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Newsletter: Where Service Meets Reader Approval. TMI Tax Updates - e-Newsletter April 23, 2015 Case Laws in this Newsletter: Income Tax Customs Corporate Laws Service Tax Central Excise CST, VAT & Sales Tax TMI SMS Concept of mutuality - Cooperative Society - service tax paid under protest with bonafide belief that ST is chargeable - Refund allowed -Tri Articles Revised Scope of Consideration THE SECURITIES AND EXCHANGE BOARD OF INDIA (PROHIBITION OF INSIDER TRADING) REGULATIOS, 2015 – AN OVERVIEW News Central Board of Excise and Customs has been awarded the Prime Minister’s Award for Excellence in Public Administration for the year 2012-13. RBI Reference Rate for US $ Monitoring of Foreign Investment under the PIS - Incorporation in Ban List- M/s Kotak Mahindra Bank Limited Highlights / Catch Notes Income Tax Disallowance of renovation expenses of office on rented premises - Once 50 per cent. of the expenditure has been disallowed as capital expenditure, we do not find any reason to deviate from such findings, as allowance of 50 per cent. of revenue expenditure actually meet the ends of justice - AT Visit to Get Source Disallowance of Payment made to Saba & Co. on account of non deduction of Tax at Source towards legal & professional fees - non-resident does not have any permanent establishment - amount not taxable in India - No TDS liability u/s 195 - AT Visit to Get Source Capital gain computation - assessee was not the owner of the property and since she had only limited rights over the property, which was also encumbered, the market value of the property as taken for the purpose of payment of stamp duty could not be adopted as the sale consideration by applying the provisions of Section 50C - AT Visit to Get Source Transfer pricing adjustment - The CIT(A) held that the denial of working capital adjustment by the TPO was not correct and that though the computation of the working capital adjustment was before him, it was not examined by the TPO - matter remanded back to that extent - AT Visit to Get Source When the good will paid was for ensuring retention and continued business in the hospital, it was for acquiring a business and commercial rights and it was comparable with trade mark, franchise, copyright, etc. referred to in the first part of clause (ii) of section 32(1) and so much so, goodwill was covered by the above provision of the Act entitling the assessee for depreciation - AT Visit to Get Source Invoking the provisions of section 153C/153A - there cannot be double taxation in the hands of the assessee unless proper agreement has been executed. The half-baked agreement cannot be a basis for addition of income - AT Visit to Get Source Disallowance of Building grants given to Milk Producer's Society - to put up a building to facilitate the collection of milk and testing it - the expenditure of ₹ 5 lakhs is deductible as revenue expenditure. - AT Visit to Get Source Marketing and management services - Even the existence of the service per manent establishment in India will not make it taxable because of no involvement of such permanent establishment in earning this income for which the services were rendered outside India - AT Visit to Get Source Customs Demages for prolonged detention of goods - Delay in testing of goods - Import of hazardous goods - permission was given by the Indian authorities to the petitioner to re-export the goods - Damages in form of rent and de murrage charges - no relief to petitioner - HC Visit to Get Source Violation of conditions of DEEC Advance Licences - duty liability admitted but interest demand contested - Notification No.204/92-Cus - Demand of Interest confirmed - AT Visit to Get Source Denial of refund claim - unjust enrichment - amount is shown under head of 'loan and advances'. This needs to be verified with other account ledgers, etc. for the period from date of deposit till disposal of refund - matter remanded back - AT Visit to Get Source Corporate Law Winding up petition - A company might be in a precarious condition to pay off its creditor’s dues, that would be a “failure”. A high mighty, if willfully neglects to pay an admitted debt, that would certainly come within the mischief of “neglected” within the meaning of Section 434 (1)(a) - HC Visit to Get Source Service Tax Denial of refund claim - input services of landscaping in their offices, erection of IT cables and setting up of modernization and renovation of premises are having nexus with output services which have been exported - refund allowed - AT Visit to Get Source Refund claim - service tax paid under protest under bonafide belief that service tax is chargeable - concept of mutuality - Co-operative Society - collecting amounts from their members towards maintenance charges, parking charges, NOC Charges, antenna charges, water charges and electricity charges, etc. - Refund allowed - AT Visit to Get Source Discharge of service tax liability by other branch office - In the absence of any such co-relation, it can not be said that appellant has discharged the service tax liability of Silvassa unit at their Mumbai unit/office - demand confirmed - however penalty waived - AT Visit to Get Source Central Excise Duty liability in respect of pan masala retail pouches - pouch packing machine - Notification No. 42/08-CE was amended to provide different rate of duty per machine per month for different RSP slabs and different maximum operating speeds of the machines. But these provisions cannot be given retrospective effect, as these are not retrospective amendments - AT Visit to Get Source Duty liability in respect of pan masala retail pouches - pouch packing machine - Just because the speed of this machine is much higher than the normal machines, it cannot be treated as a multiple track machine - AT Visit to Get Source Clandestine removal of goods - Duty evasion - The statement recorded from shift supervisors being self speaking cannot be brushed aside because they were the persons within whose knowledge goods were manufactured and cleared. - AT Visit to Get Source Area based exemption - expansion of installed capacity by more than 25% - Since the Commissioner's conclusion is based on the expert opinion of Professor Arun Kumar, in our view, his cross examination by the appellant should have been permitted, as the report of Professor Arun Kumar is only an opinion whose correctness has to be tested by his cross examination - AT Visit to Get Source 100% EOU - Steel scrap cleared into DTA - the nature of the scrap cannot be determined on the basis as to whether it has been sold the actual users or the dealers, as only use to which Iron and Steel Scrap can be put, is by melting the same to make some other Iron and Steel products - AT Visit to Get Source Classification of goods - actifresh and plethico mint which are basically mouth fresheners are correctly classifiable as sugar confectionery under heading 1704 of the tariff - AT Visit to Get Source Classification - the product plethico byte containing mulethi and travisile lozenges, which are marketed by the appellant as medicines for sore throat/ cough would be correctly classifiable as ayurvedic medicine under heading 3004 of the Central Excise Tariff. - AT Visit to Get Source VAT Works contract - computation of taxable turnover - Claims of deductions on account of labour and services under various heads - while allowing certain heads of expenses AO has not ascribed any reason either for accepting such deductions allowed by him nor any reason has been assigned for disallowing certain deductions - matter remanded back - HC Visit to Get Source Case Laws: Income Tax 2015 (4) TMI 747 Addition u/s 68 of the Income Tax Act, 1961 on account of un-explained sundry creditors - Trading result not challenged - Difference of opinion between Judicial member and Accountant member of ITAT - Matter referred to dispose u/s 255(4) of Income Tax Act, 1961 - Held that:- Keeping in view the fact that in the present case also there being no dispute as regards the purchases and the trading results having been accepted, in my opinion, the decision of Hon'ble Allahabad High Court of Pancham Das Jain [2006 (8) TMI 582 - ALLAHABAD HIGH COURT] is squarely applicable to the facts of the case. In this case Hon'ble high court held that Tribunal is justified and deleting addition u/s 68. Also the Tribunal has recorded a categorical finding of fact based on appreciation of materials and evidence on record that the Assessing Officer had accepted the purchases, sales as also the trading result disclosed by the respondent-assessee. It had recorded a finding that the aforesaid two amounts represented the purchases made by the assessee on credit and, therefore, the provisions of section 68 of the Act could not be attracted in the present case. We fully agree with the view taken by the Tribunal on this issue. The case of Kachwala Gems [2006 (12) TMI 83 - SUPREME COURT] primarily supports the asessee's case that income cannot be determined at astronomical figures unless assessee's explanation has been proved to be false. Following the decision of Pancham Das Jain [2006 (8) TMI 582 - ALLAHABAD HIGH COURT], the matter will now go back to the Division bench for passing the order in accordance with majority view. ORDER UNDER SECTION 255(4) OF THE INCOME TAX ACT, 1961 - Pursuant to the order of the Third Member relating to addition of ₹ 10,78,71,656/- made on account of sundry creditors under section 68 of the Income tax Act, 1961, the majority View of the Tribunal is that the aforesaid addition made under section 68 of the Act is not sustainable in the eyes of law and, therefore, the order of the ld. CIT(A) deleting the aforesaid addition is confirmed. - Decided against the revenue. 2015 (4) TMI 727 Provision for bad and doubtful debts claimed to the extent eligible under section 36(1)(viia) - Held that:- In the course of assessment proceedings before the AO, a query was raised by the AO by his letter March 12, 2008 regarding the claim of the assessee with regard to deduction on account of provision for bad and doubtful debts under section 36(1)(viia) of the Act as to whether the aggregate average rural advances was worked out on the basis of 2001 census because the assessee has in one of its letter dated February 19, 2008 claimed that aggregate average rural advances have been worked out based on 1991 census. The assessee in response to the same by its letter dated February 20, 2008 gave a working of aggregate average rural advances as per 2001 census data. The figure as originally given in the books in this regard was revised to ₹ 35,25,25,92,038. In paragraph III.1.4 of the Assessing Officer's order, the Assessing Officer has accepted such working given by the assessee. CIT(Appeals) has also not thought it fit to make any enquiries in this regard in exercise of his powers of enhancement. Assuming the order of the Assessing Officer to be erroneous on this aspect, the same could only be set right in proceedings under section 263 of the Act. This issue does not arise out of the order of the AO or the CIT(Appeals) at all. The issue is no doubt one facet of the claim for deduction under section 36(1)(viia)(a)but this aspect has been examined and accepted by the Assessing Officer in the order of assessment and not interfered with by the CIT (Appeals) either in the first appeal or by the Commissioner of Income-tax in exercise of powers under section 263 of the Act. We are therefore of the view that the additional ground now sought to be raised by the Revenue cannot be admitted for adjudication. - Decided against revenue. Provision for bad and doubtful debts relating to rural advances are allowed under section 36(1)(viia)(a) - Held that:- Under section 36(1)(viia)(a) deduction is allowed when (a) provision is made in the books of account at 10 per cent of the aggregate average rural advances ; (b) aggregate average rural advances is computed in accordance with rule 6ABA of the Rules ; (c) 7.5 per cent of the total income. The opening balance in the provision for bad and doubtful debts account is irrelevant for allowing the said claim. That becomes relevant only when a claim for deduction on account of bad debts written off in respect of rural advances is made by an assessee. If such a claim is made then the proviso to section 36(1)(vii) of the Act and section 36(2)(v) of the Act will come into play. For allowing deduction under section 36(1)(viia)(a) of the Act, no bifurcation of provision for bad and doubtful debts account is required. What is relevant is the provision made in the books of account of the assessee.Thus, the submission made by the learned Departmental representative with regard to opening balance available in provision for bad and doubtful debts account are all irrelevant and therefore ground even if found admissible is without any merit. -Decided against revenue. Provisions of section 36(1)(viia)(a) of the Act - Held that:- The Assessing Officer did not dispute the classification as made by the assessee in its books of account. The deduction under the first proviso to section 36(1)(viia)(a) of the Act is in addition to what is allowed under section 36(1)(viia)(a) of the Act and the assessee is given the option to claim deduction under the proviso. The above being the purport of the provisions, we find no basis for additional ground No. (iii) sought to be raised by the Revenue. Ground No. (iii) is therefore held to be unsustainable on merits and does not even require an admission for adjudication as it does not arise out of the order of the Assessing Officer or the Commissioner of Income-tax (Appeals). - Decided against revenue. Disallowance the claim for deduction on account of bad debts written off in respect of non-rural debts - CIT (Appeals) deleted the addition holding that provision for bad and doubtful debts account is not relevant when bad debts are written off in respect of non-rural debts - Held that:- With the decision of Catholic Syrian Bank Ltd. [2012 (2) TMI 262 - SUPREME COURT OF INDIA ] we are of