Newsletter: Where Service Meets Reader Approval.
TMI Tax Updates - e-Newsletter
May 16, 2015
Case Laws in this Newsletter:
Income Tax
Customs
Corporate Laws
Service Tax
Central Excise
CST, VAT & Sales Tax
TMI SMS
Articles
News
Notifications
Customs
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45/2015 - dated
15-5-2015
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Cus (NT)
Tariff Value - Crude Palm Oil, RBD Palm Oil, Others - Palm Oil, Crude Palmolein, RBD Palmolein, Others – Palmolein, Crude Soya bean Oil, Brass Scrap (all grades), Poppy seeds, Gold, Silver, Areca nuts - Amends Notification No. 36/2001-Customs (N.T.), dated the 3rd August, 2001
SEZ
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S.O. 1023(E) - dated
10-4-2015
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SEZ
Set up a Sector Specific SEZ for Information Technology/Information Technology Enabled Services at “Global Village”, Pattenagere/Mylsandra Villages, Off-Mysore Road, RVCE Post, Bangalore District in the State of Karnataka
Circulars / Instructions / Orders
Highlights / Catch Notes
Income Tax
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Scope of section 132 - search and seizure - whether conditions precedent for issuing warrant of authorization under Section 132 does exist in the present case? - Validity of notice upheld - order of HC quashed - SC
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Income from house property - Annual Value - Estimated the “ALV” - it is evident that if the property is let out for the part period, the ALV is to be computed for the part period and not for the whole year. - AT
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Deduction under Section 80IC - Disallowance to claim of deduction u/s 80IC of the Act on the income from sale of business assets and income from interest on short term fixed deposits with the banks confirmed - AT
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Addition u/s 68 - assessee is a loss making company and assessee has not been able to establish as to why an ordinary person of even having little prudence will invest in such a company - assessee cannot be allowed relief simply holding that assessee had discharged its onus by filing certain documents and the A.O. had failed to take further action - AT
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Non deduction of tds on datalink charges - technical services u/s 194J - activity does not involve technical services as there was only interconnection of the networks to the equipments of other service providers - AT
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Penalty - Repayment of loan by any other mode except by way of account payee cheque/draft in violation of section 269SS/ 269T - transfer of amount by way of Journal entries - reasonable cause shown - No penalty u/s 271D & 271E - AT
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Non-refundable portion of Advance Fee received for coaching - Income/ Revenue Recognition - only that part of the receipt is taxable in this year which accrued to the assessee as income - AT
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Long term capital gain on sale of long term capital assets - there is no conversion of capital assets to stock-in-trade either by the assessee or the joint family. In this view of the matter, we hold that the provision of section 45(2) of the Act are not applicable - AT
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Dissolution of Firm - once the dissolution of the firm is held to be not proved, the necessary corollary is that the property continues to be that of the Assessee firm. Admittedly the property was always considered as the property of the Assessee firm, though it stood in the name of partners - AT
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Validity of assessment for want of notice u/s 143(2) - failure on the part of the Assessing Officer to serve the notice within the stipulated period of 12 months which renders the assessment void ab initio. - AT
Customs
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Classification of goods - import of Populated Printed Circuit Boards (PPCBs) - classification under Chapter Heading 8517.90 upheld - SC
Corporate Law
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Constitution of NCLT and NCLAT in Companies Act, 2013 - government directed to remove defect in Constitution of Selection Committee for selecting the Members of NCLT and NCLAT - SC
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Constitution of NCLT and NCLAT in Companies Act, 2013 - government directed to remove defect in appointment of technical member to the NCLT - SC
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Constitutional validity of provisions relating to the structure and constitution of NCLT and NCLAT in Companies Act, 2013 upheld - SC
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Application for Winding up of the Company - merely because the Respondent Company is a running concern and has employees working, cannot be a reason to reject a winding up petition when the other ingredients of Section 433 and 434 are present - HC
Service Tax
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CENVAT Credit - Construction services - nexus with the manufacturing activity - services are services of inclusive part of the "inputs services" as per Rule 2(1) of the Cenvat Credit Rules, 2004 - credit allowed - AT
Central Excise
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Recovery of excise duty without issuance of show cause notice - useless formality theory - retrospective withdrawal of exemption vide Finance Act, 2013 - recovery proceedings sustained - SC
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Recovery of excise duty without issuance of show cause notice - useless formality theory - area based exemption was Nullified with retrospective effect - In view of Section 154(4) of Finance Bill, 2003 the period of six months provided under Section 11-A would not apply - SC
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Valuation of goods - Inclusion of value of Handle assembly, Ball valve assembly, over flow assembly, Syphon assembly, Outlet flange assembly and Flush pipe assembly - Tribunal has rightly declined to add the value of the aforesaid components which are not the part of flushing cistern manufactured by the assessee - SC
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Demand of duty - assessee had in fact distributed the goods free of cost to the economically weaker sections of the society. In these circumstance, the respondent could not be fasten with any liability to pay the excise duty. - SC
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Denial of refund claim u/s 11B - Valuation - revision in price at lower rate - reduction of penalty of upto 5% on account of delay in delivery - refund allowed - SC
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Denial of refund claim - refund of accumulated credit - credit cannot be denied on the ground that in respect of two units are located in the same premises, there is necessity to take input distributor registration and distribute the credit - AT
Case Laws:
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Income Tax
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2015 (5) TMI 483
Scope of section 132 - search and seizure - whether conditions precedent for issuing warrant of authorization under Section 132 does exist in the present case? - High Court held that the satisfaction mandated by Section 132 of the Act was not that of the authority who has issued the search warrant, thereby vitiating the authorization issued also the file containing the satisfaction note(s) was manipulated and thus is of doubtful credibility as each of the satisfaction notes was in loose sheets of paper and not a part of a single file maintained in proper sequence - Held that:- In the light of the views expressed by this Court in ITO vs. Seth Brothers (1969 (7) TMI 1 - SUPREME Court) and Pooran Mal (1973 (12) TMI 2 - SUPREME Court), the above opinion expressed by the High Court is plainly incorrect. The necessity of recording of reasons, despite the amendment of Rule 112 (2) with effect from 1st October, 1975, has been repeatedly stressed upon by this Court so as to ensure accountability and responsibility in the decision making process. The necessity of recording of reasons also acts as a cushion in the event of a legal challenge being made to the satisfaction reached. Reasons enable a proper judicial assessment of the decision taken by the Revenue. However, the above, by itself, would not confer in the assessee a right of inspection of the documents or to a communication of the reasons for the belief at the stage of issuing of the authorization. Any such view would be counter productive of the entire exercise contemplated by Section 132 of the Act. It is only at the stage of commencement of the assessment proceedings after completion of the search and seizure, if any, that the requisite material may have to be disclosed to the assessee. At this stage we would like to say that the High Court had committed a serious error in reproducing in great details the contents of the satisfaction note (s) containing the reasons for the satisfaction arrived at by the authorities under the Act. The view expressed by the High Court with regard to the satisfaction note(s); the alleged absence of a final decision to issue the authorization at the level of the Additional Director and the Director; the absence of any satisfaction of the Director General who, according to the High Court took the decision to issue the authorization are all seriously flawed. The different steps in the decision making process is lucidly laid down in the instructions contained in the search and seizure manual published by the department, relevant part of which has been extracted above. The steps delineated have been scrupulously followed. Besides we may take note of the fact that the Additional Director was not one of the competent authorities under Section 132 on 8.6.2009 (date of his note) inasmuch as it is by the Finance Act, 2009 effective from 19th August, 2009 that the Additional Director came to be included amongst the authorized officials though with retrospective effect from 1.10.1998. The reading of the relevant part of the satisfaction note of the Director goes to show that on the basis of materials produced satisfaction was duly recorded by him that authorization for search should be issued. The file was put up before the Director General (Investigation) for accord of administrative approval as required by Notification dated 7.3.2001. In fact, the requirement to obtain administrative approval is prompted by the need to provide an additional safeguard to the tax payer. A careful reading of the order of the Director General would go to show that all that he did was to record the view that the satisfaction of the Director, Income Tax (Investigation) was reasonable and therefore administrative approval should be accorded. The view taken by the High Court, therefore, cannot be sustained. The possibility of manipulation of the records as found by the High Court also does not commend to us for acceptance. There is no basis, whatsoever, for coming to any such conclusion. Suspicion ought not to be the basis of any judicial order and this is where the High Court seems to have erred. - Decided in favour of revenue.
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2015 (5) TMI 482
Treatment to interest income on the FDR's - ITAT treated as part of its business income - Held that:- This Court, in Indian Oil Panipat Power Consortium Ltd v. ITO (2009 (2) TMI 32 - DELHI HIGH COURT) held that where interest on money is received as share capital, and is temporarily placed in fixed deposit awaiting acquisition of land, a claim that such interest is in a capital receipt entitled to be set off against pre-operative expenses, is admissible, as the funds received by the assessee company by the joint venture partners are “inextricably linked” with the setting up of the plant and such interest earned cannot be treated as income from other sources. The reasoning in Indian Oil (supra) is in line with Bokaro Steel Ltd. (1998 (12) TMI 4 - SUPREME Court ). Similarly, the Supreme Court held that such receipts are not income in CIT v. Karnataka Power Corporation, (2000 (7) TMI 72 - SUPREME Court) and Bongaigaon v. Refinery and Petro Chemical Co. Ltd. v. Commissioner Income Tax [2001 (7) TMI 4 - SUPREME Court ]. This Court is consequently of the opinion that the Revenue’s contentions have to perforce, fail. Furthermore, the mandate of Section 117C of the Companies Act also supports this view, because a debenture debtor such as the assessee in this case, is compelled to a certain margin separately, to secure the interest of the debenture holders. - Decided against revenue. Disallowance of business expenditure - ITAT allowed the claim - Held that:- The CIT (A) reversed that finding but noticed that of that amount ₹ 7,48,700/- could not have been allowed as revenue expenditure because the above expenditure on Registrar of Companies’ fee for increase in authorized share capital could not be allowed and was also not amortizable under Section 35D (2)(c)(iii) of the Act, not being fee for initial registration of the company. The CIT’s view was supported by Brook Bond India Ltd. v. Commissioner of Income Tax [1997 (2) TMI 11 - SUPREME Court] & Punjab State Industrial Development Corporation Ltd. v Commissioner of Income Tax [1996 (12) TMI 6 - SUPREME Court]. The ITAT upheld this view. - Decided against revenue.
