TMI Tax Updates - e-Newsletter
April 16, 2012

Case Laws in this Newsletter:

Income Tax Customs Corporate Laws FEMA Service Tax Central Excise Wealth tax Indian Laws

News

1. Prime Minister Inaugurates the New Campus of Indian Institute of Corporate Affairs Campus in Manesar Gurgaon Dr. Manmohan Singh Stress upon need of Periodical Review of Corporate Laws Says new thinking is required in important areas such as Investor Education and Protection, Corporate Governance, Corporate Social Responsibility and Competition Law.

2. Government of India and World Bank Sign US$ 352 Million Agreement for National Dairy Support Project - 1.7 Million Rural Milk Producing Households to Benefit Directly.

3. Government of India and World Bank Sign Agreement for US$ 50 Million Additional Credit for Increasing Agricultural Production and Market Access in Assam.

4. Government of India and World Bank Sign US$ 109 Million Agreement for Rajasthan Agricultural Competitiveness Project – 155,000 Smallholder Farmers to Benefit Directly.

Notifications

Companies Law

1. S.O. 733(E) - dated 4-4-2012 - Co. Law

Companies (Central Governments's) General Rules & Forms,1956, Assistant Commissioner of Income Tax, Guwahati appointed as prescribed authority for the purposes of Section 108(1A) (a) of the Comapnies Act,1956.

Customs

2. 21/2012 - dated 12-4-2012 - ADD

seeks to extend the validity of notification No. 112/2007-Customs, dated 30th October, 2007 by one more year.

3. Corrigendum - dated 12-4-2012 - Cus

Corrigendum of Notification no. 12/2012- Custom.

Circulars / Instructions / Orders

VAT - Delhi

1. F.3(33)/P-II/VAT/Misc./2006/1490-1500 - dated 29-3-2012

Order

2. F.1/CTT/EDP/Circular File/1069 - dated 28-3-2012

E-mail address and mobile number of registered dealers.

Income Tax

3. 03/2012 - dated 11-4-2012

Guidelines for engagement of Standing Counsels to represent the Income-tax Department before High Courts and other judicial forums.

FEMA

4. 106 - dated 12-4-2012

Exim Bank's Line of Credit of USD 150 million to the Ecowas Bank for Investment and Development (EBID).

Customs

5. F.No. 437/12/2012-Cus. IV - dated 12-4-2012

Appointment of Common Adjudicating Authority.

Highlights / Catch Notes

Income Tax

• New Guidelines for Appointing Standing Counsels to Represent Income-Tax Department in High Courts Explained.

  Circulars : Guidelines for engagement of Standing Counsels to represent the Income-tax Department before High Courts and other judicial forums. - Cir. No. 03/2012 Dated: April 11, 2012
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Customs

• Appointment of Common Adjudicating Authority Announced to Streamline Customs Disputes and Ensure Consistent Decision-Making.

  Circulars : Appointment of Common Adjudicating Authority. - Cir. No. F.No. 437/12/2012-Cus. IV Dated: April 12, 2012
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• Validity of Customs Notification No. 112/2007 Extended for One Year via Notification No. 21/2012-Customs (ADD.

  Notifications : seeks to extend the validity of notification No. 112/2007-Customs, dated 30th October, 2007 by one more year. - Ntf. No. 21/2012-Customs (ADD) Dated: April 12, 2012
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• Corrigendum Issued for Notification No. 12/2012-Customs; Important Corrections to Ensure Accurate Implementation of Customs Policies.

  Notifications : Corrigendum of Notification no. 12/2012- Custom. - Ntf. No. Corrigendum Dated: April 12, 2012
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FEMA

• Exim Bank Grants $150M Credit Line to Ecowas Bank for Development Projects in Region, Circular No. 106 Issued April 2012.

  Circulars : Exim Bank's Line of Credit of USD 150 million to the Ecowas Bank for Investment and Development (EBID). - Cir. No. 106 Dated: April 12, 2012
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Corporate Law

• Assistant Commissioner of Income Tax in Guwahati appointed as prescribed authority under Companies Act, 1956, Section 108(1A)(a).

  Notifications : Companies (Central Governments's) General Rules & Forms,1956, Assistant Commissioner of Income Tax, Guwahati appointed as prescribed authority for the purposes of Section 108(1A) (a) of the Comapnies Act,1956. - Ntf. No. S.O. 733(E) Dated: April 4, 2012
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VAT

• Registered Dealers Must Provide Email and Mobile Info for Efficient VAT and Sales Tax Communication.

  Circulars : E-mail address and mobile number of registered dealers. - Cir. No. F.1/CTT/EDP/Circular File/1069 Dated: March 28, 2012
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Case Laws:

• Income Tax

• 2012 (4) TMI 300
  Penalty u/s 271B - It was noticed by the assessing authority that the assessee has failed to furnish audit report alongwith the necessary enclosures in the prescribed form within the stipulated period, as required under section 44AB - held that:- If this benevolency is going to be delivered for all the time to come, what is the sanctity of section 271B remaining in the statute book? The law enacted by the Parliament must be respected and must be followed. If the Act says that penalty is leviable in certain circumstances, penalty must be levied unless the victim shows that sufficient reasons were prevalent to justify the omission caused. Even though evidences cannot be produced in all cases, the explanations offered by an assessee must be plausible and convincing and answerable to the reasoning of a man of ordinary prudence. We are not expecting scientific reasons with mathematical precisions. We are expecting worldly but convincing reasons. - is a fit case to levy penalty under section 271B.

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• 2012 (4) TMI 299
  Petition to direct additional 4th respondent to expeditiously consider stay petition – appeal and stay petition are pending consideration - Held that:- 4th respondent is directed to consider stay petition and pass order within 8 weeks of the order. Meanwhile further proceedings for recovering the amount due under said orders will be kept in abeyance.

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• 2012 (4) TMI 298
  Remittance of matter back to original authority by Tribunal – A.O. made addition of chargeable interest indicated as hire purchase financial income – addition deleted by CIT – Held that:- Though Tribunal has not gone into the merits of the view taken by the CIT (Appeals), but at the same time no question of law arises in a matter of this nature from the remittance order of Tribunal – Appeal dismissed.