the view that the order of the Commissioner of Income-tax (Appeals) on this issue has to be upheld. The learned Departmental representative however sought to put forth a plea with regard to bifurcation of provision for bad and doubtful debts account into one in relation to rural branches and the other relating to non-rural branches. We have already dealt with this argument while dealing with the additional grounds raised by the assessee. The provision for bad and doubtful debts account is not relevant while allowing deduction under section 36(1)(vii) of the Act in respect of bad debts of non-rural branches written of. - Decided in favour of assessee. Provision for bad and doubtful debts - as per AO claim for deduction under section 36(1)(viia) of the Act cannot be greater than the amount debited to the profit and loss account as provision, thus proposed to disallow a sum of ₹ 2,07,93,45,318 (difference between ₹ 5,03,49,00,000 and ₹ 2,95,55,54,682) - CIT(A) deleted addition - Held that:- We allow ground raised by the Revenue and hold that disallowance to the extent of ₹ 2,07,83,45,338 be restored. - Decided in favour of revenue. Profit on sale of investments and investment trading loss - CIT(A) accepting the assessee's claim that the assessee has traded in securities, shown as investments in the balance sheet, and that the asses see has incurred loss of ₹ 3,74,97,43,513 on account of revaluing the investments, held as on March 31, 2006, at cost or market value whichever is less - Held that:- he contentions put forth on behalf of the assessee deserve to be accepted. The Tribunal in the assessee's own case on an identical issue for the assessment year 2005-06 has upheld the claim of the assessee. The later decision of the hon'ble High Court of Karnataka in Commissioner of Income-tax Versus Vijaya Bank [2013 (10) TMI 1030 - KARNATAKA HIGH COURT] herein the court took the view that depreciation claimed on investments "held on maturity" by a bank has to be treated as stock-intrade in accordance with the Reserve Bank of India guidelines and the Central Board of Direct Taxes Circular is also in favour of the assessee. In such circumstances, we are of the view that the issue raised by the Revenue in its appeal is without merit. - Decided against revenue. Expenditure on issue of bonds - CIT(A) allowing the assessee's claim for deduction of stamp duty on bonds - Held that:- order of the Commissioner of Income-tax (Appeals) does not call for any interference. The contention on behalf of the Revenue that the sum raised by way of issue of bonds is capital expenditure is erroneous. The distinction between a capital and a loan is well recognised in law. The raising of funds by issue of bonds will be akin to a borrowing. The expenses incurred in issuing bonds will therefore be cost of loan or borrowing. They are therefore to be considered as revenue expenditure. The decisions relied upon by the Commissioner of Income-tax (Appeals), in our view, clearly indicate that expenses incurred on issue of bonds have to be regarded as revenue expenditure. - Decided against revenue. Estimated expenditure on earning tax free income under section 14A - Held that:- Remand the issue to the Assessing Officer for fresh consideration to be decided on the lines indicated by the Tribunal in the order for the assessment year 2005-06 to decide the issue afresh by following the ratio of the decision of the Bombay High Court in Godrej and Boyce Mfg. Co. Ltd. [2010 (8) TMI 77 - BOMBAY HIGH COURT] after giving effective opportunity of hearing to the assessee. - Decided in favour of revenue by way of remand. Deduction under section 35D - CIT(A) allowed the claim - Held that:- Order of the CIT (Appeals) cannot be sustained. Firstly, the provisions of section 35D of the Act were applicable only when the expenses are incurred after commencement of business in connection with expansion of industrial undertaking or in connection with setting up of a new industrial unit. Admittedly, the assessee was not an industrial undertaking. This aspect has been overlooked by the Commissioner of Income- tax (Appeals). Even assuming that the claim is not one made under section 35D of the Act, the assessee's claim for deduction as a revenue expenditure on the basis that the issue of share capital was for meeting the working capital requirement cannot also be sustained. The fact that the capital raised by issue of shares is for meeting the working capital requirement or otherwise, will not be a relevant consideration. This aspect has been made clear by the hon'ble Supreme Court in the case of Brooke Bond India Ltd. [1997 (2) TMI 11 - SUPREME Court] wherein observed that by issue of shares there is increase in capital and therefore there is a expansion of capital base of the company and therefore the expenses will retain the character of capital expenditure - Decided in favour of revenue. Disallowance of provision made for credit card reward points - Held that:- The assessee was legally bound to provide equivalent of reward points in cash or kind. In the case of the assessee, the reward points are given in the form of cash reimbursement. The fact that the customers did not make claim for such reimbursement will not stop the accrual of liability. In our view, the liability of the assessee insofar as accumulated reward points are concerned is certain and the Revenue has not disputed the basis of quantification of such liability. In such circumstances, we are of the view that in the light of the principles laid down by the hon'ble Supreme Court in the case of Bharat Earth Movers [2000 (8) TMI 4 - SUPREME Court] the claim for deduction should be allowed. - Decided in favour of assessee. Computation of book profits - AO rejected computation as it was done as per Schedule VI of the Companies Act, but had not adopted the profit arrived at in the profit and loss account approved by shareholders in the annual general meeting, certified by the auditors, and filed before the Reserve Bank of India - Held that:- In the light of the decision of Krung Thai Bank PCL v. Joint DIT (IT) [2010 (9) TMI 18 - ITAT, MUMBAI], we have to necessarily hold that provisions of section 115JB of the Act are not applicable to the assessee which is a banking company. The decisions relied upon by learned counsel for the assessee, clearly support the plea of the assessee in this regard. - Decided in favour of assessee. Interest on securities on accrual basis - CIT(A) allowed relief to assessee on the point of accrued interest on securities offered on cash basis - Held that:- It is not in dispute before us that identical decision has also been rendered by the hon'ble High Court of Kerala in the case of CIT v. Federal Bank Ltd. [2008 (1) TMI 195 - KERALA HIGH COURT]. In the present case, the assessee has been following the method of offering interest on securities to tax on receipt basis on maturity and the same has been accepted by the Revenue in the past. In view of the aforesaid decision, we are of the view that the order of the Commissioner of Income-tax (Appeals) does not call for any interference. - Decided against revenue. 2015 (4) TMI 726 Amortization of premium paid for HTM securities - Provision for Investment Depreciation fund - Investment Fluctuation fund - Reversal of interest on non performing assets - Held that:- The Hon’ble Bombay High Court in the case of HDFC Bank [2014 (8) TMI 119 - BOMBAY HIGH COURT] held that the assessee therein was entitled to deduction with respect to the diminution in the value of investments and amortization of premium on investments Held To Maturity on the ground of mandate of the RBI guidelines. The issue raised in the present appeal is identical to the issue before the Pune Bench of the Tribunal in the assessee’s own case [2015 (4) TMI 662 - ITAT PUNE] for assessment year 2008-09 and Hon’ble Bombay High Court in CIT Vs. HDFC Bank [2014 (8) TMI 119 - BOMBAY HIGH COURT]. We hold that amortization of premium expenditure for securities Held To Maturity in view of RBI guidelines are allowable business expenditure in the case of assessee. The grounds of appeal No.1 and 2 raised by the assessee are thus, allowed. The plea of the assessee before us was that the said amount was booked under the provision for investment depreciation fund by mistake and was actually the depreciated value of the investments on its transfer from HTM to AFS securities. The perusal of the Profit & Loss Account English version reflects the assessee to have claimed the expenditure of ₹ 40,30,000/- on account of investment depreciation fund under Schedule 16 provisions. In the entirety of the facts and circumstances and the revised claim made by the assessee, we are of the view that the facts and issue needs to be relooked into to determine the nature of entry passed by the assessee and following the principles of natural justice, we deem it fit to restore this issue back to the file of Assessing Officer, who shall decide the issue de novo after considering the revised plea of the assessee and the relevant documents in this regard. The issue raised vide grounds of appeal No.5 to 7 is in relation to reversal of interest on performing assets amounting to ₹ 42.15 crores. The assessee during the year under consideration adopted a change in method of accounting in respect of interest income earned from certain performing assets. In the Notes to the annual accounts, the assessee declared that the interest relating to non-performing assets i.e. agricultural loans would be accounted for only on realization and interest amounting to ₹ 42.15 crores was de-reversed and de-recognized by the assessee. The explanation of the assessee for the said change in the method of accounting of interest on non performing assets was the Agricultural Waiver Scheme, 2008 issued by the Central Government under which, guidelines were issued by the RBI, that where the such interest on agricultural loans was not received by the assessee, the same was not to be credited to the Profit & Loss Account. From the details furnished by the assessee, the necessary data cannot be culled out, so in all fairness, we deem it fit to restore this issue back to the file of the Assessing Officer, who shall first determine the eligible amount which is covered under the said agricultural waiver scheme issued by the Central Government and thereafter, determine the interest relatable to such eligible amount. The assessee is directed to furnish the requisite information / details before the Assessing Officer and the Assessing Officer thereafter, shall reconcile the same with the debt waiver scheme and determine the eligible amount. Further, the assessee claims that the interest on such performing assets that are covered by agricultural waiver scheme has been written off in its books of account. The Assessing Officer is directed to verify whether the interest on agricultural loans has been written off by the assessee in its books of account. The Assessing Officer thus, shall decide the issue of allowability of the said expenditure in the hands of the assessee in line with our directions. The finding of the CIT(A) is that the contribution made by the assessee was a statutory requirement and was not application of income or appropriation out of profits. We are in conformity with the observations of CIT(A) that the provision made by the assessee cannot be said to be a provision for contingent liability because the amount was contributed by the assessee from year to year and the contribution is fixed by the State Government under the MCS Rules. Once the amount is so fixed by the State Government and the same is paid by the assessee to the said fund then, the same is to be allowed as a deduction in the hands of the assessee. Undoubtedly, the assessee during the year under consideration, had made a provision of ₹ 1,31,60,000/- but the said amount was paid in the succeeding year i.e. ₹ 1,09,92,202/- on 26.09.2009 and ₹ 1,30,19,151/- on 17.12.2009. The liability being an ascertained liability, which in turn, was discharged by the assessee by making payment in the succeeding year, is an allowable expenditure in the hands of the assessee. Upholding the order of CIT(A), we dismiss the grounds of appeal raised by the Revenue. - Appeal of revenue dismissed. 