TMI Tax Updates - e-Newsletter
January 7, 2013

Case Laws in this Newsletter:

Income Tax Customs Corporate Laws Service Tax Central Excise

Highlights / Catch Notes

Income Tax

• Section 10-B of Income Tax Act: No set-off of losses allowed between eligible and non-eligible units during tax holiday.

  Case-Laws - AT : Exemption u/s.10-B - the set off of the eligible unit loss against income of non eligible unit during the tax holiday period when the Assessee has not opted out of the incentive provisions for this year cannot be allowed and has been rightly not allowed by the Revenue authorities. - AT
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• Court Rules Unjust for Tax Authorities to Demand Proof of Business Start for Each Assessment Year.

  Case-Laws - HC : Commencement of business - it would be unfair for the revenue to contend for each successive assessment year that the assessee had to establish that it "commenced business." - HC
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• No Proof of Loan or Deposit Leads to No Penalties Under Income Tax Act Sections 271D and 271E.

  Case-Laws - AT : Penalty u/s 271D & 271E - when it is not established that the assessee had taken loan or deposit, the question of further presumption that such loan or deposit was repaid during the year under consideration was without any basis or material on record - AT
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• Penalty Confirmed for Non-Audit of Accounts u/s 271B; No Good Faith Defense Accepted for Assessee's Actions.

  Case-Laws - AT : Penalty u/s. 271B - Failure to get accounts audited u/s 44AB - the assessee deliberately adopts a legal stand, which is without basis, so that it cannot claim to have acted in good faith or under a bona fide belief. - levy of penalty for second year confirmed. - AT
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• Interest on Broken Period for Securities as Stock-in-Trade is Allowable Expense for Banks: Revenue vs. Capital Impact.

  Case-Laws - AT : Broken period interest paid to the sellers of the securities - revenue v/s capital - if the securities were held by the banking company as stock-in-trade of the business, interest paid for the broken period would constitute allowable outgo in the hands of the assessee bank. - AT
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• Penalty for Concealment of Income Dismissed as Tax Liability Unchanged u/s 115JB; No Tax Evasion Found.

  Case-Laws - HC : Penalty u/s 271(1)(c) - Concealment of income - Evasion of Tax - even after such disallowance, tax finally required to be paid, as per Section 115 JB of the Act, would remain the same. It cannot be stated that the assessee evaded tax. - HC
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• High Court Affirms CIT's Right to Revise Orders for Incorrect Facts or Law Misapplication, Protecting Revenue Interests.

  Case-Laws - HC : Revision of orders prejudicial to revenue by CIT - an incorrect assumption of facts or an application of law will satisfy the requirement of the order being erroneous. - HC
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• High Court Rules Suspicion Alone Insufficient to Deny Purchases Without Solid Evidence Against Sellers and Agents.

  Case-Laws - HC : Bogus purchases - Disallowance merely on the basis of suspicion because the sellers and the canvassing agents have not been produced before them is not warranted - HC
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• High Court: Interest from SLR and non-SLR funds both qualify for exemption under Income Tax Act Section 80P(2)(a)(i).

  Case-Laws - HC : Exemption u/s 80-P (2) (a) (i) - The question as to whether the business is derived from or attributable to SLR or non-SLR funds would not make any difference for the purposes of qualifying the interest earned by the cooperative bank under Section 80P(2)(a)(i) - HC
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• Taxpayer Denied Relief for Stale Cheques Issued to Ex-Employees; CIT (Appeals) Decision Overturned.

  Case-Laws - AT : Addition towards stale cheques issued to ex-employees - How these cheques remained uncashed for almost two years is not clear. CIT (A) was not justified in granting the relief to the assessee - AT
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• Assessee Denied Tax Benefits: No Registration u/s 12AA, Insufficient Evidence for Corpus Donations.

  Case-Laws - AT : Non granting benefit u/s. 11 and u/s 10(23C) - there is neither any registration u/s. 12AA nor is there any evidence to support the case of the assessee that the donations were received with specific direction that it will form part of corpus of the assessee Institution. - No exemption - AT
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• Tax Dept Must Prove Undeclared Investments in Property; Assumptions Alone Insufficient for Income Additions.

  Case-Laws - HC : Unexplained investment in immoveable properties - onus lies on the department to prove that some consideration over and above the consideration stated in the sale deed have been invested, no addition can be made on presumptions and suspicions. - HC
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Customs

• Failure to Enforce Law Doesn't Excuse Ignoring Statutory Rules.

  Case-Laws - HC : Simply because the authorities who are expected to enforce the law are unable to enforce effectively, it does not mean that the statutory provision must be given a go bye - HC
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• Postal Import Assessment Dispute: Respondent Seeks Refund and Notification Benefits in Claim.

  Case-Laws - AT : Import by Post – Postal import - The refund claim filed by the respondent challenging the assessment made and seeking benefit of notification has to be treated both as a challenge to the assessment and as a claim for refund. - AT
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Service Tax

• Court Upholds Interest Payment to Petitioner After Refund Claim Rejected and Three-Month Waiting Period.

