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TMI Tax Updates - e-Newsletter
December 6, 2014
Case Laws in this Newsletter:
Income Tax
Customs
Service Tax
Central Excise
Articles
News
Notifications
Highlights / Catch Notes
Income Tax
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Royalty expenditure - Capital expenditure or revenue expenditure - music / songs - the capital amount or asset so created would be of a minuscule value and there would be a minimal tax effect - accounts should not be re-written because of the smallness and minimum tax effect - HC
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Claim of depreciation on installation of windmill if the assessee exercised the option in terms of second proviso to Rule 5(1A) of the Income Tax Rules at the time of furnishing of return of income, it will suffice and no separate letter or request or intimation with regard to of exercise of option is required - HC
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Taxability of compensation received appellant from the Insurance Company on account of destruction of Wind Mill u/s 50 Tribunal committed an error in applying provisions of section 41(2) - HC
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In the light of abatement of the proceedings before the Settlement Commission by operation of the provisions of section 245HA of the Act, the interest of justice requires that the appeal preferred by the petitioner before the Tribunal be restored - HC
Case Laws:
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Income Tax
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2014 (12) TMI 192
Amount of ₹ 12 lakhs deducted while computing LTCG Determination of cost of acquisition - Whether amount paid by the assessee to the seller at the time of purchase of the property must be construed as a cost of acquisition of the asset so as to be deducted from the full value of consideration received by the assessee at the time when he had sold and transferred the property Held that:- The Tribunal was rightly of the view that after noting Section 48 of the Act, which relates to the aspect of capital gain, was of the view that the sale deeds by which, the assessee had sold the property, does not mention the fact about the sale of furniture and fixtures and other fittings - The Tribunal also rejected the basis on which, the assessee has claimed deduction at ₹ 12 lakhs on the ground that the description of items indicates that the same consisted of removable wood work - the furniture and fixtures are personal effects which have been specifically excluded from the definition of capital asset as contained in Section 2(14) of the Act. The Authorities below was of the view that the assessee had acquired the property by way of four sale deeds, each of ₹ 4.50 lakhs, the total of which, was ₹ 18 lakhs - there was no agreement, nor any registered deed in that regard - The AO was right in noting that there was no mention in the sale deeds of ₹ 18 lakhs about purchase of the furniture and fixtures by way of a separate agreement for ₹ 12 lakhs - the deed of 2008 also does not give the inventory of the furniture and fixtures as sold in the year 2008, which aspect has been conceded by the assessee at the time of the arguments. Most of the items which are said to have been acquired are primarily personal effects which are excluded from the definition of capital asset u/s 2(14) of the Act if they are meant for personal use - ₹ 12 lakhs was for all the fixtures and fittings including furniture - the breakup of ₹ 12 lakhs was not given - the Authorities below were right in disallowing ₹ 12 lakhs for the purpose of computation of the capital gain as such no substantial question of lawarises for consideration Decided against assessee.
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2014 (12) TMI 191
Order u/s 119(2)(b) Rejection of application for condonation of delay of 22 months Held that:- From time to time, the CBDT has been issuing instructions to effectuate exercise of powers u/s 119(2)(b) which includes, instruction No.12/2003 dated 30 October 2003 - In M/s. Bombay Mercantile Coop Bank Ltd. Versus The Central Board of Direct Taxes [2010 (9) TMI 23 - BOMBAY HIGH COURT] it has been held that in matters of condonation of delay highly pedantic approach should be eschewed and a justice oriented should be adopted - It also observed that a party should not be made to suffer on account of technicalities - the CBDT in passing the order, has adopted an unduly technical or pedantic approach - the contention of the revenue that the effect of an order condoning delay in filing the returns, leave the ITO with no choice but to grant the refund as claimed, has no substance. The order of the CBDT also seeks to reject the application for condonation of delay on account of delay from the date of filing the Return of Income the assesse had no occasion to meet the same - the delay in filing of an application if not coupled with some rights being created in favour of others, should not by itself lead to rejection of the application - This is of course upon the Court being satisfied that there were good and sufficient reasons for the delay on the part of the applicant - a company dealing in Artifacts and finances, which has the benefit of services of professionals and auditors - an acceptable explanation was offered by the petitioner and a case of genuine hardship was made out - The refusal by the CBDT to condone the delay was a result of adoption of an unduly restrictive approach - The CBDT appears to have proceeded on the basis that the delay was deliberate, when from explanation offered by the petitioner, it is clear that the delay was neither deliberate, nor on account of culpable negligence or any mala fides thus, the order of the CBDT refusing to condone the delay in filing the Return of Income for the AY 1997-1998 is to be set aside delay condoned and Return of Income is directed to be admitted for consideration the AO is directed to scrutinize the Return of Income and examine the claim for refund on merits - Decided in favour of assesse.
