Newsletter: Where Service Meets Reader Approval.
TMI Tax Updates - e-Newsletter
April 27, 2016
Case Laws in this Newsletter:
Income Tax
Customs
Corporate Laws
Service Tax
Central Excise
CST, VAT & Sales Tax
Wealth tax
Indian Laws
Articles
News
Circulars / Instructions / Orders
Highlights / Catch Notes
Income Tax
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Bogus purchases - In a case where sales are considered genuine, no addition, on account of bogus purchases, can be made - AT
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Disallowance of ESOP expenses - in terms of ESOP if an assessee offers shares of its parent company to its employees the difference between the FMV of the shares of the parent company on date of issue of shares and the price at which those shares were issued by the assessee to its employees had to be regarded as expenditure incurred for business purposes allowable u/s. 37(1) - AT
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Revision u/s 263 - order under section 263 of the Act was required to be passed within two years from the end of the financial year in which the order sought to be revised was passed - HC
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Addition in respect of late payment of PF - employers as well as the employees contribution were subject to the provisions of section 43B and the assessee was entitled to the deduction in respect thereof. - AT
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Addition u/s 68 - Opening balance of cash creditor cannot be added in the year under consideration U/s 68 of the Act. No Penalty u/s 271(1)(c) levied - AT
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Disallowance u/s 36(1)(iii) - where the recovery of principal amount was difficult the addition on account of notional interest on account of loan to said company cannot be made u/s 36(1)(iii) - no nexus between interest paid and loans made by assessee, therefore no disallowance - AT
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Penalty u/s 271G - non-furnishing’ TP Study Report’ which is not a specified document under Rule 10D - penalty deleted - AT
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Exemption u/s 11 allowed - appellant is engaged in preservation of monuments and articles/ things of historic nature, which is the predominant object of the appellant thus does not cease to be a charitable institution - AT
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Waiver of loan amount - when a portion of the loan is waived, the total amount of loan shown on the liabilities side of the balance sheet is reduced and the amount shown as Capital Reserves, is increased to the extent of waiver - amount representing the waived portion of the loan is shown as a capital receipt in the profit and loss account itself - HC
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TDS u/s 195 - professional fees paid outside India - none of these services fall in the nature of ‘make-available’ of any technical knowledge, experience, skill, know-how or process - no TDS liability - AT
Indian Laws
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Bank has no lien on the pre-deposit made under Section 18 of the SARFAESI Act in terms of Section 171 of The Indian Contract Act, 1872. - SC
Wealth-tax
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Taxability to wealth tax - land is agricultural land in the revenue record and has been used for agricultural purposes thus proviso to Section 2(ea)(b) would be applicable and the same would not be chargeable to wealth tax - AT
Service Tax
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If the service providers has discharged Service tax liability and interest thereof, the penalty is not imposable under renting of immovable property as per provisions of Section 80(2) - AT
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Interest - Service Tax liability is always leviable on immovable property, hence non payment of tax on amount of rent collected attracts interest - AT
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Service Tax liability, if not charged on bill, the amount received needs to be considered as cum-tax - AT
Central Excise
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Bagasse, Dross and Skimmings of non-ferrous metals or any such by product or waste, which are non-excisable goods and are cleared for a consideration from the factory need to be treated like exempted goods for the purpose of reversal of credit of input and input services
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If the assessee had filed applications for settlement admitting the allegations in the notice and having accepted immunity from prosecution and as the order is inseparable, such reservation of rights is unacceptable - HC
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Ordinarily the settlement comes as a package and composite tax statement is either to be accepted or rejected - Settlement tax cannot be accepted only in part - HC
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Since order passed by the Commission is an agreement in a statutory form, the assessee, having been granted immunity from prosecution, cannot challenge the imposition of penalty only - Order of penalty and prosecution cannot be segregated, either the applicant accepts the order in its entirety or the settlement fails - HC
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Since section 32K speaks of “immunity from prosecution for any offence under this Act and also either wholly or in part from the imposition of any penalty and fine”, the order of penalty cannot be severed from the order of prosecution - Composite order - HC
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If the assessee opts for the settlement before Commission and the Commission accepts the amount of excise duty payable by them, assessee cannot now turn back and challenge the penalty imposed by filing a writ petition - HC
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Supply made to the Organization indicated in N/N 108/95 CE for their official use as well as supply made to the projects financed by them, are both included within the purview of the Notification - HC
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If the shortage is detected and corresponding demand is also paid on the same day, no liability of interest arises - AT
VAT
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Re-opening of proceedings - Only revisional authority has power to seek re-opening of proceedings when Re-assessment order was prejudicial to the interest of revenue - HC
Case Laws:
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Income Tax
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2016 (4) TMI 963
Disallowance of provision made for leave salary - Held that:- Hyderabad Bench of Tribunal in Ushodaya Enterprises Pvt. Ltd. Vs. ACIT and ITO Vs. Ushodaya Enterprises Pvt. Ltd. (2014 (12) TMI 7 - ITAT HYDERABAD ), on similar facts and circumstances, have accepted the plea of the assessee and remitted the issue back to the file of Assessing Officer with direction to apply the decision of Hon’ble Supreme Court in Exide Industries (2008 (9) TMI 921 - SUPREME COURT). In case clause (f) to section 43B of the Act is struck down, then no disallowance on account of provision for leave encashment is to be made in the hands of assessee. However, the said issue is pending for adjudication before the Hon’ble Supreme Court. Accordingly, we remit the issue back to the file of Assessing Officer to decide the issue in line with the ratio laid down by the Hon’ble Supreme Court in Exide Industries (supra) - Decided in favour of assessee for statistical purposes. Disallowance computed by applying the provisions of section 40A(2)(b)- Held that:- Coming to the case of quantum of remuneration to be allowed in the hands of assessee, where the CIT(A) has allowed expenditure @ 25% of total expenses and no basis has been given by the CIT(A) to allow the said expenditure @ 25% of the total. There is no basis for measuring such services and in the absence of any evidence brought on record to establish that the expenditure incurred by the assessee was excessive i.e. more than market value of the said services, we find no merit in the orders of authorities below in invoking provisions of section 40A(2)(a) of the Act. Accordingly, we modify the order of CIT(A) and direct the Assessing Officer to allow the expenditure in totality in the hands of the assessee as the said expenditure has been laid down in terms of the agreement agreed upon between the parties and is for carrying on of the business of the assessee more efficiently and is allowable as business expenditure. - Decided in favour of assessee for statistical purposes. Disallowance made under section 14A - Held that:- The case of the assessee before the authorities below was that it had sufficient interest-free funds available with it, which in turn were invested for a short period, against which dividend income was declared. Even before the CIT(A), similar plea was raised and the CIT(A) has noted that mixed funds available with the assessee. However, while working out the disallowance on account of interest relatable to earning of exempt income, the entire interest expenditure was worked out based on assumption that the investment was made out of borrowed funds. It is admitted fact that the investments were made during the year and were also redeemed during the year and there was Nil investment both at the opening and close of the year. The question which arises for adjudication is whether in such circumstances, where the assessee has sufficient interest-free funds by way of reserves and surpluses, disallowance was merited in the case. The assessee had also made an alternate plea of prorata disallowance of ₹ 1,31,700/- on account of percentage of investment attributable to borrowed funds by working out average holding of the assessee for the year. We find merit in the said plea of the assessee and accordingly, direct the Assessing Officer to disallow sum of ₹ 1,31,700/ - under section 14A of the Act on accou nt of interest attributable to the exempt income. In respect of administrative expenses attributable to earning of the exempt income, we restrict the disallowance to ₹ 50,000/-.- Decided partly in favour of assessee. Relief granted under section 10A - grant of deduction under section 10A of the Act by invoking the provisions of section 10A(7) r.w.s. 80IA(10) of the Act - Held that:- The operating profit margins earned by the Engineering Division of the assessee company were 7.52%, which was accepted by the TPO in the report under section 92CA(4) of the Act. In the above said circumstances, where the profit margins declared by the assessee have been accepted to be at arm's length by the TPO, no curtailment of deduction under section 10A can be made by invoking the provisions of section 10A(7) r.w.s. 80IA(10) of the Act, relying on the ratio laid down in M/s Honeywell Automation India Limited vs. DCIT (2015 (3) TMI 494 - ITAT PUNE ). The onus was upon the Department to prove that an arrangement existed between the assessee and its AEs to earn more than ordinary profits and in the absence of the said onus having been discharged by the Department and following the same parity of reasoning as laid down by the Tribunal in M/s Honeywell Automation India Limited vs. DCIT (2015 (3) TMI 494 - ITAT PUNE) we find no merit in the order of Assessing Officer and we uphold the order passed by CIT(A). The Ld. Authorized Representative for the assessee pointed out that the Assessing Officer has given a finding that the profit margin earned in Engineering Division was higher than the average profit margin of comparable and has reduced the deduction under section 10A of the Act. We find no merit in the stand of Assessing Officer and upholding the order of CIT(A), we allow the claim of deduction under section 10A of the Act. - Decided in favour of assessee
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2016 (4) TMI 962
Disallowance u/s 14A - Held that:- Identical issue had arisen in the earlier year as find that the AO had not mentioned as to how much expenditure was incurred by the assessee for earning tax free income. We are of the opinion that if the assessee had not incurred any expenditure to earn tax free income then the AO cannot invoke the provisions of section 14A r. w. Rule 8D of the Rules. First of all the AO has to record his satisfaction about invoking the provisions and has to decide the issue after obtaining the explanation of the assessee . We also do not endorse the view of the FAA that investment out of the own funds has no relevance for making the disallowance. We find that in the case of Om Prakash Khaitan (2015 (7) TMI 785 - DELHI HIGH COURT ) the Hon’ble Delhi High Court has held that in order to disallow the expenditure there must be a nexus between the expenditure incurred and the income not forming the part of the total income. - Decided in favour of assessee. Disallowance of ESOP expenses - Held that:- Identical issue had arisen in the earlier year as held that stock options of the parent company were offered to the employees of the assessee company that the assessee had made payment to the parent company that during the year FBT was paid. In our opinion once a stock option is granted to and exercised by the employee of an assessee the liability in that behalf is ascertained and cost is allowable in the year in which stock options are granted. We find that in the case of Novo Nordisk India Pvt. Ltd. (2013 (11) TMI 218 - ITAT BANGALORE ) it has been held that in terms of ESOP if an assessee offers shares of its parent company to its employees the difference between the FMV of the shares of the parent company on date of issue of shares and the price at which those shares were issued by the assessee to its employees had to be regarded as expenditure incurred for business purposes allowable u/s. 37(1) of the Act. - Decided in favour of assessee. Buy back of shares - colourable device for the purpose of avoiding dividend distribution tax - Held that:- Transaction in question would not fall under the category of colourable device. If an assessee enters into a deal which does not violate any provision of the Act of applicable to a particular AY. the deal cannot be termed a colourable device if it result in non-payment or lesser payment of taxes in that year. The whole exercise should not lead to tax evasion. Non-payment of taxes by an assessee in given circumstances could be a moral or ethical issue. But for that the assessee cannot be penalised. - Decided in favour of assessee.
