Newsletter: Where Service Meets Reader Approval.
TMI Tax Updates - e-Newsletter
December 25, 2012
Case Laws in this Newsletter:
Income Tax
Customs
Corporate Laws
Service Tax
Central Excise
TMI SMS
News
Notifications
Circulars / Instructions / Orders
Highlights / Catch Notes
Indian Laws
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Companies Bill, 2012 [As Passed by Lok Sabha]
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COMPARATIVE STUDY OF - Companies Bill, 2011 and Companies Bill, 2012
Service Tax
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Services of life insurance business - (a) Janashree Bima Yojana (JBY) and (b) Aam Aadmi Bima Yojana (AABY)on - exempted from service tax - Notification
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Good Transport Agency - demand of service tax - When consignment notes are not issued by the operator they cannot be considered as a "Goods Transport Agency" - AT
Case Laws:
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Income Tax
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2012 (12) TMI 737
Royalty and fees for technical services - whether taxable on receipt basis ? - Held that:- As under Article IIXA of the DTA Treaty with the Federal Germany Republic as per Notification dated 26th August 1985 the assessment of royalty or any fees for technical services should be made in the year in which the amounts are received and not otherwise - ITAT in holding that royalty and fees for technical services should be taxed on receipt basis cannot be faulted - in favour of assessee. Levy of interest u/s 234B - Held that:- As decided in DIT (INTERNATIONAL TAXATION) Versus NGC NETWORK ASIA LLC [2009 (1) TMI 174 - BOMBAY HIGH COURT] when a duty is cast on the payer to pay the tax at source, on failure, no interest can be imposed on the payee-assesses - in favour of assessee.
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2012 (12) TMI 733
Jurisdiction power u/s 263 by CIT(A) - set off of unabsorbed depreciation allowance brought forward from Assessment Year 1998-99 - Held that:- Section 263 of the Income-tax Act seeks to remove the prejudice caused to the revenue by the erroneous order passed by the Assessing Officer. There is no enquiry by the AO whatsoever on the issue in dispute. He just accepted the claim of set off of earlier year unabsorbed depreciation in the assessment year under consideration. Being so, the CIT assumed jurisdiction u/s. 263. Thus it is to be opined that subject matter of the revision is pending before the Special Bench for adjudication and the AO passed the assessment order without an iota of discussion on the issue of whatsoever as such the CIT exercised his powers u/s. 263 to revise the order of AO which was in conformity with the order of the Special Bench and invoking the provisions of section 263 is justified. Set off of unabsorbed depreciation allowances carried forward from assessment year 1996-97 and 1998-99 against income relating to assessment year 2007-08 - This issue is covered against the assessee by the order of the Special Bench in the case of DCIT Versus Times Guaranty Ltd. [2010 (6) TMI 516 - ITAT, MUMBAI] wherein held that unabsorbed depreciation relating to assessment years 1997-98 to 1999-2000 is to be dealt with in accordance with the provisions of section 32(2) as applicable to assessment year 1997-98 to 1999-2000 and, therefore, assessee cannot claim set off of unabsorbed depreciation relating to assessment year 1997-98 to 1999-2000 under any head of income other than “income from business or profession” in assessment years 2003-04 and 2004-05 - issue is decided against the assessee. when there are several decisions of non-jurisdictional High Courts expressing contrary views, the Tribunal is free to choose to adopt that view which appeals to it. For this purpose, we place reliance on the order of the Special Bench in the case of Kanel Oil & Export Industries Ltd. vs. JCIT, (2009 (8) TMI 806 - ITAT AHMEDABAD-C). Settlement of dues with Stressed Assts Stabilisation Fund IDBI - Held that:- Perusuing the material on record & going through the impugned assessment order there is no discussion in the assessment order on the impugned issue. There is no enquiry on this issue. The order is erroneous and prejudicial to the interest of revenue as discussed in earlier paras of this order. Accordingly the order of the CIT(A) confirmed.
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2012 (12) TMI 732
Capitalization of product improvement expenses - CIT(A) deleted the disallowance - Held that:- CIT (A) has rightly observed that the expenditure in question was incurred as a matter of routine, for the business and commercial expediency of the assessee’s business, i.e., consultancy business. The CIT (A) has also declared that the capitalization of such expenses in preceding years was for the period prior to the commencement of the assessee’s business. Right from the commencement of the business of the assessee, the expenses started being claimed as revenue, every year. The allowance of similar expenditure in the earlier as well as subsequent years, it is pertienent to note, was made in scrutiny assessments - CIT(A) placed reliance on the case laws CIT vs. Asahi India Safety Glass Ltd. [2011 (11) TMI 2 - DELHI HIGH COURT] & Assam Bengal Cement Company Limited Versus Commissioner Of Income-Tax, West Bengal [1954 (11) TMI 2 - SUPREME COURT] - no error in the order of the CIT (A) in this regard - against revenue. Treatment of leased property improvement expenses as capital expenditure - CIT(A) deleted the addition - Held that:- The detail of expenditure filed shows that as shown before the taxing authorities, the expenditure was incurred on networking, fire fighting, electricity cabling, flooring, tiling, sanitary partitions, etc. The premises on which the office of the assessee was situated was a rented premises taken by the assessee and the assessee was not an owner thereof. The expenditure, no doubt, was incurred in the ordinary course of business of the assessee. No addition whatsoever, was made to the structure on the rented premises. The assessee never got to acquire any new asset or advantage by expending the amount - thus CIT (A) rightly deleted the addition wrongly made by the Assessing Officer - against revenue. Foreign Exchange loss - disallowance of claim by CIT(A) - Held that:- As decided in CIT, Delhi-II, New Delhi versus M/s L.G. Electronics India Pvt. Ltd. [2008 (8) TMI 10 - HIGH COURT DELHI] oss on account of foreign exchange rate fluctuation is an allowable business expenditure u/s 37 - rightly been contended on behalf of the assessee that current assets and liabilities in foreign exchange in accordance with the AS 11, are required to be revalued as per the rate applicable at the end of the year. Undoubtedly, forex revaluation has to be done every time. Therefore, CIT (A) clearly erred in upholding the disallowance wrongly made by the AO - in favour of assessee.
