Newsletter: Where Service Meets Reader Approval.
TMI Tax Updates - e-Newsletter
October 6, 2012
Case Laws in this Newsletter:
Income Tax
Customs
Corporate Laws
Service Tax
Central Excise
Indian Laws
Articles
News
Notifications
Circulars / Instructions / Orders
Highlights / Catch Notes
Income Tax
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Non-deduction of TDS u/s 194A - There is no discretion with the CIT(A) to extend the time of filing of form No. 15G/15H beyond the last date of accounting year. - AT
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Whether deduction under sec. 80C is claimed for renovation of house - held no - AT
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The value of closing stock written off cannot be treated as unascertained liability. - AT
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Doctor receiving regular fixed receipt from Hospital – assessee cannot be said to be an employee and his income can only be taxed under the head income from business and profession - AT
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Addition on account of surplus from sale of ULIP – As major portion is invested in mutual funds therefore, surplus on maturity of the policy should be treated as capital gain. - AT
Customs
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All Industry Rates of Duty Drawback 2012-13 - Reg. - Circular
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Regarding Anti-dumping duty on Cold Rolled Flat Products of Stainless Steel (400 Series) having width below 600 mm originating in, or exported from, European Union, Korea RP, and USA - Notification
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Determines the rates of drawback in supersession of the Notification No. 68/2011-Customs (N.T.), dated 22nd September, 2011 - Notification
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Rate of exchange of conversion of each of the foreign currency with effect from 05th October, 2012 - Notification
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Denial of drawback - Exporters of goods purchased from the market were to be treated as having availed Modvat facility. - Thus the exports had been finalized and duty drawback paid as long back as in 2006-2007, the attempt to reopening the entire issue by the petitioner was clearly unwarranted - HC
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Tribunal has the jurisdiction to reduce the redemption fine if he thinks it is just and proper - HC
FEMA
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Deferred Payment Protocols dated April 30, 1981 and December 23, 1985 between Government of India and erstwhile USSR - Circular
Corporate Law
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Companies (Issue of Indian Depository Receipts) Amendment Rules, 2012 - In Rule 10 - Procedure for transfer and redemption regarding. - Notification
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Strike off the name of the company from the register of ROC - a company can only be defunct, if it does not reply to the notice or says in reply that it does not carry on any business or is not in operation. If it asserts to the contrary, it cannot be struck off at all. - HC
Service Tax
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Cenvat credit - duty paying documents - input services - whether the document certificate issued by the bank is the valid document for availment of Cenvat credit - Held yes - AT
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Any activity or service like erection, commissioning and installation of meters as also technical testing and analysis can easily be termed as the service relating to the transmission and distribution of electricity provided by the service provider to the service receiver - NO ST - AT
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Condonation of delay – appellant submitted that order was kept in an irrelevant file without any note as to the date of receipt of the order - delay condoned - AT
Central Excise
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Rebate claim – refund claim was time barred - rebate claim was rightly rejected as time barred but the re-credit of duty paid in Cenvat account is not admissible - CGOVT
Case Laws:
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Income Tax
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2012 (10) TMI 134
India Mauritius DTAA - disallowance of bonus expense u/s 43B - Held that:- Disallowance u/s 43B can be made in respect of the bonus unpaid before the due date of filing of return u/s 139(1) because Article 7(3) expressly provides for the deduction of all expenses incurred for the purpose of the business of permanent establishment. Further Article 3(2) and Article 23(1) do not impliedly sanction the invoking of section 43B in Article 7(3) of the DTA. When there is a specific provision as per Article 7(3) of the DTA providing for the deductibility of all expenses incurred for the purpose of permanent establishment, we fail to comprehend as to how Article 23(1) can be applied to invoke disallowance u/s 43B. This contention of the DR, being devoid of any merit - in favour of assessee. Disallowance u/s 14A - CIT(A) deleted the addition - Held that:- DTAA can only cure the rigor of the Act and not convert an exempt income under the Act into a taxable one. If a particular amount of income is exempt under the Act, it will cease to form part of 'Business profits' of the enterprise under Article 7. Once a particular item of income does not itself constitute business profit as per Article 7 because of its exemption under the Act, there can be no question of allowing any deduction for an expenditure incurred in relation to such income against the other taxable business income - This factual scenario brings to a stage where the assessee did borrow interest bearing funds for making investment in tax free bonds and repaid such loan out of its own interest free funds on the next day. There is obviously a direct nexus between the borrowing of interest bearing funds and making of investment in tax free bonds. There can be no dispute on the fact that only such part of interest can be disallowed which has been incurred in relation to the income not forming part of the 'business profits' of the assessee as per Article 7 of the DTA. The disallowance of interest is definitely called for but it cannot exceed the actual amount of interest paid in respect of borrowed funds used for the purposes of making investment in tax free bonds, which in the present case is only one day. The AO is directed to calculate disallowance on Rs. 10 crore for one day at the rate which was charged by the RBI on the loan advanced to the assessee on 12.11.1998. This will be the amount of interest paid by the assessee in relation to tax free interest income which is not included in the business profits as per Article 7 of the DTA, warranting disallowance in the computation of 'business profits' - partly in favour of revenue.
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2012 (10) TMI 133
India UAE DTAA - interest income - at the rate of 12.5% under DTAA OR 40% as per ITA - Held that:- Assessee in this case is a UAE resident. The DTAA with the UAE mandates that interest income be taxed @ 12.5% under Article 11(2)(b) of the said DTAA. Also Board Circular No. 728 F.No. 500/12/95-FTD) dated 30.10.1995 which states that any remittance to a country with which a DTAA is in force, tax should be deducted at the rates provided in the Finance Act of the relevant year or at the rates provided in the DTAA, whichever is more beneficial to the assessee - in favour of the assessee. Short term capital gains - Held that:- As the benefit of Indo-UAE Treaty is available with the assessee and short term capital gains derived by him from sale of shares/securities in India were not taxable in India terms of Article 13(3) of the Indo-UAE Tax Treaty - in favour of the assessee. Annual Letting Value(ALV) of the property - claim of deduction of amount paid to cooperative society - Held that:- Assessee has claimed a sum of Rs. 22,888/- was paid by it towards common maintenance of the building including the provision of lift, cleaning of common areas etc. provided by the assessee to the occupants of the flat. Thus, it is the assessee's argument that while determining the rent receipt by it from the tenant, the amount of Rs. 22,888/- should have been excluded from the gross amount of the rent received by the assessee since it was only reimbursement of the utility charges paid by the assessee to the society on behalf of the tenant for the services enjoyed by the tenant. Thus the view adopted by the CIT (A) is cogent one to allow the deduction of Rs. 22,888/- while computing the netted ALV of the house - in favour of the assessee.
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2012 (10) TMI 132
Disallowance of advertisement and promotion expenses - Held that:- I.T.A.T has already held that Section 37(2A) which was omitted by Finance Act, 1992 with effect from 1st April, 1993, has no effect and the Assessee was entitled to the benefit under Section 37(2A) of the I.T.Act. no error was committed by the I.T.A.T. in the impugned order - in favour of assessee. Disallowance of gifts and articles - Held that:- There was Company's official rubber stamp on gift articles, therefore, the gift articles were for the purpose of incentive for promotion of the business. There was element of advertisement in distribution of these gift articles, therefore, the Assessee was entitled to the benefit - in favour of assessee.
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2012 (10) TMI 131
Disallowance of overseas travel and educational expenditure - Held that:- The principal business of the company was manufacturing and supplying of packets/pouches to oil manufactures for filling and packaging their products. It was only in the assessment year 1992-93 the company made necessary amendments in its memorandum to enable it to enter the business of computer operation and data processing while the decision to send the trainee abroad for computer education was in 04.06.1990. Therefore, it cannot be said that the sponsoring of the trainee for overseas computer education was for the business of the company at the time when such decision was taken on 04.06.1990. Furthermore, the trainee had already secured admission for such course in the foreign University and applied for release of foreign exchange with regard thereto five weeks prior to his appointment. Hence, the finding of the tribunal that the sponsorship of the trainee was colourable in nature and not for the purpose of business of the company is wholly justified and borne out from the materials on record - against assessee. Disallowance of commission paid to M/s. Telecom Ancillaries Pvt. Ltd. - Held that:- The tribunal held that the nature of such expertise in preparation of tender documents and follow up action for obtaining such tender has not been clearly spelt out. When the commission payments had been made in for purposes which are prima facie impermissible in law the question of permitting such expenses on the anvil of commercial expediency does not arise at all. The issue of payment of 12 lakh for ensuring non-participation of M/s. Telecom Ancillaries Pvt. Ltd. in the tender and also for follow up action to procure such tender in favour of the opposite party also smacks of creating a cartel in the matter of public tender which equally impermissible in law. Also that such agreement does not shut out other companies from contesting the tender also a justifiable ground for such disallowance - against assessee. Disallowance of short term capital loss - Held that:- The condition precedent for attracting provision of Section 73 is that a part of the business of the company must relate to purchase and sale of shares. Merely indulging in purchase and sale of shares for investment is not business activity in sale and purchase of share of other companies for the purpose of this section. Thus precondition necessary for attracting the explanation to Section 73 is absent in the instant case and the disallowance of this loss treating the same being speculation one is wholly unwarranted. The conduct of the company in selling the shares in questions soon after taking delivery of the shares when it is found that the value of such shares were rapidly decreasing cannot be said to be unjustified or imprudent - in favour of assessee.
