TMI Tax Updates - e-Newsletter
November 5, 2012

Case Laws in this Newsletter:

Income Tax Customs Corporate Laws Service Tax Central Excise CST, VAT & Sales Tax Indian Laws

TMI SMS

• Sale of diamonds & sale of jewellery - capital loss + capital gain- It is an attempt to create capital without paying any tax, not a genuine claim - HC

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• Cenvat credit - Inputs used in trial productions or destructive testing or trial production also are eligible for Cenvat credit. - Tri

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• C.Ex. Manufacturing of Goods at Unregistered places- penalty is reduced to Rs.10,000/- barring that entire order of the ld. Commissioner set aside -Tri

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• IT-S. 40A(2)- increase in director remuneration - when CLB had approved the same it could not be said that the expenditure was excessive or unreasonable

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News

1. FOR THE ATTENTION OF MEMBERS IN FULL-TIME EMPLOYMENT

2. Dr Rakesh Mohan Takes Charge as Executive Director, IMF

3. Wide Range of Issues Ranging from Macro-Economic Trends and Outlook, Fiscal Cooperation, Revision of the Double Taxation Avoidance Convention (DTAC), Expanding Information Sharing between the Taxation Authorities and Measures to Develop Co-Financing Infrastructure Projects among Others Discussed During the Third Bilateral Meeting of Finance Ministers of India and Republic of Korea at Seoul

4. New e-filing Project Conceptualized to Take the e-Services to the Next Generation; In Order to Make the New Portal Live, e-filing Services to the Tax Payers Through the Existing Portal will Not be Available from 3rd November to 8th November, 2012.

5. New E-Filing Project Conceptualized to take the E-Services to the Next Generation; in order to make the New Portal Live, E-Filing Services to the Tax Payers through the Existing Portal will not be available from 3rd November to 8th November, 2012.

6. Text of Shri Kapil Sibal’s Speech at the Presentation of the National Innovation Council’s “2nd Report to the People, 2012”

7. President’s Speech at the inauguration of All India Lokayuktas Conference 2012

8. Union Finance Minister to Attend G-20 Finance Ministers’ and Central Bank Governors’ meeting in Mexico on 4th & 5th November 2012

9. Standardized Packaging of 19 Commodities of Day- to-Day use made Mandatory

10. Minimum Support Prices for the Rabi Crops

11. Amendment to the Building and Other Construction Workers (Regulation of Employment and Conditions of Service) Act, 1996 and Building and Other Construction Workers’ Welfare Cess Act, 1996

12. PM’s opening remarks at the meeting of Council of Ministers

13. PM's appeal

14. Protocol Amending the Convention between India, UK and the Northern Ireland Signed for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital Gains

Notifications

Customs

1. 97/2012 - dated 1-11-2012 - Cus (NT)

Rate of exchange of conversion of each of the foreign currency with effect from 2nd November, 2012.

FEMA

2. 243/2012-RB - dated 19-10-2012 - FEMA

Foreign Exchange Management (Deposit) (Third Amendment) Regulations, 2012 - Amendment In Regulations 2 & 5

3. 240/2012-RB - dated 25-9-2012 - FEMA

FEMA (FOREIGN EXCHANGE DERIVATIVE CONTRACTS) (SECOND AMENDMENT) REGULATIONS, 2012 - AMENDMENT IN SCHEDULE I

Highlights / Catch Notes

Income Tax

• Cooperative Credit Societies Eligible for Tax Deductions u/s 80P(2)(a)(i), Not Classified as Cooperative Banks.

  Case-Laws - AT : Deduction u/s 80P(2)(i) - the cooperative credit society is not a co-operative bank. - it is not excluded from the benefit of deduction u/s 8OP(2)(a)(i) - AT
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• Central Excise Duty refund and interest subsidy classified as capital receipts, affecting Section 80 IB tax deductions.

  Case-Laws - AT : Deduction u/s 80 IB - Central Excise Duty refund & interest subsidy - held as Capital receipt - AT
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• HUF Interest-Free Loan Recorded as Unsecured Liability; No Taxable Income Addition u/s 56(2)(vi) of Income Tax Act.

  Case-Laws - AT : Deemed income u/s 56(2)(vi) - interest free unsecured loan - amount was received from HUF and was recorded in the balance sheet as liability of unsecured loan - No addition - AT
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• Court Rules Diamond Sale Scheme Aimed at Tax Evasion, Not Genuine Capital Transaction for Gain/Loss.

  Case-Laws - HC : Sale of diamonds and sale of jewellery / gold - capital loss and capital gain It is an attempt to create capital without paying any tax, it is not a genuine claim. - HC
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• Director Remuneration Increase Approved by CLB Not Deemed Excessive Under Income Tax Act Section 40A(2.

  Case-Laws - AT : IT - Sec. 40A(2) - increase in remuneration to Directors - when CLB had approved the remuneration it could not be said that the expenditure was excessive or unreasonable - AT
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Customs

• Supplier's 5% Shareholding in Importer Doesn't Automatically Make Them Related; Misinterpretation of Rule 2(2)(iv.

  Case-Laws - AT : Transaction value - Related person – The interpretation given by the original authority would amount to re-writing of Rule 2(2)(iv) to read that if the supplier has more than 5% of the shares in the importing company, then both would be deemed to be related. There is no warrant in law to do so. - AT
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• Adjudicating Authority Applies Board's Valuation Method to Prevent Undervaluation of Imported Used Machinery.

  Case-Laws - AT : Undervaluation – import of old and used machinery – enhancement of value – Old and used machinery is inherently prone to undervaluation - Adjudicating authority correctly followed the valuation method prescribed by Board - AT
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Service Tax

• Abatement Benefit Allowed for Mandap Keeper Services: Food Items on Separate Invoices Qualify for Deduction Under Notification No. 12/03-ST.

  Case-Laws - AT : Benefit of abatement under Ntf. No. 12/03-ST - Mandap Keeper service - food items have been supplied under separate invoices and have discharged the sale tax liability - deduction from gross value allowed. - AT
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• SEZ Unit Wins Refund Claim for Scientific and Technical Services Under Service Tax Regulations Approval List.

  Case-Laws - AT : Refund claim – SEZ unit - approval list - refund allowed in respect of services of Scientific and Technical Services - AT
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Central Excise

• Transporting Ready Mix Concrete within Construction Site Retains On-Site Production Classification for Excise Benefits.

  Case-Laws - AT : Benefit of Notification - manufacture of Ready Mix Concrete (RMC) - Merely because the RMC has been transported from the Batching Plant installed at the site to various places in the site, it does not mean that the goods are not produced at the construction site. - AT
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• Refunds of Duty Paid Under Protest Exempt from Unjust Enrichment Rule When Deposited Under Protest.

  Case-Laws - AT : Refund of duty paid under protest – unjust enrichment is not applicable where amount deposited under protest - AT
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• Turnkey Project Costs Exclude Traveling Expenses from Factory to Customer's Site for Manufacturing and Machinery Supply.

  Case-Laws - AT : Turnkey project - manufacturing plant and supply of plant and machinery in addition to erecting the plant at the work site - inclusion of travelling expenses from the factory to the customer’s site is not warranted. - AT
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• Trial Production Inputs Eligible for Cenvat Credit Under Central Excise Regulations, Broadening Eligible Inputs Interpretation.

  Case-Laws - AT : Cenvat credit – Inputs used in trial productions or destructive testing or trial production also are eligible for Cenvat credit. - AT
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• Penalty for Manufacturing at Unregistered Sites Reduced to Rs. 10,000; Commissioner's Order Largely Overturned.

  Case-Laws - AT : Manufacturing of Goods at Unregistered places - penalty is reduced to Rs.10,000/- barring that entire order of the ld. Commissioner set aside - AT
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Case Laws:

• Income Tax

• 2012 (11) TMI 111
  Arm's length price - case referred to TPO - addition on commission income of GBP - Held that:- The business strategy is that some products may be marketed by a businessman with a low profit to create a demand for other related products or related service. Those other related products are then sold with high profit. However from the side of the assessee nothing of this sort has been demonstrated & no scientific or convincing reason has been advanced in support,thus each sale is a separately contracted transaction, so need to evaluate separately to arrive at arm's length price relying on ACIT Versus UE Trade Corporation (India) (P) Ltd.[2010 (12) TMI 224 - ITAT, NEWDELHI] rejection of the pleading of assessee through which it was demanded to aggregate the entire transaction with the AE for the whole year. Tax avoidance motive - Held that:- The price on which a particular product is available in one country may vary from the price prevailing in other countries due to host of factors. The intent and purpose of these provisions is not to ensure that there is no diminution in the tax liability of Indian Enterprise as well as its AE on a total basis. Rather the logic is to make certain that the transactions between the AE should not be arranged in such a way that the ultimate tax payable in India is artificially reduced. Important factor is the payment of tax qua India and not qua the assessee along with its AE on a whole. Therefore, rejecting the submission of assessee as devoid of any merit that there was no force in this argument of establishing a tax avoidance motive by the Revenue Department. Reference to TPO without providing an opportunity of hearing - Held that:- Decision of the AO to refer the international transaction to TPO for determination of ALP do not in any manner visit the assessee with any civil consequence. A safe-guard has already been provided in the Statute by making a compulsory provision about seeking of prior approval from the CIT by the AO. It was held that there should not be any grievance to the assessee because the TPO had given due opportunity to the assessee. We therefore hold that in the absence of any Statutory provision or a mandate of requirement of giving an opportunity before reference do not adversely affect a taxpayer because the TPO has definitely given sufficient opportunity to the assessee. One of the sources form which the factual information regarding international transaction can be gathered is Form No. 2CEB filed with the return which is in the nature of an account's report containing basic details of an international transaction. No detailed enquiries are needed at this stage and the AO should not embark upon scrutinizing the correctness or otherwise of the price of the international transaction at his stage. Specially when there was a non-disclosure on the part of the assessee in terms of the provisions of section 92C(3) the AO is fully empowered to proceed to determine an international transaction which had come to his knowledge on the basis of any material or document available with him. The assessee has an option either to file his acceptance of the variation of the assessment or file his objection to any such variation with the DRP. The DRP is also authorized to issue direction as it thinks fit for the guidance of the AO. At that stage as well the assessee has an opportunity of hearing. The AO is thereafter shall in conformity with the directions of the DRP complete the assessment proceedings. So the existence of an international transaction can be examined by the DRP at the instance of the assessee & there is nothing to limit the powers of DRP. Thus the AO within his jurisdiction and in terms of the provisions of section 92C(3) is empowered to determine the arm's length price on the basis of the material available to him and finalized the assessment accordingly. Commission payment - Held that:- It is evident that the counter-claims are yet to be re-examined afresh by the AO & if the assessee is in a position to demonstrate that no commission in fact was received and on investigation the AO is satisfied, then the impugned addition/upward adjustment is required to be deleted. With these directions, we hereby hold that the upward adjustment pertaining to the Transfer Pricing transaction regarding commission received from M/s. Atul Europe Ltd. of Rs. 2,71,82,980/- is to be decided afresh by the AO. Prior period expenses - Held that:- There is no evidence on record about the source of such income and what will be the impact of its taxability during the year under consideration. How it was termed as an income of earlier years if it was earned during the year under consideration. Since all such information is not available on record, therefore the natural justice demands to restore this issue back to the stage of the AO to be decided. Disallowance u/s.14A - Held that:- Under Section 14A(1) it is for the Assessing Officer to determine as to whether the assessee had incurred any expenditure in relation to the earning of income which does not form part of the total income under the Act and if so to quantify the extent of the disallowance after furnishing an opportunity to the assessee - remand the proceedings back to the AO for a fresh determination the fact of the present case was that the Assessing Officer had not enquired the issue in the light of applicability of Rule 8D. Disallowance in respect of irrecoverable balance written off - Held that:- The description of the equipment, the use of the equipment and the details about the advance given to the said party was not informed. Rather, it appeared that the assessee wanted to acquire a capital asset, as held by the AO, therefore the expenditure or advance being related to an acquisition of a capital asset, therefore not to be allowed in view of the provisions of section 37(1). Also the impugned amount could also not be allowed u/s. 36(1)(vii)because the said amount was not a "debt" but an advance to the said party. In the result, this addition is hereby confirmed - against assessee. Disallowance u/s.80IA - Held that:- As decided in GUJARAT ALKALIES & CHEMICALS LTD. Versus CIT [2012 (3) TMI 267 - GUJARAT HIGH COURT] only because to a certain extent the new undertaking is dependent on the existing unit, it will not deprive the new undertaking the status of a separate and distinct identity - issue of claim of deduction u/s. 80IA is now required to be decided in the light of the verdict of this case. Disallowance of depreciation - Held that:- The difference between the two, i.e. the original claim of depreciation and the revised claim of depreciation was thus computed by the AO at Rs. 1,21,18,801/- - the findings of the CIT(A) and the depreciation as allowed by the AO was affirmed. Due to this reason, AR has correctly stated that the recalculation of depreciation for the year under consideration was nothing but a consequential effect of the re-computation of depreciation. Non carried forward of unabsorbed depreciation loss - Held that:- AO had calculated the balance of unabsorbed depreciation available to the assessee to be carried forward, which resulted into a disallowance of differential of the claim of depreciation of Rs. 9,28,32,049/- At present, in the absence of any supporting re-calculation by the assessee, no interfere with the calculation of the carried forward depreciation as made by the AO. Initiation of levy of interest u/s.234B, 234D and withdrawal of interest u/s.244A & penalty u/s.271(1)(c) is not justified.

