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TMI Tax Updates - e-Newsletter
December 11, 2015
Case Laws in this Newsletter:
Income Tax
Customs
Corporate Laws
Service Tax
CST, VAT & Sales Tax
TMI SMS
Articles
News
Notifications
Circulars / Instructions / Orders
Highlights / Catch Notes
Income Tax
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Disallowance of set off being loss on account of trading in Futures and Options/derivatives against other income - the assessee was having the interest income as well as income from dividend, the set off being loss on account of trading in Futures and Options/derivatives against other income should be allowed - AT
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Valid ‘demerger’ u/s 2(19AA) - carry forward of loss and unabsorbed deprecation - in the case of demerged company revenue has already taken a stand that the transaction is of Demerger, now it cannot be allowed to take a different stand in case of resulting assessee Company. - Revenue cannot blow hot and cold in same breathe - AT
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Validity of reference made to the Departmental Valuation Officer (DVO) u/s 55A - The provisions of Section 55A(b)(ii)can be invoked only in case the valuation report is not submitted by assessee. Thus, reference made by AO u/s. 55A(b)(ii) was not correct - AT
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TDS u/s 194C - payment for blasting work - payments to three different persons as contract payments where tax should have been deducted under the provisions of section 194C - disallowance u/s 40(a)(ia) is directly applicable - AT
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Reopening of assessment - in the light of expressed provisions of Section 124 and Section 147 of the IT Act, the only officer who could have exercised jurisdiction over the case of the assesse, even for the purposes of issue of notice should be the jurisdictional ITO - Section 292BB being prospective in nature cannot be applied to the facts of the present case - AT
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Revision u/s 264 in favor of assessee - the appeal of the Assessee has not been disposed on merits. In view of this, there was no bar to the CIT in exercising jurisdiction u/s.264 - the embargo imposed in Sec. 264 that there should be no appeal pending before CIT(A) on the issues raised in the application u/s.264 is not applicable in the present case - AT
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Minimum alternate Tax (MAT) - donation paid is allowable expenditure while computing the book profit of the assessee u/s 115JB - AT
Customs
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The import of components / parts/ sub-assemblies by the applicant will not be classified as motor vehicle under Tariff Heading 87.03 or as Completely Knocked Down (CKD) kit under Sr. No. 437 of Notification No. 12/2012-Cus., dated 17.3.2012 - AAR
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Classification of processed betel nut - containing ingredients such as food starch, spices, mulethi, flavors, perfume etc., though not containing lime or katha (catechu) or tobacco - products shall be covered in Chapter 21 and not in Chapter 8 - AAR
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Constitutional validity of Circular - Prohibition on import of Alloy Steel of Deformed Bars/ Deformed Bars which fails to meed the BIS - No basis to hold that the Circular issued on 7th November, 2014 is ultra vires Article 14 of the Constitution of India - HC
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Mere entertaining of suspicion cannot be basis to put a citizens right to do business in jeopardy, which is a guaranteed freedom under Article 19(1)(g) of the Constitution of India - HC
Service Tax
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Recovery of service tax - Section 87 - freezing of bank accounts - adjudication of show cause notice is pending - the settled principle that levy, assessment and valuation alone will enable the Revenue to recover the amount of taxes and recovery cannot precede prior important steps - HC
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Denial of refund claim - a slight delay in filing for the registration by the assessee with the Department cannot become a valid ground for rejecting their refund claim - Circular No. 120/01/2010-S.T. allows filing of refund claim on quarterly basis and an exporter can claim refund for previous quarter in the next quarter - AT
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Demand of service tax - one-time franchise charges for transfer of technical know-how - the agreement does not fit into the definition of franchise agreement as it stood during the relevant period - AT
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Denial of abatement claim - Construction services - benefit of abatement of 67% - Assessee had also availed the benefit of CENVAT Credit - There is no dispute on the fact that upon detection, of the mistake, the Appellant reversed the credit - benefit of rebate allowed - AT
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Cenvat credit on the capital goods is allowable, which were received even when the respondent was not registered as service provider. - Capital goods are received for installation during the construction activity are eligible - AT
Case Laws:
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Income Tax
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2015 (12) TMI 519
Working of Rule 9B - scheme of computation of business income as envisaged under Sections 28 to 44 - Held that:- In the present case, the separate Trading Accounts drawn up by the Assessee in respect of four films for the financial year ended 31st March, 1991 in question indicate a loss which is sought to be carried forward under Rule 9B of the Rules but the Assessee has in fact shown a profit of ₹ 76,751.99/- in its Profit & Loss Account for the year ended 31st March, 1991. This includes the expenditure incurred by the Assessee for the publicity and advertisement of the four films in question. If the Assessee had also charged the expenditure incurred on the cost of positive prints in respect of the four films in question to the Profit and Loss Account, the Assessee’s Profit & Loss Account for the year would have reflected a loss of ₹ 40,21,039.01/- (cost of prints in respect of the four films amounting to ₹ 40,97,791/- less the profit of ₹ 76,751.99/- disclosed by the Assessee in its Profit & Loss Account). The question whether the expenditure incurred by the Assessee is absorbed in a particular year would depend on the income generated by the Assessee in that year. However, it was incorrect on the part of the Assessee to include the cost of prints along with the MG Royalty amount for the purposes of determining the amount to be carried forward under Rule 9B of the Rules. The language of Rule 9B is unambiguous and the Assessee cannot be permitted to claim a carry forward of the cost of distribution rights, which is in variance with the computation as provided in Rule 9B of the Rules. Decided in favour of the Revenue and against the Assessee. Disallowance made by the AO under Section 40A(3) - CIT(A) deleted the addition - Held that:- In the present case, the AO does not dispute that the Assessee carried on its business in Delhi and its officers had to travel to Bombay to negotiate the purchase of distribution rights. The Assessee had also contended that such payments were made as the producers required the payments urgently at various sites where films being produced by them were being shot and it was expected that such payments be made in cash in the normal course of conducting business.In our view, the question whether the Assessee’s business exigencies required payments to be made in cash, is a question of fact. The ITAT has returned a finding in favour of the Assessee and it is not possible to conclude that such finding is without any basis or any material on record. The ITAT’s decision, thus, cannot be held to be perverse. Accordingly, the question of law is answered in favour of the Assessee and against the Revenue.
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2015 (12) TMI 518
Addition u/s 68 - addition on account of share application money received by the assessee Held that:- In the instant case the addition is made u/s 68 of the Act on the ground of unexplained cash credit. As per the provisions of sec. 68, the initial onus lies upon the assessee to prove the nature and the source of amount credited in his books of accounts. We find that this initial onus was discharged in the instance case by the assessee by furnishing the documents like memorandum of association, article of association, share application, certificate of incorporation, acknowledgement of ITR’s, audited accounts, etc. of the concerned companies. Thereafter, in our view, the onus shifted upon the Department and it was for the Department to bring on record the relevant material to show that why inspite of the above stated documents, the addition is still to be made in the hands of the assessee. In the instance case, the Department has endeavored to discharge its burden on the basis of statements recorded by it of the persons mentioned above. We find that the assessee requested for cross-examination of the makers of the statements. But strangely, the Assessing Officer did not take any step to allow effective opportunity to the assessee to cross-examine the makers of the statements. The Assessing Officer did not pursue the matter further. Thus, we find that the assessee was not allowed any opportunity to cross-examine the persons who made the statements at the back of the assessee. In our considered view, the statements of those persons cannot be read against the assessee. See case of Kishinchand Chellarm (1980 (9) TMI 3 - SUPREME Court) and Chartered Speed Pvt. Ltd.[2015(3) TMI 809 - GUJARAT HIGH COURT]. We find force in the argument of the assessee that the statements of the persons mentioned above are not admissible evidence against the assessee. In absence of these statements, we find that no other material has been brought on record by the Revenue to show that why still the amount in question should be treated as income of the assessee when the assessee furnished all the documents which were available with it to discharge the onus which was upon it u/s 68 of the Act. In the above circumstances, in our considered view, the addition was made solely based upon the inadmissible and unreliable material - Decided in favour of assessee.
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2015 (12) TMI 517
Transfer pricing adjustment - adjustment to the arm's length price of the international transaction of provision of software development services provided by the appellant company to its holding company M/s ION Trading UK Ltd. - Held that:- Companies that are affected by factors like persistent losses, declining sales, extraordinary Income or expense, mergers and acquisitions or other such factors which affect the operations of the company substantially should not be used as comparables as they will not prove to be good benchmarks. Adjustment of unutilized rent and maintenance expenses as expenses incurred in relation to the international transaction of the provision of Software development services - Held that:- We uphold the order of Hon’ble DRP, as it has rightly held that as there is no objective basis led by the assessee to support its claim; mere submission that there was underutilization does not discharge the burden upon the assessee. Moreover, the assessee has not given any cogent basis to satisfy the reasons for underutilization. Once the assessee is a software service provider to its AE then there can be no claim on account of under utilization of capacity as it was AE who initiates such expansion. Hence, we reject the ground raised by the assessee. Risk adjustment under Rule 10B(1)(e)(iii) and Rule 10B(3) to account for differences in the risk profile of the comparable companies vis-à-vis the Appellant - Held that:- Where the assessee succeeds in ably demonstrating that the comparables finally selected bore relatively more risk than it, then there should be no denial of the risk adjustment. If, however, the assessee fails in specifically pointing out the extra risks undertaken by the comparables, then, of course, there cannot be any question of granting risk adjustment. Under the transfer pricing regime, onus is always on the assessee to show the reasons for claiming any separate adjustment by pointing out the differences between it and the comparables. Risk adjustment can be allowed provided the assessee places on record some appropriate material to demonstrate that the risk undertaken by the comparable companies were relatively more than it, warranting downward adjustment in their profit rates. Further, the variation in such risks, if any, should be capable of quantification on some reasonable and logical basis. Since the ld. AR has failed to objectively demonstrate the relatively higher risks undertaken by the comparables on an overall basis, we are disinclined to grant any risk adjustment.In view of the foregoing discussion, we set aside the impugned order and remit the matter of determination of ALP of the international transaction of ‘Provision of IT enabled data conversion services’ to the file of TPO/AO for a fresh decision AO/Ld. TPO and the Hon’ble DRP did not erred in not granting the benefit of reduction/variation of 5 percent from the arithmetic mean while determining the arm’s length price to the Appellant as per the proviso to section 92C(2) of the Act.
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2015 (12) TMI 516
Transfer pricing adjustment - selection of comparable - Held that:- RITES Ltd., Apitco Ltd. and Kitco Ltd be excluded from the list of comoarable as not comparable to the functions performed by different service segments of assessee - Decided in favour of assessee. Exclusion of foreign exchange gains/ loss and provision for bad debts, by calculating the PLI, treating the same as non-operating item by TPO - Held that:- We find considerable force in the submission of ld. counsel for the assessee that ld. DRP wrongly invoked Safe Harbour Rule for coming to the conclusion that forex gain/ loss was not to be treated as operating income/ loss for current assessment year because the Safe Harbour Rules, in any case, were applicable from 18-9-2013 and prior to that the said Rules could not be applied. That apart, it is not disputed that in the case of assessee forex gain/ loss was related to sale price of export, which was in US dollar. Therefore, the entire receipts were on revenue account. This issue is squarely covered by the decision of the Hon’ble Supreme Court in the case of Woodward Governor’s (2009 (4) TMI 4 - SUPREME COURT ), wherein it has been held that forex gain/ loss in the revenue account is a trading receipt, or, as the case may be, business expenditure, allowable u/s 37(1) of the Act. We, accordingly, direct that the forex gain/ loss be treated as operating income/ loss both in the case of tested party as well as comparable and the PLI should be determined accordingly. As regards the treatment of provision of doubtful debts also, we find that the reasoning given by ld. TPO cannot be accepted because he has primarily relied on safe harbor rule for treating this as non-operating expenditure. We find considerable force in the submission of ld. counsel for the assessee, considered earlier, that provision for doubtful debts is a provision which is to be made as a part of the operating activities of business governed by the principles of prudence. We, accordingly, direct that this provision be treated as part of operating expenditure and treatment be made accordingly, because, in any view of the matter, the safe harbor rule is not applicable for the current year under consideration. - Decided in favour of assessee.
