TMI Tax Updates - e-Newsletter
October 16, 2014

Case Laws in this Newsletter:

Income Tax Customs Corporate Laws FEMA Service Tax Central Excise CST, VAT & Sales Tax Indian Laws

Articles

1. CIRCUMSTANCES LEADING TO THE ENACTMENT OF THE CENTRAL SALES TAX ACT, 1956

   By: DR.MARIAPPAN GOVINDARAJAN

2. TAXATION OF AMUSEMENT FACILITIES

   By: Dr. Sanjiv Agarwal

News

1. Expeditious issue of refunds to the assesses of Jammu & Kashmir

2. Governor Raghuram Rajan receives Euromoney Award for Best Central Bank Governor of the Year 2014

3. Statement by FM on WPI and CPI September inflation figures

4. Companies (audit) rules

5. Right of persons other than retiring directors to stand for directorship – Refund of deposit under section 160 of the Companies Act, 2013 in certain cases.

6. Companies (accounts) rules

7. India’s Foreign Trade (MERCHANDISE): September, 2014

Notifications

Central Excise

1. 31/2014 - dated 15-10-2014 - CE (NT)

Amendment of Notification No. 27/2014 - Central Excise (NT) dated 16.09.2014 - jurisdiction of (i) Chief Commissioner of Central Excise, (ii) Commissioner of Central Excise (iii) Commissioner of Central Excise (Appeals)

Circulars / Instructions / Orders

Income Tax

1. PRESS RELEASE - dated 15-10-2014

Necessary steps taken by Income Tax Department for processing refund claims of the taxpayers residing in the state of Jammu & Kashmir in e-mode and link given to provide new address for delivery of refund cheques.

Highlights / Catch Notes

Income Tax

• Court Allows Deduction for Advertisement Expenses Benefiting Both Assessee and Associated Enterprise.

  Case-Laws - HC : Whether the expenses incurred on advertisement and publicity incurred wholly for the benefit of the assessee or it benefited the principal who was an associated enterprise - deduction allowed - HC
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• Court Analyzes Prototype Development Costs u/s 36(1)(iv) for Revenue vs. Capital Classification; Enduring Benefit Test Not Definitive.

  Case-Laws - HC : Expenses on prototype development expenses u/s 36(1)(iv) - Revenue or Capital expenses - The test of enduring benefit is not a certain or conclusive test and it cannot be applied blindly and mechanically - HC
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• Court Disallows Liquidity Damages After Delay, Permits Deduction of Accrued Claim in Contract Execution Case.

  Case-Laws - AT : Provision for liquidity damages disallowed - The liability crystallized with the occurrence of event of delay in the execution of contract - deduction of claim allowed as accrued - AT
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• Assessee's EOUs Qualify for Tax Exemption u/s 10B; No Dispute on Commercial Production Start Date.

  Case-Laws - AT : 100% EOU - None of the Government authority has disputed that the assessee has not started commercial production on that date - the assessee is entitled for exemption u/s 10B in respect of all the three 100% Export Oriented Units - AT
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• Re-assessing with existing information from the original evaluation is not allowed; it counts as a change of opinion.

  Case-Laws - AT : On the basis of the material which was available at the time of the assessment, re-opening of the assessment, will not be permissible as the reasons cannot be regarded to be a bona fide one and it will tantamount to be change of opinion - AT
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• Court Denies Taxpayer's Attempt to Reclassify Undertaking as New for Tax Exemption u/s 10A.

  Case-Laws - AT : Exemption u/s 10A – t only the assessee knows whether it was expansion or a new undertaking and having led the department to accept that it is an expansion it cannot now be allowed to insist that it should now be treated as a fresh undertaking having been set up 7 or 10 years ago as this would be a travesty of justice. - AT
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• Ensure Consistency in Selecting Comparables for Arm's Length Price Adjustments: Exclude Both Abnormal Loss and Profit Companies.

  Case-Laws - AT : Arm's Length Price adjustment on international transaction – selection of comparable - if abnormal loss making companies are excluded abnormal profit making companies are also to be excluded - AT
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• Society Denied Section 80P Deduction Due to Banking Business Operations Involving Non-Voting Deposits.

  Case-Laws - AT : Deduction u/s 80P – it cannot be said that the Assessee society was not carrying on banking business as it was accepting deposits from the persons who have no voting right - assessee is not entitled for deduction u/s. 80P of the Act on any reasoning - AT
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Customs

• No Duty Payment Demanded for EOU as Raw Materials Used in R&D with No Alleged Misuse or Diversion. &D.

  Case-Laws - AT : 100% EOU - there is no allegation that the raw material which is procured without payment of duty is diverted or not used within the 100% EOU as the research and development facility is within the 100% EOU - no demand - AT
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Corporate Law

• Crown Debt Priority vs. Lien Explored u/r 43: Stock Exchange Secured Creditor Holds Priority Over Government Dues.

  Case-Laws - SC : Priority of Crown debts - whether the lien under Rule 43 is a statutory lien or is a lien arising out of agreement does not make much of a difference as the Stock Exchange, being a secured creditor, would have priority over Government dues - SC
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Service Tax

• Service Tax Delay Penalties Limited to Rs. 12,000 for Returns from April 2008 to March 2011, Favoring Assessee.

  Case-Laws - AT : Delay in filing of returns - Imposition of penalty - April 2008 to March 2011 - in respect of six returns, the maximum penalty that could have been imposed was only ₹ 12,000/- and not more than that amount - prima facie case is in favor of assessee - AT
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• Court Interprets "In Respect" and "In Relation To" for Works Contract Services in Airport Activities; Tax Considerations Applied.

  Case-Laws - AT : Works contract service - According to the dictionary meaning, ‘in respect’ and ‘in relation to’ are the same. - it has to be considered as a part of the airport and the activity has to be taken as the one in relation to airport - stay granted - AT
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• Sub-contractors must pay service tax independently, even if the main contractor has already paid. Prima facie case against assessee.

  Case-Laws - AT : Sub-contractors are also liable to pay service tax, notwithstanding the fact that the main contractor might have discharged the service tax liability. - prima facie case is against the assessee - AT
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Central Excise

• Claimant Seeks Refund for Duty Deduction Due to Short Supply of Goods; Dispute Over Entitlement Continues.

  Case-Laws - AT : Denial of refund claim - short supply of goods - whatever amount they have received less from the buyer, they are entitled to take refund of the duty component involved in the deducted amount. - AT
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• Quality Control Samples Exempt from Duty if Proper Records Kept in Factory.

  Case-Laws - AT : Levy of duty on quality control samples - preserved samples - control samples retained in factory is not liable to duty if proper account is maintained. - AT
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• ATM Rolls Reclassified Under Chapter 48 After Amendment to Chapter Note 14, Previously Under Chapter Heading 49.

  Case-Laws - AT : Classification of goods - prima facie after amendment to 48 by Chapter Note 14, the ATM Rolls would merit classification under Chapter 48 and prior to amendment the product was classifiable under Chapter Heading 49. - AT
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• Cenvat Credit Case: Revenue's Claim on Rejected Goods Procedure Found Incorrect; Records Adequacy Not in Question.

  Case-Laws - AT : Cenvat credit - Receipt of rejected goods - prescribed records - it is not the case of the department that the records maintained are not sufficient but it is their case that the procedure prescribed in the trade notice has not been followed - prima facie case of revenue is wrong - AT
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Case Laws:

• Income Tax

• 2014 (10) TMI 388
  Benefit of netting - Nexus with income – Interest income – Whether, whenever certain income is to be excluded for the purpose of deduction under section 80-I, 80-IA and 80HH, etc. gross income is to be excluded or only the net thereof or not – Held that:- Following the decision in M/s ACG Associated Capsules Pvt. Ltd. (Formerly M/s Associated Capsules Pvt. Ltd.) & Others Versus The Commissioner of Income Tax, Central-IV, Mumbai & Others [2012 (2) TMI 101 - SUPREME COURT OF INDIA] - for the purpose section 80HHC of the Act, it is not the entire amount received by the assessee on sale of DEPB credit, but the sale value of less the face value of the DEPB that will represent profit on transfer of DEPB credit by the assessee – relying upon Topman Exports v. CIT [2012 (2) TMI 100 - SUPREME COURT OF INDIA] - even other amounts, such as, interest or rent when are to be excluded for the purpose of explanation (baa) to section 80HHC of the Act - Ninety per cent of not the gross rent or gross interest, but the net thereof shall have be excluded - the amounts are to be excluded for the purpose of deduction u/s 80HHC of the Act - when the profit is being excluded from the claim of deduction, not the gross profit but the net thereof, that is the gross profit minus the expenditure incurred for earning such profit should be excluded – the benefit of deduction u/s 80I of the Act on various incomes, such as, job work receipt, sale of empty soda ash bardan, sale of empty barrels and plastic waste is to be granted – Decided against revenue. Soda ash project interest expenses and lab project interest disallowed – Held that:- Tribunal rightly came to the conclusion that there was interconnection, inter-lacing and inter-dependence of the management, financial and administrative control of various units of Nirma Limited - the business is continuation of the existing business and not a new business - the assessee through its existing administrative mechanism started a new facility for production of soda ash and had also set up facility for production of a material called ‘lab’ for its captive consumption for the purpose of its existing manufacturing business - the assessee is engaged in the business of manufacture of soap and the soda ash and ‘lab’ so produced is used by way of captive consumption – the order of the Tribunal is upheld - Decided against revenue.

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• 2014 (10) TMI 365
  Transfer Pricing Adjustments - Advertisement and publicity expenses disallowed - Non disclosure in form 3CEB – Whether the expenses incurred on advertisement and publicity incurred wholly for the benefit of the assessee or it benefited the principal who was an associated enterprise – Held that:- The contention of the revenue cannot be accepted because there was no proper disclosure of the benefit before the Transfer Pricing Officer cannot now be a reason to entertain the questions and the order of Transfer Pricing Officer is final - the assessee is an agent of foreign principal and would naturally benefit from advertising carried on by agent in India - the assessee has not suppressed any information - It has offered to tax its income from both business, namely, distribution business as well as advertisement and promotion business – AO has proceeded to grant 33.33% of the total advertising expenses as allowable deduction – there was no justification for such restriction of the same - the Transfer Pricing Officer had followed a possible view which cannot now be faulted. Relying upon Sassoon J. David And Co. Pvt. Limited Versus Commissioner of Income-Tax, Bombay [1979 (5) TMI 3 - SUPREME Court] - it cannot be said that the expenditure was not wholly or exclusively for benefit of the assessee - The mere fact that foreign principals also benefited does not entail right to deny deduction u/s 37(1) - all the amounts earned by the assessee were brought to tax, especially in view of the fact that the payment of expenses were made to Indian residents and there payments were not required to be included in form 3CEB since Section 92 which governs the effect of form 3CEB covers only international transactions – assessee’s income from subscription fee is variable and through commission received on the advertising sales is 15% of the value of Ad-sales - there is a direct nexus between advertising expenditure and revenue albiet the fact that there may be a lean period before revenue picks up notwithstanding high amount spent on such publicity - the foreign enterprises must compensate the Indian agent for the benefit it receives or it may receive from the advertisement and promotion of its channels by agent in India - The agent in India earns commission from ad sales and distribution revenue, both of which have sufficiently compensated the assessee – Decided against revenue.