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• 2012 (11) TMI 110
  Deduction u/s 80IB - CIT(A) allowed the claim - Held that:- Considering the Memorandum of Understanding claimed to have been executed with Rutvan Co-operative Housing Society on whose land all development activities are carried out, it is found that it is in Gujrati and the English translation is not complete translation of the MOU, since the same begins from Preamble and the terms of Memorandum begins from clause 2 and ends at clause 4 of terms of memorandum. It is transpired from the English translation that neither it is true translated copy of MOU nor it is certified by the Respondent Firm. Therefore, the same cannot be considered as true translated copy, moreover, it is not clear as to how the risk and rewards shall be shared by the executing parties and whether the respondent firm would have dominant control lover the project - this issue is restored back to the file of CIT(A) to decide afresh after considering all the objections of the AO by way of a speaking order - in favour of revenue for statistical purpose.

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• 2012 (11) TMI 109
  Rejection of appeal - treated as non-est as not signed in ink and the date was missing in the verification part of Form No. 35. - Held that:- As decided in Cairn Energy India West BV Versus Additional Director of Income-tax, Ahmedabad 2010 (3) TMI 877 - ITAT AHMEDABAD that the assesses have removed defects by filing fresh memos. Also brief submission and affidavit duly signed by the authorized representative of the appellant company are filed . Appeal is remitted back to the file of CIT(A) to decide and adjudicate all the grounds of appeal as per law - in favour of assessee for statistical purposes.

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• 2012 (11) TMI 108
  Adventure in the nature of trade - Unsecured loan treated as a nonrefundable liability - Held that:- The assessee had not drawn profit and loss account for the relevant period neither it got its account audited under the provisions of Section 44AB, therefore, under the circumstances it is difficult to verify the correctness of the accounts maintained by it for the relevant period. Moreover, the assessee, itself, had accepted that the amount of Rs.75,06,811/- received during the relevant period has been shown wrongly under the head “unsecured loan” by the auditors. However, neither during the assessment proceedings nor during the appellate proceedings certificate from the auditors was filed to the effect that they had made a wrong entry for such amount. Since the AO has treated the same as trading receipt on such receipt, the deduction of cost and other expenditure incurred by the assessee is required to be given as decided in Calcutta Company Limited Versus Commissioner Of Income-Tax, West Bengal [1959 (5) TMI 3 - SUPREME COURT] - issue is restored back to the file of AO to decide afresh after verifying the claim of the assessee in respect of expenditure incurred out of the trading receipt and make a de novo assessment - assessee’s appeal is allowed for statistical purposes.

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• 2012 (11) TMI 107
  Penalty u/s. 271(1)(c) - survey u/s 133A - addition to income - Held that:- There were huge tans in cash which were not explained during the survey proceedings. Stock difference between the physical stock and the books was also worked out & when these were confronted to the Director Shri Vasudevbhai Patel, he admitted that the firm had Rs.50 lacs as undisclosed income and agreed to pay the tax. No letter or correspondence withdrawing the disclosure made or alleging coercion was made by the assessee till the scrutiny proceedings started about two years later. Although, no income was declared on this basis in the return, still in the assessment proceedings the assessee offered to be subject to the addition as originally offered. AO is bound to examine all explanations and evidences in those proceedings, separately while considering the levy of penalty & cannot be bound by any condition of non-levy of penalty at the time of assessment. Thus in view of the facts as the document and cash and stock were found at the premises of the assessee, the additional income was accepted by the Director, assessee responsible person, the Director was confronted with the documents and evidences during survey although they may have been found from possession of employee and no claim of coercion or wrong doing was made even for months after the survey the addition as made by the AO is confirmed - against assessee.

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• 2012 (11) TMI 106
  Deduction u/s 80P(2)(i) - cooperative bank - primary credit society versus cooperative credit - CIT(A) allowed the claim - revenue appeal - Held that:- Under the provisions of Section 5(ccii) of Banking Regulation Act, 1949 (AACS), a cooperative credit society is defined as a cooperative society, "the primary object of which is to provide financial accommodation to its members and includes a cooperative land mortgage bank." . The distinction between a primary credit society and a cooperative credit is with reference to their nature of business - 'Primary Credit Society', is when its paid up capital and reserve attain the level of Rs. 1 lac, which can carry on business of banking until it is granted a license or notified that a license cannot be granted to it. These credit societies would not get the benefit of the deduction u/s 80P(2)(a)(i). Also as decided in Salgaon Sanmitra Sahakari Pathpedhi Ltd. Versus Additional Commissioner of Income-tax, Ward-17(3) [2011 (5) TMI 356 - ITAT, MUMBAI] hat the cooperative credit society is not a co-operative bank. Considering the above facts, it is clear that the appellant is not allowed to do banking business as defined under Banking Regulation Act and therefore, is not a co-operative bank. Therefore, it is not excluded from the benefit of deduction u/s 8OP(2)(a)(i) as it does not fall under the exceptions as provided u/s 8OP(4). However, the AO is directed to find out whether there was any interest income on the short term bank deposits and securities taxable u/s 56 included in the total income of this society which has been claimed by them as exempt foolowing the decision of M/s. The Totgars' Cooperative Sale Society Limited Versus ITO, Karnataka [2010 (2) TMI 3 - SUPREME COURT ] - in favour of assessee.

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• 2012 (11) TMI 105
  Exemption u/s 10A - export of software - A.O. concluded that the required condition of Sec.10A was violated by assessee. - AO observed that claim of the assessee as not genuine and therefore, rejected the claim of the assessee. - CIT(A) allowed the claim - Held that:- On identical facts of the case in assessee’s own case for A.Y. 2002-03, Hon’ble Tribunal has allowed the appeal of the assessee & this order of the Tribunal had been duly confirmed by the Hon’ble Gujarat High Court by way of dismissing the appeal of the Revenue - as in the present case, the Revenue could not controvert by bringing any material on record that the factual position in the current year is different from that of earlier years - in favour of assessee. Short term capital gain v/s business income - share transactions -CIT(A) allowed the claim - Held that:- CIT (A) has given a finding that no borrowed capital was invested in purchase of shares, buying and selling of shares was an occasional activity of the assessee and was carried out only in the last quarter of the year, the assessee had treated the shares as its investments in its Balance Sheet in Assessment Year 2004- 05 and 2005-06, the Department had accepted the income as short term capital gains - as decided in CIT vs. Associated Industrial Development Co.(P) Ltd [1971 (9) TMI 3 - SUPREME COURT] the most important test is the volume, frequency, continuity and regularity of transactions of purchase and sale of the shares to come to any conclusion - CIT (A) here was right in holding the income from sale of shares as capital gains instead of business income - in favour of assessee.

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• 2012 (11) TMI 104
  Deduction u/s 80 IB - Central Excise Duty refund & interest subsidy - Capital vs Revenue Receipts – Excise duty refund and Interest Subsidy - Following the decision of Court in case of [M/s. Shree Balaji Alloys vs. CIT 2011 (1) TMI 394 - JAMMU AND KASHMIR HIGH COURT] Held that:- Excise Duty refund and interest subsidy is to be treated as ‘Capital receipt’ and not liable to be taxed - Decided in favor of assessee. Disallowance u/s 36(1)(iii) of the Act – Held that:- Assessee has failed to establish before the Revenue Authorities as well as before us that the assessee has advanced the funds for any business purpose to sister concern - no interference is called for in the well reasoned order passed by first appellate authority - Decided against the assessee.

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• 2012 (11) TMI 103
  Disallowance of Car and Telephone Expenses in part – Held that:- Considering the nature of assessee’s business as well as facts and circumstances of the case, disallowance of 1/10th of the car expenses and 1/10th of the telephone expense will meet the ends of justice - Assessing Officer is directed to recompute the income of the assessee accordingly. Ground of the appeal are allowed partly. Disallowance of local conveyance, entertainment , staff welfare and packing material expenses – Following the decision of court in case of [Jivat lal Purtapshi v CIT 1967 (2) TMI 8 - BOMBAY HIGH COURT ] Held that:- Assessing Officer stating that having agreed to the disallowance of Rs. 9,402/- being 1/5th of these expenses before the Assessing Officer, the AR can not take a u-turn without contesting the veracity of the statement of the Assessing Officer – appeal of assessee dismissed. Addition on account of excess of interest more than 12% - Held that:- Interest paid by the assessee to her nephews is not excessive and unreasonable having regard to the fair market value of the goods, services or facilities for which the payment is made on the legitimate needs of the business and, hence, no disallowance u/s 40A(2)(b) of the Act.

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• 2012 (11) TMI 102
  Unexplained Cash Credits - Held that:- Source of cash deposits as same should have been withdrawn from another account generally during the period of one year before the date of deposit is accepted - CIT(A) has shown all the patience and it seems that the assessee was not fully cooperating by adducing any evidence for the source against the deposits as the ld. CIT(A) has given opportunity on various dates and case dragged before him for two years - In the facts and circumstances of the case CIT(A) has correctly adjudicated the issue and Order of CIT(A) is confirmed - In the result, cross-appeals filed by the revenue and the assessee are dismissed.

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• 2012 (11) TMI 101
  Addition on account of undervaluation of closing stock – Held that:- Bonafide change in the method of valuation of closing stock, as suggested by AS-2, has not been denied anywhere - detailed finding recorded by Commissioner of Income Tax (Appeals) to the effect that the assessee’s explanation of the difference in valuation of closing stock is quite clear, convincing and comfortable to the accounting standard AS-2 and there is no reason not to accept the same, has not been controverted by department bringing any positive material on record - appeal of the revenue stands dismissed

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• 2012 (11) TMI 100
  Expenditure for development of surrounding area of the temple - exemption u/s. 11 of the Income Tax Act – Held that:- assessee had shown work in progress of temple at Rs.34,18,480/- towards expenditure of objects of Trust - objects of the Trust are to spread or promote education or learning in all its branches in such a manner as the Trust may think fit - if such Trust is established only for the benefit of the particular religious community or cast, then the provision of Sec. 11 would not be applicable. But the position would be different in a case of Trust or a Institution for religious purpose wherein certain activity termed as charitable activity are also carried out for the benefit of religious community, or caste, clause (b) would have no application in such a case - CIT(A) has confined the exemption excluding the proportionate consultancy charges to the actual cost of the temple - no dispute that surrounding area of the temple is being used by students of all the community and caste for their activities like meditation, yoga lessons, jogging, physical exercise etc - Decided in favor of assessee. Addition on account of retention money - assessee submitted that retention money was the deduction from the interim payment made to a contractor during the pursuance of the contract - amount was deducted as a security for rectification of all the defects pointed out in the course of construction - terms of payment relating to retention money allow the assessee to retain certain amount of payment till a future date, but in no way mitigate the liability of the assessee which arises as soon as the billed amount is admitted by it - in favour of the assessee

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• 2012 (11) TMI 99
  Addition of gift received – Held that:- In the case of cash gifts recorded in the books of the donee, mere identification of the donor and showing the movement of the amount through banking channels is not sufficient to prove the genuineness of the gift - In the ordinary course, a relative or a friend residing away at a distant place usually communicates with regard to his intention or proposed action with regard to giving away a gift with the proposed donee but no such evidence has been filed regarding relation and communication between the assessee-donee and the donor Mrs. Usha Batra - no special inquiry is required in the case of gift by the blood relative but in case of non-proved transaction of gift of a huge amount of Rs. 6 lakh from non-blood relatives or friend requires a close and careful scrutiny considering and taking into account all probabilities and attending circumstances - appeal of the assessee is dismissed.

