TMI Tax Updates - e-Newsletter
October 20, 2014

Case Laws in this Newsletter:

Income Tax Customs Service Tax Central Excise

Articles

1. SECTION 8 COMPANY Act, 2013 - Formation of companies with charitable objects etc.

   By: DR.MARIAPPAN GOVINDARAJAN

2. Services provided to Foreign Principals for marketing their products in India qualify as an export of service

   By: Bimal jain

Highlights / Catch Notes

Income Tax

• Amendment to Section 55A: No Basis for AO to Refer to DVO as Value Meets Fair Market Standards.

  Case-Laws - AT : As the value shown by the assessee was not less than the FVM, there was no justification for making any reference to the DVO, by the AO in the year under consideration. Amendment to the section 55A of the Act is effective from 01. 07. 201 - AT
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• Assessing Officer to Verify Taxpayer's Claim on Prior Period Expenses for Annual Web Hosting Charges.

  Case-Laws - AT : Annual web hosting charges treated as prior period expenses – AO is directed to verify and examine the claim of the assessee - AT
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• Assessing Officer's Error: Technicians' Stay in India Doesn't Establish Permanent Establishment for Supervisory Work.

  Case-Laws - AT : Fees for Technical Services – AO only undertook the issue of stay of technicians in India cannot be considered for examining the 'permanent establishment' of assessee in its supervising work - AT
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• Court Scrutinizes Arm's Length Price Calculation for Overseas Subsidiary Advances; LIBOR Plus Rate Deemed Inappropriate.

  Case-Laws - AT : Transfer pricing adjustment – Computation of ALP – Advances made to overseas subsidiaries – The differences are so fundamental that these differences, to use the phraseology employed in Rule 10 B (1)(a)(ii), “could materially affect the price in the open market“ - the application of LIBOR plus rate or, for that purpose, any bank rate will be inappropriate to this case. - AT
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• Tata Steel's Donation to Rural Development Society Classified as Labor Welfare Due to Employee Benefits.

  Case-Laws - AT : Contribution made to Tata Steel Rural Development Society - since the major beneficiaries of the expenditure were the company’s employees, it was an item of labour welfare expenditure - AT
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• Officer Rightly Adds Undisclosed Income from On-Money Flat Sales to Assessee's Taxable Income Based on Evidence.

  Case-Laws - AT : Undisclosed income - Sale consideration of flats sold by assessee – on-money transactions - AO was justified in adding the same in assessee’s income - AT
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• Secured Lenders Taking Control of Assets Isn't a Transfer of Ownership from Borrower in Default.

  Case-Laws - AT : Transfer of capital asset - Whether the taking over of the possession and control over of the assets of the assessee by the secured lender(s) tantamount to transfer of assets from the borrower in default to the secured lenders - Held NO - AT
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• Non-resident companies selling standard software for resale in India exempt from TDS; payments not classified as royalties.

  Case-Laws - AT : TDS required to be deducted or not – Royalty or not - payments made to non-resident companies for supply of standard software products, which in turn, are to be sold in India - NO TDS required - AT
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• TPO Cannot Set Arm's Length Price to Zero Due to Lack of Authority on Expenditure Assessment.

  Case-Laws - AT : TPO is not competent to hold that the expenditure in question has not been incurred by the assessee or that the assessee has not derived any benefits for the payment made by the assessee and therefore he cannot consider the ALP as NIL - AT
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• Arm's Length Price for Transfer Pricing Cannot Rely on Segmental Results Without Assessing Interlinked Segments.

  Case-Laws - AT : Transfer pricing adjustment – determination of ALP by taking segmental results without looking into as to whether the two segments are interlinked or inter-related cannot be sustained. - AT
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Customs

• Customs Notification No. 44/2011-Customs (NT) is Prospective; Pre-Deposit Waiver Granted in Tax Appeal.

  Case-Laws - AT : Waiver of pre deposit - Jurisdiction - Notification No. 44/2011-Customs (NT) dated 06/07/2011 is only prospective and cannot be said to have any retrospective application - stay granted - AT
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Service Tax

• Court Waives Penalties u/s 80 After Assessee Claims Exemption from Service Tax on Services.

  Case-Laws - HC : Waiver of penalty u/s 80 - levy of penalty u/s 76 and 77 and 78 - Assessee has stated that they were under the impression that the service rendered by them will not be exigible to service tax. - penalty waived - HC
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• Interest Due for Late Tax Payments: Respondent Liable for Delays of 102 and 10 Days.

  Case-Laws - AT : Demand of interest - inasmuch as the tax has been paid only on 15/02/2007 by debit in the CENVAT account, whereas the due dates for payment of tax were 05/09/2006 and 05/02/2007, there are delays of 102 days and 10 days in payment of tax and for these delays, the respondent is certainly liable to pay interest - AT
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Central Excise

• Assessee Liable for Interest on Differential Duty u/ss 11A(2B) and 11AB of Central Excise Act.

  Case-Laws - HC : Demand of Interest on differential duty - The liability of the assessee stands confirmed by the provisions of Section 11A(2B) read with Explanation 2 to the said provision and Section 11AB of the Act - HC
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• Court Rules No CENVAT Credit Allowed Until Duty and Cess Paid Within 30 Days.

  Case-Laws - HC : CENVAT Credit - Non payment of duty and cess with stipulated time of 30days - there is no discretion vested with the authority to allow the petitioner to avail Cenvat credit till they clear dues. - HC
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• CENVAT Credit Reversal: Key Interpretation of Factor "P" in Rule 6, Sub-rule (3A) Not Favoring Assessee.

  Case-Laws - AT : Reversal of CENVAT Credit - The short question for consideration is the factor “P“ mentioned in sub-rule (3A) of Rule 6. - prima facie case is against the assessee - AT
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Case Laws:

• Income Tax

• 2014 (10) TMI 474
  Proportionate interest expenses – Expenses made for implementation of new project which could not take off – Held that:- Rs. 5.44 crores was given as an advance to Subham Appliances for the new project of the Assessee - the project could not be implemented and the amount advanced was returned back to the assessee in subsequent year - CIT(A) while deleting the addition has given a finding that the inter corporate deposits advanced by the Assessee were recalled during the year and it was the source of advance - AO has not established the nexus between the borrowed funds and the advance given to Subham Appliances to prove that the money has been advanced out of borrowed funds - assessee has submitted that Subham Appliances is not a related party, the transaction has not been doubted and the advance was for the business purpose - revenue could not controvert the findings of CIT(A) and there was no reason to interfere with the order of CIT(A) – Decided against revenue. Publicity and advertisement expenses – Held that:- AO while disallowing the expenses has noted that the various details like address, PAN No, copies of the invoices were not furnished by the Assessee and therefore the genuineness was not proved and therefore the expenses were disallowed by AO - CIT(A) has noted that various details like copy of the advertisement contract, copy of bills and other material were furnished before him and after considering the evidences submitted before him, CIT(A) deleted the addition - nothing has been placed on record to demonstrate that on the additional evidences that were submitted by Assessee before CIT(A), any remand report was called from AO - the AO should be granted an opportunity to examine the additional evidences which were submitted by Assessee before CIT(A) – thus, the matter is to be remitted back to the AO for fresh adjudication – Decided in favour of revenue. Sales promotion expenses disallowed – Held that:- AO while disallowing the expenses has noted that no details were furnished by the Assessee nor has the Assessee proved that the expenses crystallized during the year - CIT(A) has noted that before him the Assessee has filed the details of expenditure in respect of which the bills were received after the end of the relevant period and therefore the liability crystallized - there are no details of the nature of expenses in the order of CIT(A) nor the details of the expenses have also been placed – thus, the matter is to be remitted back to the AO for fresh adjudication – Decided in favour of revenue. Deduction u/s 80HHC – Held that:- As decided in assessee’s own case for the earlier assessment year, it has been held that the balance amount of miscellaneous income is business income and hence should not be excluded from the profit of business for the purpose of calculation of deduction u/s 80 HHC – Decided partly in favour of revenue.

