TMI Tax Updates - e-Newsletter
December 28, 2012

Case Laws in this Newsletter:

Income Tax Customs Corporate Laws Service Tax Central Excise CST, VAT & Sales Tax

TMI SMS

• VAT -Sale of used cars - Not incidental or ancillary to the manufacture /sale of pharmaceutical products - value not to be included in the total turnover - HC

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Articles

1. SERVICE TAX ON REIMBURSEMENTS IS ULTRA VIRES

   By: Dr. Sanjiv Agarwal

2. Reimbursement of expenses is not part of charges for taxable services, Rule providing inclusion is ultravirse the Act.

   By: DEVKUMAR KOTHARI

3. WHETHER SERVICE OF ARBITRATION AWARD ON AN AGENT OF THE PARTY AMOUNTS TO SERVICE ON THE PARTY ITSELF?

   By: DR.MARIAPPAN GOVINDARAJAN

News

1. Achievements and Initiatives of the Ministry of Micro Small & Medium Enterprises for the Year 2012

2. PM’s Closing Remarks at 57th Meeting of NDC

3. PM’s opening remarks at 57th meeting of NDC

4. The 12th Plan Aims at Ensuring Food Security and Improving the Lot of Farmers – Sharad Pawar Agriculture Minister’s Address at the 57th Meeting of the National Development Council

5. FM Optimistic on Growth of Economy

6. 12 FDI Proposals Amounting to Rs. 802 crore Approved by FIPB

7. Economy Headed Towards Gradual Recovery & Growth Stabilization Several Initiatives taken to Revive Economy

Notifications

Customs

1. F. No. 437/71/2012-Cus. IV - dated 24-12-2012 - Cus (NT)

Appointment of Common Adjudicating Authority - M/s Savera Tex, 304-305, Metro Tower, Ring Road, Surat,

Circulars / Instructions / Orders

DGFT

1. 09(RE-2012)/2009-14 - dated 27-12-2012

Operationalisation of provisions of Para 5.11.2 of Hand Book of Procedure Vol.-1 (2009-14) [RE: 2012]

2. 10(RE-2012)/2009-14 - dated 27-12-2012

Operationalisation of provisions of Para 5.11.2 of Hand Book of Procedure Vol.-1 (2009-14) [RE: 2012]-Policy Circulars issued, so far, in this regard.

Companies Law

3. 43/2012 - dated 26-12-2012

Filing of Cost Audit Report and Compliance Report in the extensible Business Reporting Language (XBRL) mode.

4. 40/2012 - dated 17-12-2012

No Objection Certificate (NOC) from the concerned regulator/Institute for LLP Name approval/incorporation

Highlights / Catch Notes

Income Tax

• Court Rules Discounting Charges on Bills and Notes Not Taxable as Interest u/s 2(28A) of Income Tax Act.

  Case-Laws - HC : Interest u/s 2(28A) - Taxability and TDS u/s 195 - discounting bills of exchange and promissory note - discounting charges did not amount to interest and was not subject to tax - HC
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• Internet and Website Expenses Classified as Revenue, Impacting Tax Treatment Unlike Long-Term Capital Expenses.

  Case-Laws - AT : Internet/web site expenses - Capital v/s Revenue - internet/website expenses incurred by the assessee are revenue in nature - AT
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• Depreciation Denied: Compensation Received for Discarded Assets Excludes Them from Block for Non-Existing Business.

  Case-Laws - AT : Disallowance of depreciation on discarded assets – when the assessee has received the compensation for discarding of the assets, than even the same has not been physically demolished or destroyed for the purpose of depreciation, the same cannot form part of block of assets of a non-existing business - AT
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Customs

• Ex-director not liable for company debts unless found guilty of misfeasance by Company Court. Applies to all directors.

  Case-Laws - HC : Tax defaulter - former director in the company - the directors of any company, whether public limited or private, are not personally liable for the debts of the company unless the Company Court finds them guilty of any misfeasance or wrongs - HC
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Indian Laws

• Legal Challenges: Service Tax on Reimbursements in India Deemed Ultra Vires; Urges Clearer Legislative Guidelines.

  Articles : SERVICE TAX ON REIMBURSEMENTS IS ULTRA VIRES - Article
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• Indian Law: Expense Reimbursement Not Taxable Service, Rule Exceeding Act's Authority Deemed Invalid.

  Articles : Reimbursement of expenses is not part of charges for taxable services, Rule providing inclusion is ultravirse the Act. - Article
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• Right to Information Rules, 2012 boost transparency and accountability in Indian government, ensuring timely public access to information.

  Notifications : RIGHT TO INFORMATION RULES, 2012 - Notification
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VAT

• Used Car Sales Excluded from Pharmaceutical Companies' Turnover for VAT Calculations.

  Case-Laws - HC : VAT - Sale of used cars - Not incidental or ancillary to the manufacture /sale of pharmaceutical products - value not to be included in the total turnover - HC
  Visit to Get Source

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Case Laws:

• Income Tax

• 2012 (12) TMI 822
  Interest u/s 2(28A) - Discounting charges earned by Singapore Company from Indian parties by discounting bills of exchange and promissory note - Taxability and TDS u/s 195 - Held that:- Confirming the previous ruling of the Tribunal [2009 (10) TMI 70 - ITAT DELHI-B] reported in CIT v. Cargill Global Trading Ltd. [2011 (2) TMI 209 - DELHI HIGH COURT] the definition of 'interest' under section 2(28A) and analyzing the contents of two circulars issued by the CBDT No. 65 dated 02.09.1971 and subsequent one dated 22.03.1993 (Circular No. 647)(sic) that discounting charges did not amount to interest and was not subject to tax - deletion of disallowance u/s 40(a)(i) of the Income-tax Act - no substantial question of law arises.

