Newsletter: Where Service Meets Reader Approval.
TMI Tax Updates - e-Newsletter
November 26, 2013
Case Laws in this Newsletter:
Income Tax
Customs
Corporate Laws
Service Tax
Central Excise
Articles
News
Notifications
Circulars / Instructions / Orders
Highlights / Catch Notes
Income Tax
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Disallowance of Deduction u/s 80P(a)(i) - The assessee was admittedly not engaged in the banking activities and hence was not hit by the amendment by Finance Act, 2006 - AT
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Determination of Business Income – Set off of Depreciation/ Losses - The Revenue was not correct in law in denying the set off of the unabsorbed depreciation allowance/loss of the assessee's eligible unit/s against its income from other sources in terms of ss. 32(2), 70 & 71 - AT
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Registration already granted u/s 12A cannot be revoked for the reasons that the charitable trust or institution pursuing of advancement of objects of general public utility carries on commercial activities - AT
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Expenses for Replacement of Machinery - Expenditure incurred for replacement of Ring Frames – the claim for deduction was made merely to diminish the tax burden. - AT
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Product handicraft OR 100% machine made/machine - value added by way of human skill or craftsmanship or artisanship has not got consumed or obliterated by the use of machine and to that extent the end product can be definitely termed as 'handicraft' - AT
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Revision u/s 263 - Recognition of Income - the CIT turned Nelson's Eye to the method adopted in respect of the other project as the same is inconvenient to him - This approach of the CIT is not valid. - AT
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Differential Plans of Charging of Interest - All the SHGs working under the assessee trusts are concerns governed by the principles of mutuality and accordingly the 95 per cent of surplus distributed among them are not in the nature of income - AT
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Assessee is entitled to claim depreciation @ 60% on expenditure incurred in the development of computer software being capital in nature - AT
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Capital asset or not – there was no other transaction entered into by the assessee and the land was retained almost for the 5 years - sale of the land cannot be treated as an adventure in the nature of the trade - AT
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Deduction of Tax u/s 194C - Payment of Hiring of Cranes - The provisions of section 194C were only applicable for such payments and not provisions of section 194-I - AT
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Upward Addition Made u/s 92CA(3) - There was nothing on record to suggest any indirect expenses for determining the ALP of export of spools - AT
Customs
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There is no import of complete air-conditioners - adoption of value in respect of one model based on import of a complete air-conditioner by ETA General rejected which in any event, is a distributor to the supplier - AT
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Import and sale of Timber - Refund of SAD - There is absolutely no logic in applying this Public Notice retrospectively and in fact, the Public Notice itself has been issued to maintain uniformity and not to adopt a particular ratio or formula to ensure that it is correct - AT
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Vessel imported by the appellants is for intended use in petroleum operations and the same was used for that purpose therefore, the appellants are entitled for exemption although the said vessel was used for salvage operations for the period of 22 days - AT
Indian Laws
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Electronic payment of Central Excise and Service Tax – monetary limit reduced from 10 lakhs to 1 lakh i.e. every assessee liable to pay duty / ST equal to one lakh or more shall deposit the same through electronically.
Service Tax
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Service tax liability - Banking and other Financial services - prima facie interest earned on discounting of bills, bills of exchanges or cheques are not exempt - AT
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Service Tax on Profit sharing agreement - facie there is no service given by one party to another. - AT
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Soil testing, exploration survey and map making for laying pipe lines - during the period in dispute these services are not taxable under the category of Consulting Engineers Service - AT
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Valuation - Undervaluation of the service - retreading of tyres - prima facie no service tax is liable to be paid on goods sold / involved in composite contract - stay granted - AT
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Valuation - Agreement for running and maintenance of retail gasoline outlets - The amounts received by ways of reimbursement from HPCL needs to be reduced from the gross value of taxable service - AT
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Mining services - The applicants have not placed any material when Revenue has made an allegation that value of services billed was much less than the cost of services provided - stay granted partly - AT
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Courier services availed by the assessee whereby the courier collects the parcel from the factory gate for further transportation would fall within the ambit of the term ‘input service' as defined under rule 2(l) of the Rules - AT
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Valuation of service - Service of ‘survey and exploration of mineral’ - stay granted subject to deposit of Rs. 60 lakhs towards service tax liability on 4% of the gross value received by the petitioner in respect of services provided to RIL - AT
Central Excise
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Process amounts to Manufacture or not - appellant have paid duty which is not less than the Cenvat Credit, availed - Prima facie, demand u/s 11D amd Cenvat Credit demand would not be sustainable - stay granted - AT
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Bogus invoices issued to take cenvat credit – Revenue has been able to make out a very good case for fraudulent conduct and issue of paper transactions to avail irregular credit - AT
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When the weighment had been done by estimation and not by actual weighment, prima facie, it would not be correct to accuse the appellant of non-accountal of raw material and finished product and that too intentional - AT
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Activity manufacture or not – the fact, i.e. change in the model numbers lead a prima facie view that goods imported by the appellant were different than the goods traded by them - stay granted partly - AT
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Clandestine removal of goods - the appellant cleared the goods without payment of duty on the basis of the notebook – demand of duty along with interest and penalty are justified. - AT
Case Laws:
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Income Tax
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2013 (11) TMI 1284
Period of Limitation - Whether the assessment order had been passed within the period of limitation – Held that:- As per the provisions of section 158BE, order u/s 158BC had to be passed within a period of two years from the end of the month in which the last of the authorization for search ended u/s 132 and for requisition u/s 132A - Relying upon C. Ramaiah Reddy Vs. ACIT [2010 (9) TMI 862 - Karnataka High Court] - The limitation for passing the assessment order comes to an end on 31.05.2002 by taking into consideration the last valid panchanama dated 4.5.2000 - The remaining two panchanams dated 30.06.2000 and 28.08.2000 are nothing but abuse of the process of law for enlarging the time of passing the order - A perusal of panchanama dated 30.06.2000 would show that search lasted for only one hour i.e. from 11.30 am to 12.30 pm and panchanama dated 28.08.2000 shows the duration of search as 55 minutes i.e. from 11.15 am to 12.10 pm. It can be safely concluded the last two panchanamas were mere formalities to keep the search proceedings alive - In the instant case, even if we enlarge the period as per the provisions of section 132(8A) authorization ended on 18.06.2000. Therefore, the period of limitation for passing assessment order ended on 30.06.2002, whereas the assessment order had been passed on 30.08.2002 i.e. beyond the period of limitation provided in the Act - Therefore, in our considered opinion, the assessment order was bad in law and was set aside being barred by limitation. Validity of Assessment Order u/s 158BC - No seizure of any incriminating documents/evidence - Held that:- No incriminating evidence or document had been recovered against the assessee during the search, the addition made against the assessee was unsustainable - The properties do not form investment or the properties of the assessee - They have to be assessed in the hands of the respective registered owners - It was also not the case of the Revenue that the owners of the said properties have denied ownership of the properties alleged to be registered in their respective names - The Revenue had also not stated that in the income returned, the assessee had not included the properties registered in his name – the notice issued to the assessee company under section 158BD suffers from limitation - the notice and the proceedings arising are bad in law thus set aside - Decided in favour of Assessee.
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2013 (11) TMI 1283
Disallowance of Deduction u/s 80P(a)(i) of Income Tax Act,1961 – Conditions u/s 80P(4) - Revenue was of the view that the assessee didnot satisfied the conditions mentioned in the Explanation below Section 80P(4)to be eligible for deduction u/s 80P(2)(a)(i) - Held that:- Following Khamano Primary Cooperative Agricultural Development Bank Ltd.[ 2013 (9) TMI 558 - ITAT CHANDIGARH ] and Commissioner Of Income-Tax Versus Pondicherry Co-operative Housing Society Limited [1990 (11) TMI 132 - MADRAS High Court] - The assessee was primary co-op agriculture and rural development bank, entitled to benefit of deduction u/s 80P(2)(a)(i) of the Act - Merely because certain deficiencies were noted in not holding the meetings on periodic intervals or the membership number of members were not available in particular list, etc., does not make the activities under taken by the assessee society to be not in the nature of providing credit facilities to its members - The basic activity carried on the assessee society as enshrined in its bye laws was to provide long term loans to its members for specified purposes and the assessee admittedly was doing so - Once the primary activity of providing loans to its members had been undertaken by the assessee society, its entitlement for exemption u/s 80P(2)(a)(i) of the Act merits to be allowed. Section 80P of the Act exempted certain categories of income of co-operative societies - The income arising from the specified activities were exempt from tax and not the whole receipts of the previous year - In order to avail the exemption provided u/s 80P of the Act, onus was upon the assessee to prove that it was engaged in carrying on of one or more of the activities specified in 80P(2) of the Act - The exemption u/s 80P of the Act was not to be denied where the society was carrying on certain other activities - The underlying principle of granting exemption to a society was whether it was engaged in any of the activities falling under 80P(2) of the Act. The assessee was allowed exemption u/s 80P (2)(a)(i) of the Act on income arising from providing credit facilities to its members - However, because of the amendment by Finance Act, 2006, the insertion of section 80P(4) of the Act comes into play and its provisions are applicable to the year under appeal i.e. A.Y, 2007-08 - The subsequent amendment to section 2(24) of the Act entails that such income is includible as 'income' where the assessee is engaged in banking activities - the amended provisions of 80P of the Act come into play in respect of co-op societies, which are primary agricultural credit society or primary co-op agricultural and rural development bank - The explanation under section 80P of the Act, defined the societies - The claim of the assessee was that it was primary co-op agricultural and rural development bank i.e. society having an area of operation confined to a taluka and providing long term credit for agricultural and rural development activities - The assessee was admittedly not engaged in the banking activities and hence was not hit by the amendment by Finance Act, 2006 - Decided against Revenue.
