Newsletter: Where Service Meets Reader Approval.
TMI Tax Updates - e-Newsletter
January 8, 2013
Case Laws in this Newsletter:
Income Tax
Customs
Corporate Laws
FEMA
Service Tax
Central Excise
Articles
News
Notifications
Highlights / Catch Notes
Income Tax
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Modus operandi for tax evasion - Sham transactions - In three days, the assessee himself, who was having no worth, alleged that he borrowed Rs.25.97 lakhs from 148 persons as if every person was waiting for this person to come and demand the money and every person was ready to give him money. This type of modus-operandi can be adopted by many persons. - HC
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Computation of profit u/s 80IA - The tax component is very much part of the sale of electricity from the Thermal Power Generating Stations and the mere fact that a component of the tariff makes a reference to the tax liability with reference to income streams mentioned in clause 6, it does not make such a component as not income to be excluded in considering the relief under Section 80IA/80IB. - HC
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Computation of Book Profit u/s 115JB - provisions regarding take or pay lease rental charges and the provisions for wage revision is a contingent liability. - AT
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Assessment u/s 144 - Section 44AD deems the net profit rate at 8% in cases where accounts are not maintained and turnover is up to Rs.40.00 lacs. This however, does not mean that profit will lower when the turnover is more than Rs.40.00 lacs. - AT
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Assessee in default u/s 220 – Recovery - The use of the term 'shall' in section 156 implies that service of demand notice is mandatory before initiating recovery proceedings and constitutes foundation of subsequent recovery proceedings. - HC
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Addition of surplus realised on sale of jewellery - The excess amount on sale of jewellery has neither accrued nor has been received by the bank as its income u/s. 5 of the I.T. Act. It continues to be an ascertained liability of the bank to be returned to the owner. - AT
Customs
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Imports of Hot Rolled Flat Products of Stainless Steel - 304 grade (upto a maximum width of 1605 mm) and encompassing all austenitic grades having minimum Nickel (Ni) from Republic of China into India - Notification
FEMA
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Condonation of delay – a party who has been all through pursuing his remedies cannot be non-suited on the count that the period of limitation prescribed under Section 35 of the FEMA is mandatory. Hence delay condoned. - HC
Service Tax
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CENVAT Credit - BSNL may please note that the procedure laid down under the Rules are intended to be followed and cannot be circumvented by quoting different decisions of the Tribunal. There should be an earnest attempt on the part of BSNL to follow the procedure laid down in Relevant Rules - AT
Central Excise
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Cenvat Credit - Once the Revenue discharges the burden that the particulars declared in the documents on the strength of which the credit has been availed are not genuine or are fake, then the onus is on the assessee to prove that they have availed the credit correctly and is entitled for the credit. - AT
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Ayurvedic soap manufactured under the brand name MEDIMIX - Their product cannot be classified under sub-heading 3401.19 by reason of the fact that power was used to bring one of the raw materials to the factory. - AT
Case Laws:
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Income Tax
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2013 (1) TMI 140
Modus operandi for tax evasion - Sham transactions - Identities of the creditors – Genuineness & creditworthiness of the loan creditors – Assessee in a 3 days’ time contact 148 persons and took loan in cash - too in small amount of less than Rs.20,000/- and collected Rs. 25.97 lakhs in no time - that too, as interest-free loan and further to give it to a Company as interest free loan - Assessee was asked to file the details of the names and addresses of the persons from whom he had taken loan - A.O. demanded further proof from the assessee, who in turn, submitted the loan confirmation from creditors - A.O. issued summons u/s 131 to 26 person - Issued enquiry letters u/s 133(6) in 30 cases - Out of 26 cases, where summons under Section 131 were issued, two summons returned 'unserved' and in 15 cases, no reply to the summons was received Whether in the taxation matter, there can be a test check method for finding out the “genuineness of the transaction” as alleged by the assessee which can be examined independent to even creditworthiness of the creditors Held that:- If the A.O. would have proceeded further to enquire about the creditworthiness of those 148 persons, he may have found that all persons had capacity to advance a loan of Rs.20,000 in cash. In such fact situation, it is heavy duty of the A.O. and other authorities to find out all truth from the evidence which includes acceptance or rejection of evidence of independent or interested witnesses. In three days, the assessee himself, who was having no worth, alleged that he borrowed Rs.25.97 lakhs from 148 persons as if every person was waiting for this person to come and demand the money and every person was ready to give him money. This type of modus-operandi can be adopted by many persons. The test check method for the purpose of finding out the creditworthiness of individual creditor may not be a valid mode of proceeding in the other tax matter. But so far as to find out whether the transaction as a whole is absolutely unbelievable which may not be believed by a prudent man of slightest common sense, then in that situation, in addition to other facts and circumstances, test check can be the right mode so as to meet with the clever mode of avoiding the tax Every officer, who is required to assess the evidence of any witness/deponent, is required to evaluate the evidentiary value of the evidence. In favour of revenue Interest u/s 234A and 234B – Whether interest can be levied over the assessed income or it can be levied only on the income declared in the return - Held that:- Following the decision in case of Smt. Tej Kumari (2000 (9) TMI 52 - PATNA HIGH COURT) that the revenue can levy the interest only on the total income declared in the returns and not on the income assessed and determined by the A.O. to that extent. In favour of assessee
