Newsletter: Where Service Meets Reader Approval.
TMI Tax Updates - e-Newsletter
November 27, 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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Allowing the interest as deduction even though the films were not released during the year was erroneous and prejudicial to the interest of revenue – CIT has correctly applied section 263 - AT
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Exemption u/s 11(1) - A.O. himself in the assessment order, more than 80% of the receipts are on account of continuing education, diploma and certificate programmes - eligible for exemption - AT
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Deduction u/s 80IC - until and unless complied with the conditions of engaging in processing and raising of the plantation of tea, the assessee cannot be allowed deduction under section 80IC(2)(b) - AT
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Penalty - Assessment after search and seizure operation under section 132 - Assessee has satisfied the conditions for not levying the penalty under Section 271AAA - AT
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Reassessment u/s 147 - Issue of Notice u/s 143(2) - mandatory or not – When the assessee has chosen not to file return, no notice under section 143(2) is required to be served - AT
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Depreciation – asset in question was vacant for part period and not put to use by the assessee company for the purpose of carrying on its business and earning profits there from - no depreication - AT
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When the assessee has claimed the maintenance charges as bad debt, the same is disallowed and when it is recovered, it is treated as income. It would be double jeopardy - AT
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Amalgamated company is entitled to set off and carry forward the brought forward business losses and unabsorbed depreciation of the amalgamating company from the very first year of the amalgamation - AT
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Legality of existence of firm BVRE – number of persons vis-à-vis 4 HUFs would be 12 (15 – 3). Since Sec.11(2) of Companies Act, 1956 uses expression “Person”, number of persons who have signed partnership deed in two capacities have to be reckoned as “one person” - AT
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Exemption u/s 10A – Existence of some old employees in the new undertaking is not a disqualification for granting exemption benefit to the assessee under S.10A as long as larger chunck of HR Department has not moved to the new unit from the old one - AT
Customs
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Refund claim of 4% of SAD - There is no condition in the Notification that the Bill of Entry number should be mentioned in the sale invoice - AT
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Confiscation of goods - Export of restricted goods without license - when rule lapses on repeal of that rule without saving a clause, section 6 of the General Clauses Act does not apply to the same - AT
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If the Appellants are ready to discharge the duty assessed by the Department, we do not see any reason as to why the amendment to the IGMs requested by them, only to the extent of change of the names of the importers, be not allowed - AT
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Anti dumping duty - Notification NO. 86/2011 - Whether Stainless Steel Cold Rolled coils - any product having width more than 1250 MM are not leviable for anti-dumping duty - AT
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Penalty was imposed on the ground that the appellant filed the Bill of Entry under fictitious names which is within the purview of Section 112 (a) of the Customs Act, 1962 - Penalty reduced in each case - AT
Service Tax
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CENVAT Credit - Classification of service - Whether trading could be treated as an exempted service for the purpose of Cenvat credit - stay granted - AT
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Activity manufacture or not - Demand of service tax - onversion of an article which is incomplete or unfinished but having the essential character of the complete or finished article amounts to manufacture - AT
Central Excise
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The Petitioner claimed that the bought-out items are inseparably attached to the concrete foundation during assembly of the cooling towers and therefore constitute immovable property outside the ambit of excise duty - prima facie case is against the assessee. - AT
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Charging of duty on accessories – Prima facie there was no merit in the submission that air heating system emerges only at the site as the nomenclature, ‘Air-Heating System’ does not appear in any of the documents, namely, Central Excise Invoices, Purchase Orders etc - AT
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Valuation - Rule 8 of Central Excise (Valuation ) Rules, 2000 would apply only where entire production of a particular commodity is captively consumed - AT
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The credit which was taken wrongly would arise when an assessee is required to determine whether the inputs/capital goods received by him are liable to duty or not and whether duty is payable or not - There is no rule which puts an obligation on the receiver of goods - AT
Case Laws:
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Income Tax
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2013 (11) TMI 1337
Invocation of section 263 by CIT – Held that:- Reliance has been placed upon the judgment in the case of CIT v. Honda Siel Power Products Ltd reported in [2010 (7) TMI 38 - HIGH COURT OF DELHI], wherein it has been held that CIT cannot exercise his powers under s. 263 to differ with the view of the AO even if there has been as loss of revenue - CIT can exercise his powers under s. 263 where a loss of revenue results as a consequence of the view adopted by the AO. While passing an order under s. 263, the CIT has to examine not only the assessment order, but the entire record of the profits. Since the assessee no control over the way an assessment order is drafted and since, generally, the issues which are accepted by the AO do not find mention in the assessment order and only those points are taken note of on which the asseessee’s explanations are rejected and additions/disallowances are made – In the present case, in an overall consideration of the facts and circumstances of issue and in conformity with the ratio laid down by the various judiciary including the Co-ordinate Bench of this Tribunal in the case of Infosys Technologies Ltd [2012 (1) TMI 76 - KARNATAKA HIGH COURT ], it has been held that CIT was not justified in coming to a conclusion that the order passed by the AO under section 147 r. w. s. 143(3) of the Act was erroneous and prejudicial to the interest of revenue thereby invoking the provisions of section 263 of the Act and directing the AO to withdraw the deduction allowed u/s 80IB (10) of the Act – Invocation of section 263 is not sustainable – Decided in favor of Assessee.
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2013 (11) TMI 1336
Validity of action of CIT u/s 263 of the Income Tax Act – Assessee was engaged in the business of production of films had shown two films i.e. "welcome" and "Full N Final" as being under production during the year and the one film i.e. "Phir Hera Pheri" had been released during the year - Examination the letter of intent of IDBI bank makes it clear that bank had advanced foreign currency loan specifically for the purpose of meeting the part of the cost of production of these two films and the loans were secured as first charge on the negatives of the proposed films and there were also some conditions prescribed which included a separate laboratory agreement for film processing with undertaking that no print of the film could be released to any firm or company unless authorized by the bank in writing and physical progress of production was to be intimated to the bank from time to time and work had to be carried out in accordance with the time schedule prescribed in the agreement – Held that:- Foreign currency loan had been taken specifically for the production of two films and could not be utilized for any other project - Order passed by AO was erroneous and prejudicial to the interest of revenue as he accepted the explanation of assessee that the loans were of general purpose loans without any examination and application of mind - The interest on borrowings which had been specifically taken for the production of two films has to be considered as part of cost of production in view of definition of cost of production given in the Explanation to Rule 9A. Therefore allowing the interest as deduction even though the films were not released during the year was erroneous and prejudicial to the interest of revenue – CIT has correctly applied section 263 of Income Tax Act – Decided against the Assessee. Mandatory application of Rule 9A – Held that:- Rule 9A is the rule framed by the board for computation of income from exhibition of feature films - Such rules framed by the board are binding on the authorities below and therefore it could not be said that such rules are not to be followed mandatorily – As per Hon'ble Supreme Court in case of Joseph Valakuzhy [2008 (5) TMI 3 - Supreme court], it has been held that such rules framed by the board are binding on the authorities below and therefore it could not be said that such rules are not to be followed mandatorily.
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2013 (11) TMI 1335
TPA - Allowance of usance interest and BLC interest as expenditure to the assessee - Machines, accessories and parts thereof were imported by the assessee company from its holding company Ricoh, Japan during the course of its normal business - As per the relevant bills of lading, the assessee was liable to pay interest to Ricoh, Japan for the delay in payment up to a period of 180 days - The assessee company had availed BLC from Citi Bank and as per the terms of the said credit, the Citi Bank was making the payment to Ricoh, Japan on behalf of the assessee company after a period of 180 days in Dollar terms and the said credit was subsequently repaid by the assessee again in Dollars along with interest. The usance interest to Ricoh, Japan and interest from BLC to Citi Bank was agreed to be paid at international libor – Held that:- Expenditure on account of usance interest and BLC interest was incurred by the assessee wholly and exclusively for the purpose of business and it cannot be said by any stretch of imagination that it was a case of transfer of its profits by the assessee company to the parent company Ricoh, Japan in the guise of the said interest in order to avoid the tax liability as alleged by the A.O. especially when the relevant international transactions of the assessee company with Ricoh, Japan were accepted by the transfer Pricing Office in its order passed u/s 92(3) as made at ALP – Decided against the Revenue. Treating the bank interest on deposits as ‘Business income’ instead of ‘Income from other sources’ – Held that:- Deposits with Bank were kept by the assessee as its business necessity to obtain the performance guarantee in favour of the clients and the ld. D.R has not been able to controvert/rebut this finding recorded by the ld. CIT(A) - Once it is found that the fixed deposits with Bank were kept by the assessee for the purpose of its business, the interest earned on the said deposits has to be treated as business income of the assessee – Decided against the Revenue. Allowability of loss due to fluctuation in foreign exchange – Held that:- Claim for foreign exchange fluctuation loss relating to usance interest and BLC interest is consequential to the issue relating to allowability of the said interest as involved in first ground above – Since the first ground is already decided in favor of assessee, allowed the consequential relief due to the assessee on account of foreign exchange fluctuation loss relating to the said interest – Decided against the Revenue. Taxability of interest on advance made on accrual basis - Advance to M/s CEAT Tyres Ltd – Held that:- Income Tax is a levy on income and Income Tax Act takes into account points of time at which the liability to tax is attracted viz. the accrual of income or its receipt. If the right to receive a particular income is vested in the assessee as per the agreement or understanding, the same can be said to have accrued to the assessee in the relevant year unless such right is waived by him as a result of revised agreement or understanding - Nothing has been brought on record in the present case either before the authorities below or even before the ITAT to show that interest chargeable by it on the advance to M/s CEAT Tyres Ltd. as per the agreement was actually waived in the year under consideration - On the other hand, a civil suit was filed by the assessee against M/s CEAT Tyres Ltd. to recover the advance along with interest which was pending before the Hon'ble Bombay High Court - Having regard to all these facts of the case, income on account of interest receivable on advance paid by the assessee to M/s CEAT Tyres Ltd. had accrued to the assessee in the year under consideration and the same was taxable in the hands of the assessee as rightly held by the A.O. – Decided in favor of Revenue.
