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TMI Tax Updates - e-Newsletter December 11, 2012 Case Laws in this Newsletter: Income Tax Customs Corporate Laws Service Tax Central Excise CST, VAT & Sales Tax Indian Laws Articles Reimbursement of Expenses not subject to Service Tax News MCA 21 Project – Achievements and Continuation Investigation into the Affairs of Certain ‘Multi-Level Marketing’ Companies National Competition Policy Cases of Default in Repayment by the Non-Banking Financial Companies Unregistered Companies Statement made by Revenue Secretary to Media Highlights / Catch Notes Income Tax TDS u/s 194H - the discount offered by the assessee to the distributors on payments made by the latter for the SIM cards/recharge coupons which are eventually sold to the subscribers at the listed price is commission and it is subject to TDS under s. 194H - AT Visit to Get Source Penalty u/s 271D - accepting the loans/ deposits or aggregate of such loans or deposits of Rs. 20,000 or more - As such the assessee committed violation of provisions of section 269SS of the Act. - penalty u/s. 271D rightly imposed - AT Visit to Get Source Disallowance of Non-Compete Compensation - Amount paid as non-compete fee being capital out lay, can not be allowed as revenue expenditure - AT Visit to Get Source Whether the security deposits collected from customers on letting out the Gas Cylinders is trading receipt, whether these Gas cylinders would constitute as plant as per Income Tax Act, if so, the depreciation to be granted at 100% on these Cylinders - both issues decided in favor of assessee - AT Visit to Get Source Renewal of approval under section 80G(5) of the Act - Even the unauthorized amended Trust Deed/so called supplementary Trust Deed contravenes the provisions of section 80G(5)(iii) read with Explanation 3 of the Act, being expressed to be for the benefit of a particular religious community i.e. Hindu. - Trust is not entitled to renewal of approval u/s 80G(5) of the Act. - AT Visit to Get Source Tax audit u/s 44AB - inclusion of advances - The mischief of section 44AB shall only become operative if the “turnover or business receipts” exceed Rs. 40,00,000/-. The section does not mention anything with regard to advances received from its customers and that too conditional - AT Visit to Get Source Deduction u/s 22 while computing annual value of Property u/s 24 - in computing the income from house property only deduction as permissible u/s 24 of the Act are to be considered and no deduction is allowable therein for payment of brokerage charges - AT Visit to Get Source Person u/s 2(31) - Artificial Judicial Person (AJP) as defined in section 2(31)(vii) - Change of status from AJP to AOP - the Assessing Officer was not justified in changing the status of the assessee without giving any notice.- AT Visit to Get Source Salary and interest paid to partners - provisions of Section 184 of the Income tax Act, 1961 are directory and not mandatory – defect of not filing copy of partnership deed with return of income is a curable defect. - AT Visit to Get Source Software license fees - Software will help the assessee in increasing the efficiency but the same cannot be treated as forming part of profit making apparatus of the assessee company and, therefore, the expenditure on this software cannot be treated as capital expenditure. - AT Visit to Get Source Computation of salary of partners u/s 40(b)(v) – Even if the income from other sources is included in the profit and loss accounts to ascertain the net profit qua book-profit for computation of the remuneration of the partners the same cannot be discarded. - AT Visit to Get Source Customs Benefit of Notification No. 21/2002 - there cannot be two different interpretation on parts one for the purpose of notification and another for the purpose of the tariff - AT Visit to Get Source Revocation of CHA licence – CHA sublet his licence for a consideration in gross violation of Regulation 12 of CHALR, 2004 and this is an act of corruption - AT Visit to Get Source Service Tax Refund - partially rejected on the ground that assessee has not been able to produce any proof of receipt of export proceeds - claim which already stands rejected cannot be allowed to be revived by way of filing of fresh claim - AT Visit to Get Source Cenvat Credit on input services - non payment or delayed payment of service tax by the service provider - Appellants are not expected to/required to know the actual date of payments of the service tax by the service provider - AT Visit to Get Source Central Excise Demand of excise duty - manufacture - assembly of two or more products - The activity of the appellant in packing the twin blade cartridge as also Gillette shaving gel tube in a combination pack and selling it at a discounted MRP of Rs. 85/- does not amount to manufacture. - AT Visit to Get Source Classification – waste - peelings of potatoes – manufacturing of potato chips - whether the goods in question is starch classifiable under Tariff Entry 1108 13 00 or vegetable waste classifiable under Tariff Entry 2308 00 00. - stay granted. - AT Visit to Get Source Cenvat credit – Merely because the same were written off in the books of account and the value shown as nil, by itself, cannot be considered to amounting to removal of the inputs from the factory premises in the absence of any evidence to that effect - AT Visit to Get Source Refund - Cenvat credit of input services - as the appellants are processing only exempted products and since the bar under Rule 6(1) of the CENVAT Credit Rules shall apply, the question of their executing a bond envisaged under Rule 5 of CENVAT Credit Rules does not arise - AT Visit to Get Source VAT Preferential Creditor vs Secured Creditor - Provisions of Section 529-A of Companies Act (a Central legislation) have to be override the provisions of Sec 53 of the M.P. Commercial Tax Act of 1994 (a State legislation) - tax liability will be subject to the provisions of Sec 530 of the Companies Act subject to the provisions of Section 529-A of the said Act. - HC Visit to Get Source Case Laws: Income Tax 2012 (12) TMI 296 Benefit of claim u/s 80IB(10) - developing and building housing projects - ownership as criteria - held that:- Assessee was not the owner of the property and the statutory appeal of the project was not on the name of the assessee - Sec 80IB of the Act did not warrant the ownership of the land - following the decision of the Gujarat High Court in Commissioner of Income-Tax V. Radhe Developers [2011 (12) TMI 248 - GUJARAT HIGH COURT] - case of Revenue was rejected and assessee is entitled to deduction u/s 80IB. 2012 (12) TMI 295 Expenditure incurred on land development - Failure to deduct tax as required u/s 194C - applicability of provisions of sec 40(a)(ia) - project completion method adopted by assessee in dispute - Rejection of Books of account - held that:- from the P&L Account, which was filed by the assessee at the time of hearing that it has not claimed the above amount of Rs. 44,01,500/- as expenditure and did not debit the same to the P&L A/c. When the assessee did not claim the said expenditure/payments by debiting P&L A/c, the question of disallowing this amount by invoking the provisions of section 40(a)(ia) does not arise. further view of revenue that in case of ‘completed contract method’ AO is empowered to examine the expenditures incurred during the year which increases the opening work-in-progress or addition in work-in-progress. But one does not agree with the view of revenue that addition is to be made in total income, if some expenditure were found not allowable. The correct procedure in ‘completed contract method’ is that instead of making addition, the AO should correct the amount of work-in-progress by reducing or enhancing workin- progress as the case may be. Such corrected WIP will be finally considered in P&L a/c /contract account for the year in which work is completed - AO made addition in all the projects including incomplete projects, which is not warranted - no infirmity in the order of the CIT(A) in deleting the addition of Rs. 44,01,500/- made by the AO invoking the provisions of section 40(a)(ia) of the Act, thus, the same is hereby upheld dismissing the ground of the revenue. Decision in the case of Savala Associates Versus Income-tax Officer, Navi Mumbai [2009(10) TMI 640 - ITAT MUMBAI] followed. 2012 (12) TMI 294 TDS u/s 194H - Commission or discount to distributors of SIM cards/recharge coupons - AO observed that upto financial year 2007-08, assessee has deducted TDS on amounts paid on sale of recharge coupons by treating the same as commission - held that:- transaction between BSNL and purchase dealer was on principal to agent basis - Assessee, a cellular operator, provides prepaid connections to the subscribers through distributors called prepaid market associates (PMAs) appointed by it - It offers discount for prepaid calling services to its distributors - Legal relationship is established between the assessee and the ultimate consumer/subscriber, who is sold the SIM card by the agents further appointed by the PMAs with the consent of the assessee Fact that the PMA is supposed to make the payment in advance as per the agreement does not make any difference to the nature of the transaction in view of the other terms of the agreement - Even though advance payment is made by the PMA qua SIM cards, it does not amount to ‘sale’ of goods in as much as unsold SIM cards are to be returned to the assessee and it is required to make payment against them - This is an antithesis of ‘sale’ Therefore, the discount offered by the assessee to the distributors on payments made by the latter for the SIM cards/recharge coupons which are eventually sold to the subscribers at the listed price is commission and it is subject to TDS under s. 194H - Contention of the assessee that s. 194H is not applicable as there is no ‘payment or credit’ by the assessee to the distributor cannot be accepted."- no infirmity in the order passed by the learned CIT(A). Therefore, this ground of appeal raised by the assessee for both the assessment years under consideration is dismissed. Decision in CIT v. Idea Cellular Ltd. [2010 (2) TMI 24 - DELHI HIGH COURT] followed. 2012 (12) TMI 293 Validity of Reassessment Proceedings - Escapement of Income - concealment of income and tax evasion - “reason to believe” - jurisdiction to reopen the petitioner’s assessment - petitioner did not disclose expenditure incurred by her in her foreign travels during the relevant previous year - no documentary evidence was available to show the inclusion of the expenditure involved in the foreign travels in the taxable income of the petitioner’s husband, who was also assessed to tax by the ACIT, Circle 48(1), New Delhi - notice u/s 148 was issued on 28.3.2012 after a period of 4 years from the end of the assessment year - held that:- no documents were submitted along with the petitioner’s return of income to show that the expenditure incurred on foreign travels along with her family was part of the salary package of her spouse, Abhisar Sharma - failure of petitioner to furnish fully and truly all primary and material facts relating to her assessment - In absence of any document or evidence filed along with her return of income explaining the expenditure incurred by her on her foreign travels during the relevant previous year, the Assessing Officer was justified in invoking the first proviso to Section 147 and in coming to the prima facie belief that there was escapement of income on account of the assessee’s failure to satisfy the requirements of Explanation 1 below Section 147 - notice issued on 28.3.2012 u/s 148 of the Act for the assessment year 2005-06 was within the jurisdiction of the Assessing Officer - AO is directed to dispose of the objections filed by the petitioner within a reasonable time and at any date not later than 30 November, 2012, if not already disposed of. 2012 (12) TMI 292 Penalty u/s 271D - Violation of Provisions of sec 269SS - Held that:- CIT(A) is not justified in accepting the oral explanation offered by the assessee that the depositors do not have PANs and the assessee only acted as a custodian of the amount and did not gain anything and the depositors were agriculturists - there existed no reasonable cause for accepting the loans/ deposits or aggregate of such loans or deposits of Rs. 20,000 or more from various persons otherwise than by crossed account payee cheques or DDs. As such the assessee committed violation of provisions of section 269SS of the Act. Therefore, the penalty u/s. 271D is attracted and rightly imposed by the Assessing Officer and the learned CIT(A) was not factually or legally correct in deleting the penalty levied by the Assessing Officer. Accordingly, we cannot sustain the order of the CIT(A) which is based on irrelevant considerations - order of CIT(A) is reversed and restore the order of the Assessing Officer - In the result, Revenue appeal is allowed. Decision of Commissioner of Income-Tax, Central, Calcutta Versus National Taj Traders [1979 (11) TMI 2 - SUPREME COURT] followed. 2012 (12) TMI 291 Validity of Assessment order passed by Tax Recovery Officer, who is not AO - Held that:- Tax Recovery Officer inherently lacks the status of an Income Tax Officer. In the present case, assessment is framed on 29.12.2008, and, the provisions of section 2(44) permitting Tax Recovery Officers to do assessment work was amended well before this date. It is wholly immaterial whether or not this provision was in force in the beginning of the relevant assessment year, because it is a procedural provision and all that matters is that the procedure should be carried out in accordance when such procedure is adopted. In any event, power to transfer cases u/s. 127(2) cannot be challenged before this forum - plea of the assessee is rejected. Disallowance of Commission - Held that:- It is illegal, unjust and arbitrary since these have allowed under similar terms and conditions subsequently, and in same case, opportunity for cross examination of witnesses was not allowed to appellant. fundamental requirements for allowing deduction in respect of commission payment is that there should be evidence for some services having been rendered. The services having been rendered cannot be simply assumed or inferred. In the absence of such evidence, no interference is called for in this disallowance - confirm the same - In the result, appeal filed by assessee is dismissed. 