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2013 (11) TMI 1282
Determination of Business Income – Set off of Depreciation/ Losses - Disallowance of Deduction u/s 80-IA(5) of Income Tax Act, 1961 – Held that:- There was firstly nothing in the language of the section to suggest its applicability only for the year/s the eligible business returns profits - The losses/unabsorbed depreciation, irrespective of the year to which these pertain, are placed at par under the provision - Further, placing such an interpretation, as afore-stated, the losses and/or unabsorbed depreciation for the years prior to such year/s would stand to be excluded for aggregation, to no good reason, and in consequence defeat the clear object of the provision - as imminent from its language, i.e., to confine the benefit of deduction thereunder only to the income from such business, which would stand to be breached if the negative income (losses and depreciation allowance) is ignored or excluded - Rather, existence of an alternate source of income vitiates the application of the provision further by extending the tax shelter to such income as well. The year of commencement of operations was the initial assessment year, with effect from which year, irrespective of the years which the assessee may choose to opt for as the holiday period, the loss or unabsorbed depreciation, if any, incurred, was to be taken into account, i.e., aggregated, for the purpose of determination of the quantum of deduction under the provision, of course up to the last of the years for which the deduction is to be determined - The whole premise of the provision is to include such losses for the purpose of determination of the deduction by introducing the 'stand alone' principle, providing for its supersession over the other applicable provisions of the Act - The tax shelter u/s. 80IA(1), it may be emphasized, was to be accorded only to the profits from the eligible source, and which was all what s. 80IA(5) seeks to achieve - This was as the aggregation prescribed by the section was limited only to quantify the deduction u/s. 80IA(1), and which would only be on the unit turning positive, returning profits - As a corollary, the losses/unabsorbed depreciation would stand to be set off against the other incomes under the regular provisions of the Act. Section 80IA(5) being applicable for the current year - whether the assessee's claim for set off of loss/allowance u/ss. 32(2), 70 and 71, i.e., against other income, admittedly from a non-eligible business/source, sustainable in law – Held that:- The Revenue was not correct in law in denying the set off of the unabsorbed depreciation allowance/loss of the assessee's eligible unit/s against its income from other sources in terms of ss. 32(2), 70 & 71 of the Act - The unabsorbed allowance/ loss, however, would stand to be set off in terms of s. 32(2) & 72, against the income of the respective eligible units for the subsequent years, i.e., where so, in computing the assessee's eligible income for determining the quantum of deduction u/s. 80-IA(5), taking the legal fiction of the said provision, which we have found to be applicable for the relevant years, to its logical end - We are, as explained above, unable to consider the twin aspects as disparate, but only as inextricably linked, arising from and integral to the issue before us for adjudication, i.e., the scope and ambit of s.80-IA(5) r/w s. 80-IA(1) of the Act. Income from House Property – Held that:- The stand of both the parties to be only partly correct - Firstly, qua the assessee's claim of the property being used for the purposes of its business; the same only needs to be stated to be rejected - The same was not only not borne out by the record, and stands advanced before us for the first time de hors any material, introducing a new dimension to the case, but is also contrary to assessee's consistent stand throughout that the property was vacant since April, 2004 as it could not find a suitable tenant - Could a property which remains vacant for want of a suitable tenant, could be at the same time be used for own purposes - If so, where was the question of vacancy allowance - And all that the assesse was required to do in that case, was to establish the user of the said house property for the purpose of its business, while, as afore-noted, there was not even any claim in this respect. Claim for Allowance for Vacancy – Held that:- The property was let at a monthly rent of Rs.1,54,843/- (annual rent: Rs.18,58,116/-) continuously from the year 1997 to 2004 - What better proof of the same representing its AV could possibly be – There was nothing on record to show or infer that the property, which, as late as April, 2004, yielded a rent to the tune of Rs.18 lakhs p.a., became incapable of fetching as much and, rather, plummeted to about 1% thereof - That was, an erosion in rental capacity by nearly 99%, and almost overnight - The A.O. in the instant case has kept the AV (at Rs.13,00,681/-), i.e., net of standard deduction at 30%, constant for all the years, i.e., up to A.Y. 2008-09, and which we consider as reasonable, satisfying the only condition placed by law on an otherwise totally factual matter. Assessment of Income from House Property – Held that:- There being nothing on record to suggest the appropriateness of the annual value as adopted by the Revenue, the matter was set aside to the file of the AO to determine the fair rental value with regard to the comparable cases, i.e., the rentals obtaining in the locality for similarly placed properties for the relevant period - The matter is factual, rather than legal - There was no merit in the assessee's argument that the property being not actually let, the notional rent could not be brought to tax - it being trite that it was not the income actually realized, but that which could, fairly speaking, be, or the income potential of the property that is brought to tax u/s.23 of the Act as its annual value (AV) - The provision of section 23(1)(b) come into play only where the property (or part thereof) is actually let out, and which exceeds the fair rental value u/s.23(1)(a). In fact, the assessee does not dispute this position, advancing its case with reference to its claim for vacancy allowance u/s. 23(1)(c). Disallowance u/s.14A with reference to Rule 8D – Held that:- The asssessee would have to exhibit that no interest cost has, as a matter of fact, been incurred in respect of the said investment, if the prescription of the rule is not to apply - The matter thus hinges on the ability of the assesse to establish its claim/s in this regard with reference to its accounts - Following GODREJ AND BOYCE MFG. CO. LTD. Versus DEPUTY COMMISSIONER OF INCOME-TAX AND ANOTHER [2010 (8) TMI 77 - BOMBAY HIGH COURT] - Businesses normally have dedicated funds, as for financing projects or asset acquisition or for financing working capital, so that where shown to be so used for the relevant year, the same would (alongside the corresponding assets) merit exclusion in applying the proportionate method - general borrowings, as for 'business purposes', would only stand to be considered as forming part of the general pool of funds – matter restored back to the file of the A.O. and to allow the assessee an opportunity to show as why the interest disallowance u/s.14A(1) should not be worked out following the proportionate method, as directed by the ld. CIT(A) – Decided partly in favour of Assessee.
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2013 (11) TMI 1281
Income from undisclosed sources - Income from rent – Agricultural Income - Addition u/s 68 Applicability of sec. 68 – section 68 would has no application where the assessee was not maintaining any books of account – Following Ms. Mayawati vs. DCIT, [2007 (11) TMI 328 - ITAT DELHI-A] - The relationship was not necessary for making the gift – the contention that the transaction entered into was merely an accommodation entry in the absence of any evidence being brought on record cannot be accepted. The onus is on the assessee to prove the identity, creditworthiness and the capacity of the donor - the donor had prima facie capacity to make a gift to the Donnee - Even it was also held that at the relevant time Indian currency could not be deposited in an NRE account - the AO was not correct in law in making the addition in the case of the assessee again in set aside proceedings - The AO was duty bound to provide the opportunity to cross examination - the proposition that if the request for permission to cross examine persons on the basis of whose statement the additions are made if not allowed the principles of natural justice stand violated and the order of the assessment is not valid - This is an admitted fact that in this case the AO could not produce Mohd. Shamim for the cross examination of the assessee - The basis of the addition is the statement of Mohd. Shamim whose statement has been recorded at the back of the assessee - Once the AO could not produce Mohd. Shamim for cross examination in view of the decision of this Tribunal dated 3rd July, 2006 no doubt the AO was bound to re-determine this issue on the basis of the other relevant material available on record – Additions made by the AO was rejected – Appeal Partly Allowed.
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2013 (11) TMI 1280
Cancellation of Registration Granted u/s 12A of Income Tax Act,1961 – Objects of the Trust – Charitable or not – Proceedings u/s 12AA (3) - Held that:- Registration already granted to the Assessee cannot be cancelled on the ground that the Assessee which pursues as a charitable purpose, “advancement of objects of general public utility” carries on commercial activities -the order passed u/s. 12AA(3) of the Act was liable to be quashed – Relying upon CIT v. Sarvodaya Ilakkiya Pannai [2012 (2) TMI 160 - Madras High Court] The income of the society comprised of receipts from the activity of letting out a kalyana mantapa owned by it on rent, fees received from the members on sale of liquor in the bar run by the assesse, it does not follow that the activities of the Assessee are not genuine or that the activities were not being carried out in accordance with the objects of the Assessee - The DIT(E) in the order had only commented about the objects of the Assessee not being charitable - That cannot be a ground for the DIT (E) to invoke the provisions of Sec.2(15) of the Act - by reason of the statutory amendment to the definition of “Charitable Purpose” u/s.2(15) of the Act by insertion of a second proviso, by the Finance Act, 2010 with retrospective effect from 1.4.2009, even if there are receipt from commercial activities - it was not open to the DIT(E) in an action u/s. 12AA(3) of the Act to examine the objects of the trust to see if the same were charitable in nature - That had already been done when a registration was granted to the assessee u/s. 12AA(1) of the Act - It was not open to the DIT(E) to re-examine the objects of the trust in proceedings u/s.12AA(3) of the Act. The DIT(E) in exercise of his powers u/s 12AA(3) of the Act, cannot curtail the right of an assessee which was charitable trust or institution which pursues the advancement of objects of general public utility from claiming the exemption u/s 11 & 12 of the Act in a year in which the receipts of the charitable organization from commercial activities is less than the limits prescribed in the second proviso to Sec.2(15) of the Act - It was clear from the reading of the provisions of Sec.2(15) of the IT Act, 1961 as well as Sec.12AA(3) of the Act, that registration already granted u/s 12A cannot be revoked for the reasons that the charitable trust or institution pursuing of advancement of objects of general public utility carries on commercial activities - the order u/s12AA(3) is liable to be cancelled. Nature of Income – Business Income or not - Rental Income from letting out – Held that:- Relying upon COMMISSIONER OF INCOME-TAX Versus SENGUNTHAR THIRUMANA MANDAPAM [2006 (6) TMI 64 - MADRAS HIGH COURT] - The kalyana mantap had been let out to one of the trustees - The trustees had the absolute discretion to apply the income to any of the objects - the reasons set out in the order by the DIT(E) for canceling the registration does not satisfy any of the conditions laid down in section 12AA(3) of the Act - Decided in favour of Assessee.
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2013 (11) TMI 1279
Computation of Depreciation on Machinery - Non-deduction of Non-Refundable Deposits - Held that:- it cannot be said that the dealers have contributed money for purchase of these machineries - the question of adjustment of security deposit against the cost of assets for the purpose of computation of depreciation does not arise - With regard to the amount of security deposit collected from the customers, we notice from the agreement that it remains the liability of the assessee till the agreement is cancelled - So long as the agreement remains in force, the security deposit will remain as the liability of the assessee - it is clearly provided in the agreement that the dealer shall hold the machineries in trust - The question of refund/adjustment of deposit arises only on the event of the dealer choosing to give up/discontinue the Car Radial Business - It cannot be said that the dealers have contributed money for purchase of the machineries – thus, the question of adjustment of security deposit against the cost of assets for the purpose of computation of depreciation does not arise Depreciation on machinery – Expenses incurred on clubs – Depreciation on Let Out Property - Deduction u/s 80IA - Held that:- The expenditure incurred towards entrance fee/subscription can be termed as business expenditure and the cost of services can be allowed only if the commercial expediency in incurring the same was proved - the details furnished by the assessee required verification at the end of the AO - the depreciation claimed on let out properties - the order of Ld CIT(A) on this issue and restore the addition made by the AO - deduction u/s 80IA of the Act on the D.G. power generation units I & II by considering the same as an “undertaking” for the purposes of sec. 80IA of the Act - Both the parties agreed that this issue has been decided in favour of the assessee. Claim of Amount Written as Irrecoverable - Write off of irrecoverable advance paid for purchase of machineries – Held that:- The advance written off is a loss of capital, hence not allowable as deduction – Following Swadeshi Cottom Mills Co. Ltd. Vs. CIT [1966 (9) TMI 32 - SUPREME Court] - compensation payable for breach of contract to purchase capital asset is a capital expenditure – and CIT vs. Mysore Sugar Co. Ltd. [1962 (5) TMI 3 - SUPREME Court ] - loss of capital nature is not deductible while calculating business income - The advances given for acquisition of Capital assets was liable to disallowed as ‘Capital loss’ and the advances given for acquisition of revenue items was allowable u/s 37 of the Act as current expenses. Setting off of Long Term Capital Loss - Loss on sale of equity shares and Mutual fund units against long term capital gain earned on sale of land – Held that:- In order to claim exemption u/s. 10(38) of the Income Tax Act, the assessee had to prove that they have complied with the conditions stated therein - Since the compliance had not been proved the exemption u/s. 10(38) of the Income Tax Act cannot be granted to the assessee - once income which included loss was exempt, the same cannot be taken for computation - exemption u/s. 10 was granted not as per claim of the assessee but as per fulfilment of conditions stipulated - Sec. 70 provided for set off of loss from one source against income from another source under the same head of income - The very scheme of such set off implied that the source in respect of which a loss had occurred, was such that, had there been profit instead of loss they would have been chargeable to tax - In the assessee’s case Long Term Capital Gain on sale of land was taxable whereas Long Term Capital gain on sale of share on which SIT had been paid was exempt. Addition of Deferred Tax Liability – Computation of book profit u/s 115JB of the Act - Held that:- Both the parties agreed that the provisions of sec. 115JB have been amended by Finance Act, 2008 with retrospective effect from 1.4.2001, as per which “the amount of deferred tax and the provision thereof” was liable to added to the net profit for the purpose of computation of book profit. Weighted Deduction on scientific research expenditure - Weighted deduction @ one and one half times of the expenditure - Held that:- The issue was not examined by the assessing officer – Accordingly the instant claim made by the assessee was required to be examined by the assessing officer – issur remanded back with the direction to examine the claim of the assessee and take appropriate decision in accordance with the law. Deduction of Quality Loss Claim from Export Market - Held that:- The assessee was not entitled to claim deduction relating to Quality claims - Following M/s MIL Controls limited Vs. CIT [2011 (6) TMI 495 - Kerala High Court ] - The assessee was putting forth claim for deduction of expenditure relating to “Quality Claim” only for the reason that the said claim was disallowed in the hands of M/s PTL Enterprises Ltd, even though the said company had accepted the liability for the same - the disallowance was made in the hands of M/s PTL Enterprises Ltd for the reason that the said assessee failed to furnish any proof.