2015 (4) TMI 725 Disallowance of survey charges - Held that:- The assessee was acting as an advisor to the Government of Maharashtra and was required to implement port development programme in Maharashtra. For this purpose, it has to incur various expenses which was recoverable from the successful bidders. As apparent from the records, these expenses have been incurred in the assessment year 1997-98. The only reason given by the learned Commissioner (Appeals) is that, since these expenses were incurred on behalf of others which was recoverable, the assessee should not have debited the expenses to the profit and loss account. Such a view cannot be affirmed because the assessee could have either shown this amount in the balance- sheet as expenses recoverable or could have debited these expenses in the profit and loss account and claimed it as expenses and as and when these expenses are recovered, the same could have been offered for tax. The assessee has followed the second step, which in our opinion cannot be held to be incorrect. From the details of the break-up of the expenses, it is seen that most of these expenses relate to professional and technical fees for geotechnical investigations and various other expenses for advertisement, etc. It is not in dispute that these expenses have been incurred by the assessee in pursuance of the activities assigned to it. Now that these expenses have been offered for tax in the assessment year 1999-2000, when the same has been recovered from the concerned persons then there is no occasion to disallow the same in this year. - Decided in favour of assessee. Disallowance of deprecation on assets acquired under sale and leaseback transactions with Maharashtra Esters and Keytones P. Ltd. and Konkan Railway Corp. Ltd. - Held that:- No reason to deviate from the findings of the learned Commissioner (Appeals) that the depreciation on the asset has to be disallowed which is claimed on normal lease transactions. Moreover, the Department has also accepted similar nature of normal lease transactions from the assessment year 1999-2000 onwards. Thus, the disallowance on normal lease transaction is set aside and is decided in favour of the assessee. Coming to the sale and leaseback transactions this issue has not been properly dealt with either by the learned Commissioner (Appeals) or by the Assessing Officer who has gone by the reasoning it is a colourable device either in the case of Konkan Railway Corp. Ltd. even in the case of Fujitsu ICIM Ltd. and Datar Switchgear Ltd. the issue has not been examined properly. In the absence of any proper material and record to come to such a finding, we are of the opinion that this matter needs to be restored back to the file of the Assessing Officer to examine it afresh. Thus the claim of depreciation on the assets pertaining to the aforesaid three sale and leaseback transactions which have been entered into this year is set aside to the file of the Assessing Officer to decide the issue afresh - Decided partly in favour of assessee for statistical purposes. Disallowance of renovation expenses - Held that:- It is undisputed fact that these expenses were incurred for renovation of office on rented premises. The learned Commissioner (Appeals) has given a finding that it was very difficult to bifurcate the expenditure into revenue and capital, therefore, 50 per cent. of such expenses, as admitted by the assessee, was treated as capital expenditure and the balance as revenue. From the case law relied upon by the assessee, it is seen that the courts have held that in cases of repairs and renovation on rented premises, they have to be treated as revenue expenditure. Once 50 per cent. of the expenditure has been disallowed as capital expenditure, we do not find any reason to deviate from such findings, as allowance of 50 per cent. of revenue expenditure actually meet the ends of justice in these facts and circumstances. - Decided against revenue. Deduction under section 80M on the dividends earned - Revenue challenged deduction allowed without deducting the interest therefrom - Held that:- there is no dispute that the borrowing of the assessee has been purely for the purpose of business and none of the borrowed funds were utilised for making the investment in the shares. Once this is so, the judgment of the hon'ble jurisdictional High Court in Emrald Co. Ltd. [2005 (9) TMI 50 - BOMBAY High Court] is squarely applicable, wherein the High Court has held that interest on borrowing and other expenditures incurred during the course of carrying on the business are allowable as deduction while computing the business income, these expenditures cannot once again be deducted from the dividend income for the purpose of computing deduction under section 80M and the deduction has to be granted with reference to the gross dividend. - Decided against revenue. Disallowance under section 14A on account of proportionate administrative expenses - Held that:- The Bombay High Court, in Godrej and Boyce Mfg. Co. Ltd. [2010 (8) TMI 77 - BOMBAY HIGH COURT] has held that in case of earning of an exempt income, some reasonable basis for allocating the expenditure has to be worked out. The Assessing Officer has worked out an expenditure of ₹ 64,28,000, which, in our opinion, is too high and excessive looking to the fact that the assessee is not engaged mainly in the investment. Since the assessee is buying shares of the company by way of financing to promote such companies for industrial development in backward area, certain administrative cost has to be allocated. In our considered opinion, one percent (1 per cent.) of the administrative expenses should be disallowed and that would be a reasonable allocation of administrative expenses for the purpose of earning exempt income. Thus, the disallowance is restricted to one per cent. of administrative expenses. - Decided partly in favour of revenue. Exclusion of provision of bad debt while working out book profit under section 115J - Held that:- Now this issue stands covered by the judgment of the hon'ble Supreme Court in CIT v. HCL Comnet Systems and Services Ltd. (2008 (9) TMI 18 - SUPREME COURT ) and hold that the provisions for bad debt and leave salary cannot be included in the computation of book profit and the same has to be excluded. - Decided against revenue. Entitlement to exemption under section 10(23G) on net interest income receivable - Held that:- ow the notification under section 10(23G) is available, therefore, the matter is restored back to the file of the Assessing Officer who shall verify the notification and accordingly grant exemption to the assessee if it is entitled for it under the law - Decided in favour of assessee for statistical purposes. 2015 (4) TMI 724 Disallowance of Payment made to Saba & Co. on account of non deduction of Tax at Source towards legal & professional fees - income not chargeable to tax India - Held that:- We have perused the material on record alongwith the order of the tax authorities below. It is a settled law that the provisions of Sec. 195 of the Income Tax Act will apply only if the payment made to the non-resident has an element of income chargeable to tax in India. If there is a conflict between the provisions of the Income Tax Act and the DTAA entered by India with the other country, the provisions of the DTAA, if beneficial to the Assessee, shall prevail. In this case, it is not disputed that the legal consultancy services has been provided by the non-resident to which Article 14 of the DTAA between India and Portugal are applicable. Article 14 clearly lays down that income derived by a person who is an individual or a firm of individuals (other than a company) who is resident of a Contracting State from the performance in other Contracting State of professional services or other independent activities of similar character shall be taxable only in the first mentioned State. It further states that such income may also be taxed in the other Contracting State under the specific circumstances The non-resident to whom the Assessee has made the payment does not have any fixed base regularly available to him for performing his duty. Even he does not have any permanent establishment. That is not the case of the Revenue. Admittedly, in the present case Saba and Co. is not having any fixed base in India and hence, as the condition of Article 14 is not fulfilled and Saba and Co. which is a resident of Morocco cannot be taxed in India in respect of fees paid by the assessee company for initiating and prosecuting the legal proceedings in the Morocco. - Decided in favour of assessee. 2015 (4) TMI 723 Capital gain computation - Assessing Officer was directed by the CIT(A) to compute the capital gains chargeable to tax in the hands of the assessee by taking her share at 60% of the total sale consideration of ₹ 25 lakhs - Held that:- It is no doubt true that other documentary evidence produced by the assessee was sufficient to indicate that the property was encumbered and the assessee could not be said to be the absolute owner of the said property. At the same time, it is also true that the said documentary evidence read with the agreement entered into by the assessee with M/s. Sri Vinayaka Constructions is sufficient to show that the assessee was holding certain rights in the property and the same constituting capital asset were transferred by the assessee by agreement dated 3rd April, 2008 to M/s. Sri Vinayaka Constructions for consideration giving rise to capital gains chargeable to tax in her hands to the extent of 60%, as rightly held by the learned CIT(A). We therefore, find no infirmity in the impugned order of the learned CIT(A) holding the assessee to be the owner of certain rights in the property to the extent of 60% and accordingly directing the Assessing Officer to compute the capital gains arising from transfer of the said rights in the hands of the assessee. Accordingly, the impugned order of the learned CIT(A) on this issue is upheld, and the appeal of the assessee is dismissed. Applicability of the provisions of S.50C - Held that:- It is observed that the market value of the property for stamp duty purpose was determined by the concerned authority at ₹ 3,99,55,000 and accordingly the stamp duty thereon was also duly paid, while registering the relevant agreement. The value adopted for the purpose of payment of stamp duty thus was not disputed by the relevant parties, including the assessee. The learned CIT(A), however, held that the assessee was not the owner of the property and since she had only limited rights over the property, which was also encumbered, the market value of the property as taken for the purpose of payment of stamp duty could not be adopted as the sale consideration by applying the provisions of S.50C. We have already concurred with the learned CIT(A) while deciding the issue involved in the appeal of the assessee that the assessee was not the absolute owner of the property, and what the assessee held was only certain limited rights over the said property. It, therefore, follows that the capital asset held by the assessee itself was neither the land nor the building as envisaged in sub-section (1) of S.50C, and while computing the capital gains arising from transfer of such asset, the value adopted by any authority of State Government for the purpose of payment of stamp duty cannot be taken as full value of consideration by applying the provisions of S.50C, as rightly held by the learned CIT(A). We, therefore, uphold the impugned order of the learned CIT(A) on this issue as well, and dismiss the appeal filed by the Revenue. 2015 (4) TMI 722 Transfer pricing adjustment - Income on account of determination of arm's length price of the international transactions entered by the assessee with its associated enterprises - CIT(A) deleted the addition - working capital adjustment working - Held that:- In-principle, we are in agreement with the stand of the assessee that while carrying out comparability analysis in the TNM Method, appropriate adjustment deserves to be allowed with respect to the working capital differences between the tested party and the potentially comparable concerns. In the present case, the assessee has not incurred any interest expenditure and therefore the stand of the Revenue is that no adjustment is to be allowed with respect to the working capital differences vis-à-vis the comparable concerns. In our considered opinion, the aforesaid objection of the Revenue is not in a correct perspective as it does not take into consideration other factors which have a bearing on the working capital requirements. No doubt, incurrence of interest expenditure for the funds used in business impact the operating margins. So however, the period of credit allowed to the customers also is a factor which would impact the working capital requirements and consequential sale realizations. In the present case, assessee has worked out the working capital difference for the time lag in recovery of the sale proceeds. In assessee’s case the said time lag is quite short inasmuch as it was also pointed out that in some cases assessee has received monies in advance. Nevertheless, assessee has placed a working regarding the difference in time lag in sale recoveries in the case of the assessee and that of the three comparables concerns selected by the TPO. The difference in such time lag is applied to the Prime Lending Rate (PLR) to compute the working capital adjustment. On this basis, an adjustment of 5.90% was determined, which was required to be applied to the operating margins of the three comparable concerns. The CIT(A), in our view, made no mistake in accepting the plea of the assessee for allowing of such working capital adjustment. The said action of the CIT(A), in our view, is liable to be affirmed. As before the CIT(A), assessee pointed out that while it calculated its own PLI i.e. operating cost/operating profit without including any interest expenditure as it was ‘Nil’, but advertently in respect of the comparable concerns, who had incurred interest costs, assessee did not remove such interest costs while working out their PLIs. In this manner, the assessee furnished a revised working of the PLIs of the three comparables concerns selected by the TPO. Accordingly, as against the average margin of 20.91% computed by the TPO, the revised average margin of the three comparable concerns was computed at 23.70%. The CIT(A) accepted the aforesaid position and thereafter he has accepted assessee’s plea for an adjustment of working capital differences between assessee and the three comparable concerns. The CIT(A) held that the denial of working capital adjustment by the TPO was not correct and that though the computation of the working capital adjustment was before him, it was not examined by the TPO. Therefore, for the limited purpose of verification of such working he has remanded the matter back to the file of the Assessing Officer. Thus no addition on account of the arm's length price of the international transaction to be made - Decided in favour of assessee. 