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2014 (12) TMI 190
Royalty expenditure - Capital expenditure or revenue expenditure - music / songs - assessee acquired rights in respect of recording and for producing, selling and public performance etc. - Whether it has an enduring benefit Held that:- If the enduring benefit test is fulfilled, the conclusion possible could be that the payment was for acquiring a capital asset and expenditure related to it is capital expenditure - music/film songs do not have a long life - each year, expenditure was incurred to acquire and procure similar rights in new music - It was a recurring expenditure quite similar and like acquiring and purchasing raw material, used in earning profits - Increase in raw material would increase production, turnover and corresponding profits - In case, such rights were not acquired and purchased from time to time, the assessee would go out of the business. Further and importantly, sale of new music initially, we all know is brisk but fades and ceases to be catchy after sometime - The percentage of such music and songs is abysmally small and probably in the range of 5% to 10% of the music/songs launched every year - These facts and factors have not been adverted to and elucidated in the assessment orders, as the AO with foreordained commitment disallowed the entire expenditure, unmindful that possibly, it would difficult to sustain the entire addition - the capital amount or asset so created would be of a minuscule value and there would be a minimal tax effect - accounts should not be re-written because of the smallness and minimum tax effect. Nature of expenses incurred on Royalty - Whether the royalty paid is a revenue expenditure and thereby should be allowed as a deduction - Held that:- It is to be held as revenue expenditure, when it is clear that the main business of the assessees was manufacture of blank cassettes and pre-recorded cassettes - The purchase of music rights and reproducing is the purpose of its business - The royalty payment for the cassettes sold is an expenditure in relation to the business activity of the assessee and on this ground and reason, should be regarded as revenue expenditure - It was an expenditure incurred in the normal course of business and was related to the revenue generated and payable accordingly - It did not secure and add to value or create any new capital asset Decided against revenue. Nature of expenses on purchase of carpets Revenue expenses or not Held that:- The Tribunal was rightly of the view that an atmosphere has to be created for recording of the cassettes - The recording rooms have to be sound proof and dust proof - by laying down the carpets in these rooms, it is augmentation of efficiently carrying on the business also in earlier assessment year, it has been held that the expenditure incurred for the purchase of carpet was revenue expenditure - It was a replacement costs and in the nature of current repairs relying upon Commissioner Of Income-Tax Versus Sri Hari Mills Pvt. Ltd. [1998 (9) TMI 57 - MADRAS High Court] it has been held that the expenditure on replacement could not be treated as capital expenditure and having recorded a finding of fact that the life of the carpets is very short and have to be replaced at frequent intervals, the order of the Tribunal is upheld Decided against revenue. Business activity not started till the end of AY - Whether the Tribunal was correct in deleting an addition claimed to have been spent by Bombay Video Division Held that:- The Tribunal rightly upheld the decision of CIT(A) as to the assessee was engaged in the manufacture of audio and video cassettes both blank and recorded, the video film division was closely linked up with the said business activity - The purpose of making video film was to increase the market of the video cassettes - The direct expenses linked to video movies was treated as a part of the stock in trade - The nature of expenses consist of salaries and wages, selling, distribution and administrative expenses etc. and the same could be claimed as a business expenditure because the video division at Bombay was closely linked with the day to day business activity of the assessee, being undertaken - the expenses were in the nature of salary, wages to employees, selling, distribution and administrative expenses thus, the order of the Tribunal is upheld Decided against revenue.
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2014 (12) TMI 189
Classification of income from letting out of warehouse Income from house property or business income assesse engaged in warehousing, handling and transport business - Held that:- The Tribunal rightly upheld the observation of CIT(A) that assessee derived income also from transporting business - The basic issue for adjudication in this appeal is whether income from warehousing is assessable as income from house property or business - The Tribunal accepted the assessee's plea of business income based on the profit and loss account, Object Clauses of the Memorandum of Association and the nature of business activity undertaken - the Tribunal was justified in distinguishing the case of the Bombay High Court in Nutan Warehousing Company P. Ltd. - Vs DCIT [2010 (2) TMI 397 - BOMBAY HIGH COURT] - the Tribunal rightly come to the conclusion that it is a case of business income and not income from house property thus, the order of the Tribunal is upheld Decided against revenue.
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2014 (12) TMI 188
Validity of proceedings u/s 158BC Notice not issued - Whether non-issuance of notice u/s 158BD would vitiate the proceedings initiated u/s 158BC Held that:- The Tribunal rightly recorded that no search was conducted on the assessee, neither any warrant of search was issued in the name of assessee nor any Panchnama was prepared in the name of the assessee - no proceedings can be taken against the assessee u/s 158BC there is no material difference between the notice u/s 158BD and notice u/s 158BC - the provisions of sections 158BC and 158BD are separate and distinct - The proceedings u/s 158BC can be initiated only on the assessee on whom the search was conducted and proceedings u/s 158BD are to be initiated where the concerned AO has received an information or intimation from Assessing Officer of the person on whom the search was conducted - no material was brought on record whether any intimation or information was received by the AO of the assessee from the AO of Nem Chand Gupta i.e. the person on whom search was conducted - the AO of the person searched and the AO of the assessee were the same as there is an order u/s 127 - Violation of the requisite and mandatory requirement would result in annulment of assessment u/s 158BD r.w. section 158BC relying upon Commissioner of Income Tax vs. Calcutta Knitwears, Ludhiana [2014 (4) TMI 33 - SUPREME COURT] - the block assessment proceedings initiated u/s 158BD r.w. section 158BC is set aside Decided against revenue.
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2014 (12) TMI 187
Disallowance on Software and development expenses deleted Held that:- The Tribunal rightly upheld the order of the CIT(A) that out of the software and product development expenses of ₹ 1.81 crores claimed an amount of ₹ 63.74 lacs were of a routine and periodic nature such as software maintenance charges, annual maintenance contracts, etc. and did not create any capital asset - the expenses allowed were of a revenue nature as they did not create any new assets nor any enduring advantage was gained by the assessee as a result of the expenditure Thus, the order of the Tribunal is upheld Decided against revenue.
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2014 (12) TMI 186
Assessment order passed u/s 263 quashed by Tribunal Commissioner proceeded on wrong facts and presumptions - Assessee submitted copies of accounts duly confirmed by all trade creditors and debtors, whose balances were in excess of ₹ 1 lac Held that:- The Tribunal has rightly accepted the assessees contention that they had furnished confirmations of all the creditors and debtors having a balance of ₹ 1 lac and above - the CIT could not have exercised power u/s 263 - of the Act. Thus the order of the Tribunal is that the Commissioner of Income Tax had proceeded on wrong facts and assumptions CIT u/s 263 also does not give names and details of any creditor or debtor who had not furnished or given confirmation. The AO waited till the end and took up the assessment proceedings only three months before the end of the limitation period - a detailed questionnaire was only issued in October, 2009 and the first effective hearing was fixed on 26th October, 2009 - even the order sheets between 26th October, 2009 till 23rd November, 2009 are not on record and have not been shown - a reading of the questionnaire would indicate that enormous and magnitudes of details/information were asked for - This would have required time for compilation, affirmation and clarification - The queries were answered by several letters on record - For confirmations, the assessee had to write letters to the creditors and debtors all over the India and wait for their response - The Tribunal has noted that the assessee had submitted bill, invoices, vouchers etc. to the Assessing Officer. Scrutiny assessment order u/s 143(3) of the Act should be presumed and hypothesised as made after due verification and ascertainment of facts - Principle of finality has sound and salutatory basis, but can be disturbed as per the statute and within confines of the provision applicable - the assessee had furnished confirmations from all debtors and creditors, with balances in excess of ₹ 1 lac being a finding of fact that, there is no reason to disturb, the present appeal Decided against reveue.
