TMI Tax Updates - e-Newsletter
November 19, 2014

Case Laws in this Newsletter:

Income Tax Customs Service Tax Central Excise

Articles

1. The Row over Constitutional Validity of Service Tax on Restaurant Services

   By: Manindar Kakarla

2. COMPENSATION in lieu OF REINSTATEMENT

   By: DR.MARIAPPAN GOVINDARAJAN

News

1. Shri Rajiv Mehrishi, Appointed as India’s Alternate Governor on the Board of Governors of the Asian Development Bank

2. Shri Rajiv Mehrishi, Appointed as India’s Alternate Governor on the Board of Governors of the African Development Bank and African Development Fund

3. Chairman, PFRDA Urged Bankers to Propagate Growth of Pension; Asked Bankers to Take Swavalamban Scheme in a Mission Mode and Work Towards Achieving the Targets in the Stipulated Time

4. FM asks the People to Increase their Domestic Savings and Invest the Same in Small Savings Schemes Which are Simple, Safe and Easy to Access; Relaunches Kisan Vikas Patra Scheme; asks People to be Beware of Ponzi Schemes

5. Auction For Sale (Re-Issue) Of Government Stocks

6. RBI Reference Rate for US $

Notifications

Customs

1. 110/2014 - dated 17-11-2014 - Cus (NT)

Notifying All Industry Rates (AIR) of Duty Drawback w.e.f. 22.11.2014

2. 109/2014 - dated 17-11-2014 - Cus (NT)

Makes amendment to Rule 7 of The Customs, Central Excise Duties and Service Tax Drawback Rules 1995

Circulars / Instructions / Orders

Income Tax

1. 16/2014 - dated 17-11-2014

Clarification in respect of Circular No.3 of 2008 dated 12/3/2008 of CBDT – reg.

Customs

2. 13/2014 - dated 18-11-2014

All Industry Rates of Duty Drawback effective 22.11.2014 - Reg.

3. 12/2014 - dated 17-11-2014

Valuation/Assessment Practice in respect of export of Iron Ore

Companies Law

4. 45/2014 - dated 18-11-2014

Extension of time for holding Annual General Meeting (AGM) under section 96(1) of the Companies Act, 2013-Companies registered in State of Jammu and Kashmir.

Highlights / Catch Notes

Income Tax

• Section 263 Revision Blocked: AO's View on Deemed Dividends u/s 2(22)(e) Stands, Limiting Commissioner's Powers.

  Case-Laws - AT : Revision u/s 263 - Deemed dividend u/s 2(22)(e) - where AO has adopted a possible view, based on legal precedents, and the Commissioner is denuded from exercising his power under Section 263 - AT
  Visit to Get Source

  ---

• Penalty u/s 271(1)(c) and Non-Disposal of Application u/s 273AA: Independent Provisions Highlighted.

  Case-Laws - AT : Levy of penalty u/s 271(1)(c) - Non-disposal of application u/s 23AA - the provisions of section 273AA and section 271(1)(c) are independent of each other - therefore, the CIT should have proceeded in the matter, i.e., in deciding on the assessee’s application u/s.273AA on merits - AT
  Visit to Get Source

  ---

• Reassessment u/s 147 deemed invalid due to no new material; disallowance of incentive was a change of opinion.

  Case-Laws - AT : Reassessment u/s 147 - Performance Linked Incentive disallowed – it was a case of change of opinion and the AO has not brought on record any fresh material or information for assuming jurisdiction u/s 147 of the Act - AT
  Visit to Get Source

  ---

• Court Upholds Cheque Advances to Sister Concern as Unexplained Investment u/s 69B of Income Tax Act.

  Case-Laws - HC : Sum advanced to sister concern by cheques drawn – Unexplained investment or not - it has been rightly treated as unexplained investment in terms of Section 69B of the Income Tax Act - HC
  Visit to Get Source

  ---

• High Court Rules Cash Deposits in Bank Accounts Exempt from Section 40A(3) Income Tax Act Restrictions.

  Case-Laws - HC : Payment of expenditure in Cash - the cash deposited to the bank account of a recipient does not fall within the purview of Section 40A(3) - HC
  Visit to Get Source

  ---

• Court Rules Statements u/s 132(4) Need Corroborative Evidence for Tax Assessments; Retracted Statements Insufficient Alone.

  Case-Laws - HC : Scope and ambit of section 132(4) - Even in relation to the very block assessment, a statement referable to Section 132(4), but retracted by the person cannot constitute the sole basis - HC
  Visit to Get Source

  ---

• High Court Upholds Tribunal's Decision Favoring Assessee in 1999 Tax Case Involving March Search and May Statement.

  Case-Laws - HC : Reference u/s 132(4) - the search has taken place on 25-03-1999, but the statement was recorded on 11-05-1999 - It was not even alleged that the search was carried out for the entire period, in between - order of ITAT in favor of assessee upheld - HC
  Visit to Get Source

  ---

• High Court Confirms Taxability of Income Attributed to Liaison Office Promoting Sales in India.

  Case-Laws - HC : Activities of the liaison office established that it was promoting the sales of the assessee in India and the AO was justified in holding that the income attributable to the liaison office was taxable in India - HC
  Visit to Get Source

  ---

• Secret Commission Disallowed u/s 37(1) of Income Tax Act; Case Remanded for Further Verification by Authorities.

  Case-Laws - HC : Secret commission to promote business disallowed u/s 37(1) – Genuineness and quantum of deductions - matter remanded back for verificatioin - HC
  Visit to Get Source

  ---

Customs

• Debate Over 5% Additional Customs Duty on Homeopathic Medicine Imports vs. Reduced Rates per Notification No. 1/2011-CE.

  Case-Laws - AT : Whether homeopathic medicine imported by the Respondent is liable to Additional Customs Duty (ACD) @ 5% or 1% and 2% as the case may be of the value of import in terms of Notification No.1/2011/-CE dated 01.03.2011 during the material period? - AT
  Visit to Get Source

  ---

• Customs Duty Refund Approved for Rs. 10,63,065; Cenvat Credit Denies Rs. 25,28,755 Claim.

  Case-Laws - AT : Denial of refund claim - Unjust enrichment - refund claim of only basic customs duty of ₹ 10,63,065/- would be available to the appellant, as the balance amount of ₹ 25,28,755/- represents additional customs duty/SAD whose Cenvat Credit has been taken by the appellant. - AT
  Visit to Get Source

  ---

• Confiscation of Goods Under Advance License for Fraud Highlights Strict Enforcement of Customs Laws and Import Violations.

  Case-Laws - AT : Confiscation of goods - Goods imported under advance license - Act of fraud established - AT
  Visit to Get Source

  ---

Service Tax

• Cenvat Credit Initially Availed for Excise and Later Exempted Allowed for Service Tax Payment Despite Disallowance Demand.

  Case-Laws - AT : Balance of Cenvat Credit availed for central excise purpose, after availing exemption under central excise, utilized for payment of service tax - demand raised for disallowing cenvat credit alleged to have been lapsed and wrongly availed by respondent - credit allowed - AT
  Visit to Get Source

  ---

• Tribunal Allows Appeal in Cargo Handling Service Case, Excuses Delay for Merits Hearing Despite Limitation Bar.

  Case-Laws - HC : Condonation of delay - Bar of limitation - Cargo Handling Service - delay condoned - appeal preferred by the appellant before the Tribunal deserves indulgence to be heard on merits - HC
  Visit to Get Source

  ---

Central Excise

• Rebate Claim Rejected for Aviation Turbine Fuel Due to Procedural Errors, but Errors Are Condonable Under Regulations.

  Case-Laws - HC : Rejection of rebate claim on ATF supplied to foreign going Aircraft - refund claim was rejected on procedural infractions, which are condonable. - HC
  Visit to Get Source

  ---

• Tribunal Wrongly Dismissed Appeal for Lack of Prosecution; Should Have Considered Merits Despite Absence of Appellant.