2015 (4) TMI 721 Addition to Household expenses - Held that:- Some of the expenses seems to have been estimated on a very higher side. There was no material before the Assessing Officer to assume that the assessee was maintaining a car still expenses on account of petrol and driving have been estimated. Therefore, considering the overall circumstances of the case, we estimate the household expenses at ₹ 10,000 per month which means the assessee would get further benefit of ₹ 24,000. Thus, this ground is partly allowed. - Decided partly in favour of assessee. Unaccounted loans - Held that:- Nowhere it is stated that cash was deposited immediately before giving the loan. Shri Rakesh Kumar was stated to be a small person engaged in collecting pigmy deposits from public for bank schemes. If Shri Rakesh Kumar was having sufficient income then why he would have kept the cash at home and why he would deposit the same only one day before the giving of loan. No doubt Shri Rakesh Kumar has filed return but perusal of the copy of the return filed before us shows that he has gross total income of ₹ 1,95,095 out of which deductions have been claimed at ₹ 74,639 which means this amount has gone towards some savings and the same is not available in liquid cash. Shri Rakesh Kumar himself have been left with only ₹ 1,20,456 which is just sufficient to met household withdrawals. These facts clearly shows creditworthiness of Shri Rakesh Kumar has not been proved. In this case the test of human probability laid down in the case of Sumati Dayal v. CIT [1995 (3) TMI 3 - SUPREME Court] was held to be applicable in the case of cash credits. Therefore, in the case before us clearly the explanation is not satisfactory. It simply seems to be a case where cash was deposited in the account of Shri Rakesh Kumar and loan was shown in his name, therefore, we find nothing wrong with the order of the learned Commissioner of Income-tax in confirming the addition - Decided against assessee. Interest on advances - As submitted by assessee that in fact no loans were given to Shri Karan Bansal and Richa Bansal and the amount was actually a gift and by mistake it was shown as loan and advance - Held that:- Gift deed was filed before the Assessing Officer then the Assessing Officer should have examined whether really gifts have been made then probably no interest was required to be charged. However, there are no findings in the order of the Assessing Officer, therefore, in the interest of justice we set aside the order of the learned Commissioner of Income-tax (Appeals) in this respect and remand the matter back to the file of the Assessing Officer for verification of this issue because copy of the gift deed is not available before us. - Decided in favour of assessee for statistical purposes. 2015 (4) TMI 720 Entitlement to deduction under section 80P(2)(a)(i) - assessee was denied the deduction u/s 80P(2)(a)(i) as the provisions of this section shall not apply in relation to any co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank - Held that:- As decided in CIT v. Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamitha Bagalkot [2015 (1) TMI 821 - KARNATAKA HIGH COURT] that when the status of the assessee is a co-operative society and not a co-operative bank, the order passed by the Assessing Officer extending the benefit of exemption from payment of tax under section 80P(2)(a)(i) of the Act is correct and such an order is not erroneous and therefore, jurisdiction under section 263 of the Act cannot be invoked. Thus hold that the assessee is a co-operative society entitled to claim deduction under section 80P(2)(a)(i) of the Act. - Decided in favour of assessee. 2015 (4) TMI 719 TDS liability from the payments made towards advertisements - CIT(A) confirming the order of the Assessing Officer in demanding tax and interest under section 201(1) and 201(1A) in respect of the payments made to the professionals - Held that:- As decided in Hindustan Coca Cola Beverage P. Ltd. v. CIT [2007 (8) TMI 12 - SUPREME COURT OF INDIA] the circular No. 275/201/95-IT(B) dated January 29, 1997 declares 'no demand visualised under section 201(1) of the Income-tax Act should be enforced after the tax deductor has satisfied the officer-in-charge of TDS, that taxes due have been paid by the deductee-assessee. However, this will not alter the liability to charge interest under section 201(1A) of the Act till the date of payment of taxes by the deductee-assessee or the liability for penalty under section 271C of the Income-tax Act. Hence, we remit the matter to the Assessing Officer to verify as to whether the payee has declared the respective income and paid tax thereon and if so, the assessee shall not be held as "the assessee in default" for the purpose of invoking provisions of sections 201 and 201A. Further, from the details at para 6.3 produced at page 6 of the Commissioner of Income-tax (Appeals) order, we find from the payments made towards advertisement the following do not exceed ₹ 20,000. AO is directed (i) not to apply the provisions of section 194C to the items listed above where payments do not exceed ₹ 20,000 (ii) verify whether tax has been paid by the payee with respect to the remaining payments towards advertisement and thereafter decide the issue in accordance with law. - Decided in favour of assessee for statistical purposes. 2015 (4) TMI 718 Depreciation on goodwill - CIT(A) allowed the claim - Held that:- Tribunal in the case of the assessee in the assessment year 2006-07 confirmed the order of the Commissioner of Income-tax (Appeals) allowing the claim of depreciation on goodwill to the assessee and dismissed the appeal of the Revenue as relying on B. Raveendran Pillai v. CIT [2010 (9) TMI 434 - Kerala High Court] wherein held the assessee was entitled to claim depreciation on the name, trade mark and logo under the specific head provided under section 32(1)(ii) which covered trade mark and franchise. Admittedly the hospital was run in the same building, in the same town, in the same name for several years prior to purchase by the assessee. By transferring the rights to use the name of the hospital itself, the previous owner had transferred the goodwill to the assessee and the benefit derived by the assessee was retention of continued trust of the patients who were patients of the previous owners. When the good will paid was for ensuring retention and continued business in the hospital, it was for acquiring a business and commercial rights and it was comparable with trade mark, franchise, copyright, etc. referred to in the first part of clause (ii) of section 32(1) and so much so, goodwill was covered by the above provision of the Act entitling the assessee for depreciation - decided in favour of assessee. Disallowance of building repair expenses - there was no check to identify whether the expenditure was capital or revenue in nature made a disallowance of ₹ 2,50,000 out of building repairs claimed by the assessee as per AO - CIT(Appeals) allowed the deduction - Held that:- CIT (Appeals) allowed the deduction to the assessee by observing that looking at the nature of expenses and condition of building which was rented one, the expenditure appears to be regularly incurred on monthly basis as per requirement to maintain the building, and therefore, it was revenue in nature. The Departmental representative merely relied on the order of the Assessing Officer. No material could be brought on record to show that any part of the expenditure of ₹ 2,50,000 allowed by the CIT (Appeals) was capital and not revenue expenditure. Hence, we find no infirmity in the order of the CIT(Appeals) - Decided against revenue. Disallowance u/s 14A - CIT(A) deleted the addition - Held that:- Assessing Officer has not shown any nexus between the borrowed funds of the assessee and the investment made by the assessee to establish that the borrowed funds were utilised by the assessee in making the investments. Therefore, we find no error in the order of the Commissioner of Income-tax (Appeals) holding that the assessee had interest-free funds far in excess of the investment made by it as at the year ending on March 31, 2007 and deleting the disallowance of interest expenditure of ₹ 3,15,370. Thus, this ground of appeal of the Revenue is dismissed. - Decided against revenue. 2015 (4) TMI 717 Invoking the provisions of section 153C/153A - Held that:- During the search and seizure operations on one Sh. Vipin Verma, certain incriminating evidence in the form of an agreement were found, which were forwarded to the Assessing Officer of the assessee and on the basis of the same, notice under section 132A was issued and assessment was completed. We find no infirmity in the order of the Assessing Officer in invoking the provisions of section 153C/153A of the Income-tax Act, 1961 - Decided against assessee. Unaccounted cash - addition of ₹ 70 lakhs and enhancement of ₹ 8,60,000 of addition made on the assessee on the basis of one agreement, which is placed at paper books 12 to 15, which was seized from the premises of Sh. Vipin Verma - Held that:- The agreement is unsigned by the party, M/s. Splender Land Base Ltd. cannot be disputed that the assessee is acting as a commission agent, which has been admitted and accepted by the learned Commissioner of Income-tax (Appeals), who has computed the commission income at 2 per cent. of ₹ 4.30 crores received by the assessee on behalf of M/s. Splender Land Base Ltd., as per agreement seized during the search and seizure operations at the premises of Sh.Vipin Verma of Delhi. Out of the same agreement, the assessee had received cash of ₹ 70 lakhs, which the assessee claimed that the same has not been received and M/s. Splender Land Base Ltd. has also stated that the said cash has also not been paid. Therefore, on the basis of assumption and presumption, the learned Commissioner of Income-tax (Appeals) cannot come to the conclusion that the said cash has actually been received by the assessee. If the said cash has been received by the assessee then the said cash has been received for and on behalf of M/s. Splender Land Base Ltd. and the same has been paid to the farmers and such receipt can be treated as capital receipt and only a commission income at 2 percent can be added as income in the hands of the assessee, though the said amount of ₹ 70 lakhs have been added in the income of M/s. Splender Landbase Ltd. Therefore, there cannot be double taxation in the hands of the assessee unless proper agreement has been executed. The half-baked agreement cannot be a basis for addition of income. Commissioner of Income-tax (Appeals) is not justified in confirming the addition of ₹ 70 lakhs and enhancing the commission at ₹ 8,60,000. - Decided in favour of assessee. 2015 (4) TMI 716 Validity of draft assessment order passed u/s 143(3) r.w.s. 144C - contention of the assessee that since there is no transfer pricing adjustment proposed by the Transfer Pricing Officer in his order, the Assessing Officer cannot pass draft assessment order u/s 143(3) r.w.s. 144C - Held that:- This issue is covered against the assessee by the decision of Visual Graphics Computing Services (India) P. Ltd. v. Asst. CIT [2012 (5) TMI 147 - ITAT CHENNAI]. Respectfully following the above order we dismiss grounds of the assessee challenging the validity of draft assessment order under section 143(3) read with section 144C of the Act. - Decided against assessee. Adjusting/restricting the claim of deduction u/s 10B on the basis of the arm's length price determined by the TPO - Held that:- Ongoing through the order of the co-ordinate Bench of this Tribunal in the case of Visual Graphics Computing Services (India) P. Ltd. v. Asst. CIT [supra] we find that the issue is squarely covered in favour of the assessee. The coordinate Bench of this Tribunal held that it is not permissible for the Assessing Officer to work out deduction under section 10A on the basis of arm's length price profit generated out of the order of the Transfer Pricing Officer. - Decided in favour of the assessee Foreign exchange gain - whether it should be taken as part of export turnover or not? - Held that:- As decided in the case of CIT v. Pentasoft Technologies Ltd. [2010 (7) TMI 75 - MADRAS HIGH COURT] gains due to fluctuation in the foreign exchange is directly related to export sales of the assessee and therefore, it cannot be treated as other than part of profit from export. Similar view has been expressed by the hon'ble Bombay High Court in the case of CIT v. Gem Plus Jewellery India P. Ltd. [2010 (6) TMI 65 - BOMBAY HIGH COURT]. Here in the case of the assessee the gain in foreign exchange is also in connection with the export sales, respectfully following the above decision of the hon'ble jurisdictional High Court, we hold that the foreign exchange gain has to be considered as part of the export turnover for the purpose of computing deduction under section 10B of the Act and at the same time following the same analogy, foreign exchange loss cannot be considered as part of the export turnover for the purpose of section 10B of the Act. - Decided in favour of assessee. Foreign exchange loss having excluded from export turnover it has to be excluded from the total turnover also - Held that:- As applying the Special Bench decision of this Tribunal in the case of Sak Soft Ltd. [2009 (3) TMI 243 - ITAT MADRAS-D] we are of the view that the ratio of the Special Bench decision has no application in respect of losses arising due to foreign exchange. The ratio of the said decision can be applied only in case where certain expenditures are incurred in foreign currency/Indian rupee and not for losses due to exchange fluctuation.- Decided against assessee Exclusion of unrealised export proceeds from the export turnover - Held that:- Counsel for the assessee submits that the Assessing Officer excluded this amount from the export turnover ignoring the fact that the assessee has already excluded such unrealised export proceeds from the export turnover while computing deduction allowable under section 10B of the Act. We restore this issue back to the file of the Assessing Officer to examine whether the assessee has reduced such unrealised export proceeds of ₹ 17,21,397 from the export turnover or not as the contention of the assessee was that the same were already excluded by the assessee himself. - Decided in favour of assessee for statistical purposes. Non-consideration of correct quantum of "profits and gains of business" for the purpose of computing deduction under section 10B - Held that:- On reading of the provisions of section 10B of the Act, prima facie, we feel that the deduction is allowable on the "profits and gains of the undertaking" and not on the profits as per the profit and loss account, as rightly contended by counsel for the assessee. Therefore, we remit this issue back to the file of the Assessing Officer to examine this issue and decide in accordance with law - Decided in favour of assessee for statistical purposes. 