TMI Tax Updates - e-Newsletter
April 13, 2012

Case Laws in this Newsletter:

Income Tax Customs Corporate Laws Service Tax

News

1. Permission for Export of about 19 Lakh Bales of Cotton.

2. Anand Sharma Inaugurates Lifestyle Pakistan 2012 Integrated Check Post at Wagha to be opened tomorrow.

3. Undisclosed income exceeding Rs. 9,200 crore detected by CBDT during the search operations in the financial year 2011-12.

4. The Public Procurement Bill, 2012.

5. Extension of Swavalamban Scheme for the workers in the unorganised sector.

6. Special Floating Rate Bond for Rs 7,000 Crore (Nominal) Issued Press Communique.

7. Request for New PAN Card or/And Changes or correction in PAN Data.

Notifications

Customs

1. Corrigendum - dated 11-4-2012 - Cus (NT)

Corrigendum to notification 118/2009 – Customs(N.T.).

2. CORRIGENDUM - dated 11-4-2012 - Cus (NT)

Corrigendum of Notification no. 31/2012- Custom (N.T.).

3. 32/2012 - dated 11-4-2012 - Cus (NT)

Amends Notification No.12/97-Customs (N.T.) - Inland Container Depots for loading and unloading of goods .

Circulars / Instructions / Orders

Income Tax

1. 04/FT&TR/2012 - dated 10-4-2012

Section 144C of the Income-tax Act, 1961 - Dispute resolution panel - Reference to - Constitution of DRP at specified places - modification of order no. 1/ft&tr/2012 and no. 2/ft&tr 2012.

FEMA

2. 105 - dated 10-4-2012

Deferred Payment Protocols dated April 30, 1981 and December 23, 1985 between Government of India and erstwhile USSR .

Highlights / Catch Notes

Income Tax

• Court Rules Hospital's Tax Exemption Denied Due to Misinterpretation of Primary Purpose u/s 10(23C)(via.

  Case-Laws - HC : Charitable Trust – Hospital – exemption u/s 10(23C)(via) - Chief CIT has clearly misapplied himself in law by having regard to a clearly ancillary or incidental activity and elevating it to the status of the dominant purpose for which the hospital has been established - HC
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• Assessing Officers Must Act as Quasi-Judicial Authorities on Stay Applications, Ensuring Fairness Over Revenue Focus.

  Case-Laws - HC : Assessing Officers and Appellate Authorities, should act as quasi judicial authorities while disposing stay applications and not merely as tax gatherers of the Revenue. - HC
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• Fifteen Co-Owners in TDS Dispute Over Rental Income; Section 26 Ensures Individual Tax Assessment, Not as a Group.

  Case-Laws - HC : TDS on rental -fifteen co-owners - each of the co-owners has a definite share in the building - Section 26 of the Act provides that where property consisting of buildings or buildings and lands appurtenant thereto is owned by two or more persons and their respective shares are definite and ascertainable, such persons shall not in respect of such property be assessed as an association of persons - HC
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• Taxpayer's Admission and Seized Title Deeds Support Tax Department's Additions Without Further Proof Required.

  Case-Laws - HC : The admission made by the assessee before the assessing officer corroborated by the title deeds seized in search absolves the department from discharging any burden regarding the additions made - HC
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• Penalty Waived Despite Incorrect PAN Quoted by Assessee u/s 139A of Income Tax Provisions.

  Case-Laws - AT : Default for the failure on the part of the assessee to quote correct PAN in terms of provisions of section 139A - penalty waived - AT
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• Tribunal Misses Clear Mistake of Fact, Qualifies for Correction u/s 254(2) as Apparent Mistake of Law.

  Case-Laws - HC : Tribunal apparently fell into an error in not rectifying the said mistake apparent on the face of record, which is nothing more than a mistake of fact and even if it is construed to be a mistake of law, it is apparent mistake of law, which would also fall within the scope of rectifiable mistake under s. 254(2) - HC
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• Understanding "Education" for Tax Exemptions u/s 10(22) of the Income-tax Act, 1961: Key Interpretations and Case Laws.

  Case-Laws - HC : Exemption under section 10(22) of the Income-tax Act, 1961 - Scope of the word "education" used in Clause 15 of section 2 of the Act of 1961 - HC
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• Assessees must deduct tax on bus hiring payments u/s 194C, not Section 194I, of the Income Tax Act.

  Case-Laws - AT : Hiring of the buses would not be akin to taking of any plant and machinery on lease - assessee would be liable to deduct the tax on such payment under sec. 194C of the Act and not under sec. 194I of the Act - AT
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• High Court Rules Redemption Premium on Debentures is Revenue Expenditure, Not Capital Expenditure.

  Case-Laws - HC : Premium paid on redemption of debentures – capital expenditure vs revenue expenditure -actual premium paid upon the redemption of the debentures would have to be classified as revenue expenditure - HC
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• Debenture Redemption Reserve Not a Reserve Under Explanation (b) to Section 115JA, High Court Upholds Tribunal Decision.

  Case-Laws - HC : MAT - The mere fact that a Debenture Redemption Reserve is labeled as a reserve will not render it as a reserve. Consequently, Tribunal was correct in holding that the Debenture Redemption Reserve is not a reserve within the meaning of Explanation (b) to Section 115JA - HC
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• Section 194-I mandates TDS on rent to expand the tax base, ensuring compliance and transparency in rental income reporting.

  Case-Laws - HC : TDs on rent - On a reading of the Section 194-I and the scope and effect elaborated by the Board it is clear that Section 194-I was inserted to bring more persons in the tax net and it also helps in the reporting of correct income by way of rent - HC
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• High Court Rules PPF Lottery Income Not Taxable u/s 2(24)(ix) of Income Tax Act.

  Case-Laws - HC : Income from 'lottery' in response to investment in PPF - amount realised would not fall within the provisions of Section 2(24)(ix) and cannot be brought to tax - HC
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• Seized Assets Can Offset Tax Liabilities and Penalties; No Return Before Penalty Imposition Required by Statute.

  Case-Laws - HC : Return of seized assets - When statute recognizes the entitlement of the department to apply the asset seized towards the tax liability determined,which includes penalty, it is puerile to contend that the statute obliges the respondents to return the same on determination of the tax liability and before levying the penalty - HC
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• High Court: Section 11 Exemption Requires Adding Back Depreciation for Accurate Income Reporting in Charitable Asset Acquisitions.