2012 (12) TMI 290 Disallowance of Non-Compete Compensation - held that:- Expenditure incurred in warding off competition in the business even to rival dealer will constitute capital expenditure and to hold it as capital expenditure, it is not necessary that non-compete fee be paid to create monopoly rights. Thus, Amount paid for non-compete fees is considered as capital outlay, the same cannot be allowed as the revenue expenditure u/s 37(1). Moreover since the amount is not in the nature of revenue expenditure, a part of it cannot be considered as deferred revenue expenditure so as to allow over period of non-compete agreement. In view of this, assessee's contention cannot be accepted - ground raised by assessee is dismissed and confirm the action of AO in this regard - In the result, appeal filed by assessee is dismissed. Amount paid as non-compete fee being capital out lay, can not be allowed as revenue expenditure Decision in Tecumseh India Pvt. Ltd. Versus Addl. CIT [2010 (7) TMI 685 - ITAT, DELHI] followed. 2012 (12) TMI 289 Initiating proceedings u/s 263 - Disallowance of payments made under Exit Option Scheme(VRS) as Employee welfare measure - held that:- It is eligible for deduction u/s 35DDA of the Act and accordingly, the appellant shall be eligible for 1/5th of the total expenditure as deduction in assessment year 2007-08 and the balance in subsequent four assessment years. further it was clarified that compliance with Rule 2BA is not mandatory in such cases. It was, therefore, found that the deletion of conditionalities originally incorporated in the Bill showed that legislative intendment was not to incorporate all the conditions of section 10(10C) in section 35DDA. Finally, the Legislature left the scheme of voluntary retirement open-ended and did not place any restriction on the scheme. Thus, plain language of the provision supports the case of the assessee. Assessing Officer directed to allow 1/5th of Rs. 7,09,56,323.23 as deduction under section 35DDA for the concerned assessment year. Decision in CIT Versus SONY INDIA PVT. LTD. [2012 (6) TMI 286 - ITAT DELHI] Followed. 2012 (12) TMI 288 Deduction u/s 14A - held that:- The object of section14A of the Act is to disallow the direct and indirect expenditure incurred in relation to income which does not form part of the total income. In the present case, there is no dispute that part of the income of the assessee from its business is from dividend which is exempt from tax whereas the assessee was unable to produce any material before the authorities below showing the source from which such shares were acquired. Mere fact that shares were old ones and not acquired recently is immaterial. It is for the assessee to show the source of acquisition of those shares by production of materials that those were acquired from the funds available in the hands of the assessee at the relevant point of time without taking benefit of any loan. If those shares were purchased from the amount taken in loan, even for instance, five or ten years ago, it is for the assessee to show by the production of documentary evidence that such loaned amount had already been paid back and for the relevant assessment year, no interest is payable by the assessee for acquiring those old shares. Proportionate amount should be disallowed having regard to the total income and the income from the exempt source. In the absence of any material disclosing the source of acquisition of shares which is within the special knowledge of the assessee, the assessing authority took a most reasonable approach in assessment - where the assessee claims that no expenditure has been incurred in relation to income which does not form part of total income, the AO is required to verify the correctness of such claim - AO has to determine the amount of expenditure incurred in relation to income which does not form part of the total income under the said Act - restore the matter to the file of the AO for deciding the issue, afresh in accordance with law in the light of our aforesaid observations , after allowing sufficient opportunity to the assessee - In the result, appeal is partly allowed but for statistical purposes. Decision of Maxopp Investment Ltd. & Others Versus Commissioner of Income Tax [2011 (11) TMI 267 - DELHI HIGH COURT] followed. 2012 (12) TMI 287 Claim for Deduction – Whether the loss was incidental to the business of the assessee – Following the decision of Supreme court in case of [Ramachandar Shivnarayan v. CIT 1977 (11) TMI 2 – SUPREME COURT] Held that:- There must be direct and proximate connection and nexus must be between the business operation and the loss. In the present case Biotechnology was the purpose of the joint venture and forward integration of the business of the Assessee. Loan to Rubtech was investment in the capital of Biosift by Rubtech and that Rubtech was only a conduit and that it was the intention of the Assessee to invest in the capital of Biosift. If one were to proceed on the presumption that it was direct investment by Assessee in the capital of Biosift or a loan by the Assessee to Rubtech, the intention of the loan was to further the business interest of the Assessee and it was not a case of making investment with a view to get returns on such investments alone. - The investment in the capital of Biosift through a loan to Rubtech was a strategic investment with a view to enter field of biotechnology. - The fact that the venture did not take off as expected cannot be the basis to say that the loan by the Assessee to Rubtech for making investment in share capital of Biosift was not given without business interest in mind and was a mere investment for returns - Claim of the Assessee for deduction on account of loss on account of write of debts due by Rubtech has to be allowed - appeal of assessee is allowed. 2012 (12) TMI 286 Capital receipt - compensation - surrender of tenancy rights - matrimonial disputes between the assessee and her husband - pursuant to the agreement arrived at between the parties hereto and in consideration of the Landlord agreeing to the Tenant an amount of Rs. 1,40,00,000/- (Rupees One Crore Forty Lacs only) by way of compensation in lieu of permanent alternate accommodation to be provided by the Landlord in the proposed new building to be constructed on the said property, the Tenant hereby surrenders and relinquishes free from all encumbrances, all her right, title, interest and claim into or upon the said property - consideration received by the assessee against surrender of tenancy right is assessable as capital gain – In favor of revenue Addition in the capital gain – Held that:- Assessee has estimated the cost of acquisition of the tenancy right at Rs.10 lacs which was rejected by the Assessing Officer as the Assessing Officer adopted cost of tenancy right at nil - claim of the assessee of adopting cost of acquisition of asset as on 1.4.81 at Rs.10 lacs is not allowable - In favor of revenue Disallowance on account of expenses incurred for conducting the activity of nursery school - Assessing Officer disallowed 25% of the expenditure for want of evidence to prove the same – Held that:- Assessee failed to produce any evidence to prove the claim of expenses – disallowance upheld 2012 (12) TMI 285 Addition on account of forfeiture of deposit as revenue receipt – Held that:- Compensation arises out of the agreement of letting out immovable property and therefore, assumes the nature of the income from house property. Therefore, in our opinion, such receipt would fall under the head ‘Income from house property’. - Any other receipt other than the annual value cannot be computed as income under this head - compensation received by the assessee cannot be taxed – addition deleted Disallowance of interest u/s. 36(1)(iii) of the I.T. Act – alleged that the assessee company has given loans to its sister concern by charging interest @4% and assessee is paying interest @8% on borrowed funds – Held that:- Loan advanced by the assessee at concessional rate to the sister concern is out of the redemption of units of mutual fund. When the assessee has not utilised the borrowed funds for advancing the same at concessional rate to the sister concern when the assessee’s own money out of the redemption of units of mutual fund has been given at concessional rate to sister concern, the same does not call for disallowance of proportionate interest u/s.36(1)(iii) of the I.T. Act - borrowed funds from Axis bank has gone towards purchase of the property and the amount advanced to the sister concern is out of redemption of Prudential ICICI liquid fund – addition deleted – In favor of assessee 2012 (12) TMI 284 Whether the security deposits collected from customers on letting out the Gas Cylinders is trading receipt, whether these Gas cylinders would constitute as plant as per Income Tax Act, if so, the depreciation to be granted at 100% on these Cylinders. – Held that:- The cylinder is to be returned to the assessee company and the company has to refund the security deposit on its return. From the facts of the case, it is clear that the assessee supplied cylinders and the cylinders are the property of the assessee itself and the consumers does not have any right or interest over the cylinders. The security deposit collected by the assessee from the customers cannot be treated as received by the assessee towards sales consideration by any stretch of imagination. - the receipts of Rs. 52,06,650 are security deposits and not the income of the assessee. - Decided in favor of assessee. Depreciation of cylinders - held that:- The user of the cylinders were customers of the assessee company and leasing of the cylinders is the business of the assessee and usage of cylinders by the assessee’s customers is to be considered as usage by the assessee itself. Therefore, it could not be said that the cylinders were not used by the assessee in its business and the depreciation cannot be disallowed. - AO directed to allow depreciation at 100% on cylinders - Decided in favor of assessee. 2012 (12) TMI 283 Renewal of approval under section 80G(5) of the Act - power of amendment or deletion or addition to the object clause - Third member decision - Held that:- From the judgment of Hon'ble Supreme Court in Sri Agastyar Trust Versus Commissioner of Income-Tax [1998 (2) TMI 7 - SUPREME COURT], it is clear that when the founders of the trust have no power to alter or vary the terms of the trust, a trustee appointed to manage the properties of the trust for securing its object, can under no circumstances be regarded as having such a power especially when the original trust deed does not bestow such power on him. In the instant case, founders or trustees had altered the object clause, without any power available to them to alter the same as per the original trust deed. - such amendment carried out by the trustees or founders is non est and invalid. For the sake of argument if it is accepted that the trustees or settlers had power to amend or alter the original Trust Deed even then on the strength of Corrigendum and supplementary deed mentioned hereinabove, the trust is not eligible for renewal of approval u/s 80G of the Act. The immovable property, as comprised in the 1st Schedule to the said Trust Deed remains untouched. The income from the said Trust property is to be applied first, in the maintenance and repair of temple property, as also to be spent for the worship of the said Deity and in the defraying of the usual expenses of holding festivals of the said deity, remains intact. Similarly, the construction of the temple and worship of the said Deity and adoration of the said Deity is still an integral part of unauthorisidely amended Trust Deed. Further, holding of periodical festivals of the Deity and offering daily worship, are still the organic part of the said Deed. These objects are purely religious in nature, inextricably linked to the Hindu religious community and its Deity 'Laxmi Narayan'. Even the unauthorized amended Trust Deed/so called supplementary Trust Deed contravenes the provisions of section 80G(5)(iii) read with Explanation 3 of the Act, being expressed to be for the benefit of a particular religious community i.e. Hindu. Trust is not entitled to renewal of approval u/s 80G(5) of the Act. - Decided against the assessee. 2012 (12) TMI 282 Addition - difference between the sales as per books and sales as per stock statements submitted to bank - suppressed sales – Held that:- Assessee placed on record, copy of general ledger, bank statement, delivery challan, consignment note of transporter, which the CIT(A) considered as fresh evidence and rejected them by holding that there existed no reason by which the appellant was prevented in producing them before the AO - certain details filed by the assessee before the CIT(A) had neither been filed at the assessment stage, nor before the CIT(A) (before the remand report) nor before the AO at the remand stage. To give fair and equitable chance to both sides, we think it proper that the issue must be examined by the AO from the perspective of all the evidence, including new and fresh evidence placed before the CIT(A) - grounds allowed for statistical purposes Addition on account of disallowance of amount written off in respect of discarded stocks – alleged that assessee in its account had shown unserviceable and unusable finished stock – Held that:- Assessee had claimed that the materials had been discarded - write off on account of discarded material allowed by giving benefit to the assessee that the goods have been “discarded” five years back, the same can never be traced or even found at the present moment. Even in the books the assessee has treated the same as discarded and therefore written them off - direct the AO to allow the claim of write off as discarded materials Disallowance of depreciation - disallowance of depreciation claimed on building and furniture – Held that:- Even if the unit is closed for production activity, some activity or even the usage of the factory and furniture and fixture, even by the chowkidar, who is employed to keep a watch and upkeep of the premises would be there - accounts are maintained by the assessee - direction to the AO to allow the depreciation as per law to the “assessee” – ground allowed for statistical purposes Non-consideration of additional ground of appeal - claim for allowance of set off of brought forward losses – Held that:- Assessee had filed additional ground of appeal. This ground, though filed well in advance has not been adjudicated. He, therefore, prayed that this issue has to go back to the file of the revenue authorities - ground is allowed for statistical purposes. 