Newsletter: Where Service Meets Reader Approval.
TMI Tax Updates - e-Newsletter
April 19, 2014
Case Laws in this Newsletter:
Income Tax
Customs
Corporate Laws
FEMA
Service Tax
Central Excise
CST, VAT & Sales Tax
Articles
News
Circulars / Instructions / Orders
Highlights / Catch Notes
Income Tax
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Penalty u/s 271(1)(c) Search u/s 132(4) - when the statement is being recorded by the authorized officer it is incumbent upon the authorized officer to explain the provisions of Explanation 5 in its entirety to the assessee concerned - HC
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Allowability of 100% depreciation on particle size analyzer and dust collector - AO is directed to re-calculate depreciation @ 100% but considering the date of purchase of machineries whether it is for 180 days or less than 180 days - AT
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Tribunal also cannot enhance the income for the simple reason that the Tribunal is not empowered to place the assessee in a worst position than he was before the CIT(A) - the assessee cannot be placed in a worst position than it was before the CIT(A) - AT
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Claim of deduction u/s 80IC - All sales, purchases and manufacturing activities are carried out by the Haridwar Unit - The other branches are providing sales promotion and after sales service - deduction allowed - AT
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TP - The foreign exchange fluctuations income cannot be excluded from the computation of the operating margin of the assessee company - AT
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TP - The transfer pricing report furnished by the assessee is not in accordance with rules prescribed in this regard - The PSM has not been correctly applied as per law - No bench marking has been done thus, it cannot be approved - the most appropriate method in this type of function/transaction would be profit split method only - AT
Customs
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Classification of goods - spare parts for Segway two wheelers - The goods mentioned in the examination report can be the spare parts of two wheelers in SKD condition - cannot be held as complete vehicle - AT
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Penalty for aid and abetment in Mis-declaration on CHA there is error in holding the appellant CHA as a party in the alleged mis-declaration, there being no case of aiding or abetting made out against the appellant - AT
Service Tax
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Business auxiliary service - Exchange of old cars for new cars - it becomes totally a transaction of purchase and sale of old vehicles - AT
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If the appellant wanted to claim exclusion of the consideration received for the purpose of levy of Service tax, it was their responsibility to show by way of documentary evidence that the consideration received was not by way of Engineering Consultancy but for other services rendered - AT
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Insurance companies are eligible for cenvat credit of service tax paid on Insurance Auxiliary Service under reverse charge method - AT
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Penalty u/s 78 - the contention of the Revenue that the authority has no jurisdiction to reduce the penalty to 25% is ex facie illegal and contrary to the statutory provision. - HC
Central Excise
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SSI Exemption - two units - there is not even a dividing walls between the two units - with one entry and exit gate and the two units share a common electricity connection and pump house, common boiler and a number of other processes - no separate exemption - AT
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Valuation of goods - dharmada charges are includible in the assessable value - transit insurance charges and freight charges are not includible - AT
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When common bill of entry in the name of several importers is filed by the courier agency and photocopies are given to the importers with the importers name appearing in it, the Cenvat credit cannot be denied to the importer on the ground that the original bill of entry in the name of importer was not produced. - AT
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Waiver of pre deposit - extended period of limitation - o suppression can be alleged when during the relevant period decisions of higher appellate forum were in favour of assessee or there were conflicting decisions - AT
VAT
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Classification of Milk tribunal committed an error in holding that there was no manufacturing activity involved when fresh milk was converted as recombined milk/pasteurised milk. - HC
Case Laws:
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Income Tax
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2014 (4) TMI 636
Deletion of penalty u/s 271(1)(c) of the Act Search u/s 132(4) of the Act - Undisclosed income Held that:- Revenue contended that the assessee has not specified in its statement, the manner in which such income has been derived the objection of the Revenue is baseless as it has been observed by the CIT (A) that it has been specifically mentioned the manner, in which the undisclosed income has been derived Relying upon Commissioner of Income Tax v. Mahendra C. Shah [2008 (2) TMI 32 - GUJARAT HIGH COURT] - when the statement is being recorded by the authorized officer it is incumbent upon the authorized officer to explain the provisions of Explanation 5 in its entirety to the assessee concerned and the authorized officer cannot stop short at a particular stage so as to permit the Revenue to take advantage of such a lapse in the statement - thus, there is no infirmity in the order is upheld Decided against Revenue.
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2014 (4) TMI 635
Excessive and unreasonable expenditure - Treatment of income from operations Brokerage income Held that:- Certain customers have been introduced to the assessee through the ICICI Bank Ltd. and that is how there is increase in brokerage income - The increase is because of number of customers which have been sourced by ICICI Bank Ltd. - Once there is no formula for such services or facilities and for which payment is made nor has the revenue brought on record any material to show that the expenditure in question was excess or unreasonable, no substantial question of law arises for consideration in that case Decided against Revenue.
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2014 (4) TMI 634
Applicability of section 40A(3) of the Act Relationship of Agency present or not - Whether the Tribunal was justified in accepting the contention that there existed an agency between the assessee and M/s. Reliance Communication to justify its conclusion that Section 40A(3) was inapplicable Held that:- The question of agency is a question on fact and that factual question cannot be resolved merely applying the reasoning adopted by the Tribunal in some other case - such an issue has to be answered with reference to the facts and circumstances of each case and with reference to the material available before the Tribunal - if as a matter of fact, there existed an agency between the assessee and M/s Reliance Communication Limited, there is no reason why the assessee should be denied an opportunity to produce materials disclosing the agency and also Form 16A before the Tribunal so that the Tribunal can reconsider the claim of the assessee that they were an agent of M/s.Reliance Communication. The Tribunal arrived at its conclusions not on the basis of the assessment order or the appellate order, but on the basis of its own previous order - the appellant could not have disputed the issue of agency before the Tribunal there was no substance in the contention now urged that the revenue did not dispute the issue of agency before the Tribunal and therefore should be precluded from raising that issue before the Court thus, the order is remitted back to the Tribunal for reconsideration of the matter Decided in favour of Revenue.
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2014 (4) TMI 633
Rejection of book results Restriction of extra consumption of raw materials To what extent the additions were necessary - Held that:- The AO as well as the appellate authorities held that the book results did not reflect the correct position - CIT(Appeals) as well as the Tribunal limited such additions - CIT(A) reduced the excess sales to 20% of the turnover and, thereafter applied GP rate of 35% taking average of the three years of GP rate of the assessee Relying upon Commissioner of Income-tax vs. President Industries [1999 (4) TMI 8 - GUJARAT High Court] - exercise undertaken by CIT(A) and the Tribunal on the basis of evidence on record gives no rise to the substantial question of law - The exercise is primarily in the nature of appreciation of evidence and would be based on questions of facts the contentions of the revenue cannot be accepted Decided against Revenue.
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2014 (4) TMI 632
Application for seeking review Error apparent on the face of record - Incorrect method of computation of profits adopted - Held that:- Though the assessee has not preferred any appeal as against the order dated 15.10.2004, the revenue has preferred an appeal, which is still pending - it was pointed out by the Commissioner that the adoption of figure in the denominator could only give rise to anomalous situation, which has been elaborately dealt with by the Commissioner in the order - there is no ambiguity about the gross profit for the assessement year 1998-1999 - there is no error apparent on the face of the record in the Judgment passed warranting exercise of review jurisdiction - Relying upon Inderchand Jain (Dead) vs. Motilal (Dead) [2009 (7) TMI 1029 - SUPREME COURT] - review is not an appeal in disguise - The contention raised by the applicant would in effect amount to re-arguing the entire matter - The error to be pointed out in a review application should be manifest and apparent on the face of the record and cannot be fished out by the manner of thorough re-appreciation of materials placed - The contention of the learned counsel for the assessee that the order passed by the CIT (A) was not taken into consideration also deserves to be rejected thus, there is no error apparent on the face of the record to exercise the review jurisdiction Decided against Assessee.