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2015 (12) TMI 515
Transfer pricing adjustment - Held that:- We are not impressed with the contention of the ld. AR about his right to argue against the transfer pricing adjustment of ₹ 36.65 crore as no such addition has been eventually made in the assessment order and consequently this issue cannot be termed as arising from the impugned order. It is only if the AO, in any subsequent proceedings, makes such addition that the assessee will acquire a right to challenge the addition as per law against the outcome of such later proceedings. Since no addition on account of the transfer pricing adjustment has been made in the final assessment order, which has been impugned before us, we desist from adjudicating on the merits of the addition. The grounds challenging this issue, therefore, fail. Disallowance of claim for deduction of performance bank guarantee encashed by Prasar Bharathi due to contractual disputes - Held that:- Although the ld. DR has the right to challenge that the amount of encashed bank guarantee is not deductible under the mercantile system of accounting in terms of rule 27, but such contention fails on merits because such an amount is deductible even under the mercantile system of accounting. It is, therefore, palpable that the amount of encashed performance bank guarantee calls for deduction both under cash system of accounting as well as the mercantile system of accounting because not only the liability for this expenditure was incurred, but it also stood discharged/collected during the year resulting in the outgo of the amount from the coffers of the assessee. This issue is, therefore, decided in favour of the assessee. Disallowance of expenses u/s 40(a)(i) & (ii) - Held that:- Once the assessee had suo motu made disallowance of ₹ 7.39 crore, there could have been no reason to make a further disallowance of the same amount included in ₹ 7.80 crore. Such double disallowance is hereby deleted. On reducing a sum of ₹ 7.39 crore from the total disallowance of ₹ 7.80 crore, we are left with the remaining disallowance of ₹ 41.51 lac. The AO made such total disallowance of ₹ 7.80 crore by recording that the assessee failed to furnish sufficient evidence in support of the deduction of expenses. The position remains status quo before the Tribunal as well. Under such circumstances, we uphold the disallowance of ₹ 41.51 lac. Ex consequenti, this issue is partly allowed. Addition towards unexplained contribution made by the partners of the assessee firm - Held that:- It can be noticed that there is addition in Capital as well as Current accounts of both the partners amounting to ₹ 16.58 lac and ₹ 29.61 crore, respectively, totaling to ₹ 46.19 crore. The assessee has filed an application under Rule 29 before the tribunal filing additional evidence in the shape of confirmations from both the partners and the source of the capital introduced by them in the firm with the help of bank pass books. Since this evidence has not passed through the AO’s eyes and placed before us for the first time, we are of the considered opinion that the ends of justice would meet adequately if the impugned order on this score is set aside and the matter is restored to the file of AO. We order accordingly and direct him to decide this issue afresh in the light of the additional evidence which the assessee has filed or proposes to file in this regard. - Decided in favour of assessee for statistical purposes.
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2015 (12) TMI 514
Disallowance u/s 14A - Held that:- DRP directed the Assessing Officer to exclude bank charges and other financial charges while determining the figure of the interest expenditure for quantifying the disallowance under Rule 8D of the Rules. The Revenue has challenged the aforesaid direction of the DRP. After considering the rival stands, we find no infirmity in the decision of the DRP, which is in conformity with the phraseology of Rule 8D(2)(ii) of the Rules. - Decided against revenue Denial of claim of deduction under section 80-IC in respect of the two units at Guwahati manufacturing mosquito repellent mats and liquid - Held that:- The relevant discussion in the order of DRP reveals that apart from the difference in the products being manufactured, it has also been brought out that the manufacturing process involved in manufacture of mosquito repellent coils is different than the process required for manufacturing mosquito repellent mat and liquid. These factual aspects have not been negated by the Revenue and, therefore, the decision of the DRP cannot be faulted with. Apart from the aforesaid, we have carefully perused the discussion made by the AO in the draft assessment order and find that no specific reason has been propounded to demonstrate that the profits declared in the Guwahati unit was otherwise untrue except by comparing it with the level of profit of the Pondicherry unit, which ostensibly was not manufacturing the same commodity. Under these circumstances, in our view, there is no merit in the ground raised by the Revenue challenging the direction of the DRP for allowing the claim for deduction under section 80-IC of the Act for Guwahati units in accordance with the claim made in the return of income. - Decided against revenue
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2015 (12) TMI 513
Disallowance of set off being loss on account of trading in Futures and Options/derivatives against other income - Held that:- The assessee although had incurred loss of ₹ 3,93,08,929/- in trading of derivatives, but it had dividend income of ₹ 14,64,859/- and interest income under the head “income from other sources” amounting to ₹ 39,236/-. Therefore, the only positive income of the assessee was under the head “income from other sources”. We, therefore, by considering the totality of the facts as discussed hereinabove are of the view that the assessee’s case falls within the purview of exception carved out in the explanation to Section 73 of the Act and consequently the assessee shall not be deemed to be doing the speculative business for the purpose of Section 73(1) of the Act. As in the present case, the assessee was having the interest income as well as income from dividend, the set off being loss on account of trading in Futures and Options/derivatives against other income should be allowed - Decided in favour of assessee.
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2015 (12) TMI 512
Disallowance of unrecoverable advance - Held that:- The assessee claims that a sum of ₹ 1,76,13,603/- was part of the sales already offered in the earlier years. However, no details were filed by the assessee either before the lower authorities or before this Tribunal. In the absence of any particulars with regard to inclusion of income in the earlier assessment year as claimed by the assessee, this Tribunal do not find any reason to interfere with the order of the lower authority. Coming to the balance amount standing as inoperative bank account to the extent of ₹ 10,000/- and work-in-progress to the extent of ₹ 1,94,12,871/-, the assessee claims that the project could not be completed as contemplated by the company. The fact remains is that the investment made by the assessee is in the capital asset. The assessee claims the same under the head "Administrative and Other expenses". Since the expenditure relates to capital asset, this Tribunal is of the considered opinion that the CIT(Appeals) has rightly confirmed the addition made by the Assessing Officer. Therefore, this Tribunal do not find any reason to interfere with the order of the lower authority in confirming the addition of ₹ 3,70,36,474/- being the unrecoverable advance under the head "Administrative and Other expenses". - Decided against assessee. Addition under Section 69A - Held that:- The agreement for sale of the property discloses the sale consideration at ₹ 16,26,00,084/-. It is not known how the very same property was sold for ₹ 31,07,20,000/-. That means, the assessee is not willing to disclose all the material facts relating to the above said transaction. The sale deed dated 28.03.2008 was executed within two months from the date of the agreement, i.e. on 04.02.2008. Within two months period from the date of agreement, the value of the property will not go to the extent of ₹ 31,07,20,000/-. Therefore, the assessee obviously invested undisclosed money in the transaction and on sale of the property, now bringing the same as short term capital gains. The sale deed dated 28.03.2008 was executed in favour of M/s AGS Properties Development (India) Private Limited by one Shri R.R. Aroonkumar. The power of attorney was executed in the individual capacity of Shri Aroonkumar. Therefore, the assessee company invested its funds from undisclosed source in the property and the same was sought to be brought on accounts in guise of short term capital gains. Therefore, this Tribunal is of the considered opinion that the CIT(Appeals) has rightly confirmed the addition made by the Assessing Officer under Section 69A - Decided against assessee. Validity of assessment in the hands of assessee or predecessor-company - undisclosed loan - Held that:- As in view of non-obstante clause in Section 170(2) of the Act, this Tribunal is of the considered opinion that the provisions of Section 170(2) will override the provisions of Section 170(1) of the Act. Therefore, the assessment has to be made only in the hands of the present assessee in view of the provisions of Section 170(2) of the Act. The CIT(Appeals) is not justified in holding that the assessment has to be made only in the hands of the predecessor-company. Now coming to the genuineness of the loan, in view of financial statement of M/s Platex Ltd., Mauritius and the fact that Shri Prasad V. Potluri is a common Director in all the three companies, namely, M/s Platex Ltd., Mauritius, M/s PVP Ventures Pvt. Ltd. and M/s PVP Ventures Ltd., Chennai, creates a doubt that the money might have been flown from the assessee-company to M/s Platex Ltd., Mauritius and by way of investment would have come back to Chennai through banking channel. Unfortunately, this fact was not examined by the lower authorities. Therefore, this Tribunal is of the considered opinion that the matter needs an investigation by the Assessing Officer as it was done in the case before Apex Court in CIT v. P. Mohanakala (2007 (5) TMI 192 - SUPREME Court). The Assessing Officer has to examine when M/s Platex Ltd., Mauritius had no net worth and it could not generate any income of its own, how Deutsche Bank was able to sanction loan facility of more than ₹ 500 Crores. It also needs to be examined whether any loan was sanctioned and disbursed by Deutsche Bank to M/s Platex Ltd., Mauritius. Further, it is to be examined whether any money was flown from India to Mauritius in order to enable the Deutsche Bank to sanction the loan to M/s Platex Ltd., Mauritius. These aspects were not examined by the Assessing Officer.Merely because the funds were transferred through banking channel, that alone will not prove the genuineness of transaction.
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2015 (12) TMI 511
Valid ‘demerger’ u/s 2(19AA) - carry forward of loss and unabsorbed deprecation - CIT(A) allowed the claim - Held that:- No infirmity in the order of CIT A() was drawn to our notice by revenue. We are also of the view that CIT (A) has dealt with all the issue raised by AO and giving a categorical finding holding that assessee is eligible for carry forward of unabsorbed loses and unabsorbed depreciation. Further as in the case of demerged company revenue has already taken a stand that the transaction is of Demerger, now it cannot be allowed to take a different stand in case of resulting assessee Company. Revenue cannot blow hot and cold in same breathe. Therefore we confirm the order of CIT (A) and hold that it was a valid demerger as defined u/s 2(19AA) of the Income tax act and assessee company is eligible for benefit of Section 72A (4) for carry forward of losses and unabsorbed depreciation - Decided against revenue.
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2015 (12) TMI 510
Validity of reference made to the Departmental Valuation Officer under section 55A - Held that:- Reference to DVO can be made in two situations; first, the value is adopted based on report of registered valuer and second, in any other case. In assessee's case, fair market value adopted as on 01.04.1981 is based on valuation report of registered Valuer. Therefore, Assessing Officer should have applied the provisions of 55A(a) and according to said provision, fair market value claimed by assessee can be rejected only if fair market value is less than fair market value as per Assessing Officer. As fair market value claimed by assessee as on 1st April, 1981 is higher than that estimated by Assessing Officer provisions of 55A should not be invoked. The provisions of Section 55A(b)(ii) as resorted by Assessing Officer for referring the matter to DVO can be invoked only in case the valuation report is not submitted by assessee. Thus, reference made by Assessing Officer u/s.55A(b)(ii) was not correct. Assessing Officer was not justified in rejecting the valuation report of assessee as on 01.04.1981 obtained by him from registerd Valuer and referred the same to DVO. Accordingly, the order of CIT(A) was set aside and Assessing Officer is directed to allow the claim of assessee as prayed. - Decided in favour of assessee.
