TMI Tax Updates - e-Newsletter
November 6, 2014

Case Laws in this Newsletter:

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

Articles

1. PRE DEPOSIT BEFORE FILING APPEAL UNDER CENTRAL EXCISE PROVISIONS – REVISED PROCEDURE

   By: DR.MARIAPPAN GOVINDARAJAN

News

1. The C.K.P. Co-operative Bank Ltd., Mumbai, Maharashtra under RBI Directions – Extension of validity period

2. RBI Reference Rate for US $

Notifications

DGFT

1. 96 (RE- 2013 )/2009-2014 - dated 5-11-2014 - FTP

Extension of time for export of Red Sanders wood by Government of Andhra Pradesh & Directorate of Revenue Intelligence (DRI).

VAT - Delhi

2. F.7(450)Policy/VAT/2014/455-466 - dated 5-11-2014 - DVAT

Withdrawal of filing of information related to statutory forms online in Form CD-1

Circulars / Instructions / Orders

SEZ

1. No D.12/25/2012-SEZ - dated 28-10-2014

Standardization of procedures, practices and forms in all zones

2. No D.12/25/2012-SEZ - dated 28-10-2014

Digitization of applications/permissions by SEZ Units/Developers-regarding.

Highlights / Catch Notes

Income Tax

• SA/GPA/WILL Transactions Exempt from Capital Gains Taxation: Not Considered Completed Transfers or Sales.

  Case-Laws - AT : Taxation of capital gains - SA/GPA/WILL transactions are not “transfers” or “sales” and that such transactions cannot be treated as completed transfers or conveyances - They can continue to be treated as existing agreement of sale - AT
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• Court Disallows Director's Remuneration Hike: Increase of Nine Times Unjustifiable, Only 3.6 Times Approved.

  Case-Laws - AT : Director’s Remuneration disallowed – Exceptionally high remuneration paid - the increase in Directors’ remuneration to about 9 times cannot be justified on the basis of above increase in the turnover - increase of 3.6 times justified - AT
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• Tribunal Overlooked Section 250, Proceedings Must Return to Commissioner of Income Tax (Appeals) Instead of Original Order.

  Case-Laws - HC : Mandatory provisions u/s 250 complied or not – Tribunal ought to have restored the proceedings back to the file of the CIT(A) instead of restoring the original order passed by the AO - HC
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• Society's land investment aligns with educational goals; proceeds donated to similar society. Is this beyond educational scope?

  Case-Laws - AT : If at the commencement of the society, its objects are for educational purposes and its investment in the land was not considered as unexplained investment and treated for advancement of educational objects then, how on sale of that plot and giving a corpus donation to a similar society as per the aims and objects, can be without educational purposes - AT
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• Legal Fees in Criminal Defense Not Deductible as Business Expense Under Tax Law.

  Case-Laws - AT : Payment of legal fees and expenses towards defending in a criminal prosecution not allowable as business expenditure because the same was not expended wholly and exclusively for the purpose of business - AT
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• Corrigendum Invalidated: TPO Issued Final Order Instead of Draft u/s 144C, Mandatory Procedures Omitted.

  Case-Laws - AT : Validity of corrigendum issued to the order passed u/s 144C - TPO instead of passing a provisional order or a draft assessment order, has passed a final order - omission of mandatory procedures cannot be cured - AT
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• Section 145: Flaws in Accounting Records Alone Don't Justify Income Additions Under Income Tax Act 1961.

  Case-Laws - AT : Section 145 of the I.T. Act, 1961 - mere rejection of, or some deficiency in, the books of account would not mean that it must necessarily lead to additions to the sustained income - AT
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• Unsigned Land Sale Agreement Valid; Seller's Undisclosed Income Addition Confirmed Under Tax Law.

  Case-Laws - AT : Sale transaction of land - unsigned agreement being in the possession of the seller viz., the assessee would not amount to “dumb document“ - addition towards undisclosed income confirmed - AT
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Customs

• Goods Valuation Cannot Be Rejected on Doubt Alone; Must Have Concrete Evidence for Validity Challenges.

  Case-Laws - AT : Valuation of goods - Mere doubt, without any reason or rhyme cannot be made the basis for rejection of the transaction value, without any reasonable and justifiable evidence - AT
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Service Tax

• Dispute Over IT Software Imports: Sale vs. Service for End-User Licenses in India Raises Tax Concerns.

  Case-Laws - AT : Import of Information Technology Software - sale or service - end-user license is being provided to the customers in India. Appellant is the distributor of such end-use license - prima facie case is against the assessee - AT
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• Exemption under Notification No. 12/2003-ST requires concrete documentary evidence, not just estimations or approximations.

  Case-Laws - AT : The benefit of exemption Notification No. 12/2003-ST cannot be granted merely on the basis of overall estimation/approximations put forth and without any documentary proof - AT
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• Company Faces Service Tax Demand for Business Auxiliary Services to Manufacturers of Kitchen Products.

  Case-Laws - AT : Business Auxiliary Service - whether HPCL have provided Business Auxiliary Service (BAS) to the manufacturer of hoses, LPG stoves, pressure cookers, kitchen lighters - demand confirmed with interest and penalty - AT
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• Service Tax Applicability Questioned for Digital Signature and Secure Socket Layer Certification in IT Services Assessment.

  Case-Laws - AT : Digital Signature Certificate (DSC) and Secure Socket Layer Certification (SSLC) services - It appears that recording of data in machine readable form is involved in DSC and SSLC and would cover under IT services - prima facie case is against the assessee - AT
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Central Excise

• Cenvat credit can be claimed on leased capital goods from non-financing companies u/r 4(3) of Cenvat Credit Rules.

  Case-Laws - AT : Whether cenvat credit is allowable on capital goods acquired on lease basis from a company which is not a financing company, Rule 4(3) of the Cenvat Credit Rules,, 2004 - Held Yes - AT
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• Job Workers Can Opt to Pay Excise Duty Despite Exemption Notification No. 214/1986 to Claim CENVAT Credit.

  Case-Laws - AT : Disallowance of CENVAT Credit - Job works - Whether the job workers can prefer to pay excise duty in spite of having exemption notification bearing no. 214 of 1986 - held yes - AT
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• EOU's Goods to DTA Exempt from Special Additional Duty u/s 3(5) of Customs Tariff Act; Exemption Upheld.

  Case-Laws - AT : Goods cleared by EOU to their own units in DTA - appellants did not pay Special Additional Duty under Section 3(5) of the CTA claiming exemption - benefit of Notification is clearly available to the appellants - AT
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Case Laws:

• Income Tax

• 2014 (11) TMI 149
  Mandatory provisions u/s 250 complied or not – Proceedings to be remitted to CIT(A) instead of AO - Whether the Tribunal is justified in reversing the order of the CIT (A) and restoring the order of AO on the ground that CIT (A) has without verifying books of accounts or without admitting additional evidence has given relief on merits to the assessee ignoring that CIT (A) in exercise of power u/s 250 has called for remand report before allowing the relief to the assessee – Held that:- The Tribunal found fault with the CIT(A) for not having either verified the books and for not having furnished an adequate opportunity to the AO to verify them – CIT(A) allowed the appeal of the assessee merely on the basis of the written submission which was forwarded to the AO for his comments – the AO was not furnished an opportunity to submit his comments on the basis of any additional evidence, which was sought to be produced by the assessee before the CIT(A). The Tribunal was justified in holding that the CIT(A) proceeded to allow the appeal of the assessee without the books of account or supporting vouchers being produced before him, only on the basis of the remand report which was called for - there is no reason for the Court to take a different view since it is clear that before the AO sufficient adjournments had already been allowed from time to time - the proper course of action would have been for the Tribunal to have restored the proceedings back to the file of the CIT(A) for disposal of the appeal filed by the assessee, once the Tribunal had found fault with the procedure which was followed by the Appellate Authority - the operative order of the Tribunal, setting aside the order of the CIT(A) cannot be faulted, but the Tribunal ought to have restored the proceedings back to the file of the CIT(A) instead of restoring the original order passed by the AO – thus, the operative part of the order passed by the Tribunal is upheld and the matter is remitted back to the CIT(A) for fresh disposal – Decided partly in favour of assessee.

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• 2014 (11) TMI 148
  Interim stay petition - Appeal pending before CIT(A) – Prima facie case for stay - CBDT instruction No.1914 dated 02.12.1993 not considered - Held that:- Assessee contended that with effect from 01.04.2007, the benefit of deduction available to certain co-operative banks were withdrawn by insertion of new sub-section(4) to provide that the provisions of this section will not apply in relation to any co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank – assessee submitted that it is a co-operative credit society, providing credit facilities to its members and not a Bank under Banking Regulation Act - It does not have license to act as Bank and the object of society is to help its members only and hence deduction under Section 80P(2)(a)(i) cannot be denied – assessee in the stay petition has specifically raised that the decision of the Hon'ble Gujarat High Court is fully in their favour - Therefore, they have raised the issue to establish prima facie case - they are not doing banking activities and they do not fall within the definition of banking as defined under Section 5(b) of the Banking Regulation Act, nor do they possess license u/s 22 of the said Act, which is the mandatory requirement - As per the clarification issued by the CBDT dated 01.12.2009, detailed instructions have been given as to how and under what circumstances, stay of demand could be granted - the guidelines are binding upon the Officer, while considering the application for grant of stay - the assessee has made out a case for grant of interim stay till the appeal is heard, disposed of by the CIT(A) – Stay granted.

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• 2014 (11) TMI 147
  Scope of term ‘Power to review’ - Whether the Tribunal erred in law in granting the CIT (A) the power of review when none is provided by the legislature – Held that:- The Tribunal was justified in holding that the CIT (A) who had dismissed the appeal for want of prosecution had inherent powers ex debito justitiae to recall that order and restore the appeal for hearing on merits - This is not equivalent to the power of review - The CIT (A) has not exercised the power of review but has only exercised the inherent power in the interests of justice of restoring the appeal which had been dismissed for want of prosecution - That order of restoration was not contrary to law and the CIT (A) was, hence, found by the Tribunal to have erred in subsequently recalling his order of restoration –thus, no substantial question of law arises for consideration – Decided against revenue.