  Case-Laws - AT : Interest on refund claim rejected - the liability to pay interest to the Petitioner after expiry of a period of three months from the date of receipt of the Application cannot be denied - AT
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Central Excise

• High Court Confirms 100% EOU Can Clear Goods to DTA Without Permission, Upholds CESTAT Ruling on Notification No. 2/1995.

  Case-Laws - HC : Clearance by 100% EOU to DTA - Without permission - Since the decision of the CESTAT is based on the clarification given by the office of the Development Commissioner, no fault can be found with the decision of the CESTAT to the effect that the assessee was entitled to the benefit of the Notification No. 2 of 1995 in respect of multimeters, transducers and accessories, etc. - HC
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• Extended Recovery Period Not Applicable Due to Appellant's Bona Fide Belief in Availing Cenvat Credit Wrongly.

  Case-Laws - AT : Cenvat credit wrongly availed - appellant had entertained bonafide belief regarding availability of cenvat credit and therefore, extended period is not invokable - AT
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• Penalty Imposition u/s 11AC Debated; No Provision Found for Penalty Post-Settlement u/s 11D.

  Case-Laws - AT : Demand u/s 11D - Levy of penalty u/s 11AC - There is no provision either in the Act or in the Rule for imposing of penalty, where demand has been paid u/s 11D. - AT
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VAT

• Applicants Seek Remedy After Late Refund Application Due to Potential Flawed Professional Advice.

  Case-Laws - HC : Rejection of application for refund as it was time barred - applicants are guided by their advice; if that is defective, they cannot be deprived of the remedy. - HC
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Case Laws:

• Income Tax

• 2013 (1) TMI 114
  Addition of business advances to the book profit for the calculation of MAT u/s 115JB - assessee contested as nothing can be added to book profit to calculate MAT except those items which are mentioned in clauses (a) to (g) of explanation (1) of section 115JB - Held that:- The net profit after making addition comes to Rs. 18,80,627/- (15,10,627 + 3,70,000(loans & advances). This amount of Rs. 18,80,627/- is required to be considered as net profit as per the Profit & Loss account shown by the assessee. Contention of the assessee that only specified adjustment is required to be made is agreeable but the facts of the case under consideration are different because agreed addition before the A.O. is a part and parcel of net profit as shown by the assessee in Profit & Loss Account and, therefore, this is not a part of adjustment. There is no restriction in calculating correct net profit as per Profit & Loss account which includes agreed addition where assessee stated having no business relationship with those persons and as was pre occupied by some personal work was unable to produce persons & in order to buy peace of mind and having assurance not to impose penalty, offer the amount which he has received from those persons be treated as their income. Thus when the net profit of the assessee is the net profit shown in the Profit & Loss account plus agreed addition, that will be the net profit as per the assessee and in the light of the fact, that the A.O. did not make any extra adjustment. The AO has made correct net profit accepted by the assessee therefore no infirmity neither in the order of A.O. nor in the order of CIT(A) - against assessee.

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• 2013 (1) TMI 113
  Interest u/s 234C - assessee is in the business of real estate development - search action u/s 132 - Held that:- The assessee has claimed to have earned the business income only at the fag end of the financial year by the delivery of possession of the property and that this delivery of possession is as per the agreement between the assessee and the developer. The decision of the Tribunal in the case of Jindal Irrigation Systems (1995 (8) TMI 97 - ITAT HYDERABAD-A) is very much applicable to the facts of the case as the claim of the assessee that the income has accrued to the assessee on 28.3.2008 has not been examined by the authorities below - remand the issue to the file of the AO with a direction to examine the claim of the assesee and if it is found that the income has in fact accrued to the assessee on 24.3.2008, then no interest u/s 234C shall be charged.

