TMI Tax Updates - e-Newsletter
November 28, 2014

Case Laws in this Newsletter:

Income Tax Customs Service Tax Central Excise CST, VAT & Sales Tax

News

1. FM Revises the Target of Opening of Bank Accounts under PMJDY to 10 Crore by 26th January, 2015;

2. Finance Minister Shri Arun Jaitley Reiterates The Government’s Vision and Commitment for Working Towards Expanding and Deepening Engagements and Relations Between India and China Based on Mutual Complementarities and Common Interests;

3. RBI Reference Rate for US $

4. Fifth Bi-monthly Monetary Policy Review, 2014-15 on December 02, 2014

5. Investment in MSME Run by Small Entrepreneurs

Highlights / Catch Notes

Income Tax

• Court Rules Share Premium to Non-Resident Holding Company Not Income Under Chapter X Transfer Pricing Adjustments.

  Case-Laws - HC : Application of Chapter X - Transfer pricing adjustments - Issue of shares at premium by the Petitioner to its non-resident holding company does not give rise to income in an International Transaction - HC
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• Supreme Court Remits Case After High Court Quashes Income Tax Search, Citing 'Reason to Believe' Issues.

  Case-Laws - SC : Validity of Search and seizure - High Court has quashed the search and seizure - The terms used are ‘reason to believe’ - HC failed to appreciate the facts - matter remitted back for fresh disposal - SC
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• Assessee's Penalty Removed u/s 271(1)(c) Due to Bona Fide Actions Despite Unproven Capital Receipt Claim.

  Case-Laws - HC : Penalty u/s 271(1)(c) deleted – the act of the assessee was bonafide even though the assessee may have failed to substantiate its claim that the amount was capital receipt - HC
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• Discussion on Section 153C of Income Tax Act: No restriction on advertising and brand building expenses u/s 40A(2).

  Case-Laws - HC : Proceedings u/s 153C – Section 40A(2) of the Act has not been invoked and there is no provision which stipulates that advertisement and brand building expenses could be restricted or partly allowed - HC
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• Assessment Order Valid Despite Timing of Notices u/ss 143(1) and 143(2), Says Court.

  Case-Laws - AT : Merely because intimation u/s 143(1) was issued to the assessee after issue of notice u/s 143(2), it cannot be said that an assessment order framed by the AO u/s 143(3) on a date after the date of such intimation is bad in law- AT
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• 50:50 Profit Split Model Meets Arm's Length Price Criteria for Income Tax Compliance in Business Assessments.

  Case-Laws - AT : Determination of ALP – The business model of 50:50, as was admittedly prevalent in the line of business activity of the assessee and as is followed by the assessee, thus indeed satisfies the test for determination of arm’s length price - AT
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• Taxpayer Denied 80P Deduction Due to Late Filing; Return Not Valid u/ss 139, 142, 148.

  Case-Laws - AT : Denial of deduction u/s 80P by invoking section 80A(5) – the belated return filed beyond the time limit provided u/s 139(1) or 139(4) or time specified in notice u/s 142(1) or 148 of the Act cannot be considered as return of income for deduction u/s 80P of the Act. - AT
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• Tax Deduction Denial u/s 80IB Overturned; Factory License Delay Not Grounds for Benefit Denial.

  Case-Laws - AT : Deduction u/s 80IB - Delay in seeking Factory License - If there is any violation of any provisions of any other statutes then the assessee has to explain the same to the authorities implementing those Acts/Statutes and the same cannot be the basis of denial of benefit under Section 80IB - AT
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• Insurance Guidelines Permit Loss Claims for Depreciated Investments Without Recovery Hope Under Specific Criteria.

  Case-Laws - AT : General Insurance Corporation guidelines permit the assessee to book a loss which has for all practical purposes, been suffered on account of depreciation in value of investments beyond any reasonable hope of recovery - claim of loss allowed - AT
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Customs

• Penalty for Misrepresentation: Machinery Installed in Showroom Violates Notification No. 28/97 Cus; Section 114A Penalty Applies.

  Case-Laws - AT : Exemption under Notification No.28/97 Cus. dt. 1.4.97 - appellant installed the machineries in their show room without utilizing in the factory premises, is a clear case of misrepresentation and penalty of Section 114A of the said Act is imposable - AT
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• Refund of Special Additional Duty Granted Without Invoice Endorsement Under Notification No. 102/2007, September 14, 2007.

  Case-Laws - AT : Refund of SAD - Notification no. 102/2007 dated 14.09.2007 - although they have not made an endorsement on the invoice that credit of duty is not admissible, refund allowed - AT
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Service Tax

• Shooting a Program Isn't an Advertising Agency Service for Service Tax Classification Under Regulations.

  Case-Laws - AT : Classification of service - activity of shooting the programme prepared by the advertising agency - the activity does not fall under the category of advertising agency service. - AT
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• Air Catering Unit at Airport Exempt from Service Tax Classification as Commercial or Industrial Construction; Stay Granted.

  Case-Laws - AT : Commercial or industrial construction service - air catering unit constructed at the airport can be considered as part of airport and excluded - stay granted - AT
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• Extended Limitation Period Invalid Without Allegations of Fraud or Misstatement; Show Cause Notice Lacks Jurisdiction.

  Case-Laws - HC : Invocation of extended period of limitation - No allegation of fraud, collusion, willful misstatement or suppression of facts - show cause notice is without any jurisdiction. - HC
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• Free High-Speed Diesel Not Part of Transaction Value; Show Cause Notice Invalid Per Charging Section.

  Case-Laws - HC : Valuation - value of HSD provided free of cost by the service recipient cannot be brought within the value of the transaction exposed to the charging section and, therefore, the impugned show cause is liable to be quashed and set aside. - HC
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Central Excise

• Adjudicating Authority's Lack of Clarity on Material Facts Bars Extended Limitation Period; Stay Granted.

  Case-Laws - AT : Cenvat Credit - the adjudicating authority does not elaborate as to what material facts were required to be declared and under which provision of law - prim facie extended period of limitation cannot be invoked - stay granted - AT
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VAT

• Objection Hearing Authority Cannot Record "Reason to Believe" Under DVAT Act Section 32; Responsibility Lies with Commissioner.

  Case-Laws - HC : Default assessment under Section 32 of the DVAT Act - period of limitation - The Objection Hearing Authority, cannot record “reason to believe“. These, as per the statute, should be recorded by the Commissioner/competent authority and that too, before or at the time of passing of the default assessment order under section 32 of the DVAT Act. - HC
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• High Court orders re-evaluation of tax arrears settlement under Tamil Nadu Value Added Tax and General Sales Tax schemes.

  Case-Laws - HC : Settlement of arrears of tax - TNVAT / TNGST - Deferral scheme of sales tax - Cancellation of scheme and demand of tax for the entire period - designated authority directed to re-consider the entire matter in terms of the scheme of the Act - HC
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Case Laws:

• Income Tax

• 2014 (11) TMI 881
  Application of Chapter X - Transfer pricing adjustments - International Transaction or not - Validity of SCN without jurisdiction – Additions towards shortfall in value of equity shares - TPO further held that this difference between the ALP and the issue price (including premium) was required to be treated as deemed loan given by the Petitioner to its holding company and deemed interest on such deemed loan at Rs. 88.35 Crores was also treated as interest income. - Held that:- Issue of shares at premium by the Petitioner to its non-resident holding company does not give rise to income in an International Transaction. The application of Chapter X of the Act to such transaction is without jurisdiction - the sine qua non to apply Chapter X of the Act would be arising of Income under the Act out of an International Transaction - This income should be chargeable under the Act, before Chapter X can be applied - The definition of income does not include within its scope capital receipts arising out of capital account transaction unless so specified in Section 2(24) of the Act as income - There is no charge in the Act to tax amounts received and/or arising on account of issue of shares by an Indian entity to a nonresident entity in Sections 4,5,15,22,28,45 and 56 of the Act. This is as it arises out of Capital Accounts transaction and, therefore, is not income - Chapter X of the Act does not contain any charging provision but is a machinery provision to arrive at ALP of a transaction between Associated Enterprises – and Chapter X of the Act does not change the character of the receipts but only permits re-quantification of income uninfluenced by the relationship between the Associated Enterprises - The order of reference made by AO to TPO is set aside to the Show Cause Notice dated 17 January 2014 issued by the TPO - and the order dated 29 January 2014 passed by the TPO under Section 92CA(3) of the Act – Decided in favour of assessee.

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• 2014 (11) TMI 858
  Interest on investment in shares deleted - Notional interest attributable to investment in shares - Whether the Tribunal was right in confirming the order passed by the CIT(A) deleting the interest attributable to investment in shares – Held that:- The Tribunal was justified in granting benefit of the earlier years’ orders to the assessee, which are final - the AO decided the issue against the assessee following earlier years’ or in similar circumstances - the issue involved was never carried in appeal before the Court and therefore, the earlier years’ orders, on which the Appellate Tribunal placed reliance, had become final – Decided against revenue.

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• 2014 (11) TMI 854
  Validity of Search and seizure - information in possession of the officer - High Court has quashed the search and seizure conducted on 16.2.2000 in the factory premises of assessee – Held that:- The reasons cannot be accepted – it cannot be comprehended as to how an Advocate Commissioner was appointed to take inventory of the goods in respect of which the restraint order was passed by the revenue under the Act - it is difficult to appreciate how the denial in the counter affidavit filed by the revenue could be treated as an admission by implication to come to a conclusion that no reason was ascribed for search and seizure and action taken u/s 132 of the Act was illegal - The relevant confidential file, if required and necessary could have been called for and examined - Revenue in the counter affidavit was not required to elucidate and reproduce the information and details that formed the foundation. The terms used are ‘reason to believe’. - Whether the competent authority had formed the opinion on the basis of any acceptable material or not, as is clear as crystal, the High Court has not even remotely tried to see the reasons – reasons can be recorded on the file and the Court can scrutinize the file and find out whether the authority has appropriately recorded the reasons for forming of an opinion that there are reasons to believe to conduct search and seizure - the High Court has totally misdirected itself in quashing the search and seizure on the basis of the principles of non-traverse - the High Court would have been well advised to peruse the file to see whether reasons have been recorded or not and whether the same meet the requirement of law – thus, the order of the High Court is set aside and the matter is remitted back for fresh disposal – Decided in favour of revenue.

