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2023 (10) TMI 1614 - ITAT MUMBAI Income Tax

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Issues: (i) Whether foreign-currency expenditure on technical services and telecommunication charges, not recovered from customers or included in turnover, could be excluded from export turnover for deduction under Section 10A; (ii) Whether interest on a foreign-currency loan advanced to an associated enterprise should be benchmarked at LIBOR plus 80 basis points; (iii) Whether interest could be imputed as a secondary adjustment on upfront discount treated as an interest-free advance for assessment year 2007-08; (iv) Whether education cess was allowable as a deduction under Section 37(1); (v) Whether dividend distribution tax was required to be restricted to the rates under the applicable DTAA provisions.

Issue (i): Whether foreign-currency expenditure on technical services and telecommunication charges, not recovered from customers or included in turnover, could be excluded from export turnover for deduction under Section 10A.

Analysis: The expenses had not been separately recovered from customers and had never formed part of the assessee's export turnover. The identical issue stood governed by the prior decision for the assessee, applying the principle that such expenses cannot be reduced from export turnover where they were not included in it.

Conclusion: The expenditure could not be excluded from export turnover. This issue was decided in favour of the assessee.

Issue (ii): Whether interest on a foreign-currency loan advanced to an associated enterprise should be benchmarked at LIBOR plus 80 basis points.

Analysis: For a foreign-currency loan, LIBOR is the appropriate benchmark for determining the arm's length price. The associated-enterprise loan involved a lower risk element than an external commercial borrowing to an unrelated party; therefore, the higher spread adopted for ECBs was not appropriate. The alternative LIBOR plus 80 basis points benchmark was found suitable.

Conclusion: The arm's length interest rate was fixed at LIBOR plus 80 basis points. This issue was decided in favour of the assessee.

Issue (iii): Whether interest could be imputed as a secondary adjustment on upfront discount treated as an interest-free advance for assessment year 2007-08.

Analysis: Section 92CE excludes secondary adjustment where the primary adjustment relates to an assessment year commencing on or before 1 April 2016. The primary adjustment concerning the upfront discount related to assessment year 2007-08, and the interest imputation was a secondary adjustment arising from that transaction.

Conclusion: The secondary interest adjustment was impermissible and remained deleted. This issue was decided in favour of the assessee.

Issue (iv): Whether education cess was allowable as a deduction under Section 37(1).

Analysis: The applicable retrospective amendment introduced by the Finance Act, 2022 governed the claim and precluded the deduction.

Conclusion: Deduction of education cess was not allowable. This issue was decided against the assessee.

Issue (v): Whether dividend distribution tax was required to be restricted to the rates under the applicable DTAA provisions.

Analysis: The issue was governed by the Special Bench decision that denied the claimed treaty-rate restriction.

Conclusion: Dividend distribution tax was not required to be restricted to the DTAA rates claimed. This issue was decided against the assessee.

Final Conclusion: The Section 10A computation and transfer-pricing relief were sustained in favour of the assessee, while the claims concerning education cess and treaty-based restriction of dividend distribution tax were rejected.

Export turnover exclusions and foreign-currency loan pricing govern tax relief, while cess and treaty-rate DDT claims fail.
Foreign-currency expenditure on technical services and telecommunications not recovered from customers or included in export turnover is not reducible from export turnover for Section 10A purposes. Interest on a foreign-currency loan to an associated enterprise is benchmarked at LIBOR plus 80 basis points, reflecting the lower risk compared with external commercial borrowings. Secondary interest adjustment on an upfront discount relating to assessment year 2007-08 is excluded because the primary adjustment predates the statutory cut-off. Education cess is not deductible under Section 37(1) following the retrospective amendment. Dividend distribution tax is not restricted to the claimed DTAA rates.

Exclusion of foreign-currency technical-service and telecommunication expenses from export turnover - Arm's length interest on foreign-currency loan to associated enterprise - Secondary adjustment for pre-April 2016 primary adjustment - Deductibility of education cess as business expenditure - Dividend distribution tax and treaty-rate restrictionExclusion of foreign-currency technical-service and telecommunication expenses from export turnover - Exclusion of foreign-currency expenditure on technical services and telecommunication charges from export turnover in computing the software-export deduction. - HELD THAT: - As the assessee had neither separately recovered these expenses from customers nor included them in its turnover, their exclusion from export turnover did not arise. The identical factual position had already been decided in the assessee's favour by the co-ordinate Bench. [Paras 11]The relief granted by the Commissioner (Appeals) was sustained and the Revenue's ground was dismissed.Arm's length interest on foreign-currency loan to associated enterprise - Arm's length rate of interest on a foreign-currency loan advanced to the assessee's foreign associated enterprise. - HELD THAT: - LIBOR was the appropriate benchmark for a foreign-currency loan. Since the loan was advanced to the assessee's own subsidiary and involved a lower risk than a third-party external commercial borrowing, LIBOR plus 80 basis points was held appropriate. [Paras 17]Interest was directed to be benchmarked at LIBOR plus 80 basis points; the Revenue's grounds were dismissed and the assessee's corresponding ground was partly allowed.Secondary adjustment for pre-April 2016 primary adjustment - Imputation of interest as a secondary adjustment on upfront discount paid to an associated enterprise. - HELD THAT: - The interest adjustment, made by re-characterising the upfront discount as an interest-free advance, was a secondary adjustment. The statutory bar on secondary adjustment where the primary adjustment relates to an assessment year commencing on or before 1 April 2016 applied; consequently, the questions of commercial expediency and re-characterisation became academic. [Paras 26]Deletion of the imputed-interest adjustment was upheld and the Revenue's grounds were dismissed.Deductibility of education cess as business expenditure - Deductibility of education cess paid as business expenditure. - HELD THAT: - Following the co-ordinate Bench decision holding that the Finance Act, 2022 amendment operated retrospectively, the claim for deduction was rejected. [Paras 32]The additional ground claiming deduction of education cess was dismissed.Dividend distribution tax and treaty-rate restriction - Restriction of dividend distribution tax to the rate under the applicable tax treaty. - HELD THAT: - The issue was covered against the assessee by the Special Bench decision. [Paras 33]The additional ground was dismissed.Final Conclusion: The Revenue's appeal was dismissed. The assessee's appeal was partly allowed to the extent of the transfer-pricing relief concerning interest on the foreign-currency loan.

2023 (10) TMI 1613 - ITAT MUMBAI Income Tax

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Effective hearing opportunity in assessment proceedings: defective statutory notice service required de novo assessment after setting aside prior orders.
Effective opportunity of hearing is required before an assessment is finalised. Statutory notices sent to an address where the assessee was not residing, including notices returned unclaimed, unserved or received by a tenant, may not establish valid service where the assessee was undergoing treatment elsewhere. Appellate remedies do not cure the denial of a reasonable opportunity at the assessment stage. The assessment and appellate order were set aside, with the matter restored for a de novo assessment after an effective hearing opportunity.

2023 (10) TMI 1558 - SECURITIES AND EXCHANGE BOARD OF INDIA SEBI

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ISSUES PRESENTED AND CONSIDERED

1. Whether the Noticees acted as investment advisers without obtaining certificate of registration in contravention of Section 12(1) of the SEBI Act and Regulation 3(1) of the IA Regulations?

2. Whether the Noticees committed "fraud" by disseminating deceptive and misleading information (including assurance of guaranteed IPO allotment) in contravention of Section 12A(a),(b),(c) of the SEBI Act read with Regulation 4(1) and 4(2)(k) of the PFUTP Regulations, 2003?

3. If the above are answered affirmatively, what directions and penalties are warranted under the SEBI Act and applicable regulations?

ISSUE-WISE DETAILED ANALYSIS - I. Unregistered Investment Advisory Activity

Legal framework: Section 12(1) of the SEBI Act prohibits acting as an investment adviser except under a certificate of registration; Regulation 2(1)(m), 2(1)(g), 2(1)(l) and Regulation 3(1) of the IA Regulations define "investment adviser", "consideration" and "investment advice" and mandate registration.

Precedent treatment: The adjudicating approach applies the IA Regulations' definitions to hold persons who for consideration hold themselves out or engage in providing investment advice to be investment advisers and hence fall within the registration requirement; established principle that failure to reply/appear can allow proceeding ex parte and presumptive admission of charges.

Interpretation and reasoning: The website content (archived pages) and bank account activity established that the enterprise held itself out as offering off-market and current IPO deals "with confirmation", various investment advisory services, portfolio management and financial planning and claimed client experience and awards. The bank account in the entity's name received substantial credits with narrations linked to IPO subscriptions and investment-related services; Axis Bank's field verification recorded the nature of business as investment related work. Payments received (UPI/IMPS/NEFT/RTGS/cash) and the claim of fees demonstrate "consideration". The combination of (a) promotional statements holding out advisory services, (b) monetary receipts from investors traceable to advisory/IPO-related narrations, and (c) lack of SEBI registration satisfy the statutory definition of acting as an investment adviser without registration.

Ratio vs. Obiter: Ratio - where a person or entity holds itself out as providing investment advice and receives consideration (monetary receipts linked to advisory/IPO services), it must be registered under the IA Regulations; absence of registration constitutes violation of Section 12(1) read with Regulation 3(1). Obiter - credibility issues of the proprietor's claimed ignorance and timing of police complaints (treated as afterthought) are considered but secondary to the statutory finding.

Conclusion: The Noticees acted as investment advisers without obtaining mandatory registration and thus violated Section 12(1) of the SEBI Act read with Regulation 3(1) of the IA Regulations.

ISSUE-WISE DETAILED ANALYSIS - II. Fraud / Misleading and Deceptive Conduct

Legal framework: Section 12A(a),(b),(c) of the SEBI Act prohibits use of manipulative/deceptive devices or schemes to defraud in connection with issue or dealing in securities. PFUTP Regulation 2(1)(c) defines "fraud" expansively to include representations, promises without intention to perform, active concealment, reckless misstatements and deceptive behaviour; Regulation 4(1) and 4(2)(k) proscribe manipulative, fraudulent or unfair trade practices and dissemination of false or misleading advice designed to influence investor decisions.

Precedent treatment: The legal approach applies an inclusive, broad understanding of "fraud" where inducement to deal in securities suffices, and dishonest intent need not be proved if inducement can be inferred; regulatory aim is investor protection and prevention of manipulative or deceptive market practices.

Interpretation and reasoning: The website's assertions (guaranteed/off-market IPO allotment "with confirmation", low-risk advisory, maximisation of profits, 10+ years' experience, 9,102 clients, awards) were unsubstantiated by verifiable data and were calculated to induce investors. The entity's unregistered status was not disclosed and appears intentionally concealed. Bank transaction narrations linked to multiple IPOs corroborate that investors were induced to transfer monies for allotment/advisory services. The proprietor's inconsistent statements regarding awareness and control of the website undermine exculpatory content and support an inference of inducement. Given the expansive statutory definition of "fraud", these facts amount to deceptive dissemination of information likely to influence investor decisions and to acts operable as fraud/deceit in connection with securities.

Ratio vs. Obiter: Ratio - dissemination of unverified assurances of guaranteed allotment and promises of low-risk/high-return advisory services by an unregistered entity, coupled with receipt of investor monies, falls within the ambit of "fraud" under PFUTP Regulation 2(1)(c) and contravenes Section 12A and Regulation 4(1)/4(2)(k). Obiter - considerations regarding motive, individual credibility, and subsequent police actions are explanatory but not necessary to the legal finding of fraudulent/unfair practice.

Conclusion: The Noticees disseminated deceptive and misleading information and engaged in conduct covered by the definition of "fraud" and contravened Section 12A(a),(b),(c) of the SEBI Act read with Regulation 4(1) and 4(2)(k) of the PFUTP Regulations, 2003.

ISSUE-WISE DETAILED ANALYSIS - III. Appropriate Reliefs, Directions and Penalties

Legal framework: Sections 11(1), 11B(1), 11(4), 11(4A), 19, 15EB and 15HA of the SEBI Act empower the authority to issue directions, impose penalties for failure to comply with regulations (including for investment advisers) and for fraudulent/unfair trade practices; Section 15J lists factors for adjudging penalty quantum; Rule 5 of the SEBI (Procedure for Holding Inquiry and Imposing Penalties) Rules 1995 governs procedural exercise of these powers.

Precedent treatment: Remedies typically combine restitution (refund), market access restrictions, prohibitions on association with public companies/intermediaries, escrow/accounting mechanisms, publishing notices for claims, and monetary penalties proportionate to contraventions and investor harm; adjudicating officers are to consider gain/unfair advantage, loss to investors and repetitiveness.

Interpretation and reasoning: Given findings of unregistered advisory activity and fraudulent/disseminative conduct and the receipt of substantial investor monies, directions aim foremost at restitution and investor protection. The order's directions require: public notice, acceptance and completion of refund claims within structured timelines, escrow of unclaimed balances with eventual transfer to investor protection fund, audit-certified reporting of refund completion, prohibition on disposal of assets except to effect refunds, market access and association restraints for two years, prohibition on undertaking advisory activities without registration, and specified monetary penalties under Sections 15EB (investment adviser default) and 15HA (fraudulent practices). The quantification of penalties took into account statutory minima and the nature of violations; procedural fairness was observed by granting multiple hearing opportunities though proceeding ex parte where parties failed to respond.