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2014 (12) TMI 185
Disallowance u/s 40(a)(ia) Effect of amendment, retrospective or prospective Held that:- It is accepted by revenue that the tax deducted at source was deposited before the due date of the filing of the return in Commissioner of Income Tax Vs. Naresh Kumar [2013 (9) TMI 275 - DELHI HIGH COURT] it has been held that amendment to Section 40(a)(ia) by Finance At, 2010 has retrospective effect thus, the assessee would be entitled to benefit of the proviso added to Section 40(a)(ia) vide Finance Act, 2010 the disallowance u/s 40(a)(ia) cannot be sustained. Rate of depreciation on trucks Held that:- The Tribunal rightly recorded that the assessee had entered into contracts with the third parties for the transportation of coal, iron etc. - the assessee was plying the motor lorries for hire - Transportation of goods was the business of the assessee, and was generating revenue/income in Commissioner of Income Tax Vs. Gupta Global Exim (Pvt.) Ltd., [2008 (5) TMI 7 - SUPREME COURT] wherein it has been held that the true test which should be applied, is whether the assessee was in the business of transportation and the vehicles were used for the said business - This would show whether the vehicles were run on hire. The said test has been rightly applied the order of the Tribunal is upheld Decided against revenue.
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2014 (12) TMI 184
Rejection of rectification application by Tribunal Deduction u/s80HHC and 80IB urged by assessee not considered by Tribunal - Held that:- A mistake has occurred in the order dated 14th May, 2010, though, the application for rectification is rejected on the ground that such an application is not maintainable u/s 254(2) as decided in Orissa High Court in CIT v/s. President-ITAT [1992 (1) TMI 88 - ORISSA High Court] - every authority exercising quasi-judicial powers has inherent/ incidental power in discharging of its functions to ensure that justice is done between parties i.e. no prejudice is caused to any of the parties - This power has not to be traced to any provision of the Act but inheres in every quasi-judicial authority the same has been held in Grindlays Bank Ltd. v/s. Central Government Industrial Tribunal [1980 (12) TMI 181 - SUPREME COURT] - no party should be prejudiced on account of any mistake in the order of the Tribunal - The Tribunal and the parties are not adversarial to each other - In fact, the Tribunal and the parties normally represented by Advocates/Chartered Accountants are comrades in arms to achieve justice - Therefore, a mistake from any source be it-the parties or the Tribunal so long as it becomes a part of the record, would require examination by the Tribunal u/s 254(2) it cannot be dismissed at the threshold thus, the order is set aside and the Tribunal is directed to pass the appropriate order Decided in favour of assessee.
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2014 (12) TMI 183
Entitlement for claim of deduction on interest income u/s 80HH and 80I - Adjustment of interest - Whether the Tribunal was right in not permitting adjustment of interest debited to the P&L Account - Held that:- Following the decision in [2014 (12) TMI 171 - GUJARAT HIGH COURT] - If on the basis of the discounts given by the sellers, the total profit of the assessee from the activity which was otherwise eligible for deduction 80I/80HH of the Act was to that extent increased, there is no reason why such larger sum should qualify for deduction - In M/s ACG Associated Capsules Pvt. Ltd. (Formerly M/s Associated Capsules Pvt. Ltd.) & Others Versus The Commissioner of Income Tax, Central-IV, Mumbai & Others [2012 (2) TMI 101 - SUPREME COURT OF INDIA] it has been held that the foundation for the logic for excluding the net profit and not the gross profit from the claim of deduction when it is found that the source of income does not quality for such deduction u/s 80HHC - section 80HHC represents vastly different scheme of deduction and also provides for complex formula for deriving for the eligible profit for deduction under different situations depending on whether the exporter is also engaged in the local business or not - when the profit is being excluded from the claim of deduction, not the gross profit but the net thereof, that is the gross profit minus the expenditure incurred for earning such profit should be excluded Decided partly in favour ofassessee.
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2014 (12) TMI 182
Claim of depreciation on installation of windmill Claim contrary to Rule 5(1A) of the Income Tax Rules and Appendix 1A or not - Held that:- Following the decision in CIT V. Vijaya Hirasa Kalamkar (HUF), [1992 (9) TMI 4 - BOMBAY High Court] wherein it has been held that if the assessee exercised the option in terms of second proviso to Rule 5(1A) of the Income Tax Rules at the time of furnishing of return of income, it will suffice and no separate letter or request or intimation with regard to of exercise of option is required - Since the returns are filed in accordance with Section 139(1) of the Income Tax Act and the form prescribed make a provision for exercising an option in respect of the claim of depreciation, no separate procedure is required, as contended by the Department Decided against revenue.
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2014 (12) TMI 181
Taxability of compensation received appellant from the Insurance Company on account of destruction of Wind Mill u/s 50 Held that:- In Neelamal Agro Industries Limited vs. CIT [2002 (8) TMI 57 - MADRAS High Court] similar matter has been discussed and it has been held that when a thing was destroyed by fire the capital asset was no longer available for being owned, used or enjoyed by anyone - with the destruction of the asset, the rights of the assessee in that asset also would be destroyed - The destruction of such rights in an asset consequent upon the assets ceasing to exist was a situation which was not contemplated either in the definition of "transfer" or in the charging section and therefore the assessment as capital gains liable to tax arising out of the compensation amount received under the insurance on account of damage was not valid in law u/s 50 it has been provided that where the capital asset is an asset in respect of which a deduction on account of depreciation u/s 32(1) (i) has been obtained by the assessee in any previous year, the provisions of sections 48 and 49 shall apply subject to the modification that the written down value as defined in clause (6) of section 43 of the asset as adjusted shall be taken as the cost of acquisition of the asset. Applicability of provisions of section 41(2) Held that:- The Tribunal committed an error in applying provisions of section 41(2) of the Act - section 41 was amended to provide for computation of depreciation and also the amount chargeable to income tax when such an asset is sold, discarded, demolished or destroyed in the previous year Decided in favour of assessee.