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2016 (4) TMI 961
Revision u/s 263 - period of limitation - Held that:- We find that the order under section 263 of the Act was required to be passed within two years from the end of the financial year in which the order sought to be revised was passed. It has been categorically recorded by the Tribunal that the order under section 263 of the Act in the case of the assessee was passed on 20.3.2013 which was required to be passed upto 31.3.2013. Thus, the order was within the period of limitation. There was no requirement to dispatch the order within the period of limitation itself.
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2016 (4) TMI 960
Disallowance u/s 14A - Held that:- assessee had sufficient funds available with it to finance its investments and therefore it can be presumed that it had invested its own funds and not borrowed funds which we have seen that were taken for specific purposes and used accordingly. Thus the additions of ₹ 5,50,586/- made rule 8D(2)(ii) as confirmed by CIT(A) is ordered to be deleted by following the ratio laid down in the case of CIT V/s Reliance Utilities and Power Ltd (2009 (1) TMI 4 - BOMBAY HIGH COURT ). n respect of ₹ 14,61,622/-, the disallowance under rule 8D(2)(iii) we find that the investments were made in the mutual funds by the portfolio management companies. Further in the schedule M pertaining to Administrative and Selling Expenses the total of ₹ 14,91,12,604/- were charged whereas personnel cost in schedule no L ₹ 12,47,94,407/-were debited. In the schedule no M we find that Rent, rates and taxes ₹ 4,54,46,772/-, Legal and professional charges ₹ 1,94,25,756/- and Amount written off ₹ 1,76,70,049/- totaling to ₹ 8,25,42,577/- were charged and were not having indirect nexus with dividend income. We therefore find merit in the submissions of the ld counsel that disallowance as made by the AO and upheld by CIT(A) is excessive and unreasonable on the ground that there hardly any expenses incurred for the propose of investments. We are in agreement with the CIT(A) that rule 8D is applicable from AY 2008-09 but not blindly when the assessee had hardly incurred any expenses in relation to the dividend earned and the substantial investments were made temporarily in order to park the idle funds ideally. We therefore allow relief to the assessee to the extent of ₹ 8,00,000/- out of ₹ 14,61,622/-. Thus the assessee gets relief of ₹ 13,50,586 in all out of Rs, 20,12,208/- thereby sustaining the addition of ₹ 6,61,622/-. - Decided partly in favour of assessee. Addition in respect of late payment of PF - Held that:- We find from the records and arguments of the counsels that the assessee had paid the PF beyond the grace period after the due date under the relevant Act but well before the due date for filing the return of income u/s 139(1) of the Act. We find merit in the submission of the ld AR that the issue is covered in its favor by the decision of the jurisdictional High Court in the case of CIT Vs Ghatge Patil Transport Ltd (2014 (10) TMI 402 - BOMBAY HIGH COURT) in which it has been held that the employers as well as the employees contribution were subject to the provisions of section 43B and the assessee was entitled to the deduction in respect thereof. We therefore respectfully following the ratio laid down in the said decision, delete the addition - Decided in favour of assessee. Addition on account of balance written off during the year following selling of general cargo division - Held that:- The assessee had terminated the lease and license in respect of two warehouses taken from M/S Paras Commercial Centre Pvt Ltd who deducted as compensation for pre-mature termination a sum of ₹ 45,16,000/- whereas the remaining five wharehouses were transferred as part of sump sale. We find merit in the arguments of the assessee that the amount deducted by the licensor on pre-mature termination is admissible u/s 37(1) of the Act as wholly and exclusively for the purpose of business. We also find that the project cargo division of the assessee continued and thus the business of the assessee was carrying on with one division. Even on the ground to commercial expediency the assessee is entitled to deduction of ₹ 45,16,000/- as the continuance of the lease and license would entail additional expenses. We therefore direct the AO to allow deduction of ₹ 45,16,000/- out of total claim of ₹ 56,94,748 thus sustaining the addition to the extent of ₹ 11,78,748/- . - Decided partly in favour of assessee. Addition being loss on account of write off of receivables upon re-assignment in the slump sale of the general cargo division - Held that:- From the records before us we find that the purchaser M/S Excel re-assigned some debts which were part of the net current assets in the slump sale and reduced the purchase price accordingly by ₹ 2,44,22,159.91. The assessee wrote off ₹ 1,76,70,049/- out of this amount claiming the same to be admissible under section 36(1)(vi) of the Act however the same was added to the income of the assessee on the ground that the debts were transferred to the purchaser as part of the net current assets under slump sale and the assessee could not be allowed double benefit. Even the CIT(A) upheld the additions on the same analogy. We find that the both AO and CIT(A) had completely ignored the fact that under "Adjustment to Purchase Price" the purchaser reassigned some debts amounting to ₹ 2,44,221,60/- to the assessee and assessee reduced the same from the purchase price which is clearly mentioned in para 7.1 of the assessment order. In our view the finding of AO and the CIT(A) that the debts were transferred as part of net current assets in the slump sale and the assessee would get double benefit if allowed deduction in respect of write off of the book debts were wrong and against the facts of the case. The assessee had rightly written off the debts and the same were admissible under section 36(1)(vi) of the Act - Decided in favour of assessee.
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2016 (4) TMI 959
Penalty u/s 271(1)(c) - addition u/s 68 - Held that:- It is undisputed fact that these cash creditors are opening as on 01/4/2006 and not pertained to year under consideration. The ld Assessing Officer issued notice in quantum proceeding U/s 133(6) of the Act. The parties concerned filed confirmations in some of the cases. It is also fact that the assessee paid the outstanding during the year and in subsequent year but could not prove beyond doubt before the Assessing Officer. It is well settled law that opening balance of cash creditor cannot be added in the year under consideration U/s 68 of the Act. No Penalty u/s 271(1)(c) levied - Decided in favour of assessee
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2016 (4) TMI 958
Disallowance u/s 36(1)(iii) - of interest paid to the bank on C/C account - Held that:- It is an undisputed fact that loan was given way back in 1990 and that too out of surplus funds and therefore, there was no nexus between loan advanced and interest paid. Therefore, no disallowance could have been made u/s 36(1)(iii) of the Act. As regards argument of learned DR that why this amount was not written off in the year 2004-05 itself we find that the order of Registrar of Co-operative Society placed at (PB-8) is for appointment of a liquidator whereby the liquidator takes charge of any sick society. The assessee may be in the hope of recovering part of its dues from the liquidator had not written off in its books. However, the fact remains that the said loan was given way back in 1990-91 and at that point of time there was temporary availability of funds as is mentioned in the resolution itself and therefore loan was given out of surplus funds. The incurring of expenditure on account of interest on funds used for making payments to Cane growers cannot be said to be for non business purposes only on the basis that the assessee was not able to recover its dues from a loanee to whom loan was given out of its surplus funds in earlier years. The Hon'ble Punjab & Haryana High Court in the case of CIT vs. Suraj Dev Dada (2014 (5) TMI 625 - PUNJAB & HARYANA HIGH COURT ) has held that where the recovery of principal amount was difficult the addition on account of notional interest on account of loan to said company cannot be made u/s 36(1)(iii) of the Act. In view of the above, entire facts and circumstances we hold that there was no nexus between interest paid and loans made by assessee and therefore, the disallowance made by Assessing Officer and partly confirmed by learned CIT(A) is not justified. - Decided in favour of assessee Charging of penal interest - Held that:- From the nature of penal interest charged by the Bank from assessee it is found that the charges are "compensatory" in nature as assessee has not violated any law but the extra payment has been made for lower valuation of stocks pledge with Bank. Therefore, we hold that the penal interest was in the nature of compensatory payment and allowable u/s 37(1) - Decided in favour of assessee
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2016 (4) TMI 957
Penalty u/s 271G - Penalty for failure to furnish information or document under section 92D - Held that:- Substantial compliance before the order of the Ld. TPO and failure of the revenue to point out specifically which information was not provided by Assessee in time and most importantly based on the documentation provided by the Assessee no adjustment is proposed by the TPO and further the penalty is levied for non-furnishing’ TP Study Report’which is not a specified document under Rule 10D in time though available before passing of the order we cancel the penalty levied u/s 271G - Decided in favour of assessee
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2016 (4) TMI 956
Determination of income - bogus purchases - Held that:- AO had disallowed an amount under the head unproved purchases, that in the rectification proceedings carried out on two occasions he reduced it to ₹ 7.54 Crores, that he had issued notices u/s.133(6)of the Act on test check basis, that during the appellate proceedings the FAA had forwarded certain documents to the AO and had called for his comments, that the successor AO alleged many an irregularities in the accounts maintained by the assessee, that the FAA has given categorical finding of fact about filing of confirmation letters of suppliers of fish along with details of their bank statement, copies of acknowledgment of income tax returns and reconciliation statement. He specifically mentioned that vide letters dated 27.2.13 and 23.9.2013 the AO had furnished all the necessary details. Before us, the DR on the basis of the assessment records, admitted that both the letters and the annextures to the letters were available on the file of the AO. In thses circumstances, we are of the opinion that the findings of facts recorded by the FAA with regard to the purchases in question present the true picture and the comments of the AO made in his letter 13.11.2013 were factually incorrect. It is also a fact that the AO had not rejected the books of accounts maintained by the assessee, nor has doubted the genuineness of the sales made by it. In the matter of Nikunj Exim Enterprises Pvt. Ltd. (2013 (1) TMI 88 - BOMBAY HIGH COURT), the Hon’ble Bombay High Court has specifically held that in a case where sales are considered genuine, no addition, on account of bogus purchases, can be made. Considering the facts that all the details were furnished before the AO and that same were not considered by him and respectfully following the judgment of Nikunj Exim Enterprises Pvt. Ltd. (supra), we decide the effective Ground of appeal against the AO. - Decided in favour of assessee.
