TMI Tax Updates - e-Newsletter
October 24, 2012

Case Laws in this Newsletter:

Income Tax Customs Corporate Laws Service Tax Central Excise Indian Laws

Articles

1. SCRAP SALE MUST BE REGARDED AS RECOVERY OF PART OF COST OF MATERIAL AND NOT TURNOVER

   By: DEVKUMAR KOTHARI

2. REDUNDANT EXEMPTIONS

   By: DR.MARIAPPAN GOVINDARAJAN

News

1. Central Assistance of Rs 0.96 Crore Sanctioned to Assam under PYKKA

2. Central Assistance of Rs 4.50 Crore Sanctioned to Haryana under USIS

3. End-to-End Computerization of Targeted Public Distribution System

4. Railway Revenue Earnings up by 25.92 per cent during the period 1st – 10th October 2012

5. Global crude oil price of Indian basket declines to US$ 108.50/bbl on 22.10.2012

6. Revised Service Tax ST-3 form is available, required to be submitted for the period April 2012 to June 2012

7. India Show to Showcase the Recent Developments in Indian Auto Component Industry Over 80 Indian Exhibitors, Senior Government & Business Delegation Apart From Cultural Performance & Food Festival in an Effort to Build “Brand India” in China

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

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

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

11. Successful COP - Leading the Way Forward

Circulars / Instructions / Orders

FEMA

1. 46 - dated 23-10-2012

Supply of Goods and Services by Special Economic Zones (SEZs) to Units in Domestic Tariff Areas (DTAs) against payment in foreign exchange

2. 45 - dated 22-10-2012

Facilities for Persons Resident outside India – FIIs

Highlights / Catch Notes

Income Tax

• Revaluation Shows No Taxable Value for Stock-in-Trade This Year: Assets Unchanged Under Current Rules.

  Case-Laws - AT : Re-valuation of assets - Since no value has been realized in respect of this stock-in-trade - nothing can be taxed in this behalf in this year. - AT
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• Section 269T Exemption: Company Assessees Not Subject to Loan or Deposit Regulations Under This Rule.

  Case-Laws - AT : Loan or deposit have been defined in section 269T - The latter part of the definition is not applicable in the case of the assessee as it is a company. - AT
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• Hotels with a license and Pollution Department No Objection qualify for eco-tourism tax deductions u/s 80-IC.

  Case-Laws - AT : In the absence of definition of “eco-tourism” the hotel having a valid licence on the basis of No Objection from Pollution Department which can be treated to be a hotel eligible for deduction u/s 80-IC - AT
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• 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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Customs

• High Court Rules Denial of All Industry Rate to Export Oriented Unit Arbitrary and Unjustified.

  Case-Laws - HC : Declaring that EOU is not entitled to All Industry rate, is arbitrary, absurd and does not stand to reason – drawback cannot be denied - HC
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• 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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FEMA

• Foreign Institutional Investors Can Hedge Currency Risk for Entire India Investments Under Specific Conditions.

  Circulars : FIIs allowed for hedging their currency risk on the market value of entire investment in equity /debt in India as on a particular date subject to conditions
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• Domestic Tariff Areas Can Pay SEZs in Foreign Currency with Development Commissioner's Approval Under FEMA Circulars.

  Circulars : Units in DTA can make payment to SEZ in Foreign Exchange subject to LoA issued by Development Commissioner
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Indian Laws

• Higher Courts Can Issue Writ of Certiorari Under Article 226 for Jurisdictional Errors by Lower Courts or Tribunals.

  Case-Laws - HC : The writ of certiorari can be issued under Article 226 of the Constitution where the subordinate Court or Tribunal commits an error of jurisdiction. - HC
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• The revised Service Tax ST-3 form must be submitted for the period from April 2012 to June 2012.

  News : Revised Service Tax ST-3 form is available, required to be submitted for the period April 2012 to June 2012
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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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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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Case Laws:

• Income Tax

• 2012 (10) TMI 679
  Proportionate deduction u/s 80IB(10) - Flats having built up area of below 1000 sq. ft. - Held that:- As decided in Income-Tax Officer, Ward - 8(1), Nagpur. Versus Air Developers [2008 (5) TMI 333 - ITAT NAGPUR ] that if AO finds that the built-up area of some of the residential units is exceeding 1,500 sq. ft., he will allow the proportionate deduction under s. 80-IB(10) - in favour of assessee.

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• 2012 (10) TMI 678
  Addition on mobilization advance - CIT(A) deleted the addition - Held that:- Assessee is receiving mobilization advance from customers to enable the assessee to purchase the raw material for the proposed work. As per the assessee’s method of accounting, the material, finished or semi finished stocks is transferred to customers work site for installation through invoices. The customer is billed and the amount is credited to sales account at pro-rata to the extent work is done and billed from time to time. The mobilization advance is accordingly adjusted proportionately. This system of accounting does not suffer from any short coming, moreover, it has been accepted by the department in earlier years & there is no change in facts or law as compared to earlier years, thus as decided in CIT vs. Dalmia Promoters Developers (P) Ltd. [2006 (1) TMI 57 - DELHI HIGH COURT] for rejecting the view taken in earlier assessment years, there must be material change in the fact, situation or in law - in favour of assessee.

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• 2012 (10) TMI 677
  Unexplained cash credits - assessment ex parte u/s 144 - Held that:- The assessee having appeared personally before the AO did not explain the source of cash of Rs.11 lacs deposited in his savings bank account despite sufficient opportunity allowed by the AO nor submitted any explanation before the CIT(A) even after seeking adjournment. As the assessee is now prepared to explain the source of cash deposited in his bank account, in the interest of justice and fair play, we vacate the findings of the CIT(A) and restore the matter to the file of the AO with the directions to allow another opportunity to the asssessee to explain the source of aforesaid cash , subject to payment of cost of Rs.10,000/- to the Revenue - in favour of assessee for statistical purposes.

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• 2012 (10) TMI 676
  Undisclosed income under sec 68 - Held that:- As decided in CIT v. Lovely Exports (P) [2006 (11) TMI 121 - DELHI HIGH COURT] where the identity of shareholders stood proved on record, the amount of share application money could not be added to the income of the assessee. As in this cases undoubtedly and clearly the identity of all the share applicants stood proved on record A.O lost sight of the fact that these are not ordinary cash credit appearing in the books of accounts of the assessee but these are share application moneys which cannot be treated like cash credit when identity of the share applicants gets established on record - in favour of assessee.

