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AI TextQuick Glance (AI)Headnote
CIT(A) Order Set Aside for Violating Right to Hearing Under Section 69A and 115BBE, Matter Remanded
CIT(A) Order Set Aside for Violating Right to Hearing Under Section 69A and 115BBE, Matter Remanded
The ITAT Hyderabad held that the CIT(A) failed to provide the assessee with a reasonable opportunity of hearing, as notices were not received and no specific reference to such notices was made before disposing of the appeal. The tribunal found this to be a violation of natural justice principles. Consequently, the ITAT set aside the CIT(A) order treating unexplained cash found during survey as income under section 69A read with 115BBE and remanded the matter back to the CIT(A) for reconsideration after affording the assessee a proper hearing. The appeal was allowed for statistical purposes.
Cash found during the survey operation as additional income - unexplained money u/sec.69A r.w.s.115BBE by treating the amount under the Head ‘Income from other sources” instead of ‘Business Income’ offered by the assessee.
HELD THAT:- Since the assessee has not received the notices issued by the CIT(A), the assessee could not file it’s reply along with relevant documentary evidences to substantiate it’s case.
Further, although, the learned CIT(A) claims that, several opportunities are provided to the assessee, but, there is no specific reference of any notice issued by the CIT(A) before disposing of the appeal filed by the assessee.
Therefore, from the above, it is undisputed clear that, the CIT(A) has not provided reasonable opportunity of hearing to the assessee to explain it’s case and disposed off the appeal in gross violation of principles of natural justice.
We set-aside the order of the CIT(A) and restore the issue back to the file of learned CIT(A) with a direction to re-consider the issue, after providing reasonable opportunity of hearing to the assessee to explain it’s case to meet the ends of justice. Appeal of the assessee is allowed for statistical purposes.
AI TextQuick Glance (AI)Headnote
ITAT Orders Taxable Income Revision to INR 53.16 Cr Under Section 154 and Allows Leave Encashment Deduction Under Section 43B
ITAT Orders Taxable Income Revision to INR 53.16 Cr Under Section 154 and Allows Leave Encashment Deduction Under Section 43B
The ITAT DELHI - AT allowed the appeal, directing the AO to compute the assessee's taxable income at INR 53,16,66,580/- as per the rectified order under section 154, replacing the previously assessed income of INR 58,29,98,519/-. Regarding the addition under section 43B for leave encashment, the tribunal noted that the assessee had paid INR 48,77,017/- before the due date of filing the return, which should be allowed. The AO was instructed to verify these payments and grant the claim accordingly.
Computation of taxable income - rectification order passed u/s 154 - description “income as per section 143(1) of the Act” was rectified - HELD THAT:- As intimation order u/s 143(1) was rectified u/s 154 vide order dated 30.01.2024 according to which the total income of the assessee was reached to INR 53,16,66,580/- as against the income declared at INR 52,04,08,740/-. The said income is computed after rectification done on the request of the assessee. Therefore, while computing the final taxable income of the assessee, the AO is directed to replace this income as against the income of INR 58,29,98,519/- taken in the final assessment order. Accordingly, the captioned grounds of appeal are allowed.
Addition u/s 43B towards provision of leave encashment - HELD THAT:- From the perusal of the Tax Audit Report filed by the assessee and the rectification order u/s 154 available before us, it is seen that in the rectification order, a sum of INR 94,88,237/- is disallowed u/s 43B of the Act by the CPC however, as per Tax Audit Report, the assessee has paid a sum of INR 48,77,017/- on or before the due date of filing of return of income which has to be allowed u/s 43B of the Act. Accordingly, we direct the AO to verify these facts and allow the claim of the assessee in accordance with law.
AI TextQuick Glance (AI)Headnote
ITAT directs AO to re-examine pension bond interest and pension contributions under Section 43B with fresh verification
ITAT directs AO to re-examine pension bond interest and pension contributions under Section 43B with fresh verification
ITAT Hyderabad set aside the orders of the CIT(A) and restored the matters to the AO for fresh verification. The tribunal found contradictions and incorrect reporting regarding the fair value adjustment under IND AS-109 claimed as interest on pension bonds u/s 43B, directing the AO to examine the claim based on evidence. Similarly, the disallowance of pension and gratuity contributions paid before the due date was reversed, with the AO instructed to verify the payments and delete additions if justified. The appeal was allowed for statistical purposes.
Disallowance of fair value adjustment as per IND As-109 towards interest on pension bonds payments claimed u/s 43B - HELD THAT:- Claim of the assessee is that, it is only a notional entry made in the books in terms of IND AS-109 and there is no actual income, which was rightly credited to Profit and Loss A/c and excluded while computing total income in the statement of total income, in our considered view, the AO-CPC erred in disallowing the said amount only on the basis of incorrect reporting in Form ITR-6. Further, the facts are not very clear.
One side, the assessee says that, it is only an entry passed in terms of IND AS-109, but, not of real income, on the other hand, assessee claims that, it is interest payment on bonds and the same has been paid on or before the due date for furnishing return of income. There is a contradiction in the arguments of the assessee and also there is an incorrect reporting in Form ITR-6.
Therefore, in our considered view, the matter needs to be set-aside to the file of Jurisdictional AO for verification in light of averments of assessee that, it is only a notional entry in terms of IND AS-109 and not real income and the same needs to be adjusted, while computing the total income. Thus, we set-aside the order of the learned CIT(A) and restore the matter to the file of AO and direct the AO to verify the claim of the assessee, in light of evidences that may be filed by the assessee, to justify its case and decide the issue in accordance with law.
Disallowance of payment made to contribution of pension and gratuity under section 43B - HELD THAT:- CPC while processing the return of income, has taken both the amounts together and made adjustment even though, the assessee has paid the amount on 03.04.2021, which is much before the due date for furnishing return of income under section 139(1) or even before the due date for payment under the respective Act. CIT(A) without considering the relevant facts, has simply sustained the addition made by the AO. Thus, we set-aside the Order of the CIT(A) and restore the issue back to the file of AO and direct the AO to verify the claim of assessee, in light of evidences filed before us and also any other evidence that may be filed by the assessee before the Assessing Officer to explain the issue and delete the additions made towards contribution to Pension and Gratuity Trust account.
Appeal of the assessee is allowed for statistical purposes.
AI TextQuick Glance (AI)Headnote
Denial of TDS Credit Over Technical PAN Error Not Malafide, Appeals Allowed Under Tax Law
Denial of TDS Credit Over Technical PAN Error Not Malafide, Appeals Allowed Under Tax Law
The ITAT Kolkata allowed the appeals of the assessee, holding that denial of TDS credit due to a technical error and incorrect PAN alphabet was not intentional or malafide. The tribunal emphasized that the statute's objective is not to penalize unintentional omissions. It directed the Assessing Officer to reconsider the claims afresh, restoring the appeals for further consideration in the interest of justice.
Denial of TDS credit - due to technical error and error in writing wrong alphabet in PAN credit of TDS - HELD THAT:- We find substance in the arguments of assessee that the objective of statute and constitution is not to punish the assessee for error of omission not done with malafide and intentional motive.
It is also pertinent to mention here that due to technical fault and omission, some claim is omitted that does not mean the end of lawful claim of the assessee.
Keeping in view the above facts and in the interest of justice, we are inclined to restore both the appeals of the assessee to the file of ld. Assessing Officer for fresh consideration
AI TextQuick Glance (AI)Headnote
SSI exemption allowed if total turnover stays within limits despite excise duty on some products under relevant rules
SSI exemption allowed if total turnover stays within limits despite excise duty on some products under relevant rules
The CESTAT Kolkata allowed the appeal, holding that the appellant's turnover for the disputed years remained below the prescribed SSI inner limits (Rs. 1 crore or Rs. 1.5 crore as applicable). The Tribunal clarified that payment of Excise Duty on one product does not preclude claiming SSI exemption on another product, provided the total turnover does not exceed the inner limit. The turnover related to branded goods on which duty was paid cannot be aggregated with the appellant's turnover to deny SSI benefits. Consequently, the confirmed demand for Excise Duty was held unsustainable for the years 2007-08, 2008-09, and 2009-10, and the impugned order was set aside.
