TMI Tax Updates - e-Newsletter
February 24, 2016

Case Laws in this Newsletter:

Income Tax Corporate Laws Service Tax Central Excise

News

1. Address by the President of India, Shri Pranab Mukherjee to the Joint Session of both houses of Parliament

2. Investiture Ceremony and Annual Central Excise Day-2016

3. RBI Reference Rate for US $

4. Text of PM's statement to Media ahead of the Budget Session of Parliament

5. Finance Minister Shri Arun Jaitley inaugurates an exhibition on the “Coin and Currency of India” in the Great Hall of North Block; Exhibition depicts how money has changed in appearance and substance and evolved from barter to coins to the present day bank notes and e-money

Circulars / Instructions / Orders

DGFT

1. 61/2015-2020 - dated 23-2-2016

Standard Input Output Norms (SION) in Food Product Group

Highlights / Catch Notes

Income Tax

• CIT(A) Holds Exclusive Authority to Rectify Orders u/s 154, Not the Assessing Officer.

  Case-Laws - AT : Rectification of mistake - when the issue has been decided by the CIT(A) then only CIT(A) can rectify the order u/s 154 - AO has no jurisdiction to rectify such order - AT
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• Only Tax Component Adjusted in Refund Calculations u/s 244A; Interest Component Remains Unchanged for Compensation.

  Case-Laws - HC : Calculation of interest u/s 244A - when a refund of tax has to be reduced by refund already granted it is only the tax element which has to be adjusted and not the interest element paid on the delayed refund of the tax. This is so as the interest which is paid to the assessee is for the wrongful withholding of the assessee's refund by the revenue - HC
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• Offshore Equipment Payments Not Taxable in India: No TDS Deduction Required u/ss 40(a)(i) or 40(a)(ia.

  Case-Laws - AT : Non deduction of TDS - Disallowance u/s 40(a)(ia) - payment made on account of offshore supply of equipments - the subject mentioned payments are not chargeable to tax in India in terms of section 195 - Hence, no disallowance could be made u/s. 40(a)(i)/40(a)(ia) - AT
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• Tribunal Overturns Disallowance of Trading Loss Due to Assessing Officer's Failure to Investigate Evidence Thoroughly.

  Case-Laws - AT : Disallowance of loss suffered in trading of foam and fabrics -, when the Revenue had requested for examination of the evidence and such request was accepted by the Tribunal in the first round and yet AO failed to carry out investigation. Thus, this is a case of lack of investigation which vitiates the adverse conclusion drawn by the AO - AT
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• Commission Payment Disallowed on Property Sale Due to Lack of Proof by Assessee, CIT(A) Justifies Decision.

  Case-Laws - AT : Disallowance of commission payment on sale of property - the assessee has not discharged the initial burden cast upon it first to prove the genuineness of payment. Therefore, the CIT(A) is justified in disallowing the payment of brokerage to three persons. - AT
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Service Tax

• AAR to Review Taxability of Drug Analysis and Market Survey Services in Advance Ruling Application.

  Case-Laws - AAR : Application for advance Ruling - Taxability of activity of services for rendering analysis of the drugs and market survey etc. - AAR rejected both the contentions and admitted the application for consideration. - AAR
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• Extended Service Tax Limitation: Initial Burden on Department to Prove Proviso Conditions Before Shifting to Appellant.

  Case-Laws - HC : Extended period of limitation - The initial burden is on the department to prove that the situations visualised by the proviso existed. But once the department is able to bring on record material to show that the appellant was guilty of any of those situations which are visualised by the section, the burden shifts and then applicability of the proviso has to be construed liberally - HC
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• Court Rules No Service Tax Liability for Maintenance Services to Flat Owners.

  Case-Laws - AT : Demand of service tax on Management, Maintenance or Repair service collected from Flat owners. - In this fact the appellant is not liable for service tax - AT
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• Tax on Business Auxiliary Service Includes Reimbursed Expenses from Indian Oil Corporation, Entire Amount Taxable.

  Case-Laws - AT : Valuation - Business auxiliary service (BAS) - inclusion of reimbursement of expenses - the entire amount received from M/s Indian Oil Corporation is liable to be taxed - AT
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Central Excise

• Cenvat Credit Allowed for Business Services Including Courier, Rent-a-Cab, and Architecture as Per Inclusive Definition.

  Case-Laws - AT : Cenvat credit on courier service, rent-a-cab service and also on architecture and other services which are used in or in relation to the business activity carried on by the appellant - The inclusive part of the definition includes services rendered in relation to business. - credit allowed - AT
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• Revenue's Claim on 'Relative' for Juridical Persons Under Companies Act Section 2(41) Deemed Unfounded in Tax Law Context.

  Case-Laws - AT : Valuation - goods cleared to related buyers - Revenue’s assertion that a jurisdic person also can have a ‘relative’ in terms of Section 2(41) of the Companies Act is totally untenable - Revenue is mixing the concept of ‘related person’ with ‘relative’. - AT
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• Duty Rate for Depot Sales Based on Differential Value; Must Match Factory Clearance Rate.

  Case-Laws - AT : Valuation of goods sold from depot - the rate of duty applicable on the differential assessable value recovered at the depot premises attributable to the products manufactured by them would be the rate applicable to the said goods when they were cleared from the factory premises. - AT
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• CENVAT Credit Valid if Claimed via ISD Invoices, Even Without Appellant's Name on Them.

  Case-Laws - AT : CENVAT Credit on the basis of invoices which were not in their name - if the Appellant availed the credit on the basis of the invoices issued by the ISD, the Adjudicating authority cannot deny the credit - AT
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• Under-Valuation Case: RDSO Testing Charges Excluded from Taxable Value if Goods Marketable Without Testing.