  Case-Laws - SC : Tribunal could not have dismissed the appeal filed by the appellant for want of prosecution and it ought to have decided the appeal on merits even if the appellant or its counsel was not present when the appeal was taken up for hearing - SC
  Visit to Get Source

  ---

Case Laws:

• Income Tax

• 2014 (11) TMI 526
  Revision u/s 263 - Deemed dividend u/s 2(22)(e) - Loan amount received from company to be treated as deemed dividend u/s 2(22)(e) or not - Whether the loans/advances given to the shareholders in the earlier years which are assessable as 'deemed dividend' in the hands of the respective shareholders in the past years, should be reduced from the surplus while determining the 'accumulated profits' in the hands of the company during the year - Held that:- Assessee is a shareholder in M/s. Apoorva Properties and Estates Pvt. Ltd., a company incorporated under the provisions of the Companies Act, 1956 in which the public are not substantially interested the AO made no mistake in excluding the sum while determining the 'accumulated profits' for the purposes of computing the amount assessable u/s 2(22)(e) - the invoking of Section 263 of the Act can be justified only where the Commissioner is able to establish that the order passed by the Assessing Officer is erroneous in the eye of law so as to cause prejudice to the interest of the Revenue - In the present case, where the Assessing Officer has adopted a possible view, based on legal precedents, and the Commissioner is denuded from exercising his power under Section 263 of the Act. Amount assessable u/s 2(22)(e) – Held that:- The total 'accumulated profit' available is Rs. 2,61,19,957/- whereas four shareholders (including the assessee) having voting power more than 10% in the company, have received loans and advances of Rs. 3,81,69,640/-. The entire available 'accumulated profits' amounting to Rs. 2,61,19,957/- has been brought to tax as 'deemed dividend' u/s 2(22)(e) of the Act in the hands of the respective shareholders but as the addition was liable to be restricted to the total amount of 'accumulated profits', the same has been assessed in proportion to their shareholding in the company - the 'accumulated profits' only to the extent of shareholding was brought to tax, leaving an amount of 'accumulated profit' which was available to cover the untaxed amount of loan advanced to the shareholder - there is no justifiable grounds for invoking the jurisdiction u/s 263 – the order of the Commissioner is set aside – Decided in favour of assessee. Condonation of delay – delay of 20 months - Chartered Account filed an affidavit stating the reasons for delay - assessee submitted that the delay be condoned as same was unintentional and on account of misunderstanding of law - Held that:- The facts do not suggest that the assessee acted in a negligent or in a mala fide manner qua the delay in filing of appeal before the Tribunal – in Collector, Land Acquisition Versus Mst. Katiji And Others [1987 (2) TMI 61 - SUPREME Court] it has been held that the expression 'sufficient cause' is refers to enabling the Courts to apply the law in a meaningful manner which serves the ends of justice - in the absence of any mala fide or ulterior purpose, the assessee can be said to have 'sufficient cause' for not presenting its appeal before the Tribunal in time against the order of the Commissioner passed u/s 263 - the delay in filing of appeal before the Tribunal is condoned.

  ---

• 2014 (11) TMI 525
  Application of section 50C and addition to be made u/s 69C – Held that:- Both the sections operate independently i.e. to say that section 50C shall bet attracted where there is a transfer of property by the assessee and receives sales consideration - This automatically puts into oblivion the purchase part of the agreement - the argument of the assessee before the CIT(A)was correct that provisions of section 50C do not apply on purchase part of the agreement. The material available with the AO was report of the DVO, and the report of the registered valuer - the remand report does not talk about anything factual but it only says that since the DVO valuation is closer to stamp duty valuation, hence DVO’s report is being adopted - there is nothing in the report of the DVO - The only acceptable document is the report of the registered valuer, which has same basis - the observation of the CIT(A) that the AO must have some reasonable material to put the leash on the assessee - But the only material available with the AO was the DVO’s estimated report, which is based entirely on comparative transactions in the close vicinity - This, cannot become the basis of adoption of financial valuation - there is no infirmity in the order of the CIT(A) to accept the assessee valuation, which ultimately was more than the registered valuer’s valuation. Admission of additional ground under Rule 27 – Issue of notice for reopening of assessment u/s 148 – Held that:- The ground raised pertained to non-issuance of notice u/s 143(2) within 12 months of notice u/s 148 - Though the date of notice u/s 143(2) is not given in the order, but it is apparent that either it would have been issued along with 142(1) or subsequent - In either cases, the notice is barred, because as per the proviso the notice should have been issued within the period of expiry of twelve months from the date of filing of the return - the issue of notice u/s 143(2) beyond the period of 1 year is barred by limitation, which makes the entire proceedings vitiated - the reassessment proceedings and assessment order passed u/s 143(3) read with section 148 is to be set aside – Decided against revenue.

  ---

• 2014 (11) TMI 524
  Addition made on estimation of profit – Held that:- CIT(A) rightly was of the view that most of expenses are in nature of routine business expenses - The expenses include expenses incurred on audit fees, bank charges, depreciation, rent, salary, vehicle, telephone etc. Audit fees is required to be incurred as the gross receipts of the appellant exceeds Rs. 40.00 lacs - the probability of incurring expenses for non-business purpose cannot be ruled out - AO had considered the gross profit shown by the Assessee as the net profit and thereby disallowed the entire indirect expenses - CIT(A) after considering the submissions of the Assessee considered 8% of the receipts shown by the Assessee to be the gross profit which in our view seems to be reasonable - no material has been placed on record by the Revenue to controvert the findings of CIT(A) – there is no reason to interfere with the order of CIT(A) – Decided against revenue. Deletion of addition u/s 68 r.w.s. 41(1) – Held that:- AO on the basis of examination of the return of income of only the 3 creditors and on noticing that the name of Assessee was not reflected by them as debtor, considered the entire amount reflected under the head sundry creditors by the Assessee which also included various other persons, as the income of the Assessee – but, CIT(A) on the basis of the examination of only 5 persons has deleted the entire addition - there is no finding of CIT(A) with respect to the non reflection of the Assessee as debtor by the 3 creditors – the matter is required to re readjudicated – Decided in favour of revenue. Addition u/s 40(a)(ia) – Held that:- The AO in the absence of any details by the Assessee considered the aggregate payment Rs. 13,01,617/- made on account of fabrication, labour, painting and plumbing charges as not allowable u/s 40(a)(ia) of the Act – assessee has submitted that Assessee was not liable to deduct TDS u/s 194C as Assessee being individual and in the immediately preceding year the turnover of the Assessee was less than 40 lacs - the factual aspects needs verification – thus, the matter is remitted back to the AO for fresh decisio – Decided in favour of assessee.

  ---

• 2014 (11) TMI 523
  Whether the assessee had moved the competent authority, being the ld. CIT, u/s.273AA in time – Held that:- Revenue did not dispute the filing of the application u/s 273AA by the assessee in time, i.e., on 24.04.2009 - the assessee have moved valid application/s u/s 273AA on 24.04.2009 with the competent authority, i.e., the office of the CIT - as the provision only bars an application after the levy of penalty, the other conditions of the provision, viz. abatement of the proceedings before the Settlement Commission, etc. being apparently and undisputedly satisfied - the assessee had duly informed the AO of the same in-as-much as he cannot plead prejudice if he had not duly communicated the said fact, i.e., of the application/s u/s.273AA having been moved before the competent authority, to the A.O. Levy of penalty u/s 271(1)(c) - Non-disposal of application u/s 273AA – Held that:- There is no provision in section 275, which grants extended time (for the levy of penalty) where the order passed in the proceedings during the course of which the penalty proceedings had been initiated is being contested before the first or the second appellate authority, for keeping the penalty proceedings in abeyance for want of disposal of an application u/s 273AA, or section 273A for that matter - The two proceedings are independent of each other, and perhaps for the reason that, unlike the outcome of the quantum proceedings, which has a direct bearing on the levy or otherwise of penalty, the proceedings u/s 273A/273AA stand on altogether different footings - the penalty orders cannot be considered as being legally infirm in-as much as the AO was duty bound to have completed the penalty proceedings, validly initiated, within the statutory time period there-for - the provisions of section 273AA and section 271(1)(c) are independent of each other - therefore, the CIT should have proceeded in the matter, i.e., in deciding on the assessee’s application u/s.273AA on merits, unguided and uninfluenced by the fact that the penalty stands already levied – thus, the matter is to be remitted back to the AO for fresh consideration – Decided in favour of assessee.

  ---

• 2014 (11) TMI 522
  Revision of an order u/s 263 - Erroneous and prejudicial to the interest of revenue or not - Held that:- The assessee was contractor and executed contract with M/s. Era Infrastructure India Pvt. Ltd. at Meerut - the AO has considered the development expenses and found excessive and accordingly, disallowed Rs. 1,20,000/- out of this – AO recorded that the books of accounts were produced which have been examined - the assessee attended the proceedings from time to time and furnished the replies to the various queries raised by him - This fact shows that AO has applied his mind and gone through the books of accounts, considered the replies of the assessee and also taken cognizance of the development expenses and found them excessive and after applying his own mind, he disallowed Rs. 1,20,000/- treating the same as excessive - Thus, it is very clear that the AO has applied his mind, made investigations and reached at a conclusion - on this issue, the action of the CIT for invoking the provisions of section 263 is completely unjustified. Relying upon CIT vs. Ram Narain Goel – [1996 (11) TMI 59 - PUNJAB AND HARYANA High Court] – the observation of the CIT that the AO during the course of assessment proceedings failed to inquire into the correctness of gross receipts, claim of expenses, the total contract work to be executed as per the work orders and the discrepancies therein, total receipts of the assessee as per Form 26AS vis-à-vis the receipts returned in the Profit & Loss account and did not raise a finger on the unverifiable nature of accounts maintained by the assessee was unjustified - this observation is factually incorrect - The assessee filed detailed chart giving details of work contracts, TDS amount, work contract tax amount, bill number with dates etc. - the total work contracts were three in the current year and one in previous year - The copy of contracts was enclosed - The assessee has also enclosed copy of bills and payment schedule of the company - These facts clearly show that observation of the CIT in this regard was completely against the factual position and, therefore, these observations were factually incorrect – the order of the CIT is set aside – Decided in favour of assessee.

