Newsletter: Where Service Meets Reader Approval.
TMI Tax Updates - e-Newsletter
March 22, 2016
Case Laws in this Newsletter:
Income Tax
Customs
Corporate Laws
Service Tax
Central Excise
CST, VAT & Sales Tax
Indian Laws
TMI SMS
Articles
News
Notifications
Circulars / Instructions / Orders
Highlights / Catch Notes
Income Tax
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Wherever under the DTAA’s. Make available clause is found, then as there is no imparting, the payment in question is not ‘FTS’ under the Treaty and when there is no ‘FTS’ clause in the treaties, the payment falls under Article 7 of the Treaty and is business income. - AT
Corporate Law
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If contract expressly bars award of interest pendente lite, the same cannot be awarded by the Arbitrator. - the bar to award interest on delayed payment by itself will not be readily inferred as express bar to award interest pendente lite by the Arbitral Tribunal, as ouster of power of Arbitrator has to be considered on various relevant aspects - SC
Service Tax
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Exemption from service tax on construction service provided in case of religious use but not to charitable purpose - clause 13(c) of Notification No. 25/2012-ST, dated 20.6.2012 - in the absence of petitioner's demonstration that the enactment/provision/notification is arbitrary, discriminatory or violative of Article 14 of the Constitution of India, it cannot be declared to be unconstitutional. - HC
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The appellants are eligible for refund under Rule 5 of CCR read with Notfn No.12/2003 as amended on the input services i.e. Company Secretary Service, Chartered Accountant service , Security service, Legal Consultancy service, ITS service, GTA service - AT
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When the assesse is not disputing his liability for discharging the statutory obligations and has paid the entire tax alongwith the interest and 25% of the penalty and there after discharging his obligations as a tax payer, in view of the provisions of Section 73(4A) the proceeding should be deemed to have been concluded - AT
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Imposition of penalties for the period 2007-08 to 2010-11 - Sections 76 & 78 of the Finance Act, 1994 - if the show cause notices are issued after the date of amendment, penalties under Section 76 and 78 simultaneously cannot be imposed and hence setting aside the penalty under Section 76 is uninterferable - AT
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Liability of tax on extended warranty service between October 2005 and September 2010 - Mere coverage by the extended warranty scheme does not, of itself, create an intention to use the service of the dealer. - AT
Central Excise
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Valuation of goods sold through dealers - inclusion of the expenditure incurred by the wholesale dealers in the assessable value of the goods sold by the appellant to such wholesale dealers - Not to be included - AT
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Eligibility of quantity discount - as cash discount is something which is "known" at or prior to the clearance of the goods, being contained in the agreement of sale between the assessee and its buyers, and must therefore be deducted from the sale price in order to arrive at the value of excisable goods "at the time of removal". - AT
VAT
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Principles of natural justice - it was the assessee, who invited the attention of the Tribunal to the balance sheet - the Tribunal is entitled to come to its own conclusion from what was produced. It is not part of the principles of natural justice to expect the Tribunal to confront the person producing the document with what is found by the Tribunal - HC
Case Laws:
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Income Tax
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2016 (3) TMI 691
Disallowance of agency commission paid for arrangement of loan, holding it to be capital expenditure - Whether on a true and proper interpretation of Explanation-8 to Section 43(1) of the Act interest paid on borrowed funds used for acquisition of capital assets by a running concern can be disallowed as deduction under Section 36(1)(iii) of the Act? - Held that:- The proviso to Section 36(1)(iii) was introduced with effect from 1st April, 2004 whereas we are concerned in this case with the assessment year 1997-98 and tat the proviso has only prospective effect. See CIT -Vs.- Associated Fiber and Rubber Industries reported in [1999 (2) TMI 2 - SUPREME Court ] - Decided in favour of assessee Disallowance of expenditure incurred for software development - revenue v/s capital expenditure - Held that:- The Apex Court in Alembic Chemicals [1989 (3) TMI 5 - SUPREME Court ] has recognised the fact that in a field where advancements are taking place rapidly and where technology which was once the state of the art becomes obsolete in a short time, the test of enduring nature cannot always reliably be applied. Software industry is one such field where advancements and changes happen at a lightning pace and it is difficult to attribute any degree of endurability even to system software let alone application software. In view of the aforesaid discussion, question is answered in the negative and in favour of the assessee.
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2016 (3) TMI 690
Exemption under Section 10(22A) - whether the assessee had lent money on interest to different companies - dominant or primary purpose of the institution - Held that:- Applying the test laid down in Pulikkal Medical Foundation (1993 (8) TMI 16 - KERALA High Court) one has to ask the question as to what is dominant or primary purpose of the institution. The answer according to us is that the assessee was incorporated with the idea of tax planning by the Apeejay group. The assessee has merely been sub-serving that purpose. Originally the return was filed showing net surplus of ₹ 42,14,772/-. The expenditure incurred in reimbursing the medical costs to the three group of companies was not shown. By a revised return it was clarified that total income arising out of interest was ₹ 53,87,985/- out of which ₹ 11,02,965/- was spent in reimbursing the medical cost of the three companies and a sum of ₹ 70,247/- was incurred by way of expenditure. Thus the surplus was ₹ 42,14,772/- (53,87,985/- - 11,02,965/- = 42,85,020/- - 70,247/-). CIT(A), in the second reason assigned by him, though he held that “to qualify for the exemption what is needed is existence of a hospital or other institution solely for philanthropic purposes” but omitted to notice that there was in fact no hospital or other institution for philanthropic purposes. The hospital and health units were in the tea gardens of the three tea companies who had provided the welfare fund of ₹ 4 crores. The assessee had merely reimbursed a sum of ₹ 11,02,965/- to those companies incurred in providing medical facilities to their employees. The predominant objective of the activity undertaken in the relevant year was to earn profit and not to render any act of philanthropy. Therefore, the first reason, quoted above by us, assigned by the CIT(A) is also wrong. The third reason given by the CIT(A), quoted above, is equally unsound because during that period the learned Tribunal was under the impression, on the basis of evidence adduced, that the assessee had rendered benevolent medical services to the inhabitants of the area besides providing medical assistance to the employees of the tea gardens. The fourth ground assigned by the CIT(A) that “it cannot probably be said that for the purpose of Section 10(22A) the benefit should, in fact, be aimed at or available to the public as a whole” is not a correct statement of law. We already have expressed our views in that regard which need not be reiterated. The learned Tribunal was wrong in proceeding on the basis that the facts and circumstances in the relevant assessment year were the same as in the assessment years 1986-87 and 1987-88. Going by the test laid down by a Division Bench of this Court in the case of Economic & Enterpreneurship Development Foundation (1991 (1) TMI 126 - CALCUTTA High Court ) it cannot in any event be said that the assessee existed in the relevant year for philanthropic purposes because the assessee admittedly accumulated its income. It is true that the expression used in the section is “any income of a hospital or institution”. But there has to be a nexus between the income and the hospital before any claim for exemption can be made. The nexus is altogether missing. The dominant or primary purpose of the institution should be to render any one or more of the five activities indicated above. Such a purpose cannot be said to exist in this case because neither of the five activities has been undertaken by the assessee. The income admittedly has no nexus with any one of the aforesaid five activities. Therefore the income is not an income of any hospital or an institution engaged in any one of the five activities. It is true that the statute does not provide that the income should have been derived from hospital or any of aforesaid five activities outlined above in order to qualify for exemption. But the statute does not provide that the income should have accrued to a hospital or an institution engaged in any one of the five activities. Therefore existence of a nexus between the hospital or an institution engaged in any one of the five activities, and the income is essential. This nexus is missing in this case. This is in addition to the other reasons discussed above why is the assessee not entitled to exemption. - Decided against assessee
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2016 (3) TMI 689
Claim for exemption u/s. 10(22A) - whether the Association was eligible for exemption under section 10(22A) as a medical institution existing solely for philanthropic purposes? - Held that:- The matter is remanded back to the assessing officer for examining the tax effect, in the light of the Circular no.21 of 2015 dated 10th December, 2015 issued by CBDT. After hearing the submission of the assessee on this limited aspect of the matter the assessing officer shall examine whether the tax effect is less than ₹ 20 lakhs. In case he holds in the affirmative the appeal shall stand dismissed.
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2016 (3) TMI 688
Reopening of assessment - addition on Capital gains - transfer of a capital asset in India - Held that:- The shares of the Petitioner company were transferred by its shareholders to Ingram Micro Asia. The Petitioner itself has not transferred anything. In order to attract capital gains tax there are two requirements that need to be fulfilled – (1) that there is a transfer of a capital asset; and (2) there is a gain by virtue of such transfer. If these conditions are satisfied, then capital gains tax is to be computed as set out in section 48 of the Act. The facts of the present case would clearly show that the Petitioner has not transferred any capital asset in India that would give rise to any capital gains tax in their hands. This is borne out from the share purchase agreement which itself stipulates that the 100% shareholding of the Petitioner company was transferred by its shareholders (described in schedule I thereof) to Ingram Micro Asia for a total consideration of AUD 730 million (Australian dollars) equivalent to ₹ 2,501.72 crores (conversion rate being 1 Australian dollar = ₹ 34.l27). Even if we were to assume that by virtue of Ingram Micro Asia purchasing the 100% shareholding of the Petitioner, there was a transfer of a capital asset in India, the same could never be taxed as capital gains in the hands of the Petitioner company. This is for the simple reason that the shares of the Petitioner company have been transferred to Ingram Micro Asia by the Petitioner's shareholders and therefore the transferor in the aforesaid transaction is the shareholders of the Petitioner and not the Petitioner company. In these circumstances, if there was any liability towards capital gains tax, if at all (we are not called upon to consider this aspect), it was that of the shareholders of the Petitioner and not the Petitioner itself. This being the position in law, the Assessing Officer could never have reason to believe that income of the Petitioner chargeable to tax in India had escaped assessment. If the Assessing Officer could not have had any reason to form the aforesaid belief, then naturally what follows is that no notice under section 148 of the Act could be issued in the facts of the present case. Consequently, the Assessment Order passed under section 144 of the Act was therefore wholly without jurisdiction. On this count also, we find that the Assessment Order passed under section 144 of the Act is unsustainable and has to be set aside. - Decided in favour of assessee.