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• 2013 (1) TMI 112
  Exemption u/s.10-B - Income of eligible units entitled to exemption u/s.10-B will not form part of the total income under Chapter-III of the Act - disallowance of set off of income of non-eligible unit against the loss of the eligible unit - Held that:- As decided in CIT v. Yokogawa India Ltd [2011 (8) TMI 845 - KARNATAKA HIGH COURT] it is clear that the income of the section 10A unit has to be excluded before arriving at the gross total income of the assessee & not after computing the gross total income. Also when there is positive income of the eligible unit then the same should be allowed deduction u/s. 10B without setting of the loss of non-eligible unit but when the eligible unit incurs loss than that will have to be set off against income if any of the non-eligible unit. As deduction under section 10A has to be excluded from the total income of the assessee the question of unabsorbed business loss being set off against such profit and gains of the undertaking would not arise. The expression "Deduction" and "shall be allowed from the total income of the Assessee" used in the provisions was considered by the Hon'ble High Court and it held that the expression "shall be allowed from the total income of the Assessee" does not mean total income as defined u/s. 2(45) but that expression means "profits and gains of the STP undertaking as understood in its commercial sense or the total income of the STP unit." Thus the view expressed is that income of the STP undertaking gets quarantined and will not be allowed to be set off against loss of either another STP undertaking or a non STP undertaking. Therefore unable to accept the plea of the Assessee that the Hon'ble Karnataka High Court has only held that income of the Sec. 10B unit has to be excluded before arriving at the gross total income and not after computing the gross total income. As during the period when the eligible unit enjoys exemption u/s.10B if it suffers a loss then the same will be quarantined and carried forward to the assessment years immediately following the last of the assessment years for which the Assessee is entitled to claim exemption u/s.10B, for being set off in accordance with law as if it were any other loss to be dealt with in accordance with Sec.70 to 72 and 32(2). It is also clear that the loss suffered by the eligible unit u/s.10-B during the period it claims exemption without opting out of those provisions will only remain in suspension to be revived immediately after the tax holiday period. Therefore the set off of the eligible unit loss against income of non eligible unit during the tax holiday period when the Assessee has not opted out of the incentive provisions for this year cannot be allowed and has been rightly not allowed by the Revenue authorities. If the claim of the Assessee is accepted then that would mean that the Assessee will have two benefits u/s.10B first being an exemption of the commercial profits during the tax holiday period on a stand-alone basis without the threat of being set off against loss of any other undertaking & second that its losses during the tax holiday period can be set off against the income of the non-eligible undertaking. As the second benefit is not available during the tax holiday period and the provisions of Sec.10B(6) allow them to be kept in suspense to be set off after the tax holiday period the claim of the Assessee in the present case was rightly not accepted by the revenue authorities - against assessee.

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• 2013 (1) TMI 111
  When can it be said that the business commenced for the purpose of determining its tax liability? - Held that:- As decided in CWT v. Rama Raju Surgical Cotton Mills Ltd [1966 (10) TMI 41 - SUPREME COURT] A unit cannot be said to have been set-up unless it is ready to discharge the function for which it is being set-up. It is only when the unit has been put to such a shape that it can start functioning as a business or a manufacturing organization that it can be said that the unit has been set-up. Reasoning given by the AO in his order for the assessment year 1998-99 is clear and conclusive that heavy expenditure incurred by the assessee to create an infrastructure for facilitation of future business, hence, benefit of enduring nature was imposed to be derived. It accepted the assessee's contentions with regard to having commenced business with effect from 01.01.1997. It was only on the basis of such a fundamental premise that income was assessed and certain disallowances were made. In these circumstances, it would be unfair for the revenue to contend for each successive assessment year that the assessee had to establish that it "commenced business." The evidence on record clearly shows that substantial services were being rendered and salaries etc. were disbursed even though on reimbursement basis. The mere fact that other service charges are meager in nature would not, in any way, influence the decision as to whether business was commenced. Furthermore, in line with the decision of this Court in ESPN Software (P.) Ltd. (2008 (3) TMI 90 - DELHI HIGH COURT) the question of date of commencement of business is one of fact. It is setting-up of business and not commencement that is to be considered. Having regard to these circumstances, it is held that the findings of the Tribunal in the impugned common judgment and order are sound and do not call for interference. The question of law is accordingly answered in favour of the assessee.

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• 2013 (1) TMI 110
  Deduction under section 10A in respect of Bangalore unit (STPI unit) - assessee company had two units, one in Bangalore[STPI unit] and another in Mumbai (Non STPI Unit) - brought forward losses of STPI unit without setting off the carry forward losses as well as the loss of the current year pertaining to Non-STPI unit OR after setting off the unabsorbed loss of the same unit and the current year’s loss of the non-STPI unit - Held that:- As decided in CIT Versus Yokogawa India Ltd. [2011 (8) TMI 845 - KARNATAKA HIGH COURT] deduction u/s 10A/10B is allowable without setting off the non-STPI unit - As the income of 10-A unit has to be excluded at source itself before arriving at the gross total income, the loss of non 10-A unit cannot be set off against the income of 10-A unit u/s 72. Exclusion of telecommunication expenses and travelling expenses incurred in foreign currency from the export turnover & not from the total turnover while calculating deduction u/s 10A - Held that:- As decided in CIT v M/s Tata Elxsi Ltd. & Others [2011 (8) TMI 782 - KARNATAKA HIGH COURT] while computing the exemption u/s 10A, if the export turnover in the numerator is to be arrived at after excluding certain expenses, the same should also be excluded from the total turnover in the denominator. When the statute prescribed a formula and in the said formula, ‘export turnover’ is defined, and when the ‘total turnover’ includes export turnover, the very same meaning given to the export turnover by the legislature is to be adopted while understanding the meaning of the total turnover, when the total turnover includes export turnover. If what is excluded in computing the export turnover is included while arriving at the total turnover, when the export turnover is a component of total turnover, such an interpretation would run counter to the legislative intent and impermissible. Thus, there is no error committed by the Tribunal in following the judgements rendered in the context of section 80HHC in interpreting section 10A when the principle underlying both these provisions is one and the same - Thus CIT(A) was justified in directing the AO to exclude the above mentioned expenses both from the export turnover as well as from the total turnover while computing deduction under section 10A - in favour of assessee.