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2013 (11) TMI 1334
International transaction u/s 92 of the Income tax act - Assessee rendered services of looking after the customs clearance and handling insurance and installation of equipment imported from Tellabs Denmark - Part of the on-shore contract in so far as it relates to customs clearance and installation thereafter is claimed to have been assigned by Tellabs Denmark to the Assessee. The claim of the Assessee is that effect of such assignment is that the portion of the said contract is between the Assessee and PGCIL both of whom are residents and therefore one of the requirement of Sec. 92B(1) is not satisfied – Held that:- Requirement for application of Sec. 92-B (1) of the Act is that the international transaction should be between two associated persons – Further, the requirement of either or both the parties to the transaction being non-resident - PGCIL has consented to the assignment of the portion of Onshore Agreement by Tellabs Denmark to the assessee with a specific condition that the Assignment will not amount to Novation of contract between PGCIL and Tellabs Denmark. Section 62 in The Indian Contract Act, 1872 lays down the effect of novation, rescission, and alteration of contract. It lays down that if the parties to a contract agree to substitute a new contract for it, or to rescind or alter it, the original contract need not be performed. Assignment involves the transfer of an interest or benefit from one person to another. However the 'burden', or obligations, under a contract cannot be transferred. If one wants to transfer the burden of a contract as well as the benefits under it, one has to novate. Like assignment, novation transfers the benefits under a contract but unlike assignment, novation transfers the burden under a contract as well - Provisions of Sec. 92 were applicable to the assignment of the portion of the onshore contract by Tellabs Denmark to the Assessee
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2013 (11) TMI 1333
Allowance of deduction on commission paid to Managing Director u/s 36(ii) of the Income Tax Act – Held that:- Reliance has been placed upon the judgment in the case of AMD Metplast P.Ltd.[ 2011 (12) TMI 320 - Delhi High Court], wherein it has been held that in terms of the board resolution the Managing Director was entitled to receive commission for services rendered to the company. It was a term of employment on the basis of which he had rendered service. Accordingly, he was entitled to the amount. Commission was treated as a part and parcel of salary and tax had been deducted at source. MD was liable to pay tax on both the salary component and the commission. The payment of dividend was made in terms of the Companies Act, 1956. The dividend had to be paid to all shareholders equally. This position could not be disputed by the Revenue. Dividend was a return on investment and not salary or part thereof. In the present case, Shri Raj Kumar Bardeja was the Managing Director of the assessee company who had been paid salary and commission in terms of Board’s Resolution - The assessee has deducted the tax at source under Section 192 of the Act treating the commission as part of salary. Shri Raj Kumar Bardeja has disclosed the income under the head ‘salary – Deduction of commission was allowed u/s 36(1)(ii) of the Income Tax Act. Addition on account of remission/cessation of liability under Section 41(1) of the Income-tax Act - Assessee could not produce the confirmation from these three creditors – Held that:- Relying upon the judgment in the case of Uttam Air Products (P) Ltd [2004 (10) TMI 284 - ITAT DELHI-C], it was held that Revenue has no material or evidence to substantiate that the said supplier had given up its claim against the assessee. The onus to bring on record such material or evidence is on the Revenue - On the basis of the facts and material as found on record, it cannot be held that the liability had ceased to exist in the hands of the assessee in the absence of any material to the contrary – Decided in favor of Assessee.
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2013 (11) TMI 1332
Eligibility of exemption u/s 11(1) of the Income tax act - Activity of the assessee falls under the field of education – Held that:- It was observed by Hon'ble Apex Court in the case Sole Trustee, Loka Shikshana Trust [1975 (8) TMI 1 - SUPREME Court] that the word education has not been used in the wide and extended sense according to which every action of further knowledge constitute education. Hon'ble Apex Court observed that according to this wide and extended sense, traveling is education, because as a result of traveling you acquire fresh knowledge but this is not the sense in which the word education is used in clause 15 of Section 2 - Hon'ble Gujarat high court in the case of Gujarat State Cooperative Union[1992 (2) TMI 74 - GUJARAT High Court] observed that the observation of Hon'ble Apex Court was not intended to give a narrow or pedantic sense to the word education – The present case is not the objection of the revenue that the activity of the present assessee is like of an activity which are noted by Hon'ble Apex Court such as traveler gaining knowledge, victim of swindler and thieves becoming wiser and visitor of night club adding to the knowledge of hidden mysteries of life etc. In the instant case, assessee is granting diploma also and as has been noted by the A.O. himself in the assessment order, more than 80% of the receipts are on account of continuing education, diploma and certificate programmes. All the four activities noted by the A.O. on this page of the assessment order are not like those activities which were noted by Hon'ble Apex Court to say that those activities cannot be covered by the term education in Section 2(15) - Issue involved in the present case is squarely covered in favour of the assessee by the judgement of Hon'ble Gujarat High court cited by the Ld. A.R. having been rendered in the case of Gujarat State Cooperative Union - Issue in dispute is decided in favour of the assessee and the activities of the assessee are in the field of education and the assessee is eligible for exemption u/s 11(1) – Decided in favor of assessee.
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2013 (11) TMI 1331
Interest as expenditure u/s 36(1)(iii) of the Income tax act – Money borrowed at higher rate and money lent at lower rate of interest – Allowability of interest – Held that:- Reliance has been placed upon the order of ITAT “D” Bench Ahmedabad in assessee’s own case titled as The Dy. CIT vs. Aditya Medisales Ltd [2013 (9) TMI 114 - ITAT AHMEDABAD ], which is decided in favor of assessee, wherein it was held that the assessee had its own substantial interest-free funds out of which advances have been made. An another noting has been made that the Revenue had not made out a case that interest bearing borrowed funds have been diverted to the group concerns by charging lower rate of interest – In the present case, for the years under consideration, in the absence of any contrary material placed on record from the side of the Revenue, there is no option but to follow the past precedent as held in assessee’s favour vide series of orders. Therefore, the result is that the ground as raised by the Revenue stood covered in assessee’s favour, hence dismissed – Decided against the Revenue. Invocation of section 14A read with Rule 8D with retrospective effect from 1.4.1962 - For AY 2005-06, 2006-07, assessee had received the Dividend Income of Rs.1,30,66,287/- (AY 05-06) and Rs.1,50,76,485/- (AY 06-07) stated to be on equity shares of Sun Pharmaceuticals Ltd. Dividend was claimed exempt u/s.10(34) r.w.s. 115-O of IT Act - expenses like interest on the funds borrowed for investment relating to the earning of exempt income be disallowed u/s.14A of IT Act – Held that:- Relying upon the decision in the case of M/s.Daga Capital Management Pvt.Ltd[2008 (10) TMI 383 - ITAT MUMBAI ], it was held that the provisions of section 14A(2)&(3) of the I.T.Act being clarificatory in nature will apply retrospectively even though they have been introduced by Finance Act, 2006 w.e.f. 1.4.2007. Section 14A has been inserted retrospectively by Finance Act, 2001, with effect from 1.4.1962 – As provisions of section 14A(2) & 14A(3) are also retrospective in nature and in result Rule 8D will also apply accordingly. In the present case, the Comm.(A) has held that in the absence of “fundflow- statement” an amount @ 10% of the dividend received was to be disallowed towards interest incurred towards investment in exempt income. Resultant an amount for AY 05-06 was taxed. For AY 06-07, the AO had held that interest bearing funds was utilized in financing the cost of acquisition of shares. The provision of Rule 8D r.w.s. 14A were applied - In the instant case, in the appeal before ITAT, remanded the entire issue of disallowance of interest and other expenditure under section.14A back to the file of the Learned Assessing Officer for fresh adjudication in the light of the decision of Hon'ble Bombay High Court in the case of Godrej and Boyce Mfg. Co. Ltd. v. Deputy Commissioner of Income-tax [ 2010 (8) TMI 77 - BOMBAY HIGH COURT]- Decided in favor of Revenue.
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2013 (11) TMI 1330
Classification of head of income - ‘Capital gain’ or ‘Income from Business and Profession’ on purchase and sale of shares – The holding period for the shares is less than 365 days - Character of the shareholding by the assessee, i.e., whether as ‘investment’ or as ‘trading stock’, for resale at a profit, as soon as a profit opportunity arises on the horizon – Held that;- The ‘long term capital gain’, i.e., the profit on shares held for more than 365 days is, at Rs.6.66 lacs only, as against Rs. 50+ lacs declared as ‘short term capital gain’. Though not conclusive, this is again a strong indicator as to the shares being not intended to be held by way of ‘investments - What is the appropriate time for the sale of shares, and which, thus, determines its holding period, would be a business decision, guided, apart from the prevailing market price, an assessment of the risk and return factors attending their holding or exposure therein, including anticipated price movement of the relevant scrip. The holding period would not, thus, carry any additional significance under such circumstances - Profit returned as ‘short term capital gain’ by the assessee-company for the year stands rightly assessed by the Revenue as business income – Decided against the Assessee.
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2013 (11) TMI 1329
Allowability of commission expense – Held that:- The assessee could not substantiate its claim of commission payments with any of the credible evidences - Assessee did not declare the claim of commission expense in the export documents filed before the Customs Department - In view of the foregoing discussions, the assessee has failed to substantiate its claim of payment of commission with adequate evidences - Even if the claim of payment is accepted for a moment, the same is liable to disallowed on technical grounds - It is stated that the payment was claimed to have been received by Mr. Ahmed Taha in India, in which case, the same is liable to be taxed in his hands in India as per the provisions of sec. 5(2) of the Act. In that case, the assessee is liable to deduct tax at source on such payments - It is the responsibility of the assessee to show that the said commission amount is not taxable in India in the hands of Mr. Ahmed Taha - The impugned commission payment is liable to be disallowed u/s. 40(a)(i) of the Act for non deduction of tax at source u/s. 195 of the Act - Commission amount has been claimed to have been paid by way of cash and hence provisions of sec. 40A(3) of the Act also get violated - Impugned commission expense is liable to be disallowed for more than one reason. Cash credit u/s 68 of the Income Tax Act - Cross examination of the person on whose statement the loan has been added as income of the assessee – Held that:- Assessee company itself has offered the impugned cash credit of Rs.14.50 lakhs as its income after the statement given by Shri Prabhakaran, which means that the assessee company has accepted the statement given by Shri Prabhakaran. Hence, the plea raised about cross examination at the appellate stage is clearly an after though and lacks credence - It is well settled proposition that the assessee is required to prove the three main ingredients in respect of the cash credit viz., the identity of the creditor, the credit worthiness of the creditor and the genuineness of the transaction. In the instant case, the creditor is the Managing director of the assessee company. With regard to the sources for making a loan of Rs.14.50 lakhs to the assessee, the Managing director claimed that he had received a loan of identical amount from a person named Mr. Prabhakaran. However, before the AO, Mr. Prabhakaran denied the claim of giving of any loan to the managing director of the company - Thus one of the three ingredients viz., “credit worthiness of the creditor” was failed to be proved by the assessee company. In that case, it cannot be said that the assessee company has discharged the burden of proof placed upon it by sec. 68 of the Act and hence the impugned cash credit is assessable in the hands of the assessee company only – Decided against the Assessee. Penalty levied u/s 271(1)(c) of the Act – Held that:- Assessee has failed to prove the payment of commission with adequate evidences - Amount of Rs.6,38,217/- represented not only the commission amount, but also the expenses incurred by the assessee company during his stay in India - Mr. Ahmed Taha has acknowledged the receipt of commission amount to the tune of Rs.5,70,000/- only and it was in variance to the amount booked by the assessee - Assessee has attempted to explain the difference between the two figures by stating that the difference between the two amounts represents expenses incurred by the assessee company on the visit of Mr. Ahmed Taha. It is noticed that the assessee has furnished the copy of Hotel Bill in support of its contentions that Mr. Ahmed Taha visited Cochin. The assessee has also shown the withdrawals made from a bank account - In the assessment proceedings, the said evidences were not found to be adequate and hence the addition was made. It is well settled proposition of law that an addition made in the assessment proceeding would not automatically give rise to penalty and the scope of penalty has to be examined afresh during the course of penalty proceedings - It cannot be denied that the assessee did furnish all the documents that were available with it. Under these circumstances, the additions made for want of evidences would not give rise to penalty, since the explanations furnished in this regard were not found to be false – Decided in favor of Assessee.