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• 2014 (11) TMI 146
  Taxability of export incentive u/s 80HHC - DEPB Credit short received disallowed and written off in the profit and loss account - Held that:- Following the decision in aseessee’s own case as decided in DSM Anti Infectives India Ltd. Versus Deputy Commissioner of Income-tax [2013 (11) TMI 1239 - ITAT CHANDIGARH] - The assessee had paid interest on the borrowings made from its parent company in the earlier years and no fresh borrowings had been made during the year - The interest expenditure had been allowed in the hands of the assessee from year to year - Further the advances to M/s Hindustan Max G.B. Ltd. were also made in the earlier years and the balance is brought forward from the preceding year on which in the earlier years the assessee was charging interest - However, the interest on the loan had not been recognized during the year – thus, the matter is remitted back to the AO for verification – Decided in favour of assessee. Finance expenses disallowed – Nexus or diversion of funds to HMGB or not - Whether assessee had utilized borrowed funds for giving interest free advances to its joint venture company i.e. Hindustan Max-GB Ltd. (‘HMGB’) without appreciating that no advances have been made by the appellant company to HMGB during the year – Held that:- Following the decision in aseessee’s own case as decided in DSM Anti Infectives India Ltd. Versus Deputy Commissioner of Income-tax [2013 (11) TMI 1239 - ITAT CHANDIGARH] - The advances to joint venture company were made in the earlier years on which the assessee in the earlier years was earning interest income but because of the said joint venture company filing petition before BIFR, no interest was charged by the assessee company on the advances – there was no merit in the order of the AO in disallowing part of the expenditure being relatable to such advances made by the assessee interest free to it is joint venture company and the same is deleted – Decided in favour of assessee. Commission expenses charged to the P&L Account disallowed - Export sales invoiced to those parties and liability to pay commission to those parties or not - Held that:- Following the decision in aseessee’s own case as decided in DSM Anti Infectives India Ltd. Versus Deputy Commissioner of Income-tax [2013 (11) TMI 1239 - ITAT CHANDIGARH] – the commission included both commission paid on account of exports and also the commission paid on domestic sales - The two transactions were claimed to be different and without any connection to each other - The assessee is engaged in the manufacture of intermediaries and bulk drugs, which in turn are utilized by other concerns for the preparation of the final products - The assessee, through the commission agents had sold the items manufactured by it to different concerns - the assessee had made sales to the parties on which commission had been paid – thus, the matter is to be remitted back to the AO for verification of the claim of the assessee that the commission paid to the said concern had no connection with the sales made to the said concerns and if the contention of the assessee is found to be correct. Commission paid on domestic sales – Held that:- The restriction made by the AO observing that the rate of commission paid by the assessee was 6.6% whereas the assessee claims that it had paid commission @ 4.48% - The other two parties to whom commission had been paid by the assessee and the same has been restricted by the Assessing Officer are Integrated Technology and Aakaar Engineering & Manufacturing Co. – there was no merit in the disallowance made by the AO restricting to rate of commission to 3% as against the rates agreed upon between the parties – Decided in favour of assessee. Disallowance u/s 14A – Income on investment earned or claimed to be exempt during the year or not – Held that:- Following the decision in aseessee’s own case as decided in DSM Anti Infectives India Ltd. Versus Deputy Commissioner of Income-tax [2013 (11) TMI 1239 - ITAT CHANDIGARH] - the assessee was receiving interest on the advances - The investment was made for business purposes i.e. for the purchase of raw material from the concern - However, as the concern was in financial constraint, the application was made before the BIFR by the said concern and thereafter, no interest was being charged by the assessee on the advances – the investment was not made during the year under consideration, as is apparent from the fact that the issue of disallowance of interest u/s 36(1)(iii) of the Act in relation to the advance - no disallowance is warranted under section 14A, read with Rule 8D of IT Rules as the investment had been made by the assessee in a joint venture for business expediency – Decided in favour of assessee. Transfer pricing adjustment – Determination of arm’s length price of the international transactions with associated enterprises - Disallowance of intra group services - Whether the assessee should have benchmarked each of the transactions separately – Held that:- The assessee had entered into series of transactions with its AE i.e. purchase of raw material, consumables, finished goods, etc, export of material, corporate services, reimbursement of expenses and interest paid on loan, which it had aggregated in order to determine the arm’s length price of the transactions except interest on loan – in UCB India (P.) Ltd. v. Asstt. CIT [2009 (2) TMI 237 - ITAT BOMBAY-L] it has been held that for determining the arm’s length price each of the assessee’s independent activities have to be segregated - the TPO is empowered to apply appropriate method for each of the international transactions and as the service fee paid by the assessee was a separate class of transactions, the same is to be analyzed separately, then from the other related party transactions. The total cost incurred by various entities of the group incurred in relation to services rendered has been allocated amongst the group companies in systematic manner - Under the formula agreed upon between the parties, costs were charged to various members, depending on their contribution to the invested capital and gross value added and appropriate share of cost to be borne by each entity was worked out - This practice was adopted to achieve business efficiency in order to meet the demands of customers and to run basic operations more efficiently in globalized and competitive market. There is nothing to show that the transactions entered into by the assessee were not at arm’s length price - It is irrelevant as to what benefit the assessee eventually derived from the said services but what was actually determinative factor, so far as ALV adjustment is concerned, as to what the assessee would have paid for these services in a situation in which these services were rendered by a non-AE - the services were indeed rendered by AE as in earlier year, in respect of which no adjustment was made in the earlier years by the TPO himself - The action of the TPO in applying CUP method without there being any valid comparable was thus patently incorrect. It is very imperative on the part of the assessee to establish before the TPO that the payments were made commensurate to the volume and quality of services and such costs are comparable - The payment terms as pointed out by the TPO are independent of the nature or volume of services - The assessee has defeated in this primary examination itself - The TPO is also justified in making a pertinent observation that the expenses are apportioned by Singapore affiliate among different country centers on the basis of their own agreements and not on the basis of the actual services rendered to the individual units - It is in addition to the above fundamental flaw, that the TPO has made a clear findings that there are no details available on record in respect of the nature of services rendered by Singapore affiliate to the assessee company – there was no merit in the adjustments made by the TPO - the assessee has transferred 100% of the benefits to the AE by way of paying the Corporate Service Charges - the TPO/A.O is directed to disallow 50% of the benefits arising on account of guarantee fee and interest cost as being not on arm’s length and the balance payment is allowable in the hands of the assessee as being on arm’s length against which no adjustment is to be made – Decided partly in favour of assessee.

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• 2014 (11) TMI 145
  Director’s Remuneration disallowed – Exceptionally high remuneration paid - Held that:- The assessee company is engaged in the business of manufacturing of packing machines Directors’ remuneration during the year has been increased to Rs. 80,30,178/- from Rs. 9,00,000/- paid in the immediately preceding year - Thus, the increase in remuneration is about 9 times of the Director’s remuneration paid in the immediately preceding year - The huge increment ought to be justified on the basis of increase in business turnover which is about 3.6 times as compared to immediately preceding year - the lower authorities have allowed the Director’s remuneration during the year under consideration at Rs. 9,00,000/- which is exactly the same amount of Directors’ remuneration which was paid in the immediately preceding year - the inference of the lower authorities cannot be sustained, especially when it is observed that the assessee-company’s turnover has increased to 3.6 times i.e. from Rs. 99,80,414/- to Rs. 3,61,38,065 - In the background of such increase in turnover of the assessee-company, the contention of the assessee that the same was the result of hardwork put in by the Directors cannot be ruled out - some increase in remuneration to Directors for their hard-work is certainly justified and reasonable - However, the increase in Directors’ remuneration to about 9 times cannot be justified on the basis of above increase in the turnover - it shall be fair and reasonable, keeping in view the increase in turnover to 3.6 times, the increase in Directors’ remuneration to 3.6 times of the immediately preceding year is justified – Decided partly in favour of assessee. Amount received to be treated as income or not as per Explanation to section 153 r.w.s 150 – Held that:- The AO observed that the assessee has claimed to have received advance of Rs. 21,74,747/- from Happy Yammy Foods & Beverages - The assessee explained that the advance was received for manufacturing and supply of ice cream balls machinery and that final discussion was awaited from the party and that semi-finished machine was shown as work in progress - the CIT(A) correctly decided that the amount cannot be deemed as income of the year under consideration by invoking provisions of Section 68 of the Act - the further direction given by the CIT(A) to deem Rs. 6,03,954/- as income of the AY 2006-07 and Rs. 15,70,793/- as income of the AY 2007-08 was not in accordance with the provisions of Section 153(3) of the Act – relying upon CIT, SHIMLA Versus M/s GREENWORLD CORPORATION and M/s THE GREEN WORLD CORPORATION Versus ITO, PARWANOO & ANR. [2009 (5) TMI 14 - SUPREME COURT OF INDIA] – wherein it has been held that as regards the expression “direction” in Section 153(3)(ii) of the Act, it must be an express direction necessary for the disposal of the case before the authority or court - It must also be a direction which the authority or court is empowered to give while deciding the case before it - The expressions “finding” and “direction” in Section 153(3)(ii) of the Act must be accordingly confined - Section 153(3)(ii) is not a provision enlarging the jurisdiction of the authority or court - no specific opportunity of hearing was allowed by the CIT(A) to the assessee before issuing the further direction – thus, the direction of the CIT(A) is set aside – Decided in favour of assessee.

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• 2014 (11) TMI 144
  Current liabilities – Documentary evidences reconciled or not - Expenses incurred in the nature of reimbursement of expenses or not - Whether the CIT (A) erred in deleting the additions made by the AO not appreciating the fact that the assessee could not reconcile and explain with necessary documentary evidences the differences found in amounts claimed by the assessee under the head “Current liabilities’ w.r.t. amounts payable to alchemist group of companies and information as obtained from Alchemist Group of Companies u/s 133 (6) – Held that:- The assessee filed all details and documentary evidence in the shape of bills/vouchers along with complete books of account - the AO has himself stated in the assessment order that the details filed by the assessee were examined by her - All the three companies of the Alchemist Group duly furnished confirmations dated 26.12.2011 before the Assessing Officer on query u/s 133 (6) of the Act - However, the AO observed that since the assessee had failed to furnish documentary evidence in support of his stand regarding the expenses made on behalf of the Alchemist group, such stand was not acceptable and that the accounts of all the three companies of the Alchemist Group for the relevant period remained unreconciled. The AO erroneously did not go through these details - The assessment order does not contain any reference to any of these documents filed by the assessee, though the AO observed that these were examined - Had these details been examined, obviously, it could not have been observed in the assessment order that there was absence of documentary/supportive evidence with regard to the stand of the assessee that he had incurred the expenses on behalf of Alchemist Group out of the amounts received by him from them - the assessee’s bank account with HDFC Bank showing the payments received by the assessee from the Alchemist Group, the copy of ledger account of business promotion and entertainment expenses in the books of the assessee, balance sheets and Profit & Loss Account of all the three Companies of the Alchemist Group for F.Ys. 2006-07, 2007-08 and 2008-09 and the Schedules of loans and advances in the books of all the three companies of the Alchemist Group, for all the three years were before the AO - None of the documents finds even as much as a mention in the assessment order - the assessee not having claimed any expenses, rightly contended, no disallowance is possible – the order of the CIT(A) is upheld – Decided against revenue. Adhoc disallowance - Business promotion, staff welfare and entertainment expenses – Documentary evidences provided or not – Held that:- CIT(A) rightly acknowledges the fact of production of books of account and examination thereof by the AO - The books of account are undisputedly audited - No defect therein was found by the Assessing Officer - It was not alleged that any expenditure, which was not capable of being checked and verified, was incurred by the assessee - Only an ad hoc disallowance was made, without giving reasons for the amount being disallowed – the order of the CIT(A) is upheld – Decided against revenue.

