TMI Tax Updates - e-Newsletter
December 10, 2014

Case Laws in this Newsletter:

Income Tax Customs Service Tax Central Excise

Articles

1. REGISTRATION OF TRADE MARK

   By: DR.MARIAPPAN GOVINDARAJAN

News

1. Action Plan of 2014-15 on Disinvestment; Coal India, ONGC and NHPC Approved for Disinvestment

2. India Signs Credit Agreement with International Fund for Agricultural Development (IFAD) for Us$ 50 Million for the Meghalaya Livelihood and Access to Markets Projects (Megha-LAMP)

3. Decline in Registration of Companies

4. Legal Backing for CSR Compliance

5. Duping of Investors by Dubious Firms

6. RBI Reference Rate for US $

7. Nirmala Sitharaman Unveils Indian Trade Portal

8. CCI Approves the Proposed Merger Between Sun Pharma and Ranbaxy Subject to Modification

9. Finance Minister Hopeful that there Would be Insurance Market Expansion Once the Insurance Amendment Bill is Passed by the Parliament; Insurance, Banks, Mutual Funds and Securities are Among the Areas of Cooperation Between India and UK

10. Payment of Final Dividend by SPMCIL to the Government of India for ₹ 42.93 Crore Being 20% of Profit After Tax (Pat) of the Company for the Year 2013-14; SPMCIL Produces 8018 Million Pieces of the Bank Notes in 2013-14 as Against the Target of 7360 Million Pieces

11. Union Finance Minister to Inaugurate Two Day Delhi Economics Conclave-2014 on December 10, 2014; Structural Reforms and Growth in India Would be the Theme of the Conclave

Notifications

Customs

1. 47/2014 - dated 9-12-2014 - ADD

Seeks to levy definitive anti-dumping duty on imports of cable ties, originating in or exported from People's Republic of China and Chinese Taipei, for a period of five years

2. 46/2014 - dated 8-12-2014 - ADD

Seeks to impose anti-dumping duty on Sodium Nitrite originating in or exported from China PR

DGFT

3. 103(RE-2013)/2009-14 - dated 8-12-2014 - FTP

Amendment in export policy of cotton yarn.

4. 102 (RE-2013)/2009-14 - dated 8-12-2014 - FTP

Amendment in export policy of cotton.

5. 101 (RE-2013)/2009-14 - dated 5-12-2014 - FTP

Functioning of Appellate Authority against the orders passed by the Adjudicating Authorities authorized by the Central Government under Section 13 of the said Act and specified in column 2 .

Circulars / Instructions / Orders

FEMA

1. 48 - dated 9-12-2014

Overseas Investments by Alternative Investment Funds (AIF)

2. 45 - dated 8-12-2014

Foreign Direct Investment (FDI) in India – Review of FDI policy –Sector Specific conditions

3. 46 - dated 8-12-2014

Foreign Direct Investment (FDI) in India – Review of FDI policy –Sector Specific conditions- Defence

4. 47 - dated 8-12-2014

Foreign Direct Investment (FDI) in India – Review of FDI policy – Sector Specific conditions- Railway Infrastructure

Highlights / Catch Notes

Income Tax

• Tribunal Questions Validity of Gift from Poor Individual to Wealthy Person under Income Tax Law.

  Case-Laws - HC : Validity of Tribunal’s order - Genuineness of gift – Rarely one finds a poor man giving gifts to a rich and powerful, out of natural love and affection - HC
  Visit to Get Source

  ---

• Income from Advance License Benefits Accrues in Import Year, Not Export Year, Clarifies Regulation.

  Case-Laws - HC : Accrual of income - Income from advance license benefit - income does not accrue in the year of export but in the year in which the imports are made - HC
  Visit to Get Source

  ---

• Patent Rights Granted to Inventor; Scientific Research Costs Eligible for Deduction u/s 35 of Income Tax Act.

  Case-Laws - AT : The molecules when successfully developed will yield patent rights to the assessee - the assessee will be inventor of such product and, therefore, the expenditure is for scientific research and eligible for deduction u/s. 35 of the Act - AT
  Visit to Get Source

  ---

• Interest Payments Disallowed Post-Merger u/s 43B of Income Tax Act, Affecting Tax Treatment.

  Case-Laws - AT : Interest paid to bank disallowed – Applicability of section 43B - merger of non-scheduled bank with scheduled bank - e provisions of section 43B clearly apply after the merger - AT
  Visit to Get Source

  ---

• Court Rules Sales Strategy Expenses Valid Despite Lack of Best Practices in Profit Enhancement Efforts.

  Case-Laws - AT : Assessee was guided by the objective of enhancing its profits and the aforesaid methodology of effecting sale was adopted - No doubt, it may not be the best of the practices, so however, the expenditure cannot be disallowed merely for that reason - AT
  Visit to Get Source

  ---

Customs

• Ambiguity in Tax Exemption Provisions to Be Resolved in Favor of Revenue Over Assessee.

  Case-Laws - HC : In a case of an ambiguity or doubt regarding an exemption provision in a fiscal statute, the ambiguity or doubt will be resolved in favour of the Revenue and not in favour of the Assessee. - HC
  Visit to Get Source

  ---

• Claim for Duty Drawback on Flanges Denied; Not Classified Under SS No. 73.29.

  Case-Laws - HC : Denial of duty drawback - Flanges is not included under SS No. 73.29 under which the petitioners have claimed All Industry Duty Drawback at the rate of ₹ 19 per Kg. on Steel content. - HC
  Visit to Get Source

  ---

Service Tax

• Refund Denial for Export Services: Credit Acceptance Implies Refund Eligibility Without Further Dispute.

  Case-Laws - AT : Denial of refund claim - Export of services - Without questioning the credit taken, the eligibility to refund cannot be questioned. - AT
  Visit to Get Source

  ---

• Sugarcane Harvesting Services: Unfavorable Ruling for Assessee on Business Auxiliary Service Tax Classification.

  Case-Laws - AT : Business Auxiliary Service - services rendered to sugar factory in relation to harvesting and transportation services of sugarcane - prima facie case is against the assessee - AT
  Visit to Get Source

  ---

Central Excise

• Commissioner Adjusts Short-Paid Central Excise Duty Against Excess Education Cess in Export Oriented Unit Case.

  Case-Laws - AT : Adjustment of duties - excess payment in one account code and less payment in other accounting code - Commissioner being in charge of the appellant-EOU, handling both Excise and Customs work, could make adjustment of short paid Central Excise duty against education cess paid in excess - AT
  Visit to Get Source

  ---

• Rice Bran Fatty Acids and Wax Exempt Under Central Excise Law; Extended Limitation Period Not Applicable.

  Case-Laws - AT : Claim of exemption - rice bran fatty acids and rice bran wax -It can be seen that there was Additional Commissioner’s order taking a view that products are exempted - prima facie extended period of limitation cannot be invoked - Tri
  Visit to Get Source

  ---

• Supplier's Omission of Undertaking to Commissioner Doesn't Deny Notification 214/86 Benefits.

  Case-Laws - AT : Job work - supplier have not given an undertaking to the Assistant Commissioner of Central Excise having jurisdiction over the factory of the job worker as required in terms of the said notification - benefit of notification 214/86 cannot be denied - AT
  Visit to Get Source

  ---

Case Laws:

• Income Tax

• 2014 (12) TMI 320
  Status of the assessee – Held that:- Following the decision in ITO Vs. Gammon Progressive-JV [2014 (12) TMI 313 - ITAT PUNE] – The assessee has made it clear that the status in which the returns was filed was that of an AOP - when electronic filing had to be done, due to computer error the status appeared as ‘firm’ on the ITR acknowledgement,whereas in the computation of total income, it was correctly mentioned as AOP - assessee has also filed computation of total income along with acknowledgements from A.Y. 2002-03 to A.Y. 2006-07 in which the status was regularly shown as AOP and even in the application form for allotment of PAN it was shown as AOP, each of the two parties has agreed to bear its own loss or retain its own profit separately - Both have agreed to execute the job together for better co-operation in their relationship with the Chennai Port Trust - If the cost incurred by the HCC or the applicant was more than their income,each party will have to bear its loss without any adjustment from the other party - the applicant and HCC cannot be treated as an AOP for the purpose of levy of income-tax - The applicant will be liable to be taxed as a separate and independent entity. Disallowance of contract receipts u/s 40(a)(ia) – Held that:- Following the decision in ITO Vs. Gammon Progressive-JV [2014 (12) TMI 313 - ITAT PUNE] – CIT(A) was justified in holding that in absence of any contract or sub-contract work by joint venture to its member companies, provisions of section 194C were not applicable for the purpose of TDS - The two corporate entities forming joint venture were already being assessed since A.Y. 2000-01 onwards on their respective shares and TDS apportionment certificates were also issued by the AO every year for these eight years including the current assessment year to enable them to claim the same - there was no Profit and Loss Account in the assessee’s case and there was no claim of any expenditure - there was no question of any disallowance under the provisions of section 40(a)(ia) - disallowance u/s. 40(a)(ia) made by the AO cannot be sustained - the finding of the CIT(A) cannot be interfered who has rightly held that there is no question of disallowance made u/s. 40(a)(ia) of the Act – Decided against revenue.

  ---

• 2014 (12) TMI 313
  Status of the assessee – firm or AOP - error while filing return - joint venture between Gammon India Ltd., and Progressive Constructions Ltd. - Held that:- The assessee has made it clear that the status in which the returns was filed was that of an AOP - when electronic filing had to be done, due to computer error the status appeared as ‘firm’ on the ITR acknowledgement,whereas in the computation of total income, it was correctly mentioned as AOP - assessee has also filed computation of total income along with acknowledgements from A.Y. 2002-03 to A.Y. 2006-07 in which the status was regularly shown as AOP and even in the application form for allotment of PAN it was shown as AOP, each of the two parties has agreed to bear its own loss or retain its own profit separately - Both have agreed to execute the job together for better co-operation in their relationship with the Chennai Port Trust - If the cost incurred by the HCC or the applicant was more than their income, each party will have to bear its loss without any adjustment from the other party - the applicant and HCC cannot be treated as an AOP for the purpose of levy of income-tax - The applicant will be liable to be taxed as a separate and independent entity. Disallowance of contract receipts u/s 40(a)(ia) – Held that:- CIT(A) was justified in holding that in absence of any contract or sub-contract work by joint venture to its member companies, provisions of section 194C were not applicable for the purpose of TDS - The two corporate entities forming joint venture were already being assessed since A.Y. 2000-01 onwards on their respective shares and TDS apportionment certificates were also issued by the AO every year for these eight years including the current assessment year to enable them to claim the same - there was no Profit and Loss Account in the assessee’s case and there was no claim of any expenditure - there was no question of any disallowance under the provisions of section 40(a)(ia) - disallowance u/s. 40(a)(ia) made by the AO cannot be sustained - the finding of the CIT(A) cannot be interfered who has rightly held that there is no question of disallowance made u/s. 40(a)(ia) of the Act – Decided against revenue.

