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Newsletter: Where Service Meets Reader Approval. TMI Tax Updates - e-Newsletter January 25, 2016 Case Laws in this Newsletter: Income Tax Customs Service Tax Central Excise CST, VAT & Sales Tax Wealth tax Indian Laws Articles 1. BASIC CONCEPTS OF GST (PART-4) By: Dr. Sanjiv Agarwal Summary: The article compares the existing indirect tax laws in India with the proposed Goods and Services Tax (GST) regime. It highlights key differences such as the structural shift from separate VAT systems at the central and state levels to a dual GST system comprising Central GST (CGST) and State GST (SGST). The GST aims to provide a wider tax base, seamless tax credits across Excise Duty, Service Tax, and VAT, and a consumption-based tax approach. It proposes changes in taxation on manufacturing, inter-state transactions, and import duties, while maintaining certain exemptions and thresholds. The GST is expected to simplify tax administration and reduce litigation. Highlights / Catch Notes Income Tax Company's Settlement to QSF Exempt from TDS u/s 195, Rules Authority for Advance Rulings (AAR. Case-Laws - AAR : Taxability of Settlement amount - TDS u/s 195 - The settlement amount payable/paid by Satyam under the stipulation to the QSF pursuant to the judgment and final approval of the US Court cannot be regarded as sum chargeable under the provisions of the Act - AAR Visit to Get Source Court Rules TDS Not Applicable on Payments to VARs for Software in Healthcare, Hospitality Sector; No Copyright Transfer Involved. Case-Laws - HC : TDS on payment for Value Added Reseller (VAR) of software related to healthcare and hospitality. - what was transferred was not copyright or the right to use a copyright but a limited right to use the copyrighted material and that did not give rise to any royalty income - HC Visit to Get Source Court Rules Section 194J Inapplicable for Transmission Charges; No Technical Services or Tax Deduction Required. Case-Laws - HC : TDS u/s 194J - payment of transmission charges - There was neither transfer of any technology nor any service attributable to a technical service offered by the KPTCL and accepted by the assessee - Therefore, application of Section 194J to the facts of this case by the Revenue is misconceived - HC Visit to Get Source BIFR Order Overrides Income Tax Act: Set-Off of Losses Beyond 8-Year Limit Against Capital Gains Allowed. Case-Laws - AT : Set off of accumulated losses - Since the order of BIFR is inconsistent with the provisions of IT Act as far as setting off of accumulated losses beyond eight years against capital gin are concerned. But still BIFR order will prevail over the inconsistent provisions of IT Act - AT Visit to Get Source Unexplained investment u/s 69: Tax difference in loan balance in year of origin, not Assessment Year 2009-10. Case-Laws - AT : Unexplained investment u/s. 69 - Difference in opening balance of loan figure is to be brought to tax, it cannot be added as income in the Asst Year 2009-10 and it should be considered only in the year in which the difference, if any, arose. - AT Visit to Get Source Stock Option Benefits Taxable as Salary, Classified as Revenue; Treated as Business Expenditure for Tax Purposes. Case-Laws - AT : Employees’ stock option scheme benefit taxability - The payment having been established as salary/employee cost, the same is revenue in nature. This expenditure claimed by the assessee is to be treated as a business expenditure of the assessee - AT Visit to Get Source CIT(A) breached Section 251(2) of Income Tax Act by enhancing income without hearing assessee; AO to delete addition. Case-Laws - AT : CIT(A) while altering the head of income and also in enhancing the addition has violated the provisions of sec. 251(2) of the Act in not providing opportunity to the assessee - AO directed to delete the addition - AT Visit to Get Source Taxpayer Penalized u/s 271(1)(c) for Concealing Income and Unrecorded Financial Activities After Search. Case-Laws - AT : Levy of penalty u/s 271(1)(c) on unrecorded receipts, expenditure and investments declared by the assessee pursuant to search confirmed - AT Visit to Get Source Court Confirms Disallowance of Business Expenses Due to Lack of Evidence for Business-Only Use. Case-Laws - AT : Ad-hoc disallowance on account of telephone, mobile, motorcar expenses, office expenses, printing and stationery, staff welfare, hotel expenses and travelling expenses confirmed since the assessee could not produce the evidence that all the expenses were incurred for business purpose - AT Visit to Get Source Assessee's claim for deduction u/s 54 upheld; new flat possession and sale agreement predated old flat sale. Case-Laws - AT : Eligibility of deduction u/s 54 - LTCG - The possession of the said flat was given on 21.02.2009 and agreement for sale was made on 30.03.2009. Old flat was sold on 6th April, 2009. Thus, the claim of exemption u/s 54 made by the assessee was very much well within the ‘window period’ as defined in section 54 - AT Visit to Get Source Customs Ledger Copy Fails to Prove No Transfer of Customs Duty Burden, Unjust Enrichment Case Not Established. Case-Laws - AT : Refund - unjust enrichment - Mere production of copy of ledger account showing refund amount as customs duty paid under protest is not sufficient to establish that they have not passed on the burden of duty to their customers. - AT Visit to Get Source Anti-dumping duty on PVC resin DG-1000K imports from China governed by Notification No. 11/2008-Cus; not retroactive. Case-Laws - AT : Levy of anti-dumping duty on import of PVC resin DG-1000K from China - Notification No.11/2008-Cus - amending Notification No. 38/2008-Cus dated 24.3.2008 has only prospective application and does not have retrospective applicability. - AT Visit to Get Source Wealth-tax Supreme Court Rules Urban Land Subject to Wealth Tax Despite Construction; No Exemption for 'Productive Use'. Case-Laws - SC : Exigibility of 'Urban Land' to wealth tax - submission was that the moment construction starts the urban land is put to 'productive use' and that entitles the land from exemption of wealth-tax. This argument of giving so called purposive interpretation has to be rejected - SC Visit to Get Source Service Tax VCES-I Declaration Rejected Due to Roving Information Request; Section 14 Reference Fails to Trigger Section 106(2)(a) Provisions. Case-Laws - AT : Rejection of VCES-I declaration - if the information is sought of roving nature even though communication regarding seeking information quoted Section 14 which shall not attract provisions of Section 106(2)(a). - AT Visit to Get Source Appellant Liable for Service Tax Due to Lack of Formal Invoices Despite Continuous Service Provision. Case-Laws - AT : Point of Taxation Rules (POT) - Formal invoices were not issued by the appellant because service receivers were not ready to enter into a contract with the appellant even though they were receiving service continuously from the appellant - service tax is payable by the appellant on the basis of the demand letters - AT Visit to Get Source Service Tax on IPR Imports Only Applicable if Covered by Indian Law; Commissioner Misses Legal Basis for Chargeability. Case-Laws - AT : Import of IPR services - reverse charge - only such intellectual property rights which are covered under Indian law in force alone are chargeable to service tax under IPR service. The Commissioner does not identify any Indian law under which the technology transfer and technical assistance involved in this case is covered. - AT Visit to Get Source Central Excise Tribunal Overlooks Notional Interest Valuation in Bottle Supply Advance Payments; Discount Considerations Unaddressed. Case-Laws - SC : Valuation - inclusion of notional interest in advances - respondent-assessee had obtained certain advance sums from some companies/users to supply the bottles and on that count it had granted 3-4 per cent discount - tribunal failed to apply its mind - SC Visit to Get Source VAT Bank Guarantee Obligation Ends When Assessment Order Overturned by Appellate Authority; Security No Longer Needed. Case-Laws - HC : Release of the bank guarantee - once the assessment order is set aside by the Appellate Authority, the security relating to the demand comes to an end. Once the assessment order is set aside, there is no requirement for the assessee to continue to furnish security or in the instant case, the bank guarantee. - HC Visit to Get Source Case Laws: Income Tax 2016 (1) TMI 814 Taxability of Settlement amount - TDS u/s 195 - Settlement Fund payable under the Stipulation to the Qualified Settlement Fund - whether will be regarded as sum chargeable under the provisions of the Act in the hands of the QSF? - For the purposes of deducting tax at source under Section 195 of the Act on the transfer of the Settlement Amount to the QSF, whether Satyam can take into account the chargeability of the Settlement Amount in the hands of the Authorized Claimants, as defined in paragraph 1(e) of the Stipulation? - Held that:- The settlement amount payable/paid by Satyam under the stipulation to the QSF pursuant to the judgment and final approval of the US Court cannot be regarded as sum chargeable under the provisions of the Act in the hands of QSF. The settlement amount is not chargeable to tax either as capital gains or as income from other sources. We conclude that the settlement amount in the hands of the QSF is not chargeable to tax. Therefore, we do not think it is necessary to go into other issues like whether authorized claimants were not known to Satyam and therefore deduction of tax was not appropriate or whether such income accrues or arises in India or not or is deemed to accrue or arise in India or not. Once the answer to the question no.1 is in negative, such issues are not relevant and it is also not necessary to go into the issue of stages of transfer at which tax should have been deducted from the settlement amount. It is another matter that Satyam has deducted the tax and paid to the Government account after the earlier rulings were pronounced. 2016 (1) TMI 813 Consideration received under the ‘Change Order’ - whether is in the nature of business profits? - Taxability of income - providing ‘Floating Production Storage and Offloading’ (FPSO) - Fabrication and installation of new living quarters onboard the FPSO facility and procurement and installation of Heating, Ventilation Air Conditioning system (‘HVAC’) system onboard the living quarters - Major work was done outside India. Held that:- The consideration received by the applicant under the Change Order for undertaking the scope of work is in the nature of business profits. The entire consideration received for the scope of work is taxable in India under the provisions of section 44BB of the Act. The consideration received for installation of STP buoy and moorings in India is in the nature of business profits and is chargeable to tax under the provisions of section 44BB of the Act. The entire consideration received for mobilization of the FPSO is taxable under the provisions of Section 44BB of the Act without splitting the same on the basis of travel of the FPSO outside or in India. The consideration received on account of insurance receipts for loss of hire is not taxable in India. 