Newsletter: Where Service Meets Reader Approval.
TMI Tax Updates - e-Newsletter
November 5, 2014
Case Laws in this Newsletter:
Income Tax
Customs
Service Tax
Central Excise
CST, VAT & Sales Tax
Articles
News
Notifications
Circulars / Instructions / Orders
Highlights / Catch Notes
Income Tax
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The assessee has mentioned that US Head office is a firm and not a company even in the US tax status, therefore, the assessee should be given the status of individual instead of foreign company - AO correctly applied and determined the status of the assessee as a foreign company - AT
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Diversion by overriding title in respect of infrastructure contribution untenable or not – the 'infrastructure funds' as a separate entity, independent of assessee is a fiction - held as taxable - AT
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Disallowance u/s 40A(2)(a) – Professional fees paid to the subsidiary company - three situations, warranting disallowance u/s 40A(2), are joined by the word ‘or’ and are independent of each other - AO has not determined the fair market value - no disallowance - AT
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Validity of order u/s 263 – revenue is not vested with any power u/s 263 to initiate proceedings for revision in every case and start re-examination and fresh enquiries in matters which have already been concluded under the law. - AT
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Taxability of advance against depreciation (AAD) – Advance against depreciation is reserve or not for computation of MAT u/s 115JB - Held No - AT
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A reassessment may be compelted at any time where the reassessment is made in consequence or to give effect to any finding/direction of an order passed u/s 254(1) - AT
Customs
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Misdeclaration of goods - goods in question were allowed to be cleared for export without furnishing any bond - In these circumstances, although the goods are liable for confiscation, no redemption fine can be imposed - AT
Service Tax
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Contract to supply drilling rigs to ONGC - Drilling rigs hired by assessee - Supply of Tangible Goods for Use service - demand confirmed with interest but penalty waived - AT
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Waiver of pre deposit - renting versus lease premium - The premium is a one time lump sum payment whereas the lease comes into effect and as an interest created in the immovable property on payment of the rent - stay granted - HC
Central Excise
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CENVAT Credit - future manufacturing - appellant is eligible to avail CENVAT Credit of the Service Tax paid on technical inspection and certification charges as also the technical testing services - AT
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Valuation of goods - inclusion in the assessable value of the expenses incurred on ‘advertisement and publicity’, ‘incentive and discount to dealers’ and vehicle and handling staff cost’ - not includible - AT
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Valuation of goods - revenue is of the view that tiles have been cleared to industrial or institutional consumers, they are not required to discharge Central Excise duty as per Section 4A as clearance to these institutional or Industrial Consumer is exempt to affix MRP - assessee has rightly paid the duty on MRP basis - AT
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CENVAT Credit - distribution of cenvat credit by ISD - credit related to exempted goods - demand confirmed with interest and penalty - AT
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Classification of ‘Knitted Fibres Shed Net’ - the ‘Knitted Fabrics Shed Nets’ manufactured by appellant will be appropriately classifiable under Chapter 60 of the Central Excise Tariff Act 1985 - AT
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Levy of interest on reversal of CENVAT Credit - Credit taken but not utilized till reversal - subsequent amendment has given befitting answer to all doubts existed earlier - no interest - HC
VAT
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Undervaluation under Orissa VAT - sale of good quality goods as scrap - Release of confiscated goods - only on payment of the penalty imposed under subsection (5) in addition to the tax payable the prescribed authority may release the goods. - HC
Case Laws:
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Income Tax
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2014 (11) TMI 129
Determination of ALP – Selection of comparables - Accentia Technologies Limited – Functionally different unit - Held that:- Assessee is basically providing various services to the customers of its AEs in relation to human resources which are more or less centered around the employees of the prospective clients - they are providing full range of geospatial services to its customers - the mere fact that two services are placed under this category do not become automatically comparable - If a case providing one category of services under ITES is claimed as comparable with another in the category of service under ITES as per this circular, then it must be shown ex facie that it is broadly similar - there is a vast difference which make one quite distinct from the other - this company cannot be treated as comparable – Decided in favour of assessee. Cosmic Global Ltd. – Held that:- Following the decision in Mercer Consulting (India) Pvt. Ltd. Versus DCIT, Circle-2, Gurgaon [2014 (7) TMI 715 - ITAT DELHI] - The entire outsourcing is confined to Translation charges paid at ₹ 3.00 crore, which is strictly in the realm of the Translation segment, revenues from which are to the tune of ₹ 6.99 crore - If this segment of Translation is not under consideration for deciding as to whether this case is comparable or not, we cannot take recourse to the figures which are relevant for segments other than accounts BPO - a captive unit cannot be compared with a giant case and thus excluded CG-VAK with turnover from Accounts BPO segment at ₹ 86.10 lacs - As the segmental revenue of BPO segment of Cosmic Global Limited at ₹ 27.76 lac is still on much lower side - M/s. Cosmic Global Limited cannot be considered as comparable with the assessee-company. Eclerx Services Ltd. – Genesys International Ltd. - Held that:- The assessee company is engaged in the business of providing IT enabled services to its group concerns, such as operationalising the case-report form in the computer system, and undertaking quality control tests of the images sent by the AEs – the company is basically providing data management and data processing services which are in the nature of low end services, and cannot be considered as functionally different for the purpose of comparability analysis - the AO is directed to exclude Eclerx Services P. Ltd. from the list of comparables, it being a functionally different company. The Arithmetic mean of margins of the remaining seven comparables comes to 11.85%, as pointed out by the assessee, on the basis of working furnished by him – it is being lower than the profit margin of 15.57% charged by the assessee company to its AE in the relevant international transactions, it follows that no TP adjustment is required to be made in the case of the assessee – the addition made by the AO to total income of the assessee by way of TP adjustment is not allowed – Decided in favour of assessee. Computation of deduction u/s 10A - Inclusion/exclusion of the communication costs from the total turnover – Held that:- Following the decision in The Commissioner of Income Tax Versus M/s. Gem Plus Jewellery India Ltd. [2010 (6) TMI 65 - BOMBAY HIGH COURT] - wherein it was held that although the expression ‘total turnover’ has not been defined at all by the Parliament for the purposes of S.10A, when the definition of ‘export turnover’ excludes specifically certain items, the expression ‘total turnover’ cannot have a different meaning than the total turnover especially when the export turnover forms a constituent part of the total turnover for the purpose of the application of the formula - any item which is excluded for the purpose of computing export turnover has necessarily to be excluded for computing the total turnover for the purpose of computing deduction u/s 10A of the Act – Decided against revenue.
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2014 (11) TMI 108
Entitlement to set off of unabsorbed depreciation of earlier years – Effect of amendment to section 32(2) w.e.f. 01.04.1997 - Held that:- The Tribunal rightly holding that the assessee is entitled to set off of unabsorbed depreciation of earlier years in order to arrive at the total income - Prior to the amendment, assessee was entitled to set off of unabsorbed depreciation - It is only by way of this amendment, it was denied the said benefit - even before the expiry of 8 years period, the amended provision was deleted and the original provision was restored - In other words, this amended provision never came into force at all - When that being the case, the question of denying the benefit to the assessee did not arise – thus, the order of the Tribunal is upheld – Decided against revenue.
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2014 (11) TMI 107
Computation of book profits u/s 11JB – Treatment of provision of bad and doubtful debts – Effect of amendment - Whether the Tribunal was right in holding that the provision of Bad and Doubtful debts cannot be added back while computing 'Book Profits' computed u/s 115JB of the Income Tax Act, contrary to the provisions of clause (i) in Explanation 1 to the section 115JB(2) of the IT Act, inserted retrospectively from the A.Y. 2001-02 – Held that:- Assessee remained absent though duly served - the Assessee invoked section 115JB of the Income Tax Act but the amendment has been omitted from consideration by the Tribunal - the Tribunal rightly proceeded on the footing that the Assessee invoked section 115JB of the Income Tax Act 1961 - it is too late to contend that section 115JB was not the applicable provision - It will not be open for the Assessee to urge contrary to the order of the Court that this section is inapplicable as the bad debts were written of, the amount was treated accordingly in Schedule 'G' to the balance sheet and the debtors' account in the books of the Assessee was credited accordingly - all these are factual matters and ought to have been raised by remaining present before the Court or by pointing out to the Tribunal the relevant materials - The Tribunal did not commit any error in complying with the direction of the Court – thus, section 115JB (Explanation 1 to subsection (2) thereof) was not applicable – Decided against assessee.
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2014 (11) TMI 106
Disallowance of depreciation – Genuineness of transactions - Held that:- The Commissioner as well as the Tribunal found that there is no concealment of particulars of income nor furnishing of inaccurate particulars of income for the assessment year – there was no merit in the contention of the revenue - there was no concealment nor the particulars have been termed as inaccurate and for the subject AY - It is on these findings that the penalty has been deleted – the order of the Tribunal is upheld – Decided against revenue.