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2012 (10) TMI 130
Applicability of Sub-section(2) to section 14A and Rule 8D - Held that:- Rule 8D cannot be applied keeping in view the decision in the case of Godrej & Boyce Mfg. Co. Ltd. (2010 (8) TMI 77 - BOMBAY HIGH COURT) as disallowance u/s 14A r.w.r. 8D are not retrospective. Rule 8D applicable from Assessment Year 2008-09. sub-section (2) of section 14A says that the AO shall determine the amount of expenditure incurred and in relation to such income which does not form part of the total income under this Act. Thus, the onus is on the AO to "determine" the amount of expenditure. The Legislature has used word "shall" before the word "determine", which goes to mean the AO has to take into account all relevant facts and surrounding circumstances to determine expenditure incurred in relation to income not forming part of total income. As in the present case the AO has not made any attempt to "determine" the amount of expenditure incurred in relation to the income not forming part of total income - thus set aside the order of the CIT(A) on the issue of 14A and direct the AO to determine reasonable expenses, attributable to exempt income, taking into account all surrounding circumstances - in favour of assessee for statistical purposes.
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2012 (10) TMI 129
Indo-UK DTAA - Taxation on marketing contributions and value added service - at 15% on gross basis as per Article 13 of DTAA OR 10% u/s 115A(1)- Held that:- Considering a copy of the order u/s 154 for assessment year 2006-2007 the receipts from marketing contributions and value added service has been held to be taxable at the rate of 10% along with surcharge and education cess. It is observed that this order u/s 154 was passed on 24.03.2009 and the Tribunal order for assessment year 2007-2008 was passed on 18.11.2011 i.e. after the passing of the rectification order u/s 154. Thus the ends of justice will meet adequately if the impugned order on this issue is set aside and the matter is restored to the file of A.O. for deciding it in consonance with the directions contained in Tribunal order. Royalty income - applying tax rate of 15% or 10% as per section 115A - Held that:- The Tribunal has decided this issue in assessee's favour for assessment year 2007-2008 which has been concluded that the concessional rate of 10% should be applied - in favour of assessee. Charging of interest u/s 234B - Held that:- As decided in DIT (INTERNATIONAL TAXATION) Versus NGC NETWORK ASIA LLC [2009 (1) TMI 174 - BOMBAY HIGH COURT]interest u/s 234B cannot be charged where tax is deductible at source in relation to royalty and FTS. Thus direct AO to compute interest u/s 234B to follow as above stated.
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2012 (10) TMI 128
Liaison Office - CIT(A) hold it not to be considered as a Permanent Establishment in India & no profit accrues or arises in India - Held that:- Circular No. 163 convey the impression that a non-resident is liable to be taxed on a portion of the profits attributable to the purchase of raw materials required for the purposes of manufacture and sale abroad, if the purchases are made in India through a regular agency established in India for this purpose. By virtue of clause (b) of the Explanation to section 9(1)(i), the correct legal position is that in the case of a non-resident, no income shall be deemed to accrue or arise in India through or from operations which are confined to purchase of goods in India for the purpose of export. Tribunal in assessee’s own case for the assessment years 2004-05 and 2005-06 held that the L.O. of the assessee was performing the activities of assorting of diamonds, checking of the right quality of diamonds and price negotiation as per the instructions and specification of the assessee. These activities of the LO is only part of the purchasing process of the diamonds and did not bring any physical or qualitative change in the goods purchased. Even otherwise, the function of the LO are prior to purchase of the diamonds and not subsequent to the purchases. Therefore, no quality change is brought by the L0 while doing the operation of purchasing in India for export purposes - in favour of assessee.
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2012 (10) TMI 127
Unutilized Modvat credit in respect of closing stock - addition to income - Held that:- As decided in assessee's own case for AY 2001-02 he same was restored by the Tribunal to the file of the AO with a direction to decide the same afresh after verifying the recast accounts to be prepared and furnished by the assessee in terms of sec.145A of the Act after including tax, duty, cess or fees as provided in the said section - thus following the precedent this appeal decided in favour of assessee for statistical purposes. Deduction u/s.80HHC - foreign exchange gain in the profits of business - Held that:- What is liable to be excluded from the profits of business for the purpose of computing the deduction u/s.80HHC is the income which is unrelated to the export activity of the assessee. Since the foreign exchange gain earned by the assessee for the year under consideration in respect of realization of export proceeds is directly relatable to its export activity, the same cannot be excluded from the profits of business for the purpose of computing the deduction u/s.80HHC keeping in view the ratio of Hon’ble Bombay High Court in assessee’s own case for the AY 2002-03 - in favour of assessee. Repairs and maintenance expenses - Held that:- It is not clear from the documents filed by the assessee as to whether the expenditure in question incurred by the assessee on repairs and maintenance is of revenue nature inasmuch as it is very difficult to come to a conclusion that the expenses incurred by the assessee on repairs and maintenance were on purchase of spare parts of plant and machinery and miscellaneous work done to the building and there was no new capital asset acquired by the assessee as a result of incurring of the said expenses. Thus the expenses in question incurred by the assessee were rightly treated by the AO as capital expenditure - against assessee. TP adjustments - CIT (A) deleted the addition made by AO - Held that:- As decided in assessee's own case in AY 2006-07 that when assessee is dealing with an AE, at least there are no commercial risks, no marketing costs and there could be several other factors as well justifying a normal discount as the assessee could indeed go to many important customers. It hardly needs to be emphasized that even in independent business situations granting discount is a normal occurrence, and unless the Assessing Officer demonstrates that the discount so allowed would not have been allowed in an arm’s length situation, ALP adjustment cannot be made in respect of the same - against revenue. Non deduction of TDS - Disallowance of development expenses - CIT (A) deleted the addition made by AO - Held that:- The amount in question paid by the assessee to Dresser Rand Company, USA toward development expenses is not chargeable to tax in India in the hands of the said non-resident, & the assessee has deducted the tax at source from development charges paid to Dresser Rand Company, USA in the next financial year and the tax so deducted having been paid before the due date of filing return, the disallowance u/s.40(a)(i) is not sustainable on this ground also as per the amendment made in the relevant provisions which has been held to be retrospective - against revenue.
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2012 (10) TMI 126
Deemed dividend u/s 2(22)(e) - CIT(A) deleted the addition - Held that:- As decided in CIT versus Universal Medicare Private Limited [2010 (3) TMI 323 - BOMBAY HIGH COURT] the effect of clause (e) of section 2(22) is to broaden the ambit of the expression ‘dividend’ by including certain payments which the company has made by way of a loan or advance or payments made on behalf of or for the individual benefit of a shareholder. The definition does not alter the legal position that dividend has to be taxed in the hands of the shareholder. Consequently in the present case the payment, even assuming that it was a dividend, would have to be taxed not in the hands of the assessee but in the hands of the shareholder Thus the addition made by the AO on account of deemed dividend u/s 2(22)(e) is to be deleted on the ground that the assessee not being shareholder of M/s Max Print System (Bom) Pvt. Ltd., the loan amount received by it from the said company could not be treated as deemed dividend in its hands - in favour of assessee.
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2012 (10) TMI 125
Order u/s 263 by CIT(A) - Non application of mind by AO - brand building expenditure not inquired by AO - Held that:- It is seen that the A.O. has not only raised the query regarding the details of brand building expenses, but has also sought clarification on two occasions and had examined them also. Further on examination of these details he has reached to a conclusion that sum of Rs..17,98,482/- is a capital expenditure. It is further noticed that the assessee has deferred these expenses and claimed it as revenue expenditure in equal amount in the A.Y’s 2006-07, 2007-08 and 2008-09. Thus there was a complete application of mind by the A.O. while examining the expenditure under brand promotion and brand building. The expenditure incurred by the assessee is not creating any enduring benefit of an asset but is rather helping the assessee in augmenting its sales and resultantly its profit. Even if it is presumed that the building of brand image of “Nirvana” is giving advantage of enduring benefit to the assessee, still it would be on revenue account as there is no creation of a tangible or intangible asset of enduring nature to the assessee. Thus from the facts of the case it can be concluded that these expenses incurred by the assessee has not resulted in any kind of addition or augmentation of any profit making asset. Thus the view taken by the A.O. is prima facie correct view and, therefore, no reason to held that such a order is erroneous or it is prejudicial to the interest of the Revenue - in favour of assessee.
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2012 (10) TMI 124
Addition on account of cash credit u/s 68 – AO issue notice u/s 133(6) – Held that:- As the assessee failed to file confirmation, identity and creditworthiness of lender. Therefore assessee unable to explaining the source of loan. ITAT is justified in confirming the addition - In favor of revenue Addition on account of source of loan not explained u/s 68 – Assessee receive advance from lender – AO issue notice u/s 133(6) – Assessee explained the source of deposit as gift - Held that:- As no documentary evidence was filed, assessee could not prove the identity and creditworthiness of the lender. Therefore it revealed that the assessee has been shifting the stand. Decision in favor of revenue. Addition on account of higher GP rate – Assessee has two trading firms in two states – Assessee failed to furnish quantitative details of stock - AO apply higher GP rate of one firm on other firm to compute its income - Assessee also filed GP rates & details of other comparable cases to CIT(A)- During remand report done by AO, assessee could not submit complete books of accounts, bills/vouchers – CIT(A) apply GP rate of another firm of same city to assessee – Held that:- As assessee not submitted the full bills/vouchers. In that opinion of CIT(A) is justified. Appeal decided against assessee.
