TMI Tax Updates - e-Newsletter
April 30, 2014

Case Laws in this Newsletter:

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

Articles

1. RESOLUTIONS AND AGREEMENTS TO BE FILED UNDER COMPANIES ACT-2013

   By: CA SOHRABH JINDAL

2. CORPORATE SOCIAL RESPONSIBILITY (CSR) UNDER COMPANIES ACT, 2013 (PART III)

   By: Dr. Sanjiv Agarwal

3. SERVICE TAX COLLECTED AND KEPT IN ESCROW ACCOUNT – WHETHER SECTION 73A OF FINANCE ACT, 1994 APPLIES?

   By: DR.MARIAPPAN GOVINDARAJAN

4. Tax Planning Under Cdentral Excise

   By: Madhukar N Hiregange

News

1. Auction for Sale (Re-Issue) of Government Stocks

2. RBI Reference Rate for US $ and Euro

Notifications

SEZ

1. S.O. 1117(E) - dated 11-4-2014 - SEZ

Rescinds the sector specific Special Economic Zone for Textile and Garment at village Varshamedi, Taluka Anjar, District Kutch in the State of Gujarat.

Circulars / Instructions / Orders

VAT - Delhi

1. 03/2014 - dated 28-4-2014

Filing of online return for 4th quarter of 2013-14 - extension of period thereof.

Highlights / Catch Notes

Income Tax

• Linde and Samsung's Association of Persons deemed a tax resident in India, permanent establishment timing unaddressed.

  Case-Laws - HC : Advance Ruling - The stage at which the permanent establishment came into existence is a mixed question of fact and law. The Authority has not considered this question in view of its conclusion that Linde and Samsung had constituted an Association of Persons which was a tax resident entity in India for the purposes of the Act. - HC
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• Court Confirms Interest Liability Stands Despite Oversights in Presenting Relevant Provisions; Precedents Must Be Followed.

  Case-Laws - HC : Liability to pay interest - merely because certain aspects were not considered or that relevant provisions were not brought to the notice of the Court, is not enough to ignore and brush aside a binding precedent - HC
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• High Court Rules: Taxpayers Must Pay Interest u/ss 234A, 234B, 234C Despite Asset Attachments.

  Case-Laws - HC : Liability to pay interest u/s 234A, 234B and 234C - the interest is chargeable and merely because the assets and properties are attached, does not mean that the liability to pay interest will not arise - HC
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• High Court Clarifies 2011 Instructions on Monetary Limit for Appeals Apply Only to New Cases, Not Pending Ones.

  Case-Laws - HC : Monetary limit for filing of appeals - Whether the instructions of 2011 would apply to all the pending appeals irrespective of the fact whether those appeals were filed after the coming into operation of the instructions of 2011 or not - instructions applies prospectively only - HC
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• Revenue Authority Must Accept Valid Expense Explanations; Can't Arbitrarily Dismiss Them Without Cause.

  Case-Laws - AT : Credit for house-hold and living expenses – The nature and source of the credit to the assessee’s account has been explained - Revenue cannot merely reject an explanation convert a good explanation into a bad one - AT
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• Refunds of Share Application Money Not Deemed Dividends u/s 2(22)(e) of Income Tax Act.

  Case-Laws - AT : Deemed dividend u/s 2(22)(e) - refund towards share application money - the amounts debited to the Running account of the assessee cannot be considered as deemed dividend in terms of the provisions of sec. 2(22)(e) - AT
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• Coaching Classes by Institute Deemed Educational and Charitable u/s 2(15) of Income Tax Act.

  Case-Laws - AT : Charitable purpose u/s 2(15) – The income of the coaching classes earned by the assessee institute is within its objects and its Regulations and further these activities are educational activity within the definition of section 2(15) - AT
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• AO's Lump Sum Trading Addition u/s 145(3) Disallowed; Other Disallowances on Different Grounds Not Permissible.

  Case-Laws - AT : AO has made a lump sum trading addition by estimating ad hoc income of assessee at Rs.10 lakh after rejection of books of accounts u/s 145(3) of the Act - it is not open to the AO to uphold other disallowances and addition on other counts - AT
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Customs

• High Court Upholds Validity of Exim Policy's Appendix 14IC, Supports Restrictions on Permission and License Period.

  Case-Laws - HC : Change of policy - Restriction of Letter of Permission – Constitutional Validity of para 7 of Appendix 14IC of Exim policy – Curtailment of period of licence – Change of policy is not invalid - HC
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Service Tax

• Court Drops Demand Beyond Limitation Due to Bona Fide Doubt on Reimbursement Inclusion in Assessable Value.

  Case-Laws - AT : Since during the period of dispute, there were conflicting decisions on the point of dispute in this case because of which the appellant could have entertained a bonafide doubt about inclusion of reimbursement expenses in the assessable value - demand beyond normal period of limitation dropped - AT
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• Goods Value Separately Listed in Invoices Excluded from Service Tax Assessable Value When Sales Tax or VAT Paid.

  Case-Laws - AT : Value of goods used for providing the service, which had been shown by the appellant separately in their invoices and on which Sales Tax/VAT had been paid, cannot be included for assessable value - AT
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• Authorities Criticized for Lacking Discipline; Fail to Requisition Documents for Service Tax Claims, Case Remanded for Review.

  Case-Laws - AT : Claim of service tax from the recipient of services - adjudicating authorities are seen to be avoiding the fundamental adjudicatory discipline, namely in requisitioning the relevant transactional documents to identify the nature of the transaction - Matter remanded back - AT
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Central Excise

• Court Rules Central Excise Dues Not Linked to Unit's Assets; Successor Not Liable for Recovery.

  Case-Laws - HC : Recovery of demand from successor of Unit - Priority of dues - As far as dues of the Central Excise are concerned, they were not related to the said plant and machinery or the land and building and thus did not arise out of those properties - no recovery - HC
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• Court Grants Benefits for Legal Aid to Earthquake Victims Under Notification No.2/2001, Recognizing Relief and Rehabilitation Efforts.

  Case-Laws - HC : Denial of benefit of Notification No.2/2001 - relief of free legal aid and counselling provided by the petitioner to various victims of earthquake and making them aware of the various packages made available by the Government and guiding them aptly so also advising them suitably on legal issues would be squarely covered under the words “relief and rehabilitation“ - HC
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VAT

• Court Rules Tax Dept. Can't Charge Interest After Failing to Notify About Dishonored Cheque.

  Case-Laws - HC : Demand of interest for not depositing tax - The fact remains neither the cheque was returned to the petitioner, nor he was ever informed that the said cheque has been dishonoured by the Bank - The department cannot take the advantage of its own wrong - HC
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• Court Rules Circulars Can't Block Reassessment of Escaped Turnover If New Materials Justify Revision in Tax Cases.

  Case-Laws - HC : Escaped turnover - Satisfactory explanation of sale omissions in assessment – A circular could not stand in the way of assessing the escaped turnover in the context of the materials available warranting such a revision of assessment - HC
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Case Laws:

