TMI Tax Updates - e-Newsletter
April 22, 2016

Case Laws in this Newsletter:

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

TMI SMS

• While computing MAT u/s 115JB, dividend tax paid should not be reduced from the book profit of the assessee company - Tri

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Articles

1. Analysis of draft rules for grant of Foreign Tax Credit

   By: CA Paras Dawar

2. UTILIZISATION OF CENVAT CREDIT FOR PAYMENT OF EXCISE DUTY AND SERVICE TAX

   By: DR.MARIAPPAN GOVINDARAJAN

News

1. Exchange Rate of Foreign Currency Relating To Imported and Export Goods Notified

2. Ministry of Commerce & Industry Launches Twitter Seva

3. RBI Reference Rate for US $

4. Draft rules for grant of Foreign Tax Credit

Notifications

Customs

1. 55/2016 - dated 21-4-2016 - Cus (NT)

Rate of exchange of conversion of the foreign currency with effect from 22nd April, 2016

Circulars / Instructions / Orders

FEMA

1. 63 - dated 21-4-2016

Foreign Investment in units issued by Real Estate Investment Trusts, Infrastructure Investment Trusts and Alternative Investment Funds governed by SEBI regulations

DGFT

2. 3/2015-2020 - dated 21-4-2016

Implementation of the Track and Trace system for export of Pharmaceuticals and drug consignments.

3. 03/2016 - dated 21-4-2016

Grant of relaxation of ILC with Regional Authorities with reference to Notification No. 38 dated 5th Feb. 2016

Highlights / Catch Notes

Income Tax

• Section 40(a)(ia) of Income Tax Act: Second proviso applies retrospectively from April 1, 2005, as declaratory and curative.

  Case-Laws - AT : Second proviso to section 40(a)(ia) of the Act is declaratory and curative in nature and has retrospective effect from 1st April, 2005 - AT
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• Day-to-day business operating expenses are allowable as revenue expenditure, even with the percentage completion method.

  Case-Laws - AT : Allowability of expenditure - Where the expenditure is relatable to day to day running of the business, the said expenditure is allowable as revenue expenditure in the hands of assessee irrespective of the fact that the assessee was following percentage completion method of recognizing its revenue - AT
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• Dividend Tax Non-Deductible from Book Profit for MAT Calculation u/s 115JB.

  Case-Laws - AT : While computing MAT u/s 115JB, dividend tax paid should not be reduced from the book profit of the assessee company - AT
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• Income Tax Act Section 36(1)(viia): Deduction for Bad Debts Limited to Rural Debts Only.

  Case-Laws - AT : Claim u/s 36(1)(viia) restricted only for provision for rural debts - AT
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• No Penalty u/s 271(1)(c) for Bona Fide, Debatable Income Tax Claim with No Concealment Evidence.

  Case-Laws - AT : No Penalty u/s 271(1)(c) - claim is bonafide and is also debatable and there is no concealment of income.- AT
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• Court Rules Documents in Section 153C Case Not Linked to Seizures During Search Action.

  Case-Laws - AT : Assessment u/s 153C - the concerned documents/diaries did not emanate from out of seizures made in the course of search action - AT
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• Section 80C: No Tax Deduction for Tuition Fees Paid for Grandchildren, Court Rules in Income Tax Case.

  Case-Laws - AT : No deduction is to be allowed u/s 80C on account of tuition fees paid in respect of grand children of the assessee - AT
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• Loan Repayment Liability Taxable u/s 41(1) if Not Used for Capital Asset Purchase.

  Case-Laws - AT : Cessation of liability to repay the loan taken was not for the purpose of purchase of capital asset and therefore, the liability to repay the loan was taxable u/s 41(1) in the hands of the assessee - AT
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• Loan Write-Off Classified as Income u/s 28(iv) for Business Loans in Regular Operations.

  Case-Laws - AT : Written off of balance principal and interest amount of loan be treated as income in the hands of the assessee within the meaning of section 28(iv) of the Act, since the loan was taken by the assessee for business purpose during the course of regular business operation - AT
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• Assessee's Expenses Disallowed u/s 35(2AB) Due to Missing Form 3CL Approval for Scientific Research Deductions.

  Case-Laws - AT : In the absence of filing approval in Form 3CL by the assessee, no expenses claimed under section 35(2AB) allowed - AT
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• Fringe Benefit Tax Exclusion in Net Profit Calculation u/s 115JB Impacts Taxable Income for Entities.

  Case-Laws - AT : Exclusion of fringe benefit tax for arriving the net profit for the purpose of computation of income under section 115JB - AT
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• Interest on Borrowed Money: Valid for Commercial Expediency if Funds Enhance Business Efficiency and Make Commercial Sense.

  Case-Laws - AT : If the money is utilised in a way that makes commercial sense and helps in running the business of the assessee more efficiently, then it can be said that the interest paid in respect of the borrowed money has been incurred for the purposes of commercial expediency. - AT
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FEMA

• SEBI Updates Guidelines on Foreign Investment in REITs, InvITs, and AIFs; Emphasizes Compliance with FEMA Regulations.

  Circulars : Foreign Investment in units issued by Real Estate Investment Trusts, Infrastructure Investment Trusts and Alternative Investment Funds governed by SEBI regulations - Circular
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Indian Laws

• High Court Affirms Accused's Right to FIR Copy Before Section 207 Cr.P.C Proceedings Begin to Safeguard Defense Rights.

  Case-Laws - HC : Right to receive copy of the FIR even before the stage of proceedings under Section 207 of the Cr.P.C - Accused is entitled for copy of the FIR - HC
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Wealth-tax

• Land converted to stock in trade is not subject to wealth tax.

  Case-Laws - AT : Land which was converted to stock in trade the same was not eligible for imposition of wealth tax - AT
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• Wealth Tax Exemption: Urban Land Converted to Productive Use Qualifies for Exemption During Conversion Period.

  Case-Laws - AT : Imposition of wealth tax - Once the non-productive asset like urban land is converted to a productive asset like a building which qualifies for exemption, then the assessee can start availing of exemption even during the period of conversion of such non-productive asset to productive asset - AT
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Service Tax

• Passenger Service Fees Paid to Airport Authority of India are Exempt from Service Tax u/r Clarification.

  Case-Laws - AT : Passenger service fee being collected on behalf of air port authority of India and being paid to the said authority are not liable to service tax - AT
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• Services Received as Output Automatically Qualify as Input u/r 2(l) of Cenvat Credit Rules.

  Case-Laws - AT : Once what is received by the service receiver being output services, the same would automatically become input service in terms of Rule 2 (l) of Cenvat Credit Rules - AT
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• Show cause notice remains valid despite incorrect or missing legal provision if justified by another legal source.

  Case-Laws - HC : Merely because in the show cause notice no legal provision is cited or wrong provision is mentioned, by itself may not be the ground for invalidating the action of the authority, if the power for such action can be traced to another source - HC
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Central Excise

• Disciplinary Actions Require Proof of Malafide Intent; Wrong Decisions Alone Aren't Misconduct.

  Case-Laws - HC : Unless it can be shown that the decision was taken malafide or with ulterior motive, for a wrong decision taken there cannot be disciplinary proceedings as it is not a misconduct - HC
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• Insurance Claims on Damaged Inputs Don't Impact Cenvat Credit Recovery, Whether Removed or Not from Factory Premises.

  Case-Laws - AT : Damaged inputs whether cleared from the factory premises or lying there only do not make any difference in recovery of Cenvat credit in the case of insurance claim being received - AT
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• Export Units Must Clear All Duty Liabilities on Goods When Switching to Domestic Tariff Area Status.

  Case-Laws - AT : One has to discharge all the duty liabilities on capital goods, raw-materials, finished goods etc. lying in the E.O.U. for final debonding and conversion of E.O.U. to a D.T.A. Unit - AT
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• Central Excise Duty Payment: Use Self-Removal Procedure When No Specific Provisions Exist for Duty Payment Methods.

  Case-Laws - AT : In the absence of any provision in Central Excise regarding duty payment, the correct method would have been to pay entire Central Excise duty as determined under Self-Removal Procedure - AT
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• Challenging Case Merits Early is Essential for MODVAT Credit Refund Eligibility; Separate Claims Not Permitted Later.

  Case-Laws - AT : For refund of MODVAT Credit to be admissible, one needs to contest the merits of the case in the first round of litigation rather filing an another refund claim - AT
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• Malafide Intent is Key for Penalty u/r 15(2) and Section 11AC of Central Excise Act.

  Case-Laws - AT : Proof of malafide is an essential requisite for imposition of penalty under Rule 15(2) read with Section 11AC of Central Excise Act - AT
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VAT

• Court Rules Final Decisions on VAT Cases Stand Despite Later Differing Opinions by Higher Tribunals.

  Case-Laws - HC : Different view taken by Court - Tribunal has already decided the matter in case of original petitioner - Once a decision has attained finality, it cannot be upset just on a mere ground that subsequently the higher forum has taken a different view - HC
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• High Court Clarifies TDS Refunds: HVAT Act Sections 27 & 24 Apply Only to Taxable Turnover, Exclude Out-of-State Sales.