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2013 (1) TMI 139
Deduction u/s 80HHC - Assessment years 1990-91 and 1992-93 - Whether income from godown rent to be treated as export profit for computing the relief u/s 80HHC - Held that:- The assessee's claim relates to the use of its godown by other exporters for storing goods till despatch. This cannot at all be termed to be a profit derived by the assessee from the export of such goods or merchandise coming within Section 80HHC. In favour of revenue
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2013 (1) TMI 138
Guest house expenses - Depreciation on guest house - Assessee claim was that the apartments were kept ready for stay by the touring officers due to the difficulties faced by such officers to get accommodation there - Held that:- Following the decision in case of Britannia Industries Limited (2005 (10) TMI 30 - SUPREME COURT) that the intention of the legislature in introducing sub-sections (3), (4) and (5) of Section 37 is clear and unambiguous and was intended to exclude the expenses towards rents, repairs and also maintenance of premises/accommodation used for the purpose of any accommodation in the nature of guest house indicated in sub-section (4) of Section 37. In favour of revenue
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2013 (1) TMI 137
Bogus Purchase – Block assessment had been made based on materials other than the seized materials - Assessee contended that the same cannot form part of an assessment relating to block assessment - Held that:- As concluding from the affidavit and facts of the case the assessee's contention that the subject matter of assessment in respect of genuineness of the newsprint purchase has to be excluded from the block assessment procedure and it can only be considered under the regular assessment. To that extent we agree with the assessee's contention. In favour of assessee Block Assessment A.Y. 1987-88 to 1997-98 - Chapter XIV-B - Special Audit - Principles of natural justice - Opportunity to the assessee before appointing the Special Auditor – Assessment made hurriedly - Without granting the assessee an opportunity to place the materials – Held that:- The Revenue had referred the matter to the Special Audit and the Special Audit report was submitted on 24.2.1998. In the background of the filing of the Special Audit Report on 24.2.1998 and the assessee filing his objection on 25.2.1998, when we look at the next date of hearing, it fell on 5.3.1998 and immediately on 13.3.1998 the assessment order was made. We do not find from the order that sufficient opportunity was granted to the assessee on the materials gathered. The Revenue should have afforded sufficient opportunity of hearing to the assessee to substantiate his case. In the absence of compliance of the principles of natural justice, setting aside the order of the Tribunal. Remand the matter back to the A.O.
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2013 (1) TMI 136
Computation of profit u/s 80IA - Whether reimbursement of tax paid by the assessee could be treated as part of the income for the purpose of deduction u/s 80IA or 80IB - Assessee is engaged in generation of electricity – Bulk Power Supply Agreement between assessee and State Electricity Boards - Notification dated 30.3.1992 provides the basis for working of the tariff for sale of electricity - Assessee had received was the price for the sale of energy on the tariff fixed by the Government in its notification and one of the components of the sale price was arrived at based on the grossed up tax or the actual tax assessed whichever is less Held that:- Tax reimbursement is nothing but a component of price. The clause 6 of the agreement specifies the tax liability of assessee in respect of the income on generation of power, mining of lignite from Mine II for the purpose of generation of power, the amount of grossed up tax that is payable by assessee on the income streams mentioned at items (i) and (ii) were to be borne by the recipients. viz, the State Electricity Boards The tax component is very much part of the sale of electricity from the Thermal Power Generating Stations and the mere fact that a component of the tariff makes a reference to the tax liability with reference to income streams mentioned in clause 6, it does not make such a component as not income to be excluded in considering the relief under Section 80IA/80IB. Therefore, the Commissioner committed serious error in dissecting the tariff to come to the conclusion that the tax component specified as part of the tariff is reimbursement of the liability of the assessee and hence it would not form part of the income. There will be no ground to sustain the plea of the Revenue that the relief to be granted u/s 80IA calls for exclusion of the tax component in the sale price of electricity. In favour of assessee
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2013 (1) TMI 135
Liability in respect of wages payable - Pursuant to Order dated 13-06-2003 of the Industrial Tribunal - Liability has not crystallized during the year – Held that:- Assessee has not made any provisions in the books of account during the present year and it is also stated that the orders passed by Commissioner / Industrial Tribunal were challenged before the Hon’ ble High Court. It could not be established that the liability has crystallized during the present year. In favour of revenue Disallowance of Prior Period expense - salary, wages, bonus and welfare expenses and water expenses – Held that:- Assessee had failed to furnish any material to show that liability has crystallized during the present year. AO must have allowed the deduction to the assessee in that year to which this expenditure are pertaining to and hence, no deduction can be allowed in the present year. In favour of revenue Computation of Book Profit u/s 115JB - Provision for take or pay lease rental charges - Provision for Wage Revision – Contingent Liability - Unascertained liability – Held that: - The provisions regarding take or pay lease rental charges and the provisions for wage revision is a contingent liability. This is also submitted by assessee that this provision was written back in A.Y. 2006-07. In favour of revenue Computation of Book Profit u/s 115JB - Excess provision for doubtful advances – Held that:- It is seen that same amount was added in book profit but in view of the contradictory finding of A.O. in assessment order, we feel it proper that in the interest of natural justice, this matter should go back to the file of AO for fresh decision. Remand back to AO. Expenditure on the release of water and discharge of effluent and pollution control – Revenue or Capital expenditure – Held that:- Following the decision in case of Hooghly Mills Company Limited (2006 (11) TMI 137 - SUPREME COURT) that this expenditure did not result in the creation of any specific asset, without appreciating that the expenditure gave an advantage of enduring nature and fell in the capital field, and, for being capital expenditure, it is not always necessary that it results in creation of a new, depreciable asset for the assessee. In favour of assessee Expenditure on acquiring fire-fighting equipments – Capital or revenue expenditure – Held that:- Following the decision in case of Ballimal Naval Kishore (1997 (1) TMI 3 - SUPREME COURT) that these expenses were necessary for complying with the Government regulations and did not result in the creation of any asset, without appreciating that these are not the relevant considerations for determining the capital vis-à-vis revenue nature of an expenditure and the expenses, being in capital field and giving an advantage of enduring nature, constitute capital expenditure. In favour of assessee Disallowance u/s 14A - Expense incurred in relation to exempted income - Assessee could not establish that the investment was made out of own fund and no borrowed funds have been utilized for making such investments – Held that:- The own fund is much higher than investment and therefore, it cannot be said that interest bearing borrowed funds were used for making investments in shares and therefore, no disallowance u/s. 14A is required in respect of interest expenditure. Confirm the disallowance of Rs. 5 lakh in respect of administrative expenses. Partly allowed Disallowance of corporate debt restructuring expenses – Revenue or capital expenditure – For waiver of loans - spreading it over a period of 6 years – Held that:- Following the decision in case of Madras Industrial Investment Corporation Limited (1997 (4) TMI 5 - SUPREME COURT) that such expenditure is an revenue expenditure. In favour of assessee Remission or cessation of liability u/s 41(1) - Waive of principal loans - Loan taken and benefit has arisen because of restructuring of loan in which part amount of principle loan was waived – Held that:- Following the decision in case of Chetan Chemicals Pvt. Ltd. (2001 (10) TMI 12 - GUJARAT HIGH COURT) that if the assessee is not carrying money lending business and earlier the loan do not give a benefit arising out of business than remission of the same cannot be taxed u/s. 41(1) of the Act or u/s. 28(iv). In favour of assessee Book profit u/s. 115JB – Provision for gratuity - On the basis of actuarial valuation - Unascertained liability – Held that:- It is submitted that this issue is squarely covered in favour of assessee by the Tribunal’s decision in assessee’s own case in A.Y. 2003-04. In favour of assessee Computation of book profit u/s. 115JB – Provision for diminution in the value of assets - Provision for bad debts – Held that:- As the retrospective amendment was made by (Finance Act, 2002) with effect from 1-4-2001 as per which the amount set aside for a provision for diminution in the value of any asset is to be added back in book profit. In favour of revenue Computation of book profit u/s. 115JB – Deduction u/s 80 HHC – Held that:- Following the decision in case of Bhari Information Tech Systems (P) Ltd. (2011 (10) TMI 19 - SUPREME COURT OF INDIA) that that deduction claimed by the assessee u/s 80HHE has to be worked out on the basis of adjusted book profit u/s 115JA and not on the basis of the profits computed under regular provisions of law applicable to computation of profits and gains of business. In favour of assessee Penalty u/s 271(1)(c) - Tax payable as per MAT u/s 115JB - Taxable income was nil as per the regular provision - The tax was payable by the assessee on book profit u/s 115JB - Out of these two additions long term capital loss and depreciation on co-generation power unit for which penalty was imposed by A.O - No addition was made in computing book profit by the AO - There is no impact on tax payable by the assessee – Held that:- Following the decision in case of Vijay Mistry Construction & Rajakamal Builders Pvt. Ltd. (2013 (1) TMI 97 - GUJARAT HIGH COURT) and NALWA SONS INVESTMENTS LTD. (2010 (8) TMI 40 - DELHI HIGH COURT) that Even after making these two additions in regular assessment, income-tax payable by the assessee remained the same being on book profit. When the computation was made u/s 115JB, alleged concealment has no role to play on tax payable and therefore, the concealment did not lead to tax evasion at all and by making this observation, penalty was deleted. In favour of assessee
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2013 (1) TMI 134
Unexplained cash deposits - Genuineness and source of cash creditor – Held that:- The assessee has received Rs. 1.59 crore from Praful L. Shah for which written submission made by the assessee on 14.03.2002 and explain the source. The assessee filed a copy of ITR for A.Y. 98-99 before CIT(A). Shri Praful L. Shah was cash creditor in the book of account of the assessee who is assessed to tax with ITO Ward 1 (6), Palanpur. Shri Hemendra L. Shah has given cash to assessee Rs. 45 lakh but source of cash in the hand of cash creditor was Rs. 20 lakh from Parth Mercantile Inc. and Rs. 25 lakh from Shri Dilip Atmaram Modi HUF. The cash creditor is the book account of the assessee is Hemendra L. Shah who had explained cash deposited up to Rs.25 lakh remaining amount had been shown from Parth Mercantile Inc. Therefore, cash credit to the tune of Rs.20 lakh has not explained. We have considered view that genuineness and source of cash creditor has not proved by the assessee in case of Hemendra L. Shah. Accordingly, confirm the addition of Rs.20 lakh. Addition u/s 68 - Identity of the party - Genuineness of the transaction - Source of the deposit – Held that:- assessee had submitted the confirmation and payments are account payee cheques, therefore, the assessee has discharged his primary onus to prove the genuineness of transaction, identity of person in above cash creditors. Cash credit of Rs.70000/- in case of Speedwell Properties Ltd. including interest has not been disclosed by the cash creditor in its balance sheet. No confirmation of Rs. 21,397/-. Therefore, (70000 + 21397) addition of Rs. 91397/- is confirmed by the CIT (A), is justified. Addition on account of bank charges and commission – Held that:- As concluding from the facts of the case debit entries as mentioned in books of accounts pertained to interest not bank charges and commission. The CIT(A) has not given any opportunity to the A.O. before admitting the evidence. Remand back to AO. Addition on account of bills discounting charges – Expense not explained – Held that:- Assessee has given details of discounting charges and claimed that total turnover was Rs. 12.07 crore and gross profit was at Rs. 25.25lacs. The bills discounting charges were pertained to Banks. The CIT(A) has not given any opportunity to the A.O. Therefore matter remand back to AO
