TMI Tax Updates - e-Newsletter
January 3, 2013

Case Laws in this Newsletter:

Income Tax Customs Corporate Laws Service Tax Central Excise

TMI SMS

• Section 197A - No TDS if payment is made to a bank listed in the Second Schedule to the Reserve Bank of India Act, 1934 - Notification

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• Exemption u/s 10B - total turnover need not necessarily be confined to export sales or local sales, but would also include the job work done by the assessee -HC

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• Export of Goods and Services - Simplification and Revision of Softex Procedure at SEZs - Circular

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Articles

1. DIRECTOR IDENTIFICATION NUMBER

   By: DR.MARIAPPAN GOVINDARAJAN

News

1. Major Achievements of Ministry of Statistics and Programme Implementation in the Year -2012 Year End Review-2012

2. Significant Growth in Coal Production and offtake New Measures for Coal Quality Improvement Periodic Performance Review of Coal Blocks Initiated Year End Review of Coal Ministry

3. TRAI Releases Recommendations on “Terms and Conditions of unified License (Access Services)” on Reference made by DoT

4. FM Statement on Current Account Deficit (CAD); Confident to Finance the Cad Without Drawing Upon Reserves; Appeal to the People to Moderate the Demand for Gold as IT Leads to Large Imports of Gold

5. Statement by Revenue Secretary Regarding Payment of Indirect Taxes; urges all Assessees to Ensure that they make Timely and Correct Payment of Customs Duty, Central Excise Duty and Service Tax for Continued Trade Facilitation

6. Fourteenth Finance Commission Constituted

Notifications

Income Tax

1. 56/2012 - dated 31-12-2012 - IT

Section 197A of the income-tax Act, 1961 - Deduction of tax at source - no deduction in certain cases - Specified payment under section 197A (1F) - if payment is made to a bank listed in the Second Schedule to the Reserve Bank of India Act, 1934

Circulars / Instructions / Orders

Service Tax

1. 166/1/2013 -ST - dated 1-1-2013

Clarification in respect of notices/ reminder letters issued for life insurance policies - regarding.

2. 167/2 /2013 - ST - dated 1-1-2013

Regarding Service tax on services by way of transportation of goods by rail/vessel – transportation of milk

Income Tax

3. 10/2012 - dated 31-12-2012

Section 132, read with section 132A of the income-tax Act, 1961 - search & seizure - Assessment of preceding years in search cases during election period

FEMA

4. 66 - dated 1-1-2013

Export of Goods and Services – Simplification and Revision of Softex Procedure at SEZs

Customs

5. 03/2013 - dated 1-1-2013

Installation of Close Circuit Television Systems (CCTV) - regarding.

6. 02/2013 - dated 1-1-2013

Replacement of Fixed Deposit Receipts (FDRs) furnished in respect of provisional Mega or Ultra Mega Power Projects with Bank Guarantees (BGs) - reg.

Highlights / Catch Notes

Income Tax

• No TDS Required for Payments to Banks Listed in Second Schedule of RBI Act, 1934 Under Income-tax Act Section 197A.

  Notifications : Section 197A of the income-tax Act, 1961 - No TDS if payment is made to a bank listed in the Second Schedule to the Reserve Bank of India Act, 1934 - Notification
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• High Court clarifies "month" u/s 139(8) of Income Tax Act as 30 days for interest calculations.

  Case-Laws - HC : Interest u/s.139 (8) – Rectification of order u/s 154 - the word 'month' is to be taken to mean a period of 30 days - The mistake was obvious and apparent and was rectifiable mistake - HC
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• Indian Transfer Pricing Rule Requires Current Year Data for Comparability Analysis in International Transactions.

  Case-Laws - AT : TP - ALP - The use of the word "shall" in the main provision of the Rule makes it abundantly clear that the use of data of the current financial year (i.e. of the financial year in which the international transaction was actually entered into) is a mandatory requirement of law in the comparability analysis to be undertaken as as per Indian T.P. Regulations - AT
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• Tribunal Allows Bad Debt Claim on Loss of Fixed Assets' Value; Fails to Explain Transaction's Bad Debt Element.

  Case-Laws - HC : Loss on written down value of fixed assets - Tribunal allowing the claim of bad debt does not speaks about the core issue that how there exists an element of bad debt in whole of the transaction. - HC
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• Deemed Dividends: Share Premiums Not Considered Accumulated Profits u/s 2(22)(e) of Income Tax Act.

  Case-Laws - AT : Deemed dividend u/s 2(22)(e) - accumulated profits would mean profit in the commercial sense and not assessable taxable profits - share premium account would not partake the nature of commercial profits and therefore, by no stretch of imagination, this can be called accumulated profits - AT
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• High Court Rules Job Work Must Be Included in Total Turnover for Section 10B Income Tax Exemption.

  Case-Laws - HC : Exemption u/s 10B - The total turnover carried on by the assessee need not necessarily be confined to export sales or local sales, but would also include the job work done by the assessee. - HC
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• Capital Subsidy Deduction Lowers Asset Cost for Depreciation u/s 43(1) of Income Tax Act.

  Case-Laws - HC : Depreciation - Capital subsidy – According to Explanation 10 and proviso to sub-section (1) of Section 43, the subsidy amount shall be deducted in the actual cost of the asset of the assessee. - HC
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• Section 10A Deduction Adjusted: AO to Re-compute Due to Bank Error in Export Proceeds Timing.