2012 (12) TMI 281 Tax audit u/s 44AB - inclusion of advances in the turnover to calculate the prescribe limit for audit - held that:- no equation between advances and turnover/receipts - The mischief of section 44AB shall only become operative if the “turnover or business receipts” exceed Rs. 40,00,000/-. The section does not mention anything with regard to advances received from its customers and that too conditional - CIT(A) had correctly interpreted the provisions of section 44AB and also reversed the decision of the AO for rejecting the books of accounts of the assessee, solely on the ground that the books had not been audited by the C.A. - Decided in favor of assessee. Addition on account of estimation of income at 10% on the advances received - alleged that assessee is following project-completion method – Held that:- There was no work done during the year and no amount was received towards flats. What was received from prospective buyers was only in the nature of loans, a good portion of which was repaid between 1985 and 1986 and therefore, could not be considered as amounts received towards price of the flats intended to be sold - AO was wrong to treat the advances received as sales - AO was wrong to add back adhoc “notional income” @ 10% of the advances and deleted the same - Decided in favor of assessee. 2012 (12) TMI 280 Capital gains - transfer of agriculture land - alleged that the land sold was located within a distance of eight kilometers from the limits of the Hyderabad Municipal Corporation and, therefore, was a capital asset within the meaning of section 2(14) of the IT Act – Held that:- Mere fact that the land in question was agricultural land cannot be a ground to claim for exemption under section 2(14) of the Act as the land is situated within the local limits of Hyderabad Municipal Corporation - land transferred by the assessee is a capital asset, liable for capital gain – in favor of revenue. Decision in the case of Gousia Begum [2011 (11) TMI 475 - ITAT HYDERABAD] followed. 2012 (12) TMI 279 Search - addition u/s 68 of the Act, as unexplained cash credit – Held that:- Grievance of the assessee is that the AO ignored the cash flow statement filed before him and since the AO has not pointed out any mistake in the cash flow statement, then there is no requirement for adducing evidence for sources particularly when the capital is introduced from out of available funds - issue needs verification, therefore – matter remanded to AO Addition as unexplained investment - AO made the addition based on seized document found in the course of search conducted in the premises of the assessee – Held that:- Merely based on the notings in the seized material from the premises of the assessee and coming to the conclusion that the assessee made unexplained investment in the plots and making addition u/s 68 is not proper without bringing on record proper evidence to show that assessee has invested unexplained money in the plots - restore this issue to the file of the AO 2012 (12) TMI 278 Deduction u/s 80IA – alleged that the company inflated the income of Dehradun unit by deflating the income of other units. He arrived at the income of Dehradun unit by working out the gross profits of all units separately and arriving at the average gross profit rate and applied it to Dehradun sales – Held that:- Proviso to section 80IA(8) of the Act clearly empowers the assessing officer to re compute the eligible profits on a reasonable basis as he deems fit - it is most appropriate to consider the actual cost as per cost records maintained by the assessee and thereafter assessing off ice consider the profits on these transaction as compared to other industries in similar line or if there is no comparable fix reasonable percentage of profit depending upon market condition prevailing in the similar line of industry – matter remanded to AO 2012 (12) TMI 277 Disallowance of commission – Held that:- No TDS has been deducted on the commission payment and assessee was unable to substantiate the extra services rendered by Kapil Sarin, in addition to the services for which he was paid salary, disallowance of commission was justified Regarding payment of salary is concerned – Held that:- Shri Kapil Sarin is a qualified and experienced person, who worked for 8 years with leading Pharma company and he was independently handling sales and marketing operations of the assessee in the Western Region from Pune - no justification for disallowance of salary of Rs. 45,000/- paid to Shri Kapil Sarin. Disallowance of payment of sales tax incentive – Held that:- Assessing Officer has not disputed the duties and responsibility of all the three. Each of the person possessed the required qualification and work experience for the functions performed by them, which was commensurate with the compensation so paid. The sales incentive so paid was confirming part of their over all compensation as employees. Nowhere the Assessing Officer has alleged that payment to them was in excess of the fair market value of the services so rendered by them - Assessing Officer to restrict the disallowance of incentive to the extent of 25%. Disallowance of depreciation - assessee has purchased assets for new Branch Office opened at Pune, which started functioning in the next assessment year 2004-05 and that assessee had not shown any sales through Pune Office – Held that:- New office at Pune was purchased on 19.9.2002 and a regular pharmacists joined the Pune Office w.e.f. 17.1.2003 i.e. during the year under consideration - Merely because the actual operation started in the next assessment year, the fact that preparatory steps for starting business operation was duly undertaken during the year under consideration. There is no valid reason for disallowance of depreciation on the assets - Assessing Officer is directed to delete the disallowance of depreciation With regard to disallowance of depreciation of car, repairs and maintenance of vehicles and plea of personal use, AO directed to restrict the disallowance to 1/10th on the plea of personal use. Regarding Diwali expenses – Held that:- Assessee has produced vouchers for purchase of Raymond’s’ shop. The CIT(A) has confirmed the disallowance on the plea that the assessee has not given the names of the persons to whom such gifts have been distributed - no justification on the part of the lower authorities for decline of genuine claim of expenditure, which is essentially incurred for the purpose of business - These are the customary expenses, which in the present scenario is normally incurred to boost the business and to have a healthy relations with the employees 2012 (12) TMI 257 Reassessment Proceedings - Fee for Technical Services u/s 44D r.w.s. 115A - reason - change of opinion. AY 2004-05 and 2004-06 - held that:- Assessing Officer in the original proceedings had examined and was aware of the two agreements. He was also aware that Quest had received payments from NHAI and that these were not included in the taxable income or receipts of the income. He was also aware that the petitioner‘s income was taxed on the gross receipt basis under Section 115J. There was no lapse or fault on the part of the assessee. Full facts were on record and the Assessing Officer accepted the returns. If at all, there was a lapse on the part of the Assessing Officer to understand the legal position. At best, the case of the Revenue can be that the Assessing Officer had wrongly applied, and did not appreciate the legal position. This cannot be a ground to reopen finalised regular assessments for the said years. - Reassessment proceedings for the assessment years 2004-05 and 2005-06 quashed. AY 2002-03 and 2003-04 - held that:- For the assessment years 2002-03 and 2003-04, the agreement between the petitioner-assessee and Quest is not in the assessment records. - the petitioner had denied any contract or business relationship between them and Quest. This is in spite of the fact that they had an agreement, and it is an accepted and admitted position that they had entered into an agreement with Quest dated 1st February, 2001. The aforesaid fact was clearly concealed, and incorrect factual information was circulated to the Assessing Officer. - Reassessment proceedings for the assessment years 2002-03 and 2003-04 sustained. 2012 (12) TMI 256 Sale of Shares - whether Business (‘adventure in the nature of trade’ or ‘business’) or LTCG (as per Assesssee) - sole criterion of abnormal profits cannot lead to conclude that the ‘sale of asset’ was an ‘adventure in the nature of trade’- held that:- Assessee is not a dealer in shares and has acquired shares consequent to the re-organization of the business as per the terms approved by the Hon'ble Bombay High Court and as the entire group was getting reorganized and foreign investor was acquiring the controlling interest in the part of group business, the shares were sold to M/s Mysore Breweries Ltd. Since the abnormal profit as considered by AO arose in the peculiar circumstances of the case, it cannot be considered that the realization of profit can be considered as adventure in nature of trade. Assessee continued to have its beer business and income from beer business of Rs.6.54 crores was also offered - if assessee’s acquisition of shares is not to be accepted then the shares are to be considered as held by the holding company M/s PDPL and in its hands the income would have been capital gain again - principle company i.e. Shaw Wallace Company Ltd, as AO noted that the entire income has to be considered as income of SWCL substantially and in case it was upheld, the order in assessee’s case will be modified accordingly - order of the CIT (A)is uphold - held as taxable as LTCG - appeal by Revenue is dismissed. 2012 (12) TMI 255 Reopening of Assessment - Escapement of Income - The objection of the assessee remained that the notice issued by the AO u/s 148 was beyond a period of four years from the end of the asstt. Year, hence it was barred by limitation under the proviso to section 147 of the Act. - Held that:- AO completely overlooked the record of the assessment before initiating the proceedings which inter alia reflected that the assessee had claimed only deduction of ₹ 45,57,381/- towards gratuity and ₹ 5,84,045/- represented the liability towards bonus which too had been paid before the due date of filing of the return of income. All material facts necessary for the assessment had been truly and fully disclosed during the course of original assessment u/s 143(3) of the Act, hence initiation of reassessment proceedings u/s 147 / 148 was illegal in view of the specific proviso to section 147 of the Act. - There was neither fresh material surfaced after the original assessment nor in the reassessment proceedings disallowance made by the AO which was not made by his predecessor in the original assessment order, was based on suppression of primary information on the part of the assessee. - Decided in favor of assessee. 2012 (12) TMI 254 Dis allowance of Brokerage Expenses - Deduction u/s 22 while computing annual value of Property u/s 24 - held that:- in computing the income from house property only deduction as permissible u/s 24 of the Act are to be considered and no deduction is allowable therein for payment of brokerage charges - Decided in favor of revenue. Disallowance of business loss - held that:- facts on record as per the audited financial statements of the assessee for the relevant period, clearly established with irrefutable evidence that the assessee had commenced its real estate business operations in the relevant period and the expenses incurred for salaries, wages, brokerage, professional fees, rent, registration fees, audit fees, bank charges, etc were genuinely incurred for the bona fide conduct of business operations - expenditure incurred by the assessee, as debited in its profit and loss account and the Schedule’s thereto, have been incurred in the normal course of business operations and the resultant business loss of Rs.16,18,288 is to be allowed. The assessee's ground on this issue is allowed. Re-computation of capital gains on transfer of land - AO rejected computation of capital gain as per sale deed - make reference to DVO for fair market valuation of the said land u/s 55A r.w.s.sec 16A of Wealth Tax Act,1957 - assessee do not object to vauation as per DVO report - AO, instead of adopting the valuation of land as per the DVO’s report, recomputed capital gains by making a mark up of 40% on sale consideration of Rs.1,46,47,100(as per DVO), as per the Journal Publication of Estimated Market Value of Immovable Properties & Buildings for Registration Bangalore (Urban) District as it was a commercial property - held that:- Action of AO to add a sum of Rs.58,58,840 to the valuation of the said land as per DVO’s report on account of 40% for commercial property and then proceeded to compute the capital gains was without any basis on facts or the provisions of law and argued that the capital gains ought to computed as done by the assessee and adopting the estimated value of the land at Rs.1,46,47,090 as per the DVO’s report - This action of AO and CIT(A)’s sustenance of this are, in our considered opinion, erroneous and contrary to the requirements laid down in the provisions of section 55A of the Act r.w.s. 16A(6) of the Wealth Tax Act, 1957 - direct the AO to recompute the capital gains arising to the assessee on account of sale of the said land to M/s. Bagadia Estate Developers Pvt Ltd taking the sale price of the property at Rs.1,46,47,090 as estimated by the DVO in his report dt.24.12.2010. It is ordered accordingly. 2012 (12) TMI 253 Provision of warranty expenses - held that:- Provisions for warranty charges is not a contingent liability and is deductible in computation of taxable income. It is an accrued liability - no infirmity in the order of CIT(A), on the issue of warranty provisions. - Decision in CIT vs. Vinitec Corporation Pvt. Ltd.[2005 (5) TMI 54 - DELHI HIGH COURT] followed - In the result, department’s appeal is dismissed. 