  Case-Laws - HC : Exemption u/s 11 - if the assessee treats expenditure on acquisition of assets as application of income for charitable purposes under Section 11(1)(a) and claims depreciation then in order to reflect its true income, the assessee should write back in the accounts the depreciation amount to form part of the income - HC
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• Non-deduction of TDS doesn't apply u/s 40(a)(ia) unless deduction claimed u/ss 30-38 of Income Tax Act.

  Case-Laws - AT : Disallowance due to non deduction of TDS - unless a deduction is claimed in respect of the said amount, under sections 30 to 38, the disallowance under section 40(a)(ia) cannot come into play at all - AT
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Customs

• Corrigendum Amends Notification 118/2009 for Accurate Customs Compliance and Clarity in Procedures.

  Notifications : Corrigendum to notification 118/2009 – Customs(N.T.). - Ntf. No. Corrigendum Dated: April 11, 2012
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• Corrigendum Issued for Notification No. 31/2012-Custom (N.T.) to Amend and Clarify Customs Regulations and Compliance Procedures.

  Notifications : Corrigendum of Notification no. 31/2012- Custom (N.T.). - Ntf. No. CORRIGENDUM Dated: April 11, 2012
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• Amendment to Notification No. 12/97-Customs (N.T.): Streamlining Procedures for Inland Container Depots' Goods Handling Operations.

  Notifications : Amends Notification No.12/97-Customs (N.T.) - Inland Container Depots for loading and unloading of goods . - Ntf. No. 32/2012 - Customs (N.T.) Dated: April 11, 2012
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FEMA

• India-USSR Deferred Payment Protocols Updated in 2012 Circular; Compliance Under FEMA Addressed.

  Circulars : Deferred Payment Protocols dated April 30, 1981 and December 23, 1985 between Government of India and erstwhile USSR . - Cir. No. 105 Dated: April 10, 2012
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Indian Laws

• ICAI Disciplinary Enquiry Highlights Auditors' Role in Satyam Scandal, Stresses Ethical Compliance and Accountability.

  Case-Laws - HC : Disciplinary enquiry by ICAI - statutory auditors of Satyam Computers Services Limited - Principles of natural justice - HC
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• New PAN Card Request or Existing PAN Data Update for Accurate Tax Records and Compliance Under Indian Tax Laws.

  News : Request for New PAN Card or/And Changes or correction in PAN Data.
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Wealth-tax

• Commercial Properties Excluded from Wealth Tax Asset Definition Under New Regulation.

  Case-Laws - AT : Wealth-tax - any property in the nature of commercial establishments or complexes is excluded from the definition of assets liable for wealth tax - AT
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Service Tax

• Voluntary Service Tax Payment Justifies Penalty Waiver u/s 80: Case Highlights Sufficient Cause for Leniency.

  Case-Laws - AT : Waiver of penalty - since Service tax liability was discharged voluntarily it is a fit case as sufficient cause has been shown by the appellant for invoking Section 80 - AT
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• Refund Allowed from July 7, 2009, as Notification No. 41/2007 Doesn't Require Exclusive Export Use for Storage Facilities.

  Case-Laws - AT : Refund - Notification No. 41/2007 - refund allowed for the period from 7-7-2009 onwards as the relevant notification does not prescribe any condition that the storage and warehouse should be exclusively used only for the purpose of export goods - AT
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• Cenvat credit valid on debit notes without invoice title if service tax is charged and paid.

  Case-Laws - AT : Cenvat credit on the strength of debit notes - title of the duty paying documents, i.e. 'debit note' instead of 'invoice, bill or challan' does not make a difference more so when the service tax has been charged and paid into the Govt, exchequers account - AT
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Central Excise

• CENVAT Claim Denied: Revenue Alleges Fraudulent Invoices, No Copper Ingots Received, Based Solely on Statements.

  Case-Laws - AT : Revenue rejected the claim of CENVAT stating that assessee was not supplied copper ingots and cenvat credit has been obtained by the appellant on the basis of fake invoices - allegation merely on the basis of statement.. - AT
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• Packing Medicaments into Cartons from Retail Packs is Not Manufacturing, Repacking from Bulk Not Applicable Here.

  Case-Laws - AT : Manufacture - Packing of assorted medicament into a single carton by taking small quantities of retail packs of various medicines from different cartons and writing the names and quantities of such medicament over the carton were done as per the requirements of the customer. Aforesaid does not amount to manufacture, as well as question of repacking from bulk pack to retail packs also does not arise - AT
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• Greenhouse Attached to Foundation Classified as Immovable Property, Not Excisable Goods Under Tax Law.

  Case-Laws - AT : Once the greenhouse comes into existence, it is attached to the earth/foundation and becomes immovable goods and hence it cannot be said that the appellant has manufactured an excisable goods at the site - AT
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Case Laws:

• Income Tax

• 2012 (4) TMI 250
  Search & seizure – partnership firm – engaged in providing security services – dissolution of firm - legality of warrant of authorization issued in name of dissolved firm – legality of search conducted at place of erstwhile partners – sufficiency of reasons to issue summon by DIT - time limit for release of documents seized - Held that:- It is found that profits were deflated and money siphoned off were invested in fixed deposits taken in name of individual names of the partners and were never disclosed to the Department. Therefore, satisfaction has been arrived at by DIT (Investigation) on the basis of relevant and material circumstances which are recorded and DIT had reason to believe within meaning of Section 132. The sufficiency of these reasons cannot be questioned by this Court in exercise of the writ jurisdiction under Article 226 of the Constitution.See ITO, Special Investigation Circle "B" Meerut Versus Seth Brothers and Ors (1969 (7) TMI 1 - SUPREME Court), Pooran Mal Versus Director of Inspection (1973 (12) TMI 2 - SUPREME Court - Income Tax) Section 189 states that notwithstanding the discontinuance of firm or its business, assessment has to be made of the total income of the firm as if no such discontinuance or dissolution has taken place and every person who was at the time of such discontinuance or dissolution a partner of the firm, shall be jointly and severally liable. Also, warrants of authorization were not merely issued in the names of the firms, but also separately issued in the name of the petitioner and his spouse. Further, documents have been retained having regard to the pendency of the appeal proceedings. Thus no illegality is found. For the aforesaid reasons, no meit is found in the petition – Petition dismissed.

