TMI Tax Updates - e-Newsletter
October 23, 2012

Case Laws in this Newsletter:

Income Tax Customs Corporate Laws Service Tax Central Excise Indian Laws

Articles

1. REDUNDANT EXEMPTIONS

   By: DR.MARIAPPAN GOVINDARAJAN

News

1. Finance Minister Shri P. Chidambaram calls for Improving Growth and Penetration of Non Life Insurance Sector

2. Steel Minister Compliments RINL Performance, Stresses on Improving Marketing Strategies Shri Verma Reviews Performance of Bird Group of Companies

3. Central Assistance of over Rs 11.97crore sanctioned to Rajasthan and Chattisgarh under USIS

4. Successful COP - Leading the Way Forward

Highlights / Catch Notes

Income Tax

• Court Rules Zarda Yukta Pan Masala Not Tobacco Under Schedule XI, Deductions u/ss 32AB & 80I Disallowed.

  Case-Laws - HC : Zarda Yukta Pan Masala is not a tobacco preparation under Item 2 of Schedule XI - deductions under Section 32AB and 80I disallowed - HC
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• Milk Processing Classified as Manufacturing Due to Composition Alterations for Nutrition and Marketability.

  Case-Laws - HC : The processes of treatment of milk amounts to manufacturing process, which may not change the final product but change its composition for improving its nutritional value, quality and marketability, for consumption. - HC
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• Tax Assessment Reopened Over Undisclosed Earthwork Costs; AO Criticized for Casual Conduct Based on DVO Report.

  Case-Laws - HC : Re opening of assessment - non disclosure of expenditure of earthwork - Re assessment notice based on DVO report - The AO acted casually in discharging his functions. - HC
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• Cooperative banks can claim tax deductions on interest earned, regardless of business income source u/s 80P(2)(a)(i).

  Case-Laws - HC : The question as to whether the business is derived from or attributable to SLR or non-SLR funds would not make any difference for the purposes of qualifying the interest earned by the cooperative bank under Section 80P(2)(a)(i) - HC
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• Service of Notice Rule in Section 292-BB: Evidence Only, Not a Substitute for Mandatory Notice u/s 143(2.

  Case-Laws - HC : Section 292-BB is a rule of evidence for deeming the service of notice. It has nothing to do with the mandatory requirement of giving the notice and specially a notice under Section 143(2) - HC
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• Court Limits Director's Liability to Tax Amount Specified in Section 2(43), Blocking Section 179 Refund Adjustment.

  Case-Laws - HC : Refund payment to assessee as individual proposed to be adjusted against tax liability of the company in which he is a director - section 179 - The petitioner cannot be made liable for anything more than the tax (defined under Section 2 (43)) - HC
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• Income Deduction u/s 10A: STPI Undertaking Income Not Considered as Assessee's Income in Demerged Company Case.

  Case-Laws - AT : Deduction under section 10A - assessment in the hands of resulting company or demerged company (assessee) - no part of the income of the STPI undertaking is to be treated as income of the assessee. - AT
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• Depreciation Allowed on Right of Way Expenditure; Excludes Security and Crop Costs u/s 32.

  Case-Laws - AT : Depreciation on expenditure incurred towards obtaining Right of Way (ROW) - The grounds taken by the Revenue in respect of deletion of disallowance of depreciation claim on Right of Way (ROW) other than security and cost of crop is allowed. - AT
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• Court Dismisses Jewelry Sale as Genuine; Deems it Tax Evasion Attempt Under Income Tax Laws.

  Case-Laws - HC : Sale of jewellery - It is an attempt to create capital without paying any tax, it is not a genuine claim - HC
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• Fraudulent Activity: Funds Moved from Trust Accounts to Company with Majority Shares Held by Individual and Associates.

  Case-Laws - HC : The method and manner, in which he was depositing the amount in the accounts of the trusts, and was transferring the same on the same day by way of cheques to the company, of which he was majority shareholdings along with his associates, clearly establishes that he was playing a fraud with the revenue - HC
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• Rental Income from License Fee and Amenities Services Classified as House Property Income.

  Case-Laws - AT : Rental income - two separate agreements - one for rent i.e monthly license fee and another for services of amenities - Entire amount is to be treated as income from house property. - AT
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• Tax Exemption Denied: Excess Collection Beyond Student Admission Fees Not Eligible u/s 11.

  Case-Laws - AT : Exemption u/s 10(23C) or u/s 11 - The assessee is not entitled for exemption u/s 11 in case it collected any money by whatever name it is called i.e., donation, building fund, auditorium fund etc. etc., over and above the prescribed fee for admission of students. - AT
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• Joint Venture Income: Individual Member's Share Prevents Double Taxation on Contract Receipts Under JV Consortium Rules.

  Case-Laws - AT : Diversion of income - Joint venture - If each member of the JV offered the income derived from respective share of contract works in their hands it is not possible to tax the same contract receipt in the hands of the consortium of JV. - AT
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• Cash Payments to Sister Concerns Disallowed u/s 40A(3) of Income Tax Act; Banking Channels Required for Compliance.

  Case-Laws - AT : Disallowance of Payments made in Cash u/s 40A(3) - there is no exemption if payment made to sister concerns - AT
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Customs

• Candidates Qualified Under 1984 CHA Regulations Exempt from Retaking Exam Under 2004 Regulations.

  Case-Laws - SC : Granting of CHA license – candidates who had qualified the examinations held under the 1984 Regulations are not required to again qualify the examination which may be held under the 2004 Regulations. - SC
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• Provisional Assessments Remain Provisional: Cannot Be Considered Final for Unevaluated Matters.

  Case-Laws - AT : The assessment is either provisional or final, and if it is provisional, it retains that character of being provisional for every purpose and cannot be treated as final in respect of a matter not considered. - AT
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• Provisional Release Denied: No Lawful Seizure Means Imported Goods Cannot Be Indefinitely Detained.