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2013 (11) TMI 1278
Disallowance of Foreign Exchange Fluctuation - Held that:- Loss due to foreign exchange fluctuation was a revenue loss - unrealized forex foreign exchange fluctuation loss being in the nature of revenue, should be allowed as deduction - Appeal of assessee relates to disallowance of expenditure on account of inland haulage expenses and clearing and forwarding expenses - there was no evidence to prove that that nothing was payable - Nor a copy of balance sheet or other document showing that nothing remained to be paid was submitted nor it is a part of record - Matter remitted back to the AO for re-adjudication. Disallowance of Expenditure u/s 14 of Income Tax Act, 1961 - Held that:- Following CIT vs Dhanlaxmi Bank Ltd. [2002 (11) TMI 17 - KERALA High Court] - Disallowance of administrative expenses in the absence of claim of interest expenses was not warranted - disallowance u/s 14A should be limited to interest liability and should not extend to over heads or administrative expenses which should be considered for disallowance under Rule 8D from AY 2008-09 onwards - there is no claim of interest expenses - Assessee has not claimed any interest expenses and the total expenses claimed against turn over crores were quite reasonable and moreover the case of assessee relates to AY 2005-06 when Rule 8D was not applicable– Decided in favour of Assessee. Disallowance of Inland haulage and clearing and forwarding expenses u/s 40A (i)(iii) of Income Tax Act, 1961 – Held that:- There was no evidence to prove that nothing was payable as on 31st March - Nor a copy of balance sheet or other document showing that nothing remained to be paid was submitted nor it is a part of record – Matter remitted back to the AO for re-adjudication - Addition of DEPB Benefits - Held that:- Assessee had offered to tax, the actual amount of receipt of DEPB and the short amount received by assessee was not liable to tax - the addition was not justified - As regards, loss on sale of DEPB licenses, copies of sale of DEPB licenses are placed at paper book - The invoice bills mentions, face value of DEPB licenses along with sale value and difference represents amount which the assessee had booked as loss on the sale of such licenses - AO was not justified in making addition and Ld. CIT(A) had rightly deleted the addition - There was detail of short amount of DEPB receipt and the details are placed - The supporting documents showing lower receipt of DEPB against the DEPB accrued are also placed - The papers showing actual receipt are placed at paper book pages. Addition of Cessation of Trading Liability – Held that:- The balance payment out after deducting USD 60000 out of USD 1,10,029 were received during following years - There is also a bank certificate of export and realization which is placed at the paper book which also certifies the export and receipt of payment - AO was not justified in making additions on account of cessation of liability as the liability had not ceased but got adjusted in next year with the amount of export. Disallowance of Expenditure of Non-Deduction of TDS – Held that:- The breakup of loading/unloading charges and also the breakup of carriage outward charges which suggests that no payment was in excess – Thus the assessee was not liable to deduct TDS - Decided partly in favour of Assessee.
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2013 (11) TMI 1277
Addition of Unexplained Credit u/s. 68 - Held that:- CIT(A) was justified in confirming the addition u/s. 68 of the IT Act – Relying upon Smt. Suman Gupta vs. ITO [2012 (10) TMI 741 - ITAT AGRA] - the assessee has not adduced any sufficient evidence before the authorities below to prove the creditworthiness of the creditors and genuineness of the transactions in the matter - the assessee has not satisfied the essential ingredients of section 68 of the IT Act. The assessee has failed to prove the creditworthiness of all the creditors and no source of their income has been filed - At the best the assessee is able to prove identity of the creditors, but the assessee failed to prove the genuine credit in the matter. All the creditors have been rightly found to be men of meager means and no source of income have been filed to prove that they were having sufficient funds or savings in order to give loans to the assessee - On verification of the bank account of the depositors, it was specifically found that there were no sufficient funds available in their bank account and they were having only small bank balance, which was even not sufficient to meet out their household expenses or day- to-day requirements - it is unbelievable to accept the contention of the assessee that said persons were having creditworthiness to advance any loan to the assessee - The documents produced by the ld. counsel for the assessee in the paper book merely prove the case of assessee superficially, which is far from reality or truth. Their affidavits could not be subjected to examination by the AO - The affidavit is like an Examination-in-Chief and unless the deponents of the affidavits have been produced, the same could not be subjected to cross-examination and such affidavits in their cases cannot be relied upon to explain their creditworthiness and genuineness of the transactions. assessee failed to prove creditworthiness of all the creditors and genuineness of the transactions in the mater - no interference is called for in the orders of the authorities below - Burden upon the assessee has not been discharged in accordance with law – Decided against Assessee.
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2013 (11) TMI 1276
Disallowance on account of Revenue Recognition - Held that:- The finding of the CIT (A) is that the assessing officer simply by rejecting the method of accounting followed by the assessee is not proper since assessments have been completed in other group cases based on the same accounting method - there was force in the finding of the CIT (A) for the reason that since the assessing officer rejected the method of accounting followed by the assessee but he accepted the same method of accounting followed by group companies of the assessee, which is contrary as per law - The assessing officer has not given a clear finding mandated under section 145(3) of the Act and yet re-computed the profit from the projects done by the assessee company - The additions made by the assessing officer are not supported by any facts and figures which can demonstrate that the method of accounting policy adopted by the assessee company resulted in under estimation of profit - The assessing officer has taken estimated revenue from the projects without considering the fact that whether the units are sold or not - In other words, profit is being estimated on unsold stock also - the method followed by the assessee company cannot be called as an unreasonable method and any change in the method would only be tax neutral - Thus there was no infirmity in the order of the CIT (A) as the same has been passed by the CIT (A) after analyzing and examining the issue elaborately. Disallowance of Reimbursed Expenditure u/s 40(a)(ia) of Income Tax Act, 1961 – Held that:- In case of reimbursement of common expenses incurred by the parent company for the benefit of group concerns, there is no need to deduct tax at source, and disallowance could not be made by invoking the provisions of S.40(a)(ia) – Following Linklaters LLP V/s. ITO [2010 (7) TMI 535 - ITAT, MUMBAI ] – from the details of the expenditure incurred, which were reimbursed by the assessee to M/s. Ambience Properties P. Ltd., it is seen that the expenses related to various items like office rent, electricity charges, salaries, staff welfare, conveyance, telephone charges, vehicle maintenance, printing and stationery, computer expenses etc. Therefore, the expenditure incurred cannot be treated as rent alone to bring it within the ambit of S.194I of the Act – also the assessee has produced sufficient material to prove that the amount represented reimbursement of the expenditure incurred by M/s. Ambience Properties Ltd. - there was no reason to interfere with the order of the CIT(A) – Decided against Revenue.
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2013 (11) TMI 1275
Expenses for Replacement of Machinery - Expenditure incurred for replacement of Ring Frames – Revenue OR Capital expenditure - Held that:- Following CIT v. Ramaraju Surgical Cotton Mills Ltd. 2007 (8) TMI 39 - SUPREME COURT OF INDIA and CIT v. Sri Mangayarkarasi Mills P. Ltd. 2009 (7) TMI 17 - SUPREME COURT - the expenditure incurred by the assessee is capital expenditure - AO held that the expenditure are capital in Nature and depreciation can be claimed - CIT(A), ITAT and High Court held that the expenditure revenue in nature and allowed the deduction - it is clear on record that the assessee has sought to treat the said expenditure differently for the purposes of computing its profit and for the purpose of payment of income tax - The expenditure has been treated as an addition to the existing assets in the former and as revenue expenditure in the latter - Though accounting practices may not be the best guide in determining the nature of expenditure – here they are indicative of what the assessee itself thought of the expenditure it made on replacement of machinery - the claim for deduction was made merely to diminish the tax burden. Interest under Sections 234A and 234B of Income Tax Act - Whether interest can be charged in an order of rectification under Section 154 for the first time - Held that:- If the return is not filed within time or if advance tax is not paid within time then the assessee is liable to pay interest and the payment of interest is mandatory – Following - CIT v. M/s. Ruchira Papers Ltd. [2012 (10) TMI 60 - HIMACHAL PRADESH, HIGH COURT] - if the AO or the appellate authority does not order the payment of interest, the assessee cannot be directed to pay interest by the demand notice - levy of interest u/s 234B and 234C of the Act for all the years sustained. Deduction u/s 80HHC - Exclusion of 90% of insurance receipts and miscellaneous income from the profits - Held that:- There was no reason to interfere with the order of Commissioner of Income Tax (Appeals) in holding that 90% of the insurance receipts and miscellaneous income are to be excluded for the purpose of computing relief under sec.80HHC of the Act – Following CIT vs. Ravindranathan Nair [2007 (11) TMI 10 - Supreme Court of India] - it is clear that packing charges are received on waste cotton sales and are incidental to the sale of waste cotton - The waste cotton arises as a result of the manufacturing operation of the assessee. It cannot be said that it is directly related to the export activity of the assessee – Decided against Assessee.
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2013 (11) TMI 1274
Disallowance of claim - Held that:- The assessee had rightly claimed the expenditure - The facts have not been disputed that the assessee company made above payment during the year under consideration for the purchase of additional equipment from L&T as per drawings approved by BSP - The TPI contract with Bhilai Steel Plant was on turnkey basis and the L&T supplied equipments in accordance with drawings approved by BSP, the disputed amount was debited to the P&L account in the accounting year 2001-02 and there was actual supply of equipment - the finding of the Assessing Officer is not sustainable - the liability was actually crystallized during the year. Furnishing of Satisfactory Evidences - Held that:- The Commissioner of Income Tax(A) rightly held that the claim of the assessee was to be allowed during the year under consideration - The revenue has not disputed the point that the assessee made a payment as damages PU Decks as per contractual terms when supply was made - This fact also has not been disputed by the revenue that at the trial run it was found that the supplied PU Decks were defective and the BSP directed the TPI to re-supply the PU Decks or to suffer a recovery and due to rise in the price of PU Decks, the TPI chose to pay the damages and the recovery was made according to contractual terms during the year under consideration - While the same amount of recovery has been taken into account by the assessee during the financial year 2001-02. The financial year ended on 31.3.2002 and the assessee company has made all payments after end of financial year - the recovery of cost of MST Compound by BSP, the payment for erection of building Structures and Technological Structures to M/s HSCL and payment to M/s Andrew Yule & Co. Ltd. against Final Painting was actually settled and made after the end of financial year.