  Case-Laws - AT : Deduction u/s 10A – Export proceeds not received within six month – Draft misplace by bank - AO to re-compute deduction under section 10A by including the said remittances in the total turnover and by excluding the same from export turnover and excess claim if any will be disallowed. - AT
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FEMA

• Softex Procedure Revised for SEZs: Streamlined Export Documentation to Boost Efficiency and Reduce Compliance Burdens.

  Circulars : Export of Goods and Services – Simplification and Revision of Softex Procedure at SEZs - Circular
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Service Tax

• No Penalty u/s 78: Appellants Can Claim Credit for Paid Service Tax Without Extra Benefit from Suppression.

  Case-Laws - AT : Imposition of penalty u/s 78 - if the appellant have paid the service tax they are entitled to take credit of the same, it cannot be said that by suppressing the fact that the appellants are going to get extra benefit on account suppression. - No penalty u/s 78 - AT
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• New Guidance on Insurance Notices: Ensure Compliance with Service Tax Regulations to Avoid Penalties.

  Circulars : Clarification in respect of notices/ reminder letters issued for life insurance policies - regarding. - Circular
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• Clarification on Service Tax Exemptions for Milk Transportation by Rail or Vessel; Compliance Guidance for Logistics Sector.

  Circulars : Regarding Service tax on services by way of transportation of goods by rail/vessel – transportation of milk - Circular
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Central Excise

• Cenvat Credit Eligibility Confirmed for Tyres as "Inputs" Under Central Excise Regulations: No Exclusion in Definitions.

  Case-Laws - AT : Cenvat credit on tyres - As nothing in the definition of "capital goods" or "inputs" provides for explicitly excluding tyres from either of the definitions. - the goods can be considered as inputs - AT
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• Examining Captive Consumption and Marketability of Jute-Backed Floor Coverings Under Central Excise Law.

  Case-Laws - AT : Captive consumption - marketability - Jute backed Floor Coverings - non-woven fabric which is cleared in market is different from the fabric which is captively consumed - prima facie not marketable - AT
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Case Laws:

• Income Tax

• 2013 (1) TMI 46
  Scope of Section 154 - Mistake apparent from the record – Whether decision on debatable point of law is mistake apparent on the record - Difference between change of opinion and the rectification of mistake - Rectifiable mistake – Advertisement in newspapers & articles given to the stockiest and dealers claim as business expenditure u/s 37(3A) – After completion of assessment - AO passes order u/s 154 on the ground that advertisement was not made in small newspapers - and the presentation articles were given under the scheme to the stockiest and not to the consumers, was a debatable issue - Held that:- As concluding from the fact of the case that during the course of assessment the claims were duly scrutinized, considered and allowed in respect of expenses claimed both under the head. Following the decision in case of In Mepco Industries Ltd., (2009 (11) TMI 24 - SUPREME COURT), Apex Court has drawn the difference between change of opinion and the rectification of mistake - a rectifiable mistake is mistake, which is obvious and not something, which needs to be established by a long drawn process of reasoning, or where two opinions are possible. It must be a patent mistake, which is obvious. Its discovery should not depend on elaborate arguments. - Therefore, the order u/s 154 was not made on any mistake apparent from the record, which was a rectifiable mistake, but was change of opinion by which the department had to adopt the reasoning on which two opinions should be possible. In favour of assessee Interest u/s.139 (8) – Rectification of order u/s 154 – Mistake in calculation of month for charging interest u/s 139(8) - Due date of filing return was 31.7.1979 – Return was filed on 31.12.1979 - Held that:- In case Laxmi Rattan Cotton Mills (1973 (4) TMI 29 - ALLAHABAD HIGH COURT) that a month, must be taken to mean a period of 30 days - the word ''month' is to be taken to mean a period of 30 days and thus the delay for charging interest was of five months and not of four months. The mistake, therefore, was obvious and apparent to on the record and was rectifiable mistake for which proceedings under Section 154 could be taken. - In favour of revenue Advance tax – Whether the amount deposited prior to 31st March, 1979, as advance-tax but after the due date can be considered for the purposes of the computation of interest - The assessee had paid Rs.38,700/- on 21.10.1978 - The advance tax was due by 15.9.1978 - The AO felt that the belated payment could not be treated as advance tax - Held that:- The amount deposited prior to 31st March, 1979 could be treated as advance tax. After the due date it could not be treated as advance tax for the purposes of computation of interest. It was admitted that amount was deposited after the due date and thus A.O. could not have deducted it to arrive on an amount on which interest is to be charged. It was a mistake apparent from the record and which was rectifiable and which could be corrected u/s 154. In favour of revenue

