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Newsletter: Where Service Meets Reader Approval. TMI Tax Updates - e-Newsletter October 16, 2013 Case Laws in this Newsletter: Income Tax Customs Corporate Laws Service Tax Central Excise CST, VAT & Sales Tax Articles 1. A RETROGRADE PLANET TAX DEPARTMENT A RETROGRADE PLANET By: Harish Chander Bhatia Summary: The article criticizes the inefficiencies and disorganization within the income tax department, particularly the Central Board of Direct Taxes (CBDT). It highlights the frequent, poorly executed changes in tax laws and forms, such as the delayed introduction of return forms and the abrupt changes to forms 15CA and 15CB. The article argues that these actions create confusion and inconvenience for taxpayers, reflecting a lack of understanding and accountability within the department. The author suggests that these issues contribute to a negative perception of the tax department and hinder effective tax collection, maintaining a strained relationship between taxpayers and the department. 2. Depreciation under the Assam Agricultural Income Tax Act 1939 By: DEVKUMAR KOTHARI Summary: Under the Assam Agricultural Income Tax Act 1939 (AAITA), depreciation is generally allowed as per the rates and manner prescribed in the Income Tax Act 1961 (ITA) and Income Tax Rules 1962 (ITR). If no rates are prescribed in the ITA and ITR, the Assam Agricultural Income-Tax Rules 1939 (AAITR) apply. Depreciation can be claimed on durable agricultural assets like plants and trees. Unabsorbed depreciation is carried forward per ITA provisions, not limited by the three-year carry-forward rule for agricultural losses. Two classes of agricultural income are defined: rent/revenue from land and income from agricultural activities, with further sub-classes for purely and partly agricultural income. 3. WHETHER THE SERVICES RENDERED IN CONNECTION WITH A CHIT BUSINESS ARE TAXBLAE SERVICES? By: DR.MARIAPPAN GOVINDARAJAN Summary: The article examines whether services related to chit fund businesses are taxable under Indian law, specifically referencing a Delhi High Court case. The Chit Funds Act, 1982, regulates chit fund operations, and the issue at hand was whether such services fall under the definition of taxable services. The Delhi Chit Fund Association challenged a government notification that imposed service tax on chit fund activities. The court analyzed the definition of "service" under Section 65B(44) of the Finance Act, concluding that chit fund transactions are merely transactions in money, not services. Consequently, the court quashed the relevant government notification, exempting chit fund services from service tax. Notifications Customs 1. 104/2013 - dated 15-10-2013 - Cus (NT) Amendment Notification No. 36/2001-Customs (N.T.), dated the 3rd August, 2001 Summary: The Government of India, through the Ministry of Finance's Central Board of Excise and Customs, issued Notification No. 104/2013-CUSTOMS (N.T.) on October 15, 2013. This notification amends the earlier Notification No. 36/2001-Customs (N.T.) dated August 3, 2001, by revising the tariff values for various goods. The amendment includes updated tariff values for items such as crude palm oil, RBD palm oil, crude palmolein, RBD palmolein, crude soybean oil, brass scrap, poppy seeds, gold, silver, and areca nuts. These changes are made under the authority of the Customs Act, 1962. Highlights / Catch Notes Income Tax Assessee Can Deduct Title Perfection Costs for Short-Term Capital Gains; Supported by Income Tax Case Laws. Case-Laws - AT : Computation of short term capital gain - Deduction of Title Perfection Cost - assessee was eligible for deducting such amount while computing short-term capital gains - AT Visit to Get Source Commissioner of Income Tax to Reassess Accommodation Entries and Long-Term Capital Gains in Black Money Conversion Case. Case-Laws - AT : Accomodation entries passed in the books – conversion of black money into white and bring the money in the books of accounts - Long term capital gains (LTCG) - CIT(A) to reconsider the issue - AT Visit to Get Source Jewellery found in search raises unexplained investment issue; AO to allow extra deductions for minors under IT Act Sec 69. Case-Laws - AT : Unexplained investment u/s 69 - jewellery found during search and seizure - AO directed to allow further deduction of 100 gms in respect of minor male children and 250 gms in case of minor female children of assessee, which the ld. CIT(A) has failed to give - AT Visit to Get Source Insufficient Details on Agriculturist's Creditworthiness u/s 68 Leads to Rejection of Rs. 60,000 Loan Claim. Case-Laws - AT : Addition u/s 68 - Creditworthiness - no details except for his cultivable land holding of 3.63 acres has been provided to substantiate agriculturist's savings to lend a loan of Rs. 60,000 - These vague details, are not good enough reasons to treat the impugned loans as genuine - AT Visit to Get Source Court Challenges AO's Classification of Stock Sale Income as 'Other Sources' Post-Earthquake Factory Closure. Case-Laws - AT : Valuation of stock - Stock damaged due to Earthquake - Factory was closed for few years - There was no reason given by the AO as to why the income out of sale of goods was treated as income from other sources as the profit was generated out of sale of stock which was accumulated stock of the assessee out of business activity - AT Visit to Get Source Flexibility in Choosing Benchmarking Methods for Arm's Length Pricing Under Income Tax Act. Case-Laws - AT : Adjustment of arm's length price - Difference in operating cost of comparable companies - Method for benchmarking of transactions - Income Tax Act does not preclude the assessee from benchmarking its transactions with the help of any other method other than the one which is taken for consideration in its study report. - AT Visit to Get Source Claim for Write-Off of Non-Performing Investments Allowed; Based on RBI Guidelines for Revaluation and Realizable Value. Case-Laws - AT : Disallowance of non-performing investments written off - revaluation was made on the basis of the guideline issued by the RBI and the value is based on realisable value. - claim allowed - AT Visit to Get Source Tax Liability Clarified: Sale of Jointly Owned Shares Taxable to Shareholder, Not Assessee, with Minor Adjustments. Case-Laws - AT : Gain on sale of shares - who is liable to be taxed - Joint ownership of shares - After making minor adjustments to the proportionate value of market shares, the AO has accepted the entire sale transaction in the hands of the shareholder - not taxable in the hands of assessee - AT Visit to Get Source Arm's Length Pricing: Advertisement Expenses Should Not Be Reclassified as Business Promotion Costs, Per Income Tax Case Laws. Case-Laws - AT : Adjustment of arm's length price - There is no reason to change the head of expenses from advertisement expenditure to business promotion expenditure - AT Visit to Get Source AP Housing Board's Income Taxable Under IT Act; Article 289(1) Doesn't Exempt It, Section 80IB Deductions Applicable. Case-Laws - AT : Deduction u/s 80IB - Income of assessee or Government - AP Housing Board - assessee’s contention that income of Board cannot be subjected to tax under income-tax Act, in view of provisions contained under Article 289(1) of Constitution of India is not acceptable. - AT Visit to Get Source Off-market transaction genuineness confirmed when sale price matches high share price on specified date. Market rates upheld. Case-Laws - AT : Off market transactions - genuineness - When the sale price adopted by the assessee is close to the high price of the concerned share on the relevant date, it cannot be said that the transactions effected by the assessee is not at market rate - AT Visit to Get Source Customs TV Tuner Classification Dispute: Heading 8528 vs. Heading 8473 for Customs Assessment; Decision Stayed Pending Review. Case-Laws - AT : Classification of TV Tunners - Assessment of Goods – the classification of T.V. Tunners under Heading 8528 against claimed Heading 8473, is debatable - stay granted - AT Visit to Get Source Corporate Law Creditor Can Seek Company Name Restoration in Register Within 20 Years to Recover Debts Owed. Case-Laws - HC : Any creditor can make an appropriate application to the company court before the expiry of 20 years from the publication in the official gazette seeking restoration of the name of the company in the register so that it can pursue its remedies which are available to it under the law for recovery of the amount from the company whose name was struck off - HC Visit to Get Source Service Tax High Court Modifies Stay Order in Business Auxiliary Services Case Over Marketing Expenses with DTC for Nakshatra Goods. Case-Laws - HC : Business Auxiliary Services - it is contended that payment made to DTC was the appellant's share in the actual marketing expenses incurred by DTC. Thus DTC did not provide any service of promoting or marketing of goods having the brand name of Nakshatra being sold by the appellant - stay order modified - HC Visit to Get Source Limestone Gitties Formation Classified as Taxable Business Auxiliary Service Since June 16, 2005. Case-Laws - AT : Classification of service - Cargo Handling Services - process right from mine stage to formation of limestone gitties - composite services - essential character - the activity is falling under BAS taxable w.e.f. 16.6.2005 - AT Visit to Get Source Court Grants Partial Stay on Service Tax Dispute Over Reimbursable Charges in Property Rental Case. Case-Laws - AT : Non-inclusion of Reimbursable Charges - Discharge of Service Tax liability and part of the amount is for non-discharge of Service Tax liability under renting of immovable property by the appellant - stay granted partly - AT Visit to Get Source Language Training Not Classified as Vocational Under India's Notification No. 9/2003-ST & 24/2004 by NCVT. Case-Laws - AT : If the apex body dealing with vocational training, National Council for Vocational Training, in India itself does not consider training in languages as vocational training, it is not conceivable how training in languages can be treated as a vocational training for the purpose of Notification no. 9/2003-ST or it's successor Notification no. 24/2004 - AT Visit to Get Source Central Excise High Court Quashes Show Cause Notice Against 100% EOU on DTA Clearance Duty and Education Cess Imposition. Case-Laws - HC : 100% EOU - duty on DTA clearance - Education Cess - Despite clear and specific directions and authoritative pronouncements, act of issuance of show cause notice by the Deputy Commissioner is wholly impermissible and unpalatable and deserves to be quashed - HC Visit to Get Source Larger Bench to Review CENVAT Credit Reversal Obligations: Additional 5% or 10% Payment Dispute u/r 6(3. Case-Laws - AT : Calculation CENVAT credit reversed under Rule 6(3) - revenue claimed that appellant would be liable to pay an amount @ 5% / 10% on the extra amount of 5% / 10% being recovered from the customers - matter referred to Larger Bench - AT Visit to Get Source Area-Based Exemption Dispute: No Finished Products Recorded in RG-I Register by March 31, 2010 Under Notification No. 50/2003. Case-Laws - AT : Area based exemption - Exemption under Notification No. 50/2003 – there is no dispute that as on 31.3.2010, there was neither any manufacture of finished products nor any such manufacture had been recorded in the RG -I register - prima facie case is against the assessee - AT Visit to Get Source Section 4A of Central Excise Act MRP Valuation Not Applicable to SWM Rules on Batteries; Stay Granted. Case-Laws - AT : MRP Based value u/s 4A - Applicability of SWM Rules on batteries – The provisions of Section 4A of CEA, 1944 would not be attracted and accordingly no differential duty is payable by them - stay granted - AT Visit to Get Source Appellant Exempt from Paying Percentage on Exempted Goods Under Notification No. 67/95 for International Competitive Bidding. Case-Laws - AT : Benefit of Notification No.67/95 – Captive consumption - benefit claimed for goods supplied under ICB - the appellant is not required to pay any percentage prescribed under the law on the value of exempted final products - AT Visit to Get Source VAT Maize Products Like Peppy and Cheese Balls Classified as Branded; Taxed at 12.5% u/s 27(1)(b. Case-Laws - HC : Assessment u/s 27(1)(b) - Maize products - Classification of item - the items being sold under the brand name, the products viz., Peppy, Cheese Balls, Senon Papito, Tortilla Chips and Peppy Eatos, as branded food products, attract tax at 12.5% - HC Visit to Get Source Case Laws: Income Tax 2013 (10) TMI 559 Deduction with regard to employees' contributions towards ESI & PF – Payment made before the due date of filing of return u/s 139(1) of the Income tax Act - Submission of the learned AR that the employees' contributions towards ESI & PF were duly paid to the respective authorities before the due date for filing the return of the relevant assessment year and that on account of proviso to s. 43B as amended by the Finance Act, 2003 w.e.f. 1.4.2004, the assessee is entitled to relief – Held that:- Reliance has been placed upon the judgment in the case of M/s. Spectrum Consultants India Private Limited v. CIT [2013 (7) TMI 414 - KARNATAKA HIGH COURT] - Revenue has neither disputed the claim of the assessee that the payments were made before the due date for filing the return nor brought any documentary evidence to rebut the assessee's claim on the issue - CIT (A) was justified in deleting the addition made on the premise that the claim of the assessee was found to be admissible – Decided in favor of Assessee. 2013 (10) TMI 558 Computation of short term capital gain - Deduction of Title Perfection Cost - Held that:- assessee by himself was never the sole owner of the land. Had the assessee been the sole owner, then there was no necessity for the first party, namely, the Society to sign the sale deed dated 3.12.2005. Once the document has been signed by original owner, namely, M/s Malineni Perumallu Educational Society along with assessee, we cannot say that assessee had no obligation for curing the defects if any in the title. Assessee had himself returned the short-term capital gains arising out of transaction. Assessing Officer also admits that some disputes have been mentioned in the sale deed itself but, such disputes were shown as settled and a compromise arrived at. There is no finding by the Assessing Officer that the payments for settling the disputes the original owners had with M/s Malineni Perumallu Educational Society, were effected after the sale deed was executed on 3.12.2005. Therefore, the settlement of disputes mentioned in the sale deed had relevance to disputes which were settled prior to the date of sale. Assessee having paid the full amount, when he entered into the "agreement of sale cum general power of attorney" with M/s Malineni Perumallu Educational Society, on 6.6.2005, in our opinion, it was in his own interest to perfect the title, which otherwise could have been an impediment for a sale. We cannot say that the amount of Rs. 13 lakhs paid by the assessee had no relevance in such a situation. Assessee had produced confirmation for payments effected to the parties, for settlement of the disputes. Veracity of the payments was not questioned at all - Therefore, assessee was eligible for deducting such amount while computing short-term capital gains - Decided in favour of assessee. Jurisdiction of CIT - Revisionary power exercised by CIT u/s 263 - Whether revisionary power exercised by CIT was due to letter written by A.O. or due to his independent assimilation of facts - Held that:- Two reasons have been cited by the CIT for invoking revisionary power. First is that investment in property, which was sold by the assessee, was not examined by the A.O. Second is that the cost of acquisition of rights of feature film could be considered only when amounts were actually paid - letter written by the Assessing Officer to CIT on 19.3.2012 gives a lucid exposition of the state of affairs - assessee had furnished the statement of accounts for both the bank accounts from where it had effected payments for acquiring the property. Assessing Officer himself says that it was on close look the dates of payments were not found to be tallying - letter clearly brings out that Assessing Officer had applied his mind during the course of original assessment proceedings. He had taken a lawful view that the assessee had explained the source of investment. CIT himself in his order noted that only Rs. 2 lakhs, out of the total Rs. 24 lakhs, remained explained. Thus what was sought by the CIT was to substitute the view taken by the A.O. in the original assessment proceedings - A.O. had, during the course of original assessment proceedings, considered the issues and gave the allowances to the assessee. Revisionary powers were invoked by the CIT based on letter of the Assessing Officer and not based on an independent assimilation of facts. CIT was only trying to stamp his approval to a change of opinion of the Assessing Officer. - Therefore, decided in favour of assessee. 