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• 2014 (11) TMI 143
  Taxation of capital gains - Amount of LTCG revised - Correct year of assessment of the capital gain - Whether the CIT(A) was justified in holding that the LTCG is pertaining to AY 2009-10 without considering the facts that the sale-deed was executed on 30/03/2008 and the possession was handed over on the same date and also the assessee had received this almost entire sale consideration Held that:- In Smt.Sandhyaben A.Purohi vs. ITO [2014 (11) TMI 88 - ITAT AHMEDABAD] it has been held that in a situation where consideration has been paid and the possession has been handed over, then in view of the provisions of s. 2(47)(v) transfer took place and that date of transfer is thus required to be taken for the purpose of computation of capital gain - an immovable property can be legally and lawfully transferred or conveyed only by a registered deed of conveyance when the document is executed, the property passes and merely because there is no registration certificate, the State coffers should not suffer - If the view propounded that only on registration, act of transfer will be complete, then in that case, if the document is not registered, though the assessee will be enjoying the property, he will say that he is not liable to pay the tax - But that is not the intention of the Legislature - the word transfer as indicated in the Income-tax Act is required to be considered and not sale as indicated in the Transfer of Property Act - transfer of immovable property of the value exceeding Rs. 100 can be said to have been effected on the date of execution of the document. The transaction would relate to the date when the sale-deed was executed, sale consideration was paid and the possession was handed over but not on the date when the document was presented before the Registrar for registration of the sale-deed - the decision in Suraj Lamp and Industries Pvt.Ltd. vs. State of Haryana and Another [2011 (10) TMI 8 - SUPREME COURT OF INDIA] cannot be followed as the decision was delivered on 11/10/2011, but the sale agreement in the present case was executed on 31/03/2008 the particular decision should be made applicable prospectively to avoid hardship had been made clear while delivering the judgment itself - SA/GPA/WILL transactions are not transfers or sales and that such transactions cannot be treated as completed transfers or conveyances - They can continue to be treated as existing agreement of sale - Nothing prevents affected parties from getting registered deeds of conveyance to complete their title - if the documents relating to SA/GPA/WILL transactions has been accepted acted upon by the DDA or other developmental authorities or by the Municipal or Revenue authorities to effect mutation, they need not be disturbed, merely on account of this decision - the agreement to sell dated 31/03/2008 had already been acted upon the parties by delivery possession and registering sale-deed Decided in favour of assessee.

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• 2014 (11) TMI 142
  Unexplained cash credits u/s 68 – Amount shown as LTCG on sale of shares - Held that:- It is amply evident that the AO has not given any independent finding, except for incorporating the observations and finding given in the case of Shri Pinakin L. Shah, a family member of the assessee wherein similar additions have been made - The very premise of reopening the case of the assessee and also the additions made therein is that, the assessee’s family were the beneficiaries of the accommodation entries of long term capital gain given by Shri Mukesh Choksi, Director of M/s. Mahasagar Securities Pvt. Ltd. - Since the nature of capital gain in the case of all the family members were arising out of same set of shares of M/s. Talent Infoway Limited, which were sold through Shri Mukesh Choksi therefore, the facts of the Pinakin L. Shah and the findings given assume a great significance - the purchases of shares have been made in the earlier assessment year and such purchases have not been doubted by the Department - Only the net sale proceeds, which has been shown as long term capital gain, has been added, that is, sales minus purchases - If the factum of purchases recorded in the balance sheet of the earlier years is not disproved, then the sale of the same shares in this year cannot be prima facie held to be bogus. The addition itself has not been made on account of entire sale proceeds, but only on account of net long term capital gain, which itself goes to show that the Department has not carried out proper inquiry or has brought any material on record in the case of the assessee to prove that the entire sale transaction of the assessee is not genuine – there was no reason to confirm the addition on account of long term capital gain, which has been added as income of the assessee u/s 68, and therefore, the same stands deleted. Addition on account of gift – Held that:- When the permanent account number and income-tax details are furnished to the assessing officer by way of confirmation letters as well as affidavits, the AO observing that no details have been furnished is not correct - No attempt has been made to examine the balance sheet to find out the creditworthiness - We also find that the assessing officer had recorded the statement of only one of the donors i.e. Shri Mukesh R.Chokshi and in reply to question Shri Chokshi stated on oath that he has given Rs. 5 lakhs out of love and affection to his business customer and friend and that he would submit his balance sheet to prove this - There is no evidence found by the revenue, which contradicts the evidence filed by the assessee - the addition by invoking the theory of preponderance of probabilities is bad in law. Without there being any proper reasoning by the CIT(A) and analysis of the documents and affidavits furnished, the addition of gifts for sums aggregating Rs. 20 lakh cannot be sustained - after the assessee has filed all the relevant documents and evidences in support of gifts, the department has neither carried out any enquiry nor has rebutted the evidence with any material, except for relying on unsubstantiated statement of Mukesh Choksi, which too was not specific on gifts - the primary onus which lied upon the assessee stood discharged and the amount of gift cannot be added u/s 68 – Decided in favour of assessee.

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• 2014 (11) TMI 141
  Claim of exemption u/s 10B - Development and export of computer software – Held that:- The assessee is a 100% EOU is approved by the Director, STPI and therefore it should be taken as a substantive compliance with the prescription contained in Explanation 2(iv) below section 10B of the Act – In THE COMMISSIONER OF INCOME TAX Versus REGENCY CREATIONS LTD. [2012 (9) TMI 627 - DELHI HIGH COURT] similar issue has been decided - admittedly, the 100% EOU of the assessee does not enjoy any specific approval from the authority referred to in Explanation 2(iv) below section 10B of the Act – the decision relied upon by the assessee in COMMISSIONER OF INCOME TAX Versus TECHNOVATE E SOLUTIONS PVT LTD [2013 (3) TMI 372 - DELHI HIGH COURT] cannot be followed as the issue deals with the provisions of section 10A of the Act and not with section 10B of the Act, which is the subject-matter of controversy in the present case, thus, so far as the action of the lower authorities in holding that the 100% EOU of the assessee was not entitled for the benefit of section 10B of the Act is concerned is upheld – Decided against assessee. Alternate claim to allow deduction u/s 10A – Held that:- In the past years assessee has been allowed the claim of deduction u/s 10B of the Act - the stand of the Revenue that assessee cannot be allowed the benefits of section 10A of the Act merely because the prescribed Audit Report in Form No.56F was not filed in the return of income, is quite erroneous - Pertinently, after denial of deduction u/s 10B of the Act in the assessment order, the earliest opportunity for the assessee to stake claim for deduction u/s 10A of the Act was before the CIT(A) - section 10A of the Act provides a deduction of such profits and gains derived by an undertaking from export of articles or things or computer software manufactured or produced by it - The assessee claimed that it has undertaken export of computer software manufactured by it and its unit is registered with Director, STPI - The approval granted by Director, STPI has been held to be a sufficient compliance with requirements of section 10A(2)(i)(b) of the Act even as per the CBDT vide Instruction No.1 of 2006 dated 31.03.2006 - prima-facie the 100% EOU of the assessee, being registered with STPI, is eligible to stake claim for deduction u/s 10A of the Act, provided the other conditions laid down in section 10A of the Act are satisfied – the matter is remitted back to the AO for verification of claim of deduction u/s 10A – Decided in favour of assessee. Mark up of expenses to different units - Whether the CIT(A) has erred in holding that the profit is a markup of 20% on the expenditure attributable to Bangalore and Ahmedabad units and the same will not be eligible for deduction u/s 10B or 10A in respect of the profits – Held that:- The fact of the present case does not suggest that the support centers at Ahmedabad and Bangalore carry out any other business - The activities being carried out can, at best be, considered as supporting activities to the activity of software development and exports effectuated from the STPI unit at Pune - The finding of the CIT(A) that the specific jobs being executed by the Ahmedabad and Bangalore centers are inseparable part of software development and export unit at Pune coupled with the findings of the AO that the Bangalore and Ahmedabad centers do not have separate account books, expenditure or turnover reflects that the two centers cannot be said to be any other ‘businesses’ being run by the assessee - the stand of the CIT(A) in holding that the profits are required to be attributed to the Bangalore and Ahmedabad centers and only the resultant profit shall be eligible for the deduction u/s 10B or 10A of the Act is not justified – Decided in favour of assessee.

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• 2014 (11) TMI 140
  Deletion u/s 14A – GP estimated – Held that:- CIT(A) rightly held that the AO has ignored the claim that difference is due to shortages and in handling of material, such type of shortages are bound to incur - total shortages found for wash cotton during the year is 44119 kgs which is just 0.18% of total purchases of wash cotton and same is very negligible - the addition made by AO treating the difference in quantity as per stock movement register and books of account as inflated purchases for Rs. 17,06,797 is deleted and consequential addition of gross profit of Rs. 1,00,000 is also deleted – Decided against revenue. Calculation of deduction u/s 80IA and u/s 80HHC - Income from insurance commission and power generation to be included or not – Reduction of deduction u/s 80IA/80AB - Held that:- As decided in assessee’s own case for the earlier assessment year, the decision in Dy.CIT vs. Blue Bell Polymers (P.) Ltd. [2008 (6) TMI 346 - GUJRAT HIGH COURT] relied upon wherein it has been held that the deduction can be granted for both u/s 80HHA and 80I of the Act simultaneously without reducing the relief available u/s 80I of the Act by the amount of deduction granted u/s 80HHA – Decided against revenue. Computation of deduction u/s 80HHC - 90% of gross interest receipt to be included from eligible profit under clause (baa) of the Explanation or not – Held that:- The contention of the assessee is required to be verified by the AO – thus, the matter is remitted back to the AO for verification and adjudication – Decided in favour of assessee. Deletion of amount of sale of oil tins out of books – Held that:- CIT(A) rightly was of the view that the AO has made addition purely on assumption and without bringing any corroborative evidence to establish that in case of appellant, inflated purchases have been recorded in the books of account - AO has ignored the claim of appellant that difference is due to shortages and in handling of material, such type of shortages are bound to incur - Even in case of assessee, such shortages are 0.10% to 1% of total purchase made during the year - the addition made by AO treating the negligible difference in quantity as per stock movement register and books of account as inflated purchases for Rs. 13,91,547 is deleted and consequential addition of gross profit of Rs. 1,00,000 is also deleted – Decided against revenue. Foreign traveling expenditure disallowed – Held that:- CIT(A) has confirmed the addition by rightly observing that the expenditure has been debited in the books of account which have been approved by Board of directors however as assessee has not submitted any proof regarding foreign travelling expenditure claimed in profit and loss account - the assessee has not placed any supporting evidence on record – thus, the order of the CIT(A) is upheld – Decided against assessee. Validity of addition based on the documents found and seized at the time of search – Held that:- CIT(A) rightly recorded that seized papers have been found from the premises of Vimal House where various companies are operating and number of staff is working. Loose paper found from such house on the basis of which AO has made addition does not bear the name of appellant company - The AO has not issued any notice during the course of assessment proceedings for making any explanation of appellant company but same was asked to Gujarat Spices & Oil Seed Growers Co-op. Union Ltd. - AO has not brought any other evidence to support his plea that such transactions belong to appellant company and addition has been made on presumption/assumption - the loose-papers seized from the premises of the Vimal House, where various companies are operating and number of staff are working - the name of the appellant-company is not mentioned – the order of the CIT(A) is upheld – Decided against revenue.