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• 2012 (12) TMI 821
  Deduction of interest expense - Against income from non-tonnage activities – Tonnage tax – Assessee is engaged in shipping business – Assessee claim interest expenditure incurred wholly and exclusively for the purpose of its non-tonnage tax activities – AO argued that loans availed for shipping activities had been diverted to non-tonnage tax activities – Held that:- Loans which were availed for ship related activities have been diverted to non-tonnage tax activities. The expenditure incurred for earning such income has to be allowed against such income. Therefore, interest expenditure was incurred wholly and exclusively for the purpose of non-tonnage tax activities and allowed as deduction. In favour of assessee Disallowance u/s 14A – Rule 8D – Computation of income – Applicability of Rule 8D - prospectively or retrospectively - Expenditure incurred in relation to earning of exempt dividend income – Held that:- Following the decision in case of Godrej & Boyce Mfg. Co. Ltd. (2010 (8) TMI 77 - BOMBAY HIGH COURT) that provisions of Rule 8D are applicable from A.Y 2008-09 and cannot be applied retrospectively. Rule 8D applied by the AO to work out the disallowance u/s 14A was not applicable to the year under consideration. In favour of assessee Tonnage taxation – Chapter-XII-G - Computation of income from business of operating qualifying ships u/s 115VA - Exclusion from tonnage income - Bad debts recovered - Crude oil refund - General average claims received - Held that:- Following the decision in case of Shipping Corporation of India Ltd. (2011 (7) TMI 588 - ITAT, MUMBAI) that when all the ships of the assessee are qualifying ships and when there is no other activity other than core activities and incidental activities, in our opinion, a third category of other business income cannot be created. In favour of assessee Tonnage taxation - Chapter-XII-G - Exclusion from tonnage income – liabilities u/s 41(1) of prior periods written back – Expenditure claimed in pre-tonnage tax scheme - Held that:- Following the decision in case of Shipping Corporation of India Ltd. (2011 (7) TMI 588 - ITAT, MUMBAI) that section 115VA, it is clearly provided that sections 28 to 43C would not over-ride the computation of profits and gains u/s 115VA. As section 41(1) falls within sections 28 to 43C, no separate addition under that section can be made. In favour of assessee

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• 2012 (12) TMI 820
  Internet/web site expenses - Capital v/s Revenue - disallowance - Held that:- As decided in assessee's own case for A.Y. 2001-02 relying on decision in the case of CIT vs. Indian Visit.Com (P) Ltd. [2008 (9) TMI 8 - DELHI HIGH COURT] wherein held that expenditure on development of website is not a capital expenditure and that purpose behind the same is not to create an asset but only to provide a means for disseminating information about the assessee among its clients - also of a view in the present case that such websites developed by the assessee has a very short life and immediately after release of the picture or music album and after laps of a few month these websites are hardly visited by anybody. Thus, it cannot be said that the assessee derives an enduring benefit - thus internet/website expenses incurred by the assessee are revenue in nature - in favour of assessee. Provision for stock obsolescence written back - Disallowance - Held that:- The facts are not in dispute that the claim of the assessee was denied by the A.O. without considering the same and without passing any speaking order on the issue. And that before the CIT(A) the assessee has filed detail submission along with supporting statements, however, the CIT(A) while observing that no relevant information is available on record in support of the claim, rejected the claim of the assessee. In the absence of any material to show that the assessee has filed any such supporting material before the A.O. or such material was examined by the A.O. during the course of assessment proceeding or the CIT(A) has called for the remand report from the A.O. on the impugned issue, in the interest of justice the matter should go back to the file of the A.O. to decide the same afresh providing a reasonable opportunity of being heard to the assessee. Computer software expenses - Capital v/s Revenue - Held that:- As decided in CIT vs. Asahi India Safety Glass Ltd. [2011 (11) TMI 2 - DELHI HIGH COURT] the software expenditure incurred by the assessee are revenue in nature and hence the same are allowable as business expenditure and the CIT(A) was not justified in sustaining the disallowance made by the A.O. Foreign exchange loss - Capital v/s Revenue - alternative plea to allow depreciation - Held that:- In the absence of any details, the Tribunal in assesee’s own case for the A.Y. 2002-03 has set aside the issue to the file of the A.O. As further find that the issue has not been examined in the light of the amended provisions of section 43-A, in the interest of justice, and keeping in view the consistency the matter should go back to the file of the A.O to decide the same afresh in the light of the observations hereinabove and in accordance with law. Disallowance of advance written off - Held that:- No dispute that the assessee has not produced any documentary evidence in support of the claim. The Revenue authorities without examining the books of account has rejected the claim of the assessee thus it is fair and reasonable that the matter should go back to the file of the A.O. to decide the same afresh in the light of the observation hereinabove. Disallowance of royalty expenses - Held that:- In assessee’s own case the Tribunal after following the order of the Tribunal in assessee’s own case for A.Y. 2001-02 has allowed the claim of the assessee for A.Y. 2002-03 holding that it is a revenue expenditure and not a capital expenditure. Respectfully following the consistent view of the Tribunal and keeping in view that the decision cited by the D.R. T v. M. Subramaniam [2003 (12) TMI 9 - MADRAS HIGH COURT] is in favour of the assessee - CIT(A) was not justified in sustaining the disallowance. Disallowance of PF and ESIC - Held that:- It is not in dispute that the assessee has deposited the entire amount of PF and ESIC much before the due date of filing of return. The issue relating to retrospective operation of omission of second proviso to section 43B was considered in CIT vs. Alom Extrusions Ltd. [2009 (11) TMI 27 - SUPREME COURT] wherein held that it is curative in nature and would apply retrospectively, with effect from 1-4-1988. The Hon’ble Delhi High Court in CIT vs. AIMIL Ltd. (2009 (12) TMI 38 - DELHI HIGH COURT) held that if the employee’s share of contribution is paid before the due date of filing of the return u/s 139(1), then no disallowance can be made - thus disallowance sustained by CIT(A)is not sustainable.