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• 2013 (1) TMI 109
  Provision for CISF security expenses - liability is in the nature of a contingent liability and cannot be allowed as a deduction for the AY 2007-08 - Held that:- Perusal of records depicts that the liability to share the expenses for the security provided by NFC is an accrued liability. In fact, NFC had raised bills and assessee paid for the same for the first two quarters for the relevant previous year but for the last two quarters, for whatever reason, the NFC has not raised bills and assessee therefore had to make a provision for the said expenditure. Similar expenditure has been claimed and allowed by the ITAT in assessee s own case for the AY 2003-04 following the decision of the Apex Court in case of Bharat Earth Movers v. CIT [2000 (8) TMI 4 - SUPREME COURT] wherein held that once a liability has accrued, then even if such liability can be quantified and settled only at future point of time, is allowable deduction in the year in which the liability has accrued. Similarly Supreme Court in the case of Rotork Controls India (P.) Ltd. v. CIT [2009 (5) TMI 16 - SUPREME COURT OF INDIA] had held that a provision made for warranty expenses, even though will be actually expended at a later point of time, is an allowable expenditure in the year of sale of product for which such warranty has been given The liability to pay security expenses to NFC accrued during the financial year and it was not contingent upon any other happening. The mere fact that it was not quantified during the year by way of raising of bills by NFC could not alter the fact that such liability even though on an estimated basis is an accrued and allowable liability. In the present case there is no dispute that the liability to share the expenses for security provided by NFC has accrued and pertains to the year under appeal. Therefore, the estimated liability for such expenses provided for in the books of account by the assessee is an allowable expenditure - appeal of the Assessee regarding disallowance of 69 lakhs out of the provision made for their share of security expenses is allowed. Weighted deduction u/s.35(2AB) - Held that:- As per the provisions of sec 35(2AB) as applicable to the relevant AY, the expenditure incurred by the assessee in any approved in-house research facility, to the extent of approved by the prescribed authority, is entitled to weighted deduction of 150% of such approved expenditure. Therefore, the expenditure as approved by the DSIR in the certificate given by them in Form 3CL alone is to be granted weighted deduction. The DSIR in their certificate has certified expenditure eligible for weighted deduction as 3,126.02 lakhs. Therefore, it is not for either the assessing authority or the appellate authority to decide on the expenditure which will be entitled to weighted deduction u/s.35(2AB) - Uphold the decision of lower authorities in restricting the weighted deduction u/s.35(2AB) to 46,89,03 lakhs and disallowing sum of 1,69,73,987 out of the claim made by the assessee. Disallowance of provision for wage revision arrears - Held that:- As held in the assessee s appeal (supra) the liability to share the expenses for the security provided by NFC is an accrued liability. Hence the entire amount of 2,62,42,012 claimed by the Assessee is an allowable expenditure.

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• 2013 (1) TMI 108
  Penalty u/s 271D & 271E - search and seizure - unaccounted accepting & repayment loans and deposits - defaults within the meanings of section 269SS and section 269T - Held that:- A detailed enquiry was made from Shri Yogesh Gupta, directors/partners of the assessee and the group concerns in respect of various papers seized from him and in respect of not a single paper, he has stated that the noting on the paper is relating to borrowing by the assessee. In respect of each and every paper, he explained the nature of transaction and in most of the cases also explained the name of the group concern to which such paper belonged. In respect of only few papers he mentioned that these papers belonged to M/s Home Developers (P) Ltd., i.e., the assessee. He stated that these papers are relating to purchase of property No.A-9/33, Vasant Vihar, New Delhi in respect of which cash payment of Rs.54 lakhs was made and which was offered as additional income. The Hon’ble Jurisdictional High Court has also considered his statement while deciding the Revenue’s appeal for AY 2001-02, 2002- 03 & 2003-04 and has recorded the similar finding that with regard to the loose papers, Shri Yogesh Gupta had stated that these were unaccounted transactions in cash. In his statement, he also surrendered the income of Rs.13 crores in his name and in the name of the group concern & the Revenue was fully satisfied by the surrender made and closed their investigation. The above finding of the are squarely applicable to the year under appeal also because in this year also, the Revenue has brought no other material on record to establish that as per the loose papers, any amount was borrowed by the assessee. They have not even examined the person whose name is claimed to have been mentioned on the loose papers. In the loose papers, no where it is mentioned that they belonged to the assessee i.e. M/s Home Developers (P) Ltd. which is a company. All the entire addition is based upon the presumption of the AO. On the loose papers, there is noting of dates and amounts without any narration. The total of such amount is Rs.2,40,000/- & not as presumed Rs.2,40,00,000/-. The noting is relating to loan taken by the assessee & the loan was repaid during the accounting year relevant to the assessment year under consideration alongwith interest at the rate of 20%. On these series of presumptions, he not only made huge additions running into crores of Rupees but also levied penalties under Sections 271D & 271E. His finding is neither based upon the noting on the loose papers nor any corroborative evidence brought on record during the course of assessment proceedings - thus when it is not established that the assessee had taken loan or deposit, the question of further presumption that such loan or deposit was repaid during the year under consideration was without any basis or material on record - the penalties levied u/s 271D and 271E cancelled - in favour of assessee.

