Newsletter: Where Service Meets Reader Approval.
TMI Tax Updates - e-Newsletter
November 26, 2012
Case Laws in this Newsletter:
Income Tax
Customs
Corporate Laws
FEMA
Service Tax
Central Excise
CST, VAT & Sales Tax
Indian Laws
Articles
News
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About 5.58% of the Total Paid up Share Capital of HCL Stands Divested through today’s issue; Approximate Gross Receipts from the issue is RS. 800 Crores
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No Tax Free Zones in Operation
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Foreign National to Open Banks in India
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Web Based Status Tracking Facility Launched to Check Corruption in Income Tax Refunds
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Government Takes Several Measures to Contain Fiscal Deficit
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National Telecom Policy, 2012 - Migration of current version of Internet Protocol IPv4 to IPv6
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Self Reliance in Printing of Currencies
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Search by IT Department
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Implementation of NPS
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Cut in Subsidy on Certain Items
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Bilateral Investment Promotion & Protection Agreements Signed with 82 Countries
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Premium Collected by the Life Insurance Industry Decelerates by 2.33% during the Period Ending 30th September, 2012 over the Previous Period Ending 30th September, 2011
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Life and Social Security Insurance Schemes Available in Rural Areas
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Revival of Sick Fertilizer Industries
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India-US agreed to Deepen their Cooperation Bilaterally and in Multilateral Fora to Achieve Strong, Sustainable, and Balanced Growth going Forward
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Government Takes Several Measures to Revive the Economy including better Access to Finance for Manufacturing Sector, Fast Tracking of Large investment Projects in Infrastructure Areas, use of Buffer Stocks to Moderate Food inflation and Reducing the Volatility of Exchange Rate among others; Monetary and Fiscal Policies are Complementary and Expected to Restore the Growth Momentum
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Direct Tax Collections of Rs.2,65,417 Crore made till 15th November, 2012 during the Current Financial Year 2012-13
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Recent Economic Reform Measures including Reduction in the Subsidy on Diesel, Disinvestment in Certain PSUs and Steps to Strengthen the investment Climate are Expected to Revive Market Confidence and Restore Growth Momentum
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Rs. 52,275.55 Crore Released by the Government to give benefit to 3.45 Crore Farmers; no Proposal to Waive off Agricultural Loans of Farmers
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Violation of Company Law
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Saudi Business Delegation keen to invest in India USD 750 Million Saudi – Indo Investment Fund in Offing
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Fertilizer Subsidy to Farmers
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Approval to Foreign Investments in Pharmaceutical Sector
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Development of Single Point Mooring and allied facilities off Veera (outside Kandla creek) in Gulf of Kutch at Kandla Port
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Participative models for rail-connectivity and capacity augmentation projects
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Acquisition of 50% equity in M/s. Legacy Iron Ore Limited by NMDC Ltd
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Disinvestment of 9.50% paid up equity capital in NTPC Limited out of Government of India’s shareholding of 84.50%
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Extension of the Integrated Low Cost Sanitation Scheme (ILCS) into the 12th Five Year Plan with revised features and cost estimates
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Continuation of IT Modernisation Project of Department of Posts – Phase II
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Development of Integrated Passenger Terminal Building and associated works at Netaji Subhash Chandra Bose International Airport, Kolkata
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Approval of the pricing formula for procurement of bioethanol suggested by the Expert Committee, coupled with a floor price and a ceiling price
Circulars / Instructions / Orders
Highlights / Catch Notes
Income Tax
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Settlement of Case – scope of the term 'pending' case - proceeding for assessment/reassessment u/s 147 are specifically excluded from the purview of "case" as defined under Section 245A(b) - HC
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When the unabsorbed depreciation could not be set off as against the income from business or profession the same can be set off from income from other sources - HC
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Addition on account of accrued interest – There is uncertainty in realizing the principle itself. - no notional interest can be brought to tax. - AT
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The determination of undisclosed income consequent to search action and framing assessment under section 153C of the Act is different from regular assessment or it is not substitute for regular assessment. - AT
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Computation of capital gains - market price of the shares cannot be taken for the purpose of computation of capital gain as per sec. 48 when there is no under statement of sale consideration - AT
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Payment of interest to a cooperative bank which is not a scheduled bank - provisions of section 43B are not applicable - HC
Corporate Law
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The term, ‘suit’ would apply only to proceedings in a civil court and not actions for recovery proceedings filed by banks and financial institutions before a Tribunal, such as, the ‘DRT’. - HC
Service Tax
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Service tax liability on the GTA services - recipient of the services - payment of service tax utilizing cenvat credit – appellant directed to make payment through TR6 Challan / PLA but no interest liability. - AT
Central Excise
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Coal based captive power plant - Exemption Notification No. 6/2006-C.E. at Sr. No. 91 read with Notification No. 91/2004-Cus. - it is not necessary that the sub-contractor himself should take part in International Competitive Bidding - AT
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100% Export Oriented Unit – CENVAT credit cannot be utilized for paying Customs duty on imported goods and paying Excise duty on inputs which are cleared as such - AT
VAT
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Constitutional validity of levy of entry tax on imported goods - Plant, which is brought in knock down condition, is a combination of machinery - it is liable for entry tax. - HC
Case Laws:
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Income Tax
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2012 (11) TMI 785
Allegation of discrimination - From the salary of the employees, Opp. Party nos. 2 and 3 deduct income tax U/s.192 and deposit the same with the Central Government. - reimbursement of the tax deducted and paid on that part of the house rent allowance - allege that the company discriminate the members of the petitioner-Association in taking decision not to reimburse the tax deducted and paid on that part of the house rent allowance (hereinafter mentioned as ‘perquisites’), while it is reimbursing same to the non- executives by paying an equivalent amount known as “up-keep allowance”. - held that:- respondents directed to decide the claim of the petitioner as to whether the members of the petitioner-Association and non-executives belong to the same class and the executives are entitled to 5% “Up-keep Allowance” as the non-executives are getting after giving an opportunity of hearing to the petitioner, within a period of one month from the date of production of certified copy of this judgment. Whether accommodation provided to the Executives working under Opposite party no.1 could be regarded as part of their income on which tax could be deducted at source under Section 192 of the I.T. Act from the salary paid to the Executives. - held that:- it is open to the members of the petitioner-Association to make an application as provided under sub-section (1) of Section 197 to the Assessing Officer and satisfy him that no tax is deductible from the salary on account of the accommodation provided by the employer to them. In such event, the Assessing Officer has to examine the case of the petitioner and if he is satisfied that the members of the petitioner-Association are entitled to be issued with certificate of “No deduction of Income Tax” he shall issue such certificate and on production of such certificate before opposite party No.1, opposite party No.1 is bound not to deduct tax until such certificate is cancelled. Thus, a statutory remedy is available to the petitioner under Section 197 of the Act. Section 197 is a complete provision so far as deduction of tax at source is concerned.
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2012 (11) TMI 766
Settlement of Case – scope of the term 'pending' case - after the expiry of the time limit prescribed for making an order of assessment under section 143/144 of the Act. – held that: - If the time period to make an assessment had not expired on the date on which the settlement application was made, the commission might entertain and proceed with the same, irrespective of whether income tax returns had been filed or not. However, where the period of twenty one months from the end of the assessment year expired on the date of making of the application, the settlement application cannot be proceeded with. The expression "pending" in this case, has to be viewed contextually. In plain terms, it would mean when some case, cause or controversy is actually pending consideration before the assessment officer. Since no assessment order can be passed after the expiry of the prescribed time-limit, no proceeding can be taken in it. Moreover, proceeding for assessment/reassessment under section 147 are specifically excluded from the purview of "case" as defined under Section 245A(b). Thus, there is no question of proceedings of the type which are subject matter of this petition can be said to be "pending" - Assessment includes re-assessment too - impugned order of the Settlement Commission admitting the assessee's application, was contrary to law. The impugned order is accordingly set aside. The writ petition is consequently allowed.
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2012 (11) TMI 765
Taxability of Income of foreign company - PE - assessee contended that it’s income is not taxable in India, inasmuch as, it is a foreign company and has no permanent establishment in India. It was contended by the assessee that it had an assembly project in India, which was carrying out, in addition to assembly, installation of certain items, and that project and other activities were carried out in India for a period less than 9 months. Held that:- ITAT had remanded the matter back for ascertaning the facts - in the event, it is held that the assessee had a permanent establishment during the relevant assessment year in India, it goes without saying that the Assessing Authority would be entitled to take such recourse to law as is permissible against such an assessee under the Income Tax Act.
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2012 (11) TMI 764
Review petition - prayer to review the judgment [2011 (12) TMI 230 - ORISSA HIGH COURT] - review regarding the decision on Legality of issuance of notice u/s 143(2) – held that:- There is nothing to show that Notice u/s 142(1) should precede notice under Section 143(2) as far as production of documents/accounts is concerned - Rearguing a point, while addressing on the review petition on the point already argued and decided by the Court in the judgment does not come within the scope and purview of review petition. Therefore, the judgment cannot be reviewed on the first ground of challenge. Second ground of challenge in the review petition - the petitioner has taken a new stand that the power of the Commissioner under Sec. 264 is very wide and it is not restricted to just supervise the order of the Assessing Officer. - held that:- The above ground now urged in the review petition has neither been taken in the writ petition nor urged while argument was advanced in the writ petition out of which the present review petition arises. On this solitary ground the claim of the petitioner to review the impugned judgment is rejected. Otherwise also, the contention of the petitioner that the power of CIT (Appeals) under Section 264 is very wide and by exercising such revisional power the Commissioner can entertain even a new claim which was never urged before the Assessing Officer is not legally sustainable. - since there is no provision in the Income Tax Act authorising/enabling the assessee to file any revised statement of income, the Commissioner, who is the creature of the statute, by exercising revisional power under Section 264 cannot allow the petitioner-assessee to revise his income by way of filing a revised statement of income. It is settled proposition of law that what cannot be done “per directum is not permissible to be done per obliquum”, meaning thereby, whatever is prohibited by law to be done, cannot legally be effected by an indirect and circuitous contrivance on the principle of “quando aliquid prohibetur, prohibeture at omne per quod devenitur ad illud.” The third ground taken by the review petitioner seeking review of the judgment is that the CIT (Appeals) is not justified to refuse to interfere with the assessment order on the ground that the petitioner preferred a petition under Section 264 of the Act. - held that:- it is not open to the review petitioner to reargue the matter which had already been argued and decided by this Court in judgment under review. The matter can be looked at from different angle. - In the instant case the judgment passed in W.P.(c) No. 4554 of 2011 [2011 (12) TMI 230 - ORISSA HIGH COURT] out of which the present review petition has been filed was argued by Mr. B.K. Mohanti, Senior Advocate extensively. But the present review petition is argued by Mr. N.L. Das, who is only rearguing the points already argued, which is not permissible under law. - Such practice is deprecated by the Hon’ble Supreme Court - Decided against the assessee.
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2012 (11) TMI 762
Power u/s 263 - erroneous decision - Applicability of sec 44BB - held that:- Assessing Authority did not at all make any endeavour to ascertain, whether Rs.96 and odd crores were received by the assessee for and in respect of services rendered by the assessee or the same was received only by way of sale price of goods/materials sold by the assessee, may be outside India. - There is no finding that the revenue received in respect of that service contract, in connection whereof Rs.96 and odd crores were received by the assessee, could be segregated from the service part or not. There was, therefore, failure on the part of the Assessing Officer to ascertain whether Rs.96 and odd crores revenue would or can come under Section 44BB of the Act - both the limbs of Section 263 of the Act stands satisfied, namely, there was error in the order of Assessing Authority, and that, the error caused prejudice to the revenue – Decided against the assessee.
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2012 (11) TMI 761
Commodity trading loss - Speculation loss or not - allowable as set-off against other heads of income - held that:- As per 43(5)(d): an eligible transaction in respect of trading in derivatives referred to in clause (ac) of Section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) carried out in a recognized stock exchange shall not be deemed to be a speculative transaction and there is no requirement to refer the matter to Hon'ble President, ITAT for constitution of a Special bench as issue is decided in favour of the assessee by respectfully following the Tribunal decision rendered in the case of [Tejas K. Shah vs ITO 2010 (9) TMI 905 - ITAT AHMEDABAD] - In the result, appeal of the revenue is dismissed and ground of assessee has become infructuous as set off of loss is already allowed and, therefore, there is no case of any increase in tax liability.