  Case-Laws - HC : Refund of excess TDS - construction business - Section 27 & 24 of HVAT Act would be applicable only to the taxable turnover, i.e. after deducting service component and turnover relating to sales outside State in the course of inter-state sales or in the course of import - HC
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Case Laws:

• Income Tax

• 2016 (4) TMI 756
  Revision u/s 263 - whether the ld. CIT is correct to hold that the bad debt written off should be taken as business income within the meaning of section 41(1) and section 28(iv) of the Act? - whether the bad debt written off representing remission in the principal amount is a capital receipt or not? - Held that:- The loan was taken for business purpose and not for the purpose of purchase of any capital asset. Therefore, the written off of balance principal and interest amount of loan in the accounts of Dr. MVS Murthy should be treated as income in the hands of the assessee within the meaning of section 28(iv) of the Act, since the loan was taken by the assessee for business purpose during the course of regular business operation. Further, the cessation of liability to repay the loan taken was not for the purpose of purchase of capital asset and therefore, the liability to repay the loan was taxable under section 41(1) in the hands of the assessee. In view of the above facts and circumstances of the case, we are of the opinion that the ld. CIT has rightly invoked the provisions of section 263 of the Act and directed the Assessing Officer to redo the assessment. Hence, we find no infirmity in the order passed by the ld. CIT and dismiss the grounds raised by the assessee. - Decided against assessee

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• 2016 (4) TMI 755
  Disallowance made under section 40A(3) - Held that:- The explanation of the assessee vis-à-vis cash payments to drivers of transporters vehicles was that the payments were made in order to look after various expenses on road. However, the claim of the assessee was rejected by both the authorities below as the responsibility of the cash expenditure to be incurred on road was of the transporters, for which the transporters are supposed to handover cash to the drivers of the vehicles. The assessee on the other hand, further claimed that the TDS provisions were complied with wherever applicable. In the entirety of the above said facts and circumstances, we find some force in the claim of the assessee. However, in the absence of any details being available before us, we deem it fit to restore the issue back to the file of Assessing Officer to decide as per fact and law. The assessee is directed to file the necessary evidence that the cash was given to the drivers for meeting various expenses and also to explain how that cash was reimbursed by the transporters, since the onus of incurring the said expenditure was on transporters. - Decided in favour of assessee for statistical purposes. Claim of deduction under section 80C - Held that:- No deduction is to be allowed under section 80C of the Act on account of tuition fees paid in respect of grand children of the assessee - Decided against assessee Disallowance u/s 40(a)(ia) - Held that:- The year under appeal before us is assessment year 2009-10, under which as per section 194C of the Act, where cash payment is made in various installments aggregating more than Rs. 50,000/-, then the requirement of the Act is to deduct tax at source. The assessee has failed to deduct tax at source and hence, the said expenditure is disallowable under section 40(a)(ia) of the Act. The second claim of the assessee that the amount has been paid during the year and nothing is payable at the close of the year, also does not stand in view of decision of Pune Bench of Tribunal in various cases - Decided against assessee

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• 2016 (4) TMI 754
  Disallowance on account of interest - Held that:- If the money is utilised in a way that makes commercial sense and helps in running the business of the assessee more efficiently, then it can be said that the interest paid in respect of the borrowed money has been incurred for the purposes of commercial expediency. Moreover, the Ld. AR has demonstrated that as per the Balance sheet, the assessee had a capital of Rs. 2.73 crores and the profit for the year was Rs. 16.94 lacs. These figures, in our opinion, were sufficient to meet the investment requirements as well as the amount given as advance to M/s Victory Enterprises. These facts were before the Ld. CIT (A) also but he has not specifically dealt with them in the impugned order. Therefore, on an overall view of the facts of the case and in the case of S.A. Builders Ltd. vs CIT (2006 (12) TMI 82 - SUPREME COURT ) we direct the Assessing Officer to delete the disallowance of Rs. 54,477/- on account of interest. - Decided in favour of assessee Disallowance on account of 1/5th of the telephone expenses - Held that:- Looking into the quantum of disallowance as well as a specific prayer of the assessee that the quantum of disallowance may be fixed at 1/10th, we feel that it would serve the interest of justice if the disallowance is restricted to 1/10th of the total telephone expenses. - Decided in favour of assessee Value of sales consideration for the purposes of section 50C - capital gain computation - Assessing Officer as well as the Ld. CIT(A) have doubted the veracity of the ‘Ikrarnama’ or the ‘Agreement’ on the ground that the same is signed by only one person whereas the land has been finally sold to three parties - Held that:- In the case of K.K. Nag Ltd. vs. ACIT (2012 (6) TMI 184 - ITAT PUNE ) after detailed discussion of the provisions laid down u/s 50C of the Act has held that the discretion granted in such a situation is required to use in a judicious manner. Section 50C is a deeming provision and ostensibly involves creation of an additional tax liability on the assessee and, therefore, notwithstanding the presence of the expression ‘may’ in section 50C (2)(a), the AO in this case ought to have referred the matter to the valuation officer for ascertaining the value of the capital asset in question. The order of the Commissioner (Appeals) was thus held to be set aside and the AO was directed to adopt the course mentioned in section 50C (2)(a) and thereafter proceed to determine capital gain on sale of land and building. Respectfully following the ratio of decisions as above, we, while setting aside the orders of the authorities below on the issue, direct the AO to adopt the course mentioned in section 50C(2)(a) and thereafter, proceed to determine capital gain on sale of the properties in question after affording opportunity of being heard to the assessee. - Decided in favour of assessee for statistical purposes.

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• 2016 (4) TMI 753
  Revision u/s 263 - CIT(A) restricting claim u/s 36( 1)(viia)only for provision for rural debts and consequently disallowing claim for deduction of provision made of in accordance with the provision of sec 36( I )(viia) - whether deduction u/s.36(1)(vii) and 36(1)(viia) shall be in respect of both bad and doubtful debts irrespective of rural or urban debts? - Held that:- The legislative intention of decision of Catholic Syrian Bank [2012 (2) TMI 262 - SUPREME COURT OF INDIA ] was to protect the rural farmers and also benefit given without actual write off in the actual Books of Accounts though the principle was considered in the earlier years and the Department has accepted and passed the order. On the decision of the allowability of Sec.36(1)(viia) we relied on the Co-ordinate decision of Lakshmi Vilas Bank [2016 (4) TMI 572 - ITAT CHENNAI] the provision has been restricted to the extent of rural branches only. We confirm the findings of the Commissioner of Income Tax on the issue of rural branches following the Catholic Syrian Bank decision and uphold the order of the Commissioner of Income Tax - Decided against assessee

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• 2016 (4) TMI 752
  Allowability of expenditure - whether the expenditure claimed by the assessee is revenue in nature, which in turn, is allowable in the hands of assessee under section 37(1) or since the assessee was following project completion method, the said expenses were to be carried forward as work-in-progress, to be allowed in the respective year when the units were sold? - Held that:- Where the expenditure is relatable to day to day running of the business, the said expenditure is allowable as revenue expenditure in the hands of assessee irrespective of the fact that the assessee was following percentage completion method of recognizing its revenue. The expenses admittedly, which are relatable to the cost of construction of project are to be allowed as an expenditure in the hands of assessee on recognition of revenue to which it relates. However, the recognition of work-in-progress by the assessee does not imply that all the other expenses are also to be treated as work-in-progress. The nature of expenditure incurred by the assessee decides its allowability as business expenditure. Payments made under Meter expenses to MSEB - Held that:- Admittedly, after the installation, the Transformer becomes the property of MSEB and MSEB is at liberty to transmit electricity to persons other than the assessee. Further, the assessee had paid sum of Rs. 13,24,400/- against the cost of service line connection. This expenditure was also incurred in relation to the provision of electricity connection to the assessee. Such expenditure incurred by the assessee for carrying on of its business from day to day is business expenditure and allowable in the hands of assessee under section 37(1) of the Act and cannot be part of work-in-progress of the expenditure which are incurred by the assessee. The expenditure incurred for commercial exigency of carrying on of its business, as held by various Hon’ble High Courts and Hon’ble Supreme Court is an allowable expenditure in the hands of assessee. With regard to allowability of expenditure of Meter expenses (MSEB), we find support from the ratio laid down in Chief Project Manager, Railway Electrification, Indian Railway Vs. ITO (TDS) [2012 (7) TMI 544 - ITAT, Chandigarh ] Interest expenditure claimed under section 36(1)(iii) - Held that:- The assessee is in the business of developer and once the assessee has purchased land for the development purpose, then the assessee has started its business and under section 36(1)(iii) of the Act, it is very clearly provided that the interest paid on borrowed funds, which in turn, has been utilized for the purpose of carrying on of the business of assessee is duly allowable as business expenditure. Hence, the interest expenditure claimed by the assessee where the assessee is following percentage completion method is duly allowable as expenditure in the hands of assessee. Similarly, the Society charges is to be allowed as expenditure. Further, the Site expenses and Supervision charges are relatable to carrying on of projects and the same are to be taken as part of work-inprogress. The claim of the assessee before us is that similar expenditure was allowed in the earlier year. However, we find no merit in the claim of assessee as nature of expenditure itself shows it is in relation of construction activities carried on by the assessee and the same is rejected.