2013 (10) TMI 557 Accomodation entries passed in the books – conversion of black money into white and bring the money in the books of accounts - Long term capital gains (LTCG) – Held that:- Outcome of investigations carried out by A.O., wherein it was found that M/s Gold Star Finvest Pvt. Ltd. is a registered sub-broker. However, the said broking company was not traceable/ available as the notice u/s 133(6) of the Act was returned unserved by the postal authority - The Assessing Officer further found that company's share of which have been claimed transacted by the assessee and who offered the dematerialization of its shares to the assessee did not respond the notice u/s 133(6) issued by him. Thus none of the evidence furnished by the assessee showing transactions of sale and purchase of shares deriving long term capital gain stands verified - During the course of search u/s 132(1) of the Income Tax Act, the statement of Shri Mukesh Choksi was recorded on oath wherein he said that he was engaged in the business of providing accommodation entries through various companies floated by him like Mahasagar Securities Pvt. Ltd., M/s Gold Star Finvest Pvt. Ltd. etc. , which all are run by him from the officer at 6 th Road Santacruz(E). It is pertinent to mention here that shares of M/s Buniyad Chemicals Ltd., Ahemdabad was also transacted through M/s Gold Star Finvest Pvt. Ltd. who was found to be engaged in providing accommodation entries. In earlier years 2005-06 and 2006-07, the issue before the Assessing Officer was with regard to genuineness of long term capital gain earned on shares of M/s Talent Infoways Ltd. whereas during the years 2003-04 and 2004-05, the issue is with regard to shares of M/s Buniyad Chemicals Ltd., Ahemdabad - The ld. CIT(A) was not justified by relying on the findings of his predecessor and Tribunal given in its order for the assessment year 2005-06 and 2006-07 with regard to genuineness of sale of shares of M/s Talent Infoways Ltd. During the years under consideration, the controvery is with regard to shares of M/s Buniyad Chemicals Ltd., Ahemdabad which was not found to be registered at Stock Exchange and the broker through which share transactions were 19 made has categorically given statement that he was engaged in providing accommodation entries – Decided in favor of Revenue. 2013 (10) TMI 556 Unexplained investment u/s 69 - Unexplained jewellery found during search and seizure - Held that:- assessee has tried to explain the jewellery as acquired from father and father-in-law sides. The assessee has also explained the jewellery acquired by her and which has been duly recoded and shown in the regular returns filed much before the date of search. Thus the acquisition of jewellery to the extent of 227.010 was duly explained - in so far as credit of jewellery belonging to assessee i.e. 500 gms and her husband i.e. 100 gms was only given by him, however, the ld. CIT(A) has not given credit for jewellery belonging to minor children of assessee - CBDT Circular No. 1916 dated 11-05-94 lays down guidelines for seizure of jewellery and ornaments in the course of search, the same takes into account the quantity of jewellery which would generally be held by family members of an assessee belonging to an ordinary Hindu Household - In view of the decision of Hon'ble Gujarat High Court vis a vis CBDT Circular No. 1916 dated 11-05-1994, we direct the Assessing Officer to allow further deduction of 100 gms in respect of minor male children and 250 gms in case of minor female children of assessee, which the ld. CIT(A) has failed to give. Thus the assessee desires further credits of 350 gms jewellery as belonging to her minor children - Decided in favour of assessee. 2013 (10) TMI 555 Disallowance of contribution to superannuation fund - Employer's contribution to PF and ESIC u/s 43B - Some payment were within grace period and some were made before due date - CIT allowed payment made which were within grace period however upheld disallowance of other payments - Held that:- it is not in dispute that all the payments which have been referred to by the Assessing Officer relate to employer's and employees' contribution to PF (ii) Resale Price Method (RPM); (iii) Cost Plus Method (CPM); (iv) Profits Split Method (PSM) and (v) Transactional Net Margin Method (TNMM). In CUP method, the focus is directly on the price of the product sold or transferred requiring both functional and product comparability. The RPM and CPM operate at gross profit margin level requiring functional rather than product comparability. The PSM and TNMM operate on operating profit margin level used for a complex and integrated enterprise. These methods are based on price or profit. The centre point of these methods is comparability analysis with the comparables and the method which provides most reliable way of arriving at the ALP, is considered as most appropriate method. A comparability analysis is done for the comparison of controlled transaction(s) with an uncontrolled transaction(s) and controlled and uncontrolled transactions are comparable if none of the differences between the transactions can materially affect the factor being examined by adopting any of the methodologies as mentioned in section 92C or if any reasonable accurate adjustment can be made to eliminate the material affects of any such difference - ssessee is a distributor of Mattel toys and gets the finished goods from its A.E. and resells the same to independent parties without any value addition. In such a situation, RPM can be the best method to evaluate the transactions whether they are at ALP. If assessee itself has chosen TNMM as most appropriate method in TPR, then can it resort to change its method at an assessment or appellate stage - Held that:- if it is found on the facts of the case that a particular method will not result into proper determination of the ALP, the TPO or the appellate authorities can very well hold that why a particular method can be applied for getting proper determination of ALP or the assessee can demonstrate a particular method to justify its ALP. Thus, even if the assessee had adopted TNMM as the most appropriate method in the transfer pricing report, then also it is not precluded from raising the contentions / objections before the TPO or the appellate Courts that such a method was not an appropriate method and is not resulting into proper determination of ALP and some other method should be resorted. The ultimate aim of the transfer pricing is to examine whether the price or the margin arising from an international transactions with the related party is at ALP or not. The determination of approximate ALP is the key factor for which most appropriate method is to be followed. Therefore, if at any stage of the proceedings, it is found that by adopting one of the prescribed methods other than chosen earlier, the most appropriate ALP can be determined, the assessment authorities as well as the appellate Courts should take into consideration such a plea before them provided, it is demonstrated as to how a change in the method will produce better or more appropriate ALP on the facts of the case - Decided in favour of assessee. Disallowance of professional fees - CIT deleted addition - Held that:- the bills pertaining to the professional services rendered was received in this year and after the receipt of such bill, the payment has been made. In case of professional fees, it is very difficult to project as to what would be the fee that would be charged by the professional for the services rendered. It is when the bill is received, the liability get crystallised for making the payment. As regards the Assessing Officer's observation that one of the directors of the assessee company is a partner in the professional firm, the Assessing Officer has not examine as to what could have been the proper fees having regard to the value of services rendered. In the absence of such a finding, this observation and finding of the Assessing Officer is not tenable. In fact, he has proceeded to disallow the entire payment of fees instead of any excess payment.. Moreover, the Commissioner (Appeals) has recorded a categorical findings that out of Rs. 18,66,369, professional expenses of Rs. 6,24,949, was rendered in the current assessment year only - Decided in favour of assessee. In case of toys, which has been purchased from the A.E. cannot be sold in the domestic market due to negative market trend, therefore, in order to recover the cost, these unsold products are sold at a best available price either by way of exporting back to the A.E. or by exporting to the third party. It has also been stated that the assessee has suffered a greater loss while making sale in the case of a third party in comparison to the sale made to the A.E. Hence, there was an internal comparable available to judge the ALP. Since this internal comparability has not been examined by the TPO and the learned Commissioner (Appeals) has given a finding without examining the segmental details of transactions with the A.E. and third party and the internal comparability, therefore, under these circumstances, this margin of export sale to the third party i.e., internal comparable should be compared to the export sale made to the A.E. - In such a situation, the applicability of internal CUP can also be applied to evaluate the ALP in this segment - Decided in favour of assessee. 2013 (10) TMI 554 Business income or Capital gains - Gain on realization of Shares and mutual funds - Held that:- assessee has maintained two separate accounts and has classified his acquisition of share investments under two heads. It is very pertinent to note that in the case of the assessee, sale of shares under the head 'investment' has always been considered as capital gain in the earlier years, which is evident from the fact that the same has been accepted by the Assessing Officer in scrutiny proceedings right from assessment year 2002-2003 to 2005-2006. Not only the assessee has followed this consistent approach with regard to the treatment of shares one as investments and other as stock in trade separately, but the same has also been consistently allowed by the Department - there is no bar for an assessee to maintain two separate portfolios i.e. one in relation to investment in shares and other relating to business activities involved in dealing of shares - It is also noticed that, in the case of assessee, under the head 'short term capital gains' most of the shares have been held for a period of more than three months and six months and there are no intra-day transactions of shares under this head - on the shares held as investment by the assessee, the income arising on sale of such shares is assessable under the head 'long term capital gain' and 'short term capital gain' and not 'business income' as held by AO and CIT(A) - Following decision of M/s. Apollo Finvest (India) Limited, C/o. Shankarlal Jain & Associates Versus ITO, Ward-9(1), Mumbai [2013 (8) TMI 533 - ITAT MUMBAI] and The Commissioner of Income Tax Versus Gopal Purohit [2010 (1) TMI 7 - BOMBAY HIGH COURT] - Decided in favour of assessee. 2013 (10) TMI 553 Addition u/s 68 - Creditworthiness of parties not proved - Held that:- assessee did not make any serious attempt to establish the creditworthiness of the creditors - Even the AR primarily dealt with the credits of a teacher and an agriculturist, who owned 3.63 acres of agricultural land, both living in villages - Credit given by other people are considered as not genuine - no details of family and income details were either filed before the revenue authorities - Assessee was not been able to substantiate as to how the creditor was able to save a sum of Rs. 50,000/-, from her teaching profession, which has been advanced as loan to the assessee - no details except for his cultivable land holding of 3.63 acres has been provided to substantiate agriculturist's savings to lend a loan of Rs. 60,000 - These vague details, are not good enough reasons to treat the impugned loans as genuine - Decided against assessee. Addition of Cash deposited in ledger account - Addition made u/s 68 - Under section 68, an addition can be made if the transaction is not genuine; the creditworthiness of the person, whose money is credited in the books is not established and where the identity of the creditor is not proved - There is a peculiar tangent to section 68, where, the director collected the sale proceeds and deposited them with the assessee company. So far, the revenue authorities have looked into, this aspect and fact, which is undisputed. But the fact, as to why the director collected and why the assessee company who had renounced its rights on the original agreement to undertake the sale of sub plots belonging to the trust, and why was the assessee company, through its director was still collecting payments on behalf of the trust, has not been looked into. The real motive and purpose has yet to be ascertained in the light of arguments of the AR - Matter restored back to A.O. - Decided in favour of assessee. 2013 (10) TMI 552 Unexplained cash credit - Payments made for purchase of shares - Held that:- addition can be made u/s 68 when all the ingredients of the provision are not met / satisfied. The undisputed facts are that assessee was holding 20,000 shares of Robinson World Wide Trade Ltd., which it sold and the sale proceeds were entered in the books of account. The fact that the assessee held shares of the above named company has been confirmed by the company itself - the requisite shares have been sold by the said broker on the Bombay Stock Exchange on the given dates albeit in the client code of a third person. The amount credited in the books of the appellant is received from M/s. D.P.S. Shares and Securities Pvt. Ltd. through banking channels. The existence of shares with the appellant in view of the same being in dematerialized form in the d'mat account of the appellant cannot be denied. The shares have been debited to the d'mat account of the appellant and have thus flown through the d'mat account on relevant dates - Following decision of Assistant Commissioner of Income-tax, Rg. 4(1), Mumbai Versus Claridges Investments & Finances (P.) Ltd. [2007 (8) TMI 481 - ITAT MUMBAI] - Decided against Revenue. 