TMI Tax Updates - e-Newsletter
April 20, 2016

Case Laws in this Newsletter:

Income Tax Customs Corporate Laws FEMA Service Tax Central Excise CST, VAT & Sales Tax Wealth tax Indian Laws

TMI SMS

• Receipt from the HUF of which the assessee was the member is to be treated as gift received from the relative - Not Taxable u/s 56(2) - Tri

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• The amount HSBC Geneva Bank is itself not taxable as assessee is non-resident - there is no proof that income has accrued or arisen in India

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Articles

1. Cenvat credit of service tax paid on commission agents service

   By: Suriyanarayanan Iyer

2. PENDING OF APPELLATE PROCEEDINGS IS NOT A BAR FOR PROSECUTION

   By: DR.MARIAPPAN GOVINDARAJAN

News

1. Finance Minister: India is doing well, but can do better; Gave renewed emphasis on infrastructure development in rural areas, rationalization of government support subsidies among others to reduce stresses on the economic fundamentals in the country

Notifications

LLP

1. F. No. 2/15/2014-CL-V - dated 13-4-2016 - LLP

Limited Liability Partnership (Amendment) Rules, 2016

Circulars / Instructions / Orders

DGFT

1. 2/2016 - dated 19-4-2016

Clarification on Benefit of MEIS on exports of Tamarind Kernel Powder under ITC(HS) Code 13023290

2. Trade Notice No. 9/AM16 - dated 4-3-2016

Advised not to apply for duplicate IEC even if original IEC Certificate has been lost or misplaced

3. Trade Notice No. 8/AM16 - dated 16-2-2016

Information about Telephone Numbers

Highlights / Catch Notes

Income Tax

• Advances for personal guarantees may be taxed as deemed dividends u/s 2(22)(e) if conditions are met.

  Case-Laws - AT : Deemed dividend u/s 2(22)(e) - advances being compensation for personal guarantees - as long as it is in nature of loans or advances, and other pre-conditions for applicability of Section 2(22)(e) are satisfied, such loans and advances are required to be taxed as deemed dividend. - AT
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• Non-Compete Premium is Business Income u/s 28(va) of Income Tax Act; Taxable Only in UK Per DTAA.

  Case-Laws - AT : Non-compete premium received by assessee is a business receipt assessable u/s. 28(va) - as in term of Article- 7 of DTAA any business income arising to the enterprise of a contracting state is taxable only in that state, assessee being a non-resident company and does not have a permanent establishment in India, liable to tax in UK only - AT
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• High Court Rules Life Extension Program Expenses as Revenue Expenditure for Tax Deductions at Thermal Power Stations.

  Case-Laws - HC : Expenses incurred on Life Extension Program (LEP) of Thermal Power Station to be treated as revenue expenditure - HC
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• Government Payments Not Subject to TDS as Rent u/s 194-I; Depends on Amount Calculation and JV Partner Selection.

  Case-Laws - HC : Consideration paid to the Government, the question of TDS u/s 194-I does not arise - the manner in which the amount was quantified and the method of selection of the Joint Venture Partner are the crucial determining factors in this case to understand that the said amount could never constitute rent - HC
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• Pre-lease amount not part of rental income, exempt from TDS u/s 194I, rules High Court.

  Case-Laws - HC : If an amount has to be determined even before an agreement for lease is finalised, the same would never form part of the rental income - no TDS u/s 194I - HC
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• Hajj Firms' Income from Alhind Tours to Be Evaluated Solely Through Company's Financial Records.

  Case-Laws - AT : Income of the Hajj firms floated by the M/s Alhind Tours and Travels Pvt. Ltd. is to be assessed in its hand only - AT
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• Speculation Losses on Commodities Cannot Be Offset Against Business Income Under Tax Rules.

  Case-Laws - AT : Loss arising out of the commodities dealt with i.e gold, silver, copper, zinc, natural gas, nickel etc are to be considered as speculation loss only and the assessee is not entitled to set off the same against business income of the assessee - AT
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• Assessee Entitled to Deduction u/s 80IB(10) for Project Profits or Losses, Bearing Entrepreneurship Risk.

  Case-Laws - AT : When profits or losses, as a result of execution of project as such, belong predominantly to the assessee, the assessee is obviously taking the entrepreneurship risk qua the project and is, accordingly, eligible for deduction under section 80IB(10) - AT
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• DSIR Recognition Alone Doesn't Ensure Deduction u/s 35(2AB) of Income Tax Act.

  Case-Laws - AT : Mere recognition by DSIR shall not entitle the assessee to claim deduction under section 35(2AB) - AT
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• Appellate Tribunal Confirms Disallowance of Claim Due to Lack of Land Possession by Assessee.

  Case-Laws - AT : Assessee has not been handed over the relevant portion of land, disallowance of claim of provision for expenses made in the accounts of the assessee confirmed - AT
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• Gifts from Hindu Undivided Family Members Not Taxable u/s 56(2) of Income Tax Act.

  Case-Laws - AT : Receipt by the assessee from the HUF of which the assessee was the member - treated as gift received from the relative (group of relatives) - Not Taxable u/s 56(2) r.w.s. 2(31) - AT
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• HSBC Geneva account principal not taxable for non-resident; no evidence of income accrued in India for interest.

  Case-Laws - AT : Principle amount in the HSBC Geneva Bank account is itself not taxable due to the non-resident status of the assessee, and as there is no proof that the income has accrued or arisen in India consequently, there can’t be any addition on account of interest income on the amount of deposits in the same bank account - AT
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Customs

• High Court Affirms Authority to Correct Obvious Record Errors in Legal and Administrative Matters, Including Customs and Tax.

  Case-Laws - HC : Authorities can exercise such powers, if there is any error apparent on the face of the record which requires rectification - HC
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FEMA

• High Court Stresses Importance of Clearly Formulated Grounds for Detention to Ensure Legal Compliance and Justification.

  Case-Laws - HC : Detaining authority is under obligation to comply with the requirements by formulating grounds for detention - HC
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Wealth-tax

• Land Acquired by Government Under Land Acquisition Act, 1894, Exempt from Wealth Tax Due to Lack of Ownership Rights.

  Case-Laws - AT : Land acquired by Government of India under the Land Acquisition Act, 1894 - The assessee does not hold any ownership rights in the said portion of land and it is absolutely with the Government does not make it liable to the provisions of Wealth Tax Act. - AT
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Service Tax

• Machinery Rental for Production Not Classified as Business Support Service for Tax Purposes.

  Case-Laws - AT : Services of renting of machinery or equipment for production or manufacture, which is an activity relating to conduct of main business are not covered under Business Support Service - AT
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• Business Support Services Tax Classification Includes CRM, Telemarketing, and Office Infrastructure Activities for Ancillary Services.

  Case-Laws - AT : Services which are supporting in nature to the main business, like services relating to customer relationship telemarketing, office infrastructure, etc. are covered under Business Support Service - AT
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• Claim Rejection Invalid if Commission is Undisputed and Verifiable via Bank Statements or Certificates.

  Case-Laws - AT : So long as the commission paid is not disputed, which can even be verified from the bank statements or certificates from the bank, rejection of claim for want of quantification of commission paid is not legally tenable. - AT
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Central Excise

• Tribunal Can Restore Appeals Dismissed for Non-Deposit if Act or Rules Don't Forbid Restoration.

  Case-Laws - HC : When the Act or the Rules in question do not specifically prohibit restoration of an appeal, dismissed on the ground of non-deposit of the amount, the Tribunal certainly has the power and jurisdiction to recall its earlier order - HC
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• Refunds Issued u/s 11B Cannot Be Revoked as "Erroneous Refunds" u/s 11A(1.

  Case-Laws - HC : If an order of refund is passed after adjudication u/s 11B, the amount refunded will not fall under the category of "erroneous refund" so as to enable the order of refund to be revoked u/s 11A(1) - No recovery proceedings - HC
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• Court Upholds Legality of RSP Declaration Requirement for Importing Small Cosmetic Products; No Illegality in TRU Clarification.

  Case-Laws - HC : Declaration of Retail Sale Price / Fixation of tariff value - Import of cosmetics products of a weight or measure of 10 gm or 10 ml or less - Insofar as it only fixes the tariff value as the RSP which the importer has to declare to the Customs authorities, no illegality attaches to the said Notification or the subsequent clarification issued by the TRU - HC
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• Lessees Can Claim Cenvat Credit When Lessor is Manufacturer Discharging Duties on Final Products.

