TMI Tax Updates - e-Newsletter
November 20, 2014

Case Laws in this Newsletter:

Income Tax Customs Service Tax Central Excise

Articles

1. SECURITIES EXCHANGE BOARD OF INDIA (INFRASTRUCTURE INVESTMENT TRUSTS) REGULATIONS, 2014 – AN OVERVIEW – PART I

   By: DR.MARIAPPAN GOVINDARAJAN

News

1. Secretary, Department of Financial Services to Review Quarterly Performance of Public Sector Banks and Financial Institutions Tomorrow for the Quarter Ending September 2014: Banks Performance in Terms of over all Credit Growth, Issues Relating to Non Performing Assets, Recovery, Capital Adequacy, Stalled Projects, Financial Inclusion,Dbt And Pmjdy to be Reviewed in the Meeting

2. Pay IT dues in advance at RBI or at authorised bank branches

3. RBI Reference Rate for US $

Notifications

Companies Law

1. F. No. 5/80/2012-CL.V - dated 7-11-2014 - Co. Law

Companies (Central Government's) General Rules and Forms Amendment Rules, 2014.

DGFT

2. 98 (RE – 2013)/2009-2014 - dated 19-11-2014 - FTP

Import Policy of Scheduled Chemicals.

Income Tax

3. 71/2014 - dated 15-11-2014 - IT

Corrigendum - Notification No.70/2014 Dated 13-11-2014.

Circulars / Instructions / Orders

VAT - Delhi

1. 17/2014-15 - dated 19-11-2014

Modification Circular No. 15/2014-15 Dated 27/10/2014

DGFT

2. 73 (RE-2013)/2009-2014 - dated 18-11-2014

Procedure for export of certified organic products.

Central Excise

3. 990/14/2014-CX-8 - dated 19-11-2014

Clarification regarding availment of CENVAT credit after six months-reg.

Highlights / Catch Notes

Income Tax

• Court Rules Section 40A(3) Applies: Rule 14 Doesn't Mandate Cash Payments for Bottling Charges Under Karnataka Rules.

  Case-Laws - HC : Applicability of section 40A(3) – Payment made of bottling charges - Rule 14 of the Karnataka Licenses General Condition Rules, 1967 mandates cash payment or not - Held No - HC
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• Unexplained Bank Deposits Can Lead to Income Additions u/s 69 of the Income Tax Act.

  Case-Laws - AT : Even if no addition is justified u/s 68 of the Act, addition can be made u/s 69 of the Act in respect of deposit in bank account if the assessee cannot satisfactorily explain the source of deposit - AT
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• Tribunal Condones 50-Day Delay in Appeal Filing Due to Assessee's Misunderstanding of Revisional Order Necessity.

  Case-Laws - AT : Condonation of delay – delay of 50 days - assessee entertained a belief that as original assessment had been set aside, there was no necessity of challenging revisional order of Commissioner before Tribunal – the delay condoned - AT
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• TPO's Decision Unjustified: Assessee's Separate Books Accepted Under Income Tax Act, No Valid Rejection Reason Found.

  Case-Laws - AT : The action of the TPO was not justified at all when Assessee has maintained separate books of account, which was also accepted under the provisions of the Act - there is no reason for rejecting the same - AT
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Customs

• Court Remands Tyre Confiscation Case for Re-adjudication; Unclear if Imported Goods are Used or Hazardous Waste u/s 111(d).

  Case-Laws - AT : Confiscation of used tyres u/s 111(d) - Hazardous waste - No clear finding from both the sides that the imported goods are in the nature of used or waste - matter remanded back for readudication - AT
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• Authorities Find Missing Goods in Import Case; Waive Pre-Deposit for Assessee Due to Prima Facie Evidence.

  Case-Laws - AT : Waiver of pre deposit - Clandestine removal of goods - raw materials were imported but at the time of visit neither the raw material nor any finished product was found - prima facie case is against the assessee - AT
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Service Tax

• Court Finds Prima Facie Case for Assessee: Bus Adda Fee Not Subject to Service Tax.

  Case-Laws - AT : Business Support Service - appellant had been collecting the Bus Adda Fee - appellants were under the bona fide belief that the bus adda fee was not liable to service tax - prima facie case is in favor of assessee on this ground - AT
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Central Excise

• Duty Remission Allowed for Export Goods Destroyed by Accident Before Export Under Bond.

  Case-Laws - AT : Whether ‘Remission of duty’ is allowable when goods, cleared from factory without payment of duty for export under Bond, are destroyed due to unavoidable accident before the said goods could be exported - Held Yes - AT
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• CENVAT Credit on Installation and Erection Services Allowed for Manufacturing; Denial Deemed Unsustainable by Court.

  Case-Laws - AT : Whether the demands regarding denial of CENVAT credit on Installation and Erection services availed by the appellant are sustainable or not - such services are availed in relation to manufacture - credit allowed - AT
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• Refund for Duty-Free Imports in PSF Manufacturing Approved After Review, Covering Both Export and DTA Clearance.

  Case-Laws - AT : Denial of refund claim - accumulation of credit - duty free imports and double benefits - manufacture of Polyester Staple Fibre (“PSF”) - Export and DTA clearance - refund allowed - AT
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• Court Rules No Duty Exemption for Compound in Chewing Tobacco Manufacturing; Pre-Deposit Waiver Issue Addressed.

  Case-Laws - AT : Waiver of pre-deposit - Manufacturing and captive consumption of 'Compound' in the manufacturing of ‘Finished Chewing Tobacco' which was exempt from duty - prima facie exemption on compound is not available - AT
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• Tribunal Enforces Penalties Equal to Duty Amount for Intent to Evade u/s 11AC of Central Excise Act.

  Case-Laws - HC : Jurisdiction of Tribunal - Penalty u/s 11AC - once the provisions of Section 11AC stands attracted and the authority recorded a clear finding that there is an intention to evade payment of duty then penalty equivalent, to the amount of duty becomes automatic - HC
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Case Laws:

• Income Tax

• 2014 (11) TMI 565
  Opening cash balance - Whether the AO relied upon any material other than what was found in the course of search or proceedings thereafter to come to the conclusion that the sum of Rs. 2,50,000/- alone should be shown as opening cash balance and other amount should be treated as undisclosed income – Held that:- the provision of Section 158BB of the Act is in relation to computation of undisclosed income for the block period and that is to be done in accordance with the provisions of the Act on the basis of evidence found as a result of search or requisition of books of account or other documents and such other materials of information as are available with the AO and relatable to such evidence - for drawing this inference the AO has stated that some expenditure should be allowable for the previous years - the assessee admitted that there is a drawing of certain amount during every block year as the assessee cannot claim that there was no drawing at all prior to the block assessment period 1989-1990. The amount fixed as opening cash balance is based on no material itself cannot be countenanced, because the cash flow statement of the assessee is a record which speaks for itself - Nothing more is required for the AO in the course of search to determine the opening cash balance and for computation of the undisclosed income for the block period - The cash flow statement is a piece of evidence before the AO given at the behest of the assessee and that material has been considered to compute the undisclosed income - The emphasis of Section 158BB of the Act is on computation of undisclosed income and for that necessary materials can be taken into consideration and one such material is the cash flow statement and the inference by the AO appears to be justified – as decided in VENGAT BAVA Versus COMMISSIONER OF INCOME-TAX [2008 (6) TMI 208 - KERALA HIGH COURT] – when assessment is based on the materials gathered on inspection which showed proof of investment in landed properties and expenditure in the course of time under various heads, addition u/s 68 and 69 of the Act is permitted in an assessment u/s 158BB read with Section 158BC of the Act – Decided against assessee. Remodeling of house at No.15-b, Gokalay Road – Held that:- The AO was of the view that Rs. 7,00,000/- has been expended towards renovation of the house and Rs. 3,50,000/- was claimed towards cost of material - That was accepted to some extent, except for Rs. 90,000 - Therefore, the onus would rest on the assessee to show as to how the sum of Rs. 90,000/- was received by him either in kind or in value - There being no material to substantiate that, the mere statement of the assessee is of no avail and the department was justified in treating the balance amount of Rs. 85,000/- as undisclosed income, giving exemption to the extent of Rs. 5,000/- as per Section 10(3) of the Act – Decided against assessee. Bad debts written of – Held that:- The AO rejected the plea of the assessee to treat Rs. 3,50,000/- as bad debt by holding that the same can only be treated as investment in money lending in the year of giving and it is not a bad debt - The reasoning given by the AO and the finding of the Tribunal based on Section 36(2) of the Act are on two independent interpretations of the same issue - there appears to be an issue in relation to the applicability of Section 36(2) of the Act, which should be considered by the AO - Decided against assessee.