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2012 (12) TMI 731
Locational special revenues - whether in the nature of fees for technical services as per Article 13 of the DTAA between India and UK - Held that:- The nature of services has to be ascertained only after examination of the relevant record and the legal point, which has been settled by the various decisions is only on the point of 'making available' of technical know-how, knowledge, expertise etc. which is again to be seen from the facts that whether any technical service is made available or not. As in the absence of relevant material and particularly agreement between the parties under which the assessee has rendered the services and received the payment, it is not possible to determine the real nature of the activity carried out/services rendered by the assessee - remit the issue to file of CIT(A) for deciding the same afresh after considering the relevant material in support of the facts. Levy of interest u/s 234B/234C - Held that:- As decided in DIRECTOR OF INCOME-TAX (INTERNATIONAL TAXATION) Versus NGC NETWORK ASIA LLC [2009 (1) TMI 174 - BOMBAY HIGH COURT] when a duty is cast on the payer to pay the tax at source, on failure, no interest can be imposed on the assessee - in favour of assessee.
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2012 (12) TMI 730
Net interest and commission received from head office - CIT(A) deleted the addition - Held that:- Following the precedent for assessment year 1997-98 wherein relying on the case of Sumitomo Mitsui Banking Corpn. v. Dy. DIT (IT) [2012 (4) TMI 80 - ITAT MUMBAI] wherein held that neither any interest/commission received by the Indian PE from HO/other overseas branches can be charged to tax, nor there can be any deduction towards interest/commission expenditure incurred by the assessee towards HO /overseas branches & restored the matter to the file of AO with a direction to exclude the such amount and also not to grant deduction in respect of interest/commission received from the overseas HO/branches. Disallowance of broken period interest on PSU bonds - Held that:- The assessee switched over from one recognized method of valuation of bonds and securities to another recognized method in the previous year relevant to the assessment year under consideration in respect of PSU bonds. Broken period interest which was hither to capitalized came to be considered as deduction in the year of purchase. This changed method has been undisputedly followed by the assessee consistently in subsequent years. Considering the earlier order passed by the Tribunal in assessee's own case for AY 1991-92, the Tribunal decided it in favour of the assessee by holding that interest paid on broken period was liable to be allowed as deduction against the interest received in respect of the broken period - in favour of assessee. Interest on NOSTRO account - CIT(A) deleted charging of interest & enhancement to the tune of Rs. 27,31,95,602 u/s 14A - Held that:- Following the precedent for assessment year 1997-98 the interest of Rs. 3.98 crore on NOSTRO account is chargeable to tax and resultantly the disallowance u/s 14A made to the tune of Rs. 27.31 crore is deleted - grounds raised by the assessee as well as Revenue in this regard are allowed. Taxability of income at the rate of 48% as applicable to non-resident company - Held that:- The assessee fairly admitted that this issue has been decided against the assessee in earlier years - The impugned order on this issue for the current year as well and dismiss this ground. Interest received from branches on placement of overseas deposits - should it be charged to tax - Held that:- The interest received from branches should not be charged to tax as it is a transaction with self, the view has consistently been taken in earlier years but since the exact amount of interest received by the assessee from its HO/overseas branches is not emanating from record, AO is directed to find out such amount of interest received from HO/overseas branches and exclude it from the computation of total income - in favour of assessee for statistical purposes. Disallowance of loss on revaluation of unmatured forward foreign exchange (Forex) Contracts - Held that:- As decided in DCIT Versus Bank of Bahrain & Kuwait [2010 (8) TMI 578 - ITAT, MUMBAI] the loss incurred by the assessee on account of evaluation of the contract on the last day of the accounting year i.e. before the date of maturity of the forward contract, is allowable as deduction - AO directed to allow loss of Rs. 7.14 crore in this year and compute loss/profit on Forox contract maturing in the previous year relevant to the assessment year 1999-2000 by considering the impact of allowing of loss of Rs. 7.14 crore - in favour of assessee. Exemption of gross interest earned from tax free securities u/s 10(15) - Held that:- Exemption u/s 10(15) is to be allowed on gross interest and not on the net interest. Disregard the refund while calculating the interest u/s 234B - Held that:- CIT(A) has rightly considered the mandate of sections 234B and 234D. Obviously, the interest u/s 234B is required to be calculated on the basis of total income computed without considering the refund determined u/s 143(1). Disallowance of interest earned from HO was lower as compared to interest paid for FCNR-B Deposit - Held that:- Simply because the assessee paid interest on domestic deposits at a little higher rate than that it received on FCNR-B Deposits, it cannot be said that the interest paid should be disallowed to that extent. Write off of premium paid on purchase of securities amortised over the life of investments - Held that:- In agreement with the view canvassed by the CIT(A) as that when the assessee is purchasing securities as stock-in-trade, there can be no question of amortizing the premium paid for the purchase of securities over the life of such securities. The purchase price so paid has to be taken as such by disregarding the assessee's view point that the premium on purchase of securities should be amortized over the life of investment. To this extent the view taken by the CIT(A) approved with a little modification that not only when the securities are not only sold but also even when these get matured, income from then should be computed with reference to the cost of purchase of securities. Deduction independent of the provisions of section 44C - CIT(A)deleted the expenses claimed by the assessee on account of HO expenses independent of the provisions of section 44C - Held that:- Facts and circumstances of this ground are similar to those prevailing in the earlier years in which it has been held that the deduction has to be allowed independent of the provisions of section 44C - if during the fresh examination, the AO finds that the expenses of Rs. 1.06 crore or any part thereof represent apportionment of HO expenses as per Explanation to section 44C, such allocated expenses will not be allowed as deduction independent of section 44C. To the extent the expenses are found to be exclusively incurred by HO for the assessee, they will not fall within the definition of HO expenses and accordingly allowed as deduction independent of section 44C. This ground is, therefore, allowed for statistical purposes.
