TMI Tax Updates - e-Newsletter
February 13, 2016

Case Laws in this Newsletter:

Income Tax Customs Corporate Laws Service Tax Central Excise

TMI SMS

• Procedure, Formats and Standards for ensuring secured transmission of electronic communication including scrutiny assessment u/s 143(3)

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Articles

1. Service tax on Legal Consultancy Service

   By: Ganeshan Kalyani

2. Service Tax versus VAT on Renting of Goods

   By: Ravi Kumar Somani

3. THE CONSTITUTION OF INDIA – promise to follow – whether government is strictly following- in Budget 2016 tax provisions which are not as per Constitution must be omitted.

   By: DEVKUMAR KOTHARI

News

1. RBI Reference Rate for US $

2. Meeting held under the Chairmanship of Secretary, DEA to review the action taken and progress made on the Recommendations made by the Special Team of Secretaries (STS) to ensure that there is no systemic impact of Payment And Settlement crisis of National Spot Exchange Ltd. (NSEL) Developments of August-September, 2013

Notifications

Customs

1. 24/2016 - dated 12-2-2016 - Cus (NT)

Exchange Rate notification with effect from 13th February, 2016 thereby amending Notification No.18/2016-Customs (N.T.), dated 4th February, 2016

DGFT

2. 39/2015-20 - dated 11-2-2016 - FTP

Procedure for export of sesame seeds to the European Union countries – Deferment of implementation

VAT - Delhi

3. F3(619)/Policy/VAT/2016/1437-47 - dated 11-2-2016 - DVAT

Regarding time period for rectification or revision of return in form GE II

4. F.3(628)/Policy/VAT/2016/1424-36 - dated 11-2-2016 - DVAT

Regarding filing of online returns by firms and companies engaged in the business of courier activities

Circulars / Instructions / Orders

Income Tax

1. 2/2016 - dated 3-2-2016

Procedure, Formats and Standards for ensuring secured transmission of electronic communication including scrutiny assessment u/s 143(3)

Highlights / Catch Notes

Income Tax

• Charitable institutions retain status despite income; exemptions u/ss 11 and 12 only partially denied if Section 13(1)(d) violated.

  Case-Laws - AT : Exemption u/s 11& 12 - Merely because an institution, which otherwise is established for a charitable purpose, receives income that would not make it any less a charitable institution - denial of exemption should only be to the extent of income which was violative of Section 13(1) (d) and not the total denial of exemption u/s. 11 - AT
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• Assessee's Deemed Dividend u/s 2(22)(e) Confirmed Despite Varying Explanations; Additions Upheld.

  Case-Laws - AT : Deemed dividend under sec. 2(22)(e) - Initially, the assessee has chosen to declare the deemed dividend in his hand, later come with different explanation at different levels - additions confirmed - AT
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• Claiming Depreciation on Windmills: No Need for Separate Notification, Just Opt in via Rule 5(1A) on Tax Return.

  Case-Laws - AT : Methodology of claim of deprecation on windmills - assessee if assessee exercised option in terms of second proviso to Rule 5(1A) at 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 - AT
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• Foreign Travel Expenses Cannot Be Claimed Twice by Assessee and Related Entity, Court Clarifies.

  Case-Laws - AT : Disallowance of foreign travel expenses - there cannot be double claim of same expenditure, one in the hands of the assessee and another in the hands of the sister concern - AT
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• Secure Electronic Communication Guidelines for Income Tax Scrutiny Assessments u/s 143(3) to Protect Confidentiality and Streamline Processes.

  Circulars : Procedure, Formats and Standards for ensuring secured transmission of electronic communication including scrutiny assessment u/s 143(3)
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• Section 14A Disallowance: Estimate Admin Expenses When No Separate Books for Taxable & Exempt Income Exist.

  Case-Laws - AT : Disallowance u/s 14A - no separate books of account are maintained for taxable income and exempt income - some expenditure on account of administrative expenses has to be disallowed on reasonable estimate basis - AT
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Customs

• Goods with Essentiality Certificate Exempt from Duty, Notification Number Irrelevant for Transshipment Permits.

  Case-Laws - AT : Transshipment of goods without charging duty - The fact that the goods cleared under transshipment permit are required for the intended purpose is clear from the facts that the essentiality certificate has been issued. Whether it is issued under Notification No. 17/2001 or 21/2002 is immaterial - benefit of notification cannot be denied. - AT
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• Gastrointestinal Video Endoscope, including wireless capsule, qualifies for exemption benefits due to advanced diagnostic capabilities.

  Case-Laws - AT : Import of medical equipment - As per the technical definition "Gastro Intestinal Video Endoscope", it is nothing but Gastroscope using Video technology. The present equipment is based on wireless capsule and which covers not only throat but also entire gastro intestinal tract. - Benefit of exemption allowed. - AT
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Service Tax

• Company Recovers Deducted Refund from Revenue u/s 87(d) of Finance Act 1994; Refund Allowed.

  Case-Laws - AT : Refund - unjust enrichment - the impugned amount was deducted by Revenue from the refunds of Bharat heavy electricals Ltd in terms of the powers u/s 87(d) of Finance Act 1994 and BHEL recovered the said amount from the appellant by deducting the same from the payments due to the appellant for providing security services - refund allowed - AT
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• Tour Operator Faces Scrutiny for Non-Compliance with Bus Specifications u/r 128, Affecting Service Tax Matters.

