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TMI Tax Updates - e-Newsletter
December 10, 2016
Case Laws in this Newsletter:
Income Tax
Customs
Corporate Laws
Service Tax
Central Excise
CST, VAT & Sales Tax
Indian Laws
TMI SMS
Articles
News
Notifications
Highlights / Catch Notes
Income Tax
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Penalty under section 271(1)(c) - There is no concrete positive evidence against the assessee exhibiting unexplained investment, except unregistered sale deed, which does not confer any title - AT
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Computation of annual value of the property let out to the assessee’s sister concern - otional interest on security deposit is to be treated as income from house property - AT
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Disallowance of interest paid to close relatives of the assessee - Interest of 18% paid by the assessee could not considered as excessive. Application of Sec. 40A(2) was not warranted - AT
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Addition made u/s.40A(3) - cash payment to transporters - If the assessee had paid money to the lorry drivers, as argued by it, vouchers would have been given by the lorry drivers and not by the transport companies - additions confirmed - AT
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Once the book results are rejected by invoking provisions of section 145(3) of the Act, no separate additions could be made under section 68 - AT
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AO having estimated the higher profit rate on total contract receipts after rejection of the books of account invoking the provisions of s. 145(3), no separate additions can be made on account of unexplained cash credit u/s 68 of the Act of 1961 - AT
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The assessee had taken the loan less than ₹ 20,000/- from his close relatives and family members Further the assessee immediately deposited the amount in bank account for making payment to the party. The genuineness of these deposits was never doubted by the AO - No penalty u/s 271D - AT
Customs
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Valuation - If the product has been found to be classifiable under heading 7219/ 7220 the contemporaneous data of imports of heading 7208 cannot be used to redetermine the transaction value under Rule 4 - AT
Indian Laws
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Admissibility of vakalatnama filed by a new advocate in the absence of ‘no objection’ of the advocate already on record - Under no circumstance, a party can be denied of his right to appoint a new advocate of his choice - HC
Service Tax
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Where the appellant has worked as co-loader their role is limited to delivery of the packets to the ultimate customer - it cannot be said that they have carried out courier service on behalf of another - Consequently, activity cannot be covered under the definition of BAS - AT
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Rebate of service tax u/r 5 of Export of Services Rules, 2005 - The Reserve Bank regulations permit such amounts received through intermediate nostro accounts as receipt of payment in Foreign exchange - Benefit of export / rebate allowed - AT
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In the absence of show cause notice, penalty under section 76 of Finance Act, 1994 could not have been imposed - penalty u/s 76 set aside - AT
Central Excise
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Cenvat Credit - common inputs and input services - Rule 6(3) - The formula prescribed for the period after 1.4.2011 does not provide reasonable estimate of the credit attributable to the exempted and dutiable activities - AT
Case Laws:
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Income Tax
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2016 (12) TMI 460
Deduction under section 80IA(4) eligibility - warehousing rental received - Held that:- There is no dispute that assessee was operating a container freight station and providing warehousing facilities. Ld. Assessing Officer himself had stated that there was approval from the assessee for its CFS operation at Chennai, Tuticorin, Tiruppur and Karur at para 3 of his order. That warehousing facilities operated by the assessee were part and parcel of the CFS activity has not disputed by the Revenue. As in the case of Container Corporation of India Ltd vs. ACIT [2012 (5) TMI 260 - DELHI HIGH COURT ] had held that even inland container depot would be eligible for deduction u/s. 80IA(4) of the Act when it was doing activities similar to CFS. Therefore, we are of the opinion that ld. Commissioner of Income Tax (Appeals) was justified in taking a view that warehousing rental received by the assessee in Corporate office Ennore and Pondicherry were eligible for deduction u/s.80IA(4) of the Act considering these as part of the CFS facility. For transportation revenue relating to Pondicherry and Tuticorin to ports, it is not disputed that such transportation charges were received for moving goods in cargo containers to the ports. Hence, the distinction sought to be made between areas of transport was not in our opinion justified. Similarly, incidental charges on account of trailer detention and vehicle lease, were a part of the bouquet of services offered by the assessee as a part of its CFS division. Hence, we are of the opinion that ld. Commissioner of Income Tax (Appeals) was justified in allowing the claim of the assessee u/s. 80IA(4) of the Act on these items. For unsecured loans as it is stated by the assessee itself that lenders were ex-partners. Hence there is every reason for ld. Assessing Officer to believe that course of business was arranged in such a manner that more than eligible amount was shown as the profit. Assessee was not able to show why interest was not charged by the above mentioned persons when substantial unsecured loans were outstanding in their names. We do not find any reason to interfere with the order of the ld. Commissioner of Income Tax (Appeals) that nonpayment of interest to these persons had resulted in excessive relief being granted to the assessee u/s.80IA(4) . Disallowance of depreciation on warehousing facility at Bangalore - Held that:- Value of the above asset was shown as a part of capital work in progress in the fixed asset schedule of the assessee. There was no income whatsoever credited in the profit and loss from the facility. If it was operational assessee would have earned at least a nominal income from this facility. Hence, in our opinion, depreciation was rightly disallowed. We do not find any reason to interfere with the orders of the lower authorities. Revision u/s 263 - Held that:- We find that ld. Assessing Officer had allowed deduction to assessee u/s.80IA (4) of the Act considering the CFS to be an infrastructure facility eligible for such benefit. Hon’ble Jurisdictional High Court in the case of M/s. A.L. Logistics Pvt. Ltd. (2015 (1) TMI 401 - MADRAS HIGH COURT ) which was for assessment year 2009-2010 has held that earning from container freight station was eligible for deduction u/s.80IA(4) of the Act. Further in the appeal of the assessee against denial of deduction on some parts of its turnover, ld. Commissioner of Income Tax (Appeals) had held in assessee’s favour and this view has been upheld by us at para 11 & 12 above. We are therefore of the opinion that the assessment could not have been considered as erroneous and prejudicial to the interest of revenue, ld. Assessing Officer having a taken a view which was legally permissible. We, therefore setaside the order of the ld. Commissioner of Income Tax.
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2016 (12) TMI 459
Depreciation on goodwill - Held that:- Considering the provisions of Explanation 3 to Section 32(1) of the Act found that the word “any other business or commercial rights of similar nature” in clause (b) of Explanation 3 indicates that goodwill will fall under the expression “any other business or commercial rights of similar nature”. In view of the above judgment of Apex Court in SMIFS Securities Ltd. [2012 (8) TMI 713 - SUPREME COURT ], we are unable to uphold the orders of the lower authorities. Accordingly, we set aside the orders of the lower authorities. The Assessing Officer is directed to allow depreciation at the applicable rate on the payment relatable to goodwill - Decided in favour of assessee MAT credit - Carry forward of MAT credit of erstwhile company by amalgamated company - Held that:- As decided in assessee's own case when the assessee company is now being assessed in place of erstwhile company and the TDS credit pertaining to the erstwhile company is being given credit to the assessee company, there is no reason why a different treatment should be given to the MAT credit available pertaining to the erstwhile company. We do not agree with the learned Commissioner of Income Tax (Appeals) that there is need for specific mention in this regard in Section 115JAA as the Carry forward of MAT credit of erstwhile company by amalgamated company is in-built in the scheme of amalgamation as well as the scheme of MAT credit. Hence, we set aside the order of learned Commissioner of Income Tax (Appeals) in this regard and decide the issue in favour of the assessee. Apportionment of expenses - assessee has claimed the entire expenses from Chennai Unit which is not eligible for deduction u/s 80IC - Held that:- During appeal, the ld. AR did not bring any evidence to prove that the expenditure was completely relatable to Chennai Unit. It appears from the nature of expenses listed in the assessment order that he expenditure was common expenditure incurred for the purpose of carrying on the business by the assessee of both the units. The expenditure cannot be identified item wise with the particular unit. Therefore, we hold that the CIT(A) has rightly confirmed the addition made by the Assessing Officer. We, therefore, uphold the same dismiss the ground raised by the assessee. Exclusion of income from sale of DEPB and focus market scheme for computation of deduction u/s 80IC - Held that:- The issue is not relating to the subsidies received from Government in the Meghalaya State a backward state towards the reimbursement of expenses ,which has a direct nexus to the manufacturing activity but it is related to the issue of DEPB entitlement and reimbursement of focus market scheme which are in the form of grants from the Government. The immediate source of income was from the Government and not the business of the assessee. This being the case we are of considered opinion that the amounts received on account of DEPB entitlements and the export incentives in the form of Focus marketing are not qualified for the deduction u/s 80 IC of the Act Hon’ble supreme court judgment in the case of CIT.v. Sterling Foods Ltd (1999 (4) TMI 1 - SUPREME Court ) and Liberty India v CIT [2009 (8) TMI 63 - SUPREME COURT ] are squarely applicable in the assessee’s case. Therefore, we hold that the CIT(A) has rightly confirmed the addition made by the Assessing Officer and the same is confirmed.