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2012 (11) TMI 760
Unexplained Share Application Money – income from undisclosed sources u/s 68 - Following the judgement of Supreme court in case of [CIT Vs. Lovely Exports Pvt. Ltd 2008 (1) TMI 575 - SUPREME COURT OF INDIA] Held that:- if the share application money is received by the assessee-Company from promoters, whose names and PAN are given to the AO, then the Department is free to proceed to re-open their individual assessments in accordance with law and share application money cannot be treated as undisclosed income – in favour of assessee. Disallowance of Expenses and Salary and Wages in part – Held that:- Order of the CIT(A) on the ground that the disallowance sustained by the CIT(A) is reasonable as the assessee was not able to produce any evidence regarding the genuineness of expenditure even before us during the hearing is confirmed - disallowance only to the extent of 10% of the claim of assessee is sustained - ground of appeal is dismissed – in favour of assessee.
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2012 (11) TMI 759
Application of Income of Society through another society - exemption u/s 11 - benefit to founders attracting provisions of section 13(1) - Following the decision of court in case of [CIT v MatriSeva Trust 1999 (3) TMI 34 - MADRAS HIGH COURT ] Held that:- As per the Bye Laws of the other Arboretum societies, the members cannot derive any benefit or have right over the property of the Society on its dissolution. Hence the amount spent by the Assessee for the maintenance of Forest land should be considered as application, notwithstanding the fact that the forest lands are held by other societies. In the circumstances such expenses incurred by the Assessee Society, either by themselves or through other societies with similar objects in furtherance of the objects of the Society should be considered as application of the Society’s income. Whether any part of the application of donated funds by the assessee has directly or indirectly benefited founders of the assessee society – It was stated that in the case of the other societies also the members are not entitled any income of right to any property of the society on its dissolution. This being so the other societies are no different from the assessee society and the Department has not made a case as to how the common management members would derive benefit from the monies spent by the Assessee society for maintenance of the forest lands of the other societies - individual members of the William Frederick Durr family, who are Executive Committee members of the charitable society, are not the beneficiaries of this valid application of monies by the assessee (DVA) society - application of income by the assessee (DVA) did not violate the provisions of S.13(1)(c) and hence the assessee’s claim u/S. 11 is upheld - In the result, the appeal of the Department is dismissed.
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2012 (11) TMI 758
Determination of Gross Profit ratio in restaurant business - AO rejected Books of account due to inflating of expenses and suppression of sales made and in absence of bills and vouchers – Held that:- AO is directed to estimate Gross Profit at the rate of 35% on total turnover instead of 40% as determined by him and as against @ 31.15 on the admitted sales by assessee - the appeal of the Revenue is allowed in part. Disallowance of expenditure towards advertising charges u/s 40(a)(ia)– Held that:- As the payment was made and not payable on the date of balance-sheet, TDS payment and provisions of sec.40(a) are not attracted, expenditure claimed cannot be disallowed - ground raised by the assessee in its Cross Objection is allowed.
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2012 (11) TMI 757
Procedure u/s 274 - levy the penalty 271(1)(c) – On the date of hearing AO issue penalty order u/s 274 on the same day after getting approval from Add. CIT – Assessee contended that Add. CIT did not apply his mind and acted in a mechanical way in giving his approval to levy penalty – Held that:- On perusal of copy of approval by Add. CIT and the fact that penalty notice was issued in April, 2001, it is observed that penalty proceedings were kept in abeyance as the assessee filed appeal disputing the additions made by the AO. AO might had discussed the matter with Addl. CIT without waiting for the written submissions to be filed by the assessee. Therefore, mere surmise on the part of the assessee that there has not been application of mind by the Add CIT while granting his approval for levy of penalty u/s 271(1) (c). Issue decides in favour of revenue Penalty u/s 271(1)(c) - loss of sale of machine claim as revenue loss instead of capital loss – Mere rejection of claim of the assessee held as concealment of income - Value of machine shown as CWIP - Machine become outdated without installation – Machine transfer to store and was sold as store scrap – Held that:- The disallowance of bonafide claim cannot be treated as furnishing inaccurate particulars of income or concealment of particulars of income. Mere rejection of the claim of the assessee would not attract provisions of Sec. 271(1)(c). It is not a case where it could be said that assessee has claimed the said loss as revenue loss dishonestly for avoiding tax particularly when all the relevant facts have been disclosed pertaining to the claim made. Even on erroneous claim for deduction cannot warrant penalty until and unless it is proved that the claim was made with dishonest intention. Issue decides in favour of assessee. Penalty u/s 271(1)(c) – Assessee claim capital expenditure as revenue expenditure – AO levy penalty u/s271(1)(c) on furnishing inaccurate particulars of income – Concealment of income – Held that:- As the issue as to whether the expenditure constitute revenue expenditure or capital expenditure is a debatable issue. The assessee placed all relevant facts in the return filed and made its claim bonafide as revenue expenditure. Nothing is available on record to show that the belief of the assessee and the explanation of the assessee were false and inherently impossible. Even an erroneous claim for deduction cannot warrant penalty unless and until proved that the claim is made with dishonest intention. In favour of assessee Penalty u/s 271(1)(c) – Concealment of income – AO disallow claim of interest expense in relation to advance given to subsidiaries/ sister concerns – Held that:- mere making of claim which is not sustainable in law by itself will not amount to furnishing inaccurate particulars of information regarding income or concealment of income. The department has also not brought on record that the claim of the assessee was not bonafide. Issue decides in favour of assessee
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2012 (11) TMI 756
Addition on account of accrued interest – Assessee has given loan to unrelated party - Interest at 18% was taken as accrued upto 30.6.1996 and subsequently no amount was recognized as income in the books of account – Assessee contended that principal itself is doubtful for recovery, question of accounting interest as income does not arise – Held that:- As one of the fundamental principles of accounting that, as a measure of prudence and following the principle of conservatism, the incomes are not taken into account till the point of time that there is a reasonable degree of certainty of its realization, while all anticipated losses are taken into account as soon as there is a possibility, howsoever uncertain, of such losses being incurred. There is uncertainty in realizing the principle itself. The principles laid down in recognizing the income equally applies to the facts of the case. For these reasons, we are of the opinion that no notional interest can be brought to tax. Appeal decides in favour of assessee
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2012 (11) TMI 755
Undisclosed income under section 68 of Income tax Act - Creditworthiness - Genuineness of the transaction – Held that:- Creditworthiness is proved by the assessee by way of auditor’s statement, copies of income tax returns and confirmations. Section 68 lays down initial burden and does not contemplate infallible burden on the assessee to prove the source of source of the share applicants and every bit of transaction which may be perceived by the AO. The nature of burden is initial in nature, which has been discharged by the assessee – addition deleted
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2012 (11) TMI 754
Penalty u/s 271(1)(c) of the Act – assessee was required to furnish the details of consultancy expenditure – alleged that assessee was not able to file the invoice or the bill – Held that:- Assessee claimed payment of professional charges in two years. The expenditure in both the years is substantial compared to other expenses debited in profit and loss account - In respect of professional charges, admittedly there is no evidence to prove that they were incurred for the purpose of business. The ostensible reason is that looking to the nature of services, no documentation could be made in respect of services rendered - no basis has been provided for computing the payment either in this or in the next year. This has to be seen in the context of the fact that no business has been conducted in these two years and there is no change in the investments also - mere showing the expenditure under a separate head “consultancy charges” does not lead to inference that all the facts were disclosed - payment has no nexus whatsoever with the business of the assessee and that the explanation furnished by the assessee is not bona fide. Accordingly, the levy of penalty is upheld - appeals dismissed
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2012 (11) TMI 753
Calculation of long term capital gain - determination of date of sale – sale of factory land - enhancement in the value of consideration – Held that:- In the instant case, the agreement to sell was entered in to on 8.1.2007 while the sale deed was executed on 14.8.2007 and registered. There is not even a whisper in the assessment order regarding handing over of the possession while the ld. CIT(A),without even referring to various terms and conditions in the agreement to sell or sale deed, accepted the submissions of the assessee that possession was handed over on 8.1.2007 itself. – matter remanded to CIT to bring out clearly as to when the possession of aforesaid immovable property was actually allowed - Decided in favor of assessee for statistical purposes.
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2012 (11) TMI 752
Addition on account of share capital u/s 68 of the I.T. Act - credit worthiness and identity of creditors and genuineness of the transactions – Held that:- After the assessee filed the requisite details of the share applicant companies as far as the onus upon the assessee is concerned it stood discharged - initially in proceedings considering the issue u/s 68 the initial burden of proof lies upon the assessee yet once he proves the identity of the creditors/share applicants by either furnishing their PAN numbers or Income tax assessment number and shows the genuineness of the transaction by showing money in his books either by account payee cheque or by draft or by any other mode then the onus of proof would shift to the Revenue. AO of the assessee cannot take the burden of assessing the profit and loss account of the creditor when admittedly the creditor himself is an income tax assessee. After getting the PAN number and getting the information that the creditor is assessed under the Act, the AO should enquire from the AO of the creditor as to the genuineness of the transaction and whether such transaction has been accepted by the AO of the creditor but instead of adopting such course, the AO himself could not enter into the return of the creditor and brand the same as unworthy of credence – in favor of assessee
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2012 (11) TMI 751
Employees Provident Fund and ESIC - alleged that the Employees Contribution towards Provident Fund and E.S.I.C. had been paid late after the due date by the assessee – Held that:- Contribution towards PF and ESIC having been paid by the assessee within 2 to 4 days after grace period provided under s.43B but before filing the return is allowed - against the Revenue
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2012 (11) TMI 750
Undisclosed income – alleged that assessee incurred estimated expenditure of Rs.25,19,86,000/- in acquiring development rights of Shela Land whereas a sum of Rs.4,55,00,000/- only was recorded in the books of account and, therefore, the difference represented the assessee's unexplained or unaccounted investment – Held that:- Amounts have been received through account payee cheques through normal banking transactions and all the transactions are recorded in the books of accounts - amounts received against the booking of the plots are in the nature of business turnover accounted in the books of accounts - Since the assessee recorded the receipts in the books of accounts for booking of the plots which would ultimately be turnover/sales of the assessee which is not disputed by the AO, on which profit is shown, no addition could be made on account of unexplained credit u/s 68 of the IT Act - Merely because the Tribunal in the block assessment order observed that the same addition could be taken up in regular assessment as noted by the AO would not be a reason for the AO to make the addition without any just cause – In favor of assessee Addition on account of unexplained cash deposits in the bank accounts – Held that:- cash deposits on various dates in the bank account of the assessee company are duly recorded in the regular books of accounts even prior to the search. The books of accounts of the assessee have not been disputed by the AO. All the cash deposits were found to have been made out of the cash balances available in the books of accounts on the date of the deposit in the bank. Since the book entries are not in dispute, therefore, there is no need to file separate cash flow statement as is argued by the learned DR because the book entries explaining the availability of the cash with the assessee company on the date of bank deposits would be more significant and relevant as against cash flow statement - AO has not brought any adverse material against the assessee on record to prove that the assessee utilized or spent the amount of withdrawal in any specific item – In favor of assessee Addition on account of unaccounted income of Radhe Acre I & II Schemes – Held that:- Complete details of the sales of the plot from 15.3.1996 to 31.3.1996 have been filed - Assessing Officer has merely assumed that during the post search period also the assessee company indulged in charging on-money. No evidence or material has been brought on record by the Assessing Officer to support such assumption - AO merely on the basis of block assessment order assumed that in the post search period also assessee has received on money. No evidence or material was brought on record by the AO to support his assumption. Merely on the basis of assumption no such addition could be made against the assessee - In favor of assessee Interest expenditure – held that:- the assessee company had huge interest free funds of its own which were sufficient to cover any alleged interest free advances made by the assessee. No nexus has been proved between the interest bearing borrowed funds and interest free advances. The explanation of the assessee clearly proved that funds have been used for the purpose of business. – Decided in favor of assesse.