  Case-Laws - AT : Charge of under-valuation - whether RDSO charges, which have been reimbursed by the Railways, are includible in the assessable value or not - If the goods are marketable without testing done by RDSO, in that case, the testing /inspection charges are not includible in the assessable value - AT
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Case Laws:

• Income Tax

• 2016 (2) TMI 677
  Disallowance u/s 14A - Held that:- We have observed that the assessee company has own funds of around 40.79 crores as at 31-03-2010 which comprises share capital and reserves as per balance sheet filed in the paper book. We have also perused the copy of balance sheet as well as the P&L account where it is clear that the assessee company has earned no dividend income during the previous year relevant to the assessment year and in view in the case of Cheminvest Ltd.(2015 (9) TMI 238 - DELHI HIGH COURT ) the ratio laid down therein is squarely applicable to the present case of the assessee company wherein held that the expression ‘does not form part of the total income’ in section 14A of the envisages that there should be an actual receipt of income, which is not includible in the total income, during the relevant previous year for the purpose of disallowing any expenditure incurred in relation to the said income. In other words, section 14A will not apply if no exempt income is received or receivable during the relevant previous year. Thus disallowance deleted - Decided in favour of assessee

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• 2016 (2) TMI 676
  Rectification of mistake - addition to the book profit of the assessee on account of provision for bad and doubtful debts by applying that clause (i) holding that the amounts set aside as provision for diminution in value of the assets covers this item of expenditure debited and is required to be added - CIT (A) upheld the action of AO holding that rectification is because of retrospective amendment and this amendment was not available when CIT (A) decided the issue and further the original addition was under clause (c) of the explanation of Section 115JB and now rectification is made by applying clause (i) of explanation (1) to section 115JB of the Act - Held that:- The issue of provision for deduction of provisions of bad and doubtful debts has been considered and decided by Commissioner of Income Tax (Appeals), then rectification is also required to be made by the Commissioner of Income Tax(Appeals) only and not by the Assessing Officer as the matter of allowability of provision of bad and doubtful debts while working out book profit tax u/s 115JB of the Act has already been decided by CIT (A). Admittedly, in this case, the provisions of Section 154 have been invoked by the Assessing Officer, which he is not competent to do. Clarifying the facts that retrospective amendment made u/s 115JB of the act is no doubt a mistake apparent from the record but issue was whether AO can do that when on the same item of expenditure debited in the books of accounts CIT (A) has decided the issue. In our opinion it is only CIT (A) who is competent to assume jurisdiction u/s 154 of the act. Therefore, we are of the view that the rectification provisions invoked by the Assessing Officer are not correct. Therefore we reverse the order of CIT (A) on these count. - Decided in favour of assessee Charging of interest u/s 234D - withdrawal of interest u/s 244A - Held that:- As we have already held that AO is not empowered to invoke the provision of section 154 of the act on the matter already decided by CIT (A) u/s 154(1A) of the act and therefore interest u/s 234D as well as interest withdrawal u/s 244A of the act are consequential in nature and accordingly they are if arising out of order u/s 154 of the act of the AO same would also be decided accordingly in favour of the assessee. Levy of interest u/s 234B - addition made by Assessing Officer under Section 154 of the Act arising on account of retrospective amendment u/s 115JB - Held that:- No interest shall be chargeable u/s 234B of the act on tax liability arising on the assessee by virtue of retrospective amendment u/s 115JB of the Act.

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• 2016 (2) TMI 675
  Levy of fees under section 234E - intimation issued under section 200A in respect of processing of TDS - Held that:- We find that the issue in all these appeals is now squarely covered in favour of the assessee by the decision of ITAT Amritsar Bench in the case of Sibia Healthcare Private Limited vs. DCIT [2015 (6) TMI 437 - ITAT AMRITSAR] adjustment in respect of levy of fees under section 234E was indeed beyond the scope of permissible adjustments contemplated under section 200A. As intimation under section 200A, raising a demand or directing a refund to the tax deductor, can only be passed within one year from the end of the financial year within which the related TDS statement is filed, and as the related TDS statement was filed on 19th February 2014, such a levy could only have been made at best within 31st March 2015. That time has already elapsed and the defect is thus not curable even at this stage. In view of these discussions, as also bearing in mind entirety of the case, the impugned levy of fees under section 234E is unsustainable in law. We, therefore, delete the impugned levy of fee under section 234E of the Act. - Decided in favour of assessee.

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• 2016 (2) TMI 674
  Levy of fees under section 234E - intimation issued under section 200A in respect of processing of TDS - Held that:- We find that the issue in all these appeals is now squarely covered in favour of the assessee by the decision of ITAT Amritsar Bench in the case of Sibia Healthcare Private Limited vs. DCIT [2015 (6) TMI 437 - ITAT AMRITSAR] adjustment in respect of levy of fees under section 234E was indeed beyond the scope of permissible adjustments contemplated under section 200A. As intimation under section 200A, raising a demand or directing a refund to the tax deductor, can only be passed within one year from the end of the financial year within which the related TDS statement is filed, and as the related TDS statement was filed on 19th February 2014, such a levy could only have been made at best within 31st March 2015. That time has already elapsed and the defect is thus not curable even at this stage. In view of these discussions, as also bearing in mind entirety of the case, the impugned levy of fees under section 234E is unsustainable in law. We, therefore, delete the impugned levy of fee under section 234E of the Act. - Decided in favour of assessee.

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• 2016 (2) TMI 673
  Deduction under Section 80HHC -inclusion of sale proceeds generated from the sale of scrap - Interpretation of term “Total turnover” - Held that:- As decided in Commissioner of Income Tax Vs. Punjab Stainless Steel Industries & Ors. reported in [2014 (5) TMI 238 - SUPREME COURT ] it has been held that sale proceeds generated from the sale of scrap would not be included in the total turnover for the purpose of deduction under Section 80HHC of the Income Tax Act, 1961.