Ratio vs. Obiter: Ratio - where unregistered advisory activity and PFUTP violation are established with investor monies received, the regulator may order refunds, publish notices, impose market access/association restraints, require escrow/accounting and levy penalties under Sections 15EB and 15HA. Obiter - the particular timelines, newspapers and format of public notice are procedural measures tailored to case facts and may vary by circumstance.

Conclusion: Directions for restitution (refund mechanisms, public notice, escrow), restraints on market access and association for two years, prohibition on performing advisory activities without registration, and monetary penalties (specified sums under Sections 15EB and 15HA) are appropriate and issued; non-compliance may attract recovery measures under Section 28A and investor remedies remain available notwithstanding the directions.

Unregistered advisers defrauded investors with guaranteed IPO allotments; violations Sec 12(1), 12A(a)-(c), Reg 3(1), Reg 4(1)/4(2)(k); penalties Sec 15EB, 15HA
SEBI Board held that the noticees, operating through an investment advisory firm, acted as unregistered investment advisers and induced investors to pay advisory fees for guaranteed IPO allotments. The Board found the website's representations deceptive, constituting "fraud" under PFUTP Regulations, and held the noticees in violation of Section 12(1) and Section 12A(a)-(c) of the SEBI Act read with Regulation 3(1) of the IA Regulations and Regulation 4(1)/4(2)(k) of PFUTP Regulations. The noticees were held liable for penalties under Sections 15EB and 15HA of the SEBI Act and directions were issued.

Fees received towards the services rendered as an investment advisor - Investment advisory services without obtaining certificate of registration from SEBI - providing advisory services and offering guaranteed allotment under the Initial Public Offering (“IPO”) against the consideration for the services - allegedly committed a "fraud" as defined under Regulation 2(1)(c) of the PFUTP Regulations, 2003 - violated Section 12(a) (b) & (c) of SEBI Act, 1992 read with Regulation 4 (1) and 4 (2) (k) of the PFUTP Regulations, 2003 - imposition of penalty. Whether the Noticees acted as unregistered investment advisors in contravention of Section 12(1) of the SEBI Act and Regulation 3 (1) of the IA Regulations? HELD THAT:- The website projects the Noticee No.1 to be known for providing various services like off market IPOs with confirmation, low risk investment advisory, market research and technical analysis, unique portfolio management services, stable financial planning service etc. The website further claims that these services are provided with real time accuracy and higher transparency to each and every investor. Thus, it is clear that the nature of operations of the Noticee 1 includes providing stock market advisory services. The purpose of transferring funds by various investors was to make payment towards investment advisory services and to get allotment of shares in IPOs, as assured by Noticee 1 through the website www.shivaayinvestment.com. Considering this, the argument that Mr. Jaydeepgiri Goswami only acted on behalf of Noticee 2, 3 and 4, does not absolve him of the liabilities. Further, I note that the police complaint in the matter was filed only September 25, 2021, i.e., after 7 weeks of the first communication sent on August 3, 2021 from SEBI to Noticee 1 and therefore appears to be an afterthought to wash off his hands from the charges of violations levelled against him as the Proprietor of “Shivaay Investment”. I note that Mr. Jaydeepgiri Goswami, proprietor of “Shivaay Investment” (Noticee 1) and Noticees 2, 3 & 4 were indulged in unregistered advisory activities and were receiving monies from general investors in the bank account in the name of “Shivaay Investment”. However, in the present matter I note that the Noticees have acted in total disregard to the requirements of law without obtaining the required registration. I find that Noticee 1, along with Noticees 2, 3 and 4 were holding themselves out to be Investment advisers and were indulged in providing investment advisory services without obtaining mandatory registration from SEBI and for the said act(s), the said Noticees have violated the provisions of Section 12(1) of SEBI Act read with Regulation 3(1) of the IA Regulations. Whether the Noticees have committed “fraud” in contravention of Section 12A (a) (b) & (c) of SEBI Act, 1992 read with Regulation 4(1) and 4(2)(k) of the PFUTP Regulations, 2003? HELD THAT:- The information hoisted in the website www.shivaayinvestment.com was deceptive and misleading and are covered within the definition of “fraud” given under Regulation 2(1)(c) of the PFUTP Regulations and by such acts and/or omissions, the Noticees 1, 2, 3 and 4 have violated Section 12(a) (b) & (c) of SEBI Act, 1992 read with Regulation 4 (1) and 4 (2) (k) of the PFUTP Regulations, 2003. Penalty - HELD THAT:- As noted, the Noticee 1 had continuously been receiving investment advisory fees in its bank accounts from September 09, 2020 onwards. In view of the above, I find that the Noticees acted in violation of Section 12(1) of the SEBI Act read with Regulation 3(1) of the IA Regulations and Section 12A(c) of SEBI Act and Regulation 4(1) and 4(2)(k) of PFUTP Regulations. Thus, I find that the Noticees are liable to be imposed with penalty under both Sections 15EB and 15HA of the SEBI Act. In view of the foregoing, I, do hereby issue the following directions:

2023 (10) TMI 1557 - SECURITIES AND EXCHANGE BOARD OF INDIA SEBI

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ISSUES PRESENTED AND CONSIDERED

1. Whether the activity of offering paid "courses", private chat groups and subscription plans coupled with specific buy/sell/hold messages and live market guidance constitutes "investment advice" and renders the provider an "investment adviser" within the IA Regulations.

2. Whether the provision of such services for consideration without registration constitutes a contravention of Section 12(1) of the SEBI Act and Regulation 3(1) of the IA Regulations.

3. Whether marketing assurances of "sureshot", "guaranteed" or unnaturally high returns, together with selective private recommendations, amount to fraudulent, misleading or unfair trade practices under the PFUTP Regulations and Section 12A of the SEBI Act.

4. Whether disclaimers and labelling the activity as "educational" can negate the characterisation of the activity as investment advice or shield the provider from regulatory liability.

5. Whether amounts collected through the described channels and credited to specified bank accounts and corporate entities are prima facie proceeds of unregistered/fraudulent investment advisory activity and therefore liable to impoundment as unlawful gains.

6. Whether interim ex parte preventive measures (cease-and-desist, trading/dealing restraint, impounding of proceeds, asset/debit freezes and disclosure/inventory directions) are justified on the prima facie record to protect investors and market integrity.

ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Characterisation as "Investment Advice" and "Investment Adviser"

Legal framework: Definitions of "investment advice" and "investment adviser" under the IA Regulations: investment advice includes advice relating to investing, purchasing, selling or otherwise dealing in securities communicated for the benefit of the client; investment adviser means any person who for consideration is engaged in the business of providing investment advice or holds out as such. Public mass-media advice is excluded if widely available.

Precedent treatment: The Order does not rely on or cite external precedents; analysis is based on statutory definitions and factual matrix.

Interpretation and reasoning: The provider sold paid courses and subscriptions, created closed paid groups with chat functionality and sent specific actionable buy/sell/hold messages and live-trade guidance to paying subscribers. The features include individualized guidance, specific trade entries/quantities and timing, and profit-assurance statements. The activity was carried out for consideration; payments were routed to accounts controlled by the provider and associated entities. These facts satisfy both limbs of the IA definitions (advice/holding out and consideration). The exclusion for widely available media does not apply to closed, paid groups and directed recommendations.

Ratio vs. Obiter: Ratio - Paid, targeted provision of actionable trading recommendations and personalised live guidance constitutes "investment advice" and the provider so engaged is an "investment adviser" requiring registration. Obiter - None significant beyond factual conclusions.

Conclusion: Prima facie, the activity constitutes investment advice and the provider is an investment adviser under the IA Regulations.

Issue 2 - Unregistered Activity in Contravention of SEBI Act and IA Regulations

Legal framework: Section 12(1) SEBI Act prohibits dealing as intermediaries (including investment advisers) without SEBI certificate; Regulation 3(1) IA Regulations mandates registration prior to acting as investment adviser.

Precedent treatment: No precedents cited; applied statutory requirement to facts.

Interpretation and reasoning: The provider was not registered with SEBI in any capacity. Given the prima facie characterisation of the activity as investment advisory and the receipt of consideration documented in bank records and payment-gateway data, the statutory requirement of prior registration was not complied with.

Ratio vs. Obiter: Ratio - Acting as an investment adviser for consideration without SEBI registration prima facie contravenes Section 12(1) and Regulation 3(1). Obiter - None.

Conclusion: Prima facie contravention of Section 12(1) of SEBI Act read with Regulation 3(1) of the IA Regulations.

Issue 3 - Fraudulent, Misleading and Unfair Trade Practices under PFUTP

Legal framework: PFUTP Regulations and Section 12A of SEBI Act prohibit manipulative, deceptive, fraudulent or unfair practices; include misrepresentation, reckless statements, dissemination of false or misleading information designed to influence investor decisions and mis-selling.

Precedent treatment: None cited; statutory definitions applied to factual record.

Interpretation and reasoning: The provider repeatedly advertised high-accuracy strategies (80-95%), "sureshot" profits, guarantees and refund promises, while private group messages contained specific trading recommendations. Empirical trading records of the provider showed net losses (~INR 2.9 Crore) over the relevant period, contrary to public claims. The mismatch between public assurances and the provider's own trading record, combined with selective private recommendations to paying customers, amounts to reckless/misleading statements and mis-selling of services related to securities. Payment structures (fees, profit sharing) and targeted inducements increase the likelihood that disseminated statements were designed to influence trading decisions. These elements prima facie engage PFUTP provisions including dissemination of misleading advice and mis-selling.

Ratio vs. Obiter: Ratio - Marketing and personal dissemination of guaranteed/near-certain returns and specific trade calls to paying clients, when unsupported by the provider's own trading record, prima facie constitute fraudulent, misleading and unfair trade practices under PFUTP. Obiter - The presence of profit-sharing and live-trading access is indicative of advisory character and commercial motive (supporting inference of mis-selling).

Conclusion: Prima facie violation of PFUTP Regulations (including provisions prohibiting dissemination of false/misleading information and mis-selling) and Section 12A.

Issue 4 - Effect of Disclaimers and "Educational" Label

Legal framework: Substance-over-form approach under securities regulation; statutory definitions determine regulatory character irrespective of labels.

Precedent treatment: No precedents cited in the Order.

Interpretation and reasoning: Despite disclaimers asserting non-registration and "educational purpose", the content and delivery (paid closed groups, actionable calls, individualized live support, profit guarantees, contractual refund offers) manifestly amount to advisory services. Disclaimers that are ambiguous or attempt to shift responsibility do not absolve parties from statutory obligations; in fact, admission of non-registration in disclaimers underscores awareness of the need for registration and is inconsistent with a claim of purely educational content. Labeling does not alter the functional reality of advice-for-consideration.

Ratio vs. Obiter: Ratio - Disclaimers and labelling as "educational" do not negate the substantive characterisation of the activity as investment advice when the conduct and content satisfy statutory definitions. Obiter - Ambiguous disclaimers may be probative of consciousness of non-compliance.

Conclusion: Disclaimers/"educational" label do not shield the provider from regulatory liability on the prima facie record.

Issue 5 - Characterisation of Collected Amounts as Prima Facie Unlawful Gains

Legal framework: Powers to impound/disgorge proceeds derived from unlawful activities; assessment of funds received for unregistered/fraudulent activity as proceeds.

Precedent treatment: None relied upon; factual accounting from payment gateways and bank statements used.

Interpretation and reasoning: Payment-gateway records, beneficiary bank accounts and UPI linkage show substantial sums credited to accounts controlled by the provider and associated corporate/individual recipients. Amounts collected through the platform and UPI/IMPS mapped closely to prices of offered courses/strategies. Given the prima facie finding that those courses constituted unregistered and fraudulent advisory services, amounts collected therefrom constitute prima facie unlawful gains subject to impoundment. The Order quantifies the amounts based on available records (aggregate figure identified for the interim period) and treats them as jointly and severally attributable to key recipients.

Ratio vs. Obiter: Ratio - Funds received in consideration of unregistered and prima facie fraudulent investment advisory activities constitute unlawful gains and are prima facie liable to impoundment pending further adjudication. Obiter - Allocation among multiple recipients may be inferred from account records and corporate links.

Conclusion: Prima facie unlawful gains identified and quantified from the operative period; justifies interim impoundment measures as to specific accounts and persons.

Issue 6 - Necessity and Proportionality of Interim Directions

Legal framework: SEBI's statutory mandate to protect investors and market integrity; power to issue interim ex parte directions to prevent continuation of unlawful activity and prejudice pending final adjudication.

Precedent treatment: Not cited; applied statutory powers (sections enabling interim relief) to factual urgency.