2012 (12) TMI 252 Initiation of Proceedings u/s 153C - Unexplained Purchases - held that:- As the expenditure was accounted in the regular books, the source is obviously explained. The provisions of section 69C are not applicable as there was no unaccounted expenditure.Purchases and sales are accounted for in the books of accounts. Thus, source of the expenditure incurred in purchases is obviously explained - Appeal is dismissed in favour of assessee. Disallowance of Expenses - held that:- On legal issues, it was submitted that the grounds would become academic if the merits are decided in the assessee’s favour and hence he would not press the same. Hence, in view of our decision on merits, the cross-objections are dismissed as not pressed - In the result, appeals of the revenue as well as cross-objections of the assessee are dismissed. 2012 (12) TMI 251 Person u/s 2(31) - Artificial Judicial Person (AJP) as defined in section 2(31)(vii) - Society - Change of status from AJP to AOP - held that:- After verifying the genuineness of the activities of the society and satisfying about its objects, the registration was granted u/s 12AA(1)(b)(i) with effect from 1.4.2002. The return was also filed in the status of AJP. However, without giving any notice or any reason much less a cogent reason, the Assessing Officer has assessed the same as AOP. We do not find any justification in the action of the Assessing Officer which was confirmed by the Commissioner of Income Tax (Appeals). - the Assessing Officer was not justified in changing the status of the assessee without giving any notice. - Decided in favor of assessee. Disallowance of traveling expense - telephone expenses - held that:- lower authorities were not justified in declining the claim of exemption u/ss 11 and 12 of the Act on the plea of contravention of section 13(2) and 13(3) of the Act. Subsction (2) of section 13 under Clause No. (c) provides the payment of salary and other allowance to the persons referred to in sub-section (3) of section 13 out of the resources of the institution for services rendered by that person to the institution provided the amount paid is not in excess of what may be reasonably paid for such services. The payment of DA for the purpose of travelling for the work of the institution is not at all excessive and the payment of such expenditure is not for the personal benefit of office bearers and, therefore, there is no violation of section 13 of the Act. Application of income in respect of acquisition of fixed assets – Held that:- Assets have been acquired for the purpose of advancement of the objects of the society and, therefore, such investment should be treated as an application of income in terms of the provisions of section 11 of the Act - there is no violation of section 13 and as such the Assessing Officer was not justified in declining the deduction for application of income u/s 11(1)(a) of the Act – in favor of assessee Inclusion of corpus donation – Held that:- Section 11(1)(d) provides that the income the form of corpus donation shall not be included in the total income of the person who is in receipt of such income. The Assessing Officer since held that sections 11 and 12 will not operate and, therefore, he has not taken into consideration the provisions of section 11(1)(d) and included the said amount in the assessed total income - assessee’s eligibility for benefit of sections 11 and 12 of the Act cannot be declined and the corpus donation is required to be excluded from the total income as per the provisions of section 11(1)(d) of the Act Disallowance – alleged that assessee has paid land diversion charges which are in violation of section 40A(3) – Held that:- Land diversion charges were paid by the assessee to State Government which does not violate the provisions of section 40A(3), hence, disallowance made by the Assessing Officer and confirmed by Commissioner of Income Tax (Appeals) is not justified. 2012 (12) TMI 250 Reduction in GP Rate - rejection of books of accounts u/s 145(3) - held that:- The stock record is a vital component of the assessee's books of account; in the absence of which it is not possible to deduce the correct profits there-from. How would assessee then place reliance on its books of account for determining its profits? There is no law that the books of account cannot be rejected in the absence of a stock register. True, there is equally no law that the book results are to be necessarily rejected in its absence; the finding of whether the books as maintained could be relied upon for deducing true profits being essentially a matter of fact - even the feasibility of maintenance of the stock record/s is again a question of fact, and which we have found as so in the instant case.- We, therefore, uphold the invocation of the provision of sec. 145(3) of the Act by the Revenue in the instant case, and concomitantly proceeding to estimate the assessee’s trading results. - Decided against the assessee. Disallowance u/s. 36(1)(iii) of the Act - disallowance is on account of a loan given by the assessee to M/s. M.P. Food Products on interest-free basis – Held that:- M/s. M.P. Food Products, is not the assessee’s sister concern; the same being a proprietary concern of Shri Devendra Agarwal, the assessee's grand-son, and in a completely different line of business - there is no question of any business expediency for advancing the same to the said concern - disallowance upheld Disallowance out of discount expenses – Held that:- Expenditure has been explained by the assessee as arising on account of short receipt from the customers - no basis in the said disallowance by the AO; the assessee explaining the claim with reference to its accounts. The same stands restricted by the ld. CIT(A) on adhoc basis, without furnishing any reason for its confirmation or restriction – disallowance deleted 2012 (12) TMI 249 Addition made u/s.40A(2)(b) of the Act – interest to sister concerns - Held that:- The A.O. made hypotheticated calculation in assessment order without any base and material. The addition was made on presumption. In both years, there is no nexus between the borrowed fund and interest free loan. The assessee did not take substantial interest in the business of the specified person or the specified person has a substantial interest in the business of the assessee. The A.O. has not brought on record any evidence regarding the assessee has substantial interest in M/s. Yuletide Industries Private Ltd. and M/s Covenent Investment Co. Ltd. and vice versa. Further interest free loan given to alleged sister concern were part consideration of service rendered by both the companies. - In favor of assessee Disallowance on account of adjustment of Excise Duty on purchase, sales and closing stock u/s 145A of the Act – The claim of decrease in profit – Held that:- . In Section 145A, there is an amendment w.e.f. 01.04.1999 in Subclause b of Section 145A. - Adjustment to include the amount to any tax, duty, cess or fee (whatever name called), actually paid or incurred by the assessee to bring goods to the place of its location and condition as on date of valuation is required to adjust as per law by the A.O. Therefore, the A.O. is directed to make suitable adjustment as per law after giving the opportunity of being heard to the assessee. - Accordingly, this issue is set aside to the A.O - appeals are partly allowed and decided for statistical purpose. 2012 (12) TMI 248 Deduction u/s 80IA - interest from investments/ deposits - other income - held that:- the interest income has been earned from holding FDs and other term deposits from the surplus generated by the assessee in the earlier year therefore may not be the income earning or derived from the business of the assessee of generating power. - Decided against the assessee. MAT - The credit for minimum alternate tax availed by the assessee therefore could only be at best adjusted by the Assessing Officer was the sole issue insofar as there is no loss of revenue for the impugned Assessment Year when the assessee was required to pay only the minimum alternate tax. This credit has to be carry forward requires consideration by adjudication of the issue by the Hon’ble High Court. - Decided against the assessee. Disallowance on account of periphery development expenses - Held that:- The assessee’s business for incurring periphery development expenses for development of the area as defined by the Collector of the area in which charge the assessee carries out the work. Therefore, it was nobody’s case that the expenses have not been incurred as the amount has been paid to the Government authorities. - Expenditure are being incurred and claimed as business expenditure therefore cannot be disallowed insofar as the claim of the assessee of Rs.5 lakhs paid to the Collector, Bolangir is properly documented. - However, the sum of Rs.20,000 paid as donation to Jharsuguda District Kick Boxing Association, Belpahar Rs. 5,000.00, Organising Committee, Lakhanpur Block Football Championship Rs. 5,000.00, Binapani Yubak Sangha Rs.3,000. Tiger Club, Belpahar Rs.5,000 and V.S.S.Club, Belpahar Rs.2,000, all related to incurring of expenses which may or may not have been called for to be incurred by the assessee as per the requirement of peripheral development committee. Therefore, this amount of Rs.20,000 not relating to periphery development expenses are directed to be sustained as disallowable business expenditure as the assessee has not been able to establish the nexus for periphery development expenses in these cases. Disallowance on account of donation – Held that:- Assessee submitted a letter addressed by the Chief Minister acknowledging receipt of Rs. 20 lakhs as donation to the Chief Minister’s Relief Funds settles the issue that the assessee is entitled for 100% under the provisions of Section 80G - granting for continuous approval u/s.80G(2)(3HF) of the I.T.Act,1961 was issued by the CIT, Bhubaneswar on 26.2.2003 which has been placed on record - CIT(A) disallowed the claim for want of commercial expediency for incurring these expenses when he restored the issue to the file of the Assessing Officer to allow the claim u/s.80G on the basis of production of receipts which has now been produced. Approval was on 26.2.2003 for the impugned Assessment Year when the 80G claim was made for the Assessment Year 2004-05 - Assessing Officer directed to grant 100% deduction in accordance with the certificate granted by the CIT and acknowledge receipt of the Chief Minister 2012 (12) TMI 247 Addition on account of gift from the assessee’s mother – Held that:- Computerized books of account of the donor and the donee have not been rejected by the AO - AO had not brought any clinching documentary evidence on record to repudiate the assessee’s claim - Revenue had failed to bring any corroborate documentary evidence to pin down the assessee and that the addition has been resorted to only on surmise and conjecture in a flimsy way. On a perusal of the cash book of the donor, it has been observed that at that relevant point of time, the donor had sufficient cash balance at her kitty to gift a sum of Rs.2.01 lakh leaving a balance of Rs.84,790/- on hand as on 31.8.1999 - genuineness of the gift by the donor and receipt of the same by the assessee cannot be disbelieved - addition deleted Addition on account of investment in Ninad Co-op Housing Society - alleged that the assessee made an investment of Rs.20 lakhs in Flat Nos.202, 203, 302 & 402 in Ninand Co-op Hsg. Society in the name of his four employees as conduits – Held that:- No conclusive documentary evidence to lead that the assessee had invested Rs.20 lakhs in Nanad Co-op Housing society by using his four employees as conduits for booking of flats - authorities below have not brought any conclusive documentary evidence on record that the assessee had, in fact, made unaccounted investment of Rs.20 lakhs and, accordingly, the addition of Rs.20 lakhs stands deleted. Addition on account of unaccounted investment - alleged that the assessee accepted the fact that Rs.4.5 lakhs in cash and Rs.50,000/- in cheque have been paid and receipts obtained for purchase of this property which has not, however, been reflected in the books of the account and the same is offering now for taxation – Held that:- This agreement was, in fact, entered into in the month of March 1995 whereas the block period was from 1.4.1996 to 6.9.2001 - this transaction alleged to have been entered into by the assessee doesn’t fall within the block period under consideration - in favour of the assessee Addition on account of unaccounted sum given to Shri Sanjeev Shukla - alleged that the assessee’s mother filed a civil suit against Neelkant Corporation involving Rs.1.5 lakhs against which documents showed that shops were allotted to the assessee’s mother and also relied on the statement of Sanjeev Shukla – Held that:- Agreement of understanding purported to have been entered into between the assessee’s mother and Shri Sanjeev shukla - suit has been filed by the asssessee’s mother in a Civil Court against Neelkant Corporation involving Rs.1.5 lakhs against which documents show that plot No.7 and two shops were allotted to assessee’s mother - assessee’s mother had invested the said sum with Neelkant Corporation for allotment of a plot and two shops - against the assessee. Addition on account of unaccounted investment – loan to Shri Dinesh Dhabalia – Held that:- No loan of Rs.5 lakhs was given to Shri Dhabalia as alleged by the AO and that the suit was filed by Dhabalia only on the basis of assessee’s refusal to return the flat and documents to him etc. - assessee has not been extended an opportunity to cross examine Dhabalia for his statement purported to have been recorded which was solely relied on by the AO - Revenue has failed in its endeavour to bring on record any unambiguous documentary proof to nail the assessee on this score - addition delete Additions on account of unaccounted investments in Jay Shiva Apartments – Held that:- Addition is made based on the general practice of cash payments made outside the books of accounts in the case of immovable property transactions - In order to establish that the assessee had paid amount outside the books of accounts for effecting real estate transactions substantial evidence has to be placed on record which