  Case-Laws - AT : Tour Operator services - the buses do not conform to the specifications in terms of Rule 128 of the Central Motor Vehicles Rules. - AT
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Central Excise

• Service Tax Credit Reversal Before Utilization Negates Interest Demand in Mixed Goods Manufacturing Case.

  Case-Laws - AT : Admissibility of credit of service tax paid on input service used in the manufacture of exempted as well as dutiable goods - as the credit has been reversed before utilization, the demand of interest is unsustainable. - AT
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• Courts Disagree on Using Endorsed Bills of Entry for Cenvat Credit; Extended Penalty Period Not Applicable.

  Case-Laws - AT : Cenvat Credit - duty paying document - endorsed Bill of Entry - conflicting judgments were being given on this issue by various courts - extended period can not be invoked in the present proceedings and no penalties are imposable - AT
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Case Laws:

• Income Tax

• 2016 (2) TMI 385
  Bonus payment - reopening of assessment - State price exceeds fair market value which is fixed by the Central Government - Held that:- As under substantially similar circumstances when a group of petitioners approached the High Court complaining about notices for reopening the assessments, the High Court in case of Shree Chalthan Vibhag Khand (2015 (7) TMI 297 - GUJARAT HIGH COURT ) quashed all notices. the Court held and observed that mere payment of cane price in excess of the SMP would not ipso facto and/or per se be said to be distribution of profit. There had to be some tangible material with the Assessing Officer that the excess paid was exorbitant or too excessive or that the same was otherwise not justified. It was observed that while considering the question of taxability of such amount, number of questions would be required to be examined by the Assessing Officer “before forming an opinion and/or a reason to believe that income chargeable to tax had escaped assessment”. It was further observed that a detailed inquiry is required to be conducted by the Assessing Officer. In the said cases since no such inquiry was conducted before forming a belief that income chargeable to tax had escaped assessment, the Court was persuaded to quash the notices. It also observed that the Assessing Officer had relied on the order passed by the CIT(A) in cases of some other assessees. The Assessing Officer could not have borrowed the satisfaction from such order in absence of any application of mind on his part. Since the issues are almost identical and the impugned notices for reopening the assessments have been issued by the Assessing Officers under similar circumstances recording reasons which are materially similar, it would not be possible for us to take a different view. - Decided in favour of assessee

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• 2016 (2) TMI 384
  Addition made towards difference in closing stock - assessment by Sales Tax Authorities - whether the stock statement submitted to the Sales Tax authorities was erroneous? - Held that:- As decided in The Commissioner of Income Tax Versus Smt. Sakuntala Devi Khetan [2013 (3) TMI 270 - MADRAS HIGH COURT] it has been held that the Assessing Officer has to adopt the figures and turn over finally assessed by the Sales Tax Authorities. This decision is binding upon the Revenue. Therefore, the contention of the Revenue that it has powers to tinker with the stock estimated by the Sales Tax Authorities cannot be accepted. Therefore, the appeal filed by the Revenue fails. - Decided in favour of assessee

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• 2016 (2) TMI 383
  Disallowance of sub-brokerage - CIT(A) restricted the allowance to 50% as excessive and unreasonable within the meaning of Sec. 40A(2)(b) of the Act - AO disallowed the claim as assessee has not deducted TDS u/s. 194J - Held that:- Observation of the Ld. CIT(A) that it is for the appellant to prove beyond all doubt that the payment made constituted the fair market value of the services received is not justified since assessee has given instances where the sub-brokerage was paid at 70% of the commission received. Further a list of parties were submitted to show that the sub-brokerage paid was in the ratio of 60:40 and 80:20 depending on the market conditions. The lower authorities have not made any enquiries to disprove the submissions of the assessee. We are not in agreement with the Ld. CIT(A) in holding that the brokerage paid should be restricted by invoking the provisions of Section 40A(2) of the Act. Thus we set aside the order of the Ld. CIT(A) on this issue. As we have upheld the order of the Ld. CIT(A) in holding that the sub-brokerage paid would fall under the provisions of Sec. 194H and not under the provisions of Section 194J, the provisions of Sec. 40A(2) have no application in the facts and circumstances of the case, we dismiss the Revenue s appeal.