2013 (10) TMI 551 Valuation of stock - Stock damaged due to Earthquake - Factory was closed for few years - Therefore, CIT deleted addition of valuation of stock - Held that:- The valuation adopted by the assessee is on higher side, therefore, it cannot be said that the valuation adopted by the assessee, which is on higher side than the valuation adopted by the valuation officer KFTZ, which was obtained by the bank directly. It is further noted that after earthquake business of the assessee was closed down and due to dispute between bank and assessee, the entire factory was under the lock and key of the bank. After settlement between the assessee and bank then only the factory was opened and valuation report was obtained by the bank. Thereafter after negotiation certain amount was waived of by the bank. It is further seen that whatever the receipts were received on account of sale of stocks to the sister concern, that was taken by the bank. It is a matter of fact that the stock was lying in the premises from assessment year 2001-02 to assessment year 2005-06 and the said stock was lying in premises which was damaged by the earthquake. It is further seen that the valuation report obtained was filed before the CIT(A) and the CIT(A) asked the assessee company to ascertain from the bank as to valuation of stock done at the time of settlement - CIT(A) remained uncontroverted except that that he has accepted the valuation report in contravention of Rule 46A. The findings of the learned CIT(A) are findings of fact which are given after ascertaining the factual matrix of the case - Decided against Revenue. There was no reason given by the AO as to why the income out of sale of goods was treated as income from other sources as the profit was generated out of sale of stock which was accumulated stock of the assessee out of business activity - CIT(A) was justified in holding that the income out of sale of stock as business income and rejecting the contention of the AO in reducing the value of stock - Decided against Revenue. Income from other sources - Waiver of interest - Held that:- It is not understandable as to how the amount which was waived by the bank was income from other sources as the loan was taken for the purpose of business activity only. The amount payable to various creditor were also on account of business activity. These amounts were offered under Section 41(1), therefore, there was no question of treating the same as income from other sources - Decided against Revenue. Carry forward loss - Provision for bad debts - No business for the last 5 years - Held that:- assessee has sold its old stocks and the profit has been shown as business income. On account of old stock sold; the income has to be assessed as business income. No doubt, there was no use of machinery etc. in the year under consideration and, therefore, the depreciation of the year under consideration is not allowable, however, quantified brought forward business loss and unabsorbed depreciation can be set off against the business income as the business income shown by the assessee is on account of same business activity carried out in earlier years - Decided against Revenue. Capital or Revenue receipt - Written off bank loan - Held that:- if the waiver of term loan is on account of capital asset then the amount of loan, which was waived, was capital asset and, therefore, cannot be brought to tax - Following decision of Mahindra and hence assessable as business income of assessee – Following decision of SOLID CONTAINERS LTD. Versus DEPUTY COMMISSIONER OF INCOME-TAX AND ANOTHER [2008 (8) TMI 156 - BOMBAY HIGH COURT] - Decided in favour of Revenue. 2013 (10) TMI 550 Adjustment of arm's length price - Difference in operating cost of comparable companies - Method for benchmarking of transactions - Held that:- According to the TPO operating margin on operating cost in the case of comparable companies works out to 13.88% as against 5% in the case of the assessee company whereas, in order to arrive at the cost, the one time extraordinary expenses, which are not standard expenses for earning income, ought not have been taken into consideration - CIT(A) was justified in reducing the extraordinary expenses for the purpose of arriving at the cost and by adopting such cost as the basis, the rate of profit declared by the assessee would be at arm's length and hence there is no need for making any adjustment - Act does not provide that an assessee has to choose a particular method for benchmarking its transactions. Even if a particular method is chosen at the time of furnishing it study report the company can always support its transactions with another method. In the instant case all the details were furnished before the TPO and the AO to highlight that the average hourly rate charged to the third parties were lower compared to the AE and hence the international transactions were at arm's length - No material on record to justify that the assessee is precluded from taking support from any other method for benchmarking its transactions - Income Tax Act does not preclude the assessee from benchmarking its transactions with the help of any other method other than the one which is taken for consideration in its study report. For the purpose of sub-section (1) of section 92C of the Act the most appropriate method has to be selected by the AO. Rule 10C also provides that most appropriate method shall be the method which is best suited to the facts and circumstances of each particular international transaction - AO/TPO has to exercise their judicial discretion in considering as to whether the method/methods adopted by the assessee is suitable to the facts of the case and if, in their opinion, the method followed by the assessee is not suitable, the AO/TPO has to give show cause notice to the assessee before adopting an appropriate method. Ordinarily, in service contracts, CUP method is more suitable, where an assessee enters into agreement with unrelated third parties on similar lines as that of AE. When such facts are available, the AO/TPO has to give their reasons before rejection of the data furnished by the assessee. If the extraordinary expenses are adjusted, by reducing extraordinary expenses from operating expenses, its berry ratio comes to 1.10 and the operating profit on operating cost comes to 10.40% which is higher than the berry ratio and operating profit of the comparables. Thus even from that angle the assessee's transactions are at arm's length - Decided against Revenue. 2013 (10) TMI 549 Exemption u/s 10B - Income pertaining to/derived from 100% EOU's - Losses from business units - CIT allowed partial relief - Held that:- There is no connection with the industrial undertaking and are not derived from “profits and gains” of the undertaking, therefore, the finding given by the CIT(A) that it is to be excluded from the computation of income under Section 10B is confirmed - Following decision of CENTURY TEXTILES AND INDUSTRIES LTD. Versus DEPUTY COMMISSIONER OF INCOME TAX, RANGE-6(2), MUMBAI [2013 (1) TMI 288 - ITAT MUMBAI] - Decided against Assessee. Amount paid as penalty - CIT allowed compensatory payments - Held that:- whatever is paid to the Govt. authorities, though known as penalty, but if the same is of compensatory nature, then the same, strictly speaking, is not penalty and has to be allowed as business expenditure - Following decision of Prakash Cotton Mills Pvt. Limited Versus Commissioner of Income-Tax [1993 (4) TMI 3 - SUPREME Court] - Decided in favour of assessee. Disallowance of written off on leasehold land in various division - Held that:- The issue be set aside to the file of the AO following the preceding year 2000-01 orders for re-examination of the issue in the light decision in the case of Mukund Ltd.(2007 (2) TMI 358 - ITAT MUMBAI) for finding the nature of the premium part - Decided in favour of assessee for statistical purposes. Disallowance of provision for doubtful debts and advances while computing the book profits under Section 115JB - Held that:- This issue now stands covered against the assessee by insertion of clause 1 in Explanation 1 to Section 115JB, which has been inserted by Finance (No.2) Act, 2009 w.r.e.f. 1-4-2001. Thus, in view of the amendment in the said provision the ground taken by the assessee cannot be allowed. Disallowance of deduction u/s 80HHC - the income as per normal computation is Nil and accordingly no deduction is allowed u/s 80HHC while computing book profit u/s 115JB - Held that:- This issue now stands covered in the case of DCIT Vs. Syncome Formulations (I) Ltd., [2007 (3) TMI 288 - ITAT BOMBAY-H] wherein it has been held that deduction under Section 80HHC in the case of MAT assessment, is to be worked out on the basis of adjusted book profit and not on the basis of profit computed under the regular provisions of law applicable to the computation of 'profit and gains of business or profession'. This judgment of the Special Bench has been affirmed by the Hon'ble Supreme Court in the case of Al- Kabeer Exports Limited Vs. CIT [2012 (2) TMI 119 - SUPREME COURT OF INDIA]. 2013 (10) TMI 548 Business income or capital gain - Transaction in shares - Taxed short term capital gain @ 30% - Held that:- assessee has specifically stated investment in shares at Rs.55,94,573 and has shown in the current assets the stock in trade of Mutual Fund. However, assessee has also stated specifically in the profit and loss account, details of long term capital gain, short term capital gain and speculative dealings in shares, besides showing interest and dividend income by the assessee in the assessment year under consideration. Further, it is also observed that assessee is maintaining separate details in respect of shares, held by the assessee under the head 'stock-in-trade' and shares held under the head 'investment' - authorities below have not accepted the profit shown by the assessee as short term capital gain mainly for the reason that in respect of some of the shares, the period of holding was small and also considering number of scripts, in which transaction took placed in the assessment year under consideration - The department has not disputed the fact that assessee has not used any borrowed funds for the purpose of purchase of shares and same is also fortified on perusal of profit and loss account, that no interest has been claimed towards expenses - mere volume of transaction does not mean that assessee is a trader. The intention with which purchase has been made has to be seen. It is held that if in earlier year, the department has treated the assessee as an 'investor', it cannot take a different view in subsequent year - in assessment year 2004-05, assessee has shown short term capital gain as well as long term capital gain and department while making the assessment u/s.143(3) of the Act vide order dated 11.8.2006, copy placed on record, accepted the capital gain shown by the assessee - Following decision of Gopal Purohit vs JCIT [2009 (2) TMI 233 - ITAT BOMBAY-G] - Decided in favour of assessee. Disallowance of telephone expenses - Held that:- disallowance of 20% of telephone expenses made by authorities below on the ground that some expenses are required to be made in regard to exempt income is on higher side. However, personal use of telephone is not ruled out. Hence, disallowance of expenses reduced to 10%. 2013 (10) TMI 547 Disallowance of non-performing investments written off - Whether the notional loss said to be suffered by the taxpayer on revaluation of the securities is allowable as deduction or not - Held that:- taxing authority disallowed the claim of the taxpayer on the ground that the balance-sheet of the respective companies was not filed to establish the valuation. The contention of the taxpayer is that the valuation was made on the basis of the guideline issued by RBI taking into consideration the realisable value. In fact, as seen from the order of the Commissioner of Income-tax(A), the taxpayer claimed that the revaluation was made on the basis of the guideline issued by the RBI and the value is based on realisable value. The taxpayer has also brought to the notice of the lower authorities that in spite of their best effort, they could not get the copies of the balance-sheet from the respective company. Admittedly, the assessing authority has not suggested any formula for valuation of the unquoted shares - Following decision of Commissioner of Income-Tax Versus Nedungadi Bank Ltd. [2002 (11) TMI 29 - KERALA High Court] - Decided in favour assessee. Disallowance of pension paid - Held that:- if the amount received from the pension fund is credited to the profit & loss account of the taxpayer and then the taxpayer makes the payment to the retired employees as pension, then there may not be any duplication at all. But it has to be verified whether the amount received from the pension fund is credited in the profit & loss account or not. It also needs to be examined whether any payment is made to the retired employees from the pension fund directly. If no payment is made from the pension fund directly and the entire amount received from the pension fund is credited in the profit & loss account and then the taxpayer makes the payment to its retired employees by debiting the same in the profit & loss account, then the amount paid by the taxpayer as pension has to be allowed as deduction in view of the contractual obligation to pay the pension - Decided in favor of assessee. 