Eligibility for SSI exemption - denial of benefit on the ground that since the appellant has paid the Excise Duty in respect of one product, he cannot claim SSI exemption in respect of the other product in respect of the same assessee - HELD THAT:- It is noted that the SSI limit was Rs.1 crore from 1.3.2003 to 31.3.2007, which was increased to Rs.1.50 crores from 1.4.2007. This is referred as ‘inner limit’ for ease of reference. Similarly, the outer limit was initially at Rs.3 crores, which was increased to Rs.4 crores subsequently. The assessee opting for SSI, has to start to pay Excise Duty the moment he exceeds the inner limit. However, within the same financial year, if the outer limit is not exceeded, he can once again claim the SSI limit for the next financial year. But once the outer limit of Rs.3 or Rs.4 crores is exceeded, he would not get the SSI benefit in the subsequent financial year.
Para 3 (a) of the Notification specifically removes the exemption benefit when the clearance is that of any branded goods. This means that in respect of the branded goods of others, cleared by the SSI, would require payment of Excise Duty, even if the unit per se is exempted from payment of Excise Duty.
Coming to the point about the turnover of the branded goods also being considered as part the total turnover of the appellant, we have seen that as per Para 3 (a) of the Notn No.8/2003 CE dated 1.3.2007, the turnover in respect of other branded goods cleared is excluded from the SSI exemption and hence Excise Duty is required to be paid. When Para 2 (vii) and Para 3(a) are read together it get clarified that the turnover of Excise Duty paid goods in respect of the branded goods cannot be clubbed with the turnover of the unit to deny the SSI benefit. In the present case, it is not disputed that for Brand ‘Monginis’, the appellants have paid the Excise Duty - the Revenue cannot add the turnover in respect of the Mongini Turnover of the appellant, so as to deny the SSI benefit.
In respect of turnover of 2007-2008, the turnover being Rs.1.41 crores, the same is less than the increased SSI inner limit of Rs.1.50 crores. On this ground, the confirmed demand is not sustainable - For the year 2008-09 the total turnover is Rs.1,51,04,201 as per the Table B, which is more than Rs.1.50 cr inner turnover limit. However, from Annexure A we find that cum-duty benefit has been given while quantifying the demand. If cum-duty benefit is considered the turnover would be Rs.1,48,95,042 [13758995 + 1136047]. Therefore, the demand is not sustainable as the turnover is less than Rs.1.50 cr. For the year 2009-10, the turnover is less than Rs.1.46 cr. Hence, the demand is not sustainable for this year.
The appellant is in error in partly paying the Excise Duty on one product and opting for SSI exemption in case of another product, which is not allowed. However, it is found that their turnover during the entire period under dispute is less than the respective inner limit (Rs. 1 Cr/Rs. 1.50 Cr) specified for SSI exemption for the concerned year - the impugned order is set aside - appeal allowed.
AI TextQuick Glance (AI)Headnote
Notional Exclusion of 10% Cenvat Credit on Trading Goods Not Allowed Under Rule 6(3) of Cenvat Credit Rules, 2004
Notional Exclusion of 10% Cenvat Credit on Trading Goods Not Allowed Under Rule 6(3) of Cenvat Credit Rules, 2004
The CESTAT AHMEDABAD held that the appellant's notional exclusion of 10% Cenvat Credit related to trading goods is not authorized under the Cenvat Credit Rules, 2004, which require separate accounts and reversal of credit on exempted goods. The tribunal found the impugned order non-speaking and incomplete, as it failed to address key issues and case laws. The matter was remanded to the original authority for re-determination of the credit reversal and demand, ensuring proper application of Rule 6(3) and relevant provisions, with due consideration of records and interest. The appeal was allowed by remand.
CENVAT Credit - non-application of mind/non-speaking order - Credit taken on proportionate basis by excluding the Credit amount involved in trading activity - Services used out of the factory gate - input services or not - violation of principles of natural justice.
Whether the Cenvat Credit taken on proportionate basis by excluding the Credit amount involved in trading activity i.e. Cenvat Credit involved in trading activity was reduced from the total Credit available or not? - HELD THAT:- Appellants on a notional basis by themselves are not taking 10% of the credit considering that the same pertains to traded goods portion and not to the clearance of excisable goods. However, this kind of notion is not provided for under the Cenvat Credit Rules, 2004 which require that separate account should be maintained and Cenvat Credit is not availed on the exempted goods which included traded goods. Only the credit that has gone in to the manufacture of excisable goods could be availed as Cenvat Credit. It appears to us that principle of 10% notionality in respect of trading goods, at the time of receipt, is not provided for in the CENVAT Credit Rules. Therefore, this issue needs thorough consideration by the authorities as to whether the 10% credit not taken by the appellant fulfils the requirement of Rule 6(3) of the CCR, 2004 as far as reversal of credit on proportionate basis is concerned. The method to determine ineligible credit on exempted goods and/or service as per CCR, 2004 as amended needs to be applied and same is required to be reversed by the appellant alongwith appropriate interest. This while involves exercise of re-determination on the basis of records or on the basis of balance sheet which we find so far has not been carried out. What has been brought on record during first remand proceeding is only the fact that appellant had reversed 10% credit on a notional basis for the traded goods in advance, which we are afraid is not mandated by the provisions of Cenvat Credit Rules, 2004. It therefore needs re-determination as to what is actual quantum of Cenvat Credit required to be reversed and benefit of Cenvat permitted accordingly.
Other issues have not been adequately discussed in the impugned order of the Commissioner (Appeals). He has not dealt with many issues as well as elaborate on the case laws, on each points involved. The order therefore, is not a speaking order and is cryptic.
Matter remanded back to the original authority with directions to re-determine demand after due consideration of various case laws as well as observations as have been made on the basis of availment of Cenvat Credit considering that only 10% of goods were considered as traded goods - appeal allowed by way of remand.
AI TextQuick Glance (AI)Headnote
SC upholds FIR registration under Section 156(3) CrPC; no jurisdictional error found, proceedings to continue
SC upholds FIR registration under Section 156(3) CrPC; no jurisdictional error found, proceedings to continue
The SC upheld the Metropolitan Magistrate's order directing registration of the FIR under Section 156(3) CrPC, finding no lack of jurisdiction or failure to apply mind. The Court held that the informant must first approach police authorities before filing under Section 156(3), but the Magistrate's satisfaction that a cognizable offence was disclosed was sufficient. The HC rightly refused to quash the FIR and related order since investigations were complete and chargesheets filed. The dispute was not purely civil, given prior FIRs on the same MoU breach. The subsequent FIR was not barred as a successive FIR because the allegations and parties differed from the earlier FIR. The SC declined to interfere with the HC's discretionary refusal to quash, dismissing the petitions and allowing proceedings to continue.
Power of High Court under Section 482 of Code of Criminal Procedure to quash the FIR - filing of an application u/s 156(3) of the CrPC without approaching the police authorities - order passed without application of mind - denial of quashing of order for the reason that the investigations have been completed and the chargesheets have been filed against the accused persons - nature of dispute raised in the offending FIR is of a civil nature or not - present FIR amounts to a successive FIR and to be investigated independently.
Whether an application under Section 156(3) CrPC could have been filed without approaching the police authorities? - HELD THAT:- On a conspicuous reading of the provisions of Sections 154, 156 and 190 of the CrPC together, it is crystal clear that an informant who wants to report about a commission of a cognizable offence has to, in the first instance, approach the officer-in-charge of the police station for setting the criminal law into motion by lodging an FIR. However, if such an information is not accepted by the officer-in-charge of the police station and he refuses to record it, the remedy of the informant is to approach the Superintendent of Police concerned. It is only subsequent to availing the above opportunities if he is not successful, he may approach the Magistrate under Section 156(3) CrPC for necessary action or of taking cognizance in accordance with Section 190 of the CrPC.