2016 (1) TMI 812 Disallowance u/s under Section 40(a)(i) and 40(a)(ia) - TDS on payment for Value Added Reseller (VAR) of software related to healthcare and hospitality. - as per revenue payments made by the Assessee were in the nature of royalty and, therefore, the Assessee was obliged to withhold tax on such payments - According to the Assessee, it had made those payments for the purchase of software and it was asserted that the Assessee is a Value Added Reseller (VAR) of the software in question - ITAT deleted the disallowance - Held that:- The Tribunal held that there was no transfer of rights in respect of the copyright held by the Assessee in the software and it was a case of mere transfer of copyrighted article. This Court concurred with the Tribunal and held that what was transferred was not copyright or the right to use a copyright but a limited right to use the copyrighted material and that did not give rise to any royalty income. - Decided in favour of assessee. 2016 (1) TMI 811 Seizure of Cash - Statutory time limit provided in sub-section (1) of Section 132B - whether the petitioner was able to satisfy the source of the asset? - Held that:- The Courts attach considerable importance to the time frame provided under Sections 132A and 132B of the Act when it comes to a question of retention of books of accounts or of seized assets. We cannot read the time limit provided in further proviso to Clause (i) of sub section (1) of Section 132B of the Act as being merely directory. Any such view would substantially water down the rigors of the statutory provisions and would give an unlimited authority to the Assessing Officer to retain the seized assets awaiting finalization of future possible liability for indefinite period without deciding the application of the person concerned who may be perfectly legitimately in a position to explain the source of the asset so seized. Facts, noted above, are rather glaring. The application of the petitioner for the purpose of releasing of the seized asset, which was made on 17.04.2014, came to be decided only on 20.07.2015 i.e. over one year later. In the meantime, the petitioner had sent two reminders. Action of the Assessing Officer cannot be countenanced. Impugned order dated 20.07.2015 is set aside. The seized cash shall be released in favour of the petitioner alongwith interest as per the statute. 2016 (1) TMI 810 TDS u/s 194J - Tribunal held that Section 194J not applicable on payment of transmission charges to KPTCL - Held that:- The contents of the power transmission agreement there is no mention of any offer with regard to any "technical services" by the KPTCL. Plain and simple intention of the parties to the agreement as discernable from the power transmission agreement is that the assessee was desirous of using the transmission network belonging to the KPTCL in accordance with the provisions of the Electricity Act subject to payment of charges applicable and determined by KERC. KPTCL was willing to provide its transmission network for the purpose of carrying electricity to its users subject to payment of transmission and other charges as determined by KERC. There is neither an offer nor an acceptance of any "technical service" inter se between the parties. Admittedly, KPTCL is a State owned Company and the only power transmitting agency. It has installed and developed its own infrastructure. Assessee is also a State owned electricity distribution company. The only service which the assessee has availed from the KPTCL is "transmission of power" on payment of charges fixed by KERC. No material is placed by the Revenue before this Court to substantiate its contention that assessee had availed of any technical services. In our considered view, assessee has done nothing more than transmitting certain quantum of power from one place to the other for a price fixed by KERC. Assessee was oblivious to the technical expertise which the KPTCL may possess. There was neither transfer of any technology nor any service attributable to a technical service offered by the KPTCL and accepted by the assessee. Therefore, application of Section 194J of the Act to the facts of this case by the Revenue is misconceived. It is not in dispute that the payee KPTCL has offered the income to tax and paid the same. In the circumstances, there is no loss of Revenue. Although the question of loss of Revenue is not subject matter of these appeals, we have adverted to the same as payment of tax by the payee has the effect of rendering these appeals purely academic. - Decided against revenue. 2016 (1) TMI 809 Income chargeable to tax under Section 41(1) - whether excluded under clause (baa) of the Explanation to Section 80 HHC of the Act, for the purposes of computing the deduction allowable to the assessee under that section? - Held that:- Section 41(1) creates a legal fiction and can be extended for the purpose of allowing deduction from "profits of the business" as referred to in Section 80 HHC of the Act. The income chargeable to tax under Section 41(1) of the Act is from reversal of any loss, expenditure or trading liability which had extinguished or ceased to exist. The legal fiction can only be extended to the extent that the provisions of Section 80 HHC have to be understood excluding the legal fiction created by deeming provisions contained in Section 41(1) of the Act as the source of income which is chargeable cannot be related to export of goods or merchandise because if any other meaning is assigned to the aforesaid fiction created with respect to Section 41(1), it would be against the basic purpose and object of Section 80 HHC of the Act. If that be so, then the exclusion of 90% of the deemed income under Section 41(1) of the Act is not in accordance with the correct interpretation of Explanation (baa) to Section 80 HHC of the Act and, therefore, the ITAT, in such circumstances, has rightly allowed the appeal of the assessee. That apart, it would also be noticed that the liability incurred by the assessee company in respect of the interest had infact been earlier allowed as deduction while computing the profits of the export business, the same will not now undergo a change in its nature and become an independent income. However, in terms of the judgment passed by the Hon'ble Supreme Court in ACG Associated's case (2012 (2) TMI 101 - SUPREME COURT OF INDIA ), the benefit would only be available on the net interest which had been included in the profits of the business of the assessee as computed under the head "profits and gains of business or profession" that alone will be deducted under clause (1) of the Explanation (baa) to Section 80 HHC of the Act for determining the profits of the business and not the gross interest. Thus while computing the interest under clause (baa) of the Explanation, the Assessing Officer will take into account the net interest i.e. gross interest as reduced by expenditure incurred for earning such interest. - Decided in favour of assessee. 2016 (1) TMI 808 Deduction under section 80-IA - rectification of mistake - Held that:- The claim of the assessee for deduction under section 80IC was disallowed by him, inter alia, on the basis of condition laid down in section 80AB and a finding was recorded by him in this context that the said condition was not fulfilled by the assessee in the sense that the notional profit had never been included in the Credit Side of the Profit & Loss Account. In our opinion, it, therefore, cannot be said that this issue does not arise from the order of the Assessing Officer and there is a mistake in the order of the Tribunal in giving direction to the ld. CIT(Appeals) to verify the same, as alleged by the assessee. Moreover, as rightly pointed out by the ld. D.R., the ld. CIT(Appeals) is bound to give due opportunity to the assesese of being heard before deciding this issue as per the direction of the Tribunal and if the profit in question is already included in the gross total income of the assessee as claimed, the assessee cannot be said to have any material grievance on this issue. We, therefore, hold that there is no mistake in the order of the Tribunal while deciding the issue relating to the assessee's claim for deduction under section 80IC as alleged by the assessee. Disallowance under section 14A - Held that:- Disallowance under section 14A was arrived at by the Assessing Officer by a categorical recording that he was not satisfied with the correctness of the disallowance made by the assesese with reference to the accounts, as the assesese had not maintained any separate details or accounts in respect of the incurrence of the expenditure. The affidavit of its Authorized Representative filed by the assessee thus is not only unsupported by anything on record but the same is contrary to the findings/ observations specifically recorded by the Tribunal in its order. In our opinion, the said affidavit, therefore, cannot be relied upon to say that there is a mistake in the order of the Tribunal as alleged by the assessee. Moreover, a specific view has been taken by the Tribunal in its order on this aspect of the matter and any interference with the same will amount to review, which is not permissible under section 254(2) of the Act. As such considering all the facts of the case, we are of the view that there is no mistake apparent from record in the order of the Tribunal as alleged by the assessee in the present Miscellaneous Applications. In that view of the matter, we dismiss these Miscellaneous Applications filed by the assessee. 2016 (1) TMI 807 Set off of accumulated losses against Long Term Capital Gain (LTCG) AND Short Term Capital Gain (STCG) even beyond 8 years - CIT(A) allowed the claim - validity of orders of BIFR - Held that:- Since the order of BIFR is inconsistent with the provisions of IT Act as far as setting off of accumulated losses beyond eight years against capital gain are concerned. But still BIFR order will prevail over the inconsistent provisions of IT Act. Accordingly appellant will be eligible to set off capital gains against accumulated losses even beyond 8 years - Decided in favour of assessee. 2016 (1) TMI 806 Unexplained investments in building - AO confirmed the additions made on the basis of the DVO report - DVO has allowed 6% margin towards self-supervision and difference between CPWD & State PWD rates - Held that:- Find force in the arguments of the assesse that, CPWD rates are prescribed for construction of buildings for the Central Government projects by taking in to account the standard quality of construction with high quality materials. Though these rates are the basis for valuation of cost of construction, suitable margin should be allowed, towards cost of materials and other charges considering the facts and circumstances, being quality of materials used and place of construction. In the instant case, as can be seen from the facts, the building is situated in village and the assesse himself constructed the building under his supervision. As claimed by the assesse, separate rates are prescribed by the state PWD for construction of buildings and which was brought to the notice of valuation officer but DVO ignored the state PWD rates. Therefore, we are of the view that the D.V.O. is not correct in considering the CPWD rates, when the state PWD rate is available for ascertaining the value of building. As the assessee is entitled for 15% deduction towards rate variation between CPWD and State PWD and a further 10% deduction towards self-supervision charges from the value arrived by the DVO applying the CPWD rates. The CIT(A), after considering the facts that the assesse has maintained books of accounts and bills for construction, scaled down the addition to Rs. 7,25,000/-. We do not find any error or infirmity in the order of the CIT(A). Therefore, we inclined to upheld the order of the CIT(A) and reject the ground raised by the revenue. - Decided in favour of assessee. 