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2012 (12) TMI 729
Undisclosed Rental Income – CIT(A) deleted the addition - Held that:- According to the rent agreement, if the figure of 10% increase is used, the rent receivable from 7.12.2006 onwards should have been Rs. 63,888/- p.m. Similarly, the rent receivable from 7th December, 2007onwards should have been Rs. 70,2777- as per the rent agreement.However, the assessee is only showing rental income of Rs. 55,000/- p.m. in the return of income - As per the agreement actual rent receivable is to be ascertained with reference to the relevant clause of the Rent Agreement, as relied upon by the AO. The CIT(A) has not disputed the correctness of the said clause. Also the said agreement has been entered by the concerned party at will and voluntarily, therefore, there is no statutory bar u/s 23(1) to exclude the said express terms, for the purpose of enhancement of rent in the said Rent Agreement. Having regard to factual matrix of the case, documentary evidence in the form of Rent Agreement cannot be ignored and, hence, the findings of the CIT(A) are reversed and findings of the AO restored - in favour of revenue. Subsidy receivable – Capital vs Revenue Receipts – Held that:- A bare perusal of the Office Memorandum issued by Govt. of India dated 07.01.2003, as reproduced above, clearly reveals the eligibility for such capital investment subsidy @ 15% of their investment in Plant & Machinery subject to ceiling of Rs.30 lacs. The subsidy is also avai lable to the existing units, on their substantial expansion - following case of CIT V Ponni Sugars & Chemicals Ltd. (2008 (9) TMI 14 - SUPREME COURT) that subsidy for repayment of capital loan is capital receipt. It was held by the Hon'ble Apex Court that where main eligibility condition in scheme, under which assessee Sugar Mill was granted subsidy, was that subsidy must be utilized for repayment of loans taken by assessee to set-up new unit or for substantial expansion of existing unit. In such a situation, the subsidy is in the nature of capital receipt and not exigible to tax - in favour of assessee Capitalization of Water and Electricity Expenses - Held that:- Copy of account, from which addition has been made, represents details of electricity expenses, which had already been transferred to pre-operative expenses under the head Fixed Assets and no deduction has been claimed in the Profit & Loss Account. Having regard to such contention of the assessee, duly supported by documentary evidence, CIT(A) deleted the addition in respect of such transferred pre-operative expenses - no infirmity in the findings of the CIT(A), and hence, the same are upheld - against revenue.
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2012 (12) TMI 728
Disallowance of interest u/s 36 - There was a debit balance throughout the year and there was opening debit balance and even on closing of the year there was a debit balance - Assessee has in fact made purchases of Rs. 5.40 crores and even sales have been made at Rs. 3.10 crores – Held that:- As concluding from the fact of the case assessee had made regular business dealings and the amounts going into debit are on account of sales when the assessee was doing business with the sister concern then it is natural that some time account may be in debit. Addition deleted. In favour of assessee Disallowance of expense u/s 14A – Expense incurred in relation to earn exempt income – Assessee has incurred interest expenses whereas income from investments was found to be exempt - Held that:- As the disallowance u/s 14A is based on Rule 8D which has been noted above was applicable during the year under consideration and which is in consonance with the decision of Godrej and Boyce Manufacturing Co. Ltd. (2010 (8) TMI 77 - BOMBAY HIGH COURT). Therefore, restore that of the AO by confirming the disallowance u/s 14A rule 8D of IT Rules is applicable in the year before us and disallowance has been worked out as per Rule 8D. Issue remand back to AO in favour of assessee
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2012 (12) TMI 727
Non deduction of TDS on interest accrued on FDRs - Interest charged u/s 201/201(1A) - Held that:- The Jammu Development Authority is in exempted category where the provisions of section 194(1) are not applicable. Also that exception provided in section 194A(3)(iii)(f) and as per notification No.3489 dated 22.10.1970 the Jammu Development Authority is a creation of J & K Development Act and satisfies the condition at Entry No.39 of the said notification thus uphold that no tax was deductible on accrued interest on FDRs of Jammu Development Authority with J & K Bank Ltd - in favour of assessee.
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2012 (12) TMI 726
Deduction u/s 80IB - Central Excise Duty refund & Interest subsidy - Capital or revenue receipt - Held that:- Looking to the the incentives provided to the industrial units, in terms of the new industrial policy, for accelerated industrial development in the State which is certainly a purpose in the public interest, the incentives provided by the office memorandum and statutory notifications issued in this behalf, to the appellants-assessees, cannot be construed as mere production and trade incentives & by any stretch of reasoning, be construed as production or operational incentives for the benefit of assesses alone - Following the decision of court in case of Shree Balaji Alloys v. CIT and Another [2011 (1) TMI 394 - JAMMU AND KASHMIR HIGH COURT] the receipt of Central Excise Duty Refund and interest subsidy to be treated as a ‘Capital Receipt’ as against its treatment as ‘Revenue receipt’ by the A.O and not liable to be taxed - Decided in the favour of the assessee. Late deposit of PF and disallowance u/s 40(a)(ia) – Held that:- first appellate authority has passed a well reasoned order based on facts and materials available on record, which requires no interference at our level - ground of the Revenue dismissed. Addition on account of late deposit of EPF u/s 36 and deduction u/s 80IB – Held that:- FAA has passed a well reasoned order based on facts and materials available on record, which requires no interference following the decision of the ITAT, Amritsar Bench, in the case of M/s. Sun Pharmaceuticals [] which is squarely applicable to the facts of the issue in hand, this ground of the revenue is dismissed - this ground of the Revenue is also dismissed.
