TMI Tax Updates - e-Newsletter
December 17, 2014

Case Laws in this Newsletter:

Income Tax Customs Service Tax Central Excise

TMI SMS

• HC uphold the Constitutional validity of levy of service tax on Advocates/ legal services within the negative list and earlier positive list

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• TPA -Assignment of call options - Decision of SC in Vodafone India Holdings BV (2012) distinguished in view of amendment to Sec 2(47) - Tri

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News

1. Low Ranking of Indian Corporate in Global Philanthropy Index

2. Effective Implementation of CSR Policy

3. CSR Contribution for Swachh Bharat Abhiyan and Clean Ganga Mission

4. Recovery of Penalties Imposed by CCI

5. Promotion of MDP Firms

6. Change in Tariff Value of Crude Palm Oil, RBD Palm Oil, Others – Palm Oil, Crude Palmolein, RBD Palmolein, Others – Palmolein, Crude Soyabean Oil, Brass Scrap (All Grades), Poppy Seeds, Areca Nuts, Gold and Silver Notified

7. Chairman, 14th Finance Commission, Dr. Y.V. Reddy calls on the Union Finance Minister

8. LIC Presents a Dividend Cheque of Rupees One Thousand Six Hundred Thirty Four Crore Eighty Nine Lakhs Fifty Seven Thousand and Six Hundred Two (Rs. 1634, 89, 57, 602 ) to the Union Finance Minister

9. RBI Reference Rate for US $

Notifications

VAT - Delhi

1. F.3(352)/Policy/VAT/2013/585-596 - dated 15-12-2014 - DVAT

Filing of Form DP-1

Highlights / Catch Notes

Income Tax

• Recasting 2007 Framework Agreement Not an Assignment of Option Rights; Distinguished from Vodafone Ruling Due to Section 2(47) Amendment.

  Case-Laws - AT : TPA - Whether recasting of framework agreement in 2007 tantamount assignment of option rights held by the assessee under framework agreements of 2006 - Decided against the assessee - Decision in the matter of Vodafone India Holdings BV Vs. UOI [2012 (1) TMI 52 - SUPREME COURT OF INDIA] distinguished in view of subsequent amendment to Section 2(47) - AT
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• High Court: Rejection of Books Justified if Net Profit Rate is Arbitrary or Perversely Considered. Accurate Reporting Crucial.

  Case-Laws - HC : Rejection of books of accounts - where the net profit rate discloses an arbitrary and perverse consideration, it would be a question of fact - if consideration leading to a net profit rate is perverse and or arbitrary, the finding so rendered shall be illegal and shall not be a question of fact - HC
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• High Court Upholds Penalty u/s 271(1)(c) of Income Tax Act Due to Insufficient Explanation by Assessee.

  Case-Laws - HC : Imposition of penalty u/s 271(1)(c) – department was justified in imposing the penalty u/s 271(1)(c) of the Act, as the explanation offered by the assessee is no explanation at all in the eye of law - HC
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• Transfer of Call Center Business to Indian Entity HWP Deemed International Transaction u/s 92B(1) of Income Tax Act.

  Case-Laws - AT : TPA - to avoid the tax liability in India, the call centre business was though apparently transferred to HWP (India) but the real transaction of sale and purchase is between the assessee and HTIL/HWL Group. Therefore, the transaction being between the assessee and its non resident AEs would constitute the international transaction in terms of section 92B(1) - AT
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• State's Interest Waiver Recognized as Business Expense u/s 37(1), No Extra Tax Liability Imposed.

  Case-Laws - AT : Waiver of interest u/s 36(vii) – he waiver of interest at the instance of the State Government, has to be allowed as business expenditure u/s 37(1) - no addition - AT
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• Commissioner of Income Tax (Appeals) correctly denied deductions for duplex flats exceeding 1,000 sq ft u/s 80IB(10).

  Case-Laws - AT : Deduction u/s 80IB(10) – Whether the CIT(A) erred in holding that 1BHK flats where-ever converted into duplex had built up areas of more than 1000 sq ft and such flats exceeded the limits u/s 80IB(10) - Held Yes - AT
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• Tax Authority Rules Bank Deposits Not Unexplained Income Without Identifiable Source Evidence Under Income Tax Act.

  Case-Laws - AT : Undisclosed deposits - in the absence of any other source of income, the CIT(A) was justified in holding that the entire amount of deposit in the bank account could not be treated as unexplained - AT
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• CIT's jurisdiction u/s 263 invalid if Section 153A assessment is flawed. Foundational assessment must be sustainable.

  Case-Laws - AT : Exercise of jurisdiction by CIT u/s 263 – Assessment made u/s 153A - when assessment itself is not sustainable, no exercise of jurisdiction u/s 263 of the Act on such assessment is sustainable - AT
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• Board's Dividend Proposal Isn't a Declaration; Assessment u/s 153A Declared Invalid.

  Case-Laws - AT : The provision for dividend made in the accounts or the recommendation of the Board of Directors regarding the proposed dividend cannot be considered as declaration of dividend. - Assessment u/s 153A is not valid - AT
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• Speculation Business Losses Set Off Against Business Income Valid as AO Previously Accepted Speculation Nature.

  Case-Laws - AT : Allowability of set off of speculation losses against business income – the income or loss derived by the assessee company is from speculation business which was accepted by the AO in the earlier years - set off cannot be denied - AT
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Customs

• Goods Classification Key Before Duty Rate or Exemptions in Rotor Blade Manufacturing: Customs and Tax Law Insights.

  Case-Laws - AT : CVD Exemption - import of goods used for manufacture of Rotor Blades - The classification of goods precedes over the determination of rate of duty or any exemption applicable to the said product. - AT
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Service Tax

• High Court Confirms Service Tax on Legal Services u/s 65(105)(zzzzm); Not Exempt from Negative List.

  Case-Laws - HC : HC uphold the Constitutional validity of levy of service tax on Advocates and legal services - Scope within the negative list and earlier under section 65(105) (zzzzm)
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• Applicant Denied Refund for Service Tax Paid Due to Incorrect Belief of Providing Clearing and Forwarding Services.

  Case-Laws - AT : Refund claim - contention of the applicant is that the applicant paid the service tax under the wrong belief the applicant had provided Clearing and Forwarding Agent service - contention is not correct - AT
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Central Excise

• High Court Declares Rule 8(3A) of Central Excise Rules 2002 Unconstitutional, Affecting Duty Payment Methods.

  Case-Laws - HC : Constitutional validity of Rule 8(3A) of the Central Excise Rules 2002 - Condition contained in sub-rule (3A) of rule 8 for payment of duty without utilizing the cenvat credit till an assessee pays the outstanding amount including interest is declared unconstitutional. - HC
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• Assessee Rightly Entitled to CENVAT Credit Based on Valid Reconstituted Bill of Entry.

  Case-Laws - AT : Denial of CENVAT Credit - Assessee took credit on the basis of reconstituted bill of entry - appellants is rightly entitled for the credit. - AT
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Case Laws:

• Income Tax

• 2014 (12) TMI 1156
  Reopening of assessment - expenses incurred for development of certain products will give an enduring benefit to the assessee and same is in the capital field - CIT(A) deleted addition - Held that:- The assessee has incurred expenditure of Rs. 31.20 lacs on salaries, wages, stores & sapares, travelleing etc. No expenditure has been incurred on any asset of the nature fixed assets or capital in nature or which has resulted into any benefit of enduring nature. The expenditure had been incurred for improvement and enhancement of its existing business in the line of chemical manufacturing under the unity and control of same management with common funds etc. See Rama Synthetics India Ltd. Vs. CIT reported in (2009 (9) TMI 635 - Delhi High Court ) & CIT Vs. Priya Village Roadshows Ltd. reported in (2008 (5) TMI 142 - PUNJAB AND HARYANA HIGH COURT). CIT(A) is justified in deleting the disallowance of Rs. 31.2 lakhs - Decided in favour of assessee.

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• 2014 (12) TMI 571
  Imposition of penalty u/s 271(1)(c) – Inaccurate particulars furnished or not – Held that:- The penalty has been imposed on account of disallowance of royalty payment - The Tribunal, relied upon MAK Data P. Ltd. Versus Commissioner of Income Tax-II [2013 (11) TMI 14 - SUPREME COURT] - where the assessee offered to surrender certain amount received as share application money as its income from undisclosed source in the assessment proceedings pursuant to survey operations and when penalty was sought to be imposed under Section 271(1)(c) of the Act - assessee had claimed the deduction for the royalty payment for the second time, when it was in fact claimed in the preceding AY and allowed - when the TDS certificates in respect of the royalty paid to M/s Bayer AG Germany was asked to be furnished, after verifying the details, it was noticed that some of the TDS certificates pertained to the earlier year and part of the royalty payment attributed to these certificates had already been claimed and allowed as deduction to the assessee in the earlier years - the plea taken by the assessee is only cursory and does not give any acceptable explanation for the wrong computation, as the error was detected by the original authority only during the proceedings u/s 143(3) and she has also recorded a categorical finding that the assessee suppressed the income by making a wrong claim of royalty payment, which actually pertained to earlier assessment years, which was claimed and allowed and therefore thought it fit to levy penalty u/s 271(1)(c) of the Act – the decisions relied upon by assessee cannot be followed as they are distinguishable and the department was justified in imposing the penalty u/s 271(1)(c) of the Act, as the explanation offered by the assessee is no explanation at all in the eye of law – thus, as such no substantial question of law arises for consideration – Decided against assessee