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2016 (12) TMI 458
Disallowance of deduction u/s.14A of the Act read with Rule 8D at 2% of exempted income as declared by the assessee - Held that:- The assessment year involved here is 2008-09. Rule-8D of Income Tax Rules, 1962 was introduced with effect from 24.03.2008, which was prospective in operation and cannot be treated as being retrospective as held by the Delhi High Court in the case of Maxopp Investment Ltd. Vs. CIT (2011 (11) TMI 267 - Delhi High Court ). However, incurring certain administrative expenses cannot be ruled out. Accordingly, we are of the opinion that the Ld.CIT(A) is justified in directing the AO to disallow 2% of the exempt income. Being so, we do not find any infirmity in the order of Ld.CIT(A) and the same is confirmed. Disallowance of expenses relatable to earning the dividend income by applying Rule 8D - Held that:- Admittedly for this assessment year Rule-8D is applicable and there should be disallowance u/s.14A read with Rule 8D. However, while considering the applicability of Sec.14A r.w.Rule 8D, the investment made by the assessee in subsidiary companies are not on account of investments for earning capital gains or dividend income, but such investments have been made by the assessee to promote the subsidiary company on account of commercial expediency and earning of dividend income from such activity is only incidental. Therefore, investment made by the assessee in its subsidiary should not be considered while applying the disallowance u/s.14A r.w.Rule 8D. Being so, we direct the AO to compute the average value of the investment under the provisions of Rule 8D and delete the investments in subsidiary while considering the average investments and recomputed the disallowance u/s.14A r.w. Rules 8D.
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2016 (12) TMI 457
Benefits of indexation while working out capital gains - claim not allowed from the year in which it inherited the property - asset deemed to have held - Held that:- For the purpose of indexation, the period of holding of the donor has also to be considered. We are therefore, of the opinion that assessee was eligible for the claim. See Commissioner of Income-tax Versus Manjula J. Shah [2011 (10) TMI 406 - BOMBAY HIGH COURT ] - Decided in favour of assessee
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2016 (12) TMI 456
Penalty under section 271(1)(c) - unaccounted gift received - Held that:- The explanation of the assessee is that sum of ₹ 36,000/- was deposited out of the gifts received on the birth-day of his son. Such gifts were received from relatives. As far as second addition is concerned, it is based on a document which was found during the course of search at the residence of the assessee. This document is unregistered sale deed. An unregistered sale deed does not confer any title. There is nothing on record which can conclusively say that title of this land vested with the assessee, more so, it was cancelled. Section 17 of the Registration Act contemplates that any immovable property having value of more than ₹ 100/- cannot be transferred unless it is registered. Then, what would be evidentiary value of such document. It appears that authorities have been influenced in the quantum proceedings by the pendency of criminal proceedings for prosecution of the assessee on account of corruption. Allegation against the assessee was that he was accepting ₹ 80,000/- as bribe. This appears to be main reasons for making addition on the basis of circumstantial evidence. AO failed to prove that explanation of the assessee was false. There is no concrete positive evidence against the assessee exhibiting unexplained investment, except unregistered sale deed, which does not confer any title. Addition might have been confirmed, but this type of evidence would not be sufficient to visit the assessee with penalty, therefore, delete penalty. - Decided in favour of assessee.
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2016 (12) TMI 455
Computation of annual value of the property let out to the assessee’s sister concern - AO observed that in the interim period of one year no payment of rent appears to have actually made to the assessee by the lessee - Held that:- Undisputedly the property in question was let out to its sister concern vide lease deed dated 1.4.2006 for a monthly rent of ₹ 5 lakhs. At that time, no interest free security deposit was given or credited to the assessee’s account. By supplementary lease deed dated 29.3.2007, the terms of the lease were modified and monthly rent was reduced to ₹ 25,000 per month from ₹ 5 lakhs per month. At that time, interest-free security deposit was also negotiated and as per the revised terms of lease deed, the lessee would pay the appellant an interest-free security deposit of ₹ 25 crores. Meaning thereby that on receipt of substantial amount of ₹ 25 crores, monthly rent was reduced from ₹ 5 lakhs to ₹ 25,000 per month. Therefore, the notional rent earned on this ₹ 25 crores cannot be ignored at the time of computing the ALV of the property. Punjab & Haryana High Court in the case of CIT v. K. Streetlite Electric Corporation, (2010 (10) TMI 742 - Punjab and Haryana High Court ) categorically held that interest-free security deposit taken by the assessee hugely disproportionate to monthly rent charged is a device to circumvent liability to income-tax. Therefore, notional interest on security deposit is to be treated as income from house property. Therefore the AO has rightly adopted the ALV which was even lesser to the monthly rent of ₹ 5 lakhs per month initially agreed upon by the parties. Thus, we find no infirmity in the order of CIT(Appeals) and we confirm the same. - Decided against assessee
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2016 (12) TMI 454
Deduction u/s 80IB disallowed for interest income on fixed deposit given as margin money towards loan/limit taken from the bank - Held that:- Assessee has not substantiated his claim along with necessary evidences in order to demonstrate that interest income earned on fixed deposit are with regard to margin money. We are, therefore, of the view that the issue needs to be restored to the file of Assessing Officer to carry out necessary verification with the support of documentary evidences to be provided by assessee in order to prove that fixed deposits on which interest income has been shown are linked with margin money in order to enjoy secured loan/credit limits from banks. Needless to mention that proper opportunity of being heard may be given to the assessee. Accordingly, this ground of assessee is allowed for statistical purposes. Section 80IB deduction computation - whether gross interest or net interest is to be excluded from the profits for the purpose of calculating deduction? - Held that:- Net amount is to be excluded from the profits for the purpose of computation of deduction u/s 80IB. See M/s ACG Associated Capsules Pvt. Ltd. [2012 (2) TMI 101 - SUPREME COURT OF INDIA ] Transfer pricing adjustment - ALP - applying operating profit margin being average of comparables selected - whetehr adjustment arising out of the Arm's Length Price (ALP) is to be restricted to only International Transactions with the Associated Enterprise instead of entire turnover of the assessee ? - Held that:- Differential operating profit margin is to be applied only on the international transaction entered and not the total sales turnover. See CIT vs. Ratilal Becharlal & Sons [2015 (11) TMI 1524 - BOMBAY HIGH COURT] We find that assessee has declared net operating profit margin of 3.73% during the course of assessment proceedings and thereafter has submitted a revised calculation of operating profit margin discussed above in para 28 and calculated at 4.51%. As against this ld. Assessing Officer made addition to the returned income of assessee by applying 7.27% operating profit margin being average of comparables selected by him which was sustained to 5.78% by ld. CIT(A). From going through these figures we find that the difference of operating profit margin at which the international transaction has actually been undertaken as against arm’s length price determined by Assessing Officer is within tolerance range of (±) 5% as provided in proviso to section 92C(2) of the Act. We are, therefore, of the view that in the given facts and circumstances, the price at which international transaction has actually been undertaken shall be deemed to be arm’s length price and we accordingly set aside the order of ld. CIT(A) sustaining addition of ₹ 15,28,582/-, delete the impugned addition and allow the ground of assessee. Disallowing Managing Directors remuneration - Held that:- The issue before us there has been no working on the part of Assessing Officer to justify the disallowance and to prove that remuneration paid to MD was excessive or unreasonable. We, therefore, set aside the order of ld. CIT(A) and allow the ground of assessee.
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2016 (12) TMI 453
Deduction u/s 80P(2)(d) - interest income earned from investments made in other banks / from non-members - Held that:- The amount which was invested in banks to earn interest was not an amount due to any members. It was not the liability. It was not shown as liability in their account. In fact this amount which is in the nature of profits and gains, was not immediately required by the assessee for lending money to the members, as there were no takers. Therefore they had deposited the money in a bank so as to earn interest. The said interest income is attributable to carrying on the business of banking and therefore it is liable to be deducted in terms of Section 80P(1) of the Act. See Tumkur Merchants Souharda Credit Cooperative Society Ltd v. ITO [2015 (2) TMI 995 - KARNATAKA HIGH COURT] - Decided in favour of assessee
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2016 (12) TMI 452
NP determination - rejection of books of accounts - Held that:- It is not the case of the Assessing Officer that, the expenses claimed by the appellant are excessive or bogus. Thus, rejecting books only on the ground that the vouchers were unsigned, or the bills were hand written is unwarranted and bad in law, especially when the books are audited and no discrepancies have been pointed. CIT(A) has closely examined the assessee’s books of accounts and has come to a well-reasoned order that the same are not reliable and rightly held to be rejected under section 145(3) of the Act. As far as estimation of profits is concerned, it is noted that no basis has been given by the AO while estimating the N.P rate and making an addition of ₹ 12,00,000 and thereafter by the ld CIT(A) while reducing the N.P rate at 7.5% as against 6.60% declared by the assessee. Further, given the past history of the assessee, it is noted that it has disclosed N.P before depreciation at 10.75 % which is higher as compared to past two years. In light of above, we see no reason to interfere with the N.P rate declared by the assessee. Hence, the trading addition made on this account is deleted. Addition on account of service tax - AO made the addition invoked the provisions of section 43B given that the service tax has not been deposited before the due date of filing of return of income - Held that:- Undisputedly, the service tax has been collected by the assessee from its customers during the year and the same has not been paid before the due date of filing of return of income. The ratio of the Hon’ble Supreme Court decision in the case of Chowringhee Sales Bureau [1972 (10) TMI 4 - SUPREME Court] that the Sales tax collected and not deposited with the treasury would form part of the assessee’s trading receipt is clearly applicable to the facts of the case. In the instant case, the assessee has contended that it has followed the exclusive method of accounting where the service tax has not been routed through the profit/loss account. In our view, in light of decision in case of Chowringhee Sales Bureau, such contention will not hold good and irrespective of method of accounting followed by the assessee, service tax collected and not deposited will be considered as part of professional receipts. Thus we confirm the order of the ld CIT(A) who has rightly confirmed the disallowance of service tax collected by the appellant from its customers and didn’t deposit the same before the due date of filing of return of income. The appellant shall be at liberty to claim the same in the subsequent year of payment as per provisions of section 43B of the Act.