  Case-Laws - HC : Provisional release would arise when there was seizure in accordance with law. There was no seizure in this case - goods imported cannot indefinitely be detained. - HC
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Indian Laws

• Supreme Court of India: Auctions Not Always Mandatory for Natural Resource Allocation; Context-Dependent Decisions Permissible.

  Case-Laws - SC : Whether the only permissible method for disposal of all natural resources across all sectors and in all circumstances is by the conduct of auctions. - the answer could be in the affirmative, as well as, in the negative. - SC
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Service Tax

• State Transport Authority's Charter Bus Permit Challenged Under Service Tax Rules: Initial Ruling Against Them.

  Case-Laws - AT : Rent-a-Cab Service - appellants (state transport authority) allowed their buses to be chartered for transportation of passengers on charter basis on specific routes - prima facie against the assessee - AT
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• Appellant's Service Tax Refund Claim Denied Due to Late Filing Beyond Limitation Period for Free Warranty Services.

  Case-Laws - AT : Refund claim - appellant, by mistake paid service tax in respect of free services undertaken during the warranty period - claim beyond the limitation period stands rejected - AT
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Central Excise

• Court Reviews Duty Accountability for Garments Stitched from Customer-Provided Fabric; Supplier Duty Regulation Possible.

  Case-Laws - HC : Garments stitched by assessee from fabric either brought by the customers themselves or from the Respondent for stitching purpose - There is no ruling by the Courts that a Rule cannot be framed to make the supplier of raw material liable to pay duty. - HC
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• Exemption Notification No. 50/2003-C.E.: Service Providers Not Considered Manufacturers, No Excise Declaration Required.

  Case-Laws - AT : Manufacture - area based exemption - Benefit of Notification No. 50/2003-C.E. - When the appellant is being treated as the service provider, he cannot be held to be a manufacturer liable to pay excise duty in which case and he cannot be expected to file a declaration. - AT
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Case Laws:

• Income Tax

• 2012 (10) TMI 621
  Zarda Yukta Pan Masala - dis allowance of deductions u/s 32AB and 80I - whether a tobacco preparation under Item 2 of Schedule XI of the I.T. Act - Held that:- The percentage of tobacco in the mixture, is not material, in as much as once tobacco is mixed, even in a small quantity, the Pan Masala becomes a tobacco preparation, which is a separate and distinct commercial commodity and clearly identifiable to the consumers, who are addicted to tobacco.In Item No.1 of the list of articles or thing in Schedule XI, the items include beer, wine and other alcoholic spirits.The percentage of alcohol in the spirits is not given. With the same object the percentage of tobacco is also not given in 'tobacco preparation' and in Item No.2 the words 'such as' are indicative and inclusive and do not complete the list of tobacco preparations. The deduction under Section 80I is provided on the income from the manufacture of the articles other than articles or thing in the Schedule XI and which includes in Entry-2, 'tobacco and tobacco preparations, such as cigars and cheroots, cigarettes, biries, smoking mixtures or pipes and cigarettes, chewing tobacco and snuff'. Pan Masala is not a mixture of tobacco but when it is mixed with tobacco, it becomes a tobacco preparation. The deduction under Section 80I is provided on the income from the manufacture of the articles other than articles or thing in the Schedule XI and which includes in Entry-2, 'tobacco and tobacco preparations, such as cigars and cheroots, cigarettes, biries, smoking mixtures or pipes and cigarettes, chewing tobacco and snuff'. Pan Masala is not a mixture of tobacco but when it is mixed with tobacco, it becomes a tobacco preparation - Zarda Yukta Pan Masala is not a tobacco preparation under Item 2 of Schedule XI - deductions under Section 32AB and 80I disallowed - in favour of the revenue

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• 2012 (10) TMI 620
  Chilling of milk by keeping with ice to keep it at low temperature - Whether it involves a manufacturing process ? - disallowance of deduction u/s 80 HHA and 80-I considering assessee not an 'Industrial Undertaking'- ITAT allowed the claim - Held that:- The process undertaken by assessee is not simply chilling of the milk but involves various stages of straining, filtration for improving the appearance of the milk as also for reducing microbial counts and decrease in pathogen and substances which are injurious to health. The process of chilling involves, using surface milk chillers, which improve odour and the taste, free from undesirable flavours. The lowering of temperature prevents undesirable fermentation and provide better palatability to milk. Thus these activities result into restricted microbial growth and inactivation of enzymes. The next process is blending, which results in preservation of vitamins and nutrients with standard uniform contents of fat, which also improves flavour of the milk.All this process result into change in the physical and chemical properties of the milk as dairy milk, which can be consumed directly without any further processing. Thus it cannot be equated with simple processing of raw milk for the purpose of final consumption. The processes of treatment of milk amounts to manufacturing process, which may not change the final product but change its composition for improving its nutritional value, quality and marketability, for consumption. The milk, undergoing these process is commercially a distinct commodity known in the market as dairy milk, as compared to the raw milk purchased directly from the milk man - in favour of assessee.

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• 2012 (10) TMI 619
  Re opening of assessment - non disclosure of expenditure of earthwork - Re assessment notice based on DVO report - Held that:- Firstly the AO could not have referred the matter to DVO unless he had any doubts over the expenditure after examining the account books of the assessee, and on which he had rejected the accounts. The reference to DVO under Section 142-A is not to make a fishing and roving enquiry into the expenditure in constructions. The AO is not authorised to call for the report of DVO unless he forms an opinion that he cannot rely on the assessee's accounts and rejects the accounts books. In the present case, the accounts book were not rejected. The reference was made to DVO only for the purposes of ascertaining the expenditure on the earth work. The enormity of the earth work, by itself, without any other material on record, could not be a ground to make a reference to DVO The incomplete report of the DVO on the basis of which the assessment was reopened and for which the reasons were recorded on could not be accepted as the material on the basis of which the AO could have formed belief that the assessee-company had not truly disclosed the expenditure of earthwork. The DVO had only raised doubts on the methodology adopted by the assessee for valuation of the earth work. The AO acted casually in discharging his functions. AO did not call the assessee-company to explain the difference as up-front fees to IDBI for sanction of loan & the difference only in the share application money, thus the issuance of notice under Section 148 without calling for the explanation of the assessee on these grounds, and on the material could not be the grounds for reopening the assessment - in favour of assessee.

