (viib) of the Income-tax Act, 1961
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Reopening of assessment u/s 147 - Since the assessee was claiming purchases from the parties which were only issuing accommodation bills and were not having any stock available with them, the A.O. formed an opinion that there was escapement of income - Proper approval was taken by the AO before reopening the assessment. - notice sustained
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Addition of prior period expenditure while computing book profit u/s 115JB - assessee has shown as an item “below the line” and not claimed in normal computation - it is an undisputed fact that the prior period expenses is not an item of deduction listed in Explanation 1 of sec. 115JB in the list of deductions to be made from net profit - addition confirmed
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Nature of land sold - agriculture land - onus of proving that the land formed part of the business assets of the assessee is on the Revenue - though the Revenue is taking the transaction as business income they have not brought in any evidence on record neither they have conducted any specific enquiry to show that it is business transaction - addition deleted
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Power of AO to determine income in remand case - ITAT direction to addition based on peak credit - It is trite law that the AO has a legal obligation to implement the order of the ITAT strictly and such failure would result in the failure of justice and it is ex-facie apparent that no peak credit of the bank account has been worked out by the AO - the order of AO stands quashed
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Disallowance u/s 14A - once it is clear that Section 44 read with Rule 2 of the First Schedule to the Act alone would apply when it comes to computing the profits and gains of life insurance business, the question of resorting to any other provision for individual items of income and expenditure would not arise - no disallowance
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Allowability of interest on Compulsorily Convertible Debentures (CCDs) for period before conversion - RBI policy of FDI is governed by future repayment obligation and CCDs does not have any repayment obligation, hence considered by RBI as equity for FDI policy - CCDs holder neither eligible to voting nor dividend till its conversion hence CCDs are to be considered as Debt only and interest is allowable u/s 36 (1)(iii)
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Allowable business expenses - AS 7 on Construction Contracts - in the business of development and construction, the interest cost though allowable have to be accumulated as per the method of accounting followed by the assessee wherein it is accumulating all the project costs and the same is claimed as and when it achieves the prescribed construction and development threshold - will be required to be accumulated as part of WIP
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Estimation of income - alleged commission income on accommodation entry - though Section 145(3) gives discretion to the AO to make an assessment in the manner provided in Section 144, yet this discretion cannot be exercised arbitrarily - there should be any material for the basis adopted by the AO or the Tribunal and the material which is irrelevant or which amounts to mere guesswork or conjecture is no material - addition deleted
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Proportionate allowability of lease premium u/s 37 - it is difficult to appreciate that fact of rent being depressed rent can only be appreciated as such if there is recital about it in the lease rent - substantial amount of money was paid as premium, claimed and shown by assessee to be advance rents and where rents reserved - no hesitation to infer that rents reserved are depressed rents - deduction allowable
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Assessment u/s 153A - Addition of interest income - Under the present proceedings which has been initiated u/s 153A, given that the original proceedings were not abated as on the date of search and in absence of any incriminating material found during the course of search, no addition can be made
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Disallowance of business loss - fire incident causing the loss - Revenue submitted that even in earlier AYs deductions have been claimed by the Assessee on account of shortage of stock for the varying amounts. The Court fails to see how this could be a factor that works against the Assessee. - Deduction allowed
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TDS u/s 194I - Lease line charges were paid to the telecom service provider - assessee company is not in possession as well as not in control of the equipments which were used for providing internet and communication facilities, therefore, there was a clear absence of the element of leasing of equipments - not fall u/s 194I - no TDS required
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Addition u/s 41(1) - sundry creditors pending for more than three years - AO neither made any enquiry or brought any material on record to demonstrate that the liability relating to the concerned creditors have ceased to exist in terms with the conditions prescribed under section 41(1) - no addition
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Addition u/s 68 - AO neither find any fault with the documents furnished by the assessee nor make any independent enquiry with the share applicants in order to find out the veracity of the submissions made by the assessee, it has to be presumed that the AO was satisfied with the details furnished - no addition
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Rectification u/s 254 - non consideration of certain grounds - there is an inadvertent mistake by the Tribunal in not disposing of grounds no.2, 3 and 6, which comes within the ambit of mistake apparent on the face of record as per section 254(2) - rectification allowed
Indian Laws
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Arbitration agreement - group company - binding of the agreement on the subsidiary company - A non-signatory can be bound by an arbitration agreement on the basis of the “Group of Companies” doctrine, where the conduct of the parties evidences a clear intention of the parties to bind both the signatory as well as the non-signatory parties.
IBC
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Constitutional validity of amendments made to the Insolvency and Bankruptcy Code, 2016 - allottees of real estate projects deemed to be “financial creditors” - The explanation together with the deeming fiction added by the Amendment Act is only clarificatory of this position in law.
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Contempt petition the company and it’s officers/directors - The respondents are prevented by operation of law from jumping the queue and paying the balance amount to the petitioner in satisfaction of the compromise decree. - In the absence of any willful disobedience by the respondents, this Court cannot grant the relief sought for by the petitioner
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CIRP Application against the government company - member judicial has taken a view that, if upon filing of an Application under Sections 7, 8 and 9, and the same were to be admitted, recovery proceedings then would be said to have been initiated against the President of India, which cannot be allowed under the procedure of IBC. - however member technical has taken a different view.
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Preferential rights of secured creditors - Handing over the possession of the mortgaged property - Section 18 of the ‘I&B Code’ will prevail over Section 13(4) of the ‘SARFAESI Act, 2002’ and the ‘Dena Bank’ cannot retain the possession of the property in question of which the ‘Corporate Debtor’ is the owner
Service Tax
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Adjustment of the excess paid towards the tax liability of subsequent months - where such excess tax paid is more than the tax liability of the succeeding month/quarter, the only and most natural consequence is that the balance remaining would have to be invariably carried forward, to be adjusted in the subsequent succeeding month/s.
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Refund of service tax paid - SEZ unit - appellant does not have DTA, they have only made supply to a DTA unit and therefore there is no violation of the conditions of the Notification - the rejection of refund claim is wrong and not sustainable in law.
Central Excise
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Rebate claim - Export of goods - goods were manufactured outside the country - Rule 18 there is no direct specification that the goods eligible to rebate must have been manufactured inside the country. - at the time of import CVD was paid which proves that goods were excisable - Refund/Rebate allowed.
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Refund - unjust enrichment - The argument, that only by showing the amount in the ‘Profit & Loss Account’ as expenditure toward interest payment, cost of the product cannot go up by itself unless it is specifically infused for the said purpose is not acceptable- refund allowed.
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CENVAT Credit - Duties paid on capital goods upon De-bonding of unit (100%EOU) - Proviso in Rule 3 of CCR 2004 is in the nature of an Explanation clarifying what was in doubt earlier viz., about allowing of Cenvat Credit in respect of capital goods - Tribunal has erred in denying such benefit of Cenvat Credit
VAT
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Refund of amount collected without authority of law including TDS - Sharing of revenue between two States - the amount paid by the petitioner pursuant to the interim order passed by the Court should be refunded. In the normal course, the person to whom it is paid is liable to refund it.
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Recovery by Coercive action - The department should not get so much desperate for the revenue. The revenue is to be collected in accordance with law. The action at the end of the authorities in the present case is nothing short of extortion. - to be refunded with interest.
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Refund claim - Section 11 (2) (b) of the DVAT Act - Where a demand is sought to be created much later than the two-month period, that cannot come in the way of the refund being granted.
Case Laws:
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GST
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2019 (8) TMI 582
Levy of penalty u/s 129(3) of the UP GST Act, 2017 - petitioner states that the present petition has been filed, since the remedy of appeal has not been made available to the petitioner, inasmuch as, the Tribunal has yet not been constituted - HELD THAT:- List on 21.08.2019 alongwith M/S KAY PAN FRAGRANCE PVT. LTD. VERSUS STATE OF U.P. AND 4 OTHERS [ 2019 (7) TMI 947 - ALLAHABAD HIGH COURT ] and CORP MEDITECHE PRIVATE LIMITED VERSUS STATE OF U.P. AND ANOTHER [ 2018 (8) TMI 281 - ALLAHABAD HIGH COURT ].
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2019 (8) TMI 581
Release of seized goods and vehicle - applicability of Sections 129 and 130 respectively of the GST Act, 2017 - writ-applicant is here before this Court with a prayer that his truck alongwith the goods may be released pending the final disposal of this petition - HELD THAT:- An amount of ₹ 2,51,406/- has been deposited by the writ-applicant towards the tax and penalty. The receipt is on Page19, Annexure-D. In such circumstances, the respondents are directed to immediately release the truck as well as the goods seized by them under the provisions of the GST Act.
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2019 (8) TMI 580
Release of seized goods alongwith truck - Section 129 and 130 of the GST Act, 2017 - HELD THAT:- This Court is examining the larger issues involved so far as the applicability of the two sections referred to above is concerned. The writ applicant is here before this Court with a prayer that his truck alongwith the goods may be released pending the final disposal of this petition. An amount of ₹ 3,81,852/has been deposited by the writ-applicant towards the tax and penalty - the respondents are directed to immediately release the truck as well as the goods seized by them under the provisions of the GST Act.
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2019 (8) TMI 579
Rectification in TRAN-1 form - HELD THAT:- The Court in similar circumstances in the case of BHARGAVA MOTORS VERSUS UNION OF INDIA ORS. [ 2019 (5) TMI 899 - DELHI HIGH COURT ] has given the Petitioners one more opportunity to file the rectified TRAN-1 form . The direction is issued to the Respondent No.2 to either open the portal of the Petitioners to permit them to file the revised TRAN-1 form or to manually file it on or before 31st August 2019 and thereafter, process the claim of the Petitioners in accordance with law - petition disposed off.
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2019 (8) TMI 578
Denial of credit claimed in the TRAN-2 forms - denial only on the ground that the requisite details were not filed in the TRAN-1 - HELD THAT:- The Court directs the Respondents to either reopen the portal of the Petitioner to enable it to re-file the TRAN-1 form electronically on or before 31st August, 2019. If that is not possible then the Petitioner should be permitted to file by TRAN-1 form manually by the same date. Thereafter the Petitioner will be permitted to file the TRAN-2 form electronically and its claim be thereafter processed in accordance with law. Petition disposed off.
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2019 (8) TMI 577
Bail application of professional accountant - whether the accused has been falsely implicated in the present case and that he was only furnishing the GST returns on behalf of the firms which are allegedly involved in the commission of alleged offence - HELD THAT:- In the case in hand, the applicant/accused is allegedly involved in the commission of alleged offence and the evidence collected by the department during the investigation also reveals the involvement Of the accused in the commission of alleged offence. As per the allegations the applicant/accused used to create fake firms and he used to fraudulently file tax returns to avail input tax credit (ITC). During the investigation, various firms were found to have been created by the accused in order to commit the alleged offence and to fraudulently claim the input tax credit (ITC). Considering the facts and circumstances, nature of allegations, amount of ITC involved in the present case and the initial stage of investigation, I am not inclined to grant bail to the applicant/accused Girish Sharma at this stage - bail application dismissed.
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Income Tax
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2019 (8) TMI 574
Taxability of income from investments reflected in the Shareholders Account - computation of life insurance business u/s 44 r.w Rule 2 of the First Schedule - HELD THAT:- This Court is not persuaded to take a view different from that of the Mumbai Bench of the ITAT ICICI Prudential Insurance Co. Ltd. v. ACIT [ 2012 (11) TMI 13 - ITAT MUMBAI] which has been affirmed by the Bombay High Court VERSUS ICICI PRUDENTIAL INSURANCE CO. LTD. [ 2015 (7) TMI 1259 - BOMBAY HIGH COURT] . Indeed on a conjoint reading of Section 44 with Rule 2 of the First Schedule to the Act, the Court is unable to discern any distinction between the income earned on the policy holder s account and income from investments shown in the shareholder s account for computation of the profits and gains of life insurance business for the purposes of taxation. In the considered view of the Court, the only question which would require consideration is about the computation of the actuarial surplus in the non-linked Participating Policyholder s Account (non-technical). The following substantial questions of law are framed for consideration: (1) Whether the ITAT in the facts and circumstances of the case was right in accepting the Assessee s computation of the actuarial surplus, which includes deductions on the ground of future appropriations and allocation of bonus to policy holders? (2) Was the ITAT right in invoking the rule of consistency in accepting the Assessee s case? Disallowance u/s 14A - computation of life insurance business u/s 44 - HELD THAT:- As regards applicability of Section 14 A in the context of exempt income, once it is clear that this Section 44 read with Rule 2 of the First Schedule to the Act alone would apply when it comes to computing the profits and gains of life insurance business, the question of resorting to any other provision for individual items of income and expenditure would not arise. - on this issues this Court declines to frame questions thereby affirming the impugned order of the ITAT .
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2019 (8) TMI 571
Disallowance of business loss - fire incident causing the loss and the payment of the amount of loss - HELD THAT:- The Court is of the view that the plea of the Assessee ought to have been accepted in the first instance by the AO. Assessee placed on record the agreement under which it was obliged to bear the loss for shortage of stock. Assessee also placed on record the statement of account in terms of which it had to pay the company ₹ 2 lakhs towards shortage of stock. It is not as if the Assessee did not make an effort to ascertain the details. It was informed that on account of fire, those details could not be provided as the records had been destroyed. This was not something in the control of the Assessee. On its part it gave the full details to the AO including the FIR number reporting the loss of records due to the fire. The Court fails to appreciate how the Assessee could have done anything more to substantiate the fact that it had to pay ₹ 2 lakhs to the company towards the shortage of stock. The fact of the Assessee having actually paid the company the said amount is also not in dispute. Revenue submitted that even in earlier AYs deductions have been claimed by the Assessee on account of shortage of stock for the varying amounts. The Court fails to see how this could be a factor that works against the Assessee. Being in the business of running a showroom for wearing apparels, shortage of stock is not an unusual phenomenon. This Court answers the question of law framed in the affirmative i.e. in favour of the Assessee and against the Revenue. The impugned orders of the AO, CIT (A) and ITAT are accordingly set aside. The appeal effect will be given after permitting deduction of ₹ 2 lakhs in computing the income for the AY in question.- Decided in favour of assessee.
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2019 (8) TMI 570
TDS u/s 195 - Tribunal upholding the direction of CIT (A) not to disallow u/s.40(a)(i) of the Act particularly when royalty payments are hit by section 195 - HELD THAT:- At the very outset, we have to say that the reliance on the Circular by the D.R. is misplaced as that Circular refers to the decision of the Tribunal Special Bench, Vishakhapatanam in the case of Merilyn Shipping Transports Vs. Addl. CIT [ 2012 (4) TMI 290 - ITAT VISAKHAPATNAM] . The Circular also refers to the decision of the Hon'ble High Court of Gujarat, High Court of Allahabad which all relates to the issue relating to paid or payable whereas the issue before us relates to the amendment of second proviso to Section 40(a)(ia) which has been held to have a retrospective effect by the Hon'ble High Court of Delhi in the case of Ansal Landmark Township Pvt. Ltd. [ 2015 (9) TMI 79 - DELHI HIGH COURT] However, in the interest of justice and fair play, we restore this issue to the files of the A.O. The assessee is directed to furnish necessary evidences to show that the payee has filed returns and offered the sum received to tax. The A.O. is directed to verify the same and decide the issue in the light of the ratio laid down by the Hon'ble High Court of Delhi (supra).