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2012 (11) TMI 749
Deemed dividend - Addition u/s 2(22)(e) of the Income Tax Act - assessee company received a sum of Rs. 2,08,50,000/- from M/s. Dugar Growth Funds (P) Ltd. for investment - Held that:- Since the assessee is not shareholder in this case therefore in view of the jurisdictional high Court’s decision addition is not called for in the hands of the assessee. Therefore action of Ld. CIT(A) deleting the impugned addition is upheld and appeal of the revenue is dismissed. However AO is expected and directed to take necessary steps so that income could not escape assessment as it is to be treated as deemed dividend u/s 2(22)(e) in the hands of the said concerned person.
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2012 (11) TMI 748
Addition due to Loss on Investment – purchase of mutual funds / units in the name of director - Board's Resolution authorizing investment in the names of various directors - held that:- Assessee has shown the mutual funds as its investment. Therefore, there was no suppression of the fact with respect to investment as doubted by A.O. Further, there is no bar for the assessee company to make investments in the name of the directors due to certain strategic reasons. The assessee has submitted the Board’s resolution duly certified by one of the directors of the company granting such permission for investing in mutual funds in the names of the directors of the company which cannot be simply brushed aside - addition made by. A.O. on account of loss claimed by the assessee for Rs.80,77,500/- is not justifiable and therefore same is deleted - Ground of appeal is allowed. Diversion of Interest bearing funds – held that:- Interest bearing funds are not diverted for making investments in mutual funds, proper cash flow statements have to be prepared before such diversion of funds and examined. Further, from examination of the balance-sheet, it is evident that the assessee does not have own funds to make such investments because the share capital and reserves of the assessee as shown on 31.03.2000 in the balance-sheet of the company is only Rs.1,35,000/- and Rs.97,185/- respectively. Therefore, it is evident that the assessee has diverted the interest bearing funds for making such investments. Further the working of. AO that interest to the extent of Rs.17,32,449/- is attributable to interest on funds diverted is not disputed by the assessee’s A.R - CIT(A) is justified in confirming the addition. Order of AO and CIT(A) on this issue is confirmed - Ground of appeal is dismissed - In the result, appeal of the assessee is partly allowed.
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2012 (11) TMI 747
Penalty u/s 271D and 271E of the IT Act – alleged that as per details in the tax audit report, the assessee had accepted the loans and repaid the loans otherwise than by a crossed cheques or demand draft, contravening the provisions of Section 269SS and 269T of the IT Act - assessee submitted that all the receipts are through account payee cheques and adjustment rectification entries and later on journal entries have been passed – Held that:- Assessee furnished complete details of the transactions with the sister concern before the authorities below and explained that either the payments are made through account payee cheques or these are rectification journal entries in respect of wrong payments received from customers which pertained to the sister concern - assessee also filed complete entries of the accounts of both the concerns in support of the contentions on which remand report was called for and virtually the AO accepted the claim of the assessee in the remand report regarding journal entries between sister concern and entries of purchases and sales through account payee transactions - penalty is not leviable in the matter – in favor of assessee
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2012 (11) TMI 746
Undisclosed Income – Whether the Appellate Tribunal is right in law and on facts in holding that only the net profit rate can be applied in respect of admitted sales of goods outside the books of account. - Held that:- Since these issues are in litigation for a long period and travelled couple of times before the appellate authorities and considering the submissions of the ld. A.R. that the assessees are not inclined to prolong the litigation process and the Bench may arrive at any appropriate profit as it may deem fit and just, we are of the considered opinion, in the interest of justice and fairness to adopt the rate of 3% profit on the suppressed turnover for both the assessees in all the assessment years concerned. - In the result, appeals of the Revenue are partly allowed.
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2012 (11) TMI 745
Addition in respect of share capital received from subscribers, denying deduction u/s 80IA - assessee has received share application money in cash – alleged that names of the persons are not genuine and it is the unexplained money of the assessee – Held that:- Assessee has discharged its onus by proving the identity of subscribers - once the existence of the investor/share subscribers is proved, onus shifts on the revenue to establish that either the share applicants are bogus or the impugned money belongs to the assessee company itself. Once the confirmation letters are filed, no addition can be made on account of share application money in the hands of the company – In favor of assessee Interest u/s 234B – nature – Held that:- No specific section has been mentioned for charging of interest and merely it has been mentioned that charge interest if any, as per law. However, since the issue of share application has been decided in favour of the assessee and the addition made u/s 68 of the Act has been deleted, therefore, charging of interest is consequential in nature, meaning thereby that it is not leviable/chargeable - if the Assessing Officer was apprehensive of any mala fide on the part of share applicant, he was at liberty to reopen their individual assessments, therefore, there is no justification to make the addition in the hands of the assessee – In favor of assessee Disallowance of Rs. 6,000/- out of telephone and communication expenses, Rs. 5,000/- out of vehicle repair and maintenance expenses, Rs. 3,000/- out of vehicle running expenses and Rs. 6,000/- out of travelling expenses – Held that:- Disallowances were made by the Assessing Officer as necessary bills and vouchers were not filed by the assessee, therefore, expenses were not fully verifiable - no evidence was filed in support of its claim – disallowance deleted
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2012 (11) TMI 744
Interest on FDR from Reserve Fund - AO found that assessee claimed exemption of interest of Rs.38,69,627/- received on the funds deposited with the bank for the purpose of pension, gratuity and other retirement benefits of the employees – Held that:- Fund was not a superannuation fund - assessee did not press his claim u/ss 10(25) and 36(1)(xii) of the IT Act before the Tribunal as was the claim made before the authorities below therefore, the claim of the assessee could not be considered under those provisions - assessee received interest on the funds deposited with the bank in this regard. Since the reserve funds remained with the assessee therefore, interest earned on such funds shall be income of the assessee – Against assessee Contribution made for meeting the future liability on account of pension, gratuity etc. – Held that:- Assessee is admittedly maintaining cash system of accounting – Held that:- Authorities below has however not considered the rule referred to by ld. Counsel for assessee in his arguments and have also not given any finding if the assessee spent any actual amount on this hand under the year appeal because on provision basis this year, the assessee might have made claim in earlier year for which, the amount could have been spent by the assessee - issue requires reconsideration at the level of the AO – matter remanded to AO Disallowance on statutory payments paid under the Mandi Act - assessee claimed the above amount as deduction in the income and expenditure account in the form of board fees – alleged that it was a transfer of fund to the mother concern – Held that:- Assessee paid the election amount as per the requirements of the Act as noted above as well as per the directions of the Board, therefore, it was a statutory payment made by the assessee for the purpose of running of the activity of the assessee - assessee has debited Rs.10 lacs under the head election expenses which is also mentioned in the income and expenditure account. Therefore, the authorities below were not justified in disallowing the aforesaid expenditure which his paid by the assessee out of the market committee funds. Since the amount is incurred for the purpose of running the activity of the assessee, therefore, it was allowable deduction - Assessing Officer directed to allow the deduction
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2012 (11) TMI 722
Deletion of Disallowance of Interest u/s 43B - payment of interest to a cooperative bank – held that:- Sec 43B of the Act is applicable only in respect of any amount paid as interest to a scheduled bank. A scheduled bank as defined in Explanation 4 to Section 43B of the Act would have the same meaning as contained in the Explanation to Section 11(5) (iii) of the Act. Shree Mahalaxmi Mercantile Cooperative Bank limited is not included within the meaning of a Scheduled Bank. Sub Clause (iii) of sub section 5 of Section 11 speaks about the deposit of any amount in a scheduled bank or co-operative Society engaged in banking but the same is of no consequence - Therefore, no fault can be found with the order of the Tribunal dated 26/10/.2009 - in favour of respondent- assessee and against appellant-revenue.
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2012 (11) TMI 721
Settlement of Case - the objections of the petitioner to the admissibility of the applications are turned down and the Settlement Commission has decided to proceed with the consideration of those applications on merits. - held that:- It is clear from the above that at this stage only a prima facie view is expressed by the Settlement Commission and rightly so because of the reason that the applications are yet to be considered on their merits. At this stage, it is still open to the Income Tax Department to raise objections, which are available under the law, opposing the said applications. It is only after the applications are considered on merits in the light of submissions made by applicants (respondents herein) and the opposition of the department on the merits of these applications that Settlement Commission would arrive at a final conclusion whether to accept the applications of the respondents or not and even if these are to be accepted on what terms. In exercise of extraordinary jurisdiction under Article 226 of the Constitution of India, it is not necessary to go into the validity of the impugned order at this stage. - petition dismissed.
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2012 (11) TMI 720
Rejection of Revision u/s 264 – Penalty - CIT stated that revision proceedings are contemplated only to mitigate the situation faced by the assessee who are unable to approach the appellate authority for relief. The Commissioner noted that the assessee had already exercised his right of appeal before the appellate authorities. He cannot claim relief under section 264 of the Act. - held that:- The fact that the assessee had preferred appeal against quantum additions would not therefore, take away his right to file revision application against the order of penalty. - Commissioner was wholly misguided in his approach. With respect to the Commissioner's stand that deletion of quantum additions not having achieved finality, the revision should be dismissed, also not in agreement.- The penalty was based on certain quantum additions. Such additions came to be deleted by the Commissioner(Appeals). Further appeal by Revenue before the Tribunal was rejected. When the Commissioner was deciding the revision petition of the assessee, what was prevailing was the order of the Tribunal. It may be that further appeal by the Revenue against such decision of the Tribunal was pending before High Court. Mere pendency of appeal before High Court or even admission would not annul the order of the Tribunal or even of course in absence of stay, keep it in abeyance. - Matter remanded back to CIT for fresh consideration.
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2012 (11) TMI 719
Business loss or capital loss - Loss arising on redemption of units as business loss - held that:- Going by the decision of the Apex Court in G.Venkataswami Naidu & Co. V. Commissioner of Income-Tax [1958 (11) TMI 5 - SUPREME COURT] that ultimately the intention and the circumstances alone have to have a bearing on the question as to whether the transaction is only of investment or in the nature of trade, since the question as to whether the income earned as an income from investment or an income arising from a nature of adventure in the nature of trade has to rest on a finding of fact, particularly with reference to the intention of the party herein and the surrounding circumstances, in the absence of any such finding of the Tribunal, matter remanded back to tribunal.
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2012 (11) TMI 718
Writ petition - Challenging Insertion of Conditions in third and forth provisos to Section 80 HHC (3) of the Act by amendment of Taxation Laws (Second Amendment) Act, 2005 - held that:- Supreme Court had transferred all the matters to Gujarat High Court in order to avoid confusion and difficulties in enforcement of conflicting judgments of different High Courts, it would be appropriate in these writ petitions to follow the judgment of the Gujarat High Court - Writ Petitions, other than the first four Writ Petitions, are disposed of in the terms of the order and judgment of the Gujarat High Court. The first four writ petitions, in any event, stand disposed of by the order and judgment of the Gujarat High Court.
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2012 (11) TMI 717
Transfer pricing - ALP - selection of comparable - incremental adjustment of Rs. 5.84 crores to the income returned by the assessee as Arm's Length Price (ALP) adjustment. - held that:- transfer pricing analysis has been made by the assessee as well as the authorities below only on the basis of internal comparables. At the same time, there is no case that instances of external comparables are unavailable. External comparables are available in the industry carried on by the assessee company. In an environment where sufficient number of external comparables are available, it is imperative to examine those external comparables also alongwith internal comparables so as to come to a balanced finding on the matters relating to deciding of ALP and consequential adjustment called for, if any - matter remanded back.
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2012 (11) TMI 716
Computation of Short term and long term capital gains - Cost of acquisition u/s 48 - Difference between actual sale price and market price at the time of sale - There is no allegation either by the Assessing Officer in the remand report or by the Commissioner of Income Tax (Appeals) that the assessee understated sale consideration; but addition has been made by taking into consideration the market price of the shares. Held that:- section 48 does not have any reference to the market value of the asset; but it refers only to the consideration received or accruing as agreed between the parties to the transaction. - market price of the shares cannot be taken as full value consideration for the purpose of computation of capital gain as per sec. 48 when there is no under statement of sale consideration - Decided in favor of assessee.