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• 2014 (11) TMI 853
  Penalty u/s 271(1)(c) deleted – Bonafide of assessee’s contentions - Whether the assessee's action disclosing certain particulars in the form of notes to “statement of income” and making wrong claim on the basis of such notes, amounts to furnishing of inaccurate particulars of income – Held that:- The Tribunal rightly observed that the assessee still had furnished detailed notes in respect of the claim with the computation of the income - the assessee was under bonaifde belief that the waiver of the sales tax was not liable to tax in view of the same being capital receipt in nature - the assessee had not concealed any particulars of the income and the conduct of the assessee was not deliberate, in defiance of relevant provisions of law - It is quite clear that the assessee had not concealed the particulars of its income - The necessary particulars had been furnished in more than one way - there is no substance in the arguments of the revenue that explanation (1) of Section 271 is attracted – reference made to Commissioner of Income Tax, Ahmedabad Vs. Reliance Petroproducts Pvt. Ltd., [2010 (3) TMI 80 - SUPREME COURT] there was no error in the orders passed by the Tribunal maintaining deletion of the penalty as was imposed by the AO - the act of the assessee was bonafide even though the assessee may have failed to substantiate its claim that the amount was capital receipt – Decided against revenue.

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• 2014 (11) TMI 852
  Stay application – stay of demand of Rs. 53.71 Crores – Held that:- The parameters for disposing of an application for stay pending disposal of Appeal before the Appellate Authority under the Act are fairly settled as decided in KEC International Limited v/s. B. R. Balakrishnan [2001 (3) TMI 32 - BOMBAY High Court] - the manner in which the AO has disposed of the application for stay by order dated 30th May, 2014 is in complete breach of the directions of the Court - besides in any event the tests applied to dispose of the stay application by the order dated 30th May, 2014 are not at all germane to disposing of the stay application - though there was substance in the assessee's claim of Charitable purposes, keeping in view the fact that the Petitioner's registration u/s 12A of the Act has been cancelled – assessee is not entitled to the benefit of exemption u/s 11 of the Act for the subject AY 2011-12 - unconditional grant of stay of the demand till the disposal of the appeal by the CIT(A) would not be warranted. However where the issue is not concluded one way or the other by a decision of a higher forum, then the Authority considering the stay application would have to prima facie consider on the face of the impugned order, the likelihood of the applicant succeeding in appeal - This need not be detailed examination but a first look examination and on that basis it is for the authority to exercise his discretion in law and grant such stay depending upon likelihood of success in appeal - At this stage various other factors such as financial hardship, balance of convenience etc. would enter into consideration to decide the terms of the stay of demand, if any – assessee is directed to deposit 10% of the amount of Rs. 53.71 Crores as pre-deposit, there would be a complete stay of recovery of balance demand raised u/s 156 of the Act for the Assessment Year 2011-12, till the disposal of the case – Partial stay granted.

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• 2014 (11) TMI 851
  Proceedings u/s 153C – restriction on allowance of deduction of expenditure towards advertisement and brand building expenses - Held that:- The Tribunal noticed that revenue has not been able to substantiate the findings of the AO - none of the documents contained any incriminating evidence/material – the AO has not observed or held that the expenditure was not incurred by the assessee - It has been accepted that the expenditure in fact was incurred - the expenditure incurred on advertisement/brand building was in respect of Joie Agarbatti and incense sticks - The expenditure was not incurred for brand building/advertisement of tobacco products etc., in respect of which royalty payments were received - Reasonableness and whether the assessee was wise and prudent in incurring the expenditure, is not within the domain of examination by the assessing officer, unless permitted and allowed under the statute. Expenses can be disallowed u/s 37(1) of the Act, if it is held that it was not wholly and exclusively for business and not by adopting subjective standard of reasonableness - Section 40A(2) of the Act has not been invoked and there is no provision which stipulates that advertisement and brand building expenses could be restricted or partly allowed – there was no need to examine the question as to whether any document belonging to the assessee was found during the course of search and whether Section 153C of the Act was rightly invoked – Decided against revenue.

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• 2014 (11) TMI 850
  Entitlement for deduction u/s 32AB - Whether the Tribunal was justified in holding that the assessee was entitled to deduction u/s 32AB – Held that:- As per section 32AB, it is required to be debited within six months from the end of the financial year or/and on 30th SEPTEMBER of the next financial year – revenue was not in a position to show that the amount was not debited on 30th SEPTEMBER from the account of the assessee – Decided against revenue.

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• 2014 (11) TMI 849
  Allocation of common expenses incurred on various units – Held that:- As decided in assessee’s own case for the earlier assessment year, it has been held that assessee is following head-count of personnel as the basis for allocation of the common and indirect expenses while the AO seeks to allocate the common expenses on the basis of the turnover of each segment - the assessee is into various activities and the assessee is eligible for deduction u/s 10A of the Act only with regard to software development activity which is set up in STPI - merely because there can be more than one method of apportioning common expenses between STPI and domestic unit, it cannot be said that the method of head-count followed by the assessee should be discarded that too midway even though it was not questioned at any time in the past - The assessee has given detailed explanation as to how it is allocating the expenditure between various units on the basis of head-count but both the AO as well as the DRP have failed to consider the factual aspects of the said submission – thus, the matter is remitted back to the AO for verification – Decided in favour of assessee. Software expenses disallowed – Expenses in the nature or reimbursements or not – Held that:- The AO noticed that the assessee had not deducted tax at source on payments made on software expenses which were claimed as revenue expenses - the software expenses were payments made by it to CSI and were reimbursements hence tax at source was not to be deducted - the absence of profit element in cross-charges as claimed by the Assessee was neither explained by assessee nor could it be independently verified and ascertained - as TDS has not been deducted on the revenue expenses claimed and therefore the amount is liable for disallowance u/s.40(a)(ia) - assessee could not point out any evidence filed before the lower authorities in this regard - Even before the Tribunal, no evidence has been filed to establish the claim of the assessee – Decided against assessee. Transfer pricing adjustment – Determination of ALP – International transaction of rendering software development services to AE – Held that:- The total foreign exchange gain on account of realization of proceeds from debtors, taken to creditors, inter-company statements etc. was a sum of Rs. 179,01,08,756 - a sum which was sought to be added as part of the operating income on rendering software development services is only on account of transactions of rendering software development services by the assessee to its AE and the foreign exchange fluctuation at the time of realization of the payment for rendering software development services - the foreign exchange fluctuation has to be treated as part of the operating income of software development services segment of the assessee and the operating profit to operating cost has to be determined accordingly - the foreign exchange gain from software development services has to be considered as part of the income from software development services while computing the margin of the assessee and accordingly the margin of 12.67% computed by the assessee is directed to be adopted. Selection of comparables – Bodhtree Consulting Ltd. – Held that:- As decided in Wills Processing Services (India) P. Ltd. Versus Deputy Commissioner of Income-tax [2013 (6) TMI 532 - ITAT MUMBAI] - Bodhtree Consulting Ltd. is in the business of software products and was engaged in providing open & end to end web solutions software consultancy and design & development of software using latest technology - Bodhtree Consulting Ltd. cannot be regarded as a comparable - the fact that the assessee had itself proposed this company as comparable should not be the basis on which the company should be retained as a comparable, when factually it is shown that the company is a software product company and not a software development services company. Infosys Ltd. – Held that:- The assessee has brought on record sufficient evidence to establish that this company is functionally dis-similar and different from the assessee and hence is not comparable - Infosys Technologies Ltd is not functionally comparable since it owns significant intangible and has huge revenues from software products - the break up of revenue from software services and software products is not available - Infosys Ltd. is to be excluded from the list of comparable companies. KALS Information Systems Ltd. – Held that:- In Trilogy E-Business Software India (P.) Ltd. Versus Deputy Commissioner of Income-tax. Circle 12(4). Bangalore [2013 (1) TMI 672 - ITAT BANGALORE] - the TPO has drawn conclusions on the basis of information obtained by issue of notice u/s 133(6) of the Act - This information which was not available in public domain could not have been used by the TPO, when the same is contrary to the annual report of this company as highlighted by the Assessee in its letter dated 21.6.2010 to the TPO - this company was developing software products and not purely or mainly software development service provider - KALS Information Systems Ltd. should not be regarded as a comparable. Inclusion of companies as comparables – Held that:- In case of Evoke Technologies Pvt. Ltd. and Maverick Systems Ltd., the export revenues during the previous year relevant to AY 2009-10 were less than 75% - However, these companies in the past had export revenues above 75% and therefore the TPO ought not to have been rejected as comparable and should have seen the average export revenues to the total operating revenues for the past three years - the relevant data to be considered is the data for the previous year relevant to AY 2009-10 - export sales was less than 75% of the total sales during the previous year relevant to A.Y. 2009-10 and only this data would be relevant – the rejection of those two companies as comparable is upheld. The assessee has adopted the figures of this company for the calendar year ending 31.12.2008 - Since the assessee is closing its accounts as on 31.3.2009, naturally, the data of R. Systems does not pass the test laid down in sub-rule (4) of Rule 10B - R. Systems International Ltd. has been excluded by the TPO solely for the reason that its financial year is different without considering that the data for the financial year adopted by the assessee can be easily compiled from the audited statements of such company – the order is set aside and the matter is remitted back to the TPO/AO for including the case of R. Systems International Ltd. in the list of comparables by working out the figures relevant to the financial year. Determination of ALP – Spares replacement services transaction with AE – Held that:- As decided in assessee’s own case for the earlier assessment year, it has been held that the assessee is only a custodian of the goods imported till they are delivered to the client or customer of its parent company on its directions - therefore, the assessee cannot be held to be a trader or distributor of the goods - when the assessee cannot be held to be a trader or distributor of the spare parts, it is clear that the resale price method is not applicable for arriving at the ALP of the international transactions - the TNMM method is the most appropriate method for computing the ALP relating to the international transactions of the assessee with its associated enterprises – thus, the issue of determining the ALP should be remanded to the TPO/AO for fresh consideration – Decided in favour of assessee. Administration and other support services transaction to its AE – Held that:- The payments made to the assessee for administration support services and marketing support services by its AE is at arm’s length - the approach adopted by the TPO of combining the Administrative Support services and management/marketing services and making a comparison of the combined results has to be upheld as both the segments were inter connected - the plea of the assessee to include foreign exchange gain to be considered as operating revenue deserves to be accepted, thus, the TPO is directed to compute the arm’s length price after allowing the benefit of proviso to section 92C of the Act, after affording opportunity of being heard to the assessee – Decided in favour of assessee.

