TMI Tax Updates - e-Newsletter
April 23, 2012

Case Laws in this Newsletter:

Income Tax Service Tax Central Excise

Articles

1. CONDITIONAL EXEMPTION FROM RETURN FILING

   By: Dr. Sanjiv Agarwal

News

1. Clarification by Dr. Kaushik Basu, Chief Economic Advisor, Regarding his Lecture at the Carnegie Endowment in Washington.

2. Opening Remarks Made by the Finance Minister Shri Pranab Mukherjee at the Brics Finance Ministers’ Meeting in Washington D.C..

3. Opening Remarks of the Finance Minister Shri Pranab Mukherjee at the G-24 Press Conference in Washington D.C. Today.

4. Opening Remarks Made by the Finance Minister Shri Pranab Mukherjee at the BRICS finance Ministers’ Meeting In Washington D.C. Today.

5. Text of the Intervention Made by the Union Finance Mimnister Shri Pranab Mukherjee in the First Session of the G-20 Finance Ministers’ and Central Bank Governors’ Meeting in Washington D.C. Today.

6. India-US Relations on Strong Footing: FM India Reaffirms ITS Position Regarding Retrospective Amendments in Certain Tax Provisions.

7. 22 FDI Proposals Amounting to Rs. 586.137 Crore Approved.

8. Brics Trade Minister’s Statement: Puerto Vallarta, Mexico 19th April 2012.

9. Centrality of Development Agenda Should be Maintained, Anand Sharma Tells G-20. Warns Against ‘Closed Club’ Agreement on Services.

Notifications

Central Excise

1. 24/2012 - dated 19-4-2012 - CE (NT)

Regarding CENVAT credit taken or utilized on the process cutting, slitting or printing of aluminium foils.

DGFT

2. 111(RE-2010) / 2009-14 - dated 18-4-2012 - FTP

Indian Trade Classification(Harmonised System) of Export and Import Items, 2012 [ITC(HS),2012].

Circulars / Instructions / Orders

VAT - Delhi

1. F.3(277)/Policy/VAT/2012/30-40 - dated 19-4-2012

Order - DVAT Rules, 2005 - Extension of time limit prescribed in sub-rule (4) of Rule 26

2. F.3(11)/P-II/VAT/Misc/2005/02-10 - dated 12-4-2012

Order - DVAT, 2004 - Direction to deposit the due tax in respect of each quarter within 21 days of the conclusion of the quarter

FEMA

3. 110 - dated 20-4-2012

Exim Bank's Line of Credit of USD 15 million to the Government of the Republic of Togo.

4. 111 - dated 20-4-2012

External Commercial Borrowings (ECB) Policy – Liberalisation and Rationalisation.

5. 112 - dated 20-4-2012

External Commercial Borrowings (ECB) Policy – Refinancing / Rescheduling of ECB.

Highlights / Catch Notes

DGFT

• DGFT Updates 2012 ITC(HS) Classification for Import/Export, Standardizing International Trade in India.

  Notifications : Indian Trade Classification(Harmonised System) of Export and Import Items, 2012 [ITC(HS),2012]. - Ntf. No. 111(RE-2010) / 2009-14 Dated: April 18, 2012
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FEMA

• New Policy for Refinancing and Rescheduling External Commercial Borrowings Under FEMA Aims to Ease Foreign Debt Management.

  Circulars : External Commercial Borrowings (ECB) Policy – Refinancing / Rescheduling of ECB. - Cir. No. 112 Dated: April 20, 2012
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• ECB Policy Updated: Easier Access to International Funds with Liberalized Rules in Circular No. 111, April 20, 2012.

  Circulars : External Commercial Borrowings (ECB) Policy – Liberalisation and Rationalisation. - Cir. No. 111 Dated: April 20, 2012
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• Exim Bank Grants $15M Credit to Togo for Economic Projects Under FEMA Circular No. 110, April 2012.

  Circulars : Exim Bank's Line of Credit of USD 15 million to the Government of the Republic of Togo. - Cir. No. 110 Dated: April 20, 2012
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Central Excise

• CENVAT Credit Guidelines on Cutting, Slitting, Printing Aluminum Foils Refer to Notification No. 24/2012 by Central Excise.

  Notifications : Regarding CENVAT credit taken or utilized on the process cutting, slitting or printing of aluminium foils. - Ntf. No. 24/2012 - Central Excise (N. T.) Dated: April 19, 2012
  Visit to Get Source

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VAT

• Time Limit Extension for Rule 26(4) Under DVAT Rules 2005 Announced via Circular No. F.3(277)/Policy/VAT/2012.

  Circulars : Order - DVAT Rules, 2005 - Extension of time limit prescribed in sub-rule (4) of Rule 26 - Cir. No. F.3(277)/Policy/VAT/2012/30-40 Dated: April 19, 2012
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• Delhi VAT: Quarterly Taxes Must Be Paid Within 21 Days After Quarter Ends, per Circular No. F.3(11)/P-II/VAT/Misc/2005/02-10.