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2014 (12) TMI 180
Taxability of refund of central excise - non service of notice to the partners propertly - who is liable to pay tax - earlier duty of excise was paid by the partnership firm and claimed as deduction Partnership firm taken over by Company Who would be liable to pay excise duty, either erstwhile partners or the company Held that:- The AO could have certainly brought the amount under tax, once it was held that the assessee was not liable to pay excise duty representing that amount - Even if the assessee did not exist, the AO could have proceeded against the partners, duly serving notices upon them - The Tribunal took note of the fact that the issuance of a notice straight away through affixture is not proper - no efforts were made to send the notices to the partners through registered post with acknowledge due and even in the matter of affixture of notices, two defects have crept in viz,affixture was on a totally incorrect premises; and the procedure prescribed for affixture was i.e., taking signature of two persons living in the locality, was not followed - The appellant has no answer for all these defects pointed out by the Tribunal. Bar of limitation Held that:- If the Department was under obligation to initiate proceedings within a stipulated time, on expiry of the same, the assessee gets a valuable right, in this behalf - The rigour in this regard may be less, if it is a case of expiry of limitation for filing appeals, particularly where there exists a facility for condonation of delay - The Tribunal discussed the matter at length with reference to the settled principle of law and has arrived at a correct conclusion thus, no substantial question of law arises for consideration Decided against revenue.
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2014 (12) TMI 179
Non-compliance of provisions of section 245D(2D) Order passed by Income Tax Settlement Commission Abatement of proceedings u/s 245HA (1)(ii) - Whether the Commission was justified in holding that the proceedings before it abate in view of the non-deposit of the amount of additional tax together with interest as directed by it by the order u/s 245D(1) - Held that:- The assessee in the application u/s 245C of the Act, had declared undisclosed income of ₹ 5 lakhs - subsequently, the petitioner filed a revised statement declaring the undisclosed amount at ₹ 7 lakhs instead of ₹ 5 lakhs - in Ajmera Housing Corporation & Anr. v. Commissioner of Income Tax [2010 (8) TMI 35 - SUPREME COURT OF INDIA] it has been held that disclosure of "full and true" particulars of undisclosed income and "the manner" in which such income has been derived are the pre-requisites for a valid application u/s 245C(1) - it was not permissible for the assessee to revise the application made by it u/s 245C(1) - it was incumbent upon the petitioner to pay the additional tax in terms of the original application made by him under section 245C of the Act, whereby he had declared the undisclosed income at ₹ 5 lakhs assessee has not duly complied with the order made by the Commission u/s 245D(1) of the Act till the Commission fixed the matter for hearing on 25.11.2013 and 3.3.2014 thus, the order of the Settlement Commission is upheld Decided against assessee. Entitlement for alternate relief - Whether the assessee is entitled to the alternate relief prayed for in the petition, namely, for restoration of the appeal filed by it before the Tribunal against the order made by the AO u/s 158BC Held that:- At the relevant time when the application u/s 254C(1) of the Act came to be made by the assessee, the assessment proceedings u/s 158BC of the Act were pending before the AO relying upon Commissioner of Income-Tax v. Damani Brothers [2002 (12) TMI 11 - SUPREME Court] wherein it has been held that the scheme of Chapter XIX-A shows that the filing of application by the assessee is a unilateral act and the department may not be aware of the same - the liability under order made by the AO u/s 158BC of the Act would exist even after the Settlement Commission passed the order u/s 245D(1) of the Act - despite the fact that the Commission has observed that the AO shall now dispose of the case in accordance with the provisions of sub-sections (2) (3) and (4) of section 245HA of the Act, the order u/s 158BC of the Act would still subsist as there is no automatic setting aside of such order thus, in the light of abatement of the proceedings before the Settlement Commission by operation of the provisions of section 245HA of the Act, the interest of justice requires that the appeal preferred by the petitioner before the Tribunal be restored - The assessee is entitled to the alternate relief prayed for in the petition, namely, for restitution of its appeal before the Tribunal Decided in favour of assessee.
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2014 (12) TMI 178
Claim of retention money disallowed Held that:- In Director of Income-tax ( International Taxation) Versus Ballast Nedam International [2013 (7) TMI 421 - GUJARAT HIGH COURT] it has been held that unless and until a debt is created in favour of the assessee, which is due by somebody, it cannot be said that the assessee has acquired a right to receive the income or that the income has accrued to him - A debt must have come into existence and the assessee must have acquired a right to receive the payment - assessee did not get any right to receive the sum which could have been retained in pursuance of the contract - One has to look at the contract and not at the entries made in the books of account - the Tribunal rightly upheld the order of the CIT(A) wherein it has been held that the retention of 10% money of total sales was due to specific terms and conditions for final payment mentioned in the customer purchase order - the assessee - company had been following this system of accounting for the last several years and was accepted by the department the order of the Tribunal is upheld Decided against revenue. Disallowance on interest and administrative expenses u/s 14A - onus to prove the nexus of interest free funds utilized for the purpose of making investments earning exempt income discharged or not Held that:- The Tribunal has taken note of the fact that the matter had initially been restored to the file of the CIT(A) with a specific direction to bring out clearly as to whether the borrowed fund had indeed been utilized in investment in shares/mutual funds for earning exempt income - the Tribunal observed that no disallowance u/s 14A of the Act can be made of interest expenses until there is finding of AO that borrowed funds were utilized by assessee to earn exempt income - the assessee had sufficient surplus funds at its disposal for making any investment in share and for business purpose and therefore, there was no nexus that could be established with the expenditure incurred by the assessee for earning the exempt income thus, the order of the Tribunal is upheld Decided against revenue.