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2012 (12) TMI 725
Deduction u/s 80IB - Central Excise Duty refund & Interest subsidy - Capital or revenue receipt - Held that:- Following the decision of court in case of Shree Balaji Alloys v. CIT and Another [2011 (1) TMI 394 - JAMMU AND KASHMIR HIGH COURT] the receipt of Central Excise Duty Refund and interest subsidy to be treated as a ‘Capital Receipt’ as against its treatment as ‘Revenue receipt’ by the A.O - Decided in the favour of the assessee. Transport Subsidy – Held that:- Transport subsidy is not derived from the activity of the industrial undertaking though it may be attributable to it and therefore, cannot be said to be treated as part of the profits and gains derived from the industrial undertaking - no deduction is available u/s 80IB on the amount of freight subsidy - order of A.O. is affirmed/confirmed. Treating interest as income derived from industrial undertaking - Held that: - Following the decision of in case of M/s. Pandian Chemicals [2003 (4) TMI 3 - SUPREME COURT] interest cannot be treated as income derived from industrial undertaking for the purpose of computation of deduction u/s 80IB – ground of assessee is dismissed.
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2012 (12) TMI 724
Long term capital gain – Purchase and sale of Property - whether for making profits or to use it for Residential purposes - Held that:- It is a residential house, which is a subject matter of long term capital gain u/s 54 and it is any other asset which is not a residential house which is a matter of capital gain u/s 54. There is no finding of the AO that the assessee has claimed exemption u/s 54F. It is also undisputed that the assessee was the owner of residential house/flat at Delhi at Vasant Kunj which was sold during the impugned year and capital gain was earned by the assessee which was invested by purchase of a residential house at Amritsar. These facts are coming in the order of the CIT(A) itself and as per statement of total income of the assessee it will be interest of justice, if the matter is setaside to the file of the CIT(A) who after considering the provision of section 54 instead the provisions of section 54F will decide the issue afresh. Trading addition being difference between sundry debtors and the sales – Held that:- Books of account of the assessee have not been rejected. The assessee having filed all the copies of account of trade creditors as confirmed by the AO by issuing notice u/s 133(6) therefore, the genuineness of the trade creditors cannot be doubted - ground raised by revenue dismissed Addition due to inadequate household withdrawals – Held that:- Assessee was living in a joint family and A.O. has not considered the withdrawals made by other members of the family, which were on record CIT(A) after considering the submissions of the assessee deleted the addition made by the AO on account of household withdrawals - CIT(A) rightly deleted the addition.
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2012 (12) TMI 723
Allocation of expenditure between the brokerage business and trading - Speculation Loss – Held that:- Upholding the allocation of expenditure between the two lines of business, only 5% of the expenditure be allocated against the income from trading in shares in the Assessee’s own name (speculation income) and the balance against the brokerage business Income. In this expenses of Kakinada Branch should be excluded. The same ratio will be applicable to depreciation as well. The balance expenditure should be set off against the brokerage income. As Assessee had earned profits in the business of trading in shares in their own name and there is no carried forward speculation losses to be set off. Profit from trading in shares in Assessee’s own name is to be treated as speculative profits - ground of appeal of the Assessee is treated as partly allowed. Trade credit accounts under sec 68 - Held that:- Assessee has to prove the identity of the creditors, genuineness of the transaction and capacity of the creditors. The onus is on the assessee to substantiate it’s claim and the assessee has not discharged the same. Accordingly, in the interest of justice The issue set aside to the file of the AO directing assessee to substantiate its claim - in favour of assessee for statistical purposes. Software expenses - Capital vs. Revenue expense - Held that:- Expenditure incurred for upgradation of software with new regulations of SEBI and not for acquiring any new software - revenue in nature and not Capital as no new asset is created - in favour of assessee.
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2012 (12) TMI 722
Claim of deduction u/s 80HH - denial - Held that:- Provision providing exemption, concession or exceptions in a fiscal statute has to be interpreted strictly. A person who claims exemption or concession, is required to establish clearly that he is covered by provision concerned and as per this decision of the constitutional Bench, in the case of any ambiguity, benefit will give go to the State. Section 80HH states that an industrial undertaking has to begin manufacture or production in a backward area. Mere intention to begin manufacture or production and making investment would not suffice for that purpose CIT(Appeals) fell in error in giving very liberal interpretation to Section 80HH and holding that assessee's intention and investment to start an industry would suffice and actual manufacture or production could have been started even after the location went out of backward areas. There has to be actual manufacture or production. Hon'ble Apex Court in the case of CCE v. Hari Chand Shri Gopal [2010 (11) TMI 13 - SUPREME COURT OF INDIA] unequivocally held that provision providing exemption, concession or exceptions in a fiscal statute has to be interpreted strictly. A person who claims exemption or concession, is required to establish clearly, therefore set aside the orders of CIT(Appeals) and hold that assessee was not eligible to claim deduction under Section 80HH - against assessee.