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2016 (3) TMI 687
Attachment orders - Rectification Application under Section 154 - Held that:- The action of the Assessing Officer in attaching the petitioners' bank accounts under Section 226(3) of the Act as well as subsequent withdrawal of the attached amounts from the bank accounts is without jurisdiction and bad in law. The petitioners have a statutory right to its stay application being heard and disposed of before the Revenue can adopt any coercive proceedings on the basis of the Notice of demand under Section 156 of the Act issued to the assessee. This action on the part of the Assessing Officer, if permitted, would lead Section 220(6) of the Act becoming redundant. In the above view, the Notice under Section 226(3) of the Act issued by the Assessing Officer to the petitioners' bankers are quashed and set aside. Further, the Assessing Officer is directed to deposit the amount of ₹ 7,59,185/in HDFC Bank, Fort, Mumbai and ₹ 34,265/in State Bank of India, Byculla, Mumbai within a period of one week from today. The Assessing Officer to dispose of the petitioners' pending stay application in accordance with law.
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2016 (3) TMI 686
Eligibility of deduction under section 80I - ITAT held that as Industrial Undertaking of the assessee during the assessment year 1989-90 situate at Rishra was not eligible for the benefit under Section 80I - Held that:- The object of introducing section 80I was to encourage the entrepreneurs to set up industry. If the meaning or interpretation given by Mr. Agarwal is to be accepted, that would mean that an industrial undertaking cannot seek to derive the advantage of section 80I by fulfilling the conditions set out in sub-section (2) of section 80I; whereas the object according to us is that the benefit shall be given to an industrial undertaking which fulfills the conditions set out in subsection (2). The assessee in this case does fulfill that condition and there is no dispute with regard thereto. In the present case, the transfer is less than 20% of the total value of the machinery installed in the Konnagar plant. Therefore the prohibition does not operate against eligibility of the assessee to claim deduction. The Tribunal has erroneously denied the benefit of Section 80I to the assessee on the ground that the Industrial Undertaking of the assessee during the assessment year 1989-90 situate at Rishra was not eligible for the benefit under Section 80I. But that ground, according to us, is no reason to deny the benefit in the subsequent years when the assessee has set up a new plant at a different place and also fulfills all the terms and conditions laid down in sub-section (2) of Section 80I.- Decided in favour of the assessee.
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2016 (3) TMI 685
Interpretation of the Explanation to section 73 - Tribunal held that the loss incurred in eligible transactions within the meaning of proviso (d) to section 43(5) not involving any purchase or sale of shares as such was speculation loss ? - Held that:- It would appear that the activities appearing in Clauses (a) to (e) are not to be deemed to be speculative transactions. Therefore, this comes within the category of deemed business which is however distinct and separate from any other business. Now, the question is, whether loss arising out of such deemed business can be set off against the profit arising out of other business or businesses which may for clarity be called proper business. Under Section 70 of the Act, the assessee is entitled to have the loss set off against his income from any other source under the same head unless otherwise provided. Therefore answer to the question is that the assessee is entitled to have the loss arising out of deemed business set off against the income arising out of business proper unless otherwise provided. The question however remains whether the explanation to Sub-Section (4) of Section 73 relied upon by Mr. Lodh provides otherwise. A plain reading of the explanation quoted above cannot be said to have provided otherwise. In that case the irresistible conclusion is that the assessee is entitled to set off such loss arising out of deemed business against the income arising out of business proper. We are inclined to think that the clause of the sentence ‘which fall squarely….’, qualifies the word 'shares''and not the word 'derivatives'. We have no difficulty in accepting the views that shares fall squarely within the Explanation to Section 73(4) but we are unable to agree when derivatives are treated at par with the shares because the legislature has treated them differently.
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2016 (3) TMI 684
Revision u/s 263 - expenditure disallowed as assessee did not carry the business as per CIT(A) - Held that:- In the case on hand, both the Assessing Officer as well as the Commissioner were ad idem on one thing namely that the business operations of the assessee came to a stand still during the accounting year ending 31.3.1999. In paragraph 6 of the order dated 12.4.2005 passed under Section 263, the Commissioner concurred with the finding of the Assessing Officer that the assessee did not carry on business during the year under consideration. Once, on facts, it is found by the Assessing Officer and by the Commissioner that the assessee did not carry on business during the year under consideration, then it follows as a corollary that the assessee could not have claimed expenses under the heading 'business expenditure'. The error committed by the Assessing Officer in allowing business expenditure, was clearly an error of law, which satisfied the first condition. This error of law consequently became prejudicial to the interests of the Revenue, as seen from the computation made by the Deputy Commissioner in the proceedings for giving effect to the order of the Commissioner. In such circumstances, the first question of law on the scope of Section 263 has to be answered against the appellant/assessee.
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2016 (3) TMI 683
Disallowance of interest on the loans advanced by the assessee to its sister concerns - Held that:- a look at the orders of the three Authorities would show that there was no basis for the Authorities to come to the conclusion that the amounts were lent for non business purposes. M/s.Kriscast is obviously a casting company. The appellant is a manufacturer of G.I. castings. There was no indication about the nature of businesses that the appellant as well as the borrowers were engaged in. A finding made on thin air that the amounts were lent for non business purposes cannot be sustained. The assessment years are 1991-92 and 1993-94. Therefore, we have ventured to go into the merits of the case rather than sending the matters back to the Tribunal on the ground of failure to afford a reasonable opportunity. - Decided in favour of assessee
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2016 (3) TMI 682
Forward booking of foreign exchange - whether was a speculative transaction which cannot be allowed for set off against normal business income? - CIT(A) has allowed set off by holding that a hedging loss is to be treated as business loss and is allowable to set off against business and profit also confirmed by ITAT - Held that:- CIT(A) has recorded a finding of fact that the assessee had made contract with the Bank to cover up the risk of fluctuation in the dollar rate and there was actual delivery in the appellant's case and based on the material and submissions, it did not agree with the assessing officer's finding. The above finding of fact has been further upheld by the Tribunal as noticed hereinbefore. - Decided against revenue
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2016 (3) TMI 681
Entitlement for deduction under section 80HHC - Held that:- Section 80HHC allows deduction in a case where the assessee is primarily an exporter and is engaged in the business of export out of India of any goods or merchandise, and also receives foreign remittance/sale/export proceeds received in India or brought into India by the assessee in convertible foreign exchange. In our view, a deduction is allowable to an exporter of goods and none else. deduction under section 80HHC on interest income - Whether where merely because interest has been held to be business income whether deduction under Section 80HHC is allowable or not? - Held that:- Intention of the assessees is well set that it only wants to earn interest from those funds which are lying idle with it or which can be spared as surplus in the business for earning income from the said source and a businessman will not keep funds idle and certainly an endeavour of a business man primarily is to earn maximum profits, that does not mean character of income changes merely because the assessee has taken such interest in the profit and loss account and projected it as business income, it does not mean that such receipt also enures for deduction under Section 80HHC of the Act. The assessee are not engaged in the activity of advancing money as a business activity nor loans advanced constitute an incidental activity to the business of exports of the assessee. Irresistible conclusion, therefore, is that the earning of interest by an assessee on sums advanced does not come within the purview of business income, or as profits from business. - Decided against assessee
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2016 (3) TMI 680
Fee for Technical Services - Payment of IUC by assessee to FTOS - Held that:- No hesitation in upholding the submissions of the Ld. Counsel of the Assessee that, the payment in question cannot be considered as “Fee for Technical Services” in terms of section 9(1)(vii) read with Expln. 2 of the Act as inter connection facility and the service of the FTO in picking up, carrying and successful termination the call over their respective network is a standard facility and the and FTO in question does not render any technical services to the assessee under interconnect agreement. Existence of ‘make available clause’ - Held that:- wherever under the DTAA’s. Make available clause is found, then as there is no imparting, the payment in question is not ‘FTS’ under the Treaty and when there is no ‘FTS’ clause in the treaties, the payment falls under Article 7 of the Treaty and is business income. Wherever under the DTAA’s. Make available clause is found, then as there is no imparting, the payment in question is not ‘FTS’ under the Treaty and when there is no ‘FTS’ clause in the treaties, the payment falls under Article 7 of the Treaty and is business income. Payment in question is not ‘Royalty’ as contemplated under the DTAAs. We agree with the submission of the Ld. Counsel for the assessee that the amendments to the Finance Acts cannot be read into the DTAA’s We uphold the order of the Ld. First Appellate Authority that the payment made for FTO for interconnection charges does not fall within the ambit of the definition of ‘Royalty’ under section 9(1)(vi) of the Act or under the definition of ‘Royalty’ under the Treaties. Default u/s 201 - Held that:- We have held that the payment in question for “IUC” to FTOs is neither FTS nor royalty either under the Act or under the Treaties. We have in subsequent paragraphs given reasons as to why the income in question arising from the payment cannot be deemed to accrue or arise in India. Thus the assessee cannot be declared as “assessee in default” as it has not failed in its statutory obligations to deduct tax at source u/s. 195 of the Act. Assessee cannot be held the Assessee in default under section 201 of the I.T. Act. Hence, this issue is decided in favour of the Assessee. Income deemed to accrue or arise in India - Payment made by assessee to "FTO" - Held that:- Even under the DTAA, the payments being in the nature of business income of the FTOs, Article ‘7’ of the relevant DTAA’s governs the same. There is no dispute that the FTOs do not have any Permanent Establishment in India. Under such circumstances, under Article 7 of the Treaty the income cannot be brought to tax in India. Hence, the payment of “IUC” to the FTOS cannot be deemed to accrue or arise in India under any of the clause of Section 9(1) read with Section 5(2) of the Act. Therefore this issue is decided in favour of the assessee. Section 206AA application- prospectively or retrospectively - Held that:- This issue of retrospective applicability is covered in favour of the Assessee and against the Revenue by the decision of the ITAT, Pune Bench in the case of DDIT (IT-II), Pune vs. Serum Institute of India Ltd. [2015 (6) TMI 26 - ITAT PUNE] to hold that Section 206AA cannot be applied retrospectively. The beneficial rate provided in the DTAA override the provisions of Section 206AA of the Act. Thus this issue is resolved in favour of the Assessee.