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2012 (10) TMI 123
Addition on account of interest expenses – Assessee is a partnership firm – As per AO amount in partners’ capital account were advanced by firm and was paid out of borrowed fund – AO treat it as it was not related to the business activity – Held that:- Firm has suffered loss in the previous years. Therefore outstanding debit balance in the names of the partners was on account of losses suffered by the firm and not because of withdrawal of borrowed funds. The AO had also not shown any nexus between the funds borrowed and the debit balance which in fact is the outcome of losses suffered by the assessee. Therefore, interest cannot be disallowed. Decision in favour of Assessee. Non-deduction of TDS u/s 194A - Assessee had not deducted tax at source in lieu of form No.15G/15H - Form No.15G/15H were not filed by the date with CIT – Held that:- The provisions of sec. 40(a)(ia) are mandatory in nature and where the assessee had not deducted tax at source, the deduction will not be allowable. There is no discretion with the CIT(A) to extend the time of filing of form No. 15G/15H beyond the last date of accounting year. Therefore, it was not right to direct the AO to allow the deduction on the ground that no loss of revenue has occurred and delay in filing was technical in nature. Case remand back to AO. Addition on account of unexplained cash credit u/s 68 - The AO did not consider the evidences filed by the assessee at all in the remand report in respect of additional evidence. Therefore the issue required to be examined by the AO afresh with reference to identity, creditworthiness of the creditors and genuineness of the transaction. Case remand back to the file of AO.
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2012 (10) TMI 122
Addition on account of unexplained investment u/s 69 – On basis of bank statement – Assessee replied that some money is received on account of retirement - Loan from friends & relatives - AO stated that no. of person withdrawn money from assessee’s bank account - Assessee made frequent deposits/withdrawals in the bank to show a rosy picture for obtaining visa – Held that:- AO failed to examine these person as to why the amount was withdrawn by them. Since,Therefore issue has not been examined properly. Decision case remand back to AO. Disallowance of deduction u/s 80C – Whether deduction under sec. 80C is claimed for renovation of house – Held that:- As the provisions of sec.80C are not applicable in respect of amount spent on renovation. Appeal decide in favour of revenue
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2012 (10) TMI 121
Disallowance of excessive handling loss – The assessee is engaged in the business of manufacturing and sale of ghee and milk powder - The assessee has been maintaining regular books of account and production records - In certain months handling loss was more than standard - AO analyzed the loss in the respective months and considered excessive handling loss – Held that:- As the books of accounts are verified by Excise Department. AO has also not pointed out any mistake in the books of account. Handling loss in certain months was totally dependent upon the quality of milk. The handling loss shown by the assessee was well below the standard norms of the loss. Case decided in favour of assessee. Addition on account of inflation of milk price – Held that:- As same issue in assessee’s case for another assessment year decided by ITAT in favour of assessee. Therefore decided in favour of assessee Addition on account of freight and loading & uploading expenses – The assessee is engaged in the business of manufacturing and sale of ghee and milk powder - The sale is organized through agents appointed all over India and as a part of business understanding, actual expenditure on account of outward freight, loading and unloading expenses are reimbursed to the agents through debit notes - Held that:- The assessee produced copy of debit note of the party along with copy of account in order to support the claim. Assessee maintains running account with the party in the books of account and there were regular transactions of credit and debit in such account and the entire amount on the basis of debit note was credited in the account. No discrepancy has been pointed out by AO. The assessee also filed the letter in respect of the amount which gives the details of freight, loading and unloading charges and draft making charges. Decision in favour of assessee
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2012 (10) TMI 119
Disallowance u/s 68 - Assessee has taken loan from company for house property – Deduction of interest claim u/s 24 out of rental income – Assessee has taken another fresh loan from same company & also paid sum amount out of rental income – Loan amount and its balance confirmed by the lender – Held that:- As assessee has filed copy of agreement for sub-lease of property which was acquired out of loan. The AO has examined the director of lender company u/s 131 who has affirmed the loan also show interest received in his ITR. Assessing Officer had not brought any material on record to prove that it was assessee’s own income. Decision in favor of assessee. Contravention of Rule 46A – Assessee withdrawn household expense as drawing – AO made addition on the basis of minimum household expense - Assessee submit additional evidence with CIT(A) – Held that:- CIT(A) has accepted the contention of the assessee without providing an opportunity of being heard to the AO. Therefore CIT(A) violate the provision of Rule 46A. Decision is in favor of revenue.
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2012 (10) TMI 118
Disallowance of written off of employee advance – Assessee has given advance to an employee director – No ostensible purpose has been stated for the instant advance - Held that:- As the company used to give money for incurring expenditure on behalf of the company without narrating any change in facts, it could not have been held that this money was not the advance made in the course business. Therefore, it represented that money advanced to an employee as advance for the purpose of business of the assessee, which could not be recovered and written off. This is a loss incurred in the course of business. Decision in favour of assessee Disallowance of WDV of asset u/s 28 – Assessee has given asset to employee for office use – Assessee claim that since asset could not be recovered from the ex- employee – Held that:- As per sec. 43(6), In case of a depreciable asset falling within a block up assets, any loss occurring on account of loss of the asset has to be reduced from the opening WDV of the block up assets. It does not represent any expenditure incurred wholly and exclusively for the purpose of business. Therefore same cannot be treated as a business loss u/s 28. Decision in favour of revenue Disallowance of advance written-off u/s 28 – Assessee has given only a general explanation that the amount was advanced to party for doing some business, which did not fructify – Held that:- As neither the year of advance nor the purpose of advance is known. The burden of adducing requisite evidence in claiming an expenditure or loss to the deductible is on the assessee. This burden has not been discharged merely by general explanation. Therefore assessee has not proved the admissibility of this amount. Appeal decide in favour of revenue Disallowance of speculative loss from derivatives u/s 28 – Whether deeming provision of Sec. 43(5)(d) can be carried forward to section 73 regarding “loss in speculation business" – Held that:- As per provision of Sec 43(5)(d) deems transactions in derivatives at recognized stock exchanges not to be speculative transactions. It is applicable only in respect of such trading in derivatives and not in respect of any other goods, articles or things. Such transactions in the derivatives were taken out of the definition of a “speculative transactions”. Therefore, the loss is to be taken as the business loss, which can be set off against other business profit of the assessee. Decided in favour of assessee.
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2012 (10) TMI 117
Disallowance of exemption u/s 10A - Held that:- The assessee is not entitled to claim deduction on the sales which were based upon the contract received by the old unit or the customers of the old unit. However, he can claim deduction of Profits and gains arising from Turnover on goods/works executed by the new unit - in favour of the assessee. Interest income - earning interest is not the business of the assessee, hence interest earned on the deposits cannot be held as income earned from the export business of the undertaking.
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2012 (10) TMI 116
Registration u/s 12AA and Approval u/s 80 G - the purpose of promotion of family business and with profit motive - Held that:- As decided by in case of [Commissioner of Income-tax Versus Red Rose School 2007 (2) TMI 575 - ALLAHABAD HIGH COURT ] registration can be granted only if the Trust is created for Charitable and religious purpose in public interest.The assessee spent considerable amount on advertisement of the institution which never existed and further, prospectus of the assessee trust has devoted substantially on carrying out the business activities of group concern showing logo of milk product. These factors were sufficient to hold that the ld. CIT rightly rejected both the applications of the assessee, particularly when no educational or charitable activities have been actually carried out and the assessee in initial stage, assessee trust itself has tried to promote the business of group concern. assessee failed to establish that it has carried out genuine activities towards the objects of the assessee trust. Whatever other activities were carried out were found for promoting commercial activities of the group concern. Therefore, the assessee has failed to satisfy the requirements u/s. 12AA of the Act and as such, the ld. Commissioner was justified in refusing to grant registration and approval under the above provisions of the IT Act. Assessee has to make fresh application for registration as Trust and for grant of approval when it would actually start educational and charitable activities
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2012 (10) TMI 115
Condonation Of Delay of 286 days - Held that:- The High Court was empowered to condone the delay in filing the appeal beyond the time prescribed in sub-section (2A) of section 260A, if it was satisfied that there was sufficient cause. As earlier decided in case of [CIT v. Williamson Tea (Assam) Ltd 2012 (9) TMI 465 - GAUHATI HIGH COURT] delay in filing the appeal can be condoned on reasonable basis beyond the prescribed time - in favour of assessee.
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2012 (10) TMI 100
Reopening assessment u/s 147 - addition to income - Held that:- A.O. while reopening the assessment dated 16.08.2010, which is under appeal, considered only two items of income. First one is Rs.42,03,882/- as per original assessment under section 143(3) dated 29.12.2006 which has been deleted by CIT(A) in the appeal filed by the assessee against the AO’s order dated 29.12.2006. Therefore, this part of the income does not survive and liable to be deleted. The second item of income is Rs.17,18,669/- which has been made by the A.O. on the basis of direction by the CIT(A) which was while passing the order in A.Y. 2004-05 has quashed by I.T.A.T. Thus, when the direction itself has been quashed, there is no question of taking action under section 147 in A.Y. 2005-06. Therefore, this addition also does not survive. Since the amount of total income including addition made by the A.O. of Rs.17,18,669/- does not survive in the light of the order of CIT(A) dated 29.10.2010 for A.Y. 2005-06 and the order of I.T.A.T. for A.Y. 2004-05 therefore, there is no question of computing the assessee’s total income at Rs.59,22,551 (42,03,882 + 17,18,669). Thus, both the amounts of income are hereby deleted.