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• 2012 (10) TMI 618
  Interest income from the deposits of non SLR funds - disallowance of exemption under Section 80P (2) (a) (i) - assessee is a cooperative bank - Held that:- As decided in Bihar State Co-operative Bank Versus CIT [1960 (2) TMI 8 - SUPREME COURT] short-term deposits by the Bank was income from normal banking business and was, therefore, exempt from the liability to pay Income Tax, the money laid out in the form of short-term deposit did not cease to be a circulating capital and interest earned thereon, could not be other than income generated from the business of banking. The question as to whether the business is derived from or attributable to SLR or non-SLR funds would not make any difference for the purposes of qualifying the interest earned by the cooperative bank under Section 80P (2) (a) (i) as the deposits of surplus idle money available from working capital, including reserves, excess collection of interest tax and other incomes are all attributable to the business of banking. The interest from such deposits cannot be said to be beyond the legitimate business activities of the bank - in favour of assessee.

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• 2012 (10) TMI 617
  Want of service of notice u/s 143 (2) - block assessment - ITAT held the assessment as void and illegal for want of service of notice - Held that:- As decided in ACIT & Anr. Versus M/s. Hotel Blue Moon [2010 (2) TMI 1 - SUPREME COURT OF INDIA] where in response to notice under Section 158-BC (a) of the Act relating to the block assessment, the Assessing Officer, for any reason repudiates the return filed by the assessee, the AO must necessarily issue notice under Section 143 (2) of the Act within the time prescribed. Section 292-BB is a rule of evidence for deeming the service of notice. It has nothing to do with the mandatory requirement of giving the notice and specially a notice under Section 143 (2), which is a notice giving jurisdiction to the AO to frame an assessment - in favour of assessee.

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• 2012 (10) TMI 616
  Unexplained share capital - ITAT deleted the addition - Held that:- As decided in COMMR.OF INCOME TAX VERSUS M/S LOVELY EXPORTS(PVT)LTD [2008 (1) TMI 575 - SUPREME COURT OF INDIA] if the share application money is received by the assessee-Company from alleged bogus shareholders, whose names are given to the AO, then the Department is free to proceed to re-open their individual assessments in accordance with law & not to be treated as undisclosed income. As in the present case the names, addresses and PAN numbers of the deposits were provided to the AO, which were sufficient to disclose the identity of the persons. The AO did not question their identity and did not summon them, thus the department is free to proceed to reopen the individual assessment of the depositors but it cannot be regarded as undisclosed income - in favour of assessee.

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• 2012 (10) TMI 615
  Refund payment to assessee as individual proposed to be adjusted against tax liability of the company in which he is a director - section 179 - assessee in default - Revenue submission that petitioner had not proved the alone surviving director why should not be treated as the assessee in default - Held that:- As decided in Dinesh T. Tailor Versus 1. The Tax Recovery Officer 2. Income Tax Officer 3. Union of India [2010 (4) TMI 218 - BOMBAY HIGH COURT] Section 179(1) refers to "any tax due from a private company" and every director of the company is jointly and severally liable for the payment of "such tax", which cannot be recovered from the company. The expression "tax due" and, for that matter the expression "such tax" must mean tax as defined for the purposes of the Act by Section 2(43). "Tax due" will not comprehend within its ambit a penalty. The provisions of the Act make a clear distinction between the imposition of a tax on the one hand and a penalty on the other. Section 2(43) defines the expression "tax" in relation to an assessment year and any subsequent assessment year to mean inter alia Income Tax chargeable under the provisions of the Act. The structure and construct of the Act has consciously used different words to create constructive liability on third parties, in the case of default in payment of taxes by an assessee. The treatment of the same subject matter by using different terms - in some instances expansive and in others, restrictive, mean that the Court has to adopt a circumspect approach and limit itself to the words used in the given case (in the present case, "tax due" under Section 179) and not "travel outside them on a voyage of discovery" The petitioner cannot be made liable for anything more than the tax (defined under Section 2 (43)). The first respondent is consequently directed to determine the liability of the Petitioner

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• 2012 (10) TMI 614
  Validity of notice u/s 143 - assessee society was selected by scrutiny under CASS - assessee contested for no notice was ever issued or served on him - Held that:- Tribunal has recorded categorical finding that the petitioner was maintaining bank accounts on the address on which notice under Section 143 (2) was sent. He has also shown the same address in his TDS certificates. He did not produce copy of the PAN card inspite of specific queries and demand. The TDS certificate and PAN were generated by computer system. It was found by the Tribunal that the petitioner had himself provided the address on which notice was sent. The notice was sent by speed post through postal authorities. The notice was served strictly in accordance with the procedure for service of notice provided in CPC raising a presumption under General Clause Act, as the envelope, which is duly stamped and sent to the correct address. Thus the service of notice under Section 142 (2) is finding of fact, which has been recorded considering the entire evidence and the relevant provisions of law including Section 282 of the Income Tax Act, which is procedural and will thus be taken to be retrospective in its effect - no substantial question of law arises - against assessee.