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• 2012 (11) TMI 98
  Addition under section 68 of the IT Act - unsecured loans - identity and credit worthiness of the loan creditors and the genuineness of the transactions - loan advanced by HUF – Held that:- assessee has produced the above loan creditors before the AO with sufficient details like Acknowledgments of income tax Returns, copies of profit and loss accounts, balance sheets, confirmation letters, bank statements etc. and since their statement have been recorded by AO u/s. 131 and all of them have confirmed to have given the loans, assessee has discharged the burden cast on him in terms of section 68 of the Income Tax Act – addition deleted Regarding loans from mother of the Director – Held that:- She is an Income tax assessee and derives income from grocery shop and sale of buffaloes and holds around 100 Acres of agricultural land. - Merely because the profit is being determined u/s. 44AF or that the lady does not have any bank account for which she advanced the loan by demand draft to avoid the rigours of provision of section 269SS, the same cannot be a ground to disbelieve the loan amount – addition deleted Regarding loan from Director – alleged that amount obtained by him from Smt. Priti Mishra does not inspire confidence because she had no sufficient cash balance on those days – Held that:- Amount advanced by Smt. Priti Mishra has been accepted by the CIT(A). Merely because her income is assessed u/s.44AD, the same cannot be a ground to disbelieve the loan obtained from Smt. Priti Mishra by Sri A.K. Mishra who has advanced as loan to the assessee company - in the instant case could have been made in the hands of Sri A.K. Mishra but definitely not in the hands of the assessee company – addition deleted Regarding loan from Sri A.K. Mishra (HUF) - HUF is assessed to tax and the copy of the acknowledgement of income tax Return, computation of income, balance sheet etc. were filed before the AO – Held that:- Creditor has shown profit of Rs. 60,630/- as indirect income and Rs. 89,820 as profit from Mangalam construction - After considering the opening capital and income during the year and the personal drawings during the year the HUF is left with sufficient funds to advance loan of Rs. 1 lakh during the year – addition deleted Regarding loan from Sri Vishnu Mohan Sangle – Held that:- Loan creditor was not produced before him for his verification. Therefore, the identity of the person remains to be verified - direct the AO to give an opportunity to the assessee to produce the above loan creditor and satisfy the credit worthiness of the loan creditor - appeal filed by the assessee is allowed for statistical purposes. Regarding loans from mother of the Director – Held that:- She is an Income tax assessee and derives income from grocery shop and sale of buffaloes and holds around 100 Acres of agricultural land. She has also filed an affidavit stating that she is filing return of income since assessment year 1994-1995. The affidavit filed by the loan creditor has not been proved to be false or incorrect. Merely because the profit is being determined u/s. 44AF or that the lady does not have any bank account for which she advanced the loan by demand draft to avoid the rigours of provision of section 269SS, the same cannot be a ground to disbelieve the loan amount – addition deleted Regarding loan from Director – alleged that amount obtained by him from Smt. Priti Mishra does not inspire confidence because she had no sufficient cash balance on those days – Held that:- Amount advanced by Smt. Priti Mishra has been accepted by the CIT(A). Merely because her income is assessed u/s.44AD, the same cannot be a ground to disbelieve the loan obtained from Smt. Priti Mishra by Sri A.K. Mishra who has advanced as loan to the assessee company - in the instant case could have been made in the hands of Sri A.K. Mishra but definitely not in the hands of the assessee company – addition deleted Regarding loan from Sri A.K. Mishra (HUF) - HUF is assessed to tax and the copy of the acknowledgement of income tax Return, computation of income, balance sheet etc. were filed before the AO – Held that:- Creditor has shown profit of Rs. 60,630/- as indirect income and Rs. 89,820 as profit from Mangalam construction - After considering the opening capital and income during the year and the personal drawings during the year the HUF is left with sufficient funds to advance loan of Rs. 1 lakh during the year – addition deleted Regarding loan from Sri Vishnu Mohan Sangle – Held that:- Loan creditor was not produced before him for his verification. Therefore, the identity of the person remains to be verified - direct the AO to give an opportunity to the assessee to produce the above loan creditor and satisfy the credit worthiness of the loan creditor - appeal filed by the assessee is allowed for statistical purposes.

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• 2012 (11) TMI 97
  Disallowance of payments made to IIT Chennai - assessee is a company in the business of software development - assessee had made donations to IIT, Chennai - assessee submitted that the assessee indeed derived benefit on revenue account as is evident from the MOU entered by the assessee with IIT, Chennai – Held that:- Association of assessee with IIT, Chennai was for conducting research and creating technology that would bring benefits of Information and computing technologies to the populations of countries with developing economies and developing markets - expenditure incurred by the assessee is not of enduring nature but of revenue nature and the same has been incurred due to commercial expediency of the assessee’s business - AO directed to allow the claim of the assessee being payment made to IIT, Chennai – In favor of assessee Disallowance of provision for employee loyalty bonus - assessee had a scheme for its employees under which an employee is entitled to claim certain sums from the company upon completion of three years of service – Held that:- Liability to pay loyalty bonus to the employees, for whom provision has been made by the assessee in the accounts, is the liability in praesenti though it will be discharged at a future date. Thus it is not a contingent liability and is an ascertained liability. Once it is an ascertained liability and provision has been made in the accounts of the assessee who follows the mercantile system of accounting, the claim of the assessee has to be allowed - in favour of the assessee Addition - taxability of amount received - income had arisen to the assessee on account of the compensation of Rs.12,20,00,000/- received by assessee for recruiting certain employees by way of transfer from another company M/s.Verifone - CIT(A) obtained a remand report from the AO and upon consideration of the same concluded that the AO was justified in treating such receipt as income from other sources – Held that:- Issue results in huge addition of around 12 crores. We find from the record that for confirming such huge addition, the CIT(A) has not passed a speaking order though he concurred with the AO - appellate order that the CIT(A) has simply mentioned that the assessee has relied on case-laws, the facts of which are different from the instant case - appellate authority ought to have discussed about the caselaws relied upon and given his reasons as to how they are not applicable to the present facts and circumstances. This is most required for the reason that the next appellate authority has to see whether the first appellate authority has applied his mind properly or not – matter remanded to the file of the CIT(A)

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• 2012 (11) TMI 96
  Addition on account of low withdrawals towards household expenses – Held that:- Assessee is submitting the proof of filling the Income Tax Return of his father and mother who are regular assessee and the assessee is the only son jointly lives with his parents - assessee succeeded to substantiate his claim, pertaining to household expenses, that his retired government servant father and rental income earning mother contributed towards household expenses and the ld. CIT(A) did not properly consider this fact that the father of the assessee has withdrawn Rs.80,136/- from saving bank account and he has also withdrawn Rs.1,08,000 from his post office MIS account, total amounting to Rs.1,86,136/-, which is much higher than the estimated household expenses of Rs. 1,63,000 as added by the AO – In favor of assessee

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• 2012 (11) TMI 95
  Expenditure on Research and Development - Capital or revenue in nature – alleged that since the assessee had already sold these products, therefore, the technology was with the assessee – Held that:- Research is a continuous process. Even if the assessee had developed some protype Pin Double Decker they may still require further improvements. Mere selling of protype of production would not show that the assessee already had the technology of the same production - in favour of the assessee Valuation of closing stock – alleged that valuation given to the bank was higher – Held that:- stock was not pledged with the bank and it was only hypothecated - it was a case of hypothecation of stock. Therefore, there can be difference in valuation - valuation given to the bankers has no co-relation with the actual value to be adopted for the balance sheet purposes. Bankers are generally given the market value of stock whereas the actual value is shown at the lower of cost or net realizable value in the accounts - in favour of assessee

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• 2012 (11) TMI 94
  Addition on the ground that cheques which had issued by the assessee and which had not been encashed – alleged that assessee had disputed the liability for payment of this amount, it could not be taken that the liability to pay had arisen during the year under consideration – Held that:- Payment had been stopped because of inferior quality of work - there is no scope for disallowing the part payment only because there is a dispute about the quality of the work. If any remission against the liability received by the assessee, the same would be required to be offered for tax under the provisions of section 40A(1) of the Act - addition deleted Disallowance of interest – alleged that money was advanced by the assessee to M/s Girnar Fabrics Ltd., knowing fully well that the financial posit ion of M/s Girnar Fibres was not good and the partners of the assessee firm, being Director in the company, were aware of the financial position of the company – Held that:- Assessee company appears to have left the money with the company without any good reason and without utilizing that money to pay for the purchases made for that company - assessee has not established the commercial expediency - uphold the disallowance of interest made against the outstanding interest free loan - disallowance on this account in the asstt years 2005-06 and 2007-08 has been made @ 13.5% by the AO - disallowance @ 21% does appear to be very steep and is not supported by showing that this was the cost of the funds borrowed by the assessee - direct the AO to recomputed and to limit the disallowance on account of interest for interest free loan given - rate of interest is required to be reduced to 10% Notice – limitation – appellant contended that the assessment order was passed on 01.01.2007. It was contended by the appellant that since the assessment order was received by it on 01.01.2007, it was also passed on the same date – Held that:- Assessment order was signed on 18-12-2006 and the mere fact that a copy was received personally by some person on 1-1-2007 does not detract from this fact - In the remand report the AO has no where stated that the order was passed on 31-12-2006. What she had stated is that the order was passed " by 31-12-2006" since the same had been served on 1-1-2007. The Act requires the assessment order to be passed by the date of limitation - documents in record show that the order was passed on 18-12- 2006 and was dispatched on 30-12-2006 by speed post, in addition to being served by hand on 1-12007. Hence, the appellant’s contention that the assessment is barred by limitation is rejected

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• 2012 (11) TMI 93
  Rectification of mistake – Held that:- Revenue is trying to get the order reviewed which power is not vested with the Tribunal and only clerical/arithmetical mistakes which are apparent from record can only be rectified by the Tribunal - u/s 254(2) of the Act, the Tribunal has jurisdiction only to rectify mistakes apparent from record but it cannot go into merits of the appeal again - applications of the Revenue are dismissed.