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• 2014 (10) TMI 473
  Determination of FMV of plot of land – Calculation of LTCG – Held that:- No reference to the DVO can be made u/s 55A of the Act - section 55A(a) of the Act very clearly at the relevant time provided that a reference could be made to the DVO only when the value adopted by the assessee was less than the fair market value - the value adopted by the respondent-assessee of the property at Rs. 35. 99 lakhs was much more than the fair market value of Rs. 6. 68 lakhs even as determined by the DVO - the AO referred the issue of valuation to the DVO only because in his view the valuation of the property as on 1981 as made by the respondent-assessee was higher than the fair market value. In the aforesaid circumstances, the invocation of section 55A(a) of the Act is not justified - section 55A(a) of the Act as existing during the period relevant to the AY 2006-07 - very clearly reference could be made to Departmental VO only if the value declared by the assessee is in the opinion of AO less than its fair market value - It is not clear as to whether the reference was made under clause 55A(a) or 55A(b)(ii) of the Act and if it was made under section 55A(b)(ii) then what were the relevant circumstances for making such a reference - Recording of reasons for invoking a particular section of the Act and justification for invoking the specific clause are not available and nor were they brought to our notice - As the value shown by the assessee was not less than the FVM, there was no justification for making any reference to the DVO, by the AO in the year under consideration. Amendment to the section 55A of the Act is effective from 01. 07. 2012 – thus, the order of the FAA is set aside – Decided in favour of assessee. Benefit of set off of unabsorbed depreciation – Held that:- The AO and FAA had decided the issue against the assessee, as it was not carrying out business activities during the year under appeal – following the decision in Commissioner of Income-tax, Hisar Versus G. TM Synthetics Ltd., Sirsa [2011 (2) TMI 150 - PUNJAB AND HARYANA HIGH COURT] - Section 32(2) of the Act relates to carry forward of unabsorbed depreciation - the unabsorbed depreciation allowance could be set off against the income under any other head even where the business was not carried on – Decided in favour of assessee.

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• 2014 (10) TMI 472
  Annual web hosting charges treated as prior period expenses – Held that:- The main contention of the assessee is that the bill was raised on 17.4.2006, therefore, the liability of prior period was crystallized during the financial year relevant to the AY, as per mercantile system of accounting, the claim of expenditure was allowable and the authorities below grossly erred in making disallowance and addition on this issue – as decided in Saurashtra Cement And Chemical Industries Limited Versus Commissioner Of Income-Tax [1994 (10) TMI 30 - GUJARAT High Court] - if any liability, though relating to earlier year depends upon making a demand and its acceptance by the assessee and such liability has been actually claimed and paid in the later previous year, it cannot disallowed as deduction merely on the basis that the accounts are maintained on mercantile basis and that it is related to a transaction of previous years - the revenue authorities grossly erred in disallowing the claim of expenditure incurred by the assessee during relevant previous year pertaining to the liability relating to earlier year – the AO is directed to verify and examine the claim of the assessee – Decided in favour of assessee. Addition u/s 14A r.w Rule 8D – Held that:- The authorities below have not dealt with the issue of disallowance u/s 14A of the Act as per letter and spirit of the relevant statutory provisions and as per decision of Maxopp Investment Ltd. s trading operations, supporting the management and conduct of assessee s business to be carried out on more efficiently or more profitably leaving fixed capital of the assessee untouched – Decided against revenue. Horticulture expenses at plant and colony – Held that:- CIT(A) rightly was of the view that as the main purpose of expenditure on horticulture was to facilitate the operations by providing better environment which is of revenue in nature, hence, the same is allowable u/s 37 of the Act - there are other several expenses which are incurred for decorating the building and for providing general security, beautification and required environment for day to day activities of manufacturing unit of the assessee, the kind of expenses are incurred for the purpose of business and the same cannot be disallowed. Security services at the staff colony – Held that:- Following the decision in Empire Jute Co. Ltd. vs CIT [1980 (5) TMI 1 - SUPREME Court] - the expenditure incurred for welfare of employees and even general public interest is allowable as revenue deduction - the CIT(A) was right in deleting the addition. Computer peripherals supply expenses – Held that:- The AO treated the expenditure as capital in nature and made an addition, after allowing depreciation @15%, by holding that the assessee has not furnished details/evidence to support the claim - the CIT(A) granted relief for the assessee on perusal of the details furnished before him but the CIT(A) has not given any finding about the nature of expenditure and facts emerging from details/evidence submitted before him, neither and remand report has been called from the AO – the matter is to be remitted back to the AO for adjudication. Software purchase and development expenditure – Held that:- CIT(A) rightly held that the expenditure incurred on software licence fee, purchase/development of miscellaneous software and hosting and maintenance of website and charges for internet band with connectivity are expenditure revenue in nature and there is no valid reason to interfere with the same, hence, order of CIT(A) is upheld - the issue of horticulture expenses in plant and staff colony, security, charge for staff colony and software development expenses is decided in favour of the assessee and it is partly dismissed on above four issues and on the issue of computer supplies part ground of the revenue is deemed to be allowed by restoring the issue to the file of the AO with the directions - Decided in favour of revenue.

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• 2014 (10) TMI 471
  Fees for Technical Services – Article 12 Indo-German DTAA – Establishment of PE - Whether the assessee s supervisory services are in the nature of Fees for Technical Services (FTS) taxable u/s 9(1)(vii)/Article 12 of India-German DTAA or whether the services constitute a Permanent Establishment (PE) in India taxable under S.9(1)(i)/Article 7 read with Article 5 of the India-German DTAA – Held that:- For Article 12(5) to apply, the condition precedent is for the assessee to have a Permanent Establishment through which its activities are carried out and such a condition is not met - Article 12(5) which takes the scope of services out of FTS and into Article 7 read with Article 5 does not apply to the assessee s case - the basis for AO s invoking the provisions of Article-5 of DTAA is on the basis of the fact that three of the technicians deputed for supervising the activities in the case of M/s. Jindal Steel Power Ltd., has stayed in India exceeding 183 days and filed their returns with ITO (International Taxation), Mumbai - Had the AO examined the total period of deputing technicians to India and also examined whether establishment where assessee had any permanent place to supervise the activities, then, issue could be examined in the light of service PE considerations - AO only undertook the issue of stay of technicians in India cannot be considered for examining the permanent establishment of assessee in its supervising work - AO has not made out any case for invoking Article-7 of DTAA. Supervisory activities have to be in connection with the non-resident’s “building site, construction or assembly project” - the receipts of the assessee are in the nature of ‘FTS’ and do not fall under Article 7 read with Article 5, there is no need to adjudicate this contention - it is incorrect to aggregate all contracts of the foreign company in India and consider it as one - Unless otherwise linked with each other, contracts should be individually assessed with respect to the duration test – relying upon ADI T V/s. Valentine Maritime (Mauritius) Ltd. [2010 (4) TMI 1 - ITAT BOMBAY-L] - the assessee s supervisory activities do not constitute a Permanent Establishment in India under the provisions of the Indian Income Tax Act as well as Article 5 of the India-German Treaty - Assessee should be assessed for its supervisory activities under Article 12 of the India-Germany DTAA – Decided in favour of assessee. Reopening of assessment u/s 147 – Held that:- DRP has erred in considering that the case is covered under clause(b) of Explanation-2 to section 147 - This is not a case of understating the income as the same income received by the assessee was brought to tax at a different rate - There is no difference between the returned income and assessed income, up to the draft order stage - It is also not a case where assessee claimed excess loss or deduction or allowance - The issue was considered by the DRP as excess relief in return - However, the word relief cannot be used in the context of availing lesser rate of tax - If one compares the sub-clause-ii in clause (c) of Explanation-2, it specifically states that income has been assessed to a low rate and sub-clause-iii specifically for a situation where such income has been made subject of excessive relief under this Act - under clause-(c) where assessment has been made, reopening can be done where income has been assessed to a low rate or excessive relief was allowed - Assessee has offered the income under provisions of section 9(1)(vii) offering gross receipts to tax at 10% of the gross receipts whereas the AO considered the income at 42.23% on the net income. The DRP has wrongly considered assessee s case as a case of claiming excess relief in the return which situation was not considered in clause (b) of the provisions of section 147 - assessee s contention that neither clause (b) nor clause (c) of the Explanation would apply is a valid contention - reopening of assessment on the facts of the case is not justifiable - the contention of the assessee is accepted that the amount can only be brought to tax as fees for technical services and cannot be considered as business income – Decided in favour of assessee.