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• 2012 (4) TMI 297
  Dis-allowance u/s 36(1)(viii) - assessee claimed deduction on the ground that it had given loans and advances to various persons for construction of residential units - dis-allowance made on ground of insufficient evidences - Held that:- It is undisputed that assessee did not submit full details of the borrowers and their construction or acquisition of houses from the borrowed funds. It is not a case where large number of notices were issued and only three out of such noticees came forward suggesting that the fund was not utilized for such purpose. It was a case wherein on three random notices being issued, all the three borrowers declined to have used the funds either for construction or for purchase of the house. Tribunal rightly held that assessee was not able to discharge the onus cast upon it. No substantial question of law arises - Appeal dismissed.

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• 2012 (4) TMI 296
  Legality of proceedings initiated by Assessing Officer u/s 154 when there were no mistakes apparent from records - AO sought to revise the assessment by denying deduction u/s 80HHA & 80I on ground that assessee cannot be regarded as small scale industry - Held that: CIT(A) rightly held that after exclusion, the aggregate value of the P&M relating to industrial undertaking comes less than Rs. 35 lacs, therefore, AO has correctly allowed relief in original order. Further, it is the concurrent finding given by both CIT(A) and Tribunal that the AO was not justified in rectifying the order u/s 154 since there is no patent or glaring mistake on the face of the record regarding the original assessment that warrants rectification u/s 154. See T.S.Balaram, Income Tax Officer Vs. Volkart Brothers (1971 (8) TMI 3 - SUPREME Court)- Decided in favor of the assessee

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• 2012 (4) TMI 292
  Plea for admission of appeal for waiver of penalty levied u/s 271(1)(c) – assessee being defunct company struck off from the records of ROC on 27.05.2010 - CIT(A) dismissed the appeal on ground that since company is non-existent, there cannot be any director who can sign the verification for the filing of appeal – Held that:- It is surprising that Revenue has considered the said company as existing for levy of demand and penalty and on other hand dismissed the appeal on ground of it being non-existent. Therefore, in a situation, where a defunct company can be revived and the directors are responsible for every lawful liability then in our considered opinion they are also entitled to file an appeal u/s 246 and verify the Form No. 35 by signing in the capacity of director. CIT(A) is directed to admit the appeal – Decided in favor of petitioner.

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• 2012 (4) TMI 291
  Stay petition – Revenue contended that petitioner is liable to pay 50% of the demand, for an order of stay to be granted – Held that:- Court finds it fit to direct the first respondent to hear the appeal filed by the petitioner, and to pass appropriate orders thereon, on merits, on the petitioner depositing a sum of Rs.15 lacs, within a period of four weeks from the date of receipt of a copy of this order.

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• 2012 (4) TMI 290
  Whether Section 40(a)(ia) can be invoked only to disallow expenditure of the nature referred to therein which is shown as "payable" as on the date of the balance sheet or it can be invoked also to disallow such expenditure which become payable at any time during the relevant previous year and was actually paid within the previous year – A.O. dis-allowed expenses incurred on brokerage and commission on ground of non-deduction of TDS – reference to Special bench - Held that:- The word "payable" used in section 40(a)(ia) is to be assigned strict interpretation, in view of the object of Legislation, which is intended from the replacement of the words in the proposed and enacted provision from the words "amount credited or paid" to "payable". Further, Circular No. 5 of 2005, date 15th July, 2005 issued by CBDT clarifies that the intention to introduce this provision was brought to curb bogus payments by creating bogus liability. Therefore, following cardinal principle of interpretation, Special Bench in view of dissenting view expressed by one of its members hold in light of majority view of the Members that section 40(a)(ia) is applicable only to expenditure which is payable as on 31st March of every year and cannot be invoked to disallow the amounts which are already been paid during the previous year, without deducting tax at source – Decided in favor of assessee.

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• 2012 (4) TMI 289
  Allowability of Depreciation on fixed assets utilized for the charitable purpose – Society registered u/s 12A – Held that:- Having regard to the consensus of judicial opinion on the precise question it is held that claim of depreciation on fixed assets utilized for the charitable purposes has to be allowed while arriving at the income available for application to charitable and religious purposes, since the income of the society should be computed on the basis of commercial principles. Order of tribunal upheld – Appeal of Revenue dismissed.

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• 2012 (4) TMI 288
  Transfer Pricing – rejection of PLI considered by the appellant in the transfer pricing documentation – benefit of 5% adjustment – assessee engaged in the business of manufacturing automobile catalysts – AY 2003-04 - Held that:- Principal of res judicata cannot apply in case of Transfer Pricing and it is open to authorities to adopt different and appropriate PLI. PLI are the ratios that measure relationship between profits with costs or resources. Use of a particular PLI depends on a number factors including, nature of activities of tested party, the reliability of available data with respect to uncontrolled comparables and the extent of which the PLI is likely to produce available measure of income. The PLI is selected with its appropriateness for the transaction under view. With regard to nature of business of assessee, ROCE is not appropriate PLI. Further, purchase cost of the raw material cannot be said to be a pass through cost as assessee claims. Hence, operating profit as a percentage of total cost has to be the basis instead of operating profit as a percentage of the total cost minus raw material cost. Benefit of ± 5% adjustment – Held that:- Such benefit cannot be considered to be a standard/universal deduction. This benefit is available only if ALP shown by the taxpayer falls within ±5% of arithmetic mean of more than one price determined by the Most Appropriate Method. As the taxpayer was not falling in above range, it was not entitled to any benefit. Secondly, the option is available only when taxpayer is computing the ALP and not when: AO /TPO is computing the ALP – Decided against the assessee.

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• 2012 (4) TMI 287
  Rectification of mistake – A.O. in its rectification order disallowed adjustment on account of change in depreciation method while calculating book profits u/s 115JB on account of it being prior period expenses – original order framed u/s 143(3) – Held that:- The jurisdiction u/s 154 is confined and restricted to rectification of errors and mistakes which are apparent from the record. The issues and contentions being debatable and in the realm of uncertainty, we do not think the A.O. was right in invoking Section 154. The Tribunal was right in observing that the action of the Assessing Officer under Section 154 was not warranted – Decided against the Revenue.