Interpretation and reasoning: The record shows ongoing solicitation and receipt of funds post-investigation period, active social media channels and direct inducements to invest. There is real risk of dissipation of proceeds and continued investor harm if immediate measures are not taken. The balance of convenience weighs in favour of interim restraints (cease-and-desist, trading/dealing prohibition, escrow/impoundment, bank/depositor/depository freezes, asset disclosure and withdrawal of public solicitations) targeted at the principal actors and primary recipient accounts. Directions are proportionate as they are interim, specifically tied to quantified prima facie proceeds, and preserve funds for potential disgorgement/refund while allowing closure of pre-existing trading obligations within a limited timeframe.

Ratio vs. Obiter: Ratio - On a prima facie showing of unregistered and fraudulent advisory activity with ongoing solicitation and identifiable proceeds, interim preventive and preservation measures are justified and proportionate to protect investors and market integrity. Obiter - Selection of specific recipients for interim measures rests on account linkages and active roles demonstrated in the record.

Conclusion: Interim ex parte directions (cease-and-desist, restraint from dealing, impoundment/escrow, asset/debit freezes, disclosure and withdrawal of public solicitations) are prima facie justified and proportionate pending final adjudication.

SEBI orders noticees to stop unregistered, fraudulent investment-advisory 'educational' schemes and allows seizure of alleged ill-gotten gains
SEBI Board found that the Noticees operated unregistered and fraudulent investment-advisory activity concealed as "educational courses," inducing investors through misleading claims and receiving payments. Prima facie violations of investment-advisory and PFUTP norms were recorded. The Board issued an interim ex parte order directing specified Noticees (Nos.1, 2 and 5) to cease and desist, restrained them from continuing the activities, and allowed impounding/retention of alleged illegal gains to prevent diversion. Show-cause notices were to be issued to all Noticees for further proceedings.

Online/ Offline institutes - Unregistered and fraudulent investment advisory activity - ‘educational courses’/ ‘workshops’ on the website/ apps created on the platform - Payment gateway provided by Bunch for ‘educational courses’ - misleading, soliciting and inducing the investors to deal in the securities market on the basis of investment advice without having the requisite registration / certificate as mandated under the IA Regulations - contravention of section 12(1) of the SEBI Act read with regulation 3(1) of IA Regulations - Whether Noticees have induced / influenced investors to deal in securities through false/ misleading information and indulged in unregistered investment advisory activities under the garb of providing educational training through sale of courses/ workshop services. HELD THAT:- It appears that the Noticees sought to make a quick buck by inducing persons to invest in the securities market making bogus claims and assurances of astronomical profits if trades are executed relying on their advise/ recommendations. Describing such advise/ recommendations as ‘educational courses’ appears to be a futile attempt to whitewash the illegality involved. As noted from the aforementioned bank accounts of the Noticees, there are multiple credit entries which when seen together with the content on the social media posts/ closed groups created on Bunch platform (elaborated earlier in this Order) leads to the prima facie conclusion that the credit entries in the aforesaid bank accounts were in return for the investment advice given by the Noticees to their clients. There is no record of the Noticees having been registered with SEBI as intermediary in any capacity. Thus, prima facie, I conclude that the Noticees are engaged in the business of providing investment advice to persons for consideration without obtaining registration from SEBI in contravention of section 12(1) of the SEBI Act read with regulation 3(1) of IA Regulations. I also prima facie conclude that the Noticees have violated regulations 3 (a)-(d), 4(1), 4(2)(k) & (s) of PFUTP Regulations read with section 12A of the SEBI Act. As per the material available on record, the sale of courses/ offline workshops/ private groups/ social media accounts of Noticees continue to be active as on date and thereby continuing to mislead, induce and solicit money from investors/ clients for their unregistered and fraudulent investment advisory activity. On September 05, 2023, Nasir posted a video on YouTube channel titled Teachers Day Special Gift for All Students | Make Every Week 1 to 2 Lakhs and on September 24, 2023, a video titled The Hero Zero Strategy | Make 1 Lakhs wit 10k Capital was posted on the YouTube Channel. Further, I note that on his twitter (X) profile, Nasir has shared the link of his WhatsApp channel (whatsapp.com/channel/0029Va…) on October 01, 2023. The screenshots from YouTube and WhatsApp channels are provided below. Therefore, the Noticees continue to lure and induce investors to invest in securities market and collect money from them through ‘educational courses’. As per material available on record, monies are being received in the bank accounts at least till the examination period, and the bank accounts and social media channels are still active. The aforesaid prima facie demonstrates that persons may still be lured to deal in the securities market due to the activities of the Noticees which poses a threat to the integrity of the securities market. Interim order - This Order Nasir prima facie is the face of the alleged fraudulent and unregistered investment advisory activity. His sole proprietorship- ‘Baap of Chart’ and the brand recall associated with the same name is central to the allegations made out in this Order. Therefore, it is necessary, in the interest of investors and the integrity of the securities market, for interim directions to be passed against Nasir, not just in his personal capacity but also in his capacity as sole proprietor of ‘Baap of Chart’. Noticee Nos. 1 and 2 i.e. Nasir and Rahul are also both significant shareholders and directors of Golden Syndicate which is the company whose accounts have been credited with fees collected. I am of the view that it is necessary to pass interim directions against Noticee Nos. 1, 2 and 5 whereas a notice to show cause against all the Noticees may be issued for their alleged role in the prima facie fraudulent and unregistered investment advisory activity. Further, as already observed, Noticees have prima facie violated securities laws by engaging in fraudulent and unregistered investment advisory activities, it is imperative to issue directions against all the Noticees to cease and desist from continuing with such violations. Considering that the Noticee Nos. 1, 2 and 5 have wantonly engaged in perpetrating fraudulent activity, I cannot ignore the risk that the said Noticees may divert the alleged unlawful gains before directions for disgorgement / refund, etc., if any, are passed. Further, I note that in his videos/ social media posts on ‘courses’ of BoC, Nasir repeatedly emphasizes on providing access to live trading during his courses. Therefore, non-interference at this stage would result in irreparable injury to interests of the securities market and the investors. Considering the factual matrix of the case and the prima facie conclusion of fraudulent and unregistered investment advisory activities, I am convinced that the balance of convenience lies in passing interim directions against the Noticee Nos. 1, 2 and 5 inter alia for preventing the continuation of any further fraudulent or unregistered activities in the interest of investors, and for impounding and retaining such quantified alleged illegal gains. Thus, in order to protect the interests of investors and the integrity of the securities market, I, in exercise of the powers conferred upon me under sections 11(1), 11(4), 11B and 11D read with section 19 of the SEBI Act, hereby issue by way of this interim ex-parte order.

2023 (10) TMI 1540 - ITAT MUMBAI Income Tax

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ISSUES PRESENTED AND CONSIDERED

1. Whether an adjustment invoking section 50C of the Income-tax Act can be made in the summary processing under section 143(1) by the Centralized Processing Centre (CPC), or whether such adjustment falls beyond the mandate of section 143(1) and must be processed only in a regular assessment under section 143(3) (after issuance of notice under section 143(2)).

2. Whether, in the case of a sale of a co-owned immovable property, the deeming operation of section 50C is to be applied qua property (i.e., to total consideration determined by stamp valuation authority and then prorated among co-owners) or qua owner (i.e., individually to each co-owner based on consideration actually received by that co-owner), and whether section 50C is inapplicable where aggregate consideration received by all co-owners equals or exceeds the stamp duty valuation even though individual co-owners received unequal shares.

ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Competence to invoke section 50C in assessment under section 143(1)

Legal framework: Section 143(1) permits processing of returned income and adjustment of "any incorrect claim, if such incorrect claim is apparent from any information in Return." Section 143(2) and 143(3) deal with issuance of notice and making a regular assessment. Section 50C is a deeming provision which substitutes stamp duty valuation for full value of consideration for computation of capital gains and confers procedural rights (e.g., request for DVO reference) and opportunities for objection.

Precedent treatment: No specific precedent was invoked in the judgment; the Tribunal considered statutory scheme and requirements of procedural fairness inherent in section 50C adjustments.

Interpretation and reasoning: The Tribunal held that the subject-matter of section 50C involves adoption of stamp duty valuation in place of actual consideration and is a deeming provision that affects capital gains computation but also triggers entitlement of the assessee to procedural safeguards (such as objection and DVO referral). Such decision-making is not suitably resolved on the basis of summary scrutiny under section 143(1) because CPC processing lacks the opportunity to provide adequate notice and to afford the assessee the statutory remedies and objections attendant to section 50C adjustments. The Tribunal observed that CPC acted on information available and proposed additions under section 50C, but that such proposal is "beyond the mandate u/s. 143(1)" and ought to be processed under section 143(3) where the Assessing Officer can issue notice under section 143(2) and conduct full-fledged enquiry respecting limitation constraints.

Ratio vs. Obiter: Ratio - An adjustment under section 50C cannot be finalized by summary processing under section 143(1) and should be processed in a regular assessment under section 143(3) (following notice under section 143(2)) to enable procedural rights and proper adjudication. Obiter - Observations about CPC's inability to give opportunity and the deeming provision nature of section 50C serve as supporting reasoning but reinforce the central ratio.

Conclusion: The Tribunal concluded that the proposed addition under section 50C made by CPC in the course of section 143(1) processing was beyond the statutory mandate of section 143(1) and remitted the issue to the file of the jurisdictional Assessing Officer for action under section 143(3), subject to initiation under section 143(2) within limitation.

Issue 2 - Applicability of section 50C in co-ownership situations: qua property or qua owner

Legal framework: Section 50C substitutes stamp duty valuation for "full value of the consideration received or accruing as a result of the transfer" of an immovable property. The statutory text contemplates a comparison between consideration and stamp valuation for determining capital gains, but does not expressly prescribe whether the deeming applies collectively to the property or individually to each co-owner's share when property is co-owned and consideration is divided.

Precedent treatment: The judgment does not cite or apply any binding authorities regarding the per-owner versus per-property application; the Tribunal reviewed the facts and submissions of the parties and the admissions in the return.

Interpretation and reasoning: The Tribunal noted that the Commissioner of Income Tax (Appeals) had held that the assessee herself admitted that the full value of consideration (cash and kind) received by all co-owners was the stamp authority figure and that the assessee received only a 1/6th cash share of the declared aggregate consideration. The CIT(A) reasoned that the assessee should have adopted 1/6th of the stamp duty valuation (i.e., the aggregate stamp valuation prorated to her share) rather than 1/6th of the lower declared sale consideration. The Tribunal, however, did not finally decide the substantive point on the per-owner versus per-property application because it remitted the matter to the jurisdictional AO for fresh adjudication under section 143(3). The Tribunal recognized that section 50C is a deeming provision and that, where co-ownership and mixed consideration (cash and allotment of area) exist, factual and procedural aspects (including rights to object and DVO reference) require full adjudication rather than summary processing.

Ratio vs. Obiter: Obiter - While the CIT(A) concluded that section 50C applies such that each co-owner should adopt the prorated stamp duty valuation, the Tribunal did not crystallize that conclusion as its own ratio because it remitted the issue for regular assessment. The Tribunal's central legal holding is procedural (Issue 1); the per-owner/per-property treatment remains to be examined and decided by the Assessing Officer in the regular assessment process.

Conclusion: The question whether section 50C is to be applied qua property or qua owner remains to be adjudicated in proceedings under section 143(3); the Tribunal declined to finally rule on that substantive issue on the record before it and remitted the matter for proper enquiry and adjudication by the jurisdictional Assessing Officer, allowing the Assessing Officer to avail statutory remedies subject to limitation.

Interrelation and practical directions

The Tribunal linked the two issues: because section 50C adjustments engage substantive and procedural rights (including potential referral to DVO and objections by parties), they should not be finalized in CPC summary processing under section 143(1). Consequently, any dispute regarding apportionment of stamp duty valuation among co-owners (qua property vs. qua owner) must be examined in the regular assessment under section 143(3) after issuance of notice under section 143(2), and the Assessing Officer may proceed with such remedies within limitation constraints.

Disposition

The appeal was partly allowed by remitting the section 50C adjustment to the file of the jurisdictional Assessing Officer for adjudication under section 143(3) (after notice under section 143(2) as required), without finally deciding the substantive question of per-owner versus per-property application of section 50C on the present record.

Adjustment under s.50C for stamp duty valuation cannot be effected by CPC under s.143(1); requires opportunity under s.143(3).
ITAT, Mumbai held that adjustment under s.50C relating to adoption of stamp duty valuation cannot be effected by the Centralized Processing Centre under s.143(1); such deeming provision requires opportunity to object (including reference to DVO) and therefore can only be processed under s.143(3). The proposed addition under s.50C is beyond the mandate of s.143(1), and the matter is remitted to the file of the jurisdictional AO for adjudication in accordance with law.

2023 (10) TMI 1525 - ITAT MUMBAI Income Tax

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1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal were:

(a) Whether the Assessing Officer (AO) was justified in rejecting the books of account of the assessee under section 145(3) of the Income Tax Act, 1961, on the ground of discrepancies between the turnover figures reported in the audited accounts and the tax audit report (TAR), and alleged improper maintenance of stock recordsRs.