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• 2014 (10) TMI 364
  Expenses on prototype development expenses u/s 36(1)(iv) - Revenue or Capital expenses - Whether the Tribunal was right in holding that a sum incurred for developing a product TJ-100 having a utility value for a period of 5 years cannot be considered as a capital expenditure and depreciation allowed by the AO confirmed by the Appellate Commissioner treating as a revenue expenditure - Held that:- The assessee is in the business of developing and selling leading edge optical networking products for worldwide customers - It has developed software differentiated, next generation products that enable telecommunication carriers to build converged networks - The life span of this product is hardly a year - Because of competition in the market, the assessee has to come out with new features every year if they want to be in the field - Therefore, there is a constant upgradation of the original product - It is in that context substantial amount is spent towards employees cost and the upgradation also includes use of components purchased every year - those components are used for manufacturing Printed Circuit Boards - Every year these Circuit Boards undergo modification, changes - the expenses incurred in this regard is in the nature of revenue expenditure. Relying upon EMPIRE JUTE COMPANY LIMITED vs COMMISSIONER OF INCOME TAX [1980 (5) TMI 1 - SUPREME Court] - There is no all-embracing formula which can provide a ready solution to the problem; no touchstone has been devised - Every case has to be decided on its own facts, keeping in mind the broad picture of the whole operation in respect of which the expenditure has been incurred. Further they held that, there may be cases where expenditure, even if incurred for obtaining advantage of enduring benefit, may, none the less, be on revenue account and the test of enduring benefit may break down - The test of enduring benefit is not a certain or conclusive test and it cannot be applied blindly and mechanically – the statement of law equally holds good in the area of telecommunication, may be with more force - the expenditure that is claimed is for upgrading the existing product - the product so upgraded goes on changing as time progresses, keeping in mind the requirement and the competition in the market - The Tribunal rightly held that the expenditure is not in the nature of capital expenditure but is revenue expenditure –Decided against revenue.

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• 2014 (10) TMI 363
  Meaning of undisclosed income u/s 158BB – Computation of undisclosed income of the block period – Whether the share certificates belongs to assessee or not - Held that:- The items, such as, money, bullion, jewellery and other residuary items, which constitute the wealth or income, would be treated as an undisclosed income, provided that such items were not disclosed for the purpose of the Act - It means such items were not the subject matter of any returns filed under the Act - once the items mentioned in the definition were the subject matter of the returns filed under the Act, they cannot be treated as undisclosed income - the returns need not be those filed by the concerned assessee alone - The provision does not indicate or that the returns insist covering those items must be that of the concerned assessee alone - the provisions of a taxation law, that too of the punitive nature, need to be interpreted in a strict manner - The basis for the AO to disbelieve those statements was that the filing of returns, though before the search was conducted, was done as an afterthought, in some cases, or that filing of returns was not warranted at all, having regard to the financial status of the concerned assessee. The Tribunal took the view that the scope of powers of an officer conducting search cannot be expanded to cover the adjudication or verification of the assessments already made - the block assessment is to be made strictly in accordance with Section 158BB of the Act – the AO propose to treat the undisclosed income as an independent entity and subject to making tax without following the provision u/s 158BB of the Act - Such a course would push the assessee to a further hardship and result in denial of the very safeguard that was prescribed by the Legislature - the persons, in whose names they were issued, have stated that they belong to them and it was also found in the search itself, that shareholders have submitted their returns - there was no basis for treating the share certificates as belonging to anybody else - relying upon Commissioner of Income Tax v. Lovely Exports Private Limited [2008 (1) TMI 575 - SUPREME COURT OF INDIA] – Decided against revenue.

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• 2014 (10) TMI 362
  Rectification of order - Computation of book profit u/s 115J / 115JA- MAT - assessee changed its method of claiming depreciation from Straight Line Method to Written Down Value method. - Held that:- Reliance placed upon Apollo Tyres Ltd. Versus Commissioner of Income Tax [2002 (5) TMI 5 - SUPREME Court] – Held that:- The question is based on a misconception of fact, as the Tribunal has not only relied upon the decision of the Supreme Court in Apollo Tyres Ltd. case, but also relied on the decision in Surana Steels Pvt. Ltd. and others Versus Deputy Commissioner of Income-Tax And Others [1999 (4) TMI 5 - SUPREME Court] and the Board Circular No.68, dated 17.11.1971, which were very much available before the Tribunal at the time of passing the rectification order - The said fact is also not disputed by the Revenue – Decided against revenue.

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• 2014 (10) TMI 361
  Deduction of profits derived from Export business - Partial claim u/s 80HHC disallowed – Held that:- Mere disallowance of a part of the claim made in a return, may not vitiate, the exercise u/s 143(1)(a) of the Act, the AO is placed under obligation to ascertain the views of the assessee by issuing a notice u/s 143(2) of the Act, once the claim becomes debatable or doubtful - the AO may or may not agree with the remarks or explanation that may be offered by the assessee in response to the notice - The procedure under law, must be followed, before any part of such claim is disallowed - a claim u/s 80HHC of the Act is surrounded by several uncertainties and debatable questions of fact and law - Before the AO disallowed a part of the claim made under that provision, he ought to have issued notice u/s 143(2) of the Act - There cannot be any hard and fast rule as to when a particular aspect can be treated as debatable and when not – thus, the order of the Tribunal is upheld – Decided against revenue.

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• 2014 (10) TMI 360
  Maintainability of appeal - Bar of limitation – Trademarks acquired by assessee or not – Held that:- There is an agreement under which M/s.Godrej Soaps Ltd. allowed the Assessee the use of its trade mark for seven years - the tribunal noted that the trade marks have not been acquired by the assessee - There is what is termed as registered user agreement - the rights conferred have been looked as inconclusive and enduring in nature, that the findings of facts rendered by the tribunal cannot be termed as perverse - AO has erroneously assumed that the trade mark has been acquired by the assessee by the arrangement brought to his notice - the tribunal did not committed any error in following the principle of consistency and applying its earlier view no substantial question of law arises for consideration – Decided against revenue.

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• 2014 (10) TMI 359
  Passing of block assessment – Block assessment made - whether the block assessment order was passed in time or not – Held that:- The assessee contended that the search was conducted on 14.11.1996 in pursuance of an authorization and a mahazar was drawn – in C.RAMAIAH REDDY VS. ASSISTANT COMMISSIONER OF INCOME-TAX [2010 (9) TMI 862 - Karnataka High Court] – it has been held that the period of limitation starts on the date on which the last of authorization has been executed and not when the authorized officer states that the search is finally concluded - putting a prohibitory order u/s 132 (3) does not elongate the starting point of limitation - there was only one authorization dated 05.11.1996 in pursuance of which search was conducted on 14.11.1996 - the search was continued on the two consecutive dates and it ended on 16.11.1996, the block assessment orders should have been passed on or before 30.11.1997 - Whereas the block assessment order is passed on 29.01.1998 which is clearly barred by law of limitation - the block assessment order passed is liable to be set aside as barred by limitation – Decided against revenue.