  Case-Laws - AT : When lessor is a manufacturer utilizing the inputs and discharging on the final products, lessee is entitled for the Cenvat credit - AT
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• Welding Electrodes Used in Manufacturing Qualify for Cenvat Credit Under Central Excise Rules.

  Case-Laws - AT : Welding electrodes used in or in relation to the manufacture of final product whether directly or indirectly and in the factory of manufacturer are eligible for Cenvat credit - AT
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VAT

• Court Rules Entertainment Tax Exemption Starts on Movie Release Date, Not Government Order Date.

  Case-Laws - HC : In case of different stand taken by the department by rejecting its own order, the exemption of entertainment tax is granted from the date of release of movie and not from the date of issuance of Government Order - HC
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• Tax Statute Interpretation: Follow Clear Language, Ignore Equity Considerations.

  Case-Laws - HC : In a taxing statute one has to go by the clear language of the statute and equity has no role to play while interpreting a taxing statute - HC
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Case Laws:

• Income Tax

• 2016 (4) TMI 675
  Expenses incurred on Life Extension Program (LEP) of Thermal Power Station - revenue v/s capital expenditure - Held that:- The question whether a particular expenditure would fall within the definition of the expression "current repairs" under Section 31(i) or not, does not depend upon what the assessee did or did not. After all if the expenditure is capitalised, the assessee takes the benefit of depreciation. If the expenditure is treated as revenue expenditure, it is either taken as an expenditure under Section 37(1) for computing income chargeable under the head "Profits and gains of business or profession" or treated as "current repairs" entitled to deduction under Section 31(i). Therefore, the contention of the learned Standing Counsel cannot be accepted. There was a clear finding in the order of assessment that the assessee had two options. The first option was to install a new plant which would have costed about Rs. 4.5 Crores per MW with a longer gestation period. The second option was to go in for the life extension program at a cost of Rs. 0.44 Crores per MW with a shorter gestation period. These findings of fact recorded by the Assessing Officer is accepted by the Revenue. Therefore, what follows out of these findings of fact, is the question to be addressed. After having found that there were two options open to the assessee and that the assessee had gone in for a cheaper option (almost 1/10th of the cost of first option), the Assessing Officer fell into an error in treating both options to be of the same nature. This error in the reasoning of the Assessing Officer was rejected by both the Appellate Authorities on the basis of the principles of law enunciated in various cases which we have discussed above. Therefore, we are of the considered view that the CIT (Appeals) as well as the Tribunal were right to found that the amount of expenditure actually incurred by the assessee, could not be taken to be of such a huge nature as to project it as capital expenditure. - Decided in favour of the assessee.

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• 2016 (4) TMI 674
  TDS u/s 194I - whether the amount of more than about Rs. 1400 Crores paid by the Joint Venture Company to TIDCO constituted rent or not? - Held that:- Though the amount of Rs. 1412 Crores was paid actually by the lessee to the lessor, it was not paid merely for the purpose of retaining the lease for a period of 99 years. The amount paid was actually determined in an open competitive bidding that took place even before the Joint Venture Company was born. Tata Realty and Infrastructure Limited, which was the Joint Venture Partner, offered this amount for getting the benefit of entering into a Joint Venture Agreement with TIDCO, the benefit of which will spill over to joint venture company in the form of a 99 years lease. Therefore, the mistake of the Department lies in treating the transaction as having commenced from the date of the lease, namely 13.8.2008. The date on which the amount was quantified, the manner in which the amount was quantified and the method of selection of the Joint Venture Partner are the crucial determining factors in this case to understand that the said amount could never constitute rent. To put it differently, a premium or rent irrespective of how they are treated, could be decided only after an agreement for lease is finalised. If an amount has to be determined even before an agreement for lease is finalised, the same would never form part of the rental income. It is this distinction that has been lost sight of by all the authorities. Therefore, question of law has to be answered in favour of the assessee. Whether the payment, which has eventually gone to the coffers of the Government, could be taken to be a payment made to somebody else, for the purpose of attracting the provisions of Section 194-I or not? - Held that:- On facts, there is no dispute that even at the time when the alienation was made by the Government, the amount determined by the parties was agreed to paid to the Government. We have extracted paragraph 5 of G.O.Ms.No.103 earlier. The method of determination of the amount and the method of choosing the lessee alone were left to TIDCO. But, TIDCO was obliged to retain only a sum of Rs. 50/- per sq.ft. and pass on the balance amount to the Government. Therefore, the amount liable to be passed on to the Government cannot be a consideration paid to TIDCO, which is the lessor. It was a consideration paid to the Government. Once it is understood to be a consideration paid to the Government, the question of deducting tax at source does not arise. Therefore, this question of law is also to be answered in favour of the appellant/assessee.

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• 2016 (4) TMI 673
  Revision u/s 263 - whether Non-compete premium is taxable in the hands of the assessee under the head capital gains u/s. 55(2)(a) read with proviso (i) to section 28(va) - assessee is a non-resident company of UK in term of Article-7 of Double Taxation Avoidance Agreement (DTAA) with UK - Held that:- It is not the case of the revenue that the assessee is having a permanent establishment in India and as such in term of Article-7 of DTAA, being non- compete premium received by assessee cannot be taxed in India. The AO while framing assessment u/s. 143(3) of the Act, after considering the provisions has not taxed the non- compete premium in accordance with the provisions of the Act and the provisions of the DTAA. We are of the view that a perusal of non-compete agreement clearly shows that by any stretch of imagination it cannot be held that there is a transfer within the meaning of section 2(47) of the Act resulting in assessment being erroneous and prejudicial to the interest of revenue for not assessing non-compete premium as capital gains. The assessee clearly accepted that the provisions of section 28(v)(a) of the Act will apply to this non-compete section 28(va) premium being business income but that will be taxed in UK being assessee a non-resident British Company having no permanent establishment in India in term of Article-7 of DTAA. Thus we hold that the above said non-compete premium received by assessee is a business receipt assessable u/s. 28(va) of the Act but in term of Article- 7 of DTAA any business income arising to the enterprise of a contracting state is taxable only in that state, assessee being a non-resident company and does not have a permanent establishment in India, liable to tax in UK only. Accordingly, the assessment framed by AO is neither erroneous nor prejudicial to the interest of revenue and hence, the revision order passed by DIT(IT) is without any basis and quashed. - Decided in favour of assessee

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• 2016 (4) TMI 672
  Determination of income - Held that:- Income of the Hajj firms floated by the M/s Alhind Tours and Travels Pvt. Ltd. is to be assessed in its hand only.The present order shall only be used for the purposes of determining the disallowance under the head food and accommodation expenses.

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• 2016 (4) TMI 671
  Loss relating to trading in gold and silver - business loss OR speculation loss - Held that:- In view of the order in the case of Varsha Corporation [2015 (6) TMI 124 - ITAT MUMBAI] we are inclined to uphold the order of the Assessing Officer that loss arising out of the commodities dealt with by the assessee i.e gold, silver, copper, zinc, natural gas, nickel etc are to be considered as speculation loss only and the assessee is not entitled to set off the same against business income of the assessee. - Decided against assessee Addition made towards inflated purchase of gold - Held that:- The common practice in the jewellery business cannot prove genuineness of the purchases made by the assessee. Further, the Sales Tax Department is only concerned with the sales tax on the sales made by the assessee. They are not certifying the correctness of the local purchases made by the assessee. Being so, it cannot be considered as the evidence produced by the assessee is foolproof. Since the assessee has not produced all relevant records to prove the genuineness of the local purchases made by the assessee, the Assessing Officer is justified in disallowing the claim towards the local purchases of old gold jewellery made by the assessee. - Decided against assessee Addition made u/s 68 towards sundry creditors - Held that:- CIT(A) simply observed that "I find that the Assessing Officer after due verification has not commented adversely on any of the explanation given by the appellant" and deleted the addition. The findings of the CIT(A) is very cryptic. There are no details on the basis of which he has given relief to the assessee. Hence, in our opinion, it is appropriate to remit the matter back to the file of the CIT(A) for reconsideration. The ld. CIT(A) shall pass a detailed order in accordance with law.