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2013 (11) TMI 1273
Eligibility for Deduction u/s 80-IC(2)(b)(ii) - Product "handicraft" OR “100% machine made/machine” - Held that:- The product manufactured by the assessee i.e. "Handicraft Items" comes within the ambit of section 80IC of the Act - The percentage of utilization of human skills through manual intervention cannot be measured because there is no objective standard to measure such involvement of human skill towards production or manufacturing of the finished goods - The articles are surely graced with visual appeal in the nature of ornamentation with an element of artistic improvement - the value added by way of human skill or craftsmanship or artisanship has not got consumed or obliterated by the use of machine and to that extent the end product can be definitely termed as 'handicraft' - The Revenue should respect the observations and findings of the ITAT or it may proceed for further legal remedy against the earlier orders of the Tribunal – Following Unison Hotels Ltd. Versus Deputy Commissioner of Income-tax, Circle 18(1), New Delhi [2012 (8) TMI 258 - ITAT DELHI]. appellant has undertaken substantial expansion within the meaning of section 80- IC(8) (ix) stands settled in the first year of such claim of deduction u/s 80-IC of the I.T. Act - the criteria of substantial expansion has been accepted to be fulfilled in the first year of such claim of deduction u/s 80IC in A.Y. 2004-05 – Decided against Revenue.
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2013 (11) TMI 1272
Search and Seizure u/s 132(1) - Addition of unaccounted cash made on protective basis - Held that:- Addition on the basis of statement of the third party without any corroborative evidence is not tenable - protective addition in the hands of assessee firm has been deleted by the Commissioner of Income Tax(A) in all assessment years under consideration - Following Rama traders vs. First ITO [1988 (2) TMI 142 - ITAT PATNA] and in Asst. CIT v Kishore Lal Balwani Rai [2007 (6) TMI 299 - ITAT CHANDIGARH] - no addition could be made, on the basis of presumption raised by section 132(4A), in the hands of the assessee where in the books of another firm, certain figures were found showing the purchase made by the assessee – though the diary seized enable the revenue to presume that its contents are true, such presumptions is available only against the person to whom it belongs and this is a rebuttable Presumption - The Commissioner of Income Tax(A) held that the substantive additions made in the cases of Shri Mukesh Garg could not sustain, the protective additions made by the Assessing Officer in the hands of assessee partnership firm cannot survive - Decided against Revenue.
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2013 (11) TMI 1271
Revision u/s 263 - Recognition of Income - Assessee recognized income from both the projects based on the 'project completion method' consistently followed over the years – Held that:- The Gym View Project is already completed in the year under consideration; whereas the Link Corner Project is yet to be completed as on 31st March of this PY - This approach of the CIT is not proper - There is no discussion in the order how the method of accounting followed by the assessee in respect of Link Corner Project is inappropriate - There is no discussion in the review order how following Project completion method is prejudicial to the interest of review and what is the revenue loss in this process - CIT has not demonstrated in his review order how AS-7 or AS-9 are legally binding on the assessee in matters of recognizing the income of the project when the said AS-7 and AS-9 are not notified by the CBDT for the purpose of section 145 of the Act - If they are binding on project say Link Corner Project of the assessee, the same is binding on the other project i.e; Gym View Project too - In that sense, the CIT turned Nelson's Eye to the method adopted in respect of the other project as the same is inconvenient to him - This approach of the CIT is not valid. Jurisdiction u/s 263 - Held that:- The assumption of jurisdiction by the CIT is not valid - the revenue cannot trust a method of accounting on the assessee though that method is superior and therefore, substitution of method of accounting is not allowed unless, the loss of revenue is made out of the project of the assessee - CIT has not made out that by following project completion method, the assessee fulfilled the condition relating to 'prejudicial to the interest of revenue' used in section 263 of the Act - Therefore, when the assessee is not held by the revenue guilty of change of method of accounting with the mala fide intention to reduce the tax liability, the CIT cannot allege the mala fide in the method followed by the assessee in respect of the income of the Link Corner project - the CIT cannot assume jurisdiction u/s 263 of the Act, when the issue relating to selection of method of account is debatable one in nature - Assessee has not committed any legal error by uniformly and consistently following 'Project Completion Method' in respect of his project - AO's order does not suffer from any error both on law or fact - it is a trite law that the CIT can only assume jurisdiction when there is erroneous assumption of law or fact or where the AO failed to apply his mind to an issue during making of an assessment or where AO failed to conduct reasonable enquiry into the claim made in the return – Decided in favour of Assessee.
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2013 (11) TMI 1270
Differential Plans of Charging of Interest - Because of the differential plans of charging of interest, the assessee trusts are generating surplus in their hands - Sarvodaya Mutual Benefit Trust (SMBT) providing loans to Self-Help-Groups (SHGs) - Whether treating 95 per cent of the surplus distributed to the member SHGs, as income liable for taxation or not - Held that:- The Commissioner of Income-tax (Appeals) is justified in coming to the conclusion that the assessee trusts and the SHGs are inter-related and they are all concerns governed by the principles of mutuality - The 95 per cent surplus distributed by the assessee trusts to the various SHGs working under them is nothing but the income of those SHGs themselves - It is not something that those groups are getting from outside by way of income - It is the fruit of their efforts - After finalising the accounts and computing the surplus, the profits are divided among those members, whose shares are determinate and whose roles are well defined. All the SHGs working under the assessee trusts are concerns governed by the principles of mutuality and accordingly the 95 per cent of surplus distributed among them are not in the nature of income - The Commissioner of Income-tax (Appeals) has rightly held that 95 per cent of the surplus distributed by the assessee trusts cannot be brought to tax. Tax Deducted at Source and Applicability of u/s 40(a)(ia) – Held that:- The Commissioner of Income-tax (Appeals) is justified in holding that the assessees are not bound by the law stated in section 194A - there is no need of deducting any tax at source while making the interest payments to SNBFCL - the order of the Commissioner of Income-tax (Appeals) was upheld in deleting the additions made by the assessing authorities under section 40(a)(ia) of the Income-tax Act, 1961 - interest expenditure is directly covered by section 28 – thus section 40(a)(ia) will not apply for the reason that the section applies only to those expenses covered by sections 30 to 38 – The individuals, not being liable for audit under section 44AB, the provisions of section 194A are not applicable to them - What is not applicable to the members, will not apply to representative assesses - Decided partly in favour of Revenue.
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2013 (11) TMI 1269
Utilization of Interest on Borrowed Funds – Whether the CIT (A) had erred to allow interest paid on borrowed funds ignoring the fact that the borrowed funds were utilized for advancing to group companies or in advancing interest free loans to them – Following C.I.T. vs. Bharti Televenture Ltd. [2011 (1) TMI 326 - DELHI HIGH COURT] - There was no specific instance noted by the Assessing Officer in respect of any direct nexus between the borrowed fund and the advances made to the subsidiaries - The Assessing Officer had made general observations without going into the depth of the matter and without pointing out any specific instance where an interest bearing borrowing was advanced to the subsidiaries or establishing that the borrowings made by the appellant were not for business purposes - the assessee was found to be having an adequate non-interest bearing fund by way of Share Capital and Reserves - Even otherwise, the advances were found to be made to the subsidiaries for business considerations which is nothing but the commercial expediency of assessee - the factual position reflected from the record of the assessee, the onus laid on it stood discharged – Decided against Revenue. License Fee - Amortization u/s 35ABB – Applicability of Section 37 - Whether the CIT (A) has erred in directing to allow license fee paid to Department of Telecommunication - Held that:- Following ASSISTANT COMMISSIONER OF INCOME-TAX Versus BHARTI CELLULAR LTD. [2006 (4) TMI 50 - ITAT, KOLKATA] - Annual license fee calculated on the basis of annual revenue of the assessee company was of revenue expenditure and have to be allowed u/s. 37 and not u/s. 35ABB – thus Assessing Officer was directed to treat the licence fee as revenue expenditure covered u/s. 37 of the I.T. Act. Rate of Depreciation - Higher rate of depreciation on computers, printers and scanners - Whether the CIT (A) has erred by allowing the depreciation @ 60% on computer peripherals though the I.T. Rules allows 60% depreciation only on computer and computer software – Held that:- Following C.I.T. vs. BSES Rajdhani Powers Ltd. [2010 (8) TMI 58 - DELHI HIGH COURT] - Computer accessories and peripherals such as, printers, scanners and server etc. form an integral part of the computer system - the computer accessories and peripherals cannot be used without the computer - they are the part of the computer system, they are entitled to depreciation at the higher rate of 60% - Assessing Officer was directed to allow the depreciation @ 60% on computer peripherals. Disallowance of Block Profit u/s 115JB - Whether the CIT (A) has erred in directing to delete addition from block profit ignoring the fact that the Explanation to section 115JB (2)(b) of the Act clearly states that if any reserve by whatever name called are debited to the P&L account, The book profit has to be increased by that amount – Held that:- The losses acquired under the scheme of amalgamation and difference in consideration and value of net assets acquired under the scheme of amalgamation was a valid charge made to profit and loss account, as per the general accepted accounting policy and accounting standard - Commissioner of Income Tax (A) has allowed this loss claimed in the profit and loss account for the purposes of computing the book profits u/s. 115JB – Following Apollo Tyres Ltd. vs. C.I.T. [2002 (5) TMI 5 - SUPREME Court ]. The statutory auditors of the company have confirmed in their auditor’s report that the profit and loss account has been drawn up in accordance with Accounting Standards and Companies Act, 1956 – Explanation to section 115JB (2) does not provide any such adjustment to compute the book profit from the profit and loss account drawn as per Schedule VI of the Companies Act, 1956 - Any such adjustments which are not explicitly provided under the said Expln. 2 are not tenable – Decided against Revenue.