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• 2012 (4) TMI 286
  Validity of notice issued u/s 142(1) dated 05.08.2011 for AY 2004-05 – assessee contests notice issued u/s 142(1) on ground of non-serving of notice u/s 148 dated 22.03.2011 - notice u/s 148 issued at old address - petitioner vide his letter in February 2006 informed A.O. about change in address – filed returns of subsequent AYs stating new address – Held that:- Petitioner was aware and knew that the A.O. has issued the notice u/s 148 at the address mentioned in the return. A clear distinction between “issue” and “service” of the notice has been drawn in case of R K Upadhyaya Vs. Shanabhai P. Patel (1987 (4) TMI 5 - SUPREME Court - Income Tax). Issue of notice within the prescribed time is a mandatory requirement and service of notice is a procedural requirement before completing the assessment. In these circumstances, the assessee can be treated as “served” with the notice u/s 148, which was earlier issued at the address mentioned in the return – Decided against the assessee.

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• 2012 (4) TMI 285
  Petition for stay of total demand – Dispute about TDS u/s 194C or 194I - assessee contended that direction for depositing 30% of total demand is unjustified when CIT(A) opined it to be fit case for stay of the total demand – Held that:- Apex court in case of M/s Pennar Industries Ltd. vs. State of Andhra Pradesh held that it is true that on merely establishing a prima facie case, interim order of protection should not be passed. However, if it appears that the demand raised has no leg to stand, it would be undesirable to require the assessee to pay full or substantive part of the demand. Therefore, in view of aforesaid order of CIT(A) is set aside and appellate authority is directed to decide the appeal finally on merits. Demand is kept in abeyance during pendency of appeal. However, the petitioner shall furnish security to tune of 30% of the total demand within ten days.

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• 2012 (4) TMI 284
  Registration u/s 80G – assessee being religious institution, claims that it is engaged in charitable activities as well, thus, entitled to registration u/s 80G(5B) – application rejected by Commissioner – Tribunal held entitlement of registration - Held that:- Assessee is entitled to one more opportunity to produce the accounts before the Commissioner to establish that 95% of the income is utilized for charitable purposes during the year for which registration is sought. We, restore the matter to the Commissioner for reconsideration based on accounts and evidence produced.

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• 2012 (4) TMI 283
  Whether Tribunal was justified in canceling assessment of undisclosed income for the broken period for which, time for filing return was not over as on date of search – first installment of advance tax paid by assessee in respect of the income of the previous year in which search took place, even before date of search – Held that:- Since advance tax is paid in respect of an item of income, it cannot be said that the assessee intended to suppress it's income merely because accounts are not written up. So much so, payment of advance tax on estimated income is sufficient to exclude such income from the scope of undisclosed income for the broken period of the previous year for which, time for filing of return was not over as on the date of search – Decided against the Revenue.

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• 2012 (4) TMI 282
  Dis-allowance of business expenditure assuming it be expenditure falling u/s 14A – assessee dealing in share and securities earned profit on sale and shares and dividend on shares held as stock in trade – proportionate brokerage expenses paid on trading of shares and other business expenditure dis-allowed u/s 14A – Held that:- When the assessee has not retained shares with the intention of earning dividend income and the dividend income is incidental to his business of sale of shares, which remained unsold by the assessee, it cannot be said that the expenditure incurred in acquiring the shares has to be apportioned to the extent of dividend income and that should be disallowed from deductions. When no expenditure is incurred by the assessee in earning the dividend income, no notional expenditure could be deducted from the said income – Decided in favor of assessee.

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• 2012 (4) TMI 281
  No change in the method of valuation of closing stock by the respondent-assessee during the assessment year 1993-94 as considered by ITAT – Held that: - Revenue has not been able to demonstrate and show that in the earlier Assessment Years, the respondent had valued the closing stock at cost and not on Net Realizable Value basis and has not shown what is stated and averred in the impugned order passed by the tribunal is factually incorrect. In view of above factual position, it is not possible to hold that the order of the Tribunal is perverse. Deleting the addition made by the Assessing Officer to the income of assessee on account of under valuation of closing stock – Held that: - Held in Supreme court case in Sanjeev Woolen Mills v. CIT Mumbai (2005 - TMI - 6166 - SUPREME Court) closing stock can be valued on cost price or at market price, if the market price is less than the cost. However, the said principle does not apply if the market value of the closing stock is more than the cost, as profits cannot be brought to tax on notional basis - in favour of the respondent-assessee and against the Revenue. Reimbursement payable by the manufactures – AO stated that the respondent assessee was receiving reimbursement of the loss on export from the sugar manufacturers and losses were reimbursed, therefore, the assessee should compute the closing stock on cost basis i.e. Net realizable Value plus reimbursement – Held that:- there was no statutory or contractual obligation under which the respondent-assesses could have claimed reimbursement of export losses from the mills/manufacturers from whom it had procured/purchased sugar for export - The obligation, if any, was moral but non statutory or non contractual - against the Revenue and in favour of the respondent-assessee Depreciation on lease hold rights - The contention of the appellant-Revenue is that the assessee is not entitled to depreciation in respect of lease hold rights in office/ flat, and car parking space etc. as the respondent/assessee was not the registered owner. - held that:- this issue has to be decided against the Revenue and in favour of the respondent-assessee in view of the decision of the Supreme Court in Mysore Minerals v. CIT (1999 -TMI - 5760 - SUPREME Court).