In the instant case, a bare perusal of the application filed under Section 156(3) of the CrPC dated 01.07.2005 would reveal that the informant therein had simply stated that an offence under Sections 420, 120-B and 34 of the IPC have been committed and that the informant had approached the “police officials” several times but in vain, but the application is completely silent as to when did the informant approach the Police or the Superintendent of Police. The application nowhere states that the informant has ever approached the officer-in-charge of the police station for lodging the FIR in accordance with Section 154 of the CrPC or that on refusal to record such information he has availed the remedy of approaching the Superintendent of Police concerned. The mere bald allegation without any details or proof thereof, that the police authorities were approached several times is not acceptable.
The Magistrate ought not to ordinarily entertain an application under Section 156(3) CrPC directly unless the informant has availed and exhausted his remedies provided under Section 154(3) CrPC, but as the Magistrate is otherwise competent under Section 156(3) CrPC to direct the registration of an FIR if the allegations in the application/complaint discloses the commission of a cognizable offence, it is opined that the order so passed by the Magistrate would not be without jurisdiction and would not stand vitiated on this count.
Whether the order dated 01.07.2005 passed by the Metropolitan Magistrate is an order passed without application of mind, irrespective of the fact that it states that the parties were “heard” and the documents were “perused”? - HELD THAT:- The provisions of Section 156 (3) of the CrPC have subsequently been interpreted and it has been held that the Magistrate while directing for registering an FIR has to apply his independent mind based upon legal principles and the order so passed has to be a reasoned order. The provision so interpreted exists from its inception. Merely because a judgment by the Court has simply interpreted and reiterated the established principles of law that ought to have been into practice, it would not mean that such principles would be applicable prospectively only from the date of its interpretation. The interpretation made later on would not mean that the provision had a different meaning prior to its above interpretation. Therefore, the High Court manifestly erred in holding that at the relevant time there was no requirement of application of mind and for passing a speaking order, as the judgments of the higher courts holding otherwise have been penned down subsequently.
The mere stating in the order that the counsel has been heard and the application and the material produced have been perused, may not be indicative of the fact that the Magistrate had actually applied his mind to the controversy in issue. However, the fact that the perusal of the application and complaint attached to it, satisfied the Magistrate that it discloses a cognizable offence, is very material and relevant which proves the application of mind by him. Once such a satisfaction has been recorded by the Magistrate, even if wrongly, it is not liable to be interfered with in exercise of inherent powers by the higher courts. The powers vested in the court either under Section 482 CrPC or Article 226/227 of the Constitution of India are not for the purposes of appreciating the evidence or examining the correctness of the evidence collected during investigation to record a different conclusion other than recorded by the Magistrate that he is satisfied that a cognizable offence has been disclosed in the application/complaint.
In these facts and circumstances, for the reason that the Magistrate not only heard the counsel and perused the documents but has even considered the case law cited and has opined that the information discloses a cognizable offence, implies that he has actually applied his mind to the contents of the application before passing the impugned order directing for the registration of the FIR. Therefore, there is no fault with the order of the High Court in refusing to quash the order.
Whether the High Court can deny quashing of the order dated 01.07.2005 passed by the Metropolitan Magistrate and the FIR registered pursuant to it for the reasons that the investigations have been completed and the chargesheets have been filed against the accused persons? - HELD THAT:- In the present case with which we are dealing, we have already opined earlier that there is no legal flaw in the order passed by the Magistrate dated 01.07.2005 directing for the registration of the FIR. The order clearly states that the Magistrate is satisfied that the allegations indeed make out a cognizable offence for the purposes of investigation. The said satisfaction recorded by the Magistrate cannot be disturbed in exercise of inherent powers. Therefore, if in pursuance of the said order, the FIR has been registered which discloses a cognizable offence, the same cannot be struck down at this stage.
Once much water has flown down the bridge subsequent to the order of the registration of FIR and the registration of FIR, giving rise to a fresh cause of action to challenge the chargesheets, it is opined that the High Court has rightly refused to exercise its discretionary jurisdiction so as to interfere with the FIR as the investigations have been completed and the chargesheets have been filed.
Whether the nature of dispute raised in the offending FIR is of a civil nature and there is no involvement of criminality when both sides have previously lodged FIRs originating from the same MoU dated 11.03.1995? - HELD THAT:- The breach of conditions of the MoU or allegations of false promises in relation to the aforesaid MoU are undisputedly subject matter of the different FIRs lodged by VLS itself. Therefore, violation of those conditions for some reasons have been considered by VLS to be offensive. Therefore, the High Court rightly held that if breach of those conditions of the MoU itself has been considered to be of criminal nature by VLS, it cannot be permitted to turn around and allege that such breach of conditions would be of pure civil nature.
Whether the present FIR amounts to a successive FIR based upon the same allegations as contained in an earlier FIR No.326/2004 and as such cannot be investigated independently? - HELD THAT:- It has been well settled that successive FIRs in respect of a same cognizable offence are not maintainable provided that on the basis of the earlier FIR, investigations have been completed and the trial had either resulted in conviction or acquittal of the accused.
In the case at hand, FIR No.326/2004 was lodged at Police Station, Connaught Place, New Delhi, whereas the subsequent FIR No.380/2005 was lodged at Police Station, Defence Colony, New Delhi. Both the FIRs may be based on similar allegations but they are not virtually the same. The allegations are different and even the parties against whom the FIRs were filed are not the same. Therefore, such a subsequent FIR may be maintainable but refrained from making any final comment on the above aspect as no such finding on this aspect has been returned by the court below.
Since in connection with FIR No.380/2005, investigations have been completed and the High Court has refused to quash the said FIR in exercise of its discretionary power, it is not deemed necessary to exercise discretion to override that of the High Court and leave the matter to proceed further in accordance with law.
It is not required to interfere with the orders impugned and the petitions are dismissed.
AI TextQuick Glance (AI)Headnote
Jurisdiction for Section 138 N.I. Act lies with court where payee's bank branch is located, per Section 142(2)(a)
Jurisdiction for Section 138 N.I. Act lies with court where payee's bank branch is located, per Section 142(2)(a)
The SC held that jurisdiction for offences under Section 138 of the N.I. Act lies exclusively with the Court within whose local jurisdiction the branch of the bank where the payee maintains the account is situated, per Section 142(2)(a). Since the complainant's account was with the Kotak Mahindra Bank branch at Mangalore, filing the complaint there was proper. The Magistrate and HC erred by assuming jurisdiction based on a different branch location. The SC set aside the impugned order and allowed the appeal, affirming the territorial jurisdiction as per the amended Section 142(2)(a) of the N.I. Act.
Dishonour of Cheque - requirement file his complaints in relation to offences punishable under Section 138 of the Negotiable Instruments Act, 1881 - territorial jurisdiction for instituting a complaint in relation to dishonor of a cheque - HELD THAT:- Section 142(2)(a) of the N.I. Act makes it clear that an offence under Section 138 thereof should be inquired into and tried only by a Court within whose local jurisdiction, if the cheque is delivered for collection through an account, the branch of the bank where the payee maintains the account is situated. This provision, as it stands after its amendment in 2015, was considered in Bridgestone India Private Limited vs. Inderpal Singh [2015 (12) TMI 777 - SUPREME COURT] and this Court affirmed that Section 142(2)(a) of the N.I. Act vests jurisdiction apropos an offence under Section 138 thereof in the Court where the cheque is delivered for collection, that is, through an account in the Branch of the Bank where the payee maintains that account.
Therefore, once it is established that, at the time of presentation of the cheques in question, the appellant maintained his account with the Kotak Mahindra Bank at its Bendurwell, Mangalore Branch, he was fully justified in filing his complaint cases before the jurisdictional Court at Mangalore. The understanding to the contrary of the learned Magistrate at Mangalore was erroneous and completely opposed to the clear mandate of Section 142(2)(a) of the N.I. Act. The High Court proceeded to confirm the erroneous order passed by the learned Magistrate under the wrong impression that the appellant maintained his bank account at the Opera House Branch of the Kotak Mahindra Bank at Mumbai.
The impugned order is set aside - appeal allowed.