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• 2013 (1) TMI 45
  International transactions entered with A.Es (USA) - assessee an Indian Company providing call centre services exclusively to A.E.- case referred to TPO - upward Transfer Pricing adjustment - Applicability of Multiple Year Data - Held that:- The use of the word shall in the main provision of the Rule makes it abundantly clear that the use of data of the current financial year (i.e. of the financial year in which the international transaction was actually entered into) is a mandatory requirement of law in the comparability analysis to be undertaken as as per Indian T.P. Regulations - thus the TPO rightly rejected the use of earlier year s data by the assessee, as the assessee failed to establish before the TPO, CIT (Appeals) or the Tribunal how such earlier year s data had an influence on the prices of the current financial years. Use of data by the TPO after the cut off date - Held that:- Rule 10B(4) provides that the information and documents as specified under Rule 10B(1) and 10B(2) should as far as possible be contemporaneous and should exist latest by the specified date referred to in section 92F(4) which has the same meaning as due date in Explanation 2 to section 139(1). In the assessee s case, this would be 30th day of September as it is a company. It is clear, that the Act has not provided for any cutoff date up to which only the information in the public domain has to be taken into consideration by the TPO while arriving at the ALP - no infirmity in the action of the TPO in using contemporaneous data at the time of transfer pricing audit, though the same may not have been available to the assessee at the time of preparation of statutory transfer pricing study/documentation. Safe Harbour - sought the benefit of +/- 5% - Held that:- The new section 92C(2A) mandates that if the arithmetical mean price falls beyond + / - 5% from the price charged in the international transactions, then the assessee does not have any option referred to in section 92C(2). Thus the + / - 5% variation is allowed only to justify the price charged in the international transactions and not for adjustment purposes accordingly the 5% benefit is not allowable in the assessee s case. Rejection of T.P. Study - Held that:- The use of current year data is mandated by the relevant IT Rules, 1962 and by not adhering thereto, the assessee has rendered into T.P. Study unreliable. In this view of the matter, the opinion that the TPO was right in rejecting the T.P. Study submitted by the assessee. Related Party Transactions - Held that:- Respectfully following the decision in the case of Sony India (P) Ltd. v. Dy. CIT [2008 (9) TMI 420 - ITAT DELHI-H] AO/TPO are directed to exclude after due verification those comparables from the list with related party transactions or controlled transactions in excess of 15% of total revenues for the financial year 2003-04. Economies of Scale - Held that:- As decided in Genisys Integrating Systems (India) (P.) Ltd. [2011 (8) TMI 952 - ITAT BANGALORE] only companies within the turnover range of 1 Crore to 200 Crores should be taken into consideration for the T.P. Study. The cited case squarely applies to the assessee s case as the turnover of the assessee being approximately 66 Crores falls within the range of 1 Crore to 200 Crores. Direct the AO/TPO to consider only those companies having a turnover of 1 Crore to 200 Crores as comparables. Comparable Companies Owning Intangiables - Held that:- It is a well accepted principle that only those companies which are on similar standards need to be considered for comparability. Therefore, companies which possess their own unique software intangibles cannot be compared with the assessee, as the former would derive significant advantage from unique software compared with the assessee, which is performing call centre services for it s A.E. in the USA. Parent Company Losses - Held that:- As per a plain reading of the language of the provisions of section 92 it is clear that the income arising from an international transaction shall be computed having regard to the arms length price. Similar transactions carried on between unrelated parties were to be seen to come to a conclusion whether the profits earned by the assessee is justified. Thus, the arguments that the profits earned by the assessee is justified because the parent company is under losses is against the principle of arms length price. To sum up, the assessee s arguments that it has not shifted profits outside India based on the loss incurred by the parent company is not acceptable. the assessee mainly states that the T.P. regulations being anti avoidance legislation, the TPO has to prove that tax avoidances had in fact taken place before making any T.P. adjustment - Held that: - As decided in case of Aztec Software Technology Services Ltd v. Asstt. CIT [2007 (7) TMI 329 - ITAT BANGALORE] that it is not necessary to prove that profits are shifted out of India for making a transfer pricing adjustment. Thus it is not necessary for the TPO to demonstrate tax avoidance and diversion of tax/income before invoking the provisions of section 92C and 92CA of the Act. Individual Companies for Comparability - Vishal Information Technologies Ltd. (VIT) - Held that:- An in the case of this comparable the Mumbai Tribunal in the case of Asstt. CIT v. Maersk Global Service Center (India) (P.) Ltd. [2011 (11) TMI 465 - ITAT MUMBAI] has held that since Vishal Information Technologies Ltd is outsourcing most of its work it has to be excluded from the list whereas the assessee in the cited case was carrying out the work by itself. In the instant case of the assessee also the assessee was carrying out its work by itself exclusion of Vishal Information Technologies Ltd. from the list of comparables warranted. Wipro BPO Ltd. - Held that:- the turnover/Revenue of Wipro BPO Ltd. in the period relevant to Assessment Year 2004-05 is 322 Crores. Further, this company having the influence of Wipro brand may be seen as having its unique intangibles. Tricom India Ltd. Fortune Infotech Ltd. - Held that: - Has registered an abnormal growth of 33% increase in PAT in the relevant period due to the fact that it has developed its unique software to provide BPO services to its customers. Spanco Telesystems Solutions Ltd. - Held that:- this company has a clearly demarcated call centre segment and segmental results are available in the audited financial statements of the company and therefore see no reason why this company should not be considered as a comparable - grounds seeking its exclusion is rejected. M/s. Ultra Marine Pigments Ltd. - Held that:- The assessee has not been able to demonstrate with any evidence to support that the profit of the comparable company was abnormally high. It must not be overlooked that high profits reflect better business sense and practices also - grounds seeking its exclusion is rejected. Apollo Health Street Ltd. - Held that:- Perusal of its annual report for F.Y. 2003-04 though it does not appear to have any related party transactions, it is seen that out of its total revenues of 12.2 Crores, only 6.50 Crores i.e. about 54% of its revenue was received from ITES. This shows that significant Revenue earning of about 46% is not from IT enabled services which will render it functionally different and not comparable. MCS Ltd Tata Share Registry - Held that:- The assessee caters to the export market, whereas these two companies cater to the domestic market - rejection warranted. Depreciation adjustment - Additional ground of appeal - Held that:- Mere claim for an adjustment will serve no purpose unless it is backed by proper details - remit the issue to the file of the AO/TPO to consider it.

