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Summary order. Special Leave Petition disposed of as withdrawn with liberty to file an application for review.
Maintainability of petition - availability of alternative remedy - Seeking to challenge the order passed by the Authority under Section 73 of the Central Goods and Services Tax Act, 2017 on the sole ground that the petitioner has an alternative efficacious remedy of preferring an appeal - HELD THAT:- There are no good reason to interfere with the impugned order passed by the High Court.
SLP disposed off.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment are:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Validity of the Order under Section 74 of the GST Act
Issue 2: Dismissal of Appeal on Grounds of Limitation
3. SIGNIFICANT HOLDINGS
Overall, the judgment underscores the importance of adhering to procedural requirements and principles of natural justice in administrative proceedings under the GST Act.
Appeal preferred by the petitioner under Section 107 of GST Act was dismissed as being beyond limitation - availment of ITC by mistake but the same is not utilised - HELD THAT:- Section 75(4) of the GST Act mandates the granting of an opportunity of hearing where an adverse decision is contemplated against a person. This provision was also interpreted by this Court in the case of Party Time Hospitality Prop. Smt. Punita Gupta Lko. v. State Of U.P. & 2 Others [2023 (9) TMI 48 - ALLAHABAD HIGH COURT] and the Court was of the view that compliance of Section 75(4) of GST Act is mandatory; while doing so, this Court had also considered the earlier judgments of this Court.
Considering the fact that the original order is contrary to the mandate of Section 75(4) of GST Act and is also violative of principles of natural justice, the order dated 25.03.2023 is liable to be quashed and is accordingly quashed.
Matter is remanded to respondent no.3 to pass fresh orders after giving an opportunity of hearing and after permitting the petitioner to file a reply to the show-cause notice, in accordance with law - Petition allowed.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment are:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Rejection of Appeal on Grounds of Delay
Issue 2: Violation of Natural Justice
Issue 3: Power to Condon Delays
3. SIGNIFICANT HOLDINGS
The judgment underscores the importance of procedural fairness and the discretionary power of appellate authorities to ensure justice is served beyond mere procedural technicalities.
Violation of principles of natural justice - Rejection of petitioner’s appeal solely on the grounds of delay - petitioner contends that it is a central public sector undertaking and that such rejection, without addressing the merits of the appeal, violates principles of natural justice - HELD THAT:- Taking into account the arguments put forth by the parties, this Court finds that the petitioner has adequately explained the reasons for the delay in filing the appeal. Regrettably, the appellate authority failed to appropriately consider this aspect and proceeded to summarily observe that, since the appeal was filed after a delay of 246 days, no reasonable cause was demonstrated for the delay.
It is evident that the appellate authority mechanically dismissed the application for condonation of delay as well as the appeal, without adequately considering the petitioner’s lack of knowledge regarding the impugned order's issuance. Such an omission renders the appellate order perverse.
It is pertinent to note the Division Bench ruling in S.K. CHAKRABORTY & SONS VERSUS UNION OF INDIA & ORS. [2023 (12) TMI 290 - CALCUTTA HIGH COURT], wherein it was held that the appellate authority is empowered to condone delays extending beyond the statutory period under Section 107 (4) of the Act.
The order dated September 25, 2024, passed by the appellate authority is unsustainable and is accordingly quashed. Considering the explanation provided by the petitioner, this Court deems it unnecessary to remit the matter to the appellate authority for reconsideration of the application for condonation of delay - Petition disposed off.
ISSUES:
RULINGS / HOLDINGS:
RATIONALE:
Data migration error - rectification of departmental records - direction to issue revised order - writ jurisdiction to direct correction of portal data - prohibition on coercive action pending compliance
Data migration error - rectification of departmental records - direction to issue revised order - Department to correct Portal data and pass a revised order reflecting the revised returns filed by the appellant for the period October 2016 to March 2017; impugned order set aside. - HELD THAT: - The department's affidavit admitted that revised returns filed by the appellant for October 2016 to March 2017 did not migrate completely into the new integrated ACES-GST Application and that the legacy/original return data was being reflected in the new system. In view of this undisputed factual position the Court accepted the appellant's case that the departmental records require rectification. Rather than quashing the proceedings, the Court directed the authorities to make necessary corrections in the Portal and to pass a revised order accepting the appellant's stand. The appeal was allowed and the impugned order was set aside to enable the department to effect the correction and issue a revised order.
Allowed the appeal; set aside the impugned order and directed the department to correct the Portal data and issue a revised order reflecting the revised returns.
Writ jurisdiction to direct correction of portal data - prohibition on coercive action pending compliance - Court exercised writ jurisdiction to direct administrative correction and restrained coercive action until compliance; the matter was not remanded for initiation of fresh proceedings. - HELD THAT: - The Court observed that the writ remedy was maintainable to direct appropriate administrative action where departmental systems failed to reflect the appellant's revised returns. Consequently, the Court stayed coercive action arising from the original demand while allowing the appeal and directing the department to rectify the Portal. The order explicitly clarified that sending the matter back for compliance is not a remand for fresh proceedings but a direction for the department to correct its records and pass a revised order within the stipulated time.
Directed correction and restrained coercive measures pending compliance; clarified that the matter is returned for compliance and not remanded for fresh proceedings.
Final Conclusion: The appeal is allowed; the impugned order is set aside and the departmental authorities are directed to correct the Portal data and pass a revised order accepting the appellant's revised returns for October 2016 to March 2017 within four weeks, with no coercive action to be taken in the interim; the return for compliance is not a remand for fresh proceedings.
Issues: Whether the refund application could be rejected as time-barred under Section 54(1) of the Central Goods and Services Tax Act, 2017 in view of the exclusion of the period from 1 March 2020 to 28 February 2022, and whether the rejection order required interference.
Analysis: The refund claim had been rejected solely on limitation. A subsequent notification issued by the Central Board of Indirect Taxes and Customs directed exclusion of the period from 1 March 2020 to 28 February 2022 for computing limitation for refund claims under Sections 54 and 55 of the Central Goods and Services Tax Act, 2017. On that basis, the limitation objection no longer survived for the refund applications in question, and the State accepted that the matter should be reconsidered.
Conclusion: The rejection on limitation was unsustainable and the refund application was to be restored for fresh processing on merits without raising the issue of limitation.
Ratio Decidendi: Where an applicable exclusion period is notified for computing limitation under the refund provisions of the Central Goods and Services Tax Act, 2017, a rejection founded only on the excluded period cannot be sustained.
Limitation for filing refund under the CGST refund regime - exclusion of period for computing limitation pursuant to CBIC notification dated 5 July 2022 - refund claims in respect of export transactions - remand for re processing refund applications on merits without raising limitation
Limitation for filing refund under the CGST refund regime - exclusion of period for computing limitation pursuant to CBIC notification dated 5 July 2022 - Impugned order rejecting the consolidated refund application as barred by the two year limitation under Section 54(1) of the CGST Act. - HELD THAT: - The Deputy Commissioner declined the consolidated refund application for 25 export transactions on the ground that it was not filed within two years as required under Section 54(1) of the CGST Act. Subsequent to that order, the CBIC issued a notification dated 5 July 2022 directing exclusion of the period from 1 March 2020 to 28 February 2022 for computing limitation for filing refund applications under Sections 54 and 55. Having regard to that notification and the parties' submissions, the State accepted that the limitation ground should not be upheld. The Court therefore quashed the impugned order insofar as it rests on limitation, holding that the refund application cannot be rejected on the limitation ground in light of the exclusion directed by the CBIC notification, and that the limitation issue should not be raised in further proceedings. [Paras 3, 4, 5, 6]
Impugned order dated 27 May 2021 quashed and set aside insofar as it rejects the refund application on limitation grounds; limitation shall not be raised in further proceedings.
Remand for re processing refund applications on merits without raising limitation - refund claims in respect of export transactions - Further adjudication of the consolidated refund application and its merits. - HELD THAT: - The Court restored the refund application to the file of the Deputy Commissioner of State Tax and directed that the application be re processed on merits and in accordance with law. The Deputy Commissioner is to examine the refund claims afresh without invoking the limitation period excluded by the CBIC notification, and determine entitlement on merits in accordance with applicable law and procedure. [Paras 5, 6]
Matter remanded to the Deputy Commissioner of State Tax to re process the refund application on merits and in accordance with law, without raising the issue of limitation.