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2015 (5) TMI 481
Deduction under Section 80I - Tribunal holding that deduction under Section 80I is allowable without taking note of the deduction under Section 80HH - Held that:- In respect of the issue of allowability of deduction under Section 80HH and 80I, the ITAT noted the previous decision of the Madhya Pradesh High Court in J.P. Tobacco Products (P) Ltd. v. CIT [1996 (8) TMI 29 - MADHYA PRADESH High Court]. The ITAT also noted that the said decision of the Madhya Pradesh High Court was affirmed by the Supreme Court in Joint Commissioner of Income Tax v. Madideep Engineering and Packaging India (P) Ltd. ( 2006 (4) TMI 75 - SUPREME Court). The said decision was confirmed by a previous judgment of this Court in Commissioner of Income Tax v. SKG Engineering (P) Ltd. (2005 (5) TMI 37 - DELHI High Court) and several other judgments of various High Courts on the issue. - Decided in favour of the assessee. Admissibility of 1/7th of the premium amount payable on redemption of debentures after seven years - Held that:- The issue has been decided for the previous year i.e. 1990-91 by the Division Bench of this Court in [2013 (9) TMI 988 - DELHI HIGH COURT] whereby the appeal of the Revenue has been dismissed. We further notice that for other previous years, the Division Bench of this Court had followed the decision in Commissioner of Income Tax vs. Jagatjit Industries Ltd. (2006 (5) TMI 72 - DELHI High Court) and allowed the 1/7th of the premium amount payable on redemption of debentures after seven years for that particular year. - Decided in favour of the assessee.
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2015 (5) TMI 480
Interest under Section 234C - whether the second respondent is justified in declining the request made by the petitioner for waiver of interest in exercise of his authority under Section 119? Held that:- The second respondent is empowered and authorised to waive interest payable by the petitioner under Section 234C of the Act only if the case of the petitioner falls under specied two classes of cases but the petitioner has no case that its case would fall under the said classes of cases which read thus: “(b) Any income chargeable to income-tax under any head of income, other than “Capital Gains” is received or accrued after due date of payment of the first or subsequent instalments of advance tax which was neither anticipated nor was in the contemplation of the assessee, and the advance tax on such income is paid in the remaining instalment or instalments, and the Chief Commissioner/Director General is satisfied on the facts and circumstances of the case that this is a fit case for reduction or waiver of the interest chargeable under section 234C of the Income-tax Act. (c) Where any income was not chargeable to income-tax in the case of an assesse on the basis of any order passed by the High Court within whose jurisdiction he is assessable to income-tax, and as a result, he did not pay income-tax in relation to such income in any previous year, and subsequently, in consequence of any retrospective amendment of law or the decision of the Supreme court of India, or as the case may be, a decision of a larger Bench of the jurisdictional High Court(which was not challenged before the Supreme Court and has become final), in any assessment or re-assessment proceedings the advance tax paid by the assessee during such financial year is found to be less than the amount of advance tax payable on his current income, and the assessee is chargeable to interest under section 234B or section 234C, and the Chief Commissioner/Director General is satisfied that this is a fit case for reduction or waiver of such interest.- Decided against assessee.
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2015 (5) TMI 479
Exemption under section 10(23C)(via) - whether the relinquishment of a right in the partnership firm, Bangalore Housing Development and Investment (Morzaria Housing Complex), by the assessee and the receipt of the consideration would not amount to a transfer and no capital gains tax is leviable and whether it is independent of exemption under section 10(23C)(via)? - Held that:- This appeal is allowed in terms of the judgment dated April 1, 2013, passed in I. T. A. No. 1344 of 2006 (CIT v. Manipal Academy of Higher Education [2013 (10) TMI 161 - KARNATAKA HIGH COURT ] setting aside the order passed by the assessing authority, the Appellate Commissioner and Income-tax Appellate Tribunal respectively and the matter stands remitted back to the assessing authority. - Decided by way of remand.
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2015 (5) TMI 478
Disallowance of broken period interest - CIT(A) deleted the disallowance - Held that:- Issue had arisen in the assessee’s own case for the A.Y 2008-09 and the Tribunal has followed its decision in the assessee’s own cases [2013 (4) TMI 702 - ITAT HYDERABAD] & [2013 (4) TMI 701 - ITAT HYDERABAD] wherein as relying on American Express International Ltd Vs CIT reported in [2002 (9) TMI 96 - BOMBAY High Court] and Karur Vysya Bank Ltd [2009 (7) TMI 1210 - MADRAS HIGH COURT] has held that the broken period interest included in the purchase price of Government securities held by the banking company to comply with SLR requirement is entitled to deduction. Issue under consideration is identical to that of AY 2006-07, respectfully following the decision of the Tribunal in that year, we uphold the order of the CIT(A) in directing the Assessing Officer to delete the addition made on this count - Decided against revenue. Deduction of unrealized interest on NPA - Held that:- Income which was earlier recognised is not to be allowed in the subsequent year in case it is permissible for the assessee to write off such income in concerned assessment year when it was found that it was not recoverable. Thus we direct the AO to allow deduction being unrealised interest offered for tax in the earlier year now reversed by the assessee. See assessee’s own cases [2013 (4) TMI 702 - ITAT HYDERABAD] & [2013 (4) TMI 701 - ITAT HYDERABAD] - Decided in favour of assessee. Disallowance of claim of payment to LIC for Group Leave Encashment Scheme for the employees of the assessee - Held that:- Respectfully following the recent decisions of the Uttarakhand High Court in the case of CIT V/s. Nainital Bank Ltd. (2014 (1) TMI 449 - UTTARAKHAND HIGH COURT); and CIT V/s. Hindustan Latex Ltd. (2012 (6) TMI 713 - KERALA HIGH COURT), in preference to the earlier decision of the Tribunal in assessee's own case for assessment year 2006-07 to concluded that the expenditure has been certified as an expenditure not for personal expenses of the assessee and that the same is wholly and exclusively for the purpose of the business or profession of the assessee – The expenditure is deductible u/s 37 - we accept the contentions of the assessee on this issue, and delete the addition made by the Assessing Officer in this behalf. - Decided in favour of assessee. Disallowance u/s 14A - CIT(A) allowed the claim - Held that:- As assessee itself has disallowed an amount of ₹ 33,41,474, being two month's salary of officers and staff working in Investment Department under S.14A, and the said disallowance made by the assessee itself works out to almost 2% of the tax-free income received CIT(A) correctly following his decision in assessee’s own case for AY 2004-05, directed the Assessing Officer to follow the conclusions drawn in the said years wherein the CIT(A) had deleted disallowance made out of interest expenditure u/s 14A - Decided against revenue. Disallowance of claim on account of Andhra Bank Rural Development Trust - CIT(A) deleted the disallowance - Held that:- the amount spent by the assessee-bank, was not only in discharge of corporate social responsibility to train the rural youth, but also to indirectly to promote its own business, since the rural youth trained were its prospective clients, as the bank also intended to extended credit facilities to such unemployed youth for starting their own enterprises. In this view of the matter, following the decision of in the case of CIT V/s, Infosys Ltd. (2013 (7) TMI 451 - KARNATAKA HIGH COURT) & consistent view taken by coordinate benches of this Tribunal, in similar circumstances, we find no infirmity in the order of the CIT(A). - Decided against revenue. Provision for bad and doubtful debts - whether there is no provision in the Income Tax Act under which such provision can be considered as income? - Held that:- AO has made the disallowances is different from the ground on which the CIT (A) has confirmed the addition. Thus, it is seen that there is no appreciation of facts by the CIT (A). Therefore, the order of the CIT (A) is set aside. Coming to the order of the AO, we find that the assessee has made a provision u/s 36(1)(viia) in accordance with the provisions of the Act and if the assessee is not able to set off the provisions during the relevant A.Y, it is entitled to carry it forward subject to the maximum provision allowed under section 36(1)(viia) and there is no time limit fixed for such utilization. There is no provision in the Act to bring the unutilised provision to tax during the year. The reliance of the AO on AS 29 is also misplaced. In view of the same, we set aside the order of the AO also on this issue and the assessee’s ground of appeal is allowed.