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2012 (12) TMI 721
Undisclosed income - Block Assessment – Held that:- As seen from the impugned document, it is just a signed by a single party which was found in the course of search action at the assessee premises. The impugned document is only circumstantial evidence which required to be corroborated with other evidence. Though there is no necessity in law that the assessing officer is supposed to discharge tax liability by direct evidence only, there should be enough evidence to support the addition. The circumstances surrounding the case were not strong enough to justify the rejection of assessee's plea as outrageous. On consideration of the assessee's arguments, no rejection of the same is called for on the reason that the sale agreement dated 6.2.98 is only a Xerox copy signed by the assessee alone and not by the vendees. As held by the Supreme Court in the case of Moosa Madha & Azam S. Madha vs. CIT (1973 (2) TMI 5 - SUPREME COURT) that Photostat copies have very little evidentiary value. Being so, Xerox copies of any document cannot be itself considered as evidence for the purpose of making addition in this assessment. Further the consideration at Rs. 12.25 lakhs per acre cannot be said to have been paid as the transfer has not materialised and litigation is going on. Further the payment of Rs. 1 crore to Smt. Savitramma is also not supported by proper evidence to bring the same into taxation in the block assessment. Thus the unsigned document is a dumb document and cannot be relied upon for making addition in this case - in favour of assessee Levy of interest u/s. 158BFA - Held that:- Levying of interest u/s. 158BFA is consequential and mandatory and no adjudication is required on this issue - appeal of the assessee is partly allowed
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2012 (12) TMI 720
Sale of shares - Nature of Income - Business Income v/s Capital Income - Held that:- It is a settled legal proposition that mere entry of transactions as investment in the books of accounts of the assessee is not conclusive in matters of deciding the capital nature of the shares transactions. However, it is also settled legal principle, the entries in the books as investment is just one of facets helpful for deciding the said nature. Therefore, the initial intention and consequential entries of transaction in the books of the assessee support the claim of the assessee with regard to the short term capital gains. Regarding the allegation of high frequency, high volume or magnitude, regularity etc, as already discussed, there is no definition for these expressions. It is the opinion of the AO/CIT(A) which is formed not based on any comparable cases or case laws. For somebody, one transaction for a day and many not be high for the others, it is many be a case of insignificant. Neither the CIT(A) nor the AO has brought out any comparable cases to demonstrate that the tranactional frequency or number of transactions have to be bracketed as ‘high’ and therefore, the dominant intention of the assessee in purchase of the shares is to resell the same and not for investment - set aside the impugned orders to the files of the CIT(A) on this issue, and direct him define the high frequency with the help of the comparable cases on hand. Assessee is also directed to assist the CIT(A) in this regard. If needed, he may file any fresh documents before the CIT(A) that would help the CIT(A) to come to the correct conclusions. On the issue of applicability of the apex court’s judgment in the case of Gopal purohit [2009 (2) TMI 233 - ITAT BOMBAY-G] there is no adequate data before us at least in the case of assessee. CIT(A) is directed to examine the applicability of the said case after obtaining adequate and relevant data. CIT(A) is also directed to examine each of the criteria set by various courts in various cases including the criterion of ‘dominant intention’ - the assessees’ grounds on this issue are adjudicated pro-tanto. Depreciation on UPS and LCD – 60% v/s 15% - Held that:- Following the decision CIT V/s. Orient Ceramics & Industries Ltd. [2011 (1) TMI 26 - DELHI HIGH COURT] that peripherals such as UPS, printers, scanners, modem, NT servers, etc. form integral part of the computer and hence the same are eligible for depreciation at the rate applicable to computers, viz. 60% - Assessees’ grounds on this issue are allowed.
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2012 (12) TMI 719
Write off of bad debt in the books of account u/s 36(1)(vii) – Held that:- Following the decision in case of T.R.F. LTD. Versus COMMISSIONER OF INCOME-TAX [2010 (2) TMI 211 - SUPREME COURT] to obtain a deduction in relation to bad debts, it is not necessary for the assessee to establish that the debt,in fact has become irrecoverable. It is enough of the bad debt is written off as irrecoverable in the accounts of the assessee - matter remanded to the Assessing officer to examine, solely to the extent of write off, whether the debt or part thereof was written off in the accounts of the assessee. Sale tax collection - capital v/s revenue receipt - assessee has been granted subsidy in respect of sales tax receipt – Held that:- As decided in Sahney Steel & Press Works Ltd v CIT [1997 (9) TMI 3 - SUPREME COURT] the subsidy by way of refund of sales tax on purchase of machinery is operational subsidy and hence revenue receipt - set aside the issue to the files of the AO to consider whether the present subsidy scheme enjoyed by the Assessee is identical with that of the scheme framed by the Government of Maharashtra in 1979, considered in the case of DCIT Versus Reliance Industries Limited [ 2003 (10) TMI 255 - ITAT BOMBAY-J] and if so teat it as a capital receipt. Disallowance of discount given to stockists – Held that:- What is offered by the assessee to the stockists are nothing but discount because the assessee sells the goods to the stockists, who is turn sells the goods to the consumer. In the sale transaction between the assessee and the stockists there cannot be payment of commission to the purchaser himself. Here stockists themselves are buying goods and it cannot be said that they are rendering any service in the course of such buying of goods which will render any payment to them as commission. Thus confirming findings of the CIT(A) that what was offered to the stockists is nothing but discount under provisions to sec.194H will not apply – in favour of assessee. Computation of capital gains arising from transfer of undertaking – Held that:- Merely because the land was not conveyed by means of a registered conveyance deed, it cannot be said that the transferee who was permitted to enjoy complete domain over the land is not owner of the land. (Mysore minerals). Hence,transfer of the undertaking by the Assessee for a lumsum consideration should be considered as a slump sale to which provisions of sec 50B will be applicable. Hence in such cases provisions of sec 50C can not be applied in view of Explanation (2) to sec 2(42C) which has clarified that assignment of value for land and building the purpose of registration would not affect the computation of capital gains u/s 50B. Further in this case there was no stamped conveyance deed for transferring land - Order of the CIT(A) is upheld - revenue’s appeal is dismissed on this issue - In the result, the appeal of the revenue is partly allowed for statistical purposes.