Final Conclusion: The writ petition is allowed: the impugned order rejecting the refund application on limitation grounds is quashed and set aside, and the refund application is restored for fresh adjudication on merits by the Deputy Commissioner of State Tax, without the limitation defence being raised; no order as to costs.
1. ISSUES PRESENTED and CONSIDERED
The core legal question considered in this judgment is whether the disallowance of Input Tax Credit (ITC) for the assessment year 2019-20, based on claims being lodged beyond the period prescribed under Section 16(4) of the GST Acts, is valid in light of a recent amendment to the GST Acts. This amendment, introduced by Section 118 of the Finance (No. 2) Act, 2024, inserted new provisions into Section 16, specifically subsections (5) and (6), which potentially affect the eligibility for claiming ITC.
2. ISSUE-WISE DETAILED ANALYSIS
Issue: Validity of ITC Disallowance Post-Amendment
Relevant Legal Framework and Precedents
The legal framework primarily revolves around Section 16 of the Central Goods and Services Tax (GST) Act, which governs the conditions and time limits for availing ITC. The original subsection (4) imposed a deadline for claiming ITC, which was challenged in this case. The amendment introduced by Section 118 of the Finance (No. 2) Act, 2024, added subsections (5) and (6) to Section 16, allowing for extended periods to claim ITC under specific conditions.
Court's Interpretation and Reasoning
The court interpreted the amendment as a legislative intent to provide relief to taxpayers by extending the period for claiming ITC for specific financial years, including 2019-20. The court acknowledged that the amendment supersedes the earlier restriction imposed by subsection (4) for the relevant periods.
Key Evidence and Findings
The key evidence considered was the legislative amendment itself, which explicitly allowed for ITC claims in returns filed up to November 30, 2021, for the financial year 2019-20. The petitioner argued that this amendment nullified the basis of the impugned assessment order.
Application of Law to Facts
The court applied the amended legal provisions to the facts of the case, determining that the disallowance of ITC based on the original subsection (4) was no longer tenable. The court found that the petitioner was entitled to have their assessment re-evaluated in light of the new subsections (5) and (6).
Treatment of Competing Arguments
The respondent's argument, which initially supported the disallowance of ITC, was effectively countered by the petitioner's reliance on the recent amendment. The court noted that the respondent agreed to re-assess the case considering the new legal provisions, thereby aligning with the petitioner's interpretation.
Conclusions
The court concluded that the impugned order disallowing ITC was to be set aside, and the assessment needed to be redone in accordance with the amended Section 16 of the GST Acts. The petitioner was granted the opportunity to submit objections and be heard before a new order is passed.
3. SIGNIFICANT HOLDINGS
Preserve Verbatim Quotes of Crucial Legal Reasoning
"In view thereof, the impugned order passed by the respondent dated 27.07.2024 is set aside. The learned assessing/adjudicating authority/respondent would re-do the assessment by taking into account the amendment referred supra."
Core Principles Established
The judgment establishes the principle that legislative amendments can retroactively impact ongoing assessments, especially when they provide extended timelines for compliance or claims, as seen with the ITC claims under the GST Acts.
Final Determinations on Each Issue
The court determined that the impugned order was invalid due to the legislative amendment and directed a re-assessment. The petitioner was allowed to present objections and participate in a hearing before a new decision is made.
This judgment highlights the importance of considering legislative changes in ongoing tax assessments and ensures that taxpayers are afforded the benefits of such amendments. The decision underscores the judiciary's role in ensuring fair application of the law, especially in light of new legislative provisions.
Entitlement to Input Tax Credit where claims are time-barred under existing law - Effect of insertion of subsection (5) to section 16 on entitlement to Input Tax Credit for specified financial years - Reassessment in light of postfacto statutory amendment - Duty to afford opportunity of hearing and consider objections on reassessment
Entitlement to Input Tax Credit where claims are time-barred under existing law - Effect of insertion of subsection (5) to section 16 on entitlement to Input Tax Credit for specified financial years - Reassessment in light of postfacto statutory amendment - Duty to afford opportunity of hearing and consider objections on reassessment - Impugned assessment order set aside and matter remitted to the assessing authority for fresh adjudication in light of the amendment inserting subsection (5) to section 16; petitioner to be given opportunity to file objections and personal hearing before fresh orders are passed. - HELD THAT: - The Court observed that the assessing authority disallowed Input Tax Credit solely on the ground that claims were lodged beyond the period prescribed under the then existing provision. Parliament has since inserted subsection (5) to section 16 by the Finance (No.2) Act, 2024, entitling a registered person to take input tax credit in respect of invoices/debit notes pertaining to Financial Years 2017-18 to 2020-21 if returns under section 39 were filed up to 30th November, 2021. In view of this legislative change, the reasons recorded in the impugned assessment cannot be permitted to survive. The Court therefore set aside the impugned order and directed the assessing/adjudicating authority to redo the assessment taking the amendment into account. The petitioner was permitted to file objections by way of reply within three weeks from receipt of the order and amendment details; any reply filed must be considered and fresh orders passed after affording a reasonable opportunity of personal hearing. The Court made clear that other issues, if any, in the impugned order remain undisturbed pending the reassessment. [Paras 3, 4, 5]
Impugned order set aside; matter remitted for fresh assessment in accordance with the amendment (insertion of subsection (5) to section 16), with petitioner allowed to file objections within three weeks and to be afforded personal hearing; other issues left undisturbed.
Final Conclusion: Writ petition disposed by setting aside the impugned assessment order and directing the assessing authority to readjudicate the claim for Input Tax Credit in light of the Finance (No.2) Act, 2024 (insertion of subsection (5) to section 16), after considering the petitioner's reply filed within three weeks and after affording reasonable opportunity of personal hearing; other issues reserved.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment are:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Justification of Registration Cancellation
Issue 2: Entitlement to Revocation of Registration Cancellation
3. SIGNIFICANT HOLDINGS
Cancellation of the registration of the petitioner on the premise that the statutory returns has not been filed for a continuous period of six months, thereby invoking Section 29(2) of CGST Act - HELD THAT:- This Court has been consistently following the directions issued in TVL. SUGUNA CUTPIECE CENTER VERSUS THE APPELLATE DEPUTY COMMISSIONER (ST) (GST) , THE ASSISTANT COMMISSIONER (CIRCLE) , SALEM BAZAAR. [2022 (2) TMI 933 - MADRAS HIGH COURT] where it was held that 'The petitioners are directed to file their returns for the period prior to the cancellation of registration, if such returns have not been already filed, together with tax defaulted which has not been paid prior to cancellation along with interest for such belated payment of tax and fine and fee fixed for belated filing of returns for the defaulted period under the provisions of the Act, within a period of forty five (45) days from the date of receipt of a copy of this order, if it has not been already paid.'
The benefit extended by this Court vide its earlier order in Suguna Cutpiece Centre's case, may be extended to the petitioner.
Petition disposed off.
1. ISSUES PRESENTED and CONSIDERED
The legal judgment addresses the following core issues:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Validity of Service of Notices and Orders
Issue 2: Discrepancies in ITC Claims
Issue 3: Reassessment Opportunity
Issue 4: Impact of Amendment to Section 16 of the GST Act
3. SIGNIFICANT HOLDINGS
Input Tax Credit - denial of Input Tax Credit under Section 16(4) - effect of insertion of Section 16(5) on timebarred Input Tax Credit - deposit of 25% of disputed tax as condition for relief - treatment of assessment order as a show cause notice for fresh adjudication - lifting of bank attachment on compliance with court directions
Deposit of 25% of disputed tax as condition for relief - treatment of assessment order as a show cause notice for fresh adjudication - lifting of bank attachment on compliance with court directions - Validity of the impugned assessment orders for assessment year 2017-18 and the interim relief granted on terms. - HELD THAT: - The Court set aside the impugned orders for assessment year 2017-18 and granted conditional relief subject to the petitioner depositing 25% of the disputed taxes within four weeks. Amounts already recovered or pre-deposited are to be adjusted against this 25% and the assessing authority shall verify payments and intimate any balance. On compliance the impugned order is to be treated as a show cause notice, the petitioner afforded four weeks to file objections with supporting documents, and the authority to decide after giving a reasonable hearing. Failure to comply with the deposit or to file objections within the stipulated periods will result in restoration of the impugned order. Any bank attachment or garnishee proceedings shall be lifted upon compliance with the payment condition. [Paras 7]
Impugned orders for assessment year 2017-18 are set aside on terms: deposit 25% of disputed tax, verification and adjustment, treatment of assessment as show cause notice for fresh adjudication, and lifting of attachments on compliance; noncompliance will restore the order.