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• 2014 (10) TMI 358
  Transfer pricing adjustment - Advertisement and Marketing Promotion expenses – whether assessee is required to establish direct nexus between the AMP expenditure incurred by the assessee and credit notes received from AE Held that:- There was no bar on the power of the TPO in processing all international transactions under the TP provisions when the overall net profit earned by the assessee is better than others - Earning an overall higher profit rate in comparison with other comparable cases cannot be considered as a licence to the assessee to record other expenses in international transactions without considering the benefit, service or facility out of such expenses at arm‘s length - the assessee‘s overall profit at Rs. 120/- is more than the arm‘s length profit earned by comparable cases at Rs. 100/-, still there will be a requirement for making adjustment of Rs. 20/- on account of advertisement expenses incurred by the assessee towards the brand building on behalf of the foreign AE - there can be no benchmarking of the profits realized from Indian customers so as to form a platform for contending that the TNMM has been applied on the overall profits and hence the AMP expenses should not be subjected to the TP provisions. A distributor is rewarded by the entity for whom the distributor works and the rewards are guaranteed upto an extent and the risk component vis-a-vis a manufacturer is necessarily very less - The rewards can be and generally are based on pricing adjustments and can also be compensated over and above that if greater services are rendered and pricing adjustments have not covered the cost of routine services rendered - assessee is primarily engaged in the distribution of telecom equipment, mobile phones and provision of telecommunication service in India - The company also provides software development services to the group companies. The assessee did not treat the excess AMP expenditure as international transaction and, therefore, it did not form part of TP study submitted by assesse - before TPO the assessee had taken a specific plea to this effect but did not produce any documentary evidence in support of its contention – Following the decision in LG. Electronics India P. Ltd. Versus Assistant Commissioner of Income-tax [2013 (6) TMI 217 - ITAT DELHI] - it has to be established by assessee that foreign AE was compensating the Indian entity for the promotion of its brand in any form, such as subsidy on the goods sold by the Indian AE - while determining the cost/value of transaction, is that how foreign AE has compensated the Indian entity for the promotion of its brand then it cannot be held that overall percentage of operating profit may be taken into consideration for holding that credit notes issued by the foreign AE in pursuance to transfer pricing policy were towards the compensation for promotion of its brand - It has to be specifically demonstrated by assesse - Consideration of individual elements of costs (like AMP expenditure) is not inconsistent with TNMM method being accepted at entity level - there is no royalty payment by assessee to its AE - this is a relevant factor which has to be taken into consideration for determination of excess AMP expenditure – thus, the matter is to be remitted back to the TPO for fresh adjudication. Indirect or incidental benefit to AE - Addition of mark up on the excess AMP expenses – Held that:- Following the decision in LG. Electronics India P. Ltd. Versus Assistant Commissioner of Income-tax [2013 (6) TMI 217 - ITAT DELHI] - under second and third steps what is required to be determined is the rate of normal gross profit mark-up as arising to the enterprise from an uncontrolled transaction or to an unrelated enterprise in a similar situation - it is significant to note that a comparable uncontrolled transaction to be considered for benchmarking the normal gross profit mark-up has to be similar to the international transaction under consideration - the profit mark-up should be the rate which an independent third party earns for creating marketing intangible for and on behalf of the foreign enterprise - the DRP suggested 13% mark-up – Decided against assesse. Non-consideration of Group’s Global Transfer Pricing Policy – Scope of AMP Expenses - Held that:- The 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 - As the TPO has neither properly considered the request of the assessee for inclusion of some other comparable cases nor examined the effect of the above discussed relevant factors on the question of determination of the cost/value of international transaction – thus, the matter is to be remitted back to the TPO for fresh adjudication – Decided in favour of assesse. Adjustment made while re-computation of ALP – Contracts Software Development Service segment – Rejection of use of multiple year data - Held that:- Held that:- There was not much substance in the argument of the assessee because as per Rule 10B(4),the data to be utilized and for analyzing the comparability of uncontrolled transaction with an international transaction is to be the data relating to the financial year in which the international transaction has been entered into - As per proviso to Rule 10D, earlier year data can be used, in addition to the data pertaining to the relevant financial year, only for taking a decision as to how much the factors obtaining in earlier years impact the profit of the current year, for both the tax payer and the comparable - it has to be demonstrated as to how the earlier year conditions have influenced the profit of the relevant financial year – Decided against assesse. Entitlement for tax holiday u/s 10A/10B – Profit from CSD services - Held that:- The computation of arm’s length price is to be done as per the provisions contained under Chapter X of the I.T. Act dealing with special provisions relating to avoidance of tax - Merely because assessee was entitled to tax holiday u/s 10A/10B of the Act, it cannot be inferred that international transaction has been entered into as per arm’s length price - There is nothing u/s 10A/10B which entitles an assessee to get deduction in respect of addition made under Chapter X – Following the decision in Ld. Counsel for the assessee fairly concedes that this issue stands decided against assessee by Tribunal in few cases including Aztec Software v ACIT [2007 (7) TMI 50 - ITAT BANGALORE] – Decided against assessee. Exclusion of comparables – Held that:- The TPO had excluded the companies with diminishing revenue because in an environment where software sector is growing at a CAGR (Compounded Annual Growth Rate) of more than 30% during the last 30 years, diminishing revenue for the last 3 years cannot be said to be a true indicator of the performance of the company - TPO had undertaken an independent analysis which was based on various sources including NASSCOM Reports, articles appearing in print media and on the internet etc. - during the last decade the information technology industry in India emerged as an important constituent of the global software industry - instance of loss usually arises due to market forces/computation, emergence of new technologies or processes, increased costs, variation in demand and subject, and these are all normal economic factor which impact all industry player – the order of the TPO is to be upheld that given the trend of IT Industry growth persistent loss making companies cannot be taken as comparable because that in itself reflects existence of abnormal circumstances which needs to be identified – the comparable can be taken into consideration only if reasonably accurate adjustment can be made to eliminate the material effects of such differences but if that is not possible then in conformity with the requirements of Rule10B(3) of the Income tax Rules, 1962, the comparable is to be excluded – Decided against assessee. Exclusion of companies – Related party transaction of more than 25% - Held that:- TPO was rightly of the view that this filter is appropriate to eliminate the companies which have controlled transactions and thereby have a significant influence on the margins earned - in principle the tax payer has no objection for applying this filter – assesse also rightly contended that if sufficient number of 100% uncontrolled comparables are found, then no comparable having related party transactions should be considered - no sacrosanct threshold limit should be fixed for this filter - if by applying the threshold limit of 15% of related party transaction, sufficient comparables are available then there is no reason to further extend the limit to 25% - the TPO is directed to take into consideration only those comparables where related party transactions are to the extent of 15% because it is not the case of revenue that by applying the threshold limit of 15%, it will not get sufficient number of comparables – Decided in favour of assesse. Employee cost greater than 25% of total revenues – Held that:- TPO has been vested with specific powers u/s 92CA(7) to obtain information u/s 133(6) if he so considers for the purposes of determining the arm’s length price - The whole exercise of transfer pricing analysis centrifuge towards determining the arm’s length price of the international transaction and for that purpose TPO has been vested with wide powers so as to arrive at arm’s length price - The powers contained u/s 92CA(7) cannot be curtailed or abridged by putting unrealistic impediments - in order to consider the functional similarity of two comparables, it is necessary that such quantitative filters are applied to reach a reasonable conclusion regarding functional similarity - while fixing the range for applying this filter, regard should first be to the employee cost to sales ratio of tested party viz. assesse - since the employee cost to sales ratio is 64%, the contention of the assesse is accepted that the filter has to be applied by applying the range of employee cost to sales of 50% to 80% - Decided partly in favour of assesse. Application of on-site revenue filter – Held that:- The profit margin in case of on-site work is normally low as compared to offshore work - there is considerable difference between the average rate per hour in the case of offshore projects vis-a-vis on-site projects - The reasons given by TPO are well founded - As the on-site project is altogether a different segment of the business and the factors which influence the profitability of that segment have to be considered before considering the same for comparability study - In on-site projects the assessee utilizes the assets of the client whereas in offshore project the assessee utilizes its own asseets - This itself brings considerable difference in the comparability of the two segments by affecting the profitability - The salary structure in case of on-site project is governed by the economic conditions prevailing in the resident country where work is actually performed, whereas in offshore projects, Indian conditions govern the salary structure which is much lower as compared to the country where associated enterprise is located - TPO was quite fair when it applied the on-site revenue’s filter considering the companies generating more than 75% of their export revenues from on-site operations - This resulted into accepting those comparables where companies were generating less than 75% of their export revenues from on-site operations – Decided against assesse. R&D expenses incurred more than 3% of revenue – Held that:- TPO was rightly of the view that for creating intellectual property rights, R&D is required but the converse is not true i.e. each company spending on R&D automatically is not towards creating an IPR - R&D activity in a software development company is to improve the processes in delivering the software development services and not for creating an intanglible - the contention of the assessee that profitability of companies having intangibles is more cannot be lost sight off is also tenable - both sides have their logical view point. Under such circumstances, the balance has to be drawn keeping in view the primary object of transfer pricing study - if a comparable has developed its own intellectual property right resulting into development of a patented product by incurring huge expenditure on R&D then even if it is performing software development functions, it has to be excluded - if a company is incurring huge expenditure on R&D only for improving the processes in delivering the software development services then the said comparable cannot be rejected merely because it is incurring R&D expenditure more than 3% of its total sales revenue because sufficient number of comparables are to be found for determining ALP. An objective decision has to be taken in each case - TPO has clearly demonstrated that by applying this filter even functionally similar companies gets excluded - The contention of assessee that companies incurring expenditure greater than 3% on R&D were necessarily creating IP products is devoid of any merit – Decided partly in favour of assessee. Denial of economic adjustment for difference in risk profile – Held that:- TPO has observed that the services rendered by the assessee forms a component within the products developed by the assessee - the associated enterprise incurs marketing for its products and not on the services rendered by the assessee as they are considered in the product sold by the associated enterprise – TPO himself is agreeable that market conditions do influence the independent enterprises - Ld. TPO has denied this adjustment mainly on the ground that associated enterprise and other independent comparables are operating on a similar model i.e. one by establishing its subsidiary in low employee cost zone viz. India and the others by outsourcing their activities to other entities operating in India - this reasoning cannot be fully accepted particularly because it is not that all the independent comparables are doing only the work outsourced to them by various AEs - This is only a conjecture on the part of TPO - market risk, if quantifiable, has to be adjusted in view of Rule 10B(1)(e)(iii) – thus, the matter is to be remitted back to the TPO for computation of risk adjustment as per CAPM model by availing the services of technical experts – Decided in favour of assesse. Provision for liquidity damages disallowed – Whether the claim for liquidated damages is a liability of future and not present liability - Held that:- The contract entered into by the assessee with its customer contained a specific clause on liquidated damages which define terms and conditions of liquidated damages including the method of calculation as noted earlier - assessee has created the provision only in those cases where the delay had actually occurred and on the basis of terms and conditions of contract - The terms of contract contemplated that the moment delay occurs in the execution of contract then assessee will become liable for payment of liquidated damages - The liability, thus, crystallized with the occurrence of event of delay in the execution of contract - The assessee might, after entering into negotiation with the party, get a waiver or partial deduction in its liability but that does not absolve the assessee from being liable for liquidated damages on occurrence of the event of delay in execution of the contract – relying upon FFE. Minerals India (P) Limited. Versus Joint Commissioner Of Income-tax [2004 (7) TMI 331 - ITAT MADRAS-C] - the assessee’s claim of liquidated damages is to be allowed – Decided in favour of assesse.