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• 2014 (11) TMI 848
  Unexplained cash credits u/s 68 – Addition outside the scope of section 153A or not – Admission of additional evidences – Held that:- The assessee-firm had already filed its Return of Income, long before the date of search i.e., on 15.12.2009 - ‘no incriminating material’ was found during search was found relating to these loans - on the additional evidence produced under Rule 46A, the CIT(A) has chosen to call the report of the A.O and this action of him amounts to acceptance of these evidence – when no incriminating evidence regarding these cash creditors [unsecured loan] were found during search in addition to what had been already disclosed - the addition is not justified and is set aside – Decided in favour of assessee. Advances received towards sale of plot – Held that:- No incriminating evidence was found during search regarding these advances - These have already been shown in the original return of income - The assessee produced proof to prove these advances - The AO has sent his remand report after verifying them - the assessee had received advances against sale of property which were adjusted against sale made subsequently - this receipt cannot partake the character of income – the claim of the assessee is quite justified – Decided in favour of assessee. Addition out of expenses on the basis of original assessment sustained u/s 40(i)(a) – Held that:- Total addition of Rs. 10,86,632/- was made in the assessment order passed u/s 143(3) of the Act - This addition included a sum of Rs. 8,86,880/- made u/s 40(i)(a) and of Rs. 38,050/- made on account of various expenses – the addition has been confirmed by the CIT(A) as well as Appellate Tribunal and the appeal of the assessee is stated to be pending before the Hon'ble Jurisdictional High Court – thus, there is no reason to interfere in the order – Decided against assessee. Addition made u/s 40A(3) deleted - purchase of agricultural land – Land stock in trade or not – Held that:- Following the decision in Smt. Jiya Devi Sharma Versus The ACIT, Central Circle – 2, Jodhpur [2014 (11) TMI 835 - ITAT JODHPUR] - in the case of the payment to agriculturists were made under circumstances which are excluded under the provisions of Rules - The agricultural land cannot be converted to stock in trade until permission is obtained and the provisions of section 40A(3) of the Act cannot be invoked in this case according to the prevailing law - Principles of section 40A(3) of the Act cannot be invoked in respect of agricultural land – thus, the order of the CIT(A) is upheld – Decided against revenue.

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• 2014 (11) TMI 847
  Violation of Rule 46A – Admission of additional evidences without providing opportunity to heard or not - Held that:- CIT(A) noted that the assessee has filed an affidavit dated 11/06/2010, sworn by Mr. Manish Khandelwal, Director of the assessee company - CIT(A) has examined the authenticity of the said affidavit and for this purpose, he has also examined the affidavit of technical staff – CIT(A) also noted that in compliance to his direction, Shri Manish Khandelwal attended with Shri G. C. Mishra, the technical staff and their statements were recorded on oath - the statements were recorded of Shri Manish Khandelwal along with Shri G. C. Mishra on the direction of CIT(A) and the statements are covered by section 250(4) and for these statements, there is no applicability of Rule 46A - Regarding the affidavit of Shri Manish Khandelwal, Director of the assessee also, affidavit of the Director of the assessee company cannot be considered as a new evidence effected by Rule 46A - various documents were submitted by the assessee in pursuance of his specific directions given u/s 250(4) – thus, there is no violation of Rule 46A – Decided against revenue. Allowability of exemption u/s 10B – Assessee claimed that even job work got done from outside was under the supervision and control of the assessee company but it is not supported by bringing ant cogent material - Held that:- The expenses incurred by the assessee company on power, fuel and water is very negligible of Rs. 5.98 lacs only whereas the assessee has incurred huge sum on account of job work expenses of Rs. 117.24 lacs - as per clause (iii) of sub section (2) of section 10B, this is a pre requisite for availing deduction u/s 10B that the new business is not formed by transfer of machinery or plant previously used for any purpose - Apart from stating this that there is change in name, nothing is stated by the A..O. that new business was formed by the assessee by transfer of machinery or plant previously used for any purpose and hence, this objection of the AO is not valid but there is ample force in the his first objection that no manufacturing activity was carried out by the assessee because it has been seen that the assessee company was not even having sufficient technical experts to supervise and control the job work done by outsider and major portion of work was got done from outside that too without own supervision and control. Various judgements relied were relied upon by assessee which are distinguished as not applicable – further, the assessee could not establish that the assessee is engaged in manufacturing then this aspect as to whether there is any splitting or reconstruction, is not relevant - it cannot be accepted that the assessee is undertaking any manufacturing activity because it has been seen that the assessee company is getting most of the work on job work basis and at the same time, the assessee company is not having sufficient technical experts to claim that such job work was done under its direct supervision and control. Not some of the activities are outsourced but most of the activities are outsourced and very few activities were undertaken by the assessee which is established from this fact that the expenses incurred on job work charges is 8.5 times more than expenses incurred on wages and salaries and very small amount was incurred on account of power, fuel and water of Rs. 5.98 lacs only- the basis adopted by CIT(A) is totally incorrect because he has stated that some of the activities were outsourced whereas most of the activities were outsourced that too without direct supervision and control of the assessee – thus, the order of the CIT(A) is set aside and the matter is remitted back to the AO – Decided in favour of revenue. Validity of assessment order u/s 143(3) - Initiation of proceedings u/s 143(1) after the issue of notice u/s 143(2) – Held that:- As per the provisions of section 143(1), intimation u/s 143(1) has to be issued for intimating the assessee after making adjustment, if any, on account of any arithmetical error in the return or for incorrect claim if such incorrect claim is apparent from the information in the return and no intimation is required to be issued to the assessee if no tax or interest is payable or refundable to him - assessment order u/s 143(3) is to be framed after issue of notice u/s 143(2) after granting hearing to the assessee and after considering the material brought on record by the assessee in course of such hearing - the intimation u/s 143(1) and assessment order u/s 143(3) are two different things and one is not the substitute of the other - Hence, merely because intimation u/s 143(1) was issued to the assessee after issue of notice u/s 143(2), it cannot be said that an assessment order framed by the AO u/s 143(3) on a date after the date of such intimation is bad in law – the additional ground is rejected – Decided against assessee. Allowability of exemption of interest on FDRs u/s 10B – Held that:- The assessee is not eligible for any deduction u/s 10B while deciding the appeal of the Revenue, the ground raised by the assessee have become infructuous because when the assessee is not eligible for any deduction u/s 10B, interest income on FDR alone cannot be considered for granting exemption u/s 10B of the Act – Decided against assessee. Disallowance u/s 10B deleted – Held that:- As decided in assessee’s own case for the earlier assessment year, it has been held that the assessee is not eligible for deduction u/s 10B because the assessee was not doing manufacturing activity since most of the processing work was outsourced by the assessee without having direct supervision and control - Since the present assessee has acquired the same undertaking from M/s MKU (Armours) Pvt. Ltd., which was not eligible for deduction u/s 10B of the Act, this assessee is also not eligible for deduction u/s 10B because this assessee has acquired an undertaking which was previously operating and was not eligible for deduction u/s 10B - Hence, even if this assessee is not getting the work done by outsourcing to job worker, this assessee is not eligible for exemption u/s 10B because this assessee is using used machineries and the earlier user was not entitled for exemption u/s 10B - Hence, there is violation of the condition of section 10B – the order of the CIT(A) is set aside – Decided in favour of revenue. Requirement to deduct TDS u/s 195 - Details of goods inspected not furnished by assessee – Held that:- The main basis of the AO for making disallowance is that no TDS was deducted - As per the finding of CIT(A), it is seen that it is held by him that as per DTAA between India and Egypt (UAR), no TDS was deductible because there can be a business connection but it would not constitute PE in India of the payee company – there was no reason to interfere in the order of CIT(A) – Decided against revenue. Claim of insurance disallowed – Held that:- It is noted by AO in the assessment order that on 02/06/2004, a fire broke out in the factory and at that time, loss in file was claimed from the insurance company for a sum of Rs. 98,94,282/- and this amount was debited to insurance company - the claim was not settled by the insurance company till this year - the claim was settled for an amount of Rs. 75,08,888/- and the balance amount was written off by the assessee - Since in assessment year 2005-06, the entire amount was debited to the account of the insurance company and the same was also accounted for as income in that year, any write off is allowable u/s 36(1)(vii) because it takes a character of bad debts written off – Decided in favour of assessee. Disallowance u/s 14A – Held that:- CIT(A) was of the view that the assessee was having interest free fund in the form of share capital and reserve and surplus of Rs. 3,212.26 lacs and investment in shares is of Rs. 38.54 lacs - The CIT(A) has already confirmed the disallowance of Rs. 1,23,327/- in respect of administrative expenses as per Rule 8D(2) of the Act - He has deleted the disallowance of only Rs. 18,14,528/- in respect of disallowance of interest - The major investment is in shares of German company - Since the dividend income from foreign company is not exempt, no disallowance is called for u/s 14A in respect of such investment in shares of a foreign company – the order of the CIT(A) is upheld – Decided against revenue.