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• 2012 (10) TMI 675
  Claim of investment allowance under Section 32-A - disallowance on increase in the actual cost of assets due to foreign exchange fluctuations - Held that:- As decided in CIT v. Arvind Mills (1991 (12) TMI 1 - SUPREME COURT) in which it was held that the increase or decrease in liability arising on account of fluctuation in the foreign exchange rate should be taken into account to modify to figure of actual cost and that such adjustment should be made in the assessment year in which the increase or decrease in the liability arises on account of fluctuations in the rate of exchange. The adjusted actual cost is to be taken as the actual cost for all purposes other than for the grant of development rebate. Clause (1) of Section 43-A of the Act grants the benefit of adjusted cost on account of fluctuation in the foreign exchange rate - in favour of assessee. Deductions under Section 80 HHC - disallowance as no export profit u/s 80 HHC after taking into account the provisions of Section 80AB - section 80AB had no application in determining the amount deductible under Explanation (iii) of section 115-J - Held that:- The AO while adopting the book profit under Section 115J as the total income allowable to tax, reduced the profit for the year amounting to Rs. 6, 90, 92, 303/- to Nil after setting out the brought forward losses/allowances to that extent. The balance brought forward allowance was carried forward to the subsequent years. In appeal it was held that the unabsorbed business losses, unabsorbed depreciation and unabsorbed investment allowance should be taken to be set off only to that extent which is sufficient to bring down the income computed under the normal provisions of the Act to the level of Section 115J income. And the AO was directed to increase the amounts of unabsorbed losses by the income computed under Section 115J income. The Tribunal upheld the order. Thus not agreeing with the submissions of revenue, that Section 80AB has overriding effect and will prevail over Section 80HHC. Section 80AB provides for deductions to be made with reference to the income included in the gross total income. Section 80HHC provides for deduction in respect of profits retained for export business. Although both the sections fall in Chapter VIA, they have to be applied independently - in favour of assessee Interest under section 234-B and 234-C - taxable income was determined under section 115-J - Held that:- As decided in CIT v. Rolta India Ltd [2011 (1) TMI 5 - SUPREME COURT OF INDIA] The pre-requisite condition for applicability of Section 234B is that assessee is liable to pay tax under Section 208 and the expression “assessed tax” is defined to mean the tax on the total income determined under Section 143(1) or under Section 143(3) as reduced by the amount of tax deducted or collected at source. Thus, there is no exclusion of Section 115-J/115-JA in the levy of interest under Section 234-B - against assessee.

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• 2012 (10) TMI 674
  Penalty u/s 271 (1) (c) - ITAT deleted the levy - Held that:- A mere making of the claim that the credit of the amount deducted from purchase price of the sugar cane to share deposit account with the assurance to the share holders that the share will be allotted to all the cultivators, and which were not issued on the ground that the State Government did not give permission to issue the shares, by itself would not amount to furnishing inaccurate particulars regarding income of the assessee. Such a claim made in the return would not amount to furnishing inaccurate particulars, inviting penalty under Section 271 (1) (c). As decided in C.I.T., Ahmedabad Versus Reliance Petro Products Pvt. Ltd. [2010 (3) TMI 80 - SUPREME COURT] it was up to the authorities to accept assessee's claim in the Return or not & merely because he had claimed the expenditure not acceptable to the Revenue will not attract the penalty under Section 271(1)(c) - There is no finding to show that the details supplied by the assessee in its return were found to be incorrect, erroneous or false in the present case - in favour of assessee.

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• 2012 (10) TMI 673
  Unexplained cash credits - CIT(A) deleted the addition considering additional evidence - AO appeal against contravention of Rule 46A - Held that:- CIT(A) has duly sent the documents furnished by the assessee at the appellate stage to the AO for a remand report, thus under these circumstances, there cannot be any issue that AO was not provided adequate opportunity in this regard. The contravention of Rule 46A does not arise in this case, as the AO has been provided with adequate opportunity and the remand report obtained from him - against revenue.

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• 2012 (10) TMI 672
  Undisclosed capital gain, unexplained agricultural income and income from other sources - appeal heard ex parte - Held that:- The impugned order deserves to be set aside as the same is not in conformity with the requirements of the provisions of law as the conclusion in upholding the assessment order is not supported by any reasoning. Recording of reasons is a part of fair procedure as reasons are the harbinger between the mind of the maker of the decision in the controversy and the decision or conclusion arrived at. Statute mandatorily required that the CIT(A) while deciding the appeal to set out the issues for determination and the decision thereon along with reasons for the decision is missing in the impugned order - restore the issue back to the file of the CIT(A) with the direction to decide the appeal by way of a speaking order - in favour of assessee for statistical purposes.

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• 2012 (10) TMI 671
  Ex parte assessment u/s 144 - addition on unexplained cash deposited in his bank account - Held that:- The medical certificate dated 12.3.2010 for the period 4.10.2009 to 28.2.2010 mentioned complete bed rest. It is mentioned in the said certificate that the certificate is not valid for medicolegal purpose. In any case, this certificate does not explain the absence on 17.7.2009 as also how could the assessee appear before the AO on 22.10.2009, despite being advised bed rest. The factum of illness and bed rest was never communicated to the AO during the course of assessment proceedings nor it was explained as to what prevented the assessee from explaining entries in his bank account .Even in the documents submitted by way of additional evidence, the assessee did not furnish any evidence regarding source of cash deposited in his bank account. In these circumstances, the CIT(A) while discarding the aforesaid medical certificate,upheld the completion of best judgment assessment and in the absence of any evidence regarding source of cash deposited in the bank, upheld the addition made by the AO. Thus the authorities were justified in proceeding to make best judgment in terms of provisions of sec. 144 of the Act in view of persistence non-compliance of the notices over a period of one yea - against assessee. Before the AO assessee did not put forth any explanation nor furnished any evidence regarding the source of such cash. On appeal,, the assessee pleaded that deposits and withdrawals in the said bank account ,related to his business however, the assessee did not place any evidence before the AO or the CIT(A),establishing nexus of cash deposited in the bank with his receipts from business. Whether the entire turnover in cash was deposited in the bank, has not been established by the assessee. The onus is on the assesseee to establish that the cash deposited in the bank ,originated from his turnover of the business. In these circumstances when the complete facts are not present it fair and appropriate to vacate the findings of the CIT(A) and restore the matter to the file of the AO with the directions to allow one final opportunity to the assessee to establish the nexus of his business receipts with cash deposited in the bank as also to explain the nature of transactions in the said account and thereafter, pass appropriate orders in accordance with law - in favour of assessee for statistical purposes.