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2012 (12) TMI 718
Jurisdiction u/s 263 - assessee engaged in Civil Contract work u/s 44AD – directing AO to estimate the profit @ 8% on gross receipts as against the net receipts in the assessment – Held that:- Though the sub-contract agreement provides for recovery of materials and consumables, but the claim of such recovery has to be supported by necessary evidence and it was incumbent on the part of the AO to verify the claim of the assessee by enquiring the same. As the assessee has shown gross receipt of Rs.5,00,14,972 in Profit & Loss A/c the assessment order does not reveal that the AO has made any such enquiry before accepting the claim of the assessee. As the assessment order is very cryptic and there is nothing in it to show that the AO has verified the correctness of the claim of the assessee towards the recoveries made by the principal contractor or for supply of materials or other recoveries from gross receipts the CIT was correct in exercising his jurisdiction u/s 263 in setting aside the order of assessment CIT was not correct in directing the AO to estimate profit at 8% on the gross receipts simply on the view that the assessee is a sub-contractor to the main contractor and supply of materials or recoveries are not properly verifiable and therefore, an element of profit cannot be ruled out. When no enquiry has been made by the AO regarding the claim of the assessee, the CIT was not justified in coming to a conclusion that the supply of materials, consumables are not properly verifiable. When the sub-contract agreement expressly provides for deduction from the gross amount towards materials and consumables and other recoveries, it cannot be said that such income has accrued to the assessee without bringing sufficient material on record to that extent - direct the AO to make proper enquiry regarding the claim of the assessee - partly in favour of assessee.
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2012 (12) TMI 717
Diminution in the value of Government securities - Held that:- It is seen that the assessee has treated the purchase of Government of India security as its current investment and has followed a consistent policy for valuing the current investments at the year end. It is not shown to us that the said accounting policy followed by the assessee is not permissible under the law. Instead, according to the assessee, the said policy is perfectly within the permissible accounting systems. Income tax authorities are not right in law in disallowing the claim of made by the assessee - direct the AO to delete the above said disallowance - in favour of assessee. Disallowance of Staff Welfare Expenditure – Held that:- Amount contributed by it on behalf of its employees was treated as salary income in the hands of respective employees and income tax was also deducted there on. The amount accumulated in the name of employees were collectively accounted as “Staff Welfare Scheme” and the accumulated balance was not invested any where else. Instead, the assessee itself has used such contributions for its own business purpose. Thus, the net effect of this arrangement is that the amounts credited to the “Employees Welfare Scheme a/c” represents the amounts collected from employees only. The assessee has also provided for interest on the liability amount held under the “Staff welfare scheme a/c” and claimed the same as expenditure - “Staff welfare scheme a/c” can only be taken as a creditor account and not as welfare scheme account as defined in sec. 2(24)(x) - final decision reached by CIT(A) on this issue is confirmed - Relief granted by CIT(A) on this issue is upheld - In the result, appeal filed by the assessee is partly allowed.
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2012 (12) TMI 716
Writing off Advances as Bad Debts – nature of the assessee’s business - Held that:- Considering the exact nature of assessee’s business as mentioned in assessment order the assessee is in the financial sector, whereas in the written submissions the assessee has stated that it is in the investment company & if it is found that the assessee is an investment company and the advances made by the assessee to M/s BPL Ltd., and its sister concerns are for the purpose of investments in shares, then the advances written off by the assessee cannot be considered as a trading loss or bad debt but has to be treated as capital loss which is not eligible for deduction u/s 36 or 37 while computing the income from business u/s 28 - As neither the AO nor the CIT(A) has actually gone into this aspect of the issue nor have they examined the correct nature of advance given by the assessee or the purpose of such advances the issue is to be remitted back to the file of the AO for verification - in favour of assessee for statistical purposes. Set off income offered against the disallowance of deduction u/s 36(1)(vii) - Held that:- Unable to accept the contention of the assessee that if the claim of advance written off by the assessee is not accepted, the same analogy has to be applied to the liabilities written back by the assessee. Each claim of the assessee has to be considered independently and in accordance with law. As rightly pointed out by the DR, the nature of the liability and the condition under which the liability has been written back has not bee explained by the assessee and in fact it is the assessee which has treated the same as its income. The claim of the assessee to set off is not permissible until and unless there is clear nexus between the two which is absent in the present case. As the nature of the liability written back has not been examined by any of the authorities below it is desirable to remit issue back to AO for consideration - in favour of revenue for statistical purposes.
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2012 (12) TMI 715
Disallowance u/s 40A(3) – Held that:- AO has not exhaustively considered the mitigating circumstances as per the Proviso to section 40A(3) r.w.r. 6DD before making the disallowance of cash payments. CIT(A) has not addressed the issue in proper perspective and in providing the assessee adequate opportunity in the matter in accordance with the principles of natural justice, therefore remit the matter back to the file of the AO to consider the issue and also to consider and examine the judicial decisions relied upon by the assessee - appeal of assessee allowed for statistical purposes.