(b) Whether the AO was justified in estimating the income of the assessee at 8% of the revenue recognized, after rejecting the books of accountRs.

(c) Whether the explanation and evidence furnished by the assessee regarding the alleged discrepancies, including the data entry error in the TAR and the method of accounting adopted (percentage completion method), were sufficient to uphold the correctness and completeness of the books of accountRs.

(d) Whether the AO erred in treating the closing provision of expenses as closing stock and in comparing the assessee's real estate development activity with trading/manufacturing activitiesRs.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a): Justification for rejection of books of account under section 145(3)

Relevant legal framework and precedents: Section 145(3) of the Income Tax Act empowers the AO to reject the books of account if they are found to be incorrect or incomplete. The burden lies on the AO to demonstrate that the accounts are not reliable. The Courts have held that mere discrepancies or errors do not justify rejection unless they are material and unexplainable.

Court's interpretation and reasoning: The AO rejected the books primarily because of a mismatch between the turnover figures shown in the audited accounts (Rs. 25,52,69,395) and the TAR where turnover was shown as zero, and because of alleged improper maintenance of stock records. The AO also noted a discrepancy in closing stock figures, comparing Rs. 43,49,47,272 claimed by the assessee with Rs. 1,14,63,282 as per ICDS disclosure in the audit report.

The Tribunal noted that the assessee explained that the zero turnover in the TAR was a data entry error, as the same auditor audited both the accounts and the TAR, and the error was rectified by filing a corrected TAR along with an affidavit from the auditor. The Tribunal accepted this explanation as credible and supported by documentary evidence.

Regarding stock maintenance, the assessee followed the percentage completion method for revenue recognition in real estate development, which involves recognizing revenue based on the proportion of project cost incurred. The Tribunal observed that the AO erred in comparing the assessee's activity with trading or manufacturing businesses where stock is maintained physically. The closing provision of Rs. 1,14,63,282 was a closing provision for expenses, not closing stock, as reflected in the balance sheet and audit report.

Key evidence and findings: The corrected TAR filed by the assessee, affidavit of the auditor admitting the data entry error, explanation of the percentage completion method, and the balance sheet showing the nature of closing provision.

Application of law to facts: The Tribunal held that the AO's rejection of books was not justified as the discrepancies were explained satisfactorily and were not indicative of incorrect or incomplete accounts. The AO failed to appreciate the accounting method adopted and misinterpreted the nature of closing provision.

Treatment of competing arguments: The revenue argued that the mismatch and stock discrepancies warranted rejection of books. The Tribunal rejected this, holding that the explanation provided was sufficient, and the AO's approach was legally unsustainable.

Conclusion: The books of account were properly maintained and accepted by the Tribunal; the AO's rejection was set aside.

Issue (b): Legality of estimating income at 8% of revenue after rejection of books

Relevant legal framework and precedents: Section 145(3) allows the AO to estimate income if books are rejected. However, if books are accepted, estimation is not warranted. Estimation must be reasonable and based on cogent material.

Court's interpretation and reasoning: Since the Tribunal upheld the books of account, the foundation for estimation by the AO fell away. The AO's estimate of 8% profit on turnover was arbitrary and not based on any material or evidence. The Tribunal held that the estimation was legally unsustainable once books were accepted.

Key evidence and findings: The acceptance of books by the Tribunal and lack of any independent basis for the 8% estimation.

Application of law to facts: The estimation was invalid because it was premised on rejected books, which were subsequently accepted.

Treatment of competing arguments: Revenue maintained that estimation was justified due to discrepancies. Tribunal rejected this view.

Conclusion: The estimated addition was rightly deleted by the CIT(A) and confirmed by the Tribunal.

Issue (c): Sufficiency of explanation regarding discrepancies and accounting method

Relevant legal framework and precedents: The percentage completion method is a recognized accounting method for real estate projects, consistent with accounting standards and ICDS. Errors in tax audit reports can be rectified by corrected filings and auditor affidavits.

Court's interpretation and reasoning: The Tribunal accepted that the turnover figure discrepancy was a bona fide data entry error, rectified by the assessee with supporting affidavit. The percentage completion method was properly applied to recognize revenue and closing stock (work-in-progress). The AO failed to understand this method and wrongly compared it to trading stock maintenance.

Key evidence and findings: Assessee's reply to show cause notice, corrected TAR, auditor's affidavit, and explanation of accounting method.

Application of law to facts: The explanation and documentary evidence sufficiently demonstrated that the accounts were correct and complete.

Treatment of competing arguments: Revenue's contention that discrepancies warranted rejection was rejected as the explanation was reasonable and credible.

Conclusion: The explanation was sufficient and accepted by the Tribunal.

Issue (d): Treatment of closing provision and comparison with trading/manufacturing activities

Relevant legal framework and precedents: Accounting standards and ICDS require proper classification of provisions and inventory. Real estate projects have distinct accounting practices compared to trading/manufacturing.

Court's interpretation and reasoning: The AO wrongly treated the closing provision of Rs. 1,14,63,282 as closing stock. The Tribunal noted that this amount was a provision for expenses, not inventory. The AO's comparison of the assessee's real estate activity with trading/manufacturing was erroneous and showed lack of appreciation of the accounting method.

Key evidence and findings: Balance sheet and audit report disclosures, explanation of percentage completion method.

Application of law to facts: The AO's approach was flawed and led to incorrect conclusions.

Treatment of competing arguments: Revenue's argument was rejected.

Conclusion: The AO's treatment was incorrect and set aside.

3. SIGNIFICANT HOLDINGS

"The AO's satisfaction that the accounts are not correct or complete cannot be accepted merely because there was inadvertent mistake in the TAR which was explained by the assessee as inadvertent error while entering the data which fact is seen supported by auditor who has accepted the mistake by filing an affidavit."

"The AO could not appreciate the computation of the closing stock as per such method and misdirected himself to compare the activity of assessee with trading/manufacture which was erroneous."

"The action of the AO to reject the books cannot be accepted and the Ld. CIT(A) has rightly reversed his action on this issue and accepted the books of account of the assessee."

"Having upheld the action of the Ld. CIT(A) and accepted the books of account, the action of AO to have estimated the income of the assessee is legally unsustainable."

Core principles established include that rejection of books under section 145(3) requires cogent material and cannot be based on inadvertent errors or misunderstandings of accounting methods; percentage completion method is a valid accounting practice for real estate projects; and estimation of income is not justified once books are accepted.

Final determinations:

- The books of account of the assessee were correctly maintained and accepted.

- The AO's rejection of books and consequent estimation of income was set aside.

- The addition of Rs. 1,73,36,141/- made by AO was deleted.

- The appeal of the revenue was dismissed.

Revenue's appeal dismissed after books accepted despite inadvertent Tax Audit Report date error under section 145
ITAT Mumbai dismissed revenue's appeal against CIT(A)'s order accepting assessee's books of account. AO had rejected books due to inadvertent error in Tax Audit Report date and estimated profit at 8% of revenue. ITAT held AO failed to establish that assessee didn't follow prescribed accounting methods under section 145(1) or compute income per notified standards under section 145(2). The inadvertent TAR error was explained by assessee and auditor's affidavit, with rectified TAR subsequently filed. ITAT confirmed CIT(A)'s decision reversing book rejection and deletion of estimated addition.

2023 (10) TMI 1499 - CESTAT AHMEDABAD Central Excise

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ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

Whether the principles of natural justice were violated by the Adjudicating Authority by not providing the appellant with the relied upon/non-relied upon documents and denying the request for cross-examination of witnesses.
Whether the demand for Excise Duty based on the alleged clandestine removal of goods, primarily supported by witness statements, can be sustained without allowing cross-examination.
Whether the adjudication order is sustainable when the statutory mandate under Section 35D of the Central Excise Act, 1944, regarding cross-examination of witnesses, is not fulfilled.

ISSUE-WISE DETAILED ANALYSIS

Violation of Principles of Natural Justice

Relevant Legal Framework and Precedents: The principles of natural justice require that a party must be given a fair opportunity to present their case, which includes the right to access documents relied upon in the decision-making process and the right to cross-examine witnesses. Section 35D of the Central Excise Act, 1944, mandates cross-examination of witnesses whose statements are used as evidence.
Court's Interpretation and Reasoning: The Tribunal found that the Adjudicating Authority failed to comply with the principles of natural justice by not providing the appellant with the necessary documents and denying the request for cross-examination. The Tribunal emphasized that the adjudication heavily relied on witness statements, and without cross-examination, these statements could not be considered valid evidence.
Key Evidence and Findings: The Tribunal noted that the case was primarily based on the statements of various persons, which were not corroborated by allowing cross-examination. This lack of opportunity to challenge the evidence was a significant oversight.
Application of Law to Facts: The Tribunal applied the principles of natural justice and Section 35D of the Central Excise Act, 1944, to determine that the appellant's rights were violated. The failure to allow cross-examination and provide documents undermined the fairness of the adjudication process.
Treatment of Competing Arguments: The Tribunal considered the arguments from both sides, with the appellant emphasizing the denial of rights and the revenue supporting the original order. The Tribunal sided with the appellant, highlighting the procedural lapses.
Conclusions: The Tribunal concluded that the order of the Adjudicating Authority was unsustainable due to the violation of natural justice principles. The failure to allow cross-examination and provide documents necessitated a reconsideration of the case.

Sustainability of Excise Duty Demand

Relevant Legal Framework and Precedents: The demand for Excise Duty must be substantiated by credible evidence. In cases of alleged clandestine removal, the evidence must be robust and withstand scrutiny, including cross-examination.
Court's Interpretation and Reasoning: The Tribunal reasoned that without cross-examination, the statements used to support the Excise Duty demand were insufficient. The reliance on unchallenged statements was a critical flaw in the adjudication process.
Key Evidence and Findings: The Tribunal found that the evidence primarily comprised statements from various individuals, which were not subjected to cross-examination, thereby questioning their reliability.
Application of Law to Facts: The Tribunal applied the legal requirement for credible evidence to the facts, determining that the lack of cross-examination rendered the evidence inadequate to support the Excise Duty demand.
Treatment of Competing Arguments: The Tribunal evaluated the appellant's challenge to the evidence and the revenue's defense of the demand. The Tribunal found the appellant's argument compelling due to the procedural deficiencies.
Conclusions: The Tribunal concluded that the demand for Excise Duty could not be sustained on the basis of the current evidence, necessitating a remand for fresh consideration.

SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: The Tribunal stated, "The adjudicating authority has gravely erred in violating the principles of natural justice. Therefore, the order without following the principle of natural justice cannot be sustained as held by the Apex Court in number of judgments."
Core Principles Established: The judgment reinforced the necessity of adhering to natural justice principles, particularly the right to cross-examine witnesses and access relevant documents. It highlighted the statutory requirement under Section 35D of the Central Excise Act, 1944, for cross-examination.
Final Determinations on Each Issue:

Tribunal Rules Adjudicating Authority Violated Natural Justice by Denying Document Access and Cross-Examination u/s 35D.
The Tribunal found that the Adjudicating Authority violated principles of natural justice by denying the appellant access to documents and the opportunity to cross-examine witnesses, as mandated by Section 35D of the Central Excise Act, 1944. Consequently, the Tribunal deemed the order unsustainable and required a reconsideration of the case. The demand for Excise Duty, primarily based on witness statements, was also found insufficient without cross-examination, leading to a remand for fresh consideration. The decision underscored the importance of fair procedural practices in adjudication.

Clandestine removal - demand confirmed mainly on the basis of the consumption of gas required for manufacture of the final product - case is mainly based on statement of various persons - right to cross-examine the statements - principles of natural justice - HELD THAT:- The appellant in the reply raised specific issue that certain documents relied upon/non relied upon were not provided to the appellant. The appellant also requested for cross examination of the witnesses whose statements were heavily relied upon to confirm the charge of clandestine removal and consequential demand of Excise duty. It os found from the entire adjudication order the Adjudicating Authority has not given any heed to the request of the appellant in as much as they have specifically asked to provided relied upon/ Non relied upon documents and cross examination of the witnesses. The case is mainly based on statements of various persons. It is statutory mandate in terms of Section 35D of the Central Excise Act, 1944 that the Adjudicating Authority that it is incumbent upon the Adjudicating Authority to examine/cross examine the witnesses before accepting the statements of those witnesses as evidence for adjudication of the case. In the present case even despite retraction by the witnesses the adjudicating authority has not granted the cross examination of the witnesses. In this fact the entire order of the Adjudicating Authority based on mainly statements of the various persons, without allowing cross examination, is not sustainable. The adjudicating authority must allow the cross examination of the witnesses and also provide the documents required by the appellant, if not earlier provided. The adjudicating authority has gravely erred in violating the principles of natural justice. Therefore, the order without following the principle of natural justice cannot be sustained as held by the Apex Court in number of judgments. Conclusion - The adjudicating authority has gravely erred in violating the principles of natural justice. Therefore, the order without following the principle of natural justice cannot be sustained. Matter to the Adjudicating authority for passing a fresh de-novo order - appeal allowed by way of remand.