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2013 (11) TMI 1328
Eligibility of interest expense u/s 36(1)(viii) of the Income Tax Act – Held that:- Unless and until all the ingredients specified in Explanation (e) to section 36(1)(viii) are satisfied, the transaction will not fall within the reach of long term finance. If the transactions are not considered as 'Longterm Finance', there is no question of any deduction being given under section 36(1)(viii) of the Act since the claim gets ousted at the threshold – Relying upon the judgment in the case of CCE v. Harichand Shrigopal[2010 (11) TMI 13 - SUPREME COURT OF INDIA ], wherein it has been held that a person who claimed exemption or concession, is required to establish clearly that he was covered by the provision concerned and in the case of doubt or ambiguity, benefit would go to the State - finding of the Assessing Officer that interest on short term deposits was not eligible for the deduction under section 36(1)(viii), which were confirmed by the CIT(A), is in accordance with law - Deposits can never be treated on par with loans or advances. Therefore, interest on deposits will never fall within the definition of long term finance given in Explanation (e) to section 36(1)(viii) of the Act – Decided against the Assessee. Disallowance u/s 43D of the Income Tax Act - By virtue of Sec.43D, it was necessary to offer such interest income, only when interest was realized - Assessee had advanced a sum of Rs. 300 lakhs, as term loan to M/s. NEPC Micon Ltd., who had failed to repay the installments due from 01.04.1997. Assessee had classified the dues as Non-Performing Asset in its books based on Reserve Bank of India guidelines. Assessee had not shown any accrual of interest on such term loan in its accounts. Assessing Officer was of the opinion that since it was following mercantile system of accounting, it was mandatory to show the accrued interest. As per the Assessing Officer, RBI guidelines were only for the purpose of supervision, and management of non banking financial companies and was not relevant for ascertaining income under the Income Tax Act – Held that:- No doubt that assessee had not charged in its books of accounts any interest on the loans classified by it as non performing assets. It is not a case where assessee had credited such interest and then claimed write off. Assessee might have been following mercantile system of accounting. However, the prudential norms prescribed by RBI, for non banking financial Company under section 45 Q of the RBI Act, made it obligatory for the assessee to classify the loans on which interest was not received for a period exceeding six months, as non-performing assets. Once it was so classified, interest could not be charged in its accounts and taken as income – Assessee’s contention is also fortified by the decision in the case of CIT v. Elgi Finance Ltd [2007] [2007 (6) TMI 180 - MADRAS High Court] – Decided in favor of Assessee.
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2013 (11) TMI 1327
Deduction u/s 80IC of the Income Tax Act - Interpretation of the word "and" in item no.12 given in Schedule 14 - Assessee produces an article or things, prescribed in the Schedule 14, the assessee's claim is that his case falls in item 12 of Schedule 14, as the assessee is engaged in the business of processing of black tea - ." The contention of the assessee is that the word "and" between "processing" and "raising" should be read as "or" - Assessee basically relies on item nos. 1,2 and 4 of Schedule 14 – Held that:- In items no. 1,2 and 3 of schedule 14, the nomenclature of the article or things has been mentioned first and activity is given subsequently while in item no.12, it is the activity which has been mentioned first. An article and things has been mentioned subsequently to that - Activities in item no.1 between the activities, the word "or" has been used as is apparent in the case of "fruit" and "vegetable", "processing industries, manufacturing or producing". Similarly in item no.2 also, between the activities, the word "or" has been used, manufacturing or producing. Similarly, in item no.4 also, the word "or" has been used between the activities, while in item no.12, the word "and" has been used between activities. It clearly denotes that both the conditions, i.e., processing and raising of plantation crops must be specified by an undertaking eligible for deduction under section 80IC(2)(b). This is the settled law that a fiscal statute shall have to be interpreted on the basis of the language used therein and not de hors the same. No words ought to be added and only the language to be used or considered so as to ascertain the proper meaning and intent of the legislation. The Court is to ascribe the natural and ordinary meaning to the words used by the legislature and the Court ought not, under any circumstances, statute to its own impression and ideas in place of the legislative intent as is available from a plain reading of the statutory provisions. The Hon'ble Supreme Court in the case of Orissa State Warehousing Corpn v. CIT [1999 (4) TMI 3 - SUPREME Court] has clearly held that an exemption is an exception to the general rule and since the same is opposed to the natural tenure of the statute, the entitlement for exemption, ought not to be read with any latitude to the taxpayer of even with a wider connotation to restrict its application to the specific language used depicting the intent of the Legislature. The decision of the Hon'ble Supreme Court is binding - This decision is delivered subsequent to the decision of the Hon'ble Supreme Court in the case of Bajaj Tempo Ltd. [1992 (4) TMI 4 - SUPREME Court] on which the ld. A.R. has vehemently relied on. This is the settled law in view of the decision of Bhika Ram v. Union of India [1998 (9) TMI 48 - DELHI High Court ] that even there is a conflict between the two decisions of the Supreme Court, the one decided by a Larger Bench is binding. If both decisions are rendered by the Bench consisting of equal number of Judges, the latter decision is binding - In view of our aforesaid discussions, until and unless complied with the conditions of engaging in processing and raising of the plantation of tea, the assessee cannot be allowed deduction under section 80IC(2)(b) – Decided in favor of Revenue.
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2013 (11) TMI 1326
Penalty u/s 271AAA of the Income Tax Act - Search and seizure operation under section 132 of the Act was carried out on 13-01-2009 - During the course of search certain incriminating documents, jewellery and cash were found and seized - Return of income was filed u/s 139(1) on 26-09-2009 - The assessment was completed u/s 143(3) on 21-12-2010 and penalty was also initiated u/s 271AAA. During the search cash of Rs. 67 lakhs was found and seized. The assessee could not explain the source of cash found at the time of search. A statement u/s 132(4) of Shri Nitish Chordia, partner of Concrete Developers was recorded by which the assessee has offered for taxation an amount of Rs. 67 lakhs as unexplained cash and additional income of Rs. 1.53 crores in the hands of M/s Concrete Developers to cover up other discrepancies - Notice of penalty requiring assessee to show cause why penalty u/s 271AAA should not be levied was issued on 13-05-2011 – Held that:- During the course of assessment proceeding also, the assessee has explained the nature of income which was not disclosed before the search. It was explained that the independent income is to be assessed under the head business income and the AO has accepted this contention of the assessee as the assessment has been completed by taking the disclosed income under the head business income - It cannot be said that the assessee has not specified the manner or could not substantiate the manner in which the income was derived as the assessee has explained that this is an unexplained income of the assessee relates to firm which was doing only business activities - Except Rs.67 lakhs, no asset or material was found, however, the assessee has disclosed a sum of Rs.1.53 crores further for the reason that certain loose papers, which were found during the course of search and discrepancies in those papers could not be explained by the assessee, therefore, the assessee came forward to disclosed the total amount of Rs.2.21 crore, subject to non levy of penalty - Assessee has requested to cover his case under the exception clause of sub-section (2) of Section 271AAA of the Act - Assessee has satisfied the conditions for not levying the penalty under Section 271AAA – Reliance has been placed upon the judgment in the case of DCIT Vs. Pioneer Marbles & Interiors (P) Ltd [2012 (5) TMI 6 - ITAT KOLKATA]– Decided in favor of Assessee.
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2013 (11) TMI 1325
Eligibility for claiming any advantage under Article 8 of the India-Singapore Treaty - Assessee is in the business of sea faring cargo business having base, and tax base at Singapore. The assessee operates its ships/vessels round the world - In so far as business of the assessee with India is concerned, it operates its vessels in Singapore Chennai Sector, which is known as Madras Service Route in maritime parlance – Held that:- When two treaties between India- Brazil and between India-Singapore are compared, it is seen that article 8 is worded differently and on comparison of clause (4) of Article 8, India Brazil Treaty talks of business as such but India Singapore Treaty talks of "profits from the operation". Another difference is that India Singapore DTAA Treaty extends its arms to embrace, "any other activity directly connected with such transportation", which is not extended in the India Brazil Treaty. Taking note of this major difference in the Treaty language and taking into consideration the ratio laid down in the case of UOI v. Azadi Bachao Andolan, [reported in [2003 (10) TMI 5 - SUPREME Court], wherein the Hon'ble Apex Court held that "the provisions of the Treaty have to be applied and interpreted in a liberal manner so that the benefit contemplated for avoiding double taxation of the same income can be appropriately granted to the party". Taking into consideration the decision of Hon'ble Bombay High Court in the case of Balaji Shipping [2012 (8) TMI 681 - BOMBAY HIGH COURT], it is found that slot charter have been held to be charter per se. Even if observation is diluted that slot charter is different from charter, then the ratio of Azadi Bacho Andolan [2003 (10) TMI 5 - SUPREME Court], i.e., "expressions should be construed in the manner in which the contracting partners understood at the time of execution of treaty", prompts to hold that slot charter is charter - This lends force to observation that the inclusion of sub clauses (b), (c) and (d) to Article 8.4 is profit specified, generated from the operation of ships, aircrafts in international traffic by owner, lessess a charter ... which is directly connected with such transportation - Difference of the use of expression "business" used in India Brazil Treaty and the use of expression "transportation" in India Singapore Treaty to be noted, because as observed, the business or economy of Singapore being contracting state is founded on tourism and cargo hub connecting the entire world. Definition of the expression "operation of ship or aircraft in international traffic" in Article 3, i.e. "General Definitions", it is found that "international traffic" means "any transport by a ship or aircraft operated solely between places in the other contracting state". From the agreements, the two contracting states are India and Singapore - According to the agreements, cargo is lifted by the feeder vessel from Chennai (Madras) or an Indian port, to be taken to its mother feeder hub, either at Singapore or Srilanka, from where it is taken to its onward and final destination - On these basic facts, emerging from the agreements, the claim of the assessee comes within the precinct of Article 8 of India Singapore DTAA Treaty – Decided in favor of Assessee.
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2013 (11) TMI 1324
Reassessment u/s 147 - Issue of Notice u/s 143(2) - mandatory or not Held that:- Before making assessment under section 147 of the Act the A.O. is to serve notice under section 148 of the Act requiring the assessee to furnish the return of income. On furnishing return of income in compliance to notice under section 148 of the Act then the provisions of this Act including issue of notice under section 143(2) of the Act shall apply accordingly - If we see the objects of issuing notice under section 143(2) after filing return of income, it is noticed that notice is required to be issued to examine and to ensure that the assessee has not understated the income or has not computed excessive loss or has not under-paid the tax in any manner. For this purpose opportunity is required to be given to the assessee to produce or to be produced any evidence on which the assessee may rely in support of the return. When the assessee has chosen not to file return, no notice under section 143(2) is required to be served - Since no valid return is filed under section 148, 139 or 142, therefore, period of issue of notice under section 143(2) as per proviso to section 143(2) cannot be counted which is to be reckoned from furnishing of return Decided in favor of Revenue.