is absent in this case. It would be unjust if an addition is made on the appellant based on a statement made by one of the partners of the firm without further making enquiries and collecting evidence – addition deleted Addition on account of unaccounted investment from Bhavya Ghantakaran Cottage Association – Held that:- AO’s presumption that the assessee financed Shri Shash by giving him Rs.10 lakhs and in lieu of which he obtained post-dated cheques as security was without any basis or with no corroborate evidence. Admitting the AO’s logic for argument sake, no prudent lender would have parted with such a huge sum without any substantial proof in the shape of a promissory note as proof - no addition can be resorted to purely based on presumption, assumption and guess work – addition deleted Addition on account of unaccounted investment in Dhwirup Bungalow - AO had found that a Civil suit was pending in a Court where the assessee had claimed possession of a property from Shree Jaisheel A Patel against the payment of Rs.5 lakhs and another Rs.50,000/- given as registration charges – Held that:- Assessee was having sufficient cash balance with him and family members as per the books of accounts - assessee had produced documentary proof to belie the assumption of the AO who took a stand that the investment of these amounts were not open to verification etc. - investment made by the assessee stands explained – addition deleted Addition on account of investment in Santro Car – alleged that Car was not registered in the name of the assessee – Held that:- Assessee had produced the receipt for alleged to have paid cash of Rs.1 lakh and subsequent return of the vehicle which appeared to have been a used car and also found at the time of search operation, the addition of Rs.1,80,000/- cannot be sustained – addition deleted Addition of Rs.3 lakhs being fictitious entries in the name of Bharat Textile – Held that:- There was no justification in making the addition since there was no question of any unaccounted investments and drafts have been purchased from the cash available as per cash book - since the drafts have been purchased from the cash available at the relevant period, there was no question of making any addition on this count. The addition of Rs.3 lakhs is, therefore, deleted. Addition of Rs.1,01,000/- treating the value of household items purchased as unaccounted and unexplained investment - assessee submitted that the AO had not appreciated the assessee’s explanation on the ground that the books were not found during the search and entry showing all the purchases of household articles from time to time was not believable – Held that:- It is a common phenomenon for a person of appellant’s stature to accumulate household appliances, entertainment equipments and other electronic items during a period of time either by way of purchase, gifts etc. Further, there is no evidence to establish that these goods are purchased out of unexplained source – addition deleted 2012 (12) TMI 246 Addition on account of interest expenditure - assessee has both borrowed and interest free funds – Held that:- Assessee-company had sufficient interest free fund could be used towards loan and advances to sister concern - Revenue has not demonstrated as to how the interest bearing funds have been used towards loan/advances to the sister concern - entire interest free funds including the assessee’s own capital and accumulated profits and other interest free credits and loans and if the total interest free advances including the debit balance of partners did not exceed the total free funds available with the assessee, interest was not disallowable merely on amount of utilization of the funds for non-business purpose - disallowance deleted 2012 (12) TMI 245 Natural justice – opportunity to being heard - Held that:- CIT(A) has decided the appeal of the assessee ex.parte - CIT(A) has not provided adequate opportunity of being heard to the assessee before deciding the appeal – matter remanded to CIT(A) 2012 (12) TMI 244 TDS - Applicability of the provisions contained in section 9(1)(vi) of the Income-tax Act - sale of software as royalty - manufacture and sale of Automated Teller Machines (ATMs) - assessee imported software from NCR Global Solutions Ltd., Ireland, however while making outward remittances, the assessee did not deduct tax at source - Held that:- Payment made by the assessee to non-resident companies would amount to royalty within the meaning of Article 12 of the DTAA with the respective countries and there was obligation on the part of the assessee to deduct tax at source u/s. 195 of the I.T. Act – in favor of revenue. Decision in Samsung Electronics Co. Ltd.. v. Dy. CIT (International Taxation) [2012 (8) TMI 112 - ITAT BANGALORE] followed. 2012 (12) TMI 243 Invocation of provisions of section 40 (a)(ia) of the Income-tax Act – alleged that out of total amount debited under the head “freight and cartage”, a sum of Rs.10,18,825 has been paid to five persons exceeding the prescribed limit of Rs.50,000 on which no tax has been deducted at source – Held that:- Challan for deposit of Rs.25,398 was produced before the ld. CIT(A) and he has verified the factum of deposit - assessee has made deposit of the TDS though it might not have been deducted from the payments made to the payee, but it related to those payments. The fact that all the payments have been made before the end of the financial year has not been disputed by the Revenue - disallowance under section 40 (a)(ia) of the Act is not called for Addition on account of lifting charges – alleged that the disallowance was made by the Assessing Officer on ad-hoc basis without pointing out any specific defect – Held that:- Lifting charges are more or less fixed at Rs.160 per M.T or Rs.180 per M.T (which has been paid for lifting of coils purchased from TISCO/SAIL) - Assessing Officer should have rather verified if such quantities of steel indeed lifted by the assessee during the year, which has not been done by him - D.R. could not point out any specific defect in the claim of the assessee. He has simply relied upon the order of the Assessing Officer - Assessing Officer has made ad-hoc disallowance of Rs.25,000 without identifying a particular expenditure which is not supported by any bill/voucher - ad-hoc disallowance deleted Disallowance on account of application of section 14A of the Act - alleged that the assessee had considerable interest bearing borrowings which was, inter-alia, used by the assessee in making investments and the income therefrom was not chargeable to tax – Held that:- Both the lower authorities have examined the issue in dispute on different aspects. They have not examined whether the assessee has maintained separate account for making investments. Undisputedly the assessee has borrowed some funds but according to him these funds were utilized for business purposes. Since there is no categorical finding of the lower authorities in this regard - matter remanded back to the Assessing Officer - appeal of the Revenue is partly allowed for statistical purposes 2012 (12) TMI 242 Disallowance of salary and interest paid to partners - compliance of furnishing the Partnership Deed during the course of assessment proceedings – Held that:- Payment of interest and salary to the partners is to be allowed since the certified copy of the partnership deed was made available to the A.O. in the course of assessment proceedings - provisions of Section 184 of the Income tax Act, 1961 are directory and not mandatory – defect of not filing copy of partnership deed with return of income is a curable defect. - in favor of assessee Disallowance of expenses of Hire charges of Trucks – alleged that these three vehicles were transferred to the name of the respective subcontractors only on 21.03.2005 and prior to such transfer, these vehicles were registered in the name of the assessee – Held that:- Assessee has already debited all these expense in respect of these vehicles in its books of account, no further deduction is allowable to the assessee on account of hiring of these tankers. But we find force in this contention that all operating expenses of these three tankers should be allowed as deduction to the assessee - assessee has to establish that in addition to Rs.8,08,995.22, any other expenditure was incurred on the vehicles and the same were not debited by the assessee but were debited by the so called contractors, that deduction should be allowed to the assessee for such expenses if the assessee can satisfy the A.O. about allowability of such expenses - ground is allowed for statistical purposes. Disallowance u/s. 40(a)(ia) of the I.T.Act – Held that:- No tax was deductible by the assessee in view of the certificate issued by the A.O. of these subcontractors u/s 197(1) of the Income tax Act, 1961, no disallowance is justified u/s 40(a)(ia) of the Income tax Act, 1961 but since we have confirmed the disallowance for the reasons stated in the above para, this ground is of academic interest only - appeal of the assessee stands allowed. Customs 2012 (12) TMI 313 Benefit of Notification No. 21/2002 - Chargers of Mobile Telephones imported by the respondent – denial of benefit on the ground that chargers of mobile telephones are not parts of the telephones, but are accessories of the mobile telephones – Held that:- Products under importation are classifiable under Heading No. 8529.90 of the Customs Tariff - if classification is under Heading No. 8529.90, obviously the goods are parts suitable for use solely or principally with the appropriate Heading 8525 to 8528. Therefore, the charger will be part of the mobile telephone for the purpose of classification under the Customs Tariff. Notification No. 21/2002 under Sl. No. 319 prescribes a concessional rate of duty of 5% adv. on parts of Cellular Telephone falling under 8529.90 - product entitled for benefit of Notification - tariff heading itself covers only parts under Heading 8529, there cannot be two different interpretation on parts one for the purpose of notification and another for the purpose of the tariff 2012 (12) TMI 312 100% EOU - Issuance of Show cause notice without consultation with the Development Commissioner - held that:- As per the Board’s circular, the Revenue can issue show cause notice for protecting interest and the adjudication order has to be passed after the Development Commissioner has given a finding as to whether the 100% EOU has fulfilled their export obligations or not. In the instant case, there is a clear finding by the Development Commissioner that the appellant had failed to fulfil the export obligations and the adjudication order has been passed after the order of the Development Commissioner in this regard - Decided against the assessee. As regards the indigenously procured goods, both the capital goods and the raw materials have been procured in terms of Notification No. 1/95-C.E., dated 4-1-1995. However, the demand of duty has been computed on the basis of provisions of Notification No. 52/03-Cus., dated 31-3-2003 in terms of para 3(ii) of the said Notification in respect of imported capital goods and raw materials/consumables. As regards the indigenously procured capital goods and raw materials the duty demand has been made in terms of condition (4)(b) of Notification No. 22/03-C.E., dated 31-3-2003. Both the Notifications No. 52/03-C.E. and 22/03-C.E., both dated 31-3-2003 came into force on 31-3-2003 and they have only prospective application and the provisions of these Notifications cannot be made applicable to goods imported during the period 1994-97 and procured during the period from 1995-97 in respect of indigenous goods. On this ground alone the demand of Customs duty on the imported goods and the demand of Excise duty in respect of indigenously procured goods are not sustainable and are liable to be set aside. In the impugned order, an amount of Rs. 40,34,232/- confirmed in the order of the Deputy Commissioner mentioned above and recovered by way of tender has been reduced from the total demand of duty on raw materials. Therefore, issue of demanding any duty on raw materials/consumables unused in the manufacture of export goods does not arise at all. the case of raw materials which are consumed in the manufacture of goods which have been exported, the question of demanding either Customs duty or Excise duty do not arise at all as the goods have been used for the purpose for which they were procured. Duty after warehousing period after allowing depreciation on capital goods - During the material period if the capital goods have been put to use, the appellants were entitled for depreciation as prescribed in Board’s Circular No. 43/98-Customs, dated 26-6-1998 on the used capital goods. In the instant case, from the records it is seen that the commercial production commenced in April, 1996 and the production was completely stopped in July, 1999 and, therefore, for this period, the appellant is certainly entitled for the depreciation on capital goods. The liability to pay duty on capital goods would arise only when the goods are removed from the bonded premises or when the goods are deemed to have been removed when the warehousing period expired. In the light of the Apex Court’s decision in the case of Kesoram Rayon v. Commissioner of Customs, Calcutta [1996 (8) TMI 109 - SUPREME COURT], the duty on capital goods will have to be demanded at the rate of duty prevalent on 20-9-2003 on the depreciated value of the capital goods. In respect of indigenously procured capital goods/raw materials/consumables, the duty demand will have to be made in terms of the provisions of Notification No. 1/95-C.E., dated 4-1-1995 as amended. Matter remitted back to the adjudicating authority for re-computation and quantification of duty demands in accordance with law as it stood at the relevant time of import of capital goods/raw materials/consumables and at the time of procurement of indigenous goods in terms of the Notifications under which these goods were procured. 