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• 2016 (4) TMI 670
  Deduction under section 80IB(10) declined - land ownership and approval by local authority are not in the name of the assessee - Held that:- The issue in appeal before us is squarely covered by the decision in the case of Shri Umeya Corporation vs. Income Tax Officer [2015 (9) TMI 108 - ITAT AHMEDABAD ] wherein held all that is material is whether assessee is taking the entrepreneurship risk in execution of such project. When profits or losses, as a result of execution of project as such, belong predominantly to the assessee, the assessee is obviously taking the entrepreneurship risk qua the project and is, accordingly, eligible for deduction under section 80IB(10) in respect of the same. - Decided in favour of assessee

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• 2016 (4) TMI 669
  Receipt by the assessee from the HUF of which the assessee was the member - term ‘relative’ under the provisions of section 56(2) of the I.T. Act - treatment to gift received - Held that:- the "relative" explained in Explanation to s. 56(2)(vi) of the Act includes "relatives" and as the assessee received gift from his "HUF", which is "a group of relatives", the gift received by the assessee from the HUF should be interpreted to mean that the gift was received from the "relatives" therefore the same is not taxable under s. 56(2)(vi). Facts of the case before us are similar as in the assessee’s husband’s case for the very same assessment year, we are inclined to follow the decision of the Coordinate Bench of this Tribunal and direct the A.O. to treat the gift from Biravelli Bhasker (HUF) as a gift under section 56(2) of the I.T. Act. Accordingly, this ground of appeal is treated as allowed in favour of assessee

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• 2016 (4) TMI 668
  Addition on account of peak deposits in HSBC, Geneva account and interest thereon - CIT(A) deleted the addition - Held that:- Since the principle amount in the HSBC Geneva Bank account is itself not taxable due to the non-resident status of the assessee, and as there is no proof that the income has accrued or arisen in India consequently, there can’t be any addition on account of interest income on the amount of deposits in the same bank account. - Decided in favour of assessee Addition on account of alleged non-utilisation of capital gains earned within the statutory period of three years - Held that:- Since the total expenditure incurred by the assessee for construction of new house property at Sonali Farms (at Westend Greens, NH-8) far exceeded the capital gains of Rs. 1.58 crores accrued on sale of property at Colaba, Mumbai, we are of the opinion that the amount of Rs. 58,00,000/- lying in the account of the assessee should have been deemed to have utilized for acquiring the new asset and the revenue ought not to have made the addition on this count. This addition is, therefore, deleted.- Decided in favour of assessee.

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• 2016 (4) TMI 667
  Disallowance of apportionment of expenses towards R&D between 80IB and non 80IB units in the ratio of turnover - Held that:- To claim R&D expenses as allowable deduction under section 35(2AB) of the Act, first of all, the DSIR has to recognize the in-house R&D of the company. After obtaining recognition from DSIR, the company has to submit complete report of the R&D activities and expenditure incurred for the same in the prescribed format to the Prescribed Authority i.e., Secretary, DSIR and after assessment of the report furnished by the assessee, the Secretary, DSIR will communicate approval in Form 3CL to the Director General of Income Tax [Exemption]. Based on the approval in Form 3CL, the assessee can claim deduction under section 35(2AB) of the Act. From the assessment order, we find that the assessee vide its letter dated 21.12.2010 has submitted before the Assessing Officer that "the R&D expenses are accounted entirely in Hosur unit as the DSIR recognized R&D centre is located at Hosur only", which shows that the assessee has obtained only recognition from DSIR. Moreover, there was no mention about the approval in From 3CL communicated by the Secretary, DSIR to DGIT[E]. Mere recognition by DSIR shall not entitle the assessee to claim deduction under section 35(2AB) of the Act. In this case, the DSIR recognized the in-house R&D facility of Hosur unit, as per the written submission dated 21.12.2010 before the Assessing Officer. But, the Assessing Officer failed to call for the approval in Form 3CL to admit the claim of the assessee. Under these facts and circumstances, we set aside the order of the ld. CIT(A) on this issue and remit the matter to the Assessing Officer to call for (1) submission of report in the prescribed format [Form 3CM/3CK] to the Secretary, DSIR and (2) approval in Form 3CL communicated by the Secretary, DSIR to DGIT[E] and after verification of the same, the Assessing Officer should allow the claim of deduction under section 35(2AB) of the Act, if the assessee produces approval in Form 3CL communicated by the Secretary, DSIR to DGIT[E] to the unit(s), which was recognized by the DSIR, otherwise, no claim of deduction under section 35(2AB) of the Act could be allowed. - Decided in favour of assessee for statistical purposes. Disallowance made under section 14A read with Rule 8D - Held that:- In the present case, the assessment year under consideration is 2008- 09 and in view of the decision in the case of Godrej & Boyce Mfg. Co. Ltd v. DCIT (2014 (8) TMI 457 - BOMBAY HIGH COURT ), the application of provisions of Rule 8D, which has been notified with effect from 24.03.2008, shall apply with effect from assessment year 2008-09 onwards. Since the assessee has not maintained any separate sets of books for the investment activity and the manufacturing activities and moreover, all the funds are pooled up and utilized for various activities from a common kitty. Therefore, the Assessing Officer has segregated the probable expenses by way of financial charges and other overhead expenses between the investment activities and manufacturing and export activities. In view of the above, the Assessing Officer has rightly applied the provisions of Rule 8D by invoking section 14 of the Act, which was confirmed by the ld. CIT(A). Therefore, we find no infirmity in the order of the ld. CIT(A) on this issue - Decided against assessee

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• 2016 (4) TMI 666
  Disallowance of claim of "Provision for Expenses" - Held that:- There appears to be no dispute that a liability is imposed upon the assessee to construct certain premises at free of cost and under normal circumstances, it would form part of the project expenditure and is liable to be deducted against the project revenue. However, the peculiar facts brought on record by the tax authorities show that the liability of the assessee is contingent upon handing over of the relevant portion of land to the assessee. Even though the assessee has claimed to have completed the project in the year relevant to the financial year 2010-11, yet the Ld CIT(A) has noticed that the assessee was not given the land till 2013 (even after expiry of more than three years). Further, the assessee also could not show that it did incur any expenditure against the provision so made by it. As pointed out by Ld CIT(A), the question of incurring expenditure would arise only upon handing over of the relevant portion of land to the assessee. These facts support of the case of the revenue that there is no clarify as to whether the assessee is required to discharge the said liability or not. In the absence of clarity on this point, coupled with the fact that the assessee has not been handed over the relevant portion of land, we are of the view that the tax authorities are justified in disallowing the claim of provision for expenses made in the accounts of the assessee - Decided against assessee

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• 2016 (4) TMI 665
  Unexplained cash credit u/s 68 - Held that:- As regards unsecured loan received from Ashwinkumar L. Patel at Rs. 75,000/- and from Sumitraben J. Patel of Rs. 1,25,000/-, assessee has not provided any details except the affidavits and copies of some ledger account and bank account of Asst. Year 2007- 08 and following years. These affidavits cannot be taken as a substantive proof in order to satisfy the provisions of section 68 of the Act in regard to the identity, creditworthiness and genuineness of loan taken during the year. No evidence in the form of PAN, bank statement, income-tax return have been put on record before the lower authorities. In these circumstances we find that assessee has nothing more to prove the genuineness of unsecured loans taken from Ashwinkumar L. Patel and Sumitraben J. Patel at Rs. 75,000/- and Rs. 1,25,000/- respectively. As regards loan taken from Falguniben Patel of Rs. 50,000/- we find that this loan amount has been taken by cheque and the source of cash deposit of Rs. 50,000/- immediately before issue of the cheque to the assessee has been shown to have been received as gift from grand father and past savings as well as withdrawal of Rs. 43,000/- in previous months from her bank account. We further find that assessee has submitted details of grand father of Falguniben Patel namely Mr. Ramanbhai N. Patel who has retired from railway department and is owning 8 bighas of agricultural land. In these circumstances, we are inclined to believe that there was some source of cash deposit of Rs. 50,000/- in the bank account of Falguniben Patel and we accordingly find that the loan taken from Falguniben Patel to be genuine. In view of our above discussion, we hold that out of the addition on account of unexplained cash deposit of Rs. 2,50,000/- loan of Rs. 50,000/- from Falguniben Patel is explained and we delete the addition of Rs. 50,000/-.- Decided in favour of assessee in part. TDS u/s 194C - disallowance u/s 40(a)(ia) - Held that:- The assessee has filed its return of income for Asst. Year 2004-05 on 28.10.2004 and has shown income from business or profession under the deeming provisions of section 44AB of the Act available for income from running heavy vehicles. Certainly assessee was not falling under the provisions of section 44AB of the Act for Asst. Year 2004-05. It was the assessment year 2005-06 in which total gross turnover of the assessee exceeded the limit of Rs. 60 lacs provided in section 44AB of the Act. We, therefore, are of the view that assessee became liable to deduct TDS from Asst. Year 2006-07 and certainly was not required to deduct TDS under the provisions of section 194C of the Act for Asst. Year 2005-06. Therefore, the Assessing Officer was not correct in making disallowance u/s 40(A)(ia) - Decided in favour of assessee.