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• 2012 (11) TMI 92
  Addition on account of income from other sources - Deemed income or Gift u/s 56(2)(vi) - receipt without consideration - interest free unsecured loan – amount received from proprietorship concern of HUF - Held that:- the amount has been clearly reflected in the balance sheet as loan - Assessing Officer himself has recorded in the assessment order that the amount was received from HUF and was recorded in the balance sheet as liability of unsecured loan – addition deleted Capital or revenue expenditure - consultancy charges - consultancy of designing the equipment as per specifications of the export – Held that:- Appellant has been in the business of manufacturing of rectifiers for very long and similar rectifiers had been supplied to different customers earlier than this sale as well - product in question has been designed in house by the assessee and the services provided by M/s Jeet Engineers are only in the nature of facilitating the sales of the product. Even otherwise an amount of Rs. 1,50,000/- is too small to be paid as remuneration for designing of rectifiers. As such there is no evidence to hold that the payment made was for the purposes of designing. The claim of the appellant that the same represents revenue expenditure is correct - addition deleted

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• 2012 (11) TMI 91
  Valuation of closing stock – enhancement of value of land - Assessing Officer while calculating the value of closing stock added the amount of External Development Charges (EDC) and conversion charges to the cost of land at Kotkapura. - assessee contended that, it is well accepted practice that the statutory fee is not part of development expenses. - held that:- matter remanded back to AO for fresh decision. Valuation of closing stock - Assessing Officer required the assessee to show cause as to why the valuation of land should not be taken on the basis of value of opening stock. The only reply given by the assessee was that the closing stock of the land was made as per accounting standard. - assessee had submitted a detailed submissions before the CIT(A). It seems that the CIT(A) has not taken into consideration the detailed submissions made by the assessee before him. The CIT(A) has also not given any reason as to why he has ignored the submissions of the assessee. - matter remanded to AO Disallowance @ 20% salary to director of the company - provisions of section 40A(3) - Cash payment - assessee submitted that the provisions of sect ion 40A(3) are not attracted in this case as it is protected by clause (d) to Rule 6DD of Income Tax Rules, 1962 – Held that:- Relevant entries in respect of salary expenses in the books of account of the assessee are not available on record. In the absence of such details, we could not appreciate the contention of Shri Ajay Jain, Ld. Counsel for the assessee – matter remanded to Assessing Officer Disallowance of telephone expenses – assessee submitted that telephone bills in the name of the company and the same were incurred for business purpose – Held that:- assessee submit ted that the assessee company has taken corporate connection in its own name and has given telephone connections to various employees and directors for business purposes only - service provider has issued the bill in the name of the company and all payments have been made by the company for business purposes only and it is only technical breach that at the time of leaving of employee and joining of new employee the change in name of user was not got registered in the records of telecom service provider - Assessing Officer has wrongly disallowed the expenses without appreciating the facts of the present case - appeal is allowed for statistical purposes

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• 2012 (11) TMI 90
  Estimation of net profit by applying a rate of 8% on gross receipts – Held that:- CIT(A), while directing the assessing officer to determine the income of the assessee applying a rate of 8% on the gross receipts, followed the order of the Tribunal in assessee's own case for the assessment year 2004-05 - no infirmity in the impugned order for the CIT(A), which is accordingly upheld - Revenue appeal dismissed. Additional evidence - three additions made by the assessing officer - allegation of the Revenue in the grounds of the present appeal, with regard to violation of provisions of Rule 46A, though there is no clarity as to what additional evidence has been entertained by the CIT(A) in violation of Rule 46A and such evidence relates to which of the issues - matter remanded to the file of the CIT(A) for fresh adjudication - Revenue's appeal allowed for statistical purposes

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• 2012 (11) TMI 89
  Addition towards profit attributable to the expenditure incurred on representatives of Australian Educational Institutions for visiting India for the purpose of enrolment of students - held that:- it will be appropriate to assume that the expenditure has not been incurred by the assessee in this year also looking to the factual position that the expenditure was incurred by the institutions last year. Therefore, it is held that there is no evidence on record to come to a conclusion that assessee incurred the expenditure in respect of stay of representatives of Australian Educational Institutions in India. Accordingly, it is held that no income is attributable to the Indian offices on this ground. - Decided in favor of assessee. Attribution of head office expenses to the LO – computation of profit on cost plus basis - Allowance of expenditure incurred by Head office in relation to offices in India - held that:- The income is being offered for tax on cost plus basis, therefore, the general and administrative expenditure incurred by the head office for running India offices has to be considered for working out the cost base. The fact of the matter is that the Indian offices have not incurred any expenditure. If any income accrues on account of expenditure incurred by the head office, it will be the income of the head office and not Indian offices. At the same time, if any expenditure is attributed to Indian offices deduction of the expenditure will have to be allowed. Thus seen from any angle the revenue does not have any case in this matter. - Decided in favor of assessee.

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• 2012 (11) TMI 88
  TDS - Payment towards Software treated as royalty - Held that:- Payment made by the assessee to non-resident companies would amount to royalty within the meaning of Article 12 of the DTAA with the respective countries and there was obligation on the part of the assessee to deduct tax at source u/s. 195 of the I.T. Act - in favour of the revenue It is well settled that in the absence of any definition of 'copyright' in the Income Tax Act or DTAA with the respective Countries, in view of clause 3 of the DTAA, reference is to be made to the respective law regarding definition of 'Copyright', namely, Copyright Act, 1957, in India, wherein it is clearly stated that "literary work" includes computer programmes, tables and compilations including computer [databases]. Payment would constitute 'royalty' within the meaning of Article 12(3) of the DTAA and even as per the provisions of 9(1)(vi) of the Act as the definition of 'royalty' under clause 9(1)(vi) of the Act is broader than the definition of 'royalty' under the DTAA as the right that is transferred in the present case is the transfer of copyright including the right to make copy of software for internal business, and payment made in that regard would constitute 'royalty' for imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill as per clause (iv) of Explanation 2 to Section 9(1)(vi) of the Act.

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• 2012 (11) TMI 68
  Reopening of assessment - unaccounted Foreign travel expenses - disallowance of 1/4th of claim - Held that:- Considering the decision taken in CIT, Delhi Versus M/s. Kelvinator of India Limited [2010 (1) TMI 11 - SUPREME COURT OF INDIA] there was no tangible material before A.O. to come to conclusion that there was escapement of income. The Assessing Officer has no power to review and has the power to re-assess. CIT (A) has also given a finding that the reasons for issuing notice u/s. 148 are the same which were considered by the A.O. during the original assessment proceedings and therefore it amounts to change of opinion - apart from recommendation of audit party, the A.O. was not having any fresh information so as to form belief that the income has escaped assessment. The Ld. D.R. could not controvert the findings of CIT (A) by bringing any contrary material on record - in favour of assessee.

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• 2012 (11) TMI 67
  Penalty u/s 271(1)(c) - Held that:- In the quantum appeal the addition is confirmed partly on the basis of estimates and not on any defects - it is not in dispute neither by the AO nor by the CIT (A) that the sales effected by the assessee are bogus, thus the penalty levied on the assessee is just on the basis of conjecture and surmises - in favour of assessee.

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• 2012 (11) TMI 66
  Unexplained cash credit u/s.68 - CIT(A) deleted the addition - Held that:- The assessee has explained that Ms. Sharmistha B. Naik was a partner in M/s.Jamna Organizers having a capital of Rs.35,40,000/- and advanced a loan of Rs.3,80,000/- & furnished confirmation letter along with the Bank statement & income tax return - Next of Ms. Ranjanben N. Naik, it was noted that she was also a partner of M/s. Jamna Organizers and out of her capital of Rs.35,40,000/- she had given a loan of Rs.3,80,000/- to the assessee with a confirmation along with bank statement and the copy of return were also filed - The next party was M/s. Jamna Organizers who has furnished that on encashment of FD the amount was advanced. It was explained that the said firm was constituted in the year 1990 and thereafter regularly filing the return, hence subjected to tax regularly. The position of income declared and taxes paid of last several years have also been placed on record. Therefore, it was explained that there were fixed deposits of Rs.16.65 lacs and Rs.12 lacs respectively which were duly disclosed in the books of accounts. Those FDs got matured during the year under consideration and the proceeds were credited in the bank account out of which the impugned amount was advanced - no point of undisclosed income arises - in favour of assessee. Restricting the disallowance at 5% instead of 10% by CIT - Held that:- Considering the nature of business the part-relief granted by CIT(A) was purely a matter of estimation, therefore no legal adjudication is needed - in favour of assessee.

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• 2012 (11) TMI 65
  10% of salary disallowed - Held that:- A.O. has considered the salary register to be not in order only for the reason that revenue stamps were not affixed in all cases before making payment of salary. Apart from the aforesaid, the A.O. has not pointed out any discrepancy or shown any instance to prove that salary expenses are not genuine. The A.O. has thus disallowed the expenses on adhoc basis without bringing any tangible evidence on record - in favour of assessee. Disallowance of packing expenses - Held that:- It is a fact that in the assessee’s line of business, packing expenses are required to be incurred and the expenses are not doubted. It is also true that assessee is required to furnish the necessary evidence called for by AO which he was unable to satisfy, thus considering the nature of expenses and the totality of facts, it will meet the ends of justice if the expenses of disallowance is restricted to Rs.30,000/- instead of Rs.76,740/- made by A.O. - partly in favour of assessee. Disallowance out of telephone expenses - Held that:- The assessee has submitted that out of total telephone expenses of Rs.1,52,703/- the expenses of telephone installed at shop is of Rs.1,32,972/-, thus disallowance at 20% is on higher side ends of justice will be met if disallowance is restricted to 10% - partly in favour of assessee.

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• 2012 (11) TMI 64
  Penalty u/s.271(1)(c) - excess claim of deduction u/s. 80HHC - Held that:- No material facts were concealed by the appellant. No income has been detected or unearthed which was not disclosed by the assessee. The addition has arisen only on account of different views having been taken as to the nature of certain items of income. This is purely a debatable matter. More than one view was clearly possible. As the D.R. could not controvert the finding of CIT (A) by bringing any contrary material on record no infirmity in the order of the CIT (A) in deleting the penalty - in favour of assessee. Disproportionate increase in remuneration to the Managing and Executive Directors - CIT(A) deleted the addition - Sec. 40A(2)(a) - Held that:- The assessee is a public limited company and is governed by the provisions of Companies Act, 1956. Schedule XIII of the Companies Act provides the remuneration payable to Directors based on the effective capital and net profits of the Company. As per the provisions of Schedule XIII, the assessee is entitled to pay Rs.73.21 lacs as remuneration to its Directors but has paid only Rs.48.25 lac which is well within the limits prescribed by the Companies Act - As decided in CIT Versus Shriram Pistons And Rings Limited [1989 (8) TMI 51 - DELHI HIGH COURT] when the Company Law Board (CLB) had approved the remuneration it could not be said that the expenditure was excessive or unreasonable - in favour of assessee.

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• 2012 (11) TMI 63
  "Pradhanmantri Gram Sadak Yojna" - addition of interest on account of unutilized grants - CIT(A) deleted the addition - Held that:- As decided in CIT Versus Gujarat Safai Kamdar Vikas Nigam [2011 (5) TMI 815 - GUJARAT HIGH COURT] it was a scheme envisaged for implementation of certain Government programmes in particular, to uplift the living condition of manual scavengers and other Safai Kamdars involved in similar activities. Assessee Corporation was not sole trustee, Scheduled Caste Development Board was also liable for implementation of the scheme to be supervised by a Committee headed by the Deputy Minister which included other Government officials, Tribunal committed no error in holding that the grant in question fulfills the requirement of section 11(d)(1) read with section 12(1)thus tax appeal is dismissed - there was a direction contained in the Government circular releasing grant in favour of the assessee thus such amount shall not form corpus of the assessee - in favour of assessee. ]

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• 2012 (11) TMI 62
  Notice u/s 158BD - block assessment - addition to income - Held that:- It is clear that the Assessing Officer who has seized of the mater against the raided person has to reach a satisfaction that undisclosed income belongs to such other person & recording of satisfaction is mandatory and imperative before assumption of jurisdiction under section 158BD. The additional ground as raised by the assessee against the validity of notice issued u/s. 158BD goes to very root of the initiation and legality of proceedings. After considering all the aspects of the matter, it would subserve the interest of natural justice, if this additional ground is remitted back to the file of CIT(A) to decide this issue on merit - As the additional ground of assessee’s appeal is remitted back to the file of CIT(A) the remaining grounds do not call for any adjudication at this stage because the matter is already restored back - in favour of assessee for statistical purposes.

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• 2012 (11) TMI 61
  Recurring royalty /fees - capital v/s revenue - Disallowance u/s 37(1) - CIT(A) allowed the claim - Held that:- The issue is covered in favour of the appellant by the orders of ITAT, Ahmedabad in appellant’s own case for A.Y. 2005-06 to 2007-08 relying on CIT V/s Ashoka Mills Ltd. [1995 (10) TMI 35 - GUJARAT HIGH COURT] wherein held that the payment of royalty was clearly under the agreement between the assessee and other partly, since not merely the ownership of a trade mark but even the right to use the said trade mark could be parted with for a consideration - the two companies in question were distinct entities dealing at arm's length and it certainly could not be urged that the payment was made for any consideration other than business & held in favour of the assessee that the payment of royalty in question was a revenue expenditure - appeal decided in favour of assessee.