2016 (1) TMI 805 Disallowance u/s 14A read with Rule 8D - dividend income earned by the assessee - CIT(A) allowed the claim - Held that:- We hold that the Learned CIT(A) had given cogent reasons in his appellate order to disallow a sum of Rs. 25,000/- towards proportionate management expenses in terms of Rule 8D(2)(iii) of the IT Rules as the expenditure deemed to have incurred by the assessee for the purpose of earning dividend income of Rs. 180/-. The factual findings given by the Learned CIT(A) with regard to the availability of own funds with the assessee for the purpose of making the investments have not been controverted by the Learned DR before us. Hence no disallowance is warranted in terms of Rule 8D(2)(ii) of the Rules. No infirmity in the order of the Learned CIT(A) - Decided against revenue Addition towards interest income on hire purchase loans advanced by the assessee - Held that:- AO was not justified in assessing as interest income of the appellant chargeable in AY 2009-10. The AO shall however inform the assessing officer of Guru Mehar Construction regarding the fact that the borrower credited appellant's account with the entire arrear of interest in one year and claimed deduction for the same in one year which is contrary to law. The AO shall also inform the Assessing Officer of the borrower about default committed by the borrower of non deduction of Tax and its consequent effect u/s. 40(a)(ia) of the Act. These directions are issued to ensure that no leakage of revenue occurs as a consequence of the relief allowed to the appellant. - Decided against revenue Unexplained investment u/s. 69 - Addition on difference in hire purchase loan balance as per confirmation obtained from M/s Guru Mehar Construction u/s 133(6) vis a vis the balance as per the books of the assessee - CIT(A) deleted the addition - Held that:- We find lot of force in the argument of the Learned AR that even assuming that the difference in opening balance of loan figure is to be brought to tax, it cannot be added as income in the Asst Year 2009-10 and it should be considered only in the year in which the difference, if any, arose. We find from the details submitted by the said party i.e Guru Mehar Construction, that he had not submitted the transaction details prior to Asst Year 2009-10 and hence it is not clearly discernible from the records as to in which year the difference had arose.In view of this and in view of elaborate findings recorded by the Learned CITA , we find no reason to interfere with - Decided against revenue 2016 (1) TMI 804 Depreciation on goodwill - Held that:- In the assessee's own case for AY: 2002-03, 2006-07 and 2007-08 we uphold the finding of the learned CIT(A) in directing the AO to allow the assessee's claim of depreciation on goodwill. - Decided in favour of assessee. Disallowance u/s 40A(3) r.w. Rule 6DD - CIT(A) deleted the addition - Held that:- Before the learned CIT(A), the assessee inter-alia submitted that these payments were made as freight to truck drivers for duties of delivery of raw materials to the brewery at odd hours i.e. late night or early morning and as they would not accept payments through cheque. After considering the explanation put forth by the assessee we agree with the view of the learned CIT(A) that considering the nature of the assessee's business the explanation put forth by the assessee that freight charges are paid in cash to the truck drivers for expenses on road like diesel, food, minor repair and the balance to truck operators for freight sometimes for more than one truck, which sometimes is in excess of Rs. 20,000/- cannot be held to be unreasonable. We observe that revenue, except for raising the ground, has failed to bring on record any material evidence to controvert the findings of the learned CIT(A) on this issue and in this view of the matter, we uphold the finding of the learned CIT(A) on this issue. - Decided in favour of assessee. Disallowance u/s 40A(2) - CIT(A) deleted the addition - Held that:- Following the decision of the ITAT Chennai Bench in the case of M/s Empee Breweries Ltd. (2013 (2) TMI 716 - ITAT CHENNAI) wherein on similar facts payment by the assesseee in that case to UBL, for provisions of technical and management advice and consultancy by which it had received services and intangible benefits by association with UBL, was held to be allowable, thus we uphold the decision of the learned CIT(A) in deleting the disallowance made by the AO.- Decided in favour of assessee. 2016 (1) TMI 803 Employees’ stock option scheme benefit taxability - AO observed that expenditure is directly related to the expansion of the capital base of the company and that therefore, the expenditure incurred on issuing shares to increase the capital by the company would not be allowable as revenue expenditure. - Held that:- The Special Bench in Biocon Limited [2013 (8) TMI 629 - ITAT BANGALORE] has held that the discount on premium under one of the modes, compensating employees for their services is a part of their remuneration and as such, this discount cannot be held to be either a short capital receipt, or a capital expenditure. No decision to the contrary has been placed before us. Besides, the other decisions cited by the assessee are also on similar lines. Therefore, following “Biocon Limited” (supra) and the other case laws cited by the assessee, Ground No.5 is accepted and it is held that the employees’ stock option scheme benefit in question is taxable in the hands of the assessee’s employees as perquisite under section 43(2) of the Act. The payment having been established as salary/employee cost, the same is revenue in nature. This expenditure claimed by the assessee is to be treated as a business expenditure of the assessee - Decided in favour of assessee Set off of loss pertaining to certain STP units, against the taxable business income of the assessee disallowed - Held that:- In “Capgenimi India (P) Limited”, (2011 (5) TMI 509 - ITAT, MUMBAI), a co-ordinate Bench of this Tribunal, through one of us, i.e. the ld. AM, has held that in case of loss of units, eligible for deduction u/s 10A, section 10A is a deduction provision and not an exemption provision after its amendment with effect from the assessment year 2001-02 and that, therefore, the loss from the section 10A unit has to be adjusted against the taxable profits of other units after deduction u/s 10A has been allowed in respect of each eligible unit. The other case laws relied on by the assessee also hold that set off of loss of the eligible unit is allowable against the other taxable income.- Decided in favour of assessee 2016 (1) TMI 802 Confession of additional income during the course of search and seizure and survey operation - Held that:- The very fact that the surrender was made in odd hours, that too after grilling the assessee for almost four days, would only take us to the conclusion that the assessee should have been pressurized to offer additional income, without which the search team was not ready to conclude the search proceedings. It is further stated that the search was concluded immediately after the surrender of Rs. 6.00 crores. A careful perusal of the assessment order would show that the assessing officer has not brought on record any corroborative material to support the surrender of Rs. 6.00 crores. Hence, in our view, there is merit in the claim of the assessee that the above said surrender of Rs. 6.00 crores was made only on account of alleged excess stock. In the instant case, the Ld CIT(A) has given a clear finding that the alleged excess stock pointed out by the search officials has since been reconciled by the assessee. It is also pertinent to note that the assessing officer did not make any addition on account of alleged excess stock, meaning thereby, he was also satisfied with the reconciliation statement furnished by the assessee. We have already taken the view that the admission of Rs. 6.00 crores is related to the alleged excess stock found during the course of search. We have also noticed that the assessee has reconciled the difference in stock, meaning thereby, the assessee has rebutted the admission made by it, which was under pressure and mistaken belief. In the instant case, we have already held that the conduct of the proceedings shows that the search team has put up pressure upon the assessee and further the assessee was under mistaken belief that there was actually excess stock. Hence the assessee has agreed to surrender Rs. 6.00 crores under the mistaken belief that there was alleged excess stock. The assessee has maintained books of account and further the alleged difference in stock has been duly reconciled. Thus we are of the view that the Ld CIT(A) was justified in deleting the addition - Decided in favour of assessee Unexplained investment u/s 69 - Held that:- the transactions noted down in the pocket diary could possibly be in the nature of trade transactions only. Since the assessee has not discharged the presumption and further since the assessing officer has failed to substantiate the addition as unexplained investment, in our view, this issue could be resolved only via media. We have noticed that the transactions noted down in the diary could possibly be in the nature of trade transactions. In that case, it may be possible to infer that the assessee might not have accounted these transactions in the books of account. Under these set of facts, in our view, the possible view could be that the assessee might have also sold the gold jewellery noted down in the pocket diary without recording the same in the books of account. Though there is no supporting evidence in support of the above said inference, in the absence of proper explanations from the assessee and also in the absence of proper case being made out by the AO, we have no other option but to proceed on the inference cited above. In this back ground, in our view, this issue could be resolved by estimating the gross profit that would have been earned on sale of the above said jewelleries. The assessee has furnished details of sales and gross profit ratio in page 34 of the paper book. We notice that the assessee has declared gross profit rate of 8.69% in AY 2009-10. Accordingly, we are of the view that the gross profit on Rs. 62,21,950/- computed @ 9% should be assessed in respect of the transactions noted down in the diary and the same works out to Rs. 5,59,975/- or say Rs. 5,60,000/- (rounded off). Accordingly, we modify the order of Ld CIT(A) on this issue and direct the AO to restrict the addition to the above said sum of Rs. 5,60,000/- on this issue. - Decided in favour of assessee in part Addition made on “unaccounted sales” - CIT(A) converting the addition made by the AO from “unaccounted sales” into “unexplained stock” - Held that:- Since the documentary evidences furnished by the assessee in support of claim of receipt of goods on sale or return basis have not been controverted by the tax authorities, in our view, the explanation of the assessee