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• 2014 (11) TMI 139
  Disallowance u/s 40A(3) - Genuineness of the purchases - Cash memos were proper and were supported by any documentary evidences or not - Held that:- The assessee is mainly in the business of exporting various products of meat to different countries - The main reasons for invoking the provision of section 40A(3) was that, the purchases made from the market were in cash which were not fully verifiable as they were made on self made cash vouchers, which did not contain addresses, proper serial number, and were undated and unsigned - the payments have been made to persons like, Shehnaz Enterprises, Zaib Enterprises, Zain Enterprises, M.S. Traders and various association at Belgaum - All the payments have been made in cash - The confirmation certificate from M/s. Shehnaz Enterprises goes to show that, they have procured the raw meat from various meat producers in and around Belgaum on cash payments as the meat producers will supply only on cash payment - the cash payments have been made to various association only for the purchase of raw meat. Proviso to section 40A(3) provides that no disallowance u/s 40A(3) shall be made, if the payment in cash has been made in circumstances provided in Rule 6DD - The clause (e)(ii) of Rule 6DD provides exception on cash purchases on produce of animal husbandry - If the payment has been made in cash for the purchase of meat which is nothing but a product of animal husbandry, then in our opinion the same falls within the exception provided in clause (e)(ii) of Rule 6DD - The law only provides that, if the payment is made in cash for purchase of produce of animal husbandry like meat etc., then no disallowance and u/s 40A(3) is called for - Rule does not provide that CBDT should lay down the conditions under this clause - the assessee has purchased the meat from various persons which have been exported. The assessee clearly fulfils the conditions for exporting the meat. The assessee had also furnished a certificate from Veterinary Doctor, before the CIT(A),who has mainly rejected on the ground that, the same is not in the format as instructed by the Board Circular - This cannot be the reason for drawing any adverse inference to deny benefit under Rule 6DD, if otherwise all the conditions stands fulfilled, which is by and large in the spirit of CBDT guidelines - the assessee’s case falls within the beneficial clause of exceptions provided in Rule 6DD, clause(e)(ii) and therefore, no disallowance u/s 40A(3) can be made - the observation of the CIT(A) appears to be correct, however, it needs to be justified after carrying out some enquiry or bringing any material on record – thus, the order of the CIT(A) is set aside – Decided in favour of assessee.

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• 2014 (11) TMI 138
  Income from undisclosed sources – Genuineness of expenses incurred for purchases – Held that:- The notice for re-opening dated 29/03/2007 was served upon the assessee - the finding of the CIT(A) that the assessee was not given proper opportunity to rebut the reasons recorded for reopening the assessment is justified - the AO has made addition on the basis of the information received from the Central Excise Department in respect of the supplier of the assessee; namely M/s.Ashok Synthetics as per the reference received from the Central Excise Department, it is stated that the Proprietor of M/s.Ashok Synthetics had died in 1999 - plant & machinery belonging to M/s. Ashok Synthetics was being used in one form or another from the same premises - AO has not recorded in the assessment order as to how the Power of Attorney given by Smt. Veena Tuteja and claiming as Proprietor of Ashok Synthetics is not correct without examining her and how the statement of Shri Satishkumar Tuteja in the form of letter duly notarised is not correct - the plant & machinery are belonging to M/s.Ashok Synthetics was in use - The AO has not given any finding in respect of the nature of activity carried out by the assessee by such plant & machinery - the AO has failed to give a finding on material aspect and ignored the fact that right from the year 1999 the plant & machineries belonging to M/s.Ashok Synthetics was in use. The purchases made by the assessees from the relevant four parties, quantity-wise as well as value-wise have been found to have been recorded in the books of account, the payment for such purchases has been found to have been made by crossed cheques and duly recorded in the books of account, the sales corresponding to such purchase have been found recorded in the books of account and it is so because Revenue has not doubted the genuineness of the sales, rather has accepted the same, there is no allegation of suppression of value of closing stock or of the sales quantity-wise or value-wise and there is no allegation of inflation of purchases also - there could not be any addition on any account - even the addition sustained by the CIT(A) on the basis of peak of purchases is not sustainable – Decided against revenue.

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• 2014 (11) TMI 137
  Transfer pricing adjustment – Selection of comparables - Inclusion of Axis IT & T Ltd. - Held that:- The company was found to be engaged in the business of providing ITES services as well as software development services and the Revenue generated from ITES services was only 53.26% of the total revenue - Since the relevant details of ITES segment were not available, the TPO held that M/s. Axis IT & T Ltd. could not be included in the list of final comparables - the relevant segmental details of Axis IT&T Ltd. are available - the details prepared and furnished by the assessee are not tallying with the corresponding figures appearing in the final accounts of Axis IT&T Ltd. As a matter of fact, policy adopted by Axis IT&T Ltd. for segment reporting is given in the relevant schedule forming part of the consolidated financial statements which shows that there are many items of revenue and expenditure, which relate to the group as a whole, are not allocable to segments on a reasonable basis - M/s. Axis IT&T Ltd. cannot be included in the list of final comparables in the absence of reliable segmental details. Exclusion of Genesys International Corporation Ltd. – eClerx Services Ltd. - Cosmic Global Ltd. - Functionally different company - Held that:- Following the decision in M/s. Parexel International (India) Private Limited Versus Asst. Commissioner of Income-tax [2014 (11) TMI 129 - ITAT HYDERABAD] - 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. 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 136
  Reopening of assessment u/s 147/148 – Held that:- If an assessment is reopened and on the basis of the reasons and no additions are made by the AO, then, the issues for which it was reopened, AO will be denuded from his powers to make any other addition on the issues which came to his notice during the reassessment proceedings – the AO has observed that assessee is not entitled to exemption u/s 11(1A) - It has not disclosed the capital gain on sale of capital assets - CIT(A) has confirmed the addition to the extent of capital gain arose to the assessee on actual sales consideration received by it - the assessment was reopened for two reasons and on one of the reason, addition was confirmed by the CIT(A) – Decided against assessee. Denial of benefit of section 10(23C)(iiiad) - Sale of land as capital gain - Whether the assessee society is an educational institution or not – Held that:- The society has neither been registered u/s 12AA nor has ever done any educational activity - benefit under sec. 10(23C)(iiiad) is solely not dependent on the actually functioning of an educational institution - The expression “existing” employed in this section does not convey the meaning of actual functioning of the institution - A society can be considered as existing for educational purposes during the construction period of the building etc. Whether assessee has actually worked in the field of education or grant of benefit under sec. 10(23C)(iiiad) is dependent on the fate of actually functioning of the school or it can be granted to the assessee during the construction period – Held that:- In the Memorandum of Association, assessee has only prescribed the objects pertaining to education of poor and needy people - It has provided that in order to fulfill its main objects of education, to give donations to the society/institution, who are in similar lines - When assessee had purchased this plot in the year 1999, no addition on account of unexplained investment was made - It was considered for the objects of the society - The assessee has given donations to Suhail Garg Siksha Sansthan which has already been registered under sec. 12AA - The assessee has produced copy of the letter dated 04.02.2008, assessment order of Suhail Garg Siksha Sansthan for AY 2008-09 and copy of the minutes of the assessee society passing a resolution for giving education. If at the commencement of the society, its objects are for educational purposes and its investment in the land was not considered as unexplained investment and treated for advancement of educational objects then, how on sale of that plot and giving a corpus donation to a similar society as per the aims and objects, can be without educational purposes, not discernible in the order of the CIT(A) - it was sold after a considerable time but if, in a society, there were donations towards corpus for construction of building etc. but that was not sufficient and society decides to close its activity; and give those amounts as donation to another society having charitable and similar activity then those amounts would not be taxable - assessee had donated the funds to an educational society whose credential had not been doubted by the Assessing Officer who happens to be the same officer - assessee is entitled for exemption under sec. 10(23C)(iiiad) of the Act on the alleged capital gain arising to it – Decided in favour of assessee.

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• 2014 (11) TMI 135
  Fee paid to lawyers disallowed – Expenses incurred for defending the criminal proceedings initiated by the DRI personal in nature or not – Held that:- The assessee incurred expenditure for hiring lawyers and other support services to get the bail for him, as the assessee was in judicial custody due to his arrest by DRI in the Custom Duty Evasion criminal case - CIT (A) uphold the disallowance by holding that the expenditure incurred on counsels for defending the criminal proceedings initiated by the Department of Revenue Intelligence (DRI) is an expenditure which is of personal in nature and cannot be said to be allowable under any provisions of the Act - the legal expenses were incurred by the assessee to defend and to secure bail for him, as the assessee was arrested by the DRI in the Custom Duty Evasion case. The ratio in the case of CIT Vs. H. Hirjee [1953 (4) TMI 1 - SUPREME Court] was rightly followed by the authorities - there was a criminal case against the assessee with an allegation of custom duty evasion and he incurred expenditure of legal fees for hiring lawyers to represent his criminal case before the Hon’ble High Court and Lower Courts to get the bail order - the assessee was arrested in Custom Duty Evasion criminal case by the DRI and the payment of legal expenses and fees to the lawyers was made to defend and to secure bail for the assessee in that case - the authorities below were right in holding that the payment of legal fees and expenses towards defending in a criminal prosecution not allowable as business expenditure because the same was not expended wholly and exclusively for the purpose of business – Decided against assessee. Payment which was considered as penalty disallowed – Allowability of expenses as per Explanation to section 37 - Held that:- The assessee made payment of Rs. 70 lacs as per direction of Hon’ble High Court of Delhi given in the bail order dated 01.02.2007 which enlarged the assessee on bail in a criminal case of Custom Duty Evasion - At the time of payment the custom duty assessment was pending and yet to be completed in future - Obviously, when it is found that the assessee has evasioned custom duty then the penalty is obvious and leviable as per the relevant provisions of the Act but until and unless assessment is not completed the amount of custom duty/additional custom duty, interest thereon and penalty cannot be ascertained and in this situation impugned payment made by the assessee cannot be held as penalty or penal in nature at any stretch of imagination. CIT(A) rightly hold that till the time the adjudication takes place ascertained of duty and penalty, if any, cannot be determined - as such situation takes place the amount deposited by the assessee shall first be appropriated towards the custom duty and balance shall go towards interest, if any, and the balance amount so paid, if any, shall be thereafter appropriated towards penalty, if levied, in the case of assessee - the additional custom duty paid by the assessee is an allowable expenditure u/s 43B of the Act – following the decision in DCIT Vs. Glaxo Smithkline Consumer Healthcare Ltd. [2007 (7) TMI 334 - ITAT CHANDIGARH] - section 43B allow deduction of impugned payment as additional custom duty irrespective of the previous year in which the liability to pay such sum was raised against the assessee – the order of the CIT(A) is upheld – Decided against revenue.