2015 (4) TMI 715 Disallowance under section 40(a)(ia) - Short deduction of TDS - CIT(A) has deleted the additions made by the Assessing Officer by admitting fresh evidence namely the revised TDS return wherein the figures have been reconciled with the expenditure debited in the profit and loss account - Held that:- instant case the Commissioner of Income-tax (Appeals) has deleted the additions made by the Assessing Officer by admitting fresh evidence namely the revised TDS return wherein the figures have been reconciled with the expenditure debited in the profit and loss account. - Decided in favour of revenue for statistical purposes. Disallowance of Building grants given to Milk Producer's Society - CIT(A) allowed the claim - Held that:- The grant of ₹ 10,000 to each of the 50 milk producing co-operative societies was given by the assessee-society for the purpose of constructing their own building for milk collection and testing. The payment was permitted as per the byelaws of the society and was approved by the board of directors and ratified by the Joint Registrar of the Co-operative Societies, Government of Karnataka. The expenditure incurred did not bring into existence any capital asset to the assessee. We find that the said grant has been given by the assessee to milk producers' co-operative societies in order to put up a building to facilitate the collection of milk and testing it. The milk so collected is handed over to the assessee-society. In this context it helps the assessee to carry out its business objects more effectively and hence the Commissioner of Income-tax (Appeals) has rightly held that the expenditure of ₹ 5 lakhs is deductible as revenue expenditure. Therefore, we uphold the Commissioner of Income-tax (Appeals) order. - Decided against revenue. 2015 (4) TMI 714 Exemption granted to the society under section 80G(5) withdrawn - Held that:- Assessee was registered as charitable institution under section 12A and the said registration is being continued to be granted to the assessee-society even for the year under consideration. The primary aim of the assessee society was to train men and women as health professionals in the spirit of Jesus Christ and the said facility of training health professionals and medical care was to be provided without consideration of caste, race, creed, language and religion. Though in the primary paragraph of the objects of the assessee-society, it is mentioned that the primary aim was to educate and train christians men and women as health professionals but in actual fact, the assessee-society has been running and maintaining the Christian Medical College, Christian Dental College, Christian College of Nursing and other institutions, though on the ideals and principles in the spirit of christian services, but for training the professionals of any caste, creed, race, religion, etc. Similarly, the medical care is being provided by the assessee-society to all irrespective of their caste, creed or religion, etc. Assessee was directed to furnish the information in respect of the concessions being allowed to the patients by the assessee-society and necessary evidence has been filed on record in this regard which clearly establish the case of the assessee that the said facilities of providing concessional medical and health care is provided to persons of any caste, creed or religion. The assessee-society was established and run by a minority christian community, but as the aim and object of the assessee-society is to train professionals in the field of medical and health-care and also to provide medical facilities in their hospitals to all persons of any caste, creed, race, religion, etc., we are of the view that the activities carried out by the assessee-society are charitable in nature and consequently, the assessee is entitled to the registration under section 80G(5) of the Act. We find no merit in the order of the Commissioner of Income-tax in this regard and reversing the same, we hold that the renewal of registration under section 80G(5) is to be granted to the assessee-society.- Decided in favour of assessee. 2015 (4) TMI 713 Marketing and management services - CIT(A) directed to be taxed it as business profits instead of fees for technical services held by the Assessing Officer - whether did not satisfy the 'make available' criteria when the nature of services showed otherwise? - assessee is having service permanent establishment (PE) in India under article 5(2)(k) of the India-US treaty - Held that:- Assessing Officer has treated the entire amount as fees for included services and thus computed the total income by ignoring the income offered by the assessee. As such the business income shown by the assessee as per article 7 shall revive and become taxable. The Assessing Officer is directed to include such amount in the total income of the assessee. In so far as the remaining receipts being the consideration for the provision of marketing and management services outside India is concerned, the same cannot be subjected to tax in India because such income cannot be said to have accrued or arisen to the assessee or deemed to have been accrued or arisen to the assessee in India. Even the existence of the service per manent establishment in India will not make it taxable because of no involvement of such permanent establishment in earning this income for which the services were rendered outside India. - Decided in favour of assessee. Force of attraction rule - Held that:- There is no dispute that out of total marketing and management fee of ₹ 8,15,11,339 received from WNS India only a sum of ₹ 6,52,13,074 has been attributed to such permanent establishment because the services were rendered in India. The remaining amount of marketing and management fee received by the assessee is regarding the services rendered outside India. The learned Departmental representative has contended that since the services which were rendered in India and outside India are same or similar in nature and as per the composite agreement therefore, the entire service is attributable to the service permanent establishment in India by applying the force of attraction rule. We do not find merit in the contention of the learned Departmental representative because the force of attraction rule germane under article 7(1) of the Indo-US Double Taxation Avoidance Agreement which reads as that only in case when enterprise of Contracting State carries on business in the other Contracting State through its permanent establishment as well as otherwise and both the activities are of same or similar kind then the business activities carried on not through permanent establishment shall also be treated as attributable to the permanent establishment and the profit of the enterprise may be taxed in the other State so much of them as it is attributable to permanent establishment. There is no scope of any ambiguity as the article 7(1) gives a clear understanding that the force of attraction rule applied only in respect of the business carried on by an enterprise of Contracting State in the other Contracting State through permanent establishment as well as without involvement of permanent establishment. Therefore, the two essential conditions emerge for applying the force of attraction rule are (i) the business activity carried on should be in the other State where the permanent establishment is situated (ii) the business activity carried on must be of the same or similar kind as those effected through permanent establishment. In the case in hand the condition of business activity carried on in the other State where the permanent establishment is situated is not satisfied because the marketing and management services in question are provided by the assessee outside India. Since the said issue of providing the services outside India has been decided time and again by this Tribunal as well as by the hon'ble High Court in the assessee's own case therefore in view of the finding on the ground Nos. 1 to 3 there is no need for further deliberation/discussion on the same. Having held that the marketing and management services in question were rendered outside India and income of such services cannot be said to have accrued or arisen to the assessee or deemed to have accrued or arisen to assessee in India, the existence of service permanent establishment in India would not make it taxable under article 7 of the Indo-US Double Taxation Avoidance Agreement. - Decided against revenue. 2015 (4) TMI 712 Estimation of net profit - Held that:- It is an undisputed fact that the books of account were not produced by the assessee before the Assessing Officer and the purchase and sales figures were claimed to have been based on the returns filed under VAT but the copies of the same were not submitted before the AO or CIT(Appeals) though the Assessing Officer had asked the assessee to produce the same. It is also a fact that though the assessee has added new business assets, but his turnover is reported to have fallen as compared to the immediately preceding year. It is also a fact that the sales made by the assessee includes sales in cash. In view of these facts the Assessing Officer had estimated the sales at ₹ 65 lakhs and the net profit at 5 per cent. on the sales estimated which was reduced to 4 per cent. by the Commissioner of Income-tax (Appeals). Considering the totality of the facts and finding of the Commissioner of Income-tax (Appeals). we are of the view that in the present case, the fair estimate of profit has to be made in the peculiar facts of the case. We are of the view that in the absence of books of account and other supporting evidence as against the net profit of 3.06 per cent. shown by the assessee the profit at 3.5 per cent. of the total estimated turnover would meet the ends of justice. - Decided partly in favour of assessee. Unaccounted sales - unexplained cash deposits in HDFC Bank - Held that:- It is an undisputed fact that the assessee had not disclosed the bank account in the return of income, however he has stated that the credit in the bank account represents the cash sales. The assessee also stated that the bank account was used for making payments of purchases and as a specimen he has placed on record the copy of confirmation of Poonam Proteins evidencing the payments made for purchases from the aforesaid bank account. The aforesaid confirmation of Poonam Proteins shows that the assessee has made payments from HDFC Bank on various occasions. This factual aspect could not be controverted by the Revenue by bringing any contrary material on record. As far as considering the aggregate credits of ₹ 22,12,915 as sales as submitted by the assessee is concerned, we are of the view that the entire sales cannot be considered as income but only the profit embedded in it can be considered as income of the assessee. Further, while deciding ground No. 2 hereinabove we have estimated the net profit at 3.5 per cent. of the sales, we feel that ends of justice will be met by applying the same rate of 3.5 per cent. in the present case. We therefore direct that 3.5 per cent. of ₹ 22,12,915 be considered as income of the assessee - Decided partly in favour of assessee. Penalty us 271(1)(c) - addition being made by estimating profit on estimated sales and for unexplained cash deposits in HDFC Bank account - Held that:- It is an undisputed fact that the deposits in HDFC account was not considered as income by the assessee while computing the return of income. While deciding the quantum appeal on the aforesaid additionwe have directed the entire credits in the bank account cannot be considered as income but only 3.5 per cent. of the sale is to be estimated as income. Similarly against the estimation of 5 per cent. of the estimated sales of ₹ 65 lakhs made by Assessing Officer we have directed the addition to be estimated at 3.5 per cent. of the estimated sales. Since the quantum of addition on which the penalty has been levied under section 271(1)(c) itself has been reduced by our order hereinabove, we are of the view that the present penalty does not survive and hence direct its deletion. - Decided in favour of assessee. 2015 (4) TMI 711 Short deduction of TDS - CIT (Appeals) in confirming applicability of section 194J to management fees, section 194-I to rentals and section 194C to handling charges - whether payment made to M/s. Tolaram & Sons towards rentals, management fees and handling charges was by virtue of a common contract of providing for indivisible services to the appellant? - Held that:- If the payments are made for composite services as is the case in M/s. Ketki Enterprises, our decision would have been different. In this case, the payment made is described as "rentals" paid for premises owned by the assessee and specifications are earmarked. In these facts, the arrangement including the agency services agreement, in our opinion, will fall under the definition of "rent" providing in section 194C of the Act. Therefore, the decisions relied upon by learned counsel in the case of National Panasonic India P. Ltd. v. Deputy CIT [2005 (2) TMI 458 - ITAT DELHI-E ] is distinguishable on facts. Accordingly, we confirm the order of the Commissioner of Income-tax (Appeals) on this issue. Regarding the management fee payment the assessee heavily relied on the decision of the Income-tax Appellate Tribunal in the case of Glaxo Smithkline Consumer Healthcare Ltd. v. ITO [2006 (10) TMI 259 - ITAT DELHI]. In this regard, we have examined clause 5 of the agreement and the services rendered by the payee which are narrated in sub-clauses from "(a) to (w)" of clause 5 of the agreement and noticed that none of the services constitutes any professional or technical services as mentioned in section 194J of the Act. In fact, the order of the Commissioner of Income- tax (Appeals) is not clear as to whether these payments are considered by the Revenue as either for professional services or for technical service. They do not have clarity. The Commissioner of Income-tax (Appeals) summarily confirmed the applicability of the provisions of section 194J to these payments and approach of the Revenue is not appreciated. Therefore, in our opinion, the order of the Commissioner of Income-tax (Appeals) should be set aside on this issue and claim of the assessee should be allowed. - Decided partly in favour of assessee. There is a reference to "handling charges" in the grounds. The same were claimed by the assessee and treated by the Revenue in accordance with section 194C of the Act. Therefore, there is nothing for us to decide. Accordingly, ground Nos. 2 and 3 are dismissed. 