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• 2014 (12) TMI 570
  Rejection of books of accounts - Determination of NP @ 12% or 6% - CIT(A) allowed the claim of assessee and reduced the same to 6% whereas the Tribunal accepting the claim of revenue set aside the order of the Tribunal – Nature of the power exercised while determining a net profit rate – Held that:- Where books of accounts are rejected or not produced, the AO would be well within the limits of his jurisdiction to assess income by applying a fictional net profit rate - The power conferred is quasi-judicial and not unbridled as it must be guided by reason and though it may involve a degree of guesswork, must be based upon a rational analysis of facts. Factors required to be taken into consideration while applying a net profit rate – Held that:- On the same set of facts the AO, the CIT and the Tribunal have applied different rates of net profit - The discretion to determine an adequate net profit rate vests with authorities under the Act but the discretion is neither unbridled nor unguided as it must be guided by reason i.e. should be preceded by reasons which, in turn, should be preceded by a perceptible process of reasoning based upon due consideration of all relevant facts - the word similar is not synonymous with the word 'identical' – relying upon Dhakeswari Cotton Mills Ltd. Vs. CIT [1954 (10) TMI 12 - SUPREME Court] - the discretion to determine net profit rate vests in the authorities but discretion shall not be arbitrary and should have a reasonable nexus to the available material and the circumstances of the case, followed by reasons that appear to be legal and valid. Whether a net profit rate determined without assigning any reasons is not perverse and arbitrary – Held that:- The authorities under the Act apparently misread the judgment in Commissioner of income-tax Versus Parbhat Kumar [2008 (11) TMI 356 - PUNJAB & HARYANA HIGH COURT] and ignored that while dismissing the appeal filed by the revenue, it was held that applying net profit rate on the basis of best judgment assessment 'in a given situation' will be a question of fact unless such assessment is shown to be arbitrary or perverse, thereby clearly setting out that if the net profit rate is not perverse and arbitrarily, it shall only be a question of fact - The judgment cannot be read as a precedent for a conclusion that in each and every case of a contractor, the AO would be legally obliged to apply a net profit rate of 12% de hors, the facts of the case and even where the net profit rate discloses an arbitrary and perverse consideration, it would be a question of fact - if consideration leading to a net profit rate is perverse and or arbitrary, the finding so rendered shall be illegal and shall not be a question of fact – thus, the order of the Tribunal in the matter is set aside and the matter is remitted back to the re-determine the net profit rate – Decided in favour of assessee.

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• 2014 (12) TMI 569
  In-genuine expenses disallowed while some of the expenses allowed by Tribunal - Whether the Tribunal is right in deleting the addition made on account of in-genuine expenses as the assessee failed to substantiate the same despite giving opportunity to explain – Held that:- The order of the ITAT is based upon a correct appreciation of the material on record - the tribunal not only noticed the net profit rate of the assessee for the AY 2006-07 but as well as of the subsequent year 2008-09 which had been accepted by the AO - while accepting expenses claimed by the assessee in respect of the same kind of work got done from various firms - the assessee had declared net profit in the previous AY i.e. 2006-07 against the gross receipt of Rs. 84,88,534/- being direct expenses incurred on hoardings and painting were accepted by the revenue as the net profit in that assessment year was 3.56% only - Whereas for the relevant AY 2007-08 the net profit rate was shown at 5.23% which was better than the rate accepted in the last year – assessee rightly contended that its claim of having incurred expenses towards hoarding, flex structure and paint were a necessary part of business being direct expenses, the Tribunal rejected the claim of the assessee with regard to the other disallowance – the order of the Tribunal is upheld – Decided against revenue.

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• 2014 (12) TMI 568
  Determination of cost of production of the film - allowability under Rule 9A(3) – Held that:- The Commissioner and the Tribunal concurrently and rightly noted that this is an attempt to get over and purporting to reopen an assessment of a partnership firm in which the Assessee was a partner - even if Rule 9A is applied, the assessee was entitled to claim the un-recouped cost of production in terms of Rule 9A(3) of the Rules - This un-recouped cost has been determined at a sum of Rs. 2,93,73,793/- by the AO in the assessment of the firm for AY 2004-05 and the same has become final - It is not open to the AO of the assessee to redetermine the cost of production in the assessment of the assessee - even the alternative plea of the assessee that de hors the provisions of Rule 9A, the difference between the cost of acquisition of the film Rudraksh to the assessee and the cost of realization from the exhibition of the film during the previous year should be allowed as a deduction, is acceptable – thus, the order of the Tribunal is upheld as no substantial question of law arises for consideration - Decided against revenue.

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• 2014 (12) TMI 567
  Rejection of books of accounts and reduction of NP @ 6% against 12% - Held that:- The Tribunal has applied a net profit rate of 6% as it was in consonance with the past history of the assessee - in the preceding as well as the following year a net profit rate of 6.75% and 5% respectively was applied by the AO and has also placed on record order for AY 2009-2010 where a net profit rate of 5% has been applied to the assessee – there was no error in the discretion exercised by the Tribunal in applying a net profit rate of 6%. TDS deduction on outstanding at the year of FY - Held that:- The Tribunal has merely restored the matter to the AO by asking him to verify the transactions and if found to be correct, pass orders and held that the appeal is in relation to the disallowance made out of payments of labour charges paid for non-deduction of tax at source under the provisions of section 194C of the Act - disallowance was made by invoking the provisions of section 40(a)(ia) – in ACIT Vs. Merilyn Shipping & Transports [2012 (4) TMI 290 - ITAT VISAKHAPATNAM] it has been laid down that where the amounts have been paid during the year under consideration itself and nothing is payable at the close of the year, no disallowance was warranted u/s 40(a)(ia) of the Act for non-deduction of tax at source out of such amount paid during the year – the AO is rightly directed to verify the stand of assessee – thus, the order of the Tribunal is upheld – Decided against revenue. Whether payments were made by the assessee during the year under consideration – Held that:- Rs. 8,04,948/- added on account of work in progress, had already been taken into account in the total costs of the works and, therefore, the addition made by the AO assessing officer was not warranted – no question of law arises for consideration regarding the matter – Decided against revenue.

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• 2014 (12) TMI 566
  Entitlement of relief u/s 10(38) – Sale of shares – Business income or capital gains - Whether the Tribunal was right in holding that the sale of shares does not fall under the head income from business but under the head capital gains , thereby, entitling for relief u/s 10(38) – Held that:- The Tribunal rightly followed the decision of the same assessee being decided earlier in Assistant Commissioner of Income-tax Versus Stargate Investments (P.) Ltd. [2010 (8) TMI 699 - ITAT, CHENNAI] wherein it has been held that the shares held by the assessee was long term investment and there was no basis to treat it as stock in trade of the assessee company - the shares were held as long term investment and, therefore, the same is entitled to long term capital gains and upheld the order of the CIT(A) – thus, the order of the Tribunal is upheld – Decided against revenue.

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• 2014 (12) TMI 565
  Applicability of section 44AD - Grant of depreciation - Whether the Tribunal has erred in granting depreciation to the assessee, as his income was calculated at a net profit rate – Held that:- It is clarified that Section 44AD(2) applies to assessees whose gross receipts do not exceed Rs. 40 lacs - assessee's gross receipts exceeded Rs. 10 crores – the circular issued by CBDT clarifies the same – thus, it applies to an assessee whose gross receipts do not exceed Rs. 40 lacs, the Tribunal has rightly allowed depreciation to the assessee - net profit rate of 10% was rightly reduced to 6% and as there was no reason to apply such a high gross profit percentage - The findings of fact being devoid of an arbitrary exercise of discretion or any perversity in the reasoning does not give rise to a substantial question of law – Decided against revenue.

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• 2014 (12) TMI 564
  Inclusion of the amount of Rs. 17,23,400 - Whether the amount of Rs. 17,23,400/-, the addition of which is deleted by Tribunal could be termed as undisclosed investment – Held that:- A sum of Rs. 17,23,400 was not reflected in the books of accounts - AO as well as CIT was of the view that once the transaction involving such huge amount has taken place, it ought to have been reflected in one form or the other in the books of account and non-disclosure of the same would enable them to treat it as unexplained investment – but, the Tribunal took the view that the purchase of groundnut of the value of Rs. 17,23,400/- is part of Rs. 30,80,270/- for the AY 1989-90 and 1990-91, which was treated as unexplained income and the amount cannot be the subject matter of the taxation for the second time – revenue is not able to point out that the reason assigned by the Tribunal is not factually correct - once it emerges that the amount of Rs. 17,23,400/- is nothing but part of larger figure, which was brought under the purview of the Act, there was no basis for inclusion of the same in a different AY – thus, the order of the Tribunal is upheld as it was on pure appreciation of facts and no question of law arises for consideration – Decided against revenue.