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• 2014 (10) TMI 357
  Validity off notice for reopening of assessment u/s 147 – No failure to disclose material on part of assessee - Change of opinion – Held that:- Notice u/s 148 was issued on 1.4.2008 i.e. after the expiry of 4 years from the end of the AY - The original return was filed by the assessee on 31.10.2002 while the assessment u/s 143(3) was completed by the AO on 31.3.2005 - Since the assessment u/s 143(3) was completed in this case, therefore, the assessment u/s 147 cannot be re-opened unless and until either of the conditions stated under the proviso to Sec. 147 is complied with in addition to the conditions stated u/s 147 i.e. ‘the reason to believe’ - Except notice u/s 148 dt. 1.4.2008, no other notice u/s 148 prior to this notice has been issued in the case of the Assessee so that it can be said that there is a failure on the part of the Assessee to file the return in response to notice issued u/s 148 - the only condition remains which must be fulfilled by the AO before issuing the notice u/s 148 is that the Assessee has failed to disclose fully and truly all the material facts necessary for his assessment for the impugned assessment year - there is no allegation levelled by the AO on the Assessee that there is a failure on the part of the Assessee to disclose fully and truly any material fact relating to the income for which he believes that there is an escapement of income by the Assessee - The AO did not allege that there is a failure on the part of the Assessee to disclose fully and truly all the material facts necessary for his assessment – Decision in the case of Grindwell Norton Ltd. vs. ACIT [2003 (12) TMI 31 - BOMBAY High Court] followed. Reasons to believe bona fide or not – Evidences submitted to prove claim u/s 10B - Held that:- The 'reason to believe' must be bona fide - Under the garb of 'reason to believe', the AO cannot be empowered to review its own order - Sec. 147 does not empower the AO to review his decision – relying upon CIT vs. Kelvinator of India Ltd. [2010 (1) TMI 11 - SUPREME COURT OF INDIA] - the AO took a particular view and allowed deduction to the Assessee u/s 10B and did not disallow any expenditure u/s 40(a)(i) - on the basis of the same material the AO cannot take a different view by taking shelter of Sec. 147 that there is an escapement of income - No fresh or tangible material has come to the knowledge of the AO - On the basis of the material which was available at the time of the assessment, re-opening of the assessment, will not be permissible as the reasons cannot be regarded to be a bona fide one and it will tantamount to be change of opinion - Re-opening cannot be permitted in the garb of review– thus, the reassessment proceedings set aside – Decided in favour of assessee. Service of the notice u/s 143(2) on the Assessee – Held that:- The evidences produced by the revenue do not prove that any notice has been sent to the Assessee through speed post on 21.8.2009 or through notice server prior to 30.9.2009 – revenue was not able to produce any evidence except the copy of the notice issued u/s 143(2) which may prove that the notice has been served on the Assessee u/s 143(2) prior to 30.9.2009 - Until and unless there is evidence to prove that the notice has been sent to the Assessee either through speed post or through notice server prior to 30.9.2009 for the AY, the onus cannot be said to have been discharged by the revenue and shifted on the Assessee to prove that the Assessee has not been served with the notice u/s 143(2) – Relying upon Assistant Commissioner Of Income-Tax. Versus Vindhya Telelinks Limited [2006 (9) TMI 228 - ITAT JABALPUR] - the notice was not served on the assessee within the permissible time as stipulated u/s 143(2) – Decided in favour of assessee. Computation of profit u/s 10B - Exclusion of the miscellaneous income, interest from bank, dispatch earned and sundry creditors written back – Held that:- The assessee is a 100% EOU, which has exported software and earned the income - A portion of that income is included in EEFC account - Yet another portion of the amount is invested within the country by way of fixed deposits, another portion of the amount is invested by way of loan to the sister concern which is deriving interest or the consideration received from sale of the import entitlement, which is permissible in law - There is a direct nexus between this income and the income of the business of the undertaking - Though it does not par take the character of a profit and gains from the sale of an article, it is the income which is derived from the consideration realized by export of articles - in case the Assessee is eligible for deduction u/s 10B, which is the ground taken by the Revenue in its appeal, the AO will compute the exemption to the Assessee u/s 10B in accordance with the formula laid down u/s 10B(4) - The exemption under this section has to be based on the basis of the formula – thus, the matter is to be remitted back to the AO for fresh adjduciation – Decided in favour of assessee. Eligibility for claim of deduction u/s 10B – 100% Export Oriented Units - Held that:- New units had actually been established by the assessee in the FY 1999-2000 at Codli; in the FY 2002-03 at Amona; and in the FY 2005-06 at Chitradurga - there is no requirement that the assessee should maintain separate books of accounts in respect of 100% EOU Unit for claiming deduction – following the decision in DCIT Vs Arabian Exports Ltd. [2007 (3) TMI 287 - ITAT BOMBAY-G] - in respect of the Amona plant the assessee has duly informed the DC, SEZ Bombay vide his letter dated 9.3.2008 i.e., commercial production started on 8.3.2000 and copy of the said letter was duly sent to Customs Department which was not disputed by these competent authorities - In the case of Chitradurga plant also, the assessee vide its letter dated 14.7.2008 duly intimated to the DC, SEZ that the converted 100% EOU is started commercial production on 6.6.2008 - The premises of the unit was bonded and the licence no.1/2008 dated 5.6.2008 was issued u/s 58 of the Customs Act - in the case of Codli Unit the assessee has duly intimated to the Ministry of Industry vide letter dated 9.3.2000 that the commercial production is started on 8.3.2000 - None of the Government authority has disputed that the assessee has not started commercial production on that date - the assessee is entitled for exemption u/s 10B in respect of all the three 100% Export Oriented Units – thus, the matter is remitted back to the limited purpose of the determination of the market value of the crude ore consumed by the assessee on the basis of the value paid by the assessee for the crude ore to the outside parties during the year and thereby recomputing the profit derived by the assessee from the 100% EOU units eligible for exemption u/s 10B – Decided partly in favour of revenue. Disallowance u/s 14A – Held that:- Following the decision in Sociedade De Fomento Industrial Pvt. Ltd. Versus Deputy Commissioner of Income Tax [2014 (4) TMI 517 - ITAT PANAJI] - the AO only discussed the provisions of Sec. 14A(1) and has not made out any satisfaction whatsoever how the expenditure incurred by the Assessee during the year relate to the income not forming part of the total income of the Assessee – Relying upon GODREJ AND BOYCE MFG. CO. LTD. Versus DEPUTY COMMISSIONER OF INCOME-TAX AND ANOTHER [2010 (8) TMI 77 - BOMBAY HIGH COURT] - there must be proximate cause based on the relationship of the expenditure that tax exempt income is established, only then a disallowance would have to be effected u/s 14A of the IT Act - sec.14A cannot be applied unless there is a proximate cause for disallowance - The onus to establish that there is proximate cause based on the relationship of the expenditure with the exempt income in our opinion is on the Revenue - Thus, the application of the provisions of sec. (2) & (3) of Sec.14A and Rule 8D is not automatic in each and every case, where there is income not forming part of the total income – thus, the disallowance made u/s 14A r.w. Rule 8D is to be set aside – Decided in favour of assessee.

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• 2014 (10) TMI 356
  Denial of deduction on revised return u/s 10A – setting up of new unit - separate and independent undertaking - revised return - The argument put forth was that the assessee had 13 “mother licenses” and the applications made for setting up new units were permitted by the STP Authorities who instead of issuing separate licenses granted permission on the existing “13 mother licenses” accordingly it was contended that as per the revised claim the 31 undertakings registered with STPI were eligible for deduction u/s 10A. - Revenue contended that only the assessee knows whether it was expansion or a new undertaking and having led the department to accept that it is an expansion it cannot now be allowed to insist that it should now be treated as a fresh undertaking having been set up 7 or 10 years ago as this would be a travesty of justice. Held that:- The assessee has attempted to seek exclusion of the units which were loss making units as a result of which the assessee has now sought to claim deduction of 275.56 crore odd instead of 257.24 crore odd which was originally claimed - having separate locations for the unit does not mean these separate expanded locations become separate undertaking as an undertaking in the STPI Zone even for expansion purpose can expand only if permission is granted by the STPI authorities which has been granted over the years and the assessee over the years has treated these expanded locations as expansions and only now in some cases after a lapse of five years or seven years and even in the last year would now want the department to re-look at the entire facts right from the first year of these expanded centres in order to ascertain whether five years or seven years ago or for that matter 10 years ago the expanded locations were capable of being called “independent stand alone units” as envisaged in Textiles Machineries case and other such decisions and orders. Relying on the findings recorded in the assessment order upheld by the DRP it has been contended that such an inquiry is difficult to make after so many years and even when enquired into it may not be possible to conclusively decided the same after so many years - The reasoning cannot be faulted with - the need and necessity for the same does not arise since it is the assessee who is the best judge of its internal affairs and it is the assessee who has consistently taken a decision as per facts exclusively available to it in its personal domain on the basis of which the assessee has chosen to treat the expanded units as part of the 13 units and we agree that referring to legal precedents will not change these accepted and settled facts. The authorities below have come to a correct conclusion as the claim now put forth by way of a revised return which have been rendered on facts peculiar to their own cannot be said to lay down a legally binding precedent that the same lay down a precedent based on which the assessee can resile from its stated position - The stated position being referred to herein does not refer to the filing of returns in one of two years but at times for 10 years; and 7 years and 5 years or so – Decided against assesse. Expenses incurred on earning of income – Income from other sources or not - Held that:- The DRP was of the view that outrightly the claim of the assessee could not be accepted being of the view that the said expenditure had only been culled out from the P&L A/c for separately claiming it as a deduction against the income from other sources – the expenditure would have already been debited in some head under the “P&L A/c” thus, unless the assessee showed that the said expenditure had not already been claimed under some other head of income the claim could not be allowed – there is no need to interfere in the order of the DRP – Decided against assesse.

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• 2014 (10) TMI 355
  Transfer pricing adjustment – Advertising, Marketing and Promotion expenses - Held that:- The authorities have not conclusively held that the assessee could not enter into such a transaction nor had they disallowed the same by holding that such expenditure is not assessee s business expenditure - the payments are reimbursement in respect of Ms. Rita Ricken and other personnel s case to serve the interest of shareholders - By saying so they have only described the circumstance under which the international transaction has been entered by the appellant, so as to test the benefit that can be said to have reached the assessee – It cannot be said to have questioned the commercial expediency of transactions entered by the appellant - The I.T. rules contain exhaustive detail regarding nature of information and documents which are required to be maintained by the assessee. Rule 10D(1) of the I.T. Rules, 1962 also mandates the maintainability of record of uncontrolled transactions to be taken into account in analysing the comparability of the international functions entered into by the assessee - It is obligatory on part of the assessee to maintain record and produce the same before the TPO to show that it has benchmarked the international transaction at ALP - This obligation has not been discharged by the assessee. Assessee is also not shown to be willing to pay any amount for such services, if it were, so provided by an independent enterprise or if the same would have been performed in house - The DRP is found to have considered these services as non-beneficial for the recipient and did not take it as chargeable services - The perusal of e-mails and other contemporaneous record only goes to reveal that incidental and passive association benefit has been provided by the associate enterprise - there could neither be any cost contribution or cost reimbursement nor payment for such services to the AE - The TPO has rightly adopted Nil value for benchmarking the arm s length price in respect of both these services. Treatment of outstanding receivables – Held that:- There is merit in the argument of revenue, the nature and heading of expenses as made by the assessee needs to be verified - Since the approach earlier adopted by the lower authorities did not require verification of expenses and categorization of heads, in the changed scenario it will be desirable that relevant expenses are verified by the AO – thus, the matter is to be remitted back to the TPO for fresh adjudication. Disallowance of Intra Group Support Services – Held that:- Revenue has claimed that inordinate delay in receiving the outstanding amounts to passing a benefit to AE and it constitutes real income - assessee has been able to demonstrate that assessee as a policy does not charge any interest on any delayed payment irrespective of the party being AE or non AE, as it was a consistent business policy - no interest could be charged on delayed payment on commercial consideration for ensuring a long and healthy relationship as persuasive value - there was uniformity in assessee’s act in not charging interest both from AE and non AE and delay in realization in both the cases - notional interest cannot be considered with ALP on delayed realization - the adjustment in relation to notional interest on outstanding receivables cannot be made in the case of the assessee – Decided in favour of assessee. Advances written off u/s 36(2) r.w section 36(1)(vii) – Held that:- The nature of expenditure is demonstrated by the assessee in terms - besides, the explanation has not been controverted either by the TPO or DRP in objective terms – there was no cogency or justification in the reasons applied by DRP to sustain the disallowance - the expenditure incurred was wholly and exclusively for the business purpose on revenue account - The advances have a proximate and direct nexus with assessee’s regular business operations which is explicit from the nature of expenditure remanded by the AO himself - Advances having become irrecoverable and actually written off are allowable as bad debt written off, as well as business loss/ expenditure u/s 37(1) – relying upon Badridas Daga Versus Commissioner Of Income-Tax [1958 (4) TMI 2 - SUPREME Court] – the addition is set aside – Decided in favour of assessee.

