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2023 (12) TMI 214 - ITAT MUMBAI Income Tax

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Trust wins section 80G approval for environmental preservation activities despite selling recycled materials commercially
ITAT Mumbai allowed the appeal and set aside the CIT(E)'s order denying section 80G approval. The trust, established for environmental preservation and registered under Bombay Public Trusts Act 1950, was denied approval on grounds that it spent CSR funds and sold recycled materials commercially. ITAT held that environmental preservation activities constitute charitable purposes regardless of material sales, as the trust's primary objective was environmental conservation. The tribunal found no other objections raised by CIT(E) and no questions regarding genuineness of activities, concluding all conditions for section 80G approval were satisfied.

Charitable purpose - preservation of environment as charitable purpose - approval under section 80G(5) of the Act - conditions for approval under section 80G(5) - registration under section 12AA - commercial activity versus charitable activity - spending of CSR funds and nexus with donorPreservation of environment as charitable purpose - charitable purpose - approval under section 80G(5) of the Act - Recycling of post-consumer multi-layer plastic (MLP) waste by the trust constitutes preservation of environment and thus falls within 'charitable purpose' for the purposes of approval under section 80G(5). - HELD THAT: - The Tribunal found that preservation of environment was included within the definition of 'charitable purpose' w.e.f. 01/04/2009 and that the assessee is engaged in recycling of post-consumer MLP waste, an activity squarely within preservation of environment. The assessee's registration under section 12AA as engaged in preservation of environment was noted, and the Tribunal observed that the resultant applicability of sections 11 and 12 from Assessment Year 2021-22 confirms the character of its activities. The Tribunal also relied on a coordinate bench decision recognising MLP waste management as protection of environment. Having considered submissions and records, the Tribunal concluded that the recycling activity advances preservation of environment and thereby satisfies the character of 'charitable purpose' required for section 80G(5) approval. [Paras 12, 14, 17]The recycling of MLP waste is a charitable activity falling within preservation of environment and meets the character requirement for grant of approval under section 80G(5).Spending of CSR funds and nexus with donor - approval under section 80G(5) of the Act - Receipt of CSR funds from a corporate and any consequent nexus with the donor does not, by itself, disqualify the trust from being established for charitable purposes or preclude approval under section 80G(5). - HELD THAT: - The Tribunal examined the learned CIT(E)'s rejection based on the assessee being established for expending CSR funds of Huhtamaki India Ltd. Reliance was placed on judicial authority that discharging a donor's statutory liability or benefiting members does not automatically negate a charitable purpose. The Tribunal also noted factual material that the MLP waste processed by the trust was collected from various sources (including NGOs) and was not solely provided by the donor company. On these bases the Tribunal found the CIT(E)'s reasoning unsustainable and concluded that receipt of CSR funds did not defeat charitable character or preclude section 80G(5) approval. [Paras 15, 16]The fact that the trust received CSR funds from a company and had a nexus with that company is not a ground to deny approval under section 80G(5).Commercial activity versus charitable activity - conditions for approval under section 80G(5) - Generation of revenue from sale of recycled granules does not convert the environmental preservation activity into a non-charitable commercial activity and does not defeat eligibility for approval under section 80G(5) where the activity is genuine and revenue is applied to the charitable purpose. - HELD THAT: - The Tribunal addressed the CIT(E)'s finding that the trust's sale of granules constituted commercial activity outside charitable purview. It accepted the assessee's evidence that the granules from MLP recycling are low quality with limited market value and that the trust's income comprises donations and sales used for its sole activity of plastic waste management. The Tribunal observed that even if recycling services were provided, such services would further preservation of environment and thus be charitable. No challenge was raised to genuineness of the activity. Consequently, mere earning of revenue from recycling did not justify denial of section 80G(5) approval. [Paras 4, 17, 18]The commercial nature alleged from sale of recycled material does not negate the charitable character of the trust's environmental preservation activity and is not a valid basis to refuse approval under section 80G(5).Final Conclusion: The Tribunal set aside the impugned order rejecting the assessee's application and held that the trust satisfies the conditions for approval under section 80G(5) of the Act; the appeal was allowed.

2023 (12) TMI 213 - ITAT MUMBAI Income Tax

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Issues Involved:
1. Reopening of the assessment u/s 147 of the Income Tax Act.
2. Sustaining disallowance of purchases u/s 69C of the Act.
3. Premature penalty and interest charged u/s 234A, 234B, and 234C.

Summary:

Reopening of the assessment u/s 147 of the Act:
The assessee raised a legal issue against the reopening of the assessment u/s 147 of the Act but did not argue it before the Tribunal. Therefore, this issue was not adjudicated.

Sustaining disallowance of purchases u/s 69C of the Act:
The primary grievance was the action of the Ld. CIT(A) in sustaining the disallowance of Rs. 20,84,190/- u/s 69C of the Act, representing 100% of the total purchases from two parties, M/s. Kriya Impex Pvt. Ltd. and M/s. Sun Diam. The AO had reopened the assessment based on information from the Director of Investigation Tax (Inv.) indicating that the assessee had transacted with concerns providing accommodation entries. The AO noted that the assessee failed to produce the proprietor/director of the two concerns to prove the genuineness of the purchases and thus treated the transactions as non-genuine, disallowing 100% of the purchases.

The Tribunal noted that the AO and Ld. CIT(A) did not disturb the sales shown by the assessee, which included the diamonds purchased from the two concerns. It was inferred that the assessee procured diamonds from the grey market and used the services of the two concerns to provide sales bills. In such cases, only the profit embedded in such sales should be brought to tax. The Tribunal relied on the decision of the Hon'ble Bombay High Court in the case of PCIT Vs. Nitin Ramdeoji Lohia, which held that if the purchases are bogus, the corresponding sales must also be bogus unless proven otherwise.

The Tribunal directed the AO to restrict the addition to 6% of the disputed purchases, as the assessee had himself offered a profit element of 6%.

Premature penalty and interest charged u/s 234A, 234B, and 234C:
Ground no. 3 regarding penalty was deemed premature, and the interest charged u/s 234A, 234B, and 234C was consequential, leading to its dismissal.

Conclusion:
The appeal of the assessee was partly allowed, restricting the addition to 6% of the disputed purchases. The order was pronounced in the open court on 29/11/2023.

Assessee wins partial relief as ITAT restricts bogus purchase addition to 6% profit element under section 69C
The ITAT Mumbai partially allowed the assessee's appeal regarding bogus purchases. The CIT(A) had sustained 100% disallowance of purchases from two concerns under section 69C. The ITAT held that since sales were not disturbed by tax authorities, only the profit element embedded in the transaction should be taxed. The assessee had offered 6% profit on disputed purchases. The ITAT directed the AO to restrict the addition to 6% of the disputed purchases instead of 100% disallowance, following established judicial precedent.

Bogus purchases versus inflated purchases - Disallowance under section 69C as measure of bogus purchases - Taxation of profit embedded in grey-market purchases where corresponding sales are undisputed - Onus of proof to substantiate purchasesDisallowance under section 69C as measure of bogus purchases - Taxation of profit embedded in grey-market purchases where corresponding sales are undisputed - Whether the entire purchases from two suppliers could be disallowed as bogus under section 69C or only the profit element is taxable where corresponding sales are not disputed - HELD THAT: - The Tribunal accepted that the Assessing Officer reopened assessment on information that the two suppliers were accommodation-entry providers and made a 100% disallowance under section 69C. However, the Tribunal noted the AO and the CIT(A) had not disturbed the assessee's sales (the corresponding outward transactions) and that documentary material, bank evidence and confirmations were on record to show the flow of goods and banking. Applying the principle in the cited Bombay High Court decision (PCIT v. Nitin Ramdeoji Lohia), where purchases are alleged bogus but corresponding sales are not shown to be sham, the appropriate tax consequence is to bring to tax only the profit embedded in such transactions rather than disallow the entire purchase amount. The assessee himself had offered to tax the profit element at 6% in the assessment proceedings. In these circumstances the Tribunal held that the 100% disallowance was excessive and directed that the addition be restricted to the profit element of 6% of the disputed purchases. [Paras 9]100% disallowance under section 69C set aside and AO directed to restrict addition to 6% of the disputed purchasesOnus of proof to substantiate purchases - Maintainability of penalty and interest where penalty proceedings are premature and interest is consequential - HELD THAT: - The Tribunal observed that ground relating to penalty was premature and that interest charged under sections 234A, 234B and 234C (being consequential upon assessment) did not require independent adjudication at this stage. Accordingly, those grounds were dismissed without substantive adjudication on penalty merits. [Paras 4]Penalty ground dismissed as premature; interest issues treated as consequentialFinal Conclusion: Appeal partly allowed: the Tribunal set aside the 100% addition under section 69C in respect of purchases from the two suppliers and directed the AO to restrict the addition to 6% (profit element) of the disputed purchases; penalty ground dismissed as premature and interest treated as consequential.

2023 (12) TMI 212 - ITAT RAJKOT Income Tax

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Assessee's 7.5% profit estimation on demolished building materials upheld due to inadequate documentation and books
ITAT Rajkot upheld CIT(A)'s estimation of 7.5% profit on sale of demolished building materials (imlo) worth Rs. 6.5 crores, finding the assessee failed to maintain proper books or provide documentary evidence. The tribunal dismissed addition for household expenses citing double taxation concerns since estimated profit was sufficient to cover such expenses. Unexplained bank deposits addition was confirmed due to lack of supporting documentation. Addition for car purchase was deleted as tribunal found sufficient tax-paid income from previous years available for the purchase after adjusting household expenses.