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• 2012 (4) TMI 249
  Deemed Dividend – interest free loan and advances made to sole proprietorship of assessee (shareholder) having 20.6% shareholding the company – assessee contended that advance or loan are provided in normal course of business – Held that:- It is observed that interest free loans are provided which cannot be said to be made in ordinary course of money lending business. Further, documents show that company was doing the business of import and export and it was a recognized export house. Order of Tribunal is upheld in attracting provisions of clause (ii) of section 2(22)(e) – Decided against the assessee.

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• 2012 (4) TMI 248
  Validity of reopening of assessment framed after scrutiny beyond a period of four years from the end of the relevant A.Y. - A.O. purported to reopen assessment on ground that melting loss of 7.75% claimed by assessee is higher than what is found in a similar line of business - A.Y. 2005-06 – Held that:- No allegation has been made that that there was any failure on part of assessee to fully and truly disclose material facts necessary for assessment for that A.Y. This ex facie would amount merely to a change of opinion. Therefore, notice issued u/s 148 and impugned order of assessment is set aside. See Shriram Foundry Ltd. vs. DCIT, Circle 2 & Ors.(2012 (3) TMI 334 - BOMBAY HIGH COURT) – Decided in favor of assessee.

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• 2012 (4) TMI 247
  Dis-allowance of expenditure u/s 14A – Rule 8D of Income Tax rules – A.Y. 2006-07 - Tribunal remanded back file to A.O. holding that Rule 8D is perspective and hence will apply w.e.f. A.Y. 2008-09 – Held that:- In all cases where the Tribunal has remanded this aspect to the A.O. either before or after the decision in Maxopp Investment Ltd. (2011 -TMI - 208569 - Delhi High Court ) for a fresh consideration, the Assessing Officer is bound to comply with the direction and ratio expounded in Maxopp Investment Ltd.

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• 2012 (4) TMI 246
  Denying exemption u/s 10B to the appellant and restricting benefit of deduction u/s 80HHE it to the extent of 10% of receipts from CIC Inc. USA, (excluding reimbursements for traveling) – assessee is a company and registered with the ministry of Industry as 100% Export Oriented Unit - AO stated that assessee has not developed any software programme but main activity of the assessee is to train engineers and other professionals in administration of computer software, especially SAP and export them out of India as per the requirements of CIC – assessee contested that the training of the personals is part and parcel of the whole process of job of customization of software through a pre-defined training curriculum – assessee further contended that once the claim of deduction u/s 80HHE has been allowed by the CIT(A), then the claim of exemption u/s 10B should also have been allowed - Held that:- the software developed was uploaded into the server of CIC through e-mail- no compact disctape, perforated media or other information storage device was ever exported physically out of India, had any meaningful software ever been produced, it could definitely have been exported via the medium of a compact disc or a computer cartridge. It is pertinent to note that the provisions of sec. 10B required the transmission of customized data of computer programme through electronic media and email is no doubt an electronic media and therefore, the objection raised by the Assessing Officer is unfounded - raising of bill on the basis of man-hour further supports the case of the assessee that the assessee is carryout the customization work of software and development of programme as per the specific requirement of CIC clients - direct the Assessing Officer to allow deduction u/s 10B of the Act. The relief under section 80HHE, in the facts and circumstances of the ease, as an alternative prayer, becomes academic - in favour of assesee.

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• 2012 (4) TMI 245
  Levy of Penalty - Search and seizure operation u/s. 132 - consequent to the search, the assessee filed returns of income – AO assessed that assessee not disclosed the income from bill discounting correctly for A.Ys. 2002-03 and 2003-04, thus made addition to income and levied penalty u/s. 271(1) (c) – Held that: - the penalty has been levied only on the basis of estimated income - there is no conclusive material to show that there is actual concealment of income - the assessee has accepted the addition only with the sole intention to avoid litigation and because the assessee has not gone in appeal against the quantum addition, it does not automatically qualify for levy of penalty and it does not entail the Department to levy penalty - when the Assessing Officer and the CIT(A) adopted figures of income on estimate basis and it is a case of difference of opinion between the assessee as well as the Department and that reason cannot be a basis for levy of penalty – in the favour of assessee.

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• 2012 (4) TMI 244
  Modernization and replacement expenses - assessee claimed deduction under section 37(1) for expenditure incurred on replacement of machineries – AO treated it as a capital expenditure – assessee stated that replacement of ring frames and balancing machines was not done with a view to bring into existence a new asset and had been made only to restore the machinery to its original state of efficiency – Held that:- the issue stands fully covered by the judgment of the Hon'ble Supreme Court in the case of CIT v. Sri Mangayarkarasi Mills (P) Ltd. - 2009 - TMI - 34189 - SUPREME COURT - the expenditure of the assessee in this case is capital in nature as it amounts to an enduring advantage for the business - replacement, in this case, amounts to bringing into existence a new asset and also an enduring benefit for the assessee – against assessee. Additional Ground raised challenging the chargeability of interest under section 234B and 234C of the Act – Held that:- Since the ground was not before the lower authorities it is fit and proper to restore this issue back to the file of the Assessing Officer, who shall pass a speaking order with regard to chargeability of interest.

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• 2012 (4) TMI 243
  Whether I.T.A.T was justified in upholding CIT (A)'s order deleting the additions made u/s. 68 by AO, when the creditors have no creditworthiness to advance the loans - The CIT (A) observed that all the creditors appeared before the AO and their statements were recorded on oath and all of them have affirmed the fact of giving the said loans to the assessee.They had also indicated their source and financial capacity for making the impugned deposits with the assessee explaining the details of repayment of the deposits or interest to them by the assessee - CIT further held that the A.O. disbelieved the depositions made by the creditors and substituted his own personal presumptions to conclude that the creditors did not have adequate sources to make the said deposits - Held that:- AO without conducting local enquiries or collecting material evidence on record proved the statements of the creditors as false - thus, the finding of the CIT(A) that the observation of the A.O. with regard to dissatisfaction was on the basis of surmises and conjectures, is just and proper - the findings recorded by the CIT(A) and affirmed by the I.T.A.T. are based on proper appreciation of facts and are not perverse, being correlated with each and every transaction. Thus, the issue is purely question of facts – appeal dismissed.