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2014 (4) TMI 631
Estimation of profit - Estimated unaccounted turnover of unaccounted receipts Held that:- The CIT(A) worked out the turnover on the basis unaccounted electricity charges worked out at ₹ 13,98,08,035 and estimated the profit on it at 2.76% - According to the CIT(A) unaccounted turnover is more than the accounted turnover - Instead of applying rate of profit at 2.76% as income on unaccounted turnover, it is appropriate to determine the net profit on the basis of mean rate of net profit which was worked at 2.06%, as recorded by the CIT(A) relying upon DCIT Central Circle, Vijayawada Versus M/s. Prakash Arts Moving Media [2010 (11) TMI 863 - ITAT VISAKHAPATNAM] - the AO is directed to recompute the net profit on unaccounted turnover at ₹ 13,98,08,035 by applying the mean rate of net profit as mentioned in CIT(A)'s order at 2.06% - Decided in favour of Assessee. Addition on account of estimated seed capital Unaccounted business carried on Held that:- The addition is made by the CIT(A) only on estimation basis though there is no whisper on this issue at the end of the AO which is nothing but enhancement of assessed income by CIT(A) without giving fair opportunity of hearing to the assessee - no information relating to the capital employed for the purpose of purchase of raw material outside the books of account was found during the course of search - the addition is only on surmises and conjectures which cannot be permitted in search assessment Decided partly in favour of Assessee. Genuineness of the transaction Validity of admission of additional evidence u/s 46A of the Rules Held that:- All 13 investors are of the family members/director of the assessee 5 company and out of them 9 are assessed to tax and they have furnished returns of income and investment is through banking channels - the CIT(A) deleted ₹ 30.25 lakhs pertaining to 9 parties and confirmed ₹ 4 lakhs from non 5 assessees Relying upon CIT vs. Lovely Exports [2008 (1) TMI 575 - SUPREME COURT OF INDIA] - When the assessee furnished income 5 tax details, the burden cast upon the assessee is proved - If the Department has any doubt it could have proceeded against the investor and not against the assessee the addition cannot be made in the hands of the assessee - the same could be considered in the hands of the respective investors as unexplained investments u/s 69 of the Income Tax Act, 1961 there was no infirmity in the order of the CIT(A) - It is not possible to say that there is violation of Rule 46A of IT Rules Decided against Revenue. Unexplained credits in bank account Addition on account of protective basis - Held that:- CIT(A) was of the view that the additions are made by the AO on protective basis in the hands of the assessee - there is a confusion in mentioning of the bank account held jointly by Mr. Shivram K. Agarwal, the assessee and his wife Mrs. Vanita Agarwal at M/s Nasik Cooperative Urban Bank Ltd whose account number is 1624 - the company was shown as source of the cash deposits and also the end 5 user of the amounts for making out its expenditure in the form of electricity charges, the said amounts are offered for tax in the hands of M/s. Mahavir Ispat Pvt. Ltd thus, the AO is directed to delete the addition made on the protective basis in the hands of the assessee.
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2014 (4) TMI 630
Addition made towards unexplained opening balance Held that:- The decision in Smt. Surapu Indira Devi Vs. ACIT [2014 (3) TMI 679 - ITAT HYDERABAD] followed The finding given by the CIT(A) is justified as there is no seized material to disturb the opening capital balance, which was accepted by the Department in the original return of income filed the order fo the CIT(A) upheld Decided against Revenue. Condonation of delay Delay of 109 days for filing cross objection Held that:- Assessee submitted that once there is no warrant in the hands of the cross objector, the assessment made de hors of materials is bad in law and should have been annulled - The reasons advanced by the assessee are not acceptable thus, the petition for condonation of delay in filing the C.O. by 109 days is rejected and the C.O. is unadmitted Decided against Assessee.
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2014 (4) TMI 629
Reasonableness of the sum offered - Addition of notional income on security deposit Computation of house property u/s 23(1)(a) of the Act - Whether the rental income offered by the assessee @ Rs. 11 lakhs per month is reasonable or not Whether the sum of Rs. 1.32 Crs is a reasonable ALV as offered by the assessee or Rs. 1.32 Crs, increased by the notional interest on the reducing balances of the security deposit calculated the notional interest rate of 8% - Held that:- The assessee received Rs. 11 lakhs per month as rent and the assessee offered the sum of around Rs. 1.33 Crs as a gross ALV of the assessee, including 1,34,558/- from Hughes Telecom / Tata Teleservices The aspect of reasonableness was not examined by the authorities - The addition made by the AO on account of notional interest applying the rate of 8% on the reducing interest free security deposits is widely on ad-hoc basis and lack of material or evidence to support - There is no information brought on to the record to demonstrate that the rental income for similar property in similar location is higher than what is offered by the assessee in the rental income - applying the rate of 8% without examining the facts and without giving the findings, it is not appropriate to say that that the security deposit has earned interest income from the bank. The assessees failure to file the basis showing the justification for arriving at the monthly rent of Rs. 11 lakhs for the premises also cannot be appreciated - certain basic things are missing and it is required to remand the matter to the files of the AO - Lower authorities have not provided any discussion on whether the said sum of Rs. 1.32 Crs includes portion attributable to the interest segment on the security deposit - thus, all the three appeals are remitted back to the AO for examining the reasonableness of the computation of the monthly rent of Rs. 11 lakhs per month as offered by the assessee and in what way the same amounts to deflation of rent qua the other premises in the vicinity Decided in favour of Assessee.
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2014 (4) TMI 628
Deletion of penalty u/s 271(1)(c) of the Act Bonafide for claiming deductions proved - Held that:- A fraud/defalcation has been committed by one of the employees of the assessee which came to the notice of the assessee in 2005 - the return of income along with Tax audit report were filed much earlier to the date of detection of defalcation - the assessee could not produce bills and vouchers because the same has been destroyed by the employee of the assessee - The facts clearly show that the claim of expenditure was bonafide at the time of filing of the return of income - Merely because of subsequent events, the assessee could not produce bills/vouchers to substantiate its claim of expenditure cannot ipso facto lead to the conclusion that the assessee has filed inaccurate particulars - the decision in Commissioner of Income-tax Versus M/s. Universal Medicare Pvt. Ltd. [2014 (1) TMI 1261 - ITAT MUMBAI ] followed also in, COMMISSIONER OF INCOME-TAX Versus RELIANCE PETROPRODUCTS PVT. LTD. [ 2010 (3) TMI 80 - SUPREME COURT] - There is a distinction between wrong claim and false claim - Considering the entire factual matrix, it cannot be said that assessee had made false claim Decided against Revenue.
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2014 (4) TMI 627
Bar of limitation - Validity of the penalty order passed u/s 271B of the Act Held that:- The penalty proceedings have been initiated on 06.10.2003 and also again on 09.02.2004 - But the penalty order has been passed only after 03.03.2006 the penalty order is barred by limitation Even if, it is considered for a moment that the provisions of clause (a) is applicable, then also the order is barred by limitation - it was passed after expiry of about one year from the date of the order of CIT(A) the contention of the assessee that it is barred by limitation is accepted thus, the order of the CIT(A) set aside and the penalty u/s 271B of the Act deleted Decided in favour of Assessee.
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2014 (4) TMI 626
Nature of loss Speculation Loss or not Forward exchange contracts Held that:- The decision in CIT vs. Badridas Gauridu (P) Ltd vs. CIT [2003 (1) TMI 61 - BOMBAY High Court] followed In order to hedge against losses, the assessee had booked foreign exchange in the forward market with the bank - the matter is remitted back to the AO for fresh consideration while following the above mentioned judgement Decided in favour of Assessee. Deletion on account of diversion of interest bearing funds Interest free loans provided to subsidy companies Held that:- As decided in assessees own case and in the decision in S. A. Builders Ltd. Vs Commissioner of Income-tax (Appeals) [2006 (12) TMI 82 - SUPREME COURT] followed - CIT (A) has deleted the addition after giving a finding that interest free advances to subsidiary companies have been given on commercial expediency and no disallowance could therefore be made - the order of the CIT (A) is fair and reasonable and it does not call for any interference Decided against Revenue. Liability of advertisement expenses as FBT u/s 115WD of the Act Held that:- Assessee contended that there is couple of issues raised in the ground and the first issue relates to taxability of development expenditure as FB and the second one being the bus hire charges incurred for the purpose of transporting the employees to the premises of the assessee thus,the matter is remitted back to the AO to examine the applicability of the said CBDT Circular and for fresh adjudication Decided in favour of Assessee. Inclusion of bus hire expenses under FBT Held that:- The expenses incurred by the company on the employees for transporting them between residence and the premises of the company do not attract FBT thus, the matter is remitted back to the AO for examination of the facts of the transportation and the places covered by the bus employed Decided in favour of Assesseee.
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2014 (4) TMI 625
Eligibility for deduction u/s 80IB(2) of the Act Process amounts to manufacture or not u/s 80IB(2)(iii) of the Act Held that:- The decision in ACIT Vs National Lamination Industries [2007 (6) TMI 230 - ITAT AHMEDABAD] followed There cannot be two opinions that the shape of lamination has undergone a complete change after performing various processes - the raw material from which the core is made, is called CRGO coils whereas the item, which emerges after various processes, is called transformer core - Also the CRGO coils, even with few processes, cannot be used in a transformer unless all the processes are complete - It is the transformer core only, which is the end-product, which can be used in the manufacturing of transformer - due to various processes, the product has distinct name, shape and uses - By these processes, the raw material loses its identity and new product comes into existence, which is commercially recognized as new product - the assessee were engaged in the manufacturing or producing an article or thing and had rightly allowed exemption u/s 80 IB of the Act thus, the process used by the assessee in its business is eligible for deduction u/s. 80IB of the Act Decided against Revenue. Eligibility for deduction u/s. 80IB of the Act - Assessee did not employ 20 or more workers in the process carried on by the assessee without the aid of power Held that:- The issue needs further verification thus, the matter is remitted back to the AO for examination of the register of wages and in particular the Revenue stamps affixed - If the entries in the register of wages are found correct and genuine, the AO shall allow the deduction so claimed by the assessee u/s. 80IB of the Act and if found otherwise, the assessee will not be eligible for deduction u/s. 80IB of the Act Decided partly in favour of Revenue.