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• 2014 (11) TMI 846
  Hire charges paid to Blue Bell Finance Ltd. disallowed – Held that:- As decided in assessee’s own case for the earlier assessment year, wherein it has been held that the decision can be taken only once the petition in the High Court gets decided – thus, the matter is remitted back to the AO with the direction to decide the matter accordingly – Decided in favor of assessee. Deferred revenue expenses disallowed – Held that:- CIT(A) rightly was of the view that because in the balance sheet schedule Q-note X(d) it is clearly mentioned that deferred revenue expenditure is incurred prior to commencement of commercial production – the expenditure is not revenue expenditure and not incurred during the year under consideration – thus, the order of the CIT(A) is upheld – Decided against assessee. Rebates and reversal of claims disallowed – Held that:- The amount which have been written off were shown as sales in earlier years and were also offered to tax in the respective years - the assessee has debited its Profit and loss account and the amount has been written off has not been disputed – in T.R.F. Ltd Vs CIT [2010 (2) TMI 211 - SUPREME COURT] it has been held that after 1st April 1989, it is not necessary for the assessee to establish that the debt has in fact become irrecoverable - It is enough if the bad debt is written off as irrecoverable in the accounts of the assessee - since the assessee has written off the amount in its Profit and loss Account, the assessee is entitled to its deduction – Decided in favour of assessee. Treatment of term loan interest – Deferred revenue expenses or revenue expenses – Held that:- The assessee had treated the expenses as deferred revenue expenditure in the books of accounts but claimed as revenue expenditure while filing the return of income - CIT(A) rightly deleted the addition made by the AO by relying on its decision in the preceding year – thus, the order of the CIT(A) is upheld – Decided against revenue. Interest on advances given to employees deleted – Held that:- AO had made additions by estimating the interest rate at 18% on the amount outstanding - The AO has not brought any material on record to prove that the advance is not for the purpose of business – in The Hon’ble Madras High Court in the case of CIT vs. Hotel Savera [1997 (11) TMI 37 - MADRAS High Court] it has been held that for disallowance of the interest, or a part of it, paid on money borrowed for the business purposes, it is essential that a clear finding should be given by the authority concerned that the borrowed money or part of it has been utilized for non-business purposes – thus, the order of the CIT(A) is upheld – Decided against revenue. Interest expenses on exempted income disallowed – Held that:- The Assessee has received dividends on shares which have been claimed as exempt u/s 10(33) - The investment in shares have been made in FY 1996-97 and 1997-98 - CIT(A) was rightly of the view that the Assessee was having interest free funds to the tune of Rs. 52.74 crores against the total investment of Rs. 11.34 crores and thus the interest free funds were in excess of the investments - the AO has failed to establish nexus and prove that the interest bearing funds have been used to make investments and there has been no effective investments in the current assessment year – thus, the order of the CIT(A) is upheld – Decided against revenue. Prior period adjustment deleted – Held that:- While computing the total income, the assessee had suo moto made disallowance and added Rs. 1,01,26,985/- to the total income - The AO had again disallowed the expenditure while passing the assessment order - The act of AO in disallowing again the prior period expenditure amounts to double addition of the same expenditure - the action of AO of disallowing the expenditure which has already been disallowed by the assessee results into double addition – thus, the order of the CIT(A) is upheld – Decided against revenue. Interest free staff advances deleted – Held that:- CIT(A) while deleting the addition has noted that disallowance was made by the AO in the past but the same were deleted by his predecessor - Revenue could not controvert the findings of CIT(A) - Revenue has not brought any material on record to demonstrate that whether against the order of CIT(A) of earlier years the matter was taken by Revenue before Tribunal and that the matter was decided in its favour by the Tribunal – thus, the order of the CIT(A) is upheld – Decided against revenue. Interest on capital asset deleted – Held that:- CIT(A) while deleting the addition has rightly noted that similar additions were made by the AO in earlier years and it were deleted by his predecessor – Relying upon DCIT Vs Core Health Care Ltd [2008 (2) TMI 8 - SUPREME COURT OF INDIA] - the proviso inserted in section 36(1)(iii) by the Finance Act 2003 with effect from April 1, 2004, will operate prospectively - an assessee is entitled to claim interest paid on borrowed capital provided that the capital is used for business purpose irrespective of what may be the result of using the capital which the assessee has borrowed – Decided against revenue. Order passed u/s 144 challenged – Held that:- AO has noted to have issued notices to Assessee on various occasions but the Assessee failed to comply with the same - Asseessee has not brought any material on record to prove the compliance of notices issued by AO - the AO had rightly passed order u/s 144 – Decided against assessee. Claims, rebate and reversal of claim disallowed – Held that:- Assessee contended that the investments were made in earlier years and in the year the investments were made, assessee was having interest free funds and no interest bearing funds have been used for making investments - the Assessee has not placed any material on record to demonstrate the availability of interest free funds or the cash flow statement in its support - neither AO nor CIT(A) has given any finding with respect to availability of interest free funds in the year of investments – thus, the matter is remitted back to the AO for fresh adjudication – Decided in favour of assessee. Sundry balance written off disallowed – Held that:- CIT(A) was of the view that the assessee had not furnished any details and evidence in order to prove that the appellant had accounted any income from the transaction in past - the Assessee in the paper book has submitted the details of amounts written off - Since the details filed by the Assessee in the paper book were not before AO, the matter is required to be remitted back to the AO for verification – Decided in favour of assessee. Legal and professional fees disallowed – Held that:- The expenses were incurred for the business of the company and were revenue in nature - AO has noted that no details of the expenses were furnished before him – thus, the matter is to be remitted back to the AO for verification – Decided in favour of assessee. 1/10th of travelling expenses disallowed – Held that:- Assessee has debited travelling expenses in its profit and loss account and has claimed it as deduction - The Assessee did not furnish the details before the AO or before CIT(A) - The disallowance has been made on the basis of estimate - The fact of incurring of expenses of travelling is not disputed - the disallowance made by AO on account of traveling expenses is on higher side - the adhoc disallowance of Rs. 2 lacs is restricted – Decided partly in favour of assessee.

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• 2014 (11) TMI 845
  Rate to be taken for computing arm’s length interest - Primary lending rate or LIBOR rate – Held that:- Identical issue has been considered in Aurionpro Solutions Ltd. Versus Additional Commissioner of Income-tax, Range - 4(3), Mumbai [2013 (11) TMI 806 - ITAT MUMBAI] wherein it has been held that the underlining principle of determining the ALP is based on the transaction between the unrelated parties - The income of the assessee should not be effected as reduced and it is compared with the income or expenditure as the case may be earned or incurred by the assessee, if it would have been between the assessee and the unrelated parties - the assessee is a tested party and economic/commercial as well as geographical condition in which the assessee is doing business are relevant to be considered for the purpose of determining the arm’s length price – the AO/TPO is directed to determine the arm’s length price by considering the LIBOR + 2% on the loan given to the AE. Addition of Notional Interest - Loan Given to Subsidiaries/Associate Enterprise – Held that:- Assessee has submitted that when no interest was charged by the assessee as per the agreement on moratorium for one year, then no notional interest can be added under transfer pricing adjustment - The transaction of loan given to the AE is an international transaction and subjected to ALP as per the transfer pricing provisions of Income Tax Act - The assessee has raised an alternative plea that even in case the transfer pricing provisions are applicable in respect of the non charging of interest on loan given to AE, it is not taxable in India as per the provisions of Article 11 of Indo-Mauritius DTAA because the said interest was not paid to the assessee - the provisions of Article 11 are applicable in the case of interest arising in the contracting state and paid to the resident of another contracting state. It is contemplated under Article 11 of DTAA that the payment is a condition for taxing the interest only in the circumstances when the interest is arising in the contracting state and accrued to the resident of another contracting state and, it is subjected to tax in the other state when it is paid - the provisions of Article 11 defers the taxability of the interest arising but not received and, therefore, it is taxed only when it is received - Article 11 does not exempt the interest arising in a contracting state and accrued to a resident of other contracting state but it makes the same taxable on the event of payment - when the assessee has not even admitted the interest arised and accrued to the assessee on the loan given to the AE for the AY under consideration, therefore, the provisions of Article 11 of Indo-Mauritius treaty cannot be pressed into service. Adjustment of interest on share application money in overseas subsidiary – Held that:- Following the decision in Bharti Airtel Limited Vs. Addl. CIT [2014 (3) TMI 495 - ITAT DELHI] - there is no finding about what is the reasonable and permissible time period for allotment of shares, and even if one was to assume that there was an unreasonable delay in allotment of shares, the capital contribution could have, at best, been treated as an interest free loan for such a period of 'inordinate delay' and not the entire period between the date of making the payment and date of allotment of shares - Even if ALP determination was to be done in respect of such deemed interest free loan on allotment of shares under the CUP method, as has been claimed to have been done in this case, it was to be done on the basis as to what would have been interest payable to an unrelated share applicant if, despite having made the payment of share application money, the applicant is not allotted the shares - it was unreasonable and inappropriate to treat the transaction as partly in the nature of interest free loan to the AE - Since the TPO has not brought on record anything to show that an unrelated share applicant was to be paid any interest for the period between making the share application payment and allotment of shares, the very foundation of impugned ALP adjustment is devoid of legally sustainable merits - the authorities below were in error in treating the payment of share application money, as partly in the nature of interest free loans to the AEs, and, accordingly, ALP adjustment based on that hypothesis was devoid of legally sustainable merits – thus, the matter is to be remitted back to the AO/TPO for reconsideration. Equity investment in overseas subsidiary – Transaction treated as international and full amount added to assessee’s income – Held that:- The assessee has not produced any valuation or other material to show that the investment made in the subsidiary at par is at arm’s length - The assessee has placed reliance on the valuation report of KPMG based of DCF method - in case of investment in the 100% subsidiary of the assessee, the valuation has to be future prospective earning on the capital and should not be based on the present net worth of the subsidiary - Since the investment is for long term and not for earning the capital gain, the valuation should have been based on the discounted cash flow method (DCF) - Since no such report was produced by the assessee before the TPO/AO – thus, the matter is to be remitted back to the AO for reconsideration – Decided in favour of assessee. Secondary transfer pricing adjustment - Capital infused by the assessee in its subsidiary – Held that:- The adjustment on account of notional interest on the additional capital infused by the assessee in the subsidiary is over and above, the adjustment of the entire capital investment amount - it is not an alternative but it is an adjustment of over and above of the entire amount of capital investment – DRP was rightly of the view that the transfer pricing adjustment on account of the additional capital infusion has already been made and approved - The transfer pricing provisions in the Act does not envisage the concept of ‘secondary transfer pricing adjustment' and as a concept' secondary adjustment' is alien to the Indian transfer pricing law – the order of the DRP is upheld – Decided against revenue.