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2012 (11) TMI 715
Unexplained Addition on account of capital introduced by partners out of Agricultural Income – Held that:-In the case of Veeraiah,considering the smallness of the amount ie Rs.1 lakh and the fact that he was having some agricultural Lnad holding the genuineness of the source for credit in the capital account is not to be doubted and hence delete the same. With respect of M.Srikanth - Held that:- As the assessee has produced documents for land holdings only to the extent of 3.66 acres, which are in his father’s name,it is reasonable to restrict the addition in respect of credit entry in the account of M. Srikant to Rs. 4,00,000/- by allowing credit for the agricultural income of this partner as against the addition of Rs. 7,00,000/- made by the Assessing Officer and confirmed by the CIT(A). With respect to G Venkata Rao – Held that:- As the assessee furnished the details of holding of 11.3 acres ,the probability of earning agricultural income could not be ruled out. However, he had not appeared before the AO for personal examination due to his health condition and, therefore, we find it reasonable to restrict the addition to Rs. 4,00,000/- as against Rs. 7,00,000/- made by the Assessing Officer and confirmed by the CIT(A). Interest on Capital u/s 40(b) - With respect to the plea of the Counsel that the CIT(A) has not justified confirming the additions reading the interest of above three credits, AO noticed that the assessee had claimed interest of Rs.11,26,527/- on the capital account of the partners computed at the rate of 18% p.a. since the provisions of Sec.40(b)(iv) of Act permits interest on partners’ capital account @ 12%, the AO disallowed the balance excess amount of Rs.3,75,509/. with respect to additions u/s.68 of the Act is restricted and the addition in the case of B. Veeraiah has been deleted,issue is set aside to the AO to rework the interest after taking into consideration the additions sustained in the case of M. Srikant and G. Venkata Rao - In the result the appeal of the assessee is partly allowed for statistical purposes.
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2012 (11) TMI 714
Disallowance of Interest Paid - Assessment after search and seizure - AO observed that the assessee failed to prove with evidence like books of account and bank statement about the nexus between he interest claim and interest received. He also observed that assessee’s claim that interest paid on loans were utilized for earning income is not acceptable in the absence of evidence. - held that:- In the present case, there is no incriminating material found during the course of search to frame assessment u/s 143(3) read with section 153C of the Act. The determination of undisclosed income consequent to search action and framing assessment under section 153C of the Act is different from regular assessment or it is not substitute for regular assessment. Being so, the AO shall frame assessment on the basis of incriminating material found during the course of search action under sec. 153C of the Act. The Assessing Officer was not justified in making additions by way of disallowance of interest without any specific incriminating material on hand. - Decided in favor of assessee. Decision case of Vijaybhai N. Chandrani Vs. ACIT [2010 (3) TMI 770 - GUJARAT HIGH COURT], followed.
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2012 (11) TMI 713
Conversion of investments into stock in trade - Capital gain v/s Business income - reopening of assessment - Held that:- The provisions of section 45(2) cannot be made inapplicable to the instant case merely for the reason that the assessee, the owner of the capital asset, has neither converted into nor treated the impugned investment as the stock in trade voluntarily. In denial of the same to the assessee, the Revenue authorities have adopted the principle of ‘literal interpretation’ which must not have been done by the revenue in order to avoid the absurdity of interpretation as in view of the ratio of the Apex Court in the case of K P Verghese [1981 (9) TMI 1 - SUPREME COURT]. Therefore, AO is duty bound to make the assessment in accordance with the provisions of the Act including the provisions of section 45(2). Date of conversion for the shares sold in AY 2006-07 - Held that:- It is trite law that every assessment year is an unit of an assessment. Any transaction can be accounted by applying accounting entries, arriving at the cost of acquisition of shares or market price or their fair market value is not impossible considering the availability of material on record. So far as the capital gain relatable to the capital asset so converted for the assessment year 2006-07, 1.4.2005 has to be taken as the date of conversion, which cannot be altered in respect of the capital assets sold in the relevant previous year. If any other assets are sold in the preceding assessment year 2005-06, assessment for which is allegedly reopened, about which there is no clarity before us, the date of conversion would be 1.4.2004. As there is need for data for determining the assessable capital gains upto the date of conversion and the business income upto the date of sale of the impugned capital asset for arriving at proper taxable ‘capital gains’ and the ‘business income’ within the meaning of the said provisions restore the matter to the file of the AO for computation - partly in favour of assessee.
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2012 (11) TMI 712
Telecommunication Charges - reduction from the export turnover - held that:- expenses excluded from export turnover should also be excluded from the total turnover - Decision in ITO Vs Saksoft Ltd [2009 (3) TMI 243 - ITAT MADRAS-D] followed. - Decided in favor of assessee. Disallowance u/s 40(a) – Non deduction of TDS - Held that:- Legislative intent is clear that only the outstanding amount or the provision for expense (and not the amount already paid) is liable for disallowance if TDS is not deducted. Also, s. 40(a)(ia) creates a legal fiction by virtue of which even genuine and admissible expenses can be disallowed for want of TDS. Sec 40(a)(ia) can apply only to expenditure which is “payable” as of 31st March and does not apply to expenditure which has been already paid during the year.” - Order of the CIT(A) is set aside and restore this issue to the file of the Assessing Officer to decide the same - decided in favor of assessee. Decision in M/s Merilyn Shipping Transport & Others [2012 (4) TMI 290 - ITAT VISAKHAPATNAM] [(SB)(Vizag)], followed.
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2012 (11) TMI 711
Administrative Expenditure - Director’s Remuneration - commercial expediency - In case of [CIT Vs. New Savan Sugar and Gur Refining Co. Ltd., 1989 (4) TMI 12 - CALCUTTA HIGH COURT] high court has held that even if a particular expenditure is un-remunerative, such expenditure is nonetheless is proper deduction, if such expenditure is made wholly and exclusively for the purpose of making or earning such income. Director’s Remuneration - Conscious selection of a director, who has to be paid extraordinary remuneration in order to avail of his services has been made by the company as a policy decision. The expenditure is for the purpose of earning income the amount paid as remuneration is deductible. Therefore, order of the CIT(A) is set aside and deleted the addition of Rs. 49,66,499/- made by the Assessing Officer on account of remuneration paid to director and administrative expenses - In the result, appeal of the assessee is allowed.
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2012 (11) TMI 710
Addition on account of interest payments to non genuine cash creditors - Held that:- Most of the repayments were made either during the periods when the assessment proceedings were going on or thereafter. In such circumstances, it was expected of the assessee to at least have the correct address at the time of repaying the amounts, especially when assessee had not filed any confirmation in respect of these deposits. Thus, majority of the addition is liable to be confirmed except where summons were served or where summons were not received as unserved - out of these two additions the assessee was given a relief of Rs.2.91 lakh in respect of unexplained credits and Rs.85,751/- in respect of interest thereon and balance addition was confirmed Addition u/s. 69B of the Income-tax Act - assessee is engaged in the cheque discounting business – Held that:- Transaction had been recorded on the next working day when the payment was made on earlier working day after the business hours - assessee had submitted the explanation which is rightly accepted by Ld. CIT(A) since the assessee had given the cash after the business hours or on Saturday and accordingly the transactions have been entered on the next working day. The explanation has been substantiated from various documents submitted by the assessee - addition deleted Addition made by estimating the commission income u/s. 145 of the Income-tax Act - assessee had shown the cash payment to various parties against cheque discounting - Assessing Officer was of the view that it is not possible for him to deduce accurate income and therefore on show-cause given to the assessee he rejected the books of account u/s 145(3) of the Act – Held that:- In addition to the specific addition made and to meet the ends of justice the AO made presumption that the assessee had understated commission income of such transaction and accordingly estimated the income of Rs.5 lakh over and above the commission declared by the assessee – CIT in his order by accepting the explanation of the assessee deleted the addition
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2012 (11) TMI 709
Addition on account of cash found at the time of search – Held that:- Assessing Officer after giving credit of business cash of Rs.44,213/- as determined by him on page-9 of the assessment order made an addition of Rs.4,49,558/- as undisclosed income of the assessee-company being unexplained cash - explanation of the assessee that the cash found for which the additions have been made was cash-in-hand available with other family members is without any cogent explanation or any evidence – addition upheld – In favor of revenue Addition - unaccounted sales – Held that:- Assessee has already debited all the purchases and expenses in the regular books of account. Thus sales found outside the books of account are nothing but undisclosed income of the assessee and therefore cannot be given the credit for purchases and the expenses and therefore gross profit addition cannot be made – against assessee Addition - unaccounted sales – Held that:- Sales shown by the assessee in the regular books of account tallies with the sales determined by the Sales Tax Department in the sales tax assessment order. The sales declared in the books of account are higher than sales found noted in loose paper – addition deleted – in favor of assessee Addition - unaccounted sales to customers - addition has been made by the Assessing Officer on the basis of notings in various loose papers – Held that:- Assessee has not issued any bill for cash sales and no record except the total amount of sales made during the day is kept and that the bills are issued only for credit sales and the sales made to franchises - in the absence of any expenditure brought on record outside the books by the assessee, the assessee cannot be given the benefit for application of gross profit – In favor of revenue Unaccounted Investment in valuables – alleged that assets are in the name of Shri Meenu M Agarwal and have not attempted to verify the source of the income from which the investment have been made. It is also a fact that Shri Manoj D Agarwal has made a disclosure of Rs.90,000/- as household goods and valuables under VDIS filed by him – Held that:- Source of income in case of the Director is not in his individual capacity but the income shown by the assessee-company and accordingly keeping in view the totality of such circumstances - source of investment in the said assets would logically be the undisclosed income of the assessee-company - AO was directed to treat the investment in question of Rs.60,000/- as made out of undisclosed income of the assessee company and no separate addition was directed to be made – in favor of revenue Addition on account of expenditure incurred in cash – alleged that Shri Kumbharam Jhat could not properly explain how the papers on which details regarding cash payment are made in his handwriting were found and seized from the residential premises of the Director at Rasranjan Complex – Held that:- Shri Kumbharam Jhat in his statement given the name of the parties to whom he has supplied the labour to which the said notings are pertaining, addition cannot be made in the hands of the assessee-company as unaccounted expenditure. The Director of the assessee-company has also explained as to how by mistake the said loose paper has been carried to his residence from factory and as a result, it was found from his residence – addition deleted – In favor of assessee Addition - unaccounted salary to Shri Kiritkumar S Shah – Held that:- In the absence of any incriminating documents found during the course of search and also the Assessing Officer having not given any opportunity to the assessee for cross examination of the person concerned – addition deleted- in favor of assessee Interest u/s.158BFA(1) - assessee contended that Xerox copies of loose papers were made available to the assessee at a very later stage during the assessment proceedings and therefore there was a delay in filing of the return of income – Held that:- Provisos attached to Section 158BFA(2) of the Act have not been considered by the authorities - relief has been granted at the two stages of appeal, hence, that effect ought to have been given while redetermining the quantum of penalty u/s 158BFA(2) of the Act considering the applicable provisions of the said section involved - appeal of assessee is allowed for statistical purposes Refund of the penalty paid – penalty set aside – Held that:- In the case of penalties the burden to show that the penalty has been passed on to another person is on the department and not on the assessee as in the case of duty - penal liability can never be passed on to another person who has not committed the offence - department has to prove that unjust enrichment would mean that some extra effort is required in addition to merely looking at the balance sheet or profit & loss account on the part of the department – In favor of assessee
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2012 (11) TMI 708
TDS u/s 194C - Desallowance u/s 40(a) - payment to contractor / sub contractor - held that:- The authorities below have not examined the terms and conditions under which the AOP had transferred the amount of Rs.55,24,769/- in the account of one of its member. - From the orders of the Revenue Authorities, it is not evident that whether they have examined the correct nature of the payment and that whether the nature of payment was from a contractor to a sub-contractor. First of all, this preliminary enquiry has to be satisfied so as to arrive at the applicability of the provisions of section 40(a)(ia) r.w.s. 194-C of IT Act. - matter remanded back. Invocation of section 40A(2)(b) – Held that:- For the purpose of invocation of this section one of the essential ingredient is that where an assessee incurs any expenditure and the AO is the opinion that such an expenditure is excessive, then the unreasonable amount is not to be allowed as a deduction - whether the impugned payment to its member was in the nature of an expenditure; has not been clearly established. To ascertain and determine the nature of payment the clauses of the agreement and the surrounding circumstances of the case are required to be examined by ld.CIT(A) in the light of the facts narrated by the AO - appeal of the Assessee is allowed but for statistical purposes
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2012 (11) TMI 707
Cancelation of registration under Section 12AA – Held that:- when under the Act a specific provision for cancellation of registration is prescribed and the cancellation is possible under specific condition then fulfillment of those conditions are necessary for invoking the jurisdiction u/s.12AA(3). - In the present case the reason for cancellation for registration was that the definition of charitable purpose u/s.2(15) has been amended therefore the assessee has not carried out the activity as per the definition of “charitable purposes”. - CIT directed not to cancel the registration u/s.12AA(3) of IT Act. - Decided in favor of assessee.