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• 2016 (4) TMI 664
  Unsecured loans u/s 68 - Held that:- The assessee has furnished only one confirmation of Shri Deoki Nandan Jhunjhunwala in respect of fresh loan of Rs. 2.40 lac from Ms. Anita Jhunjhunwala but for this loan also, apart from furnishing confirmation, the assessee has furnished nothing else before us also about creditworthiness of this loan creditor. Hence, it is seen that for none of the loan creditors, the assessee has furnished any evidence regarding the creditworthiness of the loan creditor and except one loan creditor, no confirmation has been filed by the assessee. Under these facts, we find no infirmity in the order of learned CIT(A) in making The addition - Decided against assessee Addition in respect of interest on FDRs - Held that:- On the actual amount of FDR of Rs. 21,51,446/-, the estimate by Assessing Officer stands at Rs. 2,15,000/- and since the assessee has already accounted for FDR interest as income to the extent of Rs. 1,87,983/-, CIT(A) has confirmed the addition of Rs. 27,107/- being the difference in 10% of closing FDR balance and FDR interest shown by the assessee as income. In our considered opinion, since the amount of FDR interest shown by the assessee as income is very much close to even the estimation by the Assessing Officer and CIT(A) in the absence of details and this is the claim of the assessee that interest income was accounted for by the assessee on actual basis, we hold that in the facts of the present case, the addition upheld by CIT(A) is not justified. We, therefore, delete the same - Decided in favour of assessee Addition being increase in Security Deposits under the head "Current Liabilities" over the last year - Held that:- In the copy of ledger account of Shiva Steel, Lucknow customers with opening debit balance of Rs. 1,25,939/- and there is no corresponding credit entry available in its customer account on account of transfer from Shiva Steel security deposit on 16/04/2007. Hence, it is noted that this contention that security deposit is transferred to the customer account is not being supported by the copy of ledger account of Shiva Steel, Lucknow customer. Regarding the second party i.e. Madhyeshiya Traders, the copy of ledger account of Madhyeshiya Traders of the customers is available on page No. 166 of the paper book and in this amount a credit of Rs. 50,000/- is on 05/05/2007 on account of transfer from security deposit account. We also find that in the customer account also, there is opening balance of Rs. 1 lac for this party. Under these facts, we are of the considered opinion that the addition made by the Assessing Officer in respect of this security deposit from Madhyeshiya Traders is not justified because the assessee could show that the security deposit of the present year was adjusted in the customer account of next year. Therefore, this addition of Rs. 50,000/- is deleted. In respect of third party i.e. Anil Kumar Mishra, we feel that for this small amount of Rs. 2,000/-, it cannot be said that the assessee could not establish the creditworthiness etc. of the person from whom this security deposit has been received and therefore, we delete this amount also. In this manner, the assessee gets part relief of Rs. 52,000/- and balance addition is confirmed.- Decided in favour of assessee in part Addition being interest and finance charges - Held that:- We find that out of interest claimed by the assessee, there is no outstanding amount except interest on ICD Rs. 1,18,588/- but for interest on ICD, section 43B is not applicable. Similarly, regarding discounting charges paid to various parties, there is some outstanding amount also. For instance Rs. 33,534/- being discounting charges of Ketan Mehta available on page No. 105 of the paper book and Rs. 20,726/- being discounting charges payable to Jitendra M. Shah HUF available on page No. 104 of the paper book but for discounting charges also, section 43B is not applicable and hence, this is noted that to all those claims regarding interest expenditure to which section 43B is applicable, there is no outstanding amount and for the remaining amount of interest and discounting charges, section 43B is not applicable and therefore, disallowance made by Assessing Officer is not justified. We, therefore, delete the same - Decided in favour of assessee Disallowance being 25% of the expenses on repair & maintenance of plant & machinery, building and others - Held that:- Incurring of expenses for repairing of plant & machinery has no direct correlation with the increase or decrease in sales and therefore, merely on this basis that the turnover has gone down, the repairing expenses cannot be disallowed. Regarding this objection that the details and evidences are not produced, it has been submitted before CIT(A) as per written submissions dated 25/03/203 that the ledger accounts of expenses under this head are being produced and in the earlier year, there was no disallowance under this head and all the expenses are vouched but there is no finding given by CIT(A) that these assertions of the assessee in the written submissions are incorrect. Hence, ad hoc disallowance under this head is not justified. We, therefore, delete the same - Decided in favour of assessee Disallowance being 40% of the expenses under the head salary, wages and bonus - Held that:- As per the audited accounts available , the details of employees remuneration and benefits of the current years and preceding years are available on page 30 of the paper book and as per the same, in the present year, the amount claimed is Rs. 448.55 lac as against the claim of Rs. 439.38 lac in the preceding year. As per the Assessing Officer in the assessment order, the claim under this head was Rs. 609.08 lac but this is the explanation of the assessee before CIT(A) that this amount included the amount of provision of gratuity which has been separately disallowed by Assessing Officer as per Para 5 of the assessment order and after excluding this amount, the claim under this head is almost equal to the claim under this head in the preceding year. There is no other reasoning given by the Assessing Officer for making these disallowances except stating that the claim in the present year is almost double. But when this is not factually correct after excluding the amount of gratuity of Rs. 247.08 lac separately disallowed by the Assessing Officer, no disallowance is justified - Decided in favour of assessee Disallowance of expenses claimed under various heads, such as power & fuel, effluent treatment expenses, misc. expenses, freight, transport & handling charges etc. - Held that:- From the chart of these expenses in the present year and preceding year, it is seen that these expenses have gone down to Rs. 614.58 lac as against Rs. 704.98 lac in the preceding year. Therefore, we feel that no disallowance under these heads is called for in the facts of the present case. We, therefore, delete the same.- Decided in favour of assessee Inclusion of Extraordinary income to the total income of the assessee - Held that:- No reason to interfere with the order of CIT(A) because when an income is included by the assessee itself in the computation of income filed by the assessee along with the return of income, if the assessee pleads that such amount is not be included in the total income then supporting evidence has to be brought on record by the assessee in support of this contention but since the assessee has not done so, we decline to interfere in the order of CIT(A). - Decided against assessee

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• 2016 (4) TMI 663
  Determination of Arm's Length Price - whether the goods so exported were part of the slow moving old stock? - Held that:- There is absolutely no doubt that the toning down of inventory which was written down in valuation of stock has been based on the retail pricing method. TPO, on the one hand, accepting these goods as slow moving, on the other, he expects the assessee to earn margin at the same rate at which the normal goods of the assessee are also earning. TPO is contradicting himself. Secondly, the TPO had not disputed that these goods are sold to foreign entity. Therefore, even on this ground to expect the assessee to earn the same margin as in Indian market is also an unacceptable logic. Thirdly, the calculation of GP at 22.64% includes the transaction with related party. It is 'tainted' transactions, because this GP of 22.64% is not the result of transactions with independent parties alone, but with related parties as well. It was the duty of the TPO to arrive at the ALP of this international transaction. TPO cannot use this figure of 22.64% itself as at arm's length. In effect, the sale invoices of the assessee to its AE can be compared with the sale of invoices of the AE to the independent party. The goods sold are exactly the same, as the goods were dispatched from the warehouse of the assessee to the ultimate buyer who is an independent entity. The time gap between the sale of the assessee and the sale of the AE are negligible because it has happened within the same month. Therefore, this is a fit case to use CUP as a most appropriate method. Thus the CIT(A) has rightly allowed the appeal of the assessee. The contention of the DR that the assessee instead of selling old stock through AE has directly sold the same to the third party is not correct. The CIT(A) gave finding after considering all the aspects to that effect. It can be found that the said stock was of old stock and the sale was also through the AE as well. The goods sold are exactly the same, as the goods were dispatched from the warehouse of the assessee to the ultimate buyer who is an independent entity. The time gap between the sale of the assessee and the sale of the AE are negligible because it has happened within the same month. The gross profit earned by the assessee is in India. TPO had not disputed the classification of the goods as slow moving or as old stock. Therefore, the CIT(A) has rightly held in favour of the assessee.