• Income Tax

• 2014 (4) TMI 997
  Transfer pricing adjustment – Computation of ALP – Software development business - Selection of comparables – Turnover filter - Held that:- T he decision in Trilogy E-Business Software India Private Limited v. DCIT [2013 (1) TMI 672 - ITAT BANGALORE] followed - The TPO had while selecting the above 26 comparables, applied a lower turnover filter of Rs.1 crore but preferred not to apply any upper turnover limit - The size of the comparable is an important factor in comparability - The ICAI TP guidance note has observed that the transaction entered into by a Rs.1000 crores company cannot be compared with the transaction entered into by a Rs.10 crores company and the two most obvious reasons are the size of the two companies and related economies of scale under which they operate - The TPO’s range had resulted in selection of companies as comparable such as Infosys which was 277 times bigger than that of the assessee - the turnover filter is an important criteria in choosing the comparables companies having turnover of more than 200 crores have to be eliminated from the list of comparables – thus, those companies have to be eliminated from the list of comparables – Decided in favour of Assessee. Functionally different Companies – Held that:- The decision in Trilogy E-Business Software India Private Limited v. DCIT [2013 (1) TMI 672 - ITAT BANGALORE] followed - The company was not comparable in the case of the assessees engaged in software development services business - Neither the TPO nor the DRP have noticed that there is bound to be a difference between the Assessee and Megasoft and the profit arising to the Megasoft as a result of the existence of the software product segment and no finding has been given that reasonably accurate adjustments can be made to eliminate the material effects of such differences - the TPO was justified in selecting M/s. Megasoft Ltd as comparable - the AO/TPO is directed to take segmental margins of 23.11% for comparability - Decided in favour of Assessee. Forex gain/loss impact – Held that:- The decision in Trilogy E-Business Software India Private Limited v. DCIT [2013 (1) TMI 672 - ITAT BANGALORE] followed - foreign exchange gain/loss being considered as not forming part of the operating cost, the reasoning of the revenue is that such loss or gain cannot be said to be one realized from international transaction though they may form part of the gain/loss of the enterprise - they should be excluded while determining operating cost - the AO/TPO is directed to consider the foreign exchange gain or loss as part of the operating cost or revenue - Decided in favour of Assessee. Working capital adjustment – Held that:- If the contention of the assessee is to be taken into account, the revised working capital adjustment comes to 2.04% instead of -1.27% arrived by the TPO - the issue is factual which requires verification at the AO/TPO’s level, thus, the matter is remitted back to the AO/TPO for fresh adjudication Decided in favour of Assessee. Risk adjustment – Held that:- The AO/TPO is directed to work out the ALP of the assessee in accordance with directions - It is the claim of the assessee its margin after considering foreign exchange loss is at 14.14%, where margin of the comparable after work capital adjustment is 15.89% and after risk adjustment, the adjusted average margin of comparable is 15.16% - the AO/TPO is directed to verify the working/computation and if found that the differential in the margin of the assessee and the comparables is beyond 5% bandwidth recognized in proviso to s. 92C (2) of the Act, then adjustment is required to be made to the reported value of the assessee’s transaction with its AE - Decided in favour of Assessee. Deduction u/s 10A of the Act – Reduction from the export turnover - Held that:- Following CIT v M/s Tata Elxsi Ltd. & Others [2011 (8) TMI 782 - KARNATAKA HIGH COURT] - when the expenses are reduced from the export turnover while computing deduction u/s 10A of the Act, it should also be reduced from the total turnover in order to maintain parity between the numerator and the denominator – thus, the AO is directed to reduce a sum of Rs.69,45,076/- from the export turnover as well as from the total turnover while computing deduction under section 10A of the Act – Decided in favour of Assessee. Prior period expenses – Held that:- The assessee is following the mercantile system of accounting and it was required to make deduction/provision for expenses in the respective assessment years as and when it occurs - the expenses are not pertaining to the concerned assessment year - the expenses pertaining to assessment year 2006-07 cannot be claimed as deduction in the present assessment year – Decided in favour of Assessee.

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• 2014 (4) TMI 978
  Disallowance of deduction of interest expenses – Held that:- The Assessing Officer has recorded the finding that the assessee is not entitled to exemption under Section 11 & 12 - The assessee has not disputed such finding in appeal either before the CIT(A) or before this authority - assessee’s income is to be computed under the general provisions of the Income-tax Act which are applicable in the case of persons who are not entitled to exemption under Section 11 & 12 – there is merit in the contention of the assesse that the income of the assessee needs to be computed under the various provisions of the Income-tax Act, viz., income from other sources or income from capital gains - thus, the AO is directed to recomputed the income – Decided in favour of Assessee. Disallowance of deduction u/s 80G of the Act – Held that:- The findings of the CIT(A) cannot be upheld that if the assessee is not eligible for exemption under Section 11 & 12, he is not eligible for deduction under Section 80G - The assessees who are not eligible for exemption under Section 11 & 12 are very well eligible for deduction under Section 80G – thus, the order of the CIT(A) set aside and the matter is remitted back to the AO for re-consideration – Decided in favour of Assessee. Withdrawal of exemption/registration u/s 12A/12AA of the Act – Held that:- If there is some correspondence between the AO and other departmental authorities, though the AO has mentioned the same in the assessment order, it will not become an appealable issue - if the DIT(Exemptions) would like to take any action on the proposal of the Assessing Officer, he will give opportunity of being heard to the assessee in accordance with law - even if the DIT(Exemptions) passed any order withdrawing the exemption granted to the assessee u/s 12A/12AA, the assessee would be at liberty to take appropriate action against such order in accordance with law – the ground is premature and needs no adjudication – Decided against Assessee.

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• 2014 (4) TMI 977
  Validity of re-opening of assessment u/s 148 of the Act – Contrary view taken by the AO - Held that:- The fact regarding the provision for doubtful debts and advances was duly disclosed by the assessee in the profit & loss account which was filed along with the return - The assessee has also added back the provision in the computation of income under the normal provision but the same was not included in computing the book profit u/s 115JB - the fact regarding the provision in respect of doubtful debts was duly disclosed by the assessee. The findings of the AO is contrary to his own finding wherein the AO himself has mentioned that the assessee company has debited Rs.34,02,529/- to the profit & loss account as provision for doubtful debts and advances and which was written back in the computation of income under the normal provision - it is evident that the assessee has disclosed all facts relating to the provision for doubtful debts and advances – thus, reopening of the assessment beyond four years wherein the original assessment was completed u/s 143(3) was not permissible – thus, the notice is set aside – Decided in favour of Assessee.

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• 2014 (4) TMI 976
  Jurisdiction for re-opening of notice u/s 148 of the Act - Assessee in default u/s 201(1) of the Act – Non-deduction of TDS u/s 195(2) of the Act - Whether any income arose or accrued to SEC through its PE in India in respect of the sales made in India – Held that:- The answer in our opinion should be in the negative, because even as per the revenue, as reflected in the order passed by the DRP in the reassessment proceedings of SEC, no income accrued to SEC in India - the DRP rejected the specific request made by that AO in his remand report that the assessee be treated as the PE of SEC and the income of SEC be computed on that basis - as regards attribution of income to the “fixed place PE”, a rough and ready basis would be to estimate 10% of the salary paid to the expat-employees of the assessee as the mark-up, as was done by the AO in the draft assessment order - The remuneration cost in respect of such employees seconded to the assessee amounted - this was taken as the base and a mark-up of 10% had been applied by the assessing officer and the income was taken - This was approved by the DRP in its order, the other claims made by the AO in the remand report were rejected. The basis of both the notices has been knocked out of existence by the DRP’s order in the reassessment proceedings of SEC for the same assessment year- On the date on which notices were issued to the petitioner u/s 148 and 201(1)/(1A), there was an uncontested finding by the revenue authorities in the case of SEC that SEC cannot be taxed in respect of the sales made in India through the assessee on the footing that the assessee is its PE - If no income arose to SEC on account of sales in India since the petitioner cannot be held to be its PE in India, two consequences follows that the payments made by the petitioner to SEC for the goods are not tax deductible u/s 195(2) and they were rightly allowed as deduction in the original assessment of the petitioner and the assessee cannot be treated as one in default u/s 201(1) and no interest can be charged u/s 201(1A - the notice u/s 201 is a verbatim reproduction of the remand report of the assessing officer in SEC’s case filed before the DRP – thus, both the notices u/s 148 and section 201(1)/(1A) of the Act set aside – Decided in favour of Assessee.