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• 2012 (11) TMI 60
  Unsecured loans u/s.68 - assessee failed to produce any of the depositors/cash creditors - Held that:- As decided in DCIT Vs Rohini Builders [2001 (3) TMI 9 - GUJARAT HIGH COURT] in terms of Section 68 by proving the identity of the creditors by giving complete address, GIR number / PAN, copies of assessment orders wherever readily available and it has also proved the capacity of the creditors by showing that the amount was received by the assessee by a/c payee cheques drawn from the bank account of the creditors and the assessee is not expected to prove the genuineness of cash deposited in the bank accounts of those creditors because under law, the assessee can be asked to prove the source of the credit in his books of accounts but not the source of the source. As in the present case in respect of all the loan creditors, the evidence regarding filing of return of income has been brought on record by the assessee which contains PAN also of all the depositors. Along with this, the assessee has also brought on record the balance sheet of each of such loan creditors along with bank statement of the loan creditors in question - addition made by the A.O. u/s 68 is not sustainable - in favour of assessee. Disallowance of interest payment on unsecured loans - Held that:- Since the addition on account of unsecured loans itself is deleted, the disallowance of interest cannot survive - in favour of assessee.

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• 2012 (11) TMI 59
  Disallowance u/s.14A - Held that:- As decided in Maxopp Investment Ltd. & Others Versus Commissioner of Income Tax [2011 (11) TMI 267 - DELHI HIGH COURT] the expression “expenditure incurred” refers to actual expenditure and not to some imagined expenditure - A.O. in the present case A.O. has estimated the expenses at 1.5% of the exempted income. He has not given any finding with respect to the expenditure incurred on administrative-head by the assessee & has disallowed it on adhoc basis - in favour of assessee. Write off of inter-corporate deposit (ICD) - disallowance as the assessee is not in the business of non-banking financing company - Held that:- From the records it can be concluded the assessee had taken the plea that the write off be allowed as business loss or as bad debts. The assessee had not taken the plea of considering the same to be a capital loss and its allowability before the A.O. or CIT (A). This plea is taken for the first time before us therefore the matter of allowability of Rs.75 lakhs as capital loss needs to be examined as it was not examined earlier - matter remitted back to the file of A.O. for its verification and to decide it as per law - in favour of assessee for statistical purposes. Contribution of sponsorship expenses for the construction of Mehasul Bhavan (Collector Office) - Revenue v/s capital - Held that:- As decided in Shri Venkata Satyanarayana Rice Mill Contractors Co. vs. CIT [1996 (10) TMI 2 - SUPREME COURT] any contribution made to the welfare fund was not opposed to public policy and that the same was motivated purely by commercial consideration, and that the deduction was allowable under section 37(1) - as in the present case assessee has paid Rs.20 lakhs for construction of Mehsul Bhavan but the assessee is not the owner of the Asset and has also not acquired any capital asset. The expenses have been incurred for the purpose of business, thus to be allowed as revenue expenditure - in favour of assessee. Write off of obsolete meters - CIT(A) deleted the disallowance - Held that:- The assessee has explained that the three phase electro meters were lying idle since long in the inventory & were was found that they were susceptible to tempering by the customers. The assessee has contacted suppliers for modification of meters but it was found to be not feasible & in the meantime with introduction of electronic meters, mechanical meters became outdated and obsolete - as the assessee follows the policy of valuing inventories after taking into consideration the net realizable value & in the case of inventory written off, the assessee had already considered the salvage value while writing off the obsolete meters A.O. has presumed that 30% value of such meters would be realized in future and accordingly made disallowance, thus disallowance has been made on the basis of presumption and without placing any material on record - in favour of assessee.

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• 2012 (11) TMI 58
  Whether income from house property estimating at 10% of value of property – Assessee submitted that the 3 flats and one shop having value of which comes to are being used for assessee’s political activities - AO treat it as violation of the provisions of section 22/23 and estimated 10% of the investment in such House Property as the notional income – Held that:- Assessee has also not furnished the details of payment of Municipal Taxes. In totality of the facts of the case and in the interest of justice, we deem it proper to restore this issue to the file of the AO to ascertain as to whether the 3 flats and a shop in question are being used for the political activities of the assessee or not. Issue remand back to AO A house in village of assessee is being used for agricultural activities – AO estimates 10% of the investment in such House Property as the notional income - Held that:- Since in the assessment order AO has determined the agricultural income at Rs. 75,000/-. Therefore, if the house at Village is used for agricultural activities then no notional rent could be computed. Therefore restore back the same to AO for fresh verification Assessee has 2 vacant plots - AO has adopted 10% of the investment value as the notional rent under head income from house property – Held that:- Since the adoption of 10% of the investment appears to be on the higher side. We, therefore, direct the AO to adopt 8% of the investment as the notional rent from such house properties. Addition on the basis of report of valuation officer on under constructions property – AO made reference to Department valuation officer to determine cost of construction, in absence of books – Held that:- As the assessee neither produced books of accounts before the AO nor any books of accounts were found during the course of search could not be controverted by the assessee. Therefore under these circumstances AO rightly referring the matter to the DVO for determining the cost of construction. Whether CIT(A) accepting the report of DVO after passing the assessment order by AO – Held that:- Since the DVOs report was received after passing of the order by the AO, therefore, the CIT(A) was fully justified in accepting the report of the DVO. It is the settled proposition of law that the powers of the CIT(A) are co-terminus with that of the powers of the AO. He may confirm, reduce, enhance or annul any assessment made by the AO. Issue decides in favour of revenue

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• 2012 (11) TMI 57
  Transfer Pricing – Arm Length Price - International transaction of export/sale of spares and components to the Associate Enterprises - The TPO rejected the application of external TNMM adopted by the assessee - The TPO analyzed the profitability of the exports to its AE on one hand and compared it to the profitability of the exports undertaken to third parties (i,e. non- AEs)- TPO noticed that the net profit margin (on cost) pertaining to export sales to AEs was on lower side – Such transaction are carried out in three categories - Category ‘A’ - Sale of spares to third party distributors as well as to the AEs for the purposes of servicing the vehicles sold - Export to third parties (i.e. non-AEs) is comprised of only Category ‘A’ transactions, which has yielded the margin of 56.58%, whereas the exports to its AEs comprise of transactions of all three Categories, i.e. ‘A’, ‘B’ and ‘C’, which has yielded the margin of 11.63% and therefore the two are incomparable - Held that:- In so far as the transactions of this category representing export of spares and components which are required for the purpose of servicing of vehicles sold by the assessee company, the transactions undertaken with third party distributors (i.e. non-AEs) are comparable to the transaction with the AEs. The profit margin (on cost) in relation to export to AEs is 67% and on transactions of exports to third party distributors (i.e. non-AEs) is 56.58% and the same clearly depicts that the transaction undertaken by the assessee. Therefore, same have been undertaken at an arm’s length price and the same does not require any transfer pricing adjustment as done by the income-tax authorities. Issue decides in favour of assessee Category ‘B’ & ‘C’ – ‘B’ is in relation to Sourcing of components required by the overseas AEs for manufacture of two and three-wheelers – ‘C’ is in relation to Sourcing of components required by the overseas AEs for manufacture of four-wheelers – Assessee contended that for benchmarking the transactions between the assessee and the AEs in respect of such activities, comparison has to be consider with operating margins earned by third party support service providers in India - Held that:- As the margins declared by the assessee on such activity at 11.05% compare favorably with the average operating margins earned by third party support service provider companies in India which worked out to 5.1%. Therefore, the aforesaid plea of the assessee is liable to be examined with respect to its factual aspects. Issue remand back to the file of the AO Whether benefit of +/-5% allowed u/s. 92C(2) applicable on pending appeals - The amended proviso to Sec. 92C(2) was applicable w.e.f 1.10.2009 – Applicability of amendment is to be effective in respect of AY 2009-10 and subsequent years – Held that:- Following the decision in case of UE Trade Corporation India (2010 (12) TMI 224 - ITAT, NEWDELHI) which are on similar lines against the applicability of amendment prospectively. Therefore, we find no justification in the action of the lower authorities from disentitling the assessee from its claim of +/-5% while computing ALP in terms of erstwhile proviso to Sec. 92C(2). Issue decides in favour of assessee & remand back to AO Depreciation on goodwill - Assessee had entered into an agreement with party - Out of the total purchase consideration, certain sum was debited to goodwill in the account books and claimed depreciation on the same – Held that:- Where the matter has been restored for re-adjudication by the AO in the past years, in the instant year also we deem it fit and proper to restore the matter to the file of the AO. Additional depreciation on computers installed in factories – Whether additional depreciation allowed on computer installed in factory - Held that:- Following the precedent we allow assessee’s claim of additional depreciation on computers installed in its factory. Issue decides in favour of assessee. Depreciation in respect of lease hold rights in land – Held that:- In order of Tribunal has restored the matter to the file of the AO to examine whether lease hold rights acquired for the purpose of business are in the nature of commercial or business rights as contemplated in Sec. 32(1)(ii). Issue remand back to AO. Deduction in respect of premium paid over the period of lease – Lease hold premium paid for acquiring lease hold rights - Held that:- As concluding from the facts the AO for fresh adjudication on the basis of any further submissions that may be sought to be raised by the assessee in the ensuring remand proceedings. Issue remand back to AO.

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• 2012 (11) TMI 56
  Whether Administrative & Other Expenses on account of exchange loss compensation and termination fee due to premature termination of contract deduction would be allowable to the assessee. Premature termination of Contract - Following the judgement of Supreme Court in case of [Bharat Earth Movers Vs. CIT 2000 (8) TMI 4 - SUPREME COURT] if a business liability has definitely arisen in the accounting year, deduction should be allowed although the liability may have to be quantified and discharged at a future date. Therefore, in the interest of justice and equity, and in the light of the judgement of the Hon’ble Supreme Court of India, the amount paid as termination fee has to be allowed to the assessee in the assessment year 2004-05 and not in subsequent years - in favour of assessee. Exchange rate fluctuations - Held that:- As there is no written covenant with regard to the same, it cannot be construed that either of the parties are liable to compensate for loss on account of fluctuation in exchange rates. Therefore, the amount paid by the assessee to M/s. SMTPL on account of compensation for loss suffered due to exchange rates cannot be held to be an allowable expenses in the hands of the assessee – in favour of revenue.

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• 2012 (11) TMI 55
  Disallowance of 20% of the payments made in cash exceeding Rs.20,000/- u/s 40A(3) of the IT Act – Held that:- AO needs to examine as to whether the transactions of the assessee with the sellers was for the first time, wherever it is found that a new transaction for the first time with the said party, then the assessee shall get the relief - if it is found that the assessee has been dealing with the said parties earlier also and has been making payments in cash and also by cheques, the AO is directed to verify the cash payments or the cheque payments followed by the cash payments and only if it is found that the cheque payments followed the cash payments, it can be presumed that the assessee has gained the confidence and the said parties started accepting the cheque payments by the assessee - payments made by the assessee in cash exceeding Rs.20.000/- ought to be accepted as having been made for the purpose of business expediency of the assessee firm - matter remanded to AO

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• 2012 (11) TMI 54
  Penalty under section 271(1)(c) – Held that:- If the assessee is able to offer an explanation, which is not found by the authorities to be false, and assessee has been able to prove that such explanation is bona fide and that all the facts relating to the same have been disclosed by him, the assessee shall be out of the clutches of explanation 1 to section 271(1)(c) of the Act, and in that case, the penalty shall not be imposed - Section 250(6) of the Act mandates that the order of the CIT(A) while disposing of the appeal shall be in writing and shall state the points for determination, the decision thereon and the reason for the decision - CIT(A) has not passed a speaking order on the issues raised in this appeal while the assessee contends lack of opportunity - matter remanded to CIT(A)

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• 2012 (11) TMI 53
  Undisclosed source in respect of capital – appellant is filing its return of income U/s 44AD - Held that:- Assessee has stated that assessee has been doing business for more than 12 years. Therefore capital balance is fully justified - Assessing Officer in his remand report has stated that the household expenditure is estimated at Rs.50,000/- per annum, then for the 10 years the expenditure would be at Rs.5 lakh - assessee has made payment towards LIC and also PF account. Admittedly, this amount is outgoing from the capital account and same would have been in the earlier years also. Moreover, the assessee has not given any details of the household expenditure - it cannot be presumed that assessee was not incurring any household expenses - CO of the assessee is dismissed