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2016 (4) TMI 955
Exemption u/s 11 - Held that:- As decided in assessee's own case the appellant is engaged in preservation of monuments and articles/ things of historic nature, which is the predominant object of the appellant. The aforesaid activities are incidental to the main object only. As has been held in various decisions relied upon charging of fee to meet a part of the cost for rendering charitable services cannot, result in the services being regarded as business activities and, accordingly, the appellant does not cease to be a charitable institution, notwithstanding proviso to section 2(15) of the Act. - Decided in favour of assessee
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2016 (4) TMI 954
Waiver of loan amount - Scope of section 28(iv) - Principal loan amount waived by the bank under the one time settlement scheme - eligibility or non eligibility to tax - whether the waiver of principal amount would constitute income falling under Section 28(iv) of the Income Tax Act being the benefit arising for the business? - Held that:- What is treated as income chargeable to income tax under the head 'profits and gains of business or profession' under Section 28(iv), is "the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession." Therefore, it is not the actual receipt of money, but the receipt of a benefit or perquisite, which has a monetary value, whether such benefit or perquisite is convertible into money or not, which is what is covered by Section 28(iv). Say for instance, a gift voucher is issued, enabling the holder of the voucher to have dinner in a restaurant, it is a benefit of perquisite, which has a monetary value. If the holder of the voucher is entitled to transfer it to someone else for a monetary consideration, it becomes a perquisite convertible into money. But, irrespective of whether it is convertible into money or not, it should have a monetary value so as to attract Section 28(iv). A monetary transaction, in the true sense of the term, can also have a value. Any number of instances where a monetary transaction confers a benefit or perquisite that would have a value, can be conceived of. There may be cases where an incentive is granted by the supplier, waiving a portion of the sale price or granting a rebate or discount of a portion of the price to be paid, when the payments scheduled over a period of time, are made promptly. It is needless to point out that in such cases, the prompt payment of money itself brings forth a benefit in the form of an incentive or a rebate or a discount in the price of the product. We do not know why it should not happen in the case of waiver of a part of the loan. Therefore, the finding recorded in paragraph 27.1 of the decision in Iskraemeco Regent Limited [2010 (11) TMI 43 - Madras High Court ] that Section 28(iv) has no application to any transaction, which involves money, is a sweeping statement and may not stand in the light of the express language of Section 28(iv). In our considered view, the waiver of a portion of the loan would certainly tantamount to the value of a benefit. This benefit may not arise from "the business" of the assessee. But, it certainly arises from "business". The absence of the prefix "the" to the word "business" makes a world of difference. It appears that in so far as accounting practices are concerned, no such distinction exists. Irrespective of the purpose for which, a loan is availed by an assessee, the amount of loan is always treated as a liability and it gets reflected in the balance sheet as such. When a repayment is made in monthly, quarterly, half yearly or yearly instalments, the instalment is divided into two components, one relating to interest and another relating to a portion of the principal. To the extent of the principal repaid, the liability as reflected in the balance sheet gets reduced. The interest paid on the principal amount of loan, will be allowed as deduction, in computing the income under the head "profits and gains of business or profession", as per the provisions of the Act. But, Section 36(1)(iii) makes a distinction. The amount of interest paid in respect of capital borrowed for the purpose of business or profession is allowed as deduction under Section 36(1)(iii), in computing the income referred to in Section 28. But, the proviso thereunder states that any amount of interest paid in respect of capital borrowed for acquisition of an asset for extension of existing business or profession, whether capitalised in the books of account or not for any period beginning from the date on which the capital was borrowed for the acquisition of the asset, till the date on which such asset was put to use, shall not be allowed as deduction. Therefore, it is clear that the moment the asset is put to use, then the interest paid in respect of the capital borrowed for acquiring the asset, could be allowed as deduction. When the loan amount borrowed for acquiring an asset gets wiped off by repayment, two entries are made in the books of account, one in the profit and loss account where payments are entered and another in the balance sheet where the amount of unrepaid loan is reflected on the side of the liability. But, when a portion of the loan is reduced, not by repayment, but by the lender writing it off (either under a one time settlement scheme or otherwise), only one entry gets into the books, as a natural entry. A double entry system of accounting will not permit of one entry. Therefore, when a portion of the loan is waived, the total amount of loan shown on the liabilities side of the balance sheet is reduced and the amount shown as Capital Reserves, is increased to the extent of waiver. Alternatively, the amount representing the waived portion of the loan is shown as a capital receipt in the profit and loss account itself. - Decided in favour of revenue
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2016 (4) TMI 953
TDS u/s 195 - Disallowance u/s. 40(a)(i) - professional fees paid outside India without deduction of tax at source - existence of PE in India - Held that:- Looking into the nature of services rendered. It is seen that, firstly, none of these services fall in the nature of ‘make-available’ of any technical knowledge, experience, skill, know-how or process. The provisions of Indo-U.S. and U.K. treaties are absolutely clear that in case of fees for technical services, it is essential that technical knowledge, skill, know-how should be made available to the assessee and the assessee should be at liberty to use them in its own right. If the service does not result in making available of any such thing, then the same would not fall within the ambit of fees for technical service. These payments also cannot be taxed under Article 7 as none of them were having any P.E. or fixed base in India and the duration of their visit in India was also for a very less period. Therefore, such a payment does not attract the provisions of TDS under section 195. See KPMG vs JCIT [2013 (11) TMI 188 - ITAT MUMBAI] - Decided in favour of assessee Disallowance made by the AO u/s 40a(i) in respect of professional fee paid to KPMG Huazhen, China - Held that:- No law can create an obligation to deduct tax at source by retrospective operation. Thus, in our considered view, the assessee was not required to deduct tax at source on the said payment. It is further noted by us that KPMG Huazhen is an entity registered in China and it is resident of China as is understood in Indo-China tax Treaty. The admitted facts on record are that services were rendered in China in relation to the review of information securities services and assistance in audit. The assessee has claimed that services in question would fall specifically in article 14 of Indo China Treaty. We have gone through article 14 of the Tax Treaty which provide that income derived by resident of a contracting state in respect of professional services or other activities of an independent character shall be taxable only in that contracting state except when the said resident has a PE or fixed basis or stay exceeding prescribed number of days in the other contracting states. It is noted on the basis of facts brought before us that these professional services have been provided in China by a team consisting of accountants, lawyers and engineers. Thus, we find that these services specifically fall in Article 14, and in absence of their being any PE or any stay of the persons of KPMG China, in India, the payment made by the assessee was not taxable in India and therefore, not liable to deduction of tax at source. - Decided in favour of assessee
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2016 (4) TMI 952
Addition of loss due to fall in value of stocks - genuity of purchases - Tribunal deleted the addition - method of accounting - Held that:- The payment made is undisputed. The custody of the goods namely, iron ore as that of the assessee, though may be lying at the various ports, is also undisputed. When the assessee has made the payment for purchase of a particular quantity of material and the goods are lying in the custody of the assessee, though may be at various ports, the same could validly be termed as stock in trade. If the value of such stock in trade has gone down, the deduction for the difference of the price is permissible. On the contrary, if the appellants’ contention is accepted, then in the succeeding year when it is offered to tax for the amount of ₹ 29.50 Crores and the deduction is made impermissible, it would result into double taxation. It is not a case of the revenue that with a view to avoid real tax, the book entries were shown lowering down the value of the stock. On the contrary, it is on account of the objection raised by C.A.G., that the assessee has correctly valued the stock on trade at the market price, prevailing then. The case of manipulation f or avoiding the payment of tax stands on a different footing, but the same has not been pleaded before the Tribunal in the instant case. The decision upon which reliance has been placed cannot be made applicable to the facts of the present case, when the factum of payment made by the assessee and the goods in custody of the assessee, are not in dispute. There is no question of shifting the tax liability from one year to another as sought to be canvassed, in the instant case. - Decided in favour of assessee.