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• 2014 (10) TMI 354
  Arm's Length Price adjustment on international transaction – selection of comparable - Held that:- The assessee is engaged in the export of network security and administrative software solutions which are developed exclusively for the parent company BDC - for the purpose of determining the Arm's Length Price the assessee benchmarked 11 comparables and determined the Average Arithmetic Mean at 10.30% - Since the mean operating profit/Total cost of comparable companies was less than the OP/TC of 12.90% of the assessee it was contended that its international transaction relating to software development services is at Arm's Length Price - the TPO did not accept the comparables given by the assessee and made further search to find more comparables to broad base the data and arrive at proper benchmarking of the international transactions - the Tribunal in assessee's own case for AY 2006-07 has rejected the same as a comparable because of crossing the R&D/sales threshold of 3%. During A.Y. 2005-06 such ratio come to 7% - if Cressanda Solutions Ltd. is excluded as a comparable then VMF Soft Tech Ltd. which shows the profit margin of 35.70% also should be excluded from the list of comparables - R&D/sales threshold comes to 7% - in the subsequent year ICSA(India) Ltd it cannot be considered as a comparable - We accordingly hold that this cannot be considered as a comparable for determining the Arm's Length Price. Inclusion of SIP Technologies Ltd. – Held that:- No relevant data for AY 2004-05 is available since the company had closed its books of accounts for the year ending 30-09-2004 and subsequently closed its books of accounts only for the year ending 31-03-2006 which is for a period of 18 months - SIP Technologies and Exports Ltd. should not be considered as a comparable and has to be rejected although the same was considered by the assessee itself while preparing the T.P. report - When the TPO rejected certain companies as not comparable, there was no reason why SIP Technologies Ltd. should not be excluded from the list of comparables when the results of the entire year is not available – there is no reason as to why the super profit making company VMF Soft Tech Ltd. should not be excluded from the list of comparables - both these companies were taken by the assessee as comparables, similar view should be taken for both the comparables - relying upon Assistant Commissioner of Income-tax Versus Frost & Sullivan (I) (P.) Ltd. [2012 (4) TMI 120 - ITAT MUMBAI] - if abnormal loss making companies are excluded abnormal profit making companies are also to be excluded - if Cressanda Solutions Ltd. is excluded as a comparable then VMF Soft Tech Ltd. which shows the profit margin of 35.70% also should be excluded from the list of comparables. Exclusion of ABM Knowledgeware Ltd. – Held that:- The company holds intellectual property rights for several products and solutions and therefore the functions of ABM Knoweldgeware Ltd. are not comparable with that of BIPL - From the various details furnished by the assessee we find the assessee had very clearly brought out that the company is in software services - the company has discontinued its sale of IT products Division which clearly demonstrates that the company is into IT services and not sale of IT products. In the AY 2006-07 the Tribunal in assessee's own case has considered +/-5% safe harbour provided u/s 92C(2) - the Arithmetic Mean of the assessee shown at 12.40% is near to the Arithmetic Mean determined at 14.69% - no adjustment is required to the international transaction of the assessee as the assessee would be at arm's length from the Indian Transfer Pricing perspective – Decided against assessee. Excess deduction u/s 10B – Reduction of IAC/telecommunication charges from the export turnover - Held that:- Following the decision in CIT Vs. Gem Plus Jewellery India Ltd. [2010 (6) TMI 65 - BOMBAY HIGH COURT] - if the telecommunication charges are reduced from the export turnover, the same should also be reduced from the total turnover - the submission of the Revenue would lead to a situation where freight and insurance, though it has been specifically excluded from 'export turnover' for the purposes of the numerator would be brought in as part of the 'export turnover' when it forms an element of the total turnover as a denominator in the formula. A construction of a statutory provision which would lead to an absurdity must be avoided - the two items, namely, Telecommunication charges and Expenses incurred in Foreign currency are liable to be excluded from the figure of 'Total turnover' also for the purposes of computing deduction u/s 10A of the Act – Decided in favour of assessee.

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• 2014 (10) TMI 353
  Computation of capital gain on sale of the land - Land falls under capital asset or not u/s 2(14) - Whether the subject matter of the land which is situated in Kakkanad falls within the jurisdiction of the municipality or within 8 kms radius of the notified municipality – Held that:- Kakkanad village where the property is situated in all the appeals falls within the territorial jurisdiction of Trikkakara panchayat at relevant point of time - Trikkakara panchayat is not a notified area on and from 06-01-1994 - In the notification dated 06-01-1994 the Cochin municipality is a notified municipality including part of Eloor and Marad panchayats upto a distance of 8 kms from the municipal limits - lands are beyond municipal limits or beyond 8 kms radius from the cochin municipal limits - Therefore, the Kakkanad village where the subject land is situated does not form part of the notified area, hence the agricultural land situated in Kakkanad village which falls in Trikkakara panchayat was excluded from the definition of capital asset u/s 2(14) of the Act - the agricultural land situated in Kakkanad village which falls in Trikkakara panchayat does not fall within the definition of capital asset u/s 2(14) of the Act. Land agricultural or not – Held that:- Section 10(37) was introduced with a view to mitigate the hardship faced by the farmers whose agricultural land situate in specified urban limit has been compulsorily acquired - in respect of the agricultural land which was used for agricultural purpose during the two years immediately preceding the date of compulsorily acquition under any law or transfer for a consideration which was determined or approved by Central Government or Reserve Bank of India, then such capital gain would not form part of the total income of the assessee - section 2(14) has to be interpreted strictly - Therefore, the requirement using the land for two years immediately preceding the date of transfer cannot be a pre-condition for the purpose of section 2(14) of the Act - what is required for section 2(14) is connection with agricultural purpose. The assessee has not applied for conversion of land for non agricultural purpose - The land is classified as agricultural land and the village officer certified that the land was subjected to cultivation - The assessee is contributing to the Agricultural Labourer's Welfare Fund and also paying revenue tax as agricultural land which is evidence from Basic Tax Register - The Village Officer certified that the subject lands were subjected to cultivation - the subject lands were agricultural lands beyond the municipal limits or beyond 8 kms radius of the notified municipality - the land cannot be treated as capital asset within the meaning of section 2(14) of the Act - hence not liable for capital gain tax under the Income-tax Act. Interest on fixed deposits – Held that:- The deposits were made for the purpose of earning interest - the interest income arising out of the fixed deposits has to be classified as 'Income from other sources' and it has to be assessed accordingly - The assessees have also availed overdraft facility on the basis of the fixed deposit for the purpose of business - the interest payable by the assessees may be liable for deduction as business expenditure - interest paid under such circumstances cannot be deducted from the interest on the fixed deposit - CIT(A) is not justified in allowing the claim of the assessees – thus, the matter is remitted back to the AO for fresh consideration – Decided in favour of revenue. Payment of commission disallowed – Held that:- No material is available on record to suggest that the statements said to be recorded from third parties with regard to commission payments were furnished to the assessee - unless and until the copies of the statements recorded from third parties are furnished to the assessee, the same cannot be used against the assessee - before placing any reliance on the statement of third parties, the same shall be furnished to the assessee – thus, the matter is remitted back to the AO for fresh consideration – Decided in favour of assessee. Unexplained cash credit u/s 68 – Held that:- The CIT(A) is not justified in deleting the addition - one more opportunity to be given to the assessee to prove the credit would not prejudice the interest of the revenue – thus, the matter is remitted back to the AO for fresh adjudication – Decided in favour of revenue.

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• 2014 (10) TMI 352
  Addition u/s 68 and interest disallowed u/s 14A - Held that:- The AO is bound to issue notice to the assessee to furnish returns for each assessment year falling within the svc assessment years immediately preceding the assessment year relevant to the previous year In which the search or requisition was made - the AO asked the assessee to establish identity, genuineness and creditworthiness of these creditors. It was submitted that M/s. K.K.Patel Finance Limited, Indore, is being regularly assessed to tax and engaged in the finance activities and they have given the deposits on interest basis to other also – the AO asked to explain the genuineness of the credits as well as identity and creditworthiness of the creditors - the AO did not agree with the assessee's contention and added the amount u/s 68 of the Income-tax Act, 1961 - CIT(A) deleted the addition by following his order in another assessee, wherein similar additions were deleted by observing that these additions were not warranted in the hands of the assessee but in the hands of the lenders - no cash was deposited in the Bank prior to issuance of cheque moreover there is no cash transaction in the bank statement and we found that all the amounts are received and paid through account payee cheques. AO has not made any efforts by calling information u/s 133(6) or by issuing summon u/s 131 to any of the creditors which is evident from the assessment order itself. Moreover, it is also clear from the assessment order that the Assessing Officer had never asked the assessee to produce the creditors - as per requirement of Section 68 the sum credited in the books of accounts can be considered to be the income of the assessee in a case where the assessee does not offer any explanation or the explanation offered by him, in the opinion of AO is not satisfactory - The explanation of the assessee in the present case is that all these creditors are income tax assessees and their PANs have given alongwith their copy of bank account as well as preceding years. By filing these evidences, it can be said that the assessee had discharged the initial burden laid upon him under Section 68. All the parties from whom loan was taken were having substantial funds available with them to advance the money – merely on the basis of returned income, the AO jumped to the conclusion that these lenders were not having sufficient funds to advance the money to the assessee. The ld. AP without going through the audited accounts unnecessarily gone on the fact that these creditors are not having sufficient income to advance the money - It is settled law that the financial worth of a company could not be judged with its income but one has to see that how many funds is available with it in the bank account at the time of advancing loan. All the loan transactions were through account payee cheques, confirmations were given, creditworthiness were also proved from the balance sheet. Furthermore, all the loans were also repaid by cheques, there was no merit in the action of AO for making any addition in respect of these loan transactions - as the addition made u/s 68 is held to be not justified, the order of CIT(A) is upheld for deleting the disallowance of interest, which was based on the addition of cash credit u/s 68 – Decided against revenue.