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• 2016 (2) TMI 382
  Transfer pricing adjustment - Capacity underutilization - Held that:- Merely because the employee costs of the assessee are higher, it does, in our considered view, lead to the conclusion that there is an underutilization of capacity. It is also a matter of record, as noted by the assessee in the written submissions, that the underutilization is much more in the case of non AE transactions inasmuch as “the employee costs to turnover ratio in AE segment is 76% whereas in non-AE segment it is 97%”. There is no specific submission and quantification on the fact, if at all, of the underutilization of capacity. The factual elements embedded in the submissions are not at all established. There is no room for vague generalities and over simplifications, as the impact of underutilized capacity is to be, with reasonable precision, quantified and then only it can be adjusted. The exercise of quantifying the capacity underutilization has not been carried out at all. There is not even whisper of a discussion, on this aspect of the matter, in the orders of the authorities below or in the submissions of the assessee. In view of the above discussions, we are not inclined to uphold the assessee’s grievance with respect to denial of adjustment for capacity underutilization. Inclusion of three comparables, namely (a) Crossdomain Solutions Ltd (b) Maple eSolutions, and (c) Vishal Information Tech Ltd. challenge by assessee - Held that:- As evident from the working even if all the three comparables agitated by the assessee are excluded, the ALP adjustment worked out on the basis of the revised margin will be much more than the revenue realized from the non AE. Since, in terms of the DRP directions, the ALP of the international transactions is required to be restricted to the revenue realized from the non AE, i.e. 12,13,50,108, it is wholly academic whether the ALP on the basis of the comparables adopted by the assessee is 12,50,03,640, on the basis of comparables agreed to by the assessee, or is 13,46,20,929 as worked out by the TPO, on the basis of comparables adopted by him. In either of the situations, the ALP adjustment will be restricted to the difference between the transaction value (i.e. 10,39,29,814) and the revenue realized from the non AE (i.e. 12,13,50,108). The directions of the DRP having reached finality, so far as this approach adopted by the DRP is concerned, the assessee’s present grievance on comparables is wholly academic and it does not call for any adjudication at this stage

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• 2016 (2) TMI 381
  Disallowance under section 14A - Held that:- Assessing Officer can invoke Rule 8D only when he records satisfaction in regard to the correctness of the claim of the assessee, having regard to the accounts of the assessee. The condition precedent for the Assessing Officer entering upon a determination of the amount of the expenditure incurred in relation to exempt income is that the Assessing Officer must record that he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. While rejecting the claim of the assessee with regard to the expenditure or no expenditure, as the case may be, in relation to exempt income, the Assessing Officer has to indicate cogent reasons for the same. Therefore, it is all the more necessary that Assessing Officer has to examine the accounts of assessee first and then if he is not satisfied with the correctness of the claim, only he can invoke Rule 8D. Neither such examination was made nor any satisfaction was recorded by Assessing Officer in this case. It is noticed that the Assessing Officer has not considered the claim of the assessee at all and he has straightway embarked upon computing disallowance under Rule 8D on the presumption that the assessee might have incurred some expenses. Disallowance under section 14A required finding of incurring of expenditure and where it was found that for earning exempted income no expenditure had been incurred, disallowance under section 14A could not stand. We notice that assessee itself disallowed for earning the interest income. The Assessing Officer has not examined any expenditure claimed in P & L account so as to relate to exempt income, nor gave a finding that assessee claim is not correct for any reason. Rule 8D cannot be invoked directly without satisfying about the claims or otherwise. - Decided in favour of assessee

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• 2016 (2) TMI 380
  Exemption u/s 11 2,22,000/- has to be taxed at the maximum marginal rate of tax as per the provision of Section 164(2) of the Income Tax Act, 1961 as per the various case laws submitted separately, which have also held that the denial of exemption should only be to the extent of income which was violative of Section 13(1) (d) and not the total denial of exemption u/s. 11.

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• 2016 (2) TMI 379
  Deemed dividend under sec. 2(22)(e) - the company maintained separate accounts for land advance and other loans and that the amount was not reflected in the accounts of the land advance - Held that:- A.O. did not pointed out any mistakes, other than the deemed addition under sec. 2(22)(e), the additional income offered should be telescoped against the deemed addition made under sec. 2(22)(e). We do not find any merits in the arguments of the assessee, as the addition made under deeming provision is nothing to do with the income offered to cover up the deficiencies in the books of accounts. Insofar addition under sec. 2(22)(e) is concerned, the said addition is made under deeming provision, therefore, it cannot be said that the disclosure made by the assessee before the A.O. is on account of deemed dividend. Hence, the contention of the assessee is rejected. Taxability in the hands of all the directors according to their share holding - Held that:- Coming to the additional ground raised by the assessee that without prejudice to the claim that the addition towards deemed dividend under sec. 2(22)(e) of the Act is not sustainable in the hands of assessee, if at all the dividend is taxable, it is reasonable to consider the addition to the extent of 20% of the accumulated profits in the hands of assessee and the remaining may be ordered to be assessed in the hands of other four shareholders, as all the shareholders have taken advance from the company, therefore, the amount is liable to be taxed in the hands of all the directors according to their share holding. We have considered the arguments of the assessee and we find that there is no merit in the arguments of the assessee. The assessee keeps on changing his arguments at each stage of proceedings and from this inconsistent explanation of the assessee, we find that there is no bonafiedness in the claim of the assessee. Initially, he has chosen to declare the deemed dividend in his hand, later come with different explanation at different levels. - Decided against assessee

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• 2016 (2) TMI 378
  Penalty under S.271(1)(c) - deduction under S.10A - CIT(A) allowed the appeal of the assessee for statistical purposes - Held that:- Contention of the assessee right from the beginning against the penalties proposed is that the said claims under S.10A were made on account of typographical errors and incorrect advice of the Chartered Accountant. Even though the CIT(A) observed that this passing on of the blame on to the Chartered Accountant was only to get away from the penalty, the CIT(A), taking into account the appellate orders passed by her in the quantum proceedings emanating from the orders of the Assessing Officer under S.154, whereby she has directed the allowance of deductions under S.35(2AB) and S.35(1), held that if these deductions were allowed, the assessed income would become nil, and hence the quantum of penalty imposable for the years under appeal would also become ‘nil’. Since the quantum of penalty imposable thus would be ‘nil’ in each of these years, the CIT(A) allowed the appeals of the assessee for statistical purposes. No material has been brought on record to controvert the finding of the CIT(A) that if the deductions under S.35(2AB) and S.35(1) are allowed for the years under appeal, the assessable income would be nil, and consequently, the penalty imposable would also be ‘nil’. When there is no variation to the total income determined, machinery provisions for calculation of ‘tax sought to be evaded’ would fail. In that view of the matter, we find no infirmity in the impugned orders of the CIT(A). We accordingly uphold the same - Decided against revenue