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• 2012 (4) TMI 280
  Exploration, extraction and production of mineral oil - AO has brought to tax income of the assessee u/s 9(1)(vii) instead of u/s 44BB(1) - Held that:- the assessee suffers no risks even if project of prospecting for or exploration for mineral oil does not succeed. The assessee could not demonstrate that the project is owned by it. The job of the assessee is well defined by the contract. Obviously, it cannot be said that the project is undertaken by the assessee even if it is assumed that services provided by the assessee amount to 'mining or like project'. Hence, first exception to definition of FTS as contained in Explanation 2 to section 9(l)(vii) is not available to the assessee. The second exception is also not available as receipts are not taxable under the head salary. Therefore, receipts are in nature of FTS and hence because of proviso to section 44BB(l), provisions of section 44BB(1) are not applicable. On combined reading of proviso to section 44BB (1) and second proviso to section 44DA it is clear that the fee for technical services rendered in connection with prospecting for or extraction or production of mineral oil though effectively connected with PE or fixed place of profession will fall not under section 44BB(1) and will be assessable under section 44DA of the Act -admittedly the receipts are not connected with PE in India and hence the fee for technical services rendered in connection with prospecting for or extraction or production of mineral oil will be assessable u/s 115A of the Act. Holding 25 per cent of the gross receipts from Eni as profits earned on the project and in failing to provide credit to the appellant in respect of taxes deducted at source by ONGC and Eni as per the provisions of section 195 of the Act – assessee contested that entire project has to be executed by the assessee by employing vessels, whether owned or chartered equipped with specialized instruments –all the terms of contract are similar to that of ONGC with only difference that Eni is a non-resident company – Held that:- the amount received by the assessee will be assessable in the nature of fee for technical service and will be assessable u/s 115A (1)(b) of the Act - income from fee for technical services has been assessed in the hands assessee, the assessing officer is directed to allow credit of TDS against the tax payable by the assessee - the AO has charged interest treating the same as mandatory without examining the case in the light of judicial pronouncements - direct the assessing officer to examine accordingly as stated. Levy of interest u/s 234B - Held that:- assessing officer has charged interest treating the same as mandatory without examining the case in the light of judicial pronouncements to the effect that if amount was subject to TDS, whether any interest was still chargeable under these sections - assessing officer is directed accordingly.

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• 2012 (4) TMI 279
  Arm's length price - Section 92CA - Order u/s 144C - Determination of international transaction u/s 92B - addition made on account of alleged difference in arm's length price of reimbursement of advertisement, marketing and brand promotion expenses (AMP expenses) - whether inference by TPO was permissible without reference from the AO? - held that:- In the absence of the reference being made by the Assessing Officer to the TPO, the suo moto action taken by the TPO in working out the arm's length price of a particular international transaction, not referred to him by the Assessing Officer, is not warranted under the provisions of section 92CA of the Act. - in respect of the AMP expenditure, the assumption of jurisdiction by the TPO in working out arm's length price in respect of the aforesaid AMP expenditure, is not justified and the order of the TPO in this regard is non-est. Capital or revenue expenditure - expenditure under the head "Promotional and Trade Marketing Expenses" - held that:- the test of enduring benefit is not conclusive to judge true nature of expenditure. One has to go further and ascertain as to whether particular expenditure results into an advantage of enduring nature in the capital field or revenue filed. In the instant case having regard to the nature and details of expenditure it is clear that the expenditure under the head "Promotional and Trade Marketing Expenses" is an expenditure which is incurred wholly and exclusively for the purposes of business and is in the revenue field. The same is allowable as a revenue expenditure. Capital or revenue expenditure - expenditure under the head "Product Development Expenses" - held that:- it is erroneous to conclude that the assessee acquired a new line of business by merely developing and introducing new products in the existing line of business. The new products clearly relate to the same line of business that the assessee has been hitherto carrying on. Therefore, on above consideration also the plea of the assessee that the expenditure in question is a revenue expenditure deserves to be upheld.

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• 2012 (4) TMI 278
  Power of attachment u/s 281B - abuse of power - attachment of various deposits lying in the bank as well as the immovable property - petitioner contended that Department did not proceed to determine the liability of the petitioner, which should have been done only within 21 months from the date of getting the incriminating documents under the search and seizure operation in the financial year when the search was conducted under Section 132 of the Income Tax Act. - held that:- It is true that there may be complex and voluminous documentary evidence, which may have been obtained by the Revenue Department and though documents may be in haphazard manner, which may require skilled expert opinion, for which the special audit can be ordered and if the Department could have proceeded, it could have done so. Be that as it may, the delay in the proceeding cannot be said to be fatal in all cases because of the reason that any time the Revenue may form opinion that there is possibility of shifting of money by the assessee. Though the powers are wide but should be exercised by the Assessing Officer only if there is reasonable apprehension that the assessee may thwart the ultimate collection of the demand, i.e., likely to be raised on completion of the assessment. The power of attachment under this section is in the nature of attachment before judgment under the C.P.C. It is a drastic power. It should therefore, be exercised with extreme care and caution. The attachment of the property should be made to the extent it is required to achieve the object. Obviously it must have some co-relation, which cannot be exact amount of future liability, but this does not mean that power under section 281B is absolutely arbitrary power and therefore,it is not necessary to form opinion about liability to maximum of possible liability and also this power cannot be such arbitrary that the Assessing Officer need not to indicate or know that properties of asessese which is being attached is of what value? The order does not disclose any reason for attachment - attaching the property of the writ petitioner lying with the J.S.E.B cannot be sustained and liable to be set aside.

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• 2012 (4) TMI 273
  Validity of re-opening of assessment beyond a period of four year from the end of relevant AY – Trust – AY 2004-05 - assessment reopened on ground of information received by A.O. of alleged misappropriation of funds – assessment of AY 2005-05 pending when FIR of misappropriation of funds was lodged – Held that:- A.O. formed belief on the basis of the material revealed in the investigation which was carried out by CID, Mumbai. The chargesheet which has been filed by the EOW would in our view constitute tangible material on the basis of which the A.O. could have reopened the assessment. Conclusion drawn by A.O. that there was a failure on the part of the assessee to fully and truly disclose material facts necessary for the assessment for the Assessment Year 2004-2005 is upheld – Decided against the petitioner.

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• 2012 (4) TMI 272
  Unexplained cash credits – CIT(A) deleted major additions made by A.O. - addition related to amount advanced by non-resident retained in absence of evidences - Held that:- Order of CIT(A) is upheld since assessee discharged his onus by establishing the identity, credit worthiness of parties and genuineness of the transactions and onus shifts to revenue, which is not discharged by it. AO cannot brush aside the evidences submitted during assessment proceedings and make additions. Further, CIT(A) have rightly excluded opening balance pertaining to the earlier years from the total addition - Decided against the Revenue With respect to amount advanced by non-resident – Assessee submitted that since creditor is not assessed to tax in India, details of the tax returned could not be filed – held that:- Since there is no finding in the assessment order about the claim made by the assessee, so it will be proper to remit the matter back to the AO for making verification in this regard and pass a speaking order – Decided in favor of assessee for statistical purposes.