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• 2012 (4) TMI 242
  Expenses incurred for earning tax exempt dividend of – Rule 8D - Section 14A - Held that:- The elaborate formulae which has been adopted for making the disallowance is precisely what rule 8 D mandates- something directly contrary to the decision of Hon'ble Bombay High Court in Godrej & Boyce Mfg. Co. Ltd's case (2010 -TMI - 78448 - BOMBAY HIGH COURT) - The very approach adopted by the CIT(A) is unreasonable, contrary to legal position, and without regard to the specific facts of the case - there are no direct costs involved in funding the investments - The assessee has disallowance direct costs in earning the dividend, an as for indirect costs, the assessee has suo motu made a disallowance of by computing the at 0.5% of average investments - disalownace offered by the assessee is fair and reasonable and the CIT(A) ought to have accepted the same.

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• 2012 (4) TMI 241
  Assessment of the credits in respect of gifts claimed to be received by the assessees as undisclosed income for the block period - whether the credits could be considered as undisclosed income in terms of 158B(b)?; b) whether, even so, the assessee has to establish the genuineness of the gifts? - held that:- no material has been brought on record by the assessee and, in fact, before any authority, to exhibit the disclosure of the impugned credits. In fact, his argument that there is no requirement for furnishing either the capital account or the balance-sheet along with the return, i.e., as per law, with there being no specific column in the return for declaring the credits/gifts received, or that the credits stood reflected by way of capital balance of the assessee-partner per the return of income of the partnership firm/s (which is again, though not proved), is itself an admission of the non-disclosure of the gifts by the assessee. Legal requirement of disclosure of the gifts - held that:- sub clause (i) of clause (d) of Explanation to s. 139(9) clearly requires the assessee to furnish his financial statements, including balance-sheet, along with the return of income. The assessee/s, thus, ought to have filed the income and expenditure account as well as the balance-sheet, along with his returns of income, and which have admittedly not been, with the AO going on to state that the capital account or the copy of the bank account bearing the said credits - the gifts being claimed to have been banked - had not been filed along with the returns. As such, while the entries in the books of accounts or documents or transactions may be of relevance and consequence in assailing a search action u/s. 132, where that is the only information in possession of the Revenue, leading to a 'reason to believe' by it, the same would be adequate and/or sufficient to qualify it to be an undisclosed income u/s. 158B(b), where the same represents, wholly or partly, income for property. Genuineness of gift - held that:- Gifts are generally also exchanged between close friends and relatives on important occasions, as new borns in the family; landmark birth anniversaries; weddings; etc. It is noteworthy that no gifts have been given by both the assessees to any of their 'close friends and relatives', including those from whom gifts are being regularly received over the years. - there were materials and information found as a result of search to discredit the gifts under reference, i.e., as not genuine. - Decided against the assessee.

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• 2012 (4) TMI 240
  Provision gratuity u/s. 40A(9) - AO noticed that the assessee has made a provision for gratuity and debited the same to Income & Expenditure Fund – assessee stated that corporation contributes to the approved gratuity fund of RBI by way of contractual obligation for its employees all of whom are on deputation from RBI - gratuity liability for the staff deputed to the Corporation has to be reimbursed to the RBI - AO observed that reimbursement to RBI does not in any way change the character of provision for gratuity – Held that :- confirmed the deletion of disallowance on account of provision for gratuity. Non deduction of TDS - disallowance u/s. 40(a)(ia) - assessee contended that since the person to whom the payment was made has already offered the same for taxation, hence provisions of sec.40(a)(ia) cannot be invoked. - applicability of decisions in the case of Hindustan Coca Cola (2007 -TMI - 1676 - SUPREME COURT OF INDIA ) and Mahindra & Mahindra (2009 -TMI - 59571 - ITAT BOMBAY-H ) held that:- the principles laid down in these two decisions cannot be adopted for the purpose of interpreting sec.40[a][ia]. Further, we find that sec.201 deals with the mode of recovery of taxes and once tax due has already been paid then the same demand cannot be enforced again. However, sec.40[a][ia] deals with the disallowance of expenditure itself. Therefore, merely by invoking the Heydon’s principle the statutory provisions cannot be rendered redundant. Therefore, we are of the opinion that once tax has not been deducted and even if such tax has been paid by the deductee, disallowance u/s.40[a][ia] can still be made.

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• 2012 (4) TMI 239
  Striking down the reassessment proceedings initiated u/s 147/148 - change of opinion - respondent filed return of income including capital gain - the assessee has debited a sum of Rs. 2,86,74,323/- under the head of royalty and Rs. 10,73,766/- under the head technicians fee in the P & L a/c ending 31.3.2000 - As per revenue 25% of the royalty expenses should be considered as capital expenditure in view of the Supreme Court judgment in Southern Switchgear Ltd. [1997 (12) TMI 105 - SUPREME Court ]- The assessee is also entitled for royalty fee right and license to use the trademarks within the territory. The acquisition of such a right may be treated partly towards capital and partly towards the revenue thus failure on the part of the assessee to disclose truly and fully all mat erial facts - Held that :- Respondent assessee has filed the profit and loss account wherein royalty has been specifically shown in Schedule 13 in a separate heading, “manufacturing and other sale expenses”. This fact is also admitted in the reasons to believe itself - reading of the assessment order along with profit and loss account indicates that the expense/question of payment of royalty was examined before the assessment order u/s 143(3) was passed - there was no failure or omission on the part of the respondent assessee to disclose the head and the quantum thereof - Even TDS certificates and other details were filed -the Revenue has not been able to indicate and state, the specific failure or omission on the part of the respondent assessee to disclose fully and truly the material facts - that the present case falls in the category of change of opinion as at the time of original proceedings the AO examined and gone into the question of royalty - Appeal or revenue dismissed.