2023 (10) TMI 1473 - ITAT MUMBAI Income Tax

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Tribunal Overturns Rs. 25L Tax Addition, Cites Adequate Proof from Assessee; AO's Claim Unsubstantiated.
The Tribunal allowed the assessee's appeal, setting aside the Ld CIT(A)'s order and directing the AO to delete the Rs. 25.00 lakhs addition under section 68 of the Income Tax Act. The Tribunal concluded that the AO failed to prove the loan was an accommodation entry, as the assessee had discharged the initial burden of proof.

Addition under section 68 - cash credits - initial burden on assessee to prove identity, genuineness and creditworthiness of creditor - burden shifts to assessing officer to disprove the assessee's evidence - reassessment initiated on basis of third party statement subsequently retracted - obligation of assessing officer to examine and confront evidences and statementsAddition under section 68 - initial burden on assessee to prove identity, genuineness and creditworthiness of creditor - reassessment initiated on basis of third party statement subsequently retracted - obligation of assessing officer to examine and confront evidences and statements - Whether the addition of the loan amount of Rs. 25.00 lakhs made as income of the assessee under section 68 was justified in view of the evidences produced by the assessee and the reliance by the AO on a retracted statement of a director of the lender leading to reassessment. - HELD THAT: - The Tribunal noted that section 68 requires the assessee to discharge the initial burden of proving the identity of the creditor, the genuineness of the transaction and the creditworthiness of the creditor; only thereafter does the burden shift to the assessing officer to disprove the claim. The assessee produced PAN details, bank account copies and the transaction was reflected in the books of both parties, and the AO did not record any specific deficiency in those documents. The reassessment was initiated on the basis of an investigation report founded on a statement by a director of the lender; that statement was subsequently retracted and a copy of the retraction was placed on record. The AO failed to confront the assessee with the statement or to record any examination showing why the documentary evidence was unreliable, and the assessment order is silent about the retraction. In these circumstances, the AO did not discharge the onus of disproving the assessee's case; reliance on the uncorroborated investigation report and non-service of notices without further inquiry did not justify treating the loan as an accommodation entry and taxing it under section 68. Having found that the assessee had discharged the initial burden and that the AO had not adequately examined or rebutted the evidence, the Tribunal concluded that the addition was unjustified. [Paras 4, 5, 6, 7]The addition of Rs. 25.00 lakhs made under section 68 is deleted and the appeal of the assessee is allowed.Final Conclusion: The Tribunal set aside the orders of the Assessing Officer and the CIT(A) and directed deletion of the addition made under section 68 in respect of the loan of Rs. 25.00 lakhs for Assessment Year 2011-12; the assessee's appeal is allowed.

2023 (10) TMI 1411 - ITAT RAIPUR Income Tax

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Assessment under Section 147 quashed for invalid jurisdiction assumption and incomplete reasons disclosure to assessee
The ITAT Raipur-AT quashed an assessment order passed under section 147 for invalid assumption of jurisdiction. While the AO provided reasons for reopening that matched the recorded reasons, the court found the proceedings bad in law as complete reasons were not provided to the assessee - only extracts were given after reasonable time had expired. Following Haryana Acrylic precedent, the AO failed to provide mandatory documents including the section 151 approval copy referenced in the recorded reasons. The assessment order was quashed for non-compliance with procedural requirements, and the assessee's ground was allowed.

Reopening of assessment under section 147 and communication of reasons to believe - approval under section 151 and obligation to provide copy of approval - failure to supply complete reasons within reasonable time vitiating jurisdiction - obligation to furnish supporting documents referenced in reasons - quashing of reassessment for non-compliance with mandatory procedural safeguardsReopening of assessment under section 147 and communication of reasons to believe - approval under section 151 and obligation to provide copy of approval - failure to supply complete reasons within reasonable time vitiating jurisdiction - obligation to furnish supporting documents referenced in reasons - quashing of reassessment for non-compliance with mandatory procedural safeguards - Validity of the reassessment proceedings initiated under section 147 in view of non-provision of the approval and related documents to the assessee - HELD THAT: - The Tribunal examined whether the AO validly assumed jurisdiction under section 147 when the assessee had specifically requested the reasons recorded and the approval obtained under section 151 but was supplied only an extract of reasons after a substantial delay. The Bench noted that while identical extracts were ultimately supplied, the AO did not furnish the approval under section 151 nor any other documentary material referenced in the reasons, in breach of the procedural expectations and the guidance in precedent and High Court directions. Relying on the principle that failure to communicate complete reasons and the supporting approval/documentation within a reasonable time deprives the assessee of the statutory right to object to reopening and goes to the root of jurisdiction, the Tribunal held that such non-compliance renders the assumption of jurisdiction under section 147 invalid. The Tribunal also observed that the revenue did not contest that the copy of the approval under section 151 was not on record as supplied to the assessee, and that applicable guidelines require provision of the approval form and referenced documents. Applying these principles, the reassessment was quashed for procedural non-compliance; consequently, other grounds became academic. [Paras 9, 10, 11]Assessment proceedings under section 147 quashed for failure to provide the approval under section 151 and related documents, and for not supplying complete reasons within a reasonable time; other grounds rendered academic.Final Conclusion: The appeal is allowed: the reassessment framed under section 147 for AY 2013-14 is quashed on account of non-compliance with mandatory procedural requirements (non-provision of approval under section 151 and supporting documents and delay in furnishing reasons); remaining grounds are academic.

2023 (12) TMI 630 - ITAT MUMBAI Income Tax

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ITAT remands case for AO verification of gratuity fund payments under section 40A(7)(b) and CSR donation eligibility under section 80G
The ITAT Mumbai remanded the case to the AO for verification of facts regarding two deductions. For gratuity expenditure under section 36(1)(v) read with section 43B, the tribunal held that contributions to approved gratuity funds are allowable under section 40A(7)(b) but required AO verification of actual payment before the due date of filing returns and confirmation of payment to an approved fund. For section 80G deduction on CSR expenditure, the tribunal directed AO to verify whether donees held valid certificates and other donation details before allowing the deduction in accordance with law.

Deduction for employer's contribution to approved gratuity fund - Deduction allowable only on actual payment under section 43B - Prohibition on deduction for provisions for gratuity under section 40A(7) - Deduction under section 80G for donations despite classification as CSR - Explanation 2 to section 37(1) not a bar to claim under section 80G - Remand for factual verification of payment and donee eligibilityDeduction for employer's contribution to approved gratuity fund - Deduction allowable only on actual payment under section 43B - Prohibition on deduction for provisions for gratuity under section 40A(7) - Remand for factual verification of payment and donee eligibility - Allowability of deduction for Rs.83,69,981 as employer's contribution to an approved gratuity fund read with section 36(1)(v) and section 43B. - HELD THAT: - The assessee claims that Rs.83,69,981 constituted employer's contribution to an approved gratuity fund paid on or before the due date for filing the return and thus deductible under section 36(1)(v) read with section 43B. Section 40A(7) prohibits deduction for provisions made for gratuity but clause (b) permits deduction where contribution is made to an approved gratuity fund or gratuity becomes payable. The Tribunal observed that on the material placed (Form 3CD, notes to accounts and payment chart) the assessee has shown amounts classed as gratuity and a part deposited with the approved fund, but the Assessing Officer has not verified whether the specific sum of Rs.83,69,981 was actually paid to the approved gratuity fund on or before the due date for filing the return. In view of the absence of factual verification, the Tribunal declined to decide the claim finally on merits and directed remand to the AO for limited verification of payment to the approved gratuity fund on or before the due date; if verified, the AO is to allow the claim in accordance with law. [Paras 10]Issue remanded to the AO for verification whether Rs.83,69,981 was paid to the approved gratuity fund on or before the due date of filing the return; if verified, allow deduction under section 36(1)(v) read with section 43B.Deduction under section 80G for donations despite classification as CSR - Explanation 2 to section 37(1) not a bar to claim under section 80G - Remand for factual verification of payment and donee eligibility - Allowability of deduction under section 80G for donations (claimed as CSR expenditure) amounting to Rs.22,75,000. - HELD THAT: - The Tribunal examined the interaction between Explanation 2 to section 37(1) (which disallows CSR expenditure as business deduction) and section 80G (which permits deduction for donations to specified funds/institutions). The Tribunal held that Explanation 2 operates only to deny CSR expenses as business expenditure under Chapter IV-D and does not, by itself, extinguish the separate statutory entitlement to deduction under section 80G where the donation otherwise satisfies the conditions of that section. Applying the principle expressio unius est exclusio alterius, the Tribunal concluded that Parliament's specific restrictions in section 80G (for Swachh Bharat Kosh and Clean Ganga Fund) do not imply a general bar on section 80G claims in respect of other eligible donees even if the payment is part of CSR spending. The Tribunal found the point covered by its earlier coordinate-bench decisions and held the assessee's claim prima facie maintainable, but directed the AO to verify the factual matrix (existence of 80G approval of donees, proof of payments, and amounts) before allowing the deduction. [Paras 16]Deduction under section 80G permitted in principle despite classification as CSR expenditure; remitted to the AO to verify donee approvals and payments and, upon such verification, to allow the deduction in accordance with law.Final Conclusion: The Tribunal allowed the appeal for statistical purposes, directing remand to the Assessing Officer for limited factual verification on (a) whether Rs.83,69,981 was paid to the approved gratuity fund on or before the due date for filing the return (to determine allowability under section 36(1)(v) read with section 43B), and (b) verification of donee eligibility and payments in respect of the section 80G claim, with directions to grant relief if verifications are satisfactory.

2023 (12) TMI 399 - ITAT MUMBAI Income Tax

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Tax officer's F&O loss disallowance overturned due to lack of evidence and defective penalty notice under section 271(1)(c)
ITAT Mumbai set aside additions made by AO for disallowing F&O losses due to alleged client code modification by broker. AO relied solely on Director of Income-tax report without providing transaction details or proving non-genuine purposes, violating natural justice principles. Addition based on presumption without documentary evidence was deleted. Separately, penalty under section 271(1)(c) was cancelled as the section 274 notice failed to specify whether penalty was for concealment or furnishing inaccurate particulars of income, making it defective per Bombay HC precedent.

Client code modification - reopening of assessment based on reasons to believe - principle of natural justice - disallowance of loss on account of alleged fictitious transactions - penalty under section 271(1)(c) - omnibus show cause notice and requirement to specify applicable limbClient code modification - reopening of assessment based on reasons to believe - disallowance of loss on account of alleged fictitious transactions - principle of natural justice - Validity of the reassessment addition disallowing loss allegedly arising from client code modification - HELD THAT: - The Tribunal found that the Assessing Officer disallowed the loss purportedly obtained through client code modification but did not identify or furnish particulars of the specific transactions in the assessee's case nor demonstrate that the modifications were not for genuine rectification of punching errors. The AO relied on a report from the Director (Investigation) without calling the broker, making inquiries, or producing documentary evidence to show that the client code modifications were effected for non genuine purposes or to evade tax. In these circumstances the addition was based on presumption and not supported by material; further, denying the assessee an opportunity to meet specific allegations offended the principles of natural justice. The Tribunal therefore deleted the addition and set aside the order of the Ld. CIT(A) insofar as it upheld the disallowance. [Paras 5]Addition of the loss of Rs. 37,28,681/- on account of alleged client code modification deleted for want of particulars, evidence and in breach of natural justice; appeal allowed on this ground.Penalty under section 271(1)(c) - omnibus show cause notice and requirement to specify applicable limb - Sustainability of penalty where the penalty notice did not specify whether it was for concealment of particulars of income or furnishing inaccurate particulars - HELD THAT: - The Tribunal examined the penalty notice issued under the provisions referenced and noted that the Assessing Officer did not strike off the inapplicable limb nor indicate whether penalty proceedings were initiated for concealment of particulars of income or for furnishing inaccurate particulars. Following the holding of the Bombay High Court (as relied upon by the parties) that an omnibus or non specific show cause notice in such circumstances betrays non application of mind and renders the penalty invalid, the Tribunal held the penalty to be bad in law. Accordingly, the penalty levied under section 271(1)(c) and upheld by the Ld. CIT(A) was cancelled. [Paras 8]Penalty under section 271(1)(c) cancelled because the show cause notice failed to specify the applicable limb; appeal allowed on this ground.Final Conclusion: Both appeals are allowed: the reassessment addition disallowing the loss alleged to arise from client code modification is deleted for want of particulars, evidence and breach of natural justice; the penalty under section 271(1)(c) is cancelled because the penalty notice did not specify the applicable limb.

2023 (11) TMI 1147 - ITAT MUMBAI Income Tax

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Issues Involved:
1. Disallowance of purchase return of Rs. 6,98,35,282.
2. Violation of principles of natural justice due to lack of show cause notice and opportunity for hearing.