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2015 (5) TMI 477
Addition on Sundry Creditors - CIT(A) deleted the addition - whether CIT(A) has erred in accepting the additional evidence during the course of appellate proceedings without giving any opportunity to the AO to cross examine the additional evidence submitted by AOI? - Held that:- The Tribunal in the assessment Year 2008-09 in assessee;s own case held that sub-rule (3) of Rule 46A interdicts the CIT (A) from taking into account any evidence produced for the first time before him unless the AO has had a reasonable opportunity of examining the evidence and rebut the same. In the instant case, there is nothing in the impugned order of the ld. CIT (A) to show that after the objections were raised by the AO in his remand report dated 14.7.2011 against admission of additional evidence, the ld. CIT(A) asked the AO to examine the genuineness of the additional evidence. Thus, the end result has been that additional evidence was admitted and accepted as genuine without the AO furnishing his comments and without verification. Since in the case under consideration, the ld. CIT(A) did not follow the procedure laid down in Rule 46A of the IT Rules,1962 , we find merit in the contentions of the ld. DR and therefore, in the interest of justice and fair play, vacate the findings of the Ld. CIT(A) and restore the issues raised in various grounds of appeal before us to his file, with the directions to follow the mandate in terms of Rule 46A of the IT Rules, 1962 as also principles of natural justice and thereafter, dispose of the matter in accordance with law. See CIT vs. Manish Buildwell [2011 (11) TMI 35 - DELHI HIGH COURT] - Decided in favour of revenue by way of remand. Addition made on house tax paid for the directors premises - CIT(A) deleted the addition - Held that:- CIT(A) has observed that similar issue arose for adjudication in the immediately preceding year in the case of the assessee. There is no change in the facts of the case this year. Not only that, the assessments of the assessee company for the assessment years 2005-06 and 2007-08 were completed u/s. 143(3) and no such disallowance was made by the Assessing Officer. Since the properties have been taken on rent by the company for its business purposes and the rent agreements provide for payment of the house tax by the assessee company, it was held that this payment was for business considerations and was therefore an allowable expenditure in the case of the assessee. It has also been submitted that, there has been no revision of the rent of the premises for the last so many years and for that reason too the payment of house tax by the assessee was justified. In these circumstances, the disallowance made by the AO was deleted We find no infirmity in the impugned order and the Ld. CIT(A) has passed a reasoned, order and on the principle of consistency too the impugned order does not need any interference - Decided against revenue.
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2015 (5) TMI 476
Non deduction of TDS u/s 194C - assessee acting as an agent / group leader between the contractor and labourers - Held that:- Merely because the amount was calculated on the basis of the cubic meter, running meter and square meter on fixed price according to the SR rules of the PWD, no inference could be drawn that the relationship is that of an employer and a contractor. Of course it is purely a question of fact and it is seen from the impugned order that the assessee has failed to produce evidence and, therefore, the assessing authority had drawn such an inference. The assessee submits that they have maintained records according to the standing orders of the Karnataka Land Army Corporation and a group leader is entrusted with all the responsibilities to disburse payment. After payment is made to the workers, receipt is obtained by the assessee, attendance is maintained and group leader is responsible to maintain the entire account for disbursing the payment to the workers and he is entitled only for the value for his labour. Thus end the matter back to the assessing authority reserving liberty to the assessee to produce such documents to substantiate its claim - Decided in favour of assessee for statistical purposes.
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2015 (5) TMI 475
Income from house property - Annual Value - Estimated the “ALV” - CIT(A) reducing the addition made by the A.O. on account of estimation of ALV and reworking of the ALV at ₹ 17,04,420/- as against that of ₹ 34,58,969/- being the ALV worked out by the A.O.Held that:- This issue is squarely covered by the decision of the Hon’ble Jurisdictional of Sakarlal Balabhai vs Income-Tax Officer [1974 (11) TMI 33 - GUJARAT High Court] to come to the conclusion that rate of interest on cost of the building and land would provide a reasonable basis for determining the Annual Letting Value of property. Therefore, the contention of the ld. DR that instead of cost, market value of the property in each year should be adopted cannot be accepted. - Decided against revenue. Rate of interest to be adopted for determining the ALV - whether interest which would have been payable by the assessee had the assessee borrowed the money for investment in the property or it should be interest receivable by the assessee had the similar money is invested somewhere else? - Held that:- for determining the income from the property, it should be rate of return on the investment of similar amount in another asset. Therefore, in our opinion, the CIT(A) was fully justified in estimating the ALV on the basis of interest which assessee would have earned on the investment of the similar amount. The ld. Counsel for the assessee had argued that the rate of interest applied by the CIT(A) at 8.5% is excessive. In support of which, he gave various examples of investment in FDRs which faced the interest ranging from 5.52% to 7.5%. Copies of those certificates from the bank are placed at page No. 29 onwards of the assessee’s paper-book. However, we find that those investments were for a very short period. In first case where interest rate was 5.5%, the investment was only for 46 days. In another case where the interest was 5.6%, it was only for 31 days. In another case, where the rate of interest was 6%, it was for 91 days and in another case where the period of deposit was 366 days, the rate of interest was 7.75%. The ld. DR was fully justified that if the rate of return on the investment is considered, then it should be a long term investment because in any property nobody would make investment just for few days. Considering all these facts, in our opinion, the CIT(A) has rightly applied the rate of interest of 8.5%. We, therefore, do not find any justification to interfere with the order of the CIT(A). - Decided against revenue and assessee. Calculation of ALV in respect of one property for whole year while the property has let out only for the period of 6 months and 21 days - Held that:- If the property is let out for the part period, the rent received or receivable by the owner is to be considered. Therefore, it is evident that if the property is let out for the part period, the ALV is to be computed for the part period and not for the whole year. We, therefore, direct the Assessing Officer to assess the ALV of the property for 6 months and 21 days i.e. actual period for which the property let out.
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2015 (5) TMI 474
Deduction under Section 80IC - CIT(A) restricted the deduction holding that profit on sale of undertaking & interest income from FDR is not income derived by an undertaking from any business and as such not eligible for deduction under section 80IC - Held that:- The assessee company itself has submitted revised computation of its income before the AO twice, firstly on 27.11.2009 and secondly on 07.12.2009, wherein the short term capital gain on sale of assets and income from FDR interest was reduced from the claim of deduction u/s 80IC. At this juncture, we respectfully take guidance from the decision of Liberty India Ltd. (2009 (8) TMI 63 - SUPREME COURT ) wherein held that the connotation of the words “derived from” is narrower as compared to words “attributable to”. Also that by using the expression “derived from”, the Parliament intended to cover sources not beyond the first degree business activities. From the facts emerged before us, it is vivid that the assessee company sold its business assets and received sale consideration of land and building of ₹ 5,75,00,000/-. The assessee company also earned interest from FDRs by deploying said amount of consideration with the bank in short term fixed deposit account. Therefore, we are inclined to hold that such profits and gains from sale of assets and interest cannot be held as income derived from the activities of the industrial undertaking eligible for deduction u/s 80IC and the word “derived from” covers the source of income not beyond the first degree activities of the business. Disallowance to claim of deduction u/s 80IC of the Act on the income from sale of business assets and income from interest on short term fixed deposits with the banks confirmed. - Decided against assessee. Computation of short term capital gain - addition has been made rejecting the explanation of the assessee that the sale was a slump sale - Held that:- We are included to accept conclusion of the authorities below that sale of assets by the assessee company was not a slump sale in the light of definition given by the statute to the slump sale in section 2(42C) of the Act as the assessee company raised separate bills for each and every asset stating therein value of sale separately assigned to every asset, therefore, the sale of assets by the assessee company cannot be held as slump sale. - Decided against assessee. Prior period expenses disallowed - Held that:- Since the assessee itself admitted before the CIT (A) that the impugned expenditure was incurred towards setting up of a new unit and therefore, the same were rightly treated by the AO as capital expenditure. We further observe that the assessee could not substantiated its claim that the assessee incurred said expenditure, which was incurred from December 2006 to March 2007, was actually made as revenue expenditure against the income earned during the year consideration. Thus, we are of the considered view that when the assessee itself admitted that the expenditure in question was incurred towards setting up of a new unit then the same cannot be allowed as expenditure towards the business which was closed and assets were sold on 16.11.2006. - Decided against assessee.
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2015 (5) TMI 473
Addition u/s 68 - genuineness of investments - cash credit - Held that:- In the present case, the assessee is a loss making company and assessee has not been able to establish as to why an ordinary person of even having little prudence will invest in such a company. As regards, creditworthiness, Ld. CIT(A) has not made any finding as to what were the earnings of these companies and what were the net owned funds. Ld. CIT(A) stressed compliance only of one ingredient and that is identity of shareholders and the other two essential ingredients such as genuineness of transaction and creditworthiness of shareholders has been ignored. Moreover, there is certain set pattern of entries in the bank accounts of alleged shareholders whereby before issuance of cheques, the share applicants had got deposits almost equivalent amounts in their bank accounts. Moreover, the fact remained that A.O. had the information that the share applicants were engaged in the business of providing accommodation entries and therefore, the ratio of Nova Promoters and Finlease 342 ITR 169 is squarely applicable in this case. Therefore, in the absence of proper explanation of credits, the only option available with the A.O. was to make addition u/s 68 of the Act. The assessee cannot be allowed relief simply holding that assessee had discharged its onus by filing certain documents and the A.O. had failed to take further action. As decided in CIT v/s M/s Jansampark Advertising And Marketing (p) ltd. [2015 (3) TMI 410 - DELHI HIGH COURT] where A.O. has failed to discharge his obligation to conduct proper inquiry to make additions the Ld. CIT(A) could not have closed the chapter by simply allowing the appeal and deleting the addition relying upon certain case laws and ignoring the facts that no documents for establishing creditworthiness of alleged shareholders were filed and income tax returns also related to earlier years. In view of above facts and circumstances, we set aside the issue to the office of Ld. CIT(A) who should pass a well reasoned and speaking order based upon the facts of the case after affording reasonable opportunity of being heard to the assessee. - Decided in favour of revenue for statistical purposes.