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2013 (11) TMI 1323
‘Reasons to believe’ under section 148 of the Income Tax Act – Held that:- Reliance has been placed upon the judgment in the case of Kelvinator of India Ltd[2010 (1) TMI 11 - SUPREME COURT OF INDIA] and also on the judgment in the case of Orient Craft Ltd [2013 (1) TMI 177 - DELHI HIGH COURT] – In the present case, entire details of interest paid to Binani Cement Ltd. was available with the AO at the time of original assessment and the present AO, reopening the assessment, has recorded the reasons from the perusal of assessment records and also found discrepancy and not escapement of income, which is the mandate of section 147 of the Act - There is no whisper in the reasons recorded of any tangible material which has come to the possession of AO subsequent to the assessment – Decided against the Revenue.
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2013 (11) TMI 1322
Allowability of labor expenses on self drawn vouchers of Assessee - The appellant had debited labour expenses amounting to Rs. 40,53,382/- and payment to the labourers were made in cash on self drawn vouchers, which are not verifiable. Besides this, the appellant had not maintained day-to-day records on consumption of raw materials – Held that:- The appellant made payment to the labour in cash but which has been signed by the recipients - The assessee had shown comparative chart not only with preceding year but site wise which shows that labour charges paid during A.Y. 06-07 were 14.74% of total expenses which has been reduced at 3.3% during the year under consideration. It reveals that more labours were used in A.Y. 06-07 and in A.Y. 07-08, this work has been executed either through sub-contractor or machine - A.O. had not pointed out any specific defect in the books of account, dis-respecting audit report before disallowing the labour expenses. There is no abnormal increase in the labour charges – Decided against the Revenue. Expenses allowable u/s 43B of the Income Tax Act - Granting relief of Rs.25,12,296/- on account of disallowance u/s.43B of the Act and restricting the disallowance to Rs.52,054/- out of total liability of VAT u/s.43B of the Act – Held that:- The CIT(A) has verified all the accounts of the service tax as well as VAT account and finally he determined the total unpaid tax liability u/s. 43B Rs.41,643/- and other payments have already been made on or before due date of return filed by the assessee on the basis of service tax received by the appellant – Confirmed the order of Commissioner(A) – Decided against the Revenue. Disallowance u/s 40A(3) of the Income Tax Act - Cash payment exceeding Rs.20,000/- to Abada Musabhai Ismailbhai, subcontractor and violated the provisions of 40A(3) of the IT Act on four payments mentioned in the assessment order – Held that:- It is found that TDS has already been deducted by the appellant u/s. 194C of the IT Act and no single payment is more than Rs.20,000/- for which the evidence placed – Assessee relied upon in case of CIT vs. S.S.P. (P.) Ltd. in [2010 (12) TMI 370 - PUNJAB AND HARYANA HIGH COURT] and decided the issue in favor of Assessee – Decided against the Revenue.
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2013 (11) TMI 1321
Nature of agreement between assessee and dumper owners, a contractual or not - Disallowance u/s 40(a)(ia) of the Income Tax Act - Assessee has paid Dumper hire charges amounting to Rs.36,37,815/- to ten different parties - No TDS has been deducted on these payments, though these were contractual/sub-contractual payment in nature under section 194C of the Act – Held that:- Reliance has been placed upon the decision of the Hon’ble Jurisdictional High court in the case of Pijush Kanti Chowdhury [2007 (5) TMI 559 - CALCUTTA HIGH COURT]. and also obedience has been placed to decision of the Hon’ble Supreme Court in the case of Shree Chamund Mopeds Ltd [1992 (4) TMI 183 - SUPREME COURT OF INDIA], the decision of the special bench of this tribunal in the case of Merilyn Shipping & Transports [2012 (4) TMI 290 - ITAT VISAKHAPATNAM] still holds ground and accordingly, TDS provisions will apply, for the purpose of invocation of the provisions of section 40(a)(ia) of the Act, only on the amounts remained payable at the end of financial year and not on the paid amounts - Directed the AO to recompute the disallowance accordingly – Decided in favor or Revenue, partly.
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2013 (11) TMI 1320
Selection of comparable for determining Arms Length Price in Tranfer Pricing Transaction - Whether MALCO is comparable to the assessee for the purpose of determining of arm's length adjustments, if any – Held that:- When comparing the aluminium coil MALCO itself recognizes that the Properzi wire rods has higher realization and MALCO is relatively small compared to other domestic majors. In the case of the assessee, substantial portion of its production is in aluminium coils and other items – On the above ground MALCO cannot be treated as comparable to the assessee - In the case of MALCO the identical product which is being used for comparing MALCO to the assessee being aluminium rolled product represents just about 8% of the total turnover of MALCO – In view of above, MALCO cannot be used as comparable for determining the arms length price in the case of the assessee. MALCO has captive mines for extraction of its raw material whereas the assessee has to procure the raw material from the open market - A perusal of the costing of raw-material shows that in the case of MALCO the value of raw material consumed being bauxite is at 347563 MT is Rs.14.04 crores as against in the assessee's case the aluminium ingots and sheets are 25845 MT costing Rs.266 crores - This itself clearly shows that the very foundation of the manufacturing process being the raw materials are difference in the case of MALCO and the assessee - MALCO is manufacturing aluminium ingots and trading in aluminium ingots also whereas the assessee's primary raw material is aluminium ingots. Thus even on this ground MALCO cannot be treated as comparable to the case of the assessee. MALCO is a debt free company, insofar as it has a debt of only Rs.21.77 crores as against Rs.184 crores in the case of the assessee - The interest cost in the case of MALCO being Rs.77 lakhs as against Rs.30 crores in the case of the assessee would make a substantial dent in the profit - Net result of the Transfer price adjustment is an amount of Rs.19.34 crores. If the adjustment in respect of annual financial charges are made then this differential would get completely wiped out as the differential in the interest burden is Rs.30 crores in the case of the assessee whereas it is only Rs.77 lakhs in the case of MALCO – Thus, decided in favor of Assessee.
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2013 (11) TMI 1319
Depreciation – Disallowance on account of depreciation claimed at Rs.1.07 Crores of factory building which had not been used for business – Held that:- Ownership of building is not an essential precondition for claiming/allowing depreciation, but carrying on of business or profession is a mandatory condition - For claiming depreciation for a building it should be ‘put to use for business or profession’. Burden of proof is on assessee to prove that buildings was put to use for the business or profession - There is no doubt that keeping plant or machinery ready for use has been considered passive use of the asset and depreciation has been allowed for such assets. But, in such cases condition of using the asset for the business or profession has never been waived – In the present case, it is found that the asset in question was vacant for part period and not put to use by the assessee company for the purpose of carrying on its business and earning profits there from. Further, after the said asset was leased out from 07.11.2003 onwards, the income derived from it was offered under the head “income from house property” and not business income. The case under consideration is not a case of a small trader or a retailer carrying on a business at base level. Asssessee company is part of a Group that is advised by well qualified professionals – Considering the facts, disallowance of depreciation is confirmed – Decided against the Assessee. Penalty under section 271(1)(c) of the Income Tax Act – Held that:- In view of Explanation1 to section 271(1) (c), penalty for concealment of income or furnishing inaccurate particulars can be imposed if an assessee offers an explanation which is found by the AO / FAA to be false, or if the assessee offers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide. In such matters the onus is on the assessee to offer an explanation in respect of the claims made by him in the return of income - Enactment of Section 271(1)(c) read with the Explanations is to provide for a remedy for loss of revenue. In other words, Section 271(1)(c) has to be strictly applied in the larger interest of discipline in filing correct returns by the assessees. Secondly, as per the established principles of tax-jurisprudence assessee should file some positive evidences whenever he makes a claim for deductions u/s. 30-37 of the Act. Therefore, if any claim, resulting in loss to Revenue, is made by an assessee without supporting evidences, he exposes himself to penalty u/s. 271(1)(c) – In the present case, assessee company had claimed depreciation u/s. 32 of the Act that was not allowable under the provisions of the Act, proves that the assessee company had claimed excess depredation and thereby evaded payment of taxes to that extent – Penalty u/s 271(1)(c) imposable – Decided against the assessee.
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2013 (11) TMI 1318
Sale and Purchase of shares, not a bogus transactions – Income arising from purchase and sale of shares chargeable under head ‘Long term capital gains’ and not an undisclosed income - Shares were purchased as penny stocks at low price of 55 paise per share and the same were claimed to have been sold at Rs.40 per share and thereby the assessee has shown Long term capital gains of Rs.29,09,675 – Held that:- Examination has been done of the stock broker though which the assessee has purchased shares as well as from the stock broker to whom the assessee has sold the shares - Both the stock brokers have confirmed the transaction of purchase as well as sale - The assessee has also produced relevant documentary evidence in support of the transaction of purchase and sale - There is no finding or dispute on the point of prevailing price at the time of purchase or at the time of sale of shares - Shares of Blue Chip India Ltd. were duly shown in the balance sheet filed with the return of income for the A.Y. 2003-04 and, therefore, the assessee has discharged his onus to prove the holding of the shares and in the absence of any contrary evidence brought by the Assessing Officer on record, it cannot be said that the transaction of purchase shown by the assessee is not genuine – Reliance has been placed upon the case of CIT Vs. Jamnadevi Agarwal [2010 (9) TMI 81 - Bombay High Court]. From the documents produced, which were also in the possession of the Assessing Officer, shares in question were in fact purchased by the assessees on the respective dates and the company has confirmed to have handed over the shares purchased by the assessees. Similarly, the sale of the shares to the respective buyers is also established by producing documentary evidence. It is true that some of the transactions were off-market transactions. However, the purchase and sale price of the shares declared by the assessees were in conformity with the market rates prevailing on the respective dates as is seen from the documents furnished by the assessees. Therefore, the fact that some of the transactions were off-market transactions cannot be a ground to treat the transactions as sham transactions – Decided against the Revenue.