2012 (12) TMI 272 Restoration of Stay Application - non-prosecution - held that:- Appeal of the appellant was dismissed earlier on sufficient cause and the same was restored on payment of costs quantified at Rs.5000/- The appellant seems to be a habitual defaulter so far as pursuing the proceedings not only before this Tribunal but also before other judicial forum - Considering these facts,cost should be imposed on the appellant for restoration of the stay application. The costs quantified at Rs.5000/- should be paid to the accounts of the Commissioner of Customs (Import), JNCH, Nhava Sheva within four weeks from today. On such payment, the order of this Tribunal dated 28.09.2012 would be recalled and the stay application restored to its original number. 2012 (12) TMI 271 Revocation of CHA licence – Held that:- CHA sublet his licence for a consideration in gross violation of Regulation 12 of CHALR, 2004 and this is an act of corruption - Customs area, the Commissioner of Customs is responsible for the happenings, the discipline to be maintained there and he is best placed to understand the importance of CHA and if he takes a decision necessary for that purpose, the Tribunal should not ordinarily interfere on the basis of its own notions of difficulties likely to be faced by CHA or their employees, and not be swayed by considerations of misplaced sympathy - Customs Act proceedings in the same case, the CHA has been found to be guilty of the offences punishable under the provisions of Customs Act and has been imposed with a penalty of Rs. 5 lakhs under the provisions of Section 112(b) of the Customs Act - fraud in this case has been committed in so many consignments over a long period of time and the same could not have happened without the connivance of the CHA - decision of the ld. Commissioner to revoke the CHA licence is justified 2012 (12) TMI 270 Import of machines – violation of condition – alleged that as against import of 8 machines permitted under the aforesaid licence, the appellants imported 10 machines – Held that:- Machines were imported in the guise of ‘Spares and Accessories for Nos. of High Speed Take-up Machines’ in violation of Import Control Regulations and the Project Import Regulations - M/s. JKSL imported additional items of machinery and equipment for use in their Polyester Staple Fibre (PSF) plant against the aforesaid licences issued for their PFY Expansion project and cleared the same at concessional rate of duty applicable to Project Imports in gross violation of the Import Trade Control Regulations and Project Import Regulations by mis-representing the facts and giving the impression that the same were required for the PFY Expansion project - request is for post facto approval, which implies that after transferring the plant they are seeking the approval for the same - they have once again sought permission for shifting of the equipment from their PFY plant to their PSF plant. This very conduct of the appellant itself makes it clear that they have violated the terms and condition of the Project Import Regulations - they are not eligible for the benefit of the said Regulations and the concessional rate of duty prescribed under CTH No. 84.66/98.01 of the Customs Tariff Waiver of pre-deposit – Held that:- Appellants had a cash and Bank balance of Rs. 13.6 crores as on 31-3-2011 and, therefore, the plea of the financial hardships made by the appellants is not borne out of the record of the case - appellant directed to make a pre-deposit of 50% of the customs duty confirmed against them Corporate Laws 2012 (12) TMI 311 Scheme of Arrangement of Demerger of Estate Division of BHASKAR REFRACTORIES AND SW PIPES PRIVATE LIMITED (Demerged Company); into B N B S CEMENTS AND PRODUCTS PRIVATE LIMITED (Resultant Company) - held that:- Resultant Company (being wholly owned subsidiary of the De-merged Company) and Demerged Co. both are controlled by the members of the same family - In view of approval accorded by the Shareholders and Creditors of the Petitioner Companies; representation/reports filed by the Regional Director, Northern Region to the proposed Scheme of Arrangement, there appears to be no impediment to the grant of sanction to the Scheme of Arrangement - Petitioner Companies will comply with the statutory requirements in accordance with law - Certified copy of the order be filed with the Registrar of Companies within 30 days from the date of receipt of the same. In terms of the provisions of sections 391 and 394 of the Companies Act, 1956, and in terms of the Scheme, the whole of the assets, rights and powers of the Estate Division of Demerged Company be transferred to and vest in the Resultant Company without any further act or deed - this order will not be construed as an order granting exemption from payment of stamp duty or taxes or any other charges, if payable in accordance with any law; or permission/compliance with any other requirement which may be specifically required under any law - Petitioner Companies would voluntarily deposit a sum of Rs. One lac in the Common Pool fund of the Official Liquidator within three weeks from today. The statement is accepted - Petition is allowed. 2012 (12) TMI 310 Summoning the Accused u/s 138 of Negotiable Instruments Act, 1881 - held that:- Petitioner is in charge of and responsible for the conduct of the business of the company, however, there is considerable delay in approaching court. Normally once the criminal proceedings have been initiated, court is exercise of its inherent jurisdiction would be reluctant to interference at an interlocutory stage. petitioner is permitted to withdraw the petition and raise contention as raised herein at the appropriate stage before the learned Magistrate itself. However, personal appearance of the petitioner on each date of hearing in the facts and circumstances shall remained dispensed with and he shall be permitted to appear through his counsel subject to the condition that the petitioner shall file an undertaking that his counsel shall appear on each date of hearing and he shall have no objection if the evidence of the complainant is recorded in his absence and he shall appear on such day/days when his presence is required by the learned trial Magistrate for which intimation shall be given to the counsel appearing from him - The criminal misc. petition is dismissed as withdrawn. 2012 (12) TMI 308 Admissibility of Winding up petition by Secured creditors - neglected to pay the sum due - held that:- Petitioner has evinced a clear intention to enforce the security by filing a suit in this court for the recovery of its dues and the enforcement of its securities. There can be no doubt about the proposition that the object of a petition for winding up is to realise the property of the company for distribution to all the creditors in accordance with the applicable rules. In the present case, petitioner has filed a suit in this court and made it clear, therefore, that he seeks to enforce the security. When the stage of proving its of debt does arise, the petitioner would necessarily have to prove for the balance of the debt which is due and owing to it after the security in respect of which the petitioner is a secured creditor is realised.creditors' petitions are the most common petitions for winding up companies and most creditors prefer the short-cut of the legal fiction to establish the concerned company's inability to pay its debts. Apart from meeting the other preconditions built in to Section 434(1)(a) of the Act, even an unsecured creditor of a company has to demonstrate the unimpeachable quality of its claim in its written demand or a part of such claim in excess of Rs 500/- for the negligence of the company to be established as the final prerequisite before the legal fiction - the presumption of company's inability to pay its debts is cemented. In the absence of a secured creditor establishing the inefficacy or the inadequacy of the security held by it, such creditor cannot demonstrate any negligence on the part of the company which is relevant for the purpose of the provision; and, consequently, no inference may be drawn of the company's inability to pay its debts and the legal fiction does not kick in. Since the petitioning creditor here has neither averred nor otherwise established that the security that it enjoys is inefficacious or inadequate to meet its claim against the company, the petition cannot be admitted - In any event, even if the petitioning creditor had crossed that hurdle and had established that a debt was due which was unmatched by any efficacious security, its conduct in advertising the statutory notice prior to instituting this petition is a good ground for exercising the limited discretion available to the company court to refuse to admit a creditor's petition even if the debt were unimpeachably established - liberty to the petitioner to launch fresh winding-up proceedings upon exhausting its remedies against the securities that it enjoys. As a consequence, application under Sec 450 of the Companies Act, is dismissed. The interim order subsisting on such application is vacated with immediate effect and the official liquidator is discharged as the provisional liquidator of the company. 2012 (12) TMI 269 Amalgamation - held that:- Scheme involving Amalgamation of a wholly owned subsidiary Company with its Holding Company, Holding Transferee Company is not obliged to seek sanction under the provisions of Sections 391 to 394 of the Act. Upon the Scheme being sanctioned, the entire shareholding of the Petitioner Subsidiary Company would stand cancelled. Further, the Scheme of Amalgamation does not involve any compromise or arrangement with the Shareholders or Creditors of the Transferee Company. In the present case, the material on record demonstrates that upon Amalgamation of the Petitioner Subsidiary Company, with the Holding, Transferee Company, no reorganisation of the share capital of the Transferee Company is involved. The Scheme, if sanctioned, would not be detrimental to the interests of the members or creditors of the Transferee Company or to the public interest at large - net worth of the Petitioner Subsidiary Company is positive and it has an excess of assets over liabilities. Similarly, the net worth of the Transferee Company is positive and it has an excess of assets over liabilities. There is, therefore, no question of the Scheme being detrimental to the public interest - stand taken by the Regional Director cannot be accepted - proposed Scheme of Amalgamation would be in the interest of the Transferor and Transferee Companies, their members and Creditors. 2012 (12) TMI 268 Winding up Petition - Inability to pay Debts - held that:- It is not only the factum of indebtedness be affirmatively established, but the quantum thereof needs also to be conclusively demonstrated.” The concept of inability of paying the debt cannot be applied in the case where the creditors are fully secured and they have in fact nothing to do with the alleged inability of the company to pay its debts. A secured creditor can always realise his securities to satisfy his debt - mere nonpayment of a money claim is a dispute covered by the arbitration agreement governing the matrix contract on which the money claim is based. There is no dispute as to the claim of the petitioning creditor against the company. The claim is founded on dishonored cheques and even the primary basis of the claim stands admitted. The company did not reply to the statutory notice and has not indicated anything that would make the debt disputed or that would detract from the presumption of the company’s inability to pay that arises u/s 434(1)(a) of the Companies Act. The order of injunction subsisting on the guarantors and the undertakings furnished by the guarantors pursuant to the are matters not relevant for assessing the company’s inability to pay - petitioning creditor’s claim must be quantified, it must be appreciated that the petitioner has quantified its claim both in the statuary notice and in the petition; and it is only the company’s assertion that since the value of the properties covered by the Bombay injunction against the company cannot be conveniently made, the quantified claim put forth by the petitioner should be regarded as an unascertained claim. Such argument does not appeal and is rejected - CP No. 560 of 2011 is admitted for the principal sum of Rs.4,07,05,062 together with interest thereon at the agreed rate of 15.50 per cent per annum from the date of adjustment of the sum of Rs.92,54,515 on account of the fixed deposit. If the company pays off the entire amount, inclusive of interest and costs assessed at 3000 GM, within six weeks from date, the petition will remain permanently stayed. In default, the petition will be advertised in “The Statesman” and “Bartamaan” newspapers. The advertisements should indicate that the matter will appear before the court on the first available working day after the expiry of four weeks from the date of the advertisements being published. Service Tax 2012 (12) TMI 317 Refund - partially rejected on the ground that assessee has not been able to produce any proof of receipt of export proceeds - instead of filing appeal, filed a fresh claim before the adjudicating authority placing on record, proof showing receipt of export proceedings - held that:- Once the appellant has allowed the order of rejection of refund claim to attain finality, there is no provision under the law to revive the same issue by filing a fresh letter - lower authorities have rightly rejected the appellants claim - appellant cannot revive the same very issue by filing a fresh letter subsequently - claim which already stands rejected cannot be allowed to be revived by way of filing of fresh claim - Return of subsequent refund claim by the Assistant Commissioner has no effect on the facts of the case inasmuch as it was for the appellant to challenge the earlier order - Non-challenge to the earlier order cannot be held to be on account of late return of the subsequent refund claim - no infirmity in the impugned order of Com (A) - appeal filed by appellant is rejected. 2012 (12) TMI 316 Non grant of abatement of 67% on Material used - Commercial or Industrial Construction Services - held that:- Issue involved requires appreciation of factual matrix as regards consumption of material of the appellant for rendering services of Commercial or Industrial Construction Services - set-aside the impugned order and remand the matter back to the adjudicating authority for reconsidering the issue afresh after following the principles of natural justice. 