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2012 (10) TMI 99
Rejection of books of account - Held that:- As the A.O. noticed that the assessee has failed to furnish basis of valuation of work in progress particularly under the circumstances where the assessee followed cash method in respect of project/builder activities. Raw material in the form of gittis etc. are supported by self-made vouchers as noted by the CIT(A). Apart from the non-maintenance of the stock register, various mistakes noted by the A.O. coupled with law G.P. in the year under consideration. Thus the A.O. has correctly rejected the books of account invoking section 145(3) and the CIT(A) has rightly confirmed the order of the A.O - against assessee. Reduction of G.P. rate from 10.7%d to 8% by the CIT(A) - Held that:- CIT(A) noticed that the A.O. has erred in applying trading result of the A.Y. 2005 - 06 to trading result for A.Y. 2006-07 without considering the facts and submissions that the results were not comparable in both the years. However, the CIT(A) followed the judgement of Hon’ble Madras High Court in the case of CIT vs. A. Vajjiram & Bros. [2008 (8) TMI 528 - MADRAS HIGH COURT] in respect of applying the profit rate of 8% as supported by the statutory rate provided u/s.44AD of the Act. There are good reasons for estimating the profit by this 8% rate of profit even in case of big contractors having turnover more than Rs.40 lacs. The assessee as well as the Revenue both have failed to point out how this rate of 8% applied by the CIT(A) was unreasonable. There are no material on record based on which a different rate can be applied at this stage for estimation of the profit. Thus considering comparative position of profit declared by the assessee in F.Ys. 2003-04, 2004-05 & 2005-06, 8% rate estimated by the CIT(A) is most reasonable. No infirmity in the order of CIT(A) - against revenue.
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2012 (10) TMI 98
Order u/s. 263 by CIT(A) - Held that:- No interference is called for in the matter as it is well settled law that if the AO did not make enquiries on the issues involved in the assessment, it would amount to assessment order passed erroneously and prejudicial to the interest of Revenue. Since the AO failed to make proper enquiries on the matter in issue raised in the show cause notice by the Commissioner, therefore, the Commissioner rightly set aside the assessment order with the direction to make fresh assessment in this case after properly investigating the referred issues. In the absence of any material on record to challenge the findings of the Commissioner, no infirmity in the impugned order - against assessee.
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2012 (10) TMI 97
Undisclosed investments - Investment in Vatsal Shiksha Samiti, Gwalior - search - CIT(A) deleted the addition - Held that:- AO made the additions on merits on account of investment made by the assessee in Vatsal Shiksha Samiti, Gwalior but is a fact that no search was conducted in the case of the assessee. Whatever seized material was found was recovered from the business cum residential premises of Shri Sunil Jain and Seema Jain. Nothing was brought on record if both these persons made any adverse statement against the interest of the assessee. No material has been brought on record by the AO to show that the assessee, in fact, made any investment in this Samiti. Whatever investment the assessee has made in the Samiti was duly declared and source of the same was also found explained. The amount declared by the assessee was taken back on his resignation from the Samiti. Thus, there was no evidence that the assessee made investment of any amount in the Samiti. Since the seized material was not recovered from the possession of the assessee, therefore, the assessee was not bound to explain the same. More so, when the details of seized material clearly show that it did not implicate the assessee of any investment made in the Samiti. As decided in CIT vs. Girsh Chaudhary [2007 (5) TMI 176 - DELHI HIGH COURT] that the seized paper would not indicate anything that the assessee made any undisclosed investment in Samiti and in absence of any specific material to link the assessee with any investment, no infirmity in the order of the CIT(A) - in favour of assessee.
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2012 (10) TMI 96
Undisclosed income - Held that:- Whether particular transaction involves the investment or not is the question of fact and the CIT(Appeal), recorded the finding that A.O. had no reason at all to treat entire purchases as unexplained investment and it was a purely imagination of the A.O. So far as the estimation of the income is concerned, for that also, cogent reason has been given by the CIT(Appeal) as well as considered by the Tribunal. The considered opinion that the question of facts have been decided by the CIT(Appeal) as well as by the Tribunal after appreciation of the evidences which have not been vitiated because of non-consideration of the material evidence, nor because of consideration of irrelevant evidence, nor the findings recorded by these two authorities can be said to be perverse - no substantial question of law.
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2012 (10) TMI 95
Unexplained investment - CIT(A) deleted the addition - Held that:- Because of the mention of the name of one Mithlesh Singh found on document seized during search it was presumed that there must be some contract for the purchase of property from Mithlesh Singh and against that the said amount of Rs.36,00,000/- has been paid by the assessee. The very foundation of this assumption is the name of Mithlesh Singh on the paper seized, but apart from this there is no fact on record nor any inquiry was held by the AO to find out any transaction that in fact there was any transaction with Mithlesh Singh, relating to the immovable property for a consideration of Rs. 52,00,000/- as has been presumed by the AO in its order as well as in the questionnaire given to the assessee. This presumption cannot be held to be proper in any manner without there being any further inquiry or material on record - in favour of assessee.
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2012 (10) TMI 94
Penalty u/s 271(1)(C) - re-opening of the assessment - concealment and upward revision of income - ITAT deleted the addition - Held that:- It appears from re-computation of the income that the total income of the assessee has been accepted as per the order passed under Section 143(3)/251 and the income assessed is Rs. 2,51,13,270/-. Out of this income, the addition has been disallowed in view of the explanation furnished by the assessee and which has been accepted by the AO and thus, deletion of Rs. 54,21,878/- resulted into net income at Rs. 1,96,91,390/-. Also the assessee's revised return showing profit to the tune of 27.5% was initially not accepted by the AO and he declared the profit to be 31% and that finding has been set aside in appeal and the assessee's profit has been accepted to be 27.5% as shown in the revised return meaning thereby, the assessee's income to the tune of 27.5% includes the relevant entry of Rs. 50 lakhs which is the amount deposited in the Bank of Tokyo, New Delhi Branch. As in the assessment order there is no finding of the AO that the assessee was guilty of concealing the income which AO could have recorded as provided under Section 271(1), initiation of proceeding under Section 271(1)(C) was not justified - in favour of assessee.
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2012 (10) TMI 93
Gift of India Millennium Deposit (IMD) - whether gift of IMDs can be equated with gift of money and thus brought within the purview of s. 56(2)(v)? - Held that:- The AO has equated the IMDs with bank fixed deposits and concluded that the same is money. On perusuing the terms and conditions of the IMDs and the various restrictions placed upon the free transferability of the IMDs. It is true that no restrictions apply to the transferability of money, which is currently accepted as a medium of exchange. Thus, IMDs, which have these restrictions, cannot be treated as money. At the best they can be treated as anything convertible into money. For that matter, any property whether movable or immovable can be converted into money but the same is not treated or akin to money. This is precisely the reason that an amendment has been brought by the Finance Act 2009 for bringing within the purview of tax, the gifts in kind. However, the amendment is prospective in nature and applies to transactions on or after 1.10.2009 - assessment year in this appeal is 2006-07 - decided against revenue.
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2012 (10) TMI 92
Annulling the order u/s 158BD/143(3)/158BG by ITAT - Held that:- The search had been conducted and completed on 08.09.1999 is not disputed. The assessment order dated 31.12.2003 does not disclose, inter alia, that the assessment proceedings initially drawn on the basis of the search held on 08.09.1999 had, in fact, been dropped. To the contrary, the text thereof demonstrates that the same was pursuant to, amongst others, the notice dated 07.06.2000 issued under section 158BC - As the last of the notices dated 07.06.2000, 17.11.2000 and 07.12.2000 had been received by assessee on 28.12.2000 in this view of the matter, in terms of section 158BE (2), the assessment ought to have been completed latest by 31.12.2002. Thus in respectful agreement to the finding recorded by the Tribunal of annulling the order as it was dated 31.12.2003 - in favour of assessee.
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2012 (10) TMI 91
Salary income vs Business Income – assessee, being Doctor receiving regular fixed receipt from Hospital – Revenue contended that fixed amount p.m. amounts to salary only and various clauses of agreement establish that there is master – servant relationship, particularly placing reliance on clauses of agreement relating to reimbursement of traveling expenses – Held that:- It is observed from agreement of retainership and nature and extent of duties performed by the assessee that there is a very thin difference between holding assessee as employee or as professional All requirements for holding the assessee an employee does not exist as per the agreement for retainership. Generally and practically employments are always for a long period than one year which is not in the present case which is only for one year. Secondly, employment contracts generally carries various other benefits like bonus, gratuity, HRA, Medical allowance etc. whereas in the present case only lump sum payment per month was fixed for the period of retainership. Moreover, the benefit of consistency cannot be denied to the assessee. The assessee had worked as Honorary consultant at various other Hospitals in earlier years and his income was taxed as professional income. Therefore, assessee cannot be said to be an employee and his income can only be taxed under the head income from business and profession – Decided in favor of assessee.