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• 2016 (4) TMI 662
  Disallowance u/s 14A - Held that:- It should be presumed that the assessee used own funds for making investments where assessee had both own funds as well as borrowed funds. The ld.CIT(A), on the same parity of reasoning, directed the AO to delete the addition under rule 8D(2)(ii). Therefore, we do not find any reason to interfere with the order of the ld.CIT(A) Once exempt income is earned, it means that some expenditure being incurred in relation to the exempt income which should be disallowed by applying formula laid down in rule 8D(2)(iii). Therefore, action of the AO is correct in applying rule 8D(2)(iii) but the amount of disallowance should be restricted to the dividend income.

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• 2016 (4) TMI 661
  Disallowance of labour charges - Held that:- Considering particularly the claim that labour charges for more than 8 months are outstanding at the year end and the payment already made in the present year is by way of cash, we feel that some disallowance out of labour charges is justified. We feel that if the preceding year is considered as a guiding factor, the labour charges should be 22.69% of Receipts of Rs. 90.35 Lacs as in that year and as a result, the labour charges for the present year comes to Rs. 20.50 as against claimed by the assessee of Rs. 23.82 Lacs. We have already noted that since this is not a case of the assessee that any assessment of such preceding or succeeding year was completed u/s 143 (3) and in the absence of that, such preceding or succeeding year cannot be a guiding factor. Considering te facts in totality, we feel that in the facts of the present case, disallowance of Rs. 5.95 lacs being 25% out of labour charges will meet the ends of justice. Addition of sundry creditors - Held that:- Confirmation is available of only 5 parties having outstanding of Rs. 3,70,20/- and about the remaining parties, it is stated by the assessee that it is not possible for the assessee to trace these creditors since period of nine years has elapsed and many of them have closed their business and others have disposed of their records. But the assessee has not brought even this evidence on record that when and how the amount was paid by the assessee to these creditors as per the records of the assessee and what is the last available address of these creditors along with PAN so that the department could have located these creditors. Regarding the five parties for whom confirmation have been submitted by the assessee also, the Ld. CIT(A) has noted that creditworthiness of these creditors was not established. Still, the CIT (A) has made an addition of only Rs. 15 Lacs and not of the entire amount of Creditors. No infirmity in the order of Ld. CIT(A) on this issue

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• 2016 (4) TMI 660
  Addition of unexplained cash credit - Held that:- From the facts on record and also from the Balance Sheet of the firm from assessment year 1994-95 onwards and at least till assessment year 2003-04, it is found that the liability of the sundry creditors remains almost the same or a little more right from assessment year 1993-94 onwards. Therefore, it can be concluded that the assessee never supplied any good to the alleged creditors. It is a fact that no creditor will like not to recover the credit for such a long time. If these creditors were other than the partners of the assessee themselves they would have certainly tried to recover the advances or at least would have filed suit for recovery of the same: In fact, as mentioned above, since the unaccounted money of the partners was credited in the name of three alleged creditors, the claim for recovering the advance given was never made. As in the case of Rameswar Das Suresh Pal Cheeka,[2006 (12) TMI 492 - HIGH COURT OF PUNJAB & HARYANA], wherein it is held that if there are cash credit entries in the books of the firm in which the accounts of the individual partners exist and it is found as a fact that cash was received by the firm from its partners, then in the absence of any material to indicate that they were profits of the firm, it could not be assessed in the hands of the firm. In the present case before us also there is no finding that the cash introduction is on account of the profit of the firm but actually these are partners’ money. Respectfully following the precedents and in the given facts of the case, we delete the addition - Decided in favour of assessee Charging interest u/s. 220(2) - Held that:- In the facts of the present case in which the original assessment order has been set aside by the Tribunal and matter restored to the Assessing Officer for fresh assessment and therefore in view of the circular of CBDT No.334 Dt.3.4.1982, the interest can be levied only from the date of default of the demand notice issued in pursuance of the fresh assessment order. The order of CIT(A) holding that interest under section 220(2) has to be levied from the date of default as per the original assessment order therefore cannot be sustained. The same is set aside - Decided in favour of assessee Addition of bogus purchases - Held that:- We find that the assessee has produced purchase bills, bank account, statement pertaining to purchase price and issuance of cheques. The assessee also produced photo copy of stock register and purchase register maintained by him, which were not verified by the AO properly. These were produced before us also by the assessee in its paper book and stating the reason that all the entries are tallying. Since this is a very old matter pertaining to AY 1994-95 i.e. almost 22 years old and the assessee is able to produce copy of purchase register and copy of stock registers along with purchase bills and bank statement pertaining to purchases, the purchases cannot be held to be bogus and the same are accepted as genuine - Decided in favour of assessee

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• 2016 (4) TMI 659
  N.P. rate determination - rejection of books of accounts - Held that:- In the absence of any basis to arrive at the conclusion of 8.5% of NP rate instead of 5.92%, we deem it appropriate to restrict the NP rate of 6% subject to depreciation and interest paid to third party. Since the assessee has failed to produce the stock register and other documents for the purpose of qualitative verification, it was not possible for the authorities below to verify the books of account. Therefore, the AO was left with no other option but to reject the books of account. We are in agreement with the authorities below for rejecting the books of account. The judgments relied upon by the ld. Counsel for the assessee are not applicable to the facts and circumstances of the case and the judgments relied upon by the AO while passing the assessment order are squarely applicable to the facts and circumstances of the case. Hence, the appeal of the assessee is partly allowed to that extent. - Decided in favour of assessee in part

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• 2016 (4) TMI 658
  Estimation of income - G.P. rate determination - basis of which the AO has rejected the books of account was on account of the assessee’s failure to produce the confirmations of the accounts from the purchasers of the goods from the assessee - Held that:- Rejection of books of account by the AO was without any rhyme and reason or the justification. In our view, once the assessee was maintaining books of account, purchases and sales were duly vouched, there was sufficient compliance in maintaining the records and there was no justification on the part of the AO to reject the books of account. Decided in favour of the assessee and against the revenue. Since we have held that the books of accounts were duly maintained by the assessee and no specific defect has been pointed out by the AO, therefore, in our view, the AO has no reason to estimate the income of the assessee by applying the GP rate of 8.54%. The authorities below have failed to bring on record the basis of arriving at the GP rate of 8.54% which is contrary to the GP shown by the assessee to the extent of 4.99%. Since we have held that the books of accounts were duly maintained by the assessee, therefore, the estimation brought on record by the AO and confirmed by ld. CIT (A) is without any basis. Accordingly the addition made by the authorities below is hereby directed to be deleted. As books of accounts were duly maintained by the assessee and all the sales and purchases are duly vouched and maintained by it, therefore, we do not find any justification for disallowing 5% of the expenses towards Conveyance, Deepawali, General, Telephone, Transport and Car. Accordingly the disallowance made by the authorities below on these heads is also directed to be deleted.- Decided in favour of assessee

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• 2016 (4) TMI 657
  Disallowance u/s u/s 14A r.w. Rule 8D(2)(iii) - Held that:- The facts as emanate from the record are that the assessee earned dividend income of Rs. 75,150/- which was exempt u/s 10(34) of the Act. As can be seen from the impugned order, the assessee had in fact submitted before the Ld.CIT(A) that she credited the exempt dividend income to her capital account for the relevant period and had claimed expenditure therein on account of delivery charges (Rs.1,519/-) , demat charges (Rs.10,621/-) , Stamp charges (Rs. 7,577/-) and Securities transaction (Rs. 72,415/-) charges and it was in these circumstances that no separate claim was put forth in the profit and loss account which reflected the derivative transactions of the assessee. In the factual matrix of the case, as laid out above, we concur with the averments of the AO without examination of the assessee’s accounts and recording that he is not satisfied with the assessee’s claim, proceeded on the factually erroneous conclusion that no expenditure was debited in respect of the earning of the assessee’s exempt dividend income, to make the disallowance u/s 14A r.w. Rule 8D; which was not warranted. We agree with the plea of the assessee that since it had already claimed expenditure incurred (supra) for earning the exempt dividend income of Rs. 75,150/-, the further disallowance of Rs. 34,292/- made by the Assessing Officer u/s 14A r.w. Rule 8D was not called for - Decided in favour of assessee Sale of short term capital assets - 'capital gains’ OR 'business income’ - Held that:- Following the aforesaid decision of the co-ordinate bench in the assesses own case for Asst. year 2006-07, since the facts of the matter are similar in this year also, we set aside the order of the Ld. CIT(A) and direct the Assessing Officer to assess the capital gains arising from sale of shares (i.e. Short term capital assets) as ‘STCG. only and not as ‘ business income’

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• 2016 (4) TMI 656
  Disallowance u/s 14A - Held that:- Disallowance u/s 14A was made without due deliberation and analysis by the Assessing Officer and the Ld. CIT(A) was also patently wrong in confirming and enhancing the disallowance. The order of the Ld. CIT (A) is quashed. The ground relating to initiation of penalty proceedings u/s 271(1)(c) of the Act being premature is dismissed.