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2014 (12) TMI 177
Reopening of assessment u/s 147 r.w section 148 Reason to believe - Held that:- Assessee has initially shown receipts as revenue receipts and claimed various expenses and declaring incomes in the P & L account - AO found that the expenditure entries made in the books of accounts are not genuine and accordingly, he brought to tax entire receipts as shown in the P & L Account as income of assesse - In the re-assessment proceedings after the notice u/s 148 was issued, assessee revised its accounts and claimed that no income has accrued to it or loss should be assessed - AO has reason to believe that incomes have escaped at that point of time - AO did not find any expenditure vouchers in assessees premises during survey proceedings and so, he has reason to believe that income has escaped assessment - Thus he has validly initiated proceedings u/s 147 - as no assessment u/s 143(3) was originally done and only returns were accepted u/s 143(1), following the principles laid down in Assistant Commissioner of Income-Tax Versus Rajesh Jhaveri Stock Brokers P. Limited [2007 (5) TMI 197 - SUPREME Court] - the intimation u/s 143(1) cannot be treated as order of assessment - Prior to 01.04.1989, AO had to pass an assessment order if he decides to accept the return but now amended provisions, requirement of passing the order has been dispensed with and instead only intimation is required to be sent - as there is no assessment u/s 143(3), the question of change of opinion does not arise - what is required at the time of issuance of notice u/s 147 is reason to believe that the income has escaped assessment, but not the established act of escapement of income thus, the assessees contentions on reopening are not valid Decided against assessee. Revised return filed with revised audited accounts Held that:- Assessees action cannot be supported in the light of the fact that proceedings are u/s 147 - in the case of Commissioner of Income-Tax Versus Sun Engineering Works Pvt. Limited [1992 (9) TMI 1 - SUPREME Court] - it was held that proceedings u/s 147 are for the benefit of Revenue and not for the benefit of assesse - Since, assessee has offered incomes originally which were accepted, the proceedings being initiated are only to add some more to the originally admitted incomes - the entire receipts received by assessee as income is upheld - the action of AO cannot be upheld in treating the entire receipts as income and at the same time - while disallowance of entire expenditure made by AO cannot be upheld as such, the assesse is set aside and the matter is remitted back to the AO for fresh enquiries Decided in favour of assesse.
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2014 (12) TMI 176
Bad debts deleted facts and circumstances of case properly appreciated or not Held that:- CIT(A) noted that the total claim of ₹ 53,05,057/- included export bad debts and domestic bad debts - it also included some advances written off - advances written off is not allowable u/s 36(1)(vii) although the same is allowable as business loss if it is established that it has accrued during this year - There is no finding given by CIT(A) on this aspect also, regarding export bad debts, it has to be seen as to whether any deduction was claimed by the assessee u/s 80HHC in the year of export in respect of this export because if deduction was claimed and allowed u/s 80HHC, then this bad debt written off does not remain included in the income of the assessee in any year and the provisions of section 36(2) are not complied with and as a result deduction is not allowable to the assessee - Since there is no finding by CIT(A) on these aspects, the matter is remitted back to the CIT(A) for fresh adjudication Decided in favour of revenue. Allowability of deduction u/s 80HHC Exchange fluctuation receipts Held that:- Definitely, exchange fluctuation gain in respect of realization of export proceeds of current years is to be included in the profit of the business of the present year and same is also to be included in the export turnover and total turnover of the present year but if such exchange fluctuation gain is in respect of export of any earlier year then the same can neither be included in the business profit of the present year nor it can be included in the export turnover and total turnover - The same should relate back to the year of export and in that year, it should be included in business profit as well as export turnover and total turnover - Since the finding of CIT(A) is not on this line, the order of CIT(A) on this issue is not sustainable thus, the matter is remitted back to the CIT(A) for fresh decision Decided in favour of revenue. Interest income to be included under income from other sources or business income Held that:- Following the decision in CIT vs. Jyoti Apparels [2007 (1) TMI 542 - DELHI HIGH COURT] - interest earned on FDR even for the purpose of availing credit facilities from bank does not have immediate nexus with the export business and therefore, it has to be necessarily treated as income from other sources and not business income thus, interest income cannot be treated as business profit for the purpose of computing deduction allowable to the assessee u/s 80HHC Decided in favour of revenue. Allowability of deduction u/s 80IB Held that:- Both the parties agreed that the issue is with regard to the duty draw back and in M/s Liberty India Versus Commissioner of Income Tax [2009 (8) TMI 63 - SUPREME COURT] it has been held that duty drawback, DEPB benefits, rebates etc. cannot be credited against the cost of manufacture of goods debited in the Profit & Loss account for purposes of Sections 80-IA/80-IB as such remissions (credits) would constitute independent source of income beyond the first degree nexus between profits and the industrial undertaking Decided against assessee.
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2014 (12) TMI 175
Computation of ALP of international transaction - Upward adjustment to purchase price of imported goods Held that:- The reliance placed on the data available in the public domain at the time of the assessment proceedings which was not allowed by the AO and ultimately allowed at the Appellate stage cannot be faulted with there is no reason as to why the Revenue should insist upon ignoring the updated relevant data for the period under consideration - these companies taken in the TP study were comparable there can be no right vested in the Revenue to insist upon the incomplete data available at the time of TP study and refuse to look at the updated data available for the relevant period at the assessment stage - The CIT(A) in appeal has correctly taken the updated data the CIT(A) rightly was of the view that the transfer price of international transaction as declared by the appellant satisfy arms length principle test and no upward adjustment is warranted - Decided against revenue. Deletion of penalty u/s 271(1)(c) Held that:- The CIT(A) on facts qua the first addition has based his finding on the fact the sales tax debited to the P&L Account this finding of the fact has not been assailed by the Revenue - Regarding the other addition made by way of disallowance of 40% of the expenses debited to the P&L Account pertaining to staff welfare; communication expenses and business promotion expenses debited to the P&L account - the expenses have come down and the disallowance on facts is an adhoc disallowance assessee rightly relied upon COMMISSIONER OF INCOME-TAX Versus RELIANCE PETROPRODUCTS PVT. LTD. [2010 (3) TMI 80 - SUPREME COURT] and CIT(A) was fully justified in quashing the penalty order - the explanation offered was a bonafide and it most definitely was not a false explanation Decided against revenue.