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2016 (4) TMI 951
Revision u/s 263 - allocation of administrative expenses - Held that:- No finding had been given by the CIT under Section 263 of the Act as to how the debit of administrative expenses made in the profit and loss account of Unit No.1 prima facie resulted in excess profit in Unit No.II and how any of such expenses were relatable to Unit No.II. The CIT merely set aside the issue without finding any error in the assessment made by the Assessing Officer. The two conditions for invoking the provisions of Section 263 of the Act were not fulfilled i.e. firstly how debit of administrative expenses in the profit and loss account of Unit No.1 rendered the assessment as erroneous and secondly how the same was prejudicial to the interest of the revenue. - Decided in favour of assessee.
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2016 (4) TMI 950
Penalty u/s.271(1)(c) - Held that:- Since it is not clear from the notice u/s.274 the reasons for levying of penalty as to whether it is for concealment of income or for furnishing of inaccurate particulars of income, therefore, the notice itself is bad in law and invalid. Therefore, the penalty order passed subsequently on the basis of such invalid notice also has to be held as bad in law. We accordingly cancel the penalty levied by the AO. - Decided in favour of assessee
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2016 (4) TMI 949
Penalty levied u/s 271AAA - assessee has not explained the manner in which the undisclosed income has been derived - Held that:- In the present case on hand, on perusal of the facts, we find that the assessee has admitted the undisclosed income at the time of search, while recording the statement u/s 132(4) of the Act. The assessee has explained the manner in which such undisclosed income has been derived. It was the explanation of the assessee that the undisclosed income was derived because of suppression of sales turnover relates to his business. The assessee further explained that the suppressed sale was on account of sale of flats, which were not disclosed in the regular books of accounts. The assessee explained the undisclosed income even at the time of search while recording statement u/s 132(4) of the Act and also explained before the A.O. at the time of assessment, which was evident from para-5 and 5.1 of the assessment order. Therefore, in our considered opinion, clause (i) & (ii) of sub section (2) of section 271AAA of the Act is fulfilled and hence, no penalty can be levied u/s 271AAA of the Act. On perusal of the facts available on record, it was clear that the assessee has paid the entire self assessment tax admitted in the revised return before initiation of penalty proceedings u/s 271AAA of the Act. Though assessee has not paid the total taxes along with revised return of income, it has explained the reasons for non-payment of taxes before completion of assessment, however, has paid the total taxes before initiation of penalty u/s 271AAA of the Act. Therefore, in our opinion, the assessee has fulfilled the clause (iii) of sub section (2) of section 271AAA of the Act, hence, no penalty can be levied u/s 271AAA of the Act as held by the Hon’ble Supreme Court in the case of ACIT Vs. Gebilal Kanhaialal (HUF) (2012 (9) TMI 297 - SUPREME COURT ). - Decided in favour of assessee
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2016 (4) TMI 948
Bogus purchases - Held that:- After going through the factual matrix and understanding them in the right perspective, in our considered opinion, the assessee has made purchases directly from the producers/agriculturists who are termed as unregistered dealers (URD) which means that the materials have actually been purchased by the assessee but without any supporting document. The statement of the assessee is also correct because there are no bogus purchases of goods but only supporting accommodation bills are bogus. There is no denying that there is a physical movement of goods- purchases as well as sales. In fact, there is not even a whisper of any bogus sales, neither by the Assessing Officer nor by the First Appellate Authority. This may be a case of purchases supported by bogus accommodation bills but at the same time, we cannot say that there were no purchases. This was also brought to the notice of the A.O by the assessee in his submission dated 12.11.2010 qua para 6 b which can be found at page 11 of the assessment order wherein the assessee had categorically stated that he has made purchase of goods from direct producer and only invoices of these three party were taken to regularize the same and by doing so, the assessee was getting the benefit in purchase price of ₹ 4 to 5 per 20 kgs. It was further made very clear that it is not a case where materials were not actually purchased. Thus, it can be seen that even the admission of the assessee related to the procurement of alleged bogus bills at no stage, the assessee admitted that there were no purchases.However, at the same time, in our considered opinion and in our understanding of the facts the possibility of inflated purchases cannot be ruled out. As the assessee himself as admitted in his submission that he is getting the benefit of ₹ 4 to 5 per 20 kgs., an addition of 8% should meet the ends of justice. - Decided partly in favour of assessee Addition in respect of alleged admitted undisclosed income - Held that:- Since we have directed to restrict the addition on account of bogus purchase to 8% of the total purchases, in our considered opinion any admission/disclosure made by the assessee on account of alleged bogus purchases would be taken care of by the addition sustained, therefore, there is no need for making separate additions on this count.- Decided in favour of assessee
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2016 (4) TMI 947
Penalty U/s 271AA - assessee failed to maintain the record as required U/s 92D of the I.T. Act read with rule 10D of the I.T. Rules - CIT(A) deleted the penalty - Held that:- The assessee disclosed international transaction made with AE. The Tribunal had decided that no upward adjustment is required in the ALP disclosed by the assessee. Whatever information asked to supply by the TPO had been furnished before him i.e. nine comparable companies data were furnished out of which the ld TPO had selected five companies. The ld DR had not controverted that the assessee had not provided similar services during the year under consideration as provided in F.Y 2004-05, therefore, comparable companies applied for F.Y. 2004-05 are relevant to the transactions made during the F.Y. 2005-06, which was also updated by the appellant. Accordingly, we uphold the order of the ld CIT(A). - Decided in favour of assessee
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2016 (4) TMI 946
Capital gain U/s 45 - sale of agricultural land - municipal limit - whether land transaction was found within 8 km from the municipal limit. Therefore, it is a capital asset as per section 2(14)(iii)(b)? - Held that:- This issue has been considered by the Coordinate Bench in the case of Dr. Subha Tripathi [2013 (10) TMI 594 - ITAT CHANDIGARH ] wherein held that the Jaipur Municipality has been duly notified vide said notification dated 06/1/1994 and as on the date of said notification, the land in question was beyond 8 km from the municipal limit exist on that point of time. In the case of assessee, on the date of this notification dated 6th January, 1994, the municipal limit of Jaipur on Ajmer Road on which the assessee land is situated was up to ESI hospital. The ld AR placed the evidence in paper book at sl. no. 91. The assessee’s land is 16 km away from the ESI hospital. These facts has not been controverted by the ld DR. Being a precedence, we respectfully following the order of the Coordinate Bench and held that land sold by the assessee is not a capital asset U/s 2(14) of the Act. Thus, capital gain does not arise. - Decided in favour of assessee
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2016 (4) TMI 945
Addition u/s 69B on lands purchased in villages - on money received - Held that:- Both the lower authorities are found to have heavily relied upon assessee’s vendors’ statements in drawing inference of on money in question. We reiterate that this inference is not based on any evidence either in the statements directly or indirectly linking assessee to any incriminating evidence so as to reach to on money finding. We take note of the fact that the Central Board of Direct Taxes in its circular dated 10/03/2003 has already stated that such admission/confession made in course of search have to be based on the relevant evidence collected. Hon’ble jurisdictional high court in Kailashben Manharlal Choksi vs. CIT (2008 (9) TMI 525 - GUJARAT HIGH COURT) deals with a case of assessment year 1989-90 and holds identical situation after noting Board’s circular that addition of undisclosed investments merely on search statement not supported by any evidence is not sustainable. We deem it appropriate to observe here that the impugned addition is also based on mere statements retracted within two months which nowhere names the assessee or establish any link to the alleged unexplained investments in question. We draw support from the above stated precedents for accepting assessee’s arguments. The Revenue’s submissions supporting the Assessing Officer’s findings stand rejected. We delete entire addition made u/s. 69B of the Act qua lands purchased in villages Bavla and Kerala - Decided in favour of assessee
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2016 (4) TMI 944
Disallowance u/s. 14A r/w Rule 8D - Held that:- As decided in assessee's own case Rule BD has to be applied in the case of the appellant and the proportionate expenditure in relation to exempt income determined. The AO has followed a method which is not fully consonant with the method provided in rule 8D. The AO is directed to determine amount of expenditure incurred in relation to exempt income by applying the method prescribed in Rule BD. The disallowance of proportionate expenditure determined in each year according to the above rule would be the amount of disallowance that is confirmed. Any amount of disallowance which is higher than the amount computed as per rule 8D should be treated as deleted - Decided against revenue
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2016 (4) TMI 943