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2015 (12) TMI 509
Treatment given to the profits earned on sale of shares - whether it is to be considered as “business income” or “capital gains” - Held that:- CIT(A) has noted that the shares were acquired by the Assessee in IPO, ILFS Ltd. and J M Financial Services Pvt. Ltd. had partly financed the acquisition of those shares, the entities who had financed had charged fees and the shares were sold shortly after their acquisition. The activity of Assessee was held by the ld. CIT(A) to be in an organized and systematic activity with an intention to earn profits and the activity to be in the nature of trade and therefore it was considered to be a business activity. Before us, no material has been placed on record by the Assessee to controvert the findings of ld. CIT(A). In view of the aforesaid facts and the reasoning given by ld. CIT(A), we do not find any reason to interfere in his order. As far as the treatment of the surplus of ₹ 1,29,68,597/- which is held to be “STCG” is concerned, we find that ld. CIT(A) has given a finding of fact that the underlying shares have been acquired by Assessee’s own funds and no borrowed funds have been used, the Assessee had treated the shares as “Investments” and not as “stock in trade” and the motive of trading in those shares have not been established by the A.O and merely by referring to the volume and number of transactions does not establish the motive of Assessee to be a trader of shares. These finding of fact of ld. CIT(A) has not been controverted by Revenue. In the present case, we find that ld. CIT(A) has given a clearly finding about the acquisition of shares in IPOs were with the help of part finance taken from ILFS & J.M. Financial Services and the activity of Assessee was systematic activity so as to treat it in the nature of business
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2015 (12) TMI 508
Unexplained deposits in bank a/c of assessee - CIT(A) deleted the addition - Held that:- As per section 68 of the Income Tax Act, 1961, if source of receipts was not established, then it could have been taxed under the said provision. Per contra, there is no provision in the Act to tax an amount or proceed of receipt the source of which has been explained or stands established. In the present case, the source of impugned receipts by the assessee are proceeds of NRNR deposit and interest on RBI Bonds received by father of the assessee Shri Suresh Nanda and if these proceeds have been found to be taxable in the hands of Shri Suresh Nanda, then the question of taxing the same u/s 68 of the Act would not arise. Ld. DR could not controvert these findings of the ld. CIT(A), thus, we are unable to see any infirmity, perversity or any other valid reason to interfere with the order of the CIT(A) and we uphold the same. - Decided against revenue.
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2015 (12) TMI 507
Disallowance of expenses - @ 1% of total expenses by CIT(A) instead of 10% made on account of inflation of expenses relating to earth work, excavation, filling and leveling by AO - Held that:- there is every possibility of leakage of the revenue on account of various work done along with labour payments declared by the assessee. Accordingly, the Ld. CIT(A) is not justified in restricting the addition to 1% instead of 10% of expenditure disallowed by the Assessing officer which in fact is without any basis. Though no past trends have been placed on record, however, in the circumstances and facts of the present case, the disallowance of 1% of expenses made by the Ld. CIT(A) is very much on the lower side and therefore, we restrict the disallowance on account of various expenses, as mentioned hereinabove, to 8% instead of 10% disallowed by the Assessing officer, to meet both the ends of justice - Decided partly in favour of revenue. TDS u/s 194C - Disallowance u/s. 40(a)(ia) - CIT(A) deleted the addition - Held that:- The undisputed facts in the present case are that the tax at source has to be deducted on the impugned payments u/s. 194C of the Act which has been conceded by the Ld. Counsel for the assessee as well. The Ld. CIT(A) has relied upon the decision of the Hon’ble Apex Court in the case of Hindustan Coco Cola Pvt. Ltd. [2007 (8) TMI 12 - SUPREME COURT OF INDIA ] wherein it was held that if the recipient has shown this income in its return of income, then such disallowance would amount to double disallowance and accordingly, deleted the said addition. However, there is no evidence placed on record before any of the authorities below, especially before the ld. CIT(A) there is no claim as such that the tax has been paid by the recipient. Therefore, the Ld. CIT(A) is not justified in deleting the said addition. - Decided in favour of revenue. TDS u/s 194C - payment for blasting work - Disallowance u/s. 40(a)(ia) - CIT(A) deleted the addition - Held that:-. A new theory has been developed by the Ld. CIT(A) that blasting work has not been given to any contractor and rather the same has been undertaken by the assessee himself by appointing leaders in each group and making direct payment to the workers by maintaining muster rolls for each site and assessee has maintained cash payment vouchers to each person for such work. No such evidence was placed before the Assessing officer or even before us by the Ld. Counsel for the assessee to prove that the assessee has made payments directly to the labourers in cash. In such circumstances and facts of the case, the Ld. CIT(A) is not justified in deleting the addition and holding that it is not a contract payment. Accordingly, the order of the Assessing Officer is restored who has rightly considered the said payments to three different persons as contract payments where tax should have been deducted under the provisions of section 194C of the Act which, in fact, has not been deducted by the assessee under the head blasting work and therefore, the disallowance made under the provisions of section 40(a)(ia) is directly applicable. - Decided in favour of revenue.
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2015 (12) TMI 506
TDS u/s 194C - non-deduction of TDS on air freight charges - addition u/s 40(a)(ia) - CIT(A) deleted the addition - Held that:- The assessee made the payment on account of reimbursement of the air freight expenses and nothing was payable at the year end. Therefore, the disallowance made by the AO was rightly deleted by the ld. CIT(A). Similarly the disallowance on account of sea freight was wrongly made by the AO by invoking the provisions of Section 194C of the Act which were not applicable, since the individual payment were less than ₹ 50,000/- by different companies and moreover those payments were only the reimbursement of expenses and nothing was payable. Therefore, the disallowance made by the AO was not justified and the ld. CIT(A) rightly deleted the addition made by the AO on account of the disallowance of sea freight expenses. We do not see any infirmity in the impugned order passed by the ld. CIT(A). - Decided against revenue
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2015 (12) TMI 505
Reopening of assessment - officer jurisdiction to issue the notice - Held that:- The words used in Section 147 of the Act are " the Assessing Officer " and which clearly means a particular officer who has the jurisdiction, over the case of a particular assessee. It is not the case that the statute has mandated every Assessing Officer to exercise jurisdiction, as per his own sweet will. As per the mechanism provided u/s 124 of the Act, the jurisdiction over the case of the appellant assessee could have been exercised either by the DCIT, Circle 5(1), Delhi, with whom the return of income for the A.Y under consideration was filed or by the A.O Ward 5(3) New Delhi who had been assigned with the jurisdiction over company assessee. Since, this is a case where the assessee had actually filed a return of income with the DCIT, Circle 5(1), New Delhi, on 30/4/2004, the Income Tax Officer, Ward 3, Gurgaon, could not have exercises jurisdiction over this case of the assessee, on the basis of his territorial jurisdiction. It is also not a case where the ld.Assessing Officer questions the principal place of business declared by the assessee company. Therefore, in the light of expressed provisions of Section 124 and Section 147 of the IT Act, the only officer who could have exercised jurisdiction over the case of the assesse, even for the purposes of issue of notice should be the jurisdictional ITO who is at New Delhi. We, therefore, are of the considered opinion that the assessee was correct in holding that the notice issued by the ITO Ward-3, Gurgaon on 13/3/2008 was without jurisdiction Applicability of provision of Section 292BB - Held that:- Section 292 BB being prospective in nature cannot be applied to the facts of the present case. Further, we are agreeable to the findings of the Ld.CIT(A) that Section 292 BB cannot be applied in a case where the notice u/s 148 has been issued by the A.O without having proper jurisdiction. - Decided against revenue
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2015 (12) TMI 504
Validity of assessment order - CIT(A) held it as bad in law as so called other order was merely an untenable and concocted story which is non-cognizable and had no legal sanctity - Held that:- if the alleged order bears same DCR No.151/380 on the subsequent demand notice, then it may safely be inferred that allegations made by the ld. AR are correct that the Assessing Officer erred in framing the second order of the same date which was prejudicial to the assessee in comparison to earlier order. We may point out that the conduct of the Assessing Officer was dignified and judicious and the CIT(A) rightly held that second order under appeal is bad in law. The CIT(A) was also quite balanced and justified in drawing attention of CIT, Meerut to this serious issue. We are unable to see any reason to interfere with the impugned order and we uphold the same on this issue. - Decided against revenue Valid service of notice under section 143(2) - Held that:- When the Assessing Officer himself went wrong in holding valid service of notice and did not decide the legal objection of the assessee, the CIT(A) was quite balanced and justified in holding that the valid service of notice within time comes under serious doubt as the Assessing Officer has not brought out any fact on record to support valid service of notice on the assessee. Hence, we are unable to see any valid reason to interfere with the conclusion of the CIT(A) on this issue and we uphold the same. - Decided against revenue Income earned on sale and purchase transactions of shares - CIT(A) held as capital gain - Held that:- CIT(A) rightly evaluated the conduct of the assessee as well as facts and circumstances of the case in the light of treatment given by the assessee regularly showing investments in shares at purchase value and taking them as investments. Furthermore, the assessee had not claimed the Securities Transaction Tax (SIT) and specially when the assessee could get the benefit of valuation loss or rebate u/s 88E of the Act, the Assessing Officer can not label the assessee as dealer in shares and thus income derived therefrom cannot be treated as business income. The dicta laid down by Hon'ble High Court in the case of Jubilant (2011 (3) TMI 607 - DELHI HIGH COURT ) was followed and the CIT(A) granted relief to the assessee on justified and correct appreciation of fact and we are unable to see any valid reason to interfere with the same. - Decided against revenue
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2015 (12) TMI 503
Addition on account of difference between the receipts as per Form 26AS and the audited financial statements of the appellant for the subject AY - additions without invoking the provisions of Section 145 - Held that:- The Assessing Officer is duty-bound to make independent inquiry as to whether income has accrued to the assessee company as per the method of accounting regularly being followed by the assessee in respect of the transactions reported in Form No. 26AS. The Assessing Officer, after due verification of the transactions with reference to the documentary evidence like agreement entered into between the parties, has to render the finding whether the income has really accrued to the assessee company or not. Only after such verification, the addition can be made by the Assessing Officer after affording reasonable opportunity of being heard to the assessee-company. Therefore, in order to meet the ends of justice, we restore the matter to the file of the Assessing Officer to make de novo assessment after affording reasonable opportunity of being heard to the assessee company. - Decided partly in favour of assessee for statistical purposes.