  Circulars : Order - DVAT, 2004 - Direction to deposit the due tax in respect of each quarter within 21 days of the conclusion of the quarter - Cir. No. F.3(11)/P-II/VAT/Misc/2005/02-10 Dated: April 12, 2012
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Case Laws:

• Income Tax

• 2012 (4) TMI 380
  Addition to income u/s 50C – Assessee booked under-constructed flat - Rs. 50, 000/- payable at the time of booking and the balance payable in installments all before taking possession– cancelation of the booking due to non delivery - tri party registered sales deed executed between the appellant, the builder and the new buyer – Held that:- triparty registered sale agreement for transfer of the said flat wherein the appellant as the vendor was to transfer all his rights, title and interest in the said flat to the buyer and the was to give the possession of the said flat which was originally agreed to be allotted to the appellant - provisions of section 50C of the I. T. Act are applicable in the case of an assessee when he transfers a capital asset – upheld conclusion arrived at by CIT (A) – against revenue.

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• 2012 (4) TMI 379
  Return filed u/s 139(1) - notice issued u/s 143(2)/115WE(2) - assessee pleaded as per amended proviso to Section 143(2) no notice under Section 143(2)(ii) shall be served on the assessee after the expiry of six months from the end of the financial year in which the return is furnished - Writ petition – Held that:- if there are two interpretations then the interpretation favorable to assessee will have to be adopted as per the ratio laid down in the case of CIT vs. Shaan Finance (P) Ltd (1998 -TMI - 5659 - SUPREME Court ) - Though the subject of the charge is the income of the previous year, the law to be applied is that in force in the assessment year – twelve moths' period from the end of the month in which the return was filed, expires in 31st July, 2008, so a notice was supposed to be served maximum on/or before 1st August, 2008, but it was given on 26.09.2008 - in favour of assessee.

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• 2012 (4) TMI 378
  Tribunal held that the re-assessment was bad in law and beyond the time for the assessment years 1988-89 to 1990-91 - Held that: - the returns filed for the assessment years were in accordance with the provisions of the Act and the technical knowhow fees were also clearly disclosed while arriving at the net profits under the Companies Act as well as in its computation of income filed along with the returns of income-in the absence of any material to revise the assessment by taking recourse to Section 147, the reopening of the assessment was bad in law – no ground warranting reopening and there are no materials placed before this Court to disturb the findings of the Tribunal - against revenue Relief under Section 35AB – Held that: - Definition of "paid" as appearing under Section 43(2) as referring to amount actually paid or "payable" according to the method of accounting upon the basis on which the profits and gains are computed under the head of profits and gains in business or profession, the assessee having the account on mercantile basis and hence, allowed the claim on merits - the assessee admittedly maintaining its account on mercantile basis the contention of the assessee on the applicability of the definition of "paid", as appearing in Section 43(2) is accepted – against revenue.

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• 2012 (4) TMI 377
  Depreciation claim - company incorporated to carry on the business of Aqua Farms and Shrimp Farming -name changed and the assessee entered the business of handling transportation – return filed declaring loss – AO disallowed and added back the depreciation claim on ponds and plant & machinery discontinued long back - assessment reopened u/s 147 - disallowing the depreciation observing that for claiming depreciation, the assessee should not only own the assets, but also the assets should be put to use in the relevant assessment year – Held that:- As long as an asset forms part of the block of assets and the block continues to exist, provisions of S.50 do not come into play and depreciation has to be allowed on that portion of the WDV of the assets which have been scrapped, after reducing the scrap value from the block of assets - 'block assets' depreciation on ponds and plant & machinery which are forming part of the block of assets has to be allowed as deduction – in favour of assessee.

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• 2012 (4) TMI 376
  Review of the orders passed by the Division Bench - invoking sub-section (7) of Section 260A – Held that:- There is distinction between substantive review and procedural review. Substantive review must be conferred whereas procedural review is inherent in every court or Tribunal - since the power of substantive review having not been conferred under the Income-tax Act, the review as filed is not maintainable - Division Bench Judgment of this Court in the case of Commissioner of Income Tax-1 v. M/s. The West Coast Paper Mills Ltd (2009 - TMI - 75400 - BOMBAY HIGH COURT) stated that sub-section (7) of Section 260A makes the procedure pertaining to an Appeal, as set out in the Code of Civil Procedure, 1908 and these provisions will not enable the Court to review its own order or exercise the power of review in terms of Section 114 - the power of review has to be specifically conferred and it cannot be assumed by the Court – against revenue.

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• 2012 (4) TMI 375
  Rejection of assessee’s claim for registration under section 12AA and approval under section 80G – assessee’s is running an institution called 'Preston International College' as Trust – Held that:- Conducting courses and programme of the Distance Learning courses and running study centers for and on behalf of the University and sharing the fees collected from the students are in the nature of commercial activities and cannot be considered as charitable in nature - assessee's college is functioning as a coaching institute run on commercial lines – Rendering education and medical care to a millionaire is not charity. Charity reflects the concern of a society in the upliftment - against assessee.

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• 2012 (4) TMI 374
  Plant and machinery (not in use) acquired - Tribunal treated it as long term capital assets for the assessment year 2006-07 as it was sold in the financial year 2005-06 – revenue appeal that plant and machinery (not in use) would be covered by the expression 'block of assets' - Held that:- the assessee has shown two block of assets separately i.e. one on which depreciation was claimed @ 25% and the other on which no depreciation was claimed in any of the previous years, the two assets are different from each other - the assessee having not claimed any depreciation on the same cannot be burdened with the provisions of Section 50 - in the absence of any depreciation being allowed to the assessee in any of the previous years on the said plant and machinery (not in use),the gain arising on the transfer of the said asset is to be treated as long term capital gain – directed in adopting the indexed cost of acquisition in determining the income from long term capital gain on sale of plant and machinery (not in use) – against revenue.