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• 2014 (4) TMI 975
  Challenge to the advance ruling given by the AAR – Assessee and Samsung AOP or not u/s 2(31) - existence of PE - Taxability of Income or profits received from off-shore supply of goods and services – Held that:- The Association of Persons is one in which two or more persons join together for a common purpose or common action and there is a joint management or joint action by the said two or more persons - In order to treat persons as an association, it is necessary that the members must have a common intention and must act jointly for fulfilling the object of their joint enterprise - the intention of the members of the Consortium is discernable from the various clauses of the MOU - MOU expressly provided that “the CONSORTIUM shall constitute an unincorporated arrangement established for the limited purpose of representations and dealing with ONGC/OPaL with independent and separate scope of work as set forth” in the MOU - each consortium member would be responsible for performance of its responsibilities and services as stipulated in the MOU. The consortium of Linde and Samsung constitutes an AOP - Linde and Samsung are jointly and severally liable to OPAL for due performance of the Contract dated 10.02.2009 - in terms of the Contract dated 10.02.2009, Linde and Samsung were described as a “contractor” and for the purpose of the obligations under the Contract were considered as a Consortium - the agreement between the parties provided for certain level of cooperation by way of appointing Project Directors and Manager for execution of the project - Linde and Samsung shared neither the costs nor risks - Both Linde and Samsung managed their own deliverables - the facts of the case do not indicate a sufficient degree of joint action between Linde and Samsung either in execution or management of the project to justify a conclusion that they had formed an Association of Persons and in our view, the Authority erred in concluding so - Relying upon In re: M/s Hyundai Rotem Co., and Mitsubishi Co. [2010 (3) TMI 119 - Authority for advance ruling] - DTAA recognises that the laws of each of the Contracting State may define a tax entity - Section 2(31) of the Act defines a ‘person’ to include an ‘Association of Persons’ - a venture undertaken by an Association of Persons formed by a resident of Germany in India would not be considered as an enterprise of Germany. Whether the income received/receivable in respect of the specified items of work is liable to tax in India under the provisions of the Act and whether the income received in respect of the specified items of work is taxable under the DTAA – Held that:- In the contract, the supply segment and service segment have been specified in different parts of the contract is a pointer to show that the liability of the appellant thereunder would also be different - The contract was executed in India - By entering into a contract in India, although parts thereof will have to be carried out outside India would not make the entire income derived by the contractor to be taxable in India - the “look at” principle must be applied to see the transaction as it existed and piercing of the Corporate Veil was not necessary where the transactions were genuine and had commercial substance - there is no controversy which involves lifting of the corporate veil or “looking at” any scheme to find whether a transaction is a sham or has any substance - Both the Revenue and Linde are accepting the Contract as it stands and the controversy only revolves around the situs of the income accruing or arising from the contract. By virtue of Section 9(1)(vii) of the Act, fees for technical services paid by a resident are taxable in India (except where such fees are payable in respect of services utilised by such person in business and profession carried outside India) - in the event the services in question are not considered as an integral and inextricable part of equipment and material supplied, it would be necessary to examine whether any relief in respect of such income would be available to Linde by virtue of the DTAA between Germany and India. Admittedly, Linde has a permanent establishment in India, however, it is contended by Linde that its Permanent Establishment came into existence after Linde had completed the offshore supplies of equipment and duly provided the offshore services. This is disputed by the Revenue and it is contended that Linde had a pre-existing permanent establishment in India. The stage at which the permanent establishment came into existence is a mixed question of fact and law. The Authority has not considered this question in view of its conclusion that Linde and Samsung had constituted an Association of Persons which was a tax resident entity in India for the purposes of the Act. The question at what stage Linde’s permanent establishment came into existence would have to be examined by the Authority. Thus, the order is set aside and the matter is remitted back to the Authority for fresh adjudication – Decided in favour of Assessee.

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• 2014 (4) TMI 974
  Admission of appeal – Substantial question of law - Appeal decided ex-parte - Held that:- The Tribunal has hastily disposed of the appeal in the absence of the revenue's advocate - the Tribunal does not adhere to the basic and fundamental principle of law and treats such matters as if they are any other appeal or proceedings - The Tribunal's orders in most cases have far reaching effect or consequences - Tribunal as a matter of last resort should undertake the exercise that has been presently undertaken by it - it should not dispose of appeals by ex-parte order on merits and unless they are pending for considerable number of years and repeatedly adjournments have been sought - The discretion should be exercised judiciously and not arbitrarily and capriciously - The Tribunal has not exercised the discretion judiciously and has hastily disposed of the appeal - This itself raises a substantial question of law – the appeal is admitted on this issue - there is no justification for ex-parte order – the order is set aside and the matter is remitted back to the Tribunal for fresh adjudication – Decided in favour of Revenue.

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• 2014 (4) TMI 973
  Liability to pay interest u/s 234A, 234B and 234C of the Act - Assessee being a notified person under the Special Court (Trial of Offences relating to Transactions in Securities) Act 1992 - Held that:- Following The Commissioner of Income Tax Versus Divine Holdings Pvt. Ltd. [2012 (4) TMI 100 - BOMBAY HIGH COURT] - The Tribunal has erred in taking a view that the assessee being a notified person under the Special Court (Trial of Offences relating to Transaction in Securities) Act, 1992 is not liable to pay interest u/s 234A, 234B and 234C of the Act - the interest is chargeable and merely because the assets and properties are attached, does not mean that the liability to pay interest will not arise - merely because certain aspects were not considered or that relevant provisions were not brought to the notice of the Court, is not enough to ignore and brush aside a binding precedent - The remedy of correcting an erroneous judgment and order is to file an appeal challenging it and, then, convince the Appeal Court in exercise of such appellate power to quash or reverse such judgment – thus, the order of the Tribunal is set aside – Decided in favour of Revenue.

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• 2014 (4) TMI 972
  Nature of income – STCG or business income – Trading in shares - Held that:- If the business activity of the assessee is trading in shares, there can be a presumption that the amount claimed was derived through trade, the assessee in such cases has to establish that the amount was indeed invested and the proceeds of sale were of a capital asset - keeping a separate investment account would also be a relevant indicia - the assessee had purchased the Unitech shares in the previous year; it had been shown as investment and that treatment was accepted by the income tax authorities - He had sold 2000 shares during the previous year - the gains were treated as short term capital gains. The left out shares were firstly sub-divided leading to five hold increase in the assessee’s holding - Unitech issued bonus shares which resulted in the assessee becoming owner of 1,95,000 shares - acquisition of shares cannot be considered as investment - in all there were a total of 47 share purchase and sale transactions and that the predominant or overwhelming gain was on account of sale of Unitech shares, the income derived cannot be called as business or share trading income; it is short term capital gain - There is nothing to show the frequency of trading, or volume of share transactions, or any other factor (use of borrowed funds, or the line of business of the assessee being share trading) pointing to the amount gained to be on account of share trading – Decided against Revenue.

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• 2014 (4) TMI 971
  Monetary limit for filing of appeals - Application of instructions of 2011 - Whether the instructions of 2011 would apply to all the pending appeals irrespective of the fact whether those appeals were filed after the coming into operation of the instructions of 2011 or not – Held that:- If the language employed in a piece of legislation is clear and unambiguous, it is not for the Court to interpret the same in a different way simply because the Court thinks that it would be wiser to adopt another reasonable view instead of the one specifically mandated in the statutory provisions - clause 11 of the Instructions of 2011 specifically states that "this instruction will apply to appeals filed on or after 9th February 2011 - the cases where appeals have been filed before 9th of February 2011 will be governed by the instructions on this subject, operative at the time when such appeal was filed. There is no ambiguity in the instructions of either 2011 or 2008 as regards the applicability of those instructions in respect of the appeals and it has also been made clear that if those appeals are not filed after the given dates mentioned in those instructions, the fate of the appeals will be governed in accordance with the instructions prevailing on the date of presentation of such appeals – thus, it could not be held that even if an appeal is filed prior to 9th February 2011, the same would be barred notwithstanding the fact that at the time of filing such appeal, the same was not barred by the then instructions of the CBDT. It simply enables CBDT from time to time, to issue orders, instructions or directions to other income-tax authorities, fixing such monetary limits as it may deem fit, for the purpose of regulating filing of appeal or application for reference by any income-tax authority under the provisions of the concerned Chapter. From the language of the enabling provisions of the statute, it is clear that no power has been conferred to the CBDT to make the pending appeals or references filed in accordance with the then existing law infructuous by issuing any such direction or instruction with retrospective effect – the reference is answered in negative – Decided in favor of Revenue.