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2019 (8) TMI 569
Proportionate allowability of lease premium u/s 37 - five years lease deeds - advance payment of rent OR capital expenditure - depressed rent - HELD THAT:- Special Bench of the Tribunal in JCIT VERSUS MUKUND LTD. [ 2007 (2) TMI 358 - ITAT MUMBAI] gave its view regarding advance payment of rent to be capital expenditure on findings, inter alia, that there was termination clause, by which premature termination did not provide for refund of premium, claimed to be advanced rent, there was no clause in the agreement to show that the amount paid by the assessee as advance rent for all future years and the lump sum payment of future years rent had been paid to avail some concession for advance payment of rent or for some other business consideration. It is clear from our perusal of terms of leases between assessee and its lessors, such terms are not there between them. We are unable to appreciate that fact of rent being depressed rent can only be appreciated as such if there is recital about it in the lease rent. That substantial amount of money was paid as premium, claimed and shown by assessee to be advance rents and where rents reserved are as above, it follows there was no contention raised before the Tribunal regarding the rents reserved corresponding to market rate of rent. We have no hesitation to infer that rents reserved are depressed rents. Finding by the Tribunal that assessee s agreements are exactly similar with the agreements before Special Bench, considered and dealt with in Mukund Ltd . (supra) is perverse as based on no material or contrary to material before it. - for reasons aforesaid we answer the question in the affirmative and in favour of assessee.
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2019 (8) TMI 568
Power of AO to determine income in remand case - ITAT directed AO for granting one more opportunity to the assessee for explanation of the source of cash deposit and in any case the addition if any it should not be more than the peak credit in the bank account. - AO determine the tax and penalty amount sans computing peak credit in the bank account - HELD THAT:- It is trite law that the AO has a legal obligation to implement the order of the ITAT strictly and such failure would result in the failure of justice. A writ of mandamus would be issued in such circumstances to the respondent AO to carry out the directions given to him by the ITAT. This view is fortified by the judgment of the Hon ble Apex Court in the case of Bhopal Sugar Industries Ltd., vs. ITO [ 1960 (9) TMI 11 - SUPREME COURT] . It is ex-facie apparent that no peak credit of the bank account has been worked out by the AO to conclude the assessments on remand by the ITAT. Hence, the order impugned being perverse and illegal stands quashed. The proceedings are restored to the file of the respondent - AO to redo the assessment in the light of the observations made by the ITAT inasmuch as any addition if to be made to the tax declared, it should not be more than the peak credit in the bank account of the petitioner.
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2019 (8) TMI 567
Estimation of income - alleged commission income on accommodation entry - assessee stated that he had received commission of ₹ 0.30/0.45 on ₹ 100/- only - AO estimated commission @10% which was reduced by CIT(A)@ 2% which got approval of ITAT - existence of evidence or material on record for making such estimate - HELD THAT:- It must be noted that Section 145(3) gives discretion to the AO to make an assessment in the manner provided in Section 144, yet this discretion cannot be exercised arbitrarily. The question to determine in every such case is, whether there is any material for the basis adopted by the AO or the Tribunal, as the case may be, for computing the income of the assessee. The material which is irrelevant or which amounts to mere guesswork or conjecture is no material. The AO thought fit to estimate 10% commission for providing accommodation entries to the tune of ₹ 12,00,02,100/-. The CIT(A) took the view that the estimation of commission @ 10% by the AO is 1/3rd of the said benefit, which could be termed as excessive and not a reasonable estimate. The CIT(A), without there being anything on record, thought fit to take the view that the estimate by the appellant at 3% translates to 1% of the benefit derived, which could be termed as too low, and in such circumstances, estimated at 2%, which would translate to about 6.7% of the benefit alleged to have been derived by M/s.PACL India Limited. This is nothing but pure guesswork without there being any material or basis for arriving at the same. Ordinarily, we would not have entertained the appeal of the present nature having regard to the fact that the income has been assessed based on estimation. However, the way the authorities have proceeded with the guesswork, it cannot be approved. In view of the above, this Tax Appeal succeeds and is hereby allowed. The question of law is answered in favour of the assessee
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2019 (8) TMI 564
Disallowance u/s 40(a)(ia) - payment of lump sum lease amount in the earlier year for taking a property on lease on 20 years lease - same was amortised over the period of lease - since payment made without TDS, AO disallowed the same - assessee in default u/s 201(1) - effect of second proviso of sec. 40(a)(ia) which was inserted by the Finance Act 2012 w.e.f 1/4/2013 - HELD THAT:- The assessee is seeking application of second proviso to sec. 40(a)(ia) to be present issue and further since this claim has not been examined by the AO, we set aside the order passed by ld CIT(A) on this issue and restore the same to the AO for examining the claim of the assessee. Accordingly this issue is restored to the file of the AO. Disallowance of aircraft expenses towards personal use - assessee maintain logbook for journey - HELD THAT:- Since the assessee is claiming to be maintaining log book, there is merit in the contentions of the assessee. When the log books is available it should be possible to segregate the use of aircraft for business purposes and personal purposes. In that case, the disallowance should be restricted to proportionate amount attributable to personal use of aircraft. Since this fact require the verification, we set aside the order passed by ld CIT(A) on this issue and restore the same to the file of the AO with the direction to restrict the disallowance to the personal usage of aircraft as per log book records. Disallowance of interest expenditure by capitalizing it towards WIP - addition made in normal computation as well as u/s 115JB also - HELD THAT:- We noticed that the own funds available with the assessee is more than the amount of Capital work in progress as on 31/3/2010. It is also the contention of the assessee that the term loans and working capital loans have been used for specific purposes. Be that as it may, if the own funds available with the assessee is in excess of amount of capital work in progress, the presumption that could be drawn is that the assessee has used its own funds for funding the capital work in progress, in which case disallowance of interest is not called for. We notice that these factual aspects have not been examined by the AO. Hence, for the limited purpose of examining the factual aspects, we restore this issue to the file of the AO and direct him to delete the addition on being satisfied that the own funds available with the assessee is in excess of amount of capital work in progress. Disallowance of interest expenditure by capitalizing it towards WIP - addition made u/s 115JB - HELD THAT:- We noticed that the ld CIT(A) has taken support of the decision rendered by Hon ble Supreme Court in the case of Apollo Tyres Ltd [ 2002 (5) TMI 5 - SUPREME COURT] , wherein it has been held that the AO is not entitled to make adjustment to the net profit disclosed in the profit and loss account which has been adopted in the annual general meeting of the company. Secondly the impugned interest disallowance is not an item of addition listed in Explanation 1 to sec. 115JB of the Act as an item of addition. We agree with the view taken by the ld CIT(A) that the disallowance of interest expenditure, if any, made while computing total income under normal provisions of the Act cannot be added to the book profit computed u/s 115JB Addition of prior period expenditure while computing book profit u/s 115JB - assessee has shown the prior period expenditure as an item below the line - HELD THAT:- We also noticed that the assessee has not claimed the above said amount as deduction while computing total income under normal provisions of the Act. It is also an undisputed fact that the prior period expenses is not an item of deduction listed in Explanation 1 of sec. 115JB in the list of deductions to be made from net profit. In this view of the matter we are of the view that the assessee is not entitled to deduct prior period expenditure of ₹ 12.67 lakhs from the net profit while computing book profit u/s 115JB of the Act. In this view of the matter, we are of the view that the Ld CIT(A) has misdirected himself while placing reliance on the decision of Hon ble Supreme Court rendered in the case of Apollo Tyres Ltd. Accordingly we set aside the order passed by ld CIT(A) on this issue and confirm the disallowance made by the AO.
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2019 (8) TMI 563
Levy of penalty u/s 271(1)(c) - defective notice - HELD THAT:- A.O. in the assessment order has mentioned at the time of initiation of penalty proceedings that penalty proceedings under section 271(1)(c) of the I.T. Act have been initiated for furnishing inaccurate particulars of income. However, on the same day of passing of the assessment order on 23.03.2001, the A.O. issued show cause notice before levy of the penalty in which A.O. has mentioned that assessee has concealed the particulars of income or furnished inaccurate particulars of such income, as per the notice reproduced above. After passing of the Judgment by the Hon ble jurisdictional High Court restoring the addition, A.O. further issued notice Dated 02.05.2011 in which A.O. did not mention any such fact in the notice which is reproduced above. Thus, A.O. has not clarified in the notice as to for which limb of Section 271(1)(c) of the I.T. Act, penalty proceedings have been initiated against the assessee, whether for concealment of the particulars of income or furnishing inaccurate particulars of such income. See Jagdamba Prasad Gupta, Delhi vs. ACIT, Circle 35(1), New Delhi [ 2019 (1) TMI 1200 - ITAT DELHI ] and M/S SSA'S EMERALD MEADOWS [ 2016 (8) TMI 1145 - SC ORDER] - Decided in favour of assessee.
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2019 (8) TMI 561
Assessment u/s 153A - Addition of interest income - HELD THAT:- Assessing officer is not without recourse to bring this interest income to tax. The reason for the same is that there is no dispute that the assessee has earned this interest income and there is also no dispute that the same has not been offered to tax by the assessee for the impugned assessment year. Therefore, in a scenario, where during the course of reassessment proceedings u/s 153A, the Assessing officer is ceased of the material and information that the income has escaped taxation, such material and information can form the basis for initiating the reassessment proceedings u/s 147 the same time, the contentions which has been raised by the ld AR, that the assessee has reported the interest income at the time of maturity of the fixed deposits and on receipt of income tax refund in subsequent assessment year and therefore, the action of the AO has resulted in double taxation which cannot be sustained in the eyes of the law, has to be considered and examined objectively as the law permits the assessee to report interest income under the head Income from other sources either on the cash or mercantile basis which is regularly employed by the assessee. Where the assessee contends that it has offered the interest income on maturity of fixed deposits and on receipt of income tax refund, basically, the assessee has followed the cash basis of accounting which is permissible under law. In the scenario, where it is found on examination that the interest income has not been reported to tax as so claimed by the assessee even in the subsequent assessment year, the Assessing officer will be at liberty to take action as per law to bring such interest income to tax. Under the present proceedings which has been initiated u/s 153A, given that the original proceedings were not abated as on the date of search and in absence of any incriminating material found during the course of search, no addition can be made in the hands of the assessee and the same is hereby directed to be deleted. - Decided in favour of assessee.
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2019 (8) TMI 560
Rectification u/s 254 - non consideration of certain grounds - HELD THAT:- It is relevant to observe, in the appeal order itself, the Tribunal has recorded the submissions of the Departmental Authorities to the effect that all the grounds raised by the Revenue in the appeals are covered by the decisions of the Tribunal and Hon ble Jurisdictional High Court in assessee s own case as well as in case of another Insurance Company viz., ICICI Prudential Insurance Co. Ltd. v/s ACIT, [ 2012 (11) TMI 13 - ITAT MUMBAI] In fact, in course of hearing of the present applications also, learned Counsels appearing for the parties have agreed that all the grounds raised by the Revenue, including grounds no.2, 3 and 6, are covered by the decision of the Tribunal in assessee s own case. Thus, in view of the aforesaid, there is an inadvertent mistake by the Tribunal in not disposing of grounds no.2, 3 and 6, which comes within the ambit of mistake apparent on the face of record as per section 254(2) of the Act, hence, requires rectification. Since, there is consensus between the parties that grounds which have not been decided earlier are also covered by the decision of the Tribunal in assessee s own case but which could not be decided inadvertently, we proceed to dispose of them in terms of earlier decision of the Tribunal in assessee s own case. - Misc. applications are allowed
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2019 (8) TMI 559
Approval u/s 10(23C)(vi) rejected - Reason for denial of approval primarily is, the assessee cannot be considered to be an Educational Institution, as it does not provide any formal education as is provided in Schools, Colleges, etc - HELD THAT:- From the facts on record, it emerges that the assessee was incorporated in the year 1928 with the main object of imparting the study of theory of banking and for that purpose to institute a scheme of examination and to give certificates, scholarship and prizes. Further, to promote information on banking and kindred subjects by lectures, discussions, books, correspondences with public bodies and individuals otherwise. It is to be noted that the objects of the assessee have not undergone any material change over the years. Undisputedly, prior to introduction of section 10(23C)(vi), the assessee treating itself as an Educational Institution existing solely for the purpose of education and not for the purpose of earning profit, had claimed exemption u/s 10(22). Decisions of the Tribunal [ 2001 (2) TMI 1027 - ITAT MUMBAI] holding the assessee to be a educational institution existing solely for the purpose of education and allowing its claim of exemption under section 10(22) will certainly have a crucial bearing while deciding assessee s claim of exemption under section 10(23C)(vi). Therefore, learned Commissioner (Exemp.) cannot simply brush aside the decisions of the Tribunal by taking shelter behind the adage principle of res judicata will not apply to tax proceedings . As in M/S. QUEEN S EDUCATIONAL SOCIETY VERSUS COMMISSIONER OF INCOME TAX [ 2015 (3) TMI 619 - SUPREME COURT] held that if the surplus generated by an Education Institution is ploughed back for educational purpose, it has to be held that the institution exists solely for educational purpose and not for the purpose of profit. ADITANAR EDUCATIONAL INSTITUTION VERSUS ADDITIONAL COMMISSIONER OF INCOME-TAX [ 1997 (2) TMI 3 - SUPREME COURT] held that a trust or other similar body running an Educational Institution solely for educational purpose and not for the purpose of profit can be regarded as other Educational Institution coming within the purview of section 10(22) - Availability of exemption under section 10(22) has to be evaluated each year to find out whether the institution existed solely for education purpose and not for the purpose of profit during the relevant year. The ratio laid down in the aforesaid decisions would also have a crucial bearing while deciding the issue whether the assessee is an Educational Institution existing solely for the purpose of education as per section 10(23C)(vi). On a perusal of the impugned order of learned Commissioner (Exemp.), we find that he has not examined the applicability of the ratio laid down in the aforesaid decisions to the facts of the assessee s case. Therefore, on overall consideration of the facts and material on record, we are of the view that the entire issue relating to assessee s application seeking approval under section 10(23C)(vi) needs to be restored back to the file of learned Commissioner (Exemp.) for de novo adjudication - Assessee s appeal is partly allowed for statistical purposes.