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2013 (1) TMI 133
Addition on account of cash credits u/s 68 - Credit worthiness and genuineness of transactions - Assessee had taken fresh loans during the year from seven agriculturists – Held that:- The AO had also failed to examine the issue in detail by either summoning the creditors or for calling for further details. CIT(A) who has power co-terminus with AO in such matters has also failed to examine the issue in detail as he proceeded to make addition on agreed basis. Credit worthiness of the parties was not proved, without giving any further opportunity to the assessee to explain the credit. Remand back to AO Disallowance of bogus purchases and sub-contract charges - Purchases were not properly substantiated – Assessee submit wrong P.A number – Assessee declared net profit @ 6.5% - Disallowance on account of purchases and sub-contract charges aggregating to Rs. 725 lakhs - Held that:- Disallowance mad by AO result into abnormally high net profit rate of 34.43%. Assessee had done the contract work and had shown total contract receipts of Rs. 2114 lakhs. The business cannot be done without purchases and other expenses, and therefore, the entire claim cannot be disallowed. Profit calculated by AO is highly abnormal cannot be considered as reasonable. Section 44AD deems the net profit rate at 8% in cases where accounts are not maintained and turnover is up to Rs.40.00 lacs. This however, does not mean that profit will lower when the turnover is more than Rs.40.00 lacs. In fact with rise in volume, working becomes more economical and profitability may normally be higher. Each case has to be decided on its own facts and circumstances. Even in the comparable cases cited, the net profit rate had varied from 2.93% to 9.96%. These are big concerns who maintain proper accounts and also maintain quality standards. Estimation of net profit rate of 8% by CIT(A) is justified. In favour of revenue Addition on account of penal charges u/s 37(1) - Delayed execution of contract work - AO had treated the payment as penalty for infraction of law – Held that:- The payment was not for infraction of law cannot be faulted with. Any payment for violation for contractual obligation has to be allowed as normal business expenditure. In favour of assessee
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2013 (1) TMI 132
Shipping business of non-residents - Charterers of the ship - Beneficiary of the freight - India-Netherlands tax treaty – DTAA - Income from operation of ships - Freight beneficiary Who is the freight beneficiary - In the charter party executed by the owner of the ship (Iranian entity) and the charterer of the ship (Netherlands entity) - If the charterer (Netherlands entity) is the freight beneficiary, the relief under DTAA between India and Netherlands is available - Whereas there is no such benefit if the freight beneficiary is the owner of the Vessel, the Iranian party Held that:- As concluding from the fact of the case and Clause 14 & Clause 13 that the risk and liabilities undertaken by the charterer M/s Puyvast is only in the event of the tonnage being less than 19500 tonnes. Rising of invoice by the charterer and charging 49 Euros per m.tonn is of no relevance, since substantial portion of the freight is paid to the owner of the ship namely, the Iranian entity. Therefore, the substantial freight beneficiary is the owner of the ship, the Iranian entity and the conclusion of the revenue authorities that relief under DTAA is not allowable is justified. In favour of revenue
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2013 (1) TMI 131
Assessee in default u/s 220 – Validity of demand notice u/s 156 - Service of demand notice - Initiation of Penalty proceedings before issuing order of penalty – Held that:- Section 156 provides for a vital step to be taken by the A.O. without which the assessee cannot be termed a defaulter. The use of the term 'shall' in section 156 implies that service of demand notice is mandatory before initiating recovery proceedings and constitutes foundation of subsequent recovery proceedings. As no notice of demand has been served upon the petitioner. In the absence of service of a demand notice u/s 156 on the petitioner, prior to initiating recovery proceedings, which is mandatory, the very foundation of the recovery proceedings stands vitiated and as such, the same cannot be sustained. In favour of assessee
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2013 (1) TMI 130
Undisclosed income - Unaccounted sums of money - Unexplained investment in the purchase of property – Purchase consideration as per sale deed was Rs. 3.70 lakhs whereas sale consideration as per seller was Rs. 38 lakhs – Seller filled revised return on 31.3.2001 in which sale consideration was declared at Rs. 38.00 lakhs – Held that:- Following the decision in case of Shashi Kiran (2010 (8) TMI 767 - PUNJAB AND HARYANA HIGH COURT) and concluding from the facts that the seller has given a categorical statement during cross examination that they had received a sum of Rs. 38.00 lakhs as total consideration including Rs. 35.30 lakhs as cash in addition to Rs. 3.70 lakhs stated in the sale deed. Further this amount has been duly declared by the seller in their revised return and the assessee has not been able to controvert this evidence. In favour of revenue
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2013 (1) TMI 129