Estimation of income by application of an estimated profit rate - onus on assessee to prove source of bank credits and receipts - treatment of unexplained bank credits as income - expenditure from undisclosed sources / unexplained investment - presumption that earlier income suffered to tax may be utilised for subsequent expenditure - addition on account of household expenditure and avoidance of double taxationEstimation of income by application of an estimated profit rate - onus on assessee to prove source of bank credits and receipts - Estimation of profit on sale of demolished building material (imlo) by applying 7.5% for AY 2011-12 and 2012-13 - HELD THAT: - Tribunal upheld the CIT(A)'s adoption of an estimated profit rate of 7.5% on the value of cheques/demand drafts purchased for sale of imlo for AY 2011-12 and applied the same reasoning to AY 2012-13. The Court recorded that in the absence of books, returns and documentary comparables the primary onus lay on the assessee to substantiate his lower claim (4-5%). The CIT(A) relied on the analogy of the deemed profit regime to arrive at a reasonable estimate; the Tribunal found the estimation not to be unrealistic given the assessee's failure to discharge the onus and other circumstantial material (acquisition of cars, unexplained deposits), and therefore sustained the estimated profit of 7.5%. [Paras 10, 20]Estimation of profit at 7.5% confirmed for AY 2011-12 and applied to AY 2012-13; ground of appeal dismissed.Addition on account of household expenditure and avoidance of double taxation - Addition on account of household expenditure for AY 2011-12, 2012-13, 2014-15 and 2015-16 - HELD THAT: - Although the AO estimated household expenditure as arising from undisclosed sources, Tribunal held that once income from sale of imlo (even as estimated by revenue) or earlier taxed income was available to the assessee to meet household needs, making a separate addition for household expenditure would amount to double taxation. Applying that principle, the Tribunal set aside the CIT(A)'s confirmed addition for household expenditure and directed deletion for the years in issue. [Paras 17, 18, 38, 51]Addition on account of household expenditure deleted; ground of appeal allowed.Treatment of unexplained bank credits as income - onus on assessee to prove source of bank credits and receipts - Treatment of bank credits of Rs.15.17 lakh in AY 2014-15 as unexplained and taxable - HELD THAT: - The assessee asserted that the bank deposits represented brokerage receipts and loans, but failed to produce documentary evidence. The Tribunal observed that where deposits are unexplained by documentary proof, the AO may treat them as unexplained credits. On the facts, absence of supporting evidence compelled confirmation of the addition made by the authorities below. [Paras 29]Addition on account of unexplained bank credits in AY 2014-15 confirmed; ground of appeal dismissed.Expenditure from undisclosed sources / unexplained investment - presumption that earlier income suffered to tax may be utilised for subsequent expenditure - Addition for purchase of car in AY 2014-15 (purchase held to be explained from earlier taxed income) - HELD THAT: - Authorities had treated the purchase of a car as from unexplained sources because cheques were obtained by depositing cash. The Tribunal examined earlier years' income that had been accepted/estimated and observed that after allowing for household expenses there remained sufficient earlier taxed income to account for the car cost. In absence of evidence that earlier taxed income was otherwise expended, the Tribunal presumed utilisation of that income for the car purchase and held no separate addition was warranted. [Paras 36]Addition for car purchase in AY 2014-15 deleted; ground of appeal allowed.Expenditure from undisclosed sources / unexplained investment - presumption that earlier income suffered to tax may be utilised for subsequent expenditure - Addition for purchase of car in AY 2015-16 (partially sustained as unexplained after adjusting earlier taxed income) - HELD THAT: - For AY 2015-16 the Tribunal calculated the aggregate earlier taxed income available to the assessee and, after allowing for household expenditure, adjusted that sum against the cost of the car. The revenue had not shown that earlier taxed income was used elsewhere. Consequently, the Tribunal treated a residual portion of the car cost as unexplained and liable to be added, while holding the balance to be presumed sourced from earlier taxed income. [Paras 49, 52]Part of the car cost in AY 2015-16 treated as unexplained and added; remainder presumed to be from earlier taxed income - appeal partly allowed.Final Conclusion: The appeals are partly allowed in aggregate: the Tribunal sustained the estimated profit on sale of imlo at 7.5% for AY 2011-12 (applied to AY 2012-13), deleted additions for household expenditure for the years in issue, confirmed the unexplained bank credit addition for AY 2014-15, allowed deletion of the car-purchase addition for AY 2014-15, and partly allowed the appeal for AY 2015-16 by reducing the addition to the residual unexplained portion of the car cost.

2023 (12) TMI 211 - ITAT VISAKHAPATNAM Income Tax

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Penalty under Section 271D for cash receipt in property transfer unsustainable when transaction genuine and transparent
ITAT Visakhapatnam held that penalty under section 271D for cash receipt in immovable property transfer was unsustainable. Assessee received advance partly by cheque and remaining in cash, but immediately deposited cash in bank account and offered capital gains for taxation. Court found no suppression of cash receipts and reasonable cause existed under section 273B due to unavoidable circumstances. The objective of section 269SS to curb black money generation was not violated as transaction was genuine and transparent.

Prohibition on receipt of specified sum in relation to transfer of immovable property otherwise than by banking channels (section 269SS) - Penalty for acceptance of cash in contravention of section 269SS (section 271D) - Reasonable cause defence to penalty (section 273B) - Objective to curb generation of black money in immovable property transactionsProhibition on receipt of specified sum in relation to transfer of immovable property otherwise than by banking channels (section 269SS) - Penalty for acceptance of cash in contravention of section 269SS (section 271D) - Reasonable cause defence to penalty (section 273B) - Validity of penalty under section 271D for receipt of cash in relation to transfer of immovable property and whether 'reasonable cause' under section 273B excuses the contravention - HELD THAT: - The Tribunal found as an admitted fact that cash of Rs. 29,65,000 was received in relation to the sale of immovable property. Section 269SS prohibits receipt of specified sums in such transfers otherwise than by cheque, draft or electronic clearing system, and section 271D provides for penalty on such acceptance. However, the Tribunal observed that the cash so received was immediately deposited into the bank account, the capital gains arising therefrom were offered to tax and the assessee furnished an explanation that the sale was a distress sale and the cash receipt arose from unavoidable circumstances. On these facts the Tribunal held that there was no suppression of cash receipts and that the explanation constituted a reasonable cause within the meaning of section 273B. Applying these findings, the Tribunal concluded that the levy of penalty under section 271D was unsustainable and set aside the orders of the AO and the CIT(A). [Paras 4, 5, 6]Penalty under section 271D deleted as the receipt was deposited into bank, tax on capital gains was offered and the circumstances amounted to reasonable cause under section 273B.Final Conclusion: The appeal is allowed and the penalty imposed under section 271D is deleted.

2023 (12) TMI 194 - CESTAT MUMBAI Customs

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Customs broker's license revocation overturned after proving no involvement in importer's cashew kernel mis-declaration scheme
CESTAT Mumbai allowed customs broker's appeal against revocation of license and forfeiture of security deposit for alleged mis-declaration in cashew kernel imports. The tribunal found the broker was not involved in the importer's scheme to import prohibited cashew kernels below minimum import price thresholds by mis-declaring goods as raw cashew nuts. While the importer violated Foreign Trade Policy conditions, the customs broker had no role in these violations. The tribunal set aside license revocation and deposit forfeiture but imposed Rs.10,000 penalty for failure to supervise employee compliance under Customs Brokers Licensing Regulations 2018.

Revocation of customs broker licence - exercise of due diligence - Know Your Customer (KYC) obligations of customs brokers - supervision of employees and vicarious responsibility - penalty under Regulation 18 of CBLR, 2018Revocation of customs broker licence - exercise of due diligence - Know Your Customer (KYC) obligations of customs brokers - Validity of the revocation of the appellants' CB licence and forfeiture of security deposit on the ground of alleged violations of Regulations 10(e), 10(n), 13(3) and 13(4) of CBLR, 2018 - HELD THAT: - The Tribunal found on the factual matrix that the mis-declaration related to import below the Minimum Import Price prescribed by DGFT and that concealment was detected only on the basis of specific information acted upon by Pune Customs during transit. The appellants had filed the Bill of Entry on the basis of documents supplied by the importer, and those documents and particulars (IEC, PAN, Aadhaar, GST registration, bank certificate, Udyam registration) met the KYC requirements set out in the CBIC circular and Regulation 10(n). The Tribunal accepted that the importer and third parties (including a person of M/s Ninai Shipping Agency) were the primary actors in the scheme and that there was no material to show the appellants had knowledge of or participation in the mis-declaration as to description or MIP. Accordingly, the findings in the impugned order that the appellants breached Regulations 10(e), 10(n), 13(3) and 13(4) were held to be contrary to the factual record and unsustainable, and the consequences of revocation and forfeiture could not be sustained. [Paras 9, 11, 12, 19]Findings of violation of Regulations 10(e), 10(n), 13(3) and 13(4) not sustained; revocation of CB licence and forfeiture of security set aside.Supervision of employees and vicarious responsibility - penalty under Regulation 18 of CBLR, 2018 - Whether the appellants breached Regulation 13(12) (failure to supervise employees) and the appropriate consequence - HELD THAT: - The Tribunal examined the panchnama and on site examination evidence which showed that a large portion of the consignment was concealed behind declared bags and that the local mode of inspection had permitted such concealment to remain undetected. The Tribunal observed an angle of possible collusion between the customs examining officers and an H card holder connected with the appellants, and found that the appellants and their employee (H card holder) failed to act as required to ensure proper conduct during examination. On this limited basis the Tribunal held the appellants liable for breach of Regulation 13(12) and, applying the regulatory scheme, imposed a modest monetary penalty as the appropriate remedial measure under Regulation 18 rather than revocation of licence. [Paras 16, 17, 18, 19]Appellants held liable to a limited extent for breach of Regulation 13(12); penalty of Rs.10,000 imposed under Regulation 18.Co-operation with authorities - unauthorised signatory / Form H/F card regime - Allegation of breach of Regulation 10(q) and Regulation 13(7) (failure to cooperate / use of unauthorised persons to sign declarations) - HELD THAT: - The inquiry report and the impugned order had not established that the appellants evaded inquiry or that any unauthorised person had signed declarations on behalf of the appellants. The Tribunal noted that the Principal Commissioner had accepted in the inquiry report that these charges were not proved and therefore did not remit or disturb that finding. No relief was sought by the appellants on this front and no separate adverse conclusion was recorded against them on these provisions. [Paras 13]Allegations under Regulation 10(q) and Regulation 13(7) not sustained / not upheld.Final Conclusion: The appeal is partly allowed: the revocation of the customs broker licence and forfeiture of security deposit are set aside as findings of violation of Regulations 10(e), 10(n), 13(3) and 13(4) were not established; a limited penalty of Rs.10,000 is imposed under Regulation 18 for failure to supervise employees under Regulation 13(12); allegations under Regulations 10(q) and 13(7) are not upheld.

2023 (12) TMI 160 - GAUHATI HIGH COURT GST

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GST registration restoration depends on filing pending returns and paying dues, interest and late fee under the rules.
GST registration cancelled for continuous failure to furnish returns may be restored where the registered person furnishes all pending returns and pays the tax dues with applicable interest and late fee. The proviso to Rule 22(4) of the CGST Rules allows the proper officer to drop the cancellation proceedings when those statutory requirements are met, and the authority has jurisdiction to consider restoration on that basis. The petitioner was allowed to approach the concerned authority within two months, and the request was to be examined and acted on in accordance with law if the stated conditions are satisfied.