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• 2016 (2) TMI 377
  Disallowance of deprecation on windmills on WDV Method - methodology of claim of deprecation - assessee claimed deprecation at 80% on written down value method instead of straight line method at 7.69% - Held that:- Since the assessee company claimed depreciation on straight line method for the assessment year 2009-2010 and cannot have different methodology of deprecation for the subsequent years. We rely on the decision in the case of CIT vs. Kikani Exports P. Ltd [2015 (2) TMI 680 - MADRAS HIGH COURT] where it was held that " All the second proviso to Rule 5(1A) states is that the assessee has to exercise option before the due date for furnishing return of income. If option is exercised after furnishing of return of income under sub-section (1) of Section 139, it is of no avail. Form ITR-6 gives methodology on which deprecation can be claimed. Statue did not provide for any other method to exercise option except through filing of return. To read something more into second proviso to Rule 5(1A), that an option should be exercised separately would make returns filed meaningless. Thus if assessee exercised option in terms of second proviso to Rule 5(1A) at 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. Further option once exercised will continue to all subsequent years, assessee is not required to exercise such option each and every year separately. Revenues appeal dismissed’’. We find the facts and circumstances of the present case are similar to the case decided by the Jurisdictional High Court and accordingly - Decided against assessee.

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• 2016 (2) TMI 376
  Disallowance u/s 14A - excluding interest on bank loan and term loans for the purpose of computing disallowance - Held that:- As relying on Champion Commercial Co Ltd case [2012 (10) TMI 24 - ITAT, KOLKATA ] we uphold the order of the Commissioner of Income Tax (Appeals) in excluding the interest on bank loan and term loans for the purpose of computing disallowance under Rule 8D(2)(ii). - Decided in favour of assessee Disallowance of foreign travel expenses - Held that:- on surmises and presumption, adhoc disallowance is not possible. However, we make it clear that there cannot be double claim of same expenditure, one in the hands of the assessee and another in the hands of the sister concern for the same assessment year, viz. 2012-13. Accordingly, this ground of appeal of the Revenue is also dismissed. - Decided in favour of assessee Disallowance invoking the provisions of sec.43B - employees contribution towards PF & ESI not paid within due date under the respective Act - Held that:- In the present case, the assessee had remitted the employees contribution beyond the due date for payment, but within the due date for filing the return of income, thus no disallowance required - Decided in favour of assessee

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• 2016 (2) TMI 375
  Non-granting of registration u/s 12AA - main object of the assessee is to provide resources for advanced education for peoplewho deserve it - Held that:- The purpose of a trust or institution is relief of the poor, education or medical relief, the requirement of the definition of ‘charitable purpose’ would be fully satisfied, even if an activity for profit is carried on in the course of the actual carrying out of the primary purpose of the trust or institution. At this stage, it is also pertinent to note that the clause ‘not involving carrying any activities of profit’ were omitted from this definition by the Legislature by Finance Act 1993 with effect from 1st April 1983. Therefore, after such omission, the element of profit cannot be excluded from the definition ‘charitable purposes’ u/s 2(15) of the Act. According to this provision, if any educational institution is running on commercial basis, then the income of such educational institution cannot be exempted from taxation. However, such institution can claim exemption u/ss 11 & 12 of the Act if it involves charitable activities. After complying the requirement of sec. 11 of the Act, if there is any violation either in sec. 11 or 13, profit of such institution would be taxable because some profit has been earned by the institution, registration u/s 12AA cannot be denied so long as provisions of sections 11, 12 & 12 of the Act are complied with. So long as it is established that income of the institution has been applied for the purpose for which it was established in terms of sec. 2(15) of the Act and there is no violation of sec. 13, the assessee would be entitled to enjoy the benefit of registration u/s 12AA of the Act. If the assessee is established for charitable activities and in the course of carrying out charitable activities, the assessee earns profits, then such institution will not be debarred or disentitled for registration u/s 12AA. Therefore, registration u/s 12AA would not be relevant by itself for claiming exemption u/s 11 of the Act. The objects of the trust and its genuineness have to be examined by the DIT(E) while granting registration u/s 12AA of the Act. In view of the above discussion, the DIT(E) is directed to grant registration u/s 12AA of the Act to the assessee-trust. - Decided in favour of assessee

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• 2016 (2) TMI 374
  Income from shops - treated as business income OR Income from House Property - Held that:- Authorities below have erred in holding that the income derived by assessee from letting out of shops in the shopping complex Krome Planet is to be treated as Income from House Property. The findings of the Commissioner of Income Tax (Appeals) are set aside and the income from letting out of shops in the Shopping Mall is held to be business income. - Decided in favour of assessee