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2015 (12) TMI 502
Penalty u/s.271(1)(c) - chargeability of income v/s concealment of income - Held that:- It is clearly proved from the chronological events narrated above that difference of opinion has come out between the assessment stage and the first appellate authority stage wherein the AO had passed an order which was unfavourable for the assessee. On the other hand, the CIT(A) considered the matter and concluded the same in favour of the assessee. Hence, penalty ought not to be levied in a situation where there arises a difference of opinion. Under the circumstances discussed above, the assessee cannot be accused of any concealment of income. The notes to accounts of AY 2007-2008 also go on to clearly state the facts and circumstances of the pending litigations pertaining to AY 2005-2006 related to income tax as well as those pertaining to possession. There is also no dispute to the fact that the assessee has offered its 'real income' for taxation and paid the tax accordingly in the return of income for AY 2007-2008 after the conveyance attained finality and all litigations concerning the subject matter of conveyance were resolved. Thus, where assessee has furnished all particulars of income, imposition of penalty is not automatic in nature. Mere making of a claim which is not sustainable in law does not amount to levying of penalty under section 271(1)(c) of the Act. It is just a matter of difference between assessee and revenue regarding year of chargeability of income and not concealment of income. - Decided in favour of assessee
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2015 (12) TMI 501
Disallowance u/s 14A - CIT(A) deleted part disallowance - Held that:- It is an admitted position that no expenses directly attributable to the earning of dividend income has been quantified as per Rule 8D(2)(i) of the Rules. Secondly, proportionate disallowance has been made towards interest expenses attributable to the average investments held by the assessee as per formula laid down in Rule 8D(2)(ii) of the Rules. The plea of the assessee is that non-interest bearing own funds as source far exceeds the corresponding application of funds toward investments. In the circumstances, the contention of the assessee that investment in shares cannot be said to be out of borrowed funds on which the interest expenditure has been incurred is well founded and deserves to be accepted. Mere utilization of OD / CC accounts for routing payment towards investment shares by itself has no consequence as such. The payment out of these overdrafts account is only a way of making payment. The overall position of interest-free funds, borrowed funds, etc. qua the corresponding investments yielding tax-free income is a relevant factor need to be borne in mind. It is not the case of the Revenue that any direct expenses including interest expenses have been incurred. in the case of CIT vs. HDFC Bank Ltd. reported in (2014 (8) TMI 119 - BOMBAY HIGH COURT), wherein the Hon'ble High Court categorically held that in-principle, if there are funds available both interest-free and interest bearing, then a presumption would arise that investment would be out of interest-free funds generated or available with the assessee, if the interest-free funds were sufficient to meet the investments. Hence,disallowance retained by the CIT(A) under Rule 8D(2)(ii) of the Rules is not sustained in law and is therefore directed to be deleted - Decided in favour of assessee. Disallowance carried out under Rule 8D(2)(iii) of the Rules - Held that:- We find that the assessee itself has made a disallowance of ₹ 35,007/- being one month salary of its Accountant towards estimated expenses attributable to the tax-free income. Thus, admittedly, certain expenditure is accepted to have been incurred by the assessee. It is the quantum of estimation which is subject matter of dispute. Statutory framework provides that Rule 8D(2)(iii) of the Rules will come into play when essentially there is certain amount of expenditure which can be said to have been incurred by the assessee for which quantification of exacting standards are not possible. Rule 8D(2)((iii) provides statutory formula for computation of disallowance to cover up probable indirect administrative expenses relatable to tax free income. The assessee has not given any scientific basis for arriving at its own estimation. Ostensibly therefore, preference need to be given to statutory formula over the ad-hoc estimation made by the assessee. The onus lay upon the assessee to prove the quantum of expenditure incurred in earning the taxfree income which remains un-discharged. Accordingly, we decline to interfere with the disallowance sustained by the CIT(A) under Rule 8D(2)(iii) of the Rules On facts, having regard to the colossal investments and dividend income, no cogent basis for disallowance of one month salary of an Accounts person is discernible. The assessee has failed to establish correctness of disallowance offered by it. The ingredients of prima facie satisfaction contemplated under S. 14A are thus present in the facts of the case. The mandate of Rule 8D will thus operate. Hence, the plea of the assessee is not sustainable. - Decided against assessee.
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2015 (12) TMI 500
Rectification order u/s 154 - CIT X/Kol initiated proceedings u/s. 154 to rectify the order u/s. 264 passed by his predecessor in office CIT X - CIT X held that on the date of passing the Order u/s. 264 by the CIT X on 30,.12.2011, an appeal by the assessee was pending before the CIT(A) XVI - Held that:- The assessee for the relief under section 264 of the Act before Ld. CIT was accepted and the same was adjudicated, granting the relief to the assessee, but the same relief was rejected by passing an order under section 154 on the ground that the assessee for the same case has also filed an appeal to the Ld.CIT(A). The Ld.CIT also found that the appeal before Ld.CIT(A) was pending not only at the time of filing the application but also at the time of order under section 264 of the Act. The provisions of section 264(4)(c) of the Act prohibits the Ld. CIT to pass the revision order if appeal is pending. However it was also observed in terms of CBDT Circular that an order cannot be subject of an appeal if appeal has not been disposed on merits. In the present case, appeal of assessee has never been disposed on merits rather the appeal was withdrawn by the assessee vide later dated 9th December 2011. However the Ld. CIT(A) passed the order of the appeal dismissal on dated 03-09-2012, and by that time the application filed for relief to the Ld. CIT under section 264 of the Act was adjudicated and consequently the impugned rectification order u/s.154 of the Act was passed. The fact however remains that the appeal of the Assessee has not been disposed on merits. In view of this, there was no bar to the CIT in exercising jurisdiction u/s.264 of the Act. The facts clearly show that the embargo imposed in Sec.264 of the Act that there should be no appeal pending before CIT(A) on the issues raised in the application u/s.264 of the Act is not applicable in the present case. We are therefore of the view that the order u/s.154 of the Act is liable to be cancelled and the same is hereby cancelled. - Decided in favour of assessee
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2015 (12) TMI 499
Entitlement for deduction u/s 54 - Held that:- We have already noticed that the deduction u/s 54 is available only if the assessee constructs a new house within three years after the date of transfer. In the instant case, the assessee has constructed a house prior to the date of transfer of original house, in which case, the assessee is not entitled to claim deduction u/s 54 of the Act in respect of the cost of new flat. - Decided against assessee.
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2015 (12) TMI 498
Disallowance of expenditure by invoking section 14A read with Rule 8D - Held that:- Rule-8D of the Rules was inserted by the I.T (Fifth Amendment) Rules, 2008 with effect from 24.03.2008. Therefore, this rule will be in operation only from assessment year 2009-10. The earlier decisions of the Tribunal on several occasions had decided that 3% of the exempt income shall be treated as the expenditure incurred towards earning such exempt income U/s.14A of the Act. Accordingly, for the assessment year 2008-09 in the case of the assessee, we hereby hold that 3% of the exempt income shall be treated as the expenditure that will be disallowed U/s.14A of the Act.As far as the assessment year 2009-10 is concerned, since Rule 8D comes into effect from that assessment year onwards, we do not find any infirmity in the order of the Ld. CIT (A), who has applied only Rule-14A and reworked the disallowance U/s.14A of the Act and arrived at the disallowance at ₹ 12,31,129/- as against ₹ 14,95,934/- worked out by the Ld. Assessing Officer. Accordingly, the order of the Ld. CIT (A) is confirmed for the assessment year 2009-10. - Decided partly in favour of assessee. Computing deduction U/s. 10A - not reducing the overseas travel expenses and telecommunication expenses incurred in foreign currency from the total turnover when the same is excluded from the export turnover.( A.Y. 2008-09) - Held that:- This issue is squarely covered by the Special Bench of the Tribunal in ITO Vs. Sak Soft reported [2009 (3) TMI 243 - ITAT MADRAS-D ] wherein it was held that when any such amount is deducted from the export turnover from the numerator, the same shall also be deducted from the total turnover in the denominator while applying the formula (Profit x Export turnover ÷ Total turnover) as provided under the Act. - Decided in favour of assessee. Treating the soft ware expenses as revenue expenditure - Held that:- The software purchased by the assessee are application software used in the back up office operations and thereafter following the decision of CIT Vs. Asahi India Safety Glass Ltd. [2011 (11) TMI 2 - DELHI HIGH COURT ], CIT Vs. Amway India Enterprises Ltd., [2011 (11) TMI 4 - DELHI HIGH COURT] held the issue in favour of the assessee by treating the entire expenses as revenue expenditure. Since no further materials or arguments is brought before us by the Revenue to counter the decision of the Ld.CIT(A) and since the Ld. CIT (A) has only followed the decision of the Hon’ble Delhi High Court and Mumbai Bench of the Tribunal in arriving at his decision, we hereby confirm the order of the Ld. CIT (A). - Decided against revenue Addition made towards donation while computing the book profit U/s. 115JB - CIT(A) deleted the addition - Held that:- Since the assessee company had paid donation, it has to be construed that such donation is paid for meeting out the objects of the company directly or indirectly, though as per Income Tax Act such donation may not be allowable as a deduction. The decision of the Ld. CIT (A) in directing the Ld. Assessing Officer to treat the donation paid as allowable expenditure while computing the book profit of the assessee for the purpose of section 115JB of the Act is correct. Therefore we hereby confirm the order of the Ld. CIT (A) on this issue.- Decided against revenue
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2015 (12) TMI 497
Reopening of assessment - Addition u/s 68 on receipt of accommodation entries - information received from the investigation wing of the Department - Held that:- The assessment was reopened on the basis of information received from the investigation wing of the Department about the existence of accommodation entry providers and their modus operandi and the assessee's name has also figured in the list of beneficiaries. Although the assessee had filed documents relating to the transactions at the time of original assessment proceedings, it is again an undisputed fact that the persons who were summoned u/s 131 of the Act to depose before the AO failed to do so. The Ld. AR had nothing to say as to why the persons could not present themselves before the AO. The fact that the share application money had been received through account payee cheques is, at best, neutral. Section 68 permits the AO to add the credit appearing in the books of accounts of the assessee if the latter offers no explanation regarding the nature and source of credit or if the explanation offered by him is not satisfactory. The failure on the part of the assessee in producing the share applicants for deposition before the AO lends credence to the theory that the monies emanated from the coffers of the assessee company. As decided in CIT vs. Nova Promoters and Finlease (P) Ltd. (2012 (2) TMI 194 - DELHI HIGH COURT) wherein held that where sums were shown as share application moneys and information had been received from investigation wing about the assessee being a beneficiary of accommodation entries, failure on the part of the share applicants to respond to summons would absolve the AO from the duty of proving that the monies emanated from the coffers of the assessee. - Decided against assessee.
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2015 (12) TMI 496
Addition representing settlement amount paid by a third party, on behalf of the assessee, considering the same as covered u/s 40a(ia) - Held that:- The payment in question was not in consequence of any work carried out by the contractor for the assessee, but it was agreed payment to get the title of the property cleared, by way of out of court settlement of the suit filed by the contractor. Thus, the assessee was correct in not making TDS on the amount paid by the purchaser, M/s Silverline Enterprises, directly to the contractor, M/s Sarovar Developer, on behalf of the assessee. As such, the provisions of section 40(a)(ia) of the Act do not get attracted. Therefore, the ld. CIT(A) has erred in applying the decisions of “Torque Pharmaceuticals Pvt. Ltd. vs. Addl. CIT”, (2011 (7) TMI 1147 - ITAT CHANDIGARH) and “ACIT vs. Grandprix Fab (P) Ltd.”, [2009 (10) TMI 659 - ITAT DELHI] inasmuch as in the present case, the payment made was not qua any work contract but was made to get a clear title of the property. For the above discussion, the grievance of the assessee is found to be justified and is accepted as such. The addition made by the A.O., as confirmed by the ld. CIT(A), is cancelled. - Decided in favour of assessee.