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• 2013 (1) TMI 44
  Loss on written down value of fixed assets - assets got vested in Nigerian company due to certain restrictions imposed by the Government of Nigeria - a capital loss or trading loss? - Held that:- The impugned order passed by the Tribunal allowing the claim of bad debt does not speaks about the core issue that how there exists an element of bad debt in whole of the transaction. Tribunal has not decided as to for what reasons, the reasons given by the appellate authority ware found to be wrong and virtually it is a nonspeaking order, deciding nothing. This appeal is allowed on this ground as Tribunal has not applied its mind to the question referred which should be answered by the Tribunal. Therefore the matter is remanded to the Tribunal back to decide the appeal in accordance with law after considering the reasons given by the appellate authority as well as submissions made by both the parties by giving reasons.

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• 2013 (1) TMI 43
  Deduction u/s 80HHC - Assessee is an exporter of cashew kernels - Profit on sale of Duty Entitlement Pass Book (DEPB) - Issue raised by the assessee and considered by the Tribunal only with respect to the reopening of the assessment u/s 147 – Assessee file appeal u/s 260A with High Court challenging retrospective amendment made by the Finance Act 2005 in Section 80HHC – Held that:- The validity of a provision cannot be considered or adjudicated upon by the Tribunal constituted under the Act. Section 260A provides for an appeal from every order passed by the Appellate Tribunal; if it involves a substantial question of law. Such question of law should arise from the order of the Tribunal. If the Tribunal cannot consider the validity of a retrospective amendment, no doubt such question does not arise from its order and the jurisdiction conferred on the High Court under Section 260A cannot also enable the High Court to consider such validity or otherwise. Decides against assessee

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• 2013 (1) TMI 42
  Deemed dividend u/s 2(22)(e) - CIT(A) deleted the addition - Held that:- There is no doubt that M/s Radhe Sham Jain Diamond Jewellers (P) Ltd is a company the assessee i.e. Shri Radhe Sham Jain is holding more than 10% shares was incorporated by way of conversion of proprietorship business of Jain Diamond Jewellers on 9.2.2008. Perusal of the balance sheet of the proprietorship concern on 9.2.2008 clearly shows that there was a capital balance of 12,34,430/-. There was also a liability on account of cheque issued - OBC to the extent of 1.50 crores. Perusal of the capital account of the assessee in the proprietary concern also shows that there was opening capital balance of 1,64,34,402/-. There are various transactions done in the capital account till 8.2.2008 and there was a credit balance of 1,59,39,810/- on that date. Against which payment of 1.50 crores was made by the proprietorship concern to the assessee i.e. Shri Radhe Sham Jain on 8.2.2008. This cheque was not encashed and shown as liability in the balance sheet. Because of the conversion of proprietary concern into a Private Limited company the cheque could not be encashed later on and the same was returned to the Private Limited Company which has been credited by the company to the assessee's account on 15.3.2008. Thus it is clear that this amount belonged to the assessee on account of capital in the proprietorship concern and because the cheque could not be encashed, therefore, the money belonged to the assessee which has credited by the company. The so called cheque on account of loan or advance which have been issued by the Company have been issued only after 15.3.2008. The AO has failed to appreciate that because of the conversion of the proprietorship concern, the cheque could only be encashed by the assessee. Since all the assets have been taken over by the Private Limited company, the said company owned assessee this amount of 1.50 crores which was credited to his account on 15.3.2008. Because of non-encashment of the cheque the same is not reflected in the bank statement. This fact has been correctly appreciated by the ld. CIT(A). CIT(A) has also correctly noted that there was definitely a debit balance amounting to 11,75,569/- on 29.3.2008 in the name of the assessee in the books of the Private Limited company. However, he has correctly restricted the addition to 34,858/- i.e. to the extent of accumulated profits. As decided in P.K. Badiani v. CIT [1976 (9) TMI 3 - SUPREME COURT] that accumulated profits would mean profit in the commercial sense and not assessable taxable profits - share premium account would not partake the nature of commercial profits and therefore, by no stretch of imagination, this can be called accumulated profits - appeal of the Revenue dismissed.