2013 (10) TMI 546 Disallowance u/s 40(a)(ia) - VSAT & transaction charges paid to Stock Exchange - Held that:- liability of TDS exists u/s. 194J in respect of transaction charges only. (i) that the assessee was liable to deduct tax at source before crediting the transaction charges to the account of the stock exchange. (ii) That though section 194J was inserted with effect from July 1, 1995, till the assessment year in question that is assessment year 2005-06 both the Revenue and the assessee proceeded on the footing that section 194J was not applicable to the payment of transaction charges and accordingly, during the period from 1995 to 2005 neither had the assessee deducted tax at source while crediting the transaction charges to the account of the stock exchange nor had the Revenue raised any objection or initiated any proceedings for not deducting the tax at source. In these circumstances, if both the parties for nearly a decade proceeded on the footing that section 194J was not attracted, then, in the assessment year in question no fault could be found with the assessee in not deducting the tax at source under section 194J of the Act and consequently, no action could be taken under section 40(a)(ia) of the Act - Following decision of Commissioner of Income-tax - 4(3) Versus Kotak Securities Ltd. [2011 (10) TMI 24 - Bombay High Court] - Decided in favour of assessee. Disallowance of penalty u/s 37 of the Act - Business expenditure - Held that:-penalty/payments made by the Assessee to the Stock Exchange for violation of their regulation, being risk management oriented, are not an account of an offence which is prohibited by law.Hence, the invocation of explanation to section 37 is not justified - Following decision of CIT Vs M/s. Stock and Bond Trading Co. [2011 (10) TMI 172 - BOMBAY HIGH COURT] - Decided against Revenue. Disallowance u/s 14A - Held that:- A perusal of the balance sheet of the assessee as exhibited at page-1 of the paper Book supports the contention of the Counsel that assessee has sufficient own funds to cover up the investments - where both own funds and loan funds are available with the assessee, the presumption is that the investment is made out of own funds - Following decision of The Commissioner of Income Tax Versus Reliance Utilities & Power Ltd. [2009 (1) TMI 4 - HIGH COURT BOMBAY] - Decided partly against Revenue. Disallowance of mark to mark loss on derivatives - Held that:- There is no dispute that the assessee holds derivatives as its stock-in-trade and there is also no dispute that it follows the principle "cost or market price, whichever is lower" in valuing the derivatives. When the derivatives are held as stock-in-trade then whatever rules apply to the valuation of stock-in-trade will have to be necessarily apply to their valuation also. It is a well settled position in law that "while anticipated loss is taken into account in valuing the closing stock, anticipated profit in the shape of appreciated value of the closing stock is not brought into the account, as no prudent trader would care to show increased profit before its realization. This is the theory underlying the rule that the closing stock is to be valued at cost or market price whichever is the lower, and it is now generally accepted as an established rule of commercial practice and accountancy" - profits that are chargeable to tax are those realized in the year and that an exception is recognized where a trader purchased and still holds goods which are fallen in value in which case though no loss has been realized nor it has occurred, nevertheless at the close of the year he is permitted to treat these goods as of their market value - Following decision of Chainrup Sampatram vs. Commissioner of Income Tax, West Bengal [1953 (10) TMI 2 - SUPREME Court] - Decided in favour of assessee. 2013 (10) TMI 545 Disallowance of Research and Development expenses - Deduction u/s 35(2AA) - Held that:- In AY 2000-01 R&D expenditure was disallowed u/s 35(1) and the year under consideration the claim is made u/s 35(2AA) of the Act, which is supported all the relevant documents and the contentions of the learned AR in this regard are found to be correct. It is seen from the appeal order for AY 2000-01that a finding was recorded to the fact that the above deduction has been claimed u/s 35(1). Therefore, it was examined whether the conditions laid down u/s 35(1) have been fulfilled or not and it was found that the conditions laid down in the said section have not been fulfilled, therefore, after recording detailed reasons, the claim of the assessee of Rs.67,23,582 /-in AY 2000-01 was disallowed by the AO was upheld. However, this year, it is seen that the claim of assessee of Rs. 51,00,000/- has been made u/s 35(2AA), which is Supported by relevant forms such as Form Nos. 3CG, 3CG and 3CI and, therefore, the CIT(A) allowed the claim of the assessee after detailed finding, hi the light of the findings of the CIT(A) that the assessee claimed R& D expenditure in AY 2000-01 u/s 35(1) whereas it the year under consideration the same expenditure was claimed u/s 35(2AA) of the Act - Therefore, matter is remmitted back to A.O. - Decided against Revenue. Disallowance of interest on borrowed amount - Held that:- interest expenditure was incurred in relation to the expansion of the existing business. The learned CIT(A) has observed in his order that it is not clear from the details submitted by the assessee whether for expansion of the existing business or new business - t is necessary to arrive at a decision that the expenditure is in relation to expansion of the existing business or altogether for new business - Therefore, matter is remitted back - Decided against Revenue. Disallowance of leasehold land written off - Held that:- It is not clear that amount written off as lease land included the rent of plot no.RL 17 and 18 also or not.It appears that agreement for these plots were for constructing housing society.In our opinion this points needs further investigation. If no amount has been paid under the head lease rent for these plots,it has to disallowed.If portion of it was paid for the plots mentioned at serial no.ii),AO should allow after verification.For this limited purpose matter is restored back to the file of the AO. Disallowance of telephone expenditure - Held that:- FAA has not mentioned the issue of proportionate disallowance of telephone expenditure at all while confirming the order of the AO.Thus,his order is a non-speaking order. In the case of a company making a disallowance on account of personal nature of expenditure is not proper. In the case under consideration neither AO nor FAA has given any reason for the ad hoc disallowance - Following decision of Sayaji Iron And Engg. Co. Versus Commissioner of Income Tax [2001 (7) TMI 70 - GUJARAT High Court] - Decided against Revenue. Deduction u/s 80IB - Foreign exchange fluctuation - Held that:- exchange rate difference arises out of and is directly related to sale transaction involving export of goods of the industrial undertaking and, therefore, the difference on account of exchange rate fluctuation is entitled to deduction u/s 8O-IB - There could not be any two opinions that manufacturing activity of the type of material being undertaken by the assessee would also generate scrap in the process of manufacturing. The receipts from sale of scrap being part and parcel of the activity and being proximate thereto would also be within the ambit of gains derived from the industrial undertaking for the purpose of computing deduction under section 80-IB - Following deision of CIT Vs Rachna Udhyog, [2010 (1) TMI 38 - BOMBAY HIGH COURT] - Decided against Revenue. Deduction u/s 80HHC - Foreign exchange gain - Held that:- credit balance written back and miscellaneous receipt should not be excluded while computing 80HHC deduction - Following decision of EXTRUSION PROCESS PVT. LTD. Versus INCOME-TAX OFFICER CIRCLE 9(1)(4) [2006 (6) TMI 261 - ITAT MUMBAI] - Decided against Revenue. 2013 (10) TMI 544 Gain on sale of shares - who is liable to be taxed - Joint ownership of shares - taxability - Held that:- There is no doubt that occupancy rights were attached to the shares of the company, the share holders have transferred their shares, the assessee has only received the cost of construction whereas the entire gain from such transfer arose to the share holder who have rightly declared the income of their respective hands and has been rightly taxed by the department in the hands of the share holders. The dual ownership of the property i.e. legally owned by the company and defacto by the members is an accepted position in the Income tax law - A perusal of the assessment order shows that the shareholder has shown long term capital loss on sale of shares at Rs. 1,08,64,687/-. The AO has observed in his assessment order that the asset under transfer is the shares of M/s. Calico Dyeing & Printing Mills Ltd. (present assessee) alongwith the right to occupy and use the immoveable property which are accrue to the buyer on payment of the construction cost to M/s. Calico Printing and Dyeing (present assessee), since the construction was carried out by the said company as stipulated in the agreement. After making minor adjustments to the proportionate value of market shares, the AO has accepted the entire sale transaction in the hands of the shareholder i.e. M/s. Calico Associates. This also proves that the Revenue has collected tax from the hands of the shareholders - Following decision of Westwind Realtors (P) Ltd. Vs DCIT [2006 (3) TMI 559 - ITAT MUMBAI] - Decided against Revenue. 2013 (10) TMI 543 Adjustment of arm's length price - Expenses on advertisement/business promotion - Conceptual framework of "international transaction" - Whether, on the facts and in circumstances of the case, the Assessing Officer was justified in making transfer pricing adjustment in relation to advertisement, marketing and sales promotion expenses incurred by the assessee - Held that:- expenses which are directly related to the sales do not come within the meaning of "brand building" - AMP expenses refer only to advertisement, marketing and publicity expenses. A divider needs to be placed between the expenses for the promotion of sales on one hand and expenses in connection with the sales on the other. Both these expenses are required to be kept in different compartments. While expenses for the promotion of sales directly lead to brand building, the expenses directly in connection with sales are only sales specific - assessee itself has categorized the expenditure into two sub-heads hereinabove, i.e. the advertisement head comprises of expenses which have been incurred for "brand building". The other head is of business promotion expenses - advertisement expenses have been incurred for brand building; whereas, the business promotion expenses deserve to be treated as directly connected with the sales undertaken by the assessee. Though the assessee has pleaded that even some of the advertisement expenses are business promotion expenses, i.e. dealer meet expenses, training/seminar/classes, product demonstrators, product finance scheme, consumer gift (supra) etc, however, in view of the fact that since it itself has included the same under the head "advertisement" - There is no reason to change the head of expenses from advertisement expenditure to business promotion expenditure - only advertisement expenses out of the total amount are liable to be considered for the purpose of advertisement, marketing and promotion leading to brand building of the "Panasonic" logo - Decided in favour of assessee. 2013 (10) TMI 542 Deduction u/s 80IB - Income of assessee or Government - AP Housing Board formed under APHB Act, 1956 - Held that:- Assessee Board has an independent identity distinct from State Government. Board is also constituted for purpose of carrying out work as envisaged under preamble of Act. Board certainly cannot be equated with Government or a department of Government as it does not perform any of duties of Government or a Government department. It is quite obvious that Board is a statutory body performing statutory functions distinct from state Government. It may be a fact that state Government exercises some amount of control over functioning of Board similar to control exercised over all other government corporation and public sector undertakings but that does not take away independent identity or character of Board. Therefore, it cannot be said that income of assessee Board is income of state Government - Following decision of Andhra Pradesh State Road Transport Corporation Versus Income-Tax Officer, B-I Ward, Hyderabad, And Another [1964 (3) TMI 15 - SUPREME Court], assessee’s contention that income of Board cannot be subjected to tax under income-tax Act, in view of provisions contained under Article 289(1) of Constitution of India is not acceptable. Chargeability of income to tax is as per charging section contained u/s 4 of IT Act, 1961. Retrospective amendment made to APHB Act by Act 12 of 2010 cannot dilute effect of provisions contained under income-tax Act, which is an Act of Parliament hence has overriding effect over an Act of State Legislature. It is a fact on record that plea taken by assessee that Board’s income is income of state Government was not there until introduction of subsection (7) to section 58 of APHB Act in 2010. That is reason assessee had never taken this stand all these years. In fact assessee had all along filed returns declaring income and claiming deduction u/s 80-IB of Act. Deduction u/s 80-IB can only be claimed by an assessee who is an industrial undertaking having income from profits and gains from business specified therein. Therefore, assessee’s own conduct goes to show that income from housing projects were treated as business by assessee. assessee has not revised this stand by filing any revised return. Only after amendment was made to APHB Act in year 2010, assessee came forward with a claim that its income is income of state Government therefore immune from income-tax Act in view of Article 289(1) of Constitution of India - Decided against assessee. Diversion of Income by Overriding Title - Held that:- There is a difference between an amount which a person is obliged to apply out of his income and an amount which by nature of obligation cannot be said to be a part of income of assessee. Where by obligation income is diverted before it reaches assessee, it is deductible; but where income is required to be applied to discharge an obligation after such income reaches assessee, same consequence, in law, does not follow. It is first kind of payment which can truly be excused and not second. second payment is merely an obligation to pay another a portion of one's own income, which has been received and is since applied. first is a case in which income never reaches assessee, who even if he were to collect it, does so, not as part of his income, but for and on behalf of person to whom it is payable - assessee having diverted a part of income after it has accrued to it diversion of such income can only be considered to be an application of income and not diversion of income by overriding title - Following decision of Commissioner Of Income-Tax, Bombay City II Versus Sitaldas Tirathdas [1960 (11) TMI 17 - SUPREME Court] - Decided against assessee. Disallowance of infrastructure expenditure - Held that:- it is not an allowable expenditure but only an application of income. It is not in dispute that amount of Rs. 1180 crores is stated to have been given to AP State Housing Corporation on directive of Government. However, that would not amount to an expenditure incurred for purpose of business. An expenditure which is exclusively laid out for purpose of business is a revenue expenditure and, therefore, allowable. On appreciation of facts on record, it is quite evident that amount of Rs. 1180 crores was not spent by assessee board for purpose of its business. said amount was transferred to AP State Housing Corporation at directive of Government for implementing certain housing projects. assessee is no way connected with implementing project. This cannot be said to be an expenditure laid out wholly and exclusively for purpose of business. decisions relied upon by learned AR are factually distinguishable as in those cases there was nexus between expenditure incurred and business of assessee - decided against assessee. Disallowance of payment of pension - Held that:- CIT(A) has not gone into depth of issue and has confirmed disallowance in a mechanical manner. It is not forthcoming what are details asked for by AO and on failure on part of assessee to furnish such details, disallowance was made. lower authorities have not disputed fact that pension amount has been paid. It is also a fact that Pension is payable as per service conditions. That being case it is an allowable deduction - Decided in favour of assessee. Disallowance u/s 44AD - Estimation of income from Singapore project - Held that:- It is a fact on record that assessee is a government undertaking created under a statute. It maintains regular books of account. Its books of account are not only subject to statutory audit under provisions of income-tax Act but also subject to inspection by other government agencies. Therefore, without pointing out defect or discrepancy in books of account maintained by assessee estimation of income cannot be resorted to. That besides section 44AD of Act is applicable only in a case of contractors where turnover is less than Rs. 40 lakhs. In present case, neither assessee is a contractor nor its receipts are less than Rs. 40 lakhs. Therefore, estimation of income by applying rate of 8% that too on expenditure by invoking provisions of section 44AD is not justified. If department is of view that there is a profit element which has not been disclosed by assessee, it has to be determined after properly verifying books of account and other evidences and not merely on presumption and guess work. We, therefore, remit this issue to file of Assessing Officer who shall decide same in accordance with law after affording reasonable opportunity of being heard to assessee - Decided in favour of assessee. 