TMI Tax Updates - e-Newsletter
November 24, 2014

Case Laws in this Newsletter:

Income Tax Customs Service Tax Central Excise

Articles

1. Cenvat credit of transferred unit cannot be denied when all assets and liabilities are transferred to Assessee

   By: Bimal jain

2. Authorities to take expeditious steps to sanction refunds – Order marked to the Finance Minister for consideration

   By: Bimal jain

Notifications

Central Excise

1. 23/2014 - dated 21-11-2014 - CE

Seeks to exempt from excise duty goods required for the Intensified Malaria Control Project funded by GFATM.

Customs

2. 45/2014 - dated 21-11-2014 - ADD

Seeks to levy definitive anti-dumping duty on imports of Digital Versatile Discs-Recordable (DVD-R and DVD-RW), originating in or exported from People's Republic of China, Hong Kong and Chinese Taipei for a period of five years.

3. 44/2014 - dated 21-11-2014 - ADD

Seeks to levy definitive anti-dumping duty on imports of diclofenac sodium, originating in or exported from People's Republic of China, for a period of five years.

4. 32/2014 - dated 21-11-2014 - Cus

Seeks to exempt from customs duty goods required for the Intensified Malaria Control Project funded by GFATM.

Highlights / Catch Notes

Income Tax

• Block Assessment Validity Challenged: Issuance of Section 143(2) Notice Crucial for Timely Tax Assessment u/s 158BC.

  Case-Laws - AT : Validity of block assessment u/s 158BC – Order beyond period of limitation or not –issuance of notice u/s.143(2) is a mandatory requirement - AT
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• Deduction Allowed u/s 80IB(10) for Income Disclosed Post-Search in Return u/s 153A(1)(a.

  Case-Laws - AT : Deduction u/s 80IB(10) – assessee is eligible for deduction u/s 80IB(10) of the Act even in relation to impugned additional income offered in a statement deposed u/s 132(4) of the Act during the course of search and subsequently declared in the return of income filed in response to notice u/s 153A(1)(a) - AT
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• Non-compete fees paid to ex-director are business expenses if benefit is short-term and lacks lasting impact.

  Case-Laws - AT : Non-compete fees paid to Ex-Managing Director - If the advantage is not for longer period and not enduring in nature, then such a payment of noncompete fee is nothing but business expenditure which is on revenue account - AT
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• Dispute Over Article 7 of DTAA with France: Revenue's Oversight on Arm's Length Price and Permanent Establishment.

  Case-Laws - AT : Existence of a Permanent Establishment – Article 7 of the DTAA with France - the initial onus is upon the Revenue to show that the transactions are not at arm's length price, this aspect has not been looked upon by the Revenue authorities - AT
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• Unabsorbed depreciation merges with next year's allowance; can offset income from other sources under Income Tax Act, Section 71.

  Case-Laws - AT : Unabsorbed depreciation is to be added to the account of allowance of depreciation of the next year and as such merges with next year’s depreciation allowance - and further that as per the provisions of section 71 of the Act such depreciation allowance can be set off from income from other heads - AT
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• Revisiting Tax Deductions Without New Evidence is a Legal Violation, Constituting a Change of Opinion by the AO.

  Case-Laws - AT : Only because AO has accepted the deduction claimed towards prior period and exceptional items without making any reference, it cannot be said that the issue was not examined by AO - reopening would amount to change of opinion or a review of assessment order earlier passed which is not permissible in law - AT
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• Rental Income as Business Income Doesn't Automatically Make Property Stock-in-Trade; Recognize Real Estate vs. Investment Distinction.

  Case-Laws - AT : Merely because rental income earned on the property was shown as business income, the property so held as investment cannot be treated as a stock-in-trade of the business ignoring the fact that “real estate business’ is separate from “rental income’ - AT
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• Deduction Claim Valid for Bad Debt Write-offs of Revenue Advances u/s 36(1)(vii) of Income Tax Act.

  Case-Laws - AT : Bed debts - once the advances made are held to be of revenue nature, then, the other consequence of claim of deduction u/s 36(1)(vii) would automatically follow if the assessee actually has written them off in its books of account as bad debt - AT
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Customs

• Refund Denied: Officer's Certification on Catalyst Classification Insufficient for Refund Eligibility Under Tax Regulations.

  Case-Laws - AT : Denial of refund claim - Merely, because an officer from the Department of Fertilizers has certified, catalyst cannot be considered as machinery, instrument or appliances or a part thereof - refund not allowed - AT
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• Commissioner of Customs at Nhava Sheva faces potential contempt proceedings for not refunding pre-deposit as directed by Tribunal.

  Case-Laws - AT : Refund of pre deposit directed by this Tribunal - Order not complied with - Commissioner of Customs (Import), Nhava Sheva is directed to show cause as to why contempt proceedings should not be initiated against him in accordance with the law for non-implementation of this Tribunal's orders - AT
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• Refund Claims Denied Without Challenging Final Assessments on Bills of Entry.

  Case-Laws - AT : Whether the refund claim can be entertained when the person asking for refund has not challenged the assessments made finally on the bills of entry - held No - AT
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Service Tax

• CENVAT Credit Reversal Case Remanded for Further Review; Department Must Assess Compliance with Sub-rule (3A.

  Case-Laws - AT : Reversal of CENVAT Credit - department has not undertaken any such exercise nor have they given any finding as to whether the reversal made by the appellant is in conformity with sub-rule (3A) or not - matter remanded back - AT
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• Court Confirms Pre-2008 Franchise Services Classification; Broader Post-2008 Category Not Retroactive, Partial Stay Granted.

  Case-Laws - AT : If prior to 16.05.2008, the service was correctly classifiable under franchise service and broader category was brought into the statute subsequently it does not mean that for the earlier period it could not have been classified under franchise service - stay granted partly - AT
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• Appellant's Biochemical Compound Structure: Does It Qualify as Export of Services? Preliminary Assessment Favors Assessee.

  Case-Laws - AT : Export of services or not - appellant was providing structure of biochemical compound which was developed in India and a minute quantity was exported - prima facie case is in favor of assessee - AT
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• Appellant Allowed CENVAT Credit for Service Tax on Advertisement and Broadcasting Agency Services.

  Case-Laws - AT : CENVAT Credit - input services - Advertisement and broadcasting agency service - appellant had availed both the services and has also borne the incidence of Service Tax - credit allowed - AT
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• Interest and Penalties Not Imposed on Unutilized CENVAT Credit, Mere Taking Doesn't Warrant Action.

  Case-Laws - AT : CENVAT Credit - Imposition of interest on unutilized credit - Rule 14 - whether a mere taken of CENVAT credit facilities without actually using it, would carry interest as well as penalty - Held No - AT
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• CENVAT Credit Denied if Payment Unpaid and Written Off; Service Not Classified as Exempted Service.

  Case-Laws - AT : CENVAT credit - if a customer did not pay the consideration and the same is written off, the service tax would not be payable but the service as such cannot be considered as an exempted service - AT
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• Service Tax Penalties Avoided if Liability and Interest Paid Before Show Cause Notice Issued u/s 73.

  Case-Laws - AT : Penalties under Sections, 76, 77 and 78 - Issue of SCN u/s 73 - service tax liability along with interest is charged before the issue of show cause notice - Penalty cannot be imposed- AT
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• Service Tax Collection Doesn't Disqualify Exemption Eligibility if Activity is Non-Taxable.

  Case-Laws - AT : Just because an assessee shows some amount as service tax, collects the same and pays it to Government, if the whole activity is not liable to tax, just because he paid the tax would not render him ineligible for such exemption - AT
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• Order Passed Without Assessee's Presence Must Be Reconsidered; Efforts to Verify Cause List Noted.

  Case-Laws - AT : Modification of order - Order passed in assessee's absence - if an assessee has made efforts to verify the cause list and their case is not found listed, they cannot be found fault with - matter has to be considered afresh - AT
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• Service Tax Only on Services: Exclude Material Value from Taxation in Agreements with Distinct Valuation.

  Case-Laws - HC : The principle of law being that where an agreement quantifies the value of materials separately from the value of services rendered, the value of the materials or goods would have to be excluded since that component is not liable to service tax - HC
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• High Court Upholds Tribunal's Decision Despite Concerns Over Lack of Detail in Ruling.

  Case-Laws - HC : It is true that the decision of the Tribunal is somewhat brief and it would have been desirable if the Tribunal had given more elaborate facts - however, that by itself would not permit or atleast in facts of this case, to overturn the decision of the Tribunal - HC
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Central Excise

• Dispute Over CENVAT Credit on Inputs from 100% EOU: Additional Customs Duty Includes Excise and Educational Cess? No Penalties.

  Case-Laws - AT : CENVAT Credit on inputs procured from 100% EOU - Quantum of Additional Customs Duty included duty of excise and Educational Cess - different views were being expressed on the issue, therefore, extended period cannot be invoked and there is no case for imposing penalties. - AT
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• High Court: No Need to Reverse CENVAT Credit for Work-in-Progress Inputs Lost in Fire Without Remission Claim.

  Case-Laws - HC : Reversal of CENVAT Credit - inputs as work- in-progress (WIP) which was destroyed in the fire accident - assessee has not claimed any remission and no final product has been removed - no reversal of credit is required - HC
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• Captive Consumption and Excise Duty on Molasses: Burden of Proof on Officer for Alleged Value Suppression.

  Case-Laws - HC : Captive consumption - excise duty upon molasses - Suppression of value of goods - Demand of differential duty - The burden is upon the proper officer. - HC
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• Court Affirms New Owners' Rights: Previous Owner's Registration Lapses Don't Block Subsequent Central Excise Registration.

  Case-Laws - HC : Merely because erstwhile owner though it had ceased to carry on business on the premises in question, had failed to apply for de-registration and/or cancellation of the Registration Certificate and/or the department has not de-registered and/or cancelled the Registration Certificate issued in favour of the erstwhile owner, the same is no ground to deny Central Excise Registration to the subsequent purchaser-lessees - HC
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• Appellant's Refund Approved After Misinterpretation; Duty Liability Not Transferred to Another Party, Initial Denial Overturned.

  Case-Laws - AT : Denial of refund claim - Because the appellant s action amounted passing of burden to one self. Therefore it cannot be said that the duty liability has been passed on to someone else - refund allowed - AT
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• High Court Overturns Tribunal's Decision, Allows Reconsideration of CENVAT Credit Appeal Due to Revenue Prejudice.