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2016 (3) TMI 679
Disallowance u/s 14A r.w.r 8D - Held that:- We have also noted that assessee has worked out disallowance on its own of ₹ 1,87,35,000/-. Therefore, in the end, we reverse the order of CIT (A) and direct the AO to restrict the disallowance u/s 14A of the Act to ₹ 1,87,35,000/-, which disallowance has been made by assessee on its own. - Decided in favour of assessee in part Addition in respect of credit balance in Stale Cheques Account - addition holding that these cheques are outstanding for a very long period and are in the nature of trading receipt - Held that:- In view of the decision of CIT v. Shri Vardhman Overseas Ltd. [2011 (12) TMI 77 - DELHI HIGH COURT] where in the whole issue of outstanding liability outstanding for many years is discussed and then following the decision of honourable supreme court has held that merely because the liability is outstanding for a long time does not give any benefit to the assessee and same is not chargeable to tax u/s 41(1)or section 28. Therefore we reverse the finding of the CIT (A) and deleted the addition made on account of credit balance in stale cheque account for the only reason that they are outstanding for more than three years. - Decided in favour of assessee Addition of amount received from customers in terms of contractual obligation - Held that:- These are the security deposits which would be utilised in performance of the contractual obligation of the assessee towards those buyers. Anyway, it is not the case of the AO that these receipts have been received during the year, it is also not the case that the payers or the depositors are unidentified and it is not the case of the AO that these amounts have been paid by the buyers without any obligation on the assessee to perform by providing the services. In view of this, we confirm the order of CIT (A) in deleting the addition - Decided in favour of assessee Addition made on a/c of Interest free security deposit - Held that:- It is a fact that these deposits are received in terms of sale agreement for customers as security deposit till the formation of condominium and society. These deposits are taken as a safeguard to defray the maintenance expenditure of the society and to keep these deposits for insurance premium and maintenance. They are refundable to resident welfare associations. CIT (A) relying on the decision in the case of CIT vs. Goel Gases Pvt. Ltd. (1990 (5) TMI 13 - DELHI High Court ) held that security deposit cannot be charged to tax as an income. In view of this, we do not find any infirmity in the order of the CIT (A) when deposits are with a purpose, the depositors are identified, there is a regular method of accounting adopted in past for treatment of this income which is accepted by the revenue and there is an obligation cast upon the assessee.- Decided in favour of assessee Disallowance of interest expenditure - disallowance of capitalization of interest expenses by holding that there is no direct nexus which can be established to hold that the loans are utilized for specific projects only and adopting a formula that 1/3rd of the advance has been given out of own funds and 2/3rd of the advances have been given out of the borrowed funds - Held that:- Presumption is to be assumed in favour of the assesse and not against assesse. Hence, we reject the formulae adopted by CIT (A) of working out proportionate disallowance by adopting artificial formulae. Therefore respectfully following decisions of Honourable Bombay High court in CIT vs. Lokhandwala Constructions Industries Ltd. [2003 (1) TMI 93 - BOMBAY High Court ] and CIT V Reliance Utilities & Power limited [2009 (1) TMI 4 - BOMBAY HIGH COURT ]. We reverse the order of the CIT (A) confirming the disallowance of expenditure and direct the AO to allow this interest expenditure u/s 36(1) (iii) of the Act.- Decided in favour of assessee Disallowance on account of brokerage expenses for AMEX Building by holding that the same relating to renting of building - Held that:- Section 24 provides deduction of 30% of the actual value of the rent and interest payable on capital borrowed for the purpose of constructing the property. The brokerage paid to the third party has nothing to do with the rent paid by the tenant. For renting of the property brokerage cannot be said to be charged that has been created against property for enjoying the rights and at best, it is application of income earned. For such expenses as brokerage etc. is held to be allowable then there are number of other expenses which also can be held to be allowable which is against the mandate of the law laid down for computation of the income for house property. Therefore, payment of brokerage cannot be allowed as deduction either u/s 23 or u/s 24 of the Act. Hence, we confirm the order of the CIT (A) confirming the disallowance - Decided against assessee Addition on account of revenue recognition in respect of sale of land and plots based on POCM (Percentage Of Completion Method) by changing the appellant's method of accounting - Held that:- In absence of demonstration by the AO about the allegedly incorrect method of accounting, we are of the view that exercise of taxing this income in AY 2006-07 as well as in AY 2007-08 it amounted to double taxation which is not permitted under the law. Therefore, relying on the decision of Realest Builders and Services ltd (2008 (5) TMI 6 - SUPREME COURT ), we are of the view that income of the assessee on sale of plot of land cannot be taxed in this year. It becomes a futile exercise when there is no loss of revenue involved. In view of this, we reverse the decision of CIT (A) and delete the addition on account of profits on sale of land and plots which are registered in favour of the buyer in AY 2007-08 and income of the identical amount is offered for taxation in AY 2007-08 and revenue has not reduced that sum from the assessment u/s 143(3) of that year.- Decided in favour of assessee Disallowance of interest expenditure - disallowance of capitalization of interest expenses by holding that there is no direct nexus which can be established to hold that the loans are utilized for specific projects only and adopting a formula that 1/3rd of the advance has been given out of own funds and 2/3rd of the advances have been given out of the borrowed funds - Held that:- Presumption is to be assumed in favour of the assesse and not against assesse. Hence, we reject the formulae adopted by CIT (A) of working out proportionate disallowance by adopting artificial formulae. Therefore respectfully following decisions of Honourable Bombay High court in CIT vs. Lokhandwala Constructions Industries Ltd. [2003 (1) TMI 93 - BOMBAY High Court ] and CIT V Reliance Utilities & Power limited [2009 (1) TMI 4 - BOMBAY HIGH COURT ]. We reverse the order of the CIT (A) confirming the disallowance of expenditure and direct the AO to allow this interest expenditure u/s 36(1) (iii) of the Act.- Decided in favour of assessee Disallowance on account of brokerage expenses for AMEX Building by holding that the same relating to renting of building - Held that:- Section 24 provides deduction of 30% of the actual value of the rent and interest payable on capital borrowed for the purpose of constructing the property. The brokerage paid to the third party has nothing to do with the rent paid by the tenant. For renting of the property brokerage cannot be said to be charged that has been created against property for enjoying the rights and at best, it is application of income earned. For such expenses as brokerage etc. is held to be allowable then there are number of other expenses which also can be held to be allowable which is against the mandate of the law laid down for computation of the income for house property. Therefore, payment of brokerage cannot be allowed as deduction either u/s 23 or u/s 24 of the Act. Hence, we confirm the order of the CIT (A) confirming the disallowance - Decided against assessee Disallowance of expenditure - revenue v/s capital - Held that:- Amount paid for registration of trademark - the issue is squarely covered in favour of the assesse See CIT vs. Finlay Mills Ltd. [1951 (10) TMI 1 - SUPREME Court] wherein allowed the expenditure as revenue expenditure pertaining to the first time registration of the trademark.- Decided in favour of assessee Disallowance of repairs and maintenance of guest-house at Mussoorie - Held that:- In this case the construction expenditure of compound wall has been held to be of capital in nature only on the ground that the expenditure resulted in enduring benefit. We are of the view that this is not the only test for holding that expenditure is capital in nature. Hon. Karnataka High court in Commissioner Of Income-Tax vs. B.V. Ramachandrappa And Sons [1991 (1) TMI 67 - KARNATAKA High Court ] wherein held disallowance of expenditure on compound wall on repairs and maintenance of guest house only on the sole ground of enduring benefit test cannot be upheld. In view of this we reverse the decision of CIT (A) and delete the disallowance on account of repairs and maintenance of guest house.- Decided in favour of assessee Disallowance of consultancy expenses in connection with purchase of aircraft - Held that:- No infirmity in the order of CIT (A) holding that the amount paid for consultancy fees for purchase of aircraft which is a fixed asset cannot be allowed as revenue expenditure. Therefore we confirm the order of CIT (A) on this count. - Decided against assessee Addition of purchase of shares of Edward Keventer (Successors) Pvt. Ltd. - Held that:- Assesse has made investments in subsidiaries and is in the business of real estate where in it has invested large sums in those companies. Professional fees paid for due diligence in case of one of the companies is in furtherance of the business of the company. Therefore it cannot be said that expenditure incurred by the assessee for due diligence of investments in furtherance of its business is capital in nature.