Issue 1: Disallowance of Purchase Return

The assessee, engaged in trading apparels and accessories under its own brand "Muse" and as a consignment agent for "Sabyasachi" products, filed its return for A.Y. 2013-14 declaring NIL income after setting off brought forward losses. During scrutiny, the Assessing Officer (AO) questioned the assessee's accounting treatment of purchases and returns, particularly the exclusion of purchase returns of Rs. 6,98,35,282 and goods on consignment in the profit and loss account. The AO concluded that this led to suppression of taxable profits and disallowed the purchase return, adding Rs. 6,98,35,282 to the income.

The assessee argued that the AO misunderstood the accounting principles for consignment sales, where purchases are recorded only upon actual sale to third parties, and that the purchase return was correctly accounted for VAT purposes. The assessee provided audited financial statements and Form F under the VAT Act to support its claims. However, the CIT(A) upheld the AO's findings without addressing the assessee's submissions.

Upon appeal, the ITAT noted that the assessee's main income was commission from consignment sales, and the purchases and sales were reconciled in the financial statements. The ITAT found that the AO's disallowance was incorrect as the assessee had not claimed the purchases as an expense. Thus, the ITAT allowed the assessee's appeal on this ground.

Issue 2: Violation of Principles of Natural Justice

The assessee contended that the AO made the addition without issuing a show cause notice or providing an opportunity for hearing, violating the principles of natural justice. The assessee cited several rulings supporting the need for proper notice and opportunity to respond before making additions.

The ITAT acknowledged the assessee's argument but did not separately address this issue in detail as the primary ground regarding the disallowance was resolved in favor of the assessee. Consequently, the related grounds were dismissed as not argued.

Conclusion

The ITAT allowed the appeal partly, primarily on the ground that the AO's disallowance of the purchase return was incorrect, and dismissed the related grounds concerning the violation of natural justice as not argued. The order was pronounced on 25th October, 2023.

Commission agent's purchase returns and profit ratio variations held legitimate business practice, additions deleted
The ITAT Mumbai held that additions made by the Assessing Officer on account of purchase returns and variations in gross profit and net profit ratios were unjustified. The assessee operated as a commission agent for consignment sales, with primary income from commissions rather than trading profits. The tribunal found that since goods were received on consignment basis, the assessee was required to record purchases and sales for VAT compliance but was not the owner of goods. Purchase returns to the consignor were legitimate business practice. The tribunal allowed the assessee's appeal, rejecting the AO's findings regarding the nature of transactions and profit variations.

Consignment accounting - purchase returns - commission agent - valuation of closing stock - suppression of income by not valuing closing stock - principles of natural justiceConsignment accounting - purchase returns - commission agent - valuation of closing stock - suppression of income by not valuing closing stock - Allowability of purchase returns and the correctness of addition treating purchase returns as suppressed income where goods were held on consignment and assessee claimed only commission as taxable income. - HELD THAT: - The Tribunal examined the accounting treatment and the notes to the financial statements showing purchases, purchase returns and goods on consignment. The assessee acted as a commission agent for Sabyasachi products and did not own the consigned goods; purchases and sales were recorded in the books largely to comply with VAT requirements, while the assessee's actual taxable receipt was commission. The Assessing Officer's view that deleting purchase returns inflated purchases and thereby concealed closing stock (resulting in suppressed profit) failed to recognise the commercial and accounting reality of consignment transactions and the double-entry effect whereby corresponding adjustments to stock would neutralise any impact on taxable income. On the record the assessee had squared up purchases and sales in its accounts and declared commission as its main income; therefore the addition treating the purchase returns as income was unwarranted and was deleted. [Paras 14, 15]Addition of Rs. 6,98,35,282 attributable to purchase returns is deleted and Ground No.1 is allowed.Principles of natural justice - Contention that the assessment was vitiated for want of issuance of show-cause/draft assessment and denial of opportunity of hearing. - HELD THAT: - The assessee raised grounds alleging violation of natural justice by non-issuance of a show-cause notice and lack of opportunity to be heard. However, these grounds were not pressed before the Tribunal. Having noted that the points were not argued at the hearing, the Tribunal dismissed these grounds without reopening the assessment process or directing reassessment. [Paras 16]Grounds relating to alleged violation of natural justice (Grounds 2 and 3) are dismissed.Final Conclusion: The appeal is partly allowed: the addition on account of purchase returns (treated as suppressed income) is deleted, while the appellant's complaints regarding lack of opportunity/show-cause notice are dismissed for want of prosecution before the Tribunal.

2023 (11) TMI 1146 - ITAT BANGALORE Income Tax

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Bank wins bad debt deduction for non-rural advances under section 36(1)(vii), section 14A disallowance rejected
ITAT Bangalore ruled on multiple issues for a bank. The tribunal allowed deduction of bad debts under section 36(1)(vii) for non-rural advances, holding proviso doesn't apply to such advances. For section 14A disallowance, tribunal followed jurisdictional HC precedent favoring assessee where no expenditure was incurred for exempt income. Issues regarding rural branch classification for section 36(1)(viia), section 115JB applicability to corresponding new bank, and RBI penalty deductibility were remitted to CIT(A) for fresh consideration with proper documentary evidence and legal analysis.

Disallowance under Section 14A read with Rule 8D - Expenditure "incurred" for earning exempt income - Bad debts actually written off - deduction under Section 36(1)(vii) - Provision for bad and doubtful debts - Section 36(1)(viia) and proviso to Section 36(1)(vii) - Aggregate Average Advances (AAA) under Rule 6ABA - computation (fresh advances versus month-end outstanding) - Applicability of Minimum Alternate Tax provisions - Section 115JB(2) and interplay with Companies Act / Banking Regulation Act definitions - Remand for verification and fresh considerationDisallowance under Section 14A read with Rule 8D - Expenditure "incurred" for earning exempt income - Validity of disallowance made under section 14A r.w. Rule 8D - HELD THAT: - The Tribunal, following the jurisdictional High Court's decision in the assessee's own case, held that no disallowance under section 14A was sustainable where there was no expenditure "incurred" by the assessee for earning exempt income. The High Court's reasoning - that 'incurred' must mean an actual pay-out and that dividend income (and similar returns) without any expenditure cannot attract section 14A - was applied. On that basis the Tribunal decided the issue in favour of the assessee for AY 2016-17 and applied the same conclusion mutatis mutandis to AY 2017-18.Disallowance under section 14A/Rule 8D deleted for AY 2016-17 and held to apply similarly to AY 2017-18.Bad debts actually written off - deduction under Section 36(1)(vii) - Proviso to Section 36(1)(vii) and distinction with Section 36(1)(viia) - Allowability of deduction for bad debts written off under section 36(1)(vii) - HELD THAT: - The Tribunal examined the statutory scheme and binding precedents and held that deduction under clause (vii) is available for bad debts actually written off in the books and that the proviso to clause (vii) operates to limit deduction only in relation to rural advances covered by clause (viia). Following coordinate-bench decisions in the assessee's own cases and consistent authorities, the Tribunal deleted the disallowance made by the AO for AY 2016-17 and applied the same conclusion to AY 2017-18.Addition under section 36(1)(vii) deleted for AY 2016-17; same decision applied to AY 2017-18.Provision for bad and doubtful debts - Section 36(1)(viia) and proviso to Section 36(1)(vii) - Aggregate Average Advances (AAA) under Rule 6ABA - computation (fresh advances versus month-end outstanding) - Correct method of computing Aggregate Average Advances (AAA) for deduction under section 36(1)(viia) and related factual verification - HELD THAT: - On the question whether AAA under Rule 6ABA should be computed using only fresh advances or by considering month-end outstanding balances, the Tribunal followed the jurisdictional High Court and held that both outstanding advances and fresh advances are to be considered in computing AAA. While this legal conclusion was decided in favour of the assessee, the Tribunal remitted to the CIT(A) the limited factual matter concerning classification of 37 branches (whether their population exceeded 10,000 as per Census 2011). The assessee was directed to produce documentary evidence and the CIT(A) was directed to verify and recompute the admissible deduction if necessary.Rule 6ABA construed to include both outstanding and fresh advances; remit to CIT(A) for verification of the 37 branches' population and recomputation if warranted.Applicability of Minimum Alternate Tax provisions - Section 115JB(2) and interplay with Companies Act / Banking Regulation Act definitions - Remand for verification and fresh consideration - Applicability of section 115JB to the appellant bank and related additions to book profit - HELD THAT: - The Tribunal found that the complex question of whether section 115JB applies to the bank (given its constitution under the Banking Companies (Acquisition and Transfer of Undertakings) Act and issues of statutory definitions and accounting provisions) required fresh consideration. Following earlier coordinate-bench directions in the assessee's own case, the Tribunal restored the issue to the CIT(A) for rehearing and fresh decision and similarly remitted the related challenges to additions made in computing book profit for decision alongside the primary question of applicability.Issue of applicability of section 115JB and related book-profit additions remitted to the CIT(A) for fresh consideration.Penalty paid to regulatory authority - deductibility under section 37 and Explanation 1 - Remand for verification and fresh consideration - Allowability of penalty paid to RBI - HELD THAT: - The AO disallowed the penalty on the basis that it arose from violation of regulatory directions; the CIT(A) upheld the disallowance. The Tribunal noted the assessee's admission that the penalty arose from lapses (KYC/internal control) but accepted the assessee's request to produce further material. The Tribunal remitted the issue to the CIT(A) for fresh decision after affording the assessee an opportunity to file supporting documents.Matter remitted to the CIT(A) for fresh decision after opportunity to produce evidence; direction to assessee to furnish documents.Small-amount claims not pressed - Club expenses and certain small-value write-offs - HELD THAT: - The assessee did not press grounds relating to club expenses and certain small-value write-offs at hearing. The Tribunal recorded that those grounds were not pressed and treated them accordingly.Ground(s) relating to club expenses and small-value items dismissed as not pressed.Final Conclusion: The appeals are partly allowed for substantive legal issues: disallowance under section 14A deleted; disallowance under section 36(1)(vii) deleted; Rule 6ABA construed to include both outstanding and fresh advances with limited factual remand to verify classification of 37 branches. Several factual or mixed questions (applicability of section 115JB and related book-profit adjustments; deductibility of RBI penalty) are remitted to the CIT(A) for fresh consideration after giving the assessee opportunity to adduce evidence. Certain small-value grounds were not pressed and disposed accordingly.

2023 (11) TMI 1064 - ITAT DELHI Income Tax

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Issues Involved:
1. Restriction of addition on account of deemed profit on transfer of WIP.
2. Deletion of addition regarding sale of land.

Summary:

Issue 1: Restriction of Addition on Account of Deemed Profit on Transfer of WIP

The Revenue contested the CIT(A)'s decision to restrict the addition of Rs. 58,78,13,030/- to Rs. 78,510/-. The Assessing Officer (AO) noted that the assessee, a company engaged in real estate, had not offered any revenue from business operations and had shown the opening Work in Progress (WIP) as transferred to a developer company, resulting in nil WIP by the end of the year. The AO argued that the assessee, being the legal owner of the land, should account for the transaction in its books and compute tax liability accordingly. The assessee claimed that all rights related to the land were transferred to M/s. Parsvnath Developers Ltd., and the income from the sale of land was accounted for in the developer's books. The CIT(A) upheld this view, relying on previous assessments where it was determined that M/s. Parsvnath Developers Ltd. was the real owner of the land. The Tribunal found no material difference in the factual position and upheld the CIT(A)'s decision, dismissing the Revenue's appeal.

Issue 2: Deletion of Addition Regarding Sale of Land

The AO made an addition of Rs. 16,10,237/- for the sale of land measuring 370 sq. yds., claiming that the assessee was the registered owner. The CIT(A) found that the sale and profit were booked by M/s. Parsvnath Developers Ltd., which held all rights to the land. The CIT(A) noted that the land was continuously shown as WIP in the assessee's books until the assessment year 2012-13, and the sales were reflected in the developer's accounts. The Tribunal, respecting the decision of the Co-ordinate Bench, upheld the CIT(A)'s order, dismissing the Revenue's grounds related to this issue as well.

Conclusion:

The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decision to restrict the addition on deemed profit and delete the addition regarding the sale of land, based on consistent findings from previous assessments and the factual position presented.

Order Pronounced:

The appeal filed by the Revenue is dismissed. Order pronounced in the open court on 25.10.2023.

ITAT deletes deemed profit addition on work-in-progress land transfer lacking evidence of actual sale
The ITAT Delhi ruled against the revenue in a case involving deemed profit on transfer of work-in-progress land measuring 47.01 bigha. The assessee company maintained the land as WIP in its books and denied any sale. The AO failed to provide evidence supporting the alleged sale of 3600 sq. yards or receipt of consideration. The tribunal found no material basis for the estimated addition made by the AO, noting that another entity had confirmed the sales in its own books. The addition was deleted.