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• 2012 (4) TMI 373
  Depreciation - Reclassification of 'Plant & Machinery' as Furniture - the assessee submitted that the assessee engaged in the manufacture of the chemicals and vaccines and for this, the assessee has laboratories - High Court's judgment in the case of CIT v. Park Devis (India) Ltd. (1994 -TMI - 19344 - BOMBAY High Court), is clear on the issue that the 'functional test' has to be applied in deciding if a particular tool constitutes plant and machinery or the furniture - if the Stools, Tables, Stainless Steel racks, SS cupboards, SS trolleys, SS trays etc are required for the laboratory purpose i.e. for the purpose of production or processing of the chemical tests in the laboratory premises leading to the production of the stocks, they must be categorized as plant and machinery - Held that: the revenue authorities have carried away more by the nomenclature rather than the functions of the impugned items - Decided in favor of the assessee Regarding depreciation on 'intangible Asset' being non-compete fee - the assessee's submissions in nutshell are that (i) it is the decision of the revenue to treat the said 'non-compete fee' as the 'capital expenditure' and to grant 'depreciation' on the same for the AY 2000-01 and in effect it already entered the 'block of assets' in the AY 2000-01 by virtue of the thrusting by the AO - if the capital expenditure by way of 'non compete fee' in question is an 'intangible asset' and if the same is depreciable asset for the benefits u/s 32 of the Act - ITAT in the case of Asstt. CIT v. Real Image Tech (P) Ltd [2008 -TMI - 69913 - ITAT MADRAS-B] - Decided in favor of the assessee. Reduction of Sales tax refund from business profits while computing deduction U/s. 80HHC - held that:- AO shall grant relief in this regard Reducing interest income from business profits while computing deduction u/s.80HHC - held that:- matter remanded to AO for fresh decision. Regarding deduction u/s. 80HHC - the profit of the EOU unit u/s. 10B forms part of the 'profits of the business' as defined in Explanation (baa) to section 80HHC of the Act for the purpose of determining the allowable deduction under the said section and consequently, the export and total turnover of the said EOU unit are required to be included in the export turnover and total turnover of the assessee as well - the assessee did not include the profit of the EOU unit, Export and Total turnovers in the numerator and denominator of the formula devised for computation of deduction u/s 80HHC and the assessment was completed accordingly - the assessee is of the view that the Tribunal has confirmed the principle of inclusion of the Export turnover in the Denominator of the formula devised for computation of allowable deduction u/s 80HHC. Considering the 'principle of parity', once a constituent is added to the total turnover, the denominator, the same has to be included to the 'export turnover', the numerator - Inclusion in profits of business is a wasteful exercise in this case hence, it does not make any difference since the special deductions quantitatively exceeds the available profits and gains of the business of the assessee - Decided in favor of the assessee by way of direction to AO to recompute the deduction u/s 80HHC

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• 2012 (4) TMI 372
  Determination of monetary limit for filing appeal before tribunal - Whether the Appellate Tribunal is right in law and on facts in dismissing the Appeal of the revenue on the ground of low tax when the tax effect was Rs. 18,83,616 (Notional), which exceeded the monetary limit prescribed by the Board - if the difference of opinion between the Assessing Officer and the CIT (Appeals) in terms of quantum of loss is considerable, whether the Revenue's appeal would be shut out as not maintainable simply because in any case the assessee's income is negative for a particular assessment year - It is for this reason that Section 80 of the Act provides that no loss which has not been determined in pursuance of a return filed in accordance with the provisions contained in sub-Section (3) of Section 139, shall be carried forward or set off under Sections 72(1) or 73(2) or 74(1) or (3) or under Section 74(3) of the Act - From the above statutory provisions, it can be seen that merely on the ground that even if the Assessing Officer's order is restored, the net result would be a negative income, the issue cannot be treated to be one of academic interest - It is, however, clarified that the notional tax effect would have to be above the limits prescribed by the Board from time to time for presentation of such appeals. In all these cases since it is stated that the notional tax effect would be higher than the limits prescribed by the Board in different circulars, we are of the view that the Tribunal committed an error in dismissing the Revenue's appeals as being not maintainable - Appeal is allowed by way of remand to Tribunal