- Decided against assessee Disallowance of expenditure is expenses relating to proposed merger with wholly owned subsidiary company - Held that:- Hon Supreme court has held in Commissioner of Income Tax vs. Bombay Dyeing and Manufacturing Company Ltd [1996 (2) TMI 8 - SUPREME Court ] that legal and professional expenses in respect of amalgamation were allowable as revenue expenditure. Therefore we reverse the finding of CIT (A) and delete the disallowance - Decided in favour of assessee Disallowance on account of expenditure for bidding for modernization of Mumbai and Delhi Airports - Held that:- According to us the expenditure if incurred for the tender fees same is allowable u/s 37(1) of the act. Since the project was abandoned, no new asset also came to be created. The expenditure was deductible. Therefore the facts of the expenditure disallowed are also similar. Hence following the decision of Indo Rama Synthetics India Ltd. v. Commissioner of Income-tax [2009 (9) TMI 635 - Delhi High Court ] we reverse the order of CIT (A) and delete the disallowance on account of tender fees for modernisation of airports. - Decided in favour of assessee Disallowance as cash payment in excess of ₹ 20,000/-and not allowable u/s 40A(3) - Held that:- In view of the agreement between both the parties that correct facts have not come on the record therefore in the interest of justice this ground is set aside to the file of the AO with a direction to verify the contention raised by assessee and decide the issue afresh. In the result this ground is allowed with above directions.- Decided in favour of assessee for statistical purposes. Disallowance on a/c of Non allocation of proportionate overhead expenses - Held that:- The CIT (A) relying upon the decision of ITAT, Delhi Bench in the case of Nestle India Ltd. vs. DICT [2007 (4) TMI 299 - ITAT DELHI-F ] has deleted the addition. We do not find any infirmity in the order of the CIT (A) and revenue could not controvert the fact of any expenditure with instances that these are not incurred by the assesse wholly and exclusively for the purposes of the business of the assessee. - Decided in favour of assessee Addition on a/c of opening balances in construction account - External Development Charges - Held that:- Project wise details of the construction expenses showing opening balances as at 01.04.2005 are added as income of the assessee without granting credit for the debit entries. Merely picking up some ledger balances and excluding some ledger balances addition has been made by the AO. Merely because there are some ledgers of the main ledger account, it cannot be said that they are income of the assessee when they have been already considered by adjustment of the main ledger account. Therefore, we do not find any infirmity in the order of the CIT (A) and none has been pointed out by the ld. DR.unsustainable - Decided in favour of assessee Additions on a/c of provision for construction account - Regency Park account no A33P038-000-03 - Held that:- We confirm the order of the CIT (A) in deleting the addition on both the counts i.e. one that it is part of the work in progress and already considered by the income computation of the assessee; and secondly, it is a double addition made by the AO. Thirdly AO himself has deleted the addition after satisfying himself on verification of details as directed by CIT (A). Therefore this addition cannot be sustained - Decided in favour of assessee Addition on a/c of not disclosing the credit balance in some sub-ledger accounts (in IDC sub-ledger account) - Held that:- This amount has already been included in the stock account shown in the balance sheet of the company at Schedule 8 incorporating the main ledger. Further, the credit balance accounts with respect to the Qutab Enclave plot of two ledgers where there is a credit balance amount has been added. These balances have been taken by the AO from the subledgers and not the main ledger. The main ledger balance already been accounted for on net of basis as stock account. Therefore, the addition is made by AO on ignoring net balance of the main ledger but picking the credit balances of the individual sub ledgers is not acceptable. This is also not excess collection received by the assessee but merely the credit entries of some of the account of WIP account. Therefore, we confirm the order of CIT (A) in deleting the addition - Decided in favour of assessee Addition on unascertained liabilities - Held that:- As the assessments of the previous years have already been framed u/s 143 (3) as stated by the parties, this liability did not arise during the year and in any way it is an ascertained liability. In view of this, we confirm the order of the CIT (A) in deleting the addition - Decided in favour of assessee Addition on on a/c of Savitri Cinema as no business activities were carried out during the year - Held that:- The expenditure has been incurred on the maintenance, security charges, etc. with respect to a cinema division of the assessee. The AO disallowed this expenditure holding that it is for the maintenance of capital asset and, therefore, they are capital expenditure. The CIT (A) has deleted the disallowance holding that it is not the cessation of the business of the assessee but it is temporarily lull/suspension of the business of the assessee due to litigation. As stated by ld. AR before CIT (A) that various licences are in place and now before us that the cinema division is functioning, therefore, keeping all these facts in mind, we confirm the deletion of disallowance - Decided in favour of assessee Additions on a/c of Grand Mall project u/s 40A(2)(b) - Held that:- When the assessee is a company, the person to whom it has to make payment in order to attract the sale provision is any director of the company or any relative of the director. Admittedly, in this case, the payment is made to the subsidiary company and not to any director or any relative of the said direction. As the alleged transaction by the AO is between holding company and subsidiary company, the transactions between the holding company and a subsidiary company are not hit by the provisions of section 40A(2)(b) of the Act. In view of this, we confirm the order of CIT (A) in deleting the additions/disallowances of ₹ 16,95,66,085/- under section 40A(2)(b) of the Act on three counts - (a) there is no determination of AO by the market value of the transaction; and (b) the expenditure determined by the AO is incorrect; and (c) section 40A(2)(b) does not apply to the transactions between the holding and subsidiary company. - Decided in favour of assessee Additions on a/c of capitalization of Interest expenses as per AS-16 - Held that:- The part of the disallowance has been deleted by the CIT (A) out of interest expenditure and part of it is confirmed. Against this amount which is confirmed, the assessee is in appeal as per ground no9 of the assessee's appeal and against deletion of ₹ 91,70,13,955/- revenue is in appeal on this ground. We have already given our finding regarding allowability of this interest expenditure while deciding ground no.9 of the assessee's appeal wherein we have directed to delete the disallowance of interest expenditure based on the decision of honourable Bombay high court. Therefore, we confirm the order of the CIT (A) in deleting the addition of ₹ 91,70,13,955/- on account of interest expenditure - Decided in favour of assessee Disallowance of reclassification of Income from House Property - whether the income from house property shown by the assessee after claiming the deduction of 30% u/s 24A of the Act is chargeable to tax as such or is chargeable to tax under the head business income as assessed by AO - Held that:- the assessee company is a developer and hence, the decision of Hon'ble Supreme Court in the case of Chennai Properties [2015 (5) TMI 46 - SUPREME COURT ] is rendered in the context of the company which is formed with the main object of renting up of the properties. In view of the above, respectfully following the decision of coordinate Bench of the ITAT in the case of assessee for AY 2005-06, we confirm the order of CIT(A) in taxing the rental income as income from house property Addition on a/c of Reconciliation of rental income with TDS certificates - Held that:- According to us the income from house property does not follow any method of accounting but is chargeable to tax on annual letting value basis of the property irrespective of the receipt of the rent or advance receipt of rent. Tax deduction at source is required to be made only at the time of payment or credit in the books of payer of rent as prescribed u/s 194I of the Act. The timing between the taxability of rental income under the head income from house property and timing of tax deduction at source can be different as both the sections have different intentions, objects and purposes. In view of the above facts, we confirm the order of CIT(A) in deleting the addition with a direction to AO for verification of the statement submitted by the assessee. Credit on TDS denied - Held that:- As the rental income has been assessed under the head "income from other sources" and since the TDS relates to the very same income, the credit for the said TDS cannot be logically denied. Addition being project expenses - Held that:- The assessee has incurred this expenditure on proportionate and feasibility of various construction projects in which business the assessee is engaged into. Before embarking on to any of the projects, it is a common practice to obtain a feasibility and economic viability of construction projects at different geographical location. These expenses are for facilitating the existing business of the assessee. It is not the case of the revenue that it is altogether a new line of the business or unrelated to the business of the assessee. Therefore, in our view, this expenditure are wholly and exclusively incurred for the purposes of the business of the assessee - Decided in favour of assessee Addition being late construction charges received by the assessee company - Held that:- Accounting standard 9 issued by ICAI on revenue Recognition also satisfies the accounting policy of the company that when the revenue is saddled with uncertainties same should not be recognised till the uncertainties are resolved. Therefore we are of the view that assesse has correctly recognised revenue in the year the issue attained certainty. Therefore on perusal of the decision of CIT (A) deleting the addition we are of the view that there is no infirmity in the order - Decided in favour of assessee Disallowance being prior period expenses - Held that:- The reliance on CIT vs. Modipan Ltd. - [ 2010(12) TMI 836 - Delhi High Court ] is also apt as the expenditure are settled during the year. Further genuineness of these expenditure is not in doubt and allowabaility of these expenditure is also not in question except classifying them as prior period expenses and there is no difference in rate of taxes for respective years. In the result, we confirm the order of the CIT (A) in deleting the addition - Decided in favour of assessee. Addition made on a/c of Interest free security deposit - Held that:- CIT (A) relying on the decision of CIT vs. Goel Gases Pvt. Ltd. (1990 (5) TMI 13 - DELHI High Court ) held that security deposit cannot be charged to tax as an income. In view of this, we do not find any infirmity in the order of the CIT (A) when deposits are with a purpose, the depositors are identified, there is a regular method of accounting adopted in past for treatment of this income which is accepted by the revenue and there is an obligation cast upon the assessee.