  Case-Laws - HC : Denial of CENVAT Credit - tribunal disposed of the appeal while deciding the stay application - Revenue has suffered serious prejudice on account of such dismissal of the appeal by a Judicial Tribunal then interest of justice would be served if we set aside the impugned order to the extent it disposes of the appeal finally. - HC
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• Department Can't Demand Payment if Three Individuals Recognized as Lessees; Situation Changes if Not Recognized.

  Case-Laws - HC : Denial of registration - When the department having recognised those three as lessees, cannot claim the amount payable by them from the petitioner. If they are not recognised as lessees then the question is different. - HC
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• Tribunal Misjudges Central Excise Case by Considering Unraised Argument, Leading to Questioned Order Validity.

  Case-Laws - HC : Validity of Tribunal's order - Provisional assessment or not - Tribunal has misdirected itself to consider the issue on a total new plea, which was not canvassed by the Revenue in the show cause notice. - HC
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• Strict Interpretation Required for Area-Based Excise Duty Exemptions; NCCD Not Included Without Explicit Mention.

  Case-Laws - HC : Levy of NCCD while allowing area based exemption - Exemption granted by a notification must be read limited to the duty of excise as mentioned in the notification, and by simple interpretation it cannot be extended to cover any other kind of excise duty. - HC
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• High Court Rules Interest Liability Must Be Claimed Within One Year from Supplementary Invoice Under Central Excise Act.

  Case-Laws - HC : Recovery of Interest – can such interest liability be demanded beyond the normal period of limitation of one year from the date of supplementary invoice under Section 11A read with Section 11AB - Held No - HC
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• Excise Duty Exemption Requires Compliance with Newsprint Control Order, 1962; Similar Activities Alone Don't Qualify for Exemption.

  Case-Laws - HC : Since for getting exemption from paying Central Excise Duty notification under Newsprint Control Order, 1962 is very much essential, mere doing of identical works is not at all sufficient for getting exemption - HC
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• High Court Drops Excise Duty and Penalty Recovery Against Auction Purchaser u/r 230(2) of Central Excise Rules.

  Case-Laws - HC : Demand of excise duty and penalty – recovery of dues from the auction purchaser unit in terms of Rule 230(2) of the Central Excise Rules, 1944 - recovery proceedings dropped - HC
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Case Laws:

• Income Tax

• 2014 (11) TMI 694
  Deemed dividend u/s 2(22)(e) – Applicability of circular No.495 dated 22.9.1987 – Assessee not the shareholder - Held that:- CIT(A) rightly noted that the assessee company itself is not a shareholder in the company Front Line Printers - Accordingly, no dividend, normal or deemed, could have been received by the assessee company from Front Line Printers as long as the assessee company was not a shareholder in that concern - The assessment of deemed dividend in the hands of the assessee company was not correct - Tribunal rightly recorded that in order to satisfy the requirement of Section 2(22)(e) of the Income Tax Act, the assessee should be the beneficial owner of the shares besides being a registered shareholder - Only if these two ingredients are satisfied, the question of assessment to tax as deemed dividend would arise- in ACIT V. Bhoumik Colour (P) Ltd. [2008 (11) TMI 273 - ITAT BOMBAY-E] it has been held that the assessee not being a registered or beneficial owner of the shareholdings, is not liable to be taxed and hence the Tribunal placing reliance on the Explanatory Notes to Finance Act stating that it cannot override the provisions of the Act – Tribunal rightly recorded that the assessee, not being a registered or beneficial shareholder, is not liable to pay tax, are correct – Decided against revenue.

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• 2014 (11) TMI 693
  Applicability of provisions of section 41(1) – Held that:- Even if the AO and the Commissioner recorded a conclusion that the waiver of term loan was not trading liability, yet, there are other provisions under which the benefit or income arising out of such waiver could have been dealt with - the factual position does not indicate much less demonstrate and prove the applicability of this provision in the Income Tax Act, 1961 - There was no other provision pointed out in which loan waiver can be considered as an income received, receivable or accrued as has been held by the AO - assessee turned around and claimed that the loan was a capital receipt and hence, would not come within the purview of section 41(1) - This contention of the Assessee was throughout rejected because the amount was borrowed for business purpose and was thus, a trading liability - That was subject matter of the consent terms between the Assessee and its creditor - The terms resulted in the Assessee being relieved from the obligation to pay the money which was due and payable and as a trading liability - That was taken as a credit balance in his books and was being dealt with as an income directly arising out of business activity and liable to tax u/s 28 – Decided against revenue.

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• 2014 (11) TMI 692
  Validity of block assessment u/s 158BC Order beyond period of limitation or not Notice u/s 143(2) not provided to assessee - Held that:- There were a series of such correspondences through which the Revenue Department has fairly accepted the fact that there was no notice u/s 143(2) ever existed or issued or served - in a situation when a letter was issued by the Revenue Authority and that letter was responded by the assessee then whether there was a legal requirement to issue a notice u/s 143(2) of IT Act especially when the assessee has participated in the proceedings - on receiving that letter the assessee has responded on 07.11.2000 and requested the AO to issue notice u/s 143(2) of IT Act by specifically mentioning that in block assessment proceedings to be held u/s.158BC it is mandatory to issue a notice u/s.143(2) of IT Act - in the absence of the requisite notice u/s.143(2), the participation in the proceedings by the assessee was under protest. Even after pointing out to the AO about the mandatory requirement of the issuance of notice u/s. 143(2) of IT Act, the AO had not taken the cognizance and proceeded to finalize the assessment without issuing the said requisite notice u/s.143(2) of IT Act. The notice must have been served otherwise there was no occasion for the assessee s representative to attend the assessment proceedings before the AO - There was evidence that the assessee had participated in the assessment proceedings pursuant to the said notice; hence, it was held that the notice u/s. 143(2) was validly served - by virtue of the provisions of Section 147/148 itself the assessment must not be rendered as null and void - u/s.158BC(b) the AO should proceed to determine the undisclosed income of the Block Period in the manner laid down in the provisions of Section 143(2) and (3) of the Act so far as may apply. This section does not provide for accepting the return as provided u/s 143(1)(a) - The AO has to complete the assessment u/s 143(3) only - In case of default in not filing the return or not complying with the notice under s. 143(2)/142, But s. 143(2) itself becomes necessary only where it becomes necessary to check the return, so that where block return conforms to the undisclosed income inferred by the authorities, there is no reason, why the authorities should issue notice u/s 143(2) - Omission on the part of the assessing authority to issue notice under s.143(2) cannot be a procedural irregularity and the same is not curable and, therefore, the requirement of notice under s. 143(2) cannot be dispensed with - The other important feature that requires to be noticed is that the s.158BC(b) specifically refers to some of the provisions of the Act which requires to be followed by the AO while completing the block assessments under Chapter XIV-B of the Act - This legislation is by incorporation - This section even speaks of sub-sections which are to be allowed by the AO - A reading of the provision would clearly indicate if the AO, if for any reason, repudiates the return filed by the assessee in response to notice u/s 158BC(a), the AO must necessarily issue notice under s.143(2) of the Act within the time prescribed in the proviso to s.143(2) of the Act within the time prescribed in the proviso to s.143(2) of the Act. In a situation when the Tribunal Bench has given a number of opportunities to the Revenue Department to place on record any evidence of either existence or issuance/ service of notice u/s.143(2) of IT Act but no such evidence was placed and that the assessee himself has communicated to the AO during the assessment proceedings that the issuance of notice u/s.143(2) is a mandatory requirement and that the notice u/s.142(1) was not a notice after the return was filed but it was a notice served on the assessee before the block return was filed = Decided in favour of assessee.

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• 2014 (11) TMI 691
  Assessment u/S 153A pursuant to search and seizure u/s 132 - Presumption u/s 292C - Deletion of peak amount of unexplained cash – Held that:- The contentions of the revenue has no merit - The specific questions put to Sh. S.K. Gupta during the cross-examination cannot be termed to be vague where full facts have not come out - consistently Sh.S.K.Gupta states that no money has been received or paid by him relatable to the annexures - the arguments of the assessee that these are the extracts of the statement of Sh. S.K. Gupta recorded at the time of the search are correct and the revenue is mistaken in her arguments to contend that the questions No-14 & 15 are vague questions put forth during the cross examination - the assessee in both the years has filed a Paper Books and none of the parties have considered it necessary or expedient to refer to any document or fact. No evidence has been placed before us nor any cogent argument has been raised so as to show that on facts the view taken by the CIT(A) was not correct - In the absence of any specific infirmity in the order or reliance placed upon any evidence upsetting the view taken, revenue has failed to offer any meaningful argument in support of its claim - No reasons which can be legally accepted so as to remand the matter have also been placed – relying upon ACIT vs Lata Mangeshkar [1973 (6) TMI 13 - BOMBAY High Court] - in the facts of that case reliance placed by the Revenue on the statement of two witnesses was considered to be not relevant for making an addition in the hands of the assessee - whereas one of the witnesses was considered to be a person who could not have any knowledge the other witness who though was a partner in the concerned firm had given a statement that he had made payments to the singer in "black" - the statement at best could arouse suspicion but suspicion could not take place of proof and in the absence of proof, the statement was discarded – there was no merit in appeal – Decided against revenue.