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• 2014 (12) TMI 563
  Transfer pricing adjustments - Assignment of call options – Whether recasting of framework agreement in 2007 tantamount assignment of option rights held by the assessee under framework agreements of 2006 - Scope of transfer u/s 2(47) - transfer by nomination - Held that:- Under the framework agreements of 2007, any of wholly owned subsidiary of Vodafone PLC is a prospective nominee but would get the right to acquire share only when a nomination is made by the assessee in favour of such subsidiary. - the mutual intention of the parties of Framework Agreements and TII share holders agreement was to transfer the Option rights vested with the assessee in favour of CGP India Investment Ltd. Accordingly, we hold that the Option rights including the Call Option held by the assessee under Framework Agreements stand transferred/assigned in favour of CGP India Investments by virtue of TII share holders agreement. Decision of Supreme Court in the matter of Vodafone India Holdings BV Vs. UOI [2012 (1) TMI 52 - SUPREME COURT OF INDIA] distinguished in view that subsequent to the judgment of the Hon'ble Supreme Court, there is an amendment to section 2(47) which raises several important question of fact and law and accordingly, the effect of the amendment would have to be considered and it cannot be brushed aside. International transaction or not - Held that:- The entire transaction under SPA and other supplementary/ancillary agreements is one package/composite transaction of transfer of share of CGP and rights attached to the share - during the year under consideration both HTIL and VIH BV are the associated enterprises of the assessee as per section 92A(2) - SPA and FWAs constitute an arrangement, understanding or action in concert among the assessee, HTIL and VIH BV for grant of Call Option by Asim Ghosh and Analjit Singh to assessee against the agreed consideration paid by the VIHBV - This mutual understanding and arrangement as well as action in concert between the assessee and its AEs for securing the Option Rights against the consideration paid by VIH BV to HTIL and AG & AS certainly having a bearing on the profits, income, losses or asset of the associated enterprises. Whether the transaction is at arm’s length or not – Held that:- once the transaction is held to be an international transaction the same must be at Arm’s Length Price - The assessee being the holder of the valuable option rights under FWAs to give proper effect to the SPA was required to be compensated at ALP and on assignment of option rights in the form of CGP India Investments Ltd vide TII shareholders agreement dated 5/7/2007, the assessee was not compensated. Valuation of Call Option - comparability of the cashless option - Valuation and benchmarking the transaction – Application of CUP method - Computation of STCG by TPO made by considering the cost of acquisition of call options the amount paid to AG and AS being annual payment for keeping the options alive - The Assessee argued that the conclusions arrived at in the presentation made by Goldman Sachs before the FIPB cannot be challenged by the Department before the ITAT now. - Held that:- when the reports were not produced before the Assessing Officer then it cannot be said that the valuation were accepted by the assessing authority merely because these were presented before the FIPB. In view of the above discussion, we do not find any reason to interfere with the orders of authorities below except the re-computation of Short term Capital Gain by DRP on which, we restore the order of TPO. The Ld. Senior Counsel has raised an another point that no Call Option was exercised but Put Option was exercised by the other parties in the year 2009 and, therefore, even at the time of acquiring the shares under the Put Option exercised by Asim Ghosh and Analjit Singh, there was no assignment of any right but it was an obligation on the part of the assessee to acquire the shares under Put Option exercised by other parties. - Held that:- in any eventuality, the shares held under Option Rights shall have to be transferred in favour of the assessee or its nominee as the case may be at a pre determined price. The Put Option and Call Option under the framework agreements is an arrangement like tossing a even sided coin and, therefore, it makes no difference whosoever tosses the coin as the result will be same. - argument of the assessee rejected. Whether the assessee is guilty of concealment of relevant facts regarding exercise of Put Option by Analjit Singh and Asim Ghosh in the year 2009 - Held that:- The factum of put option exercised by the counter party to the FWA and shareholder’s agreement dated 05/07/2007 was not brought by the assessee either before the authorities below or before Hon'ble High Court. Even before this tribunal the assessee did not disclose these facts and developments taken place subsequent to FWAs of 2007 and only on the query from the bench as well as from the additional evidence filed by the revenue it came to the notice of the Tribunal. Therefore, the assessee, in our view, is guilty of not disclosing before the assessing authorities the material fact relevant for adjudicating the issue of assignment of option rights. Sale of call centre business - Whether the transfer of call centre business is an international transaction as per the provisions of section 92B (1) and (2) - Held that:- HTIL was under obligation to procure and deliver the call center business transfer agreement duly entered into between the assessee and an affiliate of HTIL at the time of completion of SPA on 8/5/2007 - the language of SPA and BTA manifest without any ambiguity that the BTA was signed between the assessee being downstream subsidiary of HTIL and, therefore, the BTA is preceded the SPA - Both SPA and BTA was signed on the same date, however, BTA is considered as preceded the SPA because of the conditions provided under SPA - the sale of call centre business was not an independent decision of the assessee alone but it was a decision of the Hutchison Whampoa Group as per the terms and conditions of the SPA - the BTA was entered into in pursuant to the SPA wherein it was agreed upon between the parties that VIH BV shall acquire the telecom business through the entire share of CGP but excluding the call centre business of the assessee - The assessee being a downstream subsidiary of HTIL and HWL was bound by the SPA being the part of wider group companies - It was in the compliance of SPA dated 11.02.2007 that the HTIL was required to retain the call centre business and the HTIL was under the obligation to retain the call centre business by procuring the transfer of call centre business from the assessee to an affiliate of HWL. Whether the transaction of sale of call centre business by the assessee to HWP (India) would fall under the expression “international transaction” as per the provisions of section 92B(1) – deemed international transaction - The assessee has forcefully contended that it was transferred to an India related party, therefore, the provisions of section 92B(1) and 2 are not attracted - Held that:- The surrounding facts and circumstances can lead to the conclusion that it was only an arrangement without any substantial business or commercial interest of HWP (India) but to avoid the tax liability in India, the call centre business was though apparently transferred to HWP (India) but the real transaction of sale and purchase is between the assessee and HTIL/HWL Group. Therefore, the transaction being between the assessee and its non resident AEs would constitute the international transaction in terms of section 92B(1). Applicability of section 92B(2) – Held that:- For invoking the provisions of sub-section 2 of section 92B, the transaction must be entered into by the enterprise with the person other than an associated enterprise - The definition of the associated enterprises is provided u/s 92A which does not contemplate that associated enterprises means an enterprise inter alia a nonresident - Therefore, an enterprise which fulfills the conditions as prescribed u/s 92A will fall under the expression associated enterprises irrespective of its residential status, domestic or nonresident- It is only for the purpose of international transaction, a transaction must be between two or more associated enterprise either or both of whom are nonresident - The condition of nonresident of associated enterprises is only for bringing a transaction between two associated enterprises under the ambit of international transaction - an associated enterprise can be a resident or nonresident- HWP (India) is an associated enterprise of the assessee for the year under consideration, therefore, the provisions of sub-section 2 of section 92B are not attracted. Valuation of call centre business - Computation of Arm’s Length Price – Held that:- the valuation of Call Centre business should be based on the most appropriate method as agreed by both the parties, being DCF Method – thus, the issue of valuation of Call Centre business for the purpose of determination of ALP is remitted back to the AO/TPO for consideration of valuation filed by the assessee. Addition of adjustment made as a result of arm's length price of provision of ITES services – Held that:- having regard to the fact and circumstances and availability of the comparables to bench mark the international transaction, the reasonable tolerance range has to be considered which may be 10% on the lower side to 25% as the highest limit which could be permitted in any exceptional circumstances where the availability of the comparables is very less – there was no error in applying filter of not exceeding 25% of related party. Set off of unabsorbed depreciation against income from other sources – Deduction u/s 10A – Held that:- Due to the finding of CIT(A) for the AY 2005-06 and, thereafter, the order of this Tribunal, the deduction u/s 10A was allowed to the assessee before setting off unabsorbed depreciation against the business income consequently the income available for setting off unabsorbed depreciation was to be recomputed – thus, the matter is to be remitted back to the AO for re-consideration.

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• 2014 (12) TMI 562
  Claim of bad debts written off - Waiver of interest u/s 36(vii) – Held that:- CIT(A) rightly observed that the only dispute between assessee and department is in respect of working out 10% of aggregate average rural advances - while assessee has made such working by considering the entire outstanding advances at the end of each month, AO has worked out by considering the aggregate average rural advances of each month and not on the entire outstanding advances - a perusal of the provision contained u/s 36(1)(viia) and rule 6ABA, would make it clear that the 10% of aggregate average advances has to be worked out on the entire outstanding advances and not the advances of that month alone. Quantum of deduction u/s 36 (1)(vii) and 36(1) (viia) – Held that:- An assessee can claim deduction under both the clauses subject to the condition imposed under the proviso to 36(1)(vii) - CIT(A) rightly deleted the addition of Rs. 3,88,25,673 - as far as deduction of Rs. 18,79,704 is concerned, the same cannot be allowed u/s 36(1)(vii) considering the fact such amount has not exceeded the provision for bad and doubtful debts u/s 36(1)(viia) - the amount was waived at the direction of the State Govt. Department has not controverted this fact - the waiver of interest at the instance of the State Government, has to be allowed as business expenditure u/s 37(1) - the order of CIT(A) is upheld in deleting addition – Decided against revenue. Deletion of provision of audit fee – Held that:- AO has disallowed the deduction claimed for the reason that the provision has been created for an unascertained liability whereas CIT(A) has allowed assessee’s claim by holding that the liability has already accrued - as on 31/03/06, there is an outstanding demand of Rs. 39,36,734 on account of audit fees whereas an amount of Rs. 14,41,903 was raised during the FY 2006- 07 - the audit fee does not relate to the current AY -without examining as to whether the expenditure relates to the current year, CIT(A) was not justified in allowing assessee’s claim – thus, the order of the CIT(A) is set aside and the matter is remitted back to the AO for verification – Decided partly in favour of revenue. Eligibility of deduction on long term advances u/s 36(1)(viii) – Held that:- CIT(A) rightly held that the deduction has to be worked out on the basis of total outstanding advances and not the outstanding advances of the year alone - the provisions of section 36(1)(viii) cannot be interpreted in a manner to suggest that 20% of the deduction has to be worked out only on the advances given during the year – the order of the CIT(A) is upheld – Decided against revenue. Waiver of interest to primary agricultural cooperative societies (PACS) disallowed – Held that:- Assessee claimed that the amount claimed as deduction is not in the nature of bad debts, but, is actually a business expenditure allowable u/s 37(1) - even if it is considered as bad debt u/s 36(1)(vii), the proviso to section 36(1)(vii) will not apply, since the said amount is to be debited to provision/reserve for bad debt reserve account and if it is so debited, then, the same will still be allowable u/s 36(1)(viia) – thus, the assessee’s claim of deduction of the interest waived amounting to Rs. 5,84,360 deserves to be allowed – the AO is directed to delete the addition – Decided in favour of assessee. Restriction of expenses to Rs. 2,26,16,355 in place of Rs. 3,12,31,869 – Held that:- Assessee has to bear a share in the relief package given to PACS on account of loss incurred due to waiver of interest to small and marginal farmers - the expenditure incurred is not strictly in the nature of bad debts written off but in the nature of expenditure provided u/s 37(1) - assessee has no other option but to incur the expenditure as per the directive of the Govt. as well as APCOB - the amount of Rs. 3,12,31,869 is allowable as business expenditure - Since the CIT(A) has already allowed expenditure to the extent of Rs. 2,26,16,355, the balance amount of Rs. 86,15,514 is directed to be allowed – Decided in favour of assessee. Deduction claimed towards miscellaneous reserves created disallowed – Held that:- Assessee contended that as per the provisions of section 36(1)(viii) assessee is eligible for deduction for an amount of Rs. 79,39,000 whereas deduction to the extent of Rs. 14,21,432 has been allowed to assessee, hence, assessee remains eligible to claim deduction u/s 36(1)(viii) to the extent of Rs. 65,17,568 - The only restriction imposed as per proviso to section 36(1)(viii) is aggregate of amount carried to such reserve account should not exceed twice the amount of paid up share capital and general reserve - Therefore, it cannot be said that the items appearing in the miscellaneous reserve cannot be treated as special reserves as there is nothing in the provision to suggest that only statutory reserves can be treated as special reserve - considering the fact that assessee is eligible to claim deduction u/s 36(1)(viii) to the extent of Rs. 79,39,000 out of which an amount of Rs. 14,21,432 has already been allowed, assessee is entitled to claim deduction of the balance amount of Rs. 65,17,568 – the AO is directed to allow the deduction – Decided in favour of assessee.