2013 (10) TMI 541 Off market transactions - huge loss - genuineness - colourable device to avoid tax - Held that:- he requirement of filling up the DIS for transfer cannot be an issue to decide the genuineness of the transactions carried out by the appellant. - Not a single instance has been given by the AO highlighting that any purchase or sale was effected by the assessee in respect of these "off market transactions" which is not at market rate - Even if, for the sake of argument, it is accepted that no such evidence was provided by the assessee regarding market rate on the date of transaction then also, market rate of a particular share on a particular date is easily verifiable independently from the website of Bombay Stock Exchange(BSE). The assessee has furnished the print-out of stock prices from such site of BSE before us in respect of various transactions and from the same, it is seen that the transactions carried out by the assessee in respect of these "off market transactions" is very much at market rate - Almost in all the cases, the sale price adopted by the assessee is near to the high price of the concerned script on this date - When the sale price adopted by the assessee is close to the high price of the concerned share on the relevant date, it cannot be said that the transactions effected by the assessee is not at market rate, particularly, when the AO has not given even a single instance where the assessee has effected the transaction of purchase at a price higher than the high price of the concerned share on the relevant date or effected the sale of a share at a price below the low price of the concerned share on the relevant date – Decided against the Revenue. Further, AO that in similar transactions, the assessee has earned profit also and even if the AO is making disallowance of the loss in "off market transactions", then he should disregard the profit also in similar transactions and hence, only net loss can at best be disallowed. But the AO has taxed the profit earned by the assessee in such transactions and disallowed the losses only. This goes to show that the AO has also accepted "off market transactions" as genuine and valid where the assessee has earned profit, but in similar transactions, where the assessee has incurred losses, the AO had disallowed such loss by holding that such transactions are only paper transactions or bogus transactions. This is not permissible. Disallowance u/s 14A of the Income Tax Act – Held that:- Relying upon the judgment of Hon'ble Karnataka High Court rendered in the case of CCI Ltd. [2012 (4) TMI 282 - KARNATAKA HIGH COURT], wherein it was held that if the assessee is a dealer of shares and securities then it cannot be said that such purchases of shares and holding of shares were for the purpose of earning of dividend income and hence, expenditure incurred in acquiring cannot be u/s. 14A of the Income-tax Act, 1961 – In the instant case assesses is a dealer in shares and securities and this fact is noted by Assessing Officer also in his assessment order and inspite of this contention raised by Ld. AR of the assessee before us, nothing has been brought on record by Ld. CIT-DR of the Revenue to show otherwise – Therefore following the judgment of Hon'ble Karnataka High Court rendered in the case of CCI Ltd, no disallowance u/s. 14A of the Act on account of interest expenditure on proportionate basis be sustained – Decided against the Revenue. 2013 (10) TMI 540 Disallowance of house keeping charges - Payment made to sister concern company - Held that:- once for the same assessment year, i.e. Assessment Year 2003-04 in one of the sister-concerns' case, which is also a service receiver as the assessee is, it had already been held by the Ahmedabad Tribunal that the payment was not excessive and the transaction was genuine, therefore, the view taken on the same lines by the first appellate authority for the year under consideration in assessee's case as well ought to be affirmed - Following previous decision of assessee's own case [2010 (9) TMI 941 - ITAT AHMEDABAD] - Decided against Revenue. Disallowance of miscellaneous expenses - Held that:- It could have been possible that there was no substantial variation in the percentage of expenses, but it is also an admitted position that the ratio of expenses under question was not uniform if compared with the past history of the case - In such a situation, it was expected from the first appellate authority to either called-for a remand report or in the alternate would have granted an opportunity of hearing to the Assessing Officer so that the requisite information could have been verified. It is not a simple disallowance on ad hoc basis, but the impugned 1/7th disallowance was made by the Assessing Officer due to the gross failure on the part of the assessee. The situation was not that the assessee has produced books of account and got verified the reasonableness as well as the genuineness of the expenses, but even then a partial adhoc disallowance was made. Rather the admitted position is that the assessee has not substantiated the genuineness or the reasonableness of the claim of expenses, though the opportunity was granted to the assessee - Issue restored back to the stage of first appellate authority. CENVAT Credit - excise duty on capital goods not considered - Deduction under Service Tax and Excise Duty claimed - Held that:- The assessee had not claimed any depreciation on service tax/Excise portion of capital goods. The same had been utilized for payment of excise. The learned AO had verified all the aspect and allow the deduction - Decided against Revenue. Customs 2013 (10) TMI 579 Classification of Goods – Benefit of Notification No.21/2002 - Revenue classified the vessel under CTH 89039990 – Held that:- The issue involved in this case is regarding classification of a casino vessel imported and claimed classification under CTH 8901 - The declared classification was considered by the Revenue as proper classification and clearance was accordingly allowed - the classification of a vessel, capable of carrying cargo and persons, is classifiable under CTH 8910 and not under CTH8905 even if such a vessel was used for carrying out repairs & maintenance, inspection, rescue support at the ONGC platforms. Waiver of Pre-deposit - Further determining of the classification of a stationary casino vessel which is also capable of transporting goods & persons will need deeper considerations and detailed arguments which can be only done at the time of final hearing - Appellants also argued that assessment made in the Bill of Entry has not been contested or reviewed by the Revenue and has attained finality - Prima facie appellants have made out a case for complete waiver of confirmed dues/penalties on time bar and merits as a result of later judgment of CESTAT -Mumbai in the case of Hall Offshore Ltd. Vs. CC (Import) Mumbai [2013 (10) TMI 409 - CESTAT MUMBAI] - there shall be complete waiver from recoveries of confirmed dues and penalties till the disposal of the appeal – Stay granted. 2013 (10) TMI 578 Benefit of Notification No. 4/2006 – Waiver of Pre-deposit - the appellant imported iron ore pellets and claimed exemption from payment of duty under Notification No. 4/2006-CE - Whether the appellant is eligible for the benefit of exemption on the goods imported by them - Held that:- The description of the goods given in the said Tariff heading number reads as ‘iron ore pellets’ - The heading 2601 talks about iron and concentrates, in our view if the pellets are also considered as iron ore then the heading given in the notification talks about exemption to ‘ores’. If the CETA itself considers iron goods imported by the appellant as iron ore pellets, prima facie, denying the benefits of exemption notification to the appellant would not arise - chapter note No. 2 of chapter 26 also seems to indicate a view which is beneficial to the assessee, inasmuch as it talks about meaning of term ores to mean minerals actually used in the metallurgical industry for the extraction of mercury or the metals of heading 2844 or of the metals of section XIV or XV of the Central Excise Tariff Act 1985 - iron ore pellets which are imported by the appellant are used in the metallurgical industry for the extraction of iron which falls under section XVI of the Central Excise Tariff Act-1985 - the appellant has made out a prima facie case for the waiver of pre-deposit of the amount involved on the ground that the benefit of notification No. 4/2006-CE extendable to them – Stay granted. 2013 (10) TMI 577 Penalty u/s 112(b) - Abatement of the importer - import of imported SWF brand Computer Embroidery Machines - Held that:- It appears from the impugned order that the applicants purchased the goods from the importer and paid full rate of duty on the basis of local sales invoices. Prima facie, in our considered view, it is a fit case for waiver of pre-deposit of penalties. Accordingly, the penalties are waived and its recovery stayed till the disposal of the appeals - Decided in favour of assessee. 2013 (10) TMI 576 Application for Modification of Stay Order – non compliance of stay order - Held that:- Application for modification of stay order does not raise any new grounds nor does it say how there was an error while passing the order of pre-deposit - It was only stated that the applicant was only bread earner in the family and due to unavoidable circumstances appellant could not appear before the Tribunal - There was also no evidence annexed with the application for modification nor in the appeal memoranda about the financial hardship being faced by the applicant - In the absence of any such evidences, we find that applicant had not made out any case for modification of stay order which directed the applicant to deposit an amount of Rs. One lakh and report compliance. Accordingly, the modification application is dismissed - the modification application was rejected and there being no compliance of the stay order, we dismiss the appeal for non-compliance. 2013 (10) TMI 575 Rectification / Modification of Stay Order – Held that:- The Bench while passing the order of pre-deposit of 50% of the amount of penalty imposed under Section 114 of the Customs Act, 1962, had gone into detail the submissions made by the learned counsel - we have specifically mentioned that the appellants have made wrong declarations in the export documents and hence the issue needs to be considered in detail which can be done only at the time of final disposal of the appeals - We were of the prima-facie view that the appellants have not made out a case for complete waiver - We do not find any reason for modifying our stay order - Accordingly, applications for modification of our stay order are dismissed. 2013 (10) TMI 574 Differential Duty – Enhancement of Declared Value – Held that:- The adjudicating authority had finalized the assessment by taking the data and guidelines issued by DGOV, without issuing a proper notice before enhancement of the value – there was no justification in Ld. Commr. (Appeals) order in accepting the declared value in the bills of entry when no other data except the DGOV guidelines were considered by the adjudicating authority - in the interest of justice, it would be appropriate to remand the matter to the adjudicating authority for deciding the issue afresh - Both sides have agreed that the adjudicating authority should issue a proper notice to the respondent before finalizing the assessment and enhancing the value. The Revenue had no objection for early disposal of the case - the Revenue was directed to issue notice within one month from the date of communication of this order and the respondent was directed to file a reply to the said notice within a fortnight period from the receipt of the said notice - The adjudicating authority should take all steps so as to complete the entire adjudication proceeding after receipt of the reply from the Respondent and preferably within three months from the date of communication of this order - Needless to say that reasonable opportunity of hearing be given to the respondent before finalization of the case - Both sides were at liberty to produce evidences in their favour - It was made clear that we have not expressed any opinion on the merit of the case - Revenue's appeal was allowed by way of remand. 2013 (10) TMI 573 Classification of TV Tunners - Assessment of Goods – Waiver of Pre-deposit – Held that:- The issue revolves around a very narrow compass - Prima-facie the practice of assessment of T.V. Tunners imported by the applicant as well as across the country, have been classifying it under Heading 84.73 of Customs Tariff Act, 1975 - By a Special Investigation and interpretation of competing entries, the Department has classified the said product, i.e T.V. Tunner, under the Heading 8528 and demanded differential duty revising the earlier assessment practice - the classification of T.V. Tunners under Heading 8528 against claimed Heading 8473, was debatable - the applicants were able to make a prima-facie case for total waiver of differential duty confirmed, hence, predeposit of duty confirmed was waived and its recovery stayed during pendency of the appeal - Stay granted. 