Deemed profit on transfer of work-in-progress - Beneficial ownership versus legal title in attribution of income - Preclusive effect of earlier concurrent findings in assessee's own caseDeemed profit on transfer of work-in-progress - Beneficial ownership versus legal title in attribution of income - Preclusive effect of earlier concurrent findings in assessee's own case - Whether the addition made by the A.O. of deemed profit on transfer of WIP (47.01 bigha) to Parsvnath Developers Ltd. could be sustained as income of the assessee. - HELD THAT: - The Tribunal upheld the order of the CIT(A) deleting the substantial part of the addition. The Tribunal found that identical issues had been examined and decided in the assessee's own cases for earlier assessment years where it was held that M/s Parsvnath Developers Ltd. was the real owner and had booked the income from the sale of the plots, whereas the assessee merely showed the land as WIP in its books. The Assessing Officer failed to bring material to rebut that position or to show that sales had been effected by the assessee itself; the pattern of repeated additions across assessment years would have resulted in double/triple taxation. In these circumstances and having regard to the co-ordinate Bench's decision in the assessee's own case, the Tribunal found no basis to sustain the large estimated addition and therefore upheld the CIT(A)'s deletion except for a small amount which was sustained by the appellate authorities. [Paras 9, 10]Addition of deemed profit on transfer of WIP was not sustained and the CIT(A)'s deletion is upheld.Beneficial ownership versus legal title in attribution of income - Whether the addition in respect of sale of land measuring 370 sq. yd. should be sustained against the assessee. - HELD THAT: - This contention was treated as corollary to the primary issue. Since the Tribunal upheld the view that Parsvnath Developers Ltd. held the substantive rights and had accounted for the sales, no separate adjudication was necessary. The Revenue's ground in respect of the 370 sq. yd. sale was therefore dismissed along with the main contention. [Paras 10]Corollary addition regarding sale of 370 sq. yd. is dismissed.Final Conclusion: The Revenue's appeal is dismissed and the CIT(A)'s order deleting the bulk of the additions (with only a small amount sustained) is upheld, the Tribunal following its earlier concurrent findings in the assessee's own cases.

2023 (11) TMI 857 - ITAT MUMBAI Income Tax

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Issues involved:
The judgment involves issues related to the assessment order passed under sections 143(3), 260, and 144B of the Income Tax Act, 1961 being challenged as barred by limitation, transfer pricing adjustments, rejection of benchmarking analysis, selection of comparable companies, and the time limit for passing the assessment order.

Challenging Assessment Order as Barred by Limitation:
The assessee challenged the assessment order on the grounds of being time-barred under section 144C(13) of the Act. The Tribunal observed that the assessment order was passed beyond the prescribed time limit, as mandated by the statute, leading to the order being deemed void-ab-initio. The Tribunal upheld the assessee's contention, allowing the appeal on this ground.

Transfer Pricing Adjustments and Benchmarking Analysis:
The Transfer Pricing Officer proposed an upward adjustment to the total income of the assessee in relation to international transactions of Marketing Support Services (MSS). The Dispute Resolution Panel confirmed/enhanced the adjustments, leading to a dispute. The Tribunal noted the rejection of the benchmarking analysis by the TPO using the Transaction Net Margin Method (TNMM) and the selection of comparable companies, which was contested by the assessee.

Selection of Comparable Companies:
The dispute also involved the selection of comparable companies for determining the arm's length price of international transactions. The assessee challenged the selection made by the TPO and DRP, proposing alternative companies for consideration. The Tribunal assessed the grounds raised by the assessee regarding the selection process and the rejection of certain comparable companies.

Time Limit for Passing Assessment Order:
The judgment highlighted the importance of adhering to the time limit prescribed under section 144C(13) of the Act for passing the assessment order after receiving directions from the Dispute Resolution Panel. The Tribunal emphasized the mandatory nature of this provision, requiring strict compliance by the Assessing Officer. The delay in passing the assessment order beyond the stipulated time period led to the order being declared void-ab-initio.

Conclusion:
The Tribunal allowed the appeal filed by the assessee, primarily on the grounds of the assessment order being time-barred. The judgment underscored the significance of complying with statutory time limits in the assessment process, ultimately rendering the assessment order null and void. The decision focused on procedural adherence and the implications of exceeding prescribed timeframes in tax assessments.

Assessment order under section 144C declared void for missing mandatory one-month deadline after DRP directions
ITAT Mumbai held the final assessment order u/s 144C void-ab-initio for being time-barred. The AO was required to pass the assessment order within one month from receiving DRP directions on 31.01.2022, but failed to comply with this mandatory statutory timeline. The court emphasized strict adherence to the prescribed time limit, making the assessment order invalid despite the TPO's rejection of the appellant's benchmarking analysis and comparable companies for international transactions involving Marketing Support Services under TNMM method.

Time-barred assessment - strict compliance of statutory time limit - Section 144C(13) - obligation to complete assessment within one month from the end of the month in which DRP directions are received - no further opportunity of being heard after DRP directionsTime-barred assessment - Section 144C(13) - obligation to complete assessment within one month from the end of the month in which DRP directions are received - strict compliance of statutory time limit - no justification for delay by administrative steps - Validity of the assessment order dated 30.12.2022 in view of the time limit prescribed by section 144C(13) of the Act. - HELD THAT: - The statute mandates that upon receipt of DRP directions the Assessing Officer shall complete the assessment, in conformity with those directions and without providing further opportunity of being heard to the assessee, within one month from the end of the month in which such direction is received. The DRP direction was received on 28.01.2022 (proof of receipt on record showing 31.01.2022). Consequently the assessment ought to have been completed on or before 28.02.2022. The Assessing Officer passed the final assessment order on 30.12.2022, well beyond the statutory cut-off. The Department's contention that the TPO's request for information justified the delay was rejected: seeking further details after DRP directions does not constitute a legally tenable cause for extending the mandatory time-limit under section 144C(13). In view of the statutory prescription of strict compliance and the absence of any permissible exception, the assessment order passed beyond the prescribed period is void ab initio. As the primary assessment order is quashed on jurisdictional/time-bar grounds, the Tribunal treated the remaining contentions on transfer pricing and comparables as academic and did not adjudicate them on merits. [Paras 7, 8, 9]Assessment order dated 30.12.2022 held to be time-barred and void ab initio; ground no.1 allowed and appeal disposed of in favour of the assessee; other grounds rendered academic.Final Conclusion: The assessment order passed beyond the time prescribed by section 144C(13) was quashed as time-barred and void ab initio; the appeal succeeds and other substantive grounds were not adjudicated as they became academic.

2023 (11) TMI 667 - THE COURT OF SPECIAL JUDGE, MPID FOR GR. BOMBAY AT BOMBAY Indian Laws

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Bail granted after completed investigation and prior cooperation, with travel restrictions and passport surrender imposed.
Bail was granted in a long-pending matter after the investigation was completed and a supplementary charge-sheet was filed. The court noted that the applicant had appeared pursuant to summons, had cooperated by furnishing material during investigation, and there was no material showing non-cooperation or criminal antecedents. The risk of absconding was treated as manageable through conditions, so release on bail was ordered subject to execution of bond and sureties, surrender of passport, restriction on leaving India, and regular appearance before the court.

Bail under Section 439 Cr.P.C. read with Section 88 Cr.P.C. - completion of investigation and filing of final charge sheet - cooperation with investigation - non arrest during investigation - absence of criminal antecedents - economic offences involving large scale cheating - risk of absconding and imposition of conditions for bail - restriction on leaving India and deposit of passport - protection of prosecution interest by conditional bailBail under Section 439 Cr.P.C. read with Section 88 Cr.P.C. - completion of investigation and filing of final charge sheet - cooperation with investigation - non arrest during investigation - absence of criminal antecedents - economic offences involving large scale cheating - risk of absconding and imposition of conditions for bail - protection of prosecution interest by conditional bail - restriction on leaving India and deposit of passport - Applicant granted bail on conditions despite serious economic offence allegations - HELD THAT: - The court exercised its discretion to grant bail under the provisions invoked, noting that investigation in the MPID Special Case is complete and a supplementary final charge sheet has been filed. The applicant consistently cooperated with the investigation, furnished documentary and electronic material, appeared pursuant to summons and was not arrested during the investigation, facts which weigh in favour of bail. There were no criminal antecedents placed on record against the applicant beyond the present case. Though the prosecution emphasised the gravity of the alleged large scale economic offences and risk of absconding, the court held that these concerns could be addressed by imposing specific conditions safeguarding the prosecution's interest. Accordingly, bail was allowed subject to execution of P.R. bond, sureties, provisional cash bail, restrictions on leaving India, deposit of passport, prohibition on tampering with witnesses or evidence, requirement to attend court on every date and liberty to the prosecution to seek cancellation on breach of conditions.Bail allowed on conditions including P.R. bond with sureties, provisional cash bail, prohibition on leaving India without permission and deposit of passport; other protective conditions imposed and prosecution entitled to move for cancellation if conditions breached.Final Conclusion: Bail application allowed; applicant released on conditional bail with specified terms to protect prosecution interests, including restrictions on travel, deposit of passport, sureties and obligations to attend court.

2023 (11) TMI 656 - BOMBAY HIGH COURT Income Tax

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Issues involved:
The issues involved in this case are related to seeking a refund amount for Assessment Year 2020-21 and the delay in processing the refund due to technical issues at the Centralized Processing Center (CPC) in Bangalore.

Judgment Summary:

Issue 1: Refund amount discrepancy
The Petitioner sought a refund amount of Rs. 19,69,46,789 for Assessment Year 2020-21, but it was noted that the actual amount payable was Rs. 19,79,40,376. The Respondent did not dispute this amount. The Respondent's reliance on an affidavit of reply highlighted technical issues at the CPC in Bangalore causing delays in processing refunds. The Court criticized the Department for using such technical issues as an excuse for delayed refunds, emphasizing the burden it places on the exchequer and the importance of timely refund disbursement. The Court directed the Respondents, either directly or through the CPC, to ensure that the refund amount is credited to the Petitioner's account by a specified date with interest according to the law.

Issue 2: Delay in refund processing
The Court expressed concern over the standard excuse given by the Department regarding technical issues at the CPC causing delays in refund disbursement. The Court highlighted the importance of timely refund payments, emphasizing that interest is payable by law until the date of refund. The Court urged relevant authorities, including the Finance Ministry, to address and resolve the technical issues causing delays in refund processing to prevent unnecessary litigation and burden on the judicial system. The Court emphasized the need for prompt resolution of technical issues to avoid delays in refund disbursement and to reduce the backlog of cases in the judicial system.

Conclusion:
The Court disposed of the petition, granting liberty to apply. The Court directed the Respondents to ensure the timely crediting of the refund amount to the Petitioner's account by a specified date, along with interest as per the law. The Court highlighted the importance of addressing technical issues causing delays in refund processing to prevent unnecessary litigation and burden on the judicial system.

Order faults department for blaming CPC tech glitches delaying tax refunds, mandates interest until payment and credit by Nov 4
HC criticized the Department's recurring assertion that CPC technical issues delay refunds, held interest is payable until actual payment, and directed respondents to ensure the undisputed refund is credited to the petitioner's account by 4 November 2023 with interest up to payment. The court condemned the waste to the exchequer and urged the Finance Ministry to resolve systemic problems; it ordered circulation of the order to the PMO, Finance Minister, Law Minister, CBDT and Attorney General for information and action.

2023 (11) TMI 497 - ITAT MUMBAI Income Tax

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Trust wins tax exemption for anonymous donations under section 115BBC despite revenue's challenge
The ITAT Mumbai ruled in favor of a trust dedicated to Shri Sai Baba, holding that anonymous donations received were not taxable under section 115BBC. The tribunal determined the trust existed for both charitable and religious purposes, rejecting the revenue's narrow interpretation that excluded Hindu worship as religious activity. The court emphasized that religious purpose must be interpreted broadly and inclusively. The trust's approval under section 10(23C)(v) provided significant evidence of its dual charitable-religious nature. The tribunal allowed accumulation benefits under section 11(2) after delay in filing Form 10 was condoned, and directed proper calculation of accumulation limits. However, exemption for interest on corpus funds under section 11(1)(d) was denied as donors had not specifically directed interest toward corpus purposes.