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2015 (5) TMI 472
Addition u/s 68 - reopening of assessment - Held that:- So far the issue relating to the reopening of the assessment proceedings is concerned, the Ld. A.R. of the assessee has been fair enough to admit that the issue was squarely covered against the assessee by the decision of the co-ordinate bench of the Tribunal in the case of “Smt. Jyoti D. Shah” [2015 (5) TMI 460 - ITAT MUMBAI] wherein the Tribunal, in almost identical facts, while adjudicating the issue of reopening on the basis of statement of Shri Mukesh Chokshi and further on the basis of details obtained during the search by the investigation wing, has held that under the circumstances the AO was having sufficient reason to believe that there was an escapement of income and accordingly he was justified in reopening the assessment under section 147. In the case in hand, the reopening was made on the basis of information regarding receipt of accommodation entries of share capital provided by the group companies of Shri Mukesh Chokshi and further on the basis of statement of Shri Mukesh Chokshi. - Decided against assessee. Ingenuine transactions - Held that:- The assessee had filed evidence to support the receipt of share application money which was supported by copies of share application money, confirmation from shareholder and other documents. To further support, the assessee has filed copy of its bank account to contend that there are no cash deposits or withdrawals. In view of the above stated legal position and in the light of reliable evidences brought on record by assessee to substantiate identity, genuineness and creditworthiness of shareholders, which have not been controverted by the Revenue, the additions made solely on the basis of general statement of Shri Mukesh Chokshi cannot be held to be justified and the same are accordingly ordered to be deleted. - Decided in favour of assessee.
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2015 (5) TMI 471
Non deduction of tds on datalink charges - technical services u/s 194J - Held that:- As decided in assessee own case [2015 (1) TMI 236 - ITAT PUNE] merely because for maintenance purpose certain human intervention was provided, cannot lead to the surmise that the DATA link charges paid to various telecom service providers, were in the nature of technical services governed by the provisions of section 194J of the Act. The DATA link charges were paid for utilizing the standard facilities which were provided by the individual service providers by way of use of technical gadgets which were made available vide DATA link satellite link line established from one service provider to be carried over to the other service provider, does not involve technical services as there was only interconnection of the networks to the equipments of other service providers. In the absence of any human intervention for transmitting the DATA through such DATA link satellite link line, the payments made for utilizing such services was not in the nature of technical services governed by section 194J of the Act. Accordingly,hold that DATA link charges were not liable for tax deduction at source under the provisions of section 194J of the Act. - Decided in favour of assessee.
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2015 (5) TMI 470
Penalty levied under section 271D & 271E - Repayment of loan by any other mode except by way of account payee cheque/draft - transfer of amount by way of Journal entries. - Held that:- In the case in hand, the transactions were carried out between the director of the assessee company and the company itself. All the loans were originally received by the assessee company through account payee cheque but due to the reasons explained by the assessee, some amounts were transferred to the account of Mr. R.R. Chaturvedi, which were passed on to the assessee’s account by way of journal entries. It is not the case of the Revenue that the impugned transactions constitute unaccounted money or that the same were not bonafide or not genuine. The lower authorities have not controverted the explanations given by the assessee. The Revenue has not suffered any loss and there was no attempt of any money laundering or evasion of tax or concealment of income. Respectfully following the finding of the Tribunal given in almost similar circumstances in Lodha Builders Pvt. Ltd. vs. ACIT [2014 (8) TMI 872 - ITAT MUMBAI], we hold that in the case in hand, the explanation put forth by the assessee-company, falls within the scope of phrase "reasonable cause" as provided under Section 273B of the Income Tax Act, 1961. So, in view of our observations made above, the penalty imposed upon the assessee by the AO and further confirmed by the CIT(A) is hereby ordered to be deleted. - Decided in favour of assessee.
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2015 (5) TMI 469
Non-refundable portion of Advance Fee - addition to income - Income/ Revenue Recognition - whether addition resulted in double addition which has already been offered by the Appellant for taxation in the following assessment year i.e. AY 2011-12 on account of recognition of the amount by the Appellant as income in that year and the department also has accepted it as income in assessment in AY 2011-12 - Held that:- The issue has been fully considered on similarity facts in 2006-07 assessment year wherein the ITAT considering the same Revenue recognition policy of the assessee allowed the claim of the assessee. The said view on facts has consistently been followed by the ITAT in 2007-08; 2008-09; and 2009-10 assessment years wherein either assessee’s appeal has been allowed and where the CIT(A) allowed the relief following the view taken by the ITAT and the department has come in appeal, the departmental appeal has been dismissed. It is also seen that the Revenue agitated the issue before the Hon’ble High Court u/s 260A for 2006-07 assessment year. Thus the issue can no longer be said to be res integra as far as the present forum is concerned. - Decision in the case of DCIT, Circle-3(1), New Delhi Versus Career Launcher (India) [2013 (8) TMI 139 - ITAT DELHI] followed - Decided in favour of assessee.
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2015 (5) TMI 468
Long term capital gain on sale of long term capital assets - chargeabilty to tax u/s. 45(2) - the assets received by the assessee at the time of partition are capital assets or stock-in-trade? - Held that:- From the above decision of the Tribunal in the assessee’s own case [2012 (6) TMI 56 - ITAT BANGALORE] it is seen that the assessee in block assessment proceedings claimed that all the properties held by him and the income arising therefrom belong to the joint family (HUF) and not to him in his individual capacity. The Tribunal after consideration of the material placed before it, held that the entire properties held by the assessee belonged to his joint family, as the same were ancestral in character and any purchase and sale of property was only by ploughing back the wealth obtained from the HUF nucleus. The assessee in his individual capacity did not have income from any source. The provisions of section 45(2) of the Act are attracted only when there is a conversion of a capital asset into stock-in-trade. As already observed by us, there is no material on record to support the view taken by the Assessing Officer that the assessee received certain capital assets on partition of the joint family which were later converted to stock-intrade by the assessee. A perusal of both the order of the Tribunal in the assessee’s case in the block assessment coupled with the Memorandum of Family Arrangements and Oral Partition dt.6.3.2004 clearly establishes that the erstwhile joint family of the assessee was carrying on real estate business and was holding several properties as stock-in-trade. These properties which were hitherto being held as stock-in-trade, were allotted to the assessee on partition. It is also evident that the assessee continued to carry on the said real estate business after the partition. In these circumstances, it is clear that, there is no conversion of capital assets to stock-in-trade either by the assessee or the joint family. In this view of the matter, we hold that the provision of section 45(2) of the Act are not applicable in the instant case and consequently the computation of capital gains made by the Assessing Officer is cancelled. From the ratio of the judgment of Kallooram Govindam v CIT [1965 (3) TMI 26 - SUPREME Court ] it is clear that the value of the properties fixed at the time of partition or determined aliunde would be the cost to be adopted in the hands of the recipient of the properties. However, the specific provisions of section 49(1) of the Act have been enacted in the Income Tax Act, 1961, to fix the cost of the capital asset acquired on partition to be the cost at which it was acquired by the previous owner. In other words, the judgment of the Hon'ble Apex Court would not be applicable in a case of capital assets received on partition in the light of the provisions of section 49(1) of the Act. However, since the provisions of section 49(1) of the Act, does not apply to other assets, viz. stock-in-trade etc., the ratio of the judgment of the Hon'ble Apex Court would be applicable and it is the cost at which the assessee acquired the property in the partition that has to be taken. Therefore, the judgment of the Hon'ble Apex Court would be squarely applicable to the facts of the instant case and the assessee is justified in adopting the said cost for computing income from business.Thus hold that the provisions of section 45(2) of the Act are not applicable to the facts of the case and therefore there cannot be any long term capital gain that can be brought to tax under those provisions for A.Ys. 2011-12 & 2012-13. - Decided in favour of assessee. Unexplained jewellery - Held that:- A specific query was put to the ld. counsel for the assessee as to whether any reconciliation was filed to highlight the difference between the amount offered as income and the report of the valuation. The ld. counsel for the assessee submitted that no such reconciliation was filed. In our view, when the quantum of jewellery found and the valuation is not disputed, the value as per the valuation report ought to have been offered as income on account of excess jewellery found. The valuation is done only as on the date of search. Therefore, the revenue authorities were justified in making the impugned addition. We, therefore, confirm the order of the CIT(Appeals) - Decided against assessee.