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• 2016 (4) TMI 751
  TDS u/s 194H - non deduction of TDS on commissioner paid - Held that:- The case of the assessee is squarely covered by the decision of Ansal Land Mark Township Pvt. Vs CIT [2015 (9) TMI 79 - DELHI HIGH COURT ] wherein it has been held that The second proviso to section 40(a)(ia) of the Act is declaratory and curative in nature and has retrospective effect from 1st April, 2005. Assessing Officer is directed to examine the claim of the assessee whether the said amount has been included as income of the payee. - Decided in favour of assessee for statistical purposes Additions on account of hawala purchases - Held that:- The ld.AR produced before us the various records such as copies of stock register, copies of invoice and delivery challan, bank statement evidencing the payment, copy of ledger account, summary of LDO purchased and consumed during the year and comparative analysis for various year for consumption which shows that the materials was actually received. The AO added the same as bogus purchase without carrying any further verification especially when he accepted the submission of the assessee M/S Vinav Trading Co and rejecting the plea for the other without bringing on records any other independent evidence such as specific confirmation from M/S Mahalaxmi and cross examination by the assessee. In our opinion the assessee had explained the purchase made from Mahalaxmi Corporation with all the supporting records which proved that the assessee had received the materials as evidenced by the delivery challan and other records. In view of the above facts, the additions - Decided in favour of assessee

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• 2016 (4) TMI 750
  Interest received u/s.244A in regard to interest on refunds due - treated as the income of the assessee - Held that:- In the case of the assessee there are no directions by the State Govt., for staying its income. The fact remains that by virtue of order of the Tribunal, the income has crystallized to the assessee in accordance with mercantile system of accounting. Merely an appeal filed by the Revenue before the Hon’ble High Court will not result in staying of such income/receipt unless an order is passed by the High Court to that effect. The other cases cited by the learned Authorized Representative are also not relevant to the facts in the case of the assessee Disallowance of pre-payment of premium made to IDBI pertaining to succeeding years - Held that:- It is evident that the assessee had paid premium of Rs. Rs. 3,80,56,306/- in order to reduce its interest liability from the relevant assessment years till the balance period of term loan. Therefore, it is necessary to link this expenditure with the benefit obtained by the assessee company for the balance period of term loan considering the matching principle of accountancy and the mercantile system of accounting in arriving at the correct income for the relevant assessment years. Moreover it is pertinent to mention that the balance period of the term loan and the income attributable to the savings in interest is ascertainable unlike in the case of deferred revenue expenditures where such period and the benefit derived in the succeeding years are not ascertainable. Therefore, the learned Assessing Officer is right in making such disallowance which is further confirmed by the learned Commissioner of Income Tax (Appeals). However, we hereby modify the orders of the Revenue, by directing the learned Assessing Officer, to ensure that the entire amount of Rs. 3,80,56,306/- be proportionately apportioned to the relevant period for which the benefit in quantum of reduction of interest is enjoyed by the assessee company in order to comply with the matching concept and mercantile system of accountancy which is stipulated in Accounting Standard-I and mandatory in the case of the assessee as it is a limited company and there by allow the deductions in the relevant assessment year and the relevant succeeding assessment years - Decided against assessee Disallowance of dividend tax paid u/s.115-O - Held that:- It is pertinent to mention that tax paid on dividend declared is nothing but appropriation of profit and therefore the same cannot be considered for arriving at the book profit of the assessee company as per the provisions of the company’s Act. Therefore for the purpose of computing tax under the provisions of 115JB of the Act dividend tax paid should not be reduced from the book profit of the assessee company. Moreover for the purpose of determining the income under the normal provisions of the Act also the payment of dividend tax cannot be considered because section 115-O of the Act specifically provides that dividend tax is payable in addition to the income tax chargeable in respect of the total income of a domestic company. For the aforesaid reasons, we do not find it necessary to interfere with the orders of the Revenue.- Decided against assessee

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• 2016 (4) TMI 749
  Validity of assessment u/s 153C - Held that:- In the case on hand, it is an admitted fact recorded in the orders of assessment that the incriminating documents in the form of diaries were found during the survey proceedings undertaken in the business premises of the assessee firm. It is therefore clear that the concerned documents/diaries did not emanate from out of seizures made in the course of search action. In this factual matrix of the case on hand, we find that the essential condition of section 153C of the Act is not fulfilled. Further, the Assessing Officer vide letter dt. 16/10/2015 has admitted that the satisfaction note for initiating the proceedings u/s 143(3) r.w.s.153C of the Act is not available on record., but has stated that it was the same Assessing Officer for initiation of the proceedings u/s 143(3) r.w.s 153C of the Act. Therefore, we find that the twin conditions (i) that the incriminating documents should have been found during the course of search action u/s132 of the Act and (ii) that the Assessing Officer should have recorded his satisfaction are not fulfilled in this case. Further, the CBDT, Circular No: 24/2015 dt. 31/12/2015 has made its applicability to pending litigation as well. In view of the above factual and legal matrix of the case, we uphold the ground raised that the orders of assessments for Asst. years 2006-07 and 2007-08 passed u/s 143(3) r.w.s. 153C of the Act are without jurisdiction. - Decided in favour of assessee

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• 2016 (4) TMI 748
  Penalty u/s 271(1)(c) - Held that:- The assessee has charged the affiliate fees from the licensee for the rights granted in the agreement. As per the jurisprudence, rights and obligation go together. If a person has a right, it also has obligation to discharge. A right without corresponding obligation does not exist. Merely because the right has been granted to the affiliate under the agreement, the licensee, the assessee cannot shy to discharge his obligation under the agreement which are required to fulfill during the term of agreement In the light of the above, the decision of the Tribunal in the quantum appeal is one possible view which was taken. Whereas the other possible view could also be taken by the Tribunal, as mentioned above. Thus the treatment of the advance license fee in the assessment year or that of the three subsequent year, is vexed point and is highly debatable. We find force in the assessee’s advocate’s argument that the claim of the assessee is bonafide and there is no revenue loss to the department. From the above, it is established that since the claim is bonafide and is also debatable and there is no concealment of income, therefore, in view of the decision of Hon’ble Supreme Court in the matter of CIT vs. Reliance Petroproducts (2010 (3) TMI 80 - SUPREME COURT) and also in accordance with the judgment passed in the case of CIT vs. H.M.A. Udyog Pvt. Ltd., [2006 (8) TMI 595 - DELHI HIGH COURT], wherein it has been held that in a case where the issue is debatable, no penalty under section 271(1)(c) of the Act is permissible. In the above said back ground, we are of the view that that the assessee has not furnished inaccurate particulars of income or concealed the income and there are no finding of the AO and the ld. CIT (A) that the details furnished in the return are inaccurate or erroneous or false. In these facts and circumstances, in our view, the penalty is totally unwarranted and deserves to be deleted - Decided in favour of assessee.

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• 2016 (4) TMI 747
  MAT - computation of income under section 115JB - Held that:- Respectfully following the decision of the Tribunal in the case of ITO v. Vintage Distillers Ltd. (2010 (1) TMI 56 - ITAT DELHI-H ) as well as the decision of CIT v. Bhushan Steel Ltd. (2012 (8) TMI 1024 - DELHI HIGH COURT), we, set aside the order of the ld. CIT(A) and direct the Assessing Officer to exclude the fringe benefit tax for arriving the net profit for the purpose of computation of income under section 115JB of the Act. - Decided in favour of assessee Expenses claimed under section 35(2AB) - Held that:- With regard to claim of deduction under section 35(2AB) of the Act, it is mandatory to file relevant approval of the Secretary, DSIR to DGIT[E] in Form 3CL after assessment of the in-house R&D for claiming allowable expenditure of capital and revenue nature. The approval in Form 3CL is nothing to do with recognition awarded by the DSIR. The DSIR, by recognizes the in-house R&D based on the mandate of the company/institutions. The R&D activities carried out by the company/ institutions by incurring various expenditures are required to be assessed separately by the Secretary, DSIR, which is entirely different from the recognition given by the DSIR. Under these facts and circumstances, we are of the considered opinion that in the absence of filing approval in Form 3CL by the assessee, the Assessing Officer is rightly disallowed the expenses claimed under section 35(2AB) of the Act. Once the assessee files the above approval in Form 3CL, irrespective of the date of approval, the Assessing Officer should allow the deduction under section 35(2AB) of the Act. - Decided against assessee