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• 2016 (4) TMI 655
  Deemed dividend addition under section 2(22)(e) - Held that:- There has to be some material on the record to demonstrate the factual elements embedded in the arguments of the learned counsel. That's not the case here. In any event, as the Assessing Officer has very well demonstrate on the facts of this case, all the conditions for attracting the taxability under section 2(22)(e) are satisfied on the facts of this case. The assessee has received the monies from a company in which he is the shareholder, the shareholding of the assessee exceeds the specified threshold limit, the company has sufficient accumulated profits and reserves and surplus and the amounts received are in the nature of loans and advances. The plea now taken by the assessee, i.e. advances being compensation for personal guarantees, is nothing but a cover up and unsupported by material on record. The assessee's plea that these advances in the nature of transactions in the ordinary course of business has been effectively demolished by the Assessing Officer, and learned CIT(A) was quite justified in upholding these findings. Whether these advances were to help the assessee in overcoming temporary liquidity crises or not is wholly irrelevant because as long as it is in nature of loans or advances, and other pre-conditions for applicability of Section 2(22)(e) are satisfied, such loans and advances are required to be taxed as deemed dividend. We uphold very well reasoned stand of the authorities below, and decline to interfere in the matter. The order of the CIT(A) thus stands confirmed. - Decided against assessee.

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• Customs

• 2016 (4) TMI 683
  Confiscation of seized rough diamonds - Diamonds provisionally released by the time order is passed by Adjudicating Authority (AA) - AA ordered redemption fine of Rs. 32.61 lacs on the petitioners, and directed that the bank guarantee of Rs. 32.61 lacs furnished by the petitioners may be appropriated against such redemption fine. Additionally, there were also fines imposed. Held that:- If there is any error apparent on the face of the record which requires rectification, it is always open for the authorities to exercise such powers. In catena of decisions, in the guise of rectification, the power of review which do not vest in the authority, cannot be exercised. Be that as it may, when the original order passed by the adjudicating authority is perused, in which the redemption fine and personal penalties were imposed. Clearly, the bank guarantees and bonds were to be executed by the petitioners for provisional release of the goods. This provisional release was substituted by confiscation and redemption fine. If therefore, the petitioners pay such redemption fine, they should be entitled to return of the bank guarantees and cancellation of the bonds. The redemption fine and the penalties having been modified by the Appellate Authority, direction ought to have been given for return of the bank guarantee and cancellation of the bonds upon the petitioners depositing substituted redemption fine. Linking the return of the bank guarantee and the cancellation of bond to the penalties, was either done wholly through oversight or at any rate without legal justification. In either case, we would strike down that portion of the appellate order and permit the petitioners to pursue their pending appeal before the Tribunal for the rest of the grievances. - Petition disposed of

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• 2016 (4) TMI 682
  Confiscation as prohibited goods - Seizure of silver oak wood - Re-export allowed on payment of redemption fine and imposed penalty under Section 112(a)(i) of Customs Act, 1962 - Held that:- by following the ratio laid down by Apex Court in the case of Collector of Customs, Bombay Vs. Elephanta Oil and Industries Ltd. [2003 (1) TMI 108 - SUPREME COURT OF INDIA] and followed by Hon'ble High Court of Madras in the case of Chennai Marine Trading (P) Ltd. Vs. Commissioner of Customs (Seaport - Import), Chennai [2014 (9) TMI 326 - Madras High Court], the appellant is directed to deposit Rs. 50,000/- towards redemption fine and entire amount of penalty and make prayer for re-export since mis-declaration surfaced on record. Such mis-declaration required the public exchequer to incur cost seeking report from the forest department. Also mis-declaration being found to be deliberate, imposition of penalty of Rs. One lakh is uninterfered. - Decided partly in favour of appellant

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• 2016 (4) TMI 681
  Confiscation of goods and imposition of penalty - Import of LED TV's - Goods covered under clearance on the basis of MRP value - Differrantial duty and interest paid immediately before issuance of Order-in-Original - Appellant contended that there was no intention to evade duty and mis-declaration of MRP was a bonafide mistake on the part of their Customs Broker Agent - Held that:- there is no evidence on record to substantiate the claim of appellant. As the importer has paid the differential duty and interest before issuance of the Order-in-Original, so it is found to be a fit case for reduction of redemption fine. It is also seen that the importer had paid 25% of the penalty imposed under Section 114A of the Customs Act, 1962. Therefore, the redemption fine of Rs. 22 lakhs imposed by the Original Adjudicating authority is reduced to Rs. 7 lakhs. - Appeal disposed of

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• Corporate Laws

• 2016 (4) TMI 678
  Scheme of Demerger - Held that:- On consideration of all the relevant facts and the procedural requirements contemplated under the 1956 Act and the 2013 Act and the relevant Rules and on due consideration of the report of Regional Director, Northern Region, Ministry of Corporate Affairs and the Scheme of Arrangement is hereby sanctioned. The assets and liabilities of the "Demerged Undertaking i.e. Hospital situated at Sector-53, Saraswati Kunj, DLF Golf Course Road, Gurgaon" of Transferor/Demerged/Petitioner No. 1 Company shall be demerged into Alchemist Hospitals (Gurgaon) Pvt. Ltd. i.e. Transferee/Resulting/Petitioner No. 2 Company. The undertaking given by the petitioner companies shall be complied with. The Scheme shall be binding on the Demerged and Resultant companies, their respective Shareholders, Creditors and all concerned. Let formal order of sanction of the Scheme of Arrangement be drawn in accordance with law and its certified copy be filed with the Registrar of Companies within 30 days from the date of receipt thereof.

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• FEMA

• 2016 (4) TMI 677
  Order of detention - Held that:- There are previous decisions of Division Bench of this High Court that detaining authority is under obligation to comply with the requirements by formulating grounds for detention and on factual aspect also, there is no reason to detain such person and therefore, as recorded herein above, the Division Bench has gone to the extent of saying that "a grosser case than this is yet to be seen. Thus the impugned order of detention cannot sustain. The petition is allowed resulting into quashing and setting-aside the impugned order of detention dated 11.6.1976 at Annexure 'A' to the petition and declaration under Section 12A of the COFEPOSA, 1974 at Annexure 'B' dated 11.6.1976 and quash and set-aside three notices under Section 6 of SAFEMA, 1976, Annexure 'D' Collectively dated 28.4.1977, 20.1.1997 and 23.3.1977.

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• Service Tax

• 2016 (4) TMI 693
  Invokation of extended period of limitation - Demand of Service tax and imposition of penalty for the period 17.12.2002 to 1.5.2006 - Cargo handling service - Appellant contended that it was essentially an individual contractor and therefore was not a commercial concern and genuinely believed that it was not liable to service tax - Held that:- the contention of the appellant that although its name was M/s Vigyatraj Patni, but it was given contract in the name of "M/s Vigyatraj Patni" - contractor" as an individual is not held to be acceptable as it is evident that during the period involved, there was scope for confusion that the individuals were not covered under the scope of 'commercial concern'. In these circumstances it is not unreasonable on the part of the appellant to have a bona fide belief that it was not liable to pay service tax. - Matter remanded back

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• 2016 (4) TMI 692
  Waiver of pre-deposit - Demand raised under the category of "Commercial and Industrial Services" whereas according to the latest ruling of the Supreme Court, the said activities would fall under the "Works Contract Services" - Held that:- appellant agreed that there is no undue financial hardships on their part so as to satisfy the conditions of Section 35 F of the Central Excise Act. Accordingly, the appellant is directed to deposit Rs. 1.05 crores within a period of 15 days.