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2012 (11) TMI 706
Disallowance on account of Guarantee Commissions – guarantee commissions paid to directors on account of guarantee given by them to the bank. - Following the decision of court in CIT v. Metalizing Equipment Co. (P) Ltd. (2008) as reported 8 DTR 12 (Raj)Held that:- since no difference in facts could be pointed out by DR of the Revenue, there is no reason to take a contrary view in the present year and hence, by respectfully following the precedent, issue is decided in favour of assessee in this year also - assessee’s appeal is allowed. Interest Income and Service Charges – Interest income is to be assessable as income from business or income from other sources and whether neeting should be allowed or not - Following the decision of court in case of [CIT v. Shri Ram Honda Power Equip 2007 (1) TMI 86 - HIGH COURT, DELHI] held that:- even if interest is earned on fixed deposits for the purpose of availing of credit facilities from the bank, it does not have a nexus with the export business and therefore, has to necessarily be treated as income from other sources and not business income. They have also added a cavet as per which, if in a given case, the Assessing Officer has held that interest income is business income and this aspect has not been challenged by the Department, then that question can not to be permitted to be re-opened and then the only question will be if netting should be allowed. Since this aspect is squarely covered in favour of Revenue and against the assessee by the judgment of Hon’ble Delhi High Court, this aspect is decided against the assessee and Ground of netting off of the assessee is rejected because in the present case, AO has treated the interest income as income from other sources. On netting aspect,it is held by Hon’ble Delhi High Court in this very case that to the extent the assessee can establish the nexus between interest payment and interest income by showing that interest expense was incurred for the purpose of earning interest income then to that extent netting should be allowed and only such net interest income should be considered for exclusion to the extent 90% from business profit as per clause (baa) of the Explanation to u/s 80HHC.- Decided in favor of assessee. Processing charges - deduction u/s 80HHC - held that:- such processing charges are hit by clause (baa) of Explanation to Section 80HHC and therefore 90% of the same should be excluded from the business profit and such receipts should also be included in total turnover for the purpose of computing deduction allowable to the assessee u/s.80HHC. - decided against the assessee. Disallowance of Expenses – Gift to employees - Held that:- Expenditure incurred under the welfare scheme for its employees to promote employer – employee relationship is held to have been incurred in the interest of business promotion. The disallowance made is, therefore, cancelled. Disallowance on current repairs of machinery.- Held that:- repairs and overhauling of the machines is in the nature of current repairs aimed at preserving and maintaining the already existing machines. No new assets have come into existence nor is this the proposition of the Assessing Officer. Under the circumstances, the expenditure incurred by the appellant is held to be revenue in nature. The disallowance made is cancelled. The Assessing Officer is directed to withdraw depreciation already allowed while giving effect to this order. Deduction u/s 80HHC - Appellant is accounting income on account of credit for self generated power separately as income and not reducing it from the GEB bills since the GE shows it separately as a credit. Under the circumstances, this cannot be covered under any of the items in Explanation (baa). Under the circumstances, the exclusion of 90% of the said amount from the profits of the business for the purposes of deduction u/s.80HHC is cancelled. Similarly, the warranty provision written back as income is also held to be not covered under Explanation (baa) to sec. 80HHC. Under the circumstances, the action of the Assessing Officer in excluding the said amount from the profits of the business for the purposes deduction u/s.80HHC is also cancelled. The Assessing Officer is directed to re-compute the deduction u/s.80HHC accordingly - appeal of Revenue is dismissed - In combine result, appeal of assessee is partly allowed whereas Revenue’s appeal is dismissed.
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2012 (11) TMI 705
Payment made to the partners for hiring the tractors - excessive expenditure u/s 40A(2)(b) - held that:- A.O. should have called for the bills etc and might have examined the concerned partners and outsiders to unearth the truth before alleging that the payment made by the assessee to the partners is excessive and unreasonable. In the absence of any material being brought on record by the A.O. in support of this allegation that the amount paid by the assessee to the partners is unreasonable and excessive, disallowance made by him is not sustainable. - Decided in favor of assessee. Interest free advances – held that:- Regarding this contention that these advances are business advances, no satisfactory evidence could be brought on record by the Ld. A.R. and hence, this argument is also rejected. Hence, it is seen that no interest free fund is available with the assessee which can be used for giving interest free advances and hence, we are of the considered opinion that no interference is called for in the order of Ld. CIT(A) on this issue. - Payment of interest rightly disallowed - Decided in favor of revenue. Disallowance of Employees' contribution to Provident Fund – The same was paid as per the statutory obligation for this purpose of business and therefore, there is no justification for disallowing the same. Following the decision of court in case of [CIT Vs Alom Extrusions Ltd. 2009 (11) TMI 27 - SUPREME COURT] held that;-Payment of PF have been made before the due date of filing of return of income - no disallowance can be made regarding payment of employees’ contribution not PF – disallowance is deleted - Ground is allowed. Disallowance at 1% of the expenses out of diesel purchase, oil and grease, repairs and maintenance, octroi, freight and cartage expenses. - held that:- A.O. himself has considered the value of defective vouchers at 1.5% of the total expenses and on this basis, he confirmed the disallowance to the extent of 1%. We are of the considered opinion that if majority of vouchers are available and are proper and only 1.5% vouchers are defective, no disallowance should be made on ad-hoc basis without pointing out any specific item of inadmissible expenditure. Disallowance on account of vehicle running expenses and maintenance and telephone expenses. Held that:- 10% disallowance out of vehicle running expenses and maintenance and telephone expenses is reasonable and hence, order of CIT(A) on this issue is confirmed. Deduction u/s 40(a)(ia) – held that:- assessee is seeking direction for allowing deduction in the year of payment of TDS - no such direction is required because it is in the Act itself that if the TDS is paid in a subsequent year, deduction is allowable in that year as per the provisions of Section 40(a)(ia) of the Act and hence, no such direction is called for - This ground is also rejected. Interest on Interest free Advance – Held that:- Advances were given for the business purpose and hence no disallowance of interest at the rate of 15% was called for - without there being any nexus found with borrowed funds the disallowance be deleted. Allowance of Rs.17,470/- u/s 40A(3) - Held that;- On the facts of the case, disallowance of Rs.17,470/- is unjust and genuineness of expense having not been doubted the same be allowed - In the combined result, all the three appeals of the assessee are partly allowed and the appeal of the revenue is dismissed.
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2012 (11) TMI 704
Addition of ‘on money based on the seized papers of estimated sales - Addition was made by the A.O. for the assessment year 1998-99 to assessment year 2004-05 which was deleted by CIT(A). But there is no mention of the present assessment year in the seized material. In assessment year 2005-06, the tribunal has deleted similar addition in assessee’s own case by following the Tribunal order for assessment year 2004-05 in which, it was held that in the absence of any cogent evidence, there is no scope for extrapolation. Since, in the present year also, there is no evidence regarding receipt of any on money, addition cannot be made on the basis of seized material relating to earlier year. By respectfully following the Tribunal decision in assessee’s own case, issue is decided in favour of the assessee - revenue’s appeal is rejected. Deduction u/s. 80IB – Held that:- Assessee is not the legal owner of the land and was carrying on the activity of developing and building housing project on a land which is not owned by him There is a complete identity between the assessee referred to in Section 80IB(S) and the undertaken referred to in section 80IB(10) and this identity becomes further clear from rule 18BBB prescribing the Form No. 10CCB of audit report to be furnished by the assessee by virtue of Section 80IB(13) r.w.s. 80IA(7) - matter may be restored back to the file of CIT(A) for a fresh decision - In the result, appeal of the revenue stands partly allowed for statistical purpose.
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2012 (11) TMI 703
Dis allowance of account of payment of commission - The assessee claimed a sum of Rs.84,47,845/- as deduction towards Commission payments, out of which a sum of Rs.79,46,846/- was claimed to have been paid to Shri Sandeep Mehta, proprietor of M/s Safal Inc., Mumbai. - The AO also recorded a statement u/s 131 of the Act from Shri Sandeep Mehta and in the said statement also he averred that he has received only Rs.9,71,000/- from the assessee company. - AO made the additions but CIT(A) deleted the additions - held that:- The action of the AO in not affording the opportunity of cross examination to the assessee is against the principles of natural justice. In view of the above discussions, we are of the view that the impugned issue requires reconsideration at the end of the assessing officer, in which the AO should invariably provide opportunity of cross examination of Shri Sandeep Mehta to the assessee. Section 43B - Disallowance relating to the “Finance charges” claimed by the assessee - payment of scheduled bank - Held that:- the assessee did not file any evidence to show that the above cited Co-operative banks would not fall in the category of Scheduled Bank as defined in sec. 11(5)(iii) of the Act, more particularly the copy of Second Schedule to the Reserve Bank India Act, 1934. - matter remanded back. Share application money - held that:- here is no dispute with regard to the fact that the impugned amount of Rs.36.60 lakhs pertains to Share application money and the assessee has furnished the names and addresses of the share holders along with other details that were available with it. - Decided in favor of assessee.
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2012 (11) TMI 702
Interest income as income from other sources - disallowance of various expenses and depreciation - commencement of business – held that:- Activity of the company during the year was only of a pre-operative nature and commencement of business could be said to have started only when it started exploitation of the project. The object of the company was to set up growth centres and thereafter to exploit them. It was the second limb of activity which provided for regular business activity. Thereafter, building repairs, rewiring, installation of lift, etc., were carried on by the assessee company for the purpose of converting the residential accommodation to business and storage accommodation - order of the CIT(A)is confirmed and dismiss the appeals of the assessee - issue involved in these two appeals is squarely covered in favour of Revenue and against the assessee by the Tribunal decision in assessee’s own case for A.Ys 1998-99 to 2001-02 and no reason to take a contrary view in the present two years and hence, by respectfully following the precedent, issue is decided against the assessee in the present two years also - In the result, both the appeals of assessee are dismissed.
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2012 (11) TMI 701
Addition made on account of disallowance of Administrative & Other Expenses u/s.14A – Held that:- In the present appeal as well undisputed fact is that only one dividend warrant of Rs.4,55,829/- was received by the assessee. Indeed it was highly improbable and beyond rational view that in order to earn a dividend of Rs.4,55,829/-, that too by a single dividend warrant, the assessee had incurred a huge administrative expense as assessed by the AO. Newly inserted subsections to section 14A would be applicable from the Asst.Year 2007-08 and Rule 8D shall be effective from A.Y. 2008-09 because of the trite principle of law that the law which could apply to an Assessment Year is the law prevailing on the 1st day of April. Since the Respected Lower Authority has added only a trifle amount of Rs.60,000/- by disallowance u/s.14A, therefore without disturbing the same we hereby dismiss this ground of the Revenue.