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• 2014 (11) TMI 564
  Reopening of assessment u/s 147 r.w. section 148 – Indo-UK treaty - Full and true disclosure of facts made or not - Held that:- Income of the partnership having escaped assessment which escapement was noticed subsequently as indicated in the reasons supplied and as the partnership assessee had failed to disclose fully and truly all material facts necessary for its assessment for the earlier AYs from 1997-98 onwards, the assessment u/s 143(3) made earlier of the petitioner no.1 could not be relied upon as an assessment made of the relevant year relating to the partnership – the AO has reasons to believe that income chargeable to tax of the partnership for AYs prior to the return filed by it for AY 2002-03 as ‘New Case-1st Year’ had escaped assessment cannot be said to be perverse - the notice was not time barred under the first proviso to section 147 of the Act and thereby saved from the time bar prescribed under section 149 - Whether or not the same income stood already disclosed and exempted from tax as income assessed of the petitioner no.1 as assessee being a partner of the partnership or such income of the partnership had escaped assessment would be a question to be gone into and answered in the assessment sought to be made pursuant to the issuance of the notice - this court cannot find the partnership had made full disclosure. Scope of definition u/s 2(31) - relief under Indo-UK treaty - Held that:- The Revenue in treating the partnership as an assessee and seeking to assess income of it which had escaped assessment is for the purpose of charging tax on the income of the partnership, treating it as a person liable to be charged with the levy of income tax under the section - In doing so the revenue has to treat the partnership as a person within the definition provided of person u/s 2(31)(iv) of the Act – thus, the notice for reopening is set aside – Decided in favour of assessee.

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• 2014 (11) TMI 563
  Computation of profits of industrial undertaking – Interpretation of section 80HHA and 80I – interest income being business interest from trade debtors and on miscellaneous receipts - Held that:- Following the decision in Nirma Industries Limited Versus Deputy Commissioner of Income-Tax [2006 (2) TMI 92 - GUJARAT High Court] - section 80I of the Act uses the phrase 'derived from' and hence the interest received by the assessee from its trade debtors cannot be taken into consideration for the purpose of computing profits derived from an industrial undertaking. When one reads the opening portion of section 80I of the Act it is clear that words used are: "gross total income of an assessee includes any profits and gains derived from an industrial undertaking" - Once this is the position then, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to the prescribed percentage is to be allowed - the gross total income of the assessee included profits and gains from business, and this is apparent on a plain glance at the computation in the assessment order - Both in relation to Vatva unit and Mandali unit the computation commences by taking profit as per statement of income filed alongwith return of income - the Tribunal has erred in reducing the other income received by the appellant as the entire income is incidental to manufacturing activities and therefore the deduction u/s 80-I is required to be allowed on the gross total income before deduction of 80-HHA and income from others – Decided in favour of assessee. Interest from IDBI – Held that:- The institution with which the assessee was carrying on business is required to be borne in mind - The interest from Bajaj Institution has direct nexus with the business and therefore the interest is required to be considered as derived from business – Decided in favour of assessee. The income earned from fixed deposit placed for business purpose cannot be treated as income from other source but must be seen as part of the assessee’s business income - the assessee was compelled to park a part of its funds in fixed deposits under the insistence of the financial institutions and therefore the income received thereupon cannot be termed to be income from other sources – Decided in favour of assessee.

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• 2014 (11) TMI 562
  Gross total income as per 80-A would get precedence over deduction u/s. 32AB or not - Whether the Tribunal was right in holding that various deductions under Chapter VI-A with reference to gross total income as per 80-A would get precedence over deduction u/s. 32AB admissible with reference to such ‘income chargeable under the head profits and gains of business or profession’ – Held that:- As decided in Motilal Pesticides (I.) Pvt. Ltd. Versus Commissioner of Income-Tax [2000 (2) TMI 9 - SUPREME Court] deduction u/s 32AB is to be given first and deduction u/s 80HHC is to be given - in view of the provision, deduction is required to be made on the net income - Section 32AB deduction is to be given first and Section 80HHC deduction is to be given subsequently - Decided in favour of revenue. Whether the Tribunal was right in holding that an unsigned audit report filed in the course of assessment proceedings can be taken note of, even though not filed along with return of income as required by law – Held that:- in CIT VS. Gujarat Oil and Allied Industries [1992 (9) TMI 67 - GUJARAT High Court] - the mere non-filing of the auditors' report along with the return of income, the assessee does not stand to gain anything nor does the Revenue stand to lose, as even after the return is filed, it is obvious that it may take time before the Income-tax Officer applies his mind to the merits of the return, when he sits down to frame the assessment - the requirements of Section 80J(1) read with subsection (6A) can be taken into consideration - the main purpose and object of section 80J(1) is to give incentive and development benefit to the new industries covered by the provisions of the Act - the word ‘shall’ as employed by the Legislature in sub-section (6A) of Section 80J(1) will have to be read as ‘may’ – Decided in favour of revenue.

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• 2014 (11) TMI 561
  Re-appreciation of evidentiary material permissible u/s 260A or not – Held that:- The Tribunal rightly observed that the assessee had made sales outside the books of account for which the additional capital was required - Parallel sets of books were maintained by the assessee - The AO as well as the Tribunal observed that the assessee has not placed any evidence on the record to justify that the sales which have been made as recorded in the seized material, were already recorded in the books of account - the AO has carried a due and proper exercise of a reasonable estimation to the best of his judgment- The grounds, which are sought to be raised in the submissions in support of the appeal, would essentially require the Court to re-appreciate the evidentiary material - This is not permissible under the jurisdiction u/s 260A of the Act – as such no substantial question of law arises for consideration – Decided against assessee.

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• 2014 (11) TMI 560
  Unexplained cash credits u/s 68 – Onus discharged by assessee - Facts properly appreciated or not - Held that:- The Tribunal rightly observed that if the AO has failed to notice the credits in the preceding year, perhaps because the assessment was made u/s 143(1) that does not preclude the Officer from scrutinising the accounts in the subsequent AY - the addition had been made by the AO on the basis of the credits appearing in the books of accounts of the assessee - no credence can be given to the statement filed before the revenue authorities regarding payments having been made to the labourers during the year under appeal relating to the earlier’s outstandings - only peak entry of the payment made to the labourers till the last date of accounting year is made and actual dates of payments are not known. Relying upon Murlidhar Lahorimal Versus Commissioner of Income-Tax [2005 (11) TMI 32 - GUJARAT High Court] - The primary onus which rested with the assessee stood discharged - if the revenue was not satisfied with the source of the funds in the hands of the donor, it was upto the revenue to take appropriate action - the assessee produces relevant documents as evidence to establish genuineness of the credits, much needed relief is required to be given to the assessee - the Tribunal has observed that only one labourer was produced before the AO and the Tribunal discharged the onus on the assessee so far as this labourer was concerned - since no other labourer was produced before the officer, the credits for those entries could not be given – the order of the Tribunal is upheld – Decided against assessee.

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• 2014 (11) TMI 559
  Applicability of section 40A(3) – Payment made of bottling charges - Rule 14 of the Karnataka Licenses General Condition Rules, 1967 mandates cash payment or not - Held that:- Where the assessee incurs any expenditure in respect of which a payment is made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, exceeds twenty thousand rupees, no deduction shall be allowed in respect of such expenditure - Rule 6DD of the Income Tax Rules, 1962 is in the nature of exception to the said section - to fall within that exception, the assessee relies on Rule 14 of the Karnataka Excise Licences (General Conditions) Rules, 1967 - Section 2 of the said rules explicitly makes it clear that the said rules applies to all the licences issued under the Karnataka Excise Act, 1965 for sale of liquors and every such licence shall be deemed to include the conditions prescribed by these rules as general conditions. The rules applies to the sale effected by assessee who has a licence to sell the arrack under the provisions of the Karnataka Excise Act, 1965 - It has no application to the purchase made by such licences, that is the assessee - the provision do not apply to the purchase of liquor but it applies only to sale of liquor by the assessee to its customers and therefore, the said rule do not fall within Section 6DD(j) of the Income Tax Rules so as to get exemption from application of Section 40A(3) - Both the appellate authorities have not properly looked into the said provisions and erred in applying the said provision and in holding that the exemption applies to the assessee – the order of the Tribunal is set aside – Decided in favour of revenue.