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• 2012 (10) TMI 670
  Disallowance of interest expenses debited in P&L account - CIT(A) deleted the addition - Held that:- DR did not bring to our notice any material, establishing nexus of the borrowed funds with the aforesaid amount outstanding - As decided in CIT Vs. H.B. Stock Holdings Ltd. [2009 (7) TMI 42 - DELHI HIGH COURT] that loan was given to a sister concern before the loan was taken from the bank, while sufficient interest free funds and surplus in the form of share premium money was available with the assessee. In these circumstances upheld the findings of the ITAT, deleting the disallowance on account of interest in relation to advances to sister concern in the absence of any nexus of borrowed funds with interest free advances to sister concern - in favour of assessee. Non deduction of TDS - disallowance of amount reimbursed by the assessee in respect of payment made to Network Solutions - Held that:- As the assessee did not deny that tax was required to be deducted at source in terms of the said provisions, but could not be deducted, payment having been made through the credit card by one Shri Gunjit Singh. As is apparent from the aforesaid provisions, mode of payment is immaterial, thus CIT(A) was justified in upholding the disallowance in terms of provisions of sec. 40a(ia) - against assessee. Disallowance of Purchase and installation of a new transformer - Held that:- The assessee incurred expenses towards purchase of a new transformer installed in the premises taken on lease, contending replacement of existing HT transformers and related panels by a new LT Transformer, since the premises prior to accommodation was used as studio and the electrical systems worn out were inadequate for the purpose of business of the assessee. The assessee claimed that since it was not the owner of the premises where these assets were fixed and had only a limited period of tenancy rights, the entire expenditure was revenue in nature. The purchase of a new transformer does not have any apparent relation with lease or otherwise of the premises. The assessee placed no material to show how this expenditure on purchase/installation of transformer has any relation with lease of the premises. In any case, there is nothing to suggest that this expenditure has been incurred by way of repairs or renovation of any asset. In the facts and circumstances of the case, expenditure incurred towards purchase of altogether new transformer in a newly leased premises is definitely capital expenditure, the expenditure having brought a new advantage and enduring benefit to the assessee - against assessee. Liability towards reimbursement of a capital account transaction of an erstwhile partner - Held that:- Neither the AO nor the CIT(A) recorded any findings on the submissions of the assessee that the amount was not claimed in the profit and loss account and that one of the partners having retired from the assessee firm as well as firm Pravin Anand & Partners and the latter firm having made payment to the said partner, the assessee was required to adjust the capital account of the said partner in its books. In net effect, the transaction represented reduction of capital account of the partner. In the absence of any findings on these statements made on behalf of the assessee, either by the AO or by the CIT(A), we consider it fair and appropriate to set aside the order of the CIT(A) and restore the matter to his file for read adjudicating the issue - in favour of assessee for statistical purposes.

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• 2012 (10) TMI 669
  Unaccounted agriculture income - sales to be accounted in the hands of AOP or partners of the assessee firm ? - CIT(A) deleted the addition - Held that:- The undisputed fact is that the members of the so called AOP (M/s NF Farms) and the partners of the assessee firm are the same persons. There is a categorical finding in the assessment order that the agricultural income of Rs.86,30,344/- is practically not possible to be grown out of 17.64 acres of land. The claim of AOP and also of the assessee is that the agricultural produce (babycorn) were sold to hotels, restaurants and dhabas. However, no evidence in any manner of such sale was produced at any stage as nothing prevented the assessee to produce the proof of such sales at any stage as it is not the case that cash sale was made to the passerby or the persons who are going here and there on the roads rather the sale was made to hotels, restaurants and dhabas. Though CIT(A) agreed with view of the AO that the source of loan from M/s NF Farms is not genuine, however, deleted the addition by opining that the addition, if any, can be made in the hands of the AOP which is not possible as the ultimate beneficiaries of this colourable device is the assessee itself as the members of the AOP and the partners of the assessee firm are the same persons. Thus remand this appeal to the file of the AO to examine the respective claims of AOP and also of the assessee - in favour of revenue for statistical purposes.

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• 2012 (10) TMI 668
  Denial of claim of exemption u/s 11 & 12 on ground that it was carrying on business activity which was distinctly separate from its charitable activities - due to frequent transactions in various schemes of mutual funds and buying/selling of units by the assessee with the objective of earning profit, the AO concluded that the society carried on business activities - Held that:- Indisputably, the assessee is a society registered u/s 12A. It is seen that undeniably, the investments made by the assessee in units of mutual funds were covered u/s 10(23D). These investments are- within the prescribed modes of investment u/s 11(5) (xii) read with Rule 17 C of the I.T. Rules. The investments were made with the intention of getting a better yield upon appreciation/dividends from such mutual funds, in order to augment the resources of the trust. The proceeds of the mutual funds were applied by the assessee for charitable purposes, in compliance of the provisions of sections 11 & 12. The assessee had been making such investments in the past. Separate identifiable accounts had been maintained for each of the mutual fund investments. In these facts, there was no justification in holding, merely due to the frequency of the transactions, that the assessee had been carrying on business activity which was not incidental to its charitable activities and that such business activity was being carried on with the sole objective of earning profits. It was also erroneous to hold that the units were held by the assessee as stock in trade and not investment. Hence, CIT(A) righly allowed the exemption - Decided in favor of assessee

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• 2012 (10) TMI 667
  Loss arising from sale and purchase of shares - dis-allowance of set off of losses against other income on ground of it being speculative Loss under the provisions of Explanation to section 73 - dis-allowance of interest in relation to trading in shares and treating the same as part of speculation loss - trading and investment company - Held that:- Though Explanation to S73, exempts the companies, the principal business of which is the business of banking or granting of loans and advances, however in present case, assessee itself submitted that the assessee was a trading and investment company having its main business of making investment in equities and trading in shares, therefore, the arguments of the assessee that principal business of the assessee was granting loans and advances cannot be accepted and loss from trading in shares has to be treated as speculation loss. Further, authorities are also justified in allocating interest expenses towards the loss arising from trading of shares as while computing the profit or loss from trading of shares all expenses have to be considered. Dis-allowance of interest and treating the same as part of speculation loss in all the years under consideration is upheld. Dis-allowance u/s 14A of interest expenditure in relation to dividend income - Held that:- Assessee had made huge borrowings on which interest of Rs. 12.68 crores had been paid. Net capital of company was negative to the tune of Rs. 20.57 crores and there were no reserves nor any other interest free funds available in AY 2001-02. The conclusion of the AO that the borrowed funds had been utilized for investment in shares is, therefore, reasonable and dis-allowance of interest in relation to such investment is required to be made u/s 14A. However, interest relating to the borrowings used in the purchase of trading shares from which dividend had been received is required to be excluded from such dis-allowance. Dis-allowance of interest u/s 36(1)(iii) - huge borrowings on one side - amount advanced on other side towards application money for purchase of shares of group companies which had been pending for a long time - assessee has argued that trading and investment in shares was business of the assessee - Held that:- Assessee had advanced money for purchase of shares of the group companies for the purpose of acquiring controlling interest and for the acquisition of other companies for the group. The acquisition of controlling interest in companies was not the business of the assessee as the assessee had not acquired controlling interest in any company with a view to managing the same. Therefore, the interest expenses incurred by the assessee towards such interest free advances made for share application in group companies or for acquisition of other companies from the group has to be considered for dis-allowance.