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• 2012 (4) TMI 371
  Deduction u/s 10A/10B - Tribunal not allowed the deduction under sections 10A/10B on Rs. 14,31,96,372/- representing the amount of depreciation, which was not claimed but allowed by the AO while computing deduction - held that:- all expenses and allowances, deductible or not deductible, covered under these sections starting from 30 and ending with 43D have to be necessarily given full effect to for the purposes of computing income from business under section 28. The income so determined, in the absence of any definition of profits of business given in section 10A, shall constitute 'profits of the business'. As section 32 granting depreciation is included in sections 30 to 43D, there is no reason for excluding it for the purposes of computing the profits of the business of the undertaking. Assessee contended that the judgment of Indian Rayon Corpn. Ltd. (2003 -TMI - 11904 - BOMBAY High Court) should not be applied to section 10A because that judgment deals with deduction u/s 80HHC - held that:- The contention of the assessee would have merited acceptance if cognizance of the judgment in Indian Rayon Corpn. Ltd.'s (2003 -TMI - 11904 - BOMBAY High Court) had been taken while interpreting section 80HHC. Since we are concerned with sections 10A/10B having no definition of the expression "profits of the business", there is no scope for arguing that the judgment in the case of Indian Rayon Corpn. Ltd. (supra) is not applicable which, in fact, has interpreted the expression "profits of the business" in the context of section 80HH without there being any specific definition of it. Clause (i) of sub-section (6) makes it clear that in computing the total income of the assessee for the eleventh year (i.e. after the expiry of the benefit u/s 10A for the first ten assessment years), depreciation u/s.32 shall be computed on the written down value of the fixed assets as reduced by the full amount of depreciation allowable for the ten relevant assessment years from the actual cost of the assets. Further, clause (iv) makes it clear that the written down value of any asset used for the business of the undertaking in the eleventh year shall be computed as if the assessee had claimed and had been actually allowed the deduction in respect of depreciation for each of the relevant assessment years. We are unable to either expressly find or infer from the language of subsection (6) that in the first ten relevant assessment years, the assessee has a choice to claim or skip depreciation and if he chooses to dispense with the depreciation, then to compute the profits of business and the resultant deduction on the amount of profit before depreciation. The profits of the business for all the years in the first block need to be computed by considering that any expenditure or allowance which contributed to the earning of income and is permissible u/ss 28 to 43D, must be allowed. If that is the position, then it is difficult to accept that the assessee should be allowed to compute profits of business during the currency of the years of deduction u/s 10A without reducing the amount of depreciation. - the ld. CIT(A) has taken an unimpeachable view in echoing the action of the AO in deducting depreciation of Rs. 14.31 crore and odd from the profits of business for the purposes of computing deduction under sections 10A/10B. - Decided against the assessee.

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• 2012 (4) TMI 370
  Levy of interest under Sections 234A, 234B and 234C – assessee contested that as the payee being a non-resident tax ought to have been deducted u/s.195 of the IT Act - AO charged interest after considering the actual amount of tax deducted at source – Held that:- the interest under section 234A is not levied for any default of payment of any advance tax, but is levied for default in furnishing return of income within the specified time - the interest under section 234A is to be computed by excluding the amount of tax actually deducted from the assessee during the relevant previous year and interest under section 234B and 234C are to be charged by excluding the tax, which was deductible from the assessee as per provisions of Chapter XVII of the Act - set aside the Order and direct the AO to recompute the interest - Appeal of assessee partly allowed.

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• 2012 (4) TMI 361
  Addition u/s 69 - Assessing Officer noticed that as per Annexure-B of audit report fresh loan of Rs. 58,42,320/- has been shown which included loan from Sona Traders Rs. 18,24,950 - the bank account and other details were not furnished, the Assessing Officer made addition of Rs. 18,24,950/-as unexplained cash credit under section 68 of the Act - The admitted facts of the issue is that there was opening balance in the account of Sona Traders for a credit balance as evident from the copies of account reproduced by the Assessing Officer in his order - Held that: there is no contrary material or facts available on record nor the Ld. Departmental Representative pointed out any such contrary material to the finding of the CIT(A), in the light of the facts, order of the CIT(A) is confirmed - Appeal is dismissed Regarding addition of Rs. 15,40,000/- made under section 68 - Assessing Officer was of the view that under the circumstances the amount of Rs. 15,40,000/- could not be treated as explained credit entry - In the case under consideration the issue is in respect of gift of Rs. 15,40,000/- from younger sister of the assessee - It appears from reading of section 68 of the Act that whenever a sum is found credited in the books of account of the assessee then, irrespective of the colour or the nature of the sum received which is sought to be given by the assessee, the Income-tax Officer has the jurisdiction to enquire from the assessee the nature and source of the said amount - Held that: The assessee has also failed to furnish the complete circle of all these transactions that wherefrom original money came to the account of Smt. Anjali Consul which was invested in units as well as in banks in the form of fixed deposits and others - Decided against the assessee

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• 2012 (4) TMI 360
  Additions made by the AO u/s 10A and 80HHE - Penalty of Rs. 10,00,000/- in the AY 2003-04 & Rs. 1,05,00,000/- in the AY 2004-05 levied by the AO u/s 271(1)(c) - During the course of assessment proceedings, the Assessing Officer noticed that the assessee, inter alia, did not receive or bring in convertible foreign exchange into India within the stipulated time on account of exports made by it to the extent of Rs. 13,16,087/- in Leela Unit & Rs. 25,08,077/- in GNR unit - the assessee claimed deduction on the basis of report dated 27.11.2003 of the CA in form no. 56 F & 10CCAF - assessee, in the instant case, merely made a bona fide claim for the deduction in terms of the said certificate while pointing out that the aforesaid amounts towards exports were not realized within the stipulated period. Not even a whisper has been made in the penalty order as to which specific particulars were furnished inaccurate or were concealed - The assessee, in the instant case, merely made a bona fide claim for the deduction in terms of the said certificate while pointing out that the aforesaid amounts towards exports were not realized within the stipulated period A mere rejection of the claim of the assessee by relying on different interpretations does not amount to concealment of the particulars of income or furnishing inaccurate particulars thereof by the assessee - Held that: the disallowance of claim for deductions u/s 10A & 80HHE in relation to unrealised exports or disallowance of an estimated amount, having recourse to provisions of sec.14A the Act cannot be considered as concealment of income or furnishing inaccurate particulars thereof, especially when all the relevant particulars were disclosed before the AO - Mere erroneous claim in the absence of any concealment or furnishing of inaccurate particulars, is no ground for levying penalty, especially when there is nothing on record to show that the explanation offered by the assessee was not bona fide or any material particulars were concealed or furnished inaccurate - Appeals are dismissed