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2015 (12) TMI 495
Addition on account of non-deduction of TDS - invoking the provisions of sec.40(a)(ia) - Held that:- Admittedly, in this case, the assessee paid audit fee of ₹ 25,000/- without deducting TDS, though the assessee is liable to deduct TDS on this payment. Being so, invoking the provisions of sec.40(a)(ia) of the Act, by the lower authorities are justified - Decided against assessee. Allowability of depreciation at 15% as against 50% claimed by the assessee on crates - Held that:- The plea of the ld. AR is totally misplaced. As per Index 1 to item (4), containers made of glass, plastic as refills entitled for depreciation at 50%. The crates cannot be included as bottles made of plastic or glass. As such, the lower authorities are justified in restricting depreciation at 15% - Decided against assessee. Addition to the extent of 20% of the cash purchases of old used bottles - Held that:- These are admitted disallowances as cash vouchers are not bearing full address and these are not verifiable. The ld. AR submitted that earlier, gross profit rate and net profit rate was lower than this assessment year. Considering this, we direct the AO to compare the GP and NP of earlier years and if it is so as argued by the ld. AR, the addition to be sustained only to the extent of 5% of cash purchases towards this discrepancies. In other words, the disallowance should be sustained to the extent of 5% of cash purchases. With this observation, we remit this issue to the file of the AO for consideration. - Decided partly in favour of assessee for statistical purposes.
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Customs
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2015 (12) TMI 520
Rectification of mistake - Reassessment of bill of entry - re-assessment sought after clearance of goods is not falling under Section 154 nor power is exercisable once the goods were cleared with description in the Bill of Entry - Held that:- What that is envisaged by this section is only to make effort to rectify a clerical errors or arithmetical mistakes in any decision or order passed by Central Government. When the order passed by the authority at the time of clearance remains unchallenged, re-assessment/re-determination making extensive enquiry is not subject of Section 154. Therefore, amendment sought by the appellant taking Shelter of Section 154 neither being clerical error nor arithmetical mistakes, there is no scope for grant any relief under Section 154 - Decided against assessee.
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2015 (12) TMI 482
Classification - Rate of duty on Import of components/parts/sub-assemblies of motor vehicles in CKD form - appellant contended that he has imported engine and transmission in a pre-assembled form - Held that:- Applicant proposes localization of six essential components / parts / sub-assemblies, which will be manufactured by local third party vendors on payment of Central Excise duty and supplied to the applicant for manufacture of motor vehicle. These local third party vendors are reputed companies. Revenue has not produced any tangible evidence to indicate that the applicant has entered into any fictitious arrangement to evade Customs duty. It is noticed that the Hon'ble Supreme Court in case of Commissioner of Customs, New Delhi vs. Sony India Ltd [2008 (9) TMI 19 - SUPREME COURT] distinguished the judgment in case of Phoenix International Ltd and observed that all parts were imported in Phoenix case by two units in same container, unlike in Sony India Ltd case. It was also held that Rule 2(a) of Rules of Interpretation of Tariff are applicable only if all components intended to make a final product presented at same time for customs clearance. - In fact they are not even likely to be imported at same time and require further manufacture by different local third party vendors. Tariff Item 8703 is in respect of "Motor Cars and other Motor Vehicles etc." Note 2 to Section XVII, which also covers 'vehicles' gives a list of 11 articles, where expressions 'parts' and 'parts and accessories' do not apply. Further, Note 3 to Section XVII states that references in Chapter 86 to 88 to 'parts' or 'accessories' do not apply to parts or accessories which are not suitable for use solely or principally with the articles of those chapters. Note further mentions that a part or accessory which answers to a description in two or more of the headings of those chapters is to be classified under that heading which corresponds to the principal use of that part or accessory. Therefore, in order for an article to fall under headings covered by Section XVII, those parts or accessories should comply with all conditions - The import of components / parts/ sub-assemblies by the applicant will not be classified as motor vehicle under Tariff Heading 87.03 or as Completely Knocked Down (CKD) kit under Sr. No. 437 of Notification No. 12/2012-Cus., dated 17.3.2012 - The import of components / parts / sub-assemblies by the applicant will be classified under their respective headings / sub-headings of the Customs Tariff Act, 1975 - Appeal disposed of.
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2015 (12) TMI 481
Classification of processed betel nut - deemed manufacture - whether or not containing ingredients such as food starch, spices, mulethi, flavors, perfume etc., though not containing lime or katha (catechu) or tobacco, and will the resultant products be classifiable under the Chapter/Heading 21069030 - Held that:- From the preparation process of the four products, it is clearly seen that the original betel nut which is a main ingredient in all these four preparations is mixed with food starch after it undergoes the process of boiling. The addition of food starch is common in first two of products namely API Supari and Chikni Supari. - Insofar as the other two products are concerned, the unflavored Supari undergoes a process like removal of metal item then the product undergoes the process garbling and polishing in the polishing machine then it is further cut and cleaned in a blower machine then it is roasted in fire gas and thus undergoes a change in its character. Fourth product is a flavored supari which undergoes all the processes like unflavored supari but thereafter the products such as spices/or Mulethi are mixed with the cut pieces of supari. There can be no dispute that all these four products would be essentially known as supari. But as the learned counsel points out the original betel nut undergoes changes and is mixed with some other items like food starch, Mulethi, Copra etc. In our opinion, therefore, the products which the applicant intends to import prima facie fits in Chapter 21 Supplementary Note No. 2 which we have quoted. The Supreme Court in cranes reported in [2007 (3) TMI 6 - SUPREME COURT OF INDIA] held that since the betel nut which has undergone the processes does not lose its original character of supari, it does not amount to the manufacture or a new product and thus found in favour of the manufacturer. We would have ordinarily been persuaded to accept this contention that the preparation of the new product does not change its character of the betel nut but for the fact that immediately thereafter an amendment was brought even to the Central Excise Tariff which is to the following effect : '6. In relation to product of tariff item 2106 9030, the process of adding or mixing cardamom, copra, menthol, spices, sweetening agents or any such ingredients other than line, katha (catechu) or tobacco to betel nut, in any form, shall amount to “manufacture”.' The query put by the applicant is answered in affirmative that these products shall be covered in Chapter 21 and not in Chapter 8. - Decided in favour of assessee.
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2015 (12) TMI 480
Import of “beef leather cut pieces set TFC 235 Set - Cassification under Customs Tariff Heading 4115 20 90 or under Chapter Heading 4205 00 90 - Held that:- During the course of arguments, we were shown two other Chapter headings viz. Chapter 87 and Chapter 94 - Chapter 87 deals with “vehicles other than Railway or Tramway Rolling-stock and includes other parts and accessories of the motor vehicles” - Sub-heading 9401.20.00 thereof deals with “seats of a kind used for motor vehicles and sub-heading 9401 90 00 mentions “parts” thereof. It would have been more appropriate for the Tribunal to look into the Chapter entries as a whole and then come to a definite conclusion, in the light of the description of the goods involved as to which the most appropriate entry under which they fall. - Impugned order is set aside - Matter remanded back - Decided in favour of Revenue.
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2015 (12) TMI 479
Import of Barge - Claim of exemption under Notification 20/99-CUS 28.02.1999 classifying under Chapter Heading 8901.90 - no declaration in respect of diving equipments was made - Held that:- It is not even necessary to go into the question raised, viz., whether the aforesaid diving equipments could be treated as part of Stores under Section 2(38) of the Act. The reason for saying so is that in the instant case, the barge was brought with diving equipments welded onto the barge when that arrived at Sikka port in India. The diving equipment remained welded to the barge and was only used insofar as the barge is concerned which was to be used at Sikka port. It was granted exemption and barge was working in Sikka port from 27.12.1998 to 27.08.1999 and thereafter, went back to Abu Dhabi (UAE) with diving equipments which remained welded on to the barge. - issuance of Show Cause Notice was uncalled for - Decided against Revenue.
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2015 (12) TMI 478
Benefit of an exemption Notification - respondent approached the Settlement Commission under Section 127B of the Customs Act - Settlement Commission rejected the application of the respondent on the ground that it was not maintainable - Held that:- There were many other similarly situated persons who had also filed their writ petitions as in their cases also, the Settlement Commission had rejected the applications. All these writ petitions are decided by the impugned judgment rendered by the High Court of Bombay. The High Court has, after straightening certain aspects of law, remitted the cases back to the Settlement Commission for fresh decision in accordance with the legal position explained by the High Court. - Since the High Court has merely remitted the case back to the Settlement Commission for fresh decision and in all other cases, the decision has been taken by the Settlement Commission, leaving the question of law open, it is not necessary to interfere with the impugned order. - Decided against Revenue.
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2015 (12) TMI 477
Constitutional validity of Circular - Prohibition on import of Alloy Steel of Deformed Bars/ Deformed Bars - whether ultra vires Articles 14, 19(1)(g) and 300A of the Constitution of India - Circular No.450/176/2014CustIV dated 7th November, 2014 - goods falling under Chapter Heading 72.28 of CTA - Held that:- The statement of objects and reasons to the BIS Act reveals as to how a national strategy for according appropriate recognition and importance of standards is to be evolved and integrated with the growth and development of production and export in various sectors of the national economy. That is why all the sectors have to intensify efforts to produce more and more standard and quality goods so as to help in inducing faster growth, increasing exports and making available goods to the satisfaction of the consumers. Towards this end, the Act has been enacted and the terms have been defined. Ministry of Steel has urged that imports circumventing the said Steel Products Quality Control Order, 2012 should stopped in view of their damage to the interest of the Indian Steel industry as well as from the angle of safety of infrastructure and housing projects in the country. They have to necessarily meet with the specifications set out in the standards and have to bear the standard mark of the BIS. This is apparent from reading of Foreign Trade Policy, 2009-2014, ITC (HS), 2012. The Import Policy and General Notes regarding import policy, whereunder it is stipulated that all goods imported into India are subject to mandatory Indian Standards as notified. Standard devised for high strength deformed steel bars and wires for concrete reinforcement specification will have to be complied with. Mr. Nankani could not dispute that the schedule and which is styled as the Steel and Steel Products (Quality Control) Second (Amendment) Order, 2014 made by the Central Government under section 14 of the BIS Act, 1986 sets out the Indian standard number, the title of the goods and date of coming into force of the product standard to the extent set out therein. The ITC (HS) Code is for reference purposes. It also indicates as to how the title listing the steel products has to be construed and with reference to the ITC (HS)Code. The standards have to be complied with and from the dates mentioned therein. Circular in no way prohibits the Petitioners from importing the goods. The same does not hold up unnecessarily the consignments. We are also not in agreement with the Petitioners that the Circular is based on irrelevant, extraneous and nongermane considerations. The circular is also not discriminatory or malafide. It is not ignoring any of the provisions of law. The Circular does not violate the mandate of Article 19(1)(g) of the Constitution of India or 300A of the Constitution of India - Decided against assessee.