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• 2014 (10) TMI 470
  Jurisdiction u/s 263 – SEZ Entitlement for deduction u/s 10AA or not – Held that:- The assessee is entrepreneur as referred to in clause (j) of section 2 of the SEZ Act, 2005 who began to provide services during the previous year relevant to the AY 2008-09 – the AO’s view that the assessee is entitled for deduction u/s 10AA cannot be held as an impossible view on the basis of the language employed u/s 10AA of the Act - The CIT considered that the assessee is not entitled for deduction u/s 10AA of the Act on the ground that net foreign exchange earning for the unit is negative - In calculating net foreign exchange earning as negative, the Commissioner of Income Tax relied upon Export Promotion Council for EOUS and SEZS Circular no. 42 dated 26.03.2007 and viewed that the purchases made by the assessee from domestic tariff area should be treated as import and therefore, the purchase value should be reduced from the foreign exchange earnings of the assessee for calculating net foreign exchange earnings. Relying upon Gestatner Duplicators Private Ltd. Vs. CIT [1978 (12) TMI 1 - SUPREME Court] there was no material to arrive at the finding that the assessee has violated any provision of SEZ Act, 2005 or SEZ Rules, 2006 or that the assessee was not an entrepreneur referred to in clause (j) of section 2 of SEZ Act, 2005 - it cannot be held that the view adopted by the AO in holding that the assessee is entitled for deduction u/s 10AA of the Act was not a possible view - the interference by the CIT with that view of the AO in purported exercise of power available to him u/s 263 cannot be sustained – the order of the CIT is set aside. Taxation of interest on FDRs – Income from other sources or not – Held that:- The interest income which were earned by the assessee were from fixed deposit receipts with bank which were made by the assessee in the course of its trading business of import for the purposes of re-export, for obtaining Letter of Credit for its purchases - the relevant fixed deposit receipts on which interest were earned were business assets of the assessee acquired in the course and for the purposes of its business - The fixed deposit receipts being business assets, we find no reason as to why interest income earned from such fixed deposit receipts could not be assessed as business income of the assessee – relying upon CIT & anr. Vs. Motorola India Electronics (P) Limited [2014 (1) TMI 1235 - KARNATAKA HIGH COURT] - the view adopted by the AO showing interest income under consideration is business income cannot be held as not a possible view and therefore, the Commissioner of Income Tax was not justified in interfering with the view in the order. The assessment order of not excluding interest income which was assessed as business income of the assessee for computing “profits derived from export of articles or things or services” was a possible view and therefore, the same could not be interfered in exercise of powers available u/s 263 of the Act - the Commissioner of Income Tax in the order has observed that the assessee was indulging in financial arbitrage only in its SEZ unit - the true business of the assessee in its SEZ unit was that of financial arbitrage and not of trading by way of re-export of imported goods. The assessee was duly granted approval by SEZ authorities to set up SEZ unit for engaging in trading by way of re-export of the imported goods - The activities carried out by the assessee in the SEZ unit are monitored by the competent SEZ authorities - The annual performance report of the assessee are monitored and verified by approval committee formed under the SEZ Act. The assessee is recognized as an entrepreneur under the SEZ Act - the assessee was also granted renewal of approval for trading by competent authority under the SEZ Act - it would be not proper to characterize the activity of the assessee which consists of re-export of the imported goods and inter alia to acquire fixed deposits for obtaining letter of credit for receiving goods on credit in the case of import as merely financial arbitrage and not as trading by way of re-export of imported goods and consequentially service under the SEZ Act – the order of the CIT(A) is set aside to the extent that interest income earned by the assessee on bank fixed deposit receipts is required to be taxed as “income from other sources” and such interest income is to be excluded from arriving at profits derived from export of services for the purposes of section 10AA of the Act. Set-off of brought forward loss – Held that:- The view adopted by the AO in the assessment order that interest income earned by the assessee on fixed deposit receipts are assessable under the head “business income” - set-off of brought forward business loss against such business income as done by the AO in the assessment order was a possible view – the order of the CIT is modified to the extent that it directed that as interest income earned on fixed deposit receipts taxed as income from other sources, the assessee would not be entitled for set-off of brought forward business loss against such interest income. Genuineness of foreign exchange fluctuation loss – Held that:- Following the decision in CIT Vs. Honda Siel Power [2010 (7) TMI 38 - HIGH COURT OF DELHI] - while passing an order u/s 263, CIT has to examine not only the assessment order but the entire records - No doubt this presumption is rebuttable, but there must be some material to indicate that the AO had not applied his mind - no material could be brought on record in the impugned order passed u/s 263 to show that the AO had accepted the claim of exchange fluctuation loss without application of mind when record shows that the AO during the assessment proceedings called for details of exchange fluctuation loss and a number of documents and details were filed by the assessee before the AO during the course of the assessment proceedings in support of its claim for deduction of exchange fluctuation loss - the CIT was not justified in concluding that the AO accepted the correctness, genuineness and allowability of the exchange fluctuation loss without any application of mind – the order of the CIT is set aside – Decided in favour of assessee.

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• 2014 (10) TMI 469
  Transfer pricing adjustment – Computation of ALP – Advances made to overseas subsidiaries – Held that:- Assessee has not complied to the notice issued by the TPO calling for various informations and evidences, which led to the rejection of the TP study and ultimate determination of arm s length interest by applying the rate of 17.2% - Further, assessee s claim that the investments are towards equity to a great extent is borne out from the fact that shares have actually been allotted to the assesse - If that is the case investments made by the assessee cannot be treated as loan - relationship between the assessee and its step down subsidiary Micro USA was simply that of a lender and a borrower - Not only the Micro USA was a significant part of the marketing apparatus of the assessee, and the assessee and the Micro USA had significant commercial relationship on that count, the assessee was a de facto and de jure promoter of the Micro USA - the transaction is at best for advance of money by holding to step down subsidiary - CUP method can be applied and the LIBOR or other bank rate linked rate is generally taken as a rate for comparable uncontrolled transaction - there is a difference in the nature of transaction and there is also a difference in the nature of the enterprises, including their inter se commercial relationship, entering into this transaction - The differences are so fundamental that these differences, to use the phraseology employed in Rule 10 B (1)(a)(ii), "could materially affect the price in the open market" - the application of LIBOR plus rate or, for that purpose, any bank rate will be inappropriate to this case. Price of interest free advances - What would be the price at which such interest free advances could be given in comparable uncontrolled transactions – Held that:- If the investments are in the nature of equity, then, they cannot be treated as loans and advances - for coming to a definite conclusion in this regard necessary details need to be examined from the books of account and other related documents. Since this aspect has not been properly examined either by the TPO or by the DRP, the matter is to be remitted back to the AO/TPO for fresh adjudication – Decided in favour of assesse. Non-deduction of TDS – Held that:- In the original audit report in Form 3CD auditors did give a note that the amount of Rs. 25,16,90,008/- is inadmissible u/s 40(a) of the Act - the assessee has taken a specific stand before the DRP that no such expenditure was either incurred by the assessee or routed through the books of account - In view of the conflicting claim of the assessee and the department it needs to be established on record whether the assessee has in fact incurred the expenditure of Rs. 25,16,90,008/- by verifying the books of account and other related document – the matter is required to be remitted back to the AO for fresh examination – Decided in favour of assesse. Payment made to M/s Kedia Silk House – Held that:- The matter needs to be examined afresh by the AO - If the amount paid to M/s Kedia Silk towards logo expenses is on principal to principal basis then section 194C would not be applicable - the contract order between the assessee and the party concerned needs to be examined - thus, the matter is to be remitted back to the AO for adjudication – Decided in favour of assessee. Employees contribution towards provident fund u/s 36(1)(va) r.w.section 2(24)(x) – Held that:- The disallowance has been made solely on the ground that it was not remitted within the due date prescribed under the PF Act - the entire amount was paid to the Govt. account before the due date of filing of return of income - As per proviso to section 43B of the Act, if the employees contribution towards provident fund is paid within the due date of filing of return of income, then the same has to be allowed as a deduction – the AO is directed to verify this aspect and allow the deduction claimed, if it is found that the amount has been remitted before the due date of filing of return of income – Decided in favour of assesse.