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Section 139 NI Act presumption applies only to enforceable debt; cash transactions over Rs. 20,000 need valid explanation
Section 139 NI Act presumption applies only to enforceable debt; cash transactions over Rs. 20,000 need valid explanation
The HC held that the presumption under Section 139 of the NI Act covers legally enforceable debt, but this can be rebutted by the accused through a probable defence raising doubts on such debt's existence. Cash transactions exceeding Rs. 20,000 in violation of the Act 1961 do not create legally enforceable debt unless validly explained. In this case, the complainant failed to prove a legally enforceable debt as the payment in cash lacked explanation and violated tax provisions. The accused successfully rebutted the presumption under Section 139. Consequently, the conviction and sentence were set aside, and the accused was acquitted. The Criminal Revision Petition was allowed.
Dishonour of Cheque - legally enforceable debt or not - insufficient funds - payment of Rs. 9,00,000/- by the complainant to the accused in cash - rebuttal of presumptions.
Whether the presumption under Section 139 of the NI Act cover the “legally enforceable debt”? - HELD THAT:- From a reading of Section 139 of the NI Act, it is clear that it shall be presumed, unless the contrary is proved, that the holder of a cheque received the cheque of the nature referred to in section 138 for the discharge, in whole or in part, of any debt or other liability. Therefore, the holder of the cheque is presumed that, he received the cheque in discharge, in whole or in part, of any debt or other liability and in the explanation to the section, it is stated that the debt or other liability is a legally enforceable debt. Therefore, there is no doubt to the fact that the presumption under Section 139 of the NI Act covers legally enforceable debt also. Therefore the holder of a cheque is presumed that, he received the cheque in whole or in part of any legally enforceable debt.
It is true that in Krishna Janardhan Bhat v. Dattatraya G. Hegde [2008 (1) TMI 827 - SUPREME COURT], the Apex Court observed that there is no presumption as far as legally enforceable debt under Section 139 of the NI Act is concerned - in the light of the clear wording in Section 139 of the NI Act, it is clear that there is a presumption under Section 139 of the NI Act as far as legally enforceable debt is concerned.
How can a presumption under Section 139 of the NI Act be rebutted by an accused? - HELD THAT:- The presumption under Section 139 of the NI Act can be rebutted by an accused by raising a probable defence which creates doubts about the existence of a legally enforceable debt or liability. In Rangappa's case [2010 (5) TMI 391 - SUPREME COURT] itself, this point is considered by the Apex Court about the manner in which an accused can rebut the presumption under Section 139. Therefore, it is clear that the accused can rebut a presumption under Section 139 of the NI Act by a probable defence by preponderance of probability as stated in Rangappa's case - therefore, the accused can rebut the presumption under Section 139 of the NI Act by the standard of proof of a probable defence through preponderance of probabilities, which creates doubts about the existence of a legally enforceable debt.
Whether debt created by a cash transaction above Rs. 20,000/- in violation of the provisions of the Act 1961 can be treated as a “legally enforceable debt”? - HELD THAT:- It is clear that, no person shall take or accept from any other person, any loan or deposit or any specified sum, otherwise than by an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account or through such other electronic mode as may be prescribed, if the amount is above Rs. 20,000/-, provided that such transactions will not come within the purview of the exemptions mentioned in the section. Similarly, Section 269ST also prohibit that no person shall receive an amount of two lakh rupees or more in aggregate from a person in a day; or in respect of a single transaction; or in respect of transactions relating to one event or occasion from a person otherwise than by an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account or through such other electronic mode as may be prescribed. Section 271D of Act 1961 says that if a person takes or accepts any loan or deposit or specified sum in contravention of the provisions of Section-269SS, shall be liable to pay, by way of penalty, a sum equal to the amount of the loan or deposit or specified sum so taken or accepted.
It is declared that debt created by a cash transaction above Rs. 20,000/- in violation of the provisions of Act 1961 is not a “legally enforceable debt” unless there is a valid explanation for the same. But the accused should challenge such transactions in evidence, and he has to rebut the presumption under section 139 of NI Act, of course, through preponderance of probability. If there is no challenge, it is presumed, in the light of Section 139 of the NI Act that, there is a valid explanation to the complainant under Section 273B of the Act 1961. Hereafter, if anybody pays an amount in excess of 20,000/ to another person by cash in violation of Act 1961, and thereafter receives a cheque for that debt, he should take responsibility to get back the amount, unless there is a valid explanation for such cash transactions. If there is no valid explanation in tune with Section 273B of the Act 1961, the doors of the criminal court will be closed for such illegal transactions.
Whether the presumption under Section 139 of the NI Act is rebutted in the facts and circumstances of the case, and whether the complainant established that there is any “legally enforceable debt”? - HELD THAT:- The complainant has not paid any income-tax for the amount paid to the accused in cash. He has no explanation for the payment of the amount in cash to the accused. It is a settled position that the ignorance of the law is not an excuse. The accused specifically cross-examined about the same when PW1 was in the box, as far as the legally enforceable debt is concerned. He has absolutely no explanation regarding the payment of the amount above Rs. 20,000/- by cash. In such circumstances, in the light of the principle laid down by the Apex Court in Rangappa's case, the accused rebutted the presumption. The debt alleged to be due to the complainant cannot be treated as a legally enforceable debt.
This is a case in which the complainant fails to prove that there is legally enforceable debt. The accused rebutted the presumption under Section 139 of NI Act. Consequently, the conviction and sentence imposed on the accused are to be set aside.
The conviction and sentence imposed on the revision petitioner/accused on the file of the Judicial First Class Magistrate Court-II, Pathanamthitta and the judgment dated 30.11.2023 in Crl. Appeal No.59/2019 on the file of the Additional District & Sessions Court-III, Pathanamthitta is set aside, and the revision petitioner is acquitted - this Criminal Revision Petition is allowed.
AI TextQuick Glance (AI)Headnote
Dissolved Company Liable Under PMLA and IPC; Director Can Represent It Under Section 305 Cr.P.C.
Dissolved Company Liable Under PMLA and IPC; Director Can Represent It Under Section 305 Cr.P.C.
The HC held that a dissolved company remains liable for its obligations and can be prosecuted under PMLA and IPC provisions by following the procedure under Section 305 Cr.P.C. Restoration of the company may be sought for prosecution; if not possible, a director or authorized representative can be made an accused to represent the company. The Court upheld the prosecution's action of naming the director as the representative of the dissolved company, rejecting the petition to remove him. The order of the Special Court refusing to remove the accused as the company's representative was confirmed, and the petition was dismissed.
Money Laundering - criminal conspiracy - reasonable cause to believe that, the company is not carrying on any business or operation - Director or an authorized representative of a company can be complelled to be an accused to represent the company and it is the option of the company to appoint a representative or not - offences punishable under Section 420 read with 120B of the Indian Penal Code, under Sections 13(2) read with 13(1)(d) of the Prevention of Corruption Act - HELD THAT:- In the instant case, in view of Section 70 of the PMLA Act and the overriding effect given under Section 71, a company can be prosecuted by following the procedure under Section 305 of Cr.P.C, if the same is in existence. Section 250 of the Companies Act, even though provides that, when a company is dissolved under Section 248 of the Companies Act, the same cease to operate as a company and the Certificate of Incorporation issued to it shall be deemed to have been cancelled from such date, an exception is carved out for the purpose of realising the amount due to the company and for the payment or discharge of the liabilities or obligations of the company. If so, it has to be inferred that, even after dissolving a company, the liability of the company still survives. If so, such a company could not be held as ceased to operate as such and the same deemed to be in existence insofar as for the payment or discharge of the liabilities or obligations of the company. Be it so, a dissolved company can be proceeded by initiating civil litigation for discharge of the liabilities or obligations of the company.
In the absence of a specific provision to deal with the matter, the Parliament has to consider amendment of Criminal Procedure Code and if necessary the special statutes to address this situation. Till then, a company, which committed an offence before its dissolution or struck off, could not spared without being prosecuted. For the said purpose, the prosecution can get the company restored to existence and follow the procedure under Section 305 of Cr.P.C. or under Section 342 of the BNSS. If no such restoration is possible, the prosecution can show somebody who was in charge of the company in the Final Report to represent the dissolved company and continue the prosecution proceedings.
Holding so, it has to be held that the action of the prosecution in arraying the 3rd accused as the representative of the 1st accused company, who was the director of the company, is only to be justified, in the interest of justice. In such view of the matter, the prayer in this petition to set aside the order, whereby the Special Court was not inclined to remove the petitioner as the person, who is representing the 1st accused company, is liable to fail.