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2013 (11) TMI 1268
Various Disallowances - Extension of Time for Construction of Building - Disallowance of Expenses on Professional Fees – Held that:- Following Gujarat Flurochemicals Limited Versus Additional Commissioner of Income Tax [2010 (1) TMI 1096 - ITAT AHMEDABAD] - The issue was restored back to the file of the AO for fresh decision by following the same direction of the Tribunal - Disallowance of sundry balances written off – Held that:- If it was found that the advances written off are business advances, then the same was allowable as business loss, but this aspect was not examined by the authorities below, and hence, we set aside the order of the CIT(A) on this issue, and restore the matter back to the file of the AO for fresh decision - The AO should examine the nature of these advances, and if it is found that the same are business advances, then it should be allowed as business loss. Deduction u/s.80HHC – Reduction of amount paid to customers for shortage claims from export turnover - Reduction of 90% of other income computing profits of the business - Held that:- There were two components of this claim of the assessee for deduction under Section 80HHC, which was not allowed by the authorities below - It was held by the Tribunal that the claim of shortage paid by the assessee in fact increases the cost of the export, but it does not decrease the export turnover - For second aspect of the matter regarding 90% of the other income – there was no merit in the claim of the assessee - In the absence of any evidence to establish that this income was business income, this part of the ground was rejected. Deletion of Compensation from Multilateral Fund – Loss of Business Earnings – Revenue OR Capital Receipt – Held that:- Following Assistant Commissioner of Income Tax, Circle 1(1), Versus Gujarat Fluorochemicals Ltd. [2012 (8) TMI 37 - ITAT, AHMEDABAD] - No difference in facts could be pointed out by the learned DR of the Revenue in the present year - Accordingly, we find no reason to take a contrary view in this matter, and thus, this additional ground of the Revenue was rejected. Expenses u/s 37(1) – Village development expenses to be allowed or not - Nexus between the work of the association and the business of the assessee - the onus case on the assessee in this regard was not discharged - Following The A. C. I. T., Circle-1(1) Versus Gujarat Fluorochemicals Ltd. [2013 (9) TMI 573 - ITAT AHMEDABAD] - The issue was covered in favour of the assessee by the Tribunal order in A.Y.2003-2004, and since no difference in facts could be pointed out by the Revenue, we find no reason to take contrary view. Deduction u/s 80HHC - Exclusion of sales tax and excise duty from the total turnover - Whether excise duty and sales tax were includible in the "total turnover", which was the denominator in the formula contained in section 80HHC(3) as it stood in the material time - Following Commissioner of Income-tax v. Lakshmi Machine Works,[ 2007 (4) TMI 202 - SUPREME Court ] Amendments to section 80HHC(3) indicated exclusion of book profits - difficulty arises because the formula is based on the hybrid system of profits, namely, actual and statutory profits - Our reasoning in this judgment is confined to the workability of the formula in section 80HHC(3) as it stood at the material time. Exclusion 90% of the insurance claim - Clause (baa) of the Explanation below section 80HHC – Held that:- CIT(A) had not examined the nature of the insurance claim - There is no finding of the AO also regarding the nature of the insurance claim – the matter restored back to the file of the AO for fresh decision after examining the nature of insurance claim - The AO should examine nature of the insurance claim and then decide the issue afresh after providing adequate opportunity of hearing to the assessee. Disallowance out of Interest Expenses Disallowed u/s.14A of Income Tax Act – Following Commissioner of Income-tax Vs Reliance Utilities and Power Ltd. [2009 (1) TMI 4 - HIGH COURT BOMBAY ] Interest on borrowed funds - disallowance of interest - Revenue contend that the shareholders funds were utilised for the purpose of fixed assets (investments) - C.I.T. (A) & ITAT have given a clear finding that the assessee had interest free funds of its own - Apart from that in terms of the balance sheet there was a further availability of share capital - finding of fact recorded by C.I.T. (A) and I.T.A.T. cannot be faulted – additions not justified - if the own funds were more than the investment, then it should be accepted that the investment was made out of own funds, and in that situation no disallowance was called for out of interest expenditure in respect of investment - Since the balance sheet was not available before us, we set aside the order of the CIT(A) on this issue, and restore the matter back to the file of the AO for fresh decision.
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2013 (11) TMI 1267
Nature of Cost - Product development cost - Revenue or Capital - Held that:- The expenditure incurred by the assessee in the development of software is capital in nature - Following Millennium Infocom Technologies Limited. Versus Assistant Commissioner Of Income-tax, Circle - 6(1), New Delhi. [2008 (1) TMI 437 - ITAT DELHI-E] and Empire Jute Co. Ltd. Vs.CIT [1980 (5) TMI 1 - SUPREME Court] - The assessee was enjoying benefits from the sale of software to different customers - The prototype of the software remains with the assessee - The assessee is only giving copy of the software without disclosing the intricate method of developing the same to its prospective customers. Depreciation on expenditure incurred in the development of computer software – Held that:- Depreciation @ 60% has been provided on computer software and hardware - The CIT(A) on the one hand has given its findings that the assessee has not shown any asset in its balance sheet, therefore, the assessee is not entitled for depreciation @ 60%, on the other hand, the CIT(A) has allowed depreciation @ 25% to the assessee treating it as copy right or intangible asset - Once it is held that the expenditure incurred by the assessee for the development of the software is capital in nature, the software developed by the assessee is an asset of the assessee. Relying upon Tata Consultancy Services Vs. State of Andhra Pradesh [2004 (11) TMI 11 - Supreme Court ] - computer software is a tangible asset - As per clause III (5) of New Appendix I read with Rule 5 of the Income Tax Rules, 1962, rate of depreciation as applicable to computer software is 60% - thus the assessee is entitled to claim depreciation @ 60% on expenditure incurred in the development of computer software being capital in nature – Decided partly in favour of Assessee.
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2013 (11) TMI 1266
Addition of Unexplained Rental Deposit - The amount was credited into bank account on 18.4.2001 - Because of gap of 18 days between the date of rental agreement and the amount credited in the bank account, the lower authorities doubted the transaction - there was no merit in doubting the transaction as the amount had been received from Blue Dart Express Ltd., and duly credited into the bank account. Being so, the addition was not sustainable - Accordingly, we delete the addition. Capital Gain - Eeven though the same was already offered to tax in the return of income filed - Held that:- Reflection of investment to be considered with reference to the Cash Flow Statement filed by the assessee before the Assessing Officer and to be decided accordingly - we remit the issue back to the file of the Assessing Officer for fresh consideration. Addition of Unaccounted Cash Deposits – Held that:- The CIT(A) was satisfied that the source had been duly examined by the Assessing Officer and found to be correct - Being so, the CIT(A) deleted the addition - We do not find any infirmity in the action of the CIT(A) as the Assessing Officer had no objection to delete the same - Accordingly, we confirm the action of the CIT(A) on this issue. Disallowance on Account of Interest on Drawings – Held that:- Following Keshavji Raoji & Co. etc., etc. v. CIT [1990 (2) TMI 1 - SUPREME Court ] - in making disallowance for the interest paid by the partnership firm to a partner u/s. 40(b) the interest, in turn, paid by the partner on his borrowings from the firm should be taken into account of and deducted and only the balance is to be disallowed u/s. 40(b) of the Act - only the net amount of interest paid by the firm after deducting interest paid by the same partner to the firm can be disallowed u/s. 40(b) of the Act - only the net amount of interest to be treated as income in the hands of the assessee and the gross interest cannot be considered - Accordingly, this ground of the assessee was allowed in all these appeals. Treatment of Annual Letting Value (ALV) - Held that:- The Department had no material to show that it was not occupied by the assessee himself or it was rented to any other person so as to derive the rental income from it - Being so, the claim of the assessee cannot be denied on mere suspicion and surmises - Accordingly, in the absence of any evidence contrary to the evidence produced by the assessee, we are inclined to decide the issue in favour of the assessee as it was self-occupied - This ground of the assessee was allowed in all the above appeals. Addition on Account of Encashment of FD - The assessee made a categorical statement that the amount was duly reflected in the Cash Flow Statement filed by Rao Subba Rao before the DDIT (Inv.) - If it was so disclosed, the addition was not warranted in the hands of the assessee - Accordingly, we remit this issue to the file of the Assessing Officer for fresh consideration. Amount Received on Sale of Agricultural Land as business income though it was exempted asset which was not liable to capital gain – Held that:- K.C.K.A. Gupta vs. ACIT [2003 (7) TMI 284 - ITAT HYDERABAD-B] - estimation of income on sale of land was to be considered at 25% of the undisclosed turnover being the net profit out of sale of land - the sale of land was to be treated as business activity of the assessee and income on this transaction was to be estimated at 25% of the turnover - This ground of the assessee was partly allowed.
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2013 (11) TMI 1265
Nature of Agricultural Land – Capital asset or not – Profits from sale was capital gains or not - Held that:- Both the authorities below have not given any clear finding - even if it was treated as an agricultural land but as same was within the distance of 8 kms. from the local limits of the municipal corporation, same was a "capital asset" within the meaning of Sec.2(14)(iii)(b) of the Act and liable for the capital gain tax. Whether the A.O. was justified in assessee the profits/gain on the sale of the land under the head "business" - Held that:- The assessee had failed to prove that the land in question was beyond distance of 8 kms. from the local limits of Pimpri Chinchwad Municipal Corporation (PCMC) - The distance was to be considered on the basis of the approach road. Whether if assets under the head "capital gain" where the said land was to be treated as a capital asset - So far as the treatment of the gain/profit on the sale of the land is concerned, the Ld. CIT(A) accepted the contention of the assessee that the sale of the plot of the land cannot be treated as an adventure in the nature of the trade and same is to be assessed under the head capital gain. The Ld. CIT(A) has recorded that it was the sole transaction of purchase of immovable property and it was in the nature of the investment. The Ld. CIT(A) therefore held that the same is to be treated as gain/profit was assessable under the head "capital gain" and not as a "business income". There was no clear finding on this issue by the Ld. CIT(A) - At the same time, the Ld. CIT(A) held that the A.O. had obtained the certificate from the Assistant Director of Town Planning and as per the said letter, the land in question was situated within 8 kms. the local limits of the Pimpri Chinchwad Municipal Corporation - The Ld. CIT(A) also declined to admit the evidence in the nature of certificate from Kamgar Talathi of Maan under rule 46A - nothing was brought on record why and how the assessee was prevented from producing the said evidence before the A.O. The Ld. CIT(A) rejected the claim of the assessee that the land in question was beyond the distance of the 8 kms. the local limits of the municipal corporation. Whether transaction of the sale of the land was adventure in the nature of the trade and profit/gain on the sale was assessable as a business income under the head profits & gains of business and profession – Held that:- Assessee had sold the land but only to one party - So far as the Sakal Papers Pvt. Ltd., the second buyer was concerned the land was in fact sold by W.B. International Pvt. Ltd - the transaction of the land cannot be treated as an adventure in the nature of the trade and the Ld. CIT(A) had rightly held that the gain is to be assessed under the head "capital gain" and not as a 'business income'. The Ld. CIT(A) also took a note of the fact that there was no other transaction entered into by the assessee and the land was retained almost for the 5 years - The Ld. CIT(A) referred to the decision of the Hon'ble High Court of Bombay in the case of CIT Vs. Lakshmi Surgical Pvt. Ltd. [1992 (11) TMI 49 - BOMBAY High Court ] - the sale of the land cannot be treated as an adventure in the nature of the trade and he was not justified in treating the profit/gain on the sale of the land as 'business income'.
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2013 (11) TMI 1264
Deletion of Low GP – Non-Acceptance of Gross Profit Ratio – The Assessing Officer rejected the book results on the ground that the GP rate was ridiculously low as compared to the results of the preceding two years - Held that:- There was no finding by the AO that the finished product was sold by the assessee at a price higher than what was declared in the account books - the CIT (A) and the Tribunal were justified in holding that the AO could not have increased the GP ratio merely because it was low as compared to the GP ratio of the preceding year – Relying upon COMMISSIONER OF INCOME TAX-XII Versus SMT. POONAM RANI [2010 (5) TMI 57 - HIGH COURT OF DELHI] and CIT Vs. K.S. Bhatia[ 2002 (9) TMI 8 - PUNJAB AND HARYANA High Court ] - The fall in GP ratio, in the absence of any cogent reasons, could not by itself, have been a ground to hold that proper income of the assessee cannot be deduced from the accounts maintained by her and consequently, could not have been a ground to reject the accounts invoking s. 145(3). Non maintenance of Stock Register – Held that:- No stock register was maintained by the assessee he had maintained monthly sales and purchase of gold ornaments giving opening stock in value as well as in quantity and purchase in value as well as in quantity - The assessee had maintained sales and purchase bills which were fully vouched and no discrepancy was found either by the survey party or by the Assessing Officer – Assessee’s trading account was fully supported by quantitative account had not been controverted by the Revenue - Assessing Officer had found no other discrepancy in the books of account except non-maintenance of stock register - it purchases only old ornaments and after remaking them sells the same - the estimate of sales of Rs.20,000 per day by taking 300 days in the year as the working days of the assessee firm and estimation of GP rate @25% of the turnover was purely on the basis of surmises and conjectures and therefore should not be accepted – Decided against Revenue.