Input Tax Credit - denial of Input Tax Credit under Section 16(4) - effect of insertion of Section 16(5) on timebarred Input Tax Credit - deposit of 25% of disputed tax as condition for relief - treatment of assessment order as a show cause notice for fresh adjudication - lifting of bank attachment on compliance with court directions - Disposition of the impugned assessment order for assessment year 2019-20 and treatment of disputes relating to ineligible/underdeclared Input Tax Credit and claims hit by timebar under Section 16(4). - HELD THAT: - The Court set aside the impugned order dated 26.07.2024 for 2019-20 and directed conditional relief: the petitioner to deposit 25% of the disputed taxes in respect of issues other than demands arising from denial of Input Tax Credit under Section 16(4), with adjustments for amounts already paid. The assessing authority shall verify payments and intimate any balance; on compliance the impugned order will be treated as a show cause notice and the petitioner given four weeks to file objections, to be considered after hearing. As to the demand based on denial under Section 16(4), the Court noted the legislative insertion of subsection (5) to section 16 (via Finance (No.2) Act, 2024) affecting claims for specified financial years and observed that the assessment in respect of timebarred claims requires reconsideration in light of that amendment; the parties consented to the remanding of the matter for fresh adjudication of those aspects. Failure to comply with the deposit or to file objections will result in restoration of the impugned order; bank attachments shall be lifted upon compliance with the deposit direction. [Paras 6, 8]
Impugned order for assessment year 2019-20 set aside: petitioner to deposit 25% of disputed tax except on demands under Section 16(4); issues arising from denial under Section 16(4) are to be re-examined in light of the insertion of Section 16(5); on compliance the assessment is treated as a show cause notice and fresh adjudication shall follow; noncompliance will restore the order and attachments.
Final Conclusion: Writ petition allowed in part by setting aside the impugned assessment orders for assessment years 2017-18 and 2019-20 on stipulated conditional terms (payment of 25% of disputed tax subject to specified carveouts), with directions for verification, opportunity to file objections, reconsideration of timebarred Input Tax Credit claims in light of the amendment, lifting of bank attachments on compliance, and restoration of the orders on noncompliance.
Issues: Whether the impugned order was liable to be set aside for having proceeded on the footing that no reply had been filed despite the petitioner's reply to the show cause notice, and whether the matter required fresh consideration after affording a reasonable opportunity of hearing.
Analysis: The order was challenged on the limited ground that the authority ignored the petitioner's reply dated 17.08.2024 to the show cause notice dated 20.05.2024. The Court noted that the respondent, on instructions, accepted that the reply would be considered afresh and that the petitioner would be heard again. Since the impugned order had been passed without taking the filed reply into account, the defect affected the fairness of the adjudication and called for a fresh decision after due hearing.
Conclusion: The impugned order was set aside and the respondent was directed to consider the petitioner's reply and pass fresh orders after granting a reasonable opportunity of hearing.
Reply to show cause notice - non-consideration of representation - affording opportunity of hearing - setting aside administrative order for procedural lapse - remand for fresh consideration
Reply to show cause notice - non-consideration of representation - setting aside administrative order for procedural lapse - Impugned order which proceeded on the basis that no reply was filed was set aside because the petitioner had filed a reply dated 17.08.2024 which had been acknowledged. - HELD THAT: - The petition challenged the impugned order dated 19.08.2024 on the limited ground that it proceeded on the erroneous premise that no reply had been filed. The Court noted the petitioner submitted a reply to the show cause notice dated 17.08.2024 and that the impugned order ignored that reply. In view of the admitted filing and acknowledgment of the reply, the impugned order was vitiated by non-consideration of the representation and required to be quashed. [Paras 5]
Impugned order dated 19.08.2024 set aside for non-consideration of the petitioner's reply dated 17.08.2024.
Affording opportunity of hearing - remand for fresh consideration - Respondent directed to consider the petitioner's reply dated 17.08.2024 and to pass fresh orders after affording a reasonable opportunity of hearing. - HELD THAT: - On being informed of the filed reply, the respondent accepted on instructions that fresh orders would be passed after considering the reply and after granting the petitioner a reasonable hearing. The Court, exercising supervisory jurisdiction, directed that the matter be reconsidered afresh in accordance with this assurance and after affording the petitioner an opportunity to be heard. [Paras 4, 5]
Matter remitted to the respondent to consider the reply dated 17.08.2024 and to pass orders afresh after affording a reasonable opportunity of hearing.
Final Conclusion: Writ petition disposed by setting aside the impugned order and remitting the matter to the respondent for fresh consideration of the petitioner's reply dated 17.08.2024 after affording a reasonable opportunity of hearing; no costs.
Income taxable in India - PE in India Liaison Office of the assessee - Permanent Establishment, liable to tax in India when the said office was clearly a fixed place and the activities carried out could not be said to be preparatory or auxiliary in nature? - income as liable to be attributed in India - existence of Dependent Agency Permanent Establishment (DAPE) of the assessee in India - delay filling SLP - As decided by HC [2023 (1) TMI 1244 - DELHI HIGH COURT] Liaison office of the assessee did not constitute a Permanent Establishment - HELD THAT:- There is gross delay of 569 days in filing this Special Leave Petition. Nevertheless, we have heard learned counsel on the merits of the matter. We are not inclined to interfere in the matter.
Hence, the Special Leave Petition also stands dismissed on the ground of delay as well as on merits as following our earlier order passed in the case of M/s MITSUI and Co. [2018 (7) TMI 141 - SC ORDER] as well as MITSUI and Company Ltd. [2024 (4) TMI 205 - SC ORDER]
Validity of reopening of assessment - Reasons to believe - Delay filling SLP - as decided by HC [2024 (2) TMI 1506 - GUJARAT HIGH COURT] AO has mechanically recorded that the return was processed only u/s 143(1) of the Act which itself goes to suggest that recording of reasons at the instance of Assessing officer was nothing but in a mechanical manner and with no application of mind - HELD THAT:- There is a gross delay of 185 days in filing the Special Leave Petition which has not been satisfactorily explained by the petitioner.
Even otherwise, we see no reason to interfere with the impugned order passed by the High Court.
Special Leave Petition is, accordingly, dismissed on the ground of delay as well as on merits.
Validity of reopening of assessment u/s 147 - Default in sanction/approval u/s 151 as obtained and granted without application of mind - Petitioner claimed that despite certain transactions being booked under the PAN of erstwhile company (amalgamated company) due to an error, they had correctly considered all transactions in their return - as decided by HC[2024 (3) TMI 1082 - BOMBAY HIGH COURT] a typographical error could have been committed by the AO, who was seeking the approval, but if only the Additional/Joint CIT or the PCIT had read the approval application and the draft of the order to be issued under Section 148A(d) they would have certainly noticed the discrepancy and they should have either refused approval or sent the application back to the AO for filing correct form for approval - Delay filling SLP
HELD THAT:- There is a gross delay of 181 days in filing the Special Leave Petition which has not been satisfactorily explained by the petitioner.
Even otherwise, we see no reason to interfere with the impugned order passed by the High Court.
Special Leave Petition is, accordingly, dismissed on the ground of delay as well as merits.
Deduction u/s 80IB - claim denied as petitioner/appellant is not engaged in any manufacturing activity and instead, it was only doing trading of mushroom powders in capsules - as decided by HC [2018 (7) TMI 1733 - MADRAS HIGH COURT] factual matrix clearly demonstrates that what has been done by the assessee is manufacture. In the assessee’s case, the product which emerges after the process of manufacture is commercially a distinct commodity, can be of consumption as such containing a requisite amount of ingredients in the appropriate percentage, preserved in proper form as contained in the licence issued under the authorised enactments as well as the technical logo shared by the foreign company, thus claim allowed
Maintainability of appeal before Supreme court on low tax effect - HELD THAT:- As tax effect in this case is less than Rs.5 crores.