should be accepted. In the reconciliation statement prepared by the assessee, the assessee has arrived at excess stock of 685.650 grams. During the course of arguments, the Ld A.R submitted that the weight of physical gold was measured by the search team themselves and hence there is always possibility of weight difference. Accordingly it was submitted that the excess stock of 685.650 grams, which work out to 0.7% of the physical stock could be the result of weight difference or on account of other minor factors like beeds, alloys, tie slips etc. In our view, there is merit in the said explanations of the assessee that the above said minor difference should be ignored, in the facts and circumstances of the case. On legal grounds also, we find merit in the contentions of the assessee. The Ld CIT(A) while altering the head of income and also in enhancing the addition has violated the provisions of sec. 251(2) of the Act in not providing opportunity to the assessee. In view of the foregoing discussions, we do not find merit in the decision of Ld CIT(A) and accordingly direct the assessing officer to delete the addition directed to be made by the Ld CIT(A). - Decided in favour of assessee 2016 (1) TMI 801 Penalty levied under section 271(1)(c) - additional income offered in the return of income submitted under section 153A - CIT(A) deleted the levy - Held that:- The assessee had furnished original return of income in which he had not declared its receipts from the profession, but pursuant to the search and seizure operation, certain incriminating documents were seized, which contained unrecorded receipts, expenses and investments in various financial years and the assessee in response thereto, declared the additional professional fees and paid taxes. The case of the assessee before us was that since the additional taxes have been paid there is no question of levy of penalty under section 271(1)(c) of the Act. We find no merit in the said claim of the assessee, in view of our order of even date in the case of Mrs.Sarita Kaur Manjeet Singh Chopra Vs. ITO ( 2015 (12) TMI 1025 - ITAT PUNE ). Accordingly, we uphold the levy of penalty under section 271(1)(c) of the Act on unrecorded receipts, expenditure and investments declared by the assessee pursuant to search. - Decided against assessee. Addition made by the Assessing Officer in the assessment proceedings pursuant to the original return of income filed by the assessee - Held that:- From the perusal of details, we find that the said addition was made by the Assessing Officer while passing the order under section 143(3) of the Act, which in turn, was confirmed by the CIT(A) and the Tribunal. While filing the return of income under section 153A of the Act, the assessee had not included the said additional income. The penalty proceedings, if any had to be initiated and levied pursuant to proceedings under section 143(3) and not pursuant to proceedings under section 143(3) r.w.s. 153A of the Act. Accordingly, we find no merit in the said observations of the authorities below and we direct the Assessing Officer to levy penalty under section 271(1)(c) of the Act on the additional income assessed in the hands of assessee pursuant to search and delete the penalty for concealment on the alleged addition of Rs. 6,00,000/-.- Decided in favour of assessee in part. 2016 (1) TMI 800 Deduction under section 80IB(10) in respect of row houses constructed under the name and style of M/s. Suman Constructions - Held that:- The two projects which have been commenced on different dates after taking separate approvals cannot be said to be a single project, in which the residential row houses also included the commercial area. We hold that the assessee is entitled to the claim of deduction under section 80IB(10) of the Act in respect of residential project. The commercial project which has been sanctioned, commenced and completed on a later date and on which, no deduction under section 80IB(10) of the Act has been claimed by the assessee, is a separate project from the residential project of row houses completed by the assessee. Accordingly, we find no merit in the order of Assessing Officer in this regard and upholding the order of CIT(A), we hold that the assessee is entitled to the claim of deduction under section 80IB(10) of the Act. In view thereof, there is no merit in the observations of Assessing Officer that the assessee is not entitled to the claim of deduction under section 80IB(10) of the Act since the commercial area exceeded 2000 sq.ft. Denial of deduction to the assessee was since the total built up area of some units exceeded 1500 sq.ft., by including the area of canopy / porch in the built up area - Admittedly, as pointed out by us from the certificate of Grampanchayat, the built up area of each unit of row houses was below 1500 sq.ft. However, in respect of the first floor, there was an area of canopy which was lower than the first floor unit. The case of the assessee was that the area of canopy could not be included in the built up area since it was not a projection on floor level or ground floor, it was projection on the first floor. The said canopy / porch was only a shelter to be provided to the person from sun and rain while getting down from the vehicle and entering the premises. The CIT(A) during the course of appellate proceedings had sought remand report in this regard from the Assessing Officer and under para 6.2, the finding of the Assessing Officer is that the canopy was not a habitable area. In view thereof, the CIT(A) allowed the claim of the assessee and the Revenue vide ground of appeal No.6 has agitated the issue. The case of the Revenue before us is that the said canopy could be accessed from the first floor and used as portion. We find no merit in the plea of the Revenue and the ground of appeal raised in this regard is dismissed. Denial of deduction as where the plans were sanctioned on 21.03.2004 by the local authority, the project had to be completed by 31.03.2008 and the said row houses were not completed as on 09.12.2008 i.e. the date of Survey - It was clarified by the assessee that in the audit report, the reference was to the expenses incurred and not the stipulated date of commencement of project as prescribed under section 80IB(10) of the Act. Further, in respect of the bills found during the course of Survey, the same related to renewal and replacement work to be carried out in bungalow Nos.12, 13 and 15. The major construction work was completed by 31.03.2008. The completion certificate in this regard was issued by the Grampanchayat, Wadi, against construction of 129 units for completion before 31.03.2008. Thus we hold that the assessee is entitled to the claim of deduction under section 80IB(10) of the Act in the captioned assessment year. - Decided in favour of assessee. 2016 (1) TMI 799 Penalty u/s 158BFA(2) - undisclosed income - Held that:- There is no consideration by the A.O. in his penalty order, that the said declared undisclosed income of Rs. 30 lac had been covered by the conditions laid down-in the first proviso to section 158 BFA(2). The A.O. has to take that into account. Otherwise, find that no additional undisclosed income had been actually determined as any positive detection beyond what had been disclosed in the return by the appellant. - Decided in favour of assessee. 2016 (1) TMI 798 Revision u/s 263 - exemption of claim u/s 11 denied - Held that:- As whole of the surplus amount has been challenged before the CIT(A), then the entire assessment order including taxing of the entire exempt income u/s 11 is the subject matter of appeal and there is complete merger with the order of the CIT(A) within the terms and ambit of section 263 read with clause (c) Explanation 1. Thus, if the subject matter of revision u/s 263 is again the denial of exemption u/s 11, though on different footing, then same is beyond the scope of section 263. On these facts, it can be very well held that the issue of exemption u/s 11 which was the subject matter of appeal before CIT(A) and then before the Tribunal, the Ld. DIT do not have the power to consider and decide “such matter” within the scope of section 263. On the second aspect also, which is purely academic, it is seen that, so far as tax effect is concerned, there is no difference at all between the income which was assessed in the original assessment order and the income which is now being sought to be assessed in wake of order u/s 263. Under both the assessments the surplus amount of Rs. 83.98 crores will get taxed. Hence, no prejudice is caused to the revenue so far as tax effect is concerned, except for the fact that section 11 is being sought to be examined from a different perspective. Accordingly, we hold that, firstly, the subject matter of revision u/s 263 has been merged with the order of the Tribunal, therefore, Ld. DIT is precluded to revise or set aside such order as it is beyond the second of section 263; and secondly, such an order cannot be held to be ‘prejudicial to the interest of the revenue’, because the income which has been sought to be assessed in pursuance of order u/s 263, is the same which was originally assessed by the AO. - Decided in favour of assessee. 2016 (1) TMI 797 Addition on account of estimation of annual letting value while computing the income from house property - Held that:- AO as well as CIT(A) have drawn adverse inference for enhancing the ALV, mainly on the ground that, firstly, the assessee has taken interest free deposit from the tenants and if such deposits would not have been taken, then the rental value would have been more; and secondly, the market rate at which the flat was rented to M/s Futura Polyester Ltd was much higher than the rent received from assessee from its other tenants i.e. Centurion Bank and Johnson & Johnson. Now the jurisdictional High Court has discussed similar kind of cases in detail in case of Tip Top Typography [2014 (8) TMI 356 - BOMBAY HIGH COURT ] and have laid down very detailed proposition on the determination of ALV. The Hon’ble High Court have accepted the contention of the assessee that, municipal valuation rate for determining the ALV is also an accepted method of valuation, which on the facts and circumstances of the case can be applied. They have even discussed whether, any adverse effect has to be drawn in the cases where interest free deposits have been accepted. Thus, in wake of the said judgment of Hon’ble Bombay High Court we are of the opinion that the matter should be restored back to the file of the AO to determine the ALV as per the guidelines proposed - Decided in favour of assessee for statistical purposes. Disallowance of overseas commission u/s 40(a)(ia) - non deduction of tds - Held that:- AO has not given any specific finding qua the said provision of payment of overseas commission in the assessment order, nor the CIT(A) has given any finding as to how the amount is exigible to tax in the hands of the recipient. Therefore, in the interest of justice, we feel that this matter should be restored back to the file of the AO to examine the chargeability of tax in the hands of the recipient on the payment of commission and then decide, whether the TDS is to be deducted or not. - Decided in favour of assessee for statistical purposes. Disallowance made for treating current repair as a ‘capital expenditure’ - Held that:- we find that no specific finding with regard to