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• 2014 (10) TMI 468
  Recovery of Guest House Expenses – Held that:- As decided in assessee’s own case for the earlier assessment year, it has been held that the user of guest house facilities provided by the company to the employees of the company in connection with discharge of their official duties does not alter the basic character of the expenditure - such expenses are connected with the travelling by such employees and it should be treated accordingly, irrespective of the fact that such employees stayed in the guest house of the company – the AO is directed to allow the deduction of amount received from parent departments as expenditure in the nature of travelling expenses ;and in accordance with Rule 6D of the IT Rules – Decided in favour of assessee. Expenses on Business Meetings and conferences – Held that:- The expenditure incurred on the employees at a place other than office or factory requires to be treated as entertainment expenditure - The hotel or restaurant cannot be treated as “any other place of their work - the sweep of the words entertainment expenditure found in Explanation is wide and broad to cover every expenditure on provision of hospitality of every kind to employees also, provided the expenditure is not incurred in office or factory or any other place of their work where an employee normally discharges his duties - the hotel cannot be equated with the other place of their work – assessee did not place any evidence to establish the fact expenditure incurred on business meetings and conferences contained the rent paid for the halls in the hotels – the matter is remitted back to the AO to examine and allow if the assessee is able to furnish the evidence of rent paid to the hotels or restaurants which was included in the business meetings and conferences expenditure – Decided against assessee. Annual General Meeting Expenses – Held that:- As decided in assessee’s own case for the earlier assessment year, it has been held that the expenditure incurred on serving tea, coffee and soft drinks is covered by the Explanation 2 to section 37(2A)/(37(2) - In the Explanation 2 it is stipulated that the expenditure on provision of hospitality of every kind by the assessee to any person whether by way of provision of food or beverages or in any other manner, whatsoever, would be entertainment expenditure - The sweep of the words entertainment expenditure found in the Explanation 2 to section 37(2A)is wide and broad to cover every expenditure on provision of hospitality of every kind to any person other than the employees at the place of their work - the Explanation 2 to subsection (2A) of section 37 was not there in the statute when the judgment in the case of Bangalore Turf Club was delivered – relying upon Commissioner Of Income-Tax, Karnataka I Versus Mysore Paper Mills Limited [1976 (4) TMI 5 - KARNATAKA High Court] - the expenditure incurred at the general body meeting is covered by the Explanation 2 to section 37(2A) - the expenditure incurred on serving tea, coffee & soft drinks to the shareholders at the Annual General Meeting is treated as entertainment expenditure – Decided against assessee. Expenditure on Techno Feasibility Reports – Held that:- As decided in assessee’s own case for the earlier assessment year, it has been held that expenditure was not a capital expenditure and allowed deduction of same as a revenue expenditure - the expenditure has to be allowed as a deduction being a revenue expenditure – Decided in favour of assessee. Contribution made to Tata Steel Rural Development Society disallowed – Held that:- As decided in assessee’s own case for the earlier assessment year, it has been held that with the increase in the number of people residing in Jamshedpur, the assessee found it difficult to cope with all the services of civic amenities and it has, therefore, encouraged senior officers of the company and other leading citizens in Jamshedpur to set up voluntary organisations registered under the Societies Act or other charitable institutions to undertake activities in the field of sports, education, medical relief, cultural promotions, etc.- AO rejected the assessee’s claim that these contributions were made to discharge its obligations towards civic amenities and, therefore, it was an item of business expenditure incurred wholly and exclusively in the ordinary course of business - since the major beneficiaries of the expenditure were the company’s employees, it was an item of labour welfare expenditure - the payments were made keeping in mind business expediency viz.,to have a motivated work force.In the light of the peculiar facts in assessee’s case, the expenditure in question has to be allowed as a deduction u/s. 37(1)- The provisions of section 40A(9) would not apply because the payments were not made by the assessee in his capacity as an employer – Decided in favour of assessee. Contribution to Tata Sports Club – Held that:- As decided in assessee’s own case for the earlier assessment year, it has been held that the contributions were covered by section 40A(9) of the Act, that Section 40A(9) was enacted with a view to discouraging creation of certain irrevocable trusts ostensibly for the welfare of the employees and transfer to such trust substantial amounts by way of contribution - the contributions were given to Tata Sports Club in the capacity of an employer for the benefit of the employees as well as others - the annual contribution to Steel Plants Sports Board was an independent organisation managing the affairs of the board ‘with its own budget - the purpose of creation of the association was to create and train athletes of national standard - the objective had no relevance in carrying on the business of the assessee - the contribution made by the it was an application of income – Decided in favour of assessee. Contributions made to various institutions of Jamshedpur – Held that:- As decided in assessee’s own case for the earlier assessment year, it has been held that significant contributions made by the were to Jamshedpur Notified area Committee,Merry Hospital, Jamshedpur, Trade Workers’ Union, Loyola School, All India Football Association, it was evident that the assessee had given a general and vague explanation about the issue before him, that it did not establish the direct nexus between the contributions and the business, that in the absence of such a nexus, it could not be presumed that the contributions were made for the purpose of the business, that the contributions made by the assessee were on the nature of application of income, that the contributions were hit by the provisions of section 40A (9) of the Act - the issue of payment of contributions to various Institutions at Jamshedpur in favour of the assessee – Decided in favour of assessee. Contribution made to Institute for Miners & Metal Workers’ Education – Held that:- As decided in assessee’s own case for the earlier assessment year, it has been held that the payment by the assessee was not towards any expenditure but same was by way of contribution - assessee did not avail any services in lieu of the payment during the year- there was no direct nexus between the expenditure incurred and the benefits derived by the assessee - payment was in the nature of contribution or donation and was not allowable as business expenditure. Delayed contribution to approved superannuation fund disallowed – Held that:- Following the decision in Commissioner of Income Tax Versus M/s. Alom Extrusions Limited [2009 (11) TMI 27 - SUPREME COURT] - The omission of the second proviso to section 43B of the Income-tax Act, 1961, by the Finance Act,2003,operated, retrospectively, with effect from April 1,1988 and not prospectively from April 1, 2004 - as per the amended section if employer’s contribution is deposited in the funds before the due date of filing of return,as envisaged by the provisions of section 139(1)of the Act – the contribution to the fund was made before the due date of filing of return – Decided in favour of assessee. Expenses on relining inner walls of blast furnace – Held that:- The expenditure was incurred by the assessee for relining furnaces - AO had disallowed the expenditure for the first time treating it as capital expenditure - principles of res judicata do not apply in income tax proceedings -But, rule of consistency demands that if same facts and circumstances exit then without bringing distinguishing features of a transaction, stand taken earlier should not be disturbed - AO has not discussed as how the facts for the year were different from the earlier year with regard to the relining of the furnaces - The nature of job done by the assessee did not bring in to existence any new asset and it was not capable of bringing any enduring benefit to the assessee - Relining was an expenditure of revenue nature – the order of the FAA is upheld – Decided against revenue.

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• 2014 (10) TMI 466
  Undisclosed income - Sale consideration of flats sold by assessee – on-money transactions - Held that:- Addition was made by the AO on the basis of documentary evidence found during the course of search at the premises of buyer of the flat M/s Unimark Remedies Ltd. - As per the seized document found at the premises of M/s Unimark Remedies Ltd., there was on-money transaction for payment of 4 flats purchased at 10th & 11th floor at Kamaleshwar II, Tagore Road, Santacruz, Mumbai constructed by the assessee firm. During the course of search itself, statement of Shri Mehul Parekh (Director Finance, M/s Unimark Remedies Ltd.) were recorded - In respect of transaction appearing in the incriminating documents inventorised as Annexure-A-2, Mehul Parekh admitted on behalf of URL the payment of on-money to the assessee - the admission of Mehul Parekh was on the basis of documentary and corroboratory evidence - This admission of Director on behalf of URL has been confirmed by another director Mr. Yogesh Parekh, who is also a CA. In his statement, Shri Yogesh Parekh admitted that he was looking after accounts, administrative and financial affairs of M/s URL and that they have purchased two floors at 10th & 11th Floor in Kamaleshwar Tower from assessee and as per the diary seized at the time of search action, Shri Mehul Parekh, Director of the company has paid Rs. 75,20,000/- in cash on different dates of the year 2005 to Mr. Rajubhai Dhiru, partner of assessee firm M/s Orbit Enterpises as on-money for purchase of two floors. M/s Unimark had also admitted this payment as its income in the block assessment. In view of documentary evidence found during the course of search along with statement of the payees recorded u/s.132(4), further fortified by cross examination allowed to the assessee clearly proves that assessee was in respect of on-money on sale of flats which were not accounted for in the regular books of accounts - the AO was justified in adding the same in assessee’s income and it was correctly confirmed by the CIT(A) after recording detailed finding of his appellate order which has not been controverted by the assessee by bringing any positive material on record – thus, the order of the CIT(A) is upheld – Decided against assessee. Reopening of assessment – Held that:- There was sufficient material before the AO to form an opinion that there was an escapement of income in respect of payments made by the buyers of flats to the assessee firm as per the seized document found during the course of search of Unimark Remedies Ltd., which was not found recorded in the assessee’s books of account – there was no infirmity in the reopening of the assessment by issue of notice u/s.148 of the I.T. Act - Decided against assessee.