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• 2012 (10) TMI 613
  Addition made on account of difference in Gross Profit - unexplained investment - ITAT deleted the addition - Held that:- The assessee offered an explanation that some of the sarees in the stock had gone out of fashion and that discounts were given to the customers at about 10-15%. The Tribunal accepted the explanation and reduced the gross profit rate from 16.87%, which the A.O. had worked out after rejecting the account at 15.7%. The addition on account of dis-allowance of the salary was maintained. Thus the questions raised by the revenue are essentially questions of fact based on the discretion of the income tax authorities and the Tribunal after books of accounts are rejected and best judgment assessment is resorted for framing the assessment. No substantial questions of law to be decided by the Court - against revenue.

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• 2012 (10) TMI 612
  Deduction under section 10A - assessment in the hands of resulting company or demerged company (assessee) - denial as STPI unit was started only by splitting up of existing infrastructure - ‘Appointed Date’ of scheme of demerger - Held that:- After perusal and consideration of the provision of sections 2(19AA), 10A(1), 10A(7A) and 72A(4) of the Act, it is necessary to arrive at a harmonious construction to assume that the intention of legislature is not frustrated especially in view of the decision of the Hon'ble Apex Court in the case of K.P. Varghese Vs. ITO [1981 (9) TMI 1 - SUPREME COURT] wherein the Hon'ble Apex Court has ruled that a literal construction of a statute that leads to an absurdity, or unjust result or mischief is to be avoided. If the income of the STPI undertaking for the period 1.4.2004 to 30.9.2004 were to be assessed in the hands of the assessee, then the income become fully taxable as in accordance with the provision of section 10A(7A), the same is not eligible for deduction in the hands of the assessee and in which event it runs contrary to the provisions of section 10A(1). Thus no part of the income of the STPI undertaking for the Assessment Year 2005-06 is to be treated as income of the assessee. AO is directed to delete the income pertaining to the demerged STPI undertaking from the taxable income of the assessee and pass necessary orders to give effect to the same so that the said income is treated as income of the resulting company - in favour of assessee.

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• 2012 (10) TMI 611
  Depreciation on expenditure incurred towards obtaining Right of Way (ROW) - Reopening of assessment u/s 147 - depreciation on capitalized expenses incurred in acquiring the Right of use, crop compensation & Right of way for laying on pipeline - Held that:- It is not a case of “change of opinion” on the part of the A.O. as he has not specifically applied his mind during the original assessment proceedings on the depreciation claimed by the assessee. - reopening held as valid. Crop compensation is payable only to those land owners on whose land there was any standing crop or standing trees. In the process of laying down the pipeline by using the land acquired by the assessee, the crop and trees standing on such land get destroyed and hence, the assessee was required to compensate the land owner in respect of such crop or trees standing on the land in addition to the land compensation. Thus the compensation for such damage to the land owner cannot be added to the cost of land because even after acquiring land, the assessee could have waited till the crop was harvested by the land owner or by the assessee and in that situation, no compensation would have been required to be paid because there would have been no loss or damage to the crop or the assessee could have realized back by selling the crop but it would have resulted in delay of the project and to avoid this, assessee agreed to pay compensation for damage to the crop etc. hence, such compensation should be added to the cost of pipeline and not to the cost of land. No infirmity in the order of CIT(A) on this aspect. The grounds taken by the Revenue in respect of deletion of disallowance on depreciation claimed on crop compensation is dismissed and the ground in respect of deletion of disallowance of depreciation claim on Right of Way (ROW) other than security and cost of crop is allowed.

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• 2012 (10) TMI 610
  Application for waiver of interest u/s 220(2) - Deduction under Section 80HHC denied - Held that:- The first condition of genuine hardship has not been proved by the petitioner. The assessee had cash balance, amounts due from the debtors, amount due towards export incentives and also substantial assets. Even if the assets of assessee are eschewed, he is seen to possess other resources which disproves his claim of genuine hardship - against assessee.