Allowability of advertisement expenses - disallowance of claim holding that the same should have been claimed as expenses by Mr. Kailash Kher, director of the assessee company, and not the assessee - Held that:- Saswad Mali Sugar Factory Ltd. vs CIT (1999 (1) TMI 26 - BOMBAY High Court ) supports the case of the Revenue, thus, this ground of the assessee is having no merit as Shri Kailash Kher used the platform of the company to advertise his personal business or it can be said that the advertisement expenses were incurred by the assessee for the promotion of “Jhoomo re” CD and the resultant benefits/collections were deposited in the personal accounts of Shri Kailsah Kher, therefore, the expenditure cannot be allowed as a deduction in the case of the assessee company. Even otherwise, what was mentioned in the so called banners, the assessee at any stage, never produced the language/advertised material, therefore, mere claim is not enough and it has to be substantiated with evidence.- Decided against assessee Disallowance of consultancy expenses and commission paid - Held that:- If the observation made in the assessment order, leading to addition made to the total income, conclusion drawn in the impugned order, material available on record, assertions made by the ld. respective counsel, if kept in juxtaposition and analyzed, there is no dispute to the fact that the expenses were incurred for designing the studio which was under construction during the relevant time, therefore, the expenses are to be rightly held to be capital in nature as the business of the running the studio was yet to commence. - Decided against assessee So far as, commission paid to Praxis is concerned, this amount was paid for arranging loan from Union Bank of India for construction of Kailasa Studio. It is noted that the purpose and to whom the amount was paid is not clear. If the amount has been paid for extraneous consideration then it cannot be allowed. However, deduction on account of interest on loan cannot be denied. The loan was taken for starting the new line of business i.e. Kailasa Studio and business is yet to commence, therefore, it cannot be allowed. As mentioned earlier, what type of arrangement was made for getting the loan from the bank, mere claim is not enough, thus, the stand taken in the impugned order is affirmed. - Decided against revenue Disallowance made u/s 40(A)(2) - Held that:- The PAN number of Mr. Mahesh Kher has also been mentioned. The Department has no disputed that the payments were made to the legal consultant. It was disallowed merely on the ground that it is highly excessive. We are not agreeing with the proposition that the payments were excessive, because, it is between the party to decide the payment. There is no bar under statute that legal charges cannot be made to the close relative. Even otherwise, when a legal person is available within the close relative, the assessee is not expected to seek legal consultancy from outside. It is also noted that the Shri Mahesh Kher is a law graduate and copy of agreement drafted by him were filed before the Assessing Officer vide letter dated 22/11/2010. Thus, the payment is not in doubt, consequently, we don’t find any reasoning to disallow the same, thus, this ground of the assessee is allowed. - Decided against revenue Disallowance of cash expenditure under the head musician and show related expenses - Held that:- There is categorical finding in the assessment order that the above expenditure was claimed to be through self made vouchers, which neither contained the name of the recipient nor signature, consequently, the genuineness of the claim was not established and even the identity of the payee was not established by the assessee. The datewise claim of expenses and place has been reproduced at page-6 (para-10.1) of the assessment order for the amount of ₹ 13,55,000/-, no receipt/bill was shown. The finding contained in para 10.2 of the assessment order was neither controverted nor produced any satisfactory evidence for the claim by the assessee. Even, before the ld. Commissioner of Income Tax (Appeals), the finding contained in para 8.4 was neither substantiated nor any evidence was placed before us. It is also noted that the ld. Commissioner of Income Tax (Appeals) examined the vouchers and the cash book and it was found by the ld. Commissioner of Income Tax (Appeals) that they are not matching, thus, it was concluded that the claimed amount is not only bogus and unvouched but also hit by the provisions of section 40A(3) of the Act - Decided against assessee
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2016 (4) TMI 942
Penalty u/s 271(1)(c) - claim made by the assessee that the interest on the Non-resident Non-repatriable account deposits is exempted from taxation - Held that:- The assessee filed the return of income in the status of 'resident'. In the note filed alongwith the return of income, the assessee claims that he was a 'non-resident' upto assessment year 2001-02. The assessee has also indicated in the note filed alongwith the return of income that the investment made in the securities and bank deposits are out of the remittance made from abroad. AO, after examining the claim of the assessee, found that the interest from the maturity of Non-resident Non-repatriable account deposits is not entitled for exemption u/s 10(4) of the Act. Accordingly, the interest on the Non-resident Non-repatriable account deposits was added to the total income. The Assessing Officer has also levied penalty u/s 271(1)(c) of the Act on the ground that the claim made by the assessee that the interest on the Non-resident Non-repatriable account deposits is exempted from taxation. This Tribunal is of the considered opinion that after furnishing all the details for making a claim before the Assessing Officer under the Income-tax Act, 1961, cannot be construed as furnishing inaccurate particulars of income. The details of deposits made by the assessee and the interest accrued on such deposits are very much available before the Assessing Officer. During the course of assessment proceedings, the assessee claimed that interest on such deposit is exempt from taxation. This Tribunal is of the considered opinion that this claim cannot be construed as furnishing of inaccurate particulars of income in view of the judgment of the Apex Court in Reliance Petroproducts Pvt. Ltd. (2010 (3) TMI 80 - SUPREME COURT ). - Decided in favour of assessee
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Customs
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2016 (4) TMI 925
Validity of Prohibition order - Import of various high value cars - Stoppage of the business operations of the applicant - Appellant prohibited from working as Customs Broker at New Delhi Customs stations - Held that:- no evidence has come on record that the appellant authorized Mr. G S Prince expressly or impliedly. We note that the impugned order also held the appellant responsible for the acts of Mr. G S Prince, G card holder at New Delhi office. As already recorded, no investigation was made or statement recorded from the Directors / partners of the appellant to bring out their role or the connection with the importer who were found to have violated the provisions of Customs Act. It is also noted that CHA license is issued at Nagpur. There is nothing on record to inform whether any action has been initiated till date against the appellant by the original licensing authority at Nagpur customs. The impugned order is passed without following the principle of natural justice and without due process of inquiry. The order was issued after almost 7 years of purported misdemeanor. Thus the prohibition order fails due to lack of due process, inordinate delay and on prima facie merit. Therefore, order of prohibition is not legally sustainable and accordingly set aside. - Decided in favour of appellant
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2016 (4) TMI 924
Provisional release of seized aircrafts - Section 110A of Customs Act, 1962 - Aircrafts originally imported and assessed provisionally to duty - Assessment and duty liability are yet to be finalized by the authorities even after 5 years of original import. Held that:- the appellants sold these aircrafts to foreign buyers. These aircrafts left India and were brought back again on lease agreement. The present seizure and provisional release is with reference to improper export and re-import of these aircrafts. The conditions for release has been fixed as execution of bond for full value of the aircrafts and supported by bank guarantee for full duty liability of these aircrafts. After considering the background, while furnishing bond for the full value can be considered as proper. insistence of bank guarantee of full duty liability is apparently a harsh condition followed by the decision of the Tribunal in appellant's own case involving similar set of facts reported in in [2016 (3) TMI 558 - CESTAT CHENNAI]. Accordingly, the orders for provisional release to the extent of reducing the bank guarantee to 20% of the duty liability as fixed and ordered by the original authority is modified, Bond will be for full value of the aircrafts. - Appeal disposed of
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2016 (4) TMI 923
Seeking release of confiscated goods - Seizure of 26 gold biscuits - Section 110(1) of the Customs act, 1962 - Illegally imported into India - Held that:- the seizure of the gold in this case was not an exception, but on earlier occasions also, such seizure of smuggled gold while being transported by air or train had been carried out. Moreover, the gold items in the instant case were being carried stealthily by the accused persons. Thus, according to Customs authorities, there was a reasonable belief that the instant goods have been smuggled into India without payment of customs duty in violation of Section 7(1)(c) and Section 11 of the Customs Act, 1962 and were liable for confiscation under Section 111 of the Act after seizure under Section 110 of the customs Act, 1962. The reasons furnished by the petitioner in the petition as well as subsequent affidavits seem to be only hyper-technical and learned counsel has tried to build up his case mainly on the basis of case laws Alternative remedy - Held that:- there is no violation of the principle of natural justice or a fundamental right or there is impugnment of vires of the Act by way of any challenge. Moreover, we also do not find that the proceedings of the case are pending at a stage which could foreclose the right to avail the alternative remedy of filing appeal. In the case like the one in hand, the petitioner cannot be allowed to take recourse to prerogative writ under Article 226 of the Constitution of India otherwise it may amount to enabling and empowering a litigant to defeat the provisions of the statute providing for certain conditions for filing the appeal, like limitation, payment of Court fee, or deposit of some amount for entertaining the appeal. It is also not a case where there is arbitrary exercise of powers by statutory authority in clear violation of the provisions of statute. Though the petitioner has tried to offer some explanations in support of the arguments on the requirement of reason to believe' as contained in Section 110 of the Customs Act, 1962 but it is also not a case where the appeal or any further proceedings under the statute were not or would not be dealt with on merit and may end as a mere idle formality because the administrative authorities under the Customs Act are also a quasi judicial authority and as such, they are under a legal obligation to decide the matter carefully and pass speaking and reasoned orders in accordance with law after giving full opportunity to the parties. It should be remembered that the rule requiring the exhaustion of a statutory remedy before the writ is to be granted is more appropriately a rule of policy, convenience and discretion than a rule of law and the Court may, therefore, in exceptional cases, issue a writ, such as, a writ of certiorari notwithstanding the fact that the statutory remedies have not been exhausted. The proceedings under the Customs authorities being in the nature of quasi-judicial cannot be quashed lightly. The exercise of prerogative writ jurisdiction is pre-eminently one of discretion and no inflexible rule can be laid. Where the provisions of Customs Act have not been complied with or if the fundamental principles of judicial procedure have been given a goodbye, the High Court can certainly grant relief in exercise of prerogative writ. However, the right of appeal as provided in the Customs Act should not be by passed merely on the ground that it is an appeal from one administrative authority to another. However the facts of the case in hand are not such that can attract the exercise of writ jurisdiction. - Decided against the petitioner
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2016 (4) TMI 922