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2019 (8) TMI 558
Validity of reopening of assessment u/s 147 - addition u/s 68 - information received from the CBI - addition relating to Share application money/ share capital and share premium receipts - HELD THAT:- The information received from the CBI only alleges that there was quid-pro-quo in receiving share capital. There should not be any doubt that it was only allegation at that point of time. Whether the said allegation could be the basis for forming belief that there was escapement of income is the moot question. In our view, the said allegation could trigger the investigation, but it alone cannot be the basis for arriving at the belief that there was escapement of income. AO should bring some other material to show that the apparent was not real or it does not satisfy the conditions of sec. 68. Nothing of that sort was brought on record by the AO while recording the reasons for reopening. Hence, we are of the view that the assessing officer was not right in law in reopening the assessment, as he could not have entertained the belief about escapement of income on the basis of reasons recorded by him. Information received from the CBI, as spelt out by the AO in the reasons recorded and in the remand report, would show that the CBI has alleged that the investments have been made by the applicants as quid pro quo to the benefits received by them. This information cannot be the basis for reopening of assessment, since it is the assessing officer who has to apply his mind on the issue and take an independent view. It is not visible from the reasons recorded by the AO that he has taken any independent view on the matter. The question that would arise is Whether this information alone is sufficient to form the belief that there was escapement of income?. In our view, it will not lead to the belief that the income of the assessee has escaped the assessment. Addition u/s 68 - no fault in details submitted by assessee - HELD THAT:- From the assessment order as well as from the paper book furnished by the assessee, it can be noticed that the assessee has furnished all the details that were called for by the AO. AO has treated the share premium has unexplained cash credit only for the reason that the same was commensurate with the size of the income and financial strength of the assessee. We have noticed that the AO has reached to this conclusion without carrying out any further investigation and without bringing any material on record. The AO has not shown that the Share premium so collected by the assessee represents assessee s own money warranting an addition u/s 68. However, the fact remains that the share premium has been collected as per the understanding reached between both the parties. AO has not mentioned in the assessment order that the assessee has failed to satisfy the three main ingredients in the context of sec. 68. His only case was that the assessee did not substantiate the quantum of share premium collected. We have noticed that the assessee has furnished a valuation report in order to justify the share premium, even though the same has been rejected by the AO. However, the important point is that the doubt of the AO on the quantum of share premium cannot be a ground for making addition u/s 68. This view is supported by the decision rendered by Hon ble Bombay High Court in the case of CIT vs. Green Infra Ltd [ 2017 (4) TMI 185 - BOMBAY HIGH COURT] It is not the case of the AO that the assessee did not furnish any of the details called for by him. Further, the AO did not find any fault with the documents furnished by the assessee except some deficiencies in the application forms filed by the assessee, which are procedural mistakes. The AO also did not make any independent enquiry with the share applicants in order to find out the veracity of the submissions made by the assessee. Under these set of facts, it has to be presumed that the AO was satisfied with the details furnished by the assessee. Hence, we are of the view that the decision rendered by Hon ble Supreme Court in the case of NRA Iron and Steel P Ltd [ 2019 (3) TMI 323 - SUPREME COURT] shall not apply to the facts of the present case. - Decided in favour of assessee.
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2019 (8) TMI 557
Disallowance made u/s 14A r/w rule 8D - HELD THAT:- As decided in own case [ 2019 (2) TMI 1067 - ITAT MUMBAI] disallowance under section 14A of the Act has to be restricted to the exempt income earned during the year. In view of the aforesaid, we direct the Assessing Officer to restrict the disallowance under section 14A r/w rule 8D to ₹ 3,267, i.e., the exempt income by the assessee during the year Adjustment to the book profit computed u/s 115JB on account of expenditure incurred for earning exempt income - Though, we agree with the AR that while making such adjustment the AO cannot invoke the provisions of section 14A r/w rule 8D, however, it is equally true that the AO can make adjustment to the book profit towards expenditure incurred for earning exempt income as per Explanation 1(f) of section 115JB. Therefore, in the facts of the present case, we direct the AO to restrict the adjustment under Explanation 1(f) to section 115JB to the amount of exempt income earned by the assessee during the year. Addition u/s 41(1) - sundry creditors pending for more than three years - HELD THAT:- AO neither made any enquiry or brought any material on record to demonstrate that the liability relating to the concerned creditors have ceased to exist in terms with the conditions prescribed under section 41(1). It is further relevant to observe, while deciding identical issue in assessee s own case for the assessment year 2010 11, the Tribunal [ 2019 (2) TMI 1067 - ITAT MUMBAI] has upheld the decision of learned CIT(A) deleting similar disallowance made by the AO on identical reasoning.That being the case, we do not find any reason to interfere with the decision of the learned CIT(A) on this issue. This ground is dismissed. Deduction u/s 80IC - Addition on account of R D expenses allocated to Baddi and Solan Units of the assessee - HELD THAT:- As relying on [ 2019 (2) TMI 1067 - ITAT MUMBAI] we restore the issue to the Assessing Officer for deciding afresh in terms with the directions of the Tribunal in the preceding assessment year and only after due opportunity of being heard to the assessee. This ground is allowed for statistical purposes. Addition on account of interest expenditure allocated by the AO to Baddi and Solan Units while computing deduction u/s 80IC - HELD THAT:- The assessee has allocated interest expenditure on the basis of utilization of borrowed funds in different Units. Since no borrowed funds were utilized at Baddi Unit, which is in existence since the year 2006 07, the assessee had not allocated any interest expenditure to the Baddi Unit, while allocating interest expenditure to other two Units. It is apparent, before the Departmental Authorities the assessee has demonstrate that no borrowed funds were utilized at Baddi Unit. Whereas, without factually examining assessee s claim the AO has arbitrary allocated a part of interest expenditure to the Baddi Unit on the basis of sales turnover. It is relevant to observe, while deciding identical issue in assessee s own case for the assessment year 2010 11 [ 2019 (2) TMI 1067 - ITAT MUMBAI] as held that when no loan is there for baddi unit and the unit is generating huge profits, the case law relied by the assessee duly support the proposition that only the interest expenses which have direct nexus in earning the income of the tax exempt unit should be considered. Since the documentary evidence duly support the plea that there is no direct nexus between the expenses allocated by the A.O. to the unit, we do not find any infirmity in the order of the ld. CIT(A). Expenditure incurred on gifts, freebies given to doctors and medical professionals - disallowance made by the AO on the reasoning that the expenditure is prohibited by law as per Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulation, 2002 - HELD THAT:- though, under the Medical Council of India guidelines and regulations, doctors and medical professionals are prohibited from accepting gifts, such restriction does not apply to the pharmaceutical companies. Of course, CBDT Circular no.5/2012, dated. 1st August 2012, speaks of disallowance of expenditure incurred by pharmaceutical companies towards gifts given to doctors and medical professionals. However, the said circular would apply prospectively from the assessment year 2013 14 and not to the impugned assessment year. In fact, considering the aforesaid factual legal position, the Tribunal, while deciding identical issue in assessee s own case for the assessment year 2010 11, [ 2017 (8) TMI 1255 - ITAT MUMBAI] has upheld the decision of the learned CIT(A) in allowing the expenditure incurred by the assessee towards gifts to doctors and medical professionals. Arm s length price of the corporate guarantee fee - CIT(A) in accepting it as @ 0.53% as against 2.25% determined by the TPO - HELD THAT:- Undisputedly, this is a recurring dispute between the parties from the past assessment years. In fact, in assessment year 2008 09 and 2009 10, the matter went up to the Hon'ble Supreme Court and ultimately, the Hon'ble Supreme Court upheld the arm s length price of guarantee commission @ 0.5%. Undisputedly, in the impugned assessment year, the assessee has shown the arm s length price of guarantee commission by applying the rate of 0.53% which has been accepted by learned CIT(A). Pertinently, while deciding assessee s appeal in assessment year 2010 11, the Tribunal in [ 2019 (2) TMI 1067 - ITAT MUMBAI] has held that arm s length price of guarantee commission for all types of guarantee should be determined @ 0.53%. Facts being identical, respectfully following the aforesaid decision of the Co ordinate Bench, we uphold the order of learned CIT(A) on the issue. Grounds are dismissed. Arm s length price of comfort guarantee provided to the AE - HELD THAT:- While deciding identical issue in assessee s own case in assessment year 2010 11 cited supra, the Tribunal has held that guarantee commission of all types of guarantee should be fixed @ 0.53%. In fact, as could be seen from the facts on record, the assessee has not charged any guarantee commission for providing comfort guarantee. In view of the aforesaid, since the TPO has charged guarantee commission @ 0.5% on comfort guarantee, the decision of the TPO on the issue deserves to be upheld. Disallowance under section 14A r/w rule 8D - HELD THAT:- we uphold the decision of learned CIT(A) in deleting the disallowance of interest expenditure under rule 8D(2)(ii), since, the assessee was having sufficient interest free fund. However, we are unable to approve the direction of learned CIT(A) to exclude investment made in subsidiaries for computing disallowance under rule 8D(2)(iii), in view of the decision of Maxopp Investment Ltd. v/s CIT, [ 2018 (3) TMI 805 - SUPREME COURT] . We direct the Assessing Officer to compute disallowance under rule 8D(2)(iii) by considering only those investments which have yielded exempt income during the year under consideration. Further, we make it clear, the disallowance u/s 14A should not exceed the exempt income earned by the assessee during the year under consideration. In so far disallowance of expenditure for earning exempt income while computing book profit u/s 115JB, we direct the AO to restrict such disallowance to the exempt income earned during the year
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2019 (8) TMI 556
Addition u/s 68 - alleged that whole amount related with cash receipts in Annexure A2 was not deposited in banks and shown in the books of account - HELD THAT:- Considering the plea of the Revenue that the assessee has not demonstrated the deposit of entire cash receipts as noted in the diary as being deposited in the bank also, we find no strength in the same also because the facts reveal otherwise. The assessee has demonstrated the fact that against the cash receipts of ₹ 6.68 crores noted in the diary, it has deposited cash in various bank accounts operated by it amounting to ₹ 6.58 crores which is substantially almost the entire amount of cash received by it. This fact has also remained uncontroverted before us. Therefore, there remains no basis with the Revenue for justifying the addition. We agree with the Ld.CIT(A) that the assessee had duly demonstrated the fact of having accounted for all entries noted in the diary Annexure A-2 of cash receipts and, therefore, the addition made of ₹ 5.45 crores on account of holding the entries to this extent as unaccounted for in the books of the assessee, has been rightly deleted by the CI T(A), we hold. - ground of appeal No.2 raised by the Revenue is dismissed. Excess depreciation claimed - claim of higher depreciation on life saving equipments - HELD THAT:- CIT(A) had noted from the details of assets purchased during the year that certain assets did not qualify for higher rate of depreciation and accordingly asked the assessee to file a revised calculation of depreciation. The same was duly filed, gone through by the CIT(A) and no discrepancy or anomaly found in the same and excess depreciation as worked out by the assessee amounting to ₹ 27,71,054/- was upheld by the CIT(A). DR has been unable to point out any anomaly or discrepancy in the findings of the CIT(A). DR has been unable to point out from the revised calculation filed by the assessee to the CIT(A), any incorrectness in the claim of the assessee. In the light of any discrepancy having not been pointed out by the Ld. DR on the facts relating to the revised computation filed by the assessee, we find no reason to interfere in the order of the Ld.CI T(A) restricting the disallowance made by the AO on the excess claim of depreciation to ₹ 27,71,054/-. Moreover, we find that the excess depreciation as worked out by the AO on the additions made during the year amounted to ₹ 10,70,314/-, while the Ld.CIT(A) has disallowed the excess depreciation on the additions made during the year to ₹ 27,71,054/-. In view of the same, since the Ld.CI T(A) has disallowed the excess depreciation on the additions made during the year more than what was disallowed by the AO, there cannot be any grievance of the Revenue on this account. Ground No.3 raised by the Revenue merits no consideration and, therefore, is dismissed. Disallowance of interest expenses u/s 36(1)(iii) - whether advance was made for business purpose ? - HELD THAT:- It is settled law that where sufficient own interest free funds are available, the presumption is that non business advances/investments have been made out of the said interest free funds. The Hon'ble Supreme Court has held so in the case of CIT (LTU) vs Reliance Industries Ltd. in [ 2019 (1) TMI 757 - SUPREME COURT] - As the assessee had own interest free funds in the form of profits of the year alone amounting to ₹ 2.12 crores which were more than sufficient for making the impugned investments of ₹ 42.92 lakhs, we hold that no disallowance of interest u/s 36(1)(iii) was warranted in the present case, since the investments are presumed to have been made out of own interest free funds of the assessee. The disallowance so made of ₹ 5,15,190/- u/s 36(1)(iii) is, therefore, directed to be deleted. Addition made on account of higher receipts from ECHS and CGHS noted in a document Annexure A-119 as against that reflected in the books of the assessee by ₹ 2.23 crores - HELD THAT:- The CIT(A), we find, deleted the addition when the figures on recalculation of the amounts mentioned in document A-119 by the AO was found to be less than that accounted for in the Books of the assessee. The Ld.DR has not controverted the above fact before us. The findings of the CIT(A) therefore that there was no understatement of receipts as per document A-119,we hold, calls for no interference on our part. The order of the CIT(A) deleting the addition of ₹ 2.23 crores on account of document A-119 is therefore upheld. Addition u/s 68 based on entries of the seized material - HELD THAT:- it is not denied that the documents mentioned the name of Dr. Manjari Bhargava on the first page but in her statement made to the AO she has denied making any entry in the same and has stated that the same may have been made by some staff member. No statement of any staff member has been recorded by the search team. The Ld.CIT(A), we find, has gone through the contents of the document, Annexure A-120, and has noted that it only contains some general notings about the reminders of the work to be done, how the work is to be done and some observation probably of audit. The Revenue has not disputed this fact by pointing out otherwise from the document. As for the figures noted in the document which were the basis of addition made, we find