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2014 (11) TMI 105
Penalty u/s 271(1)(c) set aside – Inaccurate particulars furnished or not - Held that:- The Tribunal was rightly of the view that there is no mala fide on the part of the assessee in putting forth claim for depreciation and it would not constitute furnishing of inaccurate particulars, there was no justification to interfere with the material finding of fact - no direction was issued to initiate penalty proceedings – in COMMISSIONER OF INCOME TAX AND ANOTHER vs MANJUNATHA COTTON AND GINNING FACTORY [013 (7) TMI 620 - KARNATAKA HIGH COURT] it has been held that the condition precedent for initiation of penalty proceedings u/s 271(1)(c) is existence of condition referred to in the section - The person initiating penalty proceedings should be satisfied about the existence of the conditions which should be reflected in the assessment orders passed by them - The Section (1B) is attracted and these conditions deemed to exist which confers jurisdiction on him to initiate penalty proceedings - in the absence of a specific direction to initiate penalty proceedings, the initiation of the proceedings is bad – thus the order of the Tribunal is upheld – Decided against revenue.
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2014 (11) TMI 104
Allowability of deduction u/s 80M - Whether the Tribunal was right in holding that general establishment charges like audit fees, salary etc. could not be reduced from the dividend income for the purpose of allowing deduction u/s 80M of the Income Tax Act – Held that:- The Tribunal recorded the statement of the Assessee that there are no expenses incurred by the Assessee for earning the dividend – relying upon Commissioner of Income Tax V/s. United Collieries Ltd. [1992 (4) TMI 18 - CALCUTTA High Court] - no expenses were incurred for earning the dividend income, is a position which could not be controverted by the Revenue by bringing any material on record - the Assessee's claim for deduction u/s 80M could not have been reduced - only expenses directly incurred to earn dividend ought to be reduced while computing deduction u/s 80M and the Revenue cannot proceed to deduct some amount as expenses on notional basis – thus, the order of the Tribunal is upheld – Decided against revenue.
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2014 (11) TMI 103
Reopening of assessment u/s 147 – Notice issued beyond four years - Held that:- The AO has issued the impugned notice u/s 148 of the Act with a view to examine the nature of export incentives shown by the assessee company - the income chargeable to tax had escaped assessment for such assessment year by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment for that AY – in Hindustan Lever Ltd. v. R B Wadkar, Asst. CIT [2004 (2) TMI 41 - BOMBAY High Court] - the proviso to section 147 comes to the aid of the appellant and would render the issue of notice u/s 148 after the expiry of 04 years as void and illegal - assessment was reopened after expiry of four years from the end of the relevant assessment year i.e. AY 2001-02 - As per proviso to section 147 of the Act, the assessment can only be reopened after the period of four years from the end of the relevant assessment year, if the AO makes out a case that the income chargeable to tax has escaped assessment for such assessment year by the reason of failure on the part of the assessee either to make a return under section 139 of the Act or in response to notice under sub-section (1) of section 142 of the Act or 148 of the Act or to disclose fully and truly all material facts necessary for its assessment for that AY. The assessment was sought to be reopened on the basis of the amendment brought in section 80HHC of the Act by Taxation Law (Amendment) Act, 2005 whereas the assessment was completed under section 143(3) of the Act on 19.7.2002 on the return filed on 31.10.2001 - at the time of filing the return, assessee cannot anticipate or visualize any future amendment which can be formed to be the basis for reopening assessment on the ground that income has escaped assessment by the reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment - reopening on the basis of the amendment after a period of four years from the end of the AY is not possible – the order of the CIT(A) is upheld - Decided against revenue. Reopening of assessment u/s 147 - Assessment was reopened after expiry of four years - Held that:- The AO has rejected contentions of the assessee with regard to the validity of the reopening of assessment on the ground that the assessment was reopened after expiry of four years from the end of the assessment year - proviso to section 147 of the Act would not apply, but as decided in Avani Exports vs. CIT [2012 (7) TMI 190 - GUJARAT HIGH COURT] - through which retrospective amendment was quashed, the assessment cannot be reopened on the basis of the said retrospective amendment - Since the basis for reopening of the assessment has been quashed, the issue of reopening either before or after four years from the end of the relevant assessment year becomes irrelevant - reopening, on the basis of the retrospective amendment of section 80HHC of the Act by the Taxation Law (Amendment) Act, 2005, is illegal and the assessment framed consequent thereto is also illegal and deserves to be annulled – thus, the order of the CIT(A) is upheld – Decided against revenue. Allowability of deduction u/s 80HHC – Held that:- The assessee was asked to produce grant of extension of time, but no evidence has been furnished in this regard by the ld. counsel for the assessee - in the absence of any evidence with regard to the extension of time, the contention of the assessee cannot be accepted that time was extended for realization of the amount - the findings of the CIT(A) is set aside and the order of the AO is restored that the unrealized amount do not qualify for deduction u/s 80HHC of the Act.
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2014 (11) TMI 102
Jurisdiction of AO to issue notice for reopening of assessment u/s 147/148 - Held that:- The AO made similar kind of addition in both the years by holding that the total expenditure incurred as per audited expenditure and income account requires to be computed by adding mark up of 8.5% in AY 2003-04 and the mark up of 10% for AY 2004-05 - the CIT(A) upheld the findings of the AO that the assessee has PE in India in the form of branch office - CIT(A) partly allowed ground of the assessee on the issue of attribution of profit to the branch office, PE of the assessee in India and directed the AO to calculate attributable profit at 50% of the figure arrived at after applying the profit rate of 8.5% for AY 2003-04 and 10.6% for AY 2004-05 which represents the global profit ratio of the assessee company in the relevant financial years. The action of the AO was not prompted by any whim, surmise or conjecture but the assessment for AY 2003-04 was processed u/s 143(1) of the Act and during the course of assessment proceedings for 2004-05, the AO noticed that Indian entity provides engineering design and consultancy services to the Head Office - in Raymond Woollen Mills Limited Versus Income-Tax Officer And Others [1997 (12) TMI 12 - SUPREME Court ] – it has been held that where there is a prima facie material, the sufficiency and correctness of the belief cannot be questioned at this primary stage - the action of the AO was proper and in conformity with the provisions of the Act – Decided against assessee. Business profit to be taxable in India or not – Permanent Establishment in India or not - Held that:- As per list submitted by the assessee before the authorities for the period 2003-04, there were 95 employees of high qualification working for the associated enterprises of US - In terms of Article 5(2) (b) of Indo US DTAA, the assessee entity represents a fixed place of business of the enterprise through which substantial work was carried out by the assessee which constitutes PE of the assessee in terms of Article 5(2)(b) and (c) of Indo-DTAA - the income attributable to the operation carried out by the PE shall be taxable in India. In this context, we may refer letter of the assessee dated 29.4.2008 wherein the assessee submitted before the CIT(A) the details of role and distribution of work profile between US office and the Indian office - Indian branch office during the relevant period carried out engineering, calculations as well as drawing of various architectural designs for the US office. The important work assigned to Indian branch office was preparation of drawing, designs and doing structural calculations which require high technical and managerial skill, therefore, this important facet of the Indian Brach cannot be said to be a preparatory and auxiliary work of a back office but at the same time, the US office minimise their cost of services and other expenses by assigning and appointing highly technical and materially skilled professional to discharge main function of US Head office in India at low cost - in the case of Dit (International Taxation) Versus Morgan Stanley And Company Inc. [2007 (7) TMI 201 - SUPREME Court] it has been held that even employees which are highly experienced in their specialised fields lends their expertise to Indian entity in that that sense there is a service PE under Article 5(2)(1) of Indo-US DTAA – thus, the assessee is a PE in India as per provisions of Article 5(2)(b) and (c) of Indo-US DTAA, the contentions of the assessee are dismissed – Decided against assessee. Calculation of profits attributable @ 50% - Determination of attributable profits - adoption of global profit rate - Held that:- The assessee has PE in India as per provisions of Article 5 (2)(b)(c) of Indo US DTAA - the assessee has not submitted record of uncontrolled transactions and the record of analysis, how the uncontrolled transactions are comparable to the case of the assessee as per requirement of Rule 10B(2) of the Income Tax Rules, 1962 - the AO was right in adopting the profit of 8.5% for AY 2003-04 and 10.6% for AY 2004-05 to calculate attributable profit - the AO adopted the wrong calendar year for adoption of global profit rate but we are unable to accept this contention as financial year for respective assessment years is spread over upto 31st March and in the light of this fact that the percentage of global profit was higher in calendar year 2003, the adjustment would be neutral and academic, therefore, this contention of the ld. Counsel of the assessee is not found to be acceptable - the action of the CIT(A) is upheld that he directed the AO to calculate attributable profit @50% of the figure arrived after applying profit rate of 8.5% for AY 2003-04 and 10.6% for AY 2004-05 - the contentions of the assessee for wrong adoption of global profit of the US Head office are not sustainable - the CIT(A) was reasonable and justified in directing the AO to calculate the attributable profit at 50% of the figure arrived by the AO after applying global profit rate of US Head office for the respective assessment years – Decided against assessee. Status of assessee to be treated as individual or Foreign Company – Held that:- The assessee has mentioned that US Head office is a firm and not a company even in the US tax status, therefore, the assessee should be given the status of individual instead of foreign company - the CIT(A) has rightly concluded that while applying or determining the status of the appellant, the provisions of Income-tax Act have to be applied - As per provisions of Income- Tax Act, anybody corporate incorporated by or under the laws of any country outside India has to be treated as a company - the assessee was rightly treated as a foreign company for the purpose of tax status and the AO correctly applied and determined the status of the assessee as a foreign company for the purpose of tax payer status of the assessee – Decided against assessee.