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• 2012 (4) TMI 238
  Motor accident claim - Taxability of interest - held that:- it has been clearly established and proved that the rate of interest awarded by the MACT is not final. The Insurance Company has filed appeal before Hon'ble Jurisdictional High Court and the appeal has been admitted and it may be possible that order of MACT may be approved or disapproved. But the order of MACT is not final. Therefore, in these circumstances and in view of various decisions, we are of the considered view that whether the interest awarded by MACT is revenue or compensation but it cannot be taxed in the year under consideration as the same has not reached its finality. Accordingly, we hold that the amount of interest awarded in the year under consideration or received by the legal heirs is not assessable in the year under consideration as the same will be considered in the year when the compensation plus interest awarded by MACT reached its finality.

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• 2012 (4) TMI 237
  Capital versus Revenue expenditure - AO noticed that assessee had claimed depreciation on such amount by treating it as capital expenditure in the books and still claimed it has revenue expenditure in the return of the income - the assessee contended that such payments were made to company who was engaged to take up project of profit improvement programme which helped the company in increasing sales, cost reduction and eventually would increase the profit and therefore, the expenditure was claimed as revenue expenditure – AO treated it as capital expenditure as auditors of the company had treated it - Held that :- Tribunal committed no error as no technical know-how for any new project was provided and thus the expenditure resulted only in improving income and efficiency of the business and hence to be treated as revenue expenditure - mere entries in account books would not decide the nature of expenditure. MAT - book profit under Section 115JB of the Act - Revenue vehemently contended that in view of provisions contained in Section 115JB of the Act and considering sub-section (7) of Section 94 of the Act inserted with effect from 1.4.2002, Tribunal erred in deleting disallowance of loss of 47.23 crores (rounded off) for the purpose of computation of book profit under Section 115JB of the Act. Counsel pointed out that such loss was suffered by the assessee on account of dividend stripping. To control which activities sub-section (7) of Section 94 of the Act was added. - held that:- Such provision cannot be applied while computing book profit for the purpose of Section 115JB of the Act. Book profit under Section 115JB of the Act has to be worked out as per the provisions made in the section, giving effect to explanation contained therein. Appeal admitted.

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• 2012 (4) TMI 236
  Present petition challenging re-assessment proceedings u/s 147 and 148 of the Income Tax Act - “reasons to belief” recorded by the Assessing Officer that on perusal of P&L A/C payment towards software consultation was shown and was remitted to foreign company without deducting tax at source - such charges shall be disallowed and added back in the taxable income – assessee contented that payment made for Consultancy Services outside India are not chargeable under this Act as per Section 9(1)(vii) – Held that:- the AO during the course of the original assessment proceedings had gone into the question whether or not Section 9(1)(vii) of the Act was applicable to payment made by the petitioner and was satisfied with the reply furnished - the assessing officer has power to reopen, provided there is “tangible material” to come to the conclusion that there is escapement of income from assessment - the present case is of change of opinion as AO in the original assessment proceedings had gone into and examined the said question but accepted the stand of the petitioner- A wrong/incorrect opinion cannot be corrected in 147/148 proceedings but if the decision is erroneous and prejudicial to the interest of the Revenue, it can be corrected in proceedings under Section 263 of the Act - writ petition is allowed and the re-assessment notice is quashed.

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• 2012 (4) TMI 233
  Reduction of Written Down Value of block of assets by the amount of loan waived by the Central Government - Explanation 10 to Section 43(1) - depreciation on reduced written down value – Held that:- unable to accept the contention of the assessee that the case is not covered by the main provisions of Section 43(1) because of the treatment given by the assessee in its books of account. - in the books of account, the assessee had actually reduced the cost/WDV of the assets by the amount of the loans waived by the Government of India - It is true that the manner in which entries are made in the books of account is not conclusive of the question, which has to be resolved on a true interpretation of the provisions of law. However, the real nature of a transaction can be understood by reference to the contemporaneous act of the parties, which would throw considerable light on their true intention and their understanding of the transaction. The assessee’s case is caught within the mischief of Section 43(1) itself and in this view of the matter it may not be necessary to examine the impact of Explanation 10 to the Section inserted with effect from 1.4.1999. The judgment of Apex Court in the case of PJ Chemicals Ltd. (1994 (9) TMI 1 - SUPREME Court) distinguished. The case of the assessee may not, therefore, fall under Explanation 10, but having regard to the facts as found which we have alluded to earlier, the waiver of the loan amounted to the meeting of a portion of the cost of the assets under the main provisions of Section 43(1) of the Act. The waiver of the loan is not a mere quantification of a subsidy granted generally for industrial growth. It was granted specifically to the assessee and the assessee in its books of accounts reduced the cost of the assets by the amount waived. This reflected a contemporaneous understanding of the purpose of the grant of the loan on the part of the assessee. As already mentioned earlier, the assessee is a public sector undertaking and the loan and the later waiver were from the Government of India. The loans under the SDF were specifically for meeting the capital cost of the assets, on which depreciation was being claimed. - Decided against the assessee.

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• 2012 (4) TMI 230
  Disallowance made u/s.40(a)(ia) for the failure to deduct TDS u/s.194C – assessee undertakes contract work of transportation of oils through oil tankers to various locations of BPCL - sub-contract – Held that:- the contract for carrying out the work was between the BPCL and the appellant the appellant alone had risk and responsibility for carrying out the contract work as per the agreement -there is no material on record to suggest that there was any contract or sub-contract whether written or oral with the outside tank owners and the appellant, whereby the risk and responsibility which is associated with a contract has also been passed on to these outside parties - once the CIT (Appeals) has accepted the fact that the outside tank owners do not had any responsibility or liability towards the principal, then it cannot be held that these outside parties were privity to the contract - thus the payment made to the outside parties do not come or fall within the purview of section 194C, as the "carrying out any work - the appellant was not liable to deduct TDS u/s. 194C(1) for payments made to the outside parties and consequently the disallowance made u/s.40(a)(ia) by the authorities below are deleted. The appellant thus gets relief of Rs. 56,03,210/-.

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• 2012 (4) TMI 229
  Instruction No.3 of 2011 dated 9th February, 2011 - Appeal shall not be filed in the High Court under section 260A of the Income Tax Act where the tax effect does not exceed a sum of Rs.10 Lacs.– assessee submits that the appeal has been filed prior to the issuance of circular dated 9th February, 2011, therefore, the circular does not apply to the present case – Held that:- the circular has a retrospective operation and instructions contained in the circular would apply even to the pending cases as decided in Commisisoner of Income Tax V/s Smt. Vijaya V. Kavekar -2007 - TMI - 71366 - ITAT PUNE-A – held against assessee the appeal has a cascading effect and should be entertained – Held that:- the matter was adjourned once to enable assessee to point out whether similar question is involved in any other appeal. Till today, the learned counsel was unable to point out a single other case in which similar question is involve - Appeal is accordingly dismissed.