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• 2016 (2) TMI 672
  Deemed registration under Section 12AA - High Court has taken the view that once an application is made under the said provision and in case the same is not responded to within six months, it would be taken that the application is registered under the provision - Held that:- In order to disabuse any apprehension, we make it clear that the registration of the application under Section 12AA of the Income Tax Act in the case of the respondent shall take effect from 24.08.2003 as the date of application made.

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• 2016 (2) TMI 671
  Resident Indian companies - extension of laws of India to the new State of Sikkim - whether the Assessee is a resident of India within the meaning of Section 6(3) (ii) of the Act? - Held that:- The Assessees, incorporated under the company law of Sikkim, are resident Indian companies. If any income accrued to them or was earned by them in India prior to 1st April 1990, then such income is taxable under the Act. - Decided against assessee Reopening of assessment - authority to receive the notices - Held that:- The Revenue is justified in contending that the Assessees not having raised such objection at the first available opportunity should not be permitted to urge the ground of lack of jurisdiction of the Delhi officers to issue notices to them under Sections 147/148 of the Act. Mr. Rattan Gupta, auditor of the Assessee companies was not only doing the audit work of the five Assessee companies, but determining who should be the directors of the said companies. This coupled with the fact that the blank signed cheque books of all the five companies together with rubber seals, the letter heads, the blank signed cheques and other records were also found in the office of Rattan Gupta & Co., the factual determination by the AO that the management and the control of the five companies was actually wholly situated in Delhi gets fortified. The exhaustive evidence gathered by the Revenue, without being countered by the Assessees despite opportunity being afforded, serves to substantiate the case of the Revenue that the management and the control of the five Assessee companies was in fact located in Delhi. The findings of the AO that the Assessees failed to prove that the commission payments were earned by them exclusively in Sikkim has not been dislodged by the Assessees by producing any tangible material. There was an implied authority of Mr. Rattan Gupta to receive such notices even in terms of Section 252(2) of the Act, read with Order V Rule 20 CPC. Consequently, the Court is unable sustain the finding of the ITAT that notice was not properly served on the Assessees through Rattan Gupta & Co. There was no need for the Department to have gone in for substituted service and the refusal by Rattan Gupta & Co. to receive the notice was sufficient to consider it as a deemed service of notice. The plea of the Assessees that the proceedings under Section 148 of the Act gets vitiated in the absence of a specific order vesting the ACIT with the powers under Section 127 of the Act to issue notice under Section 148 of the Act is rejected. The plea of the Assessees that the notices under Section 142(1) and 143(2) of the Act were issued for the first time in 1998 and were time barred is rejected. On merits there were sufficient grounds for exercising the power under Section 148 of the Act. - Decided against assessee The ITAT’s conclusion that the interest under Sections 234 A and 234 B of the Act could not be charged since a specific notice in that behalf was not issued by the AO is unsustainable in law and is overruled.

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• 2016 (2) TMI 670
  Calculation of interest under section 244A - Whether, the Tribunal erred in law in holding that the interest portion of the refund arising out of the order giving effect to appellate authority has to be ignored for the purpose of calculating interest under section 244A? - Held that:- As decided in Commissioner of Income Tax-2, Mumbai Versus M/s. Tata Power Company Ltd. [2015 (8) TMI 87 - BOMBAY HIGH COURT] both the CIT(A) and the Tribunal have on examination of facts correctly held that when a refund of tax has to be reduced by refund already granted it is only the tax element which has to be adjusted and not the interest element paid on the delayed refund of the tax. This is so as the interest which is paid to the assessee is for the wrongful withholding of the assessee's refund by the revenue. It has no element of tax which would justify reducing the same from the refund due while computing the interest payable on the delayed payment of refund. - Decided against revenue.

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• 2016 (2) TMI 669
  Appeal is admitted on substantial Question No. (1). Whether on the facts and in the circumstances of the case and in law, the Tribunal after having noted that the SEBI had cancelled the registration of the Company and SEBI's order was confirmed by the Supreme Court ought to have held that as no legal business activity could be undertaken the loss on account of trading in shares could not be construed as business loss?

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• 2016 (2) TMI 668
  Applicability of TDS provision - Disallowance u/s 40(a)(ia) - payment made on account of offshore supply of equipments - Held that:- We hold that the provisions of section 40(a)(ia) of the Act are applicable only in the cases where any interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services has been paid or payable to a resident. In the case of assessee company, the payments were made to a non resident German company, the fact which is undisputed on record. Hence, the provisions of section 40(a)(ia) cannot be invoked in this case. As the subject mentioned payments are not chargeable to tax in India in terms of section 195 of the Act. Hence, no disallowance could be made u/s. 40(a)(i)/40(a)(ia) of the Act. - Decided in favour of assessee Adoption of valuation done by the DVO(District Valuation Officer) for the purpose of computing capital gains - Held that:- As it could be seen that even the provisions of section 50C contemplates the adoption of fair market value for the purpose of valuation of the property. We hold that once the determination of fair market value is under consideration all the relevant factors i.e. land area available for construction should be taken into account irrespective of the actual land area conveyed. Accordingly, we are in agreement with the area of land as adopted by the ld.DVO . However, we find that as per the valuation of property is concerned, it is not correct on the part of ld.DVO to add towards 15% frontage on both sides of the road in order to arrive at the total rate at 990/- per sq.ft as ultimately the ld.DVO adopted the guideline value rate of Senniamman Koil Street at 861/- per sq.ft. In view of the above, we hold that the land should be valued by adopting the rate at 861/sq.ft for the area of 4,54,353 sq.ft. Accordingly, assessee gets a relief for the rate of 129/sq.ft. The Ld. AO is directed to rework the capital gains by adopting 861/- per sq.ft being the guideline value in the same manner in which the Ld DVO had carried out the valuation. Valuation of building - the assessee has adopted 1,34,02,000/- as sale consideration attributable to the building in the sale deed - Held that:- As we find from the ld. DVO’s report that the same valuation has been adopted for the building. We hold that no interference needs to be made with regard to the valuation of the building.