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2014 (11) TMI 101
Method of determination of ALP - Selection of the most appropriate method – Transfer pricing adjustment under Nokia Mobile Phone Sales Division - Partial sustenance/reduction in the addition - Held that:- The assessee purchased mobile phones and accessories from Nokia group companies situated outside India and resold the same as such without any further value addition, mainly, to HCL Infosystems in India - Since the goods imported from the foreign AEs representing the international transaction under this segment were neither processed further nor used as raw material for manufacturing any other product, RPM is the first choice as the most appropriate method for determination of ALP of the international transaction under this segment - the incurring of high advertisement and marketing expenses by the assessee vis-a-vis the other comparable companies does not in any manner affect the determination of ALP under the RPM - as the amount of advertisement and marketing expenses falls ‘below the line’ and finds its place in the Profit and loss account, the higher or lower spend on it cannot affect the amount of gross profit and the resultant ALP under the RPM - since the TPO has not made any separate adjustment on account of AMP expenses and has given effect to the same under TNMM, the incurring of higher advertisement and marketing spend would not affect the calculation of ALP under the RPM - RPM prima facie appears to be the most appropriate method. Selection of comparables – M/s Media Video Ltd. - Held that:- If any company though functionally comparable, but, has more than a specific percentage of the RPTs, then, it should be ignored by treating it as a controlled transaction - the percentage of RPTs to make a company as ineligible for comparison, should be taken as more than 25% and not 15% as suggested on behalf of the assessee - The view adopting more than 25% RPTs making a company incomparable has been taken in Actis Advisers Pvt. Ltd. VS. DCIT (2012) [2012 (10) TMI 779 - ITAT, DELHI] - a company can be considered as incomparable if its RPTs exceed 25% - transactions which do not impact the profitability, such as loan given or taken or other items finding place in the balance sheet, can have no place either in the numerator or the denominator of this formula - However, any income or expenditure resulting/relating from/to or likely to result/relate from/to such items of assets or liabilities, should not be confused with the per se international transactions finding place in the balance sheet of the company calling for exclusion. The assessee has computed the percentage of related party transactions of Media Video Ltd. by clubbing all the four types of international transactions in the numerator, viz., Purchase of goods and materials; Sale of goods and materials; Rent paid; and Service Income, all totaling ₹ 22,43,46,000 and the amount of net sales as denominator at ₹ 55,25,22,266 - the international transactions of rent paid by this company at ₹ 1,46,000 is quite insignificant and this transaction has no relation with its main source of the income producing activity, viz., Sales and Service charges – it is directed to be excluded from consideration in the numerator – thus, the matter is remitted back to the TPO to redo the exercise for M/s Media Video Ltd., for ascertaining whether this company should continue in or be excluded from the final list of comparables drawn by the ld. CIT(A). Transfer pricing adjustment in NET R&D segment and NIC R&D segment - (+)/(-) 5% adjustment - Held that:- The TPO ventured to apply this filter and by applying the same, excluded some of the companies which were not suitable to him - as this filter has been applied and acted upon by the TPO partially - the companies having related party transactions of more than 25% cannot be considered as comparable as these fail the test of uncontrolled transactions - CIT(A) was justified in excluding these two companies, whose percentage of RPTs stood at 36.89% and 47.45% - assessee’s turnover under this segment is to the tune of ₹ 9.72 crore - The TPO excluded the companies with the turnover of less than ₹ 5 crore without applying any upper limit of the turnover - the computation of arm's length price under the Indian transfer pricing provisions is embodied in section 92C of the Act - a company otherwise found to be functionally comparable cannot be excluded either on the ground of higher or lower profit rate or higher or lower turnover - in Maersk Global Centres (India) (P.) Ltd. VS. ACIT [2014 (3) TMI 891 - ITAT MUMBAI] it has been held that potential comparables cannot be excluded merely on the ground that their profit is abnormally higher - There can be no justifiable reason to exclude such high or low profit companies unless it is shown that such high or low profit was due to abnormal factors - The mere fact that a company has a high or low turnover can be no reason to justify its exclusion if it is otherwise functionally comparable - The exclusion of companies on such a rationale runs contrary to the express provisions of the Act. The assessee’s turnover under this segment amounted to less than ₹ 10 crore - The TPO has applied the turnover filter by setting a lower limit of turnover at ₹ 5 crore without setting any upper ceiling of turnover - law does not permit a person to both approbate and reprobate - as the TPO has himself applied the lower limit at half of the assessee’s turnover, there is justification in applying some upper limit as well – the order of the CIT(A) is upheld by fixing the upper limit of turnover filter at ₹ 50 crore - when the three sets of companies are held to be rightly excluded, the price charged by the assessee from its associated enterprises in this segment of international transactions comes within (+)/(-) 5% range as per proviso to section 92C(2) of the Act, warranting no addition on account of transfer pricing adjustment – Decided partly in favour of Revenue.
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2014 (11) TMI 100
Diversion by overriding title in respect of infrastructure contribution untenable or not – Held that:- Following the decision in Mussoorie Dehradun Development Authority Versus Addl. CIT [2011 (12) TMI 375 - ITAT, Delhi] AO found that assessee had claimed to be maintaining an "infrastructure fund" to which a fixed portion of its receipts is credited and out of which infrastructure related expenses are incurred – assessee contended that the State Government has an overriding title on these receipts and, therefore, they do not form part of the total income of the assessee - assessee has source of income from more than 18 counts, out of that certain incomes are of miscellaneous income, rental income, interest income on FDRs - an authority was given to the assessee for collecting certain fees and charges in the process of its functioning - If the State Government had collected the fees and charges and then given the same to the assessee for doing its work, it would be the assessee's income - it does not make any material difference to the situation if the government has allowed the assessee to collect fees and charges directly instead of infusing the funds by it in the assessee - the assessee could retain the funds collected by it under this Act - its powers to collect the funds are already in existence u/s 20 of the Act - It has to credit the fees and charges collected by it to its own funds and which is to be applied towards fulfillment of assessee's object. The office memorandum specifically provides that 80 per cent of the amount from this account would be spent on capital expenditure and 20 per cent can be spent on revenue account - it reveals that assessee has source of income from more than 18 counts, out of that certain incomes are miscellaneous income, rental income, interest income on FDRs – the 'infrastructure funds' as a separate entity, independent of assessee is a fiction - It is not registered under s. 12A of the Act and claimed the benefit of exemption under ss. 11 and 12 of the Act – thus, the order of the CIT(A) is upheld - Decided against the assessee.