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2013 (11) TMI 1263
Tax Deducted at Source - Sitting Fees paid to directors u/s 194J of Income Tax Act, 1961 - Held that:- The provisions of section 194J(1)(ba) speaks of any remuneration or fees or commission by whatever name called other than those on which tax is deductible u/s. 192 to a director of a company on which tax had to be deducted at the applicable rate and the above provision had been inserted by the Finance Act, 2012 w.e.f., 01- 07-2012 - No tax was required to be deducted u/s194J out of such director's sitting fees for the A.Y. 2007-08 - the order of the CIT(A) set-aside and the ground raised by the assessee on the issue of TDS on sitting fees paid to Directors allowed - As per the explanation to provisions of section 194J professional service means services rendered by a person in the course of carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or advertising or such other profession as is notified by the Board. There was no force in the submission of the learned counsel for the assessee that sitting fees paid to the directors does not amount to fees paid for any professional services as has been mentioned in the explanation to section 194J(1) - the memorandum explaining to provisions of the Finance Bill 2012 that as per clause No.71 it was specifically mentioned that there was no specific provision for deduction of tax on the remuneration paid to a director which is not in the nature of salary. Deduction of Tax u/s.194C and 194J - Testing and Inspection Charges - Held that:- The payments made by the assessee towards testing and inspection charges cannot be construed as payments towards professional service as per the provisions of section 194J and the assessee had rightly deducted the tax u/s.194C - there was no short deduction of tax - The explanation to section 194J(1) defines professional service means the service rendered by a person in the course of carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or advertising or such other profession as is notified by the Board. The nature of expenditure made by the assessee towards payments made to various persons as mentioned in the bills cannot be considered as payment for technical consultancy – Following GlaxoSmithKline Pharmaceuticals Limited Versus I. T. O. (T. D. S.) -I, Nasik [2011 (10) TMI 21 - ITAT, PUNE ] - any payment for technical services in order to cover u/s.194J should be a consideration for acquiring or using technical know-how simplicitor provided or made available by human element - There should be direct and live link between the payment and receipt/use of technical services/information - If the conditions of section 194J r.w.s 9(1), explanation 2 clause (vii) were not fulfilled, the liability under this section was ruled out - order of the CIT(A) was set aside - Decided in favour of Assessee. Deduction of Tax u/s 194C - Payment of Hiring of Cranes - Held that:- The provisions of section 194C were only applicable for such payments and not provisions of section 194-I – Following Swayam Shipping Services (P) Ltd. 2011 (1) TMI 797 - GUJARAT HIGH COURTThe assessee had given sub-contracts for transportation of goods – thus the transactions would fall within the purview of section 194C of the Act as the assessee was responsible for paying the amount in question for carrying out work in pursuance of contracts between the assessee and the transporters and as such the assessee was required to deduct tax at source at the rate prescribed under that section – Decided in favour of Assessee.
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2013 (11) TMI 1262
Upward Addition Made u/s 92CA(3) of Income Tax Act, 1961 – Adjustment in Export price of Spools - Held that:- Associate Enterprises had allowed assessee company to use spools collected from Associate Enterprise customers for packaging assessee's company's own manufacturing product for which no charge was levied by Associate Enterprise - Export of spools was secondary and ancillary activity of the assessee company - Assessee company was not the owner of the spools exported - assessee company was justified in exporting spools with 10% markup - Accordingly, sustaining addition made in respect of export of spools u/s.92CA(3) of the Act was not justified and to be deleted - appeal filed by the assessee was allowed. The assessee had not involved in the process in an activity which was separate from the regular activity - There was nothing on record to suggest that huge activities involving cost would be involved - In the initial years the assessee had lesser requirement of these spools as the business was in the process of being established and stabilized - The system of collecting these spools also had to be put in place and stabilized to ensure its supply on a sustained basis - The system adopted by the TPO to allocate indirect expenses on the basis of turnover in initial assessment years was not justified - There was nothing on record to suggest any indirect expenses for determining the ALP of export of spools - However, no such adjustments were made by the TPO in A.Y. 2004-05 - Accordingly, the CIT(A) was not justified in restricting the addition as there was no element of indirect cost involved. Addition on the basis of Report of TPO – Import of Dies – Held that:- The goods being manufactured by the assessee company were an import substitution and therefore, foreign group companies do supply similar products to the Indian consumers - As the spools were reusable and had no utility to the buyers, as a measure to benefit local group companies, wherever possible, were involved in collection of empty spools for free from buyers for the packaging of their own products and its export in case the same are in excess of their requirement - spools have a consierable value and therefore the arrangement by which the assessee company gets the same free by only making expenses relating to cost of collection, was beneficial to the business of the assessee - the collection of spools, was incidental but for the purpose of the business - Decided in favour of Assessee.
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Customs
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2013 (11) TMI 1300
Import and sale of Timber - Refund of SAD - Whether the respondents are entitled to refund on the basis of conversion factor notified in Public Notice No. 21/2012 dated 11/05/2012 - Held that:- There is no logic for adopting the formula of Karnataka Forest department has been given in the Public Notice. There is also no indication as to whether there were different formulae of conversion in other States and there is no indication why they were not taken into account if they were there,. There is also no logic as to why the ratio of Gujarath Forest Department preferred to the ratio of Karnataka Forest Department, except for the fact that if the formula of Gujarat Forest Department is adopted the quantum of refund payable would be less. In such a situation, it would be difficult to take a view that this will have a retrospective effect - there is absolutely no logic in applying this Public Notice retrospectively and in fact, the Public Notice itself has been issued to maintain uniformity and not to adopt a particular ratio or formula to ensure that it is correct - Decided against Revenue.
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2013 (11) TMI 1299
Demand of aggregate customs differential duty - Penalty under Section 114A - Confiscation under Section 111 (d) and (m) - Re determination of value on account of alleged under invoicing - Held that:- unless the goods ‘as presented’ having the essential character of a complete or finished article, the same cannot be assessed or classified as a complete article - Duty has been demanded in respect of 108 consignments which have been imported by 8 different entities at different times and ports, of which 27 consignments relate to indoor units and 50 consignments relate to outdoor units and the balance 31 being parts of window air-conditioners. It is also urged that the total quantities of different models of air-conditioners do not match as per the chart attached to the written submissions filed on 3.9.2013. It is stated that 6007 units of indoor units and 6786 units of outdoor units have been imported and therefore, it cannot be alleged that what are imported are complete air-conditioners and that the same is also the case with different parts of window air-conditioners. As we have held that there is no import of complete air-conditioners, we reject the adoption of value in respect of one model based on import of a complete air-conditioner by ETA General which in any event, is a distributor to the supplier. Commissioner has ordered the classification of the goods imported under sub-Heading 8415 90 00 which relates to parts of air-conditioner. The classification has not been disputed. The Commissioner, at the same time, has described the modus operandi as import of air-conditioners from Thailand, disassembled at Singapore and imported then into India - there is no evidence that complete air-conditioners were imported from Thailand to Singapore and were disassembled at Singapore before shipment to India. KCM has also not admitted this in his statements to which we shall refer in greater detail hereafter. None of the documents either seized or recovered from the computers during search also support this modus operandi. The report from the High Commission of India, Singapore vide letter dated 22.8.2007 is also silent on this aspect. The enquiry with ETA General Pvt. Ltd which apparently revealed that O General does not sell parts is belied by large number of imports of parts into India by independent third parties before and after the period covered by these appeals, which is April 2004 to May, 2007, a fact which has not been denied by the Revenue. There is no explanation from the Department how thousands of consignments of parts of air-conditioners of O General brand are allowed imports, if the enquiry with ETA General is correct. The Commissioner has also held that goods (outdoor units) are liable for confiscation under Section 111(d) on the ground that import of compressors containing R22 Gas requires a license. It is no doubt true that at the time when the goods landed into India, the importers did not have a license. It is only subsequently that the importers applied for and obtained licenses which were issued post facto, to cover goods which had already been shipped/landed/cleared. We therefore, set aside the confiscation under Section 111(d) subject to verification of the fact that the import licenses cover the total quantity of consignments of outdoor units with compressors containing R22 Gas. though statements of Savaram and Vela Ram were recorded on 23.5.2007, KCM was never confronted with them. KCM does not corroborate the statements of Savaram and Vela Ram. None of the documents also support corroborate the statements of Savaram and Vela Ram - apart from being unreliable the statements do not disclose any offence for penalty under Section 112 since these two persons have no relation to import of goods. There is absolutely no evidence against Joit Kumar Chaudhary. Penalty under Section 112 cannot be imposed for not responding to summons. We therefore set aside the penalties of these three Appellants. Statements must however be read with the evidence in cross examination of Mehul Shah and Jitendra Manek. However, in view of our finding that there is no warrant or justification in rejecting the transaction or the declared value and the case of import of complete air-conditioners being based on assumptions, this issue would not result in either the imports of parts being prohibited or restricted or the declared value incorrect. As a matter of law, parts and complete air-conditioners are freely permissible for import under the Foreign Trade Policy - Following decision of Collector of Customs vs. Sony International [2008 (9) TMI 19 - SUPREME COURT] and Sunil Gulati vs Commissioner [2002 (8) TMI 787 - CEGAT, NEW DELHI] - Decided in favour of assessees.
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2013 (11) TMI 1298
Entitlement to benefit of set off of CVD against Excise duty – Waiver of Pre-deposit – Softwares downloaded to be included in the cost of manufacture or not – Held that:- There was no suppression of information - Law requires that there should be presence of any of the elements of Section 28 of Customs Act, 1962 with a premeditated mind to cause evasion - Prima facie, it is not apparent from the record as to willful evasion – the requirement of pre-deposits waived till the disposal – There was no physical import of magnetic media or optical media with software recorded on it - ASSOCIATED CEMENT COMPANIES LTD. Versus CC [2001 (1) TMI 248 - Supreme court of India] and DIGITAL EQUIPMENTS (INDIA) LTD. Versus COLLECTOR OF CUS., BANGALORE [2001 (4) TMI 476 - CEGAT, BANGALORE] – the show cause notice does not even mention the Tariff heading under which the software downloaded through internet is sought to be charged to customs duty - the stay application is allowed and pre-deposit is waived till the disposal – stay granted.
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2013 (11) TMI 1297
Import and sale of Timber - Refund of SAD - Whether the respondents are entitled to refund on the basis of conversion factor notified in Public Notice No. 21/2012 dated 11/05/2012 - Held that:- There is no logic for adopting the formula of Karnataka Forest department has been given in the Public Notice. There is also no indication as to whether there were different formulae of conversion in other States and there is no indication why they were not taken into account if they were there,. There is also no logic as to why the ratio of Gujarath Forest Department preferred to the ratio of Karnataka Forest Department, except for the fact that if the formula of Gujarat Forest Department is adopted the quantum of refund payable would be less. In such a situation, it would be difficult to take a view that this will have a retrospective effect - there is absolutely no logic in applying this Public Notice retrospectively and in fact, the Public Notice itself has been issued to maintain uniformity and not to adopt a particular ratio or formula to ensure that it is correct - Decided against Revenue.
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2013 (11) TMI 1296
Duty demand - Penalty u/s 114A - Confiscation u/s 125(1) - goods used versus intended for use - Import of self propelled Tug Smit Jaguar, year Built 2009 with NASSAU Registry - Exemption under Notification No.21/2002 dt. 01.03.2002 at Sl. No. 216, List No. 12 and condition Sr. No. 31 - Violation of the condition of the Notification that the imported vessels has to be used only for petroleum operations - Held that:- the vessel imported by the appellants is for intended use in petroleum operations and the same was used for that purpose therefore, the appellants are entitled for exemption although the said vessel was used for salvage operations for the period of 22 days - Following decision in the case of Clough Engineering Ltd. [2005 (10) TMI 173 - CESTAT, MUMBAI] - Decided in favour of assessee.