Cancellation of GST registration for non-furnishing of returns for continuous six months - power of proper officer to drop proceedings on compliance with proviso to sub rule (4) of Rule 22 - restoration of GST registration on furnishing pending returns and payment of dues - application of proviso to sub rule (4) of Rule 22 of the CGST Rules, 2017Cancellation of GST registration for non-furnishing of returns for continuous six months - Validity of cancellation of GST registration under Section 29(2)(c) for non-furnishing of returns for a continuous period of six months - HELD THAT: - The court recorded that the petitioner's GST registration was cancelled under Section 29(2)(c) of the CGST Act, 2017 on the ground of non-furnishing of returns for a continuous period of six months or more. The statutory framework requires registered persons to file returns monthly or for part thereof under Section 39(1), and Rule 22 prescribes the procedural safeguards including issuance of show cause notice and opportunity to reply. The cancellation order under challenge follows the statutory scheme applicable where returns remain unfiled for the specified period. [Paras 2, 3, 5]Cancellation under Section 29(2)(c) for non-furnishing of returns for six months was sustained as having been made under the statutory scheme and procedure.Power of proper officer to drop proceedings on compliance with proviso to sub rule (4) of Rule 22 - restoration of GST registration on furnishing pending returns and payment of dues - application of proviso to sub rule (4) of Rule 22 of the CGST Rules, 2017 - Whether the authority has power and duty to drop cancellation proceedings and restore registration if the assessee furnishes all pending returns and pays tax, interest and late fee as per the proviso to sub rule (4) of Rule 22 - HELD THAT: - The court interpreted the proviso to sub rule (4) of Rule 22 to mean that where a person served with a show cause notice under Section 29(2)(b) or (c) furnishes all pending returns and makes full payment of tax dues together with applicable interest and late fee, the proper officer shall drop the proceedings and pass an order in Form GST REG 20. Applying that provision to the petitioner's case, the Court observed that if the petitioner approaches the empowered officer within the prescribed time and complies with the proviso's requirements, the officer has authority and jurisdiction to consider the submission and take steps for restoration of the GST registration expeditiously. The Court thus directed a remedial course rather than permanently foreclosing restoration where statutory compliance is tendered by the petitioner. [Paras 6, 8]If the petitioner furnishes all pending returns and makes full payment of tax, interest and late fee in terms of the proviso to sub rule (4) of Rule 22, the proper officer is empowered to drop the proceedings and proceed to restore the GST registration by passing the prescribed order.Final Conclusion: Writ petition disposed by directing the petitioner to approach the concerned authority within two months; upon compliance with the proviso to sub rule (4) of Rule 22 (furnishing pending returns and payment of tax, interest and late fee) the authority shall consider the application and take necessary steps to restore the GST registration expeditiously.

2023 (12) TMI 150 - AUTHORITY FOR ADVANCE RULING, RAJASTHAN GST

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Property leased for commercial use loses residential dwelling status and GST exemption under notification 05/2022
The AAR Rajasthan ruled that a residential property leased for commercial use does not qualify as a "residential dwelling" under GST notification No. 05/2022. The property was leased to establish a branch office, making it commercial in nature despite its original residential classification. The lessor must pay 18% GST on forward charge basis under tariff heading 997212. The lessee is not liable for GST under reverse charge mechanism. The ruling emphasized that the actual purpose of use and intended length of stay are key factors in determining whether a property qualifies as residential dwelling for GST exemption purposes.

Definition of "residential dwelling" - taxability of renting of immovable property as supply of service - renting for commercial use taxable under forward charge - reverse charge mechanism for renting of residential dwelling to a registered person - factors determining residential dwelling: purpose of use and length of stayDefinition of "residential dwelling" - renting for commercial use taxable under forward charge - reverse charge mechanism for renting of residential dwelling to a registered person - Demised premises is not covered in the definition of residential dwelling for the purposes of Notification No. 05/2022-Central Tax (Rate) dated 13/07/2022 and is a taxable supply as renting for commercial use liable to GST under forward charge. - HELD THAT: - The GST law does not define 'residential dwelling'; dictionary meanings were noted but the determinative enquiry is the actual use of the premises. The lease expressly states the demised premises shall be used solely for commercial purposes (establishing branch/office). The electricity bill is in the lessee's name and records a commercial connection. On these facts the Authority concluded the property is being used for commercial purposes and therefore ceases to be a 'residential dwelling' for the purpose of Notification No. 05/2022. Consequently the supply is classifiable as renting or leasing services involving non-residential property (Service Code 997212) and is taxable at the applicable rate under forward charge in the hands of the lessor. The reverse charge provision inserted by Notification No. 05/2022 applies only to services by way of renting of residential dwelling to a registered person and hence does not apply in the present facts.Demised premises not a residential dwelling as used for commercial purposes; supply taxable as renting of non residential property under forward charge; reverse charge notification not attracted.Factors determining residential dwelling: purpose of use and length of stay - definition of "residential dwelling" - The important factors to be included in the definition of 'residential dwelling' are the purpose for which the dwelling is put to use and the length of stay intended by the users. - HELD THAT: - While noting various dictionary definitions, the Authority held that the core considerations for determining whether a premises is a 'residential dwelling' are factual: (i) the purpose for which the premises is put to use (residential v. commercial); and (ii) the length of stay intended by users. Other indicia (such as land use classification) were considered but the Authority emphasised actual use and intended duration of stay as the determinative factors in the present context.Purpose of use and length of stay intended by users are the principal factors for defining 'residential dwelling'.Final Conclusion: The Authority ruled that the demised premises, being used for commercial purposes, do not qualify as a 'residential dwelling' under Notification No. 05/2022 and the lease constitutes a taxable supply of renting of non residential property payable by the lessor under forward charge; for defining 'residential dwelling' the purpose of use and intended length of stay are the primary factors.

2023 (12) TMI 149 - COMPETITION COMMISSION OF INDIA GST

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Issues: (i) whether the investigation period and computation of input tax credit for anti-profiteering analysis were correctly taken up to 31.07.2019 despite receipt of completion certificate on 17.07.2017; (ii) whether the complaint regarding GST charged on preferential location charges was maintainable before the anti-profiteering authority.

Issue (i): whether the investigation period and computation of input tax credit for anti-profiteering analysis were correctly taken up to 31.07.2019 despite receipt of completion certificate on 17.07.2017

Analysis: The Commission accepted the re-investigation report and held that restricting the post-GST computation only up to 16.07.2017 would leave out a substantial portion of input tax credit earned after the completion certificate. Since the object of anti-profiteering inquiry is to assess the full post-GST benefit, the period from 01.07.2017 to 31.07.2019 was treated as the correct period for comparison. On that basis, the post-GST ITC ratio was found not to show any additional benefit over the pre-GST position.

Conclusion: The investigation period and ITC computation were held to be correct, and no additional benefit of input tax credit was found to have accrued to the respondent.

Issue (ii): whether the complaint regarding GST charged on preferential location charges was maintainable before the anti-profiteering authority

Analysis: The Commission held that the grievance about levy of GST on preferential location charges did not fall within the limited remit of the anti-profiteering mechanism, which is confined to examining whether the benefit of input tax credit or tax reduction has been passed on to buyers. As the complaint did not establish non-passing of any ITC benefit, the matter was held to lie outside the authority's anti-profiteering jurisdiction.

Conclusion: The complaint on GST charged on preferential location charges was held to be not maintainable before the anti-profiteering authority.

Final Conclusion: The respondent was found not liable under the anti-profiteering provisions, and the complaint was dismissed.

Ratio Decidendi: Anti-profiteering proceedings are confined to determining whether post-GST tax benefits in the form of input tax credit or tax reduction have been passed on to recipients, and a grievance unrelated to that limited inquiry is outside the authority's jurisdiction.

Anti-profiteering jurisdiction limited to ITC benefit pass-on; GST complaint on preferential location charges held outside the mechanism.
Anti-profiteering inquiry was confined to whether post-GST tax benefits, including input tax credit, were passed on to buyers, and the Commission treated 01.07.2017 to 31.07.2019 as the correct comparison period because restricting the analysis to 16.07.2017 would exclude substantial post-completion ITC. On that basis, no additional ITC benefit was found to have accrued, and the respondent was not liable. A complaint challenging GST on preferential location charges was held outside anti-profiteering jurisdiction because it did not concern non-passing of ITC benefit or tax reduction, and was therefore not maintainable.

Anti-profiteering under Section 171 of the CGST Act, 2017 - computation of ITC to turnover ratio - period of investigation for calculation of profiteering - scope of the Commission to examine passing on of ITC benefitPeriod of investigation for calculation of profiteering - computation of ITC to turnover ratio - Whether the DGAP was correct in taking the period 01.07.2017 to 31.07.2019 for computing ITC and the ratio of ITC to turnover for assessment of alleged profiteering. - HELD THAT: - The DGAP's original computation compared pre-GST and post-GST ratios of CENVAT/ITC to turnover and found post-GST ITC to be lower by 0.71%. The erstwhile NAA directed reinvestigation questioning why the investigation extended to 31.07.2019 despite receipt of Completion Certificate on 17.07.2017. On reinvestigation the DGAP explained that restricting computation of post-GST ITC to 16.07.2017 would exclude substantial ITC availed after that date and thus understate the maximum ITC available to the supplier, defeating the purpose of Section 171. The Commission accepted this reasoning, observing that excluding ITC availed between 17.07.2017 and 31.07.2019 would incorrectly omit significant ITC from computation and would not serve the objective of ensuring passing on of ITC benefits to recipients.The period 01.07.2017 to 31.07.2019 and the DGAP's computation of ITC for that period were held to be correct for the purpose of assessing alleged profiteering.Anti-profiteering under Section 171 of the CGST Act, 2017 - computation of ITC to turnover ratio - Whether the Respondent was obliged to pass on any benefit of additional ITC or tax rate reduction to the home buyer and whether profiteering under Section 171 was established. - HELD THAT: - The DGAP's reconciled figures produced ratios of CENVAT/ITC to turnover of 26.85% (pre-GST) and 26.14% (post-GST), evidencing that the respondent did not enjoy an additional ITC advantage after GST implementation. The Commission noted that neither an increase in net benefit from ITC nor any post-GST reduction in tax rate was shown. Applying Section 171's test of whether a supplier has 'benefited' from ITC or tax rate change and failed to pass such benefit to recipients, the Commission found no material showing of unpassed benefits.Anti-profiteering provisions of Section 171 were held not attracted; no profiteering was established and the application was dismissed on merits.Scope of the Commission to examine passing on of ITC benefit - Whether the charge of GST being levied on Preferential Location Charges (PLC) in a ready-to-move-in flat falls within the Commission's jurisdiction under anti-profiteering provisions. - HELD THAT: - The applicant complained that GST was charged on a ready-to-move-in flat and specifically on PLC. The Commission observed that its statutory mandate is confined to examining whether benefits of ITC or tax rate reductions have been passed to recipients, not to adjudicate on the correctness of tax liability or applicability of GST to particular components of consideration. Accordingly, questions about the propriety of charging GST on PLC lie with the appropriate GST authorities rather than with the Commission.The complaint about charging GST on PLC was held not maintainable before the Commission and the applicant was directed to approach the appropriate GST authorities.Final Conclusion: The Commission upheld the DGAP's investigation period and computation (01.07.2017 to 31.07.2019), found no additional ITC benefit or tax-rate reduction to be passed on and therefore no contravention of Section 171; the application is dismissed and issues as to GST liability on PLC are outside the Commission's remit.

2023 (12) TMI 148 - COMPETITION COMMISSION OF INDIA GST

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Developer violated GST rules by not passing Input Tax Credit benefits to flat buyers, profiteered Rs. 35,114
CCI held that the respondent developer contravened Section 171 of CGST Act by not passing on ITC benefits to flat buyers. The respondent's ITC increased from 4.19% to 4.26% of turnover post-GST implementation, creating a 0.07% net benefit. Out of 85 units sold, 52 units required ITC benefit pass-through totaling Rs. 6,43,756. The profiteered amount was determined as Rs. 35,114 for the period July 2017 to December 2019. However, penalty under Section 171(3A) could not be imposed retrospectively as the provision came into force from January 2020, while the violation occurred during 2017-2019.