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• 2016 (2) TMI 667
  Amount received from NH-45 project - chargeable to tax u/s 44D or under the normal provision of taxation - Held that:- It is not controverted that assessee was carrying on similar activities in the preceding years as well, and the income earned form the said activities have been accepted by the Department as business income of the assessee and assessment made u/s 143(3) of the Act. Principle of consistency has been accepted by the courts in many judicial precedents and some of the landmark decisions in the cases are of Radhasoami Satsang v. CIT: (1991 (11) TMI 2 - SUPREME Court ), CIT v. Lagan Kala Upwan: (2002 (12) TMI 74 - DELHI High Court), Saurashtra Cement & Chemical Industries v. CIT: (1979 (2) TMI 21 - GUJARAT High Court ), Commissioner of Income Tax v. Paul Brothers: (1992 (10) TMI 5 - BOMBAY High Court ) and Commissioner of Income Tax v. Modi Industries Limited: [2010 (8) TMI 51 - DELHI HIGH COURT ]. Therefore on this ground too assessee deserves relief. In view of above, we are of the view that according to the provision of section 44D rws 9 (1) (vii) of the act assessee’s receipt from NH is not taxable as FTS under that section but under normal provision of income tax act as business income. On this count we confirm the order of CIT (A). - Decided against revenue

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• 2016 (2) TMI 666
  Depreciation u/s 32 on membership of BSE - value of consideration received by the assessee company on sale/transfer - received 10000 equity shares of BSE Limited and trading rights of BSE Limited in the process of the demutualization and corporatization of BSE, in lieu of membership of BSE - Held that:- Pursuant to demutualization or corporatization of BSE, the assessee company has got 10000 equity shares of BSE Limited and trading right of BSE Limited . Thus, the cost of acquisition of 10000 equity shares of BSE Limited shall be taken as written down value of the membership of the BSE as at the beginning of previous year i.e. 01.04.2005 while the cost of acquisition of trading rights of BSE acquired in demutualization or corporatization process shall be deemed to be nil , as per the mandate of Section 55(2)(ab) of the Act. The assessee company shall be entitled for working out cost of acquisition of 4562 shares of BSE Limited sold during the previous year on proportionate basis based on the number of shares sold calculated on the total written down value of the 10000 shares of BSE Limited so allotted on 10-10-2005. The assessee company shall not be entitled for claiming benefit of cost inflation indexation from the period 10-07-2000 i.e. date of acquisition of membership of BSE till 10-10-2005 i.e. when the 10000 equity shares are allotted by BSE Limited along with trading rights in BSE Limited, in lieu of membership of BSE. The assessee company on demutualization or corporatization of BSE Limited is holding 10000 equity shares of BSE Limited and trading right both as assets w.e.f 10-10-2005 . The assessee company shall be entitled to claim benefit of cost inflation index on the sale of 4562 equity shares so sold in the previous year relevant to assessment year 2008-09, from the assessment year 2006-07 till the current assessment year i.e. 2008-09. We order accordingly - Decided against assessee

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• 2016 (2) TMI 665
  Disallowance of loss suffered in trading of foam and fabrics - CIT (A) had deleted the said addition on the basis that complete books of accounts were produced, examined and verified on test-check basis - Held that:- All the transactions of purchases were duly confirmed and 90% of the sales are also confirmed. However, the plea of the DR which was accepted by the Tribunal was that the evidences accepted had not been considered by the AO, thus the AO in the second round, ought to have examined the aforesaid evidence and arrived at a conclusion. However, it is noticed that the AO has simply borrowed the conclusion from the original order of assessment. This approach is in blatant disregard of the own stand of the Revenue before the Tribunal in the first round. Thus, to this extent, the approach of the AO is patently erroneous. Now, coming to the merits of the matter, it is seen that assessee has declared sales of 2,39,24,400/- and purchase of 3,37,29,782/-. The transactions are duly recorded in the books of accounts which have been examined and accepted in the first round by CIT (A) and no specific observation vis-à-vis the said books of accounts by the AO in the second round. Moreover, these are audited books of accounts. The case of the AO is that new addresses of the parties have not been furnished. In our opinion, without carrying out any investigation in respect of evidences on record, such a conclusion is perverse. Further, nonproduction of stock-register or rates by itself cannot be a ground to reject the confirmations furnished by the assessee in which PAN number/Ward number, address of parties, details of the transactions have been mentioned. No doubt claiming a loss on purchase and sale to the same party may result into a doubt, but such a doubt without any verification or investigation vis-à-vis the evidence tendered does not acquire the character of evidence so as to hold that the trading transactions are bogus or sham. More-so, when the Revenue had requested for examination of the evidence and such request was accepted by the Tribunal in the first round and yet AO failed to carry out investigation. Thus, this is a case of lack of investigation which vitiates the adverse conclusion drawn by the AO. We, therefore, see no reason to deviate from the conclusion of the first appellate authority. - Decided against revenue