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• 2014 (11) TMI 558
  Interpretation of section 153C and 158BD Held that:- The Tribunal was rightly of the view that the conclusions of the CIT (A) on the issue with regard to the AYs which can be subjected to proceedings u/s. 153C of the Act as well as the conclusions with regard to the validity of the additions - both in the statement of Shri Shailesh Vora as well the seized document, the reference was to the period prior to AY 98-99 - The seized document itself contains such a noting - As per the terms of the Agreement with J.P. Corporation, the Assessee had to settle all the advances received by it from the prospective purchasers of flats - Thus the receipts cannot be considered as income - the sums which as per the noting in the seized document, related to Financial Years 1998- 99 and earlier period, could not be treated as income of any of the AYs. 2001-02 to 07-08 the order of the Tribunal is upheld Decided against revenue.

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• 2014 (11) TMI 557
  Liability to pay tax DVO s valuation accepted and difference in the cost of construction to be set off against expenditure incurred for the construction Whether the Tribunal were correct in holding that the difference in the investment in construction of the building as declared by the assessee and worked out by the Valuation Officer cannot be treated as the income of the assessee u/s 69, 69B/69C of the Act as the building should be treated as stock in trade - Held that:- As the AO invoked Section 142-A of the Act and got DVO appointed for the purpose of valuation, no such power is conferred u/s 69C to such AO - Section 69C is not attracted to this case - The proviso to Section 69C is confined to Section 69C only - No such proviso is found in Section 69C and therefore, the proviso to Section 69C cannot be read as proviso to Section 69B - In terms of Section 69B, the excess amount may be deemed to be the income of the assessee for such financial year - when the excess amount is in the nature of the investment on building and the building is sold to prospective purchaser, that investment is in the nature of expenditure that unexplained income has to be set off against the expenditure and the net tax could be nil and that the Appellate Authorities dismissed both the appeals and held that it is strictly in accordance with law the order of the Tribunal is upheld Decided against revenue.

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• 2014 (11) TMI 556
  Entitlement for deduction u/s 80IB(10) – Held that:- Following the decision in The Commissioner of Income Tax Business Ward XV(3), Chennai. Versus M/s. Sanghvi and Doshi Enterprise [2012 (12) TMI 84 - MADRAS HIGH COURT] the provisions nowhere require that developers who are the owner of the land alone would be entitled for grant of deduction under Section 80IB(10) - Therefore, assessees were entitled to the benefit u/s 80IB(10) even where the title of the lands had not passed on to the assessees and in some cases, the development permissions may also have been obtained in the name of the original land owners - for the purpose of considering the deduction, it is not necessary that the assessee, engaged in developing and construction of housing project, should be the owner of the property – the order of the Tribunal is upheld – Decided against revenue.

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• 2014 (11) TMI 555
  Entitlement for deduction u/s 80M - Whether the Tribunal is justified in holding that the assessee is entitled for deduction u/s 80M without appreciating the fact that assessee was not eligible for deduction u/s 80M in view of the provisions contained in Section 115-O(1) and 115-O(5) – Held that:- There was no justification for an argument of the Revenue that Section 80M having been deleted from the statute book and with effect from 1st April, 2004 the Commissioner and the Tribunal would not have taken any note thereof nor a judgment of this Court in the case of Godrej Agrovet Ltd. vs. Deputy Commissioner of Income Tax & Another [2010 (2) TMI 27 - BOMBAY HIGH COURT] - The Commissioner found himself to be bound by the Judgment and equally the Tribunal - the Assessee received dividend from domestic companies and he had paid dividend on 13th August, 2003 namely before the due date of filing of return of income i.e. 31st October, 2003 - Hence, he satisfied the twin conditions stipulated by section 80M - The deletion of section 80M of the Income Tax Act, 1961 or its omission by the Finance Act with effect from 1st April, 2004 and the substitution of section 115-O by the Finance Act, 2003 with effect from 1st April, 2003 has not been confused by the Tribunal and particularly in relation to its applicability - the order of the Tribunal is upheld as no substantial question of law arises for consideration – Decided against revenue.

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• 2014 (11) TMI 554
  Disallowance u/s 40(a)(ia) – Non-deduction of TDS voluntarily admitted by assessee or not – Held that:- AO passed an order against the assessee alleging failure to deduct and deposit TDS - The assessee filed an appeal and during appellate proceedings, filed an application for additional evidence appending therewith evidence to prove that requisite TDS had been deducted and deposited - assessee also filed form 16-A in support of this assertion - The argument that additional evidence could not have been allowed at the appellate stage, disregards the fact that the revenue did not controvert the assessee's assertion regarding deduction and deposit of TDS nor did it contest the correctness of form 16-A - the assessee had in fact deducted TDS from the payments of commission and service charges to Shri J.C.Arora by treating the same as salary and that the amount has been remitted to the government – the order of the Tribunal is upheld – Decided against revenue. Allowability of deduction u/s 14A of the Act – Interest liability out of other income – Held that:- Following the decision in COMMISSIONER OF INCOME TAX Versus M/s LAKHANI MARKETING INCL [2014 (7) TMI 44 - PUNJAB AND HARYANA HIGH COURT] - unless and until, there is receipt of exempted income for the concerned AYs (dividend from shares), Section 14A of the Act cannot be invoked - revenue has not dispelled the findings of the CIT(A), nor the statement of the assessee before AO that assessee is not in receipt of any dividend income - the AO has erred in invoking Section 14A of the Act, to disallow various interest payments on capital account, security deposits and unsecured loans - the expenditure relating to the exempted income can be disallowed and not otherwise - the entire income is found to be taxable, no disallowance can be made u/s 14A of the Act – Decided against Revenue.

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• 2014 (11) TMI 553
  Relief u/s 80M – Investment made from owned funds - Whether the Tribunal is right in treating the investment as having been made by the assessee from his own funds for granting relief u/s 80M - Held that:- The Tribunal rightly observed that the amount of interest on borrowings for purchase of shares has to be deducted from the gross total income - The decision rendered in the case of Distributors (Baroda) Pvt. Ltd vs. Union of India & Others [1985 (7) TMI 1 - SUPREME Court] was considered by the Tribunal wherein it is held that the deduction required to be allowed u/s 80M has to be calculated with reference to amount of dividend computed in accordance with the provisions of the Income Tax Act and forming part of the gross dividend received by the assessee - the CIT(A) was justified in holding that the interest attributable to acquisition of shares of domestic companies has to be deducted from the gross total income which includes dividend from the domestic companies before computation of deduction u/s 80M of the Act – Decided against revenue.