2013 (10) TMI 572 Waiver of Pre-deposit – Mis-declaration of Value – Duty Evasion – Confiscation of goods – Redemption fine - The case made out against the applicant was that the applicant made available his Importer and Exporter code to another person who imported goods declared as Artificial Stones and Imitation Stones by filing Bill of Entry in Applicant’s name - Held that:- Revenue contended that the Bills of Entry were filed in the name of the applicant and therefore the applicant had acted in a manner which helped evasion of payment of duty and hence the penalty imposed was legal and proper – Considering the submissions of both sides, the applicant was directed to pre-deposit - stay granted partly. Corporate Laws 2013 (10) TMI 571 Winding up - Inability to pay debts - Held that:- The Company offered US $ 33 million 3.0 % convertible bonds 2011 due for repayment or redemption in August 2011, and on 14th August 2007 it also offered US $ 50 million 3.0 % convertible bonds 2012 due for repayment or redemption in August 2012. The Petitioner is the Trustee holding the aforesaid bonds in trust for the bondholders, who subscribed to the said bonds. The Petitioner has repeatedly admitted that payment under the said bonds has become due to the bondholders - The Company admitted its liability towards repayment of FCCBs by making an announcement on the BSE dated 13th October, 2011, inter alia, stating that the Company has defaulted on its US $ 33 million FCCBs which were due on 21st September, 2011 and is in negotiation with the bondholders to extend the time of repayment. The Company also stated that it has received all monies due from Zenith RMM, LLC except for the amount to be held in escrow, part of which the Company plans to utilize for partial repayment of FCCBs. If there is no dispute as to the company's liability, the solvency of the Company might not constitute a standalone ground for setting aside a notice under section 434(1)(a), meaning thereby that if a debt is undisputedly owing, then it has to be paid. If the company refuses to pay on no genuine and substantial grounds, it should not be able to avoid the statutory demand. I am therefore satisfied that the amount as claimed by the Petitioner in the Petition is due and payable by the Company to the Petitioner. However, the Company despite receiving the statutory notice has failed and neglected to make the payment as called upon by the Petitioner. The defence raised by the Company is totally moonshine and completely lacks merits. I am therefore satisfied beyond any doubt that the Company is unable to pay its debts. The Company Petition is therefore admitted and made returnable on 16th September, 2013 - Following decision of IBAHealth (India) Pvt. Ltd. v. Info-Drive Systems Sdn. Bhd. [2010 (9) TMI 229 - SUPREME COURT OF INDIA] - Decided in favour of Appellant. Appointment of provisional liquidator - Held that:- The Promoters/Directors of the Company after repeatedly stating that they are selling/disposing of the Undertaking/Division to make repayment of FCCBs and even after the sale of the MSD Business stating that the consideration received will be utilised for repayment/partial repayment of the FCCBs, did not make any payments towards FCCBs to the Petitioner/bondholders but instead in the aforestated manner siphoned away the consideration thereby defrauding its shareholders and its creditors including the Petitioners/bondholders - Promoters/Directors of the Company cannot be trusted with the affairs of the Company and if the Provisional Liquidator is not appointed, the Promoters/Directors of the Company who are only interested in personal gains and not in the interest of any of its shareholders, creditors, or workers will within no time bring the company to a standstill by siphoning/milking its balance assets by showing losses in its business and even bringing its 800 workmen on the streets - Administrator of the Company is appointed. The Administrator shall take symbolic possession of the property, effects, actionable claims, books of account, statutory records and other documents of the Company. The Administrator may also retain copies of books of account, statutory records and other records as he may deem fit. The Directors of the Company shall provide all information sought by the Administrator pertaining to the working/affairs of the Company and shall forward the agenda of all Board Meetings/General Meetings at least 72 hours in advance to the Administrator and shall not take up any matter at any meeting which is not mentioned in the agenda. In case of emergency the Directors may hold a Board Meeting at short notice with the permission of the Administrator. However, the Administrator shall ensure that the day to day functioning of the Company is not hampered in any manner whatsoever. Whether reference made to BIFR sustainable - Dishonest conduct of company - Held that:- Section 16 of SICA obliges the Board to make such inquiry as it may deem fit for determining whether any industrial company has become a Sick Industrial Company in accordance with the procedure prescribed therein. In view thereof, the decision on the issue as to whether the opinion formed by the Board of Directors is honest and bona fide leading to the filing of a reference before the BIFR also falls within the realm of inquiry by the BIFR under section 16 of the SICA. In my view, any attempt by this Court to determine whether the reference filed by the Company is bona fide or not would tantamount to trespassing on the jurisdiction of the BIFR. In view thereof, though I have expressed my view viz. that the Promoters of the Company are absolutely dishonest and have siphoned away the funds of the Company in the manner set out in detail hereinabove and are responsible for the state of affairs of the Company prevalent as of date, I leave it to the BIFR to decide whether the Reference filed by the Company should be registered and/or further entertained. The only direction by this Court to the office is, to forward a copy of this Order to the BIFR for its independent consideration at the time of registering of the Reference and proceeding with the same, if so registered - Decided in favour of appellant. 2013 (10) TMI 570 Striking off of name - Defunct company - Held that:- petitioner-company has made out a case for the invocation of the powers of this Court under sub-section (6) of section 560 of the Companies Act. The amount of Rs. 14.80 lakhs was undisputedly advanced by the petitioner-company as loan to the respondent-company. The loan has not been repaid. It was not also disclosed in the balance sheet filed with the ROC. At the stage of examining the application for striking off the name, the ROC adopts a summary procedure and if the necessary documents furnished, he may strike off the name of the company from the register. But that does not mean that he condones any fraud or malpractice. Mr K S Pradhan has drawn my attention to the provisions of section 628 of the Companies Act, which provides for penalty for false statements made in any return, report, certificate, balance sheet, statement or other document filed by the company for the purposes of any of the provisions of the Act if it is false in any material particular or omits any material fact deliberately and with the knowledge that it is false or material. Imprisonment for a term which may extend to two years is provided. The provisions of sub-section (6) of section 560 are overriding in nature and the action of striking off name of the company from the register is not conclusive. Any creditor can make an appropriate application to the company court before the expiry of 20 years from the publication in the official gazette seeking restoration of the name of the company in the register so that it can pursue its remedies which are available to it under the law for recovery of the amount from the company whose name was struck off - name of the company should be restored to the register. I direct accordingly. It would be open to the petitioner-company to take any action, if it is so advised against Nicholson Export and Import Pvt. Ltd. for recovery of the amount due. The aforesaid company as well as all other persons are restored to the same position, as if the name of the said company has not been struck off - If any other statutory formalities are to be complied with by the petitioner-company consequent to the restoration of the name of the respondent-company in the register of members, the same shall be done within a period of one month from the date on which the name is restored. This includes formalities under the Companies Act, 1956 and the applicable rules - Petition allowed. Service Tax 2013 (10) TMI 589 Waiver of pre deposit - Business Auxiliary Services - it is contended that payment made to DTC was the appellant's share in the actual marketing expenses incurred by DTC. Thus DTC did not provide any service of promoting or marketing of goods having the brand name of Nakshatra being sold by the appellant - Held that:- When the question for consideration before the Tribunal is an arguable one, particularly the interpretation of the agreements, there is no justification for directing the appellant assessee to deposit the penalty amount. The case of the appellant is that no service was received by them from DTC and the payment made under the agreement is in the nature of reimbursement of expenses of advertisement incurred by DTC. This submission would require a detailed examination at the time of final hearing. However, the case of the appellant being eminently arguable, deposit of interest and penalty was not called for, so as to entertain the appeal on merits. Interest of justice would be served if the appellant is directed to make the predeposit of the entire amount of service tax which is quantified by the adjudicating authority at Rs.1, 13,13,784 /- including cesses while the interest thereon and penalty is dispensed with - Decided partly in favour of assessee. 2013 (10) TMI 588 Reimbursement of Postage Expenses - The issue involved in the case was regarding the non-inclusion of the postage expenses claimed as reimbursement by the appellant in the gross value for discharge of Service Tax liability – Held that:- The issue of non-inclusion of reimbursable charges in the gross value for discharge of Service Tax liability seems to be settled by the judgment of Hon'ble High Court of Delhi in the case of Intercontinental Consultants & Technocrats Pvt. Ltd. Vs UoI [2012 (12) TMI 150 - DELHI HIGH COURT] and M/s. Datamatics Financial Services Ltd. Versus Assistant Commissioner of Income tax –Range 8(1) [2012 (8) TMI 487 - ITAT, MUMBAI] had granted an unconditional waiver - Since the issue involved in this case was debatable and arguable one, we consider the amount pre-deposited by the appellant on the direction of first appellate authority as enough to hear and dispose the appeal - Stay granted. 2013 (10) TMI 587 Classification of service - Cargo Handling Services - process right from mine stage to formation of limestone gitties - composite services - essential character - Whether activities of the appellants fall under taxable services of Cargo Handling Service as defined under Section 65(23) of the service Act prior to 10.09.2004 - Held that:- appellants are engaged in various activities. Whenever a composite service consisting of different services which cannot be classified in clause 2(a) of Section 65A, services are to be classified as service which gives them essential character of service as per clause 2(b) of Section 65A. We note that Cargo Handling Services does not give essential character of activities of the appellants. We therefore hold that activities of the appellants prior to 10.09.2004 do not fall under Cargo Handling Service as defined under Section 65 (23) of the Act as loading/unloading are only incidental and not the main activity of the appellants - Decided in favour of assessee. Classification of service - Whether activities of the appellants are classifiable under Business Auxiliary Services with effect from 10.09.2004 - Held that:- The activities undertaken include, sorting, grading pre-screening, screening and crushing of limestone of various sizes. These activities are more in the nature of processing of raw and crude limestone to Low silica limestone gitties of desired sizes. We are therefore of the view that these activities more appropriately can be termed as processing activities and not production of goods. Since processing has been added in the defined of Business Auxiliary Services with effect from 16.06.2005, we hold these activities are classifiable as Business Auxiliary Services with effect from 16.06.2005 only - Decided in favour of assessee. 2013 (10) TMI 586 Non-inclusion of Reimbursable Charges - Discharge of Service Tax liability and part of the amount is for non-discharge of Service Tax liability under renting of immovable property by the appellant – Held that:- The appellant had entered into memorandum of understanding with various persons and were recovering the actual expenses incurred by them in respect of their members - To that extent, no Service Tax liability may arise on the appellant as Hon'ble High Court of Delhi in the case of Intercontinental Consultants & Technocrats Pvt. Ltd. [2012 (12) TMI 150 - DELHI HIGH COURT] - had struck down the provisions of Rule 5(1) of Service Tax Valuation Rules as ultra vires - Since a specific rule had been struck down, any demand arising on such reimbursable expenses cannot be sustained - part of the property was given on rent by the appellant to various persons and collecting the rent - such an activity would fall under the category of renting of immovable property services - Partial Stay Granted. 2013 (10) TMI 585 Business Auxiliary Services – Error in Computation of Education Cess - Held that:- The petitioner claims immunity under the provisions of Export of Service Rules, 2005 relying on the judgment of the Larger Bench in Paul Merchants Ltd. vs. C.C.E., Chandigarh 2012 (12) TMI 424 - CESTAT, DELHI (LB) ] - service tax is a value added tax, which in turn is a destination based consumption tax in the sense that it is levied on commercial activities, and it is not a charge on the business but a charge on the consumers - There is nothing in Export of Service Rules, 2005 which can be said to be contrary to the principle that a service not consumed in India is not be taxed in India - prima facie the issue waws in favour of the petitioner/assessee. Manpower Recruitment or Supply Agency – Waiver of Pre-deposit - Held that:- The petitioner relies on interim order passed in Paramount Communication Ltd. vs. C.C.E., Jaipur [2013 (3) TMI 134 - CESTAT NEW DELHI] - In view of consistent orders passed granting waiver of pre-deposit in aforesaid orders and the final order in Paramount Communication Ltd. - we see a strong prima facie case in favour of the petitioner in respect of the adjudicated tax liability under ‘manpower recruitment or supply agency’ service as well – Waiver of Pre-deposit was allowed in full and stayed till the disposal – Stay Granted. 2013 (10) TMI 584 Waiver of pre deposit - Manpower recruitment or supply agency - reverse charnge - Held that:- In view of consistent orders passed granting waiver of pre-deposit in aforesaid orders and the final order in Paramount Communication Ltd. [2013 (3) TMI 134 - CESTAT NEW DELHI], we see a strong prima facie case in favour of the petitioner in respect of the adjudicated tax liability under ‘manpower recruitment or supply agency’ service as well - Decided in favour of assessee. 2013 (10) TMI 583 Stay Application - rebate / refund of service tax paid on export of servcies – Held that:- It shall be premature to entertain the present stay application - Let the Revenue get a report from learned Adjudicating Authority as to whether he has carried out the direction of learned Commissioner (Appeals) given as above - There appears no reason from grounds of appeal filed by Revenue to entertain the present application – Decided against Revenue. 2013 (10) TMI 582 Demand of service tax - Vocational training - Coaching in English - Benefit of Notification no. 9/2003-ST - Held that:- appellant is conducting the training in spoken English for a duration of only two weeks as can be seen from their advertisements. When even after undergoing training in English languages for years together both in school and colleges, it is difficult to attain proficiency, it is inconceivable that in a matter of two weeks, any proficiency or skill can be imparted or achieved by undergoing training for a mere two weeks. Thus, the whole claim of the appellant lacks credibility and conviction. If the apex body dealing with vocational training, National Council for Vocational Training, in India itself does not consider training in languages as vocational training, it is not conceivable how training in languages can be treated as a vocational training for the purpose of Notification no. 9/2003-ST or it's successor Notification no. 24/2004. The clarification issued by the Board also would not matter as the taxability is determined not by the Circulars or notifications, but by the provisions of law - Following decision of UNION OF INDIA Versus WOOD PAPERS LTD. [1990 (4) TMI 55 - SUPREME COURT OF INDIA] - Decided against assessee. 