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• 2014 (12) TMI 561
  Entitlement for claim of deduction u/s 80IB(10) – Built up area of more than 1000 Sq. Ft. - Whether the CIT(A) erred in holding that 1BHK flats where-ever converted into duplex had built up areas of more than 1000 sq ft and such flats exceeded the limits u/s 80IB(10) with the knowledge and connivance of the assessee and the profits attributable to such flats did not qualify for deduction u/s 80IB(10) – Held that:- The assessee started a project named ‘Garden Estate’ with A and B Wings with 96 and 95 flats respectively - The project was approved by the local authorities to construct 1-BHK, 2-BHK and 3-BHK flats and accordingly, the built up area of each of these flats so approved does not exceed 1000 sq ft. - No duplex flats are to be envisaged in the project - assessee pleaded that the assessee merely made provision as a part of the marketing strategy for selling the 1-BHK flats and such a provision was made use of by the flat buyers after taking possession of the flats. Relevance of the discrepancies noticed during the survey action on 11/03/2008, when the profits of project are assessable to tax in AY 2009-10 based on Project C Method – Held that:- AOs who made the assessments for the AY 2005-06 to 2008-09, were under the bona fide belief that the profits of the project needs to be recognized based on the percentage completion (WIP) method in place of ‘project completion method adopted by the assessee - impounding of the brochure with details of method of merger of 1-BHK flats into a duplex, cannot be used against the assessee as it only provides the design of merger - the owners of duplex have merged the flats after taking possession of their flats using the design provisions supplied by the assessee in the brochure. Relevance of the Intention of the assessee – Held that:- The assessee got the approval for constructing 1-BHK flats from the Authorities and completed the constructed as per the approved plans - what is required to be seen should include, what are the plans, designs of the project and built up areas particulars of the residential units at the approval stage, construction stage and finally at sales point - from the approval stage till the stage of issuance of the completion certificate, there is no violation by the developer - the merger of flats if any taken place after the sale of the said 1-BHK flats by the flat buyers and, may be using the design made available by the developer, the assessee cannot be penalized and denied the claim of deduction. Ignoring the confirmation filed by the flat buyers – Held that:- The revenue authorities have decided the issue against the assessee prejudicially and ignored the evidences that are given against the revenue. Absence of any direct evidence to suggest that the assessee constructed the duplex flats – Held that:- When 1-BHK flats are otherwise built and sold as such, mere making a provision to help the flat buyers to merge them to suit their convenience during the post-sale, should not disentitle to the assessee to make claim of deduction u/s 80IB(10) - few 1-BHK flats remain so without any merger despite the provision of ‘hole’ left and others are merged into duplex during the post sale using such provision - the developer cannot be penalized by denying the deduction - claim of deduction was found allowable by the then CIT(A) who decided the issues in earlier AY. Scope of the legal pronouncements on the merger of flats by the buyers and by assessee at the instance of flat buyers – Held that:- There is iota of direct eveidence to demonstrate that it is the assessee who merged the two 1-BHK flats in to duplex one with one kitchen - there is evidence to suggest that the flat buyers have done it so to their better living in the residential units - mere making a provisions of hole and providing methods/design vide the brochure to the advantage of the flat buyers does not amount to construction of duplex flats by the developer, who is aware of the consequences in matters of claims of deduction one side as well as the obtaining the completion /occupancy certificates from the Authorities, who approved the project with 1 to 3 BHK flats only and not to the duplex flats. The discrepancy of mere providing a hole for intended stair case for flat buyers and supplying of the design to merge the flats into a duplex flat in our opinion constitutes a marketing strategy to boost the sale of the 1-BHK - there is no prohibition for sale of the more flats to the members of a family - The amendments are undisputedly inapplicable to the projects under consideration - the assessee is entitled to deduction in respect of the profits attributable to all the 1-BHK flats of the project too – thus, the order of the CIT(A) is set aside – Decided in favour of assessee.

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• 2014 (12) TMI 560
  Transfer pricing adjustment – AMP expenses disallowed – Commission on sales, sales discount and sales promotion expenses need to be excluded from the AMP expenses or not – Held that:- The assessee incurred an expenditure of Rs. 12,39,19,327 - As per the assessee’s claim it was 4.46% of the sales - the TPO considering the 6 companies was of the view that the expenditure was in excess of the bright line by 1.87% which was considered to be for promotion of brand/trade name which was owned by the AE for which suitable the assessee was required to be compensated by the AE, accordingly a markup of 15% was applied - This resulted in an adjustment of Rs. 8,27,61,669/-. The action was upheld by the DRP – as decided in LG Electronics India Pvt. Ltd., Versus ACIT, Circle-3, Noida [2014 (12) TMI 437 - ITAT DELHI] the matter is to be remitted back to the TPO to pass a speaking order in accordance with law taking into consideration the principles laid down by the Special Bench in L.G. Electronics case – Decided in favour of assessee. Determination of ALP – International transaction of payment of Royalty on exports made to AE – Held that:- As decided in M/s Hero MotoCorp Limited Versus Additional Commissioner of Income tax [2013 (9) TMI 796 - ITAT DELHI] - the payment of royalty and the export commission are for two different purposes - the motorcycles which were exported by the assessee, were manufactured by using the technical know-how provided by HMCL under the technical know-how agreement - Therefore, royalty is payable on such manufacturing of goods - the export sale value was more than the domestic sale rate and the assessee has given a detailed working, which is enclosed with this order in the form of Annexure-I - the assessee has reduced the export commission - by export to the AE of Honda Japan, the assessee has been benefited and was not at a loss - The further finding of the TPO that the position of the assessee company with regard to export was that of a contract manufacturer is without any basis and in fact contrary to the facts on record - thus, there is no justification for disallowance of the royalty on the export – thus, the order of the TPO is directed to consider the claim of the assessee that the Agreement entered into by the assessee with the AE is similar to the Agreement entered into by the sister concern with the AE in as much as the terms and conditions impacting the issue are materially similar – Decided in favour of assessee. Corporate Tax matters – Royalty amount and technical assistance fee disallowed – Held that:- as decided in assessee’s own case for the earlier assessment year, it has been held that the DRP refused to interfere on the reasoning that the issue was still alive as a result thereof the relief granted in appeal in 2007-08 assessment year by the First Appellate Authority was not followed – in assessee’s own case it has been held that the comparative clauses based on the agreement in the case of the assessee and its sister concern were pari materia and consequently the payments were revenue in nature – Decided in favour of assessee. Export commission paid to M/s Honda Motor Co. Ltd. of Japan disallowed u/s 40(a)(i) – TDS to be deducted on royalty/fee for technical service u/s 195 or not – Held that:- as decided in assessee’s own case for the earlier assessment year, it has been held that the technical collaboration agreement are pari materia in the case of the assessee, the export commission was neither royalty nor fees for technical services and as such the assessee was not required to deduct tax at source payment of export fee and thus once the assessee was not required to deduct the tax at source the occasion to consider failure to deduct the same does not arise - the export commission has been paid for the business purposes of the assessee – the additions made u/s 40(a)(i) is set aside – Decided in favour of assessee.

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• 2014 (12) TMI 559
  Validity of reopening of assessment u/s 147 – Assessee contended that the assessment cannot be reopened after expiry of 4 years unless there is omission or failure on the part of Assessee to disclose fully and truly all the material facts necessary for assessment - Held that:- The addition ultimately made while completing assessment u/s 143(3) read with section 147 of the Act, has absolutely no nexus with the reasons recorded - action u/s 147 of the Act, was initiated after expiry of four years from the end of the relevant AY i.e. 2002-03 - neither there is any allegation by AO that escapement of income was due to failure on the part of assessee to disclose truly and fully all materials facts necessary for his assessment nor there is tangible material in possession of AO to show that there is escapement of income or under assessment of income - the addition ultimately made by AO has no nexus with the reasons recorded - reopening of assessment u/s 147 of the Act, beyond a period of four years from the relevant AY, that too in absence of tangible material is invalid in law – relying upon M/s. Rohini Biotech (P) Ltd. And Others Versus ITO (OSD) -2, Central, Hyderabad [2014 (1) TMI 129 - ITAT HYDERABAD] - there being no nexus or live-link with the reasons recorded and the ‘formation of belief’ to come to a conclusion that there was escapement of income and also since the assessment has been reopened beyond the period of 4 years when there is no failure on the part of the assessee to fully and truly disclose all material facts in the original assessment itself, and there being ‘no tangible material’ for the reopening of the assessment, the CIT(A) erred in confirming the order of the Assessing Officer – thus, the assessment order passed u/s 143(3) read with section 147 of the Act has to be quashed – Decided in favour of assessee. Addition on fixed assets by making investment in land u/s 69 – Held that:- The similar matter has been decided in M/s. Satabisha Biotech Pvt. Ltd. And Others Versus Income-tax Officer [2014 (12) TMI 431 - ITAT HYDERABAD] wherein it has been held that assessees have made investments in fixed assets and the source of such investments was the inflow available on the Liability Side of the Balance Sheet - Since the Assessing Officer has not properly appreciated the facts, before the CIT(A), the source was explained, and the same was accepted by the CIT(A) - there cannot be any addition made in this year and even in the subsequent year, i.e. in the year of sale, the source of investment cannot be disputed - it is not a fit case for making the addition u/s 69 of the Act – Decided in favour of assessee. Various expenses disallowed – Held that:- Assessee has not commenced its business activities during the year under consideration, hence, preoperative expenses, whatever has been incurred, have to be capitalized as there was no business income earned during the year against which it can be set off. In the aforesaid facts and circumstances, assessee’s claim of expenditure/allowances could not have entertained - the order of the CIT(A) is upheld – Decided against assessee. Verification of fresh evidences considered or not – Held that:- CIT(A) after considering the submissions of assessee in the context of facts and materials on record rightly deleted the addition made by AO as not only assessee has proved the identity of the creditor but also genuineness of the transaction as well as creditworthiness of the creditor was established - facts and evidences relating to unsecured loan from Shri B. Suryanarayana Raju were also part of the record before AO – thus, there was no merit in the contention that CIT(A) has considered fresh evidence while deleting addition – Decided against revenue. Assessment of agricultural income – Income treated as income from other sources – Held that:- CIT(A) did not accept the claim of assessee for the reason that assessee itself did not claim it as agricultural income and has shown it as business receipt – there was no infirmity in the assessment order for treating lease rental income as income from other sources - Similarly, decision of ld. CIT(A) in respect of allowance of administrative expenditure is just and reasonable as he has sustained a part of disallowance made by AO since assessee could not substantiate its claim fully – the order of the CIT(A) is upheld – Decided against assessee.