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• 2014 (11) TMI 552
  Addition of interest received on income tax refund – Held that:- As decided in assessee’s own case for the earlier assessment year, the decision in Avada Trading Co. (P.) Ltd. Versus Assistant Commissioner of Income-tax, Spl. Circle 18(1) [2006 (1) TMI 465 - ITAT MUMBAI] relied upon wherein it has been held that the interest on refund under section 244A(1) would be assessable in the year in which it is granted and not in the year in which proceedings under section 143(1)(a) attain finality – the order of the CIT(A) is upheld – Decided against assessee. Treatment of repairing expenses – Capital expenses or not – Held that:- As decided in assessee’s own case for the earlier assessment year, it has been decided that certain explanations were furnished before the AO but those were not supported by the requisite evidences - assessee has furnished certain details of the bills of repairs and details of replacement of furnace - The assessee was under strict obligation to furnish the proof and evidences in support of the repairs and replacement of furnace - the natural justice demands to provide an opportunity to this assessee to furnish full details along with bills and vouchers to demonstrate the nature of expenditure incurred, before the AO, so that after proper investigation about the nature of expenditure can be determined – thus, the matter is remitted back to the AO for fresh consideration – Decided in favour of assessee. Treatment of software expenses – capital expenses or not – Held that:- The fact of incurring of expenditure for SAP on account of user licencee fee and on account of reimbursement is not in dispute – in CIT vs. Asahi India Safety Glass Ltd. [2011 (11) TMI 2 - DELHI HIGH COURT] it has been concluded that the expenditure incurred by assessee on software is allowable as Revenue expenditure more so as the expenditure acquired by the assessee was an application software which enable it execute tasks in the field of accounting, purchases and inventory maintenance – also in IBM India Ltd. vs. ACIT [2006 (3) TMI 196 - ITAT BANGALORE-B] the same is held that the expenditure on purchase of application software is allowable as revenue expenditure as it is an aid in manufacturing process rather than the tool and though there is an enduring benefit there is no acquisition of capital asset - the expenditure incurred by the assessee has to be allowed as revenue expenditure – Decided in favour of assessee. Lump sum payments on account of know how fees – Capital expenses or not – Held that:- As decided in assessee’s own case for the earlier assessment year, it has been held that the know-how as such was not the property of the assessee - The know-how remained the property of the said "Collaborator" because the "Indian Company" was not permitted to make use of know-how other than the purpose for which it had intended in terms of the agreement - the know-how was not the property of the assessee - Rather, the said Collaborator has imposed a condition of confidentiality and secrecy which leads to an inference that the property belonged to the said Collaborator - the transfer of know-how was restricted for the use rather than its acquisition - the payment of Rs. 43.10 lacs was in the nature of revenue expenditure – Decided in favour of assessee. Transfer pricing adjustment – International transaction of Royalty and fees for technical services paid – invocation of section 40A(2)(b) – Held that:- The Artificial Bifurcation of DTA and EOU is de hors the provisions of Law, DTA Segment has no exports but comparable companies has exports and incorrect computation by the CIT(A) - the TPO artificially divided the manufacturing segment into two sub-segments, i.e. for exports and for domestic sales, but however kept the set of comparable companies same for both EOU and DTA - There is no fault can be found from the order of the CIT(A) so far as restricting the addition on account of differential operating margin to the international transactions is concerned - the figure as worked out by the CIT(A) is not correct, therefore this issue is required to be restored to the file of CIT(A) for re-computation of the international transactions – Decided in favour of assessee. CIT(A) in its order has held that royalty @ 1.5% only represent reasonable royalty - This finding is on the basis of the appellate order pertaining to AY 2001-02 - It is also held that the benchmarking of royalty is to be done for EOU as well as DTA - The contention of the assessee is that the fundamental principle of CUP is that the comparable transaction has to be “uncontrolled Transaction”, meaning thereby that it has to be a transaction between two parties who are not related to each other. SKF transaction is not eligible to be treated as CUP as it is with related party - The another contention of the assessee is that the TPO and CIT(A) has relied upon the rates of royalty paid by the assessee during the earlier years - this transaction is also with related parties as it is given to a related party of the assessee for the earlier period - no material is available on record that any enquiry of any nature has been carried out by any person including TPO to conclude that the transactions of SKF and for the earlier years for the assessee were the correct ALP or were done in circumstances so as to be at the ALP - The contention is that the only available option is to adopt TNMM as the method for determination of the ALP - CIT(A) and TPO were not justified in adopting the CUP method and the CIT(A) is upheld to adopt the method of TNMM for determination of the ALP and recompute the ALP in respect of the royalty – Decided in favour of assessee. Expenses incurred on repairs to building – Held that:- Following the decision in B.V.Ramachandrappa & Sons [1991 (1) TMI 67 - KARNATAKA High Court ] wherein it was held that Tribunal was right in holding that expenditure incurred on replacement of the barbed wire fence with compound wall was revenue expenditure - sustenance of shed or building, etc. is definitely in the nature of “current repairs” as prescribed u/s. 31 – Decided in favour of assessee. Interest expenses paid in foreign supply credit – TDS not deducted u/s 195 – Held that:- As decided in assessee’s own case for the earlier assessment year, it has been held that the conditions for supply of goods by the non-resident to the assessee in that case were that the payment of purchase price in instalments was to be made with the condition that the assessee will compensate the supplier by means of interest on the unpaid instalments - the unpaid instalment was not the same as loan and therefore, interest paid could not be treated as paid on-the loan and hence, deduction of tax at source was not attracted - the interest as defined u/s 2(28A) of the Act was paid in foreign currency on foreign suppliers' credit - There is nothing to suggest that payment of purchase price has been made in installments nor it has been brought to our notice there was any such condition that the assessee will compensate the supplier by means of interest on the unpaid installments - There is no material before us suggesting that amount was paid to the bank nor any such findings has been recorded in the impugned orders – thus, the order of the CIT(A) is upheld – Decided against assessee.

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• 2014 (11) TMI 551
  Transfer pricing adjustment – Selection of comparables - Accel Transmatic Limited (Software Services segment) - Determination of ALP on international transaction - Design and development support services for online courseware to its parent company provided – Held that:- Assessee is a wholly owned subsidiary of Element K Corporation, USA - It provides content design and development support services for online coursesware under a service agreement with its parent company - Assessee is remunerated on cost plus 15% markup for the services rendered - assessee is a low risk captive service provided – following the decision in Toluna India Pvt. Ltd. Versus ACIT, Circle 12(1), New Delhi [2014 (10) TMI 424 - ITAT DELHI] - the assessee itself considered this company as functionally comparable by including it in the accept/reject matrix, but, rejected it on the ground that advertisement expenses were more than 3% - the TPO has taken the figures of this company s Software services segment alone, which is akin to that of the assessee and that the Advertisement, marketing and distribution spend in this segment is less than 3%, being the filter applied by the assessee - the inclusion of the Software service segment of Accel Transmatic Limited in the list of comparables is upheld. Celestial Labs limited –Functionally different company - Held that:- From the annual accounts it has been found that it is engaged mainly in the developing the software products in the shape of tools etc., which are protected using the patent. -This company developed a tool, "CELSUITE" to drug discovery in finding the lead molecules for drug discovery - As this company is engaged in developing software tools after enough research and development activity and the tools so produced by it are its intellectual property, it cannot be considered as comparable to the assessee which is, also albeit in software development, but is doing it on contract basis without having any I.P. rights in the software developed by it – the DRP is directed to exclude the company from the list of comparables. E-Zest Solutions Limited - Held that:- The comparability of a company is tested on various parameters and a view is taken as to its comparability or otherwise by considering the entirety of the facts and circumstances - Simply because the nature of software development services provided by a company is different from those provided by the assessee, the same does not become incomparable - this company is also providing software development services as is done by the assessee on contract basis for others without having any intellectual property rights in them - A small variation in the nature of services does not make a company incomparable - Merely because the nature of service rendered by this company within the overall software development services, is not identical, will not make it incomparable, when it is otherwise similar to that of the assessee on all other scores - the company was rightly included by the TPO in the list of comparables. Ishir Infotech Limited – Held that:- This company to be comparable to that of the assessee - the company has included Professional fees along with Director’s salary, etc., under the head ‘Administrative expenses’ - When the objection was taken by the assessee before the TPO that the employee cost was only 4% viewing only the ‘Establishment expenses’ in isolation without considering the employee cost included under the head ‘Administrative expenses’, the TPO corrected the position by observing that the employee cost was more than 25% by impliedly including the personnel cost included under the head ‘Administrative expenses’ - The assessee did not challenge the TPO’s calculation before the DRP on this issue - filter of 25% of RPT is good enough to make a controlled transaction and thus expunging it from the list of comparables, which can only be uncontrolled transactions - the view taken by the TPO is upheld in including this case in the list of comparables. KALS Information Systems Limited – Held that:- The company was engaged in Software development and training - the TPO adopted Software development segment of this company by noticing that this segment also included revenues from software products and training - the assessee is not engaged in imparting any training on commercial basis or selling its software products, the financials of the company under this segment cannot be compared with the assessee - The contribution by the sale of software products or training to the overall revenue of this segment cannot be precisely ascertained to determine the question of its comparability – Decided partly in favour of assessee. Disallowance u/s 40(a)(ia) – TDS not deducted as per rates applicable – Held that:- As decided in COMMISSIONER OF INCOME TAX, KOLKATA-XI Versus M/s SK. TEKRIWAL [2012 (12) TMI 873 - CALCUTTA HIGH COURT] - short deduction of TDS cannot be the basis for disallowance u/s 40(a)(ia) of the Act – the disallowance is to be deleted – Decided in favour of assessee.