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• 2012 (10) TMI 666
  Scope of 'Transfer' u/s 2(47)(v) - chargeability of capital gains in respect of the land not 'transferred' but only given for development - Held that:- In present case, owners have entered into an agreement for development of the property and certain rights were assigned to the developer who in turn had made the substantial payment and consequently entered into the property and thereafter if the transferee has taken steps in relation to construction of the flats, then it is to be considered as transfer u/s. 2(47)(v). The fact that the legal ownership continued with the owners to be transferred to the developer at a future distant date really does not affect the applicability of S2(47)(v). If the transferee was undisputedly willing to perform its part of the contract, and if the possession and control of the property is already vested with the transferee and the impugned development agreement has been duly acted upon and it is still in operation, it has to be decided that there is a transfer u/s. 2(47)(v). Entering into the property and handing over of the possession was instantaneous thus entire conspectus of the case has attracted the provision of S. 45 on fulfilment of conditions laid down in section 53A of the Transfer of Property Act. Accordingly, issue relating to transfer of property u/s. 2(47)(v) is decided in favour of the Department See Chaturbhuj Dwarkadas Kapadia of Bombay v. CIT [2003 (2) TMI 62 - BOMBAY HIGH COURT ] Dis-allowance of interest expenditure on ground of fund being used for non-business purpose – diverted to sister concern - Held that:- Once the assessee claims any such deduction in the books of accounts, the onus will be on the assessee to satisfy the Assessing Officer that whatever loans were raised by the assessee, the same were used for business purposes. There should be nexus of use of borrowed funds for the purpose of business to claim deduction under Section 36(1)(iii). That being the position, there is no escape from the finding that interest being paid by the assessee to the extent the amounts are diverted to sister concern on interest free basis are to be disallowed – Decided against assessee.

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• 2012 (10) TMI 665
  Levy of Penalty - Excess purchase claimed by assessee and Disallowance of expenses - Held that:- There was a case of concealment of income insofar as the nomenclature “excess purchase” had been balanced by stock held by the assessee against which no controversy has been reported either by the Assessing Officer or the learned CIT(A). The purported income had been rendered to tax by the assessee itself. In other words, the claim of TCS as held by the authorities was a mere withholding of tax in which the deductor had committed error stood reconciled by indicating the purchases which was not an expenditure to be disallowed in view of the assessee holding physical stock of the said purchases. Similarly, part sustenance of expenditure disallowed under the various heads as Business promotion, depreciation cannot be a ground for levy of penalty u/s. 271(1)(c). Simply because a part of expenditure is unacceptable for deduction forming part of whole of the expenditure otherwise allowable clearly indicates that it was not a matter of concealment of income or for that matter furnishing of inaccurate particulars. Therefore, on this score, the penalty so levied u/s. 271(1)(c) does not have any legs to stand on.The said penalty of Rs.26,853 sustained by the learned CIT(A) is cancelled and the appeal of the assessee is allowed.

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• 2012 (10) TMI 664
  Disallowance of Education fund - Held that:- Assessee-bank in the Cooperative sector was required to contribute 2% of profits subject to maximum limit of Rs. 2.00 lakhs towards education fund which is of statutory nature. Since the payment is of statutory nature the expenses has to be allowed on the basis of the provision - Order of the ld. CIT(A) is set aside and direct the Assessing Officer to allow Rs. 2.00 lakhs as expenses - in favour of assessee. Provision for Gratuity - Section 40A - Held that:- Plain reading of the provisions clearly shows that restrictions had been made in clause (a) that no deduction will be allowed in respect of provisions made towards payment of gratuity. - However, this restriction is subject to exceptions provided in clause (b). Clause (b) clearly steps that wherever the provisions is made for the purpose of payment of contribution towards approved gratuity fund then this clause (a) is not applicable. - It is not disputed that the payment to LIC was towards approved gratuity. Therefore, the provision towards gratuity could not have disallowed under clause (a) of Section 40A(7) of the Act. - in favour of assessee.

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• 2012 (10) TMI 663
  Whether depreciation on the stock exchange membership card purchased by the assessee allowed when under the provisions of section 32 of the Income-tax Act, depreciation on such an intangible asset is available if the asset is acquired on or after April 1, 1998 – Held that:- It is an expense incurred by the assessee which satisfies the test of being a "licence" or "any other business or commercial right of similar nature" in terms of Section 32(1)(ii). - Tribunal was right in holding that depreciation was allowable on the cost of the membership card under Section 32(1)(ii) of the 1961 Act.

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• 2012 (10) TMI 662
  Assessment - representative assessee - Double assessment – business of transportation of coal by time chartering of vessels - assessee had availed the services of vessels owned by Foreign Shipping Companies (FSC), as well - assessee had paid hire charges for engaging those vessels - FSCs have not filed any return for the income accruing and arising in India - AO treated the assessee-company as 'representative assessee' under sec. 163 of the Act – Held that:- Tax has been paid under sec. 172, thereby the FSCs have discharged their liabilities towards Indian income-tax - When the FSCs themselves have discharged their liabilities towards tax by complying with the provisions of sec. 172, there is no question of any further liability in their hands - there is no justification in making the assessment again in the hands of the assessee company in the status of 'representative assessee', which tantamounts to double assessment, which is not permissible under the law - payment of tax made by the FSCs. under sec. 172 tantamounts to discharging of tax liability of those companies and there is no reason why those companies again be assessed - When the principal itself does not make any liability, the agent cannot be fastened with any liability - appeal filed by the assessee is allowed

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• 2012 (10) TMI 661
  Revenue expenditure or capital - capital work-in-progress - assessee explained such sum as expenses for R&D for software development - assessee submitted that it had incurred certain expenditure for development of software for getting committed orders - some of the orders were delayed, in the books pro rata expenses were shown as part of work-in-progress for having impressive accounting statements - As per the A.O., such expenditure brought an enduring benefit to the assessee – Held that:- Assessee chose to claim a sum as a revenue outgo in its computation statement - Claim of the assessee was that this was rent and electricity and having been incurred wholly for the purpose of business was allowable as revenue outgo and/or under Section 30 of the Act - treatment in the books of accounts is a pointer as to how the assessee itself treated the outgo for the purpose of its business - none of the authorities below considered the relevant Accounting Standards and nature of business of the assessee while deciding the issue - CIT(Appeals) fell in error in giving allowance to the assessee without verifying such aspects – matter remanded to AO