The impugned order stands confirmed - Petition dismissed.
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Criminal Court Can Allow Complaint Amendments Post-Cognizance If No Prejudice, Under Section 200 Cr.P.C.
Criminal Court Can Allow Complaint Amendments Post-Cognizance If No Prejudice, Under Section 200 Cr.P.C.
The SC held that a criminal court has the power to allow amendment of a complaint under Section 200 Cr.P.C. post cognizance if the amendment relates to a curable infirmity and causes no prejudice to the accused. In this case, the amendment corrected a misdescription of the supplied product from "Desi Ghee" to "milk," an inadvertent error carried from the legal notice. Since the amendment occurred after summons issuance but before completion of evidence, and did not alter the complaint's nature or cause prejudice, the Trial Court rightly permitted it. The HC erred in focusing on GST implications and in holding that the amendment changed the complaint's character. The SC set aside the HC order and allowed the appeal, affirming the Trial Court's decision to permit the amendment.
Dishonour of cheque - power of criminal court to order amendment of a complaint filed u/s 200 of the Cr.P.C. post cognizance stage - By virtue of the impugned order, the High Court has allowed the petition, holding that the amendment sought was not in the nature of a typographical error, but it had a wider impact upon the entire matter in dispute and, therefore, it changed the nature of the complaint. The High Court also found merit in the contention of the respondents that the amendment was sought, as no GST was leviable on milk.
HELD THAT:- The issue, whether a criminal court has power to order amendment of a complaint filed under Section 200 of the Cr.P.C., is no longer res integra. In S.R. Sukumar v. S. Sunaad Raghuram [2015 (7) TMI 1260 - SUPREME COURT], this Court held that 'What is discernible from U.P. Pollution Control Board case is that an easily curable legal infirmity could be cured by means of a formal application for amendment. If the amendment sought to be made relates to a simple infirmity which is curable by means of a formal amendment and by allowing such amendment, no prejudice could be caused to the other side, notwithstanding the fact that there is no enabling provision in the Code for entertaining such amendment, the court may permit such an amendment to be made. On the contrary, if the amendment sought to be made in the complaint does not relate either to a curable infirmity or the same cannot be corrected by a formal amendment or if there is likelihood of prejudice to the other side, then the court shall not allow such amendment in the complaint.'
A careful reading of the judgment in S.R. Sukumar’s case reveals that the said judgment followed the earlier judgment of this Court in U.P. Pollution Control Board vs. Modi Distillery and Others [1987 (8) TMI 449 - SUPREME COURT]. In Modi Distillery, after the process was issued to the respondents therein, a revision was filed by few of the accused and a Section 482 petition was filed by few other accused. Invoking the revisional jurisdiction, the High Court quashed the proceedings holding that vicarious liability could not be saddled on the Directors unless “Modi Industries Limited” was arrayed as accused. The Complainant in that case had arrayed “Modi Distillery”, an industrial unit and averred that Modi Distillery was a Company. The High Court focusing on the technical flaw in the complaint quashed the proceedings on the premise that “Modi Industries Limited” was not made an accused.
The complaint and the application for amendment is carefully perused. The amendment was moved at a stage when after summons being issued to the respondents, the chief examination of the complainant had concluded and when cross-examination was awaited. The amendment made is also only with regard to the products supplied. According to the complainant, while what was supplied was “milk”, by an inadvertent error “Desi Ghee (milk products)” was mentioned. The error which occurred in the legal notice was carried in the complaint also.
On the facts of the present case and considering the stage of the trial, it is found that absolutely no prejudice would be caused to the accused/respondents. The actual facts will have to be thrashed out at the trial. As to what impact the amendment will have on the existence of debt or other liability is for the Trial Court to decide based on the evidence. It was a curable irregularity which the Trial Court rightly addressed by allowing the amendment. It could not be said that by allowing the amendment at a stage when the evidence of the complainant was incomplete, failure of justice would occasion.
The High Court completely mis-directed itself in delving into the aspects of leviability of GST which would be the concern of the appropriate authorities under the relevant statute. It could also not be said that the amendment altered the nature and character of the complaint - The judgment and order of the High Court of Punjab and Haryana at Chandigarh is set aside - appeal allowed.
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Recovery of CGST before appeal period expiry is a mistake; refund with interest ordered under relevant statute
Recovery of CGST before appeal period expiry is a mistake; refund with interest ordered under relevant statute
The HC held that recovery of CGST before the expiry of the appeal filing period was made by mistake. The respondent was directed to rectify the error and refund or reverse the amount to the petitioners' account, along with applicable interest under the statute. The refund must be completed by 26.07.2025. The petition was disposed of accordingly.
Recovery of demanded CGST from the account of the petitioners before expiry of three months - Recovery before expiry of the Appeal Filing Period - HELD THAT:- Assistant Commissioner, present in person, has endorsed that recovery in reference was made by mistake. It is obvious that amount recovered by mistake has to be refunded/reversed to the account wherefrom it was recovered.
The respondent No.1 is directed to take necessary action for rectification of mistake and to refund/reverse the amount so recovered by mistake to the account wherefom it was recovered, alongwith interest as provided/permissible under the Statute. Needful be done on or before 26.07.2025.
Petition disposed off.
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Assessment order set aside under Sections 147 and 144B for denial of natural justice and risk of double taxation
Assessment order set aside under Sections 147 and 144B for denial of natural justice and risk of double taxation
The HC set aside the assessment order passed under Sections 147, 144 read with 144B, finding a violation of natural justice as the petitioner was denied an opportunity to present evidence that the disputed income had already been taxed in AY 2019-20. The court noted the risk of double taxation on the same transaction for AY 2018-19 and held that the petitioner must be allowed to submit documents before the AO for proper adjudication. Despite the existence of alternative remedies, the writ petition was entertained due to the factual matrix and denial of opportunity. The matter was remitted to the AO to pass fresh orders after hearing the petitioner, who was directed to appear within two weeks to produce evidence and make submissions.
Assessment order passed u/s 147 and Section 144 r.w.s. 144B by the National Faceless Assessment Unit - contravention of Section 48 ibid., as same income could not be made to suffer taxation again for the Assessment year 2019-20 basing on information available in Form 26AS in the web-portal of the Income Tax Department - availability of alternative remedy for invocation of power of judicial review - assessee non producing evidence before the Assessing Officer
HELD THAT:- Petitioner appears to have been prevented from appearing before the Assessing Officer to substantiate his claim and to demonstrate before the Assessing Authority that the very transaction in question raised for adjudication in the Assessment Year 2018-19, the liability of which has already been discharged in the subsequent Assessment Year 2019-20.
This Court in order to appreciate the factum of claim for capital gains alleged to have been escaped assessment has the occasion to peruse Judgment rendered of Nitin Nema [2023 (8) TMI 1027 - MADHYA PRADESH HIGH COURT] and Sanath Kumar Murali, [2025 (3) TMI 833 - KARNATAKA HIGH COURT] wherein the modality for evaluation of tax liability with respect to capital gains have been discussed.
This Court is of the view that the petitioner-assessee is entitled for a chance to submit documents available with him for appraisal of the Income Tax Officer for proper adjudication of liability, if any, during the period in question as the assessee has been consistently pleading that he has discharged liability in the succeeding assessment year.
This Court finds sufficient force in the argument advanced by the learned counsel for the petitioner and to justify his claim the petitioner is to produce the documents before the AO, which are subject to scrutiny by such competent Authority. After due appreciation of evidence for the purpose of consideration of transaction being taxed already for the said purpose, it is deemed mete and proper to relegate the petitioner to avail the opportunity to present evidence and refer aforesaid judgments for perusal of assessing authority.
Though this Court is conscious about existence of alternative remedy to assail the assessment order before the appellate authority vested to appreciate the evidence, as the appeal is coterminous with the assessment proceeding, having regard to the material on record and taking note of undisputed factual position as emanated from the submissions advanced by the counsel for both the parties, finding that there is violation of basic tenets of natural justice, this Court entertains this writ petition as availability of alternative remedy is not an absolute bar for invocation of power of judicial review.