that before the Ld.CIT(A) the assessee had explained the same to be pertaining to balances in its various bank accounts on the said dates, had filed a reconciliation of the figures reflected in the balance sheet with the balances in its bank accounts on that date and had substantiated the same with copies of the relevant bank statements. This explanation has also not been shown to be false before us. We therefore find no infirmity in the order of the Ld.CIT(A) holding the impugned figures in the document to be mere rough notings made during audit and thus deleting the addition made by the A.O. - order of the CIT(A) in deleting the addition is, therefore, upheld. Difference between audited trial balance and trial balance found during the course of search - addition made on account of difference of gross receipts as reflected in the provisional trial balance seized and that reflected in the Profit Loss Account - HELD THAT:- Since it is an admitted fact that the document Annexure A-110 was a provisional trial balance of the assessee, the onus rested on the assessee to explain the difference between the gross receipts reflected in the same and that accounted for in the books of the assessee. Whatsoever and howsoever meagre they were the assessee was required to give a plausible explanation for the same since the recordings in the provisional trial balance was admittedly made by the assessee itself and, therefore, there was reason behind recording the gross receipts at ₹ 21.24 crores which was best known to the assessee only. It could not have been brushed aside as being mere provisional figure and difference between the provisional and actual figure being meagre. The action of the Ld.CIT(A), therefore, in confirming the addition of ₹ 11 lacs on account of the same is, therefore, upheld. Short collections in cash recorded in the books of the assessee - HELD THAT:- Refunds of ₹ 2,86,939/- and ₹ 40,87,812/- in OPD and IPD and the net collection after reducing refunds being Net 18928149.10 and Net 9433746400 respectively ,meaning thereby that the total collections reflecting cash, cheque, draft, etc. recorded in Annexure -95, page 84 are inclusive of these refunds ,which have to be reduced, therefore, to arrive at the net cash collection. The refunds so reflected in the summary sheet amount to approximately ₹ 42 lacs(OPD 2lacs + IPD 40lacs) and difference between the cash collected as recorded in the document/summary sheet and that recorded in the books of account is approximately ₹ 32 lacs and, therefore, what emerges, therefore, is that there is no short collections in cash recorded in the books of the assessee, in fact, higher cash collection recorded and for this reason also, there is no need for making any addition on account of unaccounted cash collections made from OPD/IPD.The order of the CIT(A), therefore, deleting the addition is upheld. Addition of share capital - HELD THAT:- Revenue has not controverted the factual findings of the Ld.CIT(A) that Confirmations, PAN and details of cheques issued by the investors and credited in the bank account of the assessee were submitted. No discrepancy has been pointed out by the Ld.DR in the aforesaid documents. The Ld.CIT(A) has also we find specifically dealt with the contention of the AO that there was mismatch in the cheques shown to be issued by the investors and that shown as deposited by the assessee in his bank account. The Ld.CIT(A) has verified this fact and given a categorical finding that there was no such mismatch. The Ld.DR has been unable to controvert this finding of the Ld.CIT(A). No other anomaly or fact has been brought to our notice by the DR casting any doubt on the genuineness of the transaction. The Ld.CIT(A) has also given a finding that share application money received from two persons was returned subsequently, which also has not been controverted by the Revenue before us. We therefore agree with the Ld.CIT(A) that the assessee had duly discharged its onus of proving the genuineness of the transaction and with the Revenue not pointing out any reason to doubt the same, there remains no basis for treating the share capital as unexplained . Assessment us 153A - HELD THAT:- Admittedly no incriminating material relating to share application money received during the year was found during search. The assessment for the impugned year was also earlier completed. Case of KABUL CHAWLA [ 2015 (9) TMI 80 - DELHI HIGH COURT] can be well applied to the facts and circumstances of the case in hand. In view of this, we do not find any justification on the part of the lower authorities for making addition on account of share application money for the year under consideration. Penalty levied u/s 271(1)(c) - addition made on account of disallowance u/s 36(l)(iii) - HELD THAT:- As in the case of Trident Infotech [ 2013 (5) TMI 492 - PUNJAB HARYANA HIGH COURT] wherein penalty levied on identical disallowance of interest u/s 36(1)(iii) was deleted holding that mere disallowance of interest following decision of the Court in the case of Abhishek Industries [ 2006 (8) TMI 123 - PUNJAB AND HARYANA HIGH COURT] does not establish that the assessee had concealed /furnished inaccurate particulars of income, particularly when all particulars relating to the claim had been duly disclosed. The facts leading to the disallowance of interest in the present case are identical. Penalty for disallowance of excess depreciation - HELD THAT:- DR has been unable controvert the findings of the CIT(A) that full and complete disclosure regarding the particulars of claim of depreciation was filed by the assessee. Ld.DR has also not been able to controvert the findings of the Ld.CIT(A) that whether an asset qualified as life saving equipment ,qualifying for depreciation at higher rate, was a debatable issue. Moreover it is an undisputed fact that the assessee had conceded to the disallowance , for the reason that in any case 100% was allowable spread over a period of time. It is not that the claim of the assessee was found wholly untenable. We, therefore, see no reason to interfere in the order of the CIT(A) deleting penalty levied on disallowance of excess depreciation in all the impugned years. Penalty for disallowance of consultancy charges - HELD THAT:- Undisputedly all particulars relating to the claim had been duly disclosed and the disallowance made for want of evidence to prove the rendering of services by the said consultant. It is also a fact on record that the payment was made through banking channels and even TDS deducted on the same. Clearly ,it is not the case that the claim of the assessee was found to be wholly false by the Revenue. We therefore hold that though it may be a fit case for making disallowance of expenses,but definitely the assessee cannot be charged with having concealed/furnished inaccurate particulars of income relating to the same. We therefore direct that the penalty levied on the disallowance of consultancy charges of ₹ 15 lacs be deleted. Penalty for addition on account of difference in receipts reflected in the provisional trial balance and that shown in the books of account - HELD THAT:- The figures reflected in the provisional trial balance cannot be said to the final figures of receipts and, therefore, as rightly stated by the assessee, the addition made is not on account of any concrete finding that the assessee had not disclosed income to the extent of difference between the two document. We therefore hold that though it may be a fit case for making addition but in the facts of the case the assessee cannot be charged with having concealed/furnished any inaccurate particulars of income so as to attract levy of penalty u/s 271(1)(c). We, therefore, direct the deletion of penalty on the addition of ₹ 11 lacs.
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2019 (8) TMI 555
Reopening of assessment u/s 147 - addition u/s 68 - independent application of mind by AO - CIT(A) has held that the AO has wrongly assumed the jurisdiction over the assessee u/s. 148 HELD THAT:- The content of the letter clearly indicates that Investigation Wing was having some suspicion and doubt and it was forwarded to the AO. Without making any enquiries, AO recorded the reason on the basis of only suspicion and doubt. Even AO has not formed his own opinion based on any information gathered or based on any information after perusal of the return filed by the appellant. From the return of income filed by the appellant, it is clearly mentioned that the share capital amount alongwith premium was only ₹ 4.60 crores, however, in the reasons recorded AO has mentioned the share capital amount as ₹ 4,65,98,000/-. AO has copied this figure from the letter of the Investigation Wing. This clearly indicates that AO has not formed its own reason of belief and he has only believed the content of the letter of the Investigation Wing. This content also clearly indicates that while granting the satisfaction by the Addl. CIT, he has not gone through the records and not verified the facts sent by the Investigation Wing. The main observation of the Investigation Wing is that assessee company has charged share premium @₹ 240/- per share which is very high but how this charging of heavy share premiums indicate the escapement of income is not narrated in the letter. AO has also not applied his mind to find out how there is an escapement of income in the form of share capital and share premium. After considering these facts, we find that AO has wrongly assumed the jurisdiction u/s 147 - AO has not given proper opportunity to the assessee to file the objection against the issue of notice u/s 148. The objections disposed off by the AO are also not a speaking one - the grounds raised against the assumption of jurisdiction u/s 147 were rightly allowed by the CIT(A), which does not need any interference on our part, hence, we uphold the action of the CIT(A) on the legal issue and reject the ground no. 1 raised by the Revenue before us. Addition u/s 68 - remarks of the AO clearly indicate that assessee has filed all the necessary documents before the Investigation Wing to prove the identity of the companies, their creditworthiness and genuineness of the transaction. AO has rejected these documents on the ground that these are routine documents. Regarding the charging of premium @₹ 240/- per share, AO commented that this explanation was filed before the Investigation Wing, since reassessment proceeding is different from the proceedings of the Investigation Wing, appellant has not discharged its onus. From the comments mentioned in Para 8 reproduced above clearly indicates that assessee has given explanation for charging the high rate of premium. Without considering those facts and explanation, he has just set aside the explanation on the ground that these explanations were filed before the Investigation Wing. However, the AO was supposed to give reasons for not accepting those explanations. AO has proceeded entirely on the findings of the Investigation Wing and no investigation was made by him. He has not made any enquiry during the re-assessment proceedings. He has even not disclosed the facts on which he has treated that amount of ₹ 4.60 crores as a deemed income of the assessee. Charging of high rate of premium, even if assessee has not started its business has no bearing on the acceptance of the share application money and share premium. Only the companies which have applied for the shares and paid the premium can explain the reasons for paying so much high premium. AO has not made any enquiries from those companies. The enquiries conducted by the Investigation Wing also do not indicate any adverse findings against the assessee. After considering the whole issue, the assessee has established all the ingredients required u/s 68 - Decided in favour of assessee.
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2019 (8) TMI 554
TP adjustment - allowability of interest on CCDs for a period before conversion - whether Compulsorily Convertible Debentures (CCDs) are debt or equity - whether interest on CCDs is an allowable expenditure and if allowable then the amount allowable is as per LIBOR or PLR? - HELD THAT:- Objections of AO/TPO are not merely on the basis of Thin capitalization Principle. Their basic objection is this that since the interest is paid on CCDs, this is not an interest on debt but on equity and hence, not allowable. The TPO has reproduced certain comments of RBI in 2007 Policy on convertible debentures in which it is stated that fully and mandatorily convertible debentures into equity within a specified time would be reckoned as equity under FDI policy. In view of this RBI Policy, the TPO concluded that these CCDs are equity and not debt and therefore, interest on it is not allowable u/s 36 (1) (iii). This finding of TPO is not by invoking Thin Capitalisation principle and therefore, it has to be decided independently. TPO is bases on RBI policy of FDI. We all know that RBI policy of FDI is governed by this that what will be future repayment obligation in convertible foreign currency and since, CCDs does not have any repayment obligation, the same was considered by RBI as equity for FDI policy. Whether such treatment given by RBI for FDI policy can be applied in every aspect of CCDs. Whether the holder of CCDs before ins conversion can have voting rights? Whether dividend can be paid on CCDs before its conversion? - In our considered opinion, the reply to these questions is a BIG NO. On the same logic, in our considered opinion, till the date of conversion, for allowability of interest u/s 36 (1) (iii) also, such CCDs are to be considered as Debt only and interest thereon has to be allowed and it cannot be disallowed by saying that CCDs are equity and not debt. We hold accordingly. This issue is decided. In the present case, the issue is not regarding expenses incurred on issue of shares. In the present case, the dispute is regarding interest on CCDs for a period before conversion. Hence in our considered opinion, this decision of special bench of the Tribunal is not applicable in the facts of present case because the issue in dispute is different. In that case the issue in dispute is regarding expenditure incurred on issue of convertibles whereas in the present case the issue is regarding allowability of interest expenditure on convertible debentures for the pre-conversion period. Hence we hold that the revenue does not find any support from this decision of Special Bench of the Tribunal in ASHIMA SYNTEX LIMITED. VERSUS ACIT. [ 2006 (3) TMI 188 - ITAT AHMEDABAD-B] . Any definition of any term is to be considered keeping in mind the context in which such definition was given. This definition of convertible debentures given by RBI is in the context of FDI policy to exercise control on future re-payment obligations in convertible foreign currency. In our considered opinion, such definition of the term convertible debentures cannot be applied in other context such as allowability of interest on such debentures during pre-conversion period or regarding payment of dividend on such convertible debentures during pre-conversion period or regarding granting of voting rights to the holders of such convertible debentures before the date of conversion. If you ask a question as to whether dividend can be paid on such convertible debentures in a period before the date of conversion or whether such holders of convertible debentures can be granted voting rights at par with voting rights of share holders during pre-conversion period, the answer will be a big NO. On the same analogy, in our considered opinion, the answer of this question is also a big NO as to whether interest paid on convertible debentures for pre-conversion period can be said to be interest on equity and interest on debentures allowable u/s. 36(1)(iii). ALP of such interest on CCDs - We find that in the order of TPO and AO for the initial year i.e. A. Y. 2009 10, there is no discussion or decision on ALP aspect. Learned CIT (A) in that year has held in a very cryptic manner that 15% interest claimed by the assessee is not at arm s length because as per SBI Corporate Office Website, it is 12.25% on 01.01.2009 and 13.00% as on 10.11.2008. He directed the AO/TPO to rework the ALP at 12.62% which appears to be average of these two lower and upper rates of SBI PLR as noted. In later years, DRP has adopted ALP of interest at LIBOR plus but in those years also, TPO has not decided the ALP aspect. This is also a claim of the assessee that ALP of interest should be decided in A. Y. 2009 10 only being the initial year in which CCDs were issued. There is no decision of any of the lower authorities in any year. Considering all these facts, we feel it proper to restore the ALP aspect to AO/TPO in all of these years for a decision as per law after providing adequate opportunity of being heard to the assessee. We do not make any comment on this issue.