Therefore, in view of Circular dated 17th September, 2024, the Special Leave Petition is not entertained and the same is disposed of.
However, question of law, if any, is kept open.
1. ISSUES PRESENTED and CONSIDERED
The core legal question considered in this judgment is:
Whether the inadvertent mistake committed by the Transfer Pricing Officer (TPO) in not mentioning the name of the entity correctly is a curable mistake under the Income Tax Act, 1961, specifically rectifiable in light of the decision rendered by the Supreme Court in the case of Sky Light Hospitality LLP vs. ACITRs.
2. ISSUE-WISE DETAILED ANALYSIS
Relevant Legal Framework and Precedents
The primary legal provisions considered include Section 154 and Section 292B of the Income Tax Act, 1961. Section 154 pertains to the rectification of mistakes apparent from the record, while Section 292B addresses the validity of proceedings despite mistakes, defects, or omissions if they are in substance and effect in conformity with the Act.
The precedents examined include:
Court's Interpretation and Reasoning
The court examined whether the mistake of naming a non-existent entity could be rectified under Section 154 or saved under Section 292B. It noted that the Supreme Court in Maruti Suzuki had clarified that such mistakes are substantive and not merely procedural, thus not curable under Section 292B. The court distinguished the facts of the current case from those in Sky Light, where the error was deemed clerical and rectifiable.
Key Evidence and Findings
The court found that the respondent-assessee had duly informed the TPO of the amalgamation, yet the TPO proceeded with the order in the name of a non-existent entity. The draft assessment order also failed to recognize the merger, using the term "formerly known as" instead of acknowledging the new entity.
Application of Law to Facts
The court applied the legal principles from Maruti Suzuki and found that the error in naming a non-existent entity was substantive and not rectifiable under Section 154 or Section 292B. The court emphasized that the merger was a fundamental change, not a mere name change, and thus the assessment should have been in the name of the new entity.
Treatment of Competing Arguments
The appellant argued that the mistake was rectifiable under Section 154 and Section 292B, similar to Sky Light. However, the court rejected this argument, noting that the facts of the current case did not align with those in Sky Light, where there was substantial evidence that the notice was intended for the successor entity. The court found that the appellant failed to demonstrate any intent to assess the resultant entity, Vedanta.
Conclusions
The court concluded that the error in naming a non-existent entity was not a mere clerical error and could not be rectified under Section 154 or saved under Section 292B. The appeal was dismissed, and the question was answered in the negative against the Commissioner.
3. SIGNIFICANT HOLDINGS
Preserve Verbatim Quotes of Crucial Legal Reasoning
"In view of the aforesaid, the position in law appears to be well-settled that a notice or proceedings drawn against a dissolved company or one which no longer exists in law would invalidate proceedings beyond repair."
"Absent any intent to assess the resultant entity, the order could neither have been rectified nor would it be saved by Section 292B of the Act."
Core Principles Established
Final Determinations on Each Issue
The court determined that the error in naming a non-existent entity was substantive and not rectifiable. The appeal was dismissed, upholding the Tribunal's decision that the assessment order was invalid due to the naming error.
Rectification of mistake - order being framed in the name of a non-existent entity/entity merged - inadvertent mistake committed by the TPO as well as AO in not mentioning the name of the entity correctly - respondent-assessee, M/s Vedanta Limited [Vedanta] is the resultant entity which came into existence consequent to M/s Cairn India Limited [Cairn] amalgamating with it
HELD THAT:- We had found that the decision of Maruti Suzuki [2019 (7) TMI 1449 - SUPREME COURT] had while enunciating the legal position with respect to an order being framed in the name of a non-existent entity had unequivocally held as being a fatal flaw which could neither be corrected nor rectified. It had held in explicit terms that such an order cannot be salvaged by taking recourse to Section 292B of the Act. We had also noticed the peculiar facts which obtained in Sky Light [2018 (4) TMI 529 - SC ORDER] and which alone had led to the Supreme Court upholding the assessment made, albeit in the name of an entity which had ceased to exist.
In the facts of the present case, we find that there was a valid disclosure made by the respondent-assessee and the AO being duly apprised of the factum of merger. Despite the above, it chose to make the draft assessment order in the name of a party which no longer existed on that date. This was, therefore, not a case where the factum of merger had either been suppressed or where the respondent had held out that Cairn still existed and could be proceeded against.
It was the conduct of the assessee in Sky Light [2018 (2) TMI 1093 - DELHI HIGH COURT] which had convinced the Supreme Court to observe that the mistake would not render the order of assessment invalid and that it could be saved under Section 292B of the Act. The facts of the present case are clearly not akin to what prevailed in Sky Light.
Regard must also be had to the fact that Section 154 enables an authority under the Act to rectify and correct an accidental slip or omission. It pertains to a power to rectify a mistake apparent from the record. Section 292B seeks to save orders which may suffer from similar mistakes provided they be otherwise compliant with the letter and spirit of the Act. However, and as the Supreme Court explained in Maruti Suzuki, the making of an order of assessment which is inherently flawed or suffering from a patent illegality, and which would include a case where the order is drawn in the name of a non-existent entity, cannot be saved or rescued.
The power conferred by Section 154 would stand restricted to an inadvertent or unintentional error. The appellant has woefully failed to establish that the order of assessment as originally framed was intended to be in respect of the affairs of Vedanta, the respondent herein, or made cognizant of the factum of merger.
We also bear in mind the indubitable fact that the AO proceeded to draw the order of assessment using the expression “formerly known as”. The appellant thus failed to acknowledge the merger even at this stage.
The usage of the expression “formerly known as” is indicative of them presuming that the amalgamation was akin to a change to the façade of a legal entity as opposed to a fundamental alteration and the merger giving rise to a new being. It was these facts which had weighed upon us when we had amended the question of law on which the appeal was admitted.
We thus find no merit in the argument that the challenge would be liable to be answered in light of Sky Light. Bearing in mind the fundamental error which beset the order of the TPO, the said decision would clearly not salvage the inherent and patent error which beset the order passed by the TPO. Absent any intent to assess the resultant entity, the order could neither have been rectified nor would it be saved by Section 292 B of the Act. Decided against revenue.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment include:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Justification of Reassessment under Section 148
Issue 2: Existence of Permanent Establishment (PE)
3. SIGNIFICANT HOLDINGS
Reopening of assessment - Income deemed to accrue or arise in India - Existence of a Permanent Establishment (PE) in India - whether the findings as recorded in the course of the 2007 or 2019 survey could have been blindly applied and adopted, extrapolated and read as being an accurate recordal of facts as they obtained in the AYs in question? - HELD THAT:- The position of a PE being a facts-specific issue and thus liable to be examined against the backdrop of what obtained in a particular tax period is one which is underscored even by the OECD Commentary on Article 5.
It had been the consistent stand of the present writ petitioners that no PE had existed in the years in question. It is in the aforesaid light that we would have to evaluate and examine whether the findings as recorded in the course of the 2007 or 2019 survey could have been blindly applied and adopted, extrapolated and read as being an accurate recordal of facts as they obtained in the AYs in question.
As conceded before us by the respondents that the reasons as recorded in support of the formation of opinion that income had escaped assessment had not alluded to any facts specific to AYs’ 2013-14 to 2017-18. Despite repeated queries respondents failed to draw our attention to any facet or fact pertaining to the AYs’ in question and which could have been read as demonstrative of an application of mind to the facts that prevailed or obtained in the years in question and thus justified a reassessment action being validly initiated. In fact, as we go through those reasons, it becomes more than apparent that the AO has merely proceeded to adopt and reiterate what was found in the course of the survey undertaken in 2007 and 2019 read alongside the judgment of this Court rendered in GE Energy [2019 (1) TMI 542 - DELHI HIGH COURT]
Indisputably, there is no principle akin to that of res judicata which can be recognized to be applicable to taxing disputes. Though this principle is well settled, we deem it appropriate to refer to the following enunciation of the well-settled legal position in National Petroleum Construction Co. [2022 (8) TMI 41 - SUPREME COURT]
The interplay between the principle of consistency and the facts of each year of assessment was lucidly explained by our Court in Galileo Nederland BV [2014 (8) TMI 902 - DELHI HIGH COURT]
It is in the aforesaid backdrop that the observations of the Supreme Court in CIT v Gupta Abhushan (P) Ltd [2008 (10) TMI 31 - DELHI HIGH COURT] also assume significance and where it was unambiguously held that a survey report pertaining to a particular tax period cannot ipso facto be read or countenanced as being relevant and binding for independent assessment years as is evidenced from paragraph 6 of the report.