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• 2014 (11) TMI 134
  Validity of corrigendum issued to the order passed u/s 144C - TPO instead of passing a provisional order or a draft assessment order, has passed a final assessment order - Whether the AO has failed to failure to forward a draft of the proposed order of assessment to the company and thereby not following the procedure laid down in Section 144C – Held that:- Following the decision in Vijay Television Pvt Ltd Vs DRP [Vijay Television (P.) Ltd. Versus Dispute Resolution Panel, Chennai] - in and by the order dated 15.04.2013, the second respondent granted thirty days’ time to enable the assessee to file their objections. On receipt of the corrigendum dated 15.04.2013, the assessee company approached the first respondent, but the first respondent declined to issue any direction to the assessment officer on the ground that the first respondent has got jurisdiction only to entertain such an appeal if the order passed by the second respondent is a pre-assessment order - the first respondent declined to entertain the objections raised by the assessee company on the ground that the order passed is not a draft assessment order, rather it is a final order. Where there is an omission on the part of the AO to follow the mandatory procedures prescribed in the Act, such an omission cannot be termed as a mere procedural irregularity and it cannot be cured - the website of the department indicate the amount determined by the second respondent payable by the company inspite of issuance of the corrigendum on 15.04.2013 as a tax due amount - while issuing the corrigendum, the second respondent did not even withdraw the taxable amount determined by him or updated the status in the website - such an order passed by the second respondent can only be construed as a final order passed in violation of the statutory provisions of the Act - The corrigendum dated 15.04.2013 is also beyond the period prescribed for limitation - Such a defect or failure on the part of the second respondent to adhere to the statutory provisions is not a curable defect by virtue of the corrigendum dated 15.04.2013 – CIT(A) was clearly in error in equating the show cause notice with a draft assessment order against, and rationalizing the assessment order - In a case in which no draft assessment order is furnished to the assessee, to which assessee is entitled u/s 144C (15), the assessment order passed by the AO is to be held is illegal – Decided in favour of assessee.

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• 2014 (11) TMI 133
  Initiation of proceedings u/s 263 – Whether the CIT erred in holding that receipt of share capital was not properly investigated and was not justified in imposing her own view of the manner in which enquiry was to be conducted – Held that:- The requisite and proper inquiries were not done in respect of the share application money received by the assessee in the course of original assessment order passed on 07.07.2010 nor has the AO applied his mind – as decided in Malabar Industrial Company Limited –vs.- CIT [2000 (2) TMI 10 - SUPREME Court] wherein the action of the CIT in setting aside the assessment order passed under section 148/ 143(3) on 07.07.2010 cannot be faulted with. There is no intimation as to when the original Directors of the assessee company Shri Ganpat Jain and Shri Subodh Tody were replaced or when Shri Arihant Jain became a Director - There is no information to show when Shri Arian Jain, Shri Subbed Toddy and Shri Ganapati Jain were replaced by the Directors Shri Human Mall Saratoga and Shri Annand Kumar Jain. Though the assesse has filed a fresh appeal memo and Form 36 dated 31.07.2014 signed by Shri Human Mall Saratoga - It is not shown as to how Shri Human Mall Saratoga was a Director as on 14.05.2013 when the appeal was filed by the assesse - These facts are being brought out because if Shri Arihant Jain is the Director then the appeal filed by the assessee on 14.05.2013 is within time – thus, the order passed by the CIT u/s 263 is upheld – Decided against assessee.

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• 2014 (11) TMI 132
  Transfer pricing adjustment – Computation of ALP – Addition made on entire transaction - Assessee contended that the addition on the entire transactions under taken by the assessee, irrespective of the fact that during the year, the assessee has also under taken transactions with unrelated treaties which are not subject to transfer pricing – Held that:- The assessee was established in 1998 as a 100% subsidiary of Danisco A/S Denmark - Danisco India is engaged in the business of manufacturing and trading of food additives - The manufacturing business in respect of food flavours and the trading business is for products for falling under the category of food ingredients – assessee rightly contended that the methodology adopted by the TPO has been to arrive at the deficiency in the operating profits of the assessee vis-à-vis the comparables and attribute the entire differential only to the prices accordingly - TPO has conveniently ignored that the purported deficiency in the profits of the appellant is also a function of several other normal third party business expenses incurred by the assessee during the year - in the manufacturing activity the majority of the raw material was purchased from unrelated third parties - TPO has himself has noted only 12.5% of purchases are from related parties - about 87.5% of the purchases of raw material are from unrelated parties and hence these transactions were outside the purview of transfer pricing examination - in respect of purchase of traded goods, a small portion of the same was purchased from unrelated entities. Selection of comparables – Economic adjustment claim denied – Computation of margins erroneous – Held that:- Assessee rightly contended that there was error in rejecting 4 comparable companies selected by the assessee in its transfer pricing document - three of the comparables namely Ashok Alco Chem, Gayatri Star Chem and Kothari Ferment has been rejected on the ground that they have negative net-worth - there is no correlation between net worth and profitability of a company - The fact that two of these 3 companies had positive margins clearly shows the absence of this correlation - loss and profit are normal incident of business and the law as provided in section 92C(2) provides for taking an arithmetic mean of more than one ALPs is meant to take into account profit and loss making companies - almost half of the revenue of the assessee have been derived from trading as evident from the segmental accounts - the predominant international transaction is import of traded goods - choice of manufacturing companies as comparables for the assessee company having both trading and manufacturing operations is fundamentally flawed and contrary to the standards of comparability laid down in Rule 10B(2) of I.T. Rules 1962 - TPO ought to have used the segmental accounts furnished by the assessee to examine the trading and manufacturing activities separately - Separate set of comparables should have been chosen for the trading segment. Furthermore for trading Resale Price Method (RPM) widely acknowledged as the most appropriate method for distributors ought to have been used. Failure to consider the supplementary analysis carried out by the assessee using resale price method (RPM) for determining the arm’s length price (ALP) of the import transactions – Held that:- Assessee rightly contended that in the trading segments the assessee imports the ingredients from associated enterprise(s) and resells them to its customers in India through its distribution chain - In its transfer pricing documentation the assessee had conducted a company as a whole approach and applied TNMM as the most appropriate method to benchmark its international transfer - the assessee in its transfer pricing documentation had also conducted a secondary analysis in form of resale price method for the trading transactions undertaken by it - under the trading segment the assessee merely imports the ingredients and resells it further to unrelated parties - in respect of the international transaction of import of furnished goods, wherein the assessee merely acts a reseller / distributor it has applied RPM while comparing the gross profit margin from the sale of such imports in the domestic market with the gross profit margin earned by the comparable companies from the similar transactions - The international transaction of import of finished goods from the AEs for distribution in India would appropriately be benchmarked applying RPM as defined at Rule 10B (1) by comparing - the gross profit margins from the transactions of resale of similar products sourced from unrelated parties the gross margins earned by the comparable companies is 17.86% while that earned by assessee is 50.01%. Thus the international transactions undertaken by the assessee with respect to its trading segment are at arm’s length as defined by the Indian Transfer Pricing regulations - there was substance in the contentions of the assessee and the matter is to be remitted back to the TPO for his fresh consideration and decide the issue afresh after affording opportunity of being heard to the assessee and discussing their submissions in the order and reasons, if any for not agreeing or agreeing with them – Decided in favour of assessee.

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• 2014 (11) TMI 131
  Unexplained credits u/s 68 - Money claimed to have been received as towards share application – Held that:- Before the AO the assessee had filed confirmation of the applicant, copies of his return of income for the AYs 2004-05 and 2006-07, statement of bank account of M/s R K Engineers, proprietor Shri Rohit Kumar Gogia - CIT(A) deleted the addition placing reliance on COMMR. OF INCOME TAX Versus M/s LOVELY EXPORTS(PVT) LTD [2008 (1) TMI 575 - SUPREME COURT OF INDIA] - with the finding that the assessee company had filed confirmation of Shri R.K. Gogia proprietor R K Engineers, copy of return of income filed by him for the AY 2004-05 and 2006-07, copy of the bank statement of Allahabad Bank from where share application money was given to the assessee company by way of cheque to prove the genuineness of the transaction and in case AO was having any doubt he could have summoned the applicant to verify the genuineness of the claimed share application money - simply because the assessee could not file the copy of the return of income for the AY 2005-06 of the investor, the transaction cannot be treated as unexplained in the hands of the assessee - since after filing of the primary evidence like confirmation of the share applicant, his PAN, bank statement of the firm under the proprietorship of the share applicant which remain the source of the investment in question, etc. the onus was shifted upon the AO to establish that after verification the confirmation and other documents were not found reliable - the AO was not justified in holding that the evidence filed in support by the assessee was not sufficient to establish the genuineness of the claim – the order of the CIT(A) is upheld – Decided against revenue. Transactions in fabric business are sham transactions or not – Held that:- CIT (A) has rightly appreciated the contention of the assessee that the AO was not justified in assessing the income represented by the cash deposits in the account of third party as undisclosed income in the hands of the assessee u/s 68 of the Act - What is taxable under the Income Tax Act, is income which has on its own been disclosed by the assessee - nothing prevents the assessee from venturing into new line of business if it results in earning of the profits - The purchaser and seller both are identified and both are income tax assessees in its their own capacity - the assessee had also filed confirmation from the purchaser and seller and besides, the AO had also obtained bank statement from Senturian Bank of Punjab of the said party whereby the payment received and paid by the assessee were duly found recorded - CIT(A) has rightly held that the assessee had discharged its initial onus of establishing bonafide of the transaction of sale and purchase of fabrics by furnishing the evidence and declaring substantial profits, the onus was shifted on AO to dislodge those evidence – the order of the CIT(A) is upheld – Decided against revenue. Rejection of books of accounts – Adoption of Average of preceding two years G P rate of 3.48% - Held that:- CIT (A) had rightly upheld the action of the AO in rejecting the books of account u/s 145(3) of the Act, on the basis that there was drastic decline in the gross profit of the assessee as compared to the preceding years, the payment of excise duty of Rs. 39 lac included in the sale price, will only have marginal impact on the operational results of the assessee and that the assessee has not explained the mismatch in the monthly production figure and corresponding production expenses - the assessee has not added the excise duty component while valuing its closing stock, though it is specifically provided in section 145A of the I. T. Act - the assessee has made certain sales to its sister concern, at a value lower than its purchase price of raw material - But merely because books of account were rejected the action of the authorities below in estimating the profit by adopting a particular GP rate without assigning any reason in support resulting into the trading addition cannot be justified - The addition made by the AO and sustained by the CIT (A) on account of trading addition applying an estimated gross profit rate without assigning the very basis, thus cannot be justified – relying upon CIT vs. Gotan Lime Khanij Udhyog [2003 (9) TMI 21 - RAJASTHAN High Court] wherein it has been held that Section 145 of the I.T. Act, 1961, only provides the basis on which computation of income is to be made for the purpose of determining the amount of tax - The provision by itself does not deal with addition or deletion to the income - mere rejection of, or some deficiency in, the books of account would not mean that it must necessarily lead to additions to the sustained income – Decided against revenue