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• 2012 (12) TMI 819
  Re opening of assessment - treating the assessee as an Association Of Persons instead of partnership firm - interest levied under section 234B & 234C - Held that:- It can be seen that the petitioner was assessed with the status as a Firm and that subsequently, following the judgment of this Court in Narayanan & Company v. Commissioner of Income Tax (1996 (3) TMI 81 - KERALA HIGH COURT), assessment was re-opened and the tax was re-assessed treating the petitioner as an Association Of Persons. Therefore, situation as contemplated in paragraph 2 clause (d) of notification dated 23.5.1995 was not available to the petitioner to claim the benefit thereof. As held in Hazi Anwar & Others v. Competent Authority (2001 (1) TMI 915 - APPELLATE TRIBUNAL ) interest u/s 234A, B & C is mandatory. It is also settled that unless the claim for waiver or reduction come within the four corners of the conditions specified by the Central Government, interest levied under the aforesaid provisions cannot be waived (see Universal Trades Corporation v. Chief Commissioner of Income Tax & Ors. (2000 (11) TMI 65 - KERALA HIGH COURT)] - the assessee could not have claimed waiver of interest.

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• 2012 (12) TMI 818
  Registration cancelled u/s 12-AA(3) - approval u/s 10(23C)(vi) had been denied to the assessee - ITAT restored registration - Held that:- Exemption under Section 10(23C)(vi) can be claimed by an assessee without applying for registration under Section 12A as it is not required to fulfill the conditions mentioned under Section 11 while claiming exemption under Section 10(23C) (vi). Further in the order passed by the CIT, there is no whisper that the assessee has not fulfilled any of the conditions of the Section 11 for claiming it to be a charitable institution. He had solely relied on the order of the Chief Commissioner of Income Tax passed under Section 10(23C) (vi) while denying the exemption under the aforesaid sub-section. Therefore, the Tribunal had rightly restored the registration on the ground that in the Assessment Years 2004-05 and 2006-07 benefit of exemption/deduction under Section 11 was allowed to the respondent-assessee.

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• 2012 (12) TMI 816
  Prior period expenses paid to Delhi Stock Exchange - disallowance - Held that:- For Listing fee for period upto 31.12.2004 of Rs.10,000/- and listing fee of Rs.5000/- each for 2005 and 2006 the assessee had made an application on 17.01.2002 for delisting of its securities from the Delhi Stock Exchange. The application was made on 17.01.2002. The assessee was under the bonafide belief that he has not to make any payment towards the listing fees. Revenue has also not brought on record anything which could show that the listing fee for these years was demanded in earlier years. In view of these facts, the listing fees paid for period upto 31.12.2004, 2005 & 2006 arose and crystallized during the year under consideration. In view of these facts, the total expenditure of Rs.50,000/- (i.e Fees for revocation of suspension of trading of shares of the assessee company w.e.f. 16/12/2004 on 7/6/2007 Rs. 10,000, listing fees upto 31/12/2004 Rs.10,000/-, for 2005 Rs.5,000/-, for 2006 Rs.5,000/- and processing fees of Rs.10,000/- on 30/8/2007 & condonation fees Rs.5,000/- and reinstatement fees Rs.5,000/- on 3/12/2007, as earlier short paid were allowable during the year under consideration as these expenses were first time arose and crystallized during this year. Similarly, the was allowable during the year under consideration itself as these expenses cannot be termed as prior period expenses - in favour of assessee. Non deduction of TDS - parking charges for reserved car parking - Disallowance u/s 40(a)(ia) - 194C v/s 194I - Held that:- Car parking comes u/s 194I of the Income-tax Act, 1961 for the applicability of the TDS provisions. However, from the facts, it is found that there is nothing on record which shows that the parking space was earmarked for the assessee - copy of the letter from Bharat Hotels Limited dated 26.04.2007 also did not mention anything about earmarking of the parking slot, it only states that inside the main gate entrance of World Trade Centre. Such arrangements cannot be said as a letting out of land.. It can be only a contract between the two independent parties for allowing vehicle to be parked inside the premises. Therefore, the provisions of section 194I are not applicable. Such payments for contractual obligations can be covered by the provisions of section 194C. Since no tax has been deducted on the payment the provisions of section 40(1)(ai) are applicable - against assessee.

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• 2012 (12) TMI 815
  Deduction u/s 54 - CIT(A) allowed the claim - assessee contested against delay in filing appeal by revenue - Held that:- Where the time for referring an appeal has expired, a valuable right is secured to the respondent or the opposite party and such right ought not to be lightly disturbed as held in the case of Ramlal v. Rewa Coalfields Ltd.[1961 (5) TMI 54 - SUPREME COURT]. The appeal preferred or made after the expiry of the prescribed period can be admitted only if the assessee satisfied the Tribunal that there was sufficient cause for not preferring the appeal within such period. As in this case the Department did not file the appeals within due time in this case and cause shown by it does not conclusively show that same is reasonable or sufficient. It was a case of no action on the part of the AO inasmuch as even after obtaining authorization from concerned CIT on 30.08.2010, the appeal was filed on 29.03.2012 and no material or evidence to justify such inordinate delay of 557 days has been adduced except taking general type of plea of oversight and pressure of overwork, Department has sought condonation of delay, which, cannot be held to be a sufficient or reasonable cause for not filing the appeal within stipulated time - in favour of assessee.

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• 2012 (12) TMI 814
  Warrant of authorization for conducting search - block assessment – Held that:- As decided in CIT (Central) Versus Smt. Vandana Verma [2009 (10) TMI 52 - ALLAHABAD HIGH COURT] joint warrant could not be issued and it shall, be incumbent upon die authority to issue warrant in individual name Undisputedly in the present case the warrant of search was issued in the joint names of the assessee and his brother thus assessment not justified - the warrant of authorization must be issued individually by the Director/Commissioner at the time of issuing the same. If the same is not issued individually, then assessment cannot be made in an individual capacity as done by the Assessing Officer in the instant case - Order of CIT(A) is set aside and remand the matter to CIT(A) with a direction to await the decision of larger Bench and also direct the Revenue not to press demand raised out of assessment orders till disposal of the appeals by CIT(A) - appeals of the assessee allowed for statistical purposes.