- Decided in favour of assessee Addition of amount received by the assessee company from the customers for execution of conveyance deed - Held that:- These receipts cannot partake character of the revenue in the hands of the assessee. It is also not the case of the AO that the depositors are not identified and despite the conveyance deed executed by the assessee, the amount has not been incurred. In absence of this finding, it is not possible to confirm the disallowance. Therefore, we confirm the order of the CIT (A) in deleting the addition - Decided in favour of assessee Addition on loan transaction between DLF Commercial Developers Ltd. (DCDL) has given some loans to the assessee company - Held that:- CIT (A) who deleted the addition holding that the amount is for the business purposes of the assessee as the nature of these transaction is receipt of amount from customers of DLF commercials developers limited in respect to sale of property by DLF Commercial developers limited. Ld. AR has further stated that in fact appellant has given loan to this party and balance receivable prior to the amount received on behalf of the customer of that company was ₹ 2046054553/-. Therefore in fact there is debit balance of that party in the books of the assessee and it is not correct that assessee has received any sum as loan from DLF Commercial |Developers Limited. Addition on a/c of deemed dividend - Held that:- As the assessee is not a shareholders of the lender companies deemed dividend cannot be taxed in the hands of the assessee u/s 2 (22) (e) of the Act on protective basis. Therefore we confirm the order of CIT (A) - Decided in favour of assessee Disallowance of electricity expenses - Held that:- Most of these expenses are in the nature of electricity expenses of the property taken on rent by the assessee that was explained to the AO by assessee however same were disallowed. Naturally the electricity bill would be in the name of owner of the property and not tenant in case the property is rented. Therefore we do not find any infirmity in the order of CIT (A) in deleting disallowance - Decided in favour of assessee Disallowance of legal and professional expenses in respect of amalgamation - Held that:- Hon Supreme court has held in Commissioner of Income Tax vs. Bombay Dyeing and Manufacturing Company Ltd [ 1996 (2) TMI 8 - SUPREME Court ] that legal and professional expenses in respect of amalgamation were allowable as revenue expenditure and are allowable. Therefore we confirm the finding of CIT (A) and delete the disallowance - Decided in favour of assessee
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2016 (3) TMI 678
Disallowance of commission - assessee is an individual engaged in the business of export of engineering goods to USA and gulf countries - CIT(A) deleted the disallowance of commission u/s 37(1) - Held that:- Assessee has discharged his onus regarding the commission on both the counts viz. (i) that the payment was actually made; and (ii) that the payment was made for the purpose of business. As far as the issue of allowing additional evidence to be submitted before the Ld. CIT(A) is concerned, the Ld. CIT(A) has given a specific finding in Para 5.1 of the impugned order that, “the appellant has certified that all the evidences relied upon were provided to the Assessing Officer during assessment proceedings .” Therefore, on an overall consideration of the facts of the case, we are not inclined to interfere with the findings recorded by the Ld. CIT (A) - Decided against revenue
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2016 (3) TMI 677
Revision u/s 263 - Held that:- We observe that since the assessee has debited a number of other expenses as also wages all of which are also not duly vouched or supported by any material evidence and nothing has been brought on record so as to ascertain the correctness of the same, the actual profit earned by the assessee will further increase by substantial amount then ₹ 3 crores taken by conservative estimate of profits basis upon inflated purchases only. In the background of the aforesaid discussions, we are of the considered opinion that Ld. CIT has rightly made the addition of ₹ 2,95,58,101/- which does not need any interference on our part, hence, we uphold the same. As regards second part CIT has observed that there are fresh unsecured loans to the tune of ₹ 12069799/- and abnormal sundry creditors to the tune of ₹ 38020903/- which were also the reason for selection of the case for scrutiny on the one hand while as such the assessee is duty bound and heavy onus lies on him to explain the credit entries including the liabilities appearing in its books of account by establishing identity, genuineness and creditworthiness of the alleged parties. In our considered opinion, this conclusion of the Ld. CIT does not need any interference, hence, we uphold the same. As regards third part we note that Ld. CIT has noted that the entries in the fixed assets ₹ 4957110/- was to be looked into from different angles including actual investment, date of actual use, if any, admissibility of depreciation etc. and the AO has directed to enquire the same now. In our view the same also do not need any interference on our part, hence, we uphold the same. As regards last point we find that Ld. CIT has observed that the balance of ₹ 34,13,194/- certified by the bankers as on is not shown in the Balance sheet' and are not reflected in the respective accounts of the assessee. The same are also liable to be added in the income to the income of assessee for which the AO may provide the assessee reasonable opportunity of being heard and reconcile the difference with supporting evidence, if any. In our considered opinion, this conclusion of the Ld. CIT also does not need any interference on our part, hence, we uphold the same. Thus we are of the view that the AO was found to be erroneous and prejudicial to the interest of revenue since at the time of the assessment the AO was duty bound to call for such details and examine them. We also find that in the case of M/s Malabar Industries, [2000 (2) TMI 10 - SUPREME Court ] has held that incorrect assumption of facts or incorrect application of law will satisfy the requirement of the order being erroneous. We further note that in the same category fall order passed without applying the principles of natural justice or without application of mind. Accordingly, Ld. CIT has passed a well reasoned revisional order u/s. 263 which does not need any interference on our part, hence, we uphold the same and dismiss the Appeal of the Assessee. - Decided against assessee
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2016 (3) TMI 676
Reopening of assessment - Held that:- Assessing Officer has initiated proceedings on the basis of information received from the documents pertaining to search operation in the case of Mahasagar Securities Ltd. and further the Assessing Officer has specifically mentioned the total value of transactions relating to purchase and sale of securities and proceedings have been initiated for reassessment to verify the value of transactions of ₹ 1,43,042/- which was sale consideration of Sardar Sarovar Bonds effected by the assessee through Alliance Intermediaries & Network Pvt. Ltd. on 9.8.2005. We, therefore, are of the view that ld. CIT(A) was correct in upholding that notice of reopening u/s 148 was not illegal and unlawful. Therefore, this ground of the assessee is dismissed. Treating the sale consideration of sale of Sardar Sarovar Bonds as unexplained income - Held that:- In view of the fact that assessee has submitted various information along with computation of income filed with original return of income prior to date of search and further supporting evidence supplied by assessee proving that some transaction has happened on 9.8.2005 by sale of Sardar Sarovar bonds which have been acquired by the assessee in January, 1995 and have been sold on 9.8.2005 after paying service tax and turnover charges through broker of National Stock Exchange mentioning three bonds in the contract note, then it was the duty of the Assessing Officer to verify the genuineness of the transaction through the share transfer department of Sardar Sarovar bonds after taking necessary information including distinctive number of Sardar Sarovar bonds from the assessee. Therefore, in our view this matter needs to be remitted back to the file of Assessing Officer with the instruction of providing necessary opportunity of hearing to the assessee after calling upon the distinctive number of Sardar Sarovar bonds and get the same verified with the help of assessee from the department of Sardar Sarovar Ltd. keeping record of shares transfer so as to verify that whether the assessee was the owner of three bonds of Sardar Sarovar from January, 1995 onwards till the date of sales i.e. 9.8.2005 and whether there was transfer of bonds from assessee’s account to some other persons’ account pursuant to sale of bonds. The Assessing Officer should frame a fresh assessment order on the basis of this information which is crucial for deciding that whether transaction shown by the assessee is long term capital gain was genuine or it was a sham transaction. Exemption u/s 10(38) of the Act is available only if there is a transfer of long term capital asset (held for more than one year) as exempt if it is equity share in a company or a unit of equity oriented fund. With reference to Sardar Sarovar bonds that whether they are in nature of equity shares or debenture is not clearly available on record and for this reason this issue is also remitted to the file of Assessing Officer to take necessary information from Sardar Sarovar Ltd. that whether Sardar Sarovar bonds are in the nature fo equity shares or debenture. If the Assessing Officer comes across to this effect that Sardar Sarovar bonds are not equity shares and only in the nature of debenture on which interest income is received by the debenture holder then the assessee will not be eligible for exemption income u/s 10(38) of the Act. - Decided partly in favour of assessee for statistical purposes.