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• 2014 (11) TMI 844
  Determination of ALP – CUP method rightly rejected or not – CUP method or TNMM - Transactions with Associated enterprises - International transactions of provision/ receipt of freight forwarding services to/from AEs – Whether the mechanism for computing the amount of profit, so agreed upon between the parties, can indeed be taken as a comparable for the purposes of CUP analysis in transfer pricing - Held that:- Availability of precise amount having been charged for precisely the same service is a sine qua non for application of CUP method - the TPO has held that it is not a fit case for application of CUP and, accordingly, the TNMM, which is usually referred to as method of last resort for computation of arm’s length price, has been put in service resulting in impugned ALP adjustment - as decided in ACIT Vs Agility Logistics Pvt Ltd [2012 (4) TMI 260 - ITAT MUMBAI] the application of CUP method by a comparing a pricing formulae, rather than the pricing quantification in amount as was considered sine qua non by the TPO - even in a situation in which the comparables were the formulas on the basis of which exact quantification for price of services was done, it could be accepted as a price for the purposes of application of CUP method of ascertaining arm’s length price - when connotations of ‘price’ under rule 10B(1)(a) are treated to include not only an amount stated in monetary terms but also a mechanism in terms of a formulae to arrive at consideration, such an interpretation is certainly a very purposive and realistic interpretation. As long as one can come to the conclusion, under any method of determining the arm’s length price, that price paid for the controlled transactions is the same as it would have been, under similar circumstances and considering all the relevant factors, for an uncontrolled transaction, the price so paid can be said to be arm’s length price - the price need not be in terms of an amount but can also be in terms of a formulae, including interest rate, for computing the amount - the business model adopted by the assessee, in principle, meets the test of arm’s length price determination under rule 10BA as well - the operation of rule 10BA, which confers the benefit of an additional method of ascertaining arm’s length price and, inter alia, relaxes the rigour of CUP method, can only be retrospective in effect - rule 10BA is to be held as effective from 1st April 2002, i.e. the time when transfer pricing provisions were introduced in India. The business model of 50:50, as was admittedly prevalent in the line of business activity of the assessee and as is followed by the assessee, thus indeed satisfies the test for determination of arm’s length price - the contention of the assessee is accepted to the effect that the arm’s length price of services rendered to, or received from, the associated enterprises, which was computed on the basis of the same 50:50 model as is the industry norm and as has been employed by the assessee for computing similar services to the independent enterprises, was at arm’s length - the arm’s length price adjustment is to be set aside – Decided in favour of assessee.

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• 2014 (11) TMI 843
  Denial of deduction u/s 80P by invoking section 80A(5) – Taxpayers have not filed the returns of income within the time limit provided u/s 139(1) or 139(4) or within the time specified in the notice u/s 142(1) - Whether such taxpayers are entitled for deduction u/s 80P - Held that:- Following the decision in Kadachira Service Co-op. Bank Ltd. Versus Income-tax Officer, Ward-1, Kannur [2013 (2) TMI 208 - ITAT COCHIN] - Section 139(1) make it mandatory for every taxpayer whose total income exceeds the maximum amount which is not chargeable to income-tax before grant of deductions u/s 10A, 10B and deduction under Chapter VIA of the Act to file the return of income - all the taxpayers' income exceeded the maximum amount which is not chargeable to income-tax before grant of deduction under Chapter VIA therefore, it is not only mandatory but also statutory requirement that all the taxpayers have to file the return of income before the due date prescribed u/s 139(1). Whether filing of return of income and making a claim in respect of deduction u/s 80P is mandatory or discretionary – Held that:- If the contention of the assessee is accepted, then the person, who files the return of income and fails to make a claim of deduction in the return of income either by ignorance or otherwise may not get the benefit, but a person who has not filed the return of income may be in a better position to claim the benefit - in order to avail benefits under the beneficial provision, the conditions provided by the legislature has to be complied with - the mandatory provisions contained in section 139(1) r.w.s. 80A(5) it is mandatory for every cooperative society for claiming deduction u/s 80P to file the return of income and to make a claim of deduction in the return itself – Decided against assessee. Whether the return could be treated as return of income or not – Held that:-No loss which has not been determined in pursuance of a return filed within the time provided u/s 139(1) shall be carried forward and set off but before amendment of section 80 by Taxation Laws Amendment Act, 1984 with effect from 01-04-1985 there was no requirement for filing the return of income within the time limit provided u/s 139(1) - the legislature made it mandatory for filing the return of income within the due date prescribed in section 139(1) as far as carry forward of loss u/s 80 is concerned - the return of income filed within the time limit provided in section 139(1) or 139(4) or time specified in the notice u/s 142(1) or 148 can be considered as return of income - However, the belated return filed beyond the time limit provided u/s 139(1) or 139(4) or time specified in notice u/s 142(1) or 148 of the Act cannot be considered as return of income for deduction u/s 80P of the Act. Whether the taxpayer is entitled for deduction u/s 80P – Held that:- All the taxpayers’ income exceeded the maximum amount which is not chargeable to income-tax before grant of deduction under Chapter VIA of the Act - Therefore, it is not only mandatory but also statutory requirement that all the taxpayers have to file the return of income before the due date prescribed u/s 139(1) of the Act - in order to avail benefits under the beneficial provision, the conditions provided by the legislature has to be complied with - in view of the mandatory provisions contained in section 139(1) r.w.s. 80A(5) of the Act it is mandatory for every cooperative society for claiming deduction u/s 80P to file the return of income and to make a claim of deduction u/s 80P of the Act in the return itself - if the return was not filed either u/s 139(1) or 139(4) or in pursuance of notice issued u/s 142(1) or u/s 148, the taxpayer is not entitled for any deduction u/s 80P – decided against assessee.

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• 2014 (11) TMI 842
  Allowability of deduction u/s 80IB - Assessee was having factory license before it started manufacturing activities or not – Commencement of business activity on or before 31.03.2004 or not – Held that:- CIT(A) rightly held that factory license is not a necessary condition for eligibility of deduction u/s 80IB - assessee is entitled to the benefit of Section 80IB of the Income Tax Act, 1961 - the AO did not doubt about raw material consumption, power consumption, sales and employment of workers for the purposes of denying the benefit of section 80IB - for the purpose of Section 80IB of the Act, what is essential is that the assessee should manufacture or produce an article or thing and if there is any violation of any provisions of any other statutes then the assessee has to explain the same to the authorities implementing those Acts/Statutes and the same cannot be the basis of denial of benefit under Section 80IB of the said Act – the order of the CIT(A) is upheld – Decided against revenue. Disallowance of remuneration to partners deleted – Held that:- CIT(A) rightly held that the clause is vague in nature and does not even prescribe the method of calculating the remuneration - remuneration cannot be thrust upon the appellant so this ground of appeal is allowed - though Assessee had not claimed remuneration to partners, AO had allowed the same - the clause relating to remuneration in the partnership deed is vague in nature and does not prescribe the method of calculation of remuneration - Revenue has not brought any contrary binding decision in its support nor has been able to distinguish the judgments relied upon by the CIT(A) – the order of the CIT(A) is upheld – Decided against revenue. Deletion of disallowance u/s 40(a)(ia) – Disallowance in next year on payment basis amounts to double benefit to assessee or not – Held that:- CIT(A) rightly was of the view that the deduction u/s.80-IB was not granted to the appellant on the disallowance made on technical ground - the deduction u/s.80-IB has to be granted on the computed income derived from the industrial undertaking - any addition/disallowance made during the course of assessment do not lose the characteristic of being derived from the industrial undertaking as its original source – the order of the CIT(A) is upheld – Decided against revenue. Expenses on labour charges u/s 40A(2)(b) – Held that:- CIT(A) rightly allowed the claim of Assessee has held that the labour charges paid by the Assessee was for different gauge specification of finished goods and therefore the wages rates are different - Revenue has not been able to controvert the findings of CIT(A) nor could controvert the submissions of Assessee – the order of the CIT(A) is upheld – Decided against revenue.

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• 2014 (11) TMI 841
  Addition on account profit on sale/redemption of investments – Held that:- Following the decision in assessee’s own case as decided in Oriental Insurance Co. Ltd. Versus Assistant Commissioner of Income-tax, Circle 16(1), New Delhi [2011 (7) TMI 728 - ITAT DELHI] - no adjustment is required to be made to the accounts furnished to the Controller of Insurance in respect of profit on sale of investments - Decided against assessee. Disallowance of provision made for orphan claims – Held that:- As decided in assessee’s own case for the earlier assessment year, it has been held that the assessee explained that as per clause 5.1 of accounting policy of the assessee company in respect of motor third party claim where Court summons have been served on the company without adequate policy particulars to establish the liability of the company, provision is made to the extent of one third of the value of the total estimated liability of such unidentified claims determined on the basis of existing guide lines and practices - the claim of assessee is clearly contingent in nature and cannot be allowed as deduction – thus, the order of the CIT(A) is upheld – Decided against assessee. Diminution in value of investments – Held that:- As decided in assessee’s own case for the earlier assessment year, CIT(A) rightly held that the claim of the assessee for an unascertained liability was rightly disallowed by the AO - the provision made by the assesee for notional losses on revaluation of investment is in fact a reserve irrespective of the nomenclature given by the, assesee - the substance of the Claim is to be considered and not the nomenclature. The assessee has not sold the investments in question during the relevant accounting period and notwithstanding the guidelines given by the IRDA to reflect the true position of assets and liabilities in the relevant balance sheet of the assessee, the notional losses claimed only on the basis of prevailing market price could not be allowed against the actual business profits of the relevant accounting period - the claim of loss pot actually incurred on the investments which have neither been sold nor transferred otherwise is only a provision for unascertained liability and cannot be allowed to be reduced from the income of the assessee - the deduction for the amount provided by the assessee in its relevant accounts to meet diminution in or loss on realization of investments cannot be allowed for the period prior to 01.04.2011 as per the existing provisions of the Act – the order of the CIT(A) is upheld – Decided against assessee. Admission of additional ground - Computation of book profits u/s 115JB – Held that:- All the facts are on record and the ground is a legal ground by following the decision in NTPC Ltd. Vs. CIT [1996 (12) TMI 7 - SUPREME Court] - the provisions of S.115 JB of the Act are not applicable in case of Insurance Companies, as they are not required to prepare the accounts as per Part 2 and 3 of Schedule VI to the Companies Act - the computation made u/s 115 JB of the Act is deleted – Decided in favour of assessee. Disallowance on investment written off deleted – Held that:- As decided in assessee’s own case for the earlier assessment year, CIT(A) rightly held that the entries made in the assessee's books of account in this behalf are strictly in accordance with the guidelines issued by General Insurance Corporation - These guidelines permit the assessee to book a loss which has for all practical purposes, been suffered on account of depreciation in value of investments beyond any reasonable hope of recovery - the guide lines permitted the insurance company to book the loss in the accounts rather than waiting for actual realization of loss on sale of investment - Thus, the amounts claimed by the assessee are to be understood as a loss on investments suffered by the assessee - Such 'loss' can neither be-considered an 'expenditure' nor an 'allowance' - the addition made by the AO in respect of amounts written off by the assessee on punt of depreciation in the value of investments is to be set aside – Decided against revenue. Disallowance u/s 14A – Held that:- As decided in assessee’s own case for the earlier assessment year, section 14A contemplates an exception for deductions as allowable under the Act are those contained u/s 28 to 438 - Section 44 creates special application of these provisions in the cases of insurance companies – the order of the CIT(A) is upheld – Decided against revenue. Guest house expenses – Held that:- As decided in assessee’s own case for the earlier assessment year, expenditure incurred for maintenance of the company's own guest houses is covered u/s 30(a)(ii) - in respect of the guest houses owned by the assessee, repair expenses will have to be allowed as deduction under section 30(a)(ii) - once the expenditure is allowable under section 30(a)(ii ), if the expenditure of incurred on repair and maintenance of guest house taken on lease should also be allowed – the order of the CIT(A) is upheld – Decided against revenue.