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• 2012 (10) TMI 609
  Disallowance of sales commission expenditure - part disallowance confirmed by CIT(A) - Held that:- Clear finding is given by CIT(A) that the assessee has given evidence that the recipient provided information in respect of services which helped the sales to mature and realize and, therefore, payment of commission is justified except for 6 parties - As in respect of these 6 parties the A.O. after inquiry has brought on record that the agents had no role in achieving the sales and these customers directly approached the assessee for all transactions but the assessee failed to file letters of these agents who have been told by assessee furnishing other information such as report about reputation, status, financial standings etc. & have also helped in realization. No interference in part disallowance confirmed by CIT(A) - against assessee. Disallowance u/s 14A - huge investments in its subsidiary companies in the form of equity and preference shares - Held that:- With regard to the investment of Rs. 5907.18 lacs in foreign subsidiaries, no disallowance can be made u/s 14A because dividend income from foreign subsidiaries is taxable in India. Regarding balance investment of Rs. 38 crores approximately in Indian subsidiaries, we find that interest free own funds of the assessee is many times more than this investment because interest free funds available with the assessee as on 31.03.2005 as per the balance sheet as on that date is of Rs. 929.57 crores. There is no finding given by the A.O. regarding any direct nexus between interest bearing borrowed funds and investment in Indian subsidiaries. Hence, in our considered opinion, no disallowance u/s 14A can be made out of interest expenditure in the facts of the present case - in favour of assessee. Allocation of directors’ remuneration fee and traveling allowance toward earning dividend and to make proportionate disallowance u/s 14A - Held that:- A.O. should make proportionate disallowance only in respect of dividend income from Indian subsidiaries. No merit in the submissions of the assessee that no disallowance is called for out of administrative expenditure because dividend income is exempt and hence, proportionate disallowance out of administrative expenses is justified - against assessee. Disallowance of deduction u/s 80-IB on FDR and ICD - assessee plea that only net interest income can be reduced form the business profit - Held that:- Interest income cannot be said to be an income derived from an industrial undertaking and, therefore, Section 80-IB deduction is not allowable in respect of interest income - against assessee. Computation of deduction u/s 80HHC - 90% exclusion of net interest/rent or gross interest/rent - Held that:- As decided 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] Ninety per cent of not the gross interest/rent but only the net interest/rent, which has been included in the profits of the business of the assessee as computed under the heads ‘PGBP’ is to be deducted under clause (1) of Explanation (baa) to Section 80HHC for determining the profits of the business - in favour of assessee. Deduction u/s 80-IB on interest of late payment of sale proceeds from debtors - Held that:- This issue is squarely covered in favour of the assessee by the judgement of Nirma Industries Limited Versus Deputy Commissioner of Income-Tax [2006 (2) TMI 92 - GUJARAT HIGH COURT] - against revenue. Deduction u/s 80-IB in respect of duty drawback - Held that:- As decided in M/s Liberty India Versus Commissioner of Income Tax [2009 (8) TMI 63 - SUPREME COURT] duty drawback, DEPB benefits, rebates etc. cannot be credited against the cost of manufacture of goods debited in the Profit & Loss account for purposes of Sections 80-IA/80-IB as such remissions (credits) would constitute independent source of income beyond the first degree nexus between profits and the industrial undertaking - Duty drawback receipt/DEPB benefits do not form part of the net profits of eligible industrial undertaking for the purposes of Sections 80I/80-IA/80-IB - it is established by the assessee that the duty drawback received by the assessee is arithmetically equal to the duty paid by the assessee and, therefore, in the facts of the present case, that duty drawback in the present case is nothing but refund of duty paid by the assessee - in favour of assessee. Disallowance of Employees contribution to PF & ESI - Held that:- Since the entire amount was paid prior to the due date of filing of return of income, the amount so claimed cannot be disallowed - in favour of assessee. Reduction of conditional additional amount added in computation of income to cover any error, omission etc - Held that:- The additional declaration made by the assessee cannot be added to the total income because in the present case there is no iota of evidence which suggests that there is unaccounted or undisclosed income emerging out of incriminating documents impounded during the course of survey and the addition was made by the A.O. solely on the basis of the statement in the course of survey - in favour of assessee. Sett off of loss of Dhuneta unit against the profits of other eligible units - CIT(A) allowed the claim - Held that:- The amount of loss for which set off is in dispute is the same in assessment year 2005-06 and assessment year 2006-07. In assessment year 2005-06, this ground was not pressed and accordingly rejected as not pressed. Hence, the loss of Dhuneta unit stands set off against profit of other eligible units in that year and therefore, there is no question of further set off in the present year if the entire amount of loss is set off in that year. This is not coming out form the record as to what was the actual amount of loss of Dhuneta unit and how much out of this was set off in assessment year 2005-06. Hence, the order of CIT(A) is set aside on this issue and restore the matter back to the file of the A.O. for a fresh decision - in favour of revenue for statistical purposes.

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• 2012 (10) TMI 608
  Validity of Notice for rejection of application made by the petitioner, under Section 10(23C) (vi) - Held that:- The relief prayed for, by the petitioner, in the present Writ Petition, cannot be granted - However it would be open to the petitioner to raise all its objections, before the first respondent, pursuant to the show cause notice, dated 10.09.2012, issued by the first respondent, including the grounds raised in the present Writ Petition on or before 3.10.2012. Thereafter, it is for the first respondent to consider the same and pass appropriate orders thereon, on merits and in accordance with law.

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• 2012 (10) TMI 607
  Commission on the transported goods - estimation of income - AO found that from perusal of the P&L A/c, it appears that the assessee has not shown gross receipt of Rs.7,15,69,345/- and the assessee has credited Rs.6,83,669/- under the heading “commission of transportation in the P&L Account”. - held that:- C.I.T.(A) as well as the I.T.A.T. have recorded a finding contrary to the written agreement that the assessee has deducted an amount of Rs.3/- per metric ton and paid the rest of the amount to the transporters or the persons from whom the trucks were obtained by the assessee. There is no mention of the letter dated 1.4.2004 conveying some decision of the awardee company that is New Chhotanagpur Truck Owners Association, wherein there is a stipulation of giving commission of Rs.3/- per metric ton to the assessee. If there is any such letter dated 1.4.2004 of the Truck Owners Association, then whether that was the basis for finding of the C.I.T.(A) and the I.T.A.T. then, that is also not apparent from the orders passed by the C.I.T. (A) and the I.T.A.T. - matter remanded back to AO for fresh assessment.

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• 2012 (10) TMI 606
  Sale of jewellery - income at Rs. 89,790/- including capital loss of Rs. 6,81,859/- on account of sale of jewellery for Rs. 14.3 lacs. - whether the transaction was genuine or not? - Held that:- ITAT rejected the report of valuation officer as no record was maintained by him - ITAT further held that, why an experienced person like Walayam Ram went to such a lad at a distance of more than 1000 Kms for sale of his beloved diamonds which were kept by him from the last more than 50 years and not disclosed to anyone. The story does not appeal to us a plausible one. It is an attempt to create capital without paying any tax, it is not a genuine claim. - Order of ITAT sustained. The evidence which had been produced was of recent origin in the form of sale invoice or report of valuer. Initially, the onus which was placed upon the assessee was required to be discharged by providing unimpeachable evidence which could not have been created i.e. in the form of some document of past nature. The assessee had failed to produce any such material. The view which has been taken by the Tribunal is a plausible view. - Decided against the assessee.

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• 2012 (10) TMI 605
  Condonation of delay in filing appeal - Held that:- No sufficient cause has been shown for condoning the delay of 695 days - explanation so furnished that interpretation of provision of Section 68 is invloved would not fall within the expression “sufficient cause” so as to entitle the assessee for condonation of inordinate delay. Even the appeal filed before the CIT(A) against the assessment order passed by the Assessing Officer was also belated by five months and nineteen days. The assessee has been negligent throughout in pursuing the proceedings - against assessee.