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• 2012 (11) TMI 52
  Whether expenditure incurred by the assessee for construction of structures on railway property for smooth handling of containers is revenue in nature – AO disallowed the expense by invoking the provisions of section 35D as in the nature of preliminary expenses - Held that:- Expenditure in question cannot be termed as preliminary expenses - By incurring the expenses, the assessee did not acquire any new asset having enduring benefit - expenses were incurred for smooth running of existing business by constructing rams for loading & unloading and no permanent structure came into existence, rather the expenses were incurred for replacement and repairs of existing structures like rams etc. – In favor of assessee

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• 2012 (11) TMI 51
  Addition u/s 69 of the Income Tax Act on account of unexplained investment in shares – Held that:- No increase in the value of investment - books of accounts of the assessee have not been rejected by the assessing officer - assessee appellant has explained that the difference in Notes to Accounts was noticed only because of typographical error and no fresh investment was made during the relevant year as the assessee succeeded in categorically confirming that no new or additional shares were acquired during the F.Y. 2001-02 - assessing officer has not brought any substantial detail or documentary or other evidence to rebut the fact that the difference noted in Notes to Accounts was only because of typographical error and on the other hand, the audited accounts of the assessee show that there was no change in the figure of investment as per Balance Sheet dated 31.3.2001 and 31.3.2002 and there was no increase in the value of the investment in the said balance sheets – addition deleted

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• 2012 (11) TMI 50
  Disallowance of the exemption u/s 80IB(10) - assessee firm engaged in the business of civil construction developing building and housing projects – alleged that since the assessee was not selling any constructed properties to customers and the sums so received were credited as construction receipt and further only the registry of the land was made, the assessee merely acted as a contractor, the deduction is not allowable – Held that:- Land for housing project was purchased by the assessee and subsequently conversion of the same was obtained for residential use by the assessee. The assessee thereafter constructed residential units and gave possession of such completed houses to the customers, therefore, the assessee acted as a builder and developer - housing project of the assessee was approved by the local authority on 3.1.2004 i.e. before 1.4.2004, therefore, the assessee was expected to complete the construction on or before 31.3.2008. The assessee was also supposed to get completion certificate from the local authority - no such certificate was issued by the local authority before 31.3.2008, therefore, it is clear that the assessee has not fulfilled the conditions laid down under the Act - Even till today, no evidence has been produced that the local authority issued the completion certificate to the assessee - appeals of the assessee are dismissed

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• 2012 (11) TMI 49
  Adjustment on account of MODVET credit u/s 145A of the I.T. Act – Held that:- Difference in addition to inclusive of excise duty which have been confirmed by the CIT(A) but there is no difference in other years - addition on account of elements of tax duty, cess or fees paid in the sales, purchase and inventory is not justified Disallowance of customer loss - related to local party and foreign party - export sale was made through sister concern - claimed loss in November, 2004 and machinery was sold in 1998-99 but business loss was claimed in the year under consideration - transaction was related to sister concern who had exported the goods to Egypt – Held that:- Assessee has shown this sale transaction in income in earlier year or in current year as per Section 36(2) of the I.T. Act. The A.O. has not doubted the claim of the assessee and had not stated that these claims are bogus. The claim has been written off in the books of account. Law after 1st April, 1989, the assessee has to establish that debt was written off in the books of account not necessary to establish that in fact had become irrecoverable u/s 36(1)(vii) of I.T.A Act - customer loss in all three years are allowed subject to verify from the assessment record of M/s Himson Overseas Pvt. Ltd. that no deduction of same amount has been allowed by it’s A.O Disallowances of 50% of erection expenses - expenses have gone up whereas turnover has gone down - work was completed by the sister concern – Held that:- A.O. had not brought on record any material for excessive payment u/s 40A(2)(b) of the Act made to M/s Himson Techno Services Pvt. Ltd. The A.O. had disallowed lump-sum expenses on estimate basis. These payments were for erection and technical work. The comparable rates were not available being an engineering work - addition deleted Addition u/s 41(1) of the I.T. Act - Addition on account of cessation of liability – alleged that the assessee had shown creditor of Rs.37,25,695/- more than three years – Held that:- A.O. has not brought on record any evidence that the liability had been obtained by the assessee by way of remission or cessation. The burden of proof lies on the revenue. The appellant had filed confirmation of its sister concern - assessee has been showing these liabilities in balance sheet and same has not been written off – addition deleted Addition u/s 40(a) - late payment of TDS – Held that:- Assessee had paid TDS late, not within the financial year, it means payment in next year. The act has been amended w.e.f. 01.04.2010 and a proviso has been inserted in Section 40(a)(ia) of the Act - Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid after the due date specified in sub-section (1) of section 139, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid - A.O. is directed to verify the payments and allow the TDS payment Disallowances of expenses u/s 14A of the I.T. Act – Held that:- Assessee received dividend income and tax free bond income - A.O. disallowed 10% expenses out of administrative managerial expenses - CIT(A) had found 10% expenses in A.Y. 2005-06 and in A.Y. 2006-07 reasonable and confirmed the addition. In A.Y. 2007-08 and in A.Y. 2008-09 he also confirmed addition made under Rule 8D - disallowance u/s 14A rightly confirmed

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• 2012 (11) TMI 48
  Revisionary powers under section 263 - conditions for exercise of revisionary powers – Held that:- It cannot be said that Commissioner lacks jurisdiction in invoking his revisional jurisdiction - order of the Commissioner may be wrong. But it does not necessarily mean that all wrong orders are situations invoking want of jurisdiction - Tribunal in its wisdom remanded the matter to the original authority and it is only after the assessing authority opines one way or other there may be scope for further development - appeal is dismissed

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• 2012 (11) TMI 47
  Writ petition – pre-deposit – financial hardship – deemed dividend - Held that:- Appellate authority considered the petition for stay and passed Ext. P6 order, whereby the petitioner was directed to satisfy 50 % of the demand, in 'ten' equal monthly installments, so as to avail the benefit of interim stay - condition imposed by the appellate authority, directing the petitioner to remit 50 % of the disputed liability so as to avail the benefit of interim stay is on the higher side - petitioner is directed to remit 1/3rd of the disputed liability

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• 2012 (11) TMI 46
  Disallowance u/s 14A of the Act – alleged that assessee has not been able to prove correctness of the claim that no expenditure was incurred in connection with the income which does not form part of the total income under the Act – Held that:- Even in the post Rule 8D period, the Assessing Officer has to satisfy first of all the correctness of the claim of the assessee in respect of the expenditure incurred which does not form part of the total income under the Act, once he is satisfied on an objective and for cogent reasons that the amount of such expenditure as claimed by assessee is not correct then only he is required to determine the amount of expenditure on the basis of a reasonableness and acceptable method or apportionment - Matter remanded to Assessing Officer Regarding claim of set off of losses incurred in the eligible unit under section 10B with the positive income of the other non-eligible units – Held that:- There is no provision in section 10B by which a prohibition has been introduced by the Legislature in setting off of a loss which is sustained from one source falling under the head of profits and gains of business against income from any other source under the same head - unabsorbed depreciation can be carried forward to a subsequent year does not militate against the entitlement of the assessee to set-off a loss which is sustained by an eligible unit against the income arising from other units under the same head of profits and gains of business or profession - Legislature not having introduced a statutory prohibition, there is no reason to deprive the assessee of the normal entitlement which would flow out of the provisions of section 70 - export oriented unit has incurred the loss and the assessee has adjusted this loss against that profit from other business - appeal of the assessee is allowed.

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• Customs

• 2012 (11) TMI 126
  Provisional release of goods - Held that:- The value of the silk yarn imported by the petitioner, from Vietnam, had been fixed, as USD29.5 per kilogram it is open to the petitioner to take delivery of the goods in question, by paying the customs duty, on the value fixed by the respondents, at USD29.5 per kilogram. The respondents are directed to release the goods in question on the petitioner paying the customs duty equivalent to 75% of the value of the goods at USD29.5 per kilogram & for the balance 25% the petitioner shall furnish a personal bond to the satisfaction of the respondents. The respondents shall complete the adjudication process, within a period of four weeks thereafter by issuing a necessary show cause notice & in reply to it the petitioner shall submit its objections, appear before the respondent and co-operate with the department in the adjudication process.

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• 2012 (11) TMI 125
  Confiscation - Kar Vivad Samadhan Scheme, 1998 (KVSS) - held that:- the Scheme has to be given a purposive interpretation and the Scheme cannot be interpreted in a manner so as to defeat the very object and intention of the Scheme. Petitioner cannot claim to pay simply 50% of the duty amount specially when there has been no lis in respect of the same or dispute with regard to it. - existence of a dispute or lis being a sine qua non for the applicability of the Scheme - in addition to 50% of the fine and penalty paid for settlement of the case, the appellant is also liable to pay duty at appropriate rate on the confiscated goods and only on such payment of duty the appellant can redeem the goods. Whether the duty is liable to be paid on the confiscated goods by treating them as baggage under Chapter Heading No. 98.03 of the Customs Tariff Schedule – Held that:- Smuggled goods cannot be treated as imported goods, the question of classifying them as baggage under Chapter 98 does not arise at all - seizure has not taken place in a customs area - there is no declaration filed in respect of such baggage to apply the rate of duty applicable to baggage on the impugned goods under Section 78 read with Section 77 of the Customs Act - claim of the department to levy duty under Chapter Heading No. 98.03 does not have sufficient legal basis - “Diamonds, whether or not worked, but not mounted or set” fall under Heading No. 71.02 of the Customs Tariff. Since the goods under seizure are rough as well as cut and polished diamonds, they would be correctly classifiable under Heading No. 71.02 of the Customs Tariff for the purpose of levy Relevant date for the purpose of charging of duty – Held that:- Payment of duty arises at the time of redemption and the option to redeem the goods was exercised when the fine was paid - whatever was the rate of duty applicable at that time, that is, the date on which the fine was paid and the option to redeem the goods was exercised, will be the relevant date for computing the rate of duty also - appellant will not be eligible for any concessional rate of duty and the duty liability will have to be discharged at the tariff rate applicable to the goods under CTH No. 71.02 - appellants are liable to pay customs duty on the confiscated diamonds at the tariff rate of duty applicable to goods falling under Heading No. 71.02 of the First Schedule to the Customs Tariff Act on the date of payment of fine (date of exercising the option to redeem the goods) in addition to the fine and penalty already settled under the Kar Vivad Samadhan Scheme.

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• 2012 (11) TMI 124
  Export of Iron Ore fines declaring iron content below 62% - alleged that exporter declared the iron content of the exported Iron Ore fines was 62% and below and the test revealed 62.1%, the authorities came to the conclusion that the exporter has misdeclared the iron content at the time of export and short paid export duty – Held that:- Difference in the iron content is hardly 0.1% - difference which sought to be made out is hardly 0.1%. If a provision is made for human error this 0.1% is negligent - That does not disclose that the assessee has disclosed the Iron content wrongly with the intention to evade payment on duty – in favor of assessee

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• 2012 (11) TMI 83
  Charge under Section 135 of the Customs act - unauthorized possession of 79 gold biscuits of foreign origin – Held that:- Nothing to show that the said biscuits had been imported into India in a lawful manner - Once the accused was found in possession of gold biscuits of foreign origin and he has not been able to prove that the same had been imported lawfully into India, he is liable to be charged under Section 135 of the Customs Act - Though the accused did not confess his guilt in the said case, but the (sic-offence is) made out against the accused - Trial Court has analysed the material in the right perspective, correctly negate his plea, chargesheeted the Petitioner-accused for the commission of indicated offence and recorded the cogent grounds in this respect - no patent illegality or legal infirmity has been pointed out by the learned Counsel for the Petitioner-accused, so, the impugned orders deserve to be maintained

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• 2012 (11) TMI 82
  Undervaluation – import of old and used machinery – enhancement of value – Held that:- the depreciated value as certified by Chartered Engineer, U.K. is only 7.25% of the invoice value in 1970, whereas he certified that the residual life of the machine is more than 15 years subject to proper maintenance and procedure being followed and also that the spares presented were either new or in good enough condition to represent 80% of the normal life expectancy and that the technology involved equivalent was consistent with present day practice which has not radically changed. It does not make any economic sense to import a machine which has only 7.25% as residual value as declared by importer. It is to be noted that the invoice produced is not of any manufacturer or any person who was actually using machine earlier and is of a scrap dealer in U.K. Reliance upon the report of Chartered Engineer - held that:- The first two are of facts and the third is an opinion. So there is no infirmity in accepting the facts and rejecting the opinion. Old and used machinery is inherently prone to undervaluation - In fact from the Government of India has amended the import policy to the effect that old and machinery having residual value less than 80% of the original value is not allowed for import. Adjudicating authority has followed the valuation method prescribed by Board for arriving at reasonable price and at the ‘ time of assessment the respondent accepted the price suggested by Revenue - Decided in favor of revenue.