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2014 (11) TMI 99
Ad hoc estimated disallowance of expenses – Scope of assessment u/s 153A – Applicability of section 158BB – Held that:- The language of section 153A has been structured in such a way so as not to permit the making of addition for the assessment year of which the assessment is not pending as on the date of search, without there being any incriminating material found during the course of search - as decided in Sanjay Aggarwal Ver1sus DCIT, Central Circle-5, New Delhi. [2014 (7) TMI 254 - ITAT DELHI ] - no addition can be made for any assessment u/s 153A of the Act, the assessment for which is not pending on the date of search unless any incriminating material found in the course of search - the action of the AO assuming jurisdictional u/s 153A of the Act was contradictory to the second proviso to section 153A of the Act inasmuch as the assessment for the concern assessment year was not pending - where none of the assessment was pending on the date of search the AO precluded from the re-agitating issues u/s 153A of the Act, which have attained finality in the original assessment dehors any incriminating material found during the course of search – the contention of the assessee is accepted that the only action left for the AO in that respect as no addition was conceived on incriminating material as to drop the proceedings - under the provision of the Act only the proceedings which are pending shall got abated - any proceedings that has reached its finality shall not be disturbed unless there is incriminating material found indicating the existence of income embedded in the said incriminating material/document/evidence. No incriminating material has been proved to have been found during the course of search operation which belonging to the assessee warranting the reassessment u/s 153A r.w.s. 143(3) of the Act for the AY - the AO has invoked provision of section 14A of the Act read with Rule 8D of the IT Rules 1962 for the AY 2006-07 but the provision of Rule 8D of the Rules have prospective effects from A.Y. 2008-09 onwards - the AO made addition on wrong and unjustified reasons and basis which was upheld by CIT(A) without considering the factual matrix of the case and without affording due opportunity of hearing for the assessee - adhoc estimated disallowance by invoking provision of section 14A read with Rule 8D of the Rules is not permissible in AY 2006-07 because as per second proviso to section 153A of the Act inasmuch as the assessment for the year was not pending on the date of search then the AO is precluded from re-agitating the issues during reassessment proceedings u/s 153A of the Act which have attained finality in the original assessment dehors any incriminating material found during the course of search - there was no incriminating material was found during the course of search for the year – the addition made by the AO has upheld by the CIT(A) is not sustainable – Decided in favour of assessee.
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2014 (11) TMI 98
Levy of penalty u/s 271(1)(c) – Undisclosed income – Inaccurate particulars furnished by assessee - Held that:- The assessee had filed revised return after a survey was conducted at the business premises of the assessee, that he admitted an additional income of ₹ 75 lakhs, that the AO held that the assessee had not disclosed the cash receipts in the original return, that he levied penalty u/s 271(1)(c)of the Act – The assessee had filed the revised return only after the survey action, therefore, it cannot be held that it was a voluntary return - filing of such a return cannot be termed voluntary filing of return - the rebuttal of the assessee is neither relevant materials and not cogent - the omission or wrong statement by the assessee in the original return was not due to any bona fide or inadvertent mistake on his part - there is proper application of mind on part of the AO and there is recording of an opinion on his part that a case for initiation of penalty proceedings was made as there was furnishing of incorrect particulars by the assessee, with an intention to avoid payment of tax - there is a distinction between furnishing of wrong particulars and making a wrong calculation on the basis of the particulars furnished and a mistaken calculation is distinct from concealment. There existed an intent to prevent relevant facts from becoming known - The assessee does have a duty to verify the particulars furnished by him are accurate - If all the circumstances and developments till the assessment is completed are taken into consideration, their collective effect show that the revised return was filed only after the evidences for filing inaccurate particulars were detected - the AO had held that commission/brokerage income of ₹ 39.12 lakhs were not offered for taxation for the year under consideration - the assessee not disclosed a part of his income, while filing his return and it was only after the survey that he revised the return - an intention of concealment of true particulars of income or deliberate furnishing of inaccurate particulars by the assessee was established by the AO - the AO had not accepted any conditional admission, rather his order is based on facts relevant for the year – thus, the order of the FAA is set aside – Decided in favour of revenue.
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2014 (11) TMI 97
Disallowance u/s 40A(2)(a) – 50% of Professional fees paid to the subsidiary company - Held that:- The assessee is a holding company, has made payment to its subsidiary company, such payment cannot be covered within the provisions of sub-clause (iv) of section 40A(2)(b) of the Act - section 40A(2)(a) refers to the disallowance of any expenditure incurred by the assessee in respect of which payment has been or is to be made to any person referred to in clause (b), if the AO is of the opinion that such expenditure is excessive or unreasonable - having regard to fair market value of the goods, services or facilities for which payment is made or the legitimate needs of the business or profession of the assessee, the benefit derived by or accruing to the assessee therefrom - The three situations, warranting disallowance u/s 40A(2), are joined by the word ‘or’ and are independent of each other - if a payment falls into any of these three situations, it is liable to be disallowed - the AO has not determined the fair market value of the professional services received by the assessee, for which the payment was made. The fact that the assessee made the payment to MM Mumbai for the services which were sine qua non for the carrying on of its business, goes to amply prove that such payment was made on account of legitimate needs of the assessee’s business - The sum and substance of the third situation is the disallowance u/s 40A(2) to the extent of the payment made to the person specified in section 40A(2)(b) in excess of the benefit derived by the assessee from the receipt of services - the rate at which the assessee paid to MM Mumbai cannot be considered as unreasonable or excessive for three reasons. The case of the assessee does not fall in any of the three situations contemplated by section 40A(2)(a) of the Act - once a payment is held to be not excessive or unreasonable having regard to the fair market value of the services or the legitimate needs of the business or the benefit derived by or accruing to the assessee, there can be no question of making or sustaining any disallowance u/s 40A(2) of the Act - there is no assignment of the intellectual property rights of such products to the assessee - The licenses have been granted on non-exclusive basis to the assessee and for a limited period - The assessee is not authorised to use or permit others to use such technology and the technical documentation, except as specifically permitted under the Agreement to the assessee - There is a confidentiality clause, which prohibits the assessee from making any disclosure to the others - the payment made by the assessee to its associated enterprises cannot be considered as a capital expenditure. It is further interesting to note that the assessee was consistently paying such royalty amount to its associated enterprises from the financial year 2003-04 onwards and no such disallowance has ever been made in the past – Decided in favour of assessee. Deletion u/s 14A – Held that:- The assessee earned exempt dividend income and also incurred expenses in relation to income - the application of section 14A cannot be ruled out – following the decision in Maxopp Investments Ltd. Vs. CIT [2011 (11) TMI 267 - Delhi High Court] - rule 8D is prospective and is applicable from the assessment year 2008-09 - no interference can be made in the order to the extent of non-applicability of rule 8D - CIT(A) is correct in sustaining the addition u/s 14A – Decided against revenue.
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2014 (11) TMI 96
Condonation of appeal – Delay of 638 days – Held that:- Except for a bald submission, there is nothing on record to substantiate that the earlier counsel did not properly guide the assessee - The theory of mistake of counsel propounded by the assessee is absolutely without any foundation - The assertion so made in the application for condonation of delay is a mere self serving statement - The further argument that the appellant was ignorant of the legal provisions also does not stand in view of the fact that it is a private limited company regularly filing returns of income - there is no substance in the plea for condonation of delay which is to the extent of one year and 318 days - Cross objection filed by the assessee is dismissed as barred by time. There should be some ground decided or some ground taken up before the CIT(A) which would have remained undisposed off - The natural corollary which follows is that the assessee must have raised a particular ground before the CIT(A) which should have been either been decided against it or had remained undecided - unless there is a specific ground raised before the CIT(A), there can be no question of taking recourse to the Rule 27. No material has been placed on record to demonstrate that the validity of search was challenged before the ld. CIT(A) on all the issues now sought to be taken up - The reason for the ‘no discussion’ of such issues in the order is that these were not at all raised before the CIT(A) - If such issues had actually been raised before the CIT(A), then the least to be expected of the assessee was the moving of a rectification application u/s 154 pointing out his failure in dealing with such issues - the assessee’s application under Rule 27 of the ITAT Rules, 1963 is not maintainable because there is no adverse decision of the CIT(A) on the issues which are now sought to be raised through the application. Deletion of unconfirmed, unexplained and unverified share capital in the books of the assessee – Held that:- The assessee did not furnish complete details during the course of assessment proceedings in support of the genuineness of the share applicants - When the assessee furnished documentary evidence before the CIT(A) in support of the genuineness of the credits, the AO in remand proceedings ventured to conduct inquiries from the six companies who the assessee claimed to have given share application money to it - the assessee failed to prove the very first ingredient of sec. 68, being the identity of the creditors - The addresses of these corporate entities turned out to be fake or not available - the AO conducted due and proper inquiry which transpired that these six companies were non-existent and further the assessee took no steps to prove the existence of such companies – thus, the order of the CIT(A) is set aside – Decided in favour of revenue.