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• 2016 (4) TMI 746
  Allowance of liability on account of customs duty - Held that:- Contention of Mr. Chhotrary that the seller had not shown the consideration as his receipt of sale of the goods and, therefore, the buyer of the goods i.e. Respondent-Assessee cannot claim the same as a deduction is not sustainable. The remedy, if any of the Revenue to bring to tax the income in the hands of the seller of the goods. There is nothing on record to indicate that the seller of the goods has not shown the aforesaid consideration in its return of income and offered it to tax. This submission on the part of Mr. Chhotrary, is not supported by the facts on record. In any case, the buyer of the goods cannot be made liable to tax on the consideration paid by him to the seller of goods only because the seller of goods has failed to take it into consideration as a part of his income while discharging its obligation to pay tax under the Act. Thus, there is no merit in the first submission made on behalf of the Revenue. As the Respondent-Assessee is admittedly following the Mercantile Systems of Accounting and as held by the Apex Court in Kedarnath Jute Mills ( 1971 (8) TMI 10 - SUPREME Court), mere challenge to the demand by the seller may not by itself lead to the liability ceasing. Although, the seller of the goods may not be able to claim/obtain a deduction on the above account as the same has not been paid in terms of Section 43B of the Act. However, this does not in any way deprive the RespondentAssesse of the deduction of the amounts paid for purchase of goods. Thus, we are not able to accept the submission on behalf of the Revenue. Thus, the Respondent-Assessee would be entitled to deduct the aforesaid amount of Rs. 1.78 Crores as consideration paid for the goods in the subject Assessment Year. In any case, as observed by the Tribunal, if the Apex Court holds that no custom duty is payable and quashes the demand of the Customs Department, then the consideration payable for the goods would stand reduced by virtue of Section 41 of the Act, the very amount of Rs. 1.78 Crores or the extent to which the Apex Court sets aside the demand. Therefore, Respondent-Assessee would be liable to pay tax under Section 41 of the Act on remission as its liability to pay for the goods purchased from the seller would stands reduced. The customs duty, if any, is payable by the importer at the time of import and clearance of the goods. The selling price of the goods is on the basis of costs + Rs. 1/. The costs includes amongst other things, the customs duty which has been paid or which would have to be paid on the import of the goods. Thus, the Respondent-Assessee is obliged to pay the consideration in accordance with the terms of contract entered into between the Respondent-Assessee and its sellers - Decided in favour of the Respondent-Assessee and against the Revenue.

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• 2016 (4) TMI 745
  Allocation of income earned by AOP - Held that:- Commissioner of Income completely ignores the past practice accepted by the Revenue in orders passed under Section 143(3) of the Act taxing the income of the AOP on allocation in the hands of its individual members. Nothing is indicated in the impugned order to show that there has been any change either in facts or in law, which would warrant taking a different view from that taken by the Assessing Officer from the A.Y. 2005-06 onwards. Although the principle of res judicata may not specifically apply, yet where a fundamental aspect running through various Assessment Years is subject of consideration then as held by the Apex Court in Radhasoami Satsang Vs. Commissioner of Income Tax [1991 (11) TMI 2 - SUPREME Court ], the same approach be adopted in the absence of change in facts and law. Further, in Bharat Sanchar Nigam Ltd. Vs. Union of India [2006 (3) TMI 1 - Supreme court] the Apex Court held that though the principle of res judicata would not apply to tax matters as cause of action for each assessment year is different / distinct, yet in case there is no change in the factual position or the law, the views expressed in one year are binding for the subsequent years. This on the principle of consistency. Therefore, if the impugned order wants to depart from the consistent view taken earlier, it must so justify. Moreover, the impugned order also completely ignores the fact that there has been no change amongst the members of AOP as existing since A.Y. 2006-07 till date. The assessment order for A.Y. 2006-07 and orders subsequent thereto do reflect a determinate share being attributed to each of the members of the AOP. This submission has not even been adverted to in the impugned order while proceeding to hold that the shares of the individual members of the AOP are not determinate. Thus, the impugned order is in breach of natural justice being a nonspeaking order.

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• 2016 (4) TMI 744
  Withdrawal of application for Advance ruling - Held that:- Since the Authority for Advance Rulings (Income Tax), New Delhi, on 23-2-2016, in its proceedings has clarified that they did not see any reason in not permitting the withdrawal of the application filed by the petitioner, the hearing of the application filed by the Revenue and objecting to the course adopted by the petitioner also being kept pending, the petitioner's application, which is allowed to be withdrawn and treated to be disposed of as withdrawn has not been, therefore, adjudicated on merits. We record the statement made by Mr. Pardiwalla, learned senior counsel appearing for the petitioner, on instructions, that within two weeks from today the petitioner shall file a fresh application raising all necessary and relevant questions before the Authority for Advance Rulings (Income Tax), New Delhi.If such an application is filed, the said Authority shall decide it in accordance with law and as expeditiously as possible.

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• 2016 (4) TMI 743
  Addition on contribution from the members - taxability of excess of income over expenditure - application of doctrine of mutuality - Held that:- The contributions made by the members to the respondent-assessee cannot be a subject matter of tax merely because the part of its excess of income over expenditure is invested in mutual funds. It is also not the case of the Revenue that the dividend received from mutual funds have not been offered to tax by the respondent-assessee. The concept of Mutual concerns not being subject to tax is based on the principle of no man can profit out of itself. In this case it is not disputed that the income earned on account of investments made in Mutual Funds has been offered to tax. The respondent has in effect followed the decision of the Apex Court in Bangalore Club, however as held in Bangalore Club (2013 (1) TMI 343 - SUPREME COURT ), it cannot result in the respondent being charged to tax on the contribution received from its members. In fact the decision of this Court in Common Effluent (2010 (6) TMI 52 - BOMBAY HIGH COURT ) concludes the issue in favour of the respondent assessee.

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• 2016 (4) TMI 742
  Delayed payment on account of employees provident fund - treated as income in terms of Section 2(24)(x) read with Section 36(1)(va) - Held that:- In view of the aforesaid proposition laid down by the Supreme Court in the case of CIT Vs. Vinay Cements Limited[2007 (3) TMI 346 - Supreme Court of India ] admitted position being that the aforesaid amounts were credited after the due dates of payment under the relevant Acts but much before the date of filing of the return under the Income Tax Act, the assessee would clearly be entitled to the deletion of the addition. The substantial question of law is, accordingly, answered in the negative against the Revenue and in favour of the assessee.

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• 2016 (4) TMI 741
  Allowance of depreciation after applying net profit rate - Held that:- Neither before the Assessing Officer or before the Commissioner of Income Tax (Appeals) or before the Tribunal, the appellant referred to the balance-sheet to contend that he should have been allowed depreciation after applying net profit rate. Once the Assessing Officer has found that net profit rate has been applied @12% after depreciation, one can infer that the Assessing Officer was conscious of the depreciation claimed by the assessee. Even if it was not so, the appellant has not made a grievance before the Commissioner or before the Tribunal to claim depreciation after applying the net profit rate. Since no argument was raised or examined by the authorities under the Act, the appellant cannot be permitted to raise a question of fact in an appeal before this Court for the first time. - Decided against the assessee

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• 2016 (4) TMI 740
  Disallowance of expenditure incurred in connection with Offshore Fund II - revenue v/s capital expenditure - Held that:- We find from the assessee’s own arguments that if the desired funds had been raised by the assessee in regard to the said Offshore Fund II launched by the said trust, the assessee would have received advisory fees as well as reimbursement of expenses but this could not happen and therefore these expenses were claimed in the hands of the assessee. From the facts it is clearly established that the Trust called Indiareit Fund was approved by SEBI which was to carry out activity on venture capital to the funds under its different schemes by pulling resources and any finances from institution investors as well as higher network individuals. But that could not happen and the assessee claimed these expenses in the hands of the assessee. In such circumstances, whether the expenses of other entity that also a new entity is allowable in the hands of the assessee, we have raised a query from the bench but the assessee could not answer. The gain or benefit accrual to the assessee for incurring these expenditure in the assessee’s own business. We find that the assessee in addition to fees, also received reimbursement of expenses incurred by Offshore Fund-II. Since the Offshore Fund II was not launched, no corpus was received and in the absence of such launch, the assessee company could not claim reimbursement of any such expenses and these were met out of the income of the assessee and claimed the same as deduction. We also find that assessee is engaged in the business of Offshore Fund-I & III and existing fund as an investment advisory and the said expenses are not for the purpose of existing business or profession rather this is expended for new business i.e. setting up of a new offshore fund called Offshore Fund II. In such circumstances, we find that the issue is clearly covered by the decision of Hon’ble Bombay High Court in the case of Trade Wings Ltd. (1989 (9) TMI 21 - BOMBAY High Court ). CIT(A) did not erred in confirming the actions of the Ld. AO disallowing expenditure incurred in connection with Offshore Fund II on the alleged ground that the said expenses are capital in nature - Decided against assessee Disallowance of expenditure incurred on services procured from Parimal Enterprises Limited (PEL) - Held that:- The assessing authority made a disallowance only on the reason that the assessee has not furnished evidences of the actual services rendered by PEL and moreover the assessee does not derived any tangible direct benefit from the services rendered by the PEL. He also noted that the expenditure is unreasonable having regard to the legitimate need of the business of the assessee. The CIT(A) merely directed the AO to verify the documents furnished by the assessee and then decide the allowability of the claim of the assessee - Decided against revenue

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• 2016 (4) TMI 739
  Profit from sale of shares - business income OR short-term capital gain - Held that:- CIT(Appeals) found merit in the contention raised on behalf of the assessee before him that the Circular No. 4 of 2007 issued by the CBDT and relied upon by the Assessing Officer actually supported the case of the assessee keeping in view that two separate portfolios for the shares purchased as investment and shares purchased as stock-in-trade were maintained by the assessee. Accordingly, the ld. CIT(Appeals) held that the profit was earned by the assessee on the shares and securities purchased and held as investment and the same, therefore, was chargeable to tax in the hands of the assessee as short-term capital gains and not business income. Disallowance under section 14A - Held that:- It is observed that Rule 8D is applicable for the year under consideration and the AO has applied the said Rule to work out the disallowance under section 14A on account of the expenses incurred in relation to the exempt income in the form of dividend and LTCG. At the time of hearing before us the ld. Counsel for the assessee did not raise any contention to dispute the applicability of Rule 8D. The limited contention raised by him is that the assessee has already having made disallowance of Rs. 34,67,355/- under section 14A of the Act as against the disallowance of Rs. 80,46,448/- worked out by the AO by applying Rule 8D, the net addition should be made to the extent of Rs. 80,46,448/- - Rs. 34,67,355/-. We find merit in the contention of the ld. Counsel for the assessee. Accordingly, we direct the AO to restrict the addition on this issue to Rs. 45,79,093/-.