Suspension of CHA licence - Passed within a short time of the licensing authority being made aware of the order of February 26, 2016 - Nothing contrary demonstrated by the petitioner - Held that:- if the licence had been suspended or revocation proceedings had been initiated prior to the order of February 26, 2016 (in the event the licensing authority was aware of such proceedings), there may have been some basis to the petitioner asserting that the licensing authority was attempting to prejudge an issue pending consideration before an appropriate authority. In this case, the order of suspension has been passed within a short time of licensing authority being made aware of the proven misconduct on the part of the petitioner as established by the order of February 26, 2016. Since an order of suspension of a Customs broker licence may be passed under the said Regulations without affording the broker any previous opportunity to explain his perceived misconduct, the invocation of this extraordinary jurisdiction cannot be seen to be on the ground of the breach of the principles of natural justice. Further, since the order impugned is founded on the basis of a previous order holding the petitioner guilty of abetting his client in an illegal import transaction, the order of suspension cannot be seen to be completely without basis that would shock the conscience of the court. Alternate remedy of appeal - Held that:- since the challenge in the petition is not founded on any of the grounds that may excite the court to disregard the alternative remedy available to the petitioner, the merits of the petitioner’s challenge to the impugned order cannot be gone into. It must also be emphasised that the alternative remedy that was available to the petitioner was the post-decisional hearing as an appeal from an order of suspension ought, ordinarily, not to be entertained since such order does not attain any degree of conclusivity before a subsequent order is passed after the post-decisional hearing. The present essay of the petitioner is misconceived and ill advised. In any event, the petitioner ought to have participated at the post-decisional hearing since no order was passed on this petition preventing the petitioner from so doing or keeping the post-decisional hearing in abeyance. If the petitioner has participated in the post-decisional hearing, the concerned Principal Commissioner will pass an order within 15 days hereof without being influenced by this order. If the petitioner has chosen not to participate at the post-decisional hearing, the Principal Commissioner will take necessary steps in accordance with law without affording the petitioner any further opportunity of hearing. - Decided against the petitioner
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Corporate Laws
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2016 (4) TMI 919
Scheme of Amalgamation - Held that:- The observations made by the Regional Director having been addressed and the Official Liquidator having opined that the affairs of the Petitioner Transferor Company have not been conducted in a manner prejudicial to the interest of its members or to the public interest, in the opinion of this Court there does not appear to be any impediment to the grant of sanction to the Scheme of Amalgamation, inasmuch as from the material on record and on perusal of the Scheme, it appears to be fair and reasonable and is not violative of any provisions of law, or contrary to public policy. The Amalgamation under the proposed Scheme appears to be in the interest of the companies and their members and creditors and, therefore, deserves to be sanctioned. Accordingly, the Scheme, as proposed by the Petitioner Company is hereby sanctioned with an amendment in Clause 5.1 and Clause 12, as stated in the Affidavit filed by the Petitioner Company. It is, however, clarified that the sanctioning of this Scheme would not absolve anyone, who is otherwise liable for any responsibility or liability, only on account of this sanctioning. It is clarified that the implementation of the present order shall be subject to the proceedings filed by the Transferor Company – 1 and Transferee Company before the High Court of Judicature at Bombay.
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Service Tax
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2016 (4) TMI 940
Refund of Service tax paid in excess - Banking and Financial Services - Unjust enrichment - production of certificate of Chartered Accountant showing that excess amount collected had been refunded on 31.03.2004 and 27.10.2004 respectively - Held that:- the evidence produced by the appellant before the appellate authority should be considered by the original authority. Annexure D,E and F orders are set aside and the matter is remanded to the original authority to consider in the light of the materials produced by the appellant before the appellate authorities whether it would be entitled to refund of the service tax paid in excess. - Matter remanded back
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2016 (4) TMI 939
Demand of service tax - Consulting Engineer service - Period involved is 1997-2002 - Appellant contended that the activity or the service provided by its company which is a foreign company did not get covered under the category of Consulting Engineer services inasmuch as during the relevant period the same was applicable to firms. Also the provisions to pay Service tax on reverse charge basis were introduced with effect from 18.4.2002 which were applicable from 18.4.06. Held that:- As M/s. Houwa Kogyo Co. Ltd. is a foreign company located in Japan having no office or any establishment in India and in view of the clear fact that M/s. Bharat Seats Ltd. is only a recipient of the services and in that the period involved is prior to 18.4.2006, no tax liability would arise against M/s. Houwa Kogyo Co. Ltd. Japan. - Decided in favour of appellant with consequential relief
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2016 (4) TMI 938
Service tax liability - Outdoor Catering Services - running industrial catering in the premises of various industries but did not took registration under Finance Act, 1994 - appellant not filed any reply to the show-cause notice and also not appeared before both the lower authorities as well as before Tribunal - Held that:- there is no dispute that the appellant is liable to pay Service Tax on the outdoor catering services rendered by him. It is found that the Service Tax liability has been worked out by the Department considering the entire amount received by the appellant as gross value of service rendered without giving them benefit of cum-tax. The Service Tax liability, if not charged on the bill, the amount received by the appellant/assessee needs to be considered as cum-tax as Service Tax liability needs to be work place. Accordingly, the Service Tax liability is upheld by relying on the ratio of decision of the Tribunal in the case of M/s Indian Coffee Workers Co-operative Society Ltd. Vs. Commissioner of Central Excise, Allahabad [2013 (10) TMI 343 - CESTAT NEW DELHI] and judgement of Hon'ble High Court of Madras in the case of Tamil Nadu Hotels Association Vs. Union of India [2001 (7) TMI 1 - HIGH COURT MADRAS]. The appellant will discharge the Service Tax liability and the penalties imposed there of. The lower authority will work out the correct Service Tax liability on the based amount received cum tax basis. Since the Service Tax liability on outdoor catering services was being contested at various forums as also there was no clarity, accordingly, the penalty imposed on the appellant is set aside. - Appeal disposed of
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2016 (4) TMI 937
Service tax liability for 01.06.2007 to 31.03.2010 - levied on value of rent received for the premises - Renting of Immovable Property - Section 65(105)(zzzz) of the Finance Act, 1994 - Appellant rented their premises to various clients under lease agreement and collected Service Tax from them - Held that:- the issue of discharge of Service Tax liability on the amount of rent collected is no more res integra as due to retrospective amendment tax needs to be discharged for the material period in question and we uphold the same. As regards interest is not payable on Service Tax, we do not agree with the contention raised by the Chartered Accountant for the simple reason that the Service Tax liability was always leviable on the immovable property, hence non payment of tax attracts interest. Accordingly, the Service Tax liability and interest thereof are upheld. Imposition of penalty - Held that:- the appellant having discharged the Service Tax liability and the interest thereof has to be extended the benefit of Section 80(2) of the Finance Act, 1994. These provisions were specifically brought into statute in order to not to impose penalty on the service providers under the renting of immovable property during relevant period, accordingly appellant need not be vitiated (sic) with penalty. - Appeal disposed of
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2016 (4) TMI 936
Imposition of penalties - Cargo Handling Services - Rendering services of loading and unloading and transport of goods to M/s SAIL at different locations - Discharged the Service Tax liability along with interest - Held that:- appellant could have been under bonafide impression that this contract is signed in the year 1999 and they were not liable to Service Tax at the time and hence they did not discharge the Service Tax liability, even after the inclusion the services under the Finance Act for discharge of Service Tax.It is noted that the appellant could have been under bonafide belief as he has been engaged in the rendering the services to public sector hence question of taxability may not arise. Therefore, appellant has made out a case for setting aside the penalty imposed on them under the provision of Section 80 of the Finance Act,1994. - Appeal disposed of
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Central Excise
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2016 (4) TMI 935
Whether the supply through a contractor to a project that comes within the purview of the Notification, could be construed as a supply - Goods cleared without payment of appropriate Central Excise Duty, in view of the exemption contained in Notification No.108/95 CE, dated 28.8.1995 - Held that:- the object of the Notification was to exempt all goods falling under the first Schedule to the Central Excise Tariff Act, 1985, when they are supplied to the United Nations or an International Organization for their official use or supplied to the projects financed by the United Nations or an International Organization and approved by the Government of India. It is sufficient to extract the first portion of the Notification to appreciate this point. In other words, the supply made to the Organization indicated in the Notification for their official use as well as supply made to the projects financed by them, are both included within the purview of the Notification. It may be open, to the Department to contend, in some cases where the supply is made for the official use of International Organization that such supply should have been made directly. We are not saying this as an interpretation to the Notification, but indicating that at least if a case falls within the first limb, there is some possibility for the Department to take such a contention. When a case falls under the second limb namely supply to the projects financed by the United Nations or an International Organization, we do not know how an interpretation is sought to be given by the Department that such supply should have been made directly to the projects. The project in this case was undertaken by the Government of West Bengal. It was financed by the International Development Association and the same was approved by the Government of India. Therefore, it is completely illogical to think even in cases covered by the second limb, that the supply should have been made directly. Therefore, the first question of law is answered against the Appellant/Revenue. Whether the assessee could have produced certificates of exemption after clearance - Held that:- the Original Authority held this question in favour of the assessee. The Commissioner reversed the decision of the Original Authority not on this ground. Therefore, the finding of the Original Authority in this regard has attained finality. - Decided against the revenue