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2013 (11) TMI 1317
Classification of head of Income i.e. “income from house property” or “income from other sources” – Held that:- There was no letting of any machinery, plant or furniture belonging to the assessee. Once this finding of fact is not controverted, then there can be only one conclusion that letting of building which has certain amenities for which no separate charges are being recovered by the assessee would be liable to tax under the “income from house property” - A.O. in prior years has himself taxed the rental income of DLF Centre as “income from house property” and no changes in the facts and circumstances of the case are discernible in the year under review - Deduction of depreciation and annual repairs would be allowed to the assessee - CIT(Appeals) is correct in holding that the income from DLF Centre should be held under the head “Income from house property” – Decided against the Revenue. Addition on account of enhanced compensation received on acquisition of land – Held that:- Judgment of the Hon’ble High Court has been followed in assessee’s own case[1981 (12) TMI 21 - DELHI High Court] - Compensation received by the assessee on acquisition of agricultural land was exempt - It is only the enhanced compensation received this year against the acquisition of same land - Its nature cannot be different than the original compensation received by the assessee – Exemption allowed on the enhanced compensation on land – Decided against the Revenue. Recovery of Bad-Debts to be taxable u/s 41(1) of the Income Tax Act - Maintenance charges paid by the assessee on behalf of RPG Home Finance Pvt.Ltd. were debited to the account of RPG Home Finance Pvt.Ltd. in the earlier year. Since they defaulted in making the payment of even the purchase price of the property, the amount debited as maintenance charges to them was treated as bad debt in the year under consideration - Subsequently, a compromise took place and RPG Home Finance Pvt.Ltd. not only made the payment of outstanding purchase consideration but also of the outstanding maintenance charges – Held that:- Maintenance charges have been offered as income in AY 2005-06. Thus, at one hand, when the assessee has claimed the maintenance charges as bad debt, the same is disallowed and when it is recovered, it is treated as income. It would be double jeopardy because in AY 2005-06, the recovery of the maintenance charges can be taxed under Section 41(1) only if the deduction for the maintenance charges is allowed in the year under consideration – Decided against the Revenue. Disallowance on account of writing off of balance due from a wholly owned subsidiary set up for the proposed hotel project at DLF City, Gurgaon, which was subsequently abandoned by the company - Expenditure written off was claimed as allowable expense u/s 36(1)(vii) of the Act – Held that:- The expenditure was not incurred by the assessee but by M/s DLF Infrastructure, a subsidiary company of the assessee. Further, the expenditure was in respect of an entirely new project, that too, incurred in the earlier year - Amount cannot be allowed as a bad debt also because it was never reflected as income in the profit & loss account.
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2013 (11) TMI 1316
Disallowance of Interest expenditure - Assessee has borrowed huge funds from banks and also in the form of inter Corporate deposits etc - Assessee has been making early payments to the clients when the securities are sold and receiving delayed payments on the purchase transaction from the clientele and in the process has been incurring huge interest liability which apparently has not been passed to the clientele - Assessee has not been advancing any money to facilitate the transactions of clientele instead the assessee has been giving away the sale consideration immediately without waiting for the receipt of sale proceeds and assessee has been paying the monies which come from the clients on pay out day and pay in days – Held that:- Relying upon the Hon’ble Supreme court decision in the case of Bengal Enamel Works Ltd. [1969 (12) TMI 4 - SUPREME Court], it has been held that Assessee is the best judge of the expenditure. The expenditure incurred by assessee may found to be unnecessary and unavoidable. Still the same has to be accepted by department if it is for the purpose of business. There need not be any legal obligation to incur expenditure, but the principles of commercial expediency will ultimately prevail and the” act of the assessee has to be viewed from businessman angle not from the department. The interest paid by the assessee on borrowings was paid to various banks etc. on prevailing market rate and brokerage has been charged by the assessee on prevailing market rate. Therefore, it cannot be said that the interest expenditure incurred by the assessee was on account of any illegal activity. Allowability of excess brokerage shown in the service tax return as compared to brokerage income shown in profit and loss account – Held that:- Assessee has been reflecting the service tax return, the brokerage on accrued basis but in profit and loss account the brokerage has been shown on actual basis on the basis of constant method adopted by the assessee - Sometime the assessee is required to reduce the brokerage at the request of the assessee during the final settlement of the bills and some time the assessee is also required to waive part of the brokerage disputed by the clients - Therefore, difference as per the service tax return and as per profit and loss account was found explainable – Decided against the Revenue.
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2013 (11) TMI 1315
Allowability of deduction u/s 80IA of the Income Tax Act – Held that:- Reliance has been placed on the assessee’s own case for the assessment year 2004-05, deduction u/s 80IA allowed to the Assessee - The Tribunal in the said order has followed another order in assessee's own case for assessment year 2005-06 - Nothing has been brought on record to show that the said decision of the Tribunal has been reversed/modified by the Hon'ble Karnataka High Court. Hence, as on date, the decision holding the field is that of the Tribunal for the assessment year 2004- 05 – No any change in facts and circumstances in the present assessment year also – No any infirmity in the order of the Commissioner of Income-tax (Appeals) in following the decision of this Tribunal in assessee's own case for assessment year 2004-05 – Deduction u/s 80IA allowed – Decided against the Revenue.
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2013 (11) TMI 1314
Selection of comparables – Comparable being Vishal Information Technologies Ltd – Held that :- Annual accounts that Vishal Information Technologies Ltd was outsourcing a considerable portion of its business - Assessee is mainly engaged in rendering services at its own and not outsourced - Accordingly this case was excluded from the list of comparables. Comparable being CMC Limited – Held that:- CMC’s related party transactions (RPTs) are much more than 25% of the total revenue – Reliance has been placed upon The Delhi Bench of the Tribunal in the case of ACTIS Advisers (P.) Ltd. v. Dy. CIT [2012 (10) TMI 779 - ITAT, DELHI], wherein it has been held that a case can be taken as uncontrolled if its related parties transactions do not exceed 25% of the total revenue – CMC Ltd., rejected as comparable. Comparable being R Systems International Ltd. – Held that:- Unless the financial year-end of a comparable case matches with that of the assessee, it cannot be considered as comparable because the figures of different financial year endings are distorted – Reliance has been placed upon the judgment in the case of Automation India Ltd. v. Dy. CIT [2009 (2) TMI 736 - ITAT PUNE].[IT Appeal No. 4 (PN) of 2008, dated 11-2-2009], wherein it has been held that it is mandatory for the purposes of comparing the data of an uncontrolled transaction with an international transaction that the same must relate to the financial year ending similar to that of the assessee – Hence, excluded from the list of comparable.
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2013 (11) TMI 1313
When the conditions prescribed u/s 72A(2) are not satisfied by the amalgamated company for set-off of losses and depreciation – Set-off of losses of the amalgamating company in the hands of amalgamated company u/s 72A(1) of the Income Tax Act – Held that:- In a case where any of the conditions laid down in sub-section (2) are not complied with, the set off of loss or allowance of depreciation made in any previous year in the hands of the amalgamated company shall be deemed to be income of the amalgamated company chargeable to tax for the year in which such conditions are not complied with – Section 72A(3) of the income tax act gives logical meaning to consequences flowing from the failure to comply with the requirements with in the specified number of years as set out in sub-section (2) after having availed the benefit of set off and carry forward of accumulated loss of the amalgamating company as per sub-section (1) of section 72A. It transpires on a conjoint reading of sub-sections (2) and (3) of section 72A that the amalgamated company is entitled to set off and carry forward the brought forward business losses and unabsorbed depreciation of the amalgamating company from the very first year of the amalgamation. If, however, the conditions given in clause (b) of section 72A(2) are not fulfilled with in the prescribed time, then the set off as allowed in the earlier year(s) shall be deemed to be the income of the amalgamated company of the last year stipulated for compliance of such conditions – Set- off of losses allowed – Decided in favor of Assessee. Classification of heads of income on sale of shares of Bayer (India) Ltd. as income under the head ‘Capital gain’ of ‘Income from business and profession’ – Held that:- No material has been considered or referred to verify as to whether such shares were held as 'Investment’ or 'Stock in trade’ – Matter is restored to the file of A.O for verification - If such verification divulges that the shares were held as investment, then the income from their transfer should be considered under the head ‘Capital gains’ otherwise ‘Business income’. The relevant year of transfer(sale) of Harmer & Reimmer (H&R) Business - H&R Business was transferred to Symrise Ltd. on 30.9.2002. The sale of the business was effected pursuant to the decision of Bayer Group in Germany to hive off this business globally. Pending certain legal formalities, the assessee agreed to carry out the business on behalf of the buyer i.e. Symrise Ltd., as their custodian in India with the clear understanding that “any loss/profit arising out of the operations would belong to the buyer” – Held that:- Assessee can blowing hot and cold in the same breath – Non – reconcilable contention is made by the assessee. On one hand it is claiming to have transferred the business on 30.09.2002 and thereafter carried it as custodian of Symrise Ltd. and on the other it is claiming that the transfer of business took place on 31.03.2004 - The assessee cannot be considered simultaneously as agent of the buyer and also the owner of the business between 1.10.2002 to 31.30.2004. It is vivid that when the assessee conducted the H&R business during this period for and on behalf of Symrise Ltd. and also transferred income from such operations to them, then it cannot turn around and claim itself as owner of the business after 30.09.2002 – Confirmed the view of Commissioner(A) that the transaction of sale took place in the relevant A/Y 2003-04. Quantum of gain/ loss – Computation of market value of stock - Held that:- Actual price of the stock realized, that is, ₹ 1.18 crore will be considered as market value of the stock on that date – Revenue authorities no where held that such value of stock actually realized by the assessee is concocted or in any manner does not represent its true market price. There was evidence to show that the market price of the stock was more than that recorded in its books - Assessee recording higher market value in its books by showing certain profit on revaluation of stock but choosing to claim it as not taxable – In fact, there is no such material available in the facts of the instant case to show that the market value of stock was more than what was actually realized from the buyer of the H&R business - It was for the Revenue to show that the market value of the stock was more than the one which was actually realized from the buyer pursuant to the agreement - Both the transferor and transferee companies are unrelated to each other. It is not a case of the AO that there was some colorable arrangement between two independent parties to the agreement as the genuineness of the agreement has not been questioned. In such circumstances, the only conclusion which can be logically drawn is that the assessee transferred its stock at the market value recorded in the agreement at ₹ 1.18 crore. When the transferee company has paid total sale consideration of ₹ 7.12 crore, which includes a sum of ₹ 1.18 crore towards the value of inventories, then it is beyond our comprehension as to how the Assessing Officer can presume the market value of such inventories at ₹ 4.43 crore without any cogent reason – Decided in favor of Assessee. Classification of head of Income on sale of HR business – Held that:- AO took item wise value of assets (both fixed and current) of the H&R business. He considered all other assets of H&R business as having been transferred by the assessee at book value - No chargeable income arose from the transfer of other assets. Thereafter, A.O. computed income from the transfer of stock in trade by assigning some market value to it. The resultant profit was held to be chargeable to tax as capital gain.