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2016 (3) TMI 675
Income from other source v/s long term capital loss - transfer of land - Held that:- From the grounds of appeal raised by the revenue it is clear that the revenue has not dispute any of the findings of the CIT(A) except harping on the point that the purchaser of the property did not confirm the details of the transactions as given by the Assessee. The sale deed of the property dated 14.06.2005 is a registered documents. The authenticity of the same cannot be doubted. The fact that the purchase of the property did not respond to the notices issued by the AO cannot be the basis to treat the gain in question as income from other sources. The AO has not brought any material on record about the value of the property as adopted for the purpose of registration of documents by the Registrar of Assurances. In the given facts and circumstances we are of the view that conclusions drawn by the CIT(A) do not call for any interference . Accordingly order of CIT(A) is confirmed and this appeal by the revenue is dismissed. - Decided in favour of assessee
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Customs
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2016 (3) TMI 660
Seeking direction to stop proceeding with the cases under Section 16 of the Foreign Trade (Development and Regulations) Act, 1992 - No jurisdiction of Director General to decide the review applications filed at the instance of DRI - Held that:- Section 16 of the Act, 1992 confers very wide powers of review upon the Director General. Also it contemplates review of judicial orders inasmuch as it states that the reviewing authority may “call for and examine the records of any proceedings”. Therefore, the Director General has full power to deal with an application filed by DRI inasmuch as the power of review can be exercised by the Director General either suo motu or “otherwise”. - Decided against the petitioner
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2016 (3) TMI 659
Validity of Tribunal's order - Applicability of extended period of limitation as per proviso to Section 28(1) - Demand of duty under Section 28 of the Customs Act, 1962 on goods imported for the period May 2008 to July 2009 - Import of cold rolled coils of iron and steel (CR Coil) on a regular basis for manufacture of motor vehicles - Correct description of the goods was not declared and hence the act of misdeclaration and suppression - Held that:- as the Tribunal has not examined the issue of time-bar or extended period of limitation completely, the Tribunal's order is set aside only to this limited extent. - Matter remanded back
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2016 (3) TMI 658
Seeking prohibition in continuing the proceedings by Settlement Commission - Order reserved without giving opportunity of hearing to changed counsel of petitioner - Departure from the rules of natural justice - Held that:- it is not possible for this Court to enquire, at this stage, into whether the Petitioners were denied a hearing by the Settlement Commission. Moreover, the question of the Settlement Commission becoming a party to these proceedings to contest such an allegation simply does not arise. More importantly, with orders having been reserved on the applications, the question of issuing a writ of prohibition to the Settlement Commission at this stage again does not arise. - Decided against the petitioner
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2016 (3) TMI 657
Sustainability of penalty imposed - Under Section 114(iii) of the Customs Act, 1962 - Alleged abetment in the case of fraudulent, overvalued and mis-declared exports by SLN - Held that:- not only there is absolute lack of any material tangible evidence against the Appellant, but whatever documentary evidence are collected by the department, they do not conclusively link the appellant with the alleged offence. Confessions of the two co-accused, which we have carefully seen, cannot be taken as sufficient evidence to sustain the charge as levelled against the appellant. The email recovered shows involvement of a shipping agent in Dubai as observed in earlier paragraphs, however, the said shipping agent has not been made an accused. The invocation of penal provisions can not be uphold only on the basis of such uncorroborated confessions of the co-accused. No link were established of the appellant to the entities who either received the exported goods and/or paid for them and also has not been found any involvement in procurement, export or any other activity connected with the exports of SLN. Whether or not the appellant is a cousin brother of Feroze Khan is wholly immaterial in absence of any tangible material against the appellant and also there is no tangible evidence of any compensatory payment either by SLN or by Feroze Khan, to the appellant. Therefore as the department has failed to prove that the appellant is not innocent, the charge against the appellant is baseless and the penalty imposed on the appellant is not sustainable. - Decided in favour of appellant with consequential relief
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2016 (3) TMI 656
Refund claim - Entitling exemption under Notification No. 21/2002 dated 1.3.2002 subject to submission of essentiality certificated from the Directorate General of Hydro Carbons- Duty paid on spares imported for use on the drilling ships as there was delay in obtaining the said certificates refund claim rejected on two grounds, one is unjust enrichment and other is refunds were filed without challenging the assessment - Held that:- the appellants have relied on the terms of the contract to assert that there was no unjust enrichment but the basic facts of actual transaction have not been produced. From the terms of contract it may appear that there was no unjust enrichment, but by itself it is not a sufficient evidence. The appellant should produce some reliable evidence of actual transactions as the terms of contract can only point at the possibility of unjust enrichment or otherwise but can not be treated as evidence. As the onus of proving that there was no unjust enrichment was on appellants and they have failed to discharge it. Also as per the decision of Hon'ble Supreme Court in the case of CCE Vs. Flock (India) Pvt. Ltd [2000 (8) TMI 88 - SUPREME COURT OF INDIA], one is necessarily required to challenge the assessment orders to be eligible to claim refund but the appellant also failed to do so. Therefore, in failure to comply both the grounds, the appellant is not entitled to refund claim. - Decided against the appellant
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2016 (3) TMI 655
Classification of coking coal - whether the product is other than “Coking coal” - validity of test report - Held that:- samples drawn by the department were not in accordance with IS436. The CSN on re-testing increased from 1 to 5 or 5.5. This does throw doubt on the method of drawing samples as well as the testing method and does not inspire confidence in the procedures followed. The Hon’ble Supreme Court in the case of Tata Chemicals Ltd. Vs. Commissioner of Customs (Preventive) [2015 (5) TMI 557 - SUPREME COURT] held that the words ‘deems it necessary’ in Section 18 (1) (b) mean that the proper officer must have good reason to subject imported goods to a chemical test, otherwise the chemical analysis of imported goods done by the department is ultra vires of Section 18(b) of the Customs Act. This judgment needs to be considered by the Commissioner (Appeals) to arrive at a proper finding. The Commissioner has not been able to justify why the test reports were not handed over to the appellant immediately but were handed over after long periods. The delay assumes significance especially when the load port reports of testing by a reputed agency showed CSN of 1 and above. Commissioner has merely held that the appellant should have sought re-testing where the delay in handing over the test report was minimal and has not discussed the periods of delay but forget to consider that delay may lead to deterioration of the properties of coal including CSN values. He needs to indicate whether samples of coal have been retained and in what condition and should have clearly stated the delay that occurred in handing over the reports to the appellant in each case and the impact the delay would have caused if a re-test were to be done. The right of re-test may lose significance due to passage of time. Even if cross examination was not sought by the appellant, the Commissioner needs to counter the technical literature submitted by the appellant with his own supporting evidence. The Commissioner ought to have appropriately justified his finding on the issue that if the MMR value in the load port report is acceptable, then the CSN value should also be acceptable. Also he does not discuss the issue in respect of consignments for which such exemption was claimed quantification of demand. He failed to discuss the point that in cases where the final invoice value is higher than the provisional invoice value, the former was adopted, whereas in cases where the final invoice values were lower than the provisional invoice value, the final invoice value was not adopted. This is unjust on the part of Customs and without legal basis. Therefore, as there is so many flaws in the Commissioner (Appeals) order, the order is not valid and the case needs to be considered afresh by the Commissioner. - Matter remanded back
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Corporate Laws
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2016 (3) TMI 654
Sanction of the scheme of amalgamation - Held that:- In view of the approval accorded to the scheme by the shareholders and creditors of the petitioners and, given the fact, that the concerns of the RD and the OL, as indicated above, have been duly taken care of, in my opinion, there appears to be no impediment in the grant of sanction to the scheme. Consequently, sanction is granted to the scheme in terms of Section 391 and 394 of the 1956 Act. The petitioners will, however, comply with all statutory requirements, as mandated in law. A certified copy of the order, sanctioning the scheme, will be filed with the ROC, within thirty (30) days of its receipt. In terms of the provisions of Section 391 and 394 of the 1956 Act, and in terms of the scheme, the entire undertaking, properties, rights and powers of the transferor company will stand transferred to and / or vest in the transferee company without any further act or deed. Similarly, in terms of the scheme, all liabilities and duties of the transferor company shall stand transferred to the transferee company without any further act or deed. Upon the scheme coming into effect, the transferor company shall stand dissolved without having to follow the process of winding up. It is made clear, that this order will not be construed as an order granting exemption from : payment of stamp duty or, taxes or, other penalties/ charges, if any, payable, as per the relevant provisions of law or, from any applicable permissions that may have to be obtained or, even compliances that may have to be made, as per the mandate of law.
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2016 (3) TMI 653
Power of the Arbitrator to award pendente lite interest when contract contains bar for grant of interest in a case covered by the Arbitration Act, 1940 - Held that:- Our answer to the reference is that if contract expressly bars award of interest pendente lite, the same cannot be awarded by the Arbitrator. We also make it clear that the bar to award interest on delayed payment by itself will not be readily inferred as express bar to award interest pendente lite by the Arbitral Tribunal, as ouster of power of Arbitrator has to be considered on various relevant aspects referred to in the decisions of this Court, it would be for the Division Bench to consider the case on merits.