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• 2012 (4) TMI 359
  Grievance of the assessee relates to the adjustment of Rs. 1,76,56,164 to the ALP of the international transactions between the assessee and its Associated Enterprises (AEs). The TPO passed an order u/s. 92CA of the Act on 28.10.2009 proposing adjustments of Rs. 2,29,86,949 - The ld. counsel for the assessee submitted that the assessee purchased raw material for Rs. 21.09 crores and adopted TNMM method - It was submitted that as per proviso to section 92C(2) of the Act, an option was available to the assessee for adjustment of +/- 5% variation for the purposes of computing ALP - In the present case, the assessee has not disputed the adjustments u/s. 92CA of the Act, but challenging the working of ALP without giving benefit of the option available under the erstwhile proviso to section 92C(2) of the Act, so it becomes relevant to discuss the provisions contained in the erstwhile proviso to section 92C(2) of the Act, which was inserted by Finance Act, 2002 w.e.f. 1-4-2002 - It is clear that the option is available to the assessee for adjustment of +/- 5% variation for the purposes of computing ALP. - In the present case, it appears that the benefit of +/- 5% adjustment has not been given to the assessee for the reason (as mentioned by the TPO) that sales made by the assessee to third parties were higher in comparison to the rates of sale by AEs to the assessee - Held that: the benefit of +/- 5% intended by the erstwhile proviso to section 92C(2) of the Act was not available to the assessee. Regarding the applicability of the amended provisions in proviso to section 92C(2) - the withdrawal of the interpretation placed in circular No 5 /2010 (supra) on the applicability of the amended proviso is sought to be done away by the Corrigendum dated 30.9.2010 and, therefore, such withdrawal shall be effective only after 30.9.2010, even if such Corrigendum is accepted as valid - Held that: the circulars which are in force during the relevant period are to be applied and the subsequent circulars either withdrawing or modifying the earlier circulars have no application. Held that: no justification in the action of the lower authorities in disentitling the assessee from its claim for the benefit of +/-5% to compute ALP in terms of the erstwhile proviso to section 92C(2) of the Act – Appeal is partly allowed

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• 2012 (4) TMI 358
  Appeal against Order of Tribunal - addition in respect of the gift received as unexplained cash credits as well as non-genuine - AO required details of the donor and creditworthiness of power of attorney holder of donor to give confirmation with regard to such gift - opinion that details of business activities of Donor prior to 1999 was not provided – submitted by the assessee money had been transferred through banking channel and it has also come from the NRE account of the donor- Held that:- relationship of the Donor with the present appellant had not been established, so much so that for love and affection or for being an acquaintance also, not an iota of evidence was furnished - It doubted the very source of the gift and since the onus is on the appellant to prove the genuineness of the gift – the issue merits no acceptance. Dis- allowance of set off of short-term capital loss on cancellation of the agreement to sell (banakhat) – Held that:- no capital loss would be allowed if it is more than the cost of an asset - there could be transfer of the asset by the assessee and in the entire transaction of forfeiture of advances, no assets are owned by the assessee and nothing is transferred - there was no question of invoking any of the provisions of the Income-tax Act to allow capital loss - a colourable device was designed so as to get set off against the capital gains earned by the assessee on sale of jewellery declared under the VDIS - tax appeals dismissed.

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• 2012 (4) TMI 357
  Reopening - Deduction u/d 80HHC - assessee, an individual, is in the business of cashew exports as well as running a hotel - whether the processing charges has to be excluded in arriving at the figure of 'total turnover' while computing the export profit u/s. 80HHC(3) - In fact, not only is the said case of a cashew exporter, i.e. as the assessee, as it would appear, the same is only in the assessee's own case (for A.Y. 1993-94) in-as-much as the apex court thereby decided the Revenue's appeal against the decision by the Hon'ble Kerala High Court in the case of CIT v. K. Rajendranathan Nair [2007 -TMI - 2378 - Supreme Court of India] - The apex court per the same has abundantly clarified that the 'processing charges' is an 'independent income' like brokerage, commission, rent, charges, etc. forming part of the gross total income (GTI), being business profit, though having no nexus with the export and, accordingly, is to be deducted at 90% thereof The assessee has, however, raised an alternative plea, claiming that even if so, it is only the income from the processing charges, and not the gross receipt by way of processing charges, that has to be excluded under Explanation (baa) - once 'processing charges' has been held to be an 'independent income', i.e., as rent, commission, brokerage, etc., like treatment in its respect would follow - Held that: The onus, however, to establish the said profit included in the GTI would only be on the assessee, so that in its absence, the statutory prescription in its respect would follow. The matter is accordingly restored back to the file of the AO - Appeal is partly allowed