The reassessment action is thus liable to be set aside. Decided in favour of assessee.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions addressed in this judgment are:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Rejection of Registration under Section 12A
Issue 2: Rejection of Approval under Section 80G
Issue 3: Alleged Violation of Natural Justice
Issue 4: Delay in Filing Appeals
3. SIGNIFICANT HOLDINGS
Rejection of registration u/s 12A and u/s 80G - certain corroborative evidences as called for were not submitted by the assessee - HELD THAT:- As assessee had merely submitted a copy of income tax returns for the three years but there was no mention of satisfaction of conditions u/s. 12A(ac)(vi)-Item B of the Act in the said letter. CIT(E) had raised this specific query after furnishing of these documents by the assessee, vide show cause notice dated 08.07.2024, to which no compliance was made by the assessee. Neither any submission was made by the assessee regarding satisfaction of these conditions.
CIT(E) also did not take any pain to verify the income tax returns for A.Ys. 2021-22, 2022-23 & 2023-24, already brought on record earlier by the assessee, to find out whether the assessee had claimed any deduction u/s. 10(23) or Section 11 or Section 12 of the Act in these years.
Thus, we deem it proper to set aside the matter to the file of the Ld. CIT(E) with a direction to allow another opportunity of being heard to the assessee to explain the fulfillment of conditions as stipulated u/s. 12A(1)(ac)(vi)-Item B of the Act. The assessee is also directed to make compliance before the Ld. CIT(E) and to submit the documents and details as required by him. Appeals filed by the assessee are allowed for statistical purpose.
1. ISSUES PRESENTED and CONSIDERED
The legal judgment from the Income Tax Appellate Tribunal (ITAT) Agra Bench primarily revolves around the following core legal issues:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Condonation of Delay in Filing the Appeal
Issue 2: Taxation Rate Applicable to the Trust
3. SIGNIFICANT HOLDINGS
Delay in filing the appeal before CIT(A) - appeal filed belatedly by the assessee by 2176 days beyond the time prescribed u/s. 249(2) - assessee has made legal challenge on merits before ld. CIT(A) to applicability of MMR to the assessed income against application of normal rate of taxation - main contention of the assessee that the assessee was not aware of the processing of the return by CPC u/s 143(1) and it is only when the notice of demand for recovery issued by department was received by the assessee, the assessee came to know of the outstanding demand against the assessee - Revenue has claimed that the said processing of return u/s. 143(1) and intimation was uploaded on IT e-portal, the same shall be deemed to be the service of intimation u/s. 143(1)
HELD THAT:- CIT(Appeals) has not made any enquiry as to the manner in which the service of intimation u/s. 143(1) was effected by the Revenue on the assessee. He has simply dismissed the appeal of the assessee on the ground that there is a huge delay of 2176 days in filing of the appeal before ld. CIT(A) beyond the time prescribed u/s. 249(2) of the Act, and the assessee could not submit sufficient/ justifiable cause for delay in filing this appeal belatedly with ld. CIT(A).
This requires investigation of facts which can be ascertained only after enquiry.
We direct the ld. CIT(Appeals) to make enquiry as to the manner in which the service was effected by the Revenue of the Intimation u/s. 143(1) of the Act on the assessee, and to arrive at the finding/conclusion whether service of intimation u/s 143(1) effected by CPC was in compliance to section 282 of the 1961 Act read with Rule 127 of the 1962 Rules.
As decided in Munjal BCU Centre of Innovation and Enterpreneurship, Ludhiana[2024 (3) TMI 479 - PUNJAB & HARYANA HIGH COURT] as held that merely uploading of the communication(notice) in the Income Tax department e-portal is not sufficient mode of communication keeping in view principles of natural justice which are inherent in income tax proceedings as also keeping in view provisions of Section 282 of the 1961 Act and Rule 127 of the 1962 Rules. When technicalities are pitted against advancement of substantial justice, then the court will lean towards advancement of justice.
Thus, restoring back the matter back to the file of ld. CIT(Appeals) to firstly decide afresh on the application for condonation of delay supported by affidavit filed by assessee before ld. CIT(A), keeping in view the provisions of section 282 of 1961 Act read with Rule 127 of the 1962 Rules. Appeal of the assessee is allowed for statistical purposes.
1. ISSUES PRESENTED and CONSIDERED
The judgment primarily revolves around the following legal issues:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Timeliness of the Penalty Order
Issue 2: Deletion of Additions by CIT(A)
Issue 3: Justification of Penalty for TDS Non-Compliance
3. SIGNIFICANT HOLDINGS
Penalty u/s 271C as barred by limitation - non compliance of provisions of section 192(1) - HELD THAT:- Given the scheme of Section 275(1)(c) it would be the date on which the AO wrote a letter to the ACIT recommending the issuance of the SCN. While it is true that the ACIT had the discretion whether or not to issue the SCN, if he did decide to issue a SCN, the limitation would begin to run from the date of letter of the AO recommending 'initiation' of the penalty proceedings.”
So, as per section 275(1)(c) of the Act the last date by which penalty order could have been passed was 30.06.2014. The penalty order was passed on 14.07.2016. Therefore, the penalty order dated 14.07.2016 was time barred.
Assessment order dated 20.03.2013 mentions “Penalty proceedings u/s 271C(1)(a) of the Act is initiated separately for non-compliance to the provision of section 192(1) of the Act”. Penalty order dated 14.07.2016 refers to section 194C/194J/and Annexure G of Tax Audit Report. The reference is completely erroneous. No contractual/professional payments are mentioned in P & L Account. The incorrect facts and figures show non-application of mind. Appeal filed by the Revenue is dismissed.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment are:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Non-Mentioning of Specific Instances of Misreporting
Issue 2: Misreporting or Under-Reporting of Income
3. SIGNIFICANT HOLDINGS
In summary, the court allowed the Assessee's appeals, setting aside the penalty orders on the grounds of procedural deficiencies and lack of evidence of misreporting, reinforcing the importance of specificity in penalty notices under the Income Tax Act.
Penalty u/s 270A(9) - non specification of clear charge/instance - allegation of non-mentioning of the specific instance of misreported income in the show cause notice or in the assessment order - HELD THAT:- The Jurisdictional High Court in the case of Schneider Electric South Asia (HQ) PTE. Ltd. Vs. ACIT, International Taxation, Circle-3 (1)(2), New Delhi and ors . [2022 (3) TMI 1295 - DELHI HIGH COURT] held that, there is not even a whisper as to which limb of Section 270A of the Act is attracted and how the ingredient of subsection (9) of Section 270A is satisfied. In the absence of such particulars, the mere reference to the word "misreporting" by the Respondents in the assessment order to deny immunity from imposition of penalty and prosecution makes the impugned order manifestly arbitrary.
Thus we delete the levy of penalty u/s 270A(9)(a) - Decided in favour of assessee.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions addressed in this judgment include:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Validity of Assessment Orders under Section 153A for AY 2008-09
Issue 2: Validity of Additions under Section 153A for AY 2009-10
3. SIGNIFICANT HOLDINGS
The judgment underscores the importance of adhering to statutory limits and the requirement of incriminating material for assessments under Section 153A, providing clarity on the application of these principles in tax proceedings.
Validity of Assessment u/s 153A beyond period of limitation - assessment initiated beyond the period of 10 years from the end of the relevant AY in which search had been carried out - HELD THAT:- This case is squarely covered by the decision of Ojjus Medicare [2024 (4) TMI 268 - DELHI HIGH COURT] We therefore, following the reasoning given, hold that the AY 2008-09 is beyond the ten-year outer ceiling limit prescribed by the section 153A of the Act. Hence, the AO has erred in assuming the jurisdiction. Consequentially, the assessment order passed u/s 153A of the Act is held invalid in the eyes of law. Assessee appeal allowed.