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• 2014 (4) TMI 970
  Payments made to sub-contractors – Held that:- All the payments are by account payee cheques and the work, which the respondent-assessee is doing, certainly required sub-contractor ship to look into various other jobs which possibly the respondent-assessee was unable to handle on its own - as observed by the CIT(A) as well as the ITAT that income from DPR work had increased by 21.35% over preceding year whereas the corresponding expenditure is only 17.19% - while the payment to the three subcontractors whereas the AO disallowed 5% out of the total job work charges paid and this exercise of the AO appears without any justification and was not proper - the AO assessing the assessee ought to have forwarded such information to the AO, assessing those recipients and action, if deemed proper, could have been taken in their respective hands rather than observing here in the case of the assessee that the sub-contractors have not shown proper income or the income is disproportionate to the receipts - the conclusion of the AO to disallow the ad-hoc amount was not correct and rightly accepted by both the appellate authorities. Disallowance out of soil testing and surveying expenses – Held that:- Both the ITAT as well as CIT(A) have correctly disallowed the deletion and there was no occasion for any ad-hoc disallowance out of the expenses at the rate of 10% - it has been observed by the CIT (A) and approved by the ITAT that the receipts by the assessee were to the extent of Rs. 85,75,162/- as against the expenditure of Rs. 50,18,663 - even the receipts are substantially higher than the expenditure the disallowance deleted by the CIT(A) and approved by the ITAT cannot be faulted with. Salary/remuneration to the Chairman-cum-Managing Director – Held that:- The CIT(A) rightly deleted the disallowance which was upheld by the ITAT – there was no reason in interfering - on the face of overwhelming evidence on record, salary of Rs. 24 lac cannot be said to be excessive or unreasonable and the revenue has not been able to make out as to whether the salary paid to Shri Viswas Jain was not as per the fair market value as provided u/s 40A(2)(a) and 40A(2)(b) of the IT Act - The ITAT after appreciation of evidence, has come to the conclusion that the disallowance out of job work charges, soil testing and surveying charges and directors' remuneration is not proper and it had been rightly deleted by the CIT(A) and there was no infirmity in the order of the ITAT – Decided against Revenue.

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• 2014 (4) TMI 969
  Deletion of interest – borrowed funds utilized for non-business purpose – Held that:- The Tribunal have rightly examined in detail the pattern of investment, loans and advances as also considering the fixed assets and cash noted that there was no fresh borrowing and already borrowed funds had reduced from Rs1953 lakhs to Rs.1239 lakhs - The substantial reduction led the tribunal to note that it would not be possible to hold that the borrowed funds were not used for business purpose merely because the investment, loans and advances given to the partners and the debit balance of the partner’s capital account had gone up. The Tribunal has rightly held that Rs.97.26 lakhs interest free advance were made whereas the assessee had interest free fund to the tune of Rs.95.80 lakhs available with it, only for the remaining sum of Rs.1.46 lakhs, it had confirmed the disallowance of the interest - there is no reason to interfere in the reasonings in absence of any perversity - in absence of any fresh borrowings in A.Y. 2003-2004, reduction of borrowed funds could not be assumed to be for non-business purpose with corresponding advances to the partners in wake of appreciation of entire gamut of facts and details presented before the Revenue authorities – Decided against revenue.

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• 2014 (4) TMI 968
  Addition on account of sale of furniture – personal effects - Held that:- There is no evidence of the user of the bunglow by the assessee for the purpose of his residence or even his family - the CIT(A) have not accepted the additional evidence sought to be adduced before him, and toward which no argument or ground stood raised - there is no evidence with regard to the user of the building for the purpose of own residence – the assets was held for personal user, so as to be excepted from the definition of a capital asset u/s. 2(14) - The assessee shall be entitled to some relief for the cost of the assets which are to be only considered as capital assets - The acquisition of the assets is taken as during the year 1999 at the time the bunglow was given on lease for the first time - while the total sale consideration shall continue to be assessed as that against furnished bunglow, its cost shall be increased by Rs. 2 lacs, taken as expended during the F.Y. 1999-00, considering them as a part of the capital assets sold along with – thus, partial relief granted. Credit for house-hold and living expenses – Held that:- The nature and source of the credit to the assessee’s account has been explained - The quantum of the living expenses incurred by the assessee has not been questioned - No enquiry has been made to ascertain if the assessee is indeed living with his family, as a joint family, and whether their total household expense, i.e., as incurred by the assessee is in consonance with the needs and the living standards of the extended/joint family - The Revenue cannot merely reject an explanation convert a good explanation into a bad one - The source of the credit is a corresponding debit to the account of the father in the books of UC, a family partnership concern - It is not necessary for the assessee to maintain a loan account of his father, which is an irrelevant consideration - No case for the non-acceptance of the assessee’s explanation is made out – the addition is set aside – Decided in favour of Assessee.

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• 2014 (4) TMI 967
  Restriction of Gross profit addition – Rejection of books of accounts - Held that:- CIT(A) was right in holding that the rejections of books of accounts is not justified - the AO has not pointed out any particular defect in the book account of the assessee - The sole basis for application of provisions of Sec. 145(3), is the purchases and sales to sister concern is not at arm’s length - Instead of examining these transaction u/s 40A(2) of the Act the AO rejected the books of account and estimated the gross profits which is not correct - the profit has to be arrived at based on the books of accounts - the deletion of the CIT(A) of profits estimated based on applying G.P. rate of 6% by AO and consequent addition is upheld - the assessee has not come up in appeal against the addition of Rs 10,00,02,125 - the CIT (A) has not confronted the AO with the details of transactions furnished by the assessee with the sister concern – thus, the matter is remitted back to the AO for fresh verification – Decided in favour of Revenue. Disallowance on account of interest paid – Held that:- The assessee has sufficient interest free funds - When there are both interest free funds and borrowed funds, it has been held CIT vs. Reliance Utilities and Power Ltd. [2009 (1) TMI 4 - HIGH COURT BOMBAY] - when interest free funds are available, then the presumption would be that such interest free funds were invested or advanced as interest free loans/advances - If the presumption is applied to the facts of this case then no disallowance can be made - the borrowing were a cash credit against stock - the presumption would be that the funds borrowed from the bank was utilized for the purposes for which it is sanctioned by the bank – thus, the disallowance is set aside – Decided in favour of assessee.

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• 2014 (4) TMI 966
  Deletion of disallowance u/s 24 of the Act – Expenses of interest on borrowed capital – Whether the addition cane be made u/s 153A/153C of the Act without any incriminating documents - Held that:- CIT(A)’s order is quite elaborate and he has clearly established nexus between interest on borrowed capital and rental income and as per the provisions of section 24 the same was allowable - in terms of section 24 of the Act the interest paid is allowable as a deduction - there was no infirmity in the order of CIT(A) – No addition can be made u/s 153A/153C in case of completed assessment wherein no incriminating document is found during search, it has been consistently held by the CIT(A) that in respect of completed assessments, no additions can be made u/s 153A in the absence of incriminating material found during search - Decided against Revenue.

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• 2014 (4) TMI 965
  Disallowance of foreign travelling expenses – Held that:- The assessee company had filed a details chart before the FAA about the foreign visits by the officers of the company - Details furnished by the assessee with regard to foreign travel expenses were also available to the FAA - it cannot be held that assessee had not produced any documentary evidence before him - Assessee had taken specific plea in the statement of facts, filed along with the Form No. 35, that AO had not called for any evidence from the assessee-company and passed the order on very next day of the submissions made by the assessee - FAA should have considered all the material before him before arriving at any conclusion - he has not passed the reasoned order – the matter needs further verification by the FAA – thus, the matter is remitted back to the FAA for verification – Decided in favour of Assessee.

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• 2014 (4) TMI 964
  Deemed dividend u/s 2(22)(e) of the Act – Withdrawal of amount - Held that:- The assessee has contributed substantial funds towards “Share Application account” - the assessee is having a running account with the company, wherein the transactions relating to remuneration, rent, salaries etc. are accounted for - the amount refunded to the assessee during June, 2008 and in subsequent months was debited by the company and the same has converted the credit balance into debit balance on certain dates - the assessee has also prepared combined ledger account combining both his Running account and the balance available in the Share Application account - the assessee’s account was always having credit balances, the assessee has not withdrawn any money over and above the money already contributed by him – there was merit in the contentions of the assessee that the “Running account” was wrongly debited with the amounts refunded, instead of debiting the same to the Share Application Account – thus, the assessee should not be penalized for the mistake committed by the company in not accounting the transactions properly - the factual position also shows that there was no intention to avoid payment of taxes by distributing money in the form of loan or dividend instead of distributing the same as dividend. Relying upon M.D. Jindal Vs. CIT [1986 (4) TMI 17 - CALCUTTA High Court] - the company only possesses the funds belonging to the assessee, if both the Running account and Share application money contributed by the assessee is taken together - the amounts debited to the Running account of the assessee cannot be considered as deemed dividend in terms of the provisions of sec. 2(22)(e) of the Act - they represents money refunded out of the contribution made by the assessee towards Share Application account – thus, the order of the CIT(A) set aside – Decided in favour of Assessee.