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• 2016 (4) TMI 691
  Refund of Cenvat credit - Notification No.27/2012-CE (NT) dt. 18.6.2012 read with Rule 5 of CENVAT Credit Rules, 2004 - Export of service and receiving foreign exchange as consideration - Lower authority rejected the claim on certain procedural lapses - Held that:- on the objection that invoice submitted by the service provider does not indicate all particulars could have been avoided if the lower authority had called for the details of the purchase order and other correspondence and the terms of understanding between the appellants and service providers. Appellants have consistently taken a stand that sub agents were engaged by them for procuring orders relating to export of services provided by the appellants. Once the service in question had been held to be eligible for the credit, the lower authorities should have verified the nature of payment effected on such services and the appointment of said sub agents who had provided such service. It should not be difficult for the appellants to give the particulars of such sub agents and the manner in which such services were to be provided. Therefore the rejection of invoices on the ground of lack of particulars is not correct. On the ground that there was no agreement between the service providers and the appellants for providing the service. It is the ground of the Assistant commissioner that the copy of the agreement was given only after issue of Show cause notice. This ground for rejection is also not tenable as the genuineness of the documents has not been disputed. It is also noticed that the claim is rejected for want of methodology for the quantification of the commission paid. It is observed that so long as the commission paid is not disputed, which can even be verified from the bank statements or certificates from the bank, the rejection of claim for want of quantification of the commission paid is not legally tenable. Another ground of rejection is that the services exported are treated as 'exempted services' for which no credit is admissible. It is observed that under Rule 6(8) of the Cenvat credit rules, services provided will not be an exempted service, if conditions prescribed under Rule 8(a) and (b) are satisfied. The lower authority had not examined whether these conditions are satisfied. Also bank realisation certificates has not been correlated with the export invoices. In the event of non-realisation of remittances for export of services which is also governed under FEMA Act, the lower authority should have examined whether any action was taken under the FEMA against the appellants. In absence of any such proceedings, It cannot be presumed that the remittances of export of services are not correlatable. Keeping in view that claim of refund under Cenvat Credit Rules is part of the export promotion scheme without properly examining the records, such benefits cannot be denied, since the records in question can be properly verified by the Assistant commissioner, who had passed the order-in-original. I, therefore, remand the entire matter to the original authority for examining the issue afresh. Appeal disposed of

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• 2016 (4) TMI 690
  Waiver of pre-deposit - Demand of Service tax, interest and penalty - Business support service under reverse charge mechanism - uplinking facility availed from overseas entity - Held that:- by relying on the earlier decisions held that BSS would cover only the services which are supporting nature to the main business, like services relating to customer relationship telemarketing, office infrastructure, etc and would not cover the services of renting of machinery or equipment for production or manufacture, which is an activity relating to conduct of main business. The applicants have strong prima facie case in their favour and therefore, waiver of pre-deposit is granted for admitting the appeal. At this prima facie stage, by following the stay orders passed earlier it is found that, in similar set of facts, the present applicant has to be given full waiver of pre-deposit of adjudicated dues. - Stay and waiver granted

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• Central Excise

• 2016 (4) TMI 689
  Declaration of Retail Sale Price / Fixation of tariff value - Where MRP is not required - Applicability of Section 3(2)- Seeking clarification/direction regarding Notification No. 16/2013 – CE (N.T.) dated 31st December, 2013 - Held that:- the expression “Retail Sale Price declared on such goods” occurring in the impugned Notification has to be read as not requiring any disclosure or declaration of the RSP on the packages in question subject to their fulfilling the parameters of Rule 26 of the LMPC Rules. It only requires the importer to make a declaration to the respondents of the RSP at which such goods, in packets of 10gm or 10ml, are to be sold. This has been further confirmed by the communication dated 2nd January, 2014 issued by the TRU which states that the tariff value shall be the RSP prescribed for such goods. Therefore, the RSP referred to in the Notification is the RSP disclosed by the importer to the Respondents. Legality of Notification No. 16/2013 - - Contrary to Central excise Act - Held that:- The petitioners does not question the power of the Central Government under Section 3(2) of the CE Act to fix the tariff value. They also do not question the constitutional validity of Section 3 of the CT Act in terms of which the CVD can be levied and collected. The issue really is only about the apprehension of the petitioners that they may be compelled to disclose the RSP on the packages contrary to the exemption granted under Rule 26 of the LMPC Rules. This apprehension has been laid to rest by the respondents who have clarified that they will not insist on such disclosure of the RSP on the package as long as the petitioners otherwise satisfy the requirement of Rule 26 of the LMPC Rules. What the respondents ask is for a declaration made to them of the RSP at which such commodities are ultimately sold. Therefore, there is no illegality attaching to the impugned Notification. Consequently, the prayer that the said Notification should be held to be contrary the CE Act or the CT Act is hereby rejected. Insofar as it only fixes the tariff value as the RSP which the importer has to declare to the Customs authorities, no illegality attaches to the said Notification or the subsequent clarification issued by the TRU on 2nd January 2014. - Petition disposed of

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• 2016 (4) TMI 688
  Recovery of duties not levied or not paid or short-levied or short-paid or erroneously refunded - Whether the first respondent is right in holding that there can be a demand notice under Section 11A of the Central Excise Act, 1944 by the Original Authority for alleged erroneous refund (earlier granted by the same Original Authority) without reviewing at all the refund order of the Original Authority by the Superior Authority in terms of Section 35E of the Act ibid (vide para No. 6 of the impugned order) ? - Held that:- In this case, an order of refund was passed on an application under Section 11B. The appeal against the finalisation of the assessment was closed on the basis of the refund order. There can be no doubt about the fact that the statutory right of appeal is a valuable right conferred upon the assessee. That right was actually altered on the basis of an order of refund. Suppose there had been no order of refund, the appeal could have been pursued against the finalisation of the assessment. As decided in Asian Paints (India) Limited [2002 (4) TMI 62 - SUPREME COURT OF INDIA ] there is no nexus between Section 11A and Section 35E. Section 11A does not indicate that the legislature intended to override Section 35E. Both sections have to be read harmoniously. In the present case, Annexure-I certificate has been issued in favour of the petitioners from time to time on executing B-8 security bond and on furnishing a bank guarantee. The Department has to follow the procedure under Section 35E for setting aside the Annexure-I certificate. Unless, the Annexure-I certificate is cancelled or rejected by the competent Authority, by following the procedure under Section 35E, it is not permissible for the respondents to invoke Section 11A of the Act. Therefore, we are of the considered opinion that the issuance of show cause notices is without jurisdiction and is liable to be struck down Unfortunately, in none of the decisions relied upon by the learned Standing Counsel, the Courts were confronted with an order of adjudication passed under Section 11B on an application. Once an application for refund is allowed under Section 11B, the expression 'erroneous refund' appearing in Sub-Section (1) of Section 11A cannot be applied. If an order of refund is passed after adjudication, the amount refunded will not fall under the category of erroneous refund so as to enable the order of refund to be revoked under Section 11A(1). One Authority cannot be allowed to say in a collateral proceeding that what was done by another Authority was an erroneous thing. Therefore, the question of law has to be answered in favour of the appellant/assessee.

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• 2016 (4) TMI 687
  Requirement of pre-deposit - Held that:- When the Act or the Rules in question do not specifically prohibit restoration of an appeal, dismissed on the ground of non-deposit of the amount, the Tribunal certainly has the power and jurisdiction to recall its earlier order, if the ends of justice require such a course of action. When Rule 20 provides for restoration of appeal in case when the appeal is dismissed for default, there is no reason as to why the power of restoration should not be exercised in case of non-compliance with the provision for pre-deposit. Even if no pre-deposit is made, the appeal may not be heard, but the dismissal of the appeal for non-compliance of pre-deposit does not permit the appellate authority to refuse to restore the appeal upon compliance being shown. Under Rule 41, the CESTAT has wide powers to prevent abuse of its process and to secure the ends of justice. Since right to appeal is a statutory right and pre-deposit requirement under Section 129E of the said Act are only in nature of procedural requirements, but for delay in meeting the pre-deposit requirement, the primary right of appeal cannot be extinguished. It is apparent that the Tribunal cannot deprive the substantive right of the party to prefer the appeal on the mere ground that there is violation of procedure. Therefore, the order of the Tribunal, dismissing the restoration application and the order dismissing the appeal itself are liable to be set aside. Considering the claim of availability of merits, the quantum of tax under challenge, and the financial distress pleaded, it is just and necessary that the appellant should be allowed to present her case on merits in the appeal. It is ordered accordingly.