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• 2014 (11) TMI 840
  Transfer pricing adjustment - Selection of compables – Accentia Technologies Limited - different business strategies – Held that:- In M/s. Capital IQ Information Systems (India) Pvt. Ltd. Versus Addl. Commissioner of Income-tax [2014 (9) TMI 125 - ITAT HYDERABAD] - it was a case of mergers and acquisition, and the company was also found to be functionally different - exceptional events like merger/demerger does impact the profitability of a company - it is necessary to look into this aspect before selecting a particular company as comparable - the matter is remitted back to the AO who shall verify the fact whether in fact, the exceptional events like amalgamation and acquisition, which have taken place has any impact on the profitability of the company as claimed by the assessee. Acropetal Technologies Ltd. – Functionally different unit - Held that:- As decided in assessee’s own case for the earlier assessment year, the decision in M/s. Market Tools Research Pvt. Ltd. Versus Dy. Commissioner of Income-tax [2014 (9) TMI 43 - ITAT HYDERABAD] followed - the TPO has admitted that the aforesaid company has two segments, and only the IT Enabled Services Segment, relating to engineering design services was considered by the TPO for comparability analysis - the functions performed by the Engineering Design Services segment of the company cannot be considered as comparable to the ITES/BPO functions performed by the Assessee - this company could not have been selected as a comparable, especially when it performs engineering design services which only a Knowledge Process Outsourcing [KPO] would do and not a Business Process Outsourcing [BPO] – the AO/TPO is directed to exclude the company from the list of comparables. Cosmic Global Ltd. - Outsourcing of main activity - Held that:- Following the decision in M/s. Capital IQ Information Systems (India) Pvt. Ltd. Versus Addl. Commissioner of Income-tax [2014 (9) TMI 125 - ITAT HYDERABAD] - outsourcing charges constitute 57.31% of the total operating costs - The entire outsourcing is confined to Translation charges paid at Rs. 3.00 crore, which is strictly in the realm of the Translation segment, revenues from which are to the tune of Rs. 6.99 crore - If this segment of Translation is not under consideration for deciding as to whether this case is comparable or not, we cannot take recourse to the figures which are relevant for segments other than accounts BPO - this case cannot be excluded on the strength of outsourcing activity, which is alien to the relevant segment – the AO is directed to exclude this company. Eclerx Services Ltd. – Functionally different unit - Held that:- As decided in assessee’s own case for the earlier assessment year, it has been held that the TPO has accepted the assessee as a purely ITES provider – the company is engaged in providing KPO services held that this company cannot be treated as comparable to an assessee which is engaged in provision of IT enabled services in BPO sector - it cannot be said that the company is comparable to the assessee - the aforesaid company has been treated as not to be a comparable, as it is involved in providing KPO services as well as it is earning super-normal profits – thus, the AO/TPO is directed to exclude the company from the list of comparables. Genesys International Ltd. – Held that:- As decided in assessee’s own case for the earlier assessment year, it has been held that after analysing the activities undertaken by the assessee company vis-à-vis the activities of the assessee before it, which is engaged only ITE services to its AE, had remitted the issue to the file of the TPO for considering afresh - applying the rule of consistency, the decision of the Tribunal is followed – Decided partly in favour of assessee.

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• Customs

• 2014 (11) TMI 859
  Exemption under Notification No.28/97 Cus. dt. 1.4.97 - Penalty u/s 11A - Suppression of facts - Held that:- Appellant imported machinery under EPCG licence subject to the condition that the said machinery would be used in their factory for manufacture of the final product. There is no dispute that the machineries were installed in a textile showroom cum shop of the appellant's sister concern at Chennai, without any intimation to the department, and in gross violation of condition of the Exemption Notification. It is apparent that the appellant deliberately suppressed the fact of installation of the machineries at their showroom with an intention to evade payment of appropriate Customs duty on the imported machinery and it would liable to be confiscated under Section 111 (o) of the Customs Act, 1962. - Appellant installed the machineries in their show room without utilizing in the factory premises, is a clear case of misrepresentation and penalty of Section 114A of the said Act is imposable - Decided against assessee.

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• 2014 (11) TMI 857
  Duty drawback claim - conversion of Shipping Bills for Duty Free Goods into Shipping Bill - Held that:- situation is not covered by any of the sub-clauses, namely (a), (b) or (c) above. In view of this position, the matter cannot be decided by the Single Member Bench and must be heard by the Division Bench - the matter may be placed before the Division Bench in the normal course..

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• 2014 (11) TMI 856
  Refund of SAD - Notification no. 102/2007 dated 14.09.2007 - Whether to avail the benefit of Notification no. 102/07, the condition 2(b) of the Notification is mandatory for compliance being a trader who cleared the goods on the strength of commercial invoices - Held that:- A trader-importer, who paid SAD on the imported goods and who discharged VAT/ST liability on subsequent sale, and who issued commercial invoices without indicating any details of the duty paid would be entitled to the benefit of Notification 102/2007-Cus”, although they have not made an endorsement on the invoice that credit of duty is not admissible. Therefore, following the decision of the larger bench of the Tribunal, I hold that as the appellants have cleared the imported goods on payment of CST/VAT being a trader under the cover of commercial invoice, therefore they are entitled for refund claim as they have satisfied the condition of Notification 102/07 dated 14.09.2007 - Decided in favour of assessee.

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• 2014 (11) TMI 855
  Revocation of CHA License - Forfeiture of security deposit - contraventions of Regulations 13(a), (d) and (e) of the CHALR, 2004 - Held that:- In the enquiry report it has been clearly stated that the charges of contravention of Regulations 13(a) and 13(d) of are held to be “not proved”. The charge of contravention of only Regulation 13(e) regarding exercising due diligence is proved. There is no bar in the licensing authority, the Commissioner of Customs, taking a view different from those contained in the enquiry officer's report as held by the hon'ble Bombay High Court in the case of Delta Logistics vs. Union of India 2012 (286) ELT 517. However, if the licensing authority wants to take a different view, the appellant should be put to notice as to why the enquiry officer's report is being differed with, which has not been done in the instant case. The appellant should have been given a reasonable opportunity of submitting their defence against the charges made. Further, in the present order, the Commissioner of Customs, Pune has merely borrowed the “mind” of Commissioner of Customs, Mumbai who had revoked the licence without making any independent examination of the issues involved. - Decided in favour of appellant.

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• Service Tax

• 2014 (11) TMI 876
  Classification of service - activity of shooting the programme prepared by the advertising agency - Advertising Agency Service or Video Tape Production Services - Held that:- Revenue wants to classify the activity undertaken by the Respondent under Advertising Agency Service. As per the provisions of Section 65 (53) of the Finance Act, 1994, advertising agency means any person engaged in providing any service connected with the making preparation, display or exhibition of advertisement and includes an advertising consultant. In the present case, the Respondents are registered with the Revenue authorities as provider of Video Tape Production Service with effect from 7.8.2001 and paying appropriate service tax. The activity undertaken by the Respondent is not connected with the preparation, display or exhibition of advertisement. The respondents are only shooting the programme prepared by the advertising agency. Hence the activity does not fall under the category of advertising agency service. In respect of limitation also we find that the Respondents are registered with the Revenue as provider of Video Tape Production Service since beginning and paying appropriate service tax by filing statutory returns. Therefore the allegation of suppression with intent to evade payment of service tax is also not sustainable - Decided against Revenue.

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• 2014 (11) TMI 875
  Maintainability of writ - Application for issuance of Writ of Prohibition - service tax liability was confirmed and order in original was passed - Prohibition on the respondents from levying and collecting service tax on the transfer of right to use copyright - Liability to pay service tax on copyright service - service tax on the royalty charges - Held that:- Petitioner having already agitated their rights before the Tribunal with regard to the earlier period was not entitled to maintain a Writ Petition before this Court, when show cause notice was issued for the subsequent period. That apart, the issue as to whether service tax is liable to be paid on the nature of transaction done by the petitioner with its group companies, whether the logo which is registered under the Copy Right Act was used as an artistic work or merely with the purpose to show that the products marketed by their group companies also belong to the TTK group and whether in that regard, it was in the nature of a trade mark are all issues which involve adjudication of disputed questions of fact. These issues cannot be permitted to be raised for being adjudicated in a Writ Petition. Issue raised by the petitioner being an issue relating to classification, there is a clear bar of jurisdiction imposed under the statute if even entertaining an appeal as against the order passed by the Tribunal as the appeal shall lie only to the Supreme Court. - Decided against assessee.

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• 2014 (11) TMI 874
  Commercial or industrial construction service - Whether the appellant is liable to pay service tax on the ground that appellant has provided commercial or industrial construction service in respect of cargo agent building constructed by them for M/s. GMR Hyderabad International Airport Ltd. - Held that:- According to Aircraft Act, 1934, aerodrome means any definite or limited ground or water area intended to be used, either wholly or in part, for the landing or departure of aircraft, and includes all buildings, sheds, vessels, piers and other structures thereon or appertaining thereto. She submits with the help of a diagram that cargo agent building constructed by them is appertaining to the parking area of cargo aircrafts and therefore is covered by the definition and therefore is to be excluded from the definition of airport services for payment of service tax. She also relies upon the decision in the case of Archistructural Constructions India Pvt. Ltd. Vs. CCE, Coimbatore [2011(22) STR 663(Tri. Chennai)] wherein it was held that air catering unit constructed at the airport can be considered as part of airport and excluded. - after going through the diagram and the submissions made, we find that prima facie case is in favour of the assessee - Stay granted.

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• 2014 (11) TMI 873
  Valuation of service - Whether the value of free supply of cement, steel etc. is required to be added to the gross amount charged in providing the commercial or industrial construction taxable service to compute the assessable value for the purpose of service tax - Held that:- Following decision of Bhayana Builders (P) Ltd. vs. CST, Delhi reported in [2013 (9) TMI 294 - CESTAT NEW DELHI (LB)] - Decided in favour of assessee.