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• 2014 (12) TMI 558
  Invocation of section 40(a)(i) - Deductability of interest/commission paid to HO/overseas branches – Held that:- As decided in assessee’s own case and following the decision in Sumitomo Mitsui Banking Corporation Versus Deputy Director of Income-tax, (IT), Rg. 2(1), Mumbai [2012 (4) TMI 80 - ITAT MUMBAI] - taxing the interest income received from HO/Overseas branches, the interest paid by the assessee to its HO/Overseas branches would become deductible - the amount of interest disallowed has been wrongly taken in this ground - Decided in favour of assessee. Profit arising on revaluation of unmatured forward forex contracts taxed – Held that:- Assessee rightly submitted that the loss on revaluation was disallowed by the AO, in the previous AY but has been allowed by the tribunal therefore on the same analogy the profit arising on revaluation has to be taxed - the loss on revaluation of unmatured forward forex contracts has been allowed by this tribunal in the earlier years, thus, then the natural corollary would be that the profit arising on revaluation of the unmatured forward forex contract is liable to be taxed as income – Decided against revenue. Disallowance u/s 14A on interest expenses – Expenses paid on FCNR(B) in relation to the exempt income on balance of Nostro Accounts – Held that:- As decided in assessee’s own case the assessment order needs to be approved in preference over the view taken by the learned CIT(A) - CIT(A) made enhancement of income to the tune of Rs. 32.79 crore by computing disallowance under section 14A in respect of such interest income on NOSTRO account, which was held by him to be not chargeable to tax as against the AO’s decision as to the chargeability of this amount - once the income itself is chargeable to tax, there can be no question of computing any disallowance u/s 14A, the mandate of which operates to disallow deduction for expenses incurred in relation to income which does not form part of the total income – no disallowance u/s 14A can be made – Decided in favour of assessee. Provisions for non-performing assets u/s 37(1) disallowed – Held that:- As decided in assessee’s own case, AO has disallowed the claim of the assessee because it was found as a provision for NPA - it is settle proposition that the it cannot be allowed - when the provision is for NPA and not for Bad debts then as held in Southern Technology Ltd. Vs. JCIT [2010 (1) TMI 5 - SUPREME COURT OF INDIA] provision for NPA is not an allowable claim – decided against assessee. Netting off interest received u/s 244A – Held that:- Following the decision in DIT (International Tax.) Vs. Bank of America [2014 (12) TMI 551 - BOMBAY HIGH COURT] - the assessee bank received interest on refund of taxes paid - It also paid interest on the taxes which were payable - The assessee sought to set off the interest paid against the interest received and offered the net interest received to tax - assessee claimed that this was business expenditure and this should have been allowed - the amount of interest paid by the assessee should have been allowed to be set off against the interest deposited with the Department and taxed in the hands of the Assessee – Decided in favour of assessee. Disallowance of provision toward country risk - Held that:- Assessee made a provision towards country risk management as per RBI guidelines vide its Circular No.DBOD.BP.71/21.04.103/2002-03 dated 19thFebruary 2003 - The AO disallowed the claim of deduction as this was not an actual return of bed debts, but only a provision was made as per the guidelines of the RBI therefore, in view of the first proviso to section 36(1)(viia)(a) of the Act no deduction is allowable to a foreign banking company - same amount of Rs. 41 lac was disallowed for AY 2003-04 and the assessee has accepted the same, therefore, no double disallowance can be made in the year – the order of the CIT(A) is upheld – Decided against revenue. TP adjustment on account of credit risk – Held that:- As decided in assessee’s own case, no material has been product to show that this expenditure as claimed by the assessee separately is for the exclusive and dedicated work/service done by the HO to the assessee - there is no explanation by the assessee as on what basis this expenditure is charged by HO – the issue cannot be decided in the absence of complete fact as whether the Head Office has charged this expenditure on the basis of man hour or dedicated desk was assigned for this purpose exclusively for the service of the assessee - The assessee has also not filed any certificate from the auditor of the Head Office in support of this claim – thus, the order is set aside and the matter is remitted back to the AO for examination of claim of assessee – Decided in favour of revenue. Levy of penalty u/s 271(1)(c) – Held that:- The penalty has been levied against the disallowance of claim of netting of the interest received u/s 244A against the interest paid by the assessee u/s 220(2) of the Income Tax Act – as decided in quantum appeal the netting is permissible and thereby the claim of the assessee is allowed – thus, the penalty levied u/s 271(1)(c) against the said addition is not sustainable – Decided in favour of assessee.

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• 2014 (12) TMI 557
  Gross receipts is to cover up undisclosed deposits or not - Commission from transport - Admission of new evidence – admitting and entertaining new evidence of P&L account - Held that:- CIT(A) correctly found that the assessee is owner of two tankers - Copies of registration certificates are filed in the paper book and the assessee is earning income by way of running of vehicles on commission basis - CIT(A) on looking to the nature of entries of cash deposits and withdrawals found in the bank account of the assessee maintained with ICICI bank held that the entire amount of deposit made in the bank account cannot be said to be unexplained because after deposit of the cash amounts, there are withdrawals - Since the assessee is in the business of transportation, the explanation of the assessee could not be refused that such deposits have been made out of transport business income - CIT(A) in the absence of any material on record taken the gross receipts which are more than the deposits made in the bank account - CIT(A) taken the gross receipts more than declared by the assessee in the return of income and even the AO has admitted in the assessment order that there are deposits as well as withdrawals in the bank account of the assessee - in the absence of any other source of income, the CIT(A) was justified in holding that the entire amount of deposit in the bank account could not be treated as unexplained - The cash deposit was correctly found to be explained out of receipts of the assessee from transport business - CIT(A) considered the bank account of the assessee and the registration certificates and computation of income filed with the return of income for the purpose of passing the appellate order - there is nothing illegality in his order in reducing the addition – Decided against revenue.

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• 2014 (12) TMI 556
  Unexplained cash deposits - Failure to substantiate claim through documentary evidence – Held that:- The assessee's case was selected for scrutiny assessment under computer random selection scheme - the assessee maintained a bank account with ING Vysya, Connaught Place vide account NO. 503010008101 and the total deposits in the Bank account amounted to Rs. 12,63,176/-which included few cheque deposits and most of the deposit was by way of cash - In order to prove his bona-fides the assessee had also filed a copy of the appointment letter from both the companies, wherein, the terms of employment was clearly spelt out along with the pay and allowance offered to the assessee was also revealed - the cash deposit was made on various dates into the account of the assessee and the deposits were supported by the confirmation given by the various signatories of both the companies, wherein, it was categorically stated that the amount was deposited by the companies into the account of the assesse for meeting the expenditure as per instruction given by them to the assessee from time to time - When the deposits in the bank account was supported by satisfactory evidences and it was explained by the assessee, no adverse inference could have been drawn and the deposit could not be termed as income from undisclosed source of the assessee – thus, the order of the CIT(A) is upheld – Decided against revenue. Deletion of penalty u/s 271(1)(c) – Income concealed and inaccurate particulars furnished or not – Held that:- ClT(A) was rightly of the view that the assessee has disclosed full facts pertaining to his income made in the return - the assessee neither concealed his income nor furnished inaccurate particulars of his income - there was no finding by the AO that the source of the cash deposit made by the assessee in his bank account was not bona-fide - merely because the deposit appeared in his account and the addition so made to his total income does not necessarily lead to the conclusion that the assessee is guilty of furnishing inaccurate particulars of his income - The furnishing of inaccurate particulars relate to furnishing of factually incorrect details and the information about the income - The assesse has proved that he was the resident representative at Delhi of Sri Vasari Industries Ltd. and ER Textiles Ltd. the assessee was appointed by them to do their liaison and coordination work at Delhi and also that both the companies used to deposit cash or by cheque into the savings bank account of the assessee for expenditure as directed by it - ClT(A) rightly deleted the penalty – Decided against revenue.

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• 2014 (12) TMI 555
  Violation of section 250 – Breach of principles of natural justice - Prayer for adjournment on the date of hearing duly received or not - Held that:- No one was present on behalf of the assessee at the time of hearing however considering the material available on record and after hearing the revenue, it was considered appropriate to restore the issue back to the file to the CIT(A) - the right to be heard is an important right to which a party who is faced with an adverse view is entitled to. “Audi alteram partem” is one of the most famous and celebrated Rule of Natural Justice - The principles of natural justice are those which have been laid out by the Courts as being the minimum protection of the rights of an individual against the arbitrary procedure that may be adopted by a judicial, quasi-judicial and administrative authority while making an order affecting those rights - The underlying principle of natural justice evolved under the common law is to check arbitrary exercise of power by the State or its functionaries. Also in A.K.Kraipak –vs- Union of India [1969 (4) TMI 103 - SUPREME COURT] it has been held that the aim of rules of natural justice is to secure justice or to put it negatively to prevent miscarriage of justice - the assessee has been represented through his counsel has repeatedly sought an adjournment - the assessee should not suffer on account of the fault of the counsel and considering the plea raised by the assessee before the Tribunal the matter is to be remitted back to the CIT(A) to decide the matter in accordance with law after giving the assessee a reasonable opportunity of being heard – Decided in favour of assessee.

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• 2014 (12) TMI 554
  Power of the CIT to invoke section 263 - Assessment was done without proper inquiry or not – Order prejudicial to interest of revenue - Held that:- None of the points raised by CIT, while invoking the provision of Section 263, and detailed in the show cause notice, have been enquired into, touched upon, discussed or considered before passing the assessment order – as decided in Malabar Industrial Co. Ltd. Vs. CIT [2000 (2) TMI 10 - SUPREME Court] - The provision cannot be invoked to correct each and every type of mistake or error committed by the AO, it is only when an order is erroneous that the section will be attracted - An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous - since, the assessee has not been able to establish that proper enquiry has been conducted by the AO before finalizing the assessment order, therefore, the CIT, considering this vital aspect while invoking the provisions of Section 263, has concluded to set aside the order of the AO for redoing the same by conducting proper enquiry after giving due opportunity to the assessee - non conducting of proper enquiry renders the order of the assessment erroneous and prejudicial to the interest of the Revenue – thus, the action of CIT is justified and does not call for any interference – the order is upheld – Decided against assessee.