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• 2016 (2) TMI 373
  Disallowance u/s 14A - no separate books of account are maintained for taxable income and exempt income. - Held that:- Addition u/s.14A only the expenditure which has been proved to have been incurred in relation to the earning of tax free income can be disallowed and the section cannot be extended to disallow even expenditure which is assumed to have been incurred for the purpose of earning the tax free income. It has further been held that common expenditure at the head office etc. cannot be broken up artificially to attribute or apportion a part thereof to the earning of the tax free income on the assumption that such part of the common expenditure was incurred in relation to the tax free dividend income. However, it is also a fact that no separate books of account are maintained for taxable income and exempt income. The assessee has prepared one common profit and loss account. Therefore, it cannot be said that no expenditure has been incurred at all for earning the exempt income. However, considering the fact that out of total dividend income of 2.34 crores an amount of 2.32 crores are received from 3 group companies and an amount of 1.40 lakh has been earned on shares held for trading activities, disallowance of 4,77,740/- appears to be on the higher side. Various Benches of the Tribunal are taking the view that some expenditure on account of administrative expenses has to be disallowed on reasonable estimate basis under such circumstances. Considering the totality of the facts of the case, disallowance of 50,000/- on estimate basis under the facts and circumstances of the case in our opinion will meet the ends of justice. We hold and direct accordingly. - Decided partly in favour of assessee.

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• 2016 (2) TMI 372
  Addition of royalty charges - whether royalty payment calculated by applying certain percentage on sales of the assesseecompany, which is payable to a foreign company under a technology transfer agreement is in the nature of capital expenditure or revenue expenditure? - Held that:- The royalty was paid on the basis of sales generated by the assessee and was not a lump sum payment. Further there was no new asset acquired by the company in form of tangible or intangible asset as the assessee was prohibited from transferring such technology to any third party. Similar issue was decided by the Apex Court in the case of Mewar Sugar Mills Ltd. vs. CIT (1972 (9) TMI 12 - SUPREME Court ) wherein held that where payment of royalty is correlated to producing, it may be a revenue expenditure. - Decided in favour of assessee Addition on account of treating repair expenditure as revenue expenditure - Held that:- After considering the totality of facts and circumstances of the case, we are of the opinion that the first appellate authority has rightly held that the expenditure relates to general repair expenses and there is no creation of new asset, thus clearly, the impugned expenditure lay in the revenue field and not in the capital field and there we do not find any infirmity in the order of CIT(A). - Decided in favour of assessee Addition to the book profit u/s 115JB on account of provisions for leave encashment and gratuity - Held that:- As the facts of the case of assessee are identical to the facts discussed in the case of Bharat Earthmovers vs. CIT (2000 (8) TMI 4 - SUPREME Court) and also assessee has prepared its financial statement by following the Accounting Standard issued by ICAI and the provisions for leave encashment and gratuity has been made on the basis of actual liability accrued to the assesseecompany based on the actual period of working and wages for its employees and hence the provision for leave encashment and gratuity is an ascertained liability. CIT(A) has rightly deleted the addition to the book profit u/s 115JB - Decided in favour of assessee Addition on account of excise duty claim considered to be penal in nature - Held that:- As the three types of expenses referred in this ground are of general nature expenditure because 57,015/- is a reversal of cenvat credit which was previously reduced on the purchase cost and for some reason the claim of this cenvat credit was not allowed by the Excise Department and therefore, assessee has debited that difference as expenditure and this reversal cannot be termed as a penalty as referred in section 37 and similarly R.s.13,440/- and 8,032/- are normal expenditure in the additional excise duty and service tax paid and there is no finding by the Assessing Officer that there was any specific penalty order wherein above referred amount has been imposed as penalty on the assessee. Under these circumstances, we are of the view that ld. CIT(A) has rightly deleted the addition - Decided in favour of assessee Disallowance of excess claim of depreciation on electrical installations - Held that:- CIT(A) has rightly held that the expenditure referred in this ground as expenditure on electrical equipment and machinery attached to the plant and machinery by observing that mainly electrical equipment and accessories attached to the plant 1,000/-, 550/- and 1,100/- are concerned, they are in the nature of recoverable expenses incurred by the assessee which could not be recovered and, therefore, they have been written off in the current year because the same has already suffered taxation in earlier year when they were actually not claimed as expenditure and, therefore, rightly claimed as paid debts. However, the amount of 26,224/- and 3,76,000/- are advances given by the assessee to acquire the raw material and implementation of ERP system but for some reason these two transactions could not be completed and the advances could not be recovered by the assessee, therefore, this amount has been claimed as expenditure and certainly this expenditure is not of the nature of bad debts but it is a general nature expenditure referred in section 37(1) and incurred wholly and exclusively in the course of regular business carried on by the assessee. Therefore, we find no infirmity in the order of CIT(A) in deleting the impugned addition. - Decided in favour of assessee Addition u/s 68 - unexplained cash credit - Held that:- All the conditions have been duly adhered and followed and complied with by the assessee in relation to FDI receipt towards share application money for investment in 82,62,000 equity shares of 10/- each received from the holding company for investment in the subsidiary company and the identity of the holding company stands well proved from the letter of Ministry of Commerce and Industry, Department of Industrial Policy 56,30,000/- is in opening balance in the name of CVG Germany received in earlier year and we have already decided in the above ground No.4 about the identity, financial capacity, genuineness of the transaction and creditworthiness of M/s CVG and also looking to the facts that this amount of 56,30,000/- pertains to immediately preceding year and, therefore, any action if had to be taken by the Assessing Officer was in the year in which the amount was received. Therefore, the Assessing Officer was not correct in making the addition u/s 68 of the Act in this year. The ld. CIT(A) is justified in deleting the same - Decided in favour of assessee