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• 2012 (10) TMI 604
  Deemed dividend income under section 2(22)(e) - partners had collectively more than 10% voting power in sister concern - Held that:- As decided in CIT v. Universal Medicare (P) Limited [ 2010 (3) TMI 323 - BOMBAY HIGH COURT] the shareholders of different holdings cannot be clubbed to decide the issue of fulfilment of the conditions laid down in Section 2(22)(e). It was further observed that only the shareholder can be assessed on account of deemed dividend and not the company under the aforesaid provision. As in present case Shri Balbir Kumar, partner possessed 6.64% of the shareholding whereas Shri Harsh Kumar, partner had 6% only. The share of the assessee i.e. M/s Octave Apparels was 1.07% and in such circumstances, the provisions of Section 2(22)(e) could not be resorted to. The Tribunal was, thus, right in concluding in favour of the assessee.

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• 2012 (10) TMI 603
  Capital Gain – Sale of agricultural land – Land sold by the assessee fell beyond 8 KMs of any municipality or cantonment - Held that:- As If the assessees are able to show that agricultural activities were carried out, and the intended purpose was to use the land for agriculture. In such a way that a safe conclusion can be drawn that the nature of the land was agricultural, then the assessees cannot be considered as liable for capital gains tax on sale thereof. The onus of the assessees to show that the land was agricultural in nature. We, therefore, set aside the orders of authorities below and remit the issue back to the file of the A.O.

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• 2012 (10) TMI 602
  Addition on account of cash credit u/s 68 – Share application of money – Assessee could not able to explain source of investment – Held that:- Following the decision in case of LOVELY EXPORTS (PVT) LTD (2008 (1) TMI 575 - SUPREME COURT OF INDIA) that if the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the AO, then the Department is free to proceed to reopen their individual assessments in accordance with law. Therefore, the amount received by assessee as share application money cannot be regarded as undisclosed income of the assessee. Issue in favour of assessee

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• 2012 (10) TMI 601
  Addition on account of Unexplained cash credit – Unsecured loan from trust - Assessee receive unsecured loan from eight different trusts – Managing Director of company & trustee of all eight trusts are same person – The dates of donations to the trusts and advance of loans by the trusts to the assessee are the same - Held that:- We have no doubt that Managing Director has created these trusts and was depositing the amount in cash to be given to the company as loans. He did not produce the trust deeds, the author of the trusts or beneficiaries of the trusts. The method and manner, in which he was depositing the amount in the accounts of the trusts, and was transferring the same on the same day by way of cheques to the company, of which he was majority shareholdings along with his associates, clearly establishes that he was playing a fraud with the revenue, and thus the AO and CIT(A) fully justified in finding that the burden of proof did not shift on the revenue and in adding to the amount to the income of the assessee. Where the source is the assessee himself, he is required to prove the source of the source to verify the transactions. It will be open to the Income Tax department to proceed against the trusts in accordance with the law. The questions of law are decided in favour of revenue and against the assessee. In favour of revenue

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• 2012 (10) TMI 600
  Validity of Order passed by CIT u/s 263 – Security transaction tax – Rebate u/s 88E - Whether rebate u/s 88E can be claimed from tax payable under MAT u/s 115JB – Held that:- The powers u/s 263 cannot be exercised to safeguard the interests of the revenue, unless the order so subjected to revision is "erroneous and prejudicial to the interest of the revenue", and an order cannot be classified in this category when AO takes a possible view of the matter even if CIT does not agree with the said view. The action of the CIT cannot therefore be approved. We, accordingly, set aside the impugned revision order. In favour of assessee

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• Customs

• 2012 (10) TMI 638
  Granting of CHA license – CHA are governed under regulation Customs House Agents Licensing Regulations, 1984 & 2004 – To carry the business as CHA, agent is required to get license from prescribed authority – the applicant is required to clear the written as well as oral examinations to be held in terms of Clause 8 of those regulations to get license – Held that:- The examinations held under the 1984 Regulations did not get nullified with the enactment of the 2004 Regulations and the candidates who had qualified the examinations held under the 1984 Regulations are not required to again qualify the examination which may be held under the 2004 Regulations. As a corollary, it must be held that those who had cleared the examinations held between 1995 and 2003 under the 1984 Regulations would be eligible for grant of licence subject to their fulfilling other conditions of eligibility.

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• 2012 (10) TMI 631
  Forged Release Advice - DEPB License - seizure of goods - demand of duty, interest thereon & penalty - Whether the provisional assessment resorted to under Rule 9B read with Rule 173J would render assessment provisional as a whole? - Held that:- As decided in COLLECTOR OF CENTRAL EXCISE, MADRAS Versus INDIA TYRE & RUBBER CO. LTD. [1997 (1) TMI 100 - HIGH COURT OF JUDICATURE AT MADRAS] the provisional assessment made is provisional for all purposes, and is not to be treated as provisional only in respect of a particular ground considered. The assessment is either provisional or final, and if it is provisional, it retains that character of being provisional for every purpose and cannot be treated as final in respect of a matter not considered. What is material is the ultimate character of the order of assessment whether it is provisional or final. It is undisputed that the Bills of Entry which were filed by the appellant were provisionally assessed by the adjudicating authority and before finalization of the claim, Show Cause Notice was issued for recovery of duty from the appellant, thus once a Bill of Entry is provisionally assessed, unless the said provisional assessment is finalized by the lower authorities, demand of duty, if any, under Section 28 of Customs Act, 1962 will not arise - remand the matter back to the adjudicating authority to reconsider the issue afresh after considering the appellant's submissions as regards the Bills of Entry are not finally assessed - in favour of assessee.