Addition u/s 153A - Addition of share capital and share premium - incriminating materials were seized during the said search operations or not? - as per revenue appellant/assessee was a paper company and it never existed at its registered place - HELD THAT:- We, in view of the decision of Goldstone Cements Ltd. [2023 (10) TMI 278 - GAUHATI HIGH COURT] and reasoning therein emphasized by the Ld. CIT-DR, are of the considered view that there was incriminating material and information on the record before the AO. Accordingly, we decline to interfere in the finding of the Ld. CIT(A). Hence, the assessment order completed in pursuance of section 153A of the Act, notice is held valid in the eyes of law. Nothing has been brought on the record by the Ld. Counsel to contradict the finding of the Ld. CIT(A). Decided against assessee.
1. ISSUES PRESENTED and CONSIDERED
The legal judgment presented revolves around several core issues:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Validity of CIT(A)'s Order
Issue 2: Proceedings Under Section 153C
Issue 3: Basis of Additions
Issue 4: Rejection of Books of Accounts
Issue 5: Opportunity to Cross-Examine
Issue 6: Double Taxation
3. SIGNIFICANT HOLDINGS
Additions of gross profit over and above the gross profit declared by the assessee - rejection of the assessee's books of accounts by the AO was justified without pointing out specific defects as per Section 145(3) - HELD THAT:- We note that exactly similar issue has been dealt in the matter of Kamal Sharma [2024 (10) TMI 1628 - ITAT DELHI] wherein held all relevant details in the form of books of accounts, copy invoices, GR, bilties etc. were filed before the Assessing Officer. AO without detecting any defect in the books of accounts, rejected the same u/s 145(3) of the Act and made addition and fail to understand the reasoning of AO as at one hand he stated sale/purchase claimed to have been made by Company as bogus then he proceeds to make addition on the basis of GP disclosed by the assessee without any justification and explanation. Such order, on merit as well, fails to meet the test of law and deserves to be quashed. Assessee’s appeals are allowed
1. ISSUES PRESENTED and CONSIDERED
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Nature and Allowability of Non-Compete Fees as Deductible Expenditure
Relevant Legal Framework and Precedents: The classification of non-compete fees as capital or revenue expenditure depends on the nature of the payment and its relation to the profit-earning apparatus of the assessee. The Supreme Court ruling in Shiv Raj Gupta establishes that non-compete fees paid to a person for their knowledge, skill, expertise, and specialization in the business of the assessee can be revenue expenditure. The Gujarat High Court decision in Smartchem Technologies Limited also supports expenditure incurred primarily and essentially related to the operation or work of the firm as revenue expenditure. The decision in PCIT vs. Ferromatic Milacron India was distinguished based on facts.
Court's Interpretation and Reasoning: The Tribunal noted that the non-compete agreement was entered with the retiring partner to restrain him from initiating competing real estate projects within a 2 km radius for two years. Despite the Assessing Officer's view that the restriction zone was inadequate and the payment was a device to divert income, the Tribunal emphasized that the payment related to the partner's expertise and reputation, which could impact the assessee's business profits. The Tribunal observed that the payment was made over two years and that the partner had paid tax on the amount, indicating genuineness. The Tribunal held that the compensation for refraining from competition was revenue expenditure as it related to the profit-earning apparatus of the LLP.
Key Evidence and Findings: The assessee firm paid Rs. 76,00,000/- in total as non-compete fees, split equally over AY 2017-18 and AY 2018-19. The firm was incorporated in 2014 but had no income in earlier years. The payment was based on partners' judgment of the retiring partner's business impact. The Assessing Officer found no valuation or supporting documentation but did not dispute the tax paid by the retiring partner. The Tribunal relied on the earlier decision in the assessee's own case for AY 2018-19, where the non-compete fee was held to be revenue expenditure.
Application of Law to Facts: Following the precedent and the facts that the non-compete fee was paid for restraining competition and was related to the business operations, the Tribunal held that it constituted revenue expenditure deductible under the Act. The Assessing Officer's and CIT(A)'s disallowance was set aside.
Treatment of Competing Arguments: The Assessing Officer argued the restriction was insignificant and the payment was a device to divert income; the assessee argued the payment was a genuine business decision based on experience and expertise. The Tribunal found the assessee's arguments persuasive, especially in light of the earlier Tribunal ruling for AY 2018-19.
Conclusion: The non-compete fees paid to the retiring partner are allowable as revenue expenditure. The disallowance by the Assessing Officer and CIT(A) is overturned and the ground is allowed.
Issue 2: Addition of Unexplained Credit under Section 68 on Loans from Seven Parties
Relevant Legal Framework and Precedents: Section 68 requires the assessee to prove (i) identity of the creditor, (ii) creditworthiness of the creditor, and (iii) genuineness of the transaction. Judicial precedents clarify that while the assessee must establish these elements, the burden shifts to the Assessing Officer if the initial proof is satisfactory. The Supreme Court in Principal Commissioner of Income-tax (Central)-1 vs. NRA Iron & Steel (P.) Ltd. emphasized that mere proof of identity is insufficient without establishing creditworthiness and genuineness. The Gujarat High Court rulings in Murlidhar Lahorimal v. CIT and CIT v. Pragati Co. Op. Bank Ltd. were cited by the assessee regarding the burden of proof and the limits of AO's inquiry.
Court's Interpretation and Reasoning: The Assessing Officer issued notices and summons to creditors but none appeared. The AO examined income tax returns and bank statements of the lenders and found their income and bank balances insufficient to justify the loans. A pattern was observed where large credit entries appeared in the lenders' bank accounts, followed by immediate transfer to the assessee and return to nominal balances, indicating possible circular transactions. The CIT(A) upheld these findings after detailed consideration of each creditor's financial position. The Tribunal found no infirmity in these findings and held that the assessee failed to establish creditworthiness and genuineness.
Key Evidence and Findings:
Application of Law to Facts: The Tribunal applied the principle that creditworthiness must be established beyond mere identity and transaction confirmation. The suspicious pattern of bank transactions and lack of credible evidence from creditors justified the addition under section 68. The assessee's reliance on judicial precedents was noted but distinguished on facts, emphasizing that each case depends on its own facts.
Treatment of Competing Arguments: The assessee argued that creditworthiness can be shown by access to family wealth or other sources, and that the AO cannot demand source of funds from lenders. It was also argued that the LLP had no prior income before the project and that the AO accepted the project revenue. The Tribunal rejected these contentions, finding the evidence insufficient and noting the pattern of transactions suggested the loans were not genuine.
Conclusion: The addition of Rs. 1,77,24,909/- under section 68 on account of unexplained loans is upheld. The assessee failed to discharge the onus of proving creditworthiness and genuineness of the loans. Ground two is dismissed.
Issue 3: Condonation of Delay in Filing Appeal
The appeal was filed two days beyond the prescribed time limit. The Tribunal condoned the delay considering the smallness of the delay and absence of prejudice to the other party.
Final Outcome: The appeal is allowed on the issue of non-compete fees being revenue expenditure. The appeal is dismissed on the issue of addition under section 68. Overall, the appeal is partly allowed.
Nature of expenditure - non-compete fees - revenue or capital expenditure - disallowance of non-business expenditure - HELD THAT:- We observe that since the issue has been decided in favour of the assessee by Ahmedabad Tribunal in assessee’s own case for the succeeding assessment year i.e. assessment year 2018-19 [2024 (7) TMI 961 - ITAT AHMEDABAD] in which the balance amount of non-compete fee was paid to the retiring partner (notably the assessee firm had paid non-compete fee to the retiring partner over two assessment years i.e. 2017-18 and 2018-19) and for assessment year 2018-19, the Ahmedabad Tribunal in assessee’s own case has held that the aforesaid payment is allowable to the assessee firm, as revenue expenditure. Decided in favour of assessee.