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2014 (4) TMI 624
Validity of passing of effect order Petition pending u/s 154 of the Act not decided Held that:- The proceedings under section 154 of the Act have nothing to do with the action of the AO in giving effect to the order of the Tribunal - the appeal of the assessee was decided on merits by the Tribunal vide order dated 10.03.06 - The AO was duty bound to give effect to the order of the Tribunal - Even though an application under section 154 moved by the assessee was pending before the AO, still it cannot be said that the AO was not justified in giving effect to the order of the Tribunal - The assessee has got a separate remedy against the decision or non-decision on its application moved u/s 154 of the Act - There is nothing provided in the section 154 of the Act that pending such application moved under this section, the AO is prevented from giving effect to the order of the appellate authority. Bar of limitation Held that:- The application moved or pending before the AO on the similar grounds which have already been adjudicated by the Tribunal, becomes infructuous and nullity and the AO becomes functus- officio to decide the said application on merits - the AO cannot sit in appeal relating to the matter which has already been adjudicated by the Tribunal - Once the assessee moved the application u/s 254 of the Act before the Tribunal and the same has been considered and decided by the Tribunal, the order of the Tribunal would be binding upon the AO and the AO has no jurisdiction to decide the application moved u/s 154 on the matter which has already been decided by the Tribunal - the assessee has independent remedy to move to the higher authorities raising the issue relating to adjudication or non-adjudication of its application, but on that ground it cannot be said that the order giving effect to the order of the Tribunal was bad in law Decided against Assessee. Validity of reopening of case Held that:- The AO while giving effect to the order of the Tribunal was not supposed to give any finding on the merits of the case but only course before him was to give effect to the order of the Tribunal as such Decided against Assessee. Validity of reopening of assessment Held that:- The issue has already been raised by the assessee in his rectification applications as observed above before the Tribunal and the rectification applications have already been dismissed by the Tribunal - the matter has already been adjudicated by the Tribunal and the assessee has not filed any appeal before the Hon'ble High Court, the findings of the Tribunal have become final and there was no jurisdiction either to the AO or to the CIT(A) to re-adjudicate these issues on merits either on any application moved under section 154 or otherwise Decided against Assessee.
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2014 (4) TMI 623
Disallowance of product development expenses Capital or revenue expenses Depreciation on product development expenses Held that:- The expenses has been outsourced as assessee did not have any skill/specialized personal - As per Section 35AB, where the assessee has paid in any previous year any lump sum consideration for acquiring any know-how for use for the purposes of his business, 1/6th of amount so paid shall be deducted in computing the P&L account of the business for that year - Know-how means any industrial information or technique likely to assist in the manufacture or processing of goods or in the working of a mine, oil well or other sources of mineral deposits (including the searching for, discovery or testing of deposits or the winning of access thereto) - The Product Development Report was dated 20.03.2009 and agreement was dated 12.12.2007, whereas the assessee had claimed this expenditure in A.Y. 2009- 10 - As per the agreement, the amount is to be paid in advance but assessee had not furnished any evidence for paying this amount to the developer during the year thus, the matter is remitted back to the AO to verify whether the project Report was actually used for the business purposes in this year or not and accordingly, he had paid the money in the year under consideration Decided in favour of assessee. Allowability of 100% depreciation on particle size analyzer and dust collector Held that:- The AO had already allowed the 100% depreciation on Rs. 22,09,948/- in preceding year - When the AO had accepted the assets are depreciable @ 100%, the Revenue cannot deny 100% depreciation on remaining amount for 180 days - Further, addition made during the year is also having similar nature thus, the AO is directed to re-calculate depreciation @ 100% but considering the date of purchase of machineries whether it is for 180 days or less than 180 days - The CIT(A) also allowed 100% depreciation on dust collector but it is allowable from the date of purchase not for the whole year Decided in favour of Assessee. Reduction in disallowance u/s 14A of the Act - The CIT(A) had partially allowed the appeal of the assessee by observing that dividend from the foreign company is taxable and hence, such investment cannot be considered for making disallowance u/s. 14A thus, when dividend from the foreign company is taxable then it could not be made part of disallowance u/s. 14A - CIT(A) is right in holding the disallowance of Rs. 6.31 lacs Decided against Revenue. Addition on account of capitalization of interest - Held that:- IDBI's term loan was disbursed on 05.09.2008 at Rs. 219 lacs and Rs. 200 lacs on 31.03.2009 - The assessee had admitted before the CIT(A) that these funds were utilized towards capital work-in ITA progress at various location during the year under consideration - The assessee submitted before the CIT(A) that Rs. 209.21 lacs interest was paid on term loan - it had been capitalized Rs. 16.27 lacs in capital work-in-progress the working made by the appellant before the CIT(A), which has been accepted by the CIT(A) without giving any opportunity to the AO - the disallowance in work-in-progress on account of interest does not appear proportionate to the term loan and interest expenditure debited in the P&L account the issue is required further verification by the AO thus, the matter is remitted back to the AO Decided in favour of Revenue.
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2014 (4) TMI 622
Deletion of arm's length price (ALP) adjustment Margins used for adjustment - Whether the CIT(A) has erred in using the margins of the assessee after allowing for adjustment for capacity utilization Held that:- CIT(A) rightly held that in case a reasonably accurate method of making adjustment for such low capacity utilization can indeed be made, such an adjustment will meet ends of justice particularly as the assessee had utilized only 31.75% of its installed capacity - there was no reason to interfere in very well-reasoned findings and directions of the learned CIT (A) - Rule 10 B (1)(e)(ii) of the Income Tax Rules 1962 does indeed provide that the net profit margin realized in a comparable uncontrolled transaction is adjusted, inter alia, for differences in enterprise entering into such transactions, which could materially affect the net profit margin in open market - Capacity underutilization by enterprises is certainly an important factor affecting net profit margin in the open market because lower capacity utilization results in higher per unit costs, which, in turn, results in lower profits - CIT(A)'s approach is reasonable in this regard and the adjustments are on a conceptually sound basis Decided against Revenue. Allowability of comparables Held that:- CIT(A) rightly held that the decision in DCIT v. Quark Systems (P.) Ltd [2009 (10) TMI 591 - ITAT, CHANDIGARH] followed - there cannot be any estoppel against pointing out assessee's own errors in selection of comparables and that aspect of the matter is to be decided on merits, and on merits as also since the AO has not made any submissions against the same in remand report, these additional comparables can be accepted thus, there is no need to interfere in the findings of the CIT(A). Exclusion of comparable - Major dissimilarities between the tested party and the comparables Held that:- There cannot be a cherry picking for deciding parameters of rejection of a comparable, and the parameters have to be broad enough of being general application - In the scheme of things envisaged under the TNMM, it is inevitable that there will be some differences between the comparables and the tested party but the impact of these differences is substantially mitigated by the averaging - If a comparable is being sought to be rejected on the ground of its differences vis-ΰ-vis the tested party, similar criteria must be adopted for deciding suitability of other comparables as well - It cannot be open to any judicial authority to reject a comparable on the ground that the comparable has significant differences vis-ΰ-vis the tested party, unless the differences are broad enough of general application, are such as materially affecting the profitability, as not being capable of reasonably accurate adjustments to eliminate the impact of such differences, and as are also not found in other comparables - All the comparables must face the same test on which comparability of a particular comparable is being sought to be rejected thus, the matter is remitted back to the CIT(A) for fresh adjudication Decided in favour of Revenue.
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2014 (4) TMI 621
Transfer pricing adjustment Purchase of raw materials from AE - Determination of ALP CUP method appropriate or not Held that:- The TPO has wrongly rejected the quotations from Asian Metal - Asian Metal is one of the leading Marketing Researcher - Asian Metal is one such website which is used for obtaining metal prices - TPO considered the price of Molybdenum Oxide which is a final product to that of raw material purchased by the assessee - Fundamentally, the comparison itself is wrong - assessee also justified the prices paid on the basis of quotations and adjustments being made for the Ex-works quotation to the CIF quotations of the assessee - Thus, there is an internal CUP in the form of actual price paid to third parties by the Holding company with mark-up and it also justified by external CUP by way of Asian Metal Quotations with due adjustments - Relying upon Destination of the World (Subcontinent)(P.) Ltd. Vs. ACIT, Circle 10(1), New Delhi [2011 (7) TMI 576 - ITAT, DELHI] - in the first instance, attempt should be made to determine arm's length price of controlled transactions by comparing same with internal uncontrolled transactions undertaken in same or similar economic scenario. No attempt has been made by TPO to make FAR analysis and give necessary adjustments required to make them comparable. Even the calculations made by the TPO are found to be wrong by the DRP - DRP's working in determining the ALP amount is also not correct - Once the amount of imported material is taken in its entirety for its comparison, why there is a requirement to add further amount for the amount utilised in the production is not explained thus, selection of CUP is the appropriate method and the assessee has both details for internal CUP as well as external CUP - CUP method should have been adopted as most appropriate method for comparing purchase price of the raw materials of Molybdenum acquired by the assessee from AE - Assessee justified the price paid by way of internal CUP in relation to actual price paid to third parties by M/s. KTC Korea and the mark-up invoice wise and also compared with reference to the external CUP in relation to Asian Metal Quotations thus, the matter is remitted back to the TPO to examine the assessees contention and for fresh adjudication Decided in favour of Assessee.