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• 2012 (10) TMI 630
  Classification - leather – applicants claimed the goods having description as ‘buffalo sole leather’ fall under 410701 - Department held that their goods are classifiable under 410709 as ‘Others’ - Council of Leather Research Institute (CLRI) has opined that impugned goods meet the definition of finish leather accordingly to Public Notice No. 3-ETC (PN)/92-97, dated 27-5-1992 – Held that:- Opinion of CLRI clarifies the nature of product i.e. that sole leather is a finished leather. Further, department has also not given any counter argument to CLRI opinion that the impugned goods passes through 16 stages during their processing - when expert body has given opinion in the favour of exporter and department has some reservations about it, the matter can be got clarified by again seeking their opinion as some specific point rather than straightaway rejecting the same in absence of any other contrary documentary evidence - case remanded back to original authority

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• 2012 (10) TMI 629
  Writ petition – denial of Target plus scheme - request for copies of letters of the Directorate of Revenue Intelligence - petitioner stating that the demand notice is misconceived, requested to provide the copies of the report of DRI, to enable them to submit a detailed reply – Held that:- Petitioner is not entitled to, as a matter of right to seek for internal communications or inter departmental communications that to at the stage of show cause notice and more so when, such internal communication emanating from a specialized investigating agency - show cause notice is based on the records obtained by DRI from the petitioner’s bankers, copies of which along with all relevant details have been furnished to the petitioner - there is no arbitrariness or unreasonableness in the stand taken by the respondent - writ petition fails and it is dismissed

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• Corporate Laws

• 2012 (10) TMI 628
  Scheme of Amalgamation - Held that:- In view of the consent letters / NoC’s placed on record by the Applicant Companies, the meeting of the Equity Shareholders of the Applicant Companies are dispensed with. The meeting of the Secured Creditors of the Applicant Transferor Company 1 is dispensed with. No meeting of the Secured Creditors of the Applicant Transferor Company 2 is required to be convened considering the copy of the Certificate issued by the Chartered Accountant showing that the Applicant Transferor Company 2 does not have any Secured Creditors. A Copy of the Certificate issued by the Chartered Accountant showing that the Applicant Transferee Company has paid off the said 2 (two) Secured Creditors has been placed on record. In these circumstances, no meeting of the Secured Creditors of the Applicant Transferee Company is required to be convened. Applicant Transferee Company has 210 Unsecured Creditors out of which 193 have been paid off as on date. Out of remaining 17 unpaid unsecured creditors, 11 unsecured creditors have given their consents to the scheme - application for scheme of Amalgamation allowed.

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• 2012 (10) TMI 627
  Winding up – Oppression and mismanagement – Held that:- Company is nothing but a glorified partnership between the petitioner and the respondent - appellant having veto powers in major decisions of the company cannot compete with the business of the company. That there are allegations by both the parties against each other. It would mean that both of them have breached the doctrine of utmost good faith towards each other, thus, putting the interest of the company in jeopardy. Hence, it is a case where the majority alleges oppression by the minority and this minority has protective provisions in the articles. That the relationship between the two parties has become so sour that they cannot carry on the business of the company together and if so that itself would be a very valid ground for winding up of the company on just and equitable ground

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• Service Tax

• 2012 (10) TMI 637
  Demand of service tax, interest and penalty - appellant failed to pay the service tax payable by them – alleged that there was variation between the value of services as per the returns filed by the appellant company and the income reported in the balance sheets – appellant contended that certain amount of service charges received by them has not been reflected in the Service Tax Returns filed from time to time and that the same was due to software crash – Held that:- Appellant company has not furnished correct amount of service charges in their returns to the department - claim that the failure to declare the correct amount of service charge was due to crash of the software is not convincing - order of the Commissioner in confirming the service tax demand along with interest and imposing penalty is also justified

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• 2012 (10) TMI 636
  Waiver of pre-deposit - Rent-a-Cab Service - appellants (state transport authority) allowed their buses to be chartered for transportation of passengers on charter basis on specific routes within the State of Karnataka as well as specific Inter-State routes. – Held that:- appellants were undertaking the business of operating, organizing or arranging tours. - prima facie case is against the assessee - pre deposit ordered partly.

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• 2012 (10) TMI 635
  Forward Contract Broker - double taxation - MCX was charging turnover charges/transaction charges at 0.004% of the value of contract and charging it from the Appellants - Appellants in turn were collecting such amounts from their customers over and above their commission - whether such charges should have been included in the value of services rendered by the Appellants - Held that:- If Service tax is paid by a sub-broker in respect of same taxable service provided by the stock-broker, the stock broker is entitled to the credit of the tax so paid on such service if entire chain of identity of sub-broker and stock broker is established and transactions are provided to be one and the same - tax paid by a sub-broker may not be denied to be set off against ultimate service tax liability of the stock broker if the stock broker is made liable to service tax for the self same transaction - there is a need to examine the facts whether the amount collected by the appellants is equal to the amounts on which service tax has already been paid by MCX - matter remanded to the original authority for verification of facts in view of the decision Vijay Sharma & Co. v. Commissioner - [2010 (4) TMI 570 - CESTAT, NEW DELHI].

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• Central Excise

• 2012 (10) TMI 626
  Garments stitched by assessee from fabric either brought by the customers themselves or from the Respondent for stitching purpose - Whether liability to to pay excise duty arises? - Held that:- Under the special provisions made as per Rule 7AA of the Central Excise Rules, 1944 and its successor rules, the responsibility to pay duty on textile articles got manufactured on job-work basis is put on the person who gets goods manufactured on job-work basis. He has to discharge such liability “as if he is the manufacturer”. This rule does not say anywhere that the person supplying the raw material would be the manufacturer. The rule only says that such person has to discharge the liability and that in the normal course is done by the manufacturer… There is no ruling by the Courts that a Rule cannot be framed to make the supplier of raw material liable to pay duty. Thus the respondent (appellant before the Tribunal) was not liable to pay excise duty - against department.