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2019 (8) TMI 552
Transfer pricing adjustment relating to intra group services - HELD THAT:- The assessee company provided network connectivity services to customers of its AEs, For rendering services, the assessee availed support services from AEs for which it entered into a Services Agreement dated 01.07.2011 with Interwise Asia Pacific Pte Ltd. As per the said agreement, Interwise Asia Pacific Pte Ltd. shall render the aforesaid services to the assessee on cost plus markup. During the year under consideration, out of the many services for which it had entered into agreement, only one service namely Global Customer Services Center was availed. The assessee submitted the list of the tickets processed along with nature of problem resolved and the relevant evidence was also submitted before the Assessing Officer. Thus, the facts are identical in the present Assessment year as well to that of earlier Assessment Years i.e. 2009-10, 2010-11, 2011- 12, 2012-13 and 2013-14. Since the issue is identical in the present assessment year by assessee s own order, Ground Nos. 1 to 1.6 are allowed. Transfer pricing adjustment with respect to payment of royalty - HELD THAT:- In the present Assessment Year, it is observed that the benefit test cannot be applied to determine the ALP of international transaction. TPO only has to examine as to whether the payment based on the agreement adheres to the arm s length principle or not. Thus, the issue is identical therefore we direct the TPO to determine ALP of the royalty payment in accordance with law. Needless to say the assessee be given opportunity of hearing by following principles of natural justice. Ground nos. 2 to 2.7 partly allowed for statistical purposes Disallowance on account of circuit accruals - HELD THAT:- In the present Assessment Year also as like [ 2017 (9) TMI 1257 - ITAT DELHI] the assessee is following the same method of accruing circuit charges. Since the year-end circuit accruals created by the assessee represent accruals towards normal business expenditure incurred by the assessee for the relevant assessment year and recorded in accordance with the matching principle, deduction in respect therefore should be allowed. The assessee company produced documentary evidence of utilization/reversal of the expenses represented by year-end circuit accruals, which shows that even the balance accruals have also been created on a reasonable basis and hence, no disallowance in this regard can be made against the assessee. Thus, the issue is identical to the earlier Assessment Years and therefore Ground Nos. 3 to 3.6 are allowed. Disallowance on account of year end accruals - HELD THAT:- In the present Assessment Year also the assessee company is following the mercantile system of accounting and since the year end accruals created by the assessee represent accruals towards normal business expenditure incurred by the assessee for the financial year relevant to the present assessment year, deduction in respect thereof has to be allowed to the assessee. The facts are identical in the present Assessment year as well to that of earlier Assessment Year which is decided by the Tribunal in A,Y. 2010-11. [ 2017 (9) TMI 1257 - ITAT DELHI] Disallowance on account of support services - HELD THAT:- In the present assessment year also AT T Communication Services India Pvt. Ltd. (ACSI) which is a group company of the assessee and the assessee company entered into support service agreement, and activities performed by ACSI under support service agreement are essential and integral part. Support services cost of ₹ 8.25 crores which was allocated by ACSI to the assessee towards support services rendered by the ACSI to assessee company. The assessee company submitted all the invoices and the related evidences before the Assessing Officer. But the same was not taken into account by the Assessing Officer. Therefore, it will be appropriate to remand back this issue to the file of the Assessing Officer by giving opportunity of hearing to the assessee by following principles of natural justice. Thus, Ground Nos. 6 to 6.3 are partly allowed for statistical purpose. Disallowance on account of annual share based license fee - HELD THAT:- It is pertinent to note here that the annual revenue share based license fee incurred by the assessee is a business expenditure allowable u/s 37 of the Income Tax Act, 1961. This expenditure was incurred by the assessee company towards maintenance and usage of the telecom license, and not for acquiring a right to operate telecommunication services and thus would not attract the provisions of Section 35ABB of the Act. The assessee s case is squarely covered by the decision of Hon'ble Delhi High Court in the case of CIT vs. Bharti Hexacom Limited [ 2010 (8) TMI 332 - SUPREME COURT] - It is also important to note that in one of the preceding year on same facts, the DRP allowed the claim of the licence fees on revenue basis u/s 37(1) of the Act. Thus, the issue is identical and therefore Ground Nos. 6 to 6.3 are allowed. TDS u/s 194I - Disallowance on account of non-deduction of tax on lease line expenses - HELD THAT:- Lease line charges were paid to the telecom service provider for faster connectivity services through dedicated lease line. As such the payment had been made for availing facility of connectivity services from vendors required for transmission of data and is not for use of any asset involved in provision of such facility covered under Section 194I - The assessee company is not in possession as well as not in control of the equipments which were used for providing internet and communication facilities, therefore, there was a clear absence of the element of leasing of equipments, as a fall out of which the applicability of the provisions of Section 194I stood excluded. Thus, the nature of payment is not at all related to any equipment, therefore, assessee is not require to deduct tax at source under the statutory provisions of Section 194I of the Act. Disallowance on account of notional foreign exchange loss - HELD THAT:- In the present year, the assessee company has given break up of foreign exchange loss of ₹ 1.29 crores which is claimed in return of income as a tax deductible expense. The loss is on account of exchange fluctuation in debtors, creditors, and other items which are revenue in nature. Therefore, such loss is allowable expenditure u/s 37(1) of the Act. But the Assessing officer has not taken into account the submissions and the evidences provided by the Assessee during the assessment proceedings. Therefore, it will be appropriate to remand back this issue to the file of the Assessing Officer
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2019 (8) TMI 551
Interest earned on fixed deposit - interest was set-off against pre-operatives expenditure thereby will go to reduce the cost of CWIP? - notice issued based on AIR information - HELD THAT:- Issue squarely covered by decision of SOLARFIELD ENERGY TWO PVT. LTD. VERSUS ITO [ 2017 (10) TMI 680 - ITAT MUMBAI] wherein held that interest earned on fixed deposit is capital receipt and has to be set-off against pre-operatives expenditure thereby will go to reduce the cost of CWIP. Ground raised is allowed in favour of assessee. Accrual of income - Testing period revenue - income generated during trial run - income received by the assessee before the commencement of business will reduced from WIP or taxable as income from other sources - HELD THAT:- Being consistent with the earlier view taken by the co-ordinate benches of the Tribunal, we are of the view that the income generated during trial run does not arise as the commercial operation of the assessee was not started during the period of trial, thus, the ground of appeal raised by the assessee is allowed.
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2019 (8) TMI 550
Revision u/s 263 - assessee claimed depreciation on windmills @ 80% and AO allowed the same without passing speaking order - HELD THAT:- On perusal of the assessment order, we find that the assessment order is very cryptic. It may be evident that the windmills were transferred in the name of the assessee on 25.05.2012. In this case, the Assessing Officer has not examined/determined the WDV of old windmills against which huge amount of depreciation was allowed against the claim of the assessee. What was the actual cost of the windmill was not brought on record and otherwise also, after claiming depreciation for 6-7 years old windmills, where there is possibility of obsolete technology, would fetch such a higher cost. Hence we are of the considered opinion that the assessment order passed under section 143(3) of the Act is erroneous and prejudicial to the interest of Revenue. Under these facts and circumstances, the ld. PCIT has rightly invoked the provisions of section 263 of the Act and directed the Assessing Officer to re-do the assessment afresh after verification of the issues and we find no reason to interfere with the order passed by the ld. PCIT. Thus, the ground raised by the assessee stands dismissed.
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2019 (8) TMI 549
Allowable business expenses in construction project - recognition of income expenses including cost of borrowings - AS 7 on Construction Contracts - AS 16 on Borrowing costs - revenue expenses or cost of project need to capitalised with capital WIP - HELD THAT:- In the instant case, where the assessee is in the business of development and construction of group housing project, the interest cost though allowable have to be accumulated as per the method of accounting followed by the assessee wherein it is accumulating all the project costs and the same is claimed as and when it achieves the prescribed construction and development threshold. More so, where it is the stated position of the assessee that for computation of revenues, the stage of completion was arrived at with reference to the entire project costs incurred including land costs, borrowing costs and construction and Development Costs. In our view, such an approach will give a true and correct picture of state of affairs of the assessee s business activities and thus should precede over the claim of the assessee of such interest cost in the year of incurrence. The various decisions which have been relied upon by the ld AR were rendered solely in context of section 36(1)(iii) and the issue relating to the method of accounting, and the interplay between section 36(1)(iii) and method of accounting have not been examined in those decisions and hence, the said decisions doesn t support the case of the assessee. In the result, the finance cost and interest paid to partners and others will be required to be accumulated as part of work-in-progress and cannot be claimed in the year under consideration. In respect of other expenses debited in the profit/loss account, we find that these include JDA expenses, salary of employees at site, site office expenses. These expenses are directly related to construction and development activities and should therefore form part of work-in-progress and therefore, cannot be claimed in the year under consideration. Rest all expenses are in nature of general administrative and overhead expenses and has rightly been claimed for tax purposes.- In the result, the ground of revenue s appeal is partly allowed. Reclassification of income from the head of Income from other sources to business income - HELD THAT:- The same has been directed to be allowed set-off against business loss claimed by the assessee. We find that in schedule 11: other income of the financial statements, the assessee has shown discount received of ₹ 8494 and interest received of ₹ 17,260. The discount receipt seems to be related to some business purchase and is clearly in the nature of business receipt. The nature of interest income is not clear from the record. Notwithstanding the same, as we have held above that the assessee is eligible to claim certain administrative and other overheads expenses incurred during the year, the same would result in a loss under the head Business income and the interest income even where classified under the head Income from other sources can be set off against such business loss. In the result, the ground of revenue s appeal is dismissed.
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2019 (8) TMI 547
Rectification proceedings in terms of Sections 154/155 - mistake apparent from the record - pendency of the appeal before the CIT (A) pursuant to the remand by the Tribunal - HELD THAT:- It is ex facie apparent that the notice issued under Sections 154/155 of the Act dated 02.08.2018 is incomplete. Furnishing the details of the rectification, which the Authority is proposing to, is sine qua non for passing rectification order. In the absence of such particulars made available to the petitioner/assessee, the assessee is deprived to meet the proposals made which would result in violation of principles of natural justice. On the basis of the notice dated 02.08.2018, the order impugned is passed enhancing the tax liability. Hence, the said order suffers from the vice of arbitrariness and is illegal per se. The pendency of the proceedings before CIT(A) pursuant to the order of ITAT on a different issue, would not preclude the respondent No.2-Authority to proceed with the rectification of the order giving effect to the original order of CIT(A), not the subject matter of the present appeal before CIT(A). But in view of the remand by ITAT to the CIT(A) for adjudication on the ground Nos.9 and 10, this Court deems it appropriate to direct CIT(A) to dispose of the appeal in accordance with law in an expedite manner, preferably within a period of six months from the date of receipt of the certified copy of the order and is ordered accordingly. The respondent No.2 is at liberty to conclude the rectification proceedings in accordance with law relating to any other issue not the subject matter of the pending appeal, after issuing a fresh notice
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2019 (8) TMI 546
Extension of time for providing bank guarantee as directed by HC - as directed the parent company shall provide a corporate guarantee for the balance amount under the penalty order which shall subsist till the final disposal of the appeal within a period of three weeks from today - HELD THAT:- This court has considered the submissions advanced by the learned counsel for the respective parties. Insofar as the apprehensions voiced by the learned counsel for the respondent are concerned, the same do not fall within the scope of the present application whereby the applicant only seeks extension of the time stipulated by this court for furnishing the corporate guarantee. In fact what the respondents seek is a modification of the judgment and order dated 15.04.2019 by substituting the condition of furnishing corporate guarantee with bank guarantee, which cannot be done in an application filed by the applicant herein. Insofar as the relief prayed for in this application is concerned, in the opinion of this court, the same appears to be reasonable inasmuch as on account of the ensuing vacations the judgment and order was not uploaded till 24th May, 2019, on account of which the applicant was not in a position to do the needful to obtain the corporate guarantee from the parent company which is situated in the Netherlands. Therefore on account of no fault on its part the applicant should not be made to suffer. The application, therefore, deserves to be allowed. The application succeeds and is accordingly, allowed. The time stipulated by this court for furnishing corporate guarantee by its judgment and order is hereby extended till 25th June, 2019.
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2019 (8) TMI 545
Penalty u/s 271(1)(c) - defective notice - absence of any specific mention in the show-cause notice issued under section 274 of the Act as to whether the asseessee is guilty of having furnished inaccurate particulars of income or of having concealed particulars of such income - HELD THAT:- Notice issued under section 271(1)(c) without specifying which of the two contraventions, the assessee is guilty of was defective and the penalty imposed in pursuance of such defective notice was not sustainable. See THE COMMISSIONER OF INCOME TAX OTHS. VERSUS M/S MANJUNATHA COTTON AND GINNING FACTORY OTHS., M/S. V.S. LAD SONS, [ 2013 (7) TMI 620 - KARNATAKA HIGH COURT] - we cancel the penalty imposed upon the assessee under section 271(1)(c) and allow the appeal of the assessee.
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2019 (8) TMI 544
Penalty u/s 271(1)(c) - additions on account of deduction u/s 80IB(7) and netting off of interest and disallowance of expenses of Jaipur Project - HELD THAT:- It is seen that the assessee s claim has been that interest income on short term surplus funds which was kept for running hotel business, rent receipt etc. had direct nexus with hotel business and these are income derived from hotel business. Similarly the expenses related to Jaipur project were also claimed on the ground that it is not a separate business but a part of the assessee s own business. The other project was form of expansion of same business already carried on. Thus, the same were claimed as revenue expenses. Similarly on netting of interest assessee has given a bonafide explanation as how the interest income and interest expenditure had a direct nexus. By making such a claim it cannot be held that assessee has furnished any inaccurate particulars of income or concealed any particulars of income. Simply because disallowances have been made without any adverse material on record but on some legal interpretation, then no penalty can be levied in view of the decision of Hon ble Apex Court in the case of Reliance Petro Products Pvt. Ltd. [ 2010 (3) TMI 80 - SUPREME COURT] The findings and reasons of the Ld. CIT (A) for deleting the penalty is thus upheld - Decided in favour of assessee.
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2019 (8) TMI 543
TP Adjustment - selection of comparable - international transaction of Provision of Design Engineering Services - list of comparables at the time of giving effect to the direction of the DRP - HELD THAT:- Referring to functional profile of the assessee a wholly owned subsidiary of AMCC, USA, was established in India to carry on the business of computer software, manufacture/supply of hardware, electronic components and systems, networking and providing advice, consultation and software technology solutions inter alia in relation to embedded operating system etc. companies functionally dissimilar with that of assessee need to be deselected from final list. Acropetal Technologies Ltd. - TPO vide his rectification order excluded Acropetal Technologies Ltd. from the list of comparables. The AO passed the draft order accordingly. The assessee accepted the exclusion of Acropetal Technologies Ltd. but assailed the draft order before the DRP on certain other issues. The DRP gave certain directions but did not direct to include Acropetal Technologies Ltd. in the list of comparables either suo motu or on the request of the assessee. Once the position was so, the exclusion of Acropetal Technologies Ltd. attained finality as the same did not figure in the draft order. The AO/TPO, while giving effect to the directions of the DRP, were devoid of any power to again include Acropetal Technologies Ltd. in the list of comparables for enhancing the amount of transfer pricing adjustment. Having himself excluded Acropetal Technologies Ltd. up to the stage of passing the draft order, the TPO ceased to exercise any jurisdiction to re-examine his earlier view and include it in the list of comparables at the time of giving effect to the direction of the DRP, when it was not a part of the direction. Under such circumstances, we direct to exclude Acropetal Technologies Ltd. from the list of comparables for benchmarking the international transaction of provision of design engineering services. Eclerx Services Ltd. - in the Annual report that this company rendered Financial services; Sales and marketing services; and Cable and telecommunication services. No separate segmental information is available. When we consider the nature of services provided by Eclerx Services Ltd. on entity level in juxtaposition to the services rendered by the assessee, we find that there is a lot of difference. Notwithstanding that, it is still further found from page 10 of the Annual report of this company that there happened certain extraordinary financial events during the year in as much as there was acquisition and integration of Agilyst, a company which was bought at the beginning of the year. The Chairman s message records that the erstwhile Agilyst is now Eclerx Services Ltd. s third business - Cable and Telecom Services (CTS). Ergo, it is seen that Eclerx Services Ltd. acquired a new company during the year under consideration which is an extraordinary event. In view of our decision on the exclusion of the two companies from the final set of comparables, we do not propose to deal with other issues relevant to this international transaction. In the ultimate analysis, we set aside the impugned order and remit the matter to the file of AO/TPO for reworking out the ALP of the international transaction of Provision of Design Engineering Services afresh in accordance with our above observations and directions. Needless to say, the assessee will be given an adequate opportunity of hearing. Disallowance u/s 43B on account of late deposit of Employees contribution to Provident Fund Scheme - assessee late deposited the share of employees contribution for a particular month beyond the grace period of 5 days - HELD THAT:- We find that this issue is no more res integra in view of the judgment of the Hon ble jurisdictional High Court in CIT Vs. Ghatge Patil Transports Ltd. [ 2014 (10) TMI 402 - BOMBAY HIGH COURT] in which it has been held that both employees and employer s contribution are covered under amendment to section 43B and no disallowance can be made if the payment is made before the due date of filing return u/s.139(1) of the Act. The DRP has recorded on page 65 of its direction that the contribution of ₹ 13,34,813/-, pertaining to the month of July, was actually deposited on 24-08- 2012 as against the due date of 20-08-2012. Respectfully following the precedent, we allow this ground of appeal.