Addition towards unexplained credit u/s 68 - HELD THAT:- AO and Ld. CIT(Appeals) did not issue a blanket judgment but instead provided detailed findings on the financial status of each of the creditors. Additionally, the common trend amongst the lenders was that the bank statements of all creditors displayed a similar pattern: the credit balances were modest, a credit entry appeared, followed by the withdrawal of a cheque for nearly the same amount made out to the assessee, after which the bank balances reverted to their previous minimal levels.
This recurring sequence in all creditors cases raises serious doubts about the authenticity of the transactions, as such patterns are unlikely to be coincidental. Therefore,no infirmity in the order of Ld. CIT(Appeals) in holding that the assessee’s claim that it has satisfied the requirements of Section 68 remains unsubstantiated, particularly concerning the creditworthiness and genuineness of the loan transactions.
The argument of assessee that it was established only in the earlier previous year and hence, no income can be attributed in its hand is also not acceptable, for the simple reason that the assessee firm was incorporated on 19-11-2014 and during the impugned year under consideration, the assessee firm was fully operational and had also claimed various expenses, with respect of its operations. Accordingly, in light of the above observations, we find no infirmity in the order of CIT(Appeals) so as to call for any interference. Decided against assessee.
1. ISSUES PRESENTED and CONSIDERED
The judgment from the Appellate Tribunal ITAT Pune involves several core legal issues:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Disallowance of Deduction under Section 36(1)(viia)
Issue 2: Disallowance of Prior Period Expenses
Issue 3: Disallowance of Donations
Issue 4: Applicability of Section 115JB
Issue 5: Loss on Valuation of HTM Securities
Issue 6: Disallowance of Write-Back Provisions
3. SIGNIFICANT HOLDINGS
Verbatim Quotes of Crucial Legal Reasoning:
The judgment reflects a detailed examination of the appellant's claims and the application of relevant legal principles, with several issues being remanded for further verification by the Assessing Officer.
Disallowance of deduction claimed u/s 36(1)(viia) - HELD THAT:- As in assessee’s own case for assessment years 2010-11 and 2015-16 and the issue has been restored to the file of the AO with certain directions, therefore, in absence of any contrary material brought to our notice, we deem it proper to restore the issue to the file of the AO with similar directions to consider the said claim of the assessee in the light of the judgement of Catholic Syrian Bank Ltd [2012 (2) TMI 262 - SUPREME COURT]
Disallowance of prior period expenses - HELD THAT: Respectfully following the decision of the Tribunal in assessee’s own case [2022 (12) TMI 242 - ITAT PUNE] assessment year 2015-16 and in absence of any contrary material brought to our notice, this issue is restored to the file of the AO with similar directions wherein held no force in the Revenue’s supportive arguments as there is no material in principle which has been rejected by the Assessing Officer while dealing with the assessee’s crystallization plea. That being the case, we allow the assessee’s impugned claim in principle and direct the Assessing Officer to examine its supportive evidence of crystallization of the corresponding expenditure items in the relevant previous year by quoting CIT Vs. Indian Petrochemicals Corporation Ltd. [2016 (9) TMI 110 - GUJARAT HIGH COURT] and Adani Enterprises Ltd. [2016 (7) TMI 1250 - GUJARAT HIGH COURT] as holds that such prior period expenditure items ought not to be disallowed where the taxpayer concerned is assessed at the same rate all along.
Disallowance of donations - HELD THAT:- As admitted fact that due to non submission of the details of AO made disallowance which has been confirmed by the Ld. CIT(A)/ NFAC and as submitted if assessee given an opportunity, the assessee is in a position to substantiate its case by filing the requisite details. Considering the totality of the facts of the case and in the interest of justice, we deem it proper to restore this issue to the file of the AO with a direction to give one more opportunity to the assessee to substantiate its case by filing the requisite details.
MAT/section 115JB applicability to the assessee bank - HELD THAT:- We find the Special Bench of the Tribunal in the case of Union Bank of India [2024 (9) TMI 789 - ITAT MUMBAI] allow the ground raised by the assessee on this issue by holding that provisions of section 115JB are not applicable to the assessee bank.
Allowance of loss of valuation to Held to Maturity (HTM) securities, when HTM securities are capital in nature - CIT(A) allowed claim - HELD THAT:- Respectfully following the decision of the Tribunal and the Hon’ble High Court in assessee’s own case, we do not find any infirmity in the order of the Ld. CIT(A) / NFAC in allowing the loss of valuation to Held to Maturity (HTM) Securities.
Disallowance of write back of provision for restructured advance - CIT(A) / NFAC restoring the matter to the file of the AO for verification on the issue of - HELD THAT:- Although the CIT(A)/ NFAC has no power to set aside the matter to the file of the AO, the Tribunal has the power to restore the issue to the file of the AO. We, therefore, restore the issue to the file of the Assessing Officer for due verification and decide the issue afresh in accordance with law. Needless to say, the AO shall afford reasonable opportunity of being heard to the assessee and decide the issue as per fact and law. Ground of appeal No.2 raised by the Revenue is accordingly allowed for statistical purposes.
Disallowance of write back provision for standard assets - CIT(A) / NFAC in restoring the issue of disallowance - HELD THAT:- Although the Ld. CIT(A)/ NFAC has no power to set aside the matter to the file of the AO Tribunal has the power to restore the issue to the file of the AO. We, therefore, restore the issue to the file of the AO for due verification and decide the issue afresh in accordance with law.
ISSUES:
RULINGS / HOLDINGS:
RATIONALE:
Disallowance of claim u/s 35(2AB) of the R & D expenditure - appellant is not eligible to claim deduction for the amount which is in excess of the amount approved by DSIR - HELD THAT:- Respectfully following the decision of the Co-ordinate Bench of the Tribunal in assessee’s own case [2021 (9) TMI 139 - ITAT PUNE] we hold that the entire amount of R&D expenditure incurred in India is eligible for weighted deduction u/s 35(2AB); revenue R&D expenditure incurred outside India as claimed by the assessee got allowed in the assessment itself; total of capital R&D expenditure incurred outside India will be eligible for deduction u/s 35(1)(iv) of the Act. Appeal filed by the assessee is allowed.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment are:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Classification of Imported Goods and Applicable IGST Rate
Issue 2: Suppression or Misrepresentation of Facts
Issue 3: Eligibility for EPCG Scheme Benefits
Issue 4: Imposition of Penalties and Confiscation
3. SIGNIFICANT HOLDINGS
Classification of imported goods - Single Jersery Circular Knitting Machine, Model MV 4-3.2(ii) - act of declaring a lower IGST rate constituted suppression or misrepresentation of facts or not - extended period of limitation - HELD THAT:- The assesseerespondent, in the present case, had filed the cross objection no. 50303 of 2023 mentioning that Gujarat High Court decision in the case of M/s Prince Spintex [2020 (2) TMI 1168 - GUJARAT HIGH COURT] is squarely applicable to the facts of the present case more so for the reason that the said order has not yet been set aside by Hon’ble Supreme Court. The reliance was also placed on Notification no. 79 of 2017 dated 13.10.2017 which extends exemption from the whole of IGST on the import of capital goods. The Hon’ble Gujarat High Court has allowed the refund of IGST to the petitioner even if paid on the capital goods imported under EPCG scheme during the period 1.07.2017to 12.10.2017. Hence the IGST paid @5% is rather refundable to the assessee-respondent and there is no short payment of duty. The demand was wrongly confirmed by original adjudicating authority. The respondent mentioned in their cross objection, that they have strong case on merits in their favour.
Serial 230, the rate of IGST thereunder, was admittedly not applicable to the goods imported by the respondent importer.
Extended period of limitation - penalty - HELD THAT:- There was no malafide on part of the respondent. Hence the extended period of limitation was wrongly invoked while issuing the impunged the show cause notice and the penalties were also wrongly imposed.
Conclusion - The findings arrived at by the original adjudicating authority not differed while confirming the demand of amount of short paid duty and the order of imposing penalty under section 114 A of Custom Act 1962. The imported goods are rightly held liable for confiscation under section 111 (m) of Custom Act 1962. The goods, however were not available for confiscation. Hence original order of not imposing any redemption fine on the respondent-importer is also justified.
Appeal of Revenue allowed.
Issues: (i) Whether the company contravened Section 8(1) of the Foreign Exchange Regulation Act, 1973 by acquiring, transferring, and borrowing foreign exchange in connection with the import of the aircraft. (ii) Whether the penalty imposed on the second appellant was sustainable in the absence of proof that he was in charge of and responsible for the conduct of the company's business.