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• 2014 (11) TMI 872
  Valuation of goods - inclusion of the value of diesel supplied free of cost - Held that:- Issue of includibility of the value of free supplies in the gross amount charged has been decided by the Larger Bench of CESTAT in the case of Bhayana Builders (P) Ltd. Vs. Commissioner of Service Tax. Delhi - [2013 (9) TMI 294 - CESTAT NEW DELHI (LB)], wherein it has been unambiguously held that the value of free supplies by the service receiver to the service provider is not includible in the ‘gross amount charged’ by the service provider from the service receiver. In view of this, any further discussion on the issue involved is unnecessary and unwarranted. It is accordingly held that the demand confirmed on the basis that the value of diesel supplied free of cost by the service receiver is includible in the gross amount charged is unsustainable. When the demand itself is not sustainable, the question of any penalty simply does not arise. - Decided against Revenue.

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• 2014 (11) TMI 871
  Invocation of extended period of limitation - No allegation of fraud, collusion, willful misstatement or suppression of facts - Exemption under Notification No. 34/2004-S.T., dated 3-12-2004 - Held that:- Only on the examination of accounts maintained by the assessee, the proceedings themselves emanated on the allegation of short payment. It is not denied by the Revenue, that the assessee originally placed reliance on the Exemption Notification, not remitting Service Tax on the freight charges exceeding Rs. 750/-. Further on the allegation that the Exemption Notification would not apply to the case, there is no allegation of fraud, collusion, willful misstatement or suppression of facts. Thus, on the allegation of non-payment arising from the examination of accounts, we do not find that the Revenue would be justified in placing reliance on the extended period for limitation as provided for under Section 73(1) proviso of Finance Act. The proviso under Section 11A of Central Excises and Salt Act, 1944, contains the phrase “with intent” to evade payment of duty in such person. The provision under Section 73(1) of the Finance Act, is no different from what is contained under Section 11A of Central Excises and Salt Act, 1944; thus, with the requirement of ‘with intent’ to evade payment of Service Tax, indicating element of deliberate avoidance or evasion, the show cause notice must contain materials to have the benefit of extended limitation. Thus, when the notice contains no such allegation, the Revenue’s case cannot be brought under the extended time limit to hold that the proceedings are saved by the extended limitation. In the circumstances, we hold that the notice issued on 16-10-2007, for the period from November, 2005 to May, 2006, is without any jurisdiction. Consequently, any demand of tax, penalty of interest in this case, is without jurisdiction. - Decided against Revenue.

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• 2014 (11) TMI 870
  Valuation - inclusion of value of the HSD supplied by the service recipient - Extended period of limitation - Challenge to the Show Cause Notice - Invocation of Rule 5(1) of the Service Tax (Determination of Value) Rules 2006 - Provision has been declared ultra vires by the Division Bench of the Delhi High Court in case of Intercontinental Consultants & Technocrats Pvt. Ltd. v. Union of India reported in [2012 (12) TMI 150 - DELHI HIGH COURT] - Held that:- Value of the diesel supplied free of cost by the service recipient cannot constitute taxable event, the authorities cannot take a contrary stand by placing reliance upon the provision which has been declared ultra vires. This Court, therefore, has no hesitation to hold that the extended period invoked by the authority on the plea of suppression of fact is illegal and renders the same to be invalid. It is in dispute that one of the period covered in the impugned show cause notice is apparently within the normal period of limitation provided under Section 73(1) of the said Act, even if, this Court accept that such period can be segregated from the rest of the periods for which the extended period is invoked, the impugned show cause notice cannot be validated having based upon the inclusion of the value of HSD supplied free of cost by the service recipient. Furthermore, the foundation of the impugned notice is laid on Rule 5(1) of the said rules, which is declared ultra vires by the Delhi High Court [2012 (12) TMI 150 - DELHI HIGH COURT] - It is found that the value of HSD provided free of cost by the service recipient cannot be brought within the value of the transaction exposed to the charging section and, therefore, the impugned show cause is liable to be quashed and set aside. - Decided in favour of assessee.

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• Central Excise

• 2014 (11) TMI 869
  Cenvat credit - short payment by utilizing more credit than the credit available - Held that:- During the period of dispute, the appellant were also availing capital goods Cenvat credit in addition to the input duty Cenvat credit goods. While the account of input duty Cenvat credit was being maintained in RG-23A Pt. I and Pt. II register, the account of the capital goods Cenvat credit was being maintained in RG-23C I and II register. From the chart given in para 6 of the impugned order, it is seen that while in case of Unit - I, the total Cenvat credit including the capital goods Cenvat credit available as on 15/08/2000 and 31/08/2000 was Rs. 1,11,09,202/- and Rs. 1,28,68,887/- respectively, the utilization of Cenvat credit for payment of duty on these dates was Rs. 9,67,124/- and Rs. 33,00,407/- respectively and Cenvat credit available was much more than the amount which was utilized for payment of duty and as such it cannot be said that there was short payment of duty. Just because the debit entry of the duty paid was made in RG-23A Pt. II register, it cannot be inferred that the appellant had short paid the duty. Similarly, in respect of Unit - II, the total Cenvat credit including capital goods Cenvat credit available as on 15/08/2000 and 31/08/2000 was Rs. 55,11,200/- and Rs. 48,92,898/- respectively while the utilization of the credit for payment of duty was Rs. 41,77,000/- and Rs. 39,66,325/- and thus the total credit available on both the dates was much more than the credit utilized for duty payment. In this unit also the debit entry for the full amount was made only in RG-23A Pt. II register and from this, it cannot be concluded that the duty had been short paid. The impugned order, therefore, is not sustainable - Decided in favour of assessee.

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• 2014 (11) TMI 868
  Waiver of pre deposit - Cenvat Credit - suppression or wilfull mis-statement of facts - Invocation of extended period of limitation - Held that:- Show Cause Notice admits that the appellants had been regularly filing the ER-1 returns showing all the details. The adjudicating authority has held that the noticee was required to declare material facts instead of taking a plea that it was not required to declare or submit details of goods on which Cenvat Credit was taken. The adjudicating authority does not quote any provision of law under which they were required to declare the material facts; the adjudicating authority does not elaborate as to what material facts were required to be declared and under which provision of law. It is a fact that the description of goods on which Cenvat credit is taken is not required to be declared in the ER-1 returns. They mentioned every detail required to be mentioned in the ER-1 returns. The adjudicating authority has equated suppression with non-declaration of something not even required to be declared as per law. prima facie the appellants have a fairly good case atleast for non-invokability of the extended period as a consequence of which the impugned demand would be hit by time bar. The appellants have also contended that the impugned credit is admissible on merit also but without going into a detailed analysis of the appellant’s contentions on merit, at this stage, we find that on the ground of time-bar alone, a goods case is made out for waiver of pre-deposit. - Stay granted.

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• 2014 (11) TMI 867
  Clandestine removal of goods - Benefit of Notification No. 214/86-C.E., dated 1-3-1986 - committee appointed by the adjudicating authority to verify the transactions in respect of the dispatches made by the Bhandup unit and the receipts at Nasik unit - Held that:- Committee constituted for verification of the transactions consisted of four members; however, the report dated 21-10-2003 submitted by the committee is signed only by one person, which is rather unusual. Further we observe that the said report is signed by the Superintendent (Adjudication) whose role is to assist the adjudicating authority in the conduct of adjudication proceedings. The verification should have been done by some other officer(s) who is not associated with the adjudication process so as to impart an element of neutrality and impartiality. Be that as it may, we further observe that a copy of the verification report was not furnished to the investigating agency for their comments/rebuttal. As per the settled principles of adjudication as also the guidelines prescribed in the adjudication manual, when any new fact comes up for consideration, the party likely to be adversely affected by the same should be given an opportunity to rebut the new findings/facts. Unfortunately, this has not been done in the present case. Thus there is a clear violation of the principle of natural justice and therefore, on this ground alone, the impugned order is liable to be set aside - Matter remanded back - Decided in favour of Revenue.

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• 2014 (11) TMI 866
  Validity of order passed by the CESTAT - Matter not decided on merits - Held that:- CESTAT has not at all decided the present dispute on merits. Since the CESTAT has not decided the present matter on merits, this Court is of the view to set aside the order passed by the CESTAT in [2005 (8) TMI 478 - CESTAT, CHENNAI] and to remit the matter to the file of the CESTAT. Since the matter is liable to be remitted to file of the CESTAT, the substantial questions of law raised on the side of the appellant need not be decided and altogether the present Civil Miscellaneous Appeal is liable to be allowed. - Decided in favour of assessee.

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• 2014 (11) TMI 865
  CENVAT Credit - Capital goods - Clearance of goods to sister concern - evenue contended that assessee have calculated depreciated value applying depreciation at the rate of 25% as provided under the Income Tax Act and have therefore paid less amount of duty than they would have paid. - as per the department the depreciated value of the goods were required to be done in accordance with Board s Circular No. 643/34/2002-CX dated 1.7.2002 - Held that:- In the show cause notice dated 16-7-2003, it has been specifically mentioned that as per Circular issued in the year 2002, the appellant/assessee is liable to pay the tax mentioned therein. But as rightly pointed out on the side of the appellant/assessee, the Tribunal has not considered the said Circular whereas the Tribunal has remitted the matter to its original authority and also given necessary direction to apply the Circular issued in the year 1988. Further the Customs, Excise and Service Tax Appellate Tribunal, South Zonal Bench, Chennai has not at all considered the relevant provisions of law. - Tribunal to decide the matter afresh.

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• 2014 (11) TMI 864
  Duty demand - Difference in loss - appellant is receiving lubricating oil from M/s. IOBL, Kolkata either on payment of duty or without payment of duty under bond - assessee were repacking the same into small packs to be sold in the market under their own brand and style - Allahabad High Court dismissed the appeal of the Revenue against the decision of the CESTAT NEW DELHI [2014 (6) TMI 618 - CESTAT NEW DELHI] holding that no substantial question of law arises - Where Tribunal in its impugned order had held that difference on account of loss or shortage of lubricating oil were to the tune of 0.44% to 1.78%, whereas tolerance range is 1.4% to 1%. There is no evidence of clandestine removal in absence of which no duty can be demanded on the waste or loss.