2013 (10) TMI 581 Demand - Ground handling service - Held that:- Appellant collected the entire amount of tax from their clients and retained with them. It is also submitted that tax was deposited after detection by the Department and even some portion of the tax was deposited after issue of show-cause notice - Appellant directed to predeposit the entire amount of interest and penalty - recovery of penalty stayed partly. 2013 (10) TMI 580 Services provided by the Indian Railways - Modification of order - Retrospective amendment - Held that:- entire issue is now covered by the retrospective amendment made to Finance Act by inserting Section 99 - retrospective amendment very clearly held that any service provided by the Indian Railways during the period prior to 01.07.2012, nothing survives and the issue involved in this case is prior to 01.07.2012 and the appellant is Western Railway - impugned order is liable to be set aside due to the retrospective amendment - Decided in favour of assessee. Central Excise 2013 (10) TMI 569 Release of Cash Seized – Held that:- In the earlier writ petition against was filed and decided on 29.11.2010, the petitioner could not explain as to why the reply has not been filed to the show cause notice issued as long back as on 7.7.2008 - the reply has not been filed to the show cause notice so far. Shri B.C. Rai states that the preparation of reply is under process - We are unable to appreciate as to why the petitioner did not seek for release of cash in the writ petition filed earlier and as to why he has taken six years' time to make an application for release of cash and has relied upon the provisions which are not attracted in the case - the Commissioner of Central Excise, has not rejected the application for release of cash - He has only deferred the application until the adjudication is complete - the petitioner had not filed the reply to the show cause notice for last five years, there is no reason to interfere in the matter – Decided against Petitioner. 2013 (10) TMI 568 Refund Claim – Maintainability of Appeal - whether show cause is required to be issued to reject the refund claim u/s 11B - Held that:- tribunal has remanded back the case to adjudicating authority - , it is evident from reading the order of the Tribunal that all the relevant issues have been kept open for adjudication before the Assessing Officer. There is no adjudication by the Tribunal either for or against the Appellant. In this view of the matter, we see no reason to entertain the Appeal, which will not give rise to any substantial question of law. Regarding processing of refund claim - The CBEC directed to issue necessary guidelines in the form of an administrative circular to ensure that assessing officers and first appellate authorities decide all objections to refund claims – Decided against Petitioner. 2013 (10) TMI 567 100% EOU - duty on DTA clearance - Education Cess - Whether the petitioner is liable to pay education cess on the amount worked out by calculating the custom duty payable on the goods in respect of clearance made by 100% EOU to DTA – Held that:- The repeated acts of the adjudicating authority of ignoring the decision of this Court is impermissible although till date the Revenue has deemed it fit not to challenge the order passed by the higher authority or Tribunal of superior jurisdiction - Instruction dated 17.8.2011 of the CBEC in a move to reduce Government litigation, provides for monitory limits for filing appeals by the Department before the CESTAT/High Court and Supreme Court, which is Rs. 25 lakhs before the Supreme Court - This instruction provides that the adverse judgments relating to the constitutional validity of the provision of the Act or Rule is to be decided irrespective of the amount involved or where the Notification/Instruction/Order or Circular is held illegal or ultra vires. The adjudicating officer was reminded that he acts a quasi-judicial authority and is bound by the law of precedence and regarding the binding effect of the order of the higher authority which is the Tribunal - It was held that if such order is found to be erroneous by the Department, it needs to prefer an appeal as per the statutory provisions contained in the Central Excise Act - The decision of the Apex Court rendered in Union of India vs. Kamlakshi Finance Corporation Ltd. [1991 (9) TMI 72 - SUPREME COURT OF INDIA ] holds in unambiguous terms that the Revenue officers are bound by the decision of the appellate authorities. Despite such clear and specific directions and authoritative pronouncements, act of issuance of show cause notice by the Deputy Commissioner is wholly impermissible and unpalatable and deserves to be quashed and struck down with a specific note of strong disapproval - The respondents simply could not have exercised the powers contained under the statute in such arbitrary exercise and in complete disregard to the pronouncement of this Court particularly reminding the Revenue authorities of the binding effect of decision of Tribunal on the identical question of law - This not only led to multiplicity of proceedings but also speaks of disregard to the direction of this Court rendered in the earlier petition of this very petitioner - Both the show cause notices are quashed and struck down – Decided in favour of Petitioner. 2013 (10) TMI 566 Calculation CENVAT credit reversed under Rule 6(3) and recovered from the customers – The Department, therefore, was of the view that the assessable value for the purpose of payment of the amount under Rule 6(3) would also include the amount of 5% / 10% of the sale price being recovered by the appellant from the customers and the appellant would be liable to pay an amount @ 5% / 10% on the extra amount of 5% / 10% being recovered from the customers – Held that:- Difference of opinion - matter referred to larger bench - Whether the appeal has to be allowed on the point of limitation and penalty and the matter is required to be remanded to the Commissioner for re-quantification as held by my learned brother Member (T) or the impugned order is required to be set aside in its totality and the appeal is required to be fully allowed as held by learned Member (J). 2013 (10) TMI 565 Area based exemption - Exemption under Notification No. 50/2003 – Commencement of Production - Whether the appellant had commenced commercial production prior to 31.03.2010, so as to earn the exemption in terms of the notification – Stay - Held that:- the commencement of commercial production means starting of the manufacture of the finished products on commercial scale, which is preceded by trial production and installation of complete plant & machinery and on that day the plant must be ready in all respects for manufacture of finished product in commercial quantity and all raw materials, consumables, etc. required for manufacture are available. When as on 31.3.2010 soldering paste/wire, an important input for mounting components on the printed circuit board was not there and pneumatic screw drivers required for fixing screws mechanically were also not available as a result of which the screws could be fixed only manually, it is doubtful as to whether the commercial production could be started on that day. Moreover, in this case, there is no dispute that as on 31.3.2010, there was neither any manufacture of finished products nor any such manufacture had been recorded in the RG -I register and Shri Sunil Bhardwaj in his statement dated 17.4.2010 has categorically stated that they have not started maintaining any-stock register for finished products as no production was undertaken by them till date, which shows even till 17.4.2010 and there was no production. - prima facie case is not in favor of assessee - 50% of the demand ordered to be deposited - stay granted partly. 2013 (10) TMI 564 Payment of Education Cess and SHEC - Waiver of Pre-deposit - The issue involved is debiting Central Excise duty for payment of Education Cess and Senior and Higher Education Cess from RG-23 account maintained by the appellant – Held that:- The order that Ahmedabad Bench in the case of Indian Steel Corporation Limited vs. CCE, Rajkot [2008 (8) TMI 630 - CESTAT, AHMEDABAD] on the same issue, has granted waiver of confirmed dues - Since a view has already been taken by this very Bench, there was no reason to take a different view – there shall be stay on recoveries of confirmed dues and penalty till the disposal of appeal – Stay granted. 2013 (10) TMI 563 MRP Based value u/s 4A - Applicability of SWM Rules on batteries Waiver of Pre-deposit - Applicability of the Standards of Weights and Measures (Packaged Commodities) Rules, 1977 to their goods viz. Automotive Batteries have been disputed by the applicant much before the issuance of Notification No.02/2006 CE (N.T.) dated 01.3.2006 under Section 4A of CEA, 1944 Held that:- It is clear from the said Stay Order of the Hon ble Supreme Court that batteries manufactured by the applicant would not be subjected to the provisions of Standards Weights and Measures Act,1976 and The Standards of Weights And Measures(Packaged Commodities) Rules, 1977during pendency of the Appeals before the Hon ble Supreme Court or untill further Orders of the Hon ble Supreme Court - the Applicant would not be required to affix MRP to their goods during the pendency of the SLP/Appeal before Hon ble Supreme Court. The provisions of Section 4A of CEA, 1944 would not be attracted and accordingly no differential duty is payable by them - the Applicant had discharged duty by determining the value of the goods under Section 4 of CEA,1944 - the present duty demand is on the differential value between Sec.4 value and the value determined by the department under Section 4A of CEA,1944 Prima Facie the applicants could able to make out a case for total waiver of all dues Pre-deposits waived till the disposal Stay granted. 2013 (10) TMI 562 Clandestine Removal of goods - Wrong Availment of SSI Exemption – Waiver of Pre-deposit - Revenue was of the view that the value of clearances of both the units was liable to be clubbed for determination of excise duty – Held that:- The incriminating statements by the director and records resumed clearly indicate that both the units have indulged in clandestine manufacture and clearances of the excisable goods and have been evading duty - Non accountal of raw materials and clearances of finished goods without payment of duty has been admitted by the partner/proprietor and the evidence which are on records in the form of private books recovered and later confirmed in their statements - Prima facie, it is case in favour of the Revenue - The applicants have not been able to make a good case for waiver of duty and imposition of penalty - the applicant has deposited Rs.78,60,500/- during investigation - the applicant to deposit another amount of Rs.50 lakh – upon such submission rest of the duty to be waived till the disposal – Partial Stay granted. 2013 (10) TMI 561 Benefit of Notification No.67/95 – Captive consumption - benefit claimed for goods supplied under ICB - Waiver of Pre-deposit - Goods cleared without payment of duty as per Notification No.6/2006 against International Competitive Bidding - Whether the benefit of notification No.67/95-CE would be available to aluminium slabs which have gone into the manufacture of aluminium sheets – Held that:- If the goods are cleared against International Competitive Bidding in terms of Notification No.6/2006 the provisions of sub-rules (1), (2), (3) (4) of Rule 6 shall not be applicable to the clause (vi) of Rule 6 - no reversal of credit is required - If that be so, the condition of Notification No.67/95-CE requiring discharge of obligation in terms of Rule 6 of Cenvat Credit Rules stands fulfilled - the appellant is not required to pay any percentage prescribed under the law on the value of exempted final products - Prima facie, the benefit of notification No.67/95 is available to the appellant. Relying upon Thermo Cables vs. CCE, Hyderabad [2013 (1) TMI 146 - CESTAT BANGALORE] and BHEL vs. CCE, Trichy [2012 (10) TMI 105 - CESTAT, CHENNAI ] - the goods cleared against International Competitive Bidding in terms of Notification No.6/2006 prima facie are covered under exception to Rule 6 of Cenvat Credit Rules, 2001 - As such, the benefit of notification 67/95-CE could not be denied on the ground of no compliance with the conditions prescribed in clause (vi) of that proviso – Condition of Pre-deposit of Duty and Penalty to be waived till the disposal – Stay granted. 2013 (10) TMI 560 Clandestine Removal of Pan Masala - Held that:- Deeming provision is applicable in those cases where there is no evidence of start of production is available - the Commissioner has accepted that the appellant was indulging in manufacture and clandestine clearance of pan masala since January, 2011 - There is also evidence on record to show that there was agreement between the appellant and their brand owner, Shri Sunil Kumar Agarwal, Director of M/s.Astha Fragrance Pvt. Ltd. which was executed with effect from 1.10.2010 and the present premises in which the machines were found to be installed were taken on rent by the appellant from January, 2011 as per the statement of the owner of premises - it is clear that the appellant was manufacturing the said goods from January, 2011. Waiver of Pre-deposit – Penalty - The appellant has deposited the amount of Rs. 55.50 lakh, which is for the period January, 2011 - the deposit is sufficient for the purpose of section 35F of Central Excise Act, 1944 - as regard penalty, the appellant was indulging in the clandestine activity for manufacture of pan masala - They are prima facie, liable to penalty inasmuch as the demand of duty for the period to the extent of Rs. 55.50 lakhs has already been deposited, the appellant was directed to deposit further amount of Rs. 55 lakhs towards penalty - Partial stay granted. CST, VAT & Sales Tax 2013 (10) TMI 590 Assessment u/s 27(1)(b) - Maize products - Classification of item - Held that:- no justifiable ground in the plea of the assessee that the item would fall under Sl.No.80, Part B of the First Schedule to the Act. On the admitted fact that the items in question are sold under the brand name, in the absence of any Entry in the Schedule to cover such items, residuary item will have relevance for the purpose of fixing the rate of tax. Even though in normal circumstances, the item in question would fall under Sl.No.51, Part-B, First Schedule to the Act, yet, on the admitted case, the items being sold under the brand name, the products viz., Peppy, Cheese Balls, Senon Papito, Tortilla Chips and Peppy Eatos, as branded food products, attract tax at 12.5%, falling under the residuary clause under Sl.No.69, Part C of First Schedule to the Act - Decided against assessee.
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Newsletter: Where Service Meets Reader Approval.