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• 2012 (12) TMI 813
  Disallowance of additional depreciation u/s 32(1)(iia) – Non submission of Form 3AA - AO argued that assessee having not fulfilled the mandatory requirements of Sec. 32(1)(iia) by filing a report of the accountant in Form No.3AA before completion of the assessment proceedings - Assessee contended that the report in Form 3AA was filed before the AO on 27-11-2006 before completion of the assessment proceedings – Held that:- In view of the dispute regarding filing of form No.3AA, we think it proper to restore the matter back to the file of the CIT who shall conduct an enquiry and find out as to whether in reality the assessee has filed Form 3AA on 27-11-2006 before the AO and if it is available on record. Issue remand back to AO Unexplained income – As per TDS certificates the total amount received was Rs.59,16,285 – TDS deducted amount Rs.12,12,839 - Assessee credited only an amount of Rs.55,32,097/- to its P &L account - CIT held that the difference of Rs.3,84,188/- escaped assessment – Held that:- As concluded from the facts it is seen from the final accounts which has been submitted before us that in Schedule XII, shown royalty and service charges at Rs.55.32 lakhs and the assessee has paid an amount of Rs.3,83,158 towards service tax. Therefore claim of the assessee needed to be examined again. Remand back to AO Validity of order u/s 263 passed by CIT - Issue already subject matter before CIT(A) - Deduction u/s 80HHC – Computation of export turnover - Whether Ocean freight included/excluded for arriving at Export turnover - AO held that the said freight is not deductible from the total turnover as the said turnover does not relate to the exports – Held that:- CIT has therefore no powers to exercise his jurisdiction with regard to the issue which is already subject matter of appeal before the CIT (A) in view of the provisions contained in section 263 (1)(c). Therefore we hold that the CIT ‘s direction to the AO to recompute the deduction allowable u/s 80HHC is legally unsustainable. In favour of assessee Addition of excise duty payable on finished goods - Assessee has to prepare P&L A/c as per section 145A of the Act by taking the value of excise duty component in finished goods of closing stock - finished goods have not been removed from the manufacturing point which could have attracted levy of excise duty – Held that:- when the stock of finished goods are still lying at the manufacturing point and has not been removed to the godown, there is no question of adding excise duty following the decision in case of D & H Secheron Electrodes (P.) Ltd. (2007 (11) TMI 546 - MADHYA PRADESH HIGH COURT). A similar view was taken by this Tribunal in the assessee's own case for the assessment year 2004-05. In favour of assessee

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• 2012 (12) TMI 812
  Written off of Losses on amalgamation – Held that:- The assessee conceded that paper books giving details of the assets written off were not supplied to the AO and for the first time these details were given to the CIT(A), and no plausible reason was given for not submitting these documents to the AO. The judgments relied on by the assessee do not come to the rescue of assessee. In favour of revenue Calculation of book profit u/s 115JB – AO reduce the book profits by inventories written off, advances written off, discarded assets and bad debts written off – Held that:- As per the provisions of Sec. 115JB and has rightly observed in his order that he book profit cannot be adjusted except for the items specified in the section. Therefore, the deduction claimed by the assessee in the book profit has rightly been disallowed by the AO. In favour of revenue Inventories written off as obsolete stock - Assessee had acquired the business of the demerged company as a going concern – Held that:- assessee has not placed on record any document to show that the assessee had taken over the amalgamating companies as a going concern. Moreover, it is not the case of the assessee that the inventories are being written off for being obsolete alone. The assessee has stated before the AO that it could not receive the amounts from various parties and when it has become bad, the same was written off. The assessee was unable to show how and why the inventories have become obsolete. The assessee failed to tender any evidence before the AO. In favour of revenue Write off the losses – Capital or revenue nature - Incurred in acquiring the assets and liabilities of the amalgamating companies – Held that:- In the present case, there was amalgamation of four companies into the assessee company. The assessee intends to write off the losses incurred by the assessee in acquiring the assets and liabilities of the amalgamating companies, which is capital in nature. In favour of revenue Bad debts – Assessee had not written off the debts in the books of account - Held that:- Assessee is claiming write off of bad debts in violation of the provisions of section 36(2)(i). The assessee has not placed on record the scheme of amalgamation either before the lower authorities or before the Tribunal. Therefore, claim of bad debts, inventories etc. of the assessee has rightly been disallowed by the AO. In favour of revenue

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• 2012 (12) TMI 811
  Transfer Pricing – Arm length price determined by TPO u/s 92CA (3) – Assessee argued that Comparable company is in the business of Exploration of oil and natural gas whereas the assessee is in the business of manufacture of lubricants - Held that:- As concluding from the facts of the case, the order is set aside and the matter of transfer pricing for determining the ALP in respect of exports by the assessee to their AEs, to the file of the TPO for giving a reasoned order as to how the domestic prices are comparable in all respects to the exports made by the assessee to their AEs in terms of Rule 10B. Issue remand back to AO Disallowance of Capital Loss - AO disallowed advanced to one of the subsidiaries which was stated to have become sick and incurring loss – Held that:- From the order of AO & CIT(A) it is not clear as to the purpose of loan and the line of the business subsidiary. Therefore restore the issue of write off to the file of the Assessing Officer for considering de-novo in accordance with law. Issue remand back to AO Disallowance u/s 14A - Interest expense in relation to earning income u/s 10 – Held that:- Once the profit and loss account of the floriculture division has been accepted and the net profit(loss) excluded from the total income there is no question of further estimating disallowance of interest. Prior to insertion of sub-section 2 & 3 to Sec 14A, the AO has no power to artificially allocate certain expenditure as having been incurred in relation to earning the income which does not form part of the total income. In absence of any finding that some expenditure were definitely incurred in relation to earning dividend income no artificial allocation can be made so as to disallow the same. Delete the estimated addition of notional interest on borrowed funds deemed to have been utilized for floriculture division. In favour of assessee Deduction in respect of certain inter-corporate dividends – AO restrict the deduction u/s 80M - Assessee contended that the balance non-corporate dividend should also be considered as deemed dividend for the purpose of deduction u/s 80M – Held that:- Since this aspect has not been adjudicated by either by the AO or by CIT(A), we restore this issue to the file of the AO for considering the issue de-novo in accordance with law after providing reasonable opportunity of being heard to the assessee. Issue remand back to AO Computation of book profits u/s 115JB – Treatment of provision for doubtful debts – Held that:- In view of the amendments to Sec. 115JB introduced by the Finance (No.2) Act of 2009 inserting clause (i) to Explanation (1) to sub-section (2) to Sec. 115JB with respective effect from 01/04/2001, any amount set aside towards diminution in the value of assets should be added back to the book profits computed in accordance with part II & III of schedule –VI to the Companies Act. It has been held that the provision for bad and doubtful debts is a provision for diminution in the value of assets as decided in case of HCL Comnet Systems & Services Ltd. (2008 (9) TMI 18 - SUPREME COURT). In favour of revenue Levy of interest u/s 234D – Applicability of Sec. 234D – Held that:- Following the decision in case of Ekta Promoters (2008 (7) TMI 452 - ITAT DELHI-E) wherein it has been held that section 234 has been inserted by the Taxation Laws (Amendment) Act, 2003 with effect from 01.06.2003 applicable from AY 2004-05. Since the assessee’s case falls in AY 2003-04, we direct the AO to delete the levy of interest. In favour of assessee Credit of TDS - Interest income received from UTI was taxed in the A.Y 2003-04 - TDS certificates for the taxes deducted by UTI were filed along with the return for A.Y 2004-05 because the TDS certificates were belatedly sent by UTI – Held that:- The TDS certificates have been filed in original and full particulars have been furnished, credit for TDS has not been given. Hence, AO is directed to give credit of TDS for AY 2003-04. In favour of assessee