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• 2014 (10) TMI 351
  Unexplained investment u/s 69C – Whether the sum payable to employee and drawings of the year was more than sufficient to cover the expenses - Held that:- Loose paper marked contains certain notings and an addition of Rs. 3,81,500/- has been made on these entries pertain to the calculation of interest on some advance given and therefore, he has worked out the principal amount of Rs. 3.50 lacs as advance after including interest amount of Rs. 31.500/- and thus he has made addition of Rs. 3,81.500 - the details of lockers in which cash amount has been deposited with reference to unaccounted finance business of the assessee is found mentioned - the assessee has not been able to get these amounts verified with reference to his regular books of account – the order of the CIT(A) is upheld – Decided against assesse. Undisclosed investment in construction of the house property - Explanation furnished and evidences adduced ignored – Held that:- Both parties have reiterated their earlier stand which is evident from the appellate order itself - the AO has proceeded in the wrong direction and has not relied upon DVO’s report even after making reference to him and the DVO also made available his report during the assessment proceedings - local position is well settled regarding adoption of local PWD rates for valuation of the cost of construction etc. as decided in CIT vs. Hotel Joshi [1999 (11) TMI 56 - RAJASTHAN High Court] - instead of CPWD rates for valuation of properly only local PWD rates should be adopted - Otherwise also, for self-supervision, deduction upto 20% is allowable depending upon different circumstances of a case - the assessee has claimed 20% deduction on account of difference in PWD rates as mentioned above and 15% on account of self-supervision - entire addition made by the AO in this account is to be deleted - the addition upheld by the CIT(A) on account of unexplained investment in the construction of house property is to be set aside – Decided in favour of assesse. Claim of interest disallowed – AO was of the view that the interest has not incurred by the assessee for business purposes – Held that:- Assessee contended that that the AO has wrongly appreciated the facts - the expenses were not claimed by the assessee either out of income declared under the head ‘Income from Business or Profession’ or under the head ‘Income from Other Sources - profit earned by the assessee from its proprietary concern M/s.Mannalal Surajmal at Rs. 9,32,726/- was considered for computing the income from Business and Profession and the interest received and credited in the personal profit and loss account, copy of which is enclosed has been separately disclosed under the head “Income from other Sources’ - the assessee has never claimed the expenses out of the income computed for payment of tax. Claim of lumpsum disallowance out of various expenses – Held that:- The AO has made lumpsum disallowance on the reasoning that the expenses are not properly vouched and some element of personal usage is also involved in the expenses - the action of the AO is not based on any specific logic but based on loose subjective inference the AO has not brought on record any evidence that expenses claimed are bogus and inflated for non-business purposes - no addition can be made without supporting evidence only – Decided against revenue. Addition of gold and silver jewellery – Held that:- There is no difference in the jewellery declared and found - The assessee has two sons who are not assessed under Wealth Tax Act and in view of the CBDT instruction dated 11-05-1994, credit has to be given in their hands also - This deduction comes to 200 gms of jewellery being 100 gms for each male members in the Wealth Tax Act filed upto assessment year 2008-09 and search took place on 24-08-2009 which is almost after expiry of 17 months – contention of the assesse is accepted that during the period of 17 months, the acquisition of some jewellery in social ceremonies and other like occasions looking to the family of the assessee is not ruled out - As per CBDT instruction, the other family members also get credit upto 1800 gms as there are two married ladies and two male members – relying upon Patti Devi vs. ITO [1999 (2) TMI 43 - KARNATAKA High Court] - after considering the deduction on account of purity, the CBDT instruction and the value of the precious and semi precious stones jewellery available with the assessee can be treated as explained - the addition made on account of unexplained investment in the acquisition of jewellery is deleted – Decided in favour of assesse. During course of search, no incriminating documents disclosing the alleged advances made by the assessee to various persons was found or seized - The Revenue found and seized cash lying in the private lockers and the same have already been offered by the assessee as an additional income in the return filed for the year under consideration which also covers with the withdrawal of deposits of cash in these lockers which is supported by pasted papers if they are taken into consideration - All these funds and the figures appearing are to be comprehended after suffixing two zero and this fact has been clearly admitted by the assessee and is still maintained. Assessee has duly shown the cash found and admitted as his business income from his regular business activities and further having paid tax and explaining the mode and manner of acquisition of such income in his return of income and during the assessment proceedings, the entire addition made on the basis of appreciation of these documents which are mainly on presumption and assumptions without there being any corroborative material on record deserves to be deleted, especially when the AO has neither appreciated the statements of the assessee properly as well as additional income offered by him – Decided in favour of assesse. Loss disallowed under Income from other sources – Held that:- The assessee has claimed payment of interest paid as expenses and the loss under the head ‘Income from other Sources’ at Rs. 9,06,470/- which is to be adjusted against others heads of income - The assessee is engaged in the finance brokerage activities and the income from such activities is reflected under the head “Income from Business and the interest claimed under the head “Income from other Sources” is of similar nature – Decided in favour of assesse.

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• 2014 (10) TMI 350
  Deduction u/s 80P – Effect of amendment - Whether the Assessee is entitled for deduction u/s 80P(2)(a)(i) and whether the Assessee is hit by the provisions of Sec. 80P(4) which was introduced in the statute by the Finance Act, 2006 w.e.f. 1.4.2007 - The assessee contended that it is lending money primarily for the purpose of agricultural activities and its member agriculturists. Being so, the assessee is entitled for deduction u/s. 80P of the Act - Held that:- AO has clearly brought on record that the assessee has lent only 3.56% of total loans advanced during the year under consideration for the purpose of agricultural activities - The assessee was unable to point out that how with this meagre 3.56% of the loans advanced for the purpose of agricultural activities; the assessee is entitled for deduction u/s. 80P of the I.T. Act. - where a co-operative society is engaged in carrying on business of banking facilities to its members and to the public or providing credit facilities to its members or to the public, the income which relates to the business of banking facilities to its members or providing credit facilities to its members will only be eligible for deduction u/s 80P(2)(a)(i) - There is no prohibition u/s 80P not to allow deduction to such co-operative societies in respect of business relating to its members. Nature of assessee - Whether the Assessee is a cooperative bank or not – Held that:- CIT(A) was rightly of the view that the Assessee has carried on banking activities on the basis of findings in the assessment order - The deposits accepted are used by the Assessee co-operative society for lending or investment - This fact has not been denied - Even out of the deposits so received, the loans have been given to the members of the society in accordance with the objects - it cannot be said that the Assessee society was not carrying on banking business as it was accepting deposits from the persons who have no voting right - the paid up share capital and reserves in the case of the Assessee is more than Rs. 1 lac - all the three conditions in the case of the assessee for becoming primary cooperative bank stand complied with - the assessee is not entitled for deduction u/s. 80P of the Act on any reasoning – Decided against assessee.

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• Customs

• 2014 (10) TMI 371
  100% EOU - Confiscation of goods - Redemption fine - benefit of Notification No. 126/94-Cus. dated 3.6.1994 and Notification No. 52/2003-Cus. dated 31.3.2003 - Held that:- Appellants being a 100% EOU made import of certain raw material without payment of duty by availing the benefit of the above mentioned Notifications. Part of the raw material is used for research and development activity which is essential for manufacture of human vaccines. The Tribunal in the case of Dr. Reddy Laboratories Ltd. (supra) rejected the contention of the Revenue that the manufacturer is liable to pay duty in respect of the raw material obtained without payment of duty, which is used for research and development purposes. In the present case, we find that there is no allegation that the raw material which is procured without payment of duty is diverted or not used within the 100% EOU as the research and development facility is within the 100% EOU - Decided in favour of assessee.

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• 2014 (10) TMI 370
  Denial of refund claim - Bar of limitation - Unjust enrichment - Held that:- Refund claim can be filed in consequence of any judgment decree, or direction of the appellate authority within six months. In this case, it is on record that the order of Commissioner (Appeals) dated 28-5-2008 was challenged by the Revenue before this Tribunal. Therefore, the assessment of bills of entry were still in dispute before this Tribunal at the time of filing the refund claim. This Tribunal has set aside the original assessment of bills of entry vide order dated 28-2-2011 and said order has been accepted by the department. Therefore, as per the provisions of Section 27 of the Customs Act, 1962, the limitation for filing the refund claim shall start from 28-2-2011 and within six months from 28-2-2011, the appellant can file the refund claim. In these circumstances, I hold that the refund claim filed by the appellant is within time - Decided in favour of assessee.

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• Corporate Laws

• 2014 (10) TMI 368
  Priority of Crown debts - Overriding effect - Declaration of member of stock exchange as defaulter - Income Tax Department claims that it has priority over all debts owed by the defaulter member, whereas the Stock Exchange, Bombay claims otherwise - Held that:- The first thing to be noticed is that the Income Tax Act does not provide for any paramountcy of dues by way of income tax. - In the present case, the common law of England qua Crown debts became applicable by virtue of Article 372 of the Constitution which states that all laws in force in the territory of India immediately before the commencement of the Constitution shall continue in force until altered or repealed by a competent legislature or other competent authority. In fact, in Collector of Aurangabad and Anr. v. Central Bank of India and Anr. [ 1967 (5) TMI 43 - SUPREME COURT] after referring to various authorities held that the claim of the Government to priority for arrears of income tax dues stems from the English common law doctrine of priority of Crown debts and has been given judicial recognition in British India prior to 1950 and was therefore law in force in the territory of India before the Constitution and was continued by Article 372 of the Constitution In the present case, as has been noted above, the lien possessed by the Stock Exchange makes it a secured creditor. That being the case, it is clear that whether the lien under Rule 43 is a statutory lien or is a lien arising out of agreement does not make much of a difference as the Stock Exchange, being a secured creditor, would have priority over Government dues. - Decided in favour of appellant.

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• FEMA

• 2014 (10) TMI 367
  Violation of Section 9(1)(b) of the Foreign Exchange Regulation Act, 1973 - Confiscation of seized amount - Imposition of penalty - Appellate Board set aside confiscation and ordered refund of penalty whereas High Court upheld the same - Held that:- There is no doubt whatsoever, that no reliance has been placed on the alleged statement made by the appellant on 20.4.1989 before the officers of the Enforcement Directorate, in the memorandum dated 12.3.1990. Per se, therefore, it was not open to the authorities to place reliance on the aforesaid statement, while proceeding to take penal action against the appellant, in furtherance of the aforesaid memorandum dated 12.3.1990. The mere fact that he was not proceeded against, prima facie establishes, in the absence of any evidence to the contrary, that the assertion made by the appellant to the effect that he never made such statement, had remained unrefuted. Even though the aforesaid excuse may have been valid, if the allegation was, that the record of the statement made on 20.4.1989, was not available with the officers of Enforcement Department at the time of the raid on 25.10.1989, yet to state that the aforesaid record was not available when the second statement was made on 26.10.1989 at the office of the Enforcement Directorate, is quite ununderstandable. It is pertinent to mention, that the second statement was recorded by the Chief Enforcement Officer when the appellant – A. - in the absence of having established through cogent evidence, that the appellant had made the above statement dated 20.4.1989, it was not open to the Enforcement Directorate to place reliance on the same, for establishing the charges levelled against the appellant in memorandum dated 12.3.1990. Had the statements of the appellant and his wife been corroborated by independent evidence of the nature indicated hereinabove, there could have been room for accepting the veracity of the statements made by the appellant – A. Tajudeen and his wife T. Sahira Banu to the officers of the Enforcement Directorate. Unfortunately, no effort was made by the Enforcement Directorate to gather any independent evidence to establish the veracity of the allegations levelled against the appellant, through the memorandum dated 12.3.1990. We are of the considered view, that the officers of the Enforcement Directorate were seriously negligent in gathering independent evidence of a corroborative nature. We have therefore no hesitation in concluding that the retracted statements made by the appellant and his wife could not constitute the exclusive basis to determine the culpability of the appellant. Charge against the appellant under Section 9(1)(b) of the 1973 Act, cannot be established on the basis of newspaper sheets, in which the money was wrapped. The newspaper sheets relied upon, would not establish that the amount recovered from the residence of the appellant – A. Tajudeen was dispatched by Abdul Hameed from Singapore, through a person who was not an authorized dealer. - impugned judgment passed by the High Court deserves to be set aside. The same is accordingly hereby set aside. Resultantly, the entire action taken by the Enforcement Directorate against the appellant in furtherance of the memorandum dated 12.3.1990, is also set aside. As a consequence of the above, the Enforcement Directorate is directed to forthwith refund the confiscated sum of Rs. 8,24,900/-, to the appellant, as also, to return the amount of Rs. 1,00,000/-, which was deposited by the appellant as penalty - Decided in favour of appellant.

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• Service Tax

• 2014 (10) TMI 387
  Waiver of pre deposit - Delay in filing of returns - Imposition of penalty - Held that:- Rule 7C read with first proviso makes it abundantly clear that the maximum penalty that can be imposed under the said Rule is the one prescribed under Section 70. During the impugned period i.e. April 2008 to March 2011 the maximum penalty that could be imposed under Section 70 was Rs. 2000/-. Therefore, in respect of six returns, the maximum penalty that could have been imposed was only Rs. 12,000/- and not more than that amount. Therefore, prima facie I am of the view that the late fee of Rs. 1,01,500/- imposed is not sustainable in law. Inasmuch as the appellant has already paid a penalty of Rs. 10,000/- under Section 77, the same is sufficient for hearing of the appeal - stay granted.