Benefit of input tax credit - passing on of benefit under Section 171 of the CGST Act, 2017 - profiteering - quantification of commensurate reduction in price - interest on profiteered amount - retrospective inapplicability of penalty under Section 171(3A)Benefit of input tax credit - passing on of benefit under Section 171 of the CGST Act, 2017 - Whether the introduction of GST resulted in a net additional benefit of ITC to the respondent which was required to be passed on to recipients under Section 171. - HELD THAT: - The Commission accepted the DGAP's reconciliation showing ITC as a percentage of turnover at 4.19% in the pre-GST period and 4.26% in the post-GST period, thereby determining an additional ITC benefit of 0.07% of turnover in the period 01.07.2017 to 03.12.2019. The Commission held that Section 171(1) requires any such additional benefit of ITC to be passed on to recipients by way of commensurate reduction in prices, and that the respondent had an obligation to pass on the 0.07% benefit to eligible homebuyers. The respondent did not dispute the DGAP's methodology or the computed percentage increase in ITC. [Paras 8]There was an additional ITC benefit of 0.07% of turnover for the period 01.07.2017 to 03.12.2019 which the respondent was required to pass on under Section 171.Quantification of commensurate reduction in price - profiteering - The quantum of profiteering attributable to the respondent for the period 01.07.2017 to 03.12.2019. - HELD THAT: - On the basis of the DGAP's computations (accepted by the Commission), the additional ITC benefit and its application to the respondent's relevant turnover and base price were recalibrated. The Commission adopted the DGAP's calculation showing an aggregate amount of profiteering of Rs. 35,114 for eligible recipients corresponding to the identified 52 homebuyers whose supplies required passing on of ITC benefit. The Commission expressly recorded that the methodology and figures as computed by the DGAP were not disputed by the respondent. [Paras 8, 10]The profiteered amount for 01.07.2017 to 03.12.2019 is determined to be Rs. 35,114.Passing on of benefit under Section 171 of the CGST Act, 2017 - identification of recipients and net liability - Whether the respondent had actually passed on the ITC benefit to recipients and the net shortfall or excess to be adjusted. - HELD THAT: - The DGAP's verification (bank confirmations, customer confirmations and documentary evidence) showed that the respondent had issued cheques and adjusted prices to pass ITC benefit to a number of customers amounting to an aggregate benefit greater than required in several cases. The Commission noted that while excess benefit had been passed to 48 homebuyers (aggregate amount as per DGAP), the respondent had failed to pass on the requisite benefit to four identifiable homebuyers. The excess passed to some recipients could not be set off against amounts due to other individual recipients because entitlement to commensurate benefit is recipient-specific. [Paras 9, 11]Respondent had passed excess benefit to certain recipients but had not passed the requisite benefit to four identified homebuyers; the shortfall remained payable to those four.Interest on profiteered amount - Whether interest is payable on the profiteered amount and the applicable rate and period. - HELD THAT: - The Commission directed that interest at 18% per annum shall be paid by the respondent to the four identified homebuyers from the date the amount was profiteered until the date of payment, and instructed the DGAP to ensure payment of interest and to confirm compliance within three months. This direction follows the DGAP's determination of the date from which amounts were profiteered and the dates of subsequent payments. [Paras 13]Interest at 18% per annum is payable on the profiteered amount from the date of profiteering until the date of payment; DGAP to ensure payment and confirm compliance.Retrospective inapplicability of penalty under Section 171(3A) - Whether penalty under Section 171(3A) of the CGST Act, 2017 could be imposed for the contravention that occurred in the period 01.07.2017 to 03.12.2019. - HELD THAT: - The Commission observed that although the contravention amounted to an offence under Section 171(3A), the penal provision came into force with effect from 01.01.2020. Since the violation period is 01.07.2017 to 03.12.2019, the Commission held that the penalty under Section 171(3A) could not be imposed retrospectively and therefore a show cause notice for imposition of penalty under that provision was not required. [Paras 12]Penalty under Section 171(3A) is not imposed because the provision is not retrospective to the period of contravention.Final Conclusion: For the period 01.07.2017 to 03.12.2019 the Commission held that an additional ITC benefit of 0.07% accrued to the respondent and was required to be passed on; the profiteered amount is quantified at Rs. 35,114 payable to four identified homebuyers with interest at 18% from the date of profiteering until payment, the DGAP and jurisdictional Commissioner are directed to ensure compliance, and penalty under Section 171(3A) is not imposed due to its non-retrospective applicability.

2023 (12) TMI 110 - SC Order VAT and Sales Tax

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Appeals against an interim order became infructuous after disposal of the main matter, leaving nothing for adjudication.
Civil appeals challenging an interim order were rendered infructuous after the High Court disposed of the main matter. The Supreme Court recorded counsel's concession that nothing survived for adjudication and declined to examine the merits of the interim order. The appeals were dismissed as infructuous, and the pending applications were also disposed of.

2023 (12) TMI 108 - DELHI HIGH COURT Indian Laws

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Disciplinary proceedings against chartered accountants cannot continue after the responsible member's death when responsibility was disclosed
Disciplinary proceedings under the Chartered Accountants Act, 1949 and the 2007 Rules are personal in nature and are directed against the member responsible for the audit. Where a firm discloses the partner who conducted the audit and that member dies before the complaint is pursued, the proceedings cannot continue against the firm as a substitute for the deceased member. The proviso to Rule 8(2) did not apply because the case was not one where no member had accepted responsibility for the allegations. The closure of the complaint as infructuous was therefore upheld, and reopening of the disciplinary process was refused.

Disciplinary proceedings are in personam - membership requirement for disciplinary proceedings under the Chartered Accountants Act, 1949 - liability of firm for partner's misconduct - interpretation of Rule 8(2) of the Chartered Accountants (Procedure of Investigation of Professional and Other Misconduct and Conduct of Cases) Rules, 2007Disciplinary proceedings are in personam - membership requirement for disciplinary proceedings under the Chartered Accountants Act, 1949 - Validity of closing the complaint as infructuous on account of the death of the chartered accountant who conducted the audit - HELD THAT: - The Court held that the Act defines a "chartered accountant" as a person who is a member of the Institute and that only persons whose names are borne on the Register constitute members capable of being proceeded against under the Act. Disciplinary proceedings under the Act are in personam and the statutory scheme contemplates action against members (or firms in the limited procedural sense) but not against non members as substitute respondents. In the present case the firm had disclosed the name of the individual member who conducted the audit, who had died before the complaint was pursued; in these circumstances disciplinary proceedings against that member became infructuous and closure of the complaint did not offend the Act or the disciplinary scheme. The Court relied on the settled principle that disciplinary proceedings cannot continue after the death of the concerned person and found no error in the Institute's decision to close the complaint as infructuous. [Paras 8, 9, 12]The closure of the complaint as infructuous on account of the death of the member who conducted the audit was valid and requires no interference.Liability of firm for partner's misconduct - interpretation of Rule 8(2) of the Chartered Accountants (Procedure of Investigation of Professional and Other Misconduct and Conduct of Cases) Rules, 2007 - Whether Rule 8(2) operates to permit continuation of disciplinary proceedings against the firm or its remaining partners after the death of the partner who conducted the audit - HELD THAT: - Rule 8 prescribes the procedure for the Director on receipt of a complaint, including a provision for a firm to disclose the name(s) of the member(s) concerned and a proviso that, if no member owns responsibility, the firm as a whole and all members who were partners or employees at the time of alleged misconduct shall be answerable. The Court found that Rule 8 is procedural and requires the firm to disclose a responsible member; where a named member is disclosed but is deceased by the time the complaint is pursued, disciplinary proceedings against that named member cannot proceed. The Court observed that the Act does not contemplate disciplinary proceedings against firms as independent members and, in the absence of any admitted responsibility by remaining members, the Institute was not obliged to proceed against the firm or its surviving partners after the death of the responsible member. [Paras 11]Rule 8(2) being procedural does not mandate continuation of in personam disciplinary proceedings against the firm or other partners once the disclosed member (the respondent) has died; the Institute acted within the Rules in closing the complaint.Final Conclusion: Writ petition dismissed; the Institute's decision to close the complaint as infructuous following the death of the chartered accountant who conducted the audit was upheld, and Rule 8(2) of the Rules does not require continuation of in personam disciplinary proceedings against the firm or surviving partners in those circumstances.

2023 (12) TMI 73 - MADHYA PRADESH HIGH COURT GST

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GST Act Section 73 Show-Cause Notice Validated: Procedural Compliance Confirmed, Petitioner's Challenge Dismissed
HC upheld a show-cause notice under GST Act Section 73, finding the notice sufficiently detailed and meeting procedural requirements. The Court determined the petitioner had adequate opportunity to respond and could have sought additional information if needed. With statutory appeal remedy available but not pursued, the writ petition was dismissed without substantive interference.

Insufficiency of show-cause notice and breach of principles of natural justice - compliance with Form GST DRC-01 and Rule 142(1) - requirement to request additional documents by specific representation - availment of statutory remedy of appeal under Section 107Insufficiency of show-cause notice and breach of principles of natural justice - compliance with Form GST DRC-01 and Rule 142(1) - Adequacy of the show-cause notice issued under Section 73 for the tax period April, 2020 to March, 2021 and whether it violated principles of natural justice by being non-speaking. - HELD THAT: - The Court examined the show-cause notice and the appended summary and Form GST DRC-01 and concluded that the notice contained sufficient material, including brief facts of the case and tabulated details of tax, interest and penalty, to enable the petitioner to file an effective reply. The contents satisfied the statutory prerequisites reflected in Form GST DRC-01 prescribed by Rule 142(1). Consequently, the show-cause notice could not be characterised as deficient or non-speaking so as to amount to a breach of natural justice. [Paras 3, 4]The show-cause notice was adequate and did not violate principles of natural justice.Requirement to request additional documents by specific representation - availment of statutory remedy of appeal under Section 107 - Whether the High Court should grant relief when the petitioner neither sought additional material from the Proper Officer by representation nor availed the statutory appellate remedy available under Section 107. - HELD THAT: - The Court observed that if the petitioner required additional documents or material to formulate an effective reply, the appropriate course was to request such material from the Proper Officer with disclosure of their relevance. No such representation was made. The Court further noted that the petitioner directly approached the High Court under Article 226 without availing the statutory remedy of appeal under Section 107. In these circumstances, and having regard to the Court's prior treatment of the same statutory provision in Raymond Limited, the Court declined to intervene. [Paras 5, 6, 7]No relief granted because the petitioner did not request additional material from the Proper Officer and did not avail the statutory appeal; writ petition dismissed.Final Conclusion: Writ petition dismissed; the show-cause notice was held to be adequate and there was no interference by the High Court where the petitioner did not seek requisite documents from the Proper Officer nor avail the statutory appellate remedy.