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• 2016 (2) TMI 371
  Transaction of purchase and sale of shares - Short Term Capital Gain and Long Term Capital Gain OR Business Income - Held that:- The portfolio held by the appellant when considered in the light of number of scrips held/purchased/sold and corresponding number of transactions, number of days transacted in market, lack of frequency of transactions, consistent valuation of shares at cost value, separation of speculation/F 16.72 lakh which indicates that assessee has been a long term investor in shares. In view of above CIT(A) was justified in directing to assessee long term capital gain under respective heads. This reasoned factual finding of CIT(A) need not interference from our side. We uphold the same. - Decided against revenue

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• Customs

• 2016 (2) TMI 358
  Demand of duty - Transshipment of goods without charging duty - period of limitation - Held that:- appellants were clearing the goods on the basis of transshipment permits and when the definition of Continental Shelf and Exclusive Economic Zone were changed. As a result the duty liability arose in respect of the clearance made to area within the Continental Shelf and Exclusive Economic Zone. The show-cause notice in respect of these clearances made was issued on 3.12.2002 for the clearance made from 11.2.2002 to 13.2.2002. The show-cause notice was issued beyond a period of six months prescribed at the material time. The Revenue had sought to explain the delay on account of the litigation before Hon'ble Bombay High Court. It is also a fact that the Revenue issued show-cause notice during the pendency of this Writ Petition, which clearly indicates that the court did not bar issue of notice. This confirms the fact that the Court proceedings were not preventing Revenue from issuing show-cause notice in timely manner. The contention of the Revenue that the appellant during pendency of Writ Petition needs to be excluded, cannot be accepted. In the circumstances, we find that the show-cause notice is barred by limitation. The impugned order cannot be sustained on this count. The fact that the goods cleared under transshipment permit are required for the intended purpose is clear from the facts that the essentiality certificate has been issued. Whether it is issued under Notification No. 17/2001 or 21/2002 is immaterial so long as the essentiality certificate covered the goods, benefit of notification cannot be denied. - Demand set aside - Decided in favor of appellant.

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• 2016 (2) TMI 357
  Rectification of order - Finalization of provisional assessment - Ex-bond Bills of Entry in respect of both imported and indigenous crude oil - warehoused goods - appellant informed the Deputy Commissioner that the Ex-bond Bill of Entry was actually indigenous crude oil and by mistake, it was recorded as a imported crude oil in the final assessment order - Held that:- Section 154 of the Act, is an independent provisions for correction or rectification of errors, in any order or decision passed by the officer, and the authority should have examined as to whether it is a mistake within the scope of Section 154 of the Act. In the present case, both authorities below had failed to consider the facts of the case in the light of the Section 154 of the Act. If the Adjudicating Authority fails to record between the materials on which certain conclusions are based and the actual conclusion, it is difficult to the appellate authority to determine facts and law of the case. - Matter remanded back.

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• 2016 (2) TMI 356
  Import of medical equipment - exemption benefit of Customs Notification No.21/2002 under List 37 of S.No.363A of the Table vide Item No.82 and CE Notification No.6/2002 at Sl.No.267A. - M2A Capsule Endoscopy Given Diagnostic System (Wireless Endoscopy) - Held that:- Item No.82 of List 37 at Sl.No.363 of the Table appended to Notification No.21/2002-Customs covers both "Fibreoptic Flexible Oesophago Gastroscope" and also "Video Oesophago Gastroscope". The equipment which is imported by the respondent is fully automatic (wireless) used for gastro endoscopy from mouth to intestine. As per the technical definition "Gastro Intestinal Video Endoscope", it is nothing but Gastroscope using Video technology. The present equipment is based on wireless capsule and which covers not only throat but also entire gastro intestinal tract. - Benefit of exemption allowed.

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• 2016 (2) TMI 355
  Confiscation of import of ammunition - Restricted items - The case of the Revenue is that 7.62X25 Tokarev is not .30 Mauser partridges, therefore the same do not fall under Para 2.34 of the Hand Book of Procedures, 2009-14 and the respondent is not having the licence to import thereof. - respondent submits that the Bore .30 in British system was converted into 7.62 in Metric system and therefore the impugned cartridges 7.25 X 25mm, which is equivalent to 0.30mm cartridges - Held that:- the respondent has not mis-declared the goods and the import made by it was quantified under Para 2.34 of Handbook of Procedures (Vol.-I), Foreign Trade Policy, 2004-09 and the respondent is having import licence to that extent - Revenue appeal dismissed - Decided against the revenue.

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• Corporate Laws

• 2016 (2) TMI 354
  Scheme of Arrangement would be in the interest of the shareholders and creditors of all the companies, as well as in the public interest. The same, therefore, deserves to be sanctioned.