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• 2014 (11) TMI 690
  Transfer pricing adjustment - Back office support services in the field of investment and insurance management to AE - Exclusion of comparables – Held that:- Following the decision in Capital IQ Information Systems (India) (P.) Ltd. Versus Deputy Commissioner of Income-tax (International Taxation) [2014 (3) TMI 626 - ITAT HYDERABAD] - Coral Hub works as an agent by outsourcing its work to third party vendors and cannot be taken as a comparable to the ITES functions being involved by assessee - the company is not comparable functionally to the assessee, there is no reason to interfere with the order of CIT(A) - because of exceptional financial results due to merger/demerger, Moldtek Ltd., cannot be taken as comparable – Decided against revenue. Computation of deduction u/s 10A - Inclusion of communication charges from export turnover – Held that:- AO excluded the communication charges from export turnover holding that they are not to be included in the Export turnover - data link charges cannot be considered as attributable to export service, however, alternate plea was made that if the same was excluded from the export turnover, the same was also to be excluded from the total turnover while computing deduction u/s 10A - Following the decision in ITO vs. Saksoft [2009 (3) TMI 243 - ITAT MADRAS-D] - CIT(A) gave direction to exclude communication charges from the total turnover as well - there is no need to interfere with the direction of CIT(A) – Decided against revenue. Selection of comparables – Accentia Technologies Ltd. – Extra ordinary events - Held that:- Extra- ordinary event like merger and de-merger will have an effect on the profitability of the company in the financial year in which such event takes place - It is the contention of the assessee that in case of the company, there is amalgamation which has impacted the financial result - This fact has to be verified by the TPO - If it is found upon such verification that the amalgamation in fact ahs taken place, then the aforesaid comparable has to be excluded - the previous year there were extra ordinary events that took place in this company which warrants exclusion of this company as a comparable - this company cannot be considered as a comparable. Acropetal Technologies Ltd. (Seg.) – Held that:- The major source of income for the company is from providing Engineering Design Service and Information Technology Services - The functions performed by the Engineering Design Services segment of the company cannot be considered as comparable to the ITES/BPO functions performed by the Assessee - The performance of Engineering Design Services is regarded as providing high end services among the BPO which requires high skill whereas the services performed by the Assessee are routine low end ITES functions - this company could not have been selected as a comparable, especially when it performs engineering design services which only a Knowledge Process Outsourcing [KPO] would do and not a Business Process Outsourcing [BPO] - even though the company was excluded on the differentiation of high end services being provided by this company, as noticed assessee also provide high end services in CAD / CAE designing areas - These are High end services as considered by the Bangalore bench - functions of assessee are similar to the Company. Cosmic Global Ltd. – Held that:- While there was no objection for assessee objecting to the comparable even at a later stage when it comes to know of new facts, the assessee’s objections before the DRP have not been addressed by the DRP - It is for the TPO to determine whether this company falls within the filters as adopted by the TPO himself. If the assessee fails the employee cost filter, then the same cannot be accepted as a comparable company - selection of this comparable is to be restored to the file of the TPO for fresh examination, after giving due opportunity of hearing to the assessee – the matter is remitted back to the TPO. Wipro Limited - Industrial giants - Held that:- The TPO has excluded the companies whose turnover is less than Rs. One Crore on the ground that they may not be representing the industry trend - That very logic also applies to the companies having high turnover of over Rs. 200 crores as against the assessee's turnover of only Rs. 15 crores, and therefore, it would be fair enough to exclude those companies also - the companies cannot be treated as comparable, considering their substantially high turnover as compared to that of the assessee - these companies cannot be regarded as comparables - since the seven comparables are held not comparable in various decisions of coordinate benches, A.O. / TPO is directed to exclude the above comparables and reworkout the ALP - Assessee should be given an opportunity to make submissions on the risk adjustments/working capital adjustment if so required before finalising the order – Decided in favour of assessee.

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• 2014 (11) TMI 689
  Disallowance of claim of deduction u/s 80IB(10) – Built-up area exceeding 1500 sq. ft. – inclusion of the open terrace into the working of the built-up area - Allowability of Pro-rata deduction u/s 080IB(10) – Whether the area of projected terrace is liable to be included within the meaning of expression "built-up area" contained in clause (c) of section 80IB(10) – Held that:- The assessee is a builder who has undertaken development and construction of a housing project, named, 'Sai Nisarg Park – Mayureshwar' and the project has been approved by the concerned local authority i.e. PCMC on 29.07.2005 and it complies with the requirement of clause (a) to section 80IB(10) of the Act - built-up area means the inner measurement of the residential unit at the floor level, including the projections and balconies, as increased by the thickness of the walls but does not include the common areas shared with other residential units - the terraces are projections attached to the respective residential units and also that there is no room under the area of the terrace and such terraces are exclusively used by the respective unit owners - as per the Revenue the projected terrace falls within the meaning of words 'projections' and 'balconies' contained in section 80IB(14)(a) of the Act and the same is not a common area shared with other residential units and in this manner, in terms of section 80IB(14)(a) of the Act, such an area is liable to be included in the expression 'built-up area'. Applicability of the definition of built-up area – Effect of amendment w.e.f. 01.04.2005 – Held that:- Such definition was to be retrospectively applied yet the area of open terrace would not fall within the meaning of the expression 'built-up area' - section 80-IB (14) defining 'Built-up area' will have relevance on and from 01.04.2005 - going by the substantive part of Section 80-IB (10), what is required for grant of deduction is a Housing Project approved by the Local Authority - once the Local Authority have excluded open terrace from the working of Built-up area, it is not open to the Revenue to review the approval given by the competent authority to hold that terrace would also be included in the built-up area - the definition also does not speak in different language from what is given in the measurement provision of Bureau of Indian Standard in the context of the definition of Balcony in the Indian Standard - the assessee is entitled to deduction in respect of flats in the 7th floor, which do not exceed the required extent as per Section 80-IB (10)(c) that open terrace area, cannot form part of the built-up area - assessee fulfills the condition prescribed in clause (c) of section 80IB(10) of the Act with regard to the six units in question – the order of the CIT(A) is set aside and the AO is directed to consider the six units fulfill the condition prescribed in clause (c) of section 80IB(10) of the Act, and the assessee is entitled to the benefit of section 80IB(10) of the Act – Decided in favour of assessee. Claim of deduction u/s 80IB(10) - Income declared in the course of search conducted u/s 132(1) - Whether additional income declared in the course of search is eligible for the benefits of section 80IB(10) of the Act, especially when the relevant project is otherwise eligible for the benefits of section 80IB(10) of the Act - Held that:- In M/s. Malpani Estates Versus Asstt. Commissioner of Income Tax [2014 (2) TMI 944 - ITAT PUNE] it has been held that "all other provisions of this Act shall apply to the assessment made under this section" in Explanation (i) of section 153A of the Act, it clearly implies that in assessing or reassessing the 'total income' for the assessment years specified in section 153A(1)(b) of the Act, the import of section 80A(1) of the Act comes into play, and there shall be allowed the deductions specified in Chapter VIA of the Act, of course subject to fulfillment of the respective conditions - the phraseology of section 153A r.w. Explanation (i) does not support the premise arrived at by the CIT(A) – thus, the assessee's claim for deduction u/s 80IB(10) of the Act even with regard to the enhanced income was well within the scope and ambit of an assessment u/s 153A(1)(b) of the Act and the Assessing Officer was obligated to consider the same as per law. There is no material to negate the assertion of the assessee, which are borne out of the material on record, that the additional income in question has been received in the course of carrying on its business activity of developing the housing project, 'The Crest' at Pimple Saudagar, Pune, which is eligible for section 80IB(10) benefits - assessee is eligible for deduction u/s 80IB(10) of the Act even in relation to impugned additional income offered in a statement deposed u/s 132(4) of the Act during the course of search and subsequently declared in the return of income filed in response to notice u/s 153A(1)(a) of the Act - assessee's claim for deduction u/s 80IB(10) of the Act in relation to the additional income is liable to be upheld. Deletion of peak negative balance in the cash book prepared on the basis of seized diaries – Held that:- The CIT(A) made no mistake in deleting the addition because the quantum of undisclosed income offered by the assessee in the course of search as additional income is more than the impugned addition sought to be made by the Assessing Officer on account of peak negative balance in the cash book - if the addition was to be sustained in addition to the undisclosed income already declared, it would amount to double addition - the order of the CIT(A) is upheld – Decided against revenue.

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• 2014 (11) TMI 688
  Disallowance u/s 14A r.w Rule 8D – 0.5% of average investments – interest expenses – Held that:- The issue of disallowance u/s 14-A has come up for consideration, the matter has been restored back to the file of the AO for fresh adjudication to work out the some reasonable basis for disallowance - Rule 8-D is not applicable and therefore some reasonable basis has to be adopted as decided in GODREJ AND BOYCE MFG. CO. LTD. Versus DEPUTY COMMISSIONER OF INCOME-TAX AND ANOTHER [2010 (8) TMI 77 - BOMBAY HIGH COURT] - the entire issue of disallowance u/s 14-A is set aside to the file of the AO, to examine and work out some reasonable basis for disallowance having regard to the facts of the case, dehors rule 8D and after giving proper opportunity to the assessee – Decided in favour of assessee. Software acquisition expenses – Capital expenses or not – Held that:- The assessee has debited a sum, being payment made to Clariant International Ltd. for software development and consulting charges – as decided in assessee’s own case for the earlier assessment year, it has been held that the expenditure incurred by the assessee on the software was in the nature of the revenue expenditure - a sum of Rs. 23,30,9261 was claimed by the assessee as software expenses - This amount represent payment made to Clariant International Ltd. Towards acquisition of right to use the software "Lotus Notes" developed by Clariant International Ltd which according to assessee is powerful, multifaceted software that help to wo effectively - if the expenditure incurred on software are to facilitate the assessee's business or enabling the management to conduct the business more efficiently or more profitably then it cannot be said to be in the nature of profit making and has to be treated as 'revenue expenditure - the expenditure incurred by the assessee on the software is to be treated as revenue expenditure – Decided against revenue. Non-compete fees paid to Ex-Managing Director disallowed – Held that:- The assessee had paid non-compete fee to its Ex-Managing Director for restricting him to share his expertise or to join any other company in a similar line of business of chemicals for a period of three years on a consideration of Rs. 154.20 lakhs - Since the agreement for restrictive covenant was only for the period of three years to ward off a potential threat or completion, we are of the opinion that, there can no question of enduring benefit for a long period - such a payment is also to be seen from the context of commercial and business expediency - If the outgoing expenditure is so inextricably linked or related to carrying on or conduct of the business, that is, it can be regarded as integral part of the profit earning process and not for any acquisition of asset or a right of permanent character and incurring of the expenditure is a condition for carrying on the business, then such an expenditure may be regarded as revenue expenditure - Here the agreement for payment of non-compete fee was only to protect the existing business for a temporary period to ward off completion so that assessee company can get stabilizing period without its long serving MD - If the advantage is not for longer period and not enduring in nature, then such a payment of noncompete fee is nothing but business expenditure which is on revenue account – the order of the CIT(A) is upheld – Decided against revenue.

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• 2014 (11) TMI 687
  Various grounds raised by revenue as well as assessee long back - No efforts made to dispose appeal - Held that:- The appeals were filed in 2005 and thereafter no effort was made by the assessee as well as the Revenue to get the appeals disposed of - numerous notices of hearing were issued to the assessee and sometime assessee’s representative appeared and sought adjournment – revenue had made his all efforts to contact the assessee on the last known address, but he was not able to trace out the whereabouts of the assessee - Now the assessee has also stopped appearing before the Tribunal despite various notices issued to him - the assessee is not available at the last given address, therefore, no purpose would be served by issuing notices to him – revenue has also contended that the order of the CIT(A) is cryptic, as he has not dealt with the issues on merit - thus, the matter is to be remitted back to the CIT(A) for adjudication – Decided in favour of revenue.