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2016 (12) TMI 451
Exemption u/s.10B - “profit derived from export of articles or things etc.” - Held that:- The assessee is eligible for deduction u/s.10B of the Act on miscellaneous items of income which are in the nature of “business income” attributable to exports of articles or things, etc. As a corollary, we find that receipts towards “sales tax refund” and amount of “sundry balance written off” are in the nature of business income in the earlier year and the Assessee is eligible for relief contemplated under S.10B(1) read with section 10B(4) of the Act. For the parity of reasoning, we direct the AO to admit the claim of the assessee towards sales tax refund and sundry balance written off for the purpose of computation of deduction under S.10B of the Act. For the purpose of computation of deduction of formula provided by section 10B(4) of the Act, the “interest income” cannot be included within the pale of “business profits” which is clearly in the nature of “income from other sources” in the instant case. Therefore, order of the CIT(A) to this extent cannot be said to be erroneous in the facts of the case. It would be pertinent to notice here that in the earlier AY 2007-08, the interest income has been accepted for the purpose of deduction u/s.10B of the Act purportedly on the premise that AO has mainly relied upon the decision of the Hon’ble Apex Court in the case of Liberty India (2009 (8) TMI 63 - SUPREME COURT ) which was distinguished by the Tribunal on facts. As against this, in the assessment year in appeal, the AO has rejected the interest claim on the ground that the income arising from Bank deposits are in the nature of “income from other sources” and not business income with which we fully agree. Hence, we find no infirmity in the order of CIT(A) for denial of deduction under S.10B of the Act towards interest income. As regards insurance refund we note that CIT(A) has granted partial relief to the extent of 75% of the insurance claim received holding the same to be akin to business income and rejected balance 25% of the insurance claim so received towards capital loss. Relevant facts are necessary to understand as to whether the impugned “insurance receipts” are in the name of “business income” or not. Therefore, it would be in the fitness of things to restore the issue back to the file of AO for ascertaining the relevant facts and determine the issue afresh in accordance law. Needless to say that AO shall grant adequate opportunity of hearing to the assessee while determining the issue of eligibility of deduction on this score.
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2016 (12) TMI 450
Disallowance of cost of replacement of old machinery - revenue v/s capital expenditure - Held that:- The features of the machinery imported by the assessee from Italy has been captured by ld. Assessing Officer and these features have been reproduce by us at para 6 above. Though assessee states that these were replacement of old machines, it could not show which machinery were placed and what was the realization from scrap value of the replaced machinery, if any. Features of the machinery show that these were independent and could work on its own and were not something that would work only in adjunction with another machinery. In our opinion, lower authorities were justified in treating the purchase as a capital expenditure. We do not find any reason to interfere with the orders of the lower authorities. - Decided against assessee Depreciation on machinery disallowed - Held that:- Assessee itself has stated that machine imported from M/s.Turnver was not according to its specification. As per assessee, the balance amount was withheld by it due to fault in the machine supplied. No doubt, legal ownership by itself is not a fundamental requirement for a claim of depreciation. However, the machine if not used should be atleast ready to use. In our opinion, assessee was not able to show that the machine was actually used by it or kept in readiness for use. Certificate from Shri. E.M. Ulaganathan, does not say that machine were ready for use. No record showing any trial run was produced by the assessee. In such circumstances, we are of the opinion that the claim was rightly disallowed by the lower authorities.- Decided against assessee TDS u/s 195 - Disallowance of commission paid to non-resident agent for non deduction of tds - Held that:- For assessment year 2010-2011, also commission paid by the assessee to the foreign agents were through local agents. There is no case for the Revenue that assessee had failed to deduct tax on commission paid to local agents. Fact situation being same we are of the opinion that decision of the Tribunal for the assessment year 2010- 2011 would apply here also. Commission paid by the assessee could not have been disallowed for want of deduction of tax at source. We delete the disallowance - Decided against revenue Disallowance of interest paid to close relatives of the assessee - Held that:- . Reason why ld. Assessing Officer disallowed the claim was that assessee was paying lower interest to bigger credit whereas higher interest for smaller credits. It is not disputed by the Revenue that interest paid by the assessee never exceeded 18%. Assessing Officer did not bring anything on record to show that Scheduled Banks were charging only 15% interest on loans given, without security. The old adage that risk and returns go together should apply to loans without security. It is natural for persons providing loans without security to demand higher rate of interest. We are therefore of the opinion that interest of 18% paid by the assessee could not considered as excessive. Application of Sec. 40A(2) of the Act was not warranted. - Decided against revenue Disallowance of interest u/s.36(1)(iii) - Held that:- Revenue has not disputed the argument of the assessee that MBS Arabic College was situated in close proximity to the assessee’s factory and children of assessee’s employees were studying there. In so far as payment to SITDA is concerned, it was an association of tanners where assessee was a member. Loan to MBS Arabic College and SITDA were for periods less than six months. In our opinion, lower authorities ought not have sat in the chair of the assessee and decided on the commercial expediency of the loans given to these entities. The facts and circumstances did not call for any addition of national interest. - Decided against revenue TDS u/s 194C - Disallowance of travel expenditure for non deduction of tax at source - Held that:- Assessee’s claim that the payments were effected on behalf of its employees for their travel from Arcot to its Factory, could have been accepted if had deducted such transportation charges from the wages paid to them. Nothing has been produced to show any such deduction effected by the assessee. Obvious conclusion is that the transport charges were paid by assessee directly. In our opinion, Sec. 194 C of the Act will clearly apply. We are of the opinion, that ld. Assessing Officer was justified in applying provisions of Sec. 40(a)(ia) of the Act for want of deduction of tax at source. No interference is required. - Decided against assessee Disallowance of Municipal Taxes - Held that:- Claim of the assessee is that property on which property tax was paid was owned by a partner of the assessee firm and was used by assessee firm. However, ld. Assessing Officer has given a clear finding that there were no branches or establishment for the assessee in Bangalore, after verifying its Audit report in form 3CD. We, are therefore of the opinion that assessee could not show its use of the property on which property tax was paid. In our opinion , the disallowance was correctly made. - Decided against assessee Disaalowance of expenses as Revenue outgo - Held that:- In so far as expenditure incurred for Sony camera and one digital recorder are concerned, this expenditure cannot be treated as a non business outgo. Sony cameras and digital recorder having been given to its employees, could never form part of the assets of the assessee. Hence disallowance of the cost of Sony camera and digital recorded were not warranted. Borewell expenditure if there is no water in the borewell, then there is no question of fixing a motor. Thus, claim of the assessee that bore well expenditure was a business loss having derived no water is incorrect. In our opinion, cost of borewell was rightly considered as capital outgo. Effluent treatment plant, we find that earlier plant has become obsolete and it was a new plant erected. We are of the opinion that lower authorities had rightly treated the plant as capital outgo, since its was an independent machinery item. Road repair expenditure assessee could not produce the contract agreement entered with Shri. M. Shivaraj, who was entrusted with the above work to prove that the contract was only for repair of existing road and not laying of new road. Therefore, we are of the opinion that lower authorities were justified in treating the expenditure incurred on road as capital outgo. Conference hall expenditure, it is not disputed by the assessee that expenditure was incurred for changing the interiors of existing conference hall, including seating, painting and furniture. The outgo was clearly for renovation. We are of the opinion that renovation of existing conference would not create any new capital asset. The expenditure could only be considered as necessary for effectively continuing the functionality of the existing conference hall. Said expenditure in our opinion could not be treated as capital outgo. Machine replacement cost as many of the items could be considered as independent machinery whereas some of them like batteries, etc could be considered as spares and repair works. We are of the opinion that ld. Assessing Officer ought have made a detailed analysis of the bills and correctly demarcated the items. Disallowance ought have been confined only to those which could be considered as independent machinery. Thus this issue requires a fresh look by the ld. Assessing Officer.
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2016 (12) TMI 449
Addition made u/s.40A(3) - cash payment to transporters - Held that:- Contention of the assessee that the payments were effected to lorry drivers cannot be accepted since each of the parties mentioned above were transport companies having their own PAN number and sales tax number. It is not been disputed by the assessee that atleast some of the payments were made by account payee cheques. No doubt the paramount reason which Sec. 40A(3) of the Act was enacted was to reduce the possibilities of black money transactions as held by Gujarat High Court in the case of Anupam Tele Services (2014 (2) TMI 30 - GUJARAT HIGH COURT ). But in the said case payments effected by the concerned assessee to a party which had issued a circular instructing the assessee to deposit cash. The recipient company had also instructed assessee not to make payments by cheque or demand draft. Thus, there were certain peculiar circumstances which called for relaxing the rigours of Sec. 40A(3) of the Act. On the other hand, in the case before us, there was no record to show that concerned transport operators had insisted an cash payments. If the assessee had paid money to the lorry drivers, as argued by it, vouchers would have been given by the lorry drivers and not by the transport companies. Considering clause (k) of Rule 6DD, rule of exemption, assessee has to show that the person to whom he had paid payments was his agent and such agent was required to make payment in cash. None of these could be proved by the assessee. In such circumstances, we are of the opinion that Sec. 40A(3) of the Act stood attracted to the cash payments made by the assessee. We do not find any reason to interfere with the orders of the lower authorities. - Decided against assessee.