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• 2013 (1) TMI 107
  Penalty u/s. 271B - Failure to get accounts audited u/s 44AB - assessee contented that its entire income being tax exempt u/s.80P accordingly there being no loss to the Revenue - A.Y. 2006-07 - Held that:- No reason to doubt the assessee when it states that it was under a bona fide belief that it was not required to get its accounts audited u/s. 44AB in view of its entire income being exempt u/s. 80P. Its' statutory audit was completed well in time, so that it was definitely in a position to obtain an additional report u/s. 44AB from a firm of Chartered Accountants, i.e., were it to be in its knowledge or been so advised. In fact, had its statutory auditors qualified to be Accountants under the Act, they would have themselves guided the assessee properly in this regard. The same, nevertheless, shows the assessee's bonafides in the matter, it getting its accounts audited as well as filing the return of income in time. Therefore, of the view that in the facts and circumstances of the case, there was sufficient cause for the AO not to levy penalty u/s. 271B for the first year (i.e., A.Y. 2006-07) in spite of the default in complying with the provision of s. 44AB, which the said (former) section seeks to penalize, and accordingly direct its deletion. A.Y. 2006-07 - The return for the second year (i.e., A.Y. 2007-08) was filed on 24-09-2007, even as, the show-cause notice for the levy of penalty u/s. 271B for the first year (A.Y. 2006-07) stood issued to it on 13-06-2007. As such, ignorance of law, i.e., of it being required to get its accounts audited u/s. 44AB irrespective of the quantum and nature of its income, including the tax status, tax-exempt or otherwise, thereof, which forms the edifice of the assessee's case, completely breaks down for the second year, i.e., A.Y. 2007-08. Having been served with a legal notice for the levy of penalty u/s. 271B, it was incumbent on the assessee to cause to comply with the provision, at least for the second year and, in any case, seek legal opinion in its respect. Rather, it could have, on its own, requested the AO not levy the penalty for that year (i.e., A.Y. 2006-07), explaining that the non-audit of its accounts u/s. 44AB stood caused only due to its ignorance of law, acting though in good faith, and for allowing it reasonable time to furnish the report there-under before the completion of assessment. Not only does it do nothing of the sort, it goes ahead to file the return of income for the following year, after over three months, again in the same manner, i.e., without getting its accounts audited and obtaining a report u/s. 44AB, which it was mandatorily required to furnish. That is, the assessee deliberately adopts a legal stand, which is without basis, so that it cannot claim to have acted in good faith or under a bona fide belief. The plea of 'reasonable cause' would thus not obtain for the second year, and the levy of penalty u/s. 271B for the assessment year 2007-08 is accordingly upheld.

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• 2013 (1) TMI 106
  Fee for Technical Services - whether the consideration received under the Buying Agency Services Agreement ('BAS') could be characterized as 'fees for technical services' u/s 9(1)(vii) and accordingly by taxed under the provisions of section 115A - penalty u/s 271AA - Held that:- It is evident that for a particular stream of income to be characterized as 'fees for technical services', it is necessary that some sort of 'managerial', 'technical' or 'consultancy' services should have been rendered in consideration. The terms 'managerial', 'technical' or 'consultancy' do not find a definition in the Income-tax Act, 1961 and it is a settled law that they need to be interpreted based on their understanding in common parlance. In the case of Skycell Communications Ltd's case (2001 (2) TMI 57 - MADRAS HIGH COURT), it was held that the popular meaning associated with the word 'technical' is 'involving or concerning applied and industrial science'. The consultancy should be rendered by someone who has special skills and expertise in rendering such advisory. Perusal of copies of the Buying Agency Services agreement depicts the nature of services have not been disputed. Department has only interpreted them to be amounting to 'Fees for Technical Services', but these are not technical services but routine services offered in the procurement assistance. The agreements demonstrate that the assessee was to receive commission for procuring the products of AIMPL and rendering incidental services for purchases. The primary services provided by the assessee to AIMPL in terms of the Buying Agency Services agreement are Co-ordinate between AIMPL and manufacturers for the purpose of buying the merchandise,assisting in negotiations,procurement of samples and sending them to AIMPL,maintaining relationship with the manufacturers and search for new manufacturers,supply credit reports and other marketing information concerning manufacturers and to provide translation services as required for communication between AIMPL and the manufacturers. Applying these principles and as decided in Linde A.G. v. ITO [1997 (1) TMI 479 - ITAT MUMBAI ] to the facts of the present case, the services rendered by the assessee in this case were purely in the nature of procurement services and cannot be characterized as 'managerial' 'technical' or 'consultancy' services. Accordingly, the consideration received by the assessee was appropriately classified as 'commission' as against 'fees for technical services'. Penalty u/s 271AA & 271BA - No separate proceedings have been initiated so far and the Grounds about levy of interest u/s 234B, 234D and 244A are consequential in nature. Ground regarding TDS credit will be verified by the AO in accordance with law - assessee's appeal is allowed on above terms.