  ---

• 2014 (11) TMI 521
  Admission of additional evidence under Rule 29 - Held that:- The AO did not allow the claim of the assessee for deduction u/s 80IA of the Act for the reasons that the assessee failed to furnish the certificate from a Competent Authority that the land belonging to Tamil Nadu Maritime Board, Chennai was allotted to the assessee - although the additional evidences had been furnished first time before the Tribunal but it is very much relevant and go to the root of the present controversy - the additional evidences will not change the claim made by the assessee as the issue was already before the AO and the CIT(A). The mistake of the assessee, if any, in not filing the certificate from the Competent Authority was not deliberate or with a malafide intention because the assessee was getting the deduction u/s 80IA consistently for the earlier years, therefore, the new evidence now furnished as an additional evidence shall be admitted by keeping in view the Principle of natural justice but at the same time opportunity is to be provided for rebuttal to the another party i.e. the Revenue Department - the documents furnished by the assessee are vital which go to the root of the present controversy, so these are to be admitted in the interest of natural justice but these documents are required to be examined and considered at the level of the AO – also the same has been decided in Uop Llc. Versus Additional Director Of Income-tax, International Taxation Circle-2(2), New Delhi [2006 (12) TMI 177 - ITAT DELHI-F] - thus, the matter is remitted back to the AO for fresh consideration. Disallowance u/s 14A – Held that:- Assessee submitted that the assessee was not having any exempt income so there was no question of making the disallowance u/s 14A - the disallowance under Rule 14A can be made even if there is no exempt income – the issue shall also be decided by the AO after consideration – Decided in favour of assessee.

  ---

• 2014 (11) TMI 520
  Addition u/s 40(a)(ia) - Assessee contended that the delay in remitting the taxes to the Government were indeed paid before the due date of filing of return of income - Held that:- As decided in CIT Vs Virgin Creations [2011 (11) TMI 348 - CALCUTTA HIGH COURT] it has been held that amendment to Section 40a(ia) was having retrospective operation and such retrospectivity applied from 01-04- 2005 itself - remittances of deducted tax, if made before the due date of filing the return would be enough and Section 40a (ia) would not be attracted – in CIT v. Alom Extrusions Ltd. [2009 (11) TMI 27 - SUPREME COURT] - the TDS provision caused unintended inexplicable situation whereby the assessee who deducted the tax at source from the payments made by it for and on behalf of the Government and then if misses out the time limit of depositing the same with the Treasury within the time prescribed, the amount spent for its business purposes on account of the late deposit of such tax would result into disallowance of entire expenditure under section 40(a)(ia) - the amendment made by the Finance Act 2010 allows additional time up to the due date of filing of the return in respect of even those instances where TDS has been deducted during the first eleven months of the previous year - the relaxation made by the amendment made under the Finance Act, 2010 brings the law in parity with the aforementioned situation and accordingly, for the TDS deducted all throughout the year, time is extended from payment till the filing of return – the order of the Tribunal is upheld – Decided against revenue. Allowability of depreciation in computer peripherals @ 60% - Held that:- CIT(A) rightly allowed the appeal of the assessee relying upon DCIT Vs Data Craft India Ltd. [2010 (7) TMI 642 - ITAT, MUMBAI] - Nothing was brought by revenue to take a different view – thus, the order of the CIT(A) is upheld – Decided against revenue.

  ---

• 2014 (11) TMI 519
  Imposition of penalty u/s 271(1)(c) – Particulars of income concealed and inaccurate particulars furnished or not – Held that:- The penalty has been imposed after the requisite satisfaction is recorded – the Tribunal had rightly held that the Assessee indulged in an act which could be termed as deliberate - She presented not only a wrong, incorrect but a non-genuine claim of gift - She was aware that it was untenable and even wrong and incorrect - The reasons assigned by the Tribunal do not indicate that it was unaware of the distinction in clause (c) of sub-section 1 of section 271 of the Income Tax Act, 1961 - the Assessee presented incorrect and untrue facts regarding the amount received claiming it as gift and which was found as not genuine – as such no substantial question of law arise for consideration – Decided against assessee.

  ---

• 2014 (11) TMI 518
  Reassessment u/s 147 - Performance Linked Incentive disallowed – Held that:- The AO completed the assessment u/s 143(3) of the Act at an income of Rs. 435,03,14,230/- and on appeal filed by the assessee the FAA has also given some relief to the assessee and appeal effect u/s 143(3)/250/154 was also given by the AO on 09/04/2008 - AO during the course of original assessment proceeding raised specific query regarding change in accounting policy and the assessee filed its reply dated 12/01/2006 with support of documentary evidence - The AO has considered the same and accepted the explanation given by the assessee - the AO has dealt upon the issue of Performance Linked Incentive (PLI) during the course of original assessment - The assessee company has duly disclosed the change in accounting policy regarding Productivity Linked Incentive before the AO at the time of original assessment. Depreciation on plant & machinery on Account of exchange variation disallowed – software development expenses disallowed - Held that:-There is no occasion to add back Rs. 24,08,326/- as depreciation on account of exchange variation of Rs. 84,32,302/- capitalized in the cost of fixed assets that the issue of disallowances of software development in M/s Amway India Enterprises vs. DCIT [2008 (11) TMI 432 - ITAT DELHI] it has been held that software development expenses are revenue in nature - The details of software expenses has already been furnished by the assessee during the course of original assessment which is not denied by the Revenue Authority in their orders. Notice for reopening of assessment u/s 148 – Held that:- The year in question is A.Y. 2004-05 which means any notice u/s 148 issued after 31/03/2009 is not sustainable in the eye of law - It can only be sustainable if it passes the test of proviso, namely that the escapement of income should be on account of failure on the assessee’s part to disclose fully and truly all material facts relevant to its income - When the AO is able to demonstrate that escapement of income therein is occasioned by incompetence or inaccuracy in the assessee disclosure - the reassessment order is not sustainable in the eye of law and the AO assumed his jurisdiction u/s 147 of the Act as it was a case of change of opinion and the AO has not brought on record any fresh material or information for assuming jurisdiction u/s 147 of the Act – the order of the FAA is upheld – Decided against revenue.

  ---

• 2014 (11) TMI 517
  Rejection of reference application u/s 256(2) – Reference for substantial question rejected – Matter pending for almost seventeen years - Held that:- Taking note of the order dt.26.3.2003 disposing of application filed by the revenue u/s. 256 (2) of the Act arising out from AY 1989-90 and pending consideration in DB Income Tax Reference-4/2003 and the nature of transaction are almost the same including substantial question which emerges for consideration as regard scope of Sec.80 HHC of the Act is concerned, reference application deserves acceptance – thus, the reference application is accepted with a direction to make a direction to the Tribunal since the matter is pending for almost seventeen years – Decided in favour of revenue.

  ---

• 2014 (11) TMI 516
  Sum advanced to sister concern by cheques drawn – Unexplained investment or not - Held that:- The Tribunal rightly was of the view that the payment of Rs. 17,00,000/- to Austro Beer by the appellant came to light only from Dena Bank's Account of Austro Beer (I) P. Ltd. - The corresponding entries in the accounts of the assessee are also looked into in the paragraph - the assessee did not show Austro Beer as a debtor in the balance sheet as on 31.03.1997 and in subsequent balance sheets - The investment account of Austro Beer reflected opening debit balance of Rs. 7,50,000/- as on 01.04.1996 - Appellant was given opportunity to explain this position - Explanation furnished was that the financing banker did not approve the diversion of borrowed funds, & hence payments to Austro Beer could not be shown as advances and hence, it was included under the head of sundry debtors - Section 69-B of the Act is on treatment to be accorded to amount of investments, etc., not fully disclosed in books of account assessee could not give details of sundry debtors & support it by primary books of accounts - assessee could not show that amount of Rs. 17 Lakh was reflected in the balance sheet dated 31.3.1997 - it was not shown that amounts were not shown as repaid by M/s Astro Beer during relevant previous year - it has been rightly treated as unexplained investment in terms of Section 69B of the Income Tax Act - Finding that this payment & its nature was learnt due to search is also not perverse - No arguments have been advanced to show why or how these findings are erroneous or then Section 69B does not get attracted – the order of the Tribunal is upheld – Decided against the assessee. Inclusion of income of new industrial unit - Whether the Tribunal was right in concluding that the income of the new industrial until, the receipts of which were found recorded in books could be included in the income taxable in block assessment in the light of the provisions of Section 158BB(1)(d) which excludes from the scope of block assessment such income assessable for assessment year for which the time for filing the return of income has not expired as on the date of search – Held that:- Section 158-BB is about the computation of undisclosed income of the block period - the bar prescribed is not absolute - no clarification was given as to whether the deductions under Section 80 IA was claimed in that return or not - The accounts officer has noted that the computerized books of account were produced before the DDIT only - the addition was made on the basis of the documents obtained during search and during post search enquiry – Decided against assessee. Status of the employees working with the assessee - Whether the Tribunal was right in holding that the new industrial unit cannot claim to have employed the required number of workers viz. 10 workers by including peons, clerk and head clerk employed by the undertaking the only business of the undertaking being job printing – Held that:- The assessee states that Peons, Head-clerk and Clerk-typist need to be included in the number of employees to find out the eligibility in terms of Section 80 IA(2)(v) - industrial undertaking may have more than 10 or several employees, but, clause (v) warrants that 10/20 or more of such employees/ workers in the industrial undertaking must be employed in the manufacturing process - manufacturing process is obviously a narrower concept. Industrial undertaking therefore, may have various departments like accounts, audit, personnel, marketing etc. - The workers working in these other departments will not be participating in manufacturing process though employed in such industrial undertaking or establishment - skilled and unskilled workers who work on machine or otherwise actually participate in manufacturing process, need to be counted to find out the number of 10 or more, envisaged by the Parliament in Clause (v) - Hence, they need to be excluded for the purpose of finding out whether said clause (v) is attracted or not - the appellant does not employ 10 workers in actual manufacturing process – thus, the order of the Tribunal is upheld – Decided against assessee.