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2016 (12) TMI 448
Estimation of profit - profit element is to be determined from the gross profit - Held that:- It is not disputed by the revenue that in earlier year the Tribunal in assessee’s own case pertaining to A.Y. 2008-09 had restricted the disallowance to the extent of net profit rate at 8% subject to allowance of depreciation and interest. In the year under consideration we find that the AO has pointed out reduction of hire charges expenditure. This fact is not rebutted by the assessee, hence this reduction of expenditure would certainly increase the profit margin of the assessee. As per the AO, in the assessment year 2008-09 the assessee had incurred hire charges expenditure of ₹ 45,62,140/- whereas hire charges incurred in the present year is ₹ 80,000/-. The assessee has not brought on record any material suggesting that the hire charges were paid on account of non functioning of the assessee’s own machinery. Therefore, we deem it proper to restrict the disallowance @ 10% of the Net Profit subject to interest and depreciation keeping in view the fact in earlier year’s net profit as estimated by the Coordinate Bench @ 8% subject to allowance of depreciation and interest. Addition u/s 68 - Held that:- Once the book results are rejected by invoking provisions of section 145(3) of the Act, no separate additions could be made under section 68. As decided in CIT vs. G.K. Contractor [2009 (1) TMI 840 - RAJASTHAN HIGH COURT] even if the assessee has failed to discharge his onus of proof in explaining the cash credits shown in the books of account as "market outstanding", the AO having estimated the higher profit rate on total contract receipts after rejection of the books of account invoking the provisions of s. 145(3), no separate additions can be made on account of unexplained cash credit under s. 68 of the Act of 1961
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2016 (12) TMI 447
Disallowance of claim made by the assessee u/s 54F - Held that:- As per sec. 54F, if the cost of the new asset is not less than the net consideration in respect of the original asset, the whole of such capital gain shall not be charged u/s 45 of the Act. Similarly, the requirement is to purchase new asset before one year or after two years of the date on which the transfer took place. In this case, the fact that the assessee has purchased the new asset within the stipulated time period under the act was not disputed by the Assessing Officer. The assessee relied on the judgment of Jurisdictional High Court in the case of R. Srinivasan (2010 (4) TMI 1128 - MADRAS HIGH COURT) and other Hon’ble Courts which support the assessee’s contention. The issue regarding whether the investment in a capital asset is required to be sourced from the capital gain or not has been considered by the Hon'ble P&H High Court in the case of Kapil Kumar Agarwal (2015 (12) TMI 1075 - PUNJAB AND HARYANA HIGH COURT ) relied upon by the assessee. The High Court has held that sec. 54F nowhere envisages that the sale consideration received by the assessee from the original capital asset mandatorily should to be utilized for the purchase or construction of the new house property. The simple requirement is to invest in an asset within the stipulated time. In this case, the assessee has invested within the stipulated time. Therefore, we hold that the assessee is entitled for the deduction u/s 54F of the Act.- Decided in favour of assessee
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2016 (12) TMI 446
Revision u/s 263 - computation of deduction u/s 10B - Held that:- Admittedly, in this case, the assessee has computed the deduction u/s 10B before reducing the brought forward loss and unabsorbed deprecation. The said computation of the assessee is against the judgment in the case of CIT vs Patspin India Ltd [2011 (9) TMI 276 - KERALA HIGH COURT]. Against the judgment of the Hon’ble jurisdictional High Court in the case of CIT vs Patspin India Ltd,, a review petition was filed and the same was dismissed by the Hon’ble High Court. In the judgment rendered on the review petition, in spite of taking note of the judgment of the Hon’ble Karnataka High Court, in the case of CIT vs Yokogawa India Ltd [2011 (8) TMI 845 - Karnataka High Court ](Hon’ble Karnataka High Court judgment is in favour of the assessee), had decided the issue against the assessee. In view of the above judgment of the Hon’ble jurisdictional High Court, the computation of deduction u/s 10B by the assessee, is erroneous and the CIT is justified in invoking his revisionary jurisdiction u/s 263 of the Act. - Decided against assessee
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2016 (12) TMI 445
Penalty u/s 271D - accepting cash loan in violation of section 269SS - Held that:- It is noted from the record that the assessee had received the loans from his close relatives and family members not exceeding ₹ 20,000/- at one time. These loans were taken in the business interest as the assessee had started a new venture. These amounts were repaid in parts to the respective persons which can be seen from the bank statement of the assessee. The assessee was under bona fide belief that the loan amount of less than ₹ 20,000/- can be taken in cash and if it is exceeded more than 20,000/- then it will be taken either through cheque or Demand Draft. Thus the assessee had taken the loan less than ₹ 20,000/- from his close relatives and family members Further the assessee immediately deposited the amount in bank account for making payment to the party. The genuineness of these deposits was never doubted by the AO. Thus as the transactions being genuine and the assessee having offered reasonable explanation justifying these cash transactions, the impugned penalty u/s 271D is not leviable. See Smt. Kusum Dhamani vs. Addl. CIT [2015 (4) TMI 144 - ITAT JAIPUR ] - Decided in favour of assessee
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2016 (12) TMI 444
Nature of loss - business loss OR capital loss - Held that:- We find no merit in this objection of CIT(A) in view of this fact that shares were acquired by the assessee as per Board Resolution dated 3.9.2007, as per which, the shares in these two companies are to be acquired as stock-in-trade. Hence, on this issue, we reverse the order of the CIT(Appeals) and hold that loss in question is a business loss and not a capital loss. Business loss in shares - whether hit by explanation to section 73(1) or not - Held that:- Shares were acquired by application and allotment of shares and not by way of purchase. Hence we hold that the loss in question in the present case is not hit by Explanation to section 73(1) and therefore, such loss is entitled to be set off against normal business income of the assessee. Disallowance u/s 14A - Held that:- We find that as per the profit & loss account of the assessee for the present year available there is no income earned by the assessee under the head ‘dividend’ which is exempt u/s 10. In the case of Cheminvest Ltd. (2015 (9) TMI 238 - DELHI HIGH COURT ) cited by the ld. AR of assessee, it was held by the Hon’ble Delhi High Court that where the assessee had not earned any exempt income, no disallowance can be made u/s. 14A. Since there is no actual receipt of exempt income by the assessee in the present year, we are of the considered opinion that no disallowance can be made u/s. 14A as per this judgment of Hon’ble Delhi High Court rendered in the case of Cheminvest Ltd. (supra) - Decided against revenue Disallowance made by the AO u/s. 36(1)(iii) - Held that:- we find that a categorical finding has been given by the CIT(A) that the advances given to M/s. Asianet T.V. Holding (P) Ltd. of ₹ 79.40 crores and to M/s. India Radio Ventures of ₹ 10.2 crores and ₹ 3.23 crores and the remaining advances given to M/s. Azure Services Pvt. Ltd. and some more advance to other group companies were all given as part of larger business strategy in the ordinary course of business and hence these advances were given for business expediency and therefore, as per judgment of Hon’ble Apex Court rendered in the case of S.A. Builders [2006 (12) TMI 82 - SUPREME] no disallowance of interest in respect of this interest free advance is justified. Since this finding of act of ld. CIT (Appeals) could not be controverted by the ld. DR of revenue and in view of the facts of the present case, this issue is covered in favour of assessee Disallowance u/s 40A - the amount paid is excessive - Held that:- The ld. CIT (Appeals) has given a categorical finding that section 40A (2)(b) can be invoked when the AO feels that such expenditure is excessive or unreasonable having regard to fair market value of goods , services or facilities for which the payment is made and since, the AO has not given a categorical finding that the expenditure in question is excessive or unreasonable, he cannot invoke the provisions of section 40A(2). On this aspect, we find no infirmity in the order of CIT (Appeals) because in fact, no such finding is given by the A.O. that the amount paid is excessive or unreasonable. Addition u/s 37 - Whether the expense was for business purpose or not - Held that:- Categorical finding has been given by the CIT(Appeals) that there is no material on record to show that expenditure was in the nature of capital expenditure or not for the purpose of business. Although in the assessment order, the AO has stated that this expenditure was not incurred exclusively for the business or profession, no basis or reason has been indicated by the AO for saying so. On this issue also, we find no infirmity in the order of CIT (Appeals). Expenditure allowable u/s. 37 - Held that:- The subsidiary company had held certain shares and assessee company had received non-compete fee and fees paid by the assessee is relating to negotiating non-compete agreement and related transaction. If an effort is made for a joint venture and the same is aborted, then the expenses incurred for the joint venture has to be allowed as revenue expenditure. In the present case, expenses were incurred in relation to joint venture with Star Group and categorical finding of AO is that no such venture has taken place and therefore, we find no reason to interfere in the order of CIT(Appeals) on this aspect of the matter also. Deemed dividend u/s. 2(22)(e) - Held that:- We find force in the submissions of the ld. AR of assessee and we find that the dispute is regarding receipt of loan advanced by the lender company Jupiter Capital Pvt. Ltd. ₹ 5432.90 lakhs and Hindustan Infrastructure Project & Engg. Pvt. Ltd. ₹ 2569.43 lakhs and as per the AO also, the assessee is not a shareholder in any of these two companies. Under these facts, the judgment of Hon’ble Karnataka High Court rendered in the case of DCIT v. Sri Rajiv Chandrashekar (2016 (4) TMI 310 - KARNATAKA HIGH COURT) is squarely applicable wherein it was held by the High Court that if the assessee is not a shareholder in the lender company, addition cannot be made u/s. 2(22)(e) of the I.T. Act.