2023 (12) TMI 64 - DELHI HIGH COURT Income Tax

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Tax deducted at source cannot be recovered again from the employee when the employer fails to deposit it.
Where salary income was subjected to tax deduction at source, direct demand or coercive recovery from the assessee to the extent of that deduction was barred, even though the employer failed to deposit the tax with the revenue. The Delhi HC held that a tax credit mismatch could not be enforced against the employee, because the statutory protection prevents the revenue from recovering the deducted amount from the assessee indirectly. The proper remedy lies against the deductor who withheld but did not remit the tax. The demand and consequential recovery action against the assessee were therefore not sustainable.

Bar against direct demand on assessee where tax has been deducted at source - Non-enforceability of coercive recovery or indirect recovery for TDS not deposited by employer - Credit for Tax Deducted at Source contingent on deposit to Central Government under Section 199 - Duty of employer as tax-collecting agent under Chapter XVIIBar against direct demand on assessee where tax has been deducted at source - Non-enforceability of coercive recovery or indirect recovery for TDS not deposited by employer - Credit for Tax Deducted at Source contingent on deposit to Central Government under Section 199 - Duty of employer as tax-collecting agent under Chapter XVII - Whether recovery of outstanding tax can be effected against the petitioner where tax was deducted at source from his salary but not deposited by the employer - HELD THAT: - The court applied the principle that where tax is deductible at source, the assessee shall not be called upon to pay the tax himself to the extent tax has been deducted from his income. Reliance was placed on this court's earlier decision in Sanjay Sudan which held that Section 205, read with the Instruction dated 01.06.2015, bars direct demand and coercive enforcement against the deductee and that adjustment of demand against future refunds amounts to an indirect recovery barred by Section 205. The Revenue's contention that credit under Section 199 can be given only when deducted tax is paid into the Central Government account was noted but held not to operate so as to penalise the deductee where the employer, acting as the tax-collecting agent under Chapter XVII, failed to deposit the deducted amount. The court observed that the employer's duty to deposit the deducted tax is independent and that revenue is free to proceed against the employer for recovery. Subsequent decisions of this court were noted as consistent with granting relief to the deductee notwithstanding the operation of Section 199. [Paras 5, 8, 9, 10]The intimations/communications raising the demand for AY 2012-13 are set aside and respondents are restrained from carrying out any recovery proceedings in respect thereof; if the petitioner later obtains the deducted tax amount from his employer he must deposit it with the revenue.Final Conclusion: Writ petition allowed; intimations/letters dated 15.01.2014, 02.12.2021 and 20.01.2022 quashed and respondents restrained from recovering the disputed demand for Assessment Year 2012-13, with liberty to recover the deducted tax from the employer and a direction that any amount recovered by the petitioner from the employer towards the deducted tax must be deposited with the revenue.

2023 (12) TMI 63 - DELHI HIGH COURT Income Tax

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Employee cannot be penalized for employer's failure to deposit TDS under Section 199
Delhi HC ruled in favor of employee whose employer failed to deposit TDS. The court held that employee cannot be penalized for employer's default in depositing tax deducted at source. While Section 199 of Income Tax Act requires actual deposit for TDS credit, employee had no control over deposited amounts after salary deduction. Revenue must recover outstanding dues from employer, not employee. Court set aside tax demand against employee and restrained recovery proceedings, but clarified that any TDS amount later recovered from employer must be deposited with revenue.

Bar against direct demand on assessee where tax is deducted at source - Adjustment of demand against future refunds as indirect recovery - Section 205 - assessee not to be called upon to pay tax deducted at source - Credit for Tax Deducted at Source and requirement of deposit by deductor Bar against direct demand on assessee where tax is deducted at source - Adjustment of demand against future refunds as indirect recovery - Section 205 - assessee not to be called upon to pay tax deducted at source - Credit for Tax Deducted at Source and requirement of deposit by deductor - Whether the revenue can recover demands raised for AYs 2009-10, 2011-12 and 2012-13 from the petitioner, or adjust the petitioner's refunds, where TDS was deducted by the employer but not deposited with the Government. - HELD THAT: - The court applied the statutory principle that where tax is deductible at source, the assessee shall not be called upon to pay the tax himself to the extent tax has been deducted from that income, as reflected in Section 205 and as elaborated in departmental instruction dated 01.06.2015. Relying on the reasoning in Sanjay Sudan (and consistent subsequent decisions), the court held that an adjustment of the demand against future refunds constitutes an indirect recovery of the deducted tax and is barred by the statutory bar in Section 205. The requirement under Section 199 that credit is given only when tax is paid into the Central Government account does not justify calling upon the deductee to bear the burden where the deductor (employer) failed to deposit the deducted amounts; the appropriate remedy lies against the employer. Accordingly, the intimations under Section 143(1) raising demands against the petitioner for the specified assessment years could not be sustained and amounts wrongly adjusted from the petitioner's refunds must be returned. Intimations dated 21.03.2011 (AY 2009-10), 23.10.2012 (AY 2011-12) and 16.01.2014 (AY 2012-13) set aside; respondents restrained from recovery proceedings under those intimations; respondents directed to refund the amount wrongly adjusted and, if the petitioner later receives the deducted tax from his employer, to deposit it with the revenue. Final Conclusion: Writ petition allowed: demands raised against the petitioner for AYs 2009-10, 2011-12 and 2012-13 set aside; recovery restrained; wrongly adjusted refunds to be refunded to petitioner; petitioner must deposit with revenue any TDS amounts he subsequently recovers from his employer.

2023 (12) TMI 50 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , CHENNAI BENCH Insolvency and Bankruptcy

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Issues Involved:
- Appeal against rejection of compromise scheme by liquidator under Section 230 of the Companies Act, 2013 and Regulation 2B of IBBI (Liquidation Process) Regulations, 2016.

The appellant submitted a compromise scheme to the liquidator for debt restructuring of the corporate debtor, which was rejected by the Stakeholders Consultation Committee (SCC) due to a significant difference in value compared to the reserve price set for the auction of the Corporate Debtor. The appellant alleged that the liquidator violated Section 230 (1) by not presenting the scheme before the SCC, hindering the appellant's ability to persuade the SCC regarding the submitted scheme. The appellant relied on a previous NCLAT decision in support of their argument.

The Respondent's counsel highlighted the details of the SCC meeting where the compromise proposals were discussed and rejected based on various factors, including non-compliance with regulations and lack of necessary supporting documents. The majority of SCC members accepted fixing the reserve price at Rs. 155 Crores, leading to the rejection of the proposals.

In the impugned order, the Respondent's counsel distinguished a previous case based on the value of the proposed compromise scheme and reserve price set by the SCC. The deficiency in securing consent from secured creditors as required by law rendered the appellant's scheme non-viable. The Tribunal considered both sides' arguments and concluded that the appellant's request for an ad-interim stay on the E-Auction was unwarranted, as the SCC had already rejected the proposed compromise scheme in a previous meeting.

The Tribunal directed that the proposed scheme be presented before the SCC on a specified date for reconsideration and decision-making in accordance with the law. The order passed by the Tribunal was not to impede the scheduled auction of the Corporate Debtor.

Overall, the appeal was disposed of with the direction to present the scheme before the SCC for further consideration, ensuring a fair process in line with legal requirements.

Appellant's compromise scheme to be presented before Stakeholders' Consultative Committee following liquidator's proper notice under Section 230
The NCLAT Chennai disposed of an appeal regarding a scheme of compromise under Section 230 of the Companies Act, 2013 and Regulation 2B of IBBI (Liquidation Process) Regulations, 2016. The tribunal directed that the appellant's proposed scheme be presented before the Stakeholders' Consultative Committee on 01.12.2023. The liquidator was ordered to convene the meeting by providing proper notice of time, date, and place to concerned parties. The SCC would consider the scheme and make decisions in accordance with law.

Compromise scheme under Section 230 - Regulation 2B of IBBI (Liquidation Process) Regulations, 2016 - Stakeholders Consultation Committee (SCC) - liquidator's duty to place scheme before SCC - requirement of consent of secured creditors - presentation and consideration in presence of proponent - ad interim stay on e auctionCompromise scheme under Section 230 - Stakeholders Consultation Committee (SCC) - requirement of consent of secured creditors - Validity of the SCC decision rejecting the appellant's compromise scheme and propriety of interim relief sought to stay the e auction - HELD THAT: - The Tribunal examined the material showing that the SCC had considered competing compromise proposals and fixed a reserve price of Rs.155 crores for the going concern auction, recording that the appellant's proposal of Rs.90 crores had been rejected by the SCC. The Tribunal noted that the appellant's proposal lacked supporting documentation including the notarized affidavit under the relevant regulation and the requisite earnest money, and that decisions of the SCC were taken by the requisite majority. The Tribunal therefore held that the appellant's prayer for an ad interim stay on the e auction was not warranted since the SCC had already considered and, by a large majority, rejected the proposed compromise scheme and proceeded to fix the reserve price for auction. The Tribunal distinguished the precedent relied upon by the appellant on its facts and on the deficiencies in the present proposal. [Paras 20, 21]Prayer for ad interim stay on the e auction refused; SCC's rejection of the scheme treated as having been considered and recorded.Liquidator's duty to place scheme before SCC - presentation and consideration in presence of proponent - Regulation 2B of IBBI (Liquidation Process) Regulations, 2016 - Whether the appellant's scheme should be presented before the SCC in the appellant's presence for fresh consideration - HELD THAT: - Although the SCC had recorded rejection of the proposal, the Tribunal observed that the appellant contended the scheme was not placed before the SCC in his presence, a fact not denied by the liquidator. In the interests of justice and expedition, and without staying the auction, the Tribunal directed that the scheme propounded by the appellant under Section 230 of the Companies Act read with Regulation 2B be presented before the SCC on the specified date so that the SCC may consider the proposal in the appellant's presence and take a decision in accordance with law. The direction was made by agreement between the parties and was limited to presentation and consideration; it did not operate as an injunction on the already scheduled auction.Directed that the appellant's scheme be presented before the SCC on 01.12.2023 for consideration in the appellant's presence; matter remitted to SCC for fresh consideration on that limited basis.Final Conclusion: The appeal is disposed of by refusing interim relief to stay the e auction while directing that the appellant's compromise scheme be presented before the SCC on 01.12.2023 for consideration in his presence; the direction to present the scheme does not restrain the auction fixed for 16.12.2023.

2023 (12) TMI 49 - Supreme Court Money Laundering

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Issues: (i) Whether a person can be prosecuted for money-laundering even if she is not shown as an accused in the scheduled offence; (ii) whether the first and second properties could be treated as proceeds of crime; (iii) whether Section 120B of the Indian Penal Code, 1860 becomes a scheduled offence when the conspiracy alleged is to commit an offence not included in the Schedule to the Prevention of Money Laundering Act, 2002.