  ---

• 2014 (11) TMI 515
  Transfer pricing adjustment - Captive software development service provided to AE – Risk adjustments - Held that:- AO has allowed 0.5% risk adjustment for various differences while taking the comparability analysis which the CIT(A) increased to 1% - the order of the CIT(A) is upheld – Decided against revenue. Inclusion of domestic expenditure as operating expenditure – Held that:- The ledger account indicates the total amount spent under various heads is equivalent to the amount transferred to Juno Online - What is the gross expenditure incurred by assessee could not be verified. For example, under the head Electricity and Generator expenses, the ledger account of power expenses indicates expenditure from 8th April, 2002 to 9th January, 2003 to the extent of Rs. 29,93,214 - The entire amount has been shown towards Juno Online recovery. Likewise, generator charges at page 80 from 11th April, 2002 to 16th January, 2003 were shown to have been paid to Sunil Service Station amounting to Rs. 78,806 and the entire amount has been shown to be recovered from Juno Online - Total generator expenses/power charges were not placed before us so as to examine whether 50% of the expenditure was only charged to Juno recoveries and not 100% - in order to examine the nature and extent of expenditure and the vouchers therein, the matter is remitted back to the AO for examination of nature of expenditure and if the expenditure was spent on behalf of Juno Online, then the expenditure not recovered from the said company has to be excluded – Decided in favour of assessee. Option of +/- 5% - Held that:- There is no need to make any claim of the statutory provision - In case ALP determined after due analysis is within +/- 5% range as provided in the proviso to section 92C(2) - AO/TPO is bound to give the benefit to the assessee - There is no need to make any separate claim - Since assessee has shown ALP within the range, there is no requirement of making a claim in its T.P. study, CIT(A) erred in observing that assessee has not made the claim before the TPO - TPO/AO is directed to keep this statutory provision in mind while arriving at the addition, if any, required - this +/- 5% is not a standard deduction but if ALP so determined is within the range of this +/- 5% from assessee s margin, then the benefit as provided in proviso should be given to assessee – Decided in favour of assessee. Determination of ALP – Held that:- TPO mentions margin on sales of E. Star at 27.24% and margin on cost at 32.82%.- the basis for arriving at those figures are not available - operating cost was arrived at Rs. 19.04 crores and operating profit at Rs. 4.81 crores thereby, OP/OC at 25.28% - Since, there is a substantial variation between the margin computed by assessee vis-à-vis computation by TPO, this aspect requires re-examination by TPO/AO - The TPO/AO should examine how the margin on cost was arrived at and give an opportunity to assessee to file its objections and then arrive at the correct margin on cost, so as to include the same in arriving at the ALP – Decided in favour of assessee. Selection of comparables - M/s. Zen Technologies Ltd. – Held that:- The company is not functionally comparable as the company is in manufacturing/product service and is also involved in research and development - Its employee cost was only 3% - company paid excise duty/VAT - assessee s objection that it is functionally different is to be accepted. Whatever may be the reason, CIT(A) has correctly excluded the same from the list of comparables – the order of the CIT(A) is upheld – Decided against revenue.

  ---

• 2014 (11) TMI 514
  Invocation of section 40A(3) – Amount remitted to the account of recipient in bank - cash payment – Held that:- The payment was in cash but it was deposited into the bank account of the recipient - It is not a case where the cash was paid by the assessee and was received by the recipient - An instance of cash being credited to the account of the recipient stands on a higher footing, compared to the different heads, under Rule 6DD of the Rules when payment of cash, even to the banks and other statutory agencies, is recognized, there is no reason why the deposit of cash into the bank account of a recipient cannot be regarded as qualifying for allowances. The objective under the Act is to ensure that the income of an assessee is levied tax and every step is taken to ensure that no part of the income escapes the taxation - The prohibition contained under Section 40A(3) of the Act is more a matter, which genuinely falls in the realm of the Banking Regulation Act - A provision of that nature cannot be understood just in grammatical manner - In Commissioner of Income Tax v. Smt. Shelly Passi [2013 (3) TMI 219 - PUNJAB AND HARYANA HIGH COURT] it has been held that the cash deposited to the bank account of a recipient does not fall within the purview of Section 40A(3) – the order of the Tribunal is upheld – Decided against revenue.

  ---

• 2014 (11) TMI 513
  Scope and ambit of section 132(4) - Whether the Tribunal is justified in holding that Explanation to sec.132(4) is prospective in nature though the explanation laid down only rule of evidence and in that sense it is only procedural in nature – Held that:- Search and seizure for the purposes of preventing or detecting crime reasonably enforced was not inconsistent with the constitutional guarantee against search and seizure - the search of the assessee by a police officer was not justified by the warrant nor was it open to the officer to search the person of the appellant without taking him before a Justice of the Peace Nevertheless it was held that the court had a discretion to admit the evidence obtained as a result of the illegal search and the constitution protection against search of person or property without consent did not take away the discretion of the court. It was open to the court not to admit the evidence against the accused if the court was of the view that the evidence had been obtained by conduct of which the prosecution ought not to take advantage - But that was not a rule of evidence but a rule of prudence and fair play - the effect of explanation to Section 132(4) of the Act is that the AO can rely upon it in respect of pending proceedings also, as a piece of evidence, but not as the sole basis for imposing additional financial liability upon an assessee either in the form of denial of benefits which an assessee is otherwise entitled to, or subjecting him to prosecution - if there exists any other supportive material, the statement recorded u/s 132(4) can certainly be taken aid of - in the absence of other supporting material, a statement of that nature cannot constitute the basis to burden an assessee. Even in relation to the very block assessment, a statement referable to Section 132(4), but retracted by the person cannot constitute the sole basis - It can be relied upon if it is not retracted from and even if it is retracted from, it is supported by other material - The communication dated 11-03-2003 of the department to its officials throws light upon this - If the statement made during the course of search remains the same, it can constitute the basis for proceeding further under the Act, even if there is no other material - If, on the other hand, the statement is retracted, the AO has to establish his own case - The statement that too, which is retracted from the assessee, cannot constitute the basis for an order u/s 158BC of the Act – thus, the order of the Tribunal is upheld – Decided against revenue.

  ---

• 2014 (11) TMI 512
  Restriction of benefit u/s 80JJ – Income derived from the sale of chicks and services provided - Income derived from after sale services disallowed - Held that:- Remuneration for the services rendered to the chicks that were sold to the poultry farms was the source of income - it is only when direct and immediate nexus between the two is established that it can be said to be derived from - If the principal activity that qualifies deduction u/s 80HH of the Act was the manufacture of chemicals, by no stretch of imagination, the interest on the deposits made in the continued supply of power can be treated as part of it - the income derived from after sale services rendered by a hatchery to the poultry farmers, who purchase the chicks from them cannot at all be treated as heterogeneous or unconnected to that of the sale proceeds of the chicks – the order of the Tribunal is upheld – Decided against revenue.

  ---

• 2014 (11) TMI 511
  Reference u/s 132(4) - Block assessment - Whether the statement said to have been recorded from the managing partner of the respondent would fit into the one referable to Section 132(4) – Held that:- The statement must be recorded during the course of search and seizure - it can be recorded only as a sequel to the discovery of books of account, cash, bullion or similar items - the search has taken place on 25-03-1999, but the statement was recorded on 11-05-1999 - It was not even alleged that the search was carried out for the entire period, in between - A statement recorded one and half months after the search, can by no means be brought under the purview of Section 132(4) - the block assessment is not on the basis of any discovery of wealth, bullion or books of account. Additions on the basis of discrepancy between the two registers (RG-1) - Held that:- While excise duty becomes payable when the manufactured material is removed from the factory, the income tax becomes payable when the product is sold and sale proceeds accrue to the assessee. When it was not even alleged that the steel, representing the differential quantity, was sold, there was no basis to infer or imagine the accrual of income or the corresponding obligation to pay the income tax. It does not need any emphasis that the proceedings under Chapter XIV-B are penal in nature and they can be sustained if only they are founded and grounded on undisputed or established facts. An assessee cannot be subjected to the proceedings under that chapter, just on the basis of imaginations or surmises. – the order of the Tribunal is upheld – Decided against revenue.