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2014 (12) TMI 174
Deletion of additions of creditors Onus discharged by assessee regarding genuineness of transactions - Held that:- The assessee has declared a better G.P. rate at 6.07% as compared to 3.24% in the preceding year and 3.07% in the year before preceding year - the AO issued letters u/s 133(6) of the Act, out of which 14 letters returned back unserved - he requested the AO to serve the notices through notice server but instead the AO confronted the assessee vide order-sheet dated 24.08.2009, that the onus lies on the assessee to establish the genuineness of the creditors and accordingly the assessee was asked to furnish name, address, and PAN on the copy of account - The assessee submitted the confirmation along with copies of account in the case of 12 creditors and confirmation with regard to the two creditors - none of the parties is having PAN - the arguments of revenue that it is necessary that each parties should have the PAN cannot be held correct, since as per Income-tax Act, it is only, when the income of a person exceeds the limit as prescribed the person is required to file Income Tax Return u/s 139(1) of the Act - the AO has not brought on record that any receipt of cash has been there in lieu of cheque payment made to the creditors - the assessee have discharged his onus, there is no infirmity in the order of CIT(A), who has rightly deleted the addition Decided against revenue.
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2014 (12) TMI 173
Assessment u/s 153A Additions towards payment of commission on sale or purchase to brokers - revenue contended that Whole gamut of raising bill for commission at the fag end of the year and receiving cheques from the assessee company for commission in the next year, is a make believe arrangement between the assessee company and these so claimed brokers to siphon off the profit to evade tax. - assessee submitted that the parties to whom commission have been paid have either confirmed directly to the department in response to notices U/s 133(6) or the appellant has filed confirmation from the parties concerned. Held that:- in the line of business, mostly goods is being sold through brokers on which commission is paid - Purchase also made through brokers, therefore, it requires to pay commission to the middle man who make available of goods from the market - assessee has submitted confirmations, PAN number, copy of return in some case copy of bank account with confirmations - on verification of confirmations, in all the cases TDS has been deducted by the assessee on commission - CIT(A) specifically mentioned commission paid to M/s SKT on purchase, who is dealing in Tissue paper, craft paper, card board and other types of boards etc., in A.Y. 2008-09 assessee submitted that details of commission paid to it on purchases made by the assessee along with copy of bills, confirmations and bank statements of assessee company evidencing the payment of commission has been filed before the CIT(A) - It also filed copy of agreement dated 21/3/2007 between assessee and M/s SKT - the assessee had deducted TDS at ₹ 3,94,757 - the assessee had paid this commission in subsequent year to M/s SKT after deducting TDS - additions confirmed by the CIT(A) deserve to be deleted Decided in favour of assessee.
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Customs
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2014 (12) TMI 195
Levy of establishment charges of the customs staff posted for such jetty - Change of regime form MOT - Due to various reasons including the global economic slow down, jetty could not operate to its full capacity - Even the department due to shortage of staff was not able to provide full agreed staff permanently stationed at jetty - According to the petitioner despite such arrangement, the department demanded full reimbursement of establishment charge on the basis of full custom staff on paper deployed for the place - Held that:- Even the department agrees that for some reason or the other including the shortage of staff with the department, the full staff was not deployed at jetty through out the entire period. Secondly, that because of such difficulties even the department was toying with idea of considering permitting the petitioner to switch over to MOT regime. The department therefore, would have to undertake an exercise and verify whether and upto which period such shortage in deployment of staff occurred. This however, cannot be for the entire period and must be limited to some reasonable recent past. The department would also have to consider the request of the petitioner for change of regime. - Matter remanded back - Decided in favour of appellant.
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2014 (12) TMI 194
Enforcement of the bank guarantees - Obligation of bank towards expired BG - Non fulfilment of its obligations under the BGs - interpretation of the BGs issued by IOB in favour of the President of India to secure the Customs Authorities against any loss, damage caused or suffered on account of failure on the part of Alpine to comply with any terms and conditions as contained in the provisional assessment test bond - Held that:- The latter part of clause 5 of the BGs clearly indicate that the BGs would be in force only for a limited period of time and would be renewed at the request of the customer i.e. Alpine. If clause 7 of BGs is read harmoniously with clause 5, the inescapable conclusion is that while IOB is obliged to keep the BGs alive and not permit the same to be revoked by Alpine, the said obligation is limited only during the valid tenure of the BGs. The obligation of IOB to renew the BGs as expressed in the opening words of clause 7 is subject to compliance with clause 5, that is, subject to request of Alpine. Alpine has not made any request for renewal of the BGs and the respondent authorities have also not ensured that Alpine take the necessary steps for IOB to renew the BGs and the BGs lapsed. It is difficult to accept that clause 7 of the BGs would enjoin IOB to renew the BGs without any request from IOBs customer at whose instance the BGs had been issued. Notably, the opening words of clause 8 contain a non obstante clause which expressly indicates that IOB would be liable to pay the guaranteed amount only if a written claim was served on IOB before the last date of the validity of the BG - no claim had been received by IOB during the validity period of the BGs and thus IOB has no obligation to pay any amount to the Customs Authorities. In this view, the present petition is allowed and the communications dated 22.04.2012 and 12.05.2014 issued by respondent no.1 stand quashed - Decided in fsvour of assessee.
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2014 (12) TMI 193
Restoration of appeal before tribunal - waiver of pre-deposit - Anti-dumping duty - Notification No.128/2001-Customs dated the 21st December, 2001 - levy of duty on goods imported and provisionally cleared by the appellant - Held that:- It has become an unfortunate trend to casually dispose of stay applications by referring to decisions in Siliguri Municipality v. Amalendu Das, [1984 (1) TMI 63 - SUPREME Court] and CCE v. Dunlop India Ltd., [1984 (11) TMI 63 - SUPREME Court] cases without analysing factual scenario involved in a particular case. - Two significant expressions used in the provisions of Section 35F are undue hardship to such person and safeguard the interests of the Revenue. Therefore, while dealing with the application twin requirements of considerations i.e. consideration of undue hardship aspect and imposition of conditions to safeguard the interests of the Revenue have to be kept in view. It is for the Tribunal to impose such conditions as are deemed proper to safeguard the interests of the Revenue. Therefore, the Tribunal while dealing with the application has to consider materials to be placed by the assessee relating to undue hardship and also to stipulate conditions as required to safeguard the interests of the Revenue. Order of tribunal directing the assessee to deposit a sum of ₹ 2,50,00,000/- (Rupees two crores and fifty lakhs only) modified - The appellant directed to deposit a sum of ₹ 1,75,00,000/- (Rupees one crore seventy five lakhs only) - Appeal restored conditionally.