As the documents enclosed to the writ petition ex facie demonstrates that the tax liability has been discharged in the Assessment Year 2019-20 but not in the Assessment Year 2018-19, there is every likelihood of tax being assessed twice on the same transaction, in order to avoid piquant situation faced by the assessee, this Court is inclined to exercise its discretion by invoking powers under Article 226 of the Constitution of India.
Having thus entertained the writ petition, it is to impress upon that proper and sufficient opportunity being not afforded to the petitioner and/or his representative, the impugned Order dated 21.03.2023, is liable to be set aside and this Court does so. Hence, the matter is remitted to the assessing officer for passing fresh orders and the petitioner in order to avail opportunity of production of documents and have his say is directed to appear before the authority concerned within two weeks.
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ITAT Rules Software Licenses & Consultancy Fees as Revenue Expenses; Foreign Exchange Loss Must Be Capitalized Under Section 43A
ITAT Rules Software Licenses & Consultancy Fees as Revenue Expenses; Foreign Exchange Loss Must Be Capitalized Under Section 43A
The ITAT upheld the CIT(A)'s decisions in favor of the assessee on multiple grounds. Expenditure on software licenses and renewals used in routine business was held to be revenue in nature, not capital. Interest disallowance based on notional allocation to capital work-in-progress was deleted, as the assessee's interest-free funds sufficiently covered capital investments. Consultancy fees related to recurring export operations were also held to be revenue expenses allowable under section 37(1). Foreign exchange fluctuation loss on advances for capital asset acquisition was confirmed as capital in nature under section 43A, requiring capitalization. The Revenue's appeals were dismissed for lack of evidence contradicting the CIT(A)'s findings, affirming that the expenditures in question did not create enduring capital assets except the foreign exchange loss which must be capitalized.
Nature of expenditure - software expenditure - revenue v/s capital expenditure - HELD THAT:- It is not in dispute that the assessee had separately capitalised hardware purchases and the expenditure in question pertained only to software licences and renewals used in day-to-day business operations.
CIT(A)’s finding that the expenditure related to operating software used in routine inventory and quality control processes and did not result in acquisition of any capital asset or enduring advantage, remains unrebutted by the Revenue.
Revenue has also not pointed out any specific item falling under the disallowed head that contradicts this finding.
As noted the judicial precedent relied on in case of Danfos Industries [2021 (9) TMI 1151 - MADRAS HIGH COURT] where it was decided that a license which is valid for one year and did not confer any enduring benefit, expenditure incurred in acquiring such software license is revenue in nature - Thus, expenditure incurred on application software or renewal of licences in the ordinary course of business is revenue in nature, we see no infirmity in the order of the CIT(A) allowing the claim. This ground of appeal raised by the Revenue is therefore dismissed.
Disallowance of interest expenditure - attributing a notional proportion of interest towards capital work-in-progress and capital advances - CIT(A) deleted addition - HELD THAT:- It is not in dispute that the Assessing Officer has not established any direct nexus between the borrowed funds and the capital assets or advances. The disallowance has been made solely on a presumptive basis by applying a notional allocation formula.
CIT(A), after examining the assessee’s submissions and financial position, has given a categorical finding that the assessee had sufficient own funds amounting to Rs. 51.48 crores as on 31.03.2016, comprising share capital, reserves and surplus, whereas the capital work-in-progress and capital advances aggregated to Rs. 26.38 crores.
CIT(A) also accepted the assessee’s contention that the borrowings were primarily utilised for repayment of old trade liabilities and general business operations, and that there was no evidence to suggest diversion for capital purposes. These findings are not controverted by the Revenue by bringing any positive material on record.
CIT(A) has rightly relied upon the settled legal position laid down Reliance Utilities and Power Ltd. [2009 (1) TMI 4 - BOMBAY HIGH COURT] wherein it has been held that if the assessee possesses both interest-free funds and interest-bearing borrowed funds, and the interest-free funds are sufficient to meet the investments, a presumption arises that the investments are made out of interest-free funds. This principle has been consistently followed in subsequent decisions of various judicial authorities, and is squarely applicable to the present case. Decided against revenue.
Disallowance of Consultancy Fee - revenue v/s capital expenditure - assessee submitted that the consultancy services primarily related to technical documentation, dossier preparation, on-site audit assistance, and compliance facilitation, which are recurring and integral to the export operations of a pharmaceutical enterprise and it was asserted, did not result in the creation of any tangible or intangible asset, nor did it bring about an enduring advantage in the capital field - HELD THAT:- DR despite raising general objections, could not bring on record any tangible material or fact to controvert the above position. No evidence has been placed before us to show that the expenditure led to acquisition of any capital asset or that the approvals obtained resulted in enduring benefit in the capital field. Thus, we hold that the expenditure incurred by the assessee was revenue in nature, incurred wholly and exclusively for the purposes of business, and is therefore allowable under section 37(1) of the Income-tax Act. Decided in favour of assessee.
Disallowance of Foreign Exchange Fluctuation Loss - core argument advanced by the learned AR is that section 43A applies only when the payment is made after the acquisition of the asset and not when advances are made prior to acquisition - HELD THAT:- The term “towards the whole or a part of the cost of the asset” appearing in clause (a) of section 43A clearly contemplates situations where payments, including advance payments, are made in relation to the cost of acquisition of a capital asset. The fluctuation in the rate of exchange, if resulting in an increase or reduction in such liability at the time of making payment, is required to be added to or deducted from the actual cost of the asset, irrespective of the method of accounting adopted by the assessee.
In the present case, the assessee has not disputed that the payments were made as advances for acquisition of capital goods. The change in exchange rate during the relevant previous year has impacted the liability in Indian currency at the time of such payments. It is also not the case of the assessee that the capital goods so ordered were not eventually acquired. Therefore, even though the payments were made before booking the assets in the books of account, they were clearly towards the cost of the asset and hence fall within the ambit of clause (a) to section 43A.
As in Woodward Governor India Pvt. Ltd [2009 (4) TMI 4 - SUPREME COURT] has laid down the principle that exchange fluctuation loss is to be treated in accordance with the nature of the underlying liability. In cases where the liability pertains to acquisition of capital assets from outside India, such exchange difference is capital in nature and not allowable under section 37(1). The Court further held that accounting entries based on Accounting Standard-11 cannot override the specific mandate of section 43A.
AR could not place on record any specific evidence or material to demonstrate the timing of acquisition of the capital assets vis-à-vis the payment of advance, nor was any documentary evidence produced to establish that the fluctuation loss was not relatable to capital goods. In the absence of such details, and in view of the admitted position that the payments were made for capital assets, the assessee’s reliance on the distinction between pre- and post-acquisition payments is misplaced.
Thus, no infirmity in the conclusion drawn by the learned CIT(A) that the foreign exchange fluctuation loss debited to the profit and loss account, being relatable to acquisition of capital assets, is capital in nature and liable to be capitalised u/s 43A. The direction issued by the CIT(A) to restrict the disallowance being the actual amount debited to the profit and loss account, is also fair and reasonable.
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Reopening of Assessment Under Sections 147 and 148 Invalid Without Failure to Disclose Material Facts
Reopening of Assessment Under Sections 147 and 148 Invalid Without Failure to Disclose Material Facts
The ITAT RAIPUR held that the reopening of assessment under sections 147 and 148 was invalid due to the absence of any failure by the assessee to disclose material facts as required by the first proviso to section 147. The reasons recorded by the AO were not supplied to the assessee despite requests, violating mandatory legal provisions and Supreme Court precedent in GKN Driveshaft. Consequently, the reassessment proceedings were held to be ultra vires and void ab initio. The impugned assessment order dated 19.03.2022 was quashed, and the appeal of the assessee was allowed.
Reopening of assessment u/s 147 - reasons to believe - Justification for formation of the reasons recorded - HELD THAT:- We find substance in the submission of Ld. AR that the failure on the part of assessee in disclosing fully and truly all material facts, which should have been brought on record compulsorily as per 1st proviso to section 147, which is the basis of reopening in the present case could not be met out by the revenue.