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• 2012 (11) TMI 81
  Transaction value - Related person – alleged that supplier and the respondents related in terms of Rule 2(2)(iv) of the Customs Valuation Rules – Held that:- In terms of Rule 2(2)(iv) persons can be deemed to be related only if any person directly or indirectly owns, controls or holds 5% or more of the outstanding voting stocks or shares of both of them - only if a third person directly or indirectly owns, controls voting stocks or shares of both the supplier and the importer, then the supplier and the importer can be deemed to be related - supplier and the respondents are not related - whether the relationship has influenced the price and whether the price approximates any of the test values as provided under Rule 4(3) do not arise in the absence of relationship itself not being established. Such examination is envisaged only where relationship is first established. The interpretation given by the original authority would amount to re-writing of Rule 2(2)(iv) to read that if the supplier has more than 5% of the shares in the importing company, then both would be deemed to be related. There is no warrant in law to do so. As regards the question of dealing with the royalties, licence fee etc., there are adequate provisions in the Customs Valuation Rules [for example, Rule 9(1)(c)] to deal with the same. - It cannot also uphold arbitrary enhancement of value by 20% without there being any basis for it.

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• Corporate Laws

• 2012 (11) TMI 123
  Rigors u/s 599 of Co.’s Act to prevent a co. to institute legal proceedings- Held that:- Company will be establishing a place of business in India, if it has a specified or identifiable place at which it carries on business, such as an office, store house, godown or other premises having some concrete connection between the locality and its business. The word 'establish' indicates more than occasional connection. This evidence amply establishes that the petitioner company has an established place of business in India. Admittedly, the provisions of Sections 592 to 594 have not been complied with. Section 599 creates a hurdle for such a foreign company to institute any legal proceedings . At this stage, learned counsel for the petitioner submits that the provisions of Section 599 are not mandatory; they are directory; on the payment of the requisite fee this irregularity can be cured. - petition not being maintainable is accordingly disposed of with liberty granted to the petitioner to file a fresh petition after curing the defects. Pending applications also stand disposed of. Period spent in pursuing this litigation be excluded for the purposes of limitation.

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• 2012 (11) TMI 122
  Denial of counter-claim of the defendants - plaintiff instead of being liable to pay any amount to the defendants are entitled to recover an amount of Rs.90,34,079.73ps from them - petition under SICA before BIFR by Plaintiff - Held that:- Since the plaintiff does not admit the counterclaim, the defendants are entitled to an adjudication with respect to their claim and admittedly that adjudication cannot be done by BIFR. For this reason alone, the counterclaim is not liable to be stayed. Admittedly, the amount of adjustment sought by the defendants and that of counter-claim does not find inclusion in the liabilities admitted by the plaintiff before BIFR. The defendants have not approached BIFR and the plaintiff does not admit the claim set up by them. The Scheme by BIFR is yet to be framed. Since the claim of the defendants is not the subject matter of the proceedings before BIFR, the Scheme as and when it is framed, obviously, would not include the claim of the defendants. Therefore, it can hardly be disputed that the claim of the defendants would not be covered by the sanctioned scheme as and when it is approved by the Board. Therefore, the ratio of the decisions of the Supreme Court in Deputy Commercial Tax Officer and Ors v. Corromandal Pharmaceuticals (1997 (3) TMI 452 - SUPREME COURT OF INDIA) squarely applies to the present case and, counter-claim, therefore, would not be hit by Sec. 22(1) of SICA.

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• 2012 (11) TMI 80
  Restoration of name in ROC Register - Non filing of statutory documents - Held that:- The ROC has no objection if the name of the Company is restored in the ROC, however, company be directed to file the pending Annul Returns since 1994 and Balance Sheets since 1993 till date along with the requisite late filing fee as prescribed under the law. This order is passed subject to payment of cost of Rs.50,000/- to be deposited with the Central Government.

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• 2012 (11) TMI 79
  Scheme of Amalgamation - claim made by the unsecured creditor for outstanding dues - Held that:- There is no dispute that the Transferee Company will remain in existence even after the post sanctioned scheme. There is no substance in the apprehension so raised. The Transferee Company permitted the concerned Authorities to take appropriate action or steps, if any. The pendency of such investigation in no way should be the reason not to sanction the scheme. The Official Liquidator has filed his report dated 26th September, 2012, stating that the affairs of the Petitioner Company have been conducted in a proper manner and that the Petitioner Company may be ordered to be dissolved - in spite of being on notice the said unsecured creditor of the Petitioner Company has not appeared before this court neither has filed his objection before this Court. Thus the objection is without merit and is rejected. The rights of the unsecured creditor of the Petitioner Company are not affected From the material on record, the Scheme appears to be fair and reasonable and is not violative of any provisions of law and is not contrary to public policy. None of the parties concerned have come forward to oppose the Scheme in the Court - scheme of Amalgamation s well within the frame work of law and the record and as it is difficult for the Court to deal and decide the business strategies as it is not the court's domain. Petitioner Company to pay costs of Rs. 10,000/- each respectively, to the Regional Director and to the Official Liquidator, High Court Bombay.

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• Service Tax

• 2012 (11) TMI 129
  Imposition of Penalty for non-payment of Service Tax - Held that:- Penalties imposed by the revisionary authority under Sections 76 & 78 of the Finance Act, 1994 by denying the benefit of Section 80 of the Act are set aside, which benefit had been given to the assessee on valid grounds by the original authority - In the result, the impugned order is set aside and the appeal is allowed with no cost.

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• 2012 (11) TMI 128
  Delay in filling of refund application u/s 11B – Appellant provide agency commission service - Which was amounted to export of services in terms of Export of Service Rules 2005 - Service Tax refund claim u/s 83 was filed with SCE - Claim was filer after the time limit of one year as per Sec. 11B – Held that:- Application for refund are to be filed with the Assistant Collector of Central Excise u/s 11B, whereas this letter has been filed with the Superintendent of Central Excise which is not as per the provisions of Sec. 11B. From the facts on record that the last payment of the service tax was made on 1st December 2007 and refund claim was present on April 28, 2010 is also beyond one year from the date of payment. Appeal decides in favour of revenue

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• 2012 (11) TMI 117
  Refund claim - duty paying document - objection of the Revenue is that the service tax was paid on the basis of debit notes issued and not on the basis of invoice, bill or challans – Held that:- No dispute that service has been provided, received by the appellant, utilized by the appellant and the other conditions which are required to be fulfilled as per Notification No. 9/2009-S.T. have been fulfilled - Since all the conditions of the notification have been fulfilled and there is no dispute about the same - appellant is eligible for the refund claimed by them - appeal is allowed

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• 2012 (11) TMI 115
  Refund claim - unjust enrichment - appellant’s contention was that they had deposited the service tax under protest – Held that:- Appellants have debited the impugned amount to the Profit and Loss Account and thus the cost of the finished goods has increased to this extent. The sound accounting principles require that against the current year’s receipts, the true cost, which has been incurred for earning such receipts, has to be charged - against the current year’s receipts the true cost which has been incurred for earning such receipts has to be charged - original adjudicating authority has rightly ordered to credit the amount of refund to the consumer welfare fund

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• 2012 (11) TMI 86
  Benefit of abatement under Notification No. 12/03-ST - Mandap Keeper service - whether food and beverages supplied during such function conducted in the banquet halls, where separate bills/invoices were raised, is required to be treated as part of "Mandap Keeper service", or the same would amount to separate transaction – Held that:- Supply of food and beverages is the sale transaction, chargeable to sales tax (VAT), inasmuch as the appellant has paid sales tax in respect of the same - food items have been supplied under separate invoices and have discharged the sale tax liability are required to be followed for extending the benefit of notification in question – full stay granted.

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• 2012 (11) TMI 85
  Interest on delayed payment of service tax – Held that:- Appellant has admitted the liability to pay service tax, which he has recovered from the customers, along with interest thereon - there is a delay in payment of service tax, the appellant is liable to pay interest thereon on the defaulted payment under Section 75 of the Finance Act, 1994. Interest liability will accrue from the due date for the payment of service tax till such time the payment is actually made. Penalty - penalties have been imposed under Section 76 for delay in payment of service tax, under Section 77 for filing of returns belatedly and under Section 78 for suppressing the fact of receipt of service tax from the customer – Held that:- Penalty under one of the said provisions will suffice considering the fact that the appellant is a small service provider - orders passed by the lower authorities, the option/facility for paying penalty @ 25% of the penalty determined within a period of 30 days from the date of receipt of the order was not been give - order passed is incorrect as far as imposition of penalty is concerned - appellant is liable to penalty under Section 78 of the Finance Act equal to the service tax defaulted. However, the said penalty shall stand reduced to 25%, if the said liability is also discharged within 30 days from the date of receipt of this order along with the balance of service tax due and interest liability thereon as discussed above. Penalty under Section 77 is upheld.

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• 2012 (11) TMI 70
  Denial of input service credit on the ground that assessee are not covered by the definition of input service - Held that:- Telephone services and rent-a-cab service used in connection with the business activity of the company are covered by the definition of input services - service of transportation of the employees to the factory is admissible for cenvat credit as input service under Rule 2(1) of Cenvat Credit Rules, 2004 - in favour of assessee

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• Central Excise

• 2012 (11) TMI 121
  Penalty u/s 11AC - Commissioner set aside penalty - Held that:- The entire proceedings were as per Rule 8 and penalty is leviable as per the provisions of Rule 8(3A) which does not provide for penalty under section 11AC - Rule 8(3A) does not provide penalty under section 11AC - in favour of assessee.

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• 2012 (11) TMI 119
  Whether Soap Stock which arises in the manufacturing process of the appellant is waster or by-product – Following the decision of court in case of [CCE vs.Priyanka Refinary Ltd. 2009 (5) TMI 419 - CESTAT, BANGALORE] held that:- the soap stock which arises/emerges during refining of the edible oil is a waste, though the Revenue in that case had called this product as by-product. Be that as it may, there cannot be any dispute that the appellant is not manufacturing the soap stock from fatty acid. If the said soap stock is considered and held as waste the impugned order is liable to be set-aside - in favour of the assessee. SEZ - Import for the purpose of export - Benefit of exemption of additional duty of customs for clearance of goods from SEZ to DTA without carrying out manufacturing process – Held that:- Adjudicating Authority after following due process of law did not agree with the contentions raised by the appellant and confirmed the demands on the appellant along with penalty and interest on the amount of demand confirmed and personal penalty on the Director of the Company.