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• 2014 (11) TMI 686
  Existence of a Permanent Establishment – Article 7 of the DTAA with France - Held that:- The assessee is a non resident company - Return of income for the year was filed on 30.10.2001 - The assessee claimed exemption under Article 9 of the Double Taxation Avoidance Agreement with France - The claim of the assessee was examined by the AO vide its order dt. 30.3.2004 - there are no findings by the AO or the Dispute Resolution Panel to the effect that the transactions between the agent and the assessee are not at an arm s length price which is sine qua non in view of the provisions of Article 5(6) of Indo French DTAA - the Tribunal had proceeded on presumption - the Tribunal is also a fact finding authority - the initial onus is upon the Revenue to show that the transactions are not at arm s length price, this aspect has not been looked upon by the Revenue authorities, the matter is remitted back to the AO for examination as to whether the transactions between the agent and the assessee are at arm s length price and decide the issue afresh in the light of the provisions of Article 5(6) of Indo French DTAA – Decided in favour of assessee. Levy of interest under section 234B – Held that:- In DIT Vs NGC Network Asia LLC 2009 (1) TMI 174 - BOMBAY HIGH COURT] wherein it has been held that when a duty was cast on the payer to deduct the tax at source, on failure of the payer to do so, no interest could be imposed on the assessee - the AO is directed to delete the interest levied u/s. 234B of the Act.

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• 2014 (11) TMI 685
  Determination of ALP - International transaction of Freight receipts and expenses – Held that:- Following the decision in Agility Logistics (P.) Ltd. Versus Deputy Commissioner of Income-tax-8(1), Mumbai [2012 (8) TMI 191 - ITAT MUMBAI] - assessee was regularly adopting the CUP method on its international transactions relating to freight expenses and receipts which has been examined by the TPO - the TPO did not follow the earlier order of his predecessor and rejected the CUP method used by the assessee - for the impugned assessment year - the assessee company only co- ordinates with third party service providers and does not own any transportation assets such as trucks, ships, air crafts or any other transportation assets of similar nature and it owns only office premises and computers. Assessee rightly contended that both the origin company and the destination company assume comparable risks with the risk of bad debts being minimal and that there is no inventory risk since the assessee company enters into a contract with the shipping line/air line for booking space on a ship/air craft only upon receipt of confirmed orders from the customers - From the various agency agreements between Geo-logistics group and unrelated parties produced by the assessee, the terms and conditions are substantially same - The profit split information contained in all the agreements is typical to the industry - the four companies rejected by the TPO are functionally comparable to the assessee and therefore should have been retained in the comparable study. The geographical difference is not material so far as it applies to the logistics industry - From the various agreements it was found that there is splitting of gross profit equally at 50:50 even in Pakistan, Bangladesh and Sri Lanka which fall under the same geographical region – there was no infirmity in the CUP method adopted by the assessee – Decided in favour of assessee.

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• 2014 (11) TMI 684
  Assessability of rental income - “Income from House Property” or “Income from business” – Held that:- The shares of the assessee company was acquired by M/s Seto Teknolog P Ltd on 5th September, 2006, due to which the assessee company became its Subsidiary Company - the assessee was engaged in the business of dealing in computers and peripherals - the business activity of the holding company appear to be more complex and technical in nature, whereas the activity of the assessee company consisted of merely dealing in computers and peripherals - in order to carry out the job work given by the holding company, the assessee company should have possessed skilled workers, who were having required technical knowledge - it is unbelievable that the assessee could have performed the job work with the help of its existing workers, who were merely engaged in the job of selling computer - the assessee has failed to show the nature of services performed by it to its holding company. Since the assessee has claimed to have received the labour charges from its holding company by carrying out certain technical activity and since it forms the foundation to determine whether the assessee was continuing to carry on the business, the onus to prove its claim is fully placed upon the assessee - the assessee has failed to discharge the onus - CIT(A) was not justified in accepting the claim of the assessee that it has continued to carry on its business - the nature of business activity of the assessee company and its holding company was different and hence the possibility of workers of the assessee company rendering technical services was remote - the so called “job work” or “receipt of labour charges” can only be categorized as colourable device to create an impression that the assessee has continued to carry on the business - the AO was justified in disallowing the claim of administrative expenses and further he was also justified in assessing the receipt of labour charges as income from other sources – Decided in favour of revenue. Whether the expenses are assessable as business income or house property income – Held that:- The rent received on letting out of factory premises on temporary basis due to lull in the business is normally assessed as “Business income”, since the object of the assessee in such type of cases was not mere earning of rental income, but effective exploitation of business assets - the telephone company or the company providing services to the telephone company, could not have accepted installation of the same for a shorter period - the assessee has let out the terrace, which means, it has let out the space which was not required for it - the claim of letting out on a temporary basis does not apply to the facts surrounding the rental receipt from M/s Reliane Infratel Ltd. - the intention of the assessee in letting out the terrace to a telephone company for enabling it to erect a tower could only be with the intention to earn rental income – the AO was justified in assessing the rental income received from M/s Reliance Infratel Limited under the head “Income from House Property”. Assessment of rental income received from the holding company of the assessee – Held that:- The assessee company has become subsidiary of M/s Seto Teknolog Pvt. Ltd and the premises have been let out, meaning thereby, there is a possibility that the assessee company has let out the factory premises in pursuance of a business policy decision - the letting out of factory business should be due to the fact of temporary lull in the business and the intention of the assessee could be ascertained from the efforts taken to revive the business activities - though the assessee claims that the letting out of factory premises was for a temporary period, yet no material was brought on record to substantiate the claim - the relationship between the assessee and its holding company also weakens the claim - The assessee has also failed to show that it was taking efforts to revive its business activities - All these factors cumulatively show that the intention of the assessee in letting out the factory premises could not be due to temporary lull in the business - the AO was justified in assessing the rental income under the head Income from House Property – Decided in favour of revenue. Determination of Annual Letting Value (ALV) of the factory premises let out to the holding company – Held that:- The Annual letting value is determined as per the provisions of sec. 23 of the Act, according to which the fair market value or the actual rent received whichever is higher is taken as ALV - the municipal ratable value may be adopted as fair rental value - the ALV may be taken as the municipal ratable value - the order of CIT(A) is modified – Decided partly in favour of assessee.

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• 2014 (11) TMI 683
  Grant of deduction u/s 80P(2)(a)(i) – Income earned from various loans – Nature of assessee – cooperative bank or not - Whether the assessee is a cooperative bank which will disentitle from claiming deduction u/s 80P(2)(a)(i) or it is a cooperative credit society extending benefit to its members only - Held that:- The cooperative society allows its members to open savings account only for nomenclature purposes but cheque facility is not permitted as for normal banking operations - The 17 items listed under the aims and objectives of the cooperative society do not include any item for carrying on the business of banking - section 80P(4) cannot be applied to the assessee since neither has its obtained a license for banking from the RBI nor does it carry on any banking business as envisaged under the Banking Regulation Act, 1949 – following the decision in Jyoti Cooperative Credit Society Limited Versus Income Tax Officer [2014 (11) TMI 177 - ITAT BANGALORE] - section 80P(4) is applicable only to cooperative banks and not to credit cooperative societies - The intention of the legislature of bringing in cooperative banks into the taxation structure was mainly to bring in par with commercial banks - Since the assessee is a cooperative society and not a cooperative bank, the provisions of section 80P(4) will not have application in the assessee’s case and therefore, it is entitled to deduction u/s 80P(2)(a)(i) of the Act – thus, the order of the CIT(A) is upheld – Decided against revenue.

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• 2014 (11) TMI 682
  Unexplained expenses u/s 69C – Capital expenses made on renovation/refurbishment to leasehold premises or not - Held that:- The order of the AO as well as of the CIT(A) is self contradictory - Under section 69C of the Act, the addition can be made in respect of expenditure incurred by the assessee if the assessee is not able to offer any explanation about the source of expenditure - the AO on the one hand is disbelieving the incurring of expenditure thus denying the claim of depreciation and on the other hand is making addition on account of unexplained expenditure and thereby admitting the incurring of expenditure by the assessee - The AO has tried to blow hot and cold in one stream - The assessee was never asked to prove the source of expenditure, rather the incurring of expenditure itself has been disbelieved by the lower authorities - no additions can be made u/s 69C of the Act - the addition made on this account under section 69C is ordered to be deleted – Decided in favour of assessee. Claim of depreciation u/s 32(1)(i) @ 10% - Disallowance of bad debts written off – Held that:- The assessee has invited attention to various documents in the shape of bills, vouchers and further details of the improvements done in the premises in question – the matter is to be remitted back to the AO for fresh adjudication – Decided in favour of assessee. Allowability of set off of unabsorbed depreciation against income from other sources – Held that:- If the current year's depreciation cannot be set off owing to the profits or gains chargeable being less than the allowance, the allowance or the part of the allowance to which effect has not been given shall be added to the amount of allowance for depreciation for the following previous year and deemed to be part of the allowance which means that brought forward depreciation merges with the current year's depreciation because of the legal fiction created by provisions of Sec. 32(2) of the Act - However, this fiction has been subjected to the provisions of Sec. 72(2) and 73(3) of the Act - the unabsorbed depreciation is to be added to the account of allowance of depreciation of the next year and as such merges with next year’s depreciation allowance because of the legal fiction created by provisions of section 32(2) of the Act and further that as per the provisions of section 71 of the Act such depreciation allowance can be set off from income from other heads and further that section 72 does not create any bar to it – Decided in favour of assessee. Depreciation on software disallowed u/s 32(1)(i) – Held that:- It is immaterial as to whether the software was purchased along with the computer or thereafter - The interpretation of the CIT(A) that the assessee will be eligible for depreciation at the rate of 60% only when the software is purchased along with the computer is wrong - when the statute has provided a specific percentage to be allowed on a particular thing, no different view can be adopted - Since the statute has provided a depreciation allowance at the rate of 60% on computer as well as computer software, the assessee is entitled to depreciation at the rate of 60% on purchase of computer software – Decided in favour of assessee.