  ---

• 2014 (12) TMI 308
  Validity of order of revision u/s 263 – Erroneous or prejudicial to interest of revenue – Held that:- The Tribunal was of the view that there could be an explanation and which was later on furnished so as to explain the source of funds - the Assessee offered a sum as additional income in the returns filed after the search - if after examining the details the AO accepts one of the possible views, then his order cannot be called erroneous and prejudicial to the interest of the Revenue – Relying upon CIT v/s. Gabriel India Ltd. [1993 (4) TMI 55 - BOMBAY High Court] - inquiries have been made in regard to nature of the expenditure incurred by the Assessee, the explanation has been given and which the Assessee termed as a detailed explanation and in writing - the claim was allowed by the AO on being satisfied with this explanation of the assessee - Such an order or assessment made by the AO could not have been held to be erroneous simply because elaborate or better reasons could have been assigned - If the Commissioner initiates proceedings u/s 263 and hears the assessee, but on examination of the entire material what he upsets or rather interferes with is a possible view, then the course adopted by him was held to be impermissible in law. The AO has made inquiry and which also appears to have been reflected in the figures - assessee was carrying on petroleum and other business for more than 15 years and earned additional income - diary entries have been referred to and the AO's conclusions have been eventually upheld - once inquiry was made and how the view taken by the AO is demonstrated to be possible and plausible one, then, there is no reason that the Tribunal's order can be termed as perverse or vitiated by any error of law apparent on the face of record – as such no substantial question of law arises for consideration – Decided against revenue.

  ---

• 2014 (12) TMI 307
  Validity of Tribunal’s order – Non-speaking order passed by Tribunal – Held that:- The Tribunal was of the view that the AO is legally and factually correct in rejecting the books of accounts u/s. 145 - the burden is on the assessee to prove that timber imported through a specific bill and quantity is either shown as sold or lying in the closing stock - before the AO assessee has not furnished month wise sales and purchases in quantity - revenue has also found various defect – after taking into consideration the entirety of the facts and circumstances of the case, reasons recorded by the AO for making the addition by rejecting the books of accounts u/s. 145, CIT(A) erred in deleting the addition and the addition was correctly made by the AO – the Tribunal reversed the CIT(A)’s order without assigning any cogent reasons – thus, the order of the Tribunal is set aside and the matter is remitted back to the Tribunal – Decided in favour of assessee.

  ---

• 2014 (12) TMI 306
  Validity of Tribunal’s order - Genuineness of gift – Gift of Rs. 1 lac received by minor daughter – Income of assessee and minor clubbed – Held that:- The Tribunal has not specifically referred to Section 68 of the Act, but AO has specifically recorded that the addition of Rs. 1 lac was being made as the assessee had not been able to prove and establish the source of the income/deposit of the minor Aushi Aggarwal - it is not necessary for the Revenue to show and prove how the assessee in this case through a conduit had transferred and brought into books of account, undisclosed income u/s 68 - this section casts a burden on the assessee to show genuineness of the transaction by establishing identity of the person from whom the payment was received, the source of payment, which necessarily need not be confined only to the details of the bank account from which payment was made but also corroborating and surrounding circumstances - income/cash credits which are not satisfactorily explained might be assessed as income - where any amount was found credited in the books of the assessed in the previous year and the assessed offered no explanation about the nature and source or the explanation offered was in the opinion of the AO not satisfactory, the sums so credited could be charged to taxed as income of the assessed for the relevant previous year - creditworthiness of the donor would depend upon the income and earning of the donor and whether and did he have necessary funds - Rarely one finds a poor man giving gifts to a rich and powerful, out of natural love and affection – The test of perversity is whether a reasonable person conversant with the legal provisions would have reached to the conclusion or finding under challenge - the reasoning and the finding of the tribunal is plausible, thus, the order of the Tribunal is upheld – Decided against assessee.

  ---

• 2014 (12) TMI 305
  Interest income received from loans – Exclusion of interest income from the computation of chargeable interest and inclusion of net interest only - Whether the Tribunal was right in directing the AO to exclude the interest earned by the assessee company on the deposit made with other concerns while computing the chargeable interest of the assessee u/s.4 of the Interest Tax Act and to include the net interest only received by the assessee company on refinancing, for the purpose of computing the total chargeable interest, despite the clear provisions of Explanation to section 6 of the Interest Tax Act – Held that:- Following the decision in COMMISSIONER OF INCOME TAXGANDHI NAGAR Versus GUJARAT INDUSTRIAL INVESTMENT CORPORATION [2006 (8) TMI 581 - GUJARAT HIGH COURT] - investment in debenture could never be equated with the advancement of loans made in India - loans given by the assessee to ultimate borrowers were part of an overall scheme laid down and controller by IDBI/SIDBI and the assessee has no discretion in respect of any part of the transaction, therefore, such transaction was considered as an integral and the interest accruing to the assessee was considered as arising from the entire transactions - the assessee is liable to interest tax only on the net interest received by it – the amount received by the assessee in the shape of fees cum service charges cannot be equaled with interest as received on loan and advances - interest earned from loan is only includable in the total chargeable interest as contemplated in the definition of interest provided in this Section 2(7) of the Interests Act – thus, the order of the Tribunal is upheld – Decided against revenue.

  ---

• 2014 (12) TMI 303
  Validity of reopening of assessment u/s 147(b) – Report of DVO regarding the value of the cost of the construction in progress can be treated as information or not for the income tax purpose – Held that:- Wealth Tax Act is concerned with the valuation of properties and contains provision for referring the matter of valuation to the DVO - However, under the Income Tax Act, the income has to be determined as per the books of accounts maintained by the assessee and there is no provision to refer the matter to the Departmental Valuation Officer - the assessee had placed all the materials before the AO at the time of original assessment, which the AO had examined - the report of the DVO would not constitute any additional information but, would merely be an opinion about the cost of construction since reopening of assessment is not contemplated under the Income Tax Act – in LB. Kharawala Versus Income-Tax Officer, Company Circle-V, Ahmedabad [1983 (1) TMI 23 - GUJARAT High Court] it has been held that initiation of proceedings on the basis of the report of Valuation Officer under the Wealth Tax Act is not permissible – the AO was not confronted with any defects in the books of accounts maintained by the assessee - AO has not given any valid reasons for not accepting the cost shown by the assessee though he accepts that the method of accounting was mercantile - thus, the reassessment was invalid – Decided against revenue. Addition made towards the value of cost of construction u/s 69B – Held that:- Following the decision in Goodluck Automobiles (P) Ltd. v. Assistant Comm. Of Income Tax [2012 (9) TMI 157 - Gujarat High Court] - wherein, it has been held that reference made by the AO to the Valuation Officer for estimating the cost of construction is invalid – Decided against revenue.

  ---

• 2014 (12) TMI 302
  Accrual of income - Income from advance license benefit - Whether the Tribunal is right in concluding that the notional income from advance licence benefit receivable has accrued as taxable income – Held that:- Assessee contended that the income which was sought to be included without exercising the option of importing the goods by the department – Following the decision in The same issue has come up for consideration before the Full Bench of the Supreme Court in the case of Commissioner of Income-tax v. Excel Industries Ltd. [2013 (10) TMI 324 - SUPREME COURT] – income does not accrue in the year of export but in the year in which the imports are made – Decided in favour of assessee.

  ---

• 2014 (12) TMI 301
  Assessment of capital gain on sale of land at Maqta Mehaboobpet – Held that:- AO came to the conclusion that there is transfer of capital asset i.e. land admeasuring acre 1.235 guntas by assessee to MDPL by solely relying upon the agreement of sale-cum-GPA dated 31/07/08 - though assessee had entered into agreement of sale-cum-GPA but it never received the consideration of Rs. 7,14,37,500 as mentioned in the agreement of sale-cum-GPA - Nothing has been brought on record by AO during the assessment proceeding or even by the revenue to controvert the fact that the cheque No.600873 dated 31/07/08 of HDFC Bank, Banjara Hills was never handed over to assessee nor encashed by assessee - when two of the most important ingredients of sale/ transfer viz., receipt of sale consideration and delivery of possession are missing, there cannot be a transfer of capital asset either under the TP Act or under section 2(47) of the IT Act - since the vendor as well as vendee have agreed to cancel the agreement of sale-cum-GPA by entering into a registered cancellation deed even that situation does not arise - there is no other documentary evidence brought on record which could conclusively prove that the property stands transferred to the vendee during the relevant PY - the inference drawn by AO that assessee has sold the property resulting in capital gain cannot be upheld - though in one of the grounds the department has raised the issue of consideration of fresh evidence in violation of rule 46A by CIT(A) but at the time of hearing neither the revenue made any substantive argument on this issue or brought to our notice the exact nature of evidences considered by CIT(A) in violation of rule 46A - the claim of the department that CIT(A) has considered fresh evidence in violation of rule 46A cannot be entertained – Decided against revenue. Addition of capital gain on sale of land at Kistareddypet – Held that:- AO has rejected assessee's claim of exemption from capital gain on sale of land by simply observing that assessee has not brought any evidence to show that the land is situated beyond eight kilometers from the limit of nearest municipality - not only the land is classified as agricultural land but it is beyond eight kilometers from the limits of nearest notified municipality - it is not clear whether land of assessee was actually acquired on that date or subsequently - nothing has been brought on record to indicate the actual date of acquisition of land - actual date of acquisition assumes importance considering the fact that assessee himself has shown the income in the impugned assessment year - no material has been brought either by the assessee or by the department to indicate the exact distance of land from the limits of a nearest notified municipality – thus, the matter is to be remitted back to the AO for fresh adjudication – Decided partly in favour of revenue. Allowability of claim of exemption u/s 54F – Held that:- AO has denied claim of exemption u/s 54F for two reasons i.e., construction of the new property was prior to the date of sale of original asset and secondly, the sale consideration received by assessee was not utilized for construction of the new asset - assessee has not only claimed that the construction of the new residential house was started in March 2007 and continued up to June 2008 but has also submitted a report from registered valuer in support of such claim - The bank statement also indicate the fact that not only the sale consideration of the original asset was deposited in bank account but there are substantial withdrawals from the bank account thereafter which gives credence to the assessee's claim that the sale consideration was utilized for construction of the new asset - the assessee has invested in construction of the new asset within the time limit prescribed u/s 54F - in absence of any evidence brought on record by AO to contradict assessee's claim of investment in construction of new house by utilizing the sale proceeds of the original asset the addition made on the basis of presumptions and surmises cannot be sustained - the CIT(A) was justified in allowing the claim of assessee u/s 54F – Decided against revenue. Claim of allowability of cost of acquisition – Held that:- On verifying the sale deed CIT(A) found that assessee has incurred expenses towards cost of acquisition of property in the year 2004 - the claim of the revenue that the CIT(A) has allowed the benefit by considering information which was not filed before the AO cannot be upheld, when the documentary evidence clearly establish the claim of assessee that the CIT(A) was justified in allowing such claim on the basis of material on record – Decided against revenue. Allowability of claim of exemption u/s 54F – Held that:- AO has rejected assessee's claim u/s 54F for the reason that the building having been let out to an educational institution for use as a students hostel, hence, is a commercial property - CIT(A) was of the view that as the building is used as a dwelling unit for students and is having facilities for sleeping, cooking, dining etc., it is a residential house and as such assessee is entitled for deduction u/s 54F - neither AO nor CIT(A) have examined the primary facts before coming to their conclusion - AO was not justified in rejecting assessee's claim by simply observing that as the building is used as a hostel it is commercial property - the finding of CIT(A) is also conflicting and contradictory - the nature of a property whether residential or commercial cannot be determined by solely applying the user test - in the absence of the basic facts, the exact nature of property constructed and assessee's eligibility to section 54F cannot be decided conclusively on presumptions – thus, the matter is remitted back to the AO for fresh adjudication – Decided in favour of revenue. Allowability of claim of exemption u/s 54B - Gain arising from sale of agricultural land - Held that:- Assessee derived gain from sale of agricultural land to the tune of Rs. 31,68,790 which was claimed as exempt having been invested in purchase of agricultural land - the land purchased at Kistareddypet and Sultanpur Village in Patancheru Mandal are classified as agricultural land not only as per the registration deed, pattadar pass book, etc., but, has also been certified by revenue authorities as agricultural land - the only requirement for claiming deduction is the capital gain arising from transfer of agricultural land if is invested in purchase of any other land for being used for agricultural purposes, then, assessee would be eligible for deduction - the documentary evidences submitted by assessee clearly prove that the land purchased are in the nature of agricultural land - the intention of assessee in purchasing the land for being used for agricultural purposes is evident - there is no restriction u/s 54B regarding the proximity of the land to urban area - Only requirement as per section 54B is the land purchased is for the purpose of being used as agricultural land – the order of the CIT(A) is upheld – Decided against revenue.