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• 2012 (12) TMI 810
  Rectification of mistake - section 254 - order of tribunal - held that:- Tribunal has no jurisdiction to re-appreciate the contentions as well as evidence in the proceedings under section 254(2). It is a settled proposition of law that the scope of sec. 254(2) is very limited and circumscribed. A mistake apparent from record must be an obvious and patent mistake and not something which can be established by a long drawn process of reasoning which can be rectified u/s. 254(2). For exercising the jurisdiction u/s. 254(2), it is mandatory that a mistake should be wide apparent, manifest and patent and not a point which would involve serious circumstances of dispute of question of fact or law which requires investigation and verification of facts. Regarding rectification of mistake on account of disallowance of depreciation while calculating MAT (u/s 115JB) - held that:- in view of the settled proposition of law the Tribunal has no jurisdiction to re-appreciate the contentions as well as evidence in the proceedings under section 254(2). Once the finding has been given on merit than under the proceedings of 254 (2), the same cannot be reversed. - In favour of revenue

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• 2012 (12) TMI 809
  Validity of Block Assessment - plea for rectification of mistake - Held that:- As decided in ITAT Versus V. K. Agarwal And Another [1998 (11) TMI 126 - SUPREME COURT] in accordance with section 254(1) is only when order bears the signature of both the Members and communicated to the parties. The rule 34 of ITAT Rules 1963 also provides that the order of Bench shall be in writing and shall be signed and dated by the Members constituting the Bench. Thus in the light of above law laid the so-called claim by the assessee that order has been pronounced in the open Court is not the order of I.T.A.T. under section 254(1) of the Act. When there is no order of I.T.A.T. in accordance with law under section 254(1), there is no question of amending the order under section 254(2). That according to rule 34(4) the orders are to be pronounced in the Court but on perusal of records, it is noticed that there is no such pronouncement, rather the case/appeal was kept for order as per the order sheet dated 6.10.2008. Also that for such pronouncement in the open Court, the rules (4) & (5) of rule 34 of has been inserted by the Income Tax (Appellate Tribunal) (Amendment) Rules 2009 w.e.f. 01.05.2009. In the light of the facts, the contention of the assessee is rejected as such are not mistakes which are rectifiable under section 254(2). The contention raised in the Miscellaneous Application itself shows that the assessee wants a second order after recalling the original order. The I.T.A.T. has no power to review its earlier order. The power under section 254(2) is only to amend the order with a view to rectify any mistake apparent from record. The so-called mistakes pointed out in the Miscellaneous Application discussed above are not mistake apparent on record. Therefore, the same is not covered under section 254(2) - against assessee.

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• 2012 (12) TMI 808
  Rejection of method of accounting – Project completion method – Assessee consistently following the project completion method - AO notice that the project was not completed before 31st March 2008 - Sale of flats as well as construction work were less than 30% - Held that:- As concluding from the facts of the case AO accepted this fact that on completion of project, the assessee has offered the income to tax after claiming the deduction u/s 80 IB(10). Therefore when the assessee offered the income to tax from the entire project for the A.Y 2008-09 which has been adopted by the AO for estimation of the income for the year under consideration, then this fact goes to prove that there is no difference in the rate of profit declared by the assessee for the A.Y 2008-09 and the rate adopted by the assessing officer for the year under consideration. Thus there is no revenue effect and the income offered by the assessee on completion of the project is revenue neutral. In favour of assessee Deduction u/s 80IB(10) - More than one approval obtained from the local authorities - First approval dated 12.9.2003 was obtained by the earlier owner for the project - Due to substantial change in the housing project assessee obtained another from local authorities on 28.9.2005 – Held that:- When the project in question was sanction after 1.4.2004, then as per clause (a) (ii) of sec 80IB(10), it is required to be completed within four years from the end of the F.Y in which it is approved by the local authorities. Since the project in question was sanctioned on 28.9.2005; therefore, the same was required to be completed on or before 31.3.2010. Accordingly, we hold that the assessee has complied with the conditions of completion within four years from the end of the financial year 2005-06. In favour of assessee Deduction u/s 80IB(10) – Correct measurement of size of plot on which project developed - Discrepancy in the records of the Government agencies with regard to the actual size of the plot of land – Held that:- If it is ultimately found that the area of plot is more than one acre, then deduction u/s 80IB cannot be denied on the basis of the area of plot shown in the 7/12 extract as less than one acre. This factual aspect is required to be verified physically either by the competent revenue authorities or by the AO through some agencies. The assessee is also directed to get the demarcation and correct measurement by the competent authority. Issue remand back to AO.