2015 (4) TMI 710 Accrual of income - reduction in taxable income - evasion of tax - Shown lesser amount in agreement - Unilateral Modification in Master License Agreement and the Franchise agreement - Held that:- All these agreements read with correspondence clearly show that assessee was entitled to USD 22,500 and not USD 45,000 during FY 2002- 03. Ld. Standing Counsel has submitted that there could not be any unilateral amendment to the Franchisee agreement. However, contents of letter dated 8-12-2002, reproduced above, clearly show that the amendment was effective after discussions with reference to license and location fees. A memorandum was accordingly entered into. There was no novation of contract and it was only a change in the payment of fee to assessee. At the outset we may clarify that we are deciding the issue to the extent of entitlement of Franchisee fee as per the Master License Agreement read with JV agreement and Franchisee agreement and the communication relied upon by assessee. We may clarify that we are not giving any finding on the issue relating to assessee's alternate claim on the ground that in any case, no income was assessable in the hands of assessee as the assessee was required to make the payment to McDonald Corporation because this has trapping on TP issues, particularly because there was no permission for remitting the amount prior to 3-2-2004 in respect of new restaurant opened as per letter dated 3-2-2004 of the Under Secretary, Ministry of Finance, available at page 217 of the PB. Ld. Standing Counsel has referred to covenant 26 of the Master License Agreement as well as Franchisee agreement to submit that the modification of the agreement could be only as agreed upon. In this regard we find that the term "duly executed" in case of Franchisee implies that the same is executed by an officer of Franchiser or its Franchiser director and in case of Franchisee executed by the Franchisee. The communication contained at page 68, in our opinion, confirmed to both the conditions because the same has been addressed to Franchisee by Franchiser. We, accordingly, do not find any reason to interfere with the order of ld. CIT(A) to the extent that since no real income accrued to assessee, no addition was called for. - Decided against the revenue. 2015 (4) TMI 709 Ad-hoc addition on account of advance billing / deferred revenue - Tribunal deleted such additions in earlier years - Foreign exchange loss recongnised on capitalised assets i.e. computer software - Held that:- There is nothing like device to defer payment of taxes due but as per the recognized method of accounting of matching revenue with cost, the income accrues only in the subsequent year when such services are provided. This is in form of a provision for warranty claims which is also recognized by Hon’ble Delhi High Court in the case of Vintex Corporation P. Ltd. [2005 (5) TMI 54 - DELHI High Court], wherein it was held that provision for warranties embedded in the sale price is an ascertained liability and to that extent, revenue need not be recognized.We find no good reason to deviate from the view taken as facts remain the same. Accordingly following the precedent, we hold that the amount treated as deferred revenue is not to be brought to tax in the year under consideration and is to be taxed in the year when such services are rendered or recognised as income by the assessee. Foreign Exchange loss - Held that:- since the amount payable is in foreign currency and not in India rupees, therefore, loss occasioned due to upward revision in the rate of exchange was to be borne by the assessee was allowable. On the reading of the agreement, we find that it is rightly interpreted by the Tribunal and, therefore, no questions of law arises. - Decided in favour of assessee. 2015 (4) TMI 708 Verification of expenditure - Parties not available for verification does not means purchases are bogus - AO failed to prove non genuineness of purchases - Held that:- The DR merely relied on the order of the Assessing Officer. He could not point out any specific mistake in the above quoted order of the Commissioner of Income-tax (Appeals). In absence of the same, we do not find any good and justifiable reason to interfere with the order of the Commissioner of Income-tax (Appeals) which is confirmed and this ground of appeal of the Revenue is dismissed.In the result, the appeal of the Revenue is dismissed.” Nothing contrary was brought to our knowledge on behalf of Revenue. Facts being similar so following same reasoning, we are not inclined to interfere in the finding of CIT(A) who has rightly granted relief to the assessee whereby deleting addition of ₹ 95,01,945/- on account of expenses for purchase of grey clothes. - Decided against the revenue. Customs 2015 (4) TMI 731 Demages for prolonged detention of goods - Delay in testing of goods - Import of hazardous goods - permission was given by the Indian authorities to the petitioner to re-export the goods - Damages in form of rent and de murrage charges - Held that:- Petitioner did not respond to the letter of the customs to store the goods under Section 49 of the customs Act, 1962. Petitioner did not even deposit the charges of the National Test House which could have tested the goods in Kolkata. Having not received the fees for testing such goods in this laboratory, they had to be sent to New Delhi to be tested by the Central Revenue Control Laboratory. He did not offer the services of another testing centre to test the goods so as to rule out that the goods were hazardous. - When the writ petitioner found that the imported goods were not being cleared for home consumption by the Indian authorities, he should have immediately taken steps to re-export the same under Rule 17(2) of the Hazardous Waste (Management, Handling and Transboundary Movement) Rules, 2008. He took no decision to this effect before the hearing of the first writ before Mr. Justice Tandon. - Here the findings can only be prima facie. In this mesh of facts the court cannot and should not come to any final finding regarding fault or the nature of the goods. So, on appraisal of the facts, prima facie the writ petitioner is not entitled to any remedy. - Decided against assessee. 2015 (4) TMI 730 Demand of interest - respondents admitted duty liability and contested only the interest - violation of conditions of DEEC Advance Licences - import of Polyurethane Spandex Yarn/Lykra - Notification No.204/92-Cus. dt. 19.5.92 - Held that:- Apex court in the order [2008 (3) TMI 8 - SUPREME COURT] has referred and considered the decision of Hon. Bombay High Court of Pratibha Syntex case; By virtue of above High Court and Supreme Court orders, the demand of interest for non-fulfilment of condition under Notfn. No.204/92 has attained finality. The respondents and LAA placing reliance of Tribunal decision in the case of FEMCO Filters (P) Ltd. Vs CC Bangalore (2006 (5) TMI 317 - CESTAT, BANGALORE) and the other decisions as referred in OIA have no relevance as these decisions are rendered prior to the Hon'ble High Court and Apex Court's order. By respectfully following the orders of Hon'ble High Court & Apex Court, the interest @ 15% demanded in the original adjudication order is restored and the impugned order to the extent of giving relief on interest is set aside. - Following decision of Pratibha Syntext Ltd. Vs UOI [2003 (7) TMI 78 - HIGH COURT OF JUDICATURE AT BOMBAY] - Decided in favour of Revenue. 2015 (4) TMI 729 Denial of refund claim - whether unjust enrichment is applicable or otherwise - finalization of provisional assessment. - Held that:- The appellant seeking refund of Revenue deposit paid during provisional assessment. On finalization of bill of entry there is no variations in the custom duty which was assessed provisionally and therefore the amount of 1% Revenue deposit become refundable. On the issue whether this refund has to pass through the test of unjust enrichment, I agree with Ld. A.R., that this particular refund arises out of the final assessment of the bill of entry and correctly governed by Section 18 of Customs Act, 1962. Prior to 2006 there was no explicit provision of unjust enrichment in respect of refund payable on the final assessment under Section 18 of Customs Act, 1962, however, w.e.f. 13/7/2006 subsection 5 was inserted under Section 18 - refund of 1% revenue deposit undoubtedly payable under Section 18. Therefore any refund which is arising out of final assessment of bill of entry, either of revenue deposit or excess payment of duty, the bar of unjust enrichment is applicable. Bar of unjust enrichment is applicable to the refund of revenue deposit also by virtue of subsection 5 of Section 18 of the Customs Act, 1962 after 12/7/2006 - unjust enrichment is applicable in the present case. However, on going through a copy of balance sheet, it appears that an amount of ₹ 13,42,143/- is shown under head of 'loan and advances'. This needs to be verified with other account ledgers, etc. for the period from date of deposit till disposal of refund. Therefore, I remand the matter to original adjudicating authority to decide the refund claim a fresh after ascertaining the factual position that the incidence of amount of refund has not been passed on to any other person - Decided in favour of assessee. Corporate Laws 2015 (4) TMI 728 Default in repayment of outstanding amount - Winding up petition - authenticity of the e-mails - Held that:- The contemporaneous correspondence annexed to the affidavit-in-opposition are in dispute. Such dispute could not be effectively dealt with by the company in their subsequent pleadings. The learned advocate while giving reply to the statutory notice of admission did not make a mention of the e-mails. Even if we accept the authenticity of the e-mails, it would not specifically raise any constructive defence that could resist successfully a winding up petition. Even if we give some credence to the same, we cannot lose sight of the unequivocal admission in the affidavit-in-opposition coupled with the Statement of Account referred to above. It is true, the company secured the claim that they did to have an effective hearing of the appeal. If we look to Section 434 of the said Act of 1996, we would find, the Company could resist the winding up petition offering security at the stage of giving reply to the statutory notice of demand, instead they denied the claim. They could also offer security on the first returnable date. They did not opt. After completion of the pleading, in course of hearing when they could not successfully resist the winding up petition, offering security would rather strengthen the presumption that they were neglecting to pay the debt. A company might be in a precarious condition to pay off its creditor’s dues, that would be a “failure”. A high mighty, if willfully neglects to pay an admitted debt, that would certainly come within the mischief of “neglected” within the meaning of Section 434 (1)(a). Hence, we do not give much importance on such issue. - Decided against the appellant. Service Tax 2015 (4) TMI 746 Denial of refund claim - Refund of unutilized CENVAT Credit - nexus with the output services which have been exported - input services of landscaping in their offices - erection of IT cables - setting up of modernization and renovation of premises - Held that:- These services are having nexus to the output services provided to them - as per CBEC circular dated 19.01.2010 appellant are entitled for refund claim which was remained unutilized in their Cenvat Credit account due to export of services - Decision in the case of Tribunal in the case of KPMG Vs. C.C.E. New Delhi [2013 (4) TMI 493 - CESTAT NEW DELHI] and Millipore India Pvt. Ltd (2011 (4) TMI 1122 - KARNATAKA HIGH COURT) followed - Decided in favour of assessee. 2015 (4) TMI 745 Refund claim - service tax paid under protest under bonafide belief that service tax is chargeable - concept of mutuality - Co-operative Society - collecting amounts from their members towards maintenance charges, parking charges, NOC Charges, antenna charges, water charges and electricity charges, etc - First appellate authority has decided in favor of assessee - Revenue in appeal before the Apex Court against the decision of Hon'ble High Court of Jharkhand in the case of Ranchi Club Ltd. (2012 (6) TMI 636 - Jharkhand High Court). Held that:- the appellate authority's order is correct for more than one reasons. Firstly, we find that the first appellate authority has correctly followed the law has been laid down by the Hon'ble High Court of Jharkhand in the case of Ranchi Club Ltd. - secondly the findings recorded by the first appellate authority that there is no mutuality of interest in this case is correct as the respondent is a Co-operative society and the provisions of Maharashtra Co-Operative Act will apply. - Thirdly, we find that the amount which have been collected by the respondent from their members is undisputedly utilised for maintenance and upkeep of the society; property for which all members are charged depending upon the space occupied by the member of the society. - first appellate authority is correct in coming to the conclusion the orders in original need to be set aside and the respondent is eligible for refund of the amounts paid by them "under protest" - Decided against Revenue. 