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• 2014 (11) TMI 863
  Imports from China not through prescribed point of entry into India - Confiscation orders and penalty - 3,21,264 pieces of “Z” MAGNETISM FOR MEN DEODORANT BODY SPRAY” confiscated - Madhya Pradesh High Court admitted the appeal against the dcisioni [2013 (3) TMI 166 - CESTAT NEW DELHI] on the following substantial questions of law : - Whether the confiscation of goods under Section 111(d) and imposition of penalty under Section 112(a) by the Appellate Tribunal on the ground of violation of condition of the Drugs & Cosmetics Act is correct in view of the fact that the goods were found to be fit for imports after testing by the Drugs Controller? Whether the confiscation of goods and imposition of redemption fine/penalties were justified in view of the fact that the goods were warehoused in the Customs Bonded warehouse? Whether the Tribunal is correct in denying the exemption provided under Sl. No. 1 of Schedule "D" of Drugs & Cosmetics Rules, 1945, on the ground that the term "Substance" does not include cosmetic hence the provisions of point of entry under Rule 133 of Drugs & Cosmetics Rules, 1945 applies? Whether the Tribunal is correct in holding that the Nhava Sheva port is not the point of entry despite the facts that imported goods entered India through Nhava Sheva port, though cleared from ICD, Pithampur?

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• 2014 (11) TMI 862
  Manufacture of turpentine oil and rosin – assessee claimed nil rate of duty on the ground that the same are manufactured without the aid of power and also demands are time-barred - Bombay high Court admitted the appeal of the Revenue against the decision of Tribunal [2011 (12) TMI 137 - CESTAT, MUMBAI] on the following substantial questions of law :- Whether in the facts and circumstances of the case and in law, the Tribunal is justified in setting aside the demand for extended period of limitation ? Whether in the facts and circumstances of the case and in law, the Tribunal is justified in holding that there is no suppression in view of the fact that there was a flow chart submitted by the Respondent way back in the year 2003 and 2004 when the said communication is after the visit of the officers of the Revenue?

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• 2014 (11) TMI 861
  CENVAT Credit - Bar of limitation - Bombay High Court dismissed the appeal filed by the Revenue against the order of CESTAT MUMBAI [2010 (3) TMI 536 - CESTAT, MUMBAI] holding that Tribunal perused the show cause notice in its entirety and in the context of legal position invoked. In the teeth of the provision invoked, found that the facts and circumstances would show that it was inapplicable. This was not the case of any fraud, willful mis-statement, collusion or suppression of fact or contravention of provisions of the Excise Act or Rules made thereunder with intention to evade payment of duty. The findings of fact would go to show that immediately on department bringing to the notice of the Assessee the lapse or default, the demand of duty was complied and the Assessee made the requisite entries. In such circumstances, the proceedings in pursuance of show cause notice ought not to have been pursued further. However, that was done and on unsustainable ground and invoking inapplicable provisions. In such Circumstances, the findings of fact do not give rise to any substantial question of law.

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• 2014 (11) TMI 860
  CENVAT Credit - Penalty u/s 11AC - Bombay High Court admitted the appeal of the Revenue filed against the decision of CESTAT MUMBAI [2005 (4) TMI 202 - CESTAT, MUMBAI] on the following substantial questions of law:- Whether in the facts and circumstances of the case the Tribunal is right in holding that the penalty levied upon the respondents by the Adjudication Authority for availing Modvat Credit on full quantity shown in the invoices when in fact quantity of inputs received in factory was short and thus huge amount of Rs. 9,33,428/ credit was wrongly availed of by the Respondent? Whether in the facts and circumstances of the case the Adjudicating Authority was wrong in confirming the demand and imposing equal penalty upon the respondent under Section 11AC of the Central Excise Act, 1944 and imposing the penalty under Rule 25 and 27 of the Central Excise (No. 2) Rules 2001, particularly when it is on record the shortage of quantity was large? Whether the Tribunal was right in ignoring the decisions of the CESTAT in the matter of M/s. Bombay Dyeing & Mfg. Co. Ltd. reported at [1999 (5) TMI 210 - CEGAT, MUMBAI] which case is directly applicable in the present case. The Bombay Dyeing’s decision clearly lays down that the inputs received on weighing are less that what is actually supplied. The assessee is liable to penalty for such short supply?

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• CST, VAT & Sales Tax

• 2014 (11) TMI 880
  Default assessment under Section 32 of the DVAT Act - period of limitation - extended period of six years in terms of proviso to Section 34(1) of the DVAT Act - scope of the term 'reason to believe' - Held that:- on reading of the default assessment order, we do not find that there is any averment or assertion that there was concealment, omission or failure on the part of the appellant assessee to furnish material particulars. The default assessment order dated 11.05.2011, therefore, will falter and not meet the statutory requirements. It is not the case of the respondent-revenue nor has it been asserted that there is another document or note, recording "reason to believe" by the Commissioner/authority. The appellant assessee had filed objections under Section 74 of the Act before the Objection Hearing Authority and had specifically pleaded that the default assessment was barred by limitation. The Objection Hearing Authority, cannot record "reason to believe". These, as per the statute, should be recorded by the Commissioner/competent authority and that too, before or at the time of passing of the default assessment order under section 32 of the DVAT Act. The reason is simple that the power conferred must be exercised in the manner prescribed and mandated, especially when it is a jurisdictional pre-condition and requirement. Section 34(1) postulates and prescribes upper time limit for passing of the default assessment order as four years, but extends the said period to six years on satisfaction of pre-conditions laid down in the proviso. This extended period is an exception and not the rule. So pre-conditions in the proviso must be satisfied before or with the passing of an order under Section 32 and not afterwards or by the Objection Hearing Authority. The default assessment order as recorded does not disclose and states as to why and for what reason the Commissioner/competent authority had formed the belief that there was concealment, omission or failure to disclose full material particulars. In the absence of satisfaction of the said condition and requirement, the extended period of six years cannot be invoked to pass the default assessment order. - Decided in favor of assessee.

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• 2014 (11) TMI 879
  Rejection of applications for exemption from payment of sales tax - Punjab General Sales Tax Act, 1948 - Scope of the term 'Unit' - revenue submitted that petitioner being a registered dealer has been granted exemption from payment of sales tax amounting to rupees six crores vide exemption certificate dated June 3, 1993. The applications for availment of sales tax incentive in respect of other two branches of the petitioner have been rightly rejected as they are not a "unit" within the meaning of clause (xxvii) of rule 2 of the 1991 Rules. Held that:- The Department of Industries and Commerce having exercised its mind, and having granted the final eligibility certificate (which was valid at all material times), the Commercial Taxes Department could not go beyond the same. More so when the Commissioner, Sales Tax, had accepted the eligibility certificate issued to the appellant and had separately notified the appellant's eligibility for exemption under the 1993 G. O. In these circumstances the DCCT certainly could not assume that the exemption was wrongly granted nor did he have the jurisdiction under section 20 of the State Act to go behind the eligibility certificate and embark upon a fresh enquiry with regard to the appellant's eligibility for the grant of the benefits. - sales tax authorities had no jurisdiction to call in question grant of eligibility certificates issued by the District Industries Centre. - Decided in favor of assessee. Scope and purpose of the term 'Unit' - Scanning of the purpose with which the 1989 Policy and 1991 Rules have been formulated - Held that:- The definition of the term "unit" in a restrictive manner as has been sought to be canvassed by learned State counsel does not spell out from the reading of rule 2(xxvii) defining "unit" and justify the tenor of the policy and the rules framed. Under the circumstances, the State could not restrict the benefit of 1991 Rules to only one unit of the petitioner. - respondent No. 4 directed to issue eligibility certificate to the petitioner in respect of two other units as well - Decided in favor of assessee.

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• 2014 (11) TMI 878
  Settlement of arrears of tax - TNVAT / TNGST - Deferral scheme of sales tax - Cancellation of scheme and demand of tax for the entire period - option of settlement of case - Held that:- we have seen as to how the Settlement Act works and now the issue to be considered is as to whether the petitioners applications were dealt with as per the procedure contemplated under the Act. Before proceeding further, it has to be pointed out that the applications filed by the petitioners were kept pending for two years and there is no reason assigned in the counter affidavit for such a long delay and the delay remains unexplained. The issue to be decided at the first instance is whether these applications were verified as per the provisions of Section 6(1). It is only thereafter the question of considering the further amount payable would arise under Section 6(2). This again is a procedural infirmity, which goes to the root of the matter. In a case, where the designated authority is not in possession of the relevant record, obviously he has to direct the petitioner/applicant to produce the records. In such circumstances, an opportunity of personal hearing is inevitable and in fact the disputed question of facts can very well be thrashed out if the assessee is called upon by the designated authority to state as to how they computed the amount based on their books of accounts or records. Therefore, though the statute does not prohibit an opportunity of personal hearing while considering the application under Section 6(1), going by the scheme of the Act, there is no error on the part of the designated authority to afford an opportunity of personal hearing so as to ensure fairness and transparency in procedure and also to satisfy the cardinal rule, Audi alteram partem. In view of the above procedural defects, the impugned orders passed by the designated authority rejecting the petitioner's applications are liable to be set aside with a direction to the designated authority to re-consider the entire matter in terms of the scheme of the Act.

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• 2014 (11) TMI 877
  Capital Investment Incentive (General) Scheme 1995-2000 - sales tax incentives as measures to attract investments into such backward areas with a view to generate greater employment in less industrially developed areas - Gujarat Sales Tax Act, 1959 - recovery of sales tax - Held that:- When it has been found by the State Level Committee that by condoning the break in production to the petitioner, the purpose and object of the scheme is not likely to be achieved i.e. generating employment in the backward area and thereafter when the application of the petitioner for condonation of break in production has been rejected, the same is not required to be interfered with in exercise of power under Article 226 of the Constitution of India. Now, so far as the contention on behalf of the petitioner that impugned decision / communication dated 28.6.2006 is contrary to the interim direction issued by this Court issued in its order dated 5.5.2006 is concerned, the aforesaid has no substance. It is the case on behalf of the petitioner that while directing the State Level Committee to reconsider its earlier decision, the Division Bench in its interim direction / order dated 5.5.2006 specifically directed the State Level Committee not to consider the factum of stoppage of production subsequently and the unit being closed subsequently and despite the same while taking the decision which has been communicated on 28.6.2006 the State Level Committee has taken into consideration the subsequent closure of the unit and therefore, the same is not permissible and therefore, the impugned order / decision is against the interim direction issued by this Court. Decision of Supreme Court in the case of Mangalore Chemicals and Fertilizers Limited [1991 (8) TMI 83 - SUPREME COURT OF INDIA] distinguished wherein it was held that, non fulfillment of requirement for benefit of exemption was only formal and procedural and not fatal to the application for grant of permission. - In the present case non compliance of the conditions cannot be said to be formal or procedural. - Decided against the assessee.

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