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2019 (8) TMI 542
Reopening of assessment u/s 147 - as per assessee argued that it is not a fit case for reopening U/s 147 but provisions of Section 153C of the Act should have been invoked - bogus purchases - HELD THAT:- AO on the basis of information received from Investigation Wing regarding assessee's obtaining accommodation bills of purchases etc. from the entry providers without physically taking in the possession of the goods, made inquiry and then reopened the assessment after duly recording the reasons to believe that there was escapement of income. The AO on the basis of Investigation Report made his own enquiry and found that there was sufficient reason to believe that income of the assessee has escaped assessment in so far as assessee has taken accommodation entries from the number of identities controlled and managed by Rajendra Jain Group and others, entry operators at Bombay in whose case search was conducted by the Income Tax Department wherein it was admitted by him that he was in the business of providing accommodation entries. Since the assessee was claiming purchases from the parties which were only issuing accommodation bills and were not having any stock available with them, the A.O. formed an opinion that there was escapement of income. The reopening of assessment was done by the AO after properly recording the reasons and following due procedure of law. The sufficiency or correctness of material is not a thing to be considered at the time of reopening the assessment. Proper approval was taken by the AO before reopening the assessment. Accordingly, we do not find any merit in the contention of the ld.AR that reopening was not justified. Addition u/s 68 - we found that the assessee was unable to prove the genuineness of the purchase, accordingly, the AO added 25% of such alleged purchases in assessee's income. After rejection of books of account, the addition is to be made keeping in view gross profit rate actually declared by the assessee during the year as compared to average gross profit shown by him in earlier years. We found that in the Assessment Year 2009-10, the assessee had shown the gross profit rate of 21.24%, in Assessment Year 2010-11- gross profit rate of 18.97%, in Assessment Year 2011-12- gross profit rate of 17.37%, in Assessment Year 2012-13- gross profit rate of 15.45% which are higher than the average gross profit rate of 14.13%. Accordingly, as per our considered view, no addition in these Assessment Years is warranted. Accordingly, we delete the part addition so upheld by the ld. CIT(A) in Assessment Year 2009-10 to 2012-13. However, in Assessment Year 2013-14, the assessee had shown gross profit rate of 13.21%, in the Assessment Year 2014-15 gross profit rate 11.02% which are undoubtedly lower than the average gross profit rate of 14.13%. Accordingly, we direct the AO to compute the gross profit of 2013-14 and 2014-15 by applying gross profit rate of 14.13% to the actual sales shown by the assessee which are at ₹ 5.23 crores in A.Y. 2013-14 and ₹ 8.71 crores in A.Y. 2014-15. The shortfall so worked out by applying the gross profit rate of 14.31% is to be upheld. As per our calculation of A.Y. 2014-15, the gross profit addition works out to be at ₹ 27,06,815/- whereas in the Assessment Year 2013-14, the gross profit additions works out to be at ₹ 4,79,752/-. We direct accordingly.
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2019 (8) TMI 541
Exemption claimed u/s.54B - profits realized on sale of the agricultural land constituted business income and also denied the exemption claimed u/s.54B - benefit of deduction u/s.54B denied on the ground that the land was not used by the assessee for agricultural purposes for the preceding two years from the date of transfer of such land - HELD THAT:- Assessing Officer has not conducted any specific enquiry to negate the assertions made by the assessee that the land was used for agricultural purposes. As per the 7/12 extracts, kharif season crops were grown on that land. As decided in SHRI VINIT KRISHNAKUMAR GOYAL VERSUS THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-9, PUNE. [ 2019 (8) TMI 520 - ITAT PUNE] It is an undisputed fact that the 7/12 extracts were provided to the Revenue Authorities wherein clearly it is stated that the land in question was agricultural land. Even, there is certificate from Deputy Director, Town Planning, Pune stating that at the time of transfer the lands were agricultural land. Similarly, in the Sale Deed itself it is clear that the lands in question were agricultural land. On the contrary, though the Revenue is taking the transaction as business income they have not brought in any evidence on record neither they have conducted any specific enquiry to show that it is business transaction. - Decided against revenue.
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2019 (8) TMI 540
Bogus purchases - Information from the Jaipur Investigation Wing was received that certain persons were issuing bogus bills and were charging 0.5% commission on the same - HELD THAT:- Investigation Wing has provided information to the A.O. that assessee made purchases from above two parties of ₹ 22,00,016/-, however, the actual purchases made by the assessee are of ₹ 17,45,000/- only. This fact is mentioned in the assessment order itself and Ld. CIT(A) also allowed the relief to the assessee to that extent. Therefore, the information provided by the Jaipur Investigation Wing was also doubtful. The right to rebut to such adverse material should have been provided to assessee for explanation of assessee. These facts are sufficient to hold that the material collected by Jaipur Investigation Wing cannot be used in evidence against the assessee. Further the assessee produced copies of the purchase bills, U.P. Trade Tax Department and bank statements to prove that purchases are made from these parties through purchase bills and through banking channel. All items of purchases have been declared to U.P. Trade Tax Department and in the declaration even the weight of the items have been mentioned. The A.O. did not make any investigation on the same and without any investigation disbelieved the documentary evidences produced on record. These facts are sufficient to prove the explanation of assessee that assessee made genuine purchases and such fact of purchase have also been mentioned in the quantitative details of the closing stock. We are of the view that there was no justification to consider the purchases made by the assessee to be bogus purchases. We, accordingly, set aside the Orders of the authorities below and delete the addition - Ground of appeal of assessee allowed. Penalty u/s 271(1)(c) - HELD THAT:- Since the addition on account of bogus purchases have been deleted which is the basis for levy of the penalty under section 271(1)(c) of the I.T. Act, we are of the view that no penalty is leviable against the assessee. In view of this, we set aside the Orders of the authorities below and cancel the penalty.
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2019 (8) TMI 539
Deemed dividend u/s 2(22)(e) - HELD THAT:- As detailed debits and credits in the three companies have already been reproduced by the CIT(A) in the order. We find merit in the submission of the ld. counsel that provisions of section 2(22)(e) of the IT Act will be attracted only if the net balance is an advance to the assessee when he is maintaining three separate accounts with the same company. Since in the instant case it is an undisputed fact that the assessee is maintaining three accounts with the said company and the cumulative balance is advance given by the assessee to the company and not advance received by the assessee from the said company, therefore, the provisions of section 2(22)(e) of the IT Act are not applicable.S et aside the order of the CIT(A) and direct the Assessing Officer to delete the addition. The grounds raised by the assessee on this issue are accordingly allowed. Disallowance of depreciation on vehicle - as per AO assessee has not used the vehicle or the telephone for the purpose of his business. He, therefore, rejected the claim of depreciation - HELD THAT:- It is the submission of the ld. counsel for the assessee that when the assets have already been entered into the block of assets, therefore, use of individual asset is not necessary and, therefore, the Assessing Officer or the CIT(A) are not justified in disallowing the depreciation. I find merit in the above argument of the ld. counsel for the assessee. As held by the Hon'ble Delhi High Court in CIT vs. Bharat Aluminium Co. Ltd. [2010 (8) TMI 26 - DELHI HIGH COURT ] as relied on by the ld. counsel for the assessee that though as per section 32(1), in order to be entitled to claim depreciation, asset is to be owned by assessee and it is also to be used for purpose of business or profession, but expression used for the purpose of business , when applied to block of assets, would mean use of block of assets and not any specific building, machinery, plant or furniture in said block of assets as individual assets lose their identity after becoming inseparable part of block of assets. The various other decisions relied on by the ld. counsel for the assessee and placed in the paper book also support his case. Since there is no dispute to the fact of the instance case that the vehicle and telephone instruments are already into the block of assets, therefore, the expression used for the purpose of business would mean use of block of assets and not any specific asset of the block during the year as individual assets lose their identity after becoming inseparable part of block of assets. I, therefore, set aside the order of the CIT(A) and direct the Assessing Officer to delete the disallowance of depreciation made. The second issue raised by the assessee in the grounds of appeal is allowed.
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2019 (8) TMI 538
Reopening of assessment - reasons to believe - material evidence could not be discovered by the Assessing Officer and could be discovered with due diligence attracting the explanation to the provisions of section 141 - HELD THAT:- SLP dismissed.
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2019 (8) TMI 537
Addition u/s 68 - identity of the investor/ creditor, its credit worthiness and genuineness of the transactions - assessee had provided the details of the investor; a survey enquiry pursuant to Section 133(6) was carried ou - HELD THAT:- SLP dismissed.
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2019 (8) TMI 536
Reopening of assessment u/s 147 - BAL had transferred telecom infrastructure assets to its subsidiary and the present petitioner-BIL on 31st January, 2008 for nil consideration under a Scheme of Arrangement ( SOA ) approved by the Delhi High Court - scheme of demerger conceived - validity of Reasons to believe - HELD THAT:- Special Leave Petition is dismissed.
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2019 (8) TMI 535
Exemption u/s 11/12 denied - charitable activity or not? - objects of the appellant within the purview of providing medical relief, imparting education or relief to the poor - CIT-A upholding the action of the assessing officer in denying exemption, under Sections 11/12 of the Income Tax Act, 1961, after holding that the appellant's activities were not charitable in nature - Tribunal allowed exemption - HELD THAT:- Special Leave Petition is dismissed.
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2019 (8) TMI 534
Penalty u/s 271(1)(c) levied on the legal representative/heirs - penalty was initiated assessee-husband but not concluded prior to his death - penalty in hand of wife - interpretation of Section 159 - HELD THAT:- Special leave petitions are dismissed on tax effect. However, question of law is left open.
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2019 (8) TMI 522
Deduction of certain amount u/s 80 IB/IC as part of trading profits for the bated unit - HELD THAT:- The record shows that the assessee derived this income from the sale of boxes manufactured by it to house electric meters. It is not disputed that the deduction under Section 80 IB/IC was for manufacture of electric meters. The manufacture and supply of boxes, which are essentially for housing electronics meters so as to make it convenient for use by the consumers is an activity intrinsically connected with the business qualifying for deduction. As a consequence, it is held that this question of law does not arise. Dis-allowance under Section 14 A - HELD THAT:- Decision of Godrej Boyce Manufacturing company ltd. Vs. Deputy Commissioner of Income Tax Anr. [ 2017 (5) TMI 403 - SUPREME COURT] covers the question of dis-allowance against the revenue under Section 14 A. ALP determination and adjustment , the question does not arise in view of the recent decision of this Court in Pr. Commissioner of Income Tax, Udaipur Vs. M/s Secure Meters Ltd., E-Class, Pratapnagar Industrial Area, Udaipur [ 2019 (8) TMI 512 - RAJASTHAN HIGH COURT ]. Adjustment on account of the corporate guarantee provided by the assessee to its A.E , does not arise. The reasoning is that such corporate guarantee is part of the commercial activity of the assessee and no cost was incurred by the assessee when it provided this benefit to its A.E. By all accounts it appears, therefore, to be book transaction. List the appeals for hearing on 03.09.2019.
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2019 (8) TMI 520
Nature of land sold - agriculture land - capital assets leads to capital gain OR business assets leads to business income - AO consider profits of on sale of land as non agriculture land sale and treated as business income - no agricultural income was shown by the assessee - HELD THAT:- It is an undisputed fact that the 7/12 extracts were provided to the Revenue Authorities wherein clearly it is stated that the land in question was agricultural land. Even, there is certificate from Deputy Director, Town Planning, Pune stating that at the time of transfer the lands were agricultural land. Similarly, in the Sale Deed itself it is clear that the lands in question were agricultural land. On the contrary, though the Revenue is taking the transaction as business income they have not brought in any evidence on record neither they have conducted any specific enquiry to show that it is business transaction. The Hon‟ble Jurisdictional High Court in CIT VERSUS DHABLE, BOBDE PAROSE, KALE, LUTE AND CHOUDHARI [ 1992 (9) TMI 45 - BOMBAY HIGH COURT] held that the onus of proving that the land formed part of the business assets of the assessee is on the Department and in the absence of any evidence to that effect the presumption will be that the land was held as a capital asset by the assessee and the income from transfer thereof was not income from business. - we set aside the order of the Ld. CIT(A) and direct the AO to delete the addition from the hands of the assessee on this issue Disallowance of development expenses at ad-hoc @ 10% - HELD THAT:- The assessee has provided all the details of development work that he has undertaken before the Revenue Authorities. The Revenue Authorities did not raise any doubt regarding development activities taken place. That on verification of the relevant documentary evidences, it was found that certain receipts were not available or they were sans any signature. The Revenue Authorities disallowed 10% of the expenses only on the ground that proper vouchers and documents were not maintained/signed and in order to prevent any leakages of revenue. Taking the totality of facts and circumstances into consideration, we are of the considered view that this 10% disallowance of the expenses is definitely on the higher side. To meet the ends of justice, we set aside the order of the Ld. CIT(A) and direct the AO to restrict the disallowance to ₹ 1,50,000/- under this head while providing appeal effect to this order.
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Corporate Laws
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2019 (8) TMI 533
Affidavit filed but no objection thereto - proof of debt filed - section 530 of Companies Act, 1956 - HELD THAT:- Hearing is adjourned for the office to inform Court regarding whether there has been verification of claim lodged by SAIL. Statement made in paragraph 9 of its said affidavit-in-opposition, is its contention regarding the claim, thereby omitting reference to whether or not it was verified. List under same heading on 13th August, 2019.
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Insolvency & Bankruptcy
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2019 (8) TMI 553
Maintainability of application - Initiation of Corporate Insolvency Resolution Process - Corporate Debtor - outstanding amount due and payable by the corporate debtor - time limitation - HELD THAT:- The default occurred from 16.10.2017, hence the debt is not time barred and the application is filed within the period of limitation. The application in Form 5 is complete; no payment of the unpaid operational debt of ₹ 2,80,000/- has been made; demand notice in Form No. 3 and 4 was duly served on corporate debtor through registered post but no reply was received by Operational Creditor; the affidavit under section 9 (3) (b) of no dispute has been filed. In view of the satisfaction of the conditions provided for in Section 9(5)(i) of the Code, we admit the application and direct the initiation of CIRP of M/s. Ojasvi Agritech Private Limited. Application admitted - moratorium declared.