  ---

• 2014 (11) TMI 510
  Penalty proceedings u/s 271(1)(c) – Intention to hide the income or not – Held that:- The Tribunal rightly made reference to the decision in Sir Shadilal Sugar and General Mills Ltd. V. Commissioner of Income Tax [1987 (7) TMI 3 - SUPREME Court] - It is not as if the Commissioner and Tribunal proceeded on the assumption that there was no deliberate attempt on the part of the respondent to conceal the two items - The removal of the word deliberate did not give a free hand to the AO or exposing the assessee to a defence less situation - The principle that runs cutting across any systems of law is that before person is visited with punishment or penalty, the wrongful act on his part must be established - If not a deliberate intention, at least, intention, as such, must be proved to be existing - The intention of this nature may not be equated to the concept of mens rea - At the same time, the minimum contrast with an instance of mere omission, or failure must be made- Otherwise, every inadvertent omission, or a bona fide understanding of a particular provision, which is not accepted by the Income Tax Officer may expose the assessee to penalty - If that time is pursued, Act may turn out to be the one of the collection of penalties than the income tax. Relying upon Mak Data P. Ltd. v. Commissioner of Income Tax [2013 (11) TMI 14 - SUPREME COURT] -once an item of income was found to have been concealed, the mere fact that the assessee has voluntarily disclosed it thereafter, does not absolve him from being proceeded u/s 271(1)(c) of the Act - it is important to understand the purport of very word concealment - That can occur, only when the person is in full knowledge of the state of affairs and even while being under obligation to make it known to others, and in particular the authorities under the Act fails or refuses to do so - It is then, and only then, that he can be said to have concealed and once the factum of concealment is proved, his attempt to voluntarily disclose it does not save him – as such there was no ingredients of concealment – thus, the order of the Tribunal is upheld – Decided against revenue.

  ---

• 2014 (11) TMI 509
  Capital contribution made in partnership - AO after enquiries remained unsatisfied and made addition as unexplained credit – Loans from various parties - Genuineness of the credit Held that:- The facts related to all the parties are somewhat similar in nature, the requirement of proving the genuineness of investment is always on the assessee - If an explanation is tendered that the source of such investment is some loan or gift from someone else, then the assessee is obliged to prove the genuineness of such explanation by showing the identity of the payer, his capacity to pay and the genuineness of the transaction - The principles as applicable to section 68 in this regard apply with full vigor to section 69 as well in such a situation - the assessee’s brother Shri Rajender Kumar sold his house on 7.3.2006 for a consideration of Rs. 9.54 lac out of which a sum of Rs. 2.50 lac was claimed to have been gifted on 15.4.2006 - The AO has not disputed the fact about Shri Rajender Kumar selling his house property for the stated consideration - The mere fact that the gift was made after one month and a few days cannot disprove the genuineness of the gift when it was a brother helping his real brother, who, in turn, was setting up his factory and further the source of the gift is specific and substantiated. The loan of Rs. 1 lac was given by one brother to another through cheque - Source of the amount in the bank account is evident from the AO’s own recording that the account of Shri Rajender Kumar was overdrawn to that extent - As the explanation about the source of deposit in his bank account is specific and substantiated, CIT(A) was fully justified in deleting the addition - Smt. Sumitra Devi was admittedly an employee drawing a salary of Rs. 10,000/- 12,000/- per month. She withdrew a cash of Rs. 57,000/- from her bank account on 10.2.2006 and the sum of Rs. 50,000/- out of that was re-deposited on 11.7.2006 in her bank account, for which a cheque was issued to the assessee as loan - she withdrew a sum of Rs. 57,000/- from her regular bank account which was claimed to have been re-deposited for giving loan to the assessee - The AO has simply rejected the assessee’s contention of re-deposit of cash without pointing out the utilization of such amount elsewhere - Once it is admitted that a particular sum was withdrawn from bank, then its redeposit cannot be assailed by the Revenue without showing the utilization of such amount elsewhere - As the amount of Rs. 57,000 was withdrawn from her known sources of income, its redeposit cannot be questioned. The assessee claimed that the amount of Rs. 50,000/- advanced by Shri Dushyant Kumar was received as gift from his father, an agriculturist who gave this amount to his son for advancement of loan to the assessee - There is no evidence worth the name to substantiate the agricultural income in the hands of Shri Om Prakash out of which an alleged gift of Rs. 50,000/- was made to Sri Dushyant Kumar - It is a case of vague and unsubstantiated explanation - In the absence of any documentary evidence for the sale of crop, the genuineness of this credit cannot be accepted – the addition is restored. The assessee concocted a story of having received a gift of Rs. 3 lac from his father, Shri Ram Kishan Yadav - There is no reliable evidence to substantiate the sale proceeds of Rs. 4 lac of agricultural produce out of which the alleged gift of Rs. 3 lac was made to the assessee - The fact that Shri Ram Kishan Yadav is drawing pension of Rs. 6,000/- per month and had never credit balance of more than Rs. 7,000/- in his bank account, do support the AO’s contention about the non-genuineness of the gift alleged to have been received by the assessee - the addition is restored. Shri Phul Chand, father of Smt. Sunita Yadav executed a gift deed - It has been deposed in this gift deed that Shri Phul Chand gave a gift to his daughter by means of cheque and the source of the gift was also explained to be out of his property, of which he was the absolute owner - The AO did not find any force in the specific explanation given to him about the source of the deposit - Neither Shri Phul Chand Yadav was summoned for examination, nor any other inquiry was conducted to disbelieve the specific and authenticated explanation about the gift made by a father to his daughter - the assessee succeeded in discharging the primary onus cast upon him with regard to this loan transaction - Decided partly in favour of revenue.

  ---

• 2014 (11) TMI 508
  Liability to tax on business income - Article 5(3)(e) of India-USA DTAA – LO constitutes PE or not - Whether the Liaison Office ( LO ) was engaged in marketing/ promoting assessee s products in India – Held that:- The AO during the course of the assessment proceedings, had called upon the assessee to explain the nature of its activities - assessee also explained before the AO in pursuance of a notice to show cause dated 13 February 2006 that initially it had an agent in India for the purpose of contacting buyers but during the year relevant to the AY, the assessee had set up a liaison office - The assessee also explained before the AO that the activities of the liaison office also included various activities, for instance, coordinating the commercial activities like purchase orders, letters of credit and shipment - This was carried out through the office of the assessee at NOIDA by the Chief Representative Officer and other technical staff. The office also coordinated the technical service and sales visits of the company s representatives who visited India from the overseas office - The Tribunal rightly relied upon relevant documentary material in arriving at the conclusion that the activities of the liaison office established that it was promoting the sales of the assessee in India and the AO was justified in holding that the income attributable to the liaison office was taxable in India - the activity of the liaison office during the year relevant to the AY was not of a preliminary or preparatory nature so as to attract the exclusion under Article 5(3)(e) of the DTAA – thus, no substantial question of law arises for consideration – Decided against assessee. Article 7(1) of the DTAA provides that if an enterprise carries on business in the other contracting State through a permanent establishment situated therein, "the profits of the enterprise may be taxed in the other State but only so much of them as is attributable to" (a) that permanent establishment; (b) sales in the other State of goods or merchandise of the same or similar kind as those sold through that permanent establishment; or (c) other business activities carried on in the other State of the same or similar kind as those effected through that permanent establishment. The AO did not apply his mind to this crucial requirement which defines the extent of taxability - The AO followed a simplistic course of deducting the expenses of Rs. 38.86 lacs from the receipts of Rs. 63.72 lacs from the head office - Whether any part of the profits were attributable to the permanent establishment, has not been considered either in the order of the AO or, for that matter, by the Tribunal – thus, the matter is remitted back to the AO for fresh determination of the taxable income having due regard to the provisions of Article 7 of the DTAA – Decided partly in favour of assessee.

  ---

• 2014 (11) TMI 507
  Secret commission to promote business disallowed u/s 37(1) – Genuineness and quantum of deductions - Held that:- It is difficult to discern from it that a principle was laid to the effect that the secret commission as such cannot be paid at all, and if paid, cannot be deducted u/s 37 (1) of the Act - Some cloud on the meaning of the expression secret commission needs to be cleared - it may give an impression that the expenditure was incurred for undertaking some clandestine activities - The secret commission referred to in the orders of assessment or the subsequent judgments, is the amount, which is paid to certain individuals or agencies, that provide transport business to the respondent. The payment itself is not established and secondly it is not the case of the assessee before the assessing authority that the particulars of the persons to whom secret commission was paid could not be supplied without detriment to the business of the assessee having regard to the nature of the business of transport of cargo carried on by the assessee-company – thus, the deduction cannot be claimed as a matter of course, and it can only be on complying with the two requirements as to the particulars of the amounts paid as commission are furnished transaction-wise and ultimately they are correlated to the turnover and the names of the recipients are (i) furnished in the returns or (ii) a plea is raised to the satisfaction of the Assessing Authority that the disclosure of the names of the recipients is detrimental to the interest of the assessee - Those two important factors have not been addressed by the Appellate Authority – thus, the matter is to be remitted back for fresh consideration – Decided in favour of revenue.