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• 2013 (1) TMI 105
  Broken period interest paid to the sellers of the securities - revenue v/s capital - order u/s 263 of CIT(A) directing AO not to treat the broken period interest as revenue expenditure but as a part of cost of purchase of securities and to consider it for valuation of stock - Held that:- In the instant case, the assessee-bank, since its inception, has been offering the broken period interest income earned from the sale of securities (AFS category) as business income under section 28 and not as interest income under the head “Income from other sources”. Accordingly, the broken period interest paid to the sellers of securities was claimed as an allowable deduction from its business income, under the Act. Applying the principles laid down in the case of CIT v Citibank N.A.[2008 (8) TMI 766 - SUPREME COURT OF INDIA] the Bank is entitled to claim the broken period interest expenditure as revenue expenditure from its business income, since the broken period interest income is also offered to tax as business income. Also following judicial precedents supported the claim of the assessee that the broken period interest payments are in the nature of revenue expenditure American Express International Banking Corporation v CIT (2002 (9) TMI 96 - BOMBAY HIGH COURT)wherein held that when the BPI received was taxable as business income, the Department ought to have allowed deduction for the BPI paid on purchase of securities. CIT v Citibank N.A.(2003 (4) TMI 36 - BOMBAY HIGH COURT) & CIT v Nedungadi Bank Limited (2002 (11) TMI 29 - KERALA HIGH COURT) stating that the interest paid for the broken period would constitute allowable outgo in the hands of the assessee and is an admissible deduction in the computation of total income of the Bank under the head “profits and gains of business or profession & State Bank of Hyderabad v Joint CIT (2005 (3) TMI 403 - ITAT HYDERABAD-B) stating that if the securities were held by the banking company as stock-in-trade of the business, interest paid for the broken period would constitute allowable outgo in the hands of the assessee bank. Disallowance of broken period interest paid to sellers of securities in earlier years - Held that:- The amount is to be disallowed when the same should have been claimed as a deduction by debiting to the P&L account. The broken period interest payment made in the earlier year account cannot form part of the disallowance for the current assessment year since the same was not debited to the P&L account and hence, no disallowance is called for - appeal decided in favour of the assessee

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• Customs

• 2013 (1) TMI 119
  Importing drug Benfotiamine - allowing the importer to use the provision of Rule 43 of the Rules there is a possibility of spurious drugs being circulated to the human use which will be neither allowable nor permissible - mere fact that the consignment label carries stamping given by the importer, it is not for medicinal use itself is not sufficient - licence in Form 10 or Form 10A should have been obtained or NOC from the authority competent - Held that:- Circular on Import of drugs having dual use and drugs which are used as a raw material for the manufacture of other drugs by the actual users only shows that the department has taken a view that giving blanket exemption from the applicability of Chapter III of the Drugs and Cosmetics Act, would cause harm to the public interest and therefore to have a supervision over the use of the said drugs, the importer must be directed to obtain licence in Form 10. The said circular even though is stated to have been issued by taking note of the public interest, after consulting the various Ministries, cannot attempt to take away and supersede the statutory provisions contained in Rule 43 of Rules as extracted above. As correctly found by the learned Judge, the department is not left in lurch, in the event of any of the unscrupulous importer attempted to use or sell the above said drugs for medicinal purpose. A joint reading of the above said provision categorically shows that the exemption granted to the importer from the applicability of Chapter III is available, only when the conditions contemplated under Rule 43 read with schedule D of the Rules is fulfilled scrupulously. If only the department comes to a conclusion on evidence and proof that there is breach of such condition of Rule 43 of Schedule D, the moment it is proved, the importer loses his right of exemption under Chapter III of the Act. Certainly, the authority in such circumstances would have a right to interfere for insisting necessary licence or make necessary search and enforce the provision under Section 13 of the Act for any violation. When such powers are available to the authorities, it is not known as to how the appellant is repeatedly referring to the word 'public interest'. Simply because the authorities who are expected to enforce the law are unable to enforce effectively, it does not mean that the statutory provision must be given a go bye and such a construction would be antitheses to the concept of rule of law.

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• 2013 (1) TMI 104
  Rejection of refund claim - Limitation of time aspect - DEPB credit utilized by the assessee for clearance of certain goods covered by the Bill of Entry dated 14.03.2011 - Held that:- Out of Customs charge order under Section 47 was issued on 18.03.11, that the goods merely cleared for home consumption were not re-exported within 30 days prescribed under Section 26A (1) of the Act, that the same could not be re-exported even within a further period of three months, that the appellant even did not request the Commissioner of Customs for extension of time under the first proviso to the above provision. It is submitted that the shipping bill was filed for re-export on 10.06.11. As the appellant is requesting for an opportunity to put across to the Commissioner the circumstances in which they could not make an application at the appropriate stage for extension of time for re-export, the party can be given an opportunity to make a representation to the Commissioner. If they do so within seven days from the date of receipt of a certified copy of this order, the Commissioner of Customs concerned shall consider the same on merits and take a fair decision thereon after giving the party a reasonable opportunity of being personally heard.