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2012 (10) TMI 90
Income from sale and purchase of shares - business income or capital gains - assessee filed the return of income showing income from speculation profit, short term capital Gains (STCG) and long term capital gains (LTCG) and income from other sources - Held that:- There are various factors such as frequency, volume, entry in the books of account, nature of funds used, holding period etc, which are relevant in deciding the true nature of transactions and no single factor is conclusive. Treatment in the books of an assessee will not be conclusive and if the volume, frequency and regularity at which transactions are carried out indicate systematic and organized activity with profit motive then it becomes business profit and not capital gains. In present case, on perusal of records, we observe that there are repeated transactions of purchase and sales on a regular basis. Considering all these facts, it shows that assessee is a trader in shares and not an investor as the frequency and volume are not only quite high, but the period of holding also varies from a few days to a few months. The above factors clearly establish that the intention of the assessee that she was a trader in shares. In view of above, the order of ld CIT(A) accepting the claim of the assessee in respect of STCG cannot be sustained. However, on the basis of the facts and principles, as discussed herein-above, LTCG on sale of shares is accepted - Decided partly in favor of assessee
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2012 (10) TMI 89
Addition on the basis of suppression of production – AO made addition based on certain norms prevalent in the industry - Nature of machinery utilized - Aging factor of the machinery - Assessee was following undisputedly the same method of accounting for the last no. of years – Held that:- Revenue has not pinpointed any discrepancy on the physical quantitative recording of facts in the books of accounts. Therefore reason for rejection & suppression of production not justified. Decide in favour of assessee. Disallowance of interest expenses – Assessee has given advance to borrower at interest rate which is lower than rate of interest paid on borrowed fund – Held that:- As the assessee has suffered interest @15% from its borrowing and the same fund is advanced charging lesser interest @12%. There should not have had any difficulty in receiving such interest from open market. Assessee failed to submit any cash flow or fund management statements to substantiate its claim that interim surplus of cash is advanced to earn interest to minimize expenditure on account of interest. Decides in favour of revenue. Disallowance on account of deferred revenue expenditure – AO made addition of 4/5th cable charges paid to electricity department by assessee – Held that:- As onetime payment made was neither resulted in creation of an asset nor the amount is refundable. Non-payment lead to disconnection of electricity supply and disrupt the business of the assessee. Therefore amount spent by the assessee towards cable amount to be revenue expenditure in nature and is allowable for deduction for the year in which it is incurred. Decide in favour of assessee.
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2012 (10) TMI 88
Loss due to cancellation of forward contract - dis-allowance on ground of it being speculative transaction - Held that:- Loss due to cancellation of forward contract is revenue expenditure and thus allowable expenditure - Decided against Revenue Addition on account of late payment of employees contribution to PF - Held that:- PF contribution of employer and employee was deposited within grace period, though and well before filing of due date of income tax return. No ground for disallowing the same -Decided against Revenue Addition on account of excise duty not included in the valuation of closing stock of finished goods - Held that:- Closing stock has to be valued, at the option of the assessee, at cost or market price, whichever is lower. Duty of Central excise is levied on the goods manufactured, i.e. excisable goods manufactured by an assessee. It is not a part of manufacturing cost. It can be termed a post-manufacturing cost. Therefore, unless and until it is entered on one side, as an item of cost, it cannot be taken as a component of the value of the closing stock on the other side. Hence, excise duty is to be excluded at the time of valuation of closing stock of finished goods at the end of account period - Decided against Revenue Addition of expenditure incurred on repairs and maintenance treated as capital expenditure - Held that:- CIT(A) has given a finding of fact that the expenditure were incurred on account of maintenance of the existing plant and machinery. Revenue has not placed anything contrary on record suggesting that such expenditure was made for bringing into existence of a new asset on for the enduring benefit to the existing asset. Hence allowable as revenue expenditure - Decided against Revenue Addition U/s 40(a)(ia) on account of commission paid to foreign agents in foreign currency without deduction of tax at source - assessee did not deducted tax at source in compliance with Board Circular No.786 - Held that:- It is not disputed that in respect of AY 2005-06 the claim of the assessee was accepted by the Revenue and there is no change in the circumstance except the contention that the Circular No.786 dated 7.2.2000 has been withdrawn vide Circular No.7 of 2009. Since the claim of the assessee was based upon the circular existing at the time of assessment year, no infirmity found in order of CIT(A) deleting the addition - Decided against Revenue Dis-allowance of excess payment of interest u/s 40A(2)(b) - rate of interest work out to be 21% whereas assessee claims to have paid 12% - Held that:- Matter restored back to the file of AO to verify the claim of the assessee that the liability to pay interest crystallized in the A.Y. 2005-06 and also working out of rate of interest. Additional depreciation - Revenue submitted that the claim of additional depreciation was made in revised return and the revised return submitted when the limitation of filing of such return was expired whereas assessee submitted that CIT(A) has allowed additional depreciation having called for remand report of the AO - Held that:- It is evident from the finding of CIT(A) that for the additional depreciation has been allowed after receiving remand report. No infirmity found in order passed by CIT(A) Dis-allowance of various administrative expenditures - Held that:- It is found that order of CIT(A) is cryptic and no reasoning is given as to why the disallowances are confirmed. Therefore all the issues are restored back to the file of CIT(A) to decide these issues afresh. Expenses incurred on purchase of gift articles and contribution to one Samiti - dis-allowance - Held that:- Expenditure incurred on the occasion of diwali towards purchase of gift vouchers is allowable since the same is incurred to encourage of working ability to its workers. Further, contribution was paid to said Samiti on humanitarian ground hence allowable - Decided against Revenue Dis-allowance of advance written off claimed u/s. 37(1) - business expediency for giving the advance - Held that:- Nothing is brought on record to establish business expendiency or giving the advance in question. Thus, it is not a business advance. Hence, the same is neither allowable u/s. 37 nor u/s. 28/29 as business loss - Decided against assessee.
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2012 (10) TMI 87
Addition on account of unaccounted sales – During survey u/s 133A - Out of books sales was detected - Assessee admit during survey unaccounted income - Held that:- Undisclosed sales represented the gross sales & gross sales cannot be subjected to tax. As the statement recorded u/s. 133A has no evidentiary value and same cannot be sole basis of addition. Therefore sales after deducting profit element are subject to addition. Appeal decide in favour of assessee Addition on account of suppression of stock – During survey u/s 133A – AO found difference in stock as per the books of account and in the trading accounts - Assessee claims that the some quantity of gold out of stock was received on jangad (delivery for sale on approval) basis for sale - Held that:- As the statement accepted the fact that certain gold ornaments were sent to the assessee firm on Jangad basis for sale was submit by the authorized signatory. Therefore to the extent of gold ornaments received by the assessee on Jangad basis is deleted from addition. Appeal partly allowed. Disallowance of unexplained expenditure u/s 69C – Assessee is in jewelry business – AO made addition because assessee failed to explain labour expense - Assessee has submitted the wage register in which laborers put their signature – Held that:- Merely production of the wage register is not sufficient. Assessee failed to corroborate from other evidences as what kind of work was got done and also it was not acceptable that nobody would in for precious metal as gold to any person whose permanent address is not known. Therefore appeal decides in favour of revenue.
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2012 (10) TMI 86
Disallowance u/s 68 - Can the amount of share money be regarded as undisclosed income u/s 68 – AO made addition of unexplained share application money u/s 68 - Held that:- As there is no dispute about the fact that names and addresses of the persons from whom share application money was received by the assessee company are on record, thus, the identity of the subscribers is not in dispute. Addition is to be restricted to the extent of only those applicants of shares who have denied to have made any investment in the share of the company following the decision of SC in case of Lovely Export Pvt. Ltd. (2008 (1) TMI 575). Revenue appeal partly allowed. Penalty u/s 271(1)(c) on account of unexplained share application money - Held that:- As the addition on account of unexplained share application money has been confirmed by ITAT. The explanation-1 to section 271(1)(c) of the Act is attracted. Therefore AO is directed to recalculate the penalty accordingly. Appeal partly allowed.
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2012 (10) TMI 85
Addition on account of surplus from sale of ULIP – Assessee purchased policy that was a unit linked insurance policy – In these kind of policy small portion of the investment goes towards providing the life cover and the residual portion is invested in a stocks or bonds - Assessee claims that surplus amount receive on maturity is exempt u/s 10(10D) - AO treat the entire receipts as income under head income from other sources – Held that:- As major portion is invested in mutual funds therefore, surplus on maturity of the policy should be treated as capital gain. AO has directed to take the sale consideration of units as the amount received on account of maturity of the policy and the cost of investment as the amount invested by assessee during the span of years and accordingly work out the long term capital gain & tax. Therefore, appeal partly allowed.