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• 2012 (10) TMI 659
  Addition on account of long term capital gain – compulsory possession - dispute pending before HC - Held that:- the provisions of section 2(47) (iii) and (v) section 45(5) would not apply in the case of the assessee - Merely because full consideration has been received by the assessee on account of agreement to sale by itself is no ground to charge capital gains - Since the conditions of above provisions are not fulfilled in the case of the assessee, therefore, the ld. CIT(A) rightly held that no capital gain is chargeable to tax - assessee made investment in agricultural land and residential house in terms of section 54B and 54F - assessee would be entitled for deduction on account of capital gains - In favor of assessee Addition on account of income from other sources – deposit made in the bank account of the assessee in cash – Held that:- Assessee in the cash flow statement claimed benefit each received by both of his brothers, but admittedly, no evidence was produced before the authorities below to support such contention - no evidence was produced before the authorities below that the brothers of the assessee have given these amounts to the assessee for depositing in the bank account of the assessee - CIT(A) further gave benefit of current income of Rs. 25,500/- in which we do not find any infirmity - assessee would be entitled for reduction of Rs. 25,500/- out of the total addition - appeal of the Revenue is partly allowed

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• 2012 (10) TMI 658
  Computation of income on the basis of section 44BBB of the IT Act - agreement entered by both the assessees as a consortium with TNEB - Work was to be done together - liability was undertaken together – Held that:- Assessees had filed revised computation during the course of assessment proceedings, applying Section 44BBB for computing their respective income, whereas initially they had returned their income based on the audited books of accounts - Application of Section 44BBB of the Act for computing the income was first made through such revised computation - for making a claim other than what was originally made in return of income, filing of a revised return is mandatory - Neither the A.O. nor the CIT(Appeals) have considered these fundamental aspects regarding status and validity of a claim made other than through revised return - assessees had also not placed before A.O. various details regarding erection charges received and break-up of the work done by them to M/s TNEB for verifying whether their billings included any fee for technic service - matter requires a re-visit by the A.O. for considering the issues de novo

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• 2012 (10) TMI 657
  Re-valuation of assets - Addition on account of Media Library - Alleged that intangible assets by way of media library are in the nature of stock or scrap generated in the course of business, which have a commercial value – assessee has increased the value of stock without crediting it to profit and loss account by way of increase in the value of the stock - whether this amount is assessable as income in this year – Held that:- Re-valuation of assets in the books of the assessee does not lead to generation of income as no transaction has been taken up with an outside party - value admittedly is an artificial value because this work-in-progress is un-sellable even now though there is a possibility of getting some amount, may be even large amount, in some future date if some buyer finds interest in these items - assets for the purpose of income-tax shall continue to be grouped as stock-in-trade at nil value. Since no value has been realized in respect of this stock-in-trade - nothing can be taxed in this behalf in this year. Disallowance of amount written off by the assessee in the books – alleged that assessee is unable to substantiate as to how this amount is deductible in computing the income – Held that:- Although certain deductions were claimed, the evidence regarding admissibility was not furnished either before the AO or the ld. CIT(Appeals) - it is not necessary to restore the matter to the file of the AO - amount is not deductible in absence of any supporting evidence

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• 2012 (10) TMI 656
  Loan or deposit have been defined in section 269T to mean any loan or deposit of money which is repayable after notice or repayable after a period and, in case of person other than a company, includes loan or deposit of any nature - The latter part of the definition is not applicable in the case of the assessee as it is a company. Penalty u/s 271D / Penalty u/s 271E - assessee received deposits from D.D. Township (P) Ltd. otherwise than by way of account payee cheque or draft - DD made payments on behalf of the assessee for purchasing land from the farmers – Held that:- Credit has been given for purchase of lands - lands were purchased in the course of business of developing them in association with the DD - transactions are in the nature of business transactions, recorded through the current account. The DD was subsequently paid through this account - it is not a case of accepting loan or deposit - assessee had tendered explanation in regard to transactions, the circumstances in which payments were made in cash by Shri J.P. Khanna, and such explanation ought to have been taken as a bona fide explanation. The transaction is also not one of loan or deposit - CIT(Appeals) was right in deleting the penalty. Orders of lower authorities no where show that the money was repayable after notice or after a period of time. This is an additional factor in favour of the assessee - levy of penalty u/s 271D, rightly deleted

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• 2012 (10) TMI 655
  TDS - contract for sale of goods or work contract - alleged that while purchasing gas from gas supplying agencies, the assessee entered into a work contract for transport of such gas from seller's premise to the buyer's consumption points – Held that:- Transportation component of gas was paid separately by the assessee to GAIL. Here also the transportation charges did not depend on the consumption of quantity of gas but was of fixed monthly charges to be borne by the assessee as part of the agreement between the parties - assessee entered into a contract for purchase of gas and that there was no work contract entered into between the assessee and GAIL. Application of Section 194C therefore, does not arise

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• 2012 (10) TMI 639
  Deduction u/s 80-IC - disallowance as ecological damage to the area has been done to the minimum possible extent - Held that:- In terms of section 80-IC(2)(b), the deduction is admissible if the hotel commences the operation within the period mentioned in the statute. It is also admissible if the hotel commences any operation and undertakes substantial expansion during the period mentioned in the statute. Therefore, in the case of an existing hotel, the deduction will be admissible if the substantial expansion takes place within the prescribed period. It has been the contention of the assessee that his hotel is approved by the Government. The hotel cannot be approved by the Government without obtaining No Objection from the Pollution Department. There is no material on record to show that Pollution Department of the Government has not given No Objection to the assessee, thus it cannot be said that the assessee is running a hotel which is outside the norms prescribed by the Pollution Department. No material has been brought on record to show that “eco-tourism status has been granted to any other hotel and which status assessee does not have. In the absence of definition of “eco-tourism” the hotel as added into the Item No. 15 of Part C is to be construed to be hotel situated in the State of Himachal Pradesh or the State of Uttaranchal having a valid licence on the basis of No Objection from Pollution Department which can be treated to be a hotel eligible for deduction u/s 80-IC as per provisions of section 80IC - in favour of assessee.