2015 (4) TMI 744 Discharge of service tax liability by other branch office - whether the service tax payment made by the appellant's Mumbai unit could be considered as due discharge of service tax by the appellant - Penalty u/s 76 & 78 - Held that:- Some excess payment of service tax has been paid by the appellant's Mumbai unit but whether that excess payment was with respect to the appellant's unit at Silvassa is not clear. Appellant has approached their Mumbai Bank branch in September 2014 to either provide a certificate or give them the copies of TR-6/GAR -7 challans/Bank Certificates that during the period 1998-99 to 2004-05 entire service tax also was paid at Mumbai for the Silvassa unit. A copy of one such challan No. 05/2000-2001 has been furnished by the appellant which gives the assessee code number and address of appellants Mumbai office. There is no indication on the challan that this amount is paid with respect to appellant's Silvassa unit. In the absence of any such co-relation, it can not be said that appellant has discharged the service tax liability of Silvassa unit at their Mumbai unit/office. Adjudicating authority has correctly confirmed the service tax liability along with interest. So far as imposition of penalties under section 76 and 78 of the Finance Act, 1994 are concerned, appellant has claimed the benefit of Section 80 of the Finance Act, 1994 to argue that they were under the reasonable belief that service tax with respect to Silvassa unit has been properly discharged. - appellant had paid some excess amounts with respect to their Silvassa unit. Appellant thus has a reasonable cause to hold that service tax liability of Silvassa unit was discharged in Mumbai. However, due to lack of co-relating documents, it is not possible to establish that the entire service tax liability of Silvassa unit has been discharged. In view of the above, this case is fit for invocation of Section 80 to hold that penalties are not imposable upon the appellant under Section 76 and 78 of the Finance Act, 1994, even if extended period is applicable in these proceedings. - Decided partly in favour of assessee. Central Excise 2015 (4) TMI 739 Duty liability in respect of pan masala retail pouches - pouch packing machine - whether the machine is to be treated as two track machine and hence it is to be treated as two machines or it is to be treated as single track machine - Held that:- In a multi track machine, there are more than one parallel path traced by the pouches as they are formed and later filled and all the pouches in the same track follow the same path. The multiple track/multiple line machines operate with multiple rolls of laminate and the purpose of operating a multi line/multi track machine is to consolidate space and economise on electronic processors and machine operators. - The only innovation in this machine that on the same line or track at a time, two pouches are cut and filled as a result of which two pouches are formed, filled and sealed resulting in much higher speed of production of pouches. This is clear from the report dated 15/10/10 of IIT Professor Shri S. Sanghi of Applied Mechanical Department and Professor Shri S. Mukherjee of Mechanical Engineering Department of IIT, Delhi. This report also clearly classifies the machine, in question, as a single track duplex machine. In our view there is absolutely no basis for the Commissioner s finding that it is a multiple track machine. Just because the speed of this machine is much higher than the normal machines, it cannot be treated as a multiple track machine. The difference between the simplex and the duplex machine is in the speed multiple track or and in terms of the Board s Circular No. 980/4/14-CX dated 24/1/14 in case of a manufacturer operating machine at a higher speed as a result of which the actual production is more than the deemed production, as mentioned in Rule 5 of the PMPM Rules, no differential duty is to be demanded. When the PMPM Rules do not distinguish between the simplex FFS machine and the duplex FFS machines, though there is considerable difference between their speeds, and there is no provision that duplex is to be treated as two machines, Rule 5 of PMPM Rules and the Notification No. 42/08-CE cannot be interpreted to treat such a machine as two machines. - It is only in the year 2015 that by Notification No. 5/2015-CE (NT) dated 01/3/15, Rule 4 of PMPM Rules was amended to provide that maximum packing speed at which such packing machines can be operated for packing of notified goods of various RSPs would also be a relevant factor in addition to number of packing machines in a factory and Rule 5 of PMPM Rules was amended to specify deemed production of pouches per machine per month for different RSP slabs and different maximum operating speeds and Notification No. 42/08-CE was amended to provide different rate of duty per machine per month for different RSP slabs and different maximum operating speeds of the machines. But these provisions cannot be given retrospective effect, as these are not retrospective amendments - impugned order is not sustainable. The same is set aside. - Decided in favour of assessee. 2015 (4) TMI 738 CENVAT Credit - Shortage of goods found - Documents seized from assessee's premises - Held that:- Under section 36 A of the Central Excise Act, 1944 where any document is produced by any person or has been seized from the custody or control of any person, under this act or under any other law and such document is tendered by the prosecution in evidence against him or against him and any other person who is jointly prosecuted with him, the court shall, unless the contrary is proved by such person, presume the truth of the contents of such documents and admit the document in evidence. In our view, the provisions of section 36A would be applicable in respect of 40 sheets recovered from the factory since, these sheets have admittedly been prepared by Sh. Sunil Mishra and Gopal Gupta, the person working in production department of the appellant company and this fact has been accepted by them. Therefore, if the appellant pleads that the entries in these production sheets do not pertain to the production of the factory on the respective dates, the burden of proving this would be on them for which no evidence has been produced. Though, the appellant plead that Sh. AK Maheshwari had certain grievances against the appellant company and the production sheets had been prepared on his instruction, this plea would not be valid in respect of the production sheets pertaining to June 2003, when Sh. AK Maheshwari was not working with the appellant company. It is only the production recorded in the 40 sheets recovered from the factory premises of the appellant company which can be taken into account for determining the actual production of the appellant company on the respective dates. Accordingly, the duty demand has to be re-quantified based on the 40 production sheets recovered from the appellant company. - since in a number of such sheets there is overlapping of the timings of the shifts, the benefit in this regard has to be given to the appellant - Impugned order is set aside - Matter remanded back - Decided in favour of assessee. 2015 (4) TMI 737 Manufacturer - Excisability - Demand - Clandestine removal - Shortages - Job work charges - Seizure of goods - Held that:- Revenue is correct to say that shortage of 4116 locks established in the reported decision aforesaid. Appellant did not place any material to suggest that the determination of cum-duty value of such locks was erroneous. When no cost sheet was placed by appellant to show the material component in each lock, labour and overhead charges incurred as well as financial expenses made, it is difficult to discard the finding on valuation made by learned Adjudicating authority. Therefore duty demand of ₹ 28,954/- on such count is confirmed. Appellant failed to provide reconciliation statement of the goods of the description found short during investigation. Once Panchnama was drawn in the presence of the witnesses, inventory found during investigation and recorded therein remain unquestionable in absence of any cogent and credible evidence to find fault in recording thereof. Plea of eye estimation fails to stand. Appellant did not provide any material to establish impossibility of manufacture of 1,49,524 locks. In absence of any technical or scientific data, it is not possible to discard the conclusion of arise of 1,49,524 locks out of shortage of goods found by investigation. - following the decision of the High Court of Madras in the case of Alagappa Cements Pvt. Ltd. Vs. CEGAT, Chennai reported in [2010 (10) TMI 131 - MADRAS HIGH COURT]. When there was seizure of the locks of different description from the premises of M/s. R.P. Locks, appellant did not disclaim clearance thereof from its factory. The specification of locks seized proved that those were the manufactured goods of the appellant. When the appellant failed to produce evidence of lawful clearance of the specified description of the goods and duty payment evidence, the only inference that can be drawn is that premise of M/s. R.P. Locks was berthing place for clandestinely removed goods of the appellant. Accordingly, the demand of ₹ 1,87,015 also sustains. Revenue brought out its case clearly with evidence recorded. No doubt, there may be certain amount of arbitrariness in best judgment assessment. But the estimation itself when sustained in the first round of litigation and shortage of stock was found by Tribunal, appellant s questionable conduct came to record. The appellant therefore miserably fails to get any benefit in respect of penalty. Accordingly, even on account of penalty, the appellant fails to succeed. So far as penalty of ₹ 2,50,000/- imposed on Shri Ravi Jain is concerned, the Adjudicating Authority has not found his active involvement in the clandestine removal. It was only a presumption by Adjudicating Authority as to his no accounting made as abettor. In absence of any cogent and credible evidence of his conscious involvement and nexus, the penalty levied on him is waived. His appeal is accordingly allowed. - Decided partly in favour of assessee. 2015 (4) TMI 736 Clandestine removal of goods - Duty evasion - Goods removed by the appellant-Company without issue of invoice and without payment of duty - Suppression of production - Imposition of penalty on director of company - Held that:- Recovery of the loose sheets and pencil written ledger from the premises of the appellant in the course of search proved the entries therein as representative of the clandestinely removed goods which were well within the knowledge of the appellant. Active involvement of appellant in that regard came to record since those materials were in the custody of the appellant. It is common sense that the materials having utility to the possessor thereof are only possessed by him. He proves ownership thereof and is answerable to the contents therein. Entries on such incriminating materials demonstrated clandestine clearance of 562.130 MT of Sponge Iron and 887.560 MT of such goods respectively well explained by appellant. That also proved clandestine removal of 81.010 MT of Dolochar by the appellant. The statement recorded from shift supervisors being self speaking cannot be brushed aside because they were the persons within whose knowledge goods were manufactured and cleared. Their evidence was believable, cogent and credible for the reason that they vividly described methodology of production. - Preponderance of probability was against the appellant. Pleading of no statement recorded from buyer, no excess electricity consumption found, no raw material purchase found unaccounted and no input output ratio prescribed by law is of no use to it. Revenue discharged its onus of proof bringing out the allegation in the show-cause notice succinctly. But, the appellant miserably failed to discharge its burden of proof. It did not come out with clean hands.- It is not only one evidence, but multiple echoed evidence demonstrated oblique motive of the appellant and proved its malafide. Therefore, appellant fails on all counts. Revenue s investigating was successful and its suffering was established. Without human intervention evasion does not occur by an artificial person which is a company - Thus burden of Revenue was considerably lightened by preponderance of probability. Sri Sanjay Agarwal, Director, showed his knowledge about possession of various incriminating evidence by the company. That demonstrated the methodology of evasion - However, penalty on director is reduced - Decided against the assessees. 2015 (4) TMI 735 Area based exemption - Notification No. 50/2003-CE - whether the appellant have expanded their installed capacity by more than 25% - Interest u/s 11AB - imposition of penalty under Rule 25 - Held that:- If the claim of the appellant is correct, they would be eligible for the exemption notification. The appellant in support of this claim rely upon the certificate dated 25 September 2003 given by M/s B.K. Arora and Associates. The Department, however, relies upon the report of Professor Arun Kumar of the Department of Electronics and Computer Engineering in IIT, Roorkee. While the certificate of M/s B.K. Arora and Associates certifies that the appellant have expanded their installed capacity from 2 million CRTs per annum to 3 million CRTs per annum and this has been achieved by installing additional equipment as per the details given and by modification of certain existing machinery, Professor Arun Kumar in his report has doubted the correctness of the certificate of the Chartered Engineer and has also observed that he could not find any facility for fabrication of the machinery which are claimed to have been fabricated by the appellant in their factory. The Commissioner has chosen to rely upon the opinion of Professor Arun Kumar on the ground that he is an independent authority and his report is a later report and only a Chartered Engineer s certificate cannot wish away the expert s report . Since the Commissioner s conclusion is based on the expert opinion of Professor Arun Kumar, in our view, his cross examination by the appellant should have been permitted, as the report of Professor Arun Kumar is only an opinion whose correctness has to be tested by his cross examination. The Commissioner in the impugned order simply relies upon the IIT Professor report on the ground that it is a later report and he is an independent authority and therefore she has no reasons to doubt the same. But she does not discuss as to why the certificate given by the Chartered Engineer is not correct. - Impugned order is set aside - Decided in favour of assessee. 