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2016 (12) TMI 443
Claim u/s 44BBB - whether assessee is a foreign company engaged in the business of erection of generator and testing and commissioning and it is a turnkey project ? - Held that:- The assessee has signed the agreement for the execution of turnkey project with Tamilnadu Electricity Board on 27.12.2006. From the certificate issued by the Central Electricity Authority, Ministry of Power, it was clarified that it is a turnkey project to be treated at par with Power Projects approved by the Government of India for the purpose of section 44BBB of the Act. The letter was issued by the Central Electricity Authority, Government of India, Ministry of Power on 24.11.2008 which was placed before the Assessing Officer also. By Circular No. 552 dated 9.12.1990, it was clarified by the CBDT that an approval issued by the Department of Power in the Ministry of Energy shall be deemed to be approval of the Central Government for the purposes of sec. 44BBB of the Act. Now Ministry of Energy Sources was dispensed with and the Ministry of Power started functioning independently therefore the letter issued by the Ministry of Power is a valid communication on the subject of Electricity and power. No reason to reject the claim of the assessee in the absence of any evidence disproving the genuiness and authenticity of the furnished by the revenue. Secondly, the Assessing Officer rejected the claim stating that the Central Government approval is not available at the time of signing of the contract. Now it is well settled issue that additional claims and supporting documents such as approvals etc may be furnished at the time of assessment before the Assessing Officer or before the appellate authorities which will be treated as sufficient compliance. Since the approval was submitted before the Assessing Officer during the pendency of assessment proceedings, furnishing complete details of the power project and certificate that the contract work of the assessee may be treated as turnkey project for the purposes of sec. 44BBB of the Act and the assessing officer has not dispoved the same we do not find any reason for rejecting the claim of the assessee. Thus it is clear that the assessee has satisfied all the conditions for the purposes of computing the income u/s 44BBB as a turnkey project. Therefore we set aside the orders of the lower authorities and direct the Assessing Officer to compute the income as per sec. 44 BBB - Decided in favour of assessee Design Engineering & Technical and Supervisory services treated as technical services and taxed u/s 115 A r.w. sec. 44D - Held that:- In the case of the assessee, the expenditure was debited the Profit and Loss account and the assessee explained that this was part of the receipt of contract works and no separate receipt was received by the assessee for any stand alone works. This fact was not examined by the A.O. If the payment was part of the contract works the section 44D does not apply and if the receipt was separately made for technical fees then the provisions of section 44D are applicable. Therefore, we set aside the orders of the lower authorities and restore this issue to the file of the Assessing Officer with a direction to examine whether the receipt in question is a part of the contract work or a separate payment and decide on merits after giving opportunity to the assessee. This ground is allowed for statistical purposes.
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2016 (12) TMI 442
Additional depreciation in respect of the plant and machinery - Held that:- Section 32(1)(iia) provides for additional depreciation at the rate of 20%.The Assessing officer allowed 10% of additional depreciation in respect of the plant and machinery purchased during the A.Y.2009-10. The A.O. found that the additions to the fixed assests made in the second half of the financial year ,therefore,50% of the additional depreciation has been claimed.The balance 50% was carried forward in the next year. The A.O. found that the additional depreciation is allowable only during the year in which the machinery was installed and used for the business of the assessee. There is no provision in the Income tax Act.for carry forward of the additional depreciation to the subsequent year. Carefully gone through the judgment of the Hon'ble Karnataka High Court in the case of CIT vs Rittal India Pvt. Ltd. [2016 (1) TMI 81 - KARNATAKA HIGH COURT ] after extracting the provisions of section 32(1)(iia) of the Act ,found that beneficial legislation has to be interpreted liberally so as to benefit the assessee. Karnataka High Court also found that the intention of the legislation is to allow the additional benefit. The Karnataka High Court opined that the proviso would not restrain the assessee from claiming the balance of the benefit of additional depreciation in the subsequent assessment year. In view of the above, this tribunal is of the considered opinion that the assessee is entitled for remaining 10% of the depreciation during the year under consideration - Decided in favour of assessee Disallowance of lease rent paid - Held that:- As decided in assessee's own case for the A.Y. 2010-11& 2011-12 if as per the agreement, the lessor of the asset retains ownership of the asset and gives the asset to the assessee for use then the lease rent paid is allowable as deduction from the computation of income of the assessee. If according to the lease agreement, the ownership of the asset is transferred to the lessee, then in that case, the lease instalment comprising of the cost of the asset has to be capitalized by the assessee and on that the assessee is entitled to depreciation and the interest portion of the instalment is allowable deduction as revenue expenditure in the computation of income of the assessee. We find that in the instant case, the assessee has claimed deduction of the entire amount of lease rental of ₹ 12,42,820/- while computing the income for income tax purposes but has debited in the books of account only ₹ 3,98,733/- towards lease rent. Both the parties before us have not filed the copy of the lease agreement and therefore, we are not in a position to adjudicate the issue completely. We, therefore, are of the view that it will be in the interest of justice to restore this issue back to the file of the Assessing Officer to readjudicate the issue afresh in the light of the discussion herein above after examining the lease agreement of the assessee. Thus, the grounds of appeal of the assessee are allowed for statistical purposes
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2016 (12) TMI 441
Penalty u/s 271(1)( c) - additional income surrender by assessee - Held that:- As noted from the record that the AO had initiated penalty proceedings for concealment of income or for furnishing inaccurate particulars of income. In the notice also, the AO has not specified for which specific reason the penalty proceedings has been initiated whether it is for concealment of income or for furnishing inaccurate particulars of income. Ultimately, the AO levied the penalty for concealment of income. As decided in CIT & Anr vs. Manjunatha Cotton & Ginning Factory [2013 (7) TMI 620 - KARNATAKA HIGH COURT] the practice of the Department sending a printed form where all the grounds mentioned in section 271 are mentioned would not satisfy the requirement of law when the consequences of the assessee not rebutting the initial presumption is serious in nature and he had to pay penalty from 100 per cent. to 300 per cent. of the tax liability. As the said provisions have to be held to be strictly construed, notice issued under section 274 should satisfy the grounds which he has to meet specifically. Otherwise, the principles of natural justice is offended if the show-cause notice is vague. On the basis of such proceedings, no penalty could be imposed on the assessee. Thus penalty deleted - Decided in favour of assessee
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Customs
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2016 (12) TMI 431
Benefit of Notification No. 21/2002 dated 1.3.2002, Sr. No. 425(2) - classification of imported goods - 4000 pieces of timing belts - classified under Chapter Heading 84 or under Chapter 40 of the Customs Tariff Act? - Held that: - it is undisputed that the exemption Notification No. 21/2002 under Sr. No. 425 is available to the goods falling under Chapter 84, 85 or 90 - However, in the Entry No. 2, the exemption is provided to parts of the machine. Whether the parts of the machine to Entry No. 2, list 45, where the exemption on the parts can be allowed irrespective whether such parts falls under Chapter 84, 85 or 90 or in any other chapter? - Held that: - The appellant heavily relied upon the judgment of Hon'ble Supreme Court in the case of Jain Engineering Co. Vs. Collector of Customs. Bombay [1987 (9) TMI 46 - SUPREME COURT OF INDIA], wherein it was held that irrespective of fact that whether the parts is included under the heading specified or in any other heading, it would come within the purview of Notification provided it is part of the main equipment. In the present case, the timing belt is undisputedly part of the Draw Texturising Machine, which is evident from the certificate issued by the jurisdictional excise authority under the provisions of Customs (Import of Goods at concessional rate of duty for manufacturing of excisable goods) Rules, 1996. Therefore, whether the timing belt falls under Chapter 40 or chapter 84, the same is part of the Draw Texturising Machine - the exemption notification is applicable to the goods imported by the appellant i.e. timing belt. Since the issue is being decided on the basis of Hon'ble Supreme Court judgment, we refrain from addressing the classification issue of the product that whether the goods in question falls under Chapter 40 or 84 - appeal allowed - decided in favor of appellant-assessee.
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2016 (12) TMI 430
Revocation of CHA licence - forfeiture of security deposit - imposition of penalty under Section 158A(2)(2ii) of the Customs Act, 1962- certain allegations of filing Bills of Entry on behalf of importer client - Held that: - the said Section empowers the Central Govt. to make any rule or regulation in terms of which a penalty to the extent of ₹ 50,000/- can be imposed on any person for contravention of the provisions of rule or regulation. As such, it is seen that the said section is empowering Section and cannot be adopted by itself for imposition of penalty. It does not stand to brought to our notice that any rule or regulation stand framed under this Section for imposition of penalty. Even if they stand framed the penalty has to be imposed in terms of such framed rules and regulations and not in terms of the empowering provisions. As such, we are of the view that penalty imposed under Section 158(2)(ii) cannot be sustained. Accordingly, the same is set aside - appeal allowed - decided in favor of CHA-appellant.