Issue (i): Whether a person can be prosecuted for money-laundering even if she is not shown as an accused in the scheduled offence.

Analysis: Liability under Section 3 of the Prevention of Money Laundering Act, 2002 depends on the existence of a scheduled offence and proceeds of crime connected with that offence. The offence of money-laundering is independent and may be committed by a person who is not an accused in the predicate offence, if that person knowingly assists, is party to, or is involved in the process or activity connected with the proceeds of crime.

Conclusion: The absence of the appellant's name in the chargesheets for the scheduled offences did not by itself bar prosecution under the Prevention of Money Laundering Act, 2002.

Issue (ii): Whether the first and second properties could be treated as proceeds of crime.

Analysis: The first property was acquired before the alleged acts constituting the scheduled offence, and therefore it could not be linked to proceeds of crime. As to the second property, the material on record was insufficient to record a finding at the quashing stage that no tainted money was used; that question required evidence at trial. The challenge was considered only on the applicability of the Prevention of Money Laundering Act, 2002, without determining valuation or the legality of the sale deeds.

Conclusion: The first property could not be treated as proceeds of crime, while the second property could not be held to be untainted at the quashing stage.

Issue (iii): Whether Section 120B of the Indian Penal Code, 1860 becomes a scheduled offence when the conspiracy alleged is to commit an offence not included in the Schedule to the Prevention of Money Laundering Act, 2002.

Analysis: The Schedule to the Prevention of Money Laundering Act, 2002 is selective and does not include every offence capable of generating proceeds of crime. Penal statutes must be strictly construed, and an interpretation that allows any non-scheduled offence to be converted into a scheduled offence merely by adding Section 120B would render the Schedule redundant. Section 120B is a scheduled offence only where the alleged conspiracy is to commit an offence already included in the Schedule.

Conclusion: Section 120B of the Indian Penal Code, 1860 is a scheduled offence only if the conspiracy alleged is to commit an offence specifically included in the Schedule to the Prevention of Money Laundering Act, 2002; on the facts, no scheduled offence existed.

Final Conclusion: The complaint under the Prevention of Money Laundering Act, 2002 could not be sustained against the appellant because the alleged conspiracy did not relate to a scheduled offence, and the proceedings were quashed as against her.

Ratio Decidendi: An offence under Section 120B of the Indian Penal Code, 1860 is a scheduled offence under the Prevention of Money Laundering Act, 2002 only when the alleged conspiracy is to commit an offence already specified in the Schedule; otherwise, the Schedule cannot be expanded by implication.

Money-laundering liability can stand without predicate-offence ment, but only where proceeds of crime and a scheduled offence exist.
Money-laundering liability under the Prevention of Money Laundering Act, 2002 is independent of whether a person is named as an accused in the predicate scheduled offence; prosecution may proceed if the person knowingly assists or is involved with proceeds of crime. Property acquired before the alleged scheduled offence cannot be treated as proceeds of crime, while a later property could not be ruled untainted at the quashing stage without evidence at trial. Section 120B IPC is a scheduled offence only when the alleged conspiracy is to commit an offence already included in the PMLA Schedule; the Schedule cannot be enlarged by implication.

Proceeds of crime - offence of money laundering - scheduled offence - criminal conspiracy (Section 120B IPC) as scheduled offence - interpretation of the Schedule to the PMLA - benefit of acquittal/discharge in predicate offence - continuing activity connected with proceeds of crime Offence of money laundering - proceeds of crime - scheduled offence - continuing activity connected with proceeds of crime - Whether an accused in a PMLA prosecution must have been shown as an accused in the predicate/scheduled offence - HELD THAT: - On a plain reading of Section 3 and the definition of "proceeds of crime" (clause (u) of Section 2(1)), the existence of proceeds of crime - and therefore a scheduled offence - is a condition precedent for an offence under Section 3. However, Section 3 criminalises processes or activities connected with proceeds of crime (concealment, possession, acquisition, use, projecting or claiming as untainted property) which may be undertaken by persons who were not parties to the underlying scheduled offence. Thus a person who, after the scheduled offence exists, knowingly assists in concealment or use of proceeds of crime can be prosecuted under the PMLA even though he was not an accused in the predicate offence. Conversely, if the prosecution in respect of the scheduled offence is finally terminated in favour of the accused (acquittal, discharge or quashing), no proceedings for money laundering can be sustained in relation to property purportedly derived from that scheduled offence. The Court applied these principles and rejected the submission that being an accused in the scheduled offence is a precondition for PMLA prosecution, while recognising that a benefit arises from the final vindication of accuseds in the predicate matter. [Paras 12, 14, 15, 16, 27] A person need not have been shown as an accused in the scheduled offence to be prosecuted under Section 3 of the PMLA; but such a person will benefit if the scheduled offence is finally acquitted, discharged or quashed. Proceeds of crime - acquisition of property - Whether the First Property (acquired on 1 July 2013) is proceeds of crime - HELD THAT: - The Court found that the acts constituting the alleged scheduled offences occurred after the acquisition of the First Property. Because proceeds of crime must be property derived or obtained as a result of criminal activity relating to a scheduled offence, the First Property, on the facts pleaded, cannot be said to have any connection with the proceeds of the alleged scheduled offence. [Paras 2, 17, 27] The First Property cannot be regarded as proceeds of crime as the scheduled offences occurred after its acquisition. Proceeds of crime - acquisition of property - Whether the Second Property was acquired using proceeds of crime - HELD THAT: - The Court observed that the appellant had declared undisclosed income under the Income Declaration Scheme, 2016, and relied on that as a possible source for acquiring the Second Property. The question whether tainted funds formed part of the consideration for the Second Property requires evidence of payment from particular bank accounts or other material; no such material was placed on record at the quashing stage. Accordingly, this factual and evidentiary issue cannot be determined on a Section 482 petition and must be decided at trial. [Paras 7, 17, 27] The issue whether tainted money was used to acquire the Second Property is to be examined at trial; it cannot be decided at the quashing stage. Criminal conspiracy (Section 120B IPC) as scheduled offence - interpretation of the Schedule to the PMLA - Whether Section 120B IPC (criminal conspiracy) as included in the Schedule renders any conspiracy a scheduled offence even if the object of the conspiracy is an offence not specified in the Schedule - HELD THAT: - The Court analysed the Scheme of the Schedule and the definition of "scheduled offence" in Section 2(1)(y). It held that Section 120B included in Part A of the Schedule will operate as a scheduled offence only where the criminal conspiracy alleged is to commit an offence that is itself specifically included in Parts A, B or C of the Schedule. Accepting the ED's submission would render the Schedule meaningless by enabling any conspiracy to convert an otherwise non scheduled offence into a scheduled offence, contrary to legislative intent and the requirement of strict construction of penal provisions. The Court applied principles of statutory interpretation and legislative purpose, and concluded that conspiracy to commit an offence not enumerated in the Schedule does not, by virtue of Section 120B alone, become a scheduled offence for the purposes of the PMLA. [Paras 23, 24, 25, 26, 27] An offence under Section 120B IPC will be a scheduled offence under the PMLA only if the conspiracy alleged is to commit an offence which is specifically included in the Schedule. Final Conclusion: The appeal is allowed. The impugned High Court order is quashed to the extent indicated, and the complaint under the PMLA (Special C.C. No.781 of 2022) pending before the Special Court is quashed insofar as it relates to the present appellant: (i) it is held that a person need not have been an accused in the predicate offence to face PMLA prosecution but obtains the benefit if the predicate offence is finally quashed/acquitted; (ii) the First Property is not proceeds of crime; (iii) the question whether the Second Property was acquired with tainted funds is remitted for trial; and (iv) Section 120B IPC operates as a scheduled offence under the PMLA only when the conspiracy alleged is to commit an offence already included in the Schedule.

2023 (12) TMI 36 - DELHI HIGH COURT Income Tax

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PCIT cannot invoke Section 263 without conducting own enquiry when AO properly examined assessee's explanations
The Delhi HC upheld the Tribunal's decision setting aside the PCIT's order under Section 263. The PCIT had cancelled the original assessment order claiming inadequate enquiry regarding unexplained cash deposits, without conducting any enquiry himself. The court held that the AO had properly examined the assessee's explanation that cash deposits originated from gold sales, including supporting material. The PCIT wrongly equated inadequate enquiry with no enquiry. The court emphasized that assessment orders don't require detailed reasons if the record shows the AO applied his mind to relevant issues during proceedings.

Revisionary power under Section 263 of the Income tax Act, 1961 - requirement of actual inquiry before exercise of revisionary jurisdiction - distinction between lack of inquiry and inadequate inquiry - twin conditions for exercise of revisionary jurisdiction: erroneous order and prejudicial to revenue - scope of 'record' to be examined while exercising revisionary power - application of mind by the Assessing Officer and sufficiency of reasons in assessment ordersApplication of mind by the Assessing Officer and sufficiency of reasons in assessment orders - requirement of actual inquiry before exercise of revisionary jurisdiction - Whether the Assessing Officer made enquiries into the cash deposits before passing the original assessment order dated 30.12.2016. - HELD THAT: - The Court examined the AO's order sheets, the questionnaire dated 19.12.2016 and the reply dated 23.12.2016. The order sheets record multiple notices, attendances by the assessee's authorised representative, issuance of notices under Sections 142(1) and 143(2), notices under Section 133(6) and explicit entries noting submission and examination of details in response to the questionnaire. The questionnaire specifically called for explanation of cash deposits in Axis Bank and Kotak Mahindra Bank and fixed a hearing; the assessee responded on 23.12.2016 with audited accounts, stock summary, VAT returns, bank statements and cashbook entries asserting cash sales as the source and offered to furnish further information if required. The AO accepted the returned income and passed the assessment order on 30.12.2016. On this material the Court held that an enquiry was in fact conducted by the AO and that the AO had applied his mind to the cash deposit issue. [Paras 8, 9, 21, 22, 23]The AO did make enquiries into the cash deposits and examined the explanations and supporting material before passing the assessment order.Revisionary power under Section 263 of the Income tax Act, 1961 - distinction between lack of inquiry and inadequate inquiry - twin conditions for exercise of revisionary jurisdiction: erroneous order and prejudicial to revenue - Whether the Principal Commissioner of Income Tax validly exercised his power under Section 263 by cancelling the assessment without conducting his own enquiry. - HELD THAT: - Section 263 permits revision where the examining officer concludes an order is erroneous and prejudicial to the revenue after calling for and examining the record and, if necessary, making or causing such enquiry. The Court applied established principles distinguishing 'lack of inquiry' from 'inadequate inquiry' and held that if an inquiry was made (even if contested as inadequate), the Commissioner cannot simply substitute his view without conducting an enquiry and recording clear, unambiguous findings demonstrating the assessment is erroneous. Here the PCIT's order contains an internal contradiction: earlier noting that the nature and source of deposits were not 'duly verified' and that evidence was 'inadequate', yet paragraph 6 incorrectly states 'no inquiry or investigation' was made. The PCIT did not himself conduct any enquiry before cancelling and remanding the matter. On these facts, cancelling the assessment on the ground of 'no enquiry' was legally unsustainable; the PCIT equated inadequate inquiry with absence of inquiry and therefore erred in exercising revisionary jurisdiction without making or causing an enquiry and recording a clear finding that the AO's order was erroneous and prejudicial. [Paras 22, 24, 25, 26]The PCIT's exercise of power under Section 263 was improper because he cancelled the assessment without conducting or causing an enquiry and without recording a clear, unambiguous finding that the AO's order was erroneous and prejudicial to the revenue.Scope of 'record' to be examined while exercising revisionary power - application of mind by the Assessing Officer and sufficiency of reasons in assessment orders - Whether the absence of detailed reasons in the AO's assessment order renders the assessment unsustainable and justifies revision under Section 263. - HELD THAT: - The Court reiterated that the Commissioner exercising Section 263 may examine the entire record-including notices, queries, responses and materials placed on record-to determine whether the AO applied his mind. The AO is not required to set out elaborate reasons for each item in the assessment order; what matters is that the record discloses application of mind. Given that the AO had raised queries, examined replies and the material on record before accepting the assessee's explanation, mere lack of detailed reasons in the assessment order did not make it unsustainable and could not, by itself, justify revision. [Paras 21, 26]Absence of detailed reasons in the AO's order does not by itself invalidate the assessment where the record shows the AO applied his mind; therefore that ground did not justify exercise of revisionary power in this case.Final Conclusion: The Tribunal's order dated 27.01.2020 setting aside the PCIT's order dated 11.10.2017 is upheld. The appeal is dismissed as no substantial question of law arises; the PCIT erred in cancelling the assessment without conducting or causing an enquiry and without recording a clear finding that the AO's order was erroneous and prejudicial to the revenue.