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• 2014 (10) TMI 465
  Computation of ALP – Transfer pricing adjustment – Turnover Filter - Held that:- Following the decision in Trilogy E-Business Software India (P.) Ltd. Versus Deputy Commissioner of Income-tax. Circle 12(4). Bangalore [2013 (1) TMI 672 - ITAT BANGALORE] - The provisions of the Act and the Rules that are relevant for deciding the issue have to be first seen - Sec.92. of the Act provides that any income arising from an international transaction shall be computed having regard to the arm s length price - the provisions of law pointed out by the ld. counsel for the assessee as well as the decisions referred to by the assessee clearly lay down the principle that the turnover filter is an important criteria in choosing the comparables - The assessee s turnover is Rs. 47,46,66,638 - companies having turnover of more than 200 crores have to be eliminated from the list of comparables as laid down in several decisions referred to by the ld. counsel for the assessee - the AO is directed to compute the Arithmetic mean by excluding the aforesaid companies from the list of comparable. Selection of comparables – Avani Cimcon Technologies Ltd. – Functionally different unit - Held that:- Following the decision in Telcordia Technologies Pvt. Ltd. v. ACIT [2012 (6) TMI 388 - ITAT MUMBAI] - the Tribunal accepted the assessee s contention that this company has revenue from software product and observed that in the absence of segmental details, Avani Cincom cannot be considered as comparable to the assessee who was rendering software development services only - the margin of this company at 52.59% which represents abnormal circumstances and profits - The reasons given by the Assessee for excluding this company as comparable are found to be acceptable. KALS Information Systems Ltd. - Functionally different from software companies – Held that:- Following the decision in Bindview India Private Limited v. DCIT [2013 (6) TMI 113 - ITAT PUNE] the company is engaged in development of software products and services and is not comparable to software development services provided by the assessee - the TPO has drawn conclusions on the basis of information obtained by issue of notice u/s.133(6) of the Act - This information which was not available in public domain could not have been used by the TPO, when the same is contrary to the annual report of this company as highlighted by the Assessee in its letter dated 21.6.2010 to the TPO - this company was developing software products and not purely or mainly software development service provider – the company cannot be treated as comparable. Celestial Labs Ltd. - Research s claim that this company was functionally different was accepted – the company has related party transactions which is more than the permitted level and therefore should not be taken for comparability purposes – this company should not be treated as comparables. Exclusion of amount incurred on telecommunication charges and foreign currency from export turnover u/s 10A – Held that:- Following the decision in CIT v. Tata Elxsi Ltd [2011 (8) TMI 782 - KARNATAKA HIGH COURT] - it would be just and appropriate to direct the AO to exclude the sum incurred on telecommunication charges and another sum incurred in foreign currency both from export turnover and total turnover – Decided in favour of assessee.

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• 2014 (10) TMI 464
  Addition of STCG - transfer of capital assets - Whether the taking over of the possession and control over of the assets of the assessee by the secured lender(s) tantamount to transfer of assets from the borrower in default to the secured lenders - Held that:- The AO had erred in applying the provisions of s. 2 (47) of the Act in considering that the secured lender acquire title to the secured assets of the assessee company on taking over of possession of assets of the assessee by overlooking the fact that what the secured lenders acquired on taking over of possession of the secured assets were merely a special right to execute or implement the recovery of its dues from dealing with those assets of the assessee company - the ownership rights in the assets did not at any stage stand transferred to the secured lenders by taking over the possession of secured assets - Thus, the sale consideration received by the secured lender(s) actually belonged to the borrower which by operation of law remained retained by the secured lenders to recover their costs, dues etc. Further, if the consideration to the assessee is to be considered as the sale amount received by the lending banks, then, the loans waived by such banks [availed by the assessee for the purchase of capital assets such as land, building, plant and machinery etc.,] was nothing but a capital receipt not liable for tax since neither the provisions of s. 28(iv) nor s. 41(1) of the Act is attracted. Denial of benefit of set off of brought forward unabsorbed depreciation - Held that:- Following the decision in GENERAL MOTORS INDIA PVT. LTD Versus DEPUTY COMMISSIONER OF INCOME-TAX [2012 (8) TMI 714 - GUJARAT HIGH COURT] - keeping in view the purpose of amendment of section 32(2) of the Act, a purposive and harmonious interpretation has to be taken - while construing taxing statutes, rule of strict interpretation has to be applied, giving fair and reasonable construction to the language of the section without leaning to the side of assessee or the revenue - But if the legislature fails to express clearly and the assessee becomes entitled for a benefit within the ambit of the section by the clear words used in the section, the benefit accruing to the assessee cannot be denied - it can be said that current depreciation is deductible in the first place from the income of the business to which it relates. Any unabsorbed depreciation available to an assessee on 1st day of April, 2002 (A.Y. 2002-03) will be dealt with in accordance with the provisions of section 32(2) as amended by Finance Act, 2001 - and once the Circular No. 14 of 2001 clarified that the restriction of 8 years for carry forward and set off of unabsorbed depreciation had been dispensed with, the unabsorbed depreciation form A.Y. 1997-98 up to the A.Y. 2001-02 got carried forward to the AY 2002-03 and became part thereof, it came to be governed by the provisions of section 32(2) as amended by Finance Act 2001 and were available for carry forward and set off against the profits and gains of subsequent years, without any limit whatsoever - the assessee company is eligible for carry forward and set off of unabsorbed depreciation – Decided in favour of assessee.

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• 2014 (10) TMI 463
  Validity of reopening of assessment – Change of opinion - TDS deduction on payment to Non-resident companies - Held that:- The returns filed by the assessee company for the AYs 2003-04 and 2005-06 were processed under sec.143(1) - Obviously, there is no question of change of opinion - when the AO has arrived at a finding that the assessee company is in fact paying Royalty to the non-resident companies, he has to apply the same ratio for pending assessments as well as assessments concluded recently, especially, the assessments concluded u/s 143(1) - wherever the time permits, the AO had to reopen the earlier assessments - the reassessments completed by the assessing authority for the four AYs 2003-04, 2004-05, 2005-06 and 2006-07 are valid in law – Decided against assessee. TDS deduction on payment – Royalty or not - payments made to non-resident companies for supply of standard software products, which in turn, are to be sold in India – Held that:- The software transmitted to the assessee company is installed on a server with identifying location and machine No. of the customer - the orders are placed by customers and banks in India with the assessee company on a need based arrangement - The supply of the products are made by the non-resident companies only after approving the technicality of the software module and other necessary particulars - The software products are delivered to the assessee on a CD/any other media specified in the invoices - the assessee does not have ownership in the copyright supplied by the non-resident companies - the assessee does not have any right to make copies of software or use the software anywhere else - The software is carefully marked for that particular customer to whom the assessee has sold the software product - the relationship subsisted between the assessee company and the non-resident companies was on a principal-to-principal basis - The risk of the failure of the software product is borne by the assessee company - The assessee company does not have any right to make changes in the software supplied by ACI Singapore and IRPL Australia - The assessee company is permitted to make only nominal/cosmetic modifications for the purpose of installing the software and running the software product in the system of customers - The software transferred by the non-resident companies is a standard software - there was no requirement on the part of the assessee company to deduct tax at source as provided u/s 195 of the Act - the assessing authority is not justified to invoke sec.40(a)(i) and make disallowance in respect of the amounts paid by the assessee company to ACI Singapore and IRPL Australia - The disallowances is to be set aside. Even if the amendment brought in sec. 9(1)(vi) by Finance Act, 2012, is considered as a milestone, the judgment rendered by the Hon'ble Delhi High Court in the case of Infrasoft Ltd. [2013 (11) TMI 1382 - DELHI HIGH COURT], really supports the argument of the assessee. In the said decision, even after the amendment, the Hon'ble Delhi High Court has held that the amount received by the assessee from a non-resident company for granting license to use copyright software to its own business purposes could not be brought to tax as Royalty under Article 12(3) of Indo-US DTAA. Disallowance u/s 40(a)(i) – Held that:- It is very difficult to hold that the assessee is a dependent agent of ACI Singapore and IRPL Australia - The result is that the assessee company does not create a PE in India for ACI Singapore and IRPL Australia - the issue of PE is decided in favour of the assessee by holding that Singapore Company and Australian Company do not maintain any PE in India through the medium of the assessee company. Short fall in credits – Held that:- The AO restricted the grant of credit on the ground that the credit as per Form 26AS is reflected to that extent alone - Once difference is reconciled, it is to be seen that the assessee is entitled for the credit on full amount of TDS - there is difference between the amount of TDS as per the return of income filed by the assessee and the credit reflected in Form 26AS - the assessee has relied on instruction No.5/2013 dated 8th July, 2013 issued by the CBDT stating that when an assessee approaches the assessing authority with requisite details and particulars in the form of withholding tax certificate as evidence for any mismatched amount, the AO should verify whether or not the deductor has made payment of the withholding tax to the Government account and if the payment has been made, credit of the same should be given to the assessee – the AO is directed to give the appropriate withholding tax credit to the assessee company on the basis of withholding tax certificate produced by the assessee – Decided in favour of assessee. Computation of relief u/s 10A/10B – Held that:- Following the decision in ITO v. Sak Soft Ltd. [2009 (3) TMI 243 - ITAT MADRAS-D] - such deductions made from the export turnover should be correspondingly made from the total turnover so as to maintain the parity of the turnover segments - the AO is directed to reduce the expenses also from the total turnover of the respective AYs – the AO is directed has excluded the unrealized foreign exchange from the export turnover without making corresponding deduction in the total turnover of the assessee company - when the foreign exchange is not realized and corresponding export turnover is already reduced, it is a corollary that the total turnover is reduced to that extent for the reason that the total turnover includes export turnover as well – Decided partly in favour of assessee.