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2014 (11) TMI 95
Validity of order u/s 263 – Erroneous or prejudicial to the revenue or not - Held that:- The AO in the assessment order is not required to give detailed reasons and once it is clear that there was application of mind by an enquiry, the respondent, merely because he entertains a different opinion in the matter, cannot invoke his powers under section 263 of the Act - It is, therefore, not correct to say that there was no proper enquiry by the Assessing Officer – the AO had not only taken a possible view but in the circumstances the only view possible and, therefore, his order could not have been termed as erroneous or prejudicial to the revenue warranting exercise of revisional jurisdiction u/s 263 of the Act by the respondent. The respondent had no different or new material to take different view from the one taken by the AO and the reasons given by him to reopen the assessment and sustain the revision are totally unacceptable – revenue is not vested with any power u/s 263 to initiate proceedings for revision in every case and start re-examination and fresh enquiries in matters which have already been concluded under the law. If AO takes a possible view, then the assessment order cannot be said to be erroneous and the Commissioner is not entitled to exercise jurisdiction u/s 263 of the Act, as decided in Malabar Industrial Co. Ltd. v. CIT [2000 (2) TMI 10 - SUPREME Court] - whether there was application of mind before allowing the expenditure in question has to be seen, if there was an inquiry, even inadequate that would not by itself give occasion to the Commissioner to pass orders under Sec. 263 merely because he has a different opinion in the matter - it is only in cases of lack of inquiry that such a course of action would be open - an assessment order made by the Income Tax Officer cannot be branded as erroneous by the Commissioner simply because, the order should have been written more elaborately – Decided in favour of assessee.
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2014 (11) TMI 94
Addition of accrued interest on loans and advances remitted - Amendment to section 145 of the Act w.e.f. 1.4.1997 not appreciated – Directions made by CIT(A) amounts to remitting back for fresh adjudication or not - Whether the interest accrued on NPAs, which are doubtful of being recovered, should be recognised as income on accrual basis or on receipt basis - Held that:- The assessee is in the business of banking and is governed by the Banking Regulations Act, 1949 – Following the decision in Commissioner of Income-Tax Davanagere and Income Tax Officer Ward-2, Shimoga. Versus The Urban Co-Operative Bank Limited [2014 (10) TMI 740 - KARNATAKA HIGH COURT] - if an assessee adopts mercantile system of accounting and in his accounts he shows a particular income as accruing, whether that amount is really accrued or not is liable to bring the said income to tax - His accounts should reflect true and correct statement of affairs - Merely because the amount accrued was not realised immediately cannot be a ground to avoid payment of tax - But, if in his account it is clearly stated though a particular income is due to him but it is not possible to recover the same, then it cannot said to have been accrued and the said amount cannot be brought to tax - the contention of the revenue that in respect of non-performing assets even though it does not yield any income as the assessee has adopted a mercantile system of accounting, he has to pay tax on the revenue which has accrued notionally is without any basis. The assessee also pointed out certain mistakes in the computation of interest, the CIT(A) has directed the AO to compute the quantum of interest to be allowed correctly, by considering the submissions put forth by the assessee in this regard - This direction of the CIT(A) cannot be construed as remitting back the substantive issue to the AO, as he has only directed the Assessing Officer to compute the quantum correctly – thus, there was no infirmity in the order of the CIT(A) – Decided against revenue. Provision for Non-Performing Assets ('NPA') – Mandatory requirement of RBI Guidelines to follow mercantile system of accounting fulfilled or not - Held that:- Section 36(1)(viia) of the Act provides for allowance of any provision for bad and doubtful debts - Although the assessee has used the nomenclature for the provision as "Provision for NPAs", but in pith and substance the provision has been created for bad and doubtful debts and in doing so, the assessee has followed the RBI Guidelines – relying upon UCO Bank Versus Commissioner of Income-Tax [1999 (5) TMI 3 - SUPREME Court] – the order of the CIT(A) for allowing the claim of deduction on account of provision for NPA is upheld – Decided against revenue. Provision for Audit Cost – Mercantile system of accounting followed - Held that:- The assessee is following the mercantile system of accounting and is booking expenditure on accrual basis - The provision for audit fees has been made as per the rules specified for this purpose; i.e. as per the directions of the Deputy Director of Co-operative Audit under Rule 441 of the Karnataka Civil Service Rules - the assessee is mandated to make the payment as per the Rules, the liability of the assessee has got crystallised - once a liability is crystallised, it is liable to be provided for even if the actual payment is made later – thus, the order fo the CIT(A) is upheld – Decided against revenue. Disallowance u/s.40(a)(ia) - Non-deduction of tax at source – Held that:- CIT(A) rightly directed the AO to examine and verify the TDS payments related to only one item of expenditure i.e. building rent payments - This direction too has been made because the assessee claimed that TDS has been made on building rental payments and the disallowance thereof amounts to double deduction – the action of the CIT (A) cannot be construed as if the CIT (A) has remitted the matter to the file of the AO for fresh adjudication – Decided against revenue.
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2014 (11) TMI 93
Maintainability of appeal – Tax effect less than prescribed monetary limit for filing appeal – Tax effect less than ₹ 4 lacs – Revision of monetary limits through circular - Held that:- Following the decision in CIT Vs M/s. P. S. Jain & Co. [2010 (8) TMI 702 - Delhi High Court] - the Board has rightly taken a decision not to file references if the tax effect less than the amount prescribed - The same policy for old matters needs to be adopted by the Department - Instruction No.5/2014 FNo279/Misc.142/2007-ITJ(Pt) dated 10th July, 2014 will apply to pending appeals also for the reason that the same is exactly identical to earlier instructions - also in The Commissioner of Income Tax v. Smt. Vijaya V. Kavekar [2013 (2) TMI 451 - Bombay High Court] it has been held that the applicability of circular was considered and the monetary limit was increased and appeals were to be filed only in cases where the tax effect exceeded ₹ 4 Lacs - no appeals would be filed in the cases involving tax effect less than ₹ 4 Lacs notwithstanding the issue being of recurring nature - the prevailing instructions fixing the monetary limit for the tax effect would hold good even for pending cases – revenue could not point out any of the exceptions - this being a low tax effect case, the appeal cannot be admitted – Decided against revenue.
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2014 (11) TMI 92
Taxability of advance against depreciation (AAD) – Advance against depreciation is reserve or not for computation of MAT u/s 115JB - Held that:- Hon'ble Supreme Court [2010 (1) TMI 281 - SUPREME COURT] has given finding in the SLP filed after considering the observation of the Authority for Advance Ruling that advance against depreciation is not meant for uncertain purposes - Advance against depreciation is an amount that is under obligation right from the inception as the same shall be adjusted in future, hence, cannot be designated as reserve - advance against depreciation is nothing but an adjustment by reducing the normal depreciation including in the future years in such a manner that at the end of the useful life of the plant the same shall be reduced to nil - assessee cannot use the advance against depreciation for any other purposes except to adjust the same against future depreciation so as to reduce the tariff in future years. Once AAD is considered as income as is being alleged by Revenue the obvious implication will be that such income in the Balance Sheet is a reserve. It can’t be that AAD is an income and then it vanishes. Income has to be carried to the Balance Sheet and such income carried to Balance Sheet will form part of the ‘Reserve’. Since ‘AAD’ has been held by Supreme Court is not a reserve, this contention of the Revenue can’t be accepted. – Decided against revenue.
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2014 (11) TMI 91
Selection of comparables - Determination of ALP u/s 92C(2) r.w. Section 92C(2A) of the Act – Extreme OPM - Held that:- The assessee is engaged in the business of rendering investment advisory and related support services to its principal Carlyle Hong Kong – Following the decision in assessee’s own case for the earlier assessment year as decided in M/s. Carlyle India Advisors Pvt. Ltd. Versus The DCIT, Circle-10(1), Mumbai [2014 (2) TMI 648 - ITAT MUMBAI] the three comparables considered by the TPO shows that M/s. Future Capital Investment Advisors Ltd., has operating profit at 21.79% whereas OPM of Motilal Oswal Investment Advisors Pvt. Ltd. is 72.33% - The comparables used by the TPO themselves are showing extreme OPM - A perusal of the Director’s report of Motilal Oswal Investment Advisors Pvt. Ltd. shows that the company has completed 23 assignments successfully as against 14 completed in the immediately preceding year - the income from operations have been shown only as advisory fees whereas it is admittedly an undisputed facts that the said company is engaged in diversified activities - Segmental reporting is not available. Profit and loss account appears to be only of consolidated accounts - The company is registered with SEBI as a merchant banker and the Director’s report show that it is into takeover , acquisitions, disinvestments etc. - In the absence of specific data it is not possible to make comparison - the company being into merchant banking and cannot be considered as a comparable - the AO is directed to exclude the MOIAPL from the list of the comparables for determination of ALP of the transaction - Decided in favour of assessee. KGL and KJMC – Functionally different companies - Held that:- Following the decision of the High Court in assessee’s own case Commissioner of Income-tax-10, Mumbai Versus Carlyle India Advisors (P.) Ltd. [2013 (4) TMI 486 - BOMBAY HIGH COURT] - the functions of the assessee cannot be compared with that of the list of comparables picked up by the TPO which includes the said KGL and KJMC - the business of investment, merchant banking, corporate finance and similar activities cannot be compared to the investment advisory activities of the assessee – thus, the KGL and KJMC are functionally different which cannot be considered for determination of the ALP of the assessee – the AO is directed to exclude the two comparables too – Decided in favour of assessee.