TMI Tax Updates - e-Newsletter October 16, 2013

Articles

1. A RETROGRADE PLANET TAX DEPARTMENT A RETROGRADE PLANET

2. Depreciation under the Assam Agricultural Income Tax Act 1939

3. WHETHER THE SERVICES RENDERED IN CONNECTION WITH A CHIT BUSINESS ARE TAXBLAE SERVICES?

Notifications

1. 104/2013 - dated 15-10-2013 - Cus (NT)

Highlights / Catch Notes

Income Tax

Assessee Can Deduct Title Perfection Costs for Short-Term Capital Gains; Supported by Income Tax Case Laws.

Commissioner of Income Tax to Reassess Accommodation Entries and Long-Term Capital Gains in Black Money Conversion Case.

Jewellery found in search raises unexplained investment issue; AO to allow extra deductions for minors under IT Act Sec 69.

Insufficient Details on Agriculturist's Creditworthiness u/s 68 Leads to Rejection of Rs. 60,000 Loan Claim.

Court Challenges AO's Classification of Stock Sale Income as 'Other Sources' Post-Earthquake Factory Closure.

Flexibility in Choosing Benchmarking Methods for Arm's Length Pricing Under Income Tax Act.

Claim for Write-Off of Non-Performing Investments Allowed; Based on RBI Guidelines for Revaluation and Realizable Value.

Tax Liability Clarified: Sale of Jointly Owned Shares Taxable to Shareholder, Not Assessee, with Minor Adjustments.

Arm's Length Pricing: Advertisement Expenses Should Not Be Reclassified as Business Promotion Costs, Per Income Tax Case Laws.

AP Housing Board's Income Taxable Under IT Act; Article 289(1) Doesn't Exempt It, Section 80IB Deductions Applicable.

Off-market transaction genuineness confirmed when sale price matches high share price on specified date. Market rates upheld.

Customs

TV Tuner Classification Dispute: Heading 8528 vs. Heading 8473 for Customs Assessment; Decision Stayed Pending Review.

Corporate Law

Creditor Can Seek Company Name Restoration in Register Within 20 Years to Recover Debts Owed.

Service Tax

High Court Modifies Stay Order in Business Auxiliary Services Case Over Marketing Expenses with DTC for Nakshatra Goods.

Limestone Gitties Formation Classified as Taxable Business Auxiliary Service Since June 16, 2005.

Court Grants Partial Stay on Service Tax Dispute Over Reimbursable Charges in Property Rental Case.

Language Training Not Classified as Vocational Under India's Notification No. 9/2003-ST & 24/2004 by NCVT.

Central Excise

High Court Quashes Show Cause Notice Against 100% EOU on DTA Clearance Duty and Education Cess Imposition.

Larger Bench to Review CENVAT Credit Reversal Obligations: Additional 5% or 10% Payment Dispute u/r 6(3.

Area-Based Exemption Dispute: No Finished Products Recorded in RG-I Register by March 31, 2010 Under Notification No. 50/2003.

Section 4A of Central Excise Act MRP Valuation Not Applicable to SWM Rules on Batteries; Stay Granted.

Appellant Exempt from Paying Percentage on Exempted Goods Under Notification No. 67/95 for International Competitive Bidding.

VAT

Maize Products Like Peppy and Cheese Balls Classified as Branded; Taxed at 12.5% u/s 27(1)(b.

Case Laws:

Income Tax

Customs

Corporate Laws

Service Tax

Central Excise

CST, VAT & Sales Tax

Quick Updates:

TMI Tax Updates - e-Newsletter
October 16, 2013