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2015 (5) TMI 467
Deduction on account of provision for bad and doubtful debts u/s 36(1)(viia) disallowed - assessee is a Regional Rural Bank - CIT(A) allowed the claim - Held that:- Assessee in the present case, being eligible bank, is entitled to claim deduction as per the main provision contained in clause (a) of S.36(1)(viia), in respect of any provision for bad and doubtful debts to the extent of an amount not exceeding 7.5% of the total income ‘computed before making any deduction under S.36(1)(viia) and Chapter VIA’ and an amount not exceeding 10% of the aggregate average advances made by the rural branches of such bank computed in the prescribed manner. A perusal of the impugned order of the learned CIT(A) however, shows that it was stated by the assessee before the learned CIT(A) that no provision was made towards average rural advances. If it is so, it is not clear as to what is the basis on which the provision of ₹ 22.40 crores (Rs.5.38 crores in respect of urban advances and ₹ 17.02 crores in respect of rural advances) was made by the assessee during the year under consideration. Moreover, all these facts and figures were furnished by the assessee before the learned CIT(A) for the first time and the Assessing Officer therefore, did not have any opportunity to verify the same. - Matter remanded back - Decided in favour of revenue for statistical purposes. Deduction on account of salary arrears disallowed disallowed - Held that:- After examining all the relevant aspects of the matter, a finding has been given by the learned CIT(A) in his impugned order that the liability on account of salary arrears in question has arisen vide the proceedings dated 24.7.2010, i.e. much later than the closure of the year under consideration. The said liability thus had neither arisen nor discharged by the assessee during the year under consideration and the learned counsel for the assessee has not been able to bring anything on record to rebut or controvert this finding of fact recorded by the learned CIT(A) in his impugned order. The liability on account of salary arrears in question thus neither related to the year under consideration nor crystallized in that year, and this being so, we find no infirmity in the impugned order of the learned CIT(A) confirming the disallowance made by the Assessing Officer - Decided against assessee.
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2015 (5) TMI 466
Dissolution of Firm - Computation of capital gain in the hands of Firm or partners (or new Firm) - whether MSC had actually been dissolved with effect from 30.9.1983 and the new firm had come into existence from 1.10.1983? - whether firm M/s. Maganahalli Steel Corporation was liable to be taxed on capital gains on sale of the immovable property at Binny Company road, Davangere? - Held that:- It is no doubt true that if the circumstances of the assessee having intimated the income-tax department of its dissolution is given due credence and the factum of MA having filed the return of income even prior to the sale of the property is given due credence, it is possible to come to a conclusion that there was a dissolution of MSC on 30.9.1983. We do not wish to take a contrary view that was already taken by the Tribunal on identical set of facts. We give the benefit of doubt to the Revenue, as was done by the Tribunal in its order in the first round of litigation. The evidence on record shows that the factum of dissolution of the firm was neither proved nor disproved. It is held to be “not proved”. Since the burden of proof was on the Assessee, the conclusions drawn by the revenue authorities have to be upheld. With regard to the question as to whether the Assessee owned the property or was it the property of the three individuals as was held by the Tribunal in the find round of litigation, we are of the view that once the dissolution of the firm is held to be not proved, the necessary corollary is that the property continues to be that of the Assessee firm. Admittedly the property was always considered as the property of the Assessee firm, though it stood in the name of partners. Therefore the conclusion that the property belongs to the Assessee has to be upheld. The grievances projected by the assessee in its CO are therefore rejected. - Decided against assessee. Capital gain computation - Whether asset in this case was held for business purpose and depreciation had been claimed and Capital Gains is to be worked out as per Sec.50(2)? - Held that:- The bifurcation of land and building was rightly done by the CIT(Appeals), keeping in mind the directions of the Hon’ble High Court and also following the decision rendered by the Hon’ble High Court of Karnataka in the case of C.R. Subramaniyan (supra). We find no grounds to interfere with the order of the CIT(Appeals) on this issue also. Land is not a depreciable asset and therefore to the extent consideration received on sale of the property is attributable to land, provisions of section 50(2) are not attracted. The grievance projected by the Revenue in this regard is therefore rejected. - Decided against revenue.
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2015 (5) TMI 465
Determination of Arm's length price - Method of determining the price - Non consideration of issues - Held that:- Grievance of the assessee is limited to the fact that submissions made before DRP on 29/08/11 on the merits of various issues raised against the determination of ALP by TPO has not at all been considered by DRP. On a perusal of the material on record, we find that though the DRP has considered part of the written submissions filed by assessee, which has been incorporated in the order of DRP, but, the submissions made by assessee on merits which were claimed to have been filed before DRP on 29/08/11 have not at all been considered. Furthermore, assessee’s grievance that the TPO without giving assessee opportunity has changed PLI from operating profit to sales to operating profit to cost also needs to be addressed by DRP - Matter remanded back - Decided in favour of assessee.
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2015 (5) TMI 464
Validity of assessment for want of notice u/s 143(2) - no notice u/s 143 (2) of the Act was not served upon the assessee within the statutory mandatory time prescribed by the proviso to section 143 (2) - Held that:- A notice u/s 143(2) gives the jurisdictional power to the Assessing Officer to frame the assessment and failure on the part of the Assessing Officer to serve the notice within the stipulated period of 12 months which renders the assessment void ab initio. Therefore, in the absence of a notice u/s 143(2), the whole proceedings become invalid. Thus the assessment in question is invalid because of lack of jurisdiction of the Assessing Officer as the revenue has failed to show that the notice u/s 143(2) was served on the assessee within the stipulated period. Accordingly, we quash/ set aside the assessment in question. Decided in favour of assessee.
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Customs
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2015 (5) TMI 488
Concessional rate of duty - Valuation of goods - Inclusion of know how fees - Held that:- The benefit of project import regulations is available to PTA plant and Paraxylene Plant and goods imported under OGL - The question of includibility of know-how-fees in the assessable value of imports is remitted to the Commissioner for revaluation - It is not even necessary to decide these issues by this Court as we would also be constrained in taking up these issues for want of adequate material. Thus, we find that the Tribunal has rightly remitted these issues back to the Commissioner for decision in the light of its observation made in respect of these two issues. - Decided against Revenue.
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2015 (5) TMI 487
Classification of goods - import of Populated Printed Circuit Boards (PPCBs) - Classification under Chapter Heading 8518.30 or 8517.90 - Supreme Court after perusal of order appeal against [2005 (2) TMI 608 - CESTAT, BANGALORE] - dismissed the appeal filed by the Revenue and upheld the classification under Chapter Heading 8517.90.
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2015 (5) TMI 486
Seizure of goods - NOCs produced were forged or bogus - Provisional release of goods on production of bank guarantee - Held that:- there is no serious charges against the appellant, nor there is any alleged loss of the revenue and nor any reasons have been stated in the impugned order requiring prohibition of the appellant-Customs Broker for carrying on his business in the Mumbai Customs Commissionerate and accordingly, we set aside the impugned order. The appellant-Customs Broker shall be entitled to carry on their work as Customs Broker with immediate effect. - Decided in favour of appellant.
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Corporate Laws
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2015 (5) TMI 501
Constitutional validity of provisions relating to the structure and constitution of NCLT and NCLAT in Companies Act, 2013 - Breach of Apex court earlier directions given in the year 2010 related to same matter - In the first instance, NCLAT is concerned, its validity has already been upheld and this issue cannot be reopened. Judgment in the case of 2010 judgment is of a Constitution Bench and that judgment of a co-ordinate Bench binds this Bench as well - Held that:- Constitutional validity of NCLT and NCLAT - It is pertinent to point out that in the prayer clause, though challenge is laid to the vires of Section 408, it conspicuously omits Section 410 and, thus, in essence, there is no challenge to the constitution of NCLAT insofar as relief claimed is concerned. Moreover, as pointed out above, the entire writ petition takes umbrage under the Constitution Bench judgment [2010 (5) TMI 393 - SUPREME COURT OF INDIA ] in 2010. However, at the time of arguments, Mr. Datar primarily challenged the Constitutional validity of NCLAT without making any serious efforts to challenge the constitution of NCLT. As far as NCLT is concerned, he almost conceded that validity thereof stands upheld in 2010 judgment and there is not much to argue. In respect of NCLAT, though he conceded that validity thereof is also upheld in the aforesaid judgment, his endeavour was to demonstrate that there is no discussion in the entire judgment insofar as NCLAT is concerned and, therefore, conclusion which is mentioned in the said judgment at the end, should not be treated as binding or to be taken as having decided this issue. His submission was that in view of the subsequent Constitution Bench judgment of this Court in Madras Bar Association [2014 (9) TMI 821 - SUPREME COURT ], wherein establishment of National Tax Tribunal has been held to be unconstitutional, Section 410 should also be meted out the same treatment for the reasons recorded in the said judgment pertaining to National Tax Tribunal. It is difficult to digest this argument for various reasons, which we record in the discussion hereafter. First of all the creation of Constitution of NCLAT has been specifically upheld in 2010 judgment. It cannot be denied that this very petitioner had specifically questioned the Constitutional validity of NCLAT in the earlier writ petition and even advanced the arguments on this very issue. This fact is specifically noted in the said judgment. The provision pertaining to the constitution of the Appellate Tribunal i.e. Section 10FR of the Companies Act, 1956 was duly taken note of. Challenge was laid to the establishments of NCLT as well as NCLAT on the ground that the Parliament had resorted to tribunalisation by taking away the powers from the normal courts which was essentially a judicial function and this move of the Legislature impinged upon the impartiality, fairness and reasonableness of the decision making which was the hallmark of judiciary and essentially a judicial function. Argument went to the extent that it amounted to negating the Rule of Law and trampling of the Doctrine of Separation of Powers which was the basic feature of the Constitution of India. What we are emphasising is that the petitions spearheaded the attack on the constitutional validity of both NCLT as well as NCLAT on these common grounds. The Court specifically went into the gamut of all those arguments raised and emphatically repelled the same. The Court specifically rejected the contention that transferring judicial function, traditionally performed by the Courts, to the Tribunals offended the basic