2012 (12) TMI 315 CENVAT Credit of Service Tax - canteen services - Following the decision of court in case of Commissioner of Central Excise, Ahmedabad Versus M/s Ferromatik Milacron India Ltd [2010 (4) TMI 649 - GUJARAT HIGH COURT] Held that:- Cenvat credit of service tax paid on outdoor catering provided in the factory canteen is available - appeal filed by the Revenue has no merit and accordingly, is rejected. 2012 (12) TMI 314 Cenvat Credit on input services - non payment or delayed payment of service tax by the service provider - held that:- Appellants are not expected to/required to know the actual date of payments of the service tax by the service provider and they have paid the bill amount (the service charges + the service tax) to the service provider before November, 2006 itself and, therefore, there is nothing irregular in their taking the credit in November, 2006 - Service provider has defaulted/delayed in paying the service tax and the said service provider has not been included as a noticee in the present proceedings - appellant has made out a case for waiver of penalty imposed on them - waiver of penalty and stay of recovery thereof till the disposal of the appeal. 2012 (12) TMI 301 Demand of service tax – alleged that by undertaking the contracts for design, manufacture, commissioning and testing of signalling system and telecom systems for the railways, appellant have provided the services falling under the category of installation and commissioning agency services - Held that:- Such service would not get covered under the category of installation and commissioning services for the period prior to 1-6-2007 - Stay granted. 2012 (12) TMI 275 Waiver of pre-deposit of Service Tax, interest & penalty - Whether giving bullock-carts on consideration amounts to supply of tangible goods service – Held that:- As per the definition of tangible goods service it includes machinery, equipment and appliances. Bullock-carts prima facie cannot be considered as machinery, equipment or appliances. In view of this, the applicants have made out a case for total waiver for hearing of the appeal. Stay petition allowed. Commissioner (Appeals) has not decided the appeal on merits. Therefore, the impugned order is set aside and the matter is remanded to the Commissioner (Appeals) to decide afresh on merits after affording an opportunity of hearing to the appellant. 2012 (12) TMI 274 Referring the matter to Hon’ble President – Classification of Service either under the head Business Auxiliary Service or Advertisement Agency Service - The appellants are engaged in brand promotion of ‘INTEL' and ‘MICROSOFT' for which commercial considerations were being paid by both the brand owners periodically. Held that :- Case be placed before the Hon'ble President to refer it to a 3rd Member to decide the issue on the following points:- Difference of Opinion - Whether the Member (Judicial) is correct in holding that the appellants are engaged in the activity of promoting the brand of Intel/Microsoft consequently, the activity of ‘promotion or marketing of logo or brand' does not cover under the category of Business Auxilliary Service by relying on the judgment of [M/s JETLITE (INDIA) LIMITED Versus CCE , NEW DELHI, 2010 (12) TMI 40 - CESTAT, NEW DELHI]. Or - Whether the Member (Technical) is correct in holding that the appellants are engaged in the activity of promoting the branded goods of Intel/Microsoft, therefore, the judgment of Jetlite (India) Ltd., (supra) is not applicable to the facts of this case and the demands are rightly confirmed under the category of Business Auxilliary Service and the extended period of limitation has rightly been invoked. 2012 (12) TMI 273 Reverse charge on import of services – Assessee has received various services from territory outside India who have no office in India - The period involved in this case is 01.04.99 to 31.03.04 – Revenue contended that assessee not paying the Service Tax on the services, falling under the category of 'Consultancy Engineering Service' as specified in Sec. 65(31), received by them – Held that:- Since the period involved which is prior to 18.04.2006, i.e. the date of insertion of Section 66A of the Finance Act, 1994. Before enactment of Section 66A it is apparent that there was no authority vested by law in the Respondents to levy service tax on a person who is resident in India, but who receives services outside India as held in case of INDIAN NATIONAL SHIPOWNERS ASS.& ORS. (2010 (12) TMI 12 - SUPREME COURT OF INDIA). Hence impugned Orders are not sustainable in law. Therefore, the Orders are set aside and the Appeals of assessee are allowed. Central Excise 2012 (12) TMI 307 Confiscation of seized goods - confiscation of tractor - imposition of penalties - Appellant contended that shortages were on account of clearance of products without the cover of any documents - admitted clearance of 25000 Kgs. of final products without the cover of any document, interception of the same, statement of driver and Shri Rajendra Kumar Sharma, clandestine clearance - held that:- confirmation of demand of duty of Rs.4,00,087/- along with imposition of penalty of identical amount under Section 11 AC is required to be upheld - Lower authorities while imposing penalty to the extent of 100% of duty, have not extended any option to the appellant to pay the entire dues along with 25% of penalty within a period of 30 days from the date of passing of order, in which case penalty shall stand reduced to 25% in terms of proviso to Section 11AC. further in terms of Gujarat High Court decision in the case of CCE, Surat I vs. Harish Silk Mills [2010 (2) TMI 494 - GUJARAT HIGH COURT], such option can be given at the appellate stage - option to the appellant is extended and if they deposit entire dues along with 25% of penalty, within a period of 30 days from the receipt of present order, the penalty shall stand reduced to 25% - such option is now extended to appellant. 2012 (12) TMI 306 Claim of Refund of Cenvat Credit - Surrender of Central Excise Registration - closure of factory - unutilised credit - held that:- Refund results in outflow from treasury, which needs sanction of law and an order of refund for such purpose is sine qua non - absence of express grant in statute does not imply ipso facto entitlement to refund - absence of express grant is an implied bar for refund. When right to refund does not accrue under law, claim thereof is inconceivable - answered negatively and in favour of Revenue since refund of unutilized credit is only permissible in case of export of goods and for no other reason whatsoever that may be 2012 (12) TMI 305 Demand of duty – alleged that the transportation cost/freight charges from the place of removal to the place of delivery ought to have been included in the value of the goods for assessing the excise duty payable – Held that;- There is nothing on record to suggest that the respondent-assessee and the customer to whom the goods were sold were related parties - Rule 5 of Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 is not attracted - excess amount of freight collected by the assessee need not form part of assessable value - if the place of removal of goods is factory of the assessee then transport charges will not be included in the assessable value – appeal dismissed 2012 (12) TMI 304 Demand of excise duty - manufacture - assembly of two or more products - manufacture of Razors and razor blades by way of assembling the components supplied by M/s. Gillette India Ltd. (GIL) – Gillette Shave Gel Tubes (GSG) obtained from GIL under a promotional scheme and marketed those combination packs discounted on MRP of Rs. 85 - combination packs consisting of five twin blade cartridge having MRP of Rs. 66/- and 60 gms. tube Gillette shaving gel tube with MRP of Rs. 49 - appellant paid duty on the basis of MRP of five twin blade cartridge mainly for the reason that Gillette shaving gel tube procured by the appellant firm from GIL were duty paid. AR for respondent submits that admittedly this is a case of repacking twin blade cartridge as also the shaving gel tube in a combination pack and altering the retail sale price (MRP). As such the combination packs falls within the deemed definition of manufacture under Section 2(f)(iii) - held that:- Above argument is of no avail to the respondent for the reason that Section 2(f)(iii) was introduced in the Central Excise Act, 1944 by way of amendment w.e.f. 1-3-2003, and the instant case relates to the period earlier to the amendment i.e. October and November 2003 as such deeming definition provided under Section 2(f)(iii) is not applicable to the present case. The activity of the appellant in packing the twin blade cartridge as also Gillette shaving gel tube in a combination pack and selling it at a discounted MRP of Rs. 85/- does not amount to manufacture. As no mere product has come into being the combination product does not attract incidence of excise duty. Admittedly, the appellant has paid duty on Gillette shaving gel tube while procuring them from GIL and he has paid excise duty on MRP of the twin blade cartridges while clearing the combination pack. - Demand and penalty set aside - decided in favor of assessee. 2012 (12) TMI 303 Condonation of delay – delay of 261 days – Held that:- Condonation of delay is an exception and should not be used as an anticipated benefit for government departments. The law shelters everyone under the same light and should not be swirled for the benefit of a few - no proper explanation offered by the Department for the delay except mentioning of various dates Department failed to give any acceptable and cogent reasons sufficient to condone such a huge delay - application for condonation of delay is dismissed 2012 (12) TMI 302 Clandestine removal – loss of molasses in the storage tank - Revenue says that loss cannot abnormally occurred for one period while loss claimed for a larger period appears to be within the range of 2% - submission of Revenue is that the losses occurring in different circumstances envisaged by Section 35B calls for consideration by the jurisdiction of Revisional authority – Held that:- Tribunal is conferred with power of Civil Court only to a limited extent as is enacted in Section 129C(7) and (8) of the Customs Act, 1962 - Tribunal has no power to act as Civil Court beyond its jurisdiction - if the appellant so chooses to seek the revisional jurisdiction, it may do so and if there is a delay in seeking remedy before that jurisdiction, it may file application for condonation of delay, which may be considered by that authority in accordance with law - stay application dismissed. 2012 (12) TMI 300 Waiver of pre-deposit - Cenvat credit - appellants are manufacturers of GI pipes. They had obtained steel sheets and constructed one tank in which zinc can be melted and used in the process of galvanizing – Held that:- Inputs are covered by provision of Rule 2(k) of Cenvat Credit Rules, 2004 – pre-deposit waived 2012 (12) TMI 299 Cenvat credit – alleged that appellant wrongly availed cenvat credit – Held that:- Appellant is not disputing the improper/ineligible Cenvat credit availed - reversed the amount of Cenvat credit - appellant is allowed to pay 25% of the amount of the ineligible Cenvat credit which has been reversed by him as penalty under Section 11AC subject to the condition that he pays the amount of interest on irregularly availed Cenvat credit and also the 25% of the amount as penalty 2012 (12) TMI 298 Classification – waste - peelings of potatoes – manufacturing of potato chips - According to assessee, the waste which has been generated in the manufacturing process falls within the Entry No. 23080000 of Chapter 23 relating to vegetable materials and vegetable waste, vegetable residues and by-products and this item is not subject to excise duty. The stand of the department is that the aforesaid peelings of potatoes and waste in the shape of paste is nothing but starch, therefore, it falls within the entry under Chapter Heading No. 11081300, which is subject to excise duty at the rate of 40% of the sale price These appeals raise serious issue of classification i.e. whether the goods in question is starch classifiable under Tariff Entry 1108 13 00 or vegetable waste classifiable under Tariff Entry 2308 00 00. - good prima facie case - pre-deposit waived 2012 (12) TMI 297 Demand – manufacture of cotton and polyester spun yarn - no Cenvat credit of excise duty paid on polyester fibres has been taken - Cenvat credit has admittedly been taken on packing materials for packing of yarn for export, the services of foreign commission agents and GTA services from the factory to the port and according to the appellant, this Cenvat credit has been taken only in respect of the goods which after payment of duty has been exported out of India – Held that:- According to the department, the appellant had also availed Cenvat credit in respect of the dyes and chemicals, which have been used in the manufacture of dutiable final products as well as waste - appellant on the other hand, deny having used any such duty paid dies or chemicals and having availed Cenvat credit - matter remanded for de novo adjudication 2012 (12) TMI 267 Availment of Cenvat credit - Membership of club tourism service and mandap keeper services - Input service - nexus with Manufacture - held that:- payment for club membership is allowable as business expenditure inasmuch as club membership is used for convening business meetings and to facilitate vital decisions making, exclusively cordial ambience is essential for creating calm, composed, peaceful and tranquil mind set of the clients and the customers - relatable activities of the business. Hence, the same are covered under the definition of input services - Service Tax paid on the same is available as Cenvat Credit to the appellant. Mandap Keeper services - held that:- Employees of appellants company were on strike during the relevant period and mandap keeper services were availed for safeguarding the materials lying in the open yard and to provide accommodation under the tent for the employees during the strike period - mandap keeper services were availed by the appellant in connection with their business activity though it was one time expenditure incurred on housing the striking employees and safeguarding the material lying in the open by the workers during strike - fact that it was one time expenditure will not change the fact that said services were availed in connection with the business activities - same are available as credit to the appellant - impugned order is set aside appeal is allowed. 