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• 2014 (12) TMI 553
  Exercise of jurisdiction by CIT u/s 263 – Assessment made u/s 153A - shortfall in the payment of dividend distribution tax - Declaration of dividend which can be made only by the company in the AGM on the recommendation of Board of Directors - Held that:- The dividend proposed in the accounts by the Board of Directors on 31.03.2004 was Rs. 1.24 crores and the provision for dividend distribution tax amounted to Rs. 15.5 lakhs - In the AGM of the company held on 30.12.2004 the dividend declared was Rs. 62 lakhs and the dividend distribution tax due was Rs. 7.75 lakhs. This was duly paid by the assessee company - assessee company is liable to pay tax on distributed profits within 14 days from the date of declaration of dividend or distribution of dividend or payment of dividend whichever is earlier - the dividend was declared in the Annual General Meeting on 30.12.2004, when the AGM was held -The provision for dividend made in the accounts or the recommendation of the Board of Directors regarding the proposed dividend cannot be considered as declaration of dividend. It is only u/s 205(1)(A) that the power to declare interim dividend has been conferred to the Board of Directors - it is only the interim dividend that can be declared by the Board of Directors - since the Annual General Meeting took place on 30.12.2004 and in the AGM Rs. 62 lakhs was declared and the dividend distribution tax thereon came to Rs. 7.75 lakhs - the assessee company was not liable to pay dividend distribution tax of more than Rs. 7.75 lakhs – order u/s 263 passed by the ld. CIT is not sustainable on merits - de hors any incriminating material when the assessment is not abated the addition u/s 153A is not sustainable – the same has also been held in Al Cargo Global Logistics Limited vs DCIT [2012 (7) TMI 222 - ITAT MUMBAI(SB)] - no assessment u/s 153A is sustainable - when assessment itself is not sustainable, no exercise of jurisdiction u/s 263 of the Act on such assessment is sustainable – thus, the order of the CIT is set aside – Decided in favour of assessee.

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• 2014 (12) TMI 552
  Allowability of set off of speculation losses against business income – Sale and purchase of shares as speculation income - Held that:- The AO denied set off of speculative losses of earlier years by holding that the business of purchase and sale of shares is not speculative business but its regular business and the income from purchase and sale of shares excluding jobbing income or speculative income should be treated as regular business income and the AO denied set off of brought forward speculative losses - explanation to section 73 clarifies that where any part of business of a company consists of purchase and sale of shares of other companies, then such company shall for the purpose of section 73 of the Act be deemed to be carrying on speculation business to the extent to which the business consists of the purchase and sale of such shares - CIT(A) was rightly of the view that the income or loss derived by the assessee company is from speculation business which was accepted by the AO in the earlier years and if there is no change of facts and circumstances in the subsequent year under consideration, then the set off of brought forward speculative losses cannot be denied for the assessee – Decided against revenue. Unexplained credits u/s 68 – Onus discharged by assessee or not – Establishment of identity and creditworthiness of parties – Held that:- No addition/ disallowance can be made on suspicion, surmises and conjectures as decided in Dhirajlal Girdharilal Versus Commissioner Of Income-Tax, Bombay [1954 (10) TMI 8 - SUPREME Court] - assessee during the arguments has drawn attention towards paper book wherein it has been mentioned that the assessee filed copies of the confirmation, bank statements, income tax returns along with computation of income from 2000-01 to 2003-04 of the investors of the share application money before the AO and the CIT(A) - the AO proceeded to make addition u/s 68 of the Act without any further examination and verification of the details, confirmations, Income tax returns, bank accounts of the alleged investors who contributed share application money simply keeping aside the same – in COMMR. OF INCOME TAX Versus M/s LOVELY EXPORTS(PVT) LTD [2008 (1) TMI 575 - SUPREME COURT OF INDIA] it has been held that if the share application is received by the assessee company from alleged bogus shareholders whose names are given to the AO, then the department is free to proceed to reopen their individual assessments of respective share application money contributing investors in accordance with law but the amount of share application money cannot be regarded or considered undisclosed income of the assessee u/s 68 of the Act – thus, the order of the CIT(A) is upheld – Decided against revenue.

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• Customs

• 2014 (12) TMI 577
  Maintainability of appeal - Non compliance with pre deposit order - Held that:- As per the provisions of Section 129E of the Customs Act, as amended by the Finance Act, 2014, the appellant is required to make a pre-deposit of 10% of penalty imposed while filing the appeal. The appellant has not made such a pre-deposit. Therefore, the appeal is dismissed as non-maintainable for non-compliance with the provisions of Section 129E of the Customs Act, 1962 - Decided against assessee.

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• 2014 (12) TMI 576
  CVD Exemption - import of goods used for manufacture of Rotor Blades - Sl.No.237A of Notification No.6/2002-CE dt.1.3.2002 as amended - Goods not classifiable under Chapter heading specified in the said notification - Held that:- As per the rules of interpretation, first any imported goods are to be correctly classified as per the description provided in the Schedule to the Customs Tariff Act. The classification of goods precedes over the determination of rate of duty or any exemption applicable to the said product. Only after classifying the goods into correct chapter headings, under respective chapter of CTA or CETA, the question of extending of notification benefit or rate of duty to be finalised and not vice versa Exemption is extended to the excisable goods of the description specified in table read with concerned list appended and falling within chapter, heading number or sub heading number of the First Schedule to the CETA 1985 specified in the corresponding entry in Column No.2 of the said table. Therefore exemption available subject to fulfillment of the criteria given in the notification viz. (1) goods should be conforming to the description given in the Table of the notification (2) the goods must fall under the heading or sub heading of the first Schedule of the CETA. From the plain reading of the said exemption notification, we find that if the goods do not fall under any heading or sub heading or under 8 digit tariff heading but only fall under the description, then they would not be covered by the notification. Non-submission of the essentiality certificate - The condition in the customs notification and the excise notification are independent and the exemption benefit also are independent of each other. Non-submission of the essentiality certificate is sufficient evidence to hold that appellants have not fulfilled the conditions of notification. Therefore, lower authorities have rightly denied on this ground by relying the Tribunal decision in the case of Airport Authority of India Vs CCE (2004 (11) TMI 378 - CESTAT, NEW DELHI). Adjudicating authority has rightly classified the imported goods under chapter sub-heading as explained at Table-III above and denied CVD exemption. Commissioner (Appeals) also dealt with the issue in detail in the impugned order. By respectfully following the Supreme Court decision (1994 (9) TMI 67 - SUPREME COURT OF INDIA) and the Tribunal s decision on the issue (2004 (11) TMI 378 - CESTAT, NEW DELHI) therefore we do not find any infirmity in the impugned order - Decided against assessee.

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• 2014 (12) TMI 575
  Suspension of CHA license - Tribunal set aside suspension since there was delay in issuing order - High Court admitted the appeal filed by the Revenue against the decision of Tribunal [2012 (10) TMI 196 - CESTAT, MUMBAI] on the following substantial question of law:- Whether the CESTAT is right in law in setting aside the suspension order on the ground of delay of 13 days in issuing the order without considering the attendant circumstances and seriousness of the attempted fraud committed by the Customs House Agent i.e. without considering the merit of the case? Whether in absence of any appeal/challenge to suspension order No. 11/2012, dated 23-5-2012, the CESTAT is right in law in setting aside Post Decisional Suspension Order No. 15/2012, dated 18-6-2012 on the ground of delay of 13 days in passing/issuing Order No. 11/2012, dated 23-5-2012

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• 2014 (12) TMI 574
  Valuation of goods - Demand of redemption fine and penalty on enhanced value of goods - Detention of goods - Rejection of application of early hearing - Held that:- The petitioner is rightly aggrieved because his goods have still been detained by the Customs Authorities though the duty as assessed has been paid and the petitioner is willing to pay the penalty and the redemption fine that has been imposed - The ‘CESTAT’ in effect and substance held that there being no stay, the Department was bound by the orders of the Assessing Officer as confirmed by the Appellate Commissioner. However, no specific direction was given by the ‘CESTAT’ for release. The department is still withholding the goods on the contention that the appeal in the ‘CESTAT’ is pending - writ application is disposed of by directing the ‘CESTAT’ to dispose of the appeal positively within 30 days from the date of communication of this order having regard to the fact that the goods imported by the petitioner way back in 2008 are still lying detained - Decided in favour of petitioner.

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• 2014 (12) TMI 573
  Drawback – Conversion of free shipping bills to drawback shipping bills – Soya bean meal exported and drawback cannot claimed due to ignorance of its entitlement - entitlement to 1% All Industry Rate drawback requested for conversion of the free shipping bills into drawback shipping bills - High Court following decision of [2014 (2) TMI 446 - ANDHRA PRADESH HIGH COURT] allowed appeal of Revenue against the decision of Tribunal in [2009 (12) TMI 560 - CESTAT, BANGALORE] wherein Tribunal held that appellants' case is covered by the said Rule 12(1)(a) of the Drawback Rules - Commissioner erred in holding that its failure to file a drawback shipping bill owing to ignorance of its entitlement is not a reason beyond the control of the exporter.

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• 2014 (12) TMI 572
  Import of Baggage - Import of dutiable goods, fake watches and 6 cartons of Cigarettes - Imposition of redemption fine & penalty - Violation of Copyright Act, 1957 and IPR Regulation of India Baggage Rules, 1998, Sections 77, 79, 11 of Customs Act, 1962, para 2.20 of FTP 2009-2014 and also the provision of Section 11(1) of Foreign Trade (Development and Regulation) Act, 1992 - Now in this revision application the applicant has pleaded to release the wrist watches on payment of redemption fine for home consumption or re-export. The applicant has contended that the wrist watches were not fake but manufactured in China hence may be released. Held that:- Applicant in his statement recorded under Section 108 of Customs Act, 1962 has admitted the wrist watches were fake. Import of duplicate or fake goods are prohibited under the provision of Indian Copyright Act, 1957 and IPR Regulation. Keeping in view the above circumstances, there is no merit in the pleading of the applicant. Government do not find any infirmity in the impugned Order-in-Appeal and therefore upholds the same. - Decided against the assessee.