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• 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 654
  Redemption fine and penalty - importers had declared that the country of manufacture was United States whereas the vehicles had been imported from Thailand - Held that:- Violation of Para-2(II)(a)(iv) of the Licensing Note of Chapter 87 of the ITC(HS) Policy, which provides that the vehicle shall be imported from the country of manufacture. It is revealed from the Bill of Lading that the vehicle was loaded at Thailand. There is no evidence produced by the Appellants that the vehicles were imported from USA. So, the confiscation of the vehicles on this ground is justified - Tribunal was of the opinion that of the two grounds which persuaded the Commissioner to hold the imports to be in violation of Exim Policy, one was unsubstantial. The assessee does not argue that the surviving ground was unjustifiably upheld by the Tribunal. Reduction of redemption fine and penalty by Tribunal - Held that:- An overall conspectus of the facts of the case would show that the redemption fine was barely 25% of the total amount which could have been recovered also the penalty was a fraction of the total value of the goods, including the different component. A further reduction, in the opinion of this Court, should have been resorted to only if there were certain unusual or exceptional features indicating hardship or benefits or complete good faith on the part of the importers. There is, however, no material on record to suggest that these elements were present in the cases of the assessees. The reduction directed by the Tribunal was, therefore, in clear error of law as it was not informed by any reason. Whilst the authority may possess the power to do something, there ought to be a justification for the exercise of that authority. Without such justification, action would be based on mere caprice or whim – a proposition unacceptable in our legal system - against assessee.

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• 2012 (10) TMI 653
  Waiver of pre-deposit - denial of benefit of Notification No. 32/2005-Cus. – import of continuous cast copper rods – actual user condition - nexus between import and export - Held that:- Condition attached to each of these certificates/licences was that the imports must have “broad nexus” with the two export product groups viz. (i) Chemicals and allied products (ii) Engineering products - paragraph 3.2.5 of the Handbook of Procedures required a ‘broad nexus’ with the export product in the sense that any one or more items of the ‘export product group’ specified in the certificate/licence could be exported by the importer so as to claim the benefit of the exemption notification - waiver of pre-deposit and stay of recovery of penalties are also granted

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• 2012 (10) TMI 652
  Duty Drawback – EOU - appellant is a manufacturer and exporter of ready-made garments - he got the goods manufactured in the second appellant Unit, which is 100% EOU Unit by supplying duty paid raw materials to EOU Unit – alleged that as the first appellant manufactured goods in EOU Unit and thus exported the goods, is he not entitled to Duty Drawback under Section 75 of the Act – Held that:- Circular 67/98 making it obligatory for DTA to get the goods manufactured in a EOU to necessarily approach the authorities for fixation of Brand Rate Drawback rate. Therefore declaring that he is not entitled to All Industry rate, is arbitrary, absurd and does not stand to reason – drawback cannot be denied

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• 2012 (10) TMI 649
  Fraudulent mis-declarations - Rejection of review application of Department as time barred - date would be reckoned from the date of order passed by the lower adjudicating authority OR date of assessment of bill of entry - Held that:- As per para 13 of Commissioner (Appeals)'s order wherein it has been recorded that respective importers have already paid the extra duty, fine etc. is concerned, the department has challenged the same and contended that only in the case of one Bill of Entry the respondent has paid the duty and during the hearing of these cases, the respondent could not submit any document contradicting the department's submissions that duties were paid on 9 bill of entries were not paid. So far as the contention of the respondent that the jurisdictional Commissioner on 21.07.2009 has ordered for passing of speaking order and hence, the fact of passing of order was well within the knowledge of the jurisdictional Commissioner at least on 21.07.2009, we find that is not an endorsement for communication to jurisdictional Commissioner, but it is an endorsement of Board's Circular for issuance of speaking order by successor officer. As the above aspects were not considered by Commissioner (Appeals) while deciding the appeal. The same are required to be examined - Appeal of revenue allowed by way of remand.

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• 2012 (10) TMI 646
  Benefit of Customs Notification No. 90/94-Cus under the Project Import Regulations, 1986 – respondent entered into project contracts for importing Photo Composing System and Agfa Type Setting equipment - goods were installed, but due to some labour problems, a lock out was declared and the company later on became defunct - After a gap of about ten years, the Revenue required the respondent to produce an Installation Certification in terms of Regulation 7 of the Regulations – Held that:- No requirement of producing any Installation Certificate in terms of Regulation 7 of the Regulations - Regulation is not a condition for determining the eligibility of the concessional rate of duty - there is nothing to suggest that the equipment was not installed - against Revenue

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• 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 651
  Joint Venture Agreement - disputes relating to conversion price of the CCD - arbitration clause contained in JV Agreement invoked by defendant to keep the plaintiff out of the disputes which are subject matter of the arbitration - Held that:- JVC is nothing but a joint venture of plaintiff no.1 and the defendant. The plaintiff no.2 owns more than half of the equity of plaintiff no.1 company. The disputes with respect to conversion price of CCDs issued by JVC to the defendant is nothing but a dispute between the plaintiffs and the defendant, the JVC being only an alter ego of the parties to the suit. It is the conduct of JVC through the representative of the plaintiffs on its Board of Directors which has given rise to the dispute which the defendant wants to be adjudicated by the Arbitrator. It is, therefore, not be possible to keep the plaintiff out of the disputes which are subject matter of the arbitration initiated by the defendant. It is the JVC dated 15.12.2009 which is the core agreement and which governed the other document, including the DSA dated 21.04.2010. It would be, therefore, difficult to say that the disputes relating to conversion price of the CCD issued by the JVC to the defendant would be outside the scope of the arbitration agreement contained in the JVA dated 15.12.2009. The interim relief sought by the plaintiffs before this Court is an injunction restraining the defendant from continuing with the arbitration proceedings before SIAC. If such an interim relief is granted, it would amount to almost decreeing the suit since it will not be possible for the defendant to continue with the arbitration proceedings already initiated before SIAC. It would be unrealistic to assume that this suit would be decided in a short span permitting resumption of arbitration in the event of the suit being ultimately decided on merits. On the other hand, it is also equally true that refusal of injunction would amount to frustrating the relief sought by the plaintiffs in the absence of injunction from this Court, the Arbitrator may go ahead with the proceedings above the award, thereby giving the full fait accomplice to the plaintiffs. The plaintiffs before this Court have not been able to make out a strong prima facie case but it appears that the scope of the arbitration agreement contained in the JVA extends to the current disputes between the parties. No irreparable loss would be caused to the plaintiffs in case the defendant is not restrained from continuing with the arbitration to inasmuch they have an opportunity to establish before the Arbitrator that the current disputes between the parties are beyond the scope of the arbitration clause contained in the JVA. In case their plea is not accepted by the Arbitrator, they would be entitled to raise plea when execution of the award which may be passed against them, is sought. No reasonable ground to restrain the defendant from proceeding with the arbitration proceedings invoked by it. The application is accordingly dismissed. The interim order dated 9.8.2012 is hereby vacated.