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• 2014 (10) TMI 462
  Computation of ALP – Services availed are intra-group services or not – Held that:- As decided in assessee’s own case for the earlier assessment year, it has been held that same Agreements and identical activities and nature of evidences relied and it is not the case of the Revenue that there is any material change in any fact circumstance as undisputedly the agreements remain the same - the assessee is engaged in the business of rendering services in connection with the acquisition, sales and lease of real estate property and other services such as advisory and research, facility management, project management, etc. in the real estate sector - it cannot be said that there is complete absence of evidence submitted by the assessee in respect of services obtained by it from the Mr. Royden Braganza in respect of the revenue earned by the assessee - the observations of the TPO that there is no documentary evidence furnished by the assessee is contrary to record - observations of TPO are not correct - The assessee has been shown to have earned substantial revenues from IBM and that cannot be the result of only incidental benefit received by the assessee from old business relationship between the holding company of the assessee and IBM - without examining any of such details, it cannot be said that the revenue earned by the assessee was only on account of incidental benefit - There is a force in the claim of the assessee that to enable it to earn the revenue from IBM, it was necessary to provide the services to IBM outside India. If such services are provided by the employees of the assessee company, then, it has to incur the cost of its employee who has to travel to the destination and that would result in extra expenditure - if those services are outsourced to the independent party, then also there would be some element of profit to be charged by the said independent party - it cannot be said that there is absence of evidence submitted by the assessee and it will be incorrect to say that the assessee did not furnish evidence to support its contention that it has reimbursed the cost in respect of revenues earned by it on account of services rendered by CWHK - All the details have been furnished on record - The reasons given for upholding the adjustment to arm's length price are same as have been given in respect of CWS - the TPO is directed to make the adjustment – Decided in favour of assessee. Referral fee paid to associates - Amount represented the Appellant's income diverted to the group concerns or not – Held that:- As decided in assessee’s own case for the earlier assessment year, it has been held that the disallowance of referral fee is made only on the ground that the assessee was not required to incur it and there was no evidence placed on record to prove the same - The assessee had submitted ample evidence to support the expenditure and it was shows that such expenditure is incurred with respect to revenue earned by the assessee on property transaction referred to the assessee by its associate enterprises - the expenditure incurred by the assessee in respect of transaction referred by AE's was much less than the similar expenditure incurred vis-à-vis the independent parties - Such contention was also placed before TPO. No adverse material whatsoever has been brought on record to show that either the evidence submitted by the assessee in this respect was incorrect or the contention of the assessee that expenditure relating to transaction entered into with AE's were less costly was incorrect - Therefore, even on merits there is no justification in upholding the disallowance - the sustenance of addition is not justified – Decided in favour of assessee. Unrealized service tax disallowed u/s 43B or not – Held that:- No doubt legally the issue is in assessee's favour however facts need verification - The arguments of the revenue cannot be out rightly brushed aside and considering the prayer made in the peculiar facts and circumstances has to be accepted as this aspect has never been verified as findings arrived at have been necessarily confined to how the issue has been argued before different forums – thus, the matter is to be remitted back to the AO for fresh adjudication – Decided in favour of assessee.

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• 2014 (10) TMI 461
  Validity of order u/s 263 - Search and Seizure operation u/s 132 – Held that:- During the course of assessment proceeding questions, enquiries and explanation on the relevant issues were called for by the AO and were replied by the assessee - Thus these are not the assessments where there was no enquiry on the relevant aspect - The questionnaires, order sheet entries, assessees submissions and explanations make it quite clear – it cannot be held that assessment orders suffer from lack of enquiries – relying upon Commissioner of Income-tax Versus Sunbeam Auto Ltd. [2009 (9) TMI 633 - Delhi High Court] - though revision can be made in a case when there is lack of enquiry in the order, however, inadequate inquiries cannot be a basis of revision as it depends on the perception of the officer exercising assessment powers - a mere deference is perception of CIT and AO cannot make the order erroneous and prejudicial to the interest or revenue - It is not mere prejudice to the revenue, or a mere erroneous view which can be revised under section 263 - it cannot be held that the assessment orders suffer from unsustainability also - since reasonable enquiries were made, assesssee was called on to file their explanation and submissions on relevant issue and besides the assessment orders are sustainable, it cannot be held that these are cases of any manifest inadequate inquiry or impossible view or unsustainability - the exercise of jurisdiction u/s 263 by CIT in setting aside the assessments passed u/s 153A r/w sec 143(3) in the case of both the assessee is bad in law, his orders are quashed – Decided in favour of assessee.

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• 2014 (10) TMI 460
  Transfer pricing adjustment – Adoption of method - Evaluation of royalty payment, technical fees and other payments by adopting CUP method without justifying how the same was most appropriate method – Held that:- Whether the international transactions have to be considered separately or independently without aggregating them as part of the segment to which they relate, the term ‘international transaction’ has been defined in section 92B of the Act to mean and include transactions between two or more AEs, either or both of whom are non-residents, in the nature of purchase, sale or lease of tangible or intangible property, or provision of services, or lending or borrowing money or any other transaction having bearing on the profits, income, losses or assets of such enterprise. Section 92 of the Act provides that income from international transactions between AEs shall be computed having regard to ALP - the Act and the Rules contemplate determining ALP by aggregating international transactions which are multiple, interlinked or inter-related to each other and cannot be evaluated separately - To this extent the conclusions of the TPO regarding determination of ALP by taking segmental results without looking into as to whether the two segments are interlinked or inter-related cannot be sustained. The TPO has arrived at the bifurcation of the manufacturing and trading segmental operating results - the trading and manufacturing segments are interlinked and therefore a combined transaction approach has to be adopted, the results arrived at by the TPO is combined - If the segmental results are combined, the operating revenue of the assessee would be 3767.91 crores and the operating profit would be Rs. 94.34 crores - Thus, the operating profit margin on sales would be 2.517 - If the arithmetic mean of the five comparables as above is tested as against the operating profit margin on sales of the assessee at 2.517%, then the same would be within the (+)/(-) 5% range of the arithmetic mean and therefore no addition by way of adjustment to the ALP can be made – Decided in favour of assessee. Computation of ALP - Whether the TPO can come to a conclusion that the ALP of an international transaction is nil because no services were rendered or that the assessee did not derive any benefit from the AE for which payments were made – Held that:- The conclusions of the TPO/DRP that the trading and manufacturing segment of the Assessee are distinct and not inter related warranting combined transaction approach is not correct and that a combined transaction approach has to be adopted and that on the basis of combined transaction approach the price paid for the international transaction is at Arm’s Length – relying upon Castrol India Ltd. v. ACIT [2013 (1) TMI 212 - ITAT MUMBAI] - it was incumbent upon the TPO to work out the ALP of the relevant transactions by following some authorized method and the entire cost borne by the assessee cannot be disallowed by taking the ALP at Nil - the stand taken by the assessee in this regard deserves to be accepted - the TPO has to work out the ALP of the international transaction by applying the methods recognized under the Act - He is not competent to hold that the expenditure in question has not been incurred by the assessee or that the assessee has not derived any benefits for the payment made by the assessee and therefore he cannot consider the ALP as NIL. Determination of ALP at NIL in respect of royalty payments – Held that:- As decided in assessee’s own case for the earlier assessment year, it has been held that the TPO’s determination of the ALP of the royalty payment at ‘nil’ cannot be supported - For such ALP determination, a proper analysis of comparables is required to be performed and the TPO is directed to identify suitable comparables and, after providing adequate opportunity to the appellant to determine the appropriate ALP of royalty payment – Decided in favour of assessee.