the expenditure aggregating to Rs. 8,78,595/- has been given by the CIT(A) when the cost of construction of boundary wall itself was only Rs. 1,63,048/-, which was the basis for the disallowance by the Ld. CIT(A). Hence, in the interest of justice, we feel that this matter should also be restored back to the file of the AO to decide the issue afresh after calling for the details and examine the nature of the expenditure aggregating Rs. 8,78,595/-. If such expenditure are purely for repairs without creating any capital asset of enduring nature, then such expenditure should be allowed as revenue expenditure - Decided in favour of assessee for statistical purposes. Addition on account of delayed payment of ESIC and PF respectively - Held that:- All these payments have been made within the grace period prescribed under the respective acts and in any case, all the payments have been made much before the due date of the filing of the return of u/s 139(1) and accordingly, such payment are allowable u/s 43B. - Decided in favour of assessee. Disallowance of expenditure claimed as deduction u/s 35AB(2AB) - CIT(A) allowed the claim - Held that:- If the entire expenditure incurred by the assessee on development of facility has been approved then the said expenditure to be allowed for the purpose of weighted deduction. The approval here in this case was granted during the previous year relevant to the assessment year, thus the assessee was entitled to claim weighted deduction in respect of the entire expenditure incurred under section 35AB of the Act. Nowhere it has been provided under the section that R&D facility is to be approved from a particular date and then only it would be allowable from that date only. Moreover, it is also clear from Form 3CM, which does not give any cut off date for the approval. Accordingly, respectfully following the same, we uphold the order of the CIT(A) on this score allowing the claim.- Decided in favour of assessee. Rejection of books of accounts - exclusive method of CENVAT & VAT - CIT(A) deleted the rejection - Held that:- So far as the AO’s observation on the exclusive method of CENVAT & VAT and that the assessee should provide each and every item of stock corresponding to CENVAT & VAT in proof thereof, the assessee’s contentions had been that the products manufactured by the assessee are very huge and numerous and accordingly, item to item correlation was not really feasible. Under such circumstance, when the details of opening stock, closing stock, quantity, value, rates are available, which are subjected to verification and cross check then it is suffice to hold that CIT(A) was correct in holding that there is no reason for rejecting the books of accounts. On the issue of accounting on scrap, it has been found that assessee has been recording the same at the time of sale and not at the time of generation of scrap. The assessee was following a particular method of accounting of scrap, from last several years which cannot be rejected, unless such a method of accounting is not correct. Further, as pointed out by the Ld. Counsel, this method of accounting is followed and accepted by the department. Lastly, Ld. Counsel before us submitted that, right from AY 2001-02 to AY 2006-07, the assessments have been completed u/s 143(3), wherein the income has been assessed without rejection of books of accounts or estimation of gross profit on similar method of accounting and on similar facts. The Ld. AO has not pointed out any difference in this year. - Decided in favour of assessee. 2016 (1) TMI 796 Addition of unsecured loans - Held that:- The assessee could not explain before the AO the source of down payment made in cash, accordingly, it was added u/s 68 by the AO. The assessee’s contention had been that, he had sufficient balance to pay the cash, however, no supporting details / documents were filed. The Ld CIT(A) too confirmed the said addition on the ground that, assessee could not substantiate his explanation by producing any evidence. Accordingly, the said additions was sustained. - Decided against assessee Ad-hoc disallowance on account of telephone, mobile, motorcar expenses, office expenses, printing and stationery, staff welfare, hotel expenses and travelling expenses - Held that:- Such an ad-hoc disallowance are quite reasonable and hence no interference is called for as these additions have been made on the ground that, assessee could not prove the entire expenditure incurred for the business purpose. The reasons for making the disallowance by the AO that they were either for personal purpose or same were for non-business purpose. The assessee could not produce any material before us to rebut the finding by way of relevant evidence or bills to state that all the expenses were incurred for business purpose. Accordingly, order of the CIT(A) on this score is affirmed - Decided against assessee 2016 (1) TMI 795 Eligibility of deduction u/s 54 - Exemption from long term capital gains - Held that:- We find that assessee had entered into an agreement for purchase of a flat no. 1402 on 31.01.2007. However, the said agreement was completely rectified and replace with a new agreement which was entered for purchase of a different flat No. 1302 on 19.04.2008. The possession of the said flat was given on 21.02.2009 and agreement for sale was made on 30.03.2009. Old flat was sold on 6th April, 2009. Thus, the claim of exemption u/s 54 made by the assessee was very much well within the ‘window period’ as defined in section 54. Therefore the finding of fact as recorded by the CIT(A) (incorporated above) is affirmed - Decided in favour of assessee Customs 2016 (1) TMI 828 Refund - unjust enrichment - finalization of provisional assessment u/s 19 - Scope of Section 27 - adjudicating authority sanctioned the said refund claims but credited the same to Consumer Welfare Fund as the appellant failed to prove that the duty element was borne to themselves and was not transferred or passed on to their customers. - Held that:- Since it has been held per incuriam the bar of Unjust Enrichment would apply to duties paid under protest. Since in the instant case the duties have been paid under protest the bar of Unjust Enrichment would apply. Mere production of copy of ledger account showing refund amount as customs duty paid under protest is not sufficient to establish that they have not passed on the burden of duty to their customers. On examination of the C.A. certificate submitted by the appellant, along with ledger and journal, both certified by the CA, it is seen that the claim of the appellant is based on assertion that the said amount is shown as recoverable from the Govt. in their Balance-sheet. Balance sheet have not been produced. Alongwith the said certificate also two documents are attached which appear to be copy of the Journal and ledger, both certified by the CA. While a certificate claims that these amounts are shown as amount recoverable from the Customs authorities against duty paid under protest, the Journal and ledger only records details of cheques and duty paid under protest. No where referred in the ledger records that the said amounts are recoverable from government. The Ledger or Journal simply records the entries as Duties Paid under Protest. There is no basis of claim that the same are recoverable from the Customs. No sales invoices or other documents have been produced to original adjudicating authority to substantiate the claim of not passing the burden of duty to the clients. - Appellant / assessee failed to prove its case - Refund not allowed - Decided against the assessee. 2016 (1) TMI 827 Levy of anti-dumping duty on import of PVC resin DG-1000K from China - Notification No.11/2008-Cus - whether Notification No. 38/2008-Cus. dated 24.3.2008 inter alia amending Sl No. 19 of Notification No. 11/2008-Cus. dated 23.1.2008 has retrospective effect or prospective effect. - Revenue says that when name of the manufacturer was not appearing in Column No.8 of the notification dated 23.1.2008, the export shall fall under Sl.No.23 of the said Notification being any exporter as envisaged by the entry. Notifications issued under the powers conferred by any legislation are subordinate legislation and the authority vested with powers to issue the same has the authority to make it operational retrospectively. But such an intention should emerge from the expressions used in the Notification itself. In the present case, there is nothing in the Notification to indicate that the changes would take effect from the date when definitive anti-dumping duty was initially imposed on the product imported by the Appellants. For want of such an express intention in the Notification, it is difficult for me to accept the proposition that the amendment to the entry at Sr. No.19 was retrospective. Classification of imported product will be rightly under Sr. No.23 under Notification dated 23.1.2008. However, after amendment of notification in column 8 of Sr. No.9 of notification dated 24.3.2008, classification will be under Sr. No.19 of notification dt.24.3.2008. Majority decision - amending Notification No. 38/2008-Cus dated 24.3.2008 has only prospective application and does not have retrospective applicability. - Decided against the assessee. Service Tax 2016 (1) TMI 825 Rejection of VCES-I declaration - it was submitted that the inquiry initiated by the DGCEI is of roving nature as general inquiry was made from various other assessees also - Held that:- against both the appellants the DGCEI issued letter dated 17/1/2013 and 19/2/2013 asking for some information and documents related to their taxable activity. In the said letter it was mentioned that information is called for under Section 14 of the Central Excise Act, 1944. Board circular No. 170/5/2013-ST dated 8/8/2013 and No. 174/9/2013-ST dated 25/11/2013 clarified the same issue - From the above clarification, it is clear that if the information is sought of roving nature even though communication regarding seeking information quoted Section 14 which shall not attract provisions of Section 106(2)(a). The cases of the appellants are squarely covered under the above clarification - Board Circular binding on the departmental officers. - The Ld. Adjudicating authority should have accepted the declaration filed by the appellants - VCES declaration cannot be rejected - Decided in favor of assessee. 2016 (1) TMI 824 Delay in filing of appeal before Commissioner (Appeals) - Date of service of order in original - Revenue argued that there was presumed service when order was sent by Registered Post with Acknowledgement Due (RPAD) as per Section 37C(1)(a) ibid. Revenue also argued that amendment to Section 37C ibid to include speed post with proof of delivery as a mode of service with effect from 10.05.2013 was clarificatory in nature and therefore had retrospective applicability. - Held that:- As during the relevant period, the primary adjudicating order was required to be sent by RPAD, sending it by speed post would not fulfil the requirement of the said section. The amended provision of Section 37C(1)(a) ibid effective from 10.05.2013 allows sending of the orders by “speed post with proof of delivery”. It is admitted by Revenue that in this case, it has no proof of delivery of the primary adjudication order. It is not in dispute that the appeal was filed within the stipulated period after the appellant obtained copy of the primary adjudication order. - In the light of the foregoing analysis, we waive the requirement of pre-deposit and allow the appeal by way of remand to the Commissioner (Appeals) with the direction to take up the appeal along with stay application and decide the same on merit. 