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2012 (10) TMI 84
Addition on account of long term capital gain on sale of house property - alleged underestimation of value of the sale consideration by adopting lower rate - reference to DVO for estimating the fmv on date of sale as on 14-07-2005 as well as 1- 4-81 - CIT(A) deleted the addition on ground of holding the actions of A.O. in substituting the admitted sale consideration by the FMV arrived at by the DVO and substituting the admitted FMV as on 01- 04-1981 by the FMV arrived at by the DVO to be not in confirmity with the provisions of the Act -Held that:- In Section 48, the A.O. can compute the capital gain on the basis of full value of consideration received or accruing as result of the transfer of capital assets. as held by Apex Court, expression ‘full value consideration’ cannot be construed to the market value of the assets transferred but only means the full value of the things received by the transferor. The A.O. referred the case u/s 55A for fair market value of the capital assets transfer and substituted the value of the DVO in computing the capital gain tax but the full value of consideration as discussed above cannot be construed to the fair market value. The A.O. has also taken the value as on 1.4.81 at Rs.94 lacs in place of Rs.1.03 crore value declared by the assessee on the basis of registered approved valuer report. As per Section 55A, the A.O. can made the reference if estimated value made by the registered valuer is less than fair market value. In this case, the value estimated by the registered valuer was Rs.1.03 crore whereas the DVO had given fair market value at Rs.94 lacs. Therefore, clause (a) of section 55A of the Act could not be made applicable. Clause (b) of section 55A can be invoked only in any other case when value of the asset claimed by the assessee was not supported by an estimate made by a registered valuer. Value estimated by the DVO is less than valued estimated by the Government approved valuer. Further, the difference between value estimated by the DVO and adopted on the basis of registered valuer’s report, the difference is less than 15%. The A.O. has not brought on record any material to prove that the assessee had received much more whatever disclosed in the sale deed. Therefore, CIT(A) has rightly deleted the addition – Decided against Revenue
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2012 (10) TMI 83
Rejection of books of accounts - fall in G.P. rate - improper maintenance of wage register - assessee contended that revenue authorities has not considered the fact that due to increase in material cost and payment of service tax there was fall in GP and, and mere defect in maintenance of wage register alone cannot be the ground for invoking provisions of section 145 without pointing out any specific defects in the audited books of account of the assessee - Held that:- From the facts of this case it is found that AO had examined the books of accounts and statement of affaires maintained by the assessee thread bear and rightly rejected the same for the cogent reasons recorded in the assessment order. CIT(A) had also endorsed to the view of the AO. On examination of these facts, view of the revenue with regard to rejection of books of accounts is upheld. However, taking a lenient view considering the nature of business GP at 9% is taken instead of 6.88% declared by the assessee - Decided partly in favor of assessee
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2012 (10) TMI 82
Dis-allowance of bad debts, namely project deficits generated in three projects - assessee contended that it had offered incomes on yearly basis without actually working out as to whether the project is generating profits or losses. It was the policy of the assessee to offer all surplus in the projects upto completion for taxation and claim the deficits as loss. This has been the consistent accounting policy of assessee and the same has been accepted by Department in the past - Held that:- In the present case, the A.O. in the assessment order has given a finding that the facts in the present assessment years are similar to the facts of A.Y. 1999-2000, wherein appeal has been allowed by Tribunal. In view of these facts and following the decision of co-ordinate Bench for A.Y. 1999-2000, we allow this ground of the assessee. Addition in respect of Sun City Project on ground that assessee had not offered any income in respect of Sun-City project despite substantial expenditure incurred on it - explanation offered by the assessee was that it was of the view that the project would be completed with deficit due to heavy charge of interest on the borrowings and due to non-availability of adequate buyers and therefore no income from it was offered - Held that:- Assessee has not brought out any tangible evidence in its support to justify its stand. Hence addition sustained. Dis-allowance of expenses pertaining to A.Y. 2001-02 but accounted for in the books relevant to AY 2002-03 - Held that:- Since details were not produced by the assessee before the AO or CIT(A). Issue be remitted to the file of A.O. for verification. Addition in respect of Shilalekh project - assessee has not offered any income on ground that project was consistently in deficit and therefore the assessee was not entitled to receive any remuneration or organising fee - Held that:- Since Tribunal in earlier year allowed claim of assessee on observation that assessee had no occasions to make any profit or earn any income from the project for the year under consideration. Thus this ground of the assessee is allowed. Addition made u/s 41(1) - Held that:- The undisputed fact is that the assessee has shown the amount as sundry creditors in its balance sheet and accordingly it acknowledges its liability to pay. The assessee has not written back the liability in its books. The liabilities in question have not ceased to exist. The A.O. has not doubted the existence of the parties. The Revenue does not have any material or evidence to substantiate that the parties have given up their claim against the assessee. Therefore, CIT(A) rightly deleted the addition. Addition of amount written off being the amount recoverable from Rajiv Traders (a company under the same management) - land owned by Rajiv Traders - assessee for developing the said land acquired the entire share capital of Rajiv Traders - Held that:- Said project was abandoned and disposed off by transferring the entire share holding of Rajeev traders. The total construction expenses together with remuneration added was offered as WIP and credited to P/L A/c and was thus offered to tax. Against this amount, only Rs 60,00,000/- was realised and the balance amount of Rs 53,85,475/- was written off. The Coordinate Bench of tribunal has also allowed the loss on sale of shares as business loss while deciding the appeal for AY 1998-99. These facts have not been controverted by the Revenue nor have they brought any material on record to rebut it. In view of these circumstances, CIT(A) rightly deleted the addition. Claim of bad debts and business loss - dis-allowance on ground that assessee did not adduce necessary evidence to prove that the amount that was being written was in the past offered to tax - Held that:- Matter be remitted to the file of A.O. for verification Loss on account of non recovery of amounts advanced to lease holders of granite mines - dis-allowance on ground that loss was of capital in nature and therefore not allowable - Held that:- Amount of write offs were of the advances given in the normal course of business. The assessee had also made purchases from these parties in the past. These facts have not been disputed by the Revenue nor have they brought any material to the contrary on record. Hence, CIT(A) rightly deleted the addition made. Accordingly the ground of the Revenue is dismissed.
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2012 (10) TMI 81
Tax on Long Term Capital Gain - sale of shares - The overall consideration was Rs. 86.25 lakh. - in this year a sum of Rs. 60.00 lakh only was received. The balance was to be received in three succeeding years - the whole of the cost has been claimed by the assessee while computing capital gains by taking the sale consideration at Rs. 60.00 lakh. The question is - whether, the whole of the sale proceeds of Rs. 86.25 lakh or only a sum of Rs. 60.00 lakh is liable to be considered for the purpose of levy of capital gains? Held that:- Tax on Long Term Capital gain is chargeable to tax in the year in which income accrues, arises or received and is deemed to accrue, arise or received - As decided in case of CIT VS . Bharat Petroleum Corporation [1990 (11) TMI 23 - CALCUTTA HIGH COURT ] Calcutta High Court income accruing in different years or received in different years is chargeable in the year in which transfer takes place. Further in the case of Ashokbhai Chimanbahi [1964 (10) TMI 11 - SUPREME COURT] income is taxable when it accrues, arises or is received and full value of consideration received or accruing in any year as a result of transfer of the capital asset shall be taxed in the year in which transfer takes place – in favour of Revenue.
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2012 (10) TMI 80
Depreciation on assets – alleged that same was already allowed as application of income with the grant of registration u/s 12AA(1) of I.T. Act, 1961 – Held that:- Depreciation as debited in the books will be allowable - amount of depreciation debited to accounts of a charitable institution is to be deducted to arrive at the income available for application to charitable and religious purposes – in favor of assessee
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Customs
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2012 (10) TMI 114
Public charitable trust in process of establishing Hospital - rejection of request of the petitioner to categorise it under Category-1 of the Customs Notification No.64/1988 and for issuance of installation certificate - seizure without intimation of equipment imported in accordance with the exemption granted under Customs Notification No.64/1988 dated 1st March, 1988 - Held that:- Petitioner was granted exemption under Category-4 which is in respect of a hospital which is in the process of being established and which upon starting functioning would fall under any of the three categories viz. 1, 2 or 3. Application filed for placement in Category-1 under Notification No.64/1988, was rejected by second respondent on the ground that in the undertaking submitted by the petitioner it had chosen Category-2 and hence, the conditions applicable to Category-2 were applicable to the petitioner, which were not satisfied and had, accordingly, rejected the application. In the writ petition filed by the petitioner challenging the said order, this court had set aside the said order and directed the second respondent to consider the matter afresh, while holding that that if hospitals fall in Category-1, the conditions which are attached to the hospitals falling in Category-2 are not attracted. This is not a case where the petitioner was granted exemption under Category-2 and upon withdrawal of the same is claiming benefit under Category-1. Even after exemption is granted under one of the three categories, it is permissible to change the category, it would certainly be open to the petitioner at a stage prior thereto, to claim the benefit of category-1 instead of Category-2. A perusal of the impugned order makes it amply clear that the second respondent has decided the matter with a closed mind. The very basis of the impugned order, that is, the show-cause notice itself is contrary to the order passed by this court in the above referred writ petition inasmuch as the same calls upon the petitioner to show cause as to why it should not be considered only under Category-2 of Customs Notification No.64/1988 despite the fact that this court had categorically held that the respondent was required to consider the case and decide as to under which category the petitioner would fall. The impugned order passed by the second respondent is hereby quashed and set aside. The matter is restored to the file of the second respondent who shall decide the application afresh without taking into consideration the fact that in the undertaking given by the petitioner it had chosen Category-2. The second respondent shall examine as to whether or not the petitioner satisfies the requirements of Category-1 so as to be entitled to the benefit thereof.
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2012 (10) TMI 113
Interest on interest - whether this Tribunal has power to award interest on delayed payment of interest to the assessee – Held that:- Tribunal has no such power for want of specific provision in the Central Excise Act/Rules for payment of interest on delayed payment of interest - appeals are dismissed
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2012 (10) TMI 112
Benefit of Notification - certificate of origin - benefit of Notification No. 85/2004-Cus., dated 31-8-2004 was not claimed by the respondents in the Bill of Entry filed by them – benefit claimed before the Commissioner (Appeals) - Held that:- merely because certificate was not produced before the Deputy Commissioner cannot be made a ground for denial of exemption benefit, if the same is otherwise available to the importer.