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Service Tax
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2016 (3) TMI 674
Exemption from service tax on construction service provided to in case of religious use but not to charitable purpose - Constitutionality of clause 13(c) of Notification No. 25/2012-ST, dated 20.6.2012 - It provides class legislation there being no intelligible differentia of reasonable classification in religious charitable institutes and educational charitable institutes and both registered under Section 12AA of the Income Tax Act, 1961 - Held that:- a provision, statute or law shall not be declared to be unconstitutional and void solely on the ground of unjust and harsh provisions or it violates some natural, social, political or economic rights of citizen, unless it is established that such injustice infact is prohibited or violates the rights guaranteed or protected by the Constitution of India. The notification issued by the authorities by way of delegated legislation can be held to be beyond statutory competence if the power to issue the same does not emanate from the statutory provisions. Equally, it can also be struck down on the ground that it is arbitrary, unreasonable or unjust. Rather, clause 13(c) of the notification dated 20.6.2012 exempts building owned by an entity registered under Section 12AA of the Act and meant predominantly for religious use by general public from payment of service tax and is, thus, a beneficial exemption granted thereunder which cannot be said to be unconstitutional. Also it is not shown that the competent authority is not empowered to issue the impugned notification. Once there exists legislative competence in the State legislature or competent authority, in the absence of petitioner's demonstration that the enactment/provision/notification is arbitrary, discriminatory or violative of Article 14 of the Constitution of India, it cannot be declared to be unconstitutional. Therefore, clause 13(c) of Notification No. 25/2012-ST is constitutional. Decided against the petitioner
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2016 (3) TMI 673
Eligibility of refund claim on input services viz. Company Secretary Service, Chartered Accountant Service, Security Service, Legal Consultancy services etc - Rule 5 read with Notification No.12/2013 dt. 1.7.2013 - Appellant registered as Multi Product Special Economic Zone (MPSEZ)claimed refund of service tax on Company Secretary Service, Chartered Accountant Service, Security Service, Legal Consultancy services etc. used towards authorized operation of SEZ - Held that:- as regards legal services on perusal of various bills, and invoice, invoice has been raised for appearing before Hon’ble Madurai Bench of Madras High Court on 13.1.2013 wherein ₹ 10,00,000/- was paid. Also there is an invoice raised towards professional charges in connection with appearing before Hon'ble Madurai Bench of High Court, wherein the appellants have paid legal fees of ₹ 10,05,000/-. These invoices clearly show that fees have been paid for the appeal suit. In bills it has been clearly mentioned that amount has been paid in connection with Appeal Suit which was related to Madurai Land Land Acquisition matters pending before Madurai Bench of the Hon’ble Madras High Court. From the challan dt. 29.3.2014, it is seen that the appellant have remitted the service tax under reverse charge under the services of legal consultancy service. Bills and remittances of service tax clearly confirms that appellant being a developer of AMRL Hi-Tech City has to fight legal case. Since the case relates to land acquisition of 2520 acres the input services in dispute were used as authorized operation of SEZ as a developer. Therefore, the appellants are eligible for refund under Rule 5 of CCR read with Notfn No.12/2003 as amended on the input services i.e. Company Secretary Service, Chartered Accountant service , Security service, Legal Consultancy service, ITS service, GTA service. - Decided in favour of appellant with consequential relief
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2016 (3) TMI 672
Imposition of penalties u/s.77 (1a), 77(2) and 78 of the Finance Act, 1994 - Appellant working as interior decorator not registered with the Service tax department and also not collecting any service tax on the invoices raised by him to his clients. After enquiry initiated, realised his liability and deposited tax with interest and 25% penalty before issue of show cause notice and after availing Cum tax benefit - Held that:- when the assesse is not disputing his liability for discharging the statutory obligations and has paid the entire tax alongwith the interest and 25% of the penalty and there after discharging his obligations as a tax payer, in view of the provisions of Section 73(4A) the proceeding should be deemed to have been concluded. By following the decision of Hon'ble Supreme Court in the case of Commissioner vs Advantage Media Consultant [2008 (10) TMI 570 - SUPREME COURT], the penalties under Section 77(1)(a) and 77(2) are set aside and penalty imposed under Section 78 is restricted to 25% of duty demanded. Decided in favour of appellant
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2016 (3) TMI 671
Imposition of penalties for the period 2007-08 to 2010-11 - Sections 76 & 78 of the Finance Act, 1994 - Respondents paid almost the entire amount of service tax due before issuance of show cause notice - Held that:- the legislature in its wisdom has also amended the provisions of Section 78, albeit from 01.4.2011, that the penalty under Section 78 may be reduced to 50% when true and complete details of the transactions are available in the specified records. In view of the same, the equivalent penalty imposed on the Respondents under Section 78 of the Finance Act, 1994, is to be reduced to 50% of the same in respect of the first show cause notice. Also the penalty can not be imposed under Section 76 because the same is not imposable after 10.05.2008 as per the provisions itself. Therefore, in view of the Tribunal decision in case of Jivant Enterprise vs. Commissioner of Service Tax, Ahmedabad [2012 (7) TMI 164 - CESTAT, AHMEDABAD], if the show cause notices are issued after the date of amendment, penalties under Section 76 and 78 simultaneously cannot be imposed and hence setting aside the penalty under Section 76 is uninterferable. - Decided partly in favour of the Revenue
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2016 (3) TMI 670
Imposition of penalties for the period 2007-08 to 2010-11 - Sections 76 & 78 of the Finance Act, 1994 - Respondents paid almost the entire amount of service tax due before issuance of show cause notice - Held that:- the legislature in its wisdom has also amended the provisions of Section 78, albeit from 01.4.2011, that the penalty under Section 78 may be reduced to 50% when true and complete details of the transactions are available in the specified records. In view of the same, the equivalent penalty imposed on the Respondents under Section 78 of the Finance Act, 1994, is to be reduced to 50% of the same in respect of the first show cause notice. Also the penalty can not be imposed under Section 76 because the same is not imposable after 10.05.2008 as per the provisions itself. Therefore, in view of the Tribunal decision in case of Jivant Enterprise vs. Commissioner of Service Tax, Ahmedabad [2012 (7) TMI 164 - CESTAT, AHMEDABAD], if the show cause notices are issued after the date of amendment, penalties under Section 76 and 78 simultaneously cannot be imposed and hence setting aside the penalty under Section 76 is uninterferable. - Decided partly in favour of the Revenue
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2016 (3) TMI 669
Liability of tax on extended warranty service between October 2005 and September 2010 - Business Auxiliary Services - Money received towards extended warranty - Held that:- the context in which the service becomes taxable is that of an intermediary who arranges goods or services for further business activity; the use of the words 'inputs' and 'client' as well as the explanation appended would make it appear to be so. The procurement of service which is an input for the client alone will enable classification in the sub-category of section 65(19)(iv). Service of replacing defective parts will have to be rendered by a dealer of the respondent. That service will be provided only if and when such defect exists in a car. Should the need for such replacement arise, it would be only then that the service intended for use by the client comes into play. Mere coverage by the extended warranty scheme does not, of itself, create an intention to use the service of the dealer. Therefore, no liability of tax arises under Business Auxiliary Services on money received towards extended warranty. - Decided against the department
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Central Excise
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2016 (3) TMI 668
Loss to revenue - difference between the stock figure in the Balance Sheet as on 31.03.2009 and ER-1 returns of that date - Held that:- The appellate authority has not at all examined as to whether there was really a discrepancy under the accounting system. He has also not looked into whether there was any unaccounted removal of goods of aforesaid value done to cause loss to Revenue. ER-1 returns disclosed the stock position. But that was reconcilable with the reason of difference in respect of the figure appeared in Balance Sheet. That was not examined by appellate authority. The case was booked against the appellant on the basis of audit finding. They neither found any discrepancy in the clearance of goods nor in the accounts of the appellant, as well as stock. Therefore the order passed by learned Commissioner (Appeals) is set aside and appeal on this court allowed in favour of assessee
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2016 (3) TMI 667
Clandestine manufacture and clearance of dutiable gutka - duty demand against the main appellant - Held that:- Even the statements given are not giving any categorical details of the quantum of manufacture and clearance of non-duty paid items. Annexure-A to the show cause notice which stands confirmed in toto, cannot be considered as an admissible way of calculating duty liability under any provisions of law. We find that except for the seized quantity of gutka along with evidence of parallel clearance of further quantity of gutka using the bill of same number, other clandestine clearance cannot be established with any corroborative evidence. Accordingly, we hold that the impugned order is not sustainable except to a duty demand of ₹ 1,73,043/-. Since these are clearances without payment of duty, with full knowledge of the violation of the law, penalty equal to the duty is also sustainable. In view of the above analysis and findings, the appeals filed by the main appellant and others are allowed except to an extent of duty liability of ₹ 1,73,043/- and equal amount of penalty - Decided partly in favour of assessee
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2016 (3) TMI 666