2016 (1) TMI 823 Taxability of SMS termination service rendered by the appellant to other telecom operators - whether under the Point of Taxation Rules, 2011 service tax is payable on the SMS termination service rendered by the appellant to other telecom operators with whom neither a contract for service has been signed nor any consideration has been received. - SMS termination charges are payable by the originating telecom operators to the terminating telecom operator for the service provided by the terminating telecom operator. The termination charges are governed by the guidelines issued by the Telecom Regulatory Authority of India (TRAI). The actual charge of SMS termination service between the operators began with effect from 01/04/2011. Although some operators agreed to pay for SMS termination service to the terminating telecom operators i.e. the appellant in this case, whereas six operators did not sign any agreement with the appellant for payment of termination charges nor they paid any such charges for the termination services received from the appellants. Held that:- From the explanation to the Rule 6 of POT Rules, it is clear that in the present case the same does not apply. This is because the provision of service is not determined periodically in terms of any contract, which requires service receivers to make any payment. As there is no such contract requiring service receiver to make any payment, the point of taxation is to be determined in terms of clause (a) of Rule 6. Under Rule 6(a), where a continuous supply of a notified service is provided under a contract, the determining point is date of issue of invoice. The fact remains that service was provided under a contract; the absence of consideration clause in the contracts does not come in the way of determining the point of taxation under Rule 6 (a). Undoubtedly therefore, in the present case the service is provided when the invoice is issued. Where invoices were not issued within fourteen days of the completion of the service, the point of taxation was to be the date of such completion. It is apparent that the point of taxation will be when the invoice for the service provided is issued. Date of Invoice versus date of demand letters issued by the appellants - Held that:- The demand letters complied with the substantive provisions of Rule 4A and therefore, may be considered as invoices. Formal invoices were not issued by the appellant because service receivers were not ready to enter into a contract with the appellant even though they were receiving service continuously from the appellant. Therefore, we hold that service tax is payable by the appellant on the basis of the demand letters. Extended period of limitation - Held that:- The appellant issued demand letters. It is clearly been brought out in para 23 of the impugned order that the appellant never declared the provision of service rendered or taxable value in the service tax returns filed with the department. Failure to fulfill this legal obligation cast on the service provider, is a case of suppression of facts especially when the appellant had raised demand letters on the service receivers quantifying the charges payable for the services rendered by the appellant. Demand of service tax confirmed invoking extended period of limitation - Decided against the assessee. 2016 (1) TMI 822 Refund - unjust enrichment - service tax was paid wrongly - appellant contended that CBEC Circular No. 108/02/2009-ST dated 29.1.2009 clarified that the builders/ promoters are not liable to pay service tax under the category of construction of complex service defined under Section 65(105) - Held that:- Commissioner (Appeals) has held that the appellant was not promoter/builder of residential complex only on the ground that the appellant made payment of service tax under No. 00440290 which is applicable to industrial construction service and not under Code No. 00440334 which is applicable to residential complex service. We are unable to accept this ground as a valid ground for the said purpose in the absence of any other evidence to support the conclusion of the Commissioner (Appeals), that appellant was not promoter/builder of residential complex because payment of service tax under code number assigned to Industrial Construction Service cannot be a clinching evidence to discard the assertion of the appellant that it was promoter/builder of residential complex. It is evident that the amount of service tax of which refund was sought was indeed not payable by the appellant. As regards the issue of unjust enrichment, we find that the Commissioner (Appeals) has recorded cogent finding regarding the failure of the appellant to discharge the onus that the burden of service tax was not passed on to others. The CA certificate submitted by the appellant to support of its contention that the burden of service tax was not passed on had no contact number and also did not contain the CA's membership number assigned by the Institute of Chartered Accountants of India. In the light of the above, we hold that the impugned service tax (of which refund has been sought) was not payable and allow the appeal by way of remand to the Commissioner (Appeals) for de novo adjudication only for the limited purpose of considering the appellant's submissions with regard to discharge of its burden to demonstrate that the burden of impugned service tax was not passed on to others. - Decided partly in favor of assessee. 2016 (1) TMI 821 Import of IPR services - reverse charge - Levy of service tax on Technology Transfer fee paid to Whirlpool, USA - Non payment of service tax on Brand Fee - Cenvat Credit - non-maintenance of separate records for taxable and exempted services - Held that:- It is evident that the agreement is entered for the purpose of supply of technology/technical assistance/information by Whirlpool, USA to the appellant and the remuneration received by Whirlpool, USA is only for the use of the same by the appellant. There is nothing on record that any of the said technology/technical know-how/information is registered or patented under Indian law. - only such intellectual property rights which are covered under Indian law in force alone are chargeable to service tax under IPR service. The Commissioner does not identify any Indian law under which the technology transfer and technical assistance involved in this case is covered. Demand of service tax on Brand fee - Held that:- service tax on IPR service is exempt only to the extent of the R&D cess paid towards the import of technology under the provisions of Section 3 of the R&D Cess Act, 1986 in relation to such intellectual property service (emphasis added). It is admitted that no service tax was paid under IPR service on the amount paid for such technology transfer which means that the appellant also was of the view that such technology transfer was not in relation to IPR service. Indeed in the preceding para, it is held that such technology transfer is not covered under IPR service. Consequently, the appellant was not eligible to deduct the R&D cess it paid on technology transfer from the service tax payable under IPR service as such technology transfer was not in relation to intellectual property service. Thus the component of impugned demand amounting to Rs. 9,97,608/- is sustainable on merit. Cenvat Credit - Held that:- Adjudicating authority is only bound by the orders of the superior adjudicating authority like CESTAT and the observations of the Committee of Chief Commissioners are of administrative nature and not of quasi-judicial nature to have any binding effect on adjudicating authority. Thus there is no doubt that even in the opinion of the adjudicating authority, component of demand confirmed on account of non-maintenance of separate accounts of taxable and exempted services is not sustainable. Extended period of limitation - It is seen that the components of demand on technology transfer and with regard to R&D cess were the subject matter of an earlier show cause notice dated 17.10.2008 issued to the appellant covering an earlier period 2005-06 & 2006-07 - the extended period in the present case is not invocable which will make these components of the impugned demand time-barred because the show cause notice was issued on 05/04/2010 for the period up to March 2008. Demand set aside - Decided in favor of assessee. Central Excise 2016 (1) TMI 832 Penalty imposed on demand not sustainable - clandestine removal of the goods which were in contravention of various Central Excise Rules - Held that:- The show cause notice issued to the respondents clearly and unequivocally accepts the fact that demand of duty liability cannot be sustained as the demand for duty in show cause notice is beyond the period of 5 years. Provisions of section 11 A of the Central Excise act 1944, mandates the Department to recover duty within a period of 5 years from the date of issuance of the show cause notice. There re no provisions to demand any duty beyond the period of 5 years from the date of show cause notice. The adjudicating authority has correctly followed the law and has held that when the demand is not sustainable on the question of limitation, penalties can be imposed on the assessee under the Central Excise Rules 1944. We do not find any merits in the arguments put forth by the learned departmental representative. The judgement of Hon’ble Supreme Court in the case of HMM Ltd [1995 (1) TMI 70 - SUPREME COURT OF INDIA ] will be directly applicable wherein their Lordships have clearly settled the law, that question of penalty would arise only if the Department is able to sustain its demand. - Decided in favour of assessee. 2016 (1) TMI 831 Correct amount of duty payable as per the compounding scheme - Re-determine the duty liability in terms of the deeming provision as per proviso to Rule 8 - Held that:- It is an admitted fact that the appellants did make Rs. 0.50/- pouches alongwith Rs. 1/- pouches during the impugned period. Though prima facie such situation will attract the proviso to Rule 8, when a combined reading is made of the provisions of Rule 5, Rule 9 and Rule 8, it is clear that the new RSP mentioned in the said proviso to Rule 8 should be taken to mean a new RSP which will be higher than the previous RSP of pouches manufactured and which will attract different category of serial number under Rule 5 with higher duty liability. The retrospective amendment of the impugned provisions by Finance Act, 2014 concluded that the intention of the Government was to levy duty at the rate applicable to highest RSP on a particular machine during a particular month when during that month, on that machine, pouches of different RSPs have been produced. Giving emphasis to the harmonious reading of the various provisions of the said Rules of 2008, manufacturing of Gutkha pouches of Rs. 0.50/- is not to be considered as a new RSP for the purpose of proviso to Rule 8. Thus the demand made in the present case is not sustainable. - Decided in favour of assessee. 