  ---

• 2014 (12) TMI 300
  Accrual of interest income on loans and advances – doubtful or sticky loan. - interest income which is transferred to the suspense account - Held that:- Following the decision in M/s. Maruti Securities Ltd. Versus Addl. Commissioner of Income-Tax [2014 (9) TMI 317 - ITAT HYDERABAD] - to arrive at a real income, accrual basis cannot be a justifying factor and the commercial and business realties of the assessee, should be considered - The interest income has been recognized in the books of accounts only to the extent of actual collection, which is the recommended/ recognized method as per Accounting Standard 9 of ICAI which lays down that when uncertainties exist regarding the determination of the amount or its collectability, the revenue shall not be treated as accrued and hence shall not be recognized until collection - where an assessee is following the mercantile system of accounting, it is only accrual of real income which is chargeable to tax, that accrual is a matter to be decided on commercial belief having regard to the nature of business of the assessee and character of the transaction - for the purpose of determining whether there has been accrual of real income or not, recourse is to be made to ascertain the nature of business and character of the transaction and the realities and peculiarities of the situations. There was no inconsistency or contradiction between the circular so issued and section 145 of the Income-tax Act - In fact, the circular clarifies the way in which these amounts are to be treated under the accounting practice followed by the lender - The circular cannot be treated as contrary to section 145 of the Income-tax Act or illegal in any form - It is meant for a uniform administration of law by all the income-tax authorities in a specific situation and, therefore, validly issued under section 119 of the Income-tax Act - the circular would be binding on the Department – the findings of CIT(A) is set aside – Decided in favour of assessee. Validity of order of revision of u/s 263 - Revised valuation of closing stock accepted by without enquiry and application of mind - Held that:- CIT was under an impression that assessee has deviated from the consistent accounting policy adopted by it while valuing the closing stock - as per the annual report and the consistent accounting policy, stock has to be valued at cost, but, in AY under consideration though originally assessee has valued the closing stock at cost as per accounting policy followed by it but, subsequently assessee has changed method while valuing of closing stock in the revised return without informing the AO - assessee has not changed the method of valuation of closing stock - assessee had valued the closing stock on the basis of weighted average cost price without taking into account the market price of the securities as on that - the allegation of CIT that assessee has changed the method of valuation is incorrect. What the assessee has done while revising the valuation of closing stock is consistent with accounting principle adopted by it for valuing the closing stock - assessee in the revised stock valuation has adopted the value of closing stock as per the cost or market price whichever is lower - AO has specifically enquired into the valuation of closing stock and the note submitted by assessee during the assessment proceeding, clearly explains the situation leading to revision in valuation of closing stock - it is established that AO has enquired into the matter and after examining the explanation/submissions of assessee along with other factual details submitted before him, he has accepted the revised valuation of closing stock - when the AO has enquired in to the matter and after proper application of mind to the facts and materials on record has passed the assessment order, it cannot be said that assessment order passed is erroneous and prejudicial to the interests of revenue merely because there is no reference in the assessment order with regard to the stock valuation. When the evidences on record show that AO has made enquiries and applied his mind to the issue and completed the assessment, only because the view taken by AO is not to the liking of ld. CIT, that will not make the assessment order erroneous and prejudicial to the interests of revenue so as to empower CIT to revise it u/s 263 - the note to clause 1 of AS- 13 clearly provides that it will apply to shares, debentures and securities held as stock-in-trade - Though they may not be treated as investment, but, AS-13 will apply to them as they are similar to current investments - Thus, as per AS-13 also, investments have to be valued at cost or fair market price whichever is lower - The finding of ld. CIT in this regard is also not based on proper appreciation of AS- 13 or the facts on record - assessment order on the issue cannot be held to be erroneous and prejudicial to the interests of revenue – the revised order by the CIT is set aside. Expenses u/s 14A on exempted income - Whether AO has not disallowed the expenditure u/s 14A on the exempted income – Held that:- Though Rule 8D cannot be applied retrospectively to the AY as it came into the statute w.e.f. 24/03/2008, however, it cannot be overlooked that the provisions contained u/s 14A of the Act were existing in the statute which required disallowance of expenditure - CIT was correct in directing AO to examine the applicability of provisions of section 14A to the exempt income earned by assessee during the year - this issue has not at all been examined by AO while completing the assessment or at least nothing has been brought to our notice that AO during the assessment proceeding has examined this issue – in assessee’s own case also disallowance of expenditure u/s 14A at 10% of exempt income earned during the year is upheld – the order of the CIT is upheld. Penalty u/s 271(1)(c) - Whether AO has failed to initiate proceeding u/s 271(1)(c) on the additions made while completing the assessment – Held that:- The addition of notional interest income of Rs. 58,10,000 was deleted, the direction of CIT to initiate proceeding u/s 271(1)(c) has become infructuous - the exercise of power u/s 263 of the Act in respect of issue relating to disallowance to be made u/s 14A of the Act, however, so far as the issue relating to valuation of closing stock and initiation of proceeding u/s 271(1)(c), exercise of power u/s 263 is invalid – the order of the CIT is modified and the AO directed to confine himself to examine the issue relating to disallowance of expenditure u/s 14A of the Act – Decided partly in favour of assessee.

  ---

• 2014 (12) TMI 299
  Assessment u/s 153A - Additions and disallowance made – No incriminating material found during search – Jurisdiction - Held that:- Section 153A starts with a non-obstante clause relating to normal assessment procedure which is covered by Sections 139, 147, 148, 149, 151 and 153 of the Act in respect of searches carried out after 31.5.2003 - These sections, the applicability of which has been excluded, relate to returns of income, assessment and reassessment provisions - as per the provisions of section 153A of the Act, the AO is bound to issue notice to the assessee to furnish returns for each AY falling within six AYs immediately preceding the assessment year relevant to the previous year in which the search u/s 132 of the Act or requisition u/s 132A of the Act, was made – as held in CIT Versus ANIL KUMAR BHATIA [2012 (8) TMI 368 - DELHI HIGH COURT] - where a search is carried out u/s 132 or a requisition u/s 132A of the Act, the AO shall issue notice requiring the person searched to furnish his return of income in respect of each AY relevant to the previous year in which such search is conducted or requisition is made - the AO gets jurisdiction for passing orders u/s 153A of the Act, once search action is initiated, whether or not any incriminating material is found during the course of search action. Scope of assessment u/s 153A – Held that:- The jurisdiction to issue notices u/s 153A cannot be equated with the scope of assessment – as held in Assistant Commissioner of Income-tax (CC) – 45 Versus Pratibha Industries Ltd. [2012 (12) TMI 760 - ITAT MUMBAI] - where incriminating material relating to the earning of income not declared to the Department is found in the course of search, then there is no dispute as to the jurisdiction as well as the scope of assessment where an assessment proceedings for any AY is pending on the date of search, then proceedings relating to that assessment will abate and the scope of assessment will be wide enough to include issues emerging from abated proceedings as well as issues emerging from seized incriminating material – Following the decision in M/s CANARA HOUSING DEVELOPMENT COMPANY Versus THE DEPUTY COMMISSIONER OF INCOME TAX [2014 (8) TMI 642 - KARNATAKA HIGH COURT] - once the assessment is reopened, the AO can take note of the income disclosed in the earlier return, any undisclosed income found during the course of search and also any other income which is not disclosed in the earlier return of income OR which is not unearthed in the course of search u/s 132 of the Act, in order to find out and determine what is the ‘total income’ of each year and then pass the order of assessment – Decided against assessee. Treatment of expenses on renovation and cost of improvement of building leased – Capital or revenue expenses – Held that:- The assessee has taken the hotel on lease - the assessee has incurred expenditure on renovation of plant design system, computer cabling, fire detection and alarm system, card access system, plumbing and air conditioning work, electrical works, fixing of carpets, interior work, etc. - after incurring the expenditure on the leased premises, the assessee has neither obtained any enduring benefit nor has any new capital asset has come into existence - The assessee continued to run the hotel in the very same leased premises - expenses incurred was only for carrying on the business and was an integral part of the profit earning process - The nature of the work undertaken by the assessee is to carry on the business and not obtain any asset - no capital asset of an enduring nature came into existence - the assessee has not acquired any asset / income earning apparatus - the expenditure incurred for acquisition of an asset is a capital expenditure and expenditure incurred in the process of earning profit is revenue expenditure - the assessee incurred the expenditure for efficient running of the business and therefore the expenditure incurred is revenue in nature - the expenditure incurred by the assessee, the hotel remains a hotel and the capacity does not increase - assessee has not obtained any enduring advantage in the capital field - Therefore, the expenditure incurred facilitated the assessee to carry on its business effectively and more profitably - the expenditure incurred by the assessee has to be treated as revenue in nature. Whenever an expenditure was incurred in the process of earning profits it has to be allowed as revenue expenditure - the expenditure was incurred for renovation - These expenses were incurred only for the purpose of carrying on day to day business and earn profits and do not result in the bringing into existence of any capital asset - CIT(A) was not right in upholding the disallowance of the expenditure by holding it as capital in nature – the order of the CIT(A) is set aside and the assessee's claim for deduction of expenditure incurred towards renovation of plant design system, computer cabling, fire detection and alarm system, plumbing, air conditioning work, electrical works, interior work etc. on the hotel / building taken on lease is allowed – Decided in favour of assessee.