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• 2012 (10) TMI 625
  Manufacturing refinery gas under chapter heading No.27.11 of CETA, 1985 - demand of duty & penalty - Held that:- As decided in assessee's own case where Board itself via Circular No.246/80/96-CX dated 1.10.96 had considered the very same goods not to be considered as a manufactured product, notwithstanding it is subsequent used in the refinery for pollution control purposes, the same cannot be held to be either marketable or a manufactured product. Accordingly, the impugned order demanding a duty including the penalty imposed is set aside - in favour of assessee.

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• 2012 (10) TMI 624
  Cenvat credit of service tax paid on outdoor catering – Held that:- Since the number of workers in the Appellant's factory is admittedly less than 250 and there is no statutory requirement of providing canteen facility to workers, there is also a question to be considered as to whether this activity is a welfare activity, in which case, it would not be eligible for Cenvat credit or this activity is essential for increasing the productivity of the workers which would depend on the location of the factory, the number of shifts in which it works etc. - appellant directed to deposit 50 per cent of the Cenvat credit demand

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• 2012 (10) TMI 623
  Cenvat credit on GTA services - manufacture of biscuits on job work basis – Held that:- Appellants claimed and avail cenvat credit in respect of service tax paid by them on outward transportation of the goods from their factory to the depot/ premises of principal - appellant has paid service tax in respect of the input service i.e. the outward transportation of the biscuits to the place of removal. As such, in view of Rule 3 of Cenvat Credit Rules the appellant has rightly availed cenvat credit - orders denying cenvat credit to the appellant is not sustainable.

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• 2012 (10) TMI 622
  Stay petition - demand is confirmed in respect of sugar syrup used in the manufacture of exempted biscuits - contention of the applicants is that with effect from 12.09.2011 the sugar syrup is exempted from payment of duty which is used in the manufacture of exempted goods vide Notification no. 39/11-CE – Held that:- Matter remanded to the adjudicating authority after waiving pre-deposit

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• Indian Laws

• 2012 (10) TMI 634
  Armed Forces Tribunal Act – maintainability of an appeal - The question precisely is whether an aggrieved party can file an appeal against any such final decision or order of the Tribunal under Section 30 of the Act aforementioned before this Court without taking resort to the procedure prescribed under Section 31 thereof. The appellant’s case is that since the orders under challenge in these appeals are final orders of the Tribunal, an appeal against the same lies to this Court as a matter of right, no matter the right to file such an appeal under Section 30 of the Act is subject to the provisions of Section 31 thereof. Held that:- According to Section 31(3) appeal is presumed to be pending until an application for leave to appeal is disposed of and if the leave is granted until the appeal is disposed of - An application for leave to appeal is deemed to have been disposed of at the expiration of the time within which it may have been made but is not made within that time. That apart an application for grant of certificate before the Tribunal can be made even orally and in case the Tribunal is not inclined to grant the certificate prayed for, the request can be rejected straightaway in which event the aggrieved party can approach this Court for grant of leave to file an appeal under the second part of Section 31(1) - Once such an application is filed, the appeal is treated as pending till such time the same is disposed of - appeals are dismissed reserving liberty to the appellants to take recourse to Section 31 of the Act

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• 2012 (10) TMI 633
  Appointment of judicial office - power upon the State Government to appoint the Secretary to the Government of Gujarat, as President of the Revenue Tribunal constituted under the Bombay Revenue Tribunal Act, 1957 - Writ Petition that the appointment of the President of the Tribunal can be made only upon consultation with the High Court - Held that:- Section 13(1) of the Act, 1957, provides that in exercising the jurisdiction conferred upon the Tribunal, the Tribunal shall have all the powers of a civil court as enumerated therein and shall be deemed to be a civil court for the purposes of Sections 195, 480 and 482 of the Cr.P.C., and that its proceedings shall be deemed to be judicial proceedings, within the meaning of Sections 193, 219 and 228 of the IPC. The Tribunal does not deal only with revenue matters provided under the Schedule I, but has also been conferred appellate/revisional powers under various other statutes. Most of those statutes provide that the Tribunal, while dealing with appeals, references, revisions, would act giving strict adherence to the procedure prescribed in the CPC, for deciding a matter as followed by the Civil Court and certain powers have also been conferred upon it, as provided in the Cr.P.C. and IPC. Thus, we do not have any hesitation in concurring with the finding recorded by the High Court that the Tribunal is akin to a court and performs similar functions The object of consultation is to render the consultation meaningful to serve the intended purpose. It requires the meeting of minds between the parties involved in the process of consultation on the basis of material facts and points, to evolve a correct or at least satisfactory solution. If the power can be exercised only after consultation, consultation must be conscious, effective, meaningful and purposeful. It means that the party must disclose all the facts to other party for due deliberation. The consultee must express his opinion after full consideration of the matter upon the relevant facts and quintessence. Thus it is evident that the procedure to be observed under Article 234 of the Constitution goes to the extent of the true meaning of consultative process and not an empty formality - No cogent reason to take a view contrary to the view taken by the High Court - writ dismissed.

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• 2012 (10) TMI 632
  Powers of Comptroller and Auditor General of India (CAG) - power to give performance audit report - Held that:- Article 149 of the Constitution of India provides that CAG shall perform such duties and exercise such powers in relation to the accounts of the Union and of the States and of any other authority or body as may be prescribed by or under any law made by Parliament. Section 16 provides that it shall be the duty of the CAG to audit all receipts which are payable into the Consolidated Fund of India and of each State and of each Union Territory having a Legislative Assembly. Performance audit reports prepared under the Regulations have to be viewed by CAG accordingly. No unconstitutionality in the Regulations find. Article 151 of the Constitution provides that the reports of CAG relating to the accounts of the Union shall be submitted to the President, who shall cause them to be laid before each House of Parliament and the reports relating to the accounts of a State shall be submitted to the Governor of the State who shall cause them to be laid before the Legislature of the State. W.P. dismissed.

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