  ---

• 2014 (11) TMI 506
  Claim of bad debts disallowed – Evidences produced by assessee or not – Whether the claim of the assessee seeking allowance for debts written off as irrecoverable, irrespective of whether they are written off after 180 days or after 120 days as per the changed management policy in respect of each assessment year - Held that:- In TRF. LTD. Versus COMMISSIONER OF INCOME-TAX [2010 (2) TMI 211 - SUPREME COURT] the issue related to claim of bad debts written off discussed and it was held that when bad debt occurs, the bad debt account is debited and the customer's account is credited, thus, closing the account of the customer - In the case of companies, the provision is deducted from sundry debtors - The judgment was delivered on 9.2.2010 – it has been clearly held that after 1st April 1989, it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable - It is enough if the bad debt is written off as irrecoverable in the accounts of the assessee - "bad debts" if written off, on the accounts of the assessee and appropriately claimed before the competent authority, the authorities are bound to consider the same as decided by the Hon'ble Supreme Court – the matter is remitted back to the limited purpose - Decided partly in favour of assessee.

  ---

• Customs

• 2014 (11) TMI 530
  Imposition of Additional Custom Duty - benefit of Notification No.30/2004 and No.1/2011 - Whether homeopathic medicine imported by the Respondent is liable to Additional Customs Duty (ACD) @ 5% or 1% and 2% as the case may be of the value of import in terms of Notification No.1/2011/-CE dated 01.03.2011 during the material period - Held that:- There was no import of the input, which are duty free under central excise law in India nor the homeopathy goods is duty free under Central Excise Tariff Act, 1985. Law is well settled that if excise duty is not leviable on the manufacture of goods, the question of import of like goods to suffer any additional customs duty does not arise as has been held in the case of CCE, Amritsar Vs. M/s. Malwa Industries Ltd. [2009 (2) TMI 41 - SUPREME COURT]. Therefore, the respondents are liable to ACD equal to central excise duty as if the goods imported were manufactured in India with all remissions, concessions and impositions. The facts and circumstances of M/s. Dhana Exim Vs. CC, Chennai [2005 (8) TMI 232 - CESTAT, CHENNAI] and CCE, Madras Vs. Sudharsan Pine Products Ltd. [1999 (1) TMI 132 - CEGAT, MADRAS] relied by respondent are altogether different from the present context of the case. An exemption Notification is read strictly. The claimant of such benefit has to prove that conditions of the Notification have been satisfied discharging burden of proof following the ratio laid down in the case of Motiram Polaram Vs. Union of India [1999 (8) TMI 68 - SUPREME COURT OF INDIA] and the ratio laid down in the case of Eagle Flask Industries Ltd. Vs. CCE, Pune [2004 (9) TMI 102 - SUPREME COURT OF INDIA]. The respondents failed to discharge the burden of proof to the effect that the goods imported did not avail remission of CENVAT in the exporting country under WTO agreement - Decided in favour of Revenue.

  ---

• 2014 (11) TMI 529
  Benefit of exemption No.13/2010-Customs dated 19.02.2010 - Exemption available for such goods only to organizing committee of commonwealth games, 2010 and National Sports Federation is relation to Games 2010 - whether the effect of the amending Notification No. 84/2010-Cus dated 27.08.2010 is prospective or retrospective (with effect from 19.02.2010 the date on which notification No. 13/2010-Cus. was issued) - Held that:- The appellants have laid a lot of stress to argue that Notification No. 84/2010-Cus was merely correcting a mistake/unintended omission and therefore should be given retrospective effect. As the appellants had cited a CBEC circular dated 13.08.2010 to stress that Commonwealth Games 2010 was an event of national importance, it may be appropriate to cite another CBEC circular No. 26/2012 dated 09.08.2010 which categorically stated that suppliers/contractors/vendors appointed by the OC, CWG were not eligible for the benefit under Notification No. 13/2010-Dus dated 19.02.2010. We may mention here that as has been stated by the Hon'ble Supreme Court in the case State of Tamil Nadu and other Vs. India Cement Ltd. (2011 (4) TMI 1080 - SUPREME COURT OF INDIA), as far as clarifications/circulars issued by the Central Government and the state Governments are concerned, they represent merely their understanding of the statutory provisions and those are not binding upon the Courts. Contentions of the appellants that notification No. 84/2010 was merely rectifying a mistake/unintended omission in notification No. 13/2010, is totally untenable because, as is evident from the said circular as far as the Government is concerned, there was no mistake or omission in the notification No. 13/2010. Appellants did not fall within the scope of exemption notification No.13/2010-Cus as the said Notification (No.13/2010-Cus) inter alia exempted all sports goods, sports equipment etc. when imported into India for the purpose of organising the Common Wealth Games 2010 from the whole of duty of custom leviable thereon and one of the conditions of the exemption was that the goods were imported by the Organising Committee of the Common Wealth Game 2010 or National Sports Federation in relation to the said Games 2010. It is evident that appellants, clearly not being the Organizing Committee of the Common Wealth Games 2010 or National Sports Federation, were obviously not covered within the scope of Notification No.13/2010 and hence not eligible for the benefit thereof. notification No.84/2010-Cus does not have retrospective applicability - Decided against assessee.

  ---

• 2014 (11) TMI 528
  Denial of refund claim - Unjust enrichment - import of seven consignments of CD Pick Up Lense Units - exemption under Notification No. 25/99-CUS. - Since Department denied the exemption, appellant paid basic customs duty @ 25% adv. - Whether the refund claimed is hit by unjust enrichment as per section 27 of Customs Act - Difference of opinion - Majority order - Held that:- Though the rate of additional customs duty and SAD remain the same, since the additional customs duty and SAD is calculated on the value which is sum of CIF price plus basic customs duty, increase in the rate of basic customs duty would also result in payment of higher quantum of additional customs duty and also the SAD. The Additional Customs Duty and SAD are cenvatable and it is not disputed that refund claim of Rs. 25,28,755/- out of total claim of Rs. 25,98,820/- represents the additional customs duty and special additional customs duty whose Cenvat Credit has been availed. The appellant, therefore, are eligible only for the refund of the balance amount of Rs. 10,63,065/- as for refund of Additional Customs Duty & SAD of Rs. 25,28,755/- the Cenvat Credit of this amount taken would have to be reversed which has not been reversed. Department does not dispute the cost data about the cost of manufacture of CD Deck Mechanism and average selling price of CD Deck Mechanism during July 03 to Sept. 03 period and Oct. 03 to March 04 period. From the fact that during 2003-04 the Appellant Company made the profit of about Rs. 6 Lakh it cannot be concluded that they had not sold CD Deck Mechanism during Oct. 03 to March 04 period at a loss. Looking to the facts of this case I am of the view that there is no reason to disbelieve the appellant’s contention backed by C.A. Certificate and cost data that incidence of customs duty whose refund is being claimed was not passed on by them to the customers - refund claim of only basic customs duty of Rs. 10,63,065/- would be available to the appellant, as the balance amount of Rs. 25,28,755/- represents additional customs duty/SAD whose Cenvat Credit has been taken by the appellant. Refund of Rs. 10,63,065 is allowed to the appellant by holding the same as not hit by bar of unjust enrichment. However, as the appellant has already availed Cenvat credit to the extent of Rs. 25,28,755/- (Rupees Twenty five lakh twenty eight thousand seven hundred and fifty five only), they are not entitled to the cash refund of the same - Decided partly in favour of assessee.