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• 2012 (4) TMI 271
  Receipts in the nature of reinsurance brokerage/commission of the appellant treated by AO as fees for technical services as per Article 13 of the UK DTAA - Tribunal's order in assessee's own case for AY 2006-07 in his favour - DR relied on a recent ruling of AAR in the case of Verizon Data Services India limited (2011 - TMI - 205159 - AAR - Income Tax) after elaborately interpreting the provisions of Article 12 of the Indo-US DTAA and guiding protocol to the Treaty has concluded that it is not necessary to make available consultancy know how to the recipient in order to hold the same taxable under FIS Ld - Held that:- decision of AAR on the issue of applicability of Art. 12(4)(b) of the Indo-US DTAA has been set aside by the Hon'ble Madras High Court vide their order dated 9th August, 2011 in WP 14921 of 2011, we set aside the order of the ARA and remit the matter back giving an opportunity to the assessee to state its case as to the nature of services given by the seconded employees - the services do not fit into either of the categories defined in Article 13, since the services rendered by the assessee do not involved technical expertise, nor did the assessee made available any technical knowhow, experience, skill etc. - assessee was basically acting as an intermediary in the process of finalization of reinsurer suggesting various options to the Indian Insurance Co. for their consideration and acceptance - cannot be qualified to be in the nature of fees for technical services as contemplated under Article 13(4)(c) of the DTAA between India & UK - in favour of assessee.

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• 2012 (4) TMI 270
  Determination of the appropriate head of income for taxing the surplus realized on sale of shares - business income or capital gain – Held that:- AY 2006-07 - an investor would not enter into purchase and sale transactions of shares of 52 companies and units of 10 mutual funds in a single year. The transactions are numerous and period of holding is small - undertakes such large number of transactions keeping the market conditions in view would obviously assume the character of a dealer and not investor - surplus arising from the transactions fall in head “profits and gains of business” - against assessee. AY 2007-08 and 2008-09– Assessee stated that the LTCG was claimed to be not includible in the total income by dint of provision contained in section 10(36), lower rate of tax was claimed to be applicable in respect of STCG - assessee has also shown STCG in respect of 74,000 bonus and the assessee also sold sub-divided shares and earned profit on it – Held that:- bonus shares would normally be deemed to be distributed by the company as capital and the shareholders receive the shares as capital - profit on sale of bonus shares would be in the nature of capital gain to profit which has to be classified as STCG - bonus shares of Kotak Bank Ltd. and Unitech Ltd. are held to be on capital account and all other transactions are held to be on business account.

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• 2012 (4) TMI 269
  Disallowance u/s. 40(a)(ia) - TDS u/s 194C or u/s 194J deleted by CIT(A)– production of cinematographic films - held that:- Fundamentally, there is no difference between production of film for broadcasting and telecasting except that cinemotograph films are exhibited in theatres for viewing by the public. - The payment made by the assessee would fall for consideration only under the provisions of Sec. 194-C of the Act. Since the provisions of Sec.194-C of the Act were not applicable to individuals prior to 1.4.2007, the assessee was under no obligation to deduct tax at source for the period under consideration and therefore no disallowance could be made u/s. 40(a)(ia) of the Act. Addition u/s 41(1) - remission of liability - held that:- there is no material on record to show that there was cessation of liability or remission of liabilities and that the assessee derived benefit by such remission or cessation of liabilities. In fact, the facts and record go to show that the liabilities were only one year old. In these circumstances, we are of the view that the addition sustained by the CIT(A) deserves to be deleted. Additional grounds - new claim - CIT(A) rejected the Additional Ground raised by the Appellant - held that:- he Hon'ble Delhi High court in the case of Jai Parabolic Springs Ltd. (2008 (4) TMI 3 - DELHI HIGH COURT) has taken the view that there is no prohibition on the powers of the Tribunal to entertain any additional ground for a just decision of the case. The Hon'ble Delhi High Court distinguished the decision of the Supreme Court in the case of Goetz (India) Ltd. (5171). We, therefore, hold that the CIT(A) ought to have admitted the additional ground for adjudication. Expenditure on production of feature films - Rule 9A - held that:- the claim made by the assessee was rightly accepted by the CIT(A). Even if Rule 9A is applied, the assessee was entitled to claim the un-recouped cost of production in terms of Rule 9A(3) of the Rules. This un-recouped cost has been determined at a sum of Rs. 2,93,73,793/- by the AO in the assessment of the firm for asst. year 2004-05 and the same has become final. It is not open to the AO of the assessee to re-determine the cost of production in the assessment of the assessee.

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• 2012 (4) TMI 268
  Application of stay of demand - Asst. Commissioner passed an Order stating that merely filing an appeal against the assessment order before the appellate authority is not sufficient reason to stay the recovery of demand – Assessee file a Writ stating that Commissioner while passing the order has not taken into consideration the law laid down by the Hon'ble Supreme Court, this Court and also the mandatory circulars issued by the department of Income Tax itself - the view of the assessee is supported by the judgment of the hon’able Delhi High Court in the case of Soul v. Deputy Commissioner of Income - 2008 - TMI - 76546 - DELHI HIGH COURT - Income Tax – Held that:- when the assessed income is more then double of the returned income then the demand should be stayed till the decision of appeal - it is apparent that while deciding the stay application, the Assistant Collector has not taken into consideration the judgment and circulars cited by the petitioner - quash the order remanding to the Assistant Collector of Income Tax to consider the stay application afresh by providing an opportunity of hearing to the petitioner and also by taking into consideration judgments and circulars cited by the petitioner – in favour of assessee.

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• 2012 (4) TMI 267
  Return of income claiming deduction u/s 80I, 80IA and 80HH – AO accepted the claim with little variation - CIT issued a notice under Section 263 mentioning that research expenditure incurred by the assessee is inextricably linked with the business of the assessee and business in those products which are manufactured in the units entitled to a deduction under Sections 80I, 80IA and 80HH - Tribunal set aside the order passed by the CIT holding that the jurisdiction under Section 263 has not been invoked properly - Held that:- As a result of an erroneous order passed by an Assessing Officer, where the Revenue is losing tax lawfully payable by an assessee, the order is prejudicial to the interests of the Revenue -there was a complete failure on the part of the AO to apply his mind to the issue of whether the expenditure which was claimed should be allocated as between the units in respect of which the deduction had been claimed and on whether there was a direct or proximate nexus - jurisdiction under Section 263 was in order and that the Tribunal was not justified in interfering with the order passed by the Commissioner. Tribunal is right in holding that the entire cess can be claimed against taxable income? - the composite income derived from sale of tea grown and manufactured by the assessee cess payable on green tea leaves is allowable as a business expenditure in computing the composite income under Rule 8 of the Income Tax Rules,1962.