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• 2016 (2) TMI 664
  Allowance of business expenditure - incorporation of business - Held that:- CIT (A) has rightly taken into consideration all the aspects. It is clear that the business of the assessee was set up since incorporation as it was having Carrefour Franchise Right and the expenses claimed by it for carrying out search for potential franchisees are expenses incurred post set up of business and are allowable as business expenditure. The AO erred in understanding the facts of the assessee’s case by saying that the assessee is a trader, despite the fact that all the evidence were placed on record which proved that the assessee was into the business of leasing/sub leasing the franchise rights. Thus CIT(A) properly allowed the business expenditure - Decided in favour of assessee

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• 2016 (2) TMI 663
  GP Rate adoption - rejection of books of accounts - Held that:- Records show that the contention of the DR that books of accounts were not produced before Assessing Officer was not correct. As relates to rejection of books of accounts maintained by the assessee by the Assessing Officer without assigning any proper reason is not proper. The Assessing Officer has not taken into account all the invoices, bills related to the export orders, which should have been taken into account by the Assessing Officer. The Ld. CIT(A) also failed to look into this aspect and without giving a practical reason has adopted 5% of GP rate that it is clear that the fabric supplied as an export requires the international standards of material and size. Merely depending upon the domestic requirements cannot be the threshold of questioning the proper GP Rate adopted by the assessee. In view of this the assessee’s contentions sustain - Decided in favour of assessee

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• 2016 (2) TMI 662
  Disallowance of loss - Held that:- Admittedly, the assessee does not have any material to prove that the advance of 3,50,000/- was given in connection with a view to start new venture in the pharmaceutical lines. Hence, the claim of the assessee that the advance was given in the normal course of business was not substantiated. The tax authorities were right in holding that the loss of advance cannot be claimed as bad debt, since the same was not offered as income in any of the years. In the absence of any material to show that it was a trading loss, we are of the view that the ld. CIT(A) was justified in confirming the disallowance of 3,50,000/- made by the AO. At the same time, we find merit in the alternative submission of the assessee. Since the disallowance of 3,50,000/- has been confirmed by us during the year under consideration, the said amount offered by the assessee in the assessment year 2014-15 is liable to be deleted. Accordingly, we direct the assessee to move an appropriate petition before the AO, who shall act upon it in accordance with the discussions made (supra). Disallowance of repair and maintenance expenditure - Held that:- We notice that the assessee had taken business premises on rent and it has been occupying the same for the last 40 years. The ld. AR, inviting our attention to the details of repairs and maintenance furnished in the paper book, submitted that the assessee has only strengthened and repaired the existing structures of the business premises and hence the same is allowable as revenue expenditure. A perusal of the details submitted by M/s Saya Construction Co. would show that it has mainly done plastering work and has also undertaken repairs of floor and other items. It was not shown to us that the assessee has not built any new structure by incurring these expenditures. Accordingly, we are of the view that the amount of 2,90,000/- spent by the assessee is in the nature of revenue expenditure, since the same has been incurred on maintenance of the existing business premises of the assessee. Accordingly, we set aside the order of ld. CIT(A) on this issue and direct the AO to delete the impugned addition. Disallowance u/s 14A - Held that:- Closing value of shares held as investment was 84.07 lakhs and the closing value of stock-in-trade was 20.42 lakhs. The partners’ capital account stand at 120.27 lakhs, which is more than the value of investments/stock in trade of shares. The profit and loss account provided by the assessee for share trading business shows that the assessee has booked only direct expenses in the business. The aggregate expenditure (other than interest) booked in other business carried on by the assessee stands at 49.10 lakhs, of which the administrative expenses stand at 17.34 lakhs and salary expenses stand at 13.37 lakhs. The assessee was having a turnover of 14.65 crores in its other business. Thus, we notice that the administrative expenses have been mainly incurred for other business purposes. Considering all these factors, we are of the view that the disallowance made u/s 14A may be determined at 46,425/-, as worked out by the assessee, since the same works out to about 5% of the dividend income received by the assessee. Accordingly, we set aside the order of ld.CIT(A) and sustain the disallowance u/s 14A at 46,425/-.

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• 2016 (2) TMI 661
  Disallowance of commission payment on sale of property - Held that:- In this case, the claim of the assessee is that payment of 3,12,000/- towards brokerage on sale of M/s Sundaram Theatre. The said payment has been made to four persons viz. (i)R. Muthu Kamatchi, (ii)K. Ganesan, (iii)K Muthiah and (iv) M. Selvam. The Department summoned them by issuing notice u/s 131 of the Act. However, all the letters issued to the above persons returned unserved by the postal authorities with an endorsement 'no such address'. Later on, the Assessing Officer was able to trace only one Shri K. Ganesan who has given receipt for 80,000/- and the same was allowed by the Department. The other three persons cannot be traced and there is no iota of evidence to show that payments towards brokerage were made to them. The assessee is not able to place any material to show that the other three persons actually rendered service to the assessee in the sale of Sundaram Theatre. Being so, in our opinion, the assessee has not discharged the initial burden cast upon it first to prove the genuineness of payment. Therefore, the CIT(A) is justified in disallowing the payment of brokerage to three persons. Accordingly, we have no hesitation to confirm the order of the CIT(A) on this issue. Disallowance of payment being the amount paid for enabling the lessee to vacate the premises and handover vacant possession to the buyer of the property - Held that:- As rightly pointed out by the ld. DR, the assessee is not able to point out any specific condition in the sale deed of the property to suggest the payment of 10 lakhs to Shri Rajan for vacating and handing over the peaceful possession of the property. Being so, in the absence of any such clause in the sale deed warranting payment of 10 lakhs to Shri Rajan, we are not in a position to appreciate the argument of the ld. Representative. Accordingly, this ground is rejected. Disallowance of claim of the assessee in respect of payment of electricity dues to the Electricity Board - Held that:- In the present case, in respect of giving repeated opportunity to the assessee by the lower authorities to place necessary evidence for bearing that expenditure by the assessee itself, the assessee failed and at all times given a very evasive reply. In such circumstances, we are not in a position to allow the claim of the assessee by following the above judgment. This ground of the assessee is also rejected.In the result, the appeal filed by the assessee is dismissed. Indexation claimed by the assessee on the goodwill while determining the capital gains - Held that:- Admittedly, while adjudicating the issue, the CIT(A) has considered the trial balance and the partnership deed cited (supra). In our opinion, these are fresh documents and the Assessing Officer has to examine the documents regarding the payment of goodwill and if there is actual payment of goodwill then there is a cost to goodwill and the claim of the assessee has to be considered on examination of records relating to the payment of goodwill. Accordingly, this ground is remitted back to the file of the Assessing Officer for reconsideration of the issue of payment towards goodwill and decide in accordance with law after giving a reasonable opportunity of hearing to the assessee.