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2016 (4) TMI 934
Valuation - Whether freight component has been included in computing the service tax payable - Engaged in multi-modal transport operations - Avail of services from transporters including seafaring vessels - Held that:- prima facie, there appears to be some substance in the petitioner’s assertion that the cost of freight which is charged from the clients by the petitioner and paid out to the transporters should be excluded in assessing the service tax. Such aspect of the matter was not considered by the concerned officer while assessing the service tax due. Accordingly, and without pronouncing finally on the merits or seeking to calculate the amount actually payable by the petitioner on account of service tax, the order impugned dated March 19, 2015 passed by the Commissioner of Service Tax (II) is set aside and the Commissioner is requested to look into such aspect of the matter on the basis of the papers that may be presented by the petitioner to pass a fresh order in accordance with law. - Appeal disposed of
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2016 (4) TMI 933
Calculating amount of the eligible cenvat credit of service tax paid on common input services margin/value - addition on trading of goods is to be considered and not entire sale price/turnover of traded goods - apportionment - Held that:- The Tribunal agrees with the Assessee that the common services are not covered by the definition of “activity” relating to business. The effect of the amendment made in 2011 is then considered from paragraph 14. The argument of the Assessee’s Advocate that these amendments are substantive in nature and though they are introduced in the form of an explanation, they would cover certain cases prior to the insertion or introduction of the same appears to have been rejected but in the same paragraph it is held that Rules are delegated legislation and the Government has no power to amend them with retrospective effect. To that extent, the Tribunal agrees with the learned Senior Advocate appearing on behalf of the Assessee. From there onwards and then in paragraph 15, at page 99 of the paper-book, the Tribunal holds that changes made by the Explanation are substantive. The Explanations have been made in Rules by a Notification without giving it retrospective effect and though the same was issued on 1st March 2011 it came into force on 1st April 2011. Thus, it cannot have retrospective effect. The Revenue’s action in considering trading as an exempted service for the period from August 2010 to March 2011 and covered by Appeal and demanding 6% of the trading turnover is not correct. To that extent, the Tribunal agrees with the Assessee and renders a finding against the Revenue. The Revenue has not challenged the same before us. In paragraph 16 onwards after reiterating this conclusion, the Tribunal deals with the apportionment of the credit of the common input service where such input services have been used both in relation to the manufacture of goods and trading activities in respect of the imported goods. From there onwards, we find that the Tribunal has referred to the arguments of the Assessee’s Senior Advocate. Tribunal misdirected itself completely to work out a denominator. We had put it to Mr. Bhate as to how in the teeth of such finding could the Tribunal then sustain the formula and the working of the denominator arrived at by it. The Tribunal must firstly refer to the substantive Rule and as operative prior to 1st April 2011 and then arrive at a conclusion in relation to the Explanation introduced with sub-clauses with effect from 1st April 2011. On its introduction and even prior thereto, we do not find any justification then to hold that the Parliament intended to encourage trading of goods rather than manufacturing of the same. The Parliamentary intent has to be gathered from the language used. If the words are plain, simple and clear, there is no scope for interpretation or applying any principle thereof. Once the Tribunal is bound to decide the controversy in the backdrop of the object and purpose sought to be achieved but has not arrived at any conclusion bearing in mind the same, then, we are required to step in. We cannot sustain this part of the finding and conclusion. Even Mr. Bhate found it difficult to support the same. We are of the view that as far as working of the denominator is concerned (and even the numerator, technically speaking) and to apportion the input credit, it would be appropriate to send the matter back to the Tribunal.
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2016 (4) TMI 932
Maintainability - Whether the writ petition is maintainable - Offices of the writ petitioner is situated in Orissa and major part of the cause of action arose outside the jurisdiction of the Calcutta High Court - Held that:- the Additional Bench of the Commission at Kolkata, under the statutory rules, having jurisdiction over the entire eastern zone, which includes the State of Orissa, after hearing, had passed the order. The appellant had participated in the proceedings. Hence, keeping Article 226(2) of the Constitution in mind, as a part of the cause of action had arisen within the territorial limits of the Calcutta High Court, the learned Single Judge was justified in holding that the writ petition is maintainable. Whether the learned Single Judge was justified in setting aside the order of penalty imposed by the Commission holding it as severable and legally unsustainable - Held that:- in view of the provisions in section 32E(1) of the Act, the respondents, “to have the case settled,” and “before adjudication” , instead of filing a reply to the notice and having the case adjudicated, filed applications before the Commission for settlement. So the respondents opted for settlement before the Commission, - a statutory forum created for the said purpose. Thus having opted for settlement and having accepted the amount of excise duty payable by them, the respondents cannot now turn back and challenge the penalty imposed by filing a writ petition because it would mean arguing the case on merit which under Section 33 of the Act can only be dealt with and decided by an adjudicating authority. Had there been adjudication and had duty liability been established, under section 11AC the respondents might have faced prosecution from which the Commission had granted immunity. Whether the order directing imposition of penalty is severable or not - Held that:- since section 32K speaks of “immunity from prosecution for any offence under this Act and also either wholly or in part from the imposition of any penalty and fine” (emphasis supplied), the order of penalty cannot be severed from the order of prosecution. It is a composite order. The words “and also” make the order of prosecution and penalty inseverable. Since an order passed by the Commission is an agreement in a statutory form, the respondents, having been granted immunity from prosecution, cannot challenge the imposition of penalty only. Under the statute the order of penalty is not segregable. As the order of penalty and prosecution cannot be segregated, either the applicant accepts the order in its entirety or the settlement fails. Admittedly a package, an order passed by the Commission, should be read as a whole. It is to be noted that the learned Judge even while holding penalty being segregable and unsustainable held “It is true that ordinarily the settlement comes as a package and composite tax statement is either to be accepted or rejected. The settlement tax cannot be accepted only in part.” Whether payment made pursuant to an order passed by the Commission can be conditional - Held that:- After order was passed by the Settlement Commission, the respondents had deposited the penalty, without prejudice to their rights available under the law. In our view since the respondents had filed applications for settlement admitting the allegations in the notice and having accepted immunity from prosecution and as the order is inseparable, such reservation of rights is unacceptable. It is against the scheme of the Act which shall make section 32K(2) otiose. In our view payment made pursuant to an order passed by the Commission cannot be conditional as it goes against the basic principles of settlement. Levy of penalty imposed by the Commission is set aside and direction for refund of penalty amount paid and/or realised from the writ petitioners, is also set aside and quashed. - Decided partly in favour of appellant
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2016 (4) TMI 931
Demand of interest - Improper stock taking method - Whether certain shortages of sponge iron detected by the officers during a joint physical stock verification were correct or not - Authorized signatory was present during the course of such stock-taking and the method adopted and the duty liability was accepted by appellants. Also the duty involved on the shortages of finished goods was also paid on the same day without protest. Held that:- weighment of goods was done by a joint physical stock verification where authorized signatory was also present and the methodology was also approved by the appellants. Any retraction of statement or questioning the methodology of weighment can be made before the issue of Show Cause Notice so that Revenue can take appropriate measures for conducting additional investigations. As the stock-taking was done with the concurrence of the appellants, therefore, at a later stage, after completion of investigation and issue of Show Cause Notice, appellant cannot turn around and take a stand that stock-taking was inappropriately done. In view of the above the aspect of shortages of goods is established and the duty demand voluntarily paid by appellant No.1 without protest is required to be confirmed. So far as payment of interest on the confirmed demand is concerned, it is observed that shortage was detected on 12.08.2011 and the corresponding demand was also paid by appellant No.1 on the same day, therefore, there is no interest liability on appellant No.1 on this account. Clandestine removal of shortages detected and imposition of penalty - Held that:- in view of the settled propositions of law, the act of clandestine removal cannot be held to be established. Accordingly, no penalties can be imposed. - Decided partly in favour of appellant
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2016 (4) TMI 930
Penalty under Section 11AC - High Court held that Tribunal has committed an error of having made available the option of reduced penalty. This is contrary to the spirit of law on the subject reported in [2014 (9) TMI 291 - GUJARAT HIGH COURT] - No merit is found in this petition to Apex Court - Apex Court dismissed the appellant's appeal
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2016 (4) TMI 929
Appellant submitted that Tribunal, while disposing of the appeal(s) before it, has not decided Tribunal has only decided the issue regarding classification of LABFS and LARO manufactured by IOCL that these products will also be classified under CETH 2710.29, reported in [2015 (7) TMI 461 - CESTAT AHMEDABAD]. but failed to decide two more issues viz. (i) Applicability of Notification No. 29/89-C.E., dated 1-3-1989 and duty computation on that basis; and (ii) Legality of penalty of ₹ 36,00,00,000/- (Rupees thirty six crores only) under Rule 173-Q of the Central Excise Rules, 1944, therefore the appellant is permitted to approach the Tribunal by filing a Review Petition before it. - Apex Court disposed off the appeal
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2016 (4) TMI 928