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• 2016 (4) TMI 738
  Capital gain arising out of the sale of leasehold land - STCG OR LTCG - whether section 50 is applicable in the facts and circumstances of the case? - Held that:- The said provision is applicable where the capital is an asset forming part block of asset in respect of which depreciation is allowed under the Act. We are unable to accept the contentions of ld. Counsel for the assessee, as already noted section 50 is applicable where capital is an asset forming part of a block of assets in respect of which the depreciation was allowed under the Income Tax Act. In so far as the land and building in question is concerned, the assessee has himself claimed the depreciation which has been duly allowed by the AO. Thus, the provisions of section 50 of the Act, then, are clearly applicable in the case of assessee and the profit arises from the sale of land and building is chargeable to tax as STCG as rightly held by the authorities below. Disallowance on account of foreign travel - Held that:- The claim of the assessee on account of expenditure incurred for foreign travel of his wife is sustained and it is an allowable expenditure as held by the HON’BLE HIGH COURT OF KERALA in the case of CIT vs. APPOLLO TYRES LTD [1998 (8) TMI 68 - KERALA High Court] and disallowance thereon confirmed by the CIT-A is not justified

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• 2016 (4) TMI 737
  Share transaction - Short term capital gains or business income - nature of transaction - Held that:- The principles of consistency has to be followed in the tax matters unless Revenue is able to demonstrate that there is a marked deviation in facts situation as existing in the relevant assessment year vis-à-vis earlier years which the revenue in the instant case is not able to demonstrate. The assessee has engaged the services of portfolio manager-Enam(copy of the agreement is also placed on record in paper book filed with the tribunal) only at the fag-end of the previous year relevant to the impugned assessment year and no shares have been sold through the portfolio managers during the previous year relevant to impugned assessment year and only purchases of shares were made by the said portfolio manager on behalf of the assessee during the impugned assessment year, thus no gains whatsoever has arisen to the assessee though the dealings with Enam during the impugned assessment year, thus the finding of CIT(A) with respect there-to by holding that the assessee has made gains while buying and selling of shares by engaging services of portfolio manager’s is to that extent erroneous vis-à-vis the facts as emerging from the records. Under these circumstances , we have no hesitation in holding that the assessee is not a trader in shares and the assessee is an investor in shares and the gain arising there-from shall be charged to tax as capital gains and not as business income as held by the AO and confirmed by the CIT(A) in their respective orders and we set aside the orders of the authorities below and holds that short term capital gain earned by the assessee shall be charged to tax as short term capital gains in the hands of the assessee as offered to tax by the assessee in the return of income filed with the Revenue. - Decided in favour of assessee

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• 2016 (4) TMI 736
  Unexplained cash credit u/s 68 - share application money received by the assessee company from seven share applicants - Held that:- In the instant case, the assessee had indeed proved the identity of the share applicants, creditworthiness of share applicants and genuineness of transactions beyond doubt by explaining firstly the source , secondly the source of source and thirdly the source of source of source. Moreover, the seven share applicants had duly confirmed the fact of making investment in share capital in the assessee company and the two jute companies had also confirmed the fact of having made the payments to the assessee company on behalf of the seven share applicants. CIT(A) dismissing the plea of the assessee, on the ground that the transactions of receipt of share capital from seven share applicants are in violation of provisions of Benami Transactions (Prohibition) Act, 1988, is not justified and unwarranted. Hence the addition made u/s 68 of the Act deserves to be deleted. See Jaydayal Poddar (Deceased) through L.R.s and Another vs Mst.Bibi Hazra and Others [1973 (10) TMI 55 - SUPREME COURT] - Decided in favour of assessee

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• 2016 (4) TMI 735
  Allowability of deduction - commencement of business - Held that:- There is enough material on record to indicate that the business has actually commenced in 2008-09. Learned CIT(A) has categorically given findings on that aspect and learned Departmental Representative has not been able to controvert the same. The mere fact that the assessee had received advance for work cannot lead to the conclusion that the business had commenced. In any event, this advance was received from a group entity and it is not a condition precedent for receiving the money that the business had actually commenced. As for the grievance raised by the Assessing Officer regarding allowability of deduction, we find that the learned CIT(A) has not really adjudicated on this, and this issue has been treated as infructuous. Grievance of the Assessing Officer is thus clearly ill conceived. - Decided in favour of assessee

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• 2016 (4) TMI 734
  Disallowance on Account of Interest - loan to sister concern, a sick unit, fee of Interest - Held that:- No interest has been charged by the assessee firm from the said sister concern. The assessee firm has not been able to show that the loan amount has been advanced by the assessee firm from the partner’s capital account. The case laws relied upon by the assessee firm are clearly distinguishable as in the instant case, the assessee firm is not able to demonstrate that the said loans were granted for business of the assessee firm due to commercial expediency. However, the assessee firm has brought on record that the total interest amount paid by the assessee firm is Rs. 10,85,011/- which include the interest paid for car loan for which there is a specific and dedicated borrowings for buying a car. The assessee firm has taken a plea that the sister concern has become a sick company , however, no such evidence/cogent material to this effect has been brought on record. In our considered view and in the interest of justice, the matter needs to be set aside to the file of A.O. for re-determination of the issue de-novo after considering the cogent material/evidences of the assessee firm to be brought on record by the AO to prove its contentions that the interest free funds have been advanced by the assessee firm to the sister concern of the assessee firm and to that extent the assessee firm will be entitled for relief. Further, the A.O. shall also consider the plea of the assessee firm that the interest have been paid on specific and dedicated borrowings such as for acquiring car etc. on which in our considered view, no disallowance of interest paid on dedicated and specific borrowings is warranted. Needless to say that the AO shall give proper and adequate opportunity of being heard in accordance with principles of natural justice in accordance with law

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• 2016 (4) TMI 733
  Taxability head for income from sale of shares - capital gain or income from business - CIT(A) confirming the action of the ld. AO in treating the “capital gain” as “income from business” - Held that:- From going through the record, we find that the assessee company is mainly dealing in pharmaceuticals, laboratory works and research and development since last many years and coupled with these activities assessee company has also earned income from investments in the form of long term and short term capital gain. Further from going through the computation of income we find that assessee company has also suffered loss from F whereas business turnover has drastically decreased from Rs. 3 crores in FY 2002-03 to Rs. 0.64 crores in FY 2005-06. We further observe that major portion of net profit which was flowing out of the business activities upto FY 2002-03 have shifted to the investments income so much so that in the year under appeal net profit of the assessee is Rs. 0.44 crores which is equivalent to the other income and there is hardly any income from business activities. From going through the order of ld. CIT(A) we find the same to be a non-speaking order because no evidence/documents were filed by the assessee to rebut the findings of the Assessing Officer before ld. CIT(A) and no analysis was made by ld. CIT(A) from the available assessment records. We hereby set aside the issue in the appeal relating to this ground to pass a speaking order - Decided in favour of assessee for statistical purposes.