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• Service Tax

• 2014 (12) TMI 595
  Constitutional validity of levy of service tax on Advocates and legal services - Scope within the negative list and earlier under section 65(105) (zzzzm) of the Finance Act, 1994 as inserted by the Finance Act, 2011 - interference of function of advocate profession - Held that:- The legislature by inserting such provision has neither interfered with the role and function of an advocate nor has it made any inroad and interference in the constitutional guarantee of justice to all. The services provided to a individual client by a individual advocate continues to be exempted from the purview of the Finance Act and consequently Service Tax but when an individual advocate provides service or agrees to provide services to any business entity located in the taxable territory, then, he is included and liable to pay Service Tax. - That is because the legislature was aware that poor and needy section of the population requires advice, consultancy or assistance in any branch of law, if he requires legal advice, aid and assistance, then, that should be available to him at times immediately and cheaply. What holds good for chartered accountants and architects must equally apply to other professionals such as advocates, and who too are well conscious of their status. The manner in which the services of lawyers and advocates are rendered has been a subject matter of a decision in the case of disciplinary action initiated by Bar Council of Maharashtra against a professional. The classification between service provided to business entities and individuals cannot be said to be illusory. The classification has a definite nexus and with the object sought to be achieved. If that is to explore and expand the sources of revenue and by widening the tax net, then, it is achieved by bringing within the fold the aforementioned services. There is, therefore, no violation of the constitutional mandate. The classification cannot be termed as arbitrary, discriminatory, unfair, unreasonable and unjust. Incidentally, we may observe that no material has been placed before us by the Petitioners which would indicate that for a brief period from the time the impact of levy of service tax fall on them and until the issuance of the notification number 30 of 2012 dated 20th June, 2012 the Advocates suffered in any manner and particularly pointed out in Epari Chinna Krishna Moorthy's case (1964 (3) TMI 55 - SUPREME COURT OF INDIA). - Such advocates are claiming that this Notification of 20th June, 2012 bearing No.30/2012 be given a retrospective effect. It is not possible to accept this argument because the categories of advocates mentioned in these Notifications cannot claim an exemption from the tax and as of right. Article 39A not only includes free legal aid by the appointment of counsel for litigants but also includes ensuring that justice is not denied to litigating parties due to financial difficulties. That aspect is taken care of in the present tax set up by excluding from the tax net the individual litigants and services provided to them by individual advocates. Therefore, there is no infraction of the constitutional mandate. Scope of Mega Notification No.25/2012 dated 20th June, 2012 - Held that:- Now, the services provided by individuals as an advocate or a partnership firm of advocates by way of legal services to any person other than a business entity or a business entity with a turnover upto Rs. 10 lakhs in the preceding financial year are exempt from the whole of the service tax leviable thereon under section 66B of the Finance Act. Therefore, the small businessman, petty traders and persons carrying on business in individual capacity would be able to afford the services of individual advocates or a partnership firm of advocates. In such circumstances and when the term 'business entity' has been understood to include a individual he will not be deprived of quality legal services if his turnover in the preceding financial year is within the limits specified above. Services provided by Arbitral Tribunal or an individual advocate or a firm of advocates by way of support services to any business entity - Reverse charge mechanism - notification is no.30/2012 - Held that:- fter the Arbitration and Conciliation Act 1996 was enacted, the nature of the disputes referred to and to be resolved by arbitration demonstrate that the same has attained the character of “corporate luxury”. The members of the Arbitral Tribunal and those representing parties before the Arbitral Tribunal have started operating in a businesslike manner. It is difficult for individuals to afford the Arbitral services any longer. The hefty fees charged by the Tribunal and the Advocates per day and sometimes per hour make it difficult for litigants including companies to bear the costs of Arbitration. There is no basis for the argument that by the service tax provision section 89 of the Code of Civil Procedure is given a gobye. We are sorry to say this but day after day we receive complaints as to how arbitration is beyond the reach of a common man. Levy is not unconstitutional - Petitions are dismissed.

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• 2014 (12) TMI 594
  Business Support services - generation and distribution of electricity by using coal - Collection of the charges for disposal of the fly ash from the Cement manufacturers and Brick manufacturers - Held that:- Tribunal had already set aside the demand of tax in the applicant's own case [2013 (10) TMI 436 - CESTAT CHENNAI] for earlier period. Hence, there is no reason to remand this case to the Commissioner (Appeals). Accordingly, we set aside the impugned orders - Decided in favour of assessee.

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• 2014 (12) TMI 593
  Business Support Service, Business Auxiliary Service and Goods Transport Agency Service - whether value of ocean freight, advance manifest charges, bunkering and currency adjustment charges would be included in the taxable value - Held that:- Adjudicating authority observed that it is a composite service including ocean freight etc. It is also observed that the appellants are engaged in the managing, distribution and logistics, the cargo handling is only incidental to logistics activities and therefore service provided by the appellant would be appropriately classifiable under "Business Support Service". Service tax is not leviable on ocean freight. It is appropriate that the adjudicating authority should examine all the issues in the light of the decision in Gudwin Logistics [2009 (11) TMI 157 - CESTAT, AHMEDABAD] and appellants would be directed to produce documents for proper verification - Matter remanded back - Decided in favour of assessee.

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• 2014 (12) TMI 592
  Wrong availment of CENVAT credit - Imposition of penalty - In the invoices, the addresses of the service providers were not mentioned - appellants failed to produce relevant invoices in respect of credit taken - Held that:- Issue arose somewhere in the year 2008-09 and thereafter the appellants took steps to rectify and therefore there is no demand for the subsequent period. The show-cause notice was issued in 2010 and now it is more than 5 years since the issue was opened, yet the appellants have not taken any steps to cure the defect for the past period. Even before the commissioner, no details of invoices where such defects have been rectified were produced and today also, the learned counsel fairly agrees that appellants are still making efforts. Even though assessee relied upon several decisions to submit that it was held in those decisions that the service providers address need not be there, on going through the decisions cited, we find that in none of the cases, the invoices in which service provider's address was not there was the subject matter of dispute. Therefore, there is no precedent decision supporting the view taken by the learned counsel. As regards admissibility of credit on invoices wherein the address of service provider is non-existent, we are not in a position to hold that appellant has made out a prima facie case for waiver - stay granted partly.

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• 2014 (12) TMI 591
  Waiver of pre deposit - Denial of benefit of exemption under Notification No.1/2006-ST dt. 01/03/2006 - completion and finishing services and commercial or industrial construction service - Held that:- For the period after 01/06/2007 also, even if it is held that the service provided by the appellants amounts to completion and finishing service, the activity falls under the taxable service of works contract which provides for exclusion of value of materials and even during the subsequent period, the tax paid by the appellants would be more than what is due if it is classified under works contract service. Appellants have a prima facie case for complete waiver in view of the fact that the matter has been referred to 5 Member Bench; the appellants have paid more tax than what is due and there appears to be a prima facie case for classification of the service under works contract service. In view of the above, the requirement of predeposit is waived and stay against recovery is granted during the pendency of appeal. - Stay granted.

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• 2014 (12) TMI 590
  Imposition of penalty - Commercial training and coaching centre service - Short payment of tax - Held that:- Inasmuch as ST-3 Returns was yet to be filed by the appellant by 25th October 2008, the detection of short payment by the officers on 14th October 2008 is premature detection. The appellants have given a plausible explanation of short payment by submitting that inasmuch as entries were not made in the computers and the data was yet to be entered, there was no mala fide on their part not to pay service tax. The said reconciliation of statement would have definitely been done by them and at the time of filing of ST-3 Returns. Further I also find that the entire case of the Revenue is based upon the scrutiny of the statutory records maintained by the appellant in which case the appellant was not in a position to evade any service tax. Accordingly, I am of the view that no penalty is imposable on the appellant. - Decided in favour of assessee.

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• 2014 (12) TMI 589
  Waiver of pre-deposit of Service Tax, interest and penalty - Manpower Recruitment or Supply Agency Service - Held that:- In view of the fact that the factory is taken over by the Bank and further leased to M/s. Rajaram Bapu Patil SSK Ltd. Prima facie the applicant had made out a case for total waiver of dues. The pre-deposit of dues are waived and recovery of the same is stayed during the pendency of the appeal - Stay granted.

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• 2014 (12) TMI 588
  Refund claim - Quarterly sanction of refund - Held that:- Notification No. 17/2009-S.T., dated 7-7-2009 does not prescribe any such condition that refund claim should be filed on quarterly basis or periodical basis. The refund claim is governed by the provisions of Section 11B of the Central Excise Act, 1944, applicable to Service Tax matters and the time limit is one year from the relevant- date and the relevant date is to be counted from the date of let export order passed. In the absence of any condition in the Notification, the Circular issued by Board prescribing filing of quarterly claim cannot be considered as statutory obligation for rejecting refund. Even though the stay application is under consideration before us, we find that this is only the issue involved in this case and there is nothing more to consider. In these circumstances, we consider that the appeal itself can be disposed of at this stage. Accordingly, the impugned order is set aside - Decided in favour of assessee.

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• 2014 (12) TMI 587
  Denial of CENVAT Credit - Credit denied to them on the ground that on verification, the premises registered in the name of said registered dealer were found to have been taken on rent by him on the basis of a fake and bogus rent deed - Cancellation of dealership - Held that:- Revenue having granted registration to M/s. Rohit Ispat and the appellant having satisfied themselves about the registration, procured the goods from the said registered dealers. The act of transportation of the goods stand established from the payment of service tax by the appellant on the GTA services so received by them. As such, the provisions of Cenvat Credit Rules stand satisfied. Revenue has also not established any alternative source of procurement of inputs. The appellants having procured the inputs from the registered dealer, having reflected the same in their RG-23A Part-I and having utilized the same in the manufacture of final product, cleared on payment of duty, are entitled to benefit of Cenvat credit of the same. Accordingly, I set aside the impugned order and restore the order of original adjudicating authority. - Decided in favour of assessee.