  ---

• 2014 (12) TMI 298
  Applicability of section 35(3) - Expenses incurred on product development with reference to scientific research activity - Claim of product development expenditure being interest on loans and cost of consumables u/s 37(1) – Held that:- The Tribunal in its order dated 31st July, 2013 held that the assessee will not get benefit of deduction u /s. 35(1)(i) - the plea of the assessee was also that if the expenditure is not allowable u/s. 35(1)(i) then the expenditure is nothing but scientific R & D expenditure and, therefore, allowable u/s. 35(1)(iv) – u/s 35(1)(i) deduction is to be allowed in respect of any expenditure of capital nature of scientific nature relating to business carried on by the assessee – Following the decision in Enem Nostrum Remedies (P.) Limited. Versus Assistant Commissioner Of Income-tax, Circle 8 [2008 (8) TMI 384 - ITAT BOMBAY-E] - there is difference in the language of clause (iv) of section 35(1) and section 43(4)(iii)(a) because the reference in the former section is to 'scientific research related to the business carried on by the assessee' and in the definition clause of section 43, the language used is 'scientific research related to a business or class of business' to include 'any scientific research which may lead to or facilitate an extension of that business or as the case may be, all businesses of that class - the molecules when successfully developed will yield patent rights to the assessee - the assessee will be inventor of such product and, therefore, the expenditure is for scientific research and eligible for deduction u/s. 35 of the Act - the process of development of molecule to the stage of vaccine i.e., medicine is the process involved in scientific research - the proper course of action for the AO is to refer the matter as directed u/s. 35(3) - The Tribunal cannot decide the claim against the assessee or in its favour without following the procedure laid down in the Act –thus, the matter is remitted back to the AO with a direction to refer the claim of deduction u/s. 35 according to the procedure laid down u/s. 35(3) – Decided in favour of revenue.

  ---

• 2014 (12) TMI 297
  Interest paid to bank disallowed – Applicability of section 43B - merger of non-scheduled bank with scheduled bank - Held that:- The loan from Global Trust Bank was taken sometime in 2001 and since then the assessee has been debiting its Profit & Loss Account by the amount of interest payable on the borrowings - in earlier years the liability has been considered and accepted as towards interest - For the first time the AO has changed the character of the liability from “interest” to “dividend” which is against the rule of consistency - The AO himself has observed that no fresh loans have been taken during the year under consideration - the AO cannot change the nature of liability during the year under consideration – also, the contention of assessee cannot be accepted that the liability is not towards a scheduled bank because the amount has been borrowed from Global Trust Bank - when a bank is taken over by some other bank then all the borrowers of the erstwhile bank have to enter into fresh loan agreement with the new bank - once the Global Trust Bank has been merged with Oriental Bank of Commerce the borrowings of the assessee has to be considered as borrowings from Oriental Bank of Commerce and Oriental Bank of Commerce is a scheduled bank, therefore provisions of section 43B clearly apply on the facts of the case - The disallowance of Rs. 3.25 crores made under section 43B of the Act is confirmed - in subsequent years, i.e. AY 2007-08 the bank has waived the loan and the liability of interest and the assessee has shown the same as its income in AY 2007-08 - If the AO finds that the same has been offered for taxation in AY 2007-08 then the same must be considered as per provisions of law – Decided against assessee. Transfer pricing adjustment – Computation of ALP - Application of most appropriate method – CUP method or TNMM method – Held that:- Following the decision in Dy. Commissioner of Income Tax Versus Trigyn Technologies Limited [2013 (8) TMI 701 - ITAT MUMBAI] - the assessee was having total international transactions with the AE of more than Rs. 5 crores, AO made reference to TPO u/s 92CA(1) for computation of Arm's Length Price (ALP) of the international transaction u/s 92C – assessee contended that the TPO adopted TNMM and selected certain comparables to arrive at arithmetic mean of 9.92 % as against CUP method selected by assessee for determining ALP - international transaction of assessee with its AE are at ALP and accordingly deleted the addition made on account of transfer pricing adjustment - the issue requires reconsideration by TPO and therefore the matter is remitted back to the AO for determination of ALP – Decided in favour of assessee. Allowability of provision for doubtful debts u/s 36(1)(vii) – Held that:- The facts indicates that the assessee has actually written off the debts – following the decision in M/s. Vijaya Bank Versus Commissioner of Income Tax & Anr. [2010 (4) TMI 46 - SUPREME COURT] - any bad debt written off as irrecoverable in the account of the assessee will not include any provision for bad and doubtful debt made in the accounts of the assessee - a mere provision for bad debt would not be entitled to deduction u/s 36(1)(vii) - If an assessee debits an amount of doubtful debt to the P&L a/c and credits the asset account like sundry debtor’s account, it would constitute a write off of an actual debt - the amount of loans and advances or the debtors at the year-end in the balance sheet is shown as net of the provisions for impugned debt - it is always open to the AO to call for details of individual debtor’s account if the AO has reasonable grounds to believe that assessee has claimed deduction, twice over - were a deduction has been allowed in respect of a bad debt or a part thereof u/s 36(1)(vii), then, if the amount subsequently recovered on any such debt is greater than the difference between the debt and the amount so allowed, the excess shall be deemed to be profits and gains of business and, accordingly, chargeable to income-tax as the income of the previous year in which it is recovered – Decided against revenue.

  ---

• 2014 (12) TMI 296
  Validity of order of CIT for invoking section 263 – Assessment order in respect of assessment of income on sale of property as business income instead on capital gain declared by the assessee set aside by CIT - Held that:- In M/s Khatiza S. Oomerbhoy Vs. ITO,Mumbai [2006 (2) TMI 201 - ITAT BOMBAY-H] - the fundamental principles for judging the action of the CIT taken u/s 263 were mentioned - CIT has propounded that assessee has already been offering income from profession and business in his two proprietorship concerns, he has the basic idea to classify his income - He has classified purchase of plots under the head “Investment” and offers the income under the head” Capital Gain” - assessee had never depicted these assets as a stock in trade in the financial statements - the contention of the assessee before the CIT was that the AO has issued questionnaires and made oral discussion, but the assessee during the course of hearing failed to point out any circumstances which has been discussed by the AO to indicate that the income from sale of property is to be assessed as business income - in the past also, the assessee was offering income on purchase and sale of the property under the head “investment”. Accounting entries maintained by the assessee cannot be a guiding factor for determining the true income, but there should be strong reasons to dispel the stand of the assessee - the AO was not having any such strong reason - He, on a wrong assumption of law changed the head of income – there are certain broader tests required to be applied on any transactions for finding out, whether such transactions was a business transaction or it was a simplicitor investment - Though the tests were applied on investment in the shares, but some of the decisions can equally be applied on any other transactions - assessee in his accounts not showing the land purchased by him as stock in trade - Nowhere, from the circumstantial evidence it can be inferred that the assessee was in the business of sale and purchase of the property - therefore, there was no error in the order of the CIT - As regards the application of section 50C for computing capital gain, permission to capitalize the interest income, CIT has set aside these issues for the Assessing Officer to be looked into while determining the capital gain arisen to the assessee on sale of property – thus, the order of the CIT is upheld – Decided against assessee.

  ---

• 2014 (12) TMI 295
  Discount allowed to customers disallowed - Discount allowed to customers are supported by vouchers or not – Held that:- Assessee allowed discount to various customers on the sale of Tractors - The amount of discount which has been disallowed relates to the discount allowed to the customers who have obtained bank finance in order to purchase the Tractors from the assessee - assessee has refunded a portion of the sale price received by it and the same has been explained to be discount allowed to the customers - the relevant material, namely, copies of bank loan sanction letters, sale bills, copy of discount vouchers, ledger account of customers, etc. were produced by the assessee and the same have been verified by the AO - assessee company has further explained that the business of Tractors is a competitive business where the main customers are farmers who do not enjoy liquidity and they often approach banks for finance - assessee was guided by the objective of enhancing its profits and the aforesaid methodology of effecting sale was adopted - No doubt, it may not be the best of the practices, so however, the expenditure cannot be disallowed merely for that reason - the expenditure otherwise is verifiable and there is no adverse evidence on record - the disallowance sustained by the CIT(A) is not justified – thus, the order of the CIT(A) is set aside and the AO is directed to delete the addition – Decided in favour of assessee. Disallowance made u/s 40(A)(b) - payments made to the relatives reasonable or not – Held that:- One of the items of expense relates to rent paid to Late Mr. D.M. Bhansali and Smt. Tarabai D. Bhansali of Rs. 1,14,000/- with respect to a property taken on rent - assessee had given specific instance in the vicinity, whereby Kopergaon Peoples Co-op. bank Ltd. has leased out a premises to LIC and Bank of Baroda @ Rs. 5 to Rs. 8 per sq.ft. - there is no reason advanced by the lower authorities to reject the explanation furnished by the assessee - there is no justification to disallow an ad-hoc sum for being excessive within the meaning of section 40A(2)(a) of the Act. In respect of the expenditure of rent paid to Mr. Arvind D. Bhansali and Sanjay D. Bhansali also for the Ahmednagar premises and the workshop at Kopergaon respectively, assessee had pointed out that the rentals paid to the sister concern were reasonable - the monthly rent paid is around Rs. 1.25 per sq.ft. and Rs. 0.40 sq.ft. per month – the rentals are quite reasonable, and in any case, the Assessing Officer has not referred to any comparable case to establish excessiveness vis-à-vis the market rates - the ad-hoc disallowance is not merited. Interest paid to certain depositors who are persons specified in section 40A(2)(b) – Held that:- The total interest expense is Rs. 23,14,080 - interest has been paid @ 12% per annum – assessee pointed out that in the period corresponding to the AY under consideration Prime Lending Rate (PLR) rates of the nationalized and Co-op. Banks were round 14% to 15% and therefore the interest paid by the assessee @ 12% to the related parties was quite justified - the interest expenditure incurred @ 12% on deposits raised from the related parties is reasonable and does not call for any disallowance of section 40A(2)(a) of the Act. Purchases from sister concern disallowed – Held that:- The material was before the lower authorities and there is no rebuttal of the assertions made by the assessee - the invocation of section 40A(2)(a) of the Act cannot be upheld with respect to the expenditure incurred by the assessee on account of purchases from sister concerns – thus, the order of the CIT(A) is set aside. Travelling expenses disallowed u/s 40A(2)(a) – Held that:- The amount represents reimbursement of travelling expenses incurred by the Managing Director of the assessee company, who had travelled to other places for official work - the expense cannot be subject to a disallowance u/s 40A(2)(a) of the Act as expenses are claimed to have been incurred for the business purpose - The payments are not in the form of perquisites or for any other benefit to the Director, but the some actual expenses incurred on carrying out work for the assessee company - Such a disallowance is not envisaged in section 40A(2)(a) of the Act – thus, the order of the CIT(A) is set aside – Decided in favour of assessee. Incentives and commission disallowed – Held that:- The factum of the assessee incurring expenses by way of commission/incentives in the course of carrying out in business of Tractor and TVS bike stands established - a sweeping and whole-sale disallowance of the expenditure is quite improper, having regard to the facts and circumstances of the case - there is no particular infirmity or falsity brought out by the AO based on any verification exercise so as to justify the disallowance of the expenditure in its entirety - assessee had furnished agreement and also pointed out that it has deducted tax at source on certain payment made towards commission/incentives - the material furnished by the assessee in support of the expenditure has not been found to be devoid of bonafides – assessee relied upon CIT vs. Modern Terry Towels [2012 (8) TMI 776 - BOMBAY HIGH COURT] wherein it has been held that for allowability of expenditure it is not necessary for the assessee to submit confirmations from the other party, but the allowability has to be decided on the basis of entirety of facts and circumstances of the case – thus, the order of the CIT(A) is set aside – Decided in favour of assessee.