Disallowance loss on amortization of premium - Purchase of government securities – A.O. argued that the premium given at the time of purchasing “permanent category of investment” is capital in nature – Held that:- Following the decision of Tribunal in assessee’s own has considered an identical issue and delete the disallowance. In favour of assessee Addition of unclaimed balance of bank deposits - Unclaimed or Overdue deposits – A.O argue that assessee stands enriched by the unclaimed deposits – Held that:- Unclaimed deposits are form part of the bank deposits as reflected in the Balance sheet and have not been appropriated towards profits or income of the bank in the P&L A/c. It cannot be treated as income of the bank unless it has accrued to the bank or has it been received by the bank as its income. Same view has been taken by Tribunal in an identical issue in the assessee’s own case in the order passed for assessment year 2005-06. In favour of assessee Addition of surplus realised on sale of jewellery - Unjust Enrichment - The assessee bank is advancing money on the security of gold - When the borrower fails to liquidate the loan, the assessee-bank auctions the pledged gold and uses the proceeds to recover the amount lent by it - The excess amount so realised by the bank over and above the outstanding loan amount was shown as its liability under the head “surplus realisation on sale of jewellery” – AO argue that assessee has enriched itself by the surplus amount and accordingly, treated the same as income of the assessee – Held that:- The excess amount on sale of jewellery has neither accrued nor has been received by the bank as its income u/s. 5 of the I.T. Act. It continues to be an ascertained liability of the bank to be returned to the owner. Tribunal has considered an identical issue in the assessee’s own case relating to the assessment year 2005-06. In favour of assessee Disallowance made u/s. 40(a)(ia) – Late deposit of TDS – Held that:- All the deducted amounts except two small amounts of Rs. 550/- and 400/- had been remitted to the Central Government on or before the last day of the previous year. The above said two amounts which were deducted on 02.06.2005 and 04.08.2005 respectively were remitted into the Government account only on 04.04.2006, i.e., after the expiry of the financial year. Accordingly, the Ld. CIT(A) granted relief in respect of the amounts represented by the TDS which were remitted on or before the end of the relevant year. In favour of assessee Disallowance of revaluation of loss in unquoted shares - loss on revaluation of shares – Held that:- We set aside the order of the Ld. CIT(A) on this issue and restore the same to the file of the A.O. with the direction to examine this issue in the light of the decision of the Hon’ble High Court of Kerala in assessee’s own case. Remand back to AO Disallowance made u/s. 14A - Disallowance of proportionate interest - proportionate administrative expenses – Held that:- This issue needs re-examination as per Hon’ble High Court of Kerala in the assessee’s own case at the end of the A.O. Remand back to AO Addition of excess cash - The cashier of all branches has to tally the receipts and payments of cash of each day with the record maintained by the Accountant. Sometimes, it so happens that the cash balance physically available with the cashier may exceed the cash balance that should be available with him - customer might have remitted more than what was actually mentioned in the challan or the cashier might have disbursed lesser amount than that mentioned in the cheque leaf – banks usually treat the “Excess cash” as its liability, as the bank may receive claim from the concerned party at any point of time - Held that:- As the Tribunal in its order dated 11-02- 2011 passed in the assessee’s own case in I.T.A. No. 10/coch/2009 relevant to the assessment year 2005-06 has upheld the addition of excess cash found with the assessee. In favour of revenue Disallowance of bond issue expenses - expenses incurred in expanding the capital base is capital expenditure – Held that:- Following the decision in case of East India Hotels Ltd. (2001 (8) TMI 102 - CALCUTTA HIGH COURT) that claim of the assessee that the expenses incurred on issuing debentures is revenue expenditure. Therefore, the expenditure incurred in connection with the issue of debentures, in the facts and circumstances of the instant case, has to be treated as revenue expenditure only. In favour of assessee Disallowance of claim of depreciation on “Held to maturity” investment – Held that:- This issue is covered by the decision of the Hon’ble High court of Kerala in the assessee’s own case in I.T.A. No. 38/2010 dated 24-02-2011. Restore the same to the file of the AO
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Customs
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2013 (1) TMI 127
Maintainability of the WRIT petition - Section 130E of the Customs Act - Whether writ petition at the hands of the Department be entertained, where appeal against order of CEGAT would be maintainable before the Apex Court u/s 130E – Appeal against order of CEGAT in relation to rate of duty - Held that:- We are not inclined to entertain this petition. Following the decision in case of RAJ KUMAR SHIVHARE (2010 (4) TMI 432 - SUPREME COURT) and GUWAHATI CARBON LTD. (2012 (11) TMI 885 - SUPREME COURT OF INDIA) disapproved the practice of entertaining a writ petition by the High Court when statutory appeal under section 35L of the Central Excise Act, 1944 lies before the Supreme court. In favour of assessee
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2013 (1) TMI 126
Suspension of operation of the CHA license - Stay of operation of the order - Customs House Agent – Principal of natural justice - The suspension of the CHA licence is in force from 02/09/2011 - The period of 90 days is the outer limit for taking action under Regulation 22 - An inquiry is still being contemplated against the CHA for over 10 months Held that:- The suspension order had stated that an inquiry was contemplated against the CHA. Today the report from the side of the respondent indicates that action under Regulation 22 is yet to be taken. By no stretch of imagination can any prudent man say that such contemplation of action against the CHA for an indefinite period is in keeping with the principles of natural justice or with the spirit of the legal provisions. We are told that about 50 employees of the CHA are without livelihood on account of the suspension of CHA licence without any follow-up action on the part of the Commissioner of Customs. Accordingly, it is ordered that, if no action is initiated by the respondent in the above matter before 17/08/2012, the suspension order will stand set aside w.e.f. 18.08.2012.