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• 2012 (4) TMI 356
  Arm's length price - Reference to TPO - TPO passed the order on 16.10.2008, in which upward revision of Rs. 2,95,42,104/- was suggested for bringing the value of the transactions in line with the ALP - AO adopted CUP method, which has been accepted by the assessee - it is mentioned that the assessee did not file form no. 3CEB either with the return of income or in the course of the determination of the ALP - ld. CIT(A) made adjustment of 7.40% on account of increase in the rate of copper in the months of January, February and March, 2005 - The contracts with unrelated parties were fixed-price contracts. The AO adopted ALP on the basis of rate charged from unrelated parties - It appears from the conduct of the parties that the contracts were valid till the end of the last quarter of financial year 2004-05, as sales to them at the fixed rate have been made in January and February, 2005 - the facts show that the fixed price-contracts with unrelated parties took into account the probable increase in prices in copper during the period in which they were entitled to buy the goods - it is held that the assessee is not entitled to get any deductions on account of increase in price quoted at LME Regarding deduction of expenditure incurred in opening the LC, granted by the ld. CIT(A) at 0.35% - e ALP shall be taken to be the arithmetical mean prices, or, at the option of the assessee, a price which may vary from arithmetical mean by an amount not exceeding 5% of such arithmetical mean - where there is only one price say in case of gold, copper, zinc etc., there is no possibility of different prices once purity is same - Decided in favor of the assessee

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• 2012 (4) TMI 355
  Additional Evidence - Rule 46A - right of the assessee - held that:- The assessee has explained that because the Assessing Officer has not specifically called for the evidence, therefore the assessee did not file the same before the Assessing Officer. - It is pertinent to note that the Assessing Officer has raised a specific query whereby the assessee was asked to explain such valuation and subsequent loss. - The assessee filed its reply vide letter dated 7.10.2009. Therefore, the assessee was given sufficient opportunities to explain and substantiate its claim of revaluation of closing stock. - As regard sub rule (4) of Rule 46A that is a discretionary power of the CIT(A) to direct the production of any document, or the examination of any witness for proper adjudication of the case. - the assessee cannot claim any right under sub rule (4) of Rule 46A for producing of any document which otherwise cannot be produced under sub Rule (1) of Rule 46A. Valuation of Closing Stock - deduction in respect of cost of production of feature film as per Rule 9A - held that:- once the expenditure on the production of the film is allowable as deduction as per the provisions of Rule 9A, then no deduction is permissible de-hors the provisions of Rule 9A. Allowance of cost of the feature film as business loss - abandoned project - held that:- the assessee's case is not for the claim of abandoned project or covered under Rule 9(4). Therefore, the case relied upon by the assessee are not applicable in the facts of the present case. Further, the alternative plea of the assessee is pertaining to the issue of allowing the business loss in the assessment year other than the year under consideration, which cannot be adjudicated in the proceedings of this year. Business loss as per Rule 9A(4) - held that:- The deduction shall be allowed in accordance with the provisions of sub rule (2) to sub rule (4) of Rule 9A of I T Rules 1962. Therefore, sub rule (2) to (4) expresses various circumstances and procedures to allow the deduction. Whereas sub rule (5) of Rule 9A stipulates the conditions which are required to be fulfilled for such deduction is allowed. - when the assessee has neither himself exhibits feature film on commercial basis nor sold the rights of exhibits of the feature film nor transfer the rights of exhibits of feature film, then the claim of deduction is hit by sub rule (5) of Rule 9A of the I T Rules and cannot be allowed. Valuation of opening stock of the next year - held that:- in view of the decision of the Hon'ble jurisdictional High Court in the case of CIT v. Mahalaxmi Glass (2009 -TMI - 35481 - BOMBAY HIGH COURT), opening stock of the next year should be valid at the figure which has been taken by the Assessing Officer for the closing stock of this year.

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• 2012 (4) TMI 354
  Treating the Appellant's wholly owned subsidiary in UAE as its proprietary concern and treating income earned by the said wholly owned subsidiary as that earned by the Appellant – A.O stated since the assessee is the only shareholder and holding 100% shares of Vega UAE, it is not a valid company as two shareholders are required - Held that:- Article (1) of the said Memorandum of Incorporation states that this entity is established with corporate entity and independent and separate financial liability from those of its owner and the only situation where the owner will be treated as personally responsible is regarding omission of some specified information that the entity FZE - this is a situation where it specifies that corporate veil may be lifted therefore, because of this restriction alone, it cannot be said that Vega UAE is not a separate legal entity - as per these provisions of Section 2(17) UAE is definitely not an Indian company - As per this Amiri Decree No. (2) of 1996 promulgated by His Highness the Ruler of Emirates of Ajman, Free Zone Establishment can be established with limited liability and shall have the body corporate capacity and it shall belong either to one natural person or one judicial person - in favour of assesee. TP adjustment made by the A.O in respect of sales made to Vega UAE and commission payment considering the controlled transactions of the assessee as comparable for benchmarking the international transaction – Held that:- Vega UAE is carrying both the inventory risk as well as credit risk and therefore is not a marketing service provider but a distributor of the assessee company - ALP has to be determined on the basis of profit on sale of goods by the assessee company as compared to the comparable companies - If the operating cost is higher in Vega US, it cannot be said that the profit margin of other Vega Entities should be at par with the profit margin of Vega US and hence, TP adjustment proposed by TPO and confirmed by DRP on the basis of operating cost/operating profit of Vega US is not sustainable – in favour of assessee. Disallowance u/s 14A of the Income tax Act, 1961 - Held that:- the assessee working regarding interest expenditure and indirect expenditure accepted without any mistake - confirm the disallowance u/s 14A to the extent Rs. 11,48,609/- and delete the balance disallowance made by the A.O - appeal assessee is partly allowed. Disallowance u/s 40a(ia) for non deduction of tax on commission paid on non residents for the services rendered outside India - Held that:- nothing has been brought on record by the revenue to show that the foreign agent to whom commission was paid, had any operation carried out in India as per the provisions of Section 9(1)(i) of Income tax Act,1961- the provisions of Section 40a(ia) are not applicable – in favour of assessee.