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• 2014 (10) TMI 386
  Waiver of pre deposit - Works contract service - Held that:- According to the dictionary meaning, ‘in respect’ and ‘in relation to’ are the same. Further as submitted by the learned counsel this Tribunal had occasioned to consider the very same issue in the case of SEW Infrastructure Pvt. Ltd. In the Misc. Order No.21369/2014 dt. 11/06/2014 in that case, this Tribunal after considering the meaning of airport, aerodrome, appertainment etc. came to the conclusion that building constructed for air cargo agency near the airport is excluded from the definition of works contract service. In this case also, we are unable to accept the stand taken by the Revenue that MLCP just because is available to others also for use cannot be considered as a facility for air passengers. In our opinion, it has to be considered as a part of the airport and the activity has to be taken as the one in relation to airport. Therefore in our opinion, appellant has been able to make out a prima facie case on merits - stay granted.

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• 2014 (10) TMI 385
  Commercial and industrial constructions services - manpower supply services - sub contractor - Notification No. 16/2005-ST dated 07/06/2005 - Held that:- There is no provision in law exempting the sub-contractor from payment of service tax either by way of exemption notification or otherwise. Further, this Tribunal in the case of Sunil Hi-Tech Engineers Ltd. (2014 (10) TMI 524 - CESTAT MUMBAI (LB)) and also a Larger Bench of this Tribunal in the case of Vijay Sharma & Co. Vs. CCE, Chandigarh - [2010 (4) TMI 570 - CESTAT, NEW DELHI] held that sub-contractors are also liable to pay service tax, notwithstanding the fact that the main contractor might have discharged the service tax liability. Therefore, this contention of the appellant is not tenable. As regards the exemption under Notification No. 16/2005, the said exemption is provided on "Commercial or Industrial Construction Services" undertaken in relation to construction of port or other port. From the work order dated 22/02/2006 given to the appellant by M/s. Punj Lloyd Ltd., the main contractor, it is seen that it was for supply of skilled man-power and the consideration was paid based on the skilled manpower supplied on a monthly rate. Thus, the appellant has rendered the services of supply of skilled man-power and not "commercial or industrial construction services". Therefore, the appellant is prima facie not eligible for the benefit of Notification No. 16/2005. Thus, the appellant has not made out a prima facie case for grant of stay - Partial stay granted.

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• 2014 (10) TMI 384
  Small scale exemption - Non payment of tax - Maintenance and repair services - Held that:- Revenue have recorded statement of appellant in March, 2008 prior to the issue of show-cause notice, in which it is stated that as per his understanding, he is not liable to pay Service Tax. Further, as per the record, no Service Tax was paid prior to this date. Further, it appears from the record prior to the issue of show-cause notice the appellant have paid suo motu Service Tax only after crossing the exemption limit. During the course of hearing, the Counsel for the appellant stated that for the financial year 2005-06 and 2007-08 the Service Tax has been paid after issue of show-cause notice in December, 2008 and January, 2009 which cannot be called payment suo motu and the same be treated under the protest or compulsion. Thus, in view of the facts and circumstances and in law, it is held that the appellant is not liable to pay Service Tax for the financial year 2005-06 and 2007-08. It is further held that there is no violation of provision of Act or Rules on the part of the appellant and thus the impugned order is set aside and appeal is allowed - Decided in favour of assessee.

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• 2014 (10) TMI 383
  Condonation of delay - Delay in receipt of order - Held that:- Appeal has been filed within the condonable period of three months after the expiry of statutory time limit of three months for filing the appeal. The appellant has explained the reason for the delay which was due to non-receipt of the Order-in-Original sent by the department on 5-4-2011. They came to know of the passing of the order only in July 2011 when the recovery proceedings were initiated by the jurisdictional range officer. Immediately, thereafter they obtained a certified copy of the order and filed the appeal. In these circumstances, the delay ought to have been condoned by the appellate authority and there is merit in the appellant’s contention. Accordingly, we condone the delay and remand the matter back to the lower appellate authority for passing the order on merits - Decided in favour of assessee.

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• 2014 (10) TMI 382
  Denial of CENVAT Credit - Business Auxiliary Service - Credit denied on the premise that same does not fall under Rule 2(l) of the Cenvat Credit Rules, 2004 - Held that:- High Court of Bombay in Ultratech Cement Ltd. (2010 (10) TMI 13 - BOMBAY HIGH COURT) has held that any assessee who is a manufacturer of excisable goods or availed any input service in the course of their business is entitled for input service credit. Admittedly, in this case commission has been paid by the appellant for selling of the final product which has direct nexus with their business activity. Therefore, the appellant are entitled for input service credit - Decided in favour of assessee.

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• 2014 (10) TMI 381
  Demand of penalty - Entire due amount paid before issuance of SCN - Held that:- Commissioner vacated the show cause notice by observing that as the assessee has deposited the entire Service Tax along with interest and penalty under sub-section (1A) of Section 73, the proceeding against such persons shall be deemed to be concluded - no infirmity in the impugned order of Commissioner. He has vacated the show cause notice in terms of provisions of 73(2) of the Finance Act. Separate penalty under Sections 76 and 77 was not called for - Decided against Revenue.

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• 2014 (10) TMI 380
  Waiver of pre deposit - management, maintenance, or repair service - non-commercial Government buildings - Held that:- no service tax shall be levied or collected in respect of management, maintenance, or repair of non-commercial Government buildings during the period on and from 16-6-2005 till the date on which Section 66B of the said Finance Act comes into force. The impugned demand is under the said category and for the period from 1-4-2008 to 31-3-2010 and the same is in respect of activities undertaken by the appellant in respect of buildings belonging to Defence Ministry, Govt. of India - Decided in favour of assessee.

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• Central Excise

• 2014 (10) TMI 378
  Denial of refund claim - short supply of goods - As the appellant failed to supply the specified quantity during a specified period, therefore, the payments were deducted by M/s. U.P. Power Corporation - appellant has not received full payment against the invoice raised for the clearance of the transformers - Held that:- Clause of deduction of price was known prior to clearance of the goods. As appellant could not fulfill the terms of the agreement, therefore the buyer was entitled to deduct the amount from the invoice price. In these circumstances, whatever amount they have received less from the buyer, they are entitled to take refund of the duty component involved in the deducted amount. In these circumstances, relying on the decision of CCE vs. Victory Electricals Ltd. [2013 (12) TMI 81 - CESTAT CHENNAI], I hold that appellant are entitled for refund claim - Decided in favour of assessee.

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• 2014 (10) TMI 377
  Levy of duty on quality control samples - preserved samples - samples consumed during testing of the medicines by the assessee - Held that:- Bombay High Court in CCE, Belapur Vs. RPG Life Sciences Ltd., - [2010 (12) TMI 52 - BOMBAY HIGH COURT] held that excise duty is not demandable when goods are not cleared from the factory premises but consumed during testing. Similarly in the case of CCE, Chandigarh Vs. Dabur India Ltd. – [2005 (2) TMI 166 - CESTAT, NEW DELHI], a Larger Bench of this Tribunal held that control samples retained in factory is not liable to duty if proper account is maintained. The said decision was also upheld by the Hon'ble High Court of Himachal Pradesh at Shimla in the case of Dabur India Ltd. – [2010 (5) TMI 590 - HIMACHAL PRADESH HIGH COURT] wherein it was held that the samples of product, preserved/retained for period of investigation of complaints cannot be said to be consumed or utilized as such or for manufacture of other commodity and they cannot be deemed to have been removed from the place of manufacture and hence, they are not liable to excise duty - Decided against Revenue.

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• 2014 (10) TMI 376
  Classification of goods - Whether goods manufactured by appellant such as Pre-printed computer stationery, PIN Mailer stationery, Airway Bill stationery, ATM Roll stationery etc. fall under Note 14 to Chapter 48 introduced in the Finance Bill, 2012, or Chapter 49 of the CETA, 1985 as product of printing industry - Held that:- PIN Mailer consist the details of the Bank and the terms and condition for use of such PIN Mailer in internet / mobile banking. On these PIN Mailers, the password / PIN number is printed apart from the name of the account holder. Therefore, the product clearly falls within the scope of Note 14 to Chapter 48. Therefore, for the period w.e.f. 29.5.2012 to November, 2012, prima facie, the products manufactured by the appellant would merit classification under Chapter 48 and liable to duty accordingly. An identical matter had come up before this Bench in the case of Alpha Carbonless Paper Manufacturing Co. Pvt. Ltd. reported in [2014 (2) TMI 589 - CESTAT MUMBAI] and this Tribunal held that after amendment to 48 by Chapter Note 14, the ATM Rolls would merit classification under Chapter 48 and prior to amendment the product was classifiable under Chapter Heading 49. In the present case, the period involved is partly after the amendment, for the period 29.5.2012 to November, 2012. Therefore, the appellant has not made out a prima facie case for complete waiver of pre-deposit. No financial hardship is pleaded - Partial stay granted.

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• 2014 (10) TMI 375
  Waiver of pre deposit - Cenvat credit - Receipt of rejected goods - prescribed records - Held that:- according to Rule 16 any rejected goods on which duty has been paid can be brought back to the premises of a manufacturer for any reason and by following the procedure prescribed therein. What is required to be shown is that the goods have been accounted for. Now there are no prescribed statutory records in Central Excise law except for daily stock account the proforma of which is prescribed and is statutorily required to be maintained. Therefore an assessee is free to maintain records which according to him are required and sufficient for the purpose for which he maintains the records. In this case it is not the case of the department that the records maintained are not sufficient but it is their case that the procedure prescribed in the trade notice has not been followed. Under these circumstances I consider that appellant has made out a prima facie case for waiver and accordingly there shall be waiver of pre-deposit of the entire amount of dues and stay against recovery of the same during the pendency of appeal - Stay granted.

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• 2014 (10) TMI 374
  Denial of refund claim - Unjust enrichment - Relevant documents not produced - Held that:- Refund claims were rejected on the ground that relevant documents were not produced by the appellant. In that situation, the adjudicating authority would not have considered the issue of bar of unjust enrichment. Therefore, the ground raised by the learned Advocate that they have rejected the refund claim on the new ground is not acceptable. In fact, while considering the refund claim it was found that they are entitled for the refund claim and at this stage the issue of bar of unjust enrichment comes. Therefore, I do not find any force in the argument of the learned A.R. that in the remand proceedings the refund claim has been rejected on the new ground. Further, in the case of Hindalco Industries Ltd. (2006 (2) TMI 337 - CESTAT, MUMBAI), this Tribunal held that in the case of provisional assessment, after following the judgment of the Hon’ble Apex Court in the case of Allied Photographics India Ltd. (2003 (11) TMI 91 - SUPREME COURT OF INDIA) and the decision of Sahakari Khand Udyog Mandal Ltd., bar of unjust enrichment is not applicable. following the decision of Allied Photographics India Ltd. (supra) - Decided in favour of assessee.