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• 2014 (11) TMI 550
  Eligibility for deduction u/s 80IB – Different nature of income – Held that:- Following the decision in M/s. Castrol India Ltd. Versus Addl. Commissioner of Income-tax [2014 (1) TMI 78 - ITAT MUMBAI] the provisions of section 80IB are code by themselves as they contain both substantive as well as procedural provisions. The word 'derived from' is narrower in connotation as compared to the words 'attributable to' - By using the expression 'derived from' Parliament intended to cover sources not beyond the first degree - The assessee has claimed deduction u/s 80IB in respect of receipts which are incidental to the business and so beyond the first degree - The disallowance on account of assessee's claim for deduction u/s 80IB in respect of first four items of other income is confirmed - The disallowance to in respect of income from insurance claim is deleted - the AO is directed to allow deduction u/s.80IB in respect of income from insurance claim – Decided partly in favour of assessee. Claim of depreciation on the assets of Silvasa Unit – Depreciation in energy saving devices – Held that:- Following the decision in M/s. Castrol India Ltd. Versus Addl. Commissioner of Income-tax [2014 (1) TMI 78 - ITAT MUMBAI] - The copy of certificate of the engineer of vendor is not sufficient to allow the claim of assessee at higher rate of 80% - The assessee has failed to furnish the product catalogue and certificate from the competent authorities to establish the nature and use of the asset to show that it is energy saving device eligible for depreciation at higher rate of 80% - The assessee has also not produced any evidence in support of its alternative claim of depreciation at the rate of 60% applicable to computer systems - Decided against assessee. Disallowance relating to IT cost deleted – Held that:- Following the decision in M/s. Castrol India Ltd. Versus Addl. Commissioner of Income-tax [2014 (1) TMI 78 - ITAT MUMBAI] – it has been held that in so far as the allocation/reimbursement of COE3 expenses is concerned, the assessee has submitted before us that there is no dispute about the fact that significant costs were incurred related to COE3 project deployed by the BP group worldwide and the assessee company as a part of the said group had derived benefit - the contention of the assessee that there is no justification in the action of the TPO in ignoring all these details and taking the ALP of the relevant transactions at Nil - it is incumbent impomi the TPO to work out the ALP of the relevant transactions by following some authorized method and the entire cost borne by the assessee cannot he disallowed by taking the ALP at Nil keeping in view the facts and circumstances of the case and the relevant details furnished by the assessee – the matter is remitted back to the AO for fresh adjudication – Decided in favour of assessee. Royalty payment disallowed – Held that:- Following the decision in M/s. Castrol India Ltd. Versus Addl. Commissioner of Income-tax [2014 (1) TMI 78 - ITAT MUMBAI] – royalty was paid by the assessee company to its AE namely Castrol Ltd. UK at 3.5 % of the net ex- factory sale price of products manufactured and sold in India as per the technical collaboration agreement - This international transaction involving payment of royalty to its AE was bench-marked by the assessee by following CUP method in its TP study report and since average rate of royalty of three comparables selected by it was higher at 4.67% than the rate at which royalty was paid by the assessee to its AE, the transaction involving payment of royalty was claimed to be at arm's length - CIT (A) could not appreciate the infirmities in the order of the TPO despite the same were specifically brought to his notice on behalf of the assessee and confirmed the TP adjustment made by the TPO in respect of royalty payment which was totally unjustified - the addition made by the AO/TPO and confirmed by the CIT on account of TP adjustment in respect of royalty payment is set aside – Decided in favour of assessee. Claim of CENVAT u/s 145A – Held that:- Following the decision in M/s. Castrol India Ltd. Versus Addl. Commissioner of Income-tax [2014 (1) TMI 78 - ITAT MUMBAI] – the matter is to be remitted back to the AO with a direction to make the adjustment on account of excise duty also to the value of opening stock as well as sales and purchase in accordance with section 145A – Decided in favour of assessee. Disallowance of bad debts – Held that:- Following the decision in M/s. Castrol India Ltd. Versus Addl. Commissioner of Income-tax [2014 (1) TMI 78 - ITAT MUMBAI] wherein the decision in TRF. LTD. Versus COMMISSIONER OF INCOME-TAX [2010 (2) TMI 211 - SUPREME COURT] followed and the disallowance made made on account of assessee's claim for bad debts written off is deleted – Decided in favour of assessee.

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• 2014 (11) TMI 549
  Deletion of addition u/s 40(a)(ia) – payments made for masonary and centering work – Held that:- AO while disallowing the expenses had noted that the expenses were incurred in cash and Assessee was liable to deduct the tax before making the payment – Assessee contended that the persons to whom the payments were made, were the employees of Assessee and there was employer employee relationship and further since the payments was less than prescribed limit, Assessee was not required to deduct TDS - the submission of Assessee for not deducting TDS was not taken before AO - there is no finding of CIT(A) on the submission of Assessee that there existed employer employee relationship and the payments were below the prescribed limit - the aspect needs to be examined at the end of AO – thus, the matter is remitted back to the AO for examination – Decided in favour of revenue. Unexplained credits in the form of advances from various customers – Held that:- AO has made the addition after considering the statements given by the various creditors and on the basis of the books of accounts - assessee submitted that the statement and evidences were recorded at the back of the Assessee and the Assessee was not granted an opportunity to cross-examine the persons – the submissions of the Assessee has not controverted by Revenue - in view of the principle of natural justice, Assessee should be granted on opportunity to cross-examine the persons whose statements have been relied by AO – thus, the matter is remitted back to the AO to grant an opportunity to the Assessee to cross-examine the creditors and also make available evidences on which he has relied for making the additions – Decided in favour of revenue. Addition made – Capital contribution not reflected in bank statement – Held that:- AO had made the addition of Rs. 6 lacs for the reason that the amount of capital contribution was not reflected in the bank statement of the partners - assessee contended that the amount was received from Shri Vajubhai Jani and for which Assessee has also placed on record the copy of the confirmation from Vajubhai Jani and the copy of his bank account – the documents were not before the AO – thus, the matter is remitted back to the AO for verification – Decided in favour of revenue.

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• 2014 (11) TMI 548
  Addition of unexplained deposit of credit in bank account u/s 68 - addition in the hands of partner - Addition u/s 69 when in the notice section 68 was mentioned - Books of account are not maintained – Held that:- There is no justification of the Department in treating the deposits in the bank pass book of the firm M/s Dixit & Company as unexplained income in the hands of the assessee who is a separate legal entity - even if no addition is justified u/s 68 of the Act, addition can be made u/s 69 of the Act in respect of deposit in bank account if the assessee cannot satisfactorily explain the source of deposit - merely because a wrong section has been invoked by the AO, the addition cannot be deleted and such order is not illegal and at the best it is irregular which can be regularized by substituting the correct section in place of wrong section - merely on the basis of these objections, it cannot be concluded that the firm is not in existence - any deposit in the bank account in the name of M/s Dixit & Co. cannot be added in the hands of the assessee and it can be examined only in the hands of the firm M/s Dixit & Co. – there was force in the claim of the assessee and it has been held that for deposits in the bank account in the name of M/s Dixit & Co., no addition can be made in the hands of this individual – thus, the entire matter is to be remitted back to the AO for fresh consideration – Decided in favour of assessee.

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• 2014 (11) TMI 547
  Condonation of delay – delay of 50 days - Chartered Account filed an affidavit stating the reasons for delay – Held that:- The assessees are laymen and not acquainted with the intricacies of Income-tax Law and the delay was caused due to misunderstanding of CIT order by the Chartered Accountant – in Kewalkumar Jain vs. ACIT [2014 (11) TMI 526 - ITAT PUNE] - assessee misconstrued law by assuming that since matter was remitted back to AO, he could agitate consequential order to be passed by AO in appeal proceedings before CIT(A) only - Thus assessee entertained a belief that as original assessment had been set aside, there was no necessity of challenging revisional order of Commissioner before Tribunal – the delay is condoned and appeal admitted for adjudication on merit. Validity of revision order u/s 263 – Disallowance u/s 40A(3) in respect of cash payments – Held that:- The AO was fully aware of the survey operations and the income was estimated on the basis of loose slips and purchase and sale documents during the post survey proceedings itself - The estimate was not based on any books of account but the income was admitted on the basis of loose slips and the assessees paid taxes as agreed - The AO accepted the incomes returned as the assessee had admitted the incomes and declared in the sworn statements during the post survey proceedings - The AO had fully applied his mind and accepted the incomes returned and passed orders u/s 143(3) of the Act - the CIT is no justified in assuming jurisdiction u/s 263 - invoking the provisions of section 40A(3) on advances is not correct under the facts of the case. The CIT came to a wrong conclusion that the assessees had violated the provisions of s. 40A(3) - the AO asked for cash-flow statement and on the basis of such statements the assessees admitted income - Since the issue of purchases did not arise in the course of survey nor anything is identified that the assessees had paid any amount in violation of provisions of s. 40A(3), the AO did not invoke the provisions of that section and accepted the admitted incomes - the CIT without any basis on record invoked the provisions of s. 40A(3) and that too included certain amounts which cannot be disallowed u/s. 40A(3) - the orders of the CIT per se are not correct on facts - the AO applied his mind to the facts of the cases and the assessees made sworn statements and admitted the income - Taxes thereon were also paid - the CIT is not correct in assuming jurisdiction u/s. 263 of the Act – thus, the order of the CIT(A) passed u/s. 263 of the Act is set aside – Decided in favour of assessee.