2015 (4) TMI 734 Clandestine manufacture and clearance of goods - Penalty u/s 11AC - Held that:- As regards the private ledger account recovered from SSSRM which contained entries regarding supply of MS Ingots by the appellants to them, these accounts being third Party documents could be used against the appellants, only if, the cross examination of the persons from whom these documents have been recovered had been allowed. This is necessary in view of the Apex Court judgment in the case of Kishan Chand Chellaram vs CIT reported in [1980 (9) TMI 3 - SUPREME Court]. In this case, the cross examination of the concerned persons of SSSRM had not been allowed. In view of this, merely on the basis of the entries in the private ledger account maintained by SSSRM regarding supply of MS Ingots by the appellants to them the allegation of clandestine removal of MS Ingots against the Appellant against the appellants would not be sustainable more so, when other than the ledger entries of SSSRM there is no other evidence of clandestine removal of MS Ingots by the appellants to SSSRM. When the studies regarding power consumption for per MT of MS Ingots produced has been conducted in respect of the appellant s unit by an Institute of the Government of India, there is no reason for discarding the report of that Institute and adopting the power consumption of 689 units per MT in respect of another induction thermal unit of M/s NIPL. There is absolutely no evidence of procurement of raw material scrap/ sponge iron or any other evidence regarding clandestine clearance and transportation of the finished products. In view of this, merely on the basis of power consumption of the appellant unit and an arbitrarily adopted ratio of 689 units MT which does not pertain to these units the allegation of unaccounted production of MS Ingots and its clandestine removal would not be sustainable. - Decided in favour of assessee. 2015 (4) TMI 733 100% EOU - Exemption from Basic Customs Duty under Notification No. 21/02-CUS (Sl. No. 200) - Steel scrap cleared into DTA - whether the duty on the DTA clearances is paid at the concessional rate under Notification No. 23/03-CE or the duty is paid without availing of this exemption on the full rate prescribed under proviso to Section 3 (1), the Basic Customs Duty would have to be calculated at the rate applicable to the import of like goods into India, readwith any customs duty exemption notification issued under Section 25 of the Customs Act, 1962 and if in respect of any imported goods, the effective rate of duty is nil, it is the that rate which would have to be adopted and the basic Customs duty component of the excise duty payable on the DTA clearances would be nil. Held that:- if some goods imported into India are fully and unconditionally exempt from Basic Customs Duty by some exemption notification, while calculating the Central Excise Duty leviable on the DTA clearances of those goods, the Basic Customs Duty would have to be taken as nil, even if those DTA clearances are not in accordance with the conditions prescribed in para 6.8 of the Foreign Trade Policy. It is seen that same view has been taken by the Board in its Circular No. 305/83/94-FTT dated 15/09/1994. - the nature of the scrap cannot be determined on the basis as to whether it has been sold the actual users or the dealers, as only use to which Iron and Steel Scrap can be put, is by melting the same to make some other Iron and Steel products. Same view has been taken by the Tribunal in its judgments in the case of Indo Deutsche Trade Links vs. CC (Imports), Chennai reported in [2014 (2) TMI 779 - CESTAT CHENNAI] of the judgment. - part of the impugned order confirming the duty demand on the basis of denial of exemption under Notification No. 21/02-CUS in respect of Basic Customs Duty is not sustainable and the same has to be set aside. As regards the exemption from the portion of the Central Excise Duty equivalent to the Special Additional Customs Duty (SAD) payable under Section 3 (5) of the Customs Tariff Act, the Department s contention is that the SAD would be payable as the clearances are not in terms of para 6.8 (a) of the Foreign Trade Policy and as such the exemption in terms of Sl. No. 1 of the table annexed to exemption Notification No. 23/03-CE would not be applicable. - Since on the goods sold into DTA, VAT levied by the State Government has been paid, and in this regard, there is no dispute, the conditions of exemption Notification No. 102/2007-CUS dated 14/09/07, as applicable to the DTA clearances of a 100% EOU, have been substantially satisfied and hence the goods would be fully exempt from SAD as, in our view, the benefit of this notification, which has been issued for the goods imported by person for subsequent sale and whose condition have been prescribed accordingly, cannot be denied in respect of DTA clearances of a 100% EOU if the condition as applicable mutatis mutandis to DTA sales are satisfied. The duty demand based on this issue is also not sustainable. - Decided in favour of assessee. 2015 (4) TMI 732 Classification of goods - classification of the tablets called actifresh, pletico mint, plethico byte and travisil - Held that:- Ice mint tablets with the base of sugar and containing menthol are not ayurvedic medicines falling under chapter 30, but are sugar confectionery falling under heading 1704 of the central excise tariff. According to the respondent this judgment had been set aside by the apex court vide judgment dated 03.08.1999 reported in [1999 (8) TMI 75 - SUPREME COURT OF INDIA]. However, on going through the apex court judgment, we find that the Tribunal s judgment in the case of Warner Hindustan Ltd. vs CCE (1999 (8) TMI 75 - SUPREME COURT OF INDIA) classifying ice mint tablets as sugar confectionery under heading 1704 had not been set aside on merit but had been set aside on the ground that on the Department s appeal against the Tribunal s order, the Tribunal for the first time classified the ice mint tablets as sugar confectionery under heading 1704 while neither side had adduced arguments for classification of the ice tablets as sugar confectionery under heading 1704. Heading 1704 of the central excise tariff is based on the HSN heading 17.04. Therefore, the scope of heading 17.04 of the central excise tariff would be same as the scope of the HSN heading 17.04. Heading 17.04 of the central excise tariff and heading 17.04 of the HSN cover sugar confectionery (including white chocolate, not containing cocoa) - Each table of Actifresh consists of 1495 mg of sucrose and 990.30 mg of liquid glucose and active ingredient is 4.8 mg of pudina ark and 3.90mg of nilgiri oil which is nothing but eucalyptus oil. In view of the HSN explanatory notes mentioned above, actifresh would be classifiable as sugar confectionery under heading 1704, as the ingredients are mainly flavoring agents not having any therapeutic value. For the same reason, plethico mint tablet which, in addition to the sugar/glucose base contains 0.15 mg of pudina ark would be classifiable as sugar confectionery unde heading 1704 as the pudina ark is only a mouth freshener or flavoring agent. As regards, plethico byte , each tablet of which grm, in addition to sucrose and liquid glucose base contains 2.5 mg of mulethi, the same would be classifiable as ayurvedic medicine under heading 3004 as mulethi acts a therapeutic agent for sore throat. As regards, travisil , each tablet contains extracts of adussa, pipal, black pepper (kali Mirch), dry ginger (saunth), mulethi, amla, haldi, katha, saunf, tulsi, harad, baheda, kulingam, chirmitri patra and pudina satva. In our view since, this product, though with a base of sugar/ glucose has ingredients based on various herbs which have therapeutic value for giving relief in case of sore throat; the same would be classifiable under heading 3004 of chapter heading 30 of the central excise tariff. Product plethico byte containing mulethi and travisile lozenges , which are marketed by the appellant as medicines for sore throat/ cough would be correctly classifiable as ayurvedic medicine under heading 3004 of the Central Excise Tariff. Accordingly, we uphold the impugned order with regard to classifiacation of these products. However, as discussed above, the other two products actifresh and plethico mint which are basically mouth fresheners are correctly classifiable as sugar confectionery under heading 1704 of the tariff and in this regard the impugned order is not correct, and the same has to be modified to this extent. - Impugned order is set aside. With regard to the classification of Travisile lozenges and Plethico Byte , we set aside the impugned order with regard to classification of Actifresh and Plethico Mint and we order that these products would be classifiable as sugar confectionery under heading 1704 and the Appellant would be liable to pay duty on this basis alongwith interest - Decided partly in favour of Revenue. CST, VAT & Sales Tax 2015 (4) TMI 743 Demand of differential duty - Violation of principle of natural justice - No show cause notice issued - Held that:- Court more pertinently points out the original reply dated 19.03.2014 and for the subsequent reply dated 18.07.2014 given by the Petitioner, addressed to the Respondent, the Respondent has not provided the detailed working sheet in respect of difference of tax of ₹ 99,14,199.01, claimed by the Department. In effect, it is candidly clear that the respondent till date had not complied with the requests of the Petitioner made in his reply dated 19.03.2014 and 18.07.2014. For non furnishing of detailed working sheet in regard to the difference of tax of ₹ 99,14,199.01, as claimed by the Respondent, this Court comes to an irresistible and inescapable conclusion that the impugned notices dated 10.03.2014 and 11.07.2014 are liable to be interfered with in the interest of justice for the simple reason that there has been a Negation of the principles of natural justice and accordingly, this Court interfere with the said impugned notices dated 10.03.2014 and 11.07.2014, issued by the Respondent, addressed to the Petitioner and sets aside the same in furtherance of substantial cause of justice. - Decided in favour of assessee. 2015 (4) TMI 742 Works contract - computation of taxable turnover - Claims of deductions on account of labour and services under various heads - Assessing Officer has failed to assign reasons as to why the claims narrated in its order towards the concluding part of the said order were allowed and more importantly no reason was ascribed for rejecting the balance claims made by the petitioner-Company - Held that:- Assessing Officer has taken great pains in extracting various issues/heads of claims seeking deductions for computation of the taxable turnover. He has also taken much pain in extracting the silent features which the Hon’ble Supreme Court has laid down in the case of Gannon Dunkerley & Co. Vs. State of Rajasthan & others, reported in [1992 (11) TMI 254 - SUPREME COURT OF INDIA] as well as amendment made to Rule 6 clause (e) of the OVAT Rules, 2005 on 19.07.2012, but while allowing certain heads of expenses as held at page 17 of the order, he has not ascribed any reason either for accepting such deductions allowed by him nor any reason has been assigned for disallowing certain deductions. Consequently, we are in agreement with the learned counsel for the petitioner that the order impugned vis-`-vis the disallowance of certain deductions made lacks reasons; and therefore lacks the foundation of the conclusion arrived at. Thus, the same is violative of the principles of natural justice; and as a consequence thereof we direct quashing of the same. - Matter remanded back - Decided in favour of assessee. 2015 (4) TMI 741 Condonation of delay - Inordinate delay of 2432 days - Held that:- The decision of this Court in case of State of Gujarat v. Tolat Electronics (2015 (3) TMI 257 - GUJARAT HIGH COURT), was rendered in facts of its own case. Each case for condonation of delay being substantially a question on fact, must rely on its own facts. In the present case, when we find that the State has rendered no explanation whatsoever for inordinate delay of six and half years, the course adopted by this Court in case of State of Gujarat v. Tolat Electronics (2015 (3) TMI 257 - GUJARAT HIGH COURT), would not deviate our opinion. However, the State has also not been able to demonstrate what would be the tax effect in order to argue that the tax effect being considerable, delay should be considered more liberally. - Civil Application for condonation of delay is dismissed. - Condonation denied. 2015 (4) TMI 740 Maintainability of petition - Petition previously decided - Held that:- writ petitions are clearly barred on the ground of res judicata. Accordingly, these writ petitions are dismissed. The dismissal of these writ petitions will not stand in the way of the petitioner to file an appeal under the provisions of Act and if such an appeal is preferred within a period of 30 days from the date of receipt of a copy of this order, the appellate authority shall consider the appeal and not reject the appeal on the ground of limitation and pass orders on merits and in accordance with the provisions of law. - Decided against assessee.
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