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• Service Tax

• 2016 (2) TMI 370
  Refund - unjust enrichment - the impugned amount was deducted by Revenue from the refunds of Bharat heavy electricals Ltd in terms of the powers under section 87 (d) of Finance Act 1994 and BHEL recovered the said amount from the appellant by deducting the same from the payments due to the appellant for providing security services - Held that:- . It is also not in dispute that by virtue of the above referred exemption order issued by the Ministry of Finance the respondent was not liable to pay the said amount service tax which was recovered by adjustment from the refunds of Bharat Heavy Electricals Ltd. which in turn recovered it from the respondent. Consequently it clearly became eligible for the refund of the said amount as the burden was borne by the respondent. Further Bharat Heavy Electricals Ltd pays crores of rupees of duty in cash and therefore it really is of no consequence whether the amount of refund was to be given to it by credit to its Cenvat account in cash because this issue becomes important only in those cases where the assessee does not pay any duty in cash and is able to discharge all its liabilities out of CENVAT credit. - Refund allowed - Decided against the revenue.

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• 2016 (2) TMI 369
  Classification of services - Business Auxiliary Service (BAS) or not - assessee required to verify the details relating to residential address and /or employer office address or any other details in respect of the applicants seeking financial assistance from various banks and in respect of which these banks sought such verification - Held that:- verification of correctness, fairness and authenticity of information furnished by those seeking loan from Bank would not be classifiable under BAS - Demand set aside - Decided in favor of assessee.

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• 2016 (2) TMI 368
  Tour Operator services - whether the vehicles operated by the appellant conform to the definition of tourist vehicle as provided in terms of Section 2(43) of the Motor Vehicle Act read with Rule 128 of the Central Motor Vehicles Rules. - Held that:- to be covered under the category of 'Tour Operator Service', the vehicles used should meet the specifications of tourist vehicle as specified under Rule 128 of the Central Motor Vehicles Rules. - the buses do not conform to the specifications in terms of Rule 128 of the Central Motor Vehicles Rules. - No demand - Decided against the Revenue.

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• 2016 (2) TMI 367
  Security Agency Service - appellant submitted that demand was raised merely on the amount as shown in the ledger account, without taking into consideration the actual receipt. - reimbursement expenses including salaries and other expenses - Held that:- The matter is remanded to the Adjudicating authority to decide afresh after considering the documents and the submissions of the Appellant. In this context, the learned Advocate undertakes to appear before the Adjudicating authority to submit the documents and appear before the Adjudicating authority within two months from the date of receipt of this order. - Matter remanded back.

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• 2016 (2) TMI 366
  Benefit of abatement - installation/commissioning of ground based towers for BSNL - Revenue stated that the appellant was liable to pay service tax by including the value of towers and as the value was not included abatement of 67% under Notification No. 1/2006-ST was not admissible and therefore the impugned demand is sustainable. - Held that:- the question of availability of 67% abatement under Notification No. 1/2006-ST loses relevance as whatever service tax the appellant paid can be deemed to be reversal of the Cenvat credit of service tax (paid by sub-contractor) taken by it (i.e. the appellant) when service tax paid by it (appellant) was not less than such credit taken. - Stay granted.

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• 2016 (2) TMI 365
  Refund - service tax was paid erroneously - export of services - Period of limitation - Revenue claimed that when the appellant did not follow the route of the notification, its claim is barred by law - it had not availed exemption granted by Notification No.18/2009 - Held that:- The present claim of the appellant goes to the root of section 11B which deserves consideration. Reasoning state in this order as above is fortified from the principle laid down in para 9 of the judgment of the Hon'ble High Court of Allahabad. Hon'ble High Court noticed in Addi Industries Ltd. [2014 (4) TMI 844 - ALLAHABAD HIGH COURT] that case that the taxable services being related to the export for the period Apr,'08 to Jun.'09, appellant was even not entitled to get the refund thereof under Section 11B. No doubt, once the period of claim relates to post notification period, appellant deserves consideration. - Matter remanded back.

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• Central Excise

• 2016 (2) TMI 364
  Valuation - Royalty to be included in assessable value - Held that:- As observed that the appellant have not produced evidence for payment of royalty to M/s Rohne-Poulenc Agrochemicals (India) Ltd., which needs to be considered by the adjudicating authority. Accordingly, it was held that the royalty is deductible and is not to be included in the assessable value if the appellant have paid royalty to M/s Rohne-Poulenc Agrochemicals (India) Ltd. And matter was remanded for verification of such payment to the adjudicating authority. Charging of duty on freight component recovered by debit note, the issue is covered by the decision of the Hon'ble Supreme Court in the case of VIP Industries Ltd. (2003 (4) TMI 109 - SUPREME COURT OF INDIA) and accordingly, the same is decided in favour of the appellant. So far the issue of excess finished goods found, we find that the same is insignificant being less than 2% of the total stock available and further there is no allegation of finding of any clandestine removal or activity on the part of the appellant. Moreover the stock of the day was taken on estimate basis. - Decided in favour of the appellant.

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• 2016 (2) TMI 363
  Cenvat Credit on capital goods purchased by the Job worker on behalf of principal manufacture endorsed invoice - Job worker had not taken the credit of the duty paid on the capital goods - Held that:- Endorsement as above not being in dispute by Revenue as is apparent from show-cause notice that establishes the fact that appellant was consignee of the capital goods. Therefore, there should not be dispute to grant capital goods credit to the appellant in whose factory the said goods were installed and used for manufacture of the goods for the appellant. It may be stated that law does not prescribe that the claimant of capital goods credit should necessarily be owner thereof. - Credit allowed - Decided in favor of assessee.