  ---

• 2014 (12) TMI 294
  Disallowance u/s 14A r.w Rule 8D – Whether the revenue was right in deleting the disallowance u/s 14A holding that no dividend income was earned by the assessee ignoring the provisions u/s 14A – Held that:- Following the decision in Commissioner of Income Tax-IV Versus Holcim India P. Ltd. [2014 (9) TMI 434 - DELHI HIGH COURT] no exempt income has been earned by the assessee from the investment made in the subsidiary - there was a contradiction in the submissions made by the revenue that the assessee had acquired shares for earning of dividends - assessee is an investment company and had invested by purchasing a substantial number of shares and thereby securing right to management - Possibility of sale of shares by private placement etc. cannot be ruled out and is not an improbability - Dividend may or may not be declared - Dividend is declared by the company and strictly in legal sense, a shareholder has no control and cannot insist on payment of dividend - the CIT(A) erred in confirming the order of the AO - the deletion of Rs. 63,16,000/- added u/s 14A read Rule 8D is directed. Expenses on Air Condition and renovation of lease hold premises disallowed – Held that:- Out of amount of Rs. 4,80,000/- in respect of painting and Rs. 1,24,785/- in respect of sign board has been allowed by AO as Revenue expenditure - The balance Rs. 38,14,000/- was held to be capital expenditure, which has been allowed by the ld CIT(A), except a sum of Rs. 5,50,000/- on ducting of air condition - The nature of expenditure reveals that they were in respect of interior work of an office premises - The office premise of the assessee is a leased premise - The lessor has provided the air-conditioning - Only the ducting was carried out by the assessee - no asset was created so as to hold the expenditure to be capital expenditure – relying upon COMMISSIONER OF INCOME TAX Versus M/S AMWAY INDIA ENTEPRISES [2011 (11) TMI 4 - DELHI HIGH COURT] expenditure incurred and claimed was for carrying out interior of a leased premise is revenue expenditure – Decided in favour of assessee.

  ---

• 2014 (12) TMI 293
  Validity of reopening of assessment u/s 147 – Held that:- CIT(A) was rightly of the view that upon receipt of a letter from DCIT Central Circle 19 New Delhi, the AO had bonafide reasons to re-open the assessment by issue of a notice u/s 148 - the loan transactions were worked out and in the absence of these appearing in the returned income, there was reason to believe that income had escaped assessment and therefore action u/s 147 was inevitable - prima facie there was some material on the basis of which the assessment could be re-opened - as decided in Raymond Woolen Mills Ltd v ITO [1997 (12) TMI 12 - SUPREME Court], the ‘correctness or sufficiency of the material' is not a thing to he considered at the stage of re-opening the assessment – Decided against assessee. Addition u/s 69 – Documents found from third party can be made the basis of addition or not - Held that:- The AO has made the additions – the documents cannot be made a sole basis to make additions in the hands of the assessee - These papers are found from third party - There is no nexus established of such papers with the assessee - mere resemblance of name in a loose, unsigned hand written sheet found and seized from a third party, having no connection with the assessee, cannot be the basis to fasten a burden on the assessee, so as to explain the source of such purported investment - the AO was duty bound to provide opportunity of cross-examination of the witness who have alleged that there was investment by the assessee - there is nothing which implicates the assessee. -The only nexus as emanating from the said statement is restricted to an oblique reference to one “Hari Sanker Khemka, narayana, in the statement of Shri Ram Avtar Gupta, accountant of BM Group - There is nothing to establish that the person is the assessee, who during the assessment proceedings have denied that he is not the person referred by Ram Avatar Gupta - the assessee is not from Narayana, but from cloth market Delhi – Decided in favour of assessee.

  ---

• 2014 (12) TMI 292
  Addition of unexplained credits – Entire amount received was advance towards the services to be provided by the assessee - Held that:- The fee for services to the assessee accrues only when the services are completed to the satisfaction of the client - Otherwise, the entire amount is refunded to the customer - all the advances received have either been accounted for as income in the subsequent years or have been refunded to the customers – CIT(A) recorded that the identity of the four creditors were established beyond doubt with the help of their PAN No. and their being active listed company with the Registrar of Companies - The genuineness of the transaction can also not be doubted as the transaction took place between these four concerns and the appellant company through the banking channel and the amounts of advance received from them were offered for taxation by the appellant company as per agreement either in the AY 2009-10 or in the AY 2012-13 - the AO was satisfied that the credit cannot be treated as unexplained credit and therefore, he himself has recommended that the same should be treated as business income - the addition made by the AO for an amount of Rs. 3,87,27,750/- as unexplained credit cannot be sustained u/s 68 and has been rightly deleted by the learned CIT(A) – Decided against revenue. Accrual of income – Advances received - Professional income or not – Held that:- The assessee stated that the nature of the assessee’s business is such that until the services so provided by them are completed to the satisfaction of the client, the amount of professional fees received is shown as advance against assignment because as per agreement/understanding with the customer, the fee received in advance is liable to be refunded in case the assignment is not completed to the satisfaction of the customer - assessee has explained with reference to the subsequent years account about each and every advance from customers - most of the amounts have been recognized as income in the subsequent year and some amount was refunded say the sum of Rs. 6 lakhs was refunded to Rathi Rajasthan Steel Mills Ltd. on 14.5.2008, the sum of Rs. 50 lakhs was refunded to Ahluwalia Contracts (India) Ltd. on 16.7.2008, and the remaining amount was booked as income in the subsequent years and has been taxed in those years - assessee has given complete detailed explanation in respect of each and every advance though the AO has considered the advance of Rs. 1,35,25,000/- but the assessee has given the explanation for the entire outstanding amount of Rs. 4,07,52,750 - no discrepancy in the working has been pointed out by the Revenue - Revenue has also not disputed that the similar method has been accepted by the Revenue in the preceding years – thus, the order of the CIT(A) is upheld – Decided against revenue.

  ---

• 2014 (12) TMI 291
  Assessment u/s 153A - Addition of unexplained gifts – Genuineness of transactions established or not -Held that:- For the purposes of establishing the nature and source of any credit appearing in the books of account, the burden is on the assessee in terms of the provisions of section 68 of the Act - an assessee is required to establish the identity of the creditor, creditworthiness of the creditor as well as genuineness of the transaction - assessee claims that such onus has been discharged because it has filed the return of income, copy of bank account, PAN numbers, details of assessment, confirmations, etc. of the donors - assessee and his family members had obtained bogus gifts i.e. unaccounted monies were introduced in the guise of gifts - a few transactions of gifts were surrendered by the assessee group as unexplained also - so far as the three gifts in question are concerned, there was no surrender by the assessee - the assessee could neither produce the donors and nor provide their correct addresses – CIT(A) have correctly come to a finding that the genuineness of the present gifts has not been established by the assessee – thus, the invocation of section 68 of the Act is upheld– Decided against assessee. Addition of lesss GP declared by assessee – Held that:- The AO as well as the CIT(A) have succinctly brought out infirmities/discrepancies in the account books maintained by the assessee - Ostensibly, the enquiries during the course of search/survey action clearly pointed out that the trading results declared by the assessee are impaired inasmuch as the sales as well as the stock figures are recorded on estimation and not on actual basis - The excess physical stock found on the date of search also justifies the inference of the Assessing Officer that the book results are not reliable - the lower authorities made no mistake in disregarding the book results declared by the assessee and estimating the Gross Profit @ 6% - thus, the order of the CIT(A) sustaining the addition on account of low Gross Profit for the three AYs of 2000-01, 2002-03 and 2003-04 respectively – Decided against assessee. Addition of unexplained cash credits u/s 68 – Held that:- The onus is on the assessee to establish the nature and source of the cash credits appearing in the books of account, having regard to the provisions of section 68 - the CIT(A) has reproduced the bank account statements of the creditors to show that cash deposits have been made immediately before issuing Demand Drafts to the assessee for the loans – both the AO and CIT(A) was of the view that the creditors have not explained the source of such cash deposits - No doubt, the assessee furnished the income-tax particulars, etc. of the creditors, but their failure to even prima facie explain the source of cash deposits in their bank account coupled with the fact that assessee has been found indulging in introducing unaccounted income by way of cash credits, the loans cannot be considered as genuine - there is no material to infer otherwise than what has been concluded by the AO as well as the CIT(A) - the assessee has introduced his unexplained income in the guise of loans – thus, the order of the CIT(A) that the source of unexplained cash credit can be assumed to have come out of the intangible additions on account of low Gross Profit is upheld – Decided against assessee.