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• 2012 (12) TMI 807
  Jurisdiction power u/s 263 by CIT(A) - claim of depreciation on car against salary and interest from the firm – Held that:- The AO made an addition of Rs.17,533/-, treating the same as monetary perquisite, being interest free loan as the tax on the same as not exempt u/s 10(10CC) of the Act. The addition was made by the AO, on perusal of form No. 16A and on the basis of explanation, filed by the assessee. It is evident that the AO, has taken a legally permissible view, in the matter, in terms of the provisions of Section 10(10CC). The CIT has computed the income of Rs.18,339/- in respect of interest paid by the employer, as is evident from findings of the CIT. The issue, in question has been dealt with and considered by the AO, after application of mind and making requisite enquiries. Therefore, CIT is not competent u/s 263 to substitute his opinion, in place of the view taken by the AO. The impugned order of the CIT, falls beyond the statutory pale of Section 263 view further supported by the decision of the Apex Court n the case of Malabar Industrial Co. Ltd.V CIT [2000 (2) TMI 10 - SUPREME COURT] - in favour of assessee.

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• 2012 (12) TMI 806
  Disallowance of Premium paid for Keyman Insurance Policy – Held that:- The object and purpose of a keyman insurance policy is to protect the business against a financial set back which may occur, as a result of a premature death, to the business or professional organization. There is no rational basis to confine the allowability of the expenditure incurred on the premium paid towards such a policy only to a situation where the policy is in respect of the life of an employee. It safeguard the firm against a disruption of the business that may result due to the premature death of a partner. Therefore, the expenditure which is laid out for the payment of premium on such a policy is incurred wholly and exclusively for the purposes of business - Disallowance made by the AO is directed to be deleted - in favour of assessee. Foreign Traveling Expenditure - Held that:- Entire Expenditure on foreign traveling was on account of business exigencies and the countries traveled i.e. USA and Canada represent 80% of the turnover of the assessee firm and same countries have been visited on a continuous basis year after year to maintain the business relation and to expand the same. It was further submitted that the fringe benefit tax (FBT) @ 5% on entire expenditure on foreign traveling had been paid separately to take care of any possible personal use of the funds of the firm while on foreign tour and the partners have traveled individually and not alongwith their families so as to suggest personal use of funds of the firms. Any disallowance in addition to fringe benefit tax has to be based on concrete evidence available with the AO and in case of estimation specific reasons need to be brought on record like an unusual increase in foreign traveling expenses especially the unvouched expenses vis-avis last year/years - appeal of the Revenue is dismissed.

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• 2012 (12) TMI 805
  Reopening of Assessment – report of the DVO in respect of construction of the building by the assessee - Held that:- As decided in ACIT Vs. Dhariya Constructions Co. [2010 (2) TMI 612 - SUPREME COURT OF INDIA] mere opinion of the DVO in relation to the cost of construction of the building owned by the assessee, in the absence of any other information collected against the assessee is not an information and reopening of assessment by way of proceedings under section 147/148 are invalid and are hereby cancelled. Consequently, the assessment order passed under section 143(3) r.w.s. 147 in the present case is hereby cancelled - all the four appeals relating to assessment years 2001-02 to 2005-06 filed by the assessee are allowed - against revenue.

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• 2012 (12) TMI 804
  Visa Charges and Others – Whether liable to FBT – Held that:-The incurring of visa charges may result in tour and travel of employees but the objective and purpose of incurring these and other related expenditure is for the carrying on of business outside India. Further, visa charges are a statutory payment. It is a legitimate business expenditure incurred by the assessee and is neither paid to the employees as a consideration for employment, nor are they incurred for the benefit of the employees of the assessee company. As decided in M/s. Toyota Kirloskar Motor P. Ltd. Vs. Addl. CIT (LTU), Bangalore [2012 (6) TMI 484 - ITAT, BANGALORE] legitimate business expenditure which does not result in any benefit to employees is not liable to FBT - Thus the findings of CIT(A) in concluding that the expenses under the head “Visa Charges and Others” are not liable for FBT are correct - in favour of assessee.

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• Customs

• 2012 (12) TMI 803
  Detention on goods on account of alleged hazardous qualities - demanding Release of seized 96.74 Metric Tonnes of Copper Concentrate as could be processed and disposed of in accordance with the Hazardous Wastes (Maintenance and Handling) Rules, 1989 - Held that:- In the guidelines for expeditious clearance/provisional release under Customs Manual paragraph 2.2. (c) it has been written for dispute case pending investigation wherever importer or exporter is willing, he should be allowed provisional clearance of the goods by furnishing a bond for full value of the goods supported by adequate bank guarantee as may be determined by the proper officer. The value of bank guarantee shall not exceed twice the amdunt of duty. The provisional clearance should be allowed as a rule and not as an exception As respondents submits that they undertake to abide by the said provisions I.A. is disposed of with a direction upon the appellant, Customs Authorities, to release the goods in question to the respondents, subject to compliance with the provisions of Chapter 15 of the Customs Manual, 2011.

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• 2012 (12) TMI 802
  Tax defaulter - former director in the company - government dues under the Customs Act, 1962 - Held that:- Considering the provisions of section 142 & Relevant Rules it is only the defaulter against whom steps may be taken under Rules. The defaulter is the person from whom dues are recoverable under the Act, which in the present case undoubtedly is the company. There is no averment that the company has been or is being wound up. In that case, there cannot be any question about the separate juristic personality of an existing company and its former director, the dues recoverable from the former cannot, in the absence of a statutory provision, be recovered from the latter. There is no provision in the Customs Act, 1962 corresponding to Section 179 of the Income Tax Act, 1961 or Section 18 of the Central Sales Tax, 1956 which enable the revenue authorities to proceed against directors of companies or such like third parties who are not defaulters - As decided in UOI vs. M.D. Lotlikar [1987 (11) TMI 24 - BOMBAY HIGH COURT] the directors of any company, whether public limited or private, are not personally liable for the debts of the company unless the Company Court finds them guilty of any misfeasance or wrongs - Thus the impugned notices and action of the Customs authorities in the present case is at once in utter violation of Article 265 of the Constitution, as it seeks to recover tax dues of one from another, without authority of law. It also amounts to illegal deprivation of the petitioner’s property, without authority of law, under Article 300-A of the Constitution of India - Writ allowed.