  ---

• 2014 (11) TMI 527
  Confiscation of goods - Goods imported under advance license - Fraud - penalties under Section 112(a) and/or 112(b) - Rejection of the CIF value - Denial of the benefit of Notification No. 31/97 - Held that:- original licence was lost in September, 1999. Hence the said licence could not have been handed over for endorsement of transferability. Only the duplicate licence could have been handed over for transferability and the same could have been done only after its issuance, that is, on or after 22-11-1999. It is for this reason that the endorsement in the amendment sheet No. 1 was made on 9-12-1999 for transferability. Since the licence was submitted for transferability after 30 months of the issuance of the licence, the validity of the licence could have been only for a total period of 36 months from the date of issuance of the licence. The original licence dated 22-11-1996 permitted import of 248 nos. of bearings of specified serial nos. Vide amendment sheet dated 11-5-1999, the number of bearings eligible for import was retained at 248 only but the serial nos. of the bearings were modified. In other words, as per the original licence read with the import list, only 248 nos. of bearings were physically incorporated in the export product and only these were eligible for duty free import under the said licence. From the records, it is seen that this quantity of bearings had already been imported by May, 1999. Therefore, as per the policy, no further bearings could have been allowed to be imported against the said licence. Therefore, endorsement made on 8-12-1999 by the licensing authority in the duplicate licence issued on 22-11-1999 allowing import of 4248 nos. of bearings was not permissible under the EXIM policy as it stood at the relevant time. The advance licence, which was subject to actual user condition and which had expired on 21-5-1999 and which was non-transferable was sought to be revalidated and made transferable, and items which were not permissible to be imported were sought to be included by both changing the description of the goods and the value thereof by misrepresentation and fraud. To achieve these objectives, false Chartered Engineer’s certificate were procured and submitted to the licensing authorities and front companies as were made use of, to act as front men for the purpose of importation. The goods which were subject to actual user condition were imported and diverted to Delhi for the purpose of trading. When these facts were brought to the notice of the licensing authority, the amendments made to the licence were cancelled and the licence was restored to its pre-amendment position as on 11-5-1999. Therefore, violations of Section 111(d) of the Customs Act, 1962 is clearly established. Similarly the advance licence envisaged that goods which were actually used in the export product was only eligible for importation and by misdeclaring by manipulation of Chartered Engineer’s certificate, attempt was made avail ineligible exemptions and part of the goods was also diverted for trading purpose. These activities clearly attracts provisions of Section 111(o) of the Customs Act, 1962. Thus, in the instant case in respect of the goods dealt in order dated 31-5-2004 the goods were liable to confiscation both under Section 111(d) and Section 111(o) and in respect of goods dealt in order dated 29-6-2004 the goods were liable to confiscation under Section 111(d) The importers have been given option to redeem the goods by payment of fine under Section 125 of the Customs Act, 1962. While imposing the fine, the adjudicating authority has kept in mind reduction in the market value of the goods, deterioration of the quality of the goods, reduction in the rates of the duty, demurrages incurred and after taking into account these facts into consideration, he has imposed a redemption fine which is approximately 10% of the CIF value of the goods. Considering the fact that bearing is an item which fetches high premium in the market, the redemption fine imposed by the adjudicating authority in the instant case cannot be said to be unreasonable. Therefore, we uphold the redemption fine imposed by the adjudicating authority in lieu of confiscation in the above two orders As regards the penalty under Section 114A on the importers, the same is equal to the duty and interest short paid. In the instant case as discussed above the advance licence was sought to be modified/amended by suppression and wilful misstatement of facts and duty was sought to be evaded due to these reasons. Therefore, the penalty equivalent to duty under Section 114A is mandatory. Inasmuch as we have upheld the demand for duty, the penalty of equivalent amount under Section 114A is also confirmed and upheld. - licence was with an actual user condition and was non-transferable. The goods imported were seized after having been diverted. The notification stipulates use of goods in the product exported. Thus if the goods are imported in violation of the conditions of exemption and the licence issued for the purpose, they are liable to confiscation under Section 111(o) of the Customs Act and consequently penalty is also imposable - Following decision of Commissioner of Customs v. CESTAT, Chennai [2009 (4) TMI 83 - MADRAS HIGH COURT] - Decided against assessee.

  ---

• Service Tax

• 2014 (11) TMI 545
  Levy of service tax on discount received by advertising agency - Whether service tax levy is sustainable in respect of discounts/incentives received by the advertising agency from the print/broadcast media in respect of advertisements placed by the said agencies on behalf of customers - Held that:- Tribunal in the case of Grey Worldwide (I) Pvt. Ltd. case, cited [2014 (9) TMI 180 - CESTAT MUMBAI], has already held that the service tax demands on these receipts are not sustainable, in the present case also, the same ratio has to be applied. Accordingly, we set aside the demands confirmed against the assessee-appellants M/s. Group M Media India Pvt. Ltd. and M/s. Lintas India Pvt. Ltd. - Decided in favour of assessee.

  ---

• 2014 (11) TMI 544
  CENVAT Credit - Balance of Cenvat Credit availed for central excise purpose, after availing exemption under central excise, utilized for payment of service tax - demand raised for disallowing cenvat credit alleged to have been lapsed and wrongly availed by respondent. - Held that:- Respondent is a manufacture of excisable goods Synthetic Filament Yarn and duly registered with the Central Excise Department. The respondents also registered with the service tax authorities as "commission agent", which is classifiable under ‘Business Auxiliary Services’ and discharging service tax on the output service. Therefore, the respondents are not only a manufacturer of excisable goods but also the provider of output services and both the activities are carried out in the same premises. Once it is held that the respondents are eligible for availment of input credit, they can utilize the cenvat credit available with them either for payment of excise duty on the final products or for payment of service tax on the output services as stipulated in the sub-rule (4) of Rule 3 of CCR 2004. The restrictions on utilization of cenvat credit stipulated in the CCR relates only for specific type of duties i.e. education cess on excisable goods or payment of educational cess on output services. There is no restriction for utilization of common input credit availed on the inputs and also on input services for payment of excise duty or service tax. there is no infirmity in the order of Commissioner (Appeals) in holding that utilization of input cenvat credit availed by the respondents for payment of service tax on the output service of Business Auxiliary Services rendered by them - Decided against Revenue.

  ---

• 2014 (11) TMI 543
  Waiver of pre deposit - CENVAT Credit - various input services - place of removal - Held that:- As per Section 4(3)(c), the place of removal is inter-alia any other place or premises from where the excisable goods are to be sold after the clearance from the factory from where the goods are removed. In our view the appellants have been able to make out a good prima-facie case that in their case the place of removal will be retail outlets in respect of goods sold from their retail outlets and the agents warehouse in respect of goods sold from there. In such a scenario all the services listed above would prima-facie qualify as input services as they are in relation to advertisement, legal work, sales promotion, market research, storage upto the place of removal and outward transportation upto the place of removal, etc. which are all duly covered prima-facie in the scope of the definition of input service - Stay granted.

  ---

• 2014 (11) TMI 542
  Non verification of available records - Held that:- Though documents were there but no verification was got done by the adjudicating authority. Service tax already stands paid. matter requires to be sent back to adjudicating authority for verification of authenticity of documents and for passing fresh order - Decided in favour of assessee.

  ---

• 2014 (11) TMI 541
  Business Auxiliary Service - Services of Verification of information given by customers applying for credit cards, home loans, auto loans etc. are covered under clause (iv) of Business Auxiliary Services during the period 01.07.2003 to 09.09.2004 - Held that:- Prior to 10.09.2004, the activity undertaken by the appellant clearly falls under Clause (iv) of Section 65(19) of the Finance Act, 1994. Therefore, prior to 10.09.2004, we hold that the appellant is required to pay service tax and the demand for service tax for that period is confirmed. With effect from 10.09.2004 onwards the appellants are not required to pay service tax. We find support to the case from the decision of this Tribunal in the case of S.R. Kalyanakrishnan v. CCE - [2007 (8) TMI 198 - CESTAT, BANGALORE] wherein this Tribunal has observed that verification of information furnished by loan seekers cannot be treated as promotion their business. Therefore, such activity does not fall under “Business Auxiliary Service” but with effect from 01.05.2006, it falls under the category of “Business Support Service”. Following the precedent decision in the case of S.R. Kalyanakrishnan (supra), we hold that for the period 10.9.2004 onwards the appellants are not liable for service tax under the category of “Business Auxiliary Service” on their activities. Appellants are liable to pay service tax for the period 01.07.2003 to 09.09.2004 on the services provided to ICICI and IDBI Banks under the category of “BAS”. With these terms the appellants are directed to pay service tax for the said period along with interest. as the appellants are paying service tax on the same activities provided to other banks therefore, we impose penalties equivalent to their service tax liabilities on the appellants under Section 78 of the Finance Act, 1994. We further find that as the appellants have not charged service tax separately from ICICI and IDBI Banks therefore, the remunerations received towards providing service, service tax shall be treated as cum-service charges - Decided partly in favour of assessee.

  ---

• 2014 (11) TMI 539
  Condonation of delay - Bar of limitation - Cargo Handling Service - Held that:- appellant has shown sufficient reasons that their Chartered Accountant, Shri KC Jain, who appeared before the Commissioner (Appeals), Jaipur, I, Jaipur, had undergone heart surgery and was not attending his office regularly and even Ms. Iti, (CA) who was looking into the legal matters of the family also left her services and Mr. Ravi Khandelwal who was looking after the matter also met with major accident and he lost his legs which has to be considered on its face value and in our considered view there was reasonable justification offered by the appellant to meet out sufficient cause in seeking condonation of delay and merely because no documentary evidence was placed on record in support thereof the reason assigned could not have been brushed aside in totality in absence of their being any counter or objection raised by the department. Apart from it, the delay as such in no manner defeats the right of any third party and besides it, the service tax was introduced for the assessees who are carrying “cargo handling service” for the first time by inserting Clause 20 of Finance Act, w.e.f. 16.8.2002 and the period in question is 16.8.2002 to 30.6.2003 and the service tax and interest was deposited by the assessee indisputably before the show cause notice was served and short payment against service tax of only Rs. 181/- remain outstanding under the provisions of Sec.73 (1) of the Finance Act, 1994 and penalty u/s.76 & 78 of the Finance Act, 1944. appeal preferred by the appellant before the Tribunal deserves indulgence to be heard on merits - appeal restored before tribunal - Decided in favour of assessee.