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• 2014 (4) TMI 963
  Deemed dividend u/s 2(22)(e) of the Act – Loans received – Held that:- CIT(A) rightly was of the view that the loan/advance was not received by the assesssee company during the year and the AO was not justified in making the addition by invoking the deeming provisions of Section 2(22)(e) of the Act - CIT(A) had set aside the addition – revenue merely relied on the order of the AO - He could not point out any specific error in the order of CIT(A) - revenue could not controvert the finding of the CIT(A) that the amount of Rs. 8 lacs outstanding loan from M/s. Sarjan Financial Pvt. Ltd was the opening balance of the year – revenue could not bring any material to show that any amount was received by the assessee during the previous year relevant to the assessment year from M/s. Sarjan Financial Pvt Ltd as loan or advance – thus, there was no reason to interfere with the order of CIT(A) – Decided against Revenue. Disallowance u/s 14A of the Act – Restriction out of operating expenses – Held that:- The assessee earned dividend income - The assessee incurred operating expenses - According to the AO since the major income of the assessee was by way of dividend – thus, Rule 8D was not applicable to the assessee, he disallowed proportionate operating expenses by taking the proportionate total exempt income and total income - CIT(A) restricted the disallowance by working out the same in accordance with Rule 8D of the Income Tax Rule, 1962 – revenue could not show any provision of law which empowers the revenue to over-ride the provisions of Rule 8D while working out disallowance u/s 14A of the Act so as to make disallowance of an amount more than the amount worked out as per Rule 8D – there is no reason to interfere with the order of CIT(A) – Decided against Revenue.

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• 2014 (4) TMI 962
  Assessee to be covered u/s 2(15) of the Act or not – Charitable purpose – Education purpose - Whether the CIT(A) has erred in ignoring that the assessee’s predominant objectives are to conduct examinations for the candidates for the Chartered Accountants and to regulate it members and it does not provide any scholastic education – Held that:- Following Institute of Chartered Accountants of India Versus DIT (Exemption) [2010 (10) TMI 502 - ITAT, DELHI] - The Institute as such merely it is receiving coaching fee from students for imparting education, cannot be said to have been carrying on business and accordingly it is not required to maintain separate books of accounts. The income of the coaching classes earned by the assessee institute is within its objects and its Regulations and further these activities are educational activity within the definition of section 2(15) of the Act – thus, there cannot be activity of business for which separate books of accounts are required to be maintained - The institute is an educational institute and its income will also be exempt u/s 11 as education falls within the meaning of charitable purpose u/s 2(15) of the Act - Revenue could not substantially controvert the proposition and has fairly agreed that the issue stands covered by the Tribunal order in favour of the assessee and against the revenue – thus, there is no reason to interfere in the order of the CIT(A) – Decided against Revenue.

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• 2014 (4) TMI 961
  Admission of additional evidence – Violation of Rule 46A of the Rules – Held that:- The CIT(A) rightly held that the AO could not be said to have allowed in-adequate opportunity to the assessee and that even otherwise, the assessee had been afforded adequate opportunity in the appellate proceedings - The additional evidence was admitted by the CIT(A) on having taking into consideration the totality of the facts and circumstances, there was no error in the action of the CIT(A) – Decided against Revenue. Deletion made u/s 68 of the Act – Unexplained cash credits – Held that:- The confirmation from the partners of Grover Developers , which confirmation was notarized and was on stamp paper, showed that the assessee had been paid Rs.10 lac and Rs.5lac by cheque on 6/7/2007 & 7/1/08 - The assessee was found to have received cash of Rs.20,50,000/- through Shri Diwan Singh, father of Shri Surender Singh Grover, partner of M/s Grover Developers - The cash flow statement showed withdrawal of cash of Rs.14 lacs on various dates and re-deposit of Rs.10 lacs - the deposits in the bank tallied with the cash advance received by the assessee from the buyers - after having duly taken into consideration CIT(A) deleted the addition - revenue has not been able to dispute the categorical findings of fact recorded by the CIT(A) – Decided against Revenue. Disallowance of deduction u/s 80C of the Act – Held that:- The assessee had invested the amount to Rs.1 lac through his Axis Bank Account in a term deposit - The merits of the action of the CIT(A) in admitting additional evidence have been discussed - Such investment in a term deposit is eligible for deduction u/s 80C (2) (xxi) of the Act, as correctly held by the CIT(A) – thus, there was no error in the CIT’s action of deleting the disallowance – Decided against Revenue.

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• 2014 (4) TMI 960
  Dismissal of TDS - Amount was not claimed in the return – Applicability of section 155(14) of the Act – Held that:- Assessee contended that the provision of section 155(14) of the Act was brought into statute by Finance Act 2002 w.e.f. 1.6.2002 - the CIT(A) wrongly placed reliance on the provision in the order in disallowing legal contentions of the assessee – thus, the reliance placed by the CIT(A) wrongly placed reliance on the provisions of section 155(14) of the Act which was not applicable to the assessment year of the present case i.e. 2001-02 – Decided in favour of Assessee. Dismissal of appeal u/s 154/143(1) of the Act – Claim of TDS credit - The provisions of section 155(14) of the Act are not applicable which is related to AY 2001-02 - the assessee company requested to allow additional credit of various TDS certificates which were not claimed while filing the return of income and this request made u/s 154 of the Act was rejected by the AO by holding that the assessee has not claimed the TDS certificate while filing of return which is not a proper and justified approach - claim of the assessee in regard to credit of additional TDS certificates is remitted back to the AO for verification and examination – Decided in favour of Assessee.

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• 2014 (4) TMI 959
  Disallowance of various expenses – Held that:- When the assessee had been maintaining mercantile system of accounting, then provisions based on actuarial calculations are allowable and deductible u/s 37 of the Act - when the assessee made purchases during the previous financial year and shown that amount as receivables in its final account, the amount was carried forward to the financial year and during the same period i.e. AY 2007- 08, additional excise duty was paid to the excise department being excise duty as determined by the Settlement Commission of the Central Excise Department - When the liability was actually crystallized during the relevant financial year in question, then the claim of the assessee is allowable and no disallowance can be made in this regard. The AO has made a lump sum trading addition by estimating ad hoc income of assessee at Rs.10 lakh after rejection of books of accounts u/s 145(3) of the Act - it is not open to the AO to uphold other disallowances and addition on other counts and on the basis of results of rejected books of accounts - except lump sum ad hoc trading addition of Rs. 10 lakh, other disallowances and addition made thereunder are not sustainable. Lump sum ad hoc trading addition – Held that:- Since the AO found anomalies and discrepancies in the books of accounts of the assessee and on this basis, the AO rejected books of accounts of the assessee u/s 145(3) of the Act, the AO is empowered to make a trading addition on the basis of best judgment assessment and it should be either based on the previous year or subsequent year results of the assessee or some suitable comparables - the AO has not made any exercise to consider previous or subsequent results of the assessee or any other suitable comparables - estimation of lump sum trading addition was not based on cogent and justified basis – the order of the AO pertaining to estimated trading addition is set aside and the matter is remitted back to the AO for adjudication – Decided in favour of Assessee.

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• Customs

• 2014 (4) TMI 983
  Manipulation of export documents - Refund of duty drawback along with interest - Section 75A(2) r/w Section 28AB of the Customs Act – Reduction of penalty - Section 114AA – Held that:- There were parallel or two separate sets of shipping bills, invoices, and packing lists - Incriminating statement of the petitioner was recorded - The dispute is factual and there is no document or material to show that the discrepancies pointed out by the authorities require any interference on the ground that the decision is perverse and the findings recorded could not have been reached by a reasonable and fair adjudicating authority. Export of candle sticks - brass or aluminium candle sticks – Held that;- Authorities have not only noticed and gone on the brochure or catalogue of the petitioner, but have also referred to the discrepancies in weight and recorded their findings that the weight of aluminium candle sticks would be much less than the weight of brass candle sticks - Again reliance has been placed on the duplicate papers/documents – Since the findings recorded on the said aspect are also factual and thus, need not require any interference by this Court. Reduction of penalty – Held That:- As penalty was reduced by the first appellate authority to Rs. 9,86,922/-, i.e., the value of the duty drawback wrongly or fraudulently availed of by the petitioner – This Court need not examine the contention on merits as the Central Government has not gone into and examined the said aspect - The issue/question remained unanswered and has not been decided – Therefore, a limited order of remand directing the Central Government to consider the question of quantum of penalty is passed - Decided partly in favour of assesses.