Issue (i): Whether the company contravened Section 8(1) of the Foreign Exchange Regulation Act, 1973 by acquiring, transferring, and borrowing foreign exchange in connection with the import of the aircraft.
Analysis: The record showed correspondence, invoices, remittance instructions, bank drafts, and ownership-related documents indicating that the aircraft transaction was arranged through the company and that foreign exchange was mobilised for its purchase and for payment of customs duty. The request for cross-examination of the relied-upon witness was entertained, but the witness did not appear; the documentary material remained available to the appellants. On the evidence, the conclusion reached was that the company had been involved in acquisition and transfer of foreign exchange and had also borrowed foreign exchange without permission.
Conclusion: The finding of contravention under Section 8(1) was upheld, but the penalty on the company was reduced to 25% of the amount imposed.
Issue (ii): Whether the penalty imposed on the second appellant was sustainable in the absence of proof that he was in charge of and responsible for the conduct of the company's business.
Analysis: No material was produced to show that the second appellant was in charge of the company or responsible for the transaction in question. Mere fastening of liability without proof of the statutory prerequisites for vicarious responsibility was insufficient.
Conclusion: The penalty imposed on the second appellant was set aside.
Final Conclusion: The company's liability for contravention survived, though the monetary penalty was substantially reduced, while the individual appellant was absolved for want of proof of statutory responsibility.
Ratio Decidendi: In adjudication under foreign exchange law, documentary evidence may suffice to establish contravention, but vicarious liability cannot be imposed unless the person concerned is shown to have been in charge of and responsible for the company's business at the relevant time.
Offence under FERA - appellant company got involved in acquisition of foreign exchange and its borrowing without permission of Authorised Dealer or of the Reserve Bank of India - penalty imposed on contravention of section 8(1) - element of acquisition and transfer of the foreign exchange of US$ 28,26,433.26 coupled with the allegations of borrowing of foreign exchange amounting to US$ 3,33,025 and £7,068.38
HELD THAT:- The draft of US$ 333025 and £ 3270.20 and £ 3798.18 were utilized for payment of customs duty. However, the earlier draft was received from M/s Tata Industries USA and other two drafts from M/s Tata Ltd. London and Sh. Raj Kadan of M/s Tata Inc. who played vital role in arranging the remittances. It is also a case that the appellant company acquired and transferred foreign exchange of US$ 28,26,433.26. The authority thus passed the impugned order holding the contravention.
We do not find any error in findings and otherwise the judgment cited by the appellant would not support a case of civil nature but can be handful in prosecution or criminal case. In substance, we find contravention in Section 8(1) of the Act of 1973 for arranging and transferring foreign exchange.
Penalty imposed on the appellant company u/s 8(1) of the Act of 1973 for acquiring and transferring of foreign exchange with separate penalty for violation of Section 8(1) of the Act of 1973 towards the borrowing of foreign exchange of US Dollars and Sterling Pounds - The appellant company has already deposited 25% of the penalty amount to satisfy the condition of pre-deposit. It was in pursuance to the order of the Calcutta High Court. We find this case to be old by more than 20 years and looking at all the facts, we find a case to make penalty proportionate. It is looking to appeal, evidence available on record and the peculiarity of the facts and thereby we cause interference in the penalty and reduce it to 25% of the amount of penalty imposed by the authority. The amount aforesaid has already been satisfied by the appellant company. Hence the present appeal is partly allowed and disposed of with the aforesaid.
Separate Penalty imposed on the appellant for alleged contravention of Section 8(1) of the Act of 1973 for different amount - It is for acquisition and also for borrowing. The respondents have, however, failed to show any role of the appellant, Mr. Ishaat Hussain to implicate him as one of the violators of the provisions. He has not been shown to be incharge of the Company or was monitoring the affairs of the company for purchase of the aircraft. The respondents have implicated him for the sake of it without clarifying his role. In the light of aforesaid, we find a case in his favour to cause interference in the impugned order qua Mr. Ishaat Hussain and accordingly the impugned order is set aside qua the appellant. The appeal is disposed of with the aforesaid.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment are:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Validity of Orders-in-Original
Issue 2: Constitutional Validity of Imposing Service Tax on Deemed Sale Component
Issue 3: Liability to Pay Service Tax on Service Component Only
Issue 4: Maintainability of Writ Petitions
3. SIGNIFICANT HOLDINGS
Maintainability of petition - availability of alternative remedy - Levy service tax on the entire turnover of the value of the service provided by the petitioner - Business of retreading tyres - deemed sale component, already subjected to VAT - HELD THAT:- In the present case, the writ petitions are listed for final hearing and there is abundant material on record to demonstrate that the issue under consideration is squarely covered by the judgment of the Hon'ble Supreme Court in the case of Safety Retreading Company (P) Ltd3. Hence, the contention of alternative remedy raised by the Revenue is untenable and accordingly rejected.
The petitioner has furnished copies of tax invoices maintained by it, wherein the petitioner has indicated the value of the material and labour charges separately and as also indicated that in respect of the value of the materials the tax has been paid to State Government and with respect to the value of the labour charges the service tax has been paid to the Union Government. The said invoices have also been submitted to the tax authorities in the State Government and the State has passed re-assessment orders under KVAT Act.
The Hon'ble Supreme Court in the case of Safety Retreading Company (P) Ltd [2017 (1) TMI 1110 - SUPREME COURT] has clearly held that no dispute has been raised in the show cause notice (as in the present case also) with regard to the correctness of the figures furnished by the petitioner and at no point of time the respondents raised a plea as to the correctness of the invoices. The Division Bench of the Bombay High Court has also noticed a similar factual circumstance and relying upon the judgment of the Hon'ble Supreme Court in the case of Safety Retreading Company (P) Ltd, held that the Revenue did not dispute the invoices furnished. In the present case also, the respondents have not denied the correctness of the said bifurcation of the amounts made by the petitioner/assessee. Hence, the same is required to be accepted in the present case also.
In the present case, the petitioner having clearly bifurcated the amounts in invoices with respect to the amounts incurred towards material charges as also the amounts towards service charges and tax having been paid in respect of both the said amounts by classifying the same accordingly, the question of the respondent authorities seeking to levy service tax on the entire value mentioned in the invoices does not arise.
Conclusion - The petitioner/assessee is liable to pay the service tax only with respect to the service component under the State Act. The constitutional separation of tax powers upheld.
The writ petitions are partly allowed.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment are:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Classification of Services
Issue 2: Time-Barred Demand
Issue 3: Penalty under Section 78
3. SIGNIFICANT HOLDINGS
The appeal was allowed on merits and partly on account of limitation, granting the appellant consequential relief as per law.
Levy of service tax - Cleaning Service and Goods Transport by Road Service - evacuation and transportation of fly ash - time limitation - HELD THAT:- Timilar issue was before this Bench in the case of M/S MARSHALL CORPORATION LTD., VERSUS COMMISSIONER OF CGST & CENTRAL EXCISE, KOLKATA. [2023 (7) TMI 766 - CESTAT KOLKATA]. In this case, the entire consideration was sought to be taxed under the category of ‘Cleaning services’, without any bifurcation between Cleaning service and GTA services.
There are considerable force in the arguments of the appellant that if there is any movement of goods resulting in GTA Service, the Service Tax is required to be paid by the recipient of the service. It is not in dispute that the clients the corporate public limited companies, who are one of the seven categories of persons responsible to pay the Service Tax on Reverse Charge basis. On this count itself the confirmed demand under this heading is required to be set aside.
Time limitation - HELD THAT:- No case has been made out by the Revenue towards ‘suppression with an intent to evade’ Service Tax payment. Therefore, the confirmed demand for the extended period is not legally sustainable and the same is set aside on account of limitation also.
Conclusion - The activities undertaken by the Appellant are not chargeable to service tax under the category of 'Cleaning Service'. The demands for service tax under 'Cleaning Service' and 'GTA Service' were set aside. The demand for the extended period was deemed time-barred, and the penalty under Section 78 was not justified.
The appeal is allowed on merits fully and partly on account of limitation.
TaxTMI 