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• Corporate Laws

• 2013 (1) TMI 103
  Injunction restraining respondents 1 and 2 from presenting total number of thirty three cheques for collection/encashment pending disposal of the arbitiral proceedings - agreement styled as "Build, Own and Operate basis" - maintainability of the original application in this court contending that the application is barred under section 42 of the Arbitration and Conciliation Act, 1996. Held that:- Though notice was taken in the petition filed by the first respondent herein before the Delhi High Court, namely Original Miscellaneous Petition No.236/2012, without even raising objection regarding the jurisdiction, the application seems to have been resisted on merits. Hence the contention of the the first respondent that the applicant herein having failed to raise objection regarding the jurisdiction of Delhi court to entertain the said Original Miscellaneous Petition, is not entitled to question the jurisdiction of the said court in the present original application filed in this court has got to be countenanced. Furthermore, the comity of courts will require this court not to venture to go into the question whether the Delhi High Court has got jurisdiction to entertain the original miscellaneous petition No.236/2012 pending on its file. If this court ventures to do so, it will amount to usurping the powers of the Delhi High Court to decide on its jurisdiction. Admittedly, the said Original Miscellaneous Petition, which was filed earlier in point of time regarding the dispute forming the subject-matter of arbitration is pending on the file of the Delhi High Court. Unless and until the Delhi High Court rejects the petition holding that it does not have jurisdiction to entertain that petition, the bar provided under section 42 of the Arbitration and Conciliation Act, 1996 shall stand attracted. This court comes to the conclusion that the present original application filed by the applicant under section 9 of the Arbitration and Conciliation Act, 1996 cannot be maintained in view of the fact that similar petition O.M.P.No.236 of 2012 filed earlier on the file of the Delhi High Court by the first respondent herein is pending. Section 42 of the Arbitration and Conciliation Act, 1996 provides a bar for entertaining such an application by any other court. Hence the present original application is liable to be dismissed holding that it is not maintainable & dismissed In case the petition filed before the Delhi High Court is dismissed at a later point of time on the ground of want of jurisdiction, then this order shall not be an impediment for the applicant to file a fresh petition. There shall be no order as to cost.

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• Service Tax

• 2013 (1) TMI 118
  Instructions for appeal filed before the Tribunal - appeal need not be filed before the Tribunal for the amount less than rupees 5 Lakhs - Held that:- Considering the case decided in Stovec Industries Limited [2013 (1) TMI 72 - GUJARAT HIGH COURT] in the instant appeal the amount of service tax involved is Rs. 2,02,472/- only and penalty of Rs. 2,02,472/- only. Therefore, in view of the circular dated 17.08.2011, the appeal could not be preferred by the Central Excise and Customs Department before this Court. It cannot be gainsaid that the Department is bound by its own circulars. As after circular dated 17.08.2011 no other circular has been issued by the Ministry of Finance, Department of Revenue Central Board of Excise and Customs, Government of India, New Delhi, authorizing the Department to file appeals where the amount is less than Rs. 10 lacs - dismiss the appeal filed by the Revenue

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• 2013 (1) TMI 117
  Denial of CENVAT credit on insurance service - Held that:- As decided CCE, Bangalore-III Vs. Stanzen Toyotetsu India (P) Ltd. [2011 (4) TMI 201 - KARNATAKA HIGH COURT] having regard to the provisions of the Employees State Insurance Act, 1948 and the Workmens Compensation Act the insurance policy taken by the assessee was a service constituting activity relating to business and hence an input service under Rule 2(l) of the CENVAT Credit Rules, 2004 for the purpose of CENVAT credit. As the Hon'ble High Court's judgment was accepted by the Department assessee's appeal is allowed in this case.

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• 2013 (1) TMI 116
  Interest on refund claim rejected - Held that:- As decided in Swaraj Mazda Ltd. [2008 (7) TMI 420 - HIGH COURT OF JUDICATURE AT BOMBAY] unless a finding is recorded that an application that was filed by the Petitioner under Section 11B of the Central Excise Act 1944 cannot be termed as an application made under Section 11B, liability to pay interest after expiry of a period of three months from the date of receipt of that application cannot be denied. In the present case the Respondent has not recorded any finding within a period of three months from the date of receipt of the Application dated 11th September, 2004, that the Application cannot be termed as an application under Section 27 of the Customs Act, 1962. Therefore, the liability to pay interest to the Petitioner after expiry of a period of three months from the date of receipt of the Application dated 11th September, 2004 cannot be denied.

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• 2013 (1) TMI 115
  Excess credit taken on service tax and education cess (including SHE) - order demanding reversal of credit - Held that:- Relying upon the ST-3 returns filed by the respondent's Alkapuri Unit before the authorities for the period October 2007 to March 2008 and submits that there was a closing balance of 12,87,034/- and 28,376/-. It is his submission that since the unit at Alkapuri was closed, the entire amount lying in credit was taken into account by their Maneja unit. On perusal of the records it seems so. As both the lower authorities have not called for any report from officers in charge of Alkapuri unit as to whether there is a closing balance or not, which needs to be verified by the lower authorities - the impugned order needs to be set aside and the matter be remanded back to the adjudicating authority for reconsideration - in favour of assessee by way of remand.