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Customs
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2012 (11) TMI 783
Waiver of pre deposit of penalties - Custom House Agents (CHA) penalised for non declaration of material facts regarding the goods which were sought to be exported by M/s. Goralal Arya Impex Pvt. Limited. - Held that:- As appellant did not appear before the adjudicating authority nor filed reply to show cause notice given to him, thus in order to ensure that appellant appears before the adjudicating authority and co-operates is directed to deposit an amount of Rs. 1,00,000/- within eight weeks from today and report compliance. Appellants/applicants undertakes to file reply of show cause notice within six weeks from today.
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2012 (11) TMI 782
CHA licence – qualification - application for issue of CHA licence was rejected on the ground that since she is only a graduates not having a professional degree i.e. CA/MBA/LLB/Diploma in Customs clearance work, or a G-Card, in terms of Regulation 6(a) of CHALR-04 she was required to have passed the examination as prescribed under Regulation 8 of CHALR-04 – Held that:- Board’s Circular No. 9/10, has clarified that those applicants who have passed the examination referred to Regulation 9 of CHALR-84, but were not given licence under the said regulation were required to appear in the examination and qualify the same under Regulation 8 of CHALR-04 in respect of additional subjects as provided in Notification No. 30/10-Cus. (N.T.), dated 8-4-2010 and the persons who qualify in the aforesaid examination shall be deemed to have passed the examination under Regulation 8 of CHALR-04 and would be considered for grant of CHA licence in terms of Regulation 9 of CHALR-04. The Commissioner’s other objection that an applicant who had passed examination from one Custom House cannot be considered for the grant of CHA licence from another Customs House is without any basis as the examination under Regulation 8 of the CHALR-04 and earlier under Regulation 9 of the CHALR-84 is conducted by Directorate General of Inspection and it would not be correct to refuse the CHA licence on the ground that the examination has been passed from some other Commissioner’s jurisdiction. - matter remanded back for de novo decision.
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2012 (11) TMI 781
Interest on refund - importer filed a refund claim on 18-4-2006 before Development Commissioner, KASEZ. - This was transferred to Customs and finally the refund was sanctioned on 23-9-2009 but the claim for interest on the deposit with effect from three months after the date of filing of refund claim has been rejected - refund claim for interest has been rejected on the ground that the security deposit for provisional release is made as per the orders of the adjudicating authority – Held that:- Appellant is entitled to interest considering the date of filing the refund claim as 28-4-2006.
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2012 (11) TMI 736
Condonation of Delay and stay of Impugned order - held that:- As the Impugned order is an ex parte order and the appellant left for Dubai in the year 1997 and came back in 2003, therefore, they are not aware whether any show cause notice or notice of hearing was sent to their address or not, therefore, in the interest of justice, matter should go back to the adjudicating authority for fresh adjudication after giving a reasonable opportunity to the appellant to present their case - impugned order is set aside and sent the matter back to the adjudicating authority for fresh adjudication after giving a reasonable opportunity to the appellant to present their case - appellant directed to appear before the adjudicating authority personally on or before 15th November, 2012 to fix a date for personal hearing - appeal and applications are disposed of in the above terms.
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2012 (11) TMI 735
Valuation - appellant imported a consignment of perfumes, deodorant, cosmetics and toiletries - declared value was rejected - valuation was done as per Rule 8 of the Customs – Held that:- In this case, we have observed that neither the time prescribed in the IPR Rules have been followed nor the conditions laid down in Rule 3 has been complied with. Therefore, provisions of IPR Act or Rules are not applicable in this case On the same day, another Bill of Entry No. 713117 has been filed by the same CHA for another importer having identical goods, which were allowed to be released. Therefore, discrimination has been done with the appellant, which is in violation of the principle of natural justice Goods were assessed after loading the value and, thereafter, re-enhancement has been done. Section 14(1) of the Customs Act provides for determination of value of such goods or like goods ordinarily available for sale, at the time and place of importation - method of valuation and market survey is not proper and no opportunity to the appellant were given to cross-examine the persons who have given the data for the valuation - No reason has been cited as to why the value of the contemporaneous import is rejected and there was no reason cited doubting the value furnished - order set aside and appeal allowed
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2012 (11) TMI 734
Duty, penalty and interest - application under Section 129E of the Customs Act, 1962, seeking waiver of pre-deposit – Held that:- Petitioner has good case on merits - petitioner has already deposited a sum of Rs. 85,48,462.40 ps. towards pre-deposit. Since the petitioner is not liable to pay any amount as per the order at Annexure-F, the direction of the Appellate Tribunal to deposit the amount in a sum of Rs. 2.5 crores towards pre-deposit is unreasonable -respondent is directed not to recover the balance of the disputed tax
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2012 (11) TMI 730
Refund of Interest - claim of interest on refund of interest - adjudicating authority sanctioned interest at the rate of 6% - held that:- Order of Commissioner (Appeals), in terms of which interest of Rs.52,631/- was sanctioned to the respondents stand set aside by the Tribunal and inasmuch as the proceedings have been kept alive by the Revenue by filing the appeals before the Tribunal - impugned order of Commissioner (Appeals) is required to be set aside - appeal filed by Revenue is allowed.
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Corporate Laws
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2012 (11) TMI 780
Amalgamation - held that:- Scheme of Amalgamation would, have the benefits of increasing efficiency by pooling of resources and their optimum utilization, thereby availing synergies from combined resources and will enable the company concerned to rationalize and streamline their management, businesses and finances and the businesses will be carried on more economically and profitably after the proposed amalgamation - prayer to dispense with the convening of the meetings of Equity Shareholders of Petitioner No.1/Transferor Company-2 and Petitioner No.2/Transferee Company is accepted. Since there is no secured creditor of the Petitioner No.1/Transferor Company-2, no occasion arises to dispense with convening of the meeting.However, separate meetings of the Un-secured Creditors of the petitioner-companies be convened as per schedule.
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2012 (11) TMI 779
Recovery proceedings - order of Debt Recovery Appellate Tribunal - condonation of delay - principal debtor - Liability of the surety / guarantors – Period of limitation - petitioner contended that it is not the principal debtor and that another entity, being State Trading Corporation of India Ltd. is the principal debtor, given the nature of the transaction – Held that:- . Rule 5A gives a leeway to the DRT to entertain an application for review, only if, it is filed latest, by the sixtieth day from the date of the order of which review is sought. There is in sub rule (2) of Rule 5A, an express bar imposed on the DRT in entertaining review applications after the expiry of sixty (60) days. - There is, therefore, possibly no scope even for entertaining an application for condonation of delay by invoking Section 5 of the Limitation Act, 1963 (in short Limitation Act). Provisions of Section 24 of the RDDB Act, which provides, that the provisions of the Limitation Act shall as far as may be applied to an application made to a Tribunal. Undoubtedly, the application adverted to in the said provision refers to the OA filed by a bank/financial institution to seek recovery of its debt and not interlocutory applications, such as, one for review. - It is, therefore, perhaps the legislature’s intention to apply the provisions of the Limitation Act to a limited extent and "as far as may be" to the original action for recovery of debt. This would not translate, perhaps, in the provisions of Section 5 of the Limitation Act being made applicable to an application for review of an order passed in an OA. It is interesting to note that there is no provision for review in the RDDB Act. Petitioners have not taken the trouble of filing an application for condonation of delay under section 5 of the Limitation Act - Issue no.1 is decided in favour of the respondent and against the petitioners. Scope of the term 'Suit' - held that:- the word ‘suit’ cannot be understood in its broad and generic sense to include any action before a legal forum involving an adjudicatory process. - If that were so, the legislature which is deemed to have knowledge of existing statute would have made the necessary provision, like it did, in inserting in the first limb of section 22 of SICA, where the expression proceedings for winding up of an industrial company or execution, distress, etc. is followed by the expression or "the like" against the properties of the industrial company. - There is no such broad suffix placed alongside the term ‘suit’. The term suit would thus have to be confined, in the context of sub section (1) of section 22 of SICA, to those actions which are dealt with under the Code and not in the comprehensive or overarching sense so as to apply to any original proceedings before any legal forum as was sought to be contended before us. - The term, ‘suit’ in our opinion would apply only to proceedings in a civil court and not actions for recovery proceedings filed by banks and financial institutions before a Tribunal, such as, the ‘DRT’. Liability of the surety is co-extensive with that of the principal debtor if the latter liability is scaled down the liability of the surety will accordingly stand reduced or even extinguished. The principle in so far as this aspect is concerned is pivoted on the fact that the liability of a guarantor i.e., the surety being co-extensive is both joint and several. Therefore, a creditor need not sue a principal debtor in order to bring an action against a guarantor - decided against the petitioners
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FEMA
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2012 (11) TMI 784
Money transactions - whether offence under FEMA is made out or not – Held that:- Investigation is still at the initial stage, the FIR cannot be quashed at the threshold - allegations in the FIR itself are to the effect that the petitioner is indulging in hawala money transactions remitting the money from foreign country through illegal channels - Court cannot comment on the merits of the case at this stage without there being any clarification and the evidence on of record - no ground is made out at this stage for quashing of the impugned FIR.
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Service Tax
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2012 (11) TMI 788
Extended period of limitation - Demand of service tax - the plea of limitation was raised for the first time before the Commissioner (Appeals). - held that:- the adjudicating authority did not have occasion to consider any plea of limitation. - The appellate authority chose to consider that plea, and held in favour of the assessee and, that too, without going into the merits of the case. This action of the learned Commissioner (Appeals) has no justification in law and hence his order requires to be set aside. - Issue remanded back to commissioner (appeals) with a request for fresh decision on the assessee s appeal on merits in accordance with law and the principles of natural justice. On the question whether limitation could be lawfully pleaded for the first time by the assessee before the first appellate authority, the learned Commissioner (Appeals) shall hear both sides with due notice. Needless to say that, in the event of this issue being held in favour of the assessee/appellant on legally sustainable grounds, the plea of limitation shall be examined with reference to relevant date defined under Section 73(1) of the Finance Act 1994 and in the light of applicable case law.
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2012 (11) TMI 787
Tour Operator Services - appellants providing the services using their own vehicles and also using hired vehicles belonging to third parties - benefit of Notification No. 15/2007 – Held that:- the activities of the appellant will fall under the category of Tour Operator Services' even when they use vehicles belonging to third parties Extended period of limitation - held that:- appellant failed to disclose the service charges, in respect of services rendered using vehicles of third parties, in the returns filed by them. - they have collected the service tax from their customers. - Extended period of limitation to be invoked - in favor of revenue. Penalty - held that:- when penalty under Section 78 is sustained, there is no justification for sustaining a separate penalty under section 76. Notification 15/2007 has, for the period from 01.04.2000 onwards, has exempted service tax on value in excess of 40% of the gross amount - held that: - direct the original authority to requantify the tax liability and interest and the penalty under section 78 after allowing the benefit of exemption
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2012 (11) TMI 786
Waiver of pre-deposit - Denial of CENVAT credit on the ground that the services are not used in or in relation to manufacturing activity – Held that:- Services in relation to Convention services, Memberships of Clubs & Association Services, Health Club & Fitness Centre Services and House Keeping services are not entitled for input service credit - applicants are directed to make a pre-deposit
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2012 (11) TMI 776
Simultaneous penalty u/s 76 and 78 - Business Auxiliary services - Held that:- Confirming the amount of Service Tax along with interest has not contested by the assessee. As decided in CCE versus First Flight Courier Ltd. [2011 (1) TMI 52 - HIGH COURT OF PUNJAB AND HARYANA] that if penalty stand imposed u/s 78 imposition of separate penalty under Section 76 is not justified. Thus upholding the imposition of penalty to the extent of 100% under Section 78, the penalty u/s 76 is set aside. Option extended to the assessee to deposit 25% of the penalty within a period of 30 days of passing of impugned order u/s 78 with the penalty shall stand reduced to that amount. Imposition of penalty of Rs.1000/- under Section 77 is however upheld.
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2012 (11) TMI 742
Penalty u/s 76 & 78 - Commissioner (A) set aside the levy as both the penalties could not be simultaneously imposed - Held that:- As decided in Asstt. Cce & Ors.Versus V. Krishna Poduval & Ors. [2005 (10) TMI 279 - KERALA HIGH COURT] the provisions (Sections 76 and 78) are mutually exclusive and that, while Section 76 does not require mens rea, Section 78 involves evasion with guilty mind thereof. As the two penalties can be simultaneously imposed. Thus the conclusion reached by the Commissioner (Appeals) is inconsistent with his reasoning - in favour of revenue.