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2013 (11) TMI 1312
Legality of existence of firm BVRE – Held that:- Clear from documents available that firm BVRE has been accepted to be genuine by revenue in orders passed u/s. 185 of Act for AYs 1980-81 & 1984-85 - For AY 2006-07, firm BVRE has filed return of income before ACIT-I(1), Tirupathi on 30.10.2006. The said return has been accepted by revenue. Thus, prima facie, revenue has accepted genuineness and existence of firm BVRE - In light of evidence available on record, firm BVRE was genuine, legal and valid, was not defunct and was legally an existing partnership firm. Whether HUF was partner of firm BVRE - Intention of parties is very clear that individual is a partner of firm as far as firm is concerned. As far as members of HUF are concerned, he is acting on their behalf in a representative capacity. This fact is also corroborated by fact that share income of V.Madhusudan Reddy, V.Vikram Reddy and V.Dinesh Reddy, who were shown as individuals in partnership deeds prior to 24.3.2006, concerned individual offered to tax in hands of HUF and taxed in hands of respective HUFs - A partner may be Karta of a Joint Hindu family, he may be a trustee, he may be a representative of a group of persons, he may be a benamidar for another. In all such cases he occupies a dual position; qua partnership, he functions in his personal capacity; qua third parties, in his representative capacity; third parties, whom one of partners represents, cannot enforce their rights against other partners, nor can other partners do so against said third parties - Their right is only to a share in profits of their partners who (qua them) was representative. It is thus clear that HUF was never partner in firm BVRE and conclusions to contrary by CIT(A) cannot be sustained. Applicability of section 11(2) of Companies act, 1956 – Validity of firm as it consists of more than 20 partners – Held that:- Already held that 4 HUFs were not partners in firm BVRE and that V.Madhusudhan Reddy, V.Vikram Reddy, V.Dinesh Reddy and V.Dwarakanath Reddy signed deed in their individual capacity vis-à-vis firm and vis-à-vis HUF they were accountable to share of profits which they receive from firm BVRE – Therefore, number of partners would only be 13 - Assuming revenue is right in its conclusion that for purpose of computing number of partners, adult female and male members of HUF have to be reckoned, then number of “persons” in partnership as distinct from number of “partners”, would only be 15. Expression used in Sec.11(3) of Companies Act, 1956 is “member of a joint family” and not “co-parceners of joint family” and therefore all members- male and female, other than minors have alone to be reckoned. Sec.11(3) of Companies Act, 1956 specifically excludes minors while determining number of members of a HUF. Keerthana, Nachiketha and Tarun were minors and they are to be excluded. If done so, number of persons vis-à-vis 4 HUFs would be 12 (15 – 3). Since Sec.11(2) of Companies Act, 1956 uses expression “Person”, number of persons who have signed partnership deed in two capacities have to be reckoned as “one person”. If so done, V.Madhusudan Reddy, V.Vikram Reddy and V.Dwarakanath Reddy who signed in their individual capacity apart from their capacity on behalf of HUF have to be excluded. Then number of persons in partnership, would become 9. (12-3). Other partners are 6 (13-7 ( 7 = 4 HUFs + 3 individual capacity). Thus number of persons would only be 15 (9 + 6) and therefore there is no violation of provisions of Sec.11(2) of Companies Act, 1956 – BVRE is a valid partnership. Validity of transfer of shares of NCCPL held by Assessees in favour of firm BVRE – Held that:- On basis of facts produced, it has been held that there was a valid transfer of shares of NCCPL held by Assessees in favour of firm BVRE during previous year relevant to AY 06-07 - Shares are registered in name of Madhusudan Reddy in share register of company NCCPL though shares belong to firm BVRE because a firm cannot hold shares in a company and cannot be shown as a registered share holder because firm has no legal existence and is a mere compendious name to describe its partners - Declaration u/s.187-C of Companies Act, 1956 clearly shows that beneficial owner of shares standing in name of Madhusudan Reddy is firm BVRE - Factum of transfer by Assessees in favour of firm has been accepted by revenue and capital gain declared in AY 06-07 has been taxed in hands of Assessees by revenue in earlier years. This fact reiterated in assessment orders of Assessees for AY 07- 08 wherein revenue taxed only difference between actual capital gain and capital gain already taxed in hands of Assessees for AY 06-07 – Therefore, transfer of shares is a valid transfer. Whether there was a transfer of shares of NCCPL by assessees in favour of GBFL, so as to bring to tax capital gain on transfer of such shares u/s. 45 of Act in hands of assessee – Held that:- 13 partners of firm BVRE are described in share purchase agreement dated 10.6.2006 as confirming party to share purchase agreement dated 10.6.2006. Clause in Agreement which refers to transfer of shares, makes a reference to sale of shares by sellers to purchasers (GBFL) and there is no reference to confirming parties to agreement selling shares to GBFL - Confirming parties only confirm fact that they have transferred shares of NCCPL held by them to firm BVRE and that they have no right, title or interest whatsoever over shares so transferred – Thus, there was no any transfer of shares of NCCPL by Assessees to GBFL. Colourable transaction - Whether entire series of transactions by which shares of NCCPL were ultimately transferred to GBFL were all not valid – Held that:- There is nothing on record to suggest real intention of parties was to treat Assessee as owner of shares even after transfer of shares to firm - 13 partners signed agreement only to confirm fact that they had already transferred shares held by them to firm BVRE as capital contribution and they have no other rights over business of NCCPL or as shareholders of NCCPL - It is only NCSPL that transferred shares together with 3 other shareholders of entire paid up share capital of NCCPL - There were two ways in which shares of NCCPL held by 13 partners of BVRE could have been transferred to GBFL. One way was that 13 partners in their individual capacity could have transferred shares of NCCPL held by them to GBFL at a price at which they were ultimately sold to GBFL through NCSPL. Other way was manner in which Assessees have transferred shares through medium of firm BVRE. Latter course would certainly result in lesser tax burden to Assessees but that is a course which law permits. Series of transactions by which shares of NCCPL held by Assessee ultimately was transferred to GBFL were intended to lessen tax burden on capital gain on transfer of shares - Course adopted by Assessees was within framework of law and was permissible – Thus, entire series of transactions by which shares of NCCPL were ultimately transferred to GBFL were all valid as it is permitted within framework of law. Series of transactions by which shares of NCCPL were ultimately transferred to GBFL were not colourable or dubious device or subterfuge and were legal and valid. Consequence of same, even if it results in reduction of tax burden, is that they cannot be ignored and revenue cannot bring to tax quantum of capital gain which would have resulted, had transactions of sale of shares of NCCPL to GBFL being carried out by assessees directly to GBFL instead of through NCSPL/BVREPL – Decided in favor of Assessee.
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2013 (11) TMI 1311
Exemption u/s 10A – The assessee is engaged in the business of rendering software development services and registered under STPI scheme - It has two units namely Hyderabad Unit and Chennai Unit - Held that:- The assessee invested capital separately and distinctly for creating infrastructure for Chennai unit - It has built up separate infrastructure, such as building, furniture, computers and other infrastructure, like employees etc. - The assessee has separately complied with all the legal as well as administrative requirements for starting a separate business unit at Chennai - Distinct capital was invested in creating a new unit at Chennai, without comprising the employees strength of the Hyderabad Unit - There is no relocation of transfer of plant and machinery in any form from Hyderabad Unit to Chennai Unit - The nature of services rendered by the assessee through both these units are classified into three categories, (1) BPM, (2)ECM and (3) Data warehousing - The services of both the units are distinct and separable - Existence of some old employees in the new undertaking is not a disqualification for granting exemption benefit to the assessee under S.10A as long as larger chunck of HR Department has not moved to the new unit from the old one - If both the units are existing and doing the declared business and are not formed out of the existing business, the assessee must not be denied the benefits of S.10A - The old as well as new unit engaged in the same business with identical product shall not contribute to the denial of the beneficial exemption to the assessee – Decided in favour of assessee. Computation of relief u/s 10A – Communication charges and insurance charges and reimbursement of expenses to exporter – Held that:- Following Patni Telecom (P) Ltd V/s. ITO [2008 (1) TMI 452 - ITAT HYDERABAD-A] - To constitute export turnover the consideration should have a nexus with the sale proceeds from export of goods or computer software and that there should be an element of profit in such consideration – Following California Software Co. Ltd. V/s. ACIT [2008 (8) TMI 430 - ITAT MADRAS-A] - The issue was restored for fresh decision. Disallowances u/s. 40A(3), u/s. 40A(7) and u/s. 43B – Held that:- Following Zawata India P. Ltd. [2010 (1) TMI 1102 - ITAT HYDERABAD] – Decided against Revenue.
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Customs
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2013 (11) TMI 1354
Refund claim - Import of Tin Plate plain or misprint sheets-waste, waste/secondary - Assessee filed refund claim of 4% of SAD in terms of Notification No. 102/2007-Cus. dated 14.9.2009 as amended - The original authority and Commissioner allowed the refund claim - Held that:- It is revealed from the impugned order that vide Bill of Entry No. 532821 dated 7.6.2010, the goods were ‘Tin Plate or Misprints, Sheets waste / secondary and rejected’ whereas in the sale invoice there is a description of ‘Tin Sheet, W/W or Sheets’ or ‘Tin plates defects’. Similarly, the description in the Bill of Entry No. 534622 dated 9.6.2010 was ‘Tin Plate Plain or Misprints Sheets -Waste / Waste Secondary & Rejected but the sale invoice shows the description Tin Plate Misprints sheet or Tin Plate defective. On a query from the Bench, the learned counsel submits that Tin Sheet W/W indicates Tin Sheet Waste / Waste as mentioned in the Policy. It is apparent, on a plain reading of the description, that the Bill of Entry indicates waste / rejected and sale invoice showing ‘waste and defects’ instead of rejected, which are similar in nature - such a difference of the description ‘rejected’ or ‘defects’ cannot disentitle the benefit of exemption notification - There is no condition in the Notification that the Bill of Entry number should be mentioned in the sale invoice - Chartered Accountant s certificate was accepted by the adjudicating authority in terms of Board Circular, cannot be discarded without any material and/or basis. Revenue has not placed any material and therefore, there is no force in such grounds of appeal - Decided against Revenue.
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2013 (11) TMI 1353
Confiscation of goods - Mis declaration of goods - Imposition of redemption fine - Import of parts of a motor cycle - whether the imported items would make a complete motor bike or not - Held that:- even the Chartered Engineer appointed by the department stated that fuel tank assembly, rear wheel assembly, front wheel assembly, steering assembly and frame assembly would be required to complete the motor cycle - motor cycle parts or the items mentioned above cannot be treated as a complete motorcycle in terms of the Rules of the Interpretation of Customs Tariff. According to the Rules of Interpretation, an article which is incomplete or unfinished and has the essential character of the complete or finished product has to be treated as finished product and classified accordingly. We cannot imagine a complete motor cycle without two wheels, fuel tank, etc. Therefore, even though both the appellants had admitted the classification of the item as a full motor cycle and the department has treated the same accordingly, we cannot uphold this view. appellants have apparently planned the import of these items through their friends in consultation with mechanic and deliberately declared only as ‘motor cycle engine’. Even assuming that it was a gift, even if we accept that engines were gift, we cannot imagine a situation where a friend would send motor cycle engine and various other parts without informing the friend as to what are the items he has sent - similar items have been sent as a gift by two different persons from Singapore to two persons in India which would clearly go against the claim of the appellants that parts of the motor cycles were sent by them were gifts. Therefore, this is a case of mis-declaration and therefore, the confiscation of the goods is in order and the redemption fine was imposable. However, there is no finding to the contrary in respect of the claim made by the appellants that motor cycles were imported for their own use and a mechanic would convert to a motor cycle by assembling local parts. Therefore, the redemption fine appears to be slightly excessive. appellants cannot be considered as innocent and they have indulged in mis-declaration of the goods and therefore, penalty imposed is also in order. Nevertheless, our observations as regards redemption fine would apply to the penalty also - redemption fine and the penalty to reduced 50% of the actual amounts imposed on the appellants which, in our opinion, would meet ends of justice - Decided partly in favour of assessee.