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• 2012 (4) TMI 353
  Unsigned assessment order u/s 143(3) - valid or not - revenue contested that since the tax has been determined and demand notice issued and served if the assessment order remained to be unsigned it is merely a procedural irregularity curable under the provisions of section 292B, it is the service of demand notice which is crucial and such failure would invalidate proceedings - Held that:- Provisions of Sec.143(3) of the Act contemplates that the AO shall pass an order of assessment in writing. The requirement of signature of the AO is therefore a legal requirement. The omission to sign the order of assessment cannot be explained by relying on the provisions of Sec.292B of the Act – in favour of assessee.

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• 2012 (4) TMI 352
  Deletion of penalty by CIT(A) imposed u/s 271(1)(c) by the AO ignoring that the assessee has not discharged its onus of proving that there was no intention of concealment on its part and the mistake was bonafide - A.O. noticed that the assessee claimed deduction for expenses on account of fines and penalties - assessee debited an amount of Rs. 1,90,338/- under the head bad debts written off - Held that :- the assessee produces no fresh evidence or presents any additional or fresh circumstance in penalty proceedings, he would be deemed to have failed to discharge the onus placed on him and the levy of penalty could be justified - the explanations appended to section 271(1)(c) of the Act entirely indicate the element of strict liability on the assessee for concealment or for giving inaccurate particulars while filing return - Even if there is no concealment of income or furnishing of inaccurate particulars, but on the basis thereof the claim which is made is ex facie bogus, it may still attract penalty provision fair and appropriate to vacate the findings of the ld. CIT(A) and restore the matter to his file with the directions to readjudicate the levy of penalty - against assessee.

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• Service Tax

• 2012 (4) TMI 381
  Stay Petition for waiver of Service Tax demand,interest thereof and equivalent amount of penalty - Service Tax liability on the ground that they have been providing Business Auxiliary Service – assessee submitted produced a Chartered Accountant’s certificate giving various details before lower authorities to indicate that the entire amount as indicated in the balance sheet as an income has not come from the services rendered by them but could be loan and other income – Held that:- the adjudicating authority should have given a finding on records and the documents supplied by the assessee, the entire issue needs to be re-considered by lower authority - set aside the impugned order and remit the matter back to re-consider it afresh

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• 2012 (4) TMI 362
  CENVAT credit for cellular telephone service - Meaning and scope of the term capital goods - (i) antenna, (ii) tower and parts thereof and (iii) green shelter (same as PFB) - held that:- if the signal transmitting antenna is installed on a tower, the signal receiving antenna could be installed on a high-rise building or flyover, and vice versa. If the tower is held to be an accessory of the antenna erected thereon, a high-rise building or a flyover with an antenna erected thereon will also have to be considered as accessory of such antenna. To our common sense, a huge immovable structure like tower cannot be termed 'accessory' of any goods. A supplementary, subordinate, additional or extra thing which is added to make something more useful, effective, convenient etc. is understood as an accessory as per the cited dictionaries. It will be absurd to hold a gigantic immovable structure to be an 'accessory' of a small equipment placed on its top. All the three terms --- 'components', 'spares' and 'accessories' -- used in sub-clause (A)(iii) of clause (a) of Rule 2 should be understood as standing for movables only. - Not eligible as Capital goods for the purpose of cenvat credit. Alternative plea - If the towers and parts thereof are not capital goods falling under Rule 2(a)(A) of the CENVAT Credit Rules, 2004, it is argued, they are liable to be recognized as 'inputs' under Rule 2(k). - held that:- it has to be, firstly, "goods" and, secondly, "used for providing any output service". The first requirement in this case is not met by the towers which are admittedly immovable structures and ipso facto non-marketable and non-excisable. Cenvat Credit on PFBs which were used as protective shelter for transmission equipments - office chairs - held that:- They are not components or accessories of any goods specified in that sub-clause either. Thus PFBs have no place in sub-clause (iii) also. Hence CENVAT credit cannot be claimed on PFBs as capital goods. The same conclusion can also be reached in respect of office chairs which are goods of Chapter 94. Further the chairs cannot be held to have been used for providing telecom service, in the absence of evidence. CENVAT credit on printers which are office equipments - there is no direct nexus between this item and the output service provided by the appellant. The appellant has not established sufficient nexus between printers and their output service. - Credit denied. Extended period of limitation - held that:- the learned Commissioner did not consider this plea at all. Therefore, in both the cases, the limitation issue requires to be remanded to the learned Commissioner for careful consideration and speaking order.