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Corporate Laws
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2013 (1) TMI 125
Transfer of Telecommunication license - Overlapping licenses - Unified Access Service License for Punjab - Scheme of Amalgamation - Spice Communication Limited with Idea Cellular Limited - DoT was informing about the proposed merger on 25.6.2008 through letter - Amalgamation was not permissible without specifically taking its prior approval - Without the knowledge of or taking consent of or notice of the proceedings to the respondent Held that:- the amalgamation of the companies would be different from the amalgamation of the licenses. Therefore, these material facts would have bearing on the sanctioning of the Scheme with certain conditions and would not have resulted into the dismissal of the competition petition seeking sanction. For this reason, we hold that non-disclosure of the aforesaid facts would not amount to fraud resulting into vitiating the very action namely order sanctioning the scheme. It is not possible to scramble the unscrambled eggs at this juncture, additionally on the aforesaid reason, we feel that there was no case made out by the DoT for recall of the orders dated 05.2.2010 sanctioning the scheme. Even as per the contention of the appellant itself, sanctioning of merger scheme amounts only the merging company and not the licenses and therefore, the appellant itself maintains that for transfer of these licenses, prior permission of DoT is required. It is also recognized that there is a dispute on this issue inasmuch as, as per the appellant, it is entitled to get the license transferred in its name and the refusal of the Government on this account is not appropriate. This is a dispute which has to be resolved by the TDSAT and parties are already before the TDSAT. Therefore, it is for the TDSAT to give directions, including interim orders in this behalf. Dispute about transfer of licenses of Spice to Idea is concerned; the same shall be decided and determined by the TDSAT and the parties. It will also be open to the TDSAT to determine the arrangement in the interregnum. Appeal partly allowed
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FEMA
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2013 (1) TMI 128
Condonation of delay – 166 days - Period of limitation - Section 35 Foreign Exchange Management Act, 1999 - Section 5 of the Limitation Act – Order VIII Rule 1 CPC - Appellant is a resident outside Delhi and has limited means - Arrange necessary funds for the purpose of filing the appeal - Due to shifting of the Advocate’s office, the file of the writ petition could not be traced - Some delay in tracing out the file - Held that:- Following the decision in case of Kailash Versus Nanhku & Ors.(2005 (4) TMI 542 - SUPREME COURT) that the right of appeal is a substantive right whereas the law of limitation is a procedural law and thus the procedural law cannot override the substantive right. If there is sufficient cause for condoning the delay, this Court will exercise its powers and ensure that substantive justice is assured to the parties. The grounds taken for condonation of delay are that after the dismissal of the writ petition, the Petitioner had to arrange for funds and thereafter file of the writ petition got misplaced in the office of the counsel. It may be noted that the Appellant was pursuing his remedies with due diligence as immediately after the order of the Tribunal dated 2nd February, 2007 he filed a writ petition before the High Court of Gujarat in May, 2007 and on the return of the said petition for want of territorial jurisdiction a writ petition was filed before this Court on 29th September, 2007. Thus, a party who has been all through pursuing his remedies cannot be non-suited on the count that the period of limitation prescribed under Section 35 of the FEMA is mandatory. Hence delay condoned. In favour of assessee
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Service Tax
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2013 (1) TMI 143
Waiver and stay of demand - Extended period of limitation - Suppression of value of taxable service - Section 73(1) of the Finance Act, 1994 - Management consultant service – Exempted services other than exports - Assessee was required to provide customized software and infrastructure to conduct tests at different designated test centers in India – Held that:- The entire amount was included by the assessee in their ST-3 returns, albeit as non-taxable. They also declared in their returns that these amounts were based on their books of accounts. At the stage of audit objection, they produced these books of accounts including the agreement, which was in July, 2006. Nevertheless, the show-cause notice came to be issued only in June 2008. This delay is not satisfactorily explained in the show-cause notice or in the Order-in-original. Waiver of pre-deposit and stay of recovery allowed
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2013 (1) TMI 142
Input service distributor - Rule 2(m) of the CENVAT Credit Rules, 2004 – CENVAT Credit on capital goods – Capital goods installed at any other place - Business of providing telephone services - Discharge service tax liability separately on services rendered by different Secondary Switching Areas (SSAs) - each SSA is registered under Service Tax Laws - BSNL, Salem had taken CENVAT credit on certain equipments installed at other SSAs – Revenue contended that such credit cannot be allowed because the equipments were not used in the premises of the entity paying service tax namely BSNL Salem - Assessee contended that the premises where the equipments are used belong to BSNL and not to any other party and it is also used for completion of services originating from Salem Held that:- Basically the issue involved is one of procedures and not a case of mis-utilisation of any ineligible credit. Since MODVAT credit is a substantial benefit, we are of the view that the impugned credit should not be denied on account of procedural defects of minor nature as pointed out by the Revenue. Therefore, we hold that the impugned order is not maintainable. In favour of assessee BSNL may please note that the procedure laid down under the Rules are intended to be followed and cannot be circumvented by quoting different decisions of the Tribunal. There should be an earnest attempt on the part of BSNL to follow the procedure laid down in Relevant Rules