Further nothing could be brought on record before us also to substantiate that there was a failure on the part of assessee in disclosing fully and truly all material facts during the original assessment, therefore, we are of the considered view that in absence of such information in the reasons recorded by the Ld. AO the assumption of jurisdiction u/s 147 & 148 of the Act itself is in violation of mandatory provisions of law, thus, stands ultra vires, exceeding to the jurisdictional restraints imposed by the 1st proviso to Section 147 of the Act, therefore, the entire proceedings initiated u/s 147 vitiates and the impugned assessment order passed u/s 147 dated 19.03.2022 on the foundation of such ultra vires or void ab initio proceedings does not have the lawful strength to sustain, accordingly, we quashed the same.
Effect of absence of supply of the reasons recorded for reopening of assessment - As following the principal of law and analogy of interpretation accorded in the case of Videsh Sanchar Nigam [2011 (7) TMI 715 - BOMBAY HIGH COURT] Jagat Talkies Distributors [2017 (9) TMI 192 - DELHI HIGH COURT] Shodiman Investments Pvt. Ltd. [2018 (4) TMI 1287 - BOMBAY HIGH COURT] we are of the considered view that in absence of supply of the reasons recorded for reopening of assessment even after assessee’s request so as to enable to object to the same, the reassessment framed cannot be upheld and would make the order passed on reassessment bad in law. That, if the reasons recorded in support of the reopening notice are not provided to the assessee, the same would be contrary to and in defiance of the decision of the Apex Court in GKN Driveshaft [2002 (11) TMI 7 - SUPREME COURT].
Thus, non furnishing of reasons to assessee would make the assessment order bad in law - Assessee appeal allowed.
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Legal and professional expenses allowed as revenue under Section 37(1), not capital expenditure, reversing disallowance
Legal and professional expenses allowed as revenue under Section 37(1), not capital expenditure, reversing disallowance
ITAT Mumbai held that various legal and professional expenditures incurred by the assessee were revenue in nature and allowable under section 37(1). Payments made for business strategy, preparation of information memorandum, transactional legal documentation, post-investment dispute defense, and legal compliance did not result in acquisition of capital assets or confer enduring benefits. The tribunal rejected the AO's capital expenditure characterization, finding no demonstrable nexus between the expenses and capital creation. Expenses were incurred wholly for business purposes, including operational efficiency, investor compliance, and litigation defense. Disallowance of service tax components without invoking specific provisions was also deemed improper. The appeal was allowed, reversing the AO's disallowance.
Nature of expenditure - legal and professional expenditure - AO made disallowance u/s 37(1) and found expenditure to be either capital in nature or unrelated to the business activities of the assessee - allowable business expenditure
Payment to KPMG - Business Strategy and Restructuring - HELD THAT:- This expenditure was clearly aimed at enhancing operational efficiency and exploring avenues for future business, and was neither related to nor contingent upon the capital infusion. There is no evidence that the restructuring led to creation of a capital asset or yielded any enduring commercial advantage of the nature contemplated in Ballimal Naval Kishore [1997 (1) TMI 3 - SUPREME COURT] - CIT(A) rightly appreciated this position and allowed the deduction.
Payment to KPMG India Pvt. Ltd. – Preparation of Information Memorandum - The fact that the invoice was raised after the receipt of funds is not determinative. It is trite law that the timing of payment or billing does not ipso facto determine the nature of expenditure. What matters is the underlying purpose. AO’s inference that the expenditure is capital in nature merely because it relates temporally to the funding is untenable in the absence of any demonstrable link or benefit of an enduring nature.
Information Memorandum did not bring into existence any new asset, nor did it alter the fixed capital structure of the assessee. It was an exercise in business facilitation, squarely falling within the operational domain. Applying the principles enunciated in Empire Jute Co. Ltd. [1980 (5) TMI 1 - SUPREME COURT] we find that the said expenditure is revenue in nature. Accordingly, the disallowance deleted.
Payment to AZB & Partners – Transactional Legal Documentation -Legal fees incurred in the course of facilitating investor-mandated compliance, particularly when the service provider is dictated by the counterparty, cannot be regarded as capital expenditure. The assessee neither acquired any asset nor did the expenditure confer upon it any enduring advantage. The transaction may have resulted in capital receipt, but the costs associated with it, especially when they are ministerial and documentation-related, have been judicially held to be allowable as revenue expenditure. Reference may be drawn by cases Ashima Syntex Ltd. [2000 (8) TMI 22 - GUJARAT HIGH COURT] and Shree Capital Services Ltd. [2009 (7) TMI 172 - ITAT CALCUTTA]
We thus hold that the expenditure was incurred wholly and exclusively for the purposes of business and is allowable u/s 37(1).
Payment to Nishith Desai & Associates – Legal Defence in Post-Investment Dispute - Subsequent to the receipt of investment, disputes arose between the assessee and the nominee director of HSBC PI Holdings. The assessee engaged Nishith Desai & Associates, a leading law firm, to defend itself in legal proceedings arising out of those disputes. The services included representation before investigating agencies and rendering legal advice.
We find considerable merit in the assessee’s submission that these were litigation expenses incurred to protect the interests of the company, its management, and its reputation. Such expenses have been consistently held to be allowable, even where they arise in the context of capital transactions, if the object is to defend or protect the existing business. Accordingly, the payment made is allowed.
Payment to Wadia Ghandy & Co. – Legal Compliance and Subsidiary Governance - The engagement of Wadia Ghandy & Co. was two-fold: first, to review transaction documents and render legal advice relating to the CCP issue, and second, to provide legal opinion on the appointment of statutory auditors for the assessee’s wholly-owned subsidiary in Dubai - CIT(A) allowed part of this expenditure relating to the latter activity and disallowed the balance - We are of the view that even the legal documentation work carried out by Wadia Ghandy & Co. does not result in any acquisition of asset or enduring advantage. It was a standard professional service availed for ensuring legal compliance. The judicial distinction between facilitative expenditure and capital acquisition must be preserved. The review of legal agreements is part of any well-governed business transaction and is not in the nature of capital outlay. Hence, we direct that the balance disallowance also be deleted.
Thus, we hold that none of the components of the impugned expenditure can be said to result in creation of a capital asset, nor do they confer any enduring benefit within the meaning attributed by judicial pronouncements. The expenses were incurred in the ordinary course of business, either in preparation for expansion, to comply with investor-imposed conditions, or to defend the company’s position in legal proceedings.
AO has not demonstrated any nexus between the expenditure and capital creation, and has instead proceeded on generalised assumptions unsupported by evidence. It is equally pertinent that the AO disallowed even the service tax components paid to the Government, without invoking any of the specific disallowance provisions such as section 40(a) or section 43B.
Assessee appeal allowed.
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Section 68 Addition Upheld for Bogus Share Capital and Premium Due to Lack of Creditor Evidence
Section 68 Addition Upheld for Bogus Share Capital and Premium Due to Lack of Creditor Evidence
The ITAT Kolkata upheld the addition under section 68 regarding bogus share capital and premium, rejecting the CIT(A)'s deletion of the addition. The tribunal found no evidence of the creditors' identity, creditworthiness, or genuineness of the transactions. Despite the directors' non-appearance, notices under section 133(6) were responded to, indicating the share capital was arranged by the assessee. The tribunal relied on relevant precedent to confirm the charging of an excessive share premium without justification. Consequently, the CIT(A) order was set aside, and the AO's addition was restored, ruling in favor of the revenue.
Addition u/s 68 - bogus Share Capital and Premium in the course of assessment - absence of identity of the Creditors, Genuineness and Creditworthiness of the entire transactions - CIT(A) deleted addition - HELD THAT:- It was brought to our notice that the directors did not appear and even the Ld. AR failed to produce the directors.There is no evidence of creditworthiness of the subscribers and no evidence for the genuineness of the transaction.
CIT(A) was, however, was carried away by the fact that the directors did not receive the notices, therefore, they could not appear which, however, is contrary to the facts mentioned by the Ld. AO in the assessment order, as was also pointed out by the Ld. DR before us. Thus, the order of the Ld. CIT(A), not being based upon facts of the case and there being no justification for charging huge premium of ₹90/- on the face value of ₹10/- per share and the inability to produce the directors for examination but response being received for notices issued u/s 133(6) of the Act, all establish the fact that the share capital was arranged by the assessee and therefore, despite the directors not appearing, the self-serving responses to notices u/s 133(6) of the Act were filed.