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2012 (10) TMI 79
Denial of drawback - whether the demand is to be sustained in view of para(iv) of Circular 17/97-Cus and para (vi) of Circular 64/98 though these are not relied upon in SCN ? - Held that:- The only relevant information was that the Appellant was a merchant exporter, which was always known to the department. As may be seen from para 1(iv) of Circular 17/97-Cus and para1(vi) of Circular 64/98-Cus there was no question of taking any declaration from merchant exporters who buy goods from the open market as in the case of this Appellant but the drawback was supposed to be restricted to the customs portion only. That merchant exporters who did not get the garments manufactured or stitched through a job workers, but who procured goods from the open market were treated differently and an entirely different set of procedures always existed by virtue of Circulars of 1997 and 1998. The rationale for this was that goods were sourced from diverse suppliers and the authorities were alive to difficulty in securing certificates about duty credit. All these changed in 2003 with the issuance of Circular No.8/2003 it has been decided that instead these manufacturer exporters and merchant exporters with a supporting manufacturer shall be required to give a self-declaration that such manufacturer-exporters or the supporting manufacturers are not registered with Central Excise and that they do not avail / have not availed Cenvat facility. The form of self-declaration is enclosed. The assessee is not a manufacturer but only procures or sources goods from the Indian market and exports them. Therefore, it availed the benefit of All India rates of duty drawback, a notional concept applicable to such class of exporters. None of the circulars cited by the department required the assessee to follow the procedure which is now mandated, in 2009. The previous circulars of 1997 and 1998 as well as the circular of 2003 clearly visualized that duty drawback was restricted, excluding duty credit availed, in the case of manufacturers who also got their job work done. Exporters of goods purchased from the market were to be treated as having availed Modvat facility. Thus the exports had been finalized and duty drawback paid as long back as in 2006-2007, the attempt to reopening the entire issue by the petitioner was clearly unwarranted - in favour of assessee.
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2012 (10) TMI 78
Reduction of penalty equal to 25% – clandestine removal - appellant is not disputing the fact that there is clandestine removal – contention of assessee is that benefit of provisions of sub Section 1A and two provisos of sub-section (2) of Section 11A of the Central Excise Act, was not given to the appellant at the time of issuance of show cause notice – Held that:- Once the option is made known to the person by explicitly stating in the notice and the person still does not take advantage of the scheme, it would be entirely to his own peril. But if the option is explicitly not stated in the notice with proper quantification of particular amount of duty and interest, the failure on the part of person to pay duty, interest and penalty amount equivalent to 25% of duty, within 30 days of the notice, under Section 11A of the Central Excise Act, 1944/Section 28 of Customs Act, 1962, it cannot be held against the person and he shall get option of the said beneficiary scheme even on payment within 30 days of subsequent communication, with proper quantification and particular amount of duty and interest - benefit of provisions of sub-Section (1A) and two provisos of sub-section (2) of Section 11A of the Central Excise Act, 1944 to extended to the assessee – in favor of assessee
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2012 (10) TMI 77
Jurisdiction – reduction of redemption fine to 50% of what was imposed by the Commissioner of Customs – Held that:- Tribunal has the jurisdiction to reduce the redemption fine if he thinks it is just and proper - order passed by the Tribunal is just and equitable
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Corporate Laws
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2012 (10) TMI 111
Strike off the name of the company from the register of ROC - Held that:- For the application of this provision of Section 560 the satisfaction of the Registrar of Companies is necessary. The satisfaction is to the effect that a particular company is not doing any business or is not in operation. Thereafter he issues two notices to the company to controvert this satisfaction. The Company may reply by saying that it is not doing business or may not reply at all. In either of these two cases, the Registrar may strike off the name of the Company, after publishing the proposal in the Official Gazette. This procedure was not followed here in the present case. There are serious conflicting claims regarding paid up capital. Mr. Nirendra Nath Kar says it is more than rupees one lakh whereas, Mr. Dave and the two Merchants say it is Rs.7,000/-. In such a situation there is no question of treating the company as defunct, as its paid up capital is in dispute - on reading sub sections (1), (2), (3) and (5) of Section 560, it does seem that a company can only be defunct, if it does not reply to the notice or says in reply that it does not carry on any business or is not in operation. If it asserts to the contrary, it cannot be struck off at all. Hence striking off is on the admission by the Company that it is defunct. It necessarily follows that if there is any dispute regarding the paid up capital or whether the Company does business, it cannot be declared defunct. Moreover, the petitioner, claiming to be a shareholder and director had sufficient locus to file this application - thus the order of the ROC is set aside & Company be put back in the Register of Companies immediately, by the Registrar of Companies, West Bengal.
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2012 (10) TMI 76
Scheme of Arrangement - what would be an effective date of conversion? - Held that:- Considering the reports of the surveyor Ernst and Young appearing at the supplementary paper book where it is found that the effective date of conversion should be the date of merger meaning thereby, it would be a post-merger issue and not pre-merger as suggested in the scheme. As no reasonable plea was placed to ignore the opinion of the expert on that count the opinion of the surveyor, having the competent expertise, must prevail, particularly, when the company relied on the same at the meeting of the shareholders as contended by Mr. Deb, learned senior counsel appearing for the respondent and not confronted by Mr. Sarkar, learned senior counsel appearing for the appellant. Unfair dealings at the meeting - It would have been proper if such unpleasant things did not happen at the meeting. The learned Judge rightly held, it did not tilt the balance as the overwhelming majority of the shareholders approved the same. In the process, if the balance is tilted in favour of the promoter that would be a consequence for which the respondent would have to suffer without a redressal. We are helpless on that count. Discounted value must be the best possible one, beneficial to the minority shareholders including Chandak and Fofalia and such date must be fixed by the company accordingly from the chart handed over in Court by Mr. Sarkar. To make it clear for removal of doubts, the conversion must take effect after the merger and not anterior to it. Thus with these modifications the scheme is sanctioned.
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Service Tax
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2012 (10) TMI 137
Period of limitation - purchase and sale of SIM cards of Telecommunication company - Revenue imposed demand for the period January 2004 to March 2005 on ground of it being falling under head 'Business Auxillary Service' - SCN dated 18.03.09 - Held that:- It is found from Assistant Commissioner's letter dated 9.8.2005 that he arrived at a decision that such activity does not amount to service and the said decision was intimated the Revenue to the assessee under the said letter. Thereafter Revenue kept quiet for a period of four years and issued SCN on 18.3.2009. It is found that there was no change of circumstances and no new facts came on record. The appellant's activity remained the same even relevant period during the period under correspondence and subsequently also. As such it seems to be a case of change of opinion on the part of the Revenue. When the entire facts were put before the Revenue it cannot be said that the appellant had any mala fide on their part to suppress the activity undertaken by them. Further, during the relevant period, some of the decisions of the Tribunal were holding that such activity of purchase and sale of SIM cards would not amount to providing business auxiliary services. If that be so, no mala fide intention can be attributed to the appellant so as to attribute any suppression or misstatement to them with intent to evade payment of duty. Entire demand is barred by limitation - Decided in favor of assessee
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2012 (10) TMI 136
Setting Aside of Penalty - Agreement with financial companies for arranging finances for their customers thereby rendering business auxiliary services to finance companies, Service Tax along with interest is paid. - Held that:- No penalty can be imposed on the, duty on which liability to pay arises later as there is no malafide intention and suppression of facts to pay duty – in favour of assessee.
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2012 (10) TMI 135
Demand of service tax - appellants are clearing the solar system through dealers also and the dealers further sell it to the customers and charge certain amount for installation – Held that:- Appellant are not charging installation charges separately, but for installation activity, they are liable to pay service tax - activity of installation of solar system falls under the category of 'Erection, Installation and Commissioning Service'. Quantification of service component – Held that:- Appellants has provided the data for computation of service component from the sales effected during the impugned period and the same has not been considered by the adjudicating authority - matters remanded back to the original adjudicating
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2012 (10) TMI 106
Cenvat credit - demand on account of denial of abatement of 40% from gross receipt for assessee providing both Mandap Keeper Service and Catering Service - Revenue’s case is that the appellants have availed Cenvat credit and hence they are not eligible for such abatement –Held that:- Credit of inputs used in relation to exempted output service is not allowed to be taken - Appellant has already paid substantial part of the demand on the first count and interest - it is sufficient for the purpose of Section 35F of Central Excise Act for hearing the Appeal – pre-deposit waived
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2012 (10) TMI 104
Applicability of exemption notification - Assessee is engaged in transmission and distribution of electricity - Whether services provided in respect of erection, commissioning and installation as also technical testing and analyses and installation of meters at the premises of electricity consumers would be covered under the exemption Notification No. 45/2010-ST dated 20.07.2010 - Held that:- Assessee is selling electricity to the consumer, so that for billing the consumer for electricity consumed, it is essential to install the electricity meter. Thus, any activity or service like erection, commissioning and installation of meters as also technical testing and analysis can easily be termed as the service relating to the transmission and distribution of electricity provided by the service provider to the service receiver. Therefore appeal decides in favour of assessee.