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• 2016 (4) TMI 732
  Revision u/s 263 - uninquired unsecured loans - Held that:- No hesitation in holding that the case under consideration is a glaring example of not making a relevant enquiry which amounts to no enquiry and is a case of non-application of mind by the AO. We therefore uphold the order of the CIT u/s.263 of the Act, in so far as it concerns direction to the AO to investigate regarding the unsecured loans appearing in the balance sheet of the Assessee. Receipt of advances from customers by the Assessee and the complaint of the CIT in the order u/s.263 of the Act that the AO ought to have made investigation into such unusual practice which was not prevalent in the concerned trade, we are of the view that even in respect of these advances received against future supplies, proper enquiries ought to have been made by the AO before completing the Assessment because there were several suspicious circumstances which warranted a probe by the AO. Admittedly no such probe has been made by the AO. The reasons given for upholding exercise of jurisdiction u/s.263 of the Act, in respect of unsecured loans received during the previous year would equally apply to these advances also. Thus we uphold the order u/s.263 of the Act - Decided against assessee

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• Customs

• 2016 (4) TMI 767
  Seeking direction of refund - interest wrongfully paid by the respondent - import of electrical goods and machinery - availed facility of deferred payment of duty by bonding the goods in a private warehouse - Tribunal directed the refund on the basis of its earlier decision and circular in F.No.475/39/90-Cus.VII dated 8.8.1990 - Held that:- in so far as Section 61(2) is concerned, it refers only to the interest that becomes payable under Section 47. As a matter of fact, the present Sub-Section (2) of Section 61, was amended only by Act 27 of 1999. The amendment, on which, strong reliance is placed by the department, to Section 27(1), came in 1991. Yet, Section 61(2) does not refer to Section 27. Therefore, the view taken by the Tribunal cannot be said to be incorrect. - Decided against the revenue

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• 2016 (4) TMI 766
  Validity of Tribunal's order - Non compliance with principles of natural justice and made error in not reading into evidence the opinion of Indian Institute of Technology though a copy of its report was on its file - Held that:- Tribunal's order is vitiated for want of consideration of a vital and valid ground of appeal i.e. non compliance with principles of natural justice and a patent error in not reading into evidence the opinion of Indian Institute of Technology though a copy of its report was on its file. That ground was squarely raised in the Memo and pressed during the oral arguments. The Appellants should have been given complete opportunity to press that ground on merits and non furnishing of such an opportunity, therefore, results in Tribunal's order being ex-facie illegal. It is vitiated by an error apparent on the face of the record. Therefore, the order is quashed and set aside. - Appeal disposed of

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• 2016 (4) TMI 765
  Validity of order dated July 14, 1987 - Violation of principles of natural justice - Held that:- the original order dated July 14, 1987 cannot be said to be vitiated by the principles of natural justice. The petitioner was aware of the proceedings. It chose not to appear thereon. It chose to issue a letter dated July 13, 1987 and thereafter did not follow it up or kept itself abreast with the developments or the progress of the adjudicatory proceedings. A prudent person acting reasonably is expected to keep a track of the proceeding. - Decided against the petitioner

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• 2016 (4) TMI 764
  Restoration of classification - Import of interactive electronic white board - Whether to be classified under CTH 84716090 [as per respondent], CTH 84729090 [as per Original Authority] or CTH 85285100 [as per Commissioner (Appeals)] - Held that:- the learned Commissioner (Appeals) examined specifically the correct classification of the product with reference to its actual function and applicable Chapter Notes. The impugned order also recorded the impugned goods cannot work without a projector even if it is attached to a computer. The learned Commissioner (Appeals) on seeing the demonstration of the equipment and after examination of the applicable Chapter Notes came to the conclusion that they are correctly classifiable under CTH 85285100. - Decided against the revenue

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• FEMA

• 2016 (4) TMI 759
  Default to file a private paper book - Held that:- The delay has been continuing over last eight years. Even after this Court had permitted the applicant/appellant to file a private paper book, still the default has continued. It is not known why the applicant/appellant has not been able to trace the record. The explanation therefore, does not inspire much confidence. The Director of Enforcement cannot go on giving instructions to seek time or to set aside a conditional order. This mechanical exercise demonstrates the casualness on the part of all concerned in the Directorate of Enforcement. We think eight years delay is a long enough period for directing investigation. Yet, for the fault of the Director of Enforcement and his team, we do not wish to adversely affect the larger public interest. In the circumstances, we pass the following order :- (a)On the applicant paying to the respondents costs quantified at Rs. 10,000/- in each of these appeals and which should be paid within two weeks from today, we grant them time till 17th December, 2015 to file complete paper books in all appeals. (b)If such compliance is made and receipt of payment of costs is shown, the Registry to allow the appellant/applicant to prosecute each of these appeals on merits and in accordance with law. (c)No extension of time will be granted for payment of costs or complying with the orders of this Court. (d)Hereafter, no civil application will be entertained.

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• Service Tax

• 2016 (4) TMI 780
  Service tax liability - Passenger service fee being collected by the appellant on behalf of air port authority of India and being paid by them to the said authority - Held that:- by following the decision of Tribunal in the case of M/s Continental Airlines Inc vs. CST, New Delhi [2015 (7) TMI 1079 - CESTAT NEW DELHI], no service tax liability would arise in respect of passenger service fee being collected by the appellant on behalf of air port authority of India and being paid by them to the said authority. Accordingly while confirming the demand in respect of other charges, as not being contested, the demand on the inclusion of passenger fee charges in the value of the services along with the penalty are set aside. - Appeal disposed of

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• 2016 (4) TMI 779
  Waiver of pre-deposit - Crushing of iron ore for various customers in terms of contracts - Held that:- the applicant is prima facie having a strong case against the impugned order. The ground loss as fixed in the contract is with reference to the crushing charges which is also part of the contract. No indication found in the terms of the contract or in the impugned order to suggest that the rate of crushing charges fixed are linked or influenced by the ground loss, the percentage which is also fixed in the contract. In the absence of evidence to suggest that the crushing charges are influenced by other consideration like reduction in ground loss, we prima facie find the applicant is having a strong arguable case in their favour. Considering the above analysis, this is a fit case for waiver of pre-deposit of adjudicated dues till the disposal of the appeal. - Waived granted

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• 2016 (4) TMI 778
  Demand of ineligible Cenvat credit - Telecommunication Service - Availed Cenvat credit on the basis of improper documents - No documentary proof furnished by appellant evidencing payment of service tax by the service providers - Held that:- in view of the apparently conflicting stand adopted by the appellant and by the Commissioner (Appeals), it is but proper that the matter is remitted back to the Adjudicating Authority as the allegations require factual verification. - Matter remanded back

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• 2016 (4) TMI 777
  Eligibility of Cenvat credit - on payment of service tax - rendered by their Foreign Agent - Held that:- once what was received by the respondent being output services, the same would automatically become input service in the hands of the respondent (the service receiver) in terms of Rule 2 (l) of Cenvat Credit Rules. There can be no second thought that the service of foreign clearing & forwarding agent was an integral part of the respondent’s business. It can hardly be said that the activity carried out by the Foreign C&F Agent is not an activity “relating to business”. The word “business” by itself is all embrasive to refer to activity and the definition given in the input service is “activities relating to business”. The findings of the Commissioner (Appeals) that the clearing & forwarding service received is vital for business activity cannot, therefore, be faulted with. It is strange that the department had accepted the payment of tax under reverse charge but objected to the availment and future utilization of credit for discharge of future liability by the Respondent. This stand adopted by the department does not seem to be an approach in the right direction. The further finding given by the Commissioner (Appeals) with regard to non-invocation of extended period holding that the issue is purely interpretative in law cannot also be faulted with. The submission made by the Advocate for the Respondent that there is no finding with regard to the penalty or invocation of extended period is also factually true. - Decided against the revenue

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• 2016 (4) TMI 776
  Whether the Tribunal was justified in deleting the demand for service tax with interest on the premise that the show cause notice did not specify such demand - Goods Transport Operator Service - Held that:- merely because in the show cause notice no legal provision is cited or wrong provision is mentioned, by itself may not be the ground for invalidating the action of the authority, if the power for such action can be traced to another source. However, in the present case, we are concerned with a far graver lapse on part of the adjudicating authority namely, of not giving any details of the unpaid service tax which he proposed to recover with interest. When the assessee was thus visited with show cause notice, he was clearly in dark about the nature and extent of service tax allegedly remained unpaid and which the authority wanted to recover. The show cause notice was completely general in nature, gives no details of unpaid service tax and merely called upon the assessee why such service tax with interest should not be recovered. The show cause notice was more in the nature of a fishing inquiry of the assessee's outstanding tax liability. It was perhaps because of this lacuna that the Commissioner in his revisional order had to be satisfied with directing the assessee to pay service tax on the gross amount of transport charges paid by them to the Goods Transport Operators. Therefore, the Tribunal was justified in deleting the service tax demand. - Appeal disposed of

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• Central Excise

• 2016 (4) TMI 781
  Refund - Adjustment of demand where stay was granted by the tribunal - Held that:- the Revenue could not have got over a binding stay order and by indirect or oblique process seek to recover the very sum and amount which it could not recover because of the prohibitory order of the Tribunal. Once no recovery of taxes pending Appeal was permissible and there was a stay to that extent, then, the Revenue could not have ignored this binding order of the Tribunal. - Once no recovery of taxes pending Appeal was permissible and there was a stay to that extent, then, the Revenue could not have ignored this binding order of the Tribunal. This is a novel way of taking over the adjudication and recommencing it when the earlier exercise ended completely in an order favourable to the Revenue but subject matter of Appeal. This is a clear case where the principle of matter being sub-judice would apply. The impugned order, passed in the present Petition and the observations cannot be utilized and to nullify, therefore, an order of stay which binds the Revenue. The powers if at all available could not have been exercised in this case and to subvert the order of stay and the Appeal which is pending, as a whole. This novel way of adjudication and mid-way during the pendency of legal proceedings before higher forum enables us to interfere in our writ jurisdiction. Therefore, the impugned order is quashed and set aside. Decided in favour of petitioner