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• 2012 (4) TMI 228
  Search & Seizure - Writ petitions prayed for directions of certiorari to quash the illegal search and seizure operation and also prayed for releasing the cash and jewelery found and provide copy of computer data containing medico legal records, and title deeds of property already disclosed in the income tax return - held that:- Director after visiting the clinic in 2005 on four occasions along with decoy patients, and having examined the income tax returns and balance sheets in which negligible income was returned, authorised the search. There was no illegality in recording the satisfaction note by the competent authorities based on relevant and credible evidence collected by the department. The satisfaction that the doctor couple was disclosing only the part of their income and that they had amassed huge wealth by receipts of crores of rupees every year, does not suffer from any error of law. Notice under Section 131 (1A) confers power on the authorities as mentioned in Section 131 (1), if he has reason to suspect that any income has been concealed or is likely to be concealed. It is only an enabling power and does not in any way affect the search and seizure operations carried out under Section 132 of the Act. Section 132 is an independent code in itself. The exercise of powers under Section 131 (1A) is contemplated in a situation anterior to the exercise of power under Section 132. Before authorsing an officer, the officer referred to in Section 132 (1) would exercise power under Section 131 (A) of the Act. Section 131 (1A) operates in different field than Section 132. - writ petitions dismissed.

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• 2012 (4) TMI 227
  Challenge in these proceedings under Article 226 of the Constitution - application before the Settlement Commission seeking a settlement of a "case" including the grant of a waiver of penalty for Assessment Years 2008-2009 and 2009-2010 which was pending before the AO - The petitioner made a disclosure of income to the extent of Rs. 10 lacs each for the two Assessment Years in question - The Commission has come to the conclusion that a total amount of Rs. 6.18 Crores represents the additional income which is to be taxed in hands of the petitioner of which an amount of Rs. 4.26 crores relates to Assessment Year 2008-09 and Rs. 1.92 Crores for Assessment Year 2009-10 - assessee stated the Settlement Commission would have no jurisdiction to travel beyond the subject matter of the application - a penalty under Section 271(1)(c) is contrary to law since the Settlement Commission did not furnish a notice to show cause to the petitioner before the penalty was imposed – Held that:- The assessee had offered an amount of Rs. 10 lacs in each of the Assessment Years in question based on a story of having earned income for which no records were available - Settlement Commission complyied with the principles of natural justice and after furnishing to the assessee an opportunity of being heard specifically on the issue of penalty - Settlement Commission has imposed a penalty of Rs. 2.75 crores u/s Section 271(1)(c) where the assessee has mis-stated or concealed the particulars of his income - penalty shall not be less than the amount of tax sought to be evaded but shall not exceed three times the amount of tax sought to be evaded - total income tax demand in the present case, according to the petitioner, which has been arrived at on behalf of the Revenue works out to Rs. 1.96 crores for AY 2008-09 and Rs. 82.40 lacs for AY 2009-10. The total penalty of Rs. 2.75 crores has been clarified by a corrigendum issued by the Settlement Commission to be on a pro rata basis as an amount of Rs. 1.92 crores for AY 2008-09 and Rs. 82.50 lacs for AY 2009-10 - The penalty which has been imposed is thus commensurate with the provisions of Section 271(1)(c) – no merit in the challenge to the order on the aspect of penalty – against assessee.

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• 2012 (4) TMI 226
  Dis-allowing deduction U/s. 80IB(3) of the I.T. Act - AO denied availment of such exemption as it is available to only those SSI unit as per Section 80(3)(ii) having investment in plant and machinery of less than Rs. 1 crore whereas the assessee company exceeds such limit – assessee contented investment in plant and machinery would be less than Rs. 1 crore if items such as tools jigs, dies, moulds, spare parts for maintenance and cost of consumable stores considered as per Notification No.857 dated 10-12-1999 issued u/s 11B of IDR Act are excluded – Held that:- vehicles have to be excluded while determining the value of plant and machinery for the purpose of determining the status of industrial undertaking as an SSI - following the ITAT order in assessee's own case A.Y 2003-04 moulds, dies, jigs, fixtures, patterns, tools, consumables, factory equipments AO shall recomputed the value of the plant and machinery installed in the industrial undertaking - the AO is directed to exclude the cost of equipments while determining value of plant and machinery in order to ascertain the status of industrial undertaking of the assessee. As regards computers software, we restore the matter to the file of AO with the direction to ascertain as to whether or not all the computers are installed in office – in favour of assessee. Not allowing Royalty payment of Rs. 74,63,975/- being computation of arms length price in relation to international transactions though explained – the TPO observed that no royalty was charged by other group entites and accordingly the Arms Length Price for royalty charges was inferred as nil – assessee contented that the technical know-how was provided to the assessee and the same was not comparable with other entities of the group. The assessee had not made the one-time payment but making the continuous payment to the know-how provider - Held that:- for a transaction to come u/s 92 of the Act, it is necessary to establish that the course of business between resident and non-resident is so arranged that the business transacted between them provides to the resident either no profits or less than ordinary profits which might be expected to arise in the business - the payment of royalty is not hit by the provisions of Section 92 and there is no reason to hold that the expenses should not be allowed u/s.37(1) of the Act, since the expenditure has been incurred by the assessee during the course of business and is having the nexus with the business of the assessee - in favour of assesee not allowing Royalty payment of Rs. 1,15,32,819/- being claimed as expenses U/s 40(a) for the year under consideration relates to A.Y. 2003-04 – assessee replied before the AO saying that the TDS could not be deposited within the prescribed time-limit and assessee deposited the same during the year relevant to A.Y. 2004 - Held that:- There is no finding in the relevant assessment year to what amount royalty payment pertains to which assessment year and whether TDS thereon was paid by the assessee during the relevant period i.e. A.Y. 2004-05. Accordingly, the issue is restored to file of AO with direction to decide the issue afresh in the light of decision.