2023 (12) TMI 15 - CESTAT CHANDIGARH Customs

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Issues Involved:
1. Validity of the impugned order passed by the Commissioner (Appeals).
2. Voluntary acceptance of enhanced value by the importer.
3. Requirement of a speaking order under Section 17(5) of the Customs Act, 1962.
4. Admissibility of written admission before an Assessing Officer as evidence.
5. Applicability of previous judgments on identical issues.

Summary:

Validity of the Impugned Order:

The Revenue challenged the impugned order dated 19.03.2020, wherein the Commissioner (Appeals) directed the re-assessment of duties at the declared value. The Tribunal found that the Commissioner (Appeals) did not properly appreciate the facts and evidence on record and failed to consider the law laid down by the Tribunal on identical issues.

Voluntary Acceptance of Enhanced Value:

The Tribunal noted that the importer voluntarily accepted the enhanced value without any protest and did not request a show cause notice or personal hearing. This acceptance was considered a waiver of the right to challenge the re-assessment. The Tribunal emphasized that once the importer consents to the enhanced value, it becomes unnecessary for the Revenue to establish the valuation further.

Requirement of a Speaking Order:

It was argued that the Commissioner (Appeals) erred in holding that a speaking order was required despite the importer's voluntary acceptance of the enhanced value. The Tribunal clarified that under Section 17(5) of the Customs Act, a speaking order is not necessary if the importer confirms acceptance of the re-assessment in writing.

Admissibility of Written Admission:

The Tribunal upheld that a written admission before an Assessing Officer is admissible evidence. In this case, the importer's written acceptance of the enhanced value was sufficient to negate the need for a speaking order or further investigation into the declared value.

Applicability of Previous Judgments:

The Tribunal referred to several precedents, including the case of Commissioner of Customs, Delhi vs. M/s Hanuman Prasad & Sons, which supported the view that voluntary acceptance of enhanced value precludes the necessity for a speaking order. The Tribunal also cited decisions where the voluntary acceptance of value by the importer was held as binding, thereby upholding the department's actions.

Conclusion:

After considering the submissions and precedents, the Tribunal concluded that the impugned order by the Commissioner (Appeals) was not sustainable in law. The appeals of the department were allowed, and the impugned order was set aside.

(Pronounced on 29.11.2023)

Importer cannot challenge enhanced valuation after voluntary acceptance without protest under customs law
The CESTAT Chandigarh allowed the department's appeal against the Commissioner of Customs (Appeals) order that had restored the importer's self-assessment at declared value for aluminium scrap. The Tribunal relied on precedents establishing that when an importer voluntarily accepts enhanced valuation without protest, they are precluded from subsequently challenging it, and the department need not pass a speaking order. The SC had upheld this principle in Sodagar Knitwear case. The Tribunal held the impugned order unsustainable in law and allowed the appeal.

Voluntary acceptance of enhanced value and estoppel against later challenge - waiver of right to a speaking order under Section 17(5) of the Customs Act - rejection of declared transaction value and procedural mandate of Rule 12 of the Valuation Rules, 2007 - transaction value as primary method of valuation and consequential application of Rules 4 to 9Voluntary acceptance of enhanced value and estoppel against later challenge - transaction value as primary method of valuation and consequential application of Rules 4 to 9 - Effect of the importer having voluntarily accepted enhanced assessable value and paid duty without protest on the legality of subsequent appeal by the importer and the duty of the department to establish valuation. - HELD THAT: - The Tribunal held that where an importer, in writing, accepts enhancement of the declared value and pays duty without protest, such acceptance operates to reject the original declared value and the accepted enhanced value becomes the declared transaction value, rendering further valuation exercise unnecessary. Reliance was placed on coordinate decisions which establish that consent to enhancement and payment of duty without protest estop the importer from later challenging the enhancement; the burden on the department to prove the declared value incorrect is discharged where the importer has voluntarily accepted the enhanced value. The Tribunal noted precedents, including a decision affirmed by the Supreme Court, supporting the proposition that voluntary written acceptance obviates the need for the Revenue to further establish valuation or to determine value sequentially under Rules 4 to 9 once the importer has accepted the enhancement. [Paras 11, 14]Impugned appellate orders restoring the declared self-assessment were erroneous where importers had accepted the enhanced value; the Revenue's appeals succeed on this ground.Waiver of right to a speaking order under Section 17(5) of the Customs Act - rejection of declared transaction value and procedural mandate of Rule 12 of the Valuation Rules, 2007 - Whether a speaking order under Section 17(5) and the procedural steps under Rule 12 are mandatory where the importer has in writing waived the right to a show cause notice, personal hearing and speaking order. - HELD THAT: - The Tribunal concluded that Section 17(5) contemplates passing a speaking order when reassessment is contrary to self-assessment, but the subsection itself permits the importer to waive the right to a speaking order by confirming acceptance of the reassessment in writing. Rule 12 provides the mechanism where the proper officer has reasonable doubt as to transaction value, and Rule 12(2) requires the proper officer to intimate grounds in writing and grant opportunity of hearing only upon the importer's request. Where the importer expressly waived the right to a show cause notice, personal hearing and a speaking order and accepted the enhanced value in writing, the assessing authority was not obliged to record and communicate separate reasons or to proceed with the Rule 12 process; the assessing officer could proceed with reassessment based on the acceptance. [Paras 11, 14]No separate speaking order or further Rule 12 procedure was required once the importer had confirmed acceptance in writing; the Commissioner (Appeals) erred in setting aside the assessing officer's reassessment on the ground that a speaking order should have been issued.Final Conclusion: The Revenue's appeals are allowed; the impugned orders of the Commissioner (Appeals) are set aside because the importers had in writing accepted the enhanced values and waived the right to a speaking order, thereby precluding their subsequent challenge to the enhanced valuation.

2023 (12) TMI 3 - CESTAT CHENNAI Central Excise

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Issues Involved:
1. Eligibility for refund of excise duty amounting to Rs.31,47,563/-.
2. Whether the amount raised through debit notes forms part of the "transaction value" under Section 4 of the Central Excise Act, 1944.
3. The impact of a loan provided by M/s. Mando India on the transaction value.

Summary:

Issue 1: Eligibility for Refund of Excise Duty
The appellant, M/s. JTEKT India Ltd., filed a refund claim for Rs.31,47,563/- on the grounds that they had paid excess excise duty on a cost difference claimed from M/s. Mando India, which was not admitted by M/s. Mando India. Initially, the refund was sanctioned, but the Department appealed, and the Commissioner (Appeals) set aside the sanction. The appellant then filed an appeal before the Tribunal.

Issue 2: Whether the Amount Raised Through Debit Notes Forms Part of the "Transaction Value"
The appellant contended that the debit notes raised were not accepted by M/s. Mando India and thus cannot form part of the transaction value as defined under Section 4 of the Central Excise Act. The Tribunal agreed, stating that "transaction value" means the price actually paid or payable for the goods, and since M/s. Mando India did not agree to the price revision, the debit notes do not form part of the transaction value. The Tribunal referenced the case of Purolator India Ltd. v. Commissioner of Central Excise, Delhi-III and other similar cases to support this conclusion.

Issue 3: Impact of Loan Provided by M/s. Mando India on the Transaction Value
The appellant argued that the loan provided by M/s. Mando India was a repayable advance and not an additional consideration affecting the transaction value. The Tribunal found that the loan was repaid through subsequent clearances and did not influence the agreed price between the parties. The Tribunal held that the loan does not form part of the transaction value, and the excise duty paid was therefore in excess.

Conclusion:
The Tribunal concluded that the Commissioner (Appeals) erred in upholding the recovery of the erroneous refund. The appellant is eligible for the refund of Rs.31,47,563/-. Both appeals were allowed with consequential reliefs. The decision was pronounced in court on 29.11.2023.

Debit notes raised after goods clearance cannot form part of transaction value under Section 4
CESTAT Chennai held that debit notes raised after goods clearance cannot form part of transaction value under Section 4 of Central Excise Act. The buyer never accepted the increased price shown in debit notes issued post-sale. Transaction value comprises price actually paid/payable when goods are sold, plus amounts buyer is liable to pay. Since buyer had not agreed to pay cost difference and debit notes were raised subsequent to sale, they cannot constitute transaction value. Excise duty paid was therefore excess, making appellant eligible for refund. Commissioner (Appeals) order set aside, appeal allowed.

Transaction value - Section 4(1)(d) - transaction value - debit notes issued after clearance - refund of excise duty - loan/repayable advance and its effect on assessable value - extra commercial considerationTransaction value - Section 4(1)(d) - transaction value - debit notes issued after clearance - loan/repayable advance and its effect on assessable value - refund of excise duty - Whether amounts claimed subsequently by debit notes and the loan advanced by the buyer formed part of the transaction value so as to defeat the appellant's refund claim of excise duty - HELD THAT: - The Tribunal examined the facts that the appellant raised debit notes for the cost difference after clearance of goods and that the buyer, M/s. Mando India, never agreed to honour the increased price. The record establishes that M/s. Mando India advanced a repayable loan which was repaid by adjustments in subsequent clearances; the loan was therefore not an enduring additional consideration that altered the contractual price. Under the definition in Section 4(1)(d), transaction value comprises the price actually paid or payable when sold and amounts the buyer is liable to pay in connection with the sale. Where a purported increase is post sale and there is no agreement or liability on the buyer to pay it, such supplementary charges do not form part of the transaction value. Applying these principles, the Tribunal held that the debit notes raised after sale, not accepted by the buyer, and the repayable loan (repaid by adjustment) did not constitute additional transaction value or extra commercial consideration altering the price at clearance. The Tribunal distinguished FIAT India Pvt. Ltd. on facts, observing that that case involved deliberate under valuation to capture market share, which is not the factual matrix here. Consequently the excise duty paid on the debit notes was found to be excess and refundable. [Paras 16, 22, 23]Debit notes raised after clearance and the repayable loan did not form part of transaction value; the appellant is entitled to refund and the impugned orders are set aside.Final Conclusion: Both appeals are allowed; the orders of Commissioner (Appeals) are set aside and the appellant is held eligible for the refund with consequential reliefs, if any.