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2014 (4) TMI 620
Addition u/s 69A of the Act Quantification of unaccounted investment Rejection of books of account not made Held that:- During the course of search operation incriminating materials was found which disclosed investment of undisclosed income for construction of the building assessee rightly contended that the books of account were not rejected by the assessing officer - in the assessment proceedings consequent to the search, the material found during the course of search operation along with the books of account maintained in the course of regular activity has to be taken into consideration - the observation made by the CIT(A) with regard to rejection of books of account may not prejudice the interest of revenue in any way thus, there is no infirmity in the order of the CIT(A) Decided against Revenue. Opportunity of being heard Held that:- The CIT(A) found that the AO suo motu rejected the objections filed by the assessee which witnessed in three or four instances of duplication - an opportunity was provided by the assessing officer on 03-12-2010 and 08-12-2010 and ultimately, the order was passed on 30-12-2010 - if further time was given to the assessee they would have explained the investment before the AO - There is a statutory limit for passing the assessment order- the AO has done everything possible within the prescribed time by affording an opportunity to the assessee thus, there is no reason to interfere with the order of the CIT(A) Decided against Revenue. Enhancement of income on account of credit mismatch Held that:- The Tribunal is empowered to adjudicate the matter - The Tribunal cannot place the assessee in a worst position than he was before the CIT(A) - If the CIT(A) failed to enhance the income of the assessee, then certainly, the Tribunal also cannot enhance the income for the simple reason that the Tribunal is not empowered to place the assessee in a worst position than he was before the CIT(A) - the assessee cannot be placed in a worst position than it was before the CIT(A) - the Tribunal has no jurisdiction to enhance the taxable income due to mismatch of the account Decided against Revenue. Payment made on behalf of assessee trust Payment made to South Kerala Cashew Export Held that:- The material available on record suggests that the payment was made by South Kerala Cashew Export - The assessee has produced copies of the vouchers / invoices - The assessee has also filed a reconciliation statement before the CIT(A) - CIT(A) found that the assessee could not explain a sum of Rs.2,54,782 - he confirmed the addition to the extent of Rs.2,54,782 there is no infirmity in the order of CIT(A) Decided against Revenue. Enhancement of income Difference in credits Held that:- The CIT(A) has a discretion to enhance the income in exercise of his appellate jurisdiction, Tribunal cannot compel the CIT(A) to enhance the income - The CIT(A) ought to have exercised his jurisdiction since he has powers which is co-terminus with that of the assessing officer - The jurisdiction of the Tribunal cannot be extended to put the assessee in jeopardy thus, there was no infirmity in the order of the CIT(A) Decided against Revenue. Unaccounted investment Held that:- In the block assessment income has to be computed primarily on the basis of the material available on record including the seized material - the seized material as well as the valuation done by the District Valuation Officer has to be taken into consideration - When the District Valuation Officer estimated the cost of construction and there is a difference in reconciliation to the extent of Rs.46,18,176, the Tribunal is of the considered opinion that this Rs.46,18,176 might have been relating to the revenue expenditure - the CIT(A) has rightly deleted the addition made by the AO Decided against Revenue. Exemption u/s 10(23C) of the Act Held that:- All receipts of the assessee cannot be considered to be income of the assessee - any amount collected for admission of the students over and above the prescribed fee has to be considered as capitation fee and that cannot be construed as income of the assessee within the meaning of section 10(23C) - Collection of capitation fee is inhuman, contrary to all social norms besides being contrary to the provisions of Constitution of India Relying upon This view of ours is fortified by the judgment of the Apex Court in T.M.A. Pai Foundation & Ors vs State of Karnataka & Ors [2002 (10) TMI 739 - SUPREME COURT] - the term "any income" has to be considered as income of the property held under the trust and the income generated in the course of running of the institution in the legal manner - It cannot include capitation fee collected for admission of the students - no material is on record to suggest that the assessee has collected any capitation fee for admission of the students - The trustees Shri Abdul Salam and Shri AA Salam happened to be businessmen and admitted that they have invested their own funds in the statement recorded u/s 132(4) of the Act - the CIT(A) has rightly deleted the addition made by the AO there was no infirmity in the order of the CIT(A) Decided against Revenue. Dropping of the enhancement proceedings Unaccounted payments made to doctor Held that:- Unless the addition is made by the CIT(A) in the enhancement proceedings or the addition made by the AO is confirmed by the CIT(A), the Tribunal cannot step into the shoes of the lower authority and make the assessment - The Tribunal cannot put the assessee in a worst position than he was before the CIT(A) - In the absence of any specific addition made by the CIT(A) in the course of first appellate proceedings, the Tribunal cannot make any further addition in the course of second appellate proceedings Decided against Revenue.
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2014 (4) TMI 619
Adoption of Net profit against GP Unaccounted sales Expenses incurred over and above MRP disclosed Held that:- The Assessee had suppressed sales and also suppressed the expenses and in view of these facts, the books of accounts of the Assessee cannot be relied and was therefore rightly rejected u/s 145(3) of the Act by the AO - Once the books of accounts of the Assessee are rejected, a fair estimate of the profits needs to be made - AO while estimating the profits of Assessee has noted even DGCEI has noted that not only MRP was reduced for the purpose of excise duty but also complete expenses/costs with respect to purchase of raw materials and other expenses were shown at a lesser amount which therefore showed that the entire expenses were also not recorded in the books of account - The finding of AO could not be controverted by Assessee by bringing any tangible material on record. The CIT(A) has adopted Net Profit rate of 15.15% for A.Y. 06-07 as compared to 19.51% for A.Y. 05-06 - When the books are rejected, there is no justification for adopting the Net Profit of 15.15% for A.Y. 06-07 which is lower than the rate of 19.51% for A.Y. 05-06 which has been considered for estimation of income - the estimate of G.P. made by A.O. @ 40% was on a higher side but at the same time the action of CIT(A) in considering the Net Profit rate was also not fully justified and the fact that the present appeal is of Revenue and Assessee is not in appeal - the profits for both the years to be on the basis of 20% of Gross profits as against 40% made by AO Decided partly in favour of Revenue.
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2014 (4) TMI 618
Claim of deduction u/s 80IC of the Act - Applicability of section 115JB of the Act Partial disallowance of 10% of turnover as profit on account of the market value of the brand Held that:- The assesses books have been accepted, brand is owned by it which is integral part of the assets of the eligible unit - The sales have not been disturbed, profits of the eligible unit have gone up to 33% from preceding years 29% due to its product superiority - The basis given by authorities below for reduction of claim is vague and factually incorrect based on an assumption that brand does not belong to the assessee - Without any material or basis, it is assumed that it may belong to some other concern connected to its directors - The fact of the matter is that the brand is owned by assessee and the products manufactured at Haridwar unit are the only products - There exists no other entity which is identified as owner of the brand by AO thus the allegation is factually incorrect - the provision of sec 80IC have been introduced by legislature to promote the industrial activity and their profitability - Merely because the industrial undertaking earned higher profits does not call for an inference that claim of deduction is to be will be nil on presumptions there was no justification in CIT(A)s order retaining the reduction of 10% from the deduction thus, is set aside Decided against Revenue. Disallowance @ 5% of turnover Value of the directors experience and knowledge Held that:- The AO was of the view that 5% of the turnover of the company is attributable to the experience and specialized knowledge of the director and not to the eligible unit - As per the P&L a/c for the period ending 31-03-2006, the directors remuneration was Rs. 60,000/- Over a period of two years it has been increased to Rs. 23,00,000 - This shows that adequate compensation is being provided to the director for his services, knowledge, contract and skills - As the company have adequately compensated the director for using their experience and specialized knowledge, therefore, the benefit accruing to the company belongs to it and would form part of its eligible profit - Benefit accruing a company as a result of experience or knowledge of its employees (Directors) cannot be used to bifurcate the eligible profit derived by the industrial undertaking u/s 80IC thus, the order of the CIT(A) upheld Decided against Revenue. The assessee filed a consolidated financial statement in which the expenses incurred by all the units and the head office have been reduced before arriving at the total eligible profit for claiming deduction u/s 80IC revenue has not controverted the statement in any manner - All sales, purchases and manufacturing activities are carried out by the Haridwar Unit - The other branches are providing sales promotion and after sales service - The income earning activities thus cannot be held to the carried out from places other than the eligible unit besides in consolidated financial statement the income of these branches has already been reduced Decided against Assessee. Liability to pay MAT u/s 115JB of the Act Held that:- CIT(A) was of the view that the exemption is available to SEZ only and that too when the assessee is a developer - Ongoing through the above sub-section (6) it is clear that the exemption is available from any business carried on in a unit - The assessee has carried on the business in its unit at Haridwar and hence it is eligible for deduction under Section 115JB of the Act thus, there is no reason to interfere in the order of the CIT(A) Decided against Assessee.