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• 2012 (4) TMI 225
  AO/DRP applied the provisions of Rule 8D of the Income Tax Rules - AO noticed that the assessee has received a dividend income - assessee submitted that as investments were made out of own funds, there were no interest costs involved - DRP directed the AO to recompute the disallowance by adopting average value of investments as also total assets - DRP has issued directions in tune with Godjrej & Boyce Mfg Co Ltd. (2010 -TMI - 78448 - BOMBAY HIGH COURT) that a reasonable disallowance can be made even for the earlier assessment years – Held that:- The AO applied rule 8 D for assessment prior to assessment years 2008-09 on the ground that this is the basis on which reasonable disallowance can be made, but then this approach is clearly directly contrary to the decision of Hon'ble Bombay High Court in Godrej & Boyce Mfg. Co. Ltd. case (supra) - no finding about the expenses incurred directly or indirectly for the purpose of earning the tax exempt income – in favour of assessee. disallowing provision on special discount – assessee submitted that as per correct accounting principles, liabilities attached to the sales of the current year, which can be determined with a fair degree of reasonableness, are required to be provided for in the current year itself - in the event of provision not being allowed as a deduction, the same should be allowed on payment basis – Held that:- Once the DRP holds that the provision has been made on a reasonable basis, a finding which cannot be challenged by the Assessing Officer, and is allowable in principle, its quantum can not be reduced solely on the ground that in the subsequent year the entire payment is not made – in favour of assessee and direction to AO to delete the impugned disallowance. disallowing the provision for sales return – AO was of the view that since sales returns have actually been made in the subsequent year, the same should have been accounted in the subsequent year itself - Held that:- there is no point in first taking into account income on sales, which never reached finality, and then accounting for loss on sales return in the subsequent year , thus the approach of the assessee is in consonance with the well settled accountancy principles and the Assessing Officer was not justified in rejecting the same – in favour of assessee. the assessee was remunerated on cost plus arm's length mark up price of 15% by the AEs of Rs. 83,75,217 on a cost of Rs. 5,58,34,783. - The assessee adopted certain comparables to demonstrate that mean margin is 13.86% and the margin of 15% adopted by the assessee is an ALP margin – DRP rejecting the mark up of 15% as not an arm's length price, an ALP adjustment is made of 54,27,141 – Assesee contented that Engineers India Ltd, a PSU dealing in engineering consultancy, is not at all engaged in low risk contract research work and it cannot be a valid comparable for this purpose and once EIL is excluded from the list of comparables, the arithmetic of mean of the remaining comparables will be within 5% range of the ALP margin – Held that:- the impugned ALP adjustment is deleted for the reason that EIL is not a valid comparable for contract research work and that once EIL is excluded, the mark up by the assessee is within 5% range of comparables finalized by the DRP – in favour of assessee.

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• 2012 (4) TMI 224
  Fringe benefit tax –The AO opined that expenditure incurred towards maintenance of residential quarters provided to its employees on rental basis constituted fringe benefit tax and tax was levied at 30% of the maintenance expenditure on the employer - Held that:- for the reason that the charge under Chapter XII-H of the Act is on the value of the fringe benefit extended by an employer to its employees, unless such fringe benefits enjoyed in the hands of the employee is quantified, there is no question of leaving fringe benefit tax on the employer at 30% of the tax levied and enjoyed by the employer – appeal of revenue dismissed.

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• 2012 (4) TMI 223
  Validity of revisionary powers exercised by CIT u/s 263 – assessee claimed deduction u/s 80-IC in respect of income derived from assembly of colour TV which was claimed to be "manufacturing activity" - CIT dis-allowed deduction on ground that no manufacturing activity is carried on – Held that:- Tribunal while holding that exercise of revisionary jurisdiction by the Commissioner was not called for, upheld the view that producing of TV sets by purchasing items like cabinet, chassis, IC picture tube could be held to be manufacturing. Moreover, High Court in various cases have held that when a new and different article emerges having distinctive name, character and use, the process could be held to be manufacturing - order of the Tribunal cannot be held to be erroneous – Decided in favor of assessee.

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• 2012 (4) TMI 222
  Validity of revisionary powers exercised by CIT u/s 263 – exemption u/s 54F for LTCG on sale of shares granted by A.O. – shares purchased on 21.04.2000 for Rs. 19,536 sold on 02.05.2001 for Rs. 6,36,640 – increased price of more than 30 times in one year – CIT suo-moto assumed jurisdiction on ground that AO failed to make any enquiry while accepting genuineness of the share transaction – Tribunal set aside order of CIT - Reference to Larger bench - Held that:-An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being ‘erroneous’. Non-application of mind and omission to follow natural justice is in same category and are not beyond the scope of Section 263. Assumption of jurisdiction by CIT is justified. See CIT vs Daga Entrade P. Ltd (2009 (2) TMI 431 - GAUHATI HIGH COURT), Malabar Industrial Co. Ltd. vs. CIT (2000 (2) TMI 10 - SUPREME Court) – Decided in favor of Revenue.

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• Customs

• 2012 (4) TMI 235
  Writ petition under Articles 226 and 227 of the Constitution of India - for direction to the respondents to deliver goods mentioned in the 3 bills of entry, without payment of detention and demurrage charges and award of exemplary costs – petitioner imported synthetic wastes soft quality but on tests done by CRCL on sample taken depicted to be staple fiber – petitioner highlighted delay commited by Department between the date of receipt of the test report and the date of issue of the show cause notice – petitioner seek direction against department to withdraw the show cause notice and further direction to clear the goods for home consumption - respondent contented that the method of taking sample was not correct - out of six reports three are in favour of petitioner one is favouring the respondent and two reports are unequivocal the goods were directed to be released forthwith on furnishing of provisional duty bond - petitioner claims that they had executed provisional duty bonds but the goods were not released for want of detention charges – Held that:- The petitioner submitted their reply to show cause notice dated 29th August, 1991, only on 5th March, 1992. Even if the petitioner was relying upon and wanted a copy of the test report by SASMIRA, the delay is not justified - The action of the customs authorities cannot be substantially faulted, once they had issued detention certificates in 1993, except to the extent of passing of the adverse assessment order - Contention of petitioner that none of the partners were willing to bear and pay the demurrage charges as there was no certainty when, how and who would be entitled to sell the goods and how the profits would be distributed cannot be accepted - If the petitioner had made payment of reduced demurrage charges on the basis of the detention certificates, the position may have been different - the petitioner had failed to take delivery of the consignment even after order dated 23rd April, 1993 and in such circumstances it is not viable for respondent- custom to pay the demurrage or container charges - writ petition dismissed