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• 2014 (11) TMI 681
  Reopening of assessment u/s 147 r.w 148 - Expenses claimed under the head prior paid expenses relates to current AY or not - Held that:- The assessee has claimed a deduction in the Profit & Loss A/c for the year ended on 31.03.2006 under the head 'Prior Period & Exceptional items' (Net of tax) - not only assessee has disclosed full particulars with regard to prior period and exceptional items in its final accounts, but, explanatory notes was also appended with the final accounts with regard to such claim - AO at the time of original assessment has enquired into the aspect and called for details from assessee and after examining the information submitted by assessee, he has completed assessment - AO while completing assessment has also disallowed a part of expenditure relating to previous year - not only assessee has disclosed all material facts relating to prior period and exceptional items, but, AO while completing original assessment has examined the same and completed assessment accordingly - there are no tangible material before AO to form the belief that income has escaped assessment - Only on reappraisal of the materials available and considered at the time of original assessment and which were also examined during original assessment, AO has reopened assessment u/s 147 of the Act. AO himself has expressed the fact that on review he has noted assessee has claimed deduction in the P&L Account towards prior period and exceptional items, which is not relatable to current year - an issue which has already been considered and decided in original assessment cannot be subjected to reopening u/s 147 as it will amount to review of earlier assessment order – in CIT Vs. Kelvinator India Ltd. [2010 (1) TMI 11 - SUPREME COURT OF INDIA] the scope of section 147 had been discussed in details – here AO has completed original assessment after making due enquiry and proper application of mind on the issue on which assessment was reopened - Only because AO has accepted the deduction claimed towards prior period and exceptional items without making any reference, it cannot be said that the issue was not examined by AO - reopening would amount to change of opinion or a review of assessment order earlier passed which is not permissible in law – the order of the CIT(A) is upheld – Decided against revenue.

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• 2014 (11) TMI 680
  Surplus amount on sale of property under Income from capital gains – Business income or not u/s 54EC – Rental income realized from the asset has been offered to tax under the head “business income’ in earlier years and various expenses claimed against it - Held that:- Assessee has acquired property namely, “Sukanraj Centre’ in the year 1978 - the property was acquired and held by assessee for 30 years, which is sufficient to establish that property was capital asset only and not acquired for sale in the normal course of business - While acquiring the property assessee was having long term prospective, which is evident from schedule in which it was shown as “land asset’ and not as “land stock’ - The very nature of transaction i.e. whether trading or investment is decided at the time of acquisition of property - The treatment given by the assessee in the books of account is one of the most important factors that determines the nature of assets as to whether “investment’ or “stock-in-trade’ - From the very year of its acquisition i.e. 1978 assessee has consistently shown the property as investment rather than as stock-in-trade – in K.C. Thappar Vs. CIT [1971 (8) TMI 29 - SUPREME Court] it has been held that a particular asset owned as investment in the books as well as balance sheet, is one of the most relevant factor even though not conclusive to hold that assets were held by assessee as investment - merely because rental income earned on the property was shown as business income, the property so held as investment cannot be treated as a stock-in-trade of the business ignoring the fact that “real estate business’ is separate from “rental income’. Claim of rental income as business income will not change the character of property so held as capital investment on which assessee has earned the rental income - The intention of the assessee since beginning was only to hold the capital asset for the purpose of exploiting the same and earning regular income from it – revenue itself has accepted assessee’s claim of land asset insofar as none of the earlier years, the AO has objected the treatment of property as “land asset’ in the nature of capital investment. Claim for exemption u/s 54EC – Held that:- There was no infirmity in the order of CIT(A), that assessee has sold the long term capital asset which is held for investment purpose - The Hon’ble Bombay High Court in the case of CIT Vs. Ace Builders [2005 (3) TMI 36 - BOMBAY High Court] - exemption u/s 54EC is allowable on asset where it is depreciable or non-depreciable asset, therefore, exemption available to depreciable asset u/s 54EC cannot be denied by referring to fiction created u/s 50 - gain on sale of capital asset “Sukanraj Center’ have rightly been treated as capital gain by CIT(A) – Decided against revenue.

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• 2014 (11) TMI 679
  Depreciation on asset disallowed – Delhi Metro Project - Ownership of the assessee - Asset owned by NBCC or assessee company – Held that:- CIT(A) rightly was of the view that assessee has purchased office space in the building from NBCC and some portion of 5th floor was acquired from CRISIL - full price of the property has been paid though the ownership is yet to be in the name of DMRC Ltd. - The office space occupied by DMRC was earmarked for the Government and the same was provided to DMRC by the Government of India due to DMRC’s social objectives and also due to the fact that DMRC is a joint venture of Government of India - it is not very clear from the assessment order as to why the appellant is not entitled for depreciation on the building - the transaction was between the DMRC and Government which is also a shareholder of DMRC – assessee is entitled for depreciation on the principles of part performance by virtue of provisions of section 2(47)(v) – the order of the CIT(A) is upheld – Decided against revenue. Depreciation on installation of electric sub-station at ISBT – Asset owned by Delhi Vidyut Board or assessee company – Held that:- CIT(A) rightly was of the view that there is no doubt that the expense on electric sub-station was incurred wholly and exclusively for the purpose of business - assesseeis entitled to claim the entire expense as revenue – relying upon CIT Vs Saw Pipe Ltd. [2007 (1) TMI 101 - DELHI HIGH COURT] – expenses on electric sub-station was incurred wholly and exclusively for the purpose of business - the assessee was entitled for deduction of entire expenditure, though, it claimed only depreciation treating the expenditure in capital field – Decided against revenue. Misc. income not offered for taxation disallowed – Held that:- CIT(A) rightly held that the assessee had capitalized two sectors of their construction projects namely Vishwavidyala – Kashmere Gate sector and Inderlok – Rithala sector - In the subsequent assessment year the appellant had capitalized two more sectors Kashmere Gate – Centre Secretariat sector and Barakhamba – Dwarka sector - this method of accounting has consistently been followed by assessee - the interest on advance pertained to construction work – the order of the CIT(A) is upheld – Decided against revenue. Excess provision of leave encashment u/s 43B(f) disallowed – Held that:- CIT(A) rightly deleted the addition observing that AO failed to note that the assessee had not debited this amount in their profit and loss account but instead capitalized the expenses - Since, the assessee had not claimed this as an allowable deduction, the provision of sec. 43B had no application in the case of leave encashment capitalized by the assessee – Section 43B comes into play only when deduction is claimed by the assessee in its computation u/s 28 though not paid during the year - Decided against revenue.

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• 2014 (11) TMI 678
  Admission of additional evidence - Held that:- Disallowance of labour expenditure claimed to have been paid to M/s. Gurukrupa Bricks and Rajshree Construction respectively was disallowed as the assessee failed to furnish the bills of the parties - the arguments of the revenue that additional evidences were accepted by the CIT(A) in violation of Rule 46A is also not correct as the CIT(A) has stated that the assessee did not have enough time in filing the required documents and therefore, he has admitted the additional evidences after calling for a remand report from the Assessing Officer – revenue could not point out any error in this finding of the CIT(A) – Decided against revenue. Expenses out of material supply disallowed – Held that:- The CIT(A) called for a remand report from the AO and in the remand report, the AO merely stated that the additional evidences filed before the CIT(A) by way of bills of M/s. Shree Sahajanand Traders, M/s. Shree Ambica Cement Products and M/s. Pooja Packaging should not be admitted as they were additional evidences filed by the assessee - The AO has not mentioned anything on the merit of the addition on the basis of the additional documents submitted by the assessee - as there was no adverse comment of the AO on the bills of the parties filed before the CIT(A) on which the CIT(A) has called for a remand report from the AO, the CIT(A) deleted the additions - additional evidences were accepted by the CIT(A) in violation of Rule 46A is also not correct as the CIT(A) has stated that the assessee did not have enough time in filing the required documents - Representative could not point out any error in this finding of the CIT(A) – Decided against revenue. Disallowance out of transportation charges – Held that:- The disallowance was made by the AO on account of the difference between the bill amount (Rs.1,64,450/-) and charges paid (Rs.96,050/-) to M/s. Sanjay Tempo Service towards the expenses incurred for transportation - The CIT(A) called for a remand report from the AO and in the remand report, the AO merely stated that the additional evidences filed before the CIT(A) by way of bills M/s. Sanjay Tempo Service should not be admitted as they were additional evidences filed by the assessee - as there was no adverse comment of the AO on the bills of the parties filed before the CIT(A) on which the CIT(A) has called for a remand report from the AO, the CIT(A) deleted the additions – revenue could not point out any error in this finding of the CIT(A) – Decided against revenue. Expenses out of labour payment disallowed – Held that:- The assessee submitted before the CIT(A) that the labour payments incurred by the assessee were of two types - The CIT(A) called for a remand report from the AO who requested the CIT(A) to enhance the disallowance from 8% to 20 to 25% on the ground that the payments were made by self-made vouchers only and also that information has been received from his counter-part that certain bogus and fraudulent agreements have been made by the assessee which will lead to re-opening of the case u/s 147 of the Act - no material has been brought to show that labour charges was not the amount of wages paid by the assessee directly to its employees and no material has been brought to show that the assessee was liable to deduct the tax at source on the aforesaid labour charges either u/s 194C or 192 of the Act - No material has been brought on record to show that the payment of labour charges was not genuine or was not supported by vouchers - In absence of any such material being brought by the Revenue, the ordero f the CIT(A) is upheld – Decided against revenue.

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• 2014 (11) TMI 677
  Claim of deduction u/s 36(a)(viia) - Provision for Bad & doubtful Debts - Held that:- There is debit on account of bad debts written of and there is no other debit on account of provision for bad debt - The computation of income (original), there is no deduction claimed by the assessee on account of any provision for bad debts - As per the revised computation also, there is no such claim regarding provision for bad debts u/s 36(1)(viia) of the Act - it is not clear if it were rural or urban bad loans and further as reserve had been created, the write off has to be limited to the amount of reserve created - He is alleging that the assessee is taking double deduction u/s 36(1)(vii) and 36(1)(viia) of the Act - the assessee is claiming only one deduction u/s 36(1)(vii) that too in respect of actual write off of bad debt and not for any provision for bad debt – also in TRF. LTD. Versus COMMISSIONER OF INCOME-TAX [2010 (2) TMI 211 - SUPREME COURT] the same has been decided - But even then it has to be seen that the assessee is satisfying the requirement of section 36(2) of Income Tax Act – thus, the matter is remitted back to the AO – Decided in favour of assessee. Membership fees disallowed u/s 37(1) - Held that:- In CIT vs. Samtel Color Ltd. [2009 (1) TMI 26 - DELHI HIGH COURT] it was held that the expenditure being admission fee paid towards corporate membership was an expenditure incurred wholly and exclusively for the purpose of business and not towards capital account - divergent views are there on the issue and therefore, as held in Commissioner of Income-tax Vs Vegetable Products Ltd. [1973 (1) TMI 1 - SUPREME Court], the view favourable to the assessee should be followed – Decided in favour of assessee. Medical expenses disallowed – Held that:- There is date mentioned and amount mentioned and the amounts have been debited to account head medical expenses of Managing Director but in addition to this ledger account copy, there is no other evidence brought on record as to whether these expenses were incurred for medical expenditure of the Managing Director and whether the same is as per his terms of appointment - the assessee was asked to produce information regarding nature of illness, amount incurred on various tests, investigations surgery, travelling etc. regarding the above illness but no such details were produced before him and it was merely stated that it is for the treatment of Managing Director hence allowable – Decided against assessee.