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• 2014 (4) TMI 982
  Restriction of Letter of Permission – Constitutional Validity of para 7 of Appendix 14IC of Exim policy – Curtailment of period of licence – Change of policy – No policy change in SEZ areas - Derecognizing of unit as EOU – Double Grant of extension of permission – Articles 14, 19(1)(g) of the Constitution of India – Manufacture of textile products like fibers and clips - 100% EOU - Held That:- Under the policy, scheme has been made available granting permission to the intending units to start their manufacturing activities in EOU scheme - For such purpose, the unit would have to apply for Letter of Permission - In terms of para 2.4, DGFT would specify procedure to be followed by an exporter or importer or by any licensing or regional authority for the purpose of implementing provisions of the Act or the rules and the orders made thereunder, as also the Foreign Trade policy - It was in exercise of such powers that the Handbook of Procedures and Appendixes annexed to the handbook came to be published by the DGFT. Allowability of Reprocessing of garments/used clothings/secondary textiles materials – Held That:- Clause (7) provides that the activities pertaining to reprocessing of garments/used clothings/secondary textiles materials, etc., will not be allowed under EOU/SEZ schemes - Such restrictions are not invalid or unauthorized - The source and origin of power for imposing such conditions have been traced - It would be improper to suggest that such conditions could not have been imposed altogether and that the applications would be governed merely by the Act of 1992 and the Foreign Trade policy promulgated by the Government of India - It was in terms of such powers flowing from para 2.4 of the Foreign Trade Policy : 20092014 that such Handbook of Procedures alongwith Annexures was published - This Court has referred to this position from the Foreign Trade Policy and the Handbook published by the DGFT which are currently applicable - The same position would obtain for the earlier period under similar circumstances. Could such policy be applied to the existing units – Held That:- Assessees were granted LoP in the year 1997, when such restriction was not existing - Such restriction was applied for the first time in the Policy with effect from 1st September 2004 - Even a unit which has been granted LoP, enjoys the same permission for a limited period - No unit would have a right to enjoy LoP in perpetuity only on fulfilling the conditions contained in the first licence, irrespective of any change in the Government policy - Atleast at the end of the period of validity of the LoP, the unit must yield to the Government of India policy changes - Language used in para 7 that in specified conditions permission will not be granted must be construed as applying equality to any existing unit seeking extension under the Government of India policy - Its applicability cannot be curtailed to only to the new units seeking fresh permission. Is change in policy hit by Articles 14, 19 (1)(g) – Held That:- It cannot be accepted - In the affidavit in reply, the respondents stated that the import of used clothing classified under Customs Chapter heading No. 6309 is restricted - Whereas, the used clothes which are mutilated are not restricted and would fall under Customs Chapter Heading No. 6310 - It is noticed that a letter dated 17th September 2013 of the Director, SEZ Division, Government of India contains a policy to regulate functioning of worn and used clothing units in SEZs, in which, regarding reprocessing of used garments, detailed provisions have been made - While still permitting SEZ units to deal in such used garments for manufacture of yarn for export, strict conditions have been laid down - In the context of permitting such imports to SEZ units, in the affidavit in reply, it is contended that such policy is exclusively for SEZ units and not for those situated outside SEZ areas - Such units are situated in a demarked area which is surrounded by high walls, operating in SEZ areas under constant watch and monitoring by the Governmental agencies - On such basis, the differentiation for SEZ units and units under EOU scheme is made. Reasonable purpose of change – Held That:- When the purpose of change in the policy is otherwise reasonable, vulnerability of such policy of the Government in view of Articles 14 and 19 (1)(g) would not be lightly attached - In economic and fiscal matters, the Courts recognize considerable leverage in Government's discretionary powers – Relying upon PTR Exports (Madras) Private Limited & Anr. vs. Union of India & Ors. [1996 (5) TMI 413 - SUPREME COURT] - Government or Legislature has power to evolve its new fiscal policy in public interest which includes its power to withdraw the old policy - This Court has based the EOU and SEZ units on the same platform in this context because as per the earlier Government policy, in case of both the units, restriction for import of worn or used clothings, etc. was commonly applied - In a period post 13th September 2013 when the Government policy clearly restricts such activities at the hands of EOU units but continues to recognize the same for SEZ units on stricter and more stringent conditions. Could the validity of LoP be curtailed – Held That:- Answer is to be in the negative - After granting LoP in the year 1997, the same was extended from time to time - When this extension was granted on 25th May 2005, the change in policy had already been brought into effect despite which, for the reasons best known to the respondents, extension for a period of five years was granted - Even after completion of these five years, fresh extension was granted by an order dated 29th November 2010 - Thus, being fully aware of the limitations of the new policy, two extensions were granted - By the last extension, the period or LoP was extended upto 23rd October 2015. Assessees were granted LoP for manufacturing yarn as an EOU, which permission is effective upto 23rd October 2015 - Though right from the year 2004, two extensions were granted to the petitioners, after such a change in the policy - Thus, as a conscious decision, the respondents twice permitted the petitioners to carry on the same activity as an EOU - It was only when another unit engaged in the same activity, also an EOU, applied for fresh extension in the year 2012 that the competent authority decided to terminate all such licenses of similar industries, even without granting them opportunity of hearing. Derecognizing of unit as EOU - Grant of an extension of permission – Held That:- When investment, expansion of the facilities for manufacturing and deployment of manpower is based on a licence extended at a time for a period of five years, its abrupt curtailment without there being any change in policy or any public interest involved in doing so, would be hit by the principle of promissory estoppel - The only excuse offered for curtailment of the period is that though the policy had already changed years back, in the year 2004, the same was not implemented with any rigour - When two extensions were granted to assessee even after the change in the policy, such reason put forth by the respondents would hold no validity - Petition is allowed to limited extent of striking down the order of the authority dated 8th October 2013 and by further providing that the LoP in case of the present petitioners shall continue to be valid till 23rd October 2015 ie., the full period of its validity and upto such period, respondents shall not prevent the petitioners from carrying out its above mentioned activities – Decided partly in favour of Assessee.

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• 2014 (4) TMI 981
  Refund of demurrage charges – for release of seized goods – Held that:- The Regulation that prohibits respondents No. 3 and 4 from recovering demurrage on detained or seized goods came into effect after the goods were seized on 15-1-2008 - The Regulation would, therefore, not apply to the present case – Relying upon M/s. Dewan Steel Industries v. Union of India [2013 (9) TMI 180 - PUNJAB AND HARYANA HIGH COURT] - The scope of the Regulations is wider than the Circular, as it prohibit the Customs Cargo Service Provider to charge any amount on the goods seized or detained - But since the goods were seized in the year 2008, such Regulations will not come to the rescue of the petitioner - Even the said Regulations are to determine the relationship between the service provider and the Revenue and not in respect of services availed by the importer - Relying upon International Airports Authority of India etc. v. M/s. Grand Slam International & Ors. [1995 (2) TMI 70 - SUPREME COURT OF INDIA] - No merit is found in the present petition – Decided against petitioner.

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• Corporate Laws

• 2014 (4) TMI 980
  Charge over secured debt - Held that:- The amounts available with the company have to be disbursed among the secured creditors on the basis of the amounts outstanding and payable by the company in liquidation to the secured creditors. In this case, while it may be correct that the sum of Rs.104 lakhs ought to have been considered as debt outstanding towards the appellant bank, it cannot be ignored that in addition to the amount admitted as payable to other secured creditors, the other secured creditors would also be entitled to claim interest up to the date of winding up of the company. The Official Liquidator, in order to simplify the process, adopted the criteria of only taking into account the principal amount payable to all secured creditors as on the date of appointment of a Provisional Liquidator in order to determine the ratio in which the available funds could be disbursed. This method was adopted, apparently, for the reason that the funds available with the Official Liquidator were less than the principal amount payable to the secured creditors. The representative of the Central Bank had agreed with this methodology and confirmed the amount of principal outstanding. The other secured creditors have accepted and acted on the basis of the unanimous decision that only the principal amount would be considered by the Official Liquidator and the appellant is now estopped from challenging the same. In view of the fact that the representative of the appellant bank had agreed with the criteria adopted by the Official Liquidator, I find no reason to entertain the present appeal. The Official Liquidator exercises quasi judicial functions and the appellant cannot be permitted to resile from the concessions made before the Official Liquidator in discharge of his functions - Decided against appellant.