2012 (12) TMI 266 Hot Melt Unit - Capital Goods - Rule 57-Q - held that:- Marketability is an essential criterion for determining the liability of goods to excise duty and the process of rendering goods to market is a manufacture - end products manufactured by the respondents cannot be marketed without proper packing and therefore the modvat credit on the impugned machine used for packing of such goods is admissible as capital goods under Rule 57-Q." - The denial of the credit for this reason therefore cannot be sustained". In the present case "Hot Melt Unit" was admittedly used by the assessee while packing their finished goods - "welding electrodes". Since packing is held to be one of the essential components of the manufacturing process of the finished goods and being in the nature of incidental or/and ancillary to the main manufacturing activity, the assessee in this case was rightly held entitled to claim modvat credit on the item - "Hot Melt Unit" treating the same as capital goods under the Rule 57-Q ibid for claiming benefit - issue sought to be urged by the applicant (revenue) no longer remains resintegra - no referable question of law arises in the case - reference application fails and is accordingly dismissed. Decision in EASTEND PAPER INDUSTRIES Versus COLLECTOR OF C. EX., CALCUTTA [1989 (8) TMI 81 - SUPREME COURT OF INDIA] and Dharampal Satyapal v. Commissioner of Central Excise, Delhi- I, New Delhi [2005 (4) TMI 66 - SUPREME COURT OF INDIA] followed. 2012 (12) TMI 265 Eligibility for Cenvat credit - nexus with the manufacture of final products – input service - manufacture sugar and molasses - services of the insurance of - plant and machinery including breakdown of machinery, company’s vehicles, employees in respect of medical claim (Medi-claim), stock of finished goods (sugar) and molasses (by product) kept in the factory, cash in safe and transit; and finished goods (sugar) in transit - According to Department services have no nexus with the manufacture of final products – Held that:- Any prudent businessman in manufacturing business would insure his plant and machinery, goods in storage, cash in transit and goods in transit if his sales are on FOR destination basis - services are integrally connected with the manufacturing business of an assessee and the same have to be treated as “activities relating to business” and hence covered by the definition of input service - appellant plead that the lower authorities decided the case against them without giving them opportunity to produce these documents - Since these documents go to the root of the matter, the miscellaneous application filed by the appellant for admitting this additional evidence is allowed - appellant’s claim regarding Cenvat credit can be examined with regard to these documents only by the original adjudicating authority, tine matter has to be remanded to the original adjudicating authority 2012 (12) TMI 264 Cenvat credit demand along with interest and penalty - Cenvat credit - inputs in process destroyed in fire – Held that:- If the WIP has reached the stage, when it can be considered as manufactured goods, in that case, the same treatment as applicable to finished goods - if the activity carried out on the WIP goods cannot be considered as amounting to manufacture, in that case, the said goods should be considered as input and the treatment for reversal of credit applicable to input would be applicable - no dispute about the fact that the insurance claim received by the appellant in respect of loss of the work-in-process inputs does not include the element of Central Excise duty - Cenvat credit demand along with interest and penalty set aside 2012 (12) TMI 263 Demand of differential duty - Confiscation of seized goods – alleged that Stereo Cassette Players received from Delhi without cover of invoices and without payment of duty which were not accounted for in the statutory records by the respondents – Held that:- Revenue is not contesting the fact that confiscation of the goods seized in the hands of current respondent or in the hands of suppliers of the goods in Delhi. Since the goods have held to be not liable for confiscation - demand of differential duty not sustainable 2012 (12) TMI 262 Duty demands – limitation - appellants had purchased DEPB scrips obtained by M/s. Shree Krishna Impex – alleged that the DEPB scrips were obtained by M/s. Shree Krishna Impex by over valuing the goods and therefore, correct value in the DEPB was not reflected and therefore the imports made by the appellants against such licenses have to be treated as non-duty paid – Held that:- DGFT has yet to decide whether the value declared for the purpose of obtaining DEPB scrips is correct or not and they have also not taken action to reduce the value of DEPB scrips or to cancel the same - action taken by the Revenue seems to me pre-mature - matter remanded - Waiver of pre-deposit allowed 2012 (12) TMI 261 Denial of cenvat credit on iron and steel structure - Modvat credit on various items which were used for fabricating items like vacuum tank, syrup extraction receiver, stationary flange juice guard etc. – alleged that appellant failed to establish that these items were used as parts and accessories of the goods falling under specific heading – Credit is not available on goods which are used for erecting the machine or constructing any foundation or supporting structures basically because these items become immovable property - admissibility of the claims are decided having regard to the issue whether the items are used in erecting machinery or are part and accessories of the machinery and the decision in respect of each item as declared by the appellant - held that:- all items can be considered to be parts and accessories of “Machinery for Sugar Manufacture” falling under Heading 8438.30 An observation - I give my findings based on information available on record and taking declaration to be correct. This may lead to some inaccuracies but in the facts and circumstances such inaccuracies are inevitable. Such inaccuracies could have been avoided if the lower authorities were willing to inspect the items and record their findings on use each item which was not done. If I remit this matter for de-novo consideration, going by past experience, the authorities below are most likely to keep writing about case laws without verifying actual use and waste the time of the Tribunal again on this matter involving a small amount. So such a course of action is not warranted. 2012 (12) TMI 260 Cenvat credit – alleged that appellants had not reversed the cenvat credit on the inputs so shown as written off in their balance sheet – Held that:- It is not Revenue’s case that the inputs were cleared from the factory. Merely because the same were written off in the books of account and the value shown as nil, by itself, cannot be considered to amounting to removal of the inputs from the factory premises in the absence of any evidence to that effect - inputs were still in their possession. Revenue has not rebutted the above submission of the appellant and there is no allegation or finding that the inputs stand cleared from the factory - Cenvat Credit Rules, 2004 were amended on 16-5-2005 - The question whether this new provision will apply for inputs written off prior to 16-5-2005 was examined by the Mumbai High Court in the case of CCE v. Hindalco Industries Ltd. - [ 2011 (6) TMI 662 - BOMBAY HIGH COURT] and held that the provisions cannot be invoked in such a situation. 2012 (12) TMI 259 Refund - Cenvat credit of input services - processing of frozen shrimp and frozen fish – export – Held that:- Frozen shrimps and frozen fish are attracting no duty or rather ‘nil’ rate of duty and, therefore, need not be cleared on execution of any bond as there is no duty liability. As there is no duty liability and the appellants are undisputedly manufacturing only “exempted goods” (‘nil’ rated goods) during the disputed period the bar prescribed in terms of Rule 6(1) of the CENVAT Credit Rules shall apply - as the appellants are processing only exempted products and since the bar under Rule 6(1) of the CENVAT Credit Rules shall apply, the question of their executing a bond envisaged under Rule 5 of CENVAT Credit Rules does not arise - Decided against the assessee. 2012 (12) TMI 258 Refund claim - unutilized Cenvat credit of Additional Excise Duty – Held that:- the appellant seeks cash refund of unutilised AED (T & TA)) credit i.e. credit to personal ledger account (PCA) on the ground that the same has been accumulated on account of wrong instruction of the Department refraining them from utilising this credit for payment of AED (GSI) and thereby compelling them to pay the AED (GSI) leviable on their final products through PLA. However, since undisputedly on account of taking over of the unit by M/s. Harshit Textile Pvt. Ltd., the unutilized AED (T &TA) credit has been transferred in favour of M/s. Harshit Textiles Pvt. Ltd., there is no question of refund of this credit to the appellant. Their plea for cash refund of this credit to M/s. Harshit Textiles cannot be entertained as no such request has been made by M/s. Harshit Textiles before the lower authorities. - in favour of Revenue CST, VAT & Sales Tax 2012 (12) TMI 318 H. P. Value Added Tax Act – notice - Excise and Taxation Commissioner-cum- Appellate Authority, in exercise of its power under section 46(1) of the Act, issued a notice to the petitioner calling upon the petitioner to give his response. The said notice has been challenged by the petitioner before this court in the present writ petition - petitioner submitted appellate authority cannot be treated to be authority, subordinate to the Commissioner (Excise and Taxation) for the purpose of section 46 of the Act – Held that:- Any proceedings include assessment proceeding or miscellaneous proceedings or appellate proceedings and any authority subordinate to the Commissioner includes authorities up to Additional Commissioner level discharging the work of assessment or discharging the work of check-post, etc. Section 46 does not indicate that the Additional Commissioner while working as an appellate authority is excluded from authority subordinate to the Commissioner - writ petition is' disposed of with an observation that since the petitioner has bona fidely been pursuing his grievances before this court, as such, if the' petitioner approaches before the Tribunal, then period for which the writ petition was pending before the High Court may be excluded from the limitation period as provided under section 46(3) of the H. P. Value Added Tax Act 2012 (12) TMI 276 Preferential Creditor vs Secured Creditor - The claim of the appellant is in the sum of ₹ 1,40,60,422/-; they are sale tax, central tax and entry tax dues payable by the company (in liquidation) for its Morena Unit and Gwalior Unit. The appellant is aggrieved by the finding returned by the Official Liquidator that he be ranked as a preferential creditor and not a secured creditor. - held that:- Provisions of Section 529-A of Companies Act (a Central legislation) have to be override the provisions of Sec 53 of the M.P. Commercial Tax Act of 1994 (a State legislation) - tax liability will be subject to the provisions of Sec 530 of the Companies Act subject to the provisions of Section 529-A of the said Act. There appears to be no conflict between the State Act and the Central Act - even if there is a conflict between a State legislation and a Central legislation, the Central legislation must prevail - Appeal has no merit - Dismissed. Indian Laws 2012 (12) TMI 309 In the present case Family Settlement had been given effect to a substantial extent and that the respective parties were in effective control of their respective shares in the terms of the said family settlement since 2007. No doubt there were some disputes relating to some aspects appear to have been admittedly there allegations of non-compliance of certain terms of the memoranda of understanding which the learned Single Judge, correctly held required to be decided on affidavit evidence. - there is a prima facie acceptance of the factum of concealment of additional family assets by the defendant no. 1 which constitutes a case of fraud also does not merit grant of an interim order at this stage. Such stance of the plaintiffs was contested by defendant no. 1 & 2 on the score that accrual of personal assets post 2007 would not constitute part of the joint family corpus and such rival contentions required to be adjudicated in the course of trial. Hence mere allowing of amendment of the plaint to include the additional family assets as a part of the subject matter of the suit would not simpliciter ground to come to a conclusion of a strong prima facie case of fraud warranting the interim relief. Interim relief - learned Single Judge has come to a reasonable conclusion not to grant the interim relief to the plaintiffs in the instant case and not to substitute such discretion of the learned Single Judge since the same neither appears to be arbitrary, capricious or perverse in any manner whatsoever. Accordingly Appeal stands dismissed Amendment in the plaint - The trial in the suit had also not commenced and the learned Single Judge was wholly justified to conclude that amendment at such early stage of the proceeding would not prejudice either of the parties and ought to be permitted. Assets and/or legal entities which were sought to be included as subject matter of the suit did not comprise of the joint family corpus inasmuch as they had come into existence after 2007 and that no case of concealment had been made out are essentially matters of defense which his clients would be entitled to agitate fully in the course of trial by filing written statement, if not filed. The nature and circumstances in such amendment was prayed for in our considered view did not amount to alternation of the nature and character of the suit in any manner. If written statement is not filed, the same may be filed within eight weeks from the date of service of amended copy of the plaint - impugned order to the extent it permitted amendment of the plaint does not warrant interference and the appeal being is accordingly dismissed.
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