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• Central Excise

• 2012 (4) TMI 369
  Whether the Modvat/Cenvat credit on the inputs in process and in finished products is liable to be reversed/paid back when the final product becomes exempt from payment of duty - Appellants took cenvat credit on inputs procured prior to 10.1.2005 and out of the inputs procured some stock were lying with them – AO stated that assessee with respect to these inputs did not reverse the proportionate cenvat credit since at the time when these inputs were procured, cenvat credit was validly taken and utilized – Held that:- Since the language of Rule 9(2) of the Cenvat Rules is identical to that of Rule 57H(5) of the Excise Rules, the interpretation given by the Apex Court has to apply in the present case stating that though the final product may be exempt from payment of excise, the assessee cannot be asked to reverse the Modvat credit already taken by it – on the date when they paid the tax on the raw materials or the inputs, that right would continue until the facility available thereto gets worked out or until those goods existed - decided in case Collector of Central Excise, Pune and others vs. Dai Karkaria Ltd. and others (1999 - TMI - 94220 - CEGAT, NEW DELHI) – in favour of assessee.

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• 2012 (4) TMI 368
  Stay Petition for waiver of pre-deposit on differential duty on the goods imported - department foregone the duty liability as appellant has not reported the export obligation and has not used the said goods in the manufacturing of the goods - claim of the appellant was verified by the Revenue which indicates that the appellant had exported the goods either through the merchant exporter or through another 100% EOU – Held that:- The issue of non-fulfillment of export obligations has to be considered from the factual matrix of the export, hence the issue needs to be re-considered by the adjudicating authority in its proper perspective - set aside order and to re-consider the issue afresh.

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• 2012 (4) TMI 367
  Stay Petition for the waiver of pre-deposit of duty,interest and penalty confirmed by the adjudicating authority and upheld by the first appellant - the applicant didn't appeared - Held that:- An identical issue decided by this Bench in the case of Shri Manohar Mali Vs. CCE Surat - impugned order set aside and matter is remanded back to adjudicating authority to reconsider.

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• 2012 (4) TMI 366
  Claiming free import of old and used tyres classified under SH 4012 2090 - Department examined the consignment stating approximately 35% to 45% can be used as such on Indian roads and remaining cannot be used as such - SCN issued for reclassification and imposition of fine and penalty - first appellate authority, uphold the reclassification of the goods imported by the appellant under CH 4012 2010/20 – Held that:- 100% examination revealed that the number of tyres that can be used as such, merits the classification under CSH No.4012.2010/20 as correctly upheld by first appellate authority - the lower authorities classification that the entire consignment under CSH No.4012.2010/20 is incorrect - balance number of tyres in both the appeals which can be used as such, they have to be classified under CSH 4012 2090, as has been declared by the assessee - remanded the matter only for the purpose of valuation and for re-visit of the imposition of penalty and redemption fine.

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• 2012 (4) TMI 365
  Clearance of finished goods without payment of duty to SEZ developers – Revenue held that as per Rule 6 of CCR, 2004, the appellant is required to maintain separate accounts for the common inputs used for the manufacturing of finished goods cleared on payment of duty and cleared by availing exemption - the clearances made by the appellant to SEZ developers without payment of duty is clearance of exempted goods and is not covered by the exclusion clause 6 of CCR, 2004 - Held that:- issue stand settled by the decision of co-ordinate bench of the Tribunal in the case of Sujana Metal Products Pvt.Ltd. Vs. CCE Hyderabad (2011 - TMI - 208174 - CESTAT, BANGALORE) – assessee has cleared their finished product to SEZ developers under LUT duly accepted by the Revenue and once a LUT is executed, the appellant need not pay duty - the supplies made to SEZ are held to be "export", the application of provisions of Cenvat Credit Rules for recovery of amounts on goods supplied to SEZ units in terms of Rule 6 of CCR, 2002 / CCR, 2004 does not arise - against revenue.

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• 2012 (4) TMI 364
  Stay Petitions – AO stated that the appellant company has cleared the duty paid raw materials from their factory premises clandestinely without utilizing it for manufacture of their final product – Held that:- out of the demand of approx. Rs.55.90 lakhs, the appellant has already deposited an amount of Rs.20.75 lakhs during the investigation - considering the amount deposited by the appellant as enough deposit waiver to pre-deposit of balance - AO arrived at the shortage of MS/SS coils has considered the shortages of stainless steel coils only - AO has not considered the quantity of 17,100 kgs of SS coils which was an issue in another litigation and has attained finality and hence that quantity should also be considered for deduction for arriving at the shortage of input and fixing liability on the appellant - remit the matter back to adjudicating authority to decide afresh.

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• 2012 (4) TMI 363
  Availment of CENVAT Credit on the inputs utilized in the manufacture of diesel engines cleared for export - Department objected that claim of rebate of the duty paid by them on debit of the amount by the job workers - first appellate authority dismissed the appeals on the ground of non-compliance of pre-deposit ordered – Held that:- no dispute regarding the export of the finished goods by the appellant or on clearance from the job workers premises as that there cannot be any demand of CENVAT Credit on the inputs which have been consumed - set aside the impugned order and remit the matter back to first appellate authority to hear and dispose the appeals without insisting upon any pre-deposit.

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