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• 2012 (4) TMI 266
  Profit from purchase and sale of shares - Capital gain or business income - Held that:- assessee did not place any material, other than Board resolution, while the auditor reports and facts for the years under consideration, reflecting intention of the assessee, lead to the conclusion that the assessee is continuing its activities as in earlier years of a trader in shares - the voluminous share transactions were in the ordinary line of the assessee's business; purchase of shares by them was not for the purpose of earning dividend, but with the dominant intention of resale in order to earn profits - the repetition and continuity of the transactions, give them a flavour of "trade" - ld. CIT(A) was not justified in accepting the claim of the assessee as investor in shares - restore the order of the AO.

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• 2012 (4) TMI 265
  Addition of income for suppression of the cable connections - the AO rejected the books of accounts silently and resort of estimations adopting basis of 40% of the electricity connections of an area in making the best judgment assessments u/s 144 - Held that:- In the absence of any material pointing towards falsehood of the books of accounts and no particular defect, or discrepancy being pointed in the books of accounts, resort could not be made to rejecting the books of accounts by invoking Sec.145(3) - AO shall not reject the books unless the accounts of the assessee suffer from either of the twin reasons specified in the Act ie correctness or completeness - Shri Ezaz Inamdar, Director’s response is picked in isolation. A reading of the question and answer makes it clear that a part of the sentence is extracted to mislead. The full sentence is "Further for planning purpose, we take 40% as the possible connectivity - the said allegation of Service Tax Department and informed that the said allegation were finally dropped by the said Department as they could not support the allegation - the AO never could enlist or provide single conclusive instance of either incompleteness or inaccuracy in the accounts – in favour of assessee.

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• 2012 (4) TMI 264
  Disallowance of claim u/s 80IC - assessee filed return of income after due date claiming deduction u/s 80-IC - AO disallowed the claim as per Section 80AC stating unless the return is filed within the prescribed date, the claim u/s 80IC shall not be allowed - Held that:- The assessee in the present case, had filed all the necessary documents which were supporting the claim of the assessee for deductions u/s 80IC before due date of filing the return. The default of the assessee for not filing the return was only a technical default as the return was not filed, but supporting documents were filed - claim of the assessee should be considered on merits and it should not be rejected - AO has not examined the claim of the assessee on merits that whether or not the assessee is fulfilling the conditions laid down in Section 80IC, we restore the matter back to the file of AO to examine that whether these conditions are satisfied by the assessee - Appeal in favour of assessee in the mentioned manner.

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• 2012 (4) TMI 263
  Determining the average profit margin under the TNMM method - comparable - assessee stated that the companies which are showing loss are to be considered as comparable for determining ALP - CIT(A) observed that the financial results of the company used for comparable by TPO are shown for 15 months period and direct report of this company clearly stated that due to abnormal circumstances during the year, profits were adversely affected - due to the extra expenses, the probability of the company has been adversely affected - CIT(A excluded the results of loss making companies for the purpose of determining profit margin - Held that:- The determination of the ALP is depended upon the facts of a particular case - selection of comparables should be based on functional, asset and risk analysis of both the parties and the transactions - The underlying principle being that only likes can be compared with the like -the result of mentioned companies is not considered as comparables with the assessee's company transactions on the reason that the datas of these companies are not comparable with the assessee's company - If a reasonable accurate adjustment for the difference to eliminate material effect of the differences cannot possibly be made, then such comparables (uncontrolled) are to be rejected

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• 2012 (4) TMI 262
  Profit on 'sale of ships' - CIT(A) stated profit from sale not attributable to the core activities defined for a tonnage tax company and as such is not to be include in the "Book Profit" of a tonnage tax company u/s 115 V-0 which is to be excluded in determining the Book Profits u/s 115JB of Income Tax Act - Assessee contented that it is carrying on only one activity of operation of ships and the entire income relating to ships as recorded in the profit & loss account was to be taken as profit derived from the activities of tonnage tax company and the same was to be reduced from the book profit for the purpose of sec.115JB – Held that:- As per the provisions section 115VI(i)(2), core activities of a tonnage tax company mean, inter alia, its activities from operating qualifying ships - the activity of sale of old ships cannot be regarded as an activity from operating qualifying ships – favour of revenue. Income from sale of ship - Held that:- this issue is squarely covered against the assessee by the decision of Special Bench of ITAT at Hyderabad in the case of Rain Commodities Ltd. (2010 - TMI - 203366 - ITAT HYDERABAD) - provisions of section 115JB have an overriding effect upon other provisions of the Act and, therefore, the method of computation of book profit provided in the Explanation to section 115JB should be followed while computing the book profit and the normal provisions of computation of profit under any head of the Act shall not be applicable – in favour of revenue.

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• 2012 (4) TMI 261
  Penalty u/s 271(1)(c) - compensation received from the landlord on failure to provide an alternate accommodation on vacating one of its premises - AO considered it as income received on termination of warehousing agreement - Held that:- the assessee claimed the amount as not chargeable to tax which view as not accepted by the taxation authorities. Obviously it cannot be a case of concealment of income. - section 271(1)(c) reveals that the concealment of particulars of income or furnishing of inaccurate particulars of such income by the assessee is sine qua non for the imposition of penalty under this section - the assessee succeeds in proving that none of these conditions are satisfied in his case, then obviously the addition made by the Assessing Officer shall not constitute income in respect of which particulars have been concealed for the purposes of section 271(1)(c) - all the material facts relating to the case were disclosed by him the penalty would not be attracted - appeal in favour of assessee