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• 2014 (11) TMI 546
  Determination of ALP – Transfer pricing addition - Comparability analysis - Purchase of components, tools accessories and Sale of compressors – Held that:- The taxpayer has mixed the RPM and the CUP and has concluded that the transactions are at Arm's Length Price - The RPM relies on the gross profit margins - Further, the gross profit margins of the international transactions are required to be compared with the gross profit margins earned by independent parties - the taxpayer has compared its gross profit margin with itself to arrive at the Arm's Length Price - There are no external independent comparables used by the taxpayer - The CUP calls for strict comparability of the product on which transactions happen between the related party and independent party, which has not been provided - The method thus, fails. Sale of AK Kits and components – Held that:- The taxpayer is into manufacture of hermetically sealed compressors - in its search the taxpayer has considered the broad segment viz., 'non-electrical machinery' in respect of EOU Kits manufacturing segment - the taxpayer has used the data relating to earlier two years' data in addition to the current year - The selection of keywords itself is not correct as the taxpayer is into manufacture of compressor and the wrong selection of keywords has resulted into inappropriate selection of comparables - Therefore, the study made under TNMM is rejected - as selection of comparables by TPO suffers from these basic def iciencies, this issue requires re-examination by TPO by selecting proper comparables and then determine the ALP – thus, the matter is remitted back to the AO for fresh consideration. Adoption of operating cost on the basis of estimation – Held that:- Following the decision in M/s Tecumseh Products India Pvt. Ltd. Versus Asst. Commissioner of Income tax [2014 (4) TMI 816 - ITAT HYDERABAD] - Without considering the objections of Assessee, TPO determined the operating cost based on the proportionate cost on the ratio of sales in various segments - The action of the TPO was not justified at all when Assessee has maintained separate books of account, which was also accepted under the provisions of the Act - there is no reason for rejecting the same and estimating the operating cost on the basis of the proportionate turnover - Assessee has incurred loss in these transactions, whereas there was profit in other activity, which constitute 95% of Assessee's turnover - Taking sales as basis and arriving at the OP cost does not result in correct appreciation of Assessee's transactions - since segmental working is available on the basis of separate books of account maintained for EOU unit, operating cost has to be taken at Rs. 18,84,61,988/- and the TPO/AO is directed to take operating cost as stated – Decided in favour of Assessee. Payment made towards daughter’s marriage benefit disallowed – Held that:- Following the decision in Tecumseh Products India (P.) Ltd. Versus Assistant Commissioner of Income-tax [2014 (7) TMI 639 - ITAT HYDERABAD] - The amount is an allowable deduction u/s 37(1) of the Act - assessee is adding back the provision and claiming only the actual amount - Industrial Dispute Act permits this sort of benefit for the employees and assessee has been making matching contribution, allowability of this amount does not attract the provisions of section 40A(9) - both AO and DRP are wrongly disallowed the amount – Decided in favour of Assessee.

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• Customs

• 2014 (11) TMI 569
  100% EOU - Imposition of penalties on individuals where the main appellant has admitted the diversion of goods - Held that:- Adjudicating Authority has bought on record the complicity of the main appellant in defrauding government of its legitimate revenue. In view of the foregoing, we hold that M/s Skyron Overseas Industries the main appellant herein has not made out any case and the appeals are devoid of any merits. The appeals are rejected. Shri Mulchand Bhanvarlal Saran has not been issued any show cause notice and hence no penalty can be imposed - Decided in favor of appellant. Levy of penalty on Shri Sunil G Somani - Adjudicating Authority has imposed penalties on him on the ground that he being authorised signatory of the main appellant. - Role attributed to the Shri Sunil G Somani has been brought out by the Adjudicating Authority in Paragraph 47(b). The said findings specifically point out that the appellant Shri Sunil G Somani was the brain behind the entire duty evasion modus operandi, wherein he played a dual role; as a purchaser as well as seller of advance license/ARO and that he was something more than special power of attorney and also that he has not acted in a prudent manner. In our considered views, these findings of the Adjudicating Authority are correct and does not require any interference - Decided against the appellant.

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• 2014 (11) TMI 568
  Confiscation of used tyres u/s 111(d) - Hazardous waste - Held that:- It is seen from the TNPCB report that the goods fall under Waste Pneumatic Tyres for direct reuse. The adjudicating authority observed that these imported goods are likely to cause danger to health and environment. The adjudicating authority proceeded on the basis of TNPCB report stating that these goods are waste pneumatic tyres and therefore, the goods were imported in violation of the provisions of Hazardous waste (Management, Handling and Transboundary) Rules, 2008. But, the adjudicating authority had not considered the report as a whole that the imported pneumatic tyres are also for direct reuse. The Commissioner (Appeals) had discussed the classification of the goods in detail. In our considered view, it is not necessary to go into the classification of the goods under the Customs Tariff Act, in so far as it is to be determined as to whether the imported goods are in the nature of waste. No clear finding from both the sides that the imported goods are in the nature of used or waste. In our considered view, this should be examined by the adjudicating authority in the light of the decision of the Tribunal in the case of Universal (2013 (11) TMI 856 - CESTAT AHMEDABAD). Accordingly, we direct the adjudicating authority to examine all the issues to the extent of appeals filed by the three importers. - Matter remanded back - Decided in favour of assessee.

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• 2014 (11) TMI 567
  Waiver of pre deposit - Clandestine removal of goods - raw materials were imported but at the time of visit neither the raw material nor any finished product was found - Held that:- There is no dispute that the raw materials were imported and at the time of visit neither the raw material nor any finished product was found. This obviously implies that either the imported goods have been diverted somewhere or cleared from the factory or the said goods might have been used in the production of finished goods which have been cleared either clandestinely or on payment of duty. There was no possibility of getting any such extension. Similarly, we find that during the arguments they have produced a letter purportedly to have been written to the Policy Relaxation Committee. This letter is dated 26.8.2013 while the present appeal has been field on 26.3.2013. We have also gone through the said application. Prima facie we do not find any merit in the said application (though it is within the jurisdiction of the Policy Relaxation Committee). There are no cases of relaxation period where the applicants have made higher imports and requires clubbing. There is no question of basic customs duty being available as credit. Even credit of CVD will not be available as the goods have been diverted against the provisions the Customs Notification read with Foreign Trade Policy. Thus it is a case of fraud, suppression of facts. Prima facie no applicants have any case on merits - Partial stay granted.

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• 2014 (11) TMI 566
  Confiscation of goods - Redemption fine - Misdeclaration of goods - Held that:- Record reveals that in the guise of Basmati rice, attempt was made to export non Basmati rice adopting questionable modus operandi. Actually 6 containers were attempted to be cleared. Containers were stuffed in such way that front row contained Basmati rice and second row contained non-Basmati rice. First row was used to camouflage the inferior goods rows. Samples were tested which proved intention of appellants to deceive revenge. Misdeclaration came to record. Test Results indicated that consignments were non basmati rice export of which is prohibited by DGFT Notification No. 55/(RE-2008)/2004-2009 as amended. Test results showed exported goods were non-basmati rice. That demolishes the defense plea of mixing of consignments and non basmati rice were wrongly loaded in the containers. Test reports confirmed that representative samples did not conform to the requirement of average length & length/breadth ratio as prescribed by the DGFT Notification and were contrary to the specifications of rice declared by the appellants failing to meet the specifications of Basmati rice as per the Agmark specification. Findings of the Commissioner relating to confiscation of the goods and imposition of redemption fine of Rs. 15 lakhs. In the facts and circumstance is justified when questionable modus operandi remained un-explained. Intentional misdeclaration does not deserve leniency. Therefore redemption fine imposed in adjudication remains untouched. Conduct of appellants show that they were consciously involved in the export of non basmati rice following dubious method to defraud the Revenue. Therefore imposition of penalty on the exporter does not call for interference for which entire penalty is confirmed. - Decided against assessee.