Thus, considering principles laid down in the decision of BST Infratech Ltd. [2024 (4) TMI 989 - CALCUTTA HIGH COURT] the failure of the assessee to justify the charging of share premium and no further compliance before us, the order of the Ld. CIT(A) is hereby set aside and the order of the Ld. AO is hereby confirmed. Decided in favour of revenue.
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Refund Claims Barred by Limitation Under Section 11B of Central Excise Act Confirmed Valid
Refund Claims Barred by Limitation Under Section 11B of Central Excise Act Confirmed Valid
The CESTAT Chennai upheld the dismissal of the refund claim as barred by the limitation period under Section 11B of the Central Excise Act, applicable via Section 83 of the Finance Act, 1994. Relying on the Supreme Court's nine-judge bench ruling in Mafatlal Industries Ltd, the tribunal affirmed that refund claims under Central Excise or Customs laws must comply with the prescribed limitation periods and procedures. Even if service tax was paid without proper classification, the claim must follow the refund provisions under the Finance Act. The tribunal rejected the appellant's contention against the applicability of Section 11B's time limits, confirming the constitutional validity and mandatory nature of these provisions. The appeal was dismissed, and the lower authority's order was upheld without interference.
Refund claim - barred by time limitation as stipulated u/s 11B of the Central Excise Act, 1944 as made applicable to Finance Act by virtue of Section 83 of the Finance Act, 1994.
HELD THAT:- The issue is no more res-integra. When it comes to the issues pertaining to the claim of refund being made pertaining to the Central Excise or Customs Enactments, it is not required to look further than advert to the locus classicus, namely, the Judgement of the 9 Judge Constitution Bench in the case of Mafatlal Industries Ltd v. Union of India, [1996 (12) TMI 50 - SUPREME COURT], wherein, in the Judgement of Hon’ble J.S. Verma, S.C.Agrawal, B.P. Jeevan Reddy, A.S. Anand and B.N. Kripal JJl, delivered by B.P. Jeevan Reddy, J., per majority, the matter has been thrashed out exhaustively. S.C. Sen, J. has authored the lone dissenting opinion.
When the Apex Court, sitting in a combination of nine, has categorically held that in the case of mis-interpreting or mis-applying any of the rules, regulations or notifications issued under the Central Excise or Customs Enactments, such a claim has necessarily to be preferred under and in accordance with the provisions of the respective enactment before the authorities specified thereunder and within the period of limitation prescribed therein, it is opined that even in a case of payment of service tax, made by an assessee, without proper examination of whether or not the activity of the assessee gets covered under the definition of “works contract service” that is exigible to service tax, it would still have to be dealt with under the refund provisions as provided for in the Finance Act 1994, namely Section 11B as made applicable vide Section 83 of the Finance Act, 1994. When the Apex Court has categorically held that the Central Excise and Customs Enactments are self-contained enactments providing for levy, assessment, recovery and refund of duties, imposed thereunder and that Section 11B of the Central Excises and Salt Act and Section 27 of the Customs Act, both before and after the 1991 (Amendment) Act are constitutionally valid and have to be followed and given effect to, no assessee under these enactments, or any other lower judicial forum, can tenably contend to the contrary.
The contentions raised by the appellant on inapplicability of time limit under Section 11B are unsustainable and the claim being barred by limitation, the Appellate Authority has rightly upheld the same.
The Order in Appeal passed by the Appellate Authority merits no interference - appeal dismissed.
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Second Appeal Allowed After Appointment of GST Appellate Tribunal President Under Section 112(9) of GST Act
Second Appeal Allowed After Appointment of GST Appellate Tribunal President Under Section 112(9) of GST Act
The HC held that since the GST Appellate Tribunal in the State has been notified but its President or members are yet to be appointed, the petitioner may file a second appeal once the President or State President assumes office. Upon filing the appeal after the statutory deposit, the Authority must decide it strictly according to law. The statutory stay under Section 112(9) of the GST Act, 2017, will continue until the appeal is decided. The petition was disposed of accordingly.
Filing of second appeal before GST appellate tribunal - though the Tribunal has been notified in the State of Chhattisgarh, the president or the members have not yet been appointed - HELD THAT:- Particularly considering the order dated 03.12.2019 issued by the Central Board of Indirect Taxes and Customs and also considering the order dated 09.05.2024 passed by the Co-ordinate Bench in WPT No. 40/2023 and other connected matters [2024 (5) TMI 1549 - CHHATTISGARH HIGH COURT], this Court finds it appropriate to direct that as soon as the President or State President enters the office of Goods and Service Tax Appellate Tribunal constituted under the Act of 2017, the petitioner may invoke the aforesaid provision for filing an appeal after statutory deposit. On such appeal being filed, the concerned Authority shall decide the same strictly in accordance with law. The statutory stay as provided under Section 112 (9) of the Act 2017 would remain in operation till the decision of said appeal.
Petition disposed off.
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HC refuses writ petition against blocking of input tax credit under Rule 86A CGST Rules, citing need for factual inquiry
HC refuses writ petition against blocking of input tax credit under Rule 86A CGST Rules, citing need for factual inquiry
The HC declined to entertain the writ petition challenging the blocking of input tax credit under Rule 86A of the CGST Rules, 2017, emphasizing that such extraordinary relief requires objective evidence and careful evaluation. The court held that the issue of genuineness of invoices and eligibility of input tax credit is a factual matter for the adjudicating authority to determine, not suitable for judicial interference under Articles 226 and 227. The petitioner was directed to submit explanations to the competent authority, which must consider the same with an opportunity of hearing within four weeks. The petition was disposed of by remanding the matter for appropriate administrative adjudication.
Blocking of input tax credit under Rule 86A of the Central Goods and Services Tax Rules, 2017 / the Odisha Goods and Services Tax Rules, 2017 - non-existent suppliers - burden of proof - violation of principles of natural justice - HELD THAT:- Rule 36 of the CGST Rules warrants documentary proof for claiming input tax credit which are necessarily for the fact-finding adjudicating authority to verify and assess its sanctity on production of such documents for examination. Therefore, for the paucity of material on the record relating to writ petition to consider the genuineness of the invoices and waybills, correctness of entries in the books of account along with other relevant and related evidences, this Court desists from adjudicating the issue raised on factual merit by the petitioner, which is strongly opposed by the learned Standing Counsel.
Rule 86A mandates that the Commissioner, or an officer authorised by him, not below the rank of Assistant Commissioner, must have “reasons to believe” For elaborate illuminating discussion about the expression “reason to believe” reference can be had to State of U.P. Vrs. Aryaverth Chawal Udyog, [2014 (11) TMI 1095 - SUPREME COURT] that credit of input tax available in the electronic credit ledger is either ineligible or has been fraudulently availed by the registered person, before disallowing the debit of amount from electronic credit ledger of the said registered person under Rule 86A.
The remedy of disallowing debit of amount from electronic credit ledger being, by its very nature extraordinary has to be resorted to with utmost circumspection and with maximum care and caution. It contemplates an objective determination based on intelligent care and evaluation as distinguished from a purely subjective consideration of suspicion. The reasons are to be on the basis of material evidence available or gathered in relation to fraudulent availment of input tax credit or ineligible input tax credit availed as per the conditions/grounds under sub-rule (1) of Rule 86A.
Finding the present case in similitude with that of the above case where decision has been rendered in the context of allegation against the availing input tax credit that fact-finding on the nature of dispute set up by the Department can be subject-matter for adjudication by the statutory authority empowered in this behalf and thereafter, if need arises the same could be tested before the other statutory authorities in the hierarchy of adjucatory process.
Having found that it is not a fit case for exercise of extraordinary jurisdiction under Articles 226 and 227 of the Constitution of India, this Court refrains from entertaining the writ petition. Hence, it would be mete and appropriate, if the authority in seisin over the matter is directed to consider reply/explanation submitted by the petitioner vide Annexure-4 within a period of four weeks hence by affording opportunity of hearing to the petitioner - Petition disposed off by way of remand.
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