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2012 (10) TMI 103
Natural justice – Held that:- Original authority had denied natural justice to the party - copies of certain documents had not been supplied to the party in spite of their specific request. It appears, the party was driven from pillar to post whenever they requested for supply of the said documents. Certainly, the original authority was unfair to the party - It was incumbent on that authority to collect the documents from wherever they were and supply the same to the party to enable them to file an effective reply to the show-cause notice. We further note that no reasonable opportunity of being personally heard was given to the party either. Thus, the findings recorded by the Commissioner (Appeals) as regards natural justice are tenable - appeal allowed by way of remand
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2012 (10) TMI 102
Condonation of delay – appellant submitted that order was kept in an irrelevant file without any note as to the date of receipt of the order - escaped notice of appellant. Inward register maintained by appellant indicated that appeal papers were received on 4-3-2010 and appeal was filed on 20-5-2010 – Held that:- Condonation of delay filed by the appellant. In view of the above, the delay is condoned and the appeal is admitted Service tax demand with interest and penalty – alleged that appellant was ‘programme producer’ - According to the appellant, it had sold soft items which were recorded in respect of various topics including Siddha medicines, agricultural tips, religious and spiritual speeches and used the same in their TV channel during 2001 to 2004 – Held that:- Programmes were recorded by the appellant and was used. Such an event resulted in providing of taxable service as a programme producer when those were meant for telecasting or disseminated by transmission through electronic device and were received by general public - appellant is directed to make deposit
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2012 (10) TMI 72
Cenvat credit - duty paying documents - input services - whether the document certificate issued by the bank is the valid document for availment of Cenvat credit – Held that:- Since this certificate has been issued to the appellant and it contains the information regarding the nature of the service, gross amount charged for the service and service tax paid - it is valid document - requirement of pre-deposit of Cenvat credit demand, interest and penalty is waived
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Central Excise
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2012 (10) TMI 110
CENVAT Credit of M.S. angles, plates, beams etc - Stay Petition for waiver of duty - Held that:- The lower authorities have not addressed the issue from the point of certificate of the Chartered Engineer produced by the appellant which indicates the some consumption of the material on which the credit was availed, for manufacturing/fabrication of the capital goods which are further used in the factory premises - also that the first appellate authority has not addressed the issue of limitation while the adjudicating authority has considered the issue of limitation, but did not give any reason for as to why the claim of the appellant as regards limitation should not be accepted. Thus remit the matter back to the adjudicating authority for fresh consideration - in favour of assessee by way of remand.
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2012 (10) TMI 109
Challenge the jurisdiction of the Commissioner (Adjudication) Central Excise, Delhi - Held that:- The petitioner had received the notices of transfer of the cases by the Central Board of Excise & Customs under Rule 3 (1) of the Central Excise Rules, 2002 read with Notification No. 39/2001 - Central Excise (N.T.) dated 26.6.2001, from the Commissioner, Central Excise Meerut in November, 2011. It is admitted that the petitioner had put in appearance before the Commissioner (Adjudication), Central Excise, Delhi, to which the case and other 138 similar cases have been transferred. Thus the petitioner has sufficiently explained the delay in approaching the Court after having received the notice in November, 2011. It also acquiesced to jurisdiction of the Adjudicating Authority, by putting appearance before him. No merit in the grounds of hardships in inter-State transfer as the State of UP adjoins the State of Delhi. The distance is not so big that the ground of travel may be considered to challenge jurisdiction of common Adjudicating Authority - against assessee.
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2012 (10) TMI 108
Extended period of limitation - SSI Exemption - Appellants are having two units - Appellants were availing two exemptions simultaneously for two units - Condition No. 2(iv) of the Notification No. 8/2002 clearly stipulates that where a manufacturer clears the specified goods from one or more factories, the exemption in that case shall apply to the aggregate value of the clearances mentioned against each of serial numbers in the said table and not separately against each factory – Held that:- Appellants had nowhere brought in the knowledge of the Department at any point of time that the two Units of the Appellant Firm were under the same proprietorship of and were availing exemption under either Notification No. 8/2002 or 9/2002 - facts came to the knowledge of the Department on scrutinizing their records. Therefore, the lower authorities have rightly invoked the extended period of limitation - demands are confirmed
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2012 (10) TMI 107
Demand of duty - benefit of said Notification No. 34/2001-C.E. – required procedures not followed by assessee – Held that:- Assistant Commissioner or Deputy Commissioner can allow the benefit of the Notification, even if the procedure is not followed - appellant was not paying any duty on the aluminium circles under the bona fide belief that such circles, emerging at intermediatory stage, were not leviable to duty. On being pointed out, they paid the duty as per the directions of the Superintendent in terms of Notification No. 34/2001-C.E.. - it is fit case where the Assistant Commissioner or Deputy Commissioner should have ordered for payment of duty in terms of the said notification, even if detailed procedure was not followed by the appellant – stay allowed
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2012 (10) TMI 105
Waiver of pre-deposit – final products were manufactured and cleared without discharging the obligation prescribed under Rule 6 of Cenvat Credit Rules, 2001, the department was of the view that the benefit under the captive consumption notification was not available – Held that:- Assessees prima facie were not required to discharge the obligation prescribed under Rule 6 of Cenvat Credit Rules, 2001 as they were covered by clause (vii) of Rule 6(6), which stipulates that the provisions relating to payment of 10% or 5% as the case may be were not required to be followed as the goods were supplied against I.C.B. in terms of Notification No. 6/02 or 6/06 and therefore, exempted from levy of duty of customs and additional duty as per clause (vii) of Rule 6(6) of the Cenvat Credit Rules - pre-deposit of duty, interest and penalty waived
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2012 (10) TMI 75
Mini cement plant - Whether the entry at Serial No. 28 of the exemption Notification No. 14/2008-CE (NT) was wrongly interpreted by the Adjudicating Officer - Held that:- Application for waiver of the excise duty and interest rejected - Held that:- The Tribunal has found that the entry at Serial No.28 relates to white cement and not grey cement manufactured by the appellant-company. No other type of cement has been granted abatement by any notification - as mentioned in SCN notification dated 1.3.2006, as amended, prescribes the effective rate of duty for excisable goods falling under Tariff item 2523 29 in which different rates of excise duty has been prescribed for units manufacturing cement on the basis of the type of manufacturing plant, and on the basis of form, in which the clearances are affected by the unit concerned. The appellant's factory does not qualify as mini cement plant as defined in the notification. Thus the Tribunal rightly found that the appellant does not have a prima facie case for waiver of the excise duty and the interest. Since the appellant-company has not ceased production, and is making payments to the bank and financial institutions no substance in the plea of undue hardship or financial hardship in depositing the amount - the period of deposit is extended by six weeks from today - against assessee.
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2012 (10) TMI 74
CENVAT Credit of duty paid by an EOU - restricting the Credit to the amount actually paid by applying the effective rate of duty - Held that:- As the adjudicating authority has not considered the submissions made by the appellant in its correct perspective remand the matter back to the adjudicating authority to reconsider the issue afresh - in favour of assessee by way of remand.
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2012 (10) TMI 73
Whether activity is amount to manufacture - making combo-pack of two toothpastes of different weight and one tooth brush. Tooth pastes were provided by Colgate Palmolive (India) Ltd. and brush was supplied by manufacturer at Daman – Held that:- Appellant was claiming to be no manufacturer under Central Excise Law and claiming to be a service provider, now it claims to be a “manufacturer” to get area based exemption benefit - when benefit of area based exemption is claimed the conditions of exemption prescribed by the Notification need to be fulfilled - when the appellant raises invoices on Colgate-Palmolive as a provider of service of packing, he is able to pass on the credit of duty and taxes paid on input and input services used by him, which would not be the case if he is considered as a manufacturer whose products are exempt - appellant when failed to claim the exemption fulfill conditions of the exemption notification, that was deniable - appellant appears to have not come out with clean hands - adjudication is not barred by limitation - While on one hand there is claim of no manufacturer, on the other there is claim of manufacture - appellant directed to make pre-deposit
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2012 (10) TMI 71
Rebate claim – refund claim was time barred as it was filed after the time limit specified under Section 11B of Central Excise Act, 1944 – Held that:- Rebate claim was rightly rejected as time barred. Once the claim is rejected as time barred the allowing of re-credit in Cenvat account of duty paid on exported goods, is legally incorrect as it would amount to allowing rebate - rebate claim was rightly rejected as time barred but the re-credit of duty paid in Cenvat account is not admissible - revision application succeeds
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2012 (10) TMI 70
Interest - leviability of interest on the assessable value appearing in supplementary invoices - period of limitation – Held that:- Interest being consequence of levy and no limitation being prescribed by Section 11AB of Central Excise Act, 1944 - periodicity of default that was well known to appellant and the appellant willfully defaulted to make payment of interest - demand of duty being paid for the default period, interest became payable for no time bar proceeding - appeal is dismissed
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Indian Laws
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2012 (10) TMI 101
RTI - Writ petition - vacancies in the posts, in the office of Chief Information Commissioner, as well as the subordinate staff – petition points out that under the Right to Information Act, information is required to be furnished within 30 days of filing of the application - prayer made in this writ petition is that suitable directions be given to respondents to fill up the vacancies of Information Commissioners as well as the supporting staff – Held that:- Status Report reveals that it has been decided in consultation with CIC that CIC should be granted autonomy in recruitment of staff. Keeping in view, Recruitment Rules are being framed for selection and appointment of suitable staff in consultation with the UPSC - CIC is to be given autonomy and it is left to CIC to recruit the staff, the framing of Rules should not take time as most of the posts are similar to which are in any government establishment and those Recruitment Rules of the Government can always be adopted specifying the eligibility conditions as well as mode of recruitment etc. - direct that this exercise of framing of Recruitment Rules be completed within a period of one month to enable the CIC to start the process of recruitment.
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