  ---

• 2014 (12) TMI 290
  Addition of undisclosed sale consideration – Held that:- In the registered sale agreement, assessee’s share of sale consideration is 17,05,01,000/- and it is liable to be considered as the consideration accruing to the assessee- The MOUs relied upon by the assessee to justify adoption of a different sale consideration is of no-consequence, especially because neither the MOUs are registered and nor their terms and conditions find a mention in the recital of the registered sale agreement. Moreover, the MOUs envisage distribution of sale proceeds with one Mr. Vicky Shamsunder Bhutada, who is not stated to be a co-owner in the registered sale agreement - there is no credible explanation furnished by the assessee as to the reason for the difference in the shares in the sale consideration noted in the registered sale agreement and the MOUs - the income-tax authorities have appropriately considered the assessee’s share of sale consideration at Rs. 17,05,01,000/- on the basis of the registered sale agreement dated 10.08.2006. The plea of the assessee that the amount be considered to have been paid to the other persons for the services rendered by them for execution of the transaction - the other persons, who have received the differential amount have offered such amount as their incomes and therefore on this count also assessee deserves such a deduction – the plea of the assessee cannot be accepted because the finding of the lower authorities is that the MOUs have been found to be unreliable - There is no material or evidence on record to distract from the finding of the lower authorities. Disallowance on non-existing liability made – Held that:- The alternative plea setup by the assessee to the effect that the amount is be assessed to tax in AY 2010-11 is not justified - the verification exercise carried out by the AO, revealed that there was no legally enforceable liability on the assessee to have paid Rs. 1,05,00,000/- to M/s Manav Developers in the context of the agreement with M/s Manav Promoters Pvt. Ltd. which was cancelled - once, it is found that there was no legal obligation on the part of the assessee to pay such an amount, the consequences have to follow and the amount has been rightly assessed to tax – thus, the order of the CIT(A) is upheld – Decided against assessee.

  ---

• Customs

• 2014 (12) TMI 312
  Waiver of pre deposit - Tribunal asked the CHA to pre deposit of 50 Lacs - Held that:- appellant was a Customs House Clearing Agent and his licence has been suspended for last four years. It was further submitted that the appellant being a Customs House Clearing Agent and not the importer, he was not in a position to pay Rs. 50 lacs, which was directed to be paid as a pre-deposit. We further observe that as per the order impugned before the tribunal, the appellant has been assessed and asked to pay customs duty of Rs. 67,29,000/- and penalty of similar amount has been imposed on him. Pursuant to the last order, the appellant has deposited Rs. 10 lacs. He has also filed his affidavit giving details of the investments made by him in the form of FDRs, saving bank accounts, bonds, securities, PPF account, including those of his spouse and children, who have not attained the age of majority. The appellant has deposited Rs. 10 lacs in terms of order dated 12th September, 2014. We have also gone through the affidavit filed by the appellant in terms of directions issued vide order dated 12th September, 2014. Spouse of the appellant is working and drawing salary for about Rs. 11 lacs per annum. Details of her FDRs and investments as well as details of FDRs and investments in the name of two children and the PPF account of the spouse have been indicated. It is stated that the appellant, his spouse and minor children do not own any immovable property. The appellant will deposit a further sum of Rs. 5 lacs as a pre- condition for hearing of the appeal - The appellant will also furnish unconditional bank guarantee of Rs. 22 lacs to the satisfaction of the Registrar of the Tribunal stating that the bank will pay the amount in case the appellant does not succeed before the Tribunal - Decided partly in favour of Appellants.

  ---

• 2014 (12) TMI 311
  Maintainability of appeal - Import of Uninterrupted Power Supply Systems (UPS) - Exemption of basic customs duty, under Notification No.25 of 2005, dated 01.03.2005 - Classification of imported goods - Alternate remedy - Held that:- The petitioner has failed to avail the alternate remedy, available to them, under the Statute and straightaway approached this Court, by way of this writ petition. In the affidavit filed in support of the writ petition, no justifiable grounds have been raised by the petitioner to justify their action in by-passing the appellate remedy. In any event, each bill of entry has to be independently assessed and there is sufficient jurisdiction for the Assessing Officer to call for the information from the importer, more so, when the importer claims full exemption of basic customs duty, by placing reliance on the notification. The onus is on the importer to satisfy that the imported goods falls squarely within the four corners of the exemption notification. If the petitioner fails to prove the same, it is not entitled for the benefit of the exemption notification and the settled legal principles being that an exemption notification shall be interpreted strictly. The petitioner has not denied the information, which has been uploaded in its website, which shows that the product is capable of being put to multiple use, which is not contemplated under Notification No.25 of 2005, under heading 8504 40, which describes the goods as "static converters" for automatic data processing machines and units thereof and telecommunication apparatus. Thus, it appears that the exemption notification is specific pertaining to static converters for automatic data processing machines and telecommunication apparatus. Therefore, if it is the case of the petitioner that though the product is capable of multiple use or used for automatic data processing machines or telecommunication apparatus, nothing prevented the petitioner from establishing the same and one such method is producing an end-use. The Hon'ble Supreme court, in the case of Liberty Oil Mills Pvt. Ltd., v. Collector of Central Excise, reported in [1994 (12) TMI 74 - SUPREME COURT OF INDIA] held that, in a case of an ambiguity or doubt regarding an exemption provision in a fiscal statute, the ambiguity or doubt will be resolved in favour of the Revenue and not in favour of the Assessee. In any event, these contentions could very well be raised before the Appellate Authority and the petitioner has not placed any material before this Court to justify its action in bypassing the appellate remedy available under the Act. - Appeal not maintainable - Decided against assessee.

  ---

• 2014 (12) TMI 310
  Maintainability of appeal before High Court - Section 130 - Crude Palm Oil - whether the question is related to determination of rate of duty or valuation of goods - Held that:- the question involved is whether in the Crude Palm Oil content of carotenoid (as beta carotene) is less than 500 as contended on behalf of department or above 500 as contended on behalf of importer. Under the circumstances, as such it cannot be said that in the appeals any question arise in relation to the rate of duty of custom or to the value of the goods for the purpose of assessment. - Following the decision in the case of Anil Products Limited (2010 (2) TMI 662 - GUJARAT HIGH COURT) and Chandubhau Shiroya (2008 (10) TMI 93 - GUJARAT HIGH COURT), preliminary objection raised by the learned counsel appearing on behalf of the importer is hereby overruled and is held against the importer and in favour of revenue. - appeal is maintainable - Decided against assesee.

  ---

• 2014 (12) TMI 309
  Denial of duty drawback - export of Flanges - Deputy Commissioner (DBK), Kandla rejected the said claim by observing that as the petitioner has not used imported material for the manufacture of Flanges, the petitioner will not be entitled to the claim of duty drawback - The said authority, therefore, came to the conclusion that the aforesaid entries i.e. 73.29 and 73.30 cannot be applied to the export of Flanges by the petitioner for claiming duty drawback in the Schedule for 2002-2003 and Entry No. 73.28 in the drawback schedule for the financial year 2003-2004. - Held that:- When there is no specific mention with respect to “Flanges” in the SS No. 73.29, the claim of the petitioners for duty drawback at the rate of Rs. 19 per Kg. as per SS No. 73.29/73.28 is rightly rejected. At this stage it is required to be noted and it is not disputed by Mr. Dave, learned advocate appearing on behalf of the petitioners that Flanges require low grade steel as input and the value of which is very low. So far as the other products as mentioned in SS No. 73.29/73.30 are concerned, they require a high grade steel as input and consequently the value of the same would also be very high. Therefore, “Flanges” cannot be compared with other produces as mentioned in SS No. 73.29/73.28 as the value of the materials used for production of Flanges and the production of other goods/class of goods would be different and would vary substantially. Therefore, if the contention of the petitioners is accepted that the petitioners shall be entitled to All Industry Duty Drawback at the rate of Rs. 19 per Kg. under SS No. 73.29 at par with other products as mentioned in SS No. 73.29, in that case, as the petitioners had used low grade steel as input in the manufacture of Flanges and the value of which is very low, the petitioners shall be getting duty drawback at the higher amount i.e. Rs. 19 per Kg. which is not permissible. Right from the beginning and when the Notification No. 33 was issued, as such there is no mention with respect to Flanges in the SS No. 73.29. As such, as the controversy had arisen whether on manufacture of export of “Flanges” duty drawback at the rate of Rs. 19 per Kg. under SS No. 73.29 is available or not, the aforesaid clarificatory Circulars have been issued. That does not mean that it is oppressive circular and therefore, the same is required to be applied prospectively. petitioners have been denied duty drawback as claimed on the ground that the petitioners have failed to give declaration in respect of DBK Claimed under respective SS No as required under Rule 12(1)(a)(ii) of the Customs and Central Excise Duties Drawback Rules, 1995. However, nothing turns on that specifically, as observed hereinabove, Flanges is not included under SS No. 73.29 under which the petitioners have claimed All Industry Duty Drawback at the rate of Rs. 19 per Kg. on Steel content. Under the circumstances, the revisional authority is justified in denying All Industry Drawback Duty as claimed by the petitioners under SS No. 73.29/73.30 on export of “Flanges”. We see no error in the impugned order passed by the revisional authority - Decided against assessee.

  ---

• Service Tax

• 2014 (12) TMI 334
  Denial of refund claim - Business Auxiliary Service - Reverse charge mechanism - Assessee claims that payment of tax made twice - However, Revenue contends that service of the appellant does not fall under the Export of Service Rules, 2005 - Held that:- Activity of the appellant is that they are marketing the product of their foreign counterpart and for which they are receiving certain commission in India. It is also alleged that the said commission has been received by the appellant in Indian rupees therefore they have not complied with the conditions of Export of Service Rules, 2005. It is also alleged against the appellant that as the service has been consumed in India therefore this is not a case of export of services as per Export of Service Rules, 2005. In fact, in case of marketing of product of their foreign counterpart in India but the service of marketing of product a person who is located outside India has consumed the service outside India. In these circumstances, it is held that the case of the appellant qualified as export of service as per Rule 3 (3) (i) of the Export of Service Rules, 2005. The same view was taken by this Tribunal in Blue Star vs CCE in [2014 (12) TMI 25 - CESTAT MUMBAI] wherein the Tribunal has held in such a situation it is a case of export of service. Whether the payment received by the appellant in Indian currency can be termed as the remuneration received by the appellant qualify as per the Export of Service Rules, 2005 or not - Held that:- In fact the appellant has received the payment on behalf of their counterpart from the client of their foreign counterpart. The same issue is covered by the decision of this Tribunal in the case of National Engineering Industries Ltd vs CCE, Jaipur reported in [2011 (9) TMI 759 - CESTAT, NEW DELHI] wherein on the similar situation this Tribunal held that although payment has been received in Indian currency on behalf of the service recipient located in India from the service provider and in that case it was held that it is a case of export of service. Therefore, following decision in National Engineering Industries Ltd (supra) I hold that the appellant complied with the condition of the Export of Service Rules, 2005. Therefore the appellants are entitled for refund claim. - Decided in favour of assessee.