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• 2012 (4) TMI 260
  Deletion of addition made by the A.O. on account of adjustments made to the ALP u/s 92CA(3) in respect of international transactions entered into with AE by Ld. CIT(A) - determination of comparable - Held that:- geographical difference is not material so far as it applies to the logistics industry - there is splitting of gross profit equally at 50:50 even in Pakistan, Bangladesh and Sri Lanka which fall under the same geographical region. - the detailed reasoning given by the ld. CIT(A) we do not find any infirmity in the CUP method (50:50 module) adopted by the assessee - the order of the ld. CIT(A) is upheld and the ground raised by the Revenue is dismissed. Petty cash expenses - A.O. noted that many of the petty cash expenses were not supported by invoices/bills – assessee submitted that the above amount is merely 1.82% of the income from operations -CIT(A) deleted the addition as on observation that the assessee has duly produced the vouchers for A.O's verification but A.O. has not given any cogent reasons for making an adhoc disallowance – Held that:- claiming any expenditure as genuine business expenditure the onus is always on the assessee to satisfy the A.O. with evidence to his satisfaction to substantiate that the expenditure has been incurred wholly and exclusively for the purpose of business – disallowance of Rs. 20 lacs appears to be on higher side adhoc disallowance of an amount of Rs. 10 lacs will allowed appeal by the Revenue is partly allowed. Employees' contribution to PF – Held that:- the contributions have been paid before the grace period, therefore, in view of the consistent decisions of the co-ordinate Benches of the Tribunal that amounts paid within the grace period has to be allowed as deduction, the amount cannot be disallowed

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• 2012 (4) TMI 259
  Disputed the validity of order of DRP – as constitution of DRP is contrary to principle of natural justice as one of the member of DRP is the Jurisdictional Commissioner of assessee and assessee filed objections before DRP on Transfer Pricing Officer's order suggesting Arm Length Price (ALP) adjustment but DRP disposed off the objections stating that AO is to follow adjustment proposed by TPO and did not go into the merits of objections filed by assessee – Held that:- considering the fact that CBDT issued notification which is subsequent to the order passed by Hon'ble High Court of Uttarkhand in the case of Hundai Heavy Industries Ltd. v. Union of India (2011 -TMI - 210159 - UTTARAKHAND HIGH COURT) observing that CBDT to ensure that Jurisdictional Commissioner is not nominated as a member of DRP – considering Sec. 144C that DRP before giving any direction to AO under sub-section (5) to enable him to complete assessment, will give opportunity of being heard to parties on such directions which are prejudicial to the interest of assessee or the interest of Revenue - DRP has not given any reason and/or commented upon the objections of assessee in the said order while agreeing with the adjustments proposed by TPO - order passed by DRP u/s. 144C of the Act is not a speaking order and held to be set aside – AO to pass fresh assessment order - in favour of assessee.

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• Customs

• 2012 (4) TMI 257
  Release of goods – petition to direct respondents to accept the contracted price, declared in the relevant B/E, as the transaction value, as per Section 14(1) of the Customs Act, 1962, read with Rule 4 of the Customs Valuation Rules – differential duty payable is Rs. 8.81 lacs - Held that:- Court finds it appropriate to release the goods in question relating to relevant B/Es, subject to the petitioner executing a bond for a sum of Rs. 48,54,000/ and furnishing a bank guarantee for Rs. 5,00,000/-. It is open to the respondents to pass final orders, based on the investigation, and adjudication process.

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• Corporate Laws

• 2012 (4) TMI 277
  Regulations of Membership of AEPC - Whether an appellant Company incorporated under Section 25 of the Companies Act, 1956 is entitled to have two kinds of membership - the "Member Exporters" having a right to elect and to be elected as office bearers of the appellant whereas the "Registered Exporters" have no such right – Writ petition by exporters who are unable to meet the “Regulations of Membership" - Learned Single Judge allowed the writ petition by removing such classification of membership and vesting the right of voting - mentioning that appellant owes its existence to the Exim Policy which provides for formation of Export Promotion Council (EPC) requiring all exporters to become members of such EPC - appellant has contended that does not owe its existence to the Exim Policy as the appellant was incorporated by leading garment exporters associations before the Foreign Trade (Development & Regulation) Act came into force - that the appellant is not a monopolistic body as perceived by the Learned Single Judge - that the Government itself had with effect from 31st March, 2000 deliberately repealed the requirement of democratization in the EPCs from the Exim Policy and which shows that it was not the requirement of the Exim Policy – Held that:- Once the Model Bye- Laws provide for two kinds of membership, a right to membership can be read only as a right to non-voting membership till the member qualifies to become a voting member. The Exim Policy has to be read as a whole -The concepts of "Associate Member" without voting rights and of placing restrictions on the right to vote were upheld. Restriction on the right to vote provided with the avowed object of better welfare and convenience of regular practitioners directly concerned with the day-to-day affairs is Constitutional and valid - if no such restrictions were to be placed the possibility of a rival industry/trade snatching away the management of an EPC to destroy the same also cannot be ruled out – in favour of appellant company - the appellant which is a Company incorporated under Section 25 of the Companies Act, 1956 is entitled to have two kinds of memberships as aforesaid.

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• 2012 (4) TMI 256
  Stamp Duty on scheme of Merger & Amalgamation - Continuing practice in this State for transfer of property pursuant to scheme of amalgamation or demerger without attracting stamp duty - The petitioners contented that an order sanctioning a scheme under the Companies Act would be exempted from stamp duty in this State - the other aspect of the matter relates to a notification of the year 1937 issued by the Governor General-in-Council providing, that stamp duty chargeable under Article 23 of Schedule I to the Indian Stamp Act, 1899 would stand remitted in the manner indicated in the notification – Held that:- Article 23 no longer forming a part of Schedule I to the Stamp Act as applicable in this State and being included in Schedule IA thereto, the benefit under the 1937 notification is no longer available as the State Legislature - An order sanctioning a scheme of amalgamation or demerger under Section 394 of the Companies Act, therefore, answers to the description of the words “instrument” and “conveyance” within the meaning of the Stamp Act applicable in this State and is, accordingly, exigible to stamp duty - no property transferred pursuant to any scheme of amalgamation of merger or demerger in this State would be effective unless appropriate stamp duty thereon has been paid.

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• FEMA

• 2012 (4) TMI 258
  Under-invoicing and Hawala transactions – petition for stopping the investigation initiated by the Enforcement Directorate – petitioner alleges of documents being forged and fabricated - Held that:- Enforcement Directorate is fully entitled to investigate in such matters. Mere complaint of petitioner regarding alleged forgery and fabrication is no ground to stay the investigation by the Enforcement Directorate – petition dismissed.