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2013 (11) TMI 1352
Confiscation of goods - Export of restricted goods without license - Violation of provisions of Rule 31 of the Standards of Weight and Measures (Packaged Commodity) Rules, 1997 - Held that:- There is no evidence that such medicine was bared. In such scenario, the provisions of Rule 31 of the Standards of Weight and Measures (Packaged Commodity) Rules, 1997 cannot said to have been violated - Rule 31 of the Standards of Weight and Measures (Packaged Commodity) Rules, 1997 was deleted from the statute book with effect from January, 2007 onwards. The show cause notice was issued on 19.9.2007 when admittedly Rule 31 was not on statute book - when rule lapses on repeal of that rule without saving a clause, section 6 of the General Clauses Act does not apply to the same and proceedings already initiated under that provision of law cannot be continued - Even show cause notice was not issued upto 13.1.2007 when said rule was omitted. As such reference to the said rule in the show cause notice issued on 19.9.2007 when the said rule was not in existence and is against the settled principle of law, cannot be appreciated and impugned order cannot be upheld - Decided in favour of assessee.
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2013 (11) TMI 1351
Duty demand - Importer neither paid the duty assessed under the respective Bills of Entry nor cleared the cargo from the Customs area - Importer contends that due to some logistic problem in transferring the imported cargo, the same could not be moved from the port area - Further, they have stated that neither customs duty was paid nor any amount was remitted to the foreign supplier, hence, the respective Bills of Entry be treated as withdrawn - Assessee approached Commissioner of Customs(Import), Bhubaneswar requesting for cancellation of the Bills of Entry and also amendment to the respective IGM filed by the importer M/s. MMTC and M/s. STC, on the ground that they have entered into agreement with the overseas seller/supplier and purchased the said consignments, which were not cleared by the previous importers - Commssioner rejected requests for amendment to the IGM, cancellation of the earlier Bills of Entry and for filing fresh Bills of Entry. Held that:- Importers, M/s.MMTC and M/s.STC, both Public Sector Undertakings, have imported Indonesian Steaming (Non-Cooking) Coal in the month of the Dec. 2011 & Feb. 2012, from the same overseas seller/supplier. At the time of importation of the said goods, the importers had complied with all the necessary formalities, like submission of IGM, Bills of Entry etc. along with other relevant documents necessary for clearance of the Cargo for home consumption from the Customs area. It is also not in dispute that the Bills of Entry Nos.5365734 and 6052529 dated 02.12.2011 and 21.02.2012, respectively, were finally assessed by the Customs authorities and handed over to the importers M/s.MMTC and M/s. STC for payment of duty; but both the importers have failed to discharge the duty and clear the goods. In the meantime, the authorities have initiated action under Section 48 of the Customs Act. Thereafter, the importers M/s MMTC & M/s STC had filed representations with the Customs authorities informing that they could not clear the goods because of logistic problem and requested for cancellation of the respective Bills of Entry and also expressed of having no objection for amending the IGMs in favour of the new consignee to whom the goods would be sold by the overseas supplier. If the Appellants are ready to discharge the duty assessed by the Department relating Bills of Entry Nos.5365734 and 6052529 dated 02.12.2011 and 21.02.2012, respectively, and other liabilities as on the date of clearance of goods, we do not see any reason as to why the amendment to the IGMs requested by them, only to the extent of change of the names of the importers, be not allowed, as the principal ground for rejection of such request, is no more relevant - Decided in favour of assessee.
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2013 (11) TMI 1350
Anti dumping duty - Notification NO. 86/2011 - Whether Stainless Steel Cold Rolled coils having width of 1256 MM to 1259 MM are covered under Notification 86/2011 for imposing anti-dumping duty or not - Held that:- scope of the examination was not for enhancement of the product scope i.e. width exceeding 1250 Mm and product is defined as cold rolled flat products of stainless steel of weight of 600 MM up to 1250 MM. From the said scope, the intent of the levy of anti-dumping duty by the Designated Authority is very much clear that the product up to 1250 MM is liable for anti-dumping duty; that the Notification 86/2011 was issued in the background that in the absence of tolerance in the recommendation of corresponding Notification the products of width 1250 MM or lower are being declared as having width of 1251 MM to 1300 MM and thereby the anti-dumping duty is circumvented. It is further found that larger number of consignments where the width has been declared as 1251 MM or marginally above the 1250 MM limit specified in the final finding, thereby escaping anti-dumping duty. Therefore, this Notification came to levy for tolerance of (+) 30MM in the width - any product having width more than 1250 MM are not leviable for anti-dumping duty. Admittedly, in this case the width of the product on physical examination was found between 1256 MM to 1259 MM. Therefore admittedly the width of the product in question is more than 1250 MM. Therefore Notification 14/2010 amended to Notification 86/2011 is not applicable to the appellant. As Notification is not applicable to the appellant, therefore question of levy of anti-dumping duty of the goods imported by the appellant does not arise. Accordingly, demand in the impugned order is not sustainable - Decided in favour of assessee.
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2013 (11) TMI 1349
Penalty u/s 112(a) and 117 - Confiscation of goods as the consignees were non-existent - Held that:- corrigendum to show cause notice was issued on the basis of the facts as narrated in the first show cause notice, which is not disputed by the appellant and therefore, corrigendum to show cause notice is not a fatal issue - each show cause notice must be limited to the case that is made out therein by the Revenue. In the present case, the Revenue has not made out any new case in the corrigendum to show cause notice. In fact, the proposal in the corrigendum to show cause notice was based on the facts of the first show cause notice and therefore, the said case law could not apply herein - It is noted that in exercise of powers conferred by Section 157 of the Customs Act, 1962, the Central Board of Excise and Customs made Regulations, 1998. In the present case, it is seen that the penalty was imposed on the ground that the appellant filed the Bill of Entry under fictitious names which is within the purview of Section 112 (a) of the Customs Act, 1962 - Penalty reduced in each case - Decided partly in favour of assessee.
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Corporate Laws
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2013 (11) TMI 1348
Stay application - Winding up of a company - Inability to pay debts - Held that:- winding up proceeding is not a recovery proceeding for enforcing the recovery of the debt. It is not a tool to realise the debts due from the company, nor could be taken out to exert the pressure on the company to pay the dues. The debt must be of an ascertained and/or definite sum. If there is some bona fide disputes so raised, the proper course which the Company Court should adopt is to relegate the parties to a regular civil proceeding. Furthermore, the financial solvency of the company should also be taken in mind in discharging the admitted liability and raising a bona fide disputes. company has paid off the entire principal amount, may be after the winding up petition is advertised. All the creditors who appeared at the post advertisement stage including the present creditors have been paid in entirety. It is only the dispute relating to the payment of interest which is left to be considered in the winding up proceeding. From the admitted fact that the company have paid the entire principal amount, it is demonstrated that the company is otherwise financially solvent and that its continuance in operation would not effect the public at large. Except from a stray statement that the company has pleaded the waiver of the interest, there is no contemporaneous document forthcoming before the Court which would lead to an inevitable conclusion that the company has agreed to pay the interest as claimed by those secured creditors - The application under Section 466 of the Companies Act is allowed, meaning thereby that the winding up petition shall remain permanently stayed - Stay granted.
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Service Tax
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2013 (11) TMI 1360
Quantum of penalty - Penalty u/s 76, 77, 78 - Tribunal reduced penalty - Held that:- Appellate Authority has not applied its mind with reference to the findings and reason recorded in imposing the penalty in exercise of the power under Section 76 of the Finance Act - without assigning any reason for setting aside the findings recorded by the fact finding authority, the second Appellate Tribunal simply placed reliance upon the decision of the assessee’s own case [2005 (183) E.L.T. 51 (T - Bang.)] , which decisions have no application to the fact situation of this case, particularly having regard to the finding recorded by the original authority - Following decision of assessee's own in [2007 (7) TMI 72 - HIGH COURT , BANGALORE] - Decided in favour of Revenue.
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2013 (11) TMI 1359
Demand of service tax - Management, Maintenance and Repair Service and Commercial or Industrial Construction Service - Held that:- construction of road does not require payment of service tax. The Revenue s only appeal is that construction of driveway cannot be equated with the construction of road in as much as such driveway was not for public utility purpose but the same was in connection with the petrol pump owned by the owner - Following decision of Commissioner of Service Tax, Ahmedabad Vs. Shilpa Constructions Pvt. Ltd. [2010 (6) TMI 175 - CESTAT, AHMEDABAD] - Stay granted.
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2013 (11) TMI 1358
Claim for refund of duty - Section 11B - Held that:- This is a case where the appellant had passed on the service tax incidence, for which refund is now being claimed, to another party. In such a situation provisions of Section 11B is clearly applicable and a mistake made by another Deputy Commissioner cannot be reason enough to overrule the provisions of Section 11B of the Central Excise Act - Decided against assessee.
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2013 (11) TMI 1357
CENVAT Credit - Classification of service - Whether trading could be treated as an exempted service for the purpose of Cenvat credit - Held that:- dispute on the issue stands clarified by CBEC in favour of the appellant. Prima facie, we agree with the advocate for the applicant because credit was taken in accordance with provisions of rule 6(5) as it was existing at the relevant time and in the matter of utilization, applicant was complying with extant rule 6(3) of the rules as it was existing at the relevant time. Cenvat Credit so accumulated could not lapse in the absence of any legal provisions to that effect. This position also is accepted by CBEC also in its circular. So its subsequent utilisation cannot be faulted - Stay granted.
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2013 (11) TMI 1356
Availment of CENVAT Credit - finished goods supplied to another PSU - Supply not made directly to MOD - Assessee contends that clearances are not exempted under Notification No.63/95 dt 16.3.1995 - Therefore, assessee availed CENVAT Credit - Whether in terms of Rule 14 of the Cenvat Credit Rules, 2004, the appellant can be said to have taken credit wrongly - Held that:- appellant has definitely a case for seeking clarification from the department. In March, 2010, appellant sought clarification from the department to know whether the clearance of goods to M/S BEL are exempted from payment of excise duty in terms of notification. In the absence of the clarification from the department, they took CENVAT credit during the intervening period September 2010 to March 2011. They had to take cenvat credit in September, 2010 since some of the job workers did not return all the inputs within 180 days and they had to reverse the credit. To reverse the credit, they had to take credit. When there was no clarification received from the department till March, 2011, the assessee had no option but to clear two consignments in March 2011 on payment of excise duty of ₹ 90,94,851/- by utilising the Cenvat credit. On getting the clarification from TRU in April 2011, the appellant reversed the entire amount of Cenvat credit. Appellant could not have acted any other way than the way they did. In the circumstances, holding that credit was not admissible and was taken without eligibility and therefore asking them to pay interest was not correct. Moreover, any assessee, if he has any doubt, has a right to ask the department and such action is not contrary to the provisions of law. Further, in the circumstances of this case, it cannot be said that the credit had been taken by the appellant wrongly. When credit is not taken wrongly, question of payment of interest does not arise in terms of provisions of rule 14 of CCR 2004 - Decided in favour of assessee.