  ---

• 2014 (12) TMI 333
  Denial of refund claim - bar of limitation - Unjust enrichment - Held that:- Rule 4 of the Export of Service Rules provides for export of service without payment of tax as export of service is not exigible to tax. Further, Rule 5 provides for mechanism for rebate in case the tax has been paid mistakenly or by way of abundant caution. Thus, the amount of tax deposited by the assessee herein is not tax but in the nature of deposit. The same not being tax, there is no time limit for refund of deposit as Section 11B applies to refund of duty/tax only. Further, I find that the ruling in the case of Precision Controls (2004 (7) TMI 498 - CESTAT, CHENNAI) relied upon by the Revenue relates to export of goods and refund under the Central Excise Rules, 1944 and the same is not applicable in the facts of the present case. Thus, the appeal of the Revenue is dismissed - Decided against assessee.

  ---

• 2014 (12) TMI 332
  Erection, installation & commissioning service - Penalty u/s 76, 77 & 78 - Held that:- Commissioner in this order has confirmed the service tax demand relying upon the Board s Circular No.123/05/2010-TRU dated 24.05.2010 wherein it has been clarified that installation of transfer sub-stations undertaken is taxable under Section 65(115)(zze) as ‘erection, installation or commissioning service’. The Commissioner, however, in this order has not considered the notification no.45/2010-ST dated 20.07.2010 issued under Section 83 of the Finance Act read with Section 11C of the Central Excise Act, 1944 Since during the period of dispute upto 21.06.2010, there was a prevailing practice of not charging service tax on the taxable services, relating to distribution of electricity provided by a person, the Central Government by the issue of this notification has directed that in respect of such activity, the service tax would not be chargeable upto 21.06.2010. According to the appellant, their activity is covered by the above notification but the applicability of this notification has not been considered by the Commissioner. In view of this, the Commissioner’s order is set aside and the matter is remanded to the Commissioner for de novo adjudication after hearing the appellant - Decided in favour of asssessee.

  ---

• 2014 (12) TMI 331
  Rectification of mistake - Opportunity of hearing not granted - Held that:- appellants were required to be given an opportunity for being heard if the impugned order had the effect of enhancing the assessment or reducing the refund or otherwise increasing the liability on the assessee. None of these consequences followed as a result of the impugned order and therefore the appellants contention that the order is not sustainable because they were not given an opportunity for being heard is obviously untenable. The appellants have nowhere argued that the adjudication order is not based on the correct appreciation of the records relating to that adjudication presented before the adjudicating authority. That being the case it is certainly not a case of mistake apparent from the record and therefore there is no infirmity in the impugned order dated 08.01.2008 and the same is legal and proper - Rectification denied.

  ---

• 2014 (12) TMI 330
  Denial of refund claim - Export of services - Discrepancy in FIRCs produced and the export undertaken - Notification No. 5/2006 dated 14/03/2006 - Revenue contends that Notification No. 5/2006 dated 14/03/2006 in clause (b) of the opening paragraph states that credit shall be allowed in respect of inputs or input service used 'in' providing output service which is exported without payment of tax - Held that:- Certificates have been corrected by the collecting bank and therefore, this objection would no longer be sustainable. However, the correct certificates were not available before the lower authorities when they rejected the claim and, therefore, the matter is remanded back to the refund sanctioning authority for consideration of the revised FIRCs now obtained by the assessee-appellant from the collecting bank and after considering the same, refund shall be granted to the appellant as per law. In any case, the department has not objected to the assessee-respondent taking the credit at the relevant time and the objection has been raised only at the time of filing of the refund claims. There cannot be two different yardsticks; one for permitting the credit and the other eligibility for granting credit. Whatever credit has been permitted to be taken, the same are permitted to be utilized and it is not possible to have two provisions, one for grant of refund or as rebate. Without questioning the credit taken, the eligibility to refund cannot be questioned. - Following decision of Commissioner of Service Tax, Delhi vs. Convergys India Pvt. Ltd. [2009 (5) TMI 50 - CESTAT, NEW DELHI] - Decided in favour of assessee.

  ---

• 2014 (12) TMI 329
  Business Auxiliary Service - services rendered to sugar factory in relation to harvesting and transportation services of sugarcane - Benefit under Notification No. 13/2003 ST or 14/2003 ST - penalty u/s 76, 77 & 78 - Held that:- Prima facie we are of the view that the appellant is not eligible for the benefit under Notification No. 13/2003-S.T. as the activity involved herein is harvesting of sugarcane and transportation of sugarcane from the fields to sugar factory. It is not in relation to sale or procurement of sugarcane and, therefore, Notification No. 13/2003-S.T. does not appear to be applicable to the facts of the present case. As regards the benefit under Notification No. 14/2004-S.T., the service has to be rendered in relation to agriculture. In the instant case the service has been rendered to the sugar factory and sugar is a manufactured product. Therefore, it cannot be said that the said service has been rendered to the client in relation to agriculture. Further, there is nothing available on record to show that the appellant was acting as a pure agent on behalf of the clients. The appellant was rendering service to third party namely, sugar factory, and the service was not rendered to the harvesting contractor or the transport contractor. The appellant was rendering the service by engaging harvesting contractors and transport contractors. Therefore, we are of the view that the appellants have not made out a prima facie case for complete waiver of pre-deposit of the dues adjudged. - Partial stay granted.

  ---

• 2014 (12) TMI 328
  Levy of Penalty u/s 76 and 78 - short payment of service tax - Held that:- As regards penalty u/s. 78 of the Finance Act, 1994, according to Sec. 73 of the Finance Act, when shortfall of payment occurs because of suppression/mis-declaration if the assessee paid the amount with interest and 25% of the tax towards penalty before issuance of show cause notice, further proceedings need not be initiated. In this case, but for the investigation taken up by the Revenue, appellant would not have paid the amount of service tax as has been demanded. On the ‘Outdoor Caterer’ service, the appellant has not paid service tax at all and the appellant had also not paid the correct amount of service tax on the consideration received for the services rendered by them over a few years. In such a situation, penalty u/s. 78 is imposable and has been correctly imposed. Coming to penalty u/s. 76 of the Finance Act, 1994, there are decisions taking a view that penalties are imposable u/s. 76 & 78 of the Finance Act, 1994 prior to April, 2008 when Section 78 was amended to provide for no penalty u/s. 76 when penalty has been imposed u/s. 78. However, in this case, taking note of the fact that total amount short-paid is less than Rs. 50,000/- and it has occurred for a period of three financial years and obviously the appellant is not a big service provider. Moreover, as soon as the omission was pointed out, the appellant paid the service tax with interest. Further, it is also found that the appellant had correctly calculated the service tax payable by them with interest. The action of the assessee for verification of records before initiation of the proceedings would show that the omission could have occurred due to ignorance/improper accounting. Therefore, I find that it can be said that the appellant has shown reasonable cause for non-imposition of penalty u/s. 76 of the Finance Act, 1994 - Decided partly in favour of assessee.

  ---

• 2014 (12) TMI 327
  Penalty u/s 78 - Default due to ill management of sick industrial unit - Held that:- It is a case of sick industrial unit. The default had occurred during the management of sick industrial unit. The unit was taken over but the appellant could not run it profitably and accordingly they surrendered the lease after a period of about 17 months. It is evident that the appellant was somehow trying to run the sick unit which resulted in unintentional default in service tax. In view of the above, it is a fit case for invoking the provisions of Section 80 and setting aside the penalty under Section 78 of the Finance Act. Thus, the penalty under Section 78 is set aside - Decided in favour of assessee.

  ---

• 2014 (12) TMI 326
  Rejection of declarations filed by the applicant under VCES - Section 106(2) - whether the declaration dated 17-7-2013, filed by the declarant, merits to be accepted under the VCES which has been rejected by the designated authority, in terms of legal provisions contained in section 106(2) of the Act - Held that:- both the letters dated 12-2-2013 and 27-2-2013 issued by the jurisdictional Range Officer to the declarant do not attract the provisions of section 106(2)(a)(iii) of the Act, as the relevant provisions/rules covered under Section 106(2)(a)(iii) of the Act have not been incorporated in these letters whereas in the said circular dated 13-5-2013 it has specifically been clarified that No other communication from the department would attract the provisions of Section 106(2)(a)(iii) and thus would not lead to rejection of the declaration. The harmonious reading of subsequent clarification by the CBEC on 8-8-2013 and 25-11-2013 also leads to the conclusion that the declaration are not to be rejected in a routine manner where certain information/documents have been requisitioned from the declarant without specifically quoting the statutory authorities, such as Section 14 of the Central Excise Act, as made applicable to Service Tax vide Section 83 of the Finance Act, Section 72 of Finance Act, Rule 5A of the Service Tax Rules 1994. In view the objectives of the VCES, which is to encourage disclosure of tax dues and compliance of service tax law by the persons who have not paid service tax dues for the period from Oct. 2007 to Dec. 2012, either on account of ignorance of law or otherwise. I further observe that VCES is the opportunity for such person to pay the tax dues and come clean. Rejection of the declaration merely on the basis of roving enquiries as in the instant case would defeat the purpose of the VCES, hence the impugned order needs to be set-aside to restore the right of the declarant to come clean by paying the tax dues. Further, after going through the VCES, I find that only the officers notified as designated authority are authorised for the purposes of this scheme. In the case of declarant the Deputy Commissioner, Central Excise Division, Sadashiv Complex, Ambala-Chandigarh Highway, Derabassi has been notified as the designated authority for the purposes of this scheme - The designated authority would allow the declarant to avail the benefit of VCES subject to fulfilment/compliance of other conditions including deposit of 50% tax dues by 31-12-2013. - declarant can amend the declaration by only following the procedure contained in clarification at Sr. No. 10 of the CBEC Circular dated 8-8-2013. The designated authority would consider such amended declaration if any, filed by the declarant in compliance of the VCES - Decided in favour of applicant.

  ---

• 2014 (12) TMI 325
  Discharge of service tax liability by BSNL - Payment to Department of telecommunication (DOT) by the applicant to be treated as payment of service tax or not - Held that:- Payment of DOT has not been accepted by the department as discharge of their Service Tax liability since the amount has not been paid to the Ministry of Finance, Deptt. of Revenue, after the appellant separated from DOT. However, from the orders submitted by the ld. Chartered Accountant, we find that the Commissionerates at Jamshedpur and Ranchi have accepted the payment made to DOT as discharge of their Service Tax liability. Also, we find in similar circumstances this Tribunal has remanded the matter to the adjudicating authority for reconsideration of the payment made to DOT as discharge of liability towards Service Tax. Following the precedent, we remand the matter to the adjudicating authority for reconsideration of all issues afresh - Decided in favour of assessee.

  ---

• Central Excise

• 2014 (12) TMI 324
  Adjustment of duties - excess payment in one account code and less payment in other accounting code - Rule 8(3A) of Central Excise Rules 2002 - Held that:- Commissioner being in charge of the appellant-EOU, handling both Excise and Customs work, could make adjustment of short paid Central Excise duty against education cess paid in excess. It held that he amounts had been paid to the Central Government under different heads and such payment was not in dispute. The Tribunal directed the jurisdictional Commissioner to make adjustment between the short and excess payments and consider refund of balance amount after adjustment subject to filing of claim therefore - if there is an excess payment in one category of duty and there is short payment in another category both can be adjusted - there was short payment of central excise duty and excess payment of education cess and in this case it is the other way round - appellant has made out a prima facie case for waiver. Accordingly the requirement of pre-deposit is waived and stay against recovery is granted - Stay granted.