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2014 (4) TMI 617
Determination of ALP - CUP method or Profit margin method Held that:- The TPO has judiciously arrived at a conclusion for adopting a TNMM method and compared the financial results of the assessee company and the comparable company M/s. Audco India Ltd., though there are certain dissimilarities as observed by the CIT(A) - the products manufactured by both the companies are similar though not identical - There is nothing on record to suggest that the nature of business of both the companies is different - there were no other companies which were comparable other than the one pointed out by the TPO assessee has not brought out adequate materials on record for adopting cost plus method - CIT(A) has also not verified the computation adopted by the assessee by cost plus method and without any finding on the same simply deleted the addition made on the basis of TNMM method. The AO has excluded the research and development expenditure while arriving at the operational profit of M/s. Audco India Ltd. - both the companies are manufacturing identical type of products, it cannot be presumed that the assessee company has not incurred any expenditure on research and development thus, the computation of the ALP in the case of the assessee shall be reworked, by treating the difference in profit margin as nil and accordingly, any upward revision cannot be sustained for making addition towards increase in income based on determination of ALP Decided in favour of Assessee. Selection of comparables - Held that:- There was no justification as to why the TPO had not adopted the comparable company M/s. Audco India Ltd., for the subsequent assessment year. Instead Ld. TPO has adopted two different companies M/s. Orson Holdings Co. Ltd and M/s. Sakthi Auto Ancillary P Ltd., as comparable companies the TPO without examining the intricacies of the assessee company and comparable companies cryptically arrived at the conclusion the matter is remitted back to the TPO for fresh adjudication Decided in favour of Revenue. Exclusion of sale of DEPB license u/s 80HHC of the Act Held that:- The decision in Topman Exports v. CIT [2012 (2) TMI 100 - SUPREME COURT OF INDIA] followed thus, the matter is required to be remitted back to the AO for fresh adjudication Decided in favour of Revenue.
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2014 (4) TMI 616
Addition towards excess claim of depreciation on electrical equipments Held that:- The emphasis for granting higher rate of depreciation as far as wind electric generators are concerned, the necessity is to examine the functional test of the equipment - A categorical evidence has to be placed that the equipment is whether an integral part of wind mill power project - Such an evidence or finding is absent in the present case - nothing is on record to establish that on the touchstone of functional test the wind electric generators are so designed that they can only be used for power generation as done by the wind mill and meant for no other use. There is nothing on record, such as a report from a qualified person to establish that the wind electric generators are designed in such a manner to facilitate the power generation and distribution from windmill - a machinery does not require protection so installed in a wind mill power project but such a generator cannot be said to be a part and parcel of the project - the Appendix and the depreciation schedule has categorically worded that "windmills and any specially designed devices which run on wind mills" are qualified for 100 per cent rate of depreciation - the generators are not specially designed devices and are not entitled for higher depreciation as claimed by the assessee thus, the order of the CIT(A) set aside - Decided in favour of Revenue. Allowability of deduction u/s 80IA of the Act Explanation 5 to section 32(1)(iii) of the Act not considered Rule 18BBB not considered Held that:- The decision in Asst. Commissioner of Income-tax, Central Circle-5, Hyderabad & Others Versus M/s lanco Infratech Ltd. [2012 (10) TMI 529 - ITAT HYDERABAD] followed - CIT(A) rightly held that the assessee is eligible for higher rate of depreciation for the AYs 2002-03 and 2003-04 on wind mill project and accordingly, no depreciation remains to be claimed from the AY 2004-05 - the profits from wind power projects as calculated by the assessee company for the purpose of deduction u/s 80IA of the Act are correct. The assessee had computed profits of the undertaking and has also filed certificate of the auditor in respect of the eligible undertaking - there was no infirmity in the order of the CIT(A) in holding that no depreciations remains to be claimed from the AY 2004-05 and the profits from wind power projects as calculated by the assessee company for the purpose of deduction u/s 80IA of the Act are correct - the order of the CIT(A) is upheld Decided against Revenue.
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2014 (4) TMI 615
Selection of comparables - Confirmation of use of filters Comparative analysis Held that:- The assessee's contention that it is functionally different, cannot hold much water - Be that as it may, fact however remains that M/s Infosys Technologies Limited is a giant in the field of software development services having considerable brand value, it also assumes all the risks related to the business - the turnover of Infosys Technologies during the year is about Rs.13000 crores as against Rs.32 crores of the assessee - This itself makes Infosys Technologies Limited uncomparable to the assessee - When the Assessing Officer is applying the turnover filter by adopting a lower limit of Rs.1 crore, he should also have fixed an upper limit while applying the turnover filter - Infosys Technologies Limited cannot be considered to be a comparable to the assessee Relying upon CIT v. Agnity India Technologies (P.) Ltd. [2013 (7) TMI 696 - DELHI HIGH COURT] - big companies like Infosys cannot be treated as comparable to small captive service providers like the assessee thus, the AO/TPO is directed to exclude M/s Infosys Technologies Limited from the list of comparables for determining the ALP Decided partly in favour of Assessee. The assessee has placed the annual reports of the companies, the TPO should have considered the same and should not have rejected on the ground of non-availability of data in public domain - If information relating to the companies are available with the TPO and if the companies satisfy the filter applied by the TPO then there is no justification for rejecting the companies as comparables thus, the matter is remitted back to the TPO for fresh adjudication Decided in favour of Assessee. Mahindra Consulting Limited Held that:- Assessee contended that as per the annual report of the assessee, there is no related party transactions and whatever related party transactions are there are between the subsidiary company and other companies and not with the assessee company thus, the matte is required to be remitted back to the TPO to ascertain as to whether actually there is any related party transaction and if at all there is any related party transaction whether they exceeded 25% threshold limit of related party transaction to turnover filter adopted by the TPO Decided in favour of Assessee. Inclusion of bad debts in operating costs Computation of margin of the companies Held that:- The TPO had computed the net profit margin of the company at 72.38% - During the appeal proceedings before the CIT (A), the assessee specifically objected to the profit margin adopted at 72.38% of VMF Softech Limited by contending that bad debts and provision for bad debts and advances should be considered as part of the operating cost - the CIT (A) in the order passed by him did not accept the net profit margin worked out to 4.37% by the TPO by observing that the computation made by the TPO is erroneous and himself proceeded to compute the net profit margin at 71.99% - the CIT (A) has not given any reason why the computation made by the TPO in the remand report is erroneous thus, the matter is remitted back to the TPO for fresh adjudication Decided in favour of Assessee. Exclusion of foreign fluctuations from operating income Held that:- The decision in Capital IQ Information Systems (India) (P.) Ltd. Versus Deputy Commissioner of Income-tax (International Taxation) [2014 (3) TMI 626 - ITAT HYDERABAD] followed - The foreign exchange fluctuation gains is nothing but an integral part of the sales proceeds of an assessee carrying on export business - foreign exchange fluctuation gains form part of the sale proceeds of exporter-assessee - The foreign exchange fluctuations income cannot be excluded from the computation of the operating margin of the assessee company - even for the year under appeal also the same principle should be applied, and while computing the margin for determining the ALP for the assessment year under appeal, the foreign exchange gain/loss has to be taken as part of the operating margin the AO/TPO is directed to treat the foreign exchange fluctuation gain/loss as part of operating income of the comparable companies for computing the net margin Decided partly in favour of Assessee.
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2014 (4) TMI 614
Deletion made on account to international transaction with AE Determination of method Held that:- The method specifies in Clause (ii) that the relative contribution made by each of associated enterprise should be evaluated on the basis of FAK analysis and on the basis of reliable external data - bench marking by selection of comparables is mandatory under this Method - Relying upon Aztec Software & Technology Services Ltd. v. Asstt. CIT, Bangalore (SB) [2007 (7) TMI 50 - ITAT BANGALORE] - The profits need to be split among the AEs on the basis of reliable external market data, which indicate how unrelated parties have split the profits in similar circumstances - For practical application, bench marking with reliable external market data is to be done, in case of residual profit split method, at the first stage, where the combined net profits are partially allocated to each enterprise so as to provide it with an appropriate base returns keeping in view the nature of the transaction - The residual profits may be split as per relative contribution of the Associated Enterprise - splitting of residual profits, no bench marking is necessary, as it is not practicable. The transfer pricing report furnished by the assessee is not in accordance with rules prescribed in this regard - The PSM has not been correctly applied as per law - No bench marking has been done thus, it cannot be approved - the most appropriate method in this type of function/transaction would be profit split method only - the relevant years were the formative years, when transfer pricing was introduced and the law was developing thus, the matter is remitted back to the AO for fresh adjudication Decided in favour of Revenue.