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Service Tax
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2014 (12) TMI 206
Denial of refund claim - export of Business Auxiliary Service - relevant date - date of payment of service tax or date of export - Held that:- Respondents have relied on Tribunal judgements in the case of Mahindra World City vs. Commissioner of Central Excise, Jaipur-I [2013 (7) TMI 590 - CESTAT NEW DELHI] and Vodafone Cellular Ltd. vs. CCE [2014 (3) TMI 117 - CESTAT MUMBAI]. I also note that DGST in the booklet "Frequently asked question on service tax" dt. 16.09.2011 in response to question 6.3 has clarified that the relevant date for calculation of limitation period in respect of filing refund claims relating to service tax is the date of payment of service tax. Therefore, respondents cannot be put to terms in the face of this Circular which has not been withdrawn. - Decided against assessee.
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2014 (12) TMI 205
Denial of refund claim - use of specified services in export of goods - Notification No. 17/2009-ST dt. 07.07.2009 - Whether refund claim filed by the appellant is eligible in view of the fact that service tax liability was not discharged by the appellants - Held that:- Assessee have not paid service tax to the provider of the service and instead made the payment of service tax involved under section 68 (2) of the Finance Act, 1994. Further, condition 2 (a) of the said notification no. 17/2009-ST stipulates that the person liable to pay service tax under section 68 of the said Act on the specified service provided to the exporter and used for export of the said goods shall not be eligible to claim exemption for the specified service. As the respondents were liable to pay the said amount of service tax under Section 68 (2) of the Act and they accordingly discharged the said liability, they shall not be eligible to claim exemption for specified services in view of the condition 2(a) of the said notification. Thus, there is strength in the contentions of the department that the said amount of refund claim is not as per proviso (c) to para 1 and condition 2(a) of the Notification no. 17/2009-ST dated 7.7.09. As such, the sanction of the said refund claim vide the impugned order is not in accordance with provisions of the said notification no. 17/2009-ST and therefore, the sanction of the said amount vide the impugned order is erroneous and is set-aside - Decided against assessee.
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2014 (12) TMI 204
Business Auxiliary Service - Processing of Textile materials for chemical wash - Exemption under Notification No.14/2004-ST dated 10.9.2004 - Held that:- On scrutiny of the records of the appellants, it was noticed that the appellant had paid the amount towards processing of textile materials for chemical wash charges to M/s. Testex, Swiss, Glancario and Reni Hendriks, Holand. So, there is no dispute of the fact that the appellant paid the charges for textile processing. Hence, they are eligible for exemption benefit under Notification No. 14/2004-ST dated 10.9.2004, as amended. In the present case, there is no dispute of the facts and therefore, in the facts and circumstances of the case, we find that the appellants are eligible for the exemption benefit. - Decided in favour of assessee.
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2014 (12) TMI 203
Denial of refund claim - Scientific and Technical Consultancy Service - whether the refund claims have been filed within the time limit prescribed in Rule 5 of the Cenvat Credit Rules read with notification No. 5/2006 and Section 11B of the Central Excise Act - Held that:- Under Section 83 of the Finance Act, the provisions of Section 11B of the Central Excise Act, shall apply in relation to service tax as they apply in relation to a duty of excise. Therefore, it is inferred that just as the relevant date in the case of Central Excise is the date of export of goods, the relevant date in the present case would mean would be the date on which the services are exported. This view is also stated in the case of M/s. Affinity Express India Pvt. Ltd. (2014 (6) TMI 593 - CESTAT MUMBAI) and GTN Engineering (I) (2011 (8) TMI 960 - MADRAS HIGH COURT). This being my stated view, the respondent would be eligible for refund in respect of all invoices except two invoices, namely invoice No. RPIN/EOU/2008/033 dt. 27/06/2008 and invoice No. RPIN/EOU/2008/037 dt. 30/06/2008 under which the services were provided in 2007 but billed in June 2008 and for which refund is claimed on 15.4.2009. There are conflicting decisions of Tribunal on the issue in different case; therefore, issue is referred to the President for consideration by the Larger Bench. Whether the "relevant date for deciding the limiting period of one year under Clause 6 of Appendix to Notification 5/2006-CE(NT) dt. 14.3.2006 for sanction of refund of Cenvat Credit under Rule 5 of Cenvat Credit Rules read with Notification No. 5/2006-CE(NT) dt. 14.3.2006 in the case where service is exported is (a) The date of export of service, or (b) The date of export invoice, or (c) The data of receipt of foreign exchange whether is part of full or advanced Or (d) The date when both activities have been completed i.e. service has been exported and foreign exchange has been received (as foreign exchange may be received in advance).
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2014 (12) TMI 202
Cenvat credit eligibility of the assessee to utilize the cenvat credit taken by them of the service tax and of the central excise duty, for discharging the service tax liability on GTA services High Court admitted the appeal of Revenue against the order of Tribunal [2012 (7) TMI 738 - CESTAT, AHMEDABAD] on following questions of law:- Whether the CESTAT, WZB, Ahmedabad is right in allowing use of Cenvat credit for discharging Service Tax on the service falling under the category of transport of goods by road treating the same as an output service at the end of recipient who has used it as input service? Whether the learned CESTAT, WZB, Ahmedabad is right in placing reliance on the judgment of the Honble High Court of Karnataka in the case of Aravind Fashions Limited [2011 (9) TMI 852 - KARNATAKA HIGH COURT] where the facts are different?