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• 2014 (11) TMI 130
  Sale transaction of land - Difference of amount between Agreement of Sale and Sale Deeds to be treated as undisclosed income or not – Held that:- When the difference of consideration between the sale agreement and the sale deed was put to Sri M.A. Chary, he has accepted vide his sworn statement recorded on 29.9.2008 that the total consideration for the said property was Rs. 3.06 crores - Sri M.A. Chary changed his stand on this issue and stated that the figure of Rs. 3.06 crores is not correct since there was some problem with the property recording Urban Land Ceiling and the vendees did not agree to pay the figure quoted by his late father - the total consideration was only Rs. 1.47 crores and not Rs. 3.06 crores and it was further stated that the agreement referred to was only an unsigned draft prepared for own guidance before finalising the transaction – CIT(A) rightly was of the view that the document found in the possession of Shri M.A. Chary at the time of search cannot be ignored as a dumb document due to the fact that the contents of the letter are independently corroborated - The property mentioned in the sale agreement was ultimately sold to the same vendee as agreed in the month of November 2004 - The amount of advance paid by cheque by Shri M.S. Prasad to the assessee was not in doubt - such document could not have been discarded as no evidentiary value attached to it. The assessee could not rebut the evidence found and the contention of the AO on this issue with any cogent or reasonable evidences - The document of sale agreement found in the residential premises of Shri M.A. Chary is a valid document in view of the contemporaneous evidence to the contents of the agreement - On the day of search Shri M.A. Chary deposed that his father sold plot for Rs. 3.06 crores as per agreement - Statement recorded on the day of search is primary statement and it was given on confronting various documents and material found during search - The deponent would not have ventured to state anything which is not in his knowledge - The subsequent retraction could not be considered as a valid retraction and it is only an afterthought. The property is situated in a posh commercial area of Jubilee Hills, Hyderabad and because of its prime location it will definitely fetch higher value than that was disclosed by the assessee - the buyer of the property will be having the registered document and hence the unsigned agreement being in the possession of the seller viz., the assessee would not amount to "dumb document" - the circumstantial evidence cannot be brushed aside particularly when going through the process of the agreement, all the clauses in the agreement have been followed - the property was registered by way of three different agreements of which the agreement dated 18.11.2004 mentioned consideration of sale consideration without bringing out the schedule of payment whereas in the other two documents payment schedules have been mentioned which only throws suspicion that the consideration has been consciously reduced – thus, the order of the CIT(A) is upheld – Decided against assessee.

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• Customs

• 2014 (11) TMI 164
  Valuation of goods - enhancement of the value of the goods is primarily done on the ground of mis-declaration in the Bills of Entry and consequently based upon the market inquiry - Held that:- Careful reading of the offer, acceptance of the ultimate sales, lead us to come to a conclusion that offer is for limited period and that the same was for the stock lot of goods of various sizes and various models. There is nothing in the said document to show that the goods were of prime quality goods or were of latest models. On the contrary, we find that the appellant had declared the correct quantity, the correct size and the correct brand in the bill of entry. The value of the stock lot goods has to be done on a contract basis entered into between the supplier and the importer - there is no mis-declaration of goods. Rejection of transaction value - Held that:- Mere doubt, without any reason or rhyme cannot be made the basis for rejection of the transaction value, without any reasonable and justifiable evidence. This has been the subject matter of various decisions of the Tribunal as also of various High Courts. One such reference can be made to Radhey Shyam Ratanlal V/s. Commissioner of Customs Raigadh [2005 (7) TMI 196 - CESTAT, NEW DELHI]. It stands held in the said decision that doubt of the proper officer about transanction value are irrelevant, which has to be accepted in terms of provisions of Section 14 of the Customs Act, 1962 unless exceptions under erstwhile valuation Rule 4(2) of the valuation rules are applicable-Reliance was again placed on Supreme Courts decision in the case of Eicher Tractors [2000 (11) TMI 139 - SUPREME COURT OF INDIA]. Goods were stock lot goods of various models and were offered for sale on ‘as is whereas basis’ and subject to the conditions that the importer books up the entire goods within the stipulated period up to December, 2010. Further on being queried by the AC, the appellant clearly wrote back that as the goods are of various models and various brands and were manufactured in various countries in terms of the agreement between the brand name owners, it is not possible to give the brands, country of original, the model numbers etc. of each and every LCD TVs. In such a scenario, reliance by the Commissioner (Appeals) on the provisions of Explanation (1) (iii) (d and e) of Rule 3(2) of the Customs Valuation Rules is not proper. The said provisions of law are invokable only when the proper officer has some doubt on the truth or accuracy of the value based on certain reason which may include the mis--declaration of goods in parameters such as description, quality, quantity, country of origin, year of manufacture or production. As already observed by us, the goods being stock lot, it was neither possible nor practical for the importer to declare the country of origin or year of manufacture of each and every piece. This non possibility already stand intimated to the AC, even prior to the import of goods. Otherwise there is no mis-declaration in respect of description, quantity or brand of goods - Decided in favour of assessee.

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• 2014 (11) TMI 153
  Waiver of pre-deposit of penalty - DGFT notification No. 38/2007 dated 15.10.2007 - Misdeclaration of goods - Held that:- As on examination of goods it was found that in fact applicants were exporting non-basmati rice and as the same was declared as basmati rice. Therefore, we find no case for total waiver of pre-deposit of penalties. However, taking into account the facts and circumstances of the case, the applicant is directed to deposit Rs. 3,00,000 towards penalty within a period of six weeks. - Stay granted partly.

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• 2014 (11) TMI 152
  Seizure of goods - Provisional release of goods - Jurisdiction of commissioner - Held that:- order is interim in nature pending final determination of the issue by the adjudicating authority. Reference is also made to latest Mumbai;s judgment in the case of Akanksha Sytax Pvt. Ltd. vs. C.C. (General), Mumbai [2012 (11) TMI 878 - CESTAT, Mumbai] - Commissioner (Appeals) has passed order without ascertaining the facts as stated above as well as legal position. Order passed by Commissioner (Appeals) is contrary to the provisions of law. I, therefore, set aside this impugned order and remand the matter back to the Commissioner (Appeals) who should pass an appealable order after going through the grounds of appeal taken by the Revenue and hearing both appellant and the respondent - Matter remanded back - Decided in favour of Revenue.

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• 2014 (11) TMI 151
  Confiscation of goods - Imposition of penalty - import of drugs - it was found that the labels are not matching to the labels of M/s. North China Pharmaceutical Victor Co. Ltd. of China. - Held that:- As per the licence obtained by the assessee, they were allowed to import the drugs manufactured by M/s. North China Pharmaceutical Victor Co. Ltd. of China. The Licence was granted to import the goods manufactured by the person mentioned in the licence. The licence has not cast the duty on assessee that they have to import the goods from the manufacturer directly. Further, I find that in this case, the assessee has taken every step to import the goods manufactured by M/s. North China Pharmaceutical Victor Co. Ltd. of China as per the condition of indent and invoice issued by the supplier. The assessee came to know only of the fraud when the goods were sent to the Drugs and Control Department for obtaining NOC. As the goods imported by them are as per the licence given to them by the Drugs & Control Department, they have taken every steps to comply with terms and conditions of the licence. relying on the decision of Oriental Containers Ltd. (2003 (3) TMI 126 - HIGH COURT OF JUDICATURE AT BOMBAY) the confiscation of the goods and levy of the penalty is not required and confiscation is also set aside - Decided against Revenue.

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• 2014 (11) TMI 150
  Confiscation of goods - Redemption fine - Revenue is in appeal only for reason that the Adjudicating Authority has not ordered for confiscation of the raw materials despite there being a bond executed by the assessee. - Held that:- the main plank of the Revenue’s appeal is that the commissioner has erred in refraining from formally confiscating and imposing redemption fine on of goods. In our view, the revenue appeal is on diversion of imports and inasmuch as when the goods are not there for confiscation, the question of confiscation cannot arise - Respondents’ assessee is liable to pay Central Excise Duty on the goods manufactured out of the raw materials imported on which the revenue has foregone the Customs duty - Decided against the Revenue.

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• Service Tax

• 2014 (11) TMI 169
  Waiver of pre-deposit - Import of Information Technology Software - sale or service - right to use the software - end-user license is being provided to the customers in India. Appellant is the distributor of such end-use license - Held that:- It is now settled law that only when the software as such is sold and is not a license to use the same, only then it becomes a transaction of sale. In this case there is neither a media containing a software nor a software itself as such has been sold to the customers. It was also mentioned by the learned counsel that even the purchase order is obtained by them and transmitted to the principal and principal only thereafter approves. The submission was that appellant was only a distributor and is only engaged in marketing, promotion of the software, etc., and therefore it can be said that appellant is providing ‘Business Auxiliary Service’ (BAS) but not the ITSS. Unfortunately, even though the nature of service to some extent may be covered by BAS definition, in view of the specific coverage under clause (v) of the definition as considered by us above, the submission that the appellant’s service is correctly classifiable under BAS and not under ITSS in our view cannot be sustained. Therefore, we have to hold that appellant has not made out a prima facie case in this case on merits. Extended period of limitation - A show-cause notice has been issued beyond the normal period and in this case admittedly the appellant could have utilized the CENVAT credit of service tax paid as a receiver in respect of their liability to be discharged for their Indian activities or even in respect of some software which is being serviced by them. Therefore it may not be proper to take a view at this stage that extended period is applicable in view of the revenue neutral situation. Therefore, we take a view that appellants have not made out a case for complete waiver in respect of normal period. Cenvat Credit - Held that:- Credit availed by the appellant in respect of services provided by them to the units in SEZ. The learned counsel submits that retrospective amendment providing for availment of CENVAT credit on service provided to SEZ for the period in question before us was not available at the time when the Commissioner considered the issue and now according to the retrospective amendment, the appellant is eligible for the CENVAT credit and therefore the order for reversal of credit taken cannot be sustained. We find ourselves in agreement with the submission made and therefore the reversal of credit ordered cannot be sustained The view taken by the Tribunal that at least for the normal period the demand under the first category is sustainable, would indicate that the matter cannot be remanded without putting the appellant to terms. - stay granted partly - Matter remanded back.