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• Corporate Laws

• 2016 (2) TMI 687
  Permit to Official Liquidator - Held that:- The Official Liquidator is permitted to pay the outstanding secured dues/ claims first to the secured creditors i.e. Rajkot Nagarik Sahakari Bank Ltd., amounting to 1,41,82,993/and to the Secured Creditor Oriental Bank of Commerce, amounting to 5,63,991/in terms of Section 529A of the Companies Act,1956, and thereafter, the claims of preferential creditors and unsecured creditors as mentioned in table “B” in paragraph 8 of the report, under Section 530 of the Companies Act, 1956, shall be considered as per the funds available in the account of the Company.

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• 2016 (2) TMI 686
  Scheme of Amalgamation - Held that:- Having heard Mr. Bharat T Rao, learned advocate for the petitioner Companies and Mr. Kshitij Amin, learned Central Government Standing Counsel for Mr. Devang Vyas, learned Assistant Solicitor General of India for the Regional Director and upon perusal of the reports of the Official Liquidator and the Regional Director and after considering the Scheme of Amalgamation, together with the relevant documents on record, this Court finds it appropriate to grant sanction to the present Scheme of Amalgamation. In view of the above, the Scheme of Amalgamation is sanctioned. It is, however, directed that the petitioners shall preserve their books of Accounts, papers and records and shall not dispose of the records without the prior permission of the Central Government under Section 396A of the Companies Act,1956. The petitioner shall further ensure statutory compliance of all applicable laws. On the sanctioning of the Scheme of Amalgamation, the Petitioner Companies shall not be absolved of any of their statutory liabilities. The petitioner Companies shall lodge a copy of this order, the schedule of immovable assets of the petitioner-companies as on the date of this order and the Scheme, duly authenticated by the Registrar, High Court of Gujarat, with the concerned Superintendent of Stamp Duty, if any, on the same within sixty (60) days from the date of the order.

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• Service Tax

• 2016 (2) TMI 692
  Application for advance Ruling - Revenue takes objection to the admissibility on the ground that it is not a proposed activity as covered under Section 96(D), since the company is incorporated on 18.11.2011 and has been filing the Income Tax as well as Service Tax Returns from time to time during all these years. According to the Department, therefore, this is not a proposed activity. The second objection raised by the Revenue is that there is a sister concern of the applicant which shares with the applicant an e-mail addresses as also the postal address and in case of that concern, some orders have been passed by the Service Tax Authorities. The Department, therefore, says that even on the second point, the application can not be admitted. - Taxability of activity of services for rendering analysis of the drugs and market survey etc. AAR rejected both the contentions and admitted the application for consideration.

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• 2016 (2) TMI 691
  Extended period of limitation - willful intention to evade service tax or not - the stance taken by the petitioner all along is that the petitioner has been submitting its Service Tax returns regularly by showing the details and particulars of the exemption availed of by them, which were within their knowledge and further that the respondent No. 3, while issuing the impugned order, has failed to consider the relevant fact that in terms of the Letter of Award, the burden of Service Tax was on the Service Receiver and the component of Service Tax paid by the Service Receiver was realized from the petitioner as Service Provider, which clearly indicates that it had nothing to gain by evading payment of the Service Tax. Held that:- the respondent No. 3 did not record any findings regarding the allegation of the petitioner as to whether the burden of service tax was on the Service Receiver or whether the component of service tax paid by the Service Receiver was realized from the petitioner as Service Provider or whether the submissions of service tax returns regularly showing all the details and particulars are indicative of the fact that these facts are within the knowledge of the respondent authorities. These are vital facts which, if duly considered by the respondent No. 3, would have enabled him to come to the correct conclusions. The initial burden is on the department to prove that the situations visualised by the proviso existed. But once the department is able to bring on record material to show that the appellant was guilty of any of those situations which are visualised by the section, the burden shifts and then applicability of the proviso has to be construed liberally. When the law requires an intention to evade payment of duty then it is not mere failure to pay duty. It must be something more. - Matter remanded back for fresh decision.

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• 2016 (2) TMI 690
  Demand of service tax on Management, Maintenance or Repair service collected from Flat owners. - It was contended that builder is under obligation to maintain the building and the appellant only taken re-imbursement of various services which was provided by various service provider. Therefore the appellant has neither provided the service nor retained the amount of maintenance with them - Held that:- In this fact the appellant is not liable for service tax - service tax demand on Management, Maintenance or Repair service is clearly unsustainable and therefore same is set aside. - Decided in favor of assessee.