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• 2016 (4) TMI 775
  Demand - Availed Cenvat credit on bought out plastic bottles - Department rejected the credit that no manufacturing activity has been carried out and are resold as such - Held that:- the transaction of purchase of goods, availment of Cenvat credit thereon and payment of duty on the said goods on its removal is squarely coverd under the provisions of Rule 16 of the Central Excise Rules, 2002. More over in the appellant's own case, for a different unit, on the identical issue this Tribunal had upheld the order of the Commissioner (Appeals) wherein the Ld. Commissioner (Appeals) had dropped the demand. Considering the above decision, the appellant has correctly availed the Cenvat Credit on the bought out plastic bottles. Therefore, the demand is set aside. - Decided in favour of appellant

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• 2016 (4) TMI 774
  Demand of excise duty - Manufacture of parts of illuminated signs classifiable under sub-heading 9405.90 of the CETA, 1985 attracting duty @18% - Appellant argued that sheets printed by them do not have any lighting source attached to it, they are merely sheets for which printing is done whereas respondent argued that earlier in the case of appellants themselves, the goods have been classified under Tariff heading 9405.90 - Held that:- by relying on the decision of Hon'ble Supreme Court in the case of Classic Stripes Pvt. Ltd. vs. CCE, Mumbai [2000 (12) TMI 173 - CEGAT, MUMBAI], the demands for the subsequent period has been set aside. - Decided in favour of appellant

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• 2016 (4) TMI 773
  Imposition of penalty - Assessing and granting wrong refunds and then not seeking its repayment and/or not recovering refund - Held that:- an officer, who has been conferred with statutory jurisdiction to adjudicate matters, acts in a quasi-judicial capacity. Unless it can be shown that the decision was taken malafide or with ulterior motive, for a wrong decision taken there cannot be disciplinary proceedings as it is not a misconduct. Here, there is no allegation of malafide, ulterior motive or such like. It is not in dispute that excess duty had been deposited and refund was due. The Department has not raised the plea that no refund at all was due and the duty was rightly deposited. It is not the case of Department that refunds were ordered when refund were not due and that too with ulterior motive. That being so, for orders passed in quasi-judicial functions by statutory authorities, disciplinary proceeding for misconduct cannot be initiated, much less officer penalized. The petitioner is again correct in holding that he was not negligent in not pursuing the matter of recovery in spite of audit objection. As the assessments were in between 19.05.1993 to 22.09.1993 and the last date within which demands for recovery of excess refund could be made, in terms of Section 11-A of the Act being 18.11.1992 to 21.03.1994, the audit objection having been made only on 05.05.1994 was clearly after the six months statutory period prescribed. Thus, to say that petitioner ought to have taken proper steps for recovery is a far cry, for Section 11-A of the Act prohibits any action after six months. Petitioner cannot be alleged to have been negligent in that respect. Also the petitioner should not have allowed refund to the seller/ manufacturer. Refund if at all due was legally due to the buyer who had paid the duty to the manufacturer for depositing to the Department. The view of the U.P.S.C. was correct but we cannot take note of this because there was no such charge against the petitioner in the departmental proceedings. If this was the opinion of the U.P.S.C. after the enquiry had concluded, this cannot form basis of any action. Therefore, the impugned order of the disciplinary authority as also the order of the Tribunal not interfering with the order of punishment, 30% reduction of pension for 5 years is set aside and any deduction that has already been made on this count has to be refunded to the petitioner. - Decided in favour of petitioner

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• 2016 (4) TMI 772
  Recovery of Cenvat credit - in respect of inputs damaged due to moisture content/water - Insurance claim received for such damaged inputs - Revenue contended that once insurance claim has been received from the insurance company, the Cenvat Credit is required to be recovered but appellant submitted that inputs even though damaged, were used in the manufacture of second grade finished goods and inputs were not cleared from the factory premises. Held that:- even if the damaged inputs are lying in the factory premises of the appellant, then also no Cenvat Credit can be recovered. Having said that once a claim has been made by the appellant that the damaged goods were used in the manufacture of second grade finished goods then positive evidences have to be brought on record by the Revenue to establish that either insurance claim included the element of central excise duties on which the Cenvat Credit was taken or that the damaged goods were cleared as such from the factory without reversing the Cenvat Credit. - Decided in favour of appellant

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• 2016 (4) TMI 771
  Demand of differential duty - on finished goods lying in stock - at the time of debonding of the E.O.U. - Denial of exemption under Notification No.23/2003-CE dated 31.03.2003 - Appellant contended that no benefit has been availed by E.O.U. on the finished goods themselves and once the benefit availed on inputs, consumables and capital goods are surrendered then for all purposes, the unit becomes a normal DTA Unit. Held that:- we are unable to agree with the submission made by appellant that language employed in the foreign trade policy continued to be allowed to be sold in India and the amendment brought in 2001 has not materially changed the situation. The Foreign Trade Policy apparently deals with the goods which are allowed to be sold in India by an E.O.U. in terms of the policy and the same is applicable to a functioning E.O.U. It cannot be said that such expression in the Foreign Trade Policy applies to the finished goods lying in stock when the E.O.U. intents to exit the scheme itself. It is noticed that the final debonding and conversion of E.O.U. to a D.T.A. Unit is legally permissible only on discharging all the duty liabilities on capital goods, raw-materials, finished goods etc. lying in the E.O.U. In such a situation, it is not legally tenable to argue that the rate of duty applicable to a normal Central Excise Unit should be applicable to a E.O.U. even before the E.O.U. becomes a normal Central Excise Unit. Imposition of penalty - Rule 25 of Central Excise Rules 2002 - Held that:- the rate of duty applicable on the finished goods lying in an E.O.U. at the time of debonding involves interpretation of legal provision and applicability of various case laws. So, it is not a fit case for penal action. - Decided against the revenue

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• 2016 (4) TMI 770
  Whether appellant can defy payments of its own assessment done in the ER-1 and does not pay the entire duty assessed by him - Appellant filed a revised ER-1 return to argue that duty payable was actually less than what was calculated in the ER-1 return - Held that:- no provision of the Central Excise law has been brought to the notice of the Bench whether any such adjustment can be done in the case of Central Excise duty payment. In the absence of any such provision in Central Excise, the correct method would have been to pay entire Central Excise duty as determined by the appellant under Self-Removal Procedure and if subsequently some refund is due the same could have been claimed by way of a refund claim under Section 11B of the Central Excise Act, 1944. Therefore, appeal filed required to be rejected. Imposition of penalty - Rule 27 of the Central Excise Rules, 2002 - Held that:- there was some miscalculation done by appellant, therefore it is not a violation with intention to evade payment of duty. Therefore, penalty imposed is set aside. - Decided partly in favour of appellant

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• 2016 (4) TMI 769
  Admissibility of refund claim - MODVAT Credit once taken and paid back - Appropriate documents submitted - Revenue contended that amount paid back was voluntary payment but respondent is of the view that payment cannot be considered as an admission of improperly taken credit and has to be treated as a deposit with the Department. Held that:- by relying on the judgment of Hon'ble Apex Court in the case of Tractors and Farm Equipment Ltd. vs. CC, Madras [1997 (2) TMI 111 - SUPREME COURT OF INDIA], respondent did not file any Appeal before the higher forum claiming admissibility of MODVAT Credit in the first round of litigation. The observations made by the First Appellate Authority that appellant did not admit duty liability is thus not correct and is required to be set aside. - Decided in favour of revenue

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• 2016 (4) TMI 768
  Levy of interest - Availed ineligible Cenvat credit on capital goods and service tax credit - No documentary proof submitted - Held that:- in the absence of documentary proof, the matter needs to be remitted back to the Adjudicating Authority before whom the appellant must prove that there has only been availment and no utilization. If on perusal of the documents it is found that there has been only availment and no utilization, the levy of interest is unsustainable. Imposition of penalty - Held that:- it appears that the mistake is purely of a clerical nature for which the appellant should not be penalized. There is nothing on record to prove the malafide which is an essential requisite for the imposition of penalty under Rule 15(2) of the CENVAT Credit Rules read with Section 11AC of the Central Excise Act. Therefore, the penalty imposed is set aside. - Appeal allowed by way of remand

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• CST, VAT & Sales Tax

• 2016 (4) TMI 763
  validity of order - Violation of principles of natural justice - Held that:- the petitioner was not given an opportunity of personal hearing, which is a mandatory provision under Sec.22(4) of the Tamil Nadu Value Added Tax Act, 2006, and that no notice was also issued to the petitioner before passing the impugned order, therefore, the impugned orders are liable to be set aside. Decided in favour of petitioner

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• 2016 (4) TMI 762
  Seeking direction for respondents to refund the excess TDS - Engaged in construction business and undertakes execution of works, contracts for different persons including Public Sector Undertaking, State and Central Government Departments - Petitioner requested for issue of certificate of no deduction but to no effect, but no response has been received till date - Held that:- petition is disposed of by directing respondent No.3 to take a decision on the representation dated 18.1.2016, in accordance with law by passing a speaking order and after affording an opportunity of hearing to the petitioner. - Matter disposed of