structure of the Constitution. Summarised position in this behalf as follows - A legislature can enact a law transferring the jurisdiction exercised by courts in regard to any specified subject (other than those which are vested in courts by express provisions of the Constitution) to any tribunal. - All courts are tribunals. Any tribunal to which any existing jurisdiction of courts is transferred should also be a Judicial Tribunal. This means that such Tribunal should have as members, persons of a rank, capacity and status as nearly as possible equal to the rank, status and capacity of the court which was till then dealing with such matters and the members of the Tribunal should have the independence and security of tenure associated with Judicial Tribunals. - The Legislature can re-organize the jurisdictions of Judicial Tribunals. Thereafter, the Constitution Bench categorically dealt with the Constitutional validity of NCLT and NCLAT under the caption “Whether the constitution of NCLT and NCLAT under Parts 1B & 1C of Companies Act are valid”, and embarked upon the detailed discussion on this topic. It becomes manifest from the above that the question of validity of NCLAT was directly and squarely in issue. Various facets of the challenge laid to the validity of these two fora were thoroughly thrashed out. No doubt, most of the discussion contained in paras 107 to 119 refers to NCLT. However, on an insight into the said discussion contained in these paragraphs, would eloquently bear it out that it is inclusive of NCLAT as well. In para 121 of the judgment, which is already extracted above, the Court specifically affirmed the decision of the High Court which held that creation of NCLT and NCLAT was not unconstitutional. In view of this, it is not open to the petitioner even to argue this issue as it clearly operate as res judicata. - Secondly, reading of the Constitution Bench judgment in the matter of National Tax Tribunal would manifest that not only 2010 judgment was taken note of but followed as well. The Court spelled out the distinguishing features between NCLT/NCLAT on the one hand and NTT on the other hand in arriving at a different conclusion. - Thirdly, the NTT was a matter where power of judicial review hitherto exercised by the High Court in deciding the pure substantial question of law was sought to be taken away to be vested in NTT which was held to be impermissible. In the instant case, there is no such situation. - Fourthly, it is not unknown rather a common feature/practice to provide one appellate forum wherever an enactment is a complete Code for providing judicial remedies. Providing one right to appeal before an appellate forum is a well accepted norm which is perceived as a healthy tradition. Qualifications of President and Members of NCLT in Section 409 of the Act, 2013 - Qualification of Chairperson and Members of NCLAT in Section 411 of the Act, 2013 - What gets revealed from the reading of para 120, particularly, sub-para (ii) thereof that only officers who are holding the ranks of Secretaries or Additional Secretaries alone are to be considered for appointment as technical Members of NCLT. Provisions contained in clauses (c) and (d) of sub-section (2) and Clause (a) and (b) of sub-section (3) of Section 10FD which made Joint Secretaries with certain experience as eligible, were specifically declared as invalid. Notwithstanding the same, Section 409(3) of the Act, 2013 again makes Joint Secretary to the Government of India or equivalent officer eligible for appointment, if he has 15 years experience as member of Indian Corporate Law Service or Indian Legal Service, out of which at least 3 years experience in the pay scale of Joint Secretary. This is clearly in the teeth of dicta pronounced in 2010 judgment. In the counter affidavit, the respondents have endeavored to justify this provision by stating that this variation was made in view of the lack of available officers at Additional Secretary level in Indian Companies Law Service. It is further mentioned that functionally the levels of Additional Secretary and Joint Secretary are similar. These officers have knowledge of specific issues concerning operations and working of companies and their expertise in company law which is expected to benefit NCLT. Such an explanation is not legally sustainable, having regard to the clear mandate of 2010 judgment. Having regard to the aforesaid clear and categorical dicta in 2010 judgment, tinkering therewith would evidently have the potential of compromising with standards which 2010 judgment sought to achieve, nay, so zealously sought to secure. Thus, we hold that Section 409(3)(a) and (c) are invalid as these provisions suffer from same vice. Likewise, Section 411(3) as worded, providing for qualifications of technical Members, is also held to be invalid. For appointment of technical Members to the NCLT, directions contained in sub-para (ii), (iii), (iv), (v) of para 120 of 2010 judgment will have to be scrupulously followed and these corrections are required to be made in Section 409(3) to set right the defects contained therein. We order accordingly, while disposing of issue No.2. Constitution of Selection Committee for selecting the Members of NCLT and NCLAT - Section 412 of the Act, 2013 - The structure of the Selection Committee was found fault with by the Constitution Bench in 2010 judgment. The Court specifically remarked that instead of 5 members Selection Committee, it should be 4 members Selection Committee and even the composition of such a Selection Committee was mandated in Direction No.(viii) of para 120 and sub-para. There is a deviation in the composition of Selection Committee that is prescribed under Section 412 (2) of the Act, 2013. We are of the opinion that this again does not constitute any valid or legal justification having regard to the fact that this very issue stands concluded by the 2010 judgment which is now a binding precedent and, thus, binds the respondent equally. The prime consideration in the mind of the Bench was that it is the Chairperson, viz. Chief Justice of India, or his nominee who is to be given the final say in the matter of selection with right to have a casting vote. That is the ratio of the judgment and reasons for providing such a composition are not far to seek. In the face of the all pervading prescript available on this very issue in the form of a binding precedent, there is no scope for any relaxation as sought to be achieved through the impugned provision and we find it to be incompatible with the mandatory dicta of 2010 judgment. Therefore, we hold that provisions of Section 412(2) of the Act, 2013 are not valid and direction is issued to remove the defect by bringing this provision in accord with sub-para (viii) of para 120 of 2010 judgment. Power to punish for contempt as given to the NCLT and NCLAT under Section 425 of the Act - It was feebly argued by Mr. Datar that power to punish for contempt as given to the NCLT and NCLAT under Section 425 of the Act is not healthy and should be done away with. It was also argued that power given to the Central Government to constitute the Benches is again impermissible as such power should rest with President, NCLT or Chairman, NCLAT. However, we hardly find any legal strength in these arguments. We have to keep in mind that these provisions are contained in a statute enacted by the Parliament and the petitioner could not point out as to how such provisions are unconstitutional. Since, the functioning of NCLT and NCLAT has not started so far and its high time that these Tribunals start functioning now, we hope that the respondents shall take remedial measures as per the directions contained in this judgment at the earliest, so that the NCLT & NCLAT are adequately manned and start functioning in near future. - Decided against the appellant.
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2015 (5) TMI 485
Application for Winding up of the Company - Company is unable to pay its debts - Tripartite Transaction in which oral understanding between the parties that payments would only be made once monies received from third party i.e. Powerwave - Supression of facts that Money received by petitioner from insurer in settlement of its claim against the said invoices - Commercial solvency of a company cannot be a sole ground to reject the admission of a Company Petition - Held that:- The Company has, at the outset, submitted that there was an oral understanding between the Petitioner and the Company that payments to the Petitioner would only be made once monies are received from Powerwave. As correctly submitted by the Petitioner, the said argument is an afterthought and a belated attempt to avoid making payment of the Petitioner's lawful dues. There is not even a whisper of such an arrangement/understanding in the e-mails of the Company admitting liability and assuring prompt payment. The Company has produced no contemporaneous correspondence to suggest that such an understanding existed. There is not even a reply to the statutory notice, which could have pointed out such an alleged oral understanding. The next contention raised by the Company is that the Petition deserves to be dismissed on the basis that the Petitioner has suppressed the fact that its insurance company has paid US$ 181,026.72 to the Petitioner in settlement of its claim against the said invoices. As correctly submitted by the Petitioner, the Company has, in its written submissions, admitted that the fact that the Petitioner received US$ 181,026.72 from the insurance company was brought to the knowledge of the Company by the Petitioner itself. If the Petitioner had any intention of suppressing the said fact as alleged, the Petitioner would not have mentioned the same to the representative of the Company. The next contention urged by the Company is that the Petitioner has received monies from its insurer in lieu of its claim and it is therefore unable to maintain the present proceedings vis-a-vis the Company. In my view, this contention is without merit. The principles of subrogation with respect to insurance contracts have been considered and discussed in various judgments and are well established. The assured is entitled to proceed against the third party and its only obligation is to make good the amount paid by the insurer after having accounted for its own claim, i.e. to ensure that the assured is not paid in excess of its claim. A third party cannot be seen to take the defence that the claimant has already been paid out by the insurer and, consequently, avoid making payment on that ground. Strictly speaking, that is a matter between the insurer and the assured. The Company’s following submission was that the claim under the Petition was not a 'debt' but 'damages' and there was no ascertained liability. Therefore, it was submitted, the claim of the Petitioner can only be proved in a Civil Court. In my view, there is no question of the claim being in respect of damages or being unascertained in any manner whatsoever. On the contrary, there is no dispute in respect of the admitted outstanding of US$ 226,283.40 payable by the Respondent. Therefore, the present Company Petition, which is in respect of an admitted debt and an ascertained liability is unaffected by the judgments relied upon by the Company which relate to the non-maintainability of a winding up petition in cases where there is an unascertained sum payable to the Petitioner. Now turning to the last contention of the Company regarding its solvency and employees, since the Company is not making payment of the legitimate dues of the Petitioner without there being any bona fide defence raised by the Company, the Company cannot be heard to say that since it has a large number of workers and is making profits the Company Petition ought not to be admitted. This position, i.e. that the commercial solvency of a company cannot be a sole ground to reject the admission of a Company Petition, particularly when the debt is admitted and there is no bona fide dispute, is well established and has been enunciated by the Supreme Court in IBA Health (India) Pvt. Ltd. [2010 (9) TMI 229 - SUPREME COURT OF INDIA] and has been repeatedly followed by this Court. Similarly, this Court in Global Trust Bank Ltd. [2004 (5) TMI 307 - HIGH COURT OF BOMBAY ] has taken the view that merely because the Respondent Company is a running concern and has employees working, cannot be a reason to reject a winding up petition when the other ingredients of Section 433 and 434 are present. Therefore, I see no reason to refuse admission of the present Company Petition on these grounds. - Winding up petition allowed.