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2012 (11) TMI 741
Input services - Cenvat Credit - Manpower Supply Services, Booking Services, Pest Control Services utilised in residential colony, Guest House and Sport Complex or Services utilised for the persons who are not employees of the Company - held that:- There has to be nexus between manufacture and input service to avail Cenvat Credit - It is not admissible that manufacture was not feasible if residential colony for employees is not provided near the factory Extended period of limitation - held that:- demand for service tax for the period beyond one year cannot be sustained and has to be set-aside and demand for the period from March 2009 to June 2009 only can be sustained Interest is required to be paid. As regards the penalty, in view of the fact that issue involved is a pure question of interpretation of law, question of imposition of penalty does not arise. Accordingly, penalty is set-aside - Appeal is decided holding that appellant is eligible for consequential relief if any. Decision in [CCE Versus MANIKGARH CEMENT 2010 (10) TMI 10 - BOMBAY HIGH COURT] followed.
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2012 (11) TMI 740
Failure to file Return of Income - Recovery of service tax on GTA services prior to 2004 after validating the provisions post Laghu Udyog Bharati case (1999 (7) TMI 1 - SUPREME COURT OF INDIA) - Held that:- Assessee could not be faulted with for not having filed a return after getting himself registered. More particularly, when one considers the language employed in the Proviso below sub-section (1) of Section 68 and the provisions of Section 71A of the Finance Act, 1994, it is not possible to state that the language of the Statute is so clear that any default can be fastened on the respondent-assessee. further, as the matter has been decided by two High Courts in favour of assessees which are directly opposite to the decision given by the Larger Bench and since the Larger Bench has not considered the above decisions of the High Courts, the final order should be passed based on the decisions of the High Courts and not based on the decision of the Larger Bench of Tribunal - demands issued after 2004 or later in respect of the short levies in dispute in case filed by assessees are not maintainable - Consequently, appeals filed by the assessees are allowed. In this case Notice was issued after retrospective amendments made by Finance Act, 2001 but before the retrospective amendments by Finance Act, 2003 and Finance Act, 2004. But the question whether such notices issued after amendment made by Finance Act, 2001 was valid for recovery of taxes short paid during 16-11-97 to 02-06-98 was the issue before the Tribunal in the case of L.H. Sugar Factories Ltd (2004 (1) TMI 111 - CESTAT, NEW DELHI) and the Tribunal answered the question in the negative and the decision has been affirmed by the Hon. Apex Court. Further after amendment made by Finance Act 2004, Revenue issued a corrigendum to the notice dated 01-11-04 quoting the amendments made in Finance Act, 2004. This has to be essentially understood as a notice issued on 01-11-04 when the corrigendum was issued. The ratio of the decisions of the High Courts quoted in para 13 above is to the effect such notices issued in 2004 also cannot be enforced. Therefore in this case also the decision goes in favour of the assessee. So this appeal filed by Revenue is rejected.
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2012 (11) TMI 739
Service tax liability on the GTA services - recipient of the services - payment of service tax utilizing cenvat credit – Held that:- Appellant is not providing output services as categorized in Rule 2(p) of the Cenvat Credit Rules, 2004, debiting the said amount in the Cenvat account needs to be rectified by directing the appellant to debit or pay the entire amount invoked in both the appeals as service tax paid for receipt GTA services through PLA or by TR-6 challan - appellant is eligible to avail the Cenvat credit which he has debited during the relevant period, towards discharge of service tax liability. Interest liability – Held that:- No intention to run away from the service tax liability and having deposited the same through the Cenvat account, the appellant has not retained any part of the government dues with him with intention to evade the same. Accordingly, the interest liability as confirmed by the lower authorities does not arise at all Penalty – Held that:- Appellant having discharged the service tax liability through Cenvat account - penalties imposed by the lower authorities set aside
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2012 (11) TMI 729
Waiver of pre-deposit - denial of CENVAT Credit of duty paid on the products which were sent to job workers - appellant herein availed CENVAT Credit and utilized the goods for rendering the output services of ‘Repair & Maintenance’ and utilized said credit for discharge of Service Tax liability – Held that:- providing such service input or input services which go into provision of such output service, if any tax or duty is paid on such input services or inputs, the appellants are eligible to avail CENVAT Credit - waiver of pre-deposit allowed
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2012 (11) TMI 727
Club and Association Service – retrospective exemption - Denial of cenvat credit for common services - Export Promotion Council for Handicraft is engaged in arranging exhibitions etc. They have permanent members – alleged that membership fee collected from the Members is liable to service tax under the category of “Club and Association Service” – Held that:- Club and association service”, on which the demand of service tax stands confirmed by the Commissioner may become exempted services in view of the provisions of Section 96J, for which the matter is being remanded - there may be occasion to deny credit in respect of common cenvatable services used in both output services and club and association service. Commissioner is directed to look into the said aspect afresh, after dealing with the appellants’ contention that the denial of credit to the extent of 90% would be applicable only in respect of common cenvatable services and not in respect of services exclusively utilized for providing business exhibition service - provisions of Rule 6(5) are required to be taken into account for the purpose of denial of credit
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Central Excise
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2012 (11) TMI 778
Re-credit entries in Cenvat Credit account - Commissioner (Appeals) rejected the appeal as original adjudicating authority has not considered the said issue - Held that:- If the appellant is not contesting the confirmation of demand, consequent readjustment in Cenvat credit flows out of the same & if the original adjudicating authority inspite of appellants having made a request has not considered the said plea, and has not passed any orders on the same, the Commissioner (Appeals) should have considered and passed the orders instead of rejecting the appeal. As appellants have paid back the rebate amount they are entitled to make re-credit entries in their Cenvat Credit account - in favour of assessee.
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2012 (11) TMI 777
Cenvat credit in respect of short found clinker - denial of claim on ground of clandestine removal - Held that:- As it is for the revenue to establish the case of clandestine removal by production of concrete and tangible evidence apart from loose papers, which on the face of it cannot be related to the appellants business accounts and the sole statement of Director, there is no other evidence to reflect upon the clandestine activities of the appellants. The appellants have also taken a stand that it is beyond their capacity to manufacture more than 1000 MT per month and as such the Revenue's allegation that they cleared more quantity in the month of February, 2004 cannot be accepted. Set aside the confirmation of demand against the appellant and imposition of penalties imposed upon them - in favour of assessee.
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2012 (11) TMI 775
Shortages in the stock of Sponge iron - Held that:- The weighment of the sponge iron was not actually done but the same was based upon the basis of weight of 1 cubic feet of sponge iron, thus it can be safely concluded that shortages arrived at by the officers were not real but were deceitful being based upon calculative method. No justification in demand of duty in respect of sponge iron - in favour of assessee.
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2012 (11) TMI 774
ROM - confiscation of land, building, plant, machinery of a manufacturer – Held that:- As regards, the additional ground that the order is silent on the question of confiscation of plant and machinery and imposition of redemption fine in lieu of confiscation of ₹ 5,00,000/- under Rule 173Q(2) of Central Excise Rules, 1944, we find that there is merit in the appellant’s plea, as while in the appeal memo, the question of confiscation of plant and machinery has also been challenged, the final order passed by the Tribunal is silent about the same. However, for this omission there is no need to recall the final order and the same is being decided now. This is a case of evasion of duty by clearances of goods, in a clandestine manner without payment of duty and also by mis-declaring the MRP under the guise of exchange scheme and thereby contravening various provisions of the Central Excise Act, 1944 and of the rules made thereunder, which attract penalty under Clause (d) of sub-rule (1) of Rule 173Q and as discussed above, the duty involved is more than ₹ 1,00,000/-. Confiscation of land, building, plant, machinery of the appellant company under Rule 173Q has been correctly ordered and looking to the nature of the offence, the quantum of redemption fine is not excessive. The same is accordingly upheld.
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2012 (11) TMI 773
Admissibility of Modvat Credit - Whether Modvat Credit is admissible on glass bottles and plastic crates used for packing material for erated water when the value thereof is not included (i.e. bottles/crates as such neither declared nor could be ascertained) in assessable value of the final product, i.e., erated water - Held that:- the point, referred to above, is required to be answered by this Court. - Tribunal has to make a statement of the case to Court within a period of four weeks from the date of communication of this order for further consideration .
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2012 (11) TMI 772
Valuation - what should be the value of in respect of inputs on which CENVAT/MODVAT Credit has been taken, are removed as such by the appellant to their sister concerns for use in the manufacture of final product – Held that:- Appellant had removed only the inputs as such and had reversed the CENVAT Credit taken on such inputs - no processing of whatsoever nature was done on such inputs - amount of Cenvat credit taken by the assessee, of the duty paid on the invoice value as shown in the invoice can be considered as correct assessable value and duty liability to be discharged – in favor of assessee. Decision in the case of Eicher Tractors v. C.C.E., Jaipur - [2005 (9) TMI 340 - CESTAT, NEW DELHI], followed.
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2012 (11) TMI 771
Whether the respondent-assessee is required to reverse 8% of the total value of the exempted goods which are exported by him – Held that:- Respondent-assessee herein has exported the goods by filing AR-4/ARE-1 form with the authorities and indicating the products exported - products were exported by the respondent-assessee by debiting amount in bond executed by them, a fact which is not disputed by the lower authorities - product which has been cleared by the appellant by debiting under bond with the authorities would be an act, would be covered by the law - order is upheld and the appeal filed by the Revenue is rejected
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2012 (11) TMI 770
Coal based captive power plant - Exemption Notification No. 6/2006-C.E. at Sr. No. 91 read with Notification No. 91/2004-Cus. - ICB - denial of exemption for various reasons – Held that:- it is not necessary that the sub-contractor himself should take part in International Competitive Bidding in such situations to claim exemption under Notification No. 91/2004-Cus. For this we take note of the fact DGFT has given advance licence to the appellants though they have not taken part in the bidding. Further what is “final goods” for one manufacturer is raw material or component for another manufacturer and the materials supplied by the Appellants are material required by the company responsible for setting up the power plant. Prima facie, we are also not in agreement that they could not have availed the exemption prior to the date they were granted advance authorisation licence for import of raw material required by them. Further the argument of the appellants regarding relief under Chapter 8 of the Import Export Policy also has strong merit. - pre deposit waived.
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2012 (11) TMI 769
Waiver of pre-deposit - reversal of cenvat credit along with interest and penalty - denial of cenvat credit to the appellant on the special additional duty on the imported goods – alleged that appellant had taken the cenvat credit and special additional duty paid in the month of December 2008, January 2009 and February 2009 which is beyond the period of one year and hence as per the provisions of Rule 4 of Cenvat Credit Rules – Held that:- Provisions of Rule 4(1) of Cenvat Credit Rules, talks about availment of credit, immediately, on receipt of the inputs and it is his submission that there is no dispute regarding the receipt of the duty paid inputs - in the case of SGS India Pvt. Ltd. (2011 (3) TMI 759 - CESTAT, MUMBAI ) prima-facie cover the issue in favour of the assessee - pre-deposit waived
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2012 (11) TMI 768
Demand of duty - Debonding – re-export - applicants are 100% EOU - Standard conditions that the applicable customs and central excise duty would be paid on imported and indigenous capital goods, finished goods, raw materials, consumables, components etc. in stock - Held that:- Appellants has discharged 76% of the export obligation. Therefore, it cannot be said that they had not put to use the capital goods procured free of duty. In any case, it is seen that no de-bonding order has been issued by the competent authorities. In that case, the capital goods are still deemed to be under bond - duty demand is premature - pre deposit waived.