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• 2014 (11) TMI 168
  Scope of Business Auxiliary Service - data processing activities - whether promotion or marketing of a service provided by the client; or any customer care service provided on behalf of the client, employing information technology service (including computer data processing) would fall outside the scope of BAS - Held that:- services provided by assessees to the overseas entities (Amadeus/Galileo) clearly amount to promotion or marketing of CRS services of the overseas entities (a BAS), but nevertheless falls outside the ambit of BAS as defined, since these services were provided by employing computer data processing, excluded component. Assessees promote/market CRS services provided by the overseas entities (Amadeus/Galileo) but do so through computer data processing, amounting to Information Technology Service, an excluded component of BAS, defined in Section 65(19) of the Act. - assessees promote/market CRS services provided by the overseas entities (Amadeus/Galileo) but do so through computer data processing, amounting to Information Technology Service, an excluded component of BAS, defined in Section 65(19) of the Act. Export of Services - whether services provided by assessees amount to export of services, within the ambit of the 2005 Rules - Held that:- where the service recipient is located outside India, this taxable service is delivered and used outside India; and payment for such service provided outside India is received by the Indian service provider in convertible foreign exchange, the service falls within the ambit of the 2005 Rules; and is admissible to benefits thereunder. The decision of the Larger Bench in Paul Merchants Ltd. (2012 (12) TMI 424 - CESTAT, DELHI (LB)), particularly in the context of the facts on the basis of which the said decision was pronounced, explain the scope of relevant provisions of the 2005 Rules. From the decisions referred to supra it is clear that activities of assessees fall within the scope of the 2005 Rules. Consequently, there is no liability to Service tax. From 01.07,2003 till introduction of the 2005 Rules also, BAS which was exported and for consideration received in convertible foreign exchange is exempted from liability to service tax by Notification No 6/1999-ST, Notification No. 21/2003-ST and in view of the clarification issued in Board Circular No. 56/5/2003-ST dated 25.04.2003. Extended period of limitation - Held that:- For dropping levy of service tax demand on services provided during the period covered by the extended period of limitation and for deleting penalty under Section 78, the adjudicating Authority recorded elaborate and cogent reasons duly analyzing the material on record and concluded that relevant information and particulars were furnished and was available with the Department much in advance and therefore suppression of material facts or intent to evade tax by the assessees, cannot be inferred. We concur with these conclusions recorded by the adjudicating Authority. - Decided in favour of assessee.

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• 2014 (11) TMI 167
  Applicability of Notification No. 12/2003 - determination of value of goods - completion and finishing services in relation to building or civil structure - Held that:- Appellants on being found out having illegally availed of Notification No. 15/2004-ST and Notification 1/2006-ST have attempted to get covered under Notification No. 12/2003-ST. But it is seen from the adjudication order as well as from their submissions in this appeal that they have only given the overall values of goods and materials purchased by them financial year wise and have failed to show with documentary evidence the goods and materials specifically sold to various service recipients in the context of provision of the service for which invoices were raised and payments received. That exemption notifications (except the promotional/beneficial notifications) are to be interpreted strictly has been repeatedly held in various judgments like in the case of Konkan Synthetic Fibres Vs. CC (Import) Mumbai [2012 (3) TMI 273 - SUPREME COURT OF INDIA]. The benefit of exemption Notification No. 12/2003-ST cannot be granted merely on the basis of overall estimation/approximations put forth and without any documentary proof specifically indicating the value of goods and materials sold in respect of the individual recipients of service as per the contracts entered into by the appellants with each of them. They have failed to produce such documentary proof so far. The appellants insist that they have such documentary proof and would be able to produce the same. In such a situation, it is only fair that the case is remanded to the adjudicating authority to enable the appellants to do so. - Matter remanded back - Decided partly in favour of assessee.

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• 2014 (11) TMI 166
  Business Auxiliary Service - co-branding of hose pipes (by manufacturers and HPCL) as well as printing logo - whether HPCL have provided Business Auxiliary Service (BAS) to the manufacturer of hoses, LPG stoves, pressure cookers, kitchen lighters. - Held that:- The appellants have put a weak defence by saying that they are merely endorsing the safety requirements under various regulations cited above. Undoubtedly, the safety regulations which are statutory requirements have to be complied with and the oil companies indeed would have to recommend adherence to such safety regulations. But this does not detract from the fact that the promotion and marketing of goods is being definitely undertaken. The agreements are for co-branding of the goods, sale through HPCL distributor network. The agreement with SUPER LPG states Super LPG approached HPCL for marketing their goods. The agreements clearly provide for specific overriding commission on per piece basis on or on ad valorem basis and such commission is payable over and above the commission payable to HPCL distributors. The commission is for the service rendered by HPCL towards marketing/promotion of goods manufactured by the manufacturers mentioned above. The service tax amount has been correctly demanded and the appropriation of the said amount already deposited is correct in law. - Decided against the assessee. Levy of penalty - Waiver of penalty u/s 80 - Held that:- It is clear that they were aware of requirement of payment of service tax under the agreements. But they chose not to pay the tax. For the sake of repetition, it may be mentioned that the appellants are very old assessees. They are a massive organisation with all expertise. Therefore, non-disclosure of agreements amounting to clear suppression of facts does not give them the benefit of doubt and makes them liable for penalty under Section 78. In similar circumstances, penalty would have been imposed on private companies, there appears to be no reason why the appellant should escape penalty on similar ground. - Decided against assessee.

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• 2014 (11) TMI 165
  Tour Operator service - supply the contract carriage business (not tourist vehicles) - whether the activity undertaken by the appellant is covered under the category of ‘tour operators service' prior to 10/09/2004 or post to 10/09/2004 - Invocation of extended period of limitation - Held that:- If a tour operator having its tourist permit under Section 88 (9) of the Motor Vehicles Act, then the vehicle shall be treated as a tourist vehicle. Admittedly, in this case the appellant are neither having the tourist permit nor operating in the tourist vehicle. Therefore, the appellant are not held to be liable to pay service tax under the category of tourist operator prior to 10/09/2004. Appellants provide/supply the contract carriage business (not tourist vehicles) to their customers on their demand only - M/s. Capri has claimed the benefit of Notification 20/09 dated 07.07.2009 read with Section 75 of the Finance Act, 2011 which exempts the service provided to any person, by a tour operator having ‘contract carriage permits' for inter-state or intra-state transportation of passengers, excluding tourism, conducted tours, charter or hire service, from whole of the service tax leviable thereon under Section 66 of the said the Finance Act., which has been made applicable retrospectively w.e.f. 01.04.2000. As the said Notification and the Finance Act, 2011 were not contested by M/s. Capri before the Adjudicating Authority, therefore matter needs examination at the end of the Adjudicating Authority in the light of the decisions of this Tribunal placed before us by the ld. counsel for M/s. Capri and to decide whether M/s. Capri is liable to pay service tax under the category of ‘Tour operator' or not. Therefore, the matter needs examination at the end of the Adjudicating Authority - Matter remanded back M/s. Capri has relied on several decisions of this Tribunal or by the lower authorities, and the decisions are contrary to each other. In view of this, we hold that the extended period of limitation is not applicable in this case. Therefore, the demands confirmed by invoking the extended period of limitation are set aside. Consequently, penalties are also set aside. - Decided in favour of assessee.

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• 2014 (11) TMI 163
  Waiver of Pre deposit - Digital Signature Certificate (DSC) and Secure Socket Layer Certification (SSLC) services - appellant contended that activities of DSC and SSLC would not pertain to IT software and therefore they do not come within the service tax net under IT services - Held that:- The essential ingredients of the definition of information technology software are that these are recorded in the machine readable form. Machines normally used for manipulating or providing interactivity to users by means of computer or automatic data processing machine or in other devices of equipment. Software should be written in readable form. The software is meant to operate the machine and it is coded in machine readable language. The data has to be processed by machine using the software. Prima facie, we find that the applicants upload the information in the software to create the required DSC. It is submitted by the applicant in their statements that they were providing IT services to their customers. It appears that recording of data in machine readable form is involved in DSC and SSLC and would cover under IT services. The levy of service tax is not dependent on the fact thereof who retained the source code. But, there is some force in the submission of the learned Advocate in respect of demand of tax on SSLC under BSS and DCS Services. The applicant failed to make out a strong prima facie case for waiver of pre-deposit of entire amount of dues - Partial stay granted.

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• Central Excise

• 2014 (11) TMI 161
  CENVAT Credit - Whether cenvat credit is allowable on capital goods acquired on lease basis from a company which is not a financing company, Rule 4(3) of the Cenvat Credit Rules,, 2004 - Held that: - Rule 4(3) does not require procurement of capital goods from the financing company but is enabling and enlarging sub-rule allowing Modvat Credit even in those cases where the capital goods have been procured from a financing company - appellant is entitled to the benefit of Modvat Credit - cenvat credit was correctly availed by the appellant and appeal filed by the appellant is required to be allowed - Decided in favour of assessee.

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• 2014 (11) TMI 160
  Interest on delayed refund - Revised refund claim - first appellate authority while rejecting the claim of interest observed that the delay in sanction of refund claim was due to non-furnishing of documents by the appellant and not due to the Revenue. Held that:- Date of filing of refund claim has been taken as 27.09.2004 to reject/ sanction the refund claim of the appellant which was sanctioned on 09.3.2006. Assistant Commissioner, Central Excise, Div-II, Silvassa vide letter dated 03.11.2004 raised certain queries but did not return the refund claim filed by the appellant. No efforts were made by the Revenue to reject the refund claim as unsubstantiated when appellant was not providing the required details/ documents. There was thus a delay in sanctioning the refund claim of the appellant from three months after 27.09.2004 to 09.3.2006. Accordingly, it is held that interest on delayed payment of refund of accumulated CENVAT credit under Rule 5 of the Cenvat Credit Rules, 2004 read with Section 11B is admissible to the appellant under Section 11BB of the Central Excise Act, 1944. Similar view has been expressed by this bench in the case of Reliance Industries Limited vs. CCE, Vapi (2008 (7) TMI 324 - CESTAT AHMEDABAD) and Gujarat High Court in the case of CCE vs. Reliance Industries Limited (2010 (10) TMI 190 - GUJARAT HIGH COURT) - Decided in favour of assessee.