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• 2016 (2) TMI 689
  Manpower Recruitment or Supply Agency Services or Job work activity - services of cutting and transporting of sugarcane to the sugar factories - their job included planning, arranging, authorization and nomination of persons who would be engaged in the said work. - Held that:- The issue involved in this case is no more res integra as the Hon'ble High Court of Bombay in the case of GODAVARI KHORE CANE TRANSPORT CO. (P) LTD - [2015 (3) TMI 483 - BOMBAY HIGH COURT] while upholding the judgement and order of this Tribunal holding that such an activity will not fall under the category of “Manpower Recruitment or Supply Agency Services” - No demand - Decided in favour of assessee.

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• 2016 (2) TMI 688
  Valuation - Business auxiliary service (BAS) - inclusion of reimbursement of expenses - activity of providing personnel for operating and security and other support services, besides undertaking housekeeping, deposit of sale proceeds in bank, assistance in customer service and maintenance of records - period from July 2003 to March 2005 - Held that:- Undoubtedly the cost of such activities would form part and parcel of the charge levied by the appellant from M/s Indian Oil Corporation Ltd. It would, therefore, be incorrect to deduce that the said charges are reimbursements as these are in the nature of a consideration for the facilities and activities carried out in connection with the dispensing of the petroleum products belonging to M/s Indian Oil Corporation Ltd. in accordance with an agreement. Therefore, the entire amount received from M/s Indian Oil Corporation is liable to be taxed. - Demand confirmed - Decided against the assessee.

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• Central Excise

• 2016 (2) TMI 685
  Cenvat credit on courier service, rent-a-cab service and also on architecture and other services which are used in or in relation to the business activity carried on by the appellant - Held that:- Since all the disputed services activities are related to the appellant’s business activities and all expenses incurred for manufacture and export of goods from part of the value of the goods and hence the credit of service paid thereon is admissible and has been so held in the various judgments cited supra by the appellant. Further, the Hon’ble High Court of Bombay in the case of Ultratech Cement Ltd. (2010 (10) TMI 13 - BOMBAY HIGH COURT ) has interpreted that the input services as not only cover services of falling in the substantial part of Rule 2(l) of the Cenvat Credit Rules, 2004 but also cover services which are covered under the inclusive part and they are the services rendered prior to the commencement of manufacturing activity as well as services rendered after manufacture. The inclusive part of the definition includes services rendered in relation to business. Therefore, keeping in view the judgment cited above, which covers all the services on which cenvat credit was denied by the department, we are of the considered view that the appellant is entitled to cenvat credit on all the services and the impugned order is not sustainable in law and the same - Decided in favour of assessee.

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• 2016 (2) TMI 684
  Discharge the defaulted duty liability using cenvat credit - Held that:- The payment by credit which accrued after the impugned period was disputed by the Revenue. In this connection, we find that the Board vide Circular dated 15.12.2003 clarified that the amount of duty outstandings shall be treated as recoverable arrears of revenue and all permissible action under the law including action under Section 11 of the Central Excise Act, 1944 should be taken. Considering this amount, which was liable to be paid, but not paid in time, was later paid by the appellant using partly the credit available in their accounts. In such situation, we find no reason for ordering payment of such amount by cash only and taking re-credit of the debited amount. The assessee's right to use cenvat credit to discharge the central excise duty even during the defaulted period was examined and decided by the Hon’ble High Court of Madras in the case of Malladi Drugs & Pharmaceuticals Ltd. [2015 (5) TMI 603 - MADRAS HIGH COURT] . The Hon’ble High Court observed that right to pay the duty by using cenvat credit that on accrued amount cannot be denied unless it is a case of illegality or irregular credit. Considering the above position, we find no justification for the Revenue to insist on payment of all the dues for the payment of all the defaulted amount by cash only when the appellants have accrued cenvat credit available in their accounts. As pointed out in the impugned order even in case of payment by cash, the debit already made by the appellant, is to be restored. As such, we find the present impugned order is not sustainable - Decided in favour of assessee

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• 2016 (2) TMI 683
  Valuation - Short payment of central excise duty on the goods cleared to related buyers - Differential duty with interest - Revenue asserted in the appeal that in terms of MRTP Act, two body corporates will be treated as under the same management if one or more Directors constitute 1/4th of the Directors of the other thus all the buyers are inter-connected with the respondent - Held that:- The provisions of MRTP Act talks about inter-connectivity between two body corporates. Here, it is an admitted fact that four out of the five buyers are proprietory concerns. The respondent is a Public Limited Company. The Revenue also relied on the provisions of Rule 9 without specifically alleging that all the goods manufactured by the respondent are sold, to or through these purported related persons. Further, we find that the Revenue’s assertion that a jurisdic person also can have a ‘relative’ in terms of Section 2(41) of the Companies Act is totally untenable. The ‘relative’ as defined under Section 2(41) should be in such way as specified in Section 6 of the Companies Act. In terms of Section 6, a person shall be deemed to be a relative of other, if, and only if, they are members of a HUF or husband and wife or one is related to other, in a manner like father, mother, daughter, brother, etc. A corporate entity, the respondent being a Public Limited Company, cannot fit into being called a ‘relative’ in this context. It is apparent that the understanding by Revenue is due to mixing up of ‘related person’ with ‘relative’. Further, the submission that the profit accruing from sale through related persons goes to same family or relative is without any factual support and in any case the respondent being Public Limited Company the profit, if any, should flow to all the share holders. - Decided against revenue