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• 2013 (1) TMI 41
  Disallowance of expenses u/s 14A – Rule 8D - Expenditure incurred in relation of exempt income - Whether any income has been earned or not, expenses incurred in relation to the said investment which is not going to result into any taxable income has to be disallowed u/s 14A - Assessee had made investment in the units of mutual fund – Held that:- Following the decision in case of GODREJ AND BOYCE MFG. CO. LTD. (2010 (8) TMI 77 - BOMBAY HIGH COURT) that Rule 8D which is applicable only from assessment year 2008-09 and in respect of prior years, disallowance of expenses relating to exempt income both direct and indirect expenses has to be made on a reasonable basis after allowing opportunity of hearing to the assessee. Issue restore back to decide in light of said judgement AO. Disallowance of interest u/s 36(1)(iii) – Nexus between borrowing with the business activity - Assessee engaged in the business of syndication activities and insurance business - AO argued that syndication activities were of the nature of liaison activity resulting into commission income - Nexus between huge borrowings made by the assessee to the tune of Rs.4.59 crores with the business – Given interest free advances of Rs.1.13 crores – Held that:- In the immediate preceding year i.e. 2006-07, assessee had the same activities and interest on borrowings of Rs.3.70 crores had been allowed by the AO which means that AO accepted the nexus of borrowings with the business activities. Therefore, in the current year, no disallowance of expenses can be made in relation to opening balance of Rs.3.70 crores. The disallowance can only be made in relation to interest free advances given by the assessee. Therefore, disallowance has to be made only in relation to such interest free advances @ 14.5% as done in earlier year. Partly allowed in favour of assessee

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• 2013 (1) TMI 40
  Exemption u/s 10B - Tax holiday in respect of profits and gains - 100% E.O.U – Calculation of turnover - Whether job work chargers are included in total turnover to calculate profit for the purpose of giving exemption u/s 10B - Assessee is engage in business of purchase of textile material, stitching and exporting garments - Export turnover in respect of articles or things in proportion to total turnover – Held that:- The Section 10B defines the "export turnover". The total turnover carried on by the assessee need not necessarily be confined to export sales or local sales, but would also include the job work done by the assessee. Therefore, sub contract receipts and stitching charges as amounting to local sales for the purpose of granting 100% exemption to the assessee. In favour of revenue

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• 2013 (1) TMI 39
  Depreciation - Capital subsidy – Commissioning of Power Plant – Explanation 10 to Section 43(1) – Whether subsidy received by assessee directly or indirectly from Central Government or a State Government, is reduced from actual cost of asset for the purpose of calculation of depreciation - Treatment of subsidy from cost of assets for calculating depreciation - Assessee is engaged in manufacturing sugar, ethanol, rectified spirit and co-generation of power - Assessee has received the subsidy from the Government of Karnataka for commissioning co-generation plant – Held that:- Yes, According to Explanation 10 and proviso to sub-section (1) of Section 43, the subsidy amount shall be deducted in the actual cost of the asset of the assessee. The contention of the assessee that the subsidy received towards the Generation Plant shall not be reduced from the actual cost of the assets is not correct. In favour of revenue

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• 2013 (1) TMI 38
  Search u/s 132(1) - Assessee firm carried on the business of diamond – During search found stock of nearly 70,000 carats of cut and polished diamonds and Indian currency of over Rs. 27 lakhs Additional evidence – Rule 46A - Assessee had retracted from the original statements - Filing of additional evidence after 30 months of the date of seizure – AO argued that it was an afterthought - able to build a concocted story to avoid tax incidence – Held that:- CIT(A) admitted the additional evidence only after coming to a conclusion that the interpretation of the seized document goes to the root of the issue and from the remand report. In the remand proceedings, it was the AO, who was satisfied that the stock of diamonds found from the assessee was actually the “jangad stock” and not the trading stock and belonging to Shree Meena International and the conclusion of the three layered investigation conducted by the AO was, “nothing adverse is noticed”. Hence admit additional evidence Interpretation of a noting in document - Initially the interpretation was given that this represented own trade of diamonds - later on it was retracted that it was the jhangad stock - Shown the impugned amount as liability - Jhangad stock, till the stock is approved, this stock remains with the adahtia till, either it is sold or returned - Held that:- The assessee was an adatiya and the notings found on the seized document, relied upon by the department, clearly indicate that they pertained to janghads given to an adahtiya (assessee herein), and does not, pertain to independent diamond trading of the assessee. Therefore, endorse and agree with the findings arrived at by the CIT(A). In favour of assessee Unaccounted sale – Whether addition can be made on presumption basis in case search & seizure - AO picked up the accounted figure of sale in each of the concerned year - Applied the 75% proportion thereon - Arrived at the figure of unaccounted sale figure – Held that:- The addition is on presumptions and really not based on facts. Since it is a case pertaining to search and seizure operation, the addition should have been made on material found and not on “inferential presumption”. In favour of assessee Addition on the basis of initial capital in the undisclosed business – Held that:- There is no other business of the assessee except for adahtiya business and if we go in accordance with the statement of Mr. Bharat Kakadiya taken on 26-05-2005, that he had become the partner in the assessee firm in 1994-95. Therefore, question of initial capital in assessment year 2000-01 cannot be accepted. In favour of assessee Disallowance of labour charges – AO called for confirmation - Notice u/s 131 - Excessive payments of labour charges - Assessee had paid Rs. 200 per carat whereas the market is Rs. 25 or Rs. 30 per carat – Labour did not respond query – Held that:- Assessee submits complete details in the form of confirmations and copies of account of all four job workers, to whom payments were made through banking channels and even TAS has been deducted. We have noted that the addition made and sustained are not on sound footing, because either the entire amount should have been sustained or none at all, but once, the entire job work charges paid to one person out of four is accepted, then both the issues of excessiveness and non-genuineness fail. In favour of assessee