Validity of tribunal's order - Passed on an issue not agitated before it and thereby reopened a matter already settled and not agitated before them - Tribunal holds that the demand is barred by limitation in view of Section 11A of the Central Excise Act since there was no suppression, obviously the demand cannot be pressed against the assessee reported in [2005 (2) TMI 161 - MADRAS HIGH COURT] - Tax amount involved in the appeal is only ₹ 2.72 lakhs - Apex Court dismissed the appeal on this ground
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2016 (4) TMI 927
Valuation - Whether transit insurance is to be included while arriving at transaction value under Section 4 of Central Excise Act, 1944 - Tribunal decided the matter in the favour of revenue by including it in the transaction value reported in [2007 (7) TMI 57 - CESTAT, AHMEDABAD] as assessee failed to produce invoices but assessee submitted that these invoices were placed on record before the Commissioner as well as the CESTAT - Apex Court remitted the matter back to Tribunal for fresh consideration
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2016 (4) TMI 926
Excisability and classification - Dry Mix and Ready Mix Concrete - Tribunal has decided the appeal in favour of assessee reported in [2007 (4) TMI 680 - CESTAT MUMBAI] and the same has been confirmed by the Hon'ble Supreme Court in reference of Commissioner of Central Excise, Mumbai-III v. M/s. R.D.C. Concrete (India) Limited [2015 (9) TMI 1029 - SUPREME COURT], that the classification of ready mix concrete was under Chapter Heading 68 for the period prior to 01.03.1997. - Apex court dismissed the revenue's appeal
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CST, VAT & Sales Tax
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2016 (4) TMI 921
Entitlement for input tax rebate - Section 10(3) of the KVAT Act - Purchases effected from local registered dealers - Held that:- Since the petitioner was entitled for adjustment of excess tax paid in view of the said notice issued, the petitioner made adjustments of the excess taxes paid for the aforesaid tax periods against the output tax payable from the month of August 2014 in the monthly returns submitted in Form VAT 100 under the KVAT Act before the third respondent. Subsequently, the second respondent had observed that the allowance of input tax in the re-assessment orders as per the actual input tax claimed by the petitioner as per the returns filed in Form VAT 100 has resulted in loss of revenue and the re- assessment orders was opined to be erroneous insofar as the same as prejudicial to the interest of the public revenue in the light of the judgment of this Court in the case of State of Karnataka vs. M/s. Centum Industries (P) Limited [2015 (10) TMI 47 - KARNATAKA HIGH COURT]. The second respondent had issued notice under the provisions of Section 41(1) proposing to rectify the reassessment order rejecting the input tax credit allowed earlier to the petitioner. Re-opening of proceedings - Re-assessment order was prejudicial to the interest of revenue - Held that:- there is no authority or jurisdiction in the second respondent in seeking to reopen the proceedings on the basis of the said judgment. If at all, it is the revisional authority who may be vested with such power. It is to be noticed that it is indeed so, as the authority had the benefit of the judgment of this Court in Centum Industries and could not therefore on the basis of the said judgment, seek to re-open the proceedings on the footing that the re-assessment order was prejudicial to the interest of the revenue. If at all, it was for the revisional authority to have re-opened the said proceedings on any such opinion. - Decided in favour of petitioner
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2016 (4) TMI 920
Imposition of advance tax and penalty equivalent to three times of tax - Section 75(6) of the Assam Value Added Tax Act, 2003 - Department contended that the consignee had issued two delivery notes to the consignor for the same consignment on the same date which were not found to be in accordance with the provisions of the Act. Also the Driver failed to produce Excise Gate Pass in movement of the said goods from the factory and relevant form of the Commercial Tax Department of Uttar Pradesh despite grant of sufficient time and opportunities. Held that:- we find ourselves in complete agreement with the view taken by the Commissioner of Taxes. The findings of Commissioner are well founded and unassailable. The petitioner could not point out any illegality in the impugned order. No ground for interference is made out. - Decided against the petitioner
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Wealth tax
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2016 (4) TMI 941
Agriculture land situated within the limits of Municipal Corporation of Amritsar - whether CWT(A) has erred in holding that the agriculture land situated within the limits of Municipal Corporation of Amritsar is not taxable thereby allowing the relief by ignoring the provisions of section 2(ea) of the Wealth-tax Act whereby w.e.f. 1.4.93, the urban land is included in the definition of “assets”? - Held that:- As per proviso to clause (b) of Section 2(ea), the land which is classified as agricultural land in the record of the government and used for agricultural purposes will not be considered as an asset for the purpose of wealth tax. In its written reply before the Assessing Officer, the assessee stated “Agricultural land measuring 28K. 10 Marla situated Village Sultanwind as the land is used for agricultural purpose and land as per revenue record is agricultural land”. The Assessing Officer has not controverted the above statement of the assessee that the land is agricultural land in the revenue record and has been used for agricultural purposes. Learned DR has requested for setting aside the matter to the file of the Assessing Officer for verification of the above fact. We find that the assessee has stated these facts before the Assessing Officer which have not been controverted. Moreover, the assessment year under consideration is 2000-01 i.e., being more than 15 years old and the tax effect is less than ₹ 1 lakh. Considering all these facts, in our opinion, it would not be a fit case for setting aside the matter to the file of the Assessing Officer for verification. In view of the above facts, we accept the assessee’s contention that in respect of the land under consideration, the proviso to Section 2(ea)(b) would be applicable and the same would not be chargeable to wealth tax. Thus, the order of learned CIT(A) is sustained - Decided against revenue.
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Indian Laws
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2016 (4) TMI 918
Arbitrial award - direction to the appellant to execute the deed of transfer and assignment - Held that:- Direction contained in paragraph 7 of the PFA of the Arbitral Tribunal was duly carried out by the appellant based on the first request of the respondent themselves as made on 19.1.2012 and as per the modified request dated 3.4.2012. If that was the real fact situation in regard to the execution of the transfer deed, which was completely omitted to be noted by the learned Single Judge, it must be held that there was no occasion for the respondent to have any grievance in regard to the execution of the transfer deed as directed in paragraph 7 of the PFA of the Arbitral Tribunal dated 23.12.2011. The failure on the part of the learned Judge in having noted the fact that the transfer deed dated 4.4.2012 was as per the re-draft forwarded by the respondent themselves which was duly executed and sent back by the appellant by 9.4.2012 and the original by 12.4.2012 unfortunately resulted in the passing of the impugned order. In the light of the said patent illegality in the impugned order, the same is liable to be set aside.
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2016 (4) TMI 917
Eligibility of appeal under Section 18 of The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Held that:- The Central Excise Act, 1944, The Consumer Protection Act, 1986, The Motor Vehicles Act, 1988, etc. However, unlike those statutes, the purpose of the SARFAESI Act is different, it is meant only for speedy recovery of the dues, and the scheme under Section 13(4) of the Act, permits the secured creditor to proceed only against the secured assets. Of course, the secured creditor is free to proceed against the guarantors and the pledged assets, notwithstanding the steps under Section 13(4) and without first exhausting the recovery as against secured assets referred to in the notice under Section 13(2). But such guarantor, if aggrieved, is not entitled to approach DRT under Section 17. That right is restricted only to persons aggrieved by steps under Section 13(4) proceeding for recovery against the secured assets. The Appeal under Section 18 of the Act is permissible only against the order passed by the DRT under Section 17 of the Act. Under Section 17, the scope of enquiry is limited to the steps taken under Section 13(4) against the secured assets. The partial deposit before the DRAT as a pre-condition for considering the appeal on merits in terms of Section 18 of the Act, is not a secured asset. It is not a secured debt either, since the borrower or the aggrieved person has not created any security interest on such pre-deposit in favour of the secured creditor. If that be so, on disposal of the appeal, either on merits or on withdrawal, or on being rendered infructuous, in case, the appellant makes a prayer for refund of the predeposit, the same has to be allowed and the pre-deposit has to be returned to the appellant, unless the Appellate Tribunal, on the request of the secured creditor but with the consent of the depositors, had already appropriated the pre-deposit towards the liability of the borrower, or with the consent, had adjusted the amount towards the dues, or if there be any attachment on the pre-deposit in any proceedings under Section 13(10) of the Act read with Rule 11 of The Security Interest (Enforcement) Rules, 2002, or if there be any attachment in any other proceedings known to law. We are also unable to agree with the contention that the Bank has a lien on the pre-deposit made under Section 18 of the SARFAESI Act in terms of Section 171 of The Indian Contract Act, 1872. Section 171 of The Indian Contract Act, 1872 provides for retention of the goods bailed to the bank by way of security for the general balance of account. The pre-deposit made by a borrower for the purpose of entertaining the appeal under Section 18 of the Act is not with the bank but with the Tribunal. It is not a bailment with the bank as provided under Section 148 of The Indian Contract Act, 1872. Conceptually, it should be an argument available to the depositor, since the goods bailed are to be returned or otherwise disposed of, after the purpose is accomplished as per the directions of the bailor. In the case before us, the first respondent had in fact sought withdrawal of the appeal, since the appellant had already proceeded against the secured assets by the time the appeal came up for consideration on merits. There is neither any order of appropriation during the pendency of the appeal nor any attachment on the pre-deposit. Therefore, the deposit made by the first respondent is liable to be returned to the first respondent. Though for different reasons as well, we endorse the view taken by the High Court. Thus, there is no merit in the appeal. It is accordingly dismissed. We make it clear that the dismissal of the appeal is without prejudice to the liberty available to the appellant to take appropriate steps under Section 13(10) of the SARFAESI Act read with Rule 11 of the Security Interest (Enforcement) Rules, 2002.
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