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• Service Tax

• 2014 (4) TMI 996
  Clear & Forwarding Agent - Valuation - whether the expenses as mentioned above which were being reimbursed by the principals to the appellants are includible in the assessable value of the C&F Agent services for payment of service tax - Held that:- it is not the case of the appellant that the service recipient were reimbursing the expenses in question to them as per their legal obligations. In view of this, in terms of the judgement of the Larger Bench of the Tribunal in the case of Bhagavathy Traders (2011 (8) TMI 430 - CESTAT, BANGALORE) the amount received by the appellant from their principals would be includible in the assessable value. However, we find that since during the period of dispute, there were conflicting decisions on the point of dispute in this case because of which the appellant could have entertained a bonafide doubt about inclusion of reimbursement expenses in the assessable value, keeping in view the judgement of the Apex Court in the case of Continent Federation Joint Venture (2007 (8) TMI 11 - SUPREME COURT OF INDIA) and Uniworth Textile Ltd. (2013 (1) TMI 616 - SUPREME COURT), neither longer period for demand of short paid service tax can be invoked nor penalty under Section 78 of the Finance Act would be imposable. In view of this, we upheld the duty demand only for the normal limitation period, which would be quantified by the original adjudicating authority and would be recoverable from the appellant along with interest. However, imposition of penalty on the appellant under Section 78 is set aside. - Decided partly in favour of assessee.

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• 2014 (4) TMI 995
  Valuation of goods - Revenue contends that service tax is chargeable on the gross amount charged for repair of the transformers including value of consumables like transformer oil and the component parts like HV/LV coil etc. used - Held that:- in respect of the supply of the goods used for providing the service of repair, Sales Tax/VAT is paid. This fact is clear from the invoices placed on record. In view of this, the appellants contracts with their customers have to be treated as split contracts for supply of goods and rendering the service. When the value of the goods used has been shown separately in the invoices and Sales Tax/VAT has been paid on the same, the supply of the goods would have to be treated as sale and the transactions which are sale, cannot be the part of service transaction. In view of this, we hold that Service Tax would be chargeable only on the Service/Labour charges i.e. on service component and the value of goods used for repair would not be includible in the assessable value of the service - Following decision of Intercontinental Consultants & Technocrafts Pvt. Vs. Union of India & Others Ltd. reported in [2012 (12) TMI 150 - DELHI HIGH COURT] - value of goods used for providing the service, which had been shown by the appellant separately in their invoices and on which Sales Tax/VAT had been paid, cannot be included for assessable value and no Service Tax can be charged on the same. The impugned orders, therefore, are not sustainable - Decided in favour of assessee.

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• 2014 (4) TMI 994
  Claim of service tax from the recipient of services - Levy of Penalty u/s 76, 77 and 78 - Commissioner partly allowed the appeal and deleted the penalty imposed under Sections 76, 77 and 78 while upholding demand of service tax and interest, confirmed by the primary authority - Held that:- Receipt of a taxable service, in the factual setting of this case, does not give rise to a liability to remit service tax. Inherence of the liability to tax is on the provider of the service; not the recipient. The appellant’s plea that it was only the recipient of the taxable service, is therefore a plea that goes to the jurisdictional of the proceedings. The rejection of this contention by the Appellate authority is therefore fatal to the Appellate order which therefore invites invalidation on this singular ground. While the appellant company was remiss in not pleading the exact nature of the transaction and in furnishing evidence that it was neither the landlord nor the provider of the taxable service but was only the recipient, the fact remains that in the present case as in many such cases, adjudicating authorities are seen to be avoiding the fundamental adjudicatory discipline, namely in requisitioning the relevant transactional documents to identify the nature of the transaction. Such negligence is compounded, in the facts and circumstances of the case, by the fact that as per the letter dated 17.11.2009 (preceding the show cause notice) addressed by the Assistant Commissioner,Service Tax, Faridabad to the assessee’s company, it is clearly stated that one of the Directors was receiving rent. Order not sustainable - Matter remanded back - Decided in favour of assessee.

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• Central Excise

• 2014 (4) TMI 989
  Recovery of demand from successor of Unit - Priority of dues - Whether in the facts and circumstances of the case, the Tribunal has committed substantial error of law in exonerating the respondent from liability of payment of Government dues in the capacity of successor of Shree Vaishnavi Dyeing & Printing Mills Pvt. Ltd. in terms of proviso to section 11 of the Central Excise Act, 1944 - Held that:- it is only that statutory liability which arises out of the land and building or out of plant and machinery which is to be discharged by the purchaser. Excise dues are not the statutory liabilities which arise out of the land and building or the plant and machinery. Statutory liabilities arising out of the land and building could be in the form of the property tax or other types of cess relating to property etc. Likewise, statutory liability arising out of the plant and machinery could be the sales tax etc. payable on the said machinery. As far as dues of the Central Excise are concerned, they were not related to the said plant and machinery or the land and building and thus did not arise out of those properties. Dues of the Excise Department became payable on the manufacturing of excisable items by the erstwhile owner, therefore, these statutory dues are in respect of those items produced and not the plant and machinery which was used for the purposes of manufacture - Following decision of Rana Girders Ltd. v. Union of India [2013 (8) TMI 540 - SUPREME COURT] - Decided against Revenue.

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• 2014 (4) TMI 988
  Denial of benefit of SSI Exemption - extended period of limitation - brand name - Held that- impugned order dated 9 April 2014 of the Tribunal has not considered the appellant's contention that show cause notices covering the period July 1997 to August 2002 are barred by limitation or that there was no justification in the present facts to impose any penalty upon the appellant. The impugned order dated 9 April 2014 is vitiated to the extent it does not consider and deal with the above submissions of the appellant. On merits also the impugned order dated 9 April 2013 of the Tribunal does not deal with/consider the submissions of the appellant based on letters dated 16 September 2002 and 26 March 2004 received from foreign collaborator stating that the brand name “Seal Jet” is not their band name. This evidence of the appellant was also not considered in the impugned order dated 9 April 2014 of the Tribunal. The Tribunal is required as a final fact finding authority to determine on the basis of evidence before it whether the brand name “Seal jet” used by appellant does belong to a foreign company as alleged by the revenue. There is no finding on the above issue. The impugned order has proceeded on the basis that “Seal jet” is a brand name belonging to a foreign company and dealt with a legal issue that the registration of a brand name would only taken effect for the purpose of excise duty from the date of the registration of the Mark and would not relate back to the date of application for registration as otherwise available under the Trade Mark Act. However, before deciding the aforesaid legal position it was required of the Tribunal to first determine whether or not brand name “Seal Jet” was belonging of a foreign company. - Matter remanded back - Decided in favour of assessee.

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• 2014 (4) TMI 987
  Duty demand - Clandestine removal of goods - Bar of limitation - Jurisdiction of Commissioner to condone delay - Held that:- appellant filed the appeal before the Tribunal, all that was stated in the memo of appeal was that the Department had not produced the acknowledgement before this Court in the earlier proceedings and that the acknowledgement was infructuous and beyond the purview of the order passed by the Division Bench of this Court in the writ proceedings. Moreover, it may be noted that even in the rejoinder, which was filed by the appellant in the earlier proceedings, all that was stated was that Mr. Vikas Agrawal was living separately and due to loss in the business and disputes in the family, there was no communication between them. If, according to the appellant, Vikas Agrawal was not an authorised representative within the meaning of Section 35Q of the Central Excise Act, 1944, such a ground ought to have been specifically raised. No such ground was raised in the memo of appeal. In these circumstances, the Tribunal was justified in holding that the copy of the order of the Adjudicating Officer was received at the address of the appellant - The appeal, which was filed well beyond 9 years from the date of the receipt of the order of the Adjudicating Officer was clearly barred by limitation - Decided against assessee.

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• 2014 (4) TMI 986
  Waiver of pre deposit - Cenvat credit - allegation of non receipt of inputs - bar of limitation - Held that:- issues have to be gone into in appeal and since the appeal was dismissed only on the ground that it was barred by time, we are of the view that ends of justice be served in waiving of the pre-deposit of duty up to 50 per cent - Conditional stay granted.