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• 2013 (1) TMI 37
  Deduction u/s 10A – Export proceeds not received within six month – Draft misplace by bank - Assessee was engaged in the business of manufacturing and export of processed food products – Assessee contended that foreign remittances had been sent by the foreign buyer to the banker who misplaced the same and, therefore, since remittances were received in India, claim of deduction should be allowed – Held that:- Unless the foreign remittances are credited in the account of assessee or at least credited in the account of the bank, it cannot be said that the export proceeds have been received in or brought into India. It is not clear whether these remittances have been included in the total turnover in the P&L account. We, therefore, direct the AO to re-compute deduction under section 10A by including the said remittances in the total turnover and by excluding the same from export turnover and excess claim if any will be disallowed. The profit of business will be computed excluding the remittances in the total turnover. In favour of revenue Disallowance of depreciation on plant and machinery - Treatment of subsidy received from the Government in the computation of depreciation on p&m – Held that:- There is nothing on record to show that subsidy had been granted by the govt. towards any specific asset or p&m. Therefore, merely because amount received had been utilized for acquisition of p&m, it cannot be said that subsidy was to meet cost of any asset. It is a settled legal position that only subsidy granted specifically towards a particular asset has to be reduced from cost of that asset while computing depreciation. There is no material to show that the subsidy in this case had been granted to meet cost of p&m the disallowance of depreciation corresponding to subsidy cannot be upheld. In favour of assessee

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• 2013 (1) TMI 36
  Addition on account of foreign exchange fluctuation loss – Loss on restating the exchange rate of all foreign transaction outstanding as on balance sheet date – AS 11 - AO argued that loss claimed was notional in nature and not actual loss - Following the decision in case of Woodward Governor India P. Ltd. (2009 (4) TMI 4 - SUPREME COURT) loss suffered by the assessee on account of fluctuation in the rate of foreign exchange, as on the date of the balance sheet, is an item of expenditure u/s 37(1). In favour of assessee Disallowance u/s 40A(2)(b) - Payment of management consultancy fees to related party – CIT(A) confirmed the findings of AO that the payment was hit by section 2(22)(e) - Held that:- AO had required the assessee to substantiate its claim that the payments were made for business purposes and were not collusive in nature because payments were made to parties falling within the categories of section 40A(2)(b). However, after considering the assessee’s reply he, inter-alia, concluded that the payment was hit by section 2(22)(e). The AO had not given any notice in this regard to assessee. Hence issue remand back to AO Disallowance u/s 14A – Rule 8D – Whether AO can apply Rule 8D without verifying the correctness of the claim of the assessee in respect of such expenditure in relation to income which did not form part of the total income of assessee - 5% of average value of investment towards deemed expenses relating to tax free income – Held that:- The mandate of section 14A(2) clearly requires the AO to first consider the assessee’s claim and after rejecting the same should resort to Rule 8D. We, therefore, consider it in the interest of justice that the matter should be restored back to the file of AO

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• 2013 (1) TMI 35
  Difference between the income appearing in TDS certificate and income offered for taxation - TDS claim on advance against running contracts - Credit for TDS in the Income tax return amounting to Rs. 6.18 crores - Corresponding amount reflected in the said TDS certificates is to the tune of Rs. 259.42 crores - Assessee has shown contract sales of Rs. 306.73 crores after reducing advance of Rs. 29.08 crores - The said advance of Rs. 29.08 crores has not been considered as income but considered as liability in the balance sheet - Accounting Standard 7 – Held that:- A.O. has not pointed out any specific defect or discrepancy in the books of accounts. No doubt it is not only the right but also the duty of the A.O. to consider whether or not the books disclosed the true state of accounts and the correct income can be deduced therefrom. The procedure of the A.O. is of judicial nature and in making the assessment he should proceed on judicial principles. If evidence is produced by the assessee in support of its return it should be accepted unless it is rebutted by admissible evidence and not by mere hearsay. In favour of assessee Disallowance u/s 40(a)(ia) – TDS deducted but paid after due date - Payment of expenditure made before last month of A.Y. on which TDS was deducted but paid after 31st March – Held that:- Amendment to the provisions of Sec. 40(a)ia), by the Finance Act, 2010 is applicable retrospectively from 1.4.2005. Undisputedly the payment of TDS has been made before due date of filing of the return. Return has been filed u/s 139(1), therefore, no disallowance can be made on account of non-payment of TDS u/s 40(a)(ia) on these facts. Therefore, the order of CIT(A) remained uncontroverted. In favour of assessee Addition on account of non-inclusion of excise duty in the closing stock of finished goods – Adjustment of excise duty in valuation of closing stock of finished goods - A.O. argued that these amounts have not been included in the valuation of closing stock of finished goods in terms of provisions of sec. 145 – Held that:- The excise duty relating to closing stock of finished goods was Rs. 63,61,688/- out of which Rs. 51,68,020/- has been shown to be paid in view of the provisions of sec. 43B in respect of clearance up to 31st July 2008 and balance amount of Rs. 11,93,668/- has already been added in the computation as disallowance u/s 43B, therefore, if the contention of the department is accepted, then this would amount to double addition because of the reason that assessee has added itself and as the same was paid before the due date of filing of the return and therefore to this extent the amount was claimed as deduction on account of excise duty paid. In favour of assessee Addition on account of non-inclusion of excise duty in the closing stock of raw material – Adjustment of excise duty in valuation of closing stock of finished goods - A.O. argued that these amounts have not been included in the valuation of closing stock of finished goods in terms of provisions of sec. 145 - Assessee has maintained exclusive method – Held that:- The opening balance on account of excise duty is also adjusted and thereafter closing amount of excise duty is also adjusted and if both these amounts are taken into consideration then there is no effect of computation of income. Restore this issue to the file of A.O. to examine the issue afresh in view of our observations above and after affording opportunity to the assessee of being heard. Remand back to AO Addition on account of Bad debt – Held that:- Following the decision in case of T.R.F. LTD. (2010 (2) TMI 211 - SUPREME COURT) that there is no dispute that these amounts were written off in the books of a/c on account of irrecoverable. In favour of assessee Disallowance u/s 14A – Rule 8D – Expenditure incurred on earning exempt income – Held that:- Issue needs fresh consideration in accordance with the decision in case of Minda Investments Ltd., (2010 (10) TMI 126 - ITAT, NEWDELHI). Remand back to AO