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• 2014 (10) TMI 459
  Reopening of assessment u/s 147 – Change of opinion - Held that:- As decided in Commissioner of Income Tax Versus Kelvinator Of India Limited [2002 (4) TMI 37 - DELHI High Court] - on mere change of opinion of AO cannot be a ground for re-assessment and that amendment of sec. 147 w.e.f. 1.4.89 has not altered the position - there has been excessive loss or depreciation allowance or that there has been under assessment or assessment at a lower rate or for applying other provisions of explanation 2 to sec. 147, it must be on material and it should have nexus for holding such opinion contrary to what has been expressed earlier. Even after the amendment of sec. 147, mere change of opinion does not confirm jurisdiction on the ITO to initiate proceeding for reassessment merely by resorting to explanation 1 to sec. 147 - AO is not justified in reopening the assessment on mere change of opinion - Annexure A1 was considered at the original assessment stage and on that basis, the AO made addition on account of unexplained investment in property in a sum - The AO has referred to the same properties in the original assessment order, which are referred to now in the reasons for reopening of assessment for the year under consideration - The assessee filed explanation and evidences before the AO at original assessment stage explaining the investment in the properties - Whatever addition was made by the AO at original stage on the identical facts have been deleted by the CIT(A) as well as confirmed by the Tribunal. The propriety demands that the AO should not have resorted to proceedings to reopen assessment on identical facts - All facts were all along were within the knowledge of the AO at original assessment stage, therefore, re-appreciation of evidence at subsequent re-assessment proceedings is not permitted on mere change of opinion by subsequent AO - The re-assessment proceedings have been initiated again on similar issue and totally on identical facts regarding investment in property which have already been considered in the original assessment proceedings - It is a case of change of opinion and such a change of opinion for reopening of section 147 is not permitted under law - The AO in the re-assessment order himself has mentioned that addition is made on account of unexplained expenditure/investment in the properties in the original assessment order - No new material or fresh information have been received at the re-assessment stage - it is merely a fresh application of mind by the subsequent AO on the same set of facts - the seized material which was the basis of making some additions at original assessment stage, is the document of the department found during the course of search and once the same has been appreciated and considered by the AO, there is no question on the part of the assessee not to disclose fully and truly all material facts necessary for hisassessment - The re-appreciation of seized material in subsequent proceedings by the AO is, thus, wholly unjustified particularly when such a seized material was not considered worthy by the CIT(A) in the original appellate proceedings deleting the addition on the same seized material - Therefore, there is no question of re-appreciating the same facts which have been duly considered by the first appellate authority prior to reopening of assessment -CIT(A) on proper appreciation of facts and material on record, rightly quashed the reassessment proceedings – the order of the CIT(A) is upheld in quashing and annulling the reassessment order – Decided against revenue.

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• Customs

• 2014 (10) TMI 478
  Waiver of pre deposit - Jurisdiction - Penalty under Section 114A of the Customs Act - Held that:- When the show-cause notice was issued on 19/05/2005 in respect of some transactions took much before that, the DGCEI, Ahmedabad Zonal Unit and its officers did not have all India jurisdiction to issue show-cause notices under Section 17 & 28 of the Customs Act. These powers have been conferred on these officers by Notification No. 44/2011-Customs (NT) dated 06/07/2011. It is a settled position of law that every notification issued under the Customs Act has only prospective application unless retrospectively is specifically granted by an act of the parliament. Therefore, Notification No. 44/2011-Customs (NT) dated 06/07/2011 is only prospective and cannot be said to have any retrospective application. In these circumstances, the appellants have made out a prima facie case for grant of stay. Accordingly, we grant unconditional waiver from pre-deposit of dues adjudged against the appellants and stay recovery thereof during the pendency of the appeals - Stay granted.

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• 2014 (10) TMI 477
  Confiscation of goods - Hazardous nature of goods - Held that:- Bills of entry were filed on 16.12.2013 and it is the specific case that these goods were imported from the group at France. Till date, the Department has not taken any action on the goods and for the first time, in the instructions given to the learned Standing Counsel, the Department takes a stand that the petitioner gave a letter in January 2014, agreeing to obtain appropriate No Objection Certificate. for the past ten months, the Department has not taken any action, if according to the Department, the goods cannot be released for certain reasons, then, the same should be put to the petitioner in the appropriate Form in accordance with law. Without doing so, there is no justification for the respondents to retain the goods endlessly in their custody. At this stage, this Court is not inclined to make an observation as regards the stand taken by the respondent, as regards the nature of the Cargo - Petition disposed of.

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• Service Tax

• 2014 (10) TMI 485
  Demand of differential service tax - difference of amount shown in figures and in words of the service provided by the appellant - Held that:- During the impugned period, service tax is payable on the amount received towards the services rendered. The appellant has shown the evidence of receipt of payment of service provided by way of production of photocopy of cheque, ledger account and TDS certificate. The genuineness of these have not been doubted by the Adjudicating authority. Further, we find that the adjudicating authority or the investigating agency has not taken any steps to verify the fact as to what amount has been paid by the service recipient towards the service provided against the said invoice. Both the service recipient and service provider are under the jurisdiction of the same Commissioner of Service Tax. In these circumstances, we remand the matter back to the Adjudicating Authority to verify the fact how much amount has been paid by the service recipient to the appellant against the amount in dispute - Matter remanded back - Decided in favour of assessee.

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• 2014 (10) TMI 484
  Maintainability of appeal - revenue contended on the ground that what the petitioner had filed was only a representation and not a refund application - Cenvat credit - tele-communication network - Held that:- Once this Court has directed that the representation made by the petitioner to the authorities praying for refund or credit in the cenvat credit account be considered and a speaking order be passed thereon after hearing the petitioner, then, the Tribunal has taken a hyper technical view. Annexure-A is nothing but an order passed by the authorities under the Act. Customs, Excise & Service Tax Appellate Tribunal is a Appellate Authority and it has been approached because of the rejection of the petitioner's plea claiming the refund or credit of cenvat credit. The order passed on the representation / application of the petitioner and in terms of the Division Bench direction dated 27th January, 2014 in Writ Petition No.621 of 2014 is nothing but a speaking order on the Refund Application - It is appealable to Customs, Excise & Service Tax Appellate Tribunal, who shall now allow the petitioner to proceed with the appeal filed before it in accordance with law. In the event the appeal is not existing on its file, the petitioner may be permitted to file a fresh appeal challenging the communication / order dated 7th March, 2014 by treating it as a order on the application seeking refund or credit of their cenvat credit account. - Decided in favour of Assessee.