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• 2014 (4) TMI 985
  Writ petition - Application for issue of Writ of mandamus - Held that:- Since the adjudicating authority is seized of the proceedings, recourse to the writ proceedings under Article 226 of the Constitution is not warranted. It is always open to the petitioner to point out a binding judgment before the adjudicating authority and to make submissions on the relevant provisions of law. If that is done, it is needless to add that the adjudicating authority shall proceed in accordance with law - Decided against Petitioner.

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• 2014 (4) TMI 984
  Denial of benefit of Notification No.2/2001-Central Excise - Nature of activity - exemption to goods donated or purchased out of cash donation for the relief and rehabilitation of the people affected by the earthquake in the State of Gujarat from the whole of the duty of excise leviable thereon. - earlier HC has issued direction to the collector to issue certificate in respect of two vehicles - collector did not issue the certificate on the ground that, the work undertaken by the petitioner was not that of rehabilitation and reconstruction - Held that:- having held that the communication in the form of order was issued without considering the notification dated 27.1.2001 in proper perspective, aforementioned direction had been issued by the court. Thus, the Collector s scrutiny in the second round was limited to examination of issue of purchase of vehicles as to whether the same was with the cash donation and whether their use was for the relief work of victims of earthquake. No parochial meaning could be attributed to the words "relief and rehabilitation" particularly keeping in mind the facts and circumstances existed at the relevant time in the district causing devastating effect everywhere. In our candid opinion, respondent has not examined the very aspect of relief at all and whether the work rendered could fall under the purview of the term relief, but simply denied the benefit by holding that such work of the petitioner cannot be termed as work of "reconstruction and rehabilitation". Respondent by not examining and thereby impliedly not accepting the services rendered by the petitioner society as work of relief for the purpose rehabilitation at the time when the entire district Kutch was severely affected by the fury of earthquake has not appreciated true construction of these words. We in terms, therefore, on the basis of the above discussion hold that the relief of free legal aid and counselling provided by the petitioner to various victims of earthquake and making them aware of the various packages made available by the Government and guiding them aptly so also advising them suitably on legal issues would be squarely covered under the words "relief and rehabilitation". Resultantly, it is to be held that misreading of the notification is evident once again. To say that the work of petitioner did not include the work of rehabilitation and reconstruction, despite those words having been absent in the notification, respondent No.1 when has chosen to reiterate those very words, we do not see any reason to uphold the contention of the respondents of accepting such interpretation which is ex facie untenable - Therefore, the order impugned of respondent No.1 needs quashment and hence is quashed with a further direction to respondent No.1 to grant utilization certificate for the purpose of granting exemption from payment of central exercise in receipt of this order - Decided in favour of assessee.

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• CST, VAT & Sales Tax

• 2014 (4) TMI 993
  Quashment of order – Levy of interest as delayed payment of admitted tax - Held that:- Judgment in M/s Hindustan Lever Limited vs. State of UP [2010 (10) TMI 945 - ALLAHABAD HIGH COURT (LB)] followed - the interest has been calculated on the ground that there was a valid demand and which was so made after excluding the stock transfer and consignment sale from the base production - The stock transfers and consignment sales have to be included in calculating the base production, in the judgment rendered on 27.10.2010, there could be no demand of tax for the year 2002-03, and accordingly there was no question of payment of delayed interest – However, the judgment will be subject to the decision of the Supreme Court in Special Leave to Appeal (Civil) No (s). 4257/2011 - Decided in favour of assessee.

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• 2014 (4) TMI 992
  Whether penalty u/s 78(5) of the RST Act imposable – Sufficiency of evidence - Held that:- Judgment in Guljag Industries Versus COMMERCIAL TAXES OFFICER [2007 (8) TMI 344 - SUPREME Court] followed - Object behind enacting Section 78(5) is to emphasize loss of revenue and to provide a remedy for such loss - Section 78(2) is a mandatory provision and goods put in movement under local sales, imports, exports or inter-State transactions have to be supported by requisite declaration or/and identification of the consignee and other particulars - If no enquiry was made from the consignee firm on the basis that the respondent-assessee was not able to lead evidence as to the consignee being registered and identification of the consignee, if other supporting bills, vouchers, documents etc. were found in order penalty could not have been imposed - matter is remanded back to the Assessing Authority for deciding the penalty proceedings afresh – Decided in favour of revenue.

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• 2014 (4) TMI 991
  Demand of interest for not depositing tax - Cheque was presented before the officer concerned - Held that:- Once the cheque is presented by the dealer before the officer concerned, he is to follow the procedure for depositing the said cheque in the manner prescribed under Rules 48 and 49 - Punjab National Bank issued a certificate vide annexure 4 - The certificate has been issued by the Punjab National Bank certifying that the cheque for Rs.33,904.87 being cheque no.768897 was not presented to the Bank for payment - No reason not to accept the said bank certificate - The fact remains neither the cheque was returned to the petitioner, nor he was ever informed that the said cheque has been dishonoured by the Bank - The department cannot take the advantage of its own wrong - The demand of interest from the petitioner is not justified - The writ petition succeeds and is allowed - The impugned notice dated 1.1.1990 filed as annexure-5 to the writ petition demanding interest quashed - Decided in favour of assessee.

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• 2014 (4) TMI 990
  Escaped turnover - Satisfactory explanation of sale omissions in assessment – Held that:- Admittedly the assessee had all the information with it and there was no satisfactory explanation for the non-production - All that the assessee explained before the Court was that the computerized system was with the CA, hence the assessee was not able to produce the same before the authorities below - But this kind of explanation does not satisfy the requirements of law - No justifiable ground found to accept the plea of the assessee – A circular could not stand in the way of assessing the escaped turnover in the context of the materials available warranting such a revision of assessment - In the circumstances, the Tax Case Revision stands dismissed – Decided against assessee.

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• Indian Laws

• 2014 (4) TMI 979
  Suspension from practice - professional mis-conduct - Cross appeal filed under Order 41 Rule 22 of the Code of Civil Procedure, 1908 - Held that:- In the cross-appeal preferred by the advocate appellant, it is stated that being aggrieved by the order dated April 22, 2002 passed by the Disciplinary Committee of the State Bar Council, Madhya Pradesh, the cross-appeal is being preferred by the respondent therein (advocate appellant herein). As a matter of law, Section 37 of the 1961 Act does not contemplate cross-appeal. The Code of Civil Procedure has not been made applicable as it is to the proceedings before the disciplinary committee. Section 42 of the 1961 Act makes applicable provisions of the Code in respect of matters contained therein while providing that the disciplinary committee of a Bar Council shall have the same powers as are vested in a civil court. The matters contained in Section 42 do not refer to the appeals. Thus, the provisions contained in Order 41 of the Code, including Rule 22 thereof, have no applicability to the proceedings before a Disciplinary Committee. The Disciplinary Committee of the State Bar Council has considered the entire material, including the evidence of the complainant and the advocate appellant and arrived at the finding that the advocate appellant was guilty of professional mis-conduct for having attested the sale deed dated November 3, 1999 containing a statement that the shop on the western side of the saleable property in occupation of the complainant has already been transferred to the advocate appellant by giving him ownership right. The attestation of the sale deed containing the above statement, which was apparently false to the knowledge of advocate appellant, amounted to professional mis- conduct. The vendor-Jitender Singh Bakna and his father Sardar Desh Singh Bakna were the clients of the advocate appellant. As a matter of fact, the advocate appellant had filed a suit on behalf of the vendor against the complainant seeking his eviction from the premises for which the statement was made in the sale deed dated November 3, 1999 that the said premises in occupation of the complainant has been transferred by the vendor to the advocate appellant. From the material on record the professional mis-conduct of the advocate appellant is clearly established and the Disciplinary Committee of the State Bar Council, Madhya Pradesh, cannot be said to have committed any error in holding him guilty of the professional mis-conduct. Having held that, the Disciplinary Committee of the State Bar Council awarded him punishment of reprimand. Against the inadequate punishment awarded to the advocate appellant for the proved professional mis-conduct, the complainant preferred appeal. In that appeal, notice was issued to the advocate appellant and in response thereto, he did appear before the Disciplinary Committee of the Bar Council of India on October 30, 2004 and was fully heard. The requirement of the proviso appended to Section 37(2) of the 1961 is, thus, fully met. Advocate appellant is suspended from practice for a period of three months effective from today the above objectives would be met - Decided partly in favour of assessee.

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