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• 2016 (4) TMI 686
  Eligibility of Cenvat credit - availed on inputs “Welding Electrodes” - used inputs for repair and maintenance of the plant and machinery which are used in the manufacture of final products - Held that:- the appellant’s contention that the definition of 'Input' is very wide and that welding electrodes were used “in or in relation to the manufacture of final product whether directly or indirectly” and the expression “used in the factory of manufacturer” are both satisfied in the instant case. Therefore, by following various judgments and the very definition of 'input', the impugned order is set aside. - Decided in favour of appellant with consequential relief

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• 2016 (4) TMI 685
  Demand of duty and imposition of penalty - Whether the transfer of unutilized credit by the appellant who is the lessor, on lease of capital goods and factory building and on sale of inputs is in order - Sale of inputs as such and at the same time the factory and capital goods have been let on lease. Held that:- though there is no physical removal of such inputs, the admitted position is that there is a sale which would invite raising an invoice and which would necessitate payment of duty equivalent to the credit taken and the same could have been availed by the lessee to take credit. Therefore, whether there has been physical removal or not, fact remains that proper procedure has not been followed, though credit would have been available to the lessee. Hence, the issue is purely academic which cannot lead to raising of a demand by the Revenue as there is no loss to the revenue. The fact that the appellant lessor is a manufacturer utilizing the inputs and discharging on the final products is not under dispute. Therefore on purchase of the inputs, the lessee is entitled for the credit. Duty demand alongwith penalty under Rule 15 of the CENVAT Credit Rules is set aside. - Decided in favour of appellant

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• 2016 (4) TMI 684
  Imposition of penalties - Reversal of Cenvat credit - Rule 6(3A) of the CCR 2004 - CA certificate furnished by appellant - Held that:- the appellant has now furnished C.A. certificates with respect to the CENVAT Credit required to be reversed under the provisions of Rule 6(3A) ibid. In the interest of justice, the order passed by the first appellate authority is set aside and the matter is remanded back to the adjudicating authority for verifying the CENVAT Credit reversed by the appellant under the provisions of Rule 6(3A) ibid. If there is any short payment as accepted by the appellant then the same should be reversed/paid back alongwith interest. However, no malafide can be attributed on the part of the appellant as reversal of CENVAT Credit as per the provisions of Rule 6(3A)ibid is only a calculation exercise for which penalties are not imposable. Accordingly, the penalties imposed are set aside. - Appeal allowed by way of remand

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• CST, VAT & Sales Tax

• 2016 (4) TMI 680
  Period of limitation - Notice of revision - Cancellation of composition permission orders previously ordered - Held that:- it is a settled legal position of law that in a taxing statute one has to go by the clear language of the statute and equity has no role to play while interpreting a taxing statute. One can only look fairly at the language used. To try to stretch the law to meet hard cases is not merely to make bad law but to run the risk of subverting the rule of law itself. The Tribunal, in the present case, to meet with a hard case, has tried to stretch the law by interpreting the provisions of section 67 of the Act in a manner not contemplated by the clear language of the statute, which is clearly not permissible in law. The interpretation made by the Tribunal on the basis of equitable considerations, that the period of limitation for exercise of powers under section 67 of the Act would commence from the date of knowledge of the Deputy Commissioner of Sales Tax, is inconsistent with the language of section 67(1)(a) of the Act, which clearly and unambiguously provides for a period of limitation of three years from the date of the order, for invoking revisional jurisdiction. The Tribunal, therefore, was not justified in holding that the notice for revision was not time barred as the period of limitation would commence from the knowledge of purported mischief of Government record. - Decided in favour of appellant

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• 2016 (4) TMI 679
  Seeking direction to grant entertainment tax exemption to the movie - After rejection of the application for grant of exemption of entertainment tax, now, by the new Government Order issued on 31.03.2016, the first respondent had taken a different stand stating that the petitioner's movie is entitled for exemption of entertainment tax only from the date of issuance of the Government Order i.e., 31.03.2016. Held that:- when the petitioner had applied for the exemption on 16.12.2015 and the respondent had rejected the same by its order dated 31.12.2015 and when the respondents are taking a different stand by giving exemption to the petitioner's movie, they cannot now say that the exemption will come into effect only from 31.03.2016 and not from the date of release of the movie. Once the first respondent had decided to grant exemption of the entertainment tax, exemption should come into effect only from the date of release of the movie and not from the date of issuance of the Government Order. The Order passed by the first respondent dated 31.12.2015 is proved to be erroneous, by the issuance of the present Government Order dated 31.03.2016. By following the judgment of Hon'ble Supreme Court in the case of Lloyd Electric and Engineering Limited vs State of Himachal Pradesh and Others [2015 (9) TMI 370 - SUPREME COURT], order passed by the first respondent, is liable to be set aside. The petitioner's tamil movie "g[fH;" is entitled for exemption of entertainment tax from the date of release i.e., on 18.03.2016. - Decided in favour of petitioner

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• Wealth tax

• 2016 (4) TMI 654
  Treatment of land acquired by the Government of India under the Land Acquisition Act, 1894 - whether falls within the definition of net wealth of the assessee company under the Wealth Tax Act, 1957? - Held that:- The assessee does not hold any ownership rights in the said portion of land and it is absolutely with the Government. Once the ownership of land is vested with the Government and where only possession of the said land has been given to the assessee, we find merit in the plea of the assessee that the said land does not belong to the assessee in order to make it liable to the provisions of Wealth Ta x Act, under which the value of asset belonging to the assessee is to be included in the hands of the assessee as part of its net wealth. Accordingly, we hold so. Merely because a decision was taken by the Government to sell the land in order to meet the liabilities of assessee company does not make the assessee the owner of the land. The assessee was a Government company and the land was acquired by the Government for the purpose of assessee company, which admittedly, is a public purpose under the provisions of LAC Act, but the land vests with the Government and it has every right to take a decision with regard to the said land in order to liquidate the financial crunch of its company i.e. the assessee before us, which is a Government company. However, the said decision of the Government was withdrawn on a later date and funds were decided to be infused into the assessee company. Once the asset does not belong to the assessee, we find no merit in the orders of authorities below in assessing the value of the said assets in the hands of assessee and accordingly, we direct the Assessing Officer to delete the same - Decided in favour of assessee

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• Indian Laws

• 2016 (4) TMI 676
  Prevailing rights of recovery - whether mortgage inuring in its favour had to prevail over the PSB’s claim in execution of a money decree and directing that proceeds from the sale of a property by the Recovery Officer be used first to satisfy MMTC’s claim - Held that:- This Court does not have the benefit of evidence one way or the other to conclude that an enforceable mortgage claim existed. It is also noteworthy that neither of the authorities below us undertook this line of inquiry. Accordingly the Court deems that remand is the most appropriate course of action to take. This conclusion is based primarily on the fact that a blind application of M.R. Satwaji Rao (2008 (4) TMI 737 - SUPREME COURT) or Booz Allen (2012 (10) TMI 459 - SUPREME COURT) does not result in the invalidation of the Award, which has attained finality, inter parties (as far as MMTC and its borrowers) vis-à-vis the issue of liability of the said borrowers and guarantors are concerned. However, because of Order XXXIV Rule 14, the route adopted by MMTC to enforce that award is not correct. At the same time, any observations on the merits of the potential claim of MMTC in a suit for sale ought to be avoided. Limitation in the filing of the suit - Held that:- Here, it would be relevant to notice that having upheld PSB's contention that by reason of Order XXXIV Rule 14 and the decision in M.R. Satwaji Rao (supra) as well as Booz Allen (supra), the corollary is not that a further action is barred on the ground of limitation. The limitation for such a suit for sale, under Order XXXIV Rule 14 would be an issue that would arise in case it is filed by MMTC. Advisedly this court refrains from pronouncing on that eventuality, because the issue does not arise for consideration. Furthermore, such an issue would involve decision on a question of fact, which should not be adjudicated in writ proceedings. The sale ordered by the executing court is declared a nullity. As this court does not have the benefit of the record before the executing court, it does not express itself on the execution proceedings. The matter is remanded back to the Learned Recovery Officer to determine whether there is evidence to show that PSB has some ‘interest in, or was possessed of, the property in question’. Consequent to his findings, the Recovery Officer shall then proceed in accordance with provisions of law.

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