2016 (1) TMI 820 Valuation - inclusion of notional interest in advances - Depression of assessable value of the goods - short payment of duty - respondent-assessee had obtained certain advance sums from some companies/users to supply the bottles and on that count it had granted 3-4 per cent discount - Held that:- In the present case, there has to be application of mind by the tribunal regard being had to the amount of money paid by purchasers, namely, M/s. Coca Cola India and M/s. Pepsico India Holdings Pvt. Ltd. and what is the effect of the sales made to the two companies in percentile terms, whether this had the effect of depressing the sale price. The onus would be on the revenue. That being the thrust of the matter, liberty is granted to the revenue to produce the documents in this regard to discharge the onus. As we are remitting the matter, we may note one submission of the respondent-assessee. It is urged by the learned counsel that when the entire activities were within the knowledge of the excise authorities, penalty is not leviable. Needless to emphasize, the tribunal shall advert to the said submission, if required, in the ultimate eventuate, in proper perspective. In the result, the appeal is allowed, the order passed by the tribunal is set aside and the matter is remitted to the tribunal for fresh disposal keeping in view the observations made herein-above. We may hasten to clarify that we have not expressed any opinion on any of the aspects. 2016 (1) TMI 819 Inadmissibility of Cenvat Credit on capital goods - Penalty imposed - Held that:- Initially the claim of the appellant was that the cenvat credit would be admissible on cylinders as ‘capital goods’. Later, major portion of the demand was dropped accepting the plea of the Appellant that it is admissible as ‘inputs’. Also, on scrutiny of the de-novo order passed by the adjudicating authority as well as first appellate authority, I do not see any reasoning to support their conclusion of suppression of facts or mis-declaration, while imposing penalty under Section 11AC of CEA,1944 read with Rule 13 of CENVAT Credit Rules,2002. In absence of substantial evidence, supporting suppression of facts/ mis -declaration, in my opinion, penalty under Sec.11AC of CEA,1944 read with Rule 13 of CENVAT Credit Rules,2002 cannot be sustained. Besides, I find that the appellant had debited the credit amount within one month from the issuance of show cause notice and that they have taken the credit declaring the same as capital goods. In the result, the impugned Order confirming imposition of penalty is set aside - Decided in favour of assessee. 2016 (1) TMI 818 Erroneous availment of CENVAT credit in respect of maintenance of green belt to reduce pollution - Held that:- When appellant is manufacturer of cement and control of pollution in factory area is an indispensable necessity. Therefore, CENVAT credit on that count is allowed. Outdoor catering service - disallowance of CENVAT credit against the appellant - Held that:- There is no finding by the Commissioner (Appeals) in the appeal that service of caterer was not utilized for the factory with a view to comply to the provisions of Factories Act. In such an event, when it did not rule out the utility of service to factory workers, disallowance is uncalled for. 2016 (1) TMI 817 Cenvat Credit of Service tax - whether the appellant has availed the Cenvat Credit of Service tax paid on the amount received by them from their employees for availing the services of canteen and whether extended period can be invoked for demand of such ineligible Cenvat Credit? - Held that:- The issue on merits as to eligibility to avail Cenvat Credit on the Service tax paid of the amount collected from their employees, the issue is now settled by the judgment of the Hon’ble High Court of Bombay in the case of Ultratach Cement-2010 (2010 (10) TMI 13 - BOMBAY HIGH COURT). Accordingly, on merits appellant has no case. As regards limitation during the relevant period appellant herein had every reason to believe that they are eligible to avail Cenvat Credit of service tax paid on the amount paid for canteen services, to that extent demand which have been raised and confirmed by the lower authorities by invoking extended period is liable to be set aside, if any demand is within limitation from the date of show cause notice, it is upheld along with interest and appellant is directed to pay the same to the revenue. - Decided in favour of assessee. 2016 (1) TMI 816 Disallowance of Cenvat credit - penalty imposed equal to the said credit amount - Held that:- In the absence of any dispute about the receipt of inputs under the cover of the invoices issued by the supplier carrying duty payment details, credit availed by the recipients cannot be denied. - Decided in favour of assessee. CST, VAT & Sales Tax 2016 (1) TMI 830 Refund of tax paid - Interstate sale or stock transfer - release of the bank guarantee - According to the petitioner, the goods were directly dispatched to its depots located in the State of U.P. and that the goods did not move in pursuance of any pre-determined contract or sale. - Held that:- until and unless there is an adjudication and an authority finds that the amount is refundable, no amount can be refunded to the petitioner at this stage since we find that the assessment proceedings are still pending before the Assessing Officer. - the prayer for refund of the disputed tax pursuant to the setting aside of the assessment order cannot be granted to the petitioner at this stage. - Decided against the assessee. Release of the bank guarantee - Held that:- once the assessment order is set aside by the Appellate Authority, the security relating to the demand comes to an end. Once the assessment order is set aside, there is no requirement for the assessee to continue to furnish security or in the instant case, the bank guarantee. - In the light of the aforesaid, the impugned notice dated 15.12.2015 directing the petitioner to extend the bank guarantee can not be sustained and is quashed. The petitioner is entitled to get its bank guarantee released. - Decided in favor of assessee. 2016 (1) TMI 829 VAT assessment - AO disallowed the claim of sales return and imposed the tax on the ground that all the transactions were made prior to the date of VAT audit and the dealers have not produced the details before the Enforcement Wing Officials. - Held that:- Admittedly, according to the petitioner, the entire documents are very much available with the petitioner. Simply, for the reason that those documents had not been produced before the Enforcement Wing Officials, the respondent cannot deny to accept those documents for perusal. Hence, for this reason, the impugned order is liable to be set aside and accordingly, the same is set aside and the matter is remitted back to the respondent for passing fresh orders. - Matter remanded back. Wealth tax 2016 (1) TMI 826 Exigibility of Urban Land to wealth tax - whether the land would be excluded from the urban land only when building is completely constructed thereupon or it would be covered by the aforesaid clause even if the building activity is started and the building is not yet complete? - HC held that the building has to be completely erected on the land in order to get it covered by exclusion clause - Held that:- The view taken by the High Court [2007 (3) TMI 334 - KARNATAKA HIGH COURT ] is the correct view in law. On the plain language of the provision in question, the benefit of the said clause would be applicable only in respect of the building which has been constructed . The expression has been constructed obviously cannot include within its sweep a building which is not fully constructed or in the process of construction. The opening words of clause (ii) also become important in this behalf, where it is stated that the land occupied by any building . The land cannot be treated to be occupied by a building where it is still under construction. If the contention of assessee is accepted, an assessee would become entitled to the benefit of the said clause, at that very moment, the commencement of construction even with construction the moment one brick is laid. It would be too far fetch, in such a situation, to say that the land stands occupied by a building that has been constructed thereon. Even assessee was candid in accepting that when the construction of building is still going on and is not completed, literally speaking, it cannot be said that the building has been constructed . It is for this reason that he wanted us to give the benefit of this provision even in such cases by reading the expression to mean the same as is being constructed . His submission was that the moment construction starts the urban land is put to productive use and that entitles the land from exemption of wealth-tax. This argument of giving so called purposive interpretation has to be rejected We do not agree with the submission of assessee that the situation when building is fully constructed has been covered by Section 2(e)(a)(v) read with Explanation 1(b) as it would fall under Section 2(e)(a)(i). We have already reproduced the aforesaid Section and find that it deals with altogether different situations. As pointed out above, Explanation (1) thereof excludes certain categories of Urban Land and we are concerned herewith clause (ii) of this Explanation. By 1992 amendment, Section 2(e)(a) was added which contains the definition of asset . Clause (v) thereof includes urban land. Thus, urban land is to be included as an asset for the purpose of giving extended meaning to it. Urban Land is defined in Explanation 1 Clause (b) to Section 2(e)(a). - Decided against assessee. Indian Laws 2016 (1) TMI 815 Recovery proceedings - why writ petitioner was a necessary or a proper party - validity of orders of Debts Recovery Tribunal - The borrower and the co-borrower are in default and the bank has proceeded to recover the same. Proceedings are pending before the Debts Recovery Tribunal. Subsequently an application was filed to implead the writ petitioner as a respondent and by a cryptic non-reasoned order without bringing out as to why writ petitioner was a necessary or a proper party, vide order dated September 15, 2014 the Debts Recovery Tribunal impleaded writ petitioner as a respondent which order has been upheld by the Debts Recovery Appellate Tribunal on March 20, 2015. Needless to state the said two orders are under challenge. Held that:- The principle relating to impleadment in decisions involving rights to physical properties are equally capable of being applied to contractual rights. - Regretfully, neither the order dated September 15, 2014 passed by the Debts Recovery Tribunal nor the order dated March 20, 2015 passed by the Debts Recovery Appellate Tribunal has dealt with the issue arising concerning writ petitioner’s impleadment as prayed by the respondent No.1 bank in its application seeking impleadment. The two orders do not bring out the reasons why presence of the writ petitioner is necessary in order to enable the Court effectually and completely to adjudicate upon and settle all the questions involved in the proceedings before the Debts Recovery Tribunal. Application filed by the first respondent seeking impleadment of the writ petition is revived for adjudication afresh before the Debts Recovery Tribunal which shall decide the application guided by the law concerning impleadment as discussed above.
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Newsletter: Where Service Meets Reader Approval.