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2016 (12) TMI 429
Revocation of CHA licence - period of limitation - Regulation 19(1) of CBLR, 2013 - A perusal of the records of the present case reveals that the initial Show Cause Notice under Regulation 20 has been issued after a delay of over 180 days. It is further seen that the submission of Inquiry Report after the Show Cause Notice also has been considerably delayed as against the mandatory time limit of 90 days, the Inquiry Report stands submitted only after the delay of more than one year - Held that: - Hon'ble Madras High Court has emphasised the observance of time limits strictly under the CHALR, 2004/CBLR, 2013 in the case of Saro International Freight System Vs. CC, Chennai [2015 (12) TMI 1432 - MADRAS HIGH COURT], where it was held that the impugned show cause notice issued by the respondent is without jurisdiction, as it has been issued beyond the period prescribed in the regulations, which have statutory force and hence, not sustainable. Appeal allowed - decided in favor of appellant-assessee(CHA licensee).
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2016 (12) TMI 428
Project import - eligibility of benefits of Notification No.42/96-Cus dated 23/07/1996, Sl.No.16 for “Port Development Project” - As per lower authority the setting up of LPG Storage Tanks is for their own infrastructure facility for import, storage and distribution of LPG and the facility is not available to any other Port user - whether the appellant is eligible for the benefit of Project Import Regulation or otherwise for construction of LPG storage terminal tanks at Porbunder, Gujarat claiming the benefit of notification No.42/96-Cus dated 23/07/96, Sl.No.16 in “Port Development Project” Held that: - Notification No.42/96-Cus is issued in exercise of powers conferred by sub-item (6) of Heading 98.01, the first schedule to the Customs Tariff Act, 1985, the Central Government has notified 19 projects input eligible under Project Import assessment under Chapter heading 98.01 and at Sl.No16, “Port Development Projects” are indicated. We find by letter dated 02/08/1996, the office of the Secretary of Ports & Fisheries Department, Government of Gujarat has specifically stated that they have accepted the proposal of the appellant for erecting of storage of LPG (import) facility at Porbunder Port of the Gujarat Maritime Board and by letter dated 01/02/97 clearly indicated to the Asst. Commissioner of Customs, Central Cell, GR-6) New Customs House, Mumbai that “in view of the clarifications mentioned above, the duty concession to import the items under Customs Tariff Act, 1975 and Project Import Regulations, 1986 as well Public Notice 154 Imp.133 dated 30/11/89 may be permitted as per rules to M/s.IMS Petrogas Ltd. and SHV Energy North West India Ltd. subject to the condition that total material should not exceed as attested and forwarded as Annexure-B (copy enclosed as per para 3 above) with this department even letter dated 22/10/96”. The above said paragraph reproduced from the letter of Secretary to the Ports and Fisheries Department, Government of Gujarat clearly indicates that these facilities for LPG import and storage at Porbunder Port is covered under Project Import Regulations and the said Secretary is authorized for issuing such certificates. On face of such a certificate from the concerned ministry, the Revenue authorities are in error to hold that the import of the goods under Project Import Regulations by appellants is improper as also the de-registration of project from Project Import Regulations. In our view, the ratio of the judgement of the Apex Court in the case of Zuari Industries Ltd. Vs. CCE & C [2007 (3) TMI 12 - SUPREME COURT OF INDIA] will apply to the case in hand, in its full force and there is no dispute that the said project is covered under Notification No.42/96-Cus issued by the Government of India under Heading 98.01. The appellants are eligible to the benefit of Project Import Regulations in respect of the project registered by them. The impugned orders de-registering the project imports and demanding differential duty are unsustainable and liable to be set aside - appeal allowed - decided in favor of appellant-importer.
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2016 (12) TMI 427
Confiscation of imported goods - import of Stainless steel melting scrap - mis-declaration of goods - whether the material imported by OIL is stainless steel melting scrap or a large part of it can be treated as serviceable material? - Held that: - while the allegation is that the material imported by OIL is serviceable stainless steel sheets of which grade 301 and 304 the same have nowhere been treated as prime material. The material was found under the scrap as neatly strapped and palletised sheet.Scrap is not neatly strapped and palletised. Scrap is not of relatively uniform shape and size and with neatly trimmed edges. Thus the material recovered in palletised form with neatly machined edges can only be treated as SS sheets of prime/serviceable quality. The notice seeks to classify the material under heading 7208 while the impugned order classifies it under heading 7219/7220 depending on the width. The impugned order rejects the proposition to classify it under heading 7208. Thus it is clear that the allegation made in the notice has been dropped. It is not open to revenue to make an entirely different case. In the description of contemporaneous comparative imports also the product description is SS steel coils/ SS cold rolled steel/ SS hot rolled steel. No heading or classification has been mentioned in the said data. Presumably if the attempt was to classify the products under heading 7208 then contemporaneous data of the same heading i.e. 7208 would have been taken. If the product has been found to be classifiable under heading 7219/ 7220 the contemporaneous data of imports of heading 7208 cannot be used to redetermine the transaction value under Rule 4. The demand cannot be sustained. Since demand itself is not sustained on merit, the confiscation cannot be upheld. The appeal of OIL is allowed - decided against Revenue.
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Corporate Laws
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2016 (12) TMI 421
Creation of mortgage of the property and fixed assets - mortgage by the Respondents over the assets of the First Respondent Company to secure a loan/credit facility to an extent of ₹ 5,95,76,764 - Held that:- Petitioners and Respondents 2 to 7 have a common stand as against the notice issued by the Bank under the provisions of SARFAESI Act, 2012. To that extent during March, 2015 and thereafter till filing of Writ Petition in the High Court, there was no conflict of interest among the Directors, including petitioners and the Respondents 2 to 7. The conflict has cropped up only after dismissal of the Writ Petition by the High Court of Allahabad. It is an admitted fact that Bank has approached the Debt Recovery Tribunal and the proceedings are pending there. We therefore, are constrained to infer that this Tribunal's jurisdiction is invoked by the parties under section 397 and 398 of the Act to foil the proceedings pending before the Debt Recovery Tribunal. This Tribunal for the aforesaid reasons, find that it cannot be declared as such that the mortgage of the Company's property in favour of Bank of Baroda, the 8th Respondent herein, was unlawful, illegal, null and void, as claimed by the petitioners. We place on record that our observations, if any, would not stand in the way of the Debt Recovery Tribunal to decide the validity of mortgage, if raised before it, in accordance with law. It is suggested to the Respondent No. 8 Bank to take initiative to pursue the Company to hold Annual General Meeting and get ratification for the authorisation given to the Directors to create mortgage over the assets of the Company towards corporate guarantee. We are alive to the fact that there is conflict among the directors and therefore, it is necessary to place this subject in the agenda before the AGM. - Decided against petitioner. Unlawful appointment of directors in the meeting of the Board - Held that:- The letters of appointment issued to the Respondents 5 to 7 are in pages 364, 365 and 366 of the Petitioner's paper book and these letters are not disputed by the respondents. These documents show that the Respondents 5 to 7 are appointed as 'Directors' and not as 'Additional Directors'. In From DIR-12 (page No. 352 of the Petitioners' paper Book) also shows that it is appointment of 'Director'. This is therefore clearly in defiance of Sec. 260 of the Act, in as much of the Board of Directors has no power and authority to appoint Directors. It is not the case of the Respondents that the Respondents 5 to 7 are appointed as Additional Directors and later appointed as Directors in the annual general meeting of members. In view of the precedent reported in Varshaben S Trivedi vs. Shree Sadguru Switchgears Pvt Ltd. (2014 (3) TMI 1070 - COMPANY LAW BOARD MUMBAI) we hold that the appointment of Respondents 5 to 7 as Directors of the Company is unauthorized, and against the provisions of law and thus, is liable to be set aside.- Decided in favour of the petitioners.
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Service Tax
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2016 (12) TMI 440
Business auxiliary service - Appellant is a provider of service under the category of Courier Service falling under Section 65(33) of the Act. Service tax demanded in respect of co-loader services provided by the appellant to other courier service companies for delivery of domestic courier packets as well as imported courier packets - packets booked for delivery to other countries on the ground that the activity did not belong to export of service since no foreign exchange was realised for these transactions by the appellant - Held that: - The provision of courier service involves collecting the goods from the person booking the consignment, transporting the same to the destination and ultimate delivery by hand to the recipient - The consideration for the service also will be collected by the agency. In the present case, where the appellant has worked as co-loader their role is limited to delivery of the packets to the ultimate customer. For this activity, they have received consideration from the first courier agency. From the nature of the activity undertaken by the appellant, it cannot be said that they have carried out courier service on behalf of another - The transaction between the appellant and the other courier agency is on principal to principal basis. It cannot be said that the service has been rendered on behalf of the courier agency. Consequently, activity cannot be covered under the definition of BAS and hence this part of the demand cannot be sustained. The appellant has received certain amounts from abroad for delivery of incoming courier packets. They have also received some amounts for the courier consignments exported on collect basis. The claim of the appellant is that this amounts to export of service and hence no service tax is leviable. The demand for service tax has been made for the reason that the payment has not been received in convertible foreign exchange - the amount has been received by the appellant by way of adjustment out of the amounts - Held that: - The Notification No.21/2003-ST, dated 20.10.2003 exempts from payment of service tax, amounts received in convertible foreign exchange. We know that but for the amount due to be paid by the appellant to foreign courier companies, they would have received the considerations in foreign exchange for the service rendered by them to foreign courier companies for delivery in India. It cannot be said that on account of the adjustment, the consideration has not been received in foreign exchange. We are of the view that the condition of Notification No.21/2003-ST is to be considered as satisfied in the present case. Consequently this part of the service tax demand also merits to be set aside. Demand set aside - appeal allowed - decided in favor of appellant-assessee.