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2012 (12) TMI 714
Provision for Warranty – disallowance as assessee not following any scientific way of debiting the expenditure - Held that:- As decided in CIT Versus Vinitec Corporation Pvt. Ltd. (2005 (5) TMI 54 - DELHI HIGH COURT) warranty liability is not a contingent liability. If the assessee is maintaining the accounts on mercantile system on liability accrued, though to be discharged at a future date, would be a proper deduction while working out the profit and accounts of the business. As decided in CIT v Sony India (P) Ltd. [2006 (4) TMI 457 - DELHI HIGH COURT] liability arising out of a warranty is an allowable deduction even when amount payable by assessee is quantified and discharged in future - Thus looking to the quantum of sales effected during the year, the net provision of Rs.24,20,522/- debited in profit and loss account is not excessive. The assessee has submitted that it is in the business of selling the equipment since 1995 and the provision is being made on the basis of the past experience. Hence, CIT(A) was justified in deleting the addition - in favour of assessee.
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Customs
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2012 (12) TMI 713
Rejection of refund claim - Held that:- The factual finding of collection of the amount, which has been deposited by the appellant from his customers being not disputed and is not being challenged by contrary evidence in any form, the appellant has recovered the amount of Rs.50,000/- deposited by him as penalty, from his customers. In this view, sanctioning of refund claim will doubly enrich the appellant, which is not in consonance with the law.
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2012 (12) TMI 712
Licensing of Custom House Agent - old regulation v/s new regulation - Held that:- As decided by Supreme Court, dated 27.4.2012, in Sunil Kohli Vs. Union of India [2012 (10) TMI 638 - SUPREME COURT] those who had cleared the examinations under the regulations issued in the year, 1984, would be eligible for the grant of licence, subject to their fulfilling the other conditions of eligibility, as the actions already taken under the earlier regulations issued in the year, 1984, had been saved by the new regulations issued in the year 2004. Therefore, the petitioner is eligible for the grant of Customs House Agents Licence, as he had passed the written, as well as the oral examination under Regulation 9 of the Customs House Agents Licensing Regulations, 1984 held prior to the coming into force of the new regulations in the year, 2004 - direction to the department to issue the necessary certificate granting the Customs House Agents Licence to the petitioner - against department.
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Corporate Laws
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2012 (12) TMI 711
Winding-up petition creditor's stayed - condition for receiving the payment from the company appeared not to have been complied with by the petitioning creditor - Held that:- The company would be obliged to pay the sum of Rs.1.45 lakh to the petitioner if the petitioner had complied with its obligation to discharge the electricity dues to the company entitling the petitioner to receive such payment. The petitioner has adequately demonstrated, on the basis of the documents appended to its latest affidavit, that the electricity dues have been cleared and the adamant and unjustified stand still taken by the company would demonstrate its inability to pay its debt and would eminently qualify the company to be wound up. There is no defence that the company can show to resist payment of the sum of Rs.1.45 lakh that was due in terms of the relevant clause of the memorandum of understanding, particularly in the light of the electricity company's letter demanding payment of a particular sum in full and final satisfaction of its claim and the company's acceptance of the veracity of the relevant money receipt. As to the company's reference to failure of the petitioner to discharge its obligations on account of the provident fund dues of the employees, the relevant clause does not empower the company to withhold any payment on account of the petitioner's failure to cooperate with the company in such regard. The company is left free to establish the petitioner's default and take appropriate action before the proper forum. Thus the company has not made payment of the said sum without just cause and, accordingly petition is admitted for the principal sum of Rs. 1,44,033/- together with interest thereon at the rate of 10% per annum from September 24, 2010 (the money receipt issued by the electricity company is dated September 23, 2010) till payment. If the company pays the entire amount, inclusive of interest and costs assessed at 2000 GM, within a fortnight from date, the petition will remain permanently stayed.
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2012 (12) TMI 710
Imposition of Penalty - lift the material sold to the applicant more than it was allowed - Held that:- The Court finds that merely on the basis of an affidavit filed by one person (Shri Jivanlal F. Parmar) and in absence of any other convincing material coming on record to establish that the appellant-society has lifted the goods more than the appellant was allowed to lift, such penalty count not have been imposed. As mentioned in the judgement of court regarding lifting of material that, shareholders of the applicant Society are poor persons and the Society is suffering from shortage of fund. At this stage, learned Senior Advocate for the appellant-society submitted that the appellant-society has gone in liquidation and an Administrator is appointed and submitted that if this stands, out of the assets of the society in liquidation, an amount of Rs. 2 lacs will be paid to the Official Liquidator, which will result into depriving the shareholders of the society from the amount which they may otherwise be getting. Taking into consideration the totallity of the case, the Court finds that judgment and order dated 10.08.2005 deserves to be set aside, to the extent it imposed penalty /fine on the appellant-society of Rs. 2 lacs. It goes without saying that the other direction/s with regard to investigation in the matter stands - At the request of the learned Senior Advocate for the appellant-society, it is clarified that it will be open for the appellant-society to renew its request of extension of time before the learned Company Judge.
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Service Tax
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2012 (12) TMI 736
Good Transport Agency - demand of service tax - The appellant is engaged, in manufacturing Read Mix Concrete ("RMC" for short). They had hired "Transits Mixers", that is, vehicles specially designed for carryings RMC from place of manufacture to place of delivery of the goods. The vehicles were provided by the owners to the appellant for their use as per terms of a contract. The appellant paid consideration to the vehicle owners which involved certain payments on monthly basis and certain payments based on the number of kilometres run. Revenue demanded tax on the consideration paid by the appellant to the vehicle owners, considering it as a consideration for services of "Goods Transport Agency" Held that:- The agreement does not demonstrate that the operator has any special rights or responsibility about the goods as is the case of goods entrusted to a Goods Transport Agency. This obviates the need to issue consignment notes which normally is a document of title for the goods when it is in the custody of the transporter. There is one clause to the effect that the operator will obtain proper receipts from customers after the goods are delivered. Thus by itself cannot make the contract to be that of "Goods Transport Agency" as defined in section 65 (50) (b) of Finance Act, 1994. When consignment notes are not issued by the operator they cannot be considered as a "Goods Transport Agency". The mere fact that the operator is doing activity of transportation cannot make the operator a "Goods Transport Agency". So the operators in this case cannot be considered as "Goods Transport Agencies". This issue is already examined by the Andhra Pradesh High Court in the case of G.S. Lamba and Sons Versus State of Andhra Pradesh (2011 (1) TMI 1196 - ANDHRA PRADESH HIGH COURT) though in the context of State Sales Tax. The Court has held that this type of contract is one for transfer of right to use the vehicle rather than for providing service of transportation - in favour of assessee.