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• 2012 (11) TMI 118
  Valuation - Transaction value - related parity – alleged that assessee manufactured and cleared goods to their own unit, and related parties besides other unrelated buyers at the same price - Department was of the view that the appellant ought to have paid excise duty in terms of Rule 8 and 9 of Central Excise Valuation Rules – Held that:- Assessee had cleared goods on the same price to the related as well as unrelated parties - assessee had rightly paid excise duty based upon Rule 4 of Central Excise (Valuation) Rules, 2000 and the Adjudicating Authority as also the Appellate Authority have gone wrong in applying Rule 8 and 9 of Valuation Rules to confirm the duty demand upon the appellant – in favor of assessee

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• 2012 (11) TMI 116
  Demand of duty, interest and penalty – alleged that appellant wrongly availed cenvat credit – Held that:- Respondent has taken cenvat credit of service tax on input services before they had made the actual payment for the services received and the tax thereon - assessee promptly reversed the cenvat credit taken by them – assessee cannot be found fault with and if the demand for interest is upheld, it will be against the interest of the respondents for no fault of the respondent - matter remanded to Commissioner (Appeals) for fresh decision

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• 2012 (11) TMI 114
  EPCG authorization - export obligation - benefit of export obligation to third party - Held that:- Under the scheme in force to obtain such a result, M/s. Infocus Marketing and Service Ltd., should have made the exports as exporters indicating the goods to have been manufactured by the appellants. However, this has not been done. - No exports have been made by M/s. Infocus Marketing Service Ltd., - exports have been made by the appellants themselves directly under claim of drawback - Customs authorities have rightly refused to make the post facto amendments sought for by the appellants with a view to benefit M/s. Infocus Marketing and Service Ltd. Such benefits they could have got if they were the exporters clearly indicating the name of their supporting manufacturer(s) and enabling the Customs authorities to make necessary verification in that regard - appeal is dismissed

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• 2012 (11) TMI 113
  Seizure - discretionary powers of commissioner - Alleged that stock was not handed over at the petitioner’s shop premises but the same was being transported to a different place – Held that:- it is not in dispute that the seized beer suffered duty. - Mere existence of discretionary power shall not entitle the authority to exercise such power in a mechanical manner without being conscious of the gravity of the offence - condition directing payment of the value of the seized duty paid liquor, is wholly irrational and unreasonable - order, to the extent of stipulating the condition of payment of the value of the seized stock, is set aside - respondents are directed to refund the sum representing the value of the seized stock, to the petitioner

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• 2012 (11) TMI 112
  Benefit of Notification - manufacture of Ready Mix Concrete (RMC) - site area is fairly large, Batching Plant is set up in one part of the site and the concrete mix manufactured is transported to the other parts of the site for construction of civil structures, the department was of the view that the appellant was not eligible for the duty exemption – Held that:- Merely because the RMC has been transported from the Batching Plant installed at the site to various places in the site, it does not mean that the goods are not produced at the construction site. The Notification does not prescribe any spatial dimensions/restrictions for the site. It merely says that the concrete mix should be manufactured at the site of construction. Since the project site is the site of construction and the Batching Plant is installed at the project site, the benefit of Notification cannot be disallowed - waiver of pre-deposit allowed

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• 2012 (11) TMI 78
  CENVAT Credit of Service Tax paid - Rent-a-cab utilized for transportation of employees from Vadodara to the factory in village Ankhi - Held that:- As decided in M/s. Maruti Suzuki Ltd. Versus Commissioner of Central Excise, Delhi-III [2009 (8) TMI 14 - SUPREME COURT] CENVAT Credit benefit will be available if the service can be related to the business of manufacture. In this case, the factory is located in a village and the village does not have adequate facilities for employees and therefore to get the proper employees, it becomes necessary for the assessee to provide transportation facility from the nearest city. Therefore, it cannot be said that the assessee is providing transportation facility to its employees as a welfare measure, but it is necessity to ensure that the manufacture takes place properly - in favour of assessee.

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• 2012 (11) TMI 77
  Notification No.29/2004 and 30/2004 - duty confirmed along with interest and penalties - Held that:- The issue involved needs to be decided based upon the factual matrix, as to whether the appellant is able to co-relate the lot-wise receipt of the fabrics, processing done on it and subsequent sale of the same in order to come to a conclusion as to whether the appellant has availed the benefit of Notification No.29/2004 and 30/2004 correctly or not. As assessee produced a Chartered Accountant's certificate and submitted that he has gone through the entire records lot-wise and given the certificate of receipt and consumption of the fabrics in availment of benefit of Notification No.29/2004 and 30/2004 but the adjudicating authority has recorded in OIO that the appellant could not produce all the relevant records but had produced some of the records for verification. Thus the adjudicating authority, instead of verifying the some of the records and giving benefit to that extent to the appellant, had confirmed the entire demand as demanded by Show Cause Notice, without giving any benefit after verification of records which was produced - direct the lower authorities to conduct verification at the earliest and come to a conclusion, after following the principles of natural justice - in favour of assessee by way of remand.

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• 2012 (11) TMI 76
  Manufacturing of Goods at Unregistered places - confiscation - imposition of redemption fine - Held that:- Sheds were not registered under Central Excise nor the appellant informed about the existence to the Department - appellant contravened the provision of Rule 9 of Central Excise Rules, 2002 and are therefore liable to penalty under Rule 25 of the Central Excise Rules, 2002 - keeping in view the overall facts and circumstances of the case, penalty is reduced to Rs.10,000/- (Rupees ten thousand only) on the appellants barring that entire order of the ld. Commissioner is set aside - Appeal is allowed to that extent.

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• 2012 (11) TMI 75
  Condonation of delay of one year and 26 days in filing the appeal - contention of the applicant is that the concerned employee who was dealing with Excise matters expired on 12.2.2010 and thereafter the applicants took sometime to appoint another employee and thereafter a consultant was appointed and due to this process undertaken by the applicant, there is a delay in filing the appeal – Held that:- During the employment said employee, the period for filing appeal has already expired - applicants failed to show sufficient cause to file the appeal within the period of limitation - appeal dismissed

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• 2012 (11) TMI 74
  Cenvat credit –manufacture of Telecommunication equipment – alleged that use of inputs in R - appellants are eligible for Cenvat credit on the impugned inputs – in favor of assessee

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• 2012 (11) TMI 73
  Waiver of pre-deposit - Applicants availed credit at their Borivali plant in respect of the service tax paid regarding taxable services received at various depots – Held that:- Tribunal as a judicial body must follow principles of consistency when it decides the cases - Tribunal in applicants' own case set aside the demand which was confirmed on the same grounds in appeal - applicants have made out a strong prima facie for waiver of pre-deposit of the duty, interest and penalty

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• 2012 (11) TMI 72
  Penal proceeding under Rule 96ZP – Held that:- Mere fact that without mens rea one can be punished or penalty could be imposed is not a blanket power without providing any justification - penal provision of Rule to the extent of providing mandatory minimum penalty without any mens rea is excessive and unreasonable restriction on fundamental right and is arbitrary - exercise of such power by way of subordinate legislation is not permissible when rule making authority for levying penalty is limited to default “with intent to evade duty - appeal of Revenue is dismissed

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• 2012 (11) TMI 71
  Turnkey project - manufacturing plant and supply of plant and machinery in addition to erecting the plant at the work site as per the design layout, etc. provided by the buyer - They discharged Excise duty on the entire contract amount - they raised a debit note on the buyer towards reimbursement of travelling expenses to the customer’s site for undertaking erection and commissioning work – Held that:- Demand of the Department for inclusion of travelling expenses from the factory to the customer’s site for erection and installation work cannot form the part of the transaction value under Section 4 of Central Excise Act, 1944 and, therefore, excise duty demand on such value is not sustainable in law.

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• 2012 (11) TMI 69
  Refund of duty paid under protest – unjust enrichment - respondent deposited the amount at the investigation stage and the proceeding initiated against them were dropped by ld. Commissioner (Appeals) order – Held that:- It is a case of refund of deposit of duty and not a refund of duty therefore the principle of unjust enrichment which is applicable to refund of duty is not applicable in this case - unjust enrichment is not applicable where amount deposited under protest – In favor of assessee

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• CST, VAT & Sales Tax

• 2012 (11) TMI 130
  Additional tax – incomplete accounts – Held that:- It is also not denied by the assessee that for a certain period between the month of August and October the accounts were not duly maintained, the reason being that their accountant was unwell. Nevertheless, it is not denied by them that for that period accounts were not maintained. Such being the case, the attention made by the Tribunal in the assessment of the Tribunal as well as the enhancement in the tax is justified - revision is dismissed

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• Indian Laws

• 2012 (11) TMI 127
  Writ of mandamus - release the payment of invoice raised for execution of work orders - respondent no.2 entering into sub-contracts with the petitioner company for manufacturing and supply of additional Berth (Middle Berth) for fitment of the same on longitudinal side of existing AC 3- Tier Railway Coaches and Sleeper Class Rail Coaches running within the jurisdiction of Southern Railway. Held that:- The sub-contract in between the petitioner company and the respondent company was executed at the office of the petitioner company lying and situated within the territorial jurisdiction of this High Court. It is also not in disputes that the instruction dated august 27 and 28, 2010 were conducted by RITES Ltd.(A Government of India Enterprise) for giving inspection certificate to ascertain the quantity of longitudinal middle berth relating to payment for supply and retro fitment of the same took place within the territorial jurisdiction of this High Court. The above instruction referred to communication issued by the Senior Divisional Mechanical Engineer, Southern Railway in his communication issued under memo no.V/M.CW/271.MB dated September 28, 2010. Therefore, the cause of action in part took place within the territorial jurisdiction of this High Court. It is a settled principles of law that if all parties are present before the court in a suit the same is maintainable. By virtue of the communication dated March 13, 2009 issued by the competent authority of the Railway Board the General Manager of All India Railways were informed amongst others, payment to the contracting agency might be made for the work already done till the issue of the notification regarding change a policy. Admittedly, the Railway Board alleged funds to the tune of Rs.6 cores in the final grant of 2010-11 for remittance to dues payable towards fitment of additional longitudinal berths in AC 3-tier and sleeper coaches. Also the Deputy Chief Mechanical Engineer (C & W) issued a communication dated April 28, 2011 directed the Senior DMM/TVC to arrange clearing of the pending bills in connection with the aforesaid fitment of additional longitudinal railway berths. It is revealed from the certificate dated August 31, 2010 issued by the RITES Ltd., Government of India Enterprises that the claim of the petitioner of manufacturing the longitudinal middle berths under reference was genuine. The above claim was forwarded to the competent authority by the officer of the Southern Eastern Raillery for payment to the respondent no.1. The aforesaid admitted facts and circumstances leads to a conclusion that the petitioner company changed its position depending on the promise held by the respondent no.1 in the matter of manufacturing of fitment of longitudinal middle berths in 3-tier AC and Sleeper Railway Coaches of the Southern Railway. Admittedly, the respondent no.1 acted on the basis of the promise held by the Southern Railway. The Railway Board released the required fund for releasing the same for payment of longitudinal meddle berths. The doctrine of promissory estoppel is squarely applicable with regard to the claim of the petitioner company from the respondent no.1. It has been held hereinabove that all the parties before this court this is an application under article 226 of the Constitution of India can be disposed of commanding the concerned respondents to release its fund for payment of the claim of the petitioner company therefore, directing the competent authority of the Southern Railway to release the fund allotted to it for payment towards the fitment of longitudinal berths in its Sleeper Class Railway Coaches on the basis of the claim of the respondent no.1 in its favour so far as the claim under reference is concerned within a period of two months from date. The respondent no.1 is directed to release the above amount in favour of the petitioner company within a month from the date of receipt of the same from the South Eastern Railway.

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• 2012 (11) TMI 84
  Arbitration Act 1940 - Challenge to the award by arbitrator - unreasoned award - held that:- Once the arbitrator would choose to publish an unreasoned award it would be too difficult for the Court to interfere with the same. The Court of law was not the Court of appeal over the award of the arbitrator. It could only be interfered with when it was patently perverse. The present award would not satisfy such test. The arbitrator published a money award for Rs. 86258 along with interest at the rate of 6% per annum. What would be the basis of the said award, is unknown to us. Hence, we are not competent to examine the same. Transfer of tenancy award - held that:- The arbitrator made alternative provision that would take care of the absurdity, if any, in the award. The learned Single Judge observed, Kamal Kumar resigned in 1983 without considering the assertions of his heirs to the extent that he had acted as partner for next five years until his death. The documents filed before the arbitrator were not considered. In any event, learned Judge also observed that the award was bad in view of allotment of tenancy that was not permissible under the tenancy law. We fail to appreciate, as observed herein before, the arbitrator having published an alternative award by giving money compensation in lieu of such allotment would remove the legal obstacle, if any, on that score. Hence the award could not be faulted on that ground. Period of limitation - application after 30 days of receipt of notice - held that- there was stamp of Court on September 19, 1998. Hence it was within the period of limitation. Even if it was not so, the order of remand would make it specifically clear that the Division Bench referred the issue back to the learned Single Judge for being heard afresh. Once it was so the plea of limitation would not be applicable.

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