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2013 (11) TMI 1355
Demand of service tax, interest and penalty - Renting of immovable property - Revenue contends that assessee was providing storage or warehousing service - Held that:- there is some material to show that the petitioner may have provided loading and unloading of FCI goods . From the generic nature of the petitioner s corporate business also, it is conceivable that it could have provided warehousing facility, though the petitioner failed to produce any evidence to support its assertion that it was providing warehousing facility, before the adjudicating authority - Assessee directed to remits 50% of the adjudicated liability of service tax along with the proportionate interest on this amount - Partial stay granted.
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2013 (11) TMI 1343
Activity manufacture or not - Demand of service tax - Job work – Held that:- Painting of Motor Vehicle parts is a part of manufacturing activity of Motor Vehicles as per section Note to Section XVII of Central Excise Tariff Act, 1985 – conversion of an article which is incomplete or unfinished but having the essential character of the complete or finished article amounts to manufacture – Decided against Revenue.
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Central Excise
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2013 (11) TMI 1362
Waiver of pre-deposit of input service credit - Denail of Credit - Held that:- Show Cause Notice was issued for denial of the credit in view of the provisions of Rule 9 (1) (b) of the Cenvat Credit Rules. We find that the provisions of Rule 9 (1) (b) of the Cenvat Credit Rules were not applicable on the credit of service tax during the period. We therefore find that the applicant has made out a case for total waiver of the dues. Therefore, the pre-deposit of the dues is waived and recovery thereof stayed for hearing of the appeal - Stay granted.
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2013 (11) TMI 1361
Exemption under Notification No.06/2006 – Conditions to be fulfilled - Whether the goods Gate and Gate Parts classifiable under Chapter 73 of the cleared to Mega Power Project against International Competitive Bidding are entitled to exemption from duty under Notification 06/2006 – Held that:- The goods are classifiable under Chapter 73 of the Tariff. Under Central Excise Tariff there is no Heading 98.01 and which exists in Customs Tariff only - the goods manufactured in India cannot be classified under 98.01 of the Central Excise Tariff, denial of the exemption on the ground of non-fulfilment of condition of Project Import Regulation is not sustainable particularly when condition No. 86 of the Notification No. 21/2002 is fulfilled by them – SARITA STEELS & INDUSTRIES LTD. Versus COMMR. OF C. EX., VISAKHAPATNAM [2010 (7) TMI 568 - CESTAT, BANGALORE] – the appellants are eligible for exemption under Notification 6/2006 – Decided in favour of Assessee.
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2013 (11) TMI 1347
Failure to declare the value of components – Bought out items received at site - Escapement of tax - Waiver of pre-deposit - The Petitioner claimed that the bought-out items are inseparably attached to the concrete foundation during assembly of the cooling towers and therefore constitute immovable property outside the ambit of excise duty – Held that:- Following CCE,Aurangabad vs. LIPI Boilers Industries Ltd. [2010 (9) TMI 392 - CESTAT, MUMBAI] - incorporation of ‘bought-out’ items to an assembly which involves embedding of the several components at the user’s site is an incident of operational requirements, but would not thereby transform a moveable complex of products into immovable property. The issue whether ‘bought-out’ items ought to be considered to have transformed into immovable property prior to the process of assembly of large size cooling towers and whether the taxable event had occurred before such impregnation in the earth and whether such fixture is temporal or permanent, is a mixed question of fact and law – Assessee directed to pre-deposit 50% of the assessed service tax liability and interest – upon such submission rest of the duty to be stayed till the disposal – partial stay granted.
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2013 (11) TMI 1346
Clearance of the goods for home consumption – Scope of Notification No.29/2002 - Waiver of Pre-deposit of duty and penalty u/s 11AC of Central excise act,1944 – Held that:- The benefit of the said Notification is applicable to clearances from the places laid down - Prima facie, there was no substance in the reasoning of the Commissioner that clearance would not include clearance of goods for home-consumption – Prima facie, the Notification is made applicable to clearances from places notified - It has not been specified –‘clearance for home-consumption’ - Prima facie, the clearance for captive consumption also would come within the scope of the Notification - the Applicant could able to make out a prima facie case for total waiver of the pre-deposit of all dues – Pre-deposit of all dues waived and its recovery stayed till the disposal – Stay granted.
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2013 (11) TMI 1345
Clandestine manufacture and clearance of MS ingots – Retrieval of private records/data stored in a Pen-drive – Waiver of Pre-deposit – Held that:- Prima facie, the Commissioner has dealt in detail the evidences retrieved from the Pen-drive from the employee of the Applicant and on comparison the said data with the statutory register maintained by the Applicant in the factory, discrepancies were noticed relating to the production and clearance of finished goods - the data which has been retrieved from the possession of the employee of the Applicant and the data has relevance to the statutory records maintained by the Applicant as there were common transactions between the data found in the Pen-drive and also entries in the statutory records - it is a question of appreciation of evidence and not a case of no evidence – assessee directed to deposit 50% of the total amount of duty to be submitted as pre-deposit – upon such submission rest of the duty to be stayed till the disposal – partial stay granted.
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2013 (11) TMI 1344
Charging of duty on accessories – Brought into factory and cleared with the air heaters, treating them as essential parts of a complete air-heater – Waiver of Pre-deposit – Held that:- Whether air heater with the accessories becomes an air-heating system and emerges at the factory as a finished excisable goods, be considered at the time of disposal of the Appeal, after appreciation of the evidences adduced by both sides - Prima facie there was no merit in the submission of the Consultant that air heating system emerges only at the site as the nomenclature, ‘Air-Heating System’ does not appear in any of the documents, namely, Central Excise Invoices, Purchase Orders etc - the Applicant failed to make out a prima facie case in their favour for total waiver of the dues – assessee directed to deposit 25% of the duty as pre-deposit – upon such submission rest of the duty to be stayed till the disposal – Partial stay granted.
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2013 (11) TMI 1342
Denial of Cenvat credit – Necessary infrastructure for manufacture of finished goods were not available - The Revenue did not dispute the payment of excise duty by supplier of raw materials - nor there is any evidence coming forth in the form of statement or otherwise that applicant had not received the excisable goods in the factory on which they had availed cenvat credit - The applicant thus could able to make out a prima facie case in their favour on this point. Non-production of documents - Shortage of stock –Waiver of Pre-deposit - Held that:- At the time of the visit of the officers, the applicant could not able to account for the goods and in the reply to the show cause notice, the transformers that were mentioned had been cleared much later than the joint stock taking - applicants claimed that each and every transformers is serially numbered and not a single transformer cleared without payment of duty - it is case of appreciation of evidence - the applicants directed to deposit Rupees Fifteen Lakhs as pre-deposit – upon such submission rest of the duty to be stayed till the disposal – partial stay granted.
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2013 (11) TMI 1341
Goods mentioned in RG-23D Register are Bogus receipt entries - No goods received – supply of materials is out of stock – Waiver of Pre-deposit – Held that:- Prima facie, out of eight invoices, in the five invoices, the RG 23D entries mentioned which according to the statement of Shri Rakesh Bansal are just bogus entries are without actual receipt of any material - the dispute here is of fact, which can be examined in detail only at the time of final hearing and prima facie there is evidence against the appellant - this is not the case for total waiver - The appellant is directed to deposit an amount of Rupees One 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 1340
Valuation - Assessment of clearances on cost construction basis – Assessee transferred goods to their sister unit – Held that:- Following Ispat Industries Ltd. vs. CCE, Raigad [2007 (2) TMI 5 - CESTAT, MUMBAI] - Transfer of part of production to another plant of the same assessee and balance production sold to independent buyers would not attract the provisions of Rule 8 in respect of transferred production - Rule 8 of Central Excise (Valuation ) Rules, 2000 would apply only where entire production of a particular commodity is captively consumed - the assessee is partly selling their goods to independent buyers and partly transferring the same to their sister units, thus, the cost construction based assessable value adopted by the Revenue is not justified - order are set aside and appeals – Decided in favour of Assessee.
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2013 (11) TMI 1339
Validity of Cenvat credit taken on duty paid - whether duty has been paid or not and if duty has been paid by the supplier/assessee, the receiving assessee cannot be found fault with if he takes CENVAT credit of the duty paid so long it is used as input and CENVAT credit is admissible – Held that:- Following Commissioner of Central Excise, Chennai-I vs. CEGAT, Chennai [2005 (1) TMI 125 - HIGH COURT OF JUDICATURE AT MADRAS] - Rule 57A(1) of Central Excise Rules, 1944 provides for availment of CENVAT credit of duty paid and not payable - This distinction is very important and which indicates that what is to be taken into account is the factual state of affairs - once the duty has actually been paid on the raw material, the credit is admissible - Even the amended CENVAT Credit Rules have similar provisions and provide for CENVAT credit of duty paid on inputs. There is no such obligation on the person who receives the goods and avails the CENVAT credit - He is eligible to take CENVAT credit of duty paid which is specified in the First Schedule to the Central Excise Tariff Act - The responsibility of the receiver of the inputs/capital goods is to ensure that duty has been paid and the same has been received by him, accounted for by him and utilized by him properly. In Board’s Circular No. 940/1/2011-CX dated 14.1.2011, it has been stated that where an assessee pays Excise duty on exempted goods, the amount recovered as Excise duty has to be deposited with the Central Government and CENVAT credit also needs to be recovered in terms of Rule 14 of the CENVAT Credit Rules, 2004 - The credit which was taken wrongly would arise when an assessee is required to determine whether the inputs/capital goods received by him are liable to duty or not and whether duty is payable or not - There is no rule which puts an obligation on the receiver of goods - assessment has been taken away even from the Central Excise officer - the Board’s Circular which has been issued without taking into consideration and considering the implications of the provisions and implications of the instructions on the assessees cannot be applied blindly – Decided in favour of Assessee.
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2013 (11) TMI 1338
Quantum of CENVAT Credit to be reversed – Inputs gone into the manufacture of exempted as well as dutiable goods - CA Certificated not supported by evidences - Held that:- The Commissioner has rejected the Chartered Accountant's certificate being not supported by evidence, whereas in the Superintendent's report the amount reversed by the appellant has been accepted and in the remarks column only an amount of Rs.7,944.81 as interest has been stated to be due - there is an apparent contradiction between the observation of the Ld. Commissioner and the report of the Jurisdictional Superintendent submitted by the appellant - Both sides agree that the issues require re-consideration - for the period from April, 2008 to December, 2010, the plea of the appellant was rejected by the Ld. Commissioner on the ground that they have not followed the laid down procedure under Rule 3(A) of the CENVAT Credit Rules, 2004 - Here also from the Superintendent's report, whatever amount reversed for the relevant period by the appellant had been accepted and no objection was raised - this also needs scrutiny/examination by the Commissioner - it is a fit case to be remitted to the Commissioner to reconsider all the issues afresh in the light of the report of the range Superintendent referred to in the order – Appeal allowed by way of remand - Decided in favour of Assessee.
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