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Central Excise
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2014 (12) TMI 201
Cenvat credit - suppression of facts - Invocation of extended period of limitation - Held that:- Show Cause Notice admits that the appellants had been regularly filing the ER-1 returns showing all the details. The adjudicating authority has held that the noticee was required to declare certain facts instead of taking a plea that it was not required do so. The adjudicating authority does not quote any provision of law under which they were required to declare the facts - The adjudicating authority has equated suppression with non-declaration of something not even required to be declared as per law. The Supreme Court in case of Central Excise Vs. Chemphar Drugs and Liniments, [1989 (2) TMI 116 - SUPREME COURT OF INDIA] has held that extended period is applicable only when something positive other than mere inaction or failure on the part of manufacturer is proved. Similar view was held by Supreme Court in the case of Gopal Zarda Udyog Vs. Commissioner of Central Excise Delhi [2005 (9) TMI 83 - SUPREME COURT OF INDIA]. In the present case the adjudicating authority does not bring out any inaction or failure on the part of the appellants. Prima facie the appellants have a fairly good case atleast for non-invokability of the extended period as a consequence of which the impugned demand would be hit by time bar. The appellants have also contended that the impugned credit is admissible on merit also but without going into a detailed analysis of the appellants contentions on merit at this stage, we find that on the ground of time-bar alone, a goods case is made out for waiver of pre-deposit. Accordingly, we waive the pre-deposit and stay recovery of the adjudicated liabilities during pendency of the appeal - Stay granted.
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2014 (12) TMI 200
Waiver of pre deposit - Cenvat credit - whether the appellant is liable to pay interest on reversal of excess credit availed by them before utilisation - Held that:- issue is covered by decision of Honble High Court of Madras in case of Strategic Engineering (P) Ltd. [2014 (11) TMI 89 - MADRAS HIGH COURT] and this Tribunal has followed the aforesaid decision in the case of Vodafone Essar South Ltd. (2014 (11) TMI 657 - CESTAT BANGALORE), at this stage, I consider that the appellant has made out a case in their favour and accordingly, requirement of pre-deposit of the adjudged dues is waived and stay against recovery is granted during pendency of the appeals - Stay granted.
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2014 (12) TMI 199
Principle of natural justice order of adjudicating authority rejecting the application for cross examination - right to cross examine - whether the main appellant M/s Union Quality Plastic Ltd has engaged himself in clandestine removal of finished goods which has been worked out upon the shortage of raw material /finished goods during the visit of the preventive officers - Held that:- Following decision of Mahek Glazes Pvt Ltd [2013 (7) TMI 128 - GUJARAT HIGH COURT] - Matter remanded back - Decided in favour of assessee.
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2014 (12) TMI 198
Waiver of pre depposit - Denial of CENVAT Credit - whether the applicant is eligible to avail unutilized CENVAT credit transferred by their Bangalore Unit under Rule 10 of the CENVAT Credit Rules, 2004 - Held that:- Adjudicating authority observed that the manufacturing factory at Bangalore was not shifted on account of change in ownership or on account of sale, merger, amalgamation, lease or transfer of the factory to a joint venture as well as there was no shifting of the said manufacturing activities at Bangalore to Pondicherry. We have seen that the Assistant Commissioner of Bangalore by letter dated 12.8.2009 rejected the request for permission to transfer of the unutilized credit. Similarly, the jurisdictional Assistant Commissioner at Pondicherry by letter dated 18.12.2009 rejected the request for availing the unutilized credit lying in the Bangalore unit. After going through the letters and the adjudication order, prima facie, we find that there is a dispute regarding the shifting of the factory from Bangalore to Pondicherry. Prima facie, as there was a dispute of the shifting of the factory and therefore the applicant failed to make out a strong prima facie case for waiver of predeposit of entire dues. - Partial stay granted.
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2014 (12) TMI 197
Rectification of mistake - whether the activity undertaken by the appellant resulted in a new product having a distinct character, name and use and therefore, the activity could be construed as amounting to manufacture' - Held that:- Difference between the product with which the process was started and the resultant product and how the finished products were known differently from the raw materials, this Tribunal came to the conclusion that a new product having a distinct character, name and use had emerged and, therefore, it was held that the process undertaken by the appellant amounted to manufacture. While coming to this conclusion, the Tribunal also relied upon the apex Court's decisions in the case of Pio Food Packers [1980 (5) TMI 30 - SUPREME COURT OF INDIA] and Empire Industries Ltd. [1985 (5) TMI 215 - SUPREME COURT OF INDIA]. The mistake apparent on record must be obvious and a patent mistake and the mistake should not be such that which can be established by a long drawn process of reasoning. Re-appreciation of evidence on a debatable point cannot be said to be rectification of mistake apparent on record. If the mistake is sought to be rectified by long drawn process of reasoning or where two opinions are possible, the same cannot be said to be a mistake apparent from the record attracting the provisions of Section 35C of the Central Excise Act, 1994. In the present case, we have given clear and cogent reasons for coming to the conclusion drawn in the impugned order. If the appellant is aggrieved of the same, the remedy lies in filing an appeal as provided in law - Rectification denied.
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2014 (12) TMI 196
Waiver of predeposit of duty - Penalty u/s 11AC - clandestine manufacture and clearance of goods - Held that:- Demand has been confirmed against the Applicants, M/s Sen Ferro Alloys Pvt. Ltd., on the ground that during the period from 2006 to 2009, they had manufactured and cleared 29671.282 MT of sponge iron from their factory without recording its manufacture and clearance in the statutory records and without payment of duty. Prima-facie, we find that a chit regarding such clandestine manufacture and clearance, has been retrieved from the factory premises which shows around 2000 MT of finished goods had been cleared without payment of duty. We find that the records and evidences relating to the clearance for the earlier period, had been retrieved from others premises. Prima-facie, we find that the ld. Commissioner has recorded the evidences and discussed in detail about its relevancy to the facts alleged in the Show Cause Notice. In other words, the entire issue rests on appreciation of evidences, produced by both sides. Hence, to arrive at a conclusion whether a total quantity of 29671 MT of finished goods, were removed clandestinely, and about the role of other Applicants, it is necessary that the evidences produced by both sides, are to be analysed. - Partial stay granted.
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