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2014 (4) TMI 613
Addition on account of entire job charges on alleged clearance of 836120 Mts. Of Man made processed fabrics worked out by the central excise authorities during the search proceedings Facts filed in Affidavit not appreciated Held that:- During the course of hearing, assessee specifically asked to clarify whether page no. 17 of paper book had been submitted before the AO at the time of assessment or not - He admitted that this argument of page no. 17 of paper book was submitted before the AO at the time of assessment thus, the AO is directed to consider the submission of the assessee and decide the issue as per law - In case, this paper is not available in the assessment record, the addition already made will be treated as sustained Decided in favour of Assessee.
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Customs
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2014 (4) TMI 611
Smuggling Whether goods were notified goods Burden of Proof - Issuance of show cause notice - Held that:- Since goods seized in question are not notified goods - Thus, the burden of proof that these goods are smuggled in nature is on the Revenue - The Revenue has failed to produce any cogent evidence that that these goods were smuggled into India and were not procured by the respondents There is no infirmity with the impugned order and the same is upheld - The appeal filed by the Revenue is dismissed Decided against Revenue.
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2014 (4) TMI 610
Classification of goods - spare parts for Segway two wheelers - Classification under 87142090 or under sub-heading 87119099 - Held that:- The bill of entry describes the goods as spare parts for Segway two wheelers. There is nothing in the examination report to suggest that the goods are complete two wheelers, as the examination report on the reverse of the bill of entry simply mentions that the goods are in SKD condition . The goods mentioned in the examination report can be the spare parts of two wheelers in SKD condition. There is no evidence produced by the department that all components of the Segway two wheelers including the handles and columns had been imported which could be assembled to make complete two wheelers - Decided against Revenue.
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2014 (4) TMI 609
Penalty for aid and abetment in Mis-declaration on CHA u/s 112(a) of the Customs Act - Exemption Notification Held That:- Matter related only to penalty, the matter is taken up for final disposal In view of responsibility for the declaration made in the Bill of Entry, having been owned by the importer and in absence of any finding to the contrary and in absence of any finding to the contrary, there is error in holding the appellant CHA as a party in the alleged mis-declaration, there being no case of aiding or abetting made out against the appellant - The penalty imposed u/s 112 (a) is set aside and the appeal is allowed - The stay application is disposed of Decided in favour of Appellant.
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Corporate Laws
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2014 (4) TMI 608
Jurisdiction of court - petition under Section 34 - International commercial award of an arbitral tribunal constituted by the Refined Sugar Association, London - Held that:- Since one of the terms and conditions of the agreement makes the contract subject to the Rules of the Refined Sugar Association, London by treating the same to have been expressly inserted in the agreement, Rule 8 of the Refined Sugar Association, London leaves no manner of doubt that the parties have not only accepted English law as the law governing the contract but the disputes and the arbitration shall also be governed by the law of England. The seat of Arbitration is admittedly England - arbitration clause is not strictly the same as recommended by the Refined Sugar Association, London which clearly stipulated that the arbitration shall be conducted in accordance with the English law. But this does not take us far. The condition that the contract is subject to the Rules of the Refined Sugar Association, London which stand inserted in the contract and wordings of Rule 8 clinch the relevant issue in favour of the respondent - Decided in favour of appellant.
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FEMA
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2014 (4) TMI 612
Condonation of delay - Inordinate delay of 804 days in filing of appeal - Section 35 of FEMA - Held that:- Section 54 FERA permits an appeal to be filed to the High Court within 60 days. The proviso clearly prescribes that the High Court shall not entertain any appeal under Section 54 if it is filed after the expiry of 60 days of the date of communication of the decision or order of Appellate Tribunal unless the High Court is satisfied that the appellant was prevented by sufficient cause from filing the appeal in time. Even if provisions of Section 54 are taken into consideration, there is no sufficient ground made out by the appellant to file the appeal after an inordinate delay of 804 days. The delay has not been explained. The reasons given by the appellant in Annexure B for delay in filing the appeal do not constitute sufficient cause. Rather it reveals that there was inaction and negligence on the part of the various officers. No sincere efforts were made to pursue the appeal even after objections were raised. No attempt was made for long seven months to rectify them and refile the appeal. There was slackness on the part of the appellant to take remedial steps. Application for condonation of delay cannot be allowed as a matter of routine as vested right accrues in favour of the opposite party and benefit of such right cannot be disturbed lightly - Condonation denied.
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Service Tax
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2014 (4) TMI 640
Demand of service tax - Classification of service - business auxiliary service - Exchange of old cars for new cars - Whether this service can be considered as sale - Held that:- the property is delivered and the price has been received by the seller of the old car. Therefore, the first transaction cannot be considered as the one which is not a sale. There is no doubt as to the second transaction whether it is a sale or not. once the first transaction is considered as sale it means that the vehicle has been purchased by the appellant subsequently sold by them. Therefore it becomes totally a transaction of purchase and sale of old vehicles - activities are undertaken as value addition by them and it is neither for the seller nor the purchaser. It is an activity undertaken to increase the value of the vehicle so that they get the maximum return out of it. Therefore we cannot say that there is a service element in this transaction either. As regards the invoices produced before us there is no clarity being there as to whether the Commissioner has seen these documents - In any case there is no observation saying that the vehicles were not sold under an invoice by the appellants - appellants have made out a case in their favour completely - Decided in favour of assessee.
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2014 (4) TMI 639
Demand of service tax - manpower recruitment agency services - Penalty u/s 76, 77, 78 - Held that:- appellants had produced a list of customers to whom they had provided service and who were exporting of their services and some of their customers had confirmed the same also. Moreover as mentioned in the statement of facts, the Board s circular clarifies that no service tax would be liable on secondary services if the secondary services are used by the exporter. The claims made by the appellant has not been considered and even in cases where letters have been received, no verification has been conducted. Nevertheless, the fact remains that the most important element required viz. the service receivers had exported service and received the consideration in convertible foreign currency has not been produced and this was admitted. Nevertheless while the demand for service tax with interest has to be sustained but in my opinion under these circumstances as discussed above, the benefit of provisions of Section 80 for waiver of penalty under Section 76, 78 of the Act is required to be extended. CENVAT Credit - Interpretation of Rule 6 of CCR - Held that:- rule is very clear and service tax is payable on a monthly basis and therefore the percentage mentioned in the rule has to be calculated on a monthly basis only. I find that no other interpretation is possible as far as this rule is concerned. Therefore the irregular utilization of the credit by the appellant has to be upheld. CENVAT Credit - Mobile phones - Held that:- amount involved is small and there is no finding or no verification as to whether company had paid the tax or not. The learned counsel submitted that mobile phones were in the name of company only and tax was also paid by the company only. Having regard to the facts and circumstances and the proceedings and investigation, I find that the credit cannot be denied. Penalties under Section 76, 77 & 78 is waived invoking Section 80 - Decided partly in favour of assessee.
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2014 (4) TMI 638
Demand of service tax - Consulting Engineer's Service - Undervaluation - Held that:- In the absence of documentary evidence, there cannot be any presumption in favour of the appellant that the consideration received was for other than the Consulting Engineers Service. In the Books of Account, the consideration received has been shown as income under Engineering Consultancy Service. Therefore, if the appellant wanted to claim exclusion of the consideration received for the purpose of levy of Service tax, it was their responsibility to show by way of documentary evidence that the consideration received was not by way of Engineering Consultancy but for other services rendered. As regards the penalty imposed under Section 78, Section 78 envisages imposition of penalty on account of fraud, collusion, suppression, willful mis-statement of facts and contravention of any of the provisions of the Act with an intent to evade payment of tax. If these elements are present, penalty can be imposed under Section 78. In the present case, the charge against the appellant is that in the Returns filed for the respective periods, the appellant did not disclose receipt of the consideration for the services rendered and that would clearly amount to willful mis-statement of facts. Therefore, penalty under Section 78 is correctly imposable on the appellant - Decided against assessee.
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2014 (4) TMI 637
Demand of service tax - Insurance Auxiliary Service - whether the appellant can utilize CENVAT Credit available with them for payment of service tax - Held that:- only change in the legal provision is the omission of Explanation under Rule 2(p). An Explanation only clarified the position. By omission of the explanation, the meaning does not undergo any change. Therefore, both prior to 19.4.2006 as also w.e.f. 19.4.2006, the meaning of the expression output service', provider of taxable service' and person liable for paying service tax' remain the same. Since in the case of Insurance Auxiliary Service, the liability to pay Service Tax is on the service recipient in terms of Rule 2 (1)(d)(iii) of the Service Tax Rules, 1994, the appellants are the providers of the output service as defined in law. Therefore, the appellants are entitled to avail CENVAT Credit on the input services used for providing the output service. Consequently, there is no bar in utilization of CENVAT Credit for payment of Service Tax on Insurance Auxiliary Service by the appellants. There is no one to one correlation required between the input service and the output service under the CENVAT Credit Scheme and, therefore, the demands confirmed against the appellants for recovery of CENVAT Credit availed by them for discharging Service Tax liability on Insurance Auxiliary Service is clearly unsustainable - Decided in favour of assessee.