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• 2016 (2) TMI 682
  MRP price - Demand of differential duty for the period 14/7/2004 to 06/1/2005 in terms of value to be adopted under Rule 4 of the said Rules - Held that:- As the respondent/assessee have correctly followed the valuation for the impugned goods in terms of Board Circular dated 01/7/2002. The Board has categorically stated that since the goods are not sold, Section 4 (1) (a) will not apply and the value has to be arrived at in terms of Valuation Rules. No specific Rule covered such a contingency. Except Rule 8 all other Rules cover the situation where a sale is involved. Hence, it was clarified that residuary Rule 11 will have to be adopted alongwith the spirit of Rule 8 and assessable value would be 115% of cost of manufacture of the said goods. We find in a similar situation that the Hon'ble Supreme Court in the case of Biochem Pharmaceuticals Ind. Ltd. vs. CCE, Vapi reported in (2015 (9) TMI 312 - SUPREME COURT) held that best judgment method in terms of Rule 7 of Erstwhile Central Excise (Valuation) Rules, 1975 is the correct method. The Tribunal in the case of Alkem Laboratories Ltd. vs. CCE, Daman reported in (2006 (7) TMI 30 - CESTAT, MUMBAI ) held that physician sample distributed free of cost are to be valued under Rule 11 read with Rule 8 of the Central Excise Valuation Rules. Duty liability - period of duty payment - assessee have contested that for the whole impugned period they are liable to pay duty using the same cost construction method - Held that:- We find that the Hon’ble High Court of Bombay in the case of Indian Drugs Manufacturer’s Association vs. Union of India reported in 2008 (2006 (9) TMI 94 - HIGH COURT, BOMBAY) upheld the Circular dated 25/4/2005 issued by the Board and held that physician free samples should be valued in terms of Rule 4 of the Valuation Rules. As such, we find no merit in the contention of respondent/ assessee for the period post 07/1/2005. Imposition of penalty - Held that:- We find that considering the above discussion, the issue involved in this case is one of interpretation of valuation provisions. The Board itself changed the view in 2005 superseding the instruction issued in 2002. As such, we find no justification to impose a penalty on the respondent/assessee on this issue.

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• 2016 (2) TMI 681
  Reversal of CENVAT credit - Valuation of goods sold from depot - Duty demand on the additional value recovered on the goods cleared from depot under composite contracts - Held that:- The learned Counsel has very correctly determined the method of arriving at the additional amounts received at depot, which can be attributed to the assessable value of the goods manufactured by them at the factory gate. It is arrived at after deducting (i) Sales tax, (ii) excise duty paid at factory, (iii) CENVAT Credit reversed for inputs cleared as such and, (iv) assessable value of manufactured goods and inputs cleared as such from the gross composite price at the depot. The differential assessable value needs to be taxed. So far as rate of duty applicable on the goods is concerned, it is noted that there is no evidence that any activity was being undertaken on the said goods at the depot. The goods are cleared from the depot in the shape in which they were received, although as part of a larger basket of goods, also containing certain inputs cleared as such. In these circumstances, it cannot be said that a different rate of duty can be applied to the parts manufactured by the appellant in their factory premises. The rate of duty is fixed when the parts leave the factory. It is only the value that needs to be re-determined in view of composite contracts. In view of the above, it is clarified that the rate of duty applicable on the differential assessable value recovered at the depot premises attributable to the products manufactured by them would be the rate applicable to the said goods when they were cleared from the factory premises. No different rate can be applied to such goods. It is seen that the learned Counsel and learned AR were unable to immediately give the revised calculation of duty. The impugned order is therefore set aside and the matter is remanded to the original adjudicating authority to determine the liability on the above terms.

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• 2016 (2) TMI 680
  Penalty imposed under Rule 8(3A)for non-payment of interest - waiver of penalty involved under Rule 25 - Held that:- The only lapse on the part of appellant is that they paid duty on monthly basis. In my view, this act of the appellant attracts only interest. It is not a case of evasion of duty. Therefore the penalty is not warranted. The appellant has not contested on interest demanded by the lower authority. Thus penalty was wrongly imposed on the appellant. The impugned order is set aside to the extent of imposition of penalty of 1,00,000/-. The interest demanded by the lower authority is maintained.

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• 2016 (2) TMI 679
  CENVAT Credit on the basis of invoices which were not in their name - Held that:- As find from the records that the Appellant had taken a definite stand that they have taken credit on the basis of the invoices issued by the ISD. The Appellant also submitted the ISD invoices before the Tribunal in respect of the demand in question. It is seen that both the authorities below had not examined this issue. It is well settled by the various decisions of the Tribunal, as relied upon by the learned Counsel, that the jurisdictional officer, of recipient of input/input service credit, is not competent to adjudicate ISD invoice over the jurisdictional officer of Input Service Distributor (ISD), who is competent to decide this matter. So, in my considered view, if the Appellant availed the credit on the basis of the invoices issued by the ISD, the Adjudicating authority cannot deny the credit. But, in the present case, there is a factual dispute and it is required to be examined by the Adjudicating authority. In view of the above discussion, the impugned order is set aside. The Adjudicating authority is directed to examine as to whether the Appellant availed the credit on the basis of the ISD invoice and thereafter the matter should be decided in accordance with law.

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• 2016 (2) TMI 678
  Charge of under-valuation - whether RDSO charges, which have been reimbursed by the Railways, are includible in the assessable value or not - Held that:- The issue is based in the case laws are that if the goods are not sellable without any testing done by the assessee, in that case, the testing charges are includible in the assessable value as after testing/inspection the goods are marketable. But in a case where the testing has been done on a particular request by a buyer and the testing charges has been reimbursed by the buyer, in such cases, the testing charges are not includible in the assessable value as the goods are marketable without testing /inspection done on behalf of the buyer. The adjudicating authority is directed to ascertain from the facts of the case whether the goods are marketable without testing done by RDSO or not? If the goods are marketable without testing done by RDSO, in that case, the testing /inspection charges are not includible in the assessable value. If the goods are not marketable without testing done by RDSO, in that case, the testing/inspection charges are includible in the assessable value. The adjudicating authority shall verify the records and if required, pass an order to demand duty accordingly. With these observations, the appeals are disposed of.

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