Anonymous donations - religious purpose - charitable purpose - Section 115BBC(2)(b) - registration under Section 80G and its relevance - accumulation under Section 11(2) - condonation of delay in filing Form No. 10 - accumulation under Section 11(1)(a) - gross receipts versus net receipts - interest on corpus funds - voluntary contribution with specific direction - Section 11(1)(d) - application of income from corpus interest - remand for verificationAnonymous donations - religious purpose - charitable purpose - Section 115BBC(2)(b) - registration under Section 80G and its relevance - Whether the assessee Trust existed for both religious and charitable purposes and was therefore excluded from tax on anonymous donations under Section 115BBC(2)(b). - HELD THAT: - The Tribunal examined the objects and statutory scheme and concluded that the Trust's activities (maintenance of temples, conduct of rituals, provision for darshan, propagation of Shri Sai Baba's teachings, festivals and hundi collections) fall within the ordinary and broad understanding of 'religious purpose', which may overlap with charitable purposes. The legislative intent of Section 115BBC and the explanatory circular was held to exclude anonymous hundi/donation-box collections at institutions existing for religious or mixed religious-and-charitable purposes from tax. The Tribunal rejected Revenue's contention that 80G registration (which involves a quantum test under Section 80G(5B)) precludes a finding of mixed purpose for Section 115BBC; Section 80G and Section 115BBC were held to operate independently and compatibly. Reliance on precedents (including the jurisdictional Bombay High Court's decision in DIT v. Bombay Panjrapole Trust and Supreme Court and High Court authorities recognising overlap between charitable and religious activities) supported the conclusion that the Trust is a mixed-purpose institution and entitled to exclusion under Section 115BBC(2)(b). The Tribunal therefore upheld the CIT(A)'s deletion of the addition made u/s 115BBC. [Paras 21, 22, 26, 31, 36]The assessee is held to be existing for both religious and charitable purposes; anonymous donations in the hundi are excluded from tax under Section 115BBC(2)(b). Revenue's appeals dismissed on this issue.Condonation of delay in filing Form No. 10 - accumulation under Section 11(2) - Whether the assessee was entitled to claim accumulation under Section 11(2) despite filing Form No.10 belatedly, where the competent authority has subsequently condoned the delay. - HELD THAT: - The AO and CIT(A) had denied the claim because Form No.10 was not filed within the statutory time and no condonation order was on record at that stage. During tribunal proceedings the assessee produced an order under section 119(2)(b) by the CIT(Exemptions), Mumbai dated 16.03.2023 condoning the delay in filing Form No.10 for AY 2015-16. Revenue did not dispute this subsequent condonation. The Tribunal directed recomputation of total income and allowance of admissible exemption under Section 11(2) in view of the condonation by the competent authority. [Paras 39, 40]Delay in filing Form No.10 has been condoned by the competent authority; AO directed to recompute and allow accumulation under Section 11(2) as claimed by the assessee.Accumulation under Section 11(1)(a) - gross receipts versus net receipts - Bai Sonabai Hirji Agency Trust precedent - Whether the prescribed percentage of accumulation under Section 11(1)(a) is to be calculated on gross receipts or on net receipts after deduction of revenue expenditure. - HELD THAT: - The Tribunal followed binding precedent of the Special Bench (Bai Sonabai Hirji Agency Trust) and subsequent coordinate Bench decisions holding that the statutory test for accumulation under Section 11(1)(a) requires taking the income derived from property (or gross receipts) prior to application/expenditure. Expenditures that are application of income are not to be deducted before computing the statutory percentage. Applying this principle, the Tribunal directed that the accumulation (15% as applicable) be allowed on gross receipts as claimed by the assessee. [Paras 43, 45]Accumulation under Section 11(1)(a) to be computed on gross receipts; assessee's claim allowed.Interest on corpus funds - voluntary contribution with specific direction - Section 11(1)(d) - Whether interest earned on invested corpus funds qualifies as voluntary contributions with a specific direction and is therefore exempt under Section 11(1)(d). - HELD THAT: - The AO and CIT(A) found no evidence (written or oral directions acted upon) from donors that interest earned on corpus funds was directed by donors to form part of corpus. The proximate source of the interest was investment income (fixed deposits); no specific donor instruction was produced to characterise the interest as voluntary corpus contributions. The Tribunal concurred with the lower authorities that the twin requirements for exemption under Section 11(1)(d) (voluntary contribution and specific donor direction that it shall form part of corpus) were not satisfied on the facts, and therefore the interest could not be treated as corpus donations exempt u/s 11(1)(d). [Paras 48, 50, 51]Interest on corpus funds is not exempt under Section 11(1)(d); addition upheld.Application of income out of corpus interest - remand for verification of expenses - Remand to the Assessing Officer to examine and allow application-of-income deductions in respect of amounts spent out of interest on corpus funds. - HELD THAT: - Although the Tribunal upheld that the interest itself did not qualify as corpus donation, the financial schedules indicated that amounts from corpus (including interest) were spent for the Trust's objects and, on the face of accounts, expenditures exceeded the interest in question. The assessee had not specifically placed these details before lower authorities. The Tribunal held that amounts actually applied from the interest/corpus towards charitable objects should be examined and allowed as application of income where substantiated. Accordingly, the issue was remanded to the AO for verification of the details of expenditures from the corpus interest and allowance in accordance with law. [Paras 53]Issue remanded to the Assessing Officer to verify and allow deductions for amounts actually applied out of interest on corpus funds; AO to recompute accordingly.Final Conclusion: The Tribunal affirmed the CIT(A)'s finding that the Trust is of mixed religious and charitable character and is entitled to exclusion of anonymous hundi/donation-box collections under Section 115BBC(2)(b) (Revenue appeals dismissed). The assessee's appeal was partly allowed: condonation of delay in filing Form No.10 accepted and accumulation under Section 11(2) directed to be allowed; 15% accumulation under Section 11(1)(a) to be computed on gross receipts; interest on corpus not exempt under Section 11(1)(d) but the AO is directed to verify and allow, where substantiated, application-of-income deductions out of such interest (remanded for verification).

2023 (11) TMI 249 - MADHYA PRADESH HIGH COURT Indian Laws

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Issues:
The issues involved in the judgment are exemption from surrender in a criminal revision and settlement of dispute leading to a compromise deed in a case under Section 138 of the Negotiable Instruments Act, 1881.

Exemption from Surrender:
The High Court considered an application for exemption from surrender in a criminal revision, noting that as per the rules, a revision against conviction is usually tenable only if the convicted person is in custody or has surrendered after conviction. However, the Court referred to a Supreme Court judgment allowing exemption from surrender based on the nature and circumstances of the case. In this instance, the applicant, a 63-year-old lady, did not surrender into custody, but considering her age and the settlement of the dispute with the non-applicant, the Court decided to hear the revision without the applicant surrendering into custody.

Settlement and Compromise Deed:
The revision was filed against a judgment convicting the applicant under Section 138 of the Negotiable Instruments Act, 1881, sentencing her to rigorous imprisonment and compensation. The revision was accompanied by a compromise deed indicating that both parties had settled the dispute without any coercion or undue influence. The complainant confirmed that the entire settlement amount had been received. The Court verified the compromise and noted the amicable settlement between the parties.

Applicability of Legal Guidelines:
The Court referred to legal guidelines laid down by the apex Court regarding the compounding of offences in cheque bouncing cases. These guidelines propose a graded scheme of imposing costs on parties who unduly delay compounding of the offence. The Court highlighted the importance of encouraging early compounding to save court time and emphasized the discretion of the competent court in imposing costs based on specific circumstances of each case. The Court justified the endorsement of these guidelines due to a legislative vacuum in the relevant law.

Disposition and Payment of Costs:
Considering the settlement and compromise between the parties, the Court directed the applicant to pay 2% of the cheque amount as costs to be deposited with the State Legal Services Authority within a specified period. Upon payment of costs, the applicant would be released from jail or treated as acquitted from the charges under Section 138 of the Negotiable Instruments Act. Failure to deposit the required amount would result in the applicant undergoing the original sentence and compensation as awarded by the trial Court. The complainant was permitted to withdraw any amount deposited by the petitioner before the lower Court.

Conclusion:
The Court allowed the application for exemption from surrender, accepted the settlement between the parties, endorsed legal guidelines for imposing costs in cheque bouncing cases, and directed the applicant to pay costs for final disposition of the case. The revision was disposed of based on the compromise between the parties.

Dishonour of cheque case settled amicably with 2% cost imposed under Section 138 NI Act
MP HC allowed revision petition involving dishonour of cheque under Section 138 NI Act after parties reached amicable settlement. Following apex court precedent in Damodar S. Prabhu case, court imposed 2% cost of cheque amount (Rs. 36,000) to be deposited with State Legal Services Authority within 15 days. Subject to cost payment, applicant to be released from jail or treated as acquitted from charges based on compromise between parties.

Exemption from surrender - compounding/compromise in cheque bouncing cases - application of Damodar S. Prabhu guidelines - graded scheme of costs for compounding - acquittal on compromise subject to payment of costs - consequence of non-payment of costsExemption from surrender - Revision was permitted to be heard without the applicant surrendering to custody. - HELD THAT: - Although High Court of M.P. Rules ordinarily require a declaration of custody or surrender for revisions against conviction, the Court invoked the principle recognised by the Apex Court that exemption from surrender may be granted in exercise of inherent powers having regard to the circumstances of the case. Considering the applicant's age, the amicable settlement between the parties, and the cited authority, the application for exemption from surrender was allowed and the revision was heard without surrender. [Paras 1, 2, 3]I.A. No. 15218/2023 allowed; revision heard without surrender.Compounding/compromise in cheque bouncing cases - application of Damodar S. Prabhu guidelines - The compromise between the parties was accepted and the Damodar S. Prabhu framework on graded costs for compounding was applied. - HELD THAT: - The parties filed and verified a compromise deed before the Court and Principal Registrar, and the complainant admitted receipt of the settlement amount and expressed no objection to acquittal. The Court noted that, especially where compromise occurs at the revision stage, the guidelines in Damodar S. Prabhu are applicable to discourage undue delay and to provide a graded scheme of costs when compounding is permitted at later stages of litigation. Relying on the Apex Court's reasoning and the verified amicable settlement, the Court entertained compounding subject to an appropriate costs condition. [Paras 5, 6, 7, 8]Compromise accepted; Damodar S. Prabhu guidelines held applicable to the case.Graded scheme of costs for compounding - acquittal on compromise subject to payment of costs - consequence of non-payment of costs - Compounding was allowed on the condition that the applicant deposit 2% of the cheque amount with the State Legal Services Authority within 15 days; failure to deposit would entail serving the original sentence and compensation. - HELD THAT: - Having accepted the compromise and invoked the Damodar S. Prabhu framework, the Court exercised its discretion to fix the cost for compounding at 2% of the cheque amount to be deposited with the State Legal Services Authority, Indore. The Court directed that upon payment within 15 days the applicant be released (or be treated as acquitted) from the Section 138 NI Act charge on the basis of the compromise. The order explicitly provided that failure to make the deposit would result in the petitioner undergoing the original sentence and compensation as awarded by the trial court. The complainant was permitted to withdraw any amount so deposited before the trial court. [Paras 9, 10, 11, 12]Applicant to deposit 2% with State Legal Services Authority within 15 days for release/acquittal; otherwise original sentence and compensation to be enforced; complainant may withdraw deposited amount.Final Conclusion: The application for exemption from surrender was allowed; the verified compromise was accepted and the Damodar S. Prabhu guidelines applied by imposing a 2% costs condition payable to the State Legal Services Authority within 15 days, upon compliance with which the applicant is to be released/treated as acquitted; failure to pay will revive the original sentence and compensation.

2023 (11) TMI 147 - CESTAT MUMBAI Central Excise

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Marketability test for intermediate goods: in-house sugar syrup used in biscuit manufacture was treated as non-excisable.
In-house sugar syrup used immediately in biscuit manufacture was treated as non-excisable because marketability and sufficient shelf-life were not established on the facts. The discussion applies section 2(d) of the Central Excise Act, 1944 and emphasises that an intermediate product becomes goods only if it has the attributes necessary for sale in the market, including stability and commercial utility. Earlier biscuit-manufacturing decisions were preferred over cases involving different products, and the absence of material rebutting the appellant's case meant the duty demand, interest and penalty could not be sustained.

Excisability of intermediate goods - marketability and shelf-life as tests for excisability - deemed marketability under section 2(d) of the Central Excise Act, 1944 - classification and characterisation of 'sugar syrup' as invert sugar for excise liabilityExcisability of intermediate goods - marketability and shelf-life as tests for excisability - classification and characterisation of 'sugar syrup' as invert sugar for excise liability - Whether the 'sugar syrup' produced by the appellant for use in manufacture of biscuits is an excisable intermediate good liable to central excise duty. - HELD THAT: - The Tribunal applied its earlier decision in Venugopal Foods Pvt Ltd to the facts of this appeal and held that the question of marketability is one of fact. The appellant's 'sugar syrup' is produced in the factory as an essential ingredient for biscuits by hydrolysis of sugar into invert sugar (fructose and glucose), with citric acid expediting the process. Invert sugar has shelf-life and may be marketable; however, where the product actually used in biscuit manufacture is a relatively less stable syrup and a test report indicating fructose content was not controverted below, the finding of excisability cannot be sustained. The Tribunal distinguished decisions concerning sugar concentrates used for juices as not being comparable to sugar syrup used in biscuits. Reliance on the Supreme Court's observation that shelf-life, however negligible, can suffice for excisability did not overcome the factual conclusion in Venugopal Foods and similar Tribunal decisions (including Rishi Bakers and MB Bakers) that, on the materials before the authority, the impugned syrup was not shown to be an excisable marketable commodity. Applying that precedent to identical circumstances, the appellate order upholding duty, interest and penalty was set aside.The impugned order confirming duty, interest and penalty was set aside and the appeal allowed on the ground that the 'sugar syrup' used in manufacture of biscuits was not established to be an excisable marketable intermediate good.Final Conclusion: Appeal allowed; the order confirming demand, interest and penalty in respect of 'sugar syrup' used in biscuit manufacture is set aside, applying the Tribunal's earlier reasoning in Venugopal Foods to the identical factual matrix.

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