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• 2014 (11) TMI 676
  Unexplained cash credits u/s 68 – Held that:- The assessee has submitted that the amount was received from the workers was initially placed with YICS and later on the money of the workers that was received by YICS was transferred to the assessee and the workers were allotted the shares and in support of which, the assessee has also placed the affidavits and statements of the workers – the submission has not been controverted by the Revenue by placing any contrary material on record - one of the reason for making the addition was that out of 506 workers 4 workers in their statement made before AO had denied about investing in the company - CIT(A) has noted that during the remand proceedings, 20 other individuals out of 25 which were summoned have confirmed of applying for the shares of the assessee and A.O. had not commented adversely - assessee has filed the affidavits of the workers who have confirmed the deposit of money and the aggregate amount of such deposits is Rs. 66,92,500 - no material has been placed by the Revenue on record to controvert the averments made by such depositors of money - As far as aggregated amount of Rs. 18,97,000/- received from 115 workers in concerned, it is seen that Rs. 11,27,500/- has been stated to have been received through YICS and it is stated to be the amount, which was deposited by the workers in YICS - no material has been placed by Revenue to controvert the submission of assessee - in the case of 47 workers where the aggregate amount received is Rs. 7,79,500, the assessee has not been in a position to discharge the onus as required u/s 68 - addition can only be sustained with respect to Rs. 7,79,500/- decided partly in favour of revenue.

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• 2014 (11) TMI 675
  Bed debts disallowed – Facts not properly appreciated by CIT(A) - Held that:- Assessee is a NBFC registered with the RBI - so far as the nature of business of the assessee is concerned there cannot be any doubt that money lending is one of its business activities - Only because in regular course of its money lending business it has also advanced loans to sister concerns/related parties, solely on that basis the advances cannot be said to be in the nature of investment, hence, coming in capital field – revenue certainly cannot decide to whom the assessee will advance loan in its regular course of business - the AO is not the competent authority to decide that issue - It is for the RBI to take a decision whether the assessee has actually violated any guidelines or not - the loans advanced by the assessee could not have been termed as investments - CIT(A) has also not properly appreciated the facts but he has simply got swayed away by the observations of the AO that 91% of the loan was to related parties/sister concerns - There is no restriction in advancing loan to sister concerns it cannot be made a factor to conclude that loans advanced to sister concern by itself make them investments. Another important aspect which cannot be ignored is, in respect of two of the creditors i.e. M/s Elgen(India) Ltd and G. Viswanath Rao, the amounts recovered in subsequent assessment year out of the amounts claimed as bad debts written off have been offered as income in the respective assessment years by the assessee - the disallowance of the amount would amount to double addition - in case of loan advanced to Prathima Industries Ltd., has been treated as income at the hands of the said party and which stands confirmed by the CIT(A) - it cannot be treated as investment made by the assessee and again added at his hands - advances made by the assessee are in regular course of its business as NBFC, they have to be treated as revenue in nature - once the advances made are held to be of revenue nature, then, the other consequence of claim of deduction u/s 36(1)(vii) would automatically follow if the assessee actually has written them off in its books of account as bad debt – the order of the CIT(A) is to be set aside – Decided in favour of assessee.

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• Customs

• 2014 (11) TMI 699
  Application for extension of stay already granted - Power of Tribunal to extend stay granted earlier beyond the total period of 365 days - Held that:- After granting stay to the appellant on 20.03.2012 whenever the case was called for hearing the same was found to be linked to an appeal to the higher courts on the same issue. The adjournments granted in this case do not convey that the same were granted on account of any flimsy grounds taken by the appellant. There is no fault on the part of the appellant in the pendency of this appeal. Accordingly appellant can not be denied extension of stay earlier granted. The request made by the appellant is justified and extension of stay is accordingly granted to the appellant for a further period of 180 days - Following decision of Commissioner of Customs & Central Excise, Ahmedabad vs. Kumar Cotton Mills Pvt. Limited [2005 (1) TMI 114 - SUPREME COURT OF INDIA] - Extension of stay granted.

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• 2014 (11) TMI 698
  Denial of refund claim - Benefit of exemption under notification No. 16/2000-Cus (Serial No. 182) - exemption denied on the ground that the catalyst imported by the assessee is a chemical used in the process of manufacture of fertilizers and cannot be considered as machinery, instrument, apparatus and appliances or parts or raw materials for the manufacture of the aforesaid items - Held that:- From a perusal of the notification it can be easily seen that what is exempted in the said notification are machinery, instruments, apparatus and appliances as well as parts or raw materials for the manufacture of the aforesaid items and parts required for renovation or modernization of the fertilizer plant. Further spare parts, raw materials or consumable stores essential for the maintenance of a fertilizer plant is also eligible for the exemption. The exemption is subject to the condition that an officer not below the rank of Deputy Secretary has to certify that the scheme for renovation/modernization has been granted techno-economic clearance by the Department of Fertilizers and recommends in each case the grant of exemption to aforesaid goods and the goods are required for the specified purpose. Goods on which the exemption is claimed is a catalyst, which is a chemical. The catalyst is required for initiating a chemical reaction. It is not required for manufacture of machinery, instruments, equipment or appliances. It is after the manufacture of machinery, instruments, or appliances, the catalyst is charged into machinery for initiating the chemical reaction and therefore, the argument that catalyst is a machinery, instrument or appliance or a raw materials or part for the manufacture of the aforesaid items does not stand to any logic. that catalyst does not answer to the description of the goods eligible for the exemption. Merely, because an officer from the Department of Fertilizers has certified, catalyst cannot be considered as machinery, instrument or appliances or a part thereof. Certification from the Ministry is required only for the limited purpose of essentiality of the goods for purposes specified. Therefore, the order of the appellate authority allowing the exemption is clearly unsustainable in law and merits to be set aside. Consequently, the appellant RCF also would not be eligible for the refund of any duty paid in pursuance to the said decision in the case of Mangalore Chemicals & Fertilizers Ltd. vs. Deputy Commissioner [1991 (8) TMI 83 - SUPREME COURT OF INDIA] - Decided against assessee.

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• 2014 (11) TMI 697
  Application for extension of stay already granted - Power of Tribunal to extend stay granted earlier beyond the total period of 365 days - Held that:- After granting stay to the appellant on 20.03.2012 whenever the case was called for hearing the same was found to be linked to an appeal to the higher courts on the same issue. The adjournments granted in this case do not convey that the same were granted on account of any flimsy grounds taken by the appellant. There is no fault on the part of the appellant in the pendency of this appeal. Accordingly appellant can not be denied extension of stay earlier granted. The request made by the appellant is justified and extension of stay is accordingly granted to the appellant for a further period of 180 days - Following decision of Commissioner of Customs & Central Excise, Ahmedabad vs. Kumar Cotton Mills Pvt. Limited [2005 (1) TMI 114 - SUPREME COURT OF INDIA] - Extension of stay granted.

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• 2014 (11) TMI 695
  Suspension of license of the CHA - Regulation 20 (2) of CHALR 2004 - Non issuance of SCN - Held that:- offence report was filed on 18.10.2012. After the receipt of the offence report, the only course to be adopted by the first respondent is to issue a show cause notice within 90 days to the petitioner. Unfortunately in the present case, although 41 days had lapsed till the filing of the writ petition, the first respondent has not come forward to issue the show case notice to comply with the mandatory conditions adumbrated under Regulation 22(1) of the Regulations. Therefore, in the present case, as rightly indicated by the learned counsel for the petitioner with the help of the precedent order passed by High Court, where this Court was inclined to quash a similar proceeding finding fault with the respondent that there was a delay of seven days in issuing the show cause notice, this Court has no hesitation to interfere with the impugned proceedings, for the simple reason that in this case, there was no show cause notice issued till now - Decided in favour of appellant.

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• Service Tax

• 2014 (11) TMI 714
  Manpower Recruitment or Supply Agency's services - Penalty u/s 76 & 78 - Held that:- Period in dispute is initial period when the service tax was imposed on Manpower Recruitment or Supply Agency's Services and when the Revenue pointed out the same deficiency in payment of service tax, respondents immediately paid the same with interest and subsequently paying regularly the service tax. In these circumstances, in view of Section 80 of the Finance Act, 1994 we find that it is not a case for imposition of any penalty - Decided against Revenue.

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• 2014 (11) TMI 713
  Management, maintenance or repair service - business of retreading of old and used tyres - Held that:- there is a demand of tax on the material portion alone. It is seen from the said adjudication order that the appellants contended that they are paying sales tax/VAT on the materials at the time of purchase and also at the time of delivery of retreaded tyres since it is a works contract service and the transfer of property amounts to 'sale" as per Article 366 (29A) of the Constitution of India. It is further seen from the adjudication order that appellant had adduced sales invoices, sales tax returns, VAT returns and sales tax assessment orders to prove that transfer of property in the retreading activity is leviable to sales tax. - Following decision of G.D. Builders Vs UOI [2013 (11) TMI 1004 - DELHI HIGH COURT] - Matter remanded back - Decided in favour of assessee.

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• 2014 (11) TMI 712
  Reversal of CENVAT Credit - Non maintenance of separate accounts - benefit of Notification 1/2006-ST dated 01/03/2006 - Penalty u/s 76, 77 & 78 - Held that:- From the records it is seen that the appellant has been filing the details of the reversals made by them indicating therein the details of the total credit taken, the value of the exempted services, value of the total output services including the value of the taxable and exempted services and other relevant particulars. From these parameters, the CENVAT credit attributable to exempted services can be easily determined in terms of the formula prescribed under Rule 6(3A). If certain details were lacking, the department could have directed the appellant to furnish those details to satisfy that the credit reversal has been done in accordance with the said formula. From the records of the case, it is seen that the department has not undertaken any such exercise nor have they given any finding as to whether the reversal made by the appellant is in conformity with sub-rule (3A) or not. In the absence of such a finding, the impugned order is clearly not sustainable in law. Matter remanded back - Decided in favour of assessee.