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2015 (12) TMI 476
Import of Gold jewellery under the bilateral agreement (FTA) at concessional rate of duty - doubt has been entertained with regard to the origin of the goods as emanating from Indonesia - Provisional assessment of goods - Held that:- There is a specific procedure notified under FTA and in every aspect, the method and manner of issuance of certificate of origin, the method and manner of authentication and verification of the same and the terms framed within which is required to be made, have all been specified in detail. The respondent Authorities, without following the procedure as prescribed in the Regulations, merely on suspicion, had issued the impugned communication, thereby putting the onerous condition on the petitioners, which is otherwise unwarranted. The action of the respondents is totally contrary to the notified procedure and thus is in contravention of the Regulations affects the right to carry on the trade, apart from being arbitrary, is liable to be interfered with as offending Article 14 of the Constitution of India. Bill of entry was filed on 23.06.2015 and time within which the Customs Authorities could have refused the certificate and commenced the request for retroactive check would be 22.08.2015. - there is no requirement of rejection (in fact there is no rejection of the Certificate of Origin in the present case), but there being a doubt that is required to be verified into, the same ought to have been commenced as soon as the bill of entry was presented or within a reasonable time of presentation of the bill of entry. Whereas in the present case to a specified query that was put by the Court to the learned Additional Solicitor General submitted, on instructions, that as on date the only action which has been taken by the authorities are the letters written by the 3rd respondent to the Commissioner and who in turn addressed a letter to the Director, International Customs Division, seeking an enquiry to be conducted. In other words even as on today, there are no steps which have been taken in terms of Rule 16(a) for the purpose of retroactive enquiry. Specific aspect that Indonesia has the production capacity of only 65 tons of gold is being disputed by the petitioners by making a reference to the information available in public domain, particularly by placing on record a document titled GFMS Gold Survey 2014, update 2 prepared by Thomson Reuters, wherein Indonesia was stated to have produced 109 tons of gold. However, even a well intended action is to be taken to prevent unwarranted and excessive gold in to the country on a preferential treatment basis the same would have to be done in accordance with law and by adhering to the prescribed procedure. Mere entertaining of suspicion cannot be basis to put a citizens right to do business in jeopardy, which is a guaranteed freedom under Article 19(1)(g) of the Constitution of India. In the present set of facts, we are satisfied that the Authorities though acted in good faith, unfortunately the same is not being in conformity with the procedure prescribed, the demanding of 100% security cannot be justified. Authorities have failed to adhere to the procedure with respect to entertaining of the doubt within the timeframe which is allowed under the Regulations. In the result, impugned communication is set aside - Decided in favour of assessee.
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2015 (12) TMI 475
Waiver of pre deposit - Penalty u/s 114 and 114AA - Held that:- entire allegation rests on appreciation of evidence adduced by both the sides which would be analyzed at the time of disposal of Appeal. At this stage, the offer to deposit ₹ 30,000/-(Rupees Thirty Thousand only), considering the financial condition of the Applicant, seems to be reasonable. - Partial stay granted.
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2015 (12) TMI 474
Imposition of redemption fine - Goods not available for confiscation - Held that:- Neither the goods are available nor has been released on execution of bond, in that circumstances, we hold that decision of Weston Components Ltd. is not applicable to the facts of this case and the Larger Bench decision of this Tribunal in the case of Shiv Kripa Ispat Pvt. Ltd. [2009 (1) TMI 124 - CESTAT MUMBAI] wherein it has been held that in case neither the goods are available nor released under any bond, in that case, redemption fine is not imposable although the goods are liable for confiscation. Therefore, we hold that the learned Commissioner has rightly held that the goods are liable for confiscation but refrained from imposing redemption fine. Therefore, we do not find any infirmity in the impugned order, same is upheld. - Decided against Revenue.
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2015 (12) TMI 473
Waiver of pre deposit - whether the IEC Code No. of M/s. Vinayak Impex was forged and used without their knowledge by some other persons or not - Held that:- there are statements of the co-notices recorded by the DRI for M/s. Arup Nag and Shri Robin Saha, partners of M/s. Vinayak Impex were key players acting on behalf of Sri Supriya Chowdhury and Sri Soni Bhadra. Details of the role played by M/s. Vinayak Impex can only be gone into at the time of final hearing of the case. Prima facie, the appellant M/s. Vinayak Impex has not made out a prima facie case for complete waiver of the penalty imposed by the adjudicating authority. - Partial stay granted.
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2015 (12) TMI 472
Denial of the benefit of duty exemption - Whether the modvat credit was availed or not by the holder of the license - condition Notification No. 203/92-Cus dt. 19.05.1992 - Held that:- Main ground of appeal, that is reliance on the case of Hico Enterprises does not sustain as the matter was settled in favour of the transferees in that case. The judgments cited in the case of Special Steels Ltd., Friends Trading Co. and Tata Iron and Steel Co. Ltd. were considered by us in the case of Nidhi Textile. This judgment was passed after considering all the judicials pronouncements. In the present case before us we also find that the facts of Tata Iron & Steel Co. Ltd. case are at variance from the facts of the present case. In the Tata Iron & Steel Co. Ltd. case it is clear from the judgment that there was deliberate suppression of the fact that modvat credit had been availed and, therefore, the Honble Apex Court held that the extended period of demand would be applicable even to the transferee of the license. However in the present case as already noted above, no evidences are forthcoming from the records that there was availment of modvat credit. In the circumstances there is no merit in the grounds of appeal. - Decided against Revenue.
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2015 (12) TMI 471
Imposition of penalty under Regulation 20/22 of CHALR, 2004 - Seizure of goods - Misdeclaration - Held that:- facts narrated itself would show that the suspension of license was revoked on both occasions on the finding that the appellant has complied with the KYC norms. Though the authority has stated this, the penalty is seen imposed by a self contradicting ground that however, the documents being fake, there was no due diligence on the part of the appellant. It is stated in the impugned order that there is no evidence to conclude that the CHA had prior knowledge that the importer was bogus. When the license has been revoked with a clear cut finding that the appellant has complied with the KYC norms then I do not find any justifiable ground to impose penalty. - Decided in favour of appellant.
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Corporate Laws
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2015 (12) TMI 465
Refusal to grant fee continuity benefits to the Appellants - Whether the Appellants can be granted the benefit of fee continuity? - Held that:- It is beyond cavil that SEBI, as a trade regulator in the securities market, is entitled to charge registration fees for enabling it to carry out its functions as stipulated in Section 11(2) of the SEBI Act, 1992. However it appears at present that SEBI has pounced at the opportunity to charge fresh registration fees choosing to ignore the exemptions assured by it. We find merit in the arguments furnished by the Appellants. In our opinion, the restriction imposed was to not have fund-based and trading activities together under one roof. Thus any action taken by the Appellants to comply with restriction of not participating in both the activities simultaneously would be under compulsion of law. The Respondents would have us say that only one line of action was compulsion of law but that would have the effect of adding ‘process’ to compulsion of law. The compulsion of law under the 1957 Rules is directed towards the desired end and not concerned with the means, and it would be wrong for us to ascribe otherwise. We thus set aside the impugned Judgment of SAT and direct that the Appellants be given the benefit of fee continuity. These Appeals stand allowed accordingly.
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Service Tax
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2015 (12) TMI 494
Recovery of service tax - Section 87 - freezing of bank accounts - adjudication of show cause notice is pending - Held that:- taxes as assessed which are presently payable by the notified person are taxes which have been taken into account. It is in that context and carrying this principle further that the Division Bench of this Court applied it to recovery under Section 87 of the Finance Act, 1994. The reliance placed on the judgment of ICICI Bank(2015 (5) TMI 300 - BOMBAY HIGH COURT) is thus, apposite. The Division Bench has applied this very principle and though Mr Jetly would submit that on facts this judgment is distinguishable, we do not find any substance in that contention. Even in the case of ICICI Bank(2015 (5) TMI 300 - BOMBAY HIGH COURT), it was claimed that a taxable service was provided and that a communication was addressed by the revenue authorities but the payments have been made under protest. There was denial of liability to pay service tax but under duress and coercion, amount was paid. Thus, the settled principle that levy, assessment and valuation alone will enable the Revenue to recover the amount of taxes and recovery cannot precede prior important steps. Merely because there is incidence and charge of tax will not be of assistance as the charging section and machinery provisions all enable together, the Revenue to assess the tax. Unless and until in case before us there is a crystallization of a demand by proper adjudication order and on hearing the Petitioner, there was no question of any recovery. Even if the letters have been addressed to the bank and there has been a freezing of the account, yet, we find that till date there is no adjudication order passed. The show cause notice has been issued more than a year back. In the circumstances, allowing the Petitioner's account to be frozen would not be in accordance with law. - if there is a requirement of an adjudication and assessment of the tax and that is how the liability has to be ascertained then, we do not find any substance in the contentions raised before us on behalf of the Revenue. The Division Bench in paragraph 45 also relied upon the order passed in the case of Lawson Tours and Travels(2015 (7) TMI 347 - BOMBAY HIGH COURT). We, therefore, do not find any reason to sustain the impugned action. - Decided in favour of asssessee.
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2015 (12) TMI 493
Denial of refund claim - Information Technology Service - delay in seeking registration - cenvat credit pertain to previous quarter - Held that:- M/s MVIPL are entitled to full amount of refund of Cenvat Credit for all the input services in question. The total amount of refund claimed by M/s MNIPL is ₹ 5,48,556/- which is admissible to them as per the law of Service Tax, when definition of “input service” as given under Rule 2(l) of the Cenvat Credit Rules, 2004 is very clear. - These procedures are framed for facilitation of implementation of substantive law; these procedural requirements cannot stifle the implementation of the substantive law on the subject. It is pointed out that “Information Technology Service” came under the net of service tax law during that period only and M/s MNIPL or other such concern would not immediately fathom full implications of the law announced; therefore, a slight delay in filing for the registration by the assessee with the Department cannot become a valid ground for rejecting their refund claim. It has also been pointed out by the learned C.A. appearing for the appellant that Circular No. 120/01/2010-S.T. allows filing of refund claim on quarterly basis and an exporter can claim refund for previous quarter in the next quarter. - Appeal disposed of.
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2015 (12) TMI 492
Demand of service tax - one-time franchise charges for transfer of technical know-how and for marketing of products - Held that:- On examining the terms and conditions of the agreement we have to agree that the arguments advanced by the Ld. counsel on behalf of the respondent is not without substance. The fourth limb of definition of franchise agreement as noted above is that the franchisee is put under an obligation not to engage in selling or providing similar goods or services or process, to any other person. The agreement entered on 01/04/2003 by the respondents with M/sMalkoh marketing (P) Ltd., does not stipulate any such condition imposing an obligation upon M/s Malkoh Marketing (P) Ltd. On such score, the agreement does not fit into the definition of franchise agreement as it stood during the relevant period. Since the agreement does not satisfy condition No. 4 of the definition of franchise agreement, the services provided in pursuance of the agreement also will not fall into the category of franchisee service. The demand has been rightly set aside by the Commissioner appeals and the impugned order calls for no interference. - Decided in favour of assessee.
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2015 (12) TMI 491
Levy of penalty for late payment of service tax - bonafide mistake - Tax on arranger fees - Imposition of penalty - Held that:- Appellants having come to know about their liability to pay service tax as the recipient of the service, immediately paid the entire amount of service tax along with education cess amounting to ₹ 67,62,355/-. We also find that the appellant have remitted the interest amount of ₹ 5,73,225/- on 25.11.2008, for delayed payment of service tax. They have filed challan for proof of payment of interest. The appellant assessee on being informed about their liability to pay service tax have readily accepted and discharged their liability in full, which is not in dispute. Having regard to the facts and circumstances of this case, which show that the appellants were eligible for cenvat credit on the service tax paid on the reverse charge mechanism, we find that there is bonafide reason for invoking sec. 80. Further, we also find that this is a case where the appellants have been able to show reasonable cause for delayed payment under bonafide belief as to taxability of service and in view of the revenue neutral situation, we find that the penalties imposed on the appellants cannot be sustained and has to be set aside. In the result, the amount paid towards service tax and interest thereon and appropriated is sustained and penalties imposed on the appellants are set aside. - Decided partly in favour of assessee.