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2014 (4) TMI 597
Demand of service tax - business auxiliary services - whether the activity carried on by the assessee falls within the definition on business auxiliary services - Held that:- Following decision of Commissioner of Service Tax v. M/s. Scott Wilson Kirkpatrick (India) Private Limited, [2011 (4) TMI 500 - KARNATAKA HIGH COURT], the appeal is not maintainable and it is rejected reserving liberty to the revenue to approach the Apex Court under Section 35L of the Act - Decided against Revenue.
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2014 (4) TMI 596
Penalty u/s 78 - Tribunal without exercising jurisdiction u/s 80 reduced penalty to 25% - Held that:- When the duty and penalty is paid even before an order passed by the adjudicating authority the second proviso applies and the penalty payable is only 25%. Therefore, the contention of the Revenue that the authority has no jurisdiction to reduce the penalty to 25% is ex facie illegal and contrary to the statutory provision. In that view of the matter, there is no merit in this appeal - Decided against Revenue.
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Central Excise
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2014 (4) TMI 607
SSI Exemption - clubbing of clearance - Duty demand - Penalty u/s 11AC - Interest u/s 11AB - Whether both the units, Unit No.I and Unit No.II of the Respondent company would be eligible for exemption under notification no.4/97-CE dated 1.3.97 and successor notification no.5/98-CE dated 2.6.98, 618 dated 1.3.2000 and 3/2001-CE dated 1.3.2001 separately - Held that:- two units are manufacturing the same excisable goods, there is not even a dividing walls between the two units. On the contrary the same are within the same compound and with one entry and exit gate and the two units share a common electricity connection and pump house, common boiler and a number of other processes. Therefore, in this case, issue of separate registration for the two units is wrong and notwithstanding the issue of separate excise registration, in view of the Apex Courts judgement in case of Dhampur Sugar Mills Ltd. (2001 (1) TMI 129 - CEGAT, COURT NO. IV, NEW DELHI), both the units are to be treated as one single factory - two units have to be treated one factory and a common registration certificate issued to them was absolutely incorrect. Since the two units have to be treated as one factory only, they cannot avail the exemption notification no.4/97-CE and its successor notification separately and for the purpose of availment of these exemptions, the clearances of the two units will have to be clubbed. Therefore, the impugned order dropping the duty demand by treating the two units as two separate factories is not correct. As the common registration certificates had been granted in the year 1994 after due verification and thereafter each unit was submitting separate RT-12 Return wherein the availment of exemption under notification no.4/97-CE and its successor notification was being shown. There is no allegation that there was collusion between the assessing officers and the assessee or that any disciplinary action on vigilance grounds has been taken against the assessing officers. In view of this, we hold that the only normal limitation period would be available to the department for recovery of short paid duty which must be quantified by the Commissioner. Since the allegation of wilful mis-statement, suppression of facts or fraud, contravention of provisions of Central Excise Act, 1944 or of the Rules made thereunder with intent to evade the payment of duty is not sustainable, neither penalty under Section 11 AC of the Central Excise Act 1944 or under Rule 173 Q (1) (d) would be sustainable nor the interest on duty under Section 11 AB would be attracted for the period prior to 11.5.2001 as during the period prior to 11.5.2001, demand of interest under Section 11AB on the duty short paid, not paid or erroneously refunded was linked with such non-payment, short payment or erroneous refund having taken place due to wilful mis-statement, suppression of facts or fraud etc. on the part of the assessee - Decided partly in favour of Revenue.
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2014 (4) TMI 606
Valuation of goods - Inclusion of dharmada charges, transit insurance charges and freight charges - Held that:- appellant s sales were at the factory gate and during the period upto 30/6/2000, the assessable value was the normal price at the time and place of removal and during the period from 01/7/2000, the assessable value is the transaction value at the time and place of removal and since the place of removal undisputedly is the factory gate, the amounts being charged for freight and insurance would not be includible in the assessable value of the goods. Moreover, when the freight and insurance were being charged separately under debit notes which are like invoices, it cannot be said that the freight and insurance charges were not being separately charged. Therefore, the impugned order upholding the Central Excise duty demand on the freight and insurance charges is not sustainable and has to be set aside. However, dharmada charges are includible in the assessable value and as such there is no infirmity in the order of Commissioner (Appeals) on this point. - Decision in the cae of CCE vs. Panchmukhi Engg. Works [2002 (11) TMI 122 - SUPREME COURT OF INDIA] followed - Decided partly in favour of assessee.
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2014 (4) TMI 605
Denial of Cenvat credit - Exempted services - Held that:- Out of the Rs. 3.83 crore credit taken as mentioned above, about Rs.91 lakhs pertains to the period after 01/04/2011 when the definition of input service was amended so as to exclude certain services from the purview of input service. Therefore, the denial of Cenvat credit on these excluded services, prima facie, appears to be sustainable in law. As regards the balance services, the major amount pertains to 3 or 4 services, namely, air travel agent services, outdoor catering service, rent-a-cab service, tour operator service, and club or association service. These account for Rs.3.64 crore of the total credit taken - it is for the person availing the credit to establish the nexus between the input services and the manufacture /clearance of excisable goods and in the absence of any nexus between the two, input service credit can be rightly denied. After going through the adjudicating authority's order, we find that the reasons given by him for denying the credit are impeccable and cannot be brushed aside. The appellant has not pleaded any financial hardship. Thus, in the absence of a prima facie case and financial hardship, the balance of convenience lies in favour of Revenue - Conditional stay granted.
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2014 (4) TMI 604
Valuation of goods - Inclusion of cost of transportation - Place of removal - whether the cost of transportation of the goods from the factory gate to the depots would be includible in the assessable value of the goods - Held that:- In terms of Section 4 (1), where under this Act, the excise duty is chargeable on any excisable goods with reference to their value, then, on each removal of the goods such value shall be, in a case where the goods are sold by the assessee for delivery at the time and place of removal, and the assessee and buyers of the goods are not related and price is the sale consideration for sale, be the transaction value. In any other case, where the goods are not sold at the time and place of removal, the value shall be determined in terms of provisions of Central Excise Valuation Rules, 2000. Thus, in terms of Section 4 (1), the assessable value of the goods is the transaction value at the time and place of removal. The place of removal during the period of dispute, as mentioned above, covered only the factory or any other place or premises of production or manufacture of the excisable goods or a warehouse or any place wherein the excisable goods have been permitted to be deposited without payment of duty and, as such, the place of removal did not include depot, premises of consignment agents or any other place or premises from where the goods after their clearance from the factory are to be sold. In view of this, when the goods during the period of dispute were sold after their clearance from the factory from depots, notwithstanding the provisions of Rule 7 of the Central Excise Valuation rules, the assessable value would be the transaction value at the time and place of removal and hence the same would not include the cost of transportation from the factory to Depots - Following decision of Ispat Industries vs. Union of India [2006 (9) TMI 181 - SUPREME COURT OF INDIA] - Decided against Revenue.
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2014 (4) TMI 603
CENVAT Credit - Clearance of aluminium pipes to an SEZ developer without payment of duty - Held that:- such clearances can be made without payment of duty - amendment to the Rule brought out in December 2008 has retrospective effect and, therefore, clearances made to SEZ developers without payment of duty have to be considered as rightly made and no duty of demand can be sustained - Following decision of Suzana Metal Products Vs. CCE [2011 (9) TMI 724 - CESTAT, BANGALORE] and UOI Vs. Steel Authority of India Ltd. [2013 (5) TMI 460 - CHATTISGARH HIGH COURT] - Decided in favour of assessee.
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2014 (4) TMI 602
Denial of CENVAT Credit - Xerox copy of invoices - Penalty - Held that:- when common bill of entry in the name of several importers is filed by the courier agency and photocopies are given to the importers with the importers name appearing in it, the Cenvat credit cannot be denied to the importer on the ground that the original bill of entry in the name of importer was not produced. At the time of scrutiny of the Central Excise records, the appellant had only the photocopies of the invoices and, as such, the original invoices were not available. Though the appellant plead that at the time of receipt of the goods, the original invoices were available and credit have been taken on that basis only and the original invoices had been misplaced, there is no evidence in this regard. - photocopies on the basis of which the Cenvat credit has been taken are not the copies attested by the Jurisdictional Superintendent, Central Excise. In view of this, I hold that the appellant are not eligible for the Cenvat credit taken on the basis of the zerox copies of the invoices. As regards, the issue of limitation, I am of the view that since the appellant had not disclosed that this credit has been taken on the basis of photocopies, the extended period has been correctly applied, as such, the part of the order upholding the Cenvat credit taken of Rs. 32,153/- penalty of equal amount is to be upheld - Decided partly in favour of assessee.