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• 2012 (10) TMI 650
  Whether applicant ceased to have been a director of the company – alleged that respondents claimed to have convened the meeting of the board of directors on June 9, 2011 and September 29, 2011, though no notice of meeting of June 9, 2011, was ever given to the applicant - petitioner has challenged the validity of the board meeting dated March 31, 2011 - respondents did not deny the receipt of the request letter from the petitioner. There is no response from the respondents to that letter – Held that:- Not treating the said letter as leave of absence and not responding to the said letter is a negligence on the part of the respondents. Treating the petitioner as vacating the office of director is completely against the principles of natural justice – respondent restrained from holding that the applicant vacated the office of director of the company - applicant is deemed not to have vacated the office under section 283(1)(g) of the Companies Act

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• 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 685
  Service tax on the lease rent - period June, 2007 to January, 2012 - liability to pay service tax is on whether lessor or lessee? - Held that:- Since the lease deed having been executed on 9.6.2004 and the service tax having been levied retrospectively with effect from 1.6.2007, it is obvious that the payment of service tax could not have been in contemplation of the parties at the time this deed was executed. Therefore, there could have been no agreement between the parties specifically with respect to payment of service tax. Admittedly, service tax is neither a municipal tax nor a charge, this being a tax on services levied by Union of India. As it can hardly be disputed that in a given case, the lessor may agree to bear the liability of service tax the right of the service provider to recover the amount of service tax from the recipient of the service, in a case where there is no contract between the parties as to who has to ultimately meet this statutory liability. For the reasons stated hereinabove, the plaintiff(lessor) is entitled to recover service tax, to the extent the liability has not become barred by limitation, from the defendant. Whether the suit is barred by limitation? - Held that:- Section 9 of the Limitation Act expressly provides that where once time has begun to run, no subsequent disability or inability to institute a suit or make an application stops it. The period of limitation for the deposits made between 31.3.2008 to 5.2.2009 commenced on the date the deposits were made. Since there can be no stopping of the limitation, once it begins to run, the suit having been filed on 17.2.2012 is clearly barred by limitation with respect to service tax deposited between 31.3.2008 to 5.2.2009. What amount the plaintiff is entitled from the defendant? - Held that:- Interest on the amount which had become due by 2.5.2011 can be awarded to the plaintiff under Section 3 of The Interest Act 1978. No notice/letter demanding interest was issued after 02.05.2011. Hence, no interest can be granted with respect to amounts deposited thereafter. A perusal of the affidavit filed by the plaintiff shows that it had deposited Rs. 3,45,049/- towards service tax between 05.03.2009 to 02.05.2011. Rest of the deposits were made after sending the letter dated 02.05.2011 and interest was not claimed in any of those letters and notices. In my view, it would be appropriate to award interest to the plaintiff @ 6% per annum on the aforesaid amount. The amount of interest calculated @ 6% per annum with effect from 2.5.2011 till filing of the suit on 17.2.2012 comes to Rs. 16,389.83. Thus, the plaintiff is entitled to recover principal sum of Rs. 9,74,922/- and Rs. 16,389.83, as interest from the defendant.

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• 2012 (10) TMI 684
  Business Auxiliary Service - denial of Notification No.8/2005-ST - period March 2005 to December 2008 - Held that:- Considering the assessee's submission that as the goods which are powder coated by the appellant as a job worker and sent back to the principal who further utilizes the same in the manufacturing of final product, on which Excise duty is payable, all these facts as reported by the Superintendent of Central Excise, were not before the first appellate authority. Remand the matter back to the first appellate authority to reconsider the issue afresh.

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• 2012 (10) TMI 683
  Power of remand – alleged that lower appellate authority did not have the power of remand – Held that:- Service was rendered under an agreement entered into with the service recipient - assessee did not produce this agreement before the original authority - repairs and maintenance of immovable property became taxable only w.e.f. 01/05/2006 and that the assessee opposed demand of service tax on this service for the period prior to the said date - Commissioner (Appeals) wanted this contention to be considered by the original authority - Though the Commissioner (Appeals) did not have the power of remand, the reasons noted by him for sending the case back to the original authority certainly merits consideration - appeal allowed by way of remand

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• 2012 (10) TMI 682
  CHA - Demand of service tax, interest and penalty – appellant had received sea freight commission/brokerage at the rate of 2% on ocean freight under pre-paid terms from the liner/carrier/forwarder for availing their service to various destinations in connection with supporting of their business of liner/carrier/forwarders during the course of providing output service – Held that:- Primary service of the appellant is CHA and the booking of export cargo with Shipping lines is their secondary service - appellant is not liable to pay Service tax on the 2% incentive/commission received from shipping lines/freight forwarders - SCN issued by the Department was vague as it did not specify under which specific clause of “Business Auxiliary Service”, the activity of the appellant falls into - Order-in-Original has traveled beyond the Show Cause Notice by specifying the activity of appellant falls within the ambit of Section 65(19)(ii) and also liable to tax as commission agent service under the category Business Auxiliary Service - Appeal allowed

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• 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 648
  Reversal of CENVAT credit - common inputs utilized for the manufacturing of dutiable as well as exempted goods - Held that:- As assessee have already reversed the entire amount of demands raised in the appeal and undertaking to reverse demands raised in other appeal within thirty days on receipt of this order the issue requires no more deliberation as the retrospective amendment covers the issue wherein the respondents were required to pay the amount equivalent to cenvat credit availed by them on the inputs which are consumed for the manufacturing of exempted goods. Assessee herein is required to pay interest on the amount which has been reversed by them as per the retrospective amendment carried out by the provisions of Sections 82 and 83 of the Finance Act, 2005.