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Corporate Laws
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2013 (11) TMI 1295
Validity of order passed - Notice under Section 400 of the Act was not served by the CLB on the Appellant - Whether the Order passed by the CLB, Mumbai Bench, dated 28th March, 2013 is nonest, ex facie not valid and the entire proceedings in Company Petition No. 62 of 2009, stand vitiated since the notice of the Application/Petition made by the Original Petitioner to the CLB under Sections 397 and 398 of the Act was not served on the Central Government by the CLB itself under the provisions of Section 400 of the Act - Held that:- Advocates for the Respondent No.2 (Original petitioner) had served a copy of the Petition on the Regional Director, Western Region on 18th June, 2009 and has also put the Regional Director, Western Region to notice of the fact that the hearing of the said Petition would take place before the CLB on 22nd June, 2009, and the Regional Director was requested to remain present at the said hearing. In fact, the Petition was served on the Central Government through the Regional Director, Western Region, after the Petition was numbered on the next day of its filing and therefore the question of such service being treated as a preacceptance /admission or prehearing notice does not arise. Object of Section 400 of the Act as well as Regulation 14 (3) is to give notice to the Central Government about the Petition having been filed under Sections 397 and 398 of the Act before the CLB, to enable the Central Government to make its representations if any before the CLB, which the CLB would take into consideration before passing its final order on the Petition. However, the Central Government through the Regional Director, Western Region did not choose to appear before the CLB on 22nd June, 2009 or on any other date of hearing which took place on about 30 occasions over a span of four years. Even if it is held that the service of the Petition on the Central Government under CLB Regulations, 1991 does not amount to strict compliance of Section 400 of the Act, there is a substantial compliance of Section 400 of the Act in this case by reason of the notice given by the Advocates for the Petitioner to the Central Government. The provisions of Section 400 of the Act are not mandatory in so far as the identity of the person or body giving the notice. What is mandatory is that notice of every application under Sections 397/398 of the Act has to be given to the Central Government. The form of the notice, the manner of its service and the identity of the server are not of mandatory nature but are directory. Shareholders holding almost 100% of the shareholding in the Respondent No. 3 Company have already represented themselves before the CLB. All of them are also represented in the present Appeal and as recorded hereinabove all of them including the Auditors SHARP & TANNAN have submitted before this Court that without prejudice to the contentions raised by them in their respective Appeals they do not support the contention of the Appellant in the present Appeal viz. that the impugned order of the CLB be quashed and set aside because the notice required to be served on the Central Government under Section 400 of the Act was not served by the CLB itself, though the Petition was served on the Central Government by the Original Petitioner and in fact the Central Government was also informed of the hearing of the Petition. In fact, in the instant case the Appellant has in the Memo of Appeal or in its written submissions not even mentioned what representation it was desirous of making before the CLB before the final orders were passed and how the impugned order passed is against public interest and/or the minority shareholders - Therefore, question of quashing and setting aside the Order dated 28th March, 2013 passed by the CLB does not arise - Decided against appellant. Jurisdiction of CLB - Removal of auditors appointed in view of the provisions contained in Section 224(7) - Whether CLB has power or jurisdiction to remove an auditor duly appointed by the Respondent No. 3 in view of the provisions contained in Section 224 (7) of the Act - Held that:- An examination of the Sections clearly brings out two aspects, first, the very wide nature of the power conferred on the court, and, secondly, the object that is sought to be achieved by the exercise of such power with the result that the only limitation that could be impliedly read on the exercise of the power would be that nexus must exist between the order that may be passed there under and the object sought to be achieved by these Sections and beyond this limitation which arises by necessary implication it is difficult to read any other restriction or limitation on the exercise of the court's power. Court's powers under Section 398 read with Section 402 should not be read as subject to the other provisions of the Act dealing with normal corporate management or that the court's orders and directions issued thereunder must not be in consonance with the other provisions of the Act - Therefore, objection of the Appellant based on Section 224 (7) of the Act is completely misconceived and without substance - Decided against appellant.
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Service Tax
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2013 (11) TMI 1310
Outstanding duty demand - Imposition of equal penalty - Held that:- Duty under protest ordered to be made without prejudice to the right and contentions of the assessee - Conditional adinterim stay granted on penalty - Partial stay granted.
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2013 (11) TMI 1309
Service tax liability - Banking and other Financial services - Renting of immovable property service - Denial of CENVAT Credit on the ‘input services’ - NOTIFICATION NO.29/2004-ST, DATED 22.9.2004 - Held that:- prima facie exemption on the amount of interest is limited to (a) over-draft facility and (b) cash credit facility. At this juncture, we are not able to appreciate the argument of the Ld. Chartered Accountant that the interest earned on discounting of bills, bills of exchanges or cheques are also included in the purview of the said exemption Notification. Regarding the wrong availment of CENVAT Credit on input services that had been utilized in providing exempted services, in our opinion, are not eligible to the CENVAT Credit in view of the specific provision contained in Rule 6(1) of CENVAT Credit Rules. If the Applicant could not able to maintain separate account of the input services that were used in providing taxable services and exempted services, then consequences, are accordingly, mentioned under subsequent sub-rules. We do not find prima facie any apparent error in the computation of CENVAT Credit demand arrived in Annexure (C) to the show cause notice which has been calculated as per the formula prescribed under sub-rule 3A of Rule 6 of CENVAT Credit Rules, 2004 - Hence, the demand is not entirely barred by limitation. Besides, the issue of limitation is a mixed question of facts and law and would be examined at the time of disposal of the Appeal after appreciating the evidences on record. No financial hardship is pleaded - Applicant could not able to make out a prima facie case for total waiver of pre-deposit of dues adjudged - Partial stay granted.
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2013 (11) TMI 1308
Service Tax on Profit sharing agreement - Demand of Service tax on account of business support services provided to BCCI-IPL – Held that:- this is a case where both the contracting parties pool resources and do their part of the activities and take risks of uncertain income and hence prima facie we are of the view that there is no service given by one party to another. Since substantial part of Revenue from the activity is received centrally in the hands of BCCI it is shared with other participants like applicant. Prima facie such routing of payments cannot be sufficient proof of provision of service by the applicant to BCCI - prima facie demand is not maintainable because they were not providing any services to the BCCI-IPL and the whole activity is carried out on the basis of profit sharing agreement between the appellants and BCCI-IPL. Deposit of ₹ 4.23 crores made by applicant is sufficient for the admission of the appeal. So we waive the requirement of predeposit of balances dues for admission of appeal and there shall be stay on its collection during the pendency of the appeal - Stay granted.
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2013 (11) TMI 1307
Demand of service tax liability - Consulting Engineering Services - soil testing, exploration survey and map making for laying pipe lines - First appellate authority set-aside the demand of service tax by holding that the activities undertaken by the respondent would get covered under the category of Survey and Map making by agencies other than the Government - Held that:- services rendered by the Appellants do not involve any consultancy, advice and technical assistance as well as the fact that the new services covering the services in question have been introduced at a later date. I am inclined to agree with the Appellants that during the period in dispute these services are not taxable under the category of Consulting Engineers Service - Scientific and Technical Consultancy Services, which was a ‘new service’ introduced on 16-7-2001, was not a part of the pre-existing ‘Consulting Engineer Service’ prior to the said date. On the same analogy, the services rendered by the Appellants, being ‘new services’ introduced from the respective dates, will not be part of the pre-existing Consulting Engineers Service prior to the said dates. Accordingly, the demand confirmed by the Adjudicating Authority is not sustainable and hereby set aside. Since the demand is not sustainable, penalty and interest cannot also sustain - Following decision of CCE & C, VADODARA-II Versus MASCON MULTISERVICES & CONSULTANTS PVT. LTD. [2008 (12) TMI 89 - CESTAT, AHMEDABAD] - Decided against Revenue.
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2013 (11) TMI 1306
Valuation - Undervaluation of the service - retreading of tyres - Management, Maintenance or Repair Service - Appellant have filed returns and paid service tax on the labour component of the work done by them and not on the material component on which they have paid VAT - Held that:- as per the decision of apex court legal fiction, as is well known, should be applied only to the extent for which it was enacted. It, although must be given its full effect but the same would not mean that it should be applied beyond a point which was not contemplated by the legislature or which would lead to an anomaly or absurdity - Payments of service tax as also the VAT are mutually exclusive. Therefore, they should be held to be applicable having regard to the respective parameters of service tax and the sales tax as envisaged in a composite contract as contradistinguished from an indivisible contract. It may consist of different elements providing for attracting different nature of levy. It is, therefore, difficult to hold that in a case of this nature, sales tax would be payable on the value of the entire contract; irrespective of the element of service provided. The approach of the assessing authority, to us, thus, appears to be correct - Ruling of the apex court in the case of Imagic Creative (2008 (1) TMI 2 - Supreme Court of India) was not considered by the Tribunal in Safety Retreading Co. case (2012 (6) TMI 719 - CESTAT, CHENNAI (THIRD MEMBER)) and further, we are in agreement with the law laid down by the Supreme Court in the case of Imagic Creative Private Ltd. There is a prima facie case made out in favour of the appellant and accordingly, there will be stay of the impugned demand of tax, interest and penalty till the final disposal of the appeal - Stay granted.
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2013 (11) TMI 1305
Valuation of service - Agreement with Hindustan Petroleum Corporation for running and maintenance of retail gasoline outlets of HPCL - Reimbursement for services provided - Held that:- the reimbursement received namely (a) Tea/coffee & conveyance, (b) electricity charges, (c) own use reimbursements (diesel/oils), (d) DD Commission, (e) miscellaneous like stamping charges, (f) telephone charges, (g) repairs and maintenance (h) diary and calendar printing, (i) price variation adjustment, etc., are deductible from the gross value. The amounts received by ways of reimbursement from HPCL needs to be reduced from the gross value of taxable service. - Thus, it is desirable in the interest of justice to remand the matter for correct determination of tax liability of the appellants. It is held that the reimbursement received are deductible from the gross value - Part pre-deposit ordered - Matter remanded back - Decided in favour of assessee.
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2013 (11) TMI 1304
Valuation - Suppression of service tax - Mining services - Expenditure for doing mining services not included in bills raised - Held that:- service recipient provided certain material to the service provider to do construction activity. Such material was of no use to the service provider except for using in the construction done for the service recipient. In this case the minerals received back from the service recipient is sold by the applicant for profit and such back to back agreements can act as vehicles for undervaluation. The applicants have not placed any material when Revenue has made an allegation that value of services billed was much less than the cost of services provided and the back to back agreements entered into between the parties was used for suppressing value of services. However, we note that the demand is made for the entire expenditure incurred ignoring the fact that part of the expenditure incurred is realized through bills raised for mining services and service tax on such amounts are already paid - Following decision of CCE Hyderabad Vs Vijay Leasing Company [2010 (12) TMI 782 - CESTAT, BANGALORE] - Partial stay granted.