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2013 (1) TMI 141
Waiver of Pre-deposit - Club or Association Service - Assessee is a co-operative society - Maharashtra Co-operative Societies Act, 1960 – Set up a Common Effluent Treatment plant for providing effluent treatment to their member industries - Section 145 of the Finance Act, 2012 - Held that:- Section 145 of the Finance Act, 2012 granted retrospective exemption in respect of the effluent plants ‘Project’ means common facility set-up for treatment and recycling of effluents and solid wastes, with financial assistance from the Central Government or a State Government As the 50% of the project cost was raised by the members for setting up the effluent plant and remaining by subsidy i.e. 25% subsidy from Ministry of Environment and Forest, 20% subsidy from MIDC and 5% subsidy from MPCB. Set aside the order in favour of assesse
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Central Excise
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2013 (1) TMI 124
Waiver of pre-deposit - Stay of recovery – Classification - SILO systems - Heading 9406 and sub-heading 9406 00 99 - Heading 8437 and sub-heading 8437 10 00 - Rule 25 of the Central Excise Rules, 2002 - Section 11 AC – Held that:- The total CENVAT credit claimed to be available to the assessee for the normal period of demand is approximately Rs.61 lakhs. If this credit is taken into account, the amount of duty for pre-deposit would work out to Rs.1.82 crores. We shall restrict the amount to Rs.1.5 crores for the present purpose. In the absence of any plea of financial hardships, direct the appellant to pre-deposit an amount of Rs.1.5 crores.
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2013 (1) TMI 123
Rule 11 of the Central Excise Rules, 2002 – Eligibility to CENVAT credit on the basis of invoices issued by dealers - Rule 7 of CENVAT Credit Rules, 2002 – Ineligible CENVAT credit – Credit on the basis of forged invoice – Bogus purchase Duty paying document - Whether the appellants have correctly availed CENVAT credit of duty on the basis of invoices issued by the dealers - demand on the ground that the appellants have availed credit on the invoices issued by Simandhar which do not find mention in the RG-23D register maintained by Simandhar – alleged that when the duty paid goods supplied by the ship breakers did not cross the Gujarat Border, the dealers at Bhiwandi/Mumbai could not have received the said duty paid goods physically and consequently they could not have delivered the same to the appellants There is a difference of opinion arose between the Members, therefore the matter is placed before the Hon'ble Vice President/HOD for appointing a 3rd Member to decide the issue - Whether the appellants have correctly availed CENVAT credit of duty on the basis of invoices issued by the dealers in the facts and circumstances of the case as held by the Member - Whether the demands are barred by limitation in the facts and circumstances or not. Decision of 3rd member Vehicles were found to be non-transport vehicles as per RTO's report - Incapable of transporting huge quantities of iron and steel scrap, which was the input on which CENVAT credit of excise duty was taken - Appellants contended that the delivery in these cases were arranged by the dealers themselves and the freight was pre-paid - Discrepancy occurred due to entering of incorrect numbers of the transport vehicles by the dealer as admitted by the dealer – Held that:- Following the decision in case of RANJEEV ALLOYS LIMITED (2008 (9) TMI 223 - CESTAT NEW DELHI) that CENVAT credit involved in 306 invoices where the vehicles were found to be non-transport vehicles as per the RTO's reports and where the appellants have not been able to produce any reliable evidence with respect to the receipt of the goods in the factory, the appellant are not entitled for the CENVAT credit. In favour of revenue CENVAT credit on the basis of invoices issued by dealers based on ship breakers' invoices - Ship breakers supplied were steel plates and re-rollable scrap which are not generally used for re-melting and are generally used by rolling mills – Some of ship breaking scrap closed down their activities since a long time, invoice are not genuine - Vehicles used for transportation were motorcycles, tankers, cars, autorickshaws, delivery vans, etc. incapable of transporting iron and steel scrap - Statements of a few of the transporters who have denied transporting any goods from Gujarat to Mumbai - Statements from some of the ship breakers they supplied steel plates of various dimensions or re-rollable scrap not steel melting scrap Held that:- The department need not prove the case with mathematical accuracy. So long as the department has established the case with such degree of preponderance the existence of a fact, it is sufficient. In the instant case, the burden to establish eligibility to the credit is on the appellant- assessee and if they fail to establish or explain the facts established by the department, and adverse inference arises against them