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2015 (5) TMI 484
Suspension of the trading in the securities of the appellant company w. e.f.07/01/2015 - Notice put up by the Bombay Stock Exchange Limited on its website as on 01/01/2015 - SEBI directed the Stock Exchanges to suspend the trading on charges of market manipulation - Concurrent decision by members of tribunal with same conclusion - Held that:- First set of reasoning - Justice J.P. Devadhar - According to the BSE trading in the securities of the appellant are suspended because, the appellant fulfils all the three parameters set out in the SEBI surveillance minutes dated 10/12/2014. Question, therefore to be considered is, whether BSE is justified in holding that the appellant-company satisfies the three parameters specified in the SEBI surveillance minutes dated 10/12/2014. First parameter that the appellant does not exist at the address mentioned and does not appear to be carrying out any operations - According to the appellant, the name plate of the appellant was in fact displayed just below the name plate/board of Sheorey. This fact is seriously disputed by BSE. Existence of a company is not to be determined on the basis of name plate/board . It is also held that when BSE official gave surprise visit, no employee of the appellant was present at the said address and hence the appellant cannot be said to be existing at the address mentioned. It is not in dispute that the BSE official who gave surprise visit to the appellant-company, had met Mr. Morne, (an employee of the appellant) at the premises in question. It is also not in dispute that on the BSE official disclosing his identity, Mr. Morne informed that Mr. Cyrus Bhot who looks after the day to day affairs of the company had gone out for business work at Nariman Point. In fact Mr. Morne contacted Mr. Cyrus Bhot and in turn Mr. Cyrus Bhot spoke to the BSE official and offered all assistance in the matter. In these circumstances, decision of BSE that the appellant-company does not exist at the address mentioned and does not carry on business from the said premises and thus fulfils the first parameter set out in the SEBI minutes dated 10/12/2014 cannot be sustained. Second parameter that wide fluctuations in preferential share price of the company - If a defunct company like the appellant revives it business by pumping in finance through the issuance of preferential shares duly approved by BSE and there after corporate announcements have been made from time to time in relation to the business commenced by the appellant and those announcements were duly displayed on the BSE website, then rise in share prices of that company would be a natural phenomena and in such a case, in the absence of any evidence to the contrary it cannot be presumed that there must be market manipulation and pending investigation suspend the trading in the shares of those companies. Hence, decision of BSE that second parameter set out in minutes dated 10/12/2014 are satisfied in the present case is unsustainable. mere fact that the preferential shareholders after the lock-in period have sold their shares cannot ipso-facto be a ground for suspending the trading in the shares of the appellant-company. Also assuming that the preferential shareholders who had traded in the shares of the appellant-company had prima-facie indulged in market manipulation, then those preferential shareholders could be restrained from buying, selling or dealing in shares to prevent the market abuse. Instead of taking action against those violators, BSE has penalized the appellant by suspending the trading in the shares of the appellant-company, even though there is not an iota of evidence to show that the appellant-company or its promoters/directors have directly or indirectly indulged in market manipulation. Third parameter that company has weak financials and price rise in the scrip of company - It is not in dispute that by issuing preferential shares from time, to time the appellant-company has raised ₹ 38.36 crores. Thereafter, the appellant-company has commenced its business of film production by entering into contracts with reputed entities/persons in the film industry and that film production has already commenced. Neither the execution of contracts nor commencement of film production is disputed by the BSE. Admittedly, corporate announcements made by appellant regarding raising funds through preferential shares and also corporate announcements made by appellant regarding the contracts entered with reputed entities/persons were duly displayed on the BSE website so that the investors are made known about the revival of the appellant-company. In such a situation, inference drawn by BSE that the appellant-company has weak financials and the price rise in such scrips is not supported by financials is wholly unjustified. At no point of time, either before passing the impugned order on 01/01/2015 or before passing the reasoned order on 12/01/2015, the appellant was called upon to explain the manner in which the funds collected by issuing preferential shares have been utilized. However, in the order dated 12/01/2015 it is alleged that no particulars have been given as to how the funds have been utilized. Such a finding recorded without seeking any explanation from the appellant is wholly unjustified. In order to demonstrate bonafides on part of the appellant, counsel for appellant submitted that pending investigation, trading in the securities of the appellant be allowed subject to the promoters of the appellant-company giving an undertaking to the effect that they would not trade in the shares of the appellant-company for such period as this Tribunal deems fit and proper. Second set of reasoning - Justice A.S. Lamba - Executive Management Committee (EMC) has come to a wrong conclusion that company did not exist at its registration address although sign-board of Company did not exist at that address and apparently Company tried to correct this by putting sign-board subsequently, but Company is right in stating there is no requirement-in-law for an official of the Company to be present there during working hours, when a receptionist existed, at premises, to take a messages and he conveyed the message also. Regarding second parameter- "Weak financials and price rise in the scrip not supported by the parameters, it is admitted by Company that financial results of the last three years - after resumption of listing - have been bad with practically no income, but as per the Company - business model of company is Entertainment Business is such that income/revenue start after 3 years or so and investors invest in these companies on basis of so many factors like future prospects, which as per company, are healthy in view of producing films/TV serials are necessary ground work for same has been done. Another factor on which BSE was relying was on Table at para 4.5 (c) which shows increase in shares traded and average volume, before and after lock-in period. It was seen that average was arrived at by dividing no. of shares traded by number of days scrip was traded, before and after lock-in and since no. of days of trading before and after lock-in were different and hence comparison of company's averages traded volume, before and after lock in, is not correct for arriving at informed decision. Towards the end question of dealing with the entire issue - on emergency basis and on basis of the three parameters was not that investors do not evade tax, but was to see that investors do not use stock exchange mechanism for LTCG, but after deciding parameters to prevent use of stock exchanges for purposes of LTCG, the objective was changed to prevent use of stock exchanges for tax-evasion; the question arises if parameter suitable for preventing LTCG - which is a legal activity - can be used for purposes of tax evasion - which is an illegal activity - without addressing the issue transparently or even consciously. For all the aforesaid reasons, the impugned order dated 01/01/2015 in so far as it relates to the appellant as also the order dated 12/01/2015 recording reasons for suspending the trading in the shares of the appellant-company are quashed and set aside subject to the following condition that Promoters of the appellant-company shall not buy, sell or deal in the securities of the appellant-company till 30/06/2015. - Decided in favour of appellant.
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Service Tax
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2015 (5) TMI 499
Waiver of pre-deposit - Intellectual Property Right Services - Held that:- Applicant has transferred their ownership right and knowhow to their clients and by receiving the consideration from their client. The clients have become absolutely owner of these rights. In these circumstances, we are convinced that the argument advanced by ld. Counsel for the applicant that it is a transaction of sale of goods i.e tangible goods. Therefore applicant is not liable to be taxed under Intellectual Property Right Services, the same view has been supported by the CBEC circular No. 80/10/2004-ST dated 17.9.2004 - applicant has made out a case of complete waiver of pre-deposit. Therefore, we waive the requirement of pre-deposit of entire amount of service tax interest and penalties and stay recovery thereof, during the pendency of the appeal. - Stay granted.
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2015 (5) TMI 498
CENVAT Credit - Construction services - nexus with the manufacturing activity - Held that:- inclusive part of the provisions of Rule 2(1) of CCR, 2004 provides for availment of cenvat credit for setting up, of modernization, renovation or repairs in the factory premises and all the services mentioned hereinabove are only related to these services. In these circumstances, I am unable to understand why the appeal has been filed by the Revenue before this Tribunal. As the learned Commissioner (Appeals) has examined the issue in detail and thereafter concluded that all the services are services of inclusive part of the "inputs services" as per Rule 2(1) of the Cenvat Credit Rules, 2004. Therefore, I hold that respondents are entitled to take cenvat credit on construction services and also do not find any infirmity in the impugned order and same is upheld. - Decided against Revenue.
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Central Excise
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2015 (5) TMI 500
Recovery of excise duty without issuance of show cause notice - useless formality theory - Scope of section 11A - area based exemption was Nullified with retrospective effect - In the case of R.C. Tobacco Private Ltd. & Anr. v. Union of India & Anr. [2005 (9) TMI 80 - SUPREME COURT OF INDIA] Apex Court has upheld the withdrawal of retrospective exemption - general theory of fair treatment - Violation of principle of natural justice - Held that:- It, cannot be denied that principles of natural justice are grounded in procedural fairness which ensures taking of correct decision and procedural fairness is fundamentally an instrumental good, in the sense that procedure should be designed to ensure accurate or appropriate outcomes. In fact, procedural fairness is valuable in both instrumental and non-instrumental terms. Courts have consistently insisted that such procedural fairness has to be adhered to before a decision is made and infraction thereof has led to the quashing of decisions taken. In many statutes, provisions are made ensuring that a notice is given to a person against whom an order is likely to be passed before a decision is made, but there may be instances where though an authority is vested with the powers to pass such orders, which affect the liberty or property of an individual but the statute may not contain a provision for prior hearing. But what is important to be noted is that the applicability of principles of natural justice is not dependent upon any statutory provision. Appellant was accorded certain benefits under Notification dated July 08, 1999. This Notification stands nullified by Section 154 of the Act of 2003, which has been given retrospective effect. The legal consequence of the aforesaid statutory provision is that the amount with which the appellant was benefitted under the aforesaid Notification becomes refundable. Even after the notice is issued, the appellant cannot take any plea to retain the said amount on any ground whatsoever as it is bound by the dicta in R.C. Tobacco (2005 (9) TMI 80 - SUPREME COURT OF INDIA). It is important to note that as far as quantification of the amount is concerned, it is not disputed at all. In such a situation, issuance of notice would be an empty formality and we are of the firm opinion that the case stands covered by 'useless formality theory'. Non-issuance of notice before sending communication dated June 23, 2003 has not resulted in any prejudice to the appellant and it may not be feasible to direct the respondents to take fresh action after issuing notice as that would be a mere formality. - Section 154(4) specifically and expressly allows amounts to be recovered within a period of thirty days from the day Finance Bill, 2003 received the assent of the President. It cannot but be held therefore that the period of six months provided under Section 11-A would not apply. When the Court was conscious of the principle laid down in J.K. Cotton [1987 (10) TMI 51 - SUPREME COURT OF INDIA] and explained the same in a particular manner while deciding the appeal in R.C. Tobacco [2005 (9) TMI 80 - SUPREME COURT OF INDIA], it cannot be argued that the judgment in R.C. Tobacco (supra) runs contrary to J.K. Cotton [1987 (10) TMI 51 - SUPREME COURT OF INDIA] - Decided against assessee.