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• Central Excise

• 2013 (1) TMI 102
  Manufacture of core spun threads out of nylon / cotton and polyester / cotton yarns - classification under heading 54.02 OR 56.06 - assessee claimed refund of pre-depositpaid by them towards excise duty for core spun yarn manufactured and cleared during the period 01-03-94 to 28-02-95 - demand challenged invoking period of limitation - Held that:- While the assessee wanted the duty to be quantified only for six months prior to 14.6.95 (date of the show-cause notice), the Revenue asked for duty for the entire period from 1.3.1994 covered by Order-in-Original No. 55/93 dated 30.11.93. No classification issue was anywhere in the picture. Obviously, this Tribunal was required to decide only the limitation issue and, following the Supreme Court's judgment in Cotspun case [1999 (9) TMI 87 - SUPREME COURT OF INDIA], it held that no amount of duty for any period prior to the date of the show-cause notice (14.6.95) was payable by the assessee vide Final Order Nos. 281 and 282/2000 dated 23.2.2000. The sequence of events would thus show that the assessee acquiesced in the classification of the goods under Heading 54.02 and chose to stick to the plea of limitation all throughout in order to get the quantum of demand reduced to the extent possible. In such circumstances, the submission of the assessee that the classification of the goods under Heading 56.06 as held in Order-in-Original No. 55/93 dated 30.11.93 attained finality with the passage of Order-in-Appeal No. 73/2003 dated 30.7.2001 cannot be accepted, and their plea that they were not liable to pay any amount of duty in terms of Heading 54.02 and hence entitled to refund of the duty already paid is also unacceptable. Four questions of law arising out of Final Order Nos. 281 & 282/2000 dated 23.2.2000 have been referred by this Tribunal to the Hon'ble High Court for its opinion and this reference under Section 35H(4) of the Central Excise Act is pending before the Hon ble High Court vide RCP Nos. 27 & 28/2001. In this scenario, it has to be held that the Tribunal's Final Order Nos. 281 & 282/2000 dated 23.2.2000 has not attained finality and that the reference proceedings are to be considered as proceedings in continuation of the Tribunal s proceedings. Therefore, the refund claim filed by the respondent is premature also

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• 2013 (1) TMI 101
  Statutory limit fixed for filing the appeal - assessee contested against non receipt of SCN & non grant of any personal hearing - Held that:- No dispute that the order in original dated 30.8.2010 was received by the assessee on 08.10.2010 for which they should have filed an appeal on or before 07.12.2010 and further, appeal could have been filed within 30 days by filing an application for condonation of delay. It is on record that appellant has filed appeal on 14.11.2011, almost after 13 months of receipt of the order in original. As Commissioner does not have powers to condone the delay of more than 30 days, the statutory limit fixed for filing the appeal no merit in the appeal and hence dismissed.

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• 2013 (1) TMI 100
  Demand of duty of excise on special discount, penalty of Rs.15 lacs and simple interest at the rate of 10% - petitioner opted to settle the dispute before the Settlement Commissioner - submissions only challenging imposition of penalty of Rs.15lacs - Held that:- Once the allegations in the show cause notices are admitted by the petitioner, it is not open to the petitioner to contend that the Settlement Commission ought to have passed a detailed reasoned order before imposing a penalty of Rs.15 lacs. It is also important to note that the Settlement Commission in the impugned order while settling the matter proceeded on the basis of the admission of the petitioner and applied the same test while imposing penalty. It is most relevant to note that in the spirit of settlement the Settlement Commission has imposed a penalty of only Rs.15 lacs and not equivalent penalty as proposed in the show cause notice issue for adjudication. There is an admission on the part of the petitioner with regard to conduct which alleges deliberate mis-declaration under valuation. Thus in the present facts mens rea was an admitted position and therefore not an issue before the Settlement Commission. Therefore, the Apex Court order in Sir Shadi Lal Sugar and General Mills Ltd. [1987 (11) TMI 1 - SUPREME COURT] as relied by assessee would have no application - in para 15 of the impugned Order the Settlement Commission decided not to examine the pleas of the petitioner on merits of duty demand as the same was admitted by the petitioner and for that very reason also does not disregard the valuation fraud for the purposes of imposing penalty, thus there has been no breach of law in the decision making process and the order imposing penalty does disclose the mind of the Settlement Commission in imposing penalty - writ dismissed.

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• 2013 (1) TMI 99
  Non satisfaction of provisions of Section 35F of Central Excise Act, 1944 - seeking waiver of pre deposit - Held that:- Unable to go into the merits of the case as the first appellate authority has not given his findings on the merits. In any case, the issue being the valuation i.e. non-inclusion of the cost of cylinders which were used for manufacturing of labels for their customers, is a question of interpretation as also a question of fact. The appellant need to be put to some condition for hearing and disposing the appeal by the first appellate authority. Accordingly directs the appellant to deposit an amount of Rs. 3,25,000/- within eight weeks from today and report compliance on 19.02.2013 before the Commissioner (Appeals).

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