2023 (12) TMI 867 - ITAT MUMBAI Income Tax

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Issues: (i) Whether additions made under section 68 on account of RTGS receipts and cash deposits could be sustained where the sales were recorded in the regular books and supported by invoices, stock records and bank entries; (ii) whether the separate addition for alleged commission under section 69C and the alternative addition under section 69A were justified; (iii) whether rejection of books of account under section 145(3) was sustainable; (iv) whether the estimate of profit at 1.35% on the disputed sales was warranted.

Issue (i): Whether additions made under section 68 on account of RTGS receipts and cash deposits could be sustained where the sales were recorded in the regular books and supported by invoices, stock records and bank entries.

Analysis: The additions arose from the Assessing Officer's view that the disputed receipts were unexplained cash credits, based largely on third-party statements and surrounding circumstances. The Tribunal noted that the assessee had shown the receipts as sales in the books, maintained stock and cash records, produced invoices, PAN details and bank statements, and that no stock discrepancy or defect in the recorded sales was shown. It also found that the impugned receipts had already been credited in the profit and loss account, so treating them again as unexplained credits would amount to double taxation. On the factual matrix, the Tribunal agreed that the receipts were business sales and not unexplained credits.

Conclusion: The additions under section 68 were not sustainable and the revenue's challenge failed.

Issue (ii): Whether the separate addition for alleged commission under section 69C and the alternative addition under section 69A were justified.

Analysis: The alleged commission addition was founded on an inference drawn from a third-party statement and the difference between the amount received by the intermediary and the amount routed to the assessee. The Tribunal found no direct evidence of any cash payment by the assessee and no corroborative material supporting unexplained expenditure. As regards the alternative invocation of section 69A, the Tribunal held that the receipts were already recorded in the regular books as sales, and therefore the statutory condition of unrecorded money, bullion, jewellery or other valuable article was absent.

Conclusion: The addition under section 69C was rightly deleted and the alternative addition under section 69A was not maintainable.

Issue (iii): Whether rejection of books of account under section 145(3) was sustainable.

Analysis: The Tribunal observed that the Assessing Officer had not pointed out any specific defect, lacuna or incompleteness in the books of account. The adverse additions were based on suspicion and surrounding circumstances, but the regular accounts, stock records and audited financial statements remained unshaken. In the absence of a demonstrable defect in the accounts, rejection of books could not be justified merely because additions were made on certain transactions.

Conclusion: Rejection of books of account under section 145(3) was not justified.

Issue (iv): Whether the estimate of profit at 1.35% on the disputed sales was warranted.

Analysis: The Tribunal held that once the impugned receipts were accepted as recorded sales and reflected in the profit and loss account, the embedded profit was already part of the disclosed turnover. Estimating an additional percentage profit on the same sales would again tax the same business receipts and was not permissible on the facts found. The Tribunal therefore disagreed with the CIT(A)'s approach of sustaining only the profit element at 1.35% of the disputed sales.

Conclusion: The estimated addition of profit at 1.35% was deleted.

Final Conclusion: The revenue's appeal failed, while the assessee succeeded in challenging the residual profit estimation, resulting in deletion of the sustained additions based on percentage profit on the disputed sales.

Ratio Decidendi: Where sales are recorded in the regular books, supported by stock and banking evidence, and no specific defect in the accounts is found, the same receipts cannot be treated again as unexplained cash credits or subjected to an additional estimated profit addition.

Recorded sales cannot be recast as unexplained credits or subjected to additional estimated profit without defects in accounts.
Recorded sales supported by invoices, stock records, PAN details and bank entries cannot be treated again as unexplained cash credits where no discrepancy or defect is established; doing so results in double taxation. A separate commission addition requires direct or corroborative evidence of unexplained expenditure, while section 69A does not apply to money already recorded as sales in regular books. Rejection of books under section 145(3) requires identifiable defects or incompleteness, not suspicion or surrounding circumstances alone. Once disputed receipts are accepted as disclosed sales and included in profit and loss accounts, additional estimated profit on those sales is impermissible.

Section 68 unexplained cash credit - section 69C unexplained expenditure - section 69A unexplained money, bullion or jewellery - rejection of books of account under section 145(3) - estimation of income by applying difference in net profit on sale - double taxation/double counting principle - principles of natural justice - opportunity to confront and cross examine witnessesSection 68 unexplained cash credit - estimation of income by applying difference in net profit on sale - Validity and quantum of addition of Rs. 2,00,00,000 as unexplained cash credit where RTGS receipts shown as sales to M/s Dyaneshwari Multi State Urban Co Op Society Limited. - HELD THAT: - The CIT(A) examined the documentary evidence (sales invoice, PAN, ledger, bank statements, stock verification at search, VAT/statutory returns and tax audit particulars) and the statements relied upon by the AO. The Tribunal finds that the CIT(A) correctly observed that the only direct adverse piece relied upon by the AO was the statement of the branch manager which, on analysis, did not establish that the RTGS receipts were not for sale (no evidence that amounts were returned or gold purchases disproved and no adverse finding on corresponding purchases or stock). In those circumstances, the appropriate remedial approach is to estimate any unaccounted profit by applying the difference in net profit rate on the sale concerned rather than treating the entire receipt as unexplained credit. Applying the assessee's reported net profit rate of 1.35% on the Rs. 2 crore sale, the correct estimate of addition is Rs. 2,70,000; the balance addition stood deleted. [Paras 13]Addition of Rs. 2,00,00,000 reduced to Rs. 2,70,000; remaining addition deleted.Section 68 unexplained cash credit - estimation of income by applying difference in net profit on sale - Validity and quantum of addition of Rs. 79,00,000 as unexplained cash credit for sales to four entities allegedly controlled by a broker. - HELD THAT: - Facts and documentary material were analogous to the Rs. 2 crore issue: sales invoices, PANs, ledger and bank statements were on record and the CIT(A) rightly applied the same reasoning. Given the absence of cogent evidence to displace the recorded sales and the lack of any direct finding that corresponding purchases or stock were false, the permissible measure was to estimate any unaccounted profit by reference to the assessee's overall net profit rate. Applying 1.35% to the aggregate Rs. 79,00,000 yields an addition of Rs. 1,06,650; the balance was deleted. [Paras 15]Addition of Rs. 79,00,000 reduced to Rs. 1,06,650; remaining addition deleted.Section 69C unexplained expenditure - principles of natural justice - opportunity to confront and cross examine witnesses - Sustainability of ad hoc addition of Rs. 5,00,000 as unexplained commission purportedly paid to arrange accommodation entries. - HELD THAT: - The AO's inference of a commission payment was based on statements and indirect conjecture without documentary or corroborative material. The CIT(A) and the Tribunal accepted the assessee's contention that there was no independent evidence proving payment of the alleged commission; the AO's conclusion was therefore unsupported. Consequently the addition made under section 69C was deleted. [Paras 17]Addition of Rs. 5,00,000 under section 69C deleted.Section 68 unexplained cash credit - estimation of income by applying difference in net profit on sale - Validity and quantum of additions aggregating Rs. 3,27,77,981 alleged as unexplained RTGS receipts from multiple customers. - HELD THAT: - The CIT(A) analysed customer wise documentary evidence and the AO's additional pointers (including alleged poor financials of customers). The Tribunal agreed that absent any positive finding that corresponding purchases or stock were false, and where identity and receipts were evidenced, the proper course is to estimate any suppression by applying the assessee's net profit rate. At 1.35% the judged addition is Rs. 4,42,503 and the balance of the AO's addition was deleted. [Paras 19]Addition of Rs. 3,27,77,981 reduced to Rs. 4,42,503; remaining addition deleted.Section 68 unexplained cash credit - section 69A unexplained money, bullion or jewellery - double taxation/double counting principle - Sustainability of addition of Rs. 5,55,30,000 representing cash deposits during the demonetisation period. - HELD THAT: - The CIT(A) examined the cash book, stock verification at search, VAT/tax audit returns, party wise cash sale particulars and the temporal context (Diwali sales followed by demonetisation). The Tribunal upheld the CIT(A)'s conclusion that the cash deposits were accounted sales proceeds recorded in regular books and supported by stock and audit records; treating those deposits as unexplained cash credits would amount to double taxation because the sales had already been offered to tax. The AO had not pointed to any specific lacuna in books or stock. Accordingly the addition under section 68 was deleted. The alternative addition under section 69A was also held inapplicable because the amounts were recorded in the books. [Paras 21]Addition of Rs. 5,55,30,000 deleted; alternative addition under section 69A deleted.Rejection of books of account under section 145(3) - Validity of the Assessing Officer's rejection of the assessee's books of account under section 145(3). - HELD THAT: - The CIT(A) found, and the Tribunal agreed, that the AO's additions were founded on doubts and circumstantial inferences rather than any identified defects, inconsistencies or lacunae in the books themselves. The AO did not point to specific deficiencies in the accounts; indeed the AO used figures from the books in computation. Rejection under section 145(3) therefore lacked basis and was set aside. [Paras 23]Rejection of books of account under section 145(3) quashed.Double taxation/double counting principle - estimation of income by applying difference in net profit on sale - Assessee's cross appeal against CIT(A)'s estimation of profit at 1.35% on the sales/receipts upheld. - HELD THAT: - Although the CIT(A) had correctly deleted large parts of the AO's additions, the Tribunal observed that estimating and then adding a profit element at 1.35% on sale values already accepted and recorded in the profit & loss account would amount to double taxation. The books were audited and sales were offered to tax; once the CIT(A) deleted the AO's disallowances/rejections, there was no justification to estimate and re tax the profit element on those same sales. The Tribunal therefore directed deletion of the percentage based estimations and allowed the assessee's appeal on that narrow ground. [Paras 33]Tribunal directed deletion of the CIT(A)'s percentage based estimations; assessee's appeal on this point allowed.Final Conclusion: The Tribunal dismissed the revenue's appeal in its entirety and allowed the assessee's cross appeal concerning the percentage based estimation of income. Additions based on section 68/69C/69A were either deleted or substantially reduced by estimation of profit where appropriate; the rejection of books under section 145(3) was set aside and no double taxation was permitted by re estimating profit on sales already recorded and taxed.

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