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• 2014 (12) TMI 586
  Refund claim - contention of the applicant is that the applicant paid the service tax under the wrong belief the applicant had provided Clearing and Forwarding Agent service. Held that:- The only contention of the appellant is that as per the definition a person has to undertake Clearing and Forwarding activity. In the present case, M/s. Dynamic Logistics had not undertaken the activity of clearing of the goods from the principal. - As per the agreement, M/s. Dynamic Logistics are to provide service in connection with receiving, storing, packing and discharge of goods comprising of spare parts of the principal. Therefore, it cannot be said that Dynamic Logistics has not undertaken the activity of clearing and forwarding. - where going by the terms and conditions of the agreement under which Dynamic Logistics is undertaking the activity on behalf of the appellant and Dynamic Logistics are receiving the goods from the appellant and thereafter undertaking other activities such as packing, etc., as per the instructions of the appellant and also clearing the goods as per the instruction of the appellant. In view of this, we do not find any merits in the appeal - Decided against assessee.

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• Central Excise

• 2014 (12) TMI 585
  Constitutional validity of Rule 8(3A) of the Central Excise Rules 2002 - Prohibition on assessee from utilising cenvat credit for payment of excise duty for default in payment of duty - Power of Authority to frame Rules - Discrimination between assessee who could avail credit and those who could not avail it - Arbitrariness of Rule - Violation of Art. 14 by withdrawing the facility of paying excise duty through CENVAT credit - Bar of limitation - Held that:- Clause (ib) of sub-section 2 of section 37 gives ample power to the Government to make rules for providing a mechanism for assessment and calculation of duties of excise, the authorities who would carry out such functions, the manner of payment of duty and most importantly, recovery of duty not paid. The fact that sub-rule (3A) of rule 8 provides for the mechanism of duty unpaid is beyond cavil. Very clearly, the said provision is not beyond the rule making power of the sub-ordinate legislature. - Decided against the assessee. Hostile discrimination - Held that:- An assessee who for whatever reasons is unable to pay the duty within the time prescribed by the statute cannot complain of being differently treated from those who fulfill the statutory requirements. The provisions contained in sub-rule (3A) have a purpose to achieve relatable to the class of assessees who failed to pay the duty in time is also equally clear. It is only when the condition of payment of duty by the 5th or the 6th day of month following the previous month of clearance is not fulfilled by an assessee that the stringent requirement of collection of duty on each consignment and withdrawal of the facility of cenvat credit follows. These are undoubtedly stringent provisions provided to deal with the class of assessees who are unable to pay the duty in time. - Decided against the assessee. Unreasonable condition imposed under Rule 8(3A) - Held that:- It can be appreciated that where a manufacturer falls behind the payment schedule on account of financial constraints, such as, slowing down of business, competition in the market reducing the profit margins, promised payments from the purchasers not coming forth or temporary labour disputes, would find it extremely difficult thereafter to raise further funds for payment of duty in addition to the duty which he has already paid. Cenvat credit is available to a manufacturer upon purchase of inputs which are duty paid. It is the duty element which the assessee has already suffered which is credited to his cenvat credit account available to him for adjustment for payment of excise duty liability upon clearance of the finished product. If such facility is withdrawn, it could be appreciated, his ability to continue the business under such adverse financial climate would further diminish. This would be a cyclical vicious pattern where in every month he would fall behind by the due date unable to raise cash flow for payment of duty for the clearance which he desires to make and is therefore further saddled with the burden of paying such duty in cash without availing CENVAT credit. Rule thus imposes a wholly unreasonable restriction which is not commensurate with the wrong sought to be remedied. The phrase "reasonable restriction" connotes that the limitation imposed on a person in enjoyment of the right should not be arbitrary or of an excessive nature, beyond what is required in the interests of the public. By no stretch of imagination, the restriction imposed under sub-rule (3A) of rule 8 to the extend it requires a defaulter irrespective of its extent, nature and reason for the default to pay the excise duty without availing cenvat credit to his account can be stated to be a reasonable restriction. It leads to a situation so harsh and a position so unenviable that it would be virtually impossible for an assessee who is trapped in the whirlpool to get out of his financial difficulties. This is quite apart from being wholly reasonable, being irrational and arbitrary and therefore, violative of Article 14 of the Constitution. It prevents him from availing credit of duty already paid by him. It also is a serious affront to his right to carry on his trade or business guaranteed under Article 19(1)(g) of the Constitution. On both the counts, therefore, that portion of sub-rule (3A) of rule must fail. Insisting on an assessee in default to clear all consignments on payment of duty would be a perfectly legitimate measure. However, to insist that he must pay such duty without utilising CENVAT credit which is nothing but the duty on various inputs already paid by him would be a restriction so harsh and out of proportion to the aim sought to be achieved, the same must be held to be wholly arbitrary and unreasonable. We may recall, the delegated legislature in its wisdom now dismantled this entire mechanism and instead has provided for penalty at the rate of 1% per month on delayed payment of duty. Condition contained in sub-rule (3A) of rule 8 for payment of duty without utilizing the cenvat credit till an assessee pays the outstanding amount including interest is declared unconstitutional. Therefore, the portion "without utilizing the cenvat credit" of sub-rule (3A) of rule 8 of the Central Excise Rules, 2002, shall be rendered invalid. However order passed by the adjudicating authority sustained on the ground that if now we grant the relief as prayed for by the petitioner, we would be rendering the entire mechanism of appeal to the Commissioner and the further appeal to the Tribunal nugatory. - Decided partly in favour of assessee.

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• 2014 (12) TMI 584
  Denial of transfer of credit - Conversion of DTA unit into 100% EOU - Held that:- There is no bar for transfer of credit available in the books of accounts on the date of conversion of a unit in DTA into 100% EOU under Rule 10 of the Cenvat Credit Rules, 2004. In the absence of any specific prohibition denying the transfer of credit, the appellants are rightly entitled to transfer of the same. The decision of the Hon'ble Bombay High Court in the case of Sandoz Pvt. Ltd. [2013 (10) TMI 145 - BOMBAY HIGH COURT], and of the Tribunal decision in the case of Watson Pharma Pvt. Ltd. (2014 (11) TMI 71 - CESTAT MUMBAI) confirm the above view. Accordingly, the appellant is entitled to transfer of credit lying in the books of accounts at the time of conversion from DTA to 100% EOU and therefore the impugned demands are not sustainable - Decided in favour of assessee.

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• 2014 (12) TMI 583
  Application made for modification of stay order passed earlier on the ground that on the subject matter there is a difference of opinion in Principal Bench at Delhi - Held that:- A difference of opinion is not order at all. Further, we find that while passing the impugned order, this Tribunal had taken cognizance of the decision of Hon'ble High Courts of Karnataka and Madras, wherein it had been held that if there is a default in payment of excise duty for more than 30 days, the appellant cannot avail the benefit of CENVAT Credit. The order of the Hon'ble High Court prevails over any order of the Tribunal. In these circumstances, the plea of the Counsel for the appellant is not acceptable. However, in the interest of justice, we grant another 15 days time to the appellant to make the pre-deposit as ordered. Modification application filed by the appellant seeks to challenge the vires of the provision of Rule 8(3)(a) of the Central Excise Rules, 2002. This Tribunal being a creature of the statute cannot go into the vires of the provisions of Central Excise Rules, 2002 - Decided against assessee.

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• 2014 (12) TMI 582
  Waiver of pre deposit - Denial of CENVAT Credit - Goods supplied to SEZ developers - Held that:- There are contrary/conflicting decisions of this Tribunal on the matter. While in the Sujako Interiors Pvt. Ltd. case [2011 (2) TMI 624 - CESTAT, AHMEDABAD] it has been held that the benefit of credit would be available in respect of supplies made to SEZ developers even for the period prior to 31/12/2008, a contrary view has been taken by this Tribunal in Blue Star Ltd. case [2011 (3) TMI 1287 - CESTAT, MUMBAI]. In view of the contrary decisions, the appellants are entitled to grant of stay. Accordingly, we grant waiver from pre-deposit of dues adjudged against the appellant and stay recovery thereof during the pendency of the appeal - Stay granted.

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• 2014 (12) TMI 581
  Denial of the benefit of Notification No. 6/2006 dated 1.3.2006 - appellant as sub-contractor and that the contract is awarded under ICB Procedure. - Following decision of assessee's own previous case [2014 (2) TMI 633 - CESTAT MUMBAI] - appellant is eligible for the benefit of Notification No. 6/2006-CE - Decided in favour of assessee.

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• 2014 (12) TMI 580
  CENVAT credit - penalty under Section 11AC - Held that:- As the facts of this case are similar to the facts of the case of Solar Chemferts (2011 (6) TMI 640 - CESTAT, MUMBAI), therefore, I hold that penalty under Rule 25 & 26 or under Section 11AC of the Act is not imposable on the respondent, but penalty under Rule 27 is attracted. Therefore, penalty of Rs. 5000/- under Rule 27 of the Central Excise Rules, 2002 is confirmed against the respondent, which shall be paid within 30 days of the communication of this order - Decided partly in favour of Revenue.

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• 2014 (12) TMI 579
  CENVAT Credit - inputs used for the manufacture of goods on job-work basis - Held that:- Lower appellate authority's order is based on the Larger Bench decision in the case of Sterlite Industries (I) Ltd. Commissioner of Central Excise, Pune [2004 (12) TMI 108 - CESTAT, MUMBAI] wherein it has been held that "MODVAT credit of duty paid on inputs used in the manufacture of final product cleared without payment of duty for further utilisation in manufacture of final product, which are cleared on payment of duty by principal manufacturer, would not be hit by provisions of Rule 57C" and the said decision dealt with a job-work situation. The Larger Bench decision was challenged by the Revenue before the hon'ble Bombay High Court and the High Court dismissed the appeal of the Revenue as reported in [2008 (8) TMI 783 - BOMBAY HIGH COURT] Therefore, the impugned order is in accordance with the law and merits to be upheld - Decided against Revenue.

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• 2014 (12) TMI 578
  Denial of CENVAT Credit - Assessee took credit on the basis of reconstituted bill of entry - appellant did not furnish the duplicate copy of the Bill of Entry duly certified by the Customs with regard to payment of duty - Held that:- A reading of the impugned order makes it absolutely clear that the Customs authorities at Chennai have confirmed payment of duty by the appellant at the time of importation of the capital goods. It is also not in dispute that the appellant had received the capital goods and installed and used the same in the manufacture of dutiable final products. In these circumstances, the appellants is rightly entitled for the credit. Therefore, I do not find any infirmity in the order passed by the lower authority - Decided against Revenue.

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