  ---

• 2014 (12) TMI 323
  Waiver of pre deposit - rice bran fatty acids and rice bran wax - Exemption under Notification No.89/95-CE dated 18.5.1995 - Held that:- Additional Commissioner of Central Excise, Lucknow had concluded that the by products viz., rice bran oil, wax and fatty acids were eligible for exemption under Notification No.89/95-CE dated 18.5.95. They sought to surrender their registration certificate and this was in reply to the letter of Range Officer dated 27.01.2011 wherein they had been advised that the exemption is not available. They intimated that they feel that they are not liable to tax and accordingly they requested that suitable clarification may be issued and their request for surrender of registration certificate may be accepted. Thereafter the surrender of registration certificate was accepted on 9.2.2011. On 16.3.2011 the Range Officer again wrote to them informing them that they could not have collected Central Excise duty from the customers since the goods were exempted in respect of these products. department had considered the issue and had taken a view that they were not liable to pay Central Excise duty on these products. Nevertheless, show-cause notice was issued in 2013 which has resulted in the impugned order demanding duty on these products. It can be seen that there was Additional Commissioner’s order taking a view that products are exempted; department had also after considering the letter of the appellant allowed the surrender of registration certificate; subsequently also in March 2011, appellants were told that they could not have paid the tax and should not have taken CENVAT credit on capital goods; under such circumstances, invoking extended period and confirming demand on the ground that appellants have suppressed facts or mis-declared, in our opinion, prima facie, cannot be sustained. appellants have deposited substantial portion of the duty demanded - Stay granted.

  ---

• 2014 (12) TMI 322
  Waiver of pre-deposit - Modification of order - violation of principles of natural justice - submissions made by the appellant were not considered and a cross examination of the witnesses requested by the appellant was rejected - Held that:- For modification of pre-deposit order that the facts involve in the present appeal and those involved in the case of M/s Atithi Gokul Automobile Works are similar. appellant have not given justifiable reasons for seeking cross examination before the Adjudicating Authority and that appellant cannot claim that there was a violation of principles of natural justice when the appellant himself remains absent in the adjudication proceedings. On merit also this Bench has give its observation while passing stay order and held that the issue need deeper considerations which could be done only at the time of final disposal of the appeal. At the same time, it is also recorded that no claim of severe financial hardship is available from the case records as per the submissions made by the appellant. In view of the above, appellant has no case for any modification on merits. - Modification denied.

  ---

• 2014 (12) TMI 321
  Classification under CETH No. 89039200 or under CETH No. 89011030 - Whether the vessel manufactured by the appellants has to be treated as yacht or it has to be treated as a passenger vessel - Exemption under Notification No. 8/2003/CE dated 01.03.2003 - Held that:- First of all there is no evidence to show that the purchaser is engaged in routine operations of passenger transportation. Learned counsel submitted that the vessel is being used in the backwaters in Kerala. We have to take note of the fact that backwater trips in Kerala are basically for pleasure and not for mere transportation. It is difficult to assume that a person would go by backwater spending lot of money when cheaper transportation facilities are available - As per HSN explanation under the Heading, this Heading covers all vessels for pleasure or sports and all rowing boats and canoes, which means that all vessels which are used for pleasure or sports are to be classified under Heading 8903 and similarly all rowing boats and canoes are to be classified under Heading 8903. The use of word all before ‘vessels’ in the ‘all vessels for pleasure or sports’ means that all vessels which are used for pleasure or sports are to be classified under Heading 8903 even if these vessels are used for transport of persons or goods in view of their exclusion from 8901 as per HSN explanation under Heading 8901. prima facie appellants may not have a case. Nevertheless having regard to the fact that agreement speaks of passenger vessel, other authorities have treated the vessel as passenger vessel and therefore much more details are required to be considered - Partial stay granted.

  ---

• 2014 (12) TMI 319
  Waiver of pre deposit - CENVAT Credit - Paper transactions - Bogus invoices - Held that:- Whole transactions were on paper only and if we require the appellant to deposit the entire amount without taking into account the payments made by the group companies, we would be requiring the appellant to deposit an amount which is already collected by the Revenue, because of not receiving the input. When the two group companies deposit the amount, and when the appellant has taken the credit of the duty-paid on such goods, the cycle is completed and the goods have completed the cycle and therefore in reality only an offence has been committed by making paper transactions but it is difficult to find any revenue loss. Nevertheless, as already observed by us, if the inputs are not received, according to statute, the appellant is not entitled to CENVAT credit. The normal assumption is that when inputs are not received and only paper transaction takes place, there would be revenue loss to the Government since input would have gone elsewhere but in this case, it is clearly not so since no inputs have moved from the beginning to the end. However, we cannot waive the requirement of balance amount of CENVAT credit which is yet to be paid by the two other group companies since to that extent inputs have not been received by the appellant who have taken the credit. - Partial stay granted.

  ---

• 2014 (12) TMI 318
  Waiver of pre deposit - Reversal of CENVAT Credit - Proceedings were initiated on the ground that there is no manufacture in respect of these two products and therefore CENVAT credit availed by the appellant is not admissible - Held that:- appellants have reversed the CENVAT credit while clearing the goods along with locks, in our opinion, at this stage, it would be sufficient for hearing the appeal. Accordingly, there shall be waiver of predeposit of adjudged dues and stay against recovery for 180 days from the date of this order - Stay granted.

  ---

• 2014 (12) TMI 317
  Undervaluation of goods - Clearance of goods at lower price to sister concern - Bar of limitation - Held that:- Appellants are clearing “soap noodles” to M/s. Aquagel Chemicals P. Ltd., at lower price than on which they were clearing the goods to sister unit. We also observed that M/s. Aquagel Chemicals P. Ltd., is independently purchasing these soap noodles from independent suppliers on similar price. We also find that duty is payable on finished goods on MRP basis as per Section 4A of the Central Excise Act. Therefore, even if it is presumed that the appellant had supplied the soap noodles to M/s. Aquagel Chemicals P. Ltd., at lower price but the appellant is receiving the finished goods on payment of duty under Section 4A of the Act. When duty is paid on finished goods on MRP basis, the question of under-valuation on the intermediate product supplied by the appellant does not arise. As on the finished goods duty has been paid as per Section 4A of the Central Excise Act, 1944 therefore, on merits the appellant is having a good case. We further find that the appellant has disclosed their selling pattern to the department through a letter dated 9-1-2004 and the Superintendent of the Central Excise has examined the same and thereafter he referred the matter to the Dy. Commissioner for his consideration on 30-1-2004 observing that selling price is the only consideration. The show cause notice issued by invoking extended period of limitation, is barred by limitation - Decided in favour of assessee.

  ---

• 2014 (12) TMI 316
  Job work - exemption Notification No. 214/86-CX, dated 25-3-1986 - supplier have not given an undertaking to the Assistant Commissioner of Central Excise having jurisdiction over the factory of the job worker as required in terms of the said notification - Held that:- Out of the five processes carried out by the Appellants, four processes are outside the purview of manufacture. In other words, none of these four processes amount to manufacture and therefore the question of charging duty on the goods which only suffered these processes does not arise. This fact is so obvious that quoting any judgment on this aspect will be totally redundant and unnecessary. Regarding the process of machining of pinions, while such machining may result in the manufacture depending on the manner and extent thereof, neither the show cause notice nor the adjudication order provides any basis to infer that it actually amounted to manufacture. Even if this process is presumed to be amounting to manufacture, the demand in respect of such goods would only be to the extent of Rs. 13,12,559/- as against Rs. 74,68,635/- confirmed by the impugned order-in-original. Benefit of the said exemption cannot be denied merely because the supplier of the raw material had not submitted an undertaking as per the said Notification particularly when there has been proper accountal of the goods. As may be seen from the show cause notice as well as from the order-in-original, there is no allegation of any deficiency in the accountal of the goods and the supplier in this case is a Public Sector Undertaking/Government company - Decided in favour of assessee.

  ---

• 2014 (12) TMI 315
  CENVAT Credit - waste and scrap of plastics arisen in the course of manufacture of BOPP films - Held that:- Nowhere in the Central Excise Act or Rules, it is stated that when credit is taken, the input becomes non-duty paid. Payment of duty is a question of fact and once duty is paid, the product remains duty-paid and that fact cannot be erased or obliterated on what happens subsequently. Therefore, as rightly observed by this Tribunal in the case of MRF Ltd. (1998 (11) TMI 233 - CEGAT, NEW DELHI) and Supreme Industries - [1997 (3) TMI 529 - CEGAT, MUMBAI], affirmed by the Apex Court [1998 (3) TMI 676 - Supreme Court of India] by taking credit, the inputs do not become non-duty paid. The very fact that credit has been allowed itself is a proof that duty has been paid on the inputs and without payment of duty, no credit can be taken. Therefore, benefit of Notification 53/88 cannot be denied on waste and scrap of plastics manufactured from duty-paid inputs. - Plastic waste and scrap arising in the course of BOPP films cannot be considered as a final product and it is only a byproduct and therefore, provisions of Rule 57D is applicable to the facts of the present case and the respondent has rightly taken the credit on the inputs contained in the waste and scrap of plastics which has arisen as byproduct in the course of manufacture of BOPP films. Rule 57D, as it stood at the relevant time, clearly laid down that credit of specified duty allowed in respect of any inputs shall not be denied or varied on the ground that part of the inputs is contained in any waste, refuse or by-product arising during the manufacture of final product, whether or not such waste, refused or by-product is exempted from whole of the duty of excise thereon or is chargeable to nil rate of duty or is specified as a final product under Rule 57A. - Decided against Revenue.

  ---

• 2014 (12) TMI 314
  Extended period of limitation - cenvat credit - Clearances of the exempted goods - Non maintenance of separate accounts - benefit of duty exemption Notification No. 64/95-CE dated 16/03/1995 - Imposition of interest and penalty - Held that:- In their monthly returns filed, the appellant had indicated that they were availing the benefit of Notification No. 64/95-CE in respect of petroleum products supplied to Indian Navy and they were also discharging duty liability @ 8% of the value of exempted goods. In other words, in the statutory returns filed by the appellant, the fact of payment of an amount @ 8% was clearly declared. In these circumstances, it cannot be alleged that there was suppression on the part of the appellant. Therefore, the show-cause notice could not have been issued invoking the extended period of time and consequently the demand would get time barred. Hence, the question of recovery of any interest thereon or imposing of any penalties would not arise - Decided in favour of assessee.

  ---