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2012 (11) TMI 767
100% Export Oriented Unit – utilization of cenvat credit - Some quantities of imported duty free inputs and indigenously procured inputs have been cleared as such to DTA without using them for manufacture of final products in the E.O.U. – Held that:- Rule 17 of the Central Excise Rules referred to excisable goods manufactured by 100% E.O.U. and the same cannot apply to inputs cleared as such and that too for inputs imported and cleared as such - CENVAT credit cannot be utilized for paying Customs duty on imported goods and paying Excise duty on inputs which are cleared as such when such inputs were procured without payment of duty and therefore without credit being taken on such inputs. Rule 3(4) of the CENVAT Credit Rules specifically refers to the purpose for which the CENVAT credit by an assessee can be utilized. The claim on behalf of the appellant that the inputs cleared by them as such should be treated as on par with final products on the ground that they are required to pay duty on them is also, prima facie, not acceptable. The CENVAT Credit Rules clearly distinguish items like “inputs”, “capital goods” and “final products”. There appears no scope for entertaining a belief that inputs cleared as such by the manufacturer-assessee could be treated as clearances of final products. - prima facie against assessee - pre deposit of Rs. one crore only ordered.
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2012 (11) TMI 733
Waiver of pre-deposit of duty, Interest and Penalty - In respect of Sugar Syrup captively consumed on the ground that the syrup is further used in the manufacture of exempted biscuits which are cleared nil rate of duty - held that:- Commissioner (Appeals) had not decided the appeal on merits and dismissed the appeal for non-compliance with the conditions of the stay order - waiving pre-deposit of dues the impugned order is set aside and matter is remanded back to the Commissioner (Appeals) to decide the appeal on merits after affording an opportunity of hearing to the appellant - appeal is disposed of by way of remand.
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2012 (11) TMI 732
CENVAT Credit on bought-out spares of the transformer - denial as applicants are trading the spare parts of the transformer - Held that:- The matter needs reconsideration by the adjudicating authority as the applicants in reply to the show-cause notice have categorically stated that the applicants are supplying the operational spares along with transformer as per the order received from their foreign customers. This aspect shall be taken into account while reconsidering the matter. Impugned order is set aside after waiving the pre-deposit of dues and the matter is remanded back for de novo adjudication.
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2012 (11) TMI 731
Cenvat credit on capital goods - duty paying documents - denial as invoices do not bear the pre-printed sl. Nos. and goods was received at the manufacturing unit at Bhopal rather than Head Office - Held that:- The goods covered under the invoices and the bills of entry were actually received at the appellant's factory at Bhopal and those goods were used for manufacture of capsule making machine. It is also undisputed that excise duty/ additional custom duty was paid on those goods which are subject matter of the invoices and bills of entry. As decided in CCE, Ahmedabad vs. Satyen Dyes [2001 (11) TMI 102 - CEGAT, NEW DELHI] when the sl. no. on the invoices have been stamped by the franking machine or typed by typewriter it is sufficient compliance of the statutory requirement of Rule 52A(6) of the Central Excise Rule and such invoices are valid document for modvat credit. When invoices clearly mentioned appellant factory Bhopal as the consignee that there is no justification for denial of modvat credit in relation to those goods. As decided in Gujarat Heavy Chemicals Ltd. vs. CCE, Rajkot [2005 (6) TMI 177 - CESTAT, MUMBAI] that when bills of entry show the address of the head office while the goods sent to the factory of the assessee, cenvat credit would be admissible. Thus Cenvat credit demand, interest and penalty is set aside - in favour of assessee.
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2012 (11) TMI 728
Export of goods – re-import after rejected by the importer - limitation of one year - benefit of the Notification No. 52/03-Cus., dated 31-3-03 and to release the goods without payment of duty – Held that:- When the goods were allowed for export, that date should be construed as date of export and that is 19-6-09. It is undisputed fact that goods came back to India on 11-6-10. That is 8 days before expiry of one year from the date of loading of the goods to the ships - there is no reason to deny the benefit of notification in question to the appellant since reimport within one year of export is duty free - appeal is allowed.
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2012 (11) TMI 726
100% EOU - imported inputs duty-free under Notification No. 52/2003-Cus. ibid and also on payment of duty without availing the benefit of this notification - they cleared inputs ‘as such’ to their sister unit in the Domestic Tariff Area (DTA) - department objected to above utilization of CENVAT credit for payment of duty on the imported inputs cleared ‘as such’ to the DTA, on the ground that the duty paid on the DTA clearances consisted of elements of customs duties and therefore no CENVAT credit could be utilized for such payment – Held that:- respondent was a DTA unit prior to December 2007. - In this case, they had procured inputs and capital goods by way of import and also from indigenous sources and had taken CENVAT credit of CVD/Central Excise duty paid thereon. - Respondent paid duty of excise on the imported inputs cleared ‘as such’ to their sister concern in DTA - respondent was entitled to pay such duty either wholly from PLA or partly from PLA and partly from CENVAT account. There is no law denying this right to a 100% EOU – in favor of assessee
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2012 (11) TMI 725
Exemption notification No. 2/2001, dated 27-1-2001 – The petitioner-manufacturer of excisable goods has filed this petition primarily praying for a direction to the State Government for issuing certificate showing that petitioner has manufactured goods namely, Tarpaulin for relief and rehabilitation work in earthquake affected areas in Gujarat through approved agency. - Held that:- Primarily stand of the Government is that the petitioner failed to demonstrate that Tarpaulin manufactured was donated by the petitioner. It is the case of the petitioner that such Tarpaulin was purchased by the agricultural department and thereafter in turn supplied to the earthquake affected people. According to the department, this would not fulfill the requirement of exemption notification. - Respondents District Magistrate, Palanpur, is directed to examine the factual aspects
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2012 (11) TMI 724
Waiver of the pre-deposit - denial of exemption Notification No. 75/84 – Notification No. 75/84 is for kerosene which is used as an illuminant in oil burning lamps – Held that:- Notification No. 75/84 under tariff heading exempts the goods falling under Chapter 22, 27 or 29 is subject to the condition enumerated in the said notification - serial No. 52 of the said notification, the product described is kerosene of Chapter 27 as partially exempted and there are no conditions attached to that - product manufactured by the appellants fall under Chapter 2710.29 which would prima facie get covered under the said notification at least for the purpose of stay - appellants have made out a prima facie case for complete waiver of the pre-deposit
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2012 (11) TMI 723
Abatement in case of non-production of goods - production / capacity based duty - packing machines were sealed on 31-1-2010 by the departmental officers. The machines were unsealed on 2-3-2010. The appellants claimed abatement from 1-2-2010 to 1-3-2010 which is a continuous period in excess of 15 days - whether the continuous period from 1-2-2010 to 1-3-2010 can be considered as one single continuous period or whether it consists of two periods namely from 1-2-2010 to 28-2-2010 and a separate period of one day namely 1-3-2010 – Held that:- There is nothing stated in Rule 10 to the effect that a continuous period falling under different calendar months should be split into periods falling under each month and abatement determined separately. The fact that duty liability is determined for each month separately cannot be reason to read extra words into the said Rule. So long as the days of closure are continuous, even if the days fall in different calendar months it will constitute one continuous period and the abatement under Rule 10 is to be determined accordingly - appeal succeeds
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CST, VAT & Sales Tax
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2012 (11) TMI 789
Constitutional validity of levy of entry tax on imported goods - Entry Tax under Orissa Entry Tax Act,1999 - Whether the imposition of tax on goods purchased from outside the country is ultra vires the Constitution - held that:- The Act is a tax in lieu of octroi incident of which are similar to that of entry tax. When the levy of octroi on imported goods was upheld by different courts, there is no reason why entry tax on the imported goods cannot be upheld. - The entry tax is, thus, in essence a tax in lieu of octroi duty. Therefore, the decisions rendered in the context of levy of octroi are applicable to this case. - as the entry tax has been levied on such goods which cross custom barriers by invoking the powers conferred on the State Legislature covered under Entry 52 of List II of the Seventh Schedule, there is no encroachment of the powers of the Parliament. - Decided in favor of revenue. Entry tax on goods from import from outside the country - Whether the interpretation of provision of the Orissa Entry Tax Act itself shows that entry tax is not leviable on the goods imported from outside the country - Held that:- By applying the principle of interpretation of the taxing law that charging section is not to be controlled by subservient components, the definition “entry of goods” cannot be taken help to urge that the entry tax on imported goods cannot be levied. - the argument that entry tax is not leviable on the goods imported through buyers is attractive but is without substance. - Decided in favor of revenue. Levy of entry tax on plant and machinery, which are brought from USA to establish a factory at Balgopalpur for production of papers - held that:- Plant, which is brought in knock down condition, is a combination of machinery in a systematic manner so as to produce goods and, therefore, it is coming within the definition of machinery and, hence, it is liable for entry tax. - Decided in favor of revenue. Raw materials and spares - certain raw materials and spares, as described in paragraph-6, which have been imported and purchased from other States out of the country by M/s IFGL Refractories (W.P.(c) No.7 of 2008)having carefully examined the items described in the 3rd sub- paragraph of paragraph 6 - held that:- items not included in the schedule are not liable to entry tax. - Decided in favor of assessee.
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2012 (11) TMI 743
Refund of input-tax credit - 100 per cent export oriented unit - zero rated sale under CST - sale in the course of export - Tamil Nadu Value Added Tax Act- Held that:- By virtue of section 18(1) of the TNVAT Act, 2006 the petitioner is entitled to input-tax credit or refund of tax if it is a sale specified under sub-sections (1) and (3) of section 5 of the CST Act, 1956, by treating it as zero rated sale - No provision of law has been shown as to how the sale to 100 per cent EOU cannot be termed as zero rated sales - petitioner has established that the sale was in the course of export supported by the bill of lading, export invoice, etc., (i.e) the documents in support of the export, the Department cannot contend that section 18 of the TNVAT Act, 2006, will not apply. The term 100 per cent EOU is self-explanatory and it has not been properly appreciated by the authority. All that section 18 of the TNVAT Act, 2006, provides for is that sale should be in the course of export. If the EOU has made the export and proof of export has already been brought on record, section 18 of the TNVAT Act, 2006, has to automatically apply. – refund claim allowed
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Indian Laws
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2012 (11) TMI 738
Workmen's Compensation Act - one Chellapandian, who was engaged for the construction of water treatment plant died in the course of accident arising out of his employment - compensation - contention raised by the petitioner that the first respondent-Deputy Commissioner of Labour II has no jurisdiction to straight away pass the award of compensation without adjudicating the issue by not only making them liable to pay the compensation but also fixing the liability of compensation- Held that:- Writ petition is disposed of with a direction to the Deputy Commissioner of Labour-II, Chennai-6 to receive objections from the petitioner and thereafter to adjudicate the liability issue regarding making payment, determine the same after giving opportunity to exercise power under Section 19 and 20 of the Workmen's Compensation Act, 1923 In terms of Section 10-B of the Act, in case of any fatal accident or serious bodily injuries, it requires the employer to give appropriate notice to the Commissioner and apart from the same, liability of the Principal employer in case of contractor failed to pay the same is also vested under the Act - Contractor is prohibited from the payment of liability under Section 17 of the Workmen's Compensation Act and it has been declared as null and void and any settlement of compensation in respect of fatal injuries must be in satisfactory to the authorities.
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2012 (11) TMI 737
Arbitration and Conciliation Act - Challenge to the award - whether the award is contrary to the public policy of India - held that:- With IFSL having withdrawn the anti-injunction suit filed by it in this court questioning the continuation of the confirmation proceedings, there was no restraint as far as those proceedings were concerned. In terms of the New York law as well as New York Convention, it was open to IFSL to point out to the New York Court in the confirmation proceedings that recognition ought not to be granted since the Award was opposed to the public policy of India. IFSL did not avail of such opportunity. Although there was no express exclusion of the jurisdiction of the Indian courts, the parties intended that the further proceedings concerning the challenge, if any, to the Award had to take place in the New York Courts and that the judgment concerning the recognition of the Award may be entered by “any state or federal court of competent jurisdiction. This Court is of the view that IFSL cannot invoke jurisdiction of this Court under Section 34 of the Act to challenge the impugned Award. Consequently, the Court does not consider it necessary to examine the question whether the Award is opposed to the public policy of India. It leaves the said contention to be decided at the appropriate stage as and when Amaprop seeks enforcement of the Award in India under the Act.
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