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• Corporate Laws

• 2012 (12) TMI 827
  The expression party Delivery of copy of copy of Award to the party - Arbitration and Conciliation Act, 1996 - Section 31(5) and Section 34(3) held that:- . It is one thing for an Advocate to act and plead on behalf of a party in a proceeding and it is another for an Advocate to act as the party himself. The expression party , as defined in Section 2(h) of the 1996 Act, clearly indicates a person who is a party to an arbitration agreement. The said definition is not qualified in any way so as to include the agent of the party to such agreement. Any reference, therefore, made in Section 31(5) and Section 34(2) of the 1996 Act can only mean the party himself and not his or her agent, or Advocate empowered to act on the basis of a Vakalatnama. In such circumstances, proper compliance with Section 31(5) would mean delivery of a signed copy of the Arbitral Award on the party himself and not on his Advocate, which gives the party concerned the right to proceed under Section 34(3) of the aforesaid Act. In the instant case, since a signed copy of the Award had not been delivered to the party itself and the party obtained the same on 15th December, 2004, and the Petition under Section 34 of the Act was filed on 3rd February, 2005, it has to be held that the said petition was filed within the stipulated period of three months as contemplated under Section 34(3) of the aforesaid Act. Consequently, the objection taken on behalf of the Petitioner herein cannot be sustained and, in our view, was rightly rejected by the Division Bench of the Delhi High Court.

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• 2012 (12) TMI 801
  Scheme of Amalgamation - Held that:- The requirement of convening meetings of Shareholders & un-secured creditors in view of the written consents/NOC given by all the Shareholders of the Transferor Company and the Transferee Company are dispensed with - Report of Official Liquidator stating that he has not received any complaint against the proposed Scheme from any person/party interested in the Scheme in any manner and that the affairs of the Transferor Company do not appear to have been conducted in a manner prejudicial to the interest of its members, creditors or to public interest. Application for compounding of the contravention of provisions of FEMA forwarded and the Compounding Authority of the Reserve Bank of India was pleased to compound the contraventions in accordance with the Foreign Exchange (Compounding Proceeding) Rules 2000. No objection has been received to the Scheme of Amalgamation from any other party there appears to be no impediment to the grant of sanction to the Scheme of Amalgamation - The petitioner companies will comply with the statutory requirements in accordance with law with filing certified copy of the formal order with the ROC within 30 days - the whole or part of the undertaking, the property, rights and powers with all the liabilities and duties of the Transferor Company be transferred to and vest in the Transferee Company without any further act or deed - this order will not be construed as an order granting exemption from payment of stamp duty or any other charges - Petitioner Companies would voluntarily deposit a sum of Rs. 1 Lac in the Common Pool fund of the Official Liquidator within three weeks from today.

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• 2012 (12) TMI 800
  Scheme of Arrangement for de-merger - Held that:- The proposed Scheme has been approved by the Board of Directors of both the Applicant Companies. In view of the written consents/NOC given, the requirement of convening meetings of Shareholders of the Demerged Company and the Resultant Company are dispensed with. As that the Un-secured Creditors of both the Applicant Companies have given their written consents/NOC to the proposed Scheme. Accordingly, the requirement of convening meeting of their meeting is also dispensed with. There is no requirement of convening the meetings of the Secured Creditors of the Applicant Companies as they do not have any - application of demerger so allowed.

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• 2012 (12) TMI 799
  Scheme of Arrangement - Held that:- The requirement of convening meetings of Equity Shareholders, Secured and Unsecured Creditors of the Petitioner Companies is dispensed with - Affidavit of service and publication of notice has been filed by the petitioners showing compliance regarding service of the petition on the Regional Director, Northern Region and the Official Liquidator. Report of Official liquidator that he has not received any complaint against the proposed Scheme from any person/ party interested in the Scheme - approval accorded by the Shareholders and Creditors of the petitioner Companies, representations/ reports filed by the Regional Director, Northern Region and the official liquidator to the proposed scheme of Arrangement, there appears to be no impediment to the grant of sanction to the Scheme of Arrangement - The petitioner companies will comply with the statutory requirements in accordance with law with filing certified copy of the formal order with the ROC within 30 days - this order will not be construed as an order granting exemption from payment of stamp duty or any other charges - Petitioner Companies would voluntarily deposit a sum of Rs. 1 Lac in the Common Pool fund of the Official Liquidator within three weeks from today.

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• Service Tax

• 2012 (12) TMI 825
  Business Auxiliary Services – Export of service – Refund claim for the service tax paid on input services - under Rule 5 of CENVAT Credit Rules, 2004 – Held that:- Input services received by the appellant and the nature of the services received, it is evident that all the services are essential in running the business of rendering the output service ‘Business Auxiliary Service' which is exported. Following the decision in case of Ultratech Cement Ltd., (2010 (10) TMI 13 - BOMBAY HIGH COURT) held that any service which has nexus with the business activity of the appellant, whether it is manufacturing or rendering service, has to be treated as “input service” coming within the purview of Rule 2(l) of the CENVAT Credit Rules, 2004. Therefore, appellant is rightly entitled for the refund of the service tax paid on input services which have been used in the rendering of output services has been exported. In favour of assessee

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• 2012 (12) TMI 824
  Stay petition - Input service distributor – Cenvat Credit – GTA service - Credit was distributed by issuing invoices as ISD by branch sales office to plants – ST -3 - Required returns in this regard as ISD was not filed - Commissioner confirming the cenvat credit demand with interest - Impose penalty of equal amount - Rule 15 of the Cenvat Credit Rules, 2004 – Held that:- the cenvat credit cannot be denied, more so, when the appellant's contention that SAIL (BSO) during that period of dispute, were filing the ST-3 Returns in which their transactions as input service distributor were also reflected, have not been disputed by the department Cenvat credit - Rent-a-cab service – Input service – for bringing the workers to the steel plant and dropping them back – Held that:- This service is covered by the definition of 'input service' and hence the cenvat credit of service tax paid in respect of the same would be admissible Appellants have strong prima facie case in their favour. Stay Granted

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• 2012 (12) TMI 823
  Waiver of Pre-deposit - Service Tax, interest and penalty - Demand is confirmed that the applicant provided club or association services to their members, which is a taxable service - Held that:- We find that now vide Section 145, the services provided by Club or Association in relation to common facilities set up for treatment and recycling effluent and solid water, with the financial assistance from the Central & State Government, has been given retrospective amendment with effect from 16.6.2005. Stay petition allowed.