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2013 (11) TMI 1303
Cenvat Credit - Courier service - Whether Cenvat Credit taken with respect to courier services is admissible to the appellant or not - Held that:- examining the facts of the present case in the light Commissioner of Central Excise & Customs v. Parth Poly Wooven Pvt. Ltd. [2011 (4) TMI 975 - GUJARAT HIGH COURT] the period is from 01.02.2007 to 30.09.2007, that is before the definition of the term ‘input service' came to be amended with effect from 1.4.2008 and instead of the words ‘clearance of final products from the place of removal' the words "clearance of final products upto the place of removal came to be substituted. Under the circumstances, this case would be squarely covered by the above decision and the courier services availed by the assessee whereby the courier collects the parcel from the factory gate for further transportation would fall within the ambit of the term ‘input service' as defined under rule 2(l) of the Rules - Following decision of Commissioner of Central Excise, Ahmedabad-II vs. Cadila Healthcare Limited [2013 (1) TMI 304 - GUJARAT HIGH COURT] - Decided in favour of assessee.
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2013 (11) TMI 1302
Demand under Rule 6(3) of Cenvat Credit Rules, 2004 - Appellant provided taxable service and exempted service and in spite of that they did not restrict the utilization of credit to 20% of the tax paid on output service as per Rule 6(3), as was in existence prior to 01-04-2008 - Whether services namely giving loans, hire-purchase services etc. are exempted services or not - Held that:- activities are taxable services notwithstanding that for deciding the value of service on which tax is to be paid, interest is not included or for the reason the service enjoys partial exemption under Notification No.4/2006-ST, dated 01.03.2006 or on account of provision in Service Tax (Determination of Value) Rules, 2006. - stay granted on this count. Assessee directed to make partial pre deposit in respect of ineligible credit - Partial stay granted.
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2013 (11) TMI 1301
Valuation of service - Under-declaration or non-declaration of the gross value received - Service of ‘survey and exploration of mineral’ - Section 65(104a) - Integrated services, of mapping of the scheduled areas - as the transaction with ONGC is concerned, the petitioner has remitted tax on 4% of the gross value received from ONGC, computing that percentage of the value received, as attributable to the taxable activity falling within the reach of provisions of the Act. The petitioner did so on the assumption that its data acquisition and part processing of such data, being activity carried out offshore and beyond the 12 nautical miles limit from the Indian landmass, is outside the purview of provisions of the Act. In so far as the transactions with RIL, the petitioner did not remit tax on any portion of the gross value received, from RIL. Held that:- stay granted in part subject to deposit of Rs. 60 lakhs towards service tax liability on 4% of the gross value received by the petitioner in respect of services provided to RIL - Partial stay granted.
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2013 (11) TMI 1261
Waiver of predeposit of cenvat credit - input service distributor (ISD) - Held that:- for availing cenvat credit when invoices are raised in favour of the Head Office or Circle Office and payments for such services were made from the said Office and services are claimed to have been used in exchanges under the Head Office/Circle Office, it is required to get the Head Office/Circle Office registered as ‘input service distributor’ and issue invoices in favour of its units/exchanges. Admittedly,the applicants Circle Office has not been registered as ‘input credit distributor’ under the said Rules and prima-facie, we find that the cenvat credit has not been availed correctly as per the procedure as laid down by the Cenvat Credit Rules, 2004. In these circumstances, the applicant failed to make out a prima-facie case for total waiver of predeposit of all dues adjudged against them - Stay granted partly.
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Central Excise
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2013 (11) TMI 1294
Clearance of inputs as such – Failure to reverse the cenvat credit under Rule 3(5) of the CENVAT Credit Rules, 2004 – Waiver of Pre-deposit – Held that:- Perusal of RG-23 Part-I Register, RG-I Register and the excise invoices, there was no mention of removal of input-waste, after carrying out these processes, rather it has been uniformly shown as ‘waste and scrap’ - invariably, in all these invoices, the goods were declared as ‘waste and scrap’ not as ‘input waste and scrap’ - in the absence of sufficient evidences, it is not possible to appreciate, how much waste and scrap generated from processing of inputs, were cleared from the factory and the waste and scrap on which CENVAT Credit availed, were cleared as such – Assessee is directed to submit Rupees fifty lakhs as pre-deposit – upon such submission rest of the duty to be waived till the disposal – Partial Stay granted.
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2013 (11) TMI 1293
Process amounts to Manufacture or not - Demand under section 11D - Waiver of Pre-deposit - Revenue was of the view that the process undertaken in respect of pipes & tubes is not manufacture and they are not entitled for Cenvat Credit of the inputs used – Held that:- The appellant have paid duty on final products by treating their process as manufacture and it is this duty which they recovered from the customers, it cannot be said that the amount recovered by the appellant from the customers as duty was not paid to the Government - Prima facie, the demand under section 11D is not sustainable and as such on this point the appellant have strong prima facie case in their favour. Cenvat Credit on inputs used in the processes which do not amounts to manufacture - on the finished products the appellant have paid the duty - Even if the Department’s plea that processes undertaken by the appellant do not amount to manufacture, is accepted, this would have to be treated as a case of clearance of Cenvat Credit availed inputs as such which is permitted in the Cenvat Credit Rules - the appellant on these clearances have paid duty which is not less than the Cenvat Credit, availed - Prima facie, the Cenvat Credit demand would not be sustainable - the requirement of pre-deposit of Cenvat Credit demand and the amount demanded u/s 11D, interest thereon and penalty waived till the disposal – Stay granted.
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2013 (11) TMI 1292
Cenvat credit under 4(2)(a) of CENVAT Credit Rules, 2004 - Receipt of capital goods – Waiver of Pre-deposit – Held that:- The capital goods receipt took place prior to March 2011 - the trial production of Maaza was conducted between 14.03.2011 to 18.03.2011 and commercial production started from 29.03.2011 - Relying upon COMMR. OF C. EX. & CUSTOMS, VADODARA-II Versus GUJARAT PROPACK [2008 (9) TMI 170 - GUJARAT HIGH COURT ] - the usage of the machine is to be seen with regard to its intention to produce the goods -the intention of the assessee was to utilize the machine for manufacturing of Maaza and commercial production having started on 29.03.2011, CENVAT Credit availed in March 2011, cannot be faulted with - the appellant has made out a prima facie case complete waiver of the amounts - Applications for waiver of pre-deposit allowed and recovery stayed till the disposal of appeals – Stay granted.
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2013 (11) TMI 1291
Conditional Exemption under Notification No. 56/2002 – Refund claim with regard to cenvat credit – waiver of Pre-deposit - Held that:- During February 2006 to April 2006 period, the appellant did not take Cenvat credit in respect of SAD resulting in higher quantum of exemption under Notification No. 56/2002-CE and thus higher quantum of refund, in December 2006 as soon as this was pointed out, they took the Cenvat credit of this amount, as a result of this in the month of December 2006 their refund claim was lesser to that extent - Prima facie, overall there was no excess availment of exemption under Notification No. 56/2002-CE, as the excess quantum of refund under Notification No. 56/2002-CE during February 2006 to April 2006, was neutralised by lesser quantum of refund under this notification during December 2006 - The appellant have a strong prima facie case in their favour - the requirement of pre-deposit of duty demand, interest and penalty waived till the disposal – Stay granted.
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2013 (11) TMI 1290
Bogus invoices issued to take cenvat credit – Clandestine Removal of goods – Waiver of Pre-deposit – Held tha:- Lot of fraudulent activities have been undertaken by M/s.Puransons Alloys with active support of M/s.Punjab Metal Works - Both units were being controlled by Shri Puneet Bhandari Fake invoices have been issued to take cenvat accredit with a intention to defraud the Revenue - Serious prejudice has been done to the Revenue’s interest - Investigations by Revenue have been able to bring out enamours evidence in their favour. Revenue has been able to make out a very good case for fraudulent conduct and issue of paper transactions to avail irregular credit - Preponderance of probability is in the favour of Revenue. Further no financial hardship has been pleaded by the appellants - Assessee directed to deposit Rs.75 lakhs as pre-deposit – upon such submission rest of the duty to be waived till the disposal – Partial stay granted.
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2013 (11) TMI 1289
Clandestine manufacture and clearance of goods - Discrepancies in the stock of finished goods as also raw material - Waiver of Pre-deposit – Held that:- The details examination of the submissions made by both sides can be done only at the time of final disposal of the appeal - Prima facie the appellants has not be able to make out a prima facie case in their favour so as to dispense with the condition of pre-deposit of the entire dues - the deposit of Rs. 2.13 crores approximately made by the appellant – assessee directed to deposit another Rupees four crores as pre-deposit – Upon such submission rest of the duty to be waived till the disposal – Partial stay granted.
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2013 (11) TMI 1288
Method of weightment of goods – Actual Method OR Estimation method – Waiver of pre-deposit - Held that:- There is no dispute that the weighment of the raw material MS Ingots and billets had been done by estimation only on the basis of average weight of each type of ingots on the basis of its cross sanctioned area and length and in the same manner the weight of finished product- MS Bars had been determined - When the weighment had been done by estimation and not by actual weighment, prima facie, it would not be correct to accuse the appellant of non-accountal of raw material and finished product and that too intentional - the order upholding the confiscation and imposition of penalty, does not appeared be sustainable - Prima facie the appellant have a strong case in their favour – Thus, the requirement of pre-deposit of penalty waived till the disposal – Stay granted.
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2013 (11) TMI 1287
Proportionate money value of royalty to be added in the assessable value or not – Amount paid for engine and transmission supplied – Waiver of Pre-deposit – Extended period of limitation – Held that:- As per the provisions of Section 11A(1) of the Central Excise Act, 1944, the Show Cause Notice is required to be issued within 1 year of the relevant date - The demand for the period from April 2005 to December 2009 was raised by Show Cause Notice dated 07.05.2010 by invoking extended period of limitation. - the demand upto March 2009 is barred by limitation. The appellants have made a strong case for waiver of pre-deposit - the department contended that royalty to be paid on the total value of the goods cleared from the factory – the appellant directed to deposit an amount of Rs.20 lakhs as pre-deposit – upon such submission duty and penalty to be stayed till the disposal – Partial stay granted.
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2013 (11) TMI 1286
Activity manufacture or not – Affixation of brand name - Waiver of Pre-deposit -Revenue was of the view that the appellant was clearing their own manufactured product under their own brand name, in the guise of trading activities – Held that:- Traded goods and the imported goods, though identical but were different in model numbers - the goods supplied to the appellants customers are not out of imported goods and the same stand manufactured by the appellants but cleared in the guise of trading activity - No labelling or relabelling has been done on the imported goods –The appellant was not supplying the imported goods to their customers under their own brand name of ‘Accentrix’ when no labelling of the same was done by the appellant and the purchase order was clearly in respect of ‘Accentrix’ brand name. The adjudicating authority has scrutinised the bills of entries in respect of imported goods - different model numbers stand specified - the fact, i.e. change in the model numbers lead a prima facie view that goods imported by the appellant were different than the goods traded by them – the appellant is not able to make a prima facie in their favour - the applicant directed to Rupees Twenty five lakhs as pre-deposit – upon such submission rest of the duty to be waived till the disposal – Partial stay granted.
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2013 (11) TMI 1285
Duty demand on the basis of private notebook - Held that:- Taking into account of the statement of Shri T. Ramkumar, who has signed the mahazar and the statement of Smt. Rajeswari after three days of the seizure of the notebook, it is established recovery of the notebook from their factory - it is not ncesssary to establish the clandestine removal of the goods by producing evidence in the nature of supply of raw materials manufactured and cleared and sold - the appellant cleared the goods without payment of duty on the basis of the notebook – Thus, demand of duty along with interest and penalty are justified. The demand of duty along with interest and penalty under Section 11AC of the Act, 1944 are upheld - As the penalty has already been imposed under Section 11AC of the Act, penalty under Rule 25 is set aside - as the penalty has already been imposed on the appellant -Thus, it is appropriate to set aside the penalty – Decided partly in favour of Assessee.
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