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• Service Tax

• 2012 (4) TMI 294
  Assessee undertook the job of feeding of husk into the boiler in the factory of client and received consideration for the service provided – revenue treated such consideration received under the heading "Manpower Supply Service" as defined under Section 65(68) and 65(105)(k) - Commissioner (Appeals) has set aside the demand on appeal but the penalties imposed under Sections 76 and 77 under the order of the Commissioner exercising power under Section 84 of Finance Act, 1994 are subsisting – Held that:- the issue involved was whether the appellants were undertaking the job of feeding husk into boiler or whether he was supplying man power but the fact that the Commissioner (Appeals) has come to a different conclusion itself demonstrates that there was confusion in understanding the scope of the levy - a penalty on the appellants will not be justified if at all the Revenue comes in appeal against the order in appeal passed by the Commissioner (Appeals) – appeal of assessee allowed.

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• 2012 (4) TMI 276
  Sought registration and discharged entire tax liability with interest on being made aware by the department that its activities come under 'erection commissioning installation, repair and maintenance and commercial and industrial construction'- assesee claims a waiver of penalty as being an illiterate was not aware of the law - Held that :- So far as penalty under Sections 76 and 78 of Finance Act, 1994 are concerned, we are unable to find oblique motive of the appellant to cause evasion - All these mitigating factors call for waiver of penalty to the extent that was confirmed by first appellate order - penalty under Section 77 for no registration taken duly is confirmed - appeal partly allowed.

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• 2012 (4) TMI 275
  Whether the appellant was carrying out clearing and forwarding activities and such activity taxable - also the issue was whether reimbursement of expenses shall be forming part of assessable value - None present for the appellant - Held that:- examined the extent of test done by first Appellate order appears to have carefully examined the issue of taxability of the activity of clearing and forwarding - confirming the tax demand, we make a limited remand to first Appellate Authority to grant fresh hearing on penalty aspect as that was imposed by adjudication order.

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• 2012 (4) TMI 274
  Commercial training or coaching - Appellant taken service tax registration in the year 2003, they did not collect service tax from the students and remit the same to the Government till 2006 - SCN issued demand for Service Tax, confirmed along with interest and a penalty u/s 76 ,77 and 78 of the Act – Held that:- some leniency in the matter of penalty may be warranted in this case considering that tax and interest were paid before adjudication order and the fact the appellant are a small service provider operating in a remote locality - simultaneous penalties under Section 76 and Section 78 cannot be imposed – as per line with the case of K.P. Pouches (P.) Ltd. v. Union of India - 2008 - TMI - 30328 - HIGH COURT OF DELHI appellant given an opportunity to pay 25% of the tax demanded as penalty within 30 days of receipt of this order. If such payment is not made within the prescribed time limit, amount equal to the full tax amount confirmed will be payable - partly allowed.

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• 2012 (4) TMI 255
  Plea for waiver of pre-deposit of duty of Rs 58.55 lacs, interest and penalty – denial of credit of Service Tax paid on the taxable services of Manpower Recruitment or Supply Agency Service – Held that:- Taxable services availed of Yoga teacher, Poojari, Cook, Compounder, Nurse, helper etc. have no direct nexus with manufacture of final product. Credit rightly denied. Thus, assessee is directed to make pre-deposit of Rs 15 lacs within stipulated time subject to which pre-deposit of the balance amount of duty, interest and penalty shall stand waived and recovery thereof stayed during pendency of the appeal.

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• Central Excise

• 2012 (4) TMI 254
  Modvat Credit on Invoices other than duplicate copies – Revenue stated that respondent-assessee illegally and irregularly availed Modvat credit on Fabricated heaters/Fabricated tubes/Crab Assembly and Refractory materials - on the ground that the words 'duplicate invoice' was not mentioned on invoices and Refractory and Refractory materials not covered under the definition of 'capital goods' – Held that:- Tribunal held that after the amendment of Rule 57G of the Rules vide Notification No.7/99-CE(NT) dated 9th February, 1999 the amended Rules would apply in all pending cases and the credit cannot be denied on minor procedural lapses in case the inputs were duty paid - credit should not be denied only on the ground that the documents referred to in sub-rule (2) does not strictly comply with the said Rule but contains the details of payment dues, description of goods, assessable value, name and address of the factory or warehouse etc. - Modvat credit on Refractory and Refractory materials is allowed as these items are used for lining of the furnace used for producing the final products - This position has also been clarified by the Central Board of Excise and Customs by issuing a circular in exercise of its power under Section 37B of the Act and made it applicable to all pending cases – in favour of assessee.

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• Wealth tax

• 2012 (4) TMI 295
  Exempting the property from the wealth-tax by ITAT ignoring section 40(3)(vib) - the assessee allotted the premises to the managing director for being used as residence – Held that:- any building and the land appurtenant to such building used as residential accommodation by any director, manager, secretary or any other employee of the assessee, such employee holding not less than one per cent. of the equity share of the assessee would be entitled to exemption - in case even the manager or secretary do not hold any share, nevertheless the assessee would be entitled to exemption of the above pro- vision- the claim of the assessee for exemption should be accepted Properties at Door Nos. 123 was leased out to the Tamilnadu Electricity Board and derived the benefits from the Board by way of installation of transformers Held that:- as benefits forms part of business and, therefore, they are entitled to exemption from wealth-tax in terms of section 40(3)(vib) of the Finance Act. Properties at Door Nos. 123 - one of the business objects of the assessee is leasing out the properties, a portion of the factory premises was leased out to M/s. Lotus Inks, which also carries on the manufacture of inks – Held that:- fact holding that the leasing out the premises owned by a company is part of the company's business and, therefore, the asset itself having been commercially exploited, is not includible in the net wealth, the assessee is entitled to exemption – in favour of assessee.

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• Indian Laws

• 2012 (4) TMI 293
  Whether Provident Fund authorities are justified in adjusting the amount realized from company-in- liquidation towards dues of sister concerns of said company – company seeking refund of same with interest – Held that:- It is found that there is functional integrality and all the establishments has the very same Managing Director who has been managing all the establishments. Therefore, adjustment of amount available to the credit of one of the establishments for realizing the provident fund dues of the other three establishments is not faulted with – Petition dismissed.

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