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• Service Tax

• 2014 (11) TMI 586
  Composite transactions - Discharge of service tax on stevedoring operations - Cargo Handling Services and port service - Discharge of tax under reverse charge mechanism - Issue of separate invoices - Held that:- Appellants are not charging the lump sum amount for both transportation and cargo handling. Separate purchase orders are filed, separate bills are raised and separate heads have been fixed. The view taken by the Commissioner that only when the appellant collected actual amount incurred they can be treated separately is not correct. It appears that Commissioner has not applied the meaning of amount charged correctly. Amount charged does not mean the actual amount payable - claim of the learned counsel that the 3 activities undertaken by them namely handling of fertilizers and handling of the same within the port, transportation from port to outside the port and thereafter bagging activity are 3 independent separate activities, separately charged and separately billed for. That being the position, it cannot be treated as a composite activity at all. Moreover, service tax is payable on GTA service and there is no evidence that service tax has not been paid on GTA service by IPL. In our opinion, transportation activity in this case is a distinct activity since it comes in the middle of handling of cargo within the port and bagging outside the port and unless the appellants charged a lump sum amount for all the three activities and there is no divisibility according to the understanding of both the parties, it cannot be treated as a composite contract. Therefore in our opinion appellants have made out a case on merits - Stay granted.

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• 2014 (11) TMI 585
  Banking and other Financial Services - whether the sale of RBI Bonds on commission basis would be liable to service tax under “Banking and other Financial Services” for the period prior to 10/09/2004 or not - Held that:- Unlike other banks, RBI does not undertake borrowing or lending on its own. Whenever the RBI undertakes borrowing activities, it is on behalf of the Government of India to manage the Indian economy which its constitutional responsibility. Therefore, the lending or borrowing of money by the Government is a sovereign function and on such functions there cannot be any tax liability whether by way of direct tax or by way of indirect tax. This is the principle followed by this Tribunal in the case of HDFC Bank [2014 (1) TMI 1611 - CESTAT MUMBAI] and Canara Bank case (2012 (6) TMI 274 - CESTAT, AHMEDABAD). - Decided in favour of assessee.

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• 2014 (11) TMI 584
  Waiver of pre deposit - Classification of service - Management or business consultancy service or business auxiliary service - Held that:- It would be difficult to come to a final conclusion as regards prima facie merit or the correct classification. The issue is debatable. The correct classification would require detailed consideration of the actual activities undertaken, the work awarded by local self-Government institutions to the appellants, terms of payments, terms of agreement and the nature of service provided, etc., which would require consideration of all the relevant details, some of which have not even been placed before us at this stage. It cannot be said that appellants have made out prima facie case in their favour since the work undertaken by them includes study of work done by local self-Government organizations, computerization thereof, customization of the software, implementation, training, etc., which would definitely can be considered as relatable to management activity of the Government. Therefore, we consider that if the appellant deposits 20% of the service tax demanded that would be sufficient for hearing the appeal. - Partial stay granted.

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• 2014 (11) TMI 583
  Business Support Service - appellant had been collecting the Bus Adda Fee, the amounts for sale of space for advertisement and also rent & Tehbazari - Extended period of limitation - Interest u/s 75 - Penalty u/s 77 & 78 - Held that:- Perusal of Board’s Circular No. 89/7.2006 dated 18.12.2006 reveals that it does have the potential to cause confusion that the public authority rendering service in public interest and charging fee for the same as per their statutory powers may not be liable to service tax although a careful reading of the said circular would reveal that it was referring to only such fees which are deposited in the Government account which is clearly not the case here. Further, though the Commissioner (appeals’) orders do not constitute precedence nor are they binding on CESTAT, the fact that some Commissioner (Appeals) have actually held such bus adda fee as not liable to service tax clearly supports the contention of the appellants that they were under the bona fide belief that the bus adda fee was not liable to service tax. Prima facie the appellants have been able to make out a fairly reasonable case with regard to the non-invocability of the extended period. In view of that and having regard to the fact that (i) the bus adda fee accounts for approximately 2/3rd of the impugned demand and (ii) the appellants had not contested the demand relating to sale of space for advertisement and rent & tehbazari we order a pre-deposit - Partial stay granted.

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• 2014 (11) TMI 582
  Erection, Commissioning or Installation services - Imposition of interest and penalty - Held that:- In this case the appellants have paid customs duty on the entire value which includes erection, commissioning and installation also, if at all, any assistance is provided. Moreover as submitted by learned counsel, erection, commissioning and installation was done by a local supplier. Moreover we also find considerable force in the submission that contract can also be considered as a ‘works contract’ which came into levy only w.e.f. 01.06.2007 and issue has been referred to 5 Member Bench and therefore on that ground also when the demand is for extended period request for waiver can be considered favourably - Stay granted.

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• 2014 (11) TMI 581
  Waiver of pre deposit - Renting of Immovable Property Services - Held that:- Applicant had given on rent various commercial complexes to various commercial concerns. It is noticed that the applicant declared themselves a Charitable Trust under Income-tax Act. The CBEC s Circular, dated 23.08.2007 clarified that the assessee is eligible for exemption under Income-tax Act on the ground of being a Charitable Institution and is of no consequence or has any relevance for service tax purpose. In the present case, the facts remain that the demand of service tax is on the commercial complexes which was given on rent to various commercial concerns. on each of the appellant s clearing all the arrears as on the said date in three equated instalments, on or before 1st March, 2012, 1st May, 2012 and 1st July, 2012, no coercive steps shall be taken against the appellants for recovery of the said arrears. However, in the event of default on the part of the appellants in deposit of any one of the instalments by the due date, it will be open to the respondents to recovery the entire amount in arrears forthwith - Partial stay granted.

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• 2014 (11) TMI 580
  Valuation - Erection, commissioning and installation service - Imposition of interest and penalty - Held that:- Service tax levy is confined to supply/rendering/provision of service. It does not extend to supply of goods, if the same is involved in a composite contract involving supply of service. Therefore, in a contract which involves both supply of goods as well as supply of services, service tax liability can be fastened only on the value of the service rendered. This is the position in law as explained by the hon'ble Delhi High Court in the case of G.D. Builders vs. Union of India - [2013 (11) TMI 1004 - DELHI HIGH COURT]. Therefore, the question of inclusion of value of goods supplied in a composite contract for the purpose of levy of service tax is clearly unsustainable. Therefore, the matter has to go back to the adjudicating authority to determine and exclude the value of the goods supplied in the contract undertaken by the appellant and thereafter, re-determine the service tax liability of the appellant - Matter remanded back - Decided in favour of assessee.

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• Central Excise

• 2014 (11) TMI 579
  Remission of duty - Goods destroyed due to unavoidable accident - Whether ‘Remission of duty’ is allowable when goods, cleared from factory without payment of duty for export under Bond, are destroyed due to unavoidable accident before the said goods could be exported - Held that:- Sale would be completed at load port only as per definition of ‘Place of Removal’ given u/s 4(3)(c)(iii) of the Central Excise Act 1944. Under these circumstances, ownership of the goods and duty liability is also extended upto the load port and if, the goods are not exported, concerned manufacturer will be required to discharge the duty liability. Therefore, ‘removal’ also gets extended upto the port of shipment from where the sale would be completed and when the goods were to be exported. Hence, if the goods cleared for export under Bond are destroyed before the export, ownership of the said goods and also duty liability, if any, would be always to the account of appellant assessee and that the said goods could be considered having been destroyed before removal and the benefit of Remission of duty is allowable in such an exceptional situation in terms of Rule 21 of Central Excise Rules 2002. Clause (iii) in Section 4 (3) (C) for ‘Place of removal’ was inserted w.e.f. 14.05.2003 vide section 136 of the Finance Act 2003. Goods cleared for export under Bond which were destroyed before the same could be exported, can be treated as having been destroyed before removal only. This would be the fair interpretation of the Rule 21 of the Central Excise rule 2002. Thus, primary condition of eligibility of Remission of duty on the destroyed goods is fulfilled as required u/r 21 of Excise Rules 2002. Appellant is eligible for the Remission of duty in respect of goods for export under Bond which were destroyed before the same could be exported. in cases where goods removed from factory for export under Bond are destroyed before export, due to unavoidable accident, then in such situation the goods destroyed are to be treated as having been destroyed before removal in terms of Rule 21 of Central Excise Rules 2002. - Decided in favour of assessee.

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• 2014 (11) TMI 578
  Denial of CENVAT Credit - Input services - Place of removal - Whether the demands regarding denial of CENVAT credit on Installation and Erection services availed by the appellant are sustainable or not - Invocation of extended period of limitation - Held that:- Appellant’s case is covered by the main body of the definition of ‘Input Services’ and it has to be held that servicers availed by the appellant are in relation to the manufacturing of the excisable goods. The case laws of Quality Steel Tubes (P) Limited vs. CCE UP (1994 (12) TMI 75 - SUPREME COURT OF INDIA), Thermax Limited vs. CCE (1998 (4) TMI 134 - SUPREME COURT OF INDIA) and Maruti Suzuki Limited vs. CCE, Delhi-III (2009 (8) TMI 14 - SUPREME COURT), relied upon by the learned AR are not applicable to the facts and circumstances of the present proceedings as the same were delivered either with respect to eligibility of CENVAT credit as ‘Inputs’ or for determining assessable value under Section 4 of the Central Excise Act, 1944 and were not with respect to eligibility of CENVAT Credit on ‘Input Services’. It is now a settled legal position that cevnat credit on ‘Input Services’ is also admissible if the same are availed beyond the ‘place of removal’ provided such services are availed in relation to manufacture. - extended period cannot be invoked and accordingly, there is no point in imposition of penalties upon the appellant. - Decided in favour of assessee.