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• 2014 (11) TMI 711
  Waiver of pre deposit - CENVAT Credit - Banking and other Financial Services - denial of credit on the basis of e-statement of NPCI - the availment of credit on the basis of photocopy of invoices - Held that:- demand of tax was proposed in the show cause notice for an amount of Rs. 18,02,85,012/-. The adjudicating authority deputed the jurisdictional Assistant Commissioner for verification of the documents. The Assistant Commissioner of Central Excise by letter dated 05.11.2012 had given a detailed report and on that basis the adjudicating authority dropped the demand of Cenvat of Rs. 13,10,41,895/-. We find that the submission of the Ld. Advocate, the original documents were before the audit party, had not taken before the adjudicating authority. Such a submission cannot be accepted at the stage of stay petition hearing. The Tribunal in the case of M/s. Century Rayon Vs. CCE, Thane-I reported in [2014 (8) TMI 324 - CESTAT MUMBAI], held that credit cannot be allowed on the basis of photocopy of invoices. Hence, the applicant failed to make out a strong prima facie case for waiver of pre-deposit on availment of cenvat credit on the basis of photocopy of invoices and statement of service provider - Partial stay granted.

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• 2014 (11) TMI 710
  Waiver of pre deposit - Survey and map making services - consulting engineer's service - Held that:- The activity undertaken by the appellant, as can be seen from the work orders, is soil investigation, traffic survey and pavement design. These activities prima facie would not come under the category of ‘survey and map making services' Services in relation to construction of Road - classification under the ‘consulting engineer's service' - Held that:- If any one of the three is rendered, in any manner, liability to service tax is attracted. Even if it is assumed that the appellant has not rendered any advice or consultancy, the question is whether the services rendered could be categorized as ‘technical assistance'. Technical assistance, by its very nature would imply rendering of executor services, in relation to advice or consultancy. From the traffic survey conducted by the appellant, advice can be rendered about the nature of road to be constructed. From the soil investigation undertaken, the type and design of the road to be constructed can be determined. Similarly, from the pavement design, the design of the road itself can be made. Thus, the activity undertaken by the appellant has a direct bearing on the construction of roads. prima facie appellant has not made out case for complete waiver of the pre-deposit of the dues adjudged against them - Partial stay granted.

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• 2014 (11) TMI 709
  Franchisee service - Whether it can be said that appellants have been granted representational right to the franchisor or not - Held that:- If prior to 16.05.2008, the service was correctly classifiable under franchise service and broader category was brought into the statute subsequently it does not mean that for the earlier period it could not have been classified under franchise service. Hence in our opinion appellants have to be put to some terms because we find that appellants do not have prima facie case on consideration of the agreements, the definition in the statute and the consideration of submissions made by both the sides. We have not considered it necessary to go into the technical literature regarding franchise and licensing which was also presented by both the sides and both the sides claimed support from such literature. Basically the source was USA where the matter has a long history whereas in India this concepts have been coming up in recent times only especially after service tax was introduced. Therefore without considering these aspects also in our opinion if we consider the statute and the agreements, at this stage it would be sufficient and the conclusion is that appellants do not have a strong prima facie case. Business Auxiliary service - Appellants are not providing any services on behalf of Oracle. Appellants have paid VAT on consideration received towards product/software updates as it amounts to sale of software and after 16.05.2008 they have been paying the tax. Information Technology Services were excluded from the scope of Business Auxiliary Service right from the date of introduction of Business Auxiliary Service as taxable on 01.07.2003. This exclusion lasted till 16.05.2008 when the new taxable service ITSS was introduced. It was also submitted that the scope of Information Technology Service excluded from the levy of service tax under Business Auxiliary Service was very wide and covered all services relating to design or development of computer software, computerized data processing or system networking or any other service preliminarily in relation to operation of computer system. Prima facie we find force in this argument. Therefore in respect of this service, we consider that appellant has made out a prima facie case for waiver. Management Consultancy services - reverse charge - in the impugned order that professional consultancy charges are liable to tax under Management Consultancy Services. It was submitted by the appellant that the appellants have not made any payments towards shared support charges payable to Oracle. On this count the demand for Rs. 60,99,236/- has been submitted as not payable. It was also submitted that the centres are engaged in the actual execution of the work and are not providing advice or consultancy to the appellant. The appellants relied upon Hewlett Packard India Sales Pvt. Ltd. V. CCE & ST, Bangalore LTU [2014 (11) TMI 658 - CESTAT BANGALORE]. It was also submitted that such services even though they are liable would be covered under Business Auxiliary Service or Business Support Service. It was also submitted that computation of demand is erroneous. Further submission was also made that no reason has been given to justify classification of the services under this heading. We find that these submissions would result in conclusion that appellants have made out a prima facie case in their favour. If the appellants deposit 50% of the demand within the normal period in respect of Franchise Service along with proportionate interest payable till the date of payment, the same would be sufficient for the purpose of hearing the appeal. The total demand within the normal period in respect of Franchise Service as quantified by the appellants to be Rs. 34,87,23,385/- is accepted and the demand of 50% has to be calculated on this basis and proportionate interest also has to be paid on the said amount. - Decided partly in favour of assessee.

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• 2014 (11) TMI 696
  Waiver of pre deposit - Export of services or not - Technical Testing and Analysis Services - Proof of export - submissions made by learned counsel that they did not file Shipping Bills while sending samples is relevant and therefore, they could not have made a submission that they had exported since the question of procedure would arise. - Held that:- It is not the case of the department that neither any evidence has been provided nor any evidence brought before us during hearing to show that the appellant has not used the imported / indigenous materials for their activity of ‘technical testing and analyzing’ and resulting any export of service. In terms of Boards Circular dated 29.2.2008 read with Notification No. 5/2008-S.T. dated 1.3.2008, special provisions for three services were created and one of them was in respect of TTA services. If these services are provided from India in relation to any goods or material or any immovable property, it has to be treated as service performed outside India. In this case, the appellant was providing structure of biochemical compound which was developed in India and a minute quantity was exported and therefore, it was submitted that this Circular is applicable. - prima facie case is in favor of assessee - Stay granted.

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• Central Excise

• 2014 (11) TMI 708
  Waiver of pre-deposit - CENVAT Credit - various input services - Held that:- almost the entire amount (save paltry sums), of impugned credit is prima-facie admissible as per the various judicial pronouncement in favour of the appellants. We are therefore of the view that the appellants have been able to make out a fairly good case for waiver of pre-deposit. We accordingly waive the pre-deposit of the adjudicated liabilities and stay recovery thereof during pendency of the appeals - Following decision of Coca-Cola India Pvt. Ltd V/s. CCE [2009 (8) TMI 50 - BOMBAY HIGH COURT], Cadila Health Care [2013 (1) TMI 304 - GUJARAT HIGH COURT], Bharat Fritz Werner Ltd V/s. CCE [2011 (2) TMI 1276 - CESTAT, BANGALORE], Raymond Zambaiti Pvt Ltd [2008 (8) TMI 777 - COMMISSIONER OF CENTRAL EXCISE (APPEALS), PUNE-II], Zydus Nycomed Healthcare Pvt. Ltd V/s. CCE [2012 (11) TMI 1012 - CESTAT MUMBAI], Castro India Ltd V/s. CCE [2013 (9) TMI 709 - CESTAT AHMEDABAD], Jaypee Rewa Plant V/s. CCE [2009 (7) TMI 150 - CESTAT, NEW DELHI], CTS V/s. Tamil Nadu Trade Promotion Organisations [2005 (3) TMI 3 - CESTAT (CHENNAI)] - Stay granted.

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• 2014 (11) TMI 707
  MODVAT Credit - Whether penalty is imposable under Rule 57 (I) (4) of CER for the period 23.07.1996 to 28.09.1996 - Held that:- Respondents have not reversed the Modvat credit availed on the goods ie., controllers, drivers etc., cleared to their customers as warranty replacement. Both the contravention of Rule 57(I) and suppression of facts were clearly brought out in the show cause notice as the respondents have cleared the goods to their customers as warranty replacement without following any of the procedures prescribed under Central Excise Rules. Further, it is seen that the adjudication authority in his order dated 21.12.99 has clearly discussed in his findings for invoking extended period and imposition of penalty under Section 11 AC read with Rule 57(I) of the CER. Penalty is not imposable for the period prior to 23.07.1996, as the provision under 57(I) came into effect from this date and also set aside the penalty for the subsequent period. The Revenue has clearly brought out in the show cause notice and in the adjudication order, the contraventions, suppression of facts with intent to evade payment of duty, as the respondents have cleared the modvatable inputs to their customers as warranty replacement without reversing the modvat credit taken on them and without following any procedure prescribed under the Central Excise Rules. Once the contravention of Rule and suppression of facts have been proved for invoking penal provisions stipulated under Section 11AC read with Rule 57(I) (4) of CER, the imposition of penalty becomes mandatory on the part of adjudicating authority. penalty is imposable under Rule 57(I) (4) of CER read with Section 11AC of CEA, pertaining to the period from 23.07.1996 to 28.09.1996. - Following decision in UOI Vs. Rajasthan Spinning & Weaving Mills [2009 (5) TMI 15 - SUPREME COURT OF INDIA] - Decided in favour of Revenue.

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• 2014 (11) TMI 706
  CENVAT Credit on inputs procured from 100% EOU - Quantum of Additional Customs Duty included duty of excise and Educational Cess - what will be the admissible credit on inputs which are received by the appellant from 100% EOU s under Notification 23/2003-CE dated 31.3.2013 - Invocation of extended period of limitation - Held that:- Cenvat credit of Cesses was admissible before the amendment also. So far as calculation of admissible CENVAT credit, as per formula prescribed under Rule 3(7)(a) of the Cenvat Credit Rules, 2004 is concerned, appellant argued that elements of Education Cess and SHE Cess has to be considered as a part of CVD only. Appellant has relied upon the case laws of Shri Venketeshvara Precision Components vs. CCE Chennai (2010 (8) TMI 243 - CESTAT, CHENNAI) and CCE Chennai vs. Jumbo Bags Limited (2011 (11) TMI 565 - CESTAT CHENNAI). Since the amended provisions of the rules were not there, it cannot be said that the decision in the case of Emcure Pharmaceuticals Ltd. is per incurium because in the light of subsequent amendment, the benefit became available. What is required to be considered is whether the Tribunal is required to follow the decision in the case of Emcure Pharmaceuticals Ltd. or not. In my opinion, the ld. AR has not been able to make out a case on this issue. manner of taking CENVAT credit of inputs received from 100% EOU was complicated and contentious. That different views were being expressed on the issue, therefore, extended period cannot be invoked and there is no case for imposing penalties. It is observed from the case laws relied upon by the appellant that the issue of taking CENVAT credit on inputs received from 100% EOU under Notification No. 23/2003-CE and method of calculating admissible credit as per Rule 3(7) (a) formula was disputed, therefore, no intention to evade payment of duty can be attributed on the part of the appellant. Accordingly, it is held that extended period is not applicable to the present facts and circumstances of case. Accordingly, penalties can also not be imposed upon the appellant - Decided in favour of assessee.