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2016 (12) TMI 439
Rebate of service tax u/r 5 of Export of Services Rules, 2005 read with Notification No. 11/2005-ST dated 19.04.2005 - receipt of foreign exchange - the rendering of marketing support and project management services to group company i.e. Rolls Royce Marine AS, Norway - whether export of services or not? - rejection of refund on the ground that the considerations for the services rendered by the Appellant to the foreign company have not been received in convertible foreign exchange - Held that: - the payment has been received from the foreign customer via Christiania Bank OG, Kreditkasse. The Reserve Bank regulations permit such amounts received through intermediate nostro accounts as receipt of payment in Foreign exchange. Accordingly rebate claims under Rule 5 merits sanction since the only reason for rejection is non-receipt of payments in Foreign currency. The issue is no longer res integra as it has been decided in favour of assessee by the Tribunal in the case of M/s Samit Enterprises Pvt. Ltd. Versus CCE & ST (Adj.) , New Delhi, [2016 (6) TMI 831 - CESTAT NEW DELHI], wherein the Tribunal has held that where the commission is paid by the Indian buyers to the appellant as per arrangement with the foreign supplier sending the commission to the appellant, in effect, the commission was paid to the appellant on behalf of the foreign supplier only and can be deemed to have been paid in foreign exchange as the buyers would have had to remit the commission part also to the foreign supplier who would have in turn sent it to the appellant. This arrangement thus makes the procedure simpler without any material difference with regard to foreign exchange implication to India. Rebate allowed - appeal allowed - decided in favor of appellant.
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2016 (12) TMI 438
GTA service - reverse charge mechanism - whether the appellant/assessee is required to discharge the Service Tax liability on the inward freight paid by them to the lorry owners who transported the sugarcane from farmer to sugar factory under the category of Goods Transport Agency services or otherwise? - Held that: - It is undisputed that the appellant is sugar factory and covered under the notification which mandated for discharge of Service Tax liability by them on the services received from goods transport agency. However, in the facts of the case in hand, it is noticed that undisputedly the appellant/assessee have paid the inward freight charges to individual truck owner, who transported sugarcane from farmer to their factory. It is also undisputed there was no consignment notes issued by the said truck owners. On the above factual matrix, we find that the learned Counsel the appellant/assessee has correctly relied upon the decision of Tribunal in the case of Nandganj Sihori Sugar Co. Ltd. [2014 (5) TMI 138 - CESTAT NEW DELHI], where it was held that When the transports did not issue consignment notes or GRs or Challans or any documents containing the particular as prescribed in Explanation to Rule 4B of the Service Tax Rules, 1994, the Transporters cannot be called ‘Goods Transport Agency’ and, hence, in these cases, the service of transportation of sugarcane provided by the transporters would not be covered by Section 65(105)(zzp). As regards Revenue's appeal, we find that the Revenue is aggrieved by setting aside of the penalty by the first appellate authority. Since we have held in favour of appellant/assessee on merits itself, nothing survives in the appeal filed by the Revenue. Accordingly, Revenue's appeal is rejected. Appeal allowed - decided in favor of appellant-assessee.
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2016 (12) TMI 437
Levy of tax - commission agents service - business auxiliary service - reverse charge mechanism - Held that: - I have perused the records and I notice that the grounds of appeal have contested the levy imposed by the original authority on the consideration paid to commission agents outside the country both by questioning the legality of the levy and coverage beyond the normal period of limitations This is in contrast with the specific prayer for setting aside of penalty. It must be pointed out that the proceedings before the first appellate authority on this issue was also limited to imposition of penalty. The Tribunal cannot, therefore, revisit the demand for tax on services provided by commission agents abroad. I, therefore, decline to consider the challenge other than that of imposition of penalties. No justification has been brought forth either in the appeal or in the submissions that penalties under section 70 and 77 are not to be imposed. The discretionary empowerment under section 80 of Finance Act does not extend to penalties imposed under section 70. The tax confirmed and accepted as liability by the appellant is ₹ 1,93,075 for the period from 2006-07 to 2007-08 and ₹ 1,24,465 for 2008-09. No penalty has been imposed under section 76 in relation to the latter demand. It is, however, seen that service tax and interest paid before the issue of show cause notice. The original authority has not imposed penalties under section 78 of Finance Act, 1994 implying that the ingredients spelt out in section 73(4) of Finance Act, 1994 does not exist. Consequently, the issue of show cause notice for recovery of ₹ 1,93,075 and ₹ 1,24,465 for the two respective periods was not warranted in law as per section 73(3) of Finance Act, 1994. In the absence of show cause notice, penalty under section 76 of Finance Act, 1994 could not have been imposed - penalty u/s 76 set aside - appeal disposed off - decided partly in favor of appellant.
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Central Excise
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2016 (12) TMI 436
Cenvat Credit - common inputs and input services - reversal under Rule 6(3) of the Cenvat Credit Rules - The appellants have contended that the formula prescribed for the period after 1.4.2011 should be adopted for the period prior to 1.4.2011 - trading activity - Held that: - the issue regarding interpretation of sub-rule (5) of Rule 6 of Cenvat Credit Rules, 2004 is no longer res integra. In view of the above, respectfully following the decisions of the Tribunal on the issue, we hold that benefit of Rule 6(5) of Cenvat Credit Rules, 2004 cannot be extended in respect of trading activities. The said credit needs to be reversed in proportion to the trading turnover and the total turnover. Further, it was contention of the appellant, related to the credit availed at depot, that they are need to be divided in the proportion of the value addition happening at the depot/office level after clearance from factory in respect of manufactured goods and the value addition happening at the depot/office level in respect of traded goods. If the argument of the learned Counsel is accepted and the value addition happening at the stage of manufacture and services used therein need to be considered, then the entire Service Tax credit taken at factory also needs to be apportioned. In view of the above, the argument of the learned Counsel does not hold much water. Formula - method for determination of amount of credit to be reversed - Held that:- it can be seen that even the method prescribed for the period after 1.4.2011 is inherently erroneous. - The formula prescribed for the period after 1.4.2011 does not provide reasonable estimate of the credit attributable to the exempted and dutiable activities. Furthermore the formula sought to be adopted by the appellants is not the formula prescribed for the period after 1.4.2011. In these circumstances we hold that the credit availed at various places registered as ISD needs to be apportioned in the ratio of the exempted and other sales, as has been done by the Revenue. Extended period of limitation - The appellants have not reversed any credit on their own and only when they were investigated that they have reversed as per their own calculation. There was no doubt regarding liability to reverse. In this appeal also they are contesting merely the quantification and not liability to reverse. In these circumstances the extended period has been rightly invoked. - Appeal dismissed. - Decided against the assessee.
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2016 (12) TMI 435
Confiscation of goods - imposition of penalty - Clandestine removal - Held that: - the fact that the present show cause notice is a separate stem from the same investigation and also the fact that the same goods are involved, cannot be disregarded in toto, as the liability to pay duty on the excess quantity of goods has been settled. The appellant has not been able to give any explanation for the non-accountal of excess quantity of goods. The only contention raised is that the PVC pipes were of different varieties and they were stacked up together. This contention is not tenable, as the appellants are bound to maintain proper accounts of the finished stock. Further, Rule 173(Q) of erstwhile Central Excise Rules 1944 empowers confiscation of goods for not making proper entry / not accounting the goods. Again, Shri L Mohan Kumar, Managing Director of appellant, inter alia has stated that no further manufacturing is to be done on the goods seized. Therefore, I do not find any ground to interfere with the confiscation of goods. Penalty - Held that: - The facts of the case evidence contravention of the provisions of Central Excise Acts and Rules. The adjudicating authority has imposed penalty of ₹ 12,92,749/- which is equal to the duty amount settled by appellant before the Hon’ble Settlement Commission and therefore, the said penalty requires no interference. The penalty of ₹ 3,00,296/- is seen imposed under 173Q r/w 226 of Central Excise Rules, 1944, which is penalty imposed at the then prevailing rate of 25% on the redemption fine, which according to me is as per law, just and reasonable. Appeal dismissed - decided against appellant-assessee.
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2016 (12) TMI 434
Demand - Cenvat credit - the point of dispute is that the resultant fabricated items became part of structures which are embedded to earth and become immovable, thereby losing the name of ‘goods’. Hence, Revenue contends that these items used are outside the purview of capital goods or inputs - Held that: - the Hon’ble Supreme Court evolved ‘user test’ to answer the question whether the items falls within the purview of ‘capital goods’ and held that in the case of Rajasthan Spinning Mills [2010 (7) TMI 12 - SUPREME COURT OF INDIA] that steel plates and MS channels used in the fabrication of chimney would fall within the ambit of ‘capital goods’ - Appeal allowed - decided in favor of the assessee.
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2016 (12) TMI 433
Cenvat credit on M.S. Plates, Angles - Demand - Rule 2 of Cenvat Credit Rules, 2004 - Held that: - the strucutal steel items have been used for the fabrication of support structures for capital goods. The appellants have argued that the various capital goods, such as, kiln, material handling conveyor system, furnace, etc. cannot be suspended in mid air. They will need to be suitably supported to facilitate smooth functioning of such machines. It is obvious that the structural items have been suitably worked upon for this purpose. Accordingly, the goods fabricated, using such structurals, will have to be considered as parts of the relevant machines - Accordingly, applying the User Test to the facts in hand, we have no hesitation in holding that the structural items used in the fabrication of support structures would fall within the ambit of ‘Capital Goods’ as contemplated under Rule 2(a) of the Cenvat Credit Rules, hence will be entitled to the Cenvat Credit - Appeal allowed - decided in favor of the assessee.