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• 2014 (10) TMI 483
  Waiver of penalty u/s 80 - levy of penalty u/s 76 and 77 and 78 - bonafide belief - Business Auxiliary service - House keeping service - Service not taxable therefore, registration surrendered - Later tax imposed under Business Auxiliary service - Held that:- assessee has clearly stated that they had originally got a registration certificate for house keeping and realizing that the said service is not taxable, they have surrendered the same. It may be emphasized here that the assessee had, in fact, paid duty even when there was no requirement under law and has not even chosen to claim refund till date. Even in respect of the present demand, on receipt of notice from the department about the liability of service tax in respect of back office work, they have paid the service tax and interest even before adjudication. This only goes to show that the assessee had no intention to evade payment of tax and non payment was due to lack of knowledge and awareness. One another factor which enures to the benefit of the assessee is that there is no finding in the given case as to how the original authority has imposed penalty under Section 78 of the Act. The Original Authority should have applied his mind as to how penalty is leviable under Section 78 of the Act and there should have been some reasons given thereunder, which we find are absent in the original order. order of the Tribunal confirming the deletion of penalty imposed under Section 78 of the Finance Act, 1994 is justified and warrants no interference. Assessee has stated that they were under the impression that the service rendered by them will not be exigible to service tax. On an earlier occasion, the assessee registered and paid service tax on a non taxable service and they did not even seek for refund of the amount. The bona fide confusion in the mind of the assessee as to which service is taxable or non-taxable is apparent and that justifies the plea of failure to pay service tax. This reasoning pari passu applies to non registration of said service rendered by them. Therefore, the demand of penalty under Sections 76 and Section 77 of the Finance Act, 1994 is not tenable - Decided against Revenue.

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• 2014 (10) TMI 475
  Demand of interest - Delay in payment of tax - Held that:- question of payment of tax is a simple fact. Tax can be paid either in cash or by debit in the CENVAT credit account or by way of both. If the tax is paid through the CENVAT credit, it is the date of debit in the CENVAT account which is the date of payment of tax. Merely, because the credit is available in the books of accounts, it does not mean that the tax has been paid. Therefore, the liability to pay interest has to be computed from the due date of payment of tax to the actual date of payment. If viewed from this perspective, in the present case, inasmuch as the tax has been paid only on 15/02/2007 by debit in the CENVAT account, whereas the due dates for payment of tax were 05/09/2006 (sic) and 05/02/2007, there are delays of 102 days and 10 days in payment of tax and for these delays, the respondent is certainly liable to pay interest. Therefore, the impugned order is set aside to the extent of dropping of interest liability and we hold that the respondent is liable to pay interest for the above period of 102 days and 10 days respectively as proposed in the show cause notice - Decided in favour of Revenue.

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• Central Excise

• 2014 (10) TMI 482
  Demand of interest u/s 11AB on differential duty - Held that:- assessees have cleared goods and paid duty thereon and raised supplementary invoices, but however failed to pay interest payable under Section 11AB of the Act. In view of the decision of the Supreme Court in SKF India Ltd. case, referred [2009 (7) TMI 6 - SUPREME COURT], the first plea raised by the learned counsel for the appellants fails and in that regard, we find no infirmity in the order passed by the Tribunal. Section 11AA of the Act, as amended by Section 64 of the Finance Act, 2011 (8 of 2011), does not in any way advance the case of the appellant, as we find that the liability to pay interest on delayed payment of duty is clearly envisaged in Section 11A(2B) read with Explanation 2 to the said provision. Such interest was leviable even during the period in question. In fact, the Supreme Court in SKF India Ltd. case, referred supra, observed that there is some ambiguity in the said provisions, which was a cause for amendment brought to Section 11AA of the Act. If the object of the law is to state clearly and unambiguously the obligations of the person whom the law addresses and to spell out plainly and without any confusion the consequences of failure to discharge the obligations cast by the law then the four sections of the Act fall miles short of the desired objective. Even as originally cast the provisions were far from very happily framed and worded. Subjected to amendments from time to time those provisions have now become so complicated that in order to discern their meaning it becomes necessary to read them back and forth several times. We see no reason why the two periods for which interest is leviable may not be put together and dealt with in one consolidated provision instead of being split up in sections 11AA and 11AB. Also, there is much scope to reorganise all the different subsections of section 11A and to present the scheme of that section in a more coherent and readable form. Section 11AA of the Act, which came into effect from 8.4.2011, will have no bearing to the facts of the present case. In any event, the decision of the Supreme Court in SKF India Ltd. case, referred supra, squarely applies to the period in question and the law declared by the Supreme Court binds the issue in question. The liability of the assessee stands confirmed by the provisions of Section 11A(2B) read with Explanation 2 to the said provision and Section 11AB of the Act. Therefore, the plea of the appellants that their voluntary payment of duty would not attract interest is unacceptable and in such view of the matter, the second contention is also untenable. - Decided against assessee.

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• 2014 (10) TMI 481
  Restoration of appeal - Whether Tribunal was justified in rejecting the first request for adjournment and deciding the appeal - Held that:- appellant should have an opportunity to urge its submission on merits before the Tribunal, subject to the payment of costs to the Revenue - without expressing any opinion on the questions of law as framed, we restore the proceedings back to the Tribunal, subject to the appellant paying costs to the Revenue quantified at Rs. 10,000. The costs shall be paid within a period of four weeks from today, failing which the appellant shall lose the benefit of this order. We clarify that all the rights and contentions are kept open. Appeal disposed of.

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• 2014 (10) TMI 480
  Waiver of pre deposit - Extension of stay order - Held that:- Tribunal has noted that a waiver of pre-deposit and unconditional stay on the realisation of the adjudicated liability was granted by the Tribunal since a prima facie case was found in favour of the assessee. The Tribunal has also observed that the appeal has not been disposed of only on account of the pendency of several older appeals and not on account of any delay on the part of the assessee. ends of justice would be met if the Tribunal is requested to dispose of the appeal expeditiously and preferably within a period of six months from today. The waiver of pre-deposit will continue to remain valid for a period of six months from today. - Following decision of Commissioner, Customs And Central Excise Versus M/s JP. Transformers [2013 (10) TMI 1194 - ALLAHABAD HIGH COURT] - Decided against Revenue.

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• 2014 (10) TMI 479
  CENVAT Credit - Not payment of duty and cess with stipulated time of 30days - Held that:- The petitioner admittedly does not dispute the fact that they have defaulted in payment beyond 30 days. In such circumstances, action initiated by the respondent cannot be faulted with. However, it is stated that the assessee has given the statement to the investigating officer on 07.03.2014, which is contrary to the contention now raised before this Court in this writ petition. Therefore, the respondent would justify the action that based on the assessee's demand alone, they have initiated action. As pointed out earlier, there is no discretion vested with the authority to allow the petitioner to avail Cenvat credit till they clear dues. Once they clear dues, admittedly, the benefit is accrued to the petitioner, if there is no other legal impediment for doing so - Decided against assessee. At this juncture, learned Senior Counsel for the petitioner submitted that already Rs. 77 lakhs has been recovered from the petitioner and therefore, the petitioner may be given an opportunity to approach the respondent with the request to pay the remaining amount in installments or by granting reasonable time and in the meantime, no coercive steps should be initiated against the petitioner. - while dismissing the appeal, liberty granted to the petitioner to submit its representation to the 2nd respondent within a period of 10 days from the date of receipt of a copy of this order, requesting for time by duly indicating as to what date the balance amount will be paid.

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• 2014 (10) TMI 476
  Reversal of CENVAT Credit - The short question for consideration is the factor "P" mentioned in sub-rule (3A) of Rule 6. Should it be the value of common input services credit as contended by the appellant or should it be the value of total Cenvat credit taken on input services. - Held that:- From a reading of the Rule 6(3A), three factors are required for determination of the Cenvat Credit attributable to exempted goods and exempted services. The first factor is "M" which denotes the total value of exempted services provided plus the total of exempted goods manufactured. The second factor is "N" which denotes the total value of taxable and exempted services provided plus the total value of dutiable and exempted goods manufactured and the third factor is "P" which denotes the total Cenvat Credit taken on input services during the financial year. It should be noted that "P" denotes the total Cenvat Credit taken on input services during the financial year and not the total of the Cenvat Credit taken on common input services. This is also evident from other two factors, namely, "M", "N" which provides for taking into account, the total of the value of services provided and the total value of goods manufactured. The same principle applies in the case of determination of provisional credit required to be reversed every month. If the appellant had chosen not to avail Cenvat Credit on common input services, the liability would have been only Rs. 2.07 crore and inasmuch as the appellant has already reversed an amount of Rs. 62 lakhs (approximately), we direct the appellant to make a pre deposit of Rs. 1.40 crore within a period of eight weeks and report compliance by 18/09/2014. On such compliance, pre deposit of the balance of dues adjudged against the appellant shall stand waived and recovery thereof stayed during the pendency of the appeal - Partial stay granted.

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