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• 2014 (11) TMI 577
  Denial of refund claim - accumulation of credit - duty free imports and double benefits - manufacture of Polyester Staple Fibre (“PSF”) - Export and DTA clearance - Held that:- Till 01.04.1997 the Export Policy provisions were different and duty free imported materials against Advance Licence were freely transferable after fulfilment of export obligation, where the Modvat/Proforma credit facility or excise relief under Rule 191B of CER 1944, were availed and hence could have lead to possible double benefit. But after 1.4.1997 Foreign Trade Policy (FTP), the position have been changed and going through the provisions relevant for the impugned period it is clear that it would not be possible to get double benefit. Refund under Rule 5 of CENVAT Credit Rules, 2004 on export of the finished goods, the credit is accumulated and the same cannot be utilised otherwise. We also find that as per the provisions of Foreign Trade Policy post 1997, no double benefit is available. Appellant have not availed any double benefit in the light of the decision in [2009 (5) TMI 498 - CESTAT, BANGALORE] which has been upheld by Karnataka High Court [2012 (7) TMI 569 - KARNATAKA HIGH COURT] and as per the Foreign Trade Policy 2009-14 and are entitled to claim refund of Cenvat credit accumulated unutilised on export of the finished goods which appellant was not able to utilise otherwise under Rule 5 of CENVAT Credit Rules, 2004 - Decided in favour of assessee.

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• 2014 (11) TMI 576
  Waiver of pre-deposit - Manufacturing and captive consumption of 'Compound' in the manufacturing of ‘Finished Chewing Tobacco' which was exempt from duty - benefit of Notification No.52/02-CE dated 17.10.2002 and Notification No.08/2004-CE dated 21.01.2004 - Suppression of facts - Clearance of goods for captive consumption - Held that:- It is not in dispute that the manufactured intermediate product, i.e.compound is excisable and hence dutiable. Even though at the adjudication stage, the applicants disputed its excisability, but such an argument has not been pressed hard before us. Now, the question arises is whether duty is required to be discharged on the intermediate product, ‘compound’. An intermediate product is exempted from payment of duty in the normal course under Notification No.67/95-CE dated 16.03.95, if consumed in the factory for manufacture of dutiable final products and in the present case also, under Notification No.52/02-CE dated 17.10.2002, the intermediate product is exempted if the final product is dutiable. The crux of the arguments advanced by the ld. Advocate is that it is not the intention of the legislature to levy duty on the intermediate products. It is the contention that in any case, no duty is required to be paid on the intermediate product when used in the manufacture of other finished goods. The argument is attractive and we would have agreed with the contention of the ld. Advocate for the Applicants; but we find that the vital point missing from the said argument, is that the finished product ought to be dutiable, so as to claim exemption on the intermediate product. Prima facie, we are of the view, both intermediate and final product cannot avail the benefit of exemption from payment of duty. Prima facie we do not find from records that the Applicants had specifically ever disclosed the facts and claimed exemption on the intermediate product ‘Compound in balti’, even after the issue of exciseablity was settled by the Hon’ble supreme Court [2005 (4) TMI 66 - SUPREME COURT OF INDIA] in their own case. In these Circumstances, the Applicants could not make out a prima facie case for total waiver of pre-deposit of dues adjudged. No financial hardship pleaded - Partial stay granted.

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• 2014 (11) TMI 575
  Condonation of delay - Whether in the facts and circumstances of the case, the appellant could make out a case for condonation of delay in filing the appeal before the Commissioner, Customs and Central Excise, Bhopal when the order was not served upon the appellant, it was served to an ex-employee of the appellant, thereafter the appellant was prevented to file appeal within time and it was sufficient cause for condonation of delay - Held that:- appellant had not stated all the facts in the application seeking condonation of delay about the documentary evidence filed along with the application, though appellant ought to have been pleaded these facts in the application itself. But after perusal of the application, affidavit of Gulab Mewade and medical papers of Dinesh K. Agrawal, we find that a sufficient cause was made out by the appellant for condonation of delay in filing appeal before the respondent. Accordingly, we condone the delay in filing appeal before the respondent. appellant is permitted to deposit the entire amount of duty of Central Excise Rs. 2,98,195 with the respondent within a period of four weeks - Decided partly in favour of assessee.

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• 2014 (11) TMI 574
  Imposition of Penalty and interest - assessee had paid duty before the show cause notice - Suppression of facts - whether the assessee’s claim was bona fide or as to whether the assessee has acted in a manner willfully evading the payment of tax - Held that:- The requirement as to suppression of fact of willful mis-statement with an intent to evade payment of duty as conferred in Section 11AB of the Act was however given up and Section 11AB by itself substituted by Act 14 of 2001 - Section 125 with effect from 11-5-2001. Thus, during the relevant material time, Section 11AB as it stood then, would stand attracted on the levy of interest on delayed payment of duty only when excise duty was not levied or paid or short-levied or short paid or erroneously refunded by reason of fraud, collusion or any willful mis-statement or suppression of facts or contravention of any of the provisions of this Act or the rules made thereunder with intent to evade payment of duty. Thus, when the explanation given by the assessee is found to be bona fide and when the action of the assessee did not lack bona fide and when there being no intention to evade payment of duty, the Tribunal rightly set aside the payment of interest and penalty. In such circumstances, going by the provisions of the said Act and the facts found by the Tribunal, we have no hesitation in confirming the order of the Tribunal - Decided against Revenue.

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• 2014 (11) TMI 573
  Jurisdiction of Tribunal - Penalty u/s 11AC - Whether the Appellate Tribunal is correct in reducing the penalty when holding that the respondent had an intention to evade payment of duty on the raw materials in question - Held that:- it is not sufficient that the mere payment of duty either immediately prior to the show cause notice or immediately prior to the passing of the order of adjudication would absolve the assessee from the levy of penalty nor it could be treated as a mitigating circumstances for the purpose of reduction of penalty. It has been held that once the provisions of Section 11AC stands attracted and the authority recorded a clear finding that there is an intention to evade payment of duty then penalty equivalent, to the amount of duty becomes automatic. Tribunal while considering the case of the assessee concurred with the Original Authority as well as the first Appellate Authority that the conduct of the assessee was contumacious and their conduct was with an intent to evade payment of duty. Having recorded such a factual finding there was no jurisdiction for the Tribunal to reduce the penalty in terms of the language employed of Section 11AC - Decided in favour of Revenue.

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• 2014 (11) TMI 572
  Waiver of pre deposit - Supreme Court dismissed appeal filed by the assessee against the order of High court [2013 (9) TMI 845 - PUNJAB AND HARYANA HIGH COURT] stating that if within three days from today, a sum of Rs. 42 lacs is deposited by the petitioner with the Customs, Excise and Service Tax Appellate Tribunal, New Delhi (CESTAT), the recovery of the remaining amount shall remain stayed and the appeal shall be heard on merits.

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• 2014 (11) TMI 571
  Classification of goods - whether Chillers were classifiable under Tariff Entry 84.18 or Tariff Entry 8415.00 or 84.19 - Supreme Court dismissed appeal filed by the Revenue holding that issue involved in this appeal has been covered against the Revenue in a judgment delivered by this Court in Commissioner of Central Excise, Delhi v. Carrier Aircon Ltd. [2005 (5) TMI 69 - SUPREME COURT OF INDIA] - Decided against Revenue.

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• 2014 (11) TMI 570
  Permission to file review application against the decision in COMMISSIONER OF CENTRAL EXCISE, LUCKNOW Versus CHHATA SUGAR CO. LTD. [2004 (2) TMI 67 - SUPREME COURT OF INDIA] - applicant had not been arrayed as a party-respondent in the Civil Appeals and thus the applicant was neither heard nor represented in the hearing of the Civil Appeals - Held that:- Having gone through the available material on record, Court is not inclined to grant permission to the applicant - State of Uttar Pradesh to file review petition (s) - Decided against Revenue.

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