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• 2016 (4) TMI 761
  Validity of different view taken by Court - Tribunal has already decided the matter in case of original petitioner - Appellant contended that it could be made permissible if the higher forum had taken a different view - Held that:- if any party to the proceedings or party to the decision is permitted to reopen the issue which stood concluded by the earlier decision on a mere ground that subsequently legal position is altered, not only the sanctity of the order would be lost but it would resultant to opening a pandora box. Such is neither conceived nor can be permitted in the system of administration of justice. Once a decision has attained finality, it cannot be upset just on a mere ground that subsequently the higher forum has taken a different view. If the matter is examined in the light of the above referred legal position, it is an admitted fact that the order of the Tribunal on the basis of which the direction has been issued by the learned Single Judge is not carried before the higher forum, meaning thereby the Department accepted the decision of the Tribunal. Once the Department having accepted the decision of the Tribunal, it would not be open to the Officer of the Department to re-open the issue may be under the guise of rectification or otherwise.- Appeal disposed of

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• Wealth tax

• 2016 (4) TMI 731
  Enhancement of value of land - Held that:- The land earlier was held by the assessee as non-productive capital asset which was subjected to the wealth tax. However, the assessee had converted 29000 sq. yds. of the land into stock in trade on 31.05.06 and therefore for the relevant assessment year 2007-08, the 29000 sq. yds of the land no longer remain a non-productive capital asset but a business asset in the shape of stock in trade capable of yielding taxable business income and thus exempt from wealth tax. In the wording in relation provided under the exclusion clause, “ any land held by assessee as stock in trade for a period of 10 years from the date of its acquisition”, the term "date of acquisition" in such circumstances would mean the date of acquisition of asset as stock in trade which will be the date of conversion of a non-productive capital asset into stock in trade. The time limit of 10 years, in our view, has been provided to curb the practice of misuse of the provision by showing the asset as stock in trade but in actual keeping the same as non-productive and thereby wrongfully getting the exemption from wealth tax from year to year for a long period of more than 10 years. The time limit thus for claiming exemption from wealth tax in case of any land held as stock in trade has been restricted up to 10 years. Once the non-productive asset like urban land is converted to a productive asset like a building which qualifies for exemption, then the assessee can start availing of exemption even during the period of conversion of such non-productive asset to productive asset. See Apollo Tyres Ltd. vs. Assistant Commissioner of Income-tax [2009 (12) TMI 572 - Kerala High Court] The Ld. D.R. has also fairly agreed that so far as the 29000 sq. yds of land which was converted to stock in trade in the financial year 2006-07, the same was not eligible for imposition of wealth tax.

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• Indian Laws

• 2016 (4) TMI 758
  Right to receive copy of the FIR even before the stage of proceedings under Section 207 of the Cr.P.C. - PIL for direction to upload the copy of the FIR in the website of the police station and to make available copies of the FIR to the accused immediately on registration of the FIR - Held that:- When Section 438 is held to be a device to secure individual's liberty, all means to secure the said liberty has to be held to be available to the accused to fulfill the object which clearly reinforces the right of the accused to receive copy of the FIR. We thus hold that the accused is entitled for copy of the FIR. The accused can make an application to the police station concerned or office of the Superintendent of Police or the Court of concerned Magistrate which is required to be provided to him immediately within forty eight (48) hours. Whether copy of the FIR registered in a police station can be obtained under the 2005 Act? - Held that:- Information under the 2005 Act is being provided by the police authorities even online also. We are thus of the view that application for copy of the FIR can also be submitted by any person under the 2005 Act. It is however, relevant to note that whether in a particular application police authorities are claiming exemption under Section 8(1) of the 2005 Act is a question which has to be determined by the police authorities by taking appropriate decision by the competent authority. In event no such decision is taken to claim exemption under Section 8 of the 2005 Act, the police authorities are obliged to provide for copy of the FIR on an application under the 2005 Act. Whether all the FIRs registered in the State are to be uploaded in the website of the respective police stations? - Held that:- It is in the domain of authorities as to which category of the FIRs are to be put on website for information to the public in general. But there has to be a decision and appropriate categorization or norms for taking a decision as to in which case FIR be uploaded and in which it is not be uploaded. The State can come with any such decision which may balance right of information available to the public in general and interest of the State. We are thus of the opinion that petitioner has made out a case for issuing directions to the State to consider all aspects of the matter and take appropriate decision regarding uploading of the FIR in the police website with all details regarding its operation and mechanism.

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• 2016 (4) TMI 757
  Chance of the suit succeeding - transfer of shares - Held that:- A proceeding being filed for a collateral purpose, or a spurious claim being made in litigation may also in a given set of facts amount to an abuse of the process of the court. Frivolous or vexatious proceedings may also amount to an abuse of the process of the court especially where the proceedings are absolutely groundless. The court then has the power to stop such proceedings summarily and prevent the time of the public and the court from being wasted. Undoubtedly, it is a matter of the court's discretion whether such proceedings should be stopped or not; and this discretion has to be exercised with circumspection. It is a jurisdiction which should be sparingly exercised, and exercised only in special cases. The court should also be satisfied that there is no chance of the suit succeeding.”dismissed and accordingly dismissed. Consequently, all the interim orders passed by the various Courts (including this Court) earlier in proceedings arising out of the said two suits lapse. We also declare that all interim orders passed by any Court in any proceeding arising out of SUIT-I also lapsed in view of the withdrawal of the suit by GGL. Therefore, these SLPs filed by MHL and GGL purportedly aggrieved by the impugned orders passed in the various applications filed in the two suits filed by RUIAS become infructuous. Therefore, the said SLPs arising therefrom are dismissed. The consequent factual position would be that the legal rights acquired (whatever they are) by MGG in 45001 shares of BOCL purchased from RUIAS pursuant to AGREEMENT-II should revert back to RUIAS unless it is found that the purported transfer of 45001 shares by MGG pursuant to the consent award dated 21.09.2000 in favour of MHL created any right or interest in favour of MHL. Such a claim of MHL can only be examined in SUIT-IV filed by MHL. Another 30000 shares were acquired by MGG from the public pursuant to AGREEMENT-II MGG purported to transfer them by virtue of the settlement dated 05.12.2002 in favour of RUIAS. If either GGL or MHL has any claim over those shares, such a claim must be made and established by them in accordance with law, but not in the suits filed by RUIAS. In order to establish such a claim, MHL already filed SUIT-IV to which both GGL and MGG are parties apart from Goyals and others. However, in the absence of any legally established title as on today to the abovementioned shares in any party other than MGG Even MGG’s claim was that they had only a beneficial interest in the said shares, as the shares were never registered in the name of MGG., whether RUIAS would be entitled pursuant to the settlement dated 05.12.2002 to have their names entered into the registers of the BOCL as holders of the said shares is a matter for RUIAS to explore There is no prayer in the Suits II and III seeking the declaration of title of RUIAS based on the settlement dated 05.12.2002 - for that matter, there is no whisper about the said settlement!. However, such an entitlement if any should be subject to the result of the SUIT-IV. We make it clear that we are not deciding by this order, the existence or otherwise of any right or its enforceability in the 75001 shares of BOCL in favour of either MHL or GGL. It is open to them to establish their right in SUIT-IV. The defendants in the SUIT-IV are at liberty to raise every defence available in law and fact to them. A great deal of effort was made both by RUIAS and MGG to convince the court that in view of the protracted litigation between the parties this court should examine all the questions of rights, title and interest in these shares between the various parties as if this were the court of first instance trying these various suits. The examination of various questions raised by the petitioners in these SLPs, in our opinion, is wholly uncalled for in the abovementioned factual background. The net effect of all the litigation is this. For the last 18 years, the litigation is going on. Considerable judicial time of this country is spent on this litigation. The conduct of none of the parties to this litigation is wholesome. The instant SLPs arise out of various interlocutory proceedings. Arguments were advanced on either side for a period of about 18 working days as if this Court were a Court of Original Jurisdiction trying the various above-mentioned suits. The fact remains that in none of the suits even issues have been framed so far. The learned counsel appearing for the parties very vehemently urged that there should be a finality to the litigation and therefore this Court should examine every question of fact and law thrown up by the enormous litigation. We believe that it is only the parties who are to be blamed for the state of affairs. This case, in our view, is a classic example of the abuse of the judicial process by unscrupulous litigants with money power, all in the name of legal rights by resorting to halftruths, misleading representations and suppression of facts. Each and every party is guilty of one or the other of the above-mentioned misconducts. It can be demonstrated (by a more elaborate explanation but we believe the facts narrated so far would be sufficient to indicate) but we do not wish to waste any more time in these matters. This case should also serve as proof of the abuse of the discretionary Jurisdiction of this Court under Article 136 by the rich and powerful in the name of a ‘fight for justice’ at each and every interlocutory step of a suit. Enormous amount of judicial time of this Court and two High Courts was spent on this litigation. Most of it is avoidable and could have been well spent on more deserving cases. We therefore, deem it appropriate to impose exemplary costs quantified at Rs. 25,00,000.00 (Rupees Twenty Five Lakhs only) to be paid by each of the three parties i.e. GGL, MGG and RUIAS. The said amount is to be paid to National Legal Services Authority as compensation for the loss of judicial time of this country and the same may be utilized by the National Legal Services Authority to fund poor litigants to pursue their claims before this Court in deserving cases.

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