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2014 (4) TMI 601
Waiver of pre deposit - Availment of CENVAT credit benefit - Held that:- Prima facie, we take note of the fact there are conflicting views by an adjudicating authority at Commissioner level and an appellate authority at Commissioner level. We also see force in the argument that many of the services would come within the meaning of the definition input services. Therefore, we consider it proper to grant waiver of dues arising from the impugned order for admission of appeal and it is ordered accordingly - Stay granted.
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2014 (4) TMI 600
Exemption under under Notification No.67/95-CE dt. 16.3.95 - Whether clinkers manufactured and consumed captively in the manufacture of cement is eligible for exemption from payment of duty under Notification No.67/95-CE dt. 16.3.95 - Held that:- application for waiver of pre-deposit of duty together with interest and penalty confirmed on clinkers manufactured as an intermediate product in the course of manufacture of cement cleared to SEZ units, for the reason that, as per the proviso to notification No.67/95-CE dated 16.3.95, benefit of captive manufacture exemption is not available to inputs used in or in relation to the manufacture of final products exempt from the whole of duty of excise or additional duty of excise thereon or chargeable to nil rate of duty other than those cleared to a unit in free trade zone or to a 100% EOU or to a unit in an Electronic hardware Technology Park, or to a unit in a Software Technology park or under notification No.108/95-CE dated 28.8.95, while the said clinker is not one of those enumerated in the list - Stay granted.
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2014 (4) TMI 599
Waiver of pre deposit - extended period of limitation - Denial of benefit of Cenvat credit - Held that:- demand stands raised by invoking the longer period of limitation. We note that during the relevant period, earlier decisions of the Tribunal were in favour of the assessee and the law came against them only by the subsequent decision of the Larger Bench in the case of Vandana Global. In as much as during the relevant period, even the Tribunals decisions were in favour of the assessee, the appellant cannot be attributed with any malafide intent or any suppression or misstatement with intent to evade payment of duty. Ld. advocate relies on the Tribunals decision in the case of Diamond Cement Ltd. reported as [2012 (6) TMI 73 - CESTAT, NEW DELHI] laying down that no suppression can be alleged when during the relevant period decisions of higher appellate forum were in favour of assessee or there were conflicting decisions. As such without going into the merits of the case, as disputed facts are involved, we find that the appellant has a good prima-facie case on merits - Stay granted.
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2014 (4) TMI 598
Waiver of pre-deposit of duty - Levy of duty - Intermediate product - partially processed Naptha, namely CLS - Residual Fuel Gas(RFG) as an intermediate excisable product, manufactured out of cracking Naptha - Held that:- duty is not payable on partially processed CLS and the Applicant were eligible to avail the procedure laid down under Rule 57AC of Central Excise Rules or Rule 4(5)(a) of CENVAT Credit Rules, 2001/2002 during the said period. w - Applicant could able to make out a prima facie case for total waiver of dues adjudged - Stay granted.
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CST, VAT & Sales Tax
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2014 (4) TMI 643
Whether seizure of goods in purported exercise of power u/s 50 of U.P. Value Added Tax Act,2008 was justified Seizure of Chasis of goods carrier Exercise of Power u/s 50 Held that:- The record shows that assessee is not a mere Driver but the owner of chassis in question as the invoice was issued by M/s Ganga Nagar Motors, Kota (Rajasthan) in the name of revisionist - The chassis is shown hypotheticated to HDFC Bank - Regarding intention of revisionist, it is too early at this stage to form any conclusive opinion but the fact remains that revisionist did not inform checking authority as to whom he has to met for getting the body, built on the chassis - The revisionist has given his address at Kota whereat the chassis was purchased - However, this by itself may not be sufficient to give an impression and no person of ordinary prudence having reasonable acquaintance in the matter like present can form an opinion that the Driver or owner has brought chassis in State of U.P. for sale, by evading payment of tax - A chassis registered on temporary basis and hypotheticated to Bank, cannot be sold without several formalities in which various other agencies like Transport Department, HDFC Bank etc. are involved. Whether quantum and form of security demanded for release of the goods was excessive and arbitrary Pre-deposit for release of chasis of goods carrier Held that:- It is not the case of revisionist that a person, purchasing a single vehicle or chassis would answer the definition of a "dealer" or such a person, if enters into State of U.P,. has to obtain requisite forms, necessary for import of goods by dealers - It appears that respondents-authorities in this case have adopted an extra hyper technical view based on total conjectures and surmises - This is nothing but a sheer endeavor on their part to harass an otherwise bona fide purchaser of goods outside the State of U.P. - It is not found as to how seizure is consistent with the requirement of statute - In fact seizure from its very inception is patently illegal and amounts to gross abuse of process of law - In the result, revision is allowed - The impugned orders are hereby quashed. The respondents-authorities are directed to release chassis in question forthwith Decided in favour of assessee.
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2014 (4) TMI 642
Validity of the orders u/s 9(4) and 29(3) of the U.P. Trade Tax Act Forfeiture of amount of tax deposited - Exemption under Entry Tax Act - Imported photographic papers Held that:- Counter affidavit has been filed by the respondent no. 3 mechanically treating the petition as challenging the validity of the entry tax and without applying mind that the petition does not raise the question of validity of the entry tax - The averments made in the writ petition have not been replied - Matter requires fresh consideration by the assessing authority - While invoking Section 29(3) assessing authority may examine whether the petitioner has realized any entry tax and passed on the same to the customers with reference to the fact that the petitioner has not admitted any liability of tax under the U.P. Trade Tax Act and has claimed exemption therein and not realized any trade tax and may also examine other evidences, which the petitioner may produce during the course of proceeding - Therefore, order dated 30.3.2009 passed u/s 29(3) for the assessment years 2005-06 and 2006-07 are set aside - Further it is observed that any observation made in the assessment order passed u/s 9(4) in respect of forfeiture of amount of tax deposited shall not prejudice the proceeding - Writ petition is allowed in part Matter remitted back to Assessing Authority for fresh consideration - Decided in favour of assessee.
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2014 (4) TMI 641
Condition of Pre-deposit - Interim stay during the pendency of the appeal Held That:- It is brought to the notice that, the matter was considered by the appellate authority and Ext.P5 order dated 01.10.2013 was passed - The assessment has been modified and the matter stands remitted back to the assessing authority, to be reconsidered, virtually accepting the contention put forth assessee - It is the very same officer who has passed Ext.P9 order on 10.03.2014, imposing a condition, which is rather an onerous one - The said order is stated as a mechanical one, in so far as the position of law declared by the binding judicial precedents has not been referred to and the Officer has not even referred to Ext.P5, his own order in respect of the previous assessment year - In view of the course ordered by the Division Bench of this court as per Ext.P4, also in the light of Ext.P5, the fifth respondent is directed to pass final orders in Ext.P7 series - The writ petition is disposed of Decided in favour of assessee.
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2014 (4) TMI 595
Classification of Milk Interpretation of Statute - Held that:- Whether milk is a subject matter of taxation under the First Schedule or under the Third Schedule - Held that:- During the relevant assessment year, 1993-94, milk was very much a subject matter of taxation under the First Schedule - Third Schedule is relevant only in the next assessment year - Therefore, the order of the Tribunal to that extent held incorrect. Exemption Notification - Whether there is any manufacturing process in making the fresh milk as pasteurised milk Interpretation of Statute - 'Manufacture' Held that:- Judgment in Aspinwall and Co. Ltd., V. Commissioner of Income Tax [2001 (9) TMI 3 - SUPREME Court] followed Exemption itemises the subject matter of exemption under Notification - Going by the enumeration in notification, it is clear that they are commercially different commodities - There is no definition what 'manufacture' is - However, Rule 3(h) of the TNGST Rules gives the clue to the understanding of what 'manufacturer' is - It defines, 'manufacturer' - Manufacture' has to be understood as meaning the production of articles for use from raw or prepared materials by giving such materials new forms, qualities or combinations whether by hand labour or machines - Thus, when fresh milk is made as recombined milk or pasteurised milk, there being manufacture, the assessee is entitled to the benefit of Section 3(3) - Tribunal committed an error in holding that there was no manufacturing activity involved when fresh milk was converted as recombined milk/pasteurised milk. Concessional levy of Tax Penalty - u/s 3(3) & u/s 23 of the TNGST Act, 1959 Held that:- Section 3(3) grants concessional levy on the sale of packing materials - The benefit of concessional levy is available in respect of purchase of polythene sheets to be used as packing material for sale of pasteurised milk - Order of the Tribunal set aside including the levy of penalty and the Revision is allowed Decided in favour of assessee.
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