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• 2014 (10) TMI 373
  Penalty under Rule 15 of Cenvat Credit Rules, 2005 - Shortage in stock - Held that:- Rule 15 of Cenvat Credit Rules, 2004. Sub-rule (1) of the said Rule provides imposition of penalty not exceeding the duty on the excisable goods, where a person has taken the Cenvat credit wrongly or in contravention of any provisions of the said Rules. Admittedly, the said sub-rule is not applicable inasmuch as the dispute does not relate to taking of wrong Cenvat credit. Sub-rule (2) of the said Rule relates to the wrong utilisation of the Cenvat credit taken, on account of fraud, wilful statement, collusion or suppression of facts, etc. Admittedly, in the present case, appellants after taking the Cenvat credit on the sponge iron have removed the said goods with a mala fide intend to utilise the credit so taken. In such situation, the provisions of sub-rule (2) would apply. The said sub-rule provides imposition of penalty in terms of provisions of Section 11AC of Central Excise Act, 1944. Section 11AC of the Act provides if the penalty imposed is deposited within a period of 30 days to the extent of 25%, the penalty shall stand reduced to that extent. Inasmuch as in the present case, the appellant has admittedly deposited the duty along with 25% of penalty within the period specified under Section 11AC of the Act, I am of the opinion that this is a fit case for reduction of penalty. penalty is reduced to 25% of the duty demand - Decided partly in favour of assessee.

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• 2014 (10) TMI 372
  Rectification of mistake - imposition of penalty - Held that:- Revenue’s ROM is to the effect that they had filed an appeal against the original adjudicating authority’s order dropping the demand before the Commissioner (Appeals) and as such the observations of the Tribunal in Para 5 are factually incorrect. We have seen the appeal filed by the Revenue before the Commissioner (Appeals) and find that the said appeal is only in respect of main assessee, i.e., M/s. Narindra Hard Board Industries Pvt. Ltd. Neither the name of Shri N.N. Gupta is appearing as respondent in the said appeal nor is there any separate appeal filed by the Revenue against Shri N.N. Gupta. As such, we find that the observations of the Tribunal in Para 5 are factually correct and no mistake can be said to have been happened. The imposition of penalty on the Managing Director stands correctly set aside. Accordingly, the said part of the ROM is not found favour with and accordingly rejected - Rectification denied.

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• 2014 (10) TMI 369
  CENVAT Credit - Whether the part of input service credit related to inward transportation of LDO/Coal for generating power in the captive power plant is admissible or not, when entire electricity so generated is not used within the factory of manufacture of the final product but a portion of such electricity is wheeled out/transferred to sister units and others - Held that:- Commissioner failed to quantify the quantum of power not used within the factory. On 10.7.12 similar such case was before the Bench where it was noticed that vague order was passed by the authority on the self same issue in the case of same appellant. If this is the fate of the appellate order today, appeal is bound to be allowed - Decided in favour of assessee.

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• CST, VAT & Sales Tax

• 2014 (10) TMI 379
  Validity of the U.P. Tax on Entry of Goods into Local Areas Act, 2007 - violative of freedom of trade, commerce and intercourse guaranteed under Art.301 and not saved by Art.304 (b) of the Constitution of India - Held that:- notification was amended on 19.2.2010, excluding natural gas, cement, motor vehicles of all kinds, tyres and tubes. It was again amended on 29.3.2009 excluding machinery and spare parts; wood and timber of all kinds; clinker; aluminum and its products; cables of all kinds, lap top-computer system and peripherals; marbles stones and tiles; and refrigerator, air conditioner and conditioning plants. On high speed diesel and other petroleum products, excluding kerosene oil for public distribution system, a notification was issued on 04.3.2008 providing rebate and a notification was issued on 30.6.2008, providing exemptions. At present only 08 items out of 20 are left in the Schedule for levy of entry tax. Section 5 of the Act of 2007 provides for reversal of levy of tax. Where any dealer has paid entry tax in respect of entry of such goods in such local area or purchased such goods, on which entry tax has already been paid, such tax shall be refunded or adjusted to such dealer by whom without using them in the local area, such goods are assigned to any other place outside the State or are sold either in the course of inter-state trade or commerce or in the course of export outside the territory of India. Section 6 provides for powers to the State Government to give rebate by a notification upto the full amount of tax leviable under the Act. Where the tax is payable in respect of a sale or purchase of such goods under the UP Value Added Tax Act, 2008 by a dealer registered under the Act, and for exemptions under Section 7 by the State Government on any notified goods. The notification establishing the industrial area, for a limited purpose, therefore, does not take it out or carve out a separate area for which there may be no Municipal Corporation, Municipality or Panchayat. The entire State is divided into local areas for the purposes of self-governance. The statement of objects and reasons, the manner and method levy and collection of the entry tax, and its utilisation exclusively for development for facilitating the trade, commerce and industry in the State of UP; the credit of the entire entry tax levied and collected to the UP Trade Development Fund, the manner of utilisation of the UP Trade Development Fund Management Committee under Rule 4 of the Rules of 2007, the maintenance of the accounts and its audit by the Accountant General, UP, facially and patently satisfies the tests of the entry tax laid down in Jindal Stainless Limited (2). In our opinion the defects, pointed out by this Court in IOC v. State of UP decided by this Court on 27.1.2004 declaring the Act of 2000 to be violative of Article 301 and 304 of the Constitution of India have been fully cured. The new Act of 2007 has not been enacted as a Validating Act. It is a new legislation, which does not allow the collections of entry tax to augment the general revenue of the State. It provides for, ensures and guarantees the utilisation of entire entry tax levied and collected for facilitating the trade and commerce. Objects and reasons and the provisions of the Act of 2007 clearly provide that the entire collection of the entry tax has to be credited to the U.P. Trade Development Fund, to be used exclusively for facilitating trade, commerce and industry and that the amount realised shall not be used for the purposes other than those specified in sub-section (1) of Section 14 of the Act. The distribution of entry tax so collected and credited to the UP Trade Development Fund by the UP Trade Development Fund Management Committee, to the local bodies and its expenditure through the local bodies is also not seriously in dispute. Provisions of the new Act of 2007, patently and facially indicate the benefit of the entry tax to the trade and commerce, which is quantifiable and measurable. The entire amount of entry tax collected and credited to the UP Trade Development Fund has to be utilised exclusively for facilitating the trade, commerce and industry, and is not to be used for the purpose other than those specified in sub-section (1) of Section 14. There are sufficient provisions in the Act and the Rules to ensure the utilisation of the amount for the benefit of trade and commerce. When the constitutional validity of any legislation of the State levying compensatory tax, as violative of Art.301, is under challenge, the imposition of such tax has to be examined, with reference to the entire scheme of Part XIII of the Constitution of India. The tax is compensatory, to save it from the vice of violating Art.301, not only if it is by way of recompense/ reimbursement to the trades, it is also required to be tested on the touchstone of Art.304 (a) and (b), namely that it is not discriminatory, unreasonable and is enacted for public purpose. The expression compensatory tax is not to be examined in a narrow sense of giving substantial or one to one benefit to the tax payer. The tax to be violative of Art.301, has to be noncompensatory and also violative of Art.304 (a) and (b), in the sense that even if the levy is imposed by a legislation, introduced with the sanction of the President, it still has to be nondiscriminatory, unreasonable and against public purpose. The freedom of trade, commerce and intercourse is violated if it affects the free movement of trade and commerce between the States and has an impact on the overall economic growth of the nation. Chapter XIII of the Constitution seeks to achieve economic unity and growth of the nation as a whole, by removing artificial barriers. We may not, therefore, look to justify the tax, if it is a barrier and not to judge it only by the manner of its expenditure. If a tax impose a barrier, or is discriminatory, unreasonable, and is not levied in public interest, it cannot be justified on the ground that the amount levied and collected is spent by way of quantifiable and measurable benefits on the trades. In such case the power to levy entry tax, even if it is traced to Entry 52 of List II would be a colourable exercise of legislative power. State of U.P. did not lack legislative competence in enacting U.P. Tax on Entry of Goods into Local Areas Act, 2007, imposing entry tax on the entry of scheduled goods into the local areas for consumption, use or sale thereunder. The provisions of the Act patently and facially indicate and that there are sufficient guidelines and guarantees under the Act for ensuring that the entire amount of entry tax collected and credited to the U.P. State Development Fund is utilised only for the purposes of its reimbursement to facilitate the trade, commerce and industry. The State Government has also established that the entire amount of entry tax is by way of reimbursement/recompense to the trade, commerce and industry, in the local areas of the State of U.P. provides quantifiable/measurable benefits to its payers. The levy under the Act, 2007 is also not discriminatory, unreasonable or against public interest. The levy of entry tax under the Act, therefore, does not violate the freedom of trade, commerce and intercourse guaranteed under Art.301 of the Constitution of India. Section 17 of the Act validating the amount of entry tax levied, assessed, realized and collected under the U.P. Tax on Entry of Goods Act, 2000, is also valid and authorises the State to keep the entire amount, for the purposes of its utilisation for facilitating trade, commerce and intercourse in the local areas of the State - Decided against assessee.

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• Indian Laws

• 2014 (10) TMI 366
  Maintainability of appeal - Dishonour of cheque - Jurisdiction of courts - High Court directed return of all complaints filed under Section 138 of the Negotiable Instrument Act, 1881 in which the Metropolitan Magistrates in Delhi have taken cognizance only because the statutory notices in terms of proviso to Section 138 of the Act have been issued to the drawers of the cheque from Delhi - Held that:- The order passed by the High Court simply directs return of complaints in cases where the same have been filed only because the statutory notices have been issued from Delhi. The direction proceeds on the basis that issue of statutory notices from Delhi by itself is not sufficient to confer jurisdiction on the Delhi Courts to entertain the complaints. An offence under Section 138 is committed no sooner the cheque issued on an account maintained by the drawer with a bank and representing discharge of a debt or a liability in full or part is dishonoured on the ground of insufficiency of funds or on the ground that the same exceeds the arrangements made with the banker. Prosecution of the offender and cognizance of the commission of the offence is, however, deferred by the proviso to Section 138 till such time the complainant has the cause of action to institute such proceedings. This Court found that the proviso to Section 138 does not constitute ingredients of the offence punishable under Section 138. Issue of a notice from Delhi or deposit of the cheque in a Delhi bank by the payee or receipt of the notice by the accused demanding payment in Delhi would not confer jurisdiction upon the Courts in Delhi. What is important is whether the drawee bank who dishonoured the cheque is situate within the jurisdiction of the Court taking cognizance. In that view, we see no reason to interfere with the order passed by the High Court which simply requires the Magistrate to examine and return the complaints if they do not have the jurisdiction to entertain the same in the light of the legal position as stated in Harman s case (2008 (12) TMI 677 - SUPREME COURT OF INDIA). All that we need to add is that while examining the question of jurisdiction the Metropolitan Magistrates concerned to whom the High Court has issued directions shall also keep in view the decision of this Court in Dashrath s case (2014 (8) TMI 417 - SUPREME COURT) - Decided against Appellant.

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