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• Corporate Laws

• 2012 (4) TMI 234
  Company Application for Confirmation/recognition of transfer to the applicant 3498 Equity Shares in the Respondent Company, made before order of winding up but after filing of petition for winding up of the Respondent Company - The appellant was appointed as Director of the company under liquidation at its EGM - the suit has been filed by Mr. A.V.K. Rao against the appellant and others in Ranga Reddy District Court Mr. A.V.K. Rao is the sole and absolute owner of 3498 equity shares of the company under liquidation and that the appellant is wrongfully in possession of the share certificates but the purported transfer shares is without consideration, and without execution of valid transfer deeds and without approval of transfer by Board of Directors and, therefore, invalid - The applicant seeks reliefs to commence the suit against the Liquidator and other parties before the Principal District Judge - Held that:- There is a civil suit pending with regard to the transfer of shares. It is in these circumstances the Applicant cannot be granted any relief in this Company Application - The appeal is accordingly dismissed but with liberty to the appellant to make a fresh application under section 536(2) of the Companies Act, 1956 if and only if Suit No. OS 244 of 2009 is dismissed by the District Court, Ranga Reddy, Hyderabad. If the suit is decreed, there can be no question of the appellant making any fresh application.

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• 2012 (4) TMI 221
  Winding up Petition - respondents are unable to pay their admitted debts and as such are liable to be wound up - the petitioner stated that the respondent did not pay the amount due but in this regard issued a confirmation letter – respondent contented that the confirmation is not to the effect that the respondent-company is due to pay the said amount - the respondent-company stated that the Iron ore Fines delivered is not due to the bilateral contract between the petitioner and respondent-company but also the role of other parties have relied on the agreement entered into between the respondent company and DMRIPL and the petitioner is not a party to the said agreement - the investment ratio as contended at 80:20 by the respondent-company and DMRIPL and with regard to the payment terms by the buyer and the investment of respondent against realisation from export sales – Held that:- Though the petitioners have placed heavy reliance on the purchase order, invoice and the confirmation of balance and documents relied on by the respondent-company and also keeping in view that the documents relied upon by the respondent-company would indicate the involvement of 'other parties in the transaction, who are not respondents in the instant petition the dispute requires detailed investigation of facts and evidence so as to understand the terms and conditions agreed to between the parties relating to the transactions – winding up application cannot be allowed.

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• Service Tax

• 2012 (4) TMI 253
  Learned Counsel says that reading of para 9 of the adjudication order demonstrates that the activity carried out by the appellant was within the mining area and the goods transported within mining area cannot be called as cargo handling - To call an activity to be cargo handling service there should be an activity of movement of cargo from one place to another place without any internal movement within the mining area - Held that: movement of the excavated iron within the mining area from one place to another that operation cannot be called as cargo handling service - Appeals are disposed of

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• 2012 (4) TMI 252
  Waiver of penalty - rent-a-cab service - short payment of Service Tax of Rs.20,500 - Proprietor, who could not explain the details since he happens to know only Gujarathi and no other language. Further, he was also found to be non-conversant with the provisions of law. - On going through the records, it was found that there was an order issued under Section 96(1) of Finance Act, 2008, under the Dispute Resolution Scheme, 2008 - Since the amount indicated in the Dispute Resolution Scheme as well as in Order-in-Original case exactly same, apparently neither the appellant nor the department had taken note of the fact that there was already an order under Dispute Resolution Scheme and therefore, the proceedings initiated in the Show-Cause Notice dt.11.09.07 - Held that: the appellant has been able to show reasonable cause under Section 80 of Finance Act - Decided in favor of the assessee

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• 2012 (4) TMI 251
  Demand - Condonation of delay - Show Cause Notice was issued in this case by comparing the income tax return with the ST-3 return and it was found that the income shown in the income tax return was much more than the ST-3 return - Even though, the appellant explained that receipts on bank statements includes receipt of various other amounts such as interest, loan etc and therefore without proper verification that cannot be taken as income for rendering services, the original adjudicating authority proceeded to confirm the demand on the basis of bank statement - Held that: the original adjudicating authority confirmed bigger amount than what was mentioned in the Show Cause Notice also, which was rightly set aside by the Commissioner (Appeals), hence is not the subject matter of the appeal - Appeals are decided by way of remand to original adjudicating authority

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• 2012 (4) TMI 232
  Levy of Service Tax- providing taxable services under the category ‘Transportation of goods through pipelines’ – AO found income collected for supply of pipes, measuring equipments etc. at the time of providing new gas connection thus appellant should have paid the Service Tax treating the service as 'Supply of tangible goods' – assessee contented that merely supplying, installing, maintaining the measuring equipment to facilitate determination of quantum of gas there is no service element involved in this supply – assessee stated that the ownership of equipment remains with the appellant at all time and used the equipment for their own purpose – Held that:- the customer never has a right of possession since it would never become his own property at all - the Company has the right to repossess the meter and other equipment at any time and whenever it is disconnected, the meter will become the property of the Company - therefore, the supply of goods is without transfer of right of possession - the customer cannot also obtain meter and other equipment from any other source -there is no doubt that the customer also has a use of measuring equipment - the conclusion is that the appellants have provided the service and are liable to Service Tax - appellants have not been able to make prima facie case in their favour hence should deposit 25% of the Service Tax demanded in the impugned order within 8 weeks of Order date – against assessee.

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• 2012 (4) TMI 231
  Demand - In the impugned order, submission that service tax was not liable prior to 09.7.2004 has been accepted and service tax demand has been confirmed for the period from 09.7.2004 to 31.03.2005 - Held that: appellant paid service tax for the period Oct 2004 to March 2005, prima-facie appellant seems to have accepted the liability. Once the liability is admitted, the appellant should have paid the tax for the period from July to Sept 2004 also - Decided against the assessee

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