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2016 (12) TMI 432
Clandestine removal - Demand - Period of limitation - Held that: - under the facts and circumstances in view of the standard practice followed by the appellant of filling slightly excess quantity to avoid any commercial disputes with their buyers, no case of clandestine removal is made out. We also hold that the evidence collected by the learned Commissioner behind the back of the appellant cannot be relied upon and the same have got no evidential value in absence of giving proper opportunity to object or explain the same - Moreover, the said evidence collected from other companies/manufacturers in the same line of business is also not reliable in view of the standard laid down by the BIS as noted herein above, which provides for variation of actual net weight of carbon black - the appellant have not received any additional consideration for the extra quantity packed - Appeal allowed - decided in favor of the assessee.
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CST, VAT & Sales Tax
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2016 (12) TMI 426
Benefit of composition scheme - whether it is justified to hold that the benefit of Composition Scheme under Section 15 (1) of the Karnataka Value Added Tax Act, 2003, cannot be denied on the ground that certain capital goods were purchased by the petitioner-assessee, which were not “goods-in-stock”? - the petitioner-assessee, running a Restaurant purchased certain Vetrified Tiles to be fixed on the floor of the Restaurant - Held that: - Since in the present case, the first appeal of the petitioner-assessee has been disposed of against the assessee and the second appeal before the Tribunal under Section 63 of the Act has not yet been filed, the petitioner-assessee is relegated to the alternative remedy before the said Tribunal and if such appeal is filed before the Tribunal within fifteen days from today, the same shall be considered on merits without objection as to the limitation by the said Tribunal in accordance with the aforesaid order of this Court. If, however, the Department can produce before the Tribunal the proof of the aforesaid judgment being stayed by any superior Court, they will be entitled to proceed further in accordance with law - petition disposed off.
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2016 (12) TMI 425
Principles of natural justice - Section 39(1) of the KVAT Act, 2003 - maintainability of appeal - effective alternative remedy available to the petitioner under Section 62 of the KVAT Act, 2003 - Held that: - The narrow parameters for invoking writ jurisdiction under Article 226 of the Constitution of India, notwithstanding the appeal remedy available to the petitioner have to be very strictly construed. The contingencies like, question of validity and vires of the relevant statute or Rules or Notifications is involved, whether the assessee concerned has been saddled with the financial liability without any sort of opportunity of hearing given to him, is not to be lightly invoked in all such cases merely on the basis of the allegations and averments made in the writ petitions. The contentions raised before this Court in the present case, could all have been raised before the Appellate Authorities without any doubt. For the reasons best known to the petitioner- assessee, the petitioner-assessee ignored and bypassed these remedies. The writ jurisdiction in such circumstances cannot be allowed even to overcome the lapse of the limitation for the petitioner-assessee at this belated stage. Petition not maintainable and is dismissed.
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2016 (12) TMI 424
Notifications dated 17.06.2002 and 12.09.2002 (Annexures P-17 and P-20) be treated as inoperative qua the petitioner-Company on the doctrine of promissory estoppel and that the respondent –State of Punjab be restrained from going back on its promise of providing sales-tax exemption to the petitioner Company as per the Industrial Policy, 1996 and subsequent notifications - Held that: - the petitioner had made substantial progress towards completion of the project before the issuance of the notification dated 17.6.2002 and the amendment dated 12.9.2002 to the Deferment & Exemption Rules, 1991. This is further evidenced by the fact that it was able to commence production within a short period after these notifications i.e., on 21.10.2002, and within four months of 30.06.2002, the date specified in these notifications - In these circumstances, in our view, Ld. Counsel for the petitioner is right in urging that as the petitioner had irretrievably altered its position in pursuance of the promise of the Government and made substantial investment before the issuance of the later notifications, they could not operate to its detriment and it could not be denied the promised benefit. The petition deserves to succeed. We do not find any merit in the arguments on behalf of the State in justification of the rejection of the claim of the petitioner, namely the consensus at the Empowered Committee of State Finance Minister or that the State has the liberty to withdraw the promised incentive at any time. Nor, on the facts as they have emerged, is it possible to agree with the Ld. State Counsel the the petitioner has been lax or took no timely steps in proceeding to set up the unit - petition allowed. It is held and declared that the petitioner company would be entitled to the benefit of sales tax exemption as per the Industrial Policy 1996, Incentives Code, 1996 and the notification dated 30.4.2000 on the ground of promissory estoppel and the said benefit cannot be denied to the petitioner on the basis of the subsequent notifications dated 17.6.2002 and 12.9.2002. - The letters dated 24.9.2002 and 04.12.2002 rejecting the claim of the petitioner for sales tax exemption are quashed - The respondents are directed to re-consider the claim of the petitioner for grant of sales tax exemption as per the Industrial Policy 1996, Incentives Code, 1996 and the notification dated 30.4.2000.
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2016 (12) TMI 423
Jurisdiction of the act - since petitioner is selling timber under Section 5(2) of the CST Act 56, they are not liable for taxation under the TNVAT Act and the petitioner also sells the timber locally taxable @ 14.5% under the said provision - Held that: - in the light of the circular coupled with the fact the order came to be passed without furnishing the copy of the web-report, this Court is of the considered view that the appellant/ petitioner need not avail alternative remedy. The third respondent has placed reliance upon the web- report, but, without furnishing a copy of the same to the appellant/petitioner and arrived at the decision and passed the impugned order and therefore, on this short ground, the impugned order which was the subject matter of the Writ Petition warrants interference. Writ Petition allowed and the order dated 30.09.2015 passed by the third respondent as well as the order passed by the learned Judge in W.P(MD).No.22745 of 2015 are set aside and the matter is once again remanded to the third respondent who shall follow the above cited statutory provisions as well as the Circular and pass appropriate orders.
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2016 (12) TMI 422
Levy of sale tax - Sale of Aircraft (Asset) - three joint owners of asset - as per the memorandum of agreement dated 15.03.2011 between the parties for exit of the petitioner from the joint venture agreed to transfer, assign and relinquish of their share of 33.33% aggregating to 66 2/3% in the joint venture to M/s.Madras Cements Ltd., with equal shares - whether it was sale transaction and is liable to be taxed or merely relinquishment/release of the share in the joint venture and therefore cannot be taxed? Held that: - The petitioner's case is that the transaction will not fall within the scope of the expression 'sale' as defined in Section 2(33) of the TNVAT Act. Thus, the factual averments set out by the petitioner has to be examined by the respondent. For doing so, it is necessary that the joint venture agreement dated 10.09.2003, memorandum of agreement dated 15.03.2011 and other related documents should be gone into to interpret the intentions of the parties. Having failed to do so would render the findings recorded by the respondent in the impugned order as not tenable. In the counter affidavit, the grounds raised by the petitioner having not been met rather the counter affidavit is the re-presentation of the impugned assessment order. The matter is remanded to the respondent for fresh consideration, who shall take note of the observations made this order and re-do the assessment under the said head in accordance with law - appeal allowed by way of remand.
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Indian Laws
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2016 (12) TMI 420
Admissibility of vakalatnama filed by a new advocate in the absence of ‘no objection’ of the advocate already on record - Held that:- On discharging the advocate, the party has the right to have the case file returned to him from the advocate, and any refusal by the advocate to return the file amounts to misconduct under Section 35 of the Advocates Act, 1961. In any proceeding, including civil and criminal, a party has an absolute right to appoint a new Advocate. Under no circumstance, a party can be denied of his right to appoint a new advocate of his choice. Therefore, it follows that any rule or law imposing restriction on the said right can’t be construed as mandatory. Accordingly, Courts, Tribunals or other authorities shall not ask for ‘no objection’ of the advocate already on record, to accept the vakalatnama filed by a new advocate. Under no circumstance, a party can be denied of his right to appoint a new advocate of his choice. The right is absolute and not conditional. Hence, the objection raised by the Registry on the vakalatnama is overruled. Hereafter, the Registry shall not ask for ‘no objection’ of the advocate already on record, to accept the vakalatnama filed by a new Advocate.
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2016 (12) TMI 419
Grant of electricity connection to the share holders of the company owning the property / joint owners - excess meters provided - Held that:- CESC Limited says in their affidavit that at the time of the installation of the meters there was no objection from any quarter. They have also said in paragraph 6 (a) of their affidavit that the premises is a big bungalow known as “Mody House”. The security guard and the care taker of the building told the CESC officials that the sixth and seventh respondents belonged to the Mody family. CESC also found them to reside in this house on the ground and first floors. In such a situation, I do not think that “wayleave” permission assumes any specific importance because members of the same family were found be CESC to occupy the property which seemed like a family property, and nobody came forward to object to the grant of electricity connection. In those circumstances, in my opinion, CESC Limited cannot be said to be in breach of their statutory duty. Furthermore, the first petitioner is a family company and the private respondents are members of that family. It is very usual for family companies in India to hold its assets as in a partnership business. The courts have also consistently recognised that the principles of partnership may be applied to this kind of a family corporation. Not surprisingly the private respondents have asserted that they have almost a 50% stake in the company and thus a 50% share in the property. They feel they had rightly applied for electricity connection and obtained meters to service certain parts of the joint property. In my opinion, in this kind of a situation when electricity connection has already been given the court should not interfere with it in its writ jurisdiction. It is much better if such a dispute is resolved in a civil forum like a Court, arbitration of the Company Law Board.
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