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• Customs

• 2013 (1) TMI 34
  Waiver of pre-deposit - Stay recovery - DEPB - Duty Entitlement Pass Book Scheme - Assessee purchase DEPB Licence - Seller procured the DEPB Licence by producing false documents - Seller accepted the duty liability before the Settlement Commission and paid the same - AO issue SCN demanding as the applicant is a purchaser of the said Advance Licence and made import of the goods,for demanding interest and for imposition of penalty - Held that:- There is no record to show that the applicant had knowledge or linking of any fraud committed by Seller The assessee had made out a strong prima facie case for waiver of pre-deposit of interest and penalty. Waiver & Stay petition allowed.

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• 2013 (1) TMI 33
  Writ of Certiorari - Operation of the Custom House Agent Licence has been put under suspension - Held that:- The Writ Petition has been filed stating that the Custom House Agent Licence has been suspended in terms of Regulation 20(2) of the Custom House Agent Licensing Regulations 2004(CHALR, 2004). Petitioner has got a right to seek revocation of the suspension under the provisions of the CHALR, 2004 and is entitled to pursue the same in accordance with law.

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• Corporate Laws

• 2013 (1) TMI 32
  Stay of the winding up order – BIFR - Bonafide steps has been taken by the contributory to revive the Company – Held that:- At the meeting held on 25.2.2003 by BIFR it was specifically recorded that the Ministry of Chemical & Fertilizers, GOI was the promoter of the Company and had failed to implement the scheme formulated by it, though sanctioned by BIFR. From the order dated 25.2.2003 it will appear that ample opportunity was given to the Company and its promoters to submit a revival scheme and even after the formation of the prima facie opinion on 13.9.2002 a show-cause was issued and objections called to be heard on 25.2.2003. When no objection was filed or scheme submitted by the promoters BIFR recommended winding up. The last nail in the coffin so to say was the submission of the representative of the promoters. In favour of respondent Suppression of facts – Increase in price of the land since 1996 - Termination of the sale contract which has been accepted by HSCL - Land was belong to company under liquidation - After taking leave from BIFR said property was put up for sale by tender process to generate funds for implementation of a scheme - HSCL was the highest bidder and paid not only the earnest money but also sums aggregating to Rs.115.25 lacs out of the bid price of Rs.315.73 lacs till 7.1.1998 - By order dated 1.3.2006 HSCL was granted leave to deposit the balance consideration within 30 days from 1.3.2006 – Held that:- Price cannot be a factor as the Company accepted the offer of HSCL in 1996 and is seeking a revision in price in 2006, although there is no document disclosed evidencing price revision. The only document disclosed is with regard to revised payment schedule. In favour of respondent Appeal by Employees’ Union of the Company - From the order dated 25.2.2003 recommending winding up an appeal was filed by the Union - The said appeal was dismissed on 13.5.2005 - The restoration application was filed after the order dated 6.7.2005 - After the filing of appeal and before the filing of the restoration application the members of the applicant union had applied for VSS or VRS – On dated 3.3.2008 when the order was passed by the Appellate Authority there was no member of the Union – Held that:- It has been admitted by the applicant Union that on revival the workers will need to be reinstated and the workers will return the sums received. Once an employee has received VSS or VRS Voluntarily he can have no jural relation with the Company. The VSS or VRS taken is not conditional, therefore decides against respondent

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• 2013 (1) TMI 31
  Scheme of Amalgamation - Held that:- Transferor Company and the Transferee Company have no proceedings under Section 235 to 251 of the Companies Act, 1956 pending against them. Meeting of the Equity Shareholders of the Applicant Company to be held on January 16, 2013 at the registered office of the company at 2-A 1st Floor, Malviya Nagar Corner Market, New Delhi 110 017 at 11.30 A.M. to be headed by appointed Chairperson & Alternate Chairperson. Notices for the meeting of the Equity Shareholders of the Applicant Company shall be published minimum 21 days in advance in the Delhi editions of English & Hindi prescribed newspaper. Alternately, individual notices should also be sent by ordinary post minimum 21 days in advance. If Quorum is not present in the meeting, then the meeting would be adjourned for 30 minutes and thereafter, the persons present in the meeting would be treated as proper Quorum. Voting by proxy is permitted proxy forms submitted not later than 48 hours before the said meeting. The Chairperson and the Alternate Chairperson shall file their reports within fifteen days of the conclusion of the said meeting. No meeting of Secured Creditors of the Applicant Company is required to be convened as they do not have any - consent letters placed on record by the Applicant Company, representing 79% in value and 64% in number of the Unsecured Creditors of the meeting of the Unsecured Creditors of the Applicant Company is dispensed with.