  ---

• Central Excise

• 2014 (11) TMI 540
  Denial of refund claim - Transfer of incidence of duty on consumers - Captive consumption - Whether in the facts and circumstances of the case, the Tribunal was right in holding that the incidence of duty on intermediate products captively consumed is to be treated as having been passed on to the customer of the final product, even though there was no change in the price of the final product before during and after the relevant period - Held that:- Assessee had produced some materials before the Commissioner of Central Excise (Appeals) seeking refund. Those documents are not before us. In any event, the question whether the incidence of duty has been passed on to the buyer is the issue which has to be decided in the light of the documents submitted and in the light of the decisions already cited supra. We, therefore, are inclined to remand the matter back to the Original Authority to re-consider the issue in the light of the documents said to be filed by the appellant before the Commissioner of Central Excise (Appeals) and in accordance with the law as decided - Matter remanded back - Decided in favour of assessee.

  ---

• 2014 (11) TMI 538
  Waiver of pre deposit - Merger of order - Whether, in absence of merger of the order of the Tribunal upon the dismissal of the SLP in limine by the Supreme Court on 3.1.2013, the Tribunal could have refused to exercise its jurisdiction to restore the appeal upon pre-deposit of Rs. 10 lacs - Held that:- Once a substantive appeal has been filed before the High Court against an order of the Tribunal on the application for waiver of pre-deposit, the order of the Tribunal, in such a case, would merge with the order of the High Court. No prayer was made before the High Court which dismissed the appeal for extension of time for pre-deposit or for restoration of the appeal. No such prayer was also made before the Supreme Court when the special leave petition was dismissed. In that view of the matter, the Tribunal was not in error in dismissing the miscellaneous application. no substantial question of law would arise in the appeal. - Following decision of Commissioner of Customs v. Lindt Exports [2011 (9) TMI 609 - DELHI HIGH COURT] - Decided against assessee.

  ---

• 2014 (11) TMI 537
  Penalty u/s 11AC - Forged invoices produced - Excess stock found in factory - Held that:- Non-accountal of 20% of the 12 MM bars and 100% of the 16 MM bars, which could not be explained by the assessee, could not be attributed to the manufacturing loss, as in the case of integrated cement plants. The non-accountal in the absence of explanation, of such large quantity in respect of specified products, even if the quantity of such finished products, in comparison with the total production was very small, attracted the provisions of Section 11AC of the Act and Rule 25 of the Rules for proceedings of penalty and confiscation. The intention to evade payment of excise duty is to be gathered from the entirety of the circumstances. It is a finding of fact with which the High Court would not ordinarily interfere unless the finding can be assailed on the non-existence of the material available on record - Decided against assessee.

  ---

• 2014 (11) TMI 536
  Waiver of pre-deposit - Cenvat credit - Seizure of documents reveled that assessee wrongfully enjoyed CENVAT Credit - discrepancy in the raw material account - Non consideration of all the issues by CESTAT - Held that:- Apart from the plea that the ‘waste and scrap’ generated from the manufacturing process does not invalidate the availment of the Cenvat credit but a plea of limitation was also taken, which if succeeds, would render the entire proceeding to fall. This Court does not find any reflection in the impugned order that the CESTAT has addressed on the issue of limitation though the same was raised before the adjudicating authority and also raised before the CESTAT. Furthermore, the petitioner have produced documents and materials relating to the loss suffered in the business and raises the plea of financial hardship which does not appear to have been taken care of in the impugned order. issues raised before this Court which was also raised before the CESTAT has not been considered in the impugned order and, therefore, is required to be set aside. - matter remanded back to tribunal - Decided in favour of assessee.

  ---

• 2014 (11) TMI 535
  Rejection of rebate claim on ATF supplied to foreign going Aircraft - goods were not supplied directly from the factory - goods were not supplied directly from the factory - Held that:- The Revisional Authority so also the Appellate Authority have rendered consistent factual findings. They are that the Petitioner-Applicant has supplied the fuel to aircrafts on foreign run by transferring duty paid products to the Aviation Fuelling Station, Mumbai-Delhi (AFS) and which has been registered as a warehouse of excisable goods. Now, such a finding of fact based on the records would denote compliance with the condition in para 2(a) of the Notification No.19/2004 C.Ex.(NT) dated 6 September 2004. if excisable goods are exported after payment of duty directly from a factory or warehouse, then nothing more is required to be considered and verified. That in this case, records have been verified and which demonstrate that the export of duty paid products is from a recognized warehouse namely AFS at Delhi. Therefore, the Appellate as well as the Revisional Authority could not have held that there is no compliance with the condition. The Revisional Authority has further observed that the Circular issued by the Central Board of Excise and Customs dated 30 January 1997 has held that this condition can be relaxed if the goods exported are identifiable and co-relatable with the goods cleared from the factory of manufacturer. The Revenue has not produced before us any document, which superseded the Notification dated 6 September 2004 or modifies or amends the same in any manner. Further there is much substance in the argument of Mr.Patil that earlier identical finding and which is to be found in the order of the Assistant Commissioner, Central Excise, Chembur-I Dn.Mumbai-II dated 3 February 2006, at page 63 of the Paper Book, was set aside by the Revisional Authority. The Revisional Authority has in its order passed in favour of the Petitioner before us has held that the refund claim was rejected on procedural infractions, which are condonable. In these circumstances and when there is an identical view taken in the case of M/s.BPCL, we are unable to sustain the impugned order. rebate claim of the Petitioner is granted by quashing and setting aside all orders namely that of the Assistant Commissioner, Appellate Authority as also the Government. The incidental communication dated 11 March 2010 is also set aside - Decided in favour of assessee.

  ---

• 2014 (11) TMI 534
  Challenge to the Show Cause Notice - Maintainability of Writ Petition - exemption in respect of petroleum gases and other gaseous hydrocarbons falling under Chapter Heading No.27.11 - Exemption Notification No.157/89-C.E. dated 17.07.1989 - Held that:- The impugned show cause notice actually has the effect of destroying the very exemption notification. A careful look at the ad hoc exemption order bearing No.23/3-95-CX dated 24.03.1995 issued by the Under Secretary to the Government of India, Ministry of Finance, Department of Revenue would show that the Government itself was aware of the supply by the 5th Respondent of Polyisobutylene enriched LPG to the petitioner through the pipeline. The petitioner extracts Polyisobutylene and returns the remnant after subjecting it to a process. The exemption Notification as originally issued on 17.07.1989, was actually rescinded by another Notification dated 01.03.1994, when Modvat was extended to petroleum products including LPG. Therefore, when companies like the petitioner made representations, the Government of India decided to restore the exemption by issuing a Notification No.116/94-CE dated 24.06.1994. But during the period from the date of withdrawal of exemption (1.3.1994) and the date of restoration of exemption (23.06.1994), the petitioner was made to pay the full incidence of Excise Duty. Therefore, the Government of India passed an order dated 24.03.1995, directing refund of the Duty paid during the said period. It is clear that the Government of India was fully aware of the nature of the exemption Notification, the nature of the manufacturing process carried on by the petitioner and the entitlement of the petitioner to the benefit. Being an authority functioning under the Government of India, the second Respondent is bound by the exemption Notification as well as the decision taken by the Government of India way back in 1995. Impugned show cause notice is nothing but an attempt to unsettle what was settled for nearly 24 years. What was settled for 24 years was not merely at the level of the Commissioner of Central Excise but at the level of the Government of India as seen from the ad hoc Notification issued in 1995 directing refund. Therefore, the impugned show cause notice is wholly without jurisdiction and nothing but an abuse of the process of law. - Decided in favour of assessee.

  ---

• 2014 (11) TMI 533
  Supreme Court after condoning the delay admitted the appeal filed by the Revenue against the order of Tribunal whereby Tribunal held that MSP starches manufactured by the assessee belong to category of native starches of CETH 1103.00 and not modified starches of 3505.90.

  ---

• 2014 (11) TMI 532
  Classification of Goods - Chapter 11 OR Chapter 35 - Assessee manufactured various kinds starch – Cleared the goods at Nil rate of Duty - Supreme Court after condoning the delay admitted the appeal of the Revenue where CESTAT Ahmedabad held that Maize Starch would merit classification under Chapter 11.

  ---

• 2014 (11) TMI 531
  Validity of Tribunal's order - whether the Customs, Excise and Service Tax Appellate Tribunal has the power to dismiss the appeal for want of prosecution or not - Held that:- Act enjoins upon the Tribunal to pass order on the appeal confirming, modifying or annulling the decision or order appealed against or may remand the matter. It does not give any power to the Tribunal to dismiss the appeal for default or for want of prosecution in case the appellant is not present when the appeal is taken up for hearing - as the two provisions are similar, we are of the considered opinion that the Tribunal could not have dismissed the appeal filed by the appellant for want of prosecution and it ought to have decided the appeal on merits even if the appellant or its counsel was not present when the appeal was taken up for hearing. The High Court also erred in law in upholding the order of the Tribunal. - Decided in favour of assessee.

  ---