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• 2016 (2) TMI 362
  Demand of duty along with interest and penalties - clearance of Chewing Tobacco clandestinely under the guise of naswar (Sniff) - Held that:- No investigation has been conducted from the consignees in the case of 46 RRs. The statement of Shri Sanjeev Kumar recorded on 01.12.2007 cannot be relied upon as on the said day Shri Sanjeev Kumar was in police custody and not in the custody of the Departmental officers. Therefore, said statement cannot be said to be recorded under section 14 of the Central Excise Act 1944. The statement dated 17.07.2009 does not reveal any inculcatory statement. Therefore, the said statement cannot be the basis of confirmation of demand against the appellants. Moreover, department has not relied on the said statement. There is no corroboration of RRs with any tangible evidence to allege that appellants have cleared goods clandestinely in the guise of naswar on the strength of RRs recovered from railways on 09.04.2012. Therefore, impugned proceedings are not sustainable against the appellants. Moreover, Revenue has exonerated Shri Purshottam Kumar against whom penalty has been imposed by the Adjudicating Authority observing that his name does appear on few RRs covering clandestine transaction but there has not been any other evidence or statement that would substantiate his role in clandestine removal. Admittedly, there is no other evidence or statement which can substantiate the case of the Revenue against the appellants. - Decided in favour of assessee.

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• 2016 (2) TMI 361
  Admissibility of credit of service tax paid on input service used in the manufacture of exempted as well as dutiable goods - demand of interest and imposition of penalty - Held that:- The demand of interest is countered by the learned Counsel by putting forward the contention that the credit was reversed prior to the utilization. Opening and closing balance of the credit amount pertaining to the respective months substantiates this contention put forward by the appellant. The judgements relied upon by the learned counsel analyses the issue of payment of interest in the case of reversal of credit. Hon’ble Karnataka High Court in the case of CCE, ST and LTU, Bangalore vs. Bill Forge Pvt.Ltd. (2011 (4) TMI 969 - KARNATAKA HIGH COURT ) held that before utilization of credit, if the same has been reversed it would amount to not taking credit and would not attract liability of interest. Similar view has been taken in the other judgements cited and placed before us. Following the principle laid in these judgements, we hold that as the credit has been reversed before utilization, the demand of interest is unsustainable. Imposition of penalty - Interestingly, it is seen stated in the show cause notice that the same is issued invoking the extended period of limitation. As per records, the department has come to know about wrongful availment of credit and informed the appellants the same on 9.8.2007. The show cause notice is dated 24.1.2008 which in our view is within the period of limitation. We do not find any ground necessary for invoking the extended period of limitation. Be that as it may, the contention of the appellant that there was no suppression of facts or wilful mis-statement is not without force. On 4.7.2006, the appellants have written letter explaining the manner of availing the credit of inputs, capital goods and input service. Further, when the department called for to furnish the details regarding availment of credit, the appellants had furnished the same. On such score, we hold that the respondent have miserably failed to establish suppression or mis-statement with intention to evade payment of duty on the part of the appellants. Pursuant to the above reason, we are of the considered view that the imposition of penalty is unwarranted.

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• 2016 (2) TMI 360
  Refund claim - higher rates of depreciation allowed - conversion from or exiting from Export Oriented Unit - Held that:- The dispute is one of valuation i.e., the extent to which the original value should be reduced in acknowledgement of the use to which capital goods have been put for export of goods. The goods are not transferred to another entity and thus there is no transaction value. The residuary method of valuation cannot but take into account the time element in relation to goods that do not get integrated into the final product. Therefore, depreciation does not require to be incorporated in a statute or statutory instrument for it to be extended when converting from or exiting from Export Oriented Unit. As long as a logical method of depreciation is adopted, the valuation would be sustainable in law. For ensuring uniformity, circulars of Central Board of Excise & Customs did prescribe rates of depreciation from time to time before the practice of incorporation in notifications was commenced in 2003. Rates of depreciation were prescribed in circular no 27/98-Cus dated 21st April 1998 and amended later by circular no 43/98-Cus dated 26 th June 1998.The impugned order while allowing the appeal of the respondent-assessee had accepted the contention in the application for refund adopting the rates found in the Handbook of Procedures of the relevant Foreign trade Policy. We find from above that the Central Board of Excise & Customs had also aligned its prescriptions accordingly in every circular relating to debonding. We, therefore, find no reason to interfere with the decision in the impugned order to allow the refund claimed by M/s RM Mohite Textiles Ltd - Decided in favour of assessee.

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• 2016 (2) TMI 359
  Cenvat Credit - duty paying document - endorsed Bill of Entry - Extended period of limitation - Held that:- credit taken on the basis of endorsed bills of entry was correctly taken by the appellants. So for as the applicability of extended period is concerned it is observed that appellants were taking credit on the basis of documents which were submitted to the department for defacement. In the light of existing factual matrix it can not be said that there was any intention on the part of the appellants to evade payment of duty. Further conflicting judgments were being given on this issue by various courts. Accordingly we are of the opinion that extended period can not be invoked in the present proceedings and no penalties are imposable upon the appellants.

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