coupled with the presumptive evidence adduced by the department. Once the Revenue discharges the burden that the particulars declared in the documents on the strength of which the credit has been availed are not genuine or are fake, then the onus is on the assessee to prove that they have availed the credit correctly and is entitled for the credit. That onus cannot be condoned on the ground of hardship or inconvenience. In the instant case, the appellants have not discharged this onus cast on them by the statute. In favour of revenue Whether the appellants are eligible to avail CENVAT credit on account of duplicate/parallel invoices – The RG23-D account maintained by the dealers, the invoices issued to the appellants are not reflected - Invoices bearing the same number are shown to have been issued to other buyers though for a different quantity and value - the transporters who are said to have transported these goods from the dealers' premises to the appellants have denied transporting these goods – Held that:- Following the decision in case of Mahalaxmi Cotton Ginning Pressing and Oil Industries (2012 (5) TMI 152 - BOMBAY HIGH COURT) that the appellants herein have not made any case for their eligibility to CENVAT credit on the parallel/duplicate invoices received from the dealers. In favour of revenue Extended period of limitation – Fraud – Collusion - Conspiracy to deprive the exchequer – Ineligible CENVAT Credit - Held that:- In such a situation, extended period of time is rightly invokable and, therefore, hold that the demand for CENVAT credit wrongly taken invoking the extended period of time is sustainable in law. In favour of revenue Therefore, the appellants are not eligible to avail CENVAT credit and that the extended period of time has been rightly invoked in demanding the same.
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2013 (1) TMI 122
Ayurvedic soap manufactured under the brand name MEDIMIX - classifiable under sub-heading 3401.12 directing nil rate of duty or under sub-heading 3401.19 chargeable to duty on MRP basis - use of power for brining caustic soda lye to the storage tanks - Held that:- The case of the respondent is fully supported by Final Order passed in respect of another MEDIMIX soap manufacturing unit. In that case, the raw material supplier had contracted to supply the raw material at the storage tanks of the assessee and, as part of transportation of the material upto the tank, they took the aid of power. The Bench that such transportation of raw material could not be held to have been done in, or in relation, to the manufacture of soap taking support from Shalimar Paints Ltd. Vs. Commissioner 2001 (2000 (5) TMI 141 - CEGAT, KOLKATA). Their product cannot be classified under sub-heading 3401.19 by reason of the fact that power was used to bring one of the raw materials to the factory. Testing of raw materials and the final product - Held that:- The respondent is a Proprietary concern. No oral evidence of its proprietor was taken by the Department. In these circumstances, Ground which is to the effect that the assessee admitted that the quality control equipments and machinery were operated with the use of power has no substance. The appellant (revenue) has not been able to come anywhere near proving the use of power by the respondent in the manufacture of MEDIMIX soap during the material period. - That electrically operated equipments were used for testing raw materials and the final product is a far cry or a ipse dixit. - Decided in favor of assessee.
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2013 (1) TMI 121
Clearance of goods to DTA by 100% EOU without permission – Assessee manufacture Panel meters, multimeters, transducers, insulation testers etc. - Notification No.2/1995-CE dated 4.1.1995 – Revenue argued that permission to sell the goods in DTA only in respect of panel meters – Whereas assessee have cleared the goods other than panel meters during the period June 2001 to April 2002 – Held that:- Following the decision in case of RISHABH INSTRUMENTS PVT LTD.(2013 (1) TMI 98 - BOMBAY HIGH COURT) the Development Commissioner's Office clarified that as per the policy all manufactured goods which are exported can be cleared to the DTA to the extent permitted under the policy. In the light of the clarification given by the Development Commissioner, the concessional rate of duty is available in respect of multimeters, insulation testers, transducers, energy meters and electrical/electronics measuring instruments, spares and accessories. In favour of assessee
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2013 (1) TMI 120
CENVAT Credit in respect of goods cleared to SEZ developer - Held that:- As decided in Sujana Metal Products Ltd. vs. CCE, Hyderabad (2011 (9) TMI 724 - CESTAT, BANGALORE) that goods cleared by a unit in DTA to SEZ developer should be considered to be goods exported by the former and should not be considered as exempted goods for purposes of Rule 6 of the CENVAT Credit Rules, 2004. However, in respect of the CENVAT credit denied to the assessee, they do not have prima facie case as not in dispute that the assessee took CENVAT credit amounting to Rs.8,46,004/- on inputs which were used by another unit of the company, which was a separate registered unit maintaining its own CENVAT account. The assessee having separate registration with separate CENVAT account prima facie did not have the right to claim CENVAT credit which was normally available to the other unit. Thus the appellant is liable to make pre-deposit of the entire CENVAT credit amount before the Commissioner (Appeals) to enable him to dispose of their case on merits within four weeks and report compliance on or before 7.2.2013.
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