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2015 (12) TMI 490
Denial of abatement claim - Construction services - benefit of abatement of 67% - Assessee had also availed the benefit of CENVAT Credit - Held that:- Appellants availed the CENVAT Credit of ₹ 22,981.00 and also availed the abatement under Notification No.1/2006-ST, dt.01.03.2006. There is no dispute on the fact that upon detection, of the mistake, the Appellant reversed the credit. The Joint Commissioner (Preventive) Vadodara dropped the proceedings. - Assessee has necessarily to comply with the conditions of notification. It is also observed that reversal of CENVAT Credit does not absolve from violation of the conditions of notification. We find that this issue is no more res integra in view of the decision of Hon'ble Supreme Court in the case of Chandrapur Magnet Wires (P) Ltd Vs CCE Nagpur - [1995 (12) TMI 72 - SUPREME COURT OF INDIA]. The Tribunal in the case of Leotronics Scales Pvt.Ltd. Vs CCE Chandigarh - [2015 (4) TMI 128 - CESTAT NEW DELHI], after following the decision of Hon'ble Supreme Court, allowed the appeal on this issue. - present case is squarely covered by the decision of Hon'ble Supreme Court and the Tribunal. - Impugned order is set aside - Decided in favour of assessee.
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2015 (12) TMI 489
CENVAT Credit on capital goods received much before registration - whether the respondent was correct in availing the cenvat credit of the capital goods which was procured by them during the year 2005-06 and installed in their hotel which started functioning from 21 May, 2009 - Held that:- Respondent has registered themselves with the authority as recipient for services and also provider of services. The capital goods which were purchased by the respondent were installed in the hotel premises and were undoubtedly used for providing output services. On such a background, the first appellate authority has set aside order-in-original which denied the Cenvat Credit of the Central Excise duty paid on all the capital goods which procured by the appellant in the period of 2005-06 to 2008-09. As against such detailed finding, given by the first appellate authority, the revenue ground of appeal is not controverting the findings by any evidence which can be considered for coming with conclusion other than what first appellate authority has arrived at that the cenvat credit on the capital goods is allowable, which were received even when the respondent was not registered as service provider. It is common knowledge that the capital goods are received for installation during the construction activity and the service tax liability arises when the hotel starts functioning. - Decided against Revenue.
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2015 (12) TMI 488
CENVAT Credit - invoice is not in the name of the respondent but it is in the name of respondent’s head office - Held that:- When there is no dispute regarding consumption of services by the respondent and Service Tax has been paid duly thereon, therefore, I hold that respondent is entitled to take Cenvat credit although the invoice is in the name of head office. Moreover, it is not disputed that apart from the respondent, somebody else has also taken the credit on these invoices. Therefore, I do not find any infirmity in the impugned order. - Decided against Revenue.
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2015 (12) TMI 487
Demand of service tax - Security service - Held that:- Appellants have categorically stated that the amount received by them is deposited to the credit of the State Government. Thus, prima facie, the amount is deposited in the Consolidated Fund of the State and per Article 285 of the Constitution of India, the income of the state can not be taxed by the Central Government. - Stay granted.
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2015 (12) TMI 486
Imposition of penalty - Benefit of Section 80 - Manpower supply service - Held that:- Respondent is engaged in supply of manpower through contractors for the purpose harvesting and supplying the sugar to the sugar factories. This activity, as already been held by this Tribunal as not covered under the ‘Manpower Requirement’ or ‘Supply Agency Services’ under Section 65 (105)(k) of the Finance Act, 1994. In this view of the matter, it would be amount to gross injustice to impose the penalty. - Decided against Revenue.
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2015 (12) TMI 485
Denial of refund claim - maintainability under Section 35F - Mandatory pre deposit - Held that:- We have gone through the provisions of newly inserted Section 35F of the Central Excise Act, 1944 read with Section 86 of Finance Act, 1994. In the said provisions, the refund claim already sanctioned is not a subject matter. Therefore, the requirement of pre-deposit of 7.5% of the duty does not arise. With these observations, we hold that the appeal is maintainable before this Tribunal. - Decided in favour of assessee.
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2015 (12) TMI 484
Denial of refund claim - chartered accountants’ services, cleaning activity services, consulting engineer services, custom house agents’ services and technical testing and analysis service - Held that:- Appellant is eligible for refund in terms of our Interim Order [2015 (3) TMI 346 - CESTAT BANGALORE]. We have also examined the nexus of these services with the final output service and the definition of input service and we find that appellant is eligible. - Decided in favour of assessee.
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2015 (12) TMI 483
Waiver of pre deposit - Manpower supply services - Held that:- Appellants are contractors and they undertook activities such as uploading, washing, stacking in godowns, cleaning of washing area, bottling area, blending area, godowns and surroundings as per the fixed schedule. Payments were fixed on the basis of number of cases only by the appellants and not on the basis of manpower supply. This being the stands taken by the Revenue, the appellants are liable to pay Service Tax on the ground that the appellants have provided manpower supply services, in our opinion, prima facie, cannot be sustained. Therefore, the appellants have made out prima facie case for waiver of pre-deposit. Accordingly, requirement of pre-deposit of the adjudged dues is waived and stay against recovery is granted for a period of 180 days from the date of this order. - Stay granted.
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CST, VAT & Sales Tax
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2015 (12) TMI 470
Exemption from tax under Section 6(2) of the CST Act - Import sales under Section 5(2) of the CST Act - Lack of jurisdiction - Does existence of a statutory remedy of appeal under the A.P. Vat act require this court to refrain from exercising jurisdiction under Article 226 of the Constitution of India - Held that:- The orders, under challenge in these Writ Petitions, are either assessment or revisional orders passed by the concerned authorities exercising jurisdiction under the AP VAT Act. This Court has been called upon, by Learned Counsel on either side, to mainly examine whether the impugned orders are without jurisdiction. The enquiry, in these Writ Petitions, is confined to an examination of the material placed before the assessing and the revisional authorities on the parameters applicable to certiorari proceedings. This Court is conscious, and need not be reminded, that the statutory system of appeals is more effective and more convenient than an application for certiorari as an appeal can be disposed of where the issue is a matter of law or fact, whereas an application for certiorari is limited to cases where the issue is a matter of law appearing on the face of the order ie where the decision is liable to be upset as it is made without jurisdiction or in consequence of an error of law. If the tribunal has erroneously refused to admit admissible and material evidence, or has erroneously admitted inadmissible evidence, or if a finding of fact is based on no evidence, it would be an error of law which can be corrected by a writ of certiorari. Where the conclusion of law by the tribunal is based on an obvious mis-interpretation of the relevant statutory provisions, or in ignorance of it or even in disregard of it or is expressly founded on reasons which are wrong in law, the said conclusion can be corrected by a writ of certiorari. Whether or not an error is an error of law, and an error of law which is apparent on the face of the record, must always depend upon the facts and circumstances of each case, and upon the nature and scope of the legal provisions which is alleged to have been misconstrued or contravened. - As larger issues regarding the scope of certain provisions of the CST Act arise for consideration, we have examined all the issues raised both on behalf of the petitioners and the respondents, even though they may not have been dealt with in the impugned orders, as a quietus must be given to the oft recurring questions regarding the jurisdiction of the authorities to subject similar transactions to tax under the AP VAT Act. While doing so, we have been careful to limit our scrutiny within the parameters applicable to certiorari proceedings. We see no reason, therefore, to now relegate the petitioners to the statutory remedy of appeals under the provisions of the AP VAT Act. Are the subject contracts divisible or indivisible contracts - Held that:- For convenience sake the petitioners shall, hereinafter, be referred to as the contractor; the person, from whom the contractor purchased the goods, as the supplier; and the person, for whom the goods were purchased and incorporated in the works, as the owner. The submission, made on behalf of the petitioners, is that the subject contracts are two independent contracts - one for supply and the other for erection, and the "bailment"/"free issues" clauses in the contracts show that, after the goods are sold by the petitioner - contractor to the owner, the owner then issues the very same material as "free issues" to the petitioner-contractor for being used in the erection and installation of the plant. The contention of the respondents, however, is that the contract is, in effect, an indivisible contract and, while they are styled as two contracts i.e., supply and erection contracts, they are, in fact, one composite indivisible contract. Existence of a cross-fall breach clause, or a clause which enables the owner to terminate the supply contract for breach of the erection contract and vice-versa, would mean that, while the contracts are ostensibly two separate contracts - one for supply of material and the other for rendering works and services, they are, in fact, one single indivisible contract. The goods supplied to the owner, under the supply contracts, are tailor made goods, and cannot be bought off the shelf. Such goods cannot, ordinarily, be sold to another except for its use in turnkey projects of a similar nature. The petitioners have been entrusted with the work mainly for their expertise in erection and installation of plants in the execution of turn-key projects. As they were entrusted with the work of erection and installation, the petitioners contractors have also been entrusted with the task of procuring material therefor. The functions relating to the supply of material, and rendering services of erection and installation, are integrally connected and are interdependent. A consolidated price is stipulated as the total contract price combining the contract prices of the individual agreements. It is evident that, while the form of the contracts indicate that they are two separate contracts, in substance they are one single indivisible works contract for supply of material and for erection and installation of equipment. Existence of a bailment clause or a free issues clause does not alter the situation. - L and T has admitted in its Writ Petition that the contract between the petitioner and owner is an indivisible works contract; the averments in the Writ Affidavit cannot be treated as an inadvertent or a typographical error; the statement made by the petitioner is an admission; and admission in pleadings stand on a higher pedestal than evidentiary admissions. As we have held that the subject contracts are indivisible contracts, it is unnecessary for us to examine the effect of the admission, by L and T in their pleadings, that the contract is an indivisible contract. Does the sale of goods by the petitioner-contractors to the owners fall within the ambit of section 6(2) of the CST Act - Held that:- Section 6(1) envisages payment of tax on all sales effected in the course of inter-state trade or commerce and, in effect, provides for a multipoint or multi-stage taxation regime for the inter-state sale of goods. Section 6(1) is subject to the other provisions of the CST Act. Section 6(2), which contains a non-obstante clause, has been introduced to avoid the cascading effect of multiple taxation. (Aand G Projects and Technologies Ltd.107). In view of the non-obstante clause, the provisions of Section 6(2) prevail over Section 6(1) of the CST Act and all subsequent sale of goods (i.e., the second sale onwards), during their movement from one state to another, are exempt from tax. It is only with a view to ensure free and unhindered movement of goods from one state to another that the first inter-state sale, be it under Section 3(a) or under Section 3(b), is alone subject to tax and all subsequent sales, effected during the movement of such goods from one State to another, are exempt from tax under Section 6(2) of the CST Act. Should the subsequent sale, to be exempt under section 6(2), have the characteristics of an inter-state sale under section 3(b) of the CST Act - Held that:- The conditions discernible from Section 6(2) are that, while the first sale can be either a Section 3(a) or a Section 3(b) sale, the second or subsequent sale has to be a Section 3(b) sale i.e. it must necessarily have all the other characteristics of a Section 3(b) sale. Like a Section 3(b) sale, a sale under Section 6(2) also takes place during the movement of goods from one State to another. Again like a Section 3(b) sale the subsequent sale, which is exempt under Section 6(2), is also effected by transfer of document of title during the movement of goods from one State to another. While the situs of a Section 3(a) sale can either be in the State from where the goods move or in the State where the goods are delivered, both a Section 3(b) and a subsequent sale exempt