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2015 (5) TMI 494
Valuation of goods - Inclusion of value of Handle assembly, Ball valve assembly, over flow assembly, Syphon assembly, Outlet flange assembly and Flush pipe assembly - Held that:- assessee supplied the same to those buyers only who asked for that and in such a situation the assessee buys the aforesaid components from the market and supply to the buyers at their option. In these circumstances, the Tribunal [2005 (3) TMI 367 - CESTAT, CHENNAI] has rightly declined to add the value of the aforesaid components which are not the part of flushing cistern manufactured by the assessee. Even otherwise, the amount of tax involved is not much. - Decided against Revenue.
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2015 (5) TMI 493
Demand of duty - Distribution of goods free of costs to weaker section of society - Held that:- The appellant authorities, however, issued show cause notice which culminated into demand of excise duty on the ground that certificates that were required in this behalf could not be produced. We find that these certificates were duly produced and the Tribunal has taken note of and discussed those certificates in the impugned order and on the basis of which a finding of fact is arrived at that the assessee had in fact distributed the goods free of cost to the economically weaker sections of the society. In these circumstance, the respondent could not be fasten with any liability to pay the excise duty. - No reason to interfere with the order of the Tribunal - Decided against Revenue.
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2015 (5) TMI 492
Denial of refund claim u/s 11B - Valuation - revision in price at lower rate - reduction of penalty of upto 5% on account of delay in delivery - The Commissioner (Appeals) by his order dated 18.6.2004 held that as per Section 4 of the Central Excise Act, where the duty of excise is chargeable on any excisable goods with reference to their value, then on the date of removal of such goods from the factory premises such value will be the transaction value. Held that:- The price had been fixed before removal from the factory premises in May, 2002. The Commissioner (Appeals) order dated 18.6.2004 though correct in principle is wrong on facts as he does not refer to the letter dated 15.4.2005 of the appellant at all. The CESTAT is wrong in turn because on facts there was no imposition of penalty for the delayed period. - impugned order of CESTAT and the Commissioner (Appeals) are set aside. - Decided in favour of assessee.
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2015 (5) TMI 491
SSI Exemption - Notification No.1/93-CE dated 28.2.1993 - Use of other person's brand name - Held that:- finding of fact is recorded by the Tribunal in the impugned judgment that the respondent assessee was not using the branded name of another person and the name used was the surname of the Director of the assesse, viz., 'PETHE'. This finding of fact which clearly means that the case does not fall within the mischief of para 4 of the aforesaid Notification No.1/93. - Decided against Revenue.
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2015 (5) TMI 490
Condonation of delay - Transfer of case from one authority to another - Held that:- appeal was filed in the office of Commissioner in Mangalore initially and thereafter it was transferred by the Commissioner, Mangalore to the office of the Commissioner in Mysore and in the impugned order Commissioner (Appeals) has taken the date of receipt of the appeal as the date on which it was received in his office and not the office of Commissioner in Mangalore - We have seen the acknowledgment received by the appellant's courier in Mangalore and it shows that rubber stamp is of the office of the Commissioner. We find in the case of M.R. International Vs. CC, Mumbai [2012 (10) TMI 227 - CESTAT, MUMBAI] in a similar case, the Tribunal took the view that there was no delay in filing the appeal when the same is transferred by one authority to another. - In view of the fact that appeal had been received in the office of Commissioner, Mangalore in time, we consider that there was no reason and no need for filing an application for condonation of delay before the Commissioner (Appeals) for the delay and we also hold that there is no delay in filing the appeal. Accordingly since the Commissioner (Appeals) has dismissed the appeal as time-barred without considering the merits, we set aside the impugned order and remand the matter to the learned Commissioner (Appeals) to decide the matter afresh on merit in accordance with law - Decided in favour of assessee.
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2015 (5) TMI 489
Denial of refund claim - refund of accumulated credit - Refund rejected on the ground that some of the services on which the refund claimed are common services and should have been distributed between the E.O.U. and STPI following the concept of ‘input service distributor' - Held that:- credit cannot be denied on the ground that in respect of two units are located in the same premises, there is necessity to take input distributor registration and distribute the credit. - appellant should have taken input distributor registration, is set aside and as regards nexus, the matter is remanded to decide in the light of our decision in the Interim Order (2015 (3) TMI 346 - CESTAT BANGALORE) as well as further decisions on the issue which may be placed before the original authority. - Decided in favour of assessee.
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CST, VAT & Sales Tax
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2015 (5) TMI 497
Waiver of pre deposit - Held that:- petitioner was served with proper notice and objection submitted by him was duly considered and it was thereafter, that the proceedings were finalized by the assessing authority vide Ext.P4. In spite of giving an opportunity to produce the relevant records, the petitioner/assessee did not file any profit and loss and the Balance Sheet involving the correct turnover for the year 2009-2010. It was accordingly, that 50% addition was made to the reported turnover and the proceedings were finalized. The proceedings filed before the appellate authority were considered by the said authority. The objection raised from the part of the petitioner was also discussed and it was thereafter that, Ext.P7 order was passed also referring to the merits of the case as given in the concluding paragraph, just above the order portion. - Court does not find any reason to call for interference as the appellate authority has exercised the discretion in a proper manner. Interference is declined and the writ petition is dismissed. Since the time limit fixed is already over, the petitioner is granted a further time of 'three weeks' to comply with the condition imposed so as to avail the benefit of interim stay. - Petition disposed of.
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2015 (5) TMI 496
Denial of concessional rate of tax - Assessing Officer, while granting the concessional rate of tax to Air Compressors being capital goods, denied the same in respect of the sale effected by the petitioner through its distributors - Held that:- just because of having sold by the manufacturers of machinery and its spares, components and accessories to their buyers being the dealers in such lines for further distribution to the industry, would not alter the legal position and subject these goods for levy at the higher rate of 14.5%. In respect of the identical products as manufactured by the petitioner, namely, Industrial Air Compressors, an application was filed by M/s.Schumak Equipments India Pvt. Ltd., who are manufacturers of Industrial Air Compressors and they sought for clarification as regards the rate of tax for industrial air compressors. Advanced Ruling Authority, by order dated 24.06.2014, clarified that Industrial Air Compressors are liable to tax @ 5% as capital goods within the meaning and scope of Entry 25 of Part-B of First Schedule r/w Section 2(11) of the TNVAT Act, 2006. In the light of the subsequent development, this Court is of the view that the Assessing Officer should take note of the clarification issued by the Advanced Ruling Authority. So far as the rate of tax is concerned, the order of the Advanced Ruling Authority dated 24.06.2014 would be prima facie applicable - Decided in favour of assessee.
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2015 (5) TMI 495
Validity of assessment order - petitioner's Form-S Certificates were not considered by the authority, prior to passing the final order in respect of both assessment years while issuing notices - Held that:- Admittedly, in the reply given by the petitioner, he has specifically taken a stand that Contractor has paid the tax due on the contract receipts and reported to the Sales Tax Department through the monthly sales tax returns filed at the Trichy Road Circle, Coimbatore and copies of the monthly returns and Tax receipts were enclosed along with the reply on 21.01.2014. Further, it was stated that the balance amount relates to the purchase of materials for the constructions of buildings, the question of deduction of tax at source does not arise. The petitioner produced a copy of the ledger account and purchase bills along with the reply to the show cause notice. If the respondent had afforded an opportunity of personal hearing to the petitioner, this could have been sorted out then and there and it would have complied with principles of natural justice as well the statutory requirement. In the light of the decision SRC Projects Private Limited vs. Commissioner of Commercial Taxes, Chennai and another, reported in [2008 (9) TMI 914 - MADRAS HIGH COURT], it is necessary for the respondent to afford an opportunity of personal hearing, more particularly, when the petitioner was in possession of Form-S and has specifically stated that the Contractor has paid tax. Further, it is to be noted that the Principal Secretary / Commissioner of Commercial Taxes, Chennai, by circular No.7/2014, dated 03.02.2014, has issued guidelines and circular instructions to be followed while passing orders of assessment or revision of assessment, etc. Clause 3(a)(iii) of the said circular would be relevant for the purpose of this case - impugned proceedings are held to be bad in law - Matter remanded back - Decided in favour of assessee.
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