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2012 (12) TMI 735
Pre-deposit of Rs.3 Crores to hear the appeal on merits - Whether the word “roads” would include within it “runways” at airports - Held that:- Runways at the airports are species of the genus “road”. Therefore, the runways should also normally receive the same treatment as roads for service tax purpose. Prima facie the case of the appellant is a very arguable case. However, in the order of the Tribunal dated 30/7/2012 there is no consideration of the issue even for the purposes of taking a prima facie view. Set aside the order of the Tribunal dated 30/7/2012 demanding, interest or penalty for pre deposit and direct the Tribunal to hear the appellant's appeal on merits as the amount involved in the appeal is over Rs.10 crores the Tribunal directed to hear the appellant's appeal on merits itself at the earliest within a period of three months from today.
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2012 (12) TMI 734
Payment of service tax by using cenvat credit instead of cash - Held that:- As decided in CCE, CHANDIGARH Versus M/s NAHAR INDUSTRIAL ENTERPRISES LTD and Others [2010 (5) TMI 608 - PUNJAB AND HARYANA HIGH COURT] & para 2.4.2 of CBEC's Excise Manual of Supplementary Instructions shows that there is no legal bar to the utilisation of Cenvat credit for the purpose of payment of service tax on the GTA services - in favour of assessee.
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Central Excise
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2012 (12) TMI 709
Transfer of balance CENVAT credit from one PLA account to another PLA - seeking waiver of pre-deposit of dues - Held that:- Balance amount in PLA could have been obtained as refund in cash and deposited in the other account - there is no time limit for taking refund of balance in PLA. If there is any violation, it is only technical in nature and hence, there is no justification for any demand and imposition of penalty - waiver of pre-deposit of dues allowed - stay of recovery thereof till disposal of the appeal.
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2012 (12) TMI 708
Receipt of finished goods not mentioned in RG-1 maintained for the new factory - factory of assessee shifted to new premises - seeking waiver of pre-deposit of dues - Held that:- There is a clear finding of the original authority that the assesseee has disposed of the said goods to customers after proper packing and payment of duty utilizing the CENVAT credit taken by them - That being the case, prima facie case in favour of the assessee on this issue. Issue of credit on input services, prima facie, is settled in favour of the assessee in view of the Stay Order in the case of M/s. Superpacks vs Commissioner of Central Excise, Bangalore []- there shall be waiver of predeposit of dues as per the impugned order and stay of recovery thereof till the disposal of the appeal.
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2012 (12) TMI 707
Transfer of unutilized Cenvat credit – denial as the appellant had not shifted his factory from Sirsa to a new site - Held that:- The Commissioner (Appeals) has interpreted the word 'another site' as a new site where there was no production unit in existence. This approach of the Commissioner (Appeals) is incorrect as the word 'another site' used in Rule 10(1) of Cenvat Credit Rules means the site other than the factory which is being shifted. No 'Inputs' in the factory of the appellant at Sirsa at the time of shifting - Held that:- This approach of the Commissioner (Appeals) is also unacceptable for the reason that Rule 10(3) of the Cenvat Credit Rules provides that the transfer of cenvat credit under Rule 10(1) shall be allowed if the stock of inputs as such or in process, or the capital goods is also transferred along with factory. Admittedly, as it is evident from the letter dated 26.10.2005 of the jurisdictional Excise Office, Hisar when the Excise team visited the factory of the appellant on receipt of intimation regarding the shifting, they did not find any "Inputs' as such or under process in the stock. If there was no inputs in the stock, there was no occasion for transferring the inputs to the new factory. Admittedly, the appellant has transferred the capital goods to another site at Meerut. Therefore,the condition of Rule 10(3) of Cenvat Credit Rules for transfer of cenvat credit is fulfilled. No basis for conclusion that the appellant has only shifted the capital goods but not the entire factory as there is no evidence on record to show that the appellant has shifted the factory only on paper and the production is still going on at Dabwali Road, Sirsa - no denial of transfer of cenvat credit warranted - in favour of assessee.
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2012 (12) TMI 706
Clandestine removal of finished goods - FAA granted benefit of provisions of Section 11AC - Held that:- The proprietor of the firm Shri Vinodbhai T. Patel, in his statement dt.20.03.2007, has accepted that there was clandestine removal & two of the purchasers of the appellants finished goods have categorically admitted that they have received the goods from the appellant under delivery challans and without any invoice. Since there is no retraction of the statements by the proprietor of the assessee and there being corroboration of the receipt of the goods without payment of duty from the assessee from his buyers, the impugned order has correctly upheld the liability on the assessee along with interest and penalties - the assessee should be given the benefit of provisions of Section 11AC of payment of 25% of the duty demanded as penalty if the assessee pays the entire amount of duty liability with interest even at appellate stage well settled in the case of Akash Fashion Prints Pvt. Limited (2009 (1) TMI 113 - GUJARAT HIGH COURT) .
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