TMI Tax Updates - e-Newsletter January 25, 2016

Articles

1. BASIC CONCEPTS OF GST (PART-4)

Highlights / Catch Notes

Income Tax

Company's Settlement to QSF Exempt from TDS u/s 195, Rules Authority for Advance Rulings (AAR.

Court Rules TDS Not Applicable on Payments to VARs for Software in Healthcare, Hospitality Sector; No Copyright Transfer Involved.

Court Rules Section 194J Inapplicable for Transmission Charges; No Technical Services or Tax Deduction Required.

BIFR Order Overrides Income Tax Act: Set-Off of Losses Beyond 8-Year Limit Against Capital Gains Allowed.

Unexplained investment u/s 69: Tax difference in loan balance in year of origin, not Assessment Year 2009-10.

Stock Option Benefits Taxable as Salary, Classified as Revenue; Treated as Business Expenditure for Tax Purposes.

CIT(A) breached Section 251(2) of Income Tax Act by enhancing income without hearing assessee; AO to delete addition.

Taxpayer Penalized u/s 271(1)(c) for Concealing Income and Unrecorded Financial Activities After Search.

Court Confirms Disallowance of Business Expenses Due to Lack of Evidence for Business-Only Use.

Assessee's claim for deduction u/s 54 upheld; new flat possession and sale agreement predated old flat sale.

Customs

Ledger Copy Fails to Prove No Transfer of Customs Duty Burden, Unjust Enrichment Case Not Established.

Anti-dumping duty on PVC resin DG-1000K imports from China governed by Notification No. 11/2008-Cus; not retroactive.

Wealth-tax

Supreme Court Rules Urban Land Subject to Wealth Tax Despite Construction; No Exemption for 'Productive Use'.

Service Tax

VCES-I Declaration Rejected Due to Roving Information Request; Section 14 Reference Fails to Trigger Section 106(2)(a) Provisions.

Appellant Liable for Service Tax Due to Lack of Formal Invoices Despite Continuous Service Provision.

Service Tax on IPR Imports Only Applicable if Covered by Indian Law; Commissioner Misses Legal Basis for Chargeability.

Central Excise

Tribunal Overlooks Notional Interest Valuation in Bottle Supply Advance Payments; Discount Considerations Unaddressed.

VAT

Bank Guarantee Obligation Ends When Assessment Order Overturned by Appellate Authority; Security No Longer Needed.

Case Laws:

Income Tax

Customs

Service Tax

Central Excise

CST, VAT & Sales Tax

Wealth tax

Indian Laws

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TMI Tax Updates - e-Newsletter
January 25, 2016