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• Central Excise

• 2012 (12) TMI 798
  Refund claim for the excise duty - denial of claim - Held that:- Purchaser being the defence organisation of Government of India, the question of passing on the excise duty to any other person does not arise and ordnance depot not being a manufacturer of any goods, could not have taken Cenvat Credit - Refund claim of respondent accepted - against Revenue.

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• 2012 (12) TMI 797
  Carry forward and set-off of underutilized cenvat credit - change of status due to amalgamation - Held that:- Merger causes diminishing of the status of amalgamating companies after amalgamation. No Right existing before amalgamation cannot be claimed to be a right existing amalgamation - Carry forward and Set-off of unutilised cenvat credit in the hands of amalgamated company is denied - in favour of Revenue.

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• 2012 (12) TMI 796
  Reversal of Credit proportionate to the inputs used in or in relation to the manufacture of the exempted goods - Held that:- The applicants are procuring iron ore and metallurgical coke and only screening the same and during the process of screening the iron ore fine and coke breeze come into existence which is not fit for use in the manufacture of pig iron and the same are being cleared without payment of duty. As the provisions of Rule 6 of the Cenvat Credit Rules are amended retrospectively and the manufacture has to reverse the credit proportionate to the inputs used in or in relation to the manufacture of the exempted goods, the applicants are directed to deposit Rs. 8,00,000/- within six weeks.

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• 2012 (12) TMI 795
  Breakage of glass bottles during the manufacture of aerated beverages - denial of credit relying on Boards circular dated 9.7.2010 - Held that:- The period of demand in the present case is November 2009 to June 2010 i.e. prior to the issue of the circular dated 9.7.2010 to be treated as prospective in nature and cannot be held to be retrospective. During the period in dispute, there was a Board circular dated 17.9.1975 which clarifies that the breakage of bottles in the manufacture of aerated beverages upto 0.5% is condonable and manufacturer is not liable to reverse the credit - in favour of Appellant.

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• CST, VAT & Sales Tax

• 2012 (12) TMI 828
  Penalty invoking Rule 633 of the Excise Manual - assessee contested agianst non granting of opportunity of being heard - Held that:- Principles of natural justice demand that a show-cause notice should be issued and an opportunity of hearing should be afforded to the person concerned before an order under the said Rule is made, notwithstanding the fact that the said Rule does not contain any express provision for the affected party being given an opportunity of being heard. Vide letter dated 2nd October 1992, the Excise Commissioner called upon the appellant to deposit an amount of Rs.14,20,943/- towards Excise duty and interest on account of default on their part to furnish PD-25 pass duly certified by the competent authority at Kandla Port. The letter /notice does not indicate the exact quantity of rectified spirit on which duty @ Rs.40/- per alcoholic litre has been charged, though the total amount of duty payable is mentioned. Similarly, in the final show-cause notice dated 6th April 1994, threatening action for black listing for future exports on account of non-payment of the aforenoted amount, there is not even a whisper as to how and why rectified spirit in question was being subjected to Excise duty by the State. As stated above, this Court having categorically held in Synthetics And Chemicals (1989 (10) TMI 214 - SUPREME COURT OF INDIA) that the State Legislature had no legislative competence to impose Excise duty on rectified spirit (industrial alcohol), the Commissioner of Excise could not demand Excise duty on rectified spirit contained in the tank wagon which, later on, was found to be empty, without returning a finding that the said spirit had been diverted/converted into potable alcoholic liquor fit for human consumption, on which the State was empowered to impose duty. It bears repetition that such a finding could not be recorded by the Commissioner without affording due opportunity to the appellant to explain its stand in this regard for which, the onus lay on them as transporter and the executant of the bond. We are convinced that in the present case, before imposing the impugned demand of penalty and interest, there was absolutely no adjudication by any authority as regards the breach committed by the appellant, except the allegation that the appellant had failed to furnish the PD-25 pass certified by the Collector, therefore, the action of the respondents for the recovery of penalty and interest, being violative of principles of natural justice, is null and void.

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• 2012 (12) TMI 826
  Inclusion of sales transaction of the cars into total turnover - main business of the petitioner is manufacture and sale of pharmaceutical products - Held that:- The vehicles are used by Petitioner company in the course of business which may not lead to the inference that proceeds from the sales of such vehicles should have been included in the turnover and must be taxed accordingly. The selling of used cars cannot by any stretch of the imagination be characterized as “ancillary” or incidental to the business of a pharmaceutical company. It is not shown that the cars were of a special character e.g. air conditioned vehicles especially designed to store and ferry pharmacy products. They were purchased for use of company employees and executives, for office purposes. At the stage of purchase, they suffered sales tax, which the assessee, as buyer, was bound to pay. However, the assessee never held them for the purpose of sale and purchase, but for using them. After their use, having regard to lapse of time, and their wear and tear, the assessee decided to replace them, thus sold them. Their sales, in a sense are twice removed from the business of the assessee. They cannot be called “incidental” or “ancillary” to the manufacture and sale of pharmaceutical products, which the assesse is engaged in. The vehicles had already been taxed once under the first point tax regime then in cases of transactions which are redundant and cannot be considered under the definition of “business” as they were aimed mainly to get rid of old vehicles which are carried on by persons in normal course of their lives as well and previous orders of the Appellate Tribunal have also been in favour of the petitioner itself, the levy of sales tax on an already taxed vehicle with little relation to the business will give rise to an anomaly - thus the view taken regarding inclusion of the sales transaction of the cars in question, in the turnover of the petitioner is unsustainable in law - writ petition allowed.

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