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2019 (8) TMI 532
Constitutional validity of amendments made to the Insolvency and Bankruptcy Code, 2016 - allottees of real estate projects deemed to be financial creditors - corporate debtor - Code for reorganization and insolvency resolution of corporate debtors HELD THAT:- Even by a process of harmonious construction, RERA and the Code must be held to co-exist, and, in the event of a clash, RERA must give way to the Code. RERA, therefore, cannot be held to be a special statute which, in the case of a conflict, would override the general statute, viz. the Code - As a matter of fact, the Code and RERA operate in completely different spheres. The Code deals with a proceeding in rem in which the focus is the rehabilitation of the corporate debtor. This is to take place by replacing the management of the corporate debtor by means of a resolution plan which must be accepted by 66% of the Committee of Creditors, which is now put at the helm of affairs, in deciding the fate of the corporate debtor. Such resolution plan then puts the same or another management in the saddle, subject to the provisions of the Code, so that the corporate debtor may be pulled out of the woods and may continue as a going concern, thus benefitting all stakeholders involved. It is only as a last resort that winding up of the corporate debtor is resorted to, so that its assets may be liquidated and paid out in the manner provided by Section 53 of the Code - That another parallel remedy is available is recognised by RERA itself in the proviso to Section 71(1), by which an allottee may continue with an application already filed before the Consumer Protection fora, he being given the choice to withdraw such complaint and file an application before the adjudicating officer under RERA read with Section 88. In Swiss Ribbons [ 2019 (1) TMI 1508 - SUPREME COURT ], this Court while repelling a challenge to the constitutional validity of the Code based on a purported infraction of Article 14, differentiated between financial and operational creditors. In so doing, it made it clear that the context of the decision dealt with banks and financial institutions as financial creditors as opposed to operational creditors who could be corporations or individuals to whom monies were owed for goods and/or services - The principle contained in Swiss Ribbons (supra), that far greater deference is accorded to economic legislation, as the legislature is given free play in the joints and is at liberty to conduct economic experiments in public interest, finds an early application in STATE OF GUJARAT VERSUS AMBICA MILLS LTD. AHMEDABAD [ 1974 (3) TMI 108 - SUPREME COURT ] , and applies on all fours in this case. The Amendment Act to the Code does not infringe Articles 14, 19(1)(g) read with Article 19(6), or 300-A of the Constitution of India - The RERA is to be read harmoniously with the Code, as amended by the Amendment Act. It is only in the event of conflict that the Code will prevail over the RERA. Remedies that are given to allottees of flats/apartments are therefore concurrent remedies, such allottees of flats/apartments being in a position to avail of remedies under the Consumer Protection Act, 1986, RERA as well as the triggering of the Code - Section 5(8)(f) as it originally appeared in the Code being a residuary provision, always subsumed within it allottees of flats/apartments. The explanation together with the deeming fiction added by the Amendment Act is only clarificatory of this position in law.
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2019 (8) TMI 531
Contempt petition - direction to punish respondent No. 7 and its key officers/directors (respondent Nos. 1 to 6) for willful disobedience of the undertaking dated 21.04.2017 given on behalf of respondent No. 7, in respect of a settlement under Order 23 Rule 3 CPC as also for violation of order dated 10.07.2017, whereby, in view of the settlement, a compromise decree has been passed - whether the respondents are guilty of contempt as alleged by the petitioner? Maintainability of the contempt petition - HELD THAT:- From a reading of the judgment of the Apex Court in the case of RAMA NARANG VERSUS RAMESH NARANG AND ANR. [ 2006 (4) TMI 553 - SUPREME COURT] , it is clear that a contempt petition would lie in case there is a violation or non-compliance of a compromise or a consent decree and merely because execution is one of the remedy available to the decree holder, it cannot be said that the Court s jurisdiction to deal with the matter under the Contempt of Courts Act is taken away - Following the ratio of the judgment in the case of Rama Narang, the preliminary objection raised by the respondents regarding the non-maintainability of the petition is rejected. Now coming in to the merits of the case, in order to hold a person guilty of civil contempt, it has to be established by the person alleging contempt that the alleged contemner was guilty of a willful breach or a willful disobedience of an order or a direction, decree etc. of any Court. The emphasis, therefore, has to be on the word willful. The word willful means an act or omission which is done voluntarily and with an intent to do something which is forbidden by law or failing to do something which the law requires to be done. The Apex Court in the case of NIAZ MOHAMMAD AND ORS. VERSUS STATE OF HARYANA AND ORS. [ 1994 (9) TMI 364 - SUPREME COURT] had the occasion to explain willful disobedience as used in Section 2(b) of the Contempt of Courts Act. It was held that before a contemnor is punished for non-compliance of the direction of a Court, the Court must be satisfied not only of the fact that there is disobedience of a judgment or decree or direction but also must satisfy itself that such disobedience was willful and intentional. The Civil Court in an execution proceeding is not concerned whether the disobedience is willful or otherwise and once a decree is passed, it is the duty of the Court to execute it. On the other hand, while examining the grievance of a person who has invoked the contempt jurisdiction, the Court has to record a finding of willful and intentional disobedience - If from the circumstances of a particular case, the Court is satisfied that there has been a disobedience but the same is a result of some compelling circumstances, under which it was not possible for the contemnor to comply with the order, the Court may not punish the alleged contemnor. Whether by not paying the money to the petitioner in terms of the compromise decree, the respondents have willfully disobeyed the order, with an intent to do so or there are any compelling circumstances, which has prevented the respondents from paying the balance amount in terms of the compromise decree? - HELD THAT:- The ICICI Bank, one of its significant financial creditors, recalled its financial assistance to the tune of 412 Crores and the Bank issued notice under the SARFAESI Act. Respondent No. 7 thereafter applied under Section 10 of the IBC asking for Insolvency Resolution process to be set in motion. An IRP was appointed to take over the management and the powers of the Board of respondent No. 7 were suspended. The IRP has applied to the NCLT to liquidate the Company. Respondent No. 7 owes over ₹ 2000 Crores to various creditors. Respondent No. 7 has a list of several financial creditors and operational creditors and the petitioner is one of the operational creditors way down in the seriatim. The respondents, are therefore, prevented by operation of law from jumping the queue and paying the balance amount to the petitioner in satisfaction of the compromise decree. In the absence of any willful disobedience by the respondents, this Court cannot grant the relief sought for by the petitioner - the respondents cannot be held guilty of the alleged contempt for the present. However, if in future the respondent Company is revived or any fresh cause of action arises in favour of the petitioner, this judgment will not come in the way of the petitioner seeking a remedy available to him in law. Petition dismissed.
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2019 (8) TMI 530
Maintainability of CIRP application against the Government company - difference of opinion. As per the member judicial :- The Respondent is a Government Company as defined under section 2 (45) of the Companies Act, 2013, wherein 100% of its shares are being held by the President of India. Therefore, if upon filing of an Application under Sections 7, 8 and 9, and the same were to be admitted, recovery proceedings then would be said to have been initiated against the President of India, which cannot be allowed under the procedure of IBC. The State has either tried treating Financially Sick Companies or made sure that dues of the all its Creditors are duly paid.In a Welfare State like India, allowing Insolvency proceedings against an Agency of the Stateis like proceeding against the state itself and the same will set out a wrong precedent - petition dismissed. As per member technical:- If the contentions raised by the Ld. Senior Counsel on behalf of the Corporate Debtor is accepted, it tantamount to the situation where the Public Sector Companies can borrow money left, right and centre or create liabilities and the creditors have to be left in lurch compelling them to approach the civil courts or the writ court for getting relief, where the system is already suffering from docket explosion, which will ultimately hurt the economic interest of the nation and the ease of doing business. The code is a major economic reform undertaken by the Government to overcome the bottleneck in the economic development of the country and the present situation is that the economic activity awaits at the doorsteps of the NCLTs, and hence the spirit of the Code shall not be spoiled by diluting and tinkering the Code. - Application admitted.
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2019 (8) TMI 529
Preferential rights of secured creditors - Handing over the possession of the mortgaged property - restraint on Interim Resolution Professional from demanding the custody of the property - loan became bad and declared Non-performing asset - HELD THAT:- Section 18 of the I B Code deals with Duties of Interim Resolution Professional . As per which, it is the duty of the Interim Resolution Professional to take over the control and custody of any assets over which the Corporate Debtor has ownership rights as recorded in the balance sheet of the Corporate Debtor which includes the assets that may or may not be in possession of the Corporate Debtor as apparent from clause (f) (ii) of Section 18 - from Section 18, it is clear that the term assets do not include the assets owned by a third party in possession of the Corporate Debtor . It is not the case of the Appellant that the title of the assets has already been transferred or they have sold the assets in terms of Section 13(4) of the SARFAESI Act, 2002 . It is also not the case of the Appellant that the assets owned by a third party is in possession of the Corporate Debtor in terms of Section 18, as it is the duty of the Interim Resolution Professional to take control and custody of any asset over which the Corporate Debtor has ownership rights as recorded in the balance sheet of the Corporate Debtor . Even if it is not in possession of the Corporate Debtor , a person who is in possession of the same, including the Dena Bank or Encore Asset Reconstruction Company Pvt. Ltd. is bound to hand over the same to the Resolution Professional , when title still vests with Corporate Debtor . SARFAESI Act, 2002 being an existing law, Section 238 of the I B Code will prevail over any of the provisions of the SARFAESI Act, 2002 if it is inconsistent with any of the provisions of the I B Code . Thus, Section 18 of the I B Code will prevail over Section 13(4) of the SARFAESI Act, 2002 and the Dena Bank cannot retain the possession of the property in question of which the Corporate Debtor is the owner - appeal dismissed.
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Service Tax
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2019 (8) TMI 562
Refund of service tax paid - time limitation - N/N. 12/2013-ST dated 01.07.2013 - refund rejected on the ground that the input services are commonly used for both SEZ and DTA operations - rejection also on the ground that claimant has not obtained prior approval of the said services - rejection also on the ground that payment towards the service received has not been made to respective service provider by the claimant, as required under Para 3(III)(d) of Notification No. 12/2013-ST dated 01.7.2013 - HELD THAT:- The appellant has submitted that in their own case for the period January to March 2015, Deputy Commissioner, Mangalore has allowed the refund claim on identical facts and the same has not been challenged by the Revenue and has attained finality. The appellant does not have any DTA unit, they are only making supply to a DTA unit whereas the conditions of Para 3(III)(a) would be applicable only when the assessee has units in both SEZ and DTA whereas in the present case, the appellant has unit only in SEZ and make supply from SEZ to DTA unit and therefore the said condition of Para 3(III)(a) is not applicable in the present case - the denial of refund to the appellant is not sustainable in law. Rejection of refund on the ground of default list of services - HELD THAT:- This issue is squarely covered in favour of the appellants in their own case by this Tribunal in MANGALORE SEZ LTD VERSUS COMMISSIONER OF CENTRAL TAX AND CENTRAL EXCISE, BELGAUM [ 2019 (7) TMI 211 - CESTAT BANGALORE ] - refund allowed. Rejection on the ground that payment towards the service received has not been made to respective service provider by the claimant, as required under Para 3(III)(d) of Notification No. 12/2013-ST dated 01.7.2013 - HELD THAT:- The refund has been wrongly rejected on the ground that the said services are commonly used for SEZ and DTA operations - also the appellant does not have DTA, they have only made supply to a DTA unit and therefore there is no violation of the conditions of the Notification - the rejection of refund claim is wrong and not sustainable in law. Appeal allowed - decided in favor of appellant.
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2019 (8) TMI 548
Adjustment of the excess paid towards the tax liability of subsequent months - the claim of the appellant for adjustment rejected only on the ground that the appellant s claim for adjudication was not in accordance with Rule 6 (4A) of the Service Tax Rules, 1994 - HELD THAT:- I do not find that such a request for adjustment should be made only in the immediately following calendar of month/quarter and hence, I agree with the contentions of the Learned Consultant. If a hypothetical situation is considered where such excess tax paid is more than the tax liability of the succeeding month/quarter, the only and most natural consequence is that the balance remaining would have to be invariably carried forward, to be adjusted in the subsequent succeeding month/s. Thus, the interpretation drawn by the adjudicating authority which is approved by the Commissioner, the First Appellate Authority cannot sustain - appeal allowed.
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Central Excise
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2019 (8) TMI 572
100% EOU - CENVAT Credit - subsequent debonding of unit - appellant paid appropriate Duty and Countervailing Duty (Additional Excise Duty) on the imported/indigenously procured raw materials lying in Stock and capital goods on depreciated value - whether such Duties paid by the Assessee upon De-bonding can be availed as Cenvat Credit under Rule 3(1) of Cenvat Credit Rules 2004 against its Output Duty liability, or not in terms of para 8 of Notification No.22/2003 dated 31.3.2003? HELD THAT:- The exempted Duties under the respective enactments viz., Central Excise Duties, Additional Excise Duties and Additional Customs Duties availed by the 100% EOU Assessee at the relevant point of time, were admittedly paid by Assessee on 23.12.2002 when, it appears that it became a Domestic Tariff Area (DTA) Unit - There is also no dispute that the Duties in question were paid by the Assessee on such De-bonding on 23.2.2012, however, not adopting the procedure for payment through TR 6 Challan Forms. A careful reading of Rule 3 would establish that the purpose of giving Cenvat Credit for which various Duties paid as enumerated in 11 Clauses of Rule 3 is to give set off for the Duties paid on Inputs or Inputs Services including the Duties, Taxes or Cess as enumerated in 11 Clauses is to remove the cascading effect of duties which concept is at the bottom of Cenvat Credit Rules 2004. The whole of the Rule 3(1) is the enabling provision for giving such Cenvat Credit and the Proviso therein inserted later on by Notification No.35 of 2008 dated 24.9.2008 cannot be said to be a stand alone enabling power to provide such Cenvat Credit to the Assessee. Such a novel and out of context interpretation of the said Proviso, which, we feel is not only not happily worded, but also, placed at the wrong place in Rule 3(1), cannot be accepted to defeat the very purpose of Rule 3(1) upon an 100 EOU, when converted upon De-bonding to a DTA. There is no dispute or quarrel on the legal proposition on how to interpret a later on inserted Proviso in an enactment. But, what we are looking at is the insertion of Proviso in Rule 3 of Cenvat Credit Rules 2004 which we find it to be more in the nature of an Explanation clarifying what was in doubt earlier viz., about allowing of Cenvat Credit in respect of capital goods earlier. The allowing of Cenvat Credit on raw material was never in doubt whether on de-bonding or otherwise on procurement of raw material. The learned Tribunal has erred in denying such benefit of Cenvat Credit to the Assessee in the present cases and therefore, the present Appeals filed by the Assessee deserve to be allowed - Appeal allowed - decided in favor of appellant.
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2019 (8) TMI 528
Rebate claim - export of goods manufactured outside India - Rule 18 of the Central Excise Rules, 2002 - removal of LCD panels and parts of coloured televisions removed (as such), from its factory at Noida by way of export transaction outside the country - Rule 3 (vii) of the Cenvat Credit Rules 2004 - HELD THAT:- It emerges that under Rule 18 there is no direct specification that the goods eligible to rebate must have been manufactured inside the country. In fact the requirement under that Rule is with respect to 'any goods'. The word 'any' would clearly include both goods that may have been manufactured inside the country or may have been received from outside the country. The eligibility to rebate does not hinge on the fact that the goods may have been manufactured inside the country but on the fact whether the Central Government had notified the rebate on such goods, that goods must also be 'excisable goods'. For any goods as to be described as 'excisable goods', the definition given to that term under Section 2 (d) of the Act would have to be read as the Central Excise Rules 2002, do not define the word 'excisable goods'. However, under Rule 2 (i) of the Central Excise Rules 2002, words and expressions used under the Rules but not defined, shall carry the same meaning as has been assigned to under the Act. Clearly for any goods to be described as 'excisable goods', the requirement is that they must be such as have been specified in the first schedule or the second schedule ( prior to the amendment made in 2017). LCD panels and parts were admittedly so specified. Therefore, the goods in question were clearly 'excisable goods' and therefore entitled to rebate. What then arises for consideration is whether there was any duty paid on such 'excisable goods'. Undisputedly, the goods had suffered countervailing duty and therefore by virtue of Rule 3 (1) (vii) of the CENVAT Rules 2004, it was eligible to CENVAT Credit. It cannot therefore, be said that goods did not suffer any duty for the purpose of Rule 18. Thereafter, only the conditions and limitations provided under the excise notification remained to be fulfilled - in view of the fact that it is again undisputed that the CENVAT Credit availed had been reversed in entirety under Rules of 2004, the goods that were excisable goods clearly came to be exported after payment of duty. There is no dispute to the fact that they were exported directly by the petitioner to its other manufacturing units outside the country. There found to exist no stipulation under the Rule or a condition under the rebate notification that the eligible goods must have been actually manufactured inside the country. The consequence that arises is that goods that may even be deemed to have been manufactured upon payment of excise duty would remain eligible to rebate on their export. The above construction also appears to be plausible as otherwise it may only lead to a situation where, the goods that may have been received during transit. In that regard, the interpretation placed by the Central Government itself in the context of the MODVAT scheme, is also pertinent. The matter is remitted to the original authority for consequential effect in accordance with law - petition allowed by way of remand.