Valuation of goods sold through dealers - inclusion of the expenditure incurred by the wholesale dealers in the assessable value of the goods sold by the appellant to such wholesale dealers - Held that:- Emphasis is laid by the Revenue on the clause that in the event that the wholesale dealer is not able to lift the specified quantities mentioned in the agreement, the appellant may increase the price based on the volume of purchase by the dealers. It was sought to be argued that such condition will make the dealer to have an obligation of expenditure towards publicity and advertisement to increase the quantum of sale. We are not in agreement with such propositions. If the same accepted, it will lead to a position that only that much of advertisement and publicity required to surpass the minimum volume of purchase is required to be added in their transaction value. The legal position cannot be established by such presumptions. Further, it is a clearly admitted fact that any publicity and advertisement by the dealer will certainly benefit them by higher sales and higher profit. To say such publicity is only to be treated as a beneficial act for the appellant is not tenable. There is no obligatory, legally bound expenditure by the dealer for such publicity. Considering the legal position we find the impugned order is not sustainable. See COLLECTOR OF CENTRAL EXCISE, BARODA Versus BESTA COSMETICS LTD. [2005 (3) TMI 129 - SUPREME COURT OF INDIA ] - Accordingly, the same is set aside and the appeals are allowed in favour of assessee
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2016 (3) TMI 665
Recovery of Cenvat credit - whether the dealers supplied goods to various persons who did not need Cenvatable invoices and supplied only Cenvatable invoices to M/s KE-I & II without supplying any goods? - Held that:- It is a fact that M/s KE-I & KE-II never admitted that they only received invoices without the goods. Not only that, they produced proper records maintained in this regard which showed receipt of the raw material for which payments were duly made and also produced transport documents. It is not in doubt that as statements of the transporters and others were relied upon against M/s KE-I & M/s KE-II, not permitting their cross-examination did cause prejudice to them. In such a situation, such statements of third parties/co-accused whose statements were used to the prejudice of M/s KE-I & M/s KE-II have to be ignored for the purpose of deciding the mater with regard to M/s KE-I & M/s KE-II because their cross examination was not permitted. If the said statements are ignored there remains hardly any evidence against M/s KE-I & II for sustaining the allegation against them. It has also been held by several judgements that 3rd party evidence cannot be made the sole basis of sustaining the demand. When the allegations against M/s KE-I & M/s KE-II are not found sustainable, the question of penalty even on co-noticees would not arise. - Decided in favour of assessee
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2016 (3) TMI 664
Eligibility of quantity discount - determination of correct sale value - transaction value - deceleration of quantity discount before the sale of the goods from the place of removal i.e. Depot and discount was shown in the sale invoice - Held that:- "Transaction value" as defined in sub-clause (3)(d) of Section 4 has to be read along with the expression "for delivery at the time and place of removal". It is clear, therefore, that what is paramount is that the value of the excisable goods even on the basis of "transaction value" has only to be at the time of removal, that is, the time of clearance of the goods from the appellant's factory or depot as the case may be. The expression "actually paid or payable for the goods, when sold" only means that whatever is agreed to as the price for the goods forms the basis of value, whether such price has been paid, has been paid in part, or has not been paid at all. The basis of "transaction value" is therefore the agreed contractual price. Further, the expression "when sold" is not meant to indicate the time at which such goods are sold, but is meant to indicate that goods are the subject matter of an agreement of sale. Once this becomes clear, what the learned counsel for the assessee has argued must necessarily be accepted inasmuch as cash discount is something which is "known" at or prior to the clearance of the goods, being contained in the agreement of sale between the assessee and its buyers, and must therefore be deducted from the sale price in order to arrive at the value of excisable goods "at the time of removal". In view of our above observation on facts and settle legal position of law, we are of the considered view that quantity discount was correctly claimed by the appellant as the same was claimed at the time of sale of the goods.
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2016 (3) TMI 663
Extended period of limitation - whether the demand of duty is barred by limitation - Held that:- In the present case, it is noticed that the Revenue has not disputed the findings of the Tribunal while setting aside the penalty under Section 11AC of the Act as observed that there was no suppression/mis-statement on the part of the Appellant with intent to evade payment of duty. In Final Order dt.10.06.2015, it is observed by the Tribunal that there was no suppression of facts with intent to evade payment of duty. So, the demand of duty for the extended period of limitation as per Proviso to Section 11A of the Central Excise Act, 1944 cannot be sustained. Hence, it would be read in the Final Order dt.10.06.2015 that “the demand of duty alongwith interest for the extended period of limitation cannot be sustained.” The ROM application filed by the Applicant is allowed in favour of assessee
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2016 (3) TMI 662
Exemption notification No. 64/95-CE - clearance of the goods to M/s. Mazgaon Dock which is meant for construction of Indian Navy warship - Held that:- The goods supplied should be used in the construction of warship of Indian Navy and a certificate from the Indian Navy should be produced to the Central Excise officer. In the said condition, it is no where mentioned that the goods has to be supplied to Indian Navy. Therefore, there is no dispute that the goods supplied to Mazgaon Dock for manufacture of Indian Navy warship, therefore in our considered view there is no need that the goods should be supplied to Indian Navy only. The respondent is entitled for exemption notification No. 64/95-CE (Sr. No. 21) on their goods supplied for construction of warship of Indian Navy. As regard demand under Rule 6(3)(b), we find that the respondent have admittedly reversed the cenvat credit in respect of inputs used in exempted goods at the time of clearance of such exempted goods which tantamount to non-availment of credit. This view is supported by various judgments cited by the Ld. Counsel. Moreover as per the retrospective amendment made in Rule 6 vide Finance Act; the assessee is required to reverse the actual cenvat credit attributable to exempted goods. For this reason also the demand of 8% proposed in the SCN under Rule 6(3)(b) is not correct. We are therefore of the considered view that the order passed by the Ld. Commissioner is just and legal, which does not require any interference. We therefore, uphold the impugned order and dismiss the appeal filed by the Revenue. - Decided in favour of assessee
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2016 (3) TMI 661
Duty demand for alleged shortage in stock - penalty imposed under Section 11 AC - Held that:- Panchanama is silent as to the manner of stock taking. Thus at best, it is a matter of eye estimation made by the inspection team. Thus hold that on the basis of such eye estimation, no conclusion of shortage can be drawn against the appellant. In this view of the matter, the whole proceeding is vitiated. Thus, set aside the impugned order and allow the appeal in favour of assessee
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CST, VAT & Sales Tax
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2016 (3) TMI 693
Rectification petition - Re-determination of total and taxable turnover - Suppression of turnover as three different figures on three different dates were furnished - Opportunity of personal hearing not provided before taking note of original record, hence, violation of principles of natural justice and perversity of finding - Held that:- the Tribunal had not violated any principle of natural justice as it was the assessee, who invited the attention of the Tribunal to the balance sheet. The Tribunal was not supposed to get into the document and confront the revision petitioner with the discrepancies between the figures found in the balance sheet and what was furnished to the Team of Enforcement Wing. Once a party before a quasi judicial Tribunal, voluntarily invites the attention of the Tribunal to a document, the Tribunal is entitled to come to its own conclusion from what was produced. It is not part of the principles of natural justice to expect the Tribunal to confront the person producing the document with what is found by the Tribunal. Therefore, there is not any violation of principles of natural justice. For the grievance relating to perversity of findings, it is necessary to take note of the 3 grounds with which the petitioner has gone before the Tribunal seeking rectification. If we compare the grounds of attack in these revision petitions with the paragraphs from the rectification petitions, which have extracted, it could be seen that primarily the attack on perversity of finding, revolves around the 3 facts. So, the revision petitioner should in all fairness pursue the rectification petitions and get verdict on the same. Assuming that the Tribunal rejects the petitions for rectification, it is not as though the petitioner is without a remedy. Assuming that the Tribunal allows the rectification petitions, but sustains the findings, even then, the doors are not shut for the assessee. If the rectification petitions are allowed, but the ultimate conclusion is sustained, the reasoning and the conclusion may not go in tandem. Therefore, The question of perversity cannot be examined at this stage when the petitions for rectification are pending from 2014. - Petition disposed of
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2016 (3) TMI 692
Validity of seizure memo issued by commercial Tax Officer - Section 68(4)(b) of the Gujarat Value Added Tax Act, 2003 - Business of trading in ceramic tiles - Truck detained on non-submission of required documents - Truck stopped at a place other than check-post or barrier and respondent was not an officer-in-charge of the check-post or barrier as contemplated under Section 68 - Held that:- the action taken by the respondent in issuing the seizure memo under section 68(4)(b) of the GVAT Act is without any authority of law and therefore, it is not sustainable. - Decided in favour of appellant
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Indian Laws
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2016 (3) TMI 652
Criminal prosecution for dishonour of a cheque for higher amount - Held that:- In the instant proceeding the parties have agreed that between the parties the total outstanding amount shall be treated as ₹ 1,80,00,000/- (Rupees one crore eighty lac only) and the same shall be paid by the respondents to the appellant in regular monthly instalments of ₹ 15,00,000/- (Rupees fifteen lac). We accordingly direct that the respondents shall pay the first instalment of ₹ 15 lac by first week of April 2016. The remaining 11 instalments of ₹ 15 lac each shall be paid regularly by the first week of each succeeding month. On admission or proof of such payments in accordance with the aforesaid arrangement, the complaint case shall stand quashed if the entire amount of ₹ 1,80,00,000/- is paid by the respondents to the appellant by the first week of March 2017. Till then the complaint case shall remain in abeyance. It is made clear that if the entire payment is not made within the time indicated above then this order shall stand recalled and the complainant will be at liberty to move the concerned court for proceeding with the criminal case any time in April 2017 by virtue of the present order. The appeal is disposed of in the aforesaid terms.
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