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• 2014 (11) TMI 705
  Waiver of pre deposit - recovery of refund claim - refund claim was sanctioned earlier - Bar of unjust enrichment - whether the refund claim is hit by bar of unjust enrichment - assessee were able to recover the full cost of production including excise duty with surplus - Held that:- Prima facie while as per the principle of unjust enrichment, the refund can not result in double benefit to an assessee i.e. refund of excise duty paid as well as recovery of that duty from the customer, the refund should also not result in double loss to the Government i.e. refunding duty to the assessee and also permitting the same amount of cenvat credit to the assessee’s customers and for the purpose of refund to an assessee of excess duty paid by him what is relevant is whether or not he had recovered an amount representing the duty from his customers and it is not relevant whether the total price charged by the assessee from his customers i.e. basic price plus excise duty is less than the cost of production and for this reason he had suffered losses. This issue also requires in-depth examination at the stage of final hearing. Therefore at this stage, it cannot be said that the Appellant have prima facie case in their favour. On deposit of this amount within the stipulated period, the requirement of pre-deposit of balance amount of duty demand and interest shall stand waived and recovery thereof stayed - Partial stay granted.

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• 2014 (11) TMI 704
  Reversal of CENVAT Credit - Whether on facts and in the circumstances of the case, the Hon’ble CESTAT, is justified in law in permitting the first respondent M/s. Fenner India Ltd., to avail the Cenvat credit of duty paid on inputs as work- in-progress (WIP) which was destroyed in the fire accident - Held that:- Inputs on which the assessee availed Cenvat credit were destroyed in a fire accident while the work was in progress in the assessee’s factory on 5-5-2006. The fire accident was informed to the Department in writing on the same day - it is not in dispute that the inputs on which the Cenvat credit was availed were destroyed when the work was in progress. Once this fact is not disputed, then the assessee cannot be called upon to reverse the credit. goods destroyed in fire after being used for many years cannot be said as not used in the manufacture of final and finished product and the assessee need not reverse the credit availed on inputs used in finished or semi-finished goods. Further clause (5C) to Rule 3 of the Cenvat Credit Rules, 2004 would be invoked “where on any goods manufactured or produced by an assessee, the payment of duty is ordered to be remitted under Rule 21 of the Central Excise Rules, 2002, the Cenvat credit taken on the inputs used in the manufacture of production of said goods shall be reversed”. question of reversal would occur only when the payment of duty is ordered to be remitted under Rule 21 of the Central Excise Rules, 2002. The said Rule deals with remission of duty. Admittedly, the assessee has not claimed any remission and no final product has been removed. Hence, for that reason also, reliance was placed on clause (5C) to Rule 3 of the Cenvat Credit Rules, 2004. - Following decision of Commissioner of Central Excise and Customs v. Biopac India Corporation Ltd. [2010 (7) TMI 433 - GUJARAT HIGH COURT] - Decided against Revenue.

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• 2014 (11) TMI 703
  Captive consumption - excise duty upon molasses - Suppression of value of goods - Demand of differential duty - Held that:- all other show cause notices issued to the petitioner on the same ground from the year 1994 to 1997 have been withdrawn except the present show cause notice which claims payment of difference of excise duty for a period of two months i.e. January and February 1995. The only explanation coming forth is while filing reply to other show cause notices, the petitioner had raised a dispute about the gradation of the molasses and in the reply to present show cause notice no such dispute was raised. The assessee would not have the advantage of viewing the comparable goods as it would not have any domain over it, nor has opportuiiity to test it. The provisions and the proviso cast duty on the proper officer to verify the same. There are various grades of molasses. The show cause notice, nor impugned orders even remotely suggest that proper officer has considered the material characteristic of goods assessed and comparable goods. It nowhere suggest that quality of both molasses is same. The burden is upon the proper officer. If the proper officer would have considered various factors, so also material characteristics of comparable goods while valuing the goods of petitioner, then the burden would have shifted on the assessee. However, in the first instance the proper officer has not discharged the burden and the obligation cast upon him so as to shift the burden upon the petitioner. In the show cause notice only a bald averment is made that nearby sugar factory is selling molasses at the rate of Rs. 1310/- per metric tonne. Even, if, arguments of learned Assistant Solicitor General is considered referring to provisions of Sec. 6(b)(ii) of the Central Excise (Valuation) Rules, 1975, same would be of no avail inasmuch as sub-clause (ii) comes into operation, if the value cannot be determined under sub-clause (i) on the cost of production or manufacture including profits, which the assessee would have normally earned on the sale of such goods. Perusal of show cause notice, it transpires that the sole basis for issuing show cause notice is that nearby sugar factory is selling molasses at the rate of Rs. 1310/- per metric tonne and the petitioner is claiming rate at Rs. 850/- per metric tonne without satisfying about all the other relevant factors and in particular the difference if any in the material characteristics of the goods to be assessed and the comparable goods. The show cause notice nowhere discloses that the authority satisfied itself about the material characteristics of the goods to be assessed and of the comparable goods. In absence thereof, the said show cause notice cannot be sustained. - Decided in favour of assessee.

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• 2014 (11) TMI 702
  Denial of refund claim - Submission of photocopy of relevant documents - refund claim was with respect to Cenvat Credit in respect of input used in the manufacture of final product and in regard to which, a show cause notice for recovery of wrongly availed Cenvat Credit had been issued by the Commissioner - bonafide belief that application returned not rejected - Held that:- Petitioner perceived the communication dated 26th May, 2008 as a communication returning the petitioner’s application for refund and did not consider it as an order rejecting the refund claim. It is only when the petitioner approached this Court by filing Application [2014 (11) TMI 656 - GUJARAT HIGH COURT] making prayer for decision on the refund claim that the Court clarified the position and held that the communication dated 26th May, 2008 was an order rejecting the petitioner’s refund application and that therefore, there was no further need to give any direction to decide such application. The petitioner had a bona fide belief may be erroneously held that the communication dated 26th May, 2008 was not an order rejecting his refund claim. In our view, the petitioner could bona fide hold such a belief, though as held by this Court, such a belief was erroneous. Firstly because, the Deputy Commissioner returned the application along with annexed documents to the petitioner. In our experience, when the authority decides to rejects the refund application, we have never come across an incident where the application itself is returned. Secondly, the normal procedure is to issue show cause notice why such refund application should not be rejected before final decision is taken. All quasi judicial orders passed by the Dy. Commissioners which are appealable also come with format specifying that the order is appealable, the period within which such appeal could be filed and the appellate authority before which the appeal could lie. In the present case, admittedly no such steps were taken by the Deputy Commissioner. He summarily disposed of the petitioner’s refund application by returning the application and the annexures accompanying it. If, therefore, the petitioner held a honest belief that his application was not rejected but only returned and he therefore persuaded the cause with the said authority, we see no lack of bona fide on his part. The petitioner, therefore, requested the Deputy Commissioner to pass an order, after hearing him, which he can appeal against, if the Deputy Commissioner was of the opinion that the refund claim was to be rejected. At no stage, the Deputy Commissioner in response to the petitioner’s communications conveyed to him that his refund application is already rejected and there is no scope of any further decision. Department has not produced any proof of service of the communication dated 19th August, 2009. In such communication, the petitioner was granted 10 days to clarify how refund could be granted when the Commissioner has issued show cause notice why wrongly taken Cenvat credit not be withdrawn; failing which the application shall stand rejected. When such a communication was not served on the petitioner, he obviously could not respond to the same within 10 days as granted, or any time thereafter. Order of Deputy Commissioner was passed without any notice to the petitioner. The first order dated 26th May, 2008 was passed without a show cause notice as to why the refund claim should not be rejected. Secondly, it is based on Deputy Commissioner’s belief that the petitioner had wrongly availed Cenvat Credit. For such purpose, the Commissioner of Central Excise, Vapi had already issued a show cause notice dated 17th July, 2007 and such proceedings were pending. Therefore, to press in service, the element of wrongful availment of Cenvat credit for rejecting a refund claim, an issue which was still to be adjudicated, in our opinion, was wholly wrong. - Matter remanded back - Decided in favour of assessee.

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• 2014 (11) TMI 701
  Maintainability of Appeal before High Court - Issue involved is of classification of goods - tribunal has remanded back the order - Section 35L - Whether present appeal fall within the exclusion clause contained in sub-section (1) of Section 35G - Held that:- central and in fact the sole issue before the Tribunal was with respect to classification of the goods. Such issue was decided by the Tribunal in a particular manner. It is this decision which the assessee has challenged in the present appeal. Such appeal, in our view, would not lie before this Court. The fact, that the Tribunal instead of taking a final decision on the issue, remanded the proceedings for fresh consideration before the Commissioner, in our view, would not make any difference. Respondent is correct in pointing out that the present appeal is not maintainable and the same is dismissed only on that ground - Decided against assessee.

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• 2014 (11) TMI 700
  Denial of Excise registration - Initiation of proceedings for recovery of Central Excise dues from erstwhile owner - Held that:- As the Central Excise dues of the erstwhile owner of the year 1996 and 2000, respectively have been sought to be recovered from the petitioner Nos. 1 and 2 who have purchased the property of the erstwhile owner - M/s. Jem Ispat Ltd. in a public auction in the year 2000, i.e. after unreasonable period of 10 years, the impugned action of the respondents in initiating recovery proceedings against the petitioner Nos. 1 and 2 - subsequent purchasers, to recover Central Excise dues of the erstwhile owners - M/s. Jem Ispat Ltd., cannot be sustained and the same deserves to be quashed and set aside. Considering Section 6 of the Central Excise Act and Rule 9 of the Central Excise Rules, we are in complete agreement with the view taken by the Bombay High Court in the case of TATA Metalinks Ltd. (2008 (2) TMI 13 - BOMBAY HIGH COURT) and view taken by the Division Bench in the case of Surat Metallics Ltd. as well as in the case of M/s. Jahaan Steel Ltd. (2014 (11) TMI 427 - GUJARAT HIGH COURT) and we are also of the view/opinion that merely because erstwhile owner though it had ceased to carry on business on the premises in question, had failed to apply for de-registration and/or cancellation of the Registration Certificate and/or the department has not de-registered and/or cancelled the Registration Certificate issued in favour of the erstwhile owner, the same is no ground to deny Central Excise Registration to the subsequent purchaser-lessees in respect of premises in question as neither under Section 6 of the Act nor under Rule 9 of the Rules nor under any Notification, Central Excise Registration cannot be refused on the aforesaid ground. Under the circumstances, the action of the respondents-authority in refusing to grant Central Excise Registration in favour of the petitioner No. 3 on the aforesaid ground, cannot be sustained and the same deserves to be quashed and set aside - Decided in favour of assessee.

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