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2019 (8) TMI 527
Clandestine removal - bogus transaction - allegations are framed on the basis of assumption and presumption and unauthenticated private records/Loose Sheets - tangible, cogent, affirmative corroborative evidence or not - HELD THAT:- The department has failed to conclusively prove that the said traders were bogus. We find considerable force in the contentions of the Ld. Advocate for the Appellants that the levy under the Central Excise Act,1944, is on manufacture of excisable goods and in the instant case there is no evidence of manufacture of the impugned goods. Rather, in the investigation by DGCEI, Chennai, Kochi the consigner/buyer have categorically stated that they have purchased impugned goods from Sri Pankaj who is Director of M/s Puja TMT Plant P.Ltd., which is engaged in manufacture of TMT Bars. Further, in the show cause, it is observed that the impugned goods were manufactured on Job Work by M/s ASTL and were of M/s Samridhi TMT make. In the instant case there is no allegation/evidence of extra consumption of electricity more particularly, when the process of manufacture of MS Ingots/Silico Manganese are power intensive. Further, there is no evidence of extra use of labour/payment of any extra wages, shortage/excess of raw materials or finished goods. The excess stock of finished goods stood explained and accepted by the department. The allegation/findings on purchase of raw materials is not specific and there is no quantification of raw materials purchased out of accounts based on Purchase Register. It is well settled that charge of clandestine removal is a serious charge and must be proved by adducing tangible, cogent and affirmative evidence which are completely lacking in the instant case. In the case of SHARMA CHEMICALS VERSUS COMMISSIONER OF C. EX., CALCUTTA-II [ 2000 (12) TMI 161 - CEGAT, KOLKATA] this Tribunal has held that the noting in private records may raise suspicion but for confirming charge of clandestine removal, there must be corroborative evidence in the form of installed capacity, raw materials, utilization, labour employed, power consumed, goods actually manufactured and packed etc. Reliance on the data contained in laptop computer and print out taken for that has to be in conformity with the conditions laid down under Section 36 B of Central Excise Act. The investigation reveals that no such complained has ever been made by the Revenue. Accordingly, the entire investigation which is based on the computer printout is not admissible as the evidence. Therefore the data relied upon based on the print out obtained from laptop is not admissible and has to be discarded. Appeal allowed - decided in favor of appellant.
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2019 (8) TMI 526
Refund - amount debited to profit and loss account as expense - principles of unjust enrichment - Availment and reversal of CENVAT Credit, which was subsequently held to be admissible credit - mismatch of weight in the paper used for covering copper strips manufactured by it and papers purchased by it which was in excess of its output -HELD THAT:- The finding of the Commissioner (Appeals) that appellant has not passed the test of unjust enrichment is based on the fact that appellant had charged the amount paid towards interest to its Profit Loss Account in its financial statement under sub-heading interest and others and it had admitted that it had considered interest component for pricing purpose of the final products. While according to my approval to such test to be applied to refund of interest paid prior to 2008 as per the ratio of Mafathlal case, I failed to agree with the Commissioner (Appeals) that only by showing the amount in the Profit Loss Account as expenditure toward interest payment, cost of the product cannot go up by itself unless it is specifically infused for the said purpose. Further no statement of the appellant or its representative is found on record to establish that payment made towards interest had been absorbed in the cost component of the final product. In the instant case appellant had justified on record as to why the same amount has been shown in the Profit Loss account whereby Appellant Company s profit was proportionately reduced - the incidence of duty as interest paid has not been passed by the appellant to any other person to bring the case into the purview of unjust enrichment. The Appellant is entitled to get refund of ₹ 11,45,295/- along with applicable interest calculated from 3 months after filing of refund application on dated 25-09-2008, as per explanation appended to Sec 11 BB of the Central Excise Act and the respondent Department is directed to pay the same to the appellant within 3 months from receipt of the order - appeal allowed.
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2019 (8) TMI 525
CENVAT Credit - input services - nexus of input services with the output services - HELD THAT:- The denial of cenvat credit on input services availed at the depot viz. accounting services, audit services, renting of immovable property and telecommunication services amounting to ₹ 96,464/- is not sustainable in law. Depot and branches play a crucial role for the manufacturers as orders have to be collected from customers and manufactured goods are stored prior to their sale. This facilitates higher volume for manufacturing at factory. The cenvat credit on input services availed at depot amounting to ₹ 96,464/- is allowed being input service. Similarly, denial of cenvat credit on GTA services from factory to depot and transit insurance from factory to depot are also allowed being input service. These services are used for removal of goods from the factory to depot for sale at depot. Therefore, the place of removal of goods is depot and transportation services up to the place of removal are covered under the inclusive part of the definition. CENVAT Credit - Clearing and Forwarding Services - HELD THAT:- These services are availed for the purpose of procuring inputs, exporting finished goods outside India, therefore these services are relating to procurement of inputs and transportation of goods up to the place of removal and are covered under the inclusive part of the definition of input service and therefore the same is qualify as input service - Credit allowed. Intellectual Property Right Services - HELD THAT:- The appellant pays royalty to the parent companies Ardex UK, Ardex-Anlagen and Ardex-Australia and the same is directly related to the manufacturing process of final products. Hence the credit relating to the Intellectual Property Right Service is eligible - credit allowed. Penalty - HELD THAT:- The appellants are not liable to penalty on wrong availment of GTA services up to the customer s premises because it was an interpretation issue - also there is no intent to evade - penalty set aside. Appeal allowed in part.
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CST, VAT & Sales Tax
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2019 (8) TMI 575
Recovery by Coercive action - refund of disputed tax - Section 44 of the GVAT Act, 2002 - the writ-applicant prays that as the amount of ₹ 29,85,544/has been deposited as ordered by the appellate authority, the amount of ₹ 1,49,27,723/should be refunded by the respondent no.1 with interest at the rate of 12% p.a. - HELD THAT:- The action on the part of the concerned authorities could be termed as absolutely highhanded and arbitrary. The facts of this case speak for themselves. In the course of the hearing of this matter, the Officer assisting the learned AGP went to the extent of even making a statement that the amount of ₹ 1,49,27,723/is not to be recovered from the writ-applicant. He conceded to the fact that while determining this amount, there is an error. He also conceded to the fact that amount of ₹ 75 lakh and odd out of ₹ 1,49,27,723/is only to be taxed - As on date also, the respondent no.1 is ready and willing to refund only an amount of ₹ 1,07,98,892/. It still wants to hold on to the entire amount Plus the amount deposited by the writapplicant towards 20% of the predeposit as ordered by the appellate authority. We were inclined to take a very strict view of the matter. This is not the way and the manner to recover tax. The department should not get so much desperate for the revenue. The revenue is to be collected in accordance with law. The action at the end of the authorities in the present case is nothing short of extortion. The respondents directed to refund the amount of ₹ 1,49,27,723/- with interest at the rate of 6% p.a. from the date of 15/02/2019 from the date of 15/02/2019 shall be refunded to the writ-applicant within a period of One week from today without fail - petition allowed - decided in favor of petitioner.
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2019 (8) TMI 573
Refund claim - Section 11 (2) (b) of the DVAT Act - refund claim enhanced - case of the Petitioner is that at the time when the return for the fourth quarter of 2013-2014 was filed no proceedings were pending since no notice either under Sections 58 or 59 of the DVAT Act were issued to the Petitioners within the time period specified under the DVAT Act - extended period of limitation - penalty - HELD THAT:- Under Section 38 (3) (a) (ii) the refund has to be processed within two months from the date of filing of the return if the claim is made in the return. In terms of Section 38 (4) if a notice of audit, investigation or inquiry has been issued under Sections 58 and 59 of the DVAT Act, then the amount shall be carried forward to the next tax period. In the Petitioner s case when the return for the fourth quarter 2013-2014 was filed claiming the above refund amount, no such proceedings were pending. There was no notice either under Section 58 and 59 of the DVAT Act had been issued to the Petitioner within two months from the date of filing of such return claiming the refund. This was true even of the revised return filed in January, 2015. Consequently, the Respondent did not pass any order under Section 38 (4) carrying forward the refund amount. Resultantly, as far as the fourth quarter of 2013-2014 is concerned, the two-month period under Section 38 (3) (a) (ii) of the Act mandatorily applied. The Respondent was under a statutory obligation to grant refund to the Petitioner within that time period. The Court agrees with learned counsel for the Petitioner therefore that in the present case there is breach of Section 38 of the DVAT Act - the argument of the counsel for the Respondent is that on account of the pendency before the OHA of the proceedings pertaining to the demand for 2010-2011 the refund claim for the fourth quarter of 2013-2014 cannot be processed, is not a legally acceptable proposition. The proceedings contemplated under Section 38(4) were that pending prior to the expiry of the two month period within which the refund had to be granted. Where a demand is sought to be created much later than the two-month period, that cannot come in the way of the refund being granted. A direction is issued to the Respondent to issue the order granting refund to the Petitioner for the fourth quarter of 2013-14 as climed together with interest due and ensuring that the refund amount together with interest is credited to the account of the Petitioner on or before 31st August, 2019 - failure to make the payment of refund together with interest on or before 31st August, 2019 will make Respondent liable to pay to the Petitioner costs of ₹ 50,000/- - Petition disposed off.
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2019 (8) TMI 566
Condonation of delay - Validity of assessment order - Levy of Sales tax in terms of Section 4 (7) (e) of Telangana VAT Act - petitioner sell some semi-finished buildings with a precondition that the task of developing and constructing should be entrusted only to the petitioner for Group Housing - denial of composition scheme - time limitation - HELD THAT:- The writ petition is liable to be thrown out on the ground of delay and laches. The order of assessment challenged in the writ petition is dated 13.08.2013. The writ petition was filed on 11.04.2018. The petitioner has had knowledge of the order of assessment, as they seem to have filed an appeal under Section 31, with a delay of 27 days. Apart from the delay, there were also deficiencies in the presentation of the appeal, as the appeal fee was not paid and predeposit condition was not satisfied. Notices were issued by the Appellate Authority and the Authorized Representative confirmed having paid the prescribed fee and the pre-deposit condition after the expiry period of limitation. Once it is found that the order of rejection of the appeal was served on the Authorized Representative, then it is a matter between the petitioner and the Authorized Representative. The Department was not at fault, as they had complied with the statutory requirements - the petitioner could not have kept quiet for four years after the order of the Appellate Authority, to come up with the above writ petition. Hence, even on the ground of delay and laches, the writ petition is liable to be thrown out. The question whether there was suppression and the question whether enlarged period of limitation will apply on account of suppression, are all mixed questions of fact and law. Therefore, the petitioner ought to have raised them in the appeal by filing it within time and by complying with the conditions for filing of the appeal in the proper form. Since the petitioner has failed to do so, the writ petition deserves to be dismissed. Petition dismissed.
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2019 (8) TMI 565
Refund of amount collected without authority of law including TDS - Sharing of revenue between two States - The net result of the stand taken by the 1st respondent is that he will not be in a position to repay the amount deposited and that the petitioner should take up the issue with the Assessing Officer at Gudur. - EPC Contract for the erection of a plant at Bhoopalpally Thermal Power Station - HELD THAT:- The fact remains that TDS is not to be deducted and the demand originally made by the 1st respondent is without authority of law. If that is so, the amount paid by the petitioner pursuant to the interim order passed by the Court should be refunded. In the normal course, the person to whom it is paid is liable to refund it. The subsequent events cannot enable the person to whom the payment was made to deny the payment. Since the counter-part of the 1st respondent at Gudur has now denied the availability of funds, it is up to the 1st respondent to take up the matter with his superiors so that they could get the entire or portion of the money from the Government of Andhra Pradesh but the primary responsibility for repayment rests with the 1st respondent. Petition allowed.
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2019 (8) TMI 524
Validity of revision notices - HELD THAT:- When the matter is taken up for hearing Mr. Soaham Joshi, the learned AGP appearing for the respondents places on record a communication in writing received by him from the Joint State Tax Commissioner [Appeals], Ahmedabad stating that the impugned notice issued under Section 73/75 of the Gujarat Value Added Tax Act, 2003 in Form 503, Annexure-A to this writ-application has been withdrawn. Application disposed off.
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2019 (8) TMI 523
Invalidation of Declaration F forms - HELD THAT:- The impugned Notification No. F.No./Zone- 3/W-41/MISC/2018-19/629-650 dated 18th June 2018 issued by the Commissioner (VAT) cancelling the used F-forms in the present case cannot be sustained and is hereby set aside - petition disposed off.
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2019 (8) TMI 521
Refund claim - concerned officer made a statement that the department has already undertaken the necessary process for the refund of the amount of ₹ 1,07,98,892/- - HELD THAT:- As there is no dispute with regard to the amount, referred to above, it was expected that this amount, at least, should be refunded. Post this matter on 7th August, 2019 in the first five matters. The officer concerned shall personally remain present on 7th August, 2019.
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Indian Laws
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2019 (8) TMI 576
Arbitration agreement - group company - binding of the agreement on the subsidiary company - draft tripartite agreement forwarded by Canara Bank wherein MTNL and CANFINA were both made parties - availability of remedy to file an application under Section 16 of the Arbitration and Conciliation Act, 1996 - HELD THAT:- A non-signatory can be bound by an arbitration agreement on the basis of the Group of Companies doctrine, where the conduct of the parties evidences a clear intention of the parties to bind both the signatory as well as the non-signatory parties. The present case is one of implied or tacit consent by Respondent No. 2 CANFINA to being impleaded in the arbitral proceedings, which is evident from the conduct of the parties. We find that Respondent No. 2 CANFINA has throughout participated in the proceedings before the Committee on Disputes, before the Delhi High Court, before the Sole Arbitrator, and was represented by its separate Counsel before this Court in the present appeal. There was a clear intention of the parties to bind both Canara Bank, and its subsidiary CANFINA to the proceedings. In this case, there can be no final resolution of the disputes, unless all three parties are joined in the arbitration. Appeal allowed in part.
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