under Section 6(2) can only take place when the goods are in movement from one State to another. A contract of sale entered into either before commencement of movement in the first State, or after completion of movement of the goods in the second State, can neither be a Section 3(b) sale nor a subsequent sale exempt under Section 6(2) of the CST Act. Sale of unascertained goods can also take place after its delivery in the other State when the contract requires the buyer to ascertain and, thereafter, to buy the goods. When the movement of the goods starts, pursuant to a sale, they shed the character of either unascertained goods or future goods. Sale of goods, by transfer of documents of title during its movement from one State to another, can only be the sale of specific or ascertained goods (Balabhagas Hulaschand v. State of Orissa (1975 (12) TMI 136 - SUPREME COURT OF INDIA). It is only a contract of sale of specific goods which can be effected by transfer of documents of title during its movement, and not a sale of future goods. - As the subject contracts provide for sale of future goods, they could not have been, and were not, entered into when the goods were in movement from one State to another. A contract for the sale of future goods can neither be a Section 3(b) sale nor a subsequent sale exempt from tax under Section 6(2) of the CST Act. As the subject contracts provide for the sale of future goods, the said contracts cannot be said to have arisen after commencement of movement of the goods i.e., during the movement of the goods from one State to another. It cannot, therefore, be a subsequent sale exempt from tax under Section 6(2) of the CST Act. Notwithstanding the bailment/free issues, and liquidated damages clauses, the parties to the contract intended that the title to the goods would be transferred from the contractor to the owner only after erection and commissioning of the plant, and not prior thereto. It is evident, therefore, that the title to the goods was not transferred during its movement from one State to another, but only after the goods were incorporated in the works in the State of Andhra Pradesh (now the States of Telangana and Andhra Pradesh). Consequently the revenue was justified in rejecting the petitioners' claim of the sale of goods, under the subject contracts, being subsequent sales exempt from tax under Section 6(2) of the CST Act. Subsequent sale under Section 6(2) is akin to a Section 3(b) sale except that, while a Section 3(b) sale is the first sale in the course of inter-state trade or commerce, the sale, exempt under Section 6(2), is a second sale. This construction would also prevent leakage of revenue. The contracts, in the present batch of Writ Petitions, show that the contractors, with a view to fulfil their obligations under the contract with the owner, have purchased goods from the supplier at a lower price and, during movement of the goods intended only to reach the owner, have sold the goods to the owner at a higher price. While tax, under the CST Act, is paid by the contractor on the purchase of goods from the supplier, no tax is paid by them on the sale of goods to the owner. As the value of the goods purchased by the contractor from the supplier is far less than the value of the goods sold by the contractor to the owner, the tax paid under the CST Act is far lower than what should have been paid if the value of the goods, sold by the contractor to the owner, is taken as the measure of tax. While a subsequent sale of goods, independent of the first sale, may also have a similar effect, such a consequence was in the contemplation of Parliament, and revenue generation was consciously foregone in such cases, to ensure free and unrestricted movement of goods from one State to another. It is not for the revenue to suggest how the parties should frame the terms of their contract. All that the assessing and revisional authorities are required to examine is whether the subject transactions, on a reading of the contract as a whole, fall within the ambit of either Section 3(a) or Section 3(b) of the CST Act. It is not open to them to consider whether, instead of an inter-state sale, the goods could have been transferred by the petitioner contractor to themselves within the state, and then sold the goods to the owner only to enable the revenue to levy tax on such sales as intra-state sales. Likewise there is no obligation cast on the supplier, either under the CST Act or under the contract, to make a branch transfer, and then sell the goods to the contractor. Questions, as to how a contract should be structured, and whether the goods should be sold in the course of inter-state trade or commerce or brought within the state as branch transfers, are commercial decisions, for the contracting parties to take, and not for the assessing/revisional authorities to impose. There is no provision either under the A.P. VAT Act or under the Writ Proceedings Rules which enable the petitioners to simultaneously invoke the jurisdiction of the High Court and the statutory appellate authorities against the very same assessment/revisional orders, albeiton different grounds. That would, however, not justify this Court taking upon itself the task of examining all the issues, which arise for consideration from the impugned orders, merely because the Writ Petitions were entertained on the plea that a part of the assessment/revisional orders suffered from a jurisdictional error. - ends of justice would require the exercise of our extraordinary jurisdiction under Article 226 of the Constitution of India, (which, in L. Chandra Kumar v. Union of India [1997 (3) TMI 90 - SUPREME Court], has been held to be a part of the basic structure of the Constitution of India), to directthe appellate authorities/STAT, in case appeals are filed by the petitioners herein within four weeks from today, to entertain them despite expiry of the period of limitation for filing appeals under the Act. - Petition disposed of.
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2015 (12) TMI 469
Whether in view of the judgments of the Supreme Court in Hari Shanker versus Rao Girdhari Lal Chowdhury [1961 (12) TMI 87 - SUPREME COURT] and Shiv Shakti Cooperative Housing Society versus Swaraj Developers [2003 (4) TMI 563 - SUPREME COURT] declaring the power of revision as not a substantive right but merely an enabling provision, the provision for a revision under Section 10B of the U.P. Trade Tax Act, 1948 would on the repeal of that Act not be saved under Section 81 (2) of the U.P. Value Added Tax Act, 2008 - Held that:- since the proceeding for eviction was pending when the repealing Act came into operation, Section 6 of the General Clauses Act would be applicable. The words "any right accrued" in Section 6 included the landlord's right to evict a tenant in case a proceeding was pending when the repeal came in. When a repeal is followed by fresh legislation on the same subject, it is necessary to consider the provisions of the new legislation for the purpose of determining whether they indicate a 'different intention' within the meaning of Section 6 of the General Clauses Act. The line of inquiry is not whether the new enactment expressly keeps alive old rights and liabilities but whether it manifests an intention to destroy them (State of Punjab Vs Mohar Singh [1954 (10) TMI 38 - SUPREME COURT OF INDIA] followed in Gammon India Ltd Vs Special Chief Secretary [2006 (2) TMI 278 - SUPREME COURT OF INDIA]. In other words, whenever there is a repeal of an enactment the consequences which are enunciated in Section 6 of the U P General Clause Act - in relation to the State of Uttar Pradesh - will follow unless a different intention appears in the repealing statute. Where the repeal has been followed by fresh legislation on the same subject, the purpose of considering the provisions of the new legislation is to determine whether they indicate a different intention. In the State of Uttar Pradesh, a revisional power has been conferred on the Commissioner both under the erstwhile UP Trade Tax Act as well as under the UP VAT Act which repealed the former Act. Moreover, as we have noticed earlier, the revisional power in Section 56 of the UP VAT Act is pari materia with that which is contained in Section 10-B of the erstwhile Act save and except that now an authorisation for the exercise of the power by the Joint Commissioner is to be made by the Commissioner and not by the State Government as was the case under the previous legislation. Both the erstwhile legislation as well as the new legislation provide for a remedy of a revision to the Commissioner. The intent of the new Act was evidently not to abrogate that remedy of a revision. - even the assessment that took place was after 1 January 2008, on 9 November 2009. The power of the revisional authority to call for and examine the records for the purpose of satisfying himself as to the legality or propriety of the order of assessment and to pass such order with respect thereto as he thinks fit is, hence, unaffected by the repeal. This power is intrinsically connected with the right of the authority to ensure that the assessment has been carried out in accordance with law. This imposes a corresponding obligation and liability on the assessee where it is found that the assessment was otherwise than in accordance with law. One cannot be disassociated from the other. There is a difference in the language of Section 6 of the General Clauses Act 1897 and Section 6 of the U P General Clauses Act 1904. However, we are of the view that this distinction in the language will have no practical meaning or consequence to the construction which has been placed by us on the provisions of the repealed and the repealing legislation. - judgments of the two Division Benches of this Court in Dharma Rice Mill (2010 (4) TMI 979 - ALLAHABAD HIGH COURT) and Kumar Rice Mills (2010 (7) TMI 1009 - ALLAHABAD HIGH COURT), insofar as they hold that the remedy of a revision against an order of assessment under the UP Trade Tax Act provided to the Commissioner under Section 10-B survives the repeal lay down the correct principle of law. The remedy is saved by virtue of the provisions of Section 81 of the Uttar Pradesh Value Added Tax Act 2008 read with Section 6 of the Uttar Pradesh General Clauses Act 1904. - Appeal disposed of.
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2015 (12) TMI 468
Classification of sale - Inter state sale or local sale - whether the transaction of purchase of cotton between the respondent Mill and one Maharashtra State Co-opertive Cotton Growers Marketing Federation Ltd., Bombay is inter state sale or local sale by reason of delivery of goods, after payment of entire sale consideration within Tamil Nadu - Held that:- Tamil Nadu Sales Tax Appellate Tribunal, after verifying the facts stated by the assessee, in the light of the documents referred to above and by applying the principles laid down by the Hon'ble Supreme Court in South India Viscose Ltd v. State of Tamil Nadu, reported in [1981 (7) TMI 204 - SUPREME COURT OF INDIA] and also by applying the view of the TNTST, Chennai in the cases, was of the firm view that the transaction cannot be considered as local sale, but only as inter state purchase and the same was not liable to tax under the TNGST Act 1959 at the point of last purchase in the State and accordingly allowed all the five appeals. - As the findings rendered by the Tribunal are based on material facts and supportive documents and sustained by sufficient reasoning, we find no reason to interfere with the same. - Decided against Revenue.
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2015 (12) TMI 467
Validity of impugned order - validity of section 19(20) of the Act is yet to attain finality and the matter is now pending before the honourable Supreme Court - Held that:- in cases where the assessee claims that any question of law arising in "his case" for an assessment year which is pending before the assessing authority is identical with the question of law arising in his case for another assessment year which is pending before the High Court or the Supreme Court, the assessee may furnish declaration to the assessing authority under section 23(1) - Admittedly, there is no case of the assessee pending for assessment year before the assessing authority in which an identical question of law is pending before the Supreme Court. In the light of the fact, there is no such issue pending in respect of the petitioner's case for any earlier assessment year before the honourable Supreme Court, the question of invoking the power under section 23, does not arise. Therefore, the submission of the petitioner in this regard stands rejected. Having held so, the only other question which remains is whether the impugned order of assessment will be held to be bad in law for invoking section 19(20) of the Act. - Decided against assessee.
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2015 (12) TMI 466
Revision of assessment under section 16 of the Act - Determination of taxable turnover - Held that:- there is absolutely no discussion as to why the product should be classified under residuary entry, viz., entry 40 of Part D of the First Schedule, when the petitioner's case is that it falls under entry 18(iii) of Part B of the First Schedule. Further more, the petitioner has relied on G. O. Ms. No. 30 CT (B1) dated March 27, 2002, stating that they fall within the category of electronic integrated circuits and micro-assemblies. Further, the petitioner stated that the Automatic Power Factor Control System is a brand name, but the commodity is microprocessor. This aspect of the matter was also not considered. In fact in the show-cause notice dated October 24, 2007, the respondent does not dispute the fact that the petitioner's product contained electronic integrated circuits and assemblies, nevertheless he proposed to revise the assessment. If the product contains electronic integrated circuits and assemblies, then it would fall under the sub-item No. 3 of G. O. Ms. No. 30 dated March 27, 2002 and consequently fall under entry 18 of Part B of the First Schedule and in such an event, the rate of tax would be only at four per cent. This aspect of the matter has not been considered by the respondent. Therefore, the impugned order is held to be bad in law. - petitioner does not disclose the turnover, but the proceeding itself was a revision of assessment under section 16 of the Act - Hence, the penalty imposed is absolutely uncalled for and accordingly the same is deleted. - Decided in favour of assessee.
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