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• Service Tax

• 2013 (1) TMI 49
  Includability or non includability of reimbursement charges in the gross value for determination of service tax liability - appeal dismissed on ground of delay of 10 days - Held that:- As decided in Improvement Trust, Ludhiana Vs. Ujagar Singh & Ors [2010 (6) TMI 660 - SUPREME COURT] that unless malafides are writ large on the conduct of the party delay should be condoned. In the legal arena, an attempt should always be made to allow the matter to be contested on merits rather than to throw it on such technalities. Thus in the present case appeal should have been decided on the merits by the first appellate authority. Dismissing the appeal by not condoning the delay of 10 days in filing the appeal before the first appellate authority, the said dismissal is not in consonance of the law as has been settled by the apex court above - delay should have been condoned by the first appellate authority and the matter should have been decided on merits.

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• 2013 (1) TMI 48
  Imposition of penalty u/s 78 - Penalty for suppressing, etc., of value of taxable services - Goods Transport Agency - Rule 2(1)(d)(v) - Paid commission to overseas service provider - Reverse charge - Service tax has been paid along with interest on pointing out by the department during the course of investigation - Held that:- Following the decision in case of AMMAN STEEL CORPORATION(2011 (2) TMI 470 - CESTAT, CHENNAI) that if the appellant have paid the service tax they are entitled to take credit of the same. In that view, it cannot be said that by suppressing the fact that the appellants are going to get extra benefit on account suppression. Therefore penalty u/s 78 is not sustainable. In favour of assessee

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• 2013 (1) TMI 47
  Waiver of pre-deposit - Stay of recovery - Business Auxiliary Service - Money Transfer and related services - The assessee were distributing the money to the customers of Western Union money transfer in India - Held that:- Following the decision in case of MUTHOOT FINCORP LTD.(2009 (8) TMI 236 - CESTAT, BANGALORE) that the services rendered by appellant directly to principal abroad whose beneficiaries are outside India are not taxable service in India. Therefore pre-deposit of the dues are waived and recovery of the same is stayed. In favour of assessee

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• Central Excise

• 2013 (1) TMI 30
  Calcined Bauxite - whether to be considered as a ore or concentrate - additinal ground - Held that:- Since both sides agree that the issue needs reconsideration by the adjudicating authority on the question of extending the benefit of Notification No. 6/2002-CE, as amended from time to time set-aside the impugned order, remit the matter back to the adjudicating authority to reconsider the issue afresh, after following the principles of natural justice.

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• 2013 (1) TMI 29
  Cenvat credit on tyres - Whether tyres which are used as part of LDPT can be considered as inputs - Low Profile Dump Truck used in captive mines - Revenue argues that when LDPT cannot be considered as either capital goods or input then its parts also cannot be considered as either capital goods or input - Held that:- As nothing in the definition of "capital goods" or "inputs" provides for explicitly excluding tyres from either of the definitions. Following the decision in case of RAJASTHAN STATE CHEMICAL WORKS (1991 (9) TMI 73 - SUPREME COURT OF INDIA) that the goods can be considered as inputs. Tyres get used in the process of handling raw materials which is an integral part of manufacturing process. Cenvat credit is allowed on goods which get consumed over a period of time like refractory lining or catalyst. The goods can be considered as inputs and Cenvat Credit is available on tyres of LPDT used by the appellant in mines. - In favour of assessee

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• 2013 (1) TMI 28
  Classification - Silkesha Shampoo Powder - Chapter 33 - Ayurvedic Medicine - Held that:- Following the decision in case of KSHETRIYA SHREE GANDHI ASHRAM (1999 (8) TMI 892 - CEGAT, NEW DELHI) that product described on the labels as a shampoo, even though it may contain ayurvedic ingredients having therapeutic value are classifiable only Chapter 33 of the Central Excise Tariff Act. In favor of revenue

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• 2013 (1) TMI 27
  Waiver of pre-deposit - Captive consumption - marketability - Excise duty, interest and penalty - Assessee engaged in the manufacture of Jute backed Floor Coverings - Jute backed Floor Coverings are exempted from the payment of duty - Applicants were clearing non-woven fabric in the market as well as captively consumed in the manufacture of exempted Floor Covering – Revenue argued that captively consumed goods i.e. non-woven fabrics is known in the market as non-woven fabric and the same is sold by the applicant in the market as non-woven fabric – Assessee contended that non-woven fabric which is cleared in market is different from the fabric which is captively consumed and the same is not marketable as such, hence it is not excisable – Held that:- As the goods captively consumed and sold in the market having different dimensional stability, the applicant has made out a prima facie strong case for waiver of pre-deposit. Stay granted

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• 2013 (1) TMI 26
  Adjournment sought by Revenue - wants to engage a special counsel in the matter - Held that:- On perusing the records it can be fairly concluded that revenue has sought a early hearing which was heard on 06.06.2012 & thereafter listed for final hearing on 13.08.2012, thereafter on 21.08.2012 and 10.10.2012 but at all the times adjournment was sought. Adjournment request this time is accepted with the direction that on the next date of hearing, if the revenue is unable to argue the matter, the matter shall be decided on merits thereon - Matter adjourned to 20.02.2013.

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