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• 2014 (11) TMI 159
  CENVAT Credit - Credit of the duty paid on the tubes and flaps - Held that:- The tyres in question are not tubeless tyres. They required inner tubes as an essential item for functioning, the flaps are also useful and make the functioning of the tyres more convenient and trouble free. Therefore, while tubes can as well find place as part of component of tyre, the flap will clearly be an accessory as pointed out by the learned counsel for the appellant. - Clearly tubes and flaps are accessories and therefore, have to be considered as eligible inputs. On this ground alone, appellant would succeed - Following decision of assessee's own previous case [2014 (4) TMI 300 - CESTAT BANGALORE] - Decided in favour of assessee.

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• 2014 (11) TMI 158
  Restoration of appeal - Non compliance of pre deposit order - appellant during the relevant period was litigating the issue before BIFR authorities - Company ordered to be wound up by BIFR - assets of the appellants were taken over by the Asset Reconstruction Company (India) Ltd - held that:- appellant had no intention to prosecute the matter before the adjudicating authority as well as appellate forum which is evidenced from the non-representation before the lower authorities as well as before the Tribunal. Be that as it may, we find that the callous attitude of the appellant continued even while prosecuting this miscellaneous application filed in as much as this miscellaneous application was listed for disposal on 22.05.2003 and on request was adjourned to be heard on 27.06.2013. There were adjournments given in the case. After the last adjournment on 03.02.2014, the matter was listed on 28.08.2014 due to non-availability of the Bench during the interregnum period when the matter was listed. On 28.08.2014, an adjournment was sought which accommodated and the matter was listed for 15.09.2014; on the request of Ld.D.R. the matter got adjourned to today (i.e. 23.09.2014) for disposal. The entire history of the case indicates that the appellant was not serious and it seems that appellant was intentionally avoiding prosecution to prolong the proceedings as much as possible. We also notice that the appellant has filed this application for restoration of appeal only in April 2013 i.e. almost after 6 years of dismissal of the appeal for non-compliance. intent of the appellant seems to prolong the proceedings as much as possible, as the appellant was aware of dismissal of their appeal for non-compliance in March 2007 but to chose to keep silent without filing any application for restoration of appeal till April 2013. We find that no plausible explanation has been put forth in the application filed by the appellant for remaining absent from the proceedings all-through - appellant has not made out any case for the restoration of appeal in view of the foregoing - Restoration denied.

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• 2014 (11) TMI 157
  Availment of ineligible cenvat credit - whether extended period of limitation under Section 11A of the Central Excise is applicable to the facts and circumstances of this case - Held that:- returns were filed promptly. In the returns it is clearly mentioned that they availed credit under the aforesaid rules. The audit party accepted the same. It is only in the second audit that they noticed the mistake and initiated proceedings. Therefore, in the light of the aforesaid facts none of the other conditions prescribed in the Proviso exists in this case to extend the period of limitation of 5 years. - Extended period is not applicable in the present proceedings - Decided in favor of assessee.

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• 2014 (11) TMI 156
  Denial of refund claim - duty paid was more than due in as much as freight charges were wrongly included in the assessable value of goods - Held that:- Revenue is unable to show any law that even if duty paid was in excess of the amount due, without excess amount being refunded, the assessee will be debarred from availing of the CENVAT Credit. - Issue stand exclusively decided by the above referred decision and the observations made by the Tribunal in the case of C.C.E., Shillong vs. M/s Guwahati Carbons Ltd. - [2009 (4) TMI 269 - CESTAT, KOLKATA], as regards the entitlement of credit by the input recipient cannot be adopted. We also agree with the ld. Advocate that such observations are general in nature and are not relatable to the issues before the Tribunal. The Tribunal was required to decide the ‘lis’ between the Revenue and M/s Guwahati Carbons Limited and not the entitlement of credit by the recipient of the inputs from M/s Guwahati Carbons Limited. The said recipients were not before the Tribunal and as such the grievance of the learned Advocate is well appreciated - Decided in favour of assessee.

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• 2014 (11) TMI 155
  Disallowance of CENVAT Credit - Job works - Whether the job workers can prefer to pay excise duty in spite of having exemption notification bearing no. 214 of 1986 - Held that:- By relying upon a three-judge-bench decision of the Supreme Court in the case of International Auto Ltd. v. Commissioner of Central Excise, Bihar (2005 (3) TMI 132 - SUPREME COURT OF INDIA), submitted that the questions so raised by the Revenue are fully answered by the Supreme Court in the above decision and the selfsame principle has been followed by the Tribunal. There is no dispute that according to the modvat scheme, it is the modvat of such final product which would have to include the cost of the inputs and in respect of which Modvat credit could be taken at the time of clearance of the final product and thus, in the facts of the present case, the Tribunal rightly rejected the contention of the Revenue that the respondents should have reversed the Cenvat credit taken before sending the goods to the job worker since the job worker had not followed the procedure of job work - Following decision of COMMR. OF C. EX., AHMEDABAD-I Versus ROHAN DYES & INTERMEDIATED LTD. [2013 (4) TMI 277 - GUJARAT HIGH COURT] - Decided in favor of assessee.

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• 2014 (11) TMI 154
  Goods cleared by EOU to their own units in DTA - appellants did not pay Special Additional Duty under Section 3(5) of the CTA claiming exemption - Whether the benefit of Notification 23/2003 is allowable or not - Held that:- Goods when sold in DTA had not been exempted by the State Govt. by any Notification. We are not required to go into the analysis as to whether the goods are leviable to sale tax as contended by the department that there is no sales tax on stock transfer. The fact remains that the goods sold in DTA are not exempted from sales tax. Therefore, the benefit of Notification is clearly available to the appellants - law has not been read correctly by the adjudicating authority. - Decided in favour of assessee. Cenvat Credit - The duty paid by the appellant is Central Excise duty under Section 3 of the Central Excise Act and not the Customs duties. Section 3 merely provides that the Central Excise duty payable would be aggregate of Customs duty. Therefore, the appellants have correctly utilized the CENVAT Credit in respect of cess of excisable goods towards payment of duty/cess leviable under Section 3 - Following decision of assessee's own previous case [2014 (2) TMI 922 - CESTAT MUMBAI] - Decided in favour of assessee.

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• CST, VAT & Sales Tax

• 2014 (11) TMI 162
  Levy of entry tax - Whether entry tax can be levied on scheduled goods purchased inside the local area from another registered dealer of the same local area who brought the scheduled goods into the local area - Held that:- Incidence of taxation is on entry of goods into the local area for use, consumption or sale therein. The core of taxing statute is in the charging section and liability to tax arises by virtue of charging section. The rule of construction of charging section is that before taxing any person, it must be shown that he falls within the ambit of charging section by clear words used in the Section. No one can be taxed by implication. Charging section has to be construed strictly. If a person has not been brought within the ambit of charging section by clear words, he cannot be taxed at all. (See Commissioner of Wealth Tax, Gujarat-III Ahmedabad vs. Ellis Bridge Gymkhana, 1997 (10) TMI 2 - SUPREME Court). while interpreting charging section of a taxing statute utmost care should be taken to give proper meaning to the words of the statute and the same should be construed strictly. Its construction cannot be extended beyond the language used in the charging section. no entry tax can be levied on scheduled goods purchased inside the local area from another registered dealer of the same local area who brought the scheduled goods into the local area. Whether under law it is obligatory on the part of a dealer to furnish Form E-1 in respect of the goods purchased by it from 13 another registered dealer of the same local area who brought the scheduled goods in question into the local area - Held that:- The information required to be declared under column 8 is in consonance with the proviso to sub-section (2) of Section 3 which provides that no tax shall be levied under the Entry Tax Act on the entry of scheduled goods into a local area, if it is proved to the satisfaction of the assessing authority that such goods have already been subjected to entry tax or that the entry tax has been paid by any other person or dealer under the Act. Thus, Form E1 has to be furnished by a dealer who brings the scheduled goods into the local area and claims that in respect of such goods entry tax has been levied earlier - under law it is not obligatory on the part of a dealer to furnish Form E-1 in respect of the goods purchased by it from another registered dealer of the same local area who brought the scheduled goods in question into the local area. Whether to get the benefit from payment of entry tax in respect of the scheduled goods purchased by a dealer from another registered dealer of the same local area, who brought the said goods into the local area, the dealer has to prove that its seller has in fact paid the tax - Held that:- The incidence of taxation is on entry of the scheduled goods into the local area for use, consumption or sale. Nobody is competent/authorized to shift the point of taxation. to get benefit from payment of entry tax in respect of the scheduled goods purchased by a dealer from another dealer/registered dealer of that locality, who has brought the goods into the local area, the dealer need not prove that its seller has in fact paid the entry tax. It will be enough for the dealer to show that its seller is identifiable and has in fact made entry of the scheduled goods into the local area and the tax is payable by its sellers. Whether it is mandatory for the dealer- petitioner registered under Cuttack-I Central Circle, Cuttack to furnish Form E1 along with return under Rule 10(1) of the OET Rules in respect of the goods purchased by it from a dealer registered in Bhubaneswar-1 Circle, Bhubaneswar and non-furnishing of Form E1 makes the dealer-petitioner liable to pay entry tax - Held that:- furnishing of Form E-1 as prescribed under sub-rule (5) of Rule 3 along with returns under sub-rule (1) of Rule 10 is mandatory on the part of a dealer who brings the scheduled goods into the local area to prove that the goods purchased by it have already been subjected to entry tax or that the entry tax has already been paid under the Act for such goods and that non- furnishing of Form E-1 as prescribed under sub-rule (5) of Rule 3 along with return under sub-rule (1) of Rule 10 makes the dealer, who brings the scheduled goods into the local area, liable to pay the entry tax on scheduled goods purchased from outside the local area. Whether a dealer who has brought the scheduled goods into the local area and has filed a defective Form E-1 can call upon the Department to summon or call for the records of the selling dealer or any other person or to conduct any inquiry to test the correctness of its claim that the goods purchased by it has suffered tax at the hands of any purported selling dealer - Held that:- dealer who claims that no tax is payable on entry of scheduled goods into the local area has to file requisite Form E-1 along with return as prescribed under the Statute. Form E-1 which has been filed in respect of the scheduled goods purchased from M/s. Lubrico, Bhubaneswar (RC No.BH I 895) is incomplete/defective and therefore, does not meet the requirement in order to prove that the dealer-petitioner is not liable to pay entry tax. The burden is on the dealer to file complete and defect free Form E-1. It is not open to contend that to test correctness of its claim the Department has to summon or call for the records of selling dealers or of any other person or to conduct any inquiry. The burden lies squarely on the dealer to substantiate its claim and if it is not done the consequence is that it is liable to pay tax. dealer who has brought the scheduled goods into the local area and has filed defective Form E1 cannot call upon the Department to summon or call for the records of the selling dealer or any other person or to conduct inquiry to test the correctness of its claim that the goods purchased by it has suffered tax at the hands of any purported selling dealer - Matter remanded back - Decided in favour of assessee.

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