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• 2012 (10) TMI 647
  Demand of Cenvat credit - contention of the appellant is that ‘Coke Transfer Cars’ is used for transfer of coke from oven to furnace. Therefore, they are accessory of the oven and they will be eligible for Cenvat credit – Held that:- Delivery of the raw material in time or increasing the effective working of the same and then removal of the finished goods from the vicinity of the machine contributes may be in a subordinate degree to attain a general result or effect. Same adds to definition of effectiveness of the machinery - when viewed and judged in the light of interpretation of the term “accessory” same would fall under Sl. No. 3 (i) of Rule 2(b) of the Cenvat Credit Rules, 2002” – cenvat credit allowed

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• 2012 (10) TMI 645
  Cenvat credit – export – cash refund of accumulated Cenvat Credit – Held that:- It is also not the allegation that the goods in respect of which refund has been claimed were not exported - refund rejected on the ground that the goods were not exported during September 2008 but were exported during October 2008 - ground for rejecting the refund is prima facie, without any basis and contrary to the provisions of law, as the goods, in respect of which refund has been claimed, have been exported – waiver of pre-deposit allowed

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• 2012 (10) TMI 644
  Waiver of pre-deposit - Denied cenvat credit for duties paid on paints and varnishes used by them for painting the pipelines in their sugar factory – Held that:- Repairing activity in any possible manner cannot be called as a part of manufacturing activity in relation to production of end product - paints and varnishes are also used only for maintenance of plant and machinery - appellants are ordered to make a pre-deposit of 30% of the duty demanded

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• 2012 (10) TMI 643
  Denial of Remission of duty - 100% EOU – fire accident took place on 1-5-2003 in the factory premises - remission of duty was not granted on the ground that they did not file any application for remission of duty at the relevant time and only at the time of reply to the show-cause notice they had made a claim for remission - Held that:- when the statute does not prescribe any time limit, then the action has to be initiated within a reasonable time - Other than intimating about the incident they did not make any efforts whatsoever to estimate the quantity and value of the goods lost/destroyed in the fire accident and the duty liability involved in such goods - plea for remission of duty was made only in the reply to the show-cause notice in 2009, that is after a lapse of more than six years from the date of occurrence of the incident - remission of duty is not sustainable in law

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• 2012 (10) TMI 642
  Refund claim - Appellant had paid the duty under protest – Held that:- Chartered accountant’s certificate shows that the realization to the appellant had reduced on account of the levy of education cess and no change in prices to the dealers - appellant had not passed on the incidence of the new levy to any other person and refund if paid would not cause any unjust enrichment to the appellant – refund allowed

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• 2012 (10) TMI 641
  Refund - valuation of the goods was done on provisional assessment basis - claims were rejected on the ground of unjust enrichment - Held that:- Assessments were provisional and hence refund, which arises as a result of finalization, cannot be considered as time barred and clause of unjust enrichment will not be attracted; directed the authorities to fund the excess duty paid by the assessee Interest on delayed payment of refund – Held that:- There is no principle enunciated that the liability to payment of interest must be computed from not the time an application is made under Section 11B(1) (referred to in Section 11BB of the Central Excise Act, 1944) but from the time an application is made subsequent to final adjudication by the Tribunal and only an application for refund made subsequent to the final adjudication by the Tribunal which must constitute the starting point for calculation of the three months period beyond which interest is liable to be paid - appeal is accordingly rejected

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• 2012 (10) TMI 640
  Waiver of pre-deposit – includibility of notional interest on advances received from the customers – Held that:- Mere receipt of an advance will not ipso facto lead to the conclusion that the transaction price has been depressed unless there is a positive evidence in that regard - no such positive evidence led by the department to prove that the transaction value has been depressed on account of receipt of advances received the buyer - Explanation in Rule 6 itself makes it clear that including interest notionally on the advances received from the buyer is not permissible - waiver of pre-deposit granted

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• 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 681
  Rent Act - whether various decisions of Apex Court are inconsistent - Writ petition under Article 226 - maintainability – The power to issue a writ of certiorari and the supervisory jurisdiction - binding precedent - interpretation of various decisions of apex court - petition against an order of Single Judge passed in a petition under Articles 226 and 227 of the Constitution of India. “Incuria” literally means “carelessness”. In practice per incuriam is taken to mean per ignoratium. The courts have developed this principle in relaxation of the rule of stare decisis. Thus the “quotable in law”, is avoided and ignored if it is rendered, in ignoratium of a statute or other binding authority. - Petition against an order of Single Judge passed in a petition under Articles 226 and 227 of the Constitution of Indi Writ petition under Art. 226 can not be entertained against a private individual in private dispute where no government or like authority is respondent as no relief is claimed against it or unless there is infraction of any statutory provisions or private individual is acting in collusion with statutory authority. It nowhere lays down that in no case writ of certiorari can be issued by High Court to Court or Tribunal subordinate to it. It also does not declare that in a dispute between landlord and tenant, article 226 can never be invoked or writ can not be issued. The writ of certiorari can be issued under Article 226 of the Constitution where the subordinate Court or Tribunal commits an error of jurisdiction. Where the subordinate Court or Tribunal acts without jurisdiction or in excess of it or fails to exercise jurisdiction, that error of jurisdiction can be corrected. Where the facts justify the invocation of either Article 226 or Article 227 of the Constitution to correct a jurisdictional error or an error resulting in a miscarriage of justice committed by authorities subordinate to this Court, there is no reason or justification to deprive a party of the right to invoke the constitutional remedy under Article 226 of the Constitution. It is open to the Court while dealing with a petition filed under Articles 226 and/or 227 of the Constitution or a Letters Patent Appeal (LPA) under Clause 15 of the Letters Patent arising from the judgment in such a petition to determine whether the facts justify the party in filing the petition under Article 226 and/or 227 of the Constitution. No inconsistency in law as laid down in Shalini Shyam Shetty .vs. Rajendra Shankar Patil and M.M.T.C. Ltd. v. Commissioner of Commercial Tax.

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• 2012 (10) TMI 680
  Maintainability of review petition - Judgment and decree passed by the High Court was confirmed by the Supreme Court by dismissing the SLP - Held that:- Article 136 of the Constitution does not confer any right of appeal on any party but it confers a discretionary power on the Supreme Court to interfere in suitable cases. Article commences with a non-obstante clause, the words are of over-riding effect and clearly indicate the intention of the framers of the Constitution that it is a special jurisdiction and residuary power unfettered by any statute or other provisions of Chapter IV of Part V of the Constitution. The jurisdiction under Article 136 of the Constitution, of course, cannot be barred by statute since it is extraordinary power under Article 136. Article 136 is an extra-ordinary power which cannot be taken away by legislation. As considerable arguments are being raised before this Court as well as before various High Courts in the country on the maintainability of review petitions after the disposal of the special leave petition without granting leave but with or without assigning reasons on which also conflicting views are also being expressed by the two-Judge Benches of this Court. In order to resolve those conflicts and for proper guidance to the High Courts, we feel it would be appropriate that this matter be referred to a larger bench for an authoritative pronouncement- direction to the petitioner to pay Rs. 1 crore to the respondent within a period of six weeks from today & there will be stay of realization of balance amount till the issue is decided finally.

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• 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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