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2014 (11) TMI 90
Penalty u/s 271(1)(c) – Penalty levied on interest disallowance – Held that:- The assessee has furnished all the details relating to the interest claim - the assessee has mainly used the borrowed funds for making investments in proprietary concerns, partnership concerns and the private limited companies, wherein he is substantially interested - the AO has worked out the disallowance by considering the investments made in one of the concerns only – CIT(A) rightly was of the view that the additions made during assessment proceedings would not automatically give rise to penalty proceedings - CIT(A) was justified in deleting the penalty levied on the interest disallowance – Decided against revenue. Penalty on cash credits u/s 68 – Held that:- The penalty u/s 271(1)(c) is not levy-able merely on the reasoning that the assessee has agreed for assessment of the loan amount as his income - The assessee has furnished reasons as to why he accepted for the assessment of the loan amount as his income - Though the assessment has been made on the basis of statement given by the lender, yet it cannot be taken as a strong ground for levying penalty - Relying upon SHREE NIRMAL COMMERCIAL LTD. Versus COMMISSIONER OF INCOME-TAX [2008 (8) TMI 158 - BOMBAY HIGH COURT] – thus, the order of the CIT(A) is set aside and the AO is directed to delete penalty levied on the loan amount – Decided in favour of assessee.
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2014 (11) TMI 88
Validity of reopening of assessment u/s 148 – Notice issued within prescribed limit - Held that:- On receiving of an information the AO had proceeded u/s.148 of the Act by issuing a notice dated 6.12.2006 relevant for A.Y. 2004-05 - The time limit prescribed for issuance of notice u/s.149 is four years from the end of the relevant assessment year and if four years have elapsed, then not more than six years from the end of the relevant assessment year unless the income chargeable to tax which has escaped assessment amounts to ₹ 1 lac or more - Since the notice was within the prescribed limit, the reopening of assessment is valid. Correct year of assessment of the capital gain – Held that:- Following the decision in Kalyan Ala Barot Versus. MH Rathod [2010 (6) TMI 282 - Gujarat High Court] - the AO had issued notice u/s 148 for assessing the income which was excluded from the total income of the petitioner by the AY 1984-85, to assess such income for the AY 1983-84 - the case fell within the ambit of the provisions of section 150 as well as section 153(3)(ii) read with Explanation 2 to section 153 of the Act – thus, the AO is directed to compute the capital gain in AY 2002-03 as per law after issuing a notice of hearing prescribed under the provisions of the Act - a co-joint reading with section 153(3) a reassessment may be compelted at any time where the reassessment is made in consequence or to give effect to any finding/direction of an order passed u/s 254(1). Application of section 50C – Held that:- While computing the capital gain for AY 2002-03, the AO is directed to take into account the sale consideration as noted in the sale-deed - The AO is not expected to take the shelter of the provisions of section 50C of IT Act for AY 2002-03 - the provisions of section 50C have come with effect from 1.4.2003 – the matter is remitted back to the AO with directions – Decided partly in favour of assessee.
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Customs
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2014 (11) TMI 112
Misdeclaration of goods - Confiscation of goods - Held that:- Larger Bench of this Tribunal in the case of Shiv Kripa Ispat Pvt. Ltd. vs. Commissioner of Central Excise, Nasik – [2009 (1) TMI 124 - CESTAT MUMBAI] held that if the goods were allowed to be exported without executing any bond or the goods are not available for confiscation, in that situation redemption fine cannot be imposed. Admittedly, in this case, despite repeated letters the Revenue has failed to produce the evidence as to whether the subject-goods were cleared for export under bond. Therefore, I come to the conclusion that the goods in question were allowed to be cleared for export without furnishing any bond. In these circumstances, although the goods are liable for confiscation, no redemption fine can be imposed in the light of the decision in the case of Shiv Kripa Ispat Pvt. Ltd. (supra). In view of the above, the redemption fine is set aside - Decided in favour of assessee.
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2014 (11) TMI 111
Contravention of the provisions of Section 111(d) and 111(m) - activity of arranging IEC of some other persons for unauthorized/illegal imports of toiletries, paraffin wax, tiles and fabrics by mis-declaring the value of the goods. - Held that:- Allegation has to be proved by the adjudicating authority that the appellant has violated the provisions of the Section 111(d) and 111(m) of the Act. Section 111(d) of the Act deals with the provisions of imports of prohibited/restricted goods. Admittedly, in this case the impugned goods are freely importable therefore, appellant had not violated the provisions of Section 111(d) of the Act. Further I find that while assessing the goods, 52% of the value has been loaded on the basis of NIDB data therefore, the allegation of under-valuation of the goods is not sustainable. - demand and penalty set aside - Decided in favour of assessee.
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2014 (11) TMI 110
Waiver of pre-deposit - benefit of Notification No. 21/2002-Cus., dated 1-3-2002 - Held that:- demand is raised by the jurisdictional Excise authorities in respect of the violation of conditions of the Customs Notification. As per the provisions of the Notification, there is no condition that the procedure under Customs (Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 1996 are to be followed. In view of this, we find that prima facie, there is merit in the contention of the applicant. Therefore, pre-deposit of dues is waived and recovery thereof is stayed during the pendency of the appeal - Stay granted.
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2014 (11) TMI 109
Waiver of pre-deposit of penalty - Maintainability of appeal before tribunal against stay order - Held that:- Commissioner (Appeals) passed an interim order under Section 129E of the Customs Act and directed the applicant to deposit part of the penalty for hearing of the appeal. The appellant challenges this order before this Tribunal. We find that as per the provisions of Section 129A of the Customs Act, the Tribunal has jurisdiction to entertain the appeal against the order passed by the Commissioner of Customs as an adjudicating authority or an order passed by the Commissioner of Customs (Appeals) under Section 128A of the Customs Act. The present order is passed under Section 129E of the Customs Act. Hence as per the provisions of Section 129E, no appeal lies to the Tribunal against such order - Decided against assessee.
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Service Tax
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2014 (11) TMI 128
Classification of service - Contract to supply drilling rigs to ONGC - Drilling rigs hired by assessee - Supply of Tangible Goods for Use service - Imposition of interest and equivalent penalty - Held that:- From the terms of the agreement entered into between the appellant and M/s. ONGC, it is clear that the service provided by the appellant is essentially supply of drilling rig along with its personnel to operate the same on charter hire basis and the payment for the services rendered is made on per-day basis. Thus, from the terms of the contract, it is clear that the activity comes within the scope of ‘supply of tangible goods for use’. In the present case, the appellant has supplied drilling rigs along with the crew. Thus it is the appellant who has possession and effective control over the drilling rig. The crew so supplied are the employees of the appellant and not of ONGC. Consideration is paid on per-day basis. All these elements in the contract clearly show that there is no transfer of right of possession and effective control by the appellant to M/s. ONGC. The activity of supply with no legal right of possession and effective control is sought to be taxed under the entry (zzzzj). It is an accepted principle of interpretation that the contemporaneous construction placed by administrative or executive officers charged with executing a statute has to be given due diligence. In a case where the place of service recipient is not known or cannot be determined, then as per the said rule, the place of provision of service is that of the service provider. the service provider is situated in India and, therefore, the service has been provided in India and not elsewhere. Further, Rule 8 of the said Rules provides that, if any one of the service provider or receiver is located in the taxable territory, the place of provision of service will be the location of the service receiver. In the facts of the case before us, both the service provider as well as the service receiver are located in the taxable territory, namely, India. Therefore, the place of provision of service is India. Thus from whichever angle one looks at the issue, there cannot be any dispute on the fact that the service has been provided in India and not anywhere else. - Following decision of The Shipping Corporation of India [2013 (12) TMI 1124 - CESTAT MUMBAI] and Srinivasa Transports [2014 (6) TMI 205 - CESTAT BANGALORE] - classification of service under the taxable service category of “supply of tangible goods for use service” as defined in Section 65(105)(zzzzj) of the Finance Act, 1994 is upheld. Consequently, the demand of service tax under the said category along with interest thereon is upheld - However, penalty is set aside - Decided partly in favour of assessee.
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2014 (11) TMI 127
Waiver of pre deposit - renting versus lease premium - renting of immovable property - assessee relied upon the decision in the case of Noida Industrial Development Authority [2014 (9) TMI 306 - CESTAT NEW DELHI] - Held that:- the levy could be on the quantum of rent received by such authority month to month or year to year or whether it would also include a tax leviable, if any, on a lump sum amount received as premium. The final view of the Principal Bench of the Tribunal is the service tax is leviable on the quantum of lease and not on the lease premium. The premium is a one time lump sum payment whereas the lease comes into effect and as an interest created in the immovable property on payment of the rent. That is not rent according to the Tribunal's final order. In such circumstances, while reserving any opinion on the correctness of this view, what we find is that the point at this stage appears to be prima facie covered in favour of the Appellant Assessee - Stay granted.
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2014 (11) TMI 126
Waiver of pre deposit - Undue hardship - Held that:- appellant had pleaded financial difficulties and it had stated that the overall financial position of the company, which is reflected in the Profit and Loss Account, shows erosion of profitability, and, as such, the appellant is undergoing financial hardship - appellant is prepared to make a pre-deposit of ₹ 30 lakhs for entertaining the Appeal, as against the service tax demand made against it - stay granted partly.
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2014 (11) TMI 125
Manpower Recruitment of Supply Agency - providing employees to group companies - reimbursement of salary - employees were either directly employed by the assessee or were transferred from other Group Companies to the assessee in India - Held that:- Commissioner clearly missed the requirement that the service which is provided or to be provided, must be by a manpower recruitment or supply agency. Moreover, such a service has to be in relation to the supply of manpower. The assessee obtained from its group companies directly or by transfer of the employees, the services of expatriate employees. The assessee paid the salaries of the employees in India, deducted tax and contributed to statutory social security benefits such as provident fund. The assessee was also required to remit contributions, which had to be paid towards social security and other benefits that were payable to the account of the employees under the laws of the foreign jurisdiction. There was no basis whatsoever to hold that in such a transaction, a taxable service involving the recruitment or supply of manpower was provided by a manpower recruitment or supply agency. Unless the critical requirements of clause (k) of Section 65(105) are fulfilled, the element of taxability would not arise. No substantial question of law would arise - Decided against Revenue.
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2014 (11) TMI 124
Waiver of pre deposit - Works contract service - they had executed the contract as a sub-contractor - construction of pump houses, storage tanks and distribution of water supply network - Held that:- On going through the contract and the nature of work carried out by the appellant and having regard to the fact that appellants got to do only a portion of the contract entrusted to M/s. Ramkey Infrastructure Ltd., which is in reality a turnkey project, it cannot be said that the appellants have also executed an EPC project when they have undertaken this work. Prima facie, we feel that the appellant have a case on merits. Accordingly, in our opinion, the amount already deposited by the appellant is sufficient for hearing the appeal and accordingly there shall be waiver of pre-deposit and stay against recovery of balance dues during the pendency of appeal - Stay granted.
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2014 (11) TMI 123
Remission of tax - GTA service - Reverse charge mechanism - Held that:- vide Board Circular dated 21-8-2008 it is clarified, in partial modification of instructions set out in an earlier Board Circular dated 27-7-2005, that the benefit of abatement under Notification No. 32/2004-S.T. may also be extended in past cases, if tax payers produce a general declaration from the GTA that the benefits under Notification No. 12/2003-S.T. were not availed. Such general declarations were furnished by the assessee. order of the Commissioner, dated 15-1-2009 cannot be sustained and is quashed - Decided in favour of assessee.
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2014 (11) TMI 122
Waiver of pre deposit - Valuation of goods - Inclusion of TDS deducted - Held that:- once the tax paid by the service recipient as TDS to the income tax department is claimed as a deduction, it forms part of the income by the assessee. Once the assessee or appellant shows the amount deducted as TDS and deducts it from the amount of tax payable, such tax deduction claimed would automatically become part of the total income earned. What is an income earned from the activities for the purpose of income tax, cannot be considered as not amounting to an income for the purpose of service tax. In this case, the assessee income tax department as well as NHAI agree that the amount paid by NHAI is part of the income tax payable by the assessee and once it is part of the income tax payable, it cannot be said that it is not part of the income and once it is part of the income, it cannot be said that it has not arisen as a result of service rendered to NHAI unless it is shown to the contrary. No such situation exists here - Prima facie case against assessee - Partial Stay granted.
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2014 (11) TMI 121
Import of service - inter branch transactions with foreign branch - Demand raised on the ground that appellant had received services from abroad from their own branches and others through their branches - Held that:- There is no evidence to show that the services have been received by the appellants. The Commissioner has observed that since the amount has been paid, it has to be presumed that the services have been received. This observation cannot be sustained especially in view of the specific ledger entries which show transfer of funds for payments of salary, bonus, electricity charges, etc. Under these circumstances, in the absence of any specific evidence for receipt of taxable services, it cannot be said that the Revenue has made out a case of offence against the appellant on a prima facie basis. As regards the service tax credit on construction service, the inclusive definition of ‘input services’ clearly covers service tax paid on construction of factory during the relevant period. That being the position, the credit is prima facie admissible. In view of the above, the appellant has made out a prima facie case for complete waiver. Accordingly, the requirement of pre-deposit is waived and stay against recovery is granted during the pendency of appeal - Stay granted.
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Central Excise
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2014 (11) TMI 119
CENVAT Credit - Whether the appellant is eligible to avail the CENVAT Credit of Service Tax paid on Technical Testing & Analysis services, Technical Inspection & Certification services and Intellectual Property Right services received by the appellant for drug formulation - Held that:- the services of technical inspection and certification are provided by the service provider in respect of the P.P. medicaments manufactured and to be manufactured by the appellant. It is on record that the appellants have themselves stated that some of the services are for the products which are to be manufactured in future - there being no dispute as to the receipt of the services provided in respect of technical inspection and certification services, that also in respect of the finished goods which are manufactured and to be manufactured, the services in our considered view will fall within the expression ‘activities of business’. It is a common knowledge that before introducing any final product especially P & P Medicaments, detailed analysis; research and technical study requires to be undertaken as to the efficacy, side effect and tolerance of the medication. The service provider conducts all these experiments and certify as to the acceptability of the said medicaments. - appellant is eligible to avail CENVAT Credit of the Service Tax paid on technical inspection and certification charges as also the technical testing services - Decided in favour of assessee.
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2014 (11) TMI 118
Valuation of goods - inclusion in the assessable value of the expenses incurred on ‘advertisement and publicity’, ‘incentive and discount to dealers’ and vehicle and handling staff cost’ - Held that:- ‘incentive and discount to dealers’, expense is on account of giving to free duty paid bottles of aerated waters to the dealers on purchase by them of certain quantity of the crates. The appellant thus give discount in form of free duty paid bottles of aerated waters instead of reduction in price. In terms of Apex Court judgment Bombay Tyre International Ltd.(1983 (11) TMI 70 - SUPREME COURT OF INDIA), trade discount is not to be included in the assessable value if it is known price to sale. Some view has been expressed by the Apex Court in case of Union of India Vs. Madras Rubber Factory Ltd., reported in [1995 (5) TMI 28 - SUPREME COURT OF INDIA]. In this case from the records it is clear that discount policy was known to the dealers and discount in form of free duty paid bottles of aerated waters were given to the dealers in accordance with the discount policy. Therefore it cannot be said that the discount was not known prior to sale. In view of this, the impugned order dis-allowing the deduction of this trade discount given in form of free duty paid bottles of aerated waters is not correct. There is no evidence to show that this expense had been incurred on Advertisement & Publicity Campaign organized by the appellant. Even if this is so, since this expense has been incurred by the Appellant, it is deemed to be included in the assessable value. Therefore, the impugned order confirming the duty demand on the expenses shown in the Balance Sheets on ‘Advertisement and Publicity’, is not correct. Since these expenses represent the expense incurred on the salaries of the drivers/helpers of the vehicles for transport of the goods to the dealers premises and also the expense incurred on maintenance of the vehicle and loading/un-loading of the goods outside the factory, in our view, these expenses would not be includible for the assessable value and as such the impugned order confirming duty demand on these expenses is not correct. impugned order is not sustainable - Decided in favour of assessee.
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2014 (11) TMI 117
Valuation of goods - MRP based valuation or Transaction Value - Section 4 or section 4A of Central Excise Act - revenue is of the view that tiles have been cleared to industrial or institutional consumers, they are not required to discharge Central Excise duty as per Section 4A as clearance to these institutional or Industrial Consumer is exempt to affix MRP - Held that:- As the goods were already manufactured and intended for retail sale, therefore, they have correctly discharged the duty and the goods cleared in bulk does not mean that they are meant for industrial/Institutional consumers. It should be meant for Industrial/Institutional consumers under the Standard Weights & Measures Rules to pay duty under Section 4 of the Central Excise Act, 1944. appellant has rightly discharged their duty liability. Accordingly, impugned order is set aside - Decided in favour of assessee.
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2014 (11) TMI 116
Discrepancy in stock - shortage in stock of inputs - Cenvat Credit - Whether the shortage of raw material/inputs has been correctly explained and whether the appellant is required to reverse the Cenvat Credit availed on such short found raw materials - Held that:- Adjudicating Authority has not controverted or disputed the figures of procurement of the 5 raw materials in question as well as the consumption thereof. The Adjudicating Authority has tried to work out the %age of shortage as against the physical stock on the day of visit of the DGCEI authorities. In our considered view this is incorrect way of conclusion that the appellant is ineligible to avail Cenvat Credit of the quantity without shortage. It is a common knowledge that in the industry herein the appellant is engaged in, there is always loss during the manufacturing of the final products, as the inputs/raw material are melted in a furnace and the final products emerge in the form of blocks, flats etc. We find from the entire adjudication order that there is no weightage given by the Adjudicating Authority for the possible and explainable losses during the manufacturing process wherein these 5 raw materials are consumed. As the Adjudicating Authority has not disputed the quantity of the receipt of the 5 raw materials in the year 2004-05 and consumption thereof, the shortage noticed which is 0.42% and 0.43%; is in our view can be attributed to manufacturing loss and within tolerance limit of the industry. Since there is no dispute as to the receipt and consumption of the raw material and there being no allegation of clandestine removal of the inputs, the shortages found during the visit of the officers being within the acceptable tolerance level of shortages, the impugned order that confirmed the demands against the appellant is unsustainable and is liable to set aside and we do so - Decided in favour of assessee.
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2014 (11) TMI 115
CENVAT Credit - distribution of cenvat credit by ISD - credit related to exempted goods - whether service tax credit will be available to the appellants for availing advertisement services with respect to exempted products - Held that:- final products Frooti and ‘Appy’ are fully exempted products - Advertisement services are availed by the appellants with respect to fully exempted final products ‘Frooti’ and ‘Appy’ - The combined reading of the Rule 7 and the clarificatory Circular dated 23-8-2007 clearly shows that there are only two restrictions regarding the distribution of the credit. The first restriction is that the credit should not exceed the amount of Service Tax paid. The second restriction is that the credit should not be attributable to services used in manufacture of exempted goods or providing of exempted services. There are no other restrictions under the rules. The restrictions sought to be applied by the Department in this case in limiting the distribution of the Service Tax credit made in respect of the Malur Unit on the ground that the services were used in respect of the Cuttack Unit finds no mention in the relevant rules. As such, restricting the distribution of Service Tax credit in a manner as has been done by the impugned order of the lower appellate authority (original authority had approved of such distribution) cannot be upheld. In case the Department wants to place such restriction as is sought to be placed in the case, the rule is required to be amended. Procedural irregularities can be ignored while allowing CENVAT Credit but such credit should not be pertaining to inputs/input services used in the manufacture of exempted goods. We are of the considered view that appellants were not entitled to avail CENVAT Credit of Advertisement services availed with respect to exempted finished products ‘Frooti’ and ‘Appy’. Simply including the cost of advertisement expenses in the assessable value of NABB concentrate will not make all the CENVAT Credit admissible if the end products for which services are availed were fully exempted. Following decision of ECOF Industries Pvt. Ltd. Vs CCE Bangalore (2009 (10) TMI 171 - CESTAT, BANGALORE). Invocation of extended period of limitation - Revenue will not come to know from a CENVAT document issued by the ISD appellant whether the credit passed under an ISD document is pertaining to services availed for an exempted final product or not. The same fact was brought to light only on an information followed by detailed investigation. Therefore, extended period will be applicable in the present proceedings - Decided against assessee.
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2014 (11) TMI 114
Classification of ‘Knitted Fibres Shed Net’ - Classification under CETH 39269099 or CETH 60069000 - Held that:- A specific entry in the CETA 1985 has to be the proper classification than a general entry in Chapter 39 of the CETA 1985, as per the Rules of interpretation to the CETA 1985. The Synthetic & Art Silk Mills Research Association (SASMIRA) Mumbai SASMIRA is linked to the Ministry of Textiles, Govt. of India, SASMIRA and after giving the definitions of Synthetic Textiles, warp knitted fabric etc opined in their letter dt.18.04.2012 &15.03.2013 that the product manufactured by the appellant is ‘Warp Knitted Fabrics Technical Textile made up of man made synthetic yarn of width less than 5 mm. As per F.No.1(11)/2011/TTC/Vol.XX, dt.07.02.2012 written to the appellant by Assistant Director, Govt. of India, Ministry of Textiles, Office of the Textile Commissioner, Mumbai appellant s unit has been registered as a technical textile unit in the records of the office of Textile Commissioner and has been allotted registration No.05152007. As per the Technical Textile literature issued by office of Textile Commissioner, Ministry of Textile, Govt. of India ‘Agrotex’ includes technical textile products used in Agriculture horticulture (incl.floriculture), fisheries and forestry. In view of Chapter Note-1(p) of Chapter 39, Section Note-1(g) of Section XI, Chapter Note 1 & 1A of Chapter 54 of the Central Excise Tariff Act 1985; read with relevant HSN Explanatory Notes; the ‘Knitted Fabrics Shed Nets’ manufactured by appellant will be appropriately classifiable under Chapter 60 of the Central Excise Tariff Act 1985 - Decided in favour of assessee.
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2014 (11) TMI 113
Benefit of CENVAT Credit Rules, 2004 - Whether the appellant is eligible to avail CENVAT Credit of the Service Tax paid by the commission agent on the goods which were cleared prior to 10.09.2004 - Held that:- payment of Service Tax liability was in respect of the goods which were cleared and exported prior to 10.09.2004. The findings of the first appellate authority are correct to that extent as the services rendered by commission agent were completed prior to 10.09.2004. The invoices raised by the commission agent in January 2005 and March 2005 may not carry any further the case of the appellant as no services were rendered after 10.09.2004 in respect of those invoices. - demand with interest confirmed - penalty waived - Decided partly in favour of assssee.
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2014 (11) TMI 89
Levy of interest on reversal of CENVAT Credit - Credit taken but not utilized till reversal - Rule 14 of Cenvat Credit Rules, 2004 - Held that:- it is an admitted fact that Rule 14 of the Cenvat Credit Rules has been subsequently amended, wherein it has been clearly stated as “taken and utilised”. Therefore it is quite clear the mere taking itself would not compel the assessee to pay interest as well as penalty. Further, as pointed out earlier, the subsequent amendment has given befitting answer to all doubts existed earlier. Since the subsequent amendment has cleared all doubts existed earlier in respect of Rule 14 of the said Rules, it is needless to say that the argument advanced by the learned counsel appearing for the appellant/Department is erroneous, whereas the argument advanced on the side of the respondent is really having merit and the substantial questions of law settled in the present Civil Miscellaneous Appeal are not having substance - Decided against Revenue.
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CST, VAT & Sales Tax
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2014 (11) TMI 120
Undervaluation under Orissa VAT - sale of good quality goods as scrap - Release of confiscated goods - levy of heavy penalty - Violation of Art 14 Of Constitution - STO after investigation noticed that the goods covered by way-bill were found to be incorrect - Goods are found to be auto parts (spring) leaf in sets ; but the way-bill in support of the consignment discloses the goods to be scrap spring pati - Held that:- From the noting made in the show-cause notice and observations/findings of the STO, in his order dated August 27, 2011 (annexure 5) quoted above, it can be safely said that the driver of the vehicle submitted false/forged documents/way-bills covering the entire goods carried in the vehicle. It is certainly a case of fraud. STO has indicated valid reasons for holding that the goods in question loaded in the vehicle were new spring leaf sets and the value mentioned in the documents like way-bill and tax invoice has been understated and the actual value is much higher for the reasons stated in the impugned order. - STO has levied VAT at 13.5 per cent to the tune of ₹ 1,89,000 in the order passed under sub-section (5) of section 74 of the OVAT Act and opposite-party No. 2-revisional authority also confirmed such levy of VAT. Section 74(5) does not contemplate levy of VAT. It contemplates imposition of penalty only. However, sub-section (7) of section 74 provides that subject to the Rules as may be prescribed, the officer-in-charge of the check-post or barrier or the officer authorized under sub-section (3) may release the goods to the owner of the goods or to any person duly authorized by such owner on payment of penalty imposed under sub-section (5) in addition to tax payable thereon. A conjoint reading of sub-sections (5) and (7) of section 74 of the OVAT Act makes it dear that only on payment of the penalty imposed under subsection (5) in addition to the tax payable the prescribed authority may release the goods. It needs no emphasis that quantification of penalty depends on determination of tax